-- Organic Expansion of Full-Cycle Business
Model Continues
-- Thermo Fluids Sale on Track to Close at the
End of June
Nuverra Environmental Solutions (NYSE:NES) (“Nuverra” or “the
Company”), a leading provider of full-cycle environmental solutions
to the energy and industrial end-markets, today announced financial
results for its first quarter ended March 31, 2014.
Summary of Key Financial Results1
- First-quarter revenue was $128.0
million ($155.7 million including TFI).
- Net loss from continuing operations for
the quarter was $(11.9) million (net loss of $(11.5) million
including TFI).
- First-quarter adjusted EBITDA was $18.9
million ($22.0 million including TFI).
- Net cash capital expenditures were $6.2
million in the first quarter ($7.2 million including TFI).
1 Results of operations of Thermo Fluids Inc. (“TFI”) are
reflected as discontinued operations due to its pending
divestiture.
First-Quarter Commentary
Mark D. Johnsrud, Chief Executive Officer, commented, “During
the first quarter, we continued to make significant progress to
expand our full-cycle business model and execute our growth
strategy. Our various pipeline initiatives complement our robust
logistics capabilities on the fluids side, and our recent
investments in solids treatment and thermal desorption capabilities
ensure we can offer similarly innovative environmental solutions
for solids.
“In terms of activity levels, as we discussed on our last
conference call, the first quarter was impacted by severe winter
weather, which curtailed activity throughout our operating areas.
As we progress through the second quarter, we are seeing a gradual
return to more normalized levels across all basins, and we are
excited about the pick-up in drilling and completion activities
that our customers are signaling for the back half of the year as
annual budgets are fulfilled. We believe service intensities will
only increase as operators continue to gain efficiencies through
multi-well pads and longer laterals, which increases waste volumes
and drives demand for the solutions we provide.
“On the business development front, we took a significant step
in establishing a national-level sales presence by hiring Steve
London as Vice President of Business Development. Steve joined the
Nuverra team in March after 34 years in business development and
related roles at Halliburton. He is working directly with our
basin-level sales force to further support organic growth
opportunities throughout the country. Our expanded service
offerings, which will include thermal treatment of drilling solids
and pipeline transportation networks, combined with stricter
environmental regulations, are creating significant opportunities
to cross-sell additional solutions to existing customers.
“Our previously disclosed sale of TFI to VeroLube is on track to
close on our originally contemplated timeline in late June. The
VeroLube and Canaccord teams are currently in the process of
funding the transaction, and we are providing them audited
financial statements for TFI. We believe our post-close capital
structure will enable us to be a more nimble organization as we
pursue growth opportunities in our rapidly evolving industry,”
concluded Mr. Johnsrud.
First Quarter 2014 Financial
Overview
Including TFI, first-quarter revenue was $155.7 million,
compared with $159.5 million in the first quarter of fiscal 2013,
and $154.5 million in the fourth quarter of 2013.
Adjusted EBITDA for the first quarter including TFI was $22.0
million, compared with $32.1 million for the same prior-year
period, and $25.7 million in the fourth quarter of 2013.
Adjustments to EBITDA in the period included, among other items, a
previously disclosed $3.2 million write-off of deferred financing
costs relating to the Company entering into its amended credit
facility, and $2.1 million of integration, severance and rebranding
expenses, primarily related to the consolidation of the Company’s
back-office functions, as well as legal and transaction costs
related to the disposition of TFI, which was offset partly by a
gain of $1.3 million on the disposal of assets. Excluding TFI,
adjusted EBITDA in the first quarter was $18.9 million compared
with $27.4 million in the first quarter of 2013.
Jay C. Parkinson, Chief Financial Officer, commented, “Our first
quarter results, while consistent with our expectations, reflect
severe weather that negatively impacted activity levels in all
basins, particularly in the Bakken and Marcellus/Utica Shale
regions. Additionally, results in the Northeast were negatively
affected by an accident at one of our major customer’s wells, which
resulted in significant pullback in their drilling and completion
activity during the first quarter as they conducted safety reviews.
All current indicators point to a gradual rebound in the second
quarter, and increasingly robust activity levels in the back half
of the year.”
On March 31, 2014, cash and cash equivalents were approximately
$10.2 million and total debt was approximately $567.32 million,
including $400.0 million of senior unsecured notes, approximately
$148.8 million drawn under the Company’s amended credit facility
and approximately $18.5 million in capital leases.
Net cash capital expenditures including TFI in the first quarter
totaled $7.2 million, primarily related to the ongoing construction
of the thermal desorption center for the treatment of solids in the
Bakken.
