ENSV Posts Y/Y Q3 Earnings & Revenue Growth Despite Looming Challenges

Zacks Equity Research

Mon, Jan 6, 2025, 8:56 AM 4 min read

Key Financial Performance Metrics

Enservco reported a third-quarter 2024 loss per share of 5 cents compared with a loss of 12 cents in the year-ago quarter.

The company recorded total revenues of $3.98 million, marking a 51.7% increase from $2.62 million in the year-ago quarter. This growth was driven by the addition of logistics services revenues — a new segment introduced in 2024.

ENSERVCO Corporation Price, Consensus and EPS Surprise

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Segmental Performance

Production Services: The segment’s revenues fell 11.4% year over year to $2.33 million from $2.62 million, reflecting lower customer demand in certain regions. Operating expenses for this segment declined to $2.43 million in the third quarter of 2024 from $3.15 million a year ago, mitigating some of the revenue shortfalls.

Logistics Services: This newly established segment generated $1.66 million in revenues in the third quarter of 2024. Operating expenses amounted to $0.87 million in the reported quarter as the segment ramped up operations. This marks a significant diversification effort for Enservco, focusing on non-frac water heating services to drive growth.

Key Business Metrics

The gross margin improved to 39% from 33.2% in third-quarter 2023, reflecting higher revenue contributions from the more cost-efficient logistics services segment. This improvement was a bright spot amid broader challenges.

Adjusted EBITDA loss narrowed 31% to $0.96 million in the third quarter of 2024 from $1.39 million in the prior-year period. The operating cash flow was constrained due to rising SG&A expenses and integration costs for the logistics operations.

Expenses

Sales, general and administrative (SG&A) expenses rose 80.2% to $1.76 million from $0.98 million in third-quarter 2023. The increase was primarily attributed to higher stock-based compensation and expanded operational needs tied to the logistics segment.

Depreciation and amortization expenses dropped nearly 48% from $0.85 million in the third quarter of 2023 to $0.44 million in the third quarter of 2024, reflecting the impacts of recent asset divestitures.

Total operating expenses increased to $5.5 million in the third quarter of 2024 from $5 million in the prior-year quarter.

Cash & Debt Position

Enservco’s cash position stood at $0.17 million as of Sept. 30, 2024, a slight decline from $0.2 million at the end of 2023. The company’s current liabilities rose to $13.48 million from $10.03 million at the end of 2023.

Long-term debt, net of current maturities, stood at $3.26 million as of Sept. 30, 2024, down from $4.88 million at the end of 2023, reflecting efforts to deleverage through asset sales and repayment.

Management Commentary & Influencing Factors

Management highlighted that the logistics services segment, primarily supported by the Buckshot Trucking acquisition in late 2023, contributed to the revenue uptick. However, declining revenues from production services reflected subdued market demand in certain regions. Rising SG&A expenses were attributed to increased stock-based compensation and expanded operational needs.

Management expressed concerns about cash flow constraints, emphasizing the necessity of securing additional financing to meet short-term obligations. The company acknowledged challenges in integrating its Buckshot Trucking acquisition, including unforeseen costs and operational inefficiencies.

Other Developments

In the quarter, Enservco sold its frac water heating assets in Colorado to HP Oilfield Services for $1.70 million, including a $0.47-million promissory note with interest accruing at 10% annually. The sale resulted in a $0.70-million gain, which helped improve the bottom line. The transaction is part of the company’s broader strategy to exit the frac water heating business and reallocate resources to higher-growth areas like logistics services.

The company’s stock was delisted from the NYSE American exchange in November 2024 due to non-compliance with listing requirements. Trading of ENSV shares has transitioned to the OTCQB market, effective Nov. 6, 2024.

Conclusion

While Enservco demonstrated robust top-line growth, fueled by its new logistics segment, persistent challenges such as declining production services revenues, elevated SG&A expenses and liquidity issues continue to weigh on its financial performance. The company's strategic shift, including asset divestitures and focus on logistics, underscores its efforts to stabilize operations. However, investors may remain cautious, given the recent delisting and ongoing integration risks.

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