Enservco Corporation (ENSV) on Q3 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen, and welcome to the Enservco Third Quarter Earnings Call. At this time, all participants have been placed on a listen-only mode and we'll open 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 third 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 third quarter financial results after the market closed. We're pleased to report that for the second consecutive quarter Enservco generated solid year-over-year revenue growth. Total revenue in Q3 increased 72% over the same quarter last year. That followed a second quarter in which revenue increased 44% year over year. This renewed momentum reflects an oil field services industry that is steadily recovering from the effects of the pandemic as evidenced by increased activity by EMPs across the country. I want to share a few data points on this. According to Baker Hughes, as of November 5, the US rig count had increased 83% over the previous 12 months to 550 rigs from 300 a year ago. And that has resulted in a steadily rising number of wells being drilled and completed. As encouraging as these increases are, the rig count is still well below levels from 2018 and 2019. So we think there's still significant upside in this cycle. And another positive development over the past 12 months, crude oil has more than doubled from approximately $37 per barrel to well over $80 per barrel. Obviously all these trends bode well for our business and we are hopeful that the tailwinds we're experiencing will carry into 2022 and beyond and help us drive further revenue increases and return us to the profit profile we enjoyed before the downturn. Our growth in the last couple of quarters has been driven by improved performance across all four of our service lines, hot oiling, frack water heating, acidizing and non-oil field services. We are especially excited about the momentum in our hot oiling business. Most of this momentum is coming from our Texas operations where third quarter revenue grew 126% year-over-year on the strength of increased customer demand at our legacy South Texas yard and continued growth in new customer wins at our new location in East Texas. We in the process of deploying additional hot oiling assets to Texas to meet current and anticipated demand. As you know, our second and third quarters are traditionally our slower off season quarters. So we are encouraged with our improved results during the middle half of the year. Our fourth and first quarters constitute our heating season, which is historically when we generate a high percentage of our revenue and profitability. This year, the fourth quarter has started off warmer than usual slowing the start of our heating season. As temperatures drop in coming weeks, we expect demand for our completion services to increase and support a continuation of quarterly growth on a year over year basis. Although most of our focus is now on maximizing equipment utilization in our heating season, we continue to look at ways to take costs out of business by operating more efficiently, divesting non-core assets, consolidating physical locations and redeploying equipment to stronger markets. These actions and cost cuts will better enable us to invest in other aspects of our business, such as our ongoing initiative to refresh our hot oiling fleet. That program once completed will solidify our position as a premier provider of hot oiling services in the US. With that, I'll turn the call over to Marjorie to recap the financial results. Marjorie?
Marjorie Hargrave: Thank you Rich. Enservco reported third quarter revenue of $3 million, a 72% increase over revenue of $1.8 million in the same quarter last year. It was our second straight quarter of year over year double-digit revenue growth. As in the second quarter, our growth was attributable to higher commodity prices and increased customer activity including some new customer wins as rig counts continue to increase. Production services revenue increased 82% year over year to $2.5 million from $1.4 million. The segment generated a slight loss of $6,000 compared to segment income of $16,000 and in the year ago third quarter. Completion services revenue in Q2 increased 36% to $544,000 from $401,000 a year ago to segment loss improved to $645,000 versus a segment loss of $725,000 in the same quarter last year. SG&A expenses in the third quarter totalled $900,000 representing a 14% improvement over $1 million in the year ago third quarter. This improvement reflected lower professional fees and a reduction in bad debt expense. Depreciation and amortization expense was flat year over year at $1.3 million. Total operating expenses in the third quarter increased 22% to $5.9 million from $4.8 million based on higher costs of providing services in line with increased customer activity. Enservco reported a reduced third quarter net loss of $200,000 or $0.02 per diluted share compared to net income of $8.4 million or $2.15 per diluted share in the same quarter last year. This quarter's net loss included the impact of $1.9 million in PPP loan forgiveness and $600,000 in Cares Act payroll tax credits. I'll also point out that last year's Q3 net income of $8.4 million included an $11.9 million gain on the structuring of our senior revolving credit facility. And finally adjusted EBITDA in the third quarter, improved by 10% year-over-year to a negative $1.5 million from a negative $1.7 million. Turning to our nine month results, I'll remind you that despite-double