Precision Drilling Corporation Q4 FY2024 earnings call

• Leveraging scale and generating free cash flow: Generated cash provided by operations of $482 million, near full utilization on Canadian Super Series rigs, increased activity in international drilling, Canada drilling, and well servicing; achieved full synergies in CWC acquisition.
• Debt reduction and share repurchases: Reached midpoint of debt reduction targets, lowered net debt-to-EBITDA leverage ratio; allocated 25%-35% of free cash flow before debt repayment to share repurchases.
• Operational excellence and market penetration: Nearly doubled EverGreen revenue year-over-year; added 2 new major product offerings on Super Single rigs; invested $52 million into fleet; grew market share in Canada.
• U.S. segment adjustments: Restructured operations group, enhanced sales organization; earmarked $30 million for U.S. rig upgrades focused on long-reach horizontal capability enhancements.
• Canada outlook: Outlook remains good despite short-term concerns on U.S. tariffs; drilling activity rebounded post-Christmas; expecting activity during breakup to exceed last year's level; second half activity to benefit from LNG Canada startup.
• Acquisition strategy: Believes industry consolidation is an opportunity; will pursue tuck-in acquisitions if appropriate value can be achieved.

U.S. Drilling

• Q4 average 34 rigs; daily operating margins absent IBC and turnkey were USD 9,165, just shy of guidance of USD 9,500, and USD 1,719 below Q3 levels. For Q1, expected normalized margins range between USD 8,500 and USD 9,000.

Canada Drilling

• Q4 average 55 rigs; daily operating margins were $14,559, an increase of approximately $2,131 from Q3 2024 and slightly below guidance of $15,000 per day. Q4 margins included ~$4 million in rig reactivation costs. For Q1, expected margins to remain consistent with Q4 at $14,500 to $15,000 per day.

International Drilling

• Q4 average 8 rigs; average day rates were USD 49,636, in line with prior year. Expected 2025 activity to be consistent with 2024 levels.

C&P Segment

• Adjusted EBITDA this quarter was $16 million, a $4 million increase from prior year quarter. Positively impacted by 6% increase in well service hours. Expected results to improve in Q1 with increased rates, activity, and rental performance.

• 2025 guidance: Expect depreciation of $300 million, cash interest expense of $65 million, effective tax rate of 25% to 30% with low cash taxes, SG&A before share-based comp expense of $100 million, share-based comp expense of $25 million to $35 million with a share price range of CAD 80 to CAD 100 (assuming 1x multiplier). Plan to reduce debt by at least $100 million; long-term debt reduction goal increased from $600 million to $700 million between 2022 and 2027.
• Capital plan: 2025 capital plan of $225 million, comprised of $175 million for sustaining and infrastructure and $50 million for upgrades and expansion.

• U.S. activity churn: Short-term contracts and churn in U.S. drilling activity.
• Tariffs: Potential impact of U.S. tariffs on Canadian energy, although recent clarity has moderated concern.
• Valuation in acquisitions: Difficulty in achieving appropriate value on tuck-in acquisitions.
• Macroeconomic uncertainties: Uncertainties in commodity prices, operator capital discipline, and industry consolidation.

Q: Aaron MacNeil with TD Cowen asked about contract duration for idle but contracted rigs in the U.S. and backfilling activity.

A: Kevin Neveu said there's churn in U.S. with short-term contracts, downside risk, but changes in U.S. team to leverage capabilities, expecting traction later in year.

Q: Kurt Hallead with Benchmark asked about Canadian tariffs, drill pipe purchases, and business risk.

A: Carey Ford said tariff relief has helped, drill pipe purchases were sufficient, macro risks still exist but tariff risk mitigated.

Q: Sean Mitchell with Daniel Energy Partners asked about activity in E&P space and labor.

A: Kevin Neveu said private equity is coming in, IPOs are encouraging, labor market tight but no constraint expected.

Q: Keith MacKey with RBC Capital Markets asked about tuck-in acquisitions and CapEx for upgrades.

A: Carey Ford said market for consolidation exists but valuation is challenge; $30 million CapEx for upgrades covers 6-10 rigs, spent as needed.

Q: Waqar Syed with ATB Capital Markets asked about international rigs and U.S. seasonality.

A: Kevin Neveu said confident international rig count stays at 8, U.S. Rockies rigs seasonal, some down now to come back in spring.