CALGARY,
AB, Nov. 22, 2022 /CNW/ - Calfrac Well
Services Ltd. ("Calfrac" or "the Company") (TSX: CFW) is pleased to
announce a conversion incentive program (the "Program") designed to
encourage the early conversion of up to all of the $47,440,000 principal amount of outstanding 10.0%
1.5 Lien Senior Secured Convertible PIK Notes issued by the Company
(the "Notes"). The Notes are currently convertible into common
shares of the Company ("Common Shares") at a conversion price of
$1.3325 per Common Share. The
closing price of the Common Shares on the Toronto Stock Exchange on
November 21, 2022, was $7.15.
The Program will commence November 23,
2022, at 9:00 a.m.
(Calgary time) and expire on
December 15, 2022, at 5:00 p.m. (Calgary time) (the "Early Conversion Period").
Under the Program, each holder of Notes (a "Noteholder") that
converts their Notes to Common Shares during the Early Conversion
Period, will receive a payment from the Company equal to fifty
percent (50%) of each holder's respective foregone interest
entitlement from, and including, the date of conversion of such
holders Notes through to, but excluding, the maturity date of the
Notes on December 18, 2023. A
Noteholder that participates in the Program will also receive a
payment as required by the Note indenture equal to the accrued and
unpaid interest on the Notes converted by the Noteholder to, but
excluding, the date of conversion.
Holders of an aggregate of $43,254,000 principal amount of Notes
(approximately 91% of the total Notes outstanding) have executed
conversion commitment letters with the Company pursuant to which
they have agreed to convert all of the Notes beneficially owned or
controlled by them pursuant to the Program.
If all of the Notes are converted during the Early Conversion
Period, Calfrac would:
- issue approximately 35,602,250 Common Shares pursuant to the
conversion of the Notes by Noteholders in accordance with the terms
of the indenture governing the Notes;
- reduce its outstanding indebtedness by $47,440,000; and
- realize savings of approximately $2.4
million of interest otherwise payable on the Notes to the
Maturity Date.
The terms and conditions of the Program and the method of
converting Notes pursuant to the Program will be set forth in a
letter to be mailed to each Noteholder's address on the list of
registered Noteholders maintained by Computershare. A copy of the
letter will also be posted on SEDAR.
Noteholders who elect to participate in the Program will be
required to deliver the following to the Company prior to expiry of
the Early Conversion Period:
- a duly completed and executed Conversion Notice, in the form
provided by the Note indenture and included in the letter to be
sent to Noteholders;
- a completed payment information form in the form attached to
the letter to be sent to Noteholders; and
- the original certificate representing the Notes being
converted, if applicable.
Noteholders that wish to participate in the Program must convert
all of the Notes beneficially owned or controlled by them.
Noteholders who convert less than all of the Notes beneficially
owned or controlled by them will not be eligible to participate in
the Program.
Any Notes that are not converted during the Early Conversion
Period will remain outstanding and continue to accrue interest and
remain convertible for Common Shares on their existing terms.
All references to "$" in this press release are to Canadian
dollars, unless otherwise indicated.
FOURTH-QUARTER OPERATIONAL AND
FINANCIAL UPDATE
In conjunction with this Program announcement, the Company is
pleased to provide an operational and financial update for the
fourth quarter of 2022 for its continuing operations in
the United States, Canada, and Argentina. As anticipated in the previous
quarter's Management's Discussion and Analysis, Calfrac has
sustained the positive momentum that was generated during the third
quarter as operators in North
America and Argentina are
continuing their steady pace of development in a tight oilfield
services market, which is expected to deliver significant
year-over-year growth in financial performance.
Although the fourth quarter of 2022 has not yet concluded,
Calfrac's management expects its fourth-quarter revenue from
continuing operations to range between $460.0 million and $480.0
million, Adjusted EBITDA from continuing operations to range
between $80.0 million and
$90.0 million, and Adjusted EBITDA
margin from continuing operations to range between 17% and 19%.
