CALGARY, AB, July 29, 2021 /CNW/ - Calfrac Well
Services Ltd. ("Calfrac" or "the Company") (TSX: CFW) announces
its financial and operating results for the three and six months
ended June 30, 2021.
HIGHLIGHTS
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
Change
|
|
2021
|
|
2020
|
|
Change
|
(C$000s, except per share and unit
data)
|
($)
|
|
($)
|
|
(%)
|
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
207,311
|
|
91,423
|
|
127
|
|
448,886
|
|
396,938
|
|
13
|
Operating income
(loss)(1)
|
6,043
|
|
(7,307)
|
|
NM
|
|
18,983
|
|
(1,609)
|
|
NM
|
Per share –
basic(2)
|
0.16
|
|
(2.52)
|
|
NM
|
|
0.51
|
|
(0.55)
|
|
NM
|
Per share –
diluted(2)
|
0.07
|
|
(2.52)
|
|
NM
|
|
0.23
|
|
(0.55)
|
|
NM
|
Adjusted
EBITDA(1)
|
4,393
|
|
(5,185)
|
|
NM
|
|
16,329
|
|
1,627
|
|
NM
|
Per share –
basic(2)
|
0.12
|
|
(1.79)
|
|
NM
|
|
0.44
|
|
0.56
|
|
(21)
|
Per share –
diluted(2)
|
0.05
|
|
(1.79)
|
|
NM
|
|
0.20
|
|
0.56
|
|
(64)
|
Net loss
|
(30,535)
|
|
(277,275)
|
|
NM
|
|
(52,953)
|
|
(400,132)
|
|
(87)
|
Per share –
basic(2)
|
(0.82)
|
|
(95.61)
|
|
NM
|
|
(1.41)
|
|
(138.00)
|
|
(99)
|
Per share –
diluted(2)
|
(0.82)
|
|
(95.61)
|
|
NM
|
|
(1.41)
|
|
(138.00)
|
|
(99)
|
Working capital (end
of period)
|
|
|
|
|
|
|
152,176
|
|
157,165
|
|
(3)
|
Total equity (end of
period)
|
|
|
|
|
|
|
350,631
|
|
(34,195)
|
|
NM
|
Weighted average
common shares outstanding (000s)
|
|
|
|
|
|
|
|
|
|
|
|
Basic(2)
|
37,434
|
|
2,900
|
|
NM
|
|
37,428
|
|
2,899
|
|
NM
|
Diluted(2)
|
83,422
|
|
2,912
|
|
NM
|
|
83,625
|
|
2,912
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Comparative amounts were adjusted to reflect the
Company's fifty-to-one common share consolidation that occurred on
December 18, 2020.
|
PRESIDENT'S MESSAGE
Calfrac's President and Chief Operating Officer,
Lindsay Link commented: "Calfrac's
second-quarter results were behind our expectations due, in large
part, to reactivation costs and significant schedule disruptions in
the United States during June. As
anticipated, operations in North
America built momentum towards a strong second half of the
year, while international operations delivered improved results
that were in line with our expectations". During the quarter,
Calfrac:
- reactivated two crews and moved one crew in the United States, spending approximately
$4.0 million to do so;
and
- completed the renewal and extension of its revolving
credit facility with a syndicate of Canadian banks.
CONSOLIDATED HIGHLIGHTS
Three Months Ended
June 30,
|
2021
|
|
2020
|
|
Change
|
(C$000s, except operational
information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
207,311
|
|
91,423
|
|
127
|
Expenses
|
|
|
|
|
|
Operating
|
191,219
|
|
87,520
|
|
118
|
Selling, general and
administrative (SG&A)
|
10,048
|
|
11,210
|
|
(10)
|
|
201,267
|
|
98,730
|
|
104
|
Operating income
(loss)(1)
|
6,044
|
|
(7,307)
|
|
NM
|
Operating income
(loss) (%)
|
2.9
|
|
(8.0)
|
|
NM
|
Adjusted
EBITDA(1)
|
4,393
|
|
(5,185)
|
|
NM
|
Adjusted EBITDA
(%)
|
2.1
|
|
(5.7)
|
|
NM
|
Fracturing revenue
per job ($)
|
32,704
|
|
36,406
|
|
(10)
|
Number of fracturing
jobs
|
5,675
|
|
2,377
|
|
139
|
Active pumping
horsepower, end of period (000s)
|
950
|
|
780
|
|
22
|
Idle pumping
horsepower, end of period (000s)
|
393
|
|
572
|
|
(31)
|
Total pumping
horsepower, end of period (000s)
|
1,343
|
|
1,352
|
|
(1)
|
Coiled tubing revenue
per job ($)
|
22,616
|
|
21,773
|
|
4
|
Number of coiled
tubing jobs
|
563
|
|
209
|
|
169
|
Active coiled tubing
units, end of period (#)
|
16
|
|
16
|
|
—
|
Idle coiled tubing
units, end of period (#)
|
11
|
|
11
|
|
—
|
Total coiled tubing
units, end of period (#)
|
27
|
|
27
|
|
—
|
Cementing revenue per
job ($)
|
48,095
|
|
36,608
|
|
31
|
Number of cementing
jobs
|
116
|
|
7
|
|
NM
|
Active cementing
units, end of period (#)
|
10
|
|
13
|
|
(23)
|
Idle cementing units,
end of period (#)
|
6
|
|
3
|
|
100
|
Total cementing
units, end of period (#)
|
16
|
|
16
|
|
—
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
Revenue in the second quarter of 2021 was $207.3 million, an increase of 127 percent from
the same period in 2020. The improved revenue was mainly due to the
fracturing job count increasing by 139 percent, resulting primarily
from higher activity in all operating divisions. Cementing and
coiled tubing activity in Argentina returned to more normal levels after
the mandated shut-down in the comparable quarter, while
consolidated coiled tubing activity increased by 169 percent.
Fracturing revenue per job decreased by 10 percent due to changes
in job mix in Russia and
the United States.
Calfrac reported Adjusted EBITDA of $4.4 million for the second quarter of 2021,
an increase from negative $5.2
million in the comparable period in 2020, primarily as a
result of better utilization for its operating fleets
in Canada, Argentina and Russia, combined with cost reduction measures
implemented across the Company during 2020.
The net loss was $30.5
million or $0.82 per share
diluted compared to a net loss of $277.3
million or $95.61 per share
diluted in the same period last year, which included
an impairment of PP&E and other assets of $201.6 million.
Three Months
Ended
|
June 30,
|
|
March 31,
|
|
Change
|
|
2021
|
|
2021
|
|
|
(C$000s, except operational
information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
207,311
|
|
241,575
|
|
(14)
|
Expenses
|
|
|
|
|
|
Operating
|
191,219
|
|
217,447
|
|
(12)
|
SG&A
|
10,048
|
|
11,188
|
|
(10)
|
|
201,267
|
|
228,635
|
|
(12)
|
Operating
income(1)
|
6,044
|
|
12,940
|
|
(53)
|
Operating income
(%)
|
2.9
|
|
5.4
|
|
(46)
|
Adjusted
EBITDA(1)
|
4,393
|
|
11,936
|
|
(63)
|
Adjusted EBITDA
(%)
|
2.1
|
|
4.9
|
|
(57)
|
Fracturing revenue
per job ($)
|
32,704
|
|
24,549
|
|
33
|
Number of fracturing
jobs
|
5,675
|
|
8,852
|
|
(36)
|
Active pumping
horsepower, end of period (000s)
|
950
|
|
934
|
|
2
|
Idle pumping
horsepower, end of period (000s)
|
393
|
|
411
|
|
(4)
|
Total pumping
horsepower, end of period (000s)
|
1,343
|
|
1,345
|
|
—
|
Coiled tubing revenue
per job ($)
|
22,616
|
|
23,471
|
|
(4)
|
Number of coiled
tubing jobs
|
563
|
|
644
|
|
(13)
|
Active coiled tubing
units, end of period (#)
|
16
|
|
16
|
|
—
|
Idle coiled tubing
units, end of period (#)
|
11
|
|
11
|
|
—
|
Total coiled tubing
units, end of period (#)
|
27
|
|
27
|
|
—
|
Cementing revenue per
job ($)
|
48,095
|
|
50,665
|
|
(5)
|
Number of cementing
jobs
|
116
|
|
93
|
|
25
|
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 24 and 25 for
further information.
|
Second-quarter revenue in 2021 of $207.3 million represented an decrease of 14
percent from the first quarter of 2021, primarily due to lower
fracturing activity in North
America, offset partially by higher revenue in Russia. Revenue per fracturing job was 33
percent higher compared with the first quarter of 2021 due to the
impact of job mix in Canada.
In Canada, revenue
decreased by 41 percent from the first quarter to $50.8 million in the second quarter due to the
normal seasonal slowdown in activity due to spring break-up
conditions. Calfrac also reduced its marketed asset
base to three fracturing fleets from four fleets in the first
quarter. Operating income as a percentage of revenue was 8 percent,
compared to 18 percent in the first quarter.
In the United States,
revenue in the second quarter of 2021 was $86.7 million, a 7 percent decline from the first
quarter of 2021. The second quarter was extremely
volatile for Calfrac's operations in the
United States, with a number of short notice schedule
changes by key customers resulting in lower than expected
utilization. Operating losses were $2.6
million in the second quarter compared to a loss of
$3.0 million in the first quarter of
2021. On a positive note, the Company accelerated the activation of
two incremental spreads based on demand from core clients in
North Dakota and the Rockies
regions. These activations resulted in $4.0
million of elevated operating expenses in the second quarter
but are expected to generate positive incremental operating income
in the third quarter.
In Russia, revenue of
$33.5 million in the second quarter
of 2021 was 21 percent higher on a sequential basis due to a
typical increase in activity as compared to the first quarter. The
trend towards a greater number of multi-stage fracturing wells also
contributed to the increase in revenue during the second quarter.
Operating income increased by $3.8
million due primarily to a combination of lower operating
costs compared to winter operations in Western Siberia and a higher revenue
base.
In Argentina, revenue in
the second quarter of 2021 increased slightly to $36.3 million from $35.5
million in the first quarter. The ongoing improvement in
operating conditions resulted in a sequential improvement in
overall activity although revenue was negatively impacted by lower
activity with a key customer in Neuquén due to wellbore
issues. However, the lower activity was partially mitigated by a
contractual arrangement that provided guaranteed minimum revenue
for the quarter. Operating income increased from $3.9 million in the first quarter of 2021 to
$4.9 million in the second
quarter.
On a consolidated basis, Adjusted EBITDA of $4.4 million for the second quarter of 2021
decreased from $11.9 million in the
first quarter of 2020, primarily due to the impact of reactivation
costs combined with lower utilization in the United
States resulting from a number of schedule gaps in
June combined with the seasonal slow down in Canada.
BUSINESS UPDATE AND OUTLOOK
Activity improved in all operating regions from the second
quarter of 2020, however, a number of unexpected changes to key
customer work programs in the United
States during June resulted in decreased profitability. In
addition, the Company incurred incremental operating and capital
expenses during the second quarter of 2021 to reactivate two
fracturing fleets in the United
States, which have been active early in the third quarter at
accretive margins. Commodity prices have strengthened over the
first half of the year and the resulting improvements in the cash
flows of Calfrac's clients should drive higher demand for the
Company's services during the remainder of the year and into
2022.
