HOUSTON, Feb. 25 /PRNewswire-FirstCall/ -- Key Energy Services, Inc. (NYSE: KEG) announced its results for the quarter ended and full year ended December 31, 2008. The Company's earnings conference call will be held tomorrow at 11 a.m. EST.
Fourth Quarter and Full-Year Results
Quarterly Results
Revenue for the quarter ended December 31, 2008 was $478.1 million, an 11.5% increase over revenues for the fourth quarter of 2007 of $428.6 million. This increase in revenue was primarily the result of contributions from acquisitions completed during 2008 and the fourth quarter of 2007, strong growth in the Company's Mexico operations and price increases implemented in the second and third quarters of 2008. The quarter was impacted by several one-time, non-cash charges. Excluding these charges, net income for the quarter would have been $34.7 million and fully diluted earnings per share for the quarter would have been $0.29 per share. Reflecting the impact of these one-time charges, the Company reported a net loss for the quarter of $42.9 million, or $0.35 per share, compared to net income of $33.1 million, or earnings per share of $0.25 for the fourth quarter of 2007.
The charges impacting the quarter included a pre-tax goodwill impairment charge of $69.8 million related to the Company's pressure pumping and fishing and rental segments. They also included a pre-tax charge for accelerated vesting of options and stock appreciation rights of $10.9 million and a pre-tax write down of the Company's investment in a Canadian oilfield services company of $5.4 million. The aggregate after-tax effect of these one-time, non-cash charges for the fourth quarter was $0.64 per fully diluted share. (See table below setting forth the income and per share impact of these charges.)
Adjusted EBITDA (which, as calculated in the reconciliations below, excludes the one-time, non-cash items) was $115.7 million, a 6.5% increase over Adjusted EBITDA of $108.6 million for the fourth quarter of 2007. As a percentage of revenues, Adjusted EBITDA for the quarter ended December 31, 2008 was 24.2%, compared to Adjusted EBITDA as a percentage of revenues of 24.5% for the quarter ended September 30, 2008. (See Adjusted EBITDA reconciliations below.)
The Company also recorded a pre-tax charge in the quarter of $2.6 million, or $0.01 per fully diluted share, as a result of a reduction in force largely comprised of general and administrative employees.
Total capital expenditures were $88.8 million for the quarter. For the full year of 2008, the Company had capital expenditures of $219.0 million.
Full Year Results
Revenue for the year ended December 31, 2008 was a new record for the Company, totaling $1,972.1 million, compared with revenue of $1,662.0 million for the year ended December 31, 2007. This increase in revenue is primarily attributable to price increases implemented during the second and third quarters of 2008, expansion of the Company's cased-hole wireline operations and international operations in Mexico, and acquisitions completed during 2008 and the fourth quarter of 2007. Net income for 2008 was affected by the one-time charges described above that were recorded in the fourth quarter. Excluding these items, net income for the year would have been $161.6 million and diluted earnings per share for 2008 would have been $1.29 per share. Reported net income for the year was $84.1 million, or $0.67 per diluted share, compared to net income for 2007 of $169.3 million or $1.27 per diluted share. As previously reported, 2008 earnings were also affected by hurricanes and their aftereffects in the Gulf Coast during the third quarter, which the Company estimates decreased its earnings by $8.4 million, or $0.04 per diluted share.
Adjusted EBITDA for 2008 totaled $474.9 million compared to $446.0 million in 2007. Adjusted EBITDA as a percentage of revenues for 2008 was 24.1%, compared to an Adjusted EBITDA as a percentage of revenues of 26.8% for 2007.
Commenting on the fourth quarter results, Dick Alario, Chairman and CEO, stated, "I am extremely proud that, despite rapidly deteriorating market conditions, we were able to maintain our operating margins in the fourth quarter compared to the prior quarter. As we noted in our third quarter earnings call, we recognized early that our customers' spending was going to decline and we therefore aggressively moved to align our cost structure with market conditions. Our executives, managers and employees have been unyielding in their pursuit of cost reduction and equipment utilization. This, coupled with Key's superior geographic footprint inside and outside the U.S., enabled us to maintain overall margins in this difficult environment."
Alario continued, "We are focused on maintaining our strong liquidity position and generating free cash flow. Our 2009 capital expenditures plan has been reduced to approximately $130 million, some of which is contingent on customer driven projects. Our committed capital expenditures for 2009 are approximately $50 million, which will finish out our 2008 programs, and we plan on a 2009 maintenance capital expenditure level of approximately $20 million per quarter."
Activity Update
For the month ending
January 31, December 31, January 31,
2009 2008 2008
Working Days 21 21 22
Rig Hours 177,928 195,022 227,077
Trucking Hours 182,601 195,766 197,331
The Company calculates working days as total weekdays for the month less
any Company holidays that occur that month. For the month of February
2009, there are 20 working days.
