CALGARY, April 26, 2017 /CNW/ - Calfrac Well
Services Ltd. ("Calfrac" or "the Company") (TSX-CFW) announces
its financial and operating results for the three months ended
March 31, 2017.
HIGHLIGHTS
Three Months Ended
March 31,
|
2017
|
2016
|
Change
|
(C$000s, except
per share and unit data)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Financial
|
|
|
|
Revenue
|
268,815
|
216,138
|
24
|
Operating income
(loss)(1)
|
20,395
|
(11,623)
|
NM
|
|
Per share –
basic
|
0.15
|
(0.10)
|
NM
|
|
Per share –
diluted
|
0.15
|
(0.10)
|
NM
|
Adjusted
EBITDA(1)
|
21,584
|
(5,883)
|
NM
|
|
Per share –
basic
|
0.16
|
(0.05)
|
NM
|
|
Per share –
diluted
|
0.16
|
(0.05)
|
NM
|
Net loss attributable
to the shareholders of Calfrac before foreign exchange
gains or
losses(2)
|
(21,659)
|
(40,592)
|
(47)
|
|
Per share –
basic
|
(0.16)
|
(0.35)
|
(54)
|
|
Per share –
diluted
|
(0.16)
|
(0.35)
|
(54)
|
Net loss attributable
to the shareholders of Calfrac
|
(19,547)
|
(54,071)
|
(64)
|
|
Per share –
basic
|
(0.14)
|
(0.47)
|
(70)
|
|
Per share –
diluted
|
(0.14)
|
(0.47)
|
(70)
|
Working capital (end
of period)
|
278,818
|
261,072
|
7
|
Total equity (end of
period)
|
485,452
|
576,465
|
(16)
|
Weighted average
common shares outstanding (000s)
|
|
|
|
|
Basic
|
136,558
|
115,410
|
18
|
|
Diluted
|
138,460
|
115,580
|
20
|
|
|
|
|
Operating (end of
period)
|
|
|
|
Active pumping
horsepower (000s)
|
727
|
640
|
14
|
Idle pumping
horsepower (000s)
|
493
|
586
|
(16)
|
Total pumping
horsepower (000s)
|
1,220
|
1,226
|
—
|
Active coiled tubing
units (#)
|
20
|
18
|
11
|
Idle coiled tubing
units (#)
|
12
|
14
|
(14)
|
Total coiled tubing
units (#)
|
32
|
32
|
—
|
Active cementing
units (#)
|
12
|
14
|
(14)
|
Idle cementing units
(#)
|
13
|
11
|
18
|
Total cementing units
(#)
|
25
|
25
|
—
|
(1)
Refer to "Non-GAAP Measures" on pages 16 and 17 for further
information.
|
(2)
Net loss attributable to the shareholders of Calfrac before
foreign exchange (FX) gains or losses is defined as net loss
attributable to the shareholders of Calfrac before FX gains or
losses 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.
|
FIRST QUARTER 2017 OVERVIEW
CONSOLIDATED
HIGHLIGHTS
Three Months Ended
March 31,
|
2017
|
2016
|
Change
|
(C$000s, except
operational information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
268,815
|
216,138
|
24
|
Expenses
|
|
|
|
|
Operating
|
237,675
|
211,096
|
13
|
|
Selling, general and
administrative (SG&A)
|
10,745
|
16,665
|
(36)
|
|
248,420
|
227,761
|
9
|
Operating income
(loss)(1)
|
20,395
|
(11,623)
|
NM
|
Operating income
(loss) (%)
|
7.6
|
(5.4)
|
NM
|
Adjusted
EBITDA(1)
|
21,584
|
(5,883)
|
NM
|
Adjusted EBITDA
(%)
|
8.0
|
(2.7)
|
NM
|
Fracturing revenue
per job ($)
|
25,499
|
32,876
|
(22)
|
Number of fracturing
jobs
|
9,264
|
5,536
|
67
|
Active pumping
horsepower, end of period (000s)
|
727
|
640
|
14
|
Idle pumping
horsepower, end of period (000s)(2)
|
493
|
586
|
(16)
|
Total pumping
horsepower, end of period (000s)(2)
|
1,220
|
1,226
|
—
|
Coiled tubing revenue
per job ($)
|
28,081
|
37,365
|
(25)
|
Number of coiled
tubing jobs
|
725
|
505
|
44
|
Active coiled tubing
units, end of period (#)
|
20
|
18
|
11
|
Idle coiled tubing
units, end of period (#)
|
12
|
14
|
(14)
|
Total coiled tubing
units, end of period (#)
|
32
|
32
|
—
|
Cementing revenue per
job ($)
|
46,234
|
48,641
|
(5)
|
Number of cementing
jobs
|
185
|
207
|
(11)
|
Active cementing
units, end of period (#)
|
12
|
14
|
(14)
|
Idle cementing units,
end of period (#)
|
13
|
11
|
18
|
Total cementing
units, end of period (#)
|
25
|
25
|
—
|
(1)
Refer to "Non-GAAP Measures" on pages 16 and 17 for further
information.
|
(2)
Excludes 97,500 pumping horsepower that has not been
commissioned at March 31, 2017 (March 31, 2016 -
60,000).
|
|
Revenue in the first quarter of 2017 was $268.8 million, an increase of 24 percent from
the same period in 2016. The Company's fracturing job count
increased by 67 percent mainly due to higher activity in
Canada and the United States. The Company pumped
approximately 60 percent and 50 percent more proppant in
Canada and the United States, respectively, compared to
the first quarter in 2016 as a result of greater service intensity.
Consolidated revenue per fracturing job decreased by 22 percent
primarily due to job mix in Canada
and Argentina offset partially by
the completion of larger jobs in the United States. Cementing
revenue per job decreased by 5 percent due to the impact of large
cementing jobs completed in Pennsylvania in 2016 prior to suspending
operations.
Pricing in Canada increased
modestly and in the United
States pricing was mostly consistent with the
comparative quarter. 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
Russia, pricing was consistent
with the first quarter of 2016.
Adjusted EBITDA of $21.6 million
for the first quarter of 2017 increased from negative $5.9 million in the comparable period in
2016 due to significantly higher utilization in the United States and Canada. The improvement in Adjusted EBITDA was
partially offset by weaker results in Argentina due to lower pricing and
utilization.
The net loss attributable to shareholders of Calfrac was
$19.5 million or $0.14 per share diluted compared to a net loss of
$54.1 million or $0.47 per share diluted in the same period last
year.
Based on stronger demand for equipment than previously
contemplated, Calfrac is increasing its 2017 capital budget to
$45.0 million from $25.0 million, largely focused on sustaining
capital for the Company's North American fracturing operations.
Three Months
Ended
|
March
31,
|
December
31,
|
Change
|
|
2017
|
2016
|
|
(C$000s, except
operational information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
268,815
|
192,846
|
39
|
Expenses
|
|
|
|
|
Operating
|
237,675
|
193,264
|
23
|
|
SG&A
|
10,745
|
17,873
|
(40)
|
|
248,420
|
211,135
|
18
|
Operating income
(loss)(1)
|
20,395
|
(18,291)
|
NM
|
Operating income
(loss) (%)
|
7.6
|
(9.5)
|
NM
|
Adjusted
EBITDA(1)
|
21,584
|
(13,717)
|
NM
|
Adjusted EBITDA
(%)
|
8.0
|
(7.1)
|
NM
|
Fracturing revenue
per job ($)
|
25,499
|
26,382
|
(3)
|
Number of fracturing
jobs
|
9,264
|
5,932
|
56
|
Active pumping
horsepower, end of period (000s)
|
727
|
659
|
10
|
Idle pumping
horsepower, end of period (000s)(2)
|
493
|
563
|
(12)
|
Total pumping
horsepower, end of period (000s)(2)
|
1,220
|
1,222
|
—
|
Coiled tubing revenue
per job ($)
|
28,081
|
30,439
|
(8)
|
Number of coiled
tubing jobs
|
725
|
644
|
13
|
Active coiled tubing
units, end of period (#)
|
20
|
19
|
5
|
Idle coiled tubing
units, end of period (#)
|
12
|
13
|
(8)
|
Total coiled tubing
units, end of period (#)
|
32
|
32
|
—
|
Cementing revenue per
job ($)
|
46,234
|
45,351
|
2
|
Number of cementing
jobs
|
185
|
214
|
(14)
|
Active cementing
units, end of period (#)
|
12
|
14
|
(14)
|
Idle cementing units,
end of period (#)
|
13
|
11
|
18
|
Total cementing
units, end of period (#)
|
25
|
25
|
—
|
(1)
Refer to "Non-GAAP Measures" on pages 16 and 17 for further
information.
