(CSI, 13.Apr.2020) — CSI Compressco LP announced that, in light of the current, significant macroeconomic uncertainty resulting from the recent decline in oil prices and the ongoing COVID-19 pandemic, it is withdrawing its previously issued financial guidance for full year 2020, which should no longer be relied upon. The Partnership is also providing preliminary first quarter 2020 financial results. Additionally, the Partnership outlines below a series of actions that it has taken to date as well as others it is in the process of implementing to address the ongoing downturn in the industry.
Brady Murphy, President of CSI Compressco stated, “The COVID-19 pandemic and the energy market impact are having a dramatic impact on our industry. The magnitude and timing of significant substantial spending cuts by our customers is changing rapidly and was not contemplated in our previously provided guidance for the full year of 2020. As a result, we are withdrawing our previously issued guidance for full year 2020 and we are not in a position to provide updated full year 2020 guidance. At the end of the first quarter we started to see customer returns of our service equipment that had been deployed for planned oil and gas production increases which are no longer anticipated by those customers. We expect this trend to continue into the second quarter in addition to price negotiations on existing units that are in service. Accordingly, absent a meaningful recovery in natural gas and oil prices and a material improvement in the status of the COVID-19 pandemic, we anticipate our second quarter results are likely to be below those we will report for our first quarter.”
While these estimates are preliminary, CSI Compressco is projecting a first quarter 2020 net loss before income tax provision of between $7.5 million and $8.0 million, compared to a $1.9 million net loss before income tax provisions in the fourth quarter of 2019 and a $8.1 million net loss before income tax provision for the first quarter of 2019. The first quarter 2020 preliminary amounts exclude the impact of unusual non-cash impairment charges or of additional severance expenses that may be required as a result of the actions we are taking to address the ongoing downturn in the industry. Adjusted EBITDA, which excludes the impact of unusual non-cash impairment charges and severance expenses, is projected to be between $27.5 million and $28.5 million. This compares to Adjusted EBITDA of $34.7 million in the fourth quarter of 2019 and $26.8 million for the first quarter of 2019. The Partnership has initiated staff reductions, wage and salary reductions, and other cost saving initiatives in response to these developments. First quarter 2020 revenue is projected to be between $95 million and $97 million, which compares to $124 million for the fourth quarter of 2019 and $103 million for the first quarter of 2019. Overall services fleet equipment utilization at the end of March was 86.5% compared to 90.0% as of December 31, 2019. Please see the Non-GAAP reconciliation of Adjusted EBITDA to net loss before income tax provision below.
In response to both market uncertainty and lower levels of spending by our customers, CSI Compressco announced the following actions:
— Projected total year 2020 capital expenditures are being reduced between 54% and 63% to a range of $28 million to $35 million compared to the $76 million invested in 2019. The 2020 projected expenditures include (a) $5 million to $8 million for growth capital to fulfill certain client obligations, which are expected to be incurred primarily in the first half of 2020; (b) $20 million to $22 million for maintenance capital expenditures; and (c) $3 million to $5 million for technology investment to improve operating efficiencies. We will continue to monitor commodity prices and customer activity levels and may further reduce our capital expenditures as appropriate.
— Given a decline in orders for new equipment to be fabricated and sold to third parties, in addition to the expectation that no incremental equipment will be fabricated for the Partnership’s fleet in the second half of 2020, the Partnership’s fabrication operations in Midland, Texas will be shut down. The Partnership is evaluating the potential sale of its 38-acre facility in Midland, though there is no assurance we will be able to consummate such a sale. The Partnership has retained its equipment design and engineering personnel and going forward will outsource the fabrication for its fleet and New Unit Sales to customers.
— Other cost reductions being implemented include (a) salary reductions of between 5% and 20% for employees and executives, as well as a 20% reduction in the cash retainers for the directors of the Partnership’s general partner, (b) a suspension of the Partnership’s 401(k) matching contribution for employees; and (c) a targeted reduction of 20% in corporate SG&A expenses from the $41 million annualized fourth quarter 2019 run rate to an estimated $33 million annualized third quarter 2020 run rate. Other cost reductions are planned or being implemented to reduce the Partnership’s direct operating costs.
CSI Compressco anticipates providing additional commentary and guidance at the time of its earnings release for the first quarter of 2020, currently targeted for early May.
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