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CALGARY, Alberta, March 14, 2024 (GLOBE NEWSWIRE) — Calfrac Well Services Ltd. (“Calfrac” or “the Company”) (TSX: CFW) announces its financial and operating results for the three months and year ended December 31, 2023. The following press release should be read in conjunction with the management’s discussion and analysis and audited consolidated financial statements and notes thereto as at December 31, 2023. Readers should also refer to the “Forward-looking statements” legal advisory and the section regarding “Non-GAAP Measures” at the end of this press release. All financial amounts and measures are expressed in Canadian dollars unless otherwise indicated. Additional information about Calfrac is available on the SEDAR+ website at www.sedarplus.ca, including the Company’s Annual Information Form for the year ended December 31, 2023.
CEO’S MESSAGE
Calfrac’s operations during 2023 generated a new Company record for net income from continuing operations of $197.6 million. The Company converted these strong results into significant free cash flow which it deployed towards reducing long-term debt to its lowest level since 2009, as well as improving the quality of its assets through the deployment of two new Tier IV Dynamic Gas Blending (“DGB”) fracturing fleets into North America. This operating performance combined with substantial debt repayment resulted in a trailing twelve-month net debt to Adjusted EBITDA from continuing operations ratio of 0.74x, the lowest in recent years. In addition, Calfrac’s commitment to safe and efficient operations decreased the Total Recordable Injury Frequency (“TRIF”) rate for continuing operations from 1.19 in 2022 to 1.05 in 2023. This excellent result was accomplished despite adding two fracturing fleets to its operations in North America during the year. The Company expects to continue delivering on its brand promise of “Do it Safely, Do it Right, Do it Profitably” in the year ahead and generate strong, sustainable long-term returns for its shareholders.
Calfrac’s Chief Executive Officer, Pat Powell commented: “The Calfrac team took additional steps towards accomplishing our long-term goals this quarter and I am excited about our future as we continue to execute on our brand promise to generate strong returns for our shareholders, reduce debt, and improve our asset quality in the field.”
SELECT FINANCIAL HIGHLIGHTS – CONTINUING OPERATIONS
| Three Months Ended Dec. 31, |
Years Ended Dec. 31, | |||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||
| (C$000s, except per share amounts) | ($) | ($) | (%) | ($) | ($) | (%) | ||||||||||||
| (unaudited) | Revised (1) | Revised (1) | ||||||||||||||||
| Revenue | 421,402 | 447,847 | (6 | ) | 1,864,281 | 1,499,220 | 24 | |||||||||||
| Adjusted EBITDA(1)(2)(3) | 62,591 | 75,954 | (18 | ) | 325,456 | 233,741 | 39 | |||||||||||
| Consolidated cash flows provided by operating activities | 121,284 | 68,838 | 76 | 281,634 | 107,532 | 162 | ||||||||||||
| Capital expenditures(3) | 49,397 | 35,810 | 38 | 165,414 | 87,940 | 88 | ||||||||||||
| Net income | 13,202 | 14,757 | (11 | ) | 197,569 | 35,303 | 460 | |||||||||||
| Per share – basic | 0.16 | 0.27 | (41 | ) | 2.43 | 0.83 | 193 | |||||||||||
| Per share – diluted | 0.15 | 0.17 | (12 | ) | 2.24 | 0.47 | 377 | |||||||||||
| As at | Dec. 31, | Dec. 31, | Change | ||||||
| 2023 | 2022 | ||||||||
| (C$000s) | ($) | ($) | (%) | ||||||
| (unaudited) | |||||||||
| Cash and cash equivalents | 34,140 | 8,498 | 302 | ||||||
| Working capital, end of period | 236,392 | 183,580 | 29 | ||||||
| Total assets, end of period | 1,126,197 | 995,753 | 13 | ||||||
| Long-term debt, end of period | 250,777 | 329,186 | (24 | ) | |||||
| Net debt(4) | 241,065 | 346,414 | (30 | ) | |||||
| Total consolidated equity, end of period | 615,903 | 422,972 | 46 | ||||||
(1) Adjusted EBITDA reflects a change in definition and excludes all foreign exchange gains and losses.
(2) Refer to “Non-GAAP Measures” on page 6 for further information.
