CALGARY, AB, Nov. 2, 2021 /CNW/ - Calfrac Well
Services Ltd. ("Calfrac" or "the Company") (TSX: CFW) announces
its financial and operating results for the three and nine months
ended September 30, 2021.
HIGHLIGHTS
|
Three Months Ended September
30,
|
Nine Months Ended September 30,
|
|
2021
|
2020
|
Change
|
2021
|
2020
|
Change
|
(C$000s, except per share and unit
data)
|
($)
|
($)
|
(%)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
|
|
|
Revenue
|
295,754
|
127,776
|
131
|
744,640
|
524,714
|
42
|
Operating income
(1)
|
35,623
|
8,009
|
345
|
54,606
|
6,400
|
753
|
Per share –
basic(2)
|
0.95
|
2.76
|
(66)
|
1.46
|
2.21
|
(34)
|
Per share –
diluted(2)
|
0.43
|
2.75
|
(84)
|
0.66
|
2.20
|
(70)
|
Adjusted
EBITDA(1)
|
35,581
|
8,467
|
320
|
51,910
|
10,094
|
414
|
Per share –
basic(2)
|
0.95
|
2.91
|
(67)
|
1.38
|
3.48
|
(60)
|
Per share –
diluted(2)
|
0.43
|
2.91
|
(85)
|
0.62
|
3.47
|
(82)
|
Net loss
|
(1,541)
|
(50,000)
|
(97)
|
(54,494)
|
(450,132)
|
(88)
|
Per share –
basic(2)
|
(0.04)
|
(17.20)
|
(100)
|
(1.45)
|
(155.13)
|
(99)
|
Per share –
diluted(2)
|
(0.04)
|
(17.20)
|
(100)
|
(1.45)
|
(155.13)
|
(99)
|
Working capital (end
of period)
|
|
|
|
179,511
|
127,989
|
40
|
Total equity (end of
period)
|
|
|
|
357,830
|
(81,033)
|
NM
|
Weighted average
common shares outstanding (000s)
|
|
|
|
|
|
|
Basic(2)
|
37,635
|
2,906
|
NM
|
37,498
|
2,902
|
NM
|
Diluted(2)
|
83,241
|
2,910
|
NM
|
83,366
|
2,905
|
NM
|
(1) Refer to "Non-GAAP Measures" on pages 23 and 24 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: "The
Company's results in the third quarter exceeded expectations due to
strong year-over-year growth in equipment utilization in all of its
operating divisions, while at the same time, maintaining industry
leading service quality and HS&E performance. Calfrac continued
to execute on its data enhancement strategy through its recent
investments in equipment analytics technology that is providing
actionable preventative maintenance insights in order to reduce
unscheduled downtime and lower operating costs." During the
quarter, Calfrac:
- elected to pay interest of $3.0
million on its 1.5 lien notes in cash;
- acquired fracturing equipment in Argentina for $2.5
million, which was a significant discount to replacement
cost from a competitor exiting that market;
- averaged eight fleets operating in the United States and four fleets in
Canada; and
- achieved high rates of utilization for equipment in
Russia and Argentina.
CONSOLIDATED HIGHLIGHTS
Three Months Ended
September 30,
|
2021
|
2020
|
Change
|
(C$000s, except operational
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
295,754
|
127,776
|
131
|
Expenses
|
|
|
|
Operating
|
249,196
|
109,708
|
127
|
Selling, general and
administrative (SG&A)
|
10,935
|
10,059
|
9
|
|
260,131
|
119,767
|
117
|
Operating income
(1)
|
35,623
|
8,009
|
345
|
Operating income
(%)
|
12.0
|
6.3
|
90
|
Adjusted
EBITDA(1)
|
35,581
|
(5,185)
|
NM
|
Adjusted EBITDA
(%)
|
12.0
|
(4.1)
|
NM
|
Fracturing revenue
per job ($)
|
32,885
|
33,382
|
(1)
|
Number of fracturing
jobs
|
8,174
|
3,527
|
132
|
Active pumping
horsepower, end of period (000s)
|
976
|
840
|
16
|
Idle pumping
horsepower, end of period (000s)
|
383
|
505
|
(24)
|
Total pumping
horsepower, end of period (000s)
|
1,359
|
1,345
|
1
|
Coiled tubing revenue
per job ($)
|
23,629
|
22,795
|
4
|
Number of coiled
tubing jobs
|
653
|
364
|
79
|
Active coiled tubing
units, end of period (#)
|
16
|
15
|
7
|
Idle coiled tubing
units, end of period (#)
|
11
|
12
|
(8)
|
Total coiled tubing
units, end of period (#)
|
27
|
27
|
—
|
Cementing revenue per
job ($)
|
52,203
|
51,000
|
2
|
Number of cementing
jobs
|
113
|
27
|
NM
|
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 23 and 24 for
further information.
|
Revenue in the third quarter of 2021 was $295.8 million, an increase of 131 percent from
the same period in 2020. The improved revenue was mainly due to the
fracturing job count increasing by 132 percent, resulting primarily
from higher activity in all operating divisions. Cementing and
coiled tubing activity in Argentina returned to more normal levels after
being negatively impacted by the mandated shut-down in the
comparable quarter, while consolidated coiled tubing activity
increased by 79 percent. Fracturing revenue per job was consistent
with the comparable quarter in 2020.
Calfrac reported Adjusted EBITDA of $35.6 million for the third quarter of 2021, an
increase from $8.5 million in the
comparable period in 2020, primarily as a result of b
etter utilization for all of its operating fleets.
The net loss was $1.5
million or $0.04 per share
diluted compared to a net loss of $50.0
million or $17.20 per share
diluted in the same period last year.
Three Months
Ended
|
September 30,
|
June 30,
|
Change
|
|
2021
|
2021
|
|
(C$000s, except operational
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
295,754
|
207,311
|
43
|
Expenses
|
|
|
|
Operating
|
249,196
|
191,219
|
30
|
SG&A
|
10,935
|
10,048
|
9
|
|
260,131
|
201,267
|
29
|
Operating
income(1)
|
35,623
|
6,044
|
489
|
Operating income
(%)
|
12.0
|
2.9
|
314
|
Adjusted
EBITDA(1)
|
35,581
|
4,393
|
710
|
Adjusted EBITDA
(%)
|
12.0
|
2.1
|
471
|
Fracturing revenue
per job ($)
|
32,885
|
32,704
|
1
|
Number of fracturing
jobs
|
8,174
|
5,675
|
44
|
Active pumping
horsepower, end of period (000s)
|
976
|
950
|
3
|
Idle pumping
horsepower, end of period (000s)
|
383
|
393
|
(3)
|
Total pumping
horsepower, end of period (000s)
|
1,359
|
1,343
|
1
|
Coiled tubing revenue
per job ($)
|
23,629
|
22,616
|
4
|
Number of coiled
tubing jobs
|
653
|
563
|
16
|
Active coiled tubing
units, end of period (#)
|
16
|
16
|
—
|
Idle coiled tubing
units, end of period (#)
|
11
|
11
|
—
|
Total coiled tubing
units, end of period (#)
|
27
|
27
|
—
|
Cementing revenue per
job ($)
|
52,203
|
48,095
|
9
|
Number of cementing
jobs
|
113
|
116
|
(3)
|
Active cementing
units, end of period (#)
|
10
|
10
|
—
|
Idle cementing units,
end of period (#)
|
6
|
6
|
—
|
Total cementing
units, end of period (#)
|
16
|
16
|
—
|
(1) Refer to "Non-GAAP Measures" on pages 23 and 24 for
further information.
|
Third-quarter revenue in 2021 of $295.8 million represented an increase of 43
percent from the second quarter of 2021, primarily due to higher
fracturing activity in North
America and Argentina.
Revenue per fracturing job was consistent with with the second
quarter of 2021.
In Canada, revenue
increased by 51 percent from the second quarter to $76.6 million in the third quarter due to the
normal ramp in activity post spring break-up. Calfrac
also increased its marketed asset base back up to four fracturing
fleets from three fleets in the second quarter. Operating income as
a percentage of revenue was 20 percent, compared to 8 percent in
the second quarter.
In the United States,
revenue in the third quarter of 2021 was $138.3 million, a 60 percent improvement from the
second quarter of 2021. The third quarter had
relatively consistent utilization, including the two fleets that
were reactivated late in the second quarter. Operating income was
$13.8 million in the third quarter
compared to a loss of $2.6 million in
the second quarter of 2021.
In Russia, revenue of
$32.9 million in the third quarter of
2021 was 2 percent lower on a sequential basis due to some wet
weather related delays that impacted utilization in September.
Operating income increased by $0.7
million primarily due to the continued increase in the
number of multi-stage fracturing jobs.
In Argentina, revenue in
the third quarter of 2021 increased to $48.0
million from $36.3 million in
the second quarter. The ongoing improvement in operating conditions
resulted in a sequential improvement in overall activity and fewer
customer-specific disruptions. Operating income increased from
$4.9 million in the second quarter of
2021 to $6.4 million in the third
quarter.
On a consolidated basis, Adjusted EBITDA of $35.6 million for the third quarter of 2021
increased from $4.4 million in the
second quarter of 2021, primarily due to higher utilization in the
United State s combined with the return to normal
operations following the seasonal slowdown in Canada during the second quarter.
BUSINESS UPDATE AND OUTLOOK
Market fundamentals in the pressure pumping sector have
significantly improved since the prior year, and Calfrac is well
positioned to capitalize on this oilfield recovery. Compared to the
third quarter of 2020, the Company's active fleet count in
North America increased by over 60
percent which resulted in consolidated revenue and operating income
improving by 131 percent and 345 percent, respectively. On a
sequential quarter-over-quarter basis, revenue increased by more
than 40 percent while operating income improved by approximately
489 percent as strong equipment utilization and a disciplined focus
on cost control drove significant growth in the Company's financial
performance. In North America, the
tight oilfield labour market caused by the changing economy is
reducing the pace of fleet activations and is resulting in the
gradual tightening of the pressure pumping markets in both
Canada and the United States. Although the industry has
experienced widespread cost inflation over the last few quarters,
Calfrac has been successful for the most part in recovering these
increases in operating costs. As strengthening commodity prices
translate into the significant improvement in the financial
performance of the exploration and production sector, Calfrac is
expecting an increase in the demand for its services in 2022 which
is anticipated to drive further improvements in operating and
financial performance.
CANADA
In Canada, activity
during the third quarter improved from the seasonal slowdown in the
second quarter despite some wet weather in central and northern
Alberta that affected crew
utilization during September. Although spot market pricing has
experienced some positive momentum, Calfrac remains committed to
operating four fracturing fleets in Canada as current economics remain below its
minimum internal return on investment thresholds.
While drilling and completions activity in Canada accelerated in the third quarter, as is
typical, it is expected to slow down towards year-end as annual
capital budgets are exhausted by the Company's customer base.
However, the Company expects that the recent strength in commodity
prices will result in higher levels of operating activity in the
first quarter of 2022 and tighten the fracturing completions market
significantly in western Canada.
UNITED
STATES
The third quarter showed significant improvement for
Calfrac's operations in the United
States due primarily to increased utilization across most of
its operating districts. The fourth quarter of 2021 is expected to
outperform the same period in 2020, but the operating and financial
results will be impacted by a slow down of activity in December
resulting from the exhaustion of capital by some of the Company's
core clients. The Company's United
States division will exit the year with nine active
fracturing fleets and believes that the fundamentals for the
pressuring pumping market will continue to improve in 2022 with the
increase in the commodity price environment for its
customers.
RUSSIA
Calfrac's Russian division continued to deliver strong
financial performance during the third quarter as operating income
improved on a sequential basis resulting from more consistent
fracturing crew utilization combined with improved cost control.
