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Key Energy Services, Inc. (KEG)
Q4 2018 Earnings Conference Call
February 26, 2019 11:00 AM ET
Katherine Hargis - Senior Vice President, General Counsel
Rob Saltiel - President & Chief Executive Officer
Marshall Dodson - Chief Financial Officer
Conference Call Participants
Mike Urban - Seaport Global
Daniel Burke - Johnson Rice
Previous Statements by KEG
» Key Energy Services (KEG) Q3 2018 Results - Earnings Call Transcript
» Key Energy Services (KEG) Q2 2018 Results - Earnings Call Transcript
» Key Energy Services (KEG) Q1 2018 Results - Earnings Call Transcript
» Key Energy Services (KEG) Q4 2017 Results - Earnings Call Transcript
I will now turn the call over to Ms. Katherine Hargis, Senior Vice President, General Counsel. Please go ahead.
Thank you, Dennis. And thank you all for joining Key Energy Services for our fourth quarter and full year 2018 financial results conference call. This call includes forward-looking statements. A number of factors could cause actual results to differ materially from the expectations expressed in this call, including risk factors discussed in our 2018 and other reports most recently filed with the SEC which are available on our website at www.keyenergy.com.
This call may also include references to non-GAAP financial measures. Please refer to our previously posted earnings release which can be found on our website for a reconciliation of any non-GAAP financial measures provided in this call to the comparable GAAP financial measures. For reference, our general investor presentation is available on Key's website at keyenergy.com under the Investor Relations tab.
On the call this morning is Rob Saltiel, Key's President and CEO; and Marshall Dodson, Key's CFO.
I'm going to turn the call over to Rob.
Thank you, Katherine and good morning to everyone joining today's call. Our fourth quarter revenues came in at $117.3 million; lower than our third quarter numbers, due primarily to the seasonal effects of holidays and shorter days, coupled with lower completions activity. Declines in the oil price and a premature exhaustion of some our client's budgets throughout the quarter contributed to slower activity as well.
However, our bottom line result was cushioned to a significant degree by the improvements in our cost structure that we've implemented as well as higher pricing for many of our services in certain markets. In total, our fourth quarter adjusted EBITDA of $3.9 million was only $1.7 million lower than the third quarter despite a $17.5 million decline in revenues.
I will now provide some color on the fourth quarter results and an outlook for each of our four business segments. In our Rig Services segment, fourth quarter revenues were $69.1 million versus third quarter revenues of $77.2 million.
Lower well service rig completion activity, especially in the Permian Basin, accounted for nearly half of the quarterly revenue decline as clients slowed down their completions when faced with lower oil prices and evaporating 2018 budgets.
Over the fourth quarter, we averaged 11 24-hour completions rigs as compared to about 17 in the third quarter. Our production, maintenance and work-over activity, which accounts for the bulk of our Rig Services work, saw a fairly typical seasonal decline.
Our EBITDA margins in the Rig Services segment in the fourth quarter benefited from price increases that were implemented in the fourth quarter, as well as our cost-reduction efforts. As a result, our adjusted EBITDA in this segment came in at $11 million, a decline of less than $1 million despite an $8 million drop in revenues quarter-on-quarter.
Fortunately, we have seen our Rig Services segment activity improve as we moved into 2019. For the month of January, we averaged 13 24-hour completions rigs across the company. And our Permian completions rig count has returned to third quarter levels.
We expect the total 24-hour completion rig count to continue to improve towards the mid-to-high teens as we move into the better weather of March. We expect that the Rig segment will see higher average revenue per rig hour in the first quarter versus the fourth quarter, as a result of better pricing secured late last year and in January. I will add that we have not seen much in the way of wage inflation pressures so far this quarter likely due to adjustments we made in the back half of 2018.
We continue to receive requests from our clients for additional rigs and one challenge in capturing this growth is in the shortage of qualified rig workers in our industry. We've initiated or expanded multiple recruiting training and retention initiatives to grow our talented Rig Services team here at Key. We expect that these initiatives will allow us to increase our footprint and market share in the coming quarters.
Fluid Management Services segment generated revenues of $20.8 million in the fourth quarter, down approximately $1 million from the third quarter. Revenues were impacted primarily by seasonality effects and lower completions activity, but these negatives were offset partially by activity increases with assets that were redeployed into better markets. Truck hours overall declined 3% to 174,000 in the fourth quarter.
The redeployment of assets in the markets with better pricing and utilization coupled with the conclusion of repairs and improvement work in some of our Permian Basin saltwater disposal wells in the third quarter benefited our bottom line results for the fourth quarter. As a result, adjusted EBITDA for this segment increased to $1.9 million in the fourth quarter from $1.6 million in the third quarter.