CALGARY, AB, April 29, 2021 /CNW/ - Calfrac Well Services
Ltd. ("Calfrac" or "the Company") (TSX: CFW) announces its
financial and operating results for the three months ended
March 31, 2021.
HIGHLIGHTS
Three Months Ended
March 31,
|
2021
|
2020
|
Change
|
(C$000s, except
per share and unit data)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Financial
|
|
|
|
Revenue
|
241,575
|
305,515
|
(21)
|
Operating
income(1)
|
12,940
|
5,698
|
127
|
Per share –
basic(2)
|
0.35
|
1.97
|
(82)
|
Per share –
diluted(2)
|
0.15
|
1.96
|
(92)
|
Adjusted
EBITDA(1)
|
11,936
|
6,812
|
75
|
Per share –
basic(2)
|
0.31
|
2.35
|
(87)
|
Per share –
diluted(2)
|
0.14
|
2.34
|
(94)
|
Net loss
|
(22,418)
|
(122,857)
|
(82)
|
Per share –
basic(2)
|
(0.60)
|
(42.38)
|
(99)
|
Per share –
diluted(2)
|
(0.60)
|
(42.38)
|
(99)
|
Working capital (end
of period)
|
170,088
|
233,125
|
(27)
|
Total equity (end of
period)
|
384,561
|
239,099
|
61
|
Weighted average
common shares outstanding (000s)
|
|
|
|
Basic
|
37,422
|
2,899
|
NM
|
Diluted
|
83,814
|
2,911
|
NM
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 17 and 18 for further information.
|
(2)
|
Comparative amounts
were adjusted to reflect the Company's fifty-to-one common share
consolidation that occurred on December 18, 2020.
|
PRESIDENT'S MESSAGE
Calfrac's President and Chief Operating Officer, Lindsay Link commented: "Calfrac's performance
during the first quarter demonstrated the breadth of our operating
footprint and the resilience of our business. Despite weather
impacts in three of our operating areas, the Company's operations
continued to build momentum during the quarter, positioning us well
for the remainder of 2021. I would like to offer my thanks to our
employees and their families for their hard work and commitment to
excellence." During the quarter, Calfrac:
- completed the ramp-up in its North American operating
footprint to 11 fracturing crews;
- achieved modest improvement in service pricing; and
- delivered 34 percent in revenue growth over the prior quarter
along with adjusted EBITDA of $11.9
million or 4.9 percent of revenue.
CONSOLIDATED HIGHLIGHTS
Three Months Ended
March 31,
|
2021
|
2020
|
Change
|
(C$000s, except
operational information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
241,575
|
305,515
|
(21)
|
Expenses
|
|
|
|
Operating
|
217,447
|
282,747
|
(23)
|
Selling, general and
administrative (SG&A)
|
11,188
|
17,070
|
(34)
|
|
228,635
|
299,817
|
(24)
|
Operating
income(1)
|
12,940
|
5,698
|
127
|
Operating income
(%)
|
5.4
|
1.9
|
184
|
Adjusted
EBITDA(1)
|
11,936
|
6,812
|
75
|
Adjusted EBITDA
(%)
|
4.9
|
2.2
|
123
|
Fracturing revenue
per job ($)
|
24,549
|
23,323
|
5
|
Number of fracturing
jobs
|
8,852
|
11,969
|
(26)
|
Active pumping
horsepower, end of period (000s)
|
934
|
1,242
|
(25)
|
Idle pumping
horsepower, end of period (000s)
|
411
|
174
|
136
|
Total pumping
horsepower, end of period (000s)
|
1,345
|
1,416
|
(5)
|
Coiled tubing revenue
per job ($)
|
23,471
|
34,804
|
(33)
|
Number of coiled
tubing jobs
|
644
|
542
|
19
|
Active coiled tubing
units, end of period (#)
|
16
|
20
|
(20)
|
Idle coiled tubing
units, end of period (#)
|
11
|
7
|
57
|
Total coiled tubing
units, end of period (#)
|
27
|
27
|
—
|
Cementing revenue per
job ($)
|
50,665
|
61,979
|
(18)
|
Number of cementing
jobs
|
93
|
121
|
(23)
|
Active cementing
units, end of period (#)
|
10
|
13
|
(23)
|
Idle cementing units,
end of period (#)
|
6
|
3
|
100
|
Total cementing
units, end of period (#)
|
16
|
16
|
—
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 17 and 18 for further information.
|
Revenue in the first quarter of 2021 was $241.6 million, a decrease of 21 percent from the
same period in 2020. The lower revenue was mainly due to the
fracturing job count decreasing by 26 percent, resulting primarily
from lower activity in North
America. Cementing activity in Argentina was also lower by 23 percent, while
consolidated coiled tubing activity increased by 19 percent as a
result of job mix. Fracturing revenue per job increased by 5
percent due to changes in job mix in Canada.
Adjusted EBITDA of $11.9 million
for the first quarter of 2021 increased from $6.8 million in the comparable period in 2020,
primarily as a result of better utilization for its operating
fleets in Canada, Russia and Argentina, combined with cost reduction
measures implemented across the Company during 2020.
Net loss was $22.4 million or
$0.60 per share diluted compared to a
net loss of $122.9 million or
$42.38 per share diluted in the same
period last year, which included a gain on debt exchange of
$130.4 million, a $115.6 million deferred tax expense related to
the derecognition of the Company's deferred tax asset, and an
impairment of PP&E and other assets of $54.0 million.
Three Months
Ended
|
March
31,
|
December
31,
|
Change
|
|
2021
|
2020
|
|
(C$000s, except
operational information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
241,575
|
180,722
|
34
|
Expenses
|
|
|
|
Operating
|
217,447
|
154,582
|
41
|
SG&A
|
11,188
|
10,543
|
6
|
|
228,635
|
165,125
|
38
|
Operating
income(1)
|
12,940
|
15,597
|
(17)
|
Operating income
(%)
|
5.4
|
8.6
|
(37)
|
Adjusted
EBITDA(1)
|
11,936
|
13,715
|
(13)
|
Adjusted EBITDA
(%)
|
4.9
|
7.6
|
(36)
|
Fracturing revenue
per job ($)
|
24,549
|
33,022
|
(26)
|
Number of fracturing
jobs
|
8,852
|
4,887
|
81
|
Active pumping
horsepower, end of period (000s)
|
934
|
901
|
4
|
Idle pumping
horsepower, end of period (000s)
|
411
|
444
|
(7)
|
Total pumping
horsepower, end of period (000s)
|
1,345
|
1,345
|
—
|
Coiled tubing revenue
per job ($)
|
23,471
|
33,754
|
(30)
|
Number of coiled
tubing jobs
|
644
|
354
|
82
|
Active coiled tubing
units, end of period (#)
|
16
|
17
|
(6)
|
Idle coiled tubing
units, end of period (#)
|
11
|
10
|
10
|
Total coiled tubing
units, end of period (#)
|
27
|
27
|
—
|
Cementing revenue per
job ($)
|
50,665
|
43,697
|
16
|
Number of cementing
jobs
|
93
|
85
|
9
|
Active cementing
units, end of period (#)
|
10
|
12
|
(17)
|
Idle cementing units,
end of period (#)
|
6
|
4
|
50
|
Total cementing
units, end of period (#)
|
16
|
16
|
—
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 17 and 18 for further information.
|
First-quarter revenue in 2021 of $241.6
million represented an increase of 34 percent from the
fourth quarter of 2020, primarily due to improved fracturing
activity in all of the areas where Calfrac operates. Revenue per
fracturing job was 26 percent lower compared with the fourth
quarter of 2020 due to the impact of job mix in Canada and a lower rouble in Russia.
In Canada, revenue increased by
60 percent from the fourth quarter to $85.6
million in the first quarter due to a rebound in customer
activity resulting from improved oil and natural gas prices and
refreshed capital budgets. Calfrac's Canadian division adjusted its
operating footprint in advance of the first quarter and was
able to deploy four fracturing fleets and four coiled tubing units
in order to meet the needs of the Company's core clients. Operating
income as a percentage of revenue was 18 percent, compared to 17
percent in the fourth quarter.
