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Name | Symbol | Market | Type |
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Cypress Environmental Partners LP | NYSE:CELP | NYSE | Trust |
Price Change | % Change | Price | High Price | Low Price | Open Price | Traded | Last Trade | |
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0.00 | 0.00% | 0.4883 | 0 | 01:00:00 |
Cypress Energy Partners, L.P. (“CELP”) (NYSE:CELP) today reported:
Peter C. Boylan III, CELP’s Chairman and Chief Executive Officer, stated, “2017 represented a turning point for CELP relative to the bottom of the downturn experienced in the second quarter of 2016. For our Pipeline Inspection Services and Integrity Services segments, revenues, margins, and margin percentages were higher in the second half of 2017 than they were in the first half of 2017. This is generally consistent with the seasonality inherent in our business, in which the third and fourth quarters of each year are generally the strongest quarters of the annual business cycle due to weather, fourth quarter holidays, and our clients’ budgeting cycles. During 2017, customer spending was generally higher than the prior year and many new projects have been announced by several clients. Demand remains strong for inspection and integrity services. Pipeline Inspection and Integrity services represented approximately 97% of our revenues and approximately 85% of our gross margin in 2017.”
Mr. Boylan continued, “Revenues from our 51%-owned Integrity Services segment were higher in the fourth quarter of 2017 compared with the third quarter of 2017, as our utilization rate significantly improved, and our backlog increased. We continue to bid on a substantial amount of upcoming work and remain focused on winning more of these bids. We ended 2017 with a backlog of over $2.8 million, which was materially higher than the backlog at December 31, 2016. We are also continuing to evolve our business strategy to focus more on maintenance and integrity work directly for the owners of pipelines, as opposed to new construction work that can frequently get delayed for various reasons.
“Revenues from our Water & Environmental Services segment were 15.3% higher in the fourth quarter of 2017 than in the third quarter of 2017, despite two facilities that have not yet reopened following lightning strikes and fires in 2017. Our Orla facility in Reeves County, Texas in the Delaware basin will reopen for regular business in the next 30 days. In January 2018, we completed two pipelines that connect large multi-well pads into one of our facilities in the Bakken for a large public energy company who provided us with a long-term contract and acreage dedications. In 2018, we plan to focus on additional midstream pipeline water opportunities.
“We continue to search for attractive acquisition opportunities to supplement our organic growth opportunities. In 2017, our team considered over twenty-five potential acquisition opportunities in a very competitive environment. In January 2018, we terminated discussions on a large opportunity in the Permian. Future areas of focus continue to be inspection and integrity services, traditional midstream opportunities, chemicals, and logistics. Our sponsor and its affiliates remain willing to deploy capital to assist us in acquiring attractive assets that may be larger than what we can currently acquire independently, with plans to offer those assets to us as drop-down opportunities. We remain focused on a disciplined and conservative approach to evaluating acquisition opportunities and believe that patience and perseverance will ultimately be rewarded.
“We continue to believe the long-term increasing demand for inspection and integrity services and water solutions remains solid, despite our relatively slow pace of recovery from the multi-year downturn. Our business is less correlated to drilling rig counts than many other service companies.”
Refinancing
In March 2018, CELP successfully negotiated commitments for a new three-year credit facility with its existing bank group to replace the current facility that expires later this year. The new $80.0 million credit facility also has a $20.0 million accordion feature (for a total of $100.0 million), exclusive of other banks that may yet join the credit facility. Under the new credit facility, CELP will borrow at closing 3.75x its trailing twelve-month adjusted EBITDA as defined in the new credit agreement. The new facility would have customary covenants, including but not limited to, a maximum leverage ratio of 4.0x adjusted EBITDA and a minimum interest coverage ratio of 3.0x adjusted EBITDA. The details will be included in our 10-K filing. The bank group required a substantial reduction in our outstanding debt to reduce leverage to 3.75x. As previously disclosed, this can be accomplished through a combination of improved earnings, divestitures, use of excess cash, and the issuance of additional equity. The lenders also required that our sponsor, Cypress Energy Holdings, LLC (“CEH”) or one of its affiliates, provide this equity commitment as a condition of the refinancing commitment.
