Quintana Energy Services Inc. (NYSE: QES) (“QES” or the
“Company”) today reported financial and operating results for the
third quarter ended September 30, 2019.
Third Quarter Highlights
- Highest quarterly Adjusted EBITDA of 2019
- Began execution of corporate restructuring plan and further
realized cost and efficiency improvements
- Free cash flow positive and paid down $2 million of debt
Third Quarter 2019 Financial Results
Third quarter 2019 revenue was $121.1 million, down 3.6% from
$125.6 million in the second quarter of 2019. Third quarter 2019
net loss was $47.4 million and Adjusted EBITDA was $8.7 million,
compared to a net loss of $11.3 million and Adjusted EBITDA of $5.9
million for the second quarter of 2019, and a net loss of $2.4
million and Adjusted EBITDA of $12.9 million in the third quarter
of 2018. See “Non-GAAP Financial Measures” at the end of this
release for a discussion of Adjusted EBITDA and its reconciliation
to the most directly comparable financial measure calculated and
presented in accordance with U.S. generally accepted accounting
principles (“GAAP”).
Chris Baker, QES’ President and Chief Executive Officer, stated,
“The corporate restructuring plan implemented during the third
quarter has gone very smoothly and I'm proud of the progress that
our teams have made to date. With rig count still trending down,
and completions activity plagued by budget constraints and excess
capacity, we have been strategically focused on maximizing the
Company’s flexibility, rebalancing our footprint within select
geographic markets and improving our ability to weather uncertainty
in the market. Our adjusted EBITDA expanded despite reduced
revenues, thanks to the hard work of our dedicated employees, and
illustrates that we are making solid progress towards our
goals.
“Although there are numerous factors driving the market that are
outside of our control, such as commodity prices and customer
budgets, management has made it a priority to aggressively manage
factors that are within our control to best position QES for the
challenges ahead,” added Baker. “This means a continuation of the
optimization and streamlining of our cost structure, but also by
matching this effort with maintaining an asset base and geographic
presence that will enable us to fully participate in the eventual
market upturn. It also means sustaining our momentum in providing
superior execution in the field. We do this by supplying
highly-trained personnel along with newer, well-maintained
equipment that gives our customers the outstanding quality of
service of which they have become accustomed.
“From a consolidated perspective, we do not expect any
meaningful improvement in customer activity during the fourth
quarter, however, our ongoing asset optimization and evaluation of
our cost structure, coupled with our strong balance sheet and
considerable liquidity give us some measure of security should weak
conditions persist for an extended period of time,” concluded
Baker.
Business Segment Results
Directional Drilling
The Directional Drilling segment provides the
highly-technical and essential services of guiding horizontal and
directional drilling operations for exploration and production
(“E&P”) companies. Revenue was $57.1 million in the third
quarter of 2019, up approximately 5.0% compared to revenue of $54.4
million in the second quarter of 2019 and up 12.2% from the third
quarter of 2018. Third quarter 2019 Adjusted EBITDA was $9.1
million, compared to Adjusted EBITDA of $5.9 million for the second
quarter of 2019. The sequential increase in revenue and Adjusted
EBITDA was primarily due to higher revenues associated with the
demand for premium service tools and lower direct operating
expenses driven by lower overall job costs per day during the three
months ended September 30, 2019. In the third quarter of 2018,
revenue was $50.9 million and Adjusted EBITDA was $6.5 million.
Pressure Pumping
The Pressure Pumping segment primarily
provides hydraulic fracturing services to E&P companies in the
Mid-Con, Permian Basin and the Rockies. Revenue for the segment
increased 13.8% to $27.3 million in the third quarter of 2019, up
from $24.0 million in the second quarter of 2019. Third quarter
2019 Adjusted EBITDA was $1.2 million, compared to Adjusted EBITDA
of $0.8 million for the second quarter of 2019. The sequential
increases in revenue and Adjusted EBITDA were primarily
attributable to a 28.2% increase in average revenue per stage to
$35,314 for the three months ended September 30, 2019 driven by a
shift in job mix, offset by a corresponding 13.6% decrease in
stages completed during the third quarter of 2019. Cost structure
optimization improvements realized during the third quarter of 2019
continue to positively impact Adjusted EBITDA. In the third quarter
of 2018, revenue was $50.0 million and Adjusted EBITDA was $5.8
million.