CANADA
In Canada, the second
quarter followed typical patterns of activity with a steady
increase in equipment utilization throughout the quarter. As
previously disclosed, Calfrac reduced its marketed asset base to
three fracturing fleets from four fleets in the first quarter. The
Company plans to operate four fracturing fleets throughout the
remainder of 2021 to service the completion programs of its major
clients. Pricing in the spot market continues to be too low to
support a fleet that would have the lower utilization inherent in
that market segment, and as such, Calfrac will continue to service
its core clients while remaining disciplined on reactivation of
equipment in order to move spot market economics to a level that
may justify further equipment additions. Calfrac could deploy as
many as five large fracturing fleets in Canada, with relatively low incremental
capital investment.
Drilling and completions activity in Canada appears to be accelerating into the
second half of the year, and this increase is expected to tighten
the fracturing market in the months ahead. In addition, a more
significant increase in spending and activity is anticipated in
2022 as higher commodity prices have materially increased the
forecasted cash flows for exploration and production companies
operating in western Canada.
Activity throughout the third quarter is expected to
approach the levels experienced in the first quarter, and this
cadence is expected to be maintained into the fourth
quarter.
UNITED
STATES
The second quarter was extremely volatile for Calfrac's
operations in the United States,
with a number of short notice schedule changes by key customers
resulting in lower than expected utilization during June. In
addition, the Company accelerated the activation of two incremental
fleets and redeployed a third fracturing crew, based on demand from
core clients. These actions reduced operating results by over
$8.0 million and resulted in
$3.4 million of incremental capital
spending. All nine fracturing fleets are currently active and are
expected to make meaningful contributions to Calfrac's operating
and financial performance during the second half of the
year.
Recent improvements in commodity pricing have begun to
positively impact the operating outlook in the United States. Calfrac expects high levels
of utilization for its active asset base during the second half of
2021 as clients have modestly increased their planned capital
programs to take advantage of compelling wellhead economics. While
activity is expected to remain strong during the second half of the
year, the Company has no plans to add any incremental fracturing
fleets to its operating footprint. Visibility into 2022 is expected
to improve during the fourth quarter, and initial discussions with
clients are supportive of a strong activity levels in all operating
areas.
RUSSIA
As expected, operating and financial results for Calfrac's
Russian division improved sequentially in the second quarter and
are reflective of elevated utilization levels for the Company's
active equipment along with prudent cost management. The third
quarter is typically the busiest quarter of the year in
Russia and near-term visibility
supports a continuation of that trend. Further growth in 2022 may
be possible based on current bidding activity and longer-term plans
announced by producers in the country.
ARGENTINA
In Argentina, results
improved sequentially with more consistent activity in all
operating regions, specifically in the Vaca Muerta shale
play
Operating activity for the Company's operations in
Argentina is expected to remain
strong throughout the remainder of 2021, and it is anticipated that
high levels of demand for Calfrac's services will continue
generating strong financial performance into 2022.
CORPORATE
At a corporate level, Calfrac's focus will remain on
allocating capital in a prudent fashion, with debt reduction
remaining a high priority. Investments in reactivation or upgrades
of existing fleets will only be considered when returns exceed
internal benchmarks including macroeconomic, industry and
operation-specific risk factors.
FINANCIAL OVERVIEW – THREE MONTHS ENDED JUNE 30,
2021 VERSUS 2020
CANADA
Three Months Ended
June 30,
|
2021
|
|
2020
|
|
Change
|
(C$000s, except operational
information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
50,766
|
|
27,813
|
|
83
|
Expenses
|
|
|
|
|
|
Operating
|
47,422
|
|
20,208
|
|
135
|
SG&A
|
(951)
|
|
1,277
|
|
(174)
|
|
46,471
|
|
21,485
|
|
116
|
Operating
income(1)
|
4,295
|
|
6,329
|
|
(32)
|
Operating income
(%)
|
8.5
|
|
22.8
|
|
(63)
|
Fracturing revenue
per job ($)
|
28,191
|
|
26,289
|
|
7
|
Number of fracturing
jobs
|
1,621
|
|
978
|
|
66
|
Active pumping
horsepower, end of period (000s)
|
202
|
|
174
|
|
16
|
Idle pumping
horsepower, end of period (000s)
|
70
|
|
105
|
|
(33)
|
Total pumping
horsepower, end of period (000s)
|
272
|
|
279
|
|
(3)
|
Coiled tubing revenue
per job ($)
|
18,231
|
|
13,563
|
|
34
|
Number of coiled
tubing jobs
|
278
|
|
155
|
|
79
|
Active coiled tubing
units, end of period (#)
|
|
|
|
|
|
|
7
|
|
7
|
|
—
|
Idle coiled tubing
units, end of period (#)
|
|
|
|
|
|
|
6
|
|
6
|
|
—
|
Total coiled tubing
units, end of period (#)
|
13
|
|
13
|
|
—
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
REVENUE
Revenue from Calfrac's Canadian operations during the
second quarter of 2021 was $50.8
million compared to $27.8
million in the same period of 2020, primarily due to higher
activity. The number of fracturing jobs increased by 66 percent
from the comparable period in 2020 as a significantly improved
commodity price environment resulted in an increase in drilling and
completion activity in western Canada. Revenue per job increased by 7 percent
mainly due to job mix as the majority of activity completed in the
quarter was focused on larger pad style jobs which are more product
intensive. The number of coiled tubing jobs increased by 79 percent
from the second quarter in 2020 due to higher activity.
OPERATING INCOME
Operating income in Canada during the second quarter of 2021 was
$4.3 million compared to $6.3 million in the same period of 2020. Despite
an 83 percent increase in revenue, the Company's operating income
as a percentage of revenue was 8 percent compared to 23 percent in
the comparable quarter. The second quarter of 2021 included
$2.5 million of Canadian Emergency
Wage Subsidy (CEWS) compared to $3.9
million in the second quarter of 2020. SG&A expense for
the second quarter included a recovery of a litigation settlement
while operating expenses were higher due to an arbitral
order, which together resulted in a net increase to operating
income of $0.7 million. Excluding
these items, operating income on a normalized basis for the second
quarter of 2021 would have been $1.1
million versus $2.4 million in
the comparable period in 2020. The decrease in operating income as
a percentage of revenue for the quarter was mainly due to higher
product costs due to changes in job mix.
UNITED
STATES
Three Months Ended
June 30,
|
2021
|
|
2020
|
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
86,688
|
|
38,192
|
|
127
|
Expenses
|
|
|
|
|
|
Operating
|
86,366
|
|
39,998
|
|
116
|
SG&A
|
2,876
|
|
3,145
|
|
(9)
|
|
89,242
|
|
43,143
|
|
107
|
Operating
loss(1)
|
(2,554)
|
|
(4,951)
|
|
48
|
Operating loss
(%)
|
(2.9)
|
|
(13.0)
|
|
78
|
Fracturing revenue
per job ($)
|
27,737
|
|
32,630
|
|
(15)
|
Number of fracturing
jobs
|
3,123
|
|
1,168
|
|
167
|
Active pumping
horsepower, end of period (000s)
|
550
|
|
423
|
|
30
|
Idle pumping
horsepower, end of period (000s)
|
323
|
|
450
|
|
(28)
|
Total pumping
horsepower, end of period (000s)
|
873
|
|
873
|
|
—
|
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)
|
1.2282
|
|
1.3853
|
|
(11)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Revenue from Calfrac's United
States operations increased to $86.7
million during the second quarter of 2021 from $38.2 million in the comparable quarter of 2020.
The improved commodity price backdrop relative to the second
quarter in 2020 allowed the Company to operate three more fleets in
2021 compared to the same quarter in 2020. The significant increase
in revenue can be attributed to a combination of a 167 percent
increase in the number of fracturing jobs completed offset
partially by a 15 percent decrease in revenue per job
period-over-period, primarily due to the decline in the U.S. dollar
exchange rate and job mix. The most significant improvement in
activity was seen in North Dakota
as the Company did not operate any fleets in that area in the
comparable quarter in 2020, and to a lesser extent,
Colorado.
OPERATING LOSS
The Company's United
States operations generated an operating loss of
$2.6 million during the second
quarter of 2021 compared to a loss of $5.0
million in the same period in2020. The Company reconfigured
its operating footprint during the second quarter, which resulted
in the movement of equipment and lower utilization of its active
fleets during the latter half of the quarter. The Company began the
reactivation of two fleets during the second quarter that are
expected to be highly utilized during the third quarter, although
customer delays during June negatively impacted profitability
during the second quarter. Operating expenses included reactivation
and relocation costs of $4.0 million,
while the comparable quarter included $1.8
million of restructuring charges. In addition, the Company
recorded a loss allowance provision of $0.2
million in the second quarter of 2021. Excluding these
one-time costs, the division would have had operating income of
$1.6 million during the second
quarter in 2021.
RUSSIA
Three Months Ended
June 30,
|
2021
|
|
2020
|
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
33,542
|
|
23,937
|
|
40
|
Expenses
|
|
|
|
|
|
Operating
|
27,466
|
|
20,468
|
|
34
|
SG&A
|
789
|
|
717
|
|
10
|
|
28,255
|
|
21,185
|
|
33
|
Operating income
(1)
|
5,287
|
|
2,752
|
|
92
|
Operating income
(%)
|
15.8
|
|
11.5
|
|
37
|
Fracturing revenue
per job ($)
|
57,305
|
|
95,936
|
|
(40)
|
Number of fracturing
jobs
|
536
|
|
226
|
|
137
|
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 ($)
|
35,785
|
|
44,225
|
|
(19)
|
Number of coiled
tubing jobs
|
79
|
|
51
|
|
55
|
Active coiled tubing
units, end of period (#)
|
|
|
|
|
|
|
4
|
|
3
|
|
33
|
Idle coiled tubing
units, end of period (#)
|
|
|
|
|
|
|
3
|
|
4
|
|
(25)
|
Total coiled tubing
units, end of period (#)
|
7
|
|
7
|
|
—
|
Rouble/C$ average
exchange rate(2)
|
0.0166
|
|
0.0192
|
|
(14)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Revenue from Calfrac's Russian operations increased by 40
percent during the second quarter of 2021 to $33.5 million from $23.9
million in the corresponding period of 2020. The increase in
revenue was attributable to a 137 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 40 percent primarily due to a 14
percent decline in the Russian rouble, combined with the impact of
job mix. Coiled tubing activity increased by 55 percent as the
Company operated one additional coiled tubing unit and had
consistent utilization throughout the quarter. The lower revenue
per coiled tubing job was primarily due to the decline in the
Russian rouble.
OPERATING INCOME
The Company's Russian division generated operating income
of $5.3 million during the second
quarter of 2021 versus $2.8 million
in the comparable quarter in 2020. The improved operating
performance was primarily due to better utilization of the
division's operating fleets. The operating results during the
second quarter in 2020 included $0.3
million of severance cost.
