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Quintana Energy Services Reports First Quarter 2019 Results

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Quintana Energy Services Inc. (NYSE:QES) ("QES" or the "Company") today
reported financial and operating results for the first quarter ended
March 31, 2019.

First Quarter 2019 Financial Results

First quarter 2019 revenue was $141.7 million, up 0.3% from $141.3
million in the first quarter 2018. First quarter 2019 net loss was $8.9
million and Adjusted EBITDA was $7.6 million, compared to a net loss of
$1.6 million and Adjusted EBITDA of $13.9 million for the fourth quarter
of 2018, and a net loss of $16.4 million and Adjusted EBITDA of $15.5
million in the first quarter of 2018. 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,
"Despite a challenging market backdrop and challenging weather
conditions, we had a strong quarter across our Directional Drilling,
Wireline and Pressure Control businesses. While the performance in our
Pressure Pumping business has been negatively impacted by weak
fundamentals, we are taking the steps needed to adjust capacity and
utilization levels to better position Pressure Pumping for success in
the current market.

  • In Directional Drilling, we continued to realize high utilization and
    strong field performance despite a broader market decline in active
    rig count.
  • In Wireline, improvements in our unconventional completions field
    level utilization drove sequential top-line growth of 60% and a return
    to positive Adjusted EBITDA for the quarter.
  • In Pressure Control, we recovered from a slow start to 2019 at the end
    of the first quarter and realized full utilization from both of our
    large diameter coil tubing units which were delivered in the fourth
    quarter. We will continue to focus on increasing our large diameter
    coil tubing capacity throughout 2019.
  • In Pressure Pumping, we made the decision to idle two hydraulic
    fracturing spreads and have further consolidated our activities to
    increase utilization and field-level efficiencies. We continue to
    deliver leading performance in the field for our customers and are
    beginning to see improved utilization levels.

Our team remains focused on free cash flow. As of the end of the first
quarter 2019, our net debt balance was $16.1 million, largely flat to
the prior quarter. We remain on track with our previously announced
reduced capex spend of approximately $45 million for 2019, of which
approximately $15 million will go toward our most attractive growth
investment opportunities and the remainder towards expected maintenance
needs.

The current market remains challenging. While commodity prices have
improved, that has not translated into additions to rig count or
material improvements in completions activity. However, based on our
conversations with customers we do believe we will begin to see
improvements on both fronts as we progress through the second quarter.

We continue to pursue opportunities to strengthen the QES platform and
create value through strategic consolidation. We see consolidation as an
attractive avenue to accelerate and drive much needed efficiencies and
improved returns while adding size, scale and enhanced liquidity for
shareholders. Here too, we are optimistic that the opportunity to
execute and create meaningful value through consolidation is improving,"
concluded Herndon.

Business Segment Results

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
$62.0 million in the first quarter of 2019, up approximately 2.6%
compared to revenue of $60.4 million in the fourth quarter of 2018 and
up 64.9% from the first quarter of 2018. First quarter 2019 Adjusted
EBITDA was $9.5 million, compared to Adjusted EBITDA of $9.4 million for
the fourth quarter of 2018. The sequential increases in revenue and
Adjusted EBITDA were primarily due to increased pricing associated with
increased deployment of specialized technology. In the first quarter of
2018, revenue was $37.6 million and Adjusted EBITDA was $2.6 million.

Pressure Pumping

The Pressure Pumping segment primarily provides hydraulic fracturing
services to E&P companies in the Mid-Con. Revenue for the segment
decreased 47.1% to $28.6 million in the first quarter of 2019, down from
$54.1 million in the fourth quarter of 2018. The sequential decrease in
revenue was primarily attributable to the stacking of two of four
hydraulic fracturing fleets during the first quarter, which drove a
corresponding 11.4% decrease in stages. Additionally we experienced a
40.0% decrease in average revenue per stage to $31,501 for the three
months ended March 31, 2019. First quarter 2019 Adjusted EBITDA was a
loss of $3.5 million, compared to Adjusted EBITDA of $4.1 million for
the fourth quarter of 2018. The sequential decrease in Adjusted EBITDA
was primarily attributable to a 47.1% decrease in revenue driven by
market conditions and customer delays which resulted in decreased
hydraulic fracturing activity and reduced pricing. In the first quarter
of 2018, revenue was $53.4 million and Adjusted EBITDA was $9.9 million.

