Enservco Corporation (ENSV) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen, and welcome to the Enservco Second 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 second 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. I'll also point out that management's ability to respond to questions during this call is limited by SEC Reg FD, which prohibits selective disclosure of material non-public information. A webcast replay of today's call will be available at enservco.com after the call. In addition, a telephone replay will be available beginning approximately two hours after the call. Instructions for accessing the webcast or replay are available in today's news release. With that, I'll turn the call over to Rich Murphy. Rich, please go ahead.
Rich Murphy: Thanks Jay. Welcome everyone and thanks for joining our call. Today, we announced our second quarter financial results after the market closed. The highlights were one, a returned a year-over-year revenue growth and two, solid improvement in our profit metrics. On the revenue side, I credit our sales team and field personnel who have worked extremely hard on customer acquisition and retention efforts under incredibly challenging conditions during the pandemic. On the profit side, there were many factors at play. Chief among them are sharp focus on cost cutting, that has positioned us as a much leaner organization capable of generating improved gross and net margins as we scale the business. Total revenue in the second quarter increased 44%, driven by stable to rising commodity prices and a steadily increasing US rig count. We experienced an uptick in customer activity and the majority of our operating areas and achieved year-over-year revenue increases in all three of our core service areas frac water heating, hot oiling, and acidizing. We also achieve good growth in our non-oilfield service area and based on recent customer commitments, expect that trend to continue in the second half of the year. The biggest driver of revenue growth was our hot oiling business which grew 58% year-over-year based on renewed activity in North Dakota and Pennsylvania and continued momentum in South Texas, where our Jourdanton Yard has our largest concentration of hot oilers serve a growing customer base there. As we told you last quarter, we are also moving aggressively to meet demand for our hot oiling services in East Texas, and recently opened a new yard in Longview to serve new customers in the Haynesville shale and other fields in the Arkansas, Louisiana, and Texas region. You may recall that in March of this year, we kicked off a $400,000 CapEx program to refresh our hot oiling fleet. Before we're done, we think the investment will be closer to $480,000, but it'll be worth every penny because the demand is there for hot oiling. Unlike frac water heating, it is a more non-seasonal business that can contribute revenue and profit on a year-round basis. The CapEx program is scheduled to conclude in the September-October timeframe. As I said earlier, we enjoyed year-over-year growth in all revenue categories in Q2, frac water heating grew 2%, while acidizing grew 191%, which is a good sign and that acidizing is an expensive undertaking for E&Ps and the increase activity could be viewed as a bullish sign that capital budgets are loosening up. And lastly, our non-oilfield services revenue more than doubled in the quarter, reflecting our focus on augmenting traditional revenue streams or keeping our personnel and equipment working. On the topic of ancillary services, we continue to look at potential M&A transactions that can add profitable revenue streams. Anything we would do in this area would likely be small, EBITDA positive tuck-in transactions that would add complimentary and preferably non-seasonal services to our mix. The increased revenue in the second quarter contribute to a 63% improvement in our net loss and a 24% improvement in adjusted EBITDA loss. As I mentioned, our lower cost structure is playing a big part in this. But our bottom line is also benefiting from the effects of our bank refinancing and the impact of the CARES Act tax credits, which Marjorie will get into in more detail in just a minute. So to recap, we're pleased with our second quarter performance. As you know, Q2 and Q3 are slower offseason quarters that generate considerably less revenue and profit than the fourth and first quarters that constitute our heating season. That said, however, it is nice return to year-over-year growth mode. And we're working very hard to maintain our momentum in the current third quarter and carry into what we hope will be a very productive heating season, commencing in September. Unlike where we were at this time a year ago, we are now buoyed by a much stronger balance sheet following the transformational debt refinancing as well as two equity infusions that have put us in the strongest financial condition we've been in some time. One more comment on our debt refinancing. As you know, our bank became a large equity stake holder in the company as part of the refinancing and we enjoy a good relationship with them. Our note matures in October 2022. We expect to address our options later this year, early 2022, after we get a feel for how strong our upcoming heating season is. We're excited by our year-over-year revenue growth and hope to maintain that momentum in Q3 and particularly in our Q4 and Q1 heating season, when we traditionally generate the majority of our revenue and profit. Accordingly, we think it's prudent to wait a few quarters before we address the debt refi. With that, I'll turn the call over to Marjorie to recap financial results. Marjorie?