Calfrac anticipates a typical slowdown in activity during the
fourth quarter due to the temporary loss of river crossings and
access to the oilfield roads until ice bridges are established.
However, Calfrac expects full utilization of its active equipment
in 2022 and is currently working on the extensions of its
fracturing and coiled tubing contracts in the fourth
quarter.
ARGENTINA
Argentina's financial
performance improved significantly from the second quarter
primarily due to more consistent levels of activity in the Vaca
Muerta shale play. The Company expects the demand for its services
in this market to remain strong for the remainder of the year and
into 2022.
CORPORATE
At a corporate level, Calfrac remains committed to
prudently allocating capital in order to maximize free cash flow,
with debt reduction being a top priority. As well, the Company will
not consider any further fleet reactivation or upgrade investments
until financial returns exceed internal benchmarks that properly
account for macroeconomic, industry and operation-specific risk
factors.
Calfrac's Board of Directors has approved a $5.5 million increase to its 2021 capital budget
to approximately $61.0 million. This
increase is to support a pre-existing equipment build commitment in
Argentina and facilitate the
acquisition of fracturing assets in Argentina at a significant discount to
replacement cost from a competitor that was exiting that
market.
FINANCIAL OVERVIEW – THREE MONTHS ENDED
SEPTEMBER 30, 2021 VERSUS 2020
CANADA
Three Months Ended
September 30,
|
2021
|
2020
|
Change
|
(C$000s, except operational
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
76,574
|
44,669
|
71
|
Expenses
|
|
|
|
Operating
|
61,341
|
36,352
|
69
|
SG&A
|
163
|
1,826
|
(91)
|
|
61,504
|
38,178
|
61
|
Operating
income(1)
|
15,070
|
6,491
|
132
|
Operating income
(%)
|
19.7
|
14.5
|
36
|
Fracturing revenue
per job ($)
|
23,823
|
24,179
|
(1)
|
Number of fracturing
jobs
|
2,949
|
1,647
|
79
|
Active pumping
horsepower, end of period (000s)
|
202
|
174
|
16
|
Idle pumping
horsepower, end of period (000s)
|
70
|
100
|
(30)
|
Total pumping
horsepower, end of period (000s)
|
272
|
274
|
(1)
|
Coiled tubing revenue
per job ($)
|
18,611
|
14,995
|
24
|
Number of coiled
tubing jobs
|
324
|
294
|
10
|
Active coiled tubing
units, end of period (#)
|
7
|
8
|
(13)
|
Idle coiled tubing
units, end of period (#)
|
6
|
5
|
20
|
Total coiled tubing
units, end of period (#)
|
13
|
13
|
—
|
(1) Refer to "Non-GAAP Measures" on pages 23 and 24 for
further information.
|
REVENUE
Revenue from Calfrac's Canadian operations during the
third quarter of 2021 was $76.6
million compared to $44.7
million in the same period of 2020, primarily due to higher
activity. The number of fracturing jobs increased by 79 percent
from the comparable period in 2020 as a significantly improved
commodity price environment resulted in an increase in drilling and
completions activity in western Canada. Revenue per fracturing job was
consistent with the comparable quarter as the impact of job mix and
pricing was negligible on a period-over-period basis. The number of
coiled tubing jobs increased by 10 percent from the third quarter
in 2020 due to an increase in standalone milling work, which also
contributed to the 24 percent increase in revenue per
job.
OPERATING INCOME
Operating income in Canada during the third quarter of 2021 was
$15.1 million compared to
$6.5 million in the same period of
2020. The Canadian division's operating income as a percentage of
revenue was 20 percent compared to 15 percent in the third quarter
of 2020 primarily due to the higher revenue base. In addition, the
third quarter of 2021 included $2.4
million of Canadian Emergency Wage Subsidy (CEWS) versus
$4.1 million in the comparable
quarter of 2020. SG&A expense in the third quarter of 2021 also
included a $1.4 million recovery of a
bad debt expense. The third quarter of 2020 included a non-cash
termination charge of $2.1 million in
order to exit a contractual take-or-pay product purchase commitment
and a $0.7 million bad debt
provision. Excluding these items, operating income on a normalized
basis for the third quarter of 2021 would have been $12.7 million or 16.6 percent versus $5.2 million or 11.6 percent in the comparable
period in 2020. The increase in operating income for the quarter,
both on a total basis and as a percentage of revenue, was mainly
due to improved utilization for its fracturing and coiled tubing
equipment.
UNITED
STATES
Three Months Ended
September 30,
|
2021
|
2020
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
138,339
|
46,503
|
197
|
Expenses
|
|
|
|
Operating
|
121,451
|
40,827
|
197
|
SG&A
|
3,113
|
2,887
|
8
|
|
124,564
|
43,714
|
185
|
Operating
income(1)
|
13,775
|
2,789
|
394
|
Operating income
(%)
|
10.0
|
6.0
|
67
|
Fracturing revenue
per job ($)
|
33,308
|
34,630
|
(4)
|
Number of fracturing
jobs
|
4,156
|
1,345
|
209
|
Active pumping
horsepower, end of period (000s)
|
576
|
483
|
19
|
Idle pumping
horsepower, end of period (000s)
|
297
|
388
|
(23)
|
Total pumping
horsepower, end of period (000s)
|
873
|
871
|
—
|
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)
|
1.2600
|
1.3321
|
(5)
|
(1) Refer to "Non-GAAP Measures" on pages 23 and 24 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Revenue from Calfrac's United
States operations increased to $138.3
million during the third quarter of 2021 from $46.5 million in the comparable quarter of 2020.
The improved commodity price backdrop relative to the third quarter
in 2020 allowed the Company to operate four more fracturing fleets
in 2021 compared to the same quarter in 2020. The significant
increase in revenue can be attributed to a combination of a 209
percent increase in the number of fracturing jobs completed, offset
partially by a 4 percent decrease in revenue per job
period-over-period, primarily due to the decline in the U.S. dollar
exchange rate.
OPERATING INCOME
The Company's United
States operations generated operating income of $13.8 million during the third quarter of 2021
compared to $2.8 million in the same
period in2020. The improvement in operating income was largely
driven by higher utilization of equipment and operating
efficiencies. During the quarter, there were inflationary pressures
experienced across most operating cost drivers that were
effectively offset by pricing increases.
RUSSIA
Three Months Ended
September 30,
|
2021
|
2020
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
32,889
|
28,530
|
15
|
Expenses
|
|
|
|
Operating
|
26,186
|
21,880
|
20
|
SG&A
|
726
|
617
|
18
|
|
26,912
|
22,497
|
20
|
Operating income
(1)
|
5,977
|
6,033
|
(1)
|
Operating income
(%)
|
18.2
|
21.1
|
(14)
|
Fracturing revenue
per job ($)
|
57,654
|
67,303
|
(14)
|
Number of fracturing
jobs
|
535
|
390
|
37
|
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 ($)
|
36,498
|
48,542
|
(25)
|
Number of coiled
tubing jobs
|
56
|
47
|
19
|
Active coiled tubing
units, end of period (#)
|
4
|
3
|
33
|
Idle coiled tubing
units, end of period (#)
|
3
|
4
|
(25)
|
Total coiled tubing
units, end of period (#)
|
7
|
7
|
—
|
Rouble/C$ average
exchange rate(2)
|
0.0171
|
0.0181
|
(6)
|
(1) Refer to "Non-GAAP Measures" on pages 23 and 24 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Revenue from Calfrac's Russian operations increased by 15
percent during the third quarter of 2021 to $32.9 million from $28.5
million in the corresponding period of 2020. The increase in
revenue was attributable to a 37 percent increase in fracturing
activity due to better utilization as the Company increased its
operating footprint from four fleets in 2020 to six fleets in 2021,
combined with changes in job mix as a higher percentage of
multi-stage work was completed resulting in a higher number of
stages completed at a lower average job size. Revenue per
fracturing job decreased by 14 percent primarily due to the impact
of job mix, combined with a 6 percent decline in the Russian
rouble. Coiled tubing activity increased by 19 percent as the
Company operated one additional coiled tubing unit although one
fleet was shut-down for one month due to COVID-19. The lower
revenue per coiled tubing job was primarily due to job mix,
combined with the decline in the Russian rouble.
OPERATING INCOME
The Company's Russian division generated operating income
of $6.0 million during the third
quarter of 2021 or 18 percent of revenue versus $6.0 million or 21 percent of revenue in the
comparable quarter in 2020. The lower operating margin performance
was primarily due to lower than expected fracturing equipment
utilization due to the impact of excessive rainfall in September,
which resulted in the closure of river crossings and limited access
to oilfield roads. Coiled tubing equipment utilization was also
impacted by a COVID-19 shutdown of one fleet for a month during the
quarter.
ARGENTINA
Three Months Ended
September 30,
|
2021
|
2020
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
47,952
|
8,074
|
494
|
Expenses
|
|
|
|
Operating
|
39,965
|
10,365
|
286
|
SG&A
|
1,596
|
1,585
|
1
|
|
41,561
|
11,950
|
248
|
Operating income
(loss)(1)
|
6,391
|
(3,876)
|
NM
|
Operating income
(loss) (%)
|
13.3
|
(48.0)
|
NM
|
Fracturing revenue
per job ($)
|
54,820
|
35,105
|
56
|
Number of fracturing
jobs
|
534
|
145
|
268
|
Active pumping
horsepower, end of period (000s)
|
121
|
118
|
3
|
Idle pumping
horsepower, end of period (000s)
|
16
|
5
|
NM
|
Total pumping
horsepower, end of period (000s)
|
137
|
123
|
11
|
Coiled tubing revenue
per job ($)
|
26,944
|
69,880
|
(61)
|
Number of coiled
tubing jobs
|
273
|
23
|
NM
|
Active coiled tubing
units, end of period (#)
|
5
|
4
|
25
|
Idle coiled tubing
units, end of period (#)
|
1
|
2
|
(50)
|
Total coiled tubing
units, end of period (#)
|
6
|
6
|
—
|
Cementing revenue per
job ($)
|
52,203
|
51,000
|
2
|
Number of cementing
jobs
|
113
|
27
|
NM
|
Active cementing
units, end of period (#)
|
10
|
12
|
(17)
|
Idle cementing units,
end of period (#)
|
3
|
2
|
50
|
Total cementing
units, end of period (#)
|
13
|
14
|
(7)
|
US$/C$ average
exchange rate(2)
|
1.2600
|
1.3321
|
(5)
|
(1) Refer to "Non-GAAP Measures" on pages 23 and 24 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Calfrac's Argentinean operations generated revenue of
$48.0 million during the third
quarter of 2021 compared to $8.1
million in the comparable quarter in 2020. Activity in the
third quarter of 2021 improved sequentially and year-over-year due
to strong activity in the Vaca Muerta shale play as well as in
southern Argentina. During the
third quarter of 2021, activity was not impacted by as many
operational delays that were experienced in the previous quarter or
the government-mandated COVID-19 shut-downs that impacted activity
in the comparable quarter in 2020. Revenue per job for all service
lines was negatively impacted by a 5 percent depreciation in the
U.S. dollar. Despite this decline, fracturing revenue increased by
56 percent due to job mix and cementing revenue per job increased
by 2 percent due to changes in job mix as a greater number of
pre-fracturing projects were completed in the third quarter of
2021.
OPERATING INCOME (LOSS)
The Company's operations in Argentina generated an operating income of
$6.4 million during the third quarter
of 2021 compared to an operating loss of $3.9 million in the comparable quarter of 2020.
Utilization for the Company's equipment significantly improved
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. The Company's fixed cost structure remained
relatively consistent with the comparable quarter in 2020 so the
additional revenue resulted in operating income as a percentage of
revenue improving to 13.3 percent from negative 48.0 percent in the
third quarter in 2020. The Company recorded $0.2 million of severance expense during the
third quarter in 2021.
CORPORATE
Three Months Ended
September 30,
|
2021
|
2020
|
Change
|
(C$000s)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Expenses
|
|
|
|
Operating
|
253
|
284
|
(11)
|
SG&A
|
5,337
|
3,144
|
70
|
|
5,590
|
3,428
|
63
|
Operating
loss(1)
|
(5,590)
|
(3,428)
|
63
|
% of
Revenue
|
1.9
|
2.7
|
(30)
|
(1) Refer to "Non-GAAP Measures" on pages 23 and 24 for
further information.
|
OPERATING LOSS
Corporate expenses for the third quarter of 2021 were
$5.6 million compared to $3.4 million in the third quarter of 2020. The
increase was due in part to the issuance of new equity-based awards
under its omnibus incentive plan, which resulted in a stock-based
compensation expense of $1.2 million
in the third quarter in 2021 compared to $0.6 million in the same period in 2020. In
addition, $1.2 million of costs
associated with the Company's Recapitalization Transaction were
reclassified to prepaid expenses during the third quarter in 2020,
which resulted in a reduction to SG&A expense during that
quarter.
DEPRECIATION
For the three months ended September 30, 2021,
depreciation expense increasedby $1.5
million to $33.2 million from
$31.7 million in the corresponding
quarter in 2020. The increase in third-quarter depreciation expense
was primarily due to theyear-over-year increase in capital
expenditures relating to major component purchases, which have a
shorter useful life and a corresponding higher rate of
depreciation.
FOREIGN EXCHANGE GAINS AND LOSSES
The Company recorded a foreign exchange gain of
$2.3 million during the third quarter
of 2021 versus a loss of $7.8 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 third quarter was mainly due to net
monetary assets that were held in pesos in Argentina as the peso devalued against the
U.S. dollar during this period, combined with 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 $9.7 million for the third quarter of 2021 was
$9.9 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
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
bearing interest at 10.0 percent. In addition, the USD/CAD exchange
rate was 5 percent lower than the comparable quarter in 2020, which
resulted in a reduction of reported interest expense on the
Company's Second Lien Notes.
INCOME TAXES
The Company recorded an income tax recovery of
$3.6 million during the third quarter
of 2021 compared to a recovery of $0.2
million in the comparable period of 2020. A deferred tax
recovery of $4.3 million was recorded
primarily due to losses incurred in the
United States, and a current income tax expense of
$0.7 million resulted from current
tax obligations in Russia.
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. The impairment charge by cash-generating
unit (CGU) is shown in the table below.
Three Months Ended
September 30,
|
2021
|
|
2020
|
(C$000s)
|
($)
|
|
($)
|
Canada
|
—
|
|
16,203
|
Argentina
|
—
|
|
(16,203)
|
Russia
|
—
|
|
—
|
|
—
|
|
—
|
During the third quarter of 2020, the Company identified
specific assets within its CGUs in Argentina and Canada whose individual carrying amounts
differed from their recoverable amounts, resulting in a
reclassification of the impairment charge recorded in the second
quarter of 2020 between these CGUs.
SUMMARY OF QUARTERLY RESULTS
Three Months
Ended
|
Dec. 31,
|
Mar. 31,
|
Jun. 30,
|
Sep. 30,
|
Dec. 31,
|
Mar. 31,
|
Jun. 30,
|
Sep. 30,
|
|
2019
|
2020
|
2020
|
2020
|
2020
|
2021
|
2021
|
2021
|
(C$000s, except per share and operating
data)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
(unaudited)
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
Revenue
|
317,085
|
305,515
|
91,423
|
127,776
|
180,722
|
241,575
|
207,311
|
295,754
|
Operating income
(loss)(1)
|
20,997
|
5,698
|
(7,307)
|
8,009
|
15,597
|
12,940
|
6,043
|
35,623
|
Per share –
basic(2)
|
7.25
|
1.97
|
(2.52)
|
2.76
|
1.91
|
0.35
|
0.16
|
0.95
|
Per share –
diluted(2)
|
7.22
|
1.96
|
(2.52)
|
2.75
|
0.27
|
0.15
|
0.07
|
0.43
|
Adjusted
EBITDA(1)
|
26,882
|
6,812
|
(5,185)
|
8,467
|
13,715
|
11,936
|
4,393
|
35,581
|
Per share –
basic(2)
|
9.29
|
2.35
|
(1.79)
|
2.91
|
1.68
|
0.31
|
0.12
|
0.95
|
Per share –
diluted(2)
|
9.25
|
2.34
|
(1.79)
|
2.91
|
0.24
|
0.14
|
0.05
|
0.43
|
Net income
(loss)
|
(49,400)
|
(122,857)
|
(277,275)
|
(50,000)
|
125,897
|
(22,418)
|
(30,535)
|
(1,541)
|
Per share –
basic(2)
|
(17.07)
|
(42.38)
|
(95.61)
|
(17.20)
|
15.43
|
(0.60)
|
(0.82)
|
(0.04)
|
Per share –
diluted(2)
|
(17.07)
|
(42.38)
|
(95.61)
|
(17.20)
|
2.19
|
(0.60)
|
(0.82)
|
(0.04)
|
Capital
expenditures
|
34,418
|
29,283
|
6,068
|
2,792
|
6,487
|
11,586
|
18,065
|
25,234
|
Working capital (end
of period)
|
248,772
|
233,125
|
157,165
|
127,989
|
161,448
|
170,088
|
152,176
|
179,511
|
Total equity (end of
period)
|
368,623
|
239,099
|
(34,195)
|
(81,033)
|
410,234
|
384,561
|
350,631
|
357,830
|
|
|
|
|
|
|
|
|
|
Operating (end of period)
|
|
|
|
|
|
|
|
|
Active pumping
horsepower (000s)
|
1,269
|
1,242
|
780
|
840
|
901
|
934
|
950
|
976
|
Idle pumping
horsepower (000s)
|
141
|
174
|
572
|
505
|
444
|
411
|
393
|
383
|
Total pumping
horsepower (000s)
|
1,410
|
1,416
|
1,352
|
1,345
|
1,345
|
1,345
|
1,343
|
1,359
|
Active coiled tubing
units (#)
|
20
|
20
|
16
|
15
|
17
|
16
|
16
|
16
|
Idle coiled tubing
units (#)
|
8
|
7
|
11
|
12
|
10
|
11
|
11
|
11
|
Total coiled tubing
units (#)
|
28
|
27
|
27
|
27
|
27
|
27
|
27
|
27
|
Active cementing
units (#)
|
13
|
13
|
13
|
12
|
12
|
10
|
10
|
10
|
Idle cementing units
(#)
|
6
|
3
|
3
|
4
|
4
|
6
|
6
|
6
|
Total cementing units
(#)
|
19
|
16
|
16
|
16
|
16
|
16
|
16
|
16
|
(1) Refer to "Non-GAAP Measures" on pages 23 and 24 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).
FINANCIAL OVERVIEW – NINE MONTHS ENDED
SEPTEMBER 30, 2021 VERSUS 2020
CANADA
Nine Months Ended
September 30,
|
2021
|
2020
|
Change
|
(C$000s, except operational
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
212,924
|
177,101
|
20
|
Expenses
|
|
|
|
Operating
|
177,506
|
146,253
|
21
|
SG&A
|
874
|
6,054
|
(86)
|
|
178,380
|
152,307
|
17
|
Operating
income(1)
|
34,544
|
24,794
|
39
|
Operating income
(%)
|
16.2
|
14.0
|
16
|
Fracturing revenue
per job ($)
|
21,156
|
18,172
|
16
|
Number of fracturing
jobs
|
9,139
|
8,811
|
4
|
Active pumping
horsepower, end of period (000s)
|
202
|
174
|
16
|
Idle pumping
horsepower, end of period (000s)
|
70
|
100
|
(30)
|
Total pumping
horsepower, end of period (000s)
|
272
|
274
|
(1)
|
Coiled tubing revenue
per job ($)
|
20,152
|
19,469
|
4
|
Number of coiled
tubing jobs
|
957
|
850
|
13
|
Active coiled tubing
units, end of period (#)
|
7
|
8
|
(13)
|
Idle coiled tubing
units, end of period (#)
|
6
|
5
|
20
|
Total coiled tubing
units, end of period (#)
|
13
|
13
|
—
|
(1) Refer to "Non-GAAP Measures" on pages 23 and 24 for
further information.
|
REVENUE
Revenue from Calfrac's Canadian operations during the
first nine months in 2021 was $212.9
million versus $177.1 million
in the same period in 2020 primarily due to changes in job mix.
Work during 2021 shifted from smaller jobs in the Viking to larger
jobs in the Cardium, Deep Basin and Montney areas resulting in a 16 percent
increase in revenue per job from the comparable period in 2020. The
number of coiled tubing jobs increased by 13 percent from the
comparable period in 2020 due to higher activity, while revenue per
job increased by 4 percent due to changes in job mix.
OPERATING INCOME
The Company's Canadian division generated operating income
of $34.5 million compared to
$24.8 million in 2020. The Company
recognized CEWS benefits of $6.3
million in the first nine months of 2021 compared to
$8.0 million in 2020. SG&A
expenses for the first nine months of 2021 included the reversal of
a bad debt expense of $1.4 million.
In addition, SG&A expenses in 2021 included a recovery from a
litigation settlement offset partially by higher operating expenses
stemming from an arbitral order, which increased operating income
by $0.7 million. The comparable
period in 2020 included $1.6 million
of severance costs, a non-cash termination charge of $2.1 million in order to exit a contractual
take-or-pay product purchase commitment and a $0.7 million bad debt provision. Excluding these
items, normalized operating income for the first nine months of
2021 would have been $27.6 million or
13.0 percent compared to $21.2
million or 12.0 percent in 2020. The improvement in
operating income is due to the 4 percent and 13 percent increases
in fracturing and coiled tubing activity, respectively.
UNITED
STATES
Nine Months Ended
September 30,
|
2021
|
2020
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
317,940
|
238,807
|
33
|
Expenses
|
|
|
|
Operating
|
300,971
|
225,554
|
33
|
SG&A
|
8,760
|
10,228
|
(14)
|
|
309,731
|
235,782
|
31
|
Operating
income(1)
|
8,209
|
3,025
|
171
|
Operating income
(%)
|
2.6
|
1.3
|
100
|
Fracturing revenue
per job ($)
|
29,387
|
30,053
|
(2)
|
Number of fracturing
jobs
|
10,820
|
7,946
|
36
|
Active pumping
horsepower, end of period (000s)
|
576
|
483
|
19
|
Idle pumping
horsepower, end of period (000s)
|
297
|
388
|
(23)
|
Total pumping
horsepower, end of period (000s)
|
873
|
871
|
—
|
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)
|
1.2514
|
1.3541
|
(8)
|
(1) Refer to "Non-GAAP Measures" on pages 23 and 24 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Revenue from Calfrac's United
States operations increased to $317.9
million in the first nine months in 2021 from $238.8 million in the same period in 2020,
primarily due to a 36 percent increase in the number of fracturing
jobs completed. Overall activity in 2021 was impacted by extreme
cold weather during the first quarter which temporarily shutdown
operations and some short notice schedule delays late in the second
quarter. Activity increased significantly in the third quarter for
existing crews plus the two additional fleets that were reactivated
late in the second quarter. The lower fracturing revenue per job
was mainly due to the 8 percent depreciation of the U.S dollar,
offset partially by the impact of job mix.
OPERATING INCOME
The Company's United
States division generated operating income of $8.2 million during the first nine months in 2021
compared to operating income of $3.0
million in the comparable period in 2020. The first nine
months of 2021 included the reactivation of two fracturing fleets
and the relocation of a third fleet. These actions resulted in
$5.0 million of increased operating
expenses during the period. Pricing during the first half of 2021
remained challenged but the Company was able to obtain some modest
net pricing increases during the third quarter. Utilization of the
Company's fracturing fleets was stronger at times than the
comparable period in 2020, however, the results were negatively
impacted by weather delays in certain operating areas in the first
quarter, while customer delays by key customers and the relocation
of equipment also impacted utilization during the second quarter.
Activity levels in the third quarter were strong and contributed
the majority of the U.S. division's operating income for the
year-to-date period. SG&A expenses decreased by 14 percent as
the comparable period in 2020 included $2.4
million of restructuring costs.
RUSSIA
Nine Months Ended
September 30,
|
2021
|
2020
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
94,052
|
73,458
|
28
|
Expenses
|
|
|
|
Operating
|
79,117
|
64,598
|
22
|
SG&A
|
2,195
|
2,373
|
(8)
|
|
81,312
|
66,971
|
21
|
Operating
income(1)
|
12,740
|
6,487
|
96
|
Operating income
(%)
|
13.5
|
8.8
|
53
|
Fracturing revenue
per job ($)
|
61,479
|
83,347
|
(26)
|
Number of fracturing
jobs
|
1,410
|
795
|
77
|
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 ($)
|
39,188
|
46,432
|
(16)
|
Number of coiled
tubing jobs
|
188
|
155
|
21
|
Active coiled tubing
units, end of period (#)
|
4
|
3
|
33
|
Idle coiled tubing
units, end of period (#)
|
3
|
4
|
(25)
|
Total coiled tubing
units, end of period (#)
|
7
|
7
|
—
|
Rouble/C$ average
exchange rate(2)
|
0.0169
|
0.0191
|
(12)
|
(1) Refer to "Non-GAAP Measures" on pages 23 and 24 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Revenue from Calfrac's Russian operations in the first
nine months in 2021 of $94.1 million
was 28 percent higher than in the comparable period in 2020. The
increase in revenue was attributable to a 77 percent increase in
fracturing activity due to a higher percentage of multi-stage
projects completed in 2021, which resulted in a higher number of
stages completed at a lower average job size. In addition, the
Company did not encounter the same degree of weather-related
disruptions during 2021. Revenue per fracturing job was 26 percent
lower than in 2020 due to the 12 percent depreciation of the
Russian rouble, combined with changes in job mix. Coiled tubing
activity increased by 21 percent as the Company operated one
additional coiled tubing unit. The 16 percent decline in revenue
per job was primarily due to the decline in the Russian rouble
versus the Canadian dollar.
OPERATING INCOME
The Company's Russian division generated operating income
of $12.7 million during the first
nine months in 2021 compared to operating income of $6.5 million in the comparable period in 2020.
Utilization in the first nine months of 2021 improved significantly
as the Company increased its operating footprint from five
fracturing fleets in 2020 to six fleets in 2021. In addition, the
completion of more multi-stage projects also had a positive impact
on profitability during the period. Operating results for the
first nine months of 2020 included $0.4
million in severance costs while the same period in 2021 did
not include any severance costs.
ARGENTINA
Nine Months Ended
September 30,
|
2021
|
2020
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Revenue
|
119,724
|
35,348
|
239
|
Expenses
|
|
|
|
Operating
|
99,307
|
41,706
|
138
|
SG&A
|
5,184
|
5,595
|
(7)
|
|
104,491
|
47,301
|
121
|
Operating income
(loss)(1)
|
15,233
|
(11,953)
|
NM
|
Operating income
(loss) (%)
|
12.7
|
(33.8)
|
NM
|
Fracturing revenue
per job ($)
|
55,336
|
56,850
|
(3)
|
Number of fracturing
jobs
|
1,332
|
321
|
315
|
Active pumping
horsepower, end of period (000s)
|
121
|
118
|
3
|
Idle pumping
horsepower, end of period (000s)
|
16
|
5
|
NM
|
Total pumping
horsepower, end of period (000s)
|
137
|
123
|
11
|
Coiled tubing revenue
per job ($)
|
23,253
|
72,424
|
(68)
|
Number of coiled
tubing jobs
|
715
|
110
|
550
|
Active coiled tubing
units, end of period (#)
|
5
|
4
|
25
|
Idle coiled tubing
units, end of period (#)
|
1
|
2
|
(50)
|
Total coiled tubing
units, end of period (#)
|
6
|
6
|
—
|
Cementing revenue per
job ($)
|
50,279
|
58,920
|
(15)
|
Number of cementing
jobs
|
322
|
155
|
108
|
Active cementing
units, end of period (#)
|
10
|
12
|
(17)
|
Idle cementing units,
end of period (#)
|
3
|
2
|
50
|
Total cementing
units, end of period (#)
|
13
|
14
|
(7)
|
US$/C$ average
exchange rate(2)
|
1.2514
|
1.3541
|
(8)
|
(1) Refer to "Non-GAAP Measures" on pages 23 and 24 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Calfrac's Argentinean operations generated revenue of
$119.7 million during the first nine
months in 2021 versus $35.3 million
in the same period in 2020, primarily due to a significant increase
in activity as the oilfield industry in Argentina experienced a complete shutdown of
field activity in mid-March 2020 due
to the COVID-19 pandemic, which affected all of the Company's
operating regions and service lines. In the second and third
quarters of 2021, Argentina
returned to normal operations for all service lines, including an
increase to subcontractor revenue that was not experienced in the
first nine months of 2020 due to changes in contracted service mix
in Neuquén. However, utilization in 2021 was negatively impacted by
some operational delays in Neuquén due to roadblocks in April as
union strikes caused the shutdown of all oilfield activity for 18
days along with lower activity with a customer due to wellbore
issues. This lower activity was partially mitigated by a
contractual arrangement that provided a minimum revenue guarantee.
Revenue per job across all service lines was negatively impacted by
the depreciation of the U.S. dollar.
OPERATING INCOME (LOSS)
In the first nine months of 2021, the Company's operations
in Argentina generated operating
income of $15.2 million, compared to
an operating loss of $12.0 million in
the comparable period in 2020. The increase in operating income was
due to improved equipment utilization as the comparable period in
2020 had an unprecedented revenue disruption caused by the
government mandated shutdown of all oilfield activity in response
to the COVID-19 pandemic. The Company recorded $0.7 million of severance expense during first
nine months in 2021 compared to $0.1
million during the same period in 2020.
CORPORATE
Nine Months Ended
September 30,
|
2021
|
2020
|
Change
|
(C$000s)
|
($)
|
($)
|
(%)
|
(unaudited)
|
|
|
|
Expenses
|
|
|
|
Operating
|
961
|
1,864
|
(48)
|
SG&A
|
15,159
|
14,089
|
8
|
|
16,120
|
15,953
|
1
|
Operating
loss(1)
|
(16,120)
|
(15,953)
|
1
|
% of
Revenue
|
2.2
|
3.0
|
(27)
|
(1) Refer to "Non-GAAP Measures" on pages 23 and 24 for
further information.
|
OPERATING LOSS
Corporate expenses during the first nine months in 2021
were $16.1 million compared to
$16.0 million in the comparable
period in 2020. The decrease in corporate operating expense was
primarily due to lower personnel costs as the comparable period in
2020 included $0.8 million of
severance costs. This reduction was offset by higher professional
fees and stock-based compensation expense during the first nine
months of 2021. The impact of the Canada Emergency Wage Subsidy and Emergency
Rent programs was consistent with the same period in 2020 with a
combined reduction of $1.2 million in
each period.
DEPRECIATION
Depreciation expense during the first nine months in 2021
decreased by $44.9 million from
$141.2 million to $96.3 million in the same period in 2020. The
decrease was primarily due to the impact ofthe $227.2 million of property, plant and equipment
(PP&E) impairment charges that were recorded during the first
half of 2020, combined with lower sustaining capital
expenditures.
FOREIGN EXCHANGE LOSSES
The Company recorded a foreign exchange loss of
$3.4 million during the first nine
months in 2021 versus a loss of $9.7
million in the comparable period in 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 Company's
foreign exchange loss in the first nine months in 2021 was largely
attributable to net monetary assets that were held in pesos in
Argentina as the peso devalued
against the U.S. dollar during this period, combined with 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 interest expense of $28.1 million in the first nine months in 2021was
$38.3 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
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 bearing interest at 10.0 percent.
Interest expense in the first nine months in 2020 also included the
write-off of $4.4 million of deferred
finance costs related to the portion of Unsecured Notes that were
exchanged during the period.
INCOME TAXES
The Company recorded an income tax recovery of
$19.2 million in the first nine
months in 2021 compared to a $113.8
million tax expense in the comparable period in 2020. A
deferred tax recovery of $20.7
million was recorded primarily due to losses incurred in
the United States and a current
income tax expense of $1.5 million
resulted from current tax obligations in Russia and certain state taxes in the United States. The expense position in the
first nine months 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. The impairment charge by CGU is shown in
the table below.
|
Nine Months Ended Sep. 30,
|
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
Canada
|
—
|
132,483
|
United
States
|
—
|
15,380
|
Argentina
|
—
|
52,466
|
Russia
|
—
|
26,879
|
|
—
|
227,208
|
In addition, the Company also carried out a comprehensive
review of its inventory in 2020 to identify individual items that
were permanently idle or obsolete, with potential for impairment in
value. The inventory write-down by CGU was as follows:
|
Nine Months Ended Sep. 30,
|
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
Canada
|
—
|
6,200
|
United
States
|
—
|
10,668
|
Argentina
|
—
|
11,000
|
|
—
|
27,868
|
LIQUIDITY AND CAPITAL RESOURCES
|
Three Months Ended Sep. 30,
|
Nine Months Ended Sep. 30,
|
|
2021
|
2020
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
(unaudited)
|
|
|
|
|
Cash provided by
(used in):
|
|
|
|
|
Operating
activities
|
(17,935)
|
(31,151)
|
(18,969)
|
39,418
|
Financing
activities
|
21,588
|
(9,193)
|
39,273
|
(3,160)
|
Investing
activities
|
(20,989)
|
(648)
|
(45,040)
|
(36,224)
|
Effect of exchange
rate changes on cash and cash equivalents
|
2,714
|
(6,796)
|
949
|
(2,464)
|
Decrease in cash and
cash equivalents
|
(14,622)
|
(47,788)
|
(23,787)
|
(2,430)
|
OPERATING ACTIVITIES
The Company's cash used by operating activities for the
three months ended September 30, 2021 was $17.9 million versus $31.2
million during the same period in 2020. The decrease in cash
used by operations was primarily due to improved operating results
in all divisions, offset partially by $40.3
million used by working capital during the third quarter
compared to working capital using $26.2
million of cash in the same period in 2020. At
September 30, 2021, Calfrac's working capital was $179.5 million, compared to $161.4 million at December
31, 2020.
FINANCING ACTIVITIES
Net cash provided by financing activities for the three
months ended September 30, 2021 was $21.6 million compared to net cash used of
$9.2 million in the comparable period
in 2020. During the three months ended September 30, 2021, the
Company had net draws under its credit facilities of $25.0 million, debt issuance costs of
$1.3 million and lease principal
payments of $2.1 million.
On December 18, 2020,
Calfrac completed the Recapitalization Transaction and the new
financing of $60.0 million 1.5 Lien
Notes. The completion of the Recapitalization Transaction
significantly reduced the Company's total debt and interest
expense, and provided additional liquidity to fund ongoing
operations.
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. The Company also opted to pay its
September 15, 2021 interest payment
on the 1.5 Lien Notes in cash rather than utilizing the
payment-in-kind option.
On June 30, 2021, the
Company amended its revolving credit facility agreement, which is
available on SEDAR, to reduce its total facility
capacity from $290.0 millionto
$225.0 million and extended the
maturity date to July 1, 2023. The
amended agreement includes a $25.0
million accordion feature that is available to the Company
during the term of the agreement. The Company's Funded Debt to
Adjusted EBITDA covenant 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
$45.0 million and a syndicated
facility of $180.0 million. The
Company's credit facilities mature on July
1, 2023, 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 and also during the
Covenant Relief Period, certain restrictions apply including the
following, among others: (a) acquisitions are subject to consent of
the lenders; (b) distributions are restricted other than those
relating to the Company's equity compensation plans; (c) no
increase in the rate of dividends are permitted; and (d) additional
permitted debt is restricted to $5.0
million, subject to certain exceptions.As at
September 30, 2021, the Company's net Total Debt to Adjusted
EBITDA ratio exceeded the 5.00:1.00 threshold and the Company was
also subject to the additional Covenant Relief Period restrictions
described herein.
Advances under the credit facilities are limited by a
borrowing base. The borrowing base is calculated based on the sum
of the following:
i.
|
Eligible North
American accounts receivable, which is based on 75 percent of
accounts receivable owing by companies rated BB+ or lower by
Standard & Poor's (or a similar rating agency) and 85 percent
of accounts receivable from companies rated BBB- or
higher;
|
ii.
|
100 percent of
unencumbered cash of the parent company and its U.S. operating
subsidiary, excluding any cash held in a segregated account for a
specified purpose, including a potential equity cure;
and
|
iii.
|
25 percent of the net
book value of property, plant and equipment (PP&E) of the
parent company and its U.S. operating subsidiary. The value of
PP&E excludes assets under construction and is limited to
$150.0 million.
|
At September 30, 2021, the Company had used
$0.9 million of its credit facilities
for letters of credit and had $180.0
million of borrowings under its credit facilities, leaving
$44.1 million in available capacity
under its credit facilities. As described above, the Company's
credit facilities are subject to a monthly borrowing base, which at
September 30, 2021 was higher than
the available capacity under the credit facilities. 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 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 September 30, 2021.
|
Covenant
|
Actual
|
As at September
30,
|
2021
|
2021
|
Working capital ratio
not to fall below
|
1.15x
|
2.19x
|
Funded Debt to
Adjusted EBITDA not to exceed(1)(2)
|
4.50x
|
3.20x
|
Funded Debt to
Capitalization not to exceed(1)(3)
|
0.30x
|
0.24x
|
(1)
|
Funded Debt is defined as Total Debt excluding all
outstanding second lien senior notes, 1.5 lien notes, and lease
obligations. Total Debt includes bank loans and long-term debt
(before unamortized debt issuance costs and debt discount) plus
outstanding letters of credit. For the purposes of the Total Debt
to Adjusted EBITDA ratio, the Funded Debt to Capitalization Ratio
and the Funded Debt to Adjusted EBITDA ratio, the amount of Total
Debt or Funded Debt, as applicable, is reduced by the amount of
cash on hand with lenders (excluding any cash held in a segregated
account for a specified purpose, including 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 secured notes ("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 the obligations
under the Company's 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 of Unsecured Notes
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,
2023, subject to certain conditions including:
i.
|
the Company is only
permitted to use the proceeds of a common share issuance to
increase Adjusted EBITDA a maximum of two times;
|
|
|
ii.
|
the Company cannot
use the proceeds of a common share issuance to increase Adjusted
EBITDA in consecutive quarter ends;
|
|
|
iii.
|
the maximum proceeds
of each common share issuance permitted to be attributed to
Adjusted EBITDA cannot exceed the greater of 50 percent of Adjusted
EBITDA on a trailing four-quarter basis and $25.0 million;
and
|
|
|
iv.
|
if proceeds are not
used immediately as an equity cure they must be held in a
segregated bank account pending an election to use them for such
purpose, and if they are removed from such account but not used as
an equity cure they will no longer be eligible for such
use.
|
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, 2023 will increase Adjusted
EBITDA over the relevant twelve-month rolling period and may also
serve to reduce Funded Debt unless used for other
purposes.
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 in a
calendar year ($10.0 million during
the Covenant Relief Period), subject to certain exceptions. There
are no restrictions pertaining to dispositions of property or
assets outside of Canada and
the United States, except that to
the extent that if 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. Also, during the
Covenant Relief Period, there is an obligation to reduce advances
under the credit facilities using proceeds of any disposition of
property or assets that exceed $10.0
million.
The indentures governing the 1.5 Lien Notes and Second
Lien Notes (the "Indentures"), which are available on SEDAR,
contain restrictions on the Company's ability to pay dividends,
purchase and redeem shares of the Company and make certain
restricted investments, that are not defined as Permitted
Investments under the Indentures, in circumstances
where:
i.
|
the Company is in
default under the Indentures or the making of such payment would
result in a default;
|
|
|
ii.
|
ii. the Company would
not meet the Fixed Charge Coverage Ratio(1) under the
Indentures of at least 2:1 for the most recent four fiscal
quarters, after giving pro forma effect to such restricted payment
as if it had been made at the beginning of the applicable four
fiscal quarter period; or
|
|
|
iii.
|
there is insufficient
room for such payment within the builder baskets included in the
Indentures.
|
|
(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
the Indentures. As at September 30,
2021, the US$20.0 million
basket was 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 1.5 Lien Notes
indenture includes additional 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 prepayments and certain
capital build commitments which aggregate over US$12.0 million. The 1.5 Lien Notes 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 September 30, 2021, the Company's Fixed Charge
Coverage Ratio of 1.44:1 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, subject to the additional
restrictions during the Covenant Relief Period discussed above, 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
$21.0 million for the three months
ended September 30, 2021 versus
$0.6 million in the comparable period
in 2020. Cash outflows relating to capital expenditures during the
quarter were $21.5 million in 2021
compared to $2.1 million during the
same period in 2020. Calfrac's Board of Directors increased its
2021 Capital Budget by $5.5 million
to approximately $61.0 million in
order to support a pre-existing equipment build commitment in
Argentina and acquire fracturing
assets in Argentina at a
significant discount to replacement cost from a competitor that was
exiting that market.
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
September 30, 2021 was a gain of $2.7
million versus a loss of $6.8
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.
At September 30, 2021, the Company had a cash balance
of $6.0 million.
OUTSTANDING SHARE DATA
The Company is authorized to issue an unlimited number of
common shares. Employees have been granted options to purchase
common shares under the Company's shareholder-approved omnibus
incentive plan. The number of shares reserved for issuance under
the plan is equal to 10 percent of the Company's issued and
outstanding common shares. As at October 29,
2021, the Company had issued and outstanding 37,654,207
common shares, 5,786,364 common share purchase warrants and
3,600,000 options to purchase common shares.
ADVISORIES
FORWARD-LOOKING STATEMENTS
In order to provide Calfrac shareholders and potential
investors with information regarding the Company and its
subsidiaries, including management's assessment of Calfrac's plans
and future operations, certain statements contained in this press
release, including statements that contain words such as "seek",
"anticipate", "plan", "continue", "estimate", "expect", "may",
"will", "project", "predict", "potential", "targeting", "intend",
"could", "might", "should", "believe", "forecast" or similar words
suggesting future outcomes, are forward-looking
statements.
In particular, forward-looking statements in this press
release include, but are not limited to, statements with respect to
the Recapitalization Transaction, including its expected benefits
to the Company and impacts on its debt, liquidity and financial
position, the U.S. appeal by Wilks Brothers, LLC, 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 or potential
legal proceedings), expectations regarding trends in, and the
growth prospects of, the global oil and natural gas industry, the
Company's growth strategy and prospects, and the impact of changes
in accounting policies and standards on the Company and its
financial statements. These statements are derived from certain
assumptions and analyses made by the Company based on its
experience and perception of historical trends, current conditions,
expected future developments and other factors that it believes are
appropriate in the circumstances, including, but not limited to,
the economic and political environment in which the Company
operates, the Company's expectations for its current and
prospective customers' capital budgets and geographical areas of
focus, the Company's existing contracts and the status of current
negotiations with key customers and suppliers, the effectiveness of
cost reduction measures instituted by the Company and the
likelihood that the current tax and regulatory regime will remain
substantially unchanged.
Forward-looking statements are subject to a number of
known and unknown risks and uncertainties that could cause actual
results to differ materially from the Company's expectations. Such
risk factors include: the Company's ability to continue to manage
the effect of the COVID-19 pandemic on its operations; actions
taken by Wilks Brothers, LLC, decisions by securities regulators
and/or the courts; restrictions resulting from compliance with or
breach of debt covenants and risk of acceleration of indebtedness,
including under the Company's credit facilities, 1.5 Lien Notes
indenture and/or Second Lien Notes indenture; failure to reach any
additional agreements with the Company's lenders; the impact of
events of defaults in respect of other material contracts of the
Company, including but not limited to, cross-defaults resulting in
acceleration of amounts payable thereunder or the termination of
such agreements; failure to receive any applicable regulatory,
court, third party and other stakeholder approvals or decisions in
respect of the Recapitalization Transaction and the court orders
granting enforcement thereof; global economic conditions, the level
of exploration, development and production for oil and natural gas
in Canada, the United States, Argentina and Russia; the demand for fracturing and other
stimulation services for the completion of oil and natural gas
wells; volatility in market prices for oil and natural gas and the
effect of this volatility on the demand for oilfield services
generally; the availability of capital on satisfactory terms;
direct and indirect exposure to volatile credit markets, including
credit rating risk; sourcing, pricing and availability of raw
materials, component parts, equipment, suppliers, facilities and
skilled personnel; excess oilfield equipment levels; regional
competition; currency exchange rate risk; risks associated with
foreign operations; dependence on, and concentration of, major
customers; liabilities and risks, including environmental
liabilities and risks, inherent in oil and natural gas operations;
uncertainties in weather and temperature affecting the duration of
the service periods and the activities that can be completed;
liabilities relating to legal and/or administrative proceedings;
operating restrictions and compliance costs associated with
legislative and regulatory initiatives relating to hydraulic
fracturing and the protection of workers and the environment;
changes in legislation and the regulatory environment; failure to
maintain the Company's safety standards and record; liabilities and
risks associated with prior operations; the ability to integrate
technological advances and match advances from competitors;
intellectual property risk; third party credit risk; failure to
realize anticipated benefits of acquisitions and dispositions.
Further information about these and other risks and uncertainties
may be found under "Business Risks" below.
Consequently, all of the forward-looking statements made
in this press release are qualified by these cautionary statements
and there can be no assurance that actual results or developments
anticipated by the Company will be realized, or that they will have
the expected consequences or effects on the Company or its business
or operations. These statements speak only as of the respective
date of this press release or the document incorporated by
reference herein. The Company assumes no obligation to update
publicly any such forward-looking statements, whether as a result
of new information, future events or otherwise, except as required
pursuant to applicable securities laws.
BUSINESS RISKS
The business of Calfrac is subject to certain risks and
uncertainties. Prior to making any investment decision regarding
Calfrac, investors should carefully consider, among other things,
the risk factors set forth in the Company's most recently filed
Annual Information Form, 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.
Operating income for the period was calculated as
follows:
|
Three Months Ended Sep.30,
|
Nine Months Ended Sep. 30,
|
|
2021
|
2020
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
(unaudited)
|
|
|
|
|
Net loss
|
(1,541)
|
(50,000)
|
(54,494)
|
(450,132)
|
Add back
(deduct):
|
|
|
|
|
Depreciation
|
33,248
|
31,720
|
96,287
|
141,178
|
Foreign exchange
(gains) losses
|
(2,288)
|
7,822
|
3,403
|
9,744
|
Loss (gain) on
disposal of property, plant and equipment
|
159
|
(1,272)
|
513
|
284
|
Impairment of
property, plant and equipment
|
—
|
—
|
—
|
227,208
|
Impairment of
inventory
|
—
|
—
|
—
|
27,868
|
Impairment of other
assets
|
—
|
—
|
—
|
507
|
Gain on exchange of
debt
|
—
|
—
|
—
|
(130,444)
|
Interest
|
9,677
|
19,588
|
28,075
|
66,354
|
Income
taxes
|
(3,632)
|
151
|
(19,178)
|
113,833
|
Operating
income
|
35,623
|
8,009
|
54,606
|
6,400
|
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 Sep.30,
|
Nine Months Ended Sep. 30,
|
|
2021
|
2020
|
2021
|
2020
|
(C$000s)
|
|
|
($)
|
($)
|
(unaudited)
|
|
|
|
|
Net loss
|
(1,541)
|
(50,000)
|
(54,494)
|
(450,132)
|
Add back
(deduct):
|
|
|
|
|
Depreciation
|
33,248
|
31,720
|
96,287
|
141,178
|
Unrealized foreign
exchange (gains) losses
|
(3,607)
|
5,202
|
(620)
|
4,884
|
Loss (gain) on
disposal of property, plant and equipment
|
159
|
(1,272)
|
513
|
284
|
Impairment of
property, plant and equipment
|
—
|
—
|
—
|
227,208
|
Impairment of
inventory
|
—
|
—
|
—
|
27,868
|
Impairment of other
assets
|
—
|
—
|
—
|
507
|
Gain on exchange of
debt
|
—
|
—
|
—
|
(130,444)
|
Litigation
settlements
|
—
|
—
|
(700)
|
—
|
Restructuring
charges
|
198
|
400
|
671
|
5,373
|
Stock-based
compensation
|
1,079
|
596
|
1,356
|
1,099
|
Interest
|
9,677
|
19,588
|
28,075
|
66,354
|
Income
taxes
|
(3,632)
|
151
|
(19,178)
|
113,833
|
Adjusted
EBITDA(1)
|
35,581
|
8,467
|
51,910
|
10,094
|
(1) For
bank covenant purposes, EBITDA includes the deduction of an
additional $6.5 million for the nine months ended September 30,
2021 (nine months ended September 30, 2020 - $13.1 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.
THIRD QUARTER CONFERENCE CALL
Calfrac will be conducting a conference call for
interested analysts, brokers, investors and news media
representatives to review its 2021 third-quarter results at
10:00 a.m. (Mountain Time) on
Tuesday, November 2, 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
3535678). A webcast of the conference call may be accessed via the
Company's website at www.calfrac.com.
CONSOLIDATED BALANCE SHEETS
|
September 30,
|
December
31,
|
|
2021
|
2020
|
(C$000s) (unaudited)
|
($)
|
($)
|
ASSETS
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
6,043
|
29,830
|
Accounts
receivable
|
228,636
|
139,486
|
Income taxes
recoverable
|
1,910
|
1,530
|
Inventories
|
93,090
|
83,294
|
Prepaid expenses and
deposits
|
15,217
|
17,050
|
|
344,896
|
271,190
|
Non-current
assets
|
|
|
Property, plant and
equipment
|
579,960
|
618,488
|
Right-of-use
assets
|
23,142
|
22,785
|
Total
assets
|
947,998
|
912,463
|
LIABILITIES AND EQUITY
|
|
|
Current
liabilities
|
|
|
Accounts payable and
accrued liabilities
|
157,763
|
101,784
|
Current portion of
lease obligations
|
7,622
|
7,958
|
|
165,385
|
109,742
|
Non-current
liabilities
|
|
|
Long-term debt (note
1)
|
377,728
|
324,633
|
Lease obligations
(note 8)
|
14,277
|
14,013
|
Deferred income tax
liabilities
|
32,778
|
53,841
|
Total
liabilities
|
590,168
|
502,229
|
Capital stock (note
3)
|
800,810
|
800,184
|
Conversion rights on
convertible notes (note 1)
|
4,765
|
4,873
|
Contributed
surplus
|
67,342
|
65,986
|
Warrants (notes 2 and
4)
|
40,542
|
40,797
|
Loan receivable for
purchase of common shares
|
(2,500)
|
(2,500)
|
Accumulated
deficit
|
(563,903)
|
(509,409)
|
Accumulated other
comprehensive income
|
10,774
|
10,303
|
Total
equity
|
357,830
|
410,234
|
Total liabilities and
equity
|
947,998
|
912,463
|
Contingencies (note 6)
|
See accompanying notes to the interim condensed
consolidated financial statements.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Three Months Ended Sept. 30,
|
Nine Months Ended Sept. 30,
|
|
2021
|
2020
|
2021
|
2020
|
(C$000s, except per share data)
(unaudited)
|
($)
|
($)
|
($)
|
($)
|
Revenue
|
295,754
|
127,776
|
744,640
|
524,714
|
Cost of
sales
|
282,443
|
141,429
|
754,149
|
621,154
|
Gross profit
(loss)
|
13,311
|
(13,653)
|
(9,509)
|
(96,440)
|
Expenses
|
|
|
|
|
Selling, general and
administrative
|
10,936
|
10,058
|
32,172
|
38,338
|
Foreign exchange
(gains) losses
|
(2,288)
|
7,822
|
3,403
|
9,744
|
Loss (gain) on
disposal of property, plant and equipment
|
159
|
(1,272)
|
513
|
284
|
Impairment of
property, plant and equipment
|
—
|
—
|
—
|
227,208
|
Impairment of
inventory
|
—
|
—
|
—
|
27,868
|
Impairment of other
assets
|
—
|
—
|
—
|
507
|
Gain on exchange of
debt (note 1)
|
—
|
—
|
—
|
(130,444)
|
Interest
|
9,677
|
19,588
|
28,075
|
66,354
|
|
18,484
|
36,196
|
64,163
|
239,859
|
Loss before income
tax
|
(5,173)
|
(49,849)
|
(73,672)
|
(336,299)
|
Income tax expense
(recovery)
|
|
|
|
|
Current
|
662
|
151
|
1,538
|
228
|
Deferred
|
(4,294)
|
—
|
(20,716)
|
113,605
|
|
(3,632)
|
151
|
(19,178)
|
113,833
|
Net loss
|
(1,541)
|
(50,000)
|
(54,494)
|
(450,132)
|
|
|
|
|
|
Loss per share (note
3)
|
|
|
|
|
Basic
|
(0.04)
|
(17.20)
|
(1.45)
|
(155.13)
|
Diluted
|
(0.04)
|
(17.20)
|
(1.45)
|
(155.13)
|
See accompanying notes to the interim condensed
consolidated financial statements.
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
|
Three Months Ended Sept. 30,
|
Nine Months Ended Sept. 30,
|
|
2021
|
2020
|
2021
|
2020
|
(C$000s) (unaudited)
|
($)
|
($)
|
($)
|
($)
|
Net loss
|
(1,541)
|
(50,000)
|
(54,494)
|
(450,132)
|
Other comprehensive income
(loss)
|
|
|
|
|
Items that may be subsequently reclassified to profit
or loss:
|
|
|
|
|
Change in foreign
currency translation adjustment
|
7,402
|
2,566
|
471
|
(623)
|
Comprehensive income
(loss)
|
5,861
|
(47,434)
|
(54,023)
|
(450,755)
|
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
|
—
|
|
—
|
—
|
—
|
—
|
(54,494)
|
(54,494)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
Cumulative translation
adjustment
|
—
|
—
|
—
|
—
|
—
|
471
|
—
|
471
|
Comprehensive
loss
|
—
|
—
|
—
|
—
|
—
|
471
|
(54,494)
|
(54,023)
|
Stock
options:
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized
|
—
|
—
|
1,356
|
—
|
—
|
—
|
—
|
1,356
|
Conversion of 1.5
Lien Notes into shares (note 5)
|
281
|
(23)
|
|
|
|
|
|
258
|
Rescission of equity
portion of 1.5 Lien Notes
|
—
|
(85)
|
—
|
—
|
—
|
—
|
—
|
(85)
|
Warrants:
|
|
|
|
|
|
|
|
|
Proceeds from issuance
of shares (note 4)
|
345
|
—
|
—
|
(255)
|
—
|
—
|
—
|
90
|
Balance – Sept. 30, 2021
|
800,810
|
4,765
|
67,342
|
40,542
|
(2,500)
|
10,774
|
(563,903)
|
357,830
|
Balance – January 1,
2020
|
509,235
|
—
|
44,316
|
—
|
(2,500)
|
2,746
|
(185,174)
|
368,623
|
Net loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(450,132)
|
(450,132)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
Cumulative translation
adjustment
|
—
|
—
|
—
|
—
|
—
|
(623)
|
—
|
(623)
|
Comprehensive
loss
|
—
|
—
|
—
|
—
|
—
|
(623)
|
(450,132)
|
(450,755)
|
Stock
options:
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized
|
—
|
—
|
682
|
—
|
—
|
—
|
—
|
682
|
Performance share
units:
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized
|
—
|
—
|
417
|
—
|
—
|
—
|
—
|
417
|
Shares issued (note
3)
|
1,275
|
—
|
(1,275)
|
—
|
—
|
—
|
—
|
—
|
Balance – Sept. 30, 2020
|
510,510
|
—
|
44,140
|
—
|
(2,500)
|
2,123
|
(635,306)
|
(81,033)
|
See accompanying notes to the interim condensed
consolidated financial statements.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Three Months Ended Sept. 30,
|
Nine Months Ended Sept. 30,
|
|
2021
|
2020
|
2021
|
2020
|
(C$000s) (unaudited)
|
($)
|
($)
|
($)
|
($)
|
CASH FLOWS PROVIDED BY (USED
IN)
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
Net loss
|
(1,541)
|
(50,000)
|
(54,494)
|
(450,132)
|
Adjusted for the
following:
|
|
|
|
|
Depreciation
|
33,248
|
31,720
|
96,287
|
141,178
|
Stock-based
compensation
|
1,079
|
596
|
1,356
|
1,099
|
Unrealized foreign
exchange (gains) losses
|
(3,607)
|
5,202
|
(620)
|
4,884
|
Loss (gain) on
disposal of property, plant and equipment
|
159
|
(1,272)
|
513
|
284
|
Impairment of
property, plant and equipment
|
—
|
—
|
—
|
227,208
|
Impairment of
inventory
|
—
|
—
|
—
|
27,868
|
Impairment of other
assets
|
—
|
—
|
—
|
507
|
Non-cash gain on
exchange of debt (note 1)
|
—
|
—
|
—
|
(130,444)
|
Interest
|
9,677
|
19,588
|
28,075
|
66,354
|
Interest
paid
|
(12,379)
|
(10,797)
|
(24,053)
|
(19,877)
|
Deferred income
taxes
|
(4,294)
|
—
|
(20,716)
|
113,605
|
Changes in items of
working capital
|
(40,277)
|
(26,188)
|
(45,317)
|
56,884
|
Cash flows (used in)
provided by operating activities
|
(17,935)
|
(31,151)
|
(18,969)
|
39,418
|
FINANCING ACTIVITIES
|
|
|
|
|
Issuance of long-term
debt, net of debt issuance costs
|
28,716
|
(1,064)
|
50,907
|
57,340
|
Long-term debt
repayments
|
(5,000)
|
(5,000)
|
(6,050)
|
(48,727)
|
Lease obligation
principal repayments
|
(2,129)
|
(3,129)
|
(5,674)
|
(11,773)
|
Proceeds on issuance
of common shares from the exercising of warrants
|
1
|
—
|
90
|
—
|
Cash flows provided
by (used in) financing activities
|
21,588
|
(9,193)
|
39,273
|
(3,160)
|
INVESTING ACTIVITIES
|
|
|
|
|
Purchase of property,
plant and equipment
|
(21,530)
|
(2,135)
|
(46,988)
|
(39,151)
|
Proceeds on disposal
of property, plant and equipment
|
275
|
563
|
923
|
1,591
|
Proceeds on disposal
of right-of-use assets
|
266
|
924
|
1,025
|
1,336
|
Cash flows used in
investing activities
|
(20,989)
|
(648)
|
(45,040)
|
(36,224)
|
Effect of exchange
rate changes on cash and cash equivalents
|
2,714
|
(6,796)
|
949
|
(2,464)
|
Decrease in cash and
cash equivalents
|
(14,622)
|
(47,788)
|
(23,787)
|
(2,430)
|
Cash and cash
equivalents, beginning of period
|
20,665
|
87,920
|
29,830
|
42,562
|
Cash and cash
equivalents, end of period
|
6,043
|
40,132
|
6,043
|
40,132
|
See accompanying notes to the interim condensed
consolidated financial statements.
|
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
As at and for the three and nine
months ended September 30, 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
|
September 30,
|
December
31,
|
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
$225,000 extendible
revolving term loan facility, secured by the Canadian and U.S.
assets of the Company on a first priority basis
|
180,000
|
130,000
|
$58,673 1.5 Lien
Notes due December 18, 2023, bearing interest at 10.00% payable
semi-annually, secured by the Canadian and U.S. assets of the
Company on a second priority basis ahead of the Second Lien
Notes
|
55,006
|
55,171
|
US$120,000 Second
Lien Notes due March 15, 2026, bearing interest at 10.875% payable
semi-annually, secured by the Canadian and U.S. assets of the
Company on a second priority basis
|
152,892
|
152,784
|
Less: unamortized
debt issuance costs
|
(10,170)
|
(13,322)
|
|
377,728
|
324,633
|
The fair value of the Second Lien Notes (as defined
below), as measured based on the closing market price at
September 30, 2021 was $118,441
(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. During the third quarter of 2021, $277 principal amount of the 1.5 Lien Notes was
converted into 207,879 common shares. For accounting purposes, the
conversion was recorded on a proportional basis as a reduction of
the liability and equity portion of the 1.5 Lien Notes for
$258 and $23, respectively, with a corresponding increase
to share capital.
The Company also opted to pay its September 15, 2021 interest payment on the 1.5
Lien Notes in cash 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 June 30, 2021, the
Company amended its revolving credit facility agreement to reduce
its total facility capacity from $290,000 to $225,000 and extended the maturity date to
July 1, 2023. The amended agreement
includes a $25,000 accordion feature
that is available to the Company during the term of the agreement.
The Company's Funded Debt to Adjusted EBITDA covenant 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 the Company 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
$45,000 and a syndicated facility of
$180,000. The Company's credit
facilities mature on July 1, 2023,
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 and also during the Covenant Relief Period, certain
restrictions apply including the following: (a) acquisitions are
subject to consent of the lenders; (b) distributions are restricted
other than those relating to the Company's equity compensation
plans; (c) no increase in the rate of dividends are permitted; and
(d) additional permitted debt is restricted to $5,000. As at September 30, 2021, the
Company's net Total Debt to Adjusted EBITDA ratio exceeded the
5.00:1.00 threshold and the Company was also subject to the
Covenant Relief Period restrictions.
Debt issuance costs related to this facility are amortized
over its term.
Interest on long-term debt (including the amortization of
debt issuance costs and debt discount) for the nine months ended
September 30, 2021 was $28,041 (nine months ended September 30, 2020 – $65,376).
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
|
50,907
|
Long-term debt
repayments
|
(5,965)
|
Conversion of 1.5 Lien
Notes into shares
|
(258)
|
Amortization of
compound financial instrument discount
|
1,058
|
Amortization of debt
issuance costs and debt discount
|
7,237
|
Foreign exchange
adjustments
|
116
|
Balance, September
30
|
377,728
|
At September 30, 2021, the Company had utilized
$932 of its loan facility for letters
of credit, had $180,000 outstanding
under its revolving term loan facility, leaving $44,068 in available credit, subject to a monthly
borrowing base, which at September 30, 2021 was higher than
the available capacity under the credit facilities. 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 facilit y. 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 share 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. See
note 4 for further information.
(f)
1.5 Lien Notes
In conjunction with the Recapitalization Transaction, the
Company issued $60,000 of 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
Appeals 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 "District Court 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"), 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 District Court Appeal
(the "District Court Decision"). On June 1,
2021, Wilks Brothers filed a notice of appeal to
the United States Court of Appeals
for the Fifth Circuit (the "Fifth Circuit Appeal"). The briefing
schedule for the Fifth Circuit Appeal has been issued by the Court
and briefing is expected to conclude in the first quarter of 2022,
however, the hearing dates remain to be determined. 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. On May, 27, 2021, the Supreme Court
of Canada dismissed the leave to
appeal application with costs. The Supreme Court of Canada's dismissal of the leave to appeal
application means that the CBCA Final Order, pursuant to which the
Company implemented its Recapitalization Transaction, is no longer
subject to any further Canadian appeal rights, and remains in full
force and effect.
Review of Toronto Stock Exchange
Decision
On April 22, 2021, the Wilks
Brothers 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") in March 2021 granting exemptive relief (the "TSX
Decision") in respect of the rescission of the purchase of 1.5 Lien
Notes acquired by an institutional shareholder (the "Subject
Notes").
The TSX Decision confirmed that the conditional listing
approval of the TSX in respect of the common shares issuable upon
conversion of the remaining $58,950
of 1.5 Lien Notes had been satisfied. Such confirmation was subject
to, among other conditions, the completion of the rescission and
cancellation of the Subject Notes, which was completed on
April 15, 2021, as disclosed in note
1. Among the conditions imposed by the TSX Decision, the Company is
subject to enhanced review by the TSX until at least March 2022.
Following a hearing before the OSC on July 12, 2021, on July 13,
2021, the OSC issued an order dismissing Wilks Brothers'
application to set aside the TSX Decision. The OSC's reasons for
decision were issued to the parties on October 6, 2021. Wilks Brothers has a right of
appeal from the OSC decision to the Divisional Court branch of the
Ontario Superior Court of Justice, which must be exercised within
30 days from October 6, 2021. In
light of the OSC's order and reasons, the Company believes that any
possible appeal would be without merit.
3. CAPITAL STOCK
Authorized
capital stock consists of an unlimited number of common
shares.
|
Nine Months Ended
|
Year Ended
|
|
September 30, 2021
|
December 31,
2020
|
Continuity of Common
Shares
|
Shares
|
Amount
|
Shares
|
Amount
|
|
(#)
|
($000s)
|
(#)
|
($000s)
|
Balance, beginning of
period
|
37,408,490
|
800,184
|
2,897,778
|
506,735
|
Issued upon exercise
of warrants
|
36,317
|
345
|
—
|
—
|
Conversion of 1.5
Lien Notes into shares (note 5)
|
207,879
|
281
|
—
|
—
|
Issued upon vesting
of performance share units
|
—
|
—
|
5,646
|
1,275
|
Issued on
acquisition
|
—
|
—
|
8,913
|
2,500
|
Issued upon
settlement of Unsecured Notes (note 2)
|
—
|
—
|
33,491,870
|
301,427
|
Issued for commitment
fee on 1.5 Lien Notes (note 2)
|
—
|
—
|
1,125,703
|
10,131
|
Shares repurchased by
shareholder cash election (note 2)
|
—
|
—
|
(121,231)
|
(21,268)
|
Cancellation of
fractional shares upon 50:1 share consolidation
|
(114)
|
—
|
(189)
|
—
|
Share issue costs on
1.5 Lien Notes
|
—
|
—
|
—
|
(616)
|
Balance, end of
period
|
37,652,572
|
800,810
|
37,408,490
|
800,184
|
On December 18, 2020, the
Company consolidated its common shares on a basis of 50:1. All
common share figures in the financial statements and comparatives
have been adjusted to reflect the 50:1 effect, without a
corresponding change in dollar amounts. Earnings per share have
been adjusted to reflect the impact of the share
consolidation.
|
Three Months Ended Sept. 30,
|
Nine Months Ended Sept. 30,
|
|
2021
|
2020
|
2021
|
2020
|
|
($)
|
($)
|
(#)
|
(#)
|
Weighted average
number of common shares outstanding
|
|
|
|
|
Basic
|
37,635,433
|
2,906,240
|
37,497,937
|
2,901,718
|
Diluted
|
83,240,526
|
2,909,624
|
83,366,494
|
2,905,113
|
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 $20,342 to
contributed surplus. These common shares were cancelled prior to
December 31,
2020.
4. SHARE-BASED PAYMENTS
(a) Stock
Options
Nine Months Ended
September 30,
|
2021
|
2020
|
Continuity of Stock
Options
|
Options
|
Average Exercise Price
|
Options
|
Average Exercise
Price
|
|
(#)
|
($)
|
(#)
|
($)
|
Balance, January
1
|
—
|
—
|
244,060
|
158.00
|
Granted
|
3,540,000
|
3.54
|
1,098
|
31.00
|
Forfeited
|
—
|
—
|
(48,232)
|
194.50
|
Expired
|
—
|
—
|
(3,342)
|
366.50
|
Balance, September
30
|
3,540,000
|
3.54
|
193,584
|
144.50
|
Stock options vest equally over three years and expire
five years from the date of grant. The exercise price of
outstanding options is $3.54 with a
weighted average remaining life of 4.93 years. When stock options
are exercised, the proceeds together with the compensation expense
previously recorded in contributed surplus, are added to capital
stock.
The weighted average fair value of options granted during
2021, determined using the Black-Scholes valuation method, was
$2.15 per option (nine months ended
September 30, 2020 – $0.27 per option). The Company applied the
following assumptions in determining the fair value of options on
the date of grant:
Nine Months Ended
September 30,
|
2021
|
2020
|
Expected life
(years)
|
3.00
|
3.00
|
Expected volatility
(%)
|
100.25
|
71.18
|
Risk-free interest
rate (%)
|
0.50
|
0.87
|
Expected dividends
($)
|
—
|
—
|
Expected volatility is estimated by considering historical
average share price volatility.
(b) Share
Units
Nine Months Ended
September 30,
|
2021
|
2020
|
Continuity of Stock
Units
|
Deferred Share Units
|
Deferred Share
Units
|
Performance Share
Units
|
|
(#)
|
(#)
|
(#)
|
Balance, January
1
|
2,400
|
2,900
|
25,891
|
Granted
|
105,000
|
2,100
|
19,968
|
Exercised
|
—
|
—
|
(5,646)
|
Forfeited
|
—
|
(1,000)
|
(7,568)
|
Balance, September
30
|
107,400
|
4,000
|
32,645
|
|
Three Months Ended Sept. 30,
|
Nine Months Ended Sept. 30,
|
|
2021
|
2020
|
2021
|
2020
|
|
($)
|
($)
|
($)
|
($)
|
Expense (recovery)
from:
|
|
|
|
|
Stock
options
|
1,079
|
418
|
1,356
|
682
|
Deferred share
units
|
86
|
(6)
|
141
|
(138)
|
Performance share
units
|
—
|
178
|
—
|
417
|
Total stock-based
compensation expense
|
1,165
|
590
|
1,497
|
961
|
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 September 30,
2021, the liability pertaining to deferred share units was
$131 (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 share, 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
($)
|
2.50
|
Expected volatility
(%)
|
73.90
|
Risk-free interest
rate (%)
|
1.27
|
Expected dividends
($)
|
—
|
At September 30, 2021, 36,317 warrants were exercised
for total proceeds of $90.
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:
|
September 30,
|
December
31,
|
For the Twelve Months
Ended
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
Net income
(loss)
|
71,403
|
(324,235)
|
Adjusted for the
following:
|
|
|
Depreciation
|
127,130
|
172,021
|
Foreign exchange
losses
|
9,136
|
15,477
|
(Gain) loss on
disposal of property, plant and equipment
|
253
|
24
|
Impairment of
property, plant and equipment
|
—
|
227,208
|
Impairment of
inventory
|
—
|
27,868
|
Impairment of other
assets
|
—
|
507
|
Gain on settlement of
debt
|
(226,319)
|
(226,319)
|
Gain on exchange of
debt
|
—
|
(130,444)
|
Interest
|
52,988
|
91,267
|
Income
taxes
|
35,612
|
168,623
|
Operating
income
|
70,203
|
21,997
|
Net debt for this purpose is calculated as
follows:
|
September 30,
|
December
31,
|
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
Long-term debt, net
of debt issuance costs and debt discount
|
377,728
|
324,633
|
Lease
obligations
|
21,899
|
21,971
|
Less: cash and cash
equivalents
|
(6,043)
|
(29,830)
|
Net debt
|
393,584
|
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 September 30, 2021, the net debt to operating
income ratio was 5.61:1 (December 31, 2020 – 14.4) calculated
on a 12-month trailing basis as follows:
|
September 30,
|
December
31,
|
For the Twelve Months
Ended
|
2021
|
2020
|
(C$000s, except ratio)
|
($)
|
($)
|
Net debt
|
393,584
|
316,774
|
Operating
income
|
70,203
|
21,997
|
Net debt to operating
income ratio
|
5.61
|
14.40
|
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 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
September 30, 2021.
|
Covenant
|
Actual
|
As at September
30,
|
2021
|
2021
|
Working capital ratio
not to fall below
|
1.15x
|
2.19x
|
Funded Debt to
Adjusted EBITDA not to exceed(1)(2)
|
4.50x
|
3.20x
|
Funded Debt to
Capitalization not to exceed(1)(3)
|
0.30x
|
0.24x
|
(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 a
specified purpose, including 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 Sept. 30,
|
Nine Months Ended Sept. 30,
|
|
2021
|
2020
|
2021
|
2020
|
(C$000s)
|
|
|
($)
|
($)
|
Net loss
|
(1,541)
|
(50,000)
|
(54,494)
|
(450,132)
|
Add back
(deduct):
|
|
|
|
|
Depreciation
|
33,248
|
31,720
|
96,287
|
141,178
|
Unrealized foreign
exchange (gains) losses
|
(3,607)
|
5,202
|
(620)
|
4,884
|
Loss (gain) on
disposal of property, plant and equipment
|
159
|
(1,272)
|
513
|
284
|
Impairment of
property, plant and equipment
|
—
|
—
|
—
|
227,208
|
Impairment of
inventory
|
—
|
—
|
—
|
27,868
|
Impairment of other
assets
|
—
|
—
|
—
|
507
|
Gain on exchange of
debt
|
—
|
—
|
—
|
(130,444)
|
Litigation
settlements
|
—
|
—
|
(700)
|
—
|
Non-cash purchase
commitment termination settlement
|
—
|
2,082
|
—
|
2,082
|
Restructuring
charges
|
198
|
400
|
671
|
5,373
|
Stock-based
compensation
|
1,079
|
596
|
1,356
|
1,099
|
Interest
|
9,677
|
19,588
|
28,075
|
66,354
|
Income
taxes
|
(3,632)
|
151
|
(19,178)
|
113,833
|
Adjusted
EBITDA(1)
|
35,581
|
8,467
|
51,910
|
10,094
|
(1) For
bank covenant purposes, EBITDA includes the deduction of an
additional $6,536 of lease payments for the nine months ended
September 30, 2021 (nine months ended September 30, 2020 – $13,077)
that would have been recorded as operating expenses prior to the
adoption of IFRS 16.
|
Advances under the credit facilities are limited by a
borrowing base. The borrowing base is calculated based on the
following:
i.
|
Eligible North
American accounts receivable, which is based on 75 percent of
accounts receivable owing by companies rated BB+ or lower by
Standard & Poor's (or a similar rating agency) and 85 percent
of accounts receivable from companies rated BBB- or
higher;
|
|
|
ii.
|
100 percent of
unencumbered cash of the parent company and its U.S. operating
subsidiary, excluding any cash held in a segregated account for a
specified purpose, including a potential equity cure;
and
|
|
|
iii.
|
25 percent of the net
book value of property, plant and equipment (PP&E) of the
parent company and its U.S. operating subsidiary. The value of
PP&E excludes assets under construction and is limited to
$150,000.
|
The indentures governing the Second Lien Notes and 1.5
Lien Notes (the "Indentures") contain restrictions on the Company's
ability to pay dividends, purchase and redeem shares of the Company
and make certain restricted investments, that are not defined as
Permitted Investments under the Indentures, in circumstances
where:
i.
|
the Company is in
default under the Indentures or the making of such payment would
result in a default;
|
ii.
|
ii. the Company would
not meet the Fixed Charge Coverage Ratio(1) under the Indentures of
at least 2:1 for the most recent four fiscal quarters, after giving
pro forma effect to such restricted payment as if it had been made
at the beginning of the applicable four fiscal quarter period;
or
|
iii.
|
there is
insufficient room for such payment within the builder baskets
included in the Indentures.
|
(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 the
Indentures. As at September 30, 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 1.5 Lien Notes
indenture includes additional restrictions on certain investments
including certain investments in subsidiary entities, however the
Indentures include several exceptions to this prohibition,
including a general basket of US$10,000 and baskets related to prepayments and
and certain capital build commitments which aggregate over
US$12,000. This 1.5 Lien Notes
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 September 30, 2021,
the Company's Fixed Charge Coverage Ratio of 1.44:1 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, subject to the additional restrictions during the
Covenant Relief Period discussed above, 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,
2023, subject to certain conditions including:
i.
|
the Company is only
permitted to use the proceeds of a common share issuance to
increase Adjusted EBITDA a maximum of two times;
|
ii.
|
the Company cannot
use the proceeds of a common share issuance to increase Adjusted
EBITDA in consecutive quarter ends;
|
iii.
|
the maximum proceeds
of each common share issuance permitted to be attributed to
Adjusted EBITDA cannot exceed the greater of 50 percent of Adjusted
EBITDA on a rolling four-quarter basis and $25,000; and
|
iv.
|
if proceeds are not
used immediately as an equity cure they must be held in a
segregated bank account pending an election to use them for such
purpose, and if they are removed from such account but not used as
an equity cure they will no longer be eligible for such
use.
|
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, 2023 will increase Adjusted
EBITDA over the relevant twelve-month rolling period and may also
serve to reduce Funded Debt unless used for other
purposes.
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 in a calendar
year ($10,000 during the Covenant
Relief Period), subject to certain exceptions. There are no
restrictions pertaining to dispositions of property or assets
outside of Canada and the United States, except that to the extent
that if 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. Also, during the Covenant Relief
Period, there is an obligation to reduce advances under the credit
facilities using proceeds of any disposition of property or assets
that exceed $10,000, subject to
certain exceptions.
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 $10,063 (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 on the basis they were improperly issued and are
barred from a statute of limitations perspective. 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
$3,258 (2,201
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 $855
(578 euros), amounted to $29,915 (20,212
euros) as at September 30, 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 September 30,
2021
|
|
|
|
|
|
Revenue
|
76,574
|
138,339
|
32,889
|
47,952
|
—
|
295,754
|
Operating income
(loss)(1)
|
15,070
|
13,775
|
5,977
|
6,391
|
(5,590)
|
35,623
|
Segmented
assets
|
222,648
|
544,836
|
76,264
|
104,250
|
—
|
947,998
|
Capital
expenditures
|
5,766
|
14,689
|
1,101
|
3,678
|
—
|
25,234
|
|
|
|
|
|
|
Three Months Ended
September 30, 2020
|
|
|
|
|
|
Revenue
|
44,669
|
46,503
|
28,530
|
8,074
|
—
|
127,776
|
Operating income
(loss)(1)
|
6,491
|
2,790
|
6,033
|
(3,876)
|
(3,429)
|
8,009
|
Segmented
assets
|
235,234
|
597,025
|
52,975
|
68,972
|
—
|
954,206
|
Capital
expenditures
|
1,731
|
1,017
|
—
|
44
|
—
|
2,792
|
|
|
|
|
|
|
|
|
Canada
|
United States
|
Russia
|
Argentina
|
Corporate
|
Consolidated
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Nine Months Ended September 30,
2021
|
|
|
|
|
|
Revenue
|
212,924
|
317,940
|
94,052
|
119,724
|
—
|
744,640
|
Operating income
(loss)(1)
|
34,544
|
8,209
|
12,740
|
15,233
|
(16,120)
|
54,606
|
Segmented
assets
|
222,648
|
544,836
|
76,264
|
104,250
|
—
|
947,998
|
Capital
expenditures
|
8,606
|
34,667
|
3,178
|
8,434
|
—
|
54,885
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
|
|
|
Revenue
|
177,101
|
238,807
|
73,458
|
35,348
|
—
|
524,714
|
Operating income
(loss)(1)
|
24,794
|
3,026
|
6,487
|
(11,953)
|
(15,954)
|
6,400
|
Segmented
assets
|
235,234
|
597,025
|
52,975
|
68,972
|
—
|
954,206
|
Capital
expenditures
|
8,103
|
27,672
|
879
|
1,489
|
—
|
38,143
|
(1) Operating income (loss) is defined as net income
(loss) before depreciation, foreign exchange gains or losses, gains
or losses on disposal of property, plant and equipment, impairment
of inventory, impairment of property, plant and equipment,
interest, and income taxes.
|
|
Three Months Ended Sept. 30,
|
Nine Months Ended Sept. 30,
|
|
2021
|
2020
|
2021
|
2020
|
(C$000s)
|
($)
|
($)
|
($)
|
($)
|
Net loss
|
(1,541)
|
(50,000)
|
(54,494)
|
(450,132)
|
Add back
(deduct):
|
|
|
|
|
Depreciation
|
33,248
|
31,720
|
96,287
|
141,178
|
Foreign exchange
(gains) losses
|
(2,288)
|
7,822
|
3,403
|
9,744
|
Loss (gain) on
disposal of property, plant and equipment
|
159
|
(1,272)
|
513
|
284
|
Impairment of
property, plant and equipment
|
—
|
—
|
—
|
227,208
|
Impairment of
inventory
|
—
|
—
|
—
|
27,868
|
Impairment of other
assets
|
—
|
—
|
—
|
507
|
Provision for
settlement of litigation
|
—
|
—
|
—
|
(130,444)
|
Interest
|
9,677
|
19,588
|
28,075
|
66,354
|
Income
taxes
|
(3,632)
|
151
|
(19,178)
|
113,833
|
Operating
income
|
35,623
|
8,009
|
54,606
|
6,400
|
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.