Key Energy Services Generated Third Quarter 2012 Income from
Continuing Operations of $0.15 per Diluted Share
HOUSTON, Oct. 31, 2012 /PRNewswire/ -- Key Energy
Services, Inc. (NYSE: KEG) reported third quarter 2012 consolidated
revenues of $490.9 million,
generating income from continuing operations of $22.1 million, or $0.15 per share. Second quarter 2012 consolidated
revenues were $516.0 million with
income from continuing operations of $31.5
million, or $0.21 per
share.
On a consolidated basis, the Company recorded a net loss of
$38.1 million, or $0.25 per share. This includes a loss of
$60.2 million, or $0.40 per share, associated with the sale of the
Argentina business, reflected in
discontinued operations. Second quarter 2012 consolidated net
income was $29.0 million, or
$0.19 per share, which includes a
loss from discontinued operations of $2.5
million, or $0.02 per
share.
The following table sets forth summary data from continuing
operations for the third quarter 2012 and prior comparable
quarterly periods.
|
Three Months Ended
(unaudited)
|
|
September 30, 2012
|
|
June 30, 2012
|
|
September 30, 2011
|
|
(in millions, except per share
amounts)
|
|
|
|
|
|
|
Revenues
|
$
490.9
|
|
$
516.0
|
|
$
468.5
|
Income
attributable to Key
|
$
22.1
|
|
$
31.5
|
|
$
46.5
|
Diluted
earnings per share attributable to Key
|
$
0.15
|
|
$
0.21
|
|
$
0.31
|
EBITDA
|
$
101.3
|
|
$
114.7
|
|
$
123.5
|
U.S. Segment
Third quarter 2012 U.S. revenues were $397.8 million, down 7.8% compared to
$431.6 million in the second quarter.
Operating income was $60.1 million,
or 15.1% of revenue, compared to $82.5
million, or 19.1% of revenue, in the second quarter
2012.
During the third quarter, Fluids Management Services revenues
declined 15.1%, Coiled Tubing Services revenues declined 7.9%, and
revenues from the frac stack and well testing businesses declined
35.8% sequentially due to lower activity and
pricing. Combined, these businesses account for approximately
84% of the decline in U.S. revenues.
International Segment
Third quarter 2012 international revenues were $93.0 million, up 10.3% compared to prior quarter
revenues of $84.4 million. Operating
income was $19.4 million, or 20.8% of
revenues. Second quarter 2012 operating income was $16.1 million, or 19.1% of revenues. The
improvement in third quarter results was driven largely by higher
activity in Mexico.
General and Administrative Expenses
General and Administrative (G&A) expenses were $53.6 million, or 10.9% of revenues. Second
quarter 2012 G&A expenses were $58.1
million, or 11.3% of revenues. The decline in third quarter
G&A expenses was primarily due to the reversal of previously
accrued bonus compensation.
Capital Expenditures and Liquidity
Key's consolidated cash balance at September 30, 2012 was $38.3 million compared to $28.3 million at June 30,
2012. Capital expenditures were $90.4
million during the third quarter 2012 and $399.7 million through September 30, 2012.
Total debt at September 30, 2012
was $904.0 million compared to total
debt of $874.5 million at
June 30, 2012. At the end of the
quarter, there was $271 million
available under the Company's $550
million senior secured credit facility. Net debt to total
capitalization at the end of the third quarter 2012 was 39.8%.
Overview and Outlook
Commenting on the results, Key's Chairman, President and Chief
Executive Officer, Dick Alario,
stated, "Our U.S. results were negatively impacted by continued
activity declines in natural gas markets, and we began to
experience the effects of reduced customer spending in oil markets.
Our international segment generated improved results as we
continued to take advantage of opportunities to grow and increase
profitability in Latin America and
the Middle East."
Alario continued, "Regarding our fourth quarter outlook, we
anticipate U.S. activity will trend lower through year end, driven
by continued reductions in customer spending and typical year end
seasonality. We expect fourth quarter U.S. revenues to decline
approximately 6% to 8% and operating income margins to drop
approximately 200 to 250 basis points compared to the third
quarter. We believe fourth quarter international revenues will
increase approximately 5% compared to the third quarter with
approximately 100 to 200 basis points of sequential operating
income margin improvement."
