Cypress Energy Partners, L.P. (NYSE:CELP) today reported:
Peter C. Boylan III, Cypress Energy Partners, L.P.’s (“CELP”) Chairman and Chief Executive Officer stated, “We are encouraged by the sequential improvement in our operating results in the second quarter of 2018. All three of our business segments continued to show solid growth during the quarter as anticipated. The strength of our recovery can be clearly seen with significant improvements in EBITDA and DCF compared with prior periods. Our Pipeline Inspection business, Tulsa Inspection Resources (“TIR”), achieved an important milestone in June, celebrating its 15th anniversary. TIR has been profitable every year of its history, has proven its resiliency during the financial crisis and the recent energy downturn, and has posted an impressive history of growing its business organically. During the quarter, we completed our previously announced refinancing, and have significantly reduced our debt by 44% from the end of 2017. We now enjoy a much stronger balance sheet with net leverage of 3.09x trailing twelve-month EBITDA.
“Our customers have recovered nicely from the downturn, benefitting from the material improvement in commodity prices that have led to increases in spending on maintenance and growth capital expenditures which, in turn, has benefited our business. These fundamental improvements in the energy industry underpin the confidence we have in our business outlook. The last three years have been marked by the most significant energy downturn in generations, and we have capitalized on a number of competitive opportunities while simultaneously transforming our company to be even more competitive in the broad-based recovery. We continue to expand our lines of business organically and have reached new levels of efficiency in all our activities as demonstrated in all three of our business segments. We continue to look at some acquisition and organic growth opportunities and remain ready to capture these opportunities. Demand for our pipeline inspection and integrity services has remained strong. Our Pipeline Inspection and Integrity Services segments represented 96% of our revenues and 81% of our gross margin during the three months ended June 30, 2018.
“The average pipeline inspector headcount from U.S. operations of 1,183 during the second quarter of 2018 was a 9.8% increase from the U.S. inspector headcount during second quarter 2017. Revenues and gross margins during 2018 have also benefitted from two new service lines that we developed during 2017. Our Pipeline Inspection gross margin percentage continues to improve (11.2% in the second quarter of 2018, compared to 9.5% in the first quarter of 2018 and 9.7% in the second quarter of 2017) as a result of our focus on higher-margin services.
“Revenues of our Integrity Services (hydrostatic testing) segment of $7.4 million during the first six months of 2018 were considerably higher than revenues of $3.1 million during the first six months of 2017. Our margin percentage of 29.3% in the first six months of 2018 was also considerably higher than the margin percentage of 7.1% in the first six months of 2017.
“Our Water Services segment continues to benefit from higher rig counts, activity, and oil prices. Revenues from our North Dakota operations continue to significantly increase ($3.0 million during second quarter 2018, compared to $2.4 million during first quarter 2018 and $1.5 million during second quarter 2017, an increase of 100% from year-to-year) due to increased customer activity and the completion in January 2018 of a new pipeline gathering system into one of our facilities.
“We also sold our two saltwater disposal facilities in West Texas earlier this year on attractive terms, and now operate our Water Services segment solely in the Williston Basin region of North Dakota, where we believe we have better economies of scale. We currently operate nine saltwater disposal facilities with nine different connected pipelines, with additional pipelines currently under development. Approximately 43% of our saltwater disposal volumes in the second quarter of 2018 were received via these pipelines. During the second quarter of 2018, 90% of our saltwater was produced saltwater from completed oil wells."
Additionally, Mr. Boylan stated, “We continue to pursue acquisition opportunities and the previously-announced strategic alternatives process. The long-term increasing demand for pipeline inspection and integrity services and water solutions remains strong due to our nation’s aging pipeline infrastructure, growing production, and increasing governmental regulations.”
Second Quarter:
Year-To-Date:
Highlights include:
Looking forward:
CELP will file its quarterly report on Form 10-Q for the period ended June 30, 2018 with the Securities and Exchange Commission on August 14, 2018. CELP will also post a copy of the Form 10-Q on its website at www.cypressenergy.com.
CELP will host the Second Quarter Earnings Conference Call on Tuesday, August 14, 2018, at 10:00 am EDT (9:00 am CDT) to discuss its second quarter 2018 financial results. Analysts, investors, and other interested parties may access the conference call by dialing Toll-Free (US & Canada): (888) 339-2688, Passcode 78286946, or International Dial-In (Toll): (617) 847-3007, Passcode 78286946. An archived audio replay of the call will be available on the Investor section of our website at www.cypressenergy.com beginning at 10:00 am EDT (9:00 am CDT) on August 16, 2018.
