Calfrac Announces First Quarter Results and Update on 2017 Capital Program

CALGARY, April 26, 2017 /CNW/ - Calfrac Well Services Ltd. ("Calfrac" or "the Company") (TSX-CFW) announces its financial and operating results for the three months ended March 31, 2017.

HIGHLIGHTS

Three Months Ended March 31,

2017

2016

Change

(C$000s, except per share and unit data)

($)

($)

(%)

(unaudited)




Financial




Revenue

268,815

216,138

24

Operating income (loss)(1)

20,395

(11,623)

NM  


Per share – basic

0.15

(0.10)

NM  


Per share – diluted

0.15

(0.10)

NM  

Adjusted EBITDA(1)

21,584

(5,883)

NM  


Per share – basic

0.16

(0.05)

NM  


Per share – diluted                                                                                   

0.16

(0.05)

NM  

Net loss attributable to the shareholders of Calfrac before foreign exchange

gains or losses(2)

(21,659)

(40,592)

(47)


Per share – basic

(0.16)

(0.35)

(54)


Per share – diluted

(0.16)

(0.35)

(54)

Net loss attributable to the shareholders of Calfrac

(19,547)

(54,071)

(64)


Per share – basic

(0.14)

(0.47)

(70)


Per share – diluted

(0.14)

(0.47)

(70)

Working capital (end of period)

278,818

261,072

7

Total equity (end of period)

485,452

576,465

(16)

Weighted average common shares outstanding (000s)





Basic

136,558

115,410

18


Diluted

138,460

115,580

20





Operating (end of period)




Active pumping horsepower (000s)

727

640

14

Idle pumping horsepower (000s)

493

586

(16)

Total pumping horsepower (000s)

1,220

1,226

Active coiled tubing units (#)

20

18

11

Idle coiled tubing units (#)

12

14

(14)

Total coiled tubing units (#)

32

32

Active cementing units (#)

12

14

(14)

Idle cementing units (#)

13

11

18

Total cementing units (#)

25

25

(1) Refer to "Non-GAAP Measures" on pages 16 and 17 for further information.

(2) Net loss attributable to the shareholders of Calfrac before foreign exchange (FX) gains or losses is defined as net loss attributable to the shareholders of Calfrac before FX gains or losses on an after-tax basis. Management believes that this is a useful supplemental measure as it provides an indication of the financial results generated by Calfrac without the impact of FX fluctuations, which are not fully controllable by the Company. This measure does not have any standardized meaning prescribed under IFRS and, accordingly, may not be comparable to similar measures used by other companies.


 

FIRST QUARTER 2017 OVERVIEW
CONSOLIDATED HIGHLIGHTS

Three Months Ended March 31,

2017

2016

Change

(C$000s, except operational information)

($)

($)

(%)

(unaudited)




Revenue

268,815

216,138

24

Expenses





Operating

237,675

211,096

13


Selling, general and administrative (SG&A)    

10,745

16,665

(36)


248,420

227,761

9

Operating income (loss)(1)

20,395

(11,623)

NM  

Operating income (loss) (%)

7.6

(5.4)

NM  

Adjusted EBITDA(1)

21,584

(5,883)

NM  

Adjusted EBITDA (%)

8.0

(2.7)

NM  

Fracturing revenue per job ($)

25,499

32,876

(22)

Number of fracturing jobs

9,264

5,536

67

Active pumping horsepower, end of period (000s)

727

640

14

Idle pumping horsepower, end of period (000s)(2)

493

586

(16)

Total pumping horsepower, end of period (000s)(2)

1,220

1,226

Coiled tubing revenue per job ($)

28,081

37,365

(25)

Number of coiled tubing jobs

725

505

44

Active coiled tubing units, end of period (#)

20

18

11

Idle coiled tubing units, end of period (#)

12

14

(14)

Total coiled tubing units, end of period (#)

32

32

Cementing revenue per job ($)

46,234

48,641

(5)

Number of cementing jobs

185

207

(11)

Active cementing units, end of period (#)

12

14

(14)

Idle cementing units, end of period (#)

13

11

18

Total cementing units, end of period (#)

25

25

(1) Refer to "Non-GAAP Measures" on pages 16 and 17 for further information.

(2) Excludes 97,500 pumping horsepower that has not been commissioned at March 31, 2017 (March 31, 2016 - 60,000).


Revenue in the first quarter of 2017 was $268.8 million, an increase of 24 percent from the same period in 2016. The Company's fracturing job count increased by 67 percent mainly due to higher activity in Canada and the United States. The Company pumped approximately 60 percent and 50 percent more proppant in Canada and the United States, respectively, compared to the first quarter in 2016 as a result of greater service intensity. Consolidated revenue per fracturing job decreased by 22 percent primarily due to job mix in Canada and Argentina offset partially by the completion of larger jobs in the United States.  Cementing revenue per job decreased by 5 percent due to the impact of large cementing jobs completed in Pennsylvania in 2016 prior to suspending operations.

Pricing in Canada increased modestly and in the United States pricing was mostly consistent with the comparative quarter. Pricing in Argentina was negatively impacted by the lower rig count in that country and the resulting competitive pricing pressure experienced from certain multinational competitors. In Russia, pricing was consistent with the first quarter of 2016.

Adjusted EBITDA of $21.6 million for the first quarter of 2017 increased from negative $5.9 million in the comparable period in 2016 due to significantly higher utilization in the United States and Canada. The improvement in Adjusted EBITDA was partially offset by weaker results in Argentina due to lower pricing and utilization.

The net loss attributable to shareholders of Calfrac was $19.5 million or $0.14 per share diluted compared to a net loss of $54.1 million or $0.47 per share diluted in the same period last year.

Based on stronger demand for equipment than previously contemplated, Calfrac is increasing its 2017 capital budget to $45.0 million from $25.0 million, largely focused on sustaining capital for the Company's North American fracturing operations.

Three Months Ended

March 31,

December 31,

Change


2017

2016


(C$000s, except operational information)

($)

($)

(%)

(unaudited)




Revenue

268,815

192,846

39

Expenses





Operating                                                          

237,675

193,264

23


SG&A

10,745

17,873

(40)


248,420

211,135

18

Operating income (loss)(1)

20,395

(18,291)

NM  

Operating income (loss) (%)

7.6

(9.5)

NM  

Adjusted EBITDA(1)

21,584

(13,717)

NM  

Adjusted EBITDA (%)

8.0

(7.1)

NM  

Fracturing revenue per job ($)

25,499

26,382

(3)

Number of fracturing jobs

9,264

5,932

56

Active pumping horsepower, end of period (000s)

727

659

10

Idle pumping horsepower, end of period (000s)(2)

493

563

(12)

Total pumping horsepower, end of period (000s)(2)

1,220

1,222

Coiled tubing revenue per job ($)

28,081

30,439

(8)

Number of coiled tubing jobs

725

644

13

Active coiled tubing units, end of period (#)

20

19

5

Idle coiled tubing units, end of period (#)

12

13

(8)

Total coiled tubing units, end of period (#)

32

32

Cementing revenue per job ($)

46,234

45,351

2

Number of cementing jobs

185

214

(14)

Active cementing units, end of period (#)

12

14

(14)

Idle cementing units, end of period (#)

13

11

18

Total cementing units, end of period (#)

25

25

(1) Refer to "Non-GAAP Measures" on pages 16 and 17 for further information.

(2) Excludes 97,500 pumping horsepower that has not been commissioned at March 31, 2017 (December 31, 2016 - 92,500)


Revenue in the first quarter of 2017 was $268.8 million, an increase of 39 percent from the fourth quarter of 2016 primarily due to higher activity and pricing in Canada and the United States. The Company pumped approximately 60 percent more proppant in Canada and the United States compared to the fourth quarter as a result of greater service intensity. Revenue per fracturing job decreased by 3 percent due to a change in customer mix in Canada that resulted in smaller average job sizes offset by better pricing in North America and larger jobs in the United States. Pricing in Canada improved in the range of 10 to 15 percent while the U.S. experienced modest pricing improvements. Pricing in Argentina and Russia was consistent with the fourth quarter of 2016.

In Canada, revenue increased by 53 percent to $111.0 million in the first quarter of 2017 due to higher fracturing and coiled tubing activity offset partially by the completion of smaller jobs resulting from changes in job mix and completion design. Operating income as a percentage of revenue was 11 percent, which was up from 2 percent in the fourth quarter, primarily due to higher utilization and better pricing.

