CALGARY, AB,
March 4, 2021
/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, 2020.
HIGHLIGHTS
|
Three Months Ended December 31,
|
Years Ended December 31,
|
|
2020
|
2019
|
Change
|
2020
|
2019
|
Change
|
(C$000s, except per share and unit
data)
|
($)
|
($)
|
(%)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
|
|
|
Revenue
|
180,722
|
317,085
|
(43)
|
705,436
|
1,620,955
|
(56)
|
Operating
income(1)
|
15,597
|
20,997
|
(26)
|
21,997
|
152,744
|
(86)
|
Per share –
basic(2)
|
1.91
|
7.25
|
(74)
|
5.21
|
52.83
|
(90)
|
Per share –
diluted(2)
|
0.27
|
7.22
|
(96)
|
0.41
|
52.50
|
(99)
|
Adjusted
EBITDA(1)
|
13,715
|
26,882
|
(49)
|
23,809
|
159,119
|
(85)
|
Per share –
basic(2)
|
1.68
|
9.29
|
(82)
|
5.64
|
55.03
|
(90)
|
Per share –
diluted(2)
|
0.24
|
9.25
|
(97)
|
0.44
|
54.69
|
(99)
|
Net income
(loss)
|
125,897
|
(49,400)
|
NM
|
(324,235)
|
(156,203)
|
108
|
Per share –
basic(2)
|
15.43
|
(17.07)
|
NM
|
(76.78)
|
(54.03)
|
42
|
Per share –
diluted(2)
|
2.19
|
(17.07)
|
NM
|
(76.78)
|
(54.03)
|
42
|
Working capital (end
of period)
|
|
|
|
161,448
|
248,772
|
(35)
|
Total equity (end of
period)
|
|
|
|
410,234
|
368,623
|
11
|
Weighted average
common shares outstanding (000s)
|
|
|
|
|
|
|
Basic(2)
|
8,158
|
2,894
|
182
|
4,223
|
2,891
|
46
|
Diluted(2)
|
57,598
|
2,907
|
NM
|
54,234
|
2,909
|
NM
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Comparative amounts were adjusted to reflect the
Company's fifty-to-one common share consolidated that occurred on
December 18, 2020.
|
PRESIDENT'S MESSAGE
Calfrac's
President and Chief Operating Officer, Lindsay Link commented on the results:
"Calfrac's operations delivered solid improvement in the fourth
quarter, both in terms of field activity and financial performance.
This improvement has built a strong foundation for our 2021
outlook, which is positive in all of our operating areas. We also
completed our recapitalization during the quarter, and the
significant reduction in both total debt and interest along with
incremental liquidity has vastly improved our financial position,
and with it, our ability to respond to changing industry
conditions. 2020 was a challenging year on all fronts, and it is
only due to the hard work and dedication of Team Calfrac that we
were able to exit the year in the position we did. Our focus on
delivering on our Brand Promise has
been unwavering and I am excited to see how we build on our
successes in 2021."
During the quarter, Calfrac:
- increased job activity in all areas while maintaining
safe and efficient performance;
- secured contracted work volumes with a new client in
Argentina for a large fracturing
crew; and
- completed the restructuring of its balance
sheet.
Also during the quarter, Calfrac's Board of Directors
approved the Company's capital budget for 2021 at $55.0 million.
In conjunction with the closing of the Company's
Recapitalization Transaction, two new directors were added to
Calfrac's board, Messrs. George
Armoyan and Anuroop Duggal,
both representing significant new investors in Calfrac.
Concurrently, Messrs. Kevin Baker
and Jamie Blair retired from
Calfrac's board with the Company's deep appreciation for their many
years of service and best wishes for the future.
FOURTH QUARTER 2020 OVERVIEW
In the fourth quarter of 2020, the Company:
- generated revenue of $180.7
million, a decrease of 43 percent from the fourth quarter in
2019, resulting primarily from lower pricing and activity in
Canada and the United States;
- completed the exchange of the Company's remaining
US$431.8 million senior unsecured
notes, including all accrued and unpaid interest,for
common shares of the Company, in addition to the issuance of
$60.0 million of 1.5 lien senior
secured payment-in-kind convertible notes ("1.5 Lien Notes"). These
notes bear interest at 10.0 percent per annum and are due on
December 18, 2023;
- reported adjusted EBITDA of $13.7
million versus $26.9 million
in the fourth quarter of 2019;
- reported net income of $125.9
million or $2.19 per share
diluted, which included a gain on the settlement of debt of
$226.3 million and a deferred income
tax expense of $54.2 million,
compared to a net loss of $49.4
million or $17.07 per share
diluted in 2019;
- reported period-end working capital of $161.4 million versus $248.8 million at December
31, 2019, which is consistent with the reduced operating
footprint in Canada and
the United States; and
- incurred capital expenditures of $6.5 million primarily to support the Company's
United States fracturing
operations.
Subsequent to the end of fourth quarter of 2020, the
Company announced the modification of its prior disclosure on one
matter relating to voting procedures for the Plan of Arrangement,
where Calfrac recently became aware that one institutional
shareholder of the Company purchased approximately $1.0 million of 1.5 Lien Notes pursuant to the
pro rata offering made to qualified holders of Calfrac's senior
unsecured notes. As disclosed in the Company's March 1, 2021 press release, Calfrac and the
institutional shareholder intend to rescind the subscription and
cancel the applicable 1.5 Lien Notes following which the
institutional shareholder will be returned its initial purchase
price. Calfrac has advised applicable regulators and announced its
intention to make an application to the Court of Queen's Bench of
Alberta in relation to this
matter.
CONSOLIDATED HIGHLIGHTS
Three Months Ended
December 31,
|
2020
|
2019
|
Change
|
(C$000s, except operational
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
180,722
|
317,085
|
(43)
|
Expenses
|
|
|
|
Operating
|
154,582
|
281,278
|
(45)
|
Selling, general and
administrative (SG&A)
|
10,543
|
14,810
|
(29)
|
|
165,125
|
296,088
|
(44)
|
Operating
income(1)
|
15,597
|
20,997
|
(26)
|
Operating income
(%)
|
8.6
|
6.6
|
30
|
Adjusted
EBITDA(1)
|
13,715
|
26,882
|
(49)
|
Adjusted EBITDA
(%)
|
7.6
|
8.5
|
(11)
|
Fracturing revenue
per job ($)
|
33,022
|
29,039
|
14
|
Number of fracturing
jobs
|
4,887
|
10,104
|
(52)
|
Active pumping
horsepower, end of period (000s)
|
901
|
1,269
|
(29)
|
Idle pumping
horsepower, end of period (000s)
|
444
|
141
|
215
|
Total pumping
horsepower, end of period (000s)
|
1,345
|
1,410
|
(5)
|
Coiled tubing revenue
per job ($)
|
33,754
|
27,018
|
25
|
Number of coiled
tubing jobs
|
354
|
609
|
(42)
|
Active coiled tubing
units, end of period (#)
|
17
|
20
|
(15)
|
Idle coiled tubing
units, end of period (#)
|
10
|
8
|
25
|
Total coiled tubing
units, end of period (#)
|
27
|
28
|
(4)
|
Cementing revenue per
job ($)
|
43,697
|
47,379
|
(8)
|
Number of cementing
jobs
|
85
|
128
|
(34)
|
Active cementing
units, end of period (#)
|
12
|
13
|
(8)
|
Idle cementing units,
end of period (#)
|
4
|
6
|
(33)
|
Total cementing
units, end of period (#)
|
16
|
19
|
(16)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
Revenue in the fourth quarter of 2020 was $180.7 million, a decrease of 43 percent from the
same period in 2019. The lower revenue was mainly due to the
fracturing job count decreasing by 52 percent, resulting primarily
from lower activity in North
America. Cementing activity in Argentina was also lower by 34 percent, while
consolidated coiled tubing activity decreased by 42 percent as a
result of lower activity in Canada, Argentina and Russia. Fracturing revenue per job increased
by 14 percent due to changes in job mix in Canada.
Since the end of 2019, Calfrac has decreased its active
fracturing footprint by over 50 percent, 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. The Company's
immediate and market relevant cost reduction efforts ensured that
its operating footprint was aligned with the 52 percent decline in
job count experienced in the fourth quarter in 2020, and has
positioned the Company to generate positive operating income
despite significantly lower revenue in the quarter.
Adjusted EBITDA of $13.7
million for the fourth quarter of 2020 decreased from
$26.9 million in the comparable
period in 2019, primarily as a result of the sharp decline in
activity and pricing in the United
States. This was partially offset by better
utilization for its operating fleets in Russia and cost reduction measures implemented
across the Company during 2020.
Net income was $125.9
million or $2.19 per share
diluted, which included a gain on the settlement of debt of
$226.3 million and a deferred income
tax expense of $54.2 million,
compared to a net loss of $49.4
million or $17.07 per share
diluted in the same period last year.
Three Months
Ended
|
December 31,
|
September
30,
|
Change
|
|
2020
|
2020
|
|
(C$000s, except operational
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
180,722
|
127,776
|
41
|
Expenses
|
|
|
|
Operating
|
154,582
|
109,708
|
41
|
SG&A
|
10,543
|
10,059
|
5
|
|
165,125
|
119,767
|
38
|
Operating income
(loss)(1)
|
15,597
|
8,009
|
95
|
Operating income
(loss) (%)
|
8.6
|
6.3
|
37
|
Adjusted
EBITDA(1)
|
13,715
|
8,467
|
62
|
Adjusted EBITDA
(%)
|
7.6
|
6.6
|
15
|
Fracturing revenue
per job ($)
|
33,022
|
33,382
|
(1)
|
Number of fracturing
jobs
|
4,887
|
3,527
|
39
|
Active pumping
horsepower, end of period (000s)
|
901
|
840
|
7
|
Idle pumping
horsepower, end of period (000s)
|
444
|
505
|
(12)
|
Total pumping
horsepower, end of period (000s)
|
1,345
|
1,345
|
—
|
Coiled tubing revenue
per job ($)
|
33,754
|
22,795
|
48
|
Number of coiled
tubing jobs
|
354
|
364
|
(3)
|
Active coiled tubing
units, end of period (#)
|
17
|
15
|
13
|
Idle coiled tubing
units, end of period (#)
|
10
|
12
|
(17)
|
Total coiled tubing
units, end of period (#)
|
27
|
27
|
—
|
Cementing revenue per
job ($)
|
43,697
|
51,000
|
(14)
|
Number of cementing
jobs
|
85
|
27
|
215
|
Active cementing
units, end of period (#)
|
12
|
12
|
—
|
Idle cementing units,
end of period (#)
|
4
|
4
|
—
|
Total cementing
units, end of period (#)
|
16
|
16
|
—
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
Fourth-quarter revenue in 2020 of $180.7 million represented an increase of 41
percent from the third quarter of 2020, primarily due to improved
fracturing activity in all of the areas where Calfrac operates.
Revenue per fracturing job was 1 percent lower compared with the
third quarter of 2020 due to the impact of lower pricing and job
mix in the United States and a
lower rouble in Russia, offset by
job mix in Canada and Argentina.
In Canada, revenue
increased by 19 percent from the third quarter to $53.3 million in the fourth quarter due to a
rebound in customer activity resulting from improved oil and
natural gas prices. Operating income as a percentage of revenue was
17 percent, compared to 15 percent in the third quarter.
Third-quarter operating income included a non-cash
termination charge of $2.1 million in
order to exit a take-or-pay product purchase commitment.
In the United States,
revenue in the fourth quarter of 2020 was $67.3 million, or 45 percent higher than the
third quarter. The improvement was primarily activity driven,
as producers restarted programs before year-end, which
allowed the Company to reactivate three incremental fleets later in
the fourth quarter. Operating income was $1.0 million in the fourth quarter compared to
$2.8 million in the third quarter of
2020. Operating results included $3.9
million of R&M expenses and other costs associated with
the reactivation of crews for which a full quarter of revenue was
not achieved.
In Russia, revenue of
$26.9 million in the fourth quarter
of 2020 was 6 percent lower than the third quarter due to a weaker
Rouble. Operating income decreased by $1.6
million, due primarily to higher operating costs associated
with winter operations in Western
Siberia.
In Argentina, revenue in
the fourth quarter of 2020 increased to $33.1 million from $8.1
million in the third quarter. The higher revenue base
resulted in operating income of $5.5
million, compared to an operating loss of $3.9 million in the third quarter. The
improvement in revenue and operating income was primarily
attributed to the resumption of normal operations in
the Vaca Muerta shale play, post government mandated COVID-19
shutdowns.
Adjusted EBITDA of $13.7
million for the fourth quarter of 2020 increased from
$8.5 million in the third quarter of
2020, primarily due to improved utilization in Argentina.
BUSINESS UPDATE AND
OUTLOOK
Calfrac's operating results during the
fourth quarter were driven by improved activity in all operating
regions, including a significant increase in activity in
Argentina as it returned to more
typical activity levels after a government-mandated shutdown of
operations during the second and third quarters.
CANADA
In Canada, activity remained strong throughout
the quarter leading to a sequential increase in revenue and
operating income. In particular, activity levels in December were
only marginally impacted due to weather and Christmas holidays.
This high utilization and the Company's continued focus on cost
management, combined with the impact of the government wage subsidy
program, resulted in a year-over-year and sequential improvement in
profitability.
Calfrac's Canadian division has increased its operating
footprint to four fracturing crews and four coiled tubing units for
the first quarter of 2021 in order to service increased demand from
its major clients. It is not expected that this footprint will
continue throughout the year, and Calfrac plans to revert back to
three fracturing crews when work volumes subside. Excluding the
impact of wage subsidies on reported results, pricing in the
Canadian market remains below the level required to add fracturing
capacity on a permanent basis. Consequently, the Company does not
plan to add any further fracturing fleets to service spot market
demand until the pricing for its services and the resulting
incremental returns improve from current levels.
Second-quarter activity is expected to decrease from the
first quarter due to the seasonal spring break-up, but the Company
is anticipating that its core clients will remain active throughout
2021, which is expected to drive modest growth over 2020. For the
first time in a number of years, the prices for light oil and
natural gas in Canada are
generating acceptable returns for producers. These improved
economics may drive a further increase in demand for the Company's
services as the year progresses.
UNITED
STATES
During the fourth quarter,
Calfrac's operations in the United
States accelerated more rapidly than had been anticipated as
producers restarted programs before year-end. Activity gains were
focused primarily in North Dakota
and Texas, areas that are expected
to represent the majority of Calfrac's operating activity in 2021.
