Calfrac Well Services. Q1 2010 Earnings Call Transcript

Calfrac Well Services. Q1 2010 Earnings Call Transcript
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Calfrac Well Services. (CFWFF.PK)

Q1 2010 Earnings Call

May 6, 2010 12:00 p.m. ET

Executives

Doug Ramsay - President and CEO

Laura Cillis - SVP of Finance and CFO

Gordon Dibb - COO

Tom Medvedic - SVP of Corporate Development

Analysts

Chad Friess - UBS

John Tasdemir - Canaccord Adams

Roy Ma - Stonecap Securities

Dana Benner - Thomas Weisel Partners

Brian Purdy - National Bank Financial

Roger Serin - TD Securities

Shawn Boyd - Westcliff Capital Management

Todd Garman - Peters & Company

Kevin Lo - Firstenergy Capital

Jeff Fetterly - CIBC World Markets

Shawn Boyd - Westcliff Capital Management

Presentation

Operator

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Good day. My name is Simon [ph], and I will be your conference operator today. At this time I’d like to welcome everyone to the Calfrac Well Services First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions) Thank you. Mr. Ramsay you may begin your conference.

Doug Ramsay

Thank you, Simon. Good morning, and welcome to our discussion of Calfrac Well Services first quarter results. Before we get started I'd like to outline how this conference call will be conducted.

Laura Cillis, our Senior Vice President of Finance and Chief Financial Officer will begin an overview of our quarterly financial performance. I’ll then provide review of operation, discuss our outlook for 2010. After which Laura Cillis, Gordon Dibb and Tom Medvedic and I will be available to answer questions that you may have.

I will now turn the call over to Laura.

Laura Cillis

Thank you, Doug, and thank you, everyone for joining us today. Before I begin my discussion this morning, I would like to know that this conference call will contain certain statements and/or expressions that could be consider to be forward-looking statements, under applicable securities legislation. Our assessment of future plans and operation is based on expectation that involve a number of business risks and uncertainties.

These risks are set out in detail in our most recently filed Annual Information Form, and include but are not limited to, commodity prices for Oil and Natural gas, weather conditions, currency exchange rates, national and international economic condition, political uncertainties, product, and supply availabilities, labor shortages, and the ability of our customers to access credit in capital markets. These conditions could cause the Company’s actual results to differ materially from our current expectations.

During the first quarter of 2010, Calfrac achieved the following financial results in comparison to the first quarter of 2009. Consolidated revenue increased from a 180.4 million in 2009 to record 227.1 million, with increased revenue in Canada, Russia and Latin America being offset by lower reported revenue in United States.

Operating income which is income generated after operating expenses and selling, general and administrative expenses was 17% of revenue, which increased from 15% generated in the first quarter last year.

EBITDA was 40.9 million for the first quarter of 2010, a 58% increase compared to the same quarter last year, and net income was 13.6 million or $0.31 per diluted share compared to 5.5 million or $0.15 per share in the first quarter of 2009.

In Canada, total revenue increased by 57% to 133.6 million in the first quarter of 2010 from 85.1 million for the same period of 2009. Saskatchewan revenue from Canadian operations was 123.3 million compared to 72.5 million in 2009.

Average revenue per job for fracturing increased by 44% primarily due to an increase in the completion of larger jobs in the Montney and Deep Basin regions combined with an increase in oil related fracturing in the Cardium play located in central Alberta, and improved pricing as the quarter progressed.

Significant leverage was achieved with the utilization of the added horsepower from the Century acquisition last November.

Canada’s operating income for the first quarter of 2010 was 39.4 million, as compared to 9.3 million in the same period of 2009. As a percentage of revenue, the first quarter of 2010 was 30% compared to 11% in 2009. Operating margins in the first quarter of 2010 were positive impacted by the higher activity, better pricing and larger job sizes.

For the United State, total revenue was 56 million, a decrease of 18% over the same quarter of last year. The decrease was primarily due to the depreciation of the US dollar, competitive pricing pressures, and lower cementing activity levels, this was partially offset by higher fracturing activity levels in the Rocky Mountain region and increasing utilization associated with fracturing operations in Pennsylvania.

Operating income decreased from 17.2 million at 25% of revenue in 2009 to 4.1 million, which was 7% this year. Operating margins to this segment have been negatively impacted by the reduced pricing levels, the higher relative cost based during the startup period for fracturing operations in the Marcellus and higher equipment repair expenses due to long sustained pump time and limitations on pumping capacity in certain markets for the unconventional resource plays. This was partially offset by the impact of the depreciation at the US dollar.

Calfrac’s revenues from its Russian operation, during the first quarter of 2010 increased from 15 million in 2009 to 17.6 million mainly due to higher coiled tubing and fracturing activity levels, as a result of a larger equipment fleet and customer based combined with an increase in fracturing job sizes offset partially by the impact of long periods of cold weather on equipment utilization during January and February and a depreciation of the Russian rouble by 5%.

The provision of proppant for a new customer in Western Siberia and higher fuel consumption and downtime driven by persistent cold weather during the first two months of this year, resulted in operating margins decreasing from 21% in 2009 to 4% during the first quarter of 2010, despite the higher revenue base.

Latin America, which consists of our Mexican and Argentinean operations, generated revenue of $19.9 million in the first quarter of 2010, compared to $11.8 million in the same quarter of last year. The increase in revenue was primarily due to higher fracturing activity with the expansion of the company’s fracturing operations into the Chicontepec region during the second quarter of 2009, and the commencement of cementing operations in Mexico during the third quarter of 2009. Offset partially by the depreciation of the Mexican and Argentine peso versus the Canadian dollar, lower fracturing activity and smaller job sizes in the Burgos region of Northern Mexico combined with smaller job sizes in Argentina.

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