In the United States, revenue in the first quarter of 2017 increased by 69 percent from the fourth quarter to $98.0 million, mainly as a result of higher activity in Colorado. The division significantly improved its results sequentially, moving from an operating loss of 12 percent of revenue in the fourth quarter to operating income of 10 percent in the first quarter of 2017. The improvement in sequential results was primarily driven by operational efficiencies with customers in Colorado and Pennsylvania.

In Russia, revenue of $27.7 million in the first quarter of 2017 was 14 percent higher than the fourth quarter of 2016 primarily due to cold weather in Usinsk which allowed activity to continue to the end of the quarter. Operating income as a percentage of revenue declined to near breakeven from 4 percent primarily due the impact on utilization of extremely cold weather in Western Siberia and higher fuel costs.

In Latin America, revenue decreased by 16 percent to $32.0 million primarily due to lower cementing activity in Argentina. Operating income recorded in the fourth quarter of 2016 included restructuring costs of $3.4 million. Excluding these one-time costs, operating income in the fourth quarter of 2016 as a percentage of revenue was 1 percent compared to 7 percent in the first quarter of 2017. This improvement was primarily due to improved utilization and continued cost reduction measures.

OUTLOOK
The first quarter of 2017 marked the beginning of a transition away from unsustainable pricing and very low activity in our key operating geographies. Throughout the first quarter, the Company reactivated equipment and achieved modest pricing gains which both contributed to the improvement in reported results. The Company has been adding field personnel, and based on current demand levels, expects to continue hiring throughout the remainder of the year.

CANADA
The outlook for the Company's operations in Canada remains positive, although spring break-up in western Canada will likely affect Calfrac's ability to service work through a portion of the second quarter. Client demand remains high, and with substantial pad work underway or scheduled in the second quarter, the Company remains confident of strong results for Canada relative to 2016.

The Company continues to evaluate opportunities to reactivate additional equipment in Canada throughout the summer, however pricing and labour availability remain key challenges for the industry at large. The Company continues to recruit aggressively and will examine all opportunities to expand its field labour force.

Cost inflation impacted operations during the first quarter and Calfrac expects a continuation of this trend throughout the remainder of 2017. Specifically, third-party services such as trucking as well as sand and chemicals have seen price escalations, although the Company is managing this as proactively as possible through several supply chain initiatives.

The Montney resource play has been very active to date in 2017 although client interest is increasing across the Western Canadian Sedimentary Basin, in both natural gas and oil plays such as the Duvernay, Deep Basin, Viking and Cardium.

With increasing activity and intensity, the Company believes that the demand for proppant will continue to stress current infrastructure in western Canada this year. However, Calfrac's investment in a comprehensive supply chain network that internally manages the vast majority of its operational requirements should allow the Company more flexibility in responding to increasing client demand, with cost and reliability of supply as key differentiators.

Pricing has improved in Calfrac's Canadian operations although the second quarter typically represents a pause in pricing discussions due to lower work volumes. Although financial results have improved, investing for growth and a sustainable business model will require further pricing improvement going forward.

UNITED STATES
The United States division has been the most challenged market throughout the downturn, but has shown strong improvement over the first quarter. Expectations of higher demand were realized and the consistency of work volumes exceeded forecasts which was responsible for the significant improvement in this segment's financial results. Pricing levels have also improved, but more material pricing improvement is required to achieve sustainable business returns.

The Company is in the final stages of reactivating two incremental fleets in Colorado with contributions expected for at least half of the second quarter. Calfrac continues to engage with clients in existing and legacy operating areas as well as in areas where the Company has no operating history. While further reactivations in Calfrac's U.S. operations are likely, it will not sacrifice short-term profitability or Calfrac's operating and safety culture to secure incremental work.

In the short-term, the Company believes that its U.S. operations will continue to transition to more normalized operating margins and that robust client demand for incremental equipment in all operating districts will provide additional opportunities in the second half of the year.

As in Canada, general cost inflation has begun to occur in the U.S. across a number of fronts. The Company has been successful to date in passing through these inflation drivers to customers. With further increases to the land rig count in the United States and ongoing tightness in the labour market, Calfrac believes the U.S. fracturing market will remain supply constrained through the remainder of 2017 which would be expected to drive further improvements in pricing and margins.

Over and above these factors, Calfrac has observed a move by customers away from low-cost services to a focus on execution, efficiency and safety. This is a trend which plays to the Company's strengths.

RUSSIA
The first quarter was slightly behind the Company's expectations due to weather and ground conditions in Western Siberia, but was largely in line with previous first-quarter results.  Overall, activity and pricing are expected to remain relatively flat on a year-over-year basis with financial results projected to remain stable when compared to 2016.

LATIN AMERICA
The efforts of the Argentinean government to attract investment into the country's oil and gas sector appear to be moving forward. With multiple E&P companies having announced significant investment plans for the country, the Company believes that it will benefit from increasing activity this year. However, shifts in client-specific work programs and labour issues may both continue to impact results in the short-term.

In Mexico, the business environment remains challenging with very limited onshore pressure pumping activity. Calfrac will continue to evaluate the market while maintaining a small scale operating presence with a minimal cost structure.

CORPORATE
With improving operating results and client demand, Calfrac's focus in the short-term is on managing the reactivation of its assets in a safe, efficient and profitable manner, while in the medium-term, the goal of generating free cash flow remains unchanged. With fundamental improvement in the operational and financial performance of the Calfrac's businesses, opportunities to address the long-term structure of the Company's balance sheet will manifest themselves and management will seek to combine flexibility and low cost in its actions ahead.

As a result of increased activity and demand for equipment, the Company is announcing an increase in its 2017 capital budget from $25.0 million to $45.0 million. The incremental spend will be largely focused on capital components related to its North American fracturing operations.

CANADA

Three Months Ended March 31,

2017

2016

Change

(C$000s, except operational information)

($)

($)

(%)

(unaudited)




Revenue

111,018

72,721

53

Expenses





Operating

96,452

70,300

37


Selling, general and administrative (SG&A)

2,123

2,168

(2)


98,575

72,468

36

Operating income(1)

12,443

253

NM  

Operating income (%)

11.2

0.3

NM  

Fracturing revenue per job ($)

16,400

22,057

(26)

Number of fracturing jobs

6,066

3,022

101

Active pumping horsepower, end of period (000s)

207

194

7

Idle pumping horsepower, end of period (000s)

185

216

(14)

Total pumping horsepower, end of period (000s)

392

410

(4)

Coiled tubing revenue per job ($)

21,088

22,718

(7)

Number of coiled tubing jobs

547

267

105

Active coiled tubing units, end of period (#)

8

4

100

Idle coiled tubing units, end of period (#)

5

9

(44)

Total coiled tubing units, end of period (#)

13

13

(1) Refer to "Non-GAAP Measures" on pages 16 and 17 for further information.


REVENUE
Revenue from Calfrac's Canadian operations during the first quarter of 2017 was $111.0 million versus $72.7 million in the same period of 2016. The 53 percent increase in revenue was due to fracturing job count increasing by more than 100 percent offset partially by the completion of smaller jobs resulting from changes in job mix and completion design. The number of fracturing jobs increased due to an overall increase in completion activity in the Western Canadian Sedimentary Basin combined with the reactivation of two additional crews that were operational during the quarter. The number of coiled tubing jobs more than doubled from the first quarter in 2016 as a result of the reactivation of four coiled tubing units, which supported the increased demand for the Company's fracturing services. Revenue per fracturing job decreased by 26 percent from the same period in the prior year as the Company's job mix included a higher proportion of less intensive fracturing jobs and smaller stage sizes.

OPERATING INCOME
Operating income in Canada during the first quarter of 2017 was $12.4 million compared to $0.3 million in the same period of 2016. The Company was able to achieve an operating margin of 11 percent due to higher utilization compared to the first quarter in 2016 which more than offset operating cost increases. Operating costs were 37 percent higher than the comparable quarter of 2016 primarily due to the increase in activity combined with higher subcontractor and proppant costs. In the first quarter of 2017, the Company incurred reactivation costs of approximately $0.4 million.

