ENSERVCO Reports Second Quarter Financial Results
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E-mailDENVER, CO -- (Marketwired) -- 08/14/15 -- ENSERVCO Corporation (NYSE MKT: ENSV)
- Company generates $12.7 million in cash from operations in first half and pays down long-term debt by $10 million
- Completion of fleet expansion positions Company to achieve a year over year increase in revenue during the coming heating season
- New revenue streams added through expansion into Texas and Bakken acquisition
- Revenues impacted by propane revenue decline and strategic shift away from marginal water hauling services
- One half (i.e. $0.01) of $0.02 EPS decline attributable to increase in depreciation from 2014 fleet expansion
- Company continues to build market share, maintain strong balance sheet and pursue M&A opportunities
ENSERVCO Corporation (NYSE MKT: ENSV), a diversified national provider of well-site services to the domestic onshore conventional and unconventional oil and gas industries, today reported financial results for its second quarter ended June 30, 2015.
"The second quarter is traditionally one of our two slower, off-season quarters when frac water heating activity declines with the rise in temperatures," said Rick Kasch, Chairman and CEO. "Similar to other service companies, this year we also encountered challenges due to the slowdown in drilling, completion and maintenance activity as well as to inclement weather in some of our key operating areas. However, we, unlike many other service companies, did not suffer a significant impact on our operations from the energy industry downturn. Our results were impacted by revenue declines attributable to factors unrelated to industry conditions -- a reduction in propane revenues accounted for 43% of the decline and a conscious decision to phase out unprofitable or low margin water hauling services accounted for 45%. We have discussed the reasons for the propane impact in several previous releases. As to price concessions, we estimate an impact of only 4% of overall revenues, which we believe is significantly less than what our peers experienced in the second quarter. Given the degree to which industry conditions are impacting other service companies, we feel very fortunate the impact on us has been relatively mild.
"We were able to replace business lost due to slowing activity by E&P's with new revenue streams created by our M&A and capex initiatives. The doubling of our fleet in 2014 not only helped replace business, but we expect it to greatly improve our ability to increase revenues over last year for the upcoming 2015-2016 heating season. In addition, our acquisition of assets and real estate in Tioga, North Dakota, late last year has led to new customers and incrementally higher frac water heating and hot oiling revenues year over year as we now provide services in the northern Bakken, where temperatures stay cooler longer and demand for heating extends later into the spring and commences earlier in the fall. Our move into the Eagle Ford basin in Texas this year is starting to make an impact on revenue with nine hot oiling trucks now servicing a growing list of customers that includes XTO, EP Energy and EOG, which are among the biggest players in the basin. These new revenue streams validate our M&A and geographical expansion strategies, which are designed to leverage our reputation and customer relationships in new service areas by acquiring and/or re-deploying assets that can provide services on a more year-round and higher margin basis. Unfortunately, the incremental revenue from these two new sources was offset by the impact of heavy rains in April and May, which caused flooding, road closures and related logistical problems both for E&Ps and services providers. In addition, second quarter revenue was impacted by the cessation of two large projects that were outside our normal scope of services and therefore were not replaced.
"Operating income before depreciation and patent litigation costs was down only approximately $420,000 in the second quarter -- $226,000 of which was attributable to price concessions to some customers and another $150,000 which was attributable to the effect on gross profit from the decline in propane sales. The remainder of the decline can be attributed to costs associated with the fleet and geographic expansion such as higher labor costs related to retaining a higher number of operators in preparation for the upcoming heating season, repairs and maintenance, equipment related insurance, supplies, and site overhead.
"The increase in our net loss year over year was primarily attributable to the factors described above in addition to an increase in depreciation due to our fleet expansion. In fact, approximately one-half of the increase in our per-share loss is attributable to depreciation expense that nearly doubled year over year. On the other hand, adjusted EBITDA on a year over year basis declined only $310,000 in the second quarter -- a traditionally slower quarter that historically contributes very little to our full-year adjusted EBITDA, which totaled $11.5 million in 2014. This is why we feel our performance should be measured by adjusted EBITDA and not by EPS.
