Market Overview

Key Energy Services Reports Second Quarter 2019 Earnings

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HOUSTON, Aug. 08, 2019 (GLOBE NEWSWIRE) -- Key Energy Services, Inc. ("Key" or the "Company") reported second quarter 2019 consolidated revenues of $112.9 million and a net loss of $18.3 million, or $(0.90) per share as compared to consolidated revenues of $109.3 million and a net loss of $23.4 million, or $(1.15) per share, for the first quarter of 2019. The results for the second quarter of 2019 include a $2.2 million, or $0.11 per share, one-time fee associated with a one-time tax refund, expenses of $1.3 million, or $0.07 per share, associated with certain equity awards, and gains on the sale of assets of $1.8 million, or $0.09 per share. Excluding these items, the Company reported a net loss of $16.6 million, or $(0.81) per share for the second quarter of 2019. The results for the first quarter of 2019 include expenses of $0.7 million, or $0.04 per share, associated with certain equity awards, and loss on the sale of assets of $0.4 million, or $0.02 per share. Excluding these items, the Company reported a net loss of $22.3 million, or $(1.09) per share for the first quarter of 2019.

Overview and Outlook

Key's President and Chief Executive Officer, Rob Saltiel, stated, "Activity levels in our Rigs, Fishing and Rental and Coiled Tubing segments improved in the second quarter despite weather and the challenging market conditions. As we moved past the July 4th holiday week, we have seen improvement in demand for all of our lines of business compared to what we experienced at the end of the second quarter.  We will continue to manage our cash and liquidity position as we pursue opportunities to deploy additional assets through the second half of 2019."

Saltiel continued, "While we are pleased to see some recovery in the second quarter and after the July holiday, we are not satisfied with our financial performance. We have a number of initiatives underway to improve the cash we generate from our operations. While some of these are in the early stages, we expect to see their impact on our financial performance starting in the fourth quarter."

Financial Overview

The following table sets forth summary data for the second of quarter 2019 and prior comparable quarterly periods (in millions, except per share amounts, unaudited):

    Three Months Ended
    June 30, 2019   March 31, 2019   June 30, 2018
Revenues   $ 112.9     $ 109.3     $ 144.4  
Net loss   (18.3 )   (23.4 )   (16.9 )
Diluted loss per share   (0.90 )   (1.15 )   (0.84 )
Adjusted EBITDA   1.6     0.9     12.0  

Second Quarter Segment Results

Second quarter 2019 Rig Services revenues were $67.9 million as compared to first quarter 2019 revenues of $65.0 million, with second quarter 2019 rig hours of approximately 154,017 hours, an increase of 1.8% over the prior quarter. Completion activity, which comprised approximately 15% of total rig hours, fell 3% in the second quarter from first quarter levels.  The segment generated operating income of $5.9 million (8.7% of revenues) and Adjusted EBITDA of $11.6 million (17% of revenue) in the second quarter of 2019, as compared to operating income of $4.5 million (6.9% of revenues) and Adjusted EBITDA of $11.6 million (17.8% of revenue) in the first quarter of 2019. Higher cost of labor due to wage increases during the quarter reduced margins by approximately 100 basis points.

Second quarter 2019 Fluid Management Services revenues were $18.5 million, as compared to the first quarter 2019 revenues of $19.0 million. The segment generated operating income of $0.2 million (1.1% of revenue) and Adjusted EBITDA of $1.6 million (8.6% of revenue) in the second quarter of 2019, as compared to operating income of $0.1 million (0.6% of revenue) and Adjusted EBITDA of $2.2 million (11.6% of revenue) in the first quarter of 2019. Lower completion driven activity, primarily in the Permian basin due to customers' schedules and competitive market conditions, resulted in the decline in revenues. Higher costs associated with salt water disposal well repairs and labor also weighed on results quarter on quarter.

Second quarter 2019 Fishing & Rental Services revenues were $14.8 million, as compared to first quarter 2019 revenues of $14.6 million. The segment generated an operating loss of $1.8 million ((12.3)% of revenue) and Adjusted EBITDA of $2.1 million (14.2% of revenue) in the second quarter of 2019, as compared to an operating loss of $1.1 million ((7.7)% of revenue) and Adjusted EBITDA of $2.7 million (18.4% of revenue) in the first quarter of 2019. While growth in the Permian and Bakken drove revenues higher quarter, on quarter offsetting an activity decline in the Central U.S., the incremental margin did not offset cost inefficiencies associated with that activity decline.