|
(2)
Excludes 97,500 pumping horsepower that has not been
commissioned at March 31, 2017 (December 31, 2016 -
92,500)
|
|
Revenue in the first quarter of 2017 was $268.8 million, an increase of 39 percent from
the fourth quarter of 2016 primarily due to higher activity and
pricing in Canada and the United States. The Company pumped
approximately 60 percent more proppant in Canada and the
United States compared to the fourth quarter as a result of
greater service intensity. Revenue per fracturing job decreased
by 3 percent due to a change in customer mix in Canada that resulted in smaller average job
sizes offset by better pricing in North America and larger
jobs in the United States. Pricing
in Canada improved in the range of
10 to 15 percent while the U.S. experienced modest pricing
improvements. Pricing in Argentina
and Russia was consistent with the
fourth quarter of 2016.
In Canada, revenue increased by
53 percent to $111.0 million in the
first quarter of 2017 due to higher fracturing and coiled tubing
activity offset partially by the completion of smaller jobs
resulting from changes in job mix and completion design. Operating
income as a percentage of revenue was 11 percent, which was up from
2 percent in the fourth quarter, primarily due to higher
utilization and better pricing.
In the United States, revenue
in the first quarter of 2017 increased by 69 percent from the
fourth quarter to $98.0 million,
mainly as a result of higher activity in Colorado. The division significantly improved
its results sequentially, moving from an operating loss of 12
percent of revenue in the fourth quarter to operating income of 10
percent in the first quarter of 2017. The improvement in sequential
results was primarily driven by operational efficiencies with
customers in Colorado and
Pennsylvania.
In Russia, revenue of
$27.7 million in the first quarter of
2017 was 14 percent higher than the fourth quarter of 2016
primarily due to cold weather in Usinsk which allowed activity to
continue to the end of the quarter. Operating income as a
percentage of revenue declined to near breakeven from 4 percent
primarily due the impact on utilization of extremely cold weather
in Western Siberia and higher fuel
costs.
In Latin America, revenue
decreased by 16 percent to $32.0
million primarily due to lower cementing activity in
Argentina. Operating income
recorded in the fourth quarter of 2016 included restructuring costs
of $3.4 million. Excluding these
one-time costs, operating income in the fourth quarter of 2016 as a
percentage of revenue was 1 percent compared to 7 percent in the
first quarter of 2017. This improvement was primarily due to
improved utilization and continued cost reduction measures.
OUTLOOK
The first quarter of 2017 marked the
beginning of a transition away from unsustainable pricing and very
low activity in our key operating geographies. Throughout the first
quarter, the Company reactivated equipment and achieved modest
pricing gains which both contributed to the improvement in reported
results. The Company has been adding field personnel, and based on
current demand levels, expects to continue hiring throughout the
remainder of the year.
CANADA
The outlook
for the Company's operations in Canada remains positive, although spring
break-up in western Canada will
likely affect Calfrac's ability to service work through a portion
of the second quarter. Client demand remains high, and with
substantial pad work underway or scheduled in the second quarter,
the Company remains confident of strong results for Canada relative to 2016.
The Company continues to evaluate opportunities to reactivate
additional equipment in Canada
throughout the summer, however pricing and labour availability
remain key challenges for the industry at large. The Company
continues to recruit aggressively and will examine all
opportunities to expand its field labour force.
Cost inflation impacted operations during the first quarter and
Calfrac expects a continuation of this trend throughout the
remainder of 2017. Specifically, third-party services such as
trucking as well as sand and chemicals have seen price escalations,
although the Company is managing this as proactively as possible
through several supply chain initiatives.
The Montney resource play has
been very active to date in 2017 although client interest is
increasing across the Western Canadian Sedimentary Basin, in both
natural gas and oil plays such as the Duvernay, Deep Basin, Viking and Cardium.
With increasing activity and intensity, the Company believes
that the demand for proppant will continue to stress current
infrastructure in western Canada
this year. However, Calfrac's investment in a comprehensive supply
chain network that internally manages the vast majority of its
operational requirements should allow the Company more flexibility
in responding to increasing client demand, with cost and
reliability of supply as key differentiators.
Pricing has improved in Calfrac's Canadian operations although
the second quarter typically represents a pause in pricing
discussions due to lower work volumes. Although financial results
have improved, investing for growth and a sustainable business
model will require further pricing improvement going forward.
UNITED
STATES
The United
States division has been the most challenged market
throughout the downturn, but has shown strong improvement over the
first quarter. Expectations of higher demand were realized and the
consistency of work volumes exceeded forecasts which was
responsible for the significant improvement in this segment's
financial results. Pricing levels have also improved, but more
material pricing improvement is required to achieve sustainable
business returns.
The Company is in the final stages of reactivating two
incremental fleets in Colorado
with contributions expected for at least half of the second
quarter. Calfrac continues to engage with clients in existing and
legacy operating areas as well as in areas where the Company has no
operating history. While further reactivations in Calfrac's U.S.
operations are likely, it will not sacrifice short-term
profitability or Calfrac's operating and safety culture to secure
incremental work.
In the short-term, the Company believes that its U.S. operations
will continue to transition to more normalized operating margins
and that robust client demand for incremental equipment in all
operating districts will provide additional opportunities in the
second half of the year.
As in Canada, general cost
inflation has begun to occur in the U.S. across a number of fronts.
The Company has been successful to date in passing through these
inflation drivers to customers. With further increases to the land
rig count in the United States and
ongoing tightness in the labour market, Calfrac believes the U.S.
fracturing market will remain supply constrained through the
remainder of 2017 which would be expected to drive further
improvements in pricing and margins.
Over and above these factors, Calfrac has observed a move by
customers away from low-cost services to a focus on execution,
efficiency and safety. This is a trend which plays to the Company's
strengths.
RUSSIA
The first
quarter was slightly behind the Company's expectations due to
weather and ground conditions in Western
Siberia, but was largely in line with previous first-quarter
results. Overall, activity and pricing are expected to remain
relatively flat on a year-over-year basis with financial results
projected to remain stable when compared to 2016.
LATIN AMERICA
The
efforts of the Argentinean government to attract investment into
the country's oil and gas sector appear to be moving forward. With
multiple E&P companies having announced significant investment
plans for the country, the Company believes that it will benefit
from increasing activity this year. However, shifts in
client-specific work programs and labour issues may both continue
to impact results in the short-term.
In Mexico, the business
environment remains challenging with very limited onshore pressure
pumping activity. Calfrac will continue to evaluate the market
while maintaining a small scale operating presence with a minimal
cost structure.
CORPORATE
With improving operating results and client
demand, Calfrac's focus in the short-term is on managing the
reactivation of its assets in a safe, efficient and profitable
manner, while in the medium-term, the goal of generating free cash
flow remains unchanged. With fundamental improvement in the
operational and financial performance of the Calfrac's businesses,
opportunities to address the long-term structure of the Company's
balance sheet will manifest themselves and management will seek to
combine flexibility and low cost in its actions ahead.
As a result of increased activity and demand for equipment, the
Company is announcing an increase in its 2017 capital budget from
$25.0 million to $45.0 million. The incremental spend will be
largely focused on capital components related to its North American
fracturing operations.
