Q2 2021 Enservco Corp Earnings Call
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Good day, ladies and gentlemen, and welcome to the insert for co second quarter 2021 earnings call.
At this time, all participants have been placed on a listen only mode and the floor will be opened 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.
Hello, and welcome to <unk> 2021, second quarter conference call for Us there.
Renting on behalf of the company today are rich Murphy executive Chairman.
Re hard grade 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 todays 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 Companys business is subject to certain risk.
That could cause actual results to differ materially from those anticipated in its forward looking statements.
<unk> 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 nonpublic information a webcast replay of today's call will be available at <unk> Dot com.
After the call. In addition, a telephone replay will be available beginning approximately 2 hours after the call instructions for accessing the webcast. A replay are available in today's news release with that I will turn the call on for Rich Murphy Rich. Please go ahead.
Thanks, Jay welcome everyone and thanks for joining our call.
Today, we announced our second quarter financial results after the market closed.
Highlights were 1 a return to year over year revenue growth and 2.
Solid improvement in our profit metrics.
On the revenue side.
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, our sharp focus on cost cutting that has positioned us as a much leaner organization capable 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 U S 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 3 of our core service areas for us.
Water heating hot oiling and Acidize ing.
We also achieved good growth in our non oilfield service area.
And based on recent customer commitments and 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 Georgia 10 yard has on our largest concentration of hot Oilers to serve a growing customer base there as.
We told you last quarter.
All are also moving aggressively to meet demand for our hot Oiling services in East Texas.
And recently opened a new yard and long view to serve new customers in the Haynesville shale.
In other fields, and the Arkansas, Louisiana, and Texas region.
You may recall that in March of this year, we kicked off a $400000 Capex program to refresh our hot Oiling fleet.
For we're done we think the investment closer to 480000, but it'll be worth every penny because the demand is there for hotaling. Unlike frac water heating it up 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 advertising grew 191%.
Which is a good sign and that <unk> is an expensive undertaking for e&ps and the increased 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, while keeping our personnel and equipment working.
On the topic of ancillary services.
We continue.
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 complementary and perfect and preferably non seasonal services to our mix.
The increased revenue in the second quarter contributed 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 credit, which Marty 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 Q C. Q3 are our slower off season quarters that generate considerably less revenue and profit for the fourth and first quarters that constitute our heating season that said however, it has nice return to year over year growth mode and were working very hard to maintain.
Our momentum in the current third quarter and carried 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 2 equity infusions that have put us on the strongest financial condition, we have been in some time.
1 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 2020 to actually 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.
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 Marty to recap the financial results.
<unk>.
Thank you rich and circa reported Q2 revenue of $3.1 million.
44% increase of our 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 line. 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 <unk>.
Protection services segment revenue increased 61% year over year to $2.2 million from 1 point for a million. This segment generated a loss of 117000 compared to a segment loss.
431000 last year.
73% improvement 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 $858000 from 758000, a year ago.
Net loss improved by 35% to 491000 compared to a loss of 758000 in the same quarter last year.
Again to higher revenue and lower costs.
SG&A expenses in Q2, total $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 for 14 cents per diluted share, which represented a 63% improvement over the net loss of $4.4 million or 18.
Her dead movie chair in the same quarter last year.
Net loss was primarily attributed to 3 things 1 our successful cost cutting measures that have taken approximately $4.2 million in annualized costs out of the business.
2 of $536000 decrease in interest expense year over year. Following a deleveraging effort that has eliminated approximately $24 million of debt since September of 2020, and a capitalization of interest on the restructured debt.
3 the booking of $1.3 million in cares Act payroll tax credit 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 credit over the next few quarters. In addition in July we learned that our PPP loan was fully for Kevin. So we expect to book another $1.9 million from that.
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 6 months results, which remember included the impact of a tough first quarter when commodity prices and rig counts were lower than those in the pre pandemic year ago first quarter.
Total revenue for 6 months ended June 30th 2021, with $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.
Segment generated a loss of 240000, which was a 67% year over year improvement over the loss of 723000 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 334000 versus a segment profit of 455000 year over year.
Total operating expenses for the 6 month period were reduced to $13.5 million from $17.7 million in 2020 due to lower work volume and our cost cutting program.
