3/13/2025

speaker
Joanna
Conference Call Moderator

for the operator. This call is being recorded on Thursday, March 13th, 2025. I would now like to turn the conference over to Michael Olenek. Please go ahead.

speaker
Michael Olenek
Investor Relations Representative

Thank you, Joanna.

speaker
Mike
Investor Relations Representative

Good morning and welcome to our discussion of CALFRAC Well Services' fourth quarter 2024 results. Joining me on the call today is Pat Powell, CALFRAC's Chief Executive Officer. 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 up the conference call to questions. In a news release issued earlier today, CALFRAC reported its fourth 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 financial measures, such as adjusted EBITDA 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 CALPRAC'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's CDAR filings, including our 2024 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. As a result, the focus of the remainder of this call will be on CalPRAC's continuing operations in North America and Argentina, unless otherwise specified.

speaker
Michael Olenek
Investor Relations Representative

Now I will pass the call over to Pat. Thanks, Mike.

speaker
Pat Powell
Chief Executive Officer, CALFRAC

Good morning and thanks for joining our call today. Before Mike provides the financial highlights of the fourth quarter, I will offer some opening remarks. Safety is always being first and foremost at Calfrack. So that is what I'll report on first this morning. Calfrack set a new record in our 25-year history this year with an excellent TRIF of 0.92, which was down from 1.05 at this time in 2023. I'm very proud of this achievement. It is a testament to the safety culture that Calfrack employees embraced live and breathe every day. This really is our license to operate. Operationally in North America, we remain focused on transitioning our fracturing equipment to next-generation technologies through our fleet modernization program. We ended the year with 66 Tier 4 pumps and expect to be operating the equivalent of five Tier 4 fleets in North America by the end of the first quarter. 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 shale plate a couple of months earlier than originally planned. The company's financial results saw a sequential decline in the fourth quarter due to the typical budget exhaustion and seasonal wind down of operator activity as we approach the end of the year. Despite the slowdown, I am satisfied with how we safely and efficiently performed our services for our clients during the fourth quarter. With 24 behind us, we are looking forward to what 2025 will bring as we continue to focus on our strategic priorities of providing safe, efficient services to our clients while continuing to improve our assets and reduce debt. Pass the call back over to Mike, who will present an overview of our quarterly financial performance.

speaker
Mike
Investor Relations Representative

Thank you, Pat. CalFREX revenue from continuing operations during the fourth quarter of 2024 was $381.2 million, a decrease of 10% from the same period in 2023, primarily due to lower activity and pricing for the company's services in the United States. Adjusted EVDA during the fourth quarter of 2024 was $34.5 million, a 45% decline from the same period last year stemming from lower utilization in North America, weaker pricing in the United States, and some unplanned downtime in Argentina during October. CALFRAC's net loss from continuing operations was $6.4 million during the fourth quarter of 2024, versus net income of 13.2 million in the comparable quarter of 2023. 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 caused by a change in the salvage value estimate for certain of the company's fully depreciated fracturing equipment components. Additionally, Company recorded an income tax recovery of $15.6 million, which was primarily due to the conversion of non-repayable intercompany debt into equity in Argentina, coupled with lower profitability in the United States. CALFRAC incurred capital expenditures of $33 million during the fourth quarter versus $49.4 million in the same period of 2023. As capital investments for future expansion in Argentina, were more than offset by a year-over-year decline in spending related to the company's Tier 4 fleet modernization program. CALFRAC's Board of Directors approved a capital budget of $135 million for 2025. 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 cash flow. The balance of the 2025 capital budget will fund maintenance capital across all divisions, as well as additional investments in the company's Tier 4 modernization program. 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. CALFRAC continued to receive funds from Argentina related to the redemption of its WPRO bonds during the fourth quarter and expects to receive the remaining monthly amounts in 2025. 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, which left the company with available credit of $97.1 million. The year-end draw on the company's revolving credit facilities was reclassified from long-term debt to current liabilities in the financial statements to reflect the six-month springing maturity provision under its credit facility agreement that was in place at year-end. After the end of the year, an amendment was executed with the company's lending syndicate to change the springing maturity date from September 15, 2025 to January 15, 2026. This amendment provides further flexibility for the company to address the maturity of its second lien notes before the end of the year. CALFRAC exited the fourth quarter with a net debt to adjust the DBDA ratio of 1.57 and was fully compliant with its bank covenants.

speaker
Michael Olenek
Investor Relations Representative

Now, I would like to turn the call back to Pat to provide our outlook.