These financial projections could be affected by external factors
that are outside of the Company's control, such as adverse weather
conditions, inflation, and changes in its clients' schedules.
By comparison, Calfrac generated revenue from continuing
operations of $438.3 million and
Adjusted EBITDA from continuing operations of $91.3 million (Adjusted EBITDA margin of 21%) in
the third quarter of 2022. Calfrac generated revenue from
continuing operations of $229.7
million and Adjusted EBITDA from continuing operations of
$8.0 million (Adjusted EBITDA margin
of 3%) in the fourth quarter of 2021.
If all of the Company's remaining outstanding Notes are
converted under the Program, Calfrac's Total Debt to consolidated
trailing twelve-month Adjusted EBITDA ratio is expected to trend
lower to approximately 1.60 to 1.00 by the end of the year.
Deleveraging the balance sheet continues to remain a key priority
for the Company and a primary method to return value to its
shareholders.
Adjusted EBITDA, Adjusted EBITDA margin and Total Debt to
consolidated trailing twelve-month Adjusted EBITDA are non-GAAP
financial measures that do not have a standardized meaning and are
not consistently defined among issuers. See "Non-GAAP Measures"
below.
ADVISORIES
CANADIAN SECURITIES LAW
MATTERS
This news release shall not constitute an offer to sell or a
solicitation of an offer to buy the securities described herein,
nor shall there be any sale of these securities in any state or
other jurisdiction in which such an offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such state or jurisdiction.
The underlying Common Shares to be issued pursuant to the
exercise of the Notes will generally be "freely tradable" under
Canadian securities laws if the following conditions are satisfied:
(i) the trade is not a "control distribution" (as defined in
National Instrument 45-102 – Resale of Securities), (ii) no unusual
effort is made to prepare the market or create a demand for the
Common Shares, (iii) no extraordinary commission or consideration
is paid to a person or company in respect of the trade; and (iv) if
the selling shareholder is an insider or officer of the Company,
the selling shareholder has no reasonable grounds to believe the
issuer is in default of Canadian securities legislation.
Armco Alberta Inc. (a company controlled by George Armoyan, a director of Calfrac), which
holds $23,302,000 principal amount of
Notes, and Ronald P. Mathison,
Chairman of Calfrac, who holds $11,243,000 principal amount of Notes are
insiders of the Company. Each of the foregoing have executed a
conversion commitment letter pursuant to which they have agreed to
convert all of the Notes beneficially owned or controlled by them
pursuant to the Program.
The participation by each insider in the Program is a "related
party transaction" subject to Part 5 of Multilateral Instrument
61-101 – Protection of Minority Security Holders in Special
Transactions ("MI 61-101"). The Company is exempt from the
formal valuation requirement in section 5.4 of MI 61-101 in
reliance on section 5.5(a) of MI 61-101 and is exempt from the
minority shareholder approval requirement in section 5.6 of MI
61-101 in reliance on section 5.7(1)(a) of MI 61-101, as the fair
market value of the early incentive payment to be made on the Notes
beneficially owned, or over which Messrs. Armoyan and Mathison
exercise control or direction, does not exceed 25% of the market
capitalization of the Corporation, as determined in accordance with
MI 61-101.
Assuming all of the $47,440,000
principal amount of outstanding Notes are converted to Common
Shares, Armco Alberta Inc. and Ronald P.
Mathison would hold approximately 34% and 11% of
the outstanding Common Shares following the conversion.
The independent members of the board of directors of the Company
reviewed, assessed and approved the Program, with Messrs. Armoyan
and Mathison recusing themselves. No materially contrary view
or abstention was expressed or made by any director.
Other than the conversion commitment agreements, the Company did
not enter into any agreement with an interested party or a joint
actor with an interested party in connection with the Program.
There are no prior valuations that are relevant to the Program that
have been made in the past 24 months.
