Trican Well Service Ltd. (TCW) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to the 2020 Annual Meeting of Shareholders of Trican Well Service Limited. My name is Brad Fedora, and I am the Chairman of Trican. Due to the COVID-19 pandemic, we moved this meeting to a virtual format to ensure we keep our employees and shareholders safe, while preserving the right of shareholders to participate in the meeting. Should any shareholder or proxy holder wish to ask a question on a motion, they will have the ability to do so through the virtual shareholder platform. I would like to introduce the directors and executives of Trican who are participating in this meeting: Allen Brooks, Lead Director; Kevin Nugent, Director; Michael Rapps, Director; Deborah Stein, Director; Dale Dusterhoft, President, CEO and Director; Michael Baldwin, Executive Vice President; Robert Skilnick, Chief Financial Officer; and Chika Onwuekwe, Vice President, Legal, General Counsel and Corporate Secretary. For convenience, today's meeting will be conducted in 2 parts. In the first portion of the meeting, we will deal solely with the formal legal requirements for the annual meeting. After we conclude the formal part of the meeting, Dale Dusterhoft will provide a brief update on the company and answer any questions that you may have. The 2020 Annual Meeting of Shareholders of Trican will now come to order. I will preside as Chairman of the meeting, Chika Onwuekwe will act as secretary of the meeting, and representatives of Broadridge Financial Solutions will act as scrutineers. The notice of the meeting, management proxy circular and related materials were sent to shareholders of record on April 2, 2020, and to the directors and auditors of Trican. Broadridge Financial Solutions has confirmed proper mailing of these materials. I would ask that the secretary to file the declaration of mailing with the minutes of this meeting. The scrutineers have provided their preliminary report on attendance, and based on the total number of shares represented, I am advised that we have a quorum present at this meeting. Accordingly, I declare that the meeting is regularly called and constituted for the transaction of business. At this time, any registered shareholders or proxy holders that are logged in and who have not already submitted a proxy and wish to vote their shares may do so now by clicking on the Vote Here button on your screen. If you have submitted a proxy, you do not need to vote using the polls, as your vote will already have been counted. After the formal meeting and management presentation, there will be an opportunity for shareholders and proxy holders to ask general questions not directly related to the formal business of the meeting. I will now proceed with the matters under consideration at this meeting. The first item of business is to receive the financial statements of Trican for the year ended December 31, 2019. A copy of these financial statements, including the report to the auditors, has been mailed to each registered shareholder of Trican and to each beneficial shareholder who has requested them. There are copies of these documents available to shareholders upon request. Please note that we have asked certain shareholders and proxy holders to move and second routine matters of business. The next item of business is the appointment of auditors. May I please ask for someone to move and someone to second the motion regarding the appointment of KPMG LLP as auditor of Trican until the next Annual Meeting of Shareholders, and that the Directors of Trican be authorized to fix the remuneration as such?

So moved.

I second the motion.

Thank you. Based on the preliminary results, the resolution has been carried. The next item of business on the agenda today is to fix the number of directors that will hold office until the next annual meeting or until their successors are elected or appointed. May I please ask for someone to move and someone to second the motion to fix the number of directors to be elected at the meeting at 6?

So moved.

I second the motion.

Thank you. Based on the preliminary voting result, the resolution has been carried. The next item of business is the election of directors of Trican. A brief biography of each management nominee is contained in the management proxy circular of Trican dated April 2, 2020, and delivered to shareholders in connection with this meeting. May I please ask for someone to move and someone to second the motion for the election of Allen Brooks, Brad Fedora, Dale Dusterhoft, Kevin Nugent, Michael Rapps and Deborah Stein as directors of Trican?

Mr. Chairman, I move the 6 nominees be elected as directors of Trican to hold office until the next annual meeting or until their successors are elected or appointed.

I second the motion.

