Q4 2024 Calfrac Well Services Ltd Earnings Call
Speaker Change: . . . . . . . . . . . . . . . . . . . . [inaudible]
Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the Calfrac Well Services Ltd, 4th quarter, 2024 Earnings, Reliefs, and Conference Call.
Speaker Change: At this time, our lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you need assistance, please press star as your for the operator. This call has been recorded on Thursday, March 13, 2025. I would now look to turn the conference over to Michael Olinek. Please go ahead.
Michael Olinek: Thank you, Joanna. Good morning and welcome to our discussion of Calfrac Well Services 4th quarter 2024 results.
Speaker Change: Joining me on the call today is Pat Powell, Calfrac's Chief Executive Officer.
This morning's conference call will be conducted as follows
Speaker Change: Pat will provide some opening commentary after which I will summarize the financial performance and position of the company.
Pat will then provide an outlet for Calfrac's business and some closing remarks.
Speaker Change: After the completion of these remarks, we will open up the conference call to questions.
Speaker Change: In a news release issued earlier today, Calfrac reported its 4th quarter 2024 results.
Speaker Change: Please note that all financial figures are in Canadian dollars unless otherwise indicated.
Speaker Change: Some of our comments today will refer to non-IFRS financial measures.
such as the Adjusted EBDA and NetDepth [inaudible]
Speaker Change: Please see our news release for additional disclosure on these financial measures.
Speaker Change: Our comments today will also include forward-looking statements regarding Calfrac's future results and prospects.
Speaker Change: We caution you that these forward-looking statements are subject to a number of known and unknown risks and uncertainties that could cause our results to differ materially from our expectations.
Speaker Change: Please see this morning's news release in Calfrac's Cedar filings, including our 2024 annual information form, for more information on forward-looking statements and these risk factors.
Speaker Change: As we have previously disclosed, the company is committed to a plan to sell its Russian
Speaker Change: As a result, the focus to the remainder of this call will be on Calfrac's continuing operations in North America and Argentina, unless otherwise specified.
Now I will pass the call over to Pat
Thanks, Mike.
Good morning and thanks for joining our call today.
Speaker Change: Form might provide the financial highlight to the fourth quarter, I will offer some opening remarks.
Katie is always being first and foremost at CalFract.
The round is what I'll report on first this morning.
which was down from 1.05 at this time in 2023.
Speaker Change: I'm very proud of the achievement, it is the testament to the safety culture that Calfrac employees embrace, live and breathe every day. This really is our life and still operating.
Speaker Change: Operations in North America, we remain focused on transitioning our fracturing equipment to next-generation technologies to our fleet modernization program.
Speaker Change: We ended the year with 66 tier 4 pumps, respect to be operating, the equivalent of 5 tier 4 fleets in North America by the end of the first quarter.
Speaker Change: In addition to this substantial transition of the North American fleets, we're also focused on growing our footprint in Argentina and have recently deployed our second-large, fracturing fleet into the vacuum water shell plate, a couple of months earlier than originally planned.
Speaker Change: The company's financial results saw a sequential decline in the fourth quarter due to the typical budget exhaustion and seasonal decline down of operator activity as we approach the end of the year.
Speaker Change: Despite the slowdown, I am satisfied with how we safely and efficiently perform our services for our clients during the fourth quarter.
24 behind us.
Speaker Change: We are looking forward to what 2025 will bring as we continue to focus on our strategic priorities in providing safe, efficient services to our clients while continuing to approve our assets and reduce debt.
Mike: I'll now pass call back over to Mike to present an overview of our quarterly financial
Thank you, Pat.
Mike: Primarily due to lower activity and pricing for the company's services in the United States.
Mike: Adjusted EVDA during the fourth quarter of 2024 was 34.5 million, a 45% decline from the same period last year.
Mike: Stemming from lower utilization in North America, weaker pricing in the United States.
and some unplanned downtime in Argentina during October .
Mike: Calfrac's net loss from continued operations was $6.4 million during the fourth quarter of 2024 versus net income of $13.2 million in the comparable quarter of 2023.
