Key Energy Services Reports Second Quarter 2016 Earnings

HOUSTON, Aug. 15, 2016

• pre-tax costs of $9.5 million, or $0.06 per share, in restructuring fees;
• pre-tax costs of $1.1 million, or $0.01 per share, in severance;
• a pre-tax charge of $0.9 million, or $0.01 per share, related to the loss on sale of certain U.S. assets; and
• pre-tax costs of $0.6 million, or $0.00 per share, related to the previously disclosed Foreign Corrupt Practices Act ("FCPA") investigations.

Excluding these items, the Company reported a pre-tax loss of $80.8 million, or $0.50 per share. Due to the Company's net operating loss balance, management does not expect to realize a tax benefit from U.S. operations during 2016. As such, an effective tax rate of 0.1% was realized for the second quarter.

Contrary to prior reporting periods, Key will not be hosting a conference call with management to review second quarter 2016 results.

First quarter 2016 consolidated revenues were $111.1 million with a pre-tax GAAP loss of $81.9 million, or $0.51 per share. The results for the first quarter included pre-tax costs of $6.8 million, or $0.04 per share, due to severance, a pre-tax charge of $5.0 million, or $0.03 per share, due to an accrual associated with the offer of settlement of the FCPA investigations, pre-tax costs of $2.4 million, or $0.02 per share, related to the FCPA investigations and a pre-tax charge of $2.1 million, or $0.01 per share, related to the loss on sale of certain U.S. assets. Excluding these items, the Company reported a pre-tax loss of $65.5 million, or $0.41 per share. The Company did not realize a tax benefit from U.S. operations for first quarter 2016, yielding an effective tax rate of 0.3% for the first quarter.  

The following table sets forth summary data for the second quarter 2016 and prior comparable quarterly periods:  

		Three Months Ended (unaudited)
		June 30, 2016 ARIVA.DE Börsen-Geflüster Kurse Key Energy Services -   0,00%				March 31, 2016				June 30, 2015
		(in millions, except per share amounts)
Revenues		$	95.0			$	111.1			$	197.5
Net loss		(92.8)				(81.6)				(65.4)
Diluted loss per share		(0.58)				(0.51)				(0.42)
Adjusted EBITDA*		(24.4)				(10.7)				(8.6)

Overview and Outlook

Key's President and Chief Executive Officer, Robert Drummond, stated, "We continued to reshape our support structure and reduce costs during the second quarter with significant reductions in G&A. Although oil prices recovered from February lows during the second quarter, customer activity continued to decline with May marking the lowest total monthly U.S. revenue since the downturn began. However, we saw an uptick in U.S. revenue in June due to renewed customer interest. This improvement in customer interest is choppy and somewhat limited as while some of our customers are interested in pursuing work that requires Key's services, others are looking to address levered balance sheets with the improved cash flow generated from higher oil prices.

"Discussions with Key's creditors continue with a goal of allowing Key to significantly reduce its debt burden and to achieve an improved liquidity position. During this period, we continue to deliver a high-level of service to our customers and remain a safe and dynamic work environment for our employees. In fact, thanks to our dedicated employees, we finished the second quarter with our best safety record ever recorded.

"We are also pleased to have resolved the FCPA investigation with the SEC.  We agreed to pay disgorgement of $5 million and entered into a cease and desist agreement.  Key had already accrued a liability for the payment in the first quarter of 2016."

U.S. Results

Second quarter 2016 U.S. Rig Services revenues of $51.5 million were down 12.7% as compared to the first quarter. Second quarter operating loss was $13.7 million, or -26.6% of revenue, which included a loss on sale of asset of $0.3 million and severance of $0.4 million; excluding these items, normalized operating loss was $12.9 million, or -25.1% of revenue. These results compare to first quarter operating loss of $6.4 million, or -10.8% of revenue, which included severance of $0.6 million; excluding this loss, normalized operating loss was $5.8 million, or -9.9% of revenue. Rig hours declined approximately 6% sequentially driven primarily by an approximately 16% decline in California.