Calfrac is currently staffed to operate seven fracturing fleets in
the United States, the result of
the accelerated restart of two incremental fleets later in the
fourth quarter in addition to the planned restart of one fleet in
November.
While commodity prices have improved in the early part of
2021, producers remained committed to maximizing free cash flow
generation versus a growth-focused strategy. As a result, Calfrac
plans to only add incremental fracturing capacity when both the
economic return and the duration of the client's work programs meet
the Company's internal requirements. Many industry observers expect
that activity may increase throughout 2021, but significantly below
the levels that were experienced in 2018 and 2019. As a result,
Calfrac does not currently plan on adding further equipment to its
operating footprint, and will continue to explore opportunities to
improve utilization and financial returns.
RUSSIA
Calfrac's financial
performance in Russia during the
fourth quarter was very strong, although the shift to winter
operating conditions did reduce activity levels in December. This
decrease in equipment utilization is expected to continue
throughout most of the first quarter until the winter weather
abates. Calfrac is currently operating five fracturing fleets in
Western Siberia along with four
coiled tubing crews. Demand for the Company's services in
Russia has increased and there may
be future opportunities to reactivate additional equipment as the
year progresses.
ARGENTINA
In Argentina, Calfrac's operations improved
significantly in the fourth quarter as activity rebounded to
pre-shutdown levels, aided by the restart of operations of the
Company's shale fracturing fleet in the Vaca Muerta shale play in
November. The recent introduction of a government program designed
to incentivize domestic natural gas production is also anticipated
to drive further activity improvement in Neuquén during 2021.
Calfrac's current contracted work volumes for the year combined
with recent changes in the competitive landscape in Argentina provide additional support for
year-over-year growth in Argentina's operating and financial
performance.
CORPORATE
After completing a
lengthy and complex recapitalization process during the fourth
quarter, Calfrac's corporate focus for 2021 is to continue to
support the Company's operations while prudently managing all
aspects of its cost structure. The Company continues to leverage
its new Enterprise Resource Planning (ERP) system that was
implemented during the second quarter of 2020 and is committed to
evaluating other initiatives to drive further operating
efficiencies, including technologies that reduce the cost and
environmental impact of its operations. As such, Calfrac has
dedicated approximately $5.0 million
of its 2021 capital budget of $55.0
million to add dual fuel capability to certain of its
existing fracturing pumps in North
America.
FINANCIAL OVERVIEW – THREE MONTHS ENDED
DECEMBER 31, 2020 VERSUS 2019
CANADA
Three Months Ended
December 31,
|
2020
|
2019
|
Change
|
(C$000s, except operational
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
53,347
|
73,009
|
(27)
|
Expenses
|
|
|
|
Operating
|
42,403
|
67,171
|
(37)
|
SG&A
|
1,870
|
2,414
|
(23)
|
|
44,273
|
69,585
|
(36)
|
Operating
income(1)
|
9,074
|
3,424
|
165
|
Operating income
(%)
|
17.0
|
4.7
|
262
|
Fracturing revenue
per job ($)
|
28,525
|
15,348
|
86
|
Number of fracturing
jobs
|
1,697
|
4,160
|
(59)
|
Active pumping
horsepower, end of period (000s)
|
202
|
236
|
(14)
|
Idle pumping
horsepower, end of period (000s)
|
73
|
36
|
103
|
Total pumping
horsepower, end of period (000s)
|
275
|
272
|
1
|
Coiled tubing revenue
per job ($)
|
19,894
|
21,741
|
(8)
|
Number of coiled
tubing jobs
|
242
|
405
|
(40)
|
Active coiled tubing
units, end of period (#)
|
8
|
11
|
(27)
|
Idle coiled tubing
units, end of period (#)
|
5
|
3
|
67
|
Total coiled tubing
units, end of period (#)
|
13
|
14
|
(7)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
REVENUE
Revenue from Calfrac's
Canadian operations during the fourth quarter of 2020 was
$53.3 million compared to
$73.0 million in the same period of
2019. The lower revenue was mainly related to a smaller operating
footprint as operator activity was relatively strong in October and
December with a slight pullback in activity experienced in
November. In the fourth quarter of 2020, the number of fracturing
jobs was 59 percent lower than the comparable period in 2019 as a
higher proportion of customer activity was in the Montney shale play, which has larger average
job sizes but a lower number of stages compared to the Viking oil
play, which was more active during the fourth quarter of 2019.
Revenue per job increased by 86 percent, mainly due to job mix,
combined with a shift in customer mix, as the majority of activity
completed in the quarter was focused on larger pad style jobs. The
number of coiled tubing jobs decreased by 40 percent from the
fourth quarter in 2019 as the number of coiled tubing crews was
reduced, while revenue per job decreased by 8 percent due to job
mix.
OPERATING INCOME
Operating income
in Canada during the fourth
quarter of 2020 was $9.1 million
compared to $3.4 million in the same
period of 2019. Despite a 27 percent decrease in revenue, the
Company's operating income was 17 percent compared to 5 percent in
the comparable quarter. The improved operating income was due to a
combination of strong equipment utilization through the majority of
the quarter, the continuation of cost savings initiatives,
primarily related to headcount reductions, and the $2.8 million Canadian Emergency Wage Subsidy that
was received and recorded as a reduction of operating costs during
the quarter. In addition, a $0.7
million bad-debt provision was recorded during the quarter,
while the comparable quarter in 2019 included $0.7 million in restructuring costs.
UNITED
STATES
Three Months Ended
December 31,
|
2020
|
2019
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
67,283
|
187,770
|
(64)
|
Expenses
|
|
|
|
Operating
|
63,689
|
160,012
|
(60)
|
SG&A
|
2,590
|
4,164
|
(38)
|
|
66,279
|
164,176
|
(60)
|
Operating
income(1)
|
1,004
|
23,593
|
(96)
|
Operating income
(%)
|
1.5
|
12.6
|
(88)
|
Fracturing revenue
per job ($)
|
26,838
|
34,402
|
(22)
|
Number of fracturing
jobs
|
2,507
|
5,435
|
(54)
|
Active pumping
horsepower, end of period (000s)
|
516
|
830
|
(38)
|
Idle pumping
horsepower, end of period (000s)
|
354
|
93
|
281
|
Total pumping
horsepower, end of period (000s)
|
870
|
923
|
(6)
|
Active coiled tubing
units, end of period (#)
|
—
|
—
|
—
|
Idle coiled tubing
units, end of period (#)
|
1
|
1
|
—
|
Total coiled tubing
units, end of period (#)
|
1
|
1
|
—
|
Active cementing
units, end of period (#)
|
—
|
—
|
—
|
Idle cementing units,
end of period (#)
|
3
|
5
|
(40)
|
Total cementing
units, end of period (#)
|
3
|
5
|
(40)
|
US$/C$ average
exchange rate(2)
|
1.3030
|
1.3200
|
(1)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Revenue from Calfrac's
United States operations decreased
to $67.3 million during the fourth
quarter of 2020 from $187.8 million
in the comparable quarter of 2019. The significant decrease in
revenue can be attributed to a combination of a 54 percent
reduction in the number of fracturing jobs completed and a 22
percent decrease in revenue per job period-over-period. Activity
was lower in all operating regions compared to the same period in
2019 and the Company responded by reducing its operating footprint
during 2020 from a peak of 14 fleets in the first quarter, down to
four fleets to start the fourth quarter. The Company was able
reactivate three fleets during the fourth quarter, in response to
customer requirements, although these additional fleets did not
generate revenue for the full quarter. Pricing in all operating
areas continued to be challenged during the fourth quarter despite
an improvement in oil prices during the quarter.
OPERATING INCOME
The Company's
United States operations generated
operating income of $1.0 million
during the fourth quarter of 2020 compared to $23.6 million in the same period in 2019. The
decrease in operating income was due to the significant reduction
in revenue compared to the fourth quarter of 2019 as the Company
reduced its operating footprint in response to the deterioration in
the market. The lower operating income as a percentage of revenue
was the result of lower pricing during the quarter along with
$3.9 million in costs associated with
the reactivation of crews for which a full quarter of revenue was
not achieved. SG&A expenses decreased by 38 percent, primarily
due to headcount and compensation reductions that were enacted in
2020. In addition, the operating results for the fourth quarter of
2019 included a $10.2 million
reduction to operating expenses related to a change in the
capitalization of major components policy. This reflected the
fiscal year total of which approximately $8.2 million related to prior quarters. The
fourth quarter of 2019 recorded $0.8
million in restructuring costs.
RUSSIA
Three Months Ended
December 31,
|
2020
|
2019
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
26,949
|
24,244
|
11
|
Expenses
|
|
|
|
Operating
|
21,843
|
25,688
|
(15)
|
SG&A
|
660
|
702
|
(6)
|
|
22,503
|
26,390
|
(15)
|
Operating income
(loss)(1)
|
4,446
|
(2,146)
|
NM
|
Operating income
(loss) (%)
|
16.5
|
(8.9)
|
NM
|
Fracturing revenue
per job ($)
|
74,317
|
83,972
|
(11)
|
Number of fracturing
jobs
|
324
|
263
|
23
|
Active pumping
horsepower, end of period (000s)
|
65
|
65
|
—
|
Idle pumping
horsepower, end of period (000s)
|
12
|
12
|
—
|
Total pumping
horsepower, end of period (000s)
|
77
|
77
|
—
|
Coiled tubing revenue
per job ($)
|
47,838
|
46,940
|
2
|
Number of coiled
tubing jobs
|
60
|
46
|
30
|
Active coiled tubing
units, end of period (#)
|
4
|
3
|
33
|
Idle coiled tubing
units, end of period (#)
|
3
|
4
|
(25)
|
Total coiled tubing
units, end of period (#)
|
7
|
7
|
—
|
Rouble/C$ average
exchange rate(2)
|
0.0171
|
0.0207
|
(17)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Revenue from Calfrac's
Russian operations increased by 11 percent during the fourth
quarter of 2020 to $26.9 million from
$24.2 million in the corresponding
three-month period of 2019. The increase in revenue was
attributable to a 23 percent increase in fracturing activity as a
higher percentage of multi-stage wells were completed in the
Erginskoye field in Western
Siberia. Revenue per fracturing job decreased by 11 percent
due to a 17 percent decline in the Russian rouble, offset partially
by the completion of larger jobs. Coiled tubing activity increased
by 30 percent, primarily due to the Company operating one
additional coiled tubing unit as compared to the same period in
2019. Despite the decline in the Russian rouble, revenue per coiled
tubing job was 2 percent higher than the comparable quarter,
primarily due to a higher percentage of milling jobs completed in
the Erginskoye field, which increased the average duration of
jobs.
OPERATING INCOME (LOSS)
The
Company's Russian division generated operating income of
$4.4 million during the fourth
quarter of 2020, versus an operating loss of $2.1 million in the comparable quarter in 2019.
The improved operating performance was primarily due to better
utilization of its operating fleets, combined with the continuation
of cost reductions, primarily related to reduced headcount and cost
savings on the price of fuel.
ARGENTINA
Three Months Ended
December 31,
|
2020
|
2019
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
33,143
|
32,062
|
3
|
Expenses
|
|
|
|
Operating
|
26,344
|
26,819
|
(2)
|
SG&A
|
1,323
|
(577)
|
NM
|
|
27,667
|
26,242
|
5
|
Operating (loss)
income(1)
|
5,476
|
5,820
|
(6)
|
Operating (loss)
income (%)
|
16.5
|
18.2
|
(9)
|
Fracturing revenue
per job ($)
|
60,188
|
83,330
|
(28)
|
Number of fracturing
jobs
|
359
|
246
|
46
|
Active pumping
horsepower, end of period (000s)
|
118
|
138
|
(14)
|
Idle pumping
horsepower, end of period (000s)
|
5
|
—
|
NM
|
Total pumping
horsepower, end of period (000s)
|
123
|
138
|
(11)
|
Coiled tubing revenue
per job ($)
|
82,005
|
34,743
|
136
|
Number of coiled
tubing jobs
|
52
|
158
|
(67)
|
Active coiled tubing
units, end of period (#)
|
5
|
6
|
(17)
|
Idle coiled tubing
units, end of period (#)
|
1
|
—
|
NM
|
Total coiled tubing
units, end of period (#)
|
6
|
6
|
—
|
Cementing revenue per
job ($)
|
43,697
|
47,379
|
(8)
|
Number of cementing
jobs
|
85
|
128
|
(34)
|
Active cementing
units, end of period (#)
|
12
|
13
|
(8)
|
Idle cementing units,
end of period (#)
|
1
|
1
|
—
|
Total cementing
units, end of period (#)
|
13
|
14
|
(7)
|
US$/C$ average
exchange rate(2)
|
1.3030
|
1.3200
|
(1)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Calfrac's Argentinean
operations generated total revenue of $33.1
million during the fourth quarter of 2020 compared to
$32.1 million in the comparable
quarter in 2019. Operations increased significantly during the
fourth quarter following the recommencement of activity in the
Neuquén region, which resulted in revenue being comparable with the
fourth quarter of 2019. The Company resumed fracturing activity in
the Vaca Muerta shale play with activity being consistent with
fourth-quarter 2019 levels. The 46 percent increase in the number
of completed fracturing jobs and the 28 percent decrease in
fracturing revenue per job was primarily due to changes in job mix.
Cementing activity decreased by 34 percent from the comparable
quarter in 2019, primarily due to a slower restart of operations in
southern Argentina. Coiled tubing
activity decreased by 67 percent primarily due to changes in job
mix, but was offset partially by higher subcontractor revenue due
to a change in customer mix.
OPERATING INCOME
The Company's
operations in Argentina generated
an operating income of $5.5 million
during the fourth quarter of 2020, consistent with the comparable
quarter of 2019. The Company was able to significantly improve its
operating income from the third quarter of 2020 due to a
recommencement of fracturing activity in the Vaca Muerta shale play
following the government-mandated shutdown of oilfield activity in
response to the COVID-19 pandemic. SG&A expenses were
$1.9 million higher than the
comparable quarter in 2019 primarily due to the reversal of a
US$2.3 million stamp tax accrual
related to terminated customer contracts that was recorded in 2019.
Excluding this one time item, SG&A expenses were lower than the
fourth quarter of 2019 primarily due to a reduction in
headcount.