Mike: The reported net loss in the fourth quarter was impacted by a 12.7 million write-off of obsolete fracturing assets in the United States.
and a 12.2 one-time impact to depreciation expense.
Mike: caused by a change in the salvage value estimate for certain of the companies fully depreciated fracturing equipment components.
Mike: Additionally, company recorded an income tax recovery of 15.6 million, which was primarily due to the conversion of non-repeable intercompany debt into equity in Argentina.
Coupled with lower profitability in the United States.
Mike: CalFrock incurred capital expenditures of $33 million during the fourth quarter versus $49.4 million in the same period of 2023.
Mike: As capital investments for future expansion in Argentina, we're more than offset by a year over year decline in spending related to the company's Tier 4 fleet modernization program.
Speaker Change: Calfrac's Board of Directors approved the capital budget of $135 million for 2025.
Mike: Approximately 50 million of this program will be dedicated to further expansion of the company's operating scale in Argentina and will be funded locally by Cashwell.
Mike: The balance of the 2025 Capital Budget will find maintenance capital across all divisions, as well as additional investments in the company's Tier 4 Modernization Program.
Mike: Moving to the balance sheet, the company had working capital of 273.9 million from continuing operations at the end of the fourth quarter, including 44 million in cash.
of which approximately 19.1 million was held in Argentina.
Mike: Calfrac continued to receive funds from Argentina related to the redemption of its Waupriot bonds during the fourth quarter, and expects to receive their remaining monthly amounts in 2025.
Mike: At the end of the fourth quarter of 2024, Calfrac used 2.9 million of its credit facilities for letters of credit and had 150 million of borrowings under its revolving-term loan facility. We shall have to accompany with available credit of 97.1 million.
Mike: to reflect a six month springing maturity provision under its credit facility agreement that was in place at year end.
Mike: After the end of the year, an amendment was executed with a company's lending syndicate to change the springing maturity date from September 15th, 2025 to January 15th, 2026.
Mike: This amendment provides further flexibility for the company to address the maturity of its secondary notes.
and was fully compliant with its bank covers.
Pat Powell: Now I would like to turn the call back to Pat to provide our outlook.
Thanks, Waik
Al
The Outlook for Activity in North America
Pat Powell: is relatively stable despite the near-term uncertainty surrounding the ever-changing political landscapes in Canada and the United States, as coupled with the continuation of North of the American E&P consolidation.
Pat Powell: With this backdrop, we expect to work alongside our strong customer base during 2025 to maintain steady utilization of our active fracturing plates and deep coil tubing units.
Pat Powell: The effects of the recent tariff announcements are anticipated to have an impact on the costs of certain items such as sand, chemicals, and components that are imported from the U.S.
We are investigating the available local supply chain alternatives.
Pat Powell: And at the same time, evaluating the applicability of tariff exemptions for goods that will still need to be imported from the United States.
Pat Powell: So, everything is going to still up in the air for us with the tariffs. Like most everybody.
Pat Powell: Like last year, activity in the Rockets region during the first quarter is more restrained than the remainder of the year.
as customers avoid operating in the cold winter months.
Pat Powell: In response to this trend, we reduced our operating footprint to six active fleets in the U.S.
Pat Powell: to begin the year. It did restart our fracturing operations in the Marcellus for the new customer.
Given the strength,
Pat Powell: In the natural gas prices, we will continue to look for ways to expand our operations in this space and throughout the year.
Pat Powell: Faith and official operations will remain paramount as we align ourselves with the right customers in the right areas to achieve our goals.
We remain excited about Argentina.
Pat Powell: with the aid of a new offshore coil tubing unit commissioned in 2024 and a higher overall fracturing activity, the Argentine team delivered records for your financial results during the past year.
We previously announced an increase to our 2024 Capital Program.
Pat Powell: which was dedicated to growing our fracturing sleep capabilities in the Waqar Marta shale play. As mentioned earlier, the second fleet began operations ahead of schedule in February .