Pressure Control
The Pressure Control segment consists of
coiled tubing, rig-assisted snubbing, nitrogen, fluid pumping and
well control services. Revenue for the segment decreased 2.9% to
$26.8 million in the third quarter of 2019, down from $27.6 million
in the second quarter of 2019. Third quarter 2019 Adjusted EBITDA
was $3.7 million, compared to Adjusted EBITDA of $1.6 million for
the second quarter of 2019. The small Pressure Control revenue
decrease during the third quarter of 2019 was primarily due to a
nominal decrease in utilization driven by market conditions. The
increase in Adjusted EBITDA was primarily due to a sequential
decrease in direct operating expenses driven by results realized
from the second quarter cost reduction initiatives during the third
quarter of 2019. In the third quarter of 2018, revenue was $31.1
million and Adjusted EBITDA was $4.4 million.
Wireline
The Wireline segment primarily provides
cased-hole wireline services to E&P companies. Revenue for the
segment decreased 49.5% to $9.9 million in the third quarter of
2019 from $19.6 million in the second quarter of 2019. Third
quarter 2019 Adjusted EBITDA was a $2.7 million loss, compared to
Adjusted EBITDA of $0.4 million for the second quarter of 2019. The
sequential decreases in revenue and Adjusted EBITDA were primarily
due to decreased utilization, pricing pressures and fewer revenue
days compared to the second quarter of 2019. In the third quarter
of 2018, revenue was $18.9 million and Adjusted EBITDA was a $0.7
million loss.
Impairment
Based on the Pressure Pumping and Wireline segments cash flow
losses derived from the current macro market pricing and demand
headwinds, the Company performed impairment tests during the
quarter and for the three months ended September 30, 2019, recorded
impairment charges for our Pressure Pumping and Wireline segments
of $34.2 million and $2.0 million, respectively.
Corporate Restructuring Program
During the three months ended September 30, 2019, the Company
implemented a corporate restructuring program to align its cost
structure with the current and anticipated market conditions for
U.S. onshore oilfield service providers. The Company recorded a
$5.3 million restructuring charge. This charge consisted of $2.2
million of employee-related charges, $0.2 million of lease
abandonment charges, $1.6 million for the termination of a supply
contract and the write down of $1.3 million of inventory and other
costs.
Other Financial Information
General and administrative ("G&A") expense for the third
quarter of 2019 decreased to $12.1 million compared to the second
quarter's G&A expense of $13.9 million, and decreased by $2.0
million, compared to $14.1 million for the third quarter of 2018.
The sequential decrease in G&A expense compared to the second
quarter was primarily labor costs in the current quarter. The year
over year decrease in G&A expenses was the result of cost
savings associated with the continued optimization of our cost
structure and lower non-cash stock based compensation expense
during the third quarter of 2019.
Capital expenditures totaled $7.6 million during the third
quarter of 2019, compared to capital expenditures of $8.9 million
in the second quarter of 2019, and $11.9 million in the third
quarter of 2018. Capital spending during the third quarter of 2019
was driven primarily by overall maintenance capital expenditures
across all segments, compared to the second quarter of 2019 where
capital expenditures were driven by Directional Drilling
expenditures on motors, Pressure Control expenditures on trailers
and overall maintenance capital expenditures.
Third quarter interest expense of $0.9 million was consistent
with the second quarter's interest expense, and up from $0.6
million in the third quarter of 2018. The third quarter interest
expense increase over prior year period was primarily due to a
higher debt outstanding balance during the third quarter of
2019.
The Company’s balance sheet remains a significant strength and a
key differentiator versus our peers. QES ended the third quarter of
2019 with a total debt balance of $33.0 million, $14.9 million of
cash on hand, and $39.1 million of net availability under its
senior secured asset-based revolving credit facility. The Company
reduced its debt balance by $2.0 million during the three months
ended September 30, 2019.