(3) Effective January 1, 2023, the Company recorded expenditures related to fluid end components as an operating expense rather than as a capital expenditure. This change in accounting estimate was recorded on a prospective basis.
(4) Refer to note 14 of the consolidated annual financial statements for further information.
During the quarter, Calfrac:
- generated revenue of $421.4 million, a decrease of 6 percent from the comparative quarter in 2022 primarily due to a larger proportion of jobs completed in North America where sand was supplied by the customer, which resulted in a 29 percent reduction in revenue per job compared with the same period in 2022;
- reported Adjusted EBITDA of $62.6 million versus $76.0 million in the fourth quarter of 2022 primarily due to the change in accounting estimate that was adopted for fluid ends at the beginning of 2023. In the fourth quarter of 2023, Calfrac incurred $12.6 million of maintenance expense related to fluid end components during the quarter;
- deployed the equivalent of two Tier IV Dynamic Gas Blending (“DGB”) fracturing fleets in North America;
- received cash proceeds of $11.4 million during the quarter from the exercise of warrants;
- reduced its outstanding credit facility borrowings by $55.0 million that resulted in a total draw amount of $95.0 million at the end of the year;
- reduced its net debt to Adjusted EBITDA ratio to 0.74:1.00;
- reported net income of $13.2 million or $0.15 per share diluted compared to a net income of $14.8 million or $0.17 per share diluted in 2022;
- reported period-end working capital of $236.4 million versus $183.6 million at December 31, 2022; and
- incurred capital expenditures of $49.4 million which included $33.7 million related to the Tier IV fleet modernization program.
FINANCIAL OVERVIEW – CONTINUING OPERATIONS
THREE MONTHS AND YEARS ENDED DECEMBER 31, 2023 VERSUS 2022
NORTH AMERICA
| Three Months Ended Dec. 31, |
Years Ended Dec. 31, |
|||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||
| (C$000s, except operational and exchange rate information) | ($) | ($) | (%) | ($) | ($) | (%) | ||
| (unaudited) | ||||||||
| Revenue | 331,688 | 369,126 | (10 | ) | 1,522,348 | 1,248,147 | 22 | |
| Adjusted EBITDA(1) | 48,070 | 68,839 | (30 | ) | 282,863 | 224,434 | 26 | |
| Adjusted EBITDA (%) | 14.5 | 18.6 | (22 | ) | 18.6 | 18.0 | 3 | |
| Fracturing revenue per job ($) | 38,678 | 54,481 | (29 | ) | 42,329 | 42,071 | 1 | |
| Number of fracturing jobs | 8,343 | 6,532 | 28 | 34,815 | 28,557 | 22 | ||
| Active pumping horsepower, end of year (000s) | 1,034 | 973 | 6 | 1,034 | 973 | 6 | ||
| US$/C$ average exchange rate(2) | 1.3622 | 1.3578 | — | 1.3497 | 1.3011 | 4 | ||
(1) Refer to “Non-GAAP Measures” on page 6 for further information.
(2) Source: Bank of Canada.
OUTLOOK
Calfrac’s North America division generated revenue of $1.5 billion and Adjusted EBITDA of $282.9 million in 2023, both of which were some of the best full-year financial results in its history. However, the Company is anticipating a significant year-over-year reduction in first-quarter activity and financial performance due to the impact of lower natural gas prices combined with a slower than expected start to the year as completion programs were deferred until later in the year. As a result, Calfrac idled two fracturing fleets in February and expects to operate an average of five crews in the United States for the first quarter. The Company expects customer demand for its services will improve from the first quarter and support its revised operating footprint for the remainder of the year. Calfrac’s operations in Canada expects to continue deploying five large fracturing fleets and six coiled tubing units throughout 2024 and deliver consistent financial results with the prior year.
Calfrac believes that it will generate lower profitability in North America in 2024 due to the anticipated shortfall from the first quarter and its reduced operating scale. In order to maintain its long-term debt reduction targets, the Board of Directors approved a deferral of up to $50.0 million of capital expenditures related to the Company’s fleet modernization program.
