Nuverra Announces Fourth-Quarter And Full Year 2016 Results

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

Three Months Ended

Year Ended

December 31,

December 31,

2016

2015

2016

2015

Revenue:

Non-rental revenue

$     32,348

$   64,115

$   139,886

$   327,655

Rental revenue

3,434

4,517

12,290

29,044

Total revenue

35,782

68,632

152,176

356,699

Costs and expenses:

Direct operating expenses

28,602

57,826

129,624

279,881

General and administrative expenses

9,034

8,225

37,013

39,327

Depreciation and amortization

14,693

18,046

60,763

70,511

Impairment of long-lived assets

31,712

-

42,164

-

Impairment of goodwill

-

-

-

104,721

Other, net

-

5,984

-

7,098

Total costs and expenses

84,041

90,081

269,564

501,538

Loss from operations

(48,259)

(21,449)

(117,388)

(144,839)

Interest expense, net

(13,856)

(12,057)

(54,530)

(49,194)

Other income, net

754

151

5,778

894

Loss on extinguishment of debt

-

(1,134)

(674)

(2,145)

Loss from continuing operations before income taxes

(61,361)

(34,489)

(166,814)

(195,284)

Income tax benefit (expense) 

45

77

(807)

117

Loss from continuing operations

(61,316)

(34,412)

(167,621)

(195,167)

Gain (loss) from discontinued operations, net of income taxes

-

531

(1,235)

(287)

Net loss attributable to common shareholders

$    (61,316)

$  (33,881)

$  (168,856)

$  (195,454)

Net loss per common share attributable to common shareholders:

Basic and diluted loss from continuing operations

$        (0.45)

$      (1.24)

$       (1.84)

$       (7.05)

Basic and diluted income (loss) from discontinued operations

-

0.02

(0.01)

(0.01)

Net loss per basic and diluted common share

$        (0.45)

$      (1.22)

$       (1.85)

$       (7.06)

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

137,702

27,821

90,979

27,681

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS

 (In thousands)

December 31,

December 31,

2016

2015

Assets

Cash and cash equivalents

$             994

$         39,309

Restricted cash

1,420

4,250

Accounts receivable, net 

23,795

42,188

Inventories

2,464

2,985

Prepaid expenses and other receivables

3,516

3,377

Other current assets

107

2,372

Assets held for sale

1,182

-

Total current assets

33,478

94,481

Property, plant and equipment, net 

294,179

406,188

Equity investments

73

3,750

Intangibles, net

14,310

16,867

Other assets

564

1,333

Total assets

$       342,604

$       522,619

Liabilities and Shareholders' Deficit

Accounts payable

$           4,047

$           6,907

Accrued liabilities

18,787

29,843

Current contingent consideration

-

8,628

Current portion of long-term debt

465,835

499,709

Derivative warrant liability

4,298

-

Total current liabilities

492,967

545,087

Deferred income taxes

495

270

Long-term debt

5,956

11,758

Long-term contingent consideration

8,500

-

Other long-term liabilities

3,752

3,775

Total liabilities

511,670

560,890

Commitments and contingencies

Shareholders' deficit:

Common stock

152

30

Additional paid-in capital

1,407,867

1,369,921

Treasury stock

(19,807)

(19,800)

Accumulated deficit

(1,557,278)

(1,388,422)

Total shareholders' deficit

(169,066)

(38,271)

Total liabilities and shareholders' deficit

$       342,604

$       522,619

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 (In thousands)

Year Ended

December 31,

2016

2015

Cash flows from operating activities:

Net loss

$        (168,856)

$  (195,454)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Income from discontinued operations, net of income taxes

-

(906)

Loss on the sale of TFI

1,235

1,534

Depreciation and amortization of intangible assets

60,763

70,511

Amortization of debt issuance costs, net

6,165

4,800

Accrued interest added to debt principal

26,684

-

Stock-based compensation

1,125

2,321

Impairment of long-lived assets

42,164

5,921

Impairment of goodwill

-

104,721

Gain on the sale of UGSI

(1,747)

-

Loss (gain) on disposal of property, plant and equipment 

3,512

(321)

Bad debt expense

(283)

(1,110)

Change in fair value of derivative warrant liability

(3,311)

-

Loss on extinguishment of debt

674

2,145

Deferred income taxes

225

(1)

Other, net

560

(456)

Changes in operating assets and liabilities:

Accounts receivable

18,676

67,735

Prepaid expenses and other receivables

(285)

543

Accounts payable and accrued liabilities

(13,507)

(17,059)

Other assets and liabilities, net

(45)

