Q1 2020 Earnings Call

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I'd now like to hand, the conference over to Catherine Hargus. Thank you you may begin.

Thank you Eric. Thank you all for joining key energy services for our first quarter 2020 financial results Conference call. This call includes forward looking statement a member factors could cause actual results could differ materially from the expectations expressed in this call including risk factors discussed.

And our 2019 form 10-K.

Other reports most recently filed with the FCC, including our form 10-Q for the first quarter up 2020 can be filed on May 15, 2020, which our house on our website at key energy Dot com.

This call also include references to non-GAAP financial measures. Please refer to our previously posted earnings release, which can be found on our web site for a reconciliation of any non-GAAP financial measure provided in this call comparable GAAP financial measure on the call. This morning, as Marshall Dodson Keith.

<unk> CEO and interim CFO.

I'm going to turn the call Alberta Marshall.

Thanks, Catherine and good morning to everyone listening to todays call.

Suffice it to say we're living it interesting times on March six we completed our previously announced out of court restructuring converting 230 million of term loan debt into equity and putting in place a new 50 million dollar term loan that included 30 million of new cash for the company.

Days later, we began to experience the shocks to the oil markets. The shutdown due to covert night to the the cobot 19 bars and the impact these events were having on or customers operations cash flows in spending.

Activity fell through April as our customers further reduce their spending due to both the low oil prices as well as the lack of a market in which to sell their crude.

Curtailing completion and maintenance activities as they also shut in production today activity seems to be more stable with them with more of a normal cadence with customer activity, albeit at today's very low levels.

With activity following or team reacted quickly reducing costs is our activity. So given the high labor cost component of most of our services. The bulk of these cost reductions came in a form of reductions in our employee base today, we've reduced our total workforce by over 500 people nearly 30%.

And if taking the opportunity to approach or business differently, allowing us to reduce our DNA workforce by over 30%.

Let's move to address your labor rates down that todays business with our employees taking on average a tool for say a wage reduction.

Well, we evaluated raise wages for each role in each market differently all of our employees have been impacted by wage bonus reductions fewer hours work less overtime and benefit reductions like the suspension of matching contributions under our four one k. program.

We also reduced compensation for a board of directors and executive management team, including me.

We're also tape taking steps to reduce the other costs in our business. In addition to labor and are working with some of our customers on ways. We can work together to reduce their costs as well as ours in delivering our services.

I will begin with the first quarter result, then come back around to our cost structure six today.

Our revenues for the first quarter came in at 75.3 million down 9.8 million from the fourth quarter revenues in the first two modes of 2020 were fairly flat from the end of 2019 as expected before falling in March or net income for the first quarter of 2020 was 109 million.

The 170.6 million gain for more debt restructuring as compared to a net loss of 30.2 million in the fourth quarter with negative adjusted EBITDA of 2.6 million in the first quarter of 2020 as compared to 3 million of negative adjusted EBITDA in the fourth quarter of 29 team the negative adjusted EBITDA for the first quarter 2020 includes products.

<unk> 1 million and cost from unemployment taxes in the fourth <unk> fourth quarter of 2019 also includes a 5 million dollar charge taken in the quarter for ongoing litigation.

In the first quarter 2020, <unk> rig services segment generated revenues of 47.9 million as compared to fourth quarter 2019 revenues of 53.2 million.

We averaged 117 rigs working in the first quarter versus an average of 132 rigs working in the fourth quarter rig hours were approximately 101000 hours in the first quarter of 2020 with completion activity accounted for 14% of those hours as compared to 13% or the fourth quarter hours.

In April completion activity, Phil with April completion hours about 40% lower from the average we've been running over the past six month.

We exited Q1 at 95 average rigs as compared to 117 for the quarter and so far and may were averaging between 50 and 60.

Average rigs working.

Revenue per rig hour increased 2% to $473 an hour in the first quarter from $463 an hour in the fourth quarter due to the geographic mix is activity in the Permian basin fell more severely than in other markets and working with our customers in response to the falling oil prices were getting price discounts generally at.

Two digits to low double digit range.

Income before income taxes was 3.3 million with adjusted EBITDA of 7.2 million in the first quarter 2020, as compared to income before income taxes of 2.7 million, an adjusted EBITDA of 8.5 million in the fourth quarter 2019, our results in the first quarter 2020 were impacted by the Q1 effective deployment.

Boxes impacting margins 80 basis point as well as the impact of the lower activity due to Q1 weather customer actions and labor inefficiency, while reducing our cost income before income taxes benefited from lower depreciation expense.

Revenues in our fluid management services segment were 13 million in the first quarter down from 15.2 million in the fourth quarter or truck hours fell to about 105000 hours in the first quarter of 2020.

The loss before income taxes was 23.9 billion and adjusted EBITDA was 1.3 million in the first quarter of 2020 as compared to income before income taxes, a zero point Fivemillion and adjusted EBITDA of 2.2 line in the first fourth quarter 29 team the quarter on quarter decline and adjusted EBITDA was due largely to lower.

Activity, primarily in the Gulf Coast as a result of a low oil prices.