We accomplished this successful refinancing by receiving a commitment from an affiliate of CEH to invest up to $50.0 million in a preferred public investment in private equity (“PIPE”) necessary to reduce indebtedness. We believe the terms are more attractive to CELP than what it would receive from unaffiliated third parties. Favorable terms include but are not limited to an attractive payment-in-kind (“PIK”) option, coupon, conversion premium, and redemption features. The Conflicts Committee of CELP’s board of directors and its advisors negotiated the terms of the PIPE to ensure fairness of this related-party equity investment required by the bank group. The terms of the new PIPE will also be disclosed in our 10-K filing. Additionally, CELP has retained a financial advisor to shop the market to determine if more favorable PIPE terms can be obtained from an independent third party, and to explore strategic alternatives to determine if any more attractive transformational opportunities exist. The Conflicts Committee would likely be involved in the approval of any strategic alternative that includes a related-party transaction. The substantially lower leverage should materially reduce interest expense, improve distributable cash flow, and position CELP to increase the size of the facility when CELP finds a suitable acquisition opportunity.
We repaid $4.0 million of principal on our revolving credit facility in January 2018 through the sale of our saltwater disposal facility in Pecos, Texas. We were able to obtain an attractive price and retain a perpetual royalty on the facility. CELP also plans to use approximately $7.0 million of existing cash on hand to further reduce indebtedness at the closing of the new credit facility. The combination of these events should allow us to reduce our outstanding debt balance approximately 44% from $136.9 million to approximately $76.1 million and our net debt by approximately 48% to approximately 3.0x trailing adjusted EBITDA at closing.
Mr. Boylan further stated, “We believe this new credit facility and very favorable PIPE commitment from an affiliate of our sponsor will support our current business requirements until we find an accretive acquisition opportunity, at which time we will likely expand or refinance this facility to accommodate the transaction. We will also fully check the market to ensure that no better alternative is available. In addition to the material support provided above, our sponsor provided another $4.1 million of support during 2017 at no charge to our unitholders, reconfirming the fact that its interests are fully aligned with our unitholders as a result of their approximate 64.0% ownership in CELP. We believe that our stronger balance sheet with less debt as the result of the PIPE will allow us to support the current distribution and ultimately position us to begin growing the distribution again.”
Fourth Quarter:
Calendar Year 2017:
Highlights include:
Looking forward:
CELP will file its annual report on Form 10-K for the year ended December 31, 2017 with the Securities and Exchange Commission tomorrow, March 23, 2018. CELP will also post a copy of the Form 10-K on its website at www.cypressenergy.com. Unitholders may receive a printed copy of the Annual Report on Form 10-K free of charge by contacting Investor Relations at Cypress Energy Partners, L.P., 5727 South Lewis Avenue, Suite 300, Tulsa, Oklahoma 74105, or emailing ir@cypressenergy.com.
CELP will host a conference call on Friday, March 23, 2018 at 10:00 am EDT (9:00 am CDT), to discuss its fourth quarter 2017 financial results. Analysts, investors, and other interested parties may access the conference call by dialing Toll-Free (US & Canada): (888) 419-5570 and using the passcode 354 960 89, or International Dial-In (Toll): +1 617-896-9871. An archived audio replay of the call will be available on the Investor section of our website at www.cypressenergy.com on Tuesday, March 27, 2018, beginning at 10:00 am EDT (9:00 am CDT).