"We are confident that we are well positioned to continue strengthening our business by focusing on growth initiatives that we expect to bear fruit both in the near term and increasingly as oil prices recover. These initiatives include the recent doubling of our revenue capacity through fleet expansion and our continued penetration into the Texas market. We are also pursuing M&A opportunities, focusing on companies that have good business models but poor financial models. We are taking a prudent, patient approach in this regard, but are confident we can add shareholder value through accretive acquisitions over time. In the meantime, we continue to capture market share, generate substantial cash flow, and maintain a strong balance sheet and a solid banking relationship.
"On another positive note, our patent infringement litigation process has been stayed pending an appeal of a judge's ruling in the North Dakota case that was favorable to our case. This was reflected in a $239,000 sequential decline in litigation costs from the first quarter of this year."
Second Quarter Results Revenue in the second quarter declined 22% to $5.7 million from $7.3 million in the same quarter last year. The decline was primarily attributable to two factors: 1) propane revenue was lower by $682,000 due to lower propane prices year over year and a decrease in volume sold due to customers either continuing to take advantage of the Company's new, cost-saving bi-fuel system or providing their own fuel source; and, 2) a $718,000 decline in lower-margin water hauling revenue discussed above.
Revenue mix in the second quarter included $4.1 million in well enhancement revenue, down from $4.9 million in the same quarter last year. Of this $875,000 decline, $682,000, or 78%, was attributable to the previously mentioned propane impact. Hot oiling revenue was down 14% year over year -- to $1.9 million from $2.2 million -- due to reduced activity from two special projects last year, selective price concessions, and inclement weather. Acidizing revenue declined year over year to $333,000 from $582,000 due primarily to operators postponing recurring maintenance programs. Fluid management revenue was $1.7 million in the second quarter, down from $2.4 million for reasons previously mentioned.
Gross profit declined $610,000 year over year due to higher fleet and labor costs associated with the Company's expansion into Texas, and downtime caused by exceedingly wet weather during April and May, which led to lower personnel and equipment utilization. Gross margin in the second quarter declined as a result of lower revenue in relation to a relatively fixed cost base comprised of facilities, insurance and personnel necessary for the upcoming heating season.
Total operating expenses in the second quarter increased 30% to $2.5 million from $1.9 million in the same quarter last year. This $577,500 increase reflected a 98% increase in depreciation expense -- from $726,000 to $1.4 million -- due to the larger fleet size and a $56,000 increase in legal costs associated with the Company's efforts to defend against certain patent infringement claims. These increases were partially offset by a $192,000 decrease in general and administrative expenses attributable to cost savings measures.
The increase in operating expenses combined with lower revenue led to an operating loss of $2.3 million in the second quarter versus an operating loss of $1.2 million in the same quarter last year. The Company reported a net loss of $1.6 million, or $0.04 per diluted share, versus a net loss of $851,000, or $0.02 per diluted share, in the same quarter last year. The Company estimates that $0.01 of the increase in net loss per share was attributable to the increase in depreciation expense.
The Company reported an Adjusted EBITDA loss in the second quarter of $621,000 compared to a loss of $311,000 a year ago.
Six-Month Results Revenue in the first half of 2015 decreased 24% to $24.8 million from $32.5 million in the same period last year. The majority of that decrease was attributable to the decline in propane revenue for reasons previously described.
Gross profit margin increased to 32% from 29% a year ago due primarily to the mathematical impact of lower propane revenue and costs.
Total operating expenses in the first half of 2015 increased 49% to $5.4 million from $3.6 million a year ago. Nearly all of the increase was comprised of two expense categories: 1) depreciation expense, which grew by 97%, or $1.4 million; and, 2) patent litigation expense, which grew by 277%, or $322,000. General and administrative expense grew only slightly in the first half.
Operating income in the first half of 2015 declined to $2.7 million from $6.0 million last year due to a combination of lower gross margins and higher operating expenses -- particularly depreciation and litigation costs. Net income in the first half was $1.3 million, or $0.03 per diluted share, versus $3.3 million, or $0.09 per diluted share, a year ago.
Adjusted EBITDA in the first half of 2015 was $6.1 million, down from $7.6 million a year ago.
ENSERVCO generated $12.7 million in net cash from operations in the first half, up 13% from $11.2 million in the same period last year. The Company closed the first half with working capital of $5.9 million. Cash flow from operations were used to pay down the Company's senior credit facility with PNC bank to $18.6 million, thereby improving the long-term debt to equity ratio to just less than 1 to 1 as compared to 1.65 to 1 at 2014 year-end.