CANADA
Three Months Ended
March 31,
|
2017
|
2016
|
Change
|
(C$000s, except
operational information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
111,018
|
72,721
|
53
|
Expenses
|
|
|
|
|
Operating
|
96,452
|
70,300
|
37
|
|
Selling, general and
administrative (SG&A)
|
2,123
|
2,168
|
(2)
|
|
98,575
|
72,468
|
36
|
Operating
income(1)
|
12,443
|
253
|
NM
|
Operating income
(%)
|
11.2
|
0.3
|
NM
|
Fracturing revenue
per job ($)
|
16,400
|
22,057
|
(26)
|
Number of fracturing
jobs
|
6,066
|
3,022
|
101
|
Active pumping
horsepower, end of period (000s)
|
207
|
194
|
7
|
Idle pumping
horsepower, end of period (000s)
|
185
|
216
|
(14)
|
Total pumping
horsepower, end of period (000s)
|
392
|
410
|
(4)
|
Coiled tubing revenue
per job ($)
|
21,088
|
22,718
|
(7)
|
Number of coiled
tubing jobs
|
547
|
267
|
105
|
Active coiled tubing
units, end of period (#)
|
8
|
4
|
100
|
Idle coiled tubing units, end of period
(#)
|
5
|
9
|
(44)
|
Total coiled tubing
units, end of period (#)
|
13
|
13
|
—
|
(1)
Refer to "Non-GAAP Measures" on pages 16 and 17 for further
information.
|
|
REVENUE
Revenue from Calfrac's Canadian operations
during the first quarter of 2017 was $111.0
million versus $72.7 million
in the same period of 2016. The 53 percent increase in revenue was
due to fracturing job count increasing by more than 100 percent
offset partially by the completion of smaller jobs resulting from
changes in job mix and completion design. The number of fracturing
jobs increased due to an overall increase in completion activity in
the Western Canadian Sedimentary Basin combined with the
reactivation of two additional crews that were operational during
the quarter. The number of coiled tubing jobs more than doubled
from the first quarter in 2016 as a result of the reactivation of
four coiled tubing units, which supported the increased demand for
the Company's fracturing services. Revenue per fracturing job
decreased by 26 percent from the same period in the prior year as
the Company's job mix included a higher proportion of less
intensive fracturing jobs and smaller stage sizes.
OPERATING INCOME
Operating income in Canada during the first quarter of 2017 was
$12.4 million compared to
$0.3 million in the same period of
2016. The Company was able to achieve an operating margin of
11 percent due to higher utilization compared to the first quarter
in 2016 which more than offset operating cost increases. Operating
costs were 37 percent higher than the comparable quarter of 2016
primarily due to the increase in activity combined with higher
subcontractor and proppant costs. In the first quarter of 2017, the
Company incurred reactivation costs of approximately $0.4 million.
UNITED STATES
Three Months Ended
March 31,
|
2017
|
2016
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
98,043
|
75,985
|
29
|
Expenses
|
|
|
|
|
Operating
|
85,741
|
82,955
|
3
|
|
SG&A
|
2,303
|
5,268
|
(56)
|
|
88,044
|
88,223
|
—
|
Operating income
(loss)(1)
|
9,999
|
(12,238)
|
NM
|
Operating income
(loss) (%)
|
10.2
|
(16.1)
|
NM
|
Fracturing revenue
per job ($)
|
36,085
|
36,118
|
—
|
Number of fracturing
jobs
|
2,717
|
2,058
|
32
|
Active pumping
horsepower, end of period (000s)
|
319
|
245
|
30
|
Idle pumping
horsepower, end of period (000s)
|
308
|
370
|
(17)
|
Total pumping
horsepower, end of period (000s)
|
627
|
615
|
2
|
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
|
—
|
Active cementing
units, end of period (#)
|
—
|
—
|
—
|
Idle cementing units,
end of period (#)
|
11
|
11
|
—
|
Total cementing
units, end of period (#)
|
11
|
11
|
—
|
US$/C$ average
exchange rate(2)
|
1.3238
|
1.3732
|
(4)
|
(1)
Refer to "Non-GAAP Measures" on pages 16 and 17 for further
information.
|
(2)
Source: Bank of Canada.
|
|
REVENUE
Revenue from Calfrac's United States operations increased to
$98.0 million during the first
quarter of 2017 from $76.0 million in
the comparable quarter of 2016 primarily due to higher
fracturing activity in Colorado as
32 percent more fracturing jobs were completed period-over-period.
Revenue per job was consistent year-over-year due to the completion
of larger jobs in the Marcellus shale gas play in Pennsylvania and the Bakken shale oil play in
North Dakota offset by the
completion of smaller jobs in Colorado. This increase in revenue was
partially offset by a four percent depreciation in the U.S. dollar
versus the Canadian dollar.
OPERATING INCOME (LOSS)
The Company's United States operations generated operating
income of $10.0 million during the
first quarter of 2017 compared to an operating loss of $12.2 million in the same period in 2016. The
turnaround to positive operating income was primarily the result of
improved utilization in Colorado
and Pennsylvania which was offset
partially by $1.7 million in
reactivation costs incurred during the quarter. SG&A expenses
decreased by 56 percent in the first quarter of 2017 as the
comparable quarter contained $3.1
million in restructuring costs associated with the temporary
closure of the Company's south Texas operations and a reduction in crews
operating in Pennsylvania.
RUSSIA
Three Months Ended
March 31,
|
2017
|
2016
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
27,727
|
22,723
|
22
|
Expenses
|
|
|
|
|
Operating
|
27,167
|
21,351
|
27
|
|
SG&A
|
685
|
563
|
22
|
|
27,852
|
21,914
|
27
|
Operating (loss)
income(1)
|
(125)
|
809
|
NM
|
Operating (loss)
income (%)
|
(0.5)
|
3.6
|
NM
|
Fracturing revenue
per job ($)
|
80,092
|
70,930
|
13
|
Number of fracturing
jobs
|
297
|
253
|
17
|
Pumping horsepower,
end of period (000s)
|
70
|
70
|
—
|
Coiled tubing revenue
per job ($)
|
48,040
|
40,491
|
19
|
Number of coiled
tubing jobs
|
82
|
118
|
(31)
|
Active coiled tubing
units, end of period (#)
|
6
|
7
|
(14)
|
Idle coiled tubing
units, end of period (#)
|
1
|
—
|
NM
|
Total coiled tubing
units, end of period (#)
|
7
|
7
|
—
|
Rouble/C$ average
exchange rate(2)
|
0.0226
|
0.0184
|
23
|
(1)
Refer to "Non-GAAP Measures" on pages 16 and 17 for further
information.
|
(2)
Source: Bank of Canada.
|
|
REVENUE
Revenue from Calfrac's Russian operations
increased by 22 percent during the first quarter of 2017 to
$27.7 million from $22.7 million in the corresponding three-month
period of 2016. The increase in revenue was largely attributable to
the 23 percent appreciation of the Russian rouble during the
quarter as well as cold weather in Usinsk which allowed activity to
continue to the end of the quarter in 2017. Revenue per fracturing
job increased by 13 percent primarily due to the appreciation of
the Russian rouble offset partially by the completion of smaller
jobs due to customer and job mix.
OPERATING (LOSS) INCOME
The Company's Russian
operations incurred an operating loss of $0.1 million during the first quarter of 2017
compared to income of $0.8 million in
the corresponding period of 2016. The operating loss resulted
primarily from lower utilization due to extremely cold weather in
Western Siberia and higher fuel
costs. SG&A expenses were 22 percent higher than the comparable
quarter in 2016 due to the 23 percent appreciation of the Russian
rouble.
