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8-K - FORM 8-K - KEY ENERGY SERVICES INC | c23804e8vk.htm |
Exhibit 99.1
For Immediate Release: Thursday, October 27, 2011 |
Contact: Gary Russell 713-651-4434 |
Key Energy Services Generated Third Quarter 2011 Earnings of $0.31 Per Diluted Share,
Excluding Edge Transaction Costs
GAAP income was $0.30 per diluted share
Excluding Edge Transaction Costs
GAAP income was $0.30 per diluted share
HOUSTON, TX, October 27, 2011 Key Energy Services, Inc. (NYSE: KEG) generated third quarter 2011
income of $46.3 million, or $0.31 per share, excluding pre-tax transaction costs of $3.3 million,
or $0.01 per share, related to the acquisition of Edge Oilfield Services. This result compares to
second quarter 2011 income of $33.0 million, or $0.23 per share, excluding a pre-tax gain of $4.8
million, or $0.02 per share, related to the sale of the Companys equity interest in IROC Energy
Services Corp. Third quarter 2011 GAAP income was $44.2 million, or $0.30 per share.
Consolidated revenue for the quarter was $501.3 million, up 12.6% compared to second quarter 2011
revenue of $445.4 million. Edge contributed $20.7 million of revenue for two months of the third
quarter, and Edge revenue is reflected within Keys Fishing & Rental Services business.
The following table sets forth summary data from continuing operations for the quarter ended
September 30, 2011 and prior comparable quarterly periods:
Three Months Ended (unaudited) | ||||||||||||
September 30, | June 30, | September 30, | ||||||||||
2011 | 2011 | 2010 | ||||||||||
(in millions, except per share amounts) | ||||||||||||
Revenues |
$ | 501.3 | $ | 445.4 | $ | 283.7 | ||||||
Income (loss) attributable to Key |
$ | 44.2 | $ | 36.1 | $ | (1.5 | ) | |||||
Diluted income (loss) per share attributable to Key |
$ | 0.30 | $ | 0.25 | $ | (0.01 | ) | |||||
Adjusted EBITDA (defined below) |
$ | 122.5 | $ | 102.1 | $ | 39.9 |
U.S. Segment
Third quarter 2011 U.S. revenue was $411.8 million, up 12.1% compared to the second quarter 2011.
Operating income was $106.2 million, or 25.8% of revenue, reflecting sequential incremental
operating income margins of 45%. Rig Services revenue increased 8% sequentially from favorable
work mix and pricing. Intervention Services and Fishing & Rental Services revenue also increased
due to improved pricing and activity.
International Segment
International revenue was $89.5 million during the quarter, up 14.9% from the second quarter 2011.
Operating income was $11.8 million, or 13.1% of revenue, up 490 basis points compared to the second
quarter 2011, generating sequential incremental operating income margins of 46%. Revenue
improvement was driven by activity increases in all international markets.
General and Administrative Expenses
Total general and administrative expenses were $62.9 million, or 12.6% of revenue, in the third
quarter 2011 compared to $55.0 million, or 12.3% of revenue, in the second quarter. Third quarter
general and administrative expense includes $3.3 million of Edge transaction costs.
Capital Expenditures and Liquidity
Capital expenditures were $67.8 million during the third quarter 2011 and $245.9 million through
the first nine months of the year. Keys consolidated cash balance was $19.3 million, and total
debt was $746.6 million as of September 30, 2011, compared to $14.6 million cash and $572.6 million
total debt as of June 30, 2011. As of September 30, 2011, there was $324.5 million utilized under
the Companys $550 million senior secured credit facility. Subsequent to the third quarter, Key
reduced borrowings by $25.0 million, and the Company currently has $250 million available under its
credit facility.
Edge Acquisition
On August 5, 2011, Key completed its previously announced acquisition of Edge Oilfield Services,
LLC and Summit Oilfield Services, LLC (collectively, Edge) for total consideration of $307.6
million, consisting of approximately 7.5 million shares of Key common stock and $189.7 million
cash.
Overview and Outlook
Commenting on the results, Keys Chairman, President and Chief Executive Officer, Dick Alario,
stated, In addition to activity increases from our participation in the growing horizontal shale
well markets, we experienced an increase in traditional well repair and workover activity in our
core markets.
Our international business continues to strengthen. We were recently awarded another 2-1/2 year,
$90 million contract with PEMEX, and we intend to deliver at least six additional rigs to Mexico
during the fourth quarter 2011 to support this contract. We have seen strong evidence of increased
customer demand for our services in certain foreign markets in the Middle East and Latin America.
Alario continued, For the fourth quarter 2011, we anticipate that results from operations will be
roughly flat sequentially, as a full quarter of Edge results essentially offset typical seasonal
declines. While it is still early in our customers budgeting process, based on recent discussions
with our largest customers, we expect both domestic and international activity to remain strong in
2012.
