CALGARY, Oct. 27, 2016 /CNW/ - Calfrac Well Services
Ltd. ("Calfrac" or "the Company") (TSX-CFW) announces its
financial and operating results for the three and nine months ended
September 30, 2016.
HIGHLIGHTS
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
Change
|
|
2016
|
|
2015
|
|
Change
|
(C$000s, except
per share and unit data)
|
($)
|
|
($)
|
|
(%)
|
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
174,925
|
|
289,075
|
|
(39)
|
|
541,668
|
|
1,209,011
|
|
(55)
|
Operating income
(loss)(1)
|
(12,392)
|
|
2,775
|
|
NM
|
|
(39,913)
|
|
23,597
|
|
NM
|
|
Per share –
basic
|
(0.11)
|
|
0.03
|
|
NM
|
|
(0.35)
|
|
0.25
|
|
NM
|
|
Per share –
diluted
|
(0.11)
|
|
0.03
|
|
NM
|
|
(0.35)
|
|
0.25
|
|
NM
|
Adjusted
EBITDA(1)
|
(11,055)
|
|
7,211
|
|
NM
|
|
(31,033)
|
|
29,124
|
|
NM
|
|
Per share –
basic
|
(0.10)
|
|
0.08
|
|
NM
|
|
(0.27)
|
|
0.31
|
|
NM
|
|
Per share –
diluted
|
(0.10)
|
|
0.08
|
|
NM
|
|
(0.27)
|
|
0.30
|
|
NM
|
Net income (loss)
attributable to the
shareholders of Calfrac before foreign
exchange gains or losses(2)
|
(41,572)
|
|
(23,683)
|
|
76
|
|
(123,009)
|
|
(80,172)
|
|
53
|
|
Per share –
basic
|
(0.36)
|
|
(0.25)
|
|
44
|
|
(1.07)
|
|
(0.84)
|
|
27
|
|
Per share –
diluted
|
(0.36)
|
|
(0.25)
|
|
44
|
|
(1.07)
|
|
(0.84)
|
|
27
|
Net income (loss)
attributable to the
shareholders of Calfrac
|
(40,862)
|
|
(24,191)
|
|
69
|
|
(136,604)
|
|
(80,096)
|
|
71
|
|
Per share –
basic
|
(0.35)
|
|
(0.25)
|
|
40
|
|
(1.18)
|
|
(0.84)
|
|
40
|
|
Per share –
diluted
|
(0.35)
|
|
(0.25)
|
|
40
|
|
(1.18)
|
|
(0.84)
|
|
40
|
Working capital (end
of period)
|
|
|
|
|
|
|
269,081
|
|
296,816
|
|
(9)
|
Total equity (end of
period)
|
|
|
|
|
|
|
501,926
|
|
742,972
|
|
(32)
|
Weighted average
common shares
outstanding (000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
115,410
|
|
95,523
|
|
21
|
|
115,410
|
|
95,453
|
|
21
|
|
Diluted
|
116,555
|
|
95,692
|
|
22
|
|
115,610
|
|
95,622
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (end of
period)
|
|
|
|
|
|
|
|
|
|
|
Active pumping
horsepower (000s)
|
|
|
|
|
|
|
644
|
|
754
|
|
(15)
|
Idle pumping
horsepower (000s)(3)
|
|
|
|
|
|
|
578
|
|
533
|
|
8
|
Total pumping
horsepower (000s)(3)
|
|
|
|
|
|
|
1,222
|
|
1,287
|
|
(5)
|
Active coiled tubing
units (#)
|
|
|
|
|
|
|
20
|
|
20
|
|
—
|
Idle coiled tubing
units (#)
|
|
|
|
|
|
|
12
|
|
17
|
|
(29)
|
Total coiled tubing
units (#)
|
|
|
|
|
|
|
32
|
|
37
|
|
(14)
|
Active cementing
units (#)
|
|
|
|
|
|
|
14
|
|
28
|
|
(50)
|
Idle cementing units
(#)
|
|
|
|
|
|
|
11
|
|
3
|
|
NM
|
Total cementing units
(#)
|
|
|
|
|
|
|
25
|
|
31
|
|
(19)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 21 and 22 for further
information.
|
(2)
|
Net income (loss)
attributable to the shareholders of Calfrac before foreign exchange
(FX) gains or losses is on an after-tax basis. Management
believes that this is a useful supplemental measure as it provides
an indication of the financial results generated by Calfrac without
the impact
of FX fluctuations, which are not fully controllable by the
Company. This measure does not have any standardized meaning
prescribed under
IFRS and, accordingly, may not be comparable to similar measures
used by other companies.
|
(3)
|
Excludes 92,500
pumping horsepower that has not been commissioned at September 30,
2016 (September 30, 2015 - 40,000).
|
THIRD QUARTER 2016 OVERVIEW
CONSOLIDATED HIGHLIGHTS
Three Months Ended
September 30,
|
2016
|
|
2015
|
|
Change
|
(C$000s, except
operational information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
174,925
|
|
289,075
|
|
(39)
|
Expenses
|
|
|
|
|
|
|
Operating
|
173,579
|
|
269,799
|
|
(36)
|
|
Selling, general and
administrative (SG&A)
|
13,738
|
|
16,501
|
|
(17)
|
|
187,317
|
|
286,300
|
|
(35)
|
Operating (loss)
income(1)
|
(12,392)
|
|
2,775
|
|
NM
|
Operating (loss)
income (%)
|
(7.1)
|
|
1.0
|
|
NM
|
Adjusted
EBITDA(1)
|
(11,055)
|
|
7,211
|
|
NM
|
Adjusted EBITDA
(%)
|
(6.3)
|
|
2.5
|
|
NM
|
Fracturing revenue
per job ($)
|
30,906
|
|
34,727
|
|
(11)
|
Number of fracturing
jobs
|
4,508
|
|
7,070
|
|
(36)
|
Active pumping
horsepower, end of period (000s)
|
644
|
|
754
|
|
(15)
|
Idle pumping
horsepower, end of period (000s)(2)
|
578
|
|
533
|
|
8
|
Total pumping
horsepower, end of period (000s)(2)
|
1,222
|
|
1,287
|
|
(5)
|
Coiled tubing revenue
per job ($)
|
36,482
|
|
37,011
|
|
(1)
|
Number of coiled
tubing jobs
|
592
|
|
590
|
|
—
|
Active coiled tubing
units, end of period (#)
|
20
|
|
20
|
|
—
|
Idle coiled tubing
units, end of period (#)
|
12
|
|
17
|
|
(29)
|
Total coiled tubing
units, end of period (#)
|
32
|
|
37
|
|
(14)
|
Cementing revenue per
job ($)
|
34,515
|
|
46,274
|
|
(25)
|
Number of cementing
jobs
|
238
|
|
433
|
|
(45)
|
Active cementing
units, end of period (#)
|
14
|
|
28
|
|
(50)
|
Idle cementing units,
end of period (#)
|
11
|
|
3
|
|
NM
|
Total cementing
units, end of period (#)
|
25
|
|
31
|
|
(19)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 21 and 22 for further
information.
|
(2)
|
Excludes 92,500
pumping horsepower that has not been commissioned at September 30,
2016
(September 30, 2015 - 40,000).
|
|
|
Revenue in the third quarter of 2016 was $174.9 million, a decrease of 39 percent from the
same period in 2015. The Company's fracturing job count decreased
by 36 percent mainly due to lower activity in Canada and the
United States. Consolidated revenue per fracturing job
decreased by 11 percent primarily due to job mix and lower pricing
in Canada and the United States offset partially by higher
service intensity in North
America. Cementing revenue per job decreased by 25 percent
due to the closure of cementing operations in the United States, which included larger jobs
in the comparative quarter in 2015, and the completion of smaller
jobs combined with lower pricing in Argentina.
Pricing in Canada decreased on
average by 30 percent and in the United
States it declined on average by 15 percent in the third
quarter of 2016 from the third quarter of 2015. In Mexico and Russia, pricing was consistent with the third
quarter of 2015 while pricing in Argentina was lower than the comparable period
in 2015 due to competitive pricing pressure experienced from
certain multinational competitors.
Adjusted EBITDA for the third quarter of 2016 was negative
$11.1 million compared to positive
$7.2 million in the comparable period
in 2015 due to significantly lower utilization and pricing in
the United States and Canada, and lower utilization and pricing in
Argentina. The reduction in
Adjusted EBITDA was partially offset by continued cost reduction
initiatives since the end of the third quarter of 2015.
Net loss attributable to shareholders of Calfrac was
$40.9 million or $0.35 per share diluted, compared to a net loss
of $24.2 million or $0.25 per share diluted in the same period last
year.
Three Months
Ended
|
September
30,
|
|
June 30,
|
|
Change
|
|
2016
|
|
2016
|
|
|
(C$000s, except
operational information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
174,925
|
|
150,605
|
|
16
|
Expenses
|
|
|
|
|
|
|
Operating
|
173,579
|
|
144,716
|
|
20
|
|
SG&A
|
13,738
|
|
21,787
|
|
(37)
|
|
187,317
|
|
166,503
|
|
13
|
Operating (loss)
income(1)
|
(12,392)
|
|
(15,898)
|
|
(22)
|
Operating (loss)
income (%)
|
(7.1)
|
|
(10.6)
|
|
(33)
|
Adjusted
EBITDA(1)
|
(11,055)
|
|
(14,095)
|
|
(22)
|
Adjusted EBITDA
(%)
|
(6.3)
|
|
(9.4)
|
|
(33)
|
Fracturing revenue
per job ($)
|
30,906
|
|
34,088
|
|
(9)
|
Number of fracturing
jobs
|
4,508
|
|
3,610
|
|
25
|
Active pumping
horsepower, end of period (000s)
|
644
|
|
582
|
|
11
|
Idle pumping
horsepower, end of period (000s)(2)
|
578
|
|
640
|
|
(10)
|
Total pumping
horsepower, end of period (000s)(2)
|
1,222
|
|
1,222
|
|
—
|
Coiled tubing revenue
per job ($)
|
36,482
|
|
33,873
|
|
8
|
Number of coiled
tubing jobs
|
592
|
|
454
|
|
30
|
Active coiled tubing
units, end of period (#)
|
20
|
|
19
|
|
5
|
Idle coiled tubing
units, end of period (#)
|
12
|
|
13
|
|
(8)
|
Total coiled tubing
units, end of period (#)
|
32
|
|
32
|
|
—
|
Cementing revenue per
job ($)
|
34,515
|
|
40,782
|
|
(15)
|
Number of cementing
jobs
|
238
|
|
204
|
|
17
|
Active cementing
units, end of period (#)
|
14
|
|
14
|
|
—
|
Idle cementing units,
end of period (#)
|
11
|
|
11
|
|
—
|
Total cementing
units, end of period (#)
|
25
|
|
25
|
|
—
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 21 and 22 for further
information.
|
(2)
|
Excludes 92,500
pumping horsepower that has not been commissioned at September 30,
2016
(June 30, 2016 - 80,000)
|
|
|
Revenue in the third quarter of 2016 was $174.9 million, an increase of 16 percent from
the second quarter of 2016 primarily due to higher activity in
Canada and the completion of
larger jobs in the United States.
Revenue per fracturing job decreased by 9 percent due to a change
in job mix in Canada offset
partially by the completion of larger jobs in the Marcellus shale
play in Pennsylvania. Adjusted
EBITDA as a percentage of revenue improved by 310 basis points
primarily due to a $4.6 million bad
debt provision recorded in the second quarter.
Pricing in Canada, the United States and Russia was consistent with the second quarter
of 2016. Pricing in Argentina was
negatively impacted by the lower rig count in that country and the
resulting competitive pricing pressure experienced from certain
multinational competitors.
In Canada, revenue increased by
31 percent to $59.6 million in the
third quarter of 2016 due to higher fracturing and coiled tubing
activity, offset partially by the completion of smaller jobs
resulting from a change in job mix. The operating loss as a
percentage of revenue was 3 percent, which was up from negative 10
percent in the second quarter due to higher utilization post spring
break-up.
In the United States, revenue
in the third quarter of 2016 increased by 10 percent from the
second quarter of 2016 to $52.6
million, mainly as a result of completing significantly
larger jobs in Pennsylvania during
the quarter, offset partially by lower activity. The operating loss
as a percentage of revenue increased from 2 percent in the second
quarter of 2016 to 11 percent in the third quarter. The
deterioration in sequential results was driven by start-up costs
associated with the deployment of additional fleets in North Dakota and Pennsylvania, the impact of less than full
utilization of the reactivated fleets, increased repair and
maintenance costs, as well as a change in customer mix in
Colorado.
In Russia, revenue of
$26.3 million in the third quarter of
2016 was 17 percent higher than the second quarter of 2016 as
activity that was delayed during the second quarter was completed
during the third quarter. Operating income as a percentage of
revenue improved by 280 basis points to 16 percent primarily due to
higher utilization and a greater proportion of higher priced
callout work being performed during the quarter.
In Latin America, revenue
increased by 5 percent to $36.4
million primarily due to higher coiled tubing and fracturing
activity in Argentina offset
partially by lower pricing in that country. Operating income as a
percentage of revenue decreased from a near break even level,
excluding a $4.6 million bad debt
provision in the second quarter, to negative 6 percent in the third
quarter of 2016. The decline in operating income was primarily due
to lower pricing combined with severance costs of $0.5 million being recorded in the quarter.
OUTLOOK
With crude oil prices hovering around
US$50.00 per barrel and natural gas
future prices trending around US$3.00
per Mcf through next year, the Company expects North American
completion activity to improve over the course of the fourth
quarter and into 2017. Preliminary drilling and completion capital
budgets for 2017 indicate that year-over-year spending in both
Canada and the United States will be higher than 2016. As
a result, Calfrac anticipates pressure pumping demand to increase
in North America which, in turn,
is expected to lead to higher pricing for the Company's services in
2017.
CANADA
The Company
experienced increased demand for its pressure pumping services
during the latter half of the third quarter with the majority of
activity focused in the Montney
and Saskatchewan light oil plays.
Calfrac expects completion activity to improve from third quarter
levels and anticipates full utilization of its active fleets
throughout the fourth quarter. However, the Company has experienced
weather-related delays in Saskatchewan during October. While Calfrac has
yet to realize any material increases in pricing, the Company
expects the pricing environment to begin to improve in the fourth
quarter given the current high levels of demand for its services
and believes that this momentum will continue into the first
quarter of 2017.
