Cypress Energy Partners, L.P. (NYSE:CELP) today reported:
Third quarter 2019 results compared to third quarter of 2018
and other highlights:
- Revenue of $108.9 million, an increase of 28%;
- Gross margin of $15.4 million, an increase of 19%;
- Net income of $5.5 million, an increase of 11%;
- Adjusted EBITDA attributable to limited partners of $8.7
million, an increase of 21%;
- Cash and cash equivalents of $12.7 million, an increase of 121%
or $7.0 million from June 30, 2019;
- Net debt leverage ratio of 2.34x, a decrease of 17% from the
third quarter of 2018;
- Cash distribution of $0.21 per unit, consistent with the last
ten quarters;
- Common unit distribution coverage ratio of 2.28x for the third
quarter 2019 and 1.62x for the twelve months ended September 30,
2019;
- In October 2019, we increased the total capacity on our credit
facility from $90 million to $110 million.
Peter C. Boylan III, CELP’s Chairman and Chief Executive
Officer, stated, “We are pleased to report a strong third quarter
driven by our broad and growing suite of environmental services we
offer our clients. Our two inspection and integrity segments
represented 97% of our revenue and 86% of our gross margin during
the first nine months of 2019. During the third quarter, we reduced
our long-term debt and increased our cash on hand.”
Mr. Boylan continued, “Revenues of our Pipeline Inspection
segment increased 28% during the three months ended September 30,
2019 and gross margins in this segment increased 20% compared to
the three months ended September 30, 2018.
“Revenues of our Pipeline & Process Services segment
increased 60%, and gross margin 59%, during the three months ended
September 30, 2019 compared to the three months ended September 30,
2018. As previously noted, revenues of this segment benefitted from
several large projects that were scheduled to begin in the first
quarter, but were delayed by adverse weather.
“Revenues of our Environmental Services segment decreased 8%
from the prior year period during the three months ended September
30, 2019. The decrease in revenues was due to slightly lower
volumes, a planned reduction on pipeline transport fees, and lower
crude oil prices on our oil sales.
“In 2018 our sponsor, Cypress Energy Holdings, LLC (“CEH”),
completed two acquisitions to further broaden our suite of
environmental services that we can offer to both the municipal
water and energy industries. CEH continues to make solid progress
with both of these acquisitions and intends to offer them to the
Partnership next year once it has accomplished certain
developmental goals. These acquisitions would move us into several
new important environmental services including water treatment,
in-line inspection (“ILI”), equipment rental, and offshore pipeline
and process services. We remain excited about entering the ILI
industry with next-generation 5G high resolution magnetic flux
leakage ILI technology capable of helping pipeline owners and
operators better manage the integrity of their assets in both the
energy and municipal water industries. We believe we are the only
technology provider today capable of offering this service to the
large and diverse municipal water industry that provides drinking
water to our communities. Our ownership interests continue to
remain fully aligned with our unitholders, as our General Partner
and insiders collectively own approximately 76% of our total common
and preferred units.”
Mr. Boylan further stated, “The U.S. Pipeline and Hazardous
Materials Safety Administration ("PHMSA") recently finalized a rule
that significantly revises certain aspects of the hazardous liquid
pipeline safety regulations codified at Title 49 Code of Federal
Regulations Parts 190-199. Nearly nine years in the making, the
final rule is PHMSA's response to several significant hazardous
liquid pipeline accidents that have occurred in recent years, most
notably the 2010 crude oil spill near Marshall, Michigan. The final
rule also addresses 2011 and 2016 outstanding congressional
mandates and U.S. Government Accountability Office
recommendations.
“A version of this rule was initially scheduled for publication
in the Federal Register during the last week of the prior
presidential administration in 2017. It was held back as a result
of the regulatory freeze and subsequent deregulatory review by the
Trump administration, which removed certain of the requirements of
the prior rule in the recent final rule.
