Today, Cypress Environmental Partners, L.P. (NYSE: CELP)
(“Cypress”) reported its financial results for the three months
ended December 31, 2020.
HIGHLIGHTS
- Closed an amended credit facility extension in March 2021. The
amendment extends the maturity date through May 2022, increases the
allowable leverage ratio for several quarters, and reduces the
total capacity to $75.0 million. The amended credit agreement
contains significant restrictions on Cypress’s ability to pay
distributions during the term of the agreement.
- Cash balance increased to $17.9 million at December 31, 2020,
with a net debt leverage ratio of 4.1x.
- Fourth quarter 2020 results were adversely impacted by a $0.4
million allowance for bad debt from a former customer that filed
bankruptcy.
- Net loss attributable to common unitholders of $1.9 million for
the three months ended December 31, 2020.
- Fourth quarter 2020 Adjusted EBITDA of $1.5 million, a decrease
of 59% over third quarter 2020.
- Fourth quarter 2020 Inspection Services segment gross margin of
$3.9 million, a decrease of 24% from third quarter 2020.
- Fourth quarter 2020 Pipeline & Process Services segment
gross margin of $1.0 million, a decrease of 24% from third quarter
2020.
- Fourth quarter 2020 Water & Environmental Services segment
gross margin of $0.9 million, an increase of 2% from third quarter
2020.
- Distributable cash flow (DCF) of $(0.8 million) for the three
months ended December 31, 2020.
- Our common unit and preferred unit distributions remain
suspended.
FOURTH QUARTER 2020 SUMMARY FINANCIAL RESULTS
Three Months Ended
December 31,
2020
2019
(Unaudited)
(in thousands, except per unit
amounts)
Net (loss) income
$
(675)
$
4,920
Net (loss) income attributable to common
unitholders
$
(1,906)
$
3,168
Net (loss) income per limited partner unit
– basic
$
(0.16)
$
0.26
Net (loss) income per limited partner unit
– diluted
$
(0.16)
$
0.23
Adjusted EBITDA (1)
$
1,469
$
8,331
Distributable cash flow (1)
$
(810)
$
4,801
(1) This press release includes the following financial measures
not presented in accordance with U.S. generally accepted accounting
principles, or GAAP: adjusted EBITDA, adjusted EBITDA attributable
to limited partners, and distributable cash flow. Each such
non-GAAP financial measure is defined below under “Non-GAAP
Financial Information”, and each is reconciled to its most directly
comparable GAAP financial measure in schedules at the end of this
press release.
CEO'S PERSPECTIVE
“2020 was our worst year in our short history following our best
year that included record results in 2019 prior to the COVID-19
global pandemic. The fourth quarter is typically our weakest
quarter each year and our business results continued to suffer
because of ongoing demand headwinds from COVID-19 that continue to
impact our customers, and the bad debt reserve from a former
customer that filed and emerged from bankruptcy. Our primary focus
continues to be safely serving our customers and ensuring the
health and safety of our employees as the vaccination process for
COVID-19 advances," said Peter C. Boylan III, Chairman, President,
and CEO. “I continue to be proud of how our employees have handled
the challenges with the pandemic in the field, office, and
work-from-home environments. Commodity prices have made a strong
recovery with WTI crude oil pricing topping $60 per barrel, which
is benefitting both our customers and Cypress as our customers have
more flexibility in their budgets for maintenance and new
construction. We were pleased to reach agreement with our bank
group to modify and extend the maturity date of our credit
agreement to May 2022. We will use cash flows generated from
operations to continue to reduce our debt and thereby strengthen
our balance sheet. We will not resume our common unit distribution
during this renewal term, and an affiliate of our general partner
has graciously agreed to suspend his right to receive distributions
on his preferred equity until we reduce our leverage.”
“Sales remain our priority, and we are bidding on numerous
opportunities with both existing and prospective customers. We were
recently awarded an attractive long-term contract for maintenance
inspection with a new customer. The near-term recovery remains
fragile, as market participants evaluate the risks associated with
new variants of the coronavirus. Historically, as commodity prices
increase, customers begin to increase their spending, which
increases our opportunities to provide our services. We believe
there will be significant long-term demand for our services, and we
continue our efforts to diversify our customer base.”