Conference Call Information
Key management will host a conference call to discuss its third quarter 2011 financial results on
Friday, October 28, 2011 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 14042906. 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,
October 28, 2011, beginning 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 14042906. The replay will also be accessible at
www.keyenergy.com under
Investor Relations for a period of at least 90 days.
2
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, | ||||||||||||||||
2011 | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||
REVENUES |
$ | 501,315 | $ | 445,369 | $ | 283,739 | $ | 1,337,668 | $ | 803,483 | ||||||||||
Direct operating expenses |
314,657 | 290,620 | 198,158 | 877,077 | 583,531 | |||||||||||||||
Depreciation and amortization expense |
42,341 | 39,852 | 32,565 | 122,116 | 98,367 | |||||||||||||||
General and administrative expenses |
62,932 | 55,003 | 46,833 | 170,714 | 130,726 | |||||||||||||||
Operating income (loss) |
81,385 | 59,894 | 6,183 | 167,761 | (9,141 | ) | ||||||||||||||
Loss on debt extinguishment |
| | | 46,451 | | |||||||||||||||
Interest expense, net of amounts capitalized |
11,236 | 10,041 | 10,626 | 31,588 | 31,614 | |||||||||||||||
Other, net |
1,634 | (7,319 | ) | (780 | ) | (8,070 | ) | (1,556 | ) | |||||||||||
Income (loss) from continuing operations before tax |
68,515 | 57,172 | (3,663 | ) | 97,792 | (39,199 | ) | |||||||||||||
Income tax (expense) benefit |
(25,077 | ) | (20,812 | ) | 1,383 | (36,706 | ) | 14,979 | ||||||||||||
Income (loss) from continuing operations |
43,438 | 36,360 | (2,280 | ) | 61,086 | (24,220 | ) | |||||||||||||
Income from discontinued operations, net of tax |
| | 8,283 | | 18,360 | |||||||||||||||
Net income (loss) |
43,438 | 36,360 | 6,003 | 61,086 | (5,860 | ) | ||||||||||||||
Income (loss) attributable to noncontrolling interest |
(730 | ) | 280 | (769 | ) | (1,027 | ) | (2,816 | ) | |||||||||||
INCOME (LOSS) ATTRIBUTABLE TO KEY |
$ | 44,168 | $ | 36,080 | $ | 6,772 | $ | 62,113 | $ | (3,044 | ) | |||||||||
Earnings (loss) per share from continuing operations attributable to Key: |
||||||||||||||||||||
Basic and diluted |
$ | 0.30 | $ | 0.25 | $ | (0.01 | ) | $ | 0.43 | $ | (0.17 | ) | ||||||||
Earnings per share from discontinued operations: |
||||||||||||||||||||
Basic and diluted |
$ | | $ | | $ | 0.06 | $ | | $ | 0.15 | ||||||||||
Earnings (loss) per share attributable to Key: |
||||||||||||||||||||
Basic and diluted |
$ | 0.30 | $ | 0.25 | $ | 0.05 | $ | 0.43 | $ | (0.02 | ) | |||||||||
Income (loss) from continuing operations attributable to Key: |
||||||||||||||||||||
Income (loss) from continuing operations |
$ | 43,438 | $ | 36,360 | $ | (2,280 | ) | $ | 61,086 | $ | (24,220 | ) | ||||||||
Income (loss) attributable to noncontrolling interest |
(730 | ) | 280 | (769 | ) | (1,027 | ) | (2,816 | ) | |||||||||||
Income (loss) from continuing operations attributable to Key |
$ | 44,168 | $ | 36,080 | $ | (1,511 | ) | $ | 62,113 | $ | (21,404 | ) | ||||||||
Weighted average shares outstanding: |
||||||||||||||||||||
Basic |
147,722 | 142,833 | 125,637 | 144,274 | 125,336 | |||||||||||||||
Diluted |
148,088 | 143,320 | 125,637 | 144,713 | 125,336 |
3
Condensed Consolidated Balance Sheets
(in thousands, unaudited):
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 19,318 | $ | 56,628 | ||||
Other current assets |
547,313 | 357,392 | ||||||
Total current assets |
566,631 | 414,020 | ||||||
Property and equipment, net |
1,144,156 | 936,744 | ||||||
Goodwill |
625,488 | 447,609 | ||||||
Other assets, net |
132,707 | 94,563 | ||||||
TOTAL ASSETS |
$ | 2,468,982 | $ | 1,892,936 | ||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 78,389 | $ | 56,310 | ||||