ARGENTINA
Three Months Ended
June 30,
|
2021
|
|
2020
|
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
36,314
|
|
1,481
|
|
NM
|
Expenses
|
|
|
|
|
|
Operating
|
29,612
|
|
6,392
|
|
363
|
SG&A
|
1,774
|
|
1,534
|
|
16
|
|
31,386
|
|
7,926
|
|
296
|
Operating income
(loss)(1)
|
4,928
|
|
(6,445)
|
|
NM
|
Operating income
(loss) (%)
|
13.6
|
|
(435.2)
|
|
NM
|
Fracturing revenue
per job ($)
|
57,105
|
|
206,427
|
|
(72)
|
Number of fracturing
jobs
|
395
|
|
5
|
|
NM
|
Active pumping
horsepower, end of period (000s)
|
121
|
|
118
|
|
3
|
Idle pumping
horsepower, end of period (000s)
|
—
|
|
5
|
|
—
|
Total pumping
horsepower, end of period (000s)
|
121
|
|
123
|
|
(2)
|
Coiled tubing revenue
per job ($)
|
23,483
|
|
64,274
|
|
(63)
|
Number of coiled
tubing jobs
|
206
|
|
3
|
|
NM
|
Active coiled tubing
units, end of period (#)
|
5
|
|
6
|
|
(17)
|
Idle coiled tubing
units, end of period (#)
|
1
|
|
—
|
|
NM
|
Total coiled tubing
units, end of period (#)
|
6
|
|
6
|
|
—
|
Cementing revenue per
job ($)
|
48,095
|
|
36,608
|
|
31
|
Number of cementing
jobs
|
116
|
|
7
|
|
NM
|
Active cementing
units, end of period (#)
|
10
|
|
13
|
|
(23)
|
Idle cementing units,
end of period (#)
|
3
|
|
1
|
|
200
|
Total cementing
units, end of period (#)
|
13
|
|
14
|
|
(7)
|
US$/C$ average
exchange rate(2)
|
1.2282
|
|
1.3853
|
|
(11)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Calfrac's Argentinean operations generated revenue of
$36.3 million during the second
quarter of 2021 compared to $1.5
million in the comparable quarter in 2020. The second
quarter in 2020 was a low point for the Argentina division as a result of the
government mandated shutdown of oilfield activity due to the
COVID-19 pandemic. The second quarter of 2021 saw a return to
normal operations with strong shale activity in the Vaca Muerta as
well as conventional activity in the South. Revenue was negatively
impacted by delays in operations in Neuquén due to roadblocks in
April as union strikes caused the shutdown of oilfield activity for
18 days and a lower number of stages completed with a customer due
to wellbore issues. The lower activity was mitigated by a
contractual arrangement that provided a minimum revenue
guarantee during the quarter. Revenue per job for fracturing and
coiled tubing was negatively impacted by the depreciation of the
U.S. dollar. Despite the decline of the U.S dollar, cementing
revenue per job increased by 31 percent due to changes in job mix
as a greater amount of higher margin pre-fracturing work was
completed in the second quarter of 2021.
OPERATING INCOME (LOSS)
The Company's operations in Argentina generated an operating income of
$4.9 million during the second
quarter of 2021 compared to an operating loss of $6.4 million in the comparable quarter of 2020.
Although the second quarter utilization was impacted by the
roadblocks and wellbore delay issues with a customer, it was offset
by the minimum guaranteed revenue mentioned above. Overall
utilizationimproved significantly 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
operating results during the second quarter in 2021 included
$0.2 million of severance
costs.
CORPORATE
Three Months Ended
June 30,
|
2021
|
|
2020
|
|
Change
|
(C$000s)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
Operating
|
353
|
|
454
|
|
(22)
|
SG&A
|
5,560
|
|
4,537
|
|
23
|
|
5,913
|
|
4,991
|
|
18
|
Operating
loss(1)
|
(5,913)
|
|
(4,991)
|
|
18
|
% of
Revenue
|
2.9
|
|
5.5
|
|
(47)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
OPERATING LOSS
Corporate expenses for the second quarter of 2021 were
$5.9 million compared to $5.0 million in the second 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 $0.3 million
in the second quarter in 2021 compared to a recovery of
$0.2 million in the same period in
2020. The Company also incurred higher professional fees related to
the ongoing court and regulatory proceedings associated with
the Recapitalization Transaction that was completed in 2020, as
discussed in Note 2 of the interim financial statements.
DEPRECIATION
For the three months ended June 30, 2021,
depreciation expense decreasedby $14.8
million to $31.4 million from
$46.2 million in the corresponding
quarter in 2020. In 2020, the Company recorded PP&E impairment
charges totaling $227.2 million which
resulted in the reduction of depreciation expense during the second
quarter in 2021. The year-over-year decrease in capital
expenditures relating to major component purchases, which have a
shorter useful life and a corresponding higher rate of
depreciation, also contributed to the decrease in second-quarter
depreciation expense.
FOREIGN EXCHANGE GAINS AND LOSSES
The Company recorded a foreign exchange loss of
$2.3 million during the second
quarter of 2021 versus a loss of $2.0
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 second 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 $9.3 million for the second quarter of 2021 was
$11.4 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. In addition, the
USD/CAD exchange rate was 11 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
$7.2 million during the second
quarter of 2021 compared to a recovery of $0.4 million in the comparable period of 2020. A
deferred tax recovery of $8.0 million
was recorded primarily due to losses incurred in the United States, and a current income tax
expense of $0.8 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 CGU is shown in
the table below.
Three Months Ended
June 30,
|
2021
|
|
2020
|
(C$000s)
|
($)
|
|
($)
|
Canada
|
—
|
|
78,136
|
Argentina
|
—
|
|
68,669
|
Russia
|
—
|
|
26,879
|
|
—
|
|
173,684
|
LIQUIDITY AND CAPITAL RESOURCES
|
Three Months Ended Jun. 30,
|
|
Six Months Ended Jun. 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
(C$000s)
|
($)
|
|
($)
|
|
($)
|
|
($)
|
(unaudited)
|
|
|
|
|
|
|
|
Cash provided by
(used in):
|
|
|
|
|
|
|
|
Operating
activities
|
18,828
|
|
116,908
|
|
(1,034)
|
|
70,569
|
Financing
activities
|
1,704
|
|
(13,299)
|
|
17,685
|
|
6,033
|
Investing
activities
|
(13,545)
|
|
(9,720)
|
|
(24,051)
|
|
(35,576)
|
Effect of exchange
rate changes on cash and cash equivalents
|
(287)
|
|
(2,972)
|
|
(1,765)
|
|
4,332
|
Increase (decrease)
in cash and cash equivalents
|
6,700
|
|
90,917
|
|
(9,165)
|
|
45,358
|
OPERATING ACTIVITIES
The Company's cash provided by operating activities for
the three months ended June 30, 2021 was $18.8 million versus cash provided of
$116.9 million during the same period
in 2020. The decrease in cash provided by operations was primarily
due to $15.8 million provided by
working capital during the second quarter compared to working
capital providing $127.1 million of
cash in the same period in 2020. At June 30, 2021, Calfrac's
working capital was $152.2 million,
compared to $161.4 million at
December 31, 2020.
FINANCING ACTIVITIES
Net cash provided by financing activities for the three
months ended June 30, 2021 was $1.7
million compared to net cash used of $13.3 million in the comparable period in 2020.
During the three months ended June 30,
2021, the Company had net draws under its credit facilities
of $5.0 million, debt issuance costs
of $1.6 million and lease principal
payments of $1.7 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.
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 continues to be waived for the quarter
ended June 30, 2021 and is 4.50x for
the quarter ended September 30, 2021,
3.50x for the quarter ended December 31,
2021 ("Covenant Relief Period") and 3.00x for each quarter
end thereafter. The Covenant Relief Period terminates on the
earlier of December 31, 2021 and any
prior quarter end for which Calfrac has requested early termination
and has provided a compliance certificate to its lenders certifying
compliance with all financial covenants and where the Funded Debt
to Adjusted EBITDA ratio is less than 3.00x at such quarter
end.
The facilities consist of an operating facility of
$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: (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.As at
June 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.
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 June 30, 2021, the Company had used $0.8 million of its credit facilities for letters
of credit and had $155.0 million of
borrowings under its credit facilities, leaving $69.2 million in available capacity under its
credit facilities. As described above, the Company's credit
facilities are subject to a monthly borrowing base, which was most
recently calculated at $192.2
million using June 30, 2021
results. The borrowing base at June
30 will govern borrowings for the month of August 2021. Under the terms of the Company's
amended credit facility agreement, Calfrac must maintain a minimum
liquidity amount of $15.0 million
during the Covenant Relief Period.
The Company's credit facilities contain certain financial
covenants. As per the amended credit facility agreement, the
Company's Funded Debt to Adjusted EBITDA covenant is waived for the
quarter ended June 30, 2021 and is
4.50x for the quarter ended September 30,
2021, 3.50x for the quarter ended December 31, 2021 and 3.00x for each quarter end
thereafter. As shown in the table below, the Company was in full
compliance with its financial covenants associated with its credit
facilities as at June 30, 2021.
|
Covenant
|
Actual
|
As at June
30,
|
2021
|
2021
|
Working capital ratio
not to fall below
|
1.15x
|
2.17x
|
Funded Debt to
Adjusted EBITDA not to exceed(1)(2)
|
N/A
|
5.44x
|
Funded Debt to
Capitalization not to exceed(1)(3)
|
0.30x
|
0.22x
|
(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 obligations under
the Company's existing senior secured credit facility and 1.5 Lien
Notes. The exchange was completed at an exchange price of
US$550 for each US$1,000 of Unsecured Notes, resulting in
US$218.2 million 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 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, subject to certain exceptions.
The indentures governing the 1.5 Lien Notes and Second
Lien Notes, 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 either of the indentures or the making of such
payment would result in a default;
|
ii.
|
the Company would not
meet the Fixed Charge Coverage Ratio(1) under either of
the indentures of at least 2:1 for the most recent four fiscal
quarters, after giving pro forma effect to such restricted payment
as if it had been made at the beginning of the applicable four
fiscal quarter period; or
|
iii.
|
there is insufficient
room for such payment within 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
each of these indentures. As at June 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 indenture governing
the 1.5 Lien Notes includes restrictions on certain investments,
including certain investments in subsidiary entities, however the
indenture includes several exceptions to this prohibition,
including a general basket of US$10.0
million and baskets related to prepayments and certain
capital build commitments which aggregate over US$12.0 million. This indenture also contains a
restriction that any indebtedness incurred in excess of
$290.0 million under the credit
facilities basket shall be junior in priority to the 1.5 Lien
Notes.
As at June 30, 2021, the Company's Fixed Charge
Coverage Ratio of 0.69:1 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
$5.0 million cap 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
$13.5 million for the three months
ended June 30, 2021 versus $9.7
million in the comparable period in 2020. Cash outflows
relating to capital expenditures during the quarter were
$14.6 million in 2021 compared to
$10.2 million during the same period
in 2020. The Company has an approved capital budget of
approximately $55.0 million, which is
comprised primarily of maintenance capital.
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
The effect of changes in foreign exchange rates on the
Company's cash and cash equivalents during the three months ended
June 30, 2021 was a loss of $0.3
million versus a loss of $3.0
million in the same period in 2020. These losses relate to
movements of cash and cash equivalents held by the Company in a
foreign currency during the period.
At June 30, 2021, the Company had a cash balance of
$20.7 million of which $10.3 million was temporarily restricted and held
in a segregated account. On July 6,
2021, the restricted funds were released as part of the
maturity of a bankers' acceptance under the revolving credit
facilities.
