Q1 2020 Earnings Call

Ladies and gentlemen, thank you for your patience you were holding for today's Enservco first quarter Twentytwenty earnings call. At this time, we are gathering additional participants and we'll be getting momentarily. We appreciate your patience. It actually you. Please continue to hold.

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Good day, ladies and gentlemen, and welcome to your Enservco first quarter Twentytwenty earnings call. All lines have been placed on the listen only mode and the floor will be open for your questions and comments. Following the presentation. If he should require assistance throughout the conference. Please press star zero to reach a live operator.

This time it is my pleasure to turn the floor, but to your host Jay Pfeiffer, Sir the floor is yours.

Hello, and welcome to insert coast 2021st quarter Conference calls presented on behalf of the company today are indicative since CEO Archie Hargraves 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.

Subject to risks and uncertainties disclosed in the company's most recent 10-K as well as other filings with the FCC.

Company's business is subject to certain risks that could cause actual results to differ materially from those anticipated in its forward looking statements.

Serco assumes no obligation to update forward looking statements that become untrue because the subsequent a bounce I'll also point out that management's ability to respond to questions. During this call is limited by FCC, Reg FD, which prohibits select disclosure material nonpublic information.

A webcast replay of today's call will be available at Enservco Dot com. After the call. In addition, a telephone replay will be available beginning approximately two hours after the call.

Auctions for accessing the webcast replay are available in today's news release with that I'll turn the call already indicates Ian Please go ahead.

Thanks, Jay a welcome everyone and thanks for joining the call today.

We issued our 2021st quarter financial results press release after the market close.

I'm going to provide a brief overview of our Q1 performance as well some comments on recent macro events and what will be focused on for their main grew 2020.

Then turn call over to market for a recap of the numbers.

I want to begin by saying I hope all of you are well and weathering the impact of whatever social distancing and shutdown men mandates you're facing in your particular state you're certainly living an extraordinary times asking.

Instruction manual for pandemic at this time government businesses individuals are learning on the fly in doing their best navigate waters that are on chart at least in our lifetimes.

And I'm sure there was no exception Unfortunately, our staff and workforce had been remarkably unscathed by the virus and we are grateful for that.

Our corporate staff have been working remotely for the most partner field personnel have been vigilant about social distancing.

When interacting with customers and colleagues I'm happy to say we are slowly returning.

Back to our corporate office.

And absorbing.

Safety practices.

At the cousin circled provides mission critical services to our country, a leading oil and gas producers. We are deemed the central business and our work has not been interrupted by shutdown orders. Nevertheless, the economic slowdown caused by the pandemic.

Along with the oil price collapse earlier in the first quarter has reduced the amount of work we're doing for our customers.

Most severe impact has been on drilling and completions activity, which is the largest component of our revenue mix.

The largest contributor to our profit metrics.

On top of that we had an unseasonably warm winter in Oklahoma, and Pennsylvania, which translated into a sharp decline heating services in those locations. As a result, Q1 revenues declined 62% 9.4 million from 24.8 million the same quarter last year.

And what is typically our most profitable quarter of the year, we reported net loss of 2.8 million versus the net profit.

4.3 million the same quarter last year.

We also reported negative adjusted EBITDA, something we would not thought possible even four months ago.

As I said, we are living in extraordinary times.

The entire oilfield services industry is then difficulty right now facing unprecedented headwinds created by the economic downturn in oil price weakness due to both a plummeting demand related to the endemic and Saudi Russia Price War.

There is nothing we are pure can do specifically.

Regarding these macro trends that we're focused on the things we can exercise control over to further strengthen our market leadership position.

And the related upside when the market eventually returns.

Our first and foremost, we're taking steps to drive additional costs out of business.

Recall that in the second half of 2019, we eliminated 1.1 million in redundant costs related to our Adler Hot oil acquisition.

He also closed our water transfer business last year. After that contributed 1.2 million EBITDA burn in 2019 alone. Thus far in 2020, we have taken out additional 2 million an annualized cost.

We closed our Oklahoma facility in favor of serving those customers remotely from our Colorado location.

We scaled back operations in two other facilities, where we got excess capacity due to the downturn.

We had to pay and benefits reductions across the organization.

And we reduced our total workforce by nearly 60%.

In addition, we have reduced our maintenance capex budget by approximately 600000.

Another area of focus for US is new customer development, we made major strides in this area last year, primarily through our acquisition then a carry some of that momentum into the first quarter.

We have won work with several new customers and aren't promising discussions with additional customer prospects, particularly in Texas and North Dakota.

It hasn't hurt that a couple of our smaller competitors in these areas. The struggling that has opened the door for us.

I'll remind you that we are the nations largest provider or frac water heating and hot Oiling Serbs services and the size of our fleet.