Other current liabilities |
208,027 | 225,325 | ||||||
Total current liabilities |
286,416 | 281,635 | ||||||
Long-term debt, less current portion |
744,309 | 427,121 | ||||||
Other non-current liabilities |
262,851 | 202,377 | ||||||
Equity |
1,175,406 | 981,803 | ||||||
TOTAL LIABILITIES AND EQUITY |
$ | 2,468,982 | $ | 1,892,936 | ||||
Consolidated Cash Flow Data
(in thousands, unaudited):
Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2011 | 2010 | |||||||
Net cash provided by operating activities |
$ | 103,002 | $ | 90,427 | ||||
Net cash used in investing activities |
(413,742 | ) | (80,398 | ) | ||||
Net cash provided by (used in) financing activities |
268,098 | (12,004 | ) | |||||
Effect of exchange rates on cash |
5,332 | (1,366 | ) | |||||
Increase (decrease) in cash and cash equivalents |
(37,310 | ) | (3,341 | ) | ||||
Cash and cash equivalents, beginning of period |
56,628 | 37,394 | ||||||
Cash and cash equivalents, end of period |
$ | 19,318 | $ | 34,053 | ||||
4
U.S. and International Revenue and Operating Income (Loss) (in thousands, except for percentages,
unaudited):
Three Months Ended | ||||||||||||
September 30, | June 30, | September 30, | ||||||||||
2011 | 2011 | 2010 | ||||||||||
Revenues |
||||||||||||
U.S. Operations: |
||||||||||||
Rig Services |
$ | 192,018 | $ | 177,112 | $ | 147,679 | ||||||
Fluid Management Services |
102,498 | 102,108 | 55,443 | |||||||||
Intervention Services |
60,304 | 57,204 | 17,592 | |||||||||
Fishing & Rental Services |
56,969 | 31,031 | 21,428 | |||||||||
Total U.S. Operations |
411,789 | 367,455 | 242,142 | |||||||||
International Operations |
89,526 | 77,914 | 41,597 | |||||||||
Consolidated Total |
$ | 501,315 | $ | 445,369 | $ | 283,739 | ||||||
Three Months Ended | ||||||||||||||||||||||||
September 30, | % of Segment | June 30, | % of Segment | September 30, | % of Segment | |||||||||||||||||||
2011 | Revenue | 2011 | Revenue | 2010 | Revenue | |||||||||||||||||||
Operating Income (Loss) |
||||||||||||||||||||||||
U.S. Operations |
$ | 106,207 | 25.8 | % | $ | 86,202 | 23.5 | % | $ | 39,358 | 16.3 | % | ||||||||||||
International Operations |
11,755 | 13.1 | % | 6,377 | 8.2 | % | (4,350 | ) | (10.5 | )% | ||||||||||||||
Functional Support |
(36,577 | ) | n/a | (32,685 | ) | n/a | (28,825 | ) | n/a | |||||||||||||||
Consolidated Total |
$ | 81,385 | 16.2 | % | $ | 59,894 | 13.4 | % | $ | 6,183 | 2.2 | % | ||||||||||||
Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2011 | 2010 | |||||||
Revenues
|
||||||||
U.S. Operations: |
||||||||
Rig Services |
$ | 531,312 | $ | 411,310 | ||||
Fluid Management Services |
291,096 | 150,268 | ||||||
Intervention Services |
171,478 | 41,504 | ||||||
Fishing & Rental Services |
115,262 | 59,589 | ||||||
Total U.S. Operations |
1,109,148 | 662,671 | ||||||
International Operations |
228,520 | 140,812 | ||||||
Consolidated Total |
$ | 1,337,668 | $ | 803,483 | ||||
Nine Months Ended | ||||||||||||||||
September 30, | % of Segment | September 30, | % of Segment | |||||||||||||
2011 | Revenue | 2010 | Revenue | |||||||||||||
Operating Income (Loss) |
||||||||||||||||
U.S. Operations |
$ | 251,056 | 22.6 | % | $ | 87,448 | 13.2 | % | ||||||||
International Operations |
19,700 | 8.6 | % | (15,072 | ) | (10.7 | )% | |||||||||
Functional Support |
(102,995 | ) | n/a | (81,517 | ) | n/a | ||||||||||
Consolidated Total |
$ | 167,761 | 12.5 | % | $ | (9,141 | ) | (1.1 | )% | |||||||
5
Below is a reconciliation of income or loss from continuing operations attributable to Key as
presented in accordance with United States generally accepted accounting principles (GAAP) to
Adjusted EBITDA from continuing operations (a non-GAAP measure) as required under Regulation G of
the Securities Exchange Act of 1934.
