Keane Announces First Quarter 2019 Financial and Operational Results

HOUSTON–(BUSINESS WIRE)–Keane Group, Inc. (“Keane” or the “Company”) today reported first
quarter 2019 financial and operational results.

Results and Recent Highlights

  • Reported first quarter 2019 revenue of $421.7 million, compared to
    fourth quarter 2018 of $486.5 million
  • Realized first quarter 2019 net loss of $21.8 million, compared to
    fourth quarter 2018 net income of $6.1 million
  • Achieved first quarter 2019 Adjusted EBITDA of $64.1 million, compared
    to fourth quarter 2018 of $88.4 million
  • Reported annualized Adjusted Gross Profit per fleet of $16.2 million,
    compared to fourth quarter 2018 of $20.9 million
  • Awarded a new fleet under a dedicated agreement with an existing
    customer to support activity in the SCOOP / STACK

First Quarter 2019 Financial Results

Revenue for the first quarter of 2019 totaled $421.7 million, a decrease
of 13% compared to $486.5 million for the fourth quarter of 2018. Net
loss per share for the first quarter of 2019 was $0.21, compared to net
income per share of $0.06 for the fourth quarter of 2018. Excluding
one-time items and other adjustments further discussed below, net loss
for the first quarter of 2019 was $13.7 million, compared to net income
of $11.4 million for the fourth quarter of 2018.

Adjusted EBITDA for the first quarter of 2019 totaled $64.1 million,
compared to $88.4 million for the fourth quarter of 2018. Adjusted Gross
Profit for the first quarter of 2019 was $84.0 million, compared to
$113.9 million for the fourth quarter of 2018.

Selling, general and administrative expenses for the first quarter of
2019 totaled $27.9 million, compared to $28.5 million for the fourth
quarter of 2018. Excluding one-time items, selling, general and
administrative expenses for the first quarter of 2019 totaled $19.8
million, compared to $23.2 million for the fourth quarter of 2018,
reflecting investments in technology made during the fourth quarter of
2018.

“We are pleased to deliver financial results at the high-end of our
guidance, driven by the addition of a new dedicated fleet, and ongoing
cost control,” said Robert Drummond, Chief Executive Officer of Keane.
“Keane’s dedicated model of partnering with high-quality customers, and
relentless focus on efficiency is driving performance delineation versus
the market, including top-tier profitability per fleet.”

Completion Services

Revenue for Completion Services totaled $412.0 million for the first
quarter of 2019, a decrease of 13% compared to $475.2 million for the
fourth quarter of 2018, resulting from disruptions from severe weather,
delays in pad readiness, reduction in net pricing and increased direct
sourcing of sand by certain customers. For the first quarter of 2019,
Keane had an average of 23.0 fleets deployed, of which utilization
averaged 91%, resulting in equivalent of 21.0 fully-utilized fleets.
Adjusted Gross Profit for Completion Services totaled $85.3 million for
the first quarter of 2019, compared to $114.7 million for the fourth
quarter of 2018.

Annualized revenue per average deployed hydraulic fracturing fleet for
the first quarter of 2019 was $78.5 million, compared to $86.4 million
for the fourth quarter of 2018. Annualized Adjusted Gross Profit per
fleet totaled $16.2 million, compared to $20.9 million for the fourth
quarter of 2018. Included in our results for the first quarter of 2019
was approximately $10 million of investment in labor and maintenance
costs associated with maintaining several staffed and market-ready idle
fleets.

Other Services

Revenue in Other Services for the first quarter of 2019 totaled $9.7
million, compared to $11.4 million for the fourth quarter of 2018.

First Quarter 2019 One-Time Items and Other Adjustments

Adjusted EBITDA for the first quarter of 2019 excludes $8.1 million of
one-time items, including $4.1 million related to the resolution of a
legal matter from 2015 and $4.0 million of non-cash stock compensation
expense.

Balance Sheet and Capital

Total debt outstanding as of March 31, 2019 was $339.8 million, net of
unamortized debt discounts and unamortized deferred charges and
excluding lease obligations, compared to $340.7 million as of December
31, 2018. As of March 31, 2019, cash and equivalents totaled $83.7
million, compared to $80.2 million as of December 31, 2018.