Visibility for 2017 remains somewhat limited given that capital
spending plans have yet to be confirmed, but initial customer
indications coupled with the recent improvement in commodity prices
and strong activity expected through the end of 2016, leads Calfrac
to believe that first quarter 2017 activity will be strong. Calfrac
continues to believe that labor will be the most prominent
constraint as activity continues to increase.
UNITED STATES
Calfrac
reactivated equipment in North
Dakota and Pennsylvania in
the third quarter in anticipation of a market recovery and in order
to align the Company with customers that are expected to
meaningfully increase activity levels in 2017. While Calfrac
expects its financial performance in the
United States to improve in the fourth quarter, some of the
operational challenges experienced in the third quarter are
anticipated to persist. Utilization is expected to be somewhat
inconsistent over the coming months, however, Calfrac believes that
completions activity in the United
States will increase in early 2017. The Company's active
horsepower count at the end of the third quarter is at the
appropriate level at this time to position it for a market
recovery and Calfrac does not expect to reactivate additional
equipment until there is a meaningful improvement in pricing.
RUSSIA
Activity in
Russia continues to be consistent
with 2015 and we expect this trend to continue into the fourth
quarter, with the exception of the impact of normal winter weather
operating conditions. We are currently in the early stages of the
2017 contract tender process with our customers and at this stage
we expect utilization and pricing to be comparable to 2016
levels.
LATIN AMERICA
The
current rig count in Argentina is
approximately 30 percent below the end of last year which has
resulted in a decrease in demand for Calfrac's services. In
addition, pricing pressure has continued to increase across the
Company's operations with certain multinational competitors
attempting to gain market share. While Calfrac does not anticipate
further pricing adjustments to its existing contracts, the Company
does expect lower pricing for new contract tenders. Overall,
increased activity from certain gas-focused customers combined with
the impact of cost reduction measures that were implemented during
the third quarter is anticipated to drive improved financial
results in the fourth quarter and continuing into 2017. However,
Calfrac has experienced delays due to weather in the Neuquén area
in late October with heavy rainfall and flooding.
In Mexico, activity across all
regions remains low due to continued delays in Pemex's budget
process. While activity is expected to modestly increase in 2017,
the Company is expecting very minimal activity in the fourth
quarter. Calfrac's focus is to continue to proactively manage its
cost structure to generate breakeven margins in Mexico.
SUMMARY
Overall, it appears that the global oil
supply/demand balance is tightening, which is expected to have a
positive impact on North American pressure pumping
fundamentals. While the timing and magnitude of any recovery
remains unclear, it is generally anticipated that pricing dynamics
are poised to become more positive by year end. Calfrac
continues to evaluate alternatives available for it to decrease its
debt levels and improve its capital structure, and the Company's
cash position, fully funded equity cure and undrawn facility
provide Calfrac with the flexibility to assess such measures with
the benefits associated with any market recovery going forward.
FINANCIAL OVERVIEW – THREE MONTHS ENDED SEPTEMBER 30,
2016 VERSUS 2015
CANADA
Three Months Ended
September 30,
|
|
2016
|
|
2015
|
|
Change
|
(C$000s, except
operational information)
|
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
|
Revenue
|
|
59,577
|
|
121,469
|
|
(51)
|
Expenses
|
|
|
|
|
|
|
|
Operating
|
|
59,666
|
|
108,285
|
|
(45)
|
|
Selling, general and
administrative (SG&A)
|
|
1,939
|
|
2,554
|
|
(24)
|
|
|
61,605
|
|
110,839
|
|
(44)
|
Operating (loss)
income(1)
|
|
(2,028)
|
|
10,630
|
|
NM
|
Operating (loss)
income (%)
|
|
(3.4)
|
|
8.8
|
|
NM
|
Fracturing revenue
per job ($)
|
|
20,738
|
|
26,339
|
|
(21)
|
Number of fracturing
jobs
|
|
2,492
|
|
4,320
|
|
(42)
|
Active pumping
horsepower, end of period (000s)
|
|
194
|
|
230
|
|
(16)
|
Idle pumping
horsepower, end of period (000s)
|
|
216
|
|
195
|
|
11
|
Total pumping
horsepower, end of period (000s)(2)
|
|
410
|
|
425
|
|
(4)
|
Coiled tubing revenue
per job ($)
|
|
25,981
|
|
23,007
|
|
13
|
Number of coiled
tubing jobs
|
|
304
|
|
334
|
|
(9)
|
Active coiled tubing
units, end of period (#)
|
|
7
|
|
6
|
|
17
|
Idle coiled tubing
units, end of period (#)(2)
|
|
6
|
|
12
|
|
(50)
|
Total coiled tubing
units, end of period (#)(2)
|
|
13
|
|
18
|
|
(28)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 21 and 22 for further
information.
|
(2)
|
Reduction was the
result of equipment that was identified as permanently impaired
based on
the impairment provision at December 31, 2015.
|
|
|
REVENUE
Revenue from Calfrac's Canadian operations
during the third quarter of 2016 was $59.6
million versus $121.5 million
in the same period of 2015. The 51 percent decrease in revenue was
primarily due to lower fracturing activity combined with lower
pricing for the Company's fracturing services. In addition, wet
weather across western Canada
throughout most of the quarter contributed to the decrease in
fracturing activity during the quarter. The number of fracturing
jobs decreased by 42 percent while revenue per fracturing job
decreased by 21 percent from the same period in the prior year as a
result of lower pricing, offset partially by a change in the mix of
completion treatments and greater service intensity. The number of
coiled tubing jobs decreased by 9 percent from the third quarter in
2015 due to lower activity in the shallow oil plays of Saskatchewan, partially offset by increased
activity in the Montney shale gas
play in northern Alberta.
OPERATING (LOSS) INCOME
The operating loss in
Canada during the third quarter of
2016 was $2.0 million compared to
operating income of $10.6 million in
the same period of 2015. Operating costs were 45 percent lower than
the comparable quarter of 2015 primarily due to the decline in
activity combined with the impact of cost savings realized during
the quarter, including cost savings associated with the closure of
its Medicine Hat operating
district at the beginning of March
2016. SG&A expenses decreased by 24 percent
year-over-year primarily due to workforce reductions implemented
earlier in the year.
UNITED STATES
Three Months Ended
September 30,
|
2016
|
|
2015
|
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
52,640
|
|
93,142
|
|
(43)
|
Expenses
|
|
|
|
|
|
|
Operating
|
55,595
|
|
94,290
|
|
(41)
|
|
SG&A
|
3,043
|
|
5,704
|
|
(47)
|
|
58,638
|
|
99,994
|
|
(41)
|
Operating
loss(1)
|
(5,998)
|
|
(6,852)
|
|
(12)
|
Operating loss
(%)
|
(11.4)
|
|
(7.4)
|
|
54
|
Fracturing revenue
per job ($)
|
34,815
|
|
38,165
|
|
(9)
|
Number of fracturing
jobs
|
1,512
|
|
2,222
|
|
(32)
|
Active pumping
horsepower, end of period (000s)
|
249
|
|
336
|
|
(26)
|
Idle pumping
horsepower, end of period (000s)
|
362
|
|
338
|
|
7
|
Total pumping
horsepower, end of period (000s)(2)
|
611
|
|
674
|
|
(9)
|
Coiled tubing revenue
per job ($)
|
—
|
|
—
|
|
—
|
Number of coiled
tubing jobs
|
—
|
|
—
|
|
—
|
Active coiled tubing
units, end of period (#)
|
—
|
|
—
|
|
—
|
Idle coiled tubing
units, end of period (#)
|
5
|
|
5
|
|
—
|
Total coiled tubing
units, end of period (#)
|
5
|
|
5
|
|
—
|
Cementing revenue per
job ($)
|
—
|
|
54,869
|
|
(100)
|
Number of cementing
jobs
|
—
|
|
152
|
|
(100)
|
Active cementing
units, end of period (#)
|
—
|
|
15
|
|
(100)
|
Idle cementing units,
end of period (#)
|
11
|
|
3
|
|
NM
|
Total cementing
units, end of period (#)(2)
|
11
|
|
18
|
|
(39)
|
US$/C$ average
exchange rate(3)
|
1.3046
|
|
1.3087
|
|
—
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 21 and 22 for further
information.
|
(2)
|
Reduction was the
result of equipment that was identified as permanently impaired
based on the
impairment provision at December 31, 2015.
|
(3)
|
Source: Bank of
Canada.
|
|
|
REVENUE
Revenue from Calfrac's United States operations decreased to
$52.6 million during the third
quarter of 2016 from $93.1 million in
the comparable quarter of 2015 due to significantly lower
fracturing activity across most of the Company's operating regions,
with the exception of Pennsylvania, as 32 percent fewer fracturing
jobs were completed period-over-period. In the third quarter of
2016, the Company reactivated one fleet in North Dakota after temporarily shutting down
operations during the second quarter of 2016 and added a second
fracturing fleet in Pennsylvania
in anticipation of improved future pricing and utilization. The
Company also temporarily closed its south Texas operations and suspended all remaining
cementing operations during the first quarter of 2016, which
contributed to the year-over-year decline in revenue. Revenue per
job was 9 percent lower year-over-year due to weaker pricing in all
remaining operating regions offset partially by the completion of
larger jobs in the Marcellus shale gas play in Pennsylvania.
OPERATING LOSS
The Company's United States operations had an operating loss
of $6.0 million during the third
quarter of 2016 compared to a loss of $6.9
million in the same period in 2015. The third quarter loss,
although consistent with the comparative quarter in 2015, was
higher than expected primarily due to start-up costs associated
with the deployment of additional fleets in North Dakota and Pennsylvania and the impact of less than full
utilization of the reactivated fleets. However, Calfrac believes
that the reactivation of the fleets has left the Company in a
better position for future market growth. Calfrac also recorded a
sales tax recovery of $2.0 million in
Pennsylvania during the third
quarter of 2016 that offset a portion of the third-quarter
operating loss. SG&A expenses decreased by 47 percent in the
third quarter of 2016 from the prior year primarily due to
workforce reductions since the end of the third quarter of
2015.
RUSSIA
Three Months Ended
September 30,
|
2016
|
|
2015
|
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
26,303
|
|
35,874
|
|
(27)
|
Expenses
|
|
|
|
|
|
|
Operating
|
21,586
|
|
30,944
|
|
(30)
|
|
SG&A
|
466
|
|
597
|
|
(22)
|
|
22,052
|
|
31,541
|
|
(30)
|
Operating
income(1)
|
4,251
|
|
4,333
|
|
(2)
|
Operating income
(%)
|
16.2
|
|
12.1
|
|
34
|
Fracturing revenue
per job ($)
|
66,955
|
|
97,935
|
|
(32)
|
Number of fracturing
jobs
|
307
|
|
313
|
|
(2)
|
Pumping horsepower,
end of period (000s)
|
70
|
|
70
|
|
—
|
Coiled tubing revenue
per job ($)
|
44,211
|
|
38,956
|
|
13
|
Number of coiled
tubing jobs
|
130
|
|
134
|
|
(3)
|
Active coiled tubing
units, end of period (#)
|
6
|
|
7
|
|
(14)
|
Idle coiled tubing
units, end of period (#)
|
1
|
|
—
|
|
NM
|
Total coiled tubing
units, end of period (#)
|
7
|
|
7
|
|
—
|
Rouble/C$ average
exchange rate(2)
|
0.0202
|
|
0.0208
|
|
(3)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 21 and 22 for further
information.
|
(2)
|
Source: Bank of
Canada.
|
|
|
REVENUE
Revenue from Calfrac's Russian operations
decreased by 27 percent during the third quarter of 2016 to
$26.3 million from $35.9 million in the corresponding three-month
period of 2015. The decline in revenue was largely attributable to
the loss of an annual fracturing contract with a significant
customer to which the Company also supplied proppant and the 3
percent devaluation of the Russian rouble in the third quarter of
2016 as compared to the same quarter of 2015. The decline in
revenue was partially offset by callout activity and contracted
activity with new customers. Revenue per fracturing job declined by
32 percent primarily due to the impact of no longer providing
proppant to one of Calfrac's customers.
OPERATING INCOME
Operating income in Russia was $4.3
million during the third quarter of 2016 consistent with the
corresponding period of 2015. Operating income as a percentage of
revenue was 16 percent compared to 12 percent in 2015 primarily due
to the impact of not providing proppant to a major customer and a
greater proportion of callout activity, which generated higher
operating margins. SG&A expenses decreased by 22 percent in the
third quarter of 2016 from the prior year's quarter primarily due
to personnel reductions.
LATIN AMERICA
Three Months Ended
September 30,
|
2016
|
|
2015
|
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
36,405
|
|
38,590
|
|
(6)
|
Expenses
|
|
|
|
|
|
|
Operating
|
35,636
|
|
34,047
|
|
5
|
|
SG&A
|
2,883
|
|
3,777
|
|
(24)
|
|
38,519
|
|
37,824
|
|
2
|
Operating (loss)
income(1)
|
(2,114)
|
|
766
|
|
NM
|
Operating (loss)
income (%)
|
(5.8)
|
|
2.0
|
|
NM
|
Pumping horsepower,
end of period (000s)
|
131
|
|
118
|
|
11
|
Cementing units, end
of period (#)
|
14
|
|
13
|
|
8
|
Coiled tubing units,
end of period (#)
|
7
|
|
7
|
|
—
|
Mexican peso/C$
average exchange rate(2)
|
0.0696
|
|
0.0796
|
|
(13)
|
Argentinean peso/C$
average exchange rate(2)
|
0.0873
|
|
0.1415
|
|
(38)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 21 and 22 for further
information.
|
(2)
|
Source: Bank of
Canada.
|
|
|
REVENUE
Calfrac's Latin American operations generated
total revenue of $36.4 million during
the third quarter of 2016 versus $38.6
million in the comparable three-month period in 2015.
Revenue in Argentina was
$3.0 million lower than the
comparable quarter primarily due to lower fracturing and cementing
activity resulting from a declining rig count and union strikes
that negatively impacted customer activity combined with lower
pricing. In Mexico, revenue
increased slightly primarily due to higher coiled tubing
activity.
OPERATING (LOSS) INCOME
The Company's operations in
Latin America incurred an
operating loss of $2.1 million during
the third quarter of 2016 compared to operating income of
$0.8 million in the third quarter of
2015. This decrease was primarily due to lower equipment
utilization and pricing in Argentina combined with severance costs of
$0.5 million recorded during the
third quarter of 2016 due to workforce reductions.