Reconciliations to Adjusted EBITDA from continuing operations (in thousands, except for
percentages):
Three Months Ended | ||||||||||||||||||||||||
September 30, | % of Segment | June 30, | % of Segment | September 30, | % of Segment | |||||||||||||||||||
2011 | Revenue | 2011 | Revenue | 2010 | Revenue | |||||||||||||||||||
Income (loss) from continuing operations |
$ | 43,438 | 8.7 | % | $ | 36,360 | 8.2 | % | $ | (2,280 | ) | (0.8 | )% | |||||||||||
Income tax expense (benefit) |
25,077 | 5.0 | % | 20,812 | 4.7 | % | (1,383 | ) | (0.5 | )% | ||||||||||||||
(Income) loss attributable to noncontrolling
interest, excluding depreciation and
amortization |
397 | 0.1 | % | (170 | ) | (0.0 | )% | 410 | 0.1 | % | ||||||||||||||
Interest expense, net of amounts capitalized |
11,236 | 2.2 | % | 10,041 | 2.3 | % | 10,626 | 3.7 | % | |||||||||||||||
Interest income |
(1 | ) | (0.0 | )% | (2 | ) | (0.0 | )% | (5 | ) | (0.0 | )% | ||||||||||||
Depreciation and amortization |
42,341 | 8.4 | % | 39,852 | 8.9 | % | 32,565 | 11.5 | % | |||||||||||||||
Gain on IROC sale |
| 0.0 | % | (4,783 | ) | (1.1 | )% | | 0.0 | % | ||||||||||||||
Adjusted EBITDA from continuing operations |
$ | 122,488 | 24.4 | % | $ | 102,110 | 22.9 | % | $ | 39,933 | 14.1 | % | ||||||||||||
Adjusted EBITDA from continuing operations is defined as income or loss from continuing
operations attributable to Key before interest, taxes, depreciation and amortization. In some
periods, Adjusted EBITDA from continuing operations may also add back certain non-recurring items
such as asset retirements and impairments, loss on debt extinguishment, and certain other gains or
losses. Adjusted EBITDA from continuing operations is a non-GAAP measure that is used as a
supplemental financial measure by the Companys management and directors and by external users of
the Companys financial statements, such as investors, to assess:
| The financial performance of the Companys assets without regard to financing methods,
capital structure or historical cost basis; |
| The ability of the Companys assets to generate cash sufficient to pay interest on its
indebtedness; and |
| The Companys 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. |
Adjusted EBITDA from continuing operations has limitations as an analytical tool 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.
Adjusted EBITDA from continuing operations excludes some, but not all, items that affect net income
and operating income and these measures may vary among other companies. Limitations to using
Adjusted EBITDA from continuing operations as an analytical tool include:
| Adjusted EBITDA from continuing operations does not reflect Keys current or future
requirements for capital expenditures or capital commitments; |
| Adjusted EBITDA from continuing operations does not reflect changes in, or cash
requirements necessary to service interest or principal payments on Keys debt; |
| Adjusted EBITDA from continuing operations 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 Adjusted EBITDA from
continuing operations does not reflect any cash requirements for such replacements; |
| Other companies in Keys industry may calculate Adjusted EBITDA from continuing operations
differently than Key does, limiting its usefulness as a comparative measure; and |
| Adjusted EBITDA from continuing operations is a different calculation from earnings before
interest, taxes, depreciation and amortization as defined for purposes of the financial
covenants in the Companys senior secured credit facility, and therefore should not be relied
upon for assessing compliance with covenants. |
6
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, Russia and Argentina.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Any matters that are not of historic fact are
forward-looking statements. These forward-looking statements are based on Keys current
expectations, estimates and projections about Key, its industry, its managements beliefs and
certain assumptions made by management, and include statements regarding expected increases in
activity, the mobilization of rigs into service, and anticipated financial performance in 2011. 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 affecting activity levels for Keys services,
including the possibility that the perceived cyclical recovery or future growth opportunities in
Keys industry may not materialize and may not result in activity increases; risks that Keys
customers may not increase, or may even decrease, their activity levels; risks relating to changes
in the demand for or the price of oil and natural gas; risks relating to increases in costs of
labor, fuel, equipment and supplies employed and used in Keys businesses; risks relating to
compliance with environmental, health and safety laws and regulations, as well as actions by
governmental and regulatory authorities; risks associated with the recently completed transaction
with Edge, including risks that Key may be unable to achieve the benefits contemplated under this
transaction, and risks associated with integration of the acquired operations into Keys
operations; risks associated with achieving the financial performance anticipated by the Edge
acquisitions; risks affecting Keys foreign operations, including risks related to activity levels
in Mexico, other risks affecting Keys operations in Argentina and Russia, risks associated with
expanding operations in Colombia and Bahrain, and risks that Key may not be able to achieve its
overall international growth and mobilization strategy; 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 Keys 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, Keys 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 Keys 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.
7