Cypress Energy Partners, L.P. (NYSE:CELP) today
reported:
- Revenues of $77.7 million for the third
quarter, an increase of 4.2% from the second quarter of 2017
- Gross margin of $9.4 million for the
third quarter, an increase of 9.1% from the second quarter of
2017
- $19.2 million of cash as of September
30, 2017
- Coverage ratio of 1.37x, an increase of
63.1% from the second quarter of 2017
- Cash distribution of $0.21 per unit,
consistent with the last two quarters
Peter C. Boylan III, CELP’s Chairman and Chief Executive
Officer, stated, “We are encouraged by the sequential improvement
in third quarter revenues and margins. We continue to focus on
potential acquisitions and growing and diversifying our customer
base. During the quarter, we added 18 new customers across our
three business segments. Average U.S. pipeline inspection and
integrity inspector headcounts continue to improve compared to
prior quarters and our higher margin NDE business achieved a new
record during the quarter. Our Brown hydrostatic testing business
unit maintained its backlog from the second quarter to the third
quarter and reflected a strong utilization rate during the quarter.
The pipeline inspection and integrity business has growing
opportunities over the next several years as many projects
previously delayed have been recently approved by various
regulators. Our water volumes improved approximately 5% over the
prior quarter, and 6% over the prior year as activity has slowly
picked up in North Dakota. Additionally, we continued our
development of three produced water pipelines serving new
multi-well pads in North Dakota for a public E&P customer that
will connect to one of our existing SWD’s in Williams County.
Unlike the substantial majority of MLPs, all of our business units
continue to require very modest levels of maintenance capital
expenditures and have the ability to grow organically as the
industry fundamentals improve.”
Mr. Boylan continued, “Our sponsor, Cypress Energy Holdings, LLC
(“CEH”), and its affiliates who control our general partner, remain
aligned with our common unitholders with an approximate 64%
ownership interest in CELP. Because of this ownership alignment,
CEH has again provided financial support to CELP with temporary
relief through expense reimbursements of $1.0 million this quarter.
As with the Omnibus Agreement relief provided in prior quarters,
CEH did not require any consideration from CELP for this additional
support.
“We continue to evaluate several interesting acquisition
opportunities, including our continued due diligence of one
sizeable opportunity currently under a letter of intent with
exclusivity. Areas of focus continue to be traditional midstream
opportunities and expansion in our existing lines of business. CEH
remains willing to deploy capital to assist CELP in acquiring
attractive assets that may be larger than what CELP can currently
acquire independently, with plans to offer those assets to CELP as
drop-down opportunities.
“We continue to believe the long term increasing demand for
inspection and integrity services and water solutions remains
strong despite the relatively slow pace of the recovery from the
multi-year downturn.”
Third Quarter:
- Revenue of $77.7 million for the three
months ended September 30, 2017, compared with $74.6 million for
the three months ended June 30, 2017, representing a 4.2% increase.
For the same period a year ago, revenue was $81.8 million.
- Gross margin of $9.4 million or 12.1%
for the three months ended September 30, 2017, compared to $8.6
million or 11.5% for the three months ended June 30, 2017,
representing a 9.1% increase. Gross margin was $9.9 million or
12.1% in the same period a year ago.
- Net income of $0.6 million for the
three months ended September 30, 2017 which was similar to the $0.5
million for the three months ended June 30, 2017. Net income was
$2.0 million for the same period of 2016.
- Net income attributable to CELP limited
partners of $1.6 million for the three months ended September 30,
2017, compared to $1.5 million for the three months ended June 30,
2017, representing a 6.5% increase. Net income attributable to CELP
limited partners was $3.3 million for the same period of 2016 due
in part to greater sponsor support during the downturn.
- Adjusted EBITDA of $4.5 million for the
three months ended September 30, 2017 (including non-controlling
interests and amounts attributable to our general partner),
compared to $4.8 million for the three months ended June 30, 2017
(including non-controlling interests and amounts attributable to
our general partner), representing a decrease of 7.2%. Adjusted
EBITDA was $6.6 million for the same period of 2016 (including
non-controlling interests and amounts attributable to our general
partner) due in part to greater sponsor support during the
downturn.
- Adjusted EBITDA attributable to limited
partners of $5.3 million for the three months ended September 30,
2017, compared to $4.8 million for the three months ended June 30,
2017 representing an increase of 10.3%. Adjusted EBITDA
attributable to limited partners was $6.8 million for the same
period of 2016 due in part to greater sponsor support during the
downturn.
- Distributable Cash Flow available to
limited partners of $3.4 million for the three months ended
September 30, 2017, compared to $2.1 million for the three months
ended June 30, 2017 representing an increase of 62.5%.
Distributable Cash Flow was $5.1 million for the same period of
2016 due in part to greater sponsor support during the
downturn.
