Q1 2020 KLX Energy Services Holdings Inc Earnings Call
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It is now my pleasure to introduce VP of corporate development right it's either.
Thank you Andrew Good morning, and thank you for joining US today, we are here to discuss Calix energy services financial results for the first quarter ended April Thirtyth 2020.
For comparative purposes, we had presented our financial results adjusted to exclude cost associated with asset impairment charges. The company's major downsizing program and costs associated with the pending merger.
These costs are collectively referred to as cost as defined.
The company's earnings news release, which was issued earlier this morning presents our results.
If you haven't received that you will find a copy on our website.
We will begin with remarks from Tom Mccaffrey, President Chief Executive Officer, and Chief Financial Officer of Calix Energy services.
For todays call we've prepared a few slides healthy follow our discussion.
You can find our presentation on the Investor Relations relations page of the Calix Energy services website at Calix energy Dot com.
In addition copies of the slides are posted on our website for you to refer to.
Before we begin we have some additional information to cover.
Any forward looking statements that we make our subject to risks and uncertainties and as always in our prepared remarks, and our responses to your questions. We will rely on the safe Harbor exemptions under the various securities acts and our Safe Harbor statements in the company's filings with Securities and Exchange Commission, we will.
Address questions following our prepared remarks.
At that time, the operator will provide una instructions.
Now I will turn the call over to Tom Mccaffrey.
Thank you Ryan and good morning, everyone.
Thank you for joining us today to discuss our first quarter financial results from the pending merger with Quintana energy services for Q, Yes.
The oilfield services industry experienced an abrupt deterioration in demand during the second half from 2018, which has continued into twentytwenty in was further Ics exacerbated by the unprecedented demand destruction caused by the Covance 19 pandemic.
The combination of the Saudi Arabia, Russia oil market share dispute and the demand destruction caused by the co. Good 19 pandemic has driven the price of oil to unprecedented levels, resulting in.
And abrupt and Steve decrease in demand for oilfield services.
Company responded with contemporaneous cost reductions in all aspects of the company's business.
Resulting in an business rationalization cost initial costs related to the pending merger with Q, yes totaling $14 million.
Question the company and recorded.
And approximately $209 million noncash asset impairment charge as required by GAAP.
The second decline in demand for oil field services.
All of these costs aggregated approximately $223 million.
As we previously discussed we initiated an ongoing comprehensive business review and cost rationalization program targeted at aligning our cost structure with customer demand.
Specifically, we implemented a furlough program.
And approximately 15% reduction and base pay.
We realigned our field compensation structure.
We set expectations for no cash bonuses in the current environment.
And we trimmed our selling general and administrative costs in various areas to allow the company to align our organizational structure with expected demand.
All of these actions are expected to reduce our cost structure by approximately $100 million per year compared to our cost structure at the end of the second quarter.
2019.
Our workforce, which stood at approximately 600 1600 50 employees at the end of the second quarter 2019.
Was reduced to approximately 790 employees.
At May 30, Onest 2020.
That's a reduction of about 52%.
By way of comparison, our revenues for the first quarter as we reported today.
Were $83 million, a decline of approximately 49.7% as compared with the second quarter of 2019.
Weve warm stacked assets, we aggressively cut costs in every area of the business and we will continue to monitor our staffing and cost structure.
Going forward.
While painful.
These actions were necessary to protect our liquidity in a period of uncertainty while continuing to provide best in class service to our customers.
We realized a substantial benefit from our cost rationalization actions in the first quarter just ended as evidenced by a 420 basis points increase in adjusted gross margin.
On the 16%.
Decline in sequential quarterly revenues.
The incremental cost reduction benefit realized during the first quarter was approximately $8 million.
During the first quarter the company generated $7 million of cash flows from operations and approximately 2.2 million of free cash flow.
Ended.
And ended the quarter with approximately $127 million in cash and no borrowings under our 100 million dollar.
Credit facility.
We believe the company's continued tight cost controls and focus on return on invested capital in free cash flow generation should enhance.
Our position as a proven value added partner to our customers with the strong liquidity profile and a history of providing value added services, while maintaining superior health safety and environmental standards.
We're pleased to share with you that to date, we've not had one PLX employee test positive for cobot 19.
And no customer has discontinued using K alexi as a result of employee employee illness or lack of proper tools or controls to prevent covert 19 on the job.
We're very proud of our talented HSC team the discipline that they've instilled in our employees.
We are equally proud of all the employees in the field for complying with new processes during the pandemic.
Results like this do not happen without extensive training and reinforcement of the importance of following the established processes and procedures.
