The Globe and Mail - 06.11.2019

B6| REPORTONBUSINESS O THEGLOBEANDMAIL| WEDNESDAY,NOVEMBER6,2019

Chesapeake Energy Corp., once

the second largest U.S. natural

gas producer, warned on Tues-

day about its ability to contin-

ue as a going concern as the

debt-laden company struggles

with falling prices for the com-

modity.

Shares of Chesapeake fell

nearly 18 per cent to US$1.28 in

New York on Tuesday after the

company reported a marginally

bigger-than-expected loss and a

huge shortfall in production for

the third quarter.

Chesapeake has about

US$10-billion in debt, nearly

four times its market valuation,

much of which was a result of

increased spending when ener-

gy prices were high and for

acquisitions aimed at expand-

ing its oil assets to combat

falling natural-gas prices.

The company said its ability

to meet debt covenants in the

next 12 months will be affected

if oil and natural-gas prices

continue to remain low.

A continuous rise in U.S. gas

production – a byproduct of

the shale-oil boom – has prices

for the fuel heading toward a

25-year low, with output out-

pacing U.S. consumption.

The company said average

realized natural-gas price fell

11.5 per cent to US$2.38 per

thousand cubic feet in the

third quarter.

Total production fell nearly

11 per cent to 478,000 barrels of

oil equivalent a day (boe/d)

from a year earlier and missed

analysts’ expectations of

490,664 boe/d. Adjusted net

loss attributable to the compa-

ny was US$188-million, or 11 US

cents a share, in the third

quarter ended Sept. 30 from a

loss of US$8-million, or 1 US

cent a share, a year earlier.

Analysts on average had

expected the company to re-

port a loss of 10 US cents a

share, according to IBES data

from Refinitiv.

The Oklahoma-based firm

expects capital expenses to

range from US$1.3-billion to

US$1.6-billion for 2020, well

below US$2.11-billion to

US$2.31-billion set aside for

2019.

The company also plans to

cut its 2020 production costs as

well as general and adminis-

trative expenses by about 10

per cent while expecting flat oil

production year-over-year.

REUTERS

CHESAPEAKEENERGYWARNS

OFFINANCIALSTRAINAMID

SLUMPINNATURALGAS

They received feedback that pro-
spective buyers were concerned
about Hootsuite’s metrics, partic-
ularly its revenue growth and low
profitability.
Sources said there was concern
that much of Hootsuite’s revenue
growth came from price increas-
es, and the company lost some of
its big accounts. Meanwhile, dy-
namics in the industry have be-
come tougher, particularly with
Twitter extracting significant pay-
ments from social media man-
agement firms, including Hoot-
suite. The board was particularly
concerned about customer and
employee churn, especially after
many senior executives left the
business.
“At Hootsuite, we routinely
look at our entire leadership
team – which includes me – to de-
termine the best path for our fu-
ture stages of growth and contin-
ued success,” Mr. Holmes wrote in
an e-mailed statement to The
Globe.
“I am fortunate that I have an
excellent board that I can have
positive and candid conversa-
tions with to this end. It was
through personal reflection and
these candid conversations with
my trusted board that I decided it
was time to start looking ahead at

new leadership.”

In his shareholder letter, Mr.

Holmes said he hoped to spend

more time with his young daugh-

ter: “It feels like it is the right

point to take some time and reas-

sess priorities.”

In the letter, Mr. Holmes said

the company had surpassed

US$200-million in annual recur-

ring revenue. This, he wrote, “tells

me we’ve built something at a

breakneck speed that is highly

valuable.” He added that the com-

pany made changes to its sales

and marketing teams this year

that prompted 20-per-cent-high-

er contract values and better re-

tention rates.

In the third quarter of this year,

the company renewed more than

650 enterprise customers, he

wrote, including long-standing

clients Melia Hotels, Purdue Uni-

versity and the Vancouver Ca-

nucks. And over the past three

quarters, the company signed

more than 1,100 enterprise cus-

tomers.

Hootsuite is a platform that,

among other things, allows com-

panies to write and schedule

posts from multiple social media

accounts.

