Enservco Corporation
Q3 2020 Earnings Call Transcript

Published: 16 Nov 2020

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the Enservco Third Quarter 2020 Earnings Call. At this time, all participants have been placed on a listen-only mode and will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Jay Pfeiffer. Sir, the floor is yours.

[Jay Pfeiffer:]

Hello, and welcome to Enservco's 2020 third quarter conference call. Presenting on behalf of the company today are Rich Murphy, Executive Chairman; and Marjorie Hargrave, President and CFO. 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 uncertainties disclosed in the company's most recent 10-K, as well as other filings with the SEC.

[Rich Murphy:]

Thanks, Jay. Welcome, everyone, and thanks for joining our call today. Before getting into our financial results, I want to recognize that we continue to live in unprecedented times with the pandemic, which has affected the way we and our customers do business and affected all of us as individuals in one way or another. Since March, our focus has been on the safety of all our staff and customers, and we certainly hope that you are all staying safe and well. I also want to take a minute to congratulate Marjorie Hargrave on our appointment to the President of Enservco. In her role as CFO, a position she'll continue to hold, Marjorie took the lead in engineering our successful refinancing and has also played a key role in driving cost reductions and reorganizing our field operations to be more efficient without sacrificing our ability to serve customers in markets across the U.S. Marjorie is a very talented all around manager, whose had a hand in all facets of our turnaround program and has the depth and breadth of experience to execute effectively in her new role as President. As you probably know, our second and third quarter are traditionally our slower quarters. Again with the warm temperatures, we're not doing any frac water heating, which is by far our largest revenue and profit generator. Our revenues in Q2 and Q3 are primarily derived from acidizing and hot oiling services. Demand for frac water heating picked up consistently heading into late fall and consequently, in the fourth and first quarters, which we refer to as our heating season, traditionally our strongest quarters in terms of revenue and profitability. We are progressing nicely in the current fourth quarter and very hopeful for a very cold winter that lasts well into the spring. Marjorie will recap our Q3 and nine-month financial results in just a few minutes. But first, I'd like to recap some highlights from the first 10 months of 2020 that I believe position Enservco for improved financial results going forward. As we related in our press release today, we entered 2020 facing some real challenges.

[Marjorie Hargrave:]

Thank you, Rich. Enservco reported Q3 revenue of $1.8 million, down from revenue of $3.8 million in the same quarter last year due to lower commodity prices and COVID-19 impact on our industry. What's notable about the revenue results are the gains we made in our revenue segment profit metrics despite the fact that segment revenue was down significantly year-over-year. Case in point, in the third quarter, our Production Services segment revenue declined to $1.4 million from $3.3 million, yet generated a $16,000 segment profit versus a $17,000 segment loss a year ago. So, the transition to profitability on significantly lower revenue in the third quarter highlighted the company's success in reducing costs of providing services in 2020. Similarly, our Completion Services segment revenue declined to $401,000 from $510,000 year-over-year, but we were able to reduce our segment loss to $725,000, which is a substantial improvement over the prior year segment loss of $1.2 million. This again illustrates the power of our cost reduction initiative. On the corporate side, we reduced SG&A expenses to $1 million in Q3, down from $1.7 million in the year ago third quarter, primarily reflecting savings derived from consolidation of physical locations and lower corporate staffing levels. In all, total operating expenses in the third quarter declined to $4.8 million from $8.2 million year-over-year, due primarily to the aforementioned cost reductions, as well as lower severance and transition costs, lower depreciation and amortization and reduced activity. We reported net income of $8.4 million or $0.14 per share in the third quarter compared to a net loss of $5.4 million or $0.10 per share in the same quarter last year. This reflected an $11.9 million gain on our bad debt restructuring. Adjusted EBITDA in the third quarter was a negative $1.7 million, compared to a negative $2.7 million in the same quarter last year. Turning to our nine month results, total revenue for the nine month period ended September 30, 2020, was $13.3 million versus $35 million in the same period a year ago. In addition to low commodity prices and COVID impact warmer than normal temperatures during the 2020 first quarter heating season stayed apart in this decline. Production services revenue through nine months was $5.9 million versus $11.2 million year-over-year and generated a segment loss of $707,000 compared to a segment profit of $1.2 million in the prior nine month period. Completion services revenue through nine months came in at $7.3 million compared to a $23.7 million figure in the same period last year and generated segment loss of $270,000 versus a segment profit of $6.9 million year-over-year.

[Rich Murphy:]

Thanks, Marjorie. So, in closing, we entered our heating season in a much better shape than we were at this time a year ago, with a lot of distractions behind us, a leaner operating model, an improved balance sheet, and as always, an impressive base of blue-chip customers, we're excited about our prospects going forward. Thank you again for your patience and continued support of Enservco. Operator, please open up for questions.

[Operator:]

Certainly. Our first question is coming from . Your line is live.

[Unidentified Analyst:]

Hey, good afternoon Rich and Marjorie. Thank you for taking my questions, and congrats on all the transformative work during the third quarter.

[Rich Murphy:]

Thanks Andrew.

[Unidentified Analyst:]

My first question is around completion activity. As oil seems to be firming up around the lower $40 per barrel range, we're definitely seeing some E&P companies turning towards their DUC completion activity and even looking at some development plans. While you move through your busier heating season, I was just wondering whether you've seen or expect to see the completion side of the business picking up as well.

[Rich Murphy:]

So Andrew, we don't give guidance, obviously, but bid activity is – I've always felt our bid activity is more relying on the weather than the actual activity levels. So, if you look at last year, I would say, a lot of our downside of last year's first quarter was so warm, particularly in our Pennsylvania yard, but we're starting – I would say, as you sit here in November, we're starting to see the bid activity. Particularly in the East or Pennsylvania are starting to pick up. It doesn't mean we'll win all the bids, but we're bidding on more stuff than we thought we would have.

[Unidentified Analyst:]

Okay. Okay. That's helpful. And there has certainly been a lot of discussion among producers around discounted services costs throughout the year, given all the depressed activity levels. And it seems like, at least on the E&P side that the consensus is that completion costs are down at least 25% this year. So, I just wanted to get your higher-level thoughts on those discounts? And how sustainable you think they might be as activity seems to be picking up as you head into next year?

[Rich Murphy:]

Yes. There's definitely pressure on pricing, which is – I don't think that's a new thing. That's something that's going on for a while. The nice thing about what we do for living is, we're very niche, so we're not a big part of the overall frac job, completion activity. So, it's – so the pressure on us is not felt as acutely. But yes, we have to – when we're looking at bidding for jobs, we definitely – we're sharpening our pencil, but we are the biggest player in , for example. So, we're the price leader, and we don't want to do something that we're not going to make good margin on. And quite frankly, the margins in our business are pretty – have always been pretty strong.

[Unidentified Analyst:]

Again that’s great. Thank you. That’s it from me. Thanks again.

[Operator:]

Thank you. There are no further questions in the queue at this time. I will now hand the floor back over to Rich Murphy for closing remarks.

[Rich Murphy:]

Well, as always, I appreciate your time, attention on the call today, everyone. We look forward to talking to everyone on our next quarterly call and hopefully report on some nice cold weather and positive cash flow. Talk to you soon.

[Operator:]

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.