In the United States, revenue
in the first quarter of 2021 was $92.9
million or 38 percent higher than the fourth quarter of
2020. The improvement was primarily activity driven as the Company
had a full quarter of activity from the three fleets that were
reactivated late in the fourth quarter. Operating losses were
$3.0 million in the first quarter
compared to operating income of $1.0
million in the fourth quarter of 2020. Cold weather and
winter storms directly impacted activity levels in February and
also caused a significant increase in fuel and other input costs.
In total, this weather negatively impacted operating income by more
than $2.0 million during the
quarter.
In Russia, revenue of
$27.6 million in the first quarter of
2021 was 2 percent higher than the fourth quarter due to a 5
percent increase in fracturing activity, offset partially by a
weaker Russian rouble. Operating income decreased by $3.0 million due primarily to higher operating
costs associated with winter operations in Western Siberia.
In Argentina, revenue in the
first quarter of 2021 increased to $35.5
million from $33.1 million in
the fourth quarter. The ongoing improvement in operating conditions
resulted in a sequential improvement in overall activity. However,
Calfrac's large fracturing spread shifted between customers, to a
new major operator, during the early part of the quarter which
impacted profitability. Consequently, operating income decreased
from $5.5 million in the fourth
quarter of 2020 to $3.9 million in
the first quarter.
Adjusted EBITDA of $11.9 million
for the first quarter of 2021 decreased from $13.7 in the fourth quarter of 2020, primarily
due to the impact of winter storms in the
United States, which caused temporary shut-downs and higher
costs in February.
BUSINESS UPDATE AND OUTLOOK
During the first quarter, demand for Calfrac's services
increased in all operating areas although disruptions due to winter
weather conditions impacted activity and financial results in
Russia, Canada and the
United States.
CANADA
In Canada, the first quarter
began with high levels of utilization for all four marketed
spreads, and continued for much of the quarter with the exception
of approximately 15 days that were lost due to severe cold
weather for one crew that was operating in Saskatchewan. Warming weather conditions in
March had very little impact on Calfrac's ability to service work
as crews shifted further north and managed to remain fully utilized
through the month.
Calfrac's Canadian division adjusted its operating footprint in
advance of the first quarter and was able to deploy four fracturing
fleets and four coiled tubing units in order to meet the needs of
the Company's core clients. The high level of demand from these
clients in Canada left very little
spare capacity to service spot market work during the quarter. The
Company plans to maintain a similar level of utilization through
the remainder of 2021, and will not consider incremental equipment
additions until service pricing increases are realized.
Second-quarter activity will decrease from first-quarter levels,
however, a reduced footprint and cost management is expected
to result in positive operating income during the upcoming quarter.
Visibility on work projects for the second half of the year
continues to improve and is expected to drive consistently high
utilization for at least three fracturing fleets through the third
and fourth quarters. While pricing in the Canadian market has
improved marginally from the lows seen in 2020, it is still
apparent that a number of active fleets did not experience full
utilization in the first quarter, which prevented further pricing
gains. If this utilization gap remains into the second half of the
year, it will likely impair the industry's ability to significantly
improve its financial results in the near term.
UNITED STATES
During the first quarter, Calfrac's operations in the United States improved quicker than
expectations as work programs picked up in rapid succession, and
some incremental work was secured outside of planned programs.
Activity levels improved steadily through the quarter, but were
severely disrupted in mid-February by the cold weather and winter
storms that impacted much of the continental United States. These weather events directly
impacted activity and resulted in a significant increase in fuel
and other input costs. In total, the inclement weather was
responsible for over $2.0 million of
operating losses during the quarter. The Company acted quickly to
identify and mitigate these impacts, and financial performance
improved significantly in March.
Producers in the United States
continue to focus on maintaining capital spending as planned,
especially larger public companies. However, there has been an
increase in bidding activity driven primarily by private companies
in Texas, Colorado and North
Dakota. Activity levels are expected to increase modestly in
the second quarter, as the expected absence of weather impacts will
improve results. Pricing has improved modestly from 2020 levels,
which is expected to further improve profitability in the second
quarter and beyond.
Activity levels are expected to remain strong
through the summer and into the latter part of the year, and if
pricing continues to strengthen, there may be opportunities to
increase Calfrac's operating footprint later in the year.
RUSSIA
Calfrac's financial performance in Russia during the first quarter met
expectations as winter weather impacted activity levels but costs
remained in line with the previous year. Approximately 15 operating
days were lost during the quarter when temperatures were too low to
permit operations to safely continue. As is also typical, March
represented the strongest month of the quarter due to improved
utilization. The transition to summer operating conditions is well
underway and current expectations are for activity to remain high
over the months ahead. There are a number of opportunities to
activate additional fracturing and coiled tubing equipment in
Russia and the Company will
continue to engage with clients in this regard.
ARGENTINA
In Argentina, ongoing
improvement in operating conditions resulted in a sequential
improvement in activity, however, a significant change in cementing
job mix was also observed during the quarter. In addition,
Calfrac's large fracturing spread in Neuquén shifted between
customers during the early part of the quarter which resulted in
lower utilization for a short period and modestly impacted
profitability from its unconventional fracturing operations. Demand
for services remains strong, underpinned by federal government
programs designed to improve the domestic supply of natural gas in
the years ahead. Work volumes are expected to remain strong
throughout the remainder of the year, and Calfrac remains very
well-positioned in both the conventional and shale fracturing
markets in Argentina.
CORPORATE
At the corporate level, Calfrac's focus remains on managing its
costs and capital in a prudent manner while continuing to look for
opportunities to improve its business. In particular, Calfrac has
been evaluating ways to continue to advance the improvements it has
made, together with its customers, on the environmental impact of
our operations in a manner that recognizes ESG imperatives while
respecting our shareholders' investments. Additionally, the
potential for the collection and rapid analysis of data to deliver
further insights into our operations and clients' resources is
increasing, and Calfrac continues to develop technologies and
partnerships to unlock that potential.
CANADA
Three Months Ended
March 31,
|
2021
|
2020
|
Change
|
(C$000s, except
operational information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
85,583
|
104,619
|
(18)
|
Expenses
|
|
|
|
Operating
|
68,743
|
89,693
|
(23)
|
SG&A
|
1,661
|
2,951
|
(44)
|
|
70,404
|
92,644
|
(24)
|
Operating
income(1)
|
15,179
|
11,975
|
27
|
Operating income
(%)
|
17.7
|
11.4
|
55
|
Fracturing revenue
per job ($)
|
16,939
|
15,290
|
11
|
Number of fracturing
jobs
|
4,569
|
6,186
|
(26)
|
Active pumping
horsepower, end of period (000s)
|
202
|
237
|
(15)
|
Idle pumping
horsepower, end of period (000s)
|
73
|
36
|
103
|
Total pumping
horsepower, end of period (000s)
|
275
|
273
|
1
|
Coiled tubing revenue
per job ($)
|
23,062
|
25,031
|
(8)
|
Number of coiled
tubing jobs
|
355
|
401
|
(11)
|
Active coiled tubing
units, end of period (#)
|
7
|
11
|
(36)
|
Idle coiled tubing
units, end of period (#)
|
6
|
2
|
200
|
Total coiled tubing
units, end of period (#)
|
13
|
13
|
—
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 17 and 18 for further information.
|
REVENUE
Revenue from Calfrac's Canadian operations during the first
quarter of 2021 was $85.6 million
compared to $104.6 million in the
same period of 2020, primarily due to lower activity. The number of
fracturing jobs decreased by 26 percent from the comparable period
in 2020 due to a smaller operating footprint as the Company
responded to unfavorable market conditions and operated only four
fleets compared to five fleets in the first quarter of 2020.
Revenue per job increased by 11 percent mainly due to job 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 11 percent from the first quarter in 2020 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 first quarter of 2021 was $15.2
million compared to $12.0
million in the same period of 2020. Despite an 18 percent
decrease in revenue, the Company's operating income as a percentage
of revenue was 18 percent compared to 11 percent in the comparable
quarter. This increase in operating income was mainly due to a
right-sized operating footprint in response to unfavorable market
conditions, cost saving initiatives implemented in the second
quarter of 2020, which included salary and headcount reductions,
combined with lower discretionary spending. The first quarter of
2021 included $1.4 million of
Canadian Emergency Wage Subsidy compared to the first quarter of
2020 which included $1.6 million in
restructuring costs.