“Effective July 1, 2020, this rule expands requirements to
address risks to pipelines outside of environmentally sensitive and
populated areas, requiring the performance of periodic integrity
assessments and the use of leak detection systems for all regulated
hazardous liquids pipelines (except for offshore gathering and
regulated rural gathering lines). In addition, the rule makes
changes to the integrity management requirements, including
revising data integration requirements and emphasizing the use of
in-line inspection technology. The long-term increasing demand for
environmental services such as pipeline inspection, integrity
services, and water solutions remains strong due to our nation’s
aging pipeline infrastructure, and we believe we continue to be
well-positioned to capitalize on these opportunities.”
Third Quarter:
- Revenue of $108.9 million for the three months ended September
30, 2019, compared with $84.8 million for the three months ended
September 30, 2018, representing a 28% increase.
- Gross margin of $15.4 million for the three months ended
September 30, 2019, compared to $12.9 million for the three months
ended September 30, 2018, representing a 19% increase.
- Net income of $5.5 million for the three months ended September
30, 2019, compared to $5.0 million for the three months ended
September 30, 2018, representing an 11% increase. Net income for
the three months ended September 30, 2018 included gains on asset
sales of $0.8 million.
- Net income attributable to common unitholders of $3.8 million
for the three months ended September 30, 2019, compared to $3.6
million for the three months ended September 30, 2018, representing
a 5% increase. Net income attributable to common unitholders for
the three months ended September 30, 2018 included gains on asset
sales of $0.8 million.
- Adjusted EBITDA of $9.5 million for the three months ended
September 30, 2019 (including noncontrolling interests), compared
to $7.6 million for the three months ended September 30, 2018,
representing a 25% increase.
- Adjusted EBITDA attributable to limited partners of $8.7
million for the three months ended September 30, 2019, compared to
$7.2 million for the three months ended September 30, 2018,
representing a 21% increase.
- Distributable Cash Flow of $5.8 million for the three months
ended September 30, 2019, compared to $5.7 million for the three
months ended September 30, 2018. Distributable Cash Flow for the
three months ended September 30, 2019 was reduced by $1.0 million
of distributions on preferred equity. The preferred equity was
issued in May 2018, and the first distribution was paid in November
2018.
- A net debt (debt, including finance leases, net of cash and
cash equivalents) leverage ratio of 2.3x, a credit facility
covenant leverage ratio of 2.8x, and a credit facility interest
coverage ratio of 6.4x, on September 30, 2019.
Year-To-Date:
- Revenue of $310.4 million for the nine months ended September
30, 2019, compared with $226.1 million for the nine months ended
September 30, 2018, representing a 37% increase.
- Gross margin of $40.2 million for the nine months ended
September 30, 2019, compared to $32.0 million for the nine months
ended September 30, 2018, representing a 26% increase.
- Net income of $12.5 million for the nine months ended September
30, 2019, compared with $9.5 million for the nine months ended
September 30, 2018, representing a 32% increase. Net income for the
nine months ended September 30, 2018 included gains on asset
disposals of $4.1 million.
- Net income attributable to common unitholders of $8.7 million
for the nine months ended September 30, 2019, compared with $7.4
million for the nine months ended September 30, 2018, representing
an 18% increase. Net income attributable to common unitholders for
the nine months ended September 30, 2018 included gains on asset
disposals of $4.1 million.
- Adjusted EBITDA of $23.1 million for the nine months ended
September 30, 2019 (including noncontrolling interests), compared
with $16.8 million for the nine months ended September 30, 2018,
representing a 38% increase.
- Adjusted EBITDA attributable to limited partners of $22.0
million for the nine months ended September 30, 2019, compared with
$15.7 million for the nine months ended September 30, 2018,
representing a 40% increase.
- Distributable Cash Flow of $13.3 million for the nine months
ended September 30, 2019, compared with $9.8 million for the nine
months ended September 30, 2018, representing an 36% increase.
Distributable Cash Flow for the nine months ended September 30,
2019 was reduced by $3.1 million of distributions on preferred
equity. The preferred equity was issued in May 2018, and the first
distribution was paid in November 2018.
Highlights include:
- An attractive mix of environmental service lines driving solid
gross margin, EBITDA, and Distributable Cash Flow growth.
- We deployed an average of 1,540 inspectors per week for the
third quarter of 2019 compared to 1,263 inspectors per week in the
third quarter of 2018, representing a 22% increase.
