Cypress Environmental Partners Reports Second Quarter Results

Today, Cypress Environmental Partners, L.P., (NYSE: CELP) reported its financial results for the three months ended June 30, 2020.

HIGHLIGHTS

  • Net loss attributable to common unitholders of $1.3 million for the three months ended June 30, 2020.
  • Distributable cash flow (DCF) of $0.3 million for the three months ended June 30, 2020.
  • Second quarter 2020 Adjusted EBITDA of $3.1 million, an increase of 17% over first quarter 2020.
  • Second quarter 2020 Pipeline Inspection Services segment gross margin of $4.4 million, a decrease of 31% from first quarter 2020.
  • Second quarter 2020 Pipeline & Process Services segment gross margin increased 276% from first quarter 2020, and 56% from second quarter 2019, driven by increased activity levels and backlog.
  • Second quarter 2020 Water & Environmental Services segment gross margin of $0.8 million, a 17% decrease from first quarter 2020.
  • Temporarily suspended our common unit distribution to protect our balance sheet and liquidity and completed cost reductions representing over $4.5 million of annual savings.
  • Paid down debt on our credit facility and exited the second quarter with approximately $27.8 million of cash and cash equivalents.
  • Started a new service line to offer corrosion inspection services, nondestructive examination, and related support services to the municipal water and the offshore energy markets.

SECOND QUARTER 2020 SUMMARY FINANCIAL RESULTS

 

Three Months Ended

 

June 30,

 

2020

 

2019

 

(Unaudited)

 

(in thousands, except per unit amounts)

 

 

 

Net income

$

381

$

5,643

Net (loss) income attributable to common unitholders

$

(1,349)

$

4,333

Net (loss) income per limited partner unit - basic

$

(0.11)

$

0.36

Net (loss) income per limited partner unit - diluted

$

(0.11)

$

0.29

Adjusted EBITDA(1)

$

3,121

$

9,154

Distributable cash flow(1)

$

255

$

5,237

(1) This press release includes the following financial measures not presented in accordance with U.S. generally accepted accounting principles, or GAAP: adjusted EBITDA, adjusted EBITDA attributable to limited partners, and distributable cash flow. Each such non-GAAP financial measure is defined below under “Non-GAAP Financial Information”, and each is reconciled to its most directly comparable GAAP financial measure in schedules at the end of this press release.

CEO'S PERSPECTIVE

“The second wave of virus cases, the reinstitution of select lockdowns, and the risk of lingering high unemployment creates an uncertain economic environment that likely persists through the rest of 2020 and until a vaccine is discovered. This pandemic is adversely impacting the energy industry, demand, prices, our customers, and in turn us. Given these factors, we are preparing for potential future volatility, while also focusing on structurally reducing our cost base and implementing several strategic initiatives across our companies. As a result, we took the necessary action to temporarily suspend our common unit distributions until our operating results improve. Our primary focus continues to be the health and safety of our employees and our operations during this unprecedented and dynamic environment," said Peter C. Boylan III, chairman, president, and CEO. “Our talented team delivered better than expected second quarter performance as a result of increased activity in our Pipeline & Process Services segment, early and decisive actions focused on cost reductions, and our commitment to operational excellence and safely serving our customers. We remain confident in our ability to navigate this challenging environment while maintaining our liquidity, culture, and safely providing excellent service to our valued customers."

GROWTH UPDATE

Pipeline Inspection Services

  • A new corrosion service line has been started that is led by a National Association of Corrosion Engineers (“NACE”)-certified engineer to offer a wide range of inspection, nondestructive examination, and related services to the municipal water industry as well as to our energy customers both onshore and offshore.
  • The Pipeline Inspection segment has been aggressively pursuing organic business development (despite the work from home environment) and has successfully been awarded some new customer contracts and relationships that should benefit us in the future.

Pipeline & Process Services (“PPS”)

  • The PPS segment is having an excellent year despite the challenges with COVID; continuing to expand its backlog and considering adding some new service lines to its current offerings.

Water & Environmental Services (“W&E”)

  • Volumes have improved significantly in the Bakken despite the rig count declining to 11 rigs, down from 55 in late 2019. The previous record low during the prior downturn was 22 rigs in May 2016. Operators are slowly returning production after having choked back wells earlier this year when oil prices collapsed, instead of selling the oil at such depressed levels.
  • A new contract was recently completed with a public energy company to connect their water pipeline into one of our facilities.