LATIN AMERICA
Three Months Ended
March 31,
|
2017
|
2016
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
32,027
|
44,709
|
(28)
|
Expenses
|
|
|
|
|
Operating
|
27,325
|
34,995
|
(22)
|
|
SG&A
|
2,479
|
2,846
|
(13)
|
|
29,804
|
37,841
|
(21)
|
Operating
income(1)
|
2,223
|
6,868
|
(68)
|
Operating income
(%)
|
6.9
|
15.4
|
(55)
|
Pumping horsepower,
end of period (000s)
|
131
|
131
|
—
|
Active cementing
units, end of period (#)
|
12
|
14
|
(14)
|
Idle cementing units,
end of period (#)
|
2
|
—
|
NM
|
Total cementing
units, end of period (#)
|
14
|
14
|
—
|
Active coiled tubing
units, end of period (#)
|
6
|
7
|
(14)
|
Idle coiled tubing
units, end of period (#)
|
1
|
—
|
NM
|
Total coiled tubing
units, end of period (#)
|
7
|
7
|
—
|
Mexican peso/C$
average exchange rate(2)
|
0.0654
|
0.0762
|
(14)
|
Argentinean peso/C$
average exchange rate(2)
|
0.0845
|
0.0953
|
(11)
|
(1)
Refer to "Non-GAAP Measures" on pages 16 and 17 for further
information.
|
(2)
Source: Bank of Canada.
|
|
REVENUE
Calfrac's Latin American operations generated
total revenue of $32.0 million during
the first quarter of 2017 versus $44.7
million in the comparable three-month period in 2016.
Revenue in Latin America was 28
percent lower than the comparable quarter primarily due to lower
pricing, the completion of smaller fracturing jobs and less coiled
tubing activity in Argentina.
Cementing revenue in Argentina was
consistent with the comparable quarter in 2016. In Mexico, revenue decreased by $3.1 million primarily due to lower fracturing
activity with Calfrac's major customer.
OPERATING INCOME
The Company's operations in
Latin America generated operating
income of $2.2 million during the
first quarter of 2017 compared to operating income of $6.9 million in the first quarter of 2016. This
decrease was primarily due to lower pricing and a shift in activity
from northern Argentina, which
typically has larger jobs, to southern Argentina where the average job size is
smaller.
CORPORATE
Three Months Ended
March 31,
|
2017
|
2016
|
Change
|
(C$000s)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Expenses
|
|
|
|
|
Operating
|
990
|
1,495
|
(34)
|
|
SG&A
|
3,155
|
5,820
|
(46)
|
|
4,145
|
7,315
|
(43)
|
Operating
loss(1)
|
(4,145)
|
(7,315)
|
(43)
|
% of
Revenue
|
1.5
|
3.4
|
(56)
|
(1)
Refer to "Non-GAAP Measures" on pages 16 and 17 for further
information.
|
|
OPERATING LOSS
Corporate expenses for the first
quarter of 2017 decreased by 43 percent compared to the first
quarter of 2016. Operating expenses were 34 percent lower as a
result of lower district personnel costs. SG&A expenses were
$2.7 million lower primarily due to a
decrease in stock-based compensation expense. The Company reversed
a portion of its stock-based compensation expense relating to
Restricted Share Units and Performance Share Units during the
quarter, which resulted in a recovery of $3.5 million. The expense relating to stock
options was $0.8 million higher due
to additional options granted during the period.
DEPRECIATION
For the three months ended March 31,
2017, depreciation expense decreased by 10 percent to $32.0 million from $35.6
million in the corresponding quarter of 2016. The decrease
in depreciation was primarily due to a larger portion of the
Company's asset base being fully depreciated combined with a weaker
U.S. dollar.
FOREIGN EXCHANGE GAINS AND LOSSES
The Company recorded
a foreign exchange gain of $3.7
million during the first quarter of 2017 versus a loss of
$18.2 million in the comparative
three-month period of 2016. 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 and Latin
America and liabilities held in Canadian dollars in
Russia.
INTEREST
The Company's net interest expense of
$21.3 million for the first quarter
of 2017 was $2.1 million higher than
in the comparable period of 2016. The main driver of this increase
was interest expense related to the Company's $200.0 million secured second lien term loan as
it contributed to an increase in debt levels and the interest rate
on this 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 $10.8 million during the
first quarter of 2017 compared to a recovery of $28.9 million in the comparable period of 2016.
The recovery position was the result of pre-tax losses incurred
during the quarter in Canada and
the United States. The effective
tax recovery rate was 36 percent during the first quarter of 2017
compared to a tax recovery rate of 34 percent in the comparable
quarter in 2016. The effective tax recovery rate in 2017 was higher
primarily due to a greater proportion of the consolidated losses
being incurred in the United
States, which has a higher statutory tax rate, compared to
2016.
SUMMARY OF QUARTERLY RESULTS
Three Months
Ended
|
Jun. 30,
|
Sep. 30,
|
Dec. 31,
|
Mar. 31,
|
Jun. 30,
|
Sep. 30,
|
Dec. 31,
|
Mar.
31,
|
|
2015
|
2015
|
2015
|
2016
|
2016
|
2016
|
2016
|
2017
|
(C$000s, except
per share and operating data)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
(unaudited)
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
Revenue
|
319,553
|
289,075
|
286,194
|
216,138
|
150,605
|
174,925
|
192,846
|
268,815
|
Operating income
(loss)(1)
|
(7,022)
|
2,775
|
5,787
|
(11,623)
|
(15,898)
|
(12,392)
|
(18,291)
|
20,395
|
|
Per share –
basic
|
(0.07)
|
0.03
|
0.06
|
(0.10)
|
(0.14)
|
(0.11)
|
(0.15)
|
0.15
|
|
Per share –
diluted
|
(0.07)
|
0.03
|
0.06
|
(0.10)
|
(0.14)
|
(0.11)
|
(0.15)
|
0.15
|
Adjusted
EBITDA(1)
|
(3,696)
|
7,211
|
22,933
|
(5,883)
|
(14,095)
|
(11,055)
|
(13,717)
|
21,584
|
|
Per share –
basic
|
(0.04)
|
0.08
|
0.24
|
(0.05)
|
(0.12)
|
(0.10)
|
(0.11)
|
0.16
|
|
Per share –
diluted
|
(0.04)
|
0.08
|
0.24
|
(0.05)
|
(0.12)
|
(0.10)
|
(0.11)
|
0.16
|
Net income (loss)
attributable to the shareholders of Calfrac
|
(43,277)
|
(24,191)
|
(141,498)
|
(54,071)
|
(41,671)
|
(40,862)
|
(61,493)
|
(19,547)
|
|
Per share –
basic
|
(0.45)
|
(0.25)
|
(1.45)
|
(0.47)
|
(0.36)
|
(0.35)
|
(0.51)
|
(0.14)
|
|
Per share –
diluted
|
(0.45)
|
(0.25)
|
(1.45)
|
(0.47)
|
(0.36)
|
(0.35)
|
(0.51)
|
(0.14)
|
Capital
expenditures
|
50,356
|
24,945
|
29,964
|
7,723
|
8,370
|
6,907
|
15,708
|
12,965
|
Working capital (end
of period)
|
340,639
|
296,816
|
305,952
|
261,072
|
306,346
|
269,081
|
271,581
|
278,818
|
Total equity (end of
period)
|
775,646
|
742,972
|
623,719
|
576,465
|
543,530
|
501,926
|
497,458
|
485,452
|
|
|
|
|
|
|
|
|
|
Operating (end of
period)
|
|
|
|
|
|
|
|
|
Active pumping
horsepower (000s)
|
804
|
754
|
776
|
640
|
582
|
644
|
659
|
727
|
Idle pumping horsepower
(000s)(2)
|
455
|
533
|
524
|
586
|
640
|
578
|
563
|
493
|
Total pumping
horsepower (000s)(2)
|
1,259
|
1,287
|
1,300
|
1,226
|
1,222
|
1,222
|
1,222
|
1,220
|
Active coiled tubing
units (#)
|
20
|
20
|
20
|
18
|
19
|
20
|
19
|
20
|
Idle coiled tubing
units (#)
|
17
|
17
|
17
|
14
|
13
|
12
|
13
|
12
|
Total coiled tubing
units (#)
|
37
|
37
|
37
|
32
|
32
|
32
|
32
|
32
|
Active cementing
units (#)
|
26
|
28
|
23
|
14
|
14
|
14
|
14
|
12
|
Idle cementing units
(#)
|
5
|
3
|
8
|
11
|
11
|
11
|
11
|
13
|
Total cementing units
(#)
|
31
|
31
|
31
|
25
|
25
|
25
|
25
|
25
|
(1)
Refer to "Non-GAAP Measures" on pages 16 and 17 for further
information.
