Increased revenues reported by Key Energy for 2Q

Houston based Key Energy Services, Inc. reported second quarter 2018 consolidated revenues of $144.4 million and a pre-tax GAAP loss of $16.7 million, or $0.84 per share. The results for the second quarter include expenses of $0.3 million, or $0.02 per share, associated with certain equity awards and gains on sale of assets of $0.7 million, or $0.04 per share. Excluding these items, the Company reported a pre-tax loss of $17.1 million, or $0.86 per share.

With a regional office in El Reno, Oklahoma, the company stated consolidated revenues in the second quarter of 2018 increased $36.6 million, or 34% from the second quarter of 2017. Excluding the impact of a $21.0 million gain on the sale of assets recorded in second quarter of 2017, the Company reduced its net loss by $17.3 million, to $16.9 million in the second quarter of 2018, with diluted loss per share improving by $0.86 per share in the second quarter of 2018 as compared to $1.70 per share in the second quarter of 2017, which excluded a 1.04 per share gain on that sale of assets.

Overview and Outlook

Key’s Interim Chief Executive Officer, Marshall Dodson, stated, “The second quarter of 2018 marks a turning point for Key as we generated free cash flow and organically improved our liquidity for the first time in a number of years. All of our segments saw revenue growth and margin expansion quarter over quarter as we benefited from higher activity and price. Our Rig Services Segment generated a 7% activity increase and 14.4% sequential revenue growth with a 65% Incremental Adjusted EBITDA margin in the second quarter.”

Dodson continued, “We are fielding requests for additional well service rigs and are also starting to see tightness in qualified rig crews in certain markets challenging our ability to quickly meet requests for additional rigs. We believe that as we move through the back half of the year, this tightness will again provide the impetus for higher pricing to meet increasing demand in many areas.”

Second quarter 2018 Rig Services revenues of $80.5 million were up 14.4% as compared to first quarter 2018 revenues of $70.3 million, with rig hours increasing approximately 7% to 187,578 hours. The segment generated operating income of $8 million (10% of revenues) and adjusted EBITDA of $15.9 million (19.9% of revenue) in the second quarter of 2018 as compared to operating income of $3 million (4.2% of revenue) and adjusted EBITDA of $9.4 million (13.3 % of revenue) in the first quarter of 2018. The improvement was largely due to a full quarter benefit of pricing increases, higher activity and the 180 basis point impact to first quarter margins due to the first quarter payroll tax impact.

Second quarter 2018 Fluid Management Services revenues of $23.6 million were up 3.7% as compared to the first quarter 2018 revenues of $22.8 million. Second quarter truck hours declined 3.2% quarter on quarter with revenue per truck hour increasing approximately 7% largely due to higher pricing and an increase in non-trucking revenues. Truck hours fell largely due to the transition of trucks into more attractive markets. The segment generated an operating loss of $1.6 million and adjusted EBITDA of $3.4 million (14.2% of revenue) in the second quarter of 2018 as compared to an operating loss of $3 million and adjusted EBITDA of $2.1 million (9.2% of revenue) in the first quarter of 2018. The quarter on quarter improvement was due largely to improved pricing and the impact of payroll taxes on first quarter results.

Second quarter 2018 Coiled Tubing Services revenues of $23.9 million were up 29.6% as compared to first quarter 2018 revenue of $18.4 million on higher utilization of large diameter coiled tubing units during the second quarter of 2018. The segment generated operating income of $3.2 million (13.2% of revenue) and adjusted EBITDA of $4.3 million (17.9% of revenue) in the second quarter of 2018 as compared to operating income of $3.9 million and adjusted EBITDA of $2.3 million (12.3% of revenue) in the first quarter of 2018. Coiled Tubing Services margins improved on better utilization of large diameter units and absorption of start-up costs that impacted first quarter results.

Second quarter 2018 Fishing & Rental Services revenues of $16.5 million were up 19.2% as compared to first quarter 2018 revenues of $13.8 million. The segment generated an operating loss of $2.1 million and adjusted EBITDA of $3.6 million (21.6% of revenue) in the second quarter of 2018 as compared to operating loss of $3.9 million and adjusted EBITDA of $1.7 million (12.2% of revenue) in the first quarter of 2018. Second quarter 2018 Fishing & Rental Services margins improved on higher activity and non-recurrence of start-up costs burdening the first quarter of 2018.

General and Administrative Expenses

General and Administrative (G&A) expenses were $22.9 million for the second quarter of 2018 compared to $24.6 million in the prior quarter. Second quarter 2018 G&A expenses included $0.2 million of stock-based compensation expense as compared to $2 million of stock-based compensation expense for the first quarter of 2018. Second quarter 2018 stock-based compensation expense included a gain due to the cancellation of stock-based compensation from the resignation of Key’s former Chief Executive Officer.

Liquidity

As of June 30, 2018, Key had total liquidity of $90.6 million, consisting of $52.3 million in unrestricted cash and $38.3 million of borrowing capacity available under the Company’s $100.0 million asset-based loan facility. This compares to total liquidity of $78.2 million at March 31, 2018, consisting of $50.5 million in unrestricted cash and $27.7 million of borrowing capacity available under the Company’s $100.0 million asset-based loan facility. The Company has no outstanding borrowings under its $100.0 million asset-based loan facility. Capital expenditures for the second quarter of 2018 were $7.7 million and $17.2 for the first six months of 2018.

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