Pressure Control

The Pressure Control segment consists of coiled tubing, rig-assisted
snubbing, nitrogen, fluid pumping and well control services. Revenue for
the segment decreased 8.9% to $28.8 million in the first quarter of
2019, down from $31.6 million in the fourth quarter of 2018. First
quarter 2019 Adjusted EBITDA was $3.2 million, compared to Adjusted
EBITDA of $4.7 million for the fourth quarter of 2018. The sequential
decreases in revenue and Adjusted EBITDA were primarily due to decreases
in coiled tubing pricing, nitrogen volumes and well control activity
during the first quarter of 2019. In the first quarter of 2018, revenue
was $28.0 million and Adjusted EBITDA was $3.7 million.

Wireline

The Wireline segment primarily provides cased-hole wireline services to
E&P companies. Revenue for the segment increased 62.8% to $22.3 million
in the first quarter of 2019 from $13.7 million in the fourth quarter of
2018. First quarter 2019 Adjusted EBITDA was $2.1 million, compared to
an Adjusted EBITDA loss of $1.3 million for the fourth quarter of 2018.
The sequential increases in revenue and Adjusted EBITDA were primarily
due to increased crew utilization, increased pricing as work mix shifted
towards multi-well unconventional pads and the successful completion of
Wireline's reorganization. In the first quarter of 2018, revenue was
$22.3 million and Adjusted EBITDA was $2.6 million.

Other Financial Information

General and administrative ("G&A") expense for the first quarter of 2019
increased to $15.7 million compared to the fourth quarter's G&A expense
of $13.8 million, and decreased by $4.6 million, compared to $20.3
million for the first quarter of 2018. The sequential increase in G&A
expense compared to the fourth quarter was primarily the additional
administrative expenses related to being a publicly traded company and
related expenses. The year over year decrease in G&A expenses was
primarily driven by a lower stock based compensation expense of $2.8
million during the first quarter of 2019, partially offset by increased
headcount and additional administrative expenses related to being a
publicly traded company and related expenses.

Capital expenditures totaled $12.6 million during the first quarter of
2019, compared to capital expenditures of $11.8 million in the fourth
quarter of 2018, and $12.4 million in the first quarter of 2018. Capital
spending during the first quarter of 2019 was driven by pressure pumping
equipment lease buyouts, Directional Drilling's expenditures on motors,
a new robotics cell for our machine shop and overall maintenance capital
expenditures, compared to the fourth quarter of 2018 where expenditures
stabilized following the deployment of the fourth hydraulic fracturing
fleet.

First quarter interest expense of $0.7 million was consistent with the
fourth quarter's interest expense, and down from $10.2 million in the
first quarter of 2018. The first quarter interest expense decrease over
prior year period was primarily due to a lower debt outstanding balance
during the first quarter of 2019.

The Company's balance sheet remains a significant strength and a key
differentiator versus our peers. QES ended the first quarter of 2019
with a total debt balance of $37.0 million, $20.9 million of cash on
hand, and $45.2 million of net availability under its senior secured
asset-based revolving credit facility.

Share Repurchase Plan

On August 8, 2018, QES' Board of Directors approved a $6.0 million stock
repurchase program authorizing the Company to repurchase common stock in
the open market. The timing and amount of stock repurchases will depend
on market conditions and corporate, regulatory and other relevant
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, subject to the
Company's insider trading policy, at the Company's discretion. As of
March 31, 2019, 0.2 million share repurchases were made under this
program.

Conference Call Information

QES has scheduled a conference call for 9:00 a.m. Central Time (10:00
a.m. Eastern Time) on Thursday, May 9, 2019, to review reported results.
You may access the call by telephone at 1-201-389-0867 and asking for
the QES 2019 First 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 May 16, 2019, at (201)
612-7415, access code 13689715#.

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 U.S. dollars and shares, except per share
amounts
)

(Unaudited)

 
Three Months Ended

March 31,
2019

   

December 31,
2018

   

March 31,
2018

Revenues: $ 141,665 $ 159,653 $ 141,268
Costs and expenses:
Direct operating costs 121,551 135,393 116,097
General and administrative 15,710 13,834 20,312
Depreciation and amortization 12,440 12,417 11,078
Gain on disposition of assets (23 ) (1,046 ) (106 )
Operating loss (8,013 ) (945 ) (6,113 )

Non-operating expense:

Interest expense (671 ) (626 ) (10,192 )
Loss before income tax (8,684 ) (1,571 ) (16,305 )
Income tax expense (177 ) (37 )   (51 )
Net loss (8,861 ) (1,608 ) (16,356 )
Net loss attributable to predecessor     (1,546 )
Net loss attributable to Quintana Energy Services Inc. $ (8,861 ) $ (1,608 ) $ (14,810 )
Net loss per common share:
Basic $ (0.26 ) $ (0.05 ) $ (0.44 )
Diluted $ (0.26 ) $ (0.05 ) $ (0.44 )
Weighted average common shares outstanding:
Basic 33,685 33,600 33,318
Diluted 33,685 33,600 33,318

     

Quintana Energy Services Inc.

