Today, Cypress Environmental Partners, L.P., (NYSE: CELP)
(“Cypress”) reported its financial results for the three months and
year ended December 31, 2021.
FINANCING
Cypress continues to work with Deutsche Bank AG, its credit
facility Administrative Agent, Lead Arranger and Bookrunner, and
the six other banks (“Lenders”) and their financial and legal
advisors regarding the credit agreement that matures on May 31,
2022. Because the credit agreement matures within one year, the
financial statements in Cypress’s Annual Report on Form 10-K
disclose substantial doubt about its ability to continue as a going
concern, as defined under U.S. Generally Accepted Accounting
Principles. This condition resulted in the auditor’s report on the
financial statements including a “going concern” uncertainty
paragraph, which is an event of default of the credit
agreement.
Cypress, with the support of the Lenders, has engaged Piper
Sandler to solicit potential debt and equity investors to submit
proposals to recapitalize Cypress and has received several
proposals that are currently being evaluated by the board of
directors and the Lenders.
Cypress also continues to negotiate with contingent fee
plaintiffs’ lawyers to resolve litigation and arbitration exposure
regarding Fair Labor Standards Act (“FLSA”) claims and associated
indemnification demands from customers against whom some such
claims have been asserted. Cypress has entered into a settlement
covering more than 60 plaintiffs and resolving all of the claims
asserted directly against the Company. The ability to resolve such
exposure has been an important factor in Cypress’s ability to
obtain a renewal from the current Lenders and remains an important
element of successfully raising new capital without an in-court
restructuring. Cypress and the Lenders may pursue a number of
options, including but not limited to the possibility of i) a sale
of the debt to a third party; ii) a sale of the debt to a related
party; iii) entering into an agreement with a new investor for a
stalking horse bid that would lead to an in-court restructuring and
section 363 process; or some combination of these actions which may
include a court-supervised restructuring. Cypress has incurred and
expects to continue to incur significant legal and advisory fees in
developing its financing plans. Under the current credit agreement
Cypress is responsible for the Lender-mandated legal and financial
advisor expenses, which have now exceeded $2.5 million dollars.
The New York Stock Exchange (the “NYSE”) continues to monitor
trading in Cypress’s common units for compliance with the NYSE’s
requirement of a $15 million market capitalization over 30 trading
days; the failure to satisfy this requirement would result in
immediate suspension and commencement of delisting procedures. It
is likely that Cypress’s common units would be delisted from the
NYSE in the event of any restructuring or liquidation proceeding.
Such a proceeding would also likely lead to Cypress’s common and
preferred equity (including accrued and unpaid distributions)
having no value, given the amount of Cypress’s senior secured debt,
which is currently $58.1 million.
Cypress believes that its Lenders are fully aligned on the
importance of business continuity and normal operations to ensure
ongoing reliable service to Cypress’s customers. Cypress and the
Lenders intend to complete the process described above without
disruption to customers, inspectors, and other employees.
FINANCIAL HIGHLIGHTS
- Cash balance of $8.3 million at December 31, 2021.
- Outstanding borrowings of $54.2 million on the credit facility
at December 31, 2021.
- Net loss attributable to common unitholders of $4.1 million for
the three months ended December 31, 2021.
- Adjusted EBITDA of $(0.3 million) for the three months ended
December 31, 2021.
- Distributable cash flow (“DCF”) of $(1.5 million) for the three
months ended December 31, 2021.
- Common unit and preferred unit distributions remain
suspended.
FOURTH QUARTER 2021 SUMMARY FINANCIAL
RESULTS
Three Months Ended
December 31,
2021
2020
(Unaudited)
(in thousands)
Net loss
$
(2,675)
$
(675)
Net loss attributable to common
unitholders
$
(4,099)
$
(1,906)
Net loss per common limited partner unit –
basic and diluted
$
(0.34)
$
(0.16)
Adjusted EBITDA (1)
$
(284)
$
1,469
Distributable cash flow (1)
$
(1,546)
$
(810)
(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
“2021 was another difficult year, however I am proud of how our
employees navigated the second straight year of COVID-19. Despite
over six months of negotiations, we regret that we have been unable
to reach an agreement with our Lenders and therefore face the
possibility of restructuring. Insiders (management, board, and
individuals that control the general partner) own 76% of our equity
(common and preferred units) and remain fully aligned with the
minority unitholders. The FLSA wage litigation that swept through
the inspection industry over the last several years has been
expensive and time consuming for our customers, our competitors,
and us. We were successful in negotiating a settlement covering
over 60 cases; however, we have been unable to reach a global
resolution despite months of negotiations. Regardless of the
outcome of the negotiations with our Lenders and the FLSA
plaintiffs’ lawyers, we are mutually aligned with our Lenders to
avoid any adverse impact with operations so that we can continue to
serve our customers and maintain our great employees,” said Peter
C. Boylan III, Chairman, President, and CEO.
SEGMENT UPDATE
Inspection Services
- During the fourth quarter Cypress had an average headcount of
approximately 430 inspectors working throughout the United States.