Second quarter 2019 Coiled Tubing Services revenues were $11.7 million, as compared to first quarter 2019 revenues of $10.7 million. Utilization of large diameter coiled tubing units remained fairly flat quarter on quarter, averaging approximately 2.5 units with revenue increasing due to more favorable job and geographic mix. The segment generated an operating loss of $1.4 million ((12.3)% of revenue) and negative Adjusted EBITDA of $0.3 million ((2.4)% of revenue) in the second quarter of 2019, as compared to an operating loss of $2.1 million ((20.0)% of revenue) and negative Adjusted EBITDA of $0.8 million ((7.8)% of revenue) in the first quarter of 2019.

General and Administrative Expenses        

General and Administrative (G&A) expenses were $22.5 million for the second quarter of 2019, compared to $22.1 million in the prior quarter. Second quarter 2019 G&A expenses included a $2.2 million one-time fee associated with a one-time tax refund and $1.3 million of stock-based compensation expense, as compared to $0.7 million of stock-based compensation expense for the first quarter of 2019.

Liquidity

As of June 30, 2019, Key had total liquidity of $50.4 million, consisting of $29.3 million in unrestricted cash and $21.1 million of borrowing capacity available under the Company's $100.0 million asset-based loan facility. This compares to total liquidity at March 31, 2019 of $57.3 million, consisting of $35.7 million in unrestricted cash and $21.6 million of borrowing capacity available under the Company's $100.0 million asset-based loan facility. The Company has no outstanding borrowings under its $100.0 million asset-based loan facility. Capital expenditures for the second quarter of 2019 were $7.3 million with $2.4 million in asset sale proceeds for the same period. Capital expenditures for the first six months of 2019 were $12.4 million, with $4.8 million in asset sale proceeds for the same period.

Conference Call Information         

As previously announced, Key management will host a conference call to discuss its second quarter 2019 financial results on Friday, August 9, 2019 at 10:00 a.m. CDT. Callers from the U.S. and Canada should dial 888-794-4637 to access the call. International callers should dial 352-204-8973. All callers should ask for the "Key Energy Services Conference Call" or provide the access code 2797019. The conference call will also be available live via the internet. To access the webcast, go to www.keyenergy.com and select "Investor Relations."

A telephonic replay of the conference call will be available on Friday, August 9, 2019, beginning approximately two hours after the completion of the conference call and will remain available for two weeks. To access the replay, call 855-859-2056 or 800-585-8367. The access code for the replay is 2797019. The replay will also be accessible at www.keyenergy.com under "Investor Relations" for a period of at least 90 days.

Consolidated Statements of Operations (in thousands, except per share amounts, unaudited):

    Three Months Ended   Six Months Ended
    June 30, 2019   March 31, 2019   June 30, 2018   June 30, 2019   June 30, 2018
REVENUES   $ 112,943     $ 109,273     $ 144,405     $ 222,216     $ 269,721  
COSTS AND EXPENSES:                    
Direct operating expenses   90,564     88,194     109,747     178,758     207,958  
Depreciation and amortization expense   14,262     14,296     20,717     28,558     41,073  
General and administrative expenses   22,544     22,095     22,854     44,639     47,428  
Operating loss   (14,427 )   (15,312 )   (8,913 )   (29,739 )   (26,738 )
Interest expense, net of amounts capitalized   8,520     9,233     8,573     17,753     16,717  
Other income, net   (239 )   (1,142 )   (752 )   (1,381 )   (1,759 )
Loss before income taxes   (22,708 )   (23,403 )   (16,734 )   (46,111 )   (41,696 )
Income tax (expense) benefit   4,405     (38 )   (161 )   4,367     (162 )
NET LOSS   $ (18,303 )   $ (23,441 )   $ (16,895 )   $ (41,744 )   $ (41,858 )
Loss per share:                    
Basic and diluted   $ (0.90 )   $ (1.15 )   $ (0.84 )   $ (2.05 )   $ (2.07 )
Weighted average shares outstanding:                    
Basic and diluted   20,387     20,369     20,231     20,375     20,224  
                               


Segment Revenue and Operating Income (in thousands, except for percentages, unaudited):

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