THE WOODLANDS, Texas,
April 13, 2020 /PRNewswire/
-- CSI Compressco LP ("CSI Compressco" or the "Partnership")
(NASDAQ: CCLP) announced today that, in light of the current,
significant macroeconomic uncertainty resulting from the recent
decline in oil prices and the ongoing COVID-19 pandemic, it is
withdrawing its previously issued financial guidance for full year
2020, which should no longer be relied upon. The Partnership is
also providing preliminary first quarter 2020 financial
results. Additionally, the Partnership outlines below a
series of actions that it has taken to date as well as others it is
in the process of implementing to address the ongoing downturn in
the industry.
Brady Murphy, President of CSI
Compressco stated, "The COVID-19 pandemic and the energy market
impact are having a dramatic impact on our industry. The magnitude
and timing of significant substantial spending cuts by our
customers is changing rapidly and was not contemplated in our
previously provided guidance for the full year of 2020. As a
result, we are withdrawing our previously issued guidance for full
year 2020 and we are not in a position to provide updated full year
2020 guidance. At the end of the first quarter we started to
see customer returns of our service equipment that had been
deployed for planned oil and gas production increases which are no
longer anticipated by those customers. We expect this trend
to continue into the second quarter in addition to price
negotiations on existing units that are in service.
Accordingly, absent a meaningful recovery in natural gas and oil
prices and a material improvement in the status of the COVID-19
pandemic, we anticipate our second quarter results are likely to be
below those we will report for our first quarter."
While these estimates are preliminary, CSI Compressco is
projecting a first quarter 2020 net loss before income tax
provision of between $7.5 million and
$8.0 million, compared to a
$1.9 million net loss before income
tax provisions in the fourth quarter of 2019 and a $8.1 million net loss before income tax provision
for the first quarter of 2019. The first quarter 2020
preliminary amounts exclude the impact of unusual non-cash
impairment charges or of additional severance expenses that may be
required as a result of the actions we are taking to address the
ongoing downturn in the industry. Adjusted EBITDA, which
excludes the impact of unusual non-cash impairment charges and
severance expenses, is projected to be between $27.5 million and $28.5
million. This compares to Adjusted EBITDA of
$34.7 million in the fourth quarter
of 2019 and $26.8 million for the
first quarter of 2019. The Partnership has initiated staff
reductions, wage and salary reductions, and other cost saving
initiatives in response to these developments. First quarter
2020 revenue is projected to be between $95
million and $97 million, which
compares to $124 million for the
fourth quarter of 2019 and $103
million for the first quarter of 2019. Overall
services fleet equipment utilization at the end of March was 86.5%
compared to 90.0% as of December 31,
2019. Please see the Non-GAAP reconciliation of Adjusted
EBITDA to net loss before income tax provision below.
In response to both market uncertainty and lower levels of
spending by our customers, CSI Compressco announced the following
actions:
- Projected total year 2020 capital expenditures are being
reduced between 54% and 63% to a range of $28 million to $35
million compared to the $76
million invested in 2019. The 2020 projected expenditures
include (a) $5 million to
$8 million for growth capital to
fulfill certain client obligations, which are expected to be
incurred primarily in the first half of 2020; (b) $20 million to $22
million for maintenance capital expenditures; and (c)
$3 million to $5 million for technology investment to improve
operating efficiencies. We will continue to monitor commodity
prices and customer activity levels and may further reduce our
capital expenditures as appropriate.
- Given a decline in orders for new equipment to be fabricated
and sold to third parties, in addition to the expectation that no
incremental equipment will be fabricated for the Partnership's
fleet in the second half of 2020, the Partnership's fabrication
operations in Midland, Texas will
be shut down. The Partnership is evaluating the potential sale of
its 38-acre facility in Midland,
though there is no assurance we will be able to consummate such a
sale. The Partnership has retained its equipment design and
engineering personnel and going forward will outsource the
fabrication for its fleet and New Unit Sales to customers.
