CALGARY, March 5, 2020 /CNW/ - Calfrac Well
Services Ltd. ("Calfrac" or "the Company")
(TSX-CFW) announces its financial and operating results
for the three months and year ended December
31, 2019.
HIGHLIGHTS
|
Three Months Ended
December 31,
|
|
Years Ended
December 31,
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
(C$000s, except
per share and unit data)
|
($)
|
|
($)
|
|
(%)
|
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
317,085
|
|
498,858
|
|
(36)
|
|
1,620,955
|
|
2,256,426
|
|
(28)
|
Operating
income(1)
|
20,997
|
|
61,992
|
|
(66)
|
|
152,744
|
|
311,825
|
|
(51)
|
Per share –
basic
|
0.15
|
|
0.43
|
|
(65)
|
|
1.06
|
|
2.16
|
|
(51)
|
Per share –
diluted
|
0.14
|
|
0.42
|
|
(67)
|
|
1.05
|
|
2.12
|
|
(50)
|
Adjusted
EBITDA(1)
|
26,882
|
|
62,914
|
|
(57)
|
|
159,119
|
|
329,408
|
|
(52)
|
Per share –
basic
|
0.19
|
|
0.44
|
|
(57)
|
|
1.10
|
|
2.29
|
|
(52)
|
Per share –
diluted
|
0.18
|
|
0.43
|
|
(58)
|
|
1.09
|
|
2.24
|
|
(51)
|
Net loss attributable
to the
shareholders of Calfrac before foreign
exchange gains or losses(2)
|
(49,855)
|
|
(5,913)
|
|
NM
|
|
(152,369)
|
|
11,162
|
|
NM
|
Per share –
basic
|
(0.34)
|
|
(0.04)
|
|
NM
|
|
(1.05)
|
|
0.08
|
|
NM
|
Per share –
diluted
|
(0.34)
|
|
(0.04)
|
|
NM
|
|
(1.05)
|
|
0.08
|
|
NM
|
Net loss attributable
to the
shareholders of Calfrac
|
(49,400)
|
|
(3,462)
|
|
NM
|
|
(156,203)
|
|
(18,188)
|
|
NM
|
Per share –
basic
|
(0.34)
|
|
(0.02)
|
|
NM
|
|
(1.08)
|
|
(0.13)
|
|
NM
|
Per share –
diluted
|
(0.34)
|
|
(0.02)
|
|
NM
|
|
(1.08)
|
|
(0.13)
|
|
NM
|
Working capital (end
of period)
|
|
|
|
|
|
|
248,772
|
|
329,871
|
|
(25)
|
Total equity (end of
period)
|
|
|
|
|
|
|
368,623
|
|
513,820
|
|
(28)
|
Weighted average
common shares
outstanding (000s)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
144,720
|
|
144,288
|
|
—
|
|
144,565
|
|
144,042
|
|
—
|
Diluted
|
145,335
|
|
146,328
|
|
(1)
|
|
145,475
|
|
146,829
|
|
(1)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 23 and 24 for further
information.
|
(2)
|
Net income (loss)
attributable to the shareholders of Calfrac before foreign exchange
(FX) gains or losses is on an after-tax basis. Management
believes that this is a useful supplemental measure as it provides
an indication of the financial results generated by Calfrac without
the impact
of FX fluctuations, which are not fully controllable by the
Company. This measure does not have any standardized meaning
prescribed under
IFRS and, accordingly, may not be comparable to similar measures
used by other companies.
|
(3)
|
On January 1,
2019, Calfrac applied IFRS 16 using the modified retrospective
approach under which comparative information has not been restated
and continues to be reported under IAS 17 and related
interpretations. Please refer to note 2 of the financial statements
for additional information on the impact to the Company's financial
information.
|
PRESIDENT'S MESSAGE
Calfrac's President and Chief
Operating Officer, Lindsay Link
commented on the results: "Calfrac's results in 2019 reflected the
challenging market conditions present, and I am proud of the
resilience of our team in meeting those challenges during the year.
Looking forward to 2020, I believe Calfrac's focus on delivering on
our Brand Promise: Do It Better, Do
It Safely and Do It On Time will continue to yield positive
results. I'd like to thank all of our employees and their families
for all they do for Calfrac every day."
During the quarter, Calfrac:
- marketed an average of 15 fleets in the United States and five fleets in
Canada;
- delivered further improvement in safety and efficiency results,
and;
- completed its 2019 capital program with a total spend of
$147.4 million.
FOURTH QUARTER 2019 OVERVIEW
In the fourth quarter of 2019, the Company:
- generated revenue of $317.1
million, a decrease of 36 percent from the fourth quarter in
2018, resulting primarily from lower pricing and activity in
Canada and the United States;
- recorded an impairment of PP&E and inventory totalling
$5.3 million compared to $4.1 million in the fourth quarter of 2018;
- revised its thresholds for capitalization of major components
relating to field equipment, which resulted in a decrease to
operating expenses and an increase to capital expenditures totaling
$10.9 million;
- reported adjusted EBITDA of $26.9
million versus $62.9 million
in the fourth quarter of 2018;
- reported a net loss attributable to shareholders of Calfrac of
$49.4 million or $0.34 per share diluted, compared to a net loss
of $3.5 million or $0.02 per share diluted in 2018;
- reported period-end working capital of $248.8 million versus $329.9 million at December
31, 2018; and
- incurred capital expenditures, net of disposals, of
$34.4 million primarily to support
the Company's United States
fracturing operations.
Subsequent to the quarter, Calfrac executed an exchange offer of
US$120.0 million of new 10.875%
second lien secured notes due March 15,
2026 to holders of its existing 8.50% senior unsecured notes
due June 15, 2026. The exchange will
result in reduced leverage of approximately $130.0 million and a reduction of $7.3 million in annual debt service costs.
CONSOLIDATED HIGHLIGHTS
Three Months Ended
December 31,
|
2019
|
2018
|
Change
|
(C$000s, except
operational information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
317,085
|
498,858
|
(36)
|
Expenses
|
|
|
|
Operating
|
281,278
|
416,886
|
(33)
|
Selling, general and
administrative (SG&A)
|
14,810
|
19,980
|
(26)
|
|
296,088
|
436,866
|
(32)
|
Operating
income(1)
|
20,997
|
61,992
|
(66)
|
Operating income
(%)
|
6.6
|
12.4
|
(47)
|
Adjusted
EBITDA(1)
|
26,882
|
62,914
|
(57)
|
Adjusted EBITDA
(%)
|
8.5
|
12.6
|
(33)
|
Fracturing revenue
per job ($)
|
29,039
|
38,264
|
(24)
|
Number of fracturing
jobs
|
10,104
|
12,068
|
(16)
|
Active pumping
horsepower, end of period (000s)
|
1,269
|
1,328
|
(4)
|
Idle pumping
horsepower, end of period (000s)
|
141
|
42
|
236
|
Total pumping
horsepower, end of period (000s)
|
1,410
|
1,370
|
3
|
Coiled tubing revenue
per job ($)
|
27,018
|
29,567
|
(9)
|
Number of coiled
tubing jobs
|
609
|
715
|
(15)
|
Active coiled tubing
units, end of period (#)
|
20
|
22
|
(9)
|
Idle coiled tubing
units, end of period (#)
|
8
|
7
|
14
|
Total coiled tubing
units, end of period (#)
|
28
|
29
|
(3)
|
Cementing revenue per
job ($)
|
47,379
|
46,403
|
2
|
Number of cementing
jobs
|
128
|
130
|
(2)
|
Active cementing
units, end of period (#)
|
13
|
11
|
18
|
Idle cementing units,
end of period (#)
|
6
|
12
|
(50)
|
Total cementing
units, end of period (#)
|
19
|
23
|
(17)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 23 and 24 for further
information.
|
Revenue in the fourth quarter of 2019 was $317.1 million, a decrease of 36 percent from the
same period in 2018. The Company's fracturing job count decreased
by 16 percent while consolidated revenue per fracturing job
decreased by 24 percent mainly due to a combination of lower
activity and pricing in North
America. Cementing activity in Argentina was higher by 2 percent while coiled
tubing activity decreased by 15 percent as a result of lower
activity in Canada, Argentina and Russia.
Since the end of 2018, Calfrac has decreased the number of
active fracturing fleets as well as its operating and corporate
cost structure in order to respond to the decline in fracturing
activity in Canada and
the United States. Consequently,
the Company's operating footprint was more closely aligned with the
16 percent decline in job count experienced in 2019 as compared to
the prior year. Additionally, uncertainty surrounding Argentina's change in government impacted
activity levels in that country during the fourth quarter.
Pricing in Canada and
the United States decreased by
over 15 percent, while pricing in Russia was consistent with the fourth quarter
of 2018. In Argentina, the mix of
service line revenue changed during the fourth quarter of 2019
resulting in more favorable contract pricing compared to the same
period in 2018.
Adjusted EBITDA of $26.9 million
for the fourth quarter of 2019 decreased from $62.9 million in the comparable period in 2018
primarily due to lower utilization and pricing in Canada and the
United States. Adjusted EBITDA for the three months ended
December 31, 2019 included the
full-year impact of a change in capitalization thresholds for the
rebuild and replacement of major components of property, plant and
equipment. The change in thresholds lowers the level at which
rebuild and replacement costs are capitalized, and the impact of
this change was a $10.9 million
increase to fourth-quarter and full-year 2019 Adjusted EBITDA, with
approximately $2.1 million related
directly to the fourth quarter. These changes did not affect any
prior reporting periods.
Net loss attributable to shareholders of Calfrac was
$49.4 million or $0.34 per share diluted compared to a net loss of
$3.5 million or $0.02 per share diluted in the same period last
year. Depreciation during the fourth quarter of 2019 increased by
$20.4 million compared to the same
period in 2018 primarily due to changes in the Company's
depreciation policy and the adoption of IFRS 16 as of January 1, 2019. Impairment of property, plant
and equipment and inventory of $5.3
million and restructuring costs of $3.6 million also contributed to the decrease in
net income.
Three Months
Ended
|
December
31,
|
September
30,
|
Change
|
|
2019
|
2019
|
|
(C$000s, except
operational information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
317,085
|
399,220
|
(21)
|
Expenses
|
|
|
|
Operating
|
281,278
|
333,505
|
(16)
|
SG&A
|
14,810
|
18,694
|
(21)
|
|
296,088
|
352,199
|
(16)
|
Operating
income(1)
|
20,997
|
47,021
|
(55)
|
Operating income
(%)
|
6.6
|
11.8
|
(44)
|
Adjusted
EBITDA(1)
|
26,882
|
43,028
|
(38)
|
Adjusted EBITDA
(%)
|
8.5
|
10.8
|
(21)
|
Fracturing revenue
per job ($)
|
29,039
|
28,748
|
1
|
Number of fracturing
jobs
|
10,104
|
12,745
|
(21)
|
Active pumping
horsepower, end of period (000s)
|
1,269
|
1,337
|
(5)
|
Idle pumping
horsepower, end of period (000s)
|
141
|
72
|
96
|
Total pumping
horsepower, end of period (000s)
|
1,410
|
1,409
|
—
|
Coiled tubing revenue
per job ($)
|
27,018
|
23,477
|
15
|
Number of coiled
tubing jobs
|
609
|
993
|
(39)
|
Active coiled tubing
units, end of period (#)
|
20
|
21
|
(5)
|
Idle coiled tubing
units, end of period (#)
|
8
|
8
|
—
|
Total coiled tubing
units, end of period (#)
|
28
|
29
|
(3)
|
Cementing revenue per
job ($)
|
47,379
|
46,238
|
2
|
Number of cementing
jobs
|
128
|
142
|
(10)
|
Active cementing
units, end of period (#)
|
13
|
14
|
(7)
|
Idle cementing units,
end of period (#)
|
6
|
9
|
(33)
|
Total cementing
units, end of period (#)
|
19
|
23
|
(17)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 23 and 24 for further
information.
|
Revenue in the fourth quarter of 2019 was $317.1 million, a decrease of 21 percent from the
third quarter of 2019, primarily due to lower fracturing activity
in North America as customers
exhausted their budgets and lower activity in Argentina due to uncertainty following the
change in government. Revenue per fracturing job was consistent
with the third quarter of 2019.
In Canada, fourth-quarter
revenue decreased by 30 percent from the third quarter to
$73.0 million due to lower activity
as client's reduced their capital spending during the fourth
quarter. Operating income as a percentage of revenue was 5 percent
compared to 15 percent in the third quarter primarily due to lower
utilization, offset partially by a lower operating cost
structure.
In the United States, revenue
in the fourth quarter of 2019 was 16 percent lower than the third
quarter at $187.8 million as downward
pricing pressure continued in certain geographic markets, offset
partially by a slight reduction in the number of clients procuring
their own sand. Operating income for the fourth quarter of
$24.6 million included a $10.2 million reclassification of costs from
operating expenses to capital expenditures due to a revision in the
capitalization thresholds for major components.
In Russia, revenue of
$24.2 million in the fourth quarter
of 2019 was 2 percent higher than the third quarter while operating
income was negatively impacted by higher winter fuel costs and
additional expenses required to mobilize to a remote jobsite
location.
In Argentina, revenue in the
fourth quarter of 2019 decreased by 31 percent from the third
quarter to $32.1 million, with a
decrease in operating income to $5.8
million from $11.7 million in
the third quarter. The decrease in revenue and operating income was
primarily attributed to uncertainty surrounding Argentina's change in government, which
impacted activity levels in that country during the fourth quarter.
Operating income margins for the fourth quarter reflected a
$3.0 million reversal of stamp taxes
related to a prior period contract termination while the third
quarter included $3.4 million of
additional operating income resulting from the early settlement of
a previously completed contract.
Adjusted EBITDA of $26.9 million
for the fourth quarter of 2019 decreased from $43.0 million in the third quarter of 2019
primarily due to lower utilization and pricing in Canada and the
United States. As noted above, the Company revised its
capitalization thresholds for the rebuild and replacement of major
components of property, plant and equipment and, as a result, a
$10.9 million increase to full-year
2019 Adjusted EBITDA was recorded. These changes did not affect any
prior reporting periods.