Share Repurchase Plan
On August 8, 2018, QES' Board of Directors approved a $6.0
million stock repurchase program authorizing the Company to
repurchase common stock in the open market. The timing and amount
of stock repurchases will depend on market conditions and
corporate, regulatory and other relevant considerations.
Repurchases may be commenced or suspended at any time without
notice. The program does not obligate QES to purchase any
particular number of shares of common stock during any period or at
all, and the program may be modified or suspended at any time,
subject to the Company's insider trading policy, at the Company’s
discretion. As of September 30, 2019, 0.7 million shares were
repurchased under this program.
Conference Call Information
QES has scheduled a conference call for 9:00 a.m. Central Time
(10:00 a.m. Eastern Time) on Thursday, November 7, 2019, to review
reported results. You may access the call by telephone at
1-201-389-0867 and asking for the QES 2019 Third Quarter Conference
Call. The webcast of the call may also be accessed through the
Investor Relations section of the Company’s website at
https://ir.quintanaenergyservices.com/ir-calendar. A replay of the
call can be accessed on the Company’s website for 90 days and will
be available by telephone through November 14, 2019, at (201)
612-7415, access code 13695026#.
About Quintana Energy Services
QES is a growth-oriented provider of diversified oilfield
services to leading onshore oil and natural gas exploration and
production companies operating in both conventional and
unconventional plays in all of the active major basins throughout
the U.S. QES’ primary services include: directional drilling,
pressure pumping, pressure control and wireline services. The
Company offers a complementary suite of products and services to a
broad customer base that is supported by in-house manufacturing,
repair and maintenance capabilities. More information is available
at www.quintanaenergyservices.com.
Forward-Looking Statements and Cautionary Statements
This news release (and any oral statements made regarding the
subjects of this release, including on the conference call
announced herein) contains certain statements and information that
may constitute “forward-looking statements.” All statements, other
than statements of historical fact, which address activities,
events or developments that we expect, believe or anticipate will
or may occur in the future are forward-looking statements. The
words “anticipate,” “believe,” “expect,” “plan,” “forecasts,”
“will,” “could,” “may,” and similar expressions that convey the
uncertainty of future events or outcomes, and the negative thereof,
are intended to identify forward-looking statements.
Forward-looking statements contained in this news release, which
are not generally historical in nature, include those that express
a belief, expectation or intention regarding our future activities,
plans and goals and our current expectations with respect to, among
other things: our operating cash flows, the availability of capital
and our liquidity; our future revenue, income and operating
performance; our ability to sustain and improve our utilization,
revenue and margins; our ability to maintain acceptable pricing for
our services; future capital expenditures; our ability to finance
equipment, working capital and capital expenditures; our ability to
execute our long-term growth strategy; our ability to successfully
develop our research and technology capabilities and implement
technological developments and enhancements; and the timing and
success of strategic initiatives and special projects.
Forward-looking statements are not assurances of future
performance and actual results could differ materially from our
historical experience and our present expectations or projections.
These forward-looking statements are based on management’s current
expectations and beliefs, forecasts for our existing operations,
experience, expectations and perception of historical trends,
current conditions, anticipated future developments and their
effect on us, and other factors believed to be appropriate.
Although management believes the expectations and assumptions
reflected in these forward-looking statements are reasonable as and
when made, no assurance can be given that these assumptions are
accurate or that any of these expectations will be achieved (in
full or at all). Our forward-looking statements involve significant
risks, contingencies and uncertainties, most of which are difficult
to predict and many of which are beyond our control. Known material
factors that could cause actual results to differ materially from
those in the forward-looking statements include, but are not
limited to, risks associated with the following: a decline in
demand for our services, including due to declining commodity
prices, overcapacity and other competitive factors affecting our
industry; the cyclical nature and volatility of the oil and gas
industry, which impacts the level of exploration, production and
development activity and spending patterns by E&P companies; a
decline in, or substantial volatility of, crude oil and gas
commodity prices, which generally leads to decreased spending by
our customers and negatively impacts drilling, completion and
production activity; and other risks and uncertainties listed in
our filings with the U.S. Securities and Exchange Commission,
including our Current Reports on Form 8-K that we file from time to
time, Quarterly Reports on Form 10-Q and Annual Report on Form
10-K. Readers are cautioned not to place undue reliance on
forward-looking statements, which speak only as of the date hereof.