speaker
Pat Powell
Chief Executive Officer, CALFRAC

Thanks, Mike. The outlook for activity in North America is relatively stable despite the near-term uncertainty surrounding the ever-changing political landscapes in Canada and the United States, coupled with the continuation of North American E&P consolidation. But with the completion of several important energy infrastructure projects in Canada over the last few years, there are reasons to be optimistic about the Canadian market over the medium term. With this backdrop, we expect to work alongside our strong customer base during 2025 to maintain steady utilization of our active fracturing fleets and deep coil tubing units. The effects of the recent tariff announcements are anticipated to have an impact on the cost 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 and at the same time evaluating the applicability of tariff exemptions for goods that will still need to be imported from the United States. So everything's kind of still up in the air for us with the tariffs, like most everybody. Like last year, activity in the Rockies region during the first quarter is more restrained than the remainder of the year as customers avoid operating in the cold winter months. In response to this trend, we reduced our operating footprint to six active fleets in the U.S. to begin the year, but did restart our fracturing operations into Marcellus for the new customer. Given the strength in the natural gas prices, we will continue to look for ways to expand our operations in this basin throughout the year. Safe and efficient 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. With the aid of a new offshore coil tubing unit commissioned in 2024 and a higher overall fracturing activity, the Argentine team delivered record four-year financial results during the past year, We previously announced an increase to our 2024 capital program, which was dedicated to growing our fracturing fleet capabilities in the vacuum water shale plate. As mentioned earlier, the second fleet began operations ahead of schedule in February. And I am very excited to see how we'll capitalize on the growth prospects in Argentina during 2025. Although the first quarter in North America was very challenging, I was pleased with how the team rebounded during the remainder of the year. And I am equally confident that we can navigate the current headwinds to deliver strong returns to our shareholders in 2025. I will now turn the call back to Mike to begin the Q&A portion of this call.

speaker
Mike
Investor Relations Representative

Thank you, Pat. I'll now ask Joanne to begin the Q&A portion of today's call.

speaker
Joanna
Conference Call Moderator

Thank you. 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. Should you wish to decline from the polling process, please press star followed by the two. And if you are using a speakerphone, please lift the handset before pressing any keys. And the first question comes from Keith McKay at RBC. Please go ahead.

speaker
Keith McKay
Analyst, RBC

Hey, good morning. 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 Vaca Morita now, but what kind of utilization do you expect on those fleets? What types of contracts are those fleets underpinned by, and for what length of time do you expect that they'll ultimately be operating?

speaker
Michael Olenek
Investor Relations Representative

Well,

speaker
Pat Powell
Chief Executive Officer, CALFRAC

First off, contracts are really real in Argentina, and our second fleet is 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 earlier than anticipated, and we were lucky enough to pick up some work. We are deep in the contract process on that second fleet, but, you know, it's ever-changing in Argentina. We thought we had a contract for that fleet. It dropped off, and then immediately it's been picked up again by another customer. So we're very confident that that second fleet will be very utilized.

speaker
Michael Olenek
Investor Relations Representative

Okay, makes sense.

speaker
Keith McKay
Analyst, RBC

And can you talk to us a little bit more about the pricing in the U.S.? Gotten some success back into the Marcellus. 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
Pat Powell
Chief Executive Officer, CALFRAC

I would like to think it's at a bottom, but if you'd asked me that question last year, I'd have told you the same thing. I can't really control my competitors, but I would think it has to be at the bottom now and trending higher. The tier two fleets are very problematic from a pricing standpoint, and which is why our focus and push has been on the transition to Tier 4. Probably we're transitioning faster than I would like to, but I think it's necessary to get pricing and utilization.

speaker
Michael Olenek
Investor Relations Representative

Utilization really is just about as important to us as pricing. Yeah, got it.

speaker
Keith McKay
Analyst, RBC

Got it. 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?

speaker
Michael Olenek
Investor Relations Representative

We should end this year with about 95 next-gen fleets. Pumps. Pumps, sorry. Yeah. Got it. Okay. That's it for me. Thanks very much. Thanks.

speaker
Joanna
Conference Call Moderator

Thank you. The next question comes from Waqar Saeed at ATP Capital Markets. Please go ahead.

speaker
Waqar Saeed
Analyst, ATP Capital Markets

Good morning, Pat, Mike. Pat, you mentioned in 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?

speaker
Michael Olenek
Investor Relations Representative

Well, we're always looking. Yeah.

