CSI Compressco LP (CCLP) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning and welcome to CSI Compressco LP's First Quarter 2021 Earnings Conference Call. The speakers for today's call are John Jackson, Chief Executive Officer of CSI Compressco LP; and Jon Byers, Chief Financial Officer of CSI Compressco LP. Also in attendance today are Robert Price, Chief Operating Officer; Roy McNiven, Senior Vice President of Operations; and Michael Moscoso, Vice President of Finance. All participants will be in listen-only mode. Please note this event is being recorded. I'd now like to turn the conference over to Mr. Byers for opening remarks. Please go ahead.
Jon Byers:
John Jackson: Thanks Jon, Good morning everyone and thanks for joining CSI Compressco's First Quarter 2021 earnings call. I'll give some summary comments and I'm going to turn it over to Jon Byers after that to provide some commentary on cash flow balance sheet liquidity. At a macro level, the quarter was relatively flat from a number of operating metrics, but the overall trend appears to be improving the speed and volatility around that improvement remains to be seen we're hopeful and optimistic that the second half of 2021, about the second half of 2021. We expect to see the activity begin to show up in the operating results. The industry is always a late cycle place, slower to increase activity, and also slower to reduce activity. The nature of the revenue stream being term-based fee contracts that are related to production causes the industry to lag activity by our customers, both in an up cycle and in a down cycle.
Jon Byers: Thanks Jon. Today, CSI compress go report it. First quarter revenue of $65.7 million compared to $71.1 million in the fourth quarter of 2020. First quarter adjusted EBITDA was $21.1 million compared to $26.2 million in the fourth quarter of 2020, as Jon mentioned, excluding used unit sales adjusted EBITDA was $20.7 million compared to $20.6 million. In Q4 2020, a slight improvement. Distributable cashflow was $4.3 million down from $7.7 million in the fourth quarter of 2020. We will pay our first quarter distribution of $0.01 on May 14th, which represents a distribution coverage of 8.9 times. Moving on to the balance sheet cash on hand at the end of March, 2021 was $20.9 million up from $16.6 million at the beginning of the year at the end of March, 2021. There were no amounts outstanding on a revolver. The March 31st borrowing base availability under our credit agreement was $13.8 million and total liquidity at the end of the end of the quarter was approximately $35 million. As John mentioned, we have $81 million of unsecured notes that are due August of 22 and approximately $557 million of first and second lien bonds that are not due until 2025 and 2026. Our net leverage ratio at the end of March, 2021 was 6.1 times adjusted EBITDA. This compares to over seven times during the prior downturn in 2018. I also want to highlight that when Sparton purchased the GDP of CSI compress, go on January 29, 2021, the trip, the first of two change and control triggers that would provide the first and second lien bond holders effectively a put right on the bonds at one oh one. The second trigger, was a rating downgrade within 90 days of the, of the purchase of the GP. The 90 day window closed yesterday, April 29th as a management team, our focus will continue to be on delivering to our customers, generating liquidity and improving our capital structure. We will now open the call to questions.
Operator: We'll now begin the question and answer session to ask a question. . Our first question will come from Brian DiRubbio with Baird. Please go ahead.
Brian DiRubbio: Good morning guys. Jon Byers, a couple of questions for you. first of all, as it pertains to secondly notes, visit the company's plans to still pick the portion of that interest payment?
Jon Byers,: We, we did pick any on the April 1st payment and, year-over-year ou know, as we, as we try to preserve liquidity, our thought today is that we will, we'll continue to pick until the 20 twos, have been addressed.
Brian DiRubbio: Okay, got it. So can you just explain the logic? I know, I know we've discussed this before, picking the bonds, but still paying a distribution.
Jon Byers,: Yeah. it's a good question. You know, being in the MLP structure, we do have, we do have holders, fund holders that, you know, have a requirement that they have to, you know, they have to sell if, if a, company stops paying the dividends. so that's part of it. And then the second part is the, you know, the dividends fairly minimal. so you know, that doesn't have a huge impact on the liquidity of the company, John, would you okay?
John Jackson: Yeah. Add something. It's something we'll evaluate over time, but right now we're not coming in trying to make drastic changes to the capital structure other than dealing with the $81 million, we want to get off the pic as fast as possible. And we could have, we could have chosen to not pick this last quarter, but we, as John said, we still have the $81 million, we've got to figure out how to deal with that. And right now that that's worth picking. So the dividend is, is not something we're looking to change at this time. We're looking to, to the bigger capital structure for the longterm.
