Cypress Environmental Partners Reports Second Quarter Results

Today, Cypress Environmental Partners, L.P., (NYSE: CELP) reported its financial results for the three months ended June 30, 2020.

HIGHLIGHTS

• Net loss attributable to common unitholders of $1.3 million for the three months ended June 30, 2020.
• Distributable cash flow (DCF) of $0.3 million for the three months ended June 30, 2020.
• Second quarter 2020 Adjusted EBITDA of $3.1 million, an increase of 17% over first quarter 2020.
• Second quarter 2020 Pipeline Inspection Services segment gross margin of $4.4 million, a decrease of 31% from first quarter 2020.
• Second quarter 2020 Pipeline & Process Services segment gross margin increased 276% from first quarter 2020, and 56% from second quarter 2019, driven by increased activity levels and backlog.
• Second quarter 2020 Water & Environmental Services segment gross margin of $0.8 million, a 17% decrease from first quarter 2020.
• Temporarily suspended our common unit distribution to protect our balance sheet and liquidity and completed cost reductions representing over $4.5 million of annual savings.
• Paid down debt on our credit facility and exited the second quarter with approximately $27.8 million of cash and cash equivalents.
• Started a new service line to offer corrosion inspection services, nondestructive examination, and related support services to the municipal water and the offshore energy markets.

SECOND QUARTER 2020 SUMMARY FINANCIAL RESULTS

		Three Months Ended
		June 30,
		2020			2019
		(Unaudited)
		(in thousands, except per unit amounts)
Net income		$	381		$	5,643
Net (loss) income attributable to common unitholders		$	(1,349)		$	4,333
Net (loss) income per limited partner unit - basic		$	(0.11)		$	0.36
Net (loss) income per limited partner unit - diluted		$	(0.11)		$	0.29
Adjusted EBITDA(1)		$	3,121		$	9,154
Distributable cash flow(1)		$	255		$	5,237

(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

“The second wave of virus cases, the reinstitution of select lockdowns, and the risk of lingering high unemployment creates an uncertain economic environment that likely persists through the rest of 2020 and until a vaccine is discovered. This pandemic is adversely impacting the energy industry, demand, prices, our customers, and in turn us. Given these factors, we are preparing for potential future volatility, while also focusing on structurally reducing our cost base and implementing several strategic initiatives across our companies. As a result, we took the necessary action to temporarily suspend our common unit distributions until our operating results improve. Our primary focus continues to be the health and safety of our employees and our operations during this unprecedented and dynamic environment," said Peter C. Boylan III, chairman, president, and CEO. “Our talented team delivered better than expected second quarter performance as a result of increased activity in our Pipeline & Process Services segment, early and decisive actions focused on cost reductions, and our commitment to operational excellence and safely serving our customers. We remain confident in our ability to navigate this challenging environment while maintaining our liquidity, culture, and safely providing excellent service to our valued customers."

GROWTH UPDATE

Pipeline Inspection Services

• A new corrosion service line has been started that is led by a National Association of Corrosion Engineers (“NACE”)-certified engineer to offer a wide range of inspection, nondestructive examination, and related services to the municipal water industry as well as to our energy customers both onshore and offshore.
• The Pipeline Inspection segment has been aggressively pursuing organic business development (despite the work from home environment) and has successfully been awarded some new customer contracts and relationships that should benefit us in the future.

Pipeline & Process Services (“PPS”)

• The PPS segment is having an excellent year despite the challenges with COVID; continuing to expand its backlog and considering adding some new service lines to its current offerings.

Water & Environmental Services (“W&E”)

• Volumes have improved significantly in the Bakken despite the rig count declining to 11 rigs, down from 55 in late 2019. The previous record low during the prior downturn was 22 rigs in May 2016. Operators are slowly returning production after having choked back wells earlier this year when oil prices collapsed, instead of selling the oil at such depressed levels.
• A new contract was recently completed with a public energy company to connect their water pipeline into one of our facilities.

