HIGHLIGHTS
Three Months Ended | Nine Months Ended | |||||
2020 | 2019 | Change | 2020 | 2019 | Change | |
(C$000s, except per share and unit data) | ($) | ($) | (%) | ($) | ($) | (%) |
(unaudited) | ||||||
Revenue | 127,776 | 399,220 | (68) | 524,714 | 1,303,870 | (60) |
Operating income(1) | 8,009 | 47,021 | (83) | 6,400 | 131,747 | (95) |
Per share – basic | 0.06 | 0.33 | (82) | 0.04 | 0.91 | (96) |
Per share – diluted | 0.06 | 0.32 | (81) | 0.04 | 0.90 | (96) |
Adjusted EBITDA(1) | 8,467 | 43,028 | (80) | 10,094 | 132,237 | (92) |
Per share – basic | 0.06 | 0.30 | (80) | 0.07 | 0.92 | (92) |
Per share – diluted | 0.06 | 0.30 | (80) | 0.07 | 0.91 | (92) |
Net loss | (50,000) | (29,424) | 70 | (450,132) | (106,803) | NM |
Per share – basic | (0.34) | (0.20) | 70 | (3.10) | (0.74) | NM |
Per share – diluted | (0.34) | (0.20) | 70 | (3.10) | (0.74) | NM |
Working capital (end of period) | 127,989 | 257,189 | (50) | |||
Total equity (end of period) | (81,033) | 414,195 | NM | |||
Weighted average common shares outstanding (000s) | ||||||
Basic | 145,312 | 144,674 | — | 145,086 | 144,512 | — |
Diluted | 145,481 | 145,334 | — | 145,256 | 145,713 | — |
(1) Refer to "Non-GAAP Measures" on pages 22 and 23 for further information. |
PRESIDENT'S MESSAGE
Calfrac's President and Chief Operating Officer,
During the quarter, Calfrac:
- increased job activity in all areas while maintaining safe and efficient performance,
- took advantage of market disruptions to add new clients globally, and,
- advanced plans for the restructuring of its balance sheet.
In light of current market conditions, the Board of Directors of Calfrac approved a further reduction in the Company's 2020 capital budget from
Subsequent to the end of the quarter, the Company obtained approval of its proposed recapitalization transaction, as amended (the "Recapitalization Transaction") at meetings of its senior unsecured noteholders and shareholders. Court approval for the transaction was obtained on
The statutory appeal process launched by
THIRD QUARTER 2020 OVERVIEW
CONSOLIDATED HIGHLIGHTS
Three Months Ended | 2020 | 2019 | Change |
(C$000s, except operational information) | ($) | ($) | (%) |
(unaudited) | |||
Revenue | 127,776 | 399,220 | (68) |
Expenses | |||
Operating | 109,708 | 333,505 | (67) |
Selling, general and administrative (SG&A) | 10,059 | 18,694 | (46) |
119,767 | 352,199 | (66) | |
Operating income(1) | 8,009 | 47,021 | (83) |
Operating income (%) | 6.3 | 11.8 | (47) |
Adjusted EBITDA(1) | 8,467 | 43,028 | (80) |
Adjusted EBITDA (%) | 6.6 | 10.8 | (39) |
Fracturing revenue per job ($) | 33,382 | 28,748 | 16 |
Number of fracturing jobs | 3,527 | 12,745 | (72) |
Active pumping horsepower, end of period (000s) | 840 | 1,337 | (37) |
Idle pumping horsepower, end of period (000s) | 505 | 72 | NM |
Total pumping horsepower, end of period (000s) | 1,345 | 1,409 | (5) |
Coiled tubing revenue per job ($) | 22,795 | 23,477 | (3) |
Number of coiled tubing jobs | 364 | 993 | (63) |
Active coiled tubing units, end of period (#) | 15 | 21 | (29) |
Idle coiled tubing units, end of period (#) | 12 | 8 | 50 |
Total coiled tubing units, end of period (#) | 27 | 29 | (7) |
Cementing revenue per job ($) | 51,000 | 46,238 | 10 |
Number of cementing jobs | 27 | 142 | (81) |
Active cementing units, end of period (#) | 12 | 14 | (14) |
Idle cementing units, end of period (#) | 4 | 9 | (56) |
Total cementing units, end of period (#) | 16 | 23 | (30) |
(1) Refer to "Non-GAAP Measures" on pages 22 and 23 for further information. |
Revenue in the third quarter of 2020 was
Since the end of 2019, Calfrac has decreased the number of active fracturing fleets, as well as its operating and corporate cost structure, in order to respond to the decline in fracturing activity in
Adjusted EBITDA of
The net loss was
Three Months Ended | Change | ||
2020 | 2020 | ||
(C$000s, except operational information) | ($) | ($) | (%) |
(unaudited) | |||
Revenue | 127,776 | 91,423 | 40 |
Expenses | |||
Operating | 109,708 | 87,520 | 25 |
SG&A | 10,059 | 11,210 | (10) |
119,767 | 98,730 | 21 | |
Operating income (loss)(1) | 8,009 | (7,307) | NM |
Operating income (loss) (%) | 6.3 | (8.0) | NM |
Adjusted EBITDA(1) | 8,467 | (5,185) | NM |
Adjusted EBITDA (%) | 6.6 | (5.7) | NM |
Fracturing revenue per job ($) | 33,382 | 36,406 | (8) |
Number of fracturing jobs | 3,527 | 2,377 | 48 |
Active pumping horsepower, end of period (000s) | 840 | 780 | 8 |
Idle pumping horsepower, end of period (000s) | 505 | 572 | (12) |
Total pumping horsepower, end of period (000s) | 1,345 | 1,352 | (1) |
Coiled tubing revenue per job ($) | 22,795 | 21,773 | 5 |
Number of coiled tubing jobs | 364 | 209 | 74 |
Active coiled tubing units, end of period (#) | 15 | 16 | (6) |
Idle coiled tubing units, end of period (#) | 12 | 11 | 9 |
Total coiled tubing units, end of period (#) | 27 | 27 | — |
Cementing revenue per job ($) | 51,000 | 36,608 | 39 |
Number of cementing jobs | 27 | 7 | 286 |
Active cementing units, end of period (#) | 12 | 13 | (8) |
Idle cementing units, end of period (#) | 4 | 3 | 33 |
Total cementing units, end of period (#) | 16 | 16 | — |
(1) Refer to "Non-GAAP Measures" on pages 22 and 23 for further information. |
Third-quarter revenue in 2020 of
In
In
In
In
Adjusted EBITDA of
BUSINESS UPDATE AND OUTLOOK
Calfrac's operating results during the third quarter were driven primarily by strong operating results in
In
Calfrac's Canadian division remains staffed to deploy up to 150,000 HP into the market, typically consisting of three large fracturing spreads. The Company is also able to deploy up to four deep coiled tubing rigs either in support of fracturing operations or in a stand-alone capacity.
Based on awarded work, the Company expects activity in the fourth quarter to be in line with levels seen in the third quarter, however announced reductions in the
During the third quarter, Calfrac's operations in
Calfrac is currently staffed to crew five fleets in its
Calfrac's Russian operations performed very well during the third quarter, delivering results that exceeded expectations due to steady work volumes and improving job mix. Operational disruptions that have been experienced in the last number of years were avoided, which further contributed to operational and financial improvements. The shift to more multi-stage conventional wells is expected to continue into the future, as is the development of the Erginskoye field and the consistent activity levels that development is anticipated to support.
Calfrac is evaluating the possibility of activating more equipment in
In
Fourth-quarter activity is expected to improve significantly from the third quarter, which should in turn improve financial results as the year closes out. As a number of competitors have ceased operations in some parts of the country during 2020, work volumes may increase in 2021, leading to further improvement in financial results.
