Nuverra Environmental Solutions Inc (NYSE:NES) announced financial and operating results for the first quarter ended March 31, 2015.
SUMMARY OF RESULTS
- Revenue from continuing operations was $119.1 million, compared with $128.0 million in the first quarter of 2014, due to declines in the Rocky Mountain and Southern Divisions, partly offset by growth in the Northeast Division.
- Net loss from continuing operations was $12.0 million for the quarter, or a loss of $0.44 per diluted share, compared with a net loss from continuing operations of $11.9 million, or a loss of $0.48 per diluted share, for the first quarter of 2014.
- Adjusted net loss from continuing operations, excluding special items, was $11.3 million for the quarter, or a loss of $0.41 per diluted share, compared with adjusted net loss from continuing operations of $8.1 million, or a loss of$0.32 per share in the first quarter of 2014.
- First-quarter Adjusted EBITDA from continuing operations was $18.7 million, a 15.7% margin, compared with$18.9 million, a 14.8% margin, in 2014.
- Net cash provided by operating activities from continuing operations was $34.8 million for the quarter; free cash flow of $30.6 million.
- Days sales outstanding at 65 days at the end of Q1, compared to 71 days at the end of 2014.
Mark D. Johnsrud, Chairman of the Board and Chief Executive Officer, commented, “First-quarter results reflected a decline in drilling and completion activities, primarily in the Bakken, Eagle Ford and Haynesville Shale regions, coupled with some targeted pricing pressures at our larger customers. We anticipated this downturn and prepared by implementing multiple cost-savings initiatives in the first quarter that have contributed to a reduction in overall operating expenses by 10.7% compared with the prior-year period.
“During the quarter, our Rocky Mountain Division experienced the greatest impact from declines in drilling and completion activities, in addition to large customers seeking pricing concessions. Even on reduced revenue, we held Adjusted EBITDA margins steady in the Bakken at 26.4% by actively managing our operating costs,” Mr. Johnsrud explained. “Our Southern Division showed margin improvement, despite decreases in drilling and completion-related revenue, which were offset by growth in water transfer services. The Northeast Division remained level sequentially through the first quarter, with considerable growth year-over-year in revenue and Adjusted EBITDA, reflecting increased activity levels with existing and new customers.
“We continue to operate in a challenging environment, with U.S. drilling activity experiencing an unprecedented decline during the first quarter and into the current quarter. Despite these headwinds, we generated $34.8 million in cash flow from operations and $30.6 million in free cash flow in Q1. We improved our Adjusted EBITDA margin by 90 basis points to 15.7% compared with the same quarter of 2014. While this downturn will continue to put pressure on service providers like Nuverra, we believe our production focus provides us a competitive advantage, and the longer-term outlook for a recovery remains intact,” Mr. Johnsrud said. “Until then, we remain highly focused on optimally managing those things we can control, including targeted cost-saving measures, judicious use of capital and delivering the industry’s best services and safety practices to our customers.”
FIRST QUARTER 2015 HIGHLIGHTS
First-quarter 2015 revenue from continuing operations was $119.1 million, a decrease of $8.9 million or 7.0%, compared with $128.0 million in the first quarter of 2014. The difference was primarily a result of lower water logistics and rental activities in the Rocky Mountain and Southern Divisions, partly offset by increases in water logistics and recycling activities in the Northeast Division, as well as an increase in water transfer activity in the Eagle Ford Shaleregion.
Proactive cost-management initiatives across the organization contributed to a $14.2 million reduction in total expenses in the quarter, or a 10.7% year-over-year decline compared with the first quarter of 2014. Total operating expenses for the first quarter 2015 were $118.9 million, compared with $133.1 million in the first quarter of 2014. Savings were primarily attributable to $3.0 million in lower payroll and related expenses with an associated 8% decline in total headcount, $5.6 million in fuel savings, and $3.6 million in lower amortization expense.
Additionally, working capital improvements in the first quarter totaled more than $27.0 million, led by strong collections from our fourth and first quarter activities. The Company’s continued disciplined capital spending and expense controls provided $30.6 million in free cash flow during the quarter, compared to a negative $6.7 million in the same period in 2014.
During the first quarter, the Company incurred pre-tax restructuring and exit costs of $0.7 million, related primarily to its previously disclosed exit from the MidCon region and other facility closures.
Pre-tax operating income for the first quarter was $0.2 million, representing a $5.3 million improvement when compared with an operating loss of $5.1 million in the first quarter of 2014.
First-quarter 2015 net loss from continuing operations was $12.0 million, or a loss of $0.44 per diluted share, compared with a loss of $11.9 million, or a loss of $0.48 per diluted share, in the first quarter of 2014. Adjusted net loss from continuing operations, excluding special items, was $11.3 million for the quarter, or a loss of $0.41 per diluted share, compared with adjusted net loss from continuing operations of $8.1 million, or a loss of $0.32 per share in the first quarter of 2014. Due to the valuation allowance against deferred tax assets, the Company does not record tax benefits attributable to its pre-tax loss.
Adjusted EBITDA from continuing operations for the first quarter was $18.7 million, a decrease of 1.0% compared with Adjusted EBITDA from continuing operations of $18.9 million in the first quarter of 2014. Adjusted EBITDA margin for the first quarter was 15.7%, compared with 14.8% in the first quarter of 2014. Margins improved due to proactive cost containment activities during 2015. A reconciliation of excluded items and Adjusted EBITDA to the most directly comparable GAAP financial measure can be found in the financial tables included with this press release.
