Forbes Energy Services Ltd. (NASDAQ:FES) today announced financial
and operating results for the three months ended June 30, 2016.
Selected financial information for the quarter ended June 30,
2016:
- Consolidated revenues were $28.4 million for the second quarter
of 2016, compared to $31.9 million for the first quarter of
2016.
- Gross margin (revenues less operating expenses excluding
depreciation, amortization and impairment of assets) decreased to
$1.8 million in the second quarter of 2016, compared to $2.1
million in the first quarter of 2016. Gross margin percentage
was 6.4% of revenues in both the first and second quarters of
2016.
- GAAP net loss attributable to common shares, which includes a
$14.5 million impairment of assets as noted below in the Impairment
section, was $38.9 million, or $1.75 per diluted share, for the
second quarter of 2016, compared to $24.7 million, or $1.11 per
diluted share, for the first quarter of 2016. Net loss attributable
to common shares, excluding the impairment of assets, was $24.4
million, or $1.09 per diluted share.
- Adjusted EBITDA(1) totaled $(3.6) million in the second quarter
of 2016, compared to $(3.9) million in the first quarter of
2016.
(1) Adjusted EBITDA, a non-GAAP financial measure, is defined by
the Company as loss from operations before interest, taxes,
depreciation, amortization, impairment of assets and non-cash
share-based compensation. For a reconciliation of such
measure to net loss, please see the disclosures at the end of this
release and on the Company’s website.
Overview
With the Company’s release of its second quarter results,
President and CEO of Forbes Energy Services, John Crisp, commented,
“We continue to see an incremental decline in revenue and gross
margin as indicated by the company’s second quarter performance.
Consolidated revenues decreased nearly 11.0% from the first
quarter, while gross margins decreased 11.6% quarter-over-quarter.
The bright spot during this time was our management’s ability to do
more with less and their continued efforts to reduce overhead costs
and gain efficiencies in operations, which translated into a
slightly higher gross margin percentage.
“As we move into the third quarter, market behavior is erratic,
but as expected considering the lack of stability in commodity
prices. From a broad scale perspective, there may be a more
positive attitude coming from geo-specific upticks in utilization,
but pricing is expected to remain stagnant at depressed levels
through the remainder of the year. We are learning to operate in a
new paradigm and are adjusting our organizational and cost
structure to align with the constricted market. A significant
advantage we have is our loyal and dedicated employee base,
including our frontline operators all the way through our senior
management. Our team’s execution has been beyond expectation and we
are very appreciative of their efforts.”
Recent Developments
On June 15, 2016, the Company elected not to make the $12.6
million semi-annual interest payment due on the 9% senior notes due
2019, or the 9% Senior Notes. The indenture governing the 9% Senior
Notes, or the 9% Senior Indenture, provides that the failure to
make such interest payment constitutes an event of default after a
30-day cure period. The Company has not paid the interest
payment. Accordingly, an event of default under the 9% Senior
Indenture occurred, which would give the trustee or the holders of
at least 25% of principal amount of 9% Senior Notes the option to
declare all the 9% Senior Notes due and payable immediately.
Additionally, such failure to make the interest payment within the
30-day cure period also constituted an event of default under the
Company’s existing loan and security agreement, or the Loan
Agreement, with certain lenders and Regions Bank, as agent for the
secured parties, or the Agent, which would allow the Agent to
declare the Company’s obligations under the Loan Agreement
immediately due and payable and to exercise the Agent’s and the
lenders other rights under the Loan Agreement.
On July 15, 2016, the Company and its domestic subsidiaries, or
the Guarantor Subs, entered into a forbearance agreement with
holders of a majority of the 9% Senior Notes pursuant to the 9%
Senior Indenture. That forbearance agreement has subsequently
been joined by other holders of the 9% Senior Notes such that 62.1%
of the holders of the 9% Senior Notes, or the Forbearing Holders,
are now parties to the forbearance agreement, or the Indenture
Forbearance Agreement. Pursuant to the Indenture Forbearance
Agreement, the Forbearing Holders have agreed to forbear, during
the Indenture Forbearance Period (as defined below), from
exercising default remedies or accelerating any indebtedness under
the 9% Senior Indenture resulting from the Company’s failure to
make its semi-annual interest payment due on June 15, 2016 on the
9% Senior Notes. The forbearance period, or the Indenture
Forbearance Period, under the Indenture Forbearance Agreement will
expire on the earlier to occur of (i) 11:59 p.m. prevailing Central
Time on September 16, 2016 and (ii) certain other specified events
under the terms of the Indenture Forbearance Agreement.
