Calfrac Well Services Ltd.

Good afternoon, and welcome to the CALFRAC Wealth Services Third Quarter 2024 Earnings Release Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Michael Olenek, Chief Financial Officer. Please go ahead.

Thank you, Gary. Good morning, and welcome to our discussion of CALFRAC World Services Third Quarter 2024 results. Joining me on the call today is Pat Powell, CALFRAC's CEO. 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 CalPRAC'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, CalPRAC reported its third quarter 2024 results, Please note that all financial figures are in Canadian dollars unless otherwise indicated. Some of our comments today will refer to non-IFRS measures, such as adjusted EBBA and net debt. Please see our news release for additional disclosure on these financial measures. Our 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 CalPRAC's feeder 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 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. Before Mike provides the financial highlights for the first quarter, or the third quarter, sorry, I will offer some opening remarks. During the third quarter, CalPRAC generated consistent financial results with the second quarter, as growth in our frat, coil, and cement businesses, coupled with our new offshore coil tubing unit in Argentina, helped offset a decline in North American activities. The significant profitability increase in Argentina was enabled by the deployment of a second large fracturing fleet in the Vaca Morda and increased utilization of our offshore coil tubing equipment. This offshore coil tubing program had a zero non-productive time during the quarter, which is a significant milestone. Argentina continues to be an area of growth for CalPRAX. and we look forward to providing market-leading services to our customers for years to come. In North America, we remain focused on transitioning our fracturing equipment to next-gen technologies through our fleet modernization program. We are now operating 60 Tier 4 DGB pumps and anticipate operating the equivalent of five next-gen fleets in North America by early next year. Safety remains our top priority, and to our continuous improvement, we have reduced our year-over-year training 12-month trips from 1.14 in 2023 to 0.81 during the third quarter. These are excellent results. I am proud of how we safely and efficiently executed for our clients during the third quarter. I expect us to finish the year strong and continue and carry that momentum into 2025 as we continue to focus on our strategic priorities. Lastly, as a part of our continued efforts to improve CALFAC's operational and financial performance, I want to announce the recent leadership changes in our United States and Argentina businesses. Marco Aruragan, has been appointed to the position of President of the United States Operations to replace Mark Rosen, who is no longer with the company. In conjunction with Marco's transfer, Adrian Martinez was appointed to the position of Director General, Argentina Division. Marco has been with CALFAC since 2010 and has held several senior management roles. Most recently as the Director General of the Argentina Division since 2019. His experience in Argentina was serving well in his new role and positioned him to implement some new ideas to drive improved operational and financial improvements. Adrian joined CALF RAC in 2008 and has been a significant contributor throughout various senior operational roles, most recently as a senior district manager for our Newcomb district since 2017. We are happy for Adrian to lead our Argentina business and build on its tremendous successes. I believe that these recent management changes will enable CALPRAC to deliver on its strategic priorities in a much shorter timeframe. I will now pass the call back over to Mike who will present an overview of our quarterly financials. Thank you, Pat. PopFlex revenue from continuing operations in the third quarter of 2024 was $430.1 million, a decrease of 11% from the same period in 2023, primarily due to lower activity and price for the company's services in the United States. Sequentially, revenue from continuing operations was relatively consistent with the second quarter, as its second horizontal fracturing fleet and the commencement of our new offshore coral tubing unit in Argentina offset lower utilization in North America. Adjusted EBDA during the third quarter of 2024 was $65 million, a 29% decline from the same period last year, stemming from lower utilization in North America and pricing in the United States. Sequentially, adjusted EBDA from continuing operations was consistent with the second quarter as an increase in profitability generated by our Argentinian operations, offset the decline in North America. CalPRAC's net loss from continuing operations was 6.7 million during the third quarter of 2024, versus net income of 97.5 million in the comparable quarter of 2023. Sequentially, the net loss from continuing operations was lower than the second quarter, primarily due to higher foreign exchange losses, income taxes, and depreciation expense. CALCRAC incurred capital expenditures of $22.5 million during the third quarter versus $50.8 million in the same period of 2023, as continued capital investments in Argentina were more than offset by a decline in spending related to the company's Tier 4 fleet modernization program. Moving to the balance sheet, the company had working capital of $307.1 million from continuing operations at the end of the third quarter, including $17.7 million in cash, of which approximately $13.6 million was held in Argentina. During the quarter, CalFact began receiving funds from Argentina related to the redemption of its Opriel bonds and expects to receive the remaining monthly amounts through to the middle of 2025. At the end of the third quarter of 2024, CalFRAC used $3.6 million of its credit facilities for letters of credit and had $190 million of borrowings under its revolving term loan facility, which left the company with available credit of approximately $56 million. CalFRAC exited the third quarter with a net debt to adjusted E-to-DA ratio of 1.62. Now we would like to turn the call back to Pat to provide our outlook. Thanks Mike. I'll now present an outlook for CALFRAC's continuing operations across our geographic footprint. We expect to have a solid finish to the year in North America as the strong momentum that we built in the third quarter from our operations in the United States has carried over into the fourth quarter. Barring the typical end of year seasonality, we anticipate that the increased utilization in the United States will drive improves sequential profitability in North America. The Argentina team achieved a record adjusted EBITDA during the third quarter, which was driven predominantly by our expanded operations. Fourth quarter activity is expected to return to a level consistent with the second quarter, but we look forward to strong profitability growth next year with our planned addition of a permanent second large fracturing fleet to serve as a growing development in the vacuum water play. I'm proud of the substantial effort exhibited by the entire CALFRAC team, and I'm encouraged by our long-term opportunities. I know that our rigorous cost focus and prudent capital allocation will allow us to generate sustainable returns for CALFRAC and its shareholders. I will now turn the call back to Mike to begin the Q&A portion of this call. Thank you, Pat. I will now ask Gary to begin the Q&A portion of today's call.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question is from Keith Mackey with RBC Capital Markets. Please go ahead.