Today, Cypress Environmental Partners, L.P., (NYSE: CELP)
(“Cypress”) reported its financial results for the three months
ended June 30, 2021.
HIGHLIGHTS
- Consolidated revenue of $31.9 million for second quarter 2021,
an increase of 18% compared to first quarter 2021.
- Consolidated gross margin of $4.4 million for second quarter
2021, an increase of 52% compared to first quarter 2021.
- Net loss attributable to common unitholders of $2.9 million for
the three months ended June 30, 2021.
- Adjusted EBITDA of $0.5 million for the three months ended June
30, 2021.
- Distributable cash flow (DCF) of ($1.4 million) for the three
months ended June 30, 2021.
- Common unit and preferred unit distributions remain suspended
as Cypress focuses on reducing debt.
SECOND QUARTER 2021 SUMMARY FINANCIAL RESULTS
Three Months Ended
June 30,
2021
2020
(Unaudited)
(in thousands, except per unit
amounts)
Net (loss) income
$
(2,027)
$
381
Net loss attributable to common
unitholders
$
(2,899)
$
(1,349)
Net loss per limited partner unit – basic
and diluted
$
(0.23)
$
(0.11)
Adjusted EBITDA (1)
$
497
$
3,121
Distributable cash flow (1)
$
(1,446)
$
255
(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
“Our Q2 revenue and gross margin results are meaningfully better
than Q1, but our EBITDA and DCF results are still weak and
disappointing. I continue to be pleased with and proud of our
employees who have worked hard in a challenging COVID-19
environment that has made sales and live in-person interaction with
customers difficult. We have made solid progress this year on
business development courting new customers via video conference
and believe the results of those efforts will be seen in future
periods. The sales process typically takes many months, given how
customers run tenders, select, and onboard new vendors,” said Peter
C. Boylan III, Chairman, President, and CEO.
“Our Inspection Services segment has seen slow but steady
improvement across all four service lines, and we are awaiting
customer feedback on some significant outstanding bids. We remain
focused on working capital and margins with customers. Volumes
improved in our Environmental Services segment as activity and
drilling rigs increased in North Dakota.”
“We remain focused on long-term diversification efforts to offer
our inspection services to other industries, including municipal
infrastructure, water, sewer, electrical transmission, bridge
infrastructure, and renewables (such as wind, solar, and
hydroelectric). During the quarter, we submitted several additional
bids and are awaiting the outcome. Year to date, approximately 50%
of our inspection work is for regulated public utility companies
that are not exposed to commodity price risk.”
“Our leverage remains elevated given the decline in our trailing
twelve-month EBITDA. Despite reducing our outstanding indebtedness
under our credit facility by 11% or $6.7 million from December 31,
2020, we still have too much debt for our current earnings. The
lenders under our credit facility have agreed to amend the facility
to remove the financial covenant ratios for the remaining term of
the facility, which matures in May 2022. We appreciate that the
lenders have remained supportive as we navigate the current
challenging market conditions.”
SEGMENT UPDATE
Inspection Services
- During the second quarter Cypress had an average headcount of
473 inspectors working throughout the United States. Although
several large projects that had been previously awarded were
cancelled in 2020 with the economic downturn, Cypress continues to
bid and win new work. Headcount in 2021 has remained low, as
customers continue to evaluate their spending plans. Cypress has
remained focused on its margins with each customer. The monthly
average inspector headcount reached a low of approximately 440 in
January 2021 and increased to approximately 480 in June 2021.
- A significant majority of the Inspection Services segment’s
revenues during 2021 have been generated from maintenance projects
and from services to public utility customers, rather than from new
construction projects tied to commodity prices.
- Cypress continues to aggressively pursue organic business
development (despite the work-from-home environment that has
precluded in-person meetings with customers) and has successfully
been awarded some new customer contracts and has renewed existing
contracts. Some prospective customers are now allowing some limited
in-person meetings.
- Legal expenses in the quarter remain elevated and were $0.7
million due primarily to costs associated with Fair Labor Standards
Act employment litigation and certain other employment-related
lawsuits and claims.