Many senior leaders left the

company around the time of the

attempted sale. These included

senior vice-president of sales Bob

Elliott; sales vice-presidents Chris

Saniga and Phil Edgell; Mik Ler-

nout, vice-president of product,

and André Viljoen, vice-president

of technology.

Asked about these leaders

leaving in an interview this fall,

Mr. Holmes said “the tech indus-

try as a whole has one of the high-

est churns of employees. ...

Sometimes the company out-

grows people and sometimes the

people outgrow the company.”

The layoffs, he said, were “not

about [employee] performance.

It was about needing to make

shifts.” Those shifts, he contin-

ued, were “some tough decisions

we needed to make in terms of

where we wanted to invest in the

business and some areas that we

needed to deinvest in.” He de-

clined to name which areas those

were.

Mr. Holmes’s rating on the

company review website Glass-

door has fallen to 54 per cent from

nearly 80 per cent in the past sev-

eral years, which he called a “lag-

ging indicator” of his success. “We

did a reorganization recently, and

some people had hard feelings on

that, and I think that shows up

here,” he said.

An initial public offering or

sale could still be possible, said

one source, who also said the

company was profitable.

Hootsuite:Holmesseesitasrighttimeto‘reassesspriorities’

FROMB1

The tech industry as

a whole has one of

the highest churns

of employees. ...

Sometimes the

company outgrows

people and

sometimes the

people outgrow the

company.

RYANHOLMES

OUTGOING HOOTSUITE CEO

ON AN EARLIER WAVE OF

EXECUTIVE DEPARTURES

The company expects to save
US$100-million alone in general
and administrative expenses,
such as staff and head-office
costs.
Newmont bought Goldcorp
earlier in the year in an all-stock
deal worth US$10-billion. At the
time the agreement was an-
nounced in January, Goldcorp
was trading near a historic low
after years of mismanagement
and a slew of technical problems
at mines.
Even before the acquisition
closed, new problems started to
creep up at some of the Goldcorp
mines. In April, a fire broke out
at its Musselwhite mine. Nobody
was hurt in the incident, but the

mine’s conveyor system was de-

stroyed. Newmont said on Tues-

day that it will take until October

of next year before the mine is

operational.

Shares in Newmont fell 3.5 per

cent on Tuesday on the New

York Stock Exchange to close at

US$37.55 apiece.

Greg Barnes, analyst with TD

Securities Inc., was somewhat

mystified by the negative stock

reaction. “[The earnings] looked

ok to me and Q4 is looking very

good,” he wrote in an e-mail. “I

think investors are still nervous

about the guidance update com-

ing in early December.”

One mine that may not fea-

ture in Newmont’s 2020 guid-

ance is Red Lake, yet another leg-

acy Goldcorp asset.

Newmont’s chief executive,

Tom Palmer, said in a confer-

ence call with analysts on Tues-

day that a process to sell the

mine is going well, and he in-

dicated that a deal could be an-

nounced soon.

At one point, Red Lake mine,

smack in the middle of the town

of Red Lake, Ont., was the bed-

rock of Goldcorp’s portfolio. The

mine, which originally started

production in 1948, was known

for its extremely high grades. But

in recent years as its reserves

have been depleted, its expenses

have climbed and it is now

among the highest-cost proper-

ties in Newmont’s portfolio.

NEWMONT GOLDCORP (NEM)

CLOSE: US$37.55, DOWN US$1.31

NewmontGoldcorp’sPenasquitogold-silvermine,seenin2012,hasbeenthesiteofmultipleblockadesthisyear,includingaprotestfrom
mid-SeptembertolateOctoberoveralabourdisputebetweentruckingcontractorsandtheminer.JEAN LUIS ARCE/REUTERS

Newmont:ProcesstosellOntariomineisgoingwell,CEOsays

FROMB1

One mine that

may not feature

in Newmont’s

2020 guidance

is Red Lake, yet

another legacy

Goldcorp asset.

DUBAI/RIYADHRiyadh plans to

sell 2 per cent of state oil giant

Saudi Aramcoin a domestic

listing on Dec. 11, three sources

familiar with the matter said,

but restrictions on future share

sales mean an international

IPO is ruled out for at least a

year.