We undertake no obligation to publicly update or revise any
forward-looking statements after the date they are made, whether as
a result of new information, future events or otherwise, except as
required by law.
Quintana Energy Services
Inc.
Condensed Consolidated
Statements of Operations
(in thousands of U.S. dollars
and shares, except per share amounts)
(Unaudited)
Three Months Ended
September 30, 2019
June 30, 2019
September 30, 2018
Revenues:
$
121,082
$
125,627
$
150,897
Costs and expenses:
Direct operating costs
101,737
109,075
126,925
General and administrative
12,056
13,862
14,140
Depreciation and amortization
13,229
13,116
12,033
Gain on disposition of assets
(1,116
)
(153
)
(629
)
Impairment and other charges
41,543
—
—
Operating loss
(46,367
)
(10,273
)
(1,572
)
Non-operating expense:
Interest expense
(898
)
(853
)
(574
)
Loss before income tax
(47,265
)
(11,126
)
(2,146
)
Income tax expense
(164
)
(154
)
(207
)
Net loss
$
(47,429
)
$
(11,280
)
$
(2,353
)
Net loss per common share:
Basic
$
(1.41
)
$
(0.33
)
$
(0.07
)
Diluted
$
(1.41
)
$
(0.33
)
$
(0.07
)
Weighted average common shares
outstanding:
Basic
33,533
33,804
33,631
Diluted
33,533
33,804
33,631
Quintana Energy Services
Inc.
Condensed Consolidated Balance
Sheets
(in thousands of U.S. dollars,
except per share and share amounts)
(Unaudited)
September 30, 2019
December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents
$
14,937
$
13,804
Accounts receivable, net of allowance of
$2,635 and $1,841
85,725
101,620
Unbilled receivables
7,175
13,766
Inventories
23,323
23,464
Prepaid expenses and other current
assets
2,866
7,481
Total current assets
134,026
160,135
Property, plant and equipment, net
120,176
153,878
Operating lease right-of-use asset
12,045
—
Intangible assets, net
—
9,019
Other assets
1,248
1,517
Total assets
$
267,495
$
324,549
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable
$
39,559
$
51,568
Accrued liabilities
30,819
37,533
Other current liabilities
7,476
422
Total current liabilities
77,854
89,523
Long-term debt
33,000
29,500
Long-term operating lease liabilities
9,044
—
Long-term finance lease obligations
8,663
3,451
Deferred tax liability
256
130
Other long-term liabilities
10
125
Total liabilities
128,827
122,729
Commitments and contingencies
Shareholders’ equity:
Preferred shares, $0.01 par value,
10,000,000 authorized; none issued and outstanding
—
—
Common shares, $0.01 par value,
150,000,000 authorized; 34,547,463 issued; 33,523,588
outstanding
354
344
Additional paid-in-capital
356,068
349,080
Treasury shares, at cost, 1,023,875 and
232,892 common shares
(4,401
)
(1,821
)
Accumulated deficit
(213,353
)
(145,783
)
Total shareholders’ equity
138,668
201,820
Total liabilities and shareholders’
equity
$
267,495
$
324,549
Quintana Energy Services
Inc.
Condensed Consolidated
Statements of Cash Flows
(in thousands of U.S.
