Good evening, ladies and gentlemen. Welcome to the Trican Well Service Acquisition and Investment Investor Update Conference Call and Webcast. As a reminder, this conference call is being recorded. I would now like to turn the meeting over to Mr. Brad Fedora, President and CEO of Trican Well Service Ltd. Please go ahead, Mr. Fedora.
Okay. Thanks for joining us, everyone, and good afternoon. A quick outline on how we plan to conduct the call. Scott Matson, our CFO, will address all the forward-looking information that we may discuss during this call. I'll provide an overview of the acquisition. I'll mirror this press release fairly closely, but we'll leave some time at the end of the call for questions. We'll try to wrap this up as quickly as possible. Over to you, Scott.
Thanks, Brad. Before we begin, I'd like to remind everyone that this conference call may contain forward-looking statements, financial outlooks, and other information regarding Trican and the pro forma company following the completion of the recently announced acquisition of Iron Horse Coiled Tubing Inc and the approved increase to the quarterly base of dividend following and pending the closing of the transaction. Please note that any remarks on this call may include our expectations, future plans, and intentions that may constitute forward-looking information.
Such forward-looking information is based on estimates and assumptions made by management regarding, among other things, the proposed acquisition, anticipated benefits, anticipated employment levels, and opportunities for the pro forma company, certain pro forma operational, financial, and other information, the anticipated completion of the acquisition and the timing thereof, and any expectations regarding the timing, source of funds, and ability to pay the base dividend increase as outlined. Actual results may differ materially from the conclusions, forecasts, or projections expressed as part of such forward-looking information. Please refer to our most recently filed press release describing the acquisition, which includes a summary of the material assumptions as well as risks and factors that could affect Trican and the pro forma company's future performance and our ability to deliver on forward-looking information. Press release is available both on our website and on SEDAR+. Over to you, Brad.
Okay. Thanks, everyone. This is a very exciting acquisition for Trican. Iron Horse is one of the few competitors in North America, frankly, that shares very similar values and ways of doing business with Trican. They've maintained balance sheet flexibility. They're recognized as an industry leader in their service or in their area. They continue to deliver for shareholders through both up cycles and down cycles. Most importantly, they've built their business on servicing the customer, providing them sort of a value-based solution. During the whole time, they've maintained a very efficient corporate organization. We've coveted this business for quite some time now. Believe it or not, I think my very first conversations with the Iron Horse team go back to 2013. Since then, we've got to know the team personally.
People here have worked with some of the people at Iron Horse and other places. It is what we think is going to be a very easy acquisition for us. Both companies share similar corporate values from a customer-focused and efficiency perspective. As everybody knows, a successful services company needs to be focused on providing the customer value. It is not about price. It is about value. I think both Iron Horse and Trican understand that concept very well. Iron Horse has always been focused on returns and making sure that the company is profitable. Very importantly, they operate in pretty much all of the areas that we do not.
Up until now, we've been very Montney, Northeast British Columbia, and Deep Basin and Duvernay focused, whereas Iron Horse has been more focused to the east in some of the oilier plays like the Viking, the Shaunavon, Mannville Stack, Cardium, and recently Charlie Lake. We look at this acquisition as sort of a geographic and commodity diversification. Not to say that we don't believe in our current strategy of focusing on sort of LNG-based activity. That's fully intact. I think, as everybody knows, the first LNG shipment left this weekend. We are very excited about that part of the world. This is often sort of a forgotten part of the pressure pumping world. It has been incredibly consistent for Iron Horse over the last 10 years. They have sort of quietly done very well and built a very profitable company.
Because they're private, people just haven't been able to follow it. Like I said, we've coveted this organization for a while, and we're glad that we will soon own it. What we love about this company is, again, they built this company on customer relationships and a value-based service. We will take our best practices from both companies and deploy them across all of our operations. We have a sort of fairly extensive infrastructure that we're happy to share with Iron Horse as they move their operations north and vice versa. They have infrastructure in eastern Alberta, Saskatchewan, that we are going to use to try to expand our cementing business. Very complementary from that respect. We have spare equipment that they can use and reduce their growth capital to almost zero.