Pipeline & Process Services (“PPS”)
- Activity slowed toward the end of 2020 and was slow at the
start of 2021, as many projects that began prior to the pandemic
were completed earlier in 2020. The PPS segment implemented
substantial salary reductions, furloughs, and reductions-in-force
in the first quarter 2021. Q1 Revenues were very weak but increased
to $1.4 million in Q2.
- The majority of the PPS segment’s revenues during second
quarter 2021 were generated from maintenance projects, rather than
new construction projects.
Water & Environmental Services (“Environmental
Services”)
- Cypress’s water treatment facilities generally receive more
water when its customers’ oil production increases from the
completion of new oil wells in North Dakota. Eighteen drilling rigs
are currently operating in North Dakota, an increase of
approximately 64% compared to only eleven at the end of 2020. This
compares to 53 rigs in February 2020, prior to the COVID-19
pandemic. The volume of water processed reached a low of 0.4
million barrels in February 2021 and increased to 0.5 million
barrels in June 2021.
- Several North Dakota customers have recently divested their
assets to new buyers that may have a stronger interest in expanding
their production.
COMMON UNIT & PREFERRED UNIT DISTRIBUTIONS
In July 2020, Cypress announced that it had suspended common
unit distributions. Cypress’s credit facility, as amended in 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
continue to use available cash to pay down debt and for working
capital needs. The preferred units accrue preferred distributions
at an annual rate of 9.5%. Any such arrearage must be settled
before we can resume distributions on our common units.
SECOND QUARTER 2021 OPERATING RESULTS BY BUSINESS
SEGMENT
Inspection Services
The Inspection Services segment’s results for the three months
ended June 30, 2021 and 2020 were:
- Revenue - $29.4 million and $43.3 million, respectively, a
decrease of 32%.
- Gross Margin - $3.4 million and $4.4 million, respectively, a
decrease of 24%.
Pipeline & Process Services
(“PPS”)
The PPS segment’s results for the three months ended June 30,
2021 and 2020 were:
- Revenue - $1.4 million and $7.2 million, respectively, a
decrease of 81%.
- Gross Margin - $0.3 million and $2.1 million, respectively, a
decrease of 85%.
Water & Environmental Services
(“Environmental Services”)
The Environmental Services segment’s results for the three
months ended June 30, 2021 and 2020 were:
- Revenue - $1.1 million and $1.3 million, respectively, a
decrease of 11%.
- Gross Margin - $0.7 million and $0.8 million, respectively, a
decrease of 14%.
CAPITALIZATION, LIQUIDITY, AND FINANCING
Cypress had outstanding borrowings of $55.3 million on its
credit facility and cash and cash equivalents of $4.6 million at
June 30, 2021. The credit facility was amended in August 2021 to
remove the financial ratio covenants. As part of that amendment,
the total capacity of the facility was reduced from $75 million to
$70 million. As part of its efforts to reduce outstanding debt and
working capital requirements, Cypress will consider all options,
including asset sales and discontinuing unprofitable service lines
and/or segments.
CAPITAL EXPENDITURES
During the quarter, Cypress had $0.1 million in capital
expenditures, which are reflective of an attractive business model
that requires minimal capital expenditures.
QUARTERLY REPORT
Cypress filed its quarterly report on Form 10-Q for the three
months ended June 30, 2021 with the Securities and Exchange
Commission today. Cypress will also post a copy of the Form 10-Q on
its website at www.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 paid or accrued 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; 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, nondestructive examination 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.