UNITED STATES

Three Months Ended March 31,

2017

2016

Change

(C$000s, except operational and exchange rate information)

($)

($)

(%)

(unaudited)




Revenue

98,043

75,985

29

Expenses





Operating                                                                         

85,741

82,955

3


SG&A

2,303

5,268

(56)


88,044

88,223

Operating income (loss)(1)

9,999

(12,238)

NM  

Operating income (loss) (%)

10.2

(16.1)

NM  

Fracturing revenue per job ($)

36,085

36,118

Number of fracturing jobs

2,717

2,058

32

Active pumping horsepower, end of period (000s)

319

245

30

Idle pumping horsepower, end of period (000s)

308

370

(17)

Total pumping horsepower, end of period (000s)

627

615

2

Active coiled tubing units, end of period (#)

Idle coiled tubing units, end of period (#)

5

5

Total coiled tubing units, end of period (#)

5

5

Active cementing units, end of period (#)

Idle cementing units, end of period (#)

11

11

Total cementing units, end of period (#)

11

11

US$/C$ average exchange rate(2)

1.3238

1.3732

(4)

(1) Refer to "Non-GAAP Measures" on pages 16 and 17 for further information.

(2) Source: Bank of Canada.


REVENUE
Revenue from Calfrac's United States operations increased to $98.0 million during the first quarter of 2017 from $76.0 million in the comparable quarter of 2016 primarily due to higher fracturing activity in Colorado as 32 percent more fracturing jobs were completed period-over-period. Revenue per job was consistent year-over-year due to the completion of larger jobs in the Marcellus shale gas play in Pennsylvania and the Bakken shale oil play in North Dakota offset by the completion of smaller jobs in Colorado. This increase in revenue was partially offset by a four percent depreciation in the U.S. dollar versus the Canadian dollar.

OPERATING INCOME (LOSS)
The Company's United States operations generated operating income of $10.0 million during the first quarter of 2017 compared to an operating loss of $12.2 million in the same period in 2016. The turnaround to positive operating income was primarily the result of improved utilization in Colorado and Pennsylvania which was offset partially by $1.7 million in reactivation costs incurred during the quarter. SG&A expenses decreased by 56 percent in the first quarter of 2017 as the comparable quarter contained $3.1 million in restructuring costs associated with the temporary closure of the Company's south Texas operations and a reduction in crews operating in Pennsylvania.

RUSSIA

Three Months Ended March 31,

2017

2016

Change

(C$000s, except operational and exchange rate information)

($)

($)

(%)

(unaudited)




Revenue

27,727

22,723

22

Expenses





Operating                                                                        

27,167

21,351

27


SG&A

685

563

22


27,852

21,914

27

Operating (loss) income(1)

(125)

809

NM  

Operating (loss) income (%)

(0.5)

3.6

NM  

Fracturing revenue per job ($)

80,092

70,930

13

Number of fracturing jobs

297

253

17

Pumping horsepower, end of period (000s)

70

70

Coiled tubing revenue per job ($)

48,040

40,491

19

Number of coiled tubing jobs

82

118

(31)

Active coiled tubing units, end of period (#)

6

7

(14)

Idle coiled tubing units, end of period (#)

1

NM  

Total coiled tubing units, end of period (#)

7

7

Rouble/C$ average exchange rate(2)

0.0226

0.0184

23

(1) Refer to "Non-GAAP Measures" on pages 16 and 17 for further information.

(2) Source: Bank of Canada.


REVENUE
Revenue from Calfrac's Russian operations increased by 22 percent during the first quarter of 2017 to $27.7 million from $22.7 million in the corresponding three-month period of 2016. The increase in revenue was largely attributable to the 23 percent appreciation of the Russian rouble during the quarter as well as cold weather in Usinsk which allowed activity to continue to the end of the quarter in 2017. Revenue per fracturing job increased by 13 percent primarily due to the appreciation of the Russian rouble offset partially by the completion of smaller jobs due to customer and job mix.

OPERATING (LOSS) INCOME
The Company's Russian operations incurred an operating loss of $0.1 million during the first quarter of 2017 compared to income of $0.8 million in the corresponding period of 2016. The operating loss resulted primarily from lower utilization due to extremely cold weather in Western Siberia and higher fuel costs. SG&A expenses were 22 percent higher than the comparable quarter in 2016 due to the 23 percent appreciation of the Russian rouble.

LATIN AMERICA

Three Months Ended March 31,

2017

2016

Change

(C$000s, except operational and exchange rate information)

($)

($)

(%)

(unaudited)




Revenue

32,027

44,709

(28)

Expenses





Operating                                                                         

27,325

34,995

(22)


SG&A

2,479

2,846

(13)


29,804

37,841

(21)

Operating income(1)

2,223

6,868

(68)

Operating income (%)

6.9

15.4

(55)

Pumping horsepower, end of period (000s)

131

131

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 (#)

6

7

(14)

Idle coiled tubing units, end of period (#)

1

NM  

Total coiled tubing units, end of period (#)

7

7

Mexican peso/C$ average exchange rate(2)

0.0654

0.0762

(14)

Argentinean peso/C$ average exchange rate(2)

0.0845

0.0953

(11)

(1) Refer to "Non-GAAP Measures" on pages 16 and 17 for further information.

(2) Source: Bank of Canada.


REVENUE
Calfrac's Latin American operations generated total revenue of $32.0 million during the first quarter of 2017 versus $44.7 million in the comparable three-month period in 2016. Revenue in Latin America was 28 percent lower than the comparable quarter primarily due to lower pricing, the completion of smaller fracturing jobs and less coiled tubing activity in Argentina. Cementing revenue in Argentina was consistent with the comparable quarter in 2016. In Mexico, revenue decreased by $3.1 million primarily due to lower fracturing activity with Calfrac's major customer.

OPERATING INCOME
The Company's operations in Latin America generated operating income of $2.2 million during the first quarter of 2017 compared to operating income of $6.9 million in the first quarter of 2016. This decrease was primarily due to lower pricing and a shift in activity from northern Argentina, which typically has larger jobs, to southern Argentina where the average job size is smaller.

CORPORATE

Three Months Ended March 31,

2017

2016

Change

(C$000s)

($)

($)

(%)

(unaudited)




Expenses





Operating                         

990

1,495

(34)


SG&A

3,155

5,820

(46)


4,145

7,315

(43)

Operating loss(1)

(4,145)

(7,315)

(43)

% of Revenue

1.5

3.4

(56)

(1) Refer to "Non-GAAP Measures" on pages 16 and 17 for further information.


OPERATING LOSS
Corporate expenses for the first quarter of 2017 decreased by 43 percent compared to the first quarter of 2016. Operating expenses were 34 percent lower as a result of lower district personnel costs. SG&A expenses were $2.7 million lower primarily due to a decrease in stock-based compensation expense. The Company reversed a portion of its stock-based compensation expense relating to Restricted Share Units and Performance Share Units during the quarter, which resulted in a recovery of $3.5 million. The expense relating to stock options was $0.8 million higher due to additional options granted during the period.

DEPRECIATION
For the three months ended March 31, 2017, depreciation expense decreased by 10 percent to $32.0 million from $35.6 million in the corresponding quarter of 2016. The decrease in depreciation was primarily due to a larger portion of the Company's asset base being fully depreciated combined with a weaker U.S. dollar.

FOREIGN EXCHANGE GAINS AND LOSSES
The Company recorded a foreign exchange gain of $3.7 million during the first quarter of 2017 versus a loss of $18.2 million in the comparative three-month period of 2016. 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 and Latin America and liabilities held in Canadian dollars in Russia.

INTEREST
The Company's net interest expense of $21.3 million for the first quarter of 2017 was $2.1 million higher than in the comparable period of 2016. The main driver of this increase was interest expense related to the Company's $200.0 million secured second lien term loan as it contributed to an increase in debt levels and the interest rate on this loan was higher than the interest rate on the credit facility borrowings that were repaid.

INCOME TAXES
The Company recorded an income tax recovery of $10.8 million during the first quarter of 2017 compared to a recovery of $28.9 million in the comparable period of 2016. The recovery position was the result of pre-tax losses incurred during the quarter in Canada and the United States. The effective tax recovery rate was 36 percent during the first quarter of 2017 compared to a tax recovery rate of 34 percent in the comparable quarter in 2016. The effective tax recovery rate in 2017 was higher primarily due to a greater proportion of the consolidated losses being incurred in the United States, which has a higher statutory tax rate, compared to 2016.