2 Excludes unamortized discount and premium of $0.7 million,
net.
Operational Highlights
Nuverra’s shale segment provides comprehensive environmental
solutions, including the delivery, collection, treatment, recycling
and disposal of restricted environmental products for
unconventional oil and gas development in the Bakken, Utica, Eagle
Ford and Mississippian Lime Shale areas, as well as the Permian
Basin, which are liquids-rich plays, and the Marcellus and
Haynesville Shale areas, which are gas-rich plays.
Severe winter weather negatively impacted activity levels across
the board, with the Bakken and Marcellus/Utica Shale regions
particularly hard-hit. In the Bakken, February alone saw 18 days
with temperatures well below normal, and several days with wind
gusts too high for completion work. However, indicators point to
operators planning for robust summer programs.
For the first quarter, total revenue from the Company’s Shale
Solutions business was $128.0 million, of which approximately $97.1
million was derived from predominantly liquids-rich areas and $30.9
million was derived from predominantly gas-rich areas. Total
revenue in the first quarter of 2014 was down 2% from $130.6
million in the first quarter of 2013.
Reviewing operational highlights:
In the Bakken Shale area, revenues were essentially flat from
the fourth quarter. Activity increased throughout the quarter as
severe winter weather abated and drilling and completion activities
resumed.
“Landfill volumes continue to grow, our thermal desorption
facility remains on-track to be operational in Q4, and the H2O
Forward initiative with Halliburton is moving ahead with the first
joint project expected to commence this quarter. The Bakken
continues to perform well for us and we are excited about the new
initiatives we are introducing in the basin,” commented Mr.
Parkinson.
In the Marcellus and Utica Shale areas, revenues decreased
sequentially as customer activity slowed due to severe winter
conditions that impacted drilling and completion activities, as
well as the previously discussed customer accident. However,
customer activity began to resume in March, and overall activity is
expected to ramp throughout the second and third quarters. The
Company remains optimistic about activity levels in the Marcellus
and Utica Shale areas throughout the year. Additionally, the
Company is in the process of expanding its AWS treatment and
recycling facility in the Marcellus, and has placed new treatment
assets in the Utica for fluids containing heavy concentrations of
solid particulates.
In the Haynesville Shale, revenues increased sequentially,
reflecting customers’ heightened drilling and completion activities
and the addition of rigs into the basin. “Last quarter, we
strengthened our operations team in the Haynesville in response to
these increased activity levels. We are very excited about the
Haynesville, in part as activity is beginning to be reflective of
higher natural gas prices, as well as the fact that our pipeline
system gives us a unique competitive advantage. Going forward, we
are very well positioned to benefit from potential activity
increases in the basin,” said Mr. Parkinson.
During the first quarter and under the guidance of our new
operating team, performance in the Eagle Ford stabilized and
gradually improved as the first quarter progressed. The Company
believes the market dynamic in the basin is improving.
Additionally, the basin management team has been very successful
with cost reductions. The Company recently made a capital
investment in the Eagle Ford, signing a definitive agreement to
acquire permitted land for construction of an integrated
environmental treatment center that is expected to open by the
first quarter of 2015.
Business Outlook
Mr. Johnsrud provided commentary on the Company’s business
outlook for 2014:
“Reiterating what we said last quarter, Nuverra’s growth
strategy in 2014 is comprised of three key objectives: 1)
increasing market share in existing basins by taking business from
competitors; 2) growing organically by developing and introducing
innovative new solutions to our service line mix; and 3)
opportunistically expanding our service offerings by consolidating
companies that complement our business. We remain focused on
expanding our service offerings in each of our basins to address
the full spectrum of environmental management needs of our
customers.
“With the weather of the first quarter behind us, our customers
are signaling an increase in E&P capital spending, growth in
rig counts, and a rebound in permitting activity. These activities
point to a significant increase in the volume of fluids and solids
that must be managed at the surface. The anticipated increase in
E&P spending, combined with an increasingly focused
environmental regulatory landscape, give us confidence in our
upbeat outlook for the year.
“As we progress through 2014, looking at the second quarter we
are eyeing a gradual increase in activity levels, with particularly
strong growth in the back half of the year. While this industry is
very dynamic, logistical challenges are significant and it takes
time to ramp up activity. We expect sequential improvement in the
second quarter in terms of both revenues and margins, as well as a
gradual resumption of drilling and completion activities that were
delayed due to weather. We remain confident in our full-year 2014
plan, and believe the quarterly progression throughout the year
will be back-end weighted.”
