HOUSTON, Aug. 6, 2014 /PRNewswire/ -- Key Energy
Services, Inc. (NYSE: KEG) reported second quarter 2014
consolidated revenues of $350.6
million and a pre-tax loss of $61.7
million, or $0.34 per share.
These results include a $0.19 loss
due to a goodwill and other assets impairment related to the
Company's operations in Russia and
a $0.04 loss due to the previously
disclosed expenses including severance, primarily in Mexico, mobilization and make-ready expenses
related to rigs moved from Mexico
to the U.S. and expenses associated with the previously disclosed
Foreign Corrupt Practices Act ("FCPA") investigations. First
quarter 2014 consolidated revenues were $356.1 million with a pre-tax loss of
$19.6 million, or $0.08 per share, which included $0.01 of loss due to severance, primarily in
Mexico and a $0.01 loss due to severe weather disruptions.
The following table sets forth summary data for the second
quarter 2014 and prior comparable quarterly periods.
|
|
|
|
|
|
|
|
|
Three Months
Ended (unaudited)
|
|
|
June 30,
2014
|
|
March 31,
2014
|
|
June 30,
2013
|
|
|
(in
millions, except per share amounts)
|
|
|
|
|
|
|
|
Revenues
|
|
$ 350.6
|
|
$ 356.1
|
|
$ 411.4
|
Loss attributable to
Key
|
|
(52.2)
|
|
(11.9)
|
|
(4.1)
|
Diluted loss per
share attributable to Key
|
|
(0.34)
|
|
(0.08)
|
|
(0.03)
|
Adjusted
EBITDA
|
|
33.6
|
|
46.3
|
|
73.8
|
U.S. Segment
Second quarter 2014 U.S. revenues were $324.5 million, flat compared to $324.0 million in the first quarter 2014. Second
quarter operating income was $24.1
million, or 7.4% of revenue, compared to $35.7 million, or 11.0% of revenue, in the first
quarter. Rig hours outside of California and the Permian Basin increased at
a more than seasonal pace, which helped offset declines in those
markets. Operating income margins were negatively impacted by
activity disruptions late in the quarter in Coiled Tubing Services
and by costs associated with moving rigs from Mexico to the U.S.
International Segment
Second quarter 2014 International revenues were $26.1 million, down 18.8% compared to first
quarter 2014 revenues of $32.1
million. Second quarter operating loss was $36.8 million, or -141.3% of revenues, compared
to first quarter operating loss of $10.5
million, or -32.7% of revenues. Operating income margins
were adversely impacted by $28.7
million of goodwill and other assets impairment associated
with the Company's operations in Russia and $1.0
million of severance primarily associated with the
downsizing of our Mexico
operations. Excluding the goodwill and other assets impairment,
operating loss was $8.2 million, or
-31.3% of revenues.
General and Administrative Expenses
General and Administrative (G&A) expenses were $57.9 million, or 16.5% of revenues, for the
second quarter compared to $52.9
million, or 14.8% of revenues, in the prior quarter. The
sequential increase is primarily attributable to expenses
associated with the previously disclosed FCPA investigations.
Capital Expenditures and Balance Sheet
Capital expenditures were $40.9
million during the second quarter 2014. Key's consolidated
cash balance at June 30, 2014 was
$23.4 million compared to
$40.9 million at March 31, 2014. Total debt at June 30, 2014 was $718.7
million compared to total debt of $763.8 million at March
31, 2014. At the end of the quarter, there was $460.9 million undrawn under the Company's
$550 million senior secured credit
facility with $189 million available
considering covenant constraints. Net debt to total capitalization
at June 30, 2014 was 36.5%.
Overview and Outlook
Key's Chairman, President and Chief Executive Officer,
Dick Alario, stated, "Our U.S.
business delivered flat revenue and lower margins during the second
quarter. Given that these results did not meet our expectations,
changes are underway to take advantage of market opportunities and
improve performance. These steps include flattening the management
structure, changing reporting relationships and placing certain
lines of business under new management.
"In our International segment, we remain encouraged that Mexican
energy reform continues to progress. Also, due to the decline in
oil production in our principal operating regions, we believe that
demand for our services is building.