We know our customers appreciate all your efforts to maintain the safe work environment and our various stakeholders should be equally grateful im proud of the safety culture, we live everyday scaling Steve.
The less land market continued to be under unprecedented price pressure during the first quarter as the impact to the pandemic and the Saudi Arabia Russian.
Market share dispute and the resulting supply demand imbalance led to an unprecedented deterioration in industry conditions.
As we all know essentially all new activity that was plan has been delayed or canceled.
Well completion activities that were underway were completed but no no new wells restarted.
For more than two months or more economic activity globally was for the near standstill.
Energy consumption dropped in storage for production evaporated.
Resulting in severity clients in the price of oil oil production has decreased.
And energy consumption has begun to increase the outlook for the demand for oil and gas production for ours and for our services remains for Pete FX.
Let's turn to slide three and review our first quarter 2020 consolidated results.
For the first quarter ended April 32020 revenues were $83 million, a decrease of $15.8 million or 16% as compared with the fourth quarter of 2019.
The decrease in revenues reflects the impact of the cool.
Correct.
The impact of the Saudi Russia market share dispute as a result in supply demand imbalance, which led to unprecedented deterioration in industry conditions.
Gross profit in gross margin adjusted to exclude costs as defined in depreciation expense were $15.7 million and 18.9% respectively.
Adjusted gross margin expanded by 420 basis points as compared to the prior quarter. Despite the 16% decline in sequential revenues.
This improvement in adjusted gross margin reflects as a substantial benefit.
From the company's cost reduction initiatives.
Adjusted operating loss was $12.9 million, an adjusted EBITDA was approximately $2.26 million.
Adjusted net loss was $20.1 million or negative 87 cents per share for the first quarter.
Before we review our first quarter 2020 segment results were like to remind everyone that the company allocates all of our corporate costs, two or three segments.
Costs allocated to our three segments during the first quarter were approximately $11 million.
Costs allocated each segment for the three month period ended April Thirtyth were as follows Rocky Mountain segment $4.5 million northeast mid Con segment $3.3 million and southwest segment $3.3 million.
Let's now turn to slide four review our first quarter.
Rocky Mountains financial results, which include the $4.5 million allocation of corporate costs that were allocated to them.
During the first quarter Rocky Mountain segment revenues of $33.8 million decreased by $12.9 million were 27.6%.
As compared with the fourth quarter of 2019.
Adjusted operating loss for the fourth quarter with street negative $3.6 million.
As compared with adjusted operating loss of $1.1 million in the fourth quarter of 2019.
Adjusted EBITDA.
It was 1.7 million or 5% of revenues as compared to the fourth quarter, adjusted EBITDA of $6.3 million or 13.5% of revenues.
Let's turn to slide five and review, our first quarter northeast Midcon segment performance.
First quarter ended April Thirtyth 2019.
Mid con revenues were up $24.8 million increased by 800000 or 3.3%.
Adjusted operating loss was $5 million.
And adjusted EBITDA and adjusted EBITDA margin were 400000.
The dollars and 1.6% respectively.
Let's turn to slide six review, our first quarter southwest segment.
Farms.
First quarter ended April Thirtyth 2020, southwest SEC segment revenues were $24.4 million and decreased $3.7 million.
Or 13.2% as compared with fourth quarter of 2019.
Adjusted operating loss was $4.3 million compared to a fourth quarter adjusted operating loss of $8.5 billion.
And adjusted EBITDA was $500000 compared to fourth quarter, adjusted EBITDA of a negative $2 million.
Before we review our financial position, let's briefly discuss the pending merger with Q, yes.
On May three 2020, the company entered into an all stock merger agreement with Qs.
The combined company will have an industry, leading asset light product and service offerings.
Present in every major on us onshore in gas base oil and gas basin with more than a $1 billion of pro forma fiscal year 2019 revenues.
And approximately 106 million in fiscal year 2019 adjusted EBITDA.
Excluding and estimated $40 million.
Of annualized cost synergies.
In a strong liquidity profile with approximately $118 million of cash.
And $800 million revolving line of credit.
Over the fast past five weeks managements of both companies have been engaged and preliminary integration planning activities.
The merger proxy it was filed with the FCC on June 2nd.
2020 in the company believes the merger will be completed during the second half of this year.
This merger it clearly expands the breadth of the services offered throughout the lifecycle of a well and provide significant opportunities to generate incremental revenues for the legacy businesses.
That may not otherwise had been available.
Q, yes, we'll add directional drilling snubbing and well control services Kale axes already broad range.
Our product and service lines.
Together, we will be rationalize into the largest fleets of coiled tubing in wireline assets dramatically, reducing future capital spending requirements.
