CEO’S MESSAGE
Calfrac’s financial results were lower than the same period last year primarily due to lower utilization in North America as several customers in the Rockies region chose to defer work out of the winter months into subsequent quarters. Low natural gas prices also contributed to the reduction in completions activity across the industry. As a result, Calfrac idled two fracturing fleets in North America during the first quarter and will only reactivate fleets at pricing levels that generate an adequate return on capital. The Company continued to safely and efficiently execute during the first quarter and reduced its trailing twelve-month Total Recordable Injury Frequency (“TRIF”) from 1.05, as it exited 2023, to 0.87 as of March 31, 2024, which was the lowest in recent history.
Calfrac’s Chief Executive Officer, Pat Powell commented: “I want to commend the Calfrac team for demonstrating their commitment to safe and efficient operations throughout the first quarter. I am looking forward to the remainder of the year as we expect strong utilization in North America and Argentina to drive strong returns for our shareholders.”
SELECT FINANCIAL HIGHLIGHTS – CONTINUING OPERATIONS
| Three Months Ended Mar. 31, |
||||||
| 2024 | 2023 | Change | ||||
| (C$000s, except per share amounts) | ($) | ($) | (%) | |||
| (unaudited) | ||||||
| Revenue | 330,096 | 493,323 | (33 | ) | ||
| Adjusted EBITDA(1) | 26,057 | 83,794 | (69 | ) | ||
| Consolidated cash flows provided by operating activities | 3,773 | 40,894 | (91 | ) | ||
| Capital expenditures | 48,072 | 34,474 | 39 | |||
| Net (loss) income | (2,903 | ) | 36,313 | (108 | ) | |
| Per share – basic | (0.03 | ) | 0.45 | (107 | ) | |
| Per share – diluted | (0.03 | ) | 0.41 | (107 | ) | |
| As at | Mar. 31, | Dec. 31, | Change | |||
| 2024 | 2023 | |||||
| (C$000s) | ($) | ($) | (%) | |||
| (unaudited) | ||||||
| Cash and cash equivalents | 58,239 | 34,140 | 71 | |||
| Working capital, end of period | 273,712 | 236,392 | 16 | |||
| Total assets, end of period | 1,166,363 | 1,126,197 | 4 | |||
| Long-term debt, end of period | 314,948 | 250,777 | 26 | |||
| Net debt(2) | 280,677 | 241,065 | 16 | |||
| Total consolidated equity, end of period | 623,743 | 615,903 | 1 |
(1) Refer to “Non-GAAP Measures” on page 6 for further information.
(2)Â Refer to note 10 of the consolidated interim financial statements for further information.
During the quarter, Calfrac:
- generated revenue of $330.1 million, a decrease of 33 percent from the first quarter in 2023 resulting primarily from reduced activity in North America offset partially by higher activity in Argentina;
- reported Adjusted EBITDA of $26.1 million versus $83.8 million in the first quarter of 2023;
- reported a net loss from continuing operations of $2.9 million or $0.03 per share diluted compared to net income of $36.3 million or $0.41 per share diluted during the first quarter in 2023;
- idled two fracturing fleets in North America in response to lower activity due to the impact of lower natural gas prices and the deferral of customer work programs in the Rockies region into subsequent quarters;
- disposed of a non-core real estate asset in North America for net proceeds of $11.4 million which generated a gain on sale of $5.9 million;
- had a cash position of $58.2 million of which approximately 60 percent was held in Argentina. The Argentina cash balance includes an investment of US$18.0 million in Argentinean government bonds (Bopreal Bonds) that will allow for the repatriation of cash to Canada beginning in July 2024 over a 12-month period;
- reported an increase in period-end working capital to $273.7 million from $236.4 million at December 31, 2023, primarily due to the investment in Bopreal Bonds and higher inventory requirements; and
- incurred capital expenditures of $48.1 million, which included approximately $28.4 million related to the Company’s fracturing fleet modernization program.
FINANCIAL OVERVIEW – CONTINUING OPERATIONS
THREE MONTHS ENDEDÂ MARCHÂ 31, 2024Â VERSUSÂ 2023
NORTH AMERICA
| Three Months Ended Mar. 31, |
||||||
| 2024 | 2023 | Change | ||||
| (C$000s, except operational and exchange rate information) | ($) | ($) | (%) | |||
| (unaudited) | ||||||
| Revenue | 248,959 | 413,047 | (40 | ) | ||
| Adjusted EBITDA(1) | 14,872 | 76,487 | (81 | ) | ||
| Adjusted EBITDA (%) | 6.0 | 18.5 | (68 | ) | ||
| Fracturing revenue per job ($) | 33,518 | 43,237 | (22 | ) | ||
| Number of fracturing jobs | 7,176 | 9,223 | (22 | ) | ||
| Active pumping horsepower, end of year (000s) | 951 | 1,017 | (6 | ) | ||
| US$/C$ average exchange rate(2) | 1.3486 | 1.3526 | — | |||
(1) Refer to “Non-GAAP Measures” on page 6 for further information.