Conference Call Information Management will hold a conference call today to discuss these results. The call will begin at 1:00 p.m. Eastern (11:00 a.m. Mountain) and will be accessible by dialing 877-407-8031 (201-689-8031 for international callers). No passcode is necessary. A telephonic replay will be available through August 19, 2015, by calling 877-660-6853 (201-612-7415 for international callers) and entering the Conference ID #13616496. To listen to the webcast, participants should go to the ENSERVCO website at www.enservco.com and link to the "Investors" page at least 15 minutes early to register and download any necessary audio software. A replay of the webcast will be available for 90 days. The webcast also is available at the following link: http://www.investorcalendar.com/IC/CEPage.asp?ID=174253
About ENSERVCO Through its various operating subsidiaries, ENSERVCO has emerged as one of the energy service industry's leading providers of hot oiling, acidizing, frac water heating and fluid management services in seven major domestic oil and gas fields, serving customers in Colorado, Kansas, Montana, New Mexico, North Dakota, Oklahoma, Pennsylvania, Ohio, Texas, Wyoming and West Virginia. Additional information is available at www.enservco.com
*Note on non-GAAP Financial Measures This press release and the accompanying tables include a discussion of EBITDA and Adjusted EBITDA, which are non-GAAP financial measures provided as a complement to the results provided in accordance with generally accepted accounting principles ("GAAP"). The term "EBITDA" refers to a financial measure that we define as earnings plus or minus net interest plus taxes, depreciation and amortization. Adjusted EBITDA excludes from EBITDA stock-based compensation and, when appropriate, other items that management does not utilize in assessing ENSERVCO's operating performance (as further described in the attached financial schedules). None of these non-GAAP financial measures are recognized terms under GAAP and do not purport to be an alternative to net income as an indicator of operating performance or any other GAAP measure. We have reconciled Adjusted EBITDA to GAAP net income in the Consolidated Statements of Operations table at the end of this release. We intend to continue to provide these non-GAAP financial measures as part of our future earnings discussions and, therefore, the inclusion of these non-GAAP financial measures will provide consistency in our financial reporting.
Cautionary Note Regarding Forward-Looking Statements This news release contains information that is "forward-looking" in that it describes events and conditions ENSERVCO reasonably expects to occur in the future. Expectations for the future performance of ENSERVCO are dependent upon a number of factors, and there can be no assurance that ENSERVCO will achieve the results as contemplated herein. Certain statements contained in this release using the terms "may," "expects to," and other terms denoting future possibilities, are forward-looking statements. The accuracy of these statements cannot be guaranteed as they are subject to a variety of risks, which are beyond ENSERVCO's ability to predict, or control and which may cause actual results to differ materially from the projections or estimates contained herein. Among these risks are those set forth in our fiscal year 2014 Form 10-K filed on March 19, 2015, and subsequently filed documents. It is important that each person reviewing this release understand the significant risks attendant to the operations of ENSERVCO. ENSERVCO disclaims any obligation to update any forward-looking statement made herein.