UNITED STATES
Three Months Ended
March 31,
|
2021
|
2020
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
92,913
|
154,112
|
(40)
|
Expenses
|
|
|
|
Operating
|
93,154
|
144,729
|
(36)
|
SG&A
|
2,771
|
4,196
|
(34)
|
|
95,925
|
148,925
|
(36)
|
Operating (loss)
income(1)
|
(3,012)
|
5,187
|
NM
|
Operating (loss)
income (%)
|
(3.2)
|
3.4
|
NM
|
Fracturing revenue
per job ($)
|
26,239
|
28,366
|
(7)
|
Number of fracturing
jobs
|
3,541
|
5,433
|
(35)
|
Active pumping
horsepower, end of period (000s)
|
532
|
802
|
(34)
|
Idle pumping
horsepower, end of period (000s)
|
338
|
126
|
168
|
Total pumping
horsepower, end of period (000s)
|
870
|
928
|
(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
|
2
|
50
|
Total cementing
units, end of period (#)
|
3
|
2
|
50
|
US$/C$ average
exchange rate(2)
|
1.2660
|
1.3449
|
(6)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 17 and 18 for further information.
|
(2)
|
Source: Bank of
Canada.
|
REVENUE
Revenue from Calfrac's United
States operations decreased to $92.9
million during the first quarter of 2021 from $154.1 million in the comparable quarter of 2020.
The significant decrease in revenue can be attributed to a
combination of a 35 percent reduction in the number of fracturing
jobs completed and a 7 percent decrease in revenue per job
period-over-period, primarily due to the decline in the U.S. dollar
exchange rate. Activity levels for the quarter started off
relatively strong but were severely impacted in mid-February by
extreme cold weather which temporarily shutdown operations. The
Company reduced it operating footprint from a peak of 14 fleets in
the first quarter of 2020 down to seven fleets in the first quarter
of 2021.
OPERATING (LOSS) INCOME
The Company's United States
operations generated an operating loss of $3.0 million during the first quarter of 2021
compared to operating income of $5.2
million in the same period in 2020. The decrease in
operating income was due to the significant reduction in revenue
compared to the first quarter of 2020 as extreme weather in
February resulted in lower utilization in North Dakota and Colorado and the temporary shutdown of
operations in Pennsylvania and
New Mexico. In addition, higher
fuel costs and other expenses related to the winter storm were
experienced in North Dakota.
SG&A expenses decreased by 34 percent primarily due to
headcount and compensation reductions that were enacted in the
second quarter in 2020.
RUSSIA
Three Months Ended
March 31,
|
2021
|
2020
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
27,621
|
20,991
|
32
|
Expenses
|
|
|
|
Operating
|
25,465
|
22,250
|
14
|
SG&A
|
680
|
1,039
|
(35)
|
|
26,145
|
23,289
|
12
|
Operating income
(loss)(1)
|
1,476
|
(2,298)
|
NM
|
Operating income
(loss) (%)
|
5.3
|
(10.9)
|
NM
|
Fracturing revenue
per job ($)
|
74,113
|
102,408
|
(28)
|
Number of fracturing
jobs
|
339
|
179
|
89
|
Active pumping
horsepower, end of period (000s)
|
77
|
65
|
18
|
Idle pumping
horsepower, end of period (000s)
|
—
|
12
|
(100)
|
Total pumping
horsepower, end of period (000s)
|
77
|
77
|
—
|
Coiled tubing revenue
per job ($)
|
47,101
|
46,667
|
1
|
Number of coiled
tubing jobs
|
53
|
57
|
(7)
|
Active coiled tubing
units, end of period (#)
|
4
|
3
|
33
|
Idle coiled tubing
units, end of period (#)
|
3
|
4
|
(25)
|
Total coiled tubing
units, end of period (#)
|
7
|
7
|
—
|
Rouble/C$ average
exchange rate(2)
|
0.0170
|
0.0202
|
(16)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 17 and 18 for further information.
|
(2)
|
Source: Bank of
Canada.
|
REVENUE
Revenue from Calfrac's Russian operations increased by 32
percent during the first quarter of 2021 to $27.6 million from $21.0
million in the corresponding period of 2020. The increase in
revenue was attributable to a 89 percent increase in fracturing
activity due to better utilization as the comparable quarter in
2020 had weather related access issues. Revenue per fracturing job
decreased by 28 percent primarily due to a 16 percent decline in
the Russian rouble, combined with a larger percentage of
multi-stage wells completed, which lowered average fracturing job
sizes for the quarter. Coiled tubing activity decreased by 7
percent due to changes in job mix as the Company operated primarily
in the Erginskoye field, which had larger average job sizes as
compared to the same period in 2020. Despite the decline in the
Russian rouble, coiled tubing revenue per job was 1 percent higher
than the comparable quarter due to changes in job mix.
OPERATING INCOME (LOSS)
The Company's Russian division generated operating income of
$1.5 million during the first quarter
of 2021 versus an operating loss of $2.3
million in the comparable quarter in 2020. The improved
operating performance was primarily due to better utilization of
its operating fleets combined with cost saving initiatives
implemented in 2020.
ARGENTINA
Three Months Ended
March 31,
|
2021
|
2020
|
Change
|
(C$000s, except
operational and exchange rate information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
35,458
|
25,793
|
37
|
Expenses
|
|
|
|
Operating
|
29,730
|
24,949
|
19
|
SG&A
|
1,814
|
2,476
|
(27)
|
|
31,544
|
27,425
|
15
|
Operating income
(loss)(1)
|
3,914
|
(1,632)
|
NM
|
Operating income
(loss) (%)
|
11.0
|
(6.3)
|
NM
|
Fracturing revenue
per job ($)
|
54,288
|
70,916
|
(23)
|
Number of fracturing
jobs
|
403
|
171
|
136
|
Active pumping
horsepower, end of period (000s)
|
123
|
138
|
(11)
|
Idle pumping
horsepower, end of period (000s)
|
—
|
—
|
—
|
Total pumping
horsepower, end of period (000s)
|
123
|
138
|
(11)
|
Coiled tubing revenue
per job ($)
|
18,781
|
73,411
|
(74)
|
Number of coiled
tubing jobs
|
236
|
84
|
181
|
Active coiled tubing
units, end of period (#)
|
5
|
6
|
(17)
|
Idle coiled tubing
units, end of period (#)
|
1
|
—
|
NM
|
Total coiled tubing
units, end of period (#)
|
6
|
6
|
—
|
Cementing revenue per
job ($)
|
50,665
|
61,979
|
(18)
|
Number of cementing
jobs
|
93
|
121
|
(23)
|
Active cementing
units, end of period (#)
|
10
|
13
|
(23)
|
Idle cementing units,
end of period (#)
|
3
|
1
|
200
|
Total cementing
units, end of period (#)
|
13
|
14
|
(7)
|
US$/C$ average
exchange rate(2)
|
1.2660
|
1.3449
|
(6)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 17 and 18 for further information.
|
(2)
|
Source: Bank of
Canada.
|
REVENUE
Calfrac's Argentinean operations generated
revenue of $35.5 million during the
first quarter of 2021 compared to $25.8
million in the comparable quarter in 2020, primarily due to
the 136 percent increase in the number of completed fracturing
jobs. Revenue per fracturing job decreased by 23 percent due to
changes in customer and job mix. Despite the 181 percent increase
in coiled tubing activity, coiled tubing revenue was lower
quarter-over-quarter as revenue per job decreased by 74 due to
changes in job mix. Cementing activity decreased by 23 percent from
the comparable quarter in 2020 due to a reduction in active units.
In addition, the first quarter included subcontractor revenue that
was not experienced in the first quarter of 2020 due to changes in
contracted service mix in Neuquén.
OPERATING INCOME (LOSS)
The Company's operations in Argentina generated an operating income of
$3.9 million during the first quarter
of 2021 compared to an operating loss of $1.6 million in the comparable quarter of 2020.