digit revenue gains in our second and third quarters this year, our nine months results were heavily influenced by a challenging first quarter when commodity prices and rig counts were much lower than those in the same quarter last year, just prior to the onset of the pandemic. As a result, total revenue for the nine months ended September 30, 2021 was $11.3 million, which was down 15% from $13.3 million in the same period last year. Production services revenue increased 10% year over year to $6.6 million from $5.9 million. This increase combined the impact of cost cutting efforts helped us reduce our segment loss by 65% to a negative $246,000 from a negative $707,000 in the same period last year. Completion services revenue in the first nine months was $4.79 million compared to $7.3 million, a 64% decline year over year. And the segment loss increased to $979,000 from $270,000. Total operating expenses for the nine month period were reduced by 14% to $19.4 million from $22.5 million in the prior year due to reduced customer activity, as well as cost reductions in our SG&A category. Sales, general and administrative expenses through the nine months ending September 30, 2021 were $2.9 million, a $1.2 million improvement from $4.1 million in the same period last year, reflecting cost cuts. Depreciation and amortization expense was flat at $4 million. Net loss for nine months was $4 million or $0.37 per basic share compared to net income of $1.2 million or $0.32 cents per basic and diluted share in the same period last year. The net loss this year included approximately $4.3 million in PPP loan, forgiveness and Cares Act payroll tax credits, while the 2020 nine months net income included the $11.9 million gain on our credit facility restructuring. Adjusted EBITDA improved by 5% to negative $4.1 million versus a negative $4.3 million in the prior year. Enservco used $3.9 million in cash from operations year to date compared to $2.39 at the same time last year. On the subject of the Cares Act payroll tax credits that we've benefited from in the recent quarters, you may be aware that the Infrastructure Investment and Jobs Act was recently signed into law today. Once that happened to tax credits will be retroactively ended as of September 30, 2021. And as a result Enservco will need to -- will not receive any additional tax credits going forward and will repay approximately $210,000 of October credits already received. Before I open the call to questions, one quick update regarding our term loan with East West Bank. We recently were granted a waiver after narrowly falling short on a covenant threshold, tied to our revenue for October of this year, as a result of warm weather pushing out expected frac water heating? The term loan is due to mature in October of 2022 and as we told you last quarter, we are evaluating our options for refinancing that debt. We believe that a continuation of our growth momentum with a strong heating season will put us in a better position to refinance at rates that are acceptable to the company and our shareholders, including East West Bank, which became a large equity stakeholder during our last refinancing transaction. And with that, I'll now open the call to questions. Operator?
Operator: Your first question is coming from Ed Woo from Ascendiant Capital. Ed, your line is live.
Ed Woo: Yes, as oil prices and rig count rebound, have you noticed any changes in the competition?
Rich Murphy: We don't give guidance necessarily, but what we can say is there's definitely more activity levels. As far as competition you're asking are more or less competitors around given the pandemic and the downturn, is that the nature of the question?
Ed Woo: Yeah. Just wondering what the competitive slate is. I was just wondering as are people coming back into this market and competing with you guys or has a lot of people just been knocked out?
Rich Murphy: It's a tough one to answer only because our competition is largely monotypes and so it would be easier if we had two or three big players we could point to and say, oh, they're gone, but the competitive landscape, we'll know that better when I talk to you in March. Just because we're just starting now getting into the season as the weather turns, as far as the seasons, as far as the hot oil and the competitive landscape that business has indicated by our results, has been much stronger than a year ago. So that's doesn't speak almost to the competition as to there's just more work out there.
Ed Woo: Great. And I know it's going to be tough, but any weather forecast heading into the season, I know you mentioned that you got -- there's a little bit of cold spell recently, but, do you have any visibility on what you think that this winter is going to be?
Rich Murphy: Well, we're definitely not in the business of predicting weather. It is starting to, one of the things we've mentioned has been a little warmer October tends to be fairly warm in general. If you look historically back on our business, November is when it starts to turn particularly in the Colorado market, Pennsylvania markets more December-ish. So we're not overly surprised by the October being a little warm. But as far as looking to the future is predicting whether that's -- I'll let you answer that question. I'm not the weatherman here.
Ed Woo: Oh, great. No problem. Sorry to put you on a spot. Thanks for answering my questions then. I wish you guys good luck. Thank you.
Operator: I'd now like to turn the call back to management.
Operator:
