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Quintana Energy Services Reports Second Quarter 2018 Results

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Quintana Energy Services Inc. (NYSE:QES) ("QES" or the "Company") today
reported financial and operating results for the second quarter ended
June 30, 2018.

Second Quarter 2018 Financial Highlights

Second quarter 2018 revenue grew 7.9% to $152.5 million, up from $141.3
million in the first quarter of 2018. Second quarter 2018 net income was
$2.1 million and Adjusted EBITDA was $17.9 million, compared to a net
loss of $16.4 million and Adjusted EBITDA of $15.5 million for the first
quarter of 2018. In the second quarter of 2017, revenue was $108.5
million, net loss was $3.1 million and Adjusted EBITDA was $11.7
million. See "Non-GAAP Financial Measures" at the end of this release
for a discussion of Adjusted EBITDA and its reconciliation to the most
directly comparable financial measure calculated and presented in
accordance with U.S. generally accepted accounting principles ("GAAP").

Rogers Herndon, QES' President and Chief Executive Officer, stated, "We
entered the second quarter looking to increase profitability through
strong operational execution and higher activity levels, and I am
pleased to report we achieved both. Compared to our first quarter
results, consolidated revenue and Adjusted EBITDA grew 7.9% and 15.5%,
respectively. Two of our segments demonstrated significant operating
leverage during the second quarter. Directional Drilling revenue grew
16.0% and Adjusted EBITDA grew over 100.0%, primarily due to pricing and
utilization. Pressure Control revenue increased 14.3% and Adjusted
EBITDA grew approximately 51.4% as a result of improvements in pricing,
utilization, full quarter impact from large diameter coiled tubing unit
converted in Q1 and increased well control activity during the quarter.
Additionally, Pressure Pumping deployed its fourth hydraulic fracturing
fleet into service on schedule and below budget in June 2018."

"We are excited about our future and believe we are well positioned for
continued growth. Operationally, we are in process of converting two
additional large diameter coiled tubing units by the fourth quarter of
this year and still plan to take delivery of a new 2.625" coil unit in
late Q3. In the meantime, we will continue to focus on operational
execution, build on the diversification of our four operating platforms,
actively manage our capital expenditure allocation program, improve cash
flows, and leverage future acquisition opportunities," added Herndon.

Business Segment Results

The following business segments comprise the Company's primary services:
Directional Drilling, Pressure Pumping, Pressure Control and Wireline.

Directional Drilling

The Directional Drilling segment provides the highly-technical and
essential services of guiding horizontal and directional drilling
operations for exploration and production ("E&P") companies. Revenue was
$43.6 million in the second quarter of 2018, up approximately 16.0%
compared to revenue of $37.6 million in the first quarter of 2018 and up
17.5% from the second quarter of 2017. Second quarter 2018 Adjusted
EBITDA was $5.2 million, compared to Adjusted EBITDA of $2.6 million for
the first quarter of 2018. The sequential increases in revenue and
Adjusted EBITDA were primarily due to pricing and utilization. In the
second quarter of 2017, revenue was $37.1 million and Adjusted EBITDA
was $4.8 million.

Pressure Pumping

The Pressure Pumping segment primarily provides hydraulic fracturing
services to E&P companies. Revenue for the segment grew 6.2% to $56.7
million in the second quarter of 2018, up from $53.4 million in the
first quarter of 2018. The sequential increase in revenue was primarily
driven by performing larger hydraulic fracturing stages for certain
customers during the second quarter of 2018 compared to the prior
quarter. Second quarter 2018 Adjusted EBITDA was $8.9 million, compared
to Adjusted EBITDA of $9.9 million for the first quarter of 2018. The
sequential decrease in Adjusted EBITDA was primarily due to a 13.0%
increase in direct operating expenses in the second quarter of 2018
compared to the prior quarter. In addition, revenue per cement job
decreased 16.8% in the second quarter of 2018 compared to the prior
quarter. In the second quarter of 2017, revenue was $37.7 million and
Adjusted EBITDA was $7.8 million.

Pressure Control

The Pressure Control segment consists of coiled tubing, rig-assisted
snubbing, nitrogen, and well control services. Revenue for the segment
grew approximately 14.3% to $32.0 million in the second quarter of 2018,
up from $28.0 million in the first quarter of 2018. Second quarter 2018
Adjusted EBITDA was $5.6 million, compared to Adjusted EBITDA of $3.7
million for the first quarter of 2018. The sequential increases in
revenue and Adjusted EBITDA were primarily due to pricing, utilization
and the addition of a large diameter coiled tubing unit. In the second
quarter of 2017, revenue was $22.3 million and Adjusted EBITDA was $1.9
million.