CORPORATE
Three Months Ended
September 30,
|
|
|
|
2016
|
|
2015
|
|
Change
|
(C$000s)
|
|
|
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
1,096
|
|
2,234
|
|
(51)
|
|
SG&A
|
|
|
|
5,407
|
|
3,868
|
|
40
|
|
|
|
|
6,503
|
|
6,102
|
|
7
|
Operating
loss(1)
|
|
|
|
(6,503)
|
|
(6,102)
|
|
7
|
% of
Revenue
|
|
|
|
3.7
|
|
2.1
|
|
76
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 21 and 22 for further
information.
|
|
|
OPERATING LOSS
Corporate expenses for the third
quarter of 2016 increased by 7 percent compared to the third
quarter of 2015. Operating expenses were 51 percent lower as a
result of lower district personnel costs and consulting fees.
SG&A expenditures were $1.5
million higher, which resulted from a $2.0 million increase in stock-based compensation
expense due to a higher share price at the end of the quarter.
Excluding stock-based compensation, the Company reduced SG&A
expenses by $0.5 million primarily
through personnel reductions.
DEPRECIATION
For the three months ended
September 30, 2016, depreciation expense decreased by 17
percent to $33.0 million from
$39.5 million in the corresponding
quarter of 2015. The decrease was mainly a result of a $114.5 million impairment of property, plant and
equipment in the United States and
Canada that was recorded in the
fourth quarter of 2015.
FOREIGN EXCHANGE GAINS AND LOSSES
The Company recorded
a foreign exchange gain of $0.1
million during the third quarter of 2016 versus a loss of
$1.8 million in the comparative
three-month period of 2015. Foreign exchange gains and losses arise
primarily from the translation of net monetary assets or
liabilities that were held in U.S. dollars in Canada, Russia and Latin
America.
INTEREST
The Company's net interest expense of
$20.8 million for the third quarter
of 2016 was $2.9 million higher than
in the comparable period of 2015. Interest on the $200.0 million secured second lien term loan was
the primary driver of the higher interest expense recorded during
the period as it contributed to an increased debt level during the
quarter and the interest rate on the loan was higher than the
interest rate on the credit facility borrowings that were
repaid.
INCOME TAXES
The Company recorded an income tax
recovery of $24.4 million during the
third quarter of 2016 compared to a recovery of $9.4 million in the comparable period of 2015.
The recovery position was the result of pre-tax losses incurred
during the quarter in Canada,
the United States and Argentina. The effective tax recovery rate was
37 percent during the third quarter of 2016 compared to a
normalized effective tax recovery rate of 42 percent in the
comparable quarter in 2015. The effective tax recovery rate in 2016
was lower primarily due to a greater proportion of the consolidated
losses that were incurred in Canada compared to 2015.
SUMMARY OF QUARTERLY RESULTS
Three Months
Ended
|
|
Dec. 31,
|
Mar. 31,
|
Jun. 30,
|
Sep. 30,
|
Dec. 31,
|
Mar. 31,
|
Jun. 30,
|
Sep.
30,
|
|
|
2014
|
2015
|
2015
|
2015
|
2015
|
2016
|
2016
|
2016
|
(C$000s, except
per share and operating data)
|
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
748,896
|
600,383
|
319,553
|
289,075
|
286,194
|
216,138
|
150,605
|
174,925
|
Operating income
(loss)(1)
|
|
122,202
|
27,844
|
(7,022)
|
2,775
|
5,787
|
(11,623)
|
(15,898)
|
(12,392)
|
|
Per share –
basic
|
|
1.29
|
0.29
|
(0.07)
|
0.03
|
0.06
|
(0.10)
|
(0.14)
|
(0.11)
|
|
Per share –
diluted
|
|
1.28
|
0.29
|
(0.07)
|
0.03
|
0.06
|
(0.10)
|
(0.14)
|
(0.11)
|
Adjusted
EBITDA(1)
|
|
121,731
|
25,609
|
(3,696)
|
7,211
|
22,933
|
(5,883)
|
(14,095)
|
(11,055)
|
|
Per share –
basic
|
|
1.28
|
0.27
|
(0.04)
|
0.08
|
0.24
|
(0.05)
|
(0.12)
|
(0.10)
|
|
Per share –
diluted
|
|
1.28
|
0.27
|
(0.04)
|
0.08
|
0.24
|
(0.05)
|
(0.12)
|
(0.10)
|
Net income (loss)
attributable to the
shareholders of Calfrac
|
|
26,470
|
(12,628)
|
(43,277)
|
(24,191)
|
(141,498)
|
(54,071)
|
(41,671)
|
(40,862)
|
|
Per share –
basic
|
|
0.28
|
(0.13)
|
(0.45)
|
(0.25)
|
(1.45)
|
(0.47)
|
(0.36)
|
(0.35)
|
|
Per share –
diluted
|
|
0.28
|
(0.13)
|
(0.45)
|
(0.25)
|
(1.45)
|
(0.47)
|
(0.36)
|
(0.35)
|
Capital
expenditures
|
|
52,033
|
52,669
|
50,356
|
24,945
|
29,964
|
7,723
|
8,370
|
6,907
|
Working capital (end
of period)
|
|
441,234
|
413,950
|
340,639
|
296,816
|
305,952
|
261,072
|
306,346
|
269,081
|
Total equity (end of
period)
|
|
832,403
|
818,825
|
775,646
|
742,972
|
623,719
|
576,465
|
543,530
|
501,926
|
|
|
|
|
|
|
|
|
|
|
Operating (end of
period)
|
|
|
|
|
|
|
|
|
|
Active pumping
horsepower (000s)
|
|
1,254
|
1,259
|
804
|
754
|
776
|
640
|
582
|
644
|
Idle pumping
horsepower (000s)(2)
|
|
—
|
—
|
455
|
533
|
524
|
586
|
640
|
578
|
Total pumping
horsepower (000s)(2)
|
|
1,254
|
1,259
|
1,259
|
1,287
|
1,300
|
1,226
|
1,222
|
1,222
|
Active coiled tubing
units (#)
|
|
36
|
37
|
20
|
20
|
20
|
18
|
19
|
20
|
Idle coiled tubing
units (#)
|
|
—
|
—
|
17
|
17
|
17
|
14
|
13
|
12
|
Total coiled tubing
units (#)
|
|
36
|
37
|
37
|
37
|
37
|
32
|
32
|
32
|
Active cementing
units (#)
|
|
31
|
31
|
26
|
28
|
23
|
14
|
14
|
14
|
Idle cementing units
(#)
|
|
—
|
—
|
5
|
3
|
8
|
11
|
11
|
11
|
Total cementing units
(#)
|
|
31
|
31
|
31
|
31
|
31
|
25
|
25
|
25
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 21 and 22 for further
information.
|
(2)
|
Excludes 92,500
pumping horsepower that had not been commissioned at September 30,
2016.
|
|
|
SEASONALITY OF OPERATIONS
The Company's North American
business is seasonal. The lowest activity is typically experienced
during the second quarter of the year when road weight restrictions
are in place due to spring break-up weather conditions and access
to well sites in Canada and
North Dakota is reduced (refer to
"Business Risks – Seasonality" in the 2015 Annual Report).
FOREIGN EXCHANGE FLUCTUATIONS
The Company's
consolidated financial statements are reported in Canadian dollars.
Accordingly, the quarterly results are directly affected by
fluctuations in the exchange rates for United States, Russian, Mexican and
Argentinean currency (refer to "Business Risks – Fluctuations in
Foreign Exchange Rates" in the 2015 Annual Report).
FINANCIAL OVERVIEW – NINE MONTHS ENDED SEPTEMBER 30,
2016 VERSUS 2015
CANADA
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
Change
|
(C$000s, except
operational information)
|
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
|
Revenue
|
|
177,686
|
|
409,761
|
|
(57)
|
Expenses
|
|
|
|
|
|
|
|
Operating
|
|
178,300
|
|
377,983
|
|
(53)
|
|
SG&A
|
|
5,844
|
|
7,015
|
|
(17)
|
|
|
184,144
|
|
384,998
|
|
(52)
|
Operating (loss)
income(1)
|
|
(6,458)
|
|
24,763
|
|
NM
|
Operating (loss)
income (%)
|
|
(3.6)
|
|
6.0
|
|
NM
|
Fracturing revenue
per job ($)
|
|
23,340
|
|
33,961
|
|
(31)
|
Number of fracturing
jobs
|
|
6,799
|
|
11,387
|
|
(40)
|
Active pumping
horsepower, end of period (000s)
|
|
194
|
|
230
|
|
(16)
|
Idle pumping
horsepower, end of period (000s)
|
|
216
|
|
195
|
|
11
|
Total pumping
horsepower, end of period (000s)(2)
|
|
410
|
|
425
|
|
(4)
|
Coiled tubing revenue
per job ($)
|
|
24,142
|
|
23,545
|
|
3
|
Number of coiled
tubing jobs
|
|
787
|
|
979
|
|
(20)
|
Active coiled tubing
units, end of period (#)
|
|
7
|
|
6
|
|
17
|
Idle coiled tubing
units, end of period (#)(2)
|
|
6
|
|
12
|
|
(50)
|
Total coiled tubing
units, end of period (#)(2)
|
|
13
|
|
18
|
|
(28)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 21 and 22 for further
information.
|
(2)
|
Reduction was the
result of equipment that was identified as permanently impaired
based on
the impairment provision at December 31, 2015.
|
|
|
REVENUE
Revenue from Calfrac's Canadian operations
during the first nine months of 2016 was $177.7 million versus $409.8 million in the same period of 2015. The
decrease was primarily due to significantly lower demand for the
Company's fracturing and coiled tubing services combined with lower
pricing and job mix. Revenue per fracturing job decreased by 31
percent from the prior year primarily due to lower pricing and job
mix offset partially by greater service intensity. Coiled tubing
activity decreased by 20 percent from the prior year and also
contributed to the decrease in revenue.
OPERATING (LOSS) INCOME
The Company's Canadian
division incurred an operating loss of $6.5
million during the first nine months of 2016 compared to
operating income of $24.8 million in
the comparable period in 2015. The reversal to a loss position was
the result of significantly lower pricing and utilization partially
offset by cost reductions for proppant, third-party subcontractors
and chemicals. SG&A expenses during the first nine months of
2015 included a recovery of $1.1
million related to 2014 annual bonus expenses. Excluding
this amount, SG&A expenses declined by 28 percent
year-over-year, primarily due to workforce reductions and a lower
compensation structure.
UNITED STATES
Nine Months Ended
September 30,
|
2016
|
|
2015
|
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
176,677
|
|
570,744
|
|
(69)
|
Expenses
|
|
|
|
|
|
|
Operating
|
183,831
|
|
549,649
|
|
(67)
|
|
SG&A
|
11,905
|
|
17,269
|
|
(31)
|
|
195,736
|
|
566,918
|
|
(65)
|
Operating (loss)
income(1)
|
(19,059)
|
|
3,826
|
|
NM
|
Operating (loss)
income (%)
|
(10.8)
|
|
0.7
|
|
NM
|
Fracturing revenue
per job ($)
|
32,162
|
|
52,117
|
|
(38)
|
Number of fracturing
jobs
|
5,442
|
|
10,448
|
|
(48)
|
Active pumping
horsepower, end of period (000s)
|
249
|
|
336
|
|
(26)
|
Idle pumping
horsepower, end of period (000s)
|
362
|
|
338
|
|
7
|
Total pumping
horsepower, end of period (000s)(2)
|
611
|
|
674
|
|
(9)
|
Coiled tubing revenue
per job ($)
|
—
|
|
51,750
|
|
(100)
|
Number of coiled
tubing jobs
|
—
|
|
55
|
|
(100)
|
Active coiled tubing
units, end of period (#)
|
—
|
|
—
|
|
—
|
Idle coiled tubing
units, end of period (#)
|
5
|
|
5
|
|
—
|
Total coiled tubing
units, end of period (#)
|
5
|
|
5
|
|
—
|
Cementing revenue per
job ($)
|
150,293
|
|
48,113
|
|
NM
|
Number of cementing
jobs
|
11
|
|
486
|
|
(98)
|
Active cementing
units, end of period (#)
|
—
|
|
15
|
|
(100)
|
Idle cementing units,
end of period (#)
|
11
|
|
3
|
|
NM
|
Total cementing
units, end of period (#)(2)
|
11
|
|
18
|
|
(39)
|
US$/C$ average
exchange rate(3)
|
1.3228
|
|
1.2600
|
|
5
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 21 and 22 for further
information.
|
(2)
|
Reduction was the
result of equipment that was identified as permanently impaired
based on the
impairment provision at December 31, 2015.
|
(3)
|
Source: Bank of
Canada.
|
|
|
REVENUE
Revenue from Calfrac's United States operations decreased to
$176.7 million during the first nine
months of 2016 from $570.7 million in
the same period of 2015 due to significantly lower fracturing
activity combined with customer mix and weaker pricing. The number
of fracturing jobs completed during the period decreased by 48
percent from the comparable period in 2015, primarily due to lower
activity in Pennsylvania, and the
Rockies, combined with the impact of the temporary closure of
operations in North Dakota and
south Texas and the closure of
operations in Arkansas. During the
third quarter of 2016, the Company recommenced fracturing
operations in North Dakota which
partially offset the decline in revenue. Revenue per job decreased
by 38 percent year-over-year as a stronger U.S. dollar was more
than offset by the completion of significantly smaller jobs in
Pennsylvania due to customer mix
during the first half of 2016 and the impact of lower pricing in
all operating regions.
OPERATING (LOSS) INCOME
The Company's United States division operated at a loss of
$19.1 million during the first nine
months of 2016 after generating operating income of $3.8 million in the same period in 2015. The loss
included restructuring costs totaling $3.1
million (2015 - Nil) that related to organizational changes
that were carried out across the United
States division during 2016 and $0.5
million in bad debt charges. Excluding these one-time costs,
the operating loss would have been $15.5
million, primarily due to decreased utilization in all of
the resource plays where the Company operates combined with lower
pricing. The suspension of cementing operations in Pennsylvania combined with the temporary
closure of operations in North
Dakota and south Texas, and
the closure of operations in Arkansas, had a negative impact on operating
income year-over-year due to a significantly lower revenue base
during the period while these operating districts continued to
incur certain levels of fixed costs.