We're going to leverage off each other's customer relationships to see if we can grow both of our businesses and making sure that the customer gets the best possible service offering, given that each of us have different expertise in different areas. Iron Horse, for the most part, has been focused on coil-activated fracking. So their coil units are part of their fracturing spread. Their business model very much is they get onto location, they rig up very quickly, they complete the fracs, they rig out, and they're onto the next well. They're very difficult to compete with. They've had sort of 20 years of practice. I can tell you from personal experience, both at Trican and Canyon, where we worked before, it's a very difficult company to displace. They're just that good at what they do.
As a result, they do not have to get market share with price. If you are getting market share with value for the customer, that is a sustainable advantage going forward, which we will continue to build on. The other things that I will talk about is maybe just the key deal terms. I think the press release outlines the cash portion and the share portion. At the time we wrote this press release, it was about a $230 million deal. We acquired EBITDA less than 3 x, so very attractive. As a result, the transaction is very accretive to EBITDA, free cash flow in particular, and earnings, which is what we care about. I know the industry often quotes EBITDA, but free cash flow and earnings are much more important metrics of success than EBITDA. The major shareholders have entered into one-year lock-up agreements.
What's important in this transaction is that the team remains intact. They are all long-term believers in this industry and this business. They wanted shares, not cash. In fact, we had to convince them to take a little bit of cash. As a result, they're looking at the next five years thinking that together we're going to build something pretty special here. The team stays intact. Iron Horse will run as a sort of a wholly owned, independent division of Trican. We certainly do not want to get in their way. They run their business very well, and we'll continue to let them do that. The transaction is expected to close, obviously, in the second half of this year. It was a private transaction, so there's no public disclosure.
Really, all we're waiting on is Competition Bureau approval, which we would expect in the next few months. I think it's a pretty straightforward transaction. Because this is an accretive transaction for us, we've decided that we're going to increase our dividend by 10%. We'll be paying $0.055 per share per quarter going forward or $0.22 per share per year. That increase will be dependent on closing of this transaction. A lot of the questions that we've been receiving today is, "How do you feel about your debt levels? How are you going to approach your NCIB going forward?" We are only about a 1/4 x EBITDA leveraged post this transaction. We're very comfortable with these debt levels. This could stay permanent.
We'll likely chip away at it over the next few years to bring the debt down, but maybe not, depending on what's available. With respect to the share buybacks, there's nothing in this transaction that would prevent us from continuing on with the pace that we've been going at for the last few years. If anything, we have higher free cash flow to work with. The idea is that we're combining the two companies' cash flow to deploy equipment as effectively as possible in the basin, continuing on with our strategy. We're very technology-focused, and we'll continue to do that. Really, nothing's going to change. We'll continue to grow our business both in the Montney and the Duvernay and in the oiler basins to the east. We look at the NCIB as sort of an investment. We're in ourselves.
We still think it's a very attractive investment for our company. I do not expect that will slow down at all. I think we will continue to go on with our share purchase at the same pace as we have been deploying the capital recently. I think I am going to stop there, and we could probably go to questions.
Thank you. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. The first question comes from Waqar Syed with ATB Capital Markets. Please go ahead.
Thank you for taking my question, Brad. Scott, congrats on a great deal and a very solid market reaction to it. Brad, just trying to understand, you mentioned that the dividend gets paid September 30th. Are you assuming the deal closing prior to that?
Yeah, that's our assumption. I mean, we don't know anything you don't know, but it feels like it's a fairly straightforward transaction that should be fairly easy to review by the Competition Bureau. We're hoping it's closed by then and that we can have our first dividend increase at the end of September.
Yeah. Now, have you had a conversation on the deal with Iron Horse's customers as yet or still too early? If so, what is their reaction?
No, I think it's still a little bit early. We sort of dispersed. They went to their operations that are sort of three hours east of Calgary. They're talking to their customers and their employees. We've been doing the same. I think it's probably too early to really opine on their responses at this point. Nothing has given me any indication that it's anything but positive.
Okay. On the cementing business, you seem to imply that there's going to be a growth area for you to maybe expand into eastern Alberta, Saskatchewan. Is that you're thinking that through organic means, or do you think you're going to do that inorganically?
No, at this stage, I would say we're referring to organic growth. Our market share in the Montney and Duvernay is very high. As a result, we've somewhat neglected some of the oilier parts of the basin to the east. Our market share is very low there. We're going to leverage off Iron Horse's infrastructure and customer relationships to grow that business. As everybody knows, we love our cement business. We hope to grow it.
