PR Newswire | Aug 3, 2020 07:03AM EDT

08/03 06:00 CDT

CSI Compressco LP Announces Second Quarter 2020 Results THE WOODLANDS, Texas, Aug. 3, 2020

THE WOODLANDS, Texas, Aug. 3, 2020 /PRNewswire/ -- CSI Compressco LP ("CSI Compressco" or the "Partnership") (NASDAQ: CCLP) today announced second quarter 2020 results.

Net loss for the second quarter ended June 30, 2020 was $24.6 million, inclusive of $15.8 million of non-recurring charges. This compares to a net loss of $13.6 million, in the first quarter of 2020, which included $6.0 million of non-recurring charges. Adjusted EBITDA in the second quarter was $27.0 million compared to $27.8 million in the first quarter of 2020. Revenues for the quarter ended June 30, 2020 were $96 million, an increase of 7% from the first quarter of 2020 driven by $17.8 million of incremental equipment sales.

Brady Murphy, President of CSI Compressco commented, "Our second quarter results reflect the exceptional job by our management team and employees of managing costs, maintaining strong Adjusted EBITDA margins and generating positive cash flow in one of the most challenging quarters our industry has ever experienced due to the COVID-19 pandemic. With steep declines in spending by the oil and gas operators, as evidenced by a 64% decline in the US onshore rig count during the quarter, CSI Compressco was able to maintain Adjusted EBITDA relatively flat at $27 million compared to the first quarter. Working in a very difficult and dynamic environment, our employees and management team continued to safely and efficiently service our customers as we dealt with challenging working conditions while simultaneously taking the required actions to reduce our cost structure in line with the steep decline in activity."

"During the quarter we saw the benefit of our quick and decisive cost reduction initiatives. Compression Services costs were reduced by 20% from the first quarter compared to a 14% sequential decline in Compression Services revenue and a decline in the utilization rate from 86.5% to 82.1%. As a result of difficult but decisive cost actions, Compression Services gross margins increased by 300 basis points to 54.9% - the highest Compression Services gross margins in CSI Compressco's history. Approximately 15% of our total domestic horsepower was on standby during the quarter as customers shut in production given the low commodity prices. As oil prices stabilized and began to improve during the latter part of the quarter, many operators started to bring production back online. A large majority of our remaining units are on standby with our two largest customers - both super majors that have the balance sheet to maintain shut in production in anticipation of higher oil prices. One of them will go operational with most of their standby units starting August 1st."

"Aftermarket Services revenue declined 12% while gross margins improved sequentially from 9.6% in the first quarter to 14.6% in the second quarter. Equipment Sales revenue increased from $6.5 million in the first quarter to $24.3 million in the second quarter on delivery of several large units to Latin America. We previously announced plans to close our fabrication operations given the decline in demand. Our final shipments will occur in the third quarter of 2020. In early July we completed the sale of the Midland, Texas fabrication facility for gross proceeds of $17 million. These funds were received in early July."

"Cash from operations was $4.8 million in the second quarter, compared to $13.4 million in the first quarter. Distributable cash flow in the second quarter of 2020 was $8.4 million, down 4% from the first quarter of 2020, resulting in a distribution coverage ratio of 17.5x."

This press release includes the following financial measures that are not presented in accordance with generally accepted accounting principles in the United States ("GAAP"): Adjusted EBITDA, Adjusted EBITDA Margin, distributable cash flow, distribution coverage ratio, free cash flow, and net leverage ratio. Please see Schedules B-E for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures.

Unaudited results of operations for the quarter ended June 30, 2020 compared to the prior quarter and the corresponding prior year quarter are presented in the table below.