- We disposed 4.0 million barrels of saltwater at an average
revenue per barrel of $0.76 during the third quarter of 2019,
compared with 4.3 million barrels of saltwater at an average
revenue per barrel of $0.78 during the third quarter of 2018.
- Maintenance capital expenditures for the third quarter of 2019
were $0.2 million, reflecting the minimal maintenance capital
expenditures necessary for the operations of our businesses.
- Our expansion capital expenditures during the first nine months
of 2019 totaled $1.2 million. The expansion capital expenditures
included the purchase of equipment to support our nondestructive
examination inspection business and costs associated with a new
software system for payroll and human resources management that we
are in the process of implementing.
Looking forward:
- We continue to pursue new customers and new projects as they
are announced and to renew existing contracts. Earlier in 2019, our
Pipeline Inspection segment reached the highest inspector headcount
in its sixteen-year history.
- We continue our focus on maintenance, integrity, and
nondestructive examination services. These business lines yield
higher gross margins than our standard inspection work.
- During the nine months ended September 30, 2019, 92% of total
saltwater disposal volumes came from produced water, and piped
water represented 41% of total water volumes. We have significant
operating leverage with our unused capacity, cost structure, and
minimal maintenance capital expenditure requirements should
drilling activity and water volumes increase.
- The interest rate on our borrowings ranged between 5.54% and
6.02% for the nine months ended September 30, 2019. The interest
rate on our revolving credit facility borrowings was 5.54% at
September 30, 2019, as we have begun to benefit from recent
reductions in interest rates.
- Our relationship with PG&E remains strong. We have
continued to provide services to PG&E after their bankruptcy
filing and have been receiving prompt payment for such services.
The bankruptcy court (the “Court”) granted a motion authorizing
PG&E to pay certain pre-petition claims to certain key
suppliers, including “operational integrity suppliers.” PG&E
has agreed to pay $1.7 million of our pre-petition receivables
under this program in advance of PG&E’s emergence from
bankruptcy. The Court also authorized PG&E to pay pre-petition
claims to certain suppliers that have filed or could file liens on
PG&E’s assets. We filed and perfected liens in the counties in
which we performed services that are subject to our pre-petition
receivables. Collecting the pre-petition accounts receivable would
substantially improve our cash position and net debt leverage
ratio.
- In an effort to simplify our financial statements and
presentation for investors beginning in 2020, the Omnibus Agreement
with CEH will be amended to replace the administrative fee with a
direct expense pass-through. Management believes this change will
likely result in a cost savings to CELP.
CELP filed its quarterly report on Form 10-Q for the period
ended September 30, 2019 with the Securities and Exchange
Commission today. CELP will also post a copy of the Form 10-Q on
its website at www.cypressenergy.com.
Non-GAAP Measures:
CELP defines Adjusted EBITDA as net income, plus interest
expense, depreciation, amortization and accretion expenses, income
tax expenses, impairments, non-cash allocated expenses, and
equity-based compensation, less certain other unusual or
non-recurring items. CELP defines Adjusted EBITDA attributable to
limited partners as net income 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, less certain other
unusual or non-recurring items attributable to limited partners.
