Keane Announces Fourth Quarter And Full-Year 2018 Financial And Operational Results

HOUSTON--(BUSINESS WIRE)-- Keane Group, Inc. (NYSE: FRAC) (“Keane” or the “Company”) today reported fourth quarter and full-year 2018 financial and operational results.

Results and Recent Highlights

  • Reported fourth quarter 2018 revenue of $486.5 million, compared to third quarter 2018 of $558.9 million
  • Realized fourth quarter 2018 net income of $6.1 million, compared to third quarter 2018 net income of $30.8 million
  • Achieved fourth quarter 2018 Adjusted EBITDA of $88.4 million, compared to third quarter 2018 of $100.9 million
  • Reported annualized Adjusted Gross Profit per fleet of $20.9 million, compared to third quarter 2018 of $20.5 million
  • Delivered full-year 2018 revenue of $2.1 billion, compared to full-year 2017 revenue of $1.5 billion
  • Generated full-year 2018 net cash provided by operating activities of $350.3 million, compared to $79.7 million in 2017
  • Executed $105.0 million of stock repurchases in 2018; Board authorized third program capacity reset to $100.0 million

Fourth Quarter 2018 Financial Results

Revenue for the fourth quarter of 2018 totaled $486.5 million, a decrease of 13% compared to $558.9 million for the third quarter of 2018. Net income for the fourth quarter of 2018 was $0.06 per share, compared to $0.28 per share reported for the third quarter of 2018. Excluding one-time items and other adjustments further discussed below, net income for the fourth quarter of 2018 was $11.4 million, compared to net income of $24.0 million for the third quarter of 2018.

Adjusted EBITDA for the fourth quarter of 2018 totaled $88.4 million, compared to $100.9 million for the third quarter of 2018. Adjusted Gross Profit for the fourth quarter of 2018 was $113.9 million, compared to $122.3 million for the third quarter of 2018.

Selling, general and administrative expenses for the fourth quarter of 2018 totaled $28.5 million, compared to $27.8 million for the third quarter of 2018. Excluding one-time items, selling, general and administrative expenses for the fourth quarter of 2018 totaled $23.2 million, compared to $19.9 million for the third quarter of 2018, driven by investments in technology.

“I am very pleased with our overall fourth quarter financial results which exceeded our outlook,” said Robert Drummond, Chief Executive Officer of Keane. “As expected, conditions were challenging, but our team remained focused on delivering efficiency for customers and controlling costs across our business, resulting in annualized adjusted gross profit per fleet of approximately $21 million. We maintain significant operational flexibility, and have invested in keeping a portion of our idle fleets ready to respond quickly to market demand going forward.”

Full-Year 2018 Financial Results

Revenue for the full-year 2018 totaled $2.1 billion, an increase of 39% compared to $1.5 billion for the full-year 2017. Net income for the full-year 2018 was $59.3 million, compared to a net loss of $36.1 million for the full-year 2017. Net income per share for the full-year 2018 totaled $0.54. Adjusted gross profit for the full-year 2018 was $476.7 million, an increase of 73%, compared to $275.0 million for the full-year 2017.

“Our strong fourth quarter results capped off a successful year for Keane,” said Greg Powell, President and Chief Financial Officer of Keane. “Our winning strategy focuses on partnering with like-minded customers under dedicated agreements who share our commitment to safety, efficiency and innovation. We generated more than $350 million in operating cash flow in 2018, enabling us to fund our robust capital return program, organic and inorganic expansion, capital to keep our fleet fresh and market-ready, and investments in technology and innovation initiatives.”

Completions Services

Revenue for Completion Services totaled $475.2 million for the fourth quarter of 2018, a decrease of 13% compared to $548.4 million for the third quarter of 2018, driven by reduced utilization from customer’s budget exhaustion, early achievement of production targets, and commodity price differentials, in addition to normal weather and seasonality. For the fourth quarter of 2018, Keane had an average of 25.0 fleets deployed, of which, utilization averaged 88%, resulting in the equivalent of 22.0 fully-utilized fleets. Adjusted Gross Profit for Completion Services totaled $114.7 million for the fourth quarter of 2018, compared to $122.7 million for the third quarter of 2018.