- A coverage ratio of 1.37x in the third
quarter of 2017, compared to a coverage ratio of 0.84x in the
second quarter of 2017 and a coverage ratio of 1.06x in the third
quarter of 2016.
- A leverage ratio of approximately 3.77x
compared to a 4.0x covenant limit and an interest coverage ratio of
3.08x compared to a 3.0x covenant requirement at September 30, 2017
pursuant to the terms of our credit facilities.
Year-To-Date:
- Revenue of $217.0 million for the nine
months ended September 30, 2017, down 4.7% from the same period in
the prior year.
- Net loss of $3.9 million for the nine
months ended September 30, 2017 (including impairment charges of
$3.6 million), compared to $11.0 million for the same period in the
prior year (including impairment charges of $10.5 million).
- Net income attributable to limited
partners of $0.2 million for the nine months ended September 30,
2017 (including impairment charges of $2.8 million), compared to a
net loss of $0.7 million for the same period in the prior year
(including impairment charges of $6.4 million).
- Adjusted EBITDA of $12.1 million for
the nine months ended September 30, 2017 (including non-controlling
interests and amounts attributable to our general partner),
compared to $12.9 million for the same period in the prior year,
down 5.8%.
- Adjusted EBITDA attributable to limited
partners of $13.2 million for the nine months ended September 30,
2017, compared to $15.5 million for the same period in the prior
year, down 14.9%.
- Distributable Cash Flow attributable to
limited partners of $6.8 million for the nine months ended
September 30, 2017, down 34.8% from the same period in the prior
year.
Highlights Include:
- We averaged 1,211 inspectors per week
for the third quarter of 2017, an increase of 2.1% compared to
1,186 in the second quarter of 2017 even though Hurricane Harvey
delayed some projects in both our inspection and integrity
divisions. For the same period a year ago, we averaged 1,231
inspectors. Our focus on maintenance and integrity work and
non-destructive examination (“NDE”) continues to benefit our gross
margins in comparison with our standard inspection work.
- During the third quarter, we started a
new mechanical integrity business unit in our inspection and
integrity division and it is off to a great start, having won some
excellent mandates from large publicly traded energy companies. The
additional overhead is reflected in our margins and SG&A.
- We disposed 3.1 million barrels of
saltwater, an increase of 4.6% at an average revenue per barrel of
$0.68 for the third quarter of 2017 compared with the disposal of
3.0 million barrels of saltwater at an average revenue per barrel
of $0.68 for the second quarter of 2017. This also represented a
5.6% increase over the 2.9 million barrels of saltwater we disposed
at an average revenue per barrel of $0.67 for the same period of
2016.
- Maintenance capital expenditures for
the three months ended September 30, 2017 were $0.2 million,
compared to $14 thousand in the second quarter of 2017 and $56
thousand in the same period of 2016.
- Our expansion capital expenditures
during the first nine months of 2017 totaled $0.8 million and were
primarily related to growth opportunities in Pipeline Integrity
Services to purchase new NDE technology, a new line of business
started to support our higher margin pipeline integrity services,
and to expand Water & Environmental Services.
Looking Forward:
- Our third quarter pipeline inspection
headcounts increased slightly over our second quarter headcounts,
despite the loss of some work from a significant Canadian customer
previously reported in the first quarter of 2017.
- We continue to pursue new projects as
they are announced, new customers, and renew existing
contracts.
- Our Integrity Services business
(hydrostatic testing) third quarter results improved over the prior
quarter with an increase in average number of field personnel
utilized of 16.7% and a slight increase in average revenue per
field personnel per week. We have also improved our backlog going
into the fourth quarter of 2017 and first quarter of 2018.
- During the third quarter, approximately
90% of total water volumes came from produced water, and piped
water represented approximately 45% of total water volumes. As
commodity prices continue to improve and drilling activity
increases, we expect to have operating leverage with our cost
structure and minimal maintenance capital expenditure requirements
as volumes increase. Private equity investors have been very active
acquiring acreage and production in the Bakken this year that will
likely lead to increased new drilling activity. Our latest research
shows that there are an estimated 500 drilled and uncompleted wells
(“DUCs”) within a 15-mile radius of our facilities, 300 in North
Dakota and 200 in the Permian. As prices continue to improve, we
expect to benefit from the completion of these DUCs and other newly
completed wells from both existing Bakken operators and many new
private equity backed operators.
- Our SWD facilities have substantial
unused capacity to support growth with current utilization of
approximately 25%. We anticipate completing the rebuild of our
Delaware basin SWD facility in near Orla, Texas in December that
was struck by lightning. We continue to work with our insurance
carrier on the lightning strike property loss settlement on one of
our facilities in the Bakken that currently remains out of
service.
