UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 8-K

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CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): May 11, 2020

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Cypress Environmental Partners, L.P.

(Exact name of registrant as specified in its charter)

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5727 S. Lewis Avenue, Suite 300

Tulsa, Oklahoma 74105

(Address of principal executive offices and zip code)

(918) 748-3900

(Registrant’s telephone number, including area code)

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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

On May 11, 2020, Cypress Environmental Partners, L.P. (the “Partnership”) issued a press release announcing its financial and operating results for quarter ended March 31, 2020. A copy of the press release is attached hereto as Exhibit 99.1, and the information contained therein is incorporated herein by reference.

The information contained in this Item 2.02, including Exhibit 99.1 attached hereto, is being furnished to the Securities and Exchange Commission and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition, none of such information shall be incorporated by reference in any filing made by the Partnership under the Exchange Act or the Securities Act of 1933, as amended, except to the extent specifically referenced in any such filings.

(d) Exhibits

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized. 

EXHIBIT INDEX 

Cypress Environmental Partners, L.P. 8-K

Exhibit 99.1

Cypress Environmental Partners, L.P. Announces First Quarter 2020 Results 

Tulsa, Oklahoma - (BUSINESS WIRE)—May 11, 2020—Cypress Environmental Partners, L.P. (“CELP”)

(NYSE:CELP) today reported first quarter 2020 results of:

Peter C. Boylan III, CELP’s Chairman and Chief Executive Officer, stated, “Our first quarter is typically a weaker quarter and last year we had an exceptional first quarter as the result of inspection work on a major new pipeline. Our results were also adversely affected by the significant decline in oil prices of over $40 per barrel or 66% during the quarter, which was driven primarily by increased supply from Russia, Saudi Arabia, and other oil-producing nations as a result of a price war and a significant decrease in demand as a result of the COVID-19 pandemic. With the COVID-19 pandemic we implemented our business continuity plan, with most of our corporate employees working from home, and we have continued our field operations without any disruption in our service to our customers. The vast majority of our customers are under significant financial pressures to reduce costs and have been aggressively pursuing pricing concessions. We value our long-term customer relationships and work closely with them to address this reality which in turn requires us to modify what pay we can offer our valued inspectors. The net result of the actions remains to be known at this time, but it will lead to less working capital required to operate the businesses.

“We are taking swift actions to reduce overhead and other costs by over $3.5 million annually through a combination of salary reductions, reduction in force, furloughs, hiring freezes, reductions in hours, and other miscellaneous cost-cutting measures. Our team has made sacrifices and I have taken the largest reduction in salary both in percentage and dollars. We have elected to defer some discretionary capital expenditures and remain focused on opportunities to improve our working capital. We will take further actions as necessary to adjust to evolving market conditions. We believe the actions we take will not only temper the impact of the activity declines, but also enable us to be in a strong position to take advantage of the market’s eventual recovery.

“In our Pipeline Inspection segment, most projects that were already in process have continued, despite the COVID-19 outbreak. However, many customers have announced reductions in their capital expansion budgets and deferrals of planned construction projects, and we expect these changes to reduce our revenue-generating opportunities in the near term. We expect customers to continue to conduct maintenance activities, many of which are government-mandated, and certain customers have announced plans to proceed with certain large construction projects. However, many clients are deferring maintenance work whenever possible if they have the option. We believe our reputation developed over 17 years will give us a competitive advantage during this challenging industry downturn when many of our competitors may not survive. We have several sizeable bids outstanding that could significantly benefit us in 2020 if we are successful in being awarded those inspection opportunities.

“Our Pipeline and Process Services segment enjoyed a solid first quarter and maintains a solid backlog exceeding $4 million of work as of March 31, 2020. Hydrostatic testing is typically one of the last steps to be completed before a pipeline is placed into service. Although the planned reduction in capital expansion projects by many of our customers will reduce our revenue-generating opportunities, we believe we have developed a strong reputation over the last decade that will give us a competitive advantage when bidding on future work. Bid activity remains solid and we believe this downturn may put some competitors out of business.

“Our Water & Environmental Services segment experienced a significant decline in revenue in the first quarter, which is not uncommon with weather in North Dakota and customers ramping up activity. Bakken Clearbrook oil pricing has been under intense pressure, along with West Texas Intermediate (“WTI”). Pipeline capacity and storage constraints have also adversely impacted this market. Several prominent E&P customers have elected to shut in their production instead of selling oil at these prices. Many of our customers have also dropped all or the majority of their rigs associated with their drilling programs. Although market conditions are adverse, we expect to continue to benefit from the fact that 99% of our water in first quarter 2020 was produced water from existing wells (rather than flowback water from new wells) and 55% of our water in first quarter 2020 was from dedicated pipelines. We are also taking steps to reduce our operating costs including the temporary closure of some facilities.”

“In March 2020, in an abundance of caution, we borrowed $32.0 million on our revolving credit facility to provide substantial liquidity to manage our business in light of the COVID-19 outbreak and the significant decline in the price of crude oil. As of March 31, 2020, we had cash and cash equivalents of $42.3 million. We expect our leverage ratio to grow as we face tough comparisons vs. prior year going forward until markets return. Our current interest expense remains less than 4% per year. We maintained our current distribution this quarter, but as announced in late April, we will continue to evaluate our distribution policy going forward and take such actions as are prudent to protect our balance sheet, including the possibility of a temporary reduction or suspension of the distribution if so required.”