And our broad geographic coverage is a significant competitive advantage for us.

As we mentioned in our earnings released this afternoon, we continue to work with our outside advisors in conjunction with our lender on options to restructure our debt.

These discussions are ongoing and I'm not able to provide further details at this time, but we are hopeful that they will result in a positive outcome for all concerned.

Fights to say.

Got reduction as a key priority for us going forward.

Well again close by my prepared remarks, not to our administrative and field personnel, who have done an extraordinary job keeping our business up and running and moving forward. During this very challenging difficult time.

That's what that I'll turn the call over to Mark for a review of our financial highlights Marty.

Thank you in the first quarter results I'll be discussing today reflect the reclassification of prior year results of our water transfer segment as discontinued operation.

As such certain year ago figures will differ from those referenced on past calls.

As you mentioned earlier total revenue for the first quarter declined to 9.4 million from 24.8 million in the same quarter a year ago.

Production services revenue was down 22% year over year to 3.2 million from 4.1 million. The production services segment included Hot Oiling, which declined to 2.9 million from three point, Sixmillion, Acidizing, which declined to 270000 from 406.

89000.

Production services generated the segment loss of 292000 in the first quarter compared to a segment profit of 770000 in the first quarter last year completion services, consisting of Frac water heating generated 6.2 million in revenue in the first quarter down 70%.

Sent from 20.7 million in Q1 last year.

Patient services generated segment profit of 1.2 million down from a segment profit of 8.7 million in the prior year total operating expenses in the first quarter declined 37% year over year to 11.6 million from 18.5 million due primarily to lower cost the preferred.

I didn't completion services.

Sales general and administrative expenses increased 10% year over year to 1.8 million from one point sixmillion due to higher costs associated with the bad debt reserve and to professional fees for third party advisors are working on our debt restructuring initiative.

The increases were partially offset by elimination of redundant costs related to the Adler acquisition.

We were we reported an operating loss of 2.3 million in Q1 compared to operating income of 6.3 million in the same quarter last year.

Net loss in the first quarter with 2.8 million or five cents for <unk> diluted share versus net income of 4.3 million or eight cents per diluted share in the same person in the same quarter last year.

Adjusted EBITDA on the first quarter was a negative 503000 down from a positive 7.9 million in the same quarter last year.

And secondly is 1 million in cash from operations in the first quarter down from 2.6 million in cash used in operations in the same quarter last year.

That concludes our prepared remarks, I'll now turn the call over to the operator for questions operator.

Thank you ladies and gentlemen, the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time, if you're using a speaker phone. We asked football posing your question you pick up your handset to provide the best sound quality again, ladies and gentlemen, if you do have a question or comment.

Please press star one on your telephone keypad at this time.

Please hold <unk> well, we pull for questions.

Our first question comes from Bhakti Pavani with Alliance Global Partners. Please go ahead.

Oh good afternoon, guys. Thank you for taking my question.

Hi, Thanks, Bob that's.

The first question as you know given the market Oh, it would be a you know confidently oh, but <unk> bees, you know leaned on drilling rigs shutting in wells.

I'm just kind of curious to know how what kind of and I do you guys feeding all your business.

Well you know given the three things that Leblanc over the last couple of months and I guess the second question is what person Beach all your existing hot oiling lot Acidizing lead is being utilized.

Yeah. So thanks for the question Bhakti.

We're seeing we're feeling some the near term impact so.

Of the the pandemic in some shutdown activity or we are still active though.

With our production services.

And we anticipate that too.

Recover back to more normal levels as the that's the summer progressive.

The.

Well, we're paying very close attention to our <unk> the storage capacity, which is the primary driver of.

That shut in most of.

Customers we work for.

Oh are the larger <unk> my turned the blue chip being piece.

And many of them are hedged in terms of their price.

And so what they're managing right now is what's the right production level based on a number of factors that storage capacity being one of those.

It appears from conversations we've been having broadly across the customer base and across the different basins that we should.

Hope to see returned to more normal production levels.

In the coming months.

It's important just to clarify to that as a business we.

We don't deliver completions related services really in Q2 in Q3, it's primarily the production related services.

Oh, the Frac water heating is is a completions related service and that is busiest in Q4 in Q1.

That's very helpful.

Thank you.

Our next question comes from Ed Woo with Ascendiant capital. Please go ahead Sir.

Yeah, Okay, and my question I'll, just wondering where there any trends that you saw in the quarter and also any crappy Zena second quarter do you think we hit rock bottom now.

Yeah, that's a difficult question answer I mean I think.

My sense is that.

As I mentioned in response to boxes question that we should see.

Return on some production related activity here as we move through the summer.

Its very hard to predict exactly how this pandemic plays out but my sense is that you know we've got people returning to work.