Net loss attributable to shareholders of Calfrac was
$49.4 million or $0.34 per share diluted compared to a net loss of
$29.4 million or $0.20 per share diluted in the third quarter of
2019. Depreciation during the fourth quarter of 2019 increased by
$10.3 million compared to the third
quarter primarily due to changes in the Company's depreciation
policy for major components. Impairment of property, plant and
equipment and inventory of $5.3
million and restructuring costs of $3.6 million also contributed to the increased
net loss quarter-over-quarter.
BUSINESS UPDATE AND OUTLOOK
Calfrac's operating
results during the fourth quarter were impacted by budget
exhaustion by customers in both Canada and the
United States as well as the onset of winter conditions in
Russia. Due to the recent change
of government in Argentina,
typical end-of-year slowdowns were magnified due to higher levels
of uncertainty around energy policy and client leadership. Overall,
fourth-quarter activity was in-line with the outlook communicated
in Calfrac's third-quarter MD&A. Further pricing erosion was
observed, mostly in the Texas and
Pennsylvania markets of
the United States, as budget
exhaustion and lower natural gas prices impacted market dynamics.
Encouragingly, budgets have been replenished and a strong supply
response has been observed in the North American pressure pumping
market although we believe these impacts will take time to fully
impact Calfrac's results.
CANADA
In
Canada, activity met expectations
throughout most of the quarter although weather-related delays
caused some slowdowns and a small amount of work was deferred into
2020.
After a strong October, utilization decreased significantly
during November and December which impacted profitability levels
for the quarter. Given the strong activity that is planned for the
first quarter of 2020, the Company's ability to materially reduce
costs was limited, especially with respect to field labour and
equipment-related costs.
Customer programs did not fully get underway until the middle of
January, but since that time, Calfrac's Canadian operations have
experienced high levels of utilization. The Company expects that
this will continue until the onset of road bans impacts operating
tempo in some areas. Based on current information, Calfrac expects
seasonally strong activity levels through the second and third
quarter for its Canadian asset base.
As compared to the first quarter of 2019, rig count and
completions activity are expected to be higher in 2020, but Calfrac
does not intend to add capacity to its Canadian operations in the
near term without a meaningful improvement in pricing and returns.
The pressure pumping market in Canada for the first quarter is under
supplied, however, sustained levels of high crew utilization
combined with improved returns would be required to justify the
decision to deploy incremental fracturing crews in the Western
Canadian Sedimentary Basin.
UNITED STATES
As
expected, activity in the fourth quarter in the United States was lower than the third
quarter as planned customer program completion along with weaker
natural gas prices impacted demand for completion crews.
Additionally, Calfrac declined to participate in bids where pricing
had fallen below a level needed to sustain operations.
Activity in the first quarter has tracked our expectations with
programs in Texas beginning at a
good pace. Programs in the Bakken are typically slower to ramp-up
in the winter months, but are expected to be fully underway before
the end of the quarter.
During the fourth quarter and early in 2020, a number of players
in the fracturing market retired assets or went as far as to cease
operations. Calfrac believes that this is direct evidence of the
unsustainable returns in the space at present, and the reduction of
supply is an encouraging development. While the Company believes
that much of the equipment that has exited the industry was not
relevant to current operations, the removal of equipment and
reduction in competitors moves the U.S. pressure pumping market
closer to balance. Calfrac believes that a modest increase in
activity could sufficiently tighten the competitive balance in
order to establish pricing traction, however, current consensus
does not contemplate any meaningful acceleration in the near
term.
Calfrac is currently marketing 14 fracturing spreads in
the United States, with no plans
for expansion in the near term. As previously discussed, weaker
natural gas prices have impacted the cash flow and spending plans
for our clients in Pennsylvania,
and the Company has redeployed one of the four spreads that was
previously working in this region to another basin.
RUSSIA
The onset of
winter prevented any significant acceleration in activity in
Calfrac's Russian operations in the fourth quarter. Weather
conditions also slowed operations in January and February, but
Calfrac expects activity levels will improve through the end of the
quarter and remain strong through the summer period. A reduced
operating footprint is likely to improve profitability in 2020
relative to prior years.
ARGENTINA
The
Company's operations in Argentina
weakened as expected during the fourth quarter due, in part, to
normal year-end slowdowns that were magnified by the uncertainty
surrounding the change in government and subsequent impacts on a
key customer. Activity ramped up through January and current
expectations are for activity levels in the year ahead to resemble
those experienced in 2019. Calfrac's ability to market two
full-time shale fracturing crews has broadened the Company's
operating footprint in this market and positions Calfrac as a
supplier of choice for many producers.
CORPORATE
Early in 2020, Calfrac successfully executed
a debt exchange transaction that reduced leverage and annual debt
service costs by approximately $130.0
million and $7.3 million,
respectively. Calfrac's corporate focus remains squarely on
supporting the delivery of outstanding service quality to its
clients in all operating areas. Cost controls, capital prudence and
liquidity remain paramount for management in addition to supporting
a top-tier operation.
FINANCIAL OVERVIEW – THREE MONTHS ENDED DECEMBER 31,
2019 VERSUS 2018
CANADA
Three Months Ended
December 31,
|
2019
|
2018
|
Change
|
(C$000s, except
operational information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
73,009
|
145,085
|
(50)
|
Expenses
|
|
|
|
Operating
|
67,171
|
124,957
|
(46)
|
SG&A
|
2,414
|
3,472
|
(30)
|
|
69,585
|
128,429
|
(46)
|
Operating
income(1)
|
3,424
|
16,656
|
(79)
|
Operating income
(%)
|
4.7
|
11.5
|
(59)
|
Fracturing revenue
per job ($)
|
15,348
|
20,265
|
(24)
|
Number of fracturing
jobs
|
4,160
|
6,537
|
(36)
|
Active pumping
horsepower, end of period (000s)
|
236
|
289
|
(18)
|
Idle pumping
horsepower, end of period (000s)
|
36
|
17
|
112
|
Total pumping
horsepower, end of period (000s)
|
272
|
306
|
(11)
|
Coiled tubing revenue
per job ($)
|
21,741
|
23,492
|
(7)
|
Number of coiled
tubing jobs
|
405
|
517
|
(22)
|
Active coiled tubing
units, end of period (#)
|
11
|
11
|
—
|
Idle coiled tubing
units, end of period (#)
|
3
|
3
|
—
|
Total coiled tubing
units, end of period (#)
|
14
|
14
|
—
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 23 and 24 for further
information.
|
REVENUE
Revenue from Calfrac's Canadian operations
during the fourth quarter of 2019 was $73.0
million compared to $145.1
million in the same period of 2018 primarily due to lower
activity and pricing. In the fourth quarter of 2019, the number of
fracturing jobs was 36 percent lower than the comparable period in
2018 due to lower industry activity in response to government
mandated production cuts. Activity in October was relatively
strong; however, activity in November and December was reduced as a
result of customers exhausting their full-year capital budgets.
Revenue per job decreased by 24 percent due to certain customers
providing their own sand and fuel, combined with lower pricing. The
number of coiled tubing jobs decreased by 22 percent from the
fourth quarter in 2018, while revenue per job decreased by 7
percent due to job mix.
OPERATING INCOME
Operating income in Canada during the fourth quarter of 2019 was
$3.4 million compared to $16.7 million in the same period of 2018. The
significant decline in operating income was due to the lower
revenue base and pricing, offset partially by the implementation of
cost control measures earlier in the year. At the beginning of
2019, the Company made the decision to idle one fracturing fleet
due to weaker demand for its fracturing services and also reduced
its fixed cost structure accordingly. In addition, the Canadian
division continued its revised field work schedule during the
fourth quarter in order to better align costs with the expected
level of activity. Pricing was lower compared to the fourth quarter
in 2018, however, the impact was mitigated by reductions in
logistical and material costs. The reported operating income was
impacted positively by the adoption of IFRS 16 at the beginning of
2019, which resulted in $2.2 million
of lease payments no longer being recognized as operating costs
during the fourth quarter of 2019. In addition, the $1.1 million decrease in SG&A expenses in the
fourth quarter of 2019 compared to the fourth quarter in 2018 was
primarily due to a reduction in corporate costs allocated to the
Canadian division combined with lower personnel costs, offset
partially by $0.7 million in
restructuring costs.
UNITED STATES
Three Months Ended
December 31,
|
2019
|
2018
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
187,770
|
279,324
|
(33)
|
Expenses
|
|
|
Operating
|
160,012
|
223,055
|
(28)
|
SG&A
|
4,164
|
4,741
|
(12)
|
|
164,176
|
227,796
|
(28)
|
Operating
income(1)
|
23,594
|
51,528
|
(54)
|
Operating income
(%)
|
12.6
|
18.4
|
(32)
|
Fracturing revenue
per job ($)
|
34,402
|
55,492
|
(38)
|
Number of fracturing
jobs
|
5,435
|
5,034
|
8
|
Active pumping
horsepower, end of period (000s)
|
830
|
854
|
(3)
|
Idle pumping
horsepower, end of period (000s)
|
93
|
25
|
272
|
Total pumping
horsepower, end of period (000s)
|
923
|
879
|
5
|
Active coiled tubing
units, end of period (#)
|
—
|
—
|
—
|
Idle coiled tubing
units, end of period (#)
|
1
|
2
|
(50)
|
Total coiled tubing
units, end of period (#)
|
1
|
2
|
(50)
|
Active cementing
units, end of period (#)
|
—
|
—
|
—
|
Idle cementing units,
end of period (#)
|
5
|
10
|
(50)
|
Total cementing
units, end of period (#)
|
5
|
10
|
(50)
|
US$/C$ average
exchange rate(2)
|
1.3200
|
1.3204
|
—
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 23 and 24 for further
information.
|
(2)
|
Source: Bank of
Canada.
|
REVENUE
Revenue from Calfrac's United States operations decreased to
$187.8 million during the fourth
quarter of 2019 from $279.3 million
in the comparable quarter of 2018. The significant decrease in
revenue can be attributed to a combination of a 38 percent decrease
in revenue per job, offset partially by an 8 percent increase in
the number of fracturing jobs completed period-over-period. The
significant decrease in revenue per job was primarily due to the
impact of nearly half of Calfrac's United
States activity involving customers providing their own
sand, combined with lower pricing in all operating areas. The 8
percent increase in activity was driven by a change in job mix in
Pennsylvania and North Dakota that resulted in more jobs
completed at a lower average job size while Calfrac's Texas and Colorado operations completed fewer jobs
period-over-period.
OPERATING INCOME
The Company's United States operations generated operating
income of $23.6 million during the
fourth quarter of 2019 compared to $51.5
million in the same period in 2018. The year-over-year
decline in operating results was primarily due to lower realized
pricing and decreased utilization. Pricing in the fourth quarter of
2019 was down significantly from the comparable quarter in 2018.
The number of jobs completed was 8 percent higher primarily due to
customer and job mix which resulted in more jobs at a lower average
revenue per job. The reported operating income was positively
impacted by the adoption of IFRS 16 at the beginning of 2019 which
resulted in $2.6 million of lease
payments no longer being recognized as operating costs during the
fourth quarter of 2019. SG&A expenses decreased by 12 percent
primarily due to a lower bonus accrual recorded in the quarter,
offset partially by $0.8 million in
restructuring costs. Additionally, the Company revised its
thresholds for capitalization of major components relating to field
equipment effective October 1, 2019.
Due to this change, certain costs that were previously classified
as operating expenses are now classified as capital expenditures.
This resulted in a decrease to operating expenses in the United States totaling $10.2 million relating to the 2019 fiscal year
and was recorded during the fourth quarter of 2019.
RUSSIA
Three Months Ended
December 31,
|
2019
|
2018
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
24,244
|
24,892
|
(3)
|
Expenses
|
|
|
|
Operating
|
25,688
|
24,211
|
6
|
SG&A
|
702
|
941
|
(25)
|
|
26,390
|
25,152
|
5
|
Operating
loss(1)
|
(2,146)
|
(260)
|
NM
|
Operating loss
(%)
|
(8.9)
|
(1.0)
|
NM
|
Fracturing revenue
per job ($)
|
83,972
|
76,039
|
10
|
Number of fracturing
jobs
|
263
|
285
|
(8)
|
Active pumping
horsepower, end of period (000s)
|
65
|
77
|
(16)
|
Idle pumping
horsepower, end of period (000s)
|
12
|
—
|
NM
|
Total pumping
horsepower, end of period (000s)
|
77
|
77
|
—
|
Coiled tubing revenue
per job ($)
|
46,940
|
38,338
|
22
|
Number of coiled
tubing jobs
|
46
|
84
|
(45)
|
Active coiled tubing
units, end of period (#)
|
3
|
6
|
(50)
|
Idle coiled tubing
units, end of period (#)
|
4
|
1
|
300
|
Total coiled tubing
units, end of period (#)
|
7
|
7
|
—
|
Rouble/C$ average
exchange rate(2)
|
0.0207
|
0.0199
|
4
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 23 and 24 for further
information.
|
(2)
|
Source: Bank of
Canada.
|
REVENUE
Revenue from Calfrac's Russian operations
decreased by 3 percent during the fourth quarter of 2019 to
$24.2 million from $24.9 million in the corresponding three-month
period of 2018. The decrease in revenue was attributable to lower
activity with its primary customer in Khanty-Mansiysk as warmer
than normal weather during November and December restricted access
to job locations and deferred planned work into 2020. Revenue per
fracturing job increased by 10 percent primarily due to sand being
provided by Calfrac for all of its jobs while the comparable period
included some jobs where sand was provided by customers. Coiled
tubing activity decreased by 45 percent primarily due to lower than
expected utilization with Calfrac's main customer.