We expect the merger to facilitate the pull through of the.
The combined companies asset light products and services.
And in addition, this merger facilitates qbs his decision to reap the benefits.
From re purpose seeing the vast majority of its recently idled pressure pumping equipment.
To support the foremost fleet of large diameter coil tubing assets in North America and support one of the largest wireline.
Yeah.
Galaxy has successfully demonstrated that the provision of coiled tubing services, along with our broad range of asset light products and services results. In the addition of new customers in facilitates a capture of a greater share of customer spend.
Fundamentally this transaction allows the combined company.
Pursue what we note to be a successful returns focused strategy. So focused on return on invested capital while positioning the company.
On to whether the current storm and ultimately to grow on a significantly reduced capital expenditure budget, Chris Baker Hughes CEO and his team of clearly embrace this philosophy.
Throughout our negotiations and leading up to the merger.
In throughout our preliminary integration planning discussions.
Both companies are looking forward to completing the merger which is expected to facilitate.
More than $40 million and expected annual cost savings.
And beginning to implement our Germany developed integration plan.
As we address new market opportunities arising from the combination.
Now, let's take a moment review our financial position on slide seven.
As of April Thirtyth 2020, cash on hand was approximately $126 million and increased $2.1 million on a sequential quarterly basis.
Total long term debt of $250 million less cash resulted in net debt of approximately $124 million.
The company's net leverage ratio was approximately 2.3 times.
The rental borrowings outstanding under the company's hundred million dollars credit facility.
And there are no debt maturities until November 2025.
For the three months ended April 30 at 2020 cash flow provided by operations was $7 million.
In cash flow was 2.2 free cash flow was $2.2 million.
Capital expenditures were approximately $5 million, most of which are with spend prior to the oil price collapse.
We continue to expect total capex for this fiscal year of about $8 million.
We will remain focused on serving the needs of our customers in both winning new customers and gaining share of customer spend bye bye.
By providing the abroad portfolio of products service lines and equipment across all major bases on maintaining a high level of healthy level of liquidity.
And prudently managing our capital expenditures.
In an operating in an environment, where our financial strength is a key differentiator, we believe it our ongoing cost reduction efforts.
And driving cost synergies from the pending merger requeue, yes.
Well like we'll sit KFC apart from the other oilfield service providers and allow the combined company to further pursue strategic combinations as we participate in the industry consolidation.
So we remain committed to maintaining a healthy and liquid balance sheet as the industry conditions change, we will begin to deploy capital where we believe it will generate the highest potential return to our shareholders.
And evaluate.
Chair or debt repurchases or capital investments.
And our product service lines.
Through the same loans.
With that I'll turn the call back over to Ryan.
Thank you Tom I will now turn the call over to the operator for the Q and a portion of today's call. The operator will provide instructions on how to ask a question Andrew.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone.
Withdraw your question pressed the penalty.
Please standby, while we compile the Q and a roster.
I guess thing is up.
No. So my first question comes from the line of Jamie Breads would last Friday.
Good morning, everybody. Thanks for taking my call.
Yeah. It was finally caught me it was a tough market, but it was not a quota meat almost double EBITDA, but we've been having someone a premium produces a going back and we started in wells.
You know limited, although a limited amount and something to happen.
Tim down there.
Completion activity.
Since then since the trough for me I mean did you could tell us give us some color what do you think the market is heading towards in next couple of months.
Given the fact that some producers are actually going in and we started wealth.
Jamie.
I think that.
It's it's awfully early for us to talk about.
Providing additional color on.
The initial activity of a have a few.
Folks which are.
Initiating completion activity, where we do believe is beginning to occur and will occur hers.
Most logical thing is to.
A number of the wells that have been shut in our actually now beginning to.
The MPS are going back and having those wells free stimulated and put them back and production would be think about it the fastest way into to generate.
Revenues and profits.
It is too is to go to a producing well.
And that's that's an area, where we're very well.
Suited.
With our strong intervention business I think we have one of the largest.
Fishing tool inventories and our industry expertise.
Hi in each of the regions is is pretty well known so we think thats going to be an area, where we'll see an uptick purse.
And if you think about at the natural progression.
You know deployment of capital from an M&A perspective.
It would seem to be first put back into production what previously had not a which you account often and it's it's a cheapest and best way to get a.
Revenues and cash flow going forney pain in the second would be to look at.
The over 8000 ducts drilled and uncompleted wells, which are scattered throughout the U.S. and any inventories at the pace that they'll look there to complete their wells before.
Initiating new drilling activities and so some of the some of the completions you may be referring to very well could be some of the ducs in the Permian.
But right now there's not enough information to really provide anything more.
