Q2 2023 Enservco Corporation Earnings Call
Speaker 1: Greetings, welcome to ENSERFCO's second quarter earnings call.
Hello and welcome to UnservedCo's 2023 second quarter conference call. Presenting on behalf of the company today are Rich Murphy, Executive Chairman and Mark Patterson, Chief Financial Officer.
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 SEC filings. 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.
And 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 SEC Reg FD which prohibits selective disclosure of material non-public information.
Thank you, Rich. Beginning with our second quarter results, Q2 revenue increased 8% year-over-year to 3.7 million from 3.5 million on the strength of 147% increase in completion services. This was offset by a 7% decline in production services revenue. The decline in production services revenue was primarily related to our decision to exit our North Dakota operations. But that decline was substantially offset by significant gains within our more profitable Texas operations. Q2 adjusted EBITDAI improved by more than $500,000 to a loss of $1 billion compared to a loss of $1.6 million in the same quarter last year. Our bottom line in the second quarter improved by $1.3 million to a net loss of $2.6 million, our 14 cents per basic and diluted share, versus a net loss of $3.9 million, our 34 cents per basic and diluted share.
in the same quarter last year. The reduced net loss was attributable to the combination of higher revenue and the impact of cost reductions across our business, including most notably a 43 percent decrease in SG&A expense in the quarter. Our SG&A run rate going forward will be in the range of $800,000 per quarter. That compares to an average of 1.2 to 1.4 million per quarter last year, a roughly 50 percent reduction. Turning to the six-month results, revenue through six months increased five percent year over year to $12.6 million from $12 million in the prior year. The increase reflected 12 percent growth in completion services, partially offset by the two percent decline in production services. Adjusted EBITDA through the six-month improve by 1.3 million to nearly break even from a negative 1.4 million in the same period of last year. That's a pretty significant positive swing year over year and solid evidence that we're executing very well on our cost reduction plan. Net loss through six months was $3.6 million or 22 cents per basic and diluted share compared to a net loss of $800,000 or seven cents per basic and diluted share in the same period last year. Remember, in the year ago period...
We booked a non-recurring 4.3 million gain on debt extinguishment, which skews the year-over-year comparison. Also in the second quarter, the company achieved significant cost reductions at both the operating and corporate levels through six months. Further to the issue of cost reductions, as we told you last quarter, we're focused very intently on right-sizing our business to align with projected revenue growth rates. This effort has included reducing personnel costs through headcount reduction at the corporate level and within our field teams during the less productive seasons, lowering our public company costs, including legal, accounting, and investor relations, reducing costs in real estate, rent, utilities, equipment rent, repairs, insurance, and everything else. Regarding the latter, insurance, we've recently completed some insurance restructuring that we think should result in significant annual savings with higher limits, broader coverages, and better programs. So with that, I'll hand the call back over to Rich. Thanks, Mark. I'll close with a few comments on two topics that are very important to me, both as executive chairman and as I said, Zervico's largest shareholder. The first is our dramatically improved balance sheet, and the second is our ongoing effort to augment our legacy businesses with new revenue streams, with an emphasis on year-round services that can help us reduce the seasonal aspect of our business.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, please press star 1 if you wish to ask your question at this time. And one moment please while we pull for questions. And the first question today is coming from Jeff Gramp from Alliance Global Partners. Jeff, your line is live. Good morning, guys. Hey, good morning, Jeff. Rick, I wanted to start maybe on the last point on the M&A topic and a related point being the balance sheet side of things. You guys have obviously made tremendous progress on reducing the debt.
Yeah, understood. I appreciate that. That's helpful. And then on the production services business, it was down a little bit year over year. It sounded like based on the press release, some of that was maybe due to just moving some equipment and presumably some downtime there. Can you give us a sense of like, I don't know, like a pro forma Q2 if all equipment was deployed in the areas that they currently are and I guess ultimately just trying to assess how much of a headwind was that shift of equipment for you guys when evaluating the Q2 results?
It's kind of – it's a little bit of a misnomer in terms of looking at the numbers, because our Texas business is booming. I've said that in the past. If you just took Texas, it's up over 20% in the quarter on a revenue basis. Where it gets netted out is we shut our North Dakota operations because we couldn't have a big enough – I moved a lot of that equipment obviously out of Texas, but we just couldn't – North Dakota is a tough place to do business. You need to have – I don't know how to – It's just a different world up there with regard to safety, winning customer bids. You have to go through a lot of Indian reservation type work. So it's just not a great place to do business. And when oil prices turn down, that's usually the first phase to go dark. So I made a strategic decision to say, hey, this equipment, particularly the hot orders are better utilized in Texas. So we're actually comparing zero revenue North Dakota in Q2 versus a bigger number even though it's unprofitable revenue in North Dakota. This is the last, basically the last anniversary of that basin. And we also did in second quarter in Colorado some construction work, dirt hauling in that last Q2 last year. And I put an end to that as well because we just have certain profit metrics. It doesn't mean a profit.
So just wondering big picture, you know, how do you guys think about kind of the gives and takes with broader industry activity levels relative to, you know, what you guys are achieving in the field? I mean, so when you talk about that, we talk about three basins, right? We talk about Colorado, Texas, and PA for us. And Colorado is a fascinating basin because it's so consolidated now. But you have really have four or five big players left. That basin, I would, you know, I'm knocking on wood as I say it, but that basin is very strong right now in pricing versus last year. So we're very encouraged by that. And the fact that matters, the fact that the big, the big players, the Civitases and the Chevrons of the world, the Oxy.
They tend not to drop rigs as quickly as the smaller guys. So they have five-year plans and they're going through with that, and we're seeing strong demand from those players. The Texas market continues to be very robust. That's the hot oil market and PA to be determined. They usually don't start pricing PA for the heating season until September .