Q3 2023 Enservco Corp Earnings Call

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Greetings and welcome to the <unk> served co third quarter 2023 earnings Conference call.

At this time all participants are in a listen only mode and a question and answer session will follow the formal presentation.

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Please note this conference is being recorded.

I will now turn the conference over to your host Mr. Rich Murphy, Sir you may begin.

Hello, and welcome to <unk> 2023, third 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 todays date and are subject to risks and uncertainties disclosed in the company's most recent 10.

10-K, as well as other filings with the SEC.

A company's business is subject to certain risks 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.

So point out that management's ability to respond to questions. During this call is limited by S. E T Reg FD, which prohibits selective disclosure of material nonpublic information.

A webcast replay of today's call will be available there and serve co dot com. After the call. In addition, a telephone replay will be available beginning approximately two hours after the call instructions for accessing the webcast or 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 and good.

Good morning, and welcome to our third quarter earnings call yesterday, we announced financial results for the third quarter and nine month period ended September 30th 2023, you.

You may recall that upon up until this quarter and circuit had reported nine consecutive quarters of year over year revenue increase in.

This quarter that trend ended up for what we believe was in our best interest to put a long term.

Typically we shut down our North Dakota operations in a strategic move to reallocate assets to more productive operated areas that offer more potential for revenue and profit growth.

Our former North Dakota operations generated $1 1 billion of revenues through the first nine months of last year. As a result third quarter revenue was down slightly on a year over year basis and the streak was broken.

We now move into our more active quarters and with oil prices and customer demand, where they are we remain quite optimistic about our chances of starting and maintaining a new streak and despite our quarter. Three revenue decline. We are still 3% ahead of last year's government pays for the nine month period.

As I mentioned, the North Dakota exit was a calculated move to focus our resources and more active areas is also expected to have the additional benefit of allowing us to convert underutilized assets to working capital to fund the Canadian season activities.

We are in discussions with a third party to acquire.

North Dakota real estate and equipment is expected to generate in the vicinity of one 1 million in cash that will further strengthen our balance sheet.

In any case, we're excited to be moving into fall and winter when cooler temperatures drive increased demand for our heating services as.

As you know our fourth and first quarters are when we generate the bulk of our revenue and profitability. So we're looking forward to see that we can accomplish what we can accomplish over the next six months or so.

This quarter and going forward, we're also going to benefit from the addition of rapid heart operation as our eastern operating area the Marcellus shale.

Rapid heart provides frac water heating services to E&ps in the Appalachian Basin, accomplishing in Ohio, Pennsylvania, and West Virginia.

We acquired the company late in the third quarter. So we didn't get much revenue impact in that period.

That's going to change in Q4, when we'll begin enjoying the full benefit of rapid heart operations.

We also believe we can continue to take market share across all our entire operating footprint.

In addition to strengthening our existing position in the region and contribute incremental revenue rapid heart.

It had the added benefit of providing more depth to our management team specifically, Mike laid the former president and CFO with rapid heart joined and surf goes chico's that make it a CPA who brings more than 30 years of executive experience with private and 19 listed companies, including extensive work in the energy sector and operations corporate development.

M&A capital pool, and capital formation for emerging growth companies.

It's also an accomplished turnaround specialists, who understand how to drive profitable growth and pursue opportunistic M&A activity we.

We further strengthened our team with the addition of rapid heart managing member, Steve While twin circles Board of directors why it was a 40 year energy executive having served as an executive board director and chairman of private and public energy companies.

As the founder CEO and Chairman and then Energy Corp, a deepwater exploration company that earlier. This year was merged in a transaction valued at nearly $1 $3 billion.

As energy leadership incompetence global oil services commodity deregulated power in upstream oil and gas. He has successfully managed to close more than $20 billion in M&A transactions and financing.

He is the second new director to join our board in the past seven months, we are building a team capable of many of them interact in a much larger enterprise, which is what we intend to do.

We are steadily building momentum across our businesses. We are encouraged by improving margins and continued drilling activity in our operating basis based on customer feedback. We expect further demand growth for our services and believe we are well positioned to meet that demand.