|
(2)
Excludes 97,500 pumping horsepower that had not been
commissioned at March 31, 2017.
|
LIQUIDITY AND CAPITAL RESOURCES
|
Three Months Ended
Mar. 31,
|
|
2017
|
2016
|
(C$000s)
|
($)
|
($)
|
(unaudited)
|
|
|
Cash provided by
(used in):
|
|
|
|
Operating
activities
|
(33,089)
|
2,568
|
|
Financing
activities
|
14,535
|
(87)
|
|
Investing
activities
|
(9,010)
|
(17,406)
|
|
Effect of exchange
rate changes on cash and cash equivalents
|
3,437
|
(12,159)
|
Decrease in cash and
cash equivalents
|
(24,127)
|
(27,084)
|
|
|
|
OPERATING ACTIVITIES
The Company's cash used by
operating activities for the three months ended March 31, 2017
was $33.1 million versus cash
provided by operating activities of $2.6
million in the comparable period in 2016. The decrease was
primarily due to working capital requiring $48.8 million of cash in the first quarter of
2017 compared to a contribution of $15.9
million in the comparable period in 2016. The decrease was
partially offset by higher operating margins driven by better
utilization in Canada and
the United States. At
March 31, 2017, Calfrac's working capital was approximately
$278.8 million compared to
$271.6 million at December 31, 2016.
FINANCING ACTIVITIES
Net cash provided by financing
activities for the three months ended March 31, 2017 was
$14.5 million compared to
$0.1 million in the comparable period
in 2016. During the quarter, the Company made draw downs on its
revolving credit facilities totaling $15.0
million, issued $0.3 million
in equity due to the exercise of stock options, paid down
borrowings under its second lien term loan of $0.5 million, and made mortgage and lease
payments of $0.3 million.
On December 6, 2016, Calfrac
closed a bought deal private placement of 21,055,000 common shares
for net proceeds of $56.6 million. Of
the net proceeds from the offering, $25.0
million is held in a segregated account, which combined with
the previous private placement completed in 2015, totaled
$50.0 million at March 31, 2017. On April
3, 2017 the Company elected to use the first of its two
fully-funded $25.0 million equity
cures effective as of the quarter ending on June 30, 2017. The Company has one $25.0 million fully-funded equity cure remaining
and may at its discretion elect to use such cure in respect of the
quarter ending December 31, 2017 by
providing notice of any such election to the lending syndicate at
any time prior to the filing of its quarterly financial statements
for such quarter on SEDAR.
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 and is payable quarterly. 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 December 31, 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 March 31, 2017, the Company had used $1.9 million of its credit facilities for letters
of credit and had $15.0 million of
borrowings under its credit facilities, leaving $283.1 million in available liquidity under its
credit facilities. As described above, the Company's credit
facilities are subject to a monthly borrowing base calculation
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 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 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.
|
|
|
On December 6, 2016, Calfrac
closed a bought deal private placement of 21,055,000 common shares
for net proceeds of approximately $56.6
million. 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. $50.0
million of the net proceeds from these offerings were held
in a segregated account in accordance with the amended credit
facilities pending an election to use them as an equity cure. On
April 3, 2017 the Company elected to
use the first of its two fully-funded $25.0
million equity cures effective as of the quarter ending on
June 30, 2017. 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. The funds that have been removed from the segregated
account as an equity cure, as described above, were used to reduce
outstanding indebtedness. When the remaining 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 March 31,
2017, the Company was in compliance with the financial
covenants associated with its credit facilities.
|
Covenant
|
Actual
|
As at March
31,
|
2017
|
2017
|
Working capital ratio
not to fall below
|
1.15x
|
2.73x
|
Funded Debt to
Adjusted EBITDA not to exceed
|
4.50x
|
N/A(1)
|
Funded Debt to
Capitalization not to exceed
|
0.30x
|
-0.01x(1)
|
(1)
Funded Debt was negative at March 31, 2017.
|
|
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 2:1 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 March 31, 2017 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 2:1. 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 March 31, 2017, the Company was able to incur
additional indebtedness in excess of $380
million pursuant to the aforementioned exception.
As at March 31, 2017, the
Company's Fixed Charge Coverage Ratio of (0.16):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 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 $9.0 million
for the three months ended March 31,
2017 versus $17.4 million in
the comparable period in 2016. Cash outflows relating to capital
expenditures were $13.0 million
during the first quarter in 2017 compared to $7.7 million in 2016. Capital expenditures were
primarily to support the Company's North American fracturing
operations.
Based on stronger demand for equipment than previously
contemplated, Calfrac is increasing its 2017 capital budget to
$45.0 million from $25.0 million, largely focused on the Company's
North American fracturing operations.
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 three months
ended March 31, 2017 was a gain of
$3.4 million versus a loss of
$12.2 million during the comparable
period in 2016. These gains and losses 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 2017 and beyond.
At March 31, 2017, the Company had cash and cash
equivalents of $85.8 million of which
$50.0 million was 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. On April 3, 2017, the Company elected to use the
first of its two fully-funded $25.0
million equity cures effective as of the quarter ending on
June 30, 2017 and plans to use a
portion of the funds to repay outstanding indebtedness with the
remainder to be used for general working capital and corporate
purposes.
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 April 21, 2017, there were
136,765,990 common shares issued and outstanding, 13,209,293
options to purchase common shares and 6,934,776 warrants 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" below.
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, 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 for the period was calculated as follows:
Three Months Ended
March 31,
|
2017
|
2016
|
(C$000s)
|
($)
|
($)
|
(unaudited)
|
|
|
Net loss
|
(19,593)
|
(55,396)
|
Add back
(deduct):
|
|
|
|
Depreciation
|
31,955
|
35,594
|
|
Foreign exchange
(gains) losses
|
(3,686)
|
18,182
|
|
Loss (gain) on
disposal of property, plant and equipment
|
1,277
|
(227)
|
|
Interest
|
21,253
|
19,115
|
|
Income
taxes
|
(10,811)
|
(28,891)
|
Operating income
(loss)
|
20,395
|
(11,623)
|
|
|
|
Adjusted EBITDA is defined in the Company's credit facilities
for covenant purposes as net income or loss for the period adjusted
for 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
March 31,
|
2017
|
2016
|
(C$000s)
|
|
|
(unaudited)
|
|
|
Net loss
|
(19,593)
|
(55,396)
|
Add back
(deduct):
|
|
|
|
Depreciation
|
31,955
|
35,594
|
|
Unrealized foreign
exchange (gains) losses
|
(3,609)
|
19,783
|
|
Loss (gain) on
disposal of property, plant and equipment
|
1,277
|
(227)
|
|
Provision for
settlement of litigation
|
(139)
|
—
|
|
Restructuring
charges
|
181
|
3,733
|
|
Stock-based
compensation
|
1,024
|
383
|
|
Losses attributable
to non-controlling interest
|
46
|
23
|
|
Interest
|
21,253
|
19,115
|
|
Income
taxes
|
(10,811)
|
(28,891)
|
Adjusted
EBITDA
|
21,584
|
(5,883)
|
|
|
|
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.