SUMMARY OF QUARTERLY RESULTS

Three Months Ended

Jun. 30,

Sep. 30,

Dec. 31,

Mar. 31,

Jun. 30,

Sep. 30,

Dec. 31,

Mar. 31,


2015

2015

2015

2016

2016

2016

2016

2017

(C$000s, except per share and operating data)

($)

($)

($)

($)

($)

($)

($)

($)

(unaudited)









Financial









Revenue

319,553

289,075

286,194

216,138

150,605

174,925

192,846

268,815

Operating income (loss)(1)

(7,022)

2,775

5,787

(11,623)

(15,898)

(12,392)

(18,291)

20,395


Per share – basic

(0.07)

0.03

0.06

(0.10)

(0.14)

(0.11)

(0.15)

0.15


Per share – diluted

(0.07)

0.03

0.06

(0.10)

(0.14)

(0.11)

(0.15)

0.15

Adjusted EBITDA(1)

(3,696)

7,211

22,933

(5,883)

(14,095)

(11,055)

(13,717)

21,584


Per share – basic

(0.04)

0.08

0.24

(0.05)

(0.12)

(0.10)

(0.11)

0.16


Per share – diluted

(0.04)

0.08

0.24

(0.05)

(0.12)

(0.10)

(0.11)

0.16

Net income (loss) attributable to the shareholders of Calfrac

(43,277)

(24,191)

(141,498)

(54,071)

(41,671)

(40,862)

(61,493)

(19,547)


Per share – basic

(0.45)

(0.25)

(1.45)

(0.47)

(0.36)

(0.35)

(0.51)

(0.14)


Per share – diluted                                                            

(0.45)

(0.25)

(1.45)

(0.47)

(0.36)

(0.35)

(0.51)

(0.14)

Capital expenditures

50,356

24,945

29,964

7,723

8,370

6,907

15,708

12,965

Working capital (end of period)

340,639

296,816

305,952

261,072

306,346

269,081

271,581

278,818

Total equity (end of period)

775,646

742,972

623,719

576,465

543,530

501,926

497,458

485,452










Operating (end of period)









Active pumping horsepower (000s)

804

754

776

640

582

644

659

727

Idle pumping horsepower (000s)(2)

455

533

524

586

640

578

563

493

Total pumping horsepower (000s)(2)

1,259

1,287

1,300

1,226

1,222

1,222

1,222

1,220

Active coiled tubing units (#)

20

20

20

18

19

20

19

20

Idle coiled tubing units (#)

17

17

17

14

13

12

13

12

Total coiled tubing units (#)

37

37

37

32

32

32

32

32

Active cementing units (#)

26

28

23

14

14

14

14

12

Idle cementing units (#)

5

3

8

11

11

11

11

13

Total cementing units (#)

31

31

31

25

25

25

25

25

(1) Refer to "Non-GAAP Measures" on pages 16 and 17 for further information.

(2) Excludes 97,500 pumping horsepower that had not been commissioned at March 31, 2017.


 

LIQUIDITY AND CAPITAL RESOURCES


Three Months Ended Mar. 31,


2017

2016

(C$000s)

($)

($)

(unaudited)



Cash provided by (used in):




Operating activities

(33,089)

2,568


Financing activities

14,535

(87)


Investing activities

(9,010)

(17,406)


Effect of exchange rate changes on cash and cash equivalents

3,437

(12,159)

Decrease in cash and cash equivalents

(24,127)

(27,084)




OPERATING ACTIVITIES
The Company's cash used by operating activities for the three months ended March 31, 2017 was $33.1 million versus cash provided by operating activities of $2.6 million in the comparable period in 2016. The decrease was primarily due to working capital requiring $48.8 million of cash in the first quarter of 2017 compared to a contribution of $15.9 million in the comparable period in 2016. The decrease was partially offset by higher operating margins driven by better utilization in Canada and the United States. At March 31, 2017, Calfrac's working capital was approximately $278.8 million compared to $271.6 million at December 31, 2016.

FINANCING ACTIVITIES
Net cash provided by financing activities for the three months ended March 31, 2017 was $14.5 million compared to $0.1 million in the comparable period in 2016. During the quarter, the Company made draw downs on its revolving credit facilities totaling $15.0 million, issued $0.3 million in equity due to the exercise of stock options, paid down borrowings under its second lien term loan of $0.5 million, and made mortgage and lease payments of $0.3 million.

On December 6, 2016, Calfrac closed a bought deal private placement of 21,055,000 common shares for net proceeds of $56.6 million. Of the net proceeds from the offering, $25.0 million is held in a segregated account, which combined with the previous private placement completed in 2015, totaled $50.0 million at March 31, 2017. On April 3, 2017 the Company elected to use the first of its two fully-funded $25.0 million equity cures effective as of the quarter ending on June 30, 2017. The Company has one $25.0 million fully-funded equity cure remaining and may at its discretion elect to use such cure in respect of the quarter ending December 31, 2017 by providing notice of any such election to the lending syndicate at any time prior to the filing of its quarterly financial statements for such quarter on SEDAR.

On June 10, 2016, the Company closed a $200.0 million second lien senior secured term loan financing with Alberta Investment Management Corporation (AIMCo). The term loan matures on September 30, 2020 and bears interest at the rate of 9 percent annually and is payable quarterly. In addition, amortization payments equal to 1 percent of the original principal amount are payable annually in equal quarterly installments, with the balance due on the maturity date. In conjunction with the funding of the term loan, a total of 6,934,776 warrants to purchase common shares of the Company were issued to AIMCo, entitling it to acquire 6,934,776 common shares at a price of $4.14 per common share at any time prior to June 10, 2019. No amendments were made to the available commitment, term, covenants or interest rates payable under Calfrac's existing credit facilities as part of the required approvals for the term loan.

The Company's credit facilities mature on September 27, 2018 and can be extended by one or more years at the Company's request and lenders' acceptance. The Company also may prepay principal without penalty.

On December 11, 2015, Calfrac amended its credit facilities to provide increased financial flexibility. The amendment included a voluntary reduction in the total facility from $400.0 million to $300.0 million. The facilities consist of an operating facility of $30.0 million and a syndicated facility of $270.0 million. 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 0.50 percent to prime plus 3.50 percent. For LIBOR-based loans and bankers' acceptance-based loans, the margin thereon ranges from 1.50 percent to 4.50 percent above the respective base rates. The facility was amended to increase the $100.0 million accordion feature to $200.0 million. The accordion feature is not available to the Company during the covenant relief period described below and ending on December 31, 2017 and during this period the Company will incur interest at the high end of the ranges outlined above. Additionally, for the quarters ended December 31, 2016 through December 31, 2017, advances under the credit facilities will be 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 the purposes of 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.



As at March 31, 2017, the Company had used $1.9 million of its credit facilities for letters of credit and had $15.0 million of borrowings under its credit facilities, leaving $283.1 million in available liquidity under its credit facilities. As described above, the Company's credit facilities are subject to a monthly borrowing base calculation which could result in a lower liquidity amount.

The Company's credit facilities contain certain financial covenants. Weakened market conditions attributable to the significant reduction in the price of oil and natural gas have required many oil and gas service companies to seek covenant relief from their lenders. Calfrac negotiated amendments including waivers and increases to certain of its financial covenant thresholds prior to the end of the fourth quarter in 2015, as shown below.

Years ended December 31, except as indicated in notes below

2016

2017

Working capital ratio not to fall below

1.15x

1.15x

Funded Debt to Adjusted EBITDA not to exceed(1)(2)(3)

5.00x

  4.50x/4.00x

Funded Debt to Capitalization not to exceed(2)(4)

0.30x

0.30x

(1) Funded Debt to Adjusted EBITDA covenant is 4.50x for the quarters ended March 31, 2017 and June 30, 2017 and declines to 4.00x for the quarters ended September 30, 2017 and December 31, 2017 and is set at 3.00x for each quarter after December 31, 2017.

(2) Funded Debt is defined as Total Debt excluding all outstanding senior unsecured notes and the second lien senior secured term loan facility. Total Debt includes bank loans and long-term debt (before unamortized debt issuance costs and debt discount) plus outstanding letters of credit less cash on hand with lenders (excluding any cash held in a segregated account for the purposes of a potential equity cure).

(3) Adjusted EBITDA is defined as net income or loss for the period less interest, taxes, depreciation and amortization, non-cash stock-based compensation, non-controlling interest relating to Colombia, and gains and losses that are extraordinary or non-recurring.

(4) Capitalization is Total Debt plus Equity attributable to the shareholders of Calfrac.


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 December 31, 2017 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.



