Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenues for the quarter were $211.8 million with adjusted EBITDA of $40.7 million, both up approximately 20% from last year.
- Trican generated free cash flow of $20.9 million during the quarter.
- Frac revenue was up 30% year over year, and EBITDA in that division was up over 50%.
- The cement division generated 4% higher revenue and 10% higher EBITDA in Q2 of this year versus 2023.
- The company maintains a clean balance sheet with positive working capital of approximately $148.4 million, including cash of $36 million.
Negative Points
- Some Q3 work was moved forward into Q2 to avoid potential water restriction issues, which will impact Q3 results.
- The coiled tubing division is still struggling with profitability despite growing revenue by 18% year over year.
- Natural gas price weakness has led to some pricing pressure, although it hasn't been terribly significant.
- The company expects to outspend its operating cash flow by about $80 million this year.
- Forest fire activity and drought conditions in Western Canada could push work around, affecting operational timelines.
Q & A Highlights
Q: Brad, you mentioned the second half of the year will be down year over year. How do you think the trend of activity will play out? Will Q3 be weaker and then pick up in Q4 into the winter drilling season, or will it follow a more typical seasonal pattern?
A: I think it will be more typical with some adjustments for water availability and temporary restrictions due to fires. You may see work pushed from Q3 into Q4, and some work from Q1 2025 could be pulled back into Q4. Overall, it will follow the typical seasonal pattern with minor tweaks.
Q: What's the 2025 upside scenario from your perspective? Do you think you need an eighth frac fleet or a sixth frac fleet conversion with LNG Canada on the doorstep?
A: Both assumptions are very reasonable. The lead time on equipment is significant, but we can take equipment off the fence and put it into the field as quickly as we can staff it. We will not put out equipment unless we get a return on every single hour that it's operating.
Q: You insinuated that labor friction had been reduced. Did I interpret that correctly?
A: Yes, labor constraints have definitely been reduced. The industry has been operating at a fairly level-loaded basis, which is appealing to people wanting to join the industry. Our turnover is very low, less than 5% in the frac division, compared to a historical 20%.
Q: Given how tight things are and the fact that you have remaining equipment on the side for fracking, is there any concern about operators in the States bringing up equipment into Canada?
A: It's always a concern, but the LNG opportunity in Canada is significant. We expect to compete based on quality of service and technology. We are happy to compete with anyone who wants to come to Canada.
Q: Can you give us more details on the Source Energy deal with the rail and the new facility? How will it benefit you?
A: Industry in general will benefit from this investment. Source brings expertise in sand supply and transload facilities. We will benefit from picking up sand closer to our customer sites, reducing trucking time by as much as 50%. This will allow us to use more of our internal trucking resources and less third-party resources.
Q: Are you starting to have more positive discussions around pricing given the activity levels?
A: Our pricing discussions are always fairly subdued due to long-term relationships with our core customers. We expect pricing to be tweaked up, not down, next year.
Q: Will the $35 million in aggregate dividends be static, or could it change depending on your share valuation and free cash flow generating capabilities?
A: Right now, that level is fairly static. However, if there are more positive FIDs for LNG facilities, that could change everything.
Q: Do you use Source for sand at this time?
A: Yes, we are a significant customer for most of the sand suppliers throughout Western Canada. One of the big benefits from a Trican perspective is that we can provide security of supply of sand coming in, which our competitors cannot offer.
Q: Can you expand on the strategic partnership with [ACOS] and its impact on the coiled tubing division?
A: The partnership with [ACOS] will help grow our market share in the oilier sections of the basin, particularly with multilateral well designs. This is a market we are not currently active in, so it will be additive to the coiled tubing division.
Q: What is the outlook for the second half of 2024?
A: We expect the second half to remain busy, especially given current natural gas prices. The financial discipline displayed by our customers has reduced volatility, and we expect continued strong activity levels.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