CORPORATE
Three Months Ended
December 31,
|
2020
|
2019
|
Change
|
(C$000s)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Expenses
|
|
|
|
Operating
|
303
|
1,588
|
(81)
|
SG&A
|
4,100
|
8,107
|
(49)
|
|
4,403
|
9,695
|
(55)
|
Operating
loss(1)
|
(4,403)
|
(9,695)
|
(55)
|
% of
Revenue
|
2.4
|
3.1
|
(23)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
OPERATING LOSS
Corporate expenses
for the fourth quarter of 2020 were $4.4
million compared to $9.7
million in the fourth quarter of 2019. The decrease was
primarily due to lower personnel costs resulting from headcount and
compensation reductions, combined with $0.4
million in government subsidies received during the fourth
quarter of 2020. The Company's stock-based compensation expense was
$1.0 million lower than the fourth
quarter in 2019 primarily due to a lower average share price during
2020. Additionally, the fourth quarter of 2019 included
$1.9 million of restructuring costs,
while no provision was recorded in the same period of
2020.
DEPRECIATION
For the three months
ended December 31, 2020, depreciation expense decreased by
$38.1 million to $30.8 million from $68.9
million in the corresponding quarter in 2019. During the
first six months of 2020, the Company recorded PP&E impairment
charges of $227.2 million which
resulted in the reduction of depreciation expense during the fourth
quarter. The year-over-year decrease in capital expenditures
relating to major component purchases, which have a shorter useful
life and a corresponding higher rate of depreciation, also
contributed to the decrease in fourth-quarter depreciation expense.
The fourth quarter in 2019 included $8.8
million of additional depreciation resulting from changes in
capitalization thresholds in that quarter.
FOREIGN EXCHANGE GAINS AND
LOSSES
The Company recorded a foreign exchange
loss of $5.7 million during the
fourth quarter of 2020, versus a gain of $0.1 million in the comparative three-month
period of 2019. 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 foreign
exchange loss during the fourth quarter was primarily due to the
revaluation of net monetary assets that were held in U.S. dollars
as the Canadian dollar strengthened relative to the U.S.
dollar.
INTEREST
The Company's net interest
expense of $24.9 million for the
fourth quarter of 2020 was $3.4
million higher than the comparable period in 2019. The
increase in interest expense was primarily due to the write-off of
$7.4 million in deferred finance
costs associated with the senior unsecured notes that were settled
in conjunction with the Recapitalization Transaction. This increase
was partially offset by lower cash interest expense resulting from
the debt exchange that was completed during the first quarter in
2020, which reduced debt by approximately $130.0 million and the Recapitalization
Transaction that was completed on December
18, 2020.
INCOME TAXES
The Company recorded
an income tax expense of $54.8
million during the fourth quarter of 2020 compared to a
recovery of $23.4 million in the
comparable period of 2019. The deferred tax expense of $54.2 million was recorded due to the utilization
of tax basis in the United States
as a result of the Recapitalization Transaction. The current income
tax expense of $0.6 million was due
to current tax obligations in Russia and certain state taxes in the United States as well as withholding taxes
recorded in Canada.
IMPAIRMENT
The Company tested each
of its CGUs for potential impairment at December 31, 2020 and determined that there was
no impairment. The impairment losses by CGU recorded
during the three months ended December 31,
2020 and the comparative period are as follows:
|
Three Months Ended Dec. 31,
|
|
2020
|
2019
|
(C$000s)
|
($)
|
($)
|
Canada
|
—
|
1,921
|
United
States
|
—
|
244
|
|
—
|
2,165
|
SUMMARY OF QUARTERLY RESULTS
Three Months
Ended
|
Mar 31,
|
Jun. 30,
|
Sep. 30,
|
Dec. 31,
|
Mar. 31,
|
Jun. 30,
|
Sep. 30,
|
Dec. 31,
|
|
2019
|
2019
|
2019
|
2019
|
2020
|
2020
|
2020
|
2020
|
(C$000s, except per share and operating
data)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
(unaudited)
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
Revenue
|
475,012
|
429,638
|
399,220
|
317,085
|
305,515
|
91,423
|
127,776
|
180,722
|
Operating income
(loss)(1)
|
43,623
|
41,103
|
47,021
|
20,997
|
5,698
|
(7,307)
|
8,009
|
15,597
|
Per share –
basic(2)
|
15.10
|
14.23
|
16.25
|
7.25
|
1.97
|
(2.52)
|
2.76
|
1.91
|
Per share –
diluted(2)
|
14.92
|
14.07
|
16.18
|
7.22
|
1.96
|
(2.52)
|
2.75
|
0.27
|
Adjusted
EBITDA(1)
|
44,086
|
45,123
|
43,028
|
26,882
|
6,812
|
(5,185)
|
8,467
|
13,715
|
Per share –
basic(2)
|
15.26
|
15.62
|
14.87
|
9.29
|
2.35
|
(1.79)
|
2.91
|
1.68
|
Per share –
diluted(2)
|
15.07
|
15.45
|
14.80
|
9.25
|
2.34
|
(1.79)
|
2.91
|
0.24
|
Net income
(loss)
|
(36,334)
|
(41,045)
|
(29,424)
|
(49,400)
|
(122,857)
|
(277,275)
|
(50,000)
|
125,897
|
Per share –
basic(2)
|
(12.58)
|
(14.21)
|
(10.17)
|
(17.07)
|
(42.38)
|
(95.61)
|
(17.20)
|
15.43
|
Per share –
diluted(2)
|
(12.58)
|
(14.21)
|
(10.17)
|
(17.07)
|
(42.38)
|
(95.61)
|
(17.20)
|
2.19
|
Capital
expenditures
|
28,218
|
37,784
|
38,885
|
34,418
|
29,283
|
6,068
|
2.792
|
6,487
|
Working capital (end
of period)
|
276,785
|
291,056
|
257,189
|
248,772
|
233,125
|
157,165
|
127.989
|
161,448
|
Total equity (end of
period)
|
481,675
|
443,361
|
414,195
|
368,623
|
239,099
|
(34,195)
|
(81.033)
|
410,234
|
|
|
|
|
|
|
|
|
|
Operating (end of period)
|
|
|
|
|
|
|
|
|
Active pumping
horsepower (000s)
|
1,344
|
1,346
|
1,337
|
1,269
|
1,242
|
780
|
840
|
901
|
Idle pumping
horsepower (000s)
|
36
|
59
|
72
|
141
|
174
|
572
|
505
|
444
|
Total pumping
horsepower (000s)
|
1,380
|
1,405
|
1,409
|
1,410
|
1,416
|
1,352
|
1,345
|
1,345
|
Active coiled tubing
units (#)
|
21
|
21
|
21
|
20
|
20
|
16
|
15
|
17
|
Idle coiled tubing
units (#)
|
8
|
8
|
8
|
8
|
7
|
11
|
12
|
10
|
Total coiled tubing
units (#)
|
29
|
29
|
29
|
28
|
27
|
27
|
27
|
27
|
Active cementing
units (#)
|
11
|
14
|
14
|
13
|
13
|
13
|
12
|
12
|
Idle cementing units
(#)
|
12
|
9
|
9
|
6
|
3
|
3
|
4
|
4
|
Total cementing units
(#)
|
23
|
23
|
23
|
19
|
16
|
16
|
16
|
16
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Comparative amounts were adjusted to reflect the
Company's fifty-to-one common share consolidated that occurred on
December 18, 2020.
|
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, 2020
VERSUS 2019
CANADA
Years Ended December
31,
|
2020
|
2019
|
Change
|
(C$000s, except operational
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
230,448
|
397,583
|
(42)
|
Expenses
|
|
|
|
Operating
|
188,656
|
345,315
|
(45)
|
Selling, general and
administrative (SG&A)
|
7,924
|
11,579
|
(32)
|
|
196,580
|
356,894
|
(45)
|
Operating
income(1)
|
33,868
|
40,689
|
(17)
|
Operating income
(%)
|
14.7
|
10.2
|
44
|
Fracturing revenue
per job ($)
|
19,844
|
16,573
|
20
|
Number of fracturing
jobs
|
10,508
|
21,046
|
(50)
|
Active pumping
horsepower, end of period (000s)
|
202
|
236
|
(14)
|
Idle pumping
horsepower, end of period (000s)
|
73
|
36
|
103
|
Total pumping
horsepower, end of period (000s)
|
275
|
272
|
1
|
Coiled tubing revenue
per job ($)
|
19,563
|
19,839
|
(1)
|
Number of coiled
tubing jobs
|
1,092
|
2,339
|
(53)
|
Active coiled tubing
units, end of period (#)
|
8
|
11
|
(27)
|
Idle coiled tubing
units, end of period (#)
|
5
|
3
|
67
|
Total coiled tubing
units, end of period (#)
|
13
|
14
|
(7)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
REVENUE
Revenue from Calfrac's
Canadian operations during 2020 was $230.4
million versus $397.6 million
in 2019. In 2020, the number of fracturing jobs decreased by 50
percent due to a smaller operating footprint after the first
quarter of 2020 and an overall decrease in market activity. Revenue
per fracturing job increased by 20 percent from 2019 primarily due
to job mix as larger average job sizes were completed. Despite
revenue per job staying consistent, coiled tubing activity
decreased by 53 percent which resulted in lower year-over-year
coiled tubing revenue.
OPERATING INCOME
The Company's
Canadian division generated operating income of $33.9 million compared to $40.7 million in 2019. The decrease was due to
the significantly lower revenue base and a non-cash termination
charge of $2.1 million to exit a
take-or-pay product purchase commitment. Despite the lower revenue
base, the Company achieved a 15 percent operating income margin due
to its continued focus on controlling operating costs combined with
$10.9 million of Canadian Emergency
Wage Subsidy that was received in response to the ongoing COVID-19
pandemic. This increase was partially offset by $1.6 million in restructuring costs recorded in
2020 compared to $0.7 million of
restructuring expenses that were recorded in 2019. The $3.7 million reduction in SG&A expenses
compared to 2019 was primarily due to lower headcount, compensation
reductions and limitations on discretionary spending. In addition,
a bad-debt provision of $1.4 million
was recorded in 2020 versus a $1.3
million provision that was recorded in 2019.
UNITED
STATES
Years Ended December
31,
|
2020
|
2019
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
306,090
|
930,404
|
(67)
|
Expenses
|
|
|
|
Operating
|
289,243
|
786,864
|
(63)
|
SG&A
|
12,818
|
17,335
|
(26)
|
|
302,061
|
804,199
|
(62)
|
Operating
income(1)
|
4,029
|
126,205
|
(97)
|
Operating income
(%)
|
1.3
|
13.6
|
(90)
|
Fracturing revenue
per job ($)
|
29,282
|
42,832
|
(32)
|
Number of fracturing
jobs
|
10,453
|
21,687
|
(52)
|
Active pumping
horsepower, end of period (000s)
|
516
|
830
|
(38)
|
Idle pumping
horsepower, end of period (000s)
|
354
|
93
|
281
|
Total pumping
horsepower, end of period (000s)
|
870
|
923
|
(6)
|
Active coiled tubing
units, end of period (#)
|
—
|
—
|
—
|
Idle coiled tubing
units, end of period (#)
|
1
|
1
|
—
|
Total coiled tubing
units, end of period (#)
|
1
|
1
|
—
|
Active cementing
units, end of period (#)
|
—
|
—
|
—
|
Idle cementing units,
end of period (#)
|
3
|
5
|
(40)
|
Total cementing
units, end of period (#)
|
3
|
5
|
(40)
|
US$/C$ average
exchange rate(2)
|
1.3415
|
1.3269
|
1
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Revenue from Calfrac's
United States operations decreased
to $306.1 million in 2020 from
$930.4 million in 2019 primarily due
to lower fracturing activity and pricing. The Company's fracturing
activity in the United States
decreased during 2020 by 52 percent as customers curtailed spending
in all of Calfrac's operating regions in response to low commodity
prices. Revenue per job decreased 32 percent due to lower pricing,
combined with changes in job mix.
OPERATING INCOME
The Company's
United States division generated
operating income of $4.0 million
during 2020 compared to $126.2
million in 2019. The 97 percent decrease was primarily the
result of the significant decline in the Company's revenue base as
customers reduced their drilling and completions activity in
response to the reduction in commodity prices. The Company began
2020 with 10 active fracturing fleets in the United States and increased its operating
scale to a peak of 14 fleets before reducing to four crewed fleets
in the second quarter. The Company exited the fourth quarter with
seven active fleets versus operating an average of 14 fleets during
2019. Operating results also included $3.9
million of reactivation costs, primarily in the fourth
quarter. SG&A expenses decreased by 26 percent, primarily due
to lower personnel costs resulting from headcount and compensation
reductions. The Company recorded $2.4
million of restructuring costs during 2020 compared to
$0.8 million in 2019.
RUSSIA
Years Ended December
31,
|
2020
|
2019
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
100,407
|
105,807
|
(5)
|
Expenses
|
|
|
|
Operating
|
86,441
|
107,597
|
(20)
|
SG&A
|
3,033
|
3,215
|
(6)
|
|
89,474
|
110,812
|
(19)
|
Operating income
(loss)(1)
|
10,933
|
(5,005)
|
NM
|
Operating income
(loss) (%)
|
10.9
|
(4.7)
|
NM
|
Fracturing revenue
per job ($)
|
80,733
|
86,397
|
(7)
|
Number of fracturing
jobs
|
1,119
|
1,094
|
2
|
Active pumping
horsepower, end of period (000s)
|
65
|
65
|
—
|
Idle pumping
horsepower, end of period (000s)
|
12
|
12
|
—
|
Total pumping
horsepower, end of period (000s)
|
77
|
77
|
—
|
Coiled tubing revenue
per job ($)
|
46,824
|
44,619
|
5
|
Number of coiled
tubing jobs
|
215
|
253
|
(15)
|
Active coiled tubing
units, end of period (#)
|
4
|
3
|
33
|
Idle coiled tubing
units, end of period (#)
|
3
|
4
|
(25)
|
Total coiled tubing
units, end of period (#)
|
7
|
7
|
—
|
Rouble/C$ average
exchange rate(2)
|
0.0186
|
0.0205
|
(9)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Revenue from Calfrac's
Russian operations in 2020 of $100.4
million was 5 percent lower than in 2019. The slight
decrease in revenue, which is generated in roubles, was mostly
related to the 9 percent decline of the Russian rouble in 2020
versus 2019 combined with a 15 percent reduction in coiled tubing
activity due to lower utilization with Calfrac's main customer.