So with that I'm going to hand, the call over to Mark Patterson, our CFO to take you through some of the numbers before I provide provide a few closing comments mark.

Thank you rich.

Our third quarter revenue decreased 6% year over year to $2 9 million from $3 1 million in the prior year.

On a segment basis production services revenue was lower at $2 6 million.

The $2 8 million a year ago.

<unk> services revenue was basically flat.

Four 3 million.

As rich noted our exit from North Dakota played a big part of the overall revenue decline along with lower Hot oiling activity in our Colorado, and Pennsylvania markets. Most of this was offset by nice increases in our hot oiling and exercising activity in our Texas region.

Q3, adjusted EBITDA was negative 1.5 million, which compares to a negative $1 3 million in the same quarter of last year.

Net loss in the third quarter decreased slightly to $3 million or <unk> 13 per basic and diluted share compared to a net loss of $3 1 million or 27 cents per basic and diluted share in the same quarter last year.

Turning to the nine months results.

Revenue through nine months increased 3% year over year to $15 6 million.

$15 1 million.

Kris was attributable to growth in the completion services segment, which increased 11% year over year to $7 2 million from $6 5 million.

And more than offset a 3% decline in production services.

Which were $8 4 million versus 816 million year over year.

As previously mentioned on this call.

North Dakota operation generated 1.1 million of revenue during the first nine months of 2022.

North Dakota actually also helped improve our adjusted EBITDA.

Result by 42% through nine months to a negative $1 5 million from a negative $2 6 million in the same period last year.

The nine months net loss was $6 6 billion or 35 cents per basic and diluted share.

Versus a net loss of $3 9 million or 34 cents per basic and diluted share in the same period of last year.

Recall that in the year ago net loss included $4 $3 million up gain on debt extinguishment.

Absent that our net loss would have been much improved over the prior year.

As we told you last quarter, we're very focused on right sizing our business.

We need to look at ways to reduce costs. This includes had head count public company cost.

The legal accounting insurance Investor relations in the other areas we've.

We've seen significant declines in our SG&A expenses over the past 18 months and are approaching our internal go.

Annual SG&A run rate of $3 6 million, excluding some one time legal and non cash compensation.

One final highlight we recently closed $1.6 million convertible debt financing that include participation from REIT investors rapid heart.

As well as in Circuit Board.

Our largest shareholder cross your partners.

I think it's important that our stockholders to understand that our senior people, including our board have a lot of skin in the game that reflects their optimism about the future prospects of the company.

So with that I'll turn the call back to rich.

Thanks Mark.

I want to close with a few words about our ongoing successful efforts go on our balance sheet recap, we closed the third quarter with just $4 2 million in term debt lean to our equipment financing.

$1 1 million reduction from 2022 year, and an impressive 32 million reduction from our peak debt in 2019.

A much improved balance sheet gives us a greater place greater.

Greater financial flexibility as we explore opportunistic M&A transactions and look to add new revenue streams.

So again with improved balance sheet solid customer demand and the addition of quality depth to our leadership teams. We're looking forward to optimize our opportunities in the current season and capitalizing on new growth opportunities over the long term with that thank you again for joining our call today I'll be happy to take any questions.

Later.

Thank you.

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One moment, please while we poll for questions.

Thank you.

I have a question from Jeff Gramm with Alliance Global Partners. Your line is nice.

Good morning, Rich good morning, Mark.

To good morning wanted to ask about about rapid heart here I know early you know not even I think a couple of months into a into closing this but how much integration as they're needing to be done there and I'm just for context can you kind of discuss the size of that fleet or maybe the historical revenue just to better understand how impactful that business can be and yep.

Coming heating season.

Yeah I mean.

The base in itself as is.

Although we had about.

14 to 16 bonds held in that basin and rabbit.

Rabbit hole I had about the same.

But it is a the integration itself is pretty simple when you basically can combined our operations. We've moved all the equipment to the rapid heart operation yard, which.

You can save some cost there.

As far as the revenue opportunity last year is probably a bad example, and one of the reasons that the to US we're kind of fortunate each other's hands. There it was pretty warm last winter and in the Marcellus.