CORPORATE
Calfrac's focus on cost management and capital discipline continues to drive corporate decision making, ensuring the Company can operate safely and efficiently in challenging market conditions. The Company will continue to update the market by way of press release with information on the closing of its Recapitalization Transaction as approved by affected security holders and the
FINANCIAL OVERVIEW – THREE MONTHS ENDED
Three Months Ended | 2020 | 2019 | Change |
(C$000s, except operational information) | ($) | ($) | (%) |
(unaudited) | |||
Revenue | 44,669 | 104,759 | (57) |
Expenses | |||
Operating | 36,352 | 85,281 | (57) |
Selling, general and administrative (SG&A) | 1,826 | 4,048 | (55) |
38,178 | 89,329 | (57) | |
Operating income(1) | 6,491 | 15,430 | (58) |
Operating income (%) | 14.5 | 14.7 | (1) |
Fracturing revenue per job ($) | 24,179 | 13,881 | 74 |
Number of fracturing jobs | 1,647 | 6,537 | (75) |
Active pumping horsepower, end of period (000s) | 174 | 257 | (32) |
Idle pumping horsepower, end of period (000s) | 100 | 48 | 108 |
Total pumping horsepower, end of period (000s) | 274 | 305 | (10) |
Coiled tubing revenue per job ($) | 14,995 | 18,489 | (19) |
Number of coiled tubing jobs | 294 | 734 | (60) |
Active coiled tubing units, end of period (#) | 8 | 11 | (27) |
Idle coiled tubing units, end of period (#) | 5 | 3 | 67 |
Total coiled tubing units, end of period (#) | 13 | 14 | (7) |
(1) Refer to "Non-GAAP Measures" on pages 22 and 23 for further information. |
REVENUE
Revenue from Calfrac's Canadian operations during the third quarter of 2020 was
OPERATING INCOME
Operating income in
Three Months Ended | 2020 | 2019 | Change |
(C$000s, except operational and exchange rate information) | ($) | ($) | (%) |
(unaudited) | |||
Revenue | 46,503 | 224,424 | (79) |
Expenses | |||
Operating | 40,827 | 191,923 | (79) |
SG&A | 2,887 | 4,684 | (38) |
43,714 | 196,607 | (78) | |
Operating income(1) | 2,789 | 27,817 | (90) |
Operating income (%) | 6.0 | 12.4 | (52) |
Fracturing revenue per job ($) | 34,630 | 39,302 | (12) |
Number of fracturing jobs | 1,345 | 5,699 | (76) |
Active pumping horsepower, end of period (000s) | 483 | 877 | (45) |
Idle pumping horsepower, end of period (000s) | 388 | 12 | NM |
Total pumping horsepower, end of period (000s) | 871 | 889 | (2) |
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 (#) | 2 | 9 | (78) |
Total cementing units, end of period (#) | 2 | 9 | (78) |
US$/C$ average exchange rate(2) | 1.3321 | 1.3204 | 1 |
(1) Refer to "Non-GAAP Measures" on pages 22 and 23 for further information. |
(2) Source: |
REVENUE
Revenue from Calfrac's
OPERATING INCOME
The Company's
Three Months Ended | 2020 | 2019 | Change |
(C$000s, except operational and exchange rate information) | ($) | ($) | (%) |
(unaudited) | |||
Revenue | 28,530 | 23,781 | 20 |
Expenses | |||
Operating | 21,880 | 23,267 | (6) |
SG&A | 617 | 718 | (14) |
22,497 | 23,986 | (6) | |
Operating income (loss)(1) | 6,033 | (204) | NM |
Operating income (loss) (%) | 21.1 | (0.9) | NM |
Fracturing revenue per job ($) | 67,303 | 86,941 | (23) |
Number of fracturing jobs | 390 | 241 | 62 |
Active pumping horsepower, end of period (000s) | 65 | 65 | — |
Idle pumping horsepower, end of period (000s) | 12 | 12 | — |
Total pumping horsepower, end of period (000s) | 77 | 77 | — |
Coiled tubing revenue per job ($) | 48,542 | 44,202 | 10 |
Number of coiled tubing jobs | 47 | 64 | (27) |
Active coiled tubing units, end of period (#) | 3 | 4 | (25) |
Idle coiled tubing units, end of period (#) | 4 | 3 | 33 |
Total coiled tubing units, end of period (#) | 7 | 7 | — |
Rouble/C$ average exchange rate(2) | 0.0181 | 0.0204 | (11) |
(1) Refer to "Non-GAAP Measures" on pages 22 and 23 for further information. |
(2) Source: |
REVENUE
Revenue from Calfrac's Russian operations increased by 20 percent during the third quarter of 2020 to
OPERATING INCOME (LOSS)
The Company's Russian division generated operating income of
Three Months Ended | 2020 | 2019 | Change |
(C$000s, except operational and exchange rate information) | ($) | ($) | (%) |
(unaudited) | |||
Revenue | 8,074 | 46,256 | (83) |
Expenses | |||
Operating | 10,365 | 31,924 | (68) |
SG&A | 1,585 | 2,672 | (41) |
11,950 | 34,596 | (65) | |
Operating (loss) income(1) | (3,876) | 11,660 | NM |
Operating (loss) income (%) | (48.0) | 25.2 | NM |
Active pumping horsepower, end of period (000s) | 118 | 138 | (14) |
Idle pumping horsepower, end of period (000s) | 5 | — | NM |
Total pumping horsepower, end of period (000s) | 123 | 138 | (11) |
Active cementing units, end of period (#) | 12 | 14 | (14) |
Idle cementing units, end of period (#) | 2 | — | NM |
Total cementing units, end of period (#) | 14 | 14 | — |
Active coiled tubing units, end of period (#) | 4 | 6 | (33) |
Idle coiled tubing units, end of period (#) | 2 | 1 | 100 |
Total coiled tubing units, end of period (#) | 6 | 7 | (14) |
US$/C$ average exchange rate(2) | 1.3321 | 1.3204 | 1 |
(1) Refer to "Non-GAAP Measures" on pages 22 and 23 for further information. |
(2) Source: |
REVENUE
Calfrac's Argentinean operations generated total revenue of
OPERATING (LOSS) INCOME
The Company's operations in
CORPORATE
Three Months Ended | 2020 | 2019 | Change |
(C$000s) | ($) | ($) | (%) |
(unaudited) | |||
Expenses | |||
Operating | 284 | 1,110 | (74) |
SG&A | 3,144 | 6,572 | (52) |
3,428 | 7,682 | (55) | |
Operating loss(1) | (3,428) | (7,682) | (55) |
% of Revenue | 2.7 | 1.9 | 42 |
(1) Refer to "Non-GAAP Measures" on pages 22 and 23 for further information. |
OPERATING LOSS
Corporate expenses for the third quarter of 2020 were
DEPRECIATION
For the three months ended
FOREIGN EXCHANGE GAINS AND LOSSES
The Company recorded a foreign exchange loss of
INTEREST
The Company's net interest expense of
INCOME TAXES
The Company recorded an income tax expense of
SUMMARY OF QUARTERLY RESULTS
Three Months Ended | ||||||||
2018 | 2019 | 2019 | 2019 | 2019 | 2020 | 2020 | 2020 | |
(C$000s, except per share and operating data) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) |
(unaudited) | ||||||||
Financial | ||||||||
Revenue | 498,858 | 475,012 | 429,638 | 399,220 | 317,085 | 305,515 | 91,423 | 127,776 |
Operating income (loss)(1) | 61,992 | 43,623 | 41,103 | 47,021 | 20,997 | 5,698 | (7,307) | 8,009 |
Per share – basic | 0.43 | 0.30 | 0.28 | 0.33 | 0.15 | 0.04 | (0.05) | 0.06 |
Per share – diluted | 0.42 | 0.30 | 0.28 | 0.32 | 0.14 | 0.04 | (0.05) | 0.06 |
Adjusted EBITDA(1) | 62,914 | 44,086 | 45,123 | 43,028 | 26,882 | 6,812 | (5,185) | 8,467 |
Per share – basic | 0.44 | 0.31 | 0.31 | 0.30 | 0.19 | 0.05 | (0.04) | 0.06 |
Per share – diluted | 0.43 | 0.30 | 0.31 | 0.30 | 0.18 | 0.05 | (0.04) | 0.06 |
Net loss | (3,462) | (36,334) | (41,045) | (29,424) | (49,400) | (122,857) | (277,275) | (50,000) |
Per share – basic | (0.02) | (0.25) | (0.28) | (0.20) | (0.34) | (0.85) | (1.91) | (0.34) |
Per share – diluted | (0.02) | (0.25) | (0.28) | (0.20) | (0.34) | (0.85) | (1.91) | (0.34) |
Capital expenditures | 31,484 | 28,218 | 37,784 | 38,885 | 34,418 | 29,283 | 6,068 | 2,792 |
Working capital (end of period) | 329,871 | 276,785 | 291,056 | 257,189 | 248,772 | 233,125 | 157,165 | 127,989 |