"For our production-driven businesses in the U.S., we believe
the favorable oil price environment will support increased levels
of demand. We also believe that the aging of the oil well inventory
will lead operators to shift more resources to well interventions
to optimize the significant investments that have been made over
the past several years."
Conference Call Information
As previously announced, Key management will host a conference
call to discuss its second quarter 2014 financial results on
Thursday, August 7, 2014 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
660-422-4879. All callers should ask for the "Key Energy Services
Conference Call" or provide the access code 76087755. 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
Thursday, August 7, 2014, beginning
approximately two hours after the completion of the conference call
and will remain available for one week. To access the replay, call
855-859-2056 or 800-585-8367. The access code for the replay is
76087755. The replay will also be accessible at www.keyenergy.com
under "Investor Relations" for a period of at least 90 days.
Contact:
West Gotcher, Investor Relations
713-757-5539
Consolidated
Statements of Operations (in thousands, except per share amounts,
unaudited):
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|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
|
|
June 30,
2014
|
|
March 31,
2014
|
|
June 30,
2013
|
|
June 30,
2014
|
|
June 30,
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$ 350,595
|
|
$ 356,141
|
|
$ 411,390
|
|
$ 706,736
|
|
$ 839,839
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating
expenses
|
|
262,883
|
|
258,302
|
|
287,102
|
|
521,185
|
|
586,284
|
|
Depreciation and
amortization expense
|
|
52,184
|
|
51,095
|
|
58,208
|
|
103,279
|
|
112,401
|
|
General and
administrative expenses
|
|
57,881
|
|
52,866
|
|
57,736
|
|
110,747
|
|
120,981
|
|
Goodwill and
tradenames impairment
|
|
28,687
|
|
-
|
|
-
|
|
28,687
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
(51,040)
|
|
(6,122)
|
|
8,344
|
|
(57,162)
|
|
20,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
of amounts capitalized
|
|
13,426
|
|
13,554
|
|
13,984
|
|
26,980
|
|
27,788
|
|
Other (income) loss,
net
|
|
(2,733)
|
|
(69)
|
|
430
|
|
(2,802)
|
|
(793)
|
Loss before tax
income taxes
|
|
(61,733)
|
|
(19,607)
|
|
(6,070)
|
|
(81,340)
|
|
(6,822)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
benefit
|
|
9,537
|
|
7,708
|
|
2,298
|
|
17,245
|
|
2,864
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(52,196)
|
|
(11,899)
|
|
(3,772)
|
|
(64,095)
|
|
(3,958)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income attributable
to noncontrolling interest
|
|
-
|
|
-
|
|
356
|
|
-
|
|
444
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
ATTRIBUTABLE TO KEY
|
|
$ (52,196)
|
|
$ (11,899)
|
|
$ (4,128)
|
|
$ (64,095)
|
|
$ (4,402)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
attributable to Key:
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
$ (0.34)
|
|
$ (0.08)
|
|
$ (0.03)
|
|
$ (0.42)
|
|
$ (0.03)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
153,496
|
|
152,927
|
|
152,384
|
|
153,157
|
|
152,175
|
Condensed
Consolidated Balance Sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
2014 (unaudited)
|
|
December 31,
2013
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
23,448
|
|
$
28,306
|
|
Other current
assets
|
|
429,043
|
|
477,847
|