“Our leadership team continues our diversification initiative to
begin offering our inspection services to other industries,
including renewables (such as wind, solar, hydroelectric),
electrical transmission, municipal water, sewer, and Department of
Transportation infrastructure (such as bridges). We have begun
bidding on inspection opportunities in these new markets. Many of
our inspectors and technicians have the skills to offer these
services to these new markets. Longer term we hope to have the
majority of our inspection revenue coming from these new
segments”.
SEGMENT UPDATE
Inspection Services
- During the fourth quarter Cypress had an average headcount of
approximately 550 inspectors working throughout the United States.
Although several large projects that had been previously awarded
were delayed or cancelled in 2020 with the economic downturn,
Cypress continues to bid and win new work. Headcount in early 2021
has remained low, as customers continue to evaluate their spending
plans. Cypress expects to see headcount increase in the coming
months.
- Cypress continues to aggressively pursue organic business
development (despite the work-from-home environment) and has
successfully been awarded some new customer contracts and has
renewed existing contracts.
- General and administrative expense in 4th quarter 2020 included
a $0.4 million allowance recorded against the accounts receivable
from a former customer.
Pipeline & Process Services (“PPS”)
- Activity slowed toward the end of 2020 and continues to be very
slow in early 2021, as many projects that we began prior to the
pandemic were completed earlier in 2020. The arctic blast in Texas
also delayed many projects. The PPS segment implemented substantial
salary reductions, furloughs, and reductions-in-force in the last
two months.
Water & Environmental Services (“Environmental
Services”)
- Cypress recently completed a new contract with a public energy
company to connect its pipeline to one of Cypress’s water treatment
facilities. Cypress began receiving volumes from this pipeline in
4th quarter 2020.
- Cypress also added additional piped water from another new
producer into one of its facilities.
- Our water treatment facilities generally receive more water
when our customers’ oil production increases from the completion of
new oil wells in North Dakota. Seventeen drilling rigs are
currently operating in North Dakota, an increase of approximately
55% compared to only eleven at the end of 2020. This compares to 56
rigs one year ago, and 65 rigs two years ago according to a
published rig count.
COMMON UNIT & PREFERRED UNIT DISTRIBUTIONS
In July 2020, Cypress announced that it had temporarily
suspended common unit distributions. Cypress’s credit facility, as
amended in March 2021, contains significant restrictions on the
payment of distributions. As a result, Cypress does not expect to
pay significant distributions in the near term; instead, Cypress
expects to use available cash to pay down debt and for working
capital needs. An affiliate of the General Partner of Cypress also
agreed to suspend the distribution payment to which it is entitled
on his preferred units.
FOURTH QUARTER 2020 OPERATING RESULTS BY BUSINESS
SEGMENT
Inspection Services
The Inspection Services segment’s results for the three months
ended December 31, 2020 and 2019 were:
- Revenue - $32.4 million and $82.1 million, respectively.
- Gross Margin - $3.9 million and $9.6 million,
respectively.
Pipeline & Process Services
(“PPS”)
The PPS segment’s results for the three months ended December
31, 2020 and 2019 were:
- Revenue - $4.0 million and $6.8 million, respectively.
- Gross Margin - $1.0 million and $2.3 million,
respectively.
Water & Environmental Services
(“Environmental Services”)
The Environmental Services segment’s results for the three
months ended December 31, 2020 and 2019 were:
- Revenue - $1.4 million and $2.4 million, respectively.
- Gross Margin - $0.9 million and $1.6 million, respectively
CAPITALIZATION, LIQUIDITY, AND FINANCING
Cypress had outstanding borrowings of $62.0 million on its
credit facility and cash and cash equivalents of $17.9 million at
December 31, 2020. In March 2021, Cypress reached agreement with
the lenders to modify and extend the maturity of the credit
agreement to May 31, 2022. The total capacity on the amended credit
facility is $75.0 million. The amendment increases the allowable
gross leverage ratio to 6.0x at December 31, 2020 and March 31,
2021, 5.3x at June 30, 2021, and 4.5x at September 30, 2021. The
maximum leverage ratio returns to 4.0x at December 31, 2021.
CAPITAL EXPENDITURES
During the quarter, Cypress had $0.2 million in maintenance
capital expenditures and $0.1 million in expansion capital
expenditures, which are reflective of an attractive business model
that requires minimal capital expenditures.