Fracturing activity increased by 2 percent as the Company began
operations in the Erginskoye field in Western Siberia at the end of the second
quarter. Revenue per fracturing job was 7 percent lower than in
2019 due to the 9 percent depreciation of the Russian rouble,
partially offset by job mix as the Company completed more
multi-stage wells during 2020 as compared to 2019.
OPERATING INCOME (LOSS)
The
Company's Russian division generated operating income of
$10.9 million during 2020 compared to
a loss of $5.0 million in 2019.
Utilization in the first quarter of 2020 was negatively impacted by
warmer than normal weather which restricted access to job
locations. The second, third and fourth quarters experienced
improved profitability due to better utilization, combined with
cost reduction measures that were implemented throughout 2020, and
lower fuel costs. The operating results for 2020 also included
$0.4 million in restructuring
expenses.
ARGENTINA
Years Ended December
31,
|
2020
|
2019
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
68,491
|
187,161
|
(63)
|
Expenses
|
|
|
|
Operating
|
68,050
|
153,479
|
(56)
|
SG&A
|
6,918
|
7,554
|
(8)
|
|
74,968
|
161,033
|
(53)
|
Operating (loss)
income(1)
|
(6,477)
|
26,128
|
NM
|
Operating (loss)
income (%)
|
(9.5)
|
14.0
|
NM
|
Fracturing revenue
per job ($)
|
58,612
|
120,514
|
(51)
|
Number of fracturing
jobs
|
680
|
974
|
(30)
|
Active pumping
horsepower, end of period (000s)
|
118
|
138
|
(14)
|
Idle pumping
horsepower, end of period (000s)
|
5
|
—
|
NM
|
Total pumping
horsepower, end of period (000s)
|
123
|
138
|
(11)
|
Coiled tubing revenue
per job ($)
|
75,499
|
38,668
|
95
|
Number of coiled
tubing jobs
|
162
|
676
|
(76)
|
Active coiled tubing
units, end of period (#)
|
5
|
6
|
(17)
|
Idle coiled tubing
units, end of period (#)
|
1
|
—
|
NM
|
Total coiled tubing
units, end of period (#)
|
6
|
6
|
—
|
Cementing revenue per
job ($)
|
53,529
|
43,778
|
22
|
Number of cementing
jobs
|
240
|
522
|
(54)
|
Active cementing
units, end of period (#)
|
12
|
13
|
(8)
|
Idle cementing units,
end of period (#)
|
1
|
1
|
—
|
Total cementing
units, end of period (#)
|
13
|
14
|
(7)
|
US$/C$ average
exchange rate(2)
|
1.3415
|
1.3269
|
1
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Calfrac's Argentinean
operations generated total revenue of $68.5
million during 2020 versus $187.2
million in 2019. The 63 percent decline in revenue was
primarily due to the shutdown of the oilfield industry in
Argentina due to the COVID-19
pandemic, which affected all of the Company's operating regions and
service lines. Activity in the first quarter of 2020 was higher
than the fourth quarter of 2019 despite some schedule gaps in the
Vaca Muerta region. However, the Argentinean government mandated a
complete shutdown of all oilfield activity in mid-March in response
to the COVID-19 pandemic. Although this shutdown continued
throughout most of the second quarter, some activity resumed in
southern Argentina during June and
continued into the third and fourth quarters. In the fourth
quarter, fracturing activity recommenced in the Vaca Muerta shale
play as customers gradually resumed completions
activity.
OPERATING (LOSS) INCOME
The
Company's operations in Argentina
incurred an operating loss of $6.5
million during 2020 compared to operating income of
$26.1 million in 2019. The loss was
attributable to the unprecedented revenue disruption caused by the
government-mandated shutdown of all oilfield activity in response
to the COVID-19 pandemic during the second and third quarters of
2020. The Company generated operating income in the fourth quarter
of 2020 as equipment utilization improved. The 8 percent decline in
SG&A expenses was primarily due to headcount reductions and
other cost savings initiatives. The reduction in SG&A expenses
would have been 30 percent excluding a US$2.3 million stamp tax accrual reversal that
was recorded in the fourth quarter of 2019.
CORPORATE
Years Ended December
31,
|
2020
|
2019
|
Change
|
(C$000s)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Expenses
|
|
|
|
Operating
|
2,167
|
5,081
|
(57)
|
SG&A
|
18,189
|
30,192
|
(40)
|
|
20,356
|
35,273
|
(42)
|
Operating
loss(1)
|
(20,356)
|
(35,273)
|
(42)
|
% of
Revenue
|
2.9
|
2.2
|
32
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
OPERATING LOSS
Corporate expenses
during 2020 were $20.4 million
compared to $35.3 million in 2019.
The decrease was primarily due to lower personnel costs resulting
from headcount and compensation reductions, combined with
$1.6 million in government subsidies
that were received in 2020. The reduction in personnel costs was
partially offset by $0.8 million of
severance costs that were recorded in 2020 as compared to
$4.4 million of retirement and
severance payments in 2019. In addition, the Company's stock-based
compensation expense was $3.6 million
lower than 2019. This decrease was primarily due to a lower average
share price during 2020, offset partially by the cancellation of
all outstanding stock options in conjunction with the
Recapitalization Transaction that closed in December 2020.
DEPRECIATION
Depreciation expense
during 2020 decreased by $89.2
million to $172.0 million from
$261.2 million in 2019. The decrease
was primarily due to the impact of the $227.2 million of property, plant and equipment
(PP&E) impairment charges that were recorded during the first
six months of 2020, combined with lower sustaining capital
expenditures. The remaining reduction in depreciation was the
result of 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 in 2019
relating to assets in use at the end of the previous
quarter.
FOREIGN EXCHANGE LOSSES
The Company
recorded a foreign exchange loss of $15.5
million during 2020 versus a loss of $6.3 million in the comparable period in 2019.
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 2020 was largely attributable to
net monetary assets that were held in pesos in Argentina as the peso devalued against the
U.S. dollar during this period, combined with liabilities held in
Canadian dollars in Russia due to
the decline in the Russian rouble versus the Canadian
dollar.
IMPAIRMENT
The Company tested each
of its cash generating units (CGUs) for potential impairment at
March 31, 2020, at June 30, 2020 and again at December 31, 2020. A complete summary of the
impairment charges recorded during 2020 are as
follows:
|
Years Ended Dec. 31,
|
|
2020
|
2019
|
(C$000s)
|
($)
|
($)
|
Canada
|
132,483
|
1,921
|
United
States
|
15,380
|
244
|
Argentina
|
52,466
|
—
|
Russia
|
26,879
|
—
|
|
227,208
|
2,165
|
In addition, the Company also carried out a comprehensive
review of its inventory to identify individual items that were
permanently idle or obsolete, with potential for impairment in
value. This resulted in an inventory write-down of $27.9 million (year ended December 31, 2019 – $3.7
million). The inventory write-down by CGU is as
follows:
|
Years Ended Dec. 31,
|
|
2020
|
2019
|
(C$000s)
|
($)
|
($)
|
Canada
|
6,200
|
656
|
United
States
|
10,668
|
2,108
|
Argentina
|
11,000
|
980
|
|
27,868
|
3,744
|
INTEREST
The Company's interest
expense of $91.3 million in 2020
includes $47.3 million of accrued
interest that was forgiven as part of the Recapitalization
Transaction (see Note 2). Reported interest expense was
$5.4 million higher than in 2019 due
to the write-off of $4.4 million and
$7.4 million of deferred finance
costs related to the portion of senior unsecured notes exchanged
during the first quarter in 2020 and the settlement of senior
unsecured notes in the fourth quarter in 2020, respectively. This
was offset partially by lower cash interest expenses resulting from
the debt exchange that was completed during the first quarter in
2020, which reduced debt by approximately $130.0 million.
INCOME TAXES
The Company recorded
an income tax expense of $168.6
million in 2020 compared to a $52.2
million tax recovery in 2019. The expense position was
primarily the result of the de-recognition of the Company's
deferred tax asset during the first quarter of 2020 and the
recording of a deferred tax liability of$54.2 million during the
fourth quarter of 2020 as a result of the Recapitalization
Transaction. This liability was recorded due to the utilization of
tax basis in the United
States.
LIQUIDITY AND CAPITAL RESOURCES
|
Years Ended Dec.
31,
|
|
2020
|
2019
|
(C$000s)
|
($)
|
($)
|
(unaudited)
|
|
|
Cash provided by
(used in):
|
|
|
Operating
activities
|
24,520
|
132,024
|
Financing
activities
|
8,602
|
4,021
|
Investing
activities
|
(42,518)
|
(138,892)
|
Effect of exchange
rate changes on cash and cash equivalents
|
(3,336)
|
(6,492)
|
Decrease in cash and
cash equivalents
|
(12,732)
|
(9,339)
|
OPERATING ACTIVITIES
The Company's
cash provided by operating activities for the year ended
December 31, 2020 was $24.5
million versus cash provided of $132.0 million during the same period in 2019.
The decrease in cash provided by operations was primarily due to
lower activity and pricing, combined with a lower inflow of cash
from working capital during the year. Working capital provided
$4.6 million of cash in 2020 compared
to $62.7 million in 2019. At
December 31, 2020, Calfrac's working capital was $161.4 million compared to $248.8 million at December
31, 2019.
FINANCING ACTIVITIES
Net cash
provided by financing activities for the year ended
December 31, 2020 was $8.6
million compared to net cash provided of $4.0 million in 2019. During the year ended
December 31, 2020, the Company issued
$60.0 million of 1.5 Lien Notes,
repaid $28.9 million on a net basis
under its credit facilities, incurred expenses of $7.6 million related to the
issuance of 1.5 Lien Notes, paid lease principal payments of
$14.1 million and repurchased common
shares for a total of $0.9
million.
On December 18, 2020,
Calfrac completed the Recapitalization Transaction and the new
financing of $60.0 million 1.5 Lien
Notes. The completion of the Recapitalization Transaction
significantly reduced the Company's total debt, will reduce annual
interest expense and provide additional liquidity to fund ongoing
operations.
In conjunction with the completion of the Recapitalization
Transaction, the Company amended its revolving credit facility
agreement to reduce its total facility capacity from $375.0 million to 290.0 million and, as part of
the amended agreement, the Company's Funded Debt to Adjusted EBITDA
covenant is waived for the quarters ended December 31, 2020 through June 30, 2021 and is 4.50x for the quarter ended
September 30, 2021, 3.50x for the
quarter ended December 31, 2021
("Covenant Relief Period") and 3.00x for each quarter end
thereafter. The Covenant Relief Period terminates on the earlier of
December 31, 2021 and any prior
quarter end for which Calfrac has requested early termination
and has provided a compliance certificate to its lenders certifying
compliance with all financial covenants and where the Funded Debt
to Adjusted EBITDA ratio is less than 3.00x at such quarter end.
The facilities consist of an operating facility of $30.9 million and a syndicated facility of
$259.1 million. The Company's credit
facilities 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 1.00
percent to prime plus 3.50 percent. For LIBOR-based loans and
bankers' acceptance-based loans, the margin thereon ranges from
2.00 percent to 4.50 percent above the respective base rates. The
Company incurs interest at the high end of the ranges outlined
above during the Covenant Relief Period or 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 equity compensation plans; and (c) no increase in the
rate of dividends are permitted. As at December 31, 2020, the Company's net Total Debt
to Adjusted EBITDA ratio exceeded the 5.00:1.00
threshold.
Advances under the credit facilities are limited by a
borrowing base. The borrowing base is calculated based on the sum
of 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, 2020, the Company had used
$0.8 million of its credit facilities
for letters of credit and had $130.0
million of borrowings under its credit facilities, leaving
$159.2 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, 2020 resulted in
liquidity of $80.4 million. Under the
terms of the Company's amended credit facility agreement, Calfrac
must maintain a minimum liquidity amount of $15.0 million during the Covenant Relief
Period.
The Company's credit facilities contain certain financial
covenants. Weakened market conditions attributable to the COVID-19
pandemic and continued low price of oil and natural gas have
required many oil and gas service companies to seek covenant relief
from their lenders. As per the amended credit facility agreement,
the Company's Funded Debt to Adjusted EBITDA covenant is waived for
the quarters ended December 31, 2020
through June 30, 2021 and is 4.50x
for the quarter ended September 30,
2021, 3.50x for the quarter ended December 31, 2021 and 3.00x for each quarter end
thereafter. As shown in the table below, the Company was in full
compliance with its financial covenants associated with its credit
facilities as at December 31,
2020.
|
Covenant
|
Actual
|
As at December
31,
|
2020
|
2020
|
Working capital ratio
not to fall below
|
1.15x
|
2.66x
|
Funded Debt to
Adjusted EBITDA not to exceed(1)(2)
|
N/A
|
14.45x
|
Funded Debt to
Capitalization not to exceed(1)(3)
|
0.30x
|
0.16x
|
(1) Funded Debt is defined as Total Debt excluding all
outstanding second lien senior notes, 1.5 Lien 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, and gains and
losses that are extraordinary or
non-recurring.
|
(3) Capitalization is Total Debt plus
equity.
|
On February 24, 2020,
Calfrac executed an exchange offer of US$120.0 million of new 10.875% Second Lien Notes
due March 15, 2026 to holders of its
existing 8.50% senior unsecured notes ("Unsecured Notes") due
June 15, 2026. The Second Lien Notes
are secured by a second lien on the same assets that secure
obligations under the Company's existing senior secured credit
facility and 1.5 Lien Notes. The exchange was completed at an
exchange price of US$550 for each
US$1,000 of Unsecured Notes,
resulting in US$218.2 million being
exchanged for US$120.0 million of
Second Lien Notes. The exchange resulted in reduced debt of
approximately $130.0 million and a
reduction in annual debt service costs of approximately
$7.3 million.
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
($10.0 million during the Covenant
Relief Period). 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 indentures governing the Second Lien Notes and the 1.5
Lien Notes contain 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 indentures, in circumstances
where:
i.
|
the Company is in
default under either of the indentures or the making of such
payment would result in a default;
|
|
|
ii.
|
the Company would not
meet the Fixed Charge Coverage Ratio(1) under either of
the indentures 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
indentures; and in the case of the 1.5 Lien Notes indenture, at
least one year has passed since their issue date.
|
(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 indentures as net income (loss) 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 in
each of these indentures. As at December 31,
2020 these baskets were not utilized. The indentures also
restrict 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. The
indenture governing the 1.5 Lien Notes includes restrictions on
certain investments including certain investments in subsidiary
entities, however the indenture includes several exceptions to this
prohibition, including a general basket of US$10.0 million and baskets related to prepayment
and build commitments which aggregate over US$12.0 million. This indenture also contains a
restriction that any indebtedness incurred in excess of
$290.0 million under the credit
facilities basket shall be junior in priority to the 1.5 Lien
Notes.