COMMON UNIT DISTRIBUTIONS

On July 28, 2020, CELP announced that it has temporarily suspended common unit distributions.

CELP generated distributable cash flow of $0.3 million for the three months ended June 30, 2020. Common unit distributions were $2.6 million for the first quarter of 2020.

SECOND QUARTER 2020 OPERATING RESULTS BY BUSINESS SEGMENT

Pipeline Inspection Services (“PIS”)

PIS segment results for the three months ended June 30, 2020 and 2019 were:

  • Revenue - $43.3 million and $104.0 million, respectively.
  • Gross Margin - $4.4 million and $11.4 million, respectively.

Pipeline & Process Services (“PPS”)

PPS segment results for the three months ended June 30, 2020 and 2019 were:

  • Revenue - $7.2 million and $4.4 million, respectively.
  • Gross Margin - $2.1 million and $1.4 million, respectively.

Water & Environmental Services (“Environmental”)

Environmental segment results for the three months ended June 30, 2020 and 2019 were:

  • Revenue - $1.3 million and $2.7 million, respectively.
  • Gross Margin - $0.8 million and $2.0 million, respectively

CAPITALIZATION, LIQUIDITY, AND FINANCING

Credit Facility

CELP has a $110 million revolving credit facility. Proceeds from this facility can be used to fund working capital requirements and other general partnership purposes, including growth and acquisitions. CELP had $27.8 million of cash and cash equivalents at June 30, 2020.

  • The credit facility matures on May 28, 2021. CELP is working with the agent and lenders regarding both a renewal and the possibility of utilizing one of the new US Federal Reserve Main Street Lending facilities.
  • As of June 30, 2020, CELP had $81.7 million of debt outstanding (inclusive of finance leases). At June 30, 2020, CELP's leverage ratio was 2.3 times on a net debt basis. The effective interest rate on CELP's debt as of June 30, 2020 was 3.7%.

CAPITAL EXPENDITURES

During the six months ended June 30, 2020, CELP had growth capital expenditures totaling $1.1 million and maintenance capital expenditures totaling $0.4 million that are reflective of our business model that allows us to generate attractive free cash flow with minimal capital expenditures.

QUARTERLY REPORT

CELP filed its quarterly report on Form 10-Q for the three months ended June 30, 2020 with the Securities and Exchange Commission today. CELP will also post a copy of the Form 10-Q on its website at www.cypressenvironmental.biz. Unitholders may request a printed copy of CELP’s complete audited financial statements and annual report for the year ended December 31, 2019 free of charge by contacting CELP at the email address below.

NON-GAAP FINANCIAL INFORMATION

This press release and the accompanying financial schedules include the following non-GAAP financial measures: adjusted EBITDA, adjusted EBITDA attributable to limited partners, and distributable cash flow. The accompanying schedules provide reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures. CELP's non-GAAP financial measures should not be considered in isolation or as an alternative to its financial measures presented in accordance with GAAP, including revenues, net income or loss attributable to limited partners, net cash provided by or used in operating activities, or any other measure of liquidity or financial performance presented in accordance with GAAP as a measure of operating performance, liquidity, or ability to service debt obligations and make cash distributions to unitholders. The non-GAAP financial measures presented by CELP may not be comparable to similarly-titled measures of other entities because other entities may not calculate their measures in the same manner.

CELP defines adjusted EBITDA as net income or loss exclusive of (i) interest expense, (ii) depreciation, amortization, and accretion expense, (iii) income tax expense or benefit, (iv) equity-based compensation expense, (v) and certain other unusual or nonrecurring items. CELP defines adjusted EBITDA attributable to limited partners as adjusted EBITDA exclusive of amounts attributable to the general partner and to noncontrolling interests. CELP defines distributable cash flow as adjusted EBITDA attributable to limited partners less cash interest paid, cash income taxes paid, maintenance capital expenditures, and cash distributions on preferred equity. Management believes these measures provide investors meaningful insight into results from ongoing operations.

These non-GAAP financial measures are used as supplemental liquidity and performance measures by CELP's management and by external users of its financial statements, such as investors, commercial banks, research analysts, and others to assess:

  • financial performance of CELP without regard to financing methods, capital structure or historical cost basis of assets;
  • CELP's operating performance and return on capital as compared to those of other companies, without regard to financing methods or capital structure;
  • viability and performance of acquisitions and capital expenditure projects and the overall rates of return on investment opportunities; and
  • the ability of CELP's businesses to generate sufficient cash to pay interest costs, support its indebtedness, and make cash distributions to its unitholders.