Total equity (end of period) | 513,820 | 481,675 | 443,361 | 414,195 | 368,623 | 239,099 | (34,195) | (81,033) |
Operating (end of period) | ||||||||
Active pumping horsepower (000s) | 1,328 | 1,344 | 1,346 | 1,337 | 1,269 | 1,242 | 780 | 840 |
Idle pumping horsepower (000s) | 42 | 36 | 59 | 72 | 141 | 174 | 572 | 505 |
Total pumping horsepower (000s) | 1,370 | 1,380 | 1,405 | 1,409 | 1,410 | 1,416 | 1,352 | 1,345 |
Active coiled tubing units (#) | 22 | 21 | 21 | 21 | 20 | 20 | 16 | 15 |
Idle coiled tubing units (#) | 7 | 8 | 8 | 8 | 8 | 7 | 11 | 12 |
Total coiled tubing units (#) | 29 | 29 | 29 | 29 | 28 | 27 | 27 | 27 |
Active cementing units (#) | 11 | 11 | 14 | 14 | 13 | 13 | 13 | 12 |
Idle cementing units (#) | 12 | 12 | 9 | 9 | 6 | 3 | 3 | 4 |
Total cementing units (#) | 23 | 23 | 23 | 23 | 19 | 16 | 16 | 16 |
(1) With the adoption of IFRS 16, the accounting treatment for operating leases when Calfrac is the lessee, changed effective |
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
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
FINANCIAL OVERVIEW – NINE MONTHS ENDED
Nine Months Ended | 2020 | 2019 | Change |
(C$000s, except operational information) | ($) | ($) | (%) |
(unaudited) | |||
Revenue | 177,101 | 324,574 | (45) |
Expenses | |||
Operating | 146,253 | 278,144 | (47) |
SG&A | 6,054 | 9,165 | (34) |
152,307 | 287,309 | (47) | |
Operating income(1) | 24,794 | 37,265 | (33) |
Operating income (%) | 14.0 | 11.5 | 22 |
Fracturing revenue per job ($) | 18,172 | 16,874 | 8 |
Number of fracturing jobs | 8,811 | 16,886 | (48) |
Active pumping horsepower, end of period (000s) | 174 | 257 | (32) |
Idle pumping horsepower, end of period (000s) | 100 | 48 | 108 |
Total pumping horsepower, end of period (000s) | 274 | 305 | (10) |
Coiled tubing revenue per job ($) | 19,469 | 19,441 | — |
Number of coiled tubing jobs | 850 | 1,934 | (56) |
Active coiled tubing units, end of period (#) | 8 | 11 | (27) |
Idle coiled tubing units, end of period (#) | 5 | 3 | 67 |
Total coiled tubing units, end of period (#) | 13 | 14 | (7) |
(1) Refer to "Non-GAAP Measures" on pages 22 and 23 for further information. |
REVENUE
Revenue from Calfrac's Canadian operations during the first nine months in 2020 was
OPERATING INCOME
The Company's Canadian division generated operating income of
Nine Months Ended | 2020 | 2019 | Change |
(C$000s, except operational and exchange rate information) | ($) | ($) | (%) |
(unaudited) | |||
Revenue | 238,807 | 742,634 | (68) |
Expenses | |||
Operating | 225,554 | 626,852 | (64) |
SG&A | 10,228 | 13,171 | (22) |
235,782 | 640,023 | (63) | |
Operating income(1) | 3,025 | 102,611 | (97) |
Operating income (%) | 1.3 | 13.8 | (91) |
Fracturing revenue per job ($) | 30,053 | 45,651 | (34) |
Number of fracturing jobs | 7,946 | 16,252 | (51) |
Active pumping horsepower, end of period (000s) | 483 | 877 | (45) |
Idle pumping horsepower, end of period (000s) | 388 | 12 | NM |
Total pumping horsepower, end of period (000s) | 871 | 889 | (2) |
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 (#) | 2 | 9 | (78) |
Total cementing units, end of period (#) | 2 | 9 | (78) |
US$/C$ average exchange rate(2) | 1.3541 | 1.3292 | 2 |
(1) Refer to "Non-GAAP Measures" on pages 22 and 23 for further information. |
(2) Source: |
REVENUE
Revenue from Calfrac's
OPERATING INCOME
The Company's
Nine Months Ended | 2020 | 2019 | Change |
(C$000s, except operational and exchange rate information) | ($) | ($) | (%) |
(unaudited) | |||
Revenue | 73,458 | 81,563 | (10) |
Expenses | |||
Operating | 64,598 | 81,909 | (21) |
SG&A | 2,373 | 2,513 | (6) |
66,971 | 84,422 | (21) | |
Operating income (loss)(1) | 6,487 | (2,859) | NM |
Operating income (loss) (%) | 8.8 | (3.5) | NM |
Fracturing revenue per job ($) | 83,347 | 87,165 | (4) |
Number of fracturing jobs | 795 | 831 | (4) |
Active pumping horsepower, end of period (000s) | 65 | 65 | — |
Idle pumping horsepower, end of period (000s) | 12 | 12 | — |
Total pumping horsepower, end of period (000s) | 77 | 77 | — |
Coiled tubing revenue per job ($) | 46,432 | 44,103 | 5 |
Number of coiled tubing jobs | 155 | 207 | (25) |
Active coiled tubing units, end of period (#) | 3 | 4 | (25) |
Idle coiled tubing units, end of period (#) | 4 | 3 | 33 |
Total coiled tubing units, end of period (#) | 7 | 7 | — |
Rouble/C$ average exchange rate(2) | 0.0191 | 0.0204 | (6) |
(1) Refer to "Non-GAAP Measures" on pages 22 and 23 for further information. |
(2) Source: |
REVENUE
Revenue from Calfrac's Russian operations during the first nine months in 2020 of
OPERATING INCOME (LOSS)
The Company's Russian division generated operating income of
Nine Months Ended | 2020 | 2019 | Change |
(C$000s, except operational and exchange rate information) | ($) | ($) | (%) |
(unaudited) | |||
Revenue | 35,348 | 155,099 | (77) |
Expenses | |||
Operating | 41,706 | 126,660 | (67) |
SG&A | 5,595 | 8,131 | (31) |
47,301 | 134,791 | (65) | |
Operating (loss) income(1) | (11,953) | 20,308 | NM |
Operating (loss) income (%) | (33.8) | 13.1 | NM |
Active pumping horsepower, end of period (000s) | 118 | 138 | (14) |
Idle pumping horsepower, end of period (000s) | 5 | — | NM |
Total pumping horsepower, end of period (000s) | 123 | 138 | (11) |
Active cementing units, end of period (#) | 12 | 14 | (14) |
Idle cementing units, end of period (#) | 2 | — | NM |
Total cementing units, end of period (#) | 14 | 14 | — |
Active coiled tubing units, end of period (#) | 4 | 6 | (33) |
Idle coiled tubing units, end of period (#) | 2 | 1 | 100 |
Total coiled tubing units, end of period (#) | 6 | 7 | (14) |
US$/C$ average exchange rate(2) | 1.3541 | 1.3292 | 2 |
(1) Refer to "Non-GAAP Measures" on pages 22 and 23 for further information. |
(2) Source: |
REVENUE
Calfrac's Argentinean operations generated total revenue of
OPERATING (LOSS) INCOME
The Company's operations in
CORPORATE
Nine Months Ended | 2020 | 2019 | Change |
(C$000s) | ($) | ($) | (%) |
(unaudited) | |||
Expenses | |||
Operating | 1,864 | 3,493 | (47) |
SG&A | 14,089 | 22,085 | (36) |
15,953 | 25,578 | (38) | |
Operating loss(1) | (15,953) | (25,578) | (38) |
% of Revenue | 3.0 | 2.0 | 50 |
(1) Refer to "Non-GAAP Measures" on pages 22 and 23 for further information. |
OPERATING LOSS
Corporate expenses during the first nine months in 2020 were
DEPRECIATION
Depreciation expense during the first nine months in 2020 decreased by
FOREIGN EXCHANGE LOSSES
The Company recorded a foreign exchange loss of
IMPAIRMENT
The Company tested each of its cash generating units (CGUs) for potential impairment at
The PP&E impairment losses by CGU are as follows:
Nine Months Ended | ||
2020 | 2019 | |
(C$000s) | ($) | ($) |
132,483 | — | |
15,380 | — | |
52,466 | — | |
26,879 | — | |
227,208 | — |
In addition, the Company also carried out a comprehensive review of its inventory to identify individual items that were permanently idle or obsolete, with potential for impairment in value. This resulted in an inventory write-down of
Nine Months Ended | ||
2020 | 2019 | |
(C$000s) | ($) | ($) |
6,200 | — | |
10,668 | — | |
11,000 | 584 | |
27,868 | 584 |
INTEREST
The Company's interest expense of
INCOME TAXES
The Company recorded an income tax expense of
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended | Nine Months Ended | |||