COMMON UNIT DISTRIBUTIONS

On July 28, 2020, CELP announced that it has temporarily suspended common unit distributions.

CELP generated distributable cash flow of $0.3 million for the three months ended June 30, 2020. Common unit distributions were $2.6 million for the first quarter of 2020.

SECOND QUARTER 2020 OPERATING RESULTS BY BUSINESS SEGMENT

Pipeline Inspection Services (“PIS”)

PIS segment results for the three months ended June 30, 2020 and 2019 were:

• Revenue - $43.3 million and $104.0 million, respectively.
• Gross Margin - $4.4 million and $11.4 million, respectively.

Pipeline & Process Services (“PPS”)

PPS segment results for the three months ended June 30, 2020 and 2019 were:

• Revenue - $7.2 million and $4.4 million, respectively.
• Gross Margin - $2.1 million and $1.4 million, respectively.

Water & Environmental Services (“Environmental”)

Environmental segment results for the three months ended June 30, 2020 and 2019 were:

• Revenue - $1.3 million and $2.7 million, respectively.
• Gross Margin - $0.8 million and $2.0 million, respectively

CAPITALIZATION, LIQUIDITY, AND FINANCING

Credit Facility

CELP has a $110 million revolving credit facility. Proceeds from this facility can be used to fund working capital requirements and other general partnership purposes, including growth and acquisitions. CELP had $27.8 million of cash and cash equivalents at June 30, 2020.

• The credit facility matures on May 28, 2021. CELP is working with the agent and lenders regarding both a renewal and the possibility of utilizing one of the new US Federal Reserve Main Street Lending facilities.
• As of June 30, 2020, CELP had $81.7 million of debt outstanding (inclusive of finance leases). At June 30, 2020, CELP's leverage ratio was 2.3 times on a net debt basis. The effective interest rate on CELP's debt as of June 30, 2020 was 3.7%.

CAPITAL EXPENDITURES

During the six months ended June 30, 2020, CELP had growth capital expenditures totaling $1.1 million and maintenance capital expenditures totaling $0.4 million that are reflective of our business model that allows us to generate attractive free cash flow with minimal capital expenditures.

QUARTERLY REPORT

CELP filed its quarterly report on Form 10-Q for the three months ended June 30, 2020 with the Securities and Exchange Commission today. CELP will also post a copy of the Form 10-Q on its website at www.cypressenvironmental.biz. Unitholders may request a printed copy of CELP’s complete audited financial statements and annual report for the year ended December 31, 2019 free of charge by contacting CELP at the email address below.

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. CELP'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 CELP may not be comparable to similarly-titled measures of other entities because other entities may not calculate their measures in the same manner.

CELP 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. CELP defines adjusted EBITDA attributable to limited partners as adjusted EBITDA exclusive of amounts attributable to the general partner and to noncontrolling interests. CELP defines distributable cash flow as adjusted EBITDA attributable to limited partners less cash interest paid, cash income taxes paid, maintenance capital expenditures, and cash distributions on preferred equity. Management believes these measures provide investors meaningful insight into results from ongoing operations.

These non-GAAP financial measures are used as supplemental liquidity and performance measures by CELP's management and by external users of its financial statements, such as investors, commercial banks, research analysts, and others to assess:

• financial performance of CELP without regard to financing methods, capital structure or historical cost basis of assets;
• CELP'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 CELP'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 municipal water industries, including pipeline & infrastructure inspection, NDE testing, various integrity services, and pipeline & process services throughout the United States. Cypress also provides environmental services to upstream 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 CELP's control. If any of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, CELP'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 CELP's results of operations and financial condition are described in detail in the "Risk Factors" section of CELP'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 CELP'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. CELP 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, 2020 and December 31, 2019
(in thousands)
		June 30,				December 31,
			2020				2019
ASSETS
Current assets:
Cash and cash equivalents		$	27,761			$	15,700
Trade accounts receivable, net			35,008				52,524
Prepaid expenses and other			1,704				988
Total current assets			64,473				69,212
Property and equipment:
Property and equipment, at cost			26,903				26,499
Less: Accumulated depreciation			15,082				13,738
Total property and equipment, net			11,821				12,761
Intangible assets, net			18,719				20,063
Goodwill			50,287				50,356
Finance lease right-of-use assets, net			749				600
Operating lease right-of-use assets			2,207				2,942
Debt issuance costs, net			532				803
Other assets			588				605
Total assets		$	149,376			$	157,342
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable		$	3,594			$	3,529
Accounts payable - affiliates			141				1,167
Accrued payroll and other			9,813				14,850
Income taxes payable			1,385				1,092
Finance lease obligations			249				183
Operating lease obligations			421				459
Current portion of long-term debt			81,029				-
Total current liabilities			96,632				21,280
Long-term debt			-				74,929
Finance lease obligations			423				359
Operating lease obligations			1,717				2,425
Other noncurrent liabilities			169				158
Total liabilities			98,941				99,151
Owners' equity:
Partners’ capital:
Common units (12,209 and 12,068 units outstanding at
June 30, 2020 and December 31, 2019, respectively)			29,445				37,334
Preferred units (5,769 units outstanding at June 30, 2020 and December 31, 2019)			44,291				44,291
General partner			(25,876	)			(25,876	)
Accumulated other comprehensive loss			(2,368	)			(2,577	)
Total partners' capital			45,492				53,172
Noncontrolling interests			4,943				5,019
Total owners' equity			50,435				58,191
Total liabilities and owners' equity		$	149,376			$	157,342

CYPRESS ENVIRONMENTAL PARTNERS, L.P.
Unaudited Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2020 and 2019
(in thousands, except per unit data)
		Three Months Ended June 30,								Six Months Ended June 30,
			2020				2019				2020				2019
Revenue		$	51,688			$	111,091			$	120,171			$	201,467
Costs of services			44,307				96,284				104,835				176,637
Gross margin			7,381				14,807				15,336				24,830
Operating costs and expense:
General and administrative			4,926				6,158				10,866				12,389
Depreciation, amortization and accretion			1,211				1,109				2,419				2,213
Gain on asset disposals, net			(11	)			(2	)			(23	)			(23	)
Operating income			1,255				7,542				2,074				10,251
Other (expense) income:
Interest expense, net			(1,152	)			(1,415	)			(2,276	)			(2,726	)
Foreign currency gains (losses)			184				84				(273	)			185
Other, net			165				50				270				138
Net income (loss) before income tax expense			452				6,261				(205	)			7,848
Income tax expense			71				618				291				824
Net income (loss)			381				5,643				(496	)			7,024
Net income attributable to noncontrolling interests			697				277				609				58
Net (loss) income attributable to partners / controlling interests			(316	)			5,366				(1,105	)			6,966
Net income attributable to preferred unitholder			1,033				1,033				2,066				2,066
Net (loss) income attributable to common unitholders		$	(1,349	)		$	4,333			$	(3,171	)		$	4,900
Net (loss) income per common limited partner unit:
Basic		$	(0.11	)		$	0.36			$	(0.26	)		$	0.41
Diluted		$	(0.11	)		$	0.29			$	(0.26	)		$	0.38
Weighted average common units outstanding:
Basic			12,209				12,053				12,153				12,012
Diluted			12,209				18,218				12,153				18,163

Reconciliation of Net Income (Loss) to Adjusted EBITDA and Distributable Cash Flow
		Three Months ended June 30,								Six Months ended June 30,
			2020				2019				2020				2019
		(in thousands)
Net income (loss)		$	381			$	5,643			$	(496	)		$	7,024
Add:
Interest expense			1,152				1,415				2,276				2,726
Depreciation, amortization and accretion			1,447				1,388				2,927				2,764
Income tax expense			71				618				291				824
Equity-based compensation			254				174				518				443
Foreign currency losses			-				-				273				-
Less:
Foreign currency gains			184				84				-				185
Adjusted EBITDA		$	3,121			$	9,154			$	5,789			$	13,596
Adjusted EBITDA attributable to noncontrolling interests			844				420				906				331
Adjusted EBITDA attributable to limited partners / controlling interests		$	2,277			$	8,734			$	4,883			$	13,265
Less:
Preferred unit distributions			1,033				1,033				2,066				2,066
Cash interest paid, cash taxes paid, and maintenance capital expenditures
attributable to limited partners			989				2,464				2,194				3,682
Distributable cash flow		$	255			$	5,237			$	623			$	7,517