FIRST QUARTER CONFERENCE CALL
Calfrac will be
conducting a conference call for interested analysts, brokers,
investors and news media representatives to review its 2017 first
quarter results at 10:00 a.m. (Mountain
Time) on Wednesday, April 26,
2017. 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 2315390). A webcast of the
conference call may be accessed via the Company's website at
www.calfrac.com.
CONSOLIDATED BALANCE SHEETS
|
March
31,
|
December
31,
|
As at
|
2017
|
2016
|
(C$000s)
(unaudited)
|
($)
|
($)
|
ASSETS
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents (note 1)
|
85,790
|
109,917
|
|
Accounts
receivable
|
228,941
|
158,709
|
|
Income taxes
recoverable
|
3,120
|
3,715
|
|
Inventories
|
108,426
|
99,601
|
|
Prepaid expenses and
deposits
|
18,134
|
16,992
|
|
444,411
|
388,934
|
Non-current
assets
|
|
|
|
Property, plant and
equipment
|
1,129,978
|
1,153,882
|
|
Deferred income tax
assets
|
75,716
|
70,188
|
Total
assets
|
1,650,105
|
1,613,004
|
LIABILITIES AND
EQUITY
|
|
|
Current
liabilities
|
|
|
|
Accounts payable and
accrued liabilities
|
162,865
|
114,529
|
|
Current portion of
long-term debt (note 2)
|
2,518
|
2,520
|
|
Current portion of
finance lease obligations
|
210
|
304
|
|
165,593
|
117,353
|
Non-current
liabilities
|
|
|
|
Long-term debt (note
2)
|
992,181
|
984,062
|
|
Deferred income tax
liabilities
|
6,879
|
14,131
|
Total
liabilities
|
1,164,653
|
1,115,546
|
Equity attributable
to the shareholders of Calfrac
|
|
|
Capital stock (note
3)
|
466,777
|
466,445
|
Contributed
surplus
|
36,993
|
36,040
|
Loan receivable for
purchase of common shares
|
(2,500)
|
(2,500)
|
Retained earnings
(deficit)
|
(4,218)
|
15,329
|
Accumulated other
comprehensive loss
|
(2,426)
|
(8,736)
|
|
494,626
|
506,578
|
Non-controlling
interest
|
(9,174)
|
(9,120)
|
Total
equity
|
485,452
|
497,458
|
Total liabilities and
equity
|
1,650,105
|
1,613,004
|
Commitments (note
5); Contingencies (note 7)
|
See accompanying
notes to the consolidated financial statements.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
|
2017
|
2016
|
(C$000s, except per
share data) (unaudited)
|
($)
|
($)
|
Revenue
|
268,815
|
216,138
|
Cost of
sales
|
269,630
|
246,690
|
Gross loss
|
(815)
|
(30,552)
|
Expenses
|
|
|
|
Selling, general and
administrative
|
10,745
|
16,665
|
|
Foreign exchange
(gains) losses
|
(3,686)
|
18,182
|
|
Loss (gain) on
disposal of property, plant and equipment
|
1,277
|
(227)
|
|
Interest
|
21,253
|
19,115
|
|
29,589
|
53,735
|
Loss before income
tax
|
(30,404)
|
(84,287)
|
Income tax expense
(recovery)
|
|
|
|
Current
|
836
|
809
|
|
Deferred
|
(11,647)
|
(29,700)
|
|
(10,811)
|
(28,891)
|
Net loss
|
(19,593)
|
(55,396)
|
|
|
|
Net loss attributable
to:
|
|
|
|
Shareholders of
Calfrac
|
(19,547)
|
(54,071)
|
|
Non-controlling
interest
|
(46)
|
(1,325)
|
|
(19,593)
|
(55,396)
|
|
|
|
Loss per share (note
3)
|
|
|
|
Basic
|
(0.14)
|
(0.47)
|
|
Diluted
|
(0.14)
|
(0.47)
|
See accompanying
notes to the consolidated financial statements.
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
INCOME
Three Months Ended
March 31,
|
2017
|
2016
|
(C$000s)
(unaudited)
|
($)
|
($)
|
Net
loss
|
(19,593)
|
(55,396)
|
Other
comprehensive income (loss)
|
|
|
Items that may be
subsequently reclassified to profit or loss:
|
|
|
|
Change in foreign
currency translation adjustment
|
6,302
|
7,759
|
Comprehensive
loss
|
(13,291)
|
(47,637)
|
Comprehensive loss
attributable to:
|
|
|
|
Shareholders of
Calfrac
|
(13,237)
|
(46,518)
|
|
Non-controlling
interest
|
(54)
|
(1,119)
|
|
(13,291)
|
(47,637)
|
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 (Deficit)
|
Total
|
Non-
Controlling Interest
|
Total
Equity
|
(C$000s)
(unaudited)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Balance – Jan. 1,
2017
|
466,445
|
36,040
|
(2,500)
|
(8,736)
|
15,329
|
506,578
|
(9,120)
|
497,458
|
Net loss
|
—
|
—
|
—
|
—
|
(19,547)
|
(19,547)
|
(46)
|
(19,593)
|
Other comprehensive
income:
|
|
|
|
|
|
|
|
|
|
Cumulative
translation adjustment
|
—
|
—
|
—
|
6,310
|
—
|
6,310
|
(8)
|
6,302
|
Comprehensive income
(loss)
|
—
|
—
|
—
|
6,310
|
(19,547)
|
(13,237)
|
(54)
|
(13,291)
|
Stock
options:
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized (note 4)
|
—
|
1,024
|
—
|
—
|
—
|
1,024
|
—
|
1,024
|
|
Proceeds from
issuance of shares
|
332
|
(71)
|
—
|
—
|
–
|
261
|
—
|
261
|
Balance – Mar. 31,
2017
|
466,777
|
36,993
|
(2,500)
|
(2,426)
|
(4,218)
|
494,626
|
(9,174)
|
485,452
|
Balance – Jan. 1,
2016
|
409,809
|
27,849
|
(2,500)
|
(21,054)
|
213,426
|
627,530
|
(3,811)
|
623,719
|
Net loss
|
—
|
—
|
—
|
—
|
(54,071)
|
(54,071)
|
(1,325)
|
(55,396)
|
Other comprehensive
income:
|
|
|
|
|
|
|
|
|
|
Cumulative
translation adjustment
|
—
|
—
|
—
|
7,553
|
—
|
7,553
|
206
|
7,759
|
Comprehensive income
(loss)
|
—
|
—
|
—
|
7,553
|
(54,071)
|
(46,518)
|
(1,119)
|
(47,637)
|
Stock
options:
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized (note 4)
|
—
|
383
|
—
|
—
|
—
|
383
|
—
|
383
|
Balance – Mar. 31,
2016
|
409,809
|
28,232
|
(2,500)
|
(13,501)
|
159,355
|
581,395
|
(4,930)
|
576,465
|
See accompanying
notes to the consolidated financial statements.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
|
2017
|
2016
|
(C$000s)
(unaudited)
|
($)
|
($)
|
CASH FLOWS
PROVIDED BY (USED IN)
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
Net loss
|
(19,593)
|
(55,396)
|
|
Adjusted for the
following:
|
|
|
|
|
Depreciation
|
31,955
|
35,594
|
|
|
Stock-based
compensation
|
1,024
|
383
|
|
|
Unrealized foreign
exchange (gains) losses
|
(3,609)
|
19,783
|
|
|
Loss (gain) on
disposal of property, plant and equipment
|
1,277
|
(227)
|
|
|
Interest
|
21,253
|
19,115
|
|
|
Deferred income
taxes
|
(11,647)
|
(29,700)
|
|
|
Interest
paid
|
(4,920)
|
(2,913)
|
|
|
Changes in items of
working capital
|
(48,829)
|
15,929
|
Cash flows (used in)
provided by operating activities
|
(33,089)
|
2,568
|
FINANCING
ACTIVITIES
|
|
|
|
Bank loan
proceeds
|
—
|
4,977
|
|
Issuance of long-term
debt, net of debt issuance costs
|
15,000
|
—
|
|
Bank loan
repayments
|
—
|
(2,994)
|
|
Long-term debt
repayments
|
(627)
|
(173)
|
|
Finance lease
obligation repayments
|
(99)
|
(91)
|
|
Net proceeds on
issuance of common shares (note 3)
|
261
|
—
|
|
Dividends paid (note
3)
|
—
|
(1,806)
|
Cash flows provided
by (used in) financing activities
|
14,535
|
(87)
|
INVESTING
ACTIVITIES
|
|
|
|
Purchase of property,
plant and equipment
|
(10,383)
|
(17,770)
|
|
Proceeds on disposal
of property, plant and equipment
|
1,373
|
364
|
Cash flows used in
investing activities
|
(9,010)
|
(17,406)
|
Effect of exchange
rate changes on cash and cash equivalents
|
3,437
|
(12,159)
|
Decrease in cash and
cash equivalents
|
(24,127)
|
(27,084)
|
Cash and cash
equivalents, beginning of period
|
109,917
|
124,005
|
Cash and cash
equivalents, end of period (note 1)
|
85,790
|
96,921
|
See accompanying
notes to the consolidated financial statements.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at
and for the three months ended March 31, 2017 and 2016
(Amounts in text and tables are in thousands of Canadian
dollars, except share data and certain other exceptions as
indicated)
1. CASH AND CASH EQUIVALENTS
On December 6, 2016, the Company received net
proceeds of $56,636 from a private
placement offering of common shares. Another $25,194 of net proceeds was received from a
private placement offering of common shares on December 22, 2015. Both of these transactions are
described in further detail in note 3.