Headcount declined in early 2022 as the result of changes to
inspector pay practices, which were driven in part by the need to
mitigate the risk of needing to defend against future FLSA
litigation. In early 2022 competitors offering more aggressive pay
practices solicited and hired approximately 65 of Cypress’s
inspectors as a result of these changes.
- Cypress continues to pursue business development. In fourth
quarter 2021 Cypress submitted over a dozen bids, and thus far in
2022 Cypress has submitted another 16 new bid proposals.
- General and administrative expense in 4th quarter 2021 included
a $0.7 million accrual related to a settlement Cypress reached in
early 2022 with over 60 plaintiffs in FLSA litigation.
- Other income in 4th quarter 2021 included a gain of $1.6
million upon receipt of proceeds from the settlement of a dispute
with another party.
Pipeline & Process Services (“PPS”)
- Cypress discontinued the operations of its 51%-owned subsidiary
Brown Integrity, which provided hydrotesting services. Cypress
recorded gains of $1.0 million in 4th quarter 2021 related to asset
sales within net income (loss) from discontinued operations, net of
tax.
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. 23 drilling rigs are
currently operating in North Dakota.
- In December 2021, Cypress recorded an impairment of $0.9
million to the fixed assets and lease assets of one of its water
treatment facilities.
COMMON UNIT & PREFERRED UNIT DISTRIBUTIONS
In July 2020, Cypress announced that it had suspended common
unit distributions. Cypress’s credit facility continues to contain
significant restrictions on the payment of distributions. Cypress
expects to use available cash for working capital needs including
restructuring expenses. Cypress continues the suspension of the
distribution payments to an affiliate of the general partner to
which he is entitled on his preferred units.
FOURTH QUARTER 2021 OPERATING RESULTS BY BUSINESS
SEGMENT
Inspection Services
The Inspection Services segment’s results for the three months
ended December 31, 2021 and 2020 were:
- Revenue - $26.7 million and $32.4 million, respectively.
- Gross Margin - $3.1 million and $3.9 million,
respectively.
Water & Environmental Services
(“Environmental Services”)
The Environmental Services segment’s results for the three
months ended December 31, 2021 and 2020 were:
- Revenue - $1.1 million and $1.4 million, respectively.
- Gross Margin - $0.6 million and $0.9 million, respectively
CAPITAL EXPENDITURES
During the quarter, Cypress had less than $0.1 million in
capital expenditures, which is reflective of an attractive business
model that requires minimal capital expenditures.
ANNUAL REPORT
Cypress filed its annual report on Form 10-K for the year ended
December 31, 2021 with the Securities and Exchange Commission
today. 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 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;
- 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
utility and energy industries, including pipeline &
infrastructure inspection, NDE testing, and in-line integrity
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 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, 2021 and
2020
(in thousands)
December 31,
December 31,
2021
2020
ASSETS
Current assets:
Cash and cash equivalents
$
8,251
$
12,138
Trade accounts receivable, net
11,541
16,024
Assets of discontinued operations
3,176
8,182
Prepaid expenses and other
1,945
2,002
Debt issuance costs, net
444
-
Total current assets
25,357
38,346
Property and equipment:
Property and equipment, at cost
15,759
23,449
Less: Accumulated depreciation
9,622
14,059
Total property and equipment, net
6,137
9,390
Intangible assets, net
12,993
15,143
Goodwill
50,392
50,389
Finance lease right-of-use assets, net
60
112
Operating lease right-of-use assets
1,449
1,987
Debt issuance costs, net
-
242
Assets of discontinued operations
-
3,807
Other assets
590
570
Total assets
$
96,978
$
119,986
LIABILITIES AND OWNERS’ EQUITY
Current liabilities:
Accounts payable
$
771
$
855
Accounts payable – affiliates
99
58
Accrued payroll and other
5,350
4,768
Income taxes payable
55
268
Finance lease obligations
49
51
Operating lease obligations
429
439
Current portion of long-term debt
54,229
-
Liabilities of discontinued operations
36
1,582
Total current liabilities
61,018
8,021
Long-term debt
-
62,029
Finance lease obligations
4
55
Operating lease obligations
1,078
1,549
Liabilities of discontinued operations
-
245
Other noncurrent liabilities
318
182
Total liabilities
62,418
72,081
Owners’ equity:
Partners’ capital:
Common units (12,361 and 12,213 units
outstanding at December 31, 2021 and December 31, 2020,
respectively)
13,472
27,507
Preferred units (5,769 units outstanding
at December 31, 2021 and December 31, 2020)
48,424
44,291
General partner
(25,876
)
(25,876
)
Accumulated other comprehensive loss
(2,636
)
(2,655
)
Total partners’ capital
33,384
43,267
Noncontrolling interests
1,176
4,638
Total owners’ equity
34,560
47,905
Total liabilities and owners’ equity
$
96,978
$
119,986
CYPRESS ENVIRONMENTAL
PARTNERS, L.P.
