Precision Drilling (PDS) Q3 2024 earnings summary

Executive summary

• Achieved year-over-year growth in revenue, Adjusted EBITDA, and net earnings, driven by strong Canadian and international activity, offsetting a constrained U.S. market.

• Q3 2024 revenue rose 6.8% year-over-year to $477 million; Adjusted EBITDA increased 24% to $142 million, with net earnings nearly doubling to $39 million ($2.77/share).

• Debt reduced by CAD 49 million in Q3 and CAD 152 million year-to-date, reaching the low end of the 2024 target range.

• Share repurchases totaled CAD 17 million in Q3 and CAD 50 million year-to-date, aligning with the target of 25%-35% of free cash flow to shareholders.

• Increased 2024 capital spending plan to CAD 210 million for rig upgrades and strategic drill pipe purchases.

Financial highlights

• Q3 Adjusted EBITDA was CAD 142 million, including a CAD 200,000 share-based compensation recovery; margin improved to 30% from 26% in 2023.

• Net earnings reached CAD 39 million (CAD 2.77 per share), marking the ninth consecutive quarter of positive earnings.

• Funds provided by operations were CAD 113 million; cash provided by operations was CAD 80 million; liquidity exceeded $500 million at quarter-end.

• Canadian margins were CAD 12,877 per day, below guidance due to rig mix; Q4 margins expected at CAD 15,000 per day.

• U.S. daily operating margins in Q3 (excluding turnkey and IBC) were $10,888, flat from Q2; Q4 margins expected to decrease to $9,500 per day.

• International average day rates were $47,223, down 8% year-over-year due to non-billable days for rig certification.

• C&P segment Adjusted EBITDA was $20 million, up 40% year-over-year, driven by increased well-service hours and CWC integration.

Outlook and guidance

• Expect strong cash flow in Q4 and continued progress on debt reduction and shareholder return targets.

• Plan to reduce debt by CAD 600 million between 2022 and 2026, with CAD 190 million remaining; $410 million of target achieved since 2022.

• Targeting leverage below 1x net debt to EBITDA and increasing shareholder returns toward 50%.

• 2024 guidance: depreciation of CAD 300 million, cash interest expense of CAD 70 million, effective tax rate of 25%, and SG&A of CAD 100 million (excluding share-based compensation).

• Share-based compensation charges expected between CAD 40-60 million, variable with share price.

• Canadian rig activity expected to remain strong into 2025, supported by Trans Mountain pipeline expansion and LNG Canada startup.

• U.S. activity remains subdued due to volatile commodity prices and customer consolidation, but new contracts and LNG projects may drive future growth.

• International operations stable with all eight rigs contracted through 2025; further rig activations targeted.

• Well servicing outlook positive, with strong demand and firm pricing expected.

• Cost inflation pressures seen as largely behind, with ongoing focus on cost control.