Overall utilization in January and February experienced some
operating delays by the Company's main customer, which lowered
operating income for the first half of the quarter. Utilization
improved significantly in March compared to the same period in 2020
as the prior year included a government-mandated shutdown of
oilfield activity in response to the COVID-19 pandemic.
CORPORATE
Three Months Ended
March 31,
|
2021
|
2020
|
Change
|
(C$000s)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Expenses
|
|
|
|
Operating
|
355
|
1,126
|
(68)
|
SG&A
|
4,262
|
6,408
|
(33)
|
|
4,617
|
7,534
|
(39)
|
Operating
loss(1)
|
(4,617)
|
(7,534)
|
(39)
|
% of
Revenue
|
1.9
|
2.5
|
(24)
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 17 and 18 for further information.
|
OPERATING LOSS
Corporate expenses for the first quarter of 2021 were
$4.6 million compared to $7.5 million in the first quarter of 2020. The
decrease was primarily due to lower personnel costs resulting from
headcount and compensation reductions, combined with $0.2 million in government subsidies
received during the first quarter of 2021. The Company's
stock-based compensation expense was $0.5
million lower than the first quarter in 2020 as the Company
cancelled all outstanding stock options and performance share units
in conjunction with the Recapitalization Transaction that closed in
December 2020 and has not yet issued
any equity-based awards under its omnibus incentive plan.
DEPRECIATION
For the three months ended March 31, 2021, depreciation
expense decreased by $31.7
million to $31.6 million from
$63.3 million in the corresponding
quarter in 2020. In 2020, the Company recorded PP&E impairment
charges totaling $227.2 million which
resulted in the reduction of depreciation expense during the first
quarter in 2021. 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 first-quarter
depreciation expense.
FOREIGN EXCHANGE GAINS AND LOSSES
The Company recorded a foreign exchange loss of $3.3 million during the first quarter of 2021
versus a gain of $0.1 million in the
comparative three-month period of 2020. 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 first quarter was mainly 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 $9.1 million for the first quarter of 2021 was
$16.9 million lower than the
comparable period in 2020. The decrease in interest expense was
primarily due to the significant reduction in long-term debt
resulting from the Recapitalization Transaction that closed on
December 18, 2020, combined with the
debt exchange that was completed during the first quarter in 2020.
These transactions combined to eliminate US$650.0 million of the Company's 8.50 percent
senior unsecured notes and replaced it with US$120.0 million of Second Lien Notes bearing
interest at 10.875 percent and $59.0
million of 1.5 Lien Notes at an annual interest rate of 10.0
percent. Interest expense during the first quarter in 2020 also
included the write-off of $4.4
million of deferred finance costs related to the portion of
senior unsecured notes that were exchanged during that quarter.
INCOME TAXES
The Company recorded an income tax recovery of $8.3 million during the first quarter of 2021
compared to an expense of $114.1
million in the comparable period of 2020. A deferred tax
recovery of $8.4 million was recorded
primarily due to losses incurred in the
United States and a current income tax expense of
$0.1 million resulted from current
tax obligations in Russia and
certain state taxes in the United
States. The expense position in the first quarter in 2020
was the result of the derecognition of the Company's deferred tax
asset, which resulted in a deferred tax expense of $115.6 million.
IMPAIRMENT
Since the impairment test that was conducted as at December 31, 2020, the Company did not identify
any changes in the indicators of impairment or any new indicators
of impairment. Therefore, no further assessment on impairment was
performed as there have been no changes in circumstances that
indicate that the carrying amount of property, plant and equipment
does not exceed its recoverable amount as at March 31, 2021. The impairment charge by CGU is
shown in the table below.
Three Months Ended
March 31,
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
Canada
|
—
|
38,144
|
United
States
|
—
|
15,380
|
|
—
|
53,524
|
LIQUIDITY AND CAPITAL RESOURCES
|
Three Months Ended
Mar. 31,
|
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
(unaudited)
|
|
|
Cash provided by
(used in):
|
|
|
Operating
activities
|
(19,862)
|
(46,339)
|
Financing
activities
|
15,981
|
19,332
|
Investing
activities
|
(10,506)
|
(25,856)
|
Effect of exchange
rate changes on cash and cash equivalents
|
(1,478)
|
7,304
|
Decrease in cash and
cash equivalents
|
(15,865)
|
(45,559)
|
OPERATING ACTIVITIES
The Company's cash used in operating activities for the three
months ended March 31, 2021 was $19.9
million versus $46.3 million
during the same period in 2020. The decrease in cash used in
operations was primarily due to a lower outflow of cash from
working capital during the period. Working capital used
$20.8 million of cash in the first
three months in 2021 compared to $44.0
million in the same period in 2020. At March 31, 2021,
Calfrac's working capital was $170.1
million compared to $161.4
million at December 31,
2020.
FINANCING ACTIVITIES
Net cash provided by financing activities for the three months
ended March 31, 2021 was $16.0
million compared to net cash provided of $19.3 million in the comparable three-month
period in 2020. During the three months ended March 31, 2021, the Company borrowed $17.7
million on a net basis under its credit facilities, paid lease
principal payments of $1.8 million
and received proceeds of $0.1 million
from the exercise of a portion of the Company's outstanding
warrants.
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. The Company also opted to pay its first interest
payment on the 1.5 Lien Notes in cash during the first quarter
rather than utilizing the payment-in-kind option.
During the first quarter of 2021, the Company recorded the
rescission of $1.0 million of its 1.5
Lien Notes. For accounting purposes, the $1.0 million principal amount was recorded on a
proportional basis as a reduction of the liability and equity
portion of the 1.5 Lien Notes.
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 March 31,
2021 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 March 31, 2021,
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:
- 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;
- 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
- 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 March 31, 2021, the Company had used $0.8 million of its credit facilities for letters
of credit and had $150.0 million of
borrowings under its credit facilities, leaving $139.2 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 March 31, 2021
resulted in liquidity of $64.2
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. As per the amended credit facility agreement, the
Company's Funded Debt to Adjusted EBITDA covenant is waived for the
quarters ended March 31, 2021 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
March 31, 2021.
|
Covenant
|
Actual
|
March 31,
|
2021
|
2021
|
Working capital ratio
not to fall below
|
1.15x
|
2.44x
|
Funded Debt to
Adjusted EBITDA not to exceed(1)(2)
|
N/A
|
8.61x
|
Funded Debt to
Capitalization not to exceed(1)(3)
|
0.30x
|
0.20x
|
(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.
|
On February 24, 2020, Calfrac
executed an exchange offer of US$120.0
million of new 10.875 percent Second Lien Notes due
March 15, 2026 to holders of its
existing 8.50 percent 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:
- the Company is only permitted to use the proceeds of a common
share issuance to increase Adjusted EBITDA a maximum of two
times;
- the Company cannot use the proceeds of a common share issuance
to increase Adjusted EBITDA in consecutive quarter ends;
- 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
- 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:
- the Company is in default under either of the indentures or the
making of such payment would result in a default;
- 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
- 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, 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 March 31, 2021, 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 March 31, 2021, the Company's Fixed Charge Coverage
Ratio of 0.43:1 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
$10.5 million for the three months
ended March 31, 2021 versus $25.9
million in the comparable period in 2020. Cash outflows
relating to capital expenditures were $10.9
million for the three months ended March 31, 2021
compared to $26.8 million in the same
period in 2020. 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 three months ended
March 31, 2021 was a loss of $1.5
million versus a gain of $7.3
million in the same period in 2020. These gains and 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 March 31, 2021, the Company had cash on hand of
$14.0 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 April 28, 2021, the Company had
not issued any equity-based awards under its omnibus incentive
plan.
SUMMARY OF QUARTERLY RESULTS
Three Months
Ended
|
Jun. 30,
|
Sep. 30,
|
Dec. 31,
|
Mar. 31,
|
Jun. 30,
|
Sep. 30,
|
Dec. 31,
|
Mar.