Consolidated Statements of
Operations
For the Three Months and Years
Ended December 31, 2021 and 2020
(in thousands, except per unit
data)
Three Months Ended December
31,
Years Ended December
31,
2021
2020
2021
2020
(unaudited)
Revenue
$
27,772
$
33,809
$
117,317
$
187,280
Costs of services
24,016
28,969
101,776
163,741
Gross margin
3,756
4,840
15,541
23,539
Operating costs and expense:
General and administrative
5,845
4,554
17,897
18,242
Depreciation, amortization and
accretion
1,238
1,077
4,535
4,325
Impairments
881
-
881
-
Loss on asset disposals, net
23
-
32
5
Operating (loss) income
(4,231
)
(791
)
(7,804
)
967
Other (expense) income:
Interest expense
(949
)
(777
)
(3,601
)
(3,959
)
Foreign currency (losses) gains
(21
)
274
(16
)
107
Other, net
1,712
129
2,024
530
Net loss before income tax expense
(3,489
)
(1,165
)
(9,397
)
(2,355
)
Income tax expense (benefit)
10
(29
)
40
482
Net loss from continuing operations
(3,499
)
(1,136
)
(9,437
)
(2,837
)
Net income (loss) from discontinued
operations, net of tax
824
461
(2,642
)
2,471
Net loss
$
(2,675
)
$
(675
)
$
(12,079
)
$
(366
)
Net loss from continuing operations
$
(3,499
)
$
(1,136
)
$
(9,437
)
$
(2,837
)
Net income attributable to noncontrolling
interests – continuing operations
9
5
30
19
Net loss attributable to limited partners
– continuing operations
(3,508
)
(1,141
)
(9,467
)
(2,856
)
Net income (loss) attributable to limited
partners – discontinued operations
443
269
(1,132
)
1,441
Net loss attributable to limited
partners
$
(3,065
)
$
(872
)
$
(10,599
)
$
(1,415
)
Net loss attributable to limited partners
– continuing operations
$
(3,508
)
$
(1,141
)
$
(9,467
)
$
(2,856
)
Net income attributable to preferred
unitholder
1,034
1,034
4,133
4,133
Net loss attributable to common
unitholders – continuing operations
(4,542
)
(2,175
)
(13,600
)
(6,989
)
Net income (loss) attributable to common
unitholders – discontinued operations
443
269
(1,132
)
1,441
Net loss attributable to common
unitholders
$
(4,099
)
$
(1,906
)
$
(14,732
)
$
(5,548
)
Net (loss) income per common limited
partner unit:
Basic and diluted – continuing
operations
$
(0.37
)
$
(0.18
)
$
(1.11
)
$
(0.58
)
Basic and diluted - discontinued
operations
0.04
0.02
(0.09
)
0.12
Basic and diluted
$
(0.33
)
$
(0.16
)
$
(1.20
)
$
(0.46
)
Weighted average common units
outstanding:
Basic and diluted
12,350
12,211
12,318
12,181
Reconciliation of Net Loss to Adjusted
EBITDA
and Distributable Cash Flow
Three Months Ended December
31,
Years Ended December
31,
2021
2020
2021
2020
(in thousands)
Net loss
$
(2,675
)
$
(675
)
$
(12,079
)
$
(366
)
Add:
Interest expense
949
777
3,601
3,959
Depreciation, amortization and
accretion
1,190
1,183
4,721
4,775
Income tax expense (benefit)
10
(29
)
40
482
Equity-based compensation
329
232
1,152
961
Impairments
881
-
881
-
Foreign currency losses
21
-
16
-
Discontinued operations (a)
(989
)
255
1,609
1,169
Less:
Foreign currency gains
-
274
-
107
Adjusted EBITDA
$
(284
)
$
1,469
$
(59
)
$
10,873
Adjusted EBITDA attributable to
noncontrolling interests
(100
)
314
(715
)
1,588
Adjusted EBITDA attributable to limited
partners
$
(184
)
$
1,155
$
656
$
9,285
Less:
Preferred unit distributions paid or
accrued
1,034
1,034
4,133
4,133
Cash interest paid, cash taxes paid, and
maintenance capital expenditures
328
931
3,863
5,394
Distributable cash flow
$
(1,546
)
$
(810
)
$
(7,340
)
$
(242
)
(a)
