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Calfrac Well Services Second Quarter 2022 Results

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Calfrac Well Services Ltd. announced its financial and operating results for the three and six months ended June 30, 2022.

Calfrac's Chief Executive Officer, Pat Powell commented: "Since I joined the Company, I have had the opportunity to meet with a number of our employees, both in the field and the divisional offices, and I am very impressed with their drive and commitment towards delivering on our revised brand promise of "Do It Safely, Do It Right, Do It Profitably". This quarter, Calfrac was able to demonstrate solid progress on its financial performance while continuing to deliver top tier service to our clients."

During the quarter, Calfrac:

• nearly doubled adjusted EBITDA to $39.3 million or 12 percent of revenue on a sequential basis on revenue growth of eight percent from the first quarter;
  
  
• grew its operating scale to nine fracturing fleets in the United States to compliment the Company's four active fleets in Canada; and
  
  
• re-constituted its Board of Directors’ committees, including appointing the Audit Committee comprised of Charles Pellerin, Anuroop Duggal and Chetan Mehta. Charles Pellerin, who is the Principal Partner and President of one of the largest independent accounting firms in Quebec, will act as chairman of the Audit Committee.

2Q Overview

In the second quarter of 2022, the Company:

• generated revenue of $318.5 million, an increase of 83 percent from the second quarter in 2021, resulting primarily from improved activity in all of the Company's operating divisions and improved pricing in North America;
  
  
• reported adjusted EBITDA of $39.3 million versus negative $1.1 million in the comparable period in 2021, mainly as a result of improved performance in North America;
  
  
• repaid and cancelled its $25.0 million secured bridge loan from G2S2 Capital Inc., of which the Company had drawn $15.0 million prior to repayment;
  
  
• reduced its Funded Debt and Total Debt leverage to levels that will terminate the covenant relief period under its revolving credit facility agreement upon filing its second quarter compliance certificate, which is anticipated to occur before the end of July 2022;
  
  
• filed a short-form base shelf prospectus that allows Calfrac to issue up to $500.0 million of equity or debt securities over a 25-month period commencing May 19, 2022;
  
  
• reported a net loss of $6.8 million or $0.18 per share diluted compared to a net loss of $35.5 million or $0.95 per share diluted in the second quarter in 2021;
  
  
• reported period-end working capital of $144.5 million; and
  
  
• incurred capital expenditures of $15.2 million, focused on maintenance and sustaining activities to primarily support the Company's United States fracturing operations.

In 1H22, the Company:

• generated revenue of $613.0 million, an increase of 58 percent from the first six months in 2021, resulting from higher activity in all operating divisions, most notably in the United States;
  
  
• reported adjusted EBITDA of $60.1 million versus $9.7 million in the comparable period in 2021, mainly as a result of higher utilization of equipment in all operating divisions;
  
  
• reported a net loss of $24.8 million or $0.65 per share diluted, compared to a net loss of $58.5 million or $1.56 per share diluted in the first six months in 2021; and
  
  
• incurred capital expenditures of $27.4 million focused on maintenance and sustaining activities to primarily support the Company's United States fracturing operations.

Financial Results Overview

Second-quarter revenue in 2022 of $318.5 million represented an increase of 8 percent from the first quarter of 2022, primarily due to improved pricing in North America and significantly higher fracturing activity in the United States, offset partially by lower activity in Canada due to the onset of spring break-up. Revenue per fracturing job was 35 percent higher than the first quarter of 2022 due to pricing increases in North America combined with job mix in Argentina and Canada.

In Canada, revenue decreased by 34 percent from the first quarter of 2022 to $71.1 million in the second quarter of 2022 due to the normal seasonal slowdown in activity stemming from spring break-up conditions. Operating income as a percentage of revenue was 5 percent compared to 13 percent in the first quarter of 2022, and included a $3.0 million litigation accrual related to product purchase commitments made in a prior year.

In the United States, revenue in the second quarter of 2022 was $193.8 million, a 46 percent increase from the first quarter of 2022 due to improved utilization and a larger average number of fleets operating during the quarter. The second quarter included some weather-related disruptions in North Dakota and Wyoming in April resulting in 24 lost operating days. However, the Company achieved strong utilization for its eight operating fleets during the quarter outside of these disruptions and added a ninth fleet in May. Comparatively, the first quarter in 2022 started with four fleets operating and exited with eight operating fleets. The Company continued to implement pricing increases during the second quarter in order to improve its profitability for all of its operating fleets. Operating income was $35.8 million in the second quarter compared to $7.9 million in the first quarter of 2022.

In Argentina, revenue decreased by 2 percent from the first quarter in 2022 to $53.6 million in the second quarter of 2022. The Company experienced a slight decrease in sequential activity particularly for the Company's fracturing and coiled tubing operations. Operating income decreased from $5.5 million in the first quarter of 2022 to $1.6 million in the second quarter of 2022 due to inflationary salary increases that are paid in pesos that were not immediately offset by the devaluation in the official peso exchange rate.

Adjusted EBITDA from continuing operations of $39.3 million for the second quarter of 2022 increased from $20.8 million in the first quarter of 2022 primarily due to improved crew utilization and pricing in the United States.

Business Update & Outlook

During the second quarter of 2022, the Company continued to grow its North American fracturing operating scale as it exited the period with nine fracturing fleets operating in the United States and four large fleets in Canada. Throughout the past few months, Calfrac was able to achieve pricing gains with its clients that have compensated for significant increases in its operating expenses and are now beginning to contribute to an overall improvement in the Company's consolidated financial performance. The Company expects strong utilization of its North American and Argentinean fleets for the remainder of 2022 and 2023 and remains focused on the provision of top tier pressure pumping services, while generating enhanced returns for its shareholders in a market that is more supportive of a profitable services sector on a full cycle basis.

Operations Results

Canada

The Company's operations in Canada began the second quarter at a slower rate due to spring break-up but exceeded expectations with a strong exit and Calfrac anticipates full utilization in the third quarter for its four large fracturing fleets. Calfrac's Canadian Division expects robust demand for its services throughout the remainder of 2022 and into 2023 as customers have already begun to inquire about equipment availability in the new year. While Calfrac has the ability to increase its operating scale in Canada, the Company is committed to its current fleet capacity for the foreseeable future and will only consider additional fleet reactivations if they are supported by a committed customer agreement.

The Company's United States division overcame weather disruptions early in the second quarter in its largest operating district to exit the quarter with fleet profitability not seen since the same period in 2017. Calfrac expects to benefit from consistent utilization for its nine sold out fracturing fleets for the remainder of the year and anticipates that the pressure pumping market will remain tight through 2023 as demand exceeds supply. While the Company has the option to reactivate additional idle equipment, Calfrac remains focused on improving cash flows and returns for its existing fleets rather than market share.

Calfrac has a significant presence in Argentina's pressure pumping market. The Company recently signed a multi-year contract with a major client operating in the Vaca Muerta shale play and expects utilization as well as profitability to improve significantly from the first six months of the year. With the strength in commodity prices, Calfrac anticipates that this market will remain tight and support further growth opportunities in the Neuquén region and southern Argentina over the next several years.

The Company has made progress related to the sale of its Russian subsidiary and is seeking to close this transaction as soon as possible in compliance with applicable laws and sanctions.