Today, Cypress Environmental Partners, L.P., (NYSE: CELP) (“Cypress”) reported its financial results for the three months ended June 30, 2021.

HIGHLIGHTS

• Consolidated revenue of $31.9 million for second quarter 2021, an increase of 18% compared to first quarter 2021.
• Consolidated gross margin of $4.4 million for second quarter 2021, an increase of 52% compared to first quarter 2021.
• Net loss attributable to common unitholders of $2.9 million for the three months ended June 30, 2021.
• Adjusted EBITDA of $0.5 million for the three months ended June 30, 2021.
• Distributable cash flow (DCF) of ($1.4 million) for the three months ended June 30, 2021.
• Common unit and preferred unit distributions remain suspended as Cypress focuses on reducing debt.

SECOND QUARTER 2021 SUMMARY FINANCIAL RESULTS

CEO'S PERSPECTIVE

“Our Q2 revenue and gross margin results are meaningfully better than Q1, but our EBITDA and DCF results are still weak and disappointing. I continue to be pleased with and proud of our employees who have worked hard in a challenging COVID-19 environment that has made sales and live in-person interaction with customers difficult. We have made solid progress this year on business development courting new customers via video conference and believe the results of those efforts will be seen in future periods. The sales process typically takes many months, given how customers run tenders, select, and onboard new vendors,” said Peter C. Boylan III, Chairman, President, and CEO.

“Our Inspection Services segment has seen slow but steady improvement across all four service lines, and we are awaiting customer feedback on some significant outstanding bids. We remain focused on working capital and margins with customers. Volumes improved in our Environmental Services segment as activity and drilling rigs increased in North Dakota.”

“We remain focused on long-term diversification efforts to offer our inspection services to other industries, including municipal infrastructure, water, sewer, electrical transmission, bridge infrastructure, and renewables (such as wind, solar, and hydroelectric). During the quarter, we submitted several additional bids and are awaiting the outcome. Year to date, approximately 50% of our inspection work is for regulated public utility companies that are not exposed to commodity price risk.”

“Our leverage remains elevated given the decline in our trailing twelve-month EBITDA. Despite reducing our outstanding indebtedness under our credit facility by 11% or $6.7 million from December 31, 2020, we still have too much debt for our current earnings. The lenders under our credit facility have agreed to amend the facility to remove the financial covenant ratios for the remaining term of the facility, which matures in May 2022. We appreciate that the lenders have remained supportive as we navigate the current challenging market conditions.”

SEGMENT UPDATE

Inspection Services

• During the second quarter Cypress had an average headcount of 473 inspectors working throughout the United States. Although several large projects that had been previously awarded were cancelled in 2020 with the economic downturn, Cypress continues to bid and win new work. Headcount in 2021 has remained low, as customers continue to evaluate their spending plans. Cypress has remained focused on its margins with each customer. The monthly average inspector headcount reached a low of approximately 440 in January 2021 and increased to approximately 480 in June 2021.
• A significant majority of the Inspection Services segment’s revenues during 2021 have been generated from maintenance projects and from services to public utility customers, rather than from new construction projects tied to commodity prices.
• Cypress continues to aggressively pursue organic business development (despite the work-from-home environment that has precluded in-person meetings with customers) and has successfully been awarded some new customer contracts and has renewed existing contracts. Some prospective customers are now allowing some limited in-person meetings.
• Legal expenses in the quarter remain elevated and were $0.7 million due primarily to costs associated with Fair Labor Standards Act employment litigation and certain other employment-related lawsuits and claims.

Pipeline & Process Services (“PPS”)

• Activity slowed toward the end of 2020 and was slow at the start of 2021, as many projects that began prior to the pandemic were completed earlier in 2020. The PPS segment implemented substantial salary reductions, furloughs, and reductions-in-force in the first quarter 2021. Q1 Revenues were very weak but increased to $1.4 million in Q2.
• The majority of the PPS segment’s revenues during second quarter 2021 were generated from maintenance projects, rather than new construction projects.

Water & Environmental Services (“Environmental Services”)

• Cypress’s water treatment facilities generally receive more water when its customers’ oil production increases from the completion of new oil wells in North Dakota. Eighteen drilling rigs are currently operating in North Dakota, an increase of approximately 64% compared to only eleven at the end of 2020. This compares to 53 rigs in February 2020, prior to the COVID-19 pandemic. The volume of water processed reached a low of 0.4 million barrels in February 2021 and increased to 0.5 million barrels in June 2021.
• Several North Dakota customers have recently divested their assets to new buyers that may have a stronger interest in expanding their production.

COMMON UNIT & PREFERRED UNIT DISTRIBUTIONS

In July 2020, Cypress announced that it had suspended common unit distributions. Cypress’s credit facility, as amended in 2021, contains significant restrictions on the payment of distributions. As a result, Cypress does not expect to pay significant distributions in the near term; instead, Cypress expects to continue to use available cash to pay down debt and for working capital needs. The preferred units accrue preferred distributions at an annual rate of 9.5%. Any such arrearage must be settled before we can resume distributions on our common units.

SECOND QUARTER 2021 OPERATING RESULTS BY BUSINESS SEGMENT

Inspection Services

The Inspection Services segment’s results for the three months ended June 30, 2021 and 2020 were:

• Revenue - $29.4 million and $43.3 million, respectively, a decrease of 32%.
• Gross Margin - $3.4 million and $4.4 million, respectively, a decrease of 24%.

