Today, Cypress Environmental Partners, L.P. (NYSE: CELP)
(“Cypress”) reported its financial results for the three months
ended September 30, 2021.
HIGHLIGHTS
- Revenue of $32.4 million increased 6% from second quarter
2021
- Gross margin of $4.3 million increased 5% from second quarter
2021
- Basic and diluted loss per unit of $(0.33), inclusive of loss
from discontinued operations
- Adjusted EBITDA of $0.5 million
- Distributable cash flow (“DCF”) of $(1.2 million)
- Common unit and preferred unit distributions remain suspended
as Cypress focuses on reducing debt
THIRD QUARTER 2021 SUMMARY FINANCIAL
RESULTS
(in thousands, except for per
unit data)
Three Months Ended
Change
Sept. 30, 2021
Jun. 30, 2021
Sept. 30, 2020
Sequential
Year-on-year
Revenue (1)
$
32,431
$
30,490
$
43,375
6
%
(25
)%
Gross margin (1)
$
4,304
$
4,087
$
6,036
5
%
(29
)%
Net (loss) income
$
(4,230
)
$
(2,027
)
$
805
(109
)%
NM
Basic and diluted loss per unit
$
(0.33
)
$
(0.23
)
$
(0.04
)
(43
)%
NM
Adjusted EBITDA (2)
$
545
$
497
$
3,615
10
%
(85
)%
Distributable cash flow (2)
$
(1,232
)
$
(1,446
)
$
(55
)
(15
)%
NM
NM – Not meaningful
(1) Revenue and gross margin have been
recast for all periods presented to exclude the results of Cypress
Brown Integrity, LLC (“CBI”), which previously represented
Cypress’s Pipeline & Process Services segment prior to that
segment being reported as a discontinued operation.
(2) 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 third quarter performance showed some sequential
improvement from the prior quarter. We are beginning to see signs
of a multi-year upcycle driven by much higher commodity prices that
benefit all of our customers in the energy industry. The macro
fundamentals have clearly strengthened this last quarter with
demand recovery for oil, natural gas, and refined products. Absent
a recession or pandemic-related setback, these positive dynamics
are expected to benefit our industry. I believe that Cypress is
uniquely positioned to grow our inspection business in both the
energy markets and other new markets including municipal water,
sewer, electrical transmission, and renewables,” commented Peter C.
Boylan III, Chairman, President, and CEO.
“During the quarter we decided to discontinue our Pipeline &
Process Services segment, given its performance, operating losses,
and structural challenges in the hydrotesting business. We entered
this market in 2015 and struggled over the two subsequent down
cycles to consistently earn profits. We have begun a sale process
of the remaining assets and will use the proceeds to reduce
debt.”
“Federal and State regulations to protect the environment,
people, and property continue to grow. In early November The U.S.
Department of Transportation’s Pipeline and Hazardous Materials
Safety Administration (“PHMSA”) announced that it is issuing a
final rule that expands Federal pipeline safety oversight to all
onshore gas gathering pipelines. These new regulations add more
than 400,000 miles of “Gas Gathering” pipelines under federal
oversight. The rule, initiated over 10 years ago, expands the
definition of a “regulated” gas gathering pipeline that is more
than 50 years old. It will, for the first time, apply federal
pipeline safety regulations to tens of thousands of miles of
unregulated gas gathering pipelines. The final rule will also, for
the first time, require pipeline operators to report safety
information for all gas gathering lines, representing more than
425,000 additional miles covered by federal reporting
requirements.”
“As a market leader, we have an advantaged position with the
technology investments we have made over the last several years. We
also continue to enjoy an economic competitive advantage with our
qualifying income activities and the related tax advantages of our
MLP structure in an environment of rising state and federal taxes.
During the quarter, we submitted numerous bids for 2022 work in
both traditional energy markets and new markets such as municipal
water and electrical transmission. ”
SEGMENT UPDATE
Inspection Services
- During the third quarter Cypress had an average headcount of
approximately 470 inspectors working throughout the United States.