Pat Powell: And I am very excited to see how we will capitalize on the growth prospects in Argentina during 2025.
Pat Powell: Although the first quarter in North America was very challenging, I was pleased with how the team rebounded during the remainder of the year.
Pat Powell: and I am equally confident that we can navigate the current headwinds to deliver strong return
Mike: I will now turn the call back to Mike to begin the Q&A portion of this call.
Thank you, Pan.
Speaker Change: I'll now ask Joanne to begin the Q&A portion of today's call.
Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised.
Speaker Change: Should you wish a decline from the polling process, please press star followed by the two and if you are using a speaker phone, please let the handset before pressing any keys.
Speaker Change: And the first question comes from Keith MacKey at RBC. Please go ahead.
Hey, good morning.
Keith Mckay: Can you just provide us with a little bit more detail on what you're seeing in Argentina? I know you've got the two large fleets working in the vacuum world to now. But what kind of utilization do you expect on those fleets? What types of contracts are those fleets underpin by and for what length of time do you expect that they'll ultimately be operating?
Well,
Keith Mckay: Pretty much contracted out, or the first fleet. The second fleet we got some earlier work, which was basically spot work.
and that happened because the fleet was there.
Keith Mckay: earlier than anticipated and we were lucky enough to pick up some some work so we are deep in the contract process on that second fleet.
But, you know, it's-
Keith Mckay: Ever changing in Argentina, we thought we had a contract for that fleet and dropped off and then immediately it's been picked up again by another customer so.
Keith Mckay: We're very confident that that second fleet will be very utilized.
Speaker Change: Okay, make sense. And can you talk to us a little bit more about the pricing in the US?
Speaker Change: We've gotten some success back into the Marcellis. Where is pricing now and do you think it's hit a bottom and is maybe starting to rebound or just where are we in that cycle?
Speaker Change: I would like to think it's out of bottom, but if you'd ask me that question, Blaster, I had to talk to you the same thing, so I can't really control my...
Speaker Change: competitors, but I would I would think it has to be at the bottom now and and trending trending higher. The tier, the tier.
Sure, two fleets are very problematic from the pricing standpoint.
Speaker Change: and which is why our focus and push has been on the transition to tier 4. Probably we're transitioning.
Speaker Change: faster than than I would like to, but I think it's necessary.
Really is just about as important to us as pricing.
Yeah, got it
Speaker Change: and can you remind us where you expect to get in terms of the Tier 4 evolution through this year? Is it five to six fleets and just how many pumps are you looking at upgrading to get there?
We should end this year with about 95.
Next Gen Fleet.
Oh sorry, I got it
Got it. Okay, that's it for me. Thanks very much
Thanks.
Speaker Change: Thank you. The next question comes from Waqar Syed at ATV Capital Markets. Please go ahead.
Good morning.
Waqar Saeed: Pat, Mike. Pat, you mentioned in the answer to the last question that you have 95 new gen pumps. You didn't use the word TFO, DGB. Are you looking at some other models now as well?
Oh, well, you don't want to mention that, so yeah.
Waqar Saeed: Yeah, no, no, we're always looking. So I would say to answer that question right now, Waqar Syed, we are looking at the equivalent of 95.
25 100 horsepower pumps at the end of 2025.
Okay.
Waqar Saeed: And it's a very interesting data point regarding your pickup of a crew in Appalachia.
Waqar Saeed: Could you maybe provide some color whether this is incremental demand in Appalachia or you're just taking some business from a competitor and then when were these negotiations held
Well, we would be and we're always.
We're always in negotiations to to
The Appalachians
Give this
Speaker Change: You know, utilization should be higher in the operation than it is in Iraqis, which is where our interests would be to move those newer freights over there.
and Aitken Werker.
and Waqar maybe just to add to Pat's response.
Speaker Change: Those negotiations with the clients are always being held, but I think where we saw traction was in the fourth quarter.
Speaker Change: That allowed us to start the year in the Appalachia. It's a pricing agreement, not a contract like we experience in Argentina, but it does take us.
