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spk00: Thank you for standing by. Welcome to the Calfrag Wealth Services first quarter 2024 earnings release and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw the question, simply press star 1-1 again. and please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference over to the Chief Financial Officer, Michael Olenek. Please proceed.
spk06: Thank you, Carmen. Good morning, and welcome to our discussion of CalFRAC Wealth Services' first quarter 2024 results. Joining me on the call today is Pat Powell, CalFRAC's CEO and This morning's conference call will be conducted as follows. Pat will provide some opening commentary, after which I will summarize the financial performance and position of the company. Pat will then provide an outlook for CALFRAC's business and some closing remarks. After the completion of these remarks, we will open the conference call to questions. In a news release issued earlier today, CALFRAC reported its first quarter 2024 results. Please note that all financial figures are in Canadian dollars unless otherwise indicated. Some of our comments today refer to non-IFRS measures such as adjusted EBITDA. Please see our news release for additional disclosure on these financial measures. Comments today will also include forward-looking statements regarding CALFRAC's future results and prospects. 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. Please see this morning's news release and CALFRAC CEDAR filings, including our 2023 Annual Information Form, for more information on forward-looking statements and these risk factors. As we have previously disclosed, the company is committed to a plan to sell its Russian division and has designated the assets, liabilities, and operations in Russia as held for sale and discontinued operations in the financial statements. As a result, the focus of the remainder of this call will be on Calfract's continuing operations, unless otherwise specified. Now I will pass the call over to Pat.
spk04: Thanks, Mike. Good morning, and thanks for joining our call today. Before Mike provides a financial some opening remarks. Unfortunately, the first quarter that we reported this morning was not what we were expecting and was disappointing. The North American miss cannot be attributed to any one event. The lower than expected financial results during the first quarter were primarily impacted by low utilization as several North American customers chose to defer work out of the winter months into the second and third quarters. And we also felt the impact of a merger on the E&P side that didn't go our way. Finally, low natural gas prices had a negative impact on overall utilization. This was partially offset by a record quarter in Argentina. Despite the drop in utilization, we maintained our focus on providing safe, high-quality services to all our customers and continue forward with our equipment modernization program. During the quarter, we deployed a new fleet of high-capacity sand transport units in North America that increased the amount of sand per load that can be delivered to location by 38%. which will reduce our overall costs. The Tier 4 modernization program is progressing, and we're on track to operate five Tier 4 DGB cat-on-cat fleets in North America by the end of the year, providing our customers with next-generation low-emissions fracturing equipment. I'd also like to commend our team for continuing to provide safe and efficient service as we reduced our trailing 12-month TRIF from 1.05 to 0.87. It takes hard work and commitment across the organization to safely and profitably navigate the pressure-pumping market to achieve our objectives. I will now pass the call back to Mike, who will present an overview of our quarterly financial performance.
spk06: Thank you, Pat. CALPRAC's revenue from continuing operations during the first quarter of 2024 was $330.1 million, a decrease of 33% from the same period in 2023, primarily due to a slower-than-expected start in North America as several customers chose to delay work out of the winter months into the remainder of the year. Additionally, the company saw a reduction in natural gas activity in response to the low commodity prices. Adjusted EBITDA during the first quarter of 2024 was 26.1 million, lower by 69% from the same period last year, mainly due to the significant decline in North American utilization, combined with slightly lower pricing relative to the first quarter of 2023. Activity in Argentina remained strong, and the company achieved a record first quarter EBITDA for this division in 2024. CALFRAC's net loss from continuing operations was $2.9 million during the first quarter versus net income of $36.3 million in the comparable quarter of 2023, a decrease of $39.2 million. CALFRAC incurred capital expenditures of $48.1 million during the first quarter versus $34.5 million in the same period of 2023. A majority of this increase was related to the company's Tier 4 fleet modernization program, which totaled $28.4 million in 2024, compared to $19 million in 2023, combined with new investments made for sand transport equipment in Canada. Moving to the balance sheet, the company had working capital of 273.7 million from continuing operations at the end of the first quarter, including 58.2 million in cash, of which 33.9 million was held in Argentina. CALFRAC faces certain restrictions on the amount of cash that can be repatriated out of Argentina. However, these restrictions are currently evolving to allow for quicker repatriation back to Canada. As at March 31, 2020, the cash balance in Argentina included a U.S. dollar denominated investment totaling U.S. $18 million in Argentinian government bonds that are recorded as a short-term investment. The company plans to commence with the repatriation of this investment to Canada beginning in July, evenly over a 12-month period. The remaining excess cash in Argentina was held in various short-term investments that are designed to mitigate against the impacts of inflation and the devaluation of the peso to the greatest extent possible. At the end of the first quarter of 2024, Calfrac used 3.6 million of its credit facilities for letters of credit and had 155 million of borrowings under its revolving term loan facility, which left the company with available credit of 91.4 million. Calfrac exited the first quarter with a net debt to adjusted EBITDA ratio of 1.05. Now I would like to turn the call back to Pat to provide our outlook.