Final pricing for the initial

public offering is scheduled for

Dec. 5 and the world’s most

profitable company is expected

to start trading on the Riyadh

bourse six days later, the sourc-

es said.

The Saudigovernment will

face a one-year restriction on

selling more Aramco shares

after the domestic listing, ac-

cording to the sources, mean-

ing any overseas IPO is unlikely

to be held in 2020.

Aramco fired the starting

gun on the domestic IPO on

Sunday after a series of false

starts. Sunday’s announcement

had said Aramco and the sell-

ing shareholder would be sub-

ject to restrictions on the sale,

disposition or issuance of addi-

tional shares, but did not pro-

vide the lock-up period. Crown

Prince Mohammed bin Salman

is seeking to raise billions of

dollars to diversify the Saudi

economy away from oil by

investing in non-energy indus-

tries.

Aramco road shows for the

Riyadh IPO will begin on Nov.

18, according to the sources.

Bankers have told the Saudi

government that investors will

likely value the company at

around US$1.5-trillion, below

the US$2-trillion valuation

touted by Prince Mohammed

when he first floated the idea

of an IPO nearly four years ago.

The Saudigovernment is

looking to list 2 per cent of the

company on the Saudi bourse

rather than listing the entire

share capital on the exchange,

the sources said. Normally

public companies list the entire

share capital on the exchange

and have a portion of that as

free float.REUTERS

ARAMCOSHARE-SALECURB

RULESOUTOVERSEAS

LISTINGTILLAFTER2020

GFL’s IPO would have added a
fast-growing company to the To-
ronto Stock Exchange.
The deal was also set to be one
of the largest in Canadian histo-
ry. There are few comparable
IPOs, but previous billion-dollar
deals include Ottawa’s sale of
Canadian National Railway in
1995, which netted $2.2-billion,
and Manulife Financial Corp.’s
first public offering in 1999,
which raised $2.5-billion.
GFL, which stands for Green
for Life, was founded by Mr. Dovi-
gi, who is known for his acquis-
itive mindset. The North Amer-
ican waste management industry
has been highly fragmented, and
GFL has sought to consolidate
the market.
The company floated the idea
of an IPO as far back as 2017, but
its plans seemed to change after
BC and Teachers bought the
company in 2018 from its previ-

ous private equity backers. A few

months later, GFL announced its

largest acquisition to date, buy-

ing North Carolina-based Waste

Industries for $3.65-billion, in-

cluding debt. The purchase of

Waste Industries last year made

GFL the fourth-largest waste

management company in North

America.

The company’s balance sheet

is now loaded with debt – both

from the 2018 deals, and from

borrowing to help fund acquisi-

tions over the years.

In April, the company issued

US$500-million worth of unse-

cured notes, and the securities

were rated Caa2 by Moody’s In-

vestors Service and CCC+ by

Standard & Poor’s – deep in junk

rating territory.

GFL also had yet to demon-

strate its profit potential. Over its

past three fiscal years GFL lost a

cumulative $737-million, and in

the first six months of fiscal 2019,

the company lost $161-million,

according to a regulatory filing

for its IPO.

Acknowledging the debt bur-

den, GFL made it clear to inves-

tors that it planned to use some

IPO proceeds to repay some debt.

The company’s interest and oth-

er financing costs amounted to

$251-million in the first half of fis-

cal 2019.

GFL also hoped it would bene-

fit from selling into a hot market

for waste companies. Major rivals

Republic Services Inc., Waste

Management Inc. and Waste

Connections Inc. traded at an av-

erage of 33 times their earnings

per share for the past 12 months

when GFL launched its IPO, and

anything over 15 to 20 times earn-

ings is considered unusual.

Stock markets broadly have al-

so been frothy, with the S&P/TSX

Composite Index setting a record

high in September. In the U.S.,

where GFL was set to be dual-list-

ed, the S&P 500 closed at a record

high on Monday.

GFL:Company’sbalancesheetisnowloadedwithdebt

FROMB1

Over its past three

fiscal years GFL

lost a cumulative

$737-million, and

in the first six

months of fiscal

2019, the company

lost $161-million,

according to a

regulatory filing

for its IPO.