ENSERVCO CORPORATION
Condensed Consolidated Statement Of Operations And Comprehensive Income
(Loss)
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
2015 2014 2015 2014
------------ ------------ ----------- -----------
Revenues $ 5,702,549 $ 7,294,856 $24,842,046 $32,536,901
Cost of Revenues 5,563,875 6,545,891 16,828,160 22,968,362
------------ ------------ ----------- -----------
Gross Profit 138,674 748,965 8,013,886 9,568,539
------------ ------------ ----------- -----------
Operating Expenses
General and
administrative
expenses 940,373 1,132,259 2,160,726 2,089,640
Patent litigation
and defense costs 100,197 44,271 439,214 116,421
Depreciation and
amortization 1,439,838 726,424 2,762,772 1,403,888
------------ ------------ ----------- -----------
Total Operating
Expenses 2,480,408 1,902,954 5,362,712 3,609,949
------------ ------------ ----------- -----------
(Loss) Income from
Operations (2,341,734) (1,153,989) 2,651,174 5,958,590
Other Income (Expense)
Interest expense (247,220) (241,903) (500,431) (495,428)
(Loss) Gain on
disposals of
equipment (1,071) (5,129) (1,071) 9,237
Other income 25,351 7,050 32,251 13,950
------------ ------------ ----------- -----------
Total Other
Expense (222,940) (239,982) (469,251) (472,241)
------------ ------------ ----------- -----------
(Loss) Income Before
Tax Expense (2,564,674) (1,393,971) 2,181,923 5,486,349
Income Tax Benefit
(Expense) 950,163 542,952 (904,554) (2,151,412)
------------ ------------ ----------- -----------
Net (Loss) Income $ (1,614,511) $ (851,019) $ 1,277,369 $ 3,334,937
============ ============ =========== ===========
Other Comprehensive
Income (Loss)
Unrealized gain
(loss) on interest
rate swaps, net of
tax - 483 - (3,290)
Settlements -
interest rate swap - 6,517 - 13,115
Reclassification
into earnings -
interest rate swap - (6,517) - (13,115)
------------ ------------ ----------- -----------
Total Other
Comprehensive
Income (Loss) - 483 - (3,290)
------------ ------------ ----------- -----------
Comprehensive (Loss)
Income $ (1,614,511) $ (850,536) $ 1,277,369 $ 3,331,647
============ ============ =========== ===========
(Loss) Earnings per
Common Share - Basic $ (0.04) $ (0.02) $ 0.03 $ 0.09
============ ============ =========== ===========
(Loss) Earnings per
Common Share -
Diluted $ (0.04) $ (0.02) $ 0.03 $ 0.09
============ ============ =========== ===========
Basic weighted average
number of common
shares outstanding 37,761,961 36,514,889 37,557,451 36,126,647
Add: Dilutive shares
assuming exercise of
options and warrants - - 1,883,281 2,466,052
------------ ------------ ----------- -----------
Diluted weighted
average number of
common shares
outstanding 37,761,961 36,514,889 39,440,732 38,592,699
============ ============ =========== ===========
ENSERVCO CORPORATION
Calculation of Adjusted EBITDA *
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
2015 2014 2015 2014
------------ ------------ ----------- -----------
Adjusted EBITDA*
Net (Loss) Income $ (1,614,511) $ (851,019) $ 1,277,369 $ 3,334,937
Add Back (Deduct)
Interest Expense 247,220 241,903 500,431 495,428
Income Tax
(Benefit) Expense (950,163) (542,952) 904,554 2,151,412
Depreciation and
amortization 1,439,838 726,424 2,762,772 1,403,888
------------ ------------ ----------- -----------
EBITDA* (877,616) (425,644) 5,445,126 7,385,665
Add Back (Deduct)
Stock-based
compensation 180,211 71,935 271,271 148,280
Patent litigation
and defense costs 100,197 44,271 439,214 116,421
Loss (Gain) on sale
and disposal of
equipment 1,071 5,129 1,071 (9,237)
Interest and other
income (25,351) (7,050) (32,251) (13,950)
------------ ------------ ----------- -----------
Adjusted EBITDA* $ (621,488) $ (311,359) $ 6,124,431 $ 7,627,179
============ ============ =========== ===========
ENSERVCO CORPORATION
Condensed Consolidated Balance Sheets
June 30, December 31,
ASSETS 2015 2014
-------------- --------------
(Unaudited)
Current Assets
Cash and cash equivalents $ 760,422 $ 954,058
Accounts receivable, net 3,877,885 14,679,858
Prepaid expenses and other current assets 998,963 1,540,667
Inventories 304,845 390,081
Income tax receivable 1,905,641 1,776,035
Deferred tax asset 135,055 135,055
-------------- --------------
Total current assets 7,982,811 19,475,754
Property and Equipment, net 38,165,263 37,789,004
Goodwill 301,087 301,087
Other Assets 659,053 716,836
-------------- --------------
TOTAL ASSETS $ 47,108,214 $ 58,282,681