- Other cost reductions being implemented include (a) salary
reductions of between 5% and 20% for employees and executives, as
well as a 20% reduction in the cash retainers for the directors of
the Partnership's general partner, (b) a suspension of the
Partnership's 401(k) matching contribution for employees; and (c) a
targeted reduction of 20% in corporate SG&A expenses from the
$41 million annualized fourth quarter 2019 run rate to an estimated
$33 million annualized third quarter 2020 run rate. Other cost
reductions are planned or being implemented to reduce the
Partnership's direct operating costs.
CSI Compressco anticipates providing additional commentary and
guidance at the time of its earnings release for the first quarter
of 2020, currently targeted for early May.
CSI Compressco Overview
CSI Compressco is a provider of compression services and
equipment for natural gas and oil production, gathering, artificial
lift, transmission, processing, and storage. CSI Compressco's
compression and related services business includes a fleet of more
than 5,200 compressor packages providing approximately 1.19 million
in aggregate horsepower, utilizing a full spectrum of low, medium-
and high-horsepower engines. CSI Compressco also provides
well monitoring and automated sand separation services in
conjunction with compression and related services in certain
Latin America markets. CSI
Compressco also designs and sells standard compressor packages and
engineered custom-designed compressor packages. CSI
Compressco's aftermarket business provides compressor package
reconfiguration and maintenance services, as well as the sale of
compressor package parts and components manufactured by third-party
suppliers. CSI Compressco's customers comprise a broad base
of natural gas and oil exploration and production, midstream,
transmission, and storage companies operating throughout many of
the onshore producing regions of the
United States, as well as in a number of foreign countries,
including Mexico, Canada and Argentina. CSI Compressco is
managed by CSI Compressco GP Inc., which is an indirect, wholly
owned subsidiary of TETRA Technologies, Inc. (NYSE: TTI).
Cautionary Statements Regarding Preliminary Results
The preliminary financial information provided above reflects
the views and assumptions of the Partnership's management based on
information currently available to them in connection with the
preparation of the Partnership's financial statements as of and for
the quarter ended March 31, 2020.
Management has not yet completed procedures to verify the
completeness and accuracy of this information. Furthermore, this
information excludes the impact of impairments, additional
severance and other charges that may be required as a result of the
actions we are taking to address the ongoing downturn in the
industry. This information has not been audited or reviewed by
the Partnership's independent registered public accounting firm.
Additional information learned through the completion of its
financial closing procedures or otherwise may require the
Partnership to make adjustments to the preliminary financial
information, which could cause the Partnership's actual financial
results to be materially different from those presented in this
release.
Forward-Looking Statements
This news release contains "forward-looking statements" and
information based on our beliefs and those of our general partner,
CSI Compressco GP Inc. Forward-looking statements in this news
release are identifiable by the use of the following words and
other similar words: "anticipates," "assumes," "believes,"
"budgets," "could," "estimates," "expectations," "expects,"
"forecasts," "goal," "intends," "may," "might," "plans,"
"predicts," "projects," "schedules," "seeks," "should," "targets,"
"will," and "would." These forward-looking statements include
statements, other than statements of historical fact, concerning
our preliminary results of operations for the first quarter of
2020, including net loss before income tax provisions and Adjusted
EBITDA, anticipated reductions in demand from our customers,
reductions in capital expenditures, SG&A and direct operating
costs, potential sale of our Midland,
Texas fabrication facility, commodity prices and demand for
CSI Compressco's equipment and services and other statements
regarding CSI Compressco's beliefs, expectations, plans, prospects
and other future events, performance, and other statements that are
not purely historical. Such forward-looking statements
reflect our current views with respect to future events and
financial performance, and are based on assumptions that we believe
to be reasonable, but such forward-looking statements are subject
to numerous risks and uncertainties, including but not limited to:
the demand destruction resulting from the ongoing COVID-19
pandemic, the impact to the market of oversupply resulting from
actions taken by Saudi Arabia and
Russia and the long term impact of
these developments on the near, medium and long-term prices of
crude oil and natural gas; the levels of competition we encounter;
the activity levels of our customers; the availability of adequate
sources of capital to us; our ability to comply with contractual
obligations, including those under our financing arrangements; our
operational performance; the loss of our management; risks related
to acquisitions and our growth strategy; the availability of raw
materials and labor at reasonable prices; risks related to our
foreign operations; the effect and results of litigation,
regulatory matters, settlements, audits, assessments, and
contingencies; or potential material weaknesses in the future;
information technology risks, including the risk of cyberattack;
and other risks and uncertainties contained in our Annual Report on
Form 10-K and our other filings with the U.S. Securities and
Exchange Commission ("SEC"), which are available free of charge on
the SEC website at www.sec.gov. The risks and uncertainties
referred to above are generally beyond our ability to control and
we cannot predict all the risks and uncertainties that could cause
our actual results to differ from those indicated by the
forward-looking statements. If any of these risks or
uncertainties materialize, or if any of the underlying assumptions
prove incorrect, actual results may vary from those indicated by
the forward-looking statements, and such variances may be
material. All subsequent written and verbal forward-looking
statements made by or attributable to us or to persons acting on
our behalf are expressly qualified in their entirety by reference
to these risks and uncertainties. You should not place undue
reliance on forward-looking statements. Each forward-looking
statement speaks only as of the date of the particular statement,
and we undertake no obligation to update or revise any
forward-looking statements we may make, except as may be required
by law.