Conference Call Information
As previously announced, Key management will host a conference
call to discuss its third quarter 2012 financial results on
Thursday, November 1, 2012 at
10:00 a.m. CDT. To access the call in
the U.S. and Canada dial
888-794-4637. International callers should dial 660-422-4879. All
callers should ask for the "Key Energy Services Conference Call" or
provide the access code 32988824. 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, November 1, 2012, 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 32988824. The replay will also be accessible at
www.keyenergy.com under "Investor Relations" for a period of at
least 90 days.
Re-casted Prior Period Financial Results from Continuing
Operations
Key has recast certain prior period financial information to
reflect its results from continuing operations, which exclude the
Argentine operations. This recasted financial information is
available on Key's website at www.keyenergy.com under "Investor
Relations".
Consolidated Statements of Operations (in thousands, except
per share amounts, unaudited):
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
June 30,
|
|
September 30,
|
|
September 30,
|
|
September 30,
|
|
|
|
2012
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
490,851
|
|
$
515,997
|
|
$
468,542
|
|
$
1,493,599
|
|
$
1,247,493
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
Direct
operating expenses
|
|
335,799
|
|
343,996
|
|
285,804
|
|
991,292
|
|
795,053
|
|
Depreciation and amortization expense
|
|
52,947
|
|
52,452
|
|
41,708
|
|
156,588
|
|
120,047
|
|
General
and administrative expenses
|
|
53,567
|
|
58,081
|
|
59,063
|
|
172,566
|
|
159,861
|
Operating income
|
|
48,538
|
|
61,468
|
|
81,967
|
|
173,153
|
|
172,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on
early extinguishment of debt
|
|
-
|
|
-
|
|
-
|
|
-
|
|
46,451
|
|
Interest
expense, net of amounts capitalized
|
|
13,962
|
|
13,730
|
|
10,554
|
|
39,574
|
|
30,003
|
|
Other,
net
|
|
(1,529)
|
|
(1,380)
|
|
590
|
|
(3,938)
|
|
(9,932)
|
Income
from continuing operations before tax
|
|
36,105
|
|
49,118
|
|
70,823
|
|
137,517
|
|
106,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense
|
|
(12,915)
|
|
(17,419)
|
|
(25,077)
|
|
(49,147)
|
|
(36,706)
|
Income
from continuing operations
|
|
23,190
|
|
31,699
|
|
45,746
|
|
88,370
|
|
69,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
discontinued operations, net of tax
|
|
(60,209)
|
|
(2,454)
|
|
(2,308)
|
|
(93,568)
|
|
(8,218)
|
Net income
(loss)
|
|
(37,019)
|
|
29,245
|
|
43,438
|
|
(5,198)
|
|
61,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) attributable to noncontrolling interest
|
|
1,075
|
|
204
|
|
(730)
|
|
665
|
|
(1,027)
|
INCOME (LOSS) ATTRIBUTABLE TO
KEY
|
|
$
(38,094)
|
|
$
29,041
|
|
$
44,168
|
|
$
(5,863)
|
|
$
62,113
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share attributable to
Key:
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
$
(0.25)
|
|
$
0.19
|
|
$
0.30
|
|
$
(0.04)
|
|
$
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
151,105
|
|
151,087
|
|
147,722
|
|
151,108
|
|
144,274
|
|
Diluted
|
|
151,110
|
|
151,100
|
|
148,088
|
|
151,124
|
|
144,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations
attributable to Key:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
23,190
|
|
$
31,699
|
|
$
45,746
|
|
$
88,370
|
|
$
69,304
|
|
Income
(loss) attributable to noncontrolling interest
|
|
1,075
|
|
204
|
|
(730)
|
|
665
|
|
(1,027)
|
|
Income
from continuing operations attributable to Key
|
|
$
22,115
|
|
$
31,495
|
|
$
46,476
|
|
$
87,705
|
|
$
70,331
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from
continuing operations attributable to
Key:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
$
0.15
|
|
$
0.21
|
|
$
0.31
|
|
$
0.58
|
|
$
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of tax:
|
|
$
(60,209)
|
|
$
(2,454)