On December 6, 2016, Calfrac closed a bought deal private placement of 21,055,000 common shares for net proceeds of approximately $56.6 million. On December 22, 2015, Calfrac closed a bought deal private placement of 20,370,370 common shares for net proceeds of approximately $25.2 million. $50.0 million of the net proceeds from these offerings were held in a segregated account in accordance with the amended credit facilities pending an election to use them as an equity cure. On April 3, 2017 the Company elected to use the first of its two fully-funded $25.0 million equity cures effective as of the quarter ending on June 30, 2017. Throughout the period ending on December 31, 2017, amounts used as an equity cure will increase Adjusted EBITDA over the relevant twelve-month rolling period and will also serve to reduce Funded Debt. The funds that have been removed from the segregated account as an equity cure, as described above, were used to reduce outstanding indebtedness. When the remaining funds are removed from the segregated account, as an equity cure or otherwise, they are expected to be used to fund capital expenditures, to reduce outstanding indebtedness, and/or to be used for general working capital and corporate purposes.

As shown in the table below, at March 31, 2017, the Company was in compliance with the financial covenants associated with its credit facilities.


Covenant

Actual

As at March 31,

2017

2017

Working capital ratio not to fall below

1.15x

2.73x

Funded Debt to Adjusted EBITDA not to exceed

4.50x

N/A(1)

Funded Debt to Capitalization not to exceed

0.30x

-0.01x(1)

(1) Funded Debt was negative at March 31, 2017.


The indenture governing the senior unsecured notes, which is available on SEDAR, contains 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 indenture, 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, with the restricted payments regime commencing once internal financial statements are available which show that the ratio is not met on a pro forma basis for the most recently ended four fiscal quarter period; 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) attributable to the shareholders of Calfrac before depreciation, extraordinary gains or losses, unrealized foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, impairment of assets, restructuring charges, provision for settlement of litigation, stock-based compensation, interest, and income taxes.


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. As at March 31, 2017 this basket was not utilized. The indenture also restricts 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, including the incurrence of additional debt under credit facilities up to the greater of $175.0 million or 30 percent of the Company's consolidated tangible assets. At March 31, 2017, the Company was able to incur additional indebtedness in excess of $380 million pursuant to the aforementioned exception.

As at March 31, 2017, the Company's Fixed Charge Coverage Ratio of (0.16):1 was less than the required 2:1 ratio. Failing to meet the Fixed Charge Coverage Ratio is not an event of default under the indenture, and the baskets highlighted in the preceding paragraph provide sufficient flexibility for the Company to incur additional indebtedness and make anticipated restricted payments which may be required to conduct its operations during this period of weakened market conditions.

INVESTING ACTIVITIES
Calfrac's net cash used for investing activities was $9.0 million for the three months ended March 31, 2017 versus $17.4 million in the comparable period in 2016. Cash outflows relating to capital expenditures were $13.0 million during the first quarter in 2017 compared to $7.7 million in 2016. Capital expenditures were primarily to support the Company's North American fracturing operations.

Based on stronger demand for equipment than previously contemplated, Calfrac is increasing its 2017 capital budget to $45.0 million from $25.0 million, largely focused on the Company's North American fracturing operations.

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
The effect of changes in foreign exchange rates on the Company's cash and cash equivalents during the three months ended March 31, 2017 was a gain of $3.4 million versus a loss of $12.2 million during the comparable period in 2016. These gains and losses relate to cash and cash equivalents held by the Company in a foreign currency.

With its working capital position, available credit facilities and anticipated funds provided by operations, the Company expects to have adequate resources to fund its financial obligations and planned capital expenditures for 2017 and beyond.

At March 31, 2017, the Company had cash and cash equivalents of $85.8 million of which $50.0 million was held in a segregated account at the Company's discretion, so that it may be utilized if required in the calculation of Adjusted EBITDA for purposes of the Company's bank covenants. On April 3, 2017, the Company elected to use the first of its two fully-funded $25.0 million equity cures effective as of the quarter ending on June 30, 2017 and plans to use a portion of the funds to repay outstanding indebtedness with the remainder to be used for general working capital and corporate purposes.

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 stock option plan. The number of shares reserved for issuance under the stock option plan is equal to 10 percent of the Company's issued and outstanding common shares. As at April 21, 2017, there were 136,765,990 common shares issued and outstanding, 13,209,293 options to purchase common shares and 6,934,776 warrants to purchase common shares.

ADVISORIES
FORWARD-LOOKING STATEMENTS
In order to provide Calfrac shareholders and potential investors with information regarding the Company and its subsidiaries, including management's assessment of Calfrac's plans and future operations, certain statements contained in this press release, including statements that contain words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "forecast" or similar words suggesting future outcomes, are forward-looking statements.

In particular, forward-looking statements in this press release include, but are not limited to, statements with respect to expected operating strategies and targets, capital expenditure programs, future financial resources, use of funds held in the Company's segregated bank account (as an equity cure or otherwise), 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 indenture pursuant to which its senior notes were issued and its ability to raise capital, treatment under government regulatory regimes, commodity prices, anticipated outcomes of specific events (including exposure 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 focus of the Company's customers on increasing the use of 24-hour operations in North America, the effectiveness of cost reduction measures instituted by the Company, the effect unconventional gas projects have had on supply and demand fundamentals for natural gas 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: excess oilfield equipment levels; regional competition; the availability of capital on satisfactory terms; restrictions resulting from compliance with debt covenants and risk of acceleration of indebtedness; direct and indirect exposure to volatile credit markets, including credit rating risk; currency exchange rate risk; risks associated with foreign operations; 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; 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 and risks associated with prior operations; failure to maintain the Company's safety standards and record; failure to realize anticipated benefits of acquisitions and dispositions; the ability to integrate technological advances and match advances from competitors; intellectual property risks; sourcing, pricing and availability of raw materials, component parts, equipment, suppliers, facilities and skilled personnel; and the effect of accounting pronouncements issued periodically. 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 are 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 411 - 8th Avenue S.W., Calgary, Alberta, Canada, T2P 1E3, 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, 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 March 31,

2017

2016

(C$000s)

($)

($)

(unaudited)



Net loss

(19,593)

(55,396)

Add back (deduct):




Depreciation

31,955

35,594


Foreign exchange (gains) losses

(3,686)

18,182


Loss (gain) on disposal of property, plant and equipment

1,277

(227)


Interest

21,253

19,115


Income taxes

(10,811)

(28,891)

Operating income (loss)

20,395

(11,623)




Adjusted EBITDA is defined in the Company's credit facilities for covenant purposes as net income or loss for the period adjusted for interest, taxes, depreciation and amortization, non-cash stock-based compensation, non-controlling interest relating to Colombia, and gains and losses that are extraordinary or non-recurring. Adjusted EBITDA is presented because it is used in the calculation of the Company's bank covenants. Adjusted EBITDA for the period was calculated as follows:

Three Months Ended March 31,

2017

2016

(C$000s)



(unaudited)



Net loss

(19,593)

(55,396)

Add back (deduct):




Depreciation

31,955

35,594


Unrealized foreign exchange (gains) losses

(3,609)

19,783


Loss (gain) on disposal of property, plant and equipment

1,277

(227)


Provision for settlement of litigation

(139)


Restructuring charges

181

3,733


Stock-based compensation

1,024

383


Losses attributable to non-controlling interest

46

23


Interest

21,253

19,115


Income taxes

(10,811)

(28,891)

Adjusted EBITDA

21,584

(5,883)




ADDITIONAL INFORMATION
Further information regarding Calfrac Well Services Ltd., including the most recently filed Annual Information Form, can be accessed on the Company's website at www.calfrac.com or under the Company's public filings found at www.sedar.com.  

FIRST QUARTER CONFERENCE CALL
Calfrac will be conducting a conference call for interested analysts, brokers, investors and news media representatives to review its 2017 first quarter results at 10:00 a.m. (Mountain Time) on Wednesday, April 26, 2017. 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 2315390). A webcast of the conference call may be accessed via the Company's website at www.calfrac.com.