Commenting on the January activity levels, Alario stated, "We believe that as our customers entered 2009, turmoil in the global markets caused many to shutter even profitable projects to conserve cash. As demonstrated in prior downcycles, we believe that our customers will seek to improve cash flow by focusing on improving production from their existing wells. This, coupled with an improved cost structure, should allow more projects to become economically feasible, even in the current environment. As the company that keeps oil and gas wells flowing, Key should benefit."
Liquidity Update
The Company's liquidity position remains strong. As of February 23, 2009, the Company had approximately $150 million in cash on hand and approximately $139 million available under its Senior Secured Credit Facility. The Company expects to remain in compliance with the financial covenants under its debt agreements.
Share Repurchase Program
During the fourth quarter of 2008, the Company repurchased approximately 2.3 million shares at an aggregate cost of approximately $14.4 million. During the full year 2008, the Company repurchased approximately 11.1 million shares at an aggregate cost of approximately $135.2 million. From the inception of the Company's share repurchase program in November 2007 through January 31, 2009, the Company has repurchased approximately 13.4 million shares of its common stock, at an aggregate cost of approximately $167.3 million. The Company is authorized to repurchase up to $300.0 million of its common stock on or before March 31, 2009. As of February 23, 2009, the number of outstanding shares of common stock was 121.2 million.
Conference Call
The Company will hold an investor conference call tomorrow, February 26, 2009, at 11 am EST. To access the call, which is open to the public, please call the conference call operator at the following number: (888) 794-4637 and ask for the "Key Energy Conference Call." International callers should dial (660) 422-4879. The conference call will also be available on the web. To access the webcast, go to www.keyenergy.com and select "Investor Relations." A replay of the conference call will be available tomorrow afternoon beginning at 3:00 pm EST and will be available for one week. To access the replay, please call (800) 642-1687. The access code for the replay is 85290966.
Consolidated Results of Operations Data:
Three Months Twelve Months
Ended December 31, Ended December 31,
2008 2007 2008 2007
(In thousands, except per share data)
REVENUES:
Well servicing $370,535 $333,506 $1,509,823 $1,264,797
Pressure pumping 77,814 70,871 344,993 299,348
Fishing and rental 29,717 24,238 117,272 97,867
TOTAL REVENUES 478,066 428,615 1,972,088 1,662,012
COSTS AND EXPENSES:
Well servicing 230,735 192,711 939,751 738,694
Pressure pumping 54,984 46,345 239,870 189,645
Fishing and rental 18,284 15,341 70,706 57,275
Depreciation and
amortization expense 45,851 38,140 170,774 129,623
Impairment of
goodwill and equity
method investment 75,137 - 75,137 -
General and
administrative
expenses 69,249 65,609 257,707 230,396
Interest expense,
net of amounts
capitalized 10,653 9,976 41,247 36,207
Loss on early
extinguishment of
debt - 9,557 - 9,557
Loss (gain) on
sale of assets, net 1,668 (193) (641) 1,752
Interest income (333) (1,041) (1,236) (6,630)
Other expense
(income), net 3,477 (827) 4,717 (447)
TOTAL COSTS AND
EXPENSES, NET 509,705 375,618 1,798,032 1,386,072
(Loss) income
before income
taxes and minority
interest (31,639) 52,997 174,056 275,940
Income tax expense (11,261) (19,993) (90,243) (106,768)
Minority interest - 63 245 117
NET (LOSS) INCOME $(42,900) $33,067 $84,058 $169,289
(LOSS) EARNINGS PER
SHARE:
Basic $(0.35) $0.25 $0.68 $1.29
Diluted $(0.35) $0.25 $0.67 $1.27
WEIGHTED AVERAGE
SHARES OUTSTANDING:
Basic 121,095 131,476 124,246 131,194
Diluted 121,095 133,320 125,565 133,551
Consolidated Balance Sheet Data:
December 31,
2008 2007
ASSETS (in thousands)
Current assets:
Cash and cash equivalents $92,691 $58,503
Accounts receivable, net 377,353 343,408
Inventories 34,756 22,849
Prepaid expenses 15,513 12,997
Deferred tax assets 26,623 27,676
Income taxes receivable 4,848 15,796
Other current assets 7,338 6,636
Total current assets 559,122 487,865
Property and equipment, gross 1,858,307 1,595,225
Accumulated depreciation (806,624) (684,017)
Property and equipment, net 1,051,683 911,208
Goodwill 320,992 378,550
Other intangible assets, net 42,345 45,894
Deferred financing costs, net 10,489 12,117
Notes and accounts
receivable - related parties 336 173
Equity method investments 24,220 11,217
Other assets 7,736 12,053
TOTAL ASSETS $2,016,923 $1,859,077
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $46,185 $35,159
Accrued liabilities 197,116 183,364
Accrued interest 4,368 3,895
Current portion of capital lease
obligations 9,386 10,701
Current notes payable -
related parties, net of discount 14,318 1,678
Current portion of long-term debt 2,000 -