Revenue per truck hour was $124 an hour in the first quarter compared to 130 per hour in the fourth quarter loss before income taxes includes an impairment charge of 23.7 billion in the first quarter of 2020.

Our fluid hauling activity has been the most resilient in the face of lower oil prices. There was uncertain. So that will progress over the second quarter with the low oil prices. We've had a number of inquiries from firms and customers look India's frac tanks to hold oil and in the Permian Basin. Our fleet of take suitable for this is nearly fully utilized.

[noise] revenues in our fishing <unk> rental segment were 9.6 million as compared to fourth quarter 2019 revenues of 11 million with most of the decline being in the Permian basin and central marketplaces, with lower completion activity somewhat offset by growth in the Bakken.

The loss before income taxes was 19.8 million in the first quarter of 2020 as compared to a loss before income taxes of 2.8 million in the fourth quarter 29 team.

The loss before income taxes in the first quarter of 2020 includes an impairment charge of 17.6 million.

Adjusted EBITDA of 0.6 million in the first quarter 2020 compares to adjusted EBITDA of 1.4 million in the fourth quarter 29 team with a quarter on quarter decline being due to the lower activity.

[noise] coiled tubing services segment generated revenues of 4.8 million in the first quarter 2020, as compared to 5.8 million in the fourth quarter of 29 team well our average number of working larger units increased to 1.4 from 0.9 average units in the fourth quarter pricing fell about 50% in the quarter from Q4 levels due to slow.

Our activity in the market.

Loss before income taxes was $1 million in the first quarter 2020, as compared to income before income taxes of 1.3 million in the fourth quarter of 29 team.

Adjusted EBITDA was zero point Threemillion in the first quarter of 2020 as compared to adjusted EBITDA 0.8 million in the fourth quarter of 29 team largely as a result of price.

Income before income taxes in the fourth quarter benefited from a gain on asset sales of 2 million that did not recur in the first quarter 2020.

Our activity in this segment was most impacted by the cobot 19 bars with some customers primarily in the northeast postponing work as a result.

Gionee and the first quarter 2020 was 15.3 million as compared to 25.6 million for the fourth quarter of 2019 with lots of moving pieces in both periods DNA for the first quarter of 2020 includes 2.3 million of costs associated with the company's restructuring a credit of 4.3 million related to a restructuring related concession.

Some accrued professional fees and 0.7 million and severance costs DNA for the fourth quarter of 2019 includes a $2.7 million gain during the forfeiture of certain equity awards 3.5 million in severance cost and 4 million of fees and expenses associated with the company's restructuring and a charge of 5 million associated with ongoing.

In litigation, excluding these items DNA for the first quarter of 2020 was 16.6 million as I mentioned earlier in March we began and over steps will reduce our DNA going forward.

Result of these steps is it by the end of the second quarter will be only Jane Eyre run rate of between 11 and $12 million a quarter.

We continue to evaluate additional ways to bring down our bring overhead costs down.

Depreciation expense was 10.2 million in the first quarter 2020, as compared to 13.8 million in the fourth quarter 2019, as I mentioned in the segment discussions we recorded an impairment charge of 41.2 million in the first quarter 2020 to reduce the carrying value of our Fms and FRS assets to fair value as we determine the decline.

In oil prices and our activity would be a triggering event.

And completing that assessment, we did not impair assets in a rig services or coiled tubing services services segments.

Interest expense for the first quarter 2020 was 8.2 million net amount includes about two thirds of a quarter's interest under our term loan going forward, we'd expect our interest expense to be around 1.8 million a corner under the terms of our new term loan we had the ability to pay interest in kind for the first two years ago on we expect that we will take advantage of this.

Feature for at least 2020.

Cash flow used in operations was 18.4 million in the first quarter of 2020 capital expenditures were 0.7 million in the first quarter of 2020, we had 1.8 million and proceeds from asset sales largely real estate in the first quarter 2020.

Our capital spending for 2020 will be minimal, we're targeting around 5 million or less before the benefit of any asset sale proceeds.

As of March 31st 2020 kit unrestricted cash of 25.6 million. This compares to cash at year end 2019, a 14.4 million our ABL facility remains Undrawn at March 30, Onest 2020, we're borrowing capacity of 10.1 billion for total liquidity of 35.8 million.

As of April Thirtyth 2020, we had 26.1 million in cash and 10.1 million of borrowing capacity under our ABL facility.

In closing while this market is very challenging I'm confident in the team we have today with strong and experienced leadership from the field up in many ways. This maybe the most challenging downturn any of us as fast, but I believe we're well positioned to key to emerge from this as a different keep a field driven company focused on our employees who are delivering grow.

The customer satisfaction with efficient and say service and that along with the lower cost structure I believe will ultimately drive better returns when the market recovers operator as we're doing this remotely we won't be take any questions. This morning. So this concludes our remarks a replay of this call can be accessed on our website, a key energy dot com under the Investor real.

Relations tab also under the Investor relations with posted a schedule of our quarterly rig and truck hours. Thank you all for joining us today.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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