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, offering costs and equity-based compensation expense, less certain other unusual 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 expenses attributable to limited partners, impairments attributable to limited partners, income tax expense attributable to limited partners, offering costs attributable to limited partners, non-cash allocated expenses attributable to limited partners and equity-based compensation expense 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 excluding cash interest paid, cash income taxes paid, maintenance capital expenditures and certain other unusual or non-recurring items. Adjusted EBITDA and Distributable Cash Flow 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 the following: 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 the utility of these measures. 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 can 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 midstream 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 and 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. Consolidated Balance Sheets As of December 31, 2017 and 2016 (in thousands, except unit data)December 31,
December 31,
2017 2016 ASSETS Current assets: Cash and cash equivalents $ 24,508 $ 26,693 Trade accounts receivable, net 41,693 38,482 Prepaid expenses and other 2,294 1,042 Assets held for sale 2,172 - Total current assets 70,667 66,217 Property and equipment: Property and equipment, at cost 22,700 22,459 Less: Accumulated depreciation 9,312 7,840 Total property and equipment, net 13,388 14,619 Intangible assets, net 25,477 29,624 Goodwill 53,435 56,903 Other assets 236 149 Total assets $ 163,203 $ 167,512 LIABILITIES AND OWNERS' EQUITY Current liabilities: Accounts payable $ 3,757 $ 1,690 Accounts payable - affiliates 3,173 1,638 Accrued payroll and other 9,109 7,585 Liabilities held for sale 97 - Income taxes payable 646 1,011 Current portion of long-term debt 136,293 - Total current liabilities 153,075 11,924 Long-term debt - 135,699 Deferred tax liabilities - 362 Asset retirement obligations 143 139 Total liabilities 153,218 148,124 Owners' equity: Partners’ capital:Common units (11,889,958 and 5,945,348 units outstanding at
December 31, 2017 and 2016, respectively)
34,614 (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 (2,677) (2,538) Total partners' capital 6,061 14,338 Non-controlling interests 3,924 5,050 Total owners' equity 9,985 19,388 Total liabilities and owners' equity $ 163,203 $ 167,512 CYPRESS ENERGY PARTNERS, L.P. Consolidated Statements of Operations For the Three Months and Years Ended December 31, 2017 and 2016 (in thousands, except unit and per unit data) Three Months Ended December 31, Year Ended December 31, 2017 2016 2017 2016 Revenues $ 69,371 $ 70,406 $ 286,342 $ 297,997 Costs of services 60,096 59,977 252,739 262,517 Gross margin 9,275 10,429 33,603 35,480 Operating costs and expense: General and administrative 5,042 5,048 21,055 21,853 Depreciation, amortization and accretion 882 1,176 4,443 4,861 Impairments - - 3,598 10,530 Gain on asset disposals, net (665) - (570) - Operating income (loss) 4,016 4,205 5,077 (1,764) Other income (expense): Interest expense, net (1,924) (1,681) (7,335) (6,559) Foreign currency gains (losses) (92) - 732 - Other, net 77 99 199 356 Net income (loss) before income tax expense 2,077 2,623 (1,327) (7,967) Income tax expense 138 806 596 1,195 Net income (loss) 1,939 1,817 (1,923) (9,162) Net income (loss) attributable to non-controlling interests 180 399 (1,110) (4,499) Net income (loss) attributable to partners / controlling interests 1,759 1,418 (813) (4,663) Net loss attributable to general partner (1,300) (932) (4,050) (6,298) Net income attributable to limited partners $ 3,059 $ 2,350 $ 3,237 $ 1,635 Net income attributable to limited partners allocated to: Common unitholders $ 3,059 $ 1,177 $ 3,237 $ 819 