Cypress continues to bid and win new work. The monthly average
inspector headcount reached a low of approximately 440 in January
2021.
- A significant majority of the Inspection Services segment’s
revenues during 2021 have been generated from maintenance projects
and from services provided to regulated public utilities that
provide natural gas to their customers, rather than from new
pipeline construction projects.
- Cypress continues to aggressively pursue organic business
development 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. Cypress
has been invited to submit bids for 2022 work from many new
potential customers in electrical transmission infrastructure,
municipal water inspection, and traditional energy
infrastructure.
- Legal expenses remain elevated and were $0.5 million in 3rd
quarter 2021, due primarily to costs associated with Fair Labor
Standards Act employment litigation and certain other lawsuits and
claims.
- In November 2021, Cypress settled a dispute with another party.
Cypress and the other party agreed to fully and finally resolve
their differences without any admission of liability. Cypress
received a payment in the fourth quarter of 2021 and retained its
claims against former employees that misappropriated confidential
information and violated various obligations.
- Occupational Safety and Health Administration (“OSHA”) released
federal regulations implementing a workplace COVID-19 vaccination
mandate, effective January 4, 2022. Employers with 100 or more
employees would be required to establish, implement, and enforce a
policy that either ensures their workers are fully vaccinated or
requires all unvaccinated workers to wear a mask and submit to
weekly COVID-19 testing. Cypress is still evaluating the potential
impact of these new regulations on its field personnel and
inspectors. Additionally, Cypress may be impacted by various state
employment laws.
Water & Environmental Services (“Environmental
Services”)
- Higher oil prices have led to an increase in the rig count in
the Williston basin in North Dakota from 18 rigs last quarter to 23
rigs in the third quarter.
- Increased drilling activity generally leads to more water
volumes and higher prices for recovered skim oil.
- During the quarter a customer had a leak on its produced water
pipeline, which led to a reduction in volumes while the pipeline
was being repaired.
- Cypress is in discussions with several customers about new
pipelines into its water treatment facilities.
- Private equity investors have recently acquired acreage and
production in North Dakota from various public companies with plans
to drill and complete additional wells.
Discontinued Operations
- In September 2021, Cypress discontinued the operations Cypress
Brown Integrity, LLC (“CBI”), which previously represented its
Pipeline & Process Services segment. CBI provided customers
with hydrotesting and other related services. Cypress has recast
the financial information for all periods presented in its
Unaudited Condensed Consolidated Financial Statements to report the
assets, liabilities, revenues, and expenses of CBI within
discontinued operations.
- During the nine months ended September 30, 2021, CBI had a
negative gross margin and adversely impacted Cypress’s financial
results.
- In the third quarter of 2021, Cypress recorded a loss of $1.9
million on the disposal of intangible assets associated with
CBI.
- Cypress expects to sell CBI’s long-lived assets, which have a
net book value of approximately $1.0 million. These assets were
held for sale as of September 30, 2021. The proceeds will be
utilized to reduce debt.
- Cypress recorded employee severance expenses of approximately
$0.1 million in the third quarter of 2021.
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,
now places significant restrictions on the payment of common unit
and preferred unit distributions. As a result, Cypress does not
expect to pay 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%, and the arrearage must be
settled before Cypress can resume distributions on its common
units.
THIRD QUARTER 2021 OPERATING RESULTS BY BUSINESS
SEGMENT
Inspection Services
The Inspection Services segment’s results for the three months
ended September 30, 2021 were:
- Revenue - $31.5 million, an increase of 7% compared to the
three months ended June 30, 2021, and a decrease of 25% compared to
the three months ended September 30, 2020.
- Gross Margin - $3.9 million, an increase of 15% compared to the
three months ended June 30, 2021, and a decrease of 24% compared to
the three months ended September 30, 2020.