Marjorie Hargrave: Thank you, Rich. Enservco reported Q2 revenue of $3.1 million, a 44% increase of a revenue of $2.1 million in the same quarter last year. As Rich said, it's nice to be back to reporting revenue increases again, and it's exciting to see growth across all of our service lines. We attribute these improvements to increased customer activity driven by higher commodity prices, new customer wins and prices -- and price increases we instituted over the past several months, particularly for our hot oiling services. Production Services segment revenue increased 61% year-over-year to $2.2 million from $1.4 million. The segment generated a loss of 117,000 compared to a segment loss of 431,000 last year, a 73% improvement that resulted from a combination of higher revenue and the positive impact of our cost cutting measures. Completion services segment revenue in Q2 increased 13% to $858,000 from $758,000 a year-ago. The segment loss improved by 35% to 491,000 compared to a loss of 758,000 in the same quarter last year, due again to higher revenue and lower costs. SG&A expenses in Q2 totaled $1 million, which is a 20% improvement over $1.2 million in the second quarter last year. This improvement reflected cost cutting measures and lower personnel and stock-based compensation costs, partially offset by higher public company costs, related to the share offering that brought in approximately $12.5 million in our fourth and first quarters. Depreciation and amortization expense were flat year-over-year at $1.3 million. Total operating expenses in the second quarter were also flat at $6 million, despite the 44% revenue increase. Q2 net loss was $1.6 million or $0.14 per diluted share, which represented a 63% improvement over the net loss of $4.4 million or $0.18 per diluted share in the same quarter last year. The reduced net loss was primarily attributed to three things; one, our successful cost cutting measures that have taken approximately $4.2 million in annualized costs out of the business, two, $536,000 decrease in interest expense year-over-year, following a deleveraging effort that has eliminated approximately $24 million in debt since September of 2020 and a capitalization of interest on the restructured debt. And three, the booking of $1.3 million and CARES Act payroll tax credits into other income in the second quarter. While I'm on the subject of other income, we anticipate booking an additional $1.2 million in CARES Act payroll tax credits over the next few quarters. In addition, in July, we learned that our PPP loan was fully forgiven. So we expect to book another $1.9 million from that into other income in the third quarter this year. Adjusted EBITDA in the second quarter was a negative $1.6 million, compared to a negative $2.1 million in the same quarter last year, a 24% improvement. Turning to our six months results, which remember includes the impact of a tough first quarter when commodity prices and rate counts were lower than those in the pre-pandemic year-ago first quarter. Total revenue for six months ended June 30, 2021, was $8.2 million versus $11.5 million in the prior year. Production services revenue was $4.1 million versus $4.6 million year-over-year. The segment generated a loss of 240,000, which was a 67% year-over-year improvement over the loss of 723,000, due to the cost cutting initiatives and the improved second quarter performance. Completion services revenue for the first half was $4.2 million compared to $6.9 million in 2020 and generated a segment loss of 334,000 versus a segment profit of 455,000 year-over-year. Total operating expenses for the six month period were reduced to $13.5 million from $17.7 million in 2020, due to lower work volumes and our cost cutting program. SG&A expenses improved to $2 from $3 million year-over-year, reflecting cost cuts, and depreciation and amortization expense was flat at $2.7 million. Net loss through six months improved to $3.8 million, or $0.37 per diluted share, compared to a net loss of $7.2 million, or $1.95 per diluted share in 2020. The improvement was attributable to cost cuts, lower interest expense, and the benefit of payroll tax credit. Adjusted EBITDA was a negative $2.5 million versus a negative $2.6 million in the prior year. And with that, I'll now open the call to questions. Operator?
Operator: Ladies and gentlemen, the floor is now open for questions. Your first question for today is coming from Jeffrey Campbell. Please announce your affiliation then post your question.
Jeffrey Campbell: Good afternoon. This is Jeffrey Campbell with Alliance Global Partners. First Rich, I just want to make sure I understood the illusion, the second half 2021 growth you were referring to is that specific to the non-oilfield trucking business, or were you referring to all of the in Enservco silos?
Rich Murphy: All of the Enservco silos.