Brian DiRubbio: Okay. No, no understood. and just the $30 million to 4$0 million of cap backs, I guess, two questions on that, is that a net or gross number and sort of what pushes you to the low end versus the higher end?
Jon Byers,: That's a gross number. So that, that doesn't exclude any, any, or doesn't, take into account any equipment sales. What would you, I don't understand your second, second question. Well, it's a spread due to what's the duty to do the high end versus low end. Yeah, what's the, what's the, it, you know, on the, on the growth side, it's driven by the opportunities that we have, you know, there's growth capital related to make ready growth capital related to, deploying existing equipment, that needs to be reconfigured. And so, you know, depending upon that opportunity set, that would dictate where we are on the lower high end of that. and then on, you know, on the maintenance side of the equation, it's driven by, you know, getting equipment back out. and, you know, as we dig into the maintenance capital spending, making sure that, you know, we w we're we're spending, dollars in a, you know, in a, in a thoughtful manner.
Brian DiRubbio: Got it. And then final question beyond assets sales, I guess, two things on that, you know, what you're thinking about asset sales especially relates to your smaller idled equipment. And do you have any sense of what you think you could sell this year or generating in terms of proceeds this year?
Jon Byers,: Yeah, you know, I would say it's, it's definitely a tool in our toolbox that we're considering, you know, it's not a great market to sell, to sell compression assets, to smell good, you know, to sell a smaller horsepower, part of our business. so, you know, whatever we do is gonna get us closer to having a more sustainable capital structure.
Brian DiRubbio: Sure. Very good. Thanks for the time.
Operator: Next question will come from please. Go ahead. Thank you.
Unidentified Analyst: Good morning, so in your prepared comments, you talked about the August 22 maturity, and you said, you know, you'll address it in the course of this year. So do you think you'll have this resolved by year end or do you think we'll still be looking at this in 2022?
Jon Byers,: Well, We'd like to have it resolved by this year and we don't control everything relative to the capital markets, but I think, I think we'll have the bulk of it resolved by March of next year. For example, if we don't have a resolved by this year in, and when we say resolved, you know what, there may be a piece of it. We decided to try and pay off with cash flow. And that may be that we still have a stub outstanding even next year, early next year, that we're just going to use cash flow to pay it down. So I would say the overhang of the $81 million, we hope to resolve this year, but we certainly will resolve it by March 31 next year, as far as the 81 does the 81 become 20 or 15 or 10. And we say, well, we'll just going to pay it off cash that can certainly occur. So I'm not going to make a promise that the whole $81 million is going to go away. But the, the issue that sits in front of us about a near term maturity will be taken off the table within the next 12 months.
Unidentified Analyst: Very good. Appreciate the clarity there and then on your GNA line, it was up sequentially. And I know some of that probably was sort of non-cash comp. but is there any other thoughts there and maybe thinking, or any guidance on a, on a run rate as you get separated from Tetra tech?
Jon Byers,: Yeah. We're working on that now, as you can imagine, trying to separate shared services, there's some, there's some costs associated with that in our, you know, in our budget internally. we expected these costs to increase through the second quarter with the hope that, you know, there are the plan that after that, as we get separate, we'll be able to, to manage that more closely.
Unidentified Analyst: Understood. And then and is you guys in I'm hearing sort of optimism and, you know, as you talked to producers, et cetera, but is it any equal mix between privates and publics or is it you're seeing more interest from private players?
Jon Byers,: I'd say for us, our customer basis tends to be more of a public company environment. We're seeing when I, when I referenced the awards that we actually got converted from bids to actual contracts, they were public companies. So I think, I think the first quarter, I don't know, that's why I was kind of cautious of my comments. I still am. But the first quarter, January, you're always kind of slow to get going in February. You hit the freeze and people are really trying to figure out where the market's going. So they have a lot of budget plans, but they were cautious blasting out of the gates this year. But what we're seeing now is the conversion of some of those bids to awards. So that's where John's referenced on CapEx from 30 to 40 right now, I'd say we're trending towards the higher end of that. Only because these awards that have already been given and some that we're anticipating in the next 60 days will drive this towards the higher end of that. Just go, we're going to put more horsepower out so that that's, that's encouraging. I think as people start to see this happen, and this is what happens to compression space in general, right? It, it, when it starts up, it starts moving, it can move fairly rapidly and then people become concerned more about locking in price versus saying, I want to wait because if I wait and market gets a little bit tighter rates go up. So I think we're starting to see customers start to try and balance that. Now, do I want to turn out what I've got? Do I want to put more on order so that I've got it locked in at a rate that I'm comfortable with today? So that's why I think we're, I can't give you good timing on it, but I think this is where we're more optimistic when we look at our quote activity that we've scrubbed pretty hard to say, is it viable, real quote activity right now? And we compare it to last year. It's the highest it's been in 15 months, but it represents more of a 2019 timeframe. Now I think people are slower to pull the trigger. So I don't, I can't reference that we're in a 2019 timeframe. I'm not saying that, but I'm saying the, the thought process around now is primarily with public companies, trying to figure out what their plans are and get executed and maintain their cost structure, or keep it low and not, not let the run up on them.
