Enservco Corporation (ENSV) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen, and welcome to the Enservco First Quarter 2021 Earnings Call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Jay Pfeiffer. Sir, the floor is yours.
Jay Pfeiffer: Hello, and welcome to Enservco's 2021 first quarter conference call. Presenting on behalf of the Company today are Rich Murphy, Executive Chairman; and Marjorie Hargrave, President and CFO. As a reminder, matters discussed during this call may include forward-looking statements that are based on management's estimates, projections and assumptions as of today's date and are subject to risks and uncertainties disclosed in the Company's most recent 10-K as well as other filings with the SEC. The Company's business is subject to certain risks that could cause actual results to differ materially from those anticipated in its forward-looking statements. Enservco assumes no obligation to update forward-looking statements that become untrue because of subsequent events.
Rich Murphy: Thanks, Jay. Welcome, everyone, and thanks for joining our call. This morning we released our first quarter financial results before the market opened. As stated in our news release, we did not enjoy the uptake and completion of activities that were hopeful in the first quarter, despite the steady increase in commodity prices. And over the past six months, demand for our frac water heat services did not approach the expected levels of a pandemic and sometimes seemingly warm weather played a part. The fact is the average that we serve had been floated committed budgets to drilling and policing activities. The good news is of those back projects that were conducted in our service areas in the first quarter we certainly want our fair share and I've been giving my earlier comments about whether, in fact on the frac activity, we continue to heat water for one customer in Colorado today. And it's possible that project and even extend into June. Unfortunately, that's the exception rather than the rule this season. All that said we do anticipate improved results over the next heating seasons. And here's why. First, the world is reopening and the economic recovery now underway bodes well for increased demand for oil, higher commodity prices, and increased drilling and completion activity. You may recall, as back in February 2020, when the pandemic really kicked in, the domestic rig count plummeted from 790 to a low 250 rigs in August of last year. Although, the count has went back up above 400 it's still well below pre-pandemic levels. We are compensated for rig count normalizes back to near 800 our current utilization will grow alongside. Our opportunities further believed by growing RFPB activity from new and existing customers as well as recent new customer wins. We're also encouraged by customer acceptance are up to $0.20 price increase for hot oiling services in several basins. We think we've seen similar increases the frac water heating business in the upcoming season.
Marjorie Hargrave: Thank you, Rich. As noted in our press release this morning, but it bears repeating, we are moving forward with a much stronger balance sheet that was transformed through the addition of $12.5 million in fresh capital, the elimination of approximately $22 million in debt and a right-sizing program that took approximately $4.2 million in annual expense out of our business. Accordingly, we believe, we are well-positioned to implement our growth strategy and deliver improved financial results, going over the long-term.
Rich Murphy: Thanks, Marjorie. I'll close by saying despite the chaotic last few years in our industry we believe there will be plenty of upside in coming years. I'll remind you that, during our best year, we've reported revenue of nearly $16 million with adjusted EBITDA more than $11 million, and we accomplished that with a much smaller fleet than we have today. Given our expanded fleet size, our revenue capacity is significantly higher than it was in our best years. As a result, we are approaching the future as though our best years are still ahead of us Thank you again for your continued support in Enservco.
Operator: Ladies and gentlemen, the floor is now open for questions. And the first question is coming from Jeffrey Campbell from Alliance Global Partners. Jeffrey, your line is live.
Jeffrey Campbell: You mentioned the hot oil price increases in certain markets. I was wondering are these increases possible elsewhere? Or are they likely to be confined to these areas?
Rich Murphy: The price increases have been accepted across all most of our basins. And so, we're seeing it basically across the board. It's depends by customer and how many trusts are going to dedicate to us typically. So, but and they are -- they've been having a lot of pushback.
Jeffrey Campbell: I want to hear a little bit more about your large oilfield service partnerships. What services are they procuring? And are you having to discount the prize money for their business? If so, is this being compensated for by the additional volume that they provide?
Rich Murphy: Marjorie, do you want to take that?
Marjorie Hargrave: So from what I understand, no, there's no discount in pricing. But what they've done is they've started putting us on their safety committees and getting us more involved in their operation. And so, it's two large customers that we've had as customers before, but we've become much more of a partner with them, and all of the operations that we can do for them, they're bringing us in to do in different basin.
Jeffrey Campbell: Okay, so does that just -- kind of thinking about recent history. Does this ultimately present the possibility for more business than you've had in the past? Or is it more a continuation of what you've had through them? How should we think about that?
Marjorie Hargrave: It's more business than we've had in the past.
Rich Murphy: And Jeff, I just want to say that -- from that being something more common that is something that we think is a possibility. As we come out of this pandemic and oil crash the, they want to tighten up services. It's easier for E&P companies, stuck a deal was like 2 or 3 people versus 10 people that's kind of the trend.
Jeffrey Campbell: Okay, when you say that, do you mean -- are you thinking about more, again, more work from these two guys? Are you thinking that you might be able to increase the number of partnerships that you can create?
Rich Murphy: Both.
Jeffrey Campbell: Okay. So, you said that the East Texas, Haynesville area could support, if I heard it correctly, it could support up to 12 hot oilers in the next 12 months, and I thought that was interesting since Haynesville generally thought it was a dry gas play and East Texas does have some significant wet gas regions. So, I was wondering, are there -- is there some oil production kind of hiding under the roof that will support these oilers? Or are these gas wells that are needing your help?