Condensed Consolidated Balance Sheets

(in thousands of U.S. dollars, except per share and share
amounts
)

 
March 31, 2019 December 31, 2018
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 20,890 $ 13,804
Accounts receivable, net of allowance of $1,834 and $1,841 96,495 101,620
Unbilled receivables 8,427 13,766
Inventories 24,636 23,464
Prepaid expenses and other current assets 6,006   7,481  
Total current assets 156,454 160,135
Property, plant and equipment, net 153,670 153,878
Operating lease right-of-use asset 25,581
Intangible assets, net 8,566 9,019
Other assets 1,428   1,517  
Total assets $ 345,699   $ 324,549  
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,694 $ 51,568
Accrued liabilities 35,460 37,533
Other current liabilities 8,344   422  
Total current liabilities 92,498 89,523
Long-term debt 37,000 29,500
Long-term operating lease liabilities 17,820
Long-term finance lease obligations 3,895 3,451
Deferred tax liability 190 130
Other long-term liabilities 26   125  
Total liabilities 151,429 122,729
Commitments and contingencies
Shareholders' equity:
Preferred shares, $0.01 par value, 10,000,000 authorized; none
issued and outstanding
Common shares, $0.01 par value, 150,000,000 authorized; 34,382,599
issued; 33,869,589 outstanding
347 344
Additional paid-in-capital 351,828 349,080
Treasury shares, at cost, 513,010 and 232,892 common shares (3,261 ) (1,821 )
Accumulated deficit (154,644 ) (145,783 )
Total shareholders' equity 194,270   201,820  
Total liabilities and shareholders' equity $ 345,699   $ 324,549  

   

Quintana Energy Services Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands of U.S. dollars)

(Unaudited)

 
Three Months Ended
March 31, 2019     March 31, 2018
Cash flows from operating activities:
Net loss $ (8,861 ) $ (16,356 )
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 12,440 11,078

Gain on disposition of assets

(3,270 ) (458 )
Non-cash interest expense 87 764
Loss on debt extinguishment 8,594
Provision for doubtful accounts 257 159
Deferred income tax expense 40
Stock-based compensation 2,751 9,886
Changes in operating assets and liabilities:
Accounts receivable 4,869 (1,411 )
Unbilled receivables 5,338 1,422
Inventories (1,172 ) (3,789 )
Prepaid expenses and other current assets 1,867 459
Other noncurrent assets 3
Accounts payable (2,078 ) 1,508
Accrued liabilities (1,518 ) (1,448 )
Other long-term liabilities   (99 )   (7 )
Net cash provided by operating activities   10,654     10,401  
Cash flows from investing activities:
Purchases of property, plant and equipment (12,284 ) (10,705 )
Advances of deposit on equipment (354 ) (1,709 )
Proceeds from sale of property, plant and equipment   3,754     998  

Net cash used in investing activities

  (8,884 )   (11,416 )
Cash flows from financing activities:
Proceeds from revolving debt 7,500 15,000
Payments on revolving debt (81,071 )
Payments on term loans (11,225 )
Payments on finance leases (122 ) (90 )
Payments on financed payables (617 )
Payment of deferred financing costs (1,416 )
Prepayment premiums on early debt extinguishment (1,346 )
Payments for treasury shares (1,445 ) (1,271 )
Proceeds from new shares issuance, net of underwriting commissions 90,541
Costs incurred for stock issuance       (212 )
Net cash provided by financing activities   5,316     8,910  

Net increase in cash and cash equivalents

  7,086     7,895  
Cash and cash equivalents beginning of period   13,804     8,751  
Cash and cash equivalents end of period $ 20,890   $ 16,646  
 
 
Supplemental cash flow information
Cash paid for interest $ 548 $ 792
Income taxes refund 6
Supplemental non-cash investing and financing activities
Fixed asset purchases in accounts payable and accrued liabilities 1,096 832
Financed payables 392
Non-cash capital lease additions 720
Non-cash payment for property, plant and equipment 682
Debt conversion of Former Term Loan to equity 33,632
Issuance of common shares for members' equity 212,630
Stock issuance cost included in accounts payable $ $ 1,967

   

Quintana Energy Services Inc.

