Q4 2019 Earnings Call
At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If you would like to ask a question, please press star one on your telephone keypad. If any would require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder. This conference is being recorded. It is on my pleasure to introduce your host director of investor relations. Thank you, sir. You may begin. Thank you operator. Good morning everyone and thank you for taking the time to join our call today to discuss Basics acquisition of Production Services business known as C&J Well Services or Hereafter referred to as seeing Jay earlier this morning basic also announced its results for the fourth quarter and full-year 2019 and today's call will include a brief discussion of those results. As a reminder. This call is being recorded and a press release and slide presentation regarding today's news is available in the investor relations section of Basics website.
Before we begin I'd like to remind everyone that today's comments include forward-looking statements reflecting Basic Energy Services view of future events, when therefore potential impact on performance these views include the risk factors down by the company its form 10-qs and 10-K for the year ended December 31st, 2018 further refer to these statements regarding forward-looking statements Incorporated in our press releases from this morning. Please also note that the contents of this conference call are covered by these statements. Also, please refer to the information on the disclaimer slide and the presentation as well as the additional information contained in the regulatory filings for basic in addition the information reported on this call speaks only as of today, March 9th 2020. And therefore you advised that time-sensitive information May no longer be accurate as of the time of any replay.
Presenting during the call today will be keeps yelling president and CEO of basic and David Schulman our senior vice president CFO Treasurer and secretary Adam Hurley our vice president of strategy and Business Development will be off for Q&A with that. I'll now turn the call over to Keith. Thank you. Tray and good morning. Everyone is quite the opportunity to have my first call with all of you. We've got a lot to cover this morning about the cuz I haven't had a chance to meet all of you yet. Let me give you a bit more my background as you know, I've been in the Energy Services industry for twenty-five years and have served in senior leadership position a company such as Baker Hughes Tetra Technologies and Schlumberger. I've gotten to know the space and the players well over the last twenty-five years and I've always admired basic what originally drew me to the comfort and what encourages me about the opportunities ahead. Especially what we'll talk about on this call is the Relentless commitment to serving our customers that exists throughout the organization are focused on safety and consistency.
Delivering high-quality Services is what differentiates basic and what acts as a driving source of our success as we continue to grow and evolve starting prior to my tenure here basic began taking steps to increase its attention on production Focus businesses. We made our intentions all the more clear with the divestiture of our pumping service assets since I joined it was evident that our biggest opportunity than they do in fact live within our core production levered businesses. And so we sought to double down that's why we're excited about today's transformative transaction. It marks an important day in our Evolution to advance our vision and strategy. If you have access to our our presentation, I'll begin on page 3
Slide three details the highlights of the transaction.
Our vision of being The Trusted Production Services Company in the United States today's transaction creates a leading. Well service provider in the country resulting an unequaled scale through a complimentary pack of cmj's operations with a significant presence in California with Legacy basic operations with a strong presence in the Permian and Mid-Continent. Importantly. The transaction is a long boring event for basic which David will expand on in a moment while we're very focused on realizing significant synergies from this transaction. We will also remain disciplined in our allocation a capital for both debt reduction and potential further consolidation together basic and C&J create the leading and most trusted Production service provider in the United States. The new bank will create significant benefits and growth opportunities for all of our stakeholders, including our customers employees and shareholders. We now have a broader portfolio of capabilities within the production laborer.
This is to meet the needs of a large and growing customer base. We also now have an enhanced presence in some of the most prolific us basins including Premier positions in Permian and California significant positions in the Rockies Mid-Continent and Gulf Coast. Critically, we will have greater Financial flexibility supported by strong free cash flow generation as well as the opportunity me realize significant synergies with this enhanced balance sheet and improve liquidity. We expect to see our net debt to adjusted 2019 ebitda ratio drops significantly off ProForm a 2019 ratio of 3.3 times a substantial improvement from where we sat prior to this transaction. We also expect approximately 17 million dollars of annual run real cost savings by year-end 20/20. David will go into greater detail on the financial benefits in a few moments.
As we think about our Capital allocation priorities moving forward, we will speak to further reduce leverage while maintaining a discipline but active posture and the ongoing consolidation in the industry.
Moving to slide for we acquired C&J for $94 million dollars and completed the transaction today basic funded the acquisition through a combined $59,000 in cash and $34 million in senior notes contributed by ascribe Capital Basics largest shareholder the cash portion of this consideration consisted of cash on hand with proceeds from Basics previously announced sale of its pumping service asset and Bridge financing of 15 million dollars committed by a scribe.
In consideration for a scribes contribution of outstanding outstanding senior notes basic issued to ascribe common stock equivalents raising their pro forma ownership interest to 85% in the new baby all other basic shareholders own the remaining 15% of the new basic.
