Key Energy Services Reports Fourth Quarter and Full-Year 2016 Earnings

HOUSTON, Feb. 27, 2017 /PRNewswire/ -- Key Energy Services, Inc. (NYSE: KEG) today reported a net loss of $131.7 million, or $0.82 per diluted share, on revenue of $399.4 million for the period from January 1, 2016 to December 15, 2016 for the Predecessor Company, and a net loss of $10.2 million, or $0.51 per diluted share, on revenue of $17.8 million for the period from December 16, 2016 to December 31, 2016 for the Successor Company. Upon emergence from Chapter 11 bankruptcy on December 15, 2016, the Company adopted fresh start accounting, which resulted in the Company becoming a new entity for financial reporting purposes. References to "Successor" relate to the financial position of the reorganized Key as of and subsequent to December 16, 2016; references to "Predecessor" refer to the financial position of Key as of and prior to December 15, 2016 and the results of operations through December 15, 2016. As a result of the application of fresh start accounting and the effects of the implementation of the Prepackaged Plan of Reorganization, the financial statements on or after December 16, 2016 are not comparable with the financial statements prior to that date.  

For the period October 1, 2016 to December 15, 2016, the Predecessor reported net income of $173.4 million, or $1.08 per diluted share, on revenue of $90.9 million. Predecessor results for the period from October 1, 2016 to December 15, 2016 include a net gain associated with the Company's restructuring of $245.6 million, or $1.53 per diluted share, a charge related to settlement accruals of $16.7 million, or $0.10 per diluted share, an impairment charge of $4.6 million, or $0.03 per diluted share, professional fees incurred in connection with our emergence from voluntary reorganization of $3.1 million, or $0.02 per diluted share, a charge related to a vacation policy accrual change of $3.4 million, or $0.02 per diluted share, a financing-related and insurance policy tail expense of $2.4 million, or $0.02 per diluted share, an expense related to the vesting of equity compensation in bankruptcy of $2.0 million, or $0.01 per diluted share, severance costs of $0.7 million, or $0.00 per diluted share and a loss on sale of assets of $0.1 million, or $0.00 per diluted share. Excluding these items, the Predecessor reported a normalized net loss of $39.0, or $0.24 per diluted share. For the period December 16, 2016 to December 31, 2016, the Successor reported a net loss of $10.2 million, or $0.51 per diluted share, on revenue of $17.8 million. Successor results for the period from December 16, 2016 to December 31, 2016 included a loss on sale of assets of $0.4 million, or $0.02 per diluted share. Excluding this item, the Successor reported a normalized net loss of $9.8 million, or $0.49 per diluted share. For the period July 1, 2016 to September 30, 2016, Predecessor reported a net loss of $130.8 million, or $0.81 per diluted share, on revenue of $102.4 million. Predecessor results for the period July 1, 2016 to September 30, 2016 included a charge of $40.0 million, or $0.25 per share, for asset impairments associated with the sale of Key's business in Mexico, costs of $13.2 million, or $0.08 per share, in professional and other fees related to Key's restructuring, costs of $6.3 million, or $0.04 per share, related to certain legal settlements the Company is pursuing and a charge of $2.2 million, or $0.01 per share, related to the loss on sale of certain obsolete assets.