Additional Selected Operating Data

(Unaudited)

 
Three Months Ended

March 31,
2019

   

December 31,
2018

   

March 31,
2018

Other Operational Data:
Directional Drilling rig days (1) (2) 5,279 5,564 3,706
Average monthly Directional Drilling rigs on revenue (3) 82 82 57
Total hydraulic fracturing stages 853 1,363 963
Average hydraulic fracturing revenue per stage $ 31,501 $ 37,479 $ 52,477
         
(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 a reconciliation of the non-GAAP financial
measures of Adjusted EBITDA to the most directly comparable GAAP
financial measure for the periods indicated:

   

Quintana Energy Services Inc.

Reconciliation of Net Loss to Adjusted EBITDA

(In thousands of U.S. dollars)

(Unaudited)

 
Three Months Ended

March 31,
2019

   

December 31,
2018

   

March 31,
2018

Net loss $ (8,861 ) $ (1,608 ) $ (16,356 )
Income tax expense 177 37 51
Interest expense 671 626 10,192
Depreciation and amortization expense 12,440 12,418 11,078
Gain on disposition of assets, net (23 ) (1,046 ) (106 )
Non-cash stock based compensation 2,751 2,503 9,886
Rebranding expense (1) 16 74
Settlement expense (2) 383 304 223
Severance expense (3) 107
Equipment and stand-up expense (4)   517   515  
Adjusted EBITDA $ 7,554   $ 13,932   $ 15,483  
 
(1) Relates to expenses incurred in connection with
rebranding our business segments.
(2) For 2019, represents legal fees for FLSA claims and
other non-recurring expenses that were recorded in general and
administrative expenses. For 2018, represents legal fees for FLSA
claims, facility closures and other non-recurring expenses that were
recorded in general and administrative expenses.

(3) Relates to severance expenses incurred in
connection with a program implemented to reduce headcount. In our
performance for the three months ended December 31, 2018, $0.1
million was recorded in general and administrative expenses. All
severance expenses in the fourth quarter of 2018 were recorded in
general and administrative expenses.

(4) Relates to equipment stand-up costs incurred in
connection with the mobilization and redeployment of assets. In our
actual performance for the three months ended March 31, 2018,
primarily represents costs relating to the deployment of our third
pressure pumping fleet, of which, approximately $0.4 million was
recorded in direct operating expenses and approximately $0.1 million
was recorded in general and administrative expenses. In our
performance for the three months ended December 31, 2018,
approximately $0.5 million was recorded in direct operating expenses.
   

Quintana Energy Services Inc.

Reconciliation of Segment Adjusted EBITDA to Net Loss

(In thousands of U.S. dollars)

(Unaudited)

 
Three Months Ended

March 31,
2019

   

December 31,
2018

   

March 31,
2018

Directional Drilling $ 9,480 $ 9,420 $ 2,580
Pressure Pumping (3,504 ) 4,131 9,889
Pressure Control 3,241 4,716 3,650
Wireline 2,064 (1,251 ) 2,564
Corporate and Other (6,877 ) (6,589 ) (13,824 )
Income tax expense (177 ) (37 ) (51 )
Interest expense (671 ) (626 ) (10,192 )
Depreciation and amortization (12,440 ) (12,418 ) (11,078 )
Gain on disposition of assets, net   23     1,046     106  
Net loss $ (8,861 ) $ (1,608 ) $ (16,356 )
 
 

Quintana Energy Services Inc.

Segment Adjusted EBITDA Margin

(In thousands of U.S. dollars, except percentages)

(Unaudited)

 
Three Months Ended

March 31,
2019

December 31,
2018

March 31,
2018

Segment Adjusted EBITDA Margin(1)
Directional Drilling
Adjusted EBITDA $ 9,480 $ 9,420 $ 2,580
Revenue   61,956     60,365     37,602  
Adjusted EBITDA Margin Percentage   15.3     15.6     6.9  
Pressure Pumping
Adjusted EBITDA (3,504 ) 4,131 9,889
Revenue   28,631     54,064     53,400  
Adjusted EBITDA Margin Percentage   (12.2 )   7.6     18.5  
Pressure Control
Adjusted EBITDA 3,241 4,716 3,650
Revenue   28,775     31,557     27,961  
Adjusted EBITDA Margin Percentage   11.3     14.9     13.1  
Wireline
Adjusted EBITDA 2,064 (1,251 ) 2,564
Revenue   22,303     13,667     22,305  
Adjusted EBITDA Margin Percentage   9.3     (9.2 )   11.5  
         
(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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