Jack Renshaw former Senior Vice-President of C & J Services support will lead the newly-formed western region consisting of all California and Rocky Mountain region. Jim Newman a senior vice president region operations will oversee operations in the Permian and Central regions as well as agua agua Libre Midstream, Adam Hartley has been appointed Chief Information officer as part of overseeing the integration process. Adam will be responsible for optimizing the combined business model and extract and cost synergies. Additionally. The basic board will be expected to include seven directors with Julio Quintana. John Jackson James Kern and myself continuing in their roles. Larry. First of ascribe Capital will be joining the board along with two additional members of a scream Ross Solomon and Derek Jang.
In connection with these appointments and the closing of the transaction Sam Langford and Tim day resigned from the board.
Gives you a nice overview of how well our service platforms fit together. As I mentioned this transaction creates an integrated. Well service provider with a strong foothold in the most prolific us oil and gas stations off. C&J has a long History and Industry having provided integrated well services for over seventy years originally established in 1948 by Frank pool as pool Well Servicing C&J is grown in country's third-largest rig servicing provider in addition to other key oil basins C&J also serves Blue Chip customers in the California Market.
California is a very desirable market for us due to the high content of Well Servicing needs of operators and significant existing oil production and P&A requirements C&J and basic have a great customer relationships and we intend to work hard to deliver even greater value to these customers while it's clear. There are capabilities Geographic Footprints and customer base has our complimentary. Our companies are also rooted Juicery values just like basic safety is a top priority for C&J C&J has demonstrated a best-in-class safety record and our organizations will continue to work hard to drive and support a culture of safety.
We all know that scale in the industry is important and together. We'll create the country's leading high-back work over free Fleet as you can see in flag six new basic will have the country's leading work over from a 411 high-spec Rigs and will now be nearly five thousand employees strong across eleven State we expected our strong operating scale will position new basic package deliver innovative solutions to our customers and remain financially strong on the slide seven continuing with the scale of the combined company's slide seven gives you a better sense of where the new basic will be deriving its Revenue by both segments and geography basic has a strong Permian position, which is widely regarded as the most prolific oil Basin in the US and the world with the additional NJ. We will also be better positioned at a leader within the unique California Market, which I'll discuss in more detail shortly.
With regard to mix the new basic generated 49% from Well Servicing 35% from water Logistics and 15% of its revenue from completion and remedial on an adjusted Pro form of birth is for 2019 and with regard to geography 29% of the companies combined adjusted 2019 pro forma Revenue came from the Permian Basin 27% from California and fifty-three percent came from other key markets with greater mix and more capacity and key basins new basic will secure more stable utilization rates for its Fleet, which will ultimately drive impact and consistent margins. We will also reduce our exposure to Market volatility, which is an important element to successfully navigating challenging market dynamics.
On the left of slide eight, you will see the expanded Geographic footprint for new basic which covers eleven States and we've subdivided into three key operating regions long trip across this attractive footprint. The new basic will be able to continue delivering Dependable high-quality services that address the complete range of our needs for our customers pro-forma companies customer base includes a notable players in the space such as era Apache Chevron ConocoPhillips, Devon & Noble energy to name a few the next slide dive deeper into the California mom and the opportunity we see here for background in 2018, California was the seventh largest crude oil producing state and had the third-most refining capacity in 2018 from a price perspective. There's strong plugging and abandonment activity in California, which provides attractive margins with relatively stable long-term demand. Additionally Market generally needs less recurring wage.
which ultimately
Leads to more reliable cash flows while clearly attractive this Market is highly regulated with strict admission standards and environmental demands. C&J knows how to maneuver well within these guardrails off with the acquisition of cmj are combined company will be able to assume the role of first call provider for the largest and most attractive operators in the state will also be positioned to leverage our capabilities as substantial new wells are drilled in the coming years with that. I'll now turn the call over to David to take you through more of the financials David. Thank you Keith to expand on what Keith outlined earlier as you can see on slide ten. The acquisition of C&J is a delivering transaction that will enhance the financial flexibility and strength of new basic with the addition of cm and it's free cash flow are pro forma 2019 net debt to adjusted ebitda drops from 7.7 times as a stand-alone company to 3.2 times as new age.
basic
additionally, we will have free cash flow early in 2020 which gives us the flexibility to continue to deliver solid returns while positioning us to further deal ever and invest in strategic growth initiatives and opportunities allowing us to better compete in our complex operating environment.
And it's Keith mentioned. We expect to generate approximately 17 million of annual run-rate cost synergies by the end of this year.