Additionally, on July 15, 2016, FES Ltd. and the Guarantor Subs,
entered into a forbearance agreement and an amendment, or the Loan
Forbearance Agreement, to the Loan Agreement. Pursuant to the Loan
Forbearance Agreement, the Agent and the lenders, or the Loan
Forbearing Parties, have agreed to forbear, during the Loan
Forbearance Period (as defined below), from exercising default
remedies or accelerating any indebtedness under the Loan Agreement
resulting from the Company’s failure to make its semi-annual
interest payment due on June 15, 2016 on the 9% Senior Notes. The
forbearance period, or the Loan Forbearance Period, under the Loan
Forbearance Agreement will expire on the earlier to occur of (i)
5:01 p.m. prevailing Dallas, Texas time on October 14, 2016 and
(ii) certain other specified events under the terms of the Loan
Forbearance Agreement. In connection with the Loan
Forbearance Agreement, the Company is required to maintain cash on
deposit of no less than $17.5 million with Agent, and the lenders
under the Loan Agreement are not obligated to make additional
advances.
The Company and the Guarantor Subs entered into the Indenture
Forbearance Agreement and the Loan Forbearance Agreement, or the
Forbearance Agreements, to provide the Company and the Guarantor
Subs with time to continue discussions with the Forbearing Holders
and the Loan Forbearing Parties with respect to a proposed capital
restructuring of the Company, which are ongoing.
Impairment
During the second quarter of 2016, the Company experienced a
triggering event resulting from the continuing decline in operating
revenues due to an industry-wide slowdown, which began in the
second half of 2014. As a result, the Company assessed all of
its long-lived assets for impairment and an impairment loss of
$14.5 million was recorded relating to the intangibles in the fluid
logistics segment.
Results of Operations
Revenues for the Company declined 11.0% from $31.9 million in
the first quarter of 2016 to $28.4 million in the current reporting
quarter as a result of the continued decline in oil and gas
drilling and production activity.
Year-over-year, the weekly U.S. land rig count fell
approximately 51.0% from 859 at the end of the second quarter of
2015, to 421 at the end of the second quarter of 2016. Rig
counts in the state of Texas dropped 46.3% over the same period,
from 361 at the end of the second quarter of 2015, to 194 at the
end of the second quarter of 2016. As a result, utilization
and pricing continued a downward trend in the second quarter of
2016.
Gross margin decreased to $1.8 million in the second quarter of
2016, compared to $2.1 million in the first quarter of 2016.
Gross margin, as a percent of revenues, was 6.4% in each
quarter. Gross margin dollars decreased at a slightly lower
rate than the decrease in revenues, while gross margin percentage
remained flat, which reflects continued cost-reduction
efforts.
Well Servicing and Fluid Logistics hours increased by 7.3% and
9.1%, respectively, from the first quarter of 2016 to the second
quarter of 2016. This increase in utilization was offset by
continued pricing pressures and mix of work performed, which
resulted in lower revenues for the current quarter.
Management continues to analyze and reduce labor and non-core
expenses and close and consolidate certain operating
locations. The Company intends to continue its efforts to
reduce costs, streamline administrative and operations functions
and re-size and re-allocate the asset base to adapt to market
demand.
Consolidated direct operating expenses for the three months
ended June 30, 2016, were $26.6 million, compared to $29.9 million
in the prior quarter.
Uses of capital have been limited to funding critical operations
and the absorption of previously leased equipment.
Well Servicing Segment
The Well Servicing segment comprised 59.1% of consolidated
revenues for the three months ended June 30, 2016. Segment
revenues decreased by $1.9 million, or 10.2%, to $16.8 million,
compared to $18.7 million in the first quarter of 2016. Rates
continued to decrease through the quarter ended June 30, 2016, as a
result of pricing pressure.
Well Servicing gross margin decreased to $1.1 million in the
second quarter of 2016, from $2.0 million in the first quarter of
2016. As a percentage of revenues, gross margin decreased to
6.7% in the second quarter of 2016, compared to 10.6% in the first
quarter of 2016. This decrease in margin was primarily driven
by lower pricing, as well as revenues decreasing more quickly than
variable costs.
The Company recorded 40,459 well service hours in the second
quarter of 2016, compared to 37,703 hours in the first quarter of
2016. Capital expenditures in the Well Servicing segment for
the quarter ended June 30, 2016, were $720 thousand and consisted
of purchases of previously leased vehicles.
