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8-K - FORM 8-K - Enservco Corpensv20150814_8k.htm

Exhibit 99.1

 

  

ENSERVCO Reports Second Quarter Financial Results

 

 

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

 

 

DENVER, CO – August 14, 2015 – 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.

 

Contact:

 

Jay Pfeiffer

Pfeiffer High Investor Relations, Inc.

Phone: 303-393-7044

Email: jay@pfeifferhigh.com

 

 
 

 

 

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,

 

 

 

2015

   

2014

 
    (Unaudited)           
ASSETS  

 

         

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