The cost savings earnings expansion and strong free cash flow will all serve to further reduce the company's leverage importantly with an enhanced liquidity profile a new basic will have a larger borrowing base improved profitability positive return on assets and lower capital expenditure requirements.
Going another level down on our expected synergies on slide 11 the 17 million and cost synergies will result largely from sg&a reductions as well as direct and yard level expense reductions. In addition to these Synergy opportunities basic has also identified approximately six million of capital expenditure synergies to be achieved in each of the next two years. Both companies have a strong track record of execution and we are confident in our ability to successfully integrate our two companies already seen your basic and C&J leaders are in the field communicating with our people and customers and the response has been very enthusiastic.
Before turning it back to Keith to wrap up. I'd like to take a moment to go through our fourth quarter and year-end 2019 earnings results as you'll see on slide 13. We are very pleased to have largely completed the sale of our pressure pumping assets having closed on asset and real estate sales totaling $42 million dollars as of March 6th 2028 with an estimated ten to twelve million in proceeds remaining. Meanwhile, our wholly-owned subsidiary. I will Libre Midstream set another quarterly record taking in fact point nine million barrels of disposal volumes during the quarter 38% of which was by pipe.
we expect
Continued growth in volumes and revenue a toggle Libre as growth Capital. We spent in 2019 begins to pay dividends with barrels beginning to come in at our new high-capacity disposal project in West Texas a facility capable of handling 50,000 barrels per day of disposal volumes.
We ended the fourth quarter with total liquidity of $72 million, including thirty-six million of cash after collection of proceeds to date from the sale of our pumping assets and the close of our Aqueduct to C&J Well Services today, we estimate nearly $65 million in total liquidity immediately post deal.
Turning to slide 14 due to strong stronger than typical seasonality during the Thanksgiving and Christmas holidays utilization for the fourth quarter dropped to $58 with Revenue per rig our declining 3% to 369.
We estimate the impact of Revenue due to the holidays at four point five million.
Meanwhile as noted previously our water Logistics segment saw another quarter of record disposal volumes.
After a holiday impact of one point five million in the fourth quarter our Outlook remains steady and improving in the water Logistics segment particularly with respect to our Libre turning to slide fifteen despite revenues on a continuing operations basis declining 15% from the third quarter direct margins were 20% led by our completion a medial segment at 27%
since the divestiture of the pumping assets this segment now consists largely of rental and fishing tools and coiled tubing services.
Excluding a one point four million impairment related to our manufacturing subsidiary Taylor fourth quarter adjusted ebitda was a -1.7 million.
All the Outlook remains challenging we continue our work to become a leaner more efficient operation with GNA having declined to an annual run rate of $112 million in the fourth quarter off or Standalone basic down from the $146 million. We reported in 2018, which is down over 23% year-over-year.
Furthermore we expect to be an annual run rate of approximately 95 million for legacy basic by the end of the second quarter.
After achieving are expected synergies with the integration of cmj. We expect combined G&A to be in an annual run rate of 113 million, which is 12% of Revenue in the context of 2019 pro forma revenue of $960 million.
Looking ahead maintaining Capital flexibility for basic remains Paramount given the challenging market conditions are cash capital expenditure budget for $20 a month for basic stand-alone currently stands at 28 million and 38 million on a combined basis and we will continue to evaluate our spending plan throughout the year.
in the meantime
We are beginning to see the benefits of growth Capital. We spent on auto Libre Midstream in 2019 with a significant project coming online into adding two volumes as mentioned earlier.
Looking for we will continue to seek transactions that will deliver the company and we expect our Capital lease related debt to be reduced by another $12 million by the end of this year long as we continue to pay down our capitalist balance, which stood at $36 million at year-end down from a hundred million just a few years ago with that. I'll turn the call back over to yuuki.
Thanks, David to conclude our remarks. We're confident in the compelling strategic and financial rationale of this transaction and the many benefits that will bring to basic stockholders.
We are bolstering our core production focused businesses and improving our credit profile markedly with an expanded customer base and highly attractive basins achievable synergies and an enhanced cash flow and capital structure. Basic will be well-positioned to drive enhance stockholder value importantly, we expect our increased scale enhanced credit metrics and strong cash flow generation will enabled us to continue to deliver while remaining a discipline but active participant in the ongoing consolidation occurring in our industry for employees of both companies. We believe this combination will also provide additional growth and advancement opportunities over the years to come. I look forward to continue to work with our best-in-class team while welcoming Jack and The Talented members of the C&J team and hitting the ground running to bring our two couples together and unlock the value inherent in the new basic and with that Jesse. We will conclude our call.
Thank you. Ladies and gentlemen, this is us conclude today's teleconference. We thank you for your participation. And you may disconnect your lines at this time.