For the period from January 1, 2016 to December 15, 2016, the Predecessor reported a net loss of $131.7 million, or $0.82 per diluted share, on revenue of $399.4 million. Predecessor results for the period from January 1, 2016 to December 15, 2016 included a net gain associated with the Company's restructuring of $245.6 million, or $1.53 per diluted share, an impairment charge of $44.6 million, or $0.28 per diluted share, professional fees incurred in connection with our emergence from voluntary reorganization of $25.8 million, or $0.16 per diluted share, severance costs of $9.0 million, or $0.06 per diluted share, a charge for certain legal settlements the Company is pursuing of $16.7 million, or $0.10 per diluted share, a loss on sale of assets of $5.2 million, or $0.03 per diluted share, a charge associated with the completed FCPA investigation settlement of $5.0 million, or $0.03 per diluted share, a charge related to a vacation policy accrual change of $3.4 million, or $0.02 per diluted share, a financing-related and insurance policy tail expense of $2.4 million, or $0.02 per diluted share, and an expense related to the vesting of equity compensation in bankruptcy of $2.0 million, or $0.01 per diluted share. Excluding these items, the Company reported a normalized net loss of $256.7 million, or $1.60 per diluted share. For the period December 16, 2016 to December 31, 2016, the Successor reported a net loss of $10.2 million, or $0.51 per diluted share, on revenue of $17.8 million. Successor results for the period from December 16, 2016 to December 31, 2016 included a loss on sale of assets of $0.4 million, or $0.02 per diluted share. Excluding this item, the Successor reported a normalized net loss of $9.8 million, or $0.49 per diluted share. For the twelve-month period ending December 31, 2015, the Predecessor reported a net loss of $917.7 million, or $5.86 per diluted share, on revenue of $792.3 million.

The following discussion and table sets forth financial information by operating segment and other selected information for the periods indicated. Except as otherwise indicated, the financial measures discussed in these results of operations combine the Successor and Predecessor results for the quarter ended December 31, 2016 in order to provide some comparability of such information to the quarter ended September 30, 2016. While this combined presentation is not presented according to generally accepted accounting principles in the United States ("GAAP"), management believes that providing this financial information is the most relevant and useful method for making comparisons to the prior periods.

U.S. Results

Revenue in U.S. Rig Services for the combined fourth quarter period of 2016 was $61.8 million. For the period October 1, 2016 to December 15, 2016, Predecessor U.S. Rig Services generated an operating loss of $10.4 million, or -19.6% of revenue, and for the period December 16, 2016 to December 31, 2016, Successor U.S. Rig Services generated an operating loss of $1.9 million, or -22.6% of revenue. U.S. Rig Services Adjusted EBITDA for the combined fourth quarter period of 2016 was $8.9 million, or 14.4% of revenue. Predecessor U.S. Rig Services revenue for the third quarter of 2016 was $59.1 million and generated Adjusted EBITDA of $6.8 million, or 11.5% of revenue.

Revenue in Fluid Management Services for the combined fourth quarter period of 2016 was $18.0 million. For the period October 1, 2016 to December 15, 2016, Predecessor Fluid Management Services generated an operating loss of $10.9 million, or -73.7% of revenue, and for the period December 16, 2016 to December 31, 2016, Successor Fluid Management Services generated an operating loss of $1.1 million, or -35.5% of revenue. Fluid Management Services Adjusted EBITDA loss for the combined fourth quarter period of 2016 was $2.6 million, or -14.2% of revenue. Predecessor Fluid Management Services revenue for the third quarter of 2016 was $19.0 million and generated an Adjusted EBITDA loss of $1.2 million, or -6.5% of revenue.

Revenue in Coiled Tubing Services for the combined fourth quarter period of 2016 was $7.7 million. For the period October 1, 2016 to December 15, 2016, Predecessor Coiled Tubing Services generated an operating loss of $2.7 million, or -43.7% of revenue, and for the period December 16, 2016 to December 31, 2016, Successor Coiled Tubing Services generated an operating loss of $0.3 million, or -18.4% of revenue. Coiled Tubing Services Adjusted EBITDA loss for the combined fourth quarter period of 2016 was $0.1 million, or -0.8% of revenue. Predecessor Coiled Tubing Services revenue for the third quarter of 2016 was $7.1 million and generated an Adjusted EBITDA loss of $1.6 million, or -23.0% of revenue.

Revenue in Fishing & Rental Services for the combined fourth quarter period of 2016 was $15.4 million. For the period October 1, 2016 to December 15, 2016, Predecessor Fishing & Rental Services generated an operating loss of $6.7 million, or -55.5% of revenue, and for the period December 16, 2016 to December 31, 2016, Successor Fishing & Rental Services generated an operating loss of $0.3 million, or -7.8% of revenue. Fishing & Rental Services Adjusted EBITDA for the combined fourth quarter period of 2016 was $1.5 million, or 9.9% of revenue. Predecessor Fishing & Rental Services revenue for the third quarter of 2016 was $14.1 million and generated Adjusted EBITDA of $0.4 million, or 2.8% of revenue.