Jeffrey Campbell: Right. On the cost accounting side, I mean, just looking at the financials that looks like it's primarily been this G&A, was this mainly reduced headcount, or is there something else going on?
Rich Murphy: Marj, why don’t you take that?
Marjorie Hargrave: There's also some more in COGS as well that you can see in our gross profit, but that was about a little over 50% or so was in SG&A. And it's really a combination of a couple different things. The largest piece is headcount. And it's really things like moving our headquarters and subletting, looking at what the expenses are, and what's really in this market right sized for this size company and what's going on in the market. So we looked at actually every single expense we have and we continue to do it every week, and think through is that necessary, and that also contributed to our lower SG&A expenses.
Jeffrey Campbell: Well, go ahead Rich. I’m sorry.
Rich Murphy: Yeah, I think a lot that Jeff is going to be scalable to, you'll see as revenues come back, you're not going to see the cost elevate like they'd had in the past. It's just a much better run company today. And that it -- our employees that are with us today, they have a keen sense of keeping costs in check, and making sure that we're doing jobs are cash flow positive. So that's -- it's just different mindset, I would say, just beyond the cost cutting.
Jeffrey Campbell: Okay. Well, that’s helpful. I just wonder if we could dig into the year-over-year revenue growth just a little bit. First, and I don't expect you to be too specific. But maybe you can indicate a trend or something general, how did your pricing in the second quarter of 2021 compare to a year ago?
Rich Murphy: So the, it's really hot oiling, we're talking about second quarter. So that we've seen increases across almost all our customers and 90% of our customers are in the 20% to 25% range, and then, even greater with some of our customers that got down. Now we price -- every job is priced a little bit different in the hot oiling business. So but in general, I would say, we're north of 25% mark on our customers, year-over-year. That being said, I would you go back to 2019, Q2, we're probably getting close to where we were there. So I think there's more upside, because 2019 wasn't a great year as well, in terms of price.
Jeffrey Campbell: Okay. And since the hot oiling is essentially unnecessary maintenance for economic oil well, so I was wondering, what are the specific drivers of this type of oil growth supported and adding an additional facility and this sounds like, that it's really doing well and what's going on there if they drive this?
Rich Murphy: Well, there's a lot of work over Reg activity with a higher commodity price. E&P budgets are start. CapEx budget is starting to open up. The first thing, it's open up is what the docks want they where you want to get it. Wherever there's a work over rig, there's typically a high oil filing behind it like I always said in the past. So we're seeing a lot of people want to get oil out of the ground right now. But they're not getting the bank financing or to do new drill programs. So whatever they have completed wells or wells that were done, they shut in, they're being opened up. And that's one aspect of it. The other one is maintenance. So on the maintenance side, its taken paraffin's out of basically out of -- if we go on a maintenance program for a lot of our companies and we'll take -- we'll burn off a lot of paraffin's and the oil -- they sell the oil for a higher price, than they would with the paraffin's in there. So, it's a combination of the maintenance, plus the docks and the new oil wells come along the lines.
Jeffrey Campbell: Okay, well, I mean, one of the reasons that I asked that too is just, when I think of Haynesville in east Texas, and then those are pretty mature basins at this point. And you're getting enough work that you're adding units there. So I just wondered, if there was maybe something to along the lines that some other performers that don't have your safety and maybe don't do quite as good a job as you do. Maybe you're winning some business and then and capturing some market share. I mean…
Rich Murphy: Yeah.
Jeffrey Campbell: That's possible part of it as well.
Rich Murphy: It is. It's a fascinating basin in Arkansas, Louisiana, and Texas. At Eastern Texas area there's no big majors in there. It's who you know, we're fortunate enough to have one of our business development guys who grew up there. And his father owned an independent energy company there. So he's got a lot of network. We're starting small. We're building our -- we doubled the size of our fleet there already. But it's -- I mean, we're competing against. I keep pushing our business development guys, like who is the biggest operator. And it's just like, he have more than two hot oils in that basin you considered big. So there's a huge opportunity for us to go and win a lot of work in that area. It's a very -- it's a different environment than the South Texas environment, where you're dealing with. The EOGs and the Devin's in the world. But I kind of like it because, you can -- the price is better in that environment if you can imagine.