Second quarter 2016 Fluid Management Services revenues of $19.6 million were down 13.6% as compared to the first quarter. Second quarter operating loss was $7.6 million, or -38.6% of revenue, which included a gain on sale of assets of $0.3 million; excluding this gain, normalized operating loss was $7.8 million, or 39.9% of revenue. These results compare to first quarter operating loss of $6.3 million, or -27.7% of revenue, which included a loss on sale of assets of $2.7 million and severance of $0.2 million; excluding these losses, normalized operating loss was $3.4 million, or -15.1% of revenue. Truck hours declined approximately 8% sequentially driven primarily by an approximately 19% decline in the Permian Basin.

Second quarter 2016 Coiled Tubing Services revenues of $7.6 million were down 20.1% as compared to the first quarter. Second quarter operating loss was $6.1 million, or -79.5% of revenue; which included severance of $0.1 million; excluding this item, normalized operating loss was $5.9 million, or 77.8% of revenue. These results compare to first quarter operating loss of $6.1 million, or -64.5% of revenue, which included a loss on sale of assets of $1.1 million and severance of $0.1 million; excluding these losses, normalized operating loss was $5.0 million, or -52.2% of revenue.

Second quarter 2016 Fishing & Rental Services revenues of $13.4 million were down 17.6% as compared to the first quarter. Second quarter operating loss was $8.8 million, or -65.4% of revenue, which included a loss on sale of assets of $0.9 million and severance of $0.1 million; excluding these items, normalized operating loss was $7.7 million, or 57.7% of revenue. These results compare to first quarter operating loss of $4.0 million, or -24.6% of revenue, which included a gain on the sale of assets of $1.7 million and severance of $0.1 million; excluding these items, normalized operating loss was $5.6 million, or -34.6% of revenue.

International Segment

Second quarter 2016 International revenues were $2.9 million, down 20.1% as compared to first quarter 2016 revenues of $3.6 million. Second quarter operating loss was $4.9 million, or -169.6% of revenues, which included severance of $0.3 million; excluding this item, normalized operating loss was $4.7 million. These results compare to first quarter operating loss of $5.1 million, or -139.9% of revenues, which included a loss on sale of assets of $0.1 million and severance of $0.4 million; excluding these items, normalized operating loss was $4.6 million, or 127.7% of revenue.  

General and Administrative Expenses 

General and Administrative (G&A) expenses were $40.9 million for the second quarter compared to $46.2 million in the prior quarter. Second quarter G&A expenses included $9.5 million in restructuring fees, $0.6 million in severance and $0.6 in costs associated with the FCPA investigations compared to first quarter G&A expenses that included a $5.0 million accrual in connection with the offer of settlement related to the FCPA investigations, $2.4 million in costs associated with the FCPA investigations and $5.9 million in severance. Excluding these items, G&A expense in the second quarter was $30.2 million as compared to $32.9 million in the first quarter. International G&A expenses were $2.5 million in the second quarter compared to $2.3 million in the first quarter.

Balance Sheet and Capital Expenditures

Key's consolidated cash balance at June 30, 2016 was $103.5 million compared to $155.7 million at March 31, 2016; additionally, Key had $18.6 million of restricted cash as of June 30, 2016 and March 31, 2016. Total debt at June 30, 2016 was $953.6 million compared to total debt of $965.4 million at March 31, 2016. The Company had $130.8 of total liquidity available at June 30, 2016. Capital expenditures for the quarter were $2.4 million. 

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

Consolidated Statements of Operations (in thousands, except per share amounts, unaudited):
		Three Months Ended												Six Months Ended
		June 30, 2016				March 31, 2016				June 30, 2015				June 30, 2016				June 30, 2015
REVENUES		$	95,012			$	111,088			$	197,496			$	206,100			$	465,295
COSTS AND EXPENSES:
Direct operating expenses		89,419				90,598				158,841				180,017				363,371
Depreciation and amortization expense		35,856				35,752				45,896				71,608				93,107
General and administrative expenses		40,903				46,245				50,710				87,148				118,354
Impairment expense		—				—				21,352				—				43,052
Operating loss		(71,166)				(61,507)				(79,303)				(132,673)				(152,589)
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