Conference Call &
Webcast
The Company will host a conference call to discuss its first
quarter 2014 financial results at 4:30 p.m. ET (1:30 p.m. PT)
today. To participate on the conference call, please dial
+1-480-629-9665 (US) or +1-877-941-1428 (International) and
reference conference ID 4679609. An audio replay of the call will
be available approximately one hour following the conclusion of the
call through May 22, 2014. The audio replay of the conference call
can be accessed by dialing +1-303-590-3030 (US) or +1-800-406-7325
(International) and entering access code 4679609. The call will be
webcast live and a replay available by accessing the “Investors”
section of the Company’s web site at www.nuverra.com.
About Nuverra
Nuverra Environmental Solutions is among the largest companies
in the United States dedicated to providing comprehensive and
full-cycle environmental solutions to customers in energy and
industrial end-markets. Nuverra focuses on the delivery,
collection, treatment, recycling, and disposal of restricted
solids, water, wastewater, used motor oil, spent antifreeze, waste
fluids and hydrocarbons. The Company continues to expand its suite
of environmentally compliant and sustainable solutions to customers
who demand stricter environmental compliance and accountability
from their service providers. Interested parties can access
additional information about Nuverra on the Company's web site at
http://www.nuverra.com, and in documents filed with the United
States Securities and Exchange Commission, on the SEC's web site at
http://www.sec.gov.
About Non-GAAP Financial
Measures
This press release contains non-GAAP financial measures as
defined by the rules and regulations of the United States
Securities and Exchange Commission. A non-GAAP financial measure is
a numerical measure of a company’s historical or future financial
performance, financial position or cash flows that excludes
amounts, or is subject to adjustments that have the effect of
excluding amounts, that are included in the most directly
comparable measure calculated and presented in accordance with GAAP
in the statements of operations or balance sheets of the Company;
or includes amounts, or is subject to adjustments that have the
effect of including amounts, that are excluded from the most
directly comparable measure so calculated and presented.
Reconciliations of these non-GAAP financial measures to their
comparable GAAP financial measures are included in the attached
financial tables.
These non-GAAP financial measures are provided because
management of the Company uses these financial measures in
maintaining and evaluating the Company’s ongoing financial results
and trends. Management uses this non-GAAP information as an
indicator of business performance, and evaluates overall management
with respect to such indicators. Management believes that excluding
items such as acquisition expenses, amortization of intangible
assets, stock-based compensation, asset impairments, restructuring
charges and other non-recurring charges, among other items that are
inconsistent in amount and frequency (as with acquisition
expenses), or determined pursuant to complex formulas that
incorporate factors, such as market volatility, that are beyond our
control (as with stock-based compensation), for purposes of
calculating these non-GAAP financial measures facilitates a more
meaningful evaluation of the Company’s current operating
performance and comparisons to the past and future operating
performance. The Company believes that providing non-GAAP financial
measures such as EBITDA, adjusted EBITDA, adjusted net income
(loss), adjusted net income (loss) per share, and operating working
capital, in addition to related GAAP financial measures, provides
investors with greater transparency to the information used by the
Company’s management.
Forward-Looking
Statements
This press release may contain "forward-looking statements"
within the meaning of the safe harbor provisions of the United
States Private Securities Litigation Reform Act of 1995. Words such
as "expect," "estimate," "project," "budget," "forecast,"
"anticipate," "intend," "plan," "may," "will," "could," "should,"
"believes," "predicts," "potential," "continue," and similar
expressions are intended to identify such forward-looking
statements. Forward-looking statements in the press release
include, without limitation, forecasts of growth, revenues,
business activity, adjusted EBITDA and pipeline expansion, landfill
and treatment facility activities, as well as statements regarding
possible divestitures, timing of such divestitures, acquisitions,
financings, business growth and expansion opportunities,
availability of capital, ability to access capital markets, and
other matters that involve known and unknown risks, uncertainties
and other factors that may cause results, levels of activity,
performance or achievements to differ materially from results
expressed or implied by this press release. Such risk factors
include, among others: difficulties encountered in acquiring and
integrating businesses; uncertainties in evaluating goodwill and
long-lived assets for potential impairment; potential impact of
litigation; risks of successfully consummating expected
transactions within the timeframes or on the terms contemplated,
including risks that such transactions may fail to close due to
unsatisfied closing conditions; whether certain markets grow as
anticipated; pricing pressures; risks associated with our
indebtedness; low oil and or natural gas prices; changes in
customer drilling and completion activities and capital expenditure
plans; shifts in production among shale areas in which we operate
and/or into shale areas in which we currently do not have
operations; control of costs and expenses; and the competitive and
regulatory environment. Additional risks and uncertainties are set
forth in the Company's Form 10-Q for the three months ended March
31, 2014, its Annual Report on Form 10-K for the fiscal year ended
December 31, 2013, as well as the Company's other reports filed
with the United States Securities and Exchange Commission, which
are available at http://www.sec.gov and the Company's web site at
http://www.nuverra.com. As a result of the foregoing considerations
and the other limitations of non-GAAP measures described elsewhere
herein, you are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this
presentation. All forward-looking statements are qualified in their
entirety by this cautionary statement. The Company undertakes no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
NUVERRA ENVIRONMENTAL SOLUTIONS, INC.