OPERATING LOSS
The Company's Russian division
generated an operating loss of $2.1
million during the fourth quarter of 2019 versus a loss of
$0.3 million in the comparable
quarter in 2018. The negative operating result was due to lower
utilization combined with higher equipment repairs and
subcontractor costs to set up remote operations. The fourth quarter
experienced lower field activity for both fracturing and coiled
tubing services due to weather-related access issues.
ARGENTINA
Three Months Ended
December 31,
|
2019
|
2018
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
32,062
|
49,557
|
(35)
|
Expenses
|
|
|
|
Operating
|
26,819
|
42,711
|
(37)
|
SG&A
|
(577)
|
2,489
|
NM
|
|
26,242
|
45,200
|
(42)
|
Operating
income(1)
|
5,820
|
4,357
|
34
|
Operating income
(%)
|
18.2
|
8.8
|
107
|
Active pumping
horsepower, end of period (000s)
|
138
|
108
|
28
|
Idle pumping
horsepower, end of period (000s)
|
—
|
—
|
—
|
Total pumping
horsepower, end of period (000s)
|
138
|
108
|
28
|
Active cementing
units, end of period (#)
|
13
|
11
|
18
|
Idle cementing units,
end of period (#)
|
1
|
2
|
(50)
|
Total cementing
units, end of period (#)
|
14
|
13
|
8
|
Active coiled tubing
units, end of period (#)
|
6
|
5
|
20
|
Idle coiled tubing
units, end of period (#)
|
—
|
1
|
(100)
|
Total coiled tubing
units, end of period (#)
|
6
|
6
|
—
|
US$/C$ average
exchange rate(2)
|
1.3200
|
1.3204
|
—
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 23 and 24 for further
information.
|
(2)
|
Source: Bank of
Canada and Bloomberg.
|
REVENUE
Calfrac's Argentinean operations generated
total revenue of $32.1 million during
the fourth quarter of 2019 compared to $49.6
million in the comparable quarter in 2018. This 35 percent
decline in revenue was primarily due to the completion of one of
its bundled service contracts in the Vaca Muerta shale play where
Calfrac provided sand. This contract was replaced with another
contract with a customer that provided their own sand. Fracturing
activity increased by 16 percent while revenue per job decreased by
38 percent as a result of the change in customer mix. Uncertainty
surrounding the change in government and leadership at a key
customer also negatively impacted activity levels in the fourth
quarter of 2019. Cementing revenue was consistent with the
comparable period while coiled tubing revenue decreased slightly
from the fourth quarter in 2018 despite an increase in the number
of jobs completed as activity was weighted to lower margin contract
work in 2019, compared to higher margin call-out work in 2018.
OPERATING INCOME
The Company's operations in
Argentina generated operating
income of $5.8 million during the
fourth quarter of 2019 compared to $4.4
million during the comparable quarter in 2018. The Company
was able to generate higher operating income due to better pricing
on contracted activity as compared to the fourth quarter in 2018.
The $3.1 million decrease in SG&A
expenses from the fourth quarter in 2018 was mainly due to the
reversal of a US$2.3 million stamp
tax accrual resulting from terminated customer contracts.
CORPORATE
Three Months Ended
December 31,
|
2019
|
2018
|
Change
|
(C$000s)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Expenses
|
|
|
|
Operating
|
1,588
|
1,952
|
(19)
|
SG&A
|
8,107
|
8,337
|
(3)
|
|
9,695
|
10,289
|
(6)
|
Operating
loss(1)
|
(9,695)
|
(10,289)
|
(6)
|
% of
Revenue
|
3.1
|
2.1
|
48
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 23 and 24 for further
information.
|
OPERATING LOSS
Corporate expenses for the
fourth quarter of 2019 were $9.7
million compared to $10.3
million in the fourth quarter of 2018. The decrease was
primarily due to a lower bonus provision when compared to the same
period in 2018, offset partially by $1.7
million in restructuring costs recorded during the fourth
quarter in 2019. The increase in stock-based compensation was
mainly due to a a reversal that was recorded during the fourth
quarter in 2018. The implementation of IFRS 16 also resulted in
lower reported corporate expenses as lease payments related to
corporate office space are no longer recorded in SG&A.
DEPRECIATION
For the three months ended
December 31, 2019, depreciation expense increased by
$20.4 million to $68.9 million from $48.5
million in the corresponding quarter of 2018. The increase
was primarily due to depreciation on assets placed into service in
the United States. In addition,
the adoption of IFRS 16 at the beginning of 2019 resulted in a
$4.8 million increase to depreciation
expense and the revision to the Company's capitalization thresholds
resulted in an additional $2.2
million of depreciation recorded in the fourth quarter of
2019. Also, contributing to the higher depreciation was the impact
of the Company decreasing its useful life estimates and salvage
values, effective January 1, 2019,
for certain components of its fracturing equipment. Higher
depreciation on these components, combined with additions during
the quarter, increased depreciation expense by approximately
$2.3 million.
Effective April 1, 2019, the
Company revised its policy regarding the derecognition of major
components relating to field equipment. The change in accounting
policy was adopted on a retrospective basis, with each prior period
presented in the statements of operations being restated to reflect
the change. The change in policy resulted in $8.1 million of loss on disposal of property,
plant and equipment being reclassified to depreciation expense on
the statement of operations for the three months ended December 31, 2018.
The Company revised its thresholds for capitalization of major
components relating to field equipment. Due to this change, certain
costs that were previously classified as operating expenses are now
classified as capital expenditures. This resulted in a decrease to
operating expenses and an increase to capital expenditures totaling
$10.9 million relating to the 2019
fiscal year and was recorded during the fourth quarter of 2019.
This did not have any impact on prior periods.
FOREIGN EXCHANGE GAINS
The Company recorded a foreign
exchange gain of $0.1 million during
the fourth quarter of 2019 versus a gain of $3.3 million in the comparative three-month
period of 2018. 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, net monetary assets or liabilities
that were held in pesos in Argentina, and liabilities held in Canadian
dollars in Russia.
IMPAIRMENT
A comparison of the recoverable amounts of
each CGU with their respective carrying amounts resulted in no
impairment against property, plant and equipment in the fourth
quarter of 2019 (2018 - $nil). Furthermore, the Company carried out
a comprehensive review of its property, plant and equipment and
identified assets that were permanently idle or obsolete, and
therefore, no longer able to generate cash inflows. These assets
were written down to their recoverable amount resulting in an
impairment charge of $2.2 million for
the three months ended December 31,
2019 (three months ended December 31,
2018 - $0.1 million).
The Company reviews the carrying value of its inventory on an
ongoing basis for obsolescence and to verify that the carrying
value exceeds the net realizable amount. For the three months ended
December 31, 2019, the Company
recorded an impairment charge of $3.2
million to write-down inventory to its net realizable amount
in the United States and
Argentina (three months ended
December 31, 2018 - $4.0 million).
INTEREST
The Company's net interest expense of
$21.5 million for the fourth quarter
of 2019 was $0.5 million higher than
the comparable period in 2018. The increase in interest expense was
due to the adoption of IFRS 16, which resulted in a $0.5 million increase in interest expense during
the fourth quarter in 2019.
INCOME TAXES
The Company recorded an income tax
recovery of $23.4 million during the
fourth quarter of 2019 compared to a recovery of $4.6 million in the comparable period of 2018.
The recovery position was the result of pre-tax losses
incurred during the quarter. The effective recovery rate was 32
percent in 2019.
SUMMARY OF QUARTERLY RESULTS
Three Months
Ended
|
Mar. 31,
|
Jun. 30,
|
Sep. 30,
|
Dec. 31,
|
Mar 31,
|
Jun. 30,
|
Sep. 30,
|
Dec.
31,
|
|
2018
|
2018
|
2018
|
2018
|
2019
|
2019
|
2019
|
2019
|
(C$000s, except
per share and operating data)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
(unaudited)
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
Revenue
|
582,838
|
544,602
|
630,128
|
498,858
|
475,012
|
429,638
|
399,220
|
317,085
|
Operating
income(1)
|
67,974
|
66,528
|
115,331
|
61,992
|
43,623
|
41,103
|
47,021
|
20,997
|
Per share –
basic
|
0.47
|
0.46
|
0.80
|
0.43
|
0.30
|
0.28
|
0.33
|
0.15
|
Per share –
diluted
|
0.46
|
0.45
|
0.79
|
0.42
|
0.30
|
0.28
|
0.32
|
0.14
|
Adjusted
EBITDA(1)
|
72,953
|
81,910
|
111,631
|
62,914
|
44,086
|
45,123
|
43,028
|
26,882
|
Per share –
basic
|
0.51
|
0.57
|
0.77
|
0.44
|
0.31
|
0.31
|
0.30
|
0.19
|
Per share –
diluted
|
0.50
|
0.56
|
0.76
|
0.43
|
0.30
|
0.31
|
0.30
|
0.18
|
Net income (loss)
attributable to the
shareholders of Calfrac
|
3,234
|
(32,838)
|
14,878
|
(3,462)
|
(36,334)
|
(41,045)
|
(29,424)
|
(49,400)
|
Per share –
basic
|
0.02
|
(0.23)
|
0.10
|
(0.02)
|
(0.25)
|
(0.28)
|
(0.20)
|
(0.34)
|
Per share –
diluted
|
0.02
|
(0.23)
|
0.10
|
(0.02)
|
(0.25)
|
(0.28)
|
(0.20)
|
(0.34)
|
Capital
expenditures
|
51,334
|
42,404
|
34,542
|
31,484
|
28,218
|
37,784
|
38,885
|
34,418
|
Working capital (end
of period)
|
360,654
|
361,613
|
386,843
|
329,871
|
276,785
|
291,056
|
257,189
|
248,772
|
Total equity (end of
period)
|
546,018
|
507,607
|
516,899
|
513,820
|
481,675
|
443,361
|
414,195
|
368,623
|
|
|
|
|
|
|
|
|
|
Operating (end of
period)
|
|
|
|
|
|
|
|
|
Active pumping
horsepower (000s)
|
1,259
|
1,313
|
1,344
|
1,328
|
1,344
|
1,346
|
1,337
|
1,269
|
Idle pumping
horsepower (000s)
|
134
|
80
|
49
|
42
|
36
|
59
|
72
|
141
|
Total pumping
horsepower (000s)
|
1,393
|
1,393
|
1,393
|
1,370
|
1,380
|
1,405
|
1,409
|
1,410
|
Active coiled tubing
units (#)
|
22
|
22
|
22
|
22
|
21
|
21
|
21
|
20
|
Idle coiled tubing
units (#)
|
8
|
8
|
8
|
7
|
8
|
8
|
8
|
8
|
Total coiled tubing
units (#)
|
30
|
30
|
30
|
29
|
29
|
29
|
29
|
28
|
Active cementing
units (#)
|
12
|
11
|
11
|
11
|
11
|
14
|
14
|
13
|
Idle cementing units
(#)
|
11
|
12
|
12
|
12
|
12
|
9
|
9
|
6
|
Total cementing units
(#)
|
23
|
23
|
23
|
23
|
23
|
23
|
23
|
19
|
(1)
|
With the adoption
of IFRS 16, the accounting treatment for operating leases when
Calfrac is the lessee, changed effective January 1, 2019. Calfrac
adopted
IFRS 16 using the modified retrospective approach and the
comparative information was not restated. As a result, the
Company's 2019 Operating Income
and Adjusted EBITDA are not comparable to periods prior to January
1, 2019. Refer to "Non-GAAP Measures" on pages 23 and 24 for
further information.
|
SEASONALITY OF OPERATIONS
The Company's North American
business is seasonal. The lowest activity is typically experienced
during the second quarter of the year when road weight restrictions
are in place due to spring break-up weather conditions and access
to well sites in Canada and
North Dakota is reduced.
FOREIGN EXCHANGE FLUCTUATIONS
The Company's
consolidated financial statements are reported in Canadian dollars.
Accordingly, the quarterly results are directly affected by
fluctuations in the exchange rates for United States, Russian and Argentinean
currency.
FINANCIAL OVERVIEW – YEARS ENDED DECEMBER 31, 2019
VERSUS 2018
CANADA
Years Ended December
31,
|
2019
|
2018
|
Change
|
(C$000s, except
operational information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
397,583
|
650,731
|
(39)
|
Expenses
|
|
|
|
Operating
|
345,315
|
549,448
|
(37)
|
Selling, general and
administrative (SG&A)
|
11,579
|
14,121
|
(18)
|
|
356,894
|
563,569
|
(37)
|
Operating
income(1)
|
40,689
|
87,162
|
(53)
|
Operating income
(%)
|
10.2
|
13.4
|
(24)
|
Fracturing revenue
per job ($)
|
16,573
|
21,156
|
(22)
|
Number of fracturing
jobs
|
21,046
|
28,038
|
(25)
|
Active pumping
horsepower, end of period (000s)
|
236
|
289
|
(18)
|
Idle pumping
horsepower, end of period (000s)
|
36
|
17
|
112
|
Total pumping
horsepower, end of period (000s)
|
272
|
306
|
(11)
|
Coiled tubing revenue
per job ($)
|
19,839
|
22,809
|
(13)
|
Number of coiled
tubing jobs
|
2,339
|
2,299
|
2
|
Active coiled tubing
units, end of period (#)
|
11
|
11
|
—
|
Idle coiled tubing
units, end of period (#)
|
3
|
3
|
—
|
Total coiled tubing
units, end of period (#)
|
14
|
14
|
—
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 23 and 24 for further
information.
|
REVENUE
Revenue from Calfrac's Canadian operations in
2019 was $397.6 million versus
$650.7 million in 2018. Through the
majority of 2019, a number of key clients in Calfrac's Canadian
division were less active compared to 2018, as takeaway capacity
issues and government mandated production curtailment impacted
spending plans. Although the Company continued to work for a top
tier customer mix in 2019, the number of fracturing jobs decreased
by 25 percent. Revenue per fracturing job decreased by 22 percent
from the prior year primarily due to lower pricing and job mix.
Coiled tubing activity increased by 2 percent although revenue per
job decreased by 13 percent resulting in lower coiled tubing
revenue year-over-year.
