Key Energy Services Generated Third Quarter 2012 Income from Continuing Operations of $0.15 per Diluted Share

HOUSTON, Oct. 31, 2012 /PRNewswire/ -- Key Energy Services, Inc. (NYSE: KEG) reported third quarter 2012 consolidated revenues of $490.9 million, generating income from continuing operations of $22.1 million, or $0.15 per share. Second quarter 2012 consolidated revenues were $516.0 million with income from continuing operations of $31.5 million, or $0.21 per share.

On a consolidated basis, the Company recorded a net loss of $38.1 million, or $0.25 per share. This includes a loss of $60.2 million, or $0.40 per share, associated with the sale of the Argentina business, reflected in discontinued operations. Second quarter 2012 consolidated net income was $29.0 million, or $0.19 per share, which includes a loss from discontinued operations of $2.5 million, or $0.02 per share.

The following table sets forth summary data from continuing operations for the third quarter 2012 and prior comparable quarterly periods.


 Three Months Ended (unaudited) 


 September 30, 2012 


 June 30, 2012 


 September 30, 2011 


 (in millions, except per share amounts) 







Revenues

$            490.9


$     516.0


$            468.5

Income attributable to Key

$              22.1


$       31.5


$              46.5

Diluted earnings per share attributable to Key

$              0.15


$       0.21


$              0.31

EBITDA

$            101.3


$     114.7


$            123.5

U.S. Segment

Third quarter 2012 U.S. revenues were $397.8 million, down 7.8% compared to $431.6 million in the second quarter. Operating income was $60.1 million, or 15.1% of revenue, compared to $82.5 million, or 19.1% of revenue, in the second quarter 2012.

During the third quarter, Fluids Management Services revenues declined 15.1%, Coiled Tubing Services revenues declined 7.9%, and revenues from the frac stack and well testing businesses declined 35.8% sequentially due to lower activity and pricing. Combined, these businesses account for approximately 84% of the decline in U.S. revenues.

International Segment

Third quarter 2012 international revenues were $93.0 million, up 10.3% compared to prior quarter revenues of $84.4 million. Operating income was $19.4 million, or 20.8% of revenues. Second quarter 2012 operating income was $16.1 million, or 19.1% of revenues. The improvement in third quarter results was driven largely by higher activity in Mexico.

General and Administrative Expenses

General and Administrative (G&A) expenses were $53.6 million, or 10.9% of revenues. Second quarter 2012 G&A expenses were $58.1 million, or 11.3% of revenues. The decline in third quarter G&A expenses was primarily due to the reversal of previously accrued bonus compensation.

Capital Expenditures and Liquidity

Key's consolidated cash balance at September 30, 2012 was $38.3 million compared to $28.3 million at June 30, 2012. Capital expenditures were $90.4 million during the third quarter 2012 and $399.7 million through September 30, 2012.

Total debt at September 30, 2012 was $904.0 million compared to total debt of $874.5 million at June 30, 2012. At the end of the quarter, there was $271 million available under the Company's $550 million senior secured credit facility. Net debt to total capitalization at the end of the third quarter 2012 was 39.8%.

Overview and Outlook

Commenting on the results, Key's Chairman, President and Chief Executive Officer, Dick Alario, stated, "Our U.S. results were negatively impacted by continued activity declines in natural gas markets, and we began to experience the effects of reduced customer spending in oil markets. Our international segment generated improved results as we continued to take advantage of opportunities to grow and increase profitability in Latin America and the Middle East."

Alario continued, "Regarding our fourth quarter outlook, we anticipate U.S. activity will trend lower through year end, driven by continued reductions in customer spending and typical year end seasonality. We expect fourth quarter U.S. revenues to decline approximately 6% to 8% and operating income margins to drop approximately 200 to 250 basis points compared to the third quarter. We believe fourth quarter international revenues will increase approximately 5% compared to the third quarter with approximately 100 to 200 basis points of sequential operating income margin improvement."

Conference Call Information

As previously announced, Key management will host a conference call to discuss its third quarter 2012 financial results on Thursday, November 1, 2012 at 10:00 a.m. CDT. To access the call in the U.S. and Canada dial 888-794-4637. International callers should dial 660-422-4879. All callers should ask for the "Key Energy Services Conference Call" or provide the access code 32988824. 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 Thursday, November 1, 2012, 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 32988824. The replay will also be accessible at www.keyenergy.com under "Investor Relations" for a period of at least 90 days.

Re-casted Prior Period Financial Results from Continuing Operations

Key has recast certain prior period financial information to reflect its results from continuing operations, which exclude the Argentine operations. This recasted financial information is available on Key's website at www.keyenergy.com under "Investor Relations".

Consolidated Statements of Operations (in thousands, except per share amounts, unaudited):




 Three Months Ended 


 Nine Months Ended 




 September 30, 


 June 30, 


 September 30, 


 September 30, 


 September 30, 




2012


2012


2011


2012


2011













REVENUES


$           490,851


$  515,997


$         468,542


$      1,493,599


$      1,247,493













COSTS AND EXPENSES:












Direct operating expenses


335,799


343,996


285,804


991,292


795,053


Depreciation and amortization expense


52,947


52,452


41,708


156,588


120,047


General and administrative expenses


53,567


58,081


59,063


172,566


159,861

Operating income


48,538


61,468


81,967


173,153


172,532














Loss on early extinguishment of debt


-


-


-


-


46,451


Interest expense, net of amounts capitalized


13,962


13,730


10,554


39,574


30,003


Other, net


(1,529)


(1,380)


590


(3,938)


(9,932)

Income from continuing operations before tax


36,105


49,118


70,823


137,517


106,010














Income tax expense


(12,915)