31,
|
|
2019
|
2019
|
2019
|
2020
|
2020
|
2020
|
2020
|
2021
|
(C$000s, except
per share and operating data)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
(unaudited)
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
Revenue
|
429,638
|
399,220
|
317,085
|
305,515
|
91,423
|
127,776
|
180,722
|
241,575
|
Operating income
(loss)(1)
|
41,103
|
47,021
|
20,997
|
5,698
|
(7,307)
|
8,009
|
15,597
|
12,940
|
Per share –
basic(2)
|
14.23
|
16.25
|
7.25
|
1.97
|
(2.52)
|
2.76
|
1.91
|
0.35
|
Per share –
diluted(2)
|
14.07
|
16.18
|
7.22
|
1.96
|
(2.52)
|
2.75
|
0.27
|
0.15
|
Adjusted
EBITDA(1)
|
45,123
|
43,028
|
26,882
|
6,812
|
(5,185)
|
8,467
|
13,715
|
11,936
|
Per share –
basic(2)
|
15.62
|
14.87
|
9.29
|
2.35
|
(1.79)
|
2.91
|
1.68
|
0.31
|
Per share –
diluted(2)
|
15.45
|
14.80
|
9.25
|
2.34
|
(1.79)
|
2.91
|
0.24
|
0.14
|
Net income
(loss)
|
(41,045)
|
(29,424)
|
(49,400)
|
(122,857)
|
(277,275)
|
(50,000)
|
125,897
|
(22,418)
|
Per share –
basic(2)
|
(14.21)
|
(10.17)
|
(17.07)
|
(42.38)
|
(95.61)
|
(17.20)
|
15.43
|
(0.60)
|
Per share –
diluted(2)
|
(14.21)
|
(10.17)
|
(17.07)
|
(42.38)
|
(95.61)
|
(17.20)
|
2.19
|
(0.60)
|
Capital
expenditures
|
37,784
|
38,885
|
34,418
|
29,283
|
6,068
|
2,792
|
6,487
|
11,586
|
Working capital (end
of period)
|
291,056
|
257,189
|
248,772
|
233,125
|
157,165
|
127,989
|
161,448
|
170,088
|
Total equity (end of
period)
|
443,361
|
414,195
|
368,623
|
239,099
|
(34,195)
|
(81,033)
|
410,234
|
384,561
|
|
|
|
|
|
|
|
|
|
Operating (end of
period)
|
|
|
|
|
|
|
|
|
Active pumping
horsepower (000s)
|
1,346
|
1,337
|
1,269
|
1,242
|
780
|
840
|
901
|
934
|
Idle pumping
horsepower (000s)
|
59
|
72
|
141
|
174
|
572
|
505
|
444
|
411
|
Total pumping
horsepower (000s)
|
1,405
|
1,409
|
1,410
|
1,416
|
1,352
|
1,345
|
1,345
|
1,345
|
Active coiled tubing
units (#)
|
21
|
21
|
20
|
20
|
16
|
15
|
17
|
16
|
Idle coiled tubing
units (#)
|
8
|
8
|
8
|
7
|
11
|
12
|
10
|
11
|
Total coiled tubing
units (#)
|
29
|
29
|
28
|
27
|
27
|
27
|
27
|
27
|
Active cementing
units (#)
|
14
|
14
|
13
|
13
|
13
|
12
|
12
|
10
|
Idle cementing units
(#)
|
9
|
9
|
6
|
3
|
3
|
4
|
4
|
6
|
Total cementing units
(#)
|
23
|
23
|
19
|
16
|
16
|
16
|
16
|
16
|
(1)
|
Refer to "Non-GAAP
Measures" on pages 17 and 18 for further information.
|
(2)
|
Comparative amounts
were adjusted to reflect the Company's fifty-to-one common share
consolidation 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 (refer to "Business
Risks - Seasonality" in the 2020 Annual Report).
FOREIGN EXCHANGE FLUCTUATIONS
The Company's consolidated financial statements are reported in
Canadian dollars. Accordingly, the quarterly results are directly
affected by fluctuations in the exchange rates for United States, Russian and Argentinean
currency (refer to "Business Risks - Fluctuations in Foreign
Exchange Rates" in the 2020 Annual Report).
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, a
regulatory application with respect to the rescission of
a subscription for 1.5 Lien Notes by an institutional Shareholder,
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 and regulatory 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; dilution risks associated with the conversion
of outstanding convertible securities and additional equity or debt
financings; 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; activist shareholder risks; social
media risks; risk relating to the Plan of Arrangement; 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;
cybersecurity risks; greenhouse gas regulation risks; 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, which is specifically incorporated by
reference herein. The Annual Information Form is available through
the Internet on the Canadian System for Electronic Document
Analysis and Retrieval (SEDAR), which can be accessed at
www.sedar.com. Copies of the Annual Information Form may also be
obtained on request without charge from Calfrac at 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 property, plant and
equipment, impairment of other assets, 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. In addition, management
believes this measure allows investors to more accurately compare
the Company's performance with its peers by providing an indication
of its financial results prior to consideration of the age or size
of its asset base, or the investment and accounting policies
associated with its assets. Operating income (loss) for the period
was calculated as follows:
Three Months Ended
March 31,
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
(unaudited)
|
|
|
Net loss
|
(22,418)
|
(122,857)
|
Add back
(deduct):
|
|
|
Depreciation
|
31,624
|
63,263
|
Foreign exchange
losses (gains)
|
3,345
|
(90)
|
(Gain) loss on
disposal of property, plant and equipment
|
(387)
|
1,669
|
Impairment of
property, plant and equipment
|
—
|
53,524
|
Impairment of other
assets
|
—
|
507
|
Gain on exchange of
debt
|
—
|
(130,444)
|
Interest
|
9,101
|
26,043
|
Income
taxes
|
(8,325)
|
114,083
|
Operating
income
|
12,940
|
5,698
|
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
March 31,
|
2021
|
2020
|
(C$000s)
|
|
|
(unaudited)
|
|
|
Net loss
|
(22,418)
|
(122,857)
|
Add back
(deduct):
|
|
|
Depreciation
|
31,624
|
63,263
|
Unrealized foreign
exchange losses (gains)
|
2,086
|
(2,280)
|
(Gain) loss on
disposal of property, plant and equipment
|
(387)
|
1,669
|
Impairment of
property, plant and equipment
|
—
|
53,524
|
Impairment of other
assets
|
—
|
507
|
Gain on exchange of
debt
|
—
|
(130,444)
|
Restructuring
charges
|
255
|
2,621
|
Stock-based
compensation
|
—
|
683
|
Interest
|
9,101
|
26,043
|
Income
taxes
|
(8,325)
|
114,083
|
Adjusted
EBITDA
|
11,936
|
6,812
|
(1) For bank covenant
purposes, EBITDA includes the deduction of an additional $2.1
million (three months ended March 31, 2020 - $5.5 million) of lease
payments that would have been recorded as operating expenses prior
to the adoption of IFRS 16.
|
ADDITIONAL INFORMATION
Further information regarding Calfrac Well Services Ltd.,
including the most recently filed Annual Information Form, can be
accessed on the Company's website at www.calfrac.com or under the
Company's public filings found at www.sedar.com.
FIRST QUARTER CONFERENCE CALL
Calfrac will be conducting a conference call for interested
analysts, brokers, investors and news media representatives to
review its 2021 first-quarter results at 10:00 a.m. (Mountain Time) on Thursday, April 29,
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 3159708). A webcast of the
conference call may be accessed via the Company's website at
www.calfrac.com.