RUSSIA
Nine Months Ended
September 30,
|
2016
|
|
2015
|
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
71,459
|
|
105,234
|
|
(32)
|
Expenses
|
|
|
|
|
|
|
Operating
|
61,612
|
|
92,041
|
|
(33)
|
|
SG&A
|
1,778
|
|
2,682
|
|
(34)
|
|
63,390
|
|
94,723
|
|
(33)
|
Operating
income(1)
|
8,069
|
|
10,511
|
|
(23)
|
Operating income
(%)
|
11.3
|
|
10.0
|
|
13
|
Fracturing revenue
per job ($)
|
68,048
|
|
88,574
|
|
(23)
|
Number of fracturing
jobs
|
831
|
|
996
|
|
(17)
|
Pumping horsepower,
end of period (000s)
|
70
|
|
70
|
|
—
|
Coiled tubing revenue
per job ($)
|
40,411
|
|
43,184
|
|
(6)
|
Number of coiled
tubing jobs
|
369
|
|
394
|
|
(6)
|
Active coiled tubing
units, end of period (#)
|
6
|
|
7
|
|
(14)
|
Idle coiled tubing
units, end of period (#)
|
1
|
|
—
|
|
NM
|
Total coiled tubing
units, end of period (#)
|
7
|
|
7
|
|
—
|
Rouble/C$ average
exchange rate(2)
|
0.0194
|
|
0.0213
|
|
(9)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 21 and 22 for further
information.
|
(2)
|
Source: Bank of
Canada.
|
|
|
REVENUE
During the first nine months of 2016, revenue
from Calfrac's Russian operations decreased by 32 percent to
$71.5 million from $105.2 million in the corresponding nine-month
period of 2015. The decrease in revenue, which is generated in
roubles, was partially related to lower fracturing and coiled
tubing activity combined with the 9 percent devaluation of the
rouble in 2016 versus 2015. The decline in revenue was also the
result of the loss of a fracturing contract with a significant
customer to which the Company also supplied proppant. Revenue per
fracturing job declined by 23 percent due to the currency
devaluation combined with the impact of no longer providing
proppant to a significant customer.
OPERATING INCOME
Operating income in Russia declined to $8.1
million during the first nine months of 2016 from
$10.5 million in the same period in
2015 primarily due to the 9 percent devaluation of the rouble
combined with lower fracturing and coiled tubing utilization.
Operating income as a percent of revenue increased slightly from 10
percent to 11 percent due to higher margin callout work comprising
a greater proportion of overall activity and reflects margins
resulting from not providing sand to one of its customers. SG&A
expenses declined by 34 percent during the first nine months of
2016 from the comparable period in 2015 due to the devaluation of
the rouble combined with the impact of cost reduction
initiatives.
LATIN AMERICA
Nine Months Ended
September 30,
|
2016
|
|
2015
|
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
115,846
|
|
123,272
|
|
(6)
|
Expenses
|
|
|
|
|
|
|
Operating
|
102,015
|
|
102,836
|
|
(1)
|
|
SG&A
|
13,485
|
|
11,171
|
|
21
|
|
115,500
|
|
114,007
|
|
1
|
Operating
income(1)
|
346
|
|
9,265
|
|
(96)
|
Operating income
(%)
|
0.3
|
|
7.5
|
|
(96)
|
Pumping horsepower,
end of period (000s)
|
131
|
|
118
|
|
11
|
Cementing units, end
of period (#)
|
14
|
|
13
|
|
8
|
Coiled tubing units,
end of period (#)
|
7
|
|
7
|
|
—
|
Mexican peso/C$
average exchange rate(2)
|
0.0723
|
|
0.0810
|
|
(11)
|
Argentinean peso/C$
average exchange rate(2)
|
0.0912
|
|
0.1406
|
|
(35)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 21 and 22 for further
information.
|
(2)
|
Source: Bank of
Canada.
|
|
|
REVENUE
Calfrac's Latin American operations generated
total revenue of $115.8 million
during the first nine months in 2016 versus $123.3 million in the comparable period in 2015.
In the first nine months of 2016, revenue in Argentina was lower than the comparable period
primarily due to lower fracturing and cementing activity resulting
from the rig count decline combined with adverse weather conditions
in the Neuquén region during the second quarter. The Company also
experienced pricing pressure from certain multinational
competitors, which contributed to the reduction in revenue during
the period. In Mexico, revenue
increased slightly due to higher activity in the early part of the
year.
OPERATING INCOME
Operating income in Latin America during the first nine months of
2016 was $0.3 million compared to
$9.3 million during same period in
2015. Operating income was lower primarily due to the Company
recording a bad debt provision of $4.6
million relating to work performed for a customer in
Mexico and severance costs of
$1.0 million in Argentina during the first nine months of
2016. Lower equipment utilization and pricing in Argentina also contributed to the reduction in
operating income year-over-year.
CORPORATE
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
2015
|
|
Change
|
(C$000s)
|
|
|
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
3,633
|
|
5,103
|
|
(29)
|
|
SG&A
|
|
|
|
19,178
|
|
19,665
|
|
(2)
|
|
|
|
|
22,811
|
|
24,768
|
|
(8)
|
Operating
loss(1)
|
|
|
|
(22,811)
|
|
(24,768)
|
|
(8)
|
% of
Revenue
|
|
|
|
4.2
|
|
2.0
|
|
NM
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 21 and 22 for further
information.
|
|
|
OPERATING LOSS
The Company achieved an 8 percent
decline in corporate expenses for the first nine months of 2016
compared to the same period in 2015. The Company continued to
reduce costs to align its cost structure with anticipated activity
levels. These initiatives contributed approximately $5.6 million to the overall decrease in corporate
expenses primarily by reducing corporate personnel costs. An
increase in stock-based compensation expense of $3.7 million, resulting from an increase in the
Company's stock price, partially offset the cost reductions
achieved during the period.
DEPRECIATION
For the nine months ended
September 30, 2016, depreciation expense decreased by 14
percent to $99.6 million from
$116.4 million in the same period in
2015. The decrease was mainly a result of a $114.5 million impairment of property, plant and
equipment in the United States and
Canada that was recorded in the
fourth quarter of 2015, offset partially by a weaker Canadian
dollar relative to the U.S. dollar on a comparative period
basis.
FOREIGN EXCHANGE LOSSES
The Company recorded a foreign
exchange loss of $19.6 million during
the first nine months of 2016 versus a loss of $3.5 million in the comparative nine-month period
of 2015. Foreign exchange gains and losses arise primarily from the
translation of net monetary assets or liabilities that were held in
U.S. dollars in Canada,
Russia and Latin America. The Company's foreign exchange
loss during the period was largely attributable to the translation
of U.S. dollar-denominated liabilities held in Argentina as the value of the Argentinean peso
depreciated 17 percent against the U.S. dollar during the first
nine months of 2016. The foreign exchange loss was also the result
of U.S. dollar-denominated assets held in Canada as the U.S. dollar depreciated against
the Canadian dollar during the period.
INTEREST
The Company's net interest expense of
$58.0 million for the first nine
months of 2016 was $7.3 million
higher than in the comparable period of 2015 primarily due to
higher average credit facility borrowings during the first half of
2016. Interest on the $200.0 million
secured second lien term loan that was put in place in the second
quarter of 2016 also contributed to the higher interest expense
recorded during the period as it resulted in a higher debt level
and the interest rate on the loan was higher than the interest rate
on the credit facility borrowings that were repaid using the
proceeds from the term loan financing. In addition, interest on
U.S. dollar-denominated debt was higher due to a weaker Canadian
dollar relative to the U.S. dollar.
INCOME TAXES
The Company recorded an income tax
recovery of $77.4 million for the
first nine months of 2016 compared to $42.1
million in the comparable period in 2015. The recovery was
the result of pre-tax losses incurred during the period in
Canada, the United States and Argentina. The effective tax recovery rate was
36 percent during the first nine months in 2016 compared to 38
percent in the comparable period in 2015.
LIQUIDITY AND CAPITAL RESOURCES
|
Three Months Ended
Sept. 30,
|
|
Nine Months Ended
Sept. 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
(C$000s)
|
($)
|
|
($)
|
|
($)
|
|
($)
|
(unaudited)
|
|
|
|
|
|
|
|
Cash provided by
(used in):
|
|
|
|
|
|
|
|
|
Operating
activities
|
(25,874)
|
|
34,559
|
|
(39,492)
|
|
91,874
|
|
Financing
activities
|
(6,780)
|
|
(9,901)
|
|
69,156
|
|
(21,474)
|
|
Investing
activities
|
(8,429)
|
|
(40,857)
|
|
(36,409)
|
|
(137,379)
|
|
Effect of exchange
rate changes on cash and
cash equivalents
|
1,416
|
|
5,194
|
|
(10,679)
|
|
22,701
|
Decrease in cash
and cash equivalents
|
(39,667)
|
|
(11,005)
|
|
(17,424)
|
|
(44,278)
|
OPERATING ACTIVITIES
The Company's cash used by
operating activities for the three months ended September 30,
2016 was $25.9 million versus cash
provided by operating activities of $34.6
million in the comparable period in 2015. The decrease
was primarily due to lower operating margins driven by lower
utilization and pricing in Canada
and the United States. In
addition, working capital shifted from a net source of cash in 2015
to a net use of cash in the third quarter of 2016. At
September 30, 2016, Calfrac's working capital was
approximately $269.1 million compared
to $306.0 million at December 31, 2015.
FINANCING ACTIVITIES
Net cash used by financing
activities for the three months ended September 30, 2016 was
$6.8 million compared to $9.9 million in the comparable period in 2015.
During the three months ended September 30,
2016, the Company reduced its bank loan in Argentina by $6.1
million, paid down borrowings under its term loan by
$0.5 million and made mortgage and
lease payments of $0.2 million.
On June 10, 2016, the Company
closed a $200.0 million second lien
senior secured term loan financing with Alberta Investment
Management Corporation (AIMCo). The term loan matures on
September 30, 2020 and bears interest
at the rate of 9 percent annually. In addition, amortization
payments equal to 1 percent of the original principal amount are
payable annually in equal quarterly installments, with the balance
due on the maturity date. In conjunction with the funding of the
term loan, a total of 6,934,776 warrants to purchase common shares
of the Company were issued to AIMCo, entitling it to acquire
6,934,776 common shares at a price of $4.14 per common share at any time prior to
June 10, 2019. No amendments were
made to the available commitment, term, covenants or interest rates
payable under Calfrac's existing credit facilities as part of the
required approvals for the term loan.
The Company's credit facilities mature on September 27, 2018 and can be extended by one or
more years at the Company's request and lenders' acceptance. The
Company also may prepay principal without penalty.
On December 11, 2015, Calfrac
amended its credit facilities to provide increased financial
flexibility. The amendment included a voluntary reduction in the
total facility from $400.0 million to $300.0
million. The facilities consist of an operating facility of
$30.0 million and a syndicated
facility of $270.0 million. The
interest rates are based on the parameters of certain bank
covenants. For prime-based loans and U.S. base-rate loans, the rate
ranges from prime or U.S. base rate plus 0.50 percent to prime plus
3.50 percent. For LIBOR-based loans and bankers' acceptance-based
loans, the margin thereon ranges from 1.50 percent to 4.50 percent
above the respective base rates. The facility was amended to
increase the $100.0 million accordion
feature to $200.0 million. The
accordion feature is not available to the Company during the
covenant relief period described below and ending on December 31, 2017 and during this period the
Company will incur interest at the high end of the ranges outlined
above. Additionally, for the quarters ended June 30, 2016 through December 31, 2017, advances under the credit
facilities will be limited by a borrowing base. The borrowing base
is calculated based on the following:
i.
|
Eligible North
American accounts receivable, which is based on 75 percent of
accounts receivable owing by companies rated BB+ or lower by
Standard & Poor's (or a similar rating agency) and 85 percent
of accounts receivable from companies rated BBB- or
higher;
|
|
|
ii.
|
100 percent of
unencumbered cash of the parent company and its U.S. operating
subsidiary, excluding any cash held in a segregated account for the
purposes of a potential equity cure; and
|
|
|
iii.
|
25 percent of the net
book value of property, plant and equipment (PP&E) of the
parent company and its U.S. operating subsidiary. The value of
PP&E excludes assets under construction and is limited to
$150.0 million.
|
|
|
As at September 30, 2016, the Company had used $1.9 million of its credit facilities for letters
of credit and had no borrowings under its credit facilities,
leaving $298.1 million in available
liquidity under its credit facilities. As described above, the
Company's credit facilities are subject to a monthly borrowing base
test, which could result in a lower liquidity amount.
The Company's credit facilities contain certain financial
covenants. Weakened market conditions attributable to the
significant reduction in the price of oil and natural gas have
required many oil and gas service companies to seek covenant relief
from their lenders. Calfrac negotiated amendments including waivers
and increases to certain of its financial covenant thresholds prior
to the end of the fourth quarter in 2015, as shown below.
Years ended December
31, except as indicated in notes below
|
|
|
|
|
|
2016
|
|
2017
|
Working capital ratio
not to fall below
|
|
|
|
|
|
1.15x
|
|
1.15x
|
Funded Debt to
Adjusted EBITDA not to exceed(1)(2)(3)
|
|
|
|
|
|
5.00x
|
|
4.50x/4.00x
|
Funded Debt to
Capitalization not to exceed(2)(4)
|
|
|
|
|
|
0.30x
|
|
0.30x
|
(1)
|
Funded Debt to
Adjusted EBITDA covenant is 5.00x for September 30, 2016 and
December 31, 2016.
The covenant declines to 4.50x for the quarters ended March 31,
2017 and June 30, 2017 and declines
to 4.00x for the quarters ended September 30, 2017 and December 31,
2017 and is set at 3.00x for
each quarter after December 31, 2017.
|
(2)
|
Funded Debt is
defined as Total Debt excluding all outstanding senior unsecured
notes and the second
lien senior secured term loan facility. Total Debt includes bank
loans and long-term debt (before
unamortized debt issuance costs and debt discount) plus outstanding
letters of credit less cash on hand
with lenders (excluding any cash held in a segregated account for
the purposes of a potential equity cure).
|
(3)
|
Adjusted EBITDA is
defined as net income or loss for the period less interest, taxes,
depreciation and
amortization, non-cash stock-based compensation, non-controlling
interest relating to Colombia, and
gains and losses that are extraordinary or
non-recurring.
|
(4)
|
Capitalization is
Total Debt plus Equity attributable to the shareholders of
Calfrac.
|
|
|
Proceeds from equity offerings may be applied, as an equity
cure, in the calculation of Adjusted EBITDA towards the Funded Debt
to Adjusted EBITDA covenant for any of the quarters ending prior to
and including December 31, 2017
subject to certain conditions including:
i.
|
the Company is only
permitted to use the proceeds of a common share issuance to
increase Adjusted EBITDA a maximum of two times;
|
ii.
|
the Company cannot
use the proceeds of a common share issuance to increase Adjusted
EBITDA in consecutive quarter ends;
|
iii.
|
the maximum proceeds
of each common share issuance permitted to be attributed to
Adjusted EBITDA cannot exceed the greater of 50 percent of Adjusted
EBITDA on a trailing four-quarter basis and $25.0 million;
and
|
iv.
|
if proceeds are not
used immediately as an equity cure they must be held in a
segregated trust account pending an election to use them for such
purpose, and if they are removed from such account but not used as
an equity cure they will no longer be eligible for such
use.
|
|
|
On December 22, 2015, Calfrac
closed a bought deal private placement of 20,370,370 common shares
for net proceeds of approximately $25.2
million. The net proceeds of this offering are being held in
a segregated account in accordance with the amended credit
facilities pending an election to use them as an equity cure. Such
an election may be made by Calfrac at any time prior to the
completion of quarterly financial statements and the delivery of
the covenant calculations for the relevant quarter to the lending
syndicate. Throughout the period ending on December 31, 2017, amounts used as an equity cure
will increase Adjusted EBITDA over the relevant twelve-month
rolling period and will also serve to reduce Funded Debt. When the
funds are removed from the segregated account, as an equity cure or
otherwise, they are expected to be used to fund capital
expenditures, to reduce outstanding indebtedness, and/or to be used
for general working capital and corporate purposes.