|
|
$
(2,308)
|
|
$
(93,568)
|
|
$
(8,218)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
$
(0.40)
|
|
$
(0.02)
|
|
$
(0.01)
|
|
$
(0.62)
|
|
$
(0.06)
|
Condensed Consolidated Balance Sheets (in thousands):
|
|
September 30, 2012
(Unaudited)
|
|
December 31,
2011
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash and
cash equivalents
|
$
38,332
|
|
$
35,443
|
|
Other
current assets
|
589,715
|
|
504,777
|
|
Current
assets held for sale
|
-
|
|
60,343
|
Total
current assets
|
628,047
|
|
600,563
|
|
|
|
|
|
Property
and equipment, net
|
1,443,930
|
|
1,197,300
|
Goodwill
|
625,938
|
|
622,773
|
Other
assets, net
|
122,008
|
|
155,601
|
Non-current assets held for sale
|
-
|
|
22,883
|
|
|
|
|
|
TOTAL
ASSETS
|
$
2,819,923
|
|
$
2,599,120
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts
payable
|
$
100,441
|
|
$
71,736
|
|
Other
current liabilities
|
208,105
|
|
175,877
|
|
Current
liabilities associated with assets held for sale
|
-
|
|
41,890
|
Total
current liabilities
|
308,546
|
|
289,503
|
|
|
|
|
|
Long-term
debt, less current portion
|
903,250
|
|
773,975
|
Other
non-current liabilities
|
338,542
|
|
321,011
|
|
|
|
|
|
Equity
|
1,269,585
|
|
1,214,631
|
|
|
|
|
|
TOTAL
LIABILITIES AND EQUITY
|
$
2,819,923
|
|
$
2,599,120
|
Consolidated Cash Flow Data (in thousands,
unaudited):
|
|
|
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
|
2012
|
|
2011
|
|
|
|
|
Net cash
provided by operating activities
|
$
252,794
|
|
$
103,002
|
Net cash
used in investing activities
|
(387,732)
|
|
(413,742)
|
Net cash
provided by financing activities
|
141,162
|
|
268,098
|
Effect of
exchange rates on cash
|
(3,335)
|
|
5,332
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
2,889
|
|
(37,310)
|
Cash and
cash equivalents, beginning of period
|
35,443
|
|
56,628
|
Cash and
cash equivalents, end of period
|
$
38,332
|
|
$
19,318
|
Segment Revenue and Operating Income from continuing
operations (in thousands, except for percentages,
unaudited):
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
September 30,
|
|
June 30,
|
|
September 30,
|
|
|
|
|
|
|
|
|
2012
|
|
2012
|
|
2011
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rig
Services
|
|
$
201,453
|
|
$
208,765
|
|
$
192,018
|
|
|
|
|
|
|
Fluid
Management Services
|
|
82,140
|
|
96,716
|
|
102,498
|
|
|
|
|
|
|
Coiled
Tubing Services
|
|
52,442
|
|
56,929
|
|
60,304
|
|
|
|
|
|
|
Fishing
& Rental Services
|
|
61,779
|
|
69,236
|
|
56,969
|
|
|
|
|
|
|
Total U.S. Operations
|
|
397,814
|
|
431,646
|
|
411,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Operations
|
|
93,037
|
|
84,351
|
|
56,753
|
|
|
|
|
|
|
Consolidated Total
|
|
$
490,851
|
|
$
515,997
|
|
$
468,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30,
|
|
%
of
|
|
June 30,
|
|
%
of
|
|
September 30,
|
|
%
of
|
|
|
2012
|
|
Revenues
|
|
2012
|
|
Revenues
|
|
2011
|
|
Revenues
|
Operating
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Operations
|
|
$
60,136
|
|
15.1%
|
|
$
82,497
|
|
19.1%
|
|
$
106,207
|
|
25.8%
|
International Operations
|
|
19,359
|
|
20.8%
|
|
16,116
|
|
19.1%
|
|
12,337
|
|
21.7%
|
Functional Support
|
|
(30,957)
|
|
n/a
|
|
(37,145)
|
|
n/a
|
|
(36,577)
|
|
n/a
|
Consolidated Total
|
|
$
48,538
|
|
9.9%
|
|
$
61,468
|
|
11.9%
|
|
$
81,967
|
|
17.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rig
Services
|
|
$
613,600
|
|
$
531,312
|
|
|
|
|
|
|
|
|
Fluid
Management Services
|
|
276,700
|
|
291,096
|
|
|
|
|
|
|
|
|
Coiled
Tubing Services
|
|
162,351
|
|
171,478
|
|
|
|
|
|
|
|
|
Fishing
& Rental Services
|
|
201,782
|
|
115,262
|
|
|
|
|
|
|
|
|
Total U.S. Operations
|
|
1,254,433
|
|
1,109,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Operations
|
|
239,166
|
|
138,345
|
|
|
|
|
|
|
|
|
Consolidated Total
|
|
$
1,493,599
|
|
$
1,247,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
September 30,
|
|
%
of
|
|
September 30,
|
|
%
of