Annualized revenue per average deployed hydraulic fracturing fleet for the fourth quarter of 2018 was $86.4 million, compared to $91.4 million for the third quarter of 2018. Annualized Adjusted Gross Profit per fleet totaled $20.9 million, compared to $20.5 million for the third quarter of 2018. Included in our results for the fourth quarter was approximately $15.0 million of investment in labor and maintenance costs associated with keeping several fleets market-ready.

Other Services

Revenue in Other Services for the fourth quarter of 2018 totaled $11.4 million, compared to $10.5 million for the third quarter of 2018.

Fourth Quarter 2018 One-Time Items and Other Adjustments

Adjusted EBITDA for the fourth quarter of 2018 excludes $5.2 million of one-time items related to non-cash stock compensation expense.

Balance Sheet and Capital

Total debt outstanding as of December 31, 2018 was $340.7 million, net of unamortized debt discounts and unamortized deferred charges and excluding capital lease obligations, compared to $341.0 million as of September 30, 2018. As of December 31, 2018, cash and equivalents totaled $80.2 million, compared to $82.8 million as of September 30, 2018.

Total available liquidity as of December 31, 2018 was approximately $264.2 million, which included cash and availability under our asset-based credit facility. Total operating cash flow for the fourth quarter of 2018 was approximately $99.2 million. These operating cash flows, combined with balance sheet cash, were primarily used to fund capital expenditures of approximately $52.2 million, stock repurchases of $35.5 million and debt service of approximately $7.0 million, excluding capital lease obligations.

Stock Repurchase Program Update

During the fourth quarter of 2018, Keane repurchased approximately 3.1 million of its common shares for $35.5 million. For the full-year 2018, Keane repurchased a total of 8.1 million of its common shares for $105.0 million, representing approximately 8% of outstanding shares. 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.

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.

Outlook

For the first quarter of 2019, total revenue is expected to range between $400 million and $420 million. Keane’s hydraulic fracturing fleet for the first quarter of 2019 will include 29.0 deployable fleets, of which, 22.0 are expected to be deployed. Of this amount, Keane expects to achieve utilization of approximately 90%, resulting in the equivalent of approximately 20.0 fully-utilized hydraulic fracturing fleets during the quarter. Annualized Adjusted Gross Profit per fleet, based on 20.0 fully-utilized fleets, is expected to range between $15.0 million and $17.0 million, including approximately $10 million of labor and maintenance costs associated with keeping a portion of our fleets market-ready.

“We expect sequential revenue declines in the first quarter, driven by increased direct sourcing of sand by certain customers, disruptions in activity from abnormal weather, delays in pad readiness and some price concessions,” continued Mr. Drummond. “The significant and rapid oil price decline emerging late in the fourth quarter disrupted budget cycles for many E&Ps, while awaiting better visibility into the commodity outlook. We remain disciplined, as evidenced by our decision to idle three fleets early in the first quarter after evaluating several market opportunities which did not meet our economic hurdles. Current supply and demand dynamics has led to some pressure on net pricing on deployed fleets, however, most of our customers collaborated with us exhibiting their commitment to our long-term partnership.”

“By the end of the first quarter of 2019, we expect approximately $20 million of adjusted EBITDA tailwind, driven by the abatement of disruptions in activity from abnormal weather, delays in pad readiness and the resolution of strategic labor and maintenance investments we’ve made,” continued Mr. Powell. “Our baseload of activity is strong, with most of our 22 currently deployed fleets committed at least through the end of the year, and 7 currently idle fleets available to support future growth. Regardless of the shape of recovery in activity, we are positioned to generate more than $100 million of free cash flow in 2019 after debt service and capital expenditures. We remain focused on delivering shareholder value by employing a thoughtful and disciplined approach to capital allocation, including maintaining a strong balance sheet and asset base, and returning capital to shareholders.”

