Q2 2024 Enservco Corp Earnings Call
Speaker Change: Dr.
Speaker Change: [music]
Speaker Change: Good morning, everyone, and welcome to the Inservco 2024 Second Quarter Earnings Call.
Speaker Change: At this time, all participants have been placed on a listen-only mode. If you have any questions or comments during the presentation, you may press star 1 on your phone to enter the question queue at any time, and we will open the floor for your questions and comments after the presentation.
Speaker Change: It is now my pleasure to turn the floor over to your host, Wes Harris. Sir, the floor is yours.
Wes Harris: Well, thank you, Matthew, and good morning, everyone. Welcome to Insurfco's 2024 Second Quarter Earnings Conference Call.
Speaker Change: Presenting on behalf of the company today are Rich Murphy, our Executive Chairman, and Mark Patterson, our Chief Financial Officer.
Speaker Change: I would note that 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 and 10-Q, as well as other filings with this SEC.
Speaker Change: 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. In CERVCO.
Servco: and Servco assumes no obligation to update forward-looking statements that become untrue because of subsequent events.
Servco: This conference call also includes references to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable measures under GAAP are contained in our earnings release.
Servco: Finally, a webcast replay of today's call will be available after the call. Instructions for accessing the webcast are available in the earnings release. So with that, we'll turn the call over to Rich. Rich?
Rich Murphy: Thanks Wes, and good morning everyone. We appreciate you joining us for today's call.
Speaker Change: Consistent with our first quarter success, our second quarter results reflected improved year-over-year performance across the board, including a 39% improvement in our adjusted EBITDA loss.
Speaker Change: As a reminder, our business has historically been very cold-weather dependent, and this seasonal nature has led to the fourth and first quarters each year being the most financially significant in terms of profitability.
Speaker Change: While we'll let Mark discuss the financial details of the second quarter in his comments, I believe the most significant achievement of the second quarter, and to date in the third, has been the efforts by our team to reposition the company in the marketplace.
Mark Patterson: All the collective hard work paid off in the last week for the closing of a number of strategic transactions. And I, along with the full Board of Directors, want to thank everyone for their dedication and support through this extended but critical process.
Speaker Change: For the past 18 months, we spent considerable effort evaluating and executing several strategic initiatives designed to enhance our financial position and further rationalize our asset base.
Speaker Change: This included a focus on reducing reliance on our seasonal heating services businesses. In the fourth quarter, 2023, we exited frack water heating in North Dakota, which has been an underperforming market that was negatively impacting profitability.
Speaker Change: We sold certain equipment and real estate as part of Exley, North Dakota.
Speaker Change: In addition to these efforts, we execute on several opportunities to right-size and take costs out of the business.
Speaker Change: and this carried into 2024. We continue to focus on ways to improve margins and deliver consistent profitability as we focus on improving the pricing environment and getting market share in the basins where we operate.
Speaker Change: We enter 2024 on better operational and financial footing due to our multifaceted efforts in 2023 to deleverage the balance sheet, as well as improved market share margins.
Speaker Change: And while our frack water heating services business benefited from improved seasonal conditions in this year's first quarter that carried into the second quarter, we recognize that additional enhancement to our asset base and financial position was necessary to increase value for our stockholders.
Speaker Change: We announced in March and recently closed our immediately accretive acquisition of Buckshot Trucking.
Speaker Change: We view Buckshot as a great step in transitioning the company towards a more consistent cash flow generator that is less seasonal and not as subject to commodity risk.
Speaker Change: In short, we have welcomed into Insurfco an energy logistics business that generates strong year-round cash flow with significant growth prospects and an expanded customer base. I would note the transition will not require substantial new overhead or capital.
Speaker Change: Most important, I want to welcome previous owners, Tony Sims and Jim Fate, as well as the rest of the BoxShot team, to the Insurfco family.
Speaker Change: In 2024, we continue to evaluate opportunities to reduce our reliance on seasonally focused businesses.