CONSOLIDATED BALANCE SHEETS


March 31,

December 31,

As at

2017

2016

(C$000s) (unaudited)

($)

($)

ASSETS



Current assets




Cash and cash equivalents (note 1)

85,790

109,917


Accounts receivable

228,941

158,709


Income taxes recoverable

3,120

3,715


Inventories

108,426

99,601


Prepaid expenses and deposits

18,134

16,992


444,411

388,934

Non-current assets




Property, plant and equipment

1,129,978

1,153,882


Deferred income tax assets

75,716

70,188

Total assets

1,650,105

1,613,004

LIABILITIES AND EQUITY



Current liabilities




Accounts payable and accrued liabilities

162,865

114,529


Current portion of long-term debt (note 2)

2,518

2,520


Current portion of finance lease obligations

210

304


165,593

117,353

Non-current liabilities




Long-term debt (note 2)

992,181

984,062


Deferred income tax liabilities

6,879

14,131

Total liabilities

1,164,653

1,115,546

Equity attributable to the shareholders of Calfrac



Capital stock (note 3)

466,777

466,445

Contributed surplus

36,993

36,040

Loan receivable for purchase of common shares

(2,500)

(2,500)

Retained earnings (deficit)

(4,218)

15,329

Accumulated other comprehensive loss

(2,426)

(8,736)


494,626

506,578

Non-controlling interest

(9,174)

(9,120)

Total equity

485,452

497,458

Total liabilities and equity

1,650,105

1,613,004

Commitments (note 5); Contingencies (note 7)

See accompanying notes to the consolidated financial statements.


 

CONSOLIDATED STATEMENTS OF OPERATIONS 

Three Months Ended March 31,

2017

2016

(C$000s, except per share data) (unaudited)

($)

($)

Revenue

268,815

216,138

Cost of sales

269,630

246,690

Gross loss

(815)

(30,552)

Expenses




Selling, general and administrative

10,745

16,665


Foreign exchange (gains) losses

(3,686)

18,182


Loss (gain) on disposal of property, plant and equipment

1,277

(227)


Interest

21,253

19,115


29,589

53,735

Loss before income tax

(30,404)

(84,287)

Income tax expense (recovery)




Current

836

809


Deferred

(11,647)

(29,700)


(10,811)

(28,891)

Net loss

(19,593)

(55,396)




Net loss attributable to:




Shareholders of Calfrac

(19,547)

(54,071)


Non-controlling interest

(46)

(1,325)


(19,593)

(55,396)




Loss per share (note 3)




Basic

(0.14)

(0.47)


Diluted

(0.14)

(0.47)

See accompanying notes to the consolidated financial statements.


 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Three Months Ended March 31,

2017

2016

(C$000s) (unaudited)

($)

($)

Net loss

(19,593)

(55,396)

Other comprehensive income (loss)



Items that may be subsequently reclassified to profit or loss:




Change in foreign currency translation adjustment

6,302

7,759

Comprehensive loss

(13,291)

(47,637)

Comprehensive loss attributable to:




Shareholders of Calfrac

(13,237)

(46,518)


Non-controlling interest

(54)

(1,119)


(13,291)

(47,637)

See accompanying notes to the consolidated financial statements.


 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


Equity Attributable to the Shareholders of Calfrac




Share
Capital

Contributed Surplus

Loan
Receivable
for Purchase
of Common Shares

Accumulated
Other
Comprehensive
Income (Loss)

Retained
Earnings (Deficit)

Total

Non-
Controlling Interest

Total Equity

(C$000s) (unaudited)

($)

($)

($)

($)

($)

($)

($)

($)

Balance – Jan. 1, 2017

466,445

36,040

(2,500)

(8,736)

15,329

506,578

(9,120)

497,458

Net loss

(19,547)

(19,547)

(46)

(19,593)

Other comprehensive income:










Cumulative translation adjustment

6,310

6,310

(8)

6,302

Comprehensive income (loss)

6,310

(19,547)

(13,237)

(54)

(13,291)

Stock options:










Stock-based compensation recognized (note 4)

1,024

1,024

1,024


Proceeds from issuance of shares

332

(71)

261

261

Balance – Mar. 31, 2017

466,777

36,993

(2,500)

(2,426)

(4,218)

494,626

(9,174)

485,452

Balance – Jan. 1, 2016

409,809

27,849

(2,500)

(21,054)

213,426

627,530

(3,811)

623,719

Net loss

(54,071)

(54,071)

(1,325)

(55,396)

Other comprehensive income:










Cumulative translation adjustment

7,553

7,553

206

7,759

Comprehensive income (loss)

7,553

(54,071)

(46,518)

(1,119)

(47,637)

Stock options:










Stock-based compensation recognized (note 4)

383

383

383

Balance – Mar. 31, 2016

409,809

28,232

(2,500)

(13,501)

159,355

581,395

(4,930)

576,465

See accompanying notes to the consolidated financial statements.


 

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

2017

2016

(C$000s) (unaudited)

($)

($)

CASH FLOWS PROVIDED BY (USED IN)



OPERATING ACTIVITIES




Net loss

(19,593)

(55,396)


Adjusted for the following:





Depreciation

31,955

35,594



Stock-based compensation

1,024

383



Unrealized foreign exchange (gains) losses

(3,609)

19,783



Loss (gain) on disposal of property, plant and equipment

1,277

(227)



Interest

21,253

19,115



Deferred income taxes

(11,647)

(29,700)



Interest paid

(4,920)

(2,913)



Changes in items of working capital

(48,829)

15,929

Cash flows (used in) provided by operating activities

(33,089)

2,568

FINANCING ACTIVITIES




Bank loan proceeds

4,977


Issuance of long-term debt, net of debt issuance costs

15,000


Bank loan repayments

(2,994)


Long-term debt repayments

(627)

(173)


Finance lease obligation repayments

(99)

(91)


Net proceeds on issuance of common shares (note 3)

261


Dividends paid (note 3)

(1,806)

Cash flows provided by (used in) financing activities

14,535

(87)

INVESTING ACTIVITIES




Purchase of property, plant and equipment

(10,383)

(17,770)


Proceeds on disposal of property, plant and equipment

1,373

364

Cash flows used in investing activities

(9,010)

(17,406)

Effect of exchange rate changes on cash and cash equivalents

3,437

(12,159)

Decrease in cash and cash equivalents

(24,127)

(27,084)

Cash and cash equivalents, beginning of period

109,917

124,005

Cash and cash equivalents, end of period (note 1)

85,790

96,921

See accompanying notes to the consolidated financial statements.


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at and for the three months ended March 31, 2017 and 2016
(Amounts in text and tables are in thousands of Canadian dollars, except share data and certain other exceptions as indicated)

1.  CASH AND CASH EQUIVALENTS
On December 6, 2016, the Company received net proceeds of $56,636 from a private placement offering of common shares. Another $25,194 of net proceeds was received from a private placement offering of common shares on December 22, 2015. Both of these transactions are described in further detail in note 3.

As at March 31, 2017, $50,000 of the net proceeds from these private placements were held in a segregated account. These funds are available for use at the Company's discretion and this amount can be transferred to its operating bank account at any time. The Company can also elect to use the proceeds as an equity cure. When the proceeds are utilized as an equity cure, the funds are transferred to the Company's operating bank account and are available for use at the Company's discretion. In addition, the proceeds are applied as a reduction of Funded Debt and are included in the calculation of EBITDA for purposes of the Company's Funded Debt to EBITDA bank covenant.

On April 3, 2017, the Company elected to use the first of its two fully-funded $25,000 equity cures effective as of the quarter ending on June 30, 2017. The funds are expected to be used to reduce outstanding indebtedness and for general working capital and corporate purposes.

2.  LONG-TERM DEBT


March 31,

December 31,

As at

2017

2016

(C$000s)

($)

($)

US$600,000 senior unsecured notes due December 1, 2020, bearing interest at 7.50% payable semi-annually

797,940

805,620

$200,000 second lien senior secured term loan facility due September 30, 2020, bearing interest at 9% payable quarterly, secured by the Canadian and U.S. assets of the Company on a second priority basis

198,500

199,000

$270,000 extendible revolving term loan facility, secured by Canadian and U.S. assets of the Company

15,000

Less: unamortized debt issuance costs

(17,305)

(18,736)


994,135

985,884

US$424 mortgage maturing May 2018 bearing interest at U.S. prime less 1%, repayable at US$33 per month principal and interest, secured by certain real property

564

698


994,699

986,582

Less: current portion of long-term debt

(2,518)

(2,520)


992,181

984,062




The fair value of the senior unsecured notes, as measured based on the closing quoted market price at March 31, 2017, was $724,131 (December 31, 2016 – $702,903). The carrying values of the mortgage obligation, revolving term loan facilities and the second lien term loan approximate their fair values as the interest rates are not significantly different from current interest rates for similar loans.