“Earlier this year, the U.S. Pipeline and Hazardous Materials Safety Administration ("PHMSA") issued new rules that significantly revises certain aspects of the hazardous liquid pipeline safety regulations codified at Title 49 Code of Federal Regulations Parts 190-199. Effective July 1, 2020, this rule expands requirements to address risks to pipelines outside of environmentally sensitive and populated areas. In addition, the rule makes changes to the integrity management requirements, including emphasizing the use of in-line inspection technology. We remain optimistic about the long-term demand for environmental services such as pipeline inspection, integrity services, and water solutions, due to our nation’s aging pipeline infrastructure, and we believe we continue to be well-positioned to capitalize on these opportunities.

“In 2018, our parent company completed two acquisitions to further broaden our collective suite of environmental services. One acquisition provided entry into the municipal water industry, whereby we can offer our traditional inspection services, including corrosion and nondestructive testing services, as well as in-line inspection (“ILI”). Our parent company’s next generation 5G ultra high-resolution magnetic flux leakage (“MFL”) ILI technology called EcoVision™ UHD, is capable of helping pipeline owners and operators better manage the integrity of their assets in both the municipal water and energy industries. We believe our parent company is the only technology provider today capable of offering this service to the large and diverse municipal water industry that provides drinking water to our communities. Our parent company has been investing in the companies to prepare to offer them for drop down to CELP, once market conditions warrant. It now remains unlikely this will occur in 2020.

Our parent company ownership interests continue to remain fully aligned with our unitholders, as our general partner and insiders collectively own 76% of our total common and preferred units.”

First Quarter financial information includes:

Highlights include:

Looking forward:

CELP filed its quarterly report on Form 10-Q for the three months ended March 31, 2020 with the Securities and Exchange Commission today. CELP will also post a copy of the Form 10-Q on its website at www.cypressenvironmental.biz. Unitholders may request a printed copy of CELP’s complete audited financial statements and annual report for the year ended December 31, 2019 free of charge by contacting CELP at the email address below.

Non-GAAP Measures:

CELP defines Adjusted EBITDA as net (loss) income, plus interest expense, depreciation, amortization and accretion expenses, income tax expense, impairments, non-cash allocated expenses, and equity-based compensation, less certain other unusual or nonrecurring items. CELP defines Adjusted EBITDA attributable to limited partners as net (loss) income attributable to limited partners, plus interest expense attributable to limited partners, depreciation, amortization and accretion attributable to limited partners, impairments attributable to limited partners, income tax expense attributable to limited partners, and equity-based compensation attributable to limited partners, less certain other unusual or nonrecurring items attributable to limited partners. CELP 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 on preferred equity. These are supplemental, non-GAAP financial measures used by management and by external users of our financial statements, such as investors and commercial banks, to assess our operating performance without regard to financing methods, historical cost basis, or capital structure; the ability of our assets to generate sufficient cash flow to make distributions to our unitholders; and our ability to incur and service debt and fund capital expenditures. The GAAP measures most directly comparable to Adjusted EBITDA, Adjusted EBITDA attributable to limited partners, and Distributable Cash Flow are net (loss) income and cash flow from operating activities. These non-GAAP measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures excludes some, but not all, items that affect the most directly comparable GAAP financial measure. Adjusted EBITDA, Adjusted EBITDA attributable to limited partners, and Distributable Cash Flow should not be considered alternatives to net (loss) income, (loss) income before income taxes, net (loss) income attributable to limited partners, cash flows from operating activities, or any other measure of financial performance calculated in accordance with GAAP as those items are used to measure operating performance, liquidity, or the ability to service debt obligations. CELP believes that the presentation of Adjusted EBITDA, Adjusted EBITDA attributable to limited partners, and Distributable Cash Flow provide useful information to investors in assessing our financial condition and results of operations. CELP uses Adjusted EBITDA, Adjusted EBITDA attributable to limited partners, and Distributable Cash Flow as supplemental financial measures to both manage its business and assess the cash flows generated by its assets (prior to the establishment of any retained cash reserves by the general partner) to fund the cash distributions to unitholders. Because Adjusted EBITDA, Adjusted EBITDA attributable to limited partners, and Distributable Cash Flow may be defined differently by other companies, our definitions of Adjusted EBITDA, Adjusted EBITDA attributable to limited partners and Distributable Cash Flow may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. Reconciliations of (i) Net (Loss) Income to Adjusted EBITDA and Distributable Cash Flow, (ii)Net (Loss) Income attributable to limited partners to Adjusted EBITDA attributable to limited partners and Distributable Cash Flow and (iii) Net Cash Flows Provided by Operating Activities to Adjusted EBITDA and Distributable Cash Flow are provided below.

This press release includes “forward-looking statements”:

All statements, other than statements of historical facts included or incorporated herein, may constitute forward-looking statements. Actual results could vary significantly from those expressed or implied in such statements and are subject to a number of risks and uncertainties. While CELP believes its expectations, as reflected in the forward-looking statements, are reasonable, CELP can give no assurance that such expectations will prove to be correct. The forward-looking statements involve risks and uncertainties that affect operations, financial performance, and other factors as discussed in filings with the Securities and Exchange Commission. Other factors that could impact any forward-looking statements are those risks described in CELP’s Annual Report filed on Form 10-K, Quarterly Reports filed on Form 10-Q, and other public filings. You are urged to carefully review and consider the cautionary statements and other disclosures made in those filings, specifically those under the heading “Risk Factors.” CELP undertakes no obligation to publicly update or revise any forward-looking statements except as required by law.

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 municipal water industries, including pipeline & infrastructure inspection, NDE testing, various integrity services, and pipeline & process services throughout the United States. CELP also provides environmental services to upstream 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. CELP works closely with its customers to help them protect people, property, and the environment, and to assist them with compliance of increasingly complex and strict rules and regulations. CELP is headquartered in Tulsa, Oklahoma.

Reconciliation of Net (Loss) Income to Adjusted EBITDA and Distributable Cash Flow