As shown in the table below, at September
30, 2016, the Company was in compliance with the financial
covenants associated with its credit facilities.
|
|
|
|
|
|
Covenant
|
|
Actual
|
As at September
30,
|
|
|
|
|
|
2016
|
|
2016
|
Working capital ratio
not to fall below
|
|
|
|
|
|
1.15x
|
|
3.30x
|
Funded Debt to
Adjusted EBITDA not to exceed
|
|
|
|
|
|
5.00x
|
|
N/A(1)
|
Funded Debt to
Capitalization not to exceed
|
|
|
|
|
|
0.30x
|
|
-0.05x
|
(1)
|
Funded Debt is
negative at September 30, 2016.
|
|
|
The indenture governing the senior unsecured notes, which is
available on SEDAR, contains restrictions on the Company's ability
to pay dividends, purchase and redeem shares of the Company and
make certain restricted investments, that are not defined as
Permitted Investments under the indenture, in circumstances
where:
|
i.
|
the Company is in
default under the indenture or the making of such payment would
result in a default;
|
|
ii.
|
the Company is not
meeting the Fixed Charge Coverage Ratio(1) under the
indenture of at least 2.0:1 for the most recent four fiscal
quarters, with the restricted payments regime commencing once
internal financial statements are available which show that the
ratio is not met on a pro forma basis for the most recently ended
four fiscal quarter period; or
|
|
iii.
|
there is insufficient
room for such payment within a builder basket included in the
indenture.
|
|
|
(1) The Fixed
Charge Coverage Ratio is defined as cash flow to interest expense.
Cash flow is a non-GAAP measure and does not have a standardized
meaning under IFRS and is defined under the indenture as net income
(loss) attributable to the shareholders of Calfrac before
depreciation, extraordinary gains or losses, unrealized foreign
exchange gains or losses, gains or losses on disposal of property,
plant and equipment, impairment of assets, restructuring charges,
provision for settlement of litigation, stock-based compensation,
interest, and income taxes.
|
|
These limitations on restricted payments are tempered by the
existence of a number of exceptions to the general prohibition,
including a basket allowing for restricted payments in an aggregate
amount of up to US$20.0 million. As
at September 30, 2016 this basket was
not utilized. The indenture also restricts the ability to incur
additional indebtedness if the Fixed Charge Coverage Ratio
determined on a pro forma basis for the most recently ended four
fiscal quarter period for which internal financial statements are
available is not at least 2.0:1. As is the case with restricted
payments, there are a number of exceptions to this prohibition on
the incurrence of additional indebtedness, including the incurrence
of additional debt under credit facilities up to the greater of
$175.0 million or 30 percent of the
Company's consolidated tangible assets. At September 30, 2016, the Company was able to incur
additional indebtedness in excess of $380
million pursuant to the aforementioned exception.
As at September 30, 2016, the
Company's Fixed Charge Coverage Ratio of (0.01):1 was less than the
required 2.0:1 ratio. Failing to meet the Fixed Charge Coverage
Ratio is not an event of default under the indenture, and the
baskets highlighted in the preceding paragraph provide sufficient
flexibility for the Company to incur additional indebtedness and
make anticipated restricted payments which may be required to
conduct its operations during this period of weakened market
conditions.
INVESTING ACTIVITIES
Calfrac's net cash used for
investing activities was $8.4 million
for the quarter ended September 30,
2016 versus $40.9 million in
2015. Cash outflows relating to capital expenditures were
$9.0 million during the third quarter
of 2016 compared to $32.8 million in
2015. Capital expenditures were primarily to support the Company's
Canadian fracturing operations.
Calfrac's 2016 capital budget is approximately $10.0 million. In addition, carryover capital
expenditures are expected to be approximately $30.0 million, resulting in total spending of
approximately $40.0 million
throughout 2016.
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
The effect of changes in foreign exchange rates
on the Company's cash and cash equivalents during the quarter ended
September 30, 2016 was a gain of
$1.4 million versus a gain of
$5.2 million during 2015. These gains
relate to cash and cash equivalents held by the Company in a
foreign currency.
With its working capital position, available credit facilities
and anticipated funds provided by operations, the Company expects
to have adequate resources to fund its financial obligations and
planned capital expenditures for 2016 and beyond.
At September 30, 2016, the Company had cash and cash
equivalents of $106.6 million of
which $25.0 million is held in a
segregated account at the Company's discretion, so that it may be
utilized if required in the calculation of Adjusted EBITDA for
purposes of the Company's bank covenants.
OUTSTANDING SHARE DATA
The Company is authorized to
issue an unlimited number of common shares. Employees have been
granted options to purchase common shares under the Company's
shareholder-approved stock option plan. The number of shares
reserved for issuance under the stock option plan is equal to 10
percent of the Company's issued and outstanding common shares. As
at October 21, 2016, there were
115,579,598 common shares issued and outstanding, and 7,691,075
options to purchase common shares.
ADVISORIES
FORWARD-LOOKING STATEMENTS
In
order to provide Calfrac shareholders and potential investors with
information regarding the Company and its subsidiaries, including
management's assessment of Calfrac's plans and future operations,
certain statements contained in this press release, including
statements that contain words such as "seek", "anticipate", "plan",
"continue", "estimate", "expect", "may", "will", "project",
"predict", "potential", "targeting", "intend", "could", "might",
"should", "believe", "forecast" or similar words suggesting future
outcomes, are forward-looking statements.
In particular, forward-looking statements in this press release
include, but are not limited to, statements with respect to
expected operating strategies and targets, capital expenditure
programs, future financial resources, use of funds held in the
Company's segregated bank account (as an equity cure or otherwise),
anticipated equipment utilization levels, future oil and natural
gas well activity in each of the Company's operating jurisdictions,
results of acquisitions, the impact of environmental regulations
and economic reforms and sanctions on the Company's business,
future costs or potential liabilities, projections of market prices
and costs, supply and demand for oilfield services, expectations
regarding the Company's ability to maintain its competitive
position, anticipated benefits of the Company's competitive
position, expectations regarding the Company's financing activities
and restrictions including with regard to its credit agreement and
the indenture pursuant to which its senior notes were issued and
its ability to raise capital, treatment under government regulatory
regimes, commodity prices, anticipated outcomes of specific events
(including exposure under existing legal proceedings), expectations
regarding trends in, and the growth prospects of, the global oil
and natural gas industry, the Company's growth strategy and
prospects, and the impact of changes in accounting policies and
standards on the Company and its financial statements. These
statements are derived from certain assumptions and analyses made
by the Company based on its experience and perception of historical
trends, current conditions, expected future developments and other
factors that it believes are appropriate in the circumstances,
including, but not limited to, the economic and political
environment in which the Company operates, the Company's
expectations for its current and prospective customers' capital
budgets and geographical areas of focus, the Company's existing
contracts and the status of current negotiations with key customers
and suppliers, the focus of the Company's customers on increasing
the use of 24-hour operations in North
America, the effectiveness of cost reduction measures
instituted by the Company, the effect unconventional gas projects
have had on supply and demand fundamentals for natural gas and the
likelihood that the current tax and regulatory regime will remain
substantially unchanged.
Forward-looking statements are subject to a number of known and
unknown risks and uncertainties that could cause actual results to
differ materially from the Company's expectations. Such risk
factors include: excess oilfield equipment levels; regional
competition; the availability of capital on satisfactory terms;
restrictions resulting from compliance with debt covenants and risk
of acceleration of indebtedness; direct and indirect exposure to
volatile credit markets, including credit rating risk; currency
exchange rate risk; risks associated with foreign operations;
operating restrictions and compliance costs associated with
legislative and regulatory initiatives relating to hydraulic
fracturing and the protection of workers and the environment;
changes in legislation and the regulatory environment; dependence
on, and concentration of, major customers; liabilities and risks,
including environmental liabilities and risks, inherent in oil and
natural gas operations; uncertainties in weather and temperature
affecting the duration of the service periods and the activities
that can be completed; liabilities and risks associated with prior
operations; failure to maintain the Company's safety standards and
record; failure to realize anticipated benefits of acquisitions and
dispositions; the ability to integrate technological advances and
match advances from competitors; intellectual property risks;
sourcing, pricing and availability of raw materials, component
parts, equipment, suppliers, facilities and skilled personnel; and
the effect of accounting pronouncements issued periodically.
Further information about these and other risks and uncertainties
may be found under "Business Risks" above.
Consequently, all of the forward-looking statements made in this
press release are qualified by these cautionary statements and
there can be no assurance that actual results or developments
anticipated by the Company will be realized, or that they will have
the expected consequences or effects on the Company or its business
or operations. These statements speak only as of the respective
date of this press release or the document incorporated by
reference herein. The Company assumes no obligation to update
publicly any such forward-looking statements, whether as a result
of new information, future events or otherwise, except as required
pursuant to applicable securities laws.
BUSINESS RISKS
The business of Calfrac is subject to
certain risks and uncertainties. Prior to making any investment
decision regarding Calfrac, investors should carefully consider,
among other things, the risk factors set forth in the Company's
most recently filed Annual Information Form, which are specifically
incorporated by reference herein. The Annual Information Form is
available through the Internet on the Canadian System for
Electronic Document Analysis and Retrieval (SEDAR), which can be
accessed at www.sedar.com. Copies of the Annual Information Form
may also be obtained on request without charge from Calfrac at 411
- 8th Avenue S.W., Calgary, Alberta,
Canada, T2P 1E3, or at www.calfrac.com, or by facsimile at
403-266-7381.
NON-GAAP MEASURES
Certain supplementary measures
presented in this press release do not have any standardized
meaning under IFRS and, because IFRS have been incorporated as
Canadian generally accepted accounting principles (GAAP), these
supplementary measures are also non-GAAP measures. These measures
have been described and presented in order to provide shareholders
and potential investors with additional information regarding the
Company's financial results, liquidity and ability to generate
funds to finance its operations. These measures may not be
comparable to similar measures presented by other entities, and are
explained below.
Operating income (loss) is defined as net income (loss) before
depreciation, foreign exchange gains or losses, gains or losses on
disposal of property, plant and equipment, expenses and gain
related to business combinations, impairment of goodwill, interest,
and income taxes. Management believes that operating income is a
useful supplemental measure as it provides an indication of the
financial results generated by Calfrac's business segments prior to
consideration of how these segments are financed or taxed.
Operating income (loss) for the period was calculated as
follows:
|
Three Months Ended
Sept. 30,
|
|
Nine Months Ended
Sept. 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
(C$000s)
|
($)
|
|
($)
|
|
($)
|
|
($)
|
(unaudited)
|
|
|
|
|
|
|
|
Net loss
|
(42,169)
|
|
(25,045)
|
|
(140,201)
|
|
(81,790)
|
Add back
(deduct):
|
|
|
|
|
|
|
|
|
Depreciation
|
32,952
|
|
39,476
|
|
99,550
|
|
116,384
|
|
Foreign exchange
losses
|
(127)
|
|
1,808
|
|
19,575
|
|
3,485
|
|
Loss (gain) on
disposal of property, plant and equipment
|
583
|
|
(471)
|
|
520
|
|
(1,614)
|
|
Business
combination
|
—
|
|
(30,987)
|
|
—
|
|
(30,987)
|
|
Impairment of
goodwill
|
—
|
|
9,544
|
|
—
|
|
9,544
|
|
Interest
|
20,802
|
|
17,872
|
|
58,026
|
|
50,678
|
|
Income
taxes
|
(24,433)
|
|
(9,422)
|
|
(77,383)
|
|
(42,103)
|
Operating (loss)
income
|
(12,392)
|
|
2,775
|
|
(39,913)
|
|
23,597
|
Adjusted EBITDA is defined in the Company's credit facilities
for covenant purposes as net income or loss for the period less
interest, taxes, depreciation and amortization, non-cash
stock-based compensation, non-controlling interest relating to
Colombia, and gains and losses
that are extraordinary or non-recurring. Adjusted EBITDA is
presented because it is used in the calculation of the Company's
bank covenants. Adjusted EBITDA for the period was calculated as
follows:
|
Three Months Ended
Sept. 30,
|
|
Nine Months Ended
Sept. 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
(C$000s)
|
|
|
|
|
($)
|
|
($)
|
(unaudited)
|
|
|
|
|
|
|
|
Net loss
|
(42,169)
|
|
(25,045)
|
|
(140,201)
|
|
(81,790)
|
Add back
(deduct):
|
|
|
|
|
|
|
|
|
Depreciation
|
32,952
|
|
39,476
|
|
99,550
|
|
116,384
|
|
Unrealized foreign
exchange losses
|
20
|
|
3,670
|
|
22,327
|
|
4,815
|
|
Loss (gain) on
disposal of property, plant and equipment
|
583
|
|
(471)
|
|
520
|
|
(1,614)
|
|
Business
combination
|
—
|
|
(30,987)
|
|
—
|
|
(30,987)
|
|
Impairment of
goodwill
|
—
|
|
9,544
|
|
—
|
|
9,544
|
|
Restructuring
charges
|
514
|
|
1,665
|
|
4,417
|
|
1,665
|
|
Stock-based
compensation
|
674
|
|
856
|
|
1,697
|
|
2,297
|
|
Losses attributable
to non-controlling interest(1)
|
2
|
|
53
|
|
14
|
|
235
|
|
Interest
|
20,802
|
|
17,872
|
|
58,026
|
|
50,678
|
|
Income
taxes
|
(24,433)
|
|
(9,422)
|
|
(77,383)
|
|
(42,103)
|
Adjusted
EBITDA
|
(11,055)
|
|
7,211
|
|
(31,033)
|
|
29,124
|
(1)
|
The definition of
Adjusted EBITDA was amended in June 2015 to include non-controlling
interest related to Argentina and has
been applied prospectively.
|
|
|
ADDITIONAL INFORMATION
Further information regarding
Calfrac Well Services Ltd., including the most recently filed
Annual Information Form, can be accessed on the Company's website
at www.calfrac.com or under the Company's public filings found at
www.sedar.com.
