Earnings call transcript: Calfrac Well Services Q4 2024 misses EPS forecast, stock dips

Calfrac Well Services Ltd. reported disappointing fourth-quarter earnings for 2024, missing analysts’ expectations with an EPS of -$0.07 against a forecast of $0.155. The company also fell short on revenue, posting $381.2 million compared to the anticipated $406.2 million. Following the announcement, Calfrac’s stock price dropped by 3.3% in pre-market trading, reflecting investor concerns over the company’s financial performance. According to InvestingPro data, the company operates with a significant debt burden, with a debt-to-equity ratio of 2.11, while maintaining profitability over the last twelve months.

Key Takeaways

• Calfrac reported a net loss of $6.4 million, down from a net income of $13.2 million in Q4 2023.
• Revenue decreased by 10% year-over-year, impacted by a write-off of obsolete assets and a one-time depreciation expense.
• The company’s stock fell by 3.3% in pre-market trading following the earnings announcement.
• Calfrac is expanding operations in Argentina and modernizing its fleet to boost future performance.

Company Performance

Calfrac’s overall performance in Q4 2024 was marked by significant financial challenges. The company experienced a 10% decline in revenue compared to the same period in 2023, alongside a 45% drop in adjusted EBITDA. Key contributors to these results included a $12.7 million write-off of obsolete fracturing assets and a $12.2 million one-time depreciation expense adjustment. Despite these setbacks, Calfrac remains focused on strategic initiatives such as fleet modernization and expansion in Argentina’s Vaca Muerta shale play.

Financial Highlights

• Revenue: $381.2 million, down 10% year-over-year
• Earnings per share: -$0.07, missing forecast of $0.155
• Adjusted EBITDA: $34.5 million, a 45% decline from the previous year
• Net loss: $6.4 million, compared to net income of $13.2 million in Q4 2023

Earnings vs. Forecast

Calfrac’s actual EPS of -$0.07 fell short of the forecasted $0.155, marking a significant miss. The revenue of $381.2 million also missed the expected $406.2 million. This earnings miss is notable compared to previous quarters, where the company had shown more stable results.

Market Reaction

Following the earnings release, Calfrac’s stock price experienced a 3.3% decline in pre-market trading. The stock’s movement reflects broader investor sentiment, as the company currently trades closer to its 52-week low of $4.80, suggesting caution among investors amid disappointing financial results. InvestingPro analysis indicates the stock is currently overvalued based on its Fair Value calculations. Discover more insights about market valuations with InvestingPro’s comprehensive valuation tools, which cover over 1,400 stocks with detailed Pro Research Reports.

Outlook & Guidance

Looking ahead, Calfrac anticipates stable activity in the North American market but faces challenges due to tariffs and political uncertainty. The company is targeting steady utilization of its fracturing fleets and coil tubing units. Additionally, Calfrac is investing heavily in its Argentine operations, with a capital budget of $135 million for 2025, including $50 million allocated to Argentina. InvestingPro data shows revenue is expected to grow by 17% in FY2025, though net income is projected to decline. The company maintains a Financial Health Score of 1.82, rated as ’FAIR’ by InvestingPro’s comprehensive analysis system.

Executive Commentary

CEO Pat Powell emphasized the importance of safety and supply chain adaptability: "Safety is always being first and foremost at Calfrac." He also noted the company’s efforts to mitigate tariff impacts: "We are investigating the available local supply chain alternatives." Powell expressed optimism about Argentina’s growth potential, stating, "We remain excited about Argentina."

Risks and Challenges

• Tariffs: New tariffs could increase input costs and disrupt supply chains.
• Market Uncertainty: Political and economic uncertainties may affect North American operations.
• Asset Write-offs: Continued write-offs of obsolete assets could impact financial performance.
• Competitive Pressure: The transition to Tier Four fleets is crucial for maintaining competitive pricing and utilization rates.

Q&A

During the earnings call, analysts inquired about Calfrac’s strategy in Argentina, where the company has deployed two fleets in the Vaca Muerta shale play. Questions also focused on U.S. pricing, with executives indicating that prices may have bottomed out as the company transitions to more efficient Tier Four fleets. Additionally, the impact of tariffs on supply chain and input costs was a key concern, prompting discussions on local supply chain alternatives.