SG&A expenses improved 2.2 million from $3 million year over year, reflecting cost cuts and depreciation and amortization expense was flat at $2.7 million.
Net loss through 6 months improved $3.8 million for 37 per diluted share compared to a net loss of $7.2 million or $1.95 per diluted share in 2020.
<unk> 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 billion in the prior year.
And with that I'll now open the call to questions operator.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star 1 on your phone at this time.
We ask that while posing your question you. Please pick up your handset if we're sitting on speaker phone to provide optimal sound quality.
We hold while we poll for questions.
Your first question for today is coming from Jeffrey Campbell. Please announce your affiliation then pose your question.
Good afternoon.
Jeffrey Campbell with Alliance Global partners.
First rich I, just wanted to make sure I understood the illusion.
Second half 'twenty, 1 on growth that you were referring to or was that specific to the non oilfield trucking business or were you referring to all events or silos.
Oh.
Yeah.
Great.
On the cost cutting front I mean, just looking at the financials. It looks like it's primarily been the SG&A.
Was this mainly reduced head count or is there something else going on.
Mark why don't you take that.
You know there's also some more in Cogs as well that you can see in our gross profit, but there was about a little over 50% or so was in SG&A and it's really a combination of a couple of different tech the largest pieces head count, it's really things like moving our headquarters in Subletting.
Looking at what the expenses are and what's really in this market.
<unk> sized for this size company and what's going on in the market. So we looked at we've 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.
Okay.
Go ahead rich on Lora.
Yeah, I think a lot of that you have to it's gonna be scalable to you'll see it as revenues come back youre not going to see the cost cost elevate like they've had in the past, it's just a much better run company today and that it all.
Our employees are.
With us today are they are a keen sense of keeping costs in check and making sure that you know.
We're doing jobs for cash flow positive.
It's just a different mindset I would say just beyond the cost cutting.
Okay No that's helpful.
I was just wondering if we could dig in to the year over year revs growth just a little bit.
And on are expected to be too specific but maybe you indicated a true.
Round or some in general how does your pricing in the second quarter 'twenty, 1 compare to a year ago.
So the.
It's really a hot oiling, we're talking about second quarter revenue.
So that.
We've seen increases.
Across.
Almost all of our customers and 90% of our customers and the 2025% range and then.
Even greater with some of our customers that got down now we price every job is price a little bit different in hot oiling business. So.
But in general I would say, we're north of 25% Mark on all of our customers year over year.
That being said I would.
If you go back to 2019 Q2.
We're probably getting close to where we were there. So I think theres more upside because 2019, it wasn't a great great year as well.
In terms of price guidance.
And.
Since the hot Oiling is essentially on.
Sorry maintenance.
For economic all wells. So I was wondering what are the specific drivers of this.
This article index growth.
So supported adding on additional facility in.
It sounds like that it's it's really doing well on what's going on there to drive that.
Well the there's a lot of work over rig activity with a higher commodity price E&P budgets are starting to capex budget to start to open up the first thing is to open up the ducks.
Do you Wanna get it wherever there's a workover rig there's typically a hydro their file on behind it like I always.
I've said in the past.
So what we're seeing a lot.
A lot of people want to get oil on the ground right now, but they're they're not getting the bank financing or do new drill programs. So.
Whatever they have completed wells are wells that were shut in or being opened up.
That's 1 aspect of it the other 1 is maintenance so.
On the maintenance side it is.
It's taken paraffin out of basically out of.
We go on on maintenance program for a lot of our companies on will take.
No.
We will burn off on a paraffin and the oil.
They sell the oil for a higher price than they would with the paraffins on there. So it's a combination of the maintenance plus the ducks and the oil cut.
New wells come on line.
Okay, well I mean, I wonder is that I asked that services.
Think of Haynesville in East, Texas on and those are pretty mature basins at this point.
And youre getting enough work that you're adding.
On units there so I just wanted if.
There was maybe something along the lines that.
Some other performers that don't have your safety and and maybe don't do quite as good a job as you do maybe youre, winning some business from them in cash range. Some market share I mean, yeah, that's possible for part of it as well on.
It is a it's a fascinating based on that.
Arkansas, Louisiana, Texas.
Eastern Texas the area, it's a there's no big majors and their day.
2 you know we're fortunate enough to have 1 of our business development guys, who grew up there in his father owned independent energy company. There. So he's got a lot of network.