2020 | 2019 | 2020 | 2019 | |
(C$000s) | ($) | ($) | ($) | ($) |
(unaudited) | ||||
Cash provided by (used in): | ||||
Operating activities | (31,151) | 55,071 | 39,418 | 116,232 |
Financing activities | (9,193) | (17,758) | (3,160) | (13,564) |
Investing activities | (648) | (36,211) | (36,224) | (106,157) |
Effect of exchange rate changes on cash and cash equivalents | (6,796) | 1,862 | (2,464) | (4,255) |
(Decrease) increase in cash and cash equivalents | (47,788) | 2,964 | (2,430) | (7,744) |
OPERATING ACTIVITIES
The Company's cash used by operating activities for the three months ended
FINANCING ACTIVITIES
Net cash used by financing activities for the three months ended
On
On
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 |
ii. | 100 percent of unencumbered cash of the parent company and its |
iii. | 25 percent of the net book value of property, plant and equipment (PP&E) of the parent company and its |
At
The Company's credit facilities contain certain financial covenants. Weakened market conditions attributable to the COVID-19 pandemic and continued low price of oil and natural gas have required many oil and gas service companies to seek covenant relief from their lenders. Subsequent to the end of the third quarter of 2020 and following court approval of the Recapitalization Transaction, the Company was granted a waiver on its Funded Debt to Adjusted EBITDA covenant from its banking syndicate for the quarter ended
Covenant | Actual | |
As at | 2020 | 2020 |
Working capital ratio not to fall below | 1.15x | 2.16x |
Funded Debt to Adjusted EBITDA not to exceed(1)(2) | N/A | 7.34x |
Funded Debt to Capitalization not to exceed(1)(3) | 0.30x | 0.18x |
(1) | Funded Debt is defined as Total Debt excluding all outstanding senior unsecured notes, second lien senior notes, and lease obligations. Total Debt includes bank loans and long-term debt (before unamortized debt issuance costs and debt discount) plus outstanding letters of credit. For the purposes of the Total Debt to Adjusted EBITDA ratio, the Funded Debt to Capitalization Ratio and the Funded Debt to Adjusted EBITDA ratio, the amount of Total Debt or Funded Debt, as applicable, is reduced by the amount of cash on hand with lenders (excluding any cash held in a segregated account for the purposes of a potential equity cure). |
(2) | Adjusted EBITDA is defined as net income or loss for the period adjusted for interest, taxes, depreciation and amortization, non-cash stock-based compensation, and gains and losses that are extraordinary or non-recurring. |
(3) | Capitalization is Total Debt plus equity. |
Given the wide range of possible outcomes and scenarios resulting from the combination of the COVID-19 pandemic's impact on demand and the supply response relating to the OPEC+ agreement on crude oil production cuts, the Company has very limited insight as to the economic conditions that will exist in its near-term outlook. The pervasive impact and influence of these factors have a direct correlation with the Company's customers' capital spending plans and, as a result, the demand for the Company's services.
During the second quarter of 2020, the Company elected to defer its cash interest payment that was due on
As a result of the factors noted above, there are material uncertainties that may cast significant doubt on the ability of the Company to continue as a going concern and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern entity. Such material uncertainties may include: satisfaction or waiver of all conditions precedent to the completion of the Recapitalization Transaction, customer credit risk, compliance with financial covenants in future periods, liquidity, capital structure, valuation of long-lived assets and inventory valuation.
The interim consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported revenues and expenses and balance sheet classifications that would be necessary if the Company was unable to realize its assets and liabilities as a going concern in the normal course of operations. Such adjustments could be material.
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
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 |
iv. | if proceeds are not used immediately as an equity cure they must be held in a segregated bank account pending an election to use them for such purpose, and if they are removed from such account but not used as an equity cure they will no longer be eligible for such use. |
The Company can utilize two equity cures during the term of the credit facilities subject to the conditions described above. To utilize an equity cure, the Company must provide notice of any such election to the lending syndicate at any time prior to the filing of its quarterly financial statements for the applicable quarter on SEDAR. Amounts used as an equity cure prior to
The Company's credit facilities also require majority lender consent for dispositions of property or assets in
The indentures governing the Old Notes and New 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 a builder basket 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 indenture as net income (loss) before depreciation, extraordinary gains or losses, unrealized foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, impairment or reversal of impairment of assets, restructuring charges, provision for settlement of litigation, stock-based compensation, interest, and income taxes. Interest expense is adjusted to exclude any non-recurring charges associated with redeeming or retiring any indebtedness prior to its maturity. |
These limitations on restricted payments are tempered by the existence of a number of exceptions to the general prohibition, including a basket allowing for restricted payments in an aggregate amount of up to
As at
INVESTING ACTIVITIES
Calfrac's net cash used for investing activities was
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
At
OUTSTANDING SHARE DATA
The Company is authorized to issue an unlimited number of common shares. Employees have been granted both performance share units as well as options to purchase common shares under the Company's shareholder-approved equity compensation plans. The number of shares reserved for issuance under the performance share unit plan and stock option plan is equal to 10 percent of the Company's issued and outstanding common shares. As at
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 impacts on the Company's debt and liquidity, the accounting treatment of related transaction costs, anticipated amendments to the Company's credit facilities, the appeal by
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
Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements and there can be no assurance that actual results or developments anticipated by the Company will be realized, or that they will have the expected consequences or effects on the Company or its business or operations. These statements speak only as of the respective date of this press release or the document incorporated by reference herein. The Company assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise, except as required pursuant to applicable securities laws.