Non-GAAP Measures:
CELP defines Adjusted EBITDA as net income (loss), plus interest expense, depreciation, amortization and accretion expenses, income tax expenses, impairments, non-cash allocated expenses, and equity based compensation, plus or minus other extraordinary or non-recurring items. CELP defines Adjusted EBITDA attributable to limited partners as net income (loss) attributable to limited partners, plus interest expense attributable to limited partners, depreciation, amortization and accretion attributable to limited partners, impairments attributable to limited partners, income tax expense attributable to limited partners, and equity based compensation attributable to limited partners, plus or minus other extraordinary or non-recurring items attributable to limited partners. CELP defines Distributable Cash Flow as Adjusted EBITDA attributable to limited partners excluding cash interest paid, cash income taxes paid, maintenance capital expenditures, and cash distributions on preferred equity. These are supplemental, non-GAAP financial measures used by management and by external users of our financial statements, such as investors and commercial banks, to assess our operating performance as compared to those of other companies in the midstream sector, without regard to financing methods, historical cost basis or capital structure; the ability of our assets to generate sufficient cash flow to make distributions to our unitholders; our ability to incur and service debt and fund capital expenditures; the viability of acquisitions and other capital expenditure projects; and the returns on investment of various investment opportunities. The GAAP measures most directly comparable to Adjusted EBITDA, Adjusted EBITDA attributable to limited partners, and Distributable Cash Flow are net income (loss) and cash flow from operating activities, respectively. These non-GAAP measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures exclude some, but not all, items that affect the most directly comparable GAAP financial measure. Adjusted EBITDA, Adjusted EBITDA attributable to limited partners and Distributable Cash Flow should not be considered an alternative to net income, income before income taxes, net income attributable to limited partners, cash flows from operating activities, or any other measure of financial performance calculated in accordance with GAAP as those items are used to measure operating performance, liquidity, or the ability to service debt obligations. CELP believes that the presentation of Adjusted EBITDA, Adjusted EBITDA attributable to limited partners and Distributable Cash Flow will provide useful information to investors in assessing our financial condition and results of operations. CELP uses Adjusted EBITDA, Adjusted EBITDA attributable to limited partners and Distributable Cash Flow as a supplemental financial measure to both manage our business and assess the cash flows generated by our assets (prior to the establishment of any retained cash reserves by the general partner) to fund the cash distributions we expect to pay to unitholders, to evaluate our success in providing a cash return on investment, and whether or not the Partnership is generating cash flow at a level that can sustain or support an increase in its quarterly distribution rates and to determine the yield of our units, which is a quantitative standard used throughout the investment community with respect to publicly-traded partnerships, as the value of a unit is generally determined by a unit’s yield (which in turn is based on the amount of cash distributions the entity pays to a unitholder). Because Adjusted EBITDA, Adjusted EBITDA attributable to limited partners and Distributable Cash Flow may be defined differently by other companies in our industry, our definitions of Adjusted EBITDA, Adjusted EBITDA attributable to limited partners and Distributable Cash Flow may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. Reconciliations of (i) Net Income (Loss) to Adjusted EBITDA and Distributable Cash Flow, (ii) Net Income (Loss) attributable to limited partners to Adjusted EBITDA attributable to limited partners and Distributable Cash Flow and (iii) Net Cash Provided by Operating Activities to Adjusted EBITDA and Distributable Cash Flow are provided below.
This press release includes “forward-looking statements.” All statements, other than statements of historical facts included or incorporated herein, may constitute forward-looking statements. Actual results could vary significantly from those expressed or implied in such statements, and are subject to a number of risks and uncertainties. While CELP believes its expectations, as reflected in the forward-looking statements, are reasonable, CELP can give no assurance that such expectations will prove to be correct. The forward-looking statements involve risks and uncertainties that affect operations, financial performance, and other factors as discussed in filings with the Securities and Exchange Commission. Other factors that could impact any forward-looking statements are those risks described in CELP’s Annual Report filed on Form 10-K and other public filings. You are urged to carefully review and consider the cautionary statements and other disclosures made in those filings, specifically those under the heading “Risk Factors.” CELP undertakes no obligation to publicly update or revise any forward-looking statements except as required by law.
About Cypress Energy Partners, L.P.