Subordinated unitholders - 1,173 - 816 $ 3,059 $ 2,350 $ 3,237 $ 1,635 Net income per common limited partner unit: Basic $ 0.26 $ 0.20 $ 0.29 $ 0.14 Diluted $ 0.25 $ 0.19 $ 0.29 $ 0.13 Net income per subordinated limited partner unit - basic and diluted $ - $ 0.20 $ - $ 0.14 Weighted average common units outstanding: Basic 11,889,957 5,944,676 11,151,646 5,934,226 Diluted 12,006,626 6,111,165 11,253,069 6,090,103 Weighted average subordinated units outstanding - basic and diluted - 5,913,000 729,000 5,913,000 Reconciliation of Net Income (Loss) to Adjusted EBITDA Three Months Ended December 31, Years ended December 31, 2017 2016 2017 2016 (in thousands) Net income (loss) $ 1,939 $ 1,817 $ (1,923) $ (9,162) Add: Interest expense 1,924 1,681 7,335 6,559 Depreciation, amortization and accretion 1,167 1,434 5,545 5,788 Impairments - - 3,598 10,530 Income tax expense 138 806 596 1,195 Non-cash allocated expenses - 932 1,750 3,798 Equity based compensation (78) 257 1,059 1,086 Less: Gain on asset disposals, net 665 - 588 - Foreign currency gains (losses) (92) - 732 - Adjusted EBITDA $ 4,517 $ 6,927 $ 16,640 $ 19,794 Reconciliation of Net Income (Loss) Attributable to Limited Partners to Adjusted EBITDA Attributable to Limited Partners and Distributable Cash Flow Three Months ended December 31, Years ended December 31, 2017 2016 2017 2016 (in thousands) Net income attributable to limited partners $ 3,059 $ 2,350 $ 3,237 $ 1,635 Add: Interest expense attributable to limited partners 1,924 1,866 7,335 6,556Depreciation, amortization and accretion attributable
to limited partners
1,026 1,452 4,978 5,373Impairments attributable to limited partners
- - 2,823 6,409Income tax expense attributable to limited partners
138 809 580 1,179Equity based compensation attributable to
limited partners
(78) 257 1,059 1,086 Less: Gain on asset disposals, net 665 - 588 -Foreign currency gains (losses) attributable to
limited partners
(92) - 732 - Adjusted EBITDA attributable to limited partners 5,496 6,734 18,692 22,238 Less:Cash interest paid, cash taxed paid and
maintenance capital expenditures
attributable to limited partners 2,294 1,659 8,674 6,717 Distributable cash flow $ 3,202 $ 5,075 $ 10,018 $ 15,521 Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA Years ended December 31, 2017 2016 (in thousands) Cash flows provided by operating activities $ 8,253 $ 24,819 Changes in trade accounts receivable, net 3,406 (9,871) Changes in prepaid expenses and other 1,332 (1,350) Changes in accounts payable and accrued liabilities (4,471) (478) Change in income taxes payable 365 (662) Interest expense (excluding non-cash interest) 6,741 5,989 Income tax expense (excluding deferred tax benefit) 957 1,219 Other 57 128 Adjusted EBITDA $ 16,640 $ 19,794 Operating Data Three Months Twelve Months Ended December 31, Ended December 31, 2017 2016 2017 2016 Total barrels of saltwater disposed (in thousands) 3,747 3,390 12,588 13,307 Average revenue per barrel $ 0.65 $ 0.68 $ 0.67 $ 0.67 Water Services gross margins 51.8% 70.8% 58.5% 57.9% Average number of inspectors 1,101 1,093 1,145 1,147 Average revenue per inspector per week $ 4,500 $ 4,575 $ 4,499 $ 4,601 Pipeline Inspection services gross margins 11.0% 12.5% 10.0% 10.2% Average number of field personnel 20 20 20 23 Average revenue per field personnel per week $ 12,850 $ 9,549 $ 8,887 $ 11,577 Integrity Services gross margins 29.9% 25.4% 20.7% 16.9% Maintenance capital expenditures (in thousands) $ 169 $ 101 $ 481 $ 307 Expansion capital expenditures (in thousands) $ 1,396 $ 316 $ 2,198 $ 844 Distributions (in thousands) $ 2,498 $ 4,823 $ 9,985 $ 19,271 Coverage ratio 1.28x 1.05x 1.00x 0.81x
View source version on businesswire.com: https://www.businesswire.com/news/home/20180322006358/en/
Cypress Energy Partners, L.P.Jeff Herbers, 918-947-5730Chief Accounting Officerjeff.herbers@cypressenergy.com
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