Q4 2020 Enservco Corp Earnings Call
Good afternoon, ladies and gentlemen.
And welcome to.
On the and circa 2020 year and earnings call. At this time, all participants have been placed on a listen only mode. We will open the floor for your questions and comments after the presentation and it's now my pleasure to turn the floor over to your host Jay Pfeiffer Investor Relations, Sir the floor is yours.
Hello, and welcome to and serve code is 2024th quarter and full year conference call presenting on behalf of the company today are rich Murphy executive Chairman and Margie Hargraves, President and CFO and as a reminder, matters discussed during this call may include forward looking statements that are based on management's estimates projections and assumptions as.
As of today's date and are subject to risks and uncertainties disclosed and the company's most recent 10-K as well as other filings with the SEC. The Companys business is subject to certain risks that could cause actual results to differ materially from those anticipated and its forward looking statements.
<unk> assumes no obligation to update forward.
And so 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 and material nonpublic information a.
A webcast replay of today's call will be available at and serve co dot com after the.
The call and in addition, a telephone replay will be available beginning approximately two hours after the call instructions for accessing the webcast. A replay are available in today's news release 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 2020.
20th quite a year for and surf go on.
On one hand, it's no secret that reduced customer demand brought on by depressed commodity prices and the pandemic made a tough going for all players in the oilfield services space and that was certainly reflected and our year over year financial results.
On the other hand, we have had more than our share.
Share of positive developments and those.
What I want to be off with today, because our achievements over the past 12 months have literally transformed our company and left us and our strongest position at least from a balance sheet perspective that we've enjoyed and a long time.
What our team was able to accomplish during 2020 and to the first quarter of 'twenty.
'twenty one is nothing short of remarkable and surf goes employees at all levels of the organization came together to overcome unprecedented challenges and I am proud to be associated with this group and be part of such a resilient organization.
You'll recall that we entered 2020 with some serious challenges over and above the.
A low commodity prices and the emerging COVID-19, pandemic, we had and unsustainable debt load, we had a burdensome cost structure and we were under capitalized.
So early on in a year, we developed a three point plan based around debt restructuring cost reductions and raising capital while it wasn't always easy and we had to.
Clear a lot of hurdles along the way I'm pleased to stay and we've been successful on all three fronts debt restructuring was a cornerstone of our effort.
As of the second quarter of 2021 we expect total debt reduction and since August 'twenty, and 'twenty to be and the range of $24 million.
That will represent nearly two thirds.
And reduction of what our total debt was at the highest point.
This effort included several components first our bank East West Bank wrote off 16 million of our 33 million term loan, leaving us with a new 17 million term loan and a million dollar revolver.
And by the way.
We recently negotiated a one year.
Pension.
Yeah.
On both the term loan and revolver to October 15th 2020, two and exchange for this write off we issued the bank on a reverse split adjusted basis 533000, and 334 shares of common stock and a warrant to purchase another 1 million share.
<unk> $3.75 per share.
West Bank is now one of our largest shareholders and their interests are more closely aligned with us more than ever the second component of our debt restructuring involved and conversion of the subordinated debt and accrued interest held by my firm Crossbow partners.
Into and surf go equity and two separate transactions.
Chairs happens that took that took and surf goes total debt down another $3 million Cross river continues to be and circle's largest shareholder holder and I can tell you I'm very happy with this investment.
And in February of this year, we paid our 17 million and term loan down another $3 million with proceeds of a public offering and they'll talk about and just a minute.
And finally, we applied for and May receive forgiveness or S. P. A P. P P loud and that would take our debt down another $1 $9 million.
Which lower our break break even and puts us and are positioned to operate more profitably as the industry continues to recover and the economy rebounds.
The third element of our plan was raising additional equity capital.
And the fourth quarter, we raised $3 6 million of gross proceeds and and at the market transaction to support the ramp up of our heating season.
And the first quarter 2021 we raised an additional $9 6 million.
Gross and and effort and an S. One offering 3 million of which as I said was used to pay our term loan down further with a balance reserved for working.
<unk> capital and potential M&A activity.
These raises which totaled approximately $12 5 million went a long way towards shoring up our balance sheet and given us breathing room, we haven't enjoyed for some time.
So with the transformation of our balance sheet completed we're now excited to turn our attention to further strengthening our operations and taken.
And the advantage of rising oil prices renewed industry activity and rebounding economy with that I'll turn the call over to Marty to recap our financial results.