- We continue to evaluate several
acquisition opportunities in traditional midstream lines of
business and our existing lines of business including some very
large transformational opportunities that would need to initially
be acquired by CEH with the expectation that they would be offered
to CELP in the future as a drop-down opportunity.
- LIBOR interest rates have risen over
the last quarter by approximately 19 basis points and by almost 71
basis points compared to this time last year. This has increased
our interest expense and negatively impacted our distributable cash
flow and coverage ratios.
CELP will file its quarterly report on Form 10-Q for the period
ended September 30, 2017 with the Securities and Exchange
Commission later today. CELP will also post a copy of the Form 10-Q
on its website at www.cypressenergy.com.
CELP will host an earnings call on Tuesday, November 14th, 2017,
at 11:00 am EST (10:00 am CST) to discuss its third quarter 2017
financial results. Analysts, investors, and other interested
parties may access the conference call by dialing Toll-Free (US
& Canada): (888) 437-3179 or International Dial-In (Toll):
(404) 267-0369. An archived audio replay of the call will be
available on the investor section of our website at
www.cypressenergy.com beginning at 11:00 am EST (10:00 am
CST) on November 16th, 2017.
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 other
extraordinary or non-recurring items. 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 mid-stream 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) Adjusted EBITDA to net income, (ii) Adjusted EBITDA
attributable to limited partners and Distributable Cash Flow to net
income attributable to limited partners and (iii) Adjusted EBITDA
to net cash provided by operating activities 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 mid-stream 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 environmental services to
upstream energy companies, and their vendors in North Dakota in the
Bakken region of the Williston Basin, and West Texas in the Permian
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 September 30,
2017 and December 31, 2016 (in thousands, except unit data)
September 30, December
31, 2017 2016 ASSETS Current
assets: Cash and cash equivalents $ 19,238 $ 26,693 Trade accounts
receivable, net 49,945 38,482 Prepaid expenses and other
1,610 1,042 Total current assets 70,793 66,217
Property and equipment: Property and equipment, at cost 20,355
22,459 Less: Accumulated depreciation 8,634
7,840 Total property and equipment, net 11,721 14,619
Intangible assets, net 26,180 29,624 Goodwill 55,430 56,903 Other
assets 188 149 Total assets $ 164,312
$ 167,512
LIABILITIES AND OWNERS'
EQUITY Current liabilities: Accounts payable $ 2,171 $ 1,690
Accounts payable - affiliates 3,568 1,638 Accrued payroll and other
12,242 7,585 Income taxes payable 748 1,011
Total current liabilities 18,729 11,924 Long-term debt
136,142 135,699 Deferred tax liabilities - 362 Asset retirement
obligations 161 139 Total liabilities
155,032 148,124 Owners' equity: Partners’ capital:
Common units (11,889,958 and 5,945,348
units outstanding at September 30, 2017 and December 31, 2016,
respectively)
34,133 (7,722 ) Subordinated units (5,913,000 units outstanding at
December 31, 2016) - 50,474 General partner (25,876 ) (25,876 )
Accumulated other comprehensive loss (2,725 ) (2,538
) Total partners' capital 5,532 14,338 Noncontrolling interests
3,748 5,050 Total owners' equity
9,280 19,388 Total liabilities and owners'
equity $ 164,312 $ 167,512
CYPRESS
ENERGY PARTNERS, L.P. Unaudited Condensed Consolidated
Statements of Operations For the Three and Nine Months Ended
September 30, 2017 and 2016 (in thousands, except unit and per
unit data)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2017 2016 2017 2016 Revenues $
77,682 $ 81,806 $ 216,971 $ 227,591 Costs of services 68,292
71,880 192,643 202,540
Gross margin 9,390 9,926 24,328 25,051 Operating
costs, expenses and other: General and administrative 5,574 5,056
16,013 16,805 Depreciation, amortization and accretion 1,184 1,214
3,561 3,685 Impairments - - 3,598 10,530 Losses on asset disposals,
net 208 - 95 -
Operating income (loss) 2,424 3,656 1,061 (5,969 )
Other (expense) income: Interest expense, net (1,907 ) (1,641 )
(5,411 ) (4,878 ) Foreign currency gains 557 - 824 - Other, net
17 210 122 257
Net income (loss) before income tax expense 1,091 2,225
(3,404 ) (10,590 ) Income tax expense 529 227