And we take a lot of whether rates, we're trying to mitigate the weather risk as we go forward all do better terms with our service providers and they are open to it because you know listen loop.

That basically will have no heating services.

Margins don't improve.

So.

The the margins tend to be better, but the season extends the shorter.

Last year was basically a year for all of us.

And generally a lot of revenue on.

So I you know.

We were around two and a half million in revenue 2 million two two to two two and a half million revenue last year, a wrap how it was probably a little less I think the combined entity can do.

With better pricing.

It won't be one plus one equals two.

I think well I was going to say that.

I think one of the things that I'm seeing and this is my second season him at the helm here and.

There isn't a change to optimize both from our customers as far as willing.

Willingness to work with us.

Last year, we saw a lot of times when he got callout work, whether it's Colorado, where you can have equipment and a lot of people have left this this business the heating business. So that an E&P customer live the understand that so they want to make sure they lock up there.

Their equipment for the season, and then not left stranded or or getting very expensive callout work there's been a.

Fundamental shift in kind of the mindset of our customers, which is good. It's good for all of US because it was an unhealthy environment from 'twenty to 'twenty to 'twenty two.

For service guys.

Understood. Thanks, Thanks for that that's helpful and on the pricing side I think the release referenced some some stronger pricing action that you are seeing is there a way to quantify that maybe relative to last year and then is that specific to frac water heating or is that kind of across all your service lines.

Across all we continue to see rates going up on the daily rate in the hourly rate even for hot oiling.

The heating business.

We're seeing a combination of.

I I don't want to get a percent because it kind of goes across the board, but it's you know the low end would be 10% and I am probably 25 mm, but that's.

Both Colorado and P. A well primarily right now in the human space as Colorado, Wyoming N P. A north Dakota being gone.

<unk>.

Yeah, So I think youre, saying that 10% to 25% like what we're seeing more as his term in term is critical to get a 30 day term locked up with a healthy standby rates are not cold, we're still getting paid and that was always within that disappeared in 2020, and that's that's the thing that our industry quite frankly needs too.

To be healthy so.

With a lot of the equipment being just leaving the industry are you starting to get that kind of 30 60 90 day term back in play.

And then yeah, if it's if it happens to be hot in February.

They get paid a lesser rate but.

Yeah.

That's a very important feature.

Understood Yeah, that's that's definitely a big change relative to the last couple of years and last one for me just broadly on an M&A rich any kind of updated commentary there in terms of what youre seeing and would you consider your yourselves kind of back end in the market effectively or is there kind of a digestion period that you'd want to get through it.

The top before kind of getting more seriously back into the M&A market.

No. We're we're looking at stuff, we're definitely in the market and as you can see from our remarks with the board we have a very good team right now to execute on some M&A whether it be transformative.

Transformative or niche type of tuck in stuff.

We with the balance sheet, where it is generally we feel like we can go the rabbit how the integration is pretty much complete supposed to be where right now just ramping up for the season and try to sign.

Get all our contracts are.

Signed and done in Pennsylvania, the last basin to because it gets cold this last to lock in on your bid activity.

So.

Yeah, where we're looking at.

Yeah, nothing pending tomorrow, but we're looking at a variety of stuff.

And the M&A activity is that the options are.

I won't say plentiful, but there's a lot of interesting businesses that would.

You did well with what we do.

Okay, great to hear thank you guys for the time.

Hey, Thanks, Jeff.

Thanks <unk>.

Once again, ladies and gentlemen, if you have any questions or comments. Please press star one at this time.

Okay. As we have no further questions in queue I will hand, it back to Mr. Murphy for any closing comments you may have.

I want to thank everyone on the call and then particularly employees I've been circa who over the last three years and done yeoman's work to get us to where we are with this balance sheet, where we are and you know our customers I think we're a good spot now as you enter the winter season, and I couldn't be more excited to get to this this fall and winter.

And see the outcome.

Some large so I look forward to catching up with investors and everyone else we watched the winter. So thanks again for your time.

Take care.

Thank you. This concludes today's conference and you may disconnect. Your lines at this time and we thank you for your participation.