Thank you rich before I get into the numbers I want and again express our appreciation to east West Bank for working with us throughout the refinancing process we value there.
<unk> is a leader and now as a fellow shareholders. We also appreciate the competence of our legacy investors, who remains loyal to and serco throughout a difficult year as well as new investors, who have come on board through our various equity offerings.
Financing and fresh capital provided by these offerings with not only instrumental.
And the retention of our New York Stock Exchange American listing, but it resulted and the removal of the going concern language on our financial statements in the form 10-K, we filed today and now to the numbers.
And surf co recorded reported Q4 revenue of 2.4 million down from revenue of eight.
Pardon me and and the same quarter last year due to lower commodity prices and COVID-19 impact on our industry.
Lower revenue in Q4 and for the full year belies. The fact that we won new customers and increased our market share in 2020.
And Q4, we also on some non oilfield services.
And the business that we've been pursuing to augment traditional revenue streams and maximize fleet utilization for competitive reasons, we're not going to get too detailed about the non oilfield services, we're providing.
Q4 production services segment revenue declined to $1 8 million from $3 5 million.
As for production services generated a segment profit.
Profit of 11000 versus a segment loss of 116000, and a year ago due to the fairly dramatic impact of our cost cutting program.
Emily even though our completion services segment revenue was 600000.
However, Q4 down $4 million from $4 6 million of revenue a year ago, We reported a segment loss of 600000 compared to a profit of 400000 in the same quarter last year again. This illustrates the importance of our cost reduction initiatives on the corporate side we.
SG&A expenses to 900000 in the fourth quarter down from $1 3 million and the year ago fourth quarter, primarily reflecting savings derived from consolidation of <unk>.
Co location and lower corporate staffing levels.
Total operating expenses and the fourth quarter declined 40.
We've reduced our percent to $5 9 million from $10 5 million year over year, due primarily to reduced activity cost reductions and lower depreciation and amortization.
Q4, net loss was $3 7 million or 69 cents per share compared to a net loss.
And with $3 3 million or 90 per share and the same quarter last year, approximately 730000 of the $3 7 million net loss represented and noncash equipment impairment charge.
Adjusted EBITDA and the fourth quarter was a negative $1 5 million compared with a negative one point.
Oh man and the same quarter last year.
Turning to our full year results total revenue for the full year ended December 31, 2020 was $15 7 million versus $43 million in the prior year. In addition to lower commodity prices and the COVID-19 impact warmer than normal temperatures during the.
21st and fourth quarters played a part in the decline.
And services revenue for the year was $7 7 million versus $14 7 million year over year and generated a segment loss of 700000 compared to a segment profit of $1 1 million and.
20th from 19 completion services revenue for the same year came in at 8 million compared to $28 3 million in 2019 and generated a segment loss of 800000 versus a segment profit of $7.3 million year over year.
The segment losses were largely attributable.
Two that our production and the company's higher margin Frac water heating service due to the decline in drilling and completion activity, resulting from lower commodity prices and the pandemic.
Total operating expenses for 'twenty, and 'twenty were reduced to $28 4 million from $46 6.002 million 19.
Due to lower work volumes and our cost cutting program.
SG&A expenses improved to 5 million from $6 2 million year over year, reflecting cost cuts and depreciation and amortization expense decreased to $5 3 million from $5 7 million due to disposal of assets in a second.
Second quarter of 2020 net.
Net loss for 'twenty, and 'twenty, which reflected the impact of a large third quarter gain on debt restructuring was $2 5 million or 60 cents per diluted share compared to a net loss of $7 7 million or $2.06 per diluted share in 2000.
Yeah.
Adjusted EBITDA in 2020 was a negative $5 7 million versus a positive two 8 million and the prior year.
I'll hand, it back to rich now for some closing comments.
Yeah.
Thanks Marty.
So in closing we're excited about our prospects going forward.
With.
Significantly deleveraged balance sheet and ample working capital we think our prospects are bright we have a large fleet, our broad geographic footprint, great customers and a strong team and the economy continues to rebound and we can focus on getting back to the capacity utilization we enjoyed prior to the downturn.
Thank you again and for all your continued.
And nightclub and surf go and operator, please open up for questions.
Yeah.
Thank you ladies and gentlemen on the floor is now opened for questions. If you have any questions or comments. Please indicate so now by pressing star one on your Touchtone phone pressing star to where we're moving from acute should your question be answered and lastly, while posing your question.
