Enservco Corporation
Q4 2020 Earnings Call Transcript

Published: 23 Mar 2021

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the Enservco 2020 Year-end Earnings Call. At this time, all participants have been placed on a listen-only mode. We 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, Investor Relations. Sir, the floor is yours.

[Jay Pfeiffer:]

Hello, and welcome to Enservco's 2020 fourth quarter and full year 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 and uncertainties disclosed in the company's most recent 10-K as well as other filings with the SEC. 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. Enservco assumes no obligation to update forward-looking statements that become untrue because of subsequent events.

[Rich Murphy:]

Thanks, Jay. Welcome, everyone, and thanks for joining our call. 2020 was quite a year for Enservco. On one hand, it's no secret that reduced customer demand brought on by depressed commodity prices and the pandemic made a tough going for all players in the oilfield services space. And that was certainly reflected in our year-over-year financial results. On the other hand, we have had more than our share of positive developments, and those are what I want to be off with today because our achievements over the past 12 months have literally transformed our company and let us in the strongest position, at least from a balance sheet perspective that we've enjoyed in a long time. Where our team was able to accomplish during 2020 and to the first quarter of 2021 is nothing short of remarkable. Enservco's employees at all levels of the organization came together to overcome unprecedented challenges, and I am proud to be associated with this group and be part of such a resilient organization. You'll recall that we entered 2020 with some serious challenges over and above the low commodity prices and the emerging COVID-19 pandemic. We had an unsustainable debt load. We had a burdensome cost structure. And we were undercapitalized. So earlier in the year, we developed a 3-point plan based around debt restructuring, cost reductions and raising capital. While it wasn't always easy, and we had to clear a lot of hurdles along the way, I'm pleased to say that we've been successful on all 3 fronts. Debt restructuring was a cornerstone of our effort. As of the second quarter of 2021, we expect total debt reduction since August 2020 to be in the range of $24 million that will represent nearly two-thirds reduction of what our total debt was at the highest point. This effort included several components. First, our bank, East West Bank wrote off $16 million of our $33 million term loan, leaving us with a new $17 million term loan and $1 million revolver. And by the way, we recently negotiated a 1-year term extension.

[Marjorie Hargrave:]

Thank you, Rich. Before I get into the numbers, I want to again express our appreciation to East West Bank for working with us throughout the refinancing process. We value their partnership as a leader and now as a fellow shareholders. We also appreciate the confidence of our legacy investors who remained loyal to Enservco throughout a difficult year as well as new investors who have come on board through our various equity offerings. The refinancing and fresh capital provided by these offerings was not only instrumental in the retention of our New York Stock Exchange American listing, but it resulted in the removal of the concern language on our financial statements in the Form 10-K we filed today.

[Rich Murphy:]

Thanks, Marjorie. So in closing, we're excited about our prospects going forward. With a significantly deleveraged balance sheet and ample working capital, we think our prospects are bright. We have a large fleet, a broad geographic footprint, great customers and a strong team. As the economy continues to rebound, we can focus on getting back to the capacity utilization we enjoyed prior to the downturn. Thank you again for all your continued support Enservco, and operator, please open up for questions.

[Operator:]

And your first question is coming from Jeffrey Campbell from Alliance Global Partners. Jeffrey your line is live.

[Jeffrey Campbell:]

Rich, first of all, congratulations on all the great financial work in recent months. I understand -- I understand you don't want to get in the on this new non-oilfield business. But I just wondered if you could comment broadly whether this requires any investment in any kind of new equipment or personnel or if these are tasks that can be performed with current capabilities?

[Rich Murphy:]

The answer is no to new equipment. And we've actually, prior to -- we've had -- well less than 5% of revenues come from non-oilfield in the past. This isn't something new. The issue is what the energy drop or oil energy recession has allowed us to do is kind of dust that off and refocus on it. And what we found is there is -- we've lost a lot of low-hanging fruit out there that has real business to it, not one-off stuff. So without getting into the industry and specific stuff, we're pretty excited, and we know our trust can do that stuff at a cheaper rate than what our customers that we talk to can do it the way they're currently doing it. So that's -- we can add value as a key point.

[Jeffrey Campbell:]

And just to follow that up, when do you think you'll be able to share more on this effort?

[Rich Murphy:]

It's -- we have to -- we get over 10% of revenue. We would have to, obviously, we probably did that before. That happens. But when we're comfortable, we've got a real strategy that is solid and it's going to be something that's going to go. It's not just a 2 or 3 or 4 quarters saying that we would -- we want to outline that for you guys in detail.

[Jeffrey Campbell:]

Okay. That's all. We'll look forward to that, and I hope it works. You've talked in the past, this 1 the previous people in the world are sell-side analysts have for politicians. So I've got 1 more question I got for. You've talked about wanting to grow and serve those oil franchise. So here are some questions. First, does this growth require additional units? Or is it more about increasing utilization of the existing fleet?

[Rich Murphy:]

Increased utilization for the energy space. And then for the non-oilfield space, it's we don't need additional units. If we want additional units, we could probably go out and get them. I don't -- I mean, the very little secret in the way in world isn't the units. It's not the metal that's it's hard to come by. It's good operators who bring business with them. So the beauty of us is, we have a broad geographic footprint. So how do comes to work with us. He is -- he's able to get better probably more hours. And if he goes to work for a small mom-and-pop with 3 or 4 hot oilers. And that is a true strategic advantage for us. And so once we can recruit and retain and get all these hot oilers and we look at the equipment side. But as of now, we're probably -- we're finding that with our equipment. We can grow our business. As you know, we used to do $50 million in revenue. So you saw our fourth year, it wasn't close to that number. So it there's plenty of room for us to put that stuff to utilization. And that number, our -- was never focused as company. It will be going forward. So that's something that we're excited about.