Anecdotal on that topic.
Okay Thats helpful.
Yeah that was helpful. Also up somewhat if we just mentioned that a another basins open up the PRB is <unk> attractive.
Is that something you would consider going into the future you have any assets that could be deploying the PRB.
<unk> every week you know we are we have are we ever presence and.
Each of the.
A major basin since the White goes big portion of our Oh.
Rockies Oh business.
So it really is its is we look at the opportunities which are being presented to US only we are hearing that you know some people are good going to reactivate as soon as a July or August.
We'll have to see with that isn't with the prices going to be as we have been in the past, but we're not going to to work for free interest front our assets down.
So I think there will be smart about how we deploy our assets and ER and bringing people back on because it has to be down with the view towards you know generating profits and not just running.
Our assets into the ground for cash flow purposes, debit healthy balance should want to keep it that way.
Yeah, that's that's the prime everything in the small keeping us on a better. She would you guys have done an excellent job.
For these to be committed for especially in this tough environment.
That's all that's one of course is I have for now I'll pass it along that they can do you.
Thank you as a reminder, ladies and gentlemen, if you have a question. Please press star one on your telephone.
Our next question comes from the line no Simon wall with GE research.
Hi, Good morning, Tom and Brian how are you.
Good how are your Simon.
Good.
Yes.
Quick question on the cost saving looks like.
You did a good job the me decrementals in the first quarter.
$8 million, how about cost savings, how do you see the cost saving wrapping up the rest of the year.
Well you know is the cost from out.
Of the business and we've by the way, we normally don't breakout gross profit excluding depreciation, but we thought it was helpful. In this situation just to show with the with the cash benefit is because otherwise it gets it gets lost a little bit in the.
I.
Non cash charge.
I think that you'll begin to see a further benefit is we go through.
You know each of the quarter's a that that the costs. So we've taken out in the first quarter, we'll begin to get realized.
Quarter.
And.
It is a is we.
Through it always seems that most of the reductions for whatever reason are always at the end of period. So they tend to be back end loaded and maybe a little bit of that is just has to do with the timing of jobs and also human nature, but you should see they know the benefits begin to improve.
Yeah, I think that we as as we look at activity be when it when it when it does begin to improve.
We should see an additive benefit associated with that is really bring a demand increases to the point, where we need to bringing people back our cost structural will change again, and you know will will actually add some people it but that'll be a positive thing because we won't add them analyst for generating price.
Offers.
Can you quantify how much of it.
That does that does help quantify how much of the cost savings a $20 million in cost savings truck show versus variable.
Oh, it's almost all variable.
Hey, extent, you think about it if it's labor.
It is yes, all the all on a fully loaded basis. It's the trucks of people drive is and you know the health and benefit costs. Its subsistence with people are Oh man camps off site. It's a there's a lot of.
Costs that go into [laughter] into a each to maintaining each individual it's the training.
That's required to bring people and onboard them all of those costs.
Top off when you don't when these employees are there in going through and incurring costs on a regular basis.
Yes, Okay fuel I mean, it's just literally it.
It is sort of a stair steps down with the with the drop off in activity.
Okay. Just the final question you talked about the $100 million enough revolving credit facility. This undrawn, but you only have about 42 million available is that because it's an asset backed facility that.
That's that's.
But the 40 waste wood availability is lower than what the.
What 42 million, Florida at 100 million.
Yes. It is yes. It is it so its.
Well I think it shows we've done very good job and managing our receivables on our and our receivable exposure.
Quite your receivables you can't flinch them, if they're out there so.
I think as simple as that is a business begins to grow there is working capital.
We have the availability candidly, we've never drawn on our revolver with sort of just in case my.
Sort of the way that we look at that and Oh.
I think that Weve.
Ever drew all long.
Before we did the spinoff.
Calix, So we tend to run in overly conservative balance sheet, but I think in a highly cyclical industry.
That's really important both to our shareholders equity holders in the bondholders to know that.
We are yeah, we just don't intend take risk and put the company in harm's way.
And I don't degree and change or stripes, I know that Chris Baker, and and keep your letter over Q, yes shapes share that same view and so you should not expect any change post merger.
Right.
Okay great.
Good day.
Yep.
Yes.
Thank you.
Now I'll turn the call back over to Ryan Tyler for closing remarks.
Yes. Thank you everyone for participating on this morning's call. We look forward to speaking to you again next quarter, thanks and have great that.
Ladies and gentlemen, thank you for participating in todays conference. This does conclude the program and you may all disconnect.
[music].
[music].
[music].