Wireline

The Wireline segment primarily provides cased-hole wireline services to
E&P companies. Revenue for the segment decreased to $20.3 million in the
second quarter of 2018 from $22.3 million in the first quarter of 2018.
Second quarter 2018 Adjusted EBITDA was $0.8 million, compared to
Adjusted EBITDA of $2.6 million for the first quarter of 2018. The
sequential decreases in revenue and Adjusted EBITDA were primarily due
to timing and scheduling of certain projects during the quarter. In the
second quarter of 2017, revenue was $11.3 million and Adjusted EBITDA
was a loss of $0.7 million.

Other Financial Information

General and administrative ("G&A") expense for the second quarter of
2018 was $22.5 million, compared to $29.9 million for the first quarter
of 2018 and $16.0 million for the second quarter of 2017. The sequential
decrease in G&A expenses was primarily related to a non-cash stock
compensation expense of approximately $9.9 million in the first quarter
of 2018, related to the IPO, that did not reoccur.

Capital expenditures including deposits totaled $28.8 million during the
second quarter of 2018, compared to capital expenditures of $12.4
million in the first quarter of 2018, and $4.5 million in the second
quarter of 2017. The increase in capital expenditures was driven by the
previously announced deployment of our fourth hydraulic fracturing fleet.

Second quarter interest expense was $0.4 million, down from $10.2
million in the first quarter and $2.8 million in the second quarter of
2017. The second quarter decrease in interest expense was primarily due
to IPO financing costs of approximately $8.5 million to extinguish our
former revolving credit facility and term loan during the first quarter
of 2018 and a lower debt outstanding balance during the second quarter
of 2018.

With the closing of the IPO subsequent to the end of the fiscal year,
the Company's debt structure has improved meaningfully. QES ended the
second quarter of 2018 with a total debt balance of $31.0 million, $8.2
million of cash on hand, and $59.1 million of net availability under its
new senior secured asset-based revolving credit facility.

Share Repurchase Plan

On August 8, 2018, QES's Board of Directors approved a stock repurchase
program authorizing the repurchase, at the discretion of senior
management, of up to $6.0 million of the Company's common stock in open
market transactions, subject to market conditions, corporate, regulatory
and other considerations. Repurchases may be commenced or suspended at
any time without notice. The program does not obligate QES to purchase
any particular number of shares of common stock during any period or at
all, and the program may be modified or suspended at any time in the
Company's discretion.

Conference Call Information

QES has scheduled a conference call for 9:00 a.m. Central Time (10:00
a.m. Eastern Time) on Thursday, August 8, 2018, to review reported
results. You may access the call by telephone at 1-201-389-0867 and
asking for the QES 2018 Second Quarter Conference Call. The webcast of
the call may also be accessed through the Investor Relations section of
the Company's website at https://ir.quintanaenergyservices.com/ir-calendar.
A replay of the call can be accessed on the Company's website for 90
days and will be available by telephone through August 16, 2018, at
(201) 612-7415, access code 13681322#.

About Quintana Energy Services

QES is a growth-oriented provider of diversified oilfield services to
leading onshore oil and natural gas exploration and production companies
operating in both conventional and unconventional plays in all of the
active major basins throughout the U.S. QES' primary services include:
directional drilling, pressure pumping, pressure control and wireline
services. The Company offers a complementary suite of products and
services to a broad customer base that is supported by in-house
manufacturing, repair and maintenance capabilities. More information is
available at www.quintanaenergyservices.com.

Forward-Looking Statements and Cautionary Statements

This news release (and any oral statements made regarding the subjects
of this release, including on the conference call announced herein)
contains certain statements and information that may constitute
"forward-looking statements." All statements, other than statements of
historical fact, which address activities, events or developments that
we expect, believe or anticipate will or may occur in the future are
forward-looking statements. The words "anticipate," "believe," "expect,"
"plan," "forecasts," "will," "could," "may," and similar expressions
that convey the uncertainty of future events or outcomes, and the
negative thereof, are intended to identify forward-looking statements.
Forward-looking statements contained in this news release, which are not
generally historical in nature, include those that express a belief,
expectation or intention regarding our future activities, plans and
goals and our current expectations with respect to, among other things:
our operating cash flows, the availability of capital and our liquidity;
our future revenue, income and operating performance; our ability to
sustain and improve our utilization, revenue and margins; our ability to
maintain acceptable pricing for our services; future capital
expenditures; our ability to finance equipment, working capital and
capital expenditures; our ability to execute our long-term growth
strategy; our ability to successfully develop our research and
technology capabilities and implement technological developments and
enhancements; and the timing and success of strategic initiatives and
special projects.