Total current liabilities 273,373 234,797
Capital lease obligations,
less current portion 13,763 16,114
Notes payable - related parties,
less current portion 6,000 20,500
Long-term debt, less current
portion 613,828 475,000
Workers' compensation,
vehicular, health and other
insurance claims 43,151 43,818
Deferred tax liabilities 188,581 160,068
Other non-current accrued
liabilities 17,495 19,531
Minority interest - 251
Commitments and contingencies - -
Stockholders' equity:
Common stock, $0.10 par value 12,131 13,114
Additional paid-in capital 601,872 704,644
Accumulated other comprehensive
loss (46,550) (37,981)
Retained earnings 293,279 209,221
Total stockholders' equity 860,732 888,998
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,016,923 $1,859,077
Selected Consolidated Cash Flow Data:
Year Ended
December 31,
2008 2007
(In thousands)
Net cash provided by operating
activities $367,164 $249,919
Net cash used in investing
activities (329,074) (302,847)
Net cash (used in) provided by financing
activities (7,970) 23,240
Effect of changes in exchange rates on
cash 4,068 (184)
Net increase (decrease) in cash and cash
equivalents 34,188 (29,872)
Cash and cash equivalents, beginning of
period 58,503 88,375
Cash and cash equivalents, end of
period $92,691 $58,503
Impact of One-time Non-Cash Charges on Consolidated Net Income and Earnings per Share:
(Please note that the earnings per share impacts of the items discussed below differ for the fourth quarter and annual results due to different number of weighted average shares outstanding for the quarterly and annual periods.)
Three Months Ended December 31, 2008
(in thousands, except per share amounts)
(unaudited)
(Loss)
Income
Before
Income Diluted
Taxes and (Loss)
Minority Net (Loss) Earnings
Interest Income per Share
As reported $(31,639) $(42,900) $(0.35)
Impact of items:
Goodwill impairment
charges 69,752 67,413 0.55
Equity compensation
acceleration
charge 10,892 6,758 0.06
Impairment of equity-method
investment 5,385 3,397 0.03
Excluding items $54,390 $34,668 $0.29
Twelve Months Ended December 31, 2008
(in thousands, except per share amounts)
(unaudited)
Income
Before
Income
Taxes and Diluted
Minority Earnings
Interest Net Income per Share
As reported $174,056 $84,058 $0.67
Impact of items:
Goodwill impairment
charges 69,752 67,413 0.54
Equity compensation
acceleration charge 10,892 6,758 0.05
Impairment of equity-
method investment 5,385 3,397 0.03
Excluding items $260,085 $161,626 $1.29
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES:
Three Three Three
Months Months Months
Ended Ended Ended
December September December
31, % of 30, % of 31, % of
2008 Revenue 2008 Revenue 2007 Revenue
(in thousands, except for percentages)
(unaudited)
Net (loss)
income $(42,900) -8.97% $48,462 9.05% $33,067 7.71%
Income tax
expense 11,261 2.36% 29,079 5.43% 19,993 4.66%
Minority
interest - 0.00% - 0.00% (63) -0.01%
Loss
(gain) on
sale of
assets,
net 1,668 0.35% (1,683) -0.31% (193) -0.05%
Other
expense
(income),
net 3,477 0.73% 2,152 0.40% (827) -0.19%
Interest
income (333) -0.07% (213) -0.04% (1,041) -0.24%
Interest
expense,
net of
amounts
capitalized 10,653 2.23% 10,475 1.96% 9,976 2.33%
Depreciation and
amortization
expense 45,851 9.59% 42,676 7.97% 38,140 8.90%
Loss on
early
extinguishment of
debt - 0.00% - 0.00% 9,557 2.23%
Impairment
of goodwill 69,752 14.59% - 0.00% - 0.00%
Impairment
of equity
method
investment 5,385 1.13% - 0.00% - 0.00%
Adjusted
EBITDA $104,814 21.92% $130,948 24.45% $108,609 25.34%
Equity
compensation
acceleration
charge 10,892 2.28% - 0.00% - 0.00%
Adjusted
EBITDA,
excluding
equity
acceleration
charge $115,706 24.20% $130,948 24.45% $108,609 25.34%
Twelve Twelve
Months Months
Ended Ended
December December
31, % of 31, % of
2008 Revenue 2007 Revenue
(in thousands, except for percentages)
(unaudited)
Net (loss) income $84,058 4.26% $169,289 10.19%
Income tax
expense 90,243 4.58% 106,768 6.42%
Minority
interest (245) -0.01% (117) -0.01%
(Gain) loss on
sale of assets,
net (641) -0.03% 1,752 0.11%
Other expense
(income),
net 4,717 0.24% (447) -0.03%
Interest
income (1,236) -0.06% (6,630) -0.40%
Interest expense,
net of amounts
capitalized 41,247 2.09% 36,207 2.18%
Depreciation and
amortization
expense 170,774 8.66% 129,623 7.80%
Loss on early
extinguishment of
debt - 0.00% 9,557 0.58%
Impairment of
equity method
investment 5,385 0.27% - 0.00%
Impairment of
goodwill 69,752 3.54% - 0.00%
Adjusted
EBITDA $464,054 23.53% $446,002 26.84%
Equity
compensation
acceleration
charge 10,892 0.55% - 0.00%
Adjusted EBITDA,
excluding equity
acceleration charge $474,946 24.08% $446,002 26.84%