ANNUAL REPORT
Cypress has filed its annual report on Form 10-K for the year
ended December 31, 2020 with the Securities and Exchange
Commission. Cypress will also post a copy of the Form 10-K on its
website at www.cypressenvironmental.biz. Unitholders may request a
printed copy of these reports free of charge by contacting Investor
Relations at Cypress Environmental Partners, L.P., 5727 S. Lewis
Ave., Suite 300, Tulsa, OK 74105 or by e-mailing
ir@cypressenvironmental.biz.
NON-GAAP FINANCIAL INFORMATION
This press release and the accompanying financial schedules
include the following non-GAAP financial measures: adjusted EBITDA,
adjusted EBITDA attributable to limited partners, and distributable
cash flow. The accompanying schedules provide reconciliations of
these non-GAAP financial measures to their most directly comparable
GAAP financial measures. Cypress's non-GAAP financial measures
should not be considered in isolation or as an alternative to its
financial measures presented in accordance with GAAP, including
revenues, net income or loss attributable to limited partners, net
cash provided by or used in operating activities, or any other
measure of liquidity or financial performance presented in
accordance with GAAP as a measure of operating performance,
liquidity, or ability to service debt obligations and make cash
distributions to unitholders. The non-GAAP financial measures
presented by Cypress may not be comparable to similarly-titled
measures of other entities because other entities may not calculate
their measures in the same manner.
Cypress defines adjusted EBITDA as net income or loss exclusive
of (i) interest expense, (ii) depreciation, amortization, and
accretion expense, (iii) income tax expense or benefit, (iv)
equity-based compensation expense, (v) and certain other unusual or
nonrecurring items. Cypress defines adjusted EBITDA attributable to
limited partners as adjusted EBITDA exclusive of amounts
attributable to the general partner and to noncontrolling
interests. Cypress defines distributable cash flow as adjusted
EBITDA attributable to limited partners less cash interest paid,
cash income taxes paid, maintenance capital expenditures, and cash
distributions on preferred equity. Management believes these
measures provide investors meaningful insight into results from
ongoing operations.
These non-GAAP financial measures are used as supplemental
liquidity and performance measures by Cypress's management and by
external users of its financial statements, such as investors,
banks, and others to assess:
- financial performance of Cypress without regard to financing
methods, capital structure or historical cost basis of assets;
- Cypress's operating performance and return on capital as
compared to those of other companies, without regard to financing
methods or capital structure;
- viability and performance of acquisitions and capital
expenditure projects and the overall rates of return on investment
opportunities; and
- the ability of Cypress's businesses to generate sufficient cash
to pay interest costs, support its indebtedness, and make cash
distributions to its unitholders.
ABOUT CYPRESS ENVIRONMENTAL PARTNERS, L.P.
Cypress Environmental Partners, L.P. is a master limited
partnership that provides essential environmental services to the
energy and utility industries, including pipeline &
infrastructure inspection, NDE testing, various integrity services,
and pipeline & process services throughout the United States.
Cypress also provides environmental services to upstream and
midstream energy companies and their vendors in North Dakota,
including water treatment, hydrocarbon recovery, and disposal into
EPA Class II injection wells to protect our groundwater. Cypress
works closely with its customers to help them protect people,
property, and the environment, and to assist their compliance with
increasingly complex and strict rules and regulations. Cypress is
headquartered in Tulsa, Oklahoma.
CAUTIONARY STATEMENTS
This press release may contain or incorporate by reference
forward-looking statements as defined under the federal securities
laws regarding Cypress Environmental Partners, L.P., including
projections, estimates, forecasts, plans and objectives. Although
management believes that expectations reflected in such
forward-looking statements are reasonable, no assurance can be
given that such expectations will prove to be correct. In addition,
these statements are subject to certain risks, uncertainties and
other assumptions that are difficult to predict and may be beyond
Cypress's control. If any of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect,
Cypress's actual results may vary materially from what management
forecasted, anticipated, estimated, projected or expected.
The key risk factors that may have a direct bearing on Cypress's
results of operations and financial condition are described in
detail in the "Risk Factors" section of Cypress's most recently
filed annual report and subsequently filed quarterly reports with
the Securities and Exchange Commission. Investors are encouraged to
closely consider the disclosures and risk factors contained in
Cypress's annual and quarterly reports filed from time to time with
the Securities and Exchange Commission. The forward-looking
statements contained herein speak as of the date of this
announcement. Cypress undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise, except as required by
applicable securities laws. Information contained in this press
release is unaudited and subject to change.