Three Months Ended

Jun 30, Mar 31, Jun 30, Q2-2020 v Q2-2020 v Q2- 2020 2020 2019 Q1-2020 2019

(In Thousands, except percentage changes)

Net loss $ (24,578) $ (13,630) $ (2,947) (80) % (734) %

Adjusted EBITDA $ 27,047 $ 27,762 $ 32,763 (3) % (17) %

Distributable cash flow $ 8,405 $ 8,728 $ 15,727 (4) % (47) %

Net cash provided by operating activities $ 4,823 $ 13,357 $ 8,710 (64) % (45) %

Free cash flow $ 3,698 $ 6,874 $ (7,724) (46) % N/M

As of June 30, 2020, service compressor fleet horsepower was 1,178,721 and fleet horsepower in service was 967,505 (we define the overall service fleet utilization rate as the service compressor fleet horsepower in service divided by the total compressor fleet horsepower). Idle horsepower equipment under repair is not considered utilized, but we do count units on standby as utilized when the client is being billed a standby service rate.

During the quarter we incurred $15.8 million of non-recurring charges. These include non-cash charges of $9.0 million to write-down the value of certain compressors and related inventory. Non-recurring costs in the quarter also included $4.8 million of transaction, accounting and legal fees associated with the recently completed bond exchange. Additionally, $2.1 million of other costs, mainly severance and costs associated with right-sizing the organization were incurred.

Balance Sheet

Cash on hand at the end of the second quarter was $6.8 million. Drawn and outstanding on the Partnership's asset-based loan at the end of the second quarter was $1.5 million.

During the second quarter we successfully completed an exchange of $215 million of the August 2022 unsecured bonds into $50 million first lien secured bonds due in 2025 and into $156 million second lien secured bonds due in 2026. As part of the exchange, total long-term amounts outstanding on the bonds was reduced by $9 million. The coupon on the August 2022 unsecured bonds is 7.25%, the coupon on the 2025 first lien secured bonds is 7.5% and the coupon on the 2026 second lien secured bonds is either 10% cash or 7.25% cash plus 3.50% payment in kind, at CSI Compressco's option.

Our debt maturity schedule now reflects $81 million of unsecured bonds due in August, 2022, $400 million of first lien secured bonds due in 2025 and $156 million of second lien secured bonds due 2026. Our net leverage ratio at the end of the quarter was 5.1X.

CSI Compressco initiated a series of actions to generate incremental liquidity and further strengthen our balance sheet. The Midland, Texas fabrication facility and real estate was sold in early July for $17 million in gross cash proceeds (funds were received in early July). We also completed or expect to complete in two separate transactions the sale of idle compressors for $9 million during the third quarter. We further expect to provide aftermarket services on some of these units that are being sold to an existing customer. The combination of these asset sales would generate approximately $26 million of cash, before transaction expenses, to further strengthen our balance sheet.

Capital Expenditures - 2020 Expectations

We expect capital expenditures for 2020 to be between $28 million and $35 million, unchanged from our prior guidance. The forecast includes between $5 million and $8 million for new fleet additions. Maintenance capital expenditures are expected to be between $20 million and $22 million. Investments in technology and automation are expected to be between $3 million and $5 million.

Second Quarter 2020 Cash Distribution on Common Units

On July 20, 2020, CSI Compressco announced that the board of directors of its general partner declared a cash distribution attributable to the second quarter of 2020 of $0.01 per outstanding common unit, which will be paid on August 14, 2020, to common unitholders of record as of the close of business on August 1, 2020. The distribution coverage ratio for the second quarter of 2020 was 17.5x.

Conference Call

CSI Compressco will host a conference call to discuss second quarter 2020 results today, August 3, 2020, at 9:30 a.m. Eastern Time. The phone number for the call is 1-866-374-8397. The conference call will also be available by live audio webcast and may be accessed through CSI Compressco's website at www.csicompressco.com. An audio replay of the conference call will be available at 1-877-344-7529, conference number 10138621, for one week following the conference call and the archived webcast will be available through CSI Compressco's website for thirty days following the conference call.

CSI Compressco Overview

CSI Compressco is a provider of compression services and equipment for natural gas and oil production, gathering, artificial lift, transmission, processing, and storage. CSI Compressco's compression and related services business includes a fleet of more than 4,900 compressor packages providing approximately 1.18 million in aggregate horsepower, utilizing a full spectrum of low-, medium- and high-horsepower engines. CSI Compressco also provides well monitoring and automated sand separation services in conjunction with compression and related services in certain Latin American markets. CSI Compressco's aftermarket business provides compressor package reconfiguration and maintenance services. CSI Compressco's customers comprise a broad base of natural gas and oil exploration and production, midstream, transmission, and storage companies operating throughout many of the onshore producing regions of the United States, as well as in a number of foreign countries, including Mexico, Canada and Argentina. CSI Compressco is managed by CSI Compressco GP Inc., which is an indirect, wholly owned subsidiary of TETRA Technologies, Inc. (NYSE: TTI).

Forward-Looking Statements

This news release contains "forward-looking statements" and information based on our beliefs and those of our general partner, CSI Compressco GP Inc. Forward-looking statements in this news release are identifiable by the use of the following words and other similar words: "anticipates," "assumes," "believes," "budgets," "could," "estimates," "expectations," "expects," "forecasts," "goal," "intends," "may," "might," "plans," "predicts," "projects," "schedules," "seeks," "should," "targets," "will," and "would." These forward-looking statements include statements, other than statements of historical fact, including anticipated reductions in demand from our customers, future capital expenditures, reductions in SG&A and direct operating costs, the planned sale of idle compressors, resumed production of previously shut-in wells, commodity prices and demand for CSI Compressco's equipment and services and other statements regarding CSI Compressco's beliefs, expectations, plans, prospects and other future events, performance, and other statements that are not purely historical. Such forward-looking statements reflect our current views with respect to future events and financial performance, and are based on assumptions that we believe to be reasonable, but such forward-looking statements are subject to numerous risks and uncertainties, including but not limited to: economic and operating condition that are outside of our control, including the trading price of our common units; the severity and duration of the COVID-19 pandemic and related economic repercussions and the resulting negative impact on the demand for oil and gas , operational challenges relating to the COVID-19 pandemic and efforts to mitigate the spread of the virus, including logistical challenges, remote work arrangements, and supply chain disruptions, other global or national health concerns; the current significant surplus in the supply of oil and the ability of OPEC and other oil producing nations to agree on and comply with supply limitations; the duration and magnitude of the unprecedented disruption in the oil and gas industry; the levels of competition we encounter; our dependence upon a limited number of customers and the activity levels of our customers; our ability to replace our contracts with our customers, which are generally short-term contracts; the availability of adequate sources of capital to us; our existing debt levels and our ability to obtain additional financing; our ability to continue to make cash distributions, or increase cash distributions from current levels, after the establishment of reserves, payment of debt service and other contractual obligations; the restrictions on our business that are imposed under our long-term debt agreements; our operational performance; the credit and risk profile of TETRA Technologies, Inc.; ability of our general partner to retain key personnel; risks related to acquisitions and our growth strategy; the availability of raw materials and labor at reasonable prices; risks related to our foreign operations; the effect and results of litigation, regulatory matters, settlements, audits, assessments, and contingencies; or potential material weaknesses in the future; information technology risks, including the risk of cyberattack; and other risks and uncertainties contained in our Annual Report on Form 10-K and our other filings with the U.S. Securities and Exchange Commission ("SEC"), which are available free of charge on the SEC website at www.sec.gov. The risks and uncertainties referred to above are generally beyond our ability to control and we cannot predict all the risks and uncertainties that could cause our actual results to differ from those indicated by the forward-looking statements. If any of these risks or uncertainties materialize, or if any of the underlying assumptions prove incorrect, actual results may vary from those indicated by the forward-looking statements, and such variances may be material. All subsequent written and verbal forward-looking statements made by or attributable to us or to persons acting on our behalf are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to update or revise any forward-looking statements we may make, except as may be required by law.

Schedule A - Income Statement

Results of Operations (unaudited)

Three Months Ended Six Months Ended

Jun 30, Mar 31, Jun 30, Jun 30, Jun 30, 2020 2020 2019 2020 2019

(In Thousands, Except per Unit Amounts)

Revenues:

Compression and related services $ 56,336 $ 65,765 $ 64,876 $ 122,101 $ 127,578

Aftermarket services 15,737 17,970 18,156 33,707 31,770

Equipment sales 24,340 6,544 52,824 30,884 79,944

Total revenues $ 96,413 $ 90,279 $ 135,856 $ 186,692 $ 239,292

Cost of revenues (excluding depreciation andamortization expense):

Cost of compression and related services $ 25,395 $ 31,608 $ 30,520 $ 57,003 $ 63,141

Cost of aftermarket services 13,433 16,245 15,418 29,678 26,678

Cost of equipment sales 24,415 6,700 47,412 31,115 71,631

Total cost of revenues $ 63,243 $ 54,553 $ 93,350 $ 117,796 $ 161,450

Depreciation and amortization 20,117 19,908 19,054 40,025 37,586

Impairments of long-lived assets 8,977 5,371 2,311 14,348 2,311

Insurance recoveries (517) - (517) -

Selling, general, and administrative expense 10,172 10,256 10,974 20,428 21,639

Interest expense, net 13,580 13,169 13,045 26,749 26,344

Series A Preferred fair value adjustment - - 166 - 1,470

Other expense, net 4,403 440 607 4,843 226

Loss before income tax provision $ (23,562) $ (13,418) $ (3,651) $ (36,980) $ (11,734)

Provision (benefit) for income taxes 1,016 212 (704) 1,228 3,669

Net loss $ (24,578) $ (13,630) $ (2,947) $ (38,208) $ (15,403)

Net loss per diluted common unit $ (0.51) $ (0.28) $ (0.06) $ (0.79) $ (0.32)

Reconciliation of Non-GAAP Financial Measures

The Partnership includes in this release the non-GAAP financial measures Adjusted EBITDA, Adjusted EBITDA margin, distributable cash flow, distribution coverage ratio, free cash flow, and net leverage ratio. Adjusted EBITDA is used as a supplemental financial measure by the Partnership's management to:

* assess the Partnership's ability to generate available cash sufficient to make distributions to the Partnership's unitholders and general partner; * evaluate the financial performance of its assets without regard to financing methods, capital structure or historical cost basis; * measure operating performance and return on capital as compared to those of our competitors; and * determine the Partnership's ability to incur and service debt and fund capital expenditures.

The Partnership defines Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, and before certain charges, including impairments, bad debt expense attributable to bankruptcy of customers, equity compensation, non-cash costs of compressors sold, fair value adjustments of our Preferred Units that were issued in late 2016 and redeemed for cash on August 8, 2019, gain on extinguishment of debt, write-off of unamortized financing costs, and excluding, Preferred Units redemption premium severance and other non-recurring or unusual expenses or charges.

Distributable cash flow is used as a supplemental financial measure by the Partnership's management, as it provides important information relating to the relationship between our financial operating performance and our cash distribution capability. Additionally, the Partnership uses distributable cash flow in setting forward expectations and in communications with the board of directors of our general partner. The Partnership defines distributable cash flow as Adjusted EBITDA less current income tax expense, maintenance capital expenditures, interest expense, and severance expense, plus non-cash interest expense.

The Partnership believes that the distribution coverage ratio provides important information relating to the relationship between the Partnership's financial operating performance and its cash distribution capability. The Partnership defines the distribution coverage ratio as the ratio of distributable cash flow to the total quarterly distribution payable, which includes, as applicable, distributions payable on all outstanding common units, the general partner interest and the general partner's incentive distribution rights.

The Partnership defines free cash flow as net cash provided by operating activities less capital expenditures, net of sales proceeds. Management primarily uses this metric to assess our ability to retire debt, evaluate our capacity to further invest and grow, and measure our performance as compared to our peer group of companies.

The Partnership defines net leverage ratio as net debt (the sum of the carrying value of long-term and short-term debt on its consolidated balance sheet, less cash, excluding restricted cash on the consolidated balance sheet and excluding outstanding letters of credit) divided by Adjusted EBITDA for Net Leverage Calculation (Adjusted EBITDA as reported externally adjusted for certain items to comply with its credit agreement) for the trailing twelve month period. Management primarily uses this metric to assess the Partnership's ability to borrow, reduce debt, add to cash balances, pay distributions, and fund investing and financing activities.

These non-GAAP financial measures should not be considered an alternative to net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP. These non-GAAP financial measures may not be comparable to Adjusted EBITDA, gross margin, distributable cash flow, free cash flow or other similarly titled measures of other entities, as other entities may not calculate these non-GAAP financial measures in the same manner as CSI Compressco. Management compensates for the limitation of these non-GAAP financial measures as an analytical tool by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating this knowledge into management's decision-making process. Furthermore, these non-GAAP measures should not be viewed as indicative of the actual amount of cash that CSI Compressco has available for distributions or that the Partnership plans to distribute for a given period, nor should they be equated to available cash as defined in the Partnership's partnership agreement.

Schedule B - Reconciliation of Net Loss to Adjusted EBITDA, Distributable CashFlow and DistributionCoverage Ratio

The following table reconciles net loss to Adjusted EBITDA, distributable cashflow and distribution coverageratio for the three and six month periods ended June 30, 2020, March 31, 2020and June 30, 2019:

Results of Operations (unaudited)

Three Months Ended Six Months Ended

Jun 30, Mar 31, Jun 30, Jun 30, Jun 30, 2019 2020 2020 2019 2020

(In Thousands, except Ratios)

Net loss $ (24,578) $ (13,630) $ (2,947) $ (38,208) $ (15,403)

Interest expense, net 13,580 13,169 13,045 26,749 26,344

Provision for income taxes 1,016 212 (704) 1,228 3,669

Depreciation and amortization 20,117 19,908 19,054 40,025 37,586

Impairments of fixed assets and inventory 8,977 5,371 2,464 14,348 2,464

Non-cash cost of compressors sold 631 1,809 98 2,440 1,038

Equity compensation 488 324 590 812 955

Series A Preferred redemption premium - - 621 - 1,069

Series A Preferred fair value adjustments - - 166 - 1,470

Bond exchange expenses 4,755 - - 4,755 -

Severance 1,084 272 - 1,356 -

Other 977 327 376 1,304 376

Adjusted EBITDA $ 27,047 $ 27,762 $ 32,763 $ 54,809 $ 59,568

Less:

Current income tax expense 615 204 (184) 819 2,723

Maintenance capital expenditures 3,951 6,490 4,900 10,441 10,629

Interest expense 13,580 13,169 13,045 26,749 26,344

Severance and other 2,061 599 376 2,660 376

Plus:

Non-cash items included in interest expense 1,565 1,428 1,101 2,994 2,529

Distributable cash flow $ 8,405 $ 8,728 $ 15,727 $ 17,134 $ 22,025

Cash distribution attributable to period $ 480 $ 478 $ 477 $ 958 $ 954

Distribution coverage ratio 17.5x 18.3x 33.0x 17.9x 23.1x

Schedule C - Reconciliation of Net Cash Provided by Operating ActivitiesOperations to Free Cash Flow

The following table reconciles net cash provided by operating activities tofree cash flow for the three and sixmonth periods ended June 30, 2020, March 31, 2020 and June 30, 2019:

Results of Operations (unaudited)

Three Months Ended Six Months Ended

Jun 30, Mar 31, Jun 30, Jun 30, Jun 30, 2020 2020 2019 2020 2019

(In Thousands)

Net cash provided by operating activities $ 4,823 $ 13,357 $ 8,710 $ 18,180 $ 40,342

Capital expenditures, net of sales proceeds (1,125) (6,483) (16,434) (7,608) (39,586)