4,903

Net cash (used in) provided by operating activities from continuing operations

(26,251)

49,827

Net cash used in operating activities from discontinued operations

-

(708)

Net cash (used in) provided by operating activities

(26,251)

49,119

Cash flows from investing activities:

Proceeds from the sale of TFI

-

78,897

Proceeds from the sale of property, plant and equipment

10,696

12,732

Purchases of property, plant and equipment

(3,826)

(19,201)

Proceeds from the sale of UGSI

5,032

-

Change in restricted cash

2,830

(4,250)

Net cash provided by investing activities from continuing operations

14,732

68,178

Net cash used in investing activities from discontinued operations

-

(181)

Net cash provided by investing activities

14,732

67,997

Cash flows from financing activities:

Proceeds from revolving credit facility 

154,514

-

Payments on revolving credit facility

(233,667)

(81,647)

Proceeds from term loan

55,000

-

Payments for debt issuance costs

(1,029)

(225)

Issuance of stock

5,000

-

Payments on vehicle financing and other financing activities

(6,614)

(11,246)

Net cash used in financing activities of continuing operations

(26,796)

(93,118)

Net cash used in financing activities of discontinued operations

-

(105)

Net cash used in financing activities

(26,796)

(93,223)

Net (decrease) increase in cash and cash equivalents

(38,315)

23,893

Cash and cash equivalents - beginning of period

39,309

15,416

Cash and cash equivalents - end of period

994

39,309

Less: cash and cash equivalents of discontinued operations - end of period

-

-

Cash and cash equivalents of continuing operations - end of period

$                994

$     39,309

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

NON-GAAP RECONCILIATIONS

 (In thousands)

(Unaudited)

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 evaluating the Company's ongoing financial results and trends. Management uses this non-GAAP information as an indicator of business results, and evaluates overall performance 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, expenses related to litigation and resolution of lawsuits, and other charges, which may or may not be non-recurring, 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), and adjusted net income (loss) per share,  in addition to related GAAP financial measures, provides investors with greater transparency to the information used by the Company's management. These non-GAAP financial measures are not substitutes for measures of performance or liquidity calculated in accordance with GAAP and may not necessarily be indicative of the Company's liquidity or ability to fund cash needs. Not all companies calculate non-GAAP financial measures in the same manner, and our presentation may not be comparable to the presentations of other companies.

Reconciliation of Loss from Continuing Operations to EBITDA, Adjusted EBITDA from Continuing Operations and Total Adjusted EBITDA:

Three Months Ended

Year Ended

December 31,

December 31,

2016

2015

2016

2015

Loss from continuing operations

$           (61,316)

$           (34,412)

$  (167,621)

$  (195,167)

Depreciation and amortization

14,693

18,046

60,763

70,511

Interest expense, net

13,856

12,057

54,530

49,194

Income tax (benefit) expense 

(45)

(77)

807

(117)

EBITDA

(32,812)

(4,386)

(51,521)

(75,579)

Adjustments:

Transaction-related costs, including earnout adjustments, net

-

(143)

(117)

(288)

Stock-based compensation

217

463

1,125

2,321

Change in fair value of derivative warrant liability

(737)

-

(3,311)

-

Capital reorganization costs

4,033

(108)

14,310

201

Legal and environmental costs, net

(99)

389

3,128

1,389

Impairment of long-lived assets

31,712

-

42,164

-

Impairment of goodwill

-

-

-

104,721

Restructuring, exit and other costs

-

9,983

(379)

11,335

Loss on extinguishment of debt

-

1,134

674

2,145

Gain on the sale of UGSI

-

-

(1,747)

-

Loss (gain) on disposal of assets

219

877

3,512

(321)

Adjusted EBITDA from continuing operations

2,533

8,209

7,838

45,924

Adjusted EBITDA from discontinued operations

-

-

-

1,197

Total Adjusted EBITDA

$              2,533

$              8,209

$       7,838

$     47,121

Reconciliation of Loss from Discontinued Operations to EBITDA from Discontinued Operations and Adjusted EBITDA from Discontinued Operations:

Three Months Ended

Year Ended

December 31,

December 31,

2016

2015

2016

2015

Income (loss) from discontinued operations

$                   -

$                 531

$      (1,235)

$        (287)

Income tax benefit

-

(341)

-

(76)

EBITDA from discontinued operations

-

190

(1,235)

(363)

Adjustments:

Transaction-related costs

-

-

-

26

Loss on sale of TFI

-

(190)

1,235

1,534

Adjusted EBITDA from discontinued operations

$                   -

$                   -

$            -

$       1,197

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

NON-GAAP RECONCILIATIONS (continued)