Total available liquidity as of March 31, 2019 was approximately $255.0
million, which included availability under our asset-based credit
facility. Total operating cash flow for the first quarter of 2019 was
approximately $58.4 million. Our operating cash flow was primarily used
to fund capital expenditures of approximately $50.0 million and debt
service of approximately $6.5 million, excluding finance lease
obligations. Keane continues to expect full-year 2019 capital
expenditures to total $140 million at the mid-point of the Company’s
forecast, which is expected to be more weighted to the first half of
2019 based on investments in strategic initiatives.

Stock Repurchase Program Update

Effective February 25, 2019, Keane’s Board of Directors authorized a
reset of capacity on its existing stock repurchase program back to
$100.0 million and extended the program’s expiration to December 2019.
For the first quarter of 2019, Keane did not complete any additional
stock repurchases. The stock repurchase program does not obligate Keane
to purchase any shares of common stock during any period and the program
may be modified or suspended at any time at the Company’s discretion.

Guidance and Outlook

For the second quarter of 2019, total revenue is expected to range
between $400 million and $420 million. Keane’s hydraulic fracturing
fleet for the second quarter of 2019 will include 29.0 deployable
fleets, of which 23.0 are expected to be deployed. Keane expects to
achieve utilization of approximately 90% of its deployed fleets,
resulting in the equivalent of approximately 21.0 fully-utilized
hydraulic fracturing fleets during the second quarter. Annualized
Adjusted Gross Profit per fleet, based on 21.0 fully-utilized fleets, is
expected to range between $17 million and $19 million.

Revenue for our Other Services business is expected to be in the range
of $6 to $7 million on gross margins of approximately 10%. Our guidance
for the second quarter of 2019 reflects our recent decision to idle
cementing activities in one of our regions.

“Our first quarter performance is carrying momentum into the second
quarter,” said Greg Powell. “We have realized roughly half of the
approximately $20 million of adjusted EBITDA tailwinds we previously
guided exiting the first quarter. The $10 million of strategic
investments we have made in market-ready and staffed capacity has paid
off, as we were successful in adding a dedicated agreement while further
reducing our costs. Of the remaining $10 million of expected tailwinds
associated with white space in the frac calendar, most remains to be
realized. We remain confident that certain of our customers will be
successful in eliminating these bottlenecks, resulting in additional
earnings upside in future periods.”

“We are encouraged by the recent improvement in commodity prices, and
are well positioned to grow as the market permits,” said Robert
Drummond. “We continue to plan our business assuming a range-bound
environment, but we’ll continue to stay nimble and responsive to the
market. We are very well-positioned to deliver further earnings upside,
including a strong base of activity, improvements in the frac calendar,
and dry powder associated with our 6 idle market-ready fleets requiring
no additional investment. We’re committed to generating industry leading
returns, maintaining a strong balance sheet and allocating capital most
efficiently, as we continue to expect more than $100 million of free
cash flow generation in 2019.”

Conference Call

On May 7, 2019, Keane will hold a conference call for investors at 7:30
a.m. Central Time (8:30 a.m. Eastern Time) to discuss Keane’s first
quarter 2019 results. Hosting the call will be Robert Drummond, Chief
Executive Officer, and Greg Powell, President and Chief Financial
Officer. The call can be accessed live over the telephone by dialing
(877) 407-9208, or for international callers, (201) 493-6784. A replay
will be available shortly after the call and can be accessed by dialing
(844) 512-2921, or for international callers, (412) 317-6671. The
passcode for the replay is 13689474. The replay will be available until
May 21, 2019.

About Keane Group, Inc.

Headquartered in Houston, Texas, Keane is one of the largest pure-play
providers of integrated well completion services in the U.S., with a
focus on complex, technically demanding completion solutions. Keane’s
primary service offerings include horizontal and vertical fracturing,
wireline perforation and logging, engineered solutions and cementing, as
well as other value-added service offerings.

Definitions of Non-GAAP Financial Measures and Other Items

Keane has included both financial measures compiled in accordance with
GAAP and certain non-GAAP financial measures in this press release,
including Adjusted EBITDA and Adjusted Gross Profit and ratios based on
these financial measures. These measurements provide supplemental
information which Keane believes is useful to analysts and investors to
evaluate its ongoing results of operations, when considered alongside
GAAP measures such as net income and operating income. These non-GAAP
financial measures exclude the financial impact of items management does
not consider in assessing Keane’s ongoing operating performance, and
thereby facilitate review of Keane’s operating performance on a
period-to-period basis. Other companies may have different capital
structures, and comparability to Keane’s results of operations may be
impacted by the effects of acquisition accounting on its depreciation
and amortization. As a result of the effects of these factors and
factors specific to other companies, Keane believes Adjusted EBITDA and
Adjusted Gross Profit provide helpful information to analysts and
investors to facilitate a comparison of its operating performance to
that of other companies.