As of June 30, 2016, the Company had a fleet of 173 well service
rigs, six coiled tubing spreads and related equipment.
Fluid Logistics Segment
The Fluid Logistics segment comprised 40.9% of consolidated
revenues for the three months ended June 30, 2016. Segment
revenues decreased by $1.6 million, or 12.1%, to $11.6 million
compared to $13.2 million in the first quarter of 2016. The revenue
decrease between the quarters resulted from a lower composite rate,
which was partially offset by increased hours. The lower
composite rate resulted from a larger percentage of revenues
generated from fluid hauling as compared to revenues from other
higher-priced heavy trucks.
Fluid Logistics gross margin increased to $684 thousand in the
second quarter of 2016, from $57 thousand in the first quarter of
2016. As a percentage of revenues, gross margin increased to
5.9% in the second quarter of 2016, compared to 0.4% in the first
quarter. This increase was primarily driven by management’s
continued focus on cost savings, consolidation of locations, and
resource optimization.
The Company recorded 106,015 truck hours during the second
quarter of 2016, compared to 97,195 hours in the first quarter of
2016. The Company’s heavy truck fleet totaled 556 at June 30,
2016, which included 447 vacuum trucks. Capital expenditures
for the Fluid Logistics segment were approximately $2.4 million for
the quarter ended June 30, 2016, and consisted primarily of
purchases of previously leased heavy trucks and other vehicles.
Liquidity and Capital Resources
As of June 30, 2016, the Company had $68.6 million in cash and
cash equivalents and $298.8 million in contractual debt and capital
leases. The $298.8 million in contractual debt was comprised of
$277.2 million in senior notes ($280 million face amount) net of
deferred financing costs, $6.6 million in capital leases on
equipment and insurance notes, and $15.0 million drawn on its
revolving credit facility. Of the total debt, $1.3 million
was classified as long-term debt and $297.5 million was classified
as current debt. The $6.6 million in equipment and insurance notes
consisted of $5.0 million in equipment notes and $1.6 million in
insurance notes related to the Company’s general liability, workers
compensation, and other insurances.
As of August 10, 2016, the Company had $54.4 million in
unrestricted cash. In addition to the $15.0 million drawn on
its secured credit facility, the Company has letters of credit
outstanding in the amount of $10.7 million primarily related to
insurance policies. Pursuant to the Loan Forbearance Agreement, the
Company is required to cash collateralize such letters of
credit. Also pursuant to the Loan Forbearance Agreement, the
Company is required to maintain cash on deposit of no less than
$17.5 million with Agent, and the lenders under the Loan Agreement
are not obligated to make additional advances.
Absent the effect of the event of default resulting from the
non-payment of interest due on June 15, 2016, on the 9% Senior
Notes and the related Loan Forbearance Agreement, the borrowing
availability under the credit facility would be $49.3 million.
Net cash used in operating activities totaled $5.3 million for
the three months ended June 30, 2016, compared to net cash provided
by operating activities of $7.5 million in the previous
quarter. The decrease in cash provided by operating
activities was primarily a combination of a larger net loss in the
second quarter of 2016, compared to the first quarter of 2016,
coupled with a reduction in cash provided by the change in accounts
receivable. This was largely offset by the Company's election
not to make its $12.6 million semi-annual interest payment due on
the 9% Senior Notes on June 15, 2016.
Cash used in investing activities was $2.9 million for the three
months ended June 30, 2016, compared to $3.0 million in the
previous quarter. As noted above, capital expenditures during
the three months ended June 30, 2016, amounted to $3.2 million,
which was comprised of expenditures in the Company’s Fluid
Logistics segment of approximately $2.4 million and $720 thousand
for the Well Servicing segment.
Cash used in financing activities for the three months ended
June 30, 2016, and for the previous quarter was $1.0 million and
$1.3 million, respectively, consisting primarily of payments on
equipment notes.
Conference Call
The Company will host a conference call to discuss its second
quarter results at 9:30 a.m. Eastern Time (8:30 a.m. Central)
Monday, August 15, 2016. To access the call, please dial (877)
303-1298 and provide the Conference ID: 63891133. The conference
call will also be broadcasted live via the Internet and will be
accessible through the "Investor Relations" page of the Company's
Website, www.forbesenergyservices.com.
At the conclusion of the call, a replay will be available until
August 29, 2016. To access the replay of the call, dial (855)
859-2056 and provide the same Conference ID. A webcast
archive will be available at
www.forbesenergyservices.com shortly after the call and will
be accessible for approximately 14 days.