THIRD QUARTER CONFERENCE CALL
Calfrac will be
conducting a conference call for interested analysts, brokers,
investors and news media representatives to review its 2016 third
quarter results at 10:00 a.m. (Mountain
Time) on Thursday, October 27,
2016. The conference call dial-in number is 1-888-231-8191
or 647-427-7450. The seven-day replay numbers are 1-855-859-2056 or
416-849-0833 (once connected, enter 95872386). A webcast of the
conference call may be accessed via the Company's website at
www.calfrac.com.
CONSOLIDATED BALANCE SHEETS
|
|
September
30,
|
|
December
31,
|
As at
|
|
2016
|
|
2015
|
(C$000s)
(unaudited)
|
|
($)
|
|
($)
|
ASSETS
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash and cash
equivalents
|
|
106,581
|
|
124,005
|
|
Accounts
receivable
|
|
150,309
|
|
221,995
|
|
Income taxes
recoverable
|
|
4,285
|
|
3,540
|
|
Inventories
|
|
112,383
|
|
127,622
|
|
Prepaid expenses and
deposits
|
|
16,756
|
|
18,017
|
|
|
390,314
|
|
495,179
|
Non-current
assets
|
|
|
|
|
|
Property, plant and
equipment
|
|
1,173,862
|
|
1,301,272
|
|
Deferred income tax
assets
|
|
54,787
|
|
19,372
|
Total
assets
|
|
1,618,963
|
|
1,815,823
|
LIABILITIES AND
EQUITY
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Accounts payable and
accrued liabilities
|
|
118,331
|
|
172,633
|
|
Bank loans
|
|
—
|
|
15,633
|
|
Current portion of
long-term debt (note 1)
|
|
2,505
|
|
523
|
|
Current portion of
finance lease obligations
|
|
397
|
|
438
|
|
|
121,233
|
|
189,227
|
Non-current
liabilities
|
|
|
|
|
|
Long-term debt (note
1)
|
|
964,897
|
|
927,270
|
|
Finance lease
obligations
|
|
—
|
|
382
|
|
Deferred income tax
liabilities
|
|
30,907
|
|
75,225
|
Total
liabilities
|
|
1,117,037
|
|
1,192,104
|
Equity attributable
to the shareholders of Calfrac
|
|
|
|
|
Capital stock (note
2)
|
|
409,809
|
|
409,809
|
Contributed
surplus
|
|
35,376
|
|
27,849
|
Loan receivable for
purchase of common shares
|
|
(2,500)
|
|
(2,500)
|
Retained
earnings
|
|
76,822
|
|
213,426
|
Accumulated other
comprehensive loss
|
|
(10,335)
|
|
(21,054)
|
|
|
509,172
|
|
627,530
|
Non-controlling
interest
|
|
(7,246)
|
|
(3,811)
|
Total
equity
|
|
501,926
|
|
623,719
|
Total liabilities and
equity
|
|
1,618,963
|
|
1,815,823
|
See accompanying
notes to the consolidated financial statements.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Three Months Ended
Sept. 30,
|
|
Nine Months Ended
Sept. 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
(C$000s, except per
share data) (unaudited)
|
($)
|
|
($)
|
|
($)
|
|
($)
|
Revenue
|
174,925
|
|
289,075
|
|
541,668
|
|
1,209,011
|
Cost of
sales
|
206,530
|
|
309,275
|
|
628,940
|
|
1,243,995
|
Gross loss
|
(31,605)
|
|
(20,200)
|
|
(87,272)
|
|
(34,984)
|
Expenses
|
|
|
|
|
|
|
|
|
Selling, general and
administrative
|
13,739
|
|
16,501
|
|
52,191
|
|
57,803
|
|
Foreign exchange
(gains) losses
|
(127)
|
|
1,808
|
|
19,575
|
|
3,485
|
|
Loss (gain) on
disposal of property, plant and equipment
|
583
|
|
(471)
|
|
520
|
|
(1,614)
|
|
Business
combination
|
—
|
|
(30,987)
|
|
—
|
|
(30,987)
|
|
Impairment of
goodwill
|
—
|
|
9,544
|
|
—
|
|
9,544
|
|
Interest
|
20,802
|
|
17,872
|
|
58,026
|
|
50,678
|
|
34,997
|
|
14,267
|
|
130,312
|
|
88,909
|
Loss before income
tax
|
(66,602)
|
|
(34,467)
|
|
(217,584)
|
|
(123,893)
|
Income tax expense
(recovery)
|
|
|
|
|
|
|
|
|
Current
|
494
|
|
7
|
|
1,946
|
|
1,893
|
|
Deferred
|
(24,927)
|
|
(9,429)
|
|
(79,329)
|
|
(43,996)
|
|
(24,433)
|
|
(9,422)
|
|
(77,383)
|
|
(42,103)
|
Net loss
|
(42,169)
|
|
(25,045)
|
|
(140,201)
|
|
(81,790)
|
|
|
|
|
|
|
|
|
Net loss attributable
to:
|
|
|
|
|
|
|
|
|
Shareholders of
Calfrac
|
(40,862)
|
|
(24,191)
|
|
(136,604)
|
|
(80,096)
|
|
Non-controlling
interest
|
(1,307)
|
|
(854)
|
|
(3,597)
|
|
(1,694)
|
|
(42,169)
|
|
(25,045)
|
|
(140,201)
|
|
(81,790)
|
|
|
|
|
|
|
|
|
Loss per share (note
2)
|
|
|
|
|
|
|
|
|
Basic
|
(0.35)
|
|
(0.25)
|
|
(1.18)
|
|
(0.84)
|
|
Diluted
|
(0.35)
|
|
(0.25)
|
|
(1.18)
|
|
(0.84)
|
See accompanying
notes to the consolidated financial statements.
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
INCOME
|
Three Months Ended
Sept. 30,
|
|
Nine Months Ended
Sept. 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
(C$000s)
(unaudited)
|
($)
|
|
($)
|
|
($)
|
|
($)
|
Net
loss
|
(42,169)
|
|
(25,045)
|
|
(140,201)
|
|
(81,790)
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
|
Items that may be
subsequently reclassified to profit or loss:
|
|
|
|
|
|
|
|
|
Change in foreign
currency translation adjustment
|
(109)
|
|
(6,091)
|
|
10,881
|
|
5,000
|
Comprehensive
loss
|
(42,278)
|
|
(31,136)
|
|
(129,320)
|
|
(76,790)
|
Comprehensive loss
attributable to:
|
|
|
|
|
|
|
|
|
Shareholders of
Calfrac
|
(40,833)
|
|
(30,227)
|
|
(125,885)
|
|
(75,014)
|
|
Non-controlling
interest
|
(1,445)
|
|
(909)
|
|
(3,435)
|
|
(1,776)
|
|
(42,278)
|
|
(31,136)
|
|
(129,320)
|
|
(76,790)
|
See accompanying
notes to the consolidated financial statements.
|
|
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
Equity Attributable
to the Shareholders of Calfrac
|
|
|
|
Share
Capital
|
Contributed
Surplus
|
Loan
Receivable
for Purchase
of Common
Shares
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Retained
Earnings
|
Total
|
Non-
Controlling
Interest
|
Total
Equity
|
(C$000s)
(unaudited)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Balance – Jan. 1,
2016
|
409,809
|
27,849
|
(2,500)
|
(21,054)
|
213,426
|
627,530
|
(3,811)
|
623,719
|
Net loss
|
—
|
—
|
—
|
—
|
(136,604)
|
(136,604)
|
(3,597)
|
(140,201)
|
Other comprehensive
income:
|
|
|
|
|
|
|
|
|
|
Cumulative
translation adjustment
|
—
|
—
|
—
|
10,719
|
—
|
10,719
|
162
|
10,881
|
Comprehensive income
(loss)
|
—
|
—
|
—
|
10,719
|
(136,604)
|
(125,885)
|
(3,435)
|
(129,320)
|
Warrants:
|
|
|
|
|
|
|
|
|
|
Fair value of
warrants issued (note 1)
|
—
|
5,830
|
—
|
—
|
—
|
5,830
|
—
|
5,830
|
Stock
options:
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized
|
—
|
1,697
|
—
|
—
|
—
|
1,697
|
—
|
1,697
|
Balance – Sept.
30, 2016
|
409,809
|
35,376
|
(2,500)
|
(10,335)
|
76,822
|
509,172
|
(7,246)
|
501,926
|
Balance – Jan. 1,
2015
|
377,975
|
24,767
|
(2,500)
|
(26,757)
|
459,891
|
833,376
|
(973)
|
832,403
|
Net loss
|
—
|
—
|
—
|
—
|
(80,096)
|
(80,096)
|
(1,694)
|
(81,790)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
|
Cumulative
translation adjustment
|
—
|
—
|
—
|
5,082
|
—
|
5,082
|
(82)
|
5,000
|
Comprehensive income
(loss)
|
—
|
—
|
—
|
5,082
|
(80,096)
|
(75,014)
|
(1,776)
|
(76,790)
|
Stock
options:
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized
|
—
|
2,297
|
—
|
—
|
—
|
2,297
|
—
|
2,297
|
Dividend Reinvestment
Plan shares issued
|
12,733
|
—
|
—
|
—
|
—
|
12,733
|
—
|
12,733
|
Dividends
|
—
|
—
|
—
|
—
|
(18,257)
|
(18,257)
|
—
|
(18,257)
|
Shares purchased
under NCIB
|
(6,093)
|
—
|
—
|
—
|
(3,321)
|
(9,414)
|
—
|
(9,414)
|
Balance – Sept. 30,
2015
|
384,615
|
27,064
|
(2,500)
|
(21,675)
|
358,217
|
745,721
|
(2,749)
|
742,972
|
See accompanying
notes to the consolidated financial statements.
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Three Months Ended
Sept. 30,
|
|
Nine Months Ended
Sept. 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
(C$000s)
(unaudited)
|
($)
|
|
($)
|
|
($)
|
|
($)
|
CASH FLOWS
PROVIDED BY (USED IN)
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
(42,169)
|
|
(25,045)
|
|
(140,201)
|
|
(81,790)
|
|
Adjusted for the
following:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
32,952
|
|
39,476
|
|
99,550
|
|
116,384
|
|
|
Stock-based
compensation
|
674
|
|
856
|
|
1,697
|
|
2,297
|
|
|
Unrealized foreign
exchange losses
|
20
|
|
3,670
|
|
22,327
|
|
4,815
|
|
|
Loss (gain) on
disposal of property, plant and equipment
|
583
|
|
(471)
|
|
520
|
|
(1,614)
|
|
|
Gain on business
combination
|
—
|
|
(31,965)
|
|
—
|
|
(31,965)
|
|
|
Impairment of
goodwill
|
—
|
|
9,544
|
|
—
|
|
9,544
|
|
|
Interest
|
20,802
|
|
17,872
|
|
58,026
|
|
50,678
|
|
|
Deferred income
taxes
|
(24,927)
|
|
(9,429)
|
|
(79,329)
|
|
(43,996)
|
|
|
Interest
paid
|
(4,817)
|
|
(2,040)
|
|
(39,385)
|
|
(33,648)
|
|
|
Changes in items of
working capital
|
(8,992)
|
|
32,091
|
|
37,303
|
|
101,169
|
Cash flows (used in)
provided by operating activities
|
(25,874)
|
|
34,559
|
|
(39,492)
|
|
91,874
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Bank loan
proceeds
|
—
|
|
3,072
|
|
4,977
|
|
16,841
|
|
Issuance of long-term
debt, net of debt issuance costs
|
(3)
|
|
(40)
|
|
214,897
|
|
(573)
|
|
Bank loan
repayments
|
(6,054)
|
|
(4,229)
|
|
(17,712)
|
|
(10,164)
|
|
Long-term debt
repayments
|
(624)
|
|
(122)
|
|
(130,919)
|
|
(387)
|
|
Finance lease
obligation repayments
|
(99)
|
|
(122)
|
|
(281)
|
|
(347)
|
|
Shares purchased
under NCIB
|
—
|
|
(3,894)
|
|
—
|
|
(9,414)
|
|
Dividends paid, net
of DRIP
|
—
|
|
(4,566)
|
|
(1,806)
|
|
(17,430)
|
Cash flows (used in)
provided by financing activities
|
(6,780)
|
|
(9,901)
|
|
69,156
|
|
(21,474)
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of property,
plant and equipment
|
(9,014)
|
|
(32,751)
|
|
(39,623)
|
|
(139,403)
|
|
Proceeds on disposal
of property, plant and equipment
|
585
|
|
1,392
|
|
3,214
|
|
11,522
|
|
Business
combination
|
—
|
|
(9,498)
|
|
—
|
|
(9,498)
|
Cash flows used in
investing activities
|
(8,429)
|
|
(40,857)
|
|
(36,409)
|
|
(137,379)
|
Effect of exchange
rate changes on cash and cash equivalents
|
1,416
|
|
5,194
|
|
(10,679)
|
|
22,701
|
Decrease in cash and
cash equivalents
|
(39,667)
|
|
(11,005)
|
|
(17,424)
|
|
(44,278)
|
Cash and cash
equivalents, beginning of period
|
146,248
|
|
65,856
|
|
124,005
|
|
99,129
|
Cash and cash
equivalents, end of period
|
106,581
|
|
54,851
|
|
106,581
|
|
54,851
|
See accompanying
notes to the consolidated financial statements.