(2)Â Source: Bank of Canada.
OUTLOOK
Activity has significantly improved in the second quarter with the Company currently operating 12 fracturing fleets and anticipating high utilization of these crews and its six coiled tubing units across North America for the remainder of the year. Utilization in North America was impacted by typical spring break-up conditions to begin the quarter, but has subsequently built significant momentum which the Company expects to carry through the third quarter and into the fourth quarter. Pricing has stabilized lower in certain operating regions, due to the decline in natural gas-related activity, and is expected to remain at these levels to the end of 2024.
The Company continues to make progress on its strategic priorities by deploying additional Tier IV Dynamic Gas Blending (“DGB”) fracturing pumps in North America as well as divesting of a non-core property for net proceeds of $11.4 million. With its revised capital program, Calfrac expects to operate up to five next-generation fleets in North America by the end of the year.
THREE MONTHS ENDED MARCH 31, 2024 COMPARED TO THREE MONTHS ENDED MARCH 31, 2023
REVENUE
Revenue from Calfrac’s North American operations decreased to $249.0 million during the first quarter of 2024 from $413.0 million in the comparable quarter of 2023. The significant reduction in first-quarter activity and financial performance was mainly due to a slower than expected start to the year as planned completion programs in the Rockies region were deferred until later in the year combined with the impact of the year-over-year decline in natural gas prices. As a result, Calfrac idled two fracturing fleets in February and operated an average of 10 crews in North America during the first quarter in 2024 compared to 15 fleets in the comparable quarter of 2023. In addition, an increase in activity where its customer provides the sand, as well as pricing pressure in the United States, contributed to the 22 percent decrease in average revenue per job in the first quarter of 2024 versus the same quarter in 2023. Coiled tubing revenue decreased by 40 percent as compared to the first quarter in 2023 mainly due to lower utilization of Calfrac’s six deep coiled tubing units combined with a decrease in job size.
ADJUSTED EBITDA
The Company’s operations in North America generated Adjusted EBITDA of $14.9 million or 6 percent of revenue during the first quarter of 2024 compared to $76.5 million or 19 percent of revenue in the same period in 2023. This decrease was due primarily to the significant decline in fracturing fleet utilization combined with slightly lower pricing relative to the same period in 2023.
ARGENTINA
| Three Months Ended Mar. 31, |
||||||
| 2024 | 2023 | Change | ||||
| (C$000s, except operational and exchange rate information) | ($) | ($) | (%) | |||
| (unaudited) | ||||||
| Revenue | 81,137 | 80,276 | 1 | |||
| Adjusted EBITDA(1) | 16,100 | 11,540 | 40 | |||
| Adjusted EBITDA (%) | 19.8 | 14.4 | 38 | |||
| Fracturing revenue per job ($) | 74,354 | 88,174 | (16 | ) | ||
| Number of fracturing jobs | 672 | 555 | 21 | |||
| Active pumping horsepower, end of period (000s) | 139 | 139 | — | |||
| US$/C$ average exchange rate(2) | 1.3486 | 1.3526 | — | |||
(1) Refer to “Non-GAAP Measures” on page 6 for further information.
(2)Â Source: Bank of Canada.
OUTLOOK
Calfrac’s Argentinean operations leveraged high utilization with superior service quality to generate a divisional record for first-quarter Adjusted EBITDA of $16.1 million. During the quarter, this division also set a record for hours pumped in a day, while establishing a new country standard for lowest trailing twelve-month TRIF of 0.42 at quarter end. Calfrac expects to maintain this momentum throughout 2024 across all three service lines as operators seek to execute on their development plans. As government leaders in Argentina implement new economic reforms and encourage additional domestic oil and gas development, Calfrac expects to capitalize on future opportunities to improve its operating and financial performance.
THREE MONTHS ENDED MARCH 31, 2024 COMPARED TO THREE MONTHS ENDED MARCH 31, 2023
REVENUE
Calfrac’s Argentinean operations generated revenue of $81.1 million during the first quarter of 2024 versus $80.3 million in the comparable quarter in 2023 as the Company maintained strong activity across all service lines. The slight increase in revenue was due to improved job mix for its fracturing service line. Coiled tubing and cementing revenue were consistent with the comparable quarter in 2023.
ADJUSTED EBITDA
The Company’s operations in Argentina generated Adjusted EBITDA of $16.1 million during the first quarter of 2024 compared to $11.5 million in the same quarter of 2023, while the Company’s Adjusted EBITDA margins also improved to 20 percent from 14 percent. This increase was primarily due to job mix in the Vaca Muerta shale play relative to the comparable period in 2023.