Ladies and gentlemen, thank you for standing by welcome to the Kato likes Energy Services' first quarter 2020 earnings conference call.
This time, all participants are to listen only mode.
After the speakers presentation, there will be a question and answer session.
Yes. Good question during the session you will need to press star one on your telephone.
Please be advised that todays conference is being recorded.
If you're worried further assistance please press star zero.
It is now my pleasure to introduce VP of corporate development right.
Thank you Andrew Good morning, and thank you for joining US today, we're here to the Scott.
Energy services its financial results for the first quarter ended April Thirtyth 2020.
For comparative purposes, we had presented our financial results adjusted to exclude cost associated with an impairment charge at the company's major downsizing program and costs associated with the pending merger.
These costs are collectively referred to as cost that define.
The company's earnings news release, which was issued earlier this morning presents our results.
If you haven't received that you'll find a copy on our website.
We will begin with remarks from call Mccaffrey, President Chief Executive Officer, and Chief Financial Officer of Calix Energy services.
For today's call. We are prepared a few slides healthy follow our discussion.
You can find aren't presentation on the Investor Relations relations page of the Calix energy services website.
Alex Energy Dot com.
In addition copies of the slides are occurring on our website creates referred to.
Before we begin we have some additional information to cover.
Any forward looking statements that we make our subject to risks and uncertainties and as always in our prepared remarks, and our responses to your questions. We will rely on the safe Harbor exemptions under the various security backs and dark Safe Harbor statements in the company's filings with the Securities and Exchange Commission.
We will address questions. Following our prepared remarks at that time to operator, we'll provide you an a. instructions.
Now I will turn the call over to Tom Mccaffrey.
Thank you Ryan and good morning, everyone.
Thank you for joining us today to discuss our first quarter financial results from the pending merger with Ventana energy services for Q, Yes.
The oilfield services industry experienced an abrupt deterioration in demand during the second half from 2019 for just continued into Twentytwenty in was further exacerbated by the unprecedented demand destruction caused by the covert 19 pandemic.
The combination of the Saudi Arabia, Russia oil market share dispute and the demand destruction caused by the cobot 19 pandemic has driven the price of oil to unprecedented levels, resulting in.
An abrupt and Steve the increase in demand for oilfield services.
Company responded with contemporaneous cost reductions in all aspects of the company's business.
Resulting in an business rationalization cost initial costs related to the pending merger with Q, yes totaling $14 million.
Sure and the company and recorded.
And approximately 209 million dollar noncash asset impairment charge as required by GAAP.
The second decline in demand for oil field services.
All of these costs aggregated approximately $223 million.
As we previously discussed we initiated an ongoing comprehensive business review and cost rationalization program targeted at aligning our cost structure with customer demand.
Specifically, we implemented a furlough program.
And approximately 15% reduction and base pay.
We realigned our field compensation structure.
We set expectations for no cash bonuses in the current environment.
And we trimmed our selling general and administrative costs in various areas to allow the company to align our organizational structure with expected demand.
All of these actions are expected to reduce our cost structure by approximately $100 million per year compared to our cost structure at the end of the second quarter.
2019.
Our workforce, which stood at approximately 600 1600 50 employees at the end of the second quarter 2019.
Was reduced to approximately 790 employees.
At May 30, Onest 2020.
That's a reduction of about 52%.
By way of comparison, our revenues for the first quarter as we reported today.
Were $83 million, a decline of approximately 49.7% as compared with the second quarter of 2019.
We warm stacked assets, we aggressively cut costs in every area of the business and we will continue to monitor our staffing and cost structure.
Going forward.
While painful.
These actions were necessary to protect our liquidity in a period of uncertainty while continuing to provide best in class service to our customers.
We realized a substantial benefit from our cost rationalization actions in the first quarter just ended as evidenced by a 420 basis points increase in adjusted gross margin.
On the 16%.
Decline in sequential quarterly revenues.
The incremental cost reduction benefit realized during the first quarter was approximately $8 million.
During the first quarter the company generated $7 million of cash flows from operations and approximately 2.2 million in pre cash flow.
Good.
And ended the quarter with approximately $127 million in cash and no borrowings under our 100 million dollar.
Credit facility.
We believe the company's continued tight cost controls and focus on return on invested capital.
Free cash flow generation should enhance.
Our position as a proven value added partner to our customers with a strong liquidity profile and the history of providing value added services, while maintaining superior health safety and environmental standards.
We're pleased to share with you that to date, we've not had one PLX employee test positive for coated 19.
No customer has discontinued using K alexi as a result of employee employee illness or lack of proper tools or controls to prevent covert 19 on the job.
We're very proud of our talented HSC came the discipline that theyve instilled in our employees.