Full transcript - Calfrac Well Services Ltd. (CFW) Q4 2024:

Joanna, Conference Call Operator: Good afternoon, ladies and gentlemen, and welcome to the Calfrac Wealth Services Limited Fourth Quarter twenty twenty four Earnings Release and Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, 03/13/2025. I would now like to turn the conference over to Michael Olynick.

Please go ahead.

Michael Olynick, Financial Executive, Calfrac Well Services: Thank you, Joanna. Good morning and welcome to our discussion of Calfrac Well Services’ fourth quarter twenty twenty four 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 the news release issued earlier today, Calfrac reported its fourth quarter twenty twenty four 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 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’s SEDAR 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 Calfrac’s continuing operations in North America and Argentina, unless otherwise specified. Now, I will pass the call over to Pat.

Pat Powell, Chief Executive Officer, Calfrac Well Services: Thanks, Mike. 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 Calfrac. So that is what I’ll report on first this morning.

Calfrac set a new record in our twenty five year history this year with an excellent trip 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 Calfrac employees embrace, 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 four pumps and expect to be operating the equivalent of five Tier four fleets in North America by the end of the first quarter. In addition to the 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 play 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.

I’ll now pass the call back over to Mike who will present an overview of our quarterly financial performance.

Michael Olynick, Financial Executive, Calfrac Well Services: Thank you, Pat. Calfrac’s revenue from continuing operations during the fourth quarter of twenty twenty four was $381,200,000 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 EBITDA during the fourth quarter of twenty twenty four was $34,500,000 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 $6,400,000 during the fourth quarter of twenty twenty four versus net income of $13,200,000 in the comparable quarter of twenty twenty three. The reported net loss in the fourth quarter was impacted by a $12,700,000 write off of obsolete fracturing assets in The United States and a $12,200,000 1 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, the company recorded an income tax recovery of $15,600,000 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 $33,000,000 during the fourth quarter versus $49,400,000 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 four fleet modernization program. Calfrac’s Board of Directors approved the capital budget of $135,000,000 for 2025. Approximately $50,000,000 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 four modernization program.

Moving to the balance sheet, the company had working capital of $273,900,000 from continuing operations at the end of the fourth quarter, including $44,000,000 in cash, of which approximately $19,100,000 was held in Argentina. Calfrac continued to receive funds from Argentina related to the redemption of its Opryl bonds during the fourth quarter and expects to receive the remaining monthly amounts in 2025. At the end of the fourth quarter of twenty twenty four, Calfrac used $2,900,000 of its credit facilities for letters of credit and had $150,000,000 of borrowings under its revolving term loan facility, which left the company with available credit of $97,100,000 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 09/15/2025 to 01/15/2026. 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 adjusted EBITDA ratio of 1.57 and was fully compliant with its bank covenants. Now, I would like to turn the call back to Pat to provide our outlook.

Pat Powell, Chief Executive Officer, Calfrac Well Services: 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 as coupled with the continuation of North American E and 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 is 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 in the 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 coiled tubing unit commissioned in 2024 and higher overall fracturing activity, the Argentine team delivered record full year financial results during the past year. We previously announced an increase to our twenty twenty four capital program, which was dedicated to growing our fracturing fleet capabilities in the Vacuum Water Shale fleet. As mentioned earlier, the second fleet began operations ahead of schedule in February. And I am very excited to see how we will 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 and A portion of this call.

Michael Olynick, Financial Executive, Calfrac Well Services: Thank you, Pat. I’ll now ask Joanne to begin the Q and A portion of today’s call. Thank

Joanna, Conference Call Operator: And the first question comes from Keith MacKay at RBC. Please go ahead.

Keith MacKay, 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 Muerta 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?

Pat Powell, Chief Executive Officer, Calfrac Well Services: Well, 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. So we are deep in the contract process on that second fleet. But 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.

Keith MacKay, Analyst, RBC: Okay. Makes sense. 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 it’s hit a bottom and is maybe starting to rebound or just where are we in that cycle?