Adjusted EBITDA is defined as net income (loss) adjusted to eliminate
the impact of interest, income taxes, depreciation and amortization,
along with certain items management does not consider in assessing
ongoing performance. Adjusted Gross Profit is defined as Adjusted
EBITDA, further adjusted to eliminate the impact of all activities in
the Corporate segment, such as selling, general and administrative
expenses, along with cost of services that management does not consider
in assessing ongoing performance.

Forward-Looking Statements

The statements contained in this release that are not historical
facts are forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995.
Words such as “may,”
“will,” “could,” “should,” “expect,” “plan,” “project,” “intend,”
“anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursuant,”
“target,” “continue,” “positioned” and similar expressions are intended
to identify such forward-looking statements. The statements in this
press release that are not historical statements, including statements
regarding the Company’s plans, objectives, future opportunities for the
Company’s services, future financial performance and operating results
and any other statements regarding Keane’s future expectations, beliefs,
plans, objectives, financial conditions, assumptions or future events or
performance that are not historical facts, are forward-looking
statements within the meaning of the federal securities laws. These
statements are subject to numerous risks and uncertainties, many of
which are beyond Keane’s control, which could cause actual results to
differ materially from the results expressed or implied by the
statements. These risks and uncertainties include, but are not limited
to the operations of Keane; the Company’s future financial condition,
results of operations, strategy and plans; results of litigation,
settlements and investigations; actions by third parties, including
governmental agencies; volatility in customer spending and in oil and
natural gas prices, which could adversely affect demand for Keane’s
services and their associated effect on rates, utilization, margins and
planned capital expenditures; global economic conditions; excess
availability of pressure pumping equipment, including as a result of low
commodity prices, reactivation or construction; liabilities from
operations; weather; decline in, and ability to realize, backlog;
equipment specialization and new technologies; shortages, delays in
delivery and interruptions of supply of equipment and materials; ability
to hire and retain personnel; loss of, or reduction in business with,
key customers; difficulty with growth and in integrating acquisitions;
product liability; political, economic and social instability risk;
ability to effectively identify and enter new markets; cybersecurity
risk; dependence on our subsidiaries to meet our long-term debt
obligations; variable rate indebtedness risk; and anti-takeover measures
in our charter documents.

Additional information concerning factors that could cause actual
results to differ materially from those in the forward-looking
statements is contained from time to time in Keane’s Securities and
Exchange Commission (“SEC”) filings, including the most recently filed
Forms 10-Q and 10-K. Keane’s filings may be obtained by contacting Keane
or the SEC or through Keane’s website at
http://www.keanegrp.com
or through the SEC’s Electronic Data Gathering and Analysis Retrieval
System (EDGAR) at
http://www.sec.gov.
Keane undertakes no obligation to publicly update or revise any
forward-looking statement.

         

KEANE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS & COMPREHENSIVE
INCOME (LOSS)

(in thousands, except per share data)

 
Three Months Ended

March 31,

Three Months Ended
December 31,

2019     2018 2018
(Unaudited) (Unaudited) (Unaudited)
Revenue $ 421,654 $ 513,016 $ 486,549
Operating costs and expenses:
Cost of services 337,646 403,408 372,654
Depreciation and amortization 71,476 60,051 71,403
Selling, general and administrative expenses 27,936 33,884 28,466
(Gain) loss on disposal of assets 481   769   (122 )
Total operating costs and expenses 437,539   498,112   472,401  
Operating income (loss) (15,885 ) 14,904 14,148
Other income (expenses):
Other income (expense), net 448 (12,989 ) (2,386 )
Interest expense (5,395 ) (6,990 ) (6,219 )
Total other income (expenses) (4,947 ) (19,979 ) (8,605 )
Income (loss) before income taxes (20,832 ) (5,075 ) 5,543
Income tax benefit (expense) (974 ) (3,168 ) 585  
Net income (loss) (21,806 ) (8,243 ) 6,128
Other comprehensive income (loss):
Foreign currency translation adjustments (29 ) (34 ) (77 )
Hedging activities (2,862 ) 2,211   (4,309 )
Total comprehensive income (loss) $ (24,697 ) $ (6,066 ) $ 1,742  
 