Unaudited Condensed
Consolidated Balance Sheets
As of June 30, 2021 and
December 31, 2020
(in thousands)
June 30,
December 31,
2021
2020
ASSETS
Current assets:
Cash and cash equivalents
$
4,570
$
17,893
Trade accounts receivable, net
21,419
18,420
Prepaid expenses and other
2,084
2,033
Total current assets
28,073
38,346
Property and equipment:
Property and equipment, at cost
26,912
26,929
Less: Accumulated depreciation
17,713
16,470
Total property and equipment, net
9,199
10,459
Intangible assets, net
16,051
17,386
Goodwill
50,428
50,389
Finance lease right-of-use assets, net
467
607
Operating lease right-of-use assets
1,733
1,987
Debt issuance costs, net
848
242
Other assets
671
570
Total assets
$
107,470
$
119,986
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable
$
1,270
$
2,070
Accounts payable - affiliates
29
58
Accrued payroll and other
7,675
4,876
Income taxes payable
32
328
Finance lease obligations
239
250
Operating lease obligations
415
439
Current portion of long-term debt
55,329
-
Total current liabilities
64,989
8,021
Long-term debt
-
62,029
Finance lease obligations
187
300
Operating lease obligations
1,306
1,549
Other noncurrent liabilities
380
182
Total liabilities
66,862
72,081
Owners' equity:
Partners’ capital:
Common units (12,339 and 12,213 units
outstanding at June 30, 2021 and December 31, 2020,
respectively)
20,875
27,507
Preferred units (5,769 units outstanding
at June 30, 2021 and December 31, 2020)
46,357
44,291
General partner
(25,876
)
(25,876
)
Accumulated other comprehensive loss
(2,766
)
(2,655
)
Total partners' capital
38,590
43,267
Noncontrolling interests
2,018
4,638
Total owners' equity
40,608
47,905
Total liabilities and owners' equity
$
107,470
$
119,986
CYPRESS ENVIRONMENTAL
PARTNERS, L.P.
Unaudited Condensed
Consolidated Statements of Operations
For the Three and Six Months
Ended June 30, 2021 and 2020
(in thousands, except per unit
data)
Three Months Ended June
30,
Six Months Ended June
30,
2021
2020
2021
2020
Revenue
$
31,856
$
51,688
$
58,802
$
120,171
Costs of services
27,453
44,307
51,503
104,835
Gross margin
4,403
7,381
7,299
15,336
Operating costs and expense:
General and administrative
4,478
4,926
8,804
10,866
Depreciation, amortization and
accretion
1,236
1,211
2,475
2,419
Gain on asset disposals, net
(1
)
(11
)
(38
)
(23
)
Operating income
(1,310
)
1,255
(3,942
)
2,074
Other (expense) income:
Interest expense
(888
)
(1,152
)
(1,690
)
(2,276
)
Foreign currency gains (losses)
76
184
145
(273
)
Other, net
121
165
237
270
Net (loss) income before income tax
expense
(2,001
)
452
(5,250
)
(205
)
Income tax expense (benefit)
26
71
(76
)
291
Net (loss) income
(2,027
)
381
(5,174
)
(496
)
Net (loss) income attributable to
noncontrolling interests
(161
)
697
(655
)
609
Net loss attributable to partners /
controlling interests
(1,866
)
(316
)
(4,519
)
(1,105
)
Net income attributable to preferred
unitholder
1,033
1,033
2,066
2,066
Net loss attributable to common
unitholders
$
(2,899
)
$
(1,349
)
$
(6,585
)
$
(3,171
)
Net loss per common limited partner
unit:
Basic and diluted
$
(0.23
)
$
(0.11
)
$
(0.54
)
$
(0.26
)
Weighted average common units
outstanding:
Basic and diluted
12,339
12,209
12,291
12,153
Reconciliation of Net (Loss) Income to
Adjusted EBITDA and Distributable Cash Flow
Three Months ended June
30,
Six Months ended June
30,
2021
2020
2021
2020
(in thousands)
Net (loss) income
$
(2,027
)
$
381
$
(5,174
)
$
(496
)
Add:
Interest expense
888
1,152
1,690
2,276
Depreciation, amortization and
accretion
1,410
1,447
2,853
2,927
Income tax expense (benefit)
26
71
(76
)
291
Equity-based compensation expense
276
254
529
518
Foreign currency losses
-
-
-
273
Less:
Foreign currency gains
76
184
145
-
Adjusted EBITDA
$
497
$
3,121
$
(323
)
$
5,789
Adjusted EBITDA attributable to
noncontrolling interests