Speaker Change: Complimented by the Buckshot exhibition, we recently announced the sale of HeatWave's Colorado-based frack water heating assets.
Speaker Change: with the net proceeds being used to pay down certain of the company's debt obligations, including a specific focus on a Utica facility. Importantly, following the pay down, we expect to engage with Utica to restructure the remaining facility.
Speaker Change: To be clear, we are not completely exiting the frack water heating business. The company will continue to provide both frack water heating and hot oil services across the Marcellus, Utica basins, where last year's rapid hot acquisition bolstered our market share and contributed to significant improvement in operating results in the region.
Speaker Change: We also recently announced closing on a strategic agreement with Star Equity Holdings.
Speaker Change: including an exchange of respective equity investments between the companies and a short-term debt financing used to help facilitate the closing of the Buckshot acquisition. This agreement aligns the company and Star for potential future growth with Star's commitment to a long-term partnership and operational excellence.
Rick Coleman: In addition, it strengthens our leadership and oversight with the addition of Star CEO and Director Rick Coleman to Enservco's board of directors.
Rick Coleman: Last and certainly not least was a significant enhancement in our equity position at the buckshot and star transactions along with debt conversions from crossword partners.
Rick Coleman: improve the balance sheet. This provides improvement for the key shareholder equity metrics that's required for INSERFCO to regain compliance with the NYSE American Listing Standards. We look forward to continuing our discussions with NYSE American.
Rick Coleman: So with that, I'm going to have Mark take you through some of the quarterly numbers before I provide a few closing remarks. Mark?
Mark Patterson: Thank you, Rich. As Rich discussed, we are pleased to once again post year-over-year quarterly improvement across the board with a second quarter benefiting from improved pricing, longer winter, and increased activity levels compared to the same period in 2023.
Speaker Change: Having said that, given the recent closing of multiple transactions Rich outlined, our financial performance for the three and six months into June 30 are not indicative of future results.
Speaker Change: which we believe will be materially improved beginning in the second quarter and second half of 2024.
Speaker Change: As a result, my discussion today concerning our second quarter results will be limited. And I would point folks to our recently filed 10-Q and other SEC documents for more details concerning our historical operating and financial performing as well as that of Buckshot.
Speaker Change: Our second quarter of 2024 revenue was $3.8 million.
Speaker Change: second quarter of 2023 with the increase coming primarily in completion services revenue and it was partially offset with lower production services revenue namely the asset I think revenues were lower in the in the period
Speaker Change: Both completions and production services revenue were primarily impacted by relative activity levels.
Speaker Change: Net loss in the second quarter was $2.3 million, or $0.08 per diluted share, versus a net loss of $2.6 million, or $0.12 per diluted share, in the same quarter last year.
Speaker Change: Our second quarter adjusted EBITDA loss was $700,000 compared to a loss of $1.1 million in the second quarter of 2023. That's a year-over-year improvement of 39%.
Speaker Change: We remain very focused on rightsizing our business and will continue to evaluate and execute.
Speaker Change: opportunities that reduce cost across the business.
Rich Murphy: Turning to the balance sheet, in 2023 through June 30 of this year, we've made material progress in reducing our debt levels. We remain focused on further improvement in the financial position of the company, and Rich discussed the various transactions.
Rich Murphy: We recently executed that have materially improved our business portfolio, financial position, and growth.
Speaker Change: Our third quarter will benefit from around two months of operating and financial impact from the collective transactions.
Speaker Change: with a full quarter of net benefit in the fourth.
Speaker Change: Bottom line, we're looking for a much stronger remainder of 2024 and further material financial improvement in 2025. So with that, I'll turn the call back over to Rich.
Rich Murphy: Thank you, Mark. A primary focus for the remainder of the year will be ensuring a seamless integration of Buckshot's people, assets, and operations into our existing businesses.