Conference Call

On February 26, 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 fourth quarter and full-year 2018 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 13686481. The replay will be available until March 12, 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 AND COMBINED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME

(in thousands, except per share data)

             
       

Three Months Ended

December 31,

 

Three Months Ended
September 30,

        2018   2017   2018
        (Unaudited)   (Unaudited)   (Unaudited)
Revenue       $ 486,549     $ 501,490     $ 558,908  
Operating costs and expenses:                
Cost of services       372,654     389,096     436,799  
Depreciation and amortization       71,403     49,964     68,287  
Selling, general and administrative expenses       28,466     24,611     27,783  
(Gain) loss on disposal of assets       (122 )   (2,418 )   1,113  
Total operating costs and expenses       472,401     461,253     533,982  
Operating income       14,148     40,237     24,926  
Other income (expenses):                
Other income       (2,386 )   9,316     14,454  
Interest expense       (6,219 )   (7,318 )   (5,978 )
Total other income (expense)       (8,605 )   1,998     8,476  
Income before income taxes       5,543     42,235     33,402  
Income tax benefit (expense)       585     1,712     (2,623 )
Net income       6,128     43,947     30,779  
Other comprehensive income (loss):                
Foreign currency translation adjustments       (77 )   (12 )   28  
Hedging activities       (4,309 )   785     1,119  
Total comprehensive income       $ 1,742     $ 44,720     $ 31,926  
                 
Net income per share, basic       $ 0.06     $ 0.39     $ 0.28  
Weighted average shares, basic       105,265     111,707     108,825  
                       
 
 

KEANE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS & COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

         
        Year ended

December 31,

        2018   2017
        (Unaudited)   (Unaudited)
Revenue       $ 2,137,006     $ 1,542,081  
Operating costs and expenses:            
Cost of services       1,660,546     1,282,561  
Depreciation and amortization       259,145     159,280  
Selling, general and administrative expenses       114,258     93,526  
(Gain) loss on disposal of assets       5,047     (2,555 )
Total operating costs and expenses       2,038,996     1,532,812  
Operating income       98,010     9,269  
Other income (expenses):            
Other income (expense)       (905 )   13,963  
Interest expense       (33,504 )   (59,223 )
Total other expenses       (34,409 )   (45,260 )
Income (loss) before income taxes       63,601     (35,991 )
Income tax expense       (4,270 )   (150 )
Net income (loss)       59,331     (36,141 )
Other comprehensive income (loss):            
Foreign currency translation adjustments       (114 )   96  
Hedging activities       (880 )   791  
Total comprehensive income (loss)       $ 58,337     $ (35,254 )
             
Net income (loss) per share, basic       $ 0.54     $ (0.34 )
Weighted average shares, basic       109,335     106,321  
                 
 
 

KEANE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS

(in thousands)

             
        December 31,   December 31,
        2018   2017
ASSETS       (Unaudited)   (Audited)
Current Assets:            
Cash and cash equivalents       $ 80,206   $ 96,120
Trade and other accounts receivable, net       210,428   238,018
Inventories, net       35,669   33,437
Assets held for sale       176  
Prepaid and other current assets       5,784   8,519
Total current assets       332,263   376,094
Property and equipment, net       531,319   468,000
Goodwill       132,524   134,967
Intangible assets       51,904   57,280
Other noncurrent assets       6,569   6,775
Total Assets       $ 1,054,579   $ 1,043,116
LIABILITIES AND SHAREHOLDERS’ EQUITY            
Current liabilities:            
Accounts payable       $ 106,702   $ 92,348
Accrued expenses       101,539   135,175
Customer contract liabilities       60   5,000
Current maturities of capital lease obligations       4,928   3,097
Current maturities of long-term debt       2,776   1,339
Stock based compensation - current       4,281   4,281
Other current liabilities       294   914
Total current liabilities       220,580   242,154
Capital lease obligations, less current maturities       5,581   4,796
Long-term debt, net(1) less current maturities       337,954   273,715
Stock based compensation – non-current         4,281
Other non-current liabilities       3,283   5,078
Total non-current liabilities       346,818   287,870
Total liabilities       567,398   530,024
Shareholders’ equity:            
Stockholders’ equity       456,485   542,192
Retained earnings (deficit)       31,494   (27,372)
Accumulated other comprehensive income (loss)       (798)   (1,728)
Total shareholders’ equity       487,181   513,092
Total liabilities and shareholders’ equity       $ 1,054,579   $ 1,043,116
 

_______________________________________

(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
December 31,
  Three Months Ended
September 30,
        2018   2017   2018
Completion Services:                
Revenues       $ 475,158     $ 495,519     $ 548,418  
Cost of services       360,430     382,880     425,928  
Gross profit       114,728     112,639     122,490  
Depreciation, amortization and administrative expenses, and impairment       66,793     44,711     64,579  
Operating income       $ 48,025     $ 65,885     $ 56,771  
                 