As at March 31, 2017, $50,000 of the net proceeds from these private
placements were held in a segregated account. These funds are
available for use at the Company's discretion and this amount can
be transferred to its operating bank account at any time. The
Company can also elect to use the proceeds as an equity cure. When
the proceeds are utilized as an equity cure, the funds are
transferred to the Company's operating bank account and are
available for use at the Company's discretion. In addition, the
proceeds are applied as a reduction of Funded Debt and are included
in the calculation of EBITDA for purposes of the Company's Funded
Debt to EBITDA bank covenant.
On April 3, 2017, the Company
elected to use the first of its two fully-funded $25,000 equity cures effective as of the quarter
ending on June 30, 2017. The funds
are expected to be used to reduce outstanding indebtedness and for
general working capital and corporate purposes.
2. LONG-TERM DEBT
|
March
31,
|
December
31,
|
As at
|
2017
|
2016
|
(C$000s)
|
($)
|
($)
|
US$600,000 senior
unsecured notes due December 1, 2020, bearing interest at 7.50%
payable semi-annually
|
797,940
|
805,620
|
$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
|
198,500
|
199,000
|
$270,000 extendible
revolving term loan facility, secured by Canadian and U.S. assets
of the Company
|
15,000
|
—
|
Less: unamortized
debt issuance costs
|
(17,305)
|
(18,736)
|
|
994,135
|
985,884
|
US$424 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
|
564
|
698
|
|
994,699
|
986,582
|
Less: current portion
of long-term debt
|
(2,518)
|
(2,520)
|
|
992,181
|
984,062
|
|
|
|
The fair value of the senior unsecured notes, as measured based
on the closing quoted market price at March 31, 2017, was
$724,131 (December 31, 2016 –
$702,903). The carrying values of the
mortgage obligation, 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 percent per annum, payable quarterly. Amortization
payments equal to 1 percent 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.
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 three months ended
March 31, 2017 was $21,343 (three months ended March 31, 2016 – $17,971).
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 March 31, 2017, the Company had utilized $1,893 of its loan facility for letters of credit
and had $15,000 outstanding under its
revolving term loan facility, leaving $283,107 in available credit, subject to a
monthly borrowing base calculation, which could result in a lower
amount of available credit.
See note 6 for further details on the covenants in respect of
the Company's long-term debt.
3. CAPITAL STOCK
Authorized capital stock
consists of an unlimited number of common shares.
|
Three Months
Ended
|
Year Ended
|
|
March 31,
2017
|
December 31,
2016
|
Continuity of Common
Shares
|
Shares
|
Amount
|
Shares
|
Amount
|
|
(#)
|
($000s)
|
(#)
|
($000s)
|
Balance, beginning of
period
|
136,634,590
|
466,445
|
115,579,598
|
409,809
|
Issued upon exercise
of stock options
|
131,400
|
332
|
—
|
—
|
Shares from private
placements
|
—
|
—
|
21,055,000
|
56,636
|
Shares
cancelled
|
—
|
—
|
(8)
|
—
|
Balance, end of
period
|
136,765,990
|
466,777
|
136,634,590
|
466,445
|
|
|
|
|
|
The weighted average number of common shares outstanding for the
three months ended March 31, 2017 was
136,557,951 basic and 138,460,075 diluted (three months ended
March 31, 2016 – 115,410,398 basic
and 115,579,598 diluted). The difference between basic and diluted
shares is attributable to the dilutive effect of stock options and
warrants issued by the Company as disclosed in note 4.
On December 6, 2016, the Company
closed a bought deal private placement of 21,055,000 common shares
for total gross proceeds of $60,007.
Share issuance costs for the transaction were $3,371, resulting in net proceeds of $56,636. 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.
A dividend of $0.015625 per common
share, totalling $1,806, was declared
on December 4, 2015 and paid on
January 15, 2016.
During 2016, eight common shares were returned to the Company
for cancellation. For accounting purposes, the cancellation of
these shares was recorded as a reduction of capital stock in the
amount of twenty-eight dollars, along
with a corresponding increase to contributed surplus.
4. SHARE-BASED
PAYMENTS
(a) Stock Options
Three Months Ended
March 31,
|
2017
|
2016
|
Continuity of Stock
Options
|
Options
|
Average
Exercise Price
|
Options
|
Average Exercise
Price
|
|
(#)
|
($)
|
(#)
|
($)
|
Balance, January
1
|
7,246,386
|
6.62
|
8,229,947
|
7.81
|
|
Granted during the
period
|
3,968,900
|
4.81
|
260,500
|
1.39
|
|
Exercised for common
shares
|
(131,400)
|
1.99
|
—
|
—
|
|
Forfeited
|
(536,661)
|
8.71
|
(563,860)
|
11.65
|
|
Expired
|
(32,000)
|
15.31
|
(7,000)
|
16.59
|
Balance, March
31
|
10,515,225
|
5.86
|
7,919,587
|
7.31
|
|
|
|
|
|
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 $20.81 with a
weighted average remaining life of 3.61 years. When stock options
are exercised, the proceeds together with the compensation expense
previously recorded in contributed surplus, are added to capital
stock.
(b) Share Units
Three Months Ended
March 31,
|
2017
|
2016
|
Continuity of Stock
Units
|
Deferred Share
Units
|
Performance
Share Units
|
Restricted
Share Units
|
Deferred Share
Units
|
Performance
Share Units
|
Restricted
Share Units
|
|
(#)
|
(#)
|
(#)
|
(#)
|
(#)
|
(#)
|
Balance, January
1
|
145,000
|
639,330
|
2,757,850
|
72,500
|
238,995
|
812,828
|
|
Granted during the
period
|
145,000
|
124,000
|
2,306,900
|
145,000
|
500,000
|
2,309,550
|
|
Exercised
|
(145,000)
|
—
|
—
|
(72,500)
|
—
|
—
|
|
Forfeited
|
—
|
(79,665)
|
(510,834)
|
—
|
(99,665)
|
(152,360)
|
Balance, March
31
|
145,000
|
683,665
|
4,553,916
|
145,000
|
639,330
|
2,970,018
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2017
|
2016
|
|
|
|
|
|
($)
|
($)
|
Expense (recovery)
from:
|
|
|
|
|
|
|
|
Stock
options
|
|
|
|
|
1,024
|
383
|
|
Deferred share
units
|
|
|
|
|
160
|
49
|
|
Performance share
units
|
|
|
|
|
(995)
|
(197)
|
|
Restricted share
units
|
|
|
|
|
(2,468)
|
65
|
Total stock-based
compensation expense
|
|
|
|
|
(2,279)
|
300
|
|
|
|
|
|
|
|
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 March 31,
2017, the liability pertaining to deferred share units was
$128 (December 31, 2016 –
$690).