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. 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 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 alternatives 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 supplemental financial measures 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 to
Adjusted EBITDA and Distributable Cash Flow, (ii) Net Income
attributable to limited partners to Adjusted EBITDA attributable to
limited partners and Distributable Cash Flow and (iii) Net Cash
Flows 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 environmental services, including pipeline
inspection, integrity, and hydrostatic testing services to various
energy and utility 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 September 30, 2019 and
December 31, 2018
(in thousands)
September 30,
December 31,
2019
2018
ASSETS
Current assets:
Cash and cash equivalents
$
12,735
$
15,380
Trade accounts receivable, net
69,672
48,789
Prepaid expenses and other
958
1,396
Total current assets
83,365
65,565
Property and equipment:
Property and equipment, at cost
25,394
23,988
Less: Accumulated depreciation
13,134
11,266
Total property and equipment, net
12,260
12,722
Intangible assets, net
20,737
22,759
Goodwill
50,334
50,294
Finance lease right-of-use assets, net
596
-
Operating lease right-of-use assets
3,068
-
Debt issuance costs, net
869
1,260
Other assets
513
253
Total assets
$
171,742
$
152,853
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable
$
7,191
$
4,848
Accounts payable - affiliates
4,429
4,060
Accrued payroll and other
17,996
12,276
Income taxes payable
902
737
Finance lease obligations
167
90
Operating lease obligations
453
-
Total current liabilities
31,138
22,011
Long-term debt
80,929
76,129
Finance lease obligations
366
248
Operating lease obligations
2,551
-
Other noncurrent liabilities
205
178
Total liabilities
115,189
98,566
Owners' equity:
Partners’ capital:
Common units (12,065 and 11,947 units
outstanding at
September 30, 2019 and December 31, 2018,
respectively)
36,352
34,677
Preferred units (5,769 units outstanding
at September 30, 2019
and December 31, 2018)
44,291
44,291
General partner
(25,876
)
(25,876
)
Accumulated other comprehensive loss
(2,515
)
(2,414
)
Total partners' capital
52,252
50,678
Noncontrolling interests
4,301
3,609
Total owners' equity
56,553
54,287
Total liabilities and owners' equity
$
171,742
$
152,853
CYPRESS ENERGY PARTNERS,
L.P.
Unaudited Condensed
Consolidated Statements of Operations
For the Three and Nine Months
Ended September 30, 2019 and 2018
(in thousands, except per unit
data)
Three Months Ended
Nine Months Ended
September 30
September 30
2019
2018
2019
2018
Revenue
$
108,934
$
84,778
$
310,401
$
226,072
Costs of services
93,533
71,870
270,170
194,092
Gross margin
15,401
12,908
40,231
31,980
Operating costs and expense:
General and administrative
6,557
6,064
18,946
17,341
Depreciation, amortization and
accretion
1,116
1,124
3,329
3,368
Gain on asset disposals, net
-
(822
)
(23
)
(4,137
)
Operating income
7,728
6,542
17,979
15,408
Other (expense) income:
Interest expense, net
(1,376
)
(1,283
)
(4,102
)
(4,907
)
Debt issuance cost write-off
-
-
-
(114
)
Foreign currency gains (losses)
(47
)
97
138
(354
)
Other, net
82
95
220
302
Net income before income tax expense
6,387
5,451
14,235
10,335
Income tax expense
907
497
1,731
865
Net income
5,480
4,954
12,504
9,470
Net income attributable to noncontrolling
interests
634
289
692
673
Net income attributable to partners /
controlling interests
4,846
4,665
11,812
8,797
Net income attributable to preferred
unitholder
1,033
1,045
3,099
1,412
Net income attributable to common
unitholders
$
3,813
$
3,620
$
8,713
$
7,385
Net income per common limited partner
unit:
Basic
$
0.32
$
0.30
$
0.72
$
0.62
Diluted
$
0.26
$
0.26
$
0.65
$
0.59
Weighted average common units
outstanding:
Basic
12,065
11,940
12,030
11,924
Diluted
18,350
18,141
18,207
14,970
Reconciliation of Net Income to
Adjusted EBITDA and Distributable Cash Flow
Three Months ended September
30
Nine Months ended September
30
2019
2018
2019
2018
(in thousands)
Net income
$
5,480
$
4,954
$
12,504
$
9,470
Add:
Interest expense
1,376
1,283
4,102
4,907
Debt issuance cost write-off
-
-
-
114
Depreciation, amortization and
accretion
1,391
1,393