Average hydraulic fracturing fleets deployed       25.0     26.0     27.0  
Average hydraulic fracturing fleet utilization       88 %   100 %   89 %
Wireline - fracturing fleet bundling percentages       79 %   78 %   77 %
Average annualized revenue per fleet deployed (1)       $ 86,392     $ 76,234     $ 91,403  
Average annualized adjusted gross profit per fleet deployed (1)       $ 20,860     $ 17,316     $ 20,453  
Adjusted gross profit       $ 114,728     $ 112,554     $ 122,717  
                 
Other Services (2):                
Revenues       $ 11,391     $ 5,971     $ 10,490  
Cost of services       12,224     6,216     10,871  
Gross loss       (833 )   (245 )   (381 )
Depreciation, amortization and administrative expenses, and impairment       871     1,434     840  
Operating income (loss)       (1,704 )   1,697     (1,221 )
Adjusted gross profit (loss)       $ (833 )   $ 548     $ (381 )
 

______________________________________

(1)   For the fourth quarter of 2018, average annualized revenue per fleet deployed and average annualized adjusted gross profit per fleet deployed was calculated using the equivalent of 22.0 fully-utilized hydraulic fracturing fleets, which represents 88% utilization of the Company's 25.0 average hydraulic fracturing fleets deployed.
(2)   Other Services segment includes exclusively the cementing division from January 1, 2018. The Company’s workover rigs were sold during the third and fourth quarters of 2017. The Company’s coiled tubing assets were sold during the fourth quarter of 2017.
     
 
 

KEANE GROUP, INC. AND SUBSIDIARIES

ADDITIONAL SELECTED FINANCIAL AND OPERATING DATA

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

         
        Year Ended
December 31,
        2018   2017
Completion Services:            
Revenues       $ 2,100,956     $ 1,527,287  
Cost of services       1,622,106     1,269,263  
Gross profit       478,850     258,024  
Depreciation, amortization and administrative expenses, and impairment       241,169     141,385  
Operating income       $ 234,756     $ 115,691  
             
Average hydraulic fracturing fleets deployed       26.1     21.1  
Average hydraulic fracturing fleet utilization       94 %   81 %
Wireline - fracturing fleet bundling percentages       78 %   70 %
Average annualized revenue per fleet deployed (1)       $ 85,405     $ 72,383  
Average annualized adjusted gross profit per fleet deployed (1)       $ 19,475     $ 12,920  
Adjusted gross profit       $ 479,077     $ 272,614  
             
Other Services (2):            
Revenues       $ 36,050     $ 14,794  
Cost of services       38,440     13,298  
Gross profit (loss)       (2,390 )   1,496  
Depreciation, amortization and administrative expenses, and impairment       4,428     5,757  
Operating loss       (6,818 )   (197 )
Adjusted gross profit (loss)       $ (2,390 )   $ 2,346  
 

______________________________________

(1)   For 2018, average annualized revenue per fleet deployed and average annualized adjusted gross profit per fleet deployed were calculated using the equivalent of 24.0 and 22.0 fully-utilized fleets for the third quarter of 2018 and fourth quarter of 2018, respectively, which represents 89% utilization of the Company's 27.0 average hydraulic fracturing fleets deployed in the third quarter of 2018 and 88% utilization of the Company's 25.0 average hydraulic fracturing fleets deployed in the fourth quarter of 2018.
(2)   Other Services segment includes exclusively the cementing division from January 1, 2018. The Company’s workover rigs were sold during the third and fourth quarters of 2017. The Company’s coiled tubing assets were sold during the fourth quarter of 2017.
     
 
 

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 expense               (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 expense               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 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.
     