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except per share
amounts)
Three Months Ended March 31,
2014 2013 Revenue: Non-rental revenue $
109,844 $ 109,324 Rental revenue
18,170 21,323 Total revenue
128,014 130,647 Costs and expenses: Direct operating expenses
93,626 92,012 General and administrative expenses 18,548 14,079
Depreciation and amortization 20,911
28,051 Total operating expenses
133,085 134,142
Loss from operations (5,071 ) (3,495 ) Interest expense, net
(12,050 ) (13,415 ) Other expense, net (420 ) (1,031 ) Loss on
extinguishment of debt (3,177 )
- Loss from continuing operations before income taxes
(20,718 ) (17,941 ) Income tax benefit 8,804
13,936 Loss from continuing
operations (11,914 ) (4,005 ) Income (loss) from discontinued
operations, net of income taxes 459
(8,627 ) Net loss attributable to common
stockholders $ (11,455 ) $ (12,632 )
Net loss per common share attributable to common
stockholders: Basic and diluted loss from continuing
operations $ (0.48 ) $ (0.17 ) Basic and diluted income (loss) from
discontinued operations 0.02
(0.36 ) Net loss per basic and diluted share $
(0.46 ) $ (0.53 )
Weighted average shares outstanding used
in computing net loss per basic and
diluted common share
25,020 23,841
NUVERRA ENVIRONMENTAL SOLUTIONS, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands)
March 31, December 31,
2014 2013
Assets (Unaudited) (Note 1) Cash and cash equivalents $
10,196 $ 8,783 Restricted cash 112 110 Accounts
receivable, net 101,215 87,086 Inventories 3,475 3,328 Prepaid
expenses and other receivables 12,545 10,457 Deferred income taxes
29,759 30,072 Other current assets 115 409 Current assets held for
sale 26,990 21,446 Total
current assets 184,407 161,691
Property, plant and equipment, net 487,480 498,541 Equity
investments 4,024 4,032 Intangibles, net 145,061 149,363 Goodwill
408,696 408,696 Other assets 20,842 21,136 Long-term assets held
for sale 168,440 167,304
Total assets $ 1,418,950 $ 1,410,763
Liabilities and Equity Accounts payable $ 27,264 $ 33,229
Accrued liabilities 82,203 63,431 Current portion of contingent
consideration 9,611 13,113 Current portion of long-term debt 5,385
5,464 Financing obligation to acquire non-controlling interest
10,104 - Current liabilities of discontinued operations
10,517 9,301 Total current
liabilities 145,084 124,538
Deferred income taxes 33,865 42,982 Long-term portion of
debt 561,209 549,713 Long-term portion of contingent consideration
2,614 2,344 Financing obligation to acquire non-controlling
interest - 10,104 Other long-term liabilities 4,044 4,324 Long-term
liabilities of discontinued operations 34,174
32,389 Total liabilities 780,990
766,394 Commitments and contingencies
Common stock 28 27 Additional paid-in capital 1,347,019 1,341,209
Treasury stock (19,503 ) (19,503 ) Accumulated deficit
(689,584 ) (677,364 ) Total equity of Nuverra
Environmental Solutions, Inc. 637,960
644,369 Total liabilities and equity $
1,418,950 $ 1,410,763
Note 1: The condensed consolidated balance
sheet at December 31, 2013 has been derived from the audited
consolidated
financial statements included in the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2013.
NUVERRA ENVIRONMENTAL SOLUTIONS, INC.