Pipeline & Process Services (“PPS”)

The PPS segment’s results for the three months ended June 30, 2021 and 2020 were:

• Revenue - $1.4 million and $7.2 million, respectively, a decrease of 81%.
• Gross Margin - $0.3 million and $2.1 million, respectively, a decrease of 85%.

Water & Environmental Services (“Environmental Services”)

The Environmental Services segment’s results for the three months ended June 30, 2021 and 2020 were:

• Revenue - $1.1 million and $1.3 million, respectively, a decrease of 11%.
• Gross Margin - $0.7 million and $0.8 million, respectively, a decrease of 14%.

CAPITALIZATION, LIQUIDITY, AND FINANCING

Cypress had outstanding borrowings of $55.3 million on its credit facility and cash and cash equivalents of $4.6 million at June 30, 2021. The credit facility was amended in August 2021 to remove the financial ratio covenants. As part of that amendment, the total capacity of the facility was reduced from $75 million to $70 million. As part of its efforts to reduce outstanding debt and working capital requirements, Cypress will consider all options, including asset sales and discontinuing unprofitable service lines and/or segments.

CAPITAL EXPENDITURES

During the quarter, Cypress had $0.1 million in capital expenditures, which are reflective of an attractive business model that requires minimal capital expenditures.

QUARTERLY REPORT

Cypress filed its quarterly report on Form 10-Q for the three months ended June 30, 2021 with the Securities and Exchange Commission today. Cypress will also post a copy of the Form 10-Q on its website at www.cypressenvironmental.biz.

NON-GAAP FINANCIAL INFORMATION

This press release and the accompanying financial schedules include the following non-GAAP financial measures: adjusted EBITDA, adjusted EBITDA attributable to limited partners, and distributable cash flow. The accompanying schedules provide reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures. Cypress's non-GAAP financial measures should not be considered in isolation or as an alternative to its financial measures presented in accordance with GAAP, including revenues, net income or loss attributable to limited partners, net cash provided by or used in operating activities, or any other measure of liquidity or financial performance presented in accordance with GAAP as a measure of operating performance, liquidity, or ability to service debt obligations and make cash distributions to unitholders. The non-GAAP financial measures presented by Cypress may not be comparable to similarly-titled measures of other entities because other entities may not calculate their measures in the same manner.

Cypress defines adjusted EBITDA as net income or loss exclusive of (i) interest expense, (ii) depreciation, amortization, and accretion expense, (iii) income tax expense or benefit, (iv) equity-based compensation expense, (v) and certain other unusual or nonrecurring items. Cypress defines adjusted EBITDA attributable to limited partners as adjusted EBITDA exclusive of amounts attributable to the general partner and to noncontrolling interests. Cypress defines distributable cash flow as adjusted EBITDA attributable to limited partners less cash interest paid, cash income taxes paid, maintenance capital expenditures, and cash distributions paid or accrued on preferred equity. Management believes these measures provide investors meaningful insight into results from ongoing operations.

These non-GAAP financial measures are used as supplemental liquidity and performance measures by Cypress's management and by external users of its financial statements, such as investors, banks, and others to assess:

• financial performance of Cypress without regard to financing methods, capital structure or historical cost basis of assets;
• Cypress's operating performance and return on capital as compared to those of other companies, without regard to financing methods or capital structure; and
• the ability of Cypress's businesses to generate sufficient cash to pay interest costs, support its indebtedness, and make cash distributions to its unitholders.

ABOUT CYPRESS ENVIRONMENTAL PARTNERS, L.P.

Cypress Environmental Partners, L.P. is a master limited partnership that provides essential environmental services to the energy and utility industries, including pipeline & infrastructure inspection, nondestructive examination testing, various integrity services, and pipeline & process services throughout the United States. Cypress also provides environmental services to upstream and midstream energy companies and their vendors in North Dakota, including water treatment, hydrocarbon recovery, and disposal into EPA Class II injection wells to protect our groundwater. Cypress works closely with its customers to help them protect people, property, and the environment, and to assist their compliance with increasingly complex and strict rules and regulations. Cypress is headquartered in Tulsa, Oklahoma.

CAUTIONARY STATEMENTS

This press release may contain or incorporate by reference forward-looking statements as defined under the federal securities laws regarding Cypress Environmental Partners, L.P., including projections, estimates, forecasts, plans and objectives. Although management believes that expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to be correct. In addition, these statements are subject to certain risks, uncertainties and other assumptions that are difficult to predict and may be beyond Cypress's control. If any of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, Cypress's actual results may vary materially from what management forecasted, anticipated, estimated, projected or expected.

The key risk factors that may have a direct bearing on Cypress's results of operations and financial condition are described in detail in the "Risk Factors" section of Cypress's most recently filed annual report and subsequently filed quarterly reports with the Securities and Exchange Commission. Investors are encouraged to closely consider the disclosures and risk factors contained in Cypress's annual and quarterly reports filed from time to time with the Securities and Exchange Commission. The forward-looking statements contained herein speak as of the date of this announcement. Cypress undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Information contained in this press release is unaudited and subject to change.

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