speaker
Pat Powell
Chief Executive Officer, CALFRAC

Yeah, no, we're always looking. So I would say to answer that question right now, we're looking at the equivalent of 9,500 horsepower pumps at the end of 2025. OK.

speaker
Waqar Saeed
Analyst, ATP Capital Markets

And it's a very interesting data point regarding your pickup of a crew in Appalachia. 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 to add a fleet there?

speaker
Pat Powell
Chief Executive Officer, CALFRAC

To add, well, we would be, you know, we're always in negotiations to, you know, to get work with different customers, of course.

speaker
Michael Olenek
Investor Relations Representative

The appellation gives us the ability to maybe work, you know, utilization should be higher

speaker
Pat Powell
Chief Executive Officer, CALFRAC

in the Appalachian than it is in the Rockies, which is why our interest would be to move those newer fleets over there.

speaker
Michael Olenek
Investor Relations Representative

And they can work there.

speaker
Mike
Investor Relations Representative

And maybe just to add to Pat's response, those negotiations with clients are always being held, but I think where we saw traction was in the fourth quarter. and 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 into the third quarter and the ability to extend that to the end of the year depending on performance. 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 we weren't displacing a current provider.

speaker
Waqar Saeed
Analyst, ATP Capital Markets

Okay, great. Now, when I look at the EIA data for the Bakken especially, 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 Bakken.

speaker
Michael Olenek
Investor Relations Representative

Are you seeing that too or not?

speaker
Mike
Investor Relations Representative

I think, Ricard, we've got a couple of fleets that are levered to the Bakken directly. And so, yeah, we are certainly seeing 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 a bit opposite of what we saw last year. It kind of was inverted. I think we actually had a strong start and then things slowed down, kind of interrupted by some weather changes. more so than anything last year. This year was more of a planned reduction. 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.

speaker
Waqar Saeed
Analyst, ATP Capital Markets

For your U.S. business overall, on a year-over-year basis, how will Q125 track from a revenue and profitability perspective?

speaker
Mike
Investor Relations Representative

It's It's down about 10%, I would say, top line, Makar, from where we were last year, just based on customer mix and some of the fact some commodities were in our revenue stream last year and they're not this year. It's just more pumping revenue. 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. 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.

speaker
Waqar Saeed
Analyst, ATP Capital Markets

Great. And then just similar comments on the Canadian side, like how do you see Q125 versus last year's Q1?

speaker
Mike
Investor Relations Representative

Yeah, again, a similar trend in the sense that I think we're down on the top line. I think Profitability hangs in there. Again, it's a mix of work where we're operating and the customers we're working for this year are a bit different than a year ago, just based on some of the consolidation that happened since Q1 of last year. It's been replaced by different types of work in the biking, which is smaller jobs, smaller revenue per job, but still kind of the same equipment footprint. So that accounts for that. on a profitability, you know, it will track just with the lower revenue, 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 tariff things that affect our input costs.

speaker
Waqar Saeed
Analyst, ATP Capital Markets

Now, there was a view that FRAC stand may be excluded from the tariffs. Have you heard anything on that regard, like how the federal government is going to treat that?

speaker
Mike
Investor Relations Representative

I think it's too early for us to fully understand that today, Wakar. 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 – Could be some exemptions, but I'm not in a position to really know that today.

speaker
Pat Powell
Chief Executive Officer, CALFRAC

We also have strong relationships with the domestic sand suppliers in Canada. Not that they would be able to keep up to the volume, but we certainly have strong relationships with them.

speaker
Waqar Saeed
Analyst, ATP Capital Markets

Now, we've been seeing like your customers or E&Ps increasing fraction intensity on a per well basis in Canada. Do you think that your customers start to change that a little bit and maybe reduce volumes pumped per well? Or would they rather just see, you know, get the cost up, per well cost up?

speaker
Mike
Investor Relations Representative

Well, Kar, again, I think it's, early days with these tariffs, it's hard to tell what they're going to do. And again, there is a bit of uncertainty around whether this is really a long-term trend or just a very short-term trend. So for us, what we're seeing is actually what you said in your comment, which is higher intensities per wellbore with our customer base.

speaker
Waqar Saeed
Analyst, ATP Capital Markets

Great. Well, thank you very much. Appreciate the call.

speaker
Michael Olenek
Investor Relations Representative

Thank you, Waqar.

speaker
Joanna
Conference Call Moderator

Thank you. We have no further questions. I will turn the call back over to Michael Olenek for closing comments.

speaker
Mike
Investor Relations Representative

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
Joanna
Conference Call Moderator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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