OPERATING INCOME
The Company's Canadian division
generated operating income of $40.7
million in 2019 compared to $87.2
million in 2018. The decrease was due to lower pricing and
utilization. Despite the lower revenue base, the Company generated
an 10 percent operating income margin through its focus on
controlling operating costs during periods of lower activity. The
Canadian division idled one fleet at the beginning of 2019 and
revised its field work schedule beginning in the second quarter in
order to better align with expected activity levels, which helped
improve profitability. The reported operating income was positively
impacted by the adoption of IFRS 16 at the beginning of 2019 which
resulted in $8.8 million of lease
payments no longer being recognized as operating costs in 2019. In
addition, the $2.5 million reduction
in SG&A expenses compared to 2018 was due to headcount
reductions, a lower annual bonus provision and a reduction in
corporate costs allocated to the Canadian division, offset
partially by restructuring costs of $0.7
million and a bad debt expense of $1.3 million that were recorded in 2019.
UNITED STATES
Years Ended December
31,
|
2019
|
2018
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
930,404
|
1,296,675
|
(28)
|
Expenses
|
|
|
|
Operating
|
786,864
|
1,014,151
|
(22)
|
SG&A
|
17,335
|
20,176
|
(14)
|
|
804,199
|
1,034,327
|
(22)
|
Operating
income(1)
|
126,205
|
262,348
|
(52)
|
Operating income
(%)
|
13.6
|
20.2
|
(33)
|
Fracturing revenue
per job ($)
|
42,832
|
58,333
|
(27)
|
Number of fracturing
jobs
|
21,687
|
22,176
|
(2)
|
Active pumping
horsepower, end of period (000s)
|
830
|
854
|
(3)
|
Idle pumping
horsepower, end of period (000s)
|
93
|
25
|
272
|
Total pumping
horsepower, end of period (000s)
|
923
|
879
|
5
|
Active coiled tubing
units, end of period (#)
|
—
|
—
|
—
|
Idle coiled tubing
units, end of period (#)
|
1
|
2
|
(50)
|
Total coiled tubing
units, end of period (#)
|
1
|
2
|
(50)
|
Active cementing
units, end of period (#)
|
—
|
—
|
—
|
Idle cementing units,
end of period (#)
|
5
|
10
|
(50)
|
Total cementing
units, end of period (#)
|
5
|
10
|
(50)
|
US$/C$ average
exchange rate(2)
|
1.3269
|
1.2957
|
2
|
(1)
Refer to "Non-GAAP Measures" on pages 23 and 24 for further
information.
|
(2)
Source: Bank of Canada.
|
REVENUE
Revenue from Calfrac's United States operations decreased to
$930.4 million in 2019 from
$1.3 billion in 2018 primarily due to
lower pricing and fracturing activity. Completions activity in
the United States decreased during
2019 as customers continued to focus on spending within their
operating cash flows. As a result, the number of fracturing jobs
completed declined by 2 percent year-over-year, with lower activity
in Artesia and Colorado being
partially offset by higher activity in Pennsylvania, North
Dakota and San Antonio.
Revenue per job decreased 27 percent due to lower pricing combined
with the impact of job mix and certain customers providing their
own sand.
OPERATING INCOME
The Company's United States division generated operating
income of $126.2 million in 2019
compared to $262.3 million in 2018.
The 52 percent decrease was primarily the result of lower pricing
and utilization of active equipment. Although the Company had 17
active fleets available in 2019, only an average of 14 active crews
were utilized during that period and exited the year with 10 active
fleets. The lower utilization levels were primarily related to
Calfrac's Texas operations, and to
a lesser extent, in North Dakota,
as extreme weather impacted customer activity during the first
quarter in that operating region while wet weather negatively
impacted parts of the third quarter. The prior year's operating
results included $12.9 million of
reactivation costs in 2018 while 2019 did not include any of such
costs. The reported operating income was also positively impacted
by the adoption of IFRS 16 at the beginning of 2019, which resulted
in $12.7 million of lease payments no
longer being recognized as operating costs in 2019. SG&A
expenses decreased by 14 percent primarily due to a lower bonus
provision recorded in 2019. Additionally, the Company revised its
thresholds for capitalization of major components relating to field
equipment effective January 1, 2019.
Due to this change, certain costs that were previously classified
as operating expenses are now classified as capital expenditures.
This resulted in a decrease to operating expenses in the United States totaling $10.2 million relating to the 2019 fiscal year
and was recorded during the fourth quarter of 2019.
RUSSIA
Years Ended December
31,
|
2019
|
2018
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
105,807
|
106,819
|
(1)
|
Expenses
|
|
|
|
Operating
|
107,597
|
103,938
|
4
|
SG&A
|
3,215
|
3,326
|
(3)
|
|
110,812
|
107,264
|
3
|
Operating
loss(1)
|
(5,005)
|
(445)
|
NM
|
Operating loss
(%)
|
(4.7)
|
(0.4)
|
NM
|
Fracturing revenue
per job ($)
|
86,397
|
78,176
|
11
|
Number of fracturing
jobs
|
1,094
|
1,167
|
(6)
|
Active pumping
horsepower, end of period (000s)
|
65
|
77
|
(16)
|
Idle pumping
horsepower, end of period (000s)
|
12
|
—
|
NM
|
Total pumping
horsepower, end of period (000s)
|
77
|
77
|
—
|
Coiled tubing revenue
per job ($)
|
44,619
|
39,065
|
14
|
Number of coiled
tubing jobs
|
253
|
399
|
(37)
|
Active coiled tubing
units, end of period (#)
|
3
|
6
|
(50)
|
Idle coiled tubing
units, end of period (#)
|
4
|
1
|
NM
|
Total coiled tubing
units, end of period (#)
|
7
|
7
|
—
|
Rouble/C$ average
exchange rate(2)
|
0.0205
|
0.0207
|
(1)
|
(1)
Refer to "Non-GAAP Measures" on pages 23 and 24 for further
information.
|
(2)
Source: Bank of Canada.
|
REVENUE
Revenue from Calfrac's Russian operations in
2019 of $105.8 million was consistent
with 2018. The slight decrease in revenue, which is generated in
roubles, was mostly related to a 37 percent reduction in coiled
tubing activity, combined with the 1 percent depreciation of the
Russian rouble in 2019 versus 2018. Revenue per fracturing job was
11 percent higher than the comparable period in 2018 due to
proppant being provided for all jobs completed with a major
customer for the full period in 2019. This was partially offset by
the 6 percent reduction in fracturing activity. The Company idled
one fracturing spread and two coiled tubing units during 2019 to
align with activity levels.
OPERATING LOSS
The Company's Russian division incurred
an operating loss of $5.0 million in
2019 compared to a loss of $0.4
million in 2018. Calfrac's operations in the first quarter
of 2019 were impacted by extremely cold temperatures experienced
for portions of January and February, combined with higher
equipment repair expenses. In addition, the Company closed its
operations in Noyabrsk during the first quarter and incurred
mobilization costs to transfer equipment to Khanty-Mansiysk to work
for an existing customer in that region. The second and third
quarters experienced lower activity for both fracturing and coiled
tubing services as Calfrac's major customer in Western Siberia was impacted by the issues
associated with the contamination of the Transneft pipeline network
while the fourth quarter was impacted by higher equipment repairs
and subcontractor costs compared to the same period in 2018.
ARGENTINA
Years Ended December
31,
|
2019
|
2018
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
187,161
|
202,201
|
(7)
|
Expenses
|
|
|
|
Operating
|
153,479
|
178,796
|
(14)
|
SG&A
|
7,554
|
10,569
|
(29)
|
|
161,033
|
189,365
|
(15)
|
Operating
income(1)
|
26,128
|
12,836
|
104
|
Operating income
(%)
|
14.0
|
6.3
|
122
|
Active pumping
horsepower, end of period (000s)
|
138
|
108
|
28
|
Idle pumping
horsepower, end of period (000s)
|
—
|
—
|
—
|
Total pumping
horsepower, end of period (000s)
|
138
|
108
|
28
|
Active cementing
units, end of period (#)
|
13
|
11
|
18
|
Idle cementing units,
end of period (#)
|
1
|
2
|
(50)
|
Total cementing
units, end of period (#)
|
14
|
13
|
8
|
Active coiled tubing
units, end of period (#)
|
6
|
5
|
20
|
Idle coiled tubing
units, end of period (#)
|
—
|
1
|
(100)
|
Total coiled tubing
units, end of period (#)
|
6
|
6
|
—
|
US$/C$ average
exchange rate(2)
|
1.3269
|
1.2957
|
2
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 23 and 24 for further
information.
|
(2)
|
Source:
Bloomberg.
|
REVENUE
Calfrac's Argentinean operations generated
total revenue of $187.2 million in
2019 versus $202.2 million in 2018.
The 7 percent decline in year-over-year revenue was primarily due
to the change in customer mix that occurred during the third
quarter of 2019. The Company completed of one of its bundled
service contracts in the Vaca Muerta shale play during the third
quarter where Calfrac provided sand and replaced it with another
contract with a customer that provides its own sand. During 2019,
the Company achieved higher fracturing activity in the Vaca Muerta
shale play and a significant improvement in cementing activity.
This was partially offset by lower coiled tubing revenue as
activity was weighted to lower margin contract work in 2019
compared to higher margin call-out work in 2018.
OPERATING INCOME
The Company's operations in
Argentina generated operating
income of $26.1 million in 2019
compared to $12.8 million in the
comparable period in 2018. The Company has continued to improve its
operating margins throughout the transition to unconventional
operations in Argentina mainly due
to improved pricing and a focus on reducing costs. The Company
added additional operating capacity during the second quarter in
2019 supported by higher unconventional fracturing activity which
also contributed to the year-over-year improvement in operating
income.
CORPORATE
Years Ended December
31,
|
2019
|
2018
|
Change
|
(C$000s)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Expenses
|
|
|
|
Operating
|
5,081
|
6,322
|
(20)
|
SG&A
|
30,192
|
43,754
|
(31)
|
|
35,273
|
50,076
|
(30)
|
Operating
loss(1)
|
(35,273)
|
(50,076)
|
(30)
|
% of
Revenue
|
2.2
|
2.2
|
—
|
(1) Refer to "Non-GAAP
Measures" on pages 23 and 24 for further
information.
|
OPERATING LOSS
Corporate expenses in 2019 were
$35.3 million compared to
$50.1 million in 2018. The decrease
was primarily due to lower stock-based compensation expense and a
lower bonus provision when compared to the same period in 2018.
This was partially offset by $4.4
million of retirement and severance payments in 2019. The
$7.3 million reduction in stock-based
compensation was mainly due to a lower share price and fewer
restricted share units outstanding. The implementation of IFRS 16
also resulted in lower reported corporate expenses as lease
payments related to corporate office space are no longer recorded
in SG&A.
DEPRECIATION
Depreciation expense in 2019 increased by
$70.7 million to $261.2 million from $190.5
million in 2018. The increase was primarily due to the
Company decreasing its useful life estimates and salvage values,
effective January 1, 2019, for
certain components of its fracturing equipment. This resulted in a
one-time depreciation charge of $9.5
million during the first quarter relating to assets in use
at the end of the prior quarter. The resulting accelerated
depreciation rate on these components, combined with additions
during 2019 increased depreciation expense by a further
$23.5 million. In addition, the
adoption of IFRS 16 at the beginning of 2019 resulted in a
$20.9 million increase to
depreciation expense. The Company also recorded an additional
$9.2 million of depreciation on
assets placed into service in the United
States. Fluctuations in the U.S. dollar relative to the
Canadian dollar also contributed to the increase in reported
depreciation.
Effective April 1, 2019, the
Company revised its policy regarding the derecognition of major
components relating to field equipment. The change in accounting
policy was adopted on a retrospective basis, with each prior period
presented in the statements of operations being restated to reflect
the change. The change in policy resulted in $30.2 million of loss on disposal of property,
plant and equipment being reclassified to depreciation expense on
the statement of operations for the year ended December 31, 2018.
The Company revised its thresholds for capitalization of major
components relating to field equipment. Due to this change, certain
costs that were previously classified as operating expenses are now
classified as capital expenditures. This resulted in a decrease to
operating expenses and an increase to capital expenditures totaling
$10.9 million relating to the 2019
fiscal year and was recorded during the fourth quarter of 2019.
This did not have any impact on prior periods.
FOREIGN EXCHANGE LOSSES
The Company recorded a foreign
exchange loss of $6.3 million in 2019
versus a loss of $38.0 million in
2018. 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, net
monetary assets or liabilities that were held in pesos in
Argentina, and liabilities held in
Canadian dollars in Russia. The
Company's foreign exchange loss in 2019 was largely attributable to
net monetary assets that were held in pesos in Argentina as the peso devalued by 59 percent
against the U.S. dollar during 2019 and U.S. dollar denominated
assets held in Canada as
the United States dollar
depreciated against the Canadian dollar during 2019.
IMPAIRMENT
A comparison of the recoverable amounts of
each CGU with their respective carrying amounts resulted in no
impairment against property, plant and equipment in 2019 (2018 -
$nil) . Furthermore, the Company carried out a comprehensive review
of its property, plant and equipment and identified assets that
were permanently idle or obsolete, and therefore, no longer able to
generate cash inflows. These assets were written down to their
recoverable amount resulting in an impairment charge of
$2.2 million for the year ended
December 31, 2019 (year ended
December 31, 2018 - $0.1 million).
The Company reviews the carrying value of its inventory on an
ongoing basis for obsolescence and to verify that the carrying
value exceeds the net realizable amount. For the year ended
December 31, 2019, the Company
recorded an impairment charge of $3.7
million to write-down inventory to its net realizable amount
in the United States and
Argentina (year ended December 31, 2018 - $7.2
million).
