Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Resilient performance across many service lines despite challenges in pressure pumping.
- Sequential growth in EBITDA, indicating improved profitability.
- Strong demand and high utilization for Tier four DGB fleets.
- Solid performance in non-pressure pumping service lines, with downhole tools growing 7% and cementing up 1%.
- Strong balance sheet with a cash position of $261.5 million and significant free cash flow of $52.9 million.
Negative Points
- Overall sales declined by 4%, primarily due to a 17% drop in pressure pumping activity.
- Utilization in pressure pumping is below ideal operating levels, leading to white space in the calendar.
- Highly competitive frac market with pricing pressures and soft general activity.
- Ongoing challenges in the Permian basin due to excess frac supply and operating efficiency gains.
- Lower employment costs, including incentive compensation, indicating potential issues with employee retention or motivation.
Q & A Highlights
Q: When considering M&A in the U.S. market, what key products or financial parameters are you looking for?
A: We are focusing on areas with strong free cash flow fundamentals and acquisitions that are accretive from a cash flow and earnings valuation perspective. Valuations are becoming more reasonable, creating opportunities for well-capitalized companies like ours. Additionally, we value the people that come with a good M&A transaction, as they can help us move forward.
Q: How do current market dynamics in the pressure pumping business compare to prior markets?
A: Customer conversations remain competitive, with bids and quotes focusing on quality, services, and price. There is increased frac capacity in the market, making it more challenging. We remain disciplined, avoiding economically unattractive business, and continue to adjust our operations to compete successfully.
Q: What do customers need to see to restart or gain momentum in drilling and completion activity in the U.S. market?
A: Customers need to see stable oil prices that allow them to make money. They are maintaining discipline and pressing service providers on pricing and efficiency. If completion activity remains low, production will decrease, potentially balancing supply and demand and spurring additional activity.
Q: Given market softness, does it make sense to stock up on Tier four DGB engines?
A: We have been proactive in managing supply chain disruptions and have more engines than usual. While we are not actively playing the market on frac engines, there is an opportunity to take advantage of current conditions. Fabricators are not significantly reducing prices, but incremental improvements are possible.
Q: Do you see any actionable M&A opportunities in the second half of the year?
A: We are open to both tuck-in and transformational opportunities. We have been consistently looking for opportunities since our last acquisition, Spinnaker. While it is hard to predict, we are hopeful that at least one opportunity could be actionable this year.
Q: What are your thoughts on the technical services outlook for Q3 and Q4?
A: We do not expect significant changes in Q3 compared to Q2. While pressure pumping has been disappointing, other service lines have performed well. We hope for some improvement in pressure pumping, but overall, we anticipate similar performance in the near term.
Q: Can you provide context for the margin expansion in the Support Services segment?
A: The Support Services segment had a strong quarter, with good margin expansion despite a weaker rig count. While we do not see any specific factors that would lead to continued significant outperformance, the segment is well-positioned for steady activity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