Unidentified Analyst: Understood that does it for me. Thank you.
Operator: If you have a question, Our next question will be come from Steven with RW press pitch. Please go ahead.
Steven: Thanks for taking the questions, you made some good progress, with horsepower and standby in the quarter. Did you see further progress at the end of April? And do you expect more progress for this quarter?
John Jackson: Yes, we do. We've I would say we've, we've captured some new business, converting the opportunities as John was discussing. I think we've also, we've made a tremendous amount of headway getting units that were on standby back on full, right. And then we've also made some progress recapturing, right. Of, of units that are in service.
Steven: Thanks. Thanks for that. The other question I have is regarding receivables. I see you did have a buildup of about closing in on $4 million in the first quarter, was that, did that have to do with your, improving utilization as well as, that you alluded to as well as the horsepower and standby declining?
John Jackson: Yeah. So regarding councilor seeable, some of that is just timing. We have some customers that pay significant amounts, right at the end of the month. And last quarter, they, you know, they may have paid on December 31st versus on March, you know, the, the first quarter they paid on April 1st. So some of that's attributable to timing.
Jon Byers,: And then some of it is, is some increase in activity which drove our receivables higher. I think one other thing too, is we had significant change the operators, which may delay some of the payments as the Lisa's changed hands and contracts had to get converted. So we've made some progress on that as well.
Steven: That's Great. Understood -- Understood. Thank you for your questions and your answers. Thank you.
Operator: Our next question is a follow-up from Brian DiRubbio with Baird, please go ahead.
Brian DiRubbio: Just one follow up here on the pricing environment, I'm sort of picturing through the Python. So last year at this time market was crashing. Concessions were being made. To what extent should we, how should we think about sort of those concessions potentially rolling loss and new pricing deck sort of being put on? I'm just trying to get a, a sense of how quick, you know, just from last year today, or to what extent has pricing changed?
John Jackson: On the contracts we have out, we've begun to make progress on that. We had some customers, we were able to reinstate almost the entire rate beginning of this year, somewhere in discussions with right now, sort of depends on the horsepower range, size location activity, and so forth. But I'd say it's going to take probably through Q3, maybe Q4 to get it all back. Assuming assuming the environment changes where you can get it all back, but we are pushing on price across the board, especially on the concessionary that we've made to try and reinstate that given that oil prices are up, you know, the, the loophole, everything we use is going up. So we're, we're pushing on that. So I'd say it's a, it's across the spectrum, but it's a big focus for us. And I would say it's going to take most of the rest of the year, but we're probably what sort of the way halfway, I'd say, I'd say halfway up the there already. So we've made some good progress. Now it's a matter of getting that second bite or that second, second concession we gave back.
Brian DiRubbio: Got it. No, that's helpful. And just final one for me, a lot of companies are talking about inflation, hitting them in various ways. Are you seeing any inflationary pressures in the business?
John Jackson: I think labor is getting a labor, labor lube oil field fuel gasoline to for, for the trucks. So yes, there is there inflation or increased costs are our impacts, the labor market's getting tight, especially in the active basis and the activation with, especially with the technical people. Right.
Brian DiRubbio: Got it. And is that something that, you know, the, the, your customer is sort of recognize? I'm just trying to get a sense with bill, your ability to offset some of that?
John Jackson: I think they recognize it, and I think that's, that's the dance we're doing right now on trying to get our price concessions back and price increases in place, because I think they're starting to see that and feel that then that's kind of goes to the comment I was making earlier about. We're trying to kind of lock in where they are now because they lock in a two year rate instead of staying on month a month, knowing that we're probably going to come back and say, we've got to have a higher rate, higher rates. So I think there's that negotiation going on because of people recognizing the inflationary pressure?
Brian DiRubbio: I hear you. Great. Appreciate the comments. Thanks. Okay.
Operator: This concludes our question and answer session. I would like to turn the conference back over to John Jackson for any closing remarks.
John Jackson: Thanks for joining the call today. We look forward to getting back together with you next quarter, and we hope to see a continually improving environment. Thanks for your time today.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
