*Disclosure: I own shares in PSI.to
Price: $14.37 CAD
MC: 1.12 billion CAD
EV: 1.04 billion CAD (I removed the cash used for IWS purchase post Q4 2024)
Yield: 3.7%
1 year performance: -4.3%
PSI reported this week. Results were a bit behind my expectations although the guidance was essentially what I was expecting as we moved into 2024. The stock was down 2.3% the day after earnings then bounced a bit today.
Quarter Recap
Q4 2024 revenue was down 1% on a consolidated basis.
They managed to grow revenue per industry day by 12% to offset the lower activity levels.
North America revenue was down 9% to 70.5 million.
International revenue was up 25% to 17.9 million.
Adj EBITDA came in at 38.9 million vs. 48.9 million last year.
This is down 21% form Q4 2022.
They mentioned increased costs and inflationary pressure on their fixed cost base.
A large increase in Energy Toolbase revenue (solar and energy storage market) was up over 100% but is much lower margin.
Took a 14.2 million fx loss due to significant devaluation in the Argentinian Peso.
They purchased the remaining outstanding shares in IWS for a total consideration of 88.3 million and the assumption of about 7 million in debt.
Dividend up from 0.12 to 0.13 each quarter.
Call Notes
They have increased their fixed cost base to support higher industry activity moving forward.
They feel there is growth opportunities in all areas of their business.
Expecting capex to be 75-80 million in 2024. There was about 5 million carry over from 2023.
The new Mud analyzer product won’t move the needle that much in 2024 but will contribute in 2025 along with some other enhancements.
There is pricing increase potential with new enhancements not necessarily from the broad inflation across the industry.
Some context to the opportunity they see in IWS:
IWS generated revenue of 45 million in 2023.
Could add 20-25 million in 2024.
Looking at IWS from a revenue per activity day, it’s not quite the same as drilling’s revenue per industry day but close. Revenue per industry day is at IWS is about 3x what drilling is, but it’s about 1/3 the market size. So netting out to about the same size as their drilling opportunity.
There is some active litigation going on with IWS that they couldn’t say much about. This is directly from the call, “the courts have granted a stay of the litigation proceedings while we await a decision from the U.S. patent office as to whether they will undertake a review of the validity of the competitors' patents.”
It sounded like they were more focused on investing in the business than buying back stock. They feel there are opportunities on both the drilling and completion side. They did mention that they like the flexibility of the buyback program, so this could change.
Closing Thoughts
As with PHX that reported last week, there isn’t much for me to add. I can see quite a bit of growth opportunity in the existing business. Adding on the IWS could be very material in 2-3 years for PSI. I was quite happy to see them outperform the industry activity levels. I think 2024 could see high single digit growth in the business not factoring in IWS which should push revenue growth to double digits. The great thing is that IWS has not resulted in an dilution.
I own PSI as part of a basket of OFS companies and I think it fits in well. They have some strong tailwinds and upcoming catalysts.
Currently trading at a tad under 7x EV/ttm EBITDA and under 6x EV/2024 est EBITDA.
Thanks for reading.
Dean
* long PSI