We are equally proud of all the employees in the field for complying with new processes during the pandemic.
Results like this did not happen without extensive training and reinforcement of the importance or following the established processes and procedures.
We know our customers appreciate all your efforts to maintain the safe work environment in our various stakeholders should be equally grateful im proud of the safety culture relive everyday scaling Steve.
The less landmark and continued to be under unprecedented price pressure during the first quarter as the impact to the pandemic, Saudi Arabia Russian.
Market share dispute and the resulting supply demand imbalance led to an unprecedented deterioration in industry conditions.
As we all know essentially all new activity that was plan has been delayed or canceled.
Completion activities that were underway were completed but no no new wells restarted.
For more than two months or more economic activity globally was for the near stand still.
Energy consumption drop in storage for production evaporated.
Resulting in severity clients in the price of oil oil production has decreased.
And energy consumption has begun to increase the outlook for the demand for oil and gas production for ours and for our services remains.
Yes.
Let's turn to slide three and review our first quarter 2020 consolidated results.
For the first quarter ended April Thirtyth, 2020 revenues were $83 million, a decrease of $13.8 million or 16% as compared with the fourth quarter of 2019.
The decrease in revenues reflects the impact of the Cook.
Mm.
The impact of the Saudi Russia market share dispute the results in supply demand imbalance, which led to unprecedented deterioration in industry conditions.
Gross profit in gross margin.
Adjusted to exclude costs as defined in depreciation expense were 15.7, $9, an 18.9% respectively.
Adjusted gross margin expanded by 420 basis points as compared to the prior quarter. Despite the 16% decline in sequential revenues.
This improvement in adjusted gross margin reflects a substantial benefit.
From the company's cost reduction initiatives.
Adjusted operating loss was $12.9 million and adjusted EBITDA was approximately $2.26 million.
Adjusted net loss was $20.1 million or negative 87 cents per share for the first quarter.
Before we review our first quarter 2020 segment results I'd like to remind everyone.
The company allocates all of our corporate costs, two or three segments.
The costs allocated to our three segments during the first quarter were approximately $11 million.
Costs allocated each segment for the three month period ended April Thirtyth were as follows Rocky Mountain segment $4.5 million northeast mid Con segment $3.3 million and southwest segments $3.3 million.
Let's now turn to slide four review our first quarter.
Rocky Mountains financial results, which include the $4.5 million allocation of corporate costs that were allocated to them.
During the first quarter Rocky Mountain segment revenues of $33.8 million decreased by $12.9 million or 27.6%.
As compared with the fourth quarter of 2019.
Adjusted operating loss for the fourth quarter.
The street negative $3.6 million.
As compared with adjusted operating loss of $1.1 million in the fourth quarter of 2019.
Adjusted EBITDA.
Was 1.7 million or 5% of revenues as compared to the fourth quarter adjusted EBITDA.
Of $6.3 million or 13.5% revenues.
Let's turn to slide five and review, our first quarter northeast Midcon segment performance.
First quarter ended April Thirtyth 2019.
Mid con revenues were.
$24.8 million increased by 800000 or 3.3% adjusted operating loss was $5 million.
And adjusted EBITDA, and adjusted EBITDA margin or 400000.
Dollars and 1.6% respectively.
Let's turn to slide six and review our first quarter southwest segment.
Performance.
First quarter ended April Thirtyth 2020 southwest.
Segment revenues for 2000 $4.4 million and decreased $3.7 million.
Or 13.2% as compared with fourth quarter of 2019.
Adjusted operating loss was $4.3 million compared to a fourth quarter adjusted operating loss of $8.5 million.
And adjusted EBITDA was $500000 compared to fourth quarter, adjusted EBITDA of a negative $2 million.
Before we review our financial position, let's briefly discuss the pending merger with Q, yes.
On May three 2020 of the company entered into an all stock merger agreement with Q, Yes.
The combined company will have an industry, leading asset light products and service offerings.
Present in every major us onshore in gas base oil and gas basin with more than a $1 billion a pro forma fiscal year 2019 revenues.
And approximately 106 million in fiscal year 2019 adjusted EBITDA.
Excluding an estimated $40 million.
Of annualized cost synergies.
In a strong liquidity profile with approximately $118 million of cash.
And $800 million revolving line of credit.
Over the fast past five weeks managements of both companies have been engaged and preliminary integration planning activities.
Merger proxy it was filed with the FCC on June 2nd.
2020 in the company believes the merger will be completed during the second half.
Sure.
This merger clearly expands the breadth of the services offered throughout the lifecycle of a well and provide significant opportunities to generate incremental revenues for the legacy businesses.