ABOUT CYPRESS ENVIRONMENTAL PARTNERS, L.P.

Cypress Environmental Partners, L.P. is a master limited partnership that provides essential environmental services to the energy and municipal water industries, including pipeline & infrastructure inspection, NDE testing, various integrity services, and pipeline & process services throughout the United States. Cypress also provides environmental services to upstream energy companies and their vendors in North Dakota, including water treatment, hydrocarbon recovery, and disposal into EPA Class II injection wells to protect our groundwater. Cypress works closely with its customers to help them protect people, property, and the environment, and to assist their compliance with increasingly complex and strict rules and regulations. Cypress is headquartered in Tulsa, Oklahoma.

CAUTIONARY STATEMENTS

This press release may contain or incorporate by reference forward-looking statements as defined under the federal securities laws regarding Cypress Environmental Partners, L.P., including projections, estimates, forecasts, plans and objectives. Although management believes that expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to be correct. In addition, these statements are subject to certain risks, uncertainties and other assumptions that are difficult to predict and may be beyond CELP's control. If any of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, CELP's actual results may vary materially from what management forecasted, anticipated, estimated, projected or expected.

The key risk factors that may have a direct bearing on CELP's results of operations and financial condition are described in detail in the "Risk Factors" section of CELP's most recently filed annual report and subsequently filed quarterly reports with the Securities and Exchange Commission. Investors are encouraged to closely consider the disclosures and risk factors contained in CELP's annual and quarterly reports filed from time to time with the Securities and Exchange Commission. The forward-looking statements contained herein speak as of the date of this announcement. CELP undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Information contained in this press release is unaudited and subject to change.

 

CYPRESS ENVIRONMENTAL PARTNERS, L.P.

Unaudited Condensed Consolidated Balance Sheets

As of June 30, 2020 and December 31, 2019

(in thousands)

June 30,

 

December 31,

 

2020

 

 

 

2019

 

 

ASSETS

Current assets:

Cash and cash equivalents

$

27,761

 

$

15,700

 

Trade accounts receivable, net

 

35,008

 

 

52,524

 

Prepaid expenses and other

 

1,704

 

 

988

 

Total current assets

 

64,473

 

 

69,212

 

Property and equipment:

Property and equipment, at cost

 

26,903

 

 

26,499

 

Less: Accumulated depreciation

 

15,082

 

 

13,738

 

Total property and equipment, net

 

11,821

 

 

12,761

 

Intangible assets, net

 

18,719

 

 

20,063

 

Goodwill

 

50,287

 

 

50,356

 

Finance lease right-of-use assets, net

 

749

 

 

600

 

Operating lease right-of-use assets

 

2,207

 

 

2,942

 

Debt issuance costs, net

 

532

 

 

803

 

Other assets

 

588

 

 

605

 

Total assets

$

149,376

 

$

157,342

 

 

LIABILITIES AND OWNERS' EQUITY

Current liabilities:

Accounts payable

$

3,594

 

$

3,529

 

Accounts payable - affiliates

 

141

 

 

1,167

 

Accrued payroll and other

 

9,813

 

 

14,850

 

Income taxes payable

 

1,385

 

 

1,092

 

Finance lease obligations

 

249

 

 

183

 

Operating lease obligations

 

421

 

 

459

 

Current portion of long-term debt

 

81,029

 

 

-

 

Total current liabilities

 

96,632

 

 

21,280

 

Long-term debt

 

-

 

 

74,929

 

Finance lease obligations

 

423

 

 

359

 

Operating lease obligations

 

1,717

 

 

2,425

 

Other noncurrent liabilities

 

169

 

 

158

 

Total liabilities

 

98,941

 

 

99,151

 

 

Owners' equity:

Partners’ capital:

Common units (12,209 and 12,068 units outstanding at

June 30, 2020 and December 31, 2019, respectively)

 

29,445

 

 

37,334

 

Preferred units (5,769 units outstanding at June 30, 2020 and December 31, 2019)

 

44,291

 

 

44,291

 

General partner

 

(25,876

)

 

(25,876

)

Accumulated other comprehensive loss

 

(2,368

)

 

(2,577

)

Total partners' capital

 

45,492

 

 

53,172

 

Noncontrolling interests

 

4,943

 

 

5,019

 

Total owners' equity

 

50,435

 

 

58,191

 

Total liabilities and owners' equity

$

149,376

 

$

157,342

 

 

CYPRESS ENVIRONMENTAL PARTNERS, L.P.