CONSOLIDATED BALANCE SHEETS
|
March
31,
|
December
31,
|
|
2021
|
2020
|
(C$000s)
(unaudited)
|
($)
|
($)
|
ASSETS
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
13,965
|
29,830
|
Accounts
receivable
|
184,671
|
139,486
|
Income taxes
recoverable
|
1,711
|
1,530
|
Inventories
|
87,233
|
83,294
|
Prepaid expenses and
deposits
|
13,915
|
17,050
|
|
301,495
|
271,190
|
Non-current
assets
|
|
|
Property, plant and
equipment
|
593,903
|
618,488
|
Right-of-use
assets
|
21,326
|
22,785
|
Total
assets
|
916,724
|
912,463
|
LIABILITIES AND
EQUITY
|
|
|
Current
liabilities
|
|
|
Accounts payable and
accrued liabilities
|
123,601
|
101,784
|
Current portion of
lease obligations
|
7,806
|
7,958
|
|
131,407
|
109,742
|
Non-current
liabilities
|
|
|
Long-term debt (note
1)
|
343,312
|
324,633
|
Lease
obligations
|
12,611
|
14,013
|
Deferred income tax
liabilities
|
44,833
|
53,841
|
Total
liabilities
|
532,163
|
502,229
|
Capital stock (note
3)
|
800,444
|
800,184
|
Conversion rights on
convertible notes (note 1)
|
4,788
|
4,873
|
Contributed
surplus
|
65,986
|
65,986
|
Warrants (notes 2 and
4)
|
40,605
|
40,797
|
Loan receivable for
purchase of common shares
|
(2,500)
|
(2,500)
|
Accumulated
deficit
|
(531,827)
|
(509,409)
|
Accumulated other
comprehensive income
|
7,065
|
10,303
|
Total
equity
|
384,561
|
410,234
|
Total liabilities and
equity
|
916,724
|
912,463
|
Contingencies
(note 6)
|
See accompanying
notes to the interim condensed consolidated financial
statements.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
|
2021
|
2020
|
(C$000s, except per
share data) (unaudited)
|
($)
|
($)
|
Revenue
|
241,575
|
305,515
|
Cost of
sales
|
249,071
|
346,010
|
Gross loss
|
(7,496)
|
(40,495)
|
Expenses
|
|
|
Selling, general and
administrative
|
11,188
|
17,070
|
Foreign exchange
losses (gains)
|
3,345
|
(90)
|
(Gain) loss on
disposal of property, plant and equipment
|
(387)
|
1,669
|
Impairment of
property, plant and equipment
|
—
|
53,524
|
Impairment of other
assets
|
—
|
507
|
Gain on exchange of
debt (note 1)
|
—
|
(130,444)
|
Interest
|
9,101
|
26,043
|
|
23,247
|
(31,721)
|
Loss before income
tax
|
(30,743)
|
(8,774)
|
Income tax expense
(recovery)
|
|
|
Current
|
85
|
57
|
Deferred
|
(8,410)
|
114,026
|
|
(8,325)
|
114,083
|
Net loss
|
(22,418)
|
(122,857)
|
|
|
|
Loss per share (note
3)
|
|
|
Basic
|
(0.60)
|
(42.38)
|
Diluted
|
(0.60)
|
(42.38)
|
See accompanying
notes to the interim condensed consolidated financial
statements.
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Three Months Ended
March 31,
|
2021
|
2020
|
(C$000s)
(unaudited)
|
($)
|
($)
|
Net
loss
|
(22,418)
|
(122,857)
|
Other
comprehensive income (loss)
|
|
|
Items that may be
subsequently reclassified to profit or loss:
|
|
|
Change in foreign
currency translation adjustment
|
(3,238)
|
(7,350)
|
Comprehensive
loss
|
(25,656)
|
(130,207)
|
See accompanying
notes to the interim condensed 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$000s)
(unaudited)
|
($)
|
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Balance – January
1, 2021
|
800,184
|
4,873
|
65,986
|
40,797
|
(2,500)
|
10,303
|
(509,409)
|
410,234
|
Net loss
|
—
|
|
—
|
—
|
—
|
—
|
(22,418)
|
(22,418)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
Cumulative translation
adjustment
|
—
|
—
|
—
|
—
|
—
|
(3,238)
|
—
|
(3,238)
|
Comprehensive
loss
|
—
|
—
|
—
|
—
|
—
|
(3,238)
|
(22,418)
|
(25,656)
|
Rescission of equity
portion of 1.5 Lien Notes
|
—
|
(85)
|
—
|
—
|
—
|
—
|
—
|
(85)
|
Warrants:
|
|
|
|
|
|
|
|
|
Proceeds from issuance
of shares (note 4)
|
260
|
—
|
—
|
(192)
|
—
|
—
|
—
|
68
|
Balance – March
31, 2021
|
800,444
|
4,788
|
65,986
|
40,605
|
(2,500)
|
7,065
|
(531,827)
|
384,561
|
Balance – January 1,
2020
|
509,235
|
—
|
44,316
|
—
|
(2,500)
|
2,746
|
(185,174)
|
368,623
|
Net loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(122,857)
|
(122,857)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
Cumulative translation
adjustment
|
—
|
—
|
—
|
—
|
—
|
(7,350)
|
—
|
(7,350)
|
Comprehensive
loss
|
—
|
—
|
—
|
—
|
—
|
(7,350)
|
(122,857)
|
(130,207)
|
Stock
options:
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized
|
—
|
—
|
499
|
—
|
—
|
—
|
—
|
499
|
Performance share
units:
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized
|
—
|
—
|
184
|
—
|
—
|
—
|
—
|
184
|
Shares issued (note
3)
|
1,275
|
—
|
(1,275)
|
—
|
—
|
—
|
—
|
—
|
Balance – March
31, 2020
|
510,510
|
—
|
43,724
|
—
|
(2,500)
|
(4,604)
|
(308,031)
|
239,099
|
See accompanying
notes to the interim condensed consolidated financial
statements.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
|
2021
|
2020
|
(C$000s)
(unaudited)
|
($)
|
($)
|
CASH FLOWS
PROVIDED BY (USED IN)
|
|
|
OPERATING
ACTIVITIES
|
|
|
Net loss
|
(22,418)
|
(122,857)
|
Adjusted for the
following:
|
|
|
Depreciation
|
31,624
|
63,263
|
Stock-based
compensation
|
—
|
683
|
Unrealized foreign
exchange losses (gains)
|
2,086
|
(2,280)
|
(Gain) loss on
disposal of property, plant and equipment
|
(387)
|
1,669
|
Impairment of
property, plant and equipment
|
—
|
53,524
|
Impairment of other
assets
|
—
|
507
|
Non-cash gain on
exchange of debt (note 1)
|
—
|
(130,444)
|
Interest
|
9,101
|
26,043
|
Interest
paid
|
(10,636)
|
(6,468)
|
Deferred income
taxes
|
(8,410)
|
114,026
|
Changes in items of
working capital
|
(20,822)
|
(44,005)
|
Cash flows used in
operating activities
|
(19,862)
|
(46,339)
|
FINANCING
ACTIVITIES
|
|
|
Issuance of long-term
debt, net of debt issuance costs
|
18,770
|
24,258
|
Long-term debt
repayments
|
(1,050)
|
—
|
Lease obligation
principal repayments
|
(1,807)
|
(4,926)
|
Proceeds on issuance
of common shares from the exercising of warrants
|
68
|
—
|
Cash flows provided
by financing activities
|
15,981
|
19,332
|
INVESTING
ACTIVITIES
|
|
|
Purchase of property,
plant and equipment
|
(10,874)
|
(26,813)
|
Proceeds on disposal
of property, plant and equipment
|
187
|
649
|
Proceeds on disposal
of right-of-use assets
|
181
|
308
|
Cash flows used in
investing activities
|
(10,506)
|
(25,856)
|
Effect of exchange
rate changes on cash and cash equivalents
|
(1,478)
|
7,304
|
Decrease in cash and
cash equivalents
|
(15,865)
|
(45,559)
|
Cash and cash
equivalents, beginning of period
|
29,830
|
42,562
|
Cash and cash
equivalents (bank overdraft), end of period
|
13,965
|
(2,997)
|
See accompanying
notes to the interim condensed consolidated financial
statements.
|
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
As at and for the three months ended March 31, 2021 and
2020
(Amounts in text and tables are in thousands of Canadian
dollars, except share data and certain other exceptions as
indicated)
1. LONG-TERM DEBT
|
March
31,
|
December
31,
|
|
2021
|
2020
|
(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
|
150,000
|
|
130,000
|
|
$58,950 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
|
54,553
|
|
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
|
150,900
|
|
152,784
|
|
Less: unamortized
debt issuance costs
|
(12,141)
|
|
(13,322)
|
|
|
343,312
|
|
324,633
|
|
The fair value of the Second Lien Notes (as defined below), as
measured based on the closing market price at March 31, 2021
was $111,287 (December 31, 2020
– $106,706). 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) 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. 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.
