Q2/24 FIRST LOOK: INTERNATIONAL MARGINS DRIVE 6% EBITDAS BEAT
THE TD COWEN INSIGHT
Precision beat our EBITDAS estimate by 6%, due to a significant step change in International drilling segment gross margins (31% vs. our estimate/prior quarter of 22%). Given the contracted nature of its international operations, we expect that non-recurring items factored into the outperformance. We are looking to the conference call for details on this as well as Q3/24 margin guidance.
Event: Precision Drilling reported Q2/24 results. Impact: POSITIVE
Q2/24 Results: Precision reported Q2/24 EBITDAS of $125.0 million, 6% above our estimate of $117.7 million. The biggest variance between our estimates and actual results was a $5.3 million beat on International Drilling segment gross margins, although its unclear if this outperformance can be sustained in subsequent quarters. Specifically, Precision generated International gross margins of $23,101/day, above our estimate of $15,770/ day and the prior quarter of $15,539/day. In the Canadian drilling segment, margins of $14,423/day exceeded our estimate of $14,000/day and guidance of $13,000-14,000/day. Finally, G&A of $21.5 million was modestly below our estimate of $22.8 million. Details in Exhibit 1.
Outlook Commentary:
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Canada: With 74 rigs currently active, Precision's Canadian activity is up 25% y/y, and it expects that this trend will continue for the balance of Q3/24 vs. our prior estimates that contemplate a 21% y/y increase in Q3/24 drilling days. In 2025, management believes that industry demand may exceed supply for the 'Super Spec Triple' and 'Super Single' rig classes.
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United States: Precision currently has 38 rigs active (-5 rigs y/y) due to continued weakness in natural gas pricing and the impact of M&A activity. Management is now guiding to a 'stable' rig count in Q3/24 before increasing in Q4/24. This activity guidance is optimistic relative to our forecast, which pushes meaningful increases in the U.S. rig count back to H2/25.
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International: Consistent with prior guidance, management is guiding to eight active rigs for the balance of 2024.
Capital Allocation Priorities Unchanged: Precision continues to guide to 25% to 35% of free- cash-flow before debt reduction to share buybacks and debt reduction between $150.0 million and $200.0 million. Given typical seasonal working capital patterns, cash flow from operations was $174.1 million, allowing the company to reduce debt by $102.1 million ($102.8 million YTD) and increase cash by $17.3 million ($5.9 million decrease YTD).
Estimate Changes: We will update our estimates following management's conference call at 1:00 pm ET,