Water & Environmental Services
(“Environmental Services”)
The Environmental Services segment’s results for the three
months ended September 30, 2021 were:
- Revenue - $0.9 million, a decrease of 17% compared to the three
months ended June 30, 2021, and a decrease of 34% compared to the
three months ended September 30, 2020.
- Gross Margin - $0.4 million, a decrease of 39% compared to the
three months ended June 30, 2021, and a decrease of 52% compared to
the three months ended September 30, 2020.
CAPITALIZATION, LIQUIDITY, AND FINANCING
Cypress had net debt of $50.0 million comprised of outstanding
borrowings of $55.3 million on its credit facility and cash and
cash equivalents of $5.3 million, inclusive of $1.3 million in cash
and cash equivalents classified as assets of discontinued
operations on its Unaudited Condensed Consolidated Balance Sheets,
at September 30, 2021. The credit facility was amended in August
2021 to eliminate the financial ratio covenants. As part of that
amendment, the total capacity of the facility was reduced from $75
million to $70 million. The third quarter results also reflect $0.1
million in costs associated with a financial advisor that the
lenders required as part of the amendment.
CAPITAL EXPENDITURES
During the quarter, Cypress had $0.1 million in capital
expenditures, inclusive of discontinued operations, which is
reflective of its attractive business model that requires minimal
capital expenditures.
QUARTERLY REPORT
Cypress filed its quarterly report on Form 10-Q for the three
months ended September 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
attributable to limited partners, and preferred unit distributions
paid or accrued. 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’s assets 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 public utility industries, including pipeline &
infrastructure inspection, nondestructive examination testing, and
in-line inspection support 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 the 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 September 30, 2021 and
December 31, 2020
(in thousands)
September 30,
December 31,
2021
2020
ASSETS
Current assets:
Cash and cash equivalents
$
4,023
$
12,138
Trade accounts receivable, net
16,504
16,024
Accounts receivable - affiliates
265
-
Assets of discontinued operations
2,878
8,182
Prepaid expenses and other
1,820
2,002
Total current assets
25,490
38,346
Property and equipment:
Property and equipment, at cost
23,426
23,449
Less: Accumulated depreciation
15,850
14,059
Total property and equipment, net
7,576
9,390
Intangible assets, net
13,530
15,143
Goodwill
50,391
50,389
Finance lease right-of-use assets, net
72
112
Operating lease right-of-use assets
1,666
1,987
Debt issuance costs, net
665
242
Assets of discontinued operations
-
3,807
Other assets
540
570
Total assets
$
99,930
$
119,986
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable
$
621
$
855
Accounts payable - affiliates
-
58
Accrued payroll and other
4,618
4,768
Income taxes payable
42
268
Finance lease obligations
51
51
Operating lease obligations
422
439
Current portion of long-term debt
55,329
-
Liabilities of discontinued operations
446
1,582
Total current liabilities
61,529
8,021
Long-term debt
-
62,029
Finance lease obligations
15
55
Operating lease obligations
1,192
1,549
Liabilities of discontinued operations
-
245
Other noncurrent liabilities
362
182
Total liabilities
63,098
72,081
Owners' equity:
Partners’ capital:
Common units (12,339 and 12,213 units
outstanding at
September 30, 2021 and December 31, 2020,
respectively)
17,180
27,507
Preferred units (5,769 units outstanding
at September 30, 2021 and December 31, 2020)
47,390
44,291
General partner
(25,876
)
(25,876
)
Accumulated other comprehensive loss
(2,658
)
(2,655
)
Total partners' capital
36,036
43,267
Noncontrolling interests
796
4,638
Total owners' equity
36,832
47,905
Total liabilities and owners' equity
$
99,930
$
119,986
CYPRESS ENVIRONMENTAL
PARTNERS, L.P.