 
 

KEANE GROUP, INC. AND SUBSIDIARIES

NON-U.S. GAAP FINANCIAL MEASURES

(unaudited, in thousands)

                     
        Three Months Ended September 31, 2018
       

Completion
Services

 

Other
Services

 

Corporate
and Other

  Total
Net Income (loss)       $ 56,771     $ (1,221 )   $ (24,771 )   $ 30,779  
Interest expense, net               5,978     5,978  
Income tax benefit               2,623     2,623  
Depreciation and amortization       64,579     840     2,868     68,287  
EBITDA       $ 121,350     $ (381 )   $ (13,302 )   $ 107,667  
Plus Management Adjustments:                    
Acquisition, integration and expansion (1)       227         301     528  
Non-cash stock compensation (2)               4,809     4,809  
Other (3)               (12,127 )   (12,127 )
Adjusted EBITDA       $ 121,577     $ (381 )   $ (20,319 )   $ 100,877  
Selling, general and administrative               27,783     27,783  
(Gain) loss on disposal of assets       1,140         (27 )   1,113  
Other income               (14,454 )   (14,454 )
Less Management Adjustments not associated with cost of services               7,017     7,017  
Adjusted gross profit (loss)       $ 122,717     $ (381 )   $     $ 122,336  
 

_______________________________________________

(1)   Represents integration costs related to the asset acquisition from RSI, of which $0.2 million was recorded in cost of services and $0.3 million was recorded in selling, general and administrative expenses.
(2)   Represents non-cash amortization of equity awards issued under the Equity Plan, which is recorded in selling, general and administrative expenses.
(3)   Represents gain of $14.9 million recognized for insurance proceeds received in connection with a fire that damaged a portion of one hydraulic fracturing fleet on July 1, 2018, which was recorded in (gain) loss on disposal of assets, offset by $2.8 million of legal contingencies, which were 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, 2017
       

Completion
Services

 

Other
Services

 

Corporate and
Other

  Total
Net Income (loss)       $ 65,885     $ 1,697     $ (23,635 )   $ 43,947  
Interest expense, net               7,318     7,318  
Income tax expense               (1,712 )   (1,712 )
Depreciation and amortization       44,711     1,434     3,819     49,964  
EBITDA       $ 110,596     $ 3,131     $ (14,210 )   $ 99,517  
Plus Management Adjustments:                    
Acquisition, integration and expansion (1)       (86 )   (3,377 )   (8,889 )   (12,352 )
Offering-related expenses (2)               1,184     1,184  
Commissioning costs           794         794  
Non-cash stock compensation (3)               3,244     3,244  
Other (4)               1,444     1,444  
Adjusted EBITDA       $ 110,510     $ 548     $ (17,227 )   $ 93,831  
Selling, general and administrative               24,611     24,611  
(Gain) loss on disposal of assets       2,044     (3,377 )   (1,085 )   (2,418 )
Other income               (9,316 )   (9,316 )
Less Management Adjustments not associated with cost of services           3,377     3,017     6,394  
Adjusted gross profit       $ 112,554     $ 548     $     $ 113,102  
 

____________________________________

 
1)   Corporate and Other segment represents adjustment to the CVR liability, insurance recoveries associated with the acquisition of a majority of the U.S. assets and assumed certain liabilities of Trican Well Service, L.P. (the "Acquired Trican Operations"), lease termination costs and other expenses associated with organic growth initiatives. Completion Services and Other Services segment represents gain on the sale of coiled tubing assets .
(2)   Represents a portion of 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.  
(3)   Represents non-cash amortization of equity awards issued under the Equity Plan, which is recorded in selling, general and administrative expenses.  
(4)   Represents contingency accruals related to certain litigation claims. These costs were recorded in selling, general and administrative expenses.  
       
 
 

KEANE GROUP, INC. AND SUBSIDIARIES

NON-U.S. GAAP FINANCIAL MEASURES

(unaudited, in thousands)

                     
        Year Ended December 31, 2018
       

Completion
Services

 

Other
Services

 

Corporate and
Other

  Total
Net Income (loss)       $ 234,756     $ (6,818 )   $ (168,607 )   $ 59,331  
Interest expense, net               33,504     33,504  
Income tax expense               4,270     4,270  
Depreciation and amortization       241,169     4,428     13,548     259,145  
EBITDA       $ 475,925     $ (2,390 )   $ (117,285 )   $ 356,250  
Plus Management Adjustments:                    
Acquisition, integration and expansion (1)       227         16,382     16,609  
Offering-related expenses (2)               12,969     12,969  
Non-cash stock compensation (3)               17,166     17,166  
Other (4)               (11,138 )   (11,138 )
Adjusted EBITDA       $ 476,152     $ (2,390 )   $ (81,906 )   $ 391,856  
Selling, general and administrative               114,258     114,258  
Loss on disposal of assets       2,925         2,122     5,047  
Other expense               905     905  
Less Management Adjustments not associated with cost of services               (35,379 )   (35,379 )
Adjusted gross profit (loss)       $ 479,077     $ (2,390 )   $     $ 476,687  
 

