Q4 2023 Enservco Corp Earnings Call

Participants

Richard Murphy; Executive Chairman of the Board, Chief Executive Officer; Enservco Corp

Mark Patterson; Chief Financial Officer; Enservco Corp

Jeff Grampp; Analyst; Alliance Global Partners

Presentation

Operator

Good morning, and welcome to the Enservco Corporation fourth quarter and year end fiscal 2023 earnings conference call. All participants will be in listen only mode. (Operator Instructions)
I would now like to turn the conference over to [West Harris], Investor Relations for and sort of go Corp. Please go ahead.

Well. Thanks, Gary, and hello, everyone. Welcome to Enservco's 2023 Fourth Quarter and Full Year Earnings Conference Call. Presenting on behalf of the Company today are Rich Murphy, our Executive Chairman, and Mark Patterson, our Chief Financial Officer.
As a reminder, matters discussed during this call may include forward-looking statements that are based on management's estimates, projections and assumptions as of today's date and are subject to risks and uncertainties disclosed in the Company's most recent 10-K as well as other filings with the SEC.
The company's but business is subject to certain risks that could cause actual results to differ materially from those anticipated in its forward-looking statements. Enservco assumes no obligation to update forward-looking statements that become untrue because of subsequent events. I'll also point out that management's ability to respond to questions during this call is limited by SEC regulation FD, which prohibits selective disclosure of material non-public information.
This conference call also include references to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable measure under GAAP are contained in or contained in today's earnings release.
A webcast replay of today's call will be available after the call. Options for accessing the webcast are available in the earnings release. With that, I'll turn the call over to Rich Murphy. Rich, please go ahead.

Richard Murphy

Thanks, Les, and good morning, everyone. We appreciate you joining us for our final earnings call for fiscal 2023 and one year. It was first, we did several transactions, including myself personally to help restructure the balance sheet and placed the company and stronger financial footing. This allowed us to reduce our expensive Utica term debt to approximately $3.6 million as of today, a 33% decrease from the end of 2022 and a far cry from the over $34 million peak debt levels we had in 2019.
We feel we're on the right track and are executing on that on additional initiatives to promote a more stable and growing business that further shores up the balance sheet more on that later. In addition to enhancing our financial position in 2023, we also took the opportunity to closely review all our operations to see where our assets would be best located from an economic perspective.
As a result, we shut down our North Dakota operations in a strategic move to reallocate assets to a more productive operating areas that offer more potential for revenue and profit growth. It also provided the additional benefit of allowing us to convert underutilized assets to working capital to fund the heating season activities.
The continued focus on deleveraging the balance sheet and improving market share and margins in the basins in which we operate has enabled us to the in the growth phase of the company turnaround. This is best exemplified by the recent budget announcement. I believe this is a great first step in transitioning the company towards a more consistent cash flow generator.
The focus of our current operations has been on improving the pricing environment and gaining market share in the three basins we operate. This focus resulted in a 14% increase in quarterly gross profit margins of 61% increase in annual gross profit margins.
We continue to focus on ways to improve margins and deliver consistent profitability. As I said on our last earnings call, we believe we can continue to capture additional market share across our entire operating footprint. We feel we had a solid management team in place that continues to execute on all of our strategic plan to transform the business, and finally, our efforts to expand our customer base.
Further rationalize location of our assets to enhance profitability and drive increased efficiencies throughout the business is beginning to show growth in our financials. Our profit margins continued to improve our G&A expenses continued to decrease on a comparative basis, and our adjusted EBITDA loss continues to decrease. This is a direct result of our focused execution on our multifaceted plan to optimize our operations and build a more sustainable business model with reduce debt.
So with that, I'm going to have Mark take you through some of the quarterly and full year numbers before provide a few closing comments. Mark?