INTEREST
The Company's interest expense of
$85.8 million in 2019 was
$20.8 million lower than in 2018,
primarily due to $21.2 million in
one-time charges associated with the debt refinancing transactions
that were completed in the second quarter in 2018. Interest expense
in 2019 also included $2.1 million
related to the adoption of IFRS 16. Excluding these one-time
items, interest expense was $1.7
million lower than 2018 primarily due to lower average debt
levels.
INCOME TAXES
The Company recorded an income tax
recovery of $52.2 million in 2019
compared to a $4.6 million tax
recovery in 2018. The recovery position was the result
of pre-tax losses across all divisions in 2019. The effective
recovery rate was 25 percent in 2019.
LIQUIDITY AND CAPITAL RESOURCES
|
Years Ended December
31,
|
|
2019
|
2018
|
(C$000s)
|
($)
|
($)
|
(unaudited)
|
|
|
Cash provided by
(used in):
|
|
|
Operating
activities
|
132,024
|
184,746
|
Financing
activities
|
4,021
|
(58,073)
|
Investing
activities
|
(138,892)
|
(149,814)
|
Effect of exchange
rate changes on cash and cash equivalents
|
(6,492)
|
22,293
|
Decrease in cash and
cash equivalents
|
(9,339)
|
(848)
|
OPERATING ACTIVITIES
The Company's cash provided by
operating activities for the year ended December 31, 2019 was $132.0 million versus $184.7 million during 2018. The decrease in cash
provided by operations was primarily due to lower activity and
pricing in North America offset
partially by working capital providing $62.7
million of cash in 2019 compared to using $13.6 million in 2018. At December 31, 2019, Calfrac's working capital was
$248.8 million compared to
$329.9 million at December 31, 2018.
FINANCING ACTIVITIES
Net cash provided by financing
activities for the year ended December 31, 2019 was
$4.0 million compared to net cash
used of $58.1 million in 2018. During
the year ended December 31, 2019, the
Company had net borrowings under its credit facilities of
$23.9 million, proceeds from the
issuance of shares of $0.2 million
and lease principal payments of $20.0
million.
On February 24, 2020, Calfrac
executed an exchange offer of US$120.0
million of new 10.875% second lien secured notes ("New
Notes") due March 15, 2026 to holders
of its existing 8.50% senior unsecured notes ("Old Notes") due
June 15, 2026. The New Notes are
secured by a second lien on the same assets that secure obligations
under the Company's existing senior secured credit facility. The
exchange was completed at an average exchange price of US$550 per each US$1,000 of Old Notes resulting in US$218.2 million being exchanged for US$120.0 million of New Notes. The exchange will
result in reduced leverage of approximately $130.0 million and a reduction of $7.3 million in annual debt service costs.
On April 30, 2019, Calfrac amended
and extended its credit facilities while maintaining its total
facility capacity at $375.0 million.
The facilities consist of an operating facility of $40.0 million and a syndicated facility of
$335.0 million. The Company's credit
facilities were extended by a term of two years and mature on
June 1, 2022 and can be extended by
one or more years at the Company's request and lenders'
acceptance. The Company may also prepay principal without
penalty. 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 2.50 percent. For LIBOR-based loans and bankers'
acceptance-based loans, the margin thereon ranges from 1.50 percent
to 3.50 percent above the respective base rates. The accordion
feature of the syndicated facility remains at $100.0 million, and is available to the Company
during the term of the agreement. The Company incurs interest at
the high end of the ranges outlined above if its net Total Debt to
Adjusted EBITDA ratio is above 4.00:1.00. Additionally, in the
event that the Company's net Total Debt to Adjusted EBITDA ratio is
above 5.00:1.00, certain restrictions apply including the
following: (a) acquisitions are subject to majority lender consent;
(b) distributions are restricted other than those relating to the
Company's share unit plans; and (c) no increase in the rate of
dividends are permitted. As at December 31,
2019, the Company's net Total Debt to Adjusted EBITDA ratio
was 6.96:1.00.
Advances under the credit facilities are 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.
|
|
|
At December 31, 2019, the Company had used $0.8 million of its credit facilities for letters
of credit and had $148.0 million of
borrowings under its credit facilities, leaving $226.2 million in available capacity under its
credit facilities. As described above, the Company's credit
facilities are subject to a monthly borrowing base, as determined
using the previous month's results, which at December 31, 2019 resulted in a liquidity amount
of $123.2 million.
As shown in the table below, at December
31, 2019, the Company was in compliance with the financial
covenants associated with its credit facilities.
|
Covenant
|
Actual
|
As at December
31,
|
2019
|
2019
|
Working capital ratio
not to fall below
|
1.15x
|
2.83x
|
Funded Debt to
Adjusted EBITDA not to exceed(1)(2)
|
3.00x
|
0.80x
|
Funded Debt to
Capitalization not to exceed(1)(3)
|
0.30x
|
0.08x
|
(1)
Funded Debt is defined as Total Debt excluding all outstanding
senior unsecured notes and lease obligations. Total Debt includes
bank loans and long-term debt (before unamortized debt issuance
costs and debt discount) plus outstanding letters of credit. For
the purposes of the Total Debt to Adjusted EBITDA ratio, the Funded
Debt to Capitalization Ratio and the Funded Debt to Adjusted EBITDA
ratio, the amount of Total Debt or Funded Debt, as applicable, is
reduced by the amount of cash on hand with lenders (excluding any
cash held in a segregated account for the purposes of a potential
equity cure).
|
(2)
Adjusted EBITDA is defined as net income or loss for the period
adjusted for interest, taxes, depreciation and amortization,
non-cash stock-based compensation, non-controlling interest, and
gains and losses that are extraordinary or
non-recurring.
|
(3) 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 June 30, 2022, 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.
|
|
|
The Company can utilize two equity cures during the term of the
credit facilities subject to the conditions described above. To
utilize an equity cure, the Company must provide notice of any such
election to the lending syndicate at any time prior to the filing
of its quarterly financial statements for the applicable quarter on
SEDAR. Amounts used as an equity cure prior to June 30, 2022 will increase Adjusted EBITDA over
the relevant twelve-month rolling period and will also serve to
reduce Funded Debt.
The Company's credit facilities also require majority lender
consent for dispositions of property or assets in Canada and the
United States if the aggregate market value exceeds
$20.0 million. There are no
restrictions pertaining to dispositions of property or assets
outside of Canada and the United States, except that to the extent
that advances under the credit facilities exceed $50.0 million at the time of any such
dispositions, Calfrac must use the resulting proceeds to reduce the
advances to less than $50.0 million
before using the balance for other purposes.
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 would not
meet the Fixed Charge Coverage Ratio(1) under the
indenture of at least 2:1 for the most recent four fiscal quarters,
after giving pro forma effect to such restricted payment as if it
had been made at the beginning of the applicable 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 or reversal of impairment of assets,
restructuring charges, provision for settlement of litigation,
stock-based compensation, interest, and income taxes. Interest
expense is adjusted to exclude any non-recurring charges associated
with redeeming or retiring any indebtedness prior to its
maturity.
|
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 December 31, 2019 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
$375.0 million or 30 percent of the
Company's consolidated tangible assets plus a general basket equal
to the greater of 4 percent of consolidated tangible assets and
US$60.0 million.
As at December 31, 2019, the
Company's Fixed Charge Coverage Ratio of 1.85:1 was below 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.
On May 31, 2018, the Company
repaid in full the remaining $196.5
million principal amount of its second lien senior secured
term loan facility with Alberta Investment Management Corporation
(AIMCo). The term loan, which had a maturity date of September 20, 2020, provided Calfrac the right to
prepay the loan prior to June 10,
2018 with a nominal prepayment premium.
On May 30, 2018, Calfrac closed a
private offering of US$650.0 million
aggregate principal amount of its 8.50 percent senior notes due
2026. Fixed interest on the notes is payable on June 15 and December
15 of each year. The notes will mature on June 15, 2026. The Company used a portion of the
net proceeds from the offering of the notes to repay all of its
outstanding 7.50 percent senior notes due 2020.
INVESTING ACTIVITIES
Calfrac's net cash used for
investing activities was $138.9
million for the year ended December
31, 2019 versus $149.8 million
in 2018. Cash outflows relating to capital expenditures were
$147.4 million in 2019 compared to
$157.2 million in 2018. In addition
to supporting ongoing operations globally, a portion of capital
spending in 2019 funded the acquisition of incremental fracturing
equipment in Argentina, which
improved the Company's footprint and flexibility in the market.
Calfrac's Board of Directors have approved a 2020 capital budget
of $100.5 million, which is comprised
primarily of maintenance capital.
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 year ended
December 31, 2019 was a loss of
$6.5 million versus a gain of
$22.3 million in 2018. These gains
relate to movements of cash and cash equivalents held by the
Company in a foreign currency during the period.
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 2019 and beyond.
At December 31, 2019, the Company had cash and cash
equivalents of $42.6 million.
OUTSTANDING SHARE DATA
The Company is authorized to
issue an unlimited number of common shares. Employees have been
granted both performance share units as well as options to purchase
common shares under the Company's shareholder-approved equity
compensation plans. The number of shares reserved for issuance
under the performance share unit plan and stock option plan is
equal to 10 percent of the Company's issued and outstanding common
shares. As at March 3, 2020, the
Company had issued and outstanding 145,149,528 common shares,
485,798 equity-based performance share units and 12,172,402 options
to purchase common shares.
ADVISORIES
FORWARD-LOOKING STATEMENTS
In
order to provide Calfrac shareholders and potential investors with
information regarding the Company and its subsidiaries, including
management's assessment of Calfrac's plans and future operations,
certain statements contained in this press release, including
statements that contain words such as "seek", "anticipate", "plan",
"continue", "estimate", "expect", "may", "will", "project",
"predict", "potential", "targeting", "intend", "could", "might",
"should", "believe", "forecast" or similar words suggesting future
outcomes, are forward-looking statements.
In particular, forward-looking statements in this press release
include, but are not limited to, statements with respect to
expected operating strategies and targets, capital expenditure
programs, future financial resources, 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 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, impairment of inventory,
impairment 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
Dec. 31,
|
Years Ended Dec.
31,
|
|
2019
|
2018
|
2019
|
2018
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
(unaudited)
|
|
|
|
|
Net loss
|
(49,400)
|
(3,462)
|
(156,203)
|
(26,177)
|
Add back
(deduct):
|
|
|
|
|
Depreciation(1)
|
68,932
|
48,522
|
261,227
|
190,475
|
Foreign exchange
(gains) losses
|
(128)
|
(3,342)
|
6,341
|
38,047
|
Loss (gain) on
disposal of property, plant and equipment(1)
|
(1,886)
|
(244)
|
1,870
|
160
|
Impairment of
property, plant and equipment
|
2,165
|
115
|
2,165
|
115
|
Impairment of
inventory
|
3,160
|
3,978
|
3,744
|
7,167
|
Interest
|
21,512
|
20,999
|
85,826
|
106,630
|
Income
taxes
|
(23,358)
|
(4,574)
|
(52,226)
|
(4,592)
|
Operating
income
|
20,997
|
61,992
|
152,744
|
311,825
|
(1) Comparatives have been
reclassified to conform to the current financial statement
presentation.
|
Adjusted EBITDA is defined in the Company's credit facilities
for covenant purposes as net income or loss for the period adjusted
for interest, income taxes, depreciation and amortization,
unrealized foreign exchange losses (gains), non-cash stock-based
compensation, non-controlling interest, 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
Dec. 31,
|
Years Ended Dec.
31,
|
|
2019
|
2018
|
2019
|
2018
|
(C$000s)
|
|
|
($)
|
($)
|
(unaudited)
|
|
|
|
|
Net loss
|
(49,400)
|
(3,462)
|
(156,203)
|
(26,177)
|
Add back
(deduct):
|
|
|
|
|
Depreciation
|
68,932
|
48,522
|
261,227
|
190,475
|
Unrealized foreign
exchange losses
|
859
|
(4,345)
|
2,041
|
11,465
|
Non-recurring
realized foreign exchange losses(1)
|
—
|
—
|
—
|
29,288
|
(Gain) loss on
disposal of property, plant and equipment
|
(1,886)
|
(244)
|
1,870
|
160
|
Impairment of
property, plant and equipment
|
2,165
|
115
|
2,165
|
115
|
Impairment of
inventory
|
3,160
|
3,978
|
3,744
|
7,167
|
Restructuring
charges
|
3,564
|
281
|
6,049
|
1,076
|
Stock-based
compensation
|
1,334
|
1,644
|
4,626
|
5,812
|
Losses attributable
to non-controlling interest
|
—
|
—
|
—
|
7,989
|
Interest
|
21,512
|
20,999
|
85,826
|
106,630
|
Income
taxes
|
(23,358)
|
(4,574)
|
(52,226)
|
(4,592)
|
Adjusted
EBITDA(2)
|
26,882
|
62,914
|
159,119
|
329,408
|
(1) The Company recognized
a one-time realized foreign exchange loss resulting from the
capitalization of intercompany debt held by its Argentinean
subsidiary.
|
(2)For bank covenant purposes,
EBITDA includes an additional $21.9 million of lease payments that
would have been recorded as operating expenses prior to the
adoption of IFRS 16 on January 1, 2019.
|
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.
FOURTH QUARTER CONFERENCE CALL
Calfrac will be
conducting a conference call for interested analysts, brokers,
investors and news media representatives to review its 2019
fourth-quarter results at 10:00 a.m.
(Mountain Time) on Thursday, March 5, 2020. 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 7085442). A webcast of the conference call may be
accessed via the Company's website at www.calfrac.com.