Free cash flow $ 3,698 $ 6,874 $ (7,724) $ 10,572 $ 756

Schedule D - Reconciliation to Adjusted EBITDA Margin (unaudited)

Three Months Ended Six Months Ended

Jun 30, Mar 31, Jun 30, Jun 30, Jun 30, 2020 2020 2019 2020 2019

Consolidated (In Thousands, except Margin %)

Revenue 96,413 90,279 135,856 186,692 239,292

Adjusted EBITDA (Schedule B) 27,047 27,762 32,763 54,809 59,568

Adjusted EBITDA Margin 28.1 % 30.8 % 24.1 % 29.4 % 24.9 %

Schedule E - Reconciliation of Net Loss to Adjusted EBITDA for Net LeverageRatio Calculation (unaudited)

(in thousands, except ratios)

Twelve Months Ended

Jun 30, 2020

Net loss $ (43,778)

Interest expense, net 53,780

Provision for income taxes 912

Depreciation and amortization 79,102

Impairments and other charges 15,197

Bad debt expense attributable to bankruptcy of customer 1,768

Non-cash cost of compressors sold 7,425

Equity Compensation 921

Series A Preferred redemption premium 399

Severance 1,474

Other 1,558

Adjusted EBITDA $ 123,513

EBITDA adjustments to comply with Credit Agreement (404)

Adjusted EBITDA for Net Leverage Calculation $ 123,109

Debt Schedule Jun 30, 2020

7.25% Senior Notes 80,722

7.50% First Lien Notes 400,000

10.00%/10.75% Second Lien Notes 155,529

Asset Based Loan 1,477

Letters of Credit 2,830

Cash on Hand 6,757

Net Debt $ 633,801

Net Leverage Ratio (Net Debt/Adjusted EBITDA for 5.1xNet Leverage Calculation)

Schedule F - Balance Sheet

June 30, December 31,

2020 2019

(in thousands) (Unaudited)

ASSETS

Current assets:

Cash and cash equivalents $ 6,757 $ 2,370

Trade accounts receivable, net of allowances for doubtful accounts of $3,441 as 49,627 64,724of June 30, 2020 and $3,350 as of December 31, 2019

Inventories 40,192 56,037

Prepaid expenses and other current assets 6,336 4,162

Total current assets 102,912 127,293

Property, plant, and equipment:

Land and building 32,058 35,125

Compressors and equipment 992,573 976,469

Vehicles 8,127 9,205

Construction in progress 8,477 26,985

Total property, plant, and equipment 1,041,235 1,047,784

Less accumulated depreciation (434,600) (405,417)

Net property, plant, and equipment 606,635 642,367

Other assets:

Deferred tax asset 24 24

Intangible assets, net of accumulated amortization of $29,231 as of June 30, 26,537 28,0172020 and $27,751 as of December 31, 2019

Operating lease right-of-use assets 29,936 21,006

Other assets 3,694 3,539

Total other assets 60,191 52,586

Total assets $ 769,738 $ 822,246

LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:

Accounts payable $ 25,432 $ 47,837

Unearned income 11,164 9,505

Accrued liabilities and other 37,590 42,581

Amounts payable to affiliates 13,074 7,704

Total current liabilities 87,260 107,627

Other liabilities:

Long-term debt, net 637,579 638,238

Deferred tax liabilities 1,390 1,211

Long-term affiliate payable 12,019 12,324

Operating lease liabilities 21,140 13,822

Other long-term liabilities 20 33

Total other liabilities 672,148 665,628

Commitments and contingencies

Partners' capital:

General partner interest (371) 180

Common units (47,344,351 units issued and outstanding at June 30, 2020 and 25,450 63,38447,078,529 units issued and outstanding at December 31, 2019)

Accumulated other comprehensive income (loss) (14,749) (14,573)

Total partners' capital 10,330 48,991

Total liabilities and partners' capital $ 769,738 $ 822,246

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SOURCE CSI Compressco LP