CYPRESS ENVIRONMENTAL
PARTNERS, L.P.
Consolidated Balance
Sheets
As of December 31, 2020 and
2019
(in thousands)
December 31,
December 31,
2020
2019
ASSETS
Current assets:
Cash and cash equivalents
$
17,893
$
15,700
Trade accounts receivable, net
18,420
52,524
Prepaid expenses and other
2,033
988
Total current assets
38,346
69,212
Property and equipment:
Property and equipment, at cost
26,929
26,499
Less: Accumulated depreciation
16,470
13,738
Total property and equipment, net
10,459
12,761
Intangible assets, net
17,386
20,063
Goodwill
50,389
50,356
Finance lease right-of-use assets, net
607
600
Operating lease right-of-use assets
1,987
2,942
Debt issuance costs, net
242
803
Other assets
570
605
Total assets
$
119,986
$
157,342
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable
$
2,070
$
3,529
Accounts payable - affiliates
58
1,167
Accrued payroll and other
4,876
14,850
Income taxes payable
328
1,092
Finance lease obligations
250
183
Operating lease obligations
439
459
Total current liabilities
8,021
21,280
Long-term debt
62,029
74,929
Finance lease obligations
300
359
Operating lease obligations
1,549
2,425
Other noncurrent liabilities
182
158
Total liabilities
72,081
99,151
Owners' equity:
Partners’ capital:
Common units (12,213 and 12,068 units
outstanding at December 31, 2020 and 2019, respectively)
27,507
37,334
Preferred units (5,769 units outstanding
at December 31, 2020 and 2019)
44,291
44,291
General partner
(25,876
)
(25,876
)
Accumulated other comprehensive loss
(2,655
)
(2,577
)
Total partners' capital
43,267
53,172
Noncontrolling interests
4,638
5,019
Total owners' equity
47,905
58,191
Total liabilities and owners' equity
$
119,986
$
157,342
CYPRESS ENVIRONMENTAL
PARTNERS, L.P.
Consolidated Statements of
Operations
For the Three Months and Years
Ended December 31, 2020 and 2019
(in thousands, except per unit
data)
Three Months Ended December
31,
Years Ended December
31,
2020
2019
2020
2019
Revenues
$
37,778
$
91,247
$
205,996
$
401,648
Costs of services
31,947
77,754
177,484
347,924
Gross margin
5,831
13,493
28,512
53,724
Operating costs and expense:
General and administrative
4,933
6,680
20,100
25,626
Depreciation, amortization and
accretion
1,214
1,119
4,883
4,448
Gain on asset disposals, net
-
(2
)
(27
)
(25
)
Operating income
(316
)
5,696
3,556
23,675
Other income (expense):
Interest expense, net
(793
)
(1,228
)
(4,028
)
(5,330
)
Foreign currency gains
274
84
107
222
Other, net
129
891
541
1,111
Net (loss) income before income tax
expense
(706
)
5,443
176
19,678
Income tax (benefit) expense
(31
)
523
542
2,254
Net (loss) income
(675
)
4,920
(366
)
17,424
Net income attributable to noncontrolling
interests
197
718
1,049
1,410
Net (loss) income attributable to limited
partners
(872
)
4,202
(1,415
)
16,014
Net income attributable to preferred
unitholder
1,034
1,034
4,133
4,133
Net (loss) income attributable to common
unitholders
$
(1,906
)
$
3,168
$
(5,548
)
$
11,881
Net (loss) income per common limited
partner unit:
Basic
$
(0.16
)
$
0.26
$
(0.46
)
$
0.99
Diluted
$
(0.16
)
$
0.23
$
(0.46
)
$
0.88
Weighted average common units
outstanding:
Basic
12,211
12,067
12,181
12,039
Diluted
12,211
18,510
12,181
18,289
Reconciliation of Net (Loss) Income to
Adjusted EBITDA
and Distributable Cash Flow
Three Months Ended December
31,
Years ended December
31,
2020
2019
2020
2019
(in thousands)
Net (loss) income
$
(675
)
$
4,920
$
(366
)
$
17,424
Add:
Interest expense
793
1,228
4,028
5,330
Depreciation, amortization and
accretion
1,424
1,382
5,815
5,537
Income tax (benefit) expense
(31
)
523
542
2,254
Equity based compensation
232
362
961
1,107
Less:
Foreign currency gains