CONSOLIDATED BALANCE SHEETS
As at December
31,
|
2019
|
2018
|
(C$000s)
|
($)
|
($)
|
ASSETS
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
42,562
|
51,901
|
Accounts
receivable
|
216,647
|
349,431
|
Income taxes
recoverable
|
1,608
|
582
|
Inventories
|
127,620
|
150,123
|
Prepaid expenses and
deposits
|
17,489
|
17,527
|
|
405,926
|
569,564
|
Non-current
assets
|
|
|
Property, plant and
equipment (note 1)
|
969,944
|
1,116,677
|
Right-of-use
assets
|
29,760
|
—
|
Deferred income tax
assets
|
120,292
|
96,416
|
Total
assets
|
1,525,922
|
1,782,657
|
LIABILITIES AND
EQUITY
|
|
|
Current
liabilities
|
|
|
Accounts payable and
accrued liabilities
|
143,225
|
239,507
|
Current portion of
lease obligations
|
13,929
|
186
|
|
157,154
|
239,693
|
Non-current
liabilities
|
|
|
Long-term debt (note
2)
|
976,693
|
989,614
|
Lease
obligations
|
16,990
|
552
|
Deferred income tax
liabilities
|
6,462
|
38,978
|
Total
liabilities
|
1,157,299
|
1,268,837
|
Equity attributable
to the shareholders of Calfrac
|
|
|
Capital stock (note
3)
|
509,235
|
508,276
|
Contributed
surplus
|
44,316
|
40,453
|
Loan receivable for
purchase of common shares
|
(2,500)
|
(2,500)
|
Accumulated
deficit
|
(185,174)
|
(28,971)
|
Accumulated other
comprehensive income (loss)
|
2,746
|
(3,438)
|
Total
equity
|
368,623
|
513,820
|
Total liabilities and
equity
|
1,525,922
|
1,782,657
|
Contingencies
(note 6)
|
See accompanying
notes to the consolidated financial statements.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Three Months Ended
Dec. 31,
|
Years Ended Dec.
31,
|
|
2019
|
2018
|
2019
|
2018
|
(C$000s, except per
share data)
|
($)
|
($)
|
($)
|
($)
|
Revenue
|
317,085
|
498,858
|
1,620,955
|
2,256,426
|
Cost of
sales
|
350,211
|
465,408
|
1,659,564
|
2,043,130
|
Gross (loss)
profit
|
(33,126)
|
33,450
|
(38,609)
|
213,296
|
Expenses
|
|
|
|
|
Selling, general and
administrative
|
14,809
|
19,980
|
69,874
|
91,946
|
Foreign exchange
(gains) losses
|
(128)
|
(3,342)
|
6,341
|
38,047
|
(Gain) loss on
disposal of property, plant and equipment
|
(1,886)
|
(244)
|
1,870
|
160
|
Impairment of
property, plant and equipment (note 1)
|
2,165
|
115
|
2,165
|
115
|
Impairment of
inventory
|
3,160
|
3,978
|
3,744
|
7,167
|
Interest
|
21,512
|
20,999
|
85,826
|
106,630
|
|
39,632
|
41,486
|
169,820
|
244,065
|
Loss before income
tax
|
(72,758)
|
(8,036)
|
(208,429)
|
(30,769)
|
Income tax expense
(recovery)
|
|
|
|
|
Current
|
(599)
|
2,390
|
3,014
|
4,342
|
Deferred
|
(22,759)
|
(6,964)
|
(55,240)
|
(8,934)
|
|
(23,358)
|
(4,574)
|
(52,226)
|
(4,592)
|
Net loss
|
(49,400)
|
(3,462)
|
(156,203)
|
(26,177)
|
|
|
|
|
|
Net loss attributable
to:
|
|
|
|
|
Shareholders of
Calfrac
|
(49,400)
|
(3,462)
|
(156,203)
|
(18,188)
|
Non-controlling
interest
|
—
|
—
|
—
|
(7,989)
|
|
(49,400)
|
(3,462)
|
(156,203)
|
(26,177)
|
|
|
|
|
|
Loss per share (note
3)
|
|
|
|
|
Basic
|
(0.34)
|
(0.02)
|
(1.08)
|
(0.13)
|
Diluted
|
(0.34)
|
(0.02)
|
(1.08)
|
(0.13)
|
See accompanying
notes to the consolidated financial statements.
|
Certain of the
comparatives have been reclassified to conform with the current
presentation.
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
Three Months Ended
Dec. 31,
|
Years Ended Dec.
31,
|
|
2019
|
2018
|
2019
|
2018
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
Net
loss
|
(49,400)
|
(3,462)
|
(156,203)
|
(26,177)
|
Other
comprehensive income (loss)
|
|
|
|
|
Items that may be
subsequently reclassified to profit or loss:
|
|
|
|
|
Change in foreign
currency translation adjustment
|
2,494
|
(1,278)
|
6,184
|
(7,379)
|
Comprehensive
loss
|
(46,906)
|
(4,740)
|
(150,019)
|
(33,556)
|
Comprehensive loss
attributable to:
|
|
|
|
Shareholders of
Calfrac
|
(46,906)
|
(4,740)
|
(150,019)
|
(26,560)
|
Non-controlling
interest
|
—
|
—
|
—
|
(6,996)
|
|
(46,906)
|
(4,740)
|
(150,019)
|
(33,556)
|
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$000s)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Balance – Jan. 1,
2019
|
508,276
|
40,453
|
(2,500)
|
(3,438)
|
(28,971)
|
513,820
|
—
|
513,820
|
Net loss
|
—
|
—
|
—
|
—
|
(156,203)
|
(156,203)
|
—
|
(156,203)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
Cumulative
translation
adjustment
|
—
|
—
|
—
|
6,184
|
—
|
6,184
|
—
|
6,184
|
Comprehensive income
(loss)
|
—
|
—
|
—
|
6,184
|
(156,203)
|
(150,019)
|
—
|
(150,019)
|
Stock
options:
|
|
|
|
|
|
|
|
|
Stock-based
compensation
recognized
|
—
|
3,030
|
—
|
—
|
—
|
3,030
|
—
|
3,030
|
Proceeds from
issuance of shares
(note 3)
|
252
|
(56)
|
—
|
—
|
–
|
196
|
—
|
196
|
Performance share
units:
|
|
|
|
|
|
|
|
|
Stock-based
compensation
recognized
|
—
|
1,596
|
—
|
—
|
—
|
1,596
|
—
|
1,596
|
Shares issued (note
3)
|
707
|
(707)
|
—
|
—
|
—
|
—
|
|
—
|
Balance – Dec. 31,
2019
|
509,235
|
44,316
|
(2,500)
|
2,746
|
(185,174)
|
368,623
|
—
|
368,623
|
Balance – Jan. 1,
2018
|
501,456
|
35,094
|
(2,500)
|
2,728
|
21,268
|
558,046
|
(14,401)
|
543,645
|
Net loss
|
—
|
—
|
—
|
—
|
(18,188)
|
(18,188)
|
(7,989)
|
(26,177)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
Cumulative
translation
adjustment
|
—
|
—
|
—
|
(8,372)
|
—
|
(8,372)
|
993
|
(7,379)
|
Comprehensive
loss
|
—
|
—
|
—
|
(8,372)
|
(18,188)
|
(26,560)
|
(6,996)
|
(33,556)
|
Stock
options:
|
|
|
|
|
|
|
|
|
Stock-based
compensation
recognized
|
—
|
4,637
|
—
|
—
|
—
|
4,637
|
—
|
4,637
|
Proceeds from
issuance of shares
(note 3)
|
1,820
|
(453)
|
—
|
—
|
–
|
1,367
|
—
|
1,367
|
Performance share
units:
|
|
|
|
|
|
|
|
|
Stock-based
compensation
recognized
|
—
|
1,175
|
—
|
—
|
—
|
1,175
|
—
|
1,175
|
Acquisition:
|
|
|
|
|
|
|
|
|
Shares issued (note
3)
|
1,250
|
—
|
—
|
—
|
—
|
1,250
|
—
|
1,250
|
Shares to be issued
(note 3)
|
3,750
|
—
|
—
|
—
|
—
|
3,750
|
—
|
3,750
|
Loss on
acquisition
|
—
|
—
|
—
|
—
|
(5,799)
|
(5,799)
|
—
|
(5,799)
|
Purchase of
non-controlling
interest
|
—
|
—
|
—
|
2,206
|
(26,252)
|
(24,046)
|
21,397
|
(2,649)
|
Balance – Dec. 31,
2018
|
508,276
|
40,453
|
(2,500)
|
(3,438)
|
(28,971)
|
513,820
|
—
|
513,820
|
See accompanying
notes to the consolidated financial statements.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Three Months Ended
Dec. 31,
|
Years Ended Dec.
31,
|
|
2019
|
2018
|
2019
|
2018
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
CASH FLOWS
PROVIDED BY (USED IN)
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
Net loss
|
(49,400)
|
(3,462)
|
(156,203)
|
(26,177)
|
Adjusted for the
following:
|
|
|
|
|
Depreciation
|
68,932
|
48,522
|
261,227
|
190,475
|
Stock-based
compensation
|
1,334
|
1,644
|
4,626
|
5,812
|
Unrealized foreign
exchange losses (gains)
|
859
|
(4,345)
|
2,041
|
11,465
|
(Gain) loss on
disposal of property, plant and equipment
|
(1,886)
|
(244)
|
1,870
|
160
|
Impairment of
property, plant and equipment (note 1)
|
2,165
|
115
|
2,165
|
115
|
Impairment of
inventory
|
3,160
|
3,978
|
3,744
|
7,167
|
Interest
|
21,512
|
20,999
|
85,826
|
106,630
|
Interest
paid
|
(37,888)
|
(39,163)
|
(80,728)
|
(88,329)
|
Deferred income
taxes
|
(22,759)
|
(6,964)
|
(55,240)
|
(8,934)
|
Changes in items of
working capital
|
29,763
|
111,787
|
62,696
|
(13,638)
|
Cash flows provided
by operating activities
|
15,792
|
132,867
|
132,024
|
184,746
|
FINANCING
ACTIVITIES
|
|
|
|
|
Issuance of long-term
debt, net of debt issuance costs
|
28,624
|
—
|
83,632
|
1,061,728
|
Long-term debt
repayments
|
(6,580)
|
(75,000)
|
(59,760)
|
(1,120,992)
|
Lease obligation
principal repayments
|
(4,459)
|
(44)
|
(20,047)
|
(176)
|
Proceeds on issuance
of common shares
|
—
|
17
|
196
|
1,367
|
Cash flows provided
by (used in) financing activities
|
17,585
|
(75,027)
|
4,021
|
(58,073)
|
INVESTING
ACTIVITIES
|
|
|
|
|
Purchase of property,
plant and equipment
|
(40,410)
|
(35,404)
|
(147,370)
|
(157,187)
|
Proceeds on disposal
of property, plant and equipment
|
6,951
|
429
|
7,224
|
7,380
|
Proceeds on disposal
of right-of-use assets
|
724
|
—
|
1,254
|
—
|
Other
|
—
|
—
|
—
|
(7)
|
Cash flows used in
investing activities
|
(32,735)
|
(34,975)
|
(138,892)
|
(149,814)
|
Effect of exchange
rate changes on cash and cash equivalents
|
(2,237)
|
11,589
|
(6,492)
|
22,293
|
(Decrease) increase
in cash and cash equivalents
|
(1,595)
|
34,454
|
(9,339)
|
(848)
|
Cash and cash
equivalents, beginning of period
|
44,157
|
17,447
|
51,901
|
52,749
|
Cash and cash
equivalents, end of period
|
42,562
|
51,901
|
42,562
|
51,901
|
See accompanying
notes to the consolidated financial statements.
|
Certain of the
comparatives have been reclassified to conform with the current
presentation.
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at
and for the years ended December 31, 2019 and 2018
(Amounts in text and tables are in thousands of Canadian
dollars, except share data and certain other exceptions as
indicated)
1. PROPERTY, PLANT AND EQUIPMENT
Year Ended December
31,
2019
|
Opening Net
Book Value
|
Additions
|
Disposals
|
Impairment
|
Depreciation
|
Foreign
Exchange
Adjustments
|
Closing
Net Book
Value
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Assets under
construction(1)
|
78,780
|
(40,197)
|
—
|
—
|
—
|
(411)
|
38,172
|
Field
equipment
|
929,669
|
175,254
|
(6,672)
|
(2,165)
|
(232,231)
|
(27,738)
|
836,117
|
Field equipment under
finance lease(2)
|
898
|
—
|
(737)
|
—
|
(161)
|
—
|
—
|
Buildings
|
57,723
|
154
|
(1,708)
|
—
|
(4,807)
|
(3,124)
|
48,238
|
Land
|
41,966
|
170
|
(1,657)
|
—
|
—
|
(1,124)
|
39,355
|
Shop, office and
other equipment
|
3,621
|
1,510
|
(83)
|
—
|
(1,238)
|
(245)
|
3,565
|
Computers and
computer software
|
3,181
|
2,404
|
—
|
—
|
(1,622)
|
79
|
4,042
|
Leasehold
improvements
|
839
|
10
|
—
|
—
|
(148)
|
(246)
|
455
|
|
1,116,677
|
139,305
|
(10,857)
|
(2,165)
|
(240,207)
|
(32,809)
|
969,944
|
(1)
|
Additions for
assets under construction are net of transfers into the other
categories of property, plant and equipment, when they become
available for use.
|
(2)
|
In the previous
year 2018, the Company recognized lease assets and lease
obligations in relation to leases that were classified as "finance
leases" under IAS 17
Leases. These assets were presented in property, plant and
equipment. On January 1, 2019, upon the adoption of IFRS 16 Leases,
the Company's finance leases
were transferred to "right-of-use assets".