Net income (loss) per share, basic $ (0.21 ) $ (0.07 ) $ 0.06
Weighted average shares, basic 104,422 112,010 105,265
 

KEANE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

     
ASSETS March 31, December 31,
2019 2018
(Unaudited) (Audited)
Current Assets:
Cash and cash equivalents 83,748 80,206
Accounts receivable 195,563 210,428
Inventories, net 30,959 35,669
Assets held for sale 358 176
Prepaid and other current assets 3,693   5,784  
Total current assets 314,321 332,263
Operating lease right-of-use assets 51,386
Finance lease right-of-use assets 11,841
Property and equipment, net 492,978 531,319
Goodwill 132,524 132,524
Intangible assets 51,271 51,904
Other noncurrent assets 6,246   6,569  
Total Assets 1,060,567   1,054,579  
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable 106,964 106,702
Accrued expenses 74,238 101,539
Current maturities of operating lease liabilities 20,776
Current maturities of finance lease liabilities 7,756 4,928
Current maturities of long-term debt 2,701 2,776
Customer contract liabilities 60 60
Stock based compensation – current 4,281
Other current liabilities 407   294  
Total current liabilities 212,902   220,580  
Long-term operating lease liabilities, less current maturities 30,312
Long-term finance lease liabilities, less current maturities 5,590 5,581
Long-term debt, net(1) less current maturities 337,140 337,954
Other non-current liabilities 5,639   3,283  
Total non-current liabilities 378,681   346,818  
Total liabilities 591,583 567,398
Shareholders’ equity:
Stockholders’ equity 461,903 456,485
Retained (deficit) 11,018 31,494
Accumulated other comprehensive (loss) (3,937 ) (798 )
Total shareholders’ equity 468,984   487,181  
Total liabilities and shareholders’ equity 1,060,567   1,054,579  
 

(1) Net of unamortized deferred financing costs and
unamortized debt discounts.

 

KEANE GROUP, INC. AND SUBSIDIARIES

ADDITIONAL SELECTED FINANCIAL AND OPERATING DATA

(unaudited, amounts in thousands, except for non-financial
statistics)

         
Three Months Ended
March 31,
Three Months Ended
December 31,
2019       2018   2018  
Completion Services:
Revenues $ 411,975 $ 507,451 $ 475,158
Cost of services 326,670 397,064 360,430
Gross profit 85,305 110,387 114,728
Depreciation, amortization and administrative expenses, and
impairment
66,747 55,180 66,793
Operating income $ 17,967 $ 54,265 $ 48,025
 
Average hydraulic fracturing fleets deployed 23.0 26.0 25.0
Average hydraulic fracturing fleet utilization 91 % 100 % 88 %
Wireline – fracturing fleet bundling percentages 78 % 76 % 79 %
Average annualized revenue per fleet deployed(1) $ 78,471 $ 78,069 $ 86,392
Average annualized adjusted gross profit per fleet deployed(1) $ 16,248 $ 16,983 $ 20,860
Adjusted gross profit $ 85,305 $ 110,387 $ 114,728
 
Other Services:
Revenues $ 9,679 $ 5,565 $ 11,391
Cost of services 10,976 6,344 12,224
Gross loss (1,297 ) (779 ) (833 )
Depreciation, amortization and administrative expenses, and
impairment
873 1,398 871
Operating loss (2,170 ) (2,177 ) (1,704 )
Adjusted gross profit loss $ (1,297 ) $ (779 ) $ (833 )
 

(1) For the first quarter of 2019, average annualized
revenue per fleet deployed and average annualized adjusted gross
profit per fleet deployed was calculated using the equivalent of
21.0 fully-utilized hydraulic fracturing fleets, which represents
91% utilization of the Company’s 23.0 average hydraulic fracturing
fleets deployed.