During the first quarter of 2021, the Company recorded the
rescission of $1,050 of its 1.5 Lien
Notes. For accounting purposes, the $1,050 principal amount was recorded on a
proportional basis as a reduction of the liability and equity
portion of the 1.5 Lien Notes for $965 and $85,
respectively.
The Company also opted to pay its first interest payment on the
1.5 Lien Notes in cash during the first quarter of 2021 rather than
utilizing the payment-in-kind option.
b) 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.
c) 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
March 31, 2021, 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 three months ended
March 31, 2021 was $9,212 (three months ended March 31, 2020 – $25,448).
The following table sets out an analysis of long-term debt and
the movements in long-term debt:
|
2021
|
(C$000s)
|
($)
|
Balance, January
1
|
324,633
|
|
Issuance of long-term
debt, net of debt issuance costs
|
18,770
|
|
Long-term debt
repayments
|
(965)
|
|
Amortization of
compound financial instrument discount
|
347
|
|
Amortization of debt
issuance costs and debt discount
|
2,363
|
|
Foreign exchange
adjustments
|
(1,836)
|
|
Balance, March
31
|
343,312
|
|
At March 31, 2021, the Company had utilized $817 of its loan facility for letters of credit,
had $150,000 outstanding under its
revolving term loan facility, leaving $139,183 in available credit, subject to a
monthly borrowing base, as determined using the previous month's
results, which at March 31, 2021, resulted in liquidity of
$64,221. 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 5 for further details on the covenants in respect of
the Company's long-term debt.
2. RECAPITALIZATION TRANSACTION
On December 18, 2020, the Company
completed its 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 during the fourth quarter of 2020 was
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 4)
|
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 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 4 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 3 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 3 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.
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 recorded as a reduction
of the gain on settlement of debt during the fourth quarter of
2020.
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 share units of $312 along with the cash consideration of
$174 was recognized during the fourth
quarter of 2020 as a reduction of the gain on settlement of
debt.
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. During the first quarter of 2021, the Company recorded
the rescission of $1,050 of its 1.5
Lien Notes. See note 1 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 1 for further information.
(i) Court Appeals and
Regulatory Application
Appeal of Chapter 15 Enforcement Order
On December 11,
2020, Wilks Brothers, LLC and its affiliated funds
(collectively "Wilks Brothers") 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 ("Chapter 15
Enforcement Order"), 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"). At a hearing held on
April 23, 2021, the U.S. District
Court affirmed the Chapter 15 Enforcement Order and effectively
denied the Chapter 15 Appeal (the "District Court Decision"). Wilks
Brothers may appeal the District Court Decision as a matter of
right to the United States Court
of Appeals for the Fifth Circuit by filing a notice of appeal
within thirty days of the entry of an order or judgment by the U.S.
District Court. In such event, the Company believes it is
well-positioned to prevail on the merits of the appeal.
Appeal of CBCA Final Order
On January 29, 2021, Wilks
Brothers 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. Calfrac filed its response on
April 9, 2021, and Wilks Brothers
filed its reply to Calfrac's response on April 19, 2021. The materials will be considered
by the Supreme Court and it will issue a written decision as to
whether or not it is granting leave upon the completion of its
review. The Company believes it is well-positioned to succeed in
having the leave to appeal application dismissed.
Ontario Securities Commission
Application
On April 22, 2021,
the Company received notice that Wilks Brothers has filed an
application to the Ontario Securities Commission (the "OSC"),
requesting a hearing and review by the OSC of the decision of the
Toronto Stock Exchange (the "TSX") granting exemptive relief in
respect of the rescission of the purchase of 1.5 Lien Notes
acquired by an institutional shareholder, as is further discussed
under note 1. The Company believes that the TSX acted appropriately
within its jurisdiction in granting exemptive relief, and that it
is well-positioned to succeed in opposing the application.
3. CAPITAL STOCK
Authorized capital stock consists of an unlimited number of
common shares.
|
Three Months
Ended
|
Year Ended
|
|
March 31,
2021
|
December 31,
2020
|
Continuity of Common
Shares
|
Shares
|
Amount
|
Shares
|
Amount
|
|
(#)
|
($000s)
|
(#)
|
($000s)
|
Balance, beginning of
period
|
37,408,490
|
|
800,184
|
|
2,897,778
|
|
506,735
|
|
Issued upon exercise
of warrants
|
27,372
|
|
260
|
|
—
|
|
—
|
|
Issued upon vesting
of performance share units
|
—
|
|
—
|
|
5,646
|
|
1,275
|
|
Issued on
acquisition
|
—
|
|
—
|
|
8,913
|
|
2,500
|
|
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
|
(114)
|
|
—
|
|
(189)
|
|
—
|
|
Share issue costs on
1.5 Lien Notes
|
—
|
|
—
|
|
—
|
|
(616)
|
|
Balance, end of
period
|
37,435,748
|
|
800,444
|
|
37,408,490
|
|
800,184
|
|
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.
Three Months Ended
March 31,
|
2021
|
2020
|
|
(#)
|
(#)
|
Weighted average
number of common shares outstanding
|
|
|
Basic
|
37,421,792
|
|
2,898,824
|
|
Diluted
|
83,813,876
|
|
2,911,125
|
|
The difference between basic and diluted shares is attributable
to: warrants issued as part of the Recapitalization Transaction as
disclosed in note 2, the dilutive effect of the conversion of the
1.5 Lien Notes as disclosed in note 1, and the dilutive effect of
stock options issued by the Company as disclosed in note 4.
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 $20,342 to contributed surplus.
These common shares were cancelled prior to December 31, 2020.
4. SHARE-BASED PAYMENTS
(a) Stock Options
Three Months Ended
March 31,
|
2021
|
2020
|
Continuity of Stock
Options
|
Options
|
Average
Exercise Price
|
Options
|
Average Exercise
Price
|
|
(#)
|
($)
|
(#)
|
($)
|
Balance, January
1
|
—
|
|
—
|
|
244,060
|
|
158.00
|
|
Granted
|
—
|
|
—
|
|
498
|
|
52.50
|
|
Forfeited
|
—
|
|
—
|
|
(3,962)
|
|
145.50
|
|
Expired
|
—
|
|
—
|
|
(1,142)
|
|
418.50
|
|
Balance, March
31
|
—
|
|
—
|
|
239,454
|
|
157.00
|
|
As disclosed in note 2, the Company cancelled all outstanding
stock options and performance share units in conjunction with the
Recapitalization Transaction and has not yet issued any
equity-based awards under its omnibus incentive plan.
(b) Share Units
Three Months Ended
March 31,
|
2021
|
2020
|
Continuity of Stock
Units
|
Deferred
Share Units
|
Performance
Share Units
|
Deferred Share
Units
|
Performance
Share Units
|
|
(#)
|
(#)
|
(#)
|
(#)
|
Balance, January
1
|
2,400
|
|
—
|
|
2,900
|
|
25,891
|
|
Granted
|
—
|
|
—
|
|
2,100
|
|
19,723
|
|
Exercised
|
—
|
|
—
|
|
—
|
|
(5,646)
|
|
Forfeited
|
—
|
|
—
|
|
—
|
|
(3,170)
|
|
Balance, March
31
|
2,400
|
|
—
|
|
5,000
|
|
36,798
|
|
Three Months Ended
March 31,
|
2021
|
2020
|
|
($)
|
($)
|
Expense (recovery)
from:
|
|
|
Stock
options
|
—
|
|
499
|
|
Deferred share
units
|
19
|
|
(127)
|
|
Performance share
units
|
—
|
|
184
|
|
Total stock-based
compensation expense
|
19
|
|
556
|
|
Stock-based compensation expense is included in selling, general
and administrative expenses, unless otherwise noted.
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 March 31,
2021, the liability pertaining to deferred share units was
$9 (December 31, 2020 –
$9).
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
during the fourth quarter of 2020. The Company applied the
following Black-Scholes model inputs:
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
|
At March 31, 2021, 27,372 warrants were exercised for total
proceeds of $68.
5. CAPITAL STRUCTURE
The Company's capital structure is comprised of shareholders'
equity and debt. The Company's objectives in managing capital are
(i) to maintain flexibility so as to preserve its access to capital
markets and its ability to meet its financial obligations, and (ii)
to finance growth, including potential acquisitions.