|
As at December 31,
2019
|
Cost
|
Accumulated Depreciation
|
Net
Book Value
|
(C$000s)
|
($)
|
($)
|
($)
|
Assets under
construction
|
38,172
|
—
|
38,172
|
Field
equipment
|
2,231,043
|
(1,394,926)
|
836,117
|
Field equipment under
finance lease
|
1,683
|
(1,683)
|
—
|
Buildings
|
90,070
|
(41,832)
|
48,238
|
Land
|
39,355
|
—
|
39,355
|
Shop, office and
other equipment
|
27,728
|
(24,163)
|
3,565
|
Computers and
computer software
|
32,435
|
(28,393)
|
4,042
|
Leasehold
improvements
|
8,713
|
(8,258)
|
455
|
|
2,469,199
|
(1,499,255)
|
969,944
|
Year Ended December
31, 2018
|
Opening Net
Book Value
|
Additions
|
Disposals
|
Impairment
|
Depreciation
|
Foreign
Exchange
Adjustments
|
Closing
Net Book
Value
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Assets under
construction(1)
|
59,192
|
14,736
|
—
|
(43)
|
—
|
4,895
|
78,780
|
Field
equipment
|
948,843
|
138,539
|
(37,634)
|
(72)
|
(152,688)
|
32,681
|
929,669
|
Field equipment under
finance lease
|
959
|
—
|
—
|
—
|
(61)
|
—
|
898
|
Buildings
|
58,602
|
2,421
|
—
|
—
|
(4,808)
|
1,508
|
57,723
|
Land
|
40,050
|
—
|
—
|
—
|
—
|
1,916
|
41,966
|
Shop, office and
other equipment
|
4,815
|
599
|
(63)
|
—
|
(1,365)
|
(365)
|
3,621
|
Computers and
computer software
|
1,110
|
3,188
|
—
|
—
|
(1,135)
|
18
|
3,181
|
Leasehold
improvements
|
1,114
|
281
|
—
|
—
|
(261)
|
(295)
|
839
|
|
1,114,685
|
159,764
|
(37,697)
|
(115)
|
(160,318)
|
40,358
|
1,116,677
|
(1)
|
Additions for
assets under construction are net of transfers into the other
categories of property, plant and equipment, when they become
available for use.
|
As at December 31,
2018
|
Cost
|
Accumulated Depreciation
|
Net Book
Value
|
(C$000s)
|
($)
|
($)
|
($)
|
Assets under
construction
|
78,780
|
—
|
78,780
|
Field
equipment
|
2,062,461
|
(1,132,792)
|
929,669
|
Field equipment under
finance lease
|
2,420
|
(1,522)
|
898
|
Buildings
|
91,624
|
(33,901)
|
57,723
|
Land
|
41,966
|
—
|
41,966
|
Shop, office and
other equipment
|
26,301
|
(22,680)
|
3,621
|
Computers and
computer software
|
30,031
|
(26,850)
|
3,181
|
Leasehold
improvements
|
8,703
|
(7,864)
|
839
|
|
2,342,286
|
(1,225,609)
|
1,116,677
|
Property, plant and equipment are tested for impairment in
accordance with the Company's accounting policy. The Company
reviews the carrying value of its property, plant and equipment at
each reporting period for indicators of impairment. The Company's
financial results have been negatively impacted by lower activity
in certain CGUs combined with weaker pricing levels. The Company
recognizes this is an indicator of impairment that warrants an
assessment on the recoverable amount of its property, plant and
equipment.
The Company's CGUs are determined to be at the country level,
consisting of Canada, the United States, Russia and Argentina.
The recoverable amount of property, plant and equipment was
determined using the value in use method, based on multi-year
discounted cash flows to be generated from the continuing
operations of each CGU. Cash flow assumptions were based on a
combination of historical and expected future results, using the
following main key assumptions:
- Commodity price forecasts
- Expected revenue growth
- Expected operating income growth
- Discount rate
Revenue and operating income growth rates for each CGU were
based on a combination of commodity price assumptions, historical
results and forecasted activity levels, which incorporated pricing,
utilization and cost improvements over the period. The cumulative
annual growth rates for revenue over the forecast period from 2020
to 2024 ranged from 4.7 percent to 18.6 percent depending on the
CGU.
The cash flows were prepared on a five-year basis, using a
discount rate ranging from 13.2 percent to 21.2 percent depending
on the CGU. Discount rates are derived from the Company's weighted
average cost of capital, adjusted for risk factors specific to each
CGU. Cash flows beyond that five-year period have been extrapolated
using a steady 2.0 percent growth rate. A comparison of the
recoverable amounts of each cash-generating unit with their
respective carrying amounts resulted in no impairment against
property, plant and equipment for the year ended December 31, 2019 (year ended December 31, 2018 – $nil).
A sensitivity analysis on the discount rate and expected future
cash flows would have the following impact:
|
Impairment
|
|
Canada
|
United
States
|
Russia
|
Argentina
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
10% increase in
expected future cash flows
|
None
|
None
|
None
|
None
|
10% decrease in
expected future cash flows
|
None
|
None
|
None
|
None
|
1% decrease in
discount rate
|
None
|
None
|
None
|
None
|
1% increase in
discount rate
|
None
|
None
|
None
|
None
|
Assumptions that are valid at the time of preparing the
impairment test at December 31, 2019
may change significantly when new information becomes available.
The Company will continue to monitor and update its assumptions and
estimates with respect to property, plant and equipment impairment
on an ongoing basis.
Furthermore, the Company carried out a comprehensive review of
its property, plant and equipment and identified assets that were
permanently idle or obsolete, and therefore, no longer able to
generate cash inflows. These assets were written down to their
recoverable amount resulting in an impairment charge of
$2,165 for the year ended
December 31, 2019 (year ended
December 31, 2018 – $115).
The impairment losses by CGU are as follows:
Years Ended December
31,
|
2019
|
2018
|
(C$000s)
|
($)
|
($)
|
Canada
|
1,921
|
—
|
United
States
|
244
|
—
|
Mexico
|
—
|
115
|
|
2,165
|
115
|
2. LONG-TERM DEBT
|
December
31,
|
December
31,
|
As at December
31,
|
2019
|
2018
|
(C$000s)
|
($)
|
($)
|
US$650,000 senior
unsecured notes due June 15, 2026, bearing interest at 8.50%
payable semi-annually
|
844,220
|
886,730
|
$375,000 extendible
revolving term loan facility, secured by Canadian and U.S. assets
of the Company
|
147,988
|
120,000
|
Less: unamortized
debt issuance costs
|
(15,515)
|
(17,116)
|
|
976,693
|
989,614
|
The fair value of the senior unsecured notes, as measured based
on the closing quoted market price at December 31, 2019, was
$342,078 (December 31, 2018 –
$661,492). The carrying value of the
revolving term loan facility approximates its fair value as the
interest rate is not significantly different from current interest
rates for similar loans.
On May 30, 2018, the Company
closed a private offering of US$650,000 aggregate principal amount of its 8.50
percent senior notes due 2026. Fixed interest on the notes is
payable on June 15 and December 15 of each year. The notes will mature
on June 15, 2026, and provide the
Company with the option to redeem up to 10 percent of the aggregate
principal amount of the notes at a redemption price of 108.50
percent of the principal amount with the proceeds of asset sales at
any time prior to December 15, 2019.
The Company used a portion of the net proceeds from the offering of
the notes to repay all of its outstanding 7.50 percent senior notes
due 2020. The early repayment of these notes resulted in a
make-whole interest payment of $10,403 and the write-off of the remaining
$5,023 unamortized deferred finance
costs, recorded during 2018.
On May 31, 2018, the Company
repaid in full the remaining $196,500
principal amount of its second lien senior secured term loan
facility. The term loan, which had a maturity date of September 30, 2020, provided the Company the
right to prepay the loan prior to June 10,
2018 with a nominal prepayment premium. The repayment of the
second lien senior secured term loan facility resulted in the
write-off of the remaining unamortized deferred finance costs of
$5,787, recorded during 2018.
On April 30, 2019, Calfrac amended
and extended its credit facilities while maintaining its total
facility capacity at $375,000. The
facilities consist of an operating facility of $40,000 and a syndicated facility of $335,000. The Company's credit facilities were
extended by a term of two years and mature on June 1, 2022 and can be extended by one or more
years at the Company's request and lenders' acceptance. The
Company may also prepay principal without penalty. 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 2.50
percent. For LIBOR-based loans and bankers' acceptance-based loans,
the margin thereon ranges from 1.50 percent to 3.50 percent above
the respective base rates. The accordion feature of the syndicated
facility remains at $100,000, and is
available to the Company during the term of the agreement. The
Company incurs interest at the high end of the ranges outlined
above if its net Total Debt to Adjusted EBITDA ratio is above
4.00:1.00. Additionally, in the event that the Company's net Total
Debt to Adjusted EBITDA ratio is above 5.00:1.00, certain
restrictions would apply including the following: (a) acquisitions
will be subject to majority lender consent; (b) distributions will
be restricted other than those relating to the Company's share unit
plans; and (c) no increase in the rate of dividends will be
permitted. As at December 31, 2019, the Company's net Total
Debt to Adjusted EBITDA ratio was 6.96:1.00 (December 31, 2018 –
2.92:1:00).
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 year ended
December 31, 2019 was $83,665
(year ended December 31, 2018 –
$106,940).
The following table sets out an analysis of long-term debt and
the movements in long-term debt for the periods presented:
2019
|
(C$000s)
|
($)
|
Balance, January
1
|
989,614
|
Issuance of long-term
debt, net of debt issuance costs
|
83,632
|
Long-term debt
repayments
|
(59,760)
|
Amortization of debt
issuance costs and debt discount
|
5,457
|
Foreign exchange
adjustments
|
(42,250)
|
Balance, December
31
|
976,693
|
The aggregate scheduled principal repayments required in each of
the next five years are as follows:
As at December 31,
2019
|
Amount
|
(C$000s)
|
($)
|
2020
|
—
|
2021
|
—
|
2022
|
147,988
|
2023
|
—
|
2024
|
—
|
Thereafter
|
844,220
|
|
992,208
|
At December 31, 2019, the Company had utilized $844 of its loan facility for letters of credit
and had $147,988 outstanding under
its revolving term loan facility, leaving $226,168 in available credit, subject to a
monthly borrowing base, as determined using the previous month's
results, which at December 31, 2019, resulted in liquidity
amount of $123,179.
See note 5 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.
Years Ended December
31,
|
2019
|
2018
|
Continuity of Common
Shares
|
Shares
|
Amount
|
Shares
|
Amount
|
|
(#)
|
($000s)
|
(#)
|
($000s)
|
Balance, beginning of
period
|
144,462,532
|
504,526
|
143,755,741
|
501,456
|
Issued upon exercise
of stock options
|
98,675
|
252
|
483,974
|
1,820
|
Issued upon vesting
of performance share units
|
104,865
|
707
|
—
|
—
|
Issued on
acquisition
|
222,816
|
1,250
|
222,817
|
1,250
|
Balance, end of
period
|
144,888,888
|
506,735
|
144,462,532
|
504,526
|
Shares to be
issued
|
445,633
|
2,500
|
668,449
|
3,750
|
|
145,334,521
|
509,235
|
145,130,981
|
508,276
|
The weighted average number of common shares outstanding for the
three months ended December 31, 2019
was 144,719,688 basic and 145,334,521 diluted (three months ended
December 31, 2018 – 144,288,351 basic
and 146,327,955 diluted). The weighted average number of common
shares outstanding for the year ended December 31, 2019 was 144,564,590 basic and
145,474,733 diluted (year ended December 31,
2018 – 144,041,910 basic and 146,828,943 diluted). The
difference between basic and diluted shares is attributable to the
dilutive effect of stock options issued by the Company as disclosed
in note 4, and the shares to be issued.
4. SHARE-BASED PAYMENTS
(a) Stock Options
Years Ended December
31,
|
2019
|
2018
|
Continuity of Stock
Options
|
Options
|
Average
Exercise
Price
|
Options
|
Average Exercise
Price
|
|
(#)
|
($)
|
(#)
|
($)
|
Balance, January
1
|
9,392,095
|
4.70
|
9,616,173
|
5.30
|
Granted
|
4,470,150
|
1.68
|
1,419,319
|
5.79
|
Exercised for common
shares
|
(98,675)
|
1.99
|
(483,974)
|
2.83
|
Forfeited
|
(630,562)
|
4.71
|
(481,673)
|
7.19
|
Expired
|
(930,000)
|
10.58
|
(677,750)
|
15.11
|
Balance, December
31
|
12,203,008
|
3.16
|
9,392,095
|
4.70
|
The weighted average share price at the date of exercise for
stock options exercised during 2019 was $2.73 (2018 – $7.01).
|
Options
Outstanding
|
Options
Exercisable
|
Exercise Price Per
Option
|
Number of
Options
|
Weighted
Average
Remaining Life
(Years)
|
Weighted
Average Exercise
Price
|
Number of
Options
|
Weighted
Average Exercise
Price
|
$1.22 –
$1.30
|
2,904,950
|
4.93
|
$
|
1.24
|
—
|
$
|
—
|
$1.31 –
$2.14
|
2,657,975
|
1.02
|
$
|
1.93
|
2,591,950
|
$
|
1.95
|
$2.15 –
$4.33
|
1,857,925
|
3.57
|
$
|
2.69
|
254,200
|
$
|
3.33
|
$4.34 –
$4.89
|
3,331,726
|
2.00
|
$
|
4.84
|
1,641,776
|
$
|
4.84
|
$4.90 –
$8.72
|
1,450,432
|
2.77
|
$
|
6.02
|
581,932
|
$
|
6.36
|
$1.22 –
$8.72
|
12,203,008
|
2.81
|
$
|
3.16
|
5,069,858
|
$
|
3.46
|
Stock options vest equally over three to four years and expire
five years from the date of grant. The exercise price of
outstanding options range from $1.22
to $8.72 with a weighted average
remaining life of 2.81 years. When stock options are exercised, the
proceeds together with the compensation expense previously recorded
in contributed surplus, are added to capital stock.
The weighted average fair value of options granted during 2019,
determined using the Black-Scholes valuation method, was
$0.68 per option (year ended
December 31, 2018 – $2.55 per option). The Company applied the
following assumptions in determining the fair value of options on
the date of grant:
Years Ended December
31,
|
2019
|
2018
|
Expected life
(years)
|
3.00
|
3.00
|
Expected
volatility
|
59.09
%
|
62.88 %
|
Risk-free interest
rate
|
1.62
%
|
1.97 %
|
Expected
dividends
|
$0.00
|
$0.00
|
Expected volatility is estimated by considering historical
average share price volatility.