The body of work that's pretty significant takes us through [inaudible]
Speaker Change: into the third quarter and the ability to extend that to the end of the year depending on performance.
Speaker Change: My belief is that it's likely a bit of incremental demand, just based on their thoughts on gas prices and wanting to expand out their program. It wasn't, you know, we weren't displacing a current provider.
Speaker Change: Okay, great. Now, when I look at the EIA data for the Balkan specially, and EIA data is often wrong as well, it shows that completion activity at least for January and February is...
Much stronger versus a year ago in the Balkan.
Are you seeing that, too, or not?
I think Waqar, we've got-
Speaker Change: A couple of fleets that are levered to the Bach indirectly.
Speaker Change: And so yeah, we are certainly seeing those those fleets are more highly utilized than a year ago, but we had a slow start to the year for us in the month of January , so that's kind of. Thank you very much.
Speaker Change: A bit opposite of what we saw last year, it kind of was inverted. I think we actually had to start strong start and then things slowed down kind of interrupted by some weather worse than anything last year this year was.
Speaker Change: more of a planned reduction. So for the customer base that we're seeing we are very active but it had a slow start to the year in the North Dakota region. [inaudible]
Speaker Change: So, for your US business overall, on a year-over-year basis, how will Q125 track from a revenue and profitability perspective?
Speaker Change: It's down about 10% I would say top line Waqar from where we were last year, just based on customer mix and
Speaker Change: Some of the facts, some of the commodities were in our revenue stream last year and they're not this year it's just more pumping revenue.
Speaker Change: We do have a smaller footprint and we do have a bit of a change in mix in the fact we're in the Appalachia as well.
Speaker Change: So, but year over year, I think we're looking for that market to be about down 10%. I'd say profitability is going to be better than a year ago, but not substantially. [inaudible]
Speaker Change: Great, and then just a similar comments on the Canadian side like how do you see Q-125 versus the last CSQ-1?
Speaker Change: Yeah, again, a similar trend in the sense that I think we're down.
on the top line, I think.
Speaker Change: Profitably hangs in there. It's again, it's a mix of work where we're operating and the customers working for this year are a bit different than a year ago, just based on some of the consolidation that happens since the one of last year.
Speaker Change: It's been replaced by different types of work in the biking which is a smaller job, smaller revenue per job
Speaker Change: but still kind of the same equipment footprint. So, I had accounts for that on a profitability. You know, it will track just with the the lower...
Revenue, but...
Speaker Change: But overall, still a decent quarter in Q1 other than we've had some very cold weather in February which did impact costs and then you know there is an impact that we're seeing somewhat on some of the chair of things that factor input costs.
Speaker Change: Now, there was a view that Fracks and maybe excluded from the tariffs. Have you heard anything on that regard like how the federal government is going to treat them?
Speaker Change: I think it's too early for us to fully understand that today, Waqar. And as you know, these tariffs and how they're being applied are changing almost daily. And so, yeah, we're certainly evaluating all that. And we think that there's...
Speaker Change: Could be some exemptions, but we, you know, I'm not a position to really know that today. We also have strong relationships with the domestic fan suppliers in Canada. [inaudible]
Speaker Change: It's not that they would be able to keep up to the volume, but we certainly have strong relationships with them [inaudible]
Speaker Change: We've been seeing like your customer, your ENPs, increasing, fraction intensity on a global basis in Canada.
Speaker Change: Do you think that your customers start to change that a little bit and maybe reduce volume
Speaker Change: How would they rather just see, you know, get the costs up, approval costs up?
Speaker Change: Well, Waqar again, I think it's early days with these tariffs. It's hard to tell what they're going to do. And again, it's
There is [inaudible]
per well-bore with our customer base.
Okay.
Well, thank you very much. Appreciate the colour.
Thank you, Rukar.
Speaker Change: Thank you. We have no further questions. I will turn the call back over to Michael Olinek for closing comments.
Speaker Change: Thank you. Yes, I'd like to thank everybody for participating in today's call and we look forward to hosting our Q1 call in May. So thanks very much.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.