On June 10, 2016, the Company entered into a $200,000 second lien senior secured term loan facility. The term loan matures on September 30, 2020, and bears interest at 9 percent per annum, payable quarterly. Amortization payments equal to 1 percent of the original principal amount are payable annually, in equal quarterly installments, with the balance due on the final maturity date. The proceeds from the term loan were made available in a single draw, and amounts borrowed under the term loan that are repaid or prepaid are not available for re-borrowing. The term loan is secured by the Canadian and U.S. assets of the Company on a second priority basis, subordinate only to the revolving term loan facility.

The interest rate on the $270,000 revolving term loan facility is based on the parameters of certain bank covenants. For prime-based loans, the rate ranges from prime plus 0.50 percent to prime plus 3.50 percent. For LIBOR-based loans and bankers' acceptance-based loans the margin thereon ranges from 1.50 percent to 4.50 percent above the respective base rates for such loans. The facility is repayable on or before its maturity of September 27, 2018, assuming it is not extended. The maturity may be extended by one or more years at the Company's request and lenders' acceptance. The Company may also prepay principal without penalty. Debt issuance costs related to this facility are amortized over its term.

Interest on long-term debt (including the amortization of debt issuance costs and debt discount) for the three months ended March 31, 2017 was $21,343 (three months ended March 31, 2016$17,971).

The Company also has an extendible operating loan facility, which includes overdraft protection in the amount of $30,000. The interest rate is based on the parameters of certain bank covenants in the same fashion as the revolving term facility. Drawdowns under this facility are repayable on September 27, 2018, assuming the facility is not extended. The term and commencement of principal repayments may be extended by one year on each anniversary at the Company's request and lenders' acceptance. The revolving term loan and operating facilities are secured by the Company's Canadian and U.S. assets.

At March 31, 2017, the Company had utilized $1,893 of its loan facility for letters of credit and had $15,000 outstanding under its revolving term loan facility, leaving $283,107 in available credit, subject to a monthly borrowing base calculation, which could result in a lower amount of available credit.

See note 6 for further details on the covenants in respect of the Company's long-term debt.

3.  CAPITAL STOCK
Authorized capital stock consists of an unlimited number of common shares.


Three Months Ended

Year Ended


March 31, 2017

December 31, 2016

Continuity of Common Shares

Shares

Amount

Shares

Amount


(#)

($000s)

(#)

($000s)

Balance, beginning of period

136,634,590

466,445

115,579,598

409,809

Issued upon exercise of stock options

131,400

332

Shares from private placements

21,055,000

56,636

Shares cancelled

(8)

Balance, end of period

136,765,990

466,777

136,634,590

466,445






The weighted average number of common shares outstanding for the three months ended March 31, 2017 was 136,557,951 basic and 138,460,075 diluted (three months ended March 31, 2016 – 115,410,398 basic and 115,579,598 diluted). The difference between basic and diluted shares is attributable to the dilutive effect of stock options and warrants issued by the Company as disclosed in note 4.

On December 6, 2016, the Company closed a bought deal private placement of 21,055,000 common shares for total gross proceeds of $60,007. Share issuance costs for the transaction were $3,371, resulting in net proceeds of $56,636. On December 22, 2015, the Company closed a bought deal private placement of 20,370,370 common shares for total gross proceeds of $27,500. Share issuance costs for the transaction were $2,306, resulting in net proceeds of $25,194.

A dividend of $0.015625 per common share, totalling $1,806, was declared on December 4, 2015 and paid on January 15, 2016.

During 2016, eight common shares were returned to the Company for cancellation. For accounting purposes, the cancellation of these shares was recorded as a reduction of capital stock in the amount of twenty-eight dollars, along with a corresponding increase to contributed surplus.

4.  SHARE-BASED PAYMENTS
(a)     Stock Options

Three Months Ended March 31,

2017

2016

Continuity of Stock Options

Options

Average
Exercise Price

Options

Average Exercise
Price


(#)

($)

(#)

($)

Balance, January 1

7,246,386

6.62

8,229,947

7.81


Granted during the period

3,968,900

4.81

260,500

1.39


Exercised for common shares

(131,400)

1.99


Forfeited

(536,661)

8.71

(563,860)

11.65


Expired

(32,000)

15.31

(7,000)

16.59

Balance, March 31

10,515,225

5.86

7,919,587

7.31






Stock options vest equally over four years and expire five years from the date of grant. The exercise price of outstanding options range from $1.34 to $20.81 with a weighted average remaining life of 3.61 years. When stock options are exercised, the proceeds together with the compensation expense previously recorded in contributed surplus, are added to capital stock.

(b)     Share Units

Three Months Ended March 31,

2017

2016

Continuity of Stock Units

Deferred Share
Units

Performance
Share Units

Restricted
Share Units

Deferred Share
Units

Performance
Share Units

Restricted
Share Units


(#)

(#)

(#)

(#)

(#)

(#)

Balance, January 1

145,000

639,330

2,757,850

72,500

238,995

812,828


Granted during the period

145,000

124,000

2,306,900

145,000

500,000

2,309,550


Exercised

(145,000)

(72,500)


Forfeited

(79,665)

(510,834)

(99,665)

(152,360)

Balance, March 31

145,000

683,665

4,553,916

145,000

639,330

2,970,018








Three Months Ended March 31,





2017

2016






($)

($)

Expense (recovery) from:








Stock options





1,024

383


Deferred share units





160

49


Performance share units





(995)

(197)


Restricted share units





(2,468)

65

Total stock-based compensation expense





(2,279)

300








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 in November of the year of grant and are settled either in cash (equal to the market value of the underlying shares at the time of exercise) or in Company shares purchased on the open market. The fair value of the deferred share units is recognized equally over the vesting period, based on the current market price of the Company's shares. At March 31, 2017, the liability pertaining to deferred share units was $128 (December 31, 2016 – $690).

The Company grants performance share units to a senior officer. The amount of the grants earned is linked to corporate performance and the grants vest on the approval of the Board of Directors at the meeting held to approve the consolidated financial statements for the year in respect of which performance is being evaluated. As with the deferred share units, performance share units are settled either in cash or Company shares purchased on the open market. At March 31, 2017, the liability pertaining to performance share units was $565 (December 31, 2016 – $1,560). The recovery of expense of $995 related to performance share units for the three months ended March 31, 2017 reflects the fact that given the challenging market conditions, the Board of Directors has determined that these units will not vest.

The Company grants restricted share units to its employees. These units vest over three years 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 restricted share units is recognized over the vesting period, based on the current market price of the Company's shares. At March 31, 2017, the liability pertaining to restricted share units was $2,526 (December 31, 2016 – $4,995). The recovery of expense of $2,468 related to restricted share units for the three months ended March 31, 2017 reflects the fact that the financial thresholds for vesting such units are not expected to be met.

Changes in the Company's obligations under the deferred, performance and restricted 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 second lien senior secured term loan facility as disclosed in note 2, 6,934,776 warrants to purchase common shares of the Company were issued during 2016, entitling the holder to acquire up to 6,934,776 common shares at a price of $4.14 per common share. The warrants expire on June 10, 2019 and can be exercised at any time prior to such date. The fair value of the warrants issued was estimated using a Black-Scholes pricing model, in the amount of $5,830 and accounted for as a deferred finance cost during 2016. To date, no warrants have been exercised.

5.  COMMITMENTS
The Company has a contractual obligation with one of its major product suppliers, which includes an annual minimum purchase commitment through the end of 2017. During 2016, the Company did not meet its annual purchase commitment, but it has recently signed a non-binding letter of intent with the supplier which sets forth the principal terms of the proposed arrangements to amend the contractual obligations and extend the fulfilment of the 2016 annual expenditure commitment to future years, and the parties are in the process of finalizing definitive documentation to implement these arrangements. Given the status of the ongoing negotiations, no provision has been recorded in the Company's financial statements. The maximum exposure related to the 2016 shortfall is $15,375.

6.  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 paid to shareholders, issue new shares or new debt or repay existing debt.

The Company monitors its capital structure and financing requirements using, amongst other parameters, the ratio of net debt to operating income. Operating income for this purpose is calculated on a 12-month trailing basis and is defined as follows:


March 31,

December 31,

For the Twelve Months Ended

2017

2016

(C$000s)

($)

($)

Net loss

(167,754)

(203,557)

Adjusted for the following:




Depreciation

149,183

152,822


Foreign exchange (gains) losses

(2,549)

19,319


Loss (gain) on disposal of property, plant and equipment

1,013

(491)


Impairment of inventory

3,225

3,225


Interest

82,248

80,110


Income taxes

(91,552)

(109,632)

Operating loss

(26,186)

(58,204)




Net debt for this purpose is calculated as follows:


March 31,

December 31,

As at

2017

2016

(C$000s)

($)

($)

Long-term debt, net of debt issuance costs and debt discount (note 2)

994,699

986,582

Finance lease obligation

210

304

Less: cash and cash equivalents

(85,790)

(109,917)

Net debt

909,119

876,969




The ratio of net debt to operating income does not have a standardized meaning under IFRS and may not be comparable to similar measures used by other companies.