We're starting small we are building on it we doubled the size of our fleet there already.
But.
It's I mean, we're competing against I keep pushing on our business develop and guys like who's the biggest operator and it's just it's like if you're if you have more than 2 hot Oilers than that based on your considered big so.
There's a huge opportunity for us to go in and win.
A lot of work in that area. It's it is a very.
Different environment than the South, Texas environment, where youre deal with EOG Devon for the World.
But I kind of like it because it.
Yeah.
You can the price is better in that environment that you can imagine.
Okay.
No that's helpful.
It just.
In a way it seems odd that there is.
This growth in.
Yeah.
Pretty pretty well worn area, but that all makes sense.
Hmm.
And I was wondering.
Finally, particularly for the hot oiling.
Okay.
They're a little bit of visibility you gave us on the second quarter.
Continuing to perform are you starting to see any more any more visibility or durability on the hot oiling business, meaning may.
Maybe people or is it still kind of a deal where everybody books everything at the last minute or is there a little bit more for.
Forward looking.
Aspects for the business that your day.
That that maintenance stuff that I talked about.
A lot of fun.
On taxes quite frankly, that's starting to see a little more.
Advance booking like you.
You see volume discounts to its like not just against volume, let's say, if they need 5 or 6 hot Oilers.
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 it in advance as well and then we do get a lot of callout work still.
And we can if we have the availability of these services we used to always have the availability is not us.
You don't always have the availability today, that's the way I'd describe it.
Okay Alright.
Alright, well that's very helpful. I appreciate the color.
Thanks, Jeff.
Your next question is coming from Ed Woo. Please announce your affiliation and pose your question.
Yes, ascendant capital congratulations on the quarter guys. My question is as oil seems to be stabilizing around a $70 price point.
What are your drillers are much more confident heading into the back half of this year is for free as it looks like COVID-19 seems to be.
Past its worse.
Yeah, I always hesitate to.
Give a forward looking statement like that but we.
Listen we're looking year over year. So I can clearly say that word we hear more of a buzz and a waiver.
A more robust business development team and we did a year ago so called.
Caution with that but you know our business development guys are definitely here.
Hearing more buzz about <unk>.
Trucks.
Heating season than last year.
So theres, 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 1 of the biggest players if not the biggest player on the gene.
In the U S. So.
Yeah, we're pretty excited but obviously, it's a tempered we're coming off COVID-19, so everyone's a little bit shaken out for the last 2 years. So.
We're excited with what we're hearing.
What about the competitive landscape I know, obviously a lot of a lot of drillers went out of business.
Was there a lot of.
Hot Oilers out on a business that aren't going to come back or are you seeing somewhat some of the competitors sit out for a while and it's slowly come back as demand comes back.
What we're seeing more.
Ed is.
<unk>, particularly the D J, but even Wyoming I mean, you saw a cohort Williams merge on the warm Sutter you have you have in the D. J, you've got extraction and theirs.
Theres been 2 or 3 big guys just come together noble on Chevron, obviously, so it is this.
There's fewer players in 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 some of them that has.
5 or 6 trucks they can.
They can get to you because it's the last thing you want to do on a job as you know get a call and they'll have the heating guy hold up the whole $6 million of Frac jobs. So.
I think that bodes well for us and we have you know.
Working on our butts off on on.
Solidified these relationships and we've got relationships with a lot of these big players on a merge so.
That's kind of a landscape I see today versus that's different which is fewer players bigger players.
Great well, thank you and wish you guys. Good luck.
Hey, Thanks, Ed.
There are no more questions in queue. At this time, if you would have if anyone has a question. Please press star 1.
Okay.
There are no questions in queue.
Well.
So I just wanted to.
Closing out 2 groups 1 is the employees of <unk>.
The person be here during the worst downturn since the eighties on oil patch I think we've come out leaner and tougher and real focused on on the next things here, which is the upturn I also want to thank the shareholders, who is probably the the 2 groups of be up the most.
On 1 of them 1 of the biggest shareholders and we are keenly focused on generating free cash flow over the next couple of quarters and if we're successful on that I think all we will see some dramatic impact on on our share price. So.
With that as always I appreciate your time attention on the call today, and we look forward to talking to you again on the close of our third quarter. Thanks again 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.
Yeah.