Mark Patterson

Thank you, Rich. Our fourth quarter 2023 heating seasons or about 13% fewer cold days, which primarily impacts our completion services are correct. one thing. Water heating segment was a little softer than we had hoped at the launch of the season, but it was still solidly up year over year.
Our holiday oil leaking operations saw some weakness in demand as well due to favorable factors. The result was fourth quarter 2023 revenue of $6.5 million that was flat with the fourth quarter of 2022. On a segment basis, the throughput lower $2.2 million compared to $2.6 million a year ago.
Fourth quarter 2023 completion Services revenue increased 10% to $4.3 million from $3.9 million in 2022, mostly driven by strong growth in our Colorado operations. The fourth quarter adjusted EBITDA came in at $62,000 was a loss.
Yeah, it was the EBITDA adjusted EBITDA loss compared to adjusted EBIT loss, the fourth quarter 2022 of about $77,000. My apology. That was a positive EBITDA in the fourth quarter of this year compared to EBITDA loss of last year which was 181% improvement.
Net loss for the fourth quarter was [$1.9 million, or $0.07 per diluted share versus a net loss of $1.7 million, or $14] per diluted share in the same quarter last year. Turning to our full year results, I think Rich summed up nicely, the many initiatives that we executed during 2023 with the result being a substantial improvement in reducing our adjusted EBITDA loss.
Let's go through some of the details. Full year 2023, revenue increased 2% year over year to $22.1 million from $21.6 million in '22. The increase was attributable to growth in the Completion Services segment, which increased 11% year-over-year to $11.5 million from $10.4 million and more than offset by 6% and more than offset a 6% decline in production services, which were $10.5 million versus $11.2 million year over year.
The company's revenues generated from completions activity were strong during the fourth quarter 2023, which in addition to increased volume benefit by the implementation of price increases for these services, most notably in our Colorado region.
For year over year increases to our completions activity. Revenues were largely offset by decreases in our production services segment revenue, annual revenue and demand for production services continue to be strong in 2023.
Total segment profit for 2023 increased 61% to $2.3 million from $1.4 million in '22 -- 2022 through the reasons I just discussed, coupled with our continued efforts to reduce our labor costs and downtime during our off-season months, again, notably in there called out of region.
For full year 2023, we posted an adjusted EBITDA loss of $1.5 million, which was a 46% improvement from the $2.7 million adjusted EBITDA loss we posted in 2022, along with higher total segment profit we benefited from a 9% decrease in G&A, primarily due to reductions in personnel expenses and associated stock-based compensation costs y ear over year.
Full year 2023 net loss was [$8.5 million or $0.42 per basic share versus a net loss of $5.6 million or $48 per basic and diluted share in 2022]. A reminder, our 2022 net loss included a non-cash $4.3 million gain on debt extinguishment. Without this change, our net loss decreased $1.4 million year over year.
We remain very focused on rightsizing our business and continue to look for and execute on ways to reduce our cost across the business. We've seen significant declines in our history and expand over the past two years and are getting closer to our internal goal of an annual run rate of $3.6 million, excluding some one time legal and non-cash items such as stock compensation expense.
Turning to the balance sheet. As Rich discussed, during 2023, we made material progress in reducing our debt levels. Echoing your comment through May, we remain squarely focused on improving the financial position of the company and executing on opportunities that not only enhance the balance sheet, but also provide incremental growth opportunities. I expect Rich will talk further about these efforts in its closing market silicide.
I'll turn the call back over to Rich.

Richard Murphy

Thank you, Mark. Exactly right. I do plan to get some very exciting opportunity in front of us. But before I do that, I will spend a little time discussing the outlook of our existing businesses. The strategic actions we took in '23 yet places and a much better position as we move into '24.
As I said in my opening comments, we are seeing material financial improvements across the board, including and profit margins, reductions in G&A expense and decreases in our adjusted EBITDA loss were studied steadily building momentum across our businesses are encouraged by the continued drilling activity on and off our operating areas.
Based on customer feedback, we expect further demand growth for our services and believe we are well positioned to meet that demand. That said, our current heating business is very dependent on cold weather. As you know, unfortunately, we can't count on weather always been our liking silver. In the past months, we have been evaluating opportunities to add non-seasonal business with greater growth potential and synergies to our current service offerings.
On March 20, we announced that we expect will be a transformative transaction for and Circle and our shareholders. We have reached an agreement to acquire, but shot trucking LLC allowed for just Spot Shot. I won't get into all the details today. As you can get done from the press release we put out, but here are some highlights with a focus on the strategic rationale for the transaction.
First, who is but shut their founded in 2017 and headquartered in Fort Lupton, Colorado, there greater Rocky Mountain focus. It's complemented by extensive President of Operations and Wyoming, Utah, North Dakota and Texas, supported by key base of operations and Casper, Wyoming, but that focuses on hospital hotshot trucking, dedicated freight services and LTL or less than truckload services within the oil and gas sector.
More important, why should an circle acquired book shot t here are many reasons, but here are few of the main ones allows us to enter the higher margin, energy and logistics services space without a business that with a business that historically generated strong growth and cash generation without substantial new overhead, it provides a year-round perspective growth with operational and financial visibility.
It also provides incremental services for existing and spending customer base while providing a pathway for earnings and cash flow growth and improved predictability. And finally, it creates a new operating division that complements and expands current strong for our current strong market position in hot oiling and acidizing services and frac water heating. In addition to some non oil and natural gas customers.
Importantly, Enservco, founder and current owners [$0.20] and Jim Day will continue to leap Upshot and are financially incentivized to oversee and grow. The business don't earn out provision that is part of the transaction. As important, they are bringing their operating team with them.
In short, Enservco provides a strong complement to our current service offerings with the added benefit of the benefit of not being winter weather dependent. Upshot will also provide a substantial improvement in operational and financial visibility, which benefits our businesses, our business, shareholders and other stakeholders.
We are targeting to close a transaction in the second quarter of this year. To sum up 2023 was a much improved year for and Enservco, with a full year impact from the late third quarter 2023. Additional rapid hot and the potential addition of Upshot, we believe are solidly positioned straightening in a better 2024 and beyond. one quick comment on build sustainable business model that can generate consistent cash flows.
I believe stock prices ultimately reflect the company's future discounted cash flows with an improved balance sheet, stronger operating business and a bunch of stock acquisition pending the most optimistic about our future. Since taking over in late 2020.
In light of that, we have teamed up with Al Petrie group, a high regard IR firm to enhance our future shareholder communications. With that, thanks again for joining us on the call today. We will now be happy to take any questions.

