Company Update (NYSE:NES): Nuverra Environmental Solutions Inc Reports Fourth Quarter and Full-Year 2014 Results


Nuverra Environmental Solutions, Inc. (NYSE: NES) announced financial results today for the fourth quarter and full fiscal year ended December 31, 2014.

Summary of Results
  • Revenue from continuing operations increased 10.4% over the prior year to $141.8 million for the quarter and was up 2% to $536.3 million for the year.
  • Net loss from continuing operations of $(321.1) million for the quarter; adjusted net loss of $(9.6) million.  For the year, net loss from continuing operations was $(457.2) million; adjusted net loss of $(40.7) million.
  • Results include a non-cash, pre-tax impairment charge against goodwill and intangibles of $315.7 million in the fourth quarter.
  • Fourth-quarter Adjusted EBITDA from continuing operations up 9.0% year-over-year to $25.4 million.
  • Full-year Adjusted EBITDA from continuing operations of $95.2 million.
  • Cash flow from continuing operations of $17.4 million for the year.
  • Total liquidity at Dec. 31, 2014 was $39.3 million, comprised of $13.4 million cash and $25.9 million of availability under the Company’s credit facility.

Mark D. Johnsrud, Chairman of the Board and Chief Executive Officer, said, “Our fourth-quarter results reflected solid growth in revenue and adjusted EBITDA. We remain highly focused on managing the business efficiently and delivering on our strategy to provide high-quality, cost-effective environmental solutions to our customers. Our regional divisions supported a steady stream of activity throughout the fourth quarter as operators executed against their 2014 budgets, enabling us to retain competitive market positions.”

Mr. Johnsrud commented on the progress made toward completing the sale of Thermo Fluids Inc., the Company’s used motor oil collection business to Clean Harbors, Inc., in an $85-million cash transaction that the companies jointly announced in February. “Both companies are looking forward to closing the TFI transaction as soon as possible, subject to final regulatory sign-off. Clean Harbors and its Safety-Kleen division are an excellent strategic fit for the TFI business and its dedicated employees. We look forward to the added financial flexibility this transaction will provide to reduce debt and further evaluate the optimal capital structure for our business going forward.

“When we evaluate the overall macro environment, fourth-quarter demand was more resilient than many had forecast. However, with declining rig counts into the first quarter and a longer-term view for a challenging 2015, we are taking the necessary steps to effectively manage our cost structure through this period,” Mr. Johnsrud said. “Nuverra’s advantage lies in the strength and resources of our customers, our geographic mix, and that more than 40 percent of our revenue in 2014 was derived from services provided during the long-term, production phase of wells. We expect this favorable mix to somewhat offset declines in new drilling and completion work.

“Throughout 2015, we intend to proactively manage the business within operating cash flows. The scalability of our operations demonstrates we can respond quickly to activity levels in our basins, maximizing the utilization of our fleet and labor resources. In addition, we are actively reducing our overall cost structure. Cash flow in 2014 was impacted by several large growth initiatives, which will not be necessary this year. In 2015, total capex is currently expected to be in the range of $10-$15 million, driven primarily by maintenance capex comparable to 2014 maintenance capex levels,” concluded Mr. Johnsrud.

FOURTH QUARTER 2014

Consolidated revenue from continuing operations for the quarter was $141.8 million, an increase of $13.4 million or 10.4%, compared with $128.4 million in the fourth quarter of 2013. Revenue increases were primarily driven by increased logistics and disposal activities for both fluids and solids, as operators completed their 2014 drilling and completion programs, full run-rate contribution from the landfill and the addition of water transfer services in the Rocky Mountain division, as well as improved pricing on logistics and disposal services in the Southern and Northeast divisions. This was partly offset by a decline in revenue from drilling and completion activities in the Rocky Mountain division and Southern divisions.

Division revenues for the fourth quarter were as follows (in thousands):

Three Months Ended
December 31,
2014 2013 $ Change % Change
Rocky Mountain $    87,789 $    80,743 $    7,046 8.7%
Northeast 28,159 21,579 6,580 30.5%
Southern 25,815 26,066 (251) -1.0%
Total Revenue $ 141,763 $ 128,388 $ 13,375 10.4%

During the fourth quarter, significant declines in global crude oil prices, coupled with a reduction in the market price of the Company’s common stock, required the Company to conduct further impairment testing, which resulted in pre-tax, non-cash charges totaling $315.7 million.

The Company reported a fourth-quarter 2014 loss from continuing operations of $321.1 million, or $(11.84) per share, compared with a loss of $10.4 million, or $(0.42) per share in the fourth quarter of 2013. These results included items primarily related to the impairment of goodwill and intangibles. Excluding such items, fourth quarter adjusted net loss from continuing operations was $9.6 million, or $(0.35) per share.

Adjusted EBITDA from continuing operations for the fourth quarter was $25.4 million, an increase of $2.1 million or 9.0%, compared with $23.3 million in the fourth quarter of 2013. 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.

Income tax expense was less than $0.1 million for the fourth quarter 2014, at an effective tax rate of near 0%, due to the impact of the impairment of goodwill and an increased valuation allowance on deferred tax assets.

