Nuverra Environmental Solutions, Inc. announced certain preliminary financial results for the second quarter ended June 30, 2013.1 Nuverra expects to report revenues for the second quarter of approximately $165.5 million and adjusted EBITDA2 in the range of $32.8 million to $33.6 million. The Company expects cash capital expenditures during the quarter to be approximately $8.2 million. These preliminary results are based on management’s current analysis of operations for the second quarter, are forward-looking statements, and remain subject to final completion. The Company will discuss the final results of the second quarter and provide an update to its annual guidance and capital expenditure plans in its second quarter earnings press release on August 8, 2013.
The second quarter was impacted by the following factors:
Activity levels in the Shale Solutions segment lagged the Company’s internal forecast, as customers increased activity at a slower pace than originally anticipated, pushing revenue into the second half of 2013 and 2014.
Unusually harsh weather conditions in the Bakken Shale area, the Company’s largest region of operations, adversely impacted customer completion activity, as high levels of snow and rain hampered vehicle access to roads.
Operational issues in the Eagle Ford Shale area, a key 2013 growth area for the Company, caused business operations to decline sequentially.
Nuverra has taken measures to remedy the situation by bringing in a new management team with significant industry experience and restructuring operations in the region. Stronger than anticipated customer demand in the Marcellus/Utica Shale area led to an increased utilization of subcontractors, resulting in lower overall margins. To address the increased customer activity, Nuverra has been aggressively hiring drivers in the region to meet demand and reduce the use of subcontractors. The Company also recently completed an acquisition in the Utica Shale area to expand operations and build on its existing presence in a basin that is very strategic to the Company’s growth plans.
In the Industrial Solutions segment, higher collection and rail logistics costs coupled with stagnant demand in asphalt markets compressed margins and resulted in lower than anticipated financial results.
Nuverra anticipates adjustments to second quarter EBITDA of approximately $9.7 to $9.9 million. These adjustments include non-recurring integration and corporate rebranding expenses of approximately $2.3 million, and a one-time charge of approximately $4.8 to $5.0 million related to the restructuring of business operations and cost cutting initiatives in the legacy Heckmann Water Resources business segment. As part of the restructuring and cost-cutting initiative completed in the second quarter, the Company anticipates reduced annual operating expenses of approximately $4 million.
Mark D. Johnsrud, Chief Executive Officer of Nuverra Environmental Solutions, said, “While we grew our revenue and adjusted EBITDA sequentially, our lower than expected second quarter financial results were due in part to unusually harsh weather conditions in the Bakken Shale area. According to the North Dakota Industrial Commission Department of Mineral Resources, in addition to the state experiencing the coldest April on record with heavy snowfall as discussed previously, the state experienced the wettest May on record, all of which delayed well completion activity. Despite these factors, our EBITDA margins in the Bakken improved sequentially in the second quarter.
However, slower completion activity impacted our overall financial results in this region. While some of the Bakken customer activity has been delayed, we believe this revenue will be deferred to later this year and into 2014. The backlog of drilled but unfracked wells in the Bakken increased in the quarter, and we are confident we will realize this revenue as customers complete these wells. We believe a recovery is underway in the Bakken - we have experienced four consecutive months of revenue growth in the area, and several of our customers have targeted expanded capital expenditure budgets for the second half of 2013.
“Additionally, we have taken steps to improve our business operations in the Shale Solutions segment areas outside of the Bakken. During the quarter, we brought on several managers with significant industry experience, took measures to significantly reduce costs, and are transforming our business. Persistent low natural gas prices have limited activity in the Haynesville Shale area, although we are seeing some signs of increased activity. As such, we remain cautiously optimistic on that area. We are also seeing strong customer demand in the Marcellus/Utica area and are actively expanding our operations there.
“Our previously announced landfill operation in the Bakken is progressing ahead of schedule and we now expect it to open during the fourth quarter of 2013. This, combined with our recently announced agreement with Halliburton, advances our strategy of providing end-to-end environmental solutions for our customers.”
Mr. Johnsrud concluded, “The flexibility of our capital expenditure program enables us to react quickly to market conditions, and we have been very proactive managing our capital expenditures to meet our internal free cash flow goals. As such, we believe we will be able to show strong free cash flow generation during 2013 and continue to pay down debt.”
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