[Jeffrey Campbell:]

Okay. No, that's helpful. And the thinking about the expansion, do you see that more Enservco maintaining a share and an expanding well services recovery? Or is it more about taking additional share and a more static market environment.

[Rich Murphy:]

I think it's taking share. It's pricing improvement. Oilfield services companies across the board, not just our services. We've all taken a taken a hit to our pricing during the downturn because the E&P has demanded it. Our clients are now reversing that.

[Jeffrey Campbell:]

Okay. And it sounds like from what you just said a minute ago, I was going to ask you what advantages you think you have versus competitors, but it sounds like that the -- just the size of the business and your ability to attract the best labor is perhaps your biggest advantage. Was anything else I'm missing?

[Rich Murphy:]

Safety. I can guarantee you the small 1 to 3 to 1 to 5 operator companies can't have a focus -- as big a focus on safety, particularly in a downturn like this, you have to -- I mean, you -- a lot of the guys are pricing the business below cost just to stay alive. And so safety becomes a -- I wouldn't even call it a secondary tertiary. But given our balance sheet we have now and the size of our business, and we've been -- we'll be able to focus on safety. And I think so safety and geographic footprint. Give us a lot of let -- give us a little a leg up on our smaller operators.

[Jeffrey Campbell:]

Okay. And my last one here is actually to shift gears. So I was wondering with this focus on growing the hot oil franchise, I wonder if that any material changes in the frac water heating side of the business?

[Rich Murphy:]

No, it's just more -- it talks about seasonality more than anything. It's tough running a business that operates North Dakota is a longer season, obviously, than, let's say, Colorado, but it's just -- I prefer businesses that run 12 months of the year that we can get a nice margin off of than businesses that run 5 months of the year that we can get nice margin off of it. The way I see it, I think -- could be a -- at a good utilization rate, a very good revenue generator for us. And then how oil are the heating that becomes a cherry on the top, where we could have very big years if that -- if we get the cold weather. And that's more of a completion business, too. So as activity picks up, that you're going to see that business really start to pull its weight, but -- is more maintenance. So it's just -- it's a better sleep at night business, if you will. That's kind of what I'm referring to versus a fundamental change in heating.

[Operator:]

Your next question is coming from Ed Woo from Ascendiant Capital. Ed your line is live.

[Ed Woo:]

Congratulations on all the work that you had done last year. With the price of oil rebounding, what are you hearing from your customers? Do you think that they see it as sustainable? Are they getting a lot more interest in drilling activity? Or are people still very cautious?

[Rich Murphy:]

Good question. It's a tough question today when oils down 4% or whatever the you're exactly right. What we're seeing from our business development guys. Is they're getting for the first time, we actually had a call today, they're getting priced -- they're asking for price and they're getting it. So that's a really encouraging sign. Now it's -- I caution that's going from probably the worst energy recession since the 1980s, but it is encouraging to see the E&P guys, they understand that we're partners with them, and we try to do the best we can buy them. Oil price has gone from 30 to 60. So they can afford -- as long as we do the job right, provide good safety and on-time and real high-quality service, they're willing to pay a little more for it.

[Ed Woo:]

Do you anticipate a return back to pricing the way it was before the downturn? Or do you think that it's going to take a long time?

[Rich Murphy:]

It depends on the basin, and I won't get into specific basin by basin, but certain basins are a little more competitive than others. I think there's much more room to run on the pricing. Not we're just, I would say, in baseball -- probably in the third inning. Our price. We're just starting now to ask for that pricing, so -- and we're guiding it. So it's -- we don't want to be -- we're a huge, obviously, huge fans of our customers. We love them. But the -- they understand we have to make a margin on our business, too. So I would say this $60 oil price is a great sweet spot, in my opinion, both from the economy and for our customers.

[Ed Woo:]

Great. And then my final question is on the competitive landscape. Obviously, like you said, this recession probably took out a lot of people, a lot of smaller mom-and-pop under capitalized to get a lot of your customers. As things come back to normal, how does the competitive landscape look like? Will there be just a lot less competitors out there? Or do you think everybody is going to come back once activity resumes?

[Rich Murphy:]

I think it goes back to your first question on price. Like if -- again, we're a bigger player in the services we provide, so we should be price leaders. If you're not getting price, if oil is $100 a barrel, it doesn't matter if you're still getting X dollars an hour for your service, you're done. So you got to start seeing that the hourly rates start to rebound for us and for all of our -- especially our smaller guys, they won't come back. And I think the mitigating factor in all this will be labor, quite frankly, at in the day. It won't be the steel. There's a lot of steel out there. It's going to be -- can they get the good people. Can you get them hours? You give a good livelihood. So we're able to do that.

[Operator:]

We have no further questions in queue.

[Rich Murphy:]

Well, I want to thank everyone for joining us on the call today. I want to thank everyone on the Enservco and the team. Marjorie, and everyone at corporate for all their hard work to get us to where we are. And I can't wait to update you guys in a couple of weeks on our first quarter. So thanks again, and enjoy the rest of the day.

[Marjorie Hargrave:]

Thank you.

[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.