|
|
|
|
|
|
|
2012
|
|
Revenues
|
|
2011
|
|
Revenues
|
|
|
|
|
Operating
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Operations
|
|
$
234,091
|
|
18.7%
|
|
$
251,056
|
|
22.6%
|
|
|
|
|
International Operations
|
|
45,843
|
|
19.2%
|
|
24,471
|
|
17.7%
|
|
|
|
|
Functional Support
|
|
(106,781)
|
|
n/a
|
|
(102,995)
|
|
n/a
|
|
|
|
|
Consolidated Total
|
|
$
173,153
|
|
11.6%
|
|
$
172,532
|
|
13.8%
|
|
|
|
|
Following is a reconciliation of income from continuing
operations attributable to Key as presented in accordance with
United States generally accepted
accounting principles (GAAP) to EBITDA from continuing operations
as required under Regulation G of the Securities Exchange Act of
1934.
Reconciliations of income from continuing operations to
EBITDA (in thousands, except for percentages, unaudited):
|
|
Three Months Ended
|
|
|
September 30,
|
|
June 30,
|
|
September 30,
|
|
|
2012
|
|
2012
|
|
2011
|
Income
from continuing operations
|
|
$
23,190
|
|
$
31,699
|
|
$
45,746
|
Income tax
expense
|
|
12,915
|
|
17,419
|
|
25,077
|
(Income)
loss attributable to noncontrolling
interest, excluding depreciation and
amortization
|
|
(1,683)
|
|
(596)
|
|
397
|
Interest
expense, net of amounts capitalized
|
|
13,962
|
|
13,730
|
|
10,554
|
Interest
income
|
|
(12)
|
|
(7)
|
|
(1)
|
Depreciation and amortization
|
|
52,947
|
|
52,452
|
|
41,708
|
|
|
|
|
|
|
|
EBITDA
|
|
$
101,319
|
|
$
114,697
|
|
$
123,481
|
|
|
|
|
|
|
|
% of revenues
|
|
20.6%
|
|
22.2%
|
|
26.4%
|
|
|
|
|
|
|
|
Revenues
|
|
$
490,851
|
|
$
515,997
|
|
$
468,542
|
"EBITDA" is defined as income or loss from continuing
operations attributable to Key before interest, taxes,
depreciation, and amortization.
"EBITDA" is a non-GAAP measure that is 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 has 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
excludes some, but not all, items that affect net income and
operating income and these measures may vary among other companies.
Limitations to using EBITDA as an analytical tool include:
- EBITDA does not reflect Key's current or future requirements
for capital expenditures or capital commitments;
- EBITDA does not reflect changes in, or cash requirements
necessary to service, interest or principal payments on Key's
debt;
- EBITDA does 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 does not reflect any cash
requirements for such replacements;
- Other companies in Key's industry may calculate EBITDA
differently than Key does, limiting its usefulness as a comparative
measure; and
- EBITDA is 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
future operational and activity expectations, and anticipated
financial performance in the fourth quarter of 2012. 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 and operational
projections, including quarterly projections of revenue and/or
operating income margins (whether for Key as a whole or for
geographic regions and/or business segments individually); risks
that market fundamentals in the U.S. could further deteriorate or
worsen beyond current expectations 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 affecting Key's
international operations, including risks related to growth in
Mexico, other risks affecting
Key's operations in Russia, and
risks associated with expanding operations in Colombia, Oman and Bahrain; risks associated with the recently
completed sale of Key's Argentine operations, including risk that
Key may be unable to achieve the benefits contemplated under the
transaction; 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 compliance with environmental, health and safety laws and
regulations, as well as actions by governmental and regulatory
authorities; 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, the Middle East and Russia.
Contact:
Gary Russell, Investor Relations
713-651-4434
SOURCE Key Energy Services, Inc.