Cypress Energy Partners, L.P. is a master limited partnership that provides essential midstream services, including pipeline inspection, integrity, and hydrostatic testing services to various energy companies and their vendors throughout the U.S. and Canada. Cypress also provides saltwater disposal and environmental services to upstream energy companies and their vendors in North Dakota in the Bakken region of the Williston Basin. In all of these business segments, Cypress works closely with its customers to help them comply with increasingly complex and strict environmental and safety rules and regulations, and reduce their operating costs. Cypress is headquartered in Tulsa, Oklahoma.
CYPRESS ENERGY PARTNERS, L.P. | |||||||||||
Unaudited Condensed Consolidated Balance Sheets | |||||||||||
As of June 30, 2018 and December 31, 2017 | |||||||||||
(in thousands, except unit data) | |||||||||||
June 30, | December 31, | ||||||||||
2018 | 2017 | ||||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 10,499 | $ | 24,508 | |||||||
Trade accounts receivable, net | 47,692 | 41,693 | |||||||||
Prepaid expenses and other | 1,040 | 2,294 | |||||||||
Assets held for sale | - | 2,172 | |||||||||
Total current assets | 59,231 | 70,667 | |||||||||
Property and equipment: | |||||||||||
Property and equipment, at cost | 23,057 | 22,700 | |||||||||
Less: Accumulated depreciation | 9,991 | 9,312 | |||||||||
Total property and equipment, net | 13,066 | 13,388 | |||||||||
Intangible assets, net | 24,114 | 25,477 | |||||||||
Goodwill | 50,344 | 53,435 | |||||||||
Debt issuance costs, net | 1,498 | - | |||||||||
Other assets | 266 | 236 | |||||||||
Total assets | $ | 148,519 | $ | 163,203 | |||||||
LIABILITIES AND OWNERS' EQUITY | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | 3,404 | $ | 3,757 | |||||||
Accounts payable - affiliates | 3,966 | 3,173 | |||||||||
Accrued payroll and other | 11,163 | 9,109 | |||||||||
Liabilities held for sale | - | 97 | |||||||||
Income taxes payable | 346 | 646 | |||||||||
Current portion of long-term debt | - | 136,293 | |||||||||
Total current liabilities | 18,879 | 153,075 | |||||||||
Long-term debt | 76,129 | - | |||||||||
Asset retirement obligations | 142 | 143 | |||||||||
Total liabilities | 95,150 | 153,218 | |||||||||
Owners' equity: | |||||||||||
Partners’ capital: | |||||||||||
Common units (11,933,522 and 11,889,958 units outstanding at | |||||||||||
June 30, 2018 and December 31, 2017, respectively) | 33,852 | 34,614 | |||||||||
Preferred units (5,769,231 units outstanding at June 30, 2018) | 43,636 | - | |||||||||
General partner | (25,876 | ) | (25,876 | ) | |||||||
Accumulated other comprehensive loss | (2,545 | ) | (2,677 | ) | |||||||
Total partners' capital | 49,067 | 6,061 | |||||||||
Noncontrolling interests | 4,302 | 3,924 | |||||||||
Total owners' equity | 53,369 | 9,985 | |||||||||
Total liabilities and owners' equity | $ | 148,519 | $ | 163,203 |
CYPRESS ENERGY PARTNERS, L.P. | ||||||||
Unaudited Condensed Consolidated Statements of Operations | ||||||||
For the Three and Six Months Ended June 30, 2018 and 2017 | ||||||||
(in thousands, except unit and per unit data) | ||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||
2018 | 2017 | 2018 | 2017 | |||||
Revenue | $ 76,468 | $ 74,567 | $ 141,294 | $ 139,289 | ||||
Costs of services | 65,525 | 65,958 | 122,222 | 124,351 | ||||
Gross margin | 10,943 | 8,609 | 19,072 | 14,938 | ||||
Operating costs and expense: | ||||||||
General and administrative | 5,822 | 5,329 | 11,277 | 10,439 | ||||
Depreciation, amortization and accretion | 1,110 | 1,206 | 2,244 | 2,377 | ||||
Impairments | - | - | - | 3,598 | ||||
Gain on asset disposals, net | (1,606) | (113) | (3,315) | (113) | ||||