|
|
|
|
|
|
Total current
assets
|
|
452,491
|
|
506,153
|
|
|
|
|
|
|
Property and
equipment, net
|
|
1,325,508
|
|
1,365,646
|
Goodwill
|
|
601,839
|
|
624,875
|
Other assets,
net
|
|
77,768
|
|
90,796
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ 2,457,606
|
|
$ 2,587,470
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts
payable
|
|
$
65,679
|
|
$
58,826
|
|
Other current
liabilities
|
|
151,164
|
|
173,518
|
|
|
|
|
|
|
Total current
liabilities
|
|
216,843
|
|
232,344
|
|
|
|
|
|
|
Long-term debt, less
current portion
|
718,704
|
|
763,981
|
Other non-current
liabilities
|
|
333,393
|
|
340,052
|
|
|
|
|
|
|
Equity
|
|
1,188,666
|
|
1,251,093
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
EQUITY
|
|
$
2,457,606
|
|
$ 2,587,470
|
Consolidated Cash
Flow Data (in thousands, unaudited):
|
|
|
|
Three Months
Ended
|
|
|
June 30,
2014
|
|
June 30,
2013
|
|
|
|
|
|
Net cash provided by
operating activities
|
|
$ 107,268
|
|
$ 46,681
|
Net cash used in
investing activities
|
|
(60,040)
|
|
(83,296)
|
Net cash provided by
(used in) financing activities
|
|
(52,005)
|
|
14,917
|
Effect of exchange
rates on cash
|
|
(81)
|
|
484
|
|
|
|
|
|
Net decrease in cash
and cash equivalents
|
|
(4,858)
|
|
(21,214)
|
Cash and cash
equivalents, beginning of period
|
|
28,306
|
|
45,949
|
|
|
|
|
|
Cash and cash
equivalents, end of period
|
|
$ 23,448
|
|
$ 24,735
|
Segment Revenue and Operating Income (in thousands, except
for percentages, unaudited):
|
|
|
Three Months
Ended
|
Revenues
|
|
|
June 30,
2014
|
|
March 31,
2014
|
|
June 30,
2013
|
|
|
|
|
|
|
|
|
U.S.
Operations:
|
|
|
|
|
|
|
|
Rig
Services
|
|
|
$169,980
|
|
$ 164,751
|
|
$173,597
|
Fluid Management
Services
|
|
|
62,087
|
|
61,588
|
|
70,073
|
Coiled Tubing
Services
|
|
|
43,108
|
|
44,495
|
|
54,342
|
Fishing & Rental
Services
|
|
|
49,340
|
|
53,210
|
|
63,686
|
|
|
|
|
|
|
|
|
Total U.S.
Operations
|
|
|
324,515
|
|
324,044
|
|
361,698
|
|
|
|
|
|
|
|
|
International
Operations
|
|
|
26,080
|
|
32,097
|
|
49,692
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
|
$350,595
|
|
$ 356,141
|
|
$411,390
|
|
|
|
|
|
|
|
|
Operating Income
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Operations
|
|
|
$ 24,140
|
|
$ 35,657
|
|
$ 55,093
|
International
Operations
|
|
|
(36,846)
|
|
(10,491)
|
|
(11,006)
|
Functional
Support
|
|
|
(38,334)
|
|
(31,288)
|
|
(35,743)
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
|
$ (51,040)
|
|
$ (6,122)
|
|
$ 8,344
|
|
|
|
|
|
|
|
|
Operating Income
(Loss) % of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Operations
|
|
|
7.4%
|
|
11.0%
|
|
15.2%
|
International
Operations
|
|
|
(141.3)%
|
|
(32.7)%
|
|
(22.1)%
|
Consolidated
Total
|
|
|
(14.6)%
|
|
(1.7)%
|
|
2.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
|
|
|
Revenues
|
|
|
June 30,
2014
|
|
June 30,
2013
|
|
|
|
|
|
|
|
|
|
|
U.S.
Operations:
|
|
|
|
|
|
|
|
Rig
Services
|
|
|
$334,731
|
|
$ 335,347
|
|
|
Fluid Management
Services
|
|
|
123,675
|
|
140,457
|
|
|
Coiled Tubing
Services
|
|
|
87,603
|
|
103,633
|
|
|
Fishing & Rental
Services
|
|
|
102,550
|
|
128,333
|
|
|
|
|
|
|
|
|
|
|
Total U.S.
Operations
|
|
|
648,559
|
|
707,770
|
|
|
|
|
|
|
|
|
|
|
International
Operations
|
|
|
58,177
|
|
132,069
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
|
$706,736
|
|
$ 839,839
|
|
|
|
|
|
|
|
|
|
|
Operating Income
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
|
|
|
|
|
U.S.
