Precision Drilling (NYSE: PDS) reported Q4 EPS of $0.00, $0.05 better than the analyst estimate of ($0.05). Revenue for the quarter came in at $372 million versus the consensus estimate of $308.31 million.

Precision Drilling announces 2019 fourth quarter and year end highlights:

• Revenue of $372 million was a decrease of 13% compared with the fourth quarter of 2018.
• Net loss of $1 million or $0.00 per diluted share compared to a net loss of $198 million or $0.68 per diluted share in the fourth quarter of 2018. Our 2019 earnings per diluted share were $0.02, compared with a net loss of $1.00 per diluted share in 2018. In the quarter we decommissioned certain drilling and ancillary equipment that no longer met our High-Performance technology standards for a loss on asset decommissioning of $20 million that, after-tax, increased our net loss by $15 million and net loss per diluted share by $0.05. During the fourth quarter of 2018, we incurred goodwill impairment charges that, after-tax, reduced net earnings by $199 million or net earnings per diluted share by $0.68.
• Earnings before income taxes, gain on repurchase and redemption of unsecured senior notes, finance charges, foreign exchange, impairment of goodwill, reversal of impairment of property, plant and equipment, loss on asset decommissioning, gain on asset disposals and depreciation and amortization (Adjusted EBITDA, see “NON-GAAP MEASURES”) of $105 million was 22% lower than the fourth quarter of 2018.
• Funds provided by operations (see “NON-GAAP MEASURES”) was $76 million versus $93 million in the prior year quarter. Cash provided by operations was $75 million versus $93 million in the prior year quarter. The decrease in funds and cash provided by operations was primarily the result of lower activity and the non-recurring transaction termination fee that was received in the fourth quarter of 2018.
• During the quarter we reduced our debt by $59 million bringing our 2019 debt reduction total to $205 million with an additional US$25 million of our 6.5% unsecured seniors notes due 2021 redeemed subsequent to year end. Our 2019 debt repayments are expected to reduce our 2020 interest expense by US$10 million.
• Capital expenditures were $22 million in the fourth quarter, $8 million lower than the prior year quarter and consisted of opportunistic deployment of capital on long-lead items, pull-forward spend on certain maintenance capital and $2 million of capitalized recertification costs.
• Pursuant to our Normal Course Issuer Bid, we purchased and cancelled 16 million common shares for $26 million in 2019. Subsequent to December 31, 2019, we purchased and cancelled an additional 2 million common shares for $3 million, leaving us with 275 million common shares outstanding at February 12, 2020.
• Our 2019 Adjusted EBITDA from our Contract Drilling Services and Completion and Production Services segments were $429 million and $24 million, respectively, representing a 4% and 62% increase from 2018.
• We commercialized our AlphaAutomation technology offering with our 32 field-deployed systems earning commercial rates, drilling approximately 613 wells in 2019, an increase of 69% over the prior year.

Precision’s President and CEO Kevin Neveu stated: “During the fourth quarter, Precision’s strong financial results were led by rising Canadian activity in our Contract Drilling Services and Completion and Production Services segments, firm international activity, and flattening customer demand in the U.S. As a result of Precision’s High Performance, High Value strategy, market positioning in key basins, commercialization of AlphaAutomation, intense cost control and cash management efforts, we generated Adjusted EBITDA of $105 million and cash provided by operations of $75 million. Results delivered this quarter demonstrate Precision’s ability to consistently generate cash, reduce debt and repurchase shares.”

“In Canada, Precision maintained its record level market share, supported by leading market positions in the Montney, Duvernay and heavy oil regions. Our 26 AC Super Triples and over 60 Super Singles provide Precision an unmatched scale efficiency and competitive advantage throughout all key regions in the Western Canadian market. This momentum has continued into the first quarter of 2020, as seasonal customer demand has remained strong well into February. The Company reached a peak of 83 active rigs in January, compared with a peak of 62, up 34% from the first quarter of 2019 and has 80 rigs running today compared to 55 this time last year. Although longer-term Canadian demand will be driven by customer capital discipline and commodity prices, we expect our market positioning and scale in our Canadian Drilling segment to continue to generate strong cash flows throughout the course of the year.”

“In the U.S., Precision’s fourth quarter average rig count was in-line with our expectations and generated sequentially improved margins supported by firm day rates and aggressive cost management. Our rig count ended the year softer than anticipated, due to a large customer reducing operations and idling three contracted AC ST-1500’s. Precision remains confident in its ability to redeploy these rigs as the oil and gas operators continue to high grade drilling operations in 2020. We anticipate capital discipline, operating efficiency and industrial scale will remain central themes in the U.S. market and customer spending behavior will be largely defined by remaining within cash flow and maximizing drilling efficiencies. These market trends align well with Precision’s High Performance, High Value strategy, our Alpha technologies offering and our ability to deliver industrial efficiencies to our customers.”

“Internationally, the business remains a stable source of cash generation. Looking to 2020, Precision will continue to leverage its expanded scale in Kuwait and will prioritize reactivating idle assets in the Middle East region.”

“Precision’s Completion and Production Services segment finished the year on firm footing, generating strong free cash flow, improved margins and good progress on both pricing and market share despite a highly fractured market. Our team has focused and delivered on effectively managing all elements within their control including reducing fixed and variable costs, strong operational performance, training and crewing rigs and ensuring the integrity of the assets, all while continuing to effectively manage customer relationships. We expect customer spending in 2020 will largely be tied to the commodity macro and our scale and operational efficiency will continue to support free cash flow generation in the current environment.”

“Precision delivered on its 2019 strategic priorities established at the beginning of the year. First, the Company generated substantial free cash flow, allowing us to exceed our annual debt repayment targets for the second consecutive year by paying down $205 million of debt. Since the beginning of 2018, Precision has reduced its debt levels by $412 million, already eclipsing the low end of our four-year targeted debt reduction range of $400 million to $600 million by end of year 2021. For 2020, we plan to reduce debt by $100 million to $150 million and are now providing guidance for an additional year with a goal to reduce debt by $700 million between 2018 and 2022. Second, Precision continued to leverage its scale and High-Performance Super Series fleet to drive both strong operating margins and market share gains in the U.S. and Canada. Finally, the Company delivered on its technology initiatives for the year, achieving full commercialization of our AlphaAutomation system.”

“Achieving our AlphaAutomation commercialization milestone was a result of three years of field-hardening the technology with over 1,100 wells drilled to date, extensive training of over 100 crews and close collaboration with our customers to demonstrate the efficiency and value this technology delivers. Looking to 2020, we plan to deploy an additional 24 AlphaAutomation systems, driven by continued customer demand to maximize drilling efficiencies. Additionally, Precision remains focused on commercializing 15 or more AlphaApps, which will further expand our portfolio of technology offerings,” concluded Mr. Neveu.

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