International Segment

Revenue in International segment for the combined fourth quarter period of 2016 was $5.9 million. For the period October 1, 2016 to December 15, 2016, Predecessor International generated an operating loss of $4.9 million, or -106.1% of revenue, and for the period December 16, 2016 to December 31, 2016, Successor International generated operating income of $0.1 million, or 5.2% of revenue. International Adjusted EBITDA for the combined fourth quarter period of 2016 was $1.1 million, or 19.0% of revenue. Predecessor International segment revenue for the third quarter of 2016 was $3.1 million and generated an Adjusted EBITDA loss of $2.0 million, or -64.5% of revenue.  

General and Administrative Expenses 

General and Administrative (G&A) expenses for the combined fourth quarter of 2016 were $40.2 million, which included $6.0 million of settlement accruals, $3.1 million of professional fees associated with the Company's financial restructuring, a $2.4 million expense related to financing and D&O policy expense, a $1.9 million expense related to vesting of equity compensation in bankruptcy, a $0.6 million charge associated with changes to vacation accrual policy and $0.7 million of severance expense. Excluding these costs and International G&A of $2.2 million, G&A in the fourth quarter was $23.3 million. For the Predecessor third quarter of 2016, G&A expenses were $42.5 million, which included $13.2 million of professional fees, $0.3 million in severance and $0.2 in costs associated with the completed FCPA investigations.

Overview and Outlook

Key's President and Chief Executive Officer, Robert Drummond, stated, "After emerging from our prepackaged bankruptcy during the fourth quarter of 2016 with a significantly improved balance sheet, we are encouraged to enter 2017 with early signals of a recovering U.S. oil services market in North America. Stabilized oil prices have enabled our customers to begin addressing well maintenance needs and to begin evaluating new well opportunities.

"During the fourth quarter, our Rig Services hours improved approximately 4% sequentially, in a quarter where hours are typically down 3% – 5% due to seasonality. We view this counter-seasonal trend to be indicative of increased demand from our customers to perform well maintenance on economic wells where well maintenance may have previously been deferred due to low commodity prices.

"Increased demand for our services is not limited to the Rig Services segment, as we're currently seeing increased demand across all of our service lines and are realizing a degree of pricing discount recovery in all of our markets.

"We are encouraged by the cyclical and secular trends in our core production services businesses. The underlying economic rationale for our customers to perform well maintenance on conventional oil wells and the new demand associated with well maintenance of longer, more complex aging horizontal oil wells continues to improve. We expect to see this new layer of demand continue to develop in 2017 and we believe we are well-positioned to benefit from these trends."

Conference Call Information

As previously announced, Key management will host a conference call to discuss its fourth quarter and full-year 2016 financial results on Tuesday, February 28, 2017 at 10:00 a.m. CST. Callers from the U.S. and Canada should dial 888-794-4637 to access the call. International callers should dial 352-204-8973. All callers should ask for the "Key Energy Services Conference Call" or provide the access code 71632175. The conference call will also be available live via the internet. To access the webcast, go to www.keyenergy.com and select "Investor Relations."

A telephonic replay of the conference call will be available on Tuesday, February 28, 2017, beginning approximately two hours after the completion of the conference call and will remain available for one week. To access the replay, call 855-859-2056 or 800-585-8367. The access code for the replay is 71632175. The replay will also be accessible at www.keyenergy.com under "Investor Relations" for a period of at least 90 days.

Contact:
West Gotcher, Investor Relations
713-757-5539

Following is a reconciliation of net loss as presented in accordance with United States generally accepted accounting principles (GAAP) to EBITDA and Adjusted EBITDA as required under Regulation G of the Securities Exchange Act of 1934.