Precision Drilling Corporation Q1 FY2026 earnings call

Capital allocation strategy: Precision has a longstanding reputation for publishing clear and transparent strategic priorities aligned with enhancing the competitive positioning of the business and driving enhanced shareholder returns. First quarter results: Despite our recurring and expected heavy Q1 working capital build, Precision generated $63 million of cash from operations, Capital expenditures were $65 million, comprised of $35 million for sustaining and infrastructure, and $30 million for rig upgrades. We recorded adjusted EBITDA of $124 million, which equates to $143 million before share-based compensation expense, compared with prior year Q1 EBITDA of $137 million, $140 million before share-based compensation expense. Net earnings were $18 million compared to $35 million in the first quarter of 2025. Canada operations: Drilling activity averaged 79 active rigs, an increase of five rigs from Q1 2025. Our reported Q1 daily operating margins were $14,282 compared to $14,780 in the first quarter of 2025, falling within our prior guidance range. During the first quarter, Precision's operating margins were slightly impacted by rig mix. U.S. operations: Averaged 37 active rigs, inline sequentially from Q4, and an increase of 7 rigs from prior year Q1. Our daily operating margins for the quarter were US$9,291 compared to US$8,754 sequentially from Q4, slightly exceeding our prior guidance range. International operations: rig margins were unfavorably impacted by one Kuwait rig coming down, offset by one reactivated rig in Saudi Arabia. We incurred U.S. $2 million of one-time charges associated with this reactivation, and in addition, recognized added logistics costs tied to the Middle East conflict. Middle East operations update: Precision's leadership and crews performed well amid a dynamic regional environment, focusing on personnel safety. Revenue growth and customer relationships: Field performance with low mechanical downtime in U.S. and Canada, indicative of good customer satisfaction. Upgrade program executing, including two Canadian super triple rig upgrades. International growth with active engagement in Argentina and Middle East rig opportunities. North American outlook: U.S. market expected to hit inflection point summer, with rig ads in Q3 and Q4. Canadian market seeing immediate impact of higher oil prices on super single rigs, Super Triple Fleet to return to near-full utilization later summer. C&P division seeing increased requests for production work. Returns-focused mindset: Focus on generating financial returns, ingrained in culture, central to prioritizing capital employment and maintaining investor reputation.

Canada: Drilling activity averaged 79 active rigs, an increase of five rigs from Q1 2025. Reported Q1 daily operating margins were $14,282 compared to $14,780 in the first quarter of 2025. U.S.: Averaged 37 active rigs, inline sequentially from Q4, and an increase of 7 rigs from prior year Q1. Our daily operating margins for the quarter were US$9,291 compared to US$8,754 sequentially from Q4, slightly exceeding our prior guidance range. International: precision averaged 7 active rigs, down 8 rigs from prior year Q1. International day rates averaged U.S. $51,596, an increase of 4% from prior year, all due to rig move revenues. In our C&P segment, adjusted EBITDA was $18 million, in line with prior year Q1.

Second quarter 2026: Canada expected to average approximately 60 active rigs, end of quarter mid-70s, operating margins range between 12,000 and 13,000 per day. U.S. expect operating margins range between US $7,500 and $8,500 a day, with price increases in back half of 2026. International expect to run seven rigs, lower operating margins than prior year, expect additional operating costs in response to Middle East tensions. C&P business expects EBITDA to remain in line with prior year levels. Full year 2026: Increased capital expenditures budget to $265 million, up from $245 million, comprised of $168 million for sustaining and infrastructure and $97 million for upgrades. Anticipate Q2 capital expenditures disproportionately high. Full year depreciation expected to be $310 million, cash interest expense ~$45 million. Effective tax rate ~25% to 30%. SG&A to stay flat at approximately $95 million before share-based compensation expense. Share-based compensation guidance range $25 million - $45 million. Long-term target to achieve net debt to adjusted EBITDA of less than one times, plan to reduce debt levels by at least $100 million while allocating up to 50% of free cash flow to share repurchases.

International risks: Disruptions in Middle East including crew travel disruptions, supply chain challenges, and increased operating costs due to ongoing tensions. Market risks: For U.S. market, misconception about available rigs ready to go, potential tightness in market impacting ability to quantify pricing increases immediately. In Canada, doubles market still oversupplied with competitive pricing pressures.

Q: Expectations for U.S. pricing improvement in back half of year and margins.

A: Pricing increases discussions with customers, will start to be reflected in second half, will have meaningful impact on day rates and margins, but U.S. market has rigs not ready to go back to work requiring capital and time, can't quantify yet.

Q: Rigs churning or in between contracts going to new higher rate contracts.

A: Most rig increases in second quarter replacing churn, demand increase from oil-based customers in Q3 and Q4, with follow-on effect in gas-based customers.

Q: Change in demand from gas basins.

A: Customers less reactive to spot price due to fundamental drivers like LNG growth and gas-fired data center power demand, adding rigs in Marcellus and Haynesville.

Q: Incremental rig ads, availability of idle fleet, need for upgrades.

A: Room to reactivate 15 or so rigs without increasing capital plan, staffing up, carrying extra crews through second quarter to meet demand.

Q: Canada mix shift between super singles and super triples.

A: Demand for super triples strong, increasing demand for super singles in heavy oil activity, not seeing Canadian rig count grow but own rig count growing due to performance differentiation.

Q: U.S. market contract durations, pricing increases translating to margins.

A: Expect benefits from pricing increases, stronger contract book in second half, possible offset from CWC rigs and 1,200 horsepower rigs, uplift on margins and contracts on 1,500 class rigs.

Q: International disruptions in Q1, reactivation costs, longer term international business.

A: Rig reactivation cost in Q1 was $2 million, disruption includes crew travel and logistical challenges, tough to quantify, longer term want to grow business with good returns, some optionality on international business.

Q: Canada rig upgrades, scope and timing.

A: Rigs going into multi-year contracts, capital spend recouped within term, taking ST-1200 rigs and upgrading to leading edge of fleet, expect a few such upgrades a year over next couple years.

Q: U.S. rig count, commodity price impact.

A: U.S. count 35 today, 38-39 expected to exit quarter, normal churn, reasonable to assume adding more than three to four rigs per quarter.

Q: Pricing in Canada lower class rigs.

A: Historically higher commodity prices lead to all rate class pricing up, but not seeing indication of lower class rigs pricing up today