U.S. SECURITIES LAW
MATTERS
The Notes were originally issued by the Company in connection
with a plan of arrangement completed on December 18, 2020. The underlying Common Shares
to be issued pursuant to the conversion of the Notes have not been,
and will not be, registered under the U.S. Securities Act or any
U.S. state securities laws, and may not be offered or sold in
the United States or to, or for
the account or benefit of, United
States persons absent registration or any applicable
exemption from the registration requirements of the U.S. Securities
Act and applicable U.S. state securities laws. This press release
does not constitute an offer to sell or the solicitation of an
offer to buy securities in the United
States, nor in any other jurisdiction.
NON-GAAP MEASURES
Adjusted EBITDA, Adjusted EBITDA margin, and Total Debt to
consolidated trailing twelve month Adjusted EBITDA do not have any
standardized meaning under International Financial Reporting
Standards and are non-GAAP financial measures. These measures are
described and presented to provide readers 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 should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
GAAP. Adjusted EBITDA is defined as net income or loss for the
period adjusted for interest, income taxes, depreciation and
amortization, unrealized foreign exchange losses (gains), non-cash
stock-based compensation, and gains and losses that are
extraordinary or non-recurring. Adjusted EBITDA margin is the
ratio of Adjusted EBITDA to revenue for the period expressed as a
percentage. Total Debt for the purposes of the Company's
Total Debt to consolidated trailing twelve month Adjusted EBITDA
calculation includes bank loans and long-term debt (before
unamortized debt issuance costs and debt discount) plus outstanding
letters of credit and is reduced by cash on hand with Calfrac's
lenders. Adjusted EBITDA for the purposes of this ratio includes
the results of the Company's Russian operations. These non-GAAP
measures should be read in conjunction with the Company's quarterly
financial statements and annual financial statements and the
accompanying notes thereto.
A quantitative reconciliation of Adjusted EBITDA from continuing
operations to net income (loss) (a GAAP measure) for the third
quarter of 2022 can be found under the heading "Non-GAAP Measures"
in Calfrac's management discussion and analysis for the three and
nine months ended September 30, 2022
dated November 2, 2022, which is
available at www.sedar.com and is incorporated herein by reference.
Calfrac's net income for the third quarter of 2022 was $45.4 million.
FORWARD-LOOKING
STATEMENTS
This press release contains forward-looking statements and
forward-looking information within the meaning of applicable
securities laws. The use of any of the words "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 and information in
this press release include, but are not limited to, statements with
respect to (1) the Program and the anticipated timing to
complete the Program, expected Noteholder participation, and the
consequences and benefits thereof, including potential debt
reduction and interest savings to be realized by the Company; (2)
the financial and operation outlook for Calfrac's operating
divisions in Canada, the United States and Argentina in the fourth quarter of 2022,
including preliminary estimates of Calfrac's revenue, Adjusted
EBITDA and Adjusted EBITDA margin for continuing operations for the
three months ended December 31, 2022,
and the trend for and potential reduction of Calfrac's Total Debt
to consolidated trailing twelve month Adjusted EBITDA ratio as of
December, 2022; and (3) the Company's intentions and expectations
with respect to the foregoing. Calfrac's financial statements for
the three months ended December 31,
2022 are not yet complete. Accordingly, the Company is
presenting preliminary estimates of certain financial information
for the three months ended December 31,
2022. These estimates are preliminary and unaudited and are
inherently uncertain and subject to change as Calfrac completes its
financial statements for the three months ended December 31, 2022. Given the timing of these
estimates, the Company has not completed its customary financial
closing and review procedures as of and for the three months ended
December 31, 2022, and there can be
no assurance that Calfrac's final results for the three months
ended December 31, 2022 will not
differ from the preliminary estimates set forth in this press
release.