You know, we should see a draw down.

Hopefully in the in the inventories and.

Returned to more normalized production levels.

And then we'll have to wait and see to see what happens here with drilling completions activity.

For our business what we're looking at is one of those activity levels as we approach.

Our next heating season, which would begin in the fourth quarter.

So it's very difficult to predict.

Obviously oil prices went to an unprecedented negative level and then turn back to the mid twenties.

If you look at the the futures, there's seems to be expectation that we'll see.

Improvement in the price of oil but.

Your guess is as good as long.

Oh, there are some discussions out there that it you know the west, Texas got too high Twentys, maybe even 30 that people will start.

Reversing that Cheyenne haven't heard anyone down or seen any of that.

Well, what we've heard is that one there were some proactive steps to shut in some while.

In an effort to chosen.

So avoid a dictate from the Railroad Commission.

And that seems to have worked.

I think we're benefiting from the fact that some of those shut ins were outside of our radius of service and in Texas.

Some of the smaller folks don't really have the option to shut in in the same way so they'll they'll continue.

To produce I mean at this stage you know.

Producing oil and driving some cash flows from that as important what we're hearing is that.

The expectations that we returned back to more normal production levels as the summer progressive.

And so that's been a very challenging.

Environment right now, but we are hopeful and we are hearing from customers to be prepared for.

You know an increase in some of that activity to what extent, it's still still too early to tell.

Great and then my last question I was just on the competitive landscape you mentioned that there was a couple of smaller enters our strong when have you seen significant what's wrong. How does this industry either you know people, putting on going back well, yeah or your competitors.

We're seeing some.

Some of that you know I'm I don't want to get into any specifics, but as I mentioned in her prepared remarks.

We have competitors who are either.

You know stepping away from certain basins, a certain service lines.

Opening up opportunities that had not historically been available to us.

So.

We are as I mentioned I'm really focused on the things that we control and I think there's gonna be opportunity for us this year to take additional market share.

And that'll that'll drive long term benefit for this business and note so between controlling costs and and being.

Very aggressive on the customer acquisition side.

Think those things will pay dividends for the business in the longer.

But yeah, I think I think the competitive landscape going to shift here. This is the kind of a downturn that.

You know, there's just no wait for it not to the house and far reaching in tax.

Great. Thanks for answering my questions and that's a lot.

Thanks, Ed.

As a reminder, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time.

We do have another question from Bhakti Pavani with Alliance Global Partners. Please go ahead.

Thank you great I'm, sorry, I guess I dropped off.

A couple more questions Oh, you know given the given becomes a duration no upside has announced a BBB loan program and I'm. Just wondering you know being the small business have you talked about you know utilizing that benefit.

Yeah, maybe I'll, let Marty answer that question.

Sure. So we actually did apply for the P.P.P. loan and on April 9th and we did receive the amount we applied for which is approximately $1.9 million <unk>.

He received it on April 15th and we are utilizing that now for what it's allowed to be used for as far as payroll rents et cetera.

And we will utilize it for the eight weeks that were allowed to an extent that there's any.

The remaining we may pay it back at sort of depends on what the Backfields. We should do so we definitely took advantage of that.

Oh boy.

Oh I'm sorry, that's great.

Yes, I apologize if I missed the only had remarks, Oh, but I guess you did say that that had been some oh, you know cost savings of 2 million, primarily due to Oh, some of which read what was reduction and reallocating.

We are feed Oh, I'm, just kind of wondering Oh, you know do you think the debt reduction that you have done got into <unk>, which which I really grade because they had be safe college, but do you think they would have any kind of and Bob Oh from the business acquisitions Greenpoint when the markets come comes back.

To normal.

We're very thoughtful on that front block T. I mean, we are taking.

Extensive cuts to costs in the effort to.

You know mitigate or eliminate.

Cash burn, but we also kept a very close eye on ensuring that we aren't a position to respond in the market recovers.

And so I think we.

We've been able to accomplish both significant cost reductions at 2 million just to be clear as number on an annualized basis.

And and still leaving in place our ability to respond to the market when it recovers that the shutdown of Oklahoma as I mentioned prepared remarks, we have in the past delivered frac heating services remote.

Colorado facility.

So we still believe that well be able to do that in the next heating season.

Besides that we've left the other locations in place Weve Skinny down operations. During this downturn, but we'll be <unk> will be ready to respond when the market recovers.

Thank you bye that's that's very helpful. A good luck to that.

Thanks Lucky.

It's more ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time.

And there appear to be no further questions at this time.

Well as always we appreciate your time and attention on the call David look forward to talking again following.

Close for a second quarter.

Have a nice afternoon.

Take care and be safe.

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Thank you.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have great day.

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