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended March 31,
2014 2013 Cash flows from operating
activities: Net loss $ (11,455 ) $ (12,632 )
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities: (Income) loss from discontinued operations,
net of income taxes (459 ) 8,627 Depreciation 16,607 22,057
Amortization of intangible assets 4,304 5,994 Amortization of
deferred financing costs 523 1,236 Amortization of original issue
discounts and premiums, net 36 37 Stock-based compensation 293 790
Gain on disposal of property, plant and equipment (1,255 ) (237 )
Bad debt expense 773 187 Loss on extinguishment of debt 3,177 -
Deferred income taxes (8,804 ) (13,231 ) Other, net 463 675
Changes in operating assets and
liabilities, net of business acquisitions and purchase price
adjustments:
Accounts receivable (14,902 ) (3,311 ) Prepaid expenses and other
receivables (1,982 ) (49 ) Accounts payable and accrued liabilities
12,523 8,014 Other assets and liabilities, net (215 )
210 Net cash (used in) provided by operating
activities from continuing operations (373 ) 18,367 Net cash
provided by operating activities from discontinued operations
3,409 192 Net cash
provided by operating activities 3,036
18,559
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired - (38 ) Proceeds
from the sale of property, plant and equipment 1,551 79 Purchases
of property, plant and equipment (7,743 )
(13,899 ) Net cash used in investing activities from
continuing operations (6,192 ) (13,858 ) Net cash used in investing
activities from discontinued operations (1,050 )
(915 ) Net cash used in investing activities
(7,242 ) (14,773 )
Cash flows from
financing activities Proceeds from revolving credit facility
17,725 4,000 Payments on revolving credit facility (8,000 ) (4,000
) Payments for deferred financing costs (343 ) (184 ) Payments on
notes payable and capital leases (1,429 ) (1,229 ) Payments of
contingent consideration and other financing activities
25 (8 ) Net cash provided by (used in)
financing activities from continuing operations 7,978 (1,421 ) Net
cash used in financing activities from discontinued operations
- (400 ) Net cash provided by
(used in) financing activities 7,978
(1,821 ) Net decrease in cash and cash equivalents 3,772
1,965 Cash and cash equivalents - beginning of period
9,212 16,211 Cash and cash equivalents
- end of period 12,984 18,176 Less: cash and cash equivalents of
discontinued operations - end of period 2,788
312 Cash and cash equivalents of continuing
operations - end of period $ 10,196 $ 17,864
NUVERRA
ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES UNAUDITED
ADJUSTED EBITDA GAAP RECONCILIATION (In thousands)
Three Months Ended Three Months Ended March
31, December 31, 2014 2013 2013
Loss from continuing operations $ (11,914 ) $ (4,005
) $ (10,372 ) Depreciation of property, plant and equipment
16,607 22,057 14,520 Amortization of intangible assets 4,304 5,994
4,895 Interest expense, net 12,050 13,415 13,573 Income tax benefit
(8,804 ) (13,936 ) (7,021
) EBITDA from continuing operations 12,243
23,525 15,595
Adjustments: Transaction-related costs, including earnout
adjustments, net 513 - (1,995 ) Stock-based compensation 293 790
413 Legal, environmental and insurance, net 1,856 2,397 7,010
Restructuring, exit costs and other - - (554 ) Loss on
extinguishment of debt 3,177 - - Integration, severance and
rebranding costs 2,072 678 2,512 (Gain) loss on disposal of assets
(1,255 ) - 326
Adjusted EBITDA from continuing operations 18,899 27,390
23,307 Adjusted EBITDA from discontinued operations
3,098 4,696 2,420
Total Adjusted EBITDA $ 21,997 $ 32,086
$ 25,727
Reconciliation of
income (loss) from discontinued operations to EBITDA and Adjusted
EBITDA from discontinued operations: Three Months
Ended Three Months Ended March 31, December
31, 2014 2013 2013 Income (loss) from
discontinued operations $ 459 $ (8,627 ) $ (2,700 ) Depreciation of
property, plant and equipment - 665 469 Amortization of intangible
assets - 2,731 1,785 Income tax benefit 1,696
8,271 2,858 EBITDA from
discontinued operations 2,155
3,040 2,412 Adjustments:
Transaction-related costs, including earnout adjustments, net 1,024
992 - Legal, environmental and insurance, net - 664 - (Gain) loss
on disposal of assets (81 ) -
8 Adjusted EBITDA from discontinued operations
$ 3,098 $ 4,696 $ 2,420
NUVERRA
ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES UNAUDITED
CAPITAL EXPENDITURES RECONCILIATION (In thousands)
Three Months
Ended March 31,
2014 Net cash capital expenditures from continuing
operations $ 6,192 Net cash capital expenditures from
discontinued operations 1,050 Total net cash capital
expenditures $ 7,242
Three Months
Ended March 31, 2014 Cash capital expenditures from
continuing operations $ 7,743 Cash capital expenditures from
discontinued operations 1,137 Total cash capital
expenditures $ 8,880
Nuverra Environmental Solutions, Inc.Liz Merritt,
602-903-7802VP-Investor Relations &
Communicationsir@nuverra.com- or -The Piacente Group, Inc.Don
Markley or Glenn Garmont, 212-481-2050nuverra@tpg-ir.com