CNX Resources Corporation (NYSE:CNX) Q1 2024 Earnings Call Transcript

CNX Resources Corporation (NYSE:CNX) Q1 2024 Earnings Call Transcript April 25, 2024

CNX Resources Corporation beats earnings expectations. Reported EPS is $0.45, expectations were $0.36. CNX isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to the CNX Resources First Quarter 2024 Q&A Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tyler Lewis, Vice President of Investor Relations. Please go ahead.

Tyler Lewis : Thanks, and good morning everybody. Welcome to CNX’s first quarter Q&A conference call. Today we will be answering questions related to our first quarter results. This morning we posted to our Investor Relations website an updated slide presentation and detailed first quarter earnings release data, such as quarterly E&P data, financial statements and non-GAAP reconciliations, which can be found in a document titled 1Q 2024 earnings results and supplemental information of CNX Resources. Also, we posted to our Investor Relations website, our prepared remarks for the quarter, which we hope everyone had a chance to read before the call. The call today will be used exclusively for Q&A. With me today for Q&A are Nick DeIuliis, our President and CEO; Alan Shepard, our Chief Financial Officer; Navneet Behl, our Chief Operating Officer; and Ravi Srivastava, President of our New Technologies Group.

Please note that the company’s remarks made during this call including answers to questions, include forward-looking statements, which are subject to various risks and uncertainties. These statements are not guarantees of future performance and our actual results may differ materially as a result of many factors. A discussion of risks and uncertainties related to those factors and CNX’s business is contained in its filings with the Securities and Exchange Commission and in the release issued today. With that, thank you for joining us this morning. And operator, can you please open the call for Q&A at this time.

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Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] First question is from Zach Parham with JPMorgan. Please go ahead.

Zach Parham: Hey, thanks for taking my question. First, just wanted to ask on New Tech. Earlier this week you announced two new ventures in that business one in OFS, and one in alternative fuels. Could you just quantify the potential cash flow generation potential of these two ventures and give us some detail on the timing of these two ventures generating some cash flow.

Ravi Srivastava : Hey, Zach, this is Ravi. Our guidance for 2024 is unchanged. Our free cash flow guidance for 2024 remains at $75 million a year from — for the New Tech business group by business unit, and as far as the future potential, these commercial opportunities are still taking concrete form. I think we’ll be able to talk more about of these opportunities in more in greater detail in the coming quarters, but we expect it to start ticking form towards the end of the end of 2024 and have a more meaningful impact in 2025 and 2026. So stay tuned.

Zach Parham: Got it. Thanks, Ravi. And then shifting gears a little bit. You were aggressive with the buyback again in the first quarter and over the last three quarters you’ve been really aggressive bought back at about double the level of free cash flow generation. It does seem like the buyback pace slowed a little bit in April. Can you just give us your latest thoughts on how you’re thinking about allocating free cash flow between buybacks and debt reduction going forward?

Alan Shepard : Yes. Rebound like we talked about in the prepared commentary on our unsecured maturity runway and kind of low secured debt gives us a lot of flexibility on a quarter-to-quarter basis. I mean, we’re always evaluating the pace and timing of buybacks. In Q1, we saw a real opportunity when the stock was trading in the 20s to figure out a lot there modulated a little bit later in the quarter as the stock kind of ran up. I think if you look at $50 million over the projected $300 million. There’s still a lot of room to buy back shares for the remainder of the year. So consistent with always we’re going to be flexible on trying to maintain flat to declining debt. No real changes to the strategy.

Zach Parham: Thanks. Appreciate the color next.

Operator: The next question is from Leo Mariani with Roth MKM. Please go ahead.

Leo Mariani: Hi. I just wanted to continue to focus a bit on the new tech businesses here, obviously, kind of a lot going on with the new kind of CNG LNG business as well as the OFS business. I was hoping you could speak a little bit more to what the physical mechanism here is on these businesses. I mean sounds like from the press releases there could be some type of proprietary devices that allow you guys to really capture the CNG without the aid of additional mechanical compression and just also on the well flow back as well. Presumably there’s some kind of proprietary device that you guys are using here. So maybe can you just kind of speak to that and give us a little more color on exactly what this product is that you’re going to be rolling out to folks?

Ravi Srivastava: Okay. Thank you. And thanks for the question, I haven’t heard the rest of questions but this might be my favorite question for this hour, because we want to talk about the technology that we have developed. We are pretty excited about it. It’s been in the works for a few years now. We’ve teased in the past earnings calls and we’re very happy that we’ve reached this milestone where we have engaged in the partnerships where we can start to bring these technologies to market. So to talk more about the technology what I would do is like I would break the technology into two segments. And the first step involves combining various discrete functions that are performed in a conventional flow back like pressure management, solids and sand removal and a high rate, flow back fluid removal.

So these are discrete steps in the commercial flow back. What our technology does is combine all this into one equipment, into one step and we can implement all this from a highly automated piece of equipment. We can perform all these at very high pressure and rate, and because our solution does differ materially smaller footprint. It reduces the environmental impact and the footprint that’s required to deploy this technology. It can be deployed much faster than a conventional flow back spread. If it results in a lower cost and reduce cycle times for operators, it’s a field system and because of that it eliminates any fugitive methane emissions and it’s highly automated, which hit us in the reduced manpower required to operate this, which results in improved safety performances and reduce costs.

So for this particular technology, for this particular application, well like our estimates show that there’s 20,000 wells and that our flow back in US and 60,000 wells internationally. And all of these wells, which require flowback and the potential application for this technology and the operators are looking to reduce CapEx, they’re looking to reduce emissions, and that’s exactly what our solution does. So and we have partnered with Deep Well services to deliver these this solution within the United States and Deep Well brings a strong domain expertise and is a trusted name in the oilfield service industry and we’re excited to partner with them to bring this solution to market. And then the second part of our technology involves harnessing what we call Geobaric Energy, which is derived from high-pressure oil and gas reservoirs like the Utica Shale, Haynesville, Eagle Ford these are formations within US and then market share in Canada.

And there’s various international formations and offshore applications for this technology as well. So Geobaric Energy like geothermal energies are renewable energy source, but have typically been wasted by oil and gas industry, while developing these high-pressure formations. I mean not only is this renewable energy source wasted operations and that expanding time energy and resources destroying this energy. So what our technology does is, it allows us to harness this energy to manufacture CNG LNG and potentially electricity and hydrogen right on our well pads. If you look at a typical CNG value chain, a gas is produced on a well pad, energy spent rationalizing the gas, which is then recompress and transport it to a compressor station but additional energy is spent to compress it further and then fill in CNG trailers that CNG specifications and then it’s transported to the customer.