At March 31, 2017, the net debt to operating income ratio was (34.72):1 (December 31, 2016 – (15.07):1) calculated on a 12-month trailing basis as follows:


March 31,

December 31,


2017

2016

(C$000s, except ratio)

($)

($)

Net debt

909,119

876,969

Operating loss

(26,186)

(58,204)

Net debt to operating income ratio

(34.72):1

(15.07):1




The Company's net debt to operating income ratio of (34.72):1 reflects the fact that the Company incurred an operating loss for the twelve months ended March 31, 2017.

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. Prior to the end of the fourth quarter of 2015, the Company negotiated amendments including waivers and increases to certain of its financial covenant thresholds pertaining to its credit facilities, as shown below. At March 31, 2017 and December 31, 2016, the Company was in compliance with its covenants with respect to its credit facilities.

Years Ended December 31, except as indicated in notes below

2016

2017

Working capital ratio not to fall below

1.15x

1.15x

Funded Debt to Adjusted EBITDA not to exceed(1)(2)(3)

5.00x

   4.50x/4.00x

Funded Debt to Capitalization not to exceed(2)(4)

0.30x

0.30x

(1) Funded Debt to Adjusted EBITDA covenant is 4.50x for the quarters ended March 31, 2017 and June 30, 2017 and declines to 4.00x for the quarters ended September 30, 2017 and December 31, 2017 and is set at 3.00x for each quarter after December 31, 2017.

(2) Funded Debt is defined as Total Debt excluding all outstanding senior unsecured notes and the second lien senior secured term loan facility. Total Debt includes bank loans and long-term debt (before unamortized debt issuance costs and debt discount) plus outstanding letters of credit less cash on hand with lenders (excluding any cash held in a segregated account for the purposes of a potential equity cure).

(3) Adjusted EBITDA is defined as net income or loss for the period less interest, taxes, depreciation and amortization, non-cash stock-based compensation, non-controlling interest relating to Colombia, and gains and losses that are extraordinary or non-recurring.

(4) Capitalization is Total Debt plus Equity attributable to the shareholders of Calfrac.


For the quarter ended December 31, 2015 through the quarter ended December 31, 2017, advances under the credit facilities will be 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 the purposes of 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.



For the quarter ended December 31, 2015 through the quarter ended December 31, 2017, distributions are restricted other than those relating to the Company's share unit plans and dividend distributions, provided that the rate of dividends must not exceed $0.015625 per share quarterly.

The indenture governing the senior unsecured notes contains 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) attributable to the shareholders of Calfrac before depreciation, extraordinary gains or losses, unrealized foreign exchange gains or losses, gains or losses on disposal of property, plant and equipment, impairment of assets, restructuring charges, provision for settlement of litigation, stock-based compensation, interest, and income taxes.


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. As at March 31, 2017, this basket was not utilized.

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 $175,000 or 30 percent of the Company's consolidated tangible assets. At March 31, 2017, the Company was able to incur additional indebtedness in excess of $380,000 pursuant to the aforementioned exception.

As at March 31, 2017, the Company's Fixed Charge Coverage Ratio of (0.16):1 was less than the required 2:1 ratio. Failing to meet the Fixed Charge Coverage Ratio is not an event of default under the indenture, and the baskets highlighted in the preceding paragraphs provide sufficient flexibility for the Company to make anticipated restricted payments, such as dividends, and incur additional indebtedness as required to conduct its operations and satisfy its obligations during this period of weakened market conditions.

The Company has measures in place to ensure that it has sufficient liquidity to navigate the cyclical nature of the oilfield services sector and safeguard the Company's ability to continue as a going concern. As discussed above, the Company negotiated amendments to its credit facilities to provide increased financial flexibility. These amendments include an "Equity Cure" feature pursuant to which 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 December 31, 2017, 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.



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.

On April 3, 2017, the Company elected to use the first of its two fully-funded $25,000 equity cures effective as of the quarter ending on June 30, 2017. The funds are expected to be used to reduce outstanding indebtedness and for general working capital and corporate purposes.

7.  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 $9,714 (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 has been 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.  Oppositions have been filed on behalf of the Company in respect of each of these orders which oppose the orders on the basis that they were improperly issued and are barred from a statute of limitations perspective. The salaries in arrears sought to be recovered through these orders are part of the $9,714 (6,846 euros) cited above and the interest being sought in respect of these orders is part of the $24,439 (17,224 euros) cited below. Provisional orders granting a temporary suspension of any enforcement proceedings have been granted in respect of all of the orders that have been served. The order served on March 24, 2015 was heard on November 24, 2015 and a decision was issued on November 25, 2016 accepting the Company's opposition on the basis that no lawful service of Judgment No 4528/2008 had taken place until the filing of the opponents' petition and/or the issuance of the payment order. The plaintiffs have filed an appeal against the above decision which has been scheduled to be heard on October 16, 2018. A hearing in respect of the order served on November 23, 2015 was adjourned until October 31, 2018. A hearing in respect of the orders served in December of 2015 scheduled for September 20, 2016 was adjourned until November 21, 2016 and two decisions were issued on January 9, 2017 accepting the Company's oppositions on a statute of limitations basis. The plaintiffs have filed appeals against the above decisions, which are scheduled to be heard on October 16, 2018.

NAPC is also the subject of a claim for approximately $4,061 (2,862 euros) plus associated penalties and interest from the Greek social security agency for social security obligations associated with the salaries in arrears that are the subject of the above-mentioned decision.

The maximum aggregate interest and penalties payable under the claims noted above, as well as three other immaterial claims against NAPC totaling $820 (578 euros), amounted to $24,439 (17,224 euros) as at March 31, 2017.

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.

8.  SEGMENTED INFORMATION
The Company's activities are conducted in four geographical segments: Canada, the United States, Russia and Latin America (comprised of Argentina and Mexico). 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

Latin America

Corporate

Consolidated

(C$000s)

($)

($)

($)

($)

($)

($)

Three Months Ended March 31, 2017







Revenue(2)

111,018

98,043

27,727

32,027

268,815

Operating income (loss)(1)

12,443

9,999

(125)

2,223

(4,145)

20,395

Segmented assets(3)

632,729

742,579

115,309

159,488

1,650,105

Capital expenditures

4,139

7,687

149

990

12,965








Three Months Ended March 31, 2016







Revenue(2)

72,721

75,985

22,723

44,709

216,138

Operating income (loss)(1)

253

(12,238)

809

6,868

(7,315)

(11,623)

Segmented assets(3)

641,957

755,420

90,494

170,462

1,658,333

Capital expenditures

(5,752)

10,846

637

1,992

7,723

(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, interest, and income taxes.

(2) Argentina's revenue for the three months ended March 31, 2017 and 2016 was $30,549 or 11% of consolidated revenue and $40,124 or 19% of consolidated revenue, respectively.

(3) Argentina's assets as at March 31, 2017 and 2016 were $149,528 or 9% of consolidated assets and $146,820 or 9% of consolidated assets, respectively.

 

Three Months Ended March 31,

2017

2016

(C$000s)

($)

($)

Net loss

(19,593)

(55,396)

Add back (deduct):




Depreciation

31,955

35,594


Foreign exchange (gains) losses

(3,686)

18,182


Loss (gain) on disposal of property, plant and equipment

1,277

(227)


Interest

21,253

19,115


Income taxes

(10,811)

(28,891)

Operating income (loss)

20,395

(11,623)




Operating income (loss) does not have a standardized meaning under IFRS and may not be comparable to similar measures used by other companies.

The following table sets forth consolidated revenue by service line:

Three Months Ended March 31,

2017

2016

(C$000s)

($)

($)

Fracturing

236,226

182,004

Coiled tubing

20,359

18,869

Cementing

8,553

10,069

Other

3,677

5,196


268,815

216,138


 

SOURCE Calfrac Well Services Ltd.

For further information: Fernando Aguilar, President & Chief Executive Officer; Mike Olinek, Chief Financial Officer; Scott Treadwell, VP Capital Markets & Strategy; Telephone: 403-266-6000, Fax: 403-266-7381, www.calfrac.com