BUSINESS RISKS
The business of Calfrac is subject to certain risks and uncertainties. Prior to making any investment decision regarding Calfrac, investors should carefully consider, among other things, the risk factors set forth in the Company's most recently filed Annual Information Form and those risk and uncertainties identified under the heading "Risk Factors" and elsewhere in the Management Information Circular dated
The Annual Information Form and Recapitalization Transaction Circular are available through the Internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR), which can be accessed at www.sedar.com. Copies of the Annual Information Form may also be obtained on request without charge from Calfrac at Suite 500, 407 –
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 of debt, impairment of inventory, impairment of property, plant and equipment, interest, and income taxes. Management believes that operating income is a useful supplemental measure as it provides an indication of the financial results generated by Calfrac's business segments prior to consideration of how these segments are financed or taxed. Operating income for the period was calculated as follows:
Three Months Ended | Nine Months Ended | |||
2020 | 2019 | 2020 | 2019 | |
(C$000s) | ($) | ($) | ($) | ($) |
(unaudited) | ||||
Net loss | (50,000) | (29,424) | (450,132) | (106,803) |
Add back (deduct): | ||||
Depreciation | 31,720 | 58,669 | 141,178 | 192,295 |
Foreign exchange losses | 7,822 | 5,038 | 9,744 | 6,469 |
(Gain) loss on disposal of property, plant and equipment | (1,272) | 1,322 | 284 | 3,756 |
Impairment of property, plant and equipment | — | — | 227,208 | — |
Impairment of inventory | — | 584 | 27,868 | 584 |
Impairment of other assets | — | — | 507 | — |
Gain on exchange of debt | — | — | (130,444) | — |
Interest | 19,588 | 21,605 | 66,354 | 64,314 |
Income taxes | 151 | (10,773) | 113,833 | (28,868) |
Operating income | 8,009 | 47,021 | 6,400 | 131,747 |
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 | Nine Months Ended | |||
2020 | 2019 | 2020 | 2019 | |
(C$000s) | ($) | ($) | ||
(unaudited) | ||||
Net loss | (50,000) | (29,424) | (450,132) | (106,803) |
Add back (deduct): | ||||
Depreciation | 31,720 | 58,669 | 141,178 | 192,295 |
Unrealized foreign exchange losses (gains) | 5,202 | (249) | 4,884 | 1,182 |
(Gain) loss on disposal of property, plant and equipment | (1,272) | 1,322 | 284 | 3,756 |
Impairment of property, plant and equipment | — | — | 227,208 | — |
Impairment of inventory | — | 584 | 27,868 | 584 |
Impairment of other assets | — | — | 507 | — |
Gain on exchange of debt | — | — | (130,444) | — |
Non-cash purchase commitment termination settlement | 2,082 | — | 2,082 | — |
Restructuring charges | 400 | 10 | 5,373 | 2,485 |
Stock-based compensation | 596 | 1,284 | 1,099 | 3,292 |
Interest | 19,588 | 21,605 | 66,354 | 64,314 |
Income taxes | 151 | (10,773) | 113,833 | (28,868) |
Adjusted EBITDA(1) | 8,467 | 43,028 | 10,094 | 132,237 |
(1)For bank covenant purposes, EBITDA includes an additional |
ADDITIONAL INFORMATION
Further information regarding
THIRD QUARTER CONFERENCE CALL
Calfrac will be conducting a conference call for interested analysts, brokers, investors and news media representatives to review its 2020 third-quarter results at
CONSOLIDATED BALANCE SHEETS
2020 | 2019 | |
(C$000s) (unaudited) | ($) | ($) |
ASSETS | ||
Current assets | ||
Cash and cash equivalents | 40,132 | 42,562 |
Accounts receivable | 95,560 | 216,647 |
Income taxes recoverable | 4,428 | 1,608 |
Inventories | 88,720 | 127,620 |
Prepaid expenses and deposits | 30,773 | 17,489 |
259,613 | 405,926 | |
Non-current assets | ||
Property, plant and equipment | 666,670 | 969,944 |
Right-of-use assets | 27,923 | 29,760 |
Deferred income tax assets | — | 120,292 |
Total assets | 954,206 | 1,525,922 |
LIABILITIES AND EQUITY | ||
Current liabilities | ||
Accounts payable and accrued liabilities | 120,038 | 143,225 |
Current portion of lease obligations | 11,586 | 13,929 |
131,624 | 157,154 | |
Non-current liabilities | ||
Long-term debt (note 2) | 887,647 | 976,693 |
Lease obligations | 15,968 | 16,990 |
Deferred income tax liabilities | — | 6,462 |
Total liabilities | 1,035,239 | 1,157,299 |
Capital stock (note 3) | 510,510 | 509,235 |
Contributed surplus | 44,140 | 44,316 |
Loan receivable for purchase of common shares | (2,500) | (2,500) |
Accumulated deficit | (635,306) | (185,174) |
Accumulated other comprehensive income | 2,123 | 2,746 |
Total equity | (81,033) | 368,623 |
Total liabilities and equity | 954,206 | 1,525,922 |
Going Concern (note 1) |
Contingencies (note 6) |
See accompanying notes to the interim condensed consolidated financial statements. |
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended | Nine Months Ended | |||
2020 | 2019 | 2020 | 2019 | |
(C$000s, except per share data) (unaudited) | ($) | ($) | ($) | ($) |
Revenue | 127,776 | 399,220 | 524,714 | 1,303,870 |
Cost of sales | 141,429 | 392,174 | 621,154 | 1,309,353 |
Gross (loss) profit | (13,653) | 7,046 | (96,440) | (5,483) |
Expenses | ||||
Selling, general and administrative | 10,058 | 18,694 | 38,338 | 55,065 |
Foreign exchange losses | 7,822 | 5,038 | 9,744 | 6,469 |
(Gain) loss on disposal of property, plant and equipment | (1,272) | 1,322 | 284 | 3,756 |
Impairment of property, plant and equipment | — | — | 227,208 | — |
Impairment of inventory | — | 584 | 27,868 | 584 |
Impairment of other assets | — | — | 507 | — |
Gain on exchange of debt (note 2) | — | — | (130,444) | — |
Interest | 19,588 | 21,605 | 66,354 | 64,314 |
36,196 | 47,243 | 239,859 | 130,188 | |
Loss before income tax | (49,849) | (40,197) | (336,299) | (135,671) |
Income tax expense (recovery) | ||||
Current | 151 | 965 | 228 | 3,613 |
Deferred | — | (11,738) | 113,605 | (32,481) |
151 | (10,773) | 113,833 | (28,868) | |
Net loss | (50,000) | (29,424) | (450,132) | (106,803) |
Loss per share (note 3) | ||||
Basic | (0.34) | (0.20) | (3.10) | (0.74) |
Diluted | (0.34) | (0.20) | (3.10) | (0.74) |
See accompanying notes to the interim condensed consolidated financial statements. |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Three Months Ended | Nine Months Ended | |||
2020 | 2019 | 2020 | 2019 | |
(C$000s) (unaudited) | ($) | ($) | ($) | ($) |
Net loss | (50,000) | (29,424) | (450,132) | (106,803) |
Other comprehensive income (loss) | ||||
Items that may be subsequently reclassified to profit or loss: | ||||
Change in foreign currency translation adjustment | 2,566 | (1,026) | (623) | 3,690 |
Comprehensive loss | (47,434) | (30,450) | (450,755) | (103,113) |
See accompanying notes to the interim condensed consolidated financial statements. |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share | Contributed | Loan Receivable | Accumulated | Accumulated | Total Equity | |
(C$000s) (unaudited) | ($) | ($) | ($) | ($) | ($) | ($) |
Balance – | 509,235 | 44,316 | (2,500) | 2,746 | (185,174) | 368,623 |
Net loss | — | — | — | — | (450,132) | (450,132) |
Other comprehensive income (loss): | ||||||
Cumulative translation adjustment | — | — | — | (623) | — | (623) |
Comprehensive loss | — | — | — | (623) | (450,132) | (450,755) |
Stock options: | ||||||
Stock-based compensation recognized | — | 682 | — | — | — | 682 |