Unaudited Condensed
Consolidated Statements of Operations
For the Three and Nine Months
Ended September 30, 2021 and 2020
(in thousands, except per unit
data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021
2020
2021
2020
Revenue
$
32,431
$
43,375
$
89,545
$
153,471
Costs of services
28,127
37,339
77,760
134,772
Gross margin
4,304
6,036
11,785
18,699
Operating costs and expense:
General and administrative
3,888
3,751
12,052
13,688
Depreciation, amortization and
accretion
1,094
1,113
3,297
3,248
Loss (gain) on asset disposals, net
9
(2
)
9
5
Operating (loss) income
(687
)
1,174
(3,573
)
1,758
Other (expense) income:
Interest expense
(995
)
(942
)
(2,652
)
(3,182
)
Foreign currency (losses) gains
(140
)
106
5
(167
)
Other, net
89
142
312
401
Net (loss) income before income tax
expense
(1,733
)
480
(5,908
)
(1,190
)
Income tax expense
107
266
30
511
Net (loss) income from continuing
operations
(1,840
)
214
(5,938
)
(1,701
)
Net (loss) income from discontinued
operations, net of tax
(2,390
)
591
(3,466
)
2,010
Net (loss) income
$
(4,230
)
$
805
$
(9,404
)
$
309
Net (loss) income from continuing
operations
$
(1,840
)
$
214
$
(5,938
)
$
(1,701
)
Net income attributable to noncontrolling
interests - continuing operations
15
3
21
14
Net (loss) income attributable to limited
partners - continuing operations
(1,855
)
211
(5,959
)
(1,715
)
Net (loss) income attributable to limited
partners - discontinued operations
(1,160
)
351
(1,575
)
1,172
Net (loss) income attributable to limited
partners
$
(3,015
)
$
562
$
(7,534
)
$
(543
)
Net (loss) income attributable to limited
partners - continuing operations
$
(1,855
)
$
211
$
(5,959
)
$
(1,715
)
Net income attributable to preferred
unitholder
1,033
1,033
3,099
3,099
Net loss attributable to common
unitholders - continuing operations
(2,888
)
(822
)
(9,058
)
(4,814
)
Net (loss) income attributable to common
unitholders - discontinued operations
(1,160
)
351
(1,575
)
1,172
Net loss attributable to common
unitholders
$
(4,048
)
$
(471
)
$
(10,633
)
$
(3,642
)
Net (loss) income per common limited
partner unit:
Basic and diluted - continuing
operations
$
(0.23
)
$
(0.07
)
$
(0.74
)
$
(0.40
)
Basic and diluted - discontinued
operations
(0.10
)
0.03
(0.12
)
0.10
Basic and diluted
$
(0.33
)
$
(0.04
)
$
(0.86
)
$
(0.30
)
Weighted average common units
outstanding:
Basic and diluted
12,339
12,209
12,307
12,171
Reconciliation of Net (Loss) Income to
Adjusted EBITDA and Distributable Cash Flow
Three Months ended
September 30,
Nine Months ended
September 30,
2021
2020
2021
2020
(in thousands)
Net (loss) income
$
(4,230
)
$
805
$
(9,404
)
$
309
Add:
Interest expense
995
942
2,652
3,182
Depreciation, amortization and
accretion
1,148
1,222
3,531
3,592
Income tax expense
107
266
30
511
Equity-based compensation
294
211
823
729
Foreign currency losses
140
-
-
167
Discontinued operations (a)
2,091
275
2,598
914
Less:
Foreign currency gains
-
106
5
-
Adjusted EBITDA
$
545
$
3,615
$
225
$
9,404
Adjusted EBITDA attributable to
noncontrolling interests
(197
)
368
(615
)
1,274
Adjusted EBITDA attributable to limited
partners
$
742
$
3,247
$
840
$
8,130
Less:
Preferred unit distributions paid or
accrued
1,033
1,033
3,099
3,099
Cash interest paid, cash taxes paid, and
maintenance capital expenditures
941
2,269
3,535
4,463
Distributable cash flow
$
(1,232
)
$
(55
)
$
(5,794
)
$
568
(a)
Amounts include non-cash expenses
including loss on asset disposals, depreciation, amortization, and
accretion expense, interest expense, and income tax expenses that
were previously reported within the Pipeline & Process Services
segment, prior to that segment being reported as a discontinued
operation.