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 July 23,
2021, the Company had issued and outstanding 37,652,372
common shares, 5,788,199 warrants and 3,540,000 options to purchase
common shares.
SUMMARY OF QUARTERLY RESULTS
Three Months
Ended
|
Sep. 30,
|
|
Dec. 31,
|
|
Mar. 31,
|
|
Jun. 30,
|
|
Sep. 30,
|
|
Dec. 31,
|
|
Mar. 31,
|
|
Jun. 30,
|
|
2019
|
|
2019
|
|
2020
|
|
2020
|
|
2020
|
|
2020
|
|
2021
|
|
2021
|
(C$000s, except per share and operating
data)
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
399,220
|
|
317,085
|
|
305,515
|
|
91,423
|
|
127,776
|
|
180,722
|
|
241,575
|
|
207,311
|
Operating income
(loss)(1)
|
47,021
|
|
20,997
|
|
5,698
|
|
(7,307)
|
|
8,009
|
|
15,597
|
|
12,940
|
|
6,043
|
Per share –
basic(2)
|
16.25
|
|
7.25
|
|
1.97
|
|
(2.52)
|
|
2.76
|
|
1.91
|
|
0.35
|
|
0.16
|
Per share –
diluted(2)
|
16.18
|
|
7.22
|
|
1.96
|
|
(2.52)
|
|
2.75
|
|
0.27
|
|
0.15
|
|
0.07
|
Adjusted
EBITDA(1)
|
43,028
|
|
26,882
|
|
6,812
|
|
(5,185)
|
|
8,467
|
|
13,715
|
|
11,936
|
|
4,393
|
Per share –
basic(2)
|
14.87
|
|
9.29
|
|
2.35
|
|
(1.79)
|
|
2.91
|
|
1.68
|
|
0.31
|
|
0.12
|
Per share –
diluted(2)
|
14.80
|
|
9.25
|
|
2.34
|
|
(1.79)
|
|
2.91
|
|
0.24
|
|
0.14
|
|
0.05
|
Net income
(loss)
|
(29,424)
|
|
(49,400)
|
|
(122,857)
|
|
(277,275)
|
|
(50,000)
|
|
125,897
|
|
(22,418)
|
|
(30,535)
|
Per share –
basic(2)
|
(10.17)
|
|
(17.07)
|
|
(42.38)
|
|
(95.61)
|
|
(17.20)
|
|
15.43
|
|
(0.60)
|
|
(0.82)
|
Per share –
diluted(2)
|
(10.17)
|
|
(17.07)
|
|
(42.38)
|
|
(95.61)
|
|
(17.20)
|
|
2.19
|
|
(0.60)
|
|
(0.82)
|
Capital
expenditures
|
38,885
|
|
34,418
|
|
29,283
|
|
6,068
|
|
2,792
|
|
6,487
|
|
11,586
|
|
18,065
|
Working capital (end
of period)
|
257,189
|
|
248,772
|
|
233,125
|
|
157,165
|
|
127,989
|
|
161,448
|
|
170,088
|
|
152,176
|
Total equity (end of
period)
|
414,195
|
|
368,623
|
|
239,099
|
|
(34,195)
|
|
(81,033)
|
|
410,234
|
|
384,561
|
|
350,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (end of period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active pumping
horsepower (000s)
|
1,337
|
|
1,269
|
|
1,242
|
|
780
|
|
840
|
|
901
|
|
934
|
|
950
|
Idle pumping
horsepower (000s)
|
72
|
|
141
|
|
174
|
|
572
|
|
505
|
|
444
|
|
411
|
|
393
|
Total pumping
horsepower (000s)
|
1,409
|
|
1,410
|
|
1,416
|
|
1,352
|
|
1,345
|
|
1,345
|
|
1,345
|
|
1,343
|
Active coiled tubing
units (#)
|
21
|
|
20
|
|
20
|
|
16
|
|
15
|
|
17
|
|
16
|
|
16
|
Idle coiled tubing
units (#)
|
8
|
|
8
|
|
7
|
|
11
|
|
12
|
|
10
|
|
11
|
|
11
|
Total coiled tubing
units (#)
|
29
|
|
28
|
|
27
|
|
27
|
|
27
|
|
27
|
|
27
|
|
27
|
Active cementing
units (#)
|
14
|
|
13
|
|
13
|
|
13
|
|
12
|
|
12
|
|
10
|
|
10
|
Idle cementing units
(#)
|
9
|
|
6
|
|
3
|
|
3
|
|
4
|
|
4
|
|
6
|
|
6
|
Total cementing units
(#)
|
23
|
|
19
|
|
16
|
|
16
|
|
16
|
|
16
|
|
16
|
|
16
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Comparative amounts were adjusted to reflect the
Company's fifty-to-one common share 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 – SIX MONTHS ENDED JUNE 30,
2021 VERSUS 2020
CANADA
Six Months Ended June
30,
|
2021
|
|
2020
|
|
Change
|
(C$000s, except operational
information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
136,349
|
|
132,432
|
|
3
|
Expenses
|
|
|
|
|
|
Operating
|
116,165
|
|
109,901
|
|
6
|
Selling, general and
administrative (SG&A)
|
710
|
|
4,228
|
|
(83)
|
|
116,875
|
|
114,129
|
|
2
|
Operating
income(1)
|
19,474
|
|
18,303
|
|
6
|
Operating income
(%)
|
14.3
|
|
13.8
|
|
4
|
Fracturing revenue
per job ($)
|
19,886
|
|
16,791
|
|
18
|
Number of fracturing
jobs
|
6,190
|
|
7,164
|
|
(14)
|
Active pumping
horsepower, end of period (000s)
|
202
|
|
174
|
|
16
|
Idle pumping
horsepower, end of period (000s)
|
70
|
|
105
|
|
(33)
|
Total pumping
horsepower, end of period (000s)
|
272
|
|
279
|
|
(3)
|
Coiled tubing revenue
per job ($)
|
20,940
|
|
21,834
|
|
(4)
|
Number of coiled
tubing jobs
|
633
|
|
556
|
|
14
|
Active coiled tubing
units, end of period (#)
|
|
|
|
|
|
|
7
|
|
7
|
|
—
|
Idle coiled tubing
units, end of period (#)
|
|
|
|
|
|
|
6
|
|
6
|
|
—
|
Total coiled tubing
units, end of period (#)
|
13
|
|
13
|
|
—
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
REVENUE
Revenue from Calfrac's Canadian operations during the
first six months in 2021 was $136.3
million versus $132.4 million
in the same period in 2020 primarily due to changes in job mix.
Work during 2021 shifted from smaller pad jobs in the Viking to
larger pad jobs in the Montney
resulting in an 18 percent increase in revenue per job from the
comparable period in 2020. The number of coiled tubing jobs
increased by 14 percent from the comparable period in 2020 due to
higher activity, while revenue per job decreased by 4 percent due
to changes in job mix.
OPERATING INCOME
The Company's Canadian division generated operating income
of $19.5 million compared to
$18.3 million in 2020. The Company
recognized CEWS benefits of $3.9
million in the first half of 2021 and 2020, although 2020
also included $1.6 million of
severance costs. SG&A expense for the first half of 2021
included a recovery of a litigation settlement, while operating
expenses were higher due to an arbitral order, which together
resulted in a net increase to operating income of $0.7 million. Excluding these items normalized
operating income for the first half of 2021 would have been
$14.9 million compared to
$16.0 million in 2020. The decrease
in operating income is due to higher product costs resulting from
changes in job mix.
UNITED
STATES
Six Months Ended June
30,
|
2021
|
|
2020
|
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
179,601
|
|
192,304
|
|
(7)
|
Expenses
|
|
|
|
|
|
Operating
|
179,520
|
|
184,727
|
|
(3)
|
SG&A
|
5,647
|
|
7,341
|
|
(23)
|
|
185,167
|
|
192,067
|
|
(4)
|
Operating (loss)
income(1)
|
(5,566)
|
|
236
|
|
NM
|
Operating (loss)
income (%)
|
(3.1)
|
|
0.1
|
|
NM
|
Fracturing revenue
per job ($)
|
26,941
|
|
29,121
|
|
(7)
|
Number of fracturing
jobs
|
6,664
|
|
6,601
|
|
1
|
Active pumping
horsepower, end of period (000s)
|
550
|
|
423
|
|
30
|
Idle pumping
horsepower, end of period (000s)
|
323
|
|
450
|
|
(28)
|
Total pumping
horsepower, end of period (000s)
|
873
|
|
873
|
|
—
|
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)
|
1.2471
|
|
1.3651
|
|
(9)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Revenue from Calfrac's United
States operations decreased to $179.6
million in the first six months in 2021 from $192.3 million in the same period in 2020,
primarily due to a 7 percent decrease in fracturing revenue per
job. The lower fracturing revenue per job was mainly due to the 9
percent depreciation of the U.S dollar, offset partially by the
impact of job mix. Overall activity was impacted in the first
quarter by extreme cold weather which temporarily shutdown
operations. Activity for the second quarter started off
relatively strong, but was impacted by short notice schedule delays
and the relocating of equipment between operating areas, where
greater margin opportunities are expected in future
periods.
OPERATING (LOSS) INCOME
The Company's United
States division generated an operating loss of $5.6 million during the first six months in 2021
compared to operating income of $0.2
million in the comparable period in 2020. The first half 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 and was not at levels required to generate positive
returns. 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 movement of equipment also impacted
utilization during the second quarter. SG&A expenses
decreased by 23 percent as the comparable period in 2020 included
$2.4 million of restructuring
costs.
RUSSIA
Six Months Ended June
30,
|
2021
|
|
2020
|
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
61,163
|
|
44,928
|
|
36
|
Expenses
|
|
|
|
|
|
Operating
|
52,931
|
|
42,718
|
|
24
|
SG&A
|
1,469
|
|
1,756
|
|
(16)
|
|
54,400
|
|
44,474
|
|
22
|
Operating
income(1)
|
6,763
|
|
454
|
|
NM
|
Operating income
(%)
|
11.1
|
|
1.0
|
|
NM
|
Fracturing revenue
per job ($)
|
63,817
|
|
98,796
|
|
(35)
|
Number of fracturing
jobs
|
875
|
|
405
|
|
116
|
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 ($)
|
40,329
|
|
45,514
|
|
(11)
|
Number of coiled
tubing jobs
|
132
|
|
108
|
|
22
|
Active coiled tubing
units, end of period (#)
|
|
|
|
|
|
|
4
|
|
3
|
|
33
|
Idle coiled tubing
units, end of period (#)
|
|
|
|
|
|
|
3
|
|
4
|
|
(25)
|
Total coiled tubing
units, end of period (#)
|
7
|
|
7
|
|
—
|
Rouble/C$ average
exchange rate(2)
|
0.0168
|
|
0.0197
|
|
(15)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Revenue from Calfrac's Russian operations in the first six
months in 2021 of $61.2 million was
36 percent higher than in the comparable period in 2020. The
increase in revenue was attributable to a 116 percent increase in
fracturing activity due to better utilization as the comparable six
months had weather related issues. As well, a higher percentage of
multi-stage work was completed in 2021, which resulted in a higher
number of stages completed at a lower average job size. Revenue per
fracturing job was 35 percent lower than in 2020 due to the 15
percent depreciation of the Russian rouble, combined with changes
in job mix. Coiled tubing activity increased by 22 percent as the
Company operated one additional coiled tubing unit, and the 11
percent decline in revenue per job was due to the decline in the
Russian Rouble
OPERATING INCOME
The Company's Russian division generated operating income
of $6.8 million during the first six
months in 2021 compared to operating income of $0.5 million in the comparable period in 2020.