Pat Powell, Chief Executive Officer, Calfrac Well Services: 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. So 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 four. Probably we’re transitioning faster than I would like to, but I think it’s necessary to get pricing and utilization. Utilization is really is just about as important to us as pricing.

Keith MacKay, Analyst, RBC: Yes, got it. And can you remind us where you expect to get in terms of the Tier four evolution through this year? Is it five to six fleets? And just how many pumps are you looking at upgrading to get there?

Pat Powell, Chief Executive Officer, Calfrac Well Services: We should end this year with about 95 next gen fleets.

Keith MacKay, Analyst, RBC: Got it. Okay. That’s it for me. Thanks very much.

Pat Powell, Chief Executive Officer, Calfrac Well Services: Thanks.

Joanna, Conference Call Operator: Thank you. The next question comes from Wacker Syed at ATB Capital Markets. Please go ahead.

Wacker Syed, Analyst, ATB Capital Markets: Good morning, Pat, Mike. Pat, you mentioned in answer to the last question that you’ll have 95 new gen pumps, you didn’t use the word Tier four DGP. Are you looking at some other models now as well? Well, we’re always looking.

Pat Powell, Chief Executive Officer, Calfrac Well Services: Yes. No, we’re always looking. So I would say to answer that question right now Carter would be, we are looking at the equivalent of 9,500 horsepower pumps at the end of twenty twenty.

Wacker Syed, Analyst, ATB Capital Markets: Okay. 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 going to 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?

Pat Powell, Chief Executive Officer, Calfrac Well Services: To add, well, we would be we’re always in negotiations to get work with different customers, of course. The Appalachians gives us the ability to maybe work utilization should be higher in the Appalachia than it is in the Rockies, which is why our interest would be to move those newer fleets over there and it can work.

Michael Olynick, Financial Executive, Calfrac Well Services: And what Cara, 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 experienced 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.

Wacker Syed, Analyst, ATB Capital Markets: Okay, great. Now, when I look at the EIA data for the Bakken especially, and the AI 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. Are you seeing that too or not?

Michael Olynick, Financial Executive, Calfrac Well Services: I think Ricar, we’ve got a couple of fleets that are levered to the Bakken directly. And so, yes, 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 start strong start and then things slowed down kind of interrupted by some weather more so than anything last year. This year was 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.

Wacker Syed, Analyst, ATB Capital Markets: So for your U. S. Business overall on a year over year basis, how will Q1 twenty five track from a revenue and profitability perspective?

Michael Olynick, Financial Executive, Calfrac Well Services: 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 of 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. 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.

Wacker Syed, Analyst, ATB Capital Markets: Okay, great. And then just similar comments on the Canadian side, like how do you see Q1 twenty twenty five versus last year’s Q1?

Michael Olynick, Financial Executive, Calfrac Well Services: Yes. 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 Viking, which is smaller jobs, smaller revenue per job, but still kind of the same equipment footprint.

So that accounts for that. On a profitability, 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 there is an impact that we’re seeing somewhat on some of the tariff things that affect our input costs.

Wacker Syed, Analyst, ATB Capital Markets: Now there was a view that frac sand may be excluded from the tariffs. Have you heard anything on that regard like how the federal government is going to treat that?

Michael Olynick, Financial Executive, Calfrac Well Services: I think it’s too early for us to fully understand that today, Wicar. And as you know, these tariffs and how they’re being applied are changing almost daily. And so, yes, we’re certainly evaluating all that and we think that there’s could be some exemptions, but we I’m not in a position to really know that today.

Pat Powell, Chief Executive Officer, Calfrac Well Services: 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.

Wacker Syed, Analyst, ATB Capital Markets: We’ve been seeing like your customers or E and Ps increasing frac sand intensity on a profile 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 get the cost up per well cost up?

Michael Olynick, Financial Executive, Calfrac Well Services: Well, Carr, 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 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.

Wacker Syed, Analyst, ATB Capital Markets: Okay, great. Well, thank you very much. Appreciate the color.

Michael Olynick, Financial Executive, Calfrac Well Services: Thank you, Vikar.

Joanna, Conference Call Operator: Thank you. We have no further questions. I will turn the call back over to Michael Olinek for closing comments.

Michael Olynick, Financial Executive, Calfrac Well Services: 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.

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

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