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 1,707,638 $ 5,472,163
Current portion of long-term debt 329,219 340,520
-------------- --------------
Total current liabilities 2,036,857 5,812,683
-------------- --------------
Long-Term Liabilities
Senior revolving credit facility 18,552,894 28,634,037
Long-term debt, less current portion 645,409 801,968
Deferred income taxes, net 5,801,846 4,992,681
-------------- --------------
Total long-term liabilities 25,000,149 34,428,686
-------------- --------------
Total liabilities 27,037,006 40,241,369
-------------- --------------
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $.005 par value, 10,000,000
shares authorized, no shares issued or
outstanding - -
Common stock. $.005 par value, 100,000,000
shares authorized, 38,189,758 and
37,159,815 shares issued, respectively;
103,600 shares of treasury stock; and
38,086,158 and 37,056,215 shares
outstanding, respectively 190,432 185,282
Additional paid-in capital 13,498,766 12,751,389
Accumulated earnings 6,382,010 5,104,641
-------------- --------------
Total stockholders' equity 20,071,208 18,041,312
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 47,108,214 $ 58,282,681
============== ==============
ENSERVCO CORPORATION
Condensed Consolidated Statement of Cash Flows
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- -------------------------
2015 2014 2015 2014
------------ ------------ ------------ -----------
OPERATING ACTIVITIES
Net (loss) income $ (1,614,511) $ (851,019) $ 1,277,369 $ 3,334,937
Adjustments to
reconcile net
income to net cash
provided by (used
in) operating
activities
Depreciation and
amortization 1,439,838 726,424 2,762,772 1,403,888
Loss (gain) on
sale and disposal
of equipment 1,071 5,129 1,071 (9,237)
Deferred income
taxes (852,517) 129,780 809,165 129,831
Stock-based
compensation 180,211 71,935 271,271 148,280
Amortization of
debt issuance
costs 28,891 81,325 57,783 162,649
Bad debt expense 8,620 40,000 12,845 50,000
Changes in operating
assets and
liabilities
Accounts
receivable 11,320,218 13,781,701 10,789,128 7,642,639
Inventories 38,992 (75,912) 85,236 (128,721)
Prepaid expense
and other current
assets 156,061 (193,869) 541,704 (563,765)
Income taxes
receivable (129,606) - (129,606) -
Other non-current
assets - - - (14,001)
Accounts payable
and accrued
liabilities (3,978,717) (707,265) (3,764,525) (642,754)
Income taxes
payable (56,205) (1,786,322) - (302,008)
------------ ------------ ------------ -----------
Net cash
provided by
operating
activities 6,542,346 11,221,907 12,714,213 11,211,738
------------ ------------ ------------ -----------
INVESTING ACTIVITIES
Purchases of
property and
equipment (792,723) (5,099,341) (3,145,102) (6,604,490)
Proceeds from sale
and disposal of
equipment 5,000 - 5,000 50,000
------------ ------------ ------------ -----------
Net cash used in
investing
activities (787,723) (5,099,341) (3,140,102) (6,554,490)
------------ ------------ ------------ -----------
FINANCING ACTIVITIES
Net line of credit
payments (5,988,003) (1,158,971) (10,081,143) -
Repayment of long-
term debt (37,335) (578,715) (167,860) (1,156,989)
Proceeds from
exercise of
warrants - 98,175 77,100 187,804
Proceeds from
exercise of options 171,400 25,200 186,034 66,450
Excess tax benefits
from exercise of
options and
warrants 81,291 - 218,122 -
------------ ------------ ------------ -----------
Net cash used in
financing
activities (5,772,647) (1,614,311) (9,767,747) (902,735)
------------ ------------ ------------ -----------
Net (Decrease)
Increase in Cash and
Cash Equivalents (18,024) 4,508,255 (193,636) 3,754,513
Cash and Cash
Equivalents,
Beginning of Period 778,446 1,114,448 954,058 1,868,190
------------ ------------ ------------ -----------
Cash and Cash
Equivalents, End of
Period $ 760,422 $ 5,622,703 $ 760,422 $ 5,622,703
============ ============ ============ ===========
Supplemental cash flow
information consists
of the following:
Cash paid for
interest $ 220,369 $ 106,642 $ 557,530 $ 319,571
Cash paid for
taxes $ 2,874 $ 1,112,000 $ 2,874 $ 2,325,257
Supplemental
Disclosure of Non-
cash Investing and
Financing Activities:
Cashless exercise
of stock options
and warrants $ 433 $ 1,572 $ 2,752 $ 7,168
Contact: Jay Pfeiffer Pfeiffer High Investor Relations, Inc. Phone: 303-393-7044 Email: Email Contact
Source: ENSERVCO
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