Utilization in the first half of 2021 improved significantly as the
Company increased its operating footprint from five
fracturing fleets in 2020 to six fleets in 2021, and the
comparable period had weather-related issues during the first
quarter. Operating results for the first six months of 2020
included $0.4 million in severance
costs.
ARGENTINA
Six Months Ended June
30,
|
2021
|
|
2020
|
|
Change
|
(C$000s, except operational and exchange rate
information)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Revenue
|
71,772
|
|
27,274
|
|
163
|
Expenses
|
|
|
|
|
|
Operating
|
59,342
|
|
31,341
|
|
89
|
SG&A
|
3,588
|
|
4,010
|
|
(11)
|
|
62,930
|
|
35,351
|
|
78
|
Operating income
(loss)(1)
|
8,842
|
|
(8,077)
|
|
NM
|
Operating income
(loss) (%)
|
12.3
|
|
(29.6)
|
|
NM
|
Fracturing revenue
per job ($)
|
55,682
|
|
74,766
|
|
(26)
|
Number of fracturing
jobs
|
798
|
|
176
|
|
353
|
Active pumping
horsepower, end of period (000s)
|
121
|
|
118
|
|
3
|
Idle pumping
horsepower, end of period (000s)
|
—
|
|
5
|
|
NM
|
Total pumping
horsepower, end of period (000s)
|
121
|
|
123
|
|
(2)
|
Coiled tubing revenue
per job ($)
|
20,973
|
|
73,096
|
|
(71)
|
Number of coiled
tubing jobs
|
442
|
|
87
|
|
408
|
Active coiled tubing
units, end of period (#)
|
5
|
|
6
|
|
(17)
|
Idle coiled tubing
units, end of period (#)
|
1
|
|
—
|
|
NM
|
Total coiled tubing
units, end of period (#)
|
6
|
|
6
|
|
—
|
Cementing revenue per
job ($)
|
49,239
|
|
60,591
|
|
(19)
|
Number of cementing
jobs
|
209
|
|
128
|
|
63
|
Active cementing
units, end of period (#)
|
10
|
|
13
|
|
(23)
|
Idle cementing units,
end of period (#)
|
3
|
|
1
|
|
200
|
Total cementing
units, end of period (#)
|
13
|
|
14
|
|
(7)
|
US$/C$ average
exchange rate(2)
|
|
|
|
|
1.2471
|
1.3651
|
(9)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
(2) Source: Bank of Canada.
|
REVENUE
Calfrac's Argentinean operations generated total revenue
of $71.8 million during the first six
months in 2021 versus $27.3 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 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 quarter of 2021, Argentina saw a return to normal operations
for all service lines including an increase to subcontractor
revenue that was not experienced in the first half of 2020 due to
changes in contracted service mix in Neuquén. Utilization 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 and lower activity with a customer
due to wellbore issues. The lower activity, however, was mitigated
by a contractual arrangement that provided a minimum revenue
guarantee during the second quarter. Revenue per job across all
service lines was negatively impacted by the depreciation of the
U.S. dollar.
OPERATING INCOME (LOSS)
In the first six months of 2021, the Company's operations
in Argentina generated operating
income of $8.8 million, compared to
an operating loss of $8.1 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.
CORPORATE
Six Months Ended June
30,
|
2021
|
|
2020
|
|
Change
|
(C$000s)
|
($)
|
|
($)
|
|
(%)
|
(unaudited)
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
Operating
|
708
|
|
1,580
|
|
(55)
|
SG&A
|
9,822
|
|
10,945
|
|
(10)
|
|
10,530
|
|
12,525
|
|
(16)
|
Operating
loss(1)
|
(10,530)
|
|
(12,525)
|
|
(16)
|
% of
Revenue
|
2.3
|
|
3.2
|
|
(28)
|
(1) Refer to "Non-GAAP Measures" on pages 24 and 25 for
further information.
|
OPERATING LOSS
Corporate expenses during the first six months in 2021
were $10.5 million compared to
$12.5 million in the comparable
period in 2020. The decrease was primarily due to lower personnel
costs resulting from headcount and compensation reductions. This
reduction was offset by higher professional fees during the first
six months of 2021. The impact of the Canada Emergency Wage Subsidy and Emergency
Rent programs was relatively consistent with the same period in
2020 with a combined reduction of $0.8
million in 2021 and $0.6
million in 2020.
DEPRECIATION
Depreciation expense during the first six months in 2021
decreased by $46.5 million from
$109.5 million to $63.0 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
six months of 2020, combined with lower sustaining capital
expenditures.
FOREIGN EXCHANGE LOSSES
The Company recorded a foreign exchange loss of
$5.7 million during the first six
months in 2021 versus a loss of $1.9
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 half 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 $18.4 million in the first six months in 2021was
$28.4 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 at an annual interest rate of 10.0
percent. Interest expense in the first six 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
$15.5 million in the first six months
in 2021 compared to a $113.7 million
tax expense in the comparable period in 2020. A deferred tax
recovery of $16.4 million was
recorded primarily due to losses incurred in the United States and a current income tax
expense of $0.9 million resulted from
current tax obligations in Russia
and certain state taxes in the United
States. The expense position in the first six 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.
|
|
Six Months Ended Jun. 30,
|
|
|
2021
|
|
2020
|
(C$000s)
|
|
($)
|
|
($)
|
Canada
|
|
—
|
|
116,280
|
United
States
|
|
—
|
|
15,380
|
Argentina
|
|
—
|
|
68,669
|
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:
|
|
Six Months Ended Jun. 30,
|
|
|
2021
|
|
2020
|
(C$000s)
|
|
($)
|
|
($)
|
Canada
|
|
—
|
|
6,200
|
United
States
|
|
—
|
|
10,668
|
Argentina
|
|
—
|
|
11,000
|
|
|
—
|
|
27,868
|
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 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 Jun.30,
|
|
Six Months Ended Jun. 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
(C$000s)
|
($)
|
|
($)
|
|
($)
|
|
($)
|
(unaudited)
|
|
|
|
|
Net loss
|
(30,535)
|
|
(277,275)
|
|
(52,953)
|
|
(400,132)
|
Add back
(deduct):
|
|
|
|
|
Depreciation
|
31,415
|
|
46,195
|
|
63,039
|
|
109,458
|
Foreign exchange
losses (gains)
|
2,346
|
|
2,012
|
|
5,691
|
|
1,922
|
Loss (gain) on
disposal of property, plant and equipment
|
741
|
|
(113)
|
|
354
|
|
1,556
|
Impairment of
property, plant and equipment
|
—
|
|
173,684
|
|
—
|
|
227,208
|
Impairment of
inventory
|
—
|
|
27,868
|
|
—
|
|
27,868
|
Impairment of other
assets
|
—
|
|
—
|
|
—
|
|
507
|
Gain on exchange of
debt
|
—
|
|
—
|
|
—
|
|
(130,444)
|
Interest
|
9,297
|
|
20,723
|
|
18,398
|
|
46,766
|
Income
taxes
|
(7,221)
|
|
(401)
|
|
(15,546)
|
|
113,682
|
Operating income
(loss)
|
6,043
|
|
(7,307)
|
|
18,983
|
|
(1,609)
|
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 Jun.30,
|
Six Months Ended Jun. 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
(C$000s)
|
|
|
($)
|
|
($)
|
(unaudited)
|
|
|
|
|
Net loss
|
(30,535)
|
|
(277,275)
|
|
(52,953)
|
|
(400,132)
|
Add back
(deduct):
|
|
|
|
|
Depreciation
|
31,415
|
|
46,195
|
|
63,039
|
|
109,458
|
Unrealized foreign
exchange losses
|
901
|
|
1,962
|
|
2,987
|
|
(318)
|
Loss (gain) on
disposal of property, plant and equipment
|
741
|
|
(113)
|
|
354
|
|
1,556
|
Impairment of
property, plant and equipment
|
—
|
|
173,684
|
|
—
|
|
227,208
|
Impairment of
inventory
|
—
|
|
27,868
|
|
—
|
|
27,868
|
Impairment of other
assets
|
—
|
|
—
|
|
—
|
|
507
|
Gain on exchange of
debt
|
—
|
|
—
|
|
—
|
|
(130,444)
|
Litigation
settlements
|
(700)
|
|
—
|
|
(700)
|
|
—
|
Restructuring
charges
|
218
|
|
2,352
|
|
473
|
|
4,973
|
Stock-based
compensation
|
277
|
|
(180)
|
|
277
|
|
503
|
Interest
|
9,297
|
|
20,723
|
|
18,398
|
|
46,766
|
Income
taxes
|
(7,221)
|
|
(401)
|
|
(15,546)
|
|
113,682
|
Adjusted
EBITDA(1)
|
4,393
|
|
(5,185)
|
|
16,329
|
|
1,627
|
(1) For
bank covenant purposes, EBITDA includes the deduction of an
additional $4.1 million (six months ended June 30, 2020 - $9.6
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.
SECOND QUARTER CONFERENCE CALL
Calfrac will be conducting a conference call for
interested analysts, brokers, investors and news media
representatives to review its 2021 second quarter results at
10:00 a.m. (Mountain Time) on
Thursday, July 29, 2021. The conference call dial-in number
is 1-888-231-8191 or 647-427-7450. The seven-day replay numbers are
1-855-859-2056 or 416-849-0833 (once connected, enter 2790067). A
webcast of the conference call may be accessed via the Company's
website at www.calfrac.com.