Reconciliation of Non-GAAP Financial Measures
The Partnership includes in this release the non-GAAP financial
measure Adjusted EBITDA. Adjusted EBITDA is used as a
supplemental financial measure by the Partnership's management
to:
- assess the Partnership's ability to generate available cash
sufficient to make distributions to the Partnership's unitholders
and general partner;
- evaluate the financial performance of its assets without regard
to financing methods, capital structure or historical cost
basis;
- measure operating performance and return on capital as compared
to those of our competitors; and
- determine the Partnership's ability to incur and service debt
and fund capital expenditures.
The Partnership defines Adjusted EBITDA as earnings before
interest, income taxes, depreciation, amortization, and certain
non-cash charges, including impairments, bad debt expense
attributable to bankruptcy of customer, equity compensation,
non-cash costs of compressors sold, fair value adjustments of our
Preferred Units, gain on extinguishment of debt, administrative
expenses under the Omnibus Agreement paid in equity using common
units, and write-off of unamortized financing costs, and excluding
acquisition and transaction costs and severance.
Adjusted EBITDA should not be considered an alternative to net
income, operating income, cash flows from operating activities or
any other measure of financial performance presented in accordance
with GAAP. Our Adjusted EBITDA may not be comparable to Adjusted
EBITDA or other similarly titled measures of other entities, as
other entities may not calculate these non-GAAP financial measures
in the same manner as CSI Compressco. Management compensates for
the limitation of non-GAAP financial measures as an analytical tool
by reviewing the comparable GAAP measures, understanding the
differences between the measures and incorporating this knowledge
into management's decision-making process.
Reconciliation of Anticipated Net Loss Before Income Tax
Provisions to Adjusted EBITDA and historical Net Loss Before Income
Tax Provisions to Adjusted EBITDA
The following table reconciles a range of anticipated first
quarter 2020 financial results compared to reported fourth quarter,
2019 and first quarter, 2019 financial results.
|
Range of
Anticipated First
Quarter, 2020 Financial
Results*
|
|
Q4
2019
|
|
Q1
2019
|
|
(In
Thousands)
|
Net loss before
income tax provisions
|
$
(8,000)
|
|
$
(7,500)
|
|
$
(1,910)
|
|
$
(8,083)
|
Interest expense,
net
|
13,100
|
|
13,500
|
|
13,498
|
|
13,299
|
Depreciation and
amortization
|
20,000
|
|
19,500
|
|
20,618
|
|
18,532
|
Non-cash cost of
compressors sold
|
1,750
|
|
2,000
|
|
2,182
|
|
940
|
Equity
Compensation
|
250
|
|
400
|
|
320
|
|
365
|
Series A Preferred
fair value adjustments
|
0
|
|
0
|
|
0
|
|
1,304
|
Series A Preferred
redemption premium
|
0
|
|
0
|
|
0
|
|
448
|
Severances and other
charges
|
400
|
|
600
|
|
|
|
|
Adjusted
EBITDA
|
$
27,500
|
|
$
28,500
|
|
$
34,708
|
|
$
26,805
|
|
* Excludes
potential unusual non-cash impairment charges and additional
severance expenses for the first quarter of 2020.
|
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SOURCE CSI Compressco LP