Jeffrey Campbell: Okay. No. That's helpful. Just in a way it seemed odd that there was this growth and pretty well worn area but that all makes sense. And I was wondering, finally, particularly for the hot boiling? With the little bit of visibility you gave us on the second quarter, continuing to perform? Are you starting to see any more visibility or durability in the hot oiling businesses? Meaning, maybe people are -- is this still kind of a deal where everybody books everything at the last minute, or is there a little bit more forward-looking aspect to the business that you're doing?
Rich Murphy: That maintenance stuff that I talked about, is -- there’s a lot of -- lot of them are taxes, quite frankly, that's starting to see a little more advanced booking, like it -- you see volume discounts too, it's like, not just against the volume by we see -- if they need five or six hot oilers, they want to lock those up and they'll give you more advanced notice. But it's -- for the maintenance side, it is -- for the workover rig stuff, that tends to be stuff that's thought about in advance, as well. And then, we do get a lot of call out work still that -- and we can -- if we have the availability, we service it. We used to always have the availability. Its not as -- you don't always have the availability today. That's the way I describe it.
Jeffrey Campbell: Okay. All right. Well, that's very helpful. I appreciate the color.
Rich Murphy: All right. Thanks, Jeff.
Operator: Your next question is coming from Ed Woo. Please announce your affiliation then pose your questions.
Ed Woo: Yes. Ascendiant Capital. Congratulations on the quarter guys. My question is, as oil seems to be stabilizing around $70 price point, are -- a lot of your drillers much more confident heading into the back half of this year, especially as it was like, COVID seems to be -- passed its worst.
Rich Murphy: Yes. I always hesitate to give a forward-looking statement like that. But we -- look, and we're looking year-over-year, so I can clearly say that we're -- we hear more of a buzz. We have a more robust business development team than we did a year ago. So I'll have caution with that. But our business development guys are definitely hearing more buzz about our trucks this heating season than last year. So there's a little bit of excitement around that. But, like anything, there's no long term contracts, there's MSAs in this business. We have, obviously, MSAs with all the big guys, being one of the biggest players, if not the biggest player in the game, in the US. So we're pretty excited. But obviously, it's tempered. We're coming off COVID, so everyone's a little bit shaken up for the last two years. So -- but we're excited with what we're hearing.
Ed Woo: What about the competitive landscape? I know, obviously a lot of drillers went out of business. Was there a lot of hot oilers out of business that aren't going to come back, or are you seeing some of the competitors sit out for a while and it slowly come back as demand comes back?
Rich Murphy: You know, what we're seeing more Ed is consolidation, particularly the D-J or even Wyoming. I mean, you saw Crowheart, Williams merger in Wamsutter. You have D-J, you've got extraction and there's been two or three big guys just come together Mobil and Chevron, obviously. So it's this -- there's fewer players and bigger players. And to me, that means you want to deal with people that have good safety records that have a real infrastructure around your business versus just a guy with a truck. You know, so and someone that -- has five or six trucks they can get to you. Because the last thing you want to do on a job is get a call and have the heating guy hold up the whole $6 million frac job. So I think that bodes well for us. And we have -- we're working on our butts off on solidifying these relationships. And we've got relationships, a lot of these, these big players that have merged. So that kind of the landscape I see today versus -- it's different, which is fewer players and bigger players.
Ed Woo: Great. Well, thank you and wish you guys, good luck.
Rich Murphy: Hey, thanks, Ed.
Operator: There are no more questions in queue at this time. There are no questions in queue.
Rich Murphy: Well, I just want -- as a closing note, thank two groups. One is the employees of Enservco. They’ve – they persevered during the worst downturn since the 80s, oil patch. I think we've come out leaner and tougher and we’re focused on the next phase here, which is the upturn. And also want to thank the shareholders, he's probably the too gruesome beat up the most. I'm one of them. One of the biggest shareholders, and we are keenly focused on generating free cash flow over the next couple quarters. And I -- if we're successful in that, I think, we'll see some dramatic impact on our share price. So with that, as always, I appreciate your time and attention on the call today. And we look forward to talking to you again, on the close of our third quarter. Thanks again, operator.
Operator: Thank you, ladies and gentlemen. This does conclude today's conference call. If you have any questions -- you may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