Thank you. I have received the preliminary voting results of the vote on the election of the directors, and I am pleased to announce that each of the management nominees received a majority of the votes cast to be elected, the particulars of which will be posted on SEDAR following this meeting or no later than the next business day after the meeting. The final item of business is the advisory vote on Trican's approach to executive compensation. May I please ask for someone to move and someone to second the motion that the ordinary resolution approving Trican's approach to executive compensation, as set out in the management proxy circular of Trican at April 2, 2020, and delivered to the shareholders in connection with this meeting, be approved on an advisory basis?

So moved.

I second the motion.

Thank you. Based on the preliminary voting results of the scrutineers, the votes cast on this matter in Trican's approach to executive compensation has been approved with approximately 91.47% of the votes cast in favor of the resolution. Accordingly, I declare the resolution to be passed. I now declare the polls closed. Final voting results will be posted on SEDAR following this meeting or no later than the next business day after this meeting. This concludes the formal business of the meeting. Unless there are any questions from the shareholders, may I please ask for someone to move and someone to second the motion that the meeting to be terminated?

I move that the meeting be terminated.

I second the motion.

Thank you. The motion is carried. I, therefore, declare the formal part of the meeting terminated. I would now like to invite Dale Dusterhoft to provide you with a brief update on the company.

Thanks, Brad. I'll first point you to our forward-looking statements that I asked you to review in relation to Trican and in relation to what we will be discussing at this meeting. And you'll see the slides show up on your screen, and the forward-looking statements are there. Okay. I'll now start in a very brief presentation on just an update on how the -- where the company is at and really what we're looking at going forward in these unprecedented times. We normally would do a little bit longer presentation but because of the virtual nature of this meeting, we're not going to be reviewing our first quarter in any detail. I will say that our results were published this morning. They're available on Trican's website. We also held an investor conference call this morning, and that's available on our website as well. So if you have questions regarding the first quarter, please reference to that and have a look at that. We were pleased with our first quarter results from an operational perspective. EBITDA numbers came in very close to where we thought they would be, considering that the second half of March was really severely affected by the COVID-19 response. So I did want to talk a little bit, first of all, about the response to COVID-19 within Trican, as this has been the predominant issue that we've been dealing with from a safety perspective. Essentially, we have no issues or we've had no cases of COVID-19 within Trican. And that's -- we're very proud of that, and we're very happy that our employees have taken this issue seriously and have also worked very hard to practice all the government guidance on social distancing and everything else. We did close our head office very quickly, essentially when the provincial governments closed the schools. We shut down our head office and our field offices as a precaution to having people together and passing on the virus. We have our office staff working from home. And I have to say that our IT systems have held up very well. We really haven't seen any kind of disruption in our business at all from the work-at-home atmosphere that we're in. In the field, we implemented social distancing, sanitization, health monitoring and crew isolation. And that has allowed us to still perform field work, both to protect our employees, other employees from other service companies, our location and our customers. And we've had that go very well for us. I think our customers have been very appreciated -- appreciative of the efforts we've undertaken. And we really haven't seen any field work held up at all because of the COVID-19 issue, other than the fact that customers have cut back their budgets pretty substantially in response to it. I did want to talk about the balance sheet, which is really the prime focus for the company and has been for some time now, but definitely during this downturn when you've seen such a sharp drop-off in activity. If you have followed Trican for some time, we have aggressively been deleveraging ourselves really for the last 5 years, essentially -- basically deleveraged ourselves by about $700 million since the previous cycle. And that was to position ourselves for times like this when we have unforeseen events come that in the service industry causes our revenue to drop substantially. And if you look at the slide that is on there, you can see our debt to tangible capital up to the end of Q4 of '19. This debt position that we now have has left us in a position of strength to get through this downturn, but also in a position of strength to take advantage of opportunities as we go through this downturn. We've also been very focused on returning money to our shareholders and a very disciplined capital -- or capital programs, which really hasn't seen us add any equipment to market in the last 5 years. We've been in a market that has been overcapacity in most of our service lines for that time, except for the odd quarter. And as a result of that, there hasn't been any justification for adding new equipment to the market or for that matter, expanding too much outside of our existing service lines. Investments that we have looked at have not met the hurdle rates that we've set. And so, if that being the case, we've chosen to give money back to shareholders. And you can see in the colored blue and red graphs on the left-hand side of your screen the amount of money we've returned to shareholders over a larger time frame basically, from 2006, both in dividends as well as share buybacks. And we think that this is being a prudent investment strategy for the company. And there -- part of this investment strategy, I believe, is why our share price has held up quite well during this downturn. If you look at the graph on the right, you can see a number of different colored lines. Trican is the gold-colored line at the top of the graph. I would say that our net debt position as well as our disciplined capital approach, they have both allowed us to have better relative share price even in spite of this significant downturn over the last while. And if you looked at the various lines that are on this graph, you would see our Canadian competitors on there, you would see oilfield services in red, which is from the basket, the Toronto Stock Exchange-traded oilfield services. And the dark blue line is North American pressure pumpers. So that's all pressure pumpers in North America. And in times like this, when debt is a large issue, we certainly find that investors have shield themselves in stocks and in companies that have a very low debt, and you're seeing that in our stock price at the present time. So what's our strategy for 2020? Well, number one is to keep our people safe for the COVID-19 virus. We have not returned to work yet. We will continue to monitor the situation. And when I say return to work is return to our offices to work. In the field, we're still performing work. But we'll continue to monitor the situation within Calgary and within Alberta for the various locations we have as to when we will have our people returning to the office, with the safety procedures in place. We'll continue to work on improving our safety record as a company. We made progress in all of our safety categories last year and had a very significant improvement in a lot of safety target areas for us, and we're pleased with the progress we're making. We think we can continue to get better in the first quarter. We actually did get better in all of our categories, and we are flat in one. But overall, very happy with the progress we're making on our safety within the company and the focus that our people have on it. A big part of what we have to deal with going forward is a smaller market. Our customers have substantially cut back their revenues through the second quarter -- or their work programs in the second quarter, which affects our revenue. And in the third quarter, they are going to have reduced programs from where they would have been in the first quarter or even last year. And so the key in our business always is to keep a high utilization on the active equipment we choose to run and to keep our costs very low. And if we do those things, we can squeeze out a little bit of positive cash out of our business. And so our focus will be to size our business properly so that we can keep a high utilization on what we're going to run in terms of equipment. In our conference call this morning, we stated that we're going to be running 3 out of the 8 fracturing crews that we were running in the first quarter. And in our cement and coil business, it will be kind of a similar downgrade in the amount of active equipment we're running. Keeping that utilization very high. So basically, no down days will be a focus for us. We are going to utilize all the government programs to provide financial assistance and keep our people working. There's a federal wage subsidy program, which we have applied for. We believe we qualify for that, as we are going to use extensively to try and keep as many people employed as we possibly can. There is a new abandonment program that the federal and the provincial governments have released. We've seen some response for that in our cementing business, and we'll continue to look at ways to access that pool of money to keep some of the activity in our cementing business going. Protecting our balance sheet will be a key, as I started with this at the start of the presentation. It's going to be our focus ongoing. It's always our focus, and even more so in the second half of this year. In this slide, it says we are nearly debt-free. We actually released in our press release this morning and in our conference call that we are debt-free. We are actually cash-positive at the present time as we've -- our clutches have come in quite well in the second quarter. And we've eliminated our debt at this point in time, and our goal is to kind of keep that at a minimum level all year long. Take advantages. We'd like to take advantages of some opportunities that we see once we see a line of sight to recover. Our strong balance sheet, our ability to cut our costs in our company, which is being a focus area of ours for really 3 years, and we made substantial progress in 2019 on this and continue to focus on this. Both of those things, the balance sheet and running a very cost competitive, high quality work, safe business, should allow us some opportunities that may come available once we see a line of sight that we're getting coming out of this COVID-19-related work slowdown. And we think that as a company, we'll be stronger coming out of it than we were going into it within our industry. And there are -- this will be relative strength compared to a lot of our competitors. And our long-term strategic priorities remain intact. We haven't changed them at all. And the fundamental one is in the circle on the left-hand side of your screen, which is to achieve the top quartile return on invested capital within our sector, within the pressure pumping business. We have to do that by providing safe, efficient, customer-focused service. That's really the foundation of our business at all times. And if we're providing great work in the field that really allows us to work for the right clients, allows us to generate better returns from our operations. And so that's priority #1, is making sure that we perform great work in the field, and we're always focused on that. And then the other 4 pillars, achieving top ROIC, you can see on the right-hand side, strengthening our existing service lines, fracturings, cementing, coiled tubing and any other accelerated service lines we may have. We haven't -- still have a lot of parked equipment in our company, and activating this parked equipment is a priority of ours so that we can get returns from it, as long as those hurdle rates can be met. We're not going to activate equipment that is working at a loss or that doesn't generate a sufficient hurdle rate to justify putting it into the market. And we are, and have been, selling equipment that we used to think is no longer fit-for-purpose and/or if we think we have too much equipment within the Canadian basin. We've looked at selling equipment outside the basin just to reduce our asset coverage here as well. Growing in our existing service lines. As I mentioned before, it's a disciplined growth that ensures that we focus all our return on invested capital and our ROIC hurdle rate has to be met. Returning value to shareholders through our share buyback program. We prefer the share buyback program over dividends, as we can turn it on and off a little bit easier, depending on our operational cash flow. I talked a little bit about selling excess in -- equipment out of the basin and generating returns for our shareholders and strengthening our balance sheet by that mechanism. And then a big one, and in particular, in a year like this one, is just absolutely reducing our cost to a minimum and continuing to do this on an ongoing basis. We have a number of Lean Six Sigma, we call the EEE initiatives within the company that we believe will prudently reduce our cost structure for this year, but also for many years to come. These are IT initiatives, these are automation initiatives, these are repair and maintenance, reducing repair and maintenance cost in our equipment through tracking of data, so it's data initiatives. There's a number of initiatives within the company, which we think will continue to lower our costs and also structurally leave us in a really good position going forward. So with that, there may be some questions that have come in online, and I will answer what I can on those.