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
March 31, 2017, the liability pertaining to performance share
units was $565 (December 31,
2016 – $1,560). The recovery of
expense of $995 related to
performance share units for the three months ended March 31, 2017 reflects the fact that given the
challenging market conditions, the Board of Directors has
determined that these units will not vest.
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 March 31, 2017, the liability pertaining to
restricted share units was $2,526
(December 31, 2016 – $4,995).
The recovery of expense of $2,468
related to restricted share units for the three months ended
March 31, 2017 reflects the fact that
the financial thresholds for vesting such units are not expected to
be met.
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.
(c) Warrants
In conjunction with the second lien senior secured term loan
facility as disclosed in note 2, 6,934,776 warrants to purchase
common shares of the Company were issued during 2016, 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 during 2016. To date, no warrants
have been exercised.
5. COMMITMENTS
The Company has a contractual
obligation with one of its major product suppliers, which includes
an annual minimum purchase commitment through the end of 2017.
During 2016, the Company did not meet its annual purchase
commitment, but it has recently signed a non-binding letter of
intent with the supplier which sets forth the principal terms of
the proposed arrangements to amend the contractual obligations and
extend the fulfilment of the 2016 annual expenditure commitment to
future years, and the parties are in the process of finalizing
definitive documentation to implement these arrangements. Given the
status of the ongoing negotiations, no provision has been recorded
in the Company's financial statements. The maximum exposure related
to the 2016 shortfall is $15,375.
6. 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:
|
March
31,
|
December
31,
|
For the Twelve Months
Ended
|
2017
|
2016
|
(C$000s)
|
($)
|
($)
|
Net loss
|
(167,754)
|
(203,557)
|
Adjusted for the
following:
|
|
|
|
Depreciation
|
149,183
|
152,822
|
|
Foreign exchange
(gains) losses
|
(2,549)
|
19,319
|
|
Loss (gain) on
disposal of property, plant and equipment
|
1,013
|
(491)
|
|
Impairment of
inventory
|
3,225
|
3,225
|
|
Interest
|
82,248
|
80,110
|
|
Income
taxes
|
(91,552)
|
(109,632)
|
Operating
loss
|
(26,186)
|
(58,204)
|
|
|
|
Net debt for this purpose is calculated as follows:
|
March
31,
|
December
31,
|
As at
|
2017
|
2016
|
(C$000s)
|
($)
|
($)
|
Long-term debt, net
of debt issuance costs and debt discount (note 2)
|
994,699
|
986,582
|
Finance lease
obligation
|
210
|
304
|
Less: cash and cash
equivalents
|
(85,790)
|
(109,917)
|
Net debt
|
909,119
|
876,969
|
|
|
|
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 March 31, 2017, the net debt to operating income ratio
was (34.72):1 (December 31, 2016 – (15.07):1) calculated on a
12-month trailing basis as follows:
|
March
31,
|
December
31,
|
|
2017
|
2016
|
(C$000s, except
ratio)
|
($)
|
($)
|
Net debt
|
909,119
|
876,969
|
Operating
loss
|
(26,186)
|
(58,204)
|
Net debt to operating
income ratio
|
(34.72):1
|
(15.07):1
|
|
|
|
The Company's net debt to operating income ratio of (34.72):1
reflects the fact that the Company incurred an operating loss for
the twelve months ended March 31, 2017.
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
March 31, 2017 and December 31, 2016, the Company was in
compliance with its covenants with respect to its credit
facilities.
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 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
March 31, 2017, 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 percent of the Company's
consolidated tangible assets. At March 31, 2017, the Company
was able to incur additional indebtedness in excess of $380,000 pursuant to the aforementioned
exception.
As at March 31, 2017, the Company's Fixed Charge Coverage
Ratio of (0.16):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.
On April 3, 2017, the Company
elected to use the first of its two fully-funded $25,000 equity cures effective as of the quarter
ending on June 30, 2017. The funds
are expected to be used to reduce outstanding indebtedness and for
general working capital and corporate purposes.
7. 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 $9,714
(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 $9,714 (6,846 euros) cited above and the interest being
sought in respect of these orders is part of the $24,439 (17,224
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 was
issued on November 25, 2016 accepting
the Company's opposition on the basis that no lawful service of
Judgment No 4528/2008 had taken place until the filing of the
opponents' petition and/or the issuance of the payment order. The
plaintiffs have filed an appeal against the above decision which
has been scheduled to be heard on October
16, 2018. A hearing in respect of the order served on
November 23, 2015 was adjourned until
October 31, 2018. A hearing in
respect of the orders served in December of 2015 scheduled for
September 20, 2016 was adjourned
until November 21, 2016 and two
decisions were issued on January 9,
2017 accepting the Company's oppositions on a statute of
limitations basis. The plaintiffs have filed appeals against the
above decisions, which are scheduled to be heard on October 16, 2018.
NAPC is also the subject of a claim for approximately
$4,061 (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 $820
(578 euros), amounted to $24,439 (17,224
euros) as at March 31,
2017.
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.
8. 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
March 31, 2017
|
|
|
|
|
|
|
Revenue(2)
|
111,018
|
98,043
|
27,727
|
32,027
|
—
|
268,815
|
Operating income
(loss)(1)
|
12,443
|
9,999
|
(125)
|
2,223
|
(4,145)
|
20,395
|
Segmented
assets(3)
|
632,729
|
742,579
|
115,309
|
159,488
|
—
|
1,650,105
|
Capital
expenditures
|
4,139
|
7,687
|
149
|
990
|
—
|
12,965
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2016
|
|
|
|
|
|
|
Revenue(2)
|
72,721
|
75,985
|
22,723
|
44,709
|
—
|
216,138
|
Operating income
(loss)(1)
|
253
|
(12,238)
|
809
|
6,868
|
(7,315)
|
(11,623)
|
Segmented
assets(3)
|
641,957
|
755,420
|
90,494
|
170,462
|
—
|
1,658,333
|
Capital
expenditures
|
(5,752)
|
10,846
|
637
|
1,992
|
—
|
7,723
|
(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, interest, and income
taxes.
|
(2)
Argentina's revenue for the three months ended March 31, 2017
and 2016 was $30,549 or 11% of consolidated revenue and $40,124 or
19% of consolidated revenue, respectively.
|
(3)
Argentina's assets as at March 31, 2017 and 2016 were
$149,528 or 9% of consolidated assets and $146,820 or 9% of
consolidated assets, respectively.
|
Three Months Ended
March 31,
|
2017
|
2016
|
(C$000s)
|
($)
|
($)
|
Net loss
|
(19,593)
|
(55,396)
|
Add back
(deduct):
|
|
|
|
Depreciation
|
31,955
|
35,594
|
|
Foreign exchange
(gains) losses
|
(3,686)
|
18,182
|
|
Loss (gain) on
disposal of property, plant and equipment
|
1,277
|
(227)
|
|
Interest
|
21,253
|
19,115
|
|
Income
taxes
|
(10,811)
|
(28,891)
|
Operating income
(loss)
|
20,395
|
(11,623)
|
|
|
|
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
March 31,
|
2017
|
2016
|
(C$000s)
|
($)
|
($)
|
Fracturing
|
236,226
|
182,004
|
Coiled
tubing
|
20,359
|
18,869
|
Cementing
|
8,553
|
10,069
|
Other
|
3,677
|
5,196
|
|
268,815
|
216,138
|
SOURCE Calfrac Well Services Ltd.