Speaker Change: We work closely with the Buckshot team to execute already identified year-term growth initiatives.
Rich Murphy: I won't go through all the benefits afforded by each of the strategic transactions we recently closed.
Rich Murphy: I would encourage everyone to read through our August 9th and 12th announcements discussing the transactions.
Rich Murphy: and respective strategic rationale in more detail.
Rich Murphy: What I would say is that these collective announcements represent the culmination of our efforts over the past year and a half to maturely improve and reposition our asset base to drive more predictable operating performance and cash flow.
Rich Murphy: We also remain focused on regaining compliance with the NIC American Listing Standards, evidenced by the incremental shareholders' equity driven by the collective recent transactions.
Rich Murphy: In short, we believe the repositions in SERF Code 2.0 will prove to be the true value creator for stockholders. We are confident we will be in a strong position as we enter 2025 and catalyze on the additional opportunities for prudent growth in our energy logistics and service offerings across the country.
Rich Murphy: Combined with our strategic efforts over the past year to right-size the business, further rationalize the position of our assets, and enhance our financial position, we are in a good position to meet increased demand.
Speaker Change: In conclusion, we remain focused on executing our multi-faceted plan to optimize our operations and build a more sustainable business model designed to promote further visibility and enhance financial performance for the benefit of the company and its stockholders.
Speaker Change: With that, thanks again for joining us on the call today. We'll now be happy to take any questions. Operator?
Speaker Change: Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time.
Speaker Change: We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality.
Speaker Change: Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Jeff Grampp from Alliance Global Partners. Your line is live.
Jay: Good morning, Rich. Thanks for the time. Hey, good morning.
Jeff Graham: I'm curious if we could get
Jeff Graham: a little bit. I know we have some past historical info on the logistics business, but can you just maybe at a high level talk about, you know, how that business has been performing thus far and, you know, what your kind of outlook is for that business over the remainder of 24 into 25, at least at a high level.
Jeff Graham: Okay, so, and I'll let Mark jump in here as well, but...
Mark Patterson: Trailing 12 months is about, we've got nine point, a little over nine and a half million revenue, over two million EBITDA.
Mark Patterson: That's a business that has approximately, let's say, 28, 29 trucks.
Mark Patterson: that does no brokerage work. So Mark is a, and I'll talk for Mark in a second, he's got a very, he's got an expertise in the brokerage world of trucking so.
Speaker Change: When we overlay brokerage with Buckshot, and we were able to build the asset base up a little bit, we have an opportunity to really enhance those revenues and the EBITDA from where it is. But they are actually improving on that.
Speaker Change: That nine, they have some decent organic growth without us doing anything right now. They're going a nice clip and then with the brokerage entering new markets, we have a real big opportunity in front of us and I'll pass it over to Mark.
Mark Patterson: Do you have anything to add?
Mark Patterson: Yeah, so, you know, Buckshot is a very solid
Mark Patterson: company that has been built and led by a couple of very enthusiastic, very talented guys. What we want to do is complement them and help them be able to partner with
Mark Patterson: other carriers.
Mark Patterson: other entities for capacity and then introduce the services.
Mark Patterson: throughout the broader energy sector.
Mark Patterson: not just in oil and gas, but also...
Speaker Change: Wind and Solar.
Speaker Change: We've tested the waters with Buckshot.
Speaker Change: There's a lot of demand in our areas, there's a lot of acceptance of buckshot, and now all we really have to do is...
Speaker Change: be able to say yes.
Speaker Change: and continue to market the business and.
Speaker Change: and Expand. So that's kind of where we are. The numbers are, you know, roughly
Speaker Change: As Rich said, nine, nine and a half million in revenue on a trailing 12 basis, a little over two million in EBITDA. That EBITDA is influenced at the private company, so it'll be a little bit
Speaker Change: Skinny are on the expense side going forward as it's not run as a private entity.
