Q3 2019 Earnings Call
Greetings and welcome to the pioneer Energy Services' third quarter earnings Conference call.
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A brief question and answer session will follow the formal presentation.
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It is now my pleasure to introduce your host Lisa Elliott with Dennard Lascar Investor Relations. Thank you. So it you may begin.
Thank you factor and good morning, everyone are trying to call over to pioneer.
Yeah, the Stacy Locke in Seattle, Lorne Phillips for their from introductory remarks, Ive a few of the usual items to cut her first a replay of today's call will be available by webcast. I'd also like telephone replay you can find information about I said, Oh I'm sorry, this means really.
As a reminder, information reported on this call speaks only as of today October 31st to talk now [noise].
So any time sensitive information they no longer be accurate time with any green plains.
During today's call management May make forward looking statements are based on beliefs assumptions actual currently available to them.
Well I believe these expectations a reasonable they can give no assurance that they were pretty big crack they are subject to certain risks and uncertainties and assumptions described in today's news release and also in recent public filings with the FCC. So if one or more these risk materialize or shirts, and the underlying assumptions prove incorrect.
Actual results may differ materially.
Also note that this conference call today contains references to non-GAAP measures, you'll find a reckless reconciliation to the nearest GAAP measures and this morning news release now I'd like to turn the call over to Stacy Locke pioneers President and CEO [laughter]. Thank you Lisa and good morning, joining me here in San Antonio is call it Spain, yet our chief.
<unk> strategic officer, and Brian talk or our Chief operating officer and of course, Lorne Phillips, our Chief Financial Officer.
When you look at our third quarter overall, it looks like a very stable quarter for us a consolidated revenues were down just a little bit approximately 4% adjusted EBITDA. When you adjust also for the compensation expense was down about 5%. So it looks to be very stable.
However, when you look under the Hood you see that we're operating at very choppy seas.
As an example, Columbia revenues were down 15% quarter over quarter, while coil tubing revenues were up 14% quarter over quarter wireline revenues were down 7% well servicing revenues were up 3% and U.S. drilling revenues were down 4% sow the seeds are.
Shopping.
Rig count continues to come down completion related activity is soft and very lumpy very customer specific makes it hard to predict in forecast.
None of this is really getting any better in the fourth quarter.
And you have increased budget exhaust and as as we head into the end of year and of course will have normal seasonality. So we're going to be very cautious as we look towards the fourth quarter guidance.
To help manage in this market, we have taken a number of steps we've closed.
Quite a few district offices.
We've right sized our workforce to match the lower utilization that we're seeing particularly related to completion activity.
We've tightened up some of our pay practices.
And reposition assets to more favorable market.
[noise] drilling down to some of the specific business lines U.S. drilling.
It looks like we're going to be able to stay ahead of utilization. Our team is doing a great job keeping the rigs book and we have picked up three new clients during this quarter.
Over the third and fourth quarter.
We have extended contact with existing clients.
And found new clients for almost 50% of our fleet and just see two quarters. So that the group is doing a great job staying ahead of of stacked rigs.
Dayrates are clearly under pressure.
And as you'll see from my guidance average margins per day will trend lower.
Looking at Colombia, Colombia, we're also seeing a little year in instability in Colombia, it's probably mostly related to budget exhausting in the country for that Braemar operators.
So it will translate into a little softness for the remainder of the year and into.
Probably mid January and in Colombia.
It's very hard to start new projects. When you hit about mid December through about mid January due to the Christmas breaks.
We are worth working with about seven different clients in Colombia, and feel very good about the activity levels.
In 2020 with those clients.
Turning now to our production services business the segment held up well in the quarter overall and that was primarily led by our well servicing business.
Well services has been very steady utilization was roughly flat quarter over quarter, but margin was up and margin per center and margin percentage of revenues was up.
And as a result, a slightly more and that was as a result of slightly more revenue days and higher average hourly rate of 580 versus 569 in the second quarter.
