Precision Drilling (NYSE: PDS) reported Q1 EPS of $0.08, $0.13 better than the analyst estimate of ($0.05). Revenue for the quarter came in at $434 million versus the consensus estimate of $308.31 million.

• Revenue of $434 million was an increase of 8% compared with the first quarter of 2018.
• Net earnings of $25 million or $0.08 per diluted share compares to a net loss of $18 million or negative $0.06 per diluted share in the first quarter of 2018. Excluding the $24 million after-tax impact of the Mexico asset disposal and restructuring charges, net earnings for the first quarter of 2019 were $1 million or $0.00 per diluted share.
• Earnings before income taxes, gain on repurchase of unsecured senior notes, finance charges, foreign exchange, impairment reversal, gain on assets disposals and depreciation and amortization (Adjusted EBITDA see “NON-GAAP MEASURES”) of $108 million was 11% higher than the first quarter of 2018.
• Funds provided by operations (see “NON-GAAP MEASURES”) was $96 million versus $104 million in the prior year quarter.
• First quarter ending cash balance was $101 million, up $4 million from December 31, 2018.
• First quarter capital expenditures were $71 million.
• Repurchased and cancelled US$10 million of our 7.125% notes due 2026 and US$3 million of our 5.25% notes due 2024 and initiated the redemption of US$30 million principal amount of our 6.50% senior notes due 2021 with the redemption payment occurring on April 16, 2019. Subsequent to the first quarter, we initiated the redemption of US$20 million principal amount of our 6.50% senior notes due 2021. The redemption payment will be made on May 20, 2019 and will bring our year to date 2019 debt retirement to approximately $84 million.
• Sold Mexico-based drilling assets for proceeds of US$48 million resulting in a gain on sale of US$24 million and US$4 million impairment reversal.
• Sold our water treatment business.
• Subsequent to the first quarter, entered into a purchase and sale agreement to dispose of certain snubbing equipment for proceeds of $8 million. The transaction closed on April 16, 2019.

Precision’s President and CEO Kevin Neveu stated: “During the quarter, Precision delivered significant progress on our 2019 strategic priorities with announced debt repayments, strong financial results and technology commercialization progress. Revenue and Adjusted EBITDA increased year-over-year by 8% and 11%, respectively and we ended the quarter with an undrawn revolver and over $100 million of cash. We continue to deliver significant free cash flow across all geographies and reporting segments.”

“We recently divested several non-core assets and business lines as we continue to narrow strategic focus towards our High Performance, High Value land drilling segment. Announced asset sales proceeds totaled $77 million and will be used to fund our capex plan, allowing us to utilize cash on hand and funds from operations to accelerate our debt repayment initiatives with negligible EBITDA impact. By the end of May, Precision will have reduced debt levels by approximately $84 million including US$50 million of announced 2021 notes redemptions and completed open market repurchases of US$13 million of later maturity debt. We are confident in our ability to meet or exceed the high end of our targeted annual debt reduction range of $100 million to $150 million and our longer-term range of $400 million to $600 million by the end of 2021.”

“In the U.S., our activity for the quarter increased 23% from the prior year, compared with 8% for the industry with our outperformance continuing into the second quarter. Our current active rig count of 80 rigs has remained steady from the end of 2018, despite slightly declining industry activity levels, and reflects the success of our Super Series fleet investments and High Performance, High Value competitive strategy. Demand for our Super Series rigs continues to be strong as we are operating at record market share levels and have signed 16 term contracts during the first quarter, with 18 signed year to date. We will be completing a full SCR to AC ST-1500 upgrade to be delivered early in the third quarter, representing our sixth AC ST-1500 walking rig added to our U.S. fleet over the last twelve months, following three new-builds and two relocations from Canada.”

“In the Canadian market, takeaway capacity constraints and wide differentials experienced by our customers in the fourth quarter resulted in Precision’s activity declining 33% year-over-year, a trend that will likely carry through into the second quarter. In the first quarter of 2019, despite persistent market headwinds, our Canadian contract drilling, well service, equipment rentals and camps and catering businesses all generated strong free cash flow. Contract drilling generated higher year-over-year normalized margins and our Completion and Production Services segment reported a 126% increase in EBITDA. Although crude prices have improved, customers remain vague regarding drilling plans in the second half of 2019. Precision will remain focused on factors we can control by leveraging our scale, unmatched rig fleet quality and performance, and relentless focus on costs to generate continued strong free cash flow in Canada.”

“In the Middle East, we are pleased with our expanding presence and strengthened contract book. We recently announced three-year contract renewals for two of our rigs in the Kingdom of Saudi Arabia, with our third active rig contracted into 2022. In Kuwait, Precision signed one-year extensions on two rigs that were set to expire mid-year and remains on track to deliver our sixth new-build rig in July, which provides incremental cash flow and leverages our scale in country. Once delivered, we will have nine rigs operating on long-term contracts in the Middle East and are starting to see reactivation opportunities for idle rigs in the region.”

“Precision’s technology strategy displayed significant progress throughout the first quarter, led by increased utilization of our 31 Process Automated Control (PAC) systems currently active in the field. In the first quarter, we drilled approximately 200 wells utilizing PAC, an increase of 46% from the prior year. We continue to demonstrate to our customers our system’s ability to deliver consistent and repeatable, high-quality results while improving safety, performance and operational efficiency. Additionally, we are in the final stages to commercialize several apps, which include stick-slip mitigation, bit preservation and drilling harmonics. As an industry leader integrating automation technologies with drilling equipment, we continue to promote our digital culture and PD Analytics with our people, processes and systems to deliver value to our customers and realize our 2019 full-scale commercialization targets,” concluded Mr. Neveu.

For earnings history and earnings-related data on Precision Drilling (PDS) click here.