Forward-looking statements are not assurances of future performance and
actual results could differ materially from our historical experience
and our present expectations or projections. These forward-looking
statements are based on management's current expectations and beliefs,
forecasts for our existing operations, experience, expectations and
perception of historical trends, current conditions, anticipated future
developments and their effect on us, and other factors believed to be
appropriate. Although management believes the expectations and
assumptions reflected in these forward-looking statements are reasonable
as and when made, no assurance can be given that these assumptions are
accurate or that any of these expectations will be achieved (in full or
at all). Our forward-looking statements involve significant risks,
contingencies and uncertainties, most of which are difficult to predict
and many of which are beyond our control. Known material factors that
could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to, risks
associated with the following: a decline in demand for our services,
including due to declining commodity prices, overcapacity and other
competitive factors affecting our industry; the cyclical nature and
volatility of the oil and gas industry, which impacts the level of
exploration, production and development activity and spending patterns
by E&P companies; a decline in, or substantial volatility of, crude oil
and gas commodity prices, which generally leads to decreased spending by
our customers and negatively impacts drilling, completion and production
activity; and other risks and uncertainties listed in our filings with
the U.S. Securities and Exchange Commission, including our Current
Reports on Form 8-K that we file from time to time, Quarterly Reports on
Form 10-Q and Annual Report on Form 10-K. Readers are cautioned not to
place undue reliance on forward-looking statements, which speak only as
of the date hereof. We undertake no obligation to publicly update or
revise any forward-looking statements after the date they are made,
whether as a result of new information, future events or otherwise,
except as required by law.

 
Quintana Energy Services Inc.
Condensed Consolidated Statements of Operations
(in thousands of dollars and units, except per share amounts)
(Unaudited)
 
          Three Months Ended
June 30, 2018     March 31, 2018     June 30, 2017
Revenues: $ 152,536 $ 141,268   $ 108,457
Costs and expenses:
Direct operating costs 116,581 106,492 81,667
General and administrative 22,500 29,917 16,024
Depreciation and amortization 11,155 11,078 11,432
Gain on disposition of assets (594 ) (106 )   (332 )
Operating income (loss) 2,894 (6,113 ) (334 )
Non-operating expense:
Interest expense (433 ) (10,192 ) (2,788 )
Income (loss) before income tax 2,461 (16,305 ) (3,122 )
Income tax (expense) benefit (326 ) (51 )   9  
Net income (loss) 2,135   (16,356 )   (3,113 )
Net loss attributable to predecessor   (1,546 )    
Net income (loss) attributable to Quintana Energy Services Inc. $ 2,135   $ (14,810 )   $ (3,113 )
Net income (loss) per common share:
Basic $ 0.06 $ (0.44 ) $
Diluted $ 0.06 $ (0.44 ) $
Weighted average common shares outstanding:
Basic 33,631 33,318
Diluted 35,227 33,318
 
 
Quintana Energy Services Inc.
Condensed Consolidated Balance Sheets
(in thousands, except per share and share amounts)
(Unaudited)
 
          June 30, 2018     December 31, 2017
ASSETS
Current assets
Cash and cash equivalents $ 8,244 $ 8,751
Accounts receivable, net of allowance of $1,244 and $776 95,432 83,325
Unbilled receivables 12,849 9,645
Inventories 27,744 22,693
Prepaid expenses and other current assets 4,598   9,520  
Total current assets 148,867 133,934
Property, plant and equipment, net 151,391 128,518
Intangible assets, net 9,925 10,832
Other assets 1,719   2,375  
Total assets $ 311,902   $ 275,659  
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 40,499 $ 36,027
Accrued liabilities 34,834 33,825
Current portion of debt and capital lease obligations 388   79,443  
Total current liabilities 75,721 149,295
Deferred income taxes 185
Long-term debt, net of deferred financing costs of $0 and $1,709 31,000 37,199
Long-term capital lease obligations 3,631 3,829
Other long-term liabilities 167   183  
Total liabilities 110,519 190,691
Commitments and contingencies
Shareholders' and members' equity
Members' equity 212,630
Preferred shares, $0.01 par value, 10,000,000 authorized; none
issued and outstanding
Common shares, $0.01 par value, 150,000,000 authorized; 33,765,486
issued; 33,630,934 outstanding
340
Additional paid-in-capital 344,013
Treasury stock, at cost, 134,552 common shares (1,271 )
Accumulated deficit (141,699 ) (127,662 )
Total shareholders' and members' equity 201,383   84,968  
Total liabilities, shareholders' and members' equity $ 311,902   $ 275,659  
 