Amounts include net 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 December
31,
Years Ended December
31,
2021
2020
2021
2020
(in thousands)
Net loss attributable to limited
partners
$
(3,065
)
$
(872
)
$
(10,599
)
$
(1,415
)
Add:
Interest expense
949
777
3,601
3,959
Depreciation, amortization and
accretion
1,190
1,183
4,721
4,775
Income tax expense (benefit)
10
(29
)
40
482
Equity-based compensation
329
232
1,152
961
Impairments
881
-
881
-
Foreign currency losses
21
-
16
-
Discontinued operations (a)
(499
)
138
844
630
Less:
Foreign currency gains
-
274
-
107
Adjusted EBITDA attributable to limited
partners
$
(184
)
$
1,155
$
656
$
9,285
Less:
Preferred unit distributions paid or
accrued
1,034
1,034
4,133
4,133
Cash interest paid, cash taxes paid, and
maintenance capital expenditures
328
931
3,863
5,394
Distributable cash flow
$
(1,546
)
$
(810
)
$
(7,340
)
$
(242
)
(a)
Amounts include net loss on asset
disposals, depreciation, amortization, and accretion expense,
interest expense, and income tax expenses attributable to limited
partners that were previously reported within the Pipeline &
Process Services segment, prior to that segment being reported as a
discontinued operation.
Reconciliation of Net Cash Provided by
Operating Activities to
Adjusted EBITDA and Distributable Cash
Flow
Years Ended December
31,
2021
2020
(in thousands)
Cash flows provided by operating
activities
$
3,317
$
27,922
Changes in trade accounts receivable,
net
(4,512
)
(30,481
)
Changes in prepaid expenses and other
(409
)
897
Changes in accounts payable and accounts
payable - affiliates
64
366
Changes in accrued payroll and other
(499
)
9,614
Change in income taxes payable
213
747
Interest expense (excluding non-cash
interest)
2,646
3,379
Income tax expense (excluding deferred tax
benefit)
40
482
Bad debt expense, net of recoveries
29
(470
)
Other
(14
)
(44
)
Discontinued operations (a)
(934
)
(1,539
)
Adjusted EBITDA
$
(59
)
$
10,873
Adjusted EBITDA attributable to
noncontrolling interests
(715
)
1,588
Adjusted EBITDA attributable to limited
partners
$
656
$
9,285
Less:
Preferred unit distributions paid or
accrued
4,133
4,133
Cash interest paid, cash taxes paid, and
maintenance capital expenditures
3,863
5,394
Distributable cash flow
$
(7,340
)
$
(242
)
(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
Years
Ended December 31,
Ended December 31,
2021
2020
2021
2020
Inspection Services Segment:
Average number of inspectors
431
546
456
730
Average revenue per inspector per week
$
4,711
$
4,520
$
4,752
$
4,769
Inspection Services gross margins
11.8
%
12.0
%
11.5
%
10.9
%
Environmental Services Segment:
Total barrels of saltwater processed
(000's)
1,322
1,863
5,233
7,932
Average revenue per barrel
$
0.82
$
0.74
$
0.83
$
0.73
Environmental Services gross margins
56.9
%
68.6
%
58.9
%
65.0
%
Capital expenditures (inclusive of
discontinued operations) (000's)
$
30
$
268
$
347
$
1,950
Common unit distributions (000's)
$
-
$
-
$
-
$
5,098
Preferred unit distributions paid
(000's)
$
-
$
1,034
$
-
$
4,133
Preferred unit distributions accrued
(000's)
$
1,034
$
-
$
4,133
$
-
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220415005178/en/
Investors: Cypress Environmental Partners, L.P. - Jeff Herbers –
Vice President & Chief Financial Officer
jeff.herbers@cypressenvironmental.biz or 918-947-5730
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