These forward-looking statements and information 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 terms of the Program and the Company's
perception of its benefits to Noteholders and the Company; the
economic and political environment in which the Company operates,
including the anticipated impacts of inflation on the Company's
operations and demand for its services; the Company's expectations
for its current and prospective customers' capital budgets,
schedule and geographical areas of focus; the seasonal weather
patterns affecting the Company's operations; industry equipment
levels; the effect of competition on the Company's ability to
retain current clients and obtain new ones; the effect of the
military conflict in Ukraine and
related Canadian, U.S. and international sanctions and restrictions
involving Russia and
counter-sanctions and restrictions by Russia on the Company's ownership and planned
sale of the Russian division and the broader markets for the
Company's services; the continued effectiveness of cost reduction
measures instituted by the Company; the Company's ability to obtain
and retain qualified staff; the effect of environmental,
social and governance factors on customer and investor preferences
and capital deployment; the Company's existing contracts and
the status of current negotiations with key customers and
suppliers; the continued effectiveness of cost reduction
measures instituted by the Company; and the likelihood that
the current tax and regulatory regime will remain substantially
unchanged.
Forward-looking statements and information 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 but are not limited to:
changes in the trading price of the Common Shares during the
Program, volatility of industry conditions including the level of
exploration, development and production for oil and natural gas in
Canada, the U.S. and Argentina and market prices for oil and
natural gas impacting the demand for oilfield services; sourcing,
pricing and availability of raw materials, component parts,
equipment, suppliers, facilities and skilled personnel; oilfield
equipment utilization levels; risks associated with foreign
operations, including risks relating to unsettled political
conditions, war, including the ongoing Russia and Ukraine conflict and any expansion of that
conflict, foreign exchange rates and controls, international trade
and regulatory controls and sanctions, and doing business with
national oil companies; failure to receive any applicable
regulatory approvals, including in respect of the sale of the
Company's Russian division; the impacts of the Russia-Ukraine conflict on the supply and demand for
oil and gas produced in Russia and
globally; and those other risk factors set forth under the heading
"Risk Factors" in Calfrac's Annual Information Form for the year
ended December 31, 2021 dated
March 18, 2022 and under the heading
"Business Risks" in Calfrac's Management's Discussion and Analysis
for the year ended December 31, 2021
dated March 18, 2022, which are
available at www.sedar.com and are incorporated herein by
reference.
This press also release contains future-oriented financial
information and financial outlook information (collectively,
"FOFI") about the Company's anticipated fourth quarter
revenues, Adjusted EBITDA, Adjusted EBITDA margin and Total Debt to
consolidated trailing twelve month Adjusted EBITDA, which are
subject to the same assumptions, risk factors, limitations, and
qualifications as set forth in the above paragraphs. The Company's
actual results of operations and the resulting financial results
will likely vary from the amounts set forth in this press release
and such variation may be material. The Company and its management
believe that the FOFI has been prepared on a reasonable basis,
reflecting management's best estimates and judgments as of the date
hereof; however, because this information is subjective and subject
to numerous risks, it should not be relied on as necessarily
indicative of future results.
The forward-looking statements and information (including FOFI)
contained in this press release speak only as of the date hereof
and Calfrac does not undertake any obligation to update publicly or
revise any such forward-looking statements or information,
whether due to new information, future events or otherwise,
unless so required by applicable securities
laws. The Company's actual results could also differ
materially from those anticipated in these forward-looking
information and statements (including FOFI) due to the risk factors
discussed above and incorporated herein by reference.
ADDITIONAL INFORMATION
Calfrac's common shares and warrants are publicly traded on the
Toronto Stock Exchange under the trading symbols "CFW" and
"CFW.WT", respectively.
Calfrac provides specialized oilfield services to exploration
and production companies designed to increase the production of
hydrocarbons from wells with continuing operations focused
throughout western Canada,
the United States and Argentina. During the first quarter of 2022,
management committed to a plan to sell the Company's Russian
division, resulting in the associated assets and liabilities being
classified as held for sale and presented in the Company's
financial statements as discontinued operations. The results of the
Company's discontinued operations are excluded from the discussion
and figures presented above unless otherwise noted. See Note 3 to
the Company's consolidated interim financial statements for the
three and nine months ended September 30,
2022 for additional information on the Company's
discontinued operations.
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.
SOURCE Calfrac Well Services Ltd.