458 389 Net income (loss) 562
1,998 (3,862 ) (10,979 ) Net Income (loss) attributable to
noncontrolling interests 8 81
(1,290 ) (4,898 ) Net income (loss) attributable to partners
/ controlling interests 554 1,917 (2,572 ) (6,081 ) Net loss
attributable to general partner (1,000 ) (1,431 )
(2,750 ) (5,366 ) Net income (loss) attributable to
limited partners $ 1,554 $ 3,348 $ 178 $ (715
) Net income (loss) attributable to limited partners
allocated to: Common unitholders $ 1,554 $ 1,676 $ 178 $ (358 )
Subordinated unitholders - 1,672
- (357 ) $ 1,554 $ 3,348 $ 178 $
(715 ) Net income (loss) per common limited partner unit
Basic $ 0.13 $ 0.28 $ 0.02 $ (0.06 ) Diluted $ 0.13 $ 0.27 $ 0.02 $
(0.06 ) Net income (loss) per subordinated limited partner
unit - basic and diluted $ - $ 0.28 $ - $ (0.06 ) Weighted
average common units outstanding Basic 11,884,196 5,939,158
10,902,838 5,930,718 Diluted 11,994,881 6,158,961 11,111,454
5,930,718 Weighted average subordinated units outstanding -
basic and diluted - 5,913,000 974,670 5,913,000
Reconciliation of Net Loss to Adjusted EBITDA
Three Months endedSeptember
30,
Nine Months endedSeptember
30,
2017 2016 2017 2016 (in thousands)
Net income (loss) $ 562 $ 1,998 $ (3,862 ) $ (10,979 ) Add:
Interest expense 1,907 1,641 5,411 4,878 Depreciation, amortization
and accretion 1,465 1,447 4,378 4,354 Impairments - - 3,598 10,530
Income tax expense 529 227 458 389 Non-cash allocated expenses -
931 1,750 2,866 Equity based compensation 371 322 1,137 829 Losses
on asset disposals, net 208 - 77 - Less: Foreign currency gains
557 - 824 - Adjusted
EBITDA $ 4,485 $ 6,566 $ 12,123 $ 12,867
Reconciliation of Net Loss Attributable
to Limited Partners to Adjusted EBITDA Attributable to Limited
Partners and Distributable Cash Flow
Three Months endedSeptember
30,
Nine Months endedSeptember
30,
2017 2016 2017 2016 (in thousands)
Net income (loss) attributable to limited partners $ 1,554 $
3,348 $ 178 $ (715 ) Add: Interest expense attributable to limited
partners 1,907 1,578 5,411 4,690 Depreciation, amortization and
accretion attributable to limited partners 1,322 1,306 3,952 3,921
Impairments attributable to limited partners - - 2,823 6,409 Income
tax expense attributable to limited partners 517 218 442 370 Equity
based compensation attributable to limited partners 371 322 1,137
829 Losses on asset disposals attributable to limited partners, net
208 - 77 - Less: Foreign currency gains attributable to limited
partners 557 - 824 -
Adjusted EBITDA attributable to limited partners 5,322 6,772 13,196
15,504 Less: Cash interest paid, cash taxed paid and
maintenance capital expenditures attributable to limited partners
1,910 1,671 6,380 5,058
Distributable cash flow $ 3,412 $ 5,101 $ 6,816 $ 10,446
Reconciliation of Cash
Flows Provided by Operating Activities to Adjusted EBITDA
Nine Months ended September 30, 2017
2016 (in thousands) Cash flows provided by operating
activities $ 263 $ 17,659 Changes in trade accounts receivable, net
11,583 (4,999 ) Changes in prepaid expenses and other 765 (1,053 )
Changes in accounts payable and accrued liabilities (6,552 ) (3,802
) Changes in income taxes payable 271 84 Interest expense
(excluding non-cash interest) 4,968 4,452 Income tax expense
(excluding deferred tax benefit) 819 428 Other 6
98 Adjusted EBITDA $ 12,123 $ 12,867
Operating Data Three Months
Nine Months Ended September 30, Ended September
30, 2017 2016 2017 2016
Total barrels of saltwater disposed (in thousands) 3,102 2,937
8,841 9,917 Average revenue per barrel $ 0.68 $ 0.67 $ 0.68 $ 0.67
Water and environmental services gross margins 60.4 % 62.2 % 61.2 %
53.5 % Average number of inspectors 1,211 1,231 1,160 1,165 Average
revenue per inspector per week $ 4,570 $ 4,655 $ 4,532 $ 4,597
Pipeline inspection services gross margins 10.2 % 10.3 % 9.6 % 9.5
% Average number of integrity field personnel 21 25 18 24 Average
revenue per field personnel per week $ 10,268 $ 13,772 $ 8,443 $
12,059 Integrity services gross margins 24.8 % 21.4 % 15.6 % 14.7 %
Maintenance capital expenditures (in thousands) $ 224 $ 56 $ 312 $
206 Expansion capital expenditures (in thousands) $ 511 $ 132 $ 802
$ 528 Distributions (in thousands) $ 2,497 $ 4,819 $ 7,487 $ 14,448
Coverage ratio
1.37
x
1.06
x
0.91
x
0.72
x
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171113006472/en/
Cypress Energy Partners, L.P.Les Austin,
918-748-3907Chief Financial
Officerles@cypressenergy.com
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