(17,419)


(25,077)


(49,147)


(36,706)

Income from continuing operations


23,190


31,699


45,746


88,370


69,304














Loss from discontinued operations, net of tax


(60,209)


(2,454)


(2,308)


(93,568)


(8,218)

Net income (loss)


(37,019)


29,245


43,438


(5,198)


61,086














Income (loss) attributable to noncontrolling interest


1,075


204


(730)


665


(1,027)

INCOME (LOSS) ATTRIBUTABLE TO KEY


$           (38,094)


$    29,041


$           44,168


$           (5,863)


$           62,113













Earnings (loss) per share attributable to Key:












Basic and diluted


$               (0.25)


$       0.19


$              0.30


$             (0.04)


$              0.43













Weighted average shares outstanding:












Basic


151,105


151,087


147,722


151,108


144,274


Diluted


151,110


151,100


148,088


151,124


144,713

























Income from continuing operations 

attributable to Key:






















Income from continuing operations


$            23,190


$    31,699


$           45,746


$           88,370


$           69,304


Income (loss) attributable to noncontrolling interest


1,075


204


(730)


665


(1,027)


Income from continuing operations attributable to Key


$            22,115


$    31,495


$           46,476


$           87,705


$           70,331













Earnings per share from continuing operations attributable to Key:






















Basic and diluted  


$                0.15


$       0.21


$              0.31


$              0.58


$              0.49

























Loss from discontinued operations, net of tax:


$           (60,209)


$    (2,454)


$           (2,308)


$          (93,568)


$           (8,218)













Loss per share from discontinued operations:












Basic and diluted


$               (0.40)


$      (0.02)


$             (0.01)


$             (0.62)


$             (0.06)

Condensed Consolidated Balance Sheets (in thousands):



 September 30, 2012
(Unaudited) 


 December 31,
2011 











ASSETS









Current assets:





Cash and cash equivalents

$           38,332


$           35,443


Other current assets

589,715


504,777


Current assets held for sale

-


60,343

Total current assets

628,047


600,563






Property and equipment, net

1,443,930


1,197,300

Goodwill

625,938


622,773

Other assets, net

122,008


155,601

Non-current assets held for sale

-


22,883






TOTAL ASSETS

$      2,819,923


$      2,599,120






LIABILITIES AND EQUITY









Current liabilities:





Accounts payable

$         100,441


$           71,736


Other current liabilities

208,105


175,877


Current liabilities associated with assets held for sale

-


41,890

Total current liabilities

308,546


289,503






Long-term debt, less current portion

903,250


773,975

Other non-current liabilities

338,542


321,011






Equity

1,269,585


1,214,631






TOTAL LIABILITIES AND EQUITY

$      2,819,923


$      2,599,120

Consolidated Cash Flow Data (in thousands, unaudited):






 Nine Months Ended 


 September 30,  


 September 30,  


2012


2011





Net cash provided by operating activities

$         252,794


$         103,002

Net cash used in investing activities

(387,732)


(413,742)

Net cash provided by financing activities

141,162


268,098

Effect of exchange rates on cash

(3,335)


5,332





Net increase (decrease) in cash and cash equivalents

2,889


(37,310)

Cash and cash equivalents, beginning of period

35,443


56,628

Cash and cash equivalents, end of period

$           38,332


$           19,318

Segment Revenue and Operating Income from continuing operations (in thousands, except for percentages, unaudited):



 Three Months Ended 









 September 30, 


 June 30, 


 September 30, 









2012


2012


2011







Revenues













 U.S. Operations:













Rig Services


$           201,453


$         208,765


$         192,018







Fluid Management Services


82,140


96,716


102,498







Coiled Tubing Services


52,442


56,929


60,304







Fishing & Rental Services


61,779


69,236


56,969







 Total U.S. Operations


397,814


431,646


411,789




















International Operations


93,037


84,351


56,753







Consolidated Total


$           490,851


$         515,997


$         468,542



































 Three Months Ended 



 September 30, 


 % of 


 June 30, 


 % of 


 September 30, 


 % of 



2012


 Revenues 


2012


 Revenues 


2011


 Revenues 

Operating Income













 U.S. Operations


$            60,136


15.1%


$           82,497


19.1%


$         106,207


25.8%

 International Operations


19,359


20.8%


16,116


19.1%


12,337


21.7%

 Functional Support


(30,957)


 n/a 


(37,145)


 n/a 


(36,577)


 n/a 

Consolidated Total


$            48,538


9.9%


$           61,468


11.9%


$           81,967


17.5%





























 Nine Months Ended 











 September 30, 


 September 30, 











2012


2011









Revenues













 U.S. Operations:













Rig Services


$           613,600


$         531,312









Fluid Management Services


276,700


291,096









Coiled Tubing Services


162,351


171,478









Fishing & Rental Services


201,782


115,262









 Total U.S. Operations


1,254,433


1,109,148






















 International Operations


239,166


138,345









Consolidated Total


$        1,493,599


$      1,247,493





































 Nine Months Ended 







 September 30, 


 % of 


 September 30, 


 % of 







2012


 Revenues 


2011


 Revenues 





Operating Income 













 U.S. Operations


$           234,091


18.7%


$         251,056


22.6%





 International Operations


45,843


19.2%


24,471


17.7%





 Functional Support


(106,781)


 n/a 


(102,995)


 n/a 





Consolidated Total


$           173,153


11.6%


$         172,532


13.8%





Following is a reconciliation of income from continuing operations attributable to Key as presented in accordance with United States generally accepted accounting principles (GAAP) to EBITDA from continuing operations as required under Regulation G of the Securities Exchange Act of 1934.