Operations
|
|
|
$ 59,797
|
|
$ 93,368
|
|
|
International
Operations
|
|
|
(47,337)
|
|
868
|
|
|
Functional
Support
|
|
|
(69,622)
|
|
(74,063)
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Total
|
|
|
$ (57,162)
|
|
$ 20,173
|
|
|
|
|
|
|
|
|
|
|
Operating Income
(Loss) % of Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Operations
|
|
|
9.2%
|
|
13.2%
|
|
|
International
Operations
|
|
|
(81.4)%
|
|
0.7%
|
|
|
Consolidated
Total
|
|
|
(8.1)%
|
|
2.4%
|
|
|
Following is a reconciliation of net loss as presented in
accordance with United States
generally accepted accounting principles (GAAP) to EBITDA and
Adjusted EBITDA as required under Regulation G of the Securities
Exchange Act of 1934.
Reconciliations of
EBITDA and Adjusted EBITDA to net loss (in thousands, except for
percentages, unaudited):
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
June 30,
2014
|
|
March 31,
2014
|
|
June 30,
2013
|
|
|
|
|
|
|
|
Net loss
|
|
$ (52,196)
|
|
$ (11,899)
|
|
$ (3,772)
|
Income tax
benefit
|
|
(9,537)
|
|
(7,708)
|
|
(2,298)
|
Income attributable
to noncontrolling
interest, excluding depreciation and
amortization
|
|
-
|
|
-
|
|
(512)
|
Interest expense, net
of amounts capitalized
|
|
13,426
|
|
13,554
|
|
13,984
|
Interest
income
|
|
(30)
|
|
(18)
|
|
(84)
|
Depreciation and
amortization
|
|
52,184
|
|
51,095
|
|
58,208
|
|
|
|
|
|
|
|
EBITDA
|
|
$ 3,847
|
|
$ 45,024
|
|
$ 65,526
|
|
|
|
|
|
|
|
%
of revenues
|
|
1.1%
|
|
12.6%
|
|
15.9%
|
|
|
|
|
|
|
|
Severance
costs
|
|
1,043
|
|
1,284
|
|
6,321
|
Cancellation
fees
|
|
-
|
|
-
|
|
1,937
|
Goodwill and other
assets impairment
|
|
28,687
|
|
-
|
|
-
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
|
$ 33,577
|
|
$ 46,308
|
|
$ 73,784
|
|
|
|
|
|
|
|
%
of revenues
|
|
9.6%
|
|
13.0%
|
|
17.9%
|
|
|
|
|
|
|
|
Revenues
|
|
$ 350,595
|
|
$ 356,141
|
|
$411,390
|
"EBITDA" is defined as income or loss attributable to Key
before interest, taxes, depreciation, and amortization.
"Adjusted EBITDA" is EBITDA as further adjusted for certain
non-recurring or extraordinary items such as loss on debt
extinguishment, certain other gains or losses, asset retirements
and impairments, and certain non-recurring transaction or other
costs.
EBITDA and Adjusted EBITDA are non-GAAP measures that are
used as supplemental financial measures by the Company's management
and directors and by external users of the Company's financial
statements, such as investors, to assess:
- The financial performance of the Company's
assets without regard to financing methods, capital structure or
historical cost basis;
- The ability of the Company's assets to
generate cash sufficient to pay interest on its
indebtedness;
- The Company's operating performance and
return on invested capital as compared to those of other companies
in the well services industry, without regard to financing methods
and capital structure; and
- The Company's operating trends underlying
the items that tend to be of a non-recurring nature.
EBITDA and Adjusted EBITDA have limitations as analytical
tools and should not be considered an alternative to net income,
operating income, cash flow from operating activities, or any other
measure of financial performance or liquidity presented in
accordance with GAAP. EBITDA and Adjusted EBITDA exclude some, but
not all, items that affect net income and operating income and
these measures may vary among other companies. Limitations to using
EBITDA and Adjusted EBITDA as an analytical tool include:
- EBITDA and Adjusted EBITDA do not reflect
Key's current or future requirements for capital expenditures or
capital commitments;
- EBITDA and Adjusted EBITDA do not reflect
changes in, or cash requirements necessary to service, interest or
principal payments on Key's debt;
- EBITDA and Adjusted EBITDA do not reflect
income taxes;
- Although depreciation and amortization are
non-cash charges, the assets being depreciated and amortized will
often have to be replaced in the future, and EBITDA and Adjusted
EBITDA do not reflect any cash requirements for such
replacements;
- Other companies in Key's industry may
calculate EBITDA and Adjusted EBITDA differently than Key does,
limiting their usefulness as a comparative measure; and
- EBITDA and Adjusted EBITDA are a different
calculation from earnings before interest, taxes, depreciation and
amortization as defined for purposes of the financial covenants in
the Company's senior secured credit facility, and therefore should
not be relied upon for assessing compliance with
covenants.