As at December 31, 2020, the Company's Fixed Charge
Coverage Ratio of 0.30:1 was below the required 2:1 ratio. Failing
to meet the Fixed Charge Coverage Ratio is not an event of default
under the indentures, 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.
INVESTING ACTIVITIES
Calfrac's net
cash used for investing activities was $42.5
million for the year ended December
31, 2020 versus $138.9 million
in 2019. Cash outflows relating to capital expenditures were
$46.2 million in 2020 compared to
$147.4 million in 2019. Calfrac's
Board of Directors have approved a 2021 capital budget of
approximately $55.0 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, 2020 was
a loss of $3.3 million versus a loss
of $6.5 million in 2019. These losses
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 2021 and
beyond.
At December 31, 2020, the Company had cash on hand of
$29.8 million.
OUTSTANDING SHARE DATA
The Company
is authorized to issue an unlimited number of common shares. In
connection with the approval of the Recapitalization Transaction,
shareholders approved an omnibus incentive plan which permits the
granting of various types of equity awards, including stock
options, share appreciation rights, restricted shares, restricted
share units, deferred share units and other share-based awards as
determined by the Board of Directors. The number of shares reserved
under the omnibus incentive plan is equal to 10 percent of the
Company's issued and outstanding common shares. As at March 4, 2021, the Company had not issued
any equity awards under the omnibus incentive
plan.
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
the Recapitalization Transaction, including its expected benefits
to the Company and impacts on its debt, liquidity and financial
position, the appeals by Wilks Brothers, LLC, the anticipated
rescission of a subscription for 1.5 Lien Notes by an institutional
Shareholder and the Company's intention to return the investment
and make a related application to the Court of Queen's Bench of
Alberta, and the Company's
expectations and intentions with respect to the foregoing and
other matters relating to the Recapitalization Transaction,
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 indentures
pursuant to which its 1.5 Lien Notes and Second Lien Notes were
issued, and its ability to raise capital, treatment under
government regulatory regimes, commodity prices, anticipated
outcomes of specific events (including exposure and positioning
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
effectiveness of cost reduction measures instituted by the Company
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: the Company's ability to continue to manage
the effect of the COVID-19 pandemic on its operations; actions
taken by Wilks Brothers, LLC, decisions by securities regulators
and/or the courts; restrictions resulting from compliance with or
breach of debt covenants and risk of acceleration of indebtedness,
including under the Company's credit facilities, 1.5 Lien Notes
indenture and/or Second Lien Notes indenture; failure to reach any
additional agreements with the Company's lenders; the impact of
events of defaults in respect of other material contracts of the
Company, including but not limited to, cross-defaults resulting in
acceleration of amounts payable thereunder or the termination of
such agreements; failure to receive any applicable regulatory,
court, third party and other stakeholder approvals or decisions in
respect of the Recapitalization Transaction and the court orders
granting enforcement thereof; global economic conditions, the level
of exploration, development and production for oil and natural gas
in Canada, the United States, Argentina and Russia; the demand for fracturing and other
stimulation services for the completion of oil and natural gas
wells; volatility in market prices for oil and natural gas and the
effect of this volatility on the demand for oilfield services
generally; the availability of capital on satisfactory terms;
direct and indirect exposure to volatile credit markets, including
credit rating risk; sourcing, pricing and availability of raw
materials, component parts, equipment, suppliers, facilities and
skilled personnel; excess oilfield equipment levels; regional
competition; currency exchange rate risk; risks associated with
foreign operations; 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 relating to legal and/or administrative proceedings;
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; failure to
maintain the Company's safety standards and record; liabilities and
risks associated with prior operations; the ability to integrate
technological advances and match advances from competitors;
intellectual property risk; third party credit risk; failure to
realize anticipated benefits of acquisitions and dispositions.
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 and
those risk and uncertainties identified under the heading "Risk
Factors" and elsewhere in the Management Information Circular dated
August 17, 2020, as supplemented by
the Material Change Report dated September
25, 2020, with respect to the Recapitalization Transaction
(collectively, the "Recapitalization Transaction Circular"), which
are specifically incorporated by reference herein.
The Annual Information Form and Recapitalization
Transaction Circular are 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 Suite 500, 407 – 8th Avenue S.W.,
Calgary, Alberta, Canada, T2P 1E5,
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, gains or
losses on exchange or settlement of debt, 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,
|
|
2020
|
2019
|
2020
|
2019
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
(unaudited)
|
|
|
|
|
Net income
(loss)
|
125,897
|
(49,400)
|
(324,235)
|
(156,203)
|
Add back
(deduct):
|
|
|
|
|
Depreciation
|
30,843
|
68,932
|
172,021
|
261,227
|
Foreign exchange
losses (gains)
|
5,733
|
(128)
|
15,477
|
6,341
|
(Gain) loss on
disposal of property, plant and equipment
|
(260)
|
(1,886)
|
24
|
1,870
|
Impairment of
property, plant and equipment
|
—
|
2,165
|
227,208
|
2,165
|
Impairment of
inventory
|
—
|
3,160
|
27,868
|
3,744
|
Impairment of other
assets
|
—
|
—
|
507
|
—
|
Gain on exchange of
debt
|
—
|
—
|
(130,444)
|
—
|
Interest
|
24,913
|
21,512
|
91,267
|
85,826
|
Income
taxes
|
54,790
|
(23,358)
|
168,623
|
(52,226)
|
Operating
income
|
15,597
|
20,997
|
21,997
|
152,744
|
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, 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,
|
|
2020
|
2019
|
2020
|
2019
|
(C$000s)
|
|
|
($)
|
($)
|
(unaudited)
|
|
|
|
|
Net income
(loss)
|
125,897
|
(49,400)
|
(324,235)
|
(156,203)
|
Add back
(deduct):
|
|
|
|
|
Depreciation
|
30,843
|
68,932
|
172,021
|
261,227
|
Unrealized foreign
exchange losses
|
3,435
|
859
|
8,319
|
2,041
|
(Gain) loss on
disposal of property, plant and equipment
|
(260)
|
(1,886)
|
24
|
1,870
|
Impairment of
property, plant and equipment
|
—
|
2,165
|
227,208
|
2,165
|
Impairment of
inventory
|
—
|
3,160
|
27,868
|
3,744
|
Impairment of other
assets
|
—
|
—
|
507
|
—
|
Gain on settlement of
debt
|
(226,319)
|
—
|
(226,319)
|
—
|
Gain on exchange of
debt
|
—
|
—
|
(130,444)
|
—
|
Non-cash purchase
commitment termination settlement
|
2,082
|
—
|
2,082
|
—
|
Restructuring
charges
|
4
|
3,564
|
5,377
|
6,049
|
Stock-based
compensation
|
412
|
1,334
|
1,511
|
4,626
|
Interest
|
24,913
|
21,512
|
91,267
|
85,826
|
Income
taxes
|
54,790
|
(23,358)
|
168,623
|
(52,226)
|
Adjusted
EBITDA(1)
|
13,715
|
26,882
|
23,809
|
159,119
|
(1)For
bank covenant purposes, EBITDA includes the deduction of an
additional $15.6 million of lease payments for the year ended
December 31, 2020 (year ended December 31, 2019 –
$21.9 million) 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 2020 fourth quarter results at
10:00 a.m. (Mountain Time) on
Thursday, March 4, 2021. 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 9692079). 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,
|
2020
|
2019
|
(C$000s)
|
($)
|
($)
|
ASSETS
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
29,830
|
42,562
|
Accounts
receivable
|
139,486
|
216,647
|
Income taxes
recoverable
|
1,530
|
1,608
|
Inventories
|
83,294
|
127,620
|
Prepaid expenses and
deposits
|
17,050
|
17,489
|
|
271,190
|
405,926
|
Non-current
assets
|
|
|
Property, plant and
equipment (note 1)
|
618,488
|
969,944
|
Right-of-use
assets
|
22,785
|
29,760
|
Deferred income tax
assets
|
—
|
120,292
|
Total
assets
|
912,463
|
1,525,922
|
LIABILITIES AND EQUITY
|
|
|
Current
liabilities
|
|
|
Accounts payable and
accrued liabilities
|
101,784
|
143,225
|
Current portion of
lease obligations
|
7,958
|
13,929
|
|
109,742
|
157,154
|
Non-current
liabilities
|
|
|
Long-term debt (note
3)
|
324,633
|
976,693
|
Lease
obligations
|
14,013
|
16,990
|
Deferred income tax
liabilities
|
53,841
|
6,462
|
Total
liabilities
|
502,229
|
1,157,299
|
Capital stock (note
4)
|
800,184
|
509,235
|
Conversion rights on
convertible notes (note 3)
|
4,873
|
—
|
Contributed
surplus
|
65,986
|
44,316
|
Warrants (notes 2 and
5)
|
40,797
|
—
|
Loan receivable for
purchase of common shares
|
(2,500)
|
(2,500)
|
Accumulated
deficit
|
(509,409)
|
(185,174)
|
Accumulated other
comprehensive income
|
10,303
|
2,746
|
Total
equity
|
410,234
|
368,623
|
Total liabilities and
equity
|
912,463
|
1,525,922
|
Contingencies (note 7)
|
See accompanying notes to the consolidated financial
statements.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Three Months Ended Dec. 31,
|
Years Ended Dec. 31,
|
|
2020
|
2019
|
2020
|
2019
|
(C$000s, except per share data)
|
($)
|
($)
|
($)
|
($)
|
Revenue
|
180,722
|
317,085
|
705,436
|
1,620,955
|
Cost of
sales
|
185,423
|
350,211
|
806,577
|
1,659,564
|
Gross loss
|
(4,701)
|
(33,126)
|
(101,141)
|
(38,609)
|
Expenses
|
|
|
|
|
Selling, general and
administrative
|
10,545
|
14,809
|
48,883
|
69,874
|
Foreign exchange
losses (gains)
|
5,733
|
(128)
|
15,477
|
6,341
|
(Gain) loss on
disposal of property, plant and equipment
|
(260)
|
(1,886)
|
24
|
1,870
|
Impairment of
property, plant and equipment (note 1)
|
—
|
2,165
|
227,208
|
2,165
|
Impairment of
inventory
|
—
|
3,160
|
27,868
|
3,744
|
Impairment of other
assets
|
—
|
—
|
507
|
—
|
Gain on settlement of
debt (note 2)
|
(226,319)
|
—
|
(226,319)
|
—
|
Gain on exchange of
debt (note 3)
|
—
|
—
|
(130,444)
|
—
|
Interest
|
24,913
|
21,512
|
91,267
|
85,826
|
|
(185,388)
|
39,632
|
54,471
|
169,820
|
Income (loss) before
income tax
|
180,687
|
(72,758)
|
(155,612)
|
(208,429)
|
Income tax expense
(recovery)
|
|
|
|
|
Current
|
627
|
(599)
|
855
|
3,014
|
Deferred
|
54,163
|
(22,759)
|
167,768
|
(55,240)
|
|
54,790
|
(23,358)
|
168,623
|
(52,226)
|
Net income
(loss)
|
125,897
|
(49,400)
|
(324,235)
|
(156,203)
|
|
|
|
|
|
Earnings (loss) per
share (note 4)
|
|
|
|
|
Basic
|
15.43
|
(17.07)
|
(76.78)
|
(54.03)
|
Diluted
|
2.19
|
(17.07)
|
(76.78)
|
(54.03)
|
See accompanying notes to the consolidated financial
statements.
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
|
Three Months Ended Dec. 31,
|
Years Ended Dec. 31,
|
|
2020
|
2019
|
2020
|
2019
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
Net income (loss)
|
125,897
|
(49,400)
|
(324,235)
|
(156,203)
|
Other comprehensive income
(loss)
|
|
|
|
|
Items that may be subsequently reclassified to profit
or loss:
|
|
|
|
|
Change in foreign
currency translation adjustment
|
8,180
|
2,494
|
7,557
|
6,184
|
Comprehensive income
(loss)
|
134,077
|
(46,906)
|
(316,678)
|
(150,019)
|
See accompanying notes to the consolidated financial
statements.