"Adjusted EBITDA" is defined as net income before interest, taxes, minority interest, impairment charges, losses on early extinguishment of debt, depreciation and amortization, other expense (income), and (gain) losses on sale of assets. Management does not include (gain) loss on sale of assets, impairment charges, losses on early extinguishment of debt and other expense (income), net, in its calculations of Adjusted EBITDA, as it believes that they are either non-recurring or not representative of our core operations. Other expense (income), net generally represents our minority investment in IROC Energy Services, Corp. and foreign currency transaction gains and losses. As a minority shareholder in IROC, we cannot directly impact the performance of that investment. Further, management believes that most investors exclude impairment charges, minority interest, losses on early extinguishment of debt and (gain) loss on sale of assets, net from customary EBITDA calculations as those items are often viewed as non-recurring and not reflective of ongoing financial performance.
Adjusted EBITDA is a non-GAAP measure that is used as a supplemental financial measure by our management and directors and by external users of our financial statements, such as investors, to assess:
- The financial performance of our assets without regard to financing methods, capital structure or historical cost basis;
- The ability of our assets to generate cash sufficient to pay interest on our indebtedness; and
- Our operating performance and return on invested capital as compared to those of other companies in the well services industry, without regard to financing methods and capital structure.
Adjusted EBITDA has limitations as an analytical tool and should not be considered an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income and operating income and these measures may vary among other companies. Limitations to using Adjusted EBITDA as an analytical tool include:
- Adjusted EBITDA does not reflect our current or future requirements for capital expenditures or capital commitments;
- Adjusted EBITDA does not reflect changes in, or cash requirements necessary to service interest or principal payments on our debt;
- Adjusted EBITDA does not reflect income taxes;
- Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
- Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Adjusted EBITDA includes a charge associated with the accelerated vesting of certain stock options and stock appreciation rights. Management believes that for comparative purposes this charge should be excluded from Adjusted EBITDA as this charge is non-cash and non-recurring in nature and represents the acceleration of costs that otherwise would be recognized in future periods.
Certain statements contained in this press release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates and projections about the Company, the Company's industry, management's beliefs and certain assumptions made by management. Whenever possible, the Company has identified these "forward-looking statements" by words such as "expects," "believes," "anticipates" and similar phrases. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict, including, but not limited to: risks associated with prolonged poor economic conditions in the United States and globally, the continued instability of the credit market, availability of credit under the Company's revolving credit facility and related liquidity risks; risks affecting activity levels for rig hours, including the continued decline and instability of commodity prices and continued decreases in the capital budgets of the Company's customers; risks that the Company will be unable to identify or complete acquisitions and that it will be unable to integrate acquired operations; risks affecting the Company's foreign operations, including operations in Russia, Argentina, Mexico and Canada; risks affecting the ability of the Company to maintain or improve operations, including the ability to maintain prices for services under increasing pricing pressures, the impact of rig capacity in the market and weather risk; risks that the Company will be unable to achieve financial targets or cost reductions; and factors affecting the Company's stock repurchase program, including, among others, the market price of the Company's stock prevailing from time to time, the nature of other investment opportunities presented to the Company from time to time, the Company's cash flows from operations and the availability of cash from other sources, including our revolving credit facility, from time to time. Other important risk factors that may affect the Company's business, results of operations and financial condition are discussed in the Company's most recently filed Annual Report on Form 10-K, recent Quarterly Reports on Form 10-Q, recent Current Reports on Form 8-K and in other Securities and Exchange Commission filings. Because such statements involve risks and uncertainties, the actual results and performance of the Company may differ materially from the results expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made here; however, readers should review carefully reports or documents the Company files periodically with the Securities and Exchange Commission.
Contact: Bryan Norwood
(713) 651-4300