That may not otherwise had been available.
Yes, we'll add directional drilling snubbing and well control services tail axes already broad range.
Our product and service lines.
Together, we will be rationalize into the largest fleets of coil tubing in wireline assets dramatically, reducing future capital spending requirements.
We expect the merger to facilitate the pull through of the.
The combined companies asset light products and services.
And in addition, this merger facilitates Qs his decision to reap the benefits.
From repurchasing the vast majority of this recently idled pressure pumping equipment.
To support the foremost fleet of large diameter coil tubing assets in North America and support one of the largest wireline.
Yes.
Galaxy has successfully demonstrated that provision of coiled tubing services, along with our broad range of asset light products and services results. In the addition of new customers and facilitates a capture of a greater share of customers spend.
Fundamentally this transaction allows the combined company to pursue what we know to be a successful returns focused strategy. So focused on return on invested capital while positioning the company.
Two whether the current storm and ultimately to grow on a significantly reduced capital expenditure budget, Chris Baker.
CEO and his team of clearly embrace this philosophy.
Throughout our negotiations with leading up to the merger.
And throughout our preliminary integration planning discussions.
Both companies are looking forward to completing the merger which is expected to facilitate.
More than $40 million and expected annual cost savings.
And beginning to implement our Germany developed integration plan.
As we address new market opportunities arising from the combination.
Now, let's take a moment review our financial position on slide seven.
As of April Thirtyth 2020, cash on hand was approximately $126 million and increased $2.1 million on a sequential quarterly basis.
Total long term debt of $250 million less cash resulted in net debt of approximately $124 million.
The company's net leverage ratio was approximately 2.3 times.
The rental borrowings outstanding under the company's hundred million dollars credit facility.
And there are no debt maturities until November 2025.
For the three months ended April 32020 cash flow provided by operations was $7 million.
In cash flow was 2.2 free cash flow was $2.2 million.
Capital expenditures were approximately $5 million most of which was spent prior to the oil price collapse.
We continue to expect total capex for this fiscal year of about $8 million.
We will remain focused on serving the needs of our customers.
In both winning new customers in gaining share of customer spend bye bye.
By providing a broad portfolio of products service lines and equipment across all major basins on maintaining a high level of healthy level of liquidity.
Prudently managing our capital expenditures.
In an operating in an environment, where our financial strength is key differentiator we believe.
Our ongoing cost reduction efforts.
And driving cost synergies from the pending merger requeue, yes.
Well like we'll set K aleksey apart from the other oilfield service providers and allow the combined company to further pursue strategic combinations as we participate in the industry consolidation.
So we remain committed to maintaining a healthy in liquid balance sheet as the industry conditions change, we will begin to deploy capital, where we believe will generate the highest potential return to our shareholders.
And evaluate.
Share or debt repurchases or capital investments.
And our product service lines.
Through the same loans.
With that I'll turn the call back over to Ryan.
Thank you Tom I will now turn the call over to the operator for the Q and a portion of today's call. The operator will provide instructions on how to ask a question Andrew.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone.
Withdraw your question pressed the penalty.
Please standby, while we compile the Q and a roster.
Hi, Good thing is up.
So first question comes from the line of Jamie credits with last Friday.
Good morning, everybody. Thanks for taking my cost.
Okay.
Yes. It was solid quarter. This was a tough market, but it was solid quarter meat almost double EBITDA, but we've been having someone a premium produces.
Going back and we started wells.
Our limited, although a limited amount add on some new Haven.
Tim down there.
Completion activity.
Since then since the trough for me I mean could you could tell us give us some color what do you think the market is heading towards in next couple of months.
Given the fact that some producers are actually going in and we start and wells.
Jamie.
I think that.
It's it's awfully early for us to talk about.
Providing additional color on.
The initial activity.
A few.
Folks which are.
Initiating completion activity, what we do believe is beginning to occur and will occur one.
Most logical thing is too.
A number of the wells that have been shut in.
Our actually now beginning to.
MPS are going back and having those wells free stimulated and put them back and production. If you think about it.
Generate.
Revenues and profits.
Is too is to go to a producing well.
And that's that's an area, where we're very well.
Suited.
With our strong intervention business I think we have one of the largest.
Tool inventories and our industry expertise.
In each of the regions is is pretty well known so we think thats going to be an area, where we'll see an uptick first.
And if you think about at the natural progression from deployment of capital from an S&P perspective.
It would seem to be first put back into production what.
Previously had not.
Which you uncapped often and.
It's a cheapest at best way to get.
Revenues and cash flow going forward.
In the second would be to look at.
The over 8000 ducks are drilled and uncompleted wells, which are.