|
CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY
|
Share
Capital
|
Conversion Rights
on Convertible
Notes
|
Contributed
Surplus
|
Warrants
|
Loan Receivable
for Purchase of
Common Shares
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Accumulated
Deficit
|
Total Equity
|
(C$000s)
|
($)
|
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Balance – Jan. 1, 2020
|
509,235
|
—
|
44,316
|
—
|
(2,500)
|
2,746
|
(185,174)
|
368,623
|
Net loss
|
—
|
|
—
|
—
|
—
|
—
|
(324,235)
|
(324,235)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
Cumulative translation
adjustment
|
—
|
—
|
—
|
—
|
—
|
7,557
|
—
|
7,557
|
Comprehensive income
(loss)
|
—
|
—
|
—
|
—
|
—
|
7,557
|
(324,235)
|
(316,678)
|
Stock
options:
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized
|
—
|
—
|
1,747
|
—
|
—
|
—
|
—
|
1,747
|
Performance share
units:
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized
|
—
|
—
|
856
|
—
|
—
|
—
|
—
|
856
|
Shares issued (note
4)
|
1,275
|
—
|
(1,275)
|
—
|
—
|
—
|
—
|
—
|
Shares issued for
settlement of debt (note 2)
|
301,427
|
—
|
—
|
—
|
—
|
—
|
—
|
301,427
|
Equity portion of 1.5
Lien Notes, net of share issue costs
|
(616)
|
4,873
|
—
|
—
|
—
|
—
|
—
|
4,257
|
Shares issued for
commitment fee on 1.5 Lien Notes
|
10,131
|
—
|
—
|
—
|
—
|
—
|
—
|
10,131
|
Fair value of
warrants issued
|
—
|
—
|
—
|
40,797
|
—
|
—
|
—
|
40,797
|
Shares
repurchased
|
(21,268)
|
—
|
20,342
|
—
|
—
|
—
|
—
|
(926)
|
Balance – Dec. 31, 2020
|
800,184
|
4,873
|
65,986
|
40,797
|
(2,500)
|
10,303
|
(509,409)
|
410,234
|
Balance – Jan. 1,
2019
|
508,276
|
—
|
40,453
|
—
|
(2,500)
|
(3,438)
|
(28,971)
|
513,820
|
Net loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(156,203)
|
(156,203)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
Cumulative translation
adjustment
|
—
|
—
|
—
|
—
|
—
|
6,184
|
—
|
6,184
|
Comprehensive income
(loss)
|
—
|
—
|
—
|
—
|
—
|
6,184
|
(156,203)
|
(150,019)
|
Stock
options:
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized
|
—
|
—
|
3,030
|
—
|
—
|
—
|
—
|
3,030
|
Proceeds from issuance
of shares (note 4)
|
252
|
—
|
(56)
|
—
|
—
|
—
|
—
|
196
|
Performance share
units:
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized
|
—
|
—
|
1,596
|
—
|
—
|
—
|
—
|
1,596
|
Shares issued (note
4)
|
707
|
—
|
(707)
|
—
|
—
|
—
|
—
|
—
|
Balance – Dec. 31, 2019
|
509,235
|
—
|
44,316
|
—
|
(2,500)
|
2,746
|
(185,174)
|
368,623
|
See accompanying notes to the consolidated financial
statements.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Three Months Ended Dec. 31,
|
Years Ended Dec. 31,
|
|
2020
|
2019
|
2020
|
2019
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
CASH FLOWS PROVIDED BY (USED
IN)
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
Net income
(loss)
|
125,897
|
(49,400)
|
(324,235)
|
(156,203)
|
Adjusted for the
following:
|
|
|
|
|
Depreciation
|
30,843
|
68,932
|
172,021
|
261,227
|
Stock-based
compensation
|
412
|
1,334
|
1,511
|
4,626
|
Unrealized foreign
exchange losses
|
3,435
|
859
|
8,319
|
2,041
|
(Gain) loss on
disposal of property, plant and equipment
|
(260)
|
(1,886)
|
24
|
1,870
|
Impairment of
property, plant and equipment (note 1)
|
—
|
2,165
|
227,208
|
2,165
|
Impairment of
inventory
|
—
|
3,160
|
27,868
|
3,744
|
Impairment of other
assets
|
—
|
—
|
507
|
—
|
Non-cash gain on
settlement of debt (note 2)
|
(198,847)
|
—
|
(198,847)
|
—
|
Non-cash gain on
exchange of debt (note 3)
|
—
|
—
|
(130,444)
|
—
|
Interest
|
24,913
|
21,512
|
91,267
|
85,826
|
Interest
paid
|
(3,127)
|
(37,888)
|
(23,004)
|
(80,728)
|
Deferred income
taxes
|
54,163
|
(22,759)
|
167,768
|
(55,240)
|
Changes in items of
working capital
|
(52,327)
|
29,763
|
4,557
|
62,696
|
Cash flows (used in)
provided by operating activities
|
(14,898)
|
15,792
|
24,520
|
132,024
|
FINANCING ACTIVITIES
|
|
|
|
|
Issuance of long-term
debt, net of debt issuance costs (note 3)
|
84,979
|
28,624
|
142,319
|
83,632
|
Long-term debt
repayments (note 3)
|
(70,000)
|
(6,580)
|
(118,727)
|
(59,760)
|
Lease obligation
principal repayments
|
(2,291)
|
(4,459)
|
(14,064)
|
(20,047)
|
Shares
repurchased
|
(926)
|
—
|
(926)
|
—
|
Proceeds on issuance
of common shares
|
—
|
—
|
—
|
196
|
Cash flows provided
by financing activities
|
11,762
|
17,585
|
8,602
|
4,021
|
INVESTING ACTIVITIES
|
|
|
|
|
Purchase of property,
plant and equipment
|
(7,038)
|
(40,410)
|
(46,189)
|
(147,370)
|
Proceeds on disposal
of property, plant and equipment
|
110
|
6,951
|
1,701
|
7,224
|
Proceeds on disposal
of right-of-use assets
|
634
|
724
|
1,970
|
1,254
|
Cash flows used in
investing activities
|
(6,294)
|
(32,735)
|
(42,518)
|
(138,892)
|
Effect of exchange
rate changes on cash and cash equivalents
|
(872)
|
(2,237)
|
(3,336)
|
(6,492)
|
Decrease in cash and
cash equivalents
|
(10,302)
|
(1,595)
|
(12,732)
|
(9,339)
|
Cash and cash
equivalents, beginning of period
|
40,132
|
44,157
|
42,562
|
51,901
|
Cash and cash
equivalents, end of period
|
29,830
|
42,562
|
29,830
|
42,562
|
See
accompanying notes to the consolidated financial
statements.
|
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
As at and for the years ended
December 31, 2020 and 2019
(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, 2020
|
Opening
Net Book
Value
|
Additions
|
Disposals
|
Impairment
|
Depreciation
|
Foreign
Exchange
Adjustments
|
Closing Net Book
Value
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Assets under
construction(1)
|
38,172
|
(17,767)
|
—
|
(4,486)
|
—
|
(740)
|
15,179
|
Field
equipment
|
836,117
|
50,020
|
(3,830)
|
(221,292)
|
(149,728)
|
(4,997)
|
506,290
|
Buildings
|
48,238
|
51
|
(54)
|
(1,165)
|
(4,585)
|
4,418
|
46,903
|
Land
|
39,355
|
—
|
—
|
—
|
—
|
(4,252)
|
35,103
|
Shop, office and
other equipment
|
3,565
|
114
|
(10)
|
(241)
|
(1,161)
|
121
|
2,388
|
Computers and
computer software
|
4,042
|
12,212
|
—
|
(24)
|
(4,118)
|
21
|
12,133
|
Leasehold
improvements
|
455
|
—
|
—
|
—
|
(183)
|
220
|
492
|
|
969,944
|
44,630
|
(3,894)
|
(227,208)
|
(159,775)
|
(5,209)
|
618,488
|
(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, 2020
|
Cost
|
Accumulated
Depreciation
|
Net Book
Value
|
(C$000s)
|
($)
|
($)
|
($)
|
Assets under
construction
|
15,179
|
—
|
15,179
|
Field
equipment
|
2,277,233
|
(1,770,943)
|
506,290
|
Buildings
|
90,067
|
(43,164)
|
46,903
|
Land
|
35,103
|
—
|
35,103
|
Shop, office and
other equipment
|
27,832
|
(25,444)
|
2,388
|
Computers and
computer software
|
44,647
|
(32,514)
|
12,133
|
Leasehold
improvements
|
8,713
|
(8,221)
|
492
|
|
2,498,774
|
(1,880,286)
|
618,488
|
Year Ended December
31, 2019
|
Opening
Net Book
Value
|
Additions
|
Disposals
|
Impairment
|
Depreciation
|
Foreign
Exchange A
djustments
|
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) 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
|
Property, plant and equipment are tested for impairment in
accordance with the Company's accounting policy. Management reviews
the carrying value of its property, plant and equipment at each
reporting period for indicators of impairment. The Company's
financial results continue to be impeded by the global economic
slowdown due to events such as the OPEC+ crude oil supply war, the
COVID-19 pandemic and the related global response to the COVID-19
demand reductions for crude oil. The Company recognizes this is an
indicator of impairment that warrants an assessment on the
recoverable amount of its property, plant and equipment as at
December 31, 2020.
The Company's cash-generating units (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 is
determined using discounted cash flows to be generated from the
continuing operations of each CGU. Cash flow assumptions are based
on a combination of historical and expected future results, using
the following main significant assumptions:
- Expected revenue growth
- Expected operating income growth
- Discount rate
Revenue and operating income growth rates for each CGU are
based on a combination of commodity price assumptions, historical
results and forecasted activity levels, which incorporates pricing,
utilization and cost improvements over the forecast period. The
cumulative annual growth rates for revenue over the forecast period
from 2021 to 2025 ranged from no growth to 27.5 percent depending
on the CGU.
The cash flows are prepared on a five-year basis, using a
discount rate ranging from 13.4 percent to 21.5 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 are 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 three months ended December 31,
2020. As at March 31, 2020 and
June 30, 2020, the Company performed
an assessment on the recoverable amount of its property, plant and
equipment and recognized a total impairment of $227,208 as a result of those impairment tests
for the year ended December 31, 2020
(three months and year ended December 31,
2019 – $2,165).
Management contemplated the effects of the
Recapitalization Transaction (see note 2) that occurred in
December in conjunction with its December
31, 2020 impairment assessment and concluded that no
additional impairment was warranted as a result of this
transaction.
A sensitivity analysis on the discount rate and expected
future cash flows would have the following impact on the
December 31, 2020 impairment
test:
|
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, 2020
may change significantly when new information becomes available.
Management will continue to monitor and update its assumptions and
estimates with respect to property, plant and equipment impairment
on an ongoing basis.
The impairment losses by CGU recorded during the three
months and year ended December 31,
2020 are as follows:
|
Three Months Ended Dec. 31,
|
Years Ended Dec. 31,
|
|
2020
|
2019
|
2020
|
2019
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
Canada
|
—
|
1,921
|
132,483
|
1,921
|
United
States
|
—
|
244
|
15,380
|
244
|
Argentina
|
—
|
—
|
52,466
|
—
|
Russia
|
—
|
—
|
26,879
|
—
|
|
—
|
2,165
|
227,208
|
2,165
|
2. RECAPITALIZATION
TRANSACTION
On December
18, 2020, the Company completed its previously disclosed
Recapitalization Transaction, which was implemented pursuant to a
Plan of Arrangement under the Canada Business Corporations Act. The
Recapitalization Transaction involved the surrender and
cancellation of the Company's US$431,818 Unsecured Notes, including all accrued
and unpaid interest, in exchange for common shares of the Company.
In addition, the Company issued new $60,000 1.5 lien senior secured 10%
payment-in-kind convertible notes ("1.5 Lien Notes") due
December 18, 2023 on a private
placement basis. The proceeds from the issuance of the 1.5 Lien
Notes were used to reduce the amounts owing under its revolving
credit facility. All common share figures
and share prices below are disclosed on a post-share consolidation
basis of 50:1.
The composition of the gain on settlement of debt as
reported in the statement of operations is as follows:
|
Unsecured Notes
|
Warrants
|
1.5 Lien Notes
|
Total
|
(C$000s)
|
|
|
|
($)
|
Settlement of
Unsecured Notes against shares issued to noteholders (note
2a)
|
(250,867)
|
—
|
—
|
(250,867)
|
Forgiveness of
accrued interest on Unsecured Notes (note 2a)
|
(47,272)
|
—
|
—
|
(47,272)
|
Issuance of warrants
(note 2b)
|
—
|
40,797
|
—
|
40,797
|
Transaction and
associated costs(1) (notes 2h and 5)
|
20,815
|
—
|
—
|
20,815
|
Issuance of shares in
respect of the commitment fee related to the 1.5 Lien Notes (note
2g)
|
—
|
—
|
10,131
|
10,131
|
Withholding taxes on
shares issued in respect of commitment fee on 1.5 Lien Notes (note
2g)
|
—
|
—
|
77
|
77
|
Total (gain) loss on settlement of
debt(2)
|
(277,324)
|
40,797
|
10,208
|
(226,319)
|
(1) Includes $1,266 of other associated costs related to
the Plan of Arrangement, of which $1,092 were non-cash
expenses.
|
(2) $198,847 of the total gain on settlement of debt was
non-cash in nature.
|
(a) Unsecured Notes
Settlement
The Company's US$431,818
outstanding 8.50% unsecured notes due June
15, 2026 ("Unsecured Notes"), plus all accrued and unpaid
interest, were surrendered and cancelled in exchange for 33,491,870
common shares. The common shares were valued for accounting
purposes at a price of $9.00 per
share, which represents the share price on December 21, 2020, the first trading day
immediately following the announcement of the closing of this
transaction, and resulted in an accounting gain on the settlement
of debt of $277,324. The settlement
of the Unsecured Notes also resulted in the write-off of the
remaining unamortized deferred finance costs that pertained to
these notes which totaled $7,387.
(b) Warrants
Under the Recapitalization Transaction, shareholders were
entitled to receive two warrants for each common share held.
Pursuant to the Plan of Arrangement, the Company issued 5,824,433
warrants to shareholders of record (i.e. registered shareholders)
as of market close on December 17,
2020. Each warrant is exercisable for a period of three
years into one common share at a price of $2.50 per common shares subject to customary
adjustments and restrictions. The fair value of the warrants of
$40,797 was estimated using a
Black-Scholes pricing model, and was accounted for as a reduction
of the gain on settlement of debt. See note 5 for further
information on the warrants.
(c) Shareholder Cash
Election
Under the Recapitalization Transaction, shareholders were
provided the opportunity to elect for the Company to purchase all
or any portion of their common shares for $7.50 per share up to an aggregate maximum of
$10,000 in consideration available
for shareholder cash elections. On December
18, 2020, 121,231 common shares were purchased for an
aggregate cash election amount of $926 including transaction costs. See note 4 for
further information on the shareholder cash election.
(d) Common Share
Consolidation
Immediately prior to the Unsecured Notes settlement, and
after the issuance of warrants and settlement of shareholder cash
elections noted above, the Company initiated a 50:1 share
consolidation. See note 4 for further information on the share
consolidation.
(e) Share-Based
Compensation
Pursuant to the Plan of Arrangement, all of the Company's
outstanding stock options and cash-based performance share units
were terminated and cancelled for no consideration. All of the
Company's outstanding equity-based performance shares units vested
immediately prior to the effective time of the Plan of Arrangement
and aggregate consideration of $174
was paid to the holders thereof on a pro rata basis. See note 5 for
further information.
In connection with the approval of the Recapitalization
Transaction, shareholders approved an omnibus incentive plan which
permits the granting of various types of equity awards, including
stock options, share appreciation rights, restricted shares,
restricted share units, deferred share units and other share-based
awards as determined by the Board of Directors. The number of
shares reserved under the omnibus incentive plan is equal to 10
percent of the Company's issued and outstanding common
shares.
(f) 1.5 Lien Notes
In conjunction with the Recapitalization Transaction, the
Company issued $60,000 of 1.5 lien
senior convertible notes due December 18,
2023 ("1.5 Lien Notes") on a private placement basis. The
gross proceeds of the 1.5 Lien Notes were used to reduce the
Company's revolving credit facility, providing additional
liquidity. See note 3 for further information.