Operating income (loss) | 5,617 | 2,187 | 8,866 | (1,363) | ||||
Other (expense) income: | ||||||||
Interest expense, net | (1,668) | (1,795) | (3,624) | (3,504) | ||||
Debt issuance cost write-off | (114) | - | (114) | - | ||||
Foreign currency gains (losses) | (117) | 267 | (451) | 267 | ||||
Other, net | 125 | 60 | 207 | 105 | ||||
Net income (loss) before income tax expense | 3,843 | 719 | 4,884 | (4,495) | ||||
Income tax expense (benefit) | 287 | 222 | 368 | (71) | ||||
Net income (loss) | 3,556 | 497 | 4,516 | (4,424) | ||||
Net income (loss) attributable to noncontrolling interests | 149 | (133) | 384 | (1,298) | ||||
Net income (loss) attributable to partners / controlling interests | 3,407 | 630 | 4,132 | (3,126) | ||||
Net loss attributable to general partner | - | (829) | - | (1,750) | ||||
Net income (loss) attributable to limited partners | 3,407 | 1,459 | 4,132 | (1,376) | ||||
Net income attributable to preferred unitholders | 367 | - | 367 | - | ||||
Net income (loss) attributable to common unitholders | $ 3,040 | $ 1,459 | $ 3,765 | $ (1,376) | ||||
Net income (loss) per common limited partner unit: | ||||||||
Basic | $ 0.25 | $ 0.12 | $ 0.32 | $ (0.13) | ||||
Diluted | $ 0.24 | $ 0.12 | $ 0.31 | $ (0.13) | ||||
Weighted average common units outstanding: | ||||||||
Basic | 11,933,390 | 11,880,452 | 11,916,127 | 10,404,026 | ||||
Diluted | 14,298,409 | 12,002,538 | 13,323,692 | 10,404,026 | ||||
Weighted average subordinated units outstanding - basic and diluted | - | - | - | 1,470,083 |
Reconciliation of Net Income (Loss) to Adjusted EBITDA to |
||||||||||||||
Three Months ended June 30, | Six Months ended June 30, | |||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||
(in thousands) | ||||||||||||||
Net income (loss) | $ | 3,556 | $ | 497 | $ | 4,516 | $ | (4,424 | ) | |||||
Add: | ||||||||||||||
Interest expense | 1,668 | 1,795 | 3,624 | 3,504 | ||||||||||
Debt issuance cost write-off | 114 | - | 114 | - | ||||||||||
Depreciation, amortization and accretion | 1,375 | 1,481 | 2,793 | 2,913 | ||||||||||
Impairments | - | - | - | 3,598 | ||||||||||
Income tax expense (benefit) | 287 | 222 | 368 | (71 | ) | |||||||||
Non-cash allocated expenses | - | 829 | - | 1,750 | ||||||||||
Equity based compensation | 335 | 409 | 547 | 766 | ||||||||||
Foreign currency losses | 117 | - | 451 | - | ||||||||||
Less: | ||||||||||||||
Foreign currency gains | - | 267 | - | 267 | ||||||||||
Gain on asset disposals, net | 1,561 | 131 | 3,270 | 131 | ||||||||||
Adjusted EBITDA | $ | 5,891 | $ | 4,835 | $ | 9,143 | $ | 7,638 | ||||||
Adjusted EBITDA attributable to noncontrolling interests | 278 | 12 | 664 | (236 | ) | |||||||||
Adjusted EBITDA attributable to limited partners / controlling interests | $ | 5,613 | $ | 4,823 | $ | 8,479 | $ | 7,874 | ||||||
Less: | ||||||||||||||
Cash interest paid, cash taxes paid, maintenance capital expenditures | 2,492 | 2,723 | 4,428 | 4,470 | ||||||||||
Distributable cash flow | $ | 3,121 | $ | 2,100 | $ | 4,051 | $ | 3,404 | ||||||
Reconciliation of Net Income (Loss) Attributable to Limited Partners to Adjusted EBITDA Attributable to | ||||||||||||||
Limited Partners and Distributable Cash Flow | ||||||||||||||
Three Months ended June 30, | Six Months ended June 30, | |||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||
(in thousands) | ||||||||||||||
Net income (loss) attributable to limited partners | $ | 3,407 | $ | 1,459 | $ | 4,132 | $ | (1,376 | ) | |||||
Add: | ||||||||||||||
Interest expense attributable to limited partners | 1,668 | 1,795 | 3,624 | 3,504 | ||||||||||
Debt issuance cost write-off attributable to limited partners | 114 | - | 114 | - | ||||||||||
Depreciation, amortization and accretion attributable to limited partners | 1,252 | 1,340 | 2,527 | 2,630 | ||||||||||