SUMMARY OF QUARTERLY RESULTS – CONTINUING OPERATIONS
| Three Months Ended | Jun. 30, | Sep. 30, | Dec. 31, | Mar. 31, | Jun. 30, | Sep. 30, | Dec. 31, | Mar. 31, | ||||||||
| 2022 | 2022 | 2022 | 2023 | 2023 | 2023 | 2023 | 2024 | |||||||||
| (C$000s, except per share and operating data) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||
| (unaudited) | Revised (1) | Revised (1) | ||||||||||||||
| Financial | ||||||||||||||||
| Revenue | 318,511 | 438,338 | 447,847 | 493,323 | 466,463 | 483,093 | 421,402 | 330,096 | ||||||||
| Adjusted EBITDA(1)(2)(3) | 40,734 | 94,289 | 75,954 | 83,794 | 87,785 | 91,286 | 62,591 | 26,057 | ||||||||
| Net income (loss) | (6,776 | ) | 45,352 | 14,757 | 36,313 | 50,531 | 97,523 | 13,202 | (2,903 | ) | ||||||
| Per share – basic | (0.18 | ) | 1.15 | 0.27 | 0.45 | 0.62 | 1.20 | 0.16 | (0.03 | ) | ||||||
| Per share – diluted | (0.18 | ) | 1.10 | 0.17 | 0.41 | 0.58 | 1.09 | 0.15 | (0.03 | ) | ||||||
| Capital expenditures(3) | 15,240 | 24,745 | 35,810 | 34,474 | 30,718 | 50,825 | 49,397 | 48,072 | ||||||||
(1)Â Adjusted EBITDA reflects a change in definition and excludes all foreign exchange gains and losses.
(2) Refer to “Non-GAAP Measures” on page 6 for further information.
(3)Â Effective January 1, 2023, recorded expenditures related to fluid end components as an operating expense rather than as a capital expenditure. This change in accounting estimate was recorded on a prospective basis.
CAPITAL EXPENDITURES
| Three Months Ended Mar. 31, |
||||||
| 2024 | 2023 | Change | ||||
| (C$000s) | ($) | ($) | (%) | |||
| North America | 37,174 | 33,748 | 10 | |||
| Argentina | 10,898 | 726 | NM | |||
| Continuing Operations | 48,072 | 34,474 | 39 | |||
Capital expenditures were $48.1 million for the three months ended March 31, 2024 versus $34.5 million in the comparable period in 2023. Calfrac’s Board of Directors approved a 2024 total capital budget of approximately $210.0 million in December 2023. This was an increase of $45.0 million from the previous year, primarily to continue its fracturing fleet modernization program in North America and dedicate $40.0 million to support its Argentinean operations while implementing new company-wide field-based technologies. On March 13, 2024, the Board of Directors approved a deferral of up to $50.0 million of capital allocated to its North American fleet modernization program to align with current market conditions.
NON-GAAP MEASURES
Certain supplementary measures presented in this press release, including Adjusted EBITDA, Adjusted EBITDA Margin and net debt, do not have any standardized meaning under IFRS and, because IFRS have been incorporated as Canadian generally accepted accounting principles (GAAP), these supplementary measures are also non-GAAP measures. These measures have been described and presented to provide shareholders and potential investors with additional information regarding the Company’s financial results, liquidity and ability to generate funds to finance its operations. These measures may not be comparable to similar measures presented by other entities, and are explained below.
Adjusted EBITDA is defined as net income or loss for the period less interest, taxes, depreciation and amortization, foreign exchange losses (gains), non-cash stock-based compensation, and gains and losses that are extraordinary or non-recurring. Adjusted EBITDA is presented because it gives an indication of the results from the Company’s principal business activities prior to consideration of how its activities are financed and the impact of foreign exchange, taxation and depreciation and amortization charges. Adjusted EBITDA for the period was calculated as follows:
| Three Months Ended March 31, | 2024 | 2023 | ||
| (C$000s) | ($) | ($) | ||
| (unaudited) | ||||
| Net (loss) income from continuing operations | (2,903 | ) | 36,313 | |
| Add back (deduct): | ||||
| Depreciation | 27,995 | 30,162 | ||
| Foreign exchange losses (gains) | (1,049 | ) | 1,486 | |
| (Gain) loss on disposal of property, plant and equipment | (6,241 | ) | (537 | ) |
| Litigation settlements | — | (6,805 | ) | |
| Restructuring charges | — | 1,333 | ||
| Stock-based compensation | 2,185 | 544 | ||
| Interest | 6,032 | 8,174 | ||
| Income taxes | 38 | 13,124 | ||
| Adjusted EBITDA from continuing operations (1) | 26,057 | 83,794 | ||
(1) For bank covenant purposes, EBITDA includes the deduction of an additional $3.2 million of lease payments for the three months ended March 31, 2024 (three months ended March 31, 2023 – $2.9 million) that would have been recorded as operating expenses prior to the adoption of IFRS 16.
The definition and calculation of net debt is disclosed in note 10 to the Company’s interim financial statements for the corresponding period.
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