4,155
4,186
Income tax expense
907
497
1,731
865
Equity-based compensation
303
361
746
908
Foreign currency losses
47
-
-
354
Less:
Foreign currency gains
-
97
138
-
Gain on asset disposals, net
-
769
-
4,039
Adjusted EBITDA
$
9,504
$
7,622
$
23,100
$
16,765
Adjusted EBITDA attributable to
noncontrolling interests
783
412
1,114
1,076
Adjusted EBITDA attributable to limited
partners /
controlling interests
$
8,721
$
7,210
$
21,986
$
15,689
Less:
Preferred unit distributions
1,033
-
3,099
-
Cash interest paid, cash taxes paid,
maintenance
capital expenditures
1,922
1,469
5,604
5,897
Distributable cash flow
$
5,766
$
5,741
$
13,283
$
9,792
Reconciliation of Net Income
Attributable to Limited Partners to Adjusted
EBITDA Attributable to Limited Partners
and Distributable Cash Flow
Three Months ended September
30
Nine Months ended September
30
2019
2018
2019
2018
(in thousands)
Net income attributable to limited
partners
$
4,846
$
4,665
$
11,812
$
8,797
Add:
Interest expense attributable to limited
partners
1,376
1,283
4,102
4,907
Debt issuance cost write-off attributable
to limited partners
-
-
-
114
Depreciation, amortization and accretion
attributable
to limited partners
1,255
1,277
3,759
3,804
Income tax expense attributable to limited
partners
894
490
1,705
844
Equity based compensation attributable to
limited partners
303
361
746
908
Foreign currency losses attributable to
limited partners
47
-
-
354
Less:
Foreign currency gains attributable to
limited partners
-
97
138
-
Gain on asset disposals attributable to
limited partners, net
-
769
-
4,039
Adjusted EBITDA attributable to limited
partners
8,721
7,210
21,986
15,689
Less:
Preferred unit distributions
1,033
-
3,099
-
Cash interest paid, cash taxed paid and
maintenance
capital expenditures attributable to
limited partners
1,922
1,469
5,604
5,897
Distributable cash flow
$
5,766
$
5,741
$
13,283
$
9,792
Reconciliation of Net Cash Flows
Provided by Operating
Activities to Adjusted EBITDA and
Distributable Cash Flow
Nine Months ended September
30
2019
2018
(in thousands)
Cash flows provided by operating
activities
$
5,055
$
6,955
Changes in trade accounts receivable,
net
20,879
9,395
Changes in prepaid expenses and other
(121
)
(891
)
Changes in accounts payable and accrued
liabilities
(8,023
)
(4,129
)
Change in income taxes payable
(166
)
(62
)
Interest expense (excluding non-cash
interest)
3,711
4,478
Income tax expense (excluding deferred tax
benefit)
1,731
865
Other
34
154
Adjusted EBITDA
$
23,100
$
16,765
Adjusted EBITDA attributable to
noncontrolling interests
1,114
1,076
Adjusted EBITDA attributable to limited
partners / controlling interests
$
21,986
$
15,689
Less:
Preferred unit distributions
3,099
-
Cash interest paid, cash taxes paid,
maintenance capital expenditures
5,604
5,897
Distributable cash flow
$
13,283
$
9,792
Operating Data
Three Months
Nine Months
Ended September 30
Ended September 30
2019
2018
2019
2018
Total barrels of saltwater disposed (in
thousands)
3,989
4,276
10,322
10,928
Average revenue per barrel
$
0.76
$
0.78
$
0.77
$
0.81
Environmental Services gross margins
74.1
%
71.1
%
71.5
%
66.4
%
Average number of inspectors
1,540
1,263
1,548
1,160
Average number of U.S. inspectors
1,539
1,259
1,547
1,154
Average revenue per inspector per week
$
4,925
$
4,675
$
4,802
$
4,552
Pipeline Inspection Services gross
margins
11.1
%
11.9
%
10.7
%
11.0
%
Average number of field personnel
29
23
28
22
Average revenue per field personnel per
week
$
16,264
$
12,839
$
11,496
$
13,178
Pipeline & Process Services gross
margins
33.1
%
33.2
%
29.2
%
30.7
%
Maintenance capital expenditures (in
thousands)
$
234
$
258
$
521
$
560
Expansion capital expenditures (in
thousands)
$
296
$
1,296
$
1,158
$
4,928
Common unit distributions (in
thousands)
$
2,534
$
2,509
$
7,599
$
7,521
Preferred unit distributions (in
thousands)
$
1,033
$
-
$
3,099
$
-
Common unit distribution coverage
ratio
2.28x
2.29x
1.75x
1.30x
Net debt leverage ratio
2.34x
2.83x
2.34x
2.83x
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version on businesswire.com: https://www.businesswire.com/news/home/20191112006086/en/
Cypress Energy Partners, L.P. Jeff Herbers, Chief Financial
Officer 918-947-5730 jeff.herbers@cypressenergy.com
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