Reconciliation of Net (Loss) Income 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,
			2020				2019				2020				2019
		(in thousands)
Net (loss) income attributable to limited partners		$	(316	)		$	5,366			$	(1,105	)		$	6,966
Add:
Interest expense attributable to limited partners			1,152				1,415				2,276				2,726
Depreciation, amortization and accretion attributable to limited partners			1,318				1,255				2,653				2,504
Income tax expense attributable to limited partners			53				608				268				811
Equity based compensation attributable to limited partners			254				174				518				443
Foreign currency losses attributable to limited partners			-				-				273				-
Less:
Foreign currency gains attributable to limited partners			184				84				-				185
Adjusted EBITDA attributable to limited partners			2,277				8,734				4,883				13,265
Less:
Preferred unit distributions			1,033				1,033				2,066				2,066
Cash interest paid, cash taxes paid, and maintenance capital expenditures
attributable to limited partners			989				2,464				2,194				3,682
Distributable cash flow		$	255			$	5,237			$	623			$	7,517
Reconciliation of Net Cash Flows Provided by (Used In) Operating
Activities to Adjusted EBITDA and Distributable Cash Flow
										Six Months ended June 30,
											2020				2019
										(in thousands)
Cash flows provided by (used in) operating activities										$	15,432			$	(9,040	)
Changes in trade accounts receivable, net											(17,516	)			25,595
Changes in prepaid expenses and other											734				(128	)
Changes in accounts payable and accrued liabilities											5,152				(6,358	)
Change in income taxes payable											(292	)			252
Interest expense (excluding non-cash interest)											1,987				2,465
Income tax expense (excluding deferred tax benefit)											291				824
Other											1				(14	)
Adjusted EBITDA										$	5,789			$	13,596
Adjusted EBITDA attributable to noncontrolling interests											906				331
Adjusted EBITDA attributable to limited partners / controlling interests										$	4,883			$	13,265
Less:
Preferred unit distributions											2,066				2,066
Cash interest paid, cash taxes paid, and maintenance capital expenditures
attributable to limited partners											2,194				3,682
Distributable cash flow										$	623			$	7,517

Operating Data
		Three Months								Six Months
		Ended June 30,								Ended June 30,
			2020				2019				2020				2019
Total barrels of water processed (in thousands)			1,769				3,518				4,091				6,333
Average revenue per barrel		$	0.72			$	0.77			$	0.72			$	0.77
Environmental Services gross margins			66.3	%			74.3	%			63.5	%			69.8	%
Average number of inspectors			700				1,673				858				1,553
Average number of U.S. inspectors			700				1,669				858				1,545
Average revenue per inspector per week		$	4,754			$	4,782			$	4,830			$	4,737
Pipeline Inspection Services gross margins			10.2	%			11.0	%			10.1	%			10.4	%
Average number of field personnel			27				29				27				28
Average revenue per field personnel per week		$	20,379			$	11,621			$	14,431			$	8,778
Pipeline & Pipeline Services gross margins			29.5	%			30.9	%			26.5	%			25.3	%
Capital expenditures including finance lease payments (in thousands)		$	357			$	708			$	1,497			$	1,061
Common unit distributions (in thousands)		$	-			$	2,531			$	2,564			$	5,062
Preferred unit distributions (in thousands)		$	1,033			$	1,033			$	2,066			$	2,066
Net debt leverage ratio		2.28x				2.85x				2.28x				2.85x

 

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