______________________________________

(1)   Represents adjustment to the contingent value right liability based on the final agreed-upon settlement of $13.2 million, which was recorded in other income (expense), net and a markdown to fair value of idle real estate pending for sale in Mathis, Texas acquired as part of the Acquired Trican Operations of $2.7 million, which was recorded in (gain) loss on disposal of assets. Also represents integration costs related to the asset acquisition from RSI, of which $0.2 million was recorded in cost of services and $0.5 million was recorded in selling, general and administrative expenses.
(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.
(4)   Represents gain recognized for insurance proceeds received in connection with a fire that damaged a portion of one hydraulic fracturing fleet on July 1, 2018, which was recorded in (gain) loss on disposal of assets. Also represents legal contingencies, rating agency fees for establishing initial ratings in connection with entering into a new $350 million senior secured term facility and bond offering costs, which were recorded in selling, general and administrative expenses.
     
 
 

KEANE GROUP, INC. AND SUBSIDIARIES

NON-U.S. GAAP FINANCIAL MEASURES

(unaudited, in thousands)

                     
        Year Ended December 31, 2017
       

Completion
Services

 

Other
Services

 

Corporate and
Other

  Total
Net Income (loss)       $ 115,692     $ (197 )   $ (151,636 )   $ (36,141 )
Interest expense, net               59,223     59,223  
Income tax expense               150     150  
Depreciation and amortization       141,385     5,757     12,138     159,280  
EBITDA       $ 257,077     $ 5,560     $ (80,125 )   $ 182,512  
Plus Management Adjustments:                    
Acquisition, integration and expansion (1)       1,750     (3,320 )   (3,104 )   (4,674 )
Offering-related expenses (2)       1,266         5,803     7,069  
Commissioning costs       11,574     794     197     12,565  
Non-cash stock compensation (3)               10,578     10,578  
Other (4)           (900 )   7,375     6,475  
Adjusted EBITDA       $ 271,667     $ 2,134     $ (59,276 )   $ 214,525  
Selling, general and administrative               93,526     93,526  
(Gain) loss on disposal of assets       947     (4,064 )   562     (2,555 )
Other income               (13,963 )   (13,963 )
Less Management Adjustments not associated with cost of services           4,276     (20,849 )   (16,573 )
Adjusted gross profit (loss)       $ 272,614     $ 2,346     $     $ 274,960  
 

______________________________________________

(1)   Represents professional fees, integration and divestiture costs, lease-termination costs, adjustment to the CVR liability, severance, start-up and other costs associated with the acquisition of RockPile and the Acquired Trican Operations and other expenses associated with organic growth initiatives. Of these costs, $1.8 million was recorded in cost of services, $10.7 million was recorded in selling, general and administrative expenses, $3.4 million in gain on disposal of assets and $13.4 million in other income.
(2)   Represents fees and other miscellaneous expenses required to carry out the reporting, prior years' audits and organizational (legal entities) restructuring to ready the Company for its IPO and the eventual consummation of its offering, as well as the consummation of the secondary common stock offering completed in January 2018. These expenses were recorded in selling, general and administrative expenses. Also represents one-time IPO bonuses paid to key operational and corporate employees; recorded $1.3 million as cost of services for operations employees, while the remaining was recorded in selling, general and administration expenses. One-time IPO bonuses were paid out during the first quarter of 2017.
(3)   Represents non-cash amortization of equity awards issued under the Equity Plan, which is recorded in selling, general and administrative expenses.
(4)   Represents contingency accruals related to certain litigation claims and readiness costs associated with Keane's initial internal control design documentation for Sarbanes-Oxley compliance, using COSO 2013 framework, beginning in 2018. These costs were recorded in selling, general and administrative expenses. Also represents net (gain) loss on disposal of assets, which was recorded in (gain) loss on disposal of assets.
 

 

Investor Relations
(713) 893-3602

Marc Silverberg, ICR
marc.silverberg@icrinc.com