Performance share units: | ||||||
Stock-based compensation recognized | — | 417 | — | — | — | 417 |
Shares issued (note 3) | 1,275 | (1,275) | — | — | — | — |
Balance – | 510,510 | 44,140 | (2,500) | 2,123 | (635,306) | (81,033) |
Balance – | 508,276 | 40,453 | (2,500) | (3,438) | (28,971) | 513,820 |
Net loss | — | — | — | — | (106,803) | (106,803) |
Other comprehensive income (loss): | ||||||
Cumulative translation adjustment | — | — | — | 3,690 | — | 3,690 |
Comprehensive income (loss) | — | — | — | 3,690 | (106,803) | (103,113) |
Stock options: | ||||||
Stock-based compensation recognized | — | 2,195 | — | — | — | 2,195 |
Proceeds from issuance of shares (note 3) | 252 | (56) | — | — | — | 196 |
Performance share units: | ||||||
Stock-based compensation recognized | — | 1,097 | — | — | — | 1,097 |
Shares issued (note 3) | 707 | (707) | — | — | — | — |
Balance – | 509,235 | 42,982 | (2,500) | 252 | (135,774) | 414,195 |
See accompanying notes to the interim condensed consolidated financial statements. |
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended | Nine Months Ended | |||
2020 | 2019 | 2020 | 2019 | |
(C$000s) (unaudited) | ($) | ($) | ($) | ($) |
CASH FLOWS PROVIDED BY (USED IN) | ||||
OPERATING ACTIVITIES | ||||
Net loss | (50,000) | (29,424) | (450,132) | (106,803) |
Adjusted for the following: | ||||
Depreciation | 31,720 | 58,669 | 141,178 | 192,295 |
Stock-based compensation | 596 | 1,284 | 1,099 | 3,292 |
Unrealized foreign exchange losses (gains) | 5,202 | (249) | 4,884 | 1,182 |
(Gain) loss on disposal of property, plant and equipment | (1,272) | 1,322 | 284 | 3,756 |
Impairment of property, plant and equipment | — | — | 227,208 | — |
Impairment of inventory | — | 584 | 27,868 | 584 |
Impairment of other assets | — | — | 507 | — |
Gain on exchange of debt (note 2) | — | — | (130,444) | — |
Interest | 19,588 | 21,605 | 66,354 | 64,314 |
Interest paid | (10,797) | (2,654) | (19,877) | (42,840) |
Deferred income taxes | — | (11,738) | 113,605 | (32,481) |
Changes in items of working capital | (26,188) | 15,672 | 56,884 | 32,933 |
Cash flows (used in) provided by operating activities | (31,151) | 55,071 | 39,418 | 116,232 |
FINANCING ACTIVITIES | ||||
Issuance of long-term debt, net of debt issuance costs | (1,064) | 13,850 | 57,340 | 55,008 |
Long-term debt repayments | (5,000) | (26,625) | (48,727) | (53,180) |
Lease obligation principal repayments | (3,129) | (4,983) | (11,773) | (15,588) |
Proceeds on issuance of common shares | — | — | — | 196 |
Cash flows used in financing activities | (9,193) | (17,758) | (3,160) | (13,564) |
INVESTING ACTIVITIES | ||||
Purchase of property, plant and equipment | (2,135) | (37,200) | (39,151) | (106,960) |
Proceeds on disposal of property, plant and equipment | 563 | 989 | 1,591 | 803 |
Proceeds on disposal of right-of-use assets | 924 | — | 1,336 | — |
Cash flows used in investing activities | (648) | (36,211) | (36,224) | (106,157) |
Effect of exchange rate changes on cash and cash equivalents | (6,796) | 1,862 | (2,464) | (4,255) |
(Decrease) increase in cash and cash equivalents | (47,788) | 2,964 | (2,430) | (7,744) |
Cash and cash equivalents, beginning of period | 87,920 | 41,193 | 42,562 | 51,901 |
Cash and cash equivalents, end of period | 40,132 | 44,157 | 40,132 | 44,157 |
See accompanying notes to the interim condensed consolidated financial statements. |
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three and nine months ended
(Amounts in text and tables are in thousands of Canadian dollars, except share data and certain other exceptions as indicated)
1. GOING CONCERN
These interim consolidated financial statements have been prepared on a going concern basis which assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business as they become due. The global economy has been significantly disrupted by the COVID-19 pandemic. This has resulted in significant demand destruction for crude oil and related hydrocarbons. In addition, the delayed response by the OPEC+ group to an oversupply of crude oil on a global basis has caused further damage to the global oil and gas industry which, in turn, has negatively impacted the Company's year-to-date results and its near-term outlook.
Given the wide range of possible outcomes and scenarios resulting from the combination of the COVID-19 pandemic's impact on demand and the supply response relating to the OPEC+ agreement on crude oil production cuts, the Company has very limited insight on the economic conditions that will exist in its near-term outlook. The pervasive impact and influence of these factors have a direct correlation with the Company's customers' capital spending plans and, as a result, the demand for the Company's services.
During the second quarter of 2020, the Company elected to defer its cash interest payment that was due on
Subsequent to the end of the third quarter of 2020 and following court approval of the Recapitalization Transaction, the Company was granted a waiver on its Funded Debt to Adjusted EBITDA covenant from its banking syndicate for the quarter ended
As a result of the factors noted above, there are material uncertainties that may cast significant doubt on the ability of the Company to continue as a going concern and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern entity. Such material uncertainties may include: satisfaction or waiver of all conditions precedent to the completion of the Recapitalization Transaction, customer credit risk, compliance with financial covenants in future periods, liquidity, capital structure, valuation of long-lived assets and inventory valuation.
These interim consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported revenues and expenses and balance sheet classifications that would be necessary if the Company was unable to realize its assets and liabilities as a going concern in the normal course of operations. Such adjustments could be material.
2. LONG-TERM DEBT
2020 | 2019 | |
(C$000s) | ($) | ($) |
interest at 8.50% payable semi-annually | 576,002 | 844,220 |
annually, secured by the Canadian and | 160,068 | — |
165,000 | 147,988 | |
Less: unamortized debt issuance costs | (13,423) | (15,515) |
887,647 | 976,693 |
The fair value of the senior unsecured notes, as measured based on the closing quoted market price at
On
The Company's credit facility capacity is
Debt issuance costs related to this facility are amortized over its term.
Interest on long-term debt (including the amortization of debt issuance costs and debt discount) for the nine months ended
The following table sets out an analysis of long-term debt and the movements in long-term debt for the periods presented:
2020 | |
(C$000s) | ($) |
Balance, | 976,693 |
Issuance of long-term debt, net of debt issuance costs | 57,340 |
Long-term debt repayments | (48,727) |
Gain on exchange of debt | (130,444) |
Amortization of debt issuance costs and debt discount | 10,032 |
Foreign exchange adjustments | 22,753 |
Balance, | 887,647 |
At
See note 5 for further details on the covenants in respect of the Company's long-term debt. See notes 1 and 8 for further details regarding the Company's senior unsecured notes and its credit facilities.
3. CAPITAL STOCK
Authorized capital stock consists of an unlimited number of common shares.