spk04: Thanks, Mike. I will now present an outlook for CALFRAC's continuing operations across our geographic footprint. Utilization has improved significantly into the second quarter, and we expect high utilization of our equipment and crews for the foreseeable future. This increase in utilization will lead to significantly improve financial results from North America for the remainder of the year. All three service lines in Argentina performed well as the team accomplished several operational milestones in the first quarter, while improving their trip to a new divisional best. A record of 21 pumping hours was achieved. Secondly, we achieved total coil tubing depth of over 7,300 meters while using 2- and 3-H tubing. And lastly, our cementing operation established a new divisional standards record by producing a customer satisfaction rating of 98% while working for five different operators. The new business environment in Argentina, coupled with the expected development of their World-class shale play is expecting to provide the foundation to continue generating strong financial results from this segment. CALFRACT has a reputation for safety and efficiency, which continues to increase the demand for our services. We are currently in the negotiation phase for upcoming contracts and expect to have improved visibility on future activity within the next few months. We have a positive long-term outlook for our company across our operating areas and remain focused on our three strategic priorities. Number one, maximizing consolidated net income and free cash flow through a disciplined returns-focused approach. Number two, dedicating free cash flow to reducing the company's long-term debt. And three, investing in new technologies that enhance Calfract's service deliverability in the field. I will now turn the call back to Mike to begin the Q&A portion of this call.
spk06: Thank you, Pat. I will now ask Carmen to begin the Q&A portion of today's call.
spk00: Thank you so much. And as a reminder, to ask a question, simply press star 1-1 to get in the queue and wait for your name to be announced. To withdraw your question, simply press star 1-1 again. And our first question comes from Cole Pereira with Stifo. Please proceed.
spk03: Hi. Good morning, all. Just wondering, in the U.S., can you just break down how many fleets you're running and how many of them would be targeting gas right now?
spk04: We would have one fleet targeting gas right now. And we have the equivalent of nine fleets that are operational with crew, and I would say one fleet that's kind of furloughed right now. The size of the fleets have changed quite a bit in the areas, some of the areas that we work, because we're now doing some simulacrum. We have a simulacrum going right now that has 40 pumps on location. So it's, you know, your fleet, a fleet count is starting to be kind of irrelevant due to the number of pumps sometimes being used.
spk03: Gotcha. That makes sense. And then on the Argentina side, can you just talk a little bit how things have been going over the past few months? Any details you can share on conversations with customers or maybe with anyone at the government level?
spk04: So I'll take this call again, Mike. So I was just down in Argentina and spent some time down there. Our We're very excited about Argentina right now. We are able now to repatriate cash, as Mike mentioned, through this Argentine bonds. Everything is still fairly complicated in Argentina, but it is getting better. And it looks like they're moving towards us being able to move good used equipment back down to Argentina, which will be a Huge plus for Calfrac with the Tier 4 conversion. We'll be able to put some of our good Tier 2 pumps down into Argentina to get the rest of the useful life out of them. So that's a big plus for us. From the government standpoint, everybody seems very pro-business, and we expect to continue to see some... Very good movement out of Argentina.
spk03: Okay, got you. Thanks. And then, Mike, on the Argentinian bond, can you just kind of explain the mechanics of how the cash flows from that actually work?
spk06: Yeah, it's quite simple, Cole. Like, we'll take one-twelfth of the $18 million U.S. per month and be able to apply that against existing intercompany debt. So, you know, it's a tax-free... transfer of cash back to Canada to allow us to repay debt in Canada. So it's one of those things that's been heavily restricted under the previous government and it's now starting to open up. So the hope is that this type of activity starts to increasingly become more normalized to be very similar to what we would do in any other country. In addition to that, just any bills that are paid on behalf of the Argentinian sub by the Canadian parents post the new government, those are also being repaid on a very accelerated basis over the course of four months, where previously that was delayed up to six months before you could make a petition to the central bank to allow those funds to come back. So things are certainly becoming more of a normal... normal course business in Argentina.
spk03: Got it. And then just one more from me. On the Canadian side, how are conversations with customers going for the second half of the year, and how do you feel about water availability?
spk04: The second half of the year is, from what we're hearing from our customers, is shaping up to be fairly busy. And as far as water, our major customers have water pits available to them, so they're not too stressed about water. I would think some of the smaller spot market kind of guys that we work for, it might pose a bit of a threat depending on how the drought situation continues, but It's not quite as dry in the areas that we predominantly work in, but it is certainly a concern.
spk03: Got it. That's all for me. Thanks. I'll turn it back.
spk00: Thank you. One moment for our next question, please. It comes from the line of Blake McLean with Daniel Energy Partners. Please proceed.
spk02: Good morning. Thanks for taking my call. Welcome. I just wanted to ask about the customer deferral of work. I was hoping maybe you could give us a sense for how those conversations are progressing, how they're thinking about their programs in the back half of the year, maybe anything they've shared with respect to what they're focused on or looking at.
spk04: Well, we've just been seeing a trend in the last year and a half or so. Towards the end of the fourth quarter and January, February, predominantly in the U.S., they've been shifting the work out of the first quarter due to the weather and the storms and the associated costs with that, which which seems a little different when you're sitting in a $80 oil market, but that's what we've been seeing so that it's filling up the rest of the year for us. So it's not ideal, but that's what we're seeing.
spk06: I think to add on to that, Blake, it's Mike here. I think what you're seeing for the remainder of the year to the second part of your question is very strong activity for our fleets in the United States in the second and third quarters. In cases that we're seeing, we could be fully booked to overbook. So it's one of those things that I think the operators have done intentionally, but I don't know that they understand the unintended impacts, which I think are going to benefit us as we walk through the year with very high utilization.
spk02: Got it. Okay, that's very helpful. Thank you all again for the time this morning. Thank you.
spk00: Thank you. One moment for our next question, please. And it comes from the line of Keith McKay with RBC Capital Markets.
spk05: Hi, good morning. I'm hoping to dig into Q2 a little bit more in North America. It sounds like some of the US deferrals will reverse, but I don't know if the gas prices have really changed much and the customer consolidation hasn't really changed much. So it sounds like it's really all down to the work that was deferred plus any other work that was kind of booked. And then, of course, you're fighting the down seasonality in Canada. So can you just give us a sense of how much better roughly you think Q2 can be in North America versus Q1, whether that's from a revenue recovery or growth standpoint or incremental margin standpoint, just any other sort of goalposts you can put around that as well as the levers impacting it would be helpful.