 
Quintana Energy Services Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands of dollars)
(Unaudited)
 
          Six Months Ended
June 30, 2018       June 30, 2017
Cash flows from operating activities:
Net loss $ (14,222 ) $ (14,786 )
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 22,233 23,026
Gain on disposition of assets (3,068 ) (6,625 )
Non-cash interest expense 855 2,945
Loss on debt extinguishment 8,594
Provision for doubtful accounts 460 90
Deferred income tax benefit (26 )
Stock-based compensation 12,826
Changes in operating assets and liabilities:
Accounts receivable (12,567 ) (22,719 )
Unbilled receivables (3,204 ) (7,084 )
Inventories (5,051 ) (544 )
Prepaid expenses and other current assets 1,331 (1,071 )
Other noncurrent assets (176 ) 168
Accounts payable 3,413 (2,114 )
Accrued liabilities 1,009 11,961
Other long-term liabilities (15 ) (33 )
Net cash provided by (used in) operating activities 12,418   (16,812 )
Cash flows from investing activities:
Purchases of property, plant and equipment (41,194 ) (8,689 )
Proceeds from sale of property, plant and equipment 3,911   31,131  
Net cash (used in) provided by investing activities (37,283 ) 22,442  
Cash flows from financing activities:
Proceeds from revolving debt 33,000 2,485
Payments on revolving debt (81,071 ) (13,414 )
Proceeds from term loans 5,000
Payments on term loans (11,225 )
Payments on capital lease obligations (182 ) (142 )
Payment of deferred financing costs (1,416 )
Prepayment premiums on early debt extinguishment (1,346 )
Payments for treasury shares (1,271 )
Proceeds from new shares issuance, net of underwriting commission
costs
90,542
Costs incurred for stock issuance (2,673 )  
Net cash provided by (used in) financing activities 24,358   (6,071 )
Net decrease in cash and cash equivalents (507 ) (441 )
Cash and cash equivalents beginning of period 8,751   12,219  
Cash and cash equivalents end of period $ 8,244   $ 11,778  
 

Supplemental cash flow information

Cash paid for interest 1,119 2,289
Income taxes paid 151 167
Supplemental noncash investing and financing activities
Noncash proceeds from sale of assets held for sale 3,990
Fixed asset purchases in accounts payable and accrued liabilities 570
Non cash payment for property, plant and equipment 3,279
Debt conversion of term loan to equity 33,631
Issuance of common shares for members' equity 212,630
Stock issuance cost included in accounts payable 501
 
 
Quintana Energy Services Inc.
Additional Selected Operating Data
(Unaudited)
 
          Three Months Ended
June 30, 2018     March 31, 2018     June 30, 2017
(Unaudited)
Other Operational Data:    
Directional Drilling rig days (1) (2) 4,108 3,706 3,667
Average monthly Directional Drilling rigs on revenue (3) 61 57 57
Total hydraulic fracturing stages 945 963 715
Average hydraulic fracturing revenue per stage $ 56,000 $ 52,477 $ 48,173
 
 
    (1)   Rig days represent the number of days we are providing services to
rigs and are earning revenues during the period, including days that
standby revenues are earned.
(2) Rigs on revenue represents the number of rigs earning revenues
during a time period, including days that standby revenues are
earned.
(3) Includes unconventional stages and conventional jobs, the latter are
counted as a single stage.

Non-GAAP Financial Measures

Adjusted EBITDA is a supplemental non-GAAP financial measure that is
used by management and external users of our financial statements, such
as industry analysts, investors, lenders and rating agencies.

Adjusted EBITDA is not a measure of net income or cash flows as
determined by GAAP. We define Adjusted EBITDA as net income or (loss)
plus income taxes, net interest expense, depreciation and amortization,
impairment charges, net (gain) or loss on disposition of assets, stock
based compensation, transaction expenses, rebranding expenses,
settlement expenses, severance expenses and equipment standup expense.

We believe Adjusted EBITDA is useful because it allows us to more
effectively evaluate our operating performance and compare the results
of our operations from period to period without regard to our financing
methods or capital structure. We exclude the items listed above in
arriving at Adjusted EBITDA because these amounts can vary substantially
from company to company within our industry depending upon accounting
methods and book values of assets, capital structures and the method by
which the assets were acquired. Adjusted EBITDA should not be considered
as an alternative to, or more meaningful than, net income as determined
in accordance with GAAP, or as an indicator of our operating performance
or liquidity. Certain items excluded from Adjusted EBITDA are
significant components in understanding and assessing a company's
financial performance, such as a company's cost of capital and tax
structure, as well as the historic costs of depreciable assets, none of
which are components of Adjusted EBITDA. Our computations of Adjusted
EBITDA may not be comparable to other similarly titled measures of other
companies.