Nine Months Ended | Year Ended | |||
Continuity of Common Shares | Shares | Amount | Shares | Amount |
(#) | ($000s) | (#) | ($000s) | |
Balance, beginning of period | 144,888,888 | 506,735 | 144,462,532 | 504,526 |
Issued upon exercise of stock options | — | — | 98,675 | 252 |
Issued upon vesting of performance share units | 282,306 | 1,275 | 104,865 | 707 |
Issued on acquisition | 445,633 | 2,500 | 222,816 | 1,250 |
Balance, end of period | 145,616,827 | 510,510 | 144,888,888 | 506,735 |
Shares to be issued | — | — | 445,633 | 2,500 |
145,616,827 | 510,510 | 145,334,521 | 509,235 |
The weighted average number of common shares outstanding for the three months ended
4. SHARE-BASED PAYMENTS
(a) Stock Options
Nine Months Ended | 2020 | 2019 | ||
Continuity of Stock Options | Options | Average | Options | Average |
(#) | ($) | (#) | ($) | |
Balance, | 12,203,008 | 3.16 | 9,392,095 | 4.70 |
Granted | 54,900 | 0.62 | 1,564,300 | 2.49 |
Exercised for common shares | — | — | (98,675) | 1.99 |
Forfeited | (2,411,622) | 3.89 | (549,317) | 4.85 |
Expired | (167,100) | 7.33 | (47,000) | 19.07 |
Balance, | 9,679,186 | 2.89 | 10,261,403 | 4.31 |
Stock options vest equally over three to four years and expire five years from the date of grant. The exercise price of outstanding options range from
The weighted average fair value of options granted during 2020, determined using the Black-Scholes valuation method, was
Nine Months Ended | 2020 | 2019 |
Expected life (years) | 3.00 | 3.00 |
Expected volatility | 71.18% | 59.16% |
Risk-free interest rate | 0.87% | 1.66% |
Expected dividends |
Expected volatility is estimated by considering historical average share price volatility.
(b) Share Units
Nine Months Ended | 2020 | 2019 | |||
Continuity of Stock Units | Deferred | Performance | Deferred Share | Performance | Restricted |
(#) | (#) | (#) | (#) | (#) | |
Balance, | 145,000 | 1,294,564 | 145,000 | 1,108,300 | 3,139,150 |
Granted | 105,000 | 998,394 | 145,000 | 1,112,531 | — |
Exercised | — | (282,306) | (145,000) | (556,683) | (1,998,600) |
Forfeited | (50,000) | (378,409) | — | (74,162) | (81,000) |
Balance, | 200,000 | 1,632,243 | 145,000 | 1,589,986 | 1,059,550 |
Three Months Ended | Nine Months Ended | |||
2020 | 2019 | 2020 | 2019 | |
($) | ($) | ($) | ($) | |
Expense (recovery) from: | ||||
Stock options | 418 | 826 | 682 | 2,195 |
Deferred share units | (6) | 26 | (138) | 182 |
Performance share units | 178 | 457 | 417 | 1,409 |
Restricted share units | — | (71) | — | (197) |
Total stock-based compensation expense | 590 | 1,238 | 961 | 3,589 |
Stock-based compensation expense is included in selling, general and administrative expenses.
The Company grants deferred share units to its outside directors. These units vest 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
The Company grants performance share units to its employees. These performance share units contain a cash-based component and an equity-based component. The cash-based component vests over three years based on corporate financial performance thresholds and are settled either in cash (equal to the market value of the underlying shares at the time of vesting) or in Company shares purchased on the open market. The equity-based component vests over three years without any further conditions and are settled in treasury shares issued by the Company. At
Changes in the Company's obligations under the deferred and performance share unit plans, which arise from fluctuations in the market value of the Company's shares underlying these compensation programs, are recorded as the share value changes.
5. CAPITAL STRUCTURE
The Company's capital structure is comprised of shareholders' equity and debt. The Company's objectives in managing capital are (i) to maintain flexibility so as to preserve its access to capital markets and its ability to meet its financial obligations, and (ii) to finance growth, including potential acquisitions.
The Company manages its capital structure and makes adjustments in light of changing market conditions and new opportunities, while remaining cognizant of the cyclical nature of the oilfield services sector. To maintain or adjust its capital structure, the Company may revise its capital spending, adjust dividends, if any, paid to shareholders, issue new shares or new debt or repay existing debt. See note 8 for further information related to the Company's plan for addressing its capital structure.
The Company monitors its capital structure and financing requirements using, amongst other parameters, the ratio of net debt to operating income. Operating income for this purpose is calculated on a 12-month trailing basis and is defined as follows:
For the Twelve Months | 2020 | 2019 |
(C$000s) | ($) | ($) |
Net loss | (499,532) | (156,203) |
Adjusted for the following: | ||
Depreciation | 210,110 | 261,227 |
Foreign exchange losses | 9,616 | 6,341 |
(Gain) loss on disposal of property, plant and equipment | (1,602) | 1,870 |
Impairment of property, plant and equipment | 229,373 | 2,165 |
Impairment of inventory | 31,028 | — |
Impairment of other assets | 507 | 3,744 |
Gain on exchange of debt | (130,444) | — |
Interest | 87,866 | 85,826 |
Income taxes | 90,475 | (52,226) |
Operating income | 27,397 | 152,744 |
Net debt for this purpose is calculated as follows:
As at | 2020 | 2019 |
(C$000s) | ($) | ($) |
Long-term debt, net of debt issuance costs and debt discount | 887,647 | 976,693 |
Lease obligations | 27,554 | 30,919 |
Less: cash and cash equivalents | (40,132) | (42,562) |
Net debt | 875,069 | 965,050 |
The ratio of net debt to operating income does not have a standardized meaning under IFRS and may not be comparable to similar measures used by other companies.
At
For the Twelve Months Ended | 2020 | 2019 |
(C$000s, except ratio) | ($) | ($) |
Net debt | 875,069 | 965,050 |
Operating income | 27,397 | 152,744 |
Net debt to operating income ratio | 31.94:1 | 6.32:1 |
The Company is subject to certain financial covenants relating to working capital, leverage and the generation of cash flow in respect of its operating and revolving credit facilities. These covenants are monitored on a monthly basis. The Company obtained a waiver of its Funded Debt to Adjusted EBITDA covenant for the quarter ended
Covenant | Actual | |
As at | 2020 | 2020 |
Working capital ratio not to fall below | 1.15x | 2.16x |
Funded Debt to Adjusted EBITDA not to exceed(1)(2) | N/A | 7.34x |
Funded Debt to Capitalization not to exceed(1)(3) | 0.30x | 0.18x |
(1) Funded Debt is defined as Total Debt excluding all outstanding senior unsecured notes, second lien senior notes, and lease obligations. Total Debt includes bank loans and long-term debt (before unamortized debt issuance costs and debt discount) plus outstanding letters of credit. For the purposes of the Total Debt to Adjusted EBITDA ratio, the Funded Debt to Capitalization Ratio and the Funded Debt to Adjusted EBITDA ratio, the amount of Total Debt or Funded Debt, as applicable, is reduced by the amount of cash on hand with lenders (excluding any cash held in a segregated account for the purposes of a potential equity cure). |
(2) Adjusted EBITDA is defined as net income or loss for the period adjusted for interest, taxes, depreciation and amortization, non-cash stock-based compensation, and gains and losses that are extraordinary or non-recurring. |
(3) Capitalization is Total Debt plus equity. |
Adjusted EBITDA is defined as net income or loss for the period less interest, 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 gives an indication of the results from the Company's principal business activities prior to consideration of how its activities are financed and the impact of foreign exchange, taxation and depreciation and amortization charges. Adjusted EBITDA for the period was calculated as follows:
Three Months Ended | Nine Months Ended | |||
2020 | 2019 | 2020 | 2019 | |
(C$000s) | ($) | ($) | ||
Net loss | (50,000) | (29,424) | (450,132) | (106,803) |
Add back (deduct): | ||||
Depreciation | 31,720 | 58,669 | 141,178 | 192,295 |
Unrealized foreign exchange losses (gains) | 5,202 | (249) | 4,884 | 1,182 |
(Gain) loss on disposal of property, plant and equipment | (1,272) | 1,322 | 284 | 3,756 |
Impairment of property, plant and equipment | — | — | 227,208 | — |
Impairment of inventory | — | 584 | 27,868 | 584 |
Impairment of other assets | — | — | 507 | — |
Restructuring charges | 400 | 10 | 5,373 | 2,485 |
Stock-based compensation | 596 | 1,284 | 1,099 | 3,292 |
Gain on exchange of debt | — | — | (130,444) | — |
Non-cash purchase commitment termination settlement | 2,082 | — | 2,082 | — |
Interest | 19,588 | 21,605 | 66,354 | 64,314 |
Income taxes | 151 | (10,773) | 113,833 | (28,868) |
Adjusted EBITDA(1) | 8,467 | 43,028 | 10,094 | 132,237 |
(1) For bank covenant purposes, EBITDA includes an additional |
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 |
ii. | 100 percent of unencumbered cash of the parent company and its |
iii. | 25 percent of the net book value of property, plant and equipment (PP&E) of the parent company and its |
The indentures governing the senior unsecured notes and second lien secured notes contain restrictions on the Company's ability to pay dividends, purchase and redeem shares of the Company, and make certain restricted investments in circumstances where:
i. | the Company is in default under the indenture or the making of such payment would result in a default; |
ii. | the Company is not meeting the Fixed Charge Coverage Ratio(1) under the indenture of at least 2:1 for the most recent four fiscal quarters; or |
iii. | there is insufficient room for such payment within a builder basket included in the indenture. |
(1) The Fixed Charge Coverage Ratio is defined as cash flow to interest expense. Cash flow is a non-GAAP measure and does not have a standardized meaning under IFRS and is defined under the indenture as net income (loss) before depreciation, extraordinary gains or losses, unrealized foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, impairment or reversal of impairment of assets, restructuring charges, provision for settlement of litigation, stock-based compensation, interest, and income taxes. Interest expense is adjusted to exclude any non-recurring charges associated with redeeming or retiring any indebtedness prior to its maturity. |
These limitations on restricted payments are tempered by the existence of a number of exceptions to the general prohibition, including a basket allowing for restricted payments in an aggregate amount of up to
The indenture also restricts the incurrence of additional indebtedness if the Fixed Charge Coverage Ratio determined on a pro forma basis for the most recently ended four fiscal quarter period for which internal financial statements are available is not at least 2:1. As is the case with restricted payments, there are a number of exceptions to this prohibition on the incurrence of additional indebtedness, including the incurrence of additional debt under credit facilities up to the greater of
As at
See notes 1 and 8 for further details regarding the Company's senior unsecured notes.
Proceeds from equity offerings may be applied as both an adjustment in the calculation of Adjusted EBITDA and as a reduction of Funded Debt towards the Funded Debt to Adjusted EBITDA ratio covenant for any of the quarters ending prior to and including
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 |
iv. | if proceeds are not used immediately as an equity cure they must be held in a segregated bank account pending an election to use them for such purpose, and if they are removed from such account but not used as an equity cure they will no longer be eligible for such use. |
In addition, to the extent that proceeds from an equity offering are used as part of the Equity Cure, such proceeds are included in the calculation of the Company's borrowing base.
6. CONTINGENCIES
GREEK LITIGATION
As a result of the acquisition and amalgamation with Denison in 2004, the Company assumed certain legal obligations relating to Denison's Greek operations.
In 1998, North Aegean Petroleum Company E.P.E. ("NAPC"), a Greek subsidiary of a consortium in which Denison participated (and which is now a majority-owned subsidiary of the Company), terminated employees in
In 1999, the largest group of plaintiffs received a ruling from the
NAPC is also the subject of a claim for approximately
The maximum aggregate interest and penalties payable under the claims noted above, as well as three other immaterial claims against NAPC totaling
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 interim condensed consolidated financial statements.
7. SEGMENTED INFORMATION
The Company's activities are conducted in four geographical segments:
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.
Corporate | Consolidated | |||||
(C$000s) | ($) | ($) | ($) | ($) | ($) | ($) |
Three Months Ended | ||||||
Revenue | 44,669 | 46,503 | 28,530 | 8,074 | — | 127,776 |
Operating income (loss)(1) | 6,491 | 2,790 | 6,033 | (3,876) | (3,429) | 8,009 |
Segmented assets | 235,234 | 597,025 | 52,975 | 68,972 | — | 954,206 |
Capital expenditures | 1,731 | 1,017 | — | 44 | — | 2,792 |
Three Months Ended | ||||||
Revenue | 104,759 | 224,424 | 23,781 | 46,256 | — | 399,220 |
Operating income (loss)(1) | 15,430 | 27,817 | (204) | 11,660 | (7,682) | 47,021 |
Segmented assets | 516,933 | 833,867 | 86,920 | 178,272 | — | 1,615,992 |
Capital expenditures | 7,874 | 21,215 | 439 | 9,357 | — | 38,885 |
Corporate | Consolidated | |||||
(C$000s) | ($) | ($) | ($) | ($) | ($) | ($) |
Nine Months Ended | ||||||
Revenue | 177,101 | 238,807 | 73,458 | 35,348 | — | 524,714 |
Operating income (loss)(1) | 24,794 | 3,026 | 6,487 | (11,953) | (15,954) | 6,400 |
Segmented assets | 235,234 | 597,025 | 52,975 | 68,972 | — | 954,206 |
Capital expenditures | 8,103 | 27,672 | 879 | 1,489 | — | 38,143 |
Nine Months Ended | ||||||
Revenue | 324,574 | 742,634 | 81,563 | 155,099 | — | 1,303,870 |
Operating income (loss)(1) | 37,265 | 102,611 | (2,859) | 20,308 | (25,578) | 131,747 |
Segmented assets | 516,933 | 833,867 | 86,920 | 178,272 | — | 1,615,992 |
Capital expenditures | 18,339 | 60,558 | 2,892 | 23,098 | — | 104,887 |
(1) Operating income (loss) is defined as net income (loss) before depreciation, foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, gains or losses on exchange of debt, impairment of inventory, impairment of property, plant and equipment, interest, and income taxes. |
Three Months Ended | Nine Months Ended | |||
2020 | 2019 | 2020 | 2019 | |
(C$000s) | ($) | ($) | ($) | ($) |
Net loss | (50,000) | (29,424) | (450,132) | (106,803) |
Add back (deduct): | ||||
Depreciation | 31,720 | 58,669 | 141,178 | 192,295 |
Foreign exchange losses | 7,822 | 5,038 | 9,744 | 6,469 |
(Gain) loss on disposal of property, plant and equipment | (1,272) | 1,322 | 284 | 3,756 |
Impairment of property, plant and equipment | — | — | 227,208 | — |
Impairment of inventory | — | 584 | 27,868 | 584 |
Impairment of other assets | — | — | 507 | — |
Gain on exchange of debt | — | — | (130,444) | — |
Interest | 19,588 | 21,605 | 66,354 | 64,314 |
Income taxes | 151 | (10,773) | 113,833 | (28,868) |
Operating income | 8,009 | 47,021 | 6,400 | 131,747 |
Operating income does not have a standardized meaning under IFRS and may not be comparable to similar measures used by other companies.
8. SUBSEQUENT EVENT
On
The statutory appeal process launched by
Subsequent to the end of the third quarter and following court approval of the Recapitalization Transaction, the Company was granted a waiver from its first lien lenders in respect of its Funded Debt to EBITDA covenant for the quarter ending
SOURCE
© Canada Newswire, source