(g) Commitment Fee on the 1.5
Lien Notes
In connection with the 1.5 Lien Notes offering, the
Company issued 1,125,703 common shares to certain investors that
backstopped the issuance of the 1.5 Lien Notes. These common shares
were valued for accounting purposes at a price of $9.00 per share which represents the share price
on December 21, 2020, the first
trading day immediately following the announcement of the closing
of this transaction, and were accounted for as an increase to share
capital of $10,131 with a
corresponding reduction of the gain on the settlement of
debt.
(h)
Transaction Costs
The Company incurred transaction costs totaling
$27,145 in connection with the
Recapitalization Transaction. Of that amount, $19,549 was related to the settlement of the
Unsecured Notes and was recorded as a reduction of the gain of
settlement of debt. The remaining $7,596 was allocated to the issuance of the 1.5
Lien Notes as debt issuance costs or share issue costs, see note 3
for further information.
(i) Court Appeals
On December 11, 2020, Wilks
Brothers, LLC and its affiliated funds filed a notice of appeal
(the "Chapter 15 Appeal") to the United
States District Court for the Southern District of
Texas ("U.S. District Court")
appealing an order by the United States Bankruptcy Court for the
Southern District of Texas under
Chapter 15 of the United States Bankruptcy Code entered effective
December 1, 2020, recognizing and
granting enforcement of the October 30,
2020 order of the Court of Queen's Bench of Alberta approving the Plan of Arrangement
pursuant to the Canada Business Corporations Act (the "CBCA Final
Order"). On January 8, 2021, the
Company and certain of its subsidiaries filed a motion to dismiss
the Chapter 15 Appeal as equitably moot, which motion was denied by
the U.S. District Court on February 9,
2021. The Company expects briefing on the merits of the
Chapter 15 Appeal to be complete on or before April 1, 2021. The U.S. District Court will set a
hearing on the Chapter 15 Appeal to occur after the conclusion of
briefing, and the timing of such hearing is uncertain. The Company
believes it is well-positioned to prevail on the merits of the
Chapter 15 Appeal or in having the appeal dismissed.
On January 29, 2021, Wilks
Brothers, LLC and its affiliated funds filed an application to
the Supreme Court of Canada
seeking leave to appeal the December 1,
2020 decision of the Court of Appeal of Alberta upholding the CBCA Final Order. The
Company's deadline to respond to the leave to appeal application is
30 days after the day on which a file is opened by the Supreme
Court of Canada with respect to
the leave to appeal application, which file has not yet been opened
by the Court. The Company believes it is well-positioned to succeed
in having the leave to appeal application dismissed.
3. LONG-TERM DEBT
As at December
31,
|
2020
|
2019
|
(C$000s)
|
($)
|
($)
|
$290,000 extendible
revolving term loan facility, secured by the Canadian and U.S.
assets of the
Company on a first priority basis
|
130,000
|
147,988
|
$60,000 1.5 Lien
Notes due December 18, 2023, bearing interest at 10.00% payable
semi-annually,
secured by the Canadian and U.S. assets of the Company on a
second priority basis ahead of the
Second Lien Notes
|
55,171
|
—
|
US$120,000 Second
Lien Notes due March 15, 2026, bearing interest at 10.875% payable
semi-annually,
secured by the Canadian and U.S. assets of the Company on a
second priority basis
|
152,784
|
—
|
US$431,818 Unsecured
Notes (December 31, 2019 – US$650,000) due June 15, 2026, bearing
interest
at 8.50% payable semi-annually
|
—
|
844,220
|
Less: unamortized
debt issuance costs
|
(13,322)
|
(15,515)
|
|
324,633
|
976,693
|
The Unsecured Notes were settled on December 18, 2020, as decribed below. The fair
value of the Unsecured Notes at December 31, 2019 was
$342,078. The fair value of the
Second Lien Notes (as defined below), as measured based on the
closing market price at December 31, 2020 was $106,706 (December 31, 2019 – not
applicable). The carrying values of the revolving term loan
facility and 1.5 Lien Notes approximate their fair value as the
interest rate is not significantly different from current interest
rates for similar loans.
a) Unsecured Notes
On December 18, 2020, the
Company's US$431,818 outstanding
Unsecured Notes, plus all accrued and unpaid interest, were
surrendered and cancelled in exchange for 33,491,870 common shares.
The settlement of the Unsecured Notes also resulted in the
write-off of the remaining unamortized deferred finance costs that
pertained to these notes which totaled $7,387. See note 2 for further
details.
b) 1.5 Lien Notes
On December 18, 2020, the
Company issued $60,000 of 1.5 Lien
Notes due December 18, 2023 on a
private placement basis. The terms of the 1.5 Lien Notes enable the
holders to convert each $1,000
principal amount into approximately 750 common shares at their
discretion. Interest is payable in cash semi-annually on
March 15 and September 15 of each year. On each interest
payment date, the Company may elect to defer and pay in-kind any
interest accrued as of such interest payment date by increasing the
unpaid principal amount of the 1.5 Lien Notes as at such date
(each, a "PIK Interest Payment"). Following each such increase in
the principal amount of the 1.5 Lien Notes as a result of any PIK
Interest Payment, the 1.5 Lien Notes will bear interest on such
increased principal amount from and after the date of each such PIK
Interest Payment. Upon repayment of the 1.5 Lien Notes, any
interest which has accrued thereon but has not been capitalized as
set forth above shall be paid in cash.
The liability portion of the 1.5 Lien Notes was recorded
at an initial fair value of $55,127
using a discount rate of 13.4 percent, representing the discount
rate of a comparable debt instrument without a conversion feature.
The remaining $4,873 is the
difference between the initial principal amount and the fair value
of the liability component and was recorded as the equity portion
of the conversion feature in shareholders' equity. At December 31, 2020, $44 of the discount on the liability portion of
the notes was amortized into its carrying value (year ended
December 31, 2019 – not applicable).
The Company incurred transaction costs of $7,596 associated with the issuance of the 1.5
Lien Notes which was allocated to debt issuance costs and share
issuance costs on a proportional basis to the initial fair value of
the liability and equity components.
c) Second Lien Notes
On February 24, 2020, the
Company completed an exchange offer of US$120,000 of new 10.875% second lien secured
notes ("Second Lien Notes") due March 15,
2026 to holders of its existing Unsecured Notes. The
exchange was completed at an average exchange price of US$550 per each US$1,000 of Unsecured Notes resulting in
US$218,182 being exchanged for
US$120,000 of Second Lien Notes,
resulting in a non-cash gain on exchange of debt of $130,444. The early settlement of the Unsecured
Notes resulted in the write-off of $4,449 of unamortized deferred finance
costs.
d) Revolving Credit Facility
On December 18, 2020, the
Company amended its credit facilities to reduce its total facility
capacity from $375,000 to
$290,000. The facilities consist of
an operating facility of $30,933 and
a syndicated facility of $259,067. As
part of the amended agreement, the Company's Funded Debt to
Adjusted EBITDA covenant is waived for the quarters ended
December 31, 2020 through
June 30, 2021 and is 4.50x for the
quarter ended September 30, 2021,
3.50x for the quarter ended December 31,
2021 ("Covenant Relief Period") and 3.00x for each quarter
end thereafter. The Covenant Relief Period terminates on the
earlier of December 31, 2021 and any
prior quarter end for which Calfrac has requested early termination
and has provided a compliance certificate to its lenders certifying
compliance with all financial covenants and where the Funded Debt
to Adjusted EBITDA ratio is less than 3.00x at such quarter
end.
The Company's credit facilities 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 1.00 percent to prime plus 3.50
percent. For LIBOR-based loans and bankers' acceptance-based loans,
the margin thereon ranges from 2.00 percent to 4.50 percent above
the respective base rates. The Company incurs interest at the high
end of the ranges outlined above during the Covenant Relief Period
or 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 equity
compensation plans; and (c) no increase in the rate of dividends
are permitted. As at December 31,
2020, the Company's net Total Debt to Adjusted EBITDA ratio
exceeded the 5.00:1.00 threshold.
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, 2020 was $90,332 (year ended December 31, 2019 – $83,665). Included in interest expense during the
year ended December 31, 2020 is
$47,272 of accrued interest that was
forgiven as part of the Recapitalization Transaction (see note
2).
The following table sets out an analysis of long-term debt
and the movements in long-term debt for the periods
presented:
|
2020
|
(C$000s)
|
($)
|
Balance, January
1
|
976,693
|
Issuance of long-term
debt, net of debt issuance costs
|
142,319
|
Long-term debt
repayments
|
(118,727)
|
Non-cash settlement of
Unsecured Notes
|
(549,791)
|
Non-cash gain on
exchange of debt
|
(130,444)
|
Amortization of debt
issuance costs and debt discount
|
19,074
|
Foreign exchange
adjustments
|
(14,491)
|
Balance, December
31
|
324,633
|
The aggregate scheduled principal repayments required in
each of the next five years are as follows:
As at December 31,
2020
|
Amount
|
(C$000s)
|
($)
|
2021
|
—
|
2022
|
130,000
|
2023(1)
|
60,000
|
2024
|
—
|
2025
|
—
|
Thereafter
|
152,784
|
|
342,784
|
(1) Gross principal of $60,000 related to 1.5 Lien
Notes.
|
At December 31, 2020, the Company had utilized
$828 of its loan facility for letters
of credit, had $130,000 outstanding
under its revolving term loan facility, leaving $159,172 in available credit, subject to a
monthly borrowing base, as determined using the previous month's
results, which at December 31, 2020, resulted in liquidity of
$80,359. Under the terms of the
amended credit facility agreement, the Company must maintain a
minimum liquidity amount of $15,000
during the Covenant Relief Period.
See note 6 for further details on the covenants in respect
of the Company's long-term debt.
4. CAPITAL STOCK
Authorized
capital stock consists of an unlimited number of common
shares.
Years Ended December
31,
|
2020
|
2019
|
Continuity of Common
Shares
|
Shares
|
Amount
|
Shares
|
Amount
|
|
(#)
|
($000s)
|
(#)
|
($000s)
|
Balance, beginning of
year
|
2,897,778
|
506,735
|
2,889,251
|
504,526
|
Issued upon exercise
of stock options
|
—
|
—
|
1,974
|
252
|
Issued upon vesting
of performance share units
|
5,646
|
1,275
|
2,097
|
707
|
Issued on
acquisition
|
8,913
|
2,500
|
4,456
|
1,250
|
Issued upon
settlement of Unsecured Notes (note 2)
|
33,491,870
|
301,427
|
—
|
—
|
Issued for commitment
fee on 1.5 Lien Notes (note 2)
|
1,125,703
|
10,131
|
—
|
—
|
Shares repurchased by
shareholder cash election (note 2)
|
(121,231)
|
(21,268)
|
—
|
—
|
Cancellation of
fractional shares upon 50:1 share consolidation
|
(189)
|
—
|
—
|
—
|
Share issue costs on
1.5 Lien Notes
|
—
|
(616)
|
—
|
—
|
Balance, end of
year
|
37,408,490
|
800,184
|
2,897,778
|
506,735
|
Shares to be
issued
|
—
|
—
|
8,913
|
2,500
|
|
37,408,490
|
800,184
|
2,906,691
|
509,235
|
On December 18, 2020, the
Company consolidated its common shares on a basis of 50:1. All
common share figures in the financial statements and comparatives
have been adjusted to reflect the 50:1 effect, without a
corresponding change in dollar amounts. Earnings per share have
been adjusted to reflect the impact of the share
consolidation.
The weighted average number of common shares outstanding
for the three months ended December 31,
2020 was 8,158,367 basic and 57,598,127 diluted (three
months ended December 31, 2019 –
2,894,394 basic and 2,906,690 diluted). The weighted average number
of common shares outstanding for the year ended December 31, 2020 was 4,223,061 basic and
54,234,401 diluted (year ended December 31,
2019 – 2,891,292 basic and 2,909,495 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 5, warrants issued as part of the Recapitalization
Transaction as disclosed in note 2, and the dilutive effect of the
conversion of the 1.5 Lien Notes as disclosed in note 3.
As disclosed in note 2, in conjunction with the
Recapitalization Transaction, the Company purchased 121,231 common
shares at a cost of $926 and, of the
amount paid, $21,268 was charged to
capital stock and $20,342 to
contributed surplus. These common shares were cancelled prior to
December 31, 2020.
5. SHARE-BASED PAYMENTS
(a) Stock
Options
Years Ended December
31,
|
2020
|
2019
|
Continuity of Stock
Options
|
Options
|
Average
Exercise Price
|
Options
|
Average Exercise
Price
|
|
(#)
|
($)
|
(#)
|
($)
|
Balance, January
1
|
244,060
|
158.00
|
187,842
|
235.00
|
Granted
|
1,098
|
31.00
|
89,403
|
84.00
|
Exercised for common
shares
|
—
|
—
|
(1,974)
|
99.50
|
Forfeited
|
(57,280)
|
192.00
|
(12,611)
|
235.50
|
Terminated and
cancelled
|
(184,536)
|
143.00
|
—
|
—
|
Expired
|
(3,342)
|
366.50
|
(18,600)
|
529.00
|
Balance, December
31
|
—
|
—
|
244,060
|
158.00
|
On December 18, 2020, as
outlined in note 2, the Company terminated its remaining 184,536
outstanding stock options for no consideration. The cancellation of
the stock options was accounted for as an acceleration of vesting
and the remaining fair value of the options of $780 was recognized in the current period as a
reduction of the gain on settlement of debt.
The weighted average fair value of options granted during
2020, determined using the Black-Scholes valuation method, was
$13.50 per option (year ended
December 31, 2019 – $51.00 per option). The Company applied the
following assumptions in determining the fair value of options on
the date of grant:
Years Ended December
31,
|
2020
|
|
2019
|
|
Expected life
(years)
|
3.00
|
|
3.00
|
|
Expected
volatility
|
71.18
|
%
|
59.16
|
%
|
Risk-free interest
rate
|
0.87
|
%
|
1.66
|
%
|
Expected
dividends
|
$0.00
|
$0.00
|
Expected volatility is estimated by considering historical
average share price volatility.