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at
and for the three and nine months ended September 30, 2016 and 2015
(Amounts in text and tables are in thousands of Canadian
dollars, except share data and certain other exceptions as
indicated) (unaudited)
1. LONG-TERM DEBT
|
September
30,
|
|
December
31,
|
As at
|
2016
|
|
2015
|
(C$000s)
|
($)
|
|
($)
|
US$600,000 senior
unsecured notes due December 1, 2020, bearing interest at 7.50%
payable semi-annually
|
787,020
|
|
830,400
|
$200,000 second lien
senior secured term loan facility due September 30, 2020,
bearing
interest at 9% payable quarterly, secured by the Canadian and U.S.
assets of the
Company on a second priority basis
|
199,500
|
|
—
|
$270,000 extendible
revolving term loan facility, secured by Canadian and U.S.
assets
of the Company
|
—
|
|
110,000
|
Less: unamortized
debt issuance costs
|
(19,925)
|
|
(13,894)
|
|
966,595
|
|
926,506
|
US$616 mortgage
maturing May 2018 bearing interest at U.S. prime less 1%,
repayable
at US$33 per month principal and interest, secured by certain real
property
|
807
|
|
1,287
|
|
967,402
|
|
927,793
|
Less: current portion
of long-term debt
|
(2,505)
|
|
(523)
|
|
964,897
|
|
927,270
|
The fair value of the senior unsecured notes, as measured based
on the closing quoted market price at September 30, 2016, was
$519,433 (December 31, 2015 –
$336,312). The carrying values of the
mortgage obligation, bank loans, revolving term loan facilities and
the second lien term loan approximate their fair values as the
interest rates are not significantly different from current
interest rates for similar loans.
On June 10, 2016, the Company
entered into a $200,000 second lien
senior secured term loan facility. The term loan matures on
September 30, 2020, and bears
interest at 9% per annum, payable quarterly. Amortization payments
equal to 1% of the original principal amount are payable annually,
in equal quarterly installments, with the balance due on the final
maturity date. The proceeds from the term loan were made available
in a single draw, and amounts borrowed under the term loan that are
repaid or prepaid are not available for re-borrowing. The term loan
is secured by the Canadian and U.S. assets of the Company on a
second priority basis, subordinate only to the revolving term loan
facility.
In conjunction with the second lien senior secured term loan
facility, 6,934,776 warrants to purchase common shares of the
Company were issued, entitling the holder to acquire up to
6,934,776 common shares at a price of $4.14 per common share. The warrants expire on
June 10, 2019 and can be exercised at
any time prior to such date. The fair value of the warrants issued
was estimated using a Black-Scholes pricing model, in the amount of
$5,830 and accounted for as a
deferred finance cost. To date, no warrants have been
exercised.
The interest rate on the $270,000
revolving term loan facility is based on the parameters of certain
bank covenants. For prime-based loans, the rate ranges from prime
plus 0.50 percent to prime plus 3.50 percent. For LIBOR-based loans
and bankers' acceptance-based loans the margin thereon ranges from
1.50 percent to 4.50 percent above the respective base rates for
such loans. The facility is repayable on or before its maturity of
September 27, 2018, assuming it is
not extended. The maturity may be extended by one or more years at
the Company's request and lenders' acceptance. The Company may also
prepay principal without penalty. Debt issuance costs related to
this facility are amortized over its term.
Interest on long-term debt (including the amortization of debt
issuance costs and debt discount) for the nine months ended
September 30, 2016 was $55,825 (nine months ended September 30, 2015 – $47,364).
The Company also has an extendible operating loan facility,
which includes overdraft protection in the amount of $30,000. The interest rate is based on the
parameters of certain bank covenants in the same fashion as the
revolving term facility. Drawdowns under this facility are
repayable on September 27, 2018,
assuming the facility is not extended. The term and commencement of
principal repayments may be extended by one year on each
anniversary at the Company's request and lenders' acceptance. The
revolving term loan and operating facilities are secured by the
Company's Canadian and U.S. assets.
At September 30, 2016, the Company had utilized
$1,867 of its loan facility for
letters of credit and had $nil outstanding under its revolving term
loan facility, leaving $298,133 in
available credit, subject to a monthly borrowing base test, which
could result in a lower amount of available credit.
See note 4 for further details on the covenants in respect of
the Company's long-term debt.
2. CAPITAL STOCK
Authorized capital stock consists of an unlimited number of
common shares.
|
|
Nine Months
Ended
|
|
Year Ended
|
|
|
September 30,
2016
|
|
December 31,
2015
|
Continuity of Common
Shares
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
(#)
|
|
(C$000s)
|
|
(#)
|
|
(C$000s)
|
Balance, beginning of
period
|
|
115,579,598
|
|
409,809
|
|
95,252,559
|
|
377,975
|
Dividend Reinvestment
Plan shares issued
|
|
—
|
|
—
|
|
1,474,379
|
|
12,733
|
Shares purchased
under NCIB
|
|
—
|
|
—
|
|
(1,517,700)
|
|
(6,093)
|
Shares from private
placement
|
|
—
|
|
—
|
|
20,370,370
|
|
25,194
|
Shares
cancelled
|
|
—
|
|
—
|
|
(10)
|
|
—
|
Balance, end of
period
|
|
115,579,598
|
|
409,809
|
|
115,579,598
|
|
409,809
|
The weighted average number of common shares outstanding for the
three months ended September 30, 2016
was 115,410,398 basic and 116,554,975 diluted (three months ended
September 30, 2015 – 95,523,078 basic
and 95,692,278 diluted). The weighted average number of common
shares outstanding for the nine months ended September 30, 2016 was 115,410,398 basic and
115,609,802 diluted (nine months ended September 30, 2015 – 95,453,017 basic and
95,622,217 diluted). The difference between basic and diluted
shares is attributable to the dilutive effect of stock options
issued by the Company as disclosed in note 3.
On December 22, 2015, the Company
closed a bought deal private placement of 20,370,370 common shares
for total gross proceeds of $27,500.
Share issuance costs for the transaction were $2,306, resulting in net proceeds of $25,194.
During 2015, ten common shares were returned to the Company for
cancellation. For accounting purposes, the cancellation of these
shares was recorded as a reduction of capital stock in the amount
of forty dollars, along with a
corresponding increase to contributed surplus.
3. STOCK-BASED COMPENSATION
(a) Stock Options
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
Continuity of Stock
Options
|
|
Options
|
|
Average
Exercise Price
|
|
Options
|
|
Average
Exercise Price
|
|
|
(#)
|
|
(C$)
|
|
(#)
|
|
(C$)
|
Balance, January
1
|
|
8,229,947
|
|
7.81
|
|
4,269,050
|
|
14.76
|
|
Granted during the
period
|
|
267,500
|
|
1.45
|
|
1,665,750
|
|
9.69
|
|
Forfeited
|
|
(773,649)
|
|
10.97
|
|
(369,126)
|
|
13.68
|
|
Expired
|
|
(62,000)
|
|
16.83
|
|
(61,250)
|
|
11.10
|
Balance, September
30
|
|
7,661,798
|
|
7.19
|
|
5,504,424
|
|
13.34
|
Stock options vest equally over four years and expire five years
from the date of grant. The exercise price of outstanding options
range from $1.34 to $20.81 with a
weighted average remaining life of 3.15 years. When stock options
are exercised, the proceeds together with the compensation expense
previously recorded in contributed surplus, are added to capital
stock.
(b) Share Units
Nine Months Ended
Sept. 30,
|
2016
|
2015
|
Continuity of Stock
Units
|
Deferred Share
Units
|
Performance
Share Units
|
Restricted
Share
Units
|
Deferred Share
Units
|
Performance
Share Units
|
Restricted Share
Units
|
|
(#)
|
(#)
|
(#)
|
(#)
|
(#)
|
(#)
|
Balance, January
1
|
72,500
|
238,995
|
812,828
|
70,000
|
120,000
|
1,346,642
|
|
Granted during the
period
|
145,000
|
500,000
|
2,349,750
|
72,500
|
178,995
|
979,507
|
|
Exercised
|
(72,500)
|
—
|
—
|
(70,000)
|
(60,000)
|
(614,464)
|
|
Forfeited
|
—
|
(99,665)
|
(409,888)
|
—
|
—
|
(146,963)
|
Balance, September
30
|
145,000
|
639,330
|
2,752,690
|
72,500
|
238,995
|
1,564,722
|
|
Three Months Ended
Sept. 30,
|
|
Nine Months Ended
Sept. 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
Expense (recovery)
from:
|
|
|
|
|
|
|
|
|
Stock
options
|
674
|
|
856
|
|
1,697
|
|
2,297
|
|
Deferred share
units
|
39
|
|
(112)
|
|
320
|
|
136
|
|
Performance share
units
|
11
|
|
(332)
|
|
396
|
|
57
|
|
Restricted share
units
|
(19)
|
|
(1,705)
|
|
1,610
|
|
(2,213)
|
Total stock-based
compensation expense
|
705
|
|
(1,293)
|
|
4,023
|
|
277
|
Stock-based compensation expense is included in selling, general
and administrative expenses.
The Company grants deferred share units to its outside
directors. These units vest in November of the year of grant and
are settled either in cash (equal to the market value of the
underlying shares at the time of exercise) or in Company shares
purchased on the open market. The fair value of the deferred share
units is recognized equally over the vesting period, based on the
current market price of the Company's shares. At September 30,
2016, the liability pertaining to deferred share units was
$320 (December 31, 2015 –
$143).
The Company grants performance share units to a senior officer.
The amount of the grants earned is linked to corporate performance
and the grants vest on the approval of the Board of Directors at
the meeting held to approve the consolidated financial statements
for the year in respect of which performance is being evaluated. As
with the deferred share units, performance share units are settled
either in cash or Company shares purchased on the open market. At
September 30, 2016, the liability pertaining to performance
share units was $769
(December 31, 2015 – $373).
The Company grants restricted share units to its employees.
These units vest over three years and are settled either in cash
(equal to the market value of the underlying shares at the time of
exercise) or in Company shares purchased on the open market. The
fair value of the restricted share units is recognized over the
vesting period, based on the current market price of the Company's
shares. At September 30, 2016, the liability pertaining to
restricted share units was $2,549
(December 31, 2015 – $939).
Changes in the Company's obligations under the deferred,
performance and restricted share unit plans, which arise from
fluctuations in the market value of the Company's shares underlying
these compensation programs, are recorded as the share value
changes.
4. CAPITAL STRUCTURE
The Company's capital structure is comprised of shareholders'
equity and debt. The Company's objectives in managing capital are
(i) to maintain flexibility so as to preserve its access to capital
markets and its ability to meet its financial obligations, and (ii)
to finance growth, including potential acquisitions.
The Company manages its capital structure and makes adjustments
in light of changing market conditions and new opportunities, while
remaining cognizant of the cyclical nature of the oilfield services
sector. To maintain or adjust its capital structure, the Company
may revise its capital spending, adjust dividends paid to
shareholders, issue new shares or new debt or repay existing
debt.
The Company monitors its capital structure and financing
requirements using, amongst other parameters, the ratio of net debt
to operating income. Operating income for this purpose is
calculated on a 12-month trailing basis and is defined as
follows:
|
|
September
30,
|
|
December
31,
|
For the Twelve Months
Ended
|
|
2016
|
|
2015
|
(C$000s)
|
|
($)
|
|
($)
|
Net loss
|
|
(285,837)
|
|
(227,426)
|
Adjusted for the
following:
|
|
|
|
|
|
Depreciation
|
|
139,804
|
|
156,638
|
|
Foreign exchange
losses
|
|
53,115
|
|
37,025
|
|
Gain on disposal of
property, plant and equipment
|
|
(123)
|
|
(2,257)
|
|
Business
combination
|
|
—
|
|
(30,987)
|
|
Impairment of
property, plant and equipment
|
|
114,479
|
|
114,479
|
|
Impairment of
inventory
|
|
14,333
|
|
14,333
|
|
Impairment of
goodwill
|
|
—
|
|
9,544
|
|
Provision for
settlement of litigation
|
|
3,165
|
|
3,165
|
|
Interest
|
|
76,315
|
|
68,967
|
|
Income
taxes
|
|
(149,377)
|
|
(114,097)
|
Operating (loss)
income
|
|
(34,126)
|
|
29,384
|
Net debt for this purpose is calculated as follows:
|
|
September
30,
|
|
December
31,
|
|
|
2016
|
|
2015
|
(C$000s)
|
|
($)
|
|
($)
|
Long-term debt, net
of debt issuance costs and debt discount (note 1)
|
|
967,402
|
|
927,793
|
Bank loans
|
|
—
|
|
15,633
|
Finance lease
obligation
|
|
397
|
|
820
|
Less: cash and cash
equivalents
|
|
(106,581)
|
|
(124,005)
|
Net debt
|
|
861,218
|
|
820,241
|
The ratio of net debt to operating income does not have a
standardized meaning under IFRS and may not be comparable to
similar measures used by other companies.
At September 30, 2016, the net debt to operating income
ratio was (25.24):1 (December 31, 2015 – 27.91:1) calculated
on a 12-month trailing basis as follows:
|
|
|
|
September
30,
|
|
December
31,
|
|
|
|
|
2016
|
|
2015
|
(C$000s, except
ratio)
|
|
|
|
($)
|
|
($)
|
Net debt
|
|
|
|
861,218
|
|
820,241
|
Operating (loss)
income
|
|
|
|
(34,126)
|
|
29,384
|
Net debt to operating
income ratio
|
|
|
|
(25.24):1
|
|
27.91:1
|
The Company's net debt to operating income ratio of (25.24):1
reflects the fact that the Company incurred an operating loss for
the twelve months ended September 30,
2016.
The Company is subject to certain financial covenants relating
to working capital, leverage and the generation of cash flow in
respect of its operating and revolving credit facilities. These
covenants are monitored on a monthly basis. Prior to the end of the
fourth quarter of 2015, the Company negotiated amendments including
waivers and increases to certain of its financial covenant
thresholds pertaining to its credit facilities, as shown below. At
September 30, 2016 and December 31, 2015, the Company was in compliance
with its covenants with respect to its credit facilities.
Quarters
Ended
|
|
|
|
|
2015
|
|
|
2016
|
|
2017
|
Working capital ratio
not to fall below
|
|
|
|
|
1.15x
|
|
|
1.15x
|
|
1.15x
|
Funded Debt to
Adjusted EBITDA not to exceed(1)(2)(3)
|
|
|
|
|
4.50x
|
|
|
5.00x
|
|
4.50x/4.00x
|
Funded Debt to
Capitalization not to exceed(2)(4)
|
|
|
|
|
0.30x
|
|
|
0.30x
|
|
0.30x
|
(1)
|
Funded Debt to
Adjusted EBITDA covenant is 5.00x for September 30, 2016 and
December 31, 2016.
