Q2 2020 Key Energy Services Inc Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the key energy Services' second quarter 2020 earnings release Conference call.
This time, all participants are any listen only mode.
Please be advised that today's conference is being recorded.
You should require any further assistance. Please press star zero I'd now like to end the conference over to your speaker for today, It's Catherine Hargus Chief administrative Officer General Counsel in Secretary. Thank you Ma'am. Please go ahead.
Thank you Catherine and thank you for all for joining key energy services for our second quarter Financial results Conference call. This call includes forward looking statement a number of factors could cause actual results could differ materially from this expectations expressed in this call including risk factors discussed.
In our 2019 form 10-K, and other reports most recently filed with the FCC, which are available on our web site, a key energy dot com.
This call May 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 measures provided in this call to the comparable GAAP financial measures.
A reference our general Investor presentation is available on Keith Web site at key energy Dot Com under the Investor Relations tab on the call. This morning, as Marshall Dodson, She's President and CEO and Nelson Haight Keys, Senior Vice President Chief Financial Officer, and Treasurer, I'm now going to turn.
The call over to Marshall.
Thanks, Catherine and good morning, everyone listening to todays call before jumping into the quarter I'd like to publicly welcome Nelson Haight to key no. Some brings over 30 years of experience and accounting and finance leadership roles working with both oilfield services and in peak companies and that's a great dimension to our team I'm pleased to have them as a part a key.
The second quarter of 2020 brought a drop in activity. Unlike what most people in our industry have experienced before as well as unique challenges brought on by operating through the cobot 19 pandemic. Our revenues in the second quarter 2020 were 34.8 million down 40.6 million or 54% from the first quarter 2020.
Revenues of 75.3 million.
Operating loss before taxes in the second quarter of 2020 was a loss of 18.9 million as compared to operating income of 109.7 million in the first quarter of 2020, which included 171 million dollar gain on our restructuring which was completed in the first quarter of 2020.
Our efforts to change in reorient key were under way before the impact or the pandemic in declining oil prices and we continued ineffectually those changes along with changes to align our business with the lower activity, reducing reducing our gene a 4.6 million or nearly 30% quarter on quarter after excluding severance and restructuring charges or gene.
On a run rate today is nearly half of what it was this time last year on the same basis, and we're not done taking steps to operate more efficiently.
Turning to our segments revenues in our rig services segment were 20.8 million in the second quarter 2020, as compared to first quarter revenues of 47.9 million, we averaged 55 rigs working in the second quarter versus an average of 117 rigs working in the first quarter rig hours were approximately 44000 hours in the second quarter two.
Good morning, what's completion activity accounting for about 14% of them showers, our loan onto the quarter men. We averaged 47, well service rigs working we ended the second quarter at 57 average rigs working activity has continued to improve in July and thus far into August so far in the third quarter, we've seen our production activity approved.
All basins, what's the biggest increase being in the Permian or last week, our average rig count was up about could have time to our may low point, and we expect more rigs to go out in the coming weeks.
Also been deploying additional completion rates in the Permian since July and have stayed steady in the gas markets recruiting labor back into the workforce has provided some challenges at times, but we are finding enough good people ready to get back to work to meet growing demand.
Well, we do not anticipate a significant significant spike in activity on the next several months, we are seeing and do expect continued increases in demand and in our activity as we move through the third quarter and into the fourth quarter.
Revenue per rig hour increased 1.2% to $478 an hour in the second quarter $473 and are in the first quarter due to change in geographic mix, but underneath that mix change actual cry. She was down in all markets pricing is fairly stable today in most areas and generally sufficient to cover the cost of the job itself in yield.
Good morning in some areas, though it's also generally well below what we believe is necessary to provide for the ongoing upkeep of our assets over sustained period of time and well below pricing that would yield an acceptable return on that capital deployed.
With the size of our fleet and our thorough and mature maintenance processes. We believe we're well positioned us to whether this period of time in our industry.
[laughter] loss before income taxes was 2.4 million with adjusted EBITDA of 2.6 million in the second quarter 2020, and <unk> rig services segment as compared to income before income taxes of 3.3 million, an adjusted EBITDA of 7.2 million in the first quarter 2020.
With the dramatic decline in activity in price quarter on quarter, our efforts to reduce our costs, both structurally and to keep them in line with our activity resulted in a 17% decremental EBITDA margin on the activity and price decline.
Revenues in our fluid management services segment were 8.1 million in the second quarter down from 13 million in the first quarter or truck hours fell to about 71000 hours in the second quarter 2020 from 105000 hours in the first quarter.
Income before income taxes was 0.1 million and adjusted EBITDA was 0.5 million in the second quarter 2020, as compared to loss before income taxes of 23.9 million.
Adjusted EBITDA of 1.3 million in the first quarter 2020.
Revenue per truck hour was $114 per hour and second quarter compared to 124 per hour in first quarter.
Loss before income taxes included an impairment charge of 23.7 million in the first quarter 2020.
Our fluid hauling activity has been the most resilient in the face in the lower oil prices and we've seen a slight improvement in demand from the was experienced in second quarter.
Revenues in our fishing and rental segment were 4.0 million as compared to first quarter 2020 revenues of 9.6 million.
Most of the decline being in the Permian basin in central marketplaces, with lower completion of Workover activity.
The loss before income taxes was 1.7 million in the second quarter 2020, as compared to a loss before income taxes of 19.8 million in the first quarter between 20.
The loss before income taxes in first quarter 2020 includes an impairment charge of 17.6 million.
Adjusted EBITDA loss of less than 0.1 million in the second quarter 2020 compares to adjusted EBITDA of 0.69 in the first one's 2020.
The quarter on quarter decline being due to lower activity.