Please zero in on cash flow for the year and what the best pieces are to position the company for both growth and support share value improvement.

Yes. So basically, the question is, how do we position ourselves to grow the company? I think we covered it during the presentation, or I covered it during the presentation. But essentially, a strong balance sheet is number one. That will position us, as we're coming out of this, to -- for a couple of things. First of all, we will be in a position to upgrade equipment, if equipment needs to be upgraded. We'll be in a position to take advantage of acquisition opportunities as we start coming out of this. And we'll be in a position to also potentially grow into other service lines, if we so decide to choose that. Whatever growth opportunities come in front of us, having that strong balance sheet and having some operational cash flow will be key to that. So I believe that, and you saw it in the share price slide that was up there, I believe our -- on the strategy we've had of returning money to shareholders and a disciplined capital approach to date as well as protecting the balance sheet has -- is showing up in our share price on a relative basis to people that may not have as good of a balance sheet or may have other issues in their company. So we're quite comfortable with the approach we've taken. We think it will add shareholder value. It's a tough year. But the one thing that we're very confident in is surviving this and not having a lot of risk of banking issues or covenant issues, as we stated in our conference call this morning.

There are no more questions that have come in as yet. So do you want to…

Okay. Well, thank you very much for your interest in Trican today. These are very unusual times for all of us, and certainly, for all of you attending a meeting like this virtually. I appreciate your interest in the company. And hopefully, we'll be through this soon. And I wish you all good health, ask you all to practice the government-recommended practices to keep yourself safe as well. Thank you.

Ladies and gentlemen, that now concludes your call. You may now disconnect.