Scattered throughout the us near the inventories of the employees that they'll look there to complete their wells before.
Initiating new drilling activities and so somebody some of the completions you may be referring to very well could be some of the ducs in the Permian.
But right now theres not enough information to really provide anything more.
Anecdotal on that topic.
Thats helpful.
Yes that was helpful also.
Similar to previous medicine that another basins opened up the PRB is so attractive.
Is that something you will consider going into the future you have any assets that could be deploying the PRB.
Every week, we are we have.
Are we ever presence and.
Each of the.
The major basins, but why it goes through portion of our.
Rockies.
Business.
So it really is is we look at the opportunities which are being presented to us. So we are hearing that some people are good going to reactivate as soon as of July or August.
We'll have to see what that is and what the pricing is going to be.
As we have been in the past, what we're not going to.
To work for free interest front, our assets down.
So I think there will be smart about how we deploy our assets and.
And bringing people back on because it has to be down with a view towards.
Generating profits and not just running.
Our assets into the ground or cash flow purposes.
Healthy balance should want to keep it that way.
Yes, so thats the prime everything in the small keeping us on balance you would you guys have done an excellent job.
For these to be committed for especially in this tough environment.
That's all that's all the questions I have for now I'll pass it along that they can you.
Thank you as a reminder, ladies and gentlemen, if you have a question. Please press star one on your telephone.
Our next question comes from the lined up Simon wall with GE research.
Hi, Good morning column and Brian how are you.
Simon.
Good.
Yes.
A quick question on the cost saving looks like.
Okay.
Good job the main decrementals in the first quarter, you got $8 million, how about cost savings how do you see the cost saving wrapping up for the rest of the year.
Well you know is the cost come out.
Of the business and by the way, we normally don't breakout gross profit excluding depreciation, but we thought it was helpful. In this situation just to show with the with the cash benefit is because otherwise it gets.
It gets lost a little bit in the.
With that a noncash charge.
I think that you'll begin to see.
Further benefit is we go through.
Each of the quarters.
That said it costs. So we've taken out in the first quarter.
We'll begin to get realized.
Quarter.
It is is we.
Drew it always seems that most of the reduction.
For whatever reason are always at the end of period. So they tend to be a back end loaded and.
Maybe a little bit of that is just has to do the timing of jobs and also human nature, but.
You should see they know the benefits begin to improve.
I think that we as we as we look at activity be when it went when it does begin to improve.
We should see an additive benefit associated with that is linked burning.
Demand increases to the point, where we need to bringing people back our cost structure will change yet and.
Well, we'll actually add some people it but that will be a positive thing because we won't add them at a less for generating profits.
Can you quantify how much of the.
That does help quantify how much of the cost savings.
$100 million in cost saving a structural versus variable.
It's almost all variable.
Hey, extent, you think about it its labor.
It is.
All the on a fully loaded basis, it's the trucks of people drive is.
And.
Hello.
And benefit costs is subsistence where people are.
In man camps Offsite, it's there's a lot of costs that go into.
Into each.
To maintaining each individual it's the training.
That's required to bring people and onboard them.
All of those costs.
Drop off when you don't when these employees are there in going through and incurring costs on regular basis.
Okay fuel.
I mean, it just literally.
It is sort of a stair steps down with the.
Drop off in activity.
Okay. Just the final question you talked about the $100 million in.
Operating facility this undrawn.
Only have about $42 million available is that because it's an asset backed facility that.
That's that's.
But the 40 waste wood availability is lower than what the.
What 42 million as long as 100 million.
Yes. It is yes. It is so it's.
Well I think its shows we've done very good job and managing our receivables on our and our receivable exposure.
Quite your receivables you can't flinch them, if they are out there so.
I think as simple as that is a business begins to grow there is working capital we have the availability candidly, we've never drawn on our revolver, which sort of just in case body.
Sort of the way that we look at that and.
I think that we've.
Ever drew on loan.
Where we did the spinoff.
Calix, So we tend to run in overly conservative balance sheet, but I think in a highly cyclical industry.
Really important both to our shareholders equity holders in the bondholders to know that.
We are.
We just don't intend take risks and put the company in Harm's way.
And I don't agree and change our stripes I know that Chris Baker and keep your letter over in Q, Yes.
We.
Share that same view and so you should not expect any change.
Merger.
All right.
Okay great.
Thanks.
Thanks.
Yep.
[music].
Thank you.
I'll now turn the call back over to Ryan Tyler for closing remarks.
Yes, thank you to everyone for participating on this morning's call. We look forward to speaking to you again next quarter, thanks and have great that.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect.