September 30, 2020

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Cypress Environmental Partners Reports Second Quarter Results

TULSA, Okla.–(BUSINESS WIRE)–#CELP–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

Contacts

Investors or Analysts:

Contact: Cypress Environmental Partners, L.P. – Jeff Herbers – Vice President & Chief Financial Officer

jeff.herbers@cypressenvironmental.biz or 918-947-5730

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