Nuverra Environmental Solutions Reports First Quarter 2014 Results

-- Organic Expansion of Full-Cycle Business Model Continues

-- Thermo Fluids Sale on Track to Close at the End of June

SCOTTSDALE, Ariz.--()--Nuverra Environmental Solutions (NYSE:NES) (“Nuverra” or “the Company”), a leading provider of full-cycle environmental solutions to the energy and industrial end-markets, today announced financial results for its first quarter ended March 31, 2014.

Summary of Key Financial Results1

  • First-quarter revenue was $128.0 million ($155.7 million including TFI).
  • Net loss from continuing operations for the quarter was $(11.9) million (net loss of $(11.5) million including TFI).
  • First-quarter adjusted EBITDA was $18.9 million ($22.0 million including TFI).
  • Net cash capital expenditures were $6.2 million in the first quarter ($7.2 million including TFI).

1 Results of operations of Thermo Fluids Inc. (“TFI”) are reflected as discontinued operations due to its pending divestiture.

First-Quarter Commentary

Mark D. Johnsrud, Chief Executive Officer, commented, “During the first quarter, we continued to make significant progress to expand our full-cycle business model and execute our growth strategy. Our various pipeline initiatives complement our robust logistics capabilities on the fluids side, and our recent investments in solids treatment and thermal desorption capabilities ensure we can offer similarly innovative environmental solutions for solids.

“In terms of activity levels, as we discussed on our last conference call, the first quarter was impacted by severe winter weather, which curtailed activity throughout our operating areas. As we progress through the second quarter, we are seeing a gradual return to more normalized levels across all basins, and we are excited about the pick-up in drilling and completion activities that our customers are signaling for the back half of the year as annual budgets are fulfilled. We believe service intensities will only increase as operators continue to gain efficiencies through multi-well pads and longer laterals, which increases waste volumes and drives demand for the solutions we provide.

“On the business development front, we took a significant step in establishing a national-level sales presence by hiring Steve London as Vice President of Business Development. Steve joined the Nuverra team in March after 34 years in business development and related roles at Halliburton. He is working directly with our basin-level sales force to further support organic growth opportunities throughout the country. Our expanded service offerings, which will include thermal treatment of drilling solids and pipeline transportation networks, combined with stricter environmental regulations, are creating significant opportunities to cross-sell additional solutions to existing customers.

“Our previously disclosed sale of TFI to VeroLube is on track to close on our originally contemplated timeline in late June. The VeroLube and Canaccord teams are currently in the process of funding the transaction, and we are providing them audited financial statements for TFI. We believe our post-close capital structure will enable us to be a more nimble organization as we pursue growth opportunities in our rapidly evolving industry,” concluded Mr. Johnsrud.

First Quarter 2014 Financial Overview

Including TFI, first-quarter revenue was $155.7 million, compared with $159.5 million in the first quarter of fiscal 2013, and $154.5 million in the fourth quarter of 2013.

Adjusted EBITDA for the first quarter including TFI was $22.0 million, compared with $32.1 million for the same prior-year period, and $25.7 million in the fourth quarter of 2013. Adjustments to EBITDA in the period included, among other items, a previously disclosed $3.2 million write-off of deferred financing costs relating to the Company entering into its amended credit facility, and $2.1 million of integration, severance and rebranding expenses, primarily related to the consolidation of the Company’s back-office functions, as well as legal and transaction costs related to the disposition of TFI, which was offset partly by a gain of $1.3 million on the disposal of assets. Excluding TFI, adjusted EBITDA in the first quarter was $18.9 million compared with $27.4 million in the first quarter of 2013.

Jay C. Parkinson, Chief Financial Officer, commented, “Our first quarter results, while consistent with our expectations, reflect severe weather that negatively impacted activity levels in all basins, particularly in the Bakken and Marcellus/Utica Shale regions. Additionally, results in the Northeast were negatively affected by an accident at one of our major customer’s wells, which resulted in significant pullback in their drilling and completion activity during the first quarter as they conducted safety reviews. All current indicators point to a gradual rebound in the second quarter, and increasingly robust activity levels in the back half of the year.”

On March 31, 2014, cash and cash equivalents were approximately $10.2 million and total debt was approximately $567.32 million, including $400.0 million of senior unsecured notes, approximately $148.8 million drawn under the Company’s amended credit facility and approximately $18.5 million in capital leases.

Net cash capital expenditures including TFI in the first quarter totaled $7.2 million, primarily related to the ongoing construction of the thermal desorption center for the treatment of solids in the Bakken.

2 Excludes unamortized discount and premium of $0.7 million, net.

Operational Highlights

Nuverra’s shale segment provides comprehensive environmental solutions, including the delivery, collection, treatment, recycling and disposal of restricted environmental products for unconventional oil and gas development in the Bakken, Utica, Eagle Ford and Mississippian Lime Shale areas, as well as the Permian Basin, which are liquids-rich plays, and the Marcellus and Haynesville Shale areas, which are gas-rich plays.

Severe winter weather negatively impacted activity levels across the board, with the Bakken and Marcellus/Utica Shale regions particularly hard-hit. In the Bakken, February alone saw 18 days with temperatures well below normal, and several days with wind gusts too high for completion work. However, indicators point to operators planning for robust summer programs.

For the first quarter, total revenue from the Company’s Shale Solutions business was $128.0 million, of which approximately $97.1 million was derived from predominantly liquids-rich areas and $30.9 million was derived from predominantly gas-rich areas. Total revenue in the first quarter of 2014 was down 2% from $130.6 million in the first quarter of 2013.

Reviewing operational highlights:

In the Bakken Shale area, revenues were essentially flat from the fourth quarter. Activity increased throughout the quarter as severe winter weather abated and drilling and completion activities resumed.

“Landfill volumes continue to grow, our thermal desorption facility remains on-track to be operational in Q4, and the H2O Forward initiative with Halliburton is moving ahead with the first joint project expected to commence this quarter. The Bakken continues to perform well for us and we are excited about the new initiatives we are introducing in the basin,” commented Mr. Parkinson.

In the Marcellus and Utica Shale areas, revenues decreased sequentially as customer activity slowed due to severe winter conditions that impacted drilling and completion activities, as well as the previously discussed customer accident. However, customer activity began to resume in March, and overall activity is expected to ramp throughout the second and third quarters. The Company remains optimistic about activity levels in the Marcellus and Utica Shale areas throughout the year. Additionally, the Company is in the process of expanding its AWS treatment and recycling facility in the Marcellus, and has placed new treatment assets in the Utica for fluids containing heavy concentrations of solid particulates.

In the Haynesville Shale, revenues increased sequentially, reflecting customers’ heightened drilling and completion activities and the addition of rigs into the basin. “Last quarter, we strengthened our operations team in the Haynesville in response to these increased activity levels. We are very excited about the Haynesville, in part as activity is beginning to be reflective of higher natural gas prices, as well as the fact that our pipeline system gives us a unique competitive advantage. Going forward, we are very well positioned to benefit from potential activity increases in the basin,” said Mr. Parkinson.

During the first quarter and under the guidance of our new operating team, performance in the Eagle Ford stabilized and gradually improved as the first quarter progressed. The Company believes the market dynamic in the basin is improving. Additionally, the basin management team has been very successful with cost reductions. The Company recently made a capital investment in the Eagle Ford, signing a definitive agreement to acquire permitted land for construction of an integrated environmental treatment center that is expected to open by the first quarter of 2015.

Business Outlook

Mr. Johnsrud provided commentary on the Company’s business outlook for 2014:

“Reiterating what we said last quarter, Nuverra’s growth strategy in 2014 is comprised of three key objectives: 1) increasing market share in existing basins by taking business from competitors; 2) growing organically by developing and introducing innovative new solutions to our service line mix; and 3) opportunistically expanding our service offerings by consolidating companies that complement our business. We remain focused on expanding our service offerings in each of our basins to address the full spectrum of environmental management needs of our customers.

“With the weather of the first quarter behind us, our customers are signaling an increase in E&P capital spending, growth in rig counts, and a rebound in permitting activity. These activities point to a significant increase in the volume of fluids and solids that must be managed at the surface. The anticipated increase in E&P spending, combined with an increasingly focused environmental regulatory landscape, give us confidence in our upbeat outlook for the year.

“As we progress through 2014, looking at the second quarter we are eyeing a gradual increase in activity levels, with particularly strong growth in the back half of the year. While this industry is very dynamic, logistical challenges are significant and it takes time to ramp up activity. We expect sequential improvement in the second quarter in terms of both revenues and margins, as well as a gradual resumption of drilling and completion activities that were delayed due to weather. We remain confident in our full-year 2014 plan, and believe the quarterly progression throughout the year will be back-end weighted.”

Conference Call & Webcast

The Company will host a conference call to discuss its first quarter 2014 financial results at 4:30 p.m. ET (1:30 p.m. PT) today. To participate on the conference call, please dial +1-480-629-9665 (US) or +1-877-941-1428 (International) and reference conference ID 4679609. An audio replay of the call will be available approximately one hour following the conclusion of the call through May 22, 2014. The audio replay of the conference call can be accessed by dialing +1-303-590-3030 (US) or +1-800-406-7325 (International) and entering access code 4679609. The call will be webcast live and a replay available by accessing the “Investors” section of the Company’s web site at www.nuverra.com.

About Nuverra

Nuverra Environmental Solutions is among the largest companies in the United States dedicated to providing comprehensive and full-cycle environmental solutions to customers in energy and industrial end-markets. Nuverra focuses on the delivery, collection, treatment, recycling, and disposal of restricted solids, water, wastewater, used motor oil, spent antifreeze, waste fluids and hydrocarbons. The Company continues to expand its suite of environmentally compliant and sustainable solutions to customers who demand stricter environmental compliance and accountability from their service providers. Interested parties can access additional information about Nuverra on the Company's web site at http://www.nuverra.com, and in documents filed with the United States Securities and Exchange Commission, on the SEC's web site at http://www.sec.gov.

About Non-GAAP Financial Measures

This press release contains non-GAAP financial measures as defined by the rules and regulations of the United States Securities and Exchange Commission. A non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statements of operations or balance sheets of the Company; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. Reconciliations of these non-GAAP financial measures to their comparable GAAP financial measures are included in the attached financial tables.

These non-GAAP financial measures are provided because management of the Company uses these financial measures in maintaining and evaluating the Company’s ongoing financial results and trends. Management uses this non-GAAP information as an indicator of business performance, and evaluates overall management with respect to such indicators. Management believes that excluding items such as acquisition expenses, amortization of intangible assets, stock-based compensation, asset impairments, restructuring charges and other non-recurring charges, among other items that are inconsistent in amount and frequency (as with acquisition expenses), or determined pursuant to complex formulas that incorporate factors, such as market volatility, that are beyond our control (as with stock-based compensation), for purposes of calculating these non-GAAP financial measures facilitates a more meaningful evaluation of the Company’s current operating performance and comparisons to the past and future operating performance. The Company believes that providing non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per share, and operating working capital, in addition to related GAAP financial measures, provides investors with greater transparency to the information used by the Company’s management.

Forward-Looking Statements

This press release may contain "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as "expect," "estimate," "project," "budget," "forecast," "anticipate," "intend," "plan," "may," "will," "could," "should," "believes," "predicts," "potential," "continue," and similar expressions are intended to identify such forward-looking statements. Forward-looking statements in the press release include, without limitation, forecasts of growth, revenues, business activity, adjusted EBITDA and pipeline expansion, landfill and treatment facility activities, as well as statements regarding possible divestitures, timing of such divestitures, acquisitions, financings, business growth and expansion opportunities, availability of capital, ability to access capital markets, and other matters that involve known and unknown risks, uncertainties and other factors that may cause results, levels of activity, performance or achievements to differ materially from results expressed or implied by this press release. Such risk factors include, among others: difficulties encountered in acquiring and integrating businesses; uncertainties in evaluating goodwill and long-lived assets for potential impairment; potential impact of litigation; risks of successfully consummating expected transactions within the timeframes or on the terms contemplated, including risks that such transactions may fail to close due to unsatisfied closing conditions; whether certain markets grow as anticipated; pricing pressures; risks associated with our indebtedness; low oil and or natural gas prices; changes in customer drilling and completion activities and capital expenditure plans; shifts in production among shale areas in which we operate and/or into shale areas in which we currently do not have operations; control of costs and expenses; and the competitive and regulatory environment. Additional risks and uncertainties are set forth in the Company's Form 10-Q for the three months ended March 31, 2014, its Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as well as the Company's other reports filed with the United States Securities and Exchange Commission, which are available at http://www.sec.gov and the Company's web site at http://www.nuverra.com. As a result of the foregoing considerations and the other limitations of non-GAAP measures described elsewhere herein, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. All forward-looking statements are qualified in their entirety by this cautionary statement. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

                   

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES

 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (In thousands, except per share amounts)

 
 
 
Three Months Ended
March 31,
2014 2013
Revenue:
Non-rental revenue $     109,844 $     109,324
Rental revenue       18,170         21,323  
Total revenue 128,014 130,647
Costs and expenses:
Direct operating expenses 93,626 92,012
General and administrative expenses 18,548 14,079
Depreciation and amortization       20,911         28,051  
Total operating expenses       133,085         134,142  
Loss from operations (5,071 ) (3,495 )
Interest expense, net (12,050 ) (13,415 )
Other expense, net (420 ) (1,031 )
Loss on extinguishment of debt       (3,177 )       -  
Loss from continuing operations before income taxes (20,718 ) (17,941 )
Income tax benefit       8,804         13,936  
Loss from continuing operations (11,914 ) (4,005 )
Income (loss) from discontinued operations, net of income taxes       459         (8,627 )
Net loss attributable to common stockholders $     (11,455 ) $     (12,632 )
 
Net loss per common share attributable to common stockholders:
 
Basic and diluted loss from continuing operations $ (0.48 ) $ (0.17 )
Basic and diluted income (loss) from discontinued operations       0.02         (0.36 )
Net loss per basic and diluted share $     (0.46 ) $     (0.53 )
 

Weighted average shares outstanding used in computing net loss per basic and

diluted common share

25,020 23,841
 
                     

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 (In thousands)

 
 
 
March 31, December 31,

 

    2014       2013  
Assets (Unaudited) (Note 1)
Cash and cash equivalents $   10,196 $   8,783
Restricted cash 112 110
Accounts receivable, net 101,215 87,086
Inventories 3,475 3,328
Prepaid expenses and other receivables 12,545 10,457
Deferred income taxes 29,759 30,072
Other current assets 115 409
Current assets held for sale     26,990       21,446  
Total current assets     184,407       161,691  
Property, plant and equipment, net 487,480 498,541
Equity investments 4,024 4,032
Intangibles, net 145,061 149,363
Goodwill 408,696 408,696
Other assets 20,842 21,136
Long-term assets held for sale     168,440       167,304  
Total assets $   1,418,950   $   1,410,763  
Liabilities and Equity
Accounts payable $ 27,264 $ 33,229
Accrued liabilities 82,203 63,431
Current portion of contingent consideration 9,611 13,113
Current portion of long-term debt 5,385 5,464
Financing obligation to acquire non-controlling interest 10,104 -
Current liabilities of discontinued operations     10,517       9,301  
Total current liabilities     145,084       124,538  
Deferred income taxes 33,865 42,982
Long-term portion of debt 561,209 549,713
Long-term portion of contingent consideration 2,614 2,344
Financing obligation to acquire non-controlling interest - 10,104
Other long-term liabilities 4,044 4,324
Long-term liabilities of discontinued operations     34,174       32,389  
Total liabilities     780,990       766,394  
Commitments and contingencies
Common stock 28 27
Additional paid-in capital 1,347,019 1,341,209
Treasury stock (19,503 ) (19,503 )
Accumulated deficit     (689,584 )     (677,364 )
Total equity of Nuverra Environmental Solutions, Inc.     637,960       644,369  
Total liabilities and equity $   1,418,950   $   1,410,763  
 

Note 1: The condensed consolidated balance sheet at December 31, 2013 has been derived from the audited consolidated

financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

                       
 

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES

 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (In thousands)

 
 
 
Three Months Ended March 31,
2014 2013
Cash flows from operating activities:
Net loss $   (11,455 ) $   (12,632 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
(Income) loss from discontinued operations, net of income taxes (459 ) 8,627
Depreciation 16,607 22,057
Amortization of intangible assets 4,304 5,994
Amortization of deferred financing costs 523 1,236
Amortization of original issue discounts and premiums, net 36 37
Stock-based compensation 293 790
Gain on disposal of property, plant and equipment (1,255 ) (237 )
Bad debt expense 773 187
Loss on extinguishment of debt 3,177 -
Deferred income taxes (8,804 ) (13,231 )
Other, net 463 675

Changes in operating assets and liabilities, net of business acquisitions and purchase price

adjustments:

Accounts receivable (14,902 ) (3,311 )
Prepaid expenses and other receivables (1,982 ) (49 )
Accounts payable and accrued liabilities 12,523 8,014
Other assets and liabilities, net     (215 )     210  
Net cash (used in) provided by operating activities from continuing operations (373 ) 18,367
Net cash provided by operating activities from discontinued operations     3,409       192  
Net cash provided by operating activities     3,036       18,559  
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired - (38 )
Proceeds from the sale of property, plant and equipment 1,551 79
Purchases of property, plant and equipment     (7,743 )     (13,899 )
Net cash used in investing activities from continuing operations (6,192 ) (13,858 )
Net cash used in investing activities from discontinued operations     (1,050 )     (915 )
Net cash used in investing activities     (7,242 )     (14,773 )
Cash flows from financing activities
Proceeds from revolving credit facility 17,725 4,000
Payments on revolving credit facility (8,000 ) (4,000 )
Payments for deferred financing costs (343 ) (184 )
Payments on notes payable and capital leases (1,429 ) (1,229 )
Payments of contingent consideration and other financing activities     25       (8 )
Net cash provided by (used in) financing activities from continuing operations 7,978 (1,421 )
Net cash used in financing activities from discontinued operations     -       (400 )
Net cash provided by (used in) financing activities     7,978       (1,821 )
Net decrease in cash and cash equivalents 3,772 1,965
Cash and cash equivalents - beginning of period     9,212       16,211  
Cash and cash equivalents - end of period 12,984 18,176
Less: cash and cash equivalents of discontinued operations - end of period     2,788       312  
Cash and cash equivalents of continuing operations - end of period $   10,196   $   17,864  
 
                             
NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
UNAUDITED ADJUSTED EBITDA GAAP RECONCILIATION
(In thousands)
 
Three Months Ended Three Months Ended
March 31, December 31,
2014 2013 2013
Loss from continuing operations $   (11,914 ) $   (4,005 ) $   (10,372 )
Depreciation of property, plant and equipment 16,607 22,057 14,520
Amortization of intangible assets 4,304 5,994 4,895
Interest expense, net 12,050 13,415 13,573
Income tax benefit     (8,804 )     (13,936 )     (7,021 )
EBITDA from continuing operations     12,243       23,525       15,595  
 
Adjustments:
Transaction-related costs, including earnout adjustments, net 513 - (1,995 )
Stock-based compensation 293 790 413
Legal, environmental and insurance, net 1,856 2,397 7,010
Restructuring, exit costs and other - - (554 )
Loss on extinguishment of debt 3,177 - -
Integration, severance and rebranding costs 2,072 678 2,512
(Gain) loss on disposal of assets     (1,255 )     -       326  
Adjusted EBITDA from continuing operations 18,899 27,390 23,307
Adjusted EBITDA from discontinued operations     3,098       4,696       2,420  
Total Adjusted EBITDA $   21,997   $   32,086   $   25,727  
 
 
 
Reconciliation of income (loss) from discontinued operations to EBITDA and Adjusted EBITDA from discontinued operations:
 
Three Months Ended Three Months Ended
March 31, December 31,
2014 2013 2013
Income (loss) from discontinued operations $ 459 $ (8,627 ) $ (2,700 )
Depreciation of property, plant and equipment - 665 469
Amortization of intangible assets - 2,731 1,785
Income tax benefit     1,696       8,271       2,858  
EBITDA from discontinued operations     2,155       3,040       2,412  
Adjustments:
Transaction-related costs, including earnout adjustments, net 1,024 992 -
Legal, environmental and insurance, net - 664 -
(Gain) loss on disposal of assets     (81 )     -       8  
Adjusted EBITDA from discontinued operations $   3,098   $   4,696   $   2,420  
 
             
NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
UNAUDITED CAPITAL EXPENDITURES RECONCILIATION
(In thousands)
 
 

Three Months

Ended March 31,

2014
Net cash capital expenditures from continuing operations $   6,192
Net cash capital expenditures from discontinued operations     1,050
Total net cash capital expenditures $   7,242
 
 
Three Months
Ended March 31,
2014
Cash capital expenditures from continuing operations $ 7,743
Cash capital expenditures from discontinued operations     1,137
Total cash capital expenditures $   8,880
 

Contacts

Nuverra Environmental Solutions, Inc.
Liz Merritt, 602-903-7802
VP-Investor Relations & Communications
ir@nuverra.com
- or -
The Piacente Group, Inc.
Don Markley or Glenn Garmont, 212-481-2050
nuverra@tpg-ir.com

Sharing

Contacts

Nuverra Environmental Solutions, Inc.
Liz Merritt, 602-903-7802
VP-Investor Relations & Communications
ir@nuverra.com
- or -
The Piacente Group, Inc.
Don Markley or Glenn Garmont, 212-481-2050
nuverra@tpg-ir.com