FULL YEAR 2014

Revenue from continuing operations for the full year was $536.3 million, an increase of $10.5 million or 2.0%, compared with $525.8 million in 2013. Revenue increases for the year were driven by improved pricing in the Rocky Mountain Division, as well as higher revenues from the management of solid waste at the Company’s Bakken landfill. A portion of the increase was offset by decreased activity levels in the Southern Division, and to a lesser extent the Northeast Division, which was impacted negatively by severe winter weather in early 2014, as well as the interruption of operations due to an accident that affected our largest customer in the region. Overall rental revenue decreased 13.7% compared with the prior year, primarily due to declines in drilling and completion activities in the Rocky Mountain Division.

Division revenues for 2014 were as follows (in thousands):

Year Ended
 December 31,
2014 2013 $ Change % Change
Rocky Mountain $  334,770 $  304,182 $ 30,588 10.1%
Northeast 95,577 95,085 492 0.5%
Southern 105,935 126,549 (20,614) -16.3%
Total Revenue $ 536,282 $ 525,816 $ 10,466 2.0%

Adjusted EBITDA from continuing operations for the full year was $95.2 million, a decrease of $6.3 million or 6.2%, compared with $101.5 million in 2013. The difference was driven primarily by declines in higher-margin rental revenue.

Income tax benefit was $12.5 million for the full year, at an effective tax rate of near 2.7%, due to the impact of the impairment of goodwill and an increased valuation allowance on deferred tax assets.

The Company reported a 2014 loss from continuing operations of $457.2 million, or $(17.52) per share, compared with a loss from continuing operations of $134.0 million, or $(5.47) per share in 2013. These results included items primarily related to impairment of goodwill and long-lived assets, legal expenses and write-off of deferred financing costs. Excluding such items, adjusted loss from continuing operations for 2014 was $40.7 million, or $(1.56) per share.

Operating cash flows from continuing operations were $17.4 million for the full year. Net cash capital expenditures from continuing operations for the full year were $45.5 million, primarily related to construction of the Company’s new solids management facility in the Bakken.

At December 31, 2014, cash and cash equivalents were $13.4 million. Total debt, excluding $0.6 million of discounts and premiums, was $597.9 million, consisting of $400.0 million of 2018 Notes, $183.1 million under the Company’s revolving credit facility, and $14.9 million in capital leases.  As of December 31, 2014, the borrowing base under the Company’s $245 million credit facility would support additional borrowings of up to $25.9 million. As of March 13, 2015, the outstanding balance under the ABL facility was approximately $176.5 million, with $25 million cash on hand.  Total liquidity was approximately $52.2 million.

Division Highlights

Rocky Mountain (Bakken)

In the Rocky Mountain Division, fourth-quarter revenue increased 8.7% to $87.8 million, compared with $80.7 million in the prior year. The increase was due primarily to logistics and disposal activities driven by higher produced water volumes from production activities, full-quarter contribution from the landfill, as well as the introduction of the Company’s water transfer services in 2014. For the full year, revenue increased 10.1% to $334.8 million, compared to $304.2 million in 2013.

Northeast (Marcellus, Utica)

In the Northeast Division, fourth-quarter revenue was up 30.5% to $28.2 million, compared with $21.6 million in the prior year. This increase was due to higher levels of logistics and recycling services during the quarter.    During the first quarter, Nuverra began a new contract to provide water logistics and disposal services for a significant customer that holds more than 300,000 acres in the Utica. Full-year revenue for the division was up slightly at $95.6 million, compared with $95.1 million in 2013.

Southern (Haynesville, Eagle Ford)

In the Southern Division, fourth-quarter revenue declined 1.0% to $25.8 million, compared with $26.1 million in the prior year. The difference was primarily attributable to a decline in MidCon activity and Eagle Ford disposal volumes, offset partly by increases in water transfer activities and solids management services.  Full-year revenue for the division decreased to $105.9 million, compared with $126.5 million in 2013. During the quarter, Nuverra continued to take steps to improve the economics of its midstream water pipeline assets, which currently consists of a 60-mile, integrated pipeline and disposal network with a capacity of approximately 85,000 barrels per day.

(Original Source)

Shares of Nuverra opened today at $2.89 and are currently trading up at $2.895. 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 $3.25 and it’s 200-day moving average is $7.76.

On the ratings front, Nuverra has been the subject of a number of recent research reports. In a report issued on February 5, Needham analyst Sean Hannan reiterated a Buy rating on NES, with a price target of $5.50, which represents a potential upside of 90.3% from where the stock is currently trading. Separately, on the same day, Imperial’s Scott Levine reiterated a Hold rating on the stock and has a price target of $4.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Sean Hannan and Scott Levine has a total average return of 7.1% and -6.1% respectively. Hannan has a success rate of 56.1% and is ranked 926 out of 3516 while Levine has a success rate of 44.7% and is ranked 3276

In total, 3 research analysts have assigned a Hold rating and one research analyst has given a a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $2.89 which is 57.8% above where the stock opened today.

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.

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