The Company manages its capital structure and makes adjustments
in light of changing market conditions and new opportunities, while
remaining cognizant of the cyclical nature of the oilfield services
sector. To maintain or adjust its capital structure, the Company
may revise its capital spending, 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:
|
March
31,
|
December
31,
|
For the Twelve Months
Ended
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
Net loss
|
(223,796)
|
|
(324,235)
|
|
Adjusted for the
following:
|
|
|
Depreciation
|
140,382
|
|
172,021
|
|
Foreign exchange
losses
|
18,912
|
|
15,477
|
|
(Gain) loss on
disposal of property, plant and equipment
|
(2,032)
|
|
24
|
|
Impairment of
property, plant and equipment
|
173,684
|
|
227,208
|
|
Impairment of
inventory
|
27,868
|
|
27,868
|
|
Impairment of other
assets
|
—
|
|
507
|
|
Gain on settlement of
debt
|
(226,319)
|
|
(226,319)
|
|
Gain on exchange of
debt
|
—
|
|
(130,444)
|
|
Interest
|
74,325
|
|
91,267
|
|
Income
taxes
|
46,215
|
|
168,623
|
|
Operating
income
|
29,239
|
|
21,997
|
|
Net debt for this purpose is calculated as follows:
|
March
31,
|
December
31,
|
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
Long-term debt, net
of debt issuance costs and debt discount
|
343,312
|
|
324,633
|
|
Lease
obligations
|
20,417
|
|
21,971
|
|
Less: cash and cash
equivalents
|
(13,965)
|
|
(29,830)
|
|
Net debt
|
349,764
|
|
316,774
|
|
The ratio of net debt to operating income does not have a
standardized meaning under IFRS and may not be comparable to
similar measures used by other companies.
At March 31, 2021, the net debt to operating income ratio
was 11.96:1 (December 31, 2020 – 14.40:1) calculated on a
12-month trailing basis as follows:
|
March
31,
|
December
31,
|
For the Twelve Months
Ended
|
2021
|
2020
|
(C$000s, except
ratio)
|
($)
|
($)
|
Net debt
|
349,764
|
|
316,774
|
|
Operating
income
|
29,239
|
|
21,997
|
|
Net debt to operating
income ratio
|
11.96:1
|
14.40:1
|
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 1, the Company's
Funded Debt to Adjusted EBITDA covenant is waived for the quarters
ended March 31, 2021 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 March
31,
|
2021
|
2021
|
Working capital ratio
not to fall below
|
1.15x
|
2.44x
|
Funded Debt to
Adjusted EBITDA not to exceed(1)(2)
|
N/A
|
8.61x
|
Funded Debt to
Capitalization not to exceed(1)(3)
|
0.30x
|
0.20x
|
(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
March 31,
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
Net loss
|
(22,418)
|
|
(122,857)
|
|
Add back
(deduct):
|
|
|
Depreciation
|
31,624
|
|
63,263
|
|
Unrealized foreign
exchange losses (gains)
|
2,086
|
|
(2,280)
|
|
(Gain) loss on
disposal of property, plant and equipment
|
(387)
|
|
1,669
|
|
Impairment of
property, plant and equipment
|
—
|
|
53,524
|
|
Impairment of other
assets
|
—
|
|
507
|
|
Gain on exchange of
debt
|
—
|
|
(130,444)
|
|
Restructuring
charges
|
255
|
|
2,621
|
|
Stock-based
compensation
|
—
|
|
683
|
|
Interest
|
9,101
|
|
26,043
|
|
Income
taxes
|
(8,325)
|
|
114,083
|
|
Adjusted
EBITDA(1)
|
11,936
|
|
6,812
|
|
(1) For bank covenant
purposes, EBITDA includes the deduction of an additional $2,095 of
lease payments for the three months ended March 31, 2021 (three
months ended March 31, 2020 – $5,466) 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:
- 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;
- 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
- 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:
- the Company is in default under either of the indentures or the
making of such payment would result in a default;
- 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
- 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, 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 March 31, 2021, 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 March 31, 2021, the Company's Fixed Charge Coverage
Ratio of 0.43:1 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:
- the Company is only permitted to use the proceeds of a common
share issuance to increase Adjusted EBITDA a maximum of two
times;
- the Company cannot use the proceeds of a common share issuance
to increase Adjusted EBITDA in consecutive quarter ends;
- 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
- 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.
6. CONTINGENCIES
GREEK LITIGATION
As a result of the acquisition and amalgamation with
Denison in 2004, the Company
assumed certain legal obligations relating to Denison's Greek operations.
In 1998, North Aegean Petroleum Company E.P.E. ("NAPC"), a Greek
subsidiary of a consortium in which Denison participated (and which is now a
majority-owned subsidiary of the Company), terminated employees in
Greece as a result of the
cessation of its oil and natural gas operations in that country.
Several groups of former employees filed claims against NAPC and
the consortium alleging that their termination was invalid and that
their severance pay was improperly determined.
In 1999, the largest group of plaintiffs received a ruling from
the Athens Court of First Instance
that their termination was invalid and that salaries in arrears
amounting to approximately $10,104
(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
$4,224 (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 $853
(578 euros), amounted to $28,598 (19,377
euros) as at March 31, 2021.
Management is of the view that it is improbable there will be a
material financial impact to the Company as a result of these
claims. Consequently, no provision has been recorded in these
consolidated financial statements.
7. SEGMENTED INFORMATION
The Company's activities are conducted in four geographical
segments: Canada, the United States, Russia and Argentina. All activities are related to
hydraulic fracturing, coiled tubing, cementing and other well
completion services for the oil and natural gas industry.
The business segments presented reflect the Company's management
structure and the way its management reviews business performance.
The Company evaluates the performance of its operating segments
primarily based on operating income, as defined below.
|
|
|
Canada
|
United
States
|
Russia
|
Argentina
|
Corporate
|
Consolidated
|
(C$000s)
|
|
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Three Months Ended
March 31, 2021
|
|
|
|
|
|
|
|
Revenue
|
|
|
85,583
|
|
92,913
|
|
27,621
|
|
35,458
|
|
—
|
|
241,575
|
|
Operating income
(loss)(1)
|
|
|
15,179
|
|
(3,012)
|
|
1,476
|
|
3,914
|
|
(4,617)
|
|
12,940
|
|
Segmented
assets
|
|
|
239,469
|
|
533,225
|
|
61,478
|
|
82,552
|
|
—
|
|
916,724
|
|
Capital
expenditures
|
|
|
1,093
|
|
8,043
|
|
1,083
|
|
1,367
|
|
—
|
|
11,586
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2020
|
|
|
|
|
|
|
|
Revenue
|
|
|
104,619
|
|
154,112
|
|
20,991
|
|
25,793
|
|
—
|
|
305,515
|
|
Operating income
(loss)(1)
|
|
|
11,975
|
|
5,187
|
|
(2,298)
|
|
(1,632)
|
|
(7,534)
|
|
5,698
|
|
Segmented
assets
|
|
|
389,654
|
|
741,929
|
|
65,163
|
|
158,178
|
|
—
|
|
1,354,924
|
|
Capital
expenditures
|
|
|
4,234
|
|
24,031
|
|
587
|
|
431
|
|
—
|
|
29,283
|
|
(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 property, plant and equipment, impairment of
other assets, interest, and income taxes.
|
Three Months Ended
March 31,
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
Net loss
|
(22,418)
|
|
(122,857)
|
|
Add back
(deduct):
|
|
|
Depreciation
|
31,624
|
|
63,263
|
|
Foreign exchange
losses (gains)
|
3,345
|
|
(90)
|
|
(Gain) loss on
disposal of property, plant and equipment
|
(387)
|
|
1,669
|
|
Impairment of
property, plant and equipment
|
—
|
|
53,524
|
|
Impairment of other
assets
|
—
|
|
507
|
|
Gain on exchange of
debt
|
—
|
|
(130,444)
|
|
Interest
|
9,101
|
|
26,043
|
|
Income
taxes
|
(8,325)
|
|
114,083
|
|
Operating
income
|
12,940
|
|
5,698
|
|
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.