Support and for your handset if listening on speaker phone and to provide optimum and sound quality. Please hold while we poll for questions and your first question is coming from Jeffrey Campbell from Alliance Global Partners. Jeffrey Your line is live.
Okay.
Hi, Rich first of all congratulations on all the great financial work and recent months.
Please I understand we all want to understand you don't want to get on the weeds and on this new non oilfield bad. So I was just wondering if you could comment broadly whether this requires any investment and any kind of new equipment or personnel or if these are tasks that can be performed on current capabilities.
Hum.
The answer is no.
And you can equipment.
Equipment and we've actually.
You know prior to we thought we've had and what well enough and five client revenues come from.
Our non oilfield and the past this isn't something new that the issue is what the energy a drop of oil and energy recession has allowed us.
And it's kind of.
She dust that off and refocus on it and what we found is there is.
We left a lot of low hanging fruit out there that has.
It has real business to it not not one off stuff so.
Without getting into the industry and specific stuff were pretty excited and we know on them.
And on trucks.
And do that stuff and the cheaper rate and what are.
Our customers that we've talked to you can do it the way. They are currently doing and such we can add value.
The key point and and just to follow that up when do you think you'll be able to share more on this effort.
It's.
No.
And do it.
We have to we get.
Over 10% of revenue we.
It would have to honestly, we'd probably do that before.
And that happens, but oh, when when we're comfortable we've got a real starts on a strategy that is so.
And it's gonna be something that's gonna go it's not just the two.
Three or four quarters, saying that we would we'd want to outline that for you guys and detail.
Yeah.
Okay. That's helpful. I'll look forward to that and I hope it works and Yep.
You've talked on the and the past that goes on.
You know the people and the world and sell side analyst day ever politicians. So.
And two are somewhat more.
Got you.
And I've talked about wanting to grow right and sort of growth at all franchise. So here are some questions from.
First does this growth and require additional units or is it more about increasing utilization of the existing fleet.
Increased utilization.
For.
I've got space and then for the non oilfield space, It's we don't need additional units.
If we want additional units, we could we could probably go out and get them I don't I don't I mean, the dirty little secret and and the hardware and world isn't the units not the metal that's it's hard to come by and if there is.
It's good operators who bring.
The energy with them so.
The beauty of US is we have a broad geographic footprint. So how do we ever comes to work with US He is.
He's able to get better and probably more hours and if it goes to work for a small amount of pop with three or four hot Oilers and that is.
True true strategic advantage for us and so.
Once we can recruit and retain and get all these hot Oilers and.
We look at the equipment side, but as of now we're probably we're finding that with our equipment. We can grow up and says you know we.
We used to do 50 million and revenues so.
Well.
Well you saw our fourth are our year wasn't close to that number. So it's there's plenty of room for us to put that stuff the utilization and and that that number our heartland was never our focus as a company it will be going forward. So that's.
And that's something we're excited about.
Okay, No that's helpful and and.
The the thinking about the expansion do you see that.
And more is and serve from maintaining a share and and expanding while services recovery or is it more about taking additional share and a more static market environment.
And with some comments.
I think it's taking share its pricing improvement oilfield services companies across.
And our services, we we've all taken are taking a hit to our pricing during the downturn.
Because of the MPS demanded it or our clients are now.
And that and we're a price leader because we are the biggest player. So because we have more equipment and operators we can.
Push those prices up.
The board and I think we're starting to do that so that is that's part of the equation, so margin improvement, which would lead to cash flow improvement and as I said to the team on the I think I don't care, if I'd, rather do $20 million and revenue and a 30% margin and then you know 50 million or 3% Martin and so were totally focused on cash flow and you know when the utilization rate.
And it looks like pricing will will push that lever.
[laughter].
And it sounds like from what you just said a minute ago I was going to ask you. What what advantages you think you have versus competitors, but it sounds like the thing just the size of the business and your ability to.
Attract.
The best Labor.
Labor is.
Perhaps your big advantage with anything else on messengers.
Safety and I can I can guarantee you the small one to three to one to five operator companies can't have a focus as big a focus on safety is particularly in a downturn like this you have to I mean, you guys have a price and a business below cost.
And we get them stay alive, and so yeah safety becomes a I wouldn't even call it secondary and tertiary but given our balance sheet, we have now and and the size of our business and our business.
We then would be able to focus on safety and I think so safety and and geographic footprint gives us a lot of flexibility give us a little a leg up on our smaller operators.