274
84
107
222
Adjusted EBITDA
$
1,469
$
8,331
$
10,873
$
31,430
Adjusted EBITDA attributable to
noncontrolling interests
314
862
1,588
1,976
Adjusted EBITDA attributable to limited
partners / controlling interests
$
1,155
$
7,469
$
9,285
$
29,454
Less:
Preferred unit distributions
1,034
1,034
4,133
4,133
Cash interest paid, cash taxes paid,
maintenance capital expenditures
931
1,634
5,394
7,238
Distributable cash flow
$
(810
)
$
4,801
$
(242
)
$
18,083
Reconciliation of Net (Loss) Income
Attributable to
Limited Partners to Adjusted EBITDA
Attributable
to Limited Partners and Distributable
Cash Flow
Three Months Ended December
31,
Years ended December
31,
2020
2019
2020
2019
(in thousands)
Net (loss) income attributable to limited
partners
$
(872
)
$
4,202
$
(1,415
)
$
16,014
Add:
Interest expense attributable to limited
partners
793
1,228
4,028
5,330
Depreciation, amortization and accretion
attributable to limited partners
1,306
1,247
5,305
5,006
Income tax (benefit) expense attributable
to limited partners
(30
)
514
513
2,219
Equity based compensation attributable to
limited partners
232
362
961
1,107
Less:
Foreign currency gains attributable to
limited partners
274
84
107
222
Adjusted EBITDA attributable to limited
partners
1,155
7,469
9,285
29,454
Less:
Preferred unit distributions
1,034
1,034
4,133
4,133
Cash interest paid, cash taxes paid and
maintenance capital expenditures
attributable to limited partners
931
1,634
5,394
7,238
Distributable cash flow
$
(810
)
$
4,801
$
(242
)
$
18,083
Reconciliation of Net Cash Provided by
Operating Activities to
Adjusted EBITDA and Distributable Cash
Flow
Years ended December
31,
2020
2019
(in thousands)
Cash flows provided by operating
activities
$
27,922
$
18,179
Changes in trade accounts receivable
(33,634
)
4,310
Changes in prepaid expenses and other
891
(136
)
Changes in accounts payable and accrued
liabilities
11,421
1,506
Changes in income taxes payable
765
(356
)
Interest expense (excluding non-cash
interest)
3,448
4,797
Income tax expense (excluding deferred tax
benefit)
542
2,290
Other
(482
)
840
Adjusted EBITDA
$
10,873
$
31,430
Adjusted EBITDA attributable to
noncontrolling interests
1,588
1,976
Adjusted EBITDA attributable to limited
partners / controlling interests
$
9,285
$
29,454
Less:
Preferred unit distributions
4,133
4,133
Cash interest paid, cash taxes paid,
maintenance capital expenditures
5,394
7,238
Distributable cash flow
$
(242
)
$
18,083
Operating Data
Three Months Ended
Years Ended
December 31,
December 31,
2020
2019
2020
2019
Total barrels of water processed (in
thousands)
1,863
3,094
7,932
13,416
Average revenue per barrel
$
0.74
$
0.77
$
0.73
$
0.77
Environmental Services gross margins
68.6
%
67.9
%
65.0
%
70.6
%
Average number of inspectors
546
1,296
730
1,485
Average revenue per inspector per week
$
4,520
$
4,819
$
4,769
$
4,804
Inspection Services gross margins
12.0
%
11.7
%
10.9
%
10.9
%
Average number of field personnel
27
27
28
28
Average revenue per field personnel per
week
$
11,186
$
19,325
$
12,819
$
13,245
Pipeline and Process Services gross
margins
25.0
%
33.6
%
26.6
%
30.7
%
Capital expenditures (in thousands)
$
268
$
517
$
1,950
$
2,197
Common unit distributions (in
thousands)
$
-
$
2,534
$
5,098
$
10,109
Preferred unit distributions (in
thousands)
$
1,034
$
1,034
$
4,133
$
4,133
Net debt leverage ratio
4.11x
1.90x
4.11x
1.90x
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210323005387/en/
Cypress Environmental Partners, L.P. - Jeff Herbers – Vice
President & Chief Financial Officer
jeff.herbers@cypressenvironmental.biz or 918-947-5730
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