Evolution Petroleum (US:EPM)2023-05-09 16:00PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for the period ended March 31, 2023, show increased net income and operating cash flow, with total assets at $137.7 million and liabilities reduced to $42.1 million due to credit facility repayment, boosting stockholders' equity to $95.6 million Condensed Consolidated Balance Sheets As of March 31, 2023, the balance sheet reflects a stronger financial position with cash and cash equivalents more than doubled to $18.4 million and total liabilities significantly reduced to $42.1 million due to the full repayment of the $21.25 million senior secured credit facility, leading to an increase in total stockholders' equity to $95.6 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $18,387 | $8,280 | | Total current assets | $31,005 | $36,368 | | Total assets | $137,673 | $148,047 | | Liabilities & Equity | | | | Total current liabilities | $20,322 | $30,285 | | Senior secured credit facility | $0 | $21,250 | | Total liabilities | $42,050 | $72,533 | | Total stockholders' equity | $95,623 | $75,514 | Condensed Consolidated Statements of Operations For the three and nine months ended March 31, 2023, the company reported significant growth in revenue and net income, with total revenues increasing by 64.9% to $110.3 million for the nine-month period and net income nearly doubling to $35.1 million, driven by higher natural gas revenues Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2023 | Nine Months Ended Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $36,867 | $25,688 | $110,340 | $66,906 | | Income from Operations | $17,647 | $10,352 | $44,854 | $25,759 | | Net Income | $13,957 | $5,705 | $35,051 | $17,756 | | Diluted EPS | $0.41 | $0.17 | $1.04 | $0.52 | Condensed Consolidated Statements of Cash Flows For the nine months ended March 31, 2023, net cash provided by operating activities significantly increased to $51.7 million from $28.7 million in the prior-year period, while financing activities used $37.3 million for debt repayment, dividends, and share repurchases, resulting in a net increase in cash of $10.1 million Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Mar 31, 2023 | Nine Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $51,719 | $28,691 | | Net cash used in investing activities | ($4,265) | ($28,140) | | Net cash (used in) provided by financing activities | ($37,347) | $7,541 | | Net increase in cash and cash equivalents | $10,107 | $8,092 | Notes to Unaudited Condensed Consolidated Financial Statements The notes provide detailed information on the company's accounting policies and financial activities, including operations across various U.S. basins, revenue recognition, recent acquisitions, property and equipment accounting, credit facility terms, derivative activities, and stockholder equity matters - The company's producing properties consist of non-operated interests in the Jonah Field (Wyoming), Williston Basin (North Dakota), Barnett Shale (Texas), Hamilton Dome Field (Wyoming), and Delhi Field (Louisiana)25 - The company uses the full cost method of accounting for its oil and natural gas properties, with capitalized costs below the cost center ceiling as of March 31, 2023, requiring no write-down4849 - On May 5, 2023, the company amended its Senior Secured Credit Facility, extending maturity to April 2026 and replacing LIBOR with SOFR, with $50.0 million of available capacity and no outstanding borrowings as of March 31, 20235254 - A share repurchase program approved in September 2022 authorized up to $25.0 million in repurchases, with 0.6 million shares repurchased for approximately $3.9 million during the three months ended March 31, 20238689 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights strong operational and financial performance, driven by acquisitions and higher natural gas prices, resulting in $36.9 million in revenue and $14.0 million in net income for Q3 FY2023, alongside full credit facility repayment, $18.4 million in cash, continued dividends, and a new share repurchase program Executive Overview The company focuses on maximizing shareholder returns from a diversified portfolio of non-operated, long-life onshore U.S. oil and gas properties, marked by recent credit facility extension, new executive appointments, and a $25.0 million share repurchase program, all funded by operating cash flow - Recent corporate actions include the appointment of Kelly W. Loyd as CEO and J. Mark Bunch as COO126127 - A share repurchase program for up to $25.0 million was approved in September 2022, with 0.6 million shares repurchased for approximately $3.9 million in Q3 FY2023128131 Q3 FY2023 Highlights | Metric | Value | | :--- | :--- | | Revenue | $36.9 million | | Net Income | $14.0 million | | Average Production | 7,089 BOEPD | | Cash & Equivalents (End of Qtr) | $18.4 million | | Outstanding Borrowings (End of Qtr) | $0 | Liquidity and Capital Resources As of March 31, 2023, the company maintained a strong liquidity position with $18.4 million in cash and no outstanding debt after fully repaying its $21.3 million credit facility, with primary liquidity sources from operations funding debt repayment, dividends, share repurchases, and capital expenditures, and no impairment indicated by the full cost pool ceiling test - As of March 31, 2023, the company had $18.4 million in cash and no borrowings outstanding under its $50.0 million Senior Secured Credit Facility141 - The company paid 38 consecutive quarterly dividends, with the latest declared at $0.12 per share, and an active share repurchase program with $3.9 million in shares repurchased in