As we're moving through the third quarter, we are seeing improving demand for ancillary equipment in some fishing jobs as production maintenance programs resume along with some completion workover activities.
Accrual tubing services segment generated revenues of 1.9 million in the second quarter 2020, as compared to 4.8 million in the first quarter of 2020 or utilization of large diameter coil tubing units. So 2.4 average units from 1.4 average units in the first quarter due to the fall off in completion work.
Loss before income taxes was 1.8 million in the second quarter of 2020 as compared to loss before income taxes of 1 million in the first quarter 2020, adjusted EBITDA was a loss of 0.6 million in the second quarter 2020, as compared to adjusted EBITDA 0.3 million in the first quarter 2020.
With the steep decline in completions activity, we're effectively hibernate and much of our completion oriented coiled tubing business in the second quarter, but so far in the third quarter with activated tumor crews and in July began to see some completion utilization again.
With that I'll turn to Nelson to current cover some of the other areas as the second quarter Nelson. Thanks, Marshall and thanks for the kind words I'm excited to be part of the key team.
As Marshall mentioned, our second quarter consolidated revenues declined 40.6 million to 34.8 billion from 75.3 million in the first quarter 2020, our consolidated operating loss totaled 16.8 million in the second quarter 2020, as compared to an operating loss of 53.1 billion in the first quarter 2020.
Our first quarter operating loss included several charges and expenses related to the company's March restructuring and an important in impairment charge of 41.2 million to reduce the carrying value of our fluid management and fishing and rental service assets to fair value.
I will go over what Marshall is already covered spot to consolidated basis DNA for the second quarter 2020 was 13.6 million as compared to 15.3 million in the first quarter 2020.
Second quarter DNA includes 300000 of severance costs 1.3 million of expense related to the company's first quarter restructuring and 300000 of equity based compensation expense.
DNA for the first quarter 2020 included 2.3 million of costs associated with the company's restructuring a credit of 4.3 million related to a restructuring related concession on some accrued legal accrual professional fees and 700000 severance costs.
Excluding severance and restructuring related expenses and credits.
Our second quarter, DNA was 12 million as compared to 16.6 million in the first quarter on the same basis, a 28% decline quarter over quarter.
As we realize the full run rate benefit from the costing steps taken earlier in the year, we expect quarterly DNA for the remainder of 2020 to average closer to $10 million.
We continue to aggressively evaluate our overhead cost for additional cash savings opportunities.
Depreciation expense was 8.1 million in the second quarter.
Hey decrease of 2.2 million from the first quarters 10.2 million.
Decrease is primarily due to the 41.2 million impairment charge in the first quarter discussed earlier, which reduced the company's depreciable asset base.
Interest expense for the second quarter 2020 was 2.1 million a decrease of 6.1 billion from the 8.2 million in the first quarter 2020.
The decrease represents a full quarter of interest under our new term loan we expect interest expense to be around 2.2 million per quarter going forward are new to short term loan matures in 2025, and we have the option to pay interest in kind through February 2022, we currently expect to take advantage of that feature.
Cash flow used in operations with 19.8 million in the second quarter and that includes a negative working capital impact of 21.2 million of cash collateral posted as additional borrowing base under our asset based lending facility.
Cash flow use in operation was 38.2 million for the six months ended June 32020.
Capital expenditures were 300000 for the second quarter and 1 billion for the six months benefited we expect capital expenditures to be less than 5 million for the second half of 2020.
We also received proceeds from asset sales of 1.6 million into 2022nd quarter and 3.4 million for the six months been ended largely from the sale of real estate and surplus equipment, we expect to receive additional proceeds from future sales of surplus and our obsolete equipment and real estate during the second half of 2020.
At the end of June our total liquidity was 14.7 million consisting of cash on hand of 6.9 million and 7.8 million of borrowing capacity under our asset based lending facility.
At June 32020, our borrowing base under that facility was 44.1 million consisting of 15.5 million of eligible accounts receivable and 28.6 million of cash posted as additional collateral to support outstanding letters of credit.
While our ABL facility remains undrawn the severe drop in demand for services in the second quarter Hagen, having negative impact on our ability to generate borrowing base eligible accounts receivable and as a result, we were required post 21.2 million of additional cash collateral during the quarter to support outstanding letters of credit.
As activity levels increase off from a lows our borrowing base eligible accounts receivable have increased and that has allowed for the return of a portion of our cash collateral. This return of cash collateral has also served to offset a portion of the normal working capital build we typically experience with increasing activity levels with that I'll turn it back over to Marshall. Thanks Noah.
As Nelson described we've been proactively managing our liquidity through this downturn as our revenues and Thats, our accounts receivable borrowing base decline.
With the improvements in activity in revenue so far we've seen the borrowing base growth has been recovering the cash posted as collateral we expect us to continue over the coming months ahead, providing us with sufficient liquidity to navigate through this market.
Despite the difficulties brought on by the collapse in oil prices and the added challenges of operating with the code at 19 bars Im excited about where key as position today, where lane and will remain so with opportunities to continue to reduce our overhead costs over the coming quarters. I believe we have great assets with talented and dedicated employees across the us.
Focused on meeting the needs of our great and growing customer base safely reliably reliably and efficiently.
We also have a tremendous equipment fleet that we can deploy to meet our customers' needs be it a complicated long lateral plugged drill out or a simple clean out with the swap rate as this market continues to recover will leverage these strengths to generate cash and ultimately returns on the capital we have and will deploy in this business Kathryn.
Catherine This concludes our remarks, a replay of this call can be accessed on our web site at energy Dot com under the Investor Relations tab.
Also under the Investor Relations tab, we have posted a schedule of our quarterly Reagan truck hours.
Thank you all for joining us today.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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