CONSOLIDATED BALANCE SHEETS
|
June 30,
|
|
December
31,
|
|
2021
|
|
2020
|
(C$000s) (unaudited)
|
($)
|
|
($)
|
ASSETS
|
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents (note 1)
|
20,665
|
|
29,830
|
Accounts
receivable
|
162,440
|
|
139,486
|
Income taxes
recoverable
|
1,227
|
|
1,530
|
Inventories
|
91,929
|
|
83,294
|
Prepaid expenses and
deposits
|
20,395
|
|
17,050
|
|
296,656
|
|
271,190
|
Non-current
assets
|
|
|
Property, plant and
equipment
|
573,484
|
|
618,488
|
Right-of-use
assets
|
20,665
|
|
22,785
|
Total
assets
|
890,805
|
|
912,463
|
LIABILITIES AND EQUITY
|
|
|
|
Current
liabilities
|
|
|
|
Accounts payable and
accrued liabilities
|
137,002
|
|
101,784
|
Current portion of
lease obligations
|
7,478
|
|
7,958
|
|
144,480
|
|
109,742
|
Non-current
liabilities
|
|
|
|
Long-term debt (note
1)
|
347,377
|
|
324,633
|
Lease
obligations
|
12,210
|
|
14,013
|
Deferred income tax
liabilities
|
36,107
|
|
53,841
|
Total
liabilities
|
540,174
|
|
502,229
|
Capital stock (note
3)
|
800,522
|
|
800,184
|
Conversion rights on
convertible notes (note 1)
|
4,788
|
|
4,873
|
Contributed
surplus
|
66,263
|
|
65,986
|
Warrants (notes 2 and
4)
|
40,548
|
|
40,797
|
Loan receivable for
purchase of common shares
|
(2,500)
|
|
(2,500)
|
Accumulated
deficit
|
(562,362)
|
|
(509,409)
|
Accumulated other
comprehensive income
|
3,372
|
|
10,303
|
Total
equity
|
350,631
|
|
410,234
|
Total liabilities and
equity
|
890,805
|
|
912,463
|
Contingencies (note 6)
See accompanying notes to the interim condensed
consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
(C$000s, except per share data)
(unaudited)
|
($)
|
|
($)
|
|
($)
|
|
($)
|
Revenue
|
207,311
|
|
91,423
|
|
448,886
|
|
396,938
|
Cost of
sales
|
222,635
|
|
133,715
|
|
471,706
|
|
479,725
|
Gross loss
|
(15,324)
|
|
(42,292)
|
|
(22,820)
|
|
(82,787)
|
Expenses
|
|
|
|
|
Selling, general and
administrative
|
10,048
|
|
11,210
|
|
21,236
|
|
28,280
|
Foreign exchange
losses
|
2,346
|
|
2,012
|
|
5,691
|
|
1,922
|
Loss (gain) on
disposal of property, plant and equipment
|
741
|
|
(113)
|
|
354
|
|
1,556
|
Impairment of
property, plant and equipment
|
—
|
|
173,684
|
|
—
|
|
227,208
|
Impairment of
inventory
|
—
|
|
27,868
|
|
—
|
|
27,868
|
Impairment of other
assets
|
—
|
|
—
|
|
—
|
|
507
|
Gain on exchange of
debt (note 1)
|
—
|
|
—
|
|
—
|
|
(130,444)
|
Interest
|
9,297
|
|
20,723
|
|
18,398
|
|
46,766
|
|
22,432
|
|
235,384
|
|
45,679
|
|
203,663
|
Loss before income
tax
|
(37,756)
|
|
(277,676)
|
|
(68,499)
|
|
(286,450)
|
Income tax expense
(recovery)
|
|
|
|
|
Current
|
791
|
|
20
|
|
876
|
|
77
|
Deferred
|
(8,012)
|
|
(421)
|
|
(16,422)
|
|
113,605
|
|
(7,221)
|
|
(401)
|
|
(15,546)
|
|
113,682
|
Net loss
|
(30,535)
|
|
(277,275)
|
|
(52,953)
|
|
(400,132)
|
|
|
|
|
|
Loss per share (note
3)
|
|
|
|
|
Basic
|
(0.82)
|
|
(95.61)
|
|
(1.41)
|
|
(138.00)
|
Diluted
|
(0.82)
|
|
(95.61)
|
|
(1.41)
|
|
(138.00)
|
See accompanying notes to the interim condensed
consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
(C$000s) (unaudited)
|
($)
|
|
($)
|
|
($)
|
|
($)
|
Net loss
|
(30,535)
|
|
(277,275)
|
|
(52,953)
|
|
(400,132)
|
Other comprehensive income
(loss)
|
|
|
|
|
Items that may be subsequently reclassified to profit
or loss:
|
|
|
|
|
Change in foreign
currency translation adjustment
|
(3,693)
|
|
4,161
|
|
(6,931)
|
|
(3,189)
|
Comprehensive
loss
|
(34,228)
|
|
(273,114)
|
|
(59,884)
|
|
(403,321)
|
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 I
ncome (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
|
—
|
|
—
|
—
|
—
|
—
|
(52,953)
|
(52,953)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
Cumulative translation
adjustment
|
—
|
—
|
—
|
—
|
—
|
(6,931)
|
—
|
(6,931)
|
Comprehensive
loss
|
—
|
—
|
—
|
—
|
—
|
(6,931)
|
(52,953)
|
(59,884)
|
Stock
options:
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized
|
—
|
—
|
277
|
—
|
—
|
—
|
—
|
277
|
Rescission of equity
portion of 1.5 Lien Notes
|
—
|
(85)
|
—
|
—
|
—
|
—
|
—
|
(85)
|
Warrants:
|
|
|
|
|
|
|
|
|
Proceeds from issuance
of shares (note 4)
|
338
|
—
|
—
|
(249)
|
—
|
—
|
—
|
89
|
Balance – June 30, 2021
|
800,522
|
4,788
|
66,263
|
40,548
|
(2,500)
|
3,372
|
(562,362)
|
350,631
|
Balance – January 1,
2020
|
509,235
|
—
|
44,316
|
—
|
(2,500)
|
2,746
|
(185,174)
|
368,623
|
Net loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(400,132)
|
(400,132)
|
Other comprehensive
income (loss):
|
|
|
|
|
|
|
|
|
Cumulative translation
adjustment
|
—
|
—
|
—
|
—
|
—
|
(3,189)
|
—
|
(3,189)
|
Comprehensive
loss
|
—
|
—
|
—
|
—
|
—
|
(3,189)
|
(400,132)
|
(403,321)
|
Stock
options:
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized
|
—
|
—
|
264
|
—
|
—
|
—
|
—
|
264
|
Performance share
units:
|
|
|
|
|
|
|
|
|
Stock-based
compensation recognized
|
—
|
—
|
239
|
—
|
—
|
—
|
—
|
239
|
Shares issued (note
3)
|
1,275
|
—
|
(1,275)
|
—
|
—
|
—
|
—
|
—
|
Balance – June 30, 2020
|
510,510
|
—
|
43,544
|
—
|
(2,500)
|
(443)
|
(585,306)
|
(34,195)
|
See accompanying notes to the interim condensed
consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
2020
|
|
2021
|
2020
|
(C$000s) (unaudited)
|
($)
|
($)
|
|
($)
|
($)
|
CASH FLOWS PROVIDED BY (USED
IN)
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
Net loss
|
(30,535)
|
(277,275)
|
|
(52,953)
|
(400,132)
|
Adjusted for the
following:
|
|
|
|
|
|
Depreciation
|
31,415
|
46,195
|
|
63,039
|
109,458
|
Stock-based
compensation
|
277
|
(180)
|
|
277
|
503
|
Unrealized foreign
exchange losses (gains)
|
901
|
1,962
|
|
2,987
|
(318)
|
Loss (gain) on
disposal of property, plant and equipment
|
741
|
(113)
|
|
354
|
1,556
|
Impairment of
property, plant and equipment
|
—
|
173,684
|
|
—
|
227,208
|
Impairment of
inventory
|
—
|
27,868
|
|
—
|
27,868
|
Impairment of other
assets
|
—
|
—
|
|
—
|
507
|
Non-cash gain on
exchange of debt (note 1)
|
—
|
—
|
|
—
|
(130,444)
|
Interest
|
9,297
|
20,723
|
|
18,398
|
46,766
|
Interest
paid
|
(1,038)
|
(2,612)
|
|
(11,674)
|
(9,080)
|
Deferred income
taxes
|
(8,012)
|
(421)
|
|
(16,422)
|
113,605
|
Changes in items of
working capital
|
15,782
|
127,077
|
|
(5,040)
|
83,072
|
Cash flows provided
by (used in) operating activities
|
18,828
|
116,908
|
|
(1,034)
|
70,569
|
FINANCING ACTIVITIES
|
|
|
|
|
|
Issuance of long-term
debt, net of debt issuance costs
|
3,421
|
34,146
|
|
22,191
|
58,404
|
Long-term debt
repayments
|
—
|
(43,727)
|
|
(1,050)
|
(43,727)
|
Lease obligation
principal repayments
|
(1,738)
|
(3,718)
|
|
(3,545)
|
(8,644)
|
Proceeds on issuance
of common shares from the exercising of warrants
|
21
|
—
|
|
89
|
—
|
Cash flows provided
by (used in) financing activities
|
1,704
|
(13,299)
|
|
17,685
|
6,033
|
INVESTING ACTIVITIES
|
|
|
|
|
|
Purchase of property,
plant and equipment
|
(14,584)
|
(10,203)
|
|
(25,458)
|
(37,016)
|
Proceeds on disposal
of property, plant and equipment
|
461
|
379
|
|
648
|
1,028
|
Proceeds on disposal
of right-of-use assets
|
578
|
104
|
|
759
|
412
|
Cash flows used in
investing activities
|
(13,545)
|
(9,720)
|
|
(24,051)
|
(35,576)
|
Effect of exchange
rate changes on cash and cash equivalents
|
(287)
|
(2,972)
|
|
(1,765)
|
4,332
|
Increase (decrease)
in cash and cash equivalents
|
6,700
|
90,917
|
|
(9,165)
|
45,358
|
Cash and cash
equivalents (bank overdraft), beginning of period
|
13,965
|
(2,997)
|
|
29,830
|
42,562
|
Cash and cash
equivalents, end of period
|
20,665
|
87,920
|
|
20,665
|
87,920
|
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 six months ended June 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
|
June 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
|
155,000
|
|
130,000
|
$58,950 1.5 Lien
Notes due December 18, 2023, bearing interest at 10.00% payable
semi-annually,
|
|
|
|
secured by the
Canadian and U.S. assets of the Company on a second priority basis
ahead of the
|
|
|
|
Second Lien
Notes
|
54,907
|
|
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
|
148,728
|
|
152,784
|
Less: unamortized
debt issuance costs
|
(11,258)
|
|
(13,322)
|
|
347,377
|
|
324,633
|
The fair value of the Second Lien Notes (as defined
below), as measured based on the closing market price at
June 30, 2021 was $113,915
(December 31, 2020 – $106,706).
The carrying values of the revolving term loan facility and 1.5
Lien Notes approximate their fair value as the interest rate is not
significantly different from current interest rates for similar
loans.
a) 1.5 Lien Notes
On December 18, 2020, the
Company issued $60,000 of 1.5 Lien
Notes due December 18, 2023 on a
private placement basis. The terms of the 1.5 Lien Notes enable the
holders to convert each $1,000
principal amount into approximately 750 common shares at their
discretion. Interest is payable in cash semi-annually on
March 15 and September 15 of each year. On each interest
payment date, the Company may elect to defer and pay in-kind any
interest accrued as of such interest payment date by increasing the
unpaid principal amount of the 1.5 Lien Notes as at such date
(each, a "PIK Interest Payment"). Following each such increase in
the principal amount of the 1.5 Lien Notes as a result of any PIK
Interest Payment, the 1.5 Lien Notes will bear interest on such
increased principal amount from and after the date of each such PIK
Interest Payment. Upon repayment of the 1.5 Lien Notes, any
interest which has accrued thereon but has not been capitalized as
set forth above shall be paid in cash.
The liability portion of the 1.5 Lien Notes was recorded
at an initial fair value of $55,127
using a discount rate of 13.4 percent, representing the discount
rate of a comparable debt instrument without a conversion feature.
The remaining $4,873 is the
difference between the initial principal amount and the fair value
of the liability component and was recorded as the equity portion
of the conversion feature in shareholders' equity. The Company
incurred transaction costs of $7,596
associated with the issuance of the 1.5 Lien Notes which was
allocated to debt issuance costs and share issuance costs on a
proportional basis to the initial fair value of the liability and
equity components.
During the first quarter of 2021, the Company recorded the
rescission of $1,050 of its 1.5 Lien
Notes. For accounting purposes, the $1,050 principal amount was recorded on a
proportional basis as a reduction of the liability and equity
portion of the 1.5 Lien Notes for $965 and $85,
respectively.
The Company also opted to pay its first interest payment
on the 1.5 Lien Notes in cash during the first quarter of 2021
rather than utilizing the payment-in-kind option.
b) Second Lien Notes
On February 24, 2020, the
Company completed an exchange offer of US$120,000 of new 10.875% second lien secured
notes ("Second Lien Notes") due March 15,
2026 to holders of its existing Unsecured Notes. The
exchange was completed at an average exchange price of US$550 per each US$1,000 of Unsecured Notes resulting in
US$218,182 being exchanged for
US$120,000 of Second Lien Notes,
resulting in a non-cash gain on exchange of debt of $130,444. The early settlement of the Unsecured
Notes resulted in the write-off of $4,449 of unamortized deferred finance
costs.
c) Revolving Credit Facility
On 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 continues to
be waived for the quarter ended June 30,
2021 and is 4.50x for the quarter ended September 30, 2021, 3.50x for the quarter ended
December 31, 2021 ("Covenant Relief
Period") and 3.00x for each quarter end thereafter. The Covenant
Relief Period terminates on the earlier of December 31, 2021 and any prior quarter end for
which 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
June 30, 2021, the Company's net Total Debt to Adjusted EBITDA
ratio exceeded the 5.00:1.00 threshold and was also subject to the
Covenant Relief Period restrictions.
At June 30, 2021, the
Company held $10,261 of restricted
cash in a segregated account. On July 6,
2021, the restricted funds were released as part of the
maturity of a bankers' acceptance under the
revolving credit facilities.
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 six months ended
June 30, 2021 was $18,529 (six months ended June 30, 2020 – $45,860).
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
|
22,191
|
Long-term debt
repayments
|
(965)
|
Amortization of
compound financial instrument discount
|
701
|
Amortization of debt
issuance costs and debt discount
|
4,768
|
Foreign exchange
adjustments
|
(3,951)
|
Balance, June
30
|
347,377
|
At June 30, 2021, the Company had utilized
$806 of its loan facility for letters
of credit, had $155,000 outstanding
under its revolving term loan facility, leaving $69,194 in available credit, subject to a monthly
borrowing base, which was most recently calculated at $192,159 using June 30, 2021 results. Under
the terms of the amended credit facility agreement, the Company
must maintain a minimum liquidity amount of $15,000 during the Covenant Relief
Period.
See note 5 for further details on the covenants in respect
of the Company's long-term debt.
2. RECAPITALIZATION TRANSACTION
On December 18, 2020, the
Company completed its Recapitalization Transaction, which was
implemented pursuant to a Plan of Arrangement under the Canada
Business Corporations Act. The Recapitalization Transaction
involved the surrender and cancellation of the Company's
US$431,818 Unsecured Notes, including
all accrued and unpaid interest, in exchange for common shares of
the Company. In addition, the Company issued new $60,000 1.5 lien senior secured 10%
payment-in-kind convertible notes ("1.5 Lien Notes") due
December 18, 2023 on a private
placement basis. The proceeds from the issuance of the 1.5 Lien
Notes were used to reduce the amounts owing under its revolving
credit facility. All common share figures
and share prices below are disclosed on a post-share consolidation
basis of 50:1.
The composition of the gain on settlement of debt as
reported in the statement of operations during the fourth quarter
of 2020 was as follows:
|
Unsecured
Notes
|
Warrants
|
1.5 Lien Notes
|
Total
|
(C$000s)
|
|
|
|
($)
|
Settlement of
Unsecured Notes against shares issued to noteholders (note
2a)
|
(250,867)
|
—
|
—
|
(250,867)
|
Forgiveness of
accrued interest on Unsecured Notes (note 2a)
|
(47,272)
|
—
|
—
|
(47,272)
|
Issuance of warrants
(note 2b)
|
—
|
40,797
|
—
|
40,797
|
Transaction and
associated costs(1) (notes 2h and 4)
|
20,815
|
—
|
—
|
20,815
|
Issuance of shares in
respect of the commitment fee related to the 1.5 Lien Notes (note
2g)
|
—
|
—
|
10,131
|
10,131
|
Withholding taxes on
shares issued in respect of commitment fee on 1.5 Lien Notes (note
2g)
|
—
|
—
|
77
|
77
|
Total (gain) loss on settlement of
debt(2)
|
(277,324)
|
40,797
|
10,208
|
(226,319)
|
(1) Includes $1,266 of other associated costs related to
the Plan of Arrangement, of which $1,092 were non-cash
expenses.
|
(2) $198,847 of the total gain on settlement of debt was
non-cash in nature.
|
(a)
Unsecured Notes Settlement
The Company's US$431,818
8.50% unsecured notes due June 15,
2026 ("Unsecured Notes"), plus all accrued and unpaid
interest, were surrendered and cancelled in exchange for 33,491,870
common shares. The common shares were valued for accounting
purposes at a price of $9.00 per
share, which represents the share price on December 21, 2020, the first trading day
immediately following the announcement of the closing of this
transaction, and resulted in an accounting gain on the settlement
of debt of $277,324. The settlement
of the Unsecured Notes also resulted in the write-off of the
remaining unamortized deferred finance costs that pertained to
these notes which totaled $7,387.
(b)
Warrants
Under the Recapitalization Transaction, shareholders were
entitled to receive two warrants for each common share held.
Pursuant to the Plan of Arrangement, the Company issued 5,824,433
warrants to shareholders of record (i.e. registered shareholders)
as of market close on December 17,
2020. Each warrant is exercisable for a period of three
years into one common share at a price of $2.50 per common shares subject to customary
adjustments and restrictions. The fair value of the warrants of
$40,797 was estimated using a
Black-Scholes pricing model, and was accounted for as a reduction
of the gain on settlement of debt. See note 4 for further
information on the warrants.
(c)
Shareholder Cash Election
Under the Recapitalization Transaction, shareholders were
provided the opportunity to elect for the Company to purchase all
or any portion of their common shares for $7.50 per share up to an aggregate maximum of
$10,000 in consideration available
for shareholder cash elections. On December
18, 2020, 121,231 common shares were purchased for an
aggregate cash election amount of $926 including transaction costs. See note 3 for
further information on the shareholder cash election.
(d)
Common Share Consolidation
Immediately prior to the Unsecured Notes settlement, and
after the issuance of warrants and settlement of shareholder cash
elections noted above, the Company initiated a 50:1 share
consolidation. See note 3 for further information on the share
consolidation.
(e)
Share-Based Compensation
Pursuant to the Plan of Arrangement, all of the Company's
outstanding stock options and cash-based performance share units
were terminated and cancelled for no consideration. All of the
Company's outstanding equity-based performance shares units vested
immediately prior to the effective time of the Plan of Arrangement
and aggregate consideration of $174
was paid to the holders thereof on a pro rata basis.
The cancellation of the stock options was accounted for as
an acceleration of vesting and the remaining fair value of the
options of $780 was recorded as a
reduction of the gain on settlement of debt during the fourth
quarter of 2020.
The immediate vesting of the equity-based performance
share units was accounted for as an acceleration of vesting and the
remaining fair value of the share units of $312 along with the cash consideration of
$174 was recognized during the fourth
quarter of 2020 as a reduction of the gain on settlement of
debt.
In connection with the approval of the Recapitalization
Transaction, shareholders approved an omnibus incentive plan which
permits the granting of various types of equity awards, including
stock options, share appreciation rights, restricted shares,
restricted share units, deferred share units and other share-based
awards as determined by the Board of Directors. The number of
shares reserved under the omnibus incentive plan is equal to 10
percent of the Company's issued and outstanding common shares. 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 and hearing dates for the Fifth Circuit Appeal 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.
On July 13, 2021, the OSC
issued an order dismissing Wilks Brothers' application to set aside
the TSX Decision following a hearing before the OSC on July 12, 2021. The OSC's reasons will be released
at a later date.
3. CAPITAL STOCK
Authorized capital stock consists of an unlimited number
of common shares.
|
Six Months Ended
|
|
Year Ended
|
|
June 30, 2021
|
|
December 31,
2020
|
Continuity of Common
Shares
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
(#)
|
|
($000s)
|
|
(#)
|
|
($000s)
|
Balance, beginning of
period
|
37,408,490
|
|
800,184
|
|
2,897,778
|
|
506,735
|
Issued upon exercise
of warrants
|
35,517
|
|
338
|
|
—
|
|
—
|
Issued upon vesting
of performance share units
|
—
|
|
—
|
|
5,646
|
|
1,275
|
Issued on
acquisition
|
—
|
|
—
|
|
8,913
|
|
2,500
|
Issued upon
settlement of Unsecured Notes (note 2)
|
—
|
|
—
|
|
33,491,870
|
|
301,427
|
Issued for commitment
fee on 1.5 Lien Notes (note 2)
|
—
|
|
—
|
|
1,125,703
|
|
10,131
|
Shares repurchased by
shareholder cash election (note 2)
|
—
|
|
—
|
|
(121,231)
|
|
(21,268)
|
Cancellation of
fractional shares upon 50:1 share consolidation
|
(114)
|
|
—
|
|
(189)
|
|
—
|
Share issue costs on
1.5 Lien Notes
|
—
|
|
—
|
|
—
|
|
(616)
|
Balance, end of
period
|
37,443,893
|
|
800,522
|
|
37,408,490
|
|
800,184
|
On December 18, 2020, the
Company consolidated its common shares on a basis of 50:1. All
common share figures in the financial statements and comparatives
have been adjusted to reflect the 50:1 effect, without a
corresponding change in dollar amounts. Earnings per share have
been adjusted to reflect the impact of the share
consolidation.
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
Weighted average
number of common shares outstanding
|
|
|
|
|
|
|
|
Basic
|
37,434,240
|
|
2,900,040
|
|
37,428,050
|
|
2,899,432
|
Diluted
|
83,422,250
|
|
2,912,337
|
|
83,625,449
|
|
2,911,799
|
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 $20,342 to
contributed surplus. These common shares were cancelled prior to
December 31, 2020.
4. SHARE-BASED PAYMENTS
(a) Stock
Options
Six Months Ended June
30,
|
2021
|
|
2020
|
Continuity of Stock
Options
|
Options
|
|
Average
Exercise Price
|
|
Options
|
|
Average
Exercise Price
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
Balance, January
1
|
—
|
|
—
|
|
244,060
|
|
158.00
|
Granted
|
3,540,000
|
|
3.54
|
|
1,098
|
|
31.00
|
Forfeited
|
—
|
|
—
|
|
(45,720)
|
|
196.50
|
Expired
|
—
|
|
—
|
|
(2,142)
|
|
426.50
|
Balance, June
30
|
3,540,000
|
|
3.54
|
|
197,296
|
|
145.50
|
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 (six months ended
June 30, 2020 – $0.27 per option). The Company applied the
following assumptions in determining the fair value of options on
the date of grant:
Six Months Ended June
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
|
|
$0.00
|
$0.00
|
Expected volatility is estimated by considering historical
average share price volatility.
(b) Share Units
Six Months Ended June
30,
|
2021
|
|
2020
|
Continuity of Stock
Units
|
|
Deferred
Share Units
|
|
Deferred
Share Units
|
|
Performance
Share Units
|
|
|
(#)
|
|
(#)
|
|
(#)
|
Balance, January
1
|
|
2,400
|
|
2,900
|
|
25,891
|
Granted
|
|
105,000
|
|
2,100
|
|
19,723
|
Exercised
|
|
—
|
|
—
|
|
(5,646)
|
Forfeited
|
|
—
|
|
—
|
|
(6,708)
|
Balance, June
30
|
|
107,400
|
|
5,000
|
|
33,260
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
Expense (recovery)
from:
|
|
|
|
|
|
|
|
Stock
options
|
277
|
|
(235)
|
|
277
|
|
264
|
Deferred share
units
|
36
|
|
(5)
|
|
55
|
|
(132)
|
Performance share
units
|
—
|
|
55
|
|
—
|
|
239
|
Total stock-based
compensation expense
|
313
|
|
(185)
|
|
332
|
|
371
|
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 June 30,
2021, the liability pertaining to deferred share units was
$45 (December 31, 2020 –
$9).
Changes in the Company's obligations under the deferred
share unit plans, which arise from fluctuations in the market value
of the Company's shares underlying these compensation programs, are
recorded as the share value changes.
(c)
Warrants
In conjunction with the Recapitalization Transaction, the
Company issued 5,824,433 warrants to shareholders of record (i.e.
registered shareholders) as of market close on December 17, 2020. Each warrant is exercisable
for a period of three years into one common share at a price of
$2.50 per common shares, subject to
customary adjustments and restrictions. The fair value of the
warrants at issuance was estimated using a Black-Scholes pricing
model, in the amount of $40,797, and
accounted for as a reduction of the gain on settlement of debt
during the fourth quarter of 2020. The Company applied the
following Black-Scholes model inputs:
Expected life
(years)
|
|
3.00
|
Share price at grant
date
|
|
$9.00
|
Exercise
price
|
|
$2.50
|
Expected
volatility
|
|
73.90
%
|
Risk-free interest
rate
|
|
1.27
%
|
Expected
dividends
|
|
$0.00
|
At June 30, 2021, 35,517 warrants were exercised for
total proceeds of $89.
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:
|
June 30,
|
|
December
31,
|
For the Twelve Months
Ended
|
2021
|
|
2020
|
(C$000s)
|
($)
|
|
($)
|
Net income
(loss)
|
22,944
|
|
(324,235)
|
Adjusted for the
following:
|
|
|
|
Depreciation
|
125,602
|
|
172,021
|
Foreign exchange
losses
|
19,246
|
|
15,477
|
(Gain) loss on
disposal of property, plant and equipment
|
(1,178)
|
|
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
|
62,899
|
|
91,267
|
Income
taxes
|
39,395
|
|
168,623
|
Operating
income
|
42,589
|
|
21,997
|
Net debt for this purpose is calculated as
follows:
|
June 30,
|
|
December
31,
|
|
2021
|
|
2020
|
(C$000s)
|
($)
|
|
($)
|
Long-term debt, net
of debt issuance costs and debt discount
|
347,377
|
|
324,633
|
Lease
obligations
|
19,688
|
|
21,971
|
Less: cash and cash
equivalents
|
(20,665)
|
|
(29,830)
|
Net debt
|
346,400
|
|
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 June 30, 2021, the net debt to operating income
ratio was 8.13:1 (December 31, 2020 – 14.40:1) calculated on a
12-month trailing basis as follows:
|
June 30,
|
|
December
31,
|
For the Twelve Months
Ended
|
2021
|
|
2020
|
(C$000s, except ratio)
|
($)
|
|
($)
|
Net debt
|
346,400
|
|
316,774
|
Operating
income
|
42,589
|
|
21,997
|
Net debt to operating
income ratio
|
8.13:1
|
|
14.40:1
|
The Company is subject to certain financial covenants
relating to working capital, leverage and the generation of cash
flow in respect of its operating and revolving credit facilities.
These covenants are monitored on a monthly basis. As per the
amended credit facility agreement as disclosed in note 1, the
Company's Funded Debt to Adjusted EBITDA covenant is waived for the
quarter ended June 30, 2021, and is
4.50x for the quarter ended September 30,
2021, 3.50x for the quarter ended December 31, 2021, and 3.00x for each quarter end
thereafter. As shown in the table below, the Company was in full
compliance with its financial covenants associated with its credit
facilities as at June 30,
2021.
|
Covenant
|
Actual
|
As at June
30,
|
2021
|
2021
|
Working capital ratio
not to fall below
|
1.15x
|
2.17x
|
Funded Debt to
Adjusted EBITDA not to exceed(1)(2)
|
N/A
|
5.44x
|
Funded Debt to
Capitalization not to exceed(1)(3)
|
0.30x
|
0.22x
|
(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 June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
(C$000s)
|
|
|
|
|
($)
|
|
($)
|
Net loss
|
(30,535)
|
|
(277,275)
|
|
(52,953)
|
|
(400,132)
|
Add back
(deduct):
|
|
|
|
|
|
|
|
Depreciation
|
31,415
|
|
46,195
|
|
63,039
|
|
109,458
|
Unrealized foreign
exchange losses (gains)
|
901
|
|
1,962
|
|
2,987
|
|
(318)
|
Loss (gain) on
disposal of property, plant and equipment
|
741
|
|
(113)
|
|
354
|
|
1,556
|
Impairment of
property, plant and equipment
|
—
|
|
173,684
|
|
—
|
|
227,208
|
Impairment of
inventory
|
—
|
|
27,868
|
|
—
|
|
27,868
|
Impairment of other
assets
|
—
|
|
—
|
|
—
|
|
507
|
Gain on exchange of
debt
|
—
|
|
—
|
|
—
|
|
(130,444)
|
Litigation
settlements
|
(700)
|
|
—
|
|
(700)
|
|
—
|
Restructuring
charges
|
218
|
|
2,352
|
|
473
|
|
4,973
|
Stock-based
compensation
|
277
|
|
(180)
|
|
277
|
|
503
|
Interest
|
9,297
|
|
20,723
|
|
18,398
|
|
46,766
|
Income
taxes
|
(7,221)
|
|
(401)
|
|
(15,546)
|
|
113,682
|
Adjusted
EBITDA(1)
|
4,393
|
|
(5,185)
|
|
16,329
|
|
1,627
|
(1) For
bank covenant purposes, EBITDA includes the deduction of an
additional $4,099 of lease payments for the six months ended June
30, 2021 (six months ended June 30, 2020 – $9,592) 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 contain restrictions on the Company's ability to pay
dividends, purchase and redeem shares of the Company and make
certain restricted investments, that are not defined as Permitted
Investments under the indentures, in circumstances
where:
- the Company is in default under either of the indentures
or the making of such payment would result in a
default;
- the Company would not meet the Fixed Charge Coverage
Ratio(1) under either of the indentures of at least 2:1
for the most recent four fiscal quarters, after giving pro forma
effect to such restricted payment as if it had been made at the
beginning of the applicable four fiscal quarter period;
or
- there is insufficient room for such payment
within 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 each of
the indentures. As at June 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 indenture governing
the 1.5 Lien Notes includes restrictions on certain investments
including certain investments in subsidiary entities, however the
indenture includes several exceptions to this prohibition,
including a general basket of US$10,000 and baskets related to prepayments and
and certain capital build commitments which aggregate over
US$12,000. This indenture also
contains a restriction that any indebtedness incurred in excess of
$290,000 under the credit facilities
basket shall be junior in priority to the 1.5 Lien
Notes.
As at June 30, 2021, the Company's Fixed Charge
Coverage Ratio of 0.69:1 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
$5,000 cap 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 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
$3,236 (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 $849
(578 euros), amounted to $29,467 (20,047
euros) as at June 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 June 30,
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
50,766
|
|
86,688
|
|
33,542
|
|
36,314
|
|
—
|
|
207,310
|
|
Operating income
(loss)(1)
|
4,295
|
|
(2,554)
|
|
5,287
|
|
4,928
|
|
(5,913)
|
|
6,043
|
|
Segmented
assets
|
221,043
|
|
511,361
|
|
72,555
|
|
85,846
|
|
—
|
|
890,805
|
|
Capital
expenditures
|
1,747
|
|
11,935
|
|
994
|
|
3,389
|
|
—
|
|
18,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
27,813
|
|
38,192
|
|
23,937
|
|
1,481
|
|
—
|
|
91,423
|
|
Operating income
(loss)(1)
|
6,328
|
|
(4,951)
|
|
2,752
|
|
(6,445)
|
|
(4,991)
|
|
(7,307)
|
|
Segmented
assets
|
263,776
|
|
652,030
|
|
48,942
|
|
54,070
|
|
—
|
|
1,018,818
|
|
Capital
expenditures
|
2,138
|
|
2,624
|
|
292
|
|
1,014
|
|
—
|
|
6,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
United States
|
|
Russia
|
|
Argentina
|
|
Corporate
|
|
Consolidated
|
|
(C$000s)
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Six Months Ended June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
136,349
|
|
179,601
|
|
61,163
|
|
71,772
|
|
—
|
|
448,885
|
|
Operating income
(loss)(1)
|
19,474
|
|
(5,566)
|
|
6,763
|
|
8,842
|
|
(10,530)
|
|
18,983
|
|
Segmented
assets
|
221,043
|
|
511,361
|
|
72,555
|
|
85,846
|
|
—
|
|
890,805
|
|
Capital
expenditures
|
2,840
|
|
19,978
|
|
2,077
|
|
4,756
|
|
—
|
|
29,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June
30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
132,432
|
|
192,304
|
|
44,928
|
|
27,274
|
|
—
|
|
396,938
|
|
Operating income
(loss)(1)
|
18,303
|
|
236
|
|
454
|
|
(8,077)
|
|
(12,525)
|
|
(1,609)
|
|
Segmented
assets
|
263,776
|
|
652,030
|
|
48,942
|
|
54,070
|
|
—
|
|
1,018,818
|
|
Capital
expenditures
|
6,372
|
|
26,655
|
|
879
|
|
1,445
|
|
—
|
|
35,351
|
|
(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 June 30,
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
(C$000s)
|
($)
|
|
($)
|
|
($)
|
|
($)
|
Net loss
|
(30,535)
|
|
(277,275)
|
|
(52,953)
|
|
(400,132)
|
Add back
(deduct):
|
|
|
|
|
Depreciation
|
31,415
|
|
46,195
|
|
63,039
|
|
109,458
|
Foreign exchange
losses
|
2,346
|
|
2,012
|
|
5,691
|
|
1,922
|
Loss (gain) on
disposal of property, plant and equipment
|
741
|
|
(113)
|
|
354
|
|
1,556
|
Impairment of
property, plant and equipment
|
—
|
|
173,684
|
|
—
|
|
227,208
|
Impairment of
inventory
|
—
|
|
27,868
|
|
—
|
|
27,868
|
Impairment of other
assets
|
—
|
|
—
|
|
—
|
|
507
|
Provision for
settlement of litigation
|
—
|
|
—
|
|
—
|
|
(130,444)
|
Interest
|
9,297
|
|
20,723
|
|
18,398
|
|
46,766
|
Income
taxes
|
(7,221)
|
|
(401)
|
|
(15,546)
|
|
113,682
|
Operating income
(loss)
|
6,043
|
|
(7,307)
|
|
18,983
|
|
(1,609)
|
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.