Impairments attributable to limited partners | - | - | - | 2,823 | ||||||||||
Income tax expense attributable to limited partners | 281 | 218 | 354 | (75 | ) | |||||||||
Equity based compensation attributable to limited partners | 335 | 409 | 547 | 766 | ||||||||||
Foreign currency losses attributable to limited partners | 117 | - | 451 | - | ||||||||||
Less: | ||||||||||||||
Foreign currency gains attributable to limited partners | - | 267 | - | 267 | ||||||||||
Gain on asset disposals attributable to limited partners, net | 1,561 | 131 | 3,270 | 131 | ||||||||||
Adjusted EBITDA attributable to limited partners | 5,613 | 4,823 | 8,479 | 7,874 | ||||||||||
Less: | ||||||||||||||
Cash interest paid, cash taxed paid and maintenance capital expenditures | ||||||||||||||
attributable to limited partners | 2,492 | 2,723 | 4,428 | 4,470 | ||||||||||
Distributable cash flow | $ | 3,121 | $ | 2,100 | $ | 4,051 | $ | 3,404 |
Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA to Distributable Cash Flow | |||||||||||||
Attributable to Limited Partners | |||||||||||||
Six Months ended June 30, | |||||||||||||
2018 | 2017 | ||||||||||||
(in thousands) | |||||||||||||
Cash flows provided by operating activities | $ | 2,059 | $ | 1,712 | |||||||||
Changes in trade accounts receivable, net | 6,059 | 4,727 | |||||||||||
Changes in prepaid expenses and other | (1,358 | ) | 586 | ||||||||||
Changes in accounts payable and accrued liabilities | (1,744 | ) | (3,920 | ) | |||||||||
Change in income taxes payable | 300 | 802 | |||||||||||
Interest expense (excluding non-cash interest) | 3,377 | 3,210 | |||||||||||
Income tax expense (excluding deferred tax benefit) | 368 | 287 | |||||||||||
Other | 82 | 234 | |||||||||||
Adjusted EBITDA | $ | 9,143 | $ | 7,638 | |||||||||
Adjusted EBITDA attributable to noncontrolling interests | 664 | (236 | ) | ||||||||||
Adjusted EBITDA attributable to limited partners / controlling interests | $ | 8,479 | $ | 7,874 | |||||||||
Less: | |||||||||||||
Cash interest paid, cash taxes paid, maintenance capital expenditures | 4,428 | 4,470 | |||||||||||
Distributable cash flow | $ | 4,051 | $ | 3,404 |
Operating Data | |||||||||||||||||
Three Months | Six Months | ||||||||||||||||
Ended June 30, | Ended June 30, | ||||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||||
Total barrels of saltwater disposed (in thousands) | 3,577 | 2,966 | 6,652 | 5,739 | |||||||||||||
Average revenue per barrel | $ | 0.85 | $ | 0.68 | $ | 0.83 | $ | 0.68 | |||||||||
Water and environmental services gross margins | 68.3 | % | 70.0 | % | 63.5 | % | 61.7 | % | |||||||||
Average number of inspectors | 1,188 | 1,186 | 1,109 | 1,135 | |||||||||||||
Average number of U.S. inspectors | 1,183 | 1,077 | 1,102 | 968 | |||||||||||||
Average revenue per inspector per week | $ | 4,556 | $ | 4,550 | $ | 4,475 | $ | 4,508 | |||||||||
Pipeline inspection services gross margins | 11.2 | % | 9.7 | % | 10.4 | % | 9.3 | % | |||||||||
Average number of field personnel | 22 | 18 | 22 | 17 | |||||||||||||
Average revenue per field personnel per week | $ | 10,755 | $ | 10,244 | $ | 13,054 | $ | 7,036 | |||||||||
Pipeline integrity services gross margins | 32.0 | % | 17.9 | % | 29.3 | % | 7.1 | % | |||||||||
Maintenance capital expenditures (in thousands) | $ | 139 | $ | 14 | $ | 263 | $ | 88 | |||||||||
Expansion capital expenditures (in thousands) | $ | 1,725 | $ | 67 | $ | 3,632 | $ | 291 | |||||||||
Distributions (in thousands) | $ | 2,506 | $ | 2,495 | $ | 5,012 | $ | 4,990 | |||||||||
Coverage ratio | 1.25x | 0.84x | 0.81x | 0.68x |
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Cypress Energy Partners, L.P.
Jeff Herbers, 918-947-5730
Chief
Accounting Officer
[email protected]