(b) Share Units
Years Ended December
31,
|
2019
|
2018
|
Continuity of Stock
Units
|
Deferred Share
Units
|
Performance
Share Units
|
Restricted
Share Units
|
Deferred Share
Units
|
Performance
Share Units
|
Restricted
Share Units
|
|
(#)
|
(#)
|
(#)
|
(#)
|
(#)
|
(#)
|
Balance, January
1
|
145,000
|
1,108,300
|
3,139,150
|
145,000
|
683,665
|
4,275,183
|
Granted
|
145,000
|
1,159,106
|
—
|
145,000
|
765,100
|
—
|
Exercised
|
(145,000)
|
(556,683)
|
(1,998,600)
|
(145,000)
|
(232,249)
|
(866,933)
|
Forfeited
|
—
|
(416,159)
|
(1,140,550)
|
—
|
(108,216)
|
(269,100)
|
Balance, December
31
|
145,000
|
1,294,564
|
—
|
145,000
|
1,108,300
|
3,139,150
|
|
Three Months Ended
Dec. 31,
|
Years Ended Dec.
31,
|
|
2019
|
2018
|
2019
|
2018
|
|
($)
|
($)
|
($)
|
($)
|
Expense (recovery)
from:
|
|
|
|
|
Stock
options
|
835
|
1,258
|
3,030
|
4,637
|
Deferred share
units
|
14
|
(117)
|
196
|
390
|
Performance share
units
|
499
|
35
|
1,908
|
2,324
|
Restricted share
units
|
—
|
(1,508)
|
(197)
|
4,921
|
Total stock-based
compensation expense
|
1,348
|
(332)
|
4,937
|
12,272
|
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 December 31,
2019, the liability pertaining to deferred share units was
$166 (December 31, 2018 –
$354).
In 2018, the Company expanded its performance share unit plan to
its employees. These performance share units contain a cash-based
component and an equity-based component. The cash-based component
vests over three years based on corporate financial performance
thresholds and are settled either in cash (equal to the market
value of the underlying shares at the time of vesting) or in
Company shares purchased on the open market. The equity-based
component vests over three years without any further conditions and
are settled in treasury shares issued by the Company. At
December 31, 2019, the liability pertaining to the cash-based
component of performance share units was $nil (December 31,
2018 – $200).
Prior to 2018, the Company granted 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 December 31, 2019, the liability
pertaining to restricted share units was $nil (December 31,
2018 – $3,158).
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.
5. 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, if any, 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:
For the Twelve Months
Ended December 31,
|
2019
|
2018
|
(C$000s)
|
($)
|
($)
|
Net loss
|
(156,203)
|
(26,177)
|
Adjusted for the
following:
|
|
|
Depreciation
|
261,227
|
190,475
|
Foreign exchange
losses
|
6,341
|
38,047
|
Loss on disposal of
property, plant and equipment
|
1,870
|
160
|
Impairment of
property, plant and equipment
|
2,165
|
115
|
Impairment of
inventory
|
3,744
|
7,167
|
Interest
|
85,826
|
106,630
|
Income
taxes
|
(52,226)
|
(4,592)
|
Operating
income
|
152,744
|
311,825
|
Net debt for this purpose is calculated as follows:
As at December
31,
|
2019
|
2018
|
(C$000s)
|
($)
|
($)
|
Long-term debt, net
of debt issuance costs and debt discount (note 2)
|
976,693
|
989,614
|
Lease
obligations
|
30,919
|
738
|
Less: cash and cash
equivalents
|
(42,562)
|
(51,901)
|
Net debt
|
965,050
|
938,451
|
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 December 31, 2019, the net debt to operating income
ratio was 6.32:1 (December 31, 2018 – 3.01:1) calculated on a
12-month trailing basis as follows:
For the Twelve Months
Ended December 31,
|
2019
|
2018
|
(C$000s, except
ratio)
|
($)
|
($)
|
Net debt
|
965,050
|
938,451
|
Operating
income
|
152,744
|
311,825
|
Net debt to operating
income ratio
|
6.32:1
|
3.01:1
|
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. At December 31,
2019 and December 31, 2018, the Company was in compliance with
its covenants with respect to its credit facilities.
|
Covenant
|
Actual
|
As at December
31,
|
2019
|
2019
|
Working capital ratio
not to fall below
|
1.15x
|
2.83x
|
Funded Debt to
Adjusted EBITDA not to exceed(1)(2)
|
3.00x
|
0.80x
|
Funded Debt to
Capitalization not to exceed(1)(3)
|
0.30x
|
0.08x
|
(1)
|
Funded Debt is
defined as Total Debt excluding all outstanding senior unsecured
notes and lease obligations. Total Debt includes bank loans and
long-term debt (before
unamortized debt issuance costs and debt discount) plus outstanding
letters of credit. For the purposes of the Total Debt to Adjusted
EBITDA ratio, the Funded Debt to
Capitalization Ratio and the Funded Debt to Adjusted EBITDA ratio,
the amount of Total Debt or Funded Debt, as applicable, is reduced
by the amount of cash on hand
with lenders (excluding any cash held in a segregated account for
the purposes of a potential equity cure).
|
(2)
|
Adjusted EBITDA is
defined as net income or loss for the period adjusted for interest,
taxes, depreciation and amortization, non-cash stock-based
compensation,
non-controlling interest, and gains and losses that are
extraordinary or non-recurring.
|
(3)
|
Capitalization is
Total Debt plus equity attributable to the shareholders of
Calfrac.
|
Adjusted EBITDA is defined as net income or loss for the period
less interest, taxes, depreciation and amortization, unrealized
foreign exchange losses (gains), non-cash stock-based compensation,
non-controlling interest, and gains and losses that are
extraordinary or non-recurring. Adjusted EBITDA is presented
because it gives an indication of the results from the Company's
principal business activities prior to consideration of how its
activities are financed and the impact of foreign exchange,
taxation and depreciation and amortization charges. Adjusted EBITDA
for the period was calculated as follows:
|
Three Months Ended
Dec. 31,
|
Years Ended Dec.
31,
|
|
2019
|
2018
|
2019
|
2018
|
(C$000s)
|
|
|
($)
|
($)
|
Net loss
|
(49,400)
|
(3,462)
|
(156,203)
|
(26,177)
|
Add back
(deduct):
|
|
|
|
|
Depreciation
|
68,932
|
48,522
|
261,227
|
190,475
|
Unrealized foreign
exchange losses (gains)
|
859
|
(4,345)
|
2,041
|
11,465
|
Non-recurring
realized foreign exchange losses(1)
|
—
|
—
|
—
|
29,288
|
(Gain) loss on
disposal of property, plant and equipment
|
(1,886)
|
(244)
|
1,870
|
160
|
Impairment of
property, plant and equipment (note 1)
|
2,165
|
115
|
2,165
|
115
|
Impairment of
inventory
|
3,160
|
3,978
|
3,744
|
7,167
|
Restructuring
charges
|
3,564
|
281
|
6,049
|
1,076
|
Stock-based
compensation
|
1,334
|
1,644
|
4,626
|
5,812
|
Losses attributable
to non-controlling interest
|
—
|
—
|
—
|
7,989
|
Interest
|
21,512
|
20,999
|
85,826
|
106,630
|
Income
taxes
|
(23,358)
|
(4,574)
|
(52,226)
|
(4,592)
|
Adjusted
EBITDA(2)
|
26,882
|
62,914
|
159,119
|
329,408
|
(1)
|
The Company
recognized a one-time realized foreign exchange loss resulting from
the capitalization of inter-company debt held
by its Argentinean subsidiary.
|
(2)
|
For bank covenant
purposes, EBITDA includes an additional $21,893 of lease payments
that would have been recorded as operating
expenses prior to the adoption of IFRS 16 on January 1,
2019.
|
Advances under the credit facilities are 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.
|
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 or reversal
of impairment of assets, restructuring charges, provision for
settlement of litigation, stock-based compensation, interest, and
income taxes. Interest expense is adjusted to exclude any
non-recurring charges associated with redeeming or retiring any
indebtedness prior to its maturity.
|
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
December 31, 2019, 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 $375,000 or 30 percent of the Company's
consolidated tangible assets.
As at December 31, 2019, the Company's Fixed Charge
Coverage Ratio of 1.85:1 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.
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. 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 June 30, 2022, 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.
6. 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 $9,984
(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 $9,984 (6,846 euros) cited above and the interest being
sought in respect of these orders is part of the $27,279 (18,706
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 opposition
against 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 had taken place
until the filing of the opponents' petition and/or the issuance of
the payment order. The plaintiffs filed an appeal against the above
decision which was heard on October 16,
2018 and was rejected in June
2019. The plaintiffs have filed a petition for cassation
against appeal judgment, the hearing of which has not yet been
scheduled. A hearing in respect of the order served on November 23, 2015 took place on October 31, 2018 and a decision was issued in
October 2019 accepting the Company's
opposition. The plaintiffs filed an appeal against this decision,
the hearing of which has been scheduled for March 24, 2020. A hearing in respect of the
orders served in December 2015
scheduled for September 20, 2016 was
adjourned until November 21, 2016 and
decisions were issued on January 9,
2017 accepting the Company's oppositions on a statute of
limitations basis. The plaintiffs filed appeals against the above
decisions which were heard on October 16,
2018 and were rejected in June
2019. The plaintiffs have filed petitions for cassation
against appeal judgments, the hearings of which have not yet been
scheduled.
NAPC is also the subject of a claim for approximately
$4,174 (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 $843
(578 euros), amounted to $27,279 (18,706
euros) as at December 31, 2019.
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.
7. SEGMENTED INFORMATION
The Company's activities are conducted in four geographical
segments: Canada, the United States, Russia and Argentina. 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
|
Argentina
|
Corporate
|
Consolidated
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Three Months Ended
December 31, 2019
|
|
|
|
|
|
|
Revenue
|
73,009
|
187,770
|
24,244
|
32,062
|
—
|
317,085
|
Operating income
(loss)(1)
|
3,424
|
23,594
|
(2,146)
|
5,820
|
(9,695)
|
20,997
|
Segmented
assets
|
486,067
|
773,137
|
90,727
|
175,991
|
—
|
1,525,922
|
Capital
expenditures
|
3,639
|
24,443
|
41
|
6,295
|
—
|
34,418
|
|
|
|
|
|
|
Three Months Ended
December 31, 2018
|
|
|
|
|
|
|
Revenue
|
145,085
|
279,324
|
24,892
|
49,557
|
—
|
498,858
|
Operating income
(loss)(1)
|
16,656
|
51,528
|
(260)
|
4,357
|
(10,289)
|
61,992
|
Segmented
assets
|
578,431
|
949,494
|
96,577
|
158,155
|
—
|
1,782,657
|
Capital
expenditures
|
8,924
|
16,891
|
2,275
|
3,394
|
—
|
31,484
|
|
|
|
|
|
|
|
|
Canada
|
United
States
|
Russia
|
Argentina
|
Corporate
|
Consolidated
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Year Ended
December 31, 2019
|
|
|
|
|
|
|
Revenue
|
397,583
|
930,404
|
105,807
|
187,161
|
—
|
1,620,955
|
Operating income
(loss)(1)
|
40,689
|
126,205
|
(5,005)
|
26,128
|
(35,273)
|
152,744
|
Segmented
assets
|
486,067
|
773,137
|
90,727
|
175,991
|
—
|
1,525,922
|
Capital
expenditures
|
21,978
|
85,001
|
2,933
|
29,393
|
—
|
139,305
|
|
|
|
|
|
|
|
Year Ended December 31,
2018
|
|
|
|
|
|
|
Revenue
|
650,731
|
1,296,675
|
106,819
|
202,201
|
—
|
2,256,426
|
Operating income
(loss)(1)
|
87,162
|
262,348
|
(445)
|
12,836
|
(50,076)
|
311,825
|
Segmented
assets
|
578,431
|
949,494
|
96,577
|
158,155
|
—
|
1,782,657
|
Capital
expenditures
|
42,530
|
105,074
|
5,279
|
6,881
|
—
|
159,764
|
(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,
impairment of inventory, impairment of property, plant and
equipment, interest, and income taxes.
|
|
Three Months Ended
Dec. 31,
|
Years Ended Dec.
31,
|
|
2019
|
2018
|
2019
|
2018
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
Net loss
|
(49,400)
|
(3,462)
|
(156,203)
|
(26,177)
|
Add back
(deduct):
|
|
|
|
|
Depreciation
|
68,932
|
48,522
|
261,227
|
190,475
|
Foreign exchange
(gains) losses
|
(128)
|
(3,342)
|
6,341
|
38,047
|
(Gain) loss on
disposal of property, plant and equipment
|
(1,886)
|
(244)
|
1,870
|
160
|
Impairment of
property, plant and equipment
|
2,165
|
115
|
2,165
|
115
|
Impairment of
inventory
|
3,160
|
3,978
|
3,744
|
7,167
|
Interest
|
21,512
|
20,999
|
85,826
|
106,630
|
Income
taxes
|
(23,358)
|
(4,574)
|
(52,226)
|
(4,592)
|
Operating
income
|
20,997
|
61,992
|
152,744
|
311,825
|
Operating income does not have a standardized meaning under IFRS
and may not be comparable to similar measures used by other
companies.
8. SUBSEQUENT EVENT
On February 24, 2020, the Company
completed an exchange offer of US$120,000 of new 10.875% second lien secured
notes ("New Notes") due March 15,
2026 to holders of its existing 8.50% senior unsecured notes
("Old Notes") due June 15, 2026. The
New Notes are secured by a second lien on the same assets that
secure obligations under the Company's existing senior secured
credit facility. The exchange was completed at an average exchange
price of US$550 per each US$1,000 of Old Notes resulting in US$218,182 being exchanged for US$120,000 of New Notes. The exchange will result
in reduced leverage of approximately US$98,200 and a reduction of US$5,500 in annual debt service costs.
SOURCE Calfrac Well Services Ltd.