dollars)
(Unaudited)
Nine Months Ended
September 30, 2019
September 30, 2018
Cash flows from operating
activities:
Net loss
$
(67,569
)
$
(16,574
)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization
38,785
34,265
Impairment expense
36,215
—
Gain on disposition of assets
(8,069
)
(5,256
)
Non-cash interest expense
263
944
Loss on debt extinguishment
—
8,594
Provision for doubtful accounts
841
573
Deferred income tax expense
86
134
Stock-based compensation
6,994
15,395
Changes in operating assets and
liabilities:
Accounts receivable
15,054
(3,986
)
Unbilled receivables
6,591
164
Inventories
140
(3,809
)
Prepaid expenses and other current
assets
5,042
2,538
Other noncurrent assets
11
(9
)
Accounts payable
(9,725
)
4,158
Accrued liabilities
(4,824
)
(101
)
Other long-term liabilities
(116
)
(46
)
Net cash provided by operating
activities
19,719
36,984
Cash flows from investing
activities:
Purchases of property, plant and
equipment
(29,078
)
(53,112
)
Proceeds from sale of property, plant and
equipment
13,157
6,836
Net cash used in investing activities
(15,921
)
(46,276
)
Cash flows from financing
activities:
Proceeds from revolving debt
7,500
37,000
Payments on revolving debt
(4,000
)
(86,071
)
Payments on term loans
—
(11,225
)
Payments on finance leases
(1,307
)
(280
)
Payments on financed payables
(2,278
)
—
Payment of deferred financing costs
—
(1,564
)
Prepayment premiums on early debt
extinguishment
—
(1,346
)
Payments for treasury shares
(2,580
)
(1,271
)
Proceeds from new shares issuance, net of
underwriting commissions
—
90,542
Costs incurred for stock issuance
—
(3,174
)
Net cash provided by financing
activities
(2,665
)
22,611
Net increase in cash and cash
equivalents
1,133
13,319
Cash and cash equivalents beginning of
period
13,804
8,751
Cash and cash equivalents end of
period
$
14,937
$
22,070
Supplemental cash flow
information
Cash paid for interest
$
2,058
$
1,608
Income taxes paid
484
90
Supplemental non-cash investing and
financing activities
Fixed asset purchases in accounts payable
and accrued liabilities
2,148
1,989
Financed payables
426
—
Non-cash capital lease additions
8,873
53
Non-cash payment for property, plant and
equipment
—
3,279
Debt conversion of Former Term Loan to
equity
—
33,631
Issuance of common shares for members’
equity
—
212,630
Quintana Energy Services
Inc.
Additional Selected Operating
Data
(Unaudited)
Three Months Ended
September 30, 2019
June 30, 2019
September 30, 2018
Other Operational Data:
Directional Drilling rig days (1) (2)
4,863
4,854
4,874
Average monthly Directional Drilling rigs
on revenue (3)
67
71
77
Total hydraulic fracturing stages
700
810
908
Average hydraulic fracturing revenue per
stage
$
35,314
$
27,545
$
50,119
(1)
Rig days represent the number of days we
are providing services to rigs and are earning revenues during the
period, including days that standby revenues are earned.
(2)
Rigs on revenue represents the number of
rigs earning revenues during a time period, including days that
standby revenues are earned.
(3)
Includes unconventional stages and
conventional jobs, the latter are counted as a single stage.
Non-GAAP Financial Measures
Adjusted EBITDA is a supplemental non-GAAP financial measure
that is used by management and external users of our financial
statements, such as industry analysts, investors, lenders and
rating agencies.
Adjusted EBITDA is not a measure of net income or cash flows as
determined by GAAP. We define Adjusted EBITDA as net income or
(loss) plus income taxes, net interest expense, depreciation and
amortization, impairment charges, net (gain) or loss on disposition
of assets, stock based compensation, transaction expenses,
rebranding expenses, settlement expenses, severance expenses,
restructuring expenses, impairment expenses and equipment stand-up
expense.
We believe Adjusted EBITDA is useful because it allows us to
more effectively evaluate our operating performance and compare the
results of our operations from period to period without regard to
our financing methods or capital structure. We exclude the items
listed above in arriving at Adjusted EBITDA because these amounts
can vary substantially from company to company within our industry
depending upon accounting methods and book values of assets,
capital structures and the method by which the assets were
acquired. Adjusted EBITDA should not be considered as an
alternative to, or more meaningful than, net income as determined
in accordance with GAAP, or as an indicator of our operating
performance or liquidity. Certain items excluded from Adjusted
EBITDA are significant components in understanding and assessing a
company’s financial performance, such as a company’s cost of
capital and tax structure, as well as the historic costs of
depreciable assets, none of which are components of Adjusted
EBITDA. Our computations of Adjusted EBITDA may not be comparable
to other similarly titled measures of other companies.