(b) Share Units
Years Ended December
31,
|
2020
|
2019
|
Continuity of Stock
Units
|
Deferred
Share Units
|
Performance
Share Units
|
Deferred Share
Units
|
Performance
Share Units
|
Restricted
Share Units
|
|
(#)
|
(#)
|
(#)
|
(#)
|
(#)
|
Balance, January
1
|
2,900
|
25,891
|
2,900
|
22,166
|
62,783
|
Granted
|
2,100
|
19,968
|
2,900
|
23,182
|
—
|
Exercised
|
(1,600)
|
(5,646)
|
(2,900)
|
(11,134)
|
(39,972)
|
Forfeited
|
(1,000)
|
(8,027)
|
—
|
(8,323)
|
(22,811)
|
Settled
|
—
|
(17,014)
|
—
|
—
|
—
|
Terminated and
cancelled
|
—
|
(15,172)
|
—
|
—
|
—
|
Balance, December
31
|
2,400
|
—
|
2,900
|
25,891
|
—
|
|
Three Months Ended Dec. 31,
|
Years Ended Dec. 31,
|
|
2020
|
2019
|
2020
|
2019
|
|
($)
|
($)
|
($)
|
($)
|
Expense (recovery)
from:
|
|
|
|
|
Stock
options
|
1,065
|
835
|
1,747
|
3,030
|
Deferred share
units
|
(19)
|
14
|
(157)
|
196
|
Performance share
units
|
613
|
499
|
1,030
|
1,908
|
Restricted share
units
|
—
|
—
|
—
|
(197)
|
Total stock-based
compensation expense
|
1,659
|
1,348
|
2,620
|
4,937
|
Stock-based compensation expense is included in selling,
general and administrative expenses. During the year ended
December 31, 2020, the stock option
and performance share unit expense related to the cancellation and
termination of those respective plans, as outlined in note 2,
totaling $1,266, was recorded as a
reduction of the gain on settlement of debt.
The Company grants deferred share units to its outside
directors. These units vest on the first anniversary of the date 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,
2020, the liability pertaining to deferred share units was
$9 (December 31, 2019 –
$166).
As disclosed in note 2, all of the Company's outstanding
cash-based performance share units were terminated and cancelled
for no consideration. All of the Company's outstanding equity-based
performance shares units vested immediately prior to the effective
time of the Plan of Arrangement and were settled with aggregate
consideration of $174 paid to the holders thereof on a pro
rata basis. The immediate vesting of the equity-based performance
share units was accounted for as an acceleration of vesting and the
remaining fair value of the options of $312 along with the cash consideration of
$174 was recognized in the current
period as a reduction of the gain on settlement of debt.
Changes in the Company's obligations under the deferred
share unit plans, which arise from fluctuations in the market value
of the Company's shares underlying these compensation programs, are
recorded as the share value changes.
(c) Warrants
In conjunction with the Recapitalization Transaction, the
Company issued 5,824,433 warrants to shareholders of record (i.e.
registered shareholders) as of market close on December 17, 2020. Each warrant is exercisable
for a period of three years into one common share at a price of
$2.50 per common shares, subject to
customary adjustments and restrictions. The fair value of the
warrants at issuance was estimated using a Black-Scholes pricing
model, in the amount of $40,797, and
accounted for as a reduction of the gain on settlement of debt. The
Company applied the following Black-Scholes model
inputs:
Year Ended December
31,
|
2020
|
Expected life
(years)
|
3.00
|
Share price at grant
date
|
$9.00
|
Exercise
price
|
$2.50
|
Expected
volatility
|
73.90
%
|
Risk-free interest
rate
|
1.27
%
|
Expected
dividends
|
$0.00
|
As of December 31, 2020, no
warrants have been exercised.
6. CAPITAL STRUCTURE
The Company's capital structure is comprised of
shareholders' equity and debt. The Company's objectives in managing
capital are (i) to maintain flexibility so as to preserve its
access to capital markets and its ability to meet its financial
obligations, and (ii) to finance growth, including potential
acquisitions.
The Company manages its capital structure and makes
adjustments in light of changing market conditions and new
opportunities, while remaining cognizant of the cyclical nature of
the oilfield services sector. To maintain or adjust its capital
structure, the Company may revise its capital spending, issue new
shares or new debt or repay existing debt. The Company recently
completed its Recapitalization Transaction aimed at addressing its
capital structure, see note 2 for further information.
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,
|
2020
|
2019
|
(C$000s)
|
($)
|
($)
|
Net loss
|
(324,235)
|
(156,203)
|
Adjusted for the
following:
|
|
|
Depreciation
|
172,021
|
261,227
|
Foreign exchange
losses
|
15,477
|
6,341
|
Loss on disposal of
property, plant and equipment
|
24
|
1,870
|
Impairment of
property, plant and equipment
|
227,208
|
2,165
|
Impairment of
inventory
|
27,868
|
—
|
Impairment of other
assets
|
507
|
3,744
|
Gain on settlement of
debt
|
(226,319)
|
—
|
Gain on exchange of
debt
|
(130,444)
|
—
|
Interest
|
91,267
|
85,826
|
Income
taxes
|
168,623
|
(52,226)
|
Operating
income
|
21,997
|
152,744
|
Net debt for this purpose is calculated as
follows:
As at December
31,
|
2020
|
2019
|
(C$000s)
|
($)
|
($)
|
Long-term debt, net
of debt issuance costs and debt discount
|
324,633
|
976,693
|
Lease
obligations
|
21,971
|
30,919
|
Less: cash and cash
equivalents
|
(29,830)
|
(42,562)
|
Net debt
|
316,774
|
965,050
|
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, 2020, the net debt to operating
income ratio was 14.40:1 (December 31, 2019 – 6.32:1)
calculated on a 12-month trailing basis as follows:
For the Twelve Months
Ended December 31,
|
2020
|
2019
|
(C$000s, except ratio)
|
($)
|
($)
|
Net debt
|
316,774
|
|
965,050
|
|
Operating
income
|
21,997
|
|
152,744
|
|
Net debt to operating
income ratio
|
14.40:1
|
6.32:1
|
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. As per the
amended credit facility agreement as disclosed in note 3, the
Company's Funded Debt to Adjusted EBITDA covenant is waived for the
quarters ended December 31, 2020 to June 30, 2021, and is 4.50x for the quarter ended
September 30, 2021, 3.50x for the
quarter ended December 31, 2021, and
3.00x for each quarter end thereafter. As shown in the table below,
the Company was in full compliance with its financial covenants
associated with its credit facilities as at December 31, 2020.
|
Covenant
|
Actual
|
As at December
31,
|
2020
|
2020
|
Working capital ratio
not to fall below
|
1.15x
|
2.66x
|
Funded Debt to
Adjusted EBITDA not to exceed(1)(2)
|
N/A
|
14.45x
|
Funded Debt to
Capitalization not to exceed(1)(3)
|
0.30x
|
0.16x
|
(1) Funded Debt is defined as Total Debt excluding all
outstanding second lien notes, 1.5 lien 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, and gains and
losses that are extraordinary or
non-recurring.
|
(3) Capitalization is Total Debt plus
equity.
|
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, 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,
|
|
2020
|
2019
|
2020
|
2019
|
(C$000s)
|
|
|
($)
|
($)
|
Net income
(loss)
|
125,897
|
(49,400)
|
(324,235)
|
(156,203)
|
Add back
(deduct):
|
|
|
|
|
Depreciation
|
30,843
|
68,932
|
172,021
|
261,227
|
Unrealized foreign
exchange losses
|
3,435
|
859
|
8,319
|
2,041
|
(Gain) loss on
disposal of property, plant and equipment
|
(260)
|
(1,886)
|
24
|
1,870
|
Impairment of
property, plant and equipment
|
—
|
2,165
|
227,208
|
2,165
|
Impairment of
inventory
|
—
|
3,160
|
27,868
|
3,744
|
Impairment of other
assets
|
—
|
—
|
507
|
—
|
Gain on settlement of
debt
|
(226,319)
|
—
|
(226,319)
|
—
|
Gain on exchange of
debt
|
—
|
—
|
(130,444)
|
—
|
Non-cash purchase
commitment termination settlement
|
—
|
—
|
2,082
|
—
|
Restructuring
charges
|
4
|
3,564
|
5,377
|
6,049
|
Stock-based
compensation
|
412
|
1,334
|
1,511
|
4,626
|
Interest
|
24,913
|
21,512
|
91,267
|
85,826
|
Income
taxes
|
54,790
|
(23,358)
|
168,623
|
(52,226)
|
Adjusted
EBITDA(1)
|
13,715
|
26,882
|
23,809
|
159,119
|
(1) For
bank covenant purposes, EBITDA includes the deduction of an
additional $15,646 of lease payments for the year ended December
31, 2020 (year ended December 31, 2019 – $21,893)
that would have been recorded as operating expenses prior to the
adoption of IFRS 16.
|
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 indentures governing the Second Lien Notes and 1.5
Lien Notes contain 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 indentures, in circumstances
where:
i.
|
the Company is in
default under either of the indentures or the making of such
payment would result in a default;
|
ii.
|
the Company is not
meeting the Fixed Charge Coverage Ratio(1) under either
of the indentures 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
indentures; and in the case of the 1.5 Lien Note indenture, at
least one year has passed since their issue date.
|
|
(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 indentures
as net income (loss) 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 in each of
the indentures. As at December 31, 2020, these baskets were
not utilized.
The indentures also restrict 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. The indenture governing
the 1.5 Lien Notes includes restrictions on certain investments
including certain investments in subsidiary entities, however the
indenture includes several exceptions to this prohibition,
including a general basket of US$10,000 and baskets related to prepayment and
build commitments which aggregate over US$12,000. This indenture also contains a
restriction that any indebtedness incurred in excess of
$290,000 under the credit facilities
basket shall be junior in priority to the 1.5 Lien
Notes.
As at December 31, 2020, the Company's Fixed Charge
Coverage Ratio of 0.30:1 was below the required 2:1 ratio. Failing
to meet the Fixed Charge Coverage Ratio is not an event of default
under the indentures, and the baskets highlighted in the preceding
paragraphs provide sufficient flexibility for the Company to incur
additional indebtedness and make anticipated restricted payments
which may be required to conduct its operations.
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 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.
|
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 $20,000 ($10,000 during the Covenant Relief Period). 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
$50,000 at the time of any such
dispositions, the Company must use the resulting proceeds to reduce
the advances to less than $50,000
before using the balance for other purposes.
7. CONTINGENCIES
GREEK LITIGATION
As a result of the
acquisition and amalgamation with Denison in 2004, the Company assumed certain
legal obligations relating to Denison's Greek operations.
In 1998, North Aegean Petroleum Company E.P.E. ("NAPC"), a
Greek subsidiary of a consortium in which Denison participated (and which is now a
majority-owned subsidiary of the Company), terminated employees in
Greece as a result of the
cessation of its oil and natural gas operations in that country.
Several groups of former employees filed claims against NAPC and
the consortium alleging that their termination was invalid and that
their severance pay was improperly determined.
In 1999, the largest group of plaintiffs received a ruling
from the Athens Court of First
Instance that their termination was invalid and that salaries in
arrears amounting to approximately $10,685 (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 was 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.
Provisional orders granting a temporary suspension of any
enforcement proceedings have been granted in respect of all of
these orders. Hearings in respect of each of the orders have been
held, and in each case, decisions were rendered accepting the
Company's position. All of these decisions were appealed, but the
favorable judgments have all been confirmed in the Company's favor.
The plaintiffs have filed petitions for cassation against three of
the appeal judgments, and will have 30 days to file a petition for
cassation following the service of the remaining judgment once it
has been certified. No hearings have been scheduled for the three
pending cassation petitions.
NAPC is also the subject of a claim for approximately
$4,467 (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 $902
(578 euros), amounted to $30,036 (19,244
euros) as at December 31, 2020.
Management is of the view that it is improbable there will
be a material financial impact to the Company as a result of these
claims. Consequently, no provision has been recorded in these
consolidated financial statements.
8. SEGMENTED INFORMATION
The
Company's activities are conducted in four geographical segments:
Canada, the United States, Russia and 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,
2020
|
|
|
|
|
|
Revenue
|
53,347
|
67,283
|
26,949
|
33,143
|
—
|
180,722
|
Operating income
(loss)(1)
|
9,074
|
1,004
|
4,446
|
5,476
|
(4,403)
|
15,597
|
Segmented
assets
|
213,418
|
555,494
|
62,336
|
81,215
|
—
|
912,463
|
Capital
expenditures
|
1,964
|
3,763
|
327
|
433
|
—
|
6,487
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
Canada
|
United States
|
Russia
|
Argentina
|
Corporate
|
Consolidated
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Year Ended December 31, 2020
|
|
|
|
|
|
|
Revenue
|
230,448
|
306,090
|
100,407
|
68,491
|
—
|
705,436
|
Operating income
(loss)(1)
|
33,868
|
4,029
|
10,933
|
(6,477)
|
(20,356)
|
21,997
|
Segmented
assets
|
213,418
|
555,494
|
62,336
|
81,215
|
—
|
912,463
|
Capital
expenditures
|
10,067
|
31,435
|
1,206
|
1,922
|
—
|
44,630
|
|
|
|
|
|
|
|
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
|
(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, gains or
losses on exchange or settlement of debt, impairment of inventory,
impairment of property, plant and equipment, interest, and income
taxes.
|
|
Three Months Ended Dec. 31,
|
Years Ended Dec. 31,
|
|
2020
|
2019
|
2020
|
2019
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
Net income
(loss)
|
125,897
|
(49,400)
|
(324,235)
|
(156,203)
|
Add back
(deduct):
|
|
|
|
|
Depreciation
|
30,843
|
68,932
|
172,021
|
261,227
|
Foreign exchange
losses (gains)
|
5,733
|
(128)
|
15,477
|
6,341
|
(Gain) loss on
disposal of property, plant and equipment
|
(260)
|
(1,886)
|
24
|
1,870
|
Impairment of
property, plant and equipment
|
—
|
2,165
|
227,208
|
2,165
|
Impairment of
inventory
|
—
|
3,160
|
27,868
|
3,744
|
Impairment of other
assets
|
—
|
—
|
507
|
—
|
Gain on settlement of
debt
|
(226,319)
|
—
|
(226,319)
|
—
|
Gain on exchange of
debt
|
—
|
—
|
(130,444)
|
—
|
Interest
|
24,913
|
21,512
|
91,267
|
85,826
|
Income
taxes
|
54,790
|
(23,358)
|
168,623
|
(52,226)
|
Operating
income
|
15,597
|
20,997
|
21,997
|
152,744
|
Operating income does not have a standardized meaning
under IFRS and may not be comparable to similar measures used by
other companies.
SOURCE Calfrac Well Services Ltd.