THREE MONTHS ENDED DECEMBER 31, 2023 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2022
REVENUE
Revenue from Calfrac’s North American operations decreased to $331.7 million during the fourth quarter of 2023 from $369.1 million in the comparable quarter of 2022. The lower revenue was primarily due to a larger proportion of jobs completed where sand was supplied by the customer, which resulted in a 29 percent reduction in revenue per job compared with the same period in 2022. The impact on revenue was partially offset by a 28 percent increase in the number of completed fracturing jobs. The increase in job count was mainly due to the Company operating 15 fracturing fleets during the quarter, including deploying the equivalent of two new Tier IV DGB fleets, compared to an average of 13.5 operating fleets in the respective quarter of 2022. Coiled tubing revenue decreased by 32 percent as compared to the fourth quarter in 2022 mainly due to lower utilization of Calfrac’s six deep coiled tubing units.
ADJUSTED EBITDA
The Company’s operations in North America generated Adjusted EBITDA of $48.1 million or 14 percent of revenue during the fourth quarter of 2023 compared to $68.8 million or 19 percent of revenue in the same period in 2022. This decrease was partially due to the change in accounting estimate that was adopted for fluid ends at the beginning of 2023. In the fourth quarter of 2023, Calfrac incurred $11.4 million of maintenance expense related to fluid end components versus $8.8 million of capital expenditures in the same quarter of 2022. Additionally, utilization during the fourth quarter of 2023 was impacted by a reduction in activity, mainly in Canada, as a result of customer budget exhaustion.
YEAR ENDED DECEMBER 31, 2023 COMPARED TO YEAR ENDED DECEMBER 31, 2022
REVENUE
Revenue from Calfrac’s North American operations increased significantly to $1.5 billion during 2023 from $1.2 billion in 2022. The 22 percent increase in revenue was primarily due to higher customer activity and a larger operating scale as the Company operated 15 fracturing fleets during the year with more consistent utilization compared to 13 fleets in 2022. Pricing during 2023 was relatively consistent with the second half of 2022, but was partially offset by job mix as a greater amount of customer-supplied product resulted in a similar year-over-year fracturing revenue per job. Coiled tubing revenue increased by 7 percent as compared to 2022 mainly due to higher utilization for its six crewed units.
ADJUSTED EBITDA
The Company’s operations in North America generated Adjusted EBITDA of $282.9 million during 2023 compared to $224.4 million in 2022. This increase in Adjusted EBITDA was largely driven by higher fracturing and coiled tubing utilization. In 2023, Calfrac’s Adjusted EBITDA included $37.7 million of maintenance expense related to fluid ends versus $27.7 million of capital expenditures that were recorded in the comparable period in 2022. The Company’s North American operations generated an Adjusted EBITDA percentage of 19 percent compared to 16 percent in 2022, after adjusting for the change in fluid end accounting treatment.
ARGENTINA
| Three Months Ended Dec. 31, |
Years Ended Dec. 31, |
|||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||
| (C$000s, except operational and exchange rate information) | ($) | ($) | (%) | ($) | ($) | (%) | ||
| (unaudited) | ||||||||
| Revenue | 89,714 | 78,721 | 14 | 341,933 | 251,073 | 36 | ||
| Adjusted EBITDA(1) | 19,946 | 14,616 | 36 | 63,569 | 30,979 | 105 | ||
| Adjusted EBITDA (%) | 22.2 | 18.6 | 19 | 18.6 | 12.3 | 51 | ||
| Fracturing revenue per job ($) | 75,225 | 84,445 | (11 | ) | 80,989 | 74,181 | 9 | |
| Number of fracturing jobs | 697 | 558 | 25 | 2,481 | 1,973 | 26 | ||
| Active pumping horsepower, end of year (000s) | 139 | 139 | — | 139 | 139 | — | ||
| US$/C$ average exchange rate(2) | 1.3622 | 1.3578 | — | 1.3497 | 1.3011 | 4 | ||
(1) Refer to “Non-GAAP Measures” on page 6 for further information.
(2) Source: Bank of Canada.
OUTLOOK
Calfrac’s Argentinean operations leveraged higher efficiencies across all three service lines to generate divisional records for revenue and Adjusted EBITDA of $341.9 million and $63.6 million, respectively, in 2023. The Company’s position as a leader in this pressure pumping market was enhanced through the start-up of simul-frac operations in the fourth quarter as well as setting internal records for coiled tubing maximum depth achieved and highest cementing customer satisfaction. Calfrac anticipates that, absent any impacts from the devaluation in the Argentinean peso, the momentum from this year will be carried into 2024 driven by expected strong utilization across all service lines in the Vaca Muerta shale play and the conventional basins of southern Argentina.
