Q3 2020 Enservco Corp Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the Enservco third quarter 2020 earnings call at.

At this time, all participants have been placed on a listen only mode and we will open the floor for your 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.

Hello, and welcome to insert goes 2020 Threerd.

Third quarter conference call presenting on behalf of the company today are rich Murphy executive Chairman and Margie Hargrave, President and CFO as a reminder, matters discussed during this call may include forward looking statements that are based on managements 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.

Ladies business is subject to certain risks that could cause actual results to differ materially from those anticipated in the forward looking statements.

Servco 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 FCC, Reg FD, which prohibits selective disclosure of material non public information.

The webcast replay of today's call will be available at Serco dotcom.

After the call. In addition, the telephone replay will be available beginning in approximately.

Two hours after the call instructions for accessing the web cast or replay are available in today's news release, please with that I'll turn the call over to Rich Murphy Rich. Please go ahead.

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

Before getting into our financial results.

I want to recognize that we continue to live in unprecedented times, what the pandemic, which has affected the way we are customers do business and affected all of us as individuals in one way or another.

March our focus has been on the safety of our staff and customers and we certainly hope you are all being safe and well.

I also wanted.

Take a minute to congratulate Marjorie hardware on her appointment to the president of Enservco and.

Our role as CFO position, so continue to hold largely took the lead in.

Engineering, our successful refinancing has also played a key role in driving cost reductions and reorganized our field operations more efficient without sac.

In our ability to serve customers in markets across the U.S.

Marketing is a very talented all around manager.

I had a hand in all facets of our turnaround program and had and has the depth and breadth of experience to execute effectively in her new role as president.

As you probably know.

Our second and third quarter are traditionally our.

Lower quarters, given the warm temperatures were not doing any frac water heating, which is by far our largest revenue and profit generator. Our revenues in Q2, and Q3 primary drive from Acidizing and Hot Oiling services.

America Frac water heating picks up consistently heading into late fall and consequently.

Our son, Consequently in the fourth and first quarters, which we refer to as our heating season traditionally our strongest quarters in terms of revenue and profitability, we are progressing nicely and the current fourth quarter and hopefully.

And helpful very helpful for a very cold winter the last well into the spring.

Marty will recap our Q.

Three and nine nine month financial results in just a few minutes, but first I'd like to recap some highlights from the first 10 months of 2020 that I believe positions Servco for improved financial results going forward.

As related in our press release today, we entered 2020 facing some real challenges.

The industry downturn due to lower commodity.

The prices and the COVID-19 pandemic the resulted in ultra competitive business landscape with increased pricing and margin pressure.

A request from our lender to refinance debt load that frankly had become unsustainable and in this lower revenue environment, a burden some cost structure.

Through a need to raise additional capital to fund increased activity in our heating season, and finally, our noncompliance with a nice the American listing requirements.

Early in the year coach.

Oh challenges look fairly daunting and we did our best to keep you appraised of our efforts to meet and solve each of them will today I'm happy and proud.

To say that with recent developments, we have answered each of these challenges and in the process create a more stable and sustainable business model that we believe is positioned to deliver improved financial results and enhanced shareholder value.

I'll start with our refinancing.

Which consumed a lot of management time and attention throughout the year and finally culminated.

They did and if successful close the closure of a new loan agreement with our lender East West Bank in September.

The refinancing includes a 17 million term loan and a 1 million working capital evolving line of credit both of which have October 15, 2021 maturity dates the term loan is interest only with potential for principal.

First of all payments in the event of encircled reaches certain profit metrics.

This transformative refinancing estimated eliminated 16 million in debt and added 12, and a half million dollars stockholders equity in exchange for the debt relief, we issued our lender equity that makes them say a significant shareholder of Inserv go and brings their brings our interest.

Even more closely into alignment than before.

Eliminated nearly half our total debt and return for restricted stock and warrants was a major step toward improving our cash flow ensuring the viability of our business.

We also viewed it as a nice endorsement by our lender, which we appreciate very much.

Concurrent with the right.

Now turning my investment fund crossover partners also put more skin in the game I can bring $1.4 million in sub debt and accrued interest into Enservco restricted common stock Cross river is by far in circles larger shareholder today.

Again.

This lengthy and complex process consumed an enormous amount of your management's time.

And now that is behind US we have refocused our attention on running the business for the benefit of our customers and stockholders.