What is the timing of that growth? Do you think that there will be some accretive revenues generated from that in 2026, or is this kind of several years out?
No, I think it'll be slow but sure over the next, starting relatively soon. I think we'll see some of that growth happen late this year and definitely next year.
Okay. You were implementing that ERP system, and you've started doing that, making some investment into that. How does that investment in that program change with this acquisition?
Yeah, Waqar, nothing really changes on that front. We'll continue to drive ahead. As we indicated, Iron Horse will run effectively as a standalone operating entity and business for the time being. Eventually, the two will join together, and there will be one happy family from a systems and a back office perspective. Nothing's changed in terms of our pace and our timing on the base system stuff that we're working on at this point.
Your standalone Trican's G&A costs have been running, let's say, $12 million-$13.5 million. How does that change with this acquisition?
I'm probably not going to get into the details of the numbers yet until we get closer to close, Waqar, but I would say.
Pro forma basis.
Yeah, pro forma basis. As we indicated, it's a fairly small and tight and efficient corporate team on that side. So it's a fairly low G&A carry.
A few important points I would make. G&A as a percentage of revenue will go down. Maintenance capital as a percentage of revenue will go down. As a result, our free cash flow as a percentage of revenue will go up. Our earnings as a percentage of revenue will go up as well. From a financial perspective, it is a very positive acquisition.
Absolutely. That is all from me. Thank you very much, and congrats again.
Thank you.
Thanks, Waqar.
The next question comes from Josef Schachter with Schachter Energy Research. Please go ahead.
Good afternoon, Brad and Scott. Congratulations on a great deal. The market loves it. Can you talk about the equipment and how it compares with yours? You mentioned that you'd be able to put some of your surplus equipment in theirs. The electrification work that you've been doing, are they doing the same with their ancillary equipment? Just to kind of give us how you mold the equipment. Do they expense nozzles and all the rest of it similar to what you do? Just to get a feel for those things.
Yeah. I'll be a bit of a long story here, but their business model is very dependent on efficiency in the field, their ability to get onto location, perform well, move on to the next location. As a result, they can't have a blender failure. They can't have a pump failure. They're not sitting on a pad for three weeks with spare equipment off to the side where you easily change things in and out. Because of their business model, they have maintained their equipment extremely well. From an age perspective, it's very similar to ours. They're not focused on things like tier 4 and electric backsides just because it's not appropriate for the areas that they're working in because they're just not on location long enough to justify all the setup times for that.
Because they're not pumping at the same sort of rates and volumes and pressures that we are, they burn a lot less fuel. There is less of an economic incentive for them to get into natural gas fuel pumps and electric backsides, things like that. That is not a focus for them. I mean, I think it was starting to become a focus for them as they were expanding north, but we will provide that equipment going forward. As a result of that focus for us on natural gas fuel pumps and electric backsides, we have spare conventional equipment, which they use in their field operations every day. Naturally, if we can move that equipment into their hands where they can put it to use, have zero expansion capital, we are already depreciating that equipment every quarter as it is.
Hopefully, they'll be able to leverage off of our infrastructure and spare equipment to expand. As a result, we're expanding with almost no capital. Did I catch everything?
Yeah, just.
Yeah, thanks on that. On coiled tubing, would you be able to move some of your equipment into their area or theirs into your area if business picks up? How is the ability to move equipment between the two sides going forward for efficiencies and lower cost?
Yeah. Yeah, they're fairly different businesses. Our coil tubing division is very much a service business, like clean-outs and mill-outs and things like that sort of after the fact. Whereas their coil tubing is really a part of their frac spread because they're pretty much mostly fracking with coil at all times. They've done a great job. They've built all masted coil units, so very quick, easy rig up and rig outs. Ours are more conventional, meaning we use a crane to hold the injector. So they're sort of fairly different businesses. There's not going to be a lot of back and forth there. They're very good at coil-activated fracking. Certainly, we will look to learn what they know and deploy it if the opportunity arises.
Super. Thanks very much for answering my questions, and congratulations on a great deal.
Thank you.
A patient deal.
Yeah. I was about 20 lbs lighter, I think, when I had that first conversation, maybe more.
The next question comes from Keith Mackey with RBC Capital Markets. Please go ahead.