spk06: Yeah, I mean, Keith, you're spot on that in Canada there's definitely a breakup period in the early part of the second quarter that impacts activity quite significantly. But I think what we're seeing is certainly heavily booked frack and coil crews in Canada post the start of May here. And that's going to carry, I think, us all the way through into the early part of Q4. So I think we've got a good line of sight on our, you know, we've got a very definitive customer base in Canada. And I think they've got very well laid out plans for the remainder of the year. And outside of breakup, I don't know that we're seeing a lot of impacts on that side. In the U.S., I think, you know, as Pat mentioned and we talked about, you know, the activity levels were very low in certain months in Q1. And we're not certainly seeing that right out of the gate in the second quarter. We're gradually going to build up to being all of our crews being fully utilized here in the second quarter. And that's, again, going to carry us through to the early part of the fourth quarter. So, you know, speaking to, you know, where things are, I think we're going to align a lot better to where we would have been last year in Q2, not quite to the same level, because obviously we're not operating the same number of crews. But certainly things look
spk05: you know dramatically better thank you one in North America yeah okay got it and just to follow up to that so Q2 looks roughly similar this year versus last year with the slightly lower equipment count what does that imply for pricing on a year-over-year basis I think we saw some pricing degradation you know in the in the North American market I mean there was
spk06: You know, there's certainly been crews that have been added that obviously affect some of the pricing. And then you'll see that, you know, here in Canada, some, you know, as well, whether spot market or leading edge pricing, not being what it was a year ago, just based on the tightness of the market not being the same as a year ago. Having said that, I think a lot of our crews are levered to longer-term relationships, and I think those pricing has remained relatively intact.
spk05: Got it. Okay. Well, that's it for me. Thanks very much. Thanks, Keith.
spk00: Thank you. And as a reminder, to ask a question, simply press star 1-1 to get in the queue. One moment, please. Our next question is with Waqar Saeed with ATB Capital Markets. Please proceed.
spk01: Thank you. So when I look at your dual fuel fleet, it looks like 35% of the fleet or horsepower is dual fuel. I find that many US companies are closer to that 65%, 70% level. Is that an impact? Is that an issue right now in terms of getting the utilization higher than it needs to be?
spk04: With the dramatic drop in the working frack fleet count in the Williston Basin, we did lose a pad due to the fact that we didn't have a Tier 4 fleet, and there was Tier 4 fleets available. So yeah, it will impact us, which is part of the main reason that we're continuing with our Tier 4 modernization, Tier 4 equipment. So for sure it's an issue. But we expect to have, you know, to exit the year with five fleets. So we're definitely closing the gap.
spk01: Sure. But when I look at your Tier 4 DGBs right now, you're at two fleets, and I think that, I may be mistaken, but I think that Q3 last year, you were at two as well. So, have the upgrades been pushed to the right some?
spk06: No, Waqar, I'm not sure you're correct on what last year's fleet count would have been. It would have been closer to one in Q3.
spk01: Oh, is it? Okay.
spk06: Yeah. So we're gradually building that program up. So we exited the year with two. We kind of still are in the same spot here through the first quarter. But I think we're going to, through the end of the second quarter, end of the third, we're going to see that pump count increase quite significantly.
spk04: We were scheduled to have Canadian pumps for January. the first part of January, and due to, I'm getting very tired of hearing about it, but supply chain issues, we were delayed a couple of months, but we do have our first six pumps now in Canada, and they will continue to escalate that count.
spk01: Great. And then, you know, $60 million of additional debt that was taken in the quarter, Do you expect it to be paid down this year or are you thinking about that debt pay down?
spk06: Waqar, as Pat mentioned, that's one of our priorities from a strategy perspective is to make sure that we continue to drive debt lower. Working capital demands in the business and the Tier 4 program to a certain extent caused the increase in the revolver through Q1. That's going to continue, I think, through the second and third quarters, but as we experienced last year, we should see another significant pay down back on the revolver and debt should overall, on an overall basis, be flat to lower by the end of the year.
spk01: Great. Thank you very much. That's all from me.
spk00: Thank you. As I see no further questions, I will conclude the Q&A session and hand it back to Michael Olenek for final comments.
spk06: Thank you, Carmen, and thank you, everyone, for joining us on our call today. We look forward to hosting our second quarter call. Thank you very much.
spk00: Thank you all for participating, and you may now disconnect.
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