Another big counts, we faced during the year was the industry downturn manifested and reduced drilling and completion activity, which in turn led to a more competitive market with price and margin pressure.

We are.

We funded that challenge by conducting an intense review of our cost structure, but over the course of the year led to more than 4 million in cost reductions to bring us in line with the new realities of the oilfield services industry.

We made significant reductions in both Cogs.

And at the corporate level at the corporate level and in Cogs before.

Focus on head count reductions personal personnel management and more strategic hiring practices.

In SDMA, we focus on consolidation of physical locations and infrastructure as well as corporate staff size.

Which has been reduced from 17 at the beginning of the year.

Two nine today.

We have subleased.

Our downtown Denver, corporate headquarters and corporate staff is now situated at our largest equipment staging facility in Longmont, Colorado.

The move yielded significant cost savings and has the added benefit of bringing our corporate staff close to one of our key field teams as well as many of our end customer operating areas.

Abroad intent of our cost cutting program was to identify fundamental structural savings that could be sustainable even as the industry rebounded having cut 4 million in cost out of our business. We now feel we are positioned to grow our business more profitably as in as the industry recovers.

In the third quarter.

We closed in on our bank refund.

Leasing it became apparent that we would need to raise some additional equity to complement our smaller revolving line of credit and fund increased operations in 2021 heating season.

Currently we engaged a capital partner to date have raised approximately 1.3 million in equity to open to help ensure we can respond to the increased customer demand in the fourth and first quarters.

Going forward.

When they may seek to raise additional equity is a seasoned progressed as we are dependent on the magnitude of increased demand for our services.

Finally.

I'm pleased to announce that we are successfully working through our lifting deficiencies with us.

Stock exchange, you'll recall that we thought of compliance with the with two nicely requirements.

On share price and stockholders equity levels.

The latter issue was resolved when our refinancing flip stock holders equity by $12 million to the positive. The former issue was addressed or this week, when we announced a one for 15 reverse stock split.

Which is expected to result in a higher share price that will satisfy the nicest requirement.

The reverse split was approved by our stockholders at the June annual meeting and we appreciate your support on that issue.

We believe the reverse split may have the.

Added benefit of helping us attract new investors, who here to FFO had been unable to buy and surface Scott stock to the various minimum price restrictions.

With that.

I will turn the call EBITDA margin to recap the plant the few financial results Marty.

RG.

Thank you rich Encirca reported Q3 revenue of $1.8 million down from revenue $3.8 million in the same quarter last year due to lower commodity prices and COVID-19 impact on our end.

Okay.

What's notable about the revenue results are the gains we made in our revenue segment profit metrics. Despite the fact that segment revenue was down significantly year over year casing point in the third quarter. Our production services segment revenue declined to 1.4 million from three point.

3 million yet generated 16000 dollar segment profit versus a 17000 dollar segment loss a year ago.

So the transition to profitability and significantly lower revenue in the third quarter highlighted the company success in reducing cost of providing services in 2000.

Tony similar.

Similarly, our completion services segment revenue declined to 401000 from 510000 year over year, but we were able to reduce our segment segment loss to 725000, which is a substantial improvement over the prior year segment loss of one.

Point $2 million. This again illustrates the power of our cost reduction initiatives.

On the corporate side, we reduced SC inexpensive to $1 million in Q3 down from $1.7 million in the year ago third quarter, primarily reflecting savings derived from consolidation.

Physical location and lower corporate staffing levels.

No total operating expenses in the third quarter declined to $4.8 million from $8.2 million year over year, due primarily to the aforementioned cost reduction as well as lower severance and transition costs lower depreciates.

Sales and amortization and reduced activity.

We reported net income of $8.4 million or 14 cents per share in the third quarter compared to a net loss of $5.4 million or 10 cents per share in the same quarter last year. This reflected an 11.9 million dollar gain on our.

Our bank debt restructuring.

Adjusted EBITDA for the third quarter was a negative $1.7 million compared to a negative $2.7 million in the same quarter last year.

Turning to our nine months results tell.

Total revenue for the nine month period ended September Thirtyth 2020 with.

$1.3 million versus $35 million in the same period, a year ago. In addition to lower commodity prices and coated impact warmer than normal temperatures during the 2021st quarter heating season. It apart in the decline.

Production services revenue through nine months was.

I'd point Ninemillion versus 11.2 million.