About Forbes Energy Services
Forbes Energy Services Ltd. is an independent oilfield services
contractor that provides a broad range of drilling-related and
production-related services to oil and natural gas companies,
primarily onshore in Texas and Pennsylvania. More information
on the Company can be found by visiting
www.forbesenergyservices.com.
Forward-Looking Statements and Regulation G
Reconciliation
This press release includes certain forward-looking statements
within the meaning of the federal securities laws. Forward-looking
statements can generally be identified by the appearance in such a
statement of words like “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “intend,” “may,” “plan,”
“potential,” “predict,” “project” or “should” or other comparable
words or the negative of these words. When you consider our
forward-looking statements, you should keep in mind the risk
factors we describe and other cautionary statements we make in our
Annual Report on Form 10-K for the year ended December 31, 2015.
Our forward-looking statements are only predictions based on
expectations that we believe are reasonable. Our actual results
could differ materially from those anticipated in, or implied by,
these forward-looking statements as a result of known risks and
uncertainties set forth below and in such Annual Report on Form
10-K. These factors include or relate to the following: the effect
of the industry-wide downturn in energy exploration and development
activities; continuing incurrence of operating losses due to such
downturn; our ability to successfully complete a capital
restructuring; the willingness of the counterparties to our
revolving credit facility and our indenture to continue to forbear
under such debt agreements; oil and natural gas commodity prices;
market response to global demands to curtail use of oil and natural
gas; spending by the oil and natural gas industry; supply and
demand for oilfield services and industry activity levels; our
ability to maintain stable pricing; our level of indebtedness;
possible impairment of our long-lived assets; our ability to
maintain stable pricing; the impact of excess capacity for current
industry conditions; competition; substantial capital requirements;
significant operating and financial restrictions under our
indenture and revolving credit facility; technological obsolescence
of operating equipment; dependence on certain key employees;
concentration of customers; substantial additional costs of
compliance with reporting obligations, the Sarbanes-Oxley Act and
indenture covenants; seasonality of oilfield services activity;
collection of accounts receivable; environmental and other
governmental regulation, including potential climate change
legislation; the potential disruption of business activities caused
by the physical effects, if any, of climate change; risks inherent
in our operations; ability to fully integrate future acquisitions;
variation from projected operating and financial data; variation
from budgeted and projected capital expenditures by our customers;
volatility of global financial markets; and the other factors
discussed under “Risk Factors” in its Annual Report on Form 10-K
for the year ended December 31, 2015. We undertake no obligation to
update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise. To the
extent these risks, uncertainties and assumptions give rise to
events that vary from our expectations, the forward-looking events
discussed in this press release may not occur. All forward-looking
statements attributable to us are qualified in their entirety by
this cautionary statement.
The Company’s financial statements and management’s discussion
and analysis of financial condition and results of operations will
be found in the Company’s quarterly report on Form 10-Q for the
quarter ended June 30, 2016, which will be submitted for filing on
or about August 15, 2016, with the Securities and Exchange
Commission and posted on the Company’s Website and in its Annual
Report on Form 10-K for the year ended December 31, 2015.
This press release also contains references to the non-GAAP
financial measure of Adjusted EBITDA. For a reconciliation of such
measure to net income (loss), please see the table at the end of
this release. Management’s opinion regarding the usefulness of
Adjusted EBITDA to investors and a description of the ways in which
management uses such measure can be found in the Company’s annual
report on Form 10-K for the year ended December 31, 2015 and on the
“Investor Relations” page of the Company’s Website.