The following tables present a reconciliation of the non-GAAP
financial measures of Adjusted EBITDA to the most directly
comparable GAAP financial measure for the periods indicated:
Quintana Energy Services
Inc.
Reconciliation of Net Loss to
Adjusted EBITDA
(In thousands of U.S.
dollars)
(Unaudited)
Three Months Ended
September 30, 2019
June 30, 2019
September 30, 2018
Net loss
$
(47,429
)
$
(11,280
)
$
(2,353
)
Income tax expense
164
154
207
Interest expense
898
853
574
Depreciation and amortization expense
13,229
13,116
12,033
Gain on disposition of assets, net
(1,116
)
(153
)
(629
)
Impairment and other charges
41,543
—
—
Non-cash stock based compensation
1,260
2,692
2,569
Rebranding expense
—
—
193
Settlement expense (1)
87
408
133
Severance expense
99
85
74
Equipment and stand-up expense
—
—
97
Adjusted EBITDA
$
8,735
$
5,875
$
12,898
(1) For 2019, represents certain
nonrecurring corporate professional fees related to contemplated
mergers and acquisitions activities, legal fees for FLSA claims and
other non-recurring settlement expenses, of which $0.5 million was
recorded in general and administrative expenses. For 2018,
represents legal fees for FLSA claims, facility closures and other
non-recurring expenses that were recorded in general and
administrative expenses.
Quintana Energy Services
Inc.
Reconciliation of Segment
Adjusted EBITDA to Net Loss
(In thousands of U.S.
dollars)
(Unaudited)
Three Months Ended
September 30, 2019
June 30, 2019
September 30, 2018
Directional Drilling
$
9,103
$
5,854
$
6,452
Pressure Pumping
1,218
762
5,795
Pressure Control
3,670
1,584
4,421
Wireline
(2,719
)
384
(738
)
Corporate and Other
(3,983
)
(5,894
)
(6,098
)
Income tax expense
(164
)
(154
)
(207
)
Interest expense
(898
)
(853
)
(574
)
Depreciation and amortization
(13,229
)
(13,116
)
(12,033
)
Gain on disposition of assets, net
1,116
153
629
Impairment and other charges
(41,543
)
—
—
Net loss
$
(47,429
)
$
(11,280
)
$
(2,353
)
Quintana Energy Services
Inc.
Segment Adjusted EBITDA
Margin
(In thousands of U.S. dollars,
except percentages)
(Unaudited)
Three Months Ended
September 30, 2019
June 30, 2019
September 30, 2018
Segment Adjusted EBITDA
Margin(1)
Directional Drilling
Adjusted EBITDA
$
9,103
$
5,854
$
6,452
Revenue
57,056
54,380
50,919
Adjusted EBITDA Margin Percentage
16.0
10.8
12.7
Pressure Pumping
Adjusted EBITDA
1,218
762
5,795
Revenue
27,312
24,038
49,987
Adjusted EBITDA Margin Percentage
4.5
3.2
11.6
Pressure Control
Adjusted EBITDA
3,670
1,584
4,421
Revenue
26,838
27,646
31,138
Adjusted EBITDA Margin Percentage
13.7
5.7
14.2
Wireline
Adjusted EBITDA
(2,719
)
384
(738
)
Revenue
9,876
19,563
18,853
Adjusted EBITDA Margin Percentage
(27.5
)
2.0
(3.9
)
(1)
Segment Adjusted EBITDA Margin is defined
as the quotient of Segment Adjusted EBITDA and total segment
revenue. Segment Adjusted EBITDA is net income (loss) plus income
taxes, net interest expense, depreciation and amortization, net
(gain) loss on disposition of assets, stock based compensation,
transaction expenses, rebranding expenses, settlement expenses,
severance expenses, restructuring expenses, impairment expenses and
equipment stand-up expense.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191106006138/en/
Quintana Energy Services Keefer M.
Lehner, EVP & CFO 832-518-4094 IR@qesinc.com
Dennard Lascar Investor Relations
Ken Dennard / Natalie Hairston 713-529-6600 QES@dennardlascar.com
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