And just okay and my my.
And my last one here is actually to shift gear and so I was wondering.
And with this focus on growing the hot oil franchise, and I wonder if that foretells any material changes and the frac water heating side of the business.
No. It's just more it tell it talks about seasonality more than anything.
Anything.
It's tough run and a business that operates and North Dakota is a longer season, obviously then.
And then let's say, Colorado, but.
It's just I prefer businesses that run 12 months of the year and one day.
And we can get a nice marsh and also then businesses that run five months of the year that we can get nice margin off of.
The way I see it and I think heartland and could be a nice.
And.
A good utilization rate a very good revenue generator for us and then our hot oiling and <unk> are the heating and it becomes a you know a cherry on the top of where we could have.
Big years, if that if we get the cold weather and and that's more of a completion business too so.
And as activity picks up that you're going to see that business really start to.
Paul its weight, but.
Heartland and it's more maintenance. So it's just it's a better sleep at night business. If you will and that's kind of what I'm referring to versus.
On a fundamental change and heating.
Okay, Great and I appreciate the answers and.
And again congratulations on the on.
On the quarter.
Thanks, Jeff appreciate it.
Yes.
Okay. Your next question is coming from Ed Woo from <unk> capital and your lines life.
Yeah. Congratulations on all the work that you guys done last year with the price.
First of all rebounding.
What are you hearing from your customers do you think that they see it as sustainable or they're getting a lot more interest and drilling activity or are people still very cautious.
Good question.
Tough question today, when oil is down 4% or whatever whatever.
Let's see.
Uh huh.
You're exactly right on what we're seeing from our business development guys and is they're getting for the first time and we actually had a call today, they're getting price and they're asking for price and they're getting it so.
That's a really encouraging sign now it's it's I caution that's going from probably the.
The worse and recession since the 19 eighties, but it is it is encouraging to see the E&P guys. They understand that we're partners with them and.
And and we tried to do the best we can buy them.
Oil price has gone from 30 to 60 so.
No.
They can afford.
As long as we.
And do the job right provide good safety and on time and and been real.
High quality service, they're willing to pay a little more for it.
Do you anticipate a returned back to pricing the way it was before the downturn or do you think that you know it's going to take a long time.
It depends on the basin and I won't get into specific basin by basin, but certain basins are a little more competitive than others.
The eye.
I think there.
You know much more room to run on the pricing.
It's not we're just I would say and baseball analogy, we're probably on a third inning.
Or price.
We're just starting now to ask for that pricing, so and and we're getting and so it's we don't want to be a you know and we were huge and obviously a huge fans of our customers, we love them, but the.
They understand we have to make a margin on our business day. So it.
I would say this $60.
Price is a great sweet spot in my opinion.
Both from the economy and.
And for our customers.
Great and then my final question is on the competitive landscape, obviously, you know and like you said.
And this recession, probably took out a lot of people you know a lot of smaller mom and pop on.
Oiled lives took on a lot of your customers.
As you know things come back to normal how does the competitive landscape look like will there be a lot less competitors out there and what do you think everybody is going to come back once activity resumes.
I think it goes back to your first question on price like if again, we're bigger player and.
And and the services, we provide so we should be price leaders.
If you're not getting price even if it's one of those on 100 Bucks a barrel it doesn't matter, if you're still getting X dollars in and out for your service you're you're done so.
You got to start seeing that.
The hourly rates start to rebound for.
US and and for all of our especially on smaller guys. They won't come back and I think the mitigating factor and all of this will be labor quite frankly, it and a day.
It won't be the steel there's a lot of steel out there. It's gonna be can you kind of get the good people can you get on ours.
And he came on.
Good livelihoods.
We're able to do that and such.
And we think we can right Paul Congratulations and wish you guys. Good luck.
Thank God.
Yeah.
Once again, if there are any remaining questions or comments. Please indicate so now by pressing star one on your Touchtone phone.
And please hold while we poll.
Once again Thats star one to ask a question or comment.
Okay, we have no further questions in queue.
So well I want to thank everyone for AR.
Joining us on the call today I want to thank everyone and and surf go to the team.
And I don't want to corporate for all the hard work to get us to where we are and.
I can't wait to get update you guys and a couple of weeks on our first quarter. So thanks, again and and enjoy the rest of the day.
Thank you thank you ladies and gentlemen.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day.
And for your participation.
Okay.