THREE MONTHS ENDED DECEMBER 31, 2023 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2022
REVENUE
Calfrac’s Argentinean operations generated revenue of $89.7 million during the fourth quarter of 2023 versus $78.7 million in the comparable quarter in 2022 primarily due to higher activity across all service lines. This increase in revenue was due to the strategic repositioning of certain fracturing and cementing equipment from southern Argentina into the Vaca Muerta shale play during the first half of 2023. Coiled tubing revenue also increased due to an increase in overall activity with both existing and new customers.
ADJUSTED EBITDA
The Company’s operations in Argentina generated Adjusted EBITDA of $19.9 million during the fourth quarter of 2023 compared to $14.6 million in the comparable quarter of 2022, while the Company’s Adjusted EBITDA margins also improved to 22 percent from 19 percent. This improvement in Adjusted EBITDA was primarily due to the higher revenue base and changes in the Company’s customer and geographic mix which resulted in higher profitability relative to the comparable period in 2022. The significant devaluation of the peso in December also contributed to the margin improvement during the quarter.
YEAR ENDED DECEMBER 31, 2023 COMPARED TO YEAR ENDED DECEMBER 31, 2022
REVENUE
Calfrac’s Argentinean operations generated revenue of $341.9 million during 2023 compared to $251.1 million in 2022. Activity in the Vaca Muerta shale play continued to increase while activity in southern Argentina also achieved significant growth compared to 2022. Overall fracturing activity increased by 26 percent compared to 2022 while revenue per job was 9 percent higher primarily due to overall inflation in operating costs and better pricing that was realized during the second half of 2022 combined with a stronger U.S. dollar. Higher coiled tubing and cementing revenue also contributed to the overall increase in revenue. The number of coiled tubing jobs increased by 32 percent as activity increased in Neuquén and southern Argentina while revenue per job was consistent with the prior year. Cementing activity increased by 7 percent and revenue per job increased by 9 percent due to changes in job mix as a greater number of pre-fracturing projects, which are typically larger job sizes, were completed during 2023.
ADJUSTED EBITDA
The Company’s operations in Argentina generated Adjusted EBITDA of $63.6 million or 19 percent of revenue in 2023 versus $31.0 million or 12 percent of revenue in 2022 primarily due to higher utilization and pricing across all service lines and, to a lesser extent, the impact of the peso devaluation that occurred in the fourth quarter of 2023. Adjusted EBITDA in 2023 included $5.8 million of maintenance expense related to fluid end components that would have been recorded as capital expenditures in 2022.
CAPITAL EXPENDITURES
| Three Months Ended Dec. 31, |
Years Ended Dec. 31, |
|||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||
| (C$000s) | ($) | ($) | (%) | ($) | ($) | (%) | ||
| North America | 45,845 | 31,382 | 46 | 153,886 | 77,671 | 98 | ||
| Argentina | 3,552 | 4,428 | (20 | ) | 11,528 | 10,269 | 12 | |
| Continuing Operations(1) | 49,397 | 35,810 | 38 | 165,414 | 87,940 | 88 | ||
(1) Effective January 1, 2023, the Company recorded expenditures related to fluid end components as an operating expense rather than as a capital expenditure. This change in accounting estimate was recorded on a prospective basis. The Company capitalized $29.3 million of fluid end components in 2022.
Capital expenditures were $49.4 million for the three months ended December 31, 2023 versus $35.8 million in the comparable period in 2022. Calfrac’s Board of Directors approved a 2024 total capital budget of approximately $210.0 million in December 2023, which was an increase of $45.0 million from the previous year, primarily to continue its fracturing fleet modernization program in North America and dedicate $40.0 million to support its Argentinean operations while implementing new company-wide field-based technologies. On March 13, 2024, the Board of Directors approved a deferral of up to $50.0 million of capital allocated to its North American fleet modernization program to align with current market conditions.
