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Research Note - Calfrac Well Services Ltd. (CFW:TSX,$7.71|N/R) - Everything Is Falling Into Place

Calfrac Well Services reported Q3/22 financial results this morning that beat street consensus and corporate guidance announced September 13th. The quarter was driven by strong pricing and utilization in all three regions, especially the U.S. segment which began activating its tenth fleet during the quarter. Management highlighted that this quarter represented CFW’s best quarterly adjusted EBITDA margin in over a decade. 


Highlights from the quarter include:

  • Revenue of $438M vs. consensus of $422M and guidance of $400-430M (+67% YoY, +38% QoQ)

  • Adjusted EBITDA of $91M (21% margin) vs. consensus of $80M (19% margin) and guidance of $75-85M

  • Operating cash flow of $14M and capex of $25M

  • Cash and equivalents of $12M and total debt of $412M


Regional Commentary

CFW’s U.S. segment reported 71% YoY growth and 23% EBITDA margin ($6M quarterly EBITDA per fleet). This was driven by consistent utilization and improved pricing across its nine fleets. Fracturing revenue per job increased 68% YoY and the number of fracturing jobs increased 2% YoY. CFW also began reactivating an additional fleet during the quarter; we expect 12 fleets by the end of 2023 (previously 13). Management guided for $20-25M in annual EBITDA per fleet; increased from $20M on the last call.

The Canadian segment grew 79% YoY and posted 27% EBITDA margins ($9M quarterly EBITDA per fleet). Fracturing revenue per job increased 37% YoY and the number of fracturing jobs increased 31% YoY. CFW expects consistency from its four fleets and five coiled tubing units in Canada through 2023. Management is expecting steady pricing and robust demand in Canada. The Argentina segment posted 34% YoY growth and 14% EBITDA margins. Management expects positive momentum through 2023 in Argentina.

Corporate Updates

On September 29th, CFW amended and restated its credit agreement, extending the terms to July 2024. The Company’s revolving credit facilities consist of an operating facility of $45M and syndicated facility of $205M. Subsequent to Q3, $8.6M of 1.5 Lien Notes were converted to common shares; the remaining principal amount is $47M.


Calfrac currently trades at 3.2x 2023E EBITDA compared to its peers at 3.7x 2023E EBITDA. While 2023 EBITDA consensus have increased since our last note, we continue to believe the current consensus of $292M in EBITDA is light given that management has been comparing the current environment to 2017/2018 when CFW posted $300M+ in EBITDA using the same assets (which it also posted in 2011 and 2014). While we think the entire oil services market is undervalued, CFW remains a key standout due to the upside to the current consensus. If CFW were to trade back to a mid-cycle multiple of 6-7x EBITDA, the stock would be worth over $15.00/share.

20221102 - M Partners - CFW - Q3 Financials
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