We continue to see steady 24 hour work.
And we are providing more rental equipment packages with our rigs so the outlook and well servicing remains favorable.
Wireline continues to be challenged due to less completion activity certain markets are doing well others are weak.
We exited two additional districts in the third quarter and made further reductions in worth workforce, we have shuttered three district overall this year. We're in the process of selling a district, we change and pay pack practices reduced head count and our streamlining our process for.
Delivering our service by.
Utilizing more pre assembled guns.
Gun packages and source and less expensive products. All of these efforts have helped us retain margin EM and we see margin percentage of revenue actually increasing quarter over quarter. Despite a 7% drop in revenue.
Okay.
You could almost say ditto for our coiled tubing business the wireline, they're both very completion oriented.
Like in wireline, we produced workforce, there, we've repositioned assets and we reduce cost.
Revenue margin and margin percentage of revenue all increase quarter over quarter due to these steps we've taken but it remains a challenge business like wireline until rig counts and completion activities began to add the other way those are going to be difficult businesses.
I'd like to turn it over to learn to go into a little more financial detail.
Thanks Stacy.
This morning, we reported revenues of 146.4 million and adjusted EBITDA of 7.1 million.
As compared to the previous quarter revenue of 152.8 million and adjusted EBITDA of 20.7 million.
Our reported net loss was 26 million for 33 cents per share and our adjusted net loss was 23.6 million or 30 cents per share.
Adjusted EBITDA was down quarter over quarter, primarily due to approximately 12.6 million of additional net DNA expenses related to new compensation plans, which were partially offset by the cancellation of certain previously existing incentive plans.
In addition, we incurred professional fees to evaluate debt restructuring strategies.
For production services revenues in the third quarter 86.6 million down 1% overall from the prior quarter.
As Stacy mentioned this varied by business wireline was down 7% due to the lower completion activity in certain location closures, those partially offset by well servicing and coil tubing, which were up 3% and 14% respectively.
Well servicing remained stable low.
Coal tubing benefited from improved weather and the repositioning of certain assets into the Rockies.
Gross margin for the production services business was 19% up from 17% in the prior quarter.
And as Stacy mentioned that was driven by gross margin improvement in all businesses.
Although stage counts decreased quarter over quarter wireline services generated a gross margin of 12.6%, which was up from 11.8% in the second quarter.
Well servicing also contributed to the overall increase by generated in gross margin of 29.3% up from 28.7.
And coil tubing gross margin was 15.5% up from 9.2% in the prior quarter.
For consolidated drilling services revenues were 59.8 million down 8%.
The second quarter and utilization was 83% down from 92%.
Our consolidated drilling margin per day was 11560.
Up from 10396 in the prior quarter.
Our domestic drilling fleet remained highly utilized for the majority the quarter with exception of two rigs in Appalachian one of which mobilized to west Texas during the quarter on a term contract and the other rig is expected to begin working later in the fourth quarter.
Average margin per day was 11740 up from 10131 in the prior quarter.
The margin was positively impacted by approximately 1374 per day related to the early termination of a domestic drilling contract.
International drilling utilization was 71% and average margin per day was 11080 up slightly from 11023 in the prior quarter.
Currently 15 of our 17 AC rigs in the U.S. and six of our eight rigs in Colombia, earning revenues of the 15 rigs, earning revenues in the US 12, those are under term contracts.
The current contract roll off is as follows.
One in the fourth quarter of 2019.
Which we expect maybe idle for one to three weeks in this quarter before mobilizing to a new client on a term contract.
Four rigs roll off in the first quarter of 2021 rig in the second quarter of 2020.
Five in the fourth quarter of 2020, and one in the first quarter of 2022.
Turning to companywide expense items DNA expense was 30.5 million, which included the previously mentioned.
12.6 million related to compensation plans and professional fees for Q4, we expect DNA expense to be approximately 21 million, which does include an estimated two to 3 million of professional fees related to our debt restructuring activities.