Year over year and generated a segment loss of 707000 compared to a segment profit of $1.2 million in the prior nine month period.

Completion services revenue to nine months came in at 7.3 million.

Five compared to a $23.7 million figure in the same period last year and generated segment loss of 270000 versus a segment profit of $6.9 million year over year.

Segment losses were largely attributable to a 69%.

Production in the company's higher margin Frac water heating services due to the decline in drilling and completion activity, resulting from lower commodity prices and the pandemic.

Total operating expenses in the first nine months were reduced to 22 million from $36.1 million in sales.

Paid last year due to lower work volumes.

And our cost cutting program sales general and administrative expenses improved to $4.1 million from 4.8 million year over year, reflecting cost cuts.

Depreciation and amortization expense decreased.

Two $4.24 million from $4.2 million due to the disposal of assets primarily in the second quarter of 2020.

Net income for the nine month period, which again was selected impact of the third quarter gain on debt restructuring was $1.2 million or two cents per diluted share.

Share compared to a net loss of $4.3 million or four cents per diluted share in the same period a year ago.

Adjusted EBITDA through nine months was a negative $4.3 million versus a positive 3.7 million in the comparable period prior.

Prior year period.

Ill give it back to rich now for some closing comments rich.

Thanks Marty.

So in closing we enter he heating season in a much better shape than we were at this time a year ago with a lot of distractions behind us a leaner operating model and improved balance sheet and as always an impressive base.

Blue chip customers were excited about our prospects going forward.

Thank you again for your patience and continued support of Enservco operator, Please open up for questions.

Certainly ladies and gentlemen, the floor is now open for questions.

If you have any questions or comments. Please press star one on your tone at this time.

Well you asked about putting your question. Please pick up your handset if you're listening on speaker phone to provide optimum sound quality. Once again, if you have any questions or comments. Please press star one on your phone please hold while we pull for questions.

Your first question is coming from Andrew Bond Your line is live.

Hey, good afternoon, rich and Margie. Thank you for taking my questions and congrats on all the transformative work during the third quarter.

Thank you.

My first question is around completion activity as oil seems to be firming up around the lower $40 per barrel range.

We're definitely seeing some game companies turning towards their DUC completion activity and even looking at some development plans.

Why you move through your busier heating season, I was just wondering whether you've seen or expect to see the completion side of the business picking up as well.

So Andrew we we don't give guy.

Guidance, obviously, but bid activity is we.

We've all I've always felt that our bid activity is more light on the weather and.

Then the actual activity levels, if you look at last year I.

I would say a lot of our downside of last year's first quarter was was it was so warm, particularly our Pennsylvania.

Sure.

Yes, but we're starting I would say as we sit here in November we're starting to see that the bid activity.

Particularly east our Pennsylvania are starting to pick up doesn't mean, we'll win all the bids but we're we're bidding on more stuff than we thought we would have.

Okay. Okay. That's helpful.

And then there's certainly been a lot of discussion among producers around discounted services costs throughout the year given all the depressed activity levels I mean, it seems like at least on the MP side that the consensus is that completion costs or are down at least 25% this year.

So I just wanted to get your higher level thoughts on those discounts and how sustainable you think they might.

Might be as cockatoo activity seems to be picking up as you head into next year.

Yeah, there's definitely there's definitely pressure on on on pricing, which is I don't think that's a new thing that's something that's going on for a while.

The nice thing about what we do for a living is.

We're very nichey, so we're not a big part of the overall a frac job.

A completion activity so its.

So the pressure on us is not felt.

As acutely, but yeah, we have to when we're <unk>, we're looking at bidding for jobs, we definitely.

We're.

Sharpen our pencil, but we are the biggest player in seating for example, so.

We're the price leader and we don't want to.

We don't want to do something that we're not going to make good margin and quite frankly, the margins in our business are pretty have always been pretty strong.

Okay. That's great. Thank you that's it for me thanks again.

Thank you once again, ladies and Jim.

If you have any questions or comments. Please press star one on your phone at this time.

There are no further questions in the queue at this time I will now hand, the floor back over to rich Murphy for closing remarks.

Well.

As always I appreciate.

Appreciate your time attention on the call today everyone.

We look forward to talking not everyone in our next quarterly call and Ah Hopefully report on some nice nice cold weather and positive cash flow.

I'll see you soon.

Thank you ladies and gentlemen, this does conclude todays.

Conference call you may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.