Speaker Change: Understood. I appreciate those details. Do you guys have kind of a rough timeline or goalposts in terms of when that brokerage business could be kind of a little bit more tangible or see some contribution from that?
Speaker Change: Mark, why don't you take it?
Mark Patterson: Yeah, the brokerage business is at hand, you know, Tony and Jim
Mark Patterson: have had to turn away opportunities. We've connected them with some trucking companies that are well situated in the industry that can accept some of those loads and partner with them on it.
Mark Patterson: So, to the brokerage business at hand, the company just has not historically gone out and gotten their brokerage authority, their bond, and their insurance.
Mark Patterson: Those things are all relatively quick, you know, one or two weeks.
Mark Patterson: and all that's in place.
Mark Patterson: and then the company can...
Mark Patterson: can really increase and, you know, we could do it through.
Mark Patterson: Partnerships with other carriers through co-brokerage, we could do it direct.
Mark Patterson: But, you know, more than anything else, we want to tap into
Mark Patterson: the demand within the existing Enservco customer base.
Mark Patterson: as well as the demand that Buckshot has had and hasn't been able to meet.
Mark Patterson: to capture on their own. We got a call yesterday.
Speaker Change: from one of our very large clients on the Frank Watery side in Colorado.
Speaker Change: It's a very well-known company
Speaker Change: very well positioned.
Speaker Change: They were congratulating us and their response was, hey, we're ready to go on some of the...
Speaker Change: the hotshot activity as soon as you guys are ready. So we think it'll be widely accepted and ramped very quickly.
Speaker Change: And I would just say that they do about 65% of their business in the Rockies, and I say Rockies is Wyoming, Colorado, and they go up as far as North Dakota, and they do about 35% in Texas.
Speaker Change: They don't do much in Carrizo and Jordanton where we have our how-to-learn business. So that's a market we can tap into pretty quick. They don't have a presence in the Eureka and the Marcellus. We can tap in. We have about 30 customers with MSAs in
Speaker Change: in southwest Texas. So, I mean, there's going to be some opportunity for, as Mark said, the broker's business is going to be, I think, could be a huge opportunity, but there's going to be organic growth and there's going to be new markets.
Speaker Change: Okay, great. Appreciate all those details. For my follow-up, on the hot oiling side, just curious, Richard, to maybe get a bit of an update there on what you're seeing in the market, both from a demand standpoint as well as pricing. You know, we've seen some industry commentary from some service companies about, you know, some pricing concessions, things of that nature.
Speaker Change: giving you guys, you know, have good market share and a little bit more in a niche service. Just wondering if there's any insulation there or just overall temperature check on the market. Thanks.
Richard: Yeah, Hotline continues to run it like I always say, as I said in the past, Jeff, a 900 to 1,000,001 monthly revenue run rate. That continues. We're, I would say we see no concessions. We're actually seeing, we're pushing price in our market and so we
Speaker Change: That continues to run real nice. There's a reason we didn't sell it. It's an all year round business. It generates cashflow. And when it's complimented with Buckshot, I think there's actually some.
Speaker Change: driver synergies in that bit with Buckshot and in the huddle in the business. There's obviously MSAs, they're synergistic But yeah, I'm very happy with that business and we continue to want to try to expand maybe into additional markets But right now we're going to continue to dominate the market we're in
Speaker Change: Okay, great. Appreciate the update, guys. Thank you.
Speaker Change: Thanks, Jeff.
Speaker Change: Thank you. That concludes our Q&A session. I will now hand the conference back to Richard Murphy for closing remarks. Please go ahead.
Speaker Change: Yeah, I just want to thank the shareholders and the patient shareholders. It's been a three-year grind to get this company into a position where we can really start to grow again. And, you know, we're there today.
Richard Murphy: Real excited, I don't think the stock reflects all the hard work we put in to get here, but I think that over time, cash flow will make that a certainty. So again, thanks again, and I look forward to updating you guys in the next quarter with all we got going on with Bloodshot. Take care.