The covenant declines to 4.50x for the quarters ended March 31,
2017 and June 30, 2017 and declines
to 4.00x for the quarters ended September 30, 2017 and December 31,
2017 and is set at 3.00x for each quarter after December
31, 2017.
|
(2)
|
Funded Debt is
defined as Total Debt excluding all outstanding senior unsecured
notes and the second
lien senior secured term loan facility. Total Debt includes bank
loans and long-term debt (before
unamortized debt issuance costs and debt discount) plus outstanding
letters of credit less cash on hand
with lenders (excluding any cash held in a segregated account for
the purposes of a potential equity cure).
|
(3)
|
Adjusted EBITDA is
defined as net income or loss for the period less interest, taxes,
depreciation and
amortization, non-cash stock-based compensation, non-controlling
interest relating to Colombia, and
gains and losses that are extraordinary or
non-recurring.
|
(4)
|
Capitalization is
Total Debt plus Equity attributable to the shareholders of
Calfrac.
|
|
|
For the quarter ended December 31,
2015 through the quarter ended December 31, 2017, advances under the credit
facilities will be limited by a borrowing base. The borrowing base
is calculated based on the following:
i.
|
Eligible North
American accounts receivable, which is based on 75 percent of
accounts receivable owing by companies rated BB+ or lower by
Standard & Poor's (or a similar rating agency) and 85 percent
of accounts receivable from companies rated BBB- or
higher;
|
|
|
ii.
|
100 percent of
unencumbered cash of the parent company and its U.S. operating
subsidiary, excluding any cash held in a segregated account for the
purposes of a potential equity cure; and
|
|
|
iii.
|
25 percent of the net
book value of property, plant and equipment (PP&E) of the
parent company and its U.S. operating subsidiary. The value of
PP&E excludes assets under construction and is limited to
$150,000.
|
|
|
For the quarter ended December 31,
2015 through the quarter ended December 31, 2017, distributions are restricted
other than those relating to the Company's share unit plans and
dividend distributions, provided that the rate of dividends must
not exceed $0.015625 per share
quarterly.
The indenture governing the senior unsecured notes contains
restrictions on the Company's ability to pay dividends, purchase
and redeem shares of the Company, and make certain restricted
investments in circumstances where
|
i.
|
the Company is in
default under the indenture or the making of such payment would
result in a default;
|
|
ii.
|
the Company is not
meeting the Fixed Charge Coverage Ratio(1) under the
indenture of at least 2:1 for the most recent four fiscal quarters;
or
|
|
iii.
|
there is insufficient
room for such payment within a builder basket included in the
indenture.
|
|
|
(1)
The Fixed Charge Coverage Ratio is defined as cash flow to
interest expense. Cash flow is a non-GAAP measure and does not have
a standardized meaning under IFRS and is defined under the
indenture as net income (loss) attributable to the shareholders of
Calfrac before depreciation, extraordinary gains or losses,
unrealized foreign exchange gains or losses, gains or losses on
disposal of property, plant and equipment, impairment of assets,
restructuring charges, provision for settlement of litigation,
stock-based compensation, interest, and income
taxes.
|
|
These limitations on restricted payments are tempered by the
existence of a number of exceptions to the general prohibition,
including a basket allowing for restricted payments in an aggregate
amount of up to US$20,000. As at
September 30, 2016, this basket was
not utilized.
The indenture also restricts the incurrence of additional
indebtedness if the Fixed Charge Coverage Ratio determined on a pro
forma basis for the most recently ended four fiscal quarter period
for which internal financial statements are available is not at
least 2:1. As is the case with restricted payments, there are a
number of exceptions to this prohibition on the incurrence of
additional indebtedness, including the incurrence of additional
debt under credit facilities up to the greater of $175,000 or 30% of the Company's consolidated
tangible assets. At September 30,
2016, the Company was able to incur additional indebtedness
in excess of $380,000 pursuant to the
aforementioned exception.
As at September 30, 2016, the
Company's Fixed Charge Coverage Ratio of (0.01):1 was less than the
required 2:1 ratio. Failing to meet the Fixed Charge Coverage Ratio
is not an event of default under the indenture, and the baskets
highlighted in the preceding paragraphs provide sufficient
flexibility for the Company to make anticipated restricted
payments, such as dividends, and incur additional indebtedness as
required to conduct its operations and satisfy its obligations
during this period of weakened market conditions.
The Company has measures in place to ensure that it has
sufficient liquidity to navigate the cyclical nature of the
oilfield services sector and safeguard the Company's ability to
continue as a going concern. As discussed above, the Company
negotiated amendments to its credit facilities to provide increased
financial flexibility. These amendments include an "Equity Cure"
feature pursuant to which proceeds from equity offerings may be
applied as both an adjustment in the calculation of Adjusted EBITDA
and as a reduction of Funded Debt towards the Funded Debt to
Adjusted EBITDA ratio covenant for any of the quarters ending prior
to and including December 31, 2017,
subject to certain conditions including:
i.
|
the Company is only
permitted to use the proceeds of a common share issuance to
increase Adjusted EBITDA a maximum of two times;
|
ii.
|
the Company cannot
use the proceeds of a common share issuance to increase Adjusted
EBITDA in consecutive quarter ends;
|
iii.
|
the maximum proceeds
of each common share issuance permitted to be attributed to
Adjusted EBITDA cannot exceed the greater of 50 percent of Adjusted
EBITDA on a rolling four-quarter basis and $25,000; and
|
iv.
|
if proceeds are not
used immediately as an equity cure they must be held in a
segregated bank account pending an election to use them for such
purpose, and if they are removed from such account but not used as
an equity cure they will no longer be eligible for such
use.
|
|
|
In addition, to the extent that proceeds from an equity offering
are used as part of the Equity Cure, such proceeds are included in
the calculation of the Company's borrowing base.
5. CONTINGENCIES
GREEK LITIGATION
As a result of the acquisition and
amalgamation with Denison in 2004,
the Company assumed certain legal obligations relating to
Denison's Greek operations.
In 1998, North Aegean Petroleum Company E.P.E. ("NAPC"), a Greek
subsidiary of a consortium in which Denison participated (and which is now a
majority-owned subsidiary of the Company), terminated employees in
Greece as a result of the
cessation of its oil and natural gas operations in that country.
Several groups of former employees filed claims against NAPC and
the consortium alleging that their termination was invalid and that
their severance pay was improperly determined.
In 1999, the largest group of plaintiffs received a ruling from
the Athens Court of First Instance
that their termination was invalid and that salaries in arrears
amounting to approximately $10,088
(6,846 euros) plus interest were due
to the former employees. This decision was appealed to the
Athens Court of Appeal, which
allowed the appeal in 2001 and annulled the above-mentioned
decision of the Athens Court of
First Instance. The said group of former employees filed an appeal
with the Supreme Court of Greece,
which was heard on May 29, 2007. The
Supreme Court of Greece allowed
the appeal and sent the matter back to the Athens Court of Appeal for the consideration
of the quantum of awardable salaries in arrears. On June 3, 2008, the Athens Court of Appeal rejected NAPC's appeal
and reinstated the award of the Athens Court of First Instance, which decision
was further appealed to the Supreme Court of Greece. The matter was heard on April 20, 2010 and a decision rejecting such
appeal was rendered in June 2010. As
a result of Denison's
participation in the consortium that was named in the lawsuit, the
Company has been served with three separate payment orders, one on
March 24, 2015 and two others on
December 29, 2015. The Company
was also served with an enforcement order on November 23, 2015. Oppositions have been
filed on behalf of the Company in respect of each of these orders
which oppose the orders on the basis that they were improperly
issued and are barred from a statute of limitations perspective.
The salaries in arrears sought to be recovered through these orders
are part of the $10,088 (6,846 euros) cited above and the interest being
sought in respect of these orders is part of the $24,986 (16,956
euros) cited below. Provisional orders granting a temporary
suspension of any enforcement proceedings have been granted in
respect of all of the orders that have been served. The order
served on March 24, 2015 was heard on
November 24, 2015 and a decision is
pending. A hearing in respect of the orders served in December of
2015 that was scheduled for September 20,
2016, was adjourned until November
21, 2016, and a hearing in respect of the order served on
November 23, 2015 is scheduled for
January 10, 2017.
NAPC is also the subject of a claim for approximately
$4,217 (2,862
euros) plus associated penalties and interest from the Greek
social security agency for social security obligations associated
with the salaries in arrears that are the subject of the
above-mentioned decision.
The maximum aggregate interest and penalties payable under the
claims noted above, as well as three other immaterial claims
against NAPC totaling $851
(578 euros), amounted to $24,986 (16,956
euros) as at September 30, 2016.
Management is of the view that it is improbable there will be a
material financial impact to the Company as a result of these
claims. Consequently, no provision has been recorded in these
consolidated financial statements.
6. SEGMENTED INFORMATION
The Company's activities are conducted in four geographical
segments: Canada, the United States, Russia and Latin
America (comprised of Argentina and Mexico). All activities are related to
hydraulic fracturing, coiled tubing, cementing and other well
completion services for the oil and natural gas industry.
The business segments presented reflect the Company's management
structure and the way its management reviews business performance.
The Company evaluates the performance of its operating segments
primarily based on operating income, as defined below.
|
|
Canada
|
United
States
|
Russia
|
Latin
America
|
Corporate
|
Consolidated
|
(C$000s)
|
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Three Months Ended
September 30, 2016
|
|
|
|
|
|
|
|
Revenue(2)
|
|
59,577
|
52,640
|
26,303
|
36,405
|
—
|
174,925
|
Operating income
(loss)(1)
|
|
(2,028)
|
(5,998)
|
4,251
|
(2,114)
|
(6,503)
|
(12,392)
|
Segmented
assets(4)
|
|
641,355
|
710,108
|
102,014
|
165,486
|
—
|
1,618,963
|
Capital
expenditures
|
|
4,440
|
435
|
352
|
1,680
|
—
|
6,907
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, 2015
|
|
|
|
|
|
|
|
Revenue(2)
|
|
121,469
|
93,142
|
35,874
|
38,590
|
—
|
289,075
|
Operating income
(loss)(1)
|
|
10,630
|
(6,852)
|
4,333
|
766
|
(6,102)
|
2,775
|
Segmented
assets(4)
|
|
642,073
|
955,968
|
109,936
|
205,576
|
—
|
1,913,553
|
Capital
expenditures
|
|
3,995
|
11,947
|
122
|
8,881
|
—
|
24,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
United
States
|
Russia
|
Latin
America
|
Corporate
|
Consolidated
|
(C$000s)
|
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Nine Months Ended
September 30, 2016
|
|
|
|
|
|
|
|
Revenue(3)
|
|
177,686
|
176,677
|
71,459
|
115,846
|
—
|
541,668
|
Operating income
(loss)(1)
|
|
(6,458)
|
(19,059)
|
8,069
|
346
|
(22,811)
|
(39,913)
|
Segmented
assets(4)
|
|
641,355
|
710,108
|
102,014
|
165,486
|
—
|
1,618,963
|
Capital
expenditures
|
|
(138)
|
14,747
|
1,594
|
6,796
|
—
|
22,999
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2015
|
|
|
|
|
|
|
|
Revenue(3)
|
|
409,761
|
570,744
|
105,234
|
123,272
|
—
|
1,209,011
|
Operating income
(loss)(1)
|
|
24,763
|
3,826
|
10,511
|
9,265
|
(24,768)
|
23,597
|
Segmented
assets(4)
|
|
642,073
|
955,968
|
109,936
|
205,576
|
—
|
1,913,553
|
Capital
expenditures
|
|
26,905
|
60,290
|
1,440
|
39,335
|
—
|
127,970
|
(1)
|
Operating income
(loss) is defined as net income (loss) before depreciation, foreign
exchange gains or losses, gains or losses on
disposal of property, plant and equipment, expenses and gain
related to business combinations, impairment of goodwill,
interest,
and income taxes.
|
(2)
|
Argentina's
revenue for the three months ended September 30, 2016 and 2015 was
$35,163 or 20% of consolidated revenue and
$38,199 or 13% of consolidated revenue,
respectively.
|
(3)
|
Argentina's
revenue for the nine months ended September 30, 2016 and 2015 was
$108,737 or 20% of consolidated revenue and
$117,543 or 10% of consolidated revenue,
respectively.
|
(4)
|
Argentina's assets
as at September 30, 2016 and 2015 were $155,052 or 10% of
consolidated assets and $184,306 or 10% of
consolidated assets, respectively.
|
|
|
|
Three Months Ended
Sept. 30,
|
|
Nine Months Ended
Sept. 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
(C$000s)
|
($)
|
|
($)
|
|
($)
|
|
($)
|
Net loss
|
(42,169)
|
|
(25,045)
|
|
(140,201)
|
|
(81,790)
|
Add back
(deduct):
|
|
|
|
|
|
|
|
|
Depreciation
|
32,952
|
|
39,476
|
|
99,550
|
|
116,384
|
|
Foreign exchange
(gains) losses
|
(127)
|
|
1,808
|
|
19,575
|
|
3,485
|
|
Loss (gain) on
disposal of property, plant and equipment
|
583
|
|
(471)
|
|
520
|
|
(1,614)
|
|
Business
combination
|
—
|
|
(30,987)
|
|
—
|
|
(30,987)
|
|
Impairment of
goodwill
|
—
|
|
9,544
|
|
—
|
|
9,544
|
|
Interest
|
20,802
|
|
17,872
|
|
58,026
|
|
50,678
|
|
Income
taxes
|
(24,433)
|
|
(9,422)
|
|
(77,383)
|
|
(42,103)
|
Operating (loss)
income
|
(12,392)
|
|
2,775
|
|
(39,913)
|
|
23,597
|
Operating income (loss) does not have a standardized meaning
under IFRS and may not be comparable to similar measures used by
other companies.
The following table sets forth consolidated revenue by service
line:
|
|
|
|
|
|
Three Months Ended
Sept. 30,
|
|
Nine Months Ended
Sept. 30,
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
(C$000s)
|
|
|
|
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
Fracturing
|
|
|
|
|
|
139,326
|
|
245,519
|
|
444,389
|
|
1,081,703
|
Coiled
tubing
|
|
|
|
|
|
21,597
|
|
21,836
|
|
55,845
|
|
64,987
|
Cementing
|
|
|
|
|
|
8,215
|
|
20,037
|
|
26,602
|
|
54,248
|
Other
|
|
|
|
|
|
5,787
|
|
1,683
|
|
14,832
|
|
8,073
|
|
|
|
|
|
|
174,925
|
|
289,075
|
|
541,668
|
|
1,209,011
|
SOURCE Calfrac Well Services Ltd.