Unaudited Condensed Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2020 and 2019

(in thousands, except per unit data)

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

 

Revenue

$

51,688

 

$

111,091

 

$

120,171

 

$

201,467

 

Costs of services

 

44,307

 

 

96,284

 

 

104,835

 

 

176,637

 

Gross margin

 

7,381

 

 

14,807

 

 

15,336

 

 

24,830

 

 

Operating costs and expense:

General and administrative

 

4,926

 

 

6,158

 

 

10,866

 

 

12,389

 

Depreciation, amortization and accretion

 

1,211

 

 

1,109

 

 

2,419

 

 

2,213

 

Gain on asset disposals, net

 

(11

)

 

(2

)

 

(23

)

 

(23

)

Operating income

 

1,255

 

 

7,542

 

 

2,074

 

 

10,251

 

 

Other (expense) income:

Interest expense, net

 

(1,152

)

 

(1,415

)

 

(2,276

)

 

(2,726

)

Foreign currency gains (losses)

 

184

 

 

84

 

 

(273

)

 

185

 

Other, net

 

165

 

 

50

 

 

270

 

 

138

 

Net income (loss) before income tax expense

 

452

 

 

6,261

 

 

(205

)

 

7,848

 

Income tax expense

 

71

 

 

618

 

 

291

 

 

824

 

Net income (loss)

 

381

 

 

5,643

 

 

(496

)

 

7,024

 

 

Net income attributable to noncontrolling interests

 

697

 

 

277

 

 

609

 

 

58

 

Net (loss) income attributable to partners / controlling interests

 

(316

)

 

5,366

 

 

(1,105

)

 

6,966

 

 

Net income attributable to preferred unitholder

 

1,033

 

 

1,033

 

 

2,066

 

 

2,066

 

Net (loss) income attributable to common unitholders

$

(1,349

)

$

4,333

 

$

(3,171

)

$

4,900

 

 

Net (loss) income per common limited partner unit:

Basic

$

(0.11

)

$

0.36

 

$

(0.26

)

$

0.41

 

Diluted

$

(0.11

)

$

0.29

 

$

(0.26

)

$

0.38

 

 

Weighted average common units outstanding:

Basic

 

12,209

 

 

12,053

 

 

12,153

 

 

12,012

 

Diluted

 

12,209

 

 

18,218

 

 

12,153

 

 

18,163

 

 

Reconciliation of Net Income (Loss) to Adjusted EBITDA and Distributable Cash Flow

 

Three Months ended June 30,

 

Six Months ended June 30,

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

(in thousands)

 

Net income (loss)

$

381

$

5,643

$

(496

)

$

7,024

Add:

Interest expense

 

1,152

 

 

1,415

 

 

2,276

 

 

2,726

 

Depreciation, amortization and accretion

 

1,447

 

 

1,388

 

 

2,927

 

 

2,764

 

Income tax expense

 

71

 

 

618

 

 

291

 

 

824

 

Equity-based compensation

 

254

 

 

174

 

 

518

 

 

443

 

Foreign currency losses

 

-

 

 

-

 

 

273

 

 

-

 

Less:

Foreign currency gains

 

184

 

 

84

 

 

-

 

 

185

 

Adjusted EBITDA

$

3,121

 

$

9,154

 

$

5,789

 

$

13,596

 

 

Adjusted EBITDA attributable to noncontrolling interests

 

844

 

 

420

 

 

906

 

 

331

 

Adjusted EBITDA attributable to limited partners / controlling interests

$

2,277

 

$

8,734

 

$

4,883

 

$

13,265

 

 

Less:

Preferred unit distributions

 

1,033

 

 

1,033

 

 

2,066

 

 

2,066

 

Cash interest paid, cash taxes paid, and maintenance capital expenditures

 

 

 

 

attributable to limited partners

 

989

 

 

 

2,464

 

 

 

2,194

 

 

 

3,682

 

Distributable cash flow

$

255

 

$

5,237

 

$

623

 

$

7,517

 

 

Reconciliation of Net (Loss) Income 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,