 

KEANE GROUP, INC. AND SUBSIDIARIES

NON-U.S. GAAP FINANCIAL MEASURES

(unaudited, in thousands)

                 
Three Months Ended March 31, 2019
Completion Services Other Services Corporate and Other Total
Net Income (loss) $ 17,967 $ (2,170 ) $ (37,603 ) $ (21,806 )
Interest expense, net 5,395 5,395
Income tax expense 974 974
Depreciation and amortization 66,747   873   3,856   71,476  
EBITDA $ 84,714 $ (1,297 ) $ (27,378 ) $ 56,039
Plus Management Adjustments:
Non-cash stock compensation (1) 3,973 3,973
Other (2)     4,120   4,120  
Adjusted EBITDA $ 84,714 $ (1,297 ) $ (19,285 ) $ 64,132
Selling, general and administrative 27,936 27,936
(Gain) loss on disposal of assets 591 (110 ) 481
Other expense (448 ) (448 )
Less Management Adjustments not associated with cost of services     (8,093 ) (8,093 )
Adjusted gross profit (loss) $ 85,305 $ (1,297 ) $ $ 84,008
 
(1) Represents non-cash amortization of equity awards
issued under Keane Group, Inc.’s Equity and Incentive Award Plan
(the “Equity Plan”). According to the Equity Plan, the Compensation
Committee of the Board of Directors can approve awards in the form
of restricted stock, restricted stock units, and/or other deferred
compensation. Consistent with prior policy, amortization of awards
is made ratably over the vesting periods, beginning with the grant
date, based on the total fair value determined on grant date and
recorded in selling, general and administrative expenses.
(2) Represents legal contingencies, which is recorded in
selling, general and administrative expenses.
 

KEANE GROUP, INC. AND SUBSIDIARIES

NON-U.S. GAAP FINANCIAL MEASURES

(unaudited, in thousands)

                 
Three Months Ended December 31, 2018
Completion Services Other Services Corporate and Other Total
Net Income (loss) $ 48,025 $ (1,704 ) $ (40,193 ) $ 6,128
Interest expense, net 6,219 6,219
Income tax benefit (585 ) (585 )
Depreciation and amortization 66,793   871   3,739   71,403  
EBITDA $ 114,818 $ (833 ) $ (30,820 ) $ 83,165
Plus Management Adjustments:
Non-cash stock compensation (1)     5,242   5,242  
Adjusted EBITDA $ 114,818 $ (833 ) $ (25,578 ) $ 88,407
Selling, general and administrative 28,466 28,466
Gain on disposal of assets (90 ) (32 ) (122 )
Other income 2,386 2,386
Less Management Adjustments not associated with cost of services     (5,242 ) (5,242 )
Adjusted gross profit (loss) $ 114,728 $ (833 ) $ $ 113,895
 
(1) Represents non-cash amortization of equity awards
issued under the Equity Plan, which is recorded in selling, general
and administrative expenses.
 

KEANE GROUP, INC. AND SUBSIDIARIES

NON-U.S. GAAP FINANCIAL MEASURES

(unaudited, in thousands)

                 
Three Months Ended March 31, 2018

Completion
Services

Other
Services

Corporate and
Other

Total
Net Income (loss) $ 54,265 $ (2,177 ) $ (60,331 ) $ (8,243 )
Interest expense, net 6,990 6,990
Income tax expense 3,168 3,168
Depreciation and amortization 55,180   1,398   3,473   60,051  
EBITDA $ 109,445 $ (779 ) $ (46,700 ) $ 61,966
Plus Management Adjustments:
Acquisition, integration and expansion (1) 13,254 13,254
Offering-related expenses (2) 12,969 12,969
Non-cash stock compensation (3)     3,073   3,073  
Adjusted EBITDA $ 109,445 $ (779 ) $ (17,404 ) $ 91,262
Selling, general and administrative 33,884 33,884
(Gain) loss on disposal of assets 942 (173 ) 769
Other income 12,989 12,989
Less Management Adjustments not associated with cost of services     (29,296 ) (29,296 )
Adjusted gross profit (loss) $ 110,387 $ (779 ) $ $ 109,608
 
(1) Represents adjustment to the contingent value right
liability associated with the acquisition of RockPile Energy
Services, LLC and its subsidiaries from RockPile Energy Holdings,
LLC based on the final agreed-upon settlement.
(2) Represents primarily professional fees and other
miscellaneous expenses to consummate the secondary common stock
offering completed in January 2018. These expenses were recorded in
selling, general and administrative expenses, as Keane did not
receive any proceeds in the offering to offset the expenses.
(3) Represents non-cash amortization of equity awards
issued under the Equity Plan, which is recorded in selling, general
and administrative expenses.

Contacts

Investor Relations
(713) 893-3602

Marc Silverberg, ICR
marc.silverberg@icrinc.com

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