First-quarter income tax benefit was $24,000 at an effective tax rate near 0%, due to the ongoing valuation allowance on deferred tax assets.
Net cash provided by operating activities from continuing operations was $34.8 million in the first quarter of 2015. Net cash capital expenditures from continuing operations for the period were $4.2 million, and related primarily to targeted investments in the TerrafficientSM solids recycling facility and other transportation-related equipment in the Rocky Mountain Division.
As of March 31, 2015, total debt outstanding, excluding $0.6 million of discounts and premiums, was $592.9 million, consisting of $400.0 million of 2018 Notes, $176.5 million outstanding under the revolving credit facility, and $16.4 million in capital leases. Total liquidity was $57.9 million, comprised of $22.4 of net availability under the revolving credit facility and $35.5 million cash on hand.
The Company closed the sale of its subsidiary Thermo Fluids Inc. to Clean Harbors Inc. on April 11, 2015. Net proceeds at closing of $74.6 million from that transaction were applied to pay down a portion of the Company’s revolving credit facility. Following the close of TFI, total debt outstanding was $518.1 million, consisting of $400.0 million of 2018 Notes,$101.8 million outstanding under the amended credit facility, and $16.3 million in capital leases.
On April 13, 2015, the Company entered into an amendment to its credit facility to reduce maximum availability to$195.0 million and removed the accordion feature. Pricing remained the same and no amendment fees were incurred.
As of April 17, 2015, total liquidity was $77.3 million, comprised of $55.4 million of net availability under the revolving credit facility and $21.9 million cash on hand.
A summary of division results follows:
|Three Months Ended March 31, 2015||Rocky Mountain||Northeast||Southern||Corporate||Total|
|Revenue||$ 69,410||$ 27,313||$ 22,389||$ –||$ 119,112|
|Operating income (loss)||10,192||(98)||(3,014)||(6,832)||248|
|Operating Margin %||14.7%||(0.4)%||(13.5)%||NA||0.2%|
|Adjusted EBITDA Margin %||26.4%||13.8%||10.3%||NA||15.7%|
|Three Months Ended March 31, 2014||Rocky Mountain||Northeast||Southern||Corporate||Total|
|Revenue||$ 81,906||$ 19,175||$ 26,933||$ –||$ 128,014|
|Operating income (loss)||8,795||(3,048)||(2,232)||(8,586)||(5,071)|
|Operating Margin %||10.7%||(15.9)%||(8.3)%||NA||(4.0)%|
|Adjusted EBITDA Margin %||26.5%||7.9%||5.7%||NA||14.8%|
Rocky Mountain Division (Bakken)
In the Rocky Mountain Division, first-quarter revenue decreased 15.3% to $69.4 million, compared with $81.9 million in the first quarter of 2014. The decrease was primarily related to lower overall drilling and completion activities in the Bakken region, which significantly reduced the demand for equipment rentals, as well as water logistics services
First-quarter Adjusted EBITDA for the Rocky Mountain Division was $18.4 million, a 15.5% decrease, compared with$21.7 million in 2014. First-quarter Adjusted EBITDA margin was 26.4%, compared with a margin of 26.5% in first-quarter 2014.
Northeast Division (Marcellus, Utica)
In the Northeast Division, first-quarter revenue was up 42.4% to $27.3 million, compared with $19.2 million in the first quarter of 2014. The increase was due to overall higher levels of logistics and recycling services, primarily driven by the activities of several large customers in the Marcellus, as well as the addition of a new customer in the Utica.
First-quarter Adjusted EBITDA for the Northeast Division was $3.8 million, a 150% increase, compared with $1.5 millionin the first quarter of 2014. First-quarter Adjusted EBITDA margin improved 590 basis points to 13.8%, compared with 7.9% in 2014.
Southern Division (Haynesville, Eagle Ford, Mississippian, Permian)
In the Southern Division, first-quarter revenue decreased 16.9% to $22.4 million, compared with $26.9 million in the first quarter of 2014. The difference was primarily related to an overall decline in fluid logistics and rental services in the MidCon and Haynesville regions, partly offset by an increase in disposal and water midstream services in the Haynesville region, as well as an increase in water transfer activities in the Permian region.
First-quarter Adjusted EBITDA for the Southern Division increased 49.5% to $2.3 million, compared with $1.5 million in the first quarter of fiscal 2014. First-quarter Adjusted EBITDA margin improved 460 basis points to 10.3%, compared with 5.7% in 2014. (Original Source)
Shares of Nuverra closed last Friday at $3.64 . NES has a 1-year high of $21.29 and a 1-year low of $1.65. The stock’s 50-day moving average is $3.78 and its 200-day moving average is $5.07.
On the ratings front, Nuverra has been the subject of a number of recent research reports. In a report issued on March 17, Needham analyst Sean Hannan maintained a Buy rating on NES, with a price target of $4.50, which implies an upside of 23.6% from current levels. Separately, on the same day, Roth Capital’s Gerry Sweeney reiterated a Hold rating on the stock and has a price target of $3.50.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Sean Hannan and Gerry Sweeney have a total average return of 5.6% and -10.0% respectively. Hannan has a success rate of 53.4% and is ranked #1133 out of 3596 analysts, while Sweeney has a success rate of 25.0% and is ranked #3236.
Nuverra Environmental Solutions Inc formerly, Heckmann Corp provides environmental solutions to customers focused on the development and ongoing production of oil and natural gas from shale formations.