Rich Murphy: Yes, no. We do some gas business. There is oil in these types of areas. It's mostly, without giving away too much -- a lot of these people on the East Texas side as you probably know are independent. They are not too big guys. So, we have some good inroads to a lot of these independents. So, that's one reason and it is primarily oil and in the area. I can share with you. I just don't want to do it today.
Jeffrey Campbell: Okay. It is historically a big oil field. I just want to know this more oils coming out or not. So, that's good news.
Rich Murphy: Actually, our guys say the demand for our structures is actually greater down there simply because it is older and so they need more maintenance to keep the wells more prolific takes a little more work and hot oiling is a perfect set.
Jeffrey Campbell: Okay. You mentioned the non oilfield services rather than you actually gave us a potential numbers for a year, which I thought was interesting. I guess what I'm wondering here is, should we be thinking about this as ultimately a higher utilization of existing equipment that you've got laying around? Or is this not thing that could actually grow over time?
Rich Murphy: Yes, I mean, I think, if the utilization plays out, obviously, we want our equipment. What we're seeing right now with the oil pickup is our equipment is getting to a point where it's fully profitable, and we talked about our internal project that we have done in September, so we should have our full fleet ready to go. There is -- we are seeing for the first time a lot of demand for a hot oiler. So, it's a business decision whether we want to just take a group of hot oilers or fleet is just going to be none of hot oilers or to get to the point where East Texas needs 15 hot oilers or we might, there'll be a price call. So, the proof that we did, I mean, just to put in context, not only for businesses a lot more higher margin and much bigger price points, but it's also not as consistent. So, that's why we are trying to figure out how consistent that business is. The business front is going fairly consistent, it's lower margin.
Jeffrey Campbell: Well, I mean, since the hot oiling is also somewhat episodic. I guess you could think about trying to trade a higher margin episodic business for a lower margin episodic business, but it's a nice problem to have.
Rich Murphy: Yes, we're trying to get the logistics right on. I guess I was being worried there, but just can't like all our trucks, I just, we don't want to move them too much. We want to see how consistent some of those businesses, quite frankly. And, I mean, as you know what the key to this business in the right places with the highest price points and that's a logistics issue for us. And we're working on that right now. It's nice to have those options for stack as oil prices are starting to pick up.
Jeffrey Campbell: And my last question was, I was just a little bit confused by the reference in the press release, the better upcoming results in the heating season since heating demand should be a monster. Why not with saying that one customer you talked about in Colorado? So, I was just wondering, is this referring to advance booking or an advanced look for the winter heating utilization or is this something else in the near-term?
Rich Murphy: Yes, it's a good observation. We have gotten some looks already for business that we hadn't seen in the last couple of years, just trying to, because it still haven't popped up to what the I think the E&P companies might see that. Possibly they want to get us, with some business probably locked in right now at the current prices, so we are seeing a little bit that.
Operator: The next question is coming from Ed Woo from Ascendiant Capital. Ed, your line is live.
Ed Woo: Yes, thank you for taking my question. My question is. What are you seeing out there in terms of the competition? Has it really changed much in the past three months as the oil commodity prices are improving and rig counts are improving?
Rich Murphy: Yes, it's a competition it's always been mom and pop. So, people are three or five trucks and a lot it seems to be as things pick up. Obviously this way, when we're asking for price increases, there's no push that really disappointed and now prices have gotten low. To me, that's a competitive signal. These are our competitions, weren't afraid to certainly, I will be right there saying we're not going to do it anymore. This is less than most people out there doing what we're doing because of the pandemic.
Ed Woo: Great. And then the other question, I know you mentioned possibly 800 of rigs coming back. What are you hearing from your customers? Do they think the price increases for oil is sustainable long-term work to put through the roughest part? Or are they still very cautious of the business? And how quickly you can ramp up back up to 800 rigs?
Rich Murphy: I think they are cautious and that's you saw that in the first quarter with a sustained oil price, 60 that they -- the completion activity outside of Texas was pretty sparse. So I think, haven't been brought over the last couple of years. It's probably good financing, obviously, for new completion words. I think the most prolific basins will be where they operate and until they can put together, they can generate cash flow for their investors, they're not going to go nuts. But that being said, 800 rigs not done significantly as you know from a couple years back. This is well before $100 oil, but we survived 800 rigs kind of right. So, I think that's -- I think we have a -- because of that cautiousness that we have probably run away here with start commodity prices.
Ed Woo: Great, then my last question is. There's been some M&A from salivation in the E&P space, you think that helps you or that potentially hurt you?
Rich Murphy: I think it helps just because we're the biggest player in hot oiling and heating. And there was as you know, I was referring to the Bonanza Creek merger just recently, but we do business with both those players and so it's extraction. So, it's actually probably good news for us.
Operator: Thank you. And there were no other questions from the line at this time. I'll hand it back to the management team for any final remarks.
Rich Murphy: I just want to say, thanks to everybody for joining the call. I appreciate all the investors support. As you know, I'm as investor in this company as anybody, so we are working hard for shareholders and the Company employees are all parties want to do. So I look forward to updating you on our performance over the next couple quarters. Thanks again.
Operator: Thank you, ladies and gentlemen. This does conclude today's conference. You may disconnect at this time and have a wonderful day. Thank you for your participation.