(43
)
844
(418
)
906
Adjusted EBITDA attributable to limited
partners / controlling interests
$
540
$
2,277
$
95
$
4,883
Less:
Preferred unit distributions paid or
accrued
1,033
1,033
2,066
2,066
Cash interest paid, cash taxes paid, and
maintenance capital expenditures
953
989
2,594
2,194
Distributable cash flow
$
(1,446
)
$
255
$
(4,565
)
$
623
Reconciliation of Net Loss Attributable
to Limited Partners to Adjusted
EBITDA Attributable to Limited Partners
and Distributable Cash Flow
Three Months ended June
30,
Six Months ended June
30,
2021
2020
2021
2020
(in thousands)
Net loss attributable to limited
partners
$
(1,866
)
$
(316
)
$
(4,519
)
$
(1,105
)
Add:
Interest expense attributable to limited
partners
886
1,152
1,685
2,276
Depreciation, amortization and accretion
attributable to limited partners
1,294
1,318
2,621
2,653
Income tax expense (benefit) attributable
to limited partners
26
53
(76
)
268
Equity based compensation expense
attributable to limited partners
276
254
529
518
Foreign currency losses attributable to
limited partners
-
-
-
273
Less:
Foreign currency gains attributable to
limited partners
76
184
145
-
Adjusted EBITDA attributable to limited
partners
540
2,277
95
4,883
Less:
Preferred unit distributions paid or
accrued
1,033
1,033
2,066
2,066
Cash interest paid, cash taxes paid and
maintenance capital expenditures attributable to limited
partners
953
989
2,594
2,194
Distributable cash flow
$
(1,446
)
$
255
$
(4,565
)
$
623
Reconciliation of Net Cash Flows (Used
In) Provided by Operating
Activities to Adjusted EBITDA and
Distributable Cash Flow
Six Months ended June
30,
2021
2020
(in thousands)
Cash flows (used in) provided by operating
activities
$
(2,820
)
$
15,432
Changes in trade accounts receivable,
net
2,999
(17,516
)
Changes in prepaid expenses and other
(226
)
734
Changes in accounts payable and accounts
payable - affiliates
845
115
Changes in accrued liabilities and
other
(2,647
)
5,037
Change in income taxes payable
296
(292
)
Interest expense (excluding non-cash
interest)
1,278
1,987
Income tax (benefit) expense (excluding
deferred tax benefit)
(76
)
291
Other
28
1
Adjusted EBITDA
$
(323
)
$
5,789
Adjusted EBITDA attributable to
noncontrolling interests
(418
)
906
Adjusted EBITDA attributable to limited
partners / controlling interests
$
95
$
4,883
Less:
Preferred unit distributions paid or
accrued
2,066
2,066
Cash interest paid, cash taxes paid,
maintenance capital expenditures
2,594
2,194
Distributable cash flow
$
(4,565
)
$
623
Operating Data
Three Months
Six Months
Ended June 30,
Ended June 30,
2021
2020
2021
2020
Inspection
Services segment:
Average number of inspectors
473
700
460
858
Average revenue per inspector per week
$
4,774
$
4,754
$
4,608
$
4,830
Inspection Services gross margins
11.5
%
10.2
%
10.9
%
10.1
%
Pipeline &
Process Services segment:
Average number of field personnel
13
27
18
27
Average revenue per field personnel per
week
$
8,083
$
20,379
$
3,627
$
14,431
Pipeline & Process Services gross
margins
23.1
%
29.5
%
(10.8
)%
26.5
%
Environmental
Services segment:
Total barrels of saltwater processed
(000’s)
1,426
1,769
2,819
4,091
Average revenue per barrel
$
0.80
$
0.72
$
0.82
$
0.72
Environmental Services gross margins
63.6
%
66.3
%
64.7
%
63.5
%
Cypress
consolidated:
Capital expenditures (000’s)
$
137
$
357
$
241
$
1,497
Common unit distributions (000’s)
$
-
$
-
$
-
$
2,564
Preferred unit distributions paid
(000’s)
$
-
$
1,033
$
-
$
2,066
Preferred unit distributions accrued
(000’s)
$
1,033
$
-
$
2,066
$
-
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210816005705/en/
Investors or Analysts: Cypress Environmental Partners, L.P. -
Jeff Herbers – Vice President & Chief Financial Officer
jeff.herbers@cypressenvironmental.biz or 918-947-5730
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