Reconciliation of Net Loss 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,
2021
2020
2021
2020
(in thousands)
Net (loss) income attributable to limited
partners
$
(3,015
)
$
562
$
(7,534
)
$
(543
)
Add:
Interest expense attributable to limited
partners
995
942
2,652
3,182
Depreciation, amortization and accretion
attributable to limited partners
1,148
1,222
3,531
3,592
Income tax expense attributable to limited
partners
107
266
30
511
Equity based compensation attributable to
limited partners
294
211
823
729
Foreign currency losses attributable to
limited partners
140
-
-
167
Discontinued operations (a)
1,073
150
1,343
492
Less:
Foreign currency gains attributable to
limited partners
-
106
5
-
Adjusted EBITDA attributable to limited
partners
742
3,247
840
8,130
Less:
Preferred unit distributions paid or
accrued
1,033
1,033
3,099
3,099
Cash interest paid, cash taxes paid and
maintenance capital expenditures
attributable to limited partners
941
2,269
3,535
4,463
Distributable cash flow
$
(1,232
)
$
(55
)
$
(5,794
)
$
568
(a)
Amounts include non-cash expenses
attributable to limited partners including loss on asset disposals,
depreciation, amortization, and accretion expense, interest
expense, and income tax expenses that were previously reported
within the Pipeline & Process Services segment, prior to that
segment being reported as a discontinued operation.
Reconciliation of Net Cash Flows (Used
In) Provided by
Operating Activities to Adjusted EBITDA
and Distributable
Cash Flow
Nine Months ended
September 30,
2021
2020
(in thousands)
Net cash (used in) provided by operating
activities
$
(1,989
)
$
18,216
Changes in trade accounts receivable,
net
480
(18,529
)
Changes in prepaid expenses and other
(524
)
640
Changes in accounts payable, accounts
payable – affiliates and accounts receivable - affiliates
576
624
Changes in accrued payroll and other
379
6,224
Change in income taxes payable
226
717
Interest expense (excluding non-cash
interest)
1,945
2,748
Income tax expense (excluding deferred tax
benefit)
30
511
Other
(42
)
(29
)
Discontinued operations (a)
(856
)
(1,718
)
Adjusted EBITDA
$
225
$
9,404
Adjusted EBITDA attributable to
noncontrolling interests
(615
)
1,274
Adjusted EBITDA attributable to limited
partners
$
840
$
8,130
Less:
Preferred unit distributions paid or
accrued
3,099
3,099
Cash interest paid, cash taxes paid, and
maintenance capital expenditures
3,535
4,463
Distributable cash flow
$
(5,794
)
$
568
(a)
Amounts include changes in
working capital, interest expense, income tax expense, and other
amounts that were previously reported within the Pipeline &
Process Services segment, prior to that segment being reported as a
discontinued operation.
Operating Data
Three Months
Nine Months
Ended September 30,
Ended September 30,
2021
2020
2021
2020
Inspection Services Segment:
Average number of inspectors
474
659
465
792
Average revenue per inspector per week
$
5,055
$
4,842
$
4,758
$
4,809
Inspection Services gross margins
12.3
%
12.2
%
11.4
%
10.7
%
Environmental Services Segment:
Total barrels of saltwater processed
(000's)
1,092
1,978
3,911
6,069
Average revenue per barrel
$
0.86
$
0.73
$
0.83
$
0.72
Environmental Services gross margins
47.1
%
64.6
%
59.6
%
63.8
%
Capital expenditures (inclusive of
discontinued operations) (000's)
$
75
$
233
$
317
$
1,727
Common unit distributions (000's)
$
-
$
-
$
-
$
2,564
Preferred unit distributions paid
(000's)
$
-
$
1,033
$
-
$
3,099
Preferred unit distributions accrued
(000's)
$
1,033
$
-
$
3,099
$
-
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211115006310/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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