Forbes Energy Services Ltd. |
Selected Statement of Operations Data |
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June
30, |
|
Six Months Ended June
30, |
|
|
|
2016 |
|
|
|
|
2015 |
|
|
|
2016 |
|
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
Well
servicing |
|
$ |
16,796 |
|
|
|
$ |
39,030 |
|
|
$ |
35,509 |
|
|
|
$ |
90,216 |
|
Fluid
logistics |
|
|
11,615 |
|
|
|
|
23,780 |
|
|
|
24,833 |
|
|
|
|
56,927 |
|
Total revenues |
|
|
28,411 |
|
|
|
|
62,810 |
|
|
|
60,342 |
|
|
|
|
147,143 |
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
Well
servicing |
|
|
15,668 |
|
|
|
|
29,236 |
|
|
|
32,388 |
|
|
|
|
65,610 |
|
Fluid
logistics |
|
|
10,931 |
|
|
|
|
17,876 |
|
|
|
24,092 |
|
|
|
|
42,036 |
|
General and
administrative |
|
|
5,420 |
|
|
|
|
8,797 |
|
|
|
11,476 |
|
|
|
|
18,077 |
|
Depreciation and amortization |
|
|
13,670 |
|
|
|
|
13,759 |
|
|
|
27,159 |
|
|
|
|
27,922 |
|
Loss on
impairment of assets |
|
|
14,512 |
|
|
|
|
- |
|
|
|
14,512 |
|
|
|
|
- |
|
Total expenses |
|
|
60,201 |
|
|
|
|
69,668 |
|
|
|
109,627 |
|
|
|
|
153,645 |
|
Operating loss |
|
|
(31,790 |
) |
|
|
|
(6,858 |
) |
|
|
(49,285 |
) |
|
|
|
(6,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
Interest
expense, net |
|
|
(6,905 |
) |
|
|
|
(6,771 |
) |
|
|
(13,829 |
) |
|
|
|
(13,636 |
) |
Pre-tax loss |
|
|
(38,695 |
) |
|
|
|
(13,629 |
) |
|
|
(63,114 |
) |
|
|
|
(20,138 |
) |
Income tax
benefit (expense) |
|
|
(9 |
) |
|
|
|
(4,881 |
) |
|
|
40 |
|
|
|
|
(6,956 |
) |
Net loss |
|
|
(38,686 |
) |
|
|
|
(8,748 |
) |
|
|
(63,154 |
) |
|
|
|
(13,182 |
) |
Preferred
shares dividends |
|
|
(194 |
) |
|
|
|
(194 |
) |
|
|
(388 |
) |
|
|
|
(388 |
) |
Net loss
attributable to common shareholders |
|
$ |
(38,880 |
) |
|
|
$ |
(8,942 |
) |
|
$ |
(63,542 |
) |
|
|
$ |
(13,570 |
) |
|
|
|
|
|
|
|
|
|
|
|
Loss per
share of common stock |
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(1.75 |
) |
|
|
$ |
(0.41 |
) |
|
$ |
(2.86 |
) |
|
|
$ |
(0.62 |
) |
Weighted
average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
22,214 |
|
|
|
|
21,987 |
|
|
|
22,213 |
|
|
|
|
21,948 |
|
Forbes Energy Services Ltd. |
Selected Balance Sheet Data |
(Unaudited) |
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
|
2016 |
|
|
|
2015 |
|
Cash |
|
$ |
68,627 |
|
|
$ |
74,611 |
|
Accounts receivable,
net |
|
|
15,725 |
|
|
|
26,486 |
|
Property and equipment,
net |
|
|
255,257 |
|
|
|
277,029 |
|
Working capital |
|
|
(239,131 |
) |
|
|
65,365 |
|
Total assets |
|
|
351,206 |
|
|
|
409,154 |
|
Total debt |
|
|
298,753 |
|
|
|
305,041 |
|
Shareholders' equity |
|
3,837 |
|
|
|
67,379 |
|
Forbes Energy Services Ltd. |
Selected Operating Data |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June
30, |
|
Six Months Ended June
30, |
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Rig hours |
|
40,459 |
|
74,725 |
|
78,162 |
|
163,710 |
|
|
|
|
|
|
|
|
|
Truck hours |
|
106,015 |
|
182,898 |
|
203,210 |
|
421,845 |
Forbes Energy Services Ltd. |
Reconciliation of Net Loss to Adjusted EBITDA |
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
Six
Months Ended June 30, |
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
Net loss |
|
$ |
(38,686 |
) |
|
$ |
(8,748 |
) |
|
$ |
(63,154 |
) |
|
$ |
(13,182 |
) |
Depreciation and amortization |
|
13,670 |
|
|
|
13,759 |
|
|
|
27,159 |
|
|
|
27,922 |
|
Impairment
of assets |
|
14,512 |
|
|
|
- |
|
|
|
14,512 |
|
|
|
- |
|
Interest
expense, net |
|
6,905 |
|
|
|
6,771 |
|
|
|
13,829 |
|
|
|
13,636 |
|
Income tax
benefit (expense) |
|
(9 |
) |
|
|
(4,881 |
) |
|
|
40 |
|
|
|
(6,956 |
) |
Non-cash
share-based compensation |
|
57 |
|
|
|
510 |
|
|
|
127 |
|
|
|
629 |
|
Adjusted
EBITDA |
$ |
(3,551 |
) |
|
$ |
7,411 |
|
|
$ |
(7,487 |
) |
|
$ |
22,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contact: Casey Stegman
Investor Relations
214-987-4121