Forward-Looking Statements
This press release contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act
of 1995. Any statements as to matters that are not of historic fact
are forward-looking statements. These forward-looking statements
are based on Key's current expectations, estimates and projections
about Key, its industry, its management's beliefs and certain
assumptions made by management, and include statements regarding
estimated capital expenditures, future operational and activity
expectations, international growth, and anticipated financial
performance in the third quarter and remainder of 2014. No
assurance can be given that such expectations, estimates or
projections will prove to have been correct. Whenever possible,
these "forward-looking statements" are identified by words such as
"expects," "believes," "anticipates" and similar phrases.
Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and are subject
to certain risks, uncertainties and assumptions that are difficult
to predict, including, but not limited to: risks that Key
will be unable to achieve its financial, capital expenditure and
operational projections, including quarterly and annual projections
of revenue and/or operating income and risks that Key's
expectations regarding future activity levels, customer demand, and
pricing stability may not materialize (whether for Key as a whole
or for geographic regions and/or business segments individually);
risks that fundamentals in the U.S. oil and gas markets may not
yield anticipated future growth in Key's businesses, or could
further deteriorate or worsen from the recent market
declines, and/or that Key could experience further unexpected
declines in activity and demand for its rig service, fluid
management service, coiled tubing service, and fishing and rental
service businesses; risks relating to Key's ability to implement
technological developments and enhancements; risks relating to
compliance with environmental, health and safety laws and
regulations, as well as actions by governmental and regulatory
authorities; risks relating to compliance with the FCPA and
anti-corruption laws, including FCPA investigations affecting Key's
Mexico and Russia businesses; risks affecting Key's
international operations, including risks that Key may not be able
to achieve its international growth and mobilization strategy in
the foreign countries in which Key operates; risks that Key may be
unable to achieve the benefits expected from acquisition and
disposition transactions, and risks associated with integration of
the acquired operations into Key's operations; risks, in responding
to changing or declining market conditions, that Key may not be
able to reduce, and could even experience increases in, the costs
of labor, fuel, equipment and supplies employed and used in Key's
businesses; risks relating to changes in the demand for or the
price of oil and natural gas; risks that Key may not be able to
execute its capital expenditure program and/or that any such
capital expenditure investments, if made, will not generate
adequate returns; and other risks affecting Key's ability to
maintain or improve operations, including its ability to maintain
prices for services under market pricing pressures, weather risks,
and the impact of potential increases in general and administrative
expenses.
Because such statements involve risks and uncertainties, many
of which are outside of Key's control, Key's actual results and
performance may differ materially from the results expressed or
implied by such forward-looking statements. Given these risks and
uncertainties, readers are cautioned not to place undue reliance on
such forward-looking statements. Other important risk factors that
may affect Key's business, results of operations and financial
position are discussed in its most recently filed Annual Report on
Form 10-K, recent Quarterly Reports on Form 10-Q, recent Current
Reports on Form 8-K and in other Securities and Exchange Commission
filings. Unless otherwise required by law, Key also disclaims any
obligation to update its view of any such risks or uncertainties or
to announce publicly the result of any revisions to the
forward-looking statements made here. However, readers should
review carefully reports and documents that Key files periodically
with the Securities and Exchange Commission.
About Key Energy Services
Key Energy Services is the
largest onshore, rig-based well servicing contractor based on the
number of rigs owned. Key provides a complete range of well
intervention services and has operations in all major onshore oil
and gas producing regions of the continental United States and internationally in
Mexico, Colombia, Ecuador, the Middle
East and Russia.
SOURCE Key Energy Services, Inc.