Depreciation and amortization was 22.9 million in the third quarter and is expected to be around 23 million in the third quarter.
Interest expense was 10 million in the third quarter and is expected to be flat in the fourth quarter.
For taxes, if you exclude the valuation allowance the effect of foreign currency translation state taxes, and other permanent differences our tax rate in the third quarter would have been in the 21% to 23% range.
Moving to the balance sheet, we had 9.4 million in committed letters of credit and 50.6 million available under our 75 million asset based lending facility at the end of the court.
The facility remains Undrawn, our reported cash balance at quarter end was 28 million.
Cash capital expenditures in the third quarter were 9.2 million and were 40.5 million through the third quarter 2019 capital expenditures are estimated to be approximately 46 to 49 million, which includes approximately 8 million for final payments on the construction of the new drilling rig.
And previous commitments on high pressure pump packages for coal tubing completions operations, all of which were paid for earlier in the year.
With that I'll turn it back over to Stacy for final comments. Thank you Lauren before we take questions I'll just touch on our guidance briefly.
As I stated in the opening remarks with rig counts continuing to come down and completion activity off.
And of course, as we look into the normal Q4 seasonality of shorter days weather and holidays. This year Christmas in fact is in the middle of the week.
And the budget exhaustion.
We're just going to be cautious as we look towards a third fourth quarter.
Production service revenues.
Which were down about 1% in this quarter over the prior quarter, we're going to guide to be down fairly significantly 15% to 19% in the fourth quarter margin, which was 19% in the current quarter.
We're going to guide that down a little bit to 16% to 18%, mostly due to the decline in revenues.
And our us drilling which was 88% in the current quarter, we're going to guide, 90% to 94% little bit of improvement in the fourth quarter and our us drilling margin.
Which was 11 740 actually reported but corrected for the view if you pull out there.
Early term payment there had been about 10 366.
We'll guide that down to 8700 to 9200.
In Colombia utilization and the current quarter, 71%, we'll guide that down a little bit 60% to 65% in the fourth quarter and the margin, which was 11 OAD, We'll guide down to 85 to 9500 per day in the fourth quarter. So that will conclude our prepared.
Shared remarks, we'd be very happy to entertain questions.
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Our first question comes from the line John Daniel with.
I'm in energy. Please proceed with your question.
Hey, guys good morning.
Good morning.
I don't know I'm going to try one here seems you guys can answer but can you tell us anything in terms of timing and process on the debt restructuring.
John We really can't talk talk about our specific situation, where we are but.
I will say that.
We have some great bondholders that had been some have been with us quite a long time, a number of years and.
We we enjoy a very good relationship with them and I think probably more importantly, we have.
I shared vision about the future market and the opportunities that are in the market and.
So were constructive.
On the process, but we really can't give you any more specifics on.
Okay Star Trek.
You mentioned in the prepared remarks, your within wireline, you're selling a district.
Does that is are you just selling property or are you looking to disposals in the units just trying to get sense for what the unit counts might be.
After that.
Sale.
Well that's.
Yes, John this is more consolidation, particularly and in certain.
Shale plays so in some cases, we may have had supporting the same kind of region. We might have had to districts in just a solid we're still supporting that region, but we did it out of we're doing out of one location versus two so this isn't property that we own. So in this case, we're obviously trying to two or to sell some of that.
As it comes about it.
And then I guess the final one well to do just housekeeping can you just give us a sense for how many what percent of the wireline units actually.
Work on any given day utilization there.
And then this next question and I'll turn it over and others is as you look at the production service revenue decline.
Assuming wireline and coil would be down a lot more than well servicing and just any color there would be appreciated.
Well, that's true are well servicing segment has held up very well.
It continues to be a bright spot, we're seeing actually increase opportunity picking up new clients expanding in different markets. So we're we're pretty optimistic about that business line as we look into next year.
Call them wires, clearly, where the bigger declines I mean, well service will be impacted by normal seasonality in the fourth quarter, but those other businesses.