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

(in thousands)

 

Net (loss) income attributable to limited partners

$

(316

)

$

5,366

$

(1,105

)

$

6,966

 

Add:

Interest expense attributable to limited partners

 

1,152

 

 

1,415

 

 

2,276

 

 

2,726

 

Depreciation, amortization and accretion attributable to limited partners

 

1,318

 

 

1,255

 

 

2,653

 

 

2,504

 

Income tax expense attributable to limited partners

 

53

 

 

608

 

 

268

 

 

811

 

Equity based compensation attributable to limited partners

 

254

 

 

174

 

 

518

 

 

443

 

Foreign currency losses attributable to limited partners

 

-

 

 

-

 

 

273

 

 

-

 

Less:

Foreign currency gains attributable to limited partners

 

184

 

 

84

 

 

-

 

 

185

 

Adjusted EBITDA attributable to limited partners

 

2,277

 

 

8,734

 

 

4,883

 

 

13,265

 

 

Less:

Preferred unit distributions

 

1,033

 

 

1,033

 

 

2,066

 

 

2,066

 

Cash interest paid, cash taxes paid, and maintenance capital expenditures

attributable to limited partners

 

989

 

 

2,464

 

 

2,194

 

 

3,682

 

Distributable cash flow

$

255

 

$

5,237

 

$

623

 

$

7,517

 

 
 
 

Reconciliation of Net Cash Flows Provided by (Used In) Operating

Activities to Adjusted EBITDA and Distributable Cash Flow

Six Months ended June 30,

 

2020

 

 

 

2019

 

(in thousands)

 

Cash flows provided by (used in) operating activities

$

15,432

 

$

(9,040

)

Changes in trade accounts receivable, net

 

(17,516

)

 

25,595

 

Changes in prepaid expenses and other

 

734

 

 

(128

)

Changes in accounts payable and accrued liabilities

 

5,152

 

 

(6,358

)

Change in income taxes payable

 

(292

)

 

252

 

Interest expense (excluding non-cash interest)

 

1,987

 

 

2,465

 

Income tax expense (excluding deferred tax benefit)

 

291

 

 

824

 

Other

 

1

 

 

(14

)

Adjusted EBITDA

$

5,789

 

$

13,596

 

 

Adjusted EBITDA attributable to noncontrolling interests

 

906

 

 

331

 

Adjusted EBITDA attributable to limited partners / controlling interests

$

4,883

 

$

13,265

 

 

Less:

Preferred unit distributions

 

2,066

 

 

2,066

 

Cash interest paid, cash taxes paid, and maintenance capital expenditures

attributable to limited partners

 

 

 

 

 

2,194

 

 

 

3,682

 

Distributable cash flow

$

623

 

$

7,517

 

 

Operating Data

Three Months

 

Six Months

Ended June 30,

 

Ended June 30,

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

 

Total barrels of water processed (in thousands)

 

1,769

 

 

3,518

 

 

4,091

 

 

6,333

 

Average revenue per barrel

$

0.72

 

$

0.77

 

$

0.72

 

$

0.77

 

Environmental Services gross margins

 

66.3

%

 

74.3

%

 

63.5

%

 

69.8

%

Average number of inspectors

 

700

 

 

1,673

 

 

858

 

 

1,553

 

Average number of U.S. inspectors

 

700

 

 

1,669

 

 

858

 

 

1,545

 

Average revenue per inspector per week

$

4,754

 

$

4,782

 

$

4,830

 

$

4,737

 

Pipeline Inspection Services gross margins

 

10.2

%

 

11.0

%

 

10.1

%

 

10.4

%

Average number of field personnel

 

27

 

 

29

 

 

27

 

 

28

 

Average revenue per field personnel per week

$

20,379

 

$

11,621

 

$

14,431

 

$

8,778

 

Pipeline & Pipeline Services gross margins

 

29.5

%

 

30.9

%

 

26.5

%

 

25.3

%

Capital expenditures including finance lease payments (in thousands)

$

357

 

$

708

 

$

1,497

 

$

1,061

 

Common unit distributions (in thousands)

$

-

 

$

2,531

 

$

2,564

 

$

5,062

 

Preferred unit distributions (in thousands)

$

1,033

 

$

1,033

 

$

2,066

 

$

2,066

 

Net debt leverage ratio

2.28x

2.85x

2.28x

2.85x