Hey, good afternoon. Maybe just talk a little bit about the competitive dynamics of the regions that Iron Horse operates in. I know they're a little bit separate from the standard players that you normally compete with in the Montney, but how is the competitive structure of the areas that Iron Horse operates in? How many different companies do they compete against? Is it similar dynamics where price is important? I know value is key as well. Can you just kind of take us through that a little bit more, Brad?
Yeah. I wouldn't say the competitive dynamic is really any different. I mean, every company is everywhere in the basin, give or take. Everybody, including us, has been more Montney-Duvernay focused. They probably do not have the same number of legitimate competitors on a daily basis as we would. We would be bidding on their work. Of course, the other Canadian frac providers would be bidding on their work. Do they have the expertise to really do it as well as they do? Some more so than others, obviously. We have taken customers from Iron Horse in the past just like they have taken customers from us. I would not say that. I would say it is slightly less competitive than maybe the Montney. I would say also their areas, like the Montney, it takes practice to do it well.
They've been practicing for a very long time. They're a tough company to compete with. I wouldn't say the competitive dynamic is all that different, frankly. What else were you asking, Keith?
That was pretty good on that one. I was hoping to get your thoughts on capital requirements for the next year to two. You mentioned maintenance capital goes down, consolidated. What capital requirements do you expect to have to add with Iron Horse?
Oh, none. I think most of their growth capital, we could provide to them with equipment that we already own. I mean, there's always different pieces that they want to get new versions of it, etc. For the most part, their maintenance capital would be, as a percentage of revenue, would be 1/2 of ours, maybe even a little less than that. Our maintenance capital, roughly, as everybody knows, is 4% of revenue. You can figure out from there that they're less than 1/2 of us. Their growth capital, I mean, one of the advantages of this deal is that we have enough infrastructure throughout the basin between the two of us that we should be able to leverage off that infrastructure that's already in place.
We have enough equipment that there's no reason for them to spend money on new pumps and things like that. There's lots of equipment that we currently own but do not use that is in great shape that they could put to use.
Yeah. Got it. Just finally for me, do you think that this is enough to change the overall competitive dynamics of the basin, or is it more of a complementary deal as you've discussed and things will stay the same from a competitive standpoint in terms of pricing and number of bidders on projects and that type of thing?
Yeah. This is not a situation like, I mean, I know the street often says, "Hey, you've got your industry lacks price discipline. Why don't you take out one of your competitors, the low-price bidder?" Then you will sort of fix distinct bids and you get the industry pricing up better. This is not the case at all for this transaction. Both us and Iron Horse have a similar view on pricing. We are both sort of happy to let it go if it does not make sense financially. The way we view this is we are basically combining two best-in-class businesses that have grown based on value, not price. We both have very long-term customers, almost no customer overlap. This fits in well with our long-term strategy of not just providing good service to our customers, but generating returns for our shareholders.
I think they would have the exact same view. It is not a merger or an acquisition, I guess, where we think we are going to fix pricing environment. We both have very similar pricing philosophies. This is taking two of the best companies in the basin, putting them together to make a bigger, stronger, better version going forward.
Got it. Appreciate the comments. I'll turn it back. Thank you.
Once again, if you have a question, please press star, then one. The next question comes from John Gibson with BMO Capital Markets. Please go ahead.
Good afternoon and congrats on the great acquisition here. I just had one. Obviously, it's a private company you're acquiring, but wondering if you could talk about the historical sort of earnings profile of Iron Horse. Is it mirrored Trican's in terms of being fairly stable? Obviously, pressure pumping can be volatile, but your earnings, especially relative to your peers, are pretty stable. Is that the same case for Iron Horse? Do you sort of expect a similar earnings profile going forward?
Their earnings profile, if you look back over 10 years, would be considerably more stable than any public pressure pumper. The earnings stability is greatly improved. I will not say greatly improved just from a size perspective, but they would have a much, if you graph the last 10 years of revenue, EBITDA, and earnings for them versus a Trican or any other public pressure pumper, they would come out on top of that.
Okay. Great. I really appreciate that. I'll turn it back. Thanks.
Thanks, John. Okay. That looks like that's it. Thanks, everyone. Thank you for your time. The management team here at Trican is available to take calls over the next day and into next week. If you have anything more, please let us know. Thank you again. Have a good evening.
This brings to a close today's conference call. We may disconnect your line. Thank you for participating and have a pleasant day.