 (In thousands)

(Unaudited)

Reconciliation of QTD Segment Performance to Adjusted EBITDA

Three Months Ended December 31, 2016

Rocky Mountain

Northeast

Southern

Corporate

Total

Revenue

$              19,541

$    8,104

$    8,137

$          -

$   35,782

Direct operating expenses

15,386

7,668

5,548

-

28,602

General and administrative expenses

1,193

757

603

6,481

9,034

Depreciation and amortization

8,073

2,856

3,705

59

14,693

Loss from operations

(36,823)

(3,177)

(1,719)

(6,540)

(48,259)

Operating margin %

(188.4%)

(39.2%)

(21.1%)

NA

(134.9%)

Loss from continuing operations before income taxes

(36,863)

(3,242)

(1,725)

(19,531)

(61,361)

Loss from continuing operations

(36,863)

(3,241)

(1,724)

(19,488)

(61,316)

Depreciation and amortization

8,073

2,856

3,705

59

14,693

Interest expense, net

57

64

7

13,728

13,856

Income tax benefit

-

(1)

(1)

(43)

(45)

EBITDA

$            (28,733)

$      (322)

$    1,987

$    (5,744)

$  (32,812)

Adjustments, net

31,701

97

79

3,468

35,345

Adjusted EBITDA from continuing operations

$                2,968

$      (225)

$    2,066

$    (2,276)

$     2,533

Adjusted EBITDA margin %

15.2%

(2.8%)

25.4%

NA

7.1%

Three Months Ended December 31, 2015

Rocky Mountain

Northeast

Southern

Corporate

Total

Revenue

$              37,685

$   17,586

$  13,361

$          -

$   68,632

Direct operating expenses

31,744

14,458

11,624

-

57,826

General and administrative expenses

1,623

890

891

4,821

8,225

Depreciation and amortization

8,952

4,639

4,360

95

18,046

Loss from operations

(4,634)

(2,400)

(9,499)

(4,916)

(21,449)

Operating margin %

(12.3%)

(13.6%)

(71.1%)

NA

(31.3%)

Loss from continuing operations before income taxes

(4,723)

(2,472)

(9,489)

(17,805)

(34,489)

Loss from continuing operations

(4,723)

(2,472)

(9,489)

(17,728)

(34,412)

Depreciation and amortization

8,952

4,639

4,360

95

18,046

Interest expense, net

99

150

53

11,755

12,057

Income tax benefit

-

-

-

(77)

(77)

EBITDA

$                4,328

$    2,317

$  (5,076)

$    (5,955)

$    (4,386)

Adjustments, net

4,192

167

6,358

1,878

12,595

Adjusted EBITDA from continuing operations

$                8,520

$    2,484

$    1,282

$    (4,077)

$     8,209

Adjusted EBITDA margin %

22.6%

14.1%

9.6%

NA

12.0%

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

NON-GAAP RECONCILIATIONS (continued)

 (In thousands)

(Unaudited)

Reconciliation of YTD Segment Performance to Adjusted EBITDA

Year Ended December 31, 2016

Rocky Mountain

Northeast

Southern

Corporate

Total

Revenue

$              82,564

$   36,446

$  33,166

$          -

$  152,176

Direct operating expenses

65,066

36,673

27,885

-

129,624

General and administrative expenses

5,951

2,632

2,951

25,479

37,013

Depreciation and amortization

31,498

13,446

15,559

260

60,763

Loss from operations

(51,663)

(24,330)

(15,656)

(25,739)

(117,388)

Operating margin %

(62.6%)

(66.8%)

(47.2%)

NA

(77.1%)

Loss from continuing operations before income taxes

(51,951)

(24,226)

(15,741)

(74,896)

(166,814)

Loss from continuing operations

(51,951)

(24,225)

(15,786)

(75,659)

(167,621)

Depreciation and amortization

31,498

13,446

15,559

260

60,763

Interest expense, net

411

432

146

53,541

54,530

Income tax (benefit) expense

-

(1)

45

763

807

EBITDA

$            (20,042)

$  (10,348)

$       (36)

$  (21,095)

$   (51,521)

Adjustments, net

34,209

8,917

4,627

11,606

59,359

Adjusted EBITDA from continuing operations

$              14,167

$    (1,431)

$    4,591

$    (9,489)

$      7,838

Adjusted EBITDA margin %

17.2%

(3.9%)