Question and Answer Session

Operator

(Operator Instructions)
Jeff Grampp, Alliance Global Partners.

Jeff Grampp

Good morning, guys. I really wanted to of wanting to talk first about the production services front. It looks like a really strong quarter there on the margin front in particular. I'm just hoping to dive into that a bit more and maybe looking forward prospectively into '24, what kind of confidence you guys may have and the continuation of that kind of margin profile?

Mark Patterson

I would say, right out of the gate pricing has has increased and we're getting more on standby rates. Obviously, weather was a bit of a headwind. But because of the standby rates on and is the reality is since 2020, the competent lot of comfort, as I said before, as either consolidate or gone away, the business is so tough.
So we are definitely seeing the impact of higher rates are better standby rates and a more just a more rationalized market marketplace. And we expect that to continue. Jeff, I think I don't think it's going to go back now unless you see a scenario as a premier oil price decline or some type of economic hit. But I would think that this kind of marketplace can produce up to '24.

Jeff Grampp

Understood. Thank you. And maybe building on that, and you guys had a press release last month talking about revenue being up 15% on first couple of months of Q1. Can you guys kind of talk about the main drivers there I mean, I know weather wasn't a tremendous friend and driving that. So I assume it's more just kind of Serco's specific, um, market share gains or pricing, but just hoping to better understand that dynamic.

Richard Murphy

Yeah, I mean, I think it's a bit in our remarks with a rapid hot deal Pennsylvania's much and have a much more improved pricing format in the first quarter that helped Colorado's has had a better pricing and margin on January. That's obviously helped offset any type of weather impact we had.
So I would say the combination of stronger Pennsylvania and on a US based on Colorado, which is we have a little acted in Wyoming, but that's basically our two basins at this point for heating, which is production.

Jeff Grampp

Okay, great. And that you pay me up here for my next questions I had to sell on a rapid. How to manage a lot of focus is done now is on bauxite here, given that that's obviously a big deal for you guys, but I don't want to lose too much side of that deal as well.
So just kind of curious if you can update us on the performance and integration there. And maybe just if you're seeing any change in the competitive dynamics, given that it was fairly meaningful acquisition from a competitive standpoint in Appalachia?

Richard Murphy

Yeah. I mean, it's the integration is complete and fitness. The integration went very nicely. I'll wrap it up guys. Right. We are now we have done a tremendous job. The is that the pricing in the Marcellus has always been better than it is out west, but you also have a shorter season.
So the key to wanted to be in that basin for long-term standby rates. And we've done a really good job on a per se. The The new team has done a very good job on standby rates on that being said that gas prices are. So we did have some headwinds in Pennsylvania with regard to weather this winter, but I'll begin with the standby rates very helpful in that aspect. Interest. That's been a pleasant surprise.

Jeff Grampp

Okay. I present the details are thinking about that.

Richard Murphy

Thank you, Jeff.

Operator

(Operator Instructions) Showing no further questions. This concludes our question and answer session. I would like to turn the conference back over to Rich Murphy for any closing remarks.

Richard Murphy

I just want to say thank you, everybody, our employees, shareholders, it's been a long road, I think, group at above shot. And the rapid out of that in her remarks where we're looking at the nice 2024 and four and so on, we will be communicating more with the LPG Group, and I'm going to look forward to catching up with some of our shareholders face to face in '24. And with that, I knew the rest of the spring and talking a few weeks. Thanks.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.