Our just going to be off with completion activity and seasonality but.
So that that's where the bigger bigger declines will come.
And then.
Drilling will be down a little bit to do to impart the you tail, but also.
Margins rates day rates coming down a little bit.
Turning to the average number of Wirelines.
A ballpark on its yet on a given day they vary but does that 30 40.
Anywhere from.
40 to 50, maybe a little bit over that at times with a number of districts. We have we always have some units that are basically serving as backup units.
And.
But as you probably know it varies daily.
Fair enough. Thank you very much.
Okay. Thank you done.
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Your next question comes from the line.
Stephen Gengaro with Stifel. Please proceed with your question.
Thanks, Good morning, gentlemen.
Good morning.
I guess two things first.
First on the wireline side.
Thanks for what's going on with from restrictions you perspective, I mean, we're hearing.
More and more about these integrated gun systems and I'm.
Just wanted to get a sense from you.
Your how does that open weekend can help the business and are hurt the business, depending on how you're thinking about it.
Is that help your efficiency and as you work with that connect connect helped drive.
Margin improvement going forward.
They can.
With these gun systems, we're able to be more efficient been location.
And.
It allows us to do a few things one we can.
Bill guns faster and.
Potentially not feel bottleneck on location.
But most importantly.
It eventually will allow us to reduce.
Our labor costs because.
Hello.
With additional things on location, we should be able to.
Operate with a more efficient.
Field crew and.
So even though some of these gun systems are more expensive, we can change our operation and earn back.
Margin and and we're testing it out and we're pretty optimistic about the possibilities.
Okay.
It will work in progress.
Hi tumor difficult Victor.
Shamir summary, greater than tremor not of charger impact your labor fortune.
Shrinkage more dramatically in one direction I would guess.
That's right that's correct, Brian I think one thing to add there just I think as we kind of transition to these I think you are correct there in some cases.
We are moving towards an entire district running these prism of guns, and I think thats, where we'll see some of the savings that Carlos mentioned.
Okay. That's very helpful color. Thank you.
And when we when we think about be doing rig side. If you were actually I mean, you talked about.
Where are your your contract that expanded indication.
Gave some color around.
Margin per day.
How would you the margin per day.
Drop off in a fourth quarter sequentially from sort of the adjusted number but third quarter is price and how much you just kind of utilization and moving around and instead of trying to frame minutes I think about.
Looking into next year.
Okay.
But it's mostly price, which its day rates coming down.
And that's the bigger factor utilizations in it.
Actually go up in the U.S. and down a little bit in Colombia, but it's mostly our cost we manage very tightly consistently and so it's more in the day rate pricing.
Yes, I was curious whats Stacy said that is the majority of it but I would say we also had some movement of rigs that happened late third quarter, we had a move and other rig from a from a northern location into the Permian basin. So that will have some impact on our margins for that rig over the next six months, so that should recover back to a normal.
Margin, probably by second quarter of next year, so that would have some impact as well, but the teams done a great job like Stacy mentioned, we've been a we've been very aggressive and Weve worked hard we've got a great brand out there and we worked hard to keep our utilization up as a 16 rig or 17 rigs drilling contractor.
In our rigs are well positioned to do it in like Stacy mentioned, we've brought in three new clients that were very excited to partner with in the Permian.
Thank you and then just to try one.
And I might've missed is get any guidance on 2020 Capex.
We we haven't given guidance, what we've said in the past and I think we still feel is.
40 million routine and maintenance number is is our viewpoint today, we're always refining that that number would include some.
Routine maintenance and replacement in it.
Some units, but there's times where to flex a little lower but I think thats a good number for now.
Okay. Thank you.
Thank you.
Ladies and gentlemen, there no further questions at this time I would like to turn the floor back over to management.
Using comments.
All right well. Thank you very much for joining us on the call. This morning, and we'll look forward to visiting at the next quarter. Thank you.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
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