SUMMARY OF QUARTERLY RESULTS – CONTINUING OPERATIONS
| Three Months Ended | Mar. 31, | Jun. 30, | Sep. 30, | Dec. 31, | Mar. 31, | Jun. 30, | Sep. 30, | Dec. 31, | ||||||||
| 2022 | 2022 | 2022 | 2022 | 2023 | 2023 | 2023 | 2023 | |||||||||
| (C$000s, except per share and operating data) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||
| (unaudited) | Revised (1) | Revised (1) | Revised (1) | Revised (1) | ||||||||||||
| Financial | ||||||||||||||||
| Revenue | 294,524 | 318,511 | 438,338 | 447,847 | 493,323 | 466,463 | 483,093 | 421,402 | ||||||||
| Adjusted EBITDA(1)(2)(3) | 22,763 | 40,734 | 94,289 | 75,954 | 83,794 | 87,785 | 91,286 | 62,591 | ||||||||
| Net income (loss) | (18,030 | ) | (6,776 | ) | 45,352 | 14,757 | 36,313 | 50,531 | 97,523 | 13,202 | ||||||
| Per share – basic | (0.47 | ) | (0.18 | ) | 1.15 | 0.27 | 0.45 | 0.62 | 1.20 | 0.16 | ||||||
| Per share – diluted | (0.47 | ) | (0.18 | ) | 1.10 | 0.17 | 0.41 | 0.58 | 1.09 | 0.15 | ||||||
| Capital expenditures(3) | 12,145 | 15,240 | 24,745 | 35,810 | 34.474 | 30,718 | 50,825 | 49,397 | ||||||||
(1) Adjusted EBITDA reflects a change in definition and excludes all foreign exchange gains and losses.
(2) Refer to “Non-GAAP Measures” on page 6 for further information.
(3) Effective January 1, 2023, recorded expenditures related to fluid end components as an operating expense rather than as a capital expenditure. This change in accounting estimate was recorded on a prospective basis.
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 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.
Adjusted EBITDA is defined as net income or loss for the period less interest, taxes, depreciation and amortization, 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 Dec. 31, | Years Ended Dec. 31 |
|||||||
| 2023 | 2022 | 2023 | 2022 | |||||
| (C$000s) | ($) | ($) | ($) | ($) | ||||
| (unaudited) | ||||||||
| Net income from continuing operations | 13,202 | 14,757 | 197,569 | 35,303 | ||||
| Add back (deduct): | ||||||||
| Depreciation | 30,435 | 32,294 | 116,641 | 122,027 | ||||
| Foreign exchange losses (gains)(2) | 14,494 | 3,732 | 22,378 | (2,972 | ) | |||
| (Gain) loss on disposal of property, plant and equipment | 1,042 | 951 | (4,625 | ) | 5,333 | |||
| (Reversal of) impairment of property, plant and equipment | — | 10,670 | (41,563 | ) | 10,670 | |||
| Impairment of inventory | — | 8,477 | — | 8,477 | ||||
| Impairment of other assets | — | 64 | — | 64 | ||||
| Litigation settlements | — | — | (6,805 | ) | 11,258 | |||
| Restructuring charges | — | 3,710 | 2,991 | 5,273 | ||||
| Stock-based compensation | 2,307 | 457 | 5,117 | 2,776 | ||||
| Interest | 6,671 | 15,018 | 29,694 | 46,555 | ||||
| Income taxes | (5,560 | ) | (14,176 | ) | 4,059 | (11,023 | ) | |
| Adjusted EBITDA from continuing operations (1) | 62,591 | 75,954 | 325,456 | 233,741 | ||||
(1) For bank covenant purposes, EBITDA includes the deduction of an additional $12.5 million of lease payments for the year ended December 31, 2023 (year ended December 31, 2022 – $10.4 million) that would have been recorded as operating expenses prior to the adoption of IFRS 16.
(2) Adjusted EBITDA reflects a change in definition effective October 1, 2022, and excludes all foreign exchange gains and losses.
The definition and calculation of net debt at December 31, 2023 and the ratio of net debt to Adjusted EBITDA for the year ended December 31, 2023, is disclosed in note 14 to the Company’s year-end consolidated financial statements. The Company monitors its capital structure and financing requirements using, amongst other parameters, the ratio of net debt to Adjusted EBITDA. The ratio of net debt to Adjusted EBITDA does not have a standardized meaning under IFRS and may not be comparable to similar measures used by other companies.
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