The following tables present reconciliations of Adjusted EBITDA to the
most directly comparable GAAP financial measure for the periods
indicated:

 
Quintana Energy Services Inc.
Reconciliation of Net Income (Loss) to adjusted EBITDA
(In thousands of dollars)
(Unaudited)
 
        Three Months Ended
June 30, 2018     March 31, 2018     June 30, 2017
Adjustments to reconcile Adjusted EBITDA to net loss:
Net Income (loss) $ 2,135 $ (16,356 ) $ (3,113 )
Income tax expense (benefit) 326 51 (9 )
Interest expense 433 10,192 2,788
Depreciation and amortization expense 11,155 11,078 11,432
Gain on disposition of assets, net (594 ) (106 ) (332 )
Non-cash stock based compensation 2,940 9,886
Rebranding expense(1) 53
Settlement expense(2) 166 223 913
Severance expense(3) 53 20
Equipment and standup expense(4) 1,251   515   1  
Adjusted EBITDA $ 17,918   $ 15,483   $ 11,700  
 

(1) Relates to expenses incurred in connection with rebranding our
business segments.

(2) For 2017, represents professional fees related to investment
banking, accounting and legal services associated with entering into the
Former Term Loan that were recorded in general and administrative
expenses. For 2018, represents lease buyouts, legal fees and settlement
costs for FLSA claims, facility closures and other non-recurring
expenses that were recorded in general and administrative expenses.

(3) Relates to severance expenses in 2017 incurred in connection with a
program implemented to reduce headcount in connection with the industry
downturn. In our performance for the three months ended June 30, 2018
and 2017, $0.1 million and none was recorded in direct operating
expenses, respectively, and the remainder was recorded in general and
administrative expenses.

(4) Relates to equipment standup costs incurred in connection with the
mobilization and redeployment of assets. In our performance for the
three months ended June 30, 2018, approximately $1.2 million was
recorded in direct operating expenses and approximately $0.1 million was
recorded in general and administration expenses. In our performance for
the three months ended June 30, 2017, a nominal amount was recorded in
direct operating expenses and none was recorded in general and
administration expenses.

 
Quintana Energy Services Inc.
Reconciliation of Segment Adjusted EBITDA to Net Income
(In thousands of dollars)
(Unaudited)
 
          Three Months Ended
June 30, 2018     March 31, 2018     June 30, 2017
Directional Drilling $ 5,242 $ 2,580 $ 4,808
Pressure Pumping 8,884 9,889 7,799
Pressure Control 5,602 3,650 1,860
Wireline 788 2,564 (743 )
Corporate and Other (7,061 ) (13,824 ) (2,958 )
Income tax (expense) benefit (326 ) (51 ) 9
Interest expense (433 ) (10,192 ) (2,788 )
Depreciation and amortization (11,155 ) (11,078 ) (11,432 )
Gain on disposition of assets, net 594   106     332  
Net income (loss) $ 2,135   $ (16,356 )   $ (3,113 )
 
 
Quintana Energy Services Inc.
Segment Adjusted EBITDA Margin
(In thousands of dollars, except percentages)
(Unaudited)
 
          Three Months Ended
June 30, 2018     March 31, 2018     June 30, 2017
Segment Adjusted EBITDA Margin(1)
Directional Drilling
Adjusted EBITDA $ 5,242 $ 2,580 $ 4,808
Revenue 43,605   37,602   37,099  
Adjusted EBITDA Margin Percentage 12.0   6.9   13.0  
Pressure Pumping
Adjusted EBITDA 8,884 9,889 7,799
Revenue 56,702   53,400   37,687  
Adjusted EBITDA Margin Percentage 15.7   18.5   20.7  
Pressure Control
Adjusted EBITDA 5,602 3,650 1,860
Revenue 31,965   27,961   22,335  
Adjusted EBITDA Margin Percentage 17.5   13.1   8.3  
Wireline
Adjusted EBITDA 788 2,564 (743 )
Revenue 20,264   $ 22,305   11,336  
Adjusted EBITDA Margin Percentage 3.9   11.5   (6.6 )
 

(1) Segment Adjusted EBITDA Margin is defined as the quotient of Segment
Adjusted EBITDA and total segment revenue. Segment Adjusted EBITDA is
net income (loss) plus income taxes, net interest expense, depreciation
and amortization, impairment charges, net (gain) loss on disposition of
assets, stock based compensation, transaction expenses, rebranding
expenses, settlement expenses, severance expenses and equipment standup
expense.

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