13.8%

NA

5.2%

Year Ended December 31, 2015

Rocky Mountain

Northeast

Southern

Corporate

Total

Revenue

$            196,021

$   92,135

$  68,543

$          -

$  356,699

Direct operating expenses

147,214

74,364

58,303

-

279,881

General and administrative expenses

6,824

4,606

4,891

23,006

39,327

Depreciation and amortization

35,043

16,667

18,188

613

70,511

Loss from operations

(97,781)

(3,624)

(19,422)

(24,012)

(144,839)

Operating margin %

(49.9%)

(3.9%)

(28.3%)

NA

(40.6%)

Loss from continuing operations before income taxes

(97,632)

(4,228)

(19,526)

(73,898)

(195,284)

Loss from continuing operations

(97,632)

(4,228)

(19,526)

(73,781)

(195,167)

Depreciation and amortization

35,043

16,667

18,188

613

70,511

Interest expense, net

462

796

195

47,741

49,194

Income tax benefit

-

-

-

(117)

(117)

EBITDA

$            (62,127)

$   13,235

$  (1,143)

$  (25,544)

$   (75,579)

Adjustments, net

108,207

301

7,408

5,587

121,503

Adjusted EBITDA from continuing operations

$              46,080

$   13,536

$    6,265

$  (19,957)

$    45,924

Adjusted EBITDA margin %

23.5%

14.7%

9.1%

NA

12.9%

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

 NON-GAAP RECONCILIATIONS (continued)

 (In thousands)

(Unaudited)

Reconciliation of Special Items to Adjusted Loss from Continuing Operations and to EBITDA and Adjusted EBITDA from Continuing Operations

Three Months Ended December 31, 2016

As Reported

Special Items

As Adjusted

Revenue

$       35,782

$        -

$     35,782

Direct operating expenses

28,602

(218)

[A]

28,384

General and administrative expenses

9,034

(4,152)

[B]

4,882

Total costs and expenses

84,041

(36,082)

[C]

47,959

Loss from operations

(48,259)

36,082

[C]

(12,177)

Loss from continuing operations

(61,316)

35,319

[D]

(25,997)

Basic and diluted loss from continuing operations

$         (0.45)

$        (0.19)

Loss from continuing operations

$     (61,316)

$    (25,997)

Depreciation and amortization

14,693

14,693

Interest expense, net

13,856

13,856

Income tax benefit

(45)

(19)

EBITDA and Adjusted EBITDA from continuing operations

$     (32,812)

$       2,533

Description of 2016 Special Items:

 [A] 

Special items primarily includes the loss on sale of underutilized assets.

 [B] 

Primarily attributable to stock-based compensation, non-routine litigation expenses, non-routine professional fees and $4.0 million for capital re-organization costs.

 [C] 

Primarily includes the aforementioned adjustments along with long-lived asset impairment charges of $31.7 million for assets determined to be impaired in the Rocky Mountain division.

 [D] 

Primarily includes the aforementioned adjustments along with a gain of $0.7 million associated with the change in fair value of the derivative warrant liability.  Additionally, our effective tax rate for the three months ended December 31, 2016 was near zero percent and has been applied to the special items accordingly.

Three Months Ended December 31, 2015

As Reported

Special Items

As Adjusted

Revenue

$       68,632

$        -

$     68,632

Direct operating expenses

57,826

(4,876)

 [E] 

52,950

General and administrative expenses

8,225

(744)

 [F] 

7,481

Total costs and expenses

90,081

(11,604)

 [G] 

78,477

Loss from operations

(21,449)

11,604

 [G] 

(9,845)

Loss from continuing operations

(34,412)

12,570

 [H] 

(21,842)

Basic and diluted loss from continuing operations

$         (1.24)

$        (0.79)

Loss from continuing operations

$     (34,412)

$    (21,842)

Depreciation and amortization

18,046

18,046

Interest expense, net

12,057

12,057

Income tax benefit

(77)

(52)

EBITDA and Adjusted EBITDA from continuing operations

$       (4,386)

$       8,209

Description of 2015 Special Items:

 [E] 

Special items include a loss on sale related to the disposal of certain transportation related assets and the write-off of pipeline related assets in connection with a contract termination.

 [F] 

Primarily attributable to stock-based compensation and non-routine litigation expenses.

 [G] 

Primarily includes the aforementioned adjustments, and approximately $5.9 million in long-lived asset impairment charges recorded in the Southern division in association with our restructuring initiative.

 [H] 

Primarily includes the aforementioned adjustments along with a charge of $1.1 million in connection with a write-off of a portion of the unamortized debt issuance costs associated with our ABL Facility.  We also recorded a net reduction related to a prior acquisition earnout reserve of $0.1 million in the three months ended December 31, 2015.  Additionally, our effective tax rate for the three months ended December 31, 2015 was near zero percent and has been applied to the special items accordingly.

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

NON-GAAP RECONCILIATIONS (continued)

 (In thousands)

(Unaudited)

Reconciliation of Special Items to Adjusted Loss from Continuing Operations and to EBITDA and Adjusted EBITDA from Continuing Operations

Year Ended December 31, 2016

As Reported

Special Items

As Adjusted

Revenue

$     152,176

$          -

$    152,176

Direct operating expenses

129,624

(5,850)

 [A] 

123,774

General and administrative expenses

37,013

(15,857)

 [B] 

21,156

Total costs and expenses

269,564

(63,871)

 [C] 

205,693

Loss from operations

(117,388)

63,871

 [C] 

(53,517)

Loss from continuing operations

(167,621)

59,646

 [D] 

(107,975)

Basic and diluted loss from continuing operations

$         (1.84)

$        (1.19)

Loss from continuing operations

$   (167,621)

$  (107,975)

Depreciation and amortization

60,763

60,763

Interest expense, net

54,530

54,530

Income tax expense

807

520

EBITDA and Adjusted EBITDA from continuing operations

$     (51,521)

$       7,838

Description of 2016 Special Items:

 [A] 

Special items primarily includes the loss on sale of underutilized assets and environmental clean-up charges.

 [B] 

Primarily attributable to stock-based compensation, non-routine litigation expenses, non-routine professional fees and capital re-organization costs of $14.3 million.

 [C] 

Primarily includes the aforementioned adjustments along with long-lived asset impairment charges for assets classified as assets-held-for-sale in the Northeast division of $2.4 million and the Southern division of $2.4 million, as well as long-lived asset impairment charges of $31.7 million for the Rocky Mountain division and $5.7 million for the Northeast division.

 [D] 

Primarily includes the aforementioned adjustments along with a charge of $0.7 million in connection with the write-off of a portion of the unamortized debt issuance costs as a result of amendments to the ABL Facility, a gain of $3.3 million associated with the change in fair value of the derivative warrant liability, and a gain on the sale of Underground Solutions, Inc. of $1.7 million. Additionally, our effective tax rate for the twelve months ended December 31, 2016 was 0.5% and has been applied to the special items accordingly.

Year Ended December 31, 2015

As Reported

Special Items

As Adjusted

Revenue

$     356,699

$          -

$    356,699

Direct operating expenses

279,881

(3,678)

 [E] 

276,203

General and administrative expenses

39,327

(4,149)

 [F] 

35,178

Total costs and expenses

501,538

(119,646)

 [G] 

381,892

Loss from operations

(144,839)

119,646

 [G] 

(25,193)

Loss from continuing operations

(195,167)

121,381

 [H] 

(73,786)

Basic and diluted loss from continuing operations

$         (7.05)

$        (2.67)

Loss from continuing operations

$   (195,167)

$    (73,786)

Depreciation and amortization

70,511

70,511

Interest expense, net

49,194

49,194

Income tax (benefit) expense

(117)

5

EBITDA and Adjusted EBITDA from continuing operations

$     (75,579)

$     45,924

Description of 2015 Special Items:

 [E] 

Special items include a gain on sale related to the disposal of certain transportation related assets and the write-off of pipeline related assets in connection with a contract termination.

 [F] 

Primarily attributable to stock-based compensation, non-routine litigation expenses and a gain related to the sale of assets.

 [G] 

Primarily includes the aforementioned adjustments, as well as a charge of approximately $7.1 million associated with our restructuring initiative and other exit related costs from certain shale basins, and approximately $104.7 million associated with a goodwill impairment charge recorded for the Rocky Mountain division.

 [H] 

Primarily includes the aforementioned adjustments, along with a charge of $2.1 million in connection with a write-off of a portion of the unamortized debt issuance costs associated with our ABL Facility and a net reduction related to a prior acquisition earnout reserve of $0.3 million.  Additionally, our effective tax rate for the year ended December 31, 2015 was zero percent and has been applied to the special items accordingly.

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES 

 NON-GAAP RECONCILIATIONS (continued)

 (In thousands)

(Unaudited)

Reconciliation of Free Cash Flow from Continuing Operations

Year Ended

December 31,

2016

2015

Net cash (used in) provided by operating activities from continuing operations

$  (26,251)

$  49,827

Less: net cash capital expenditures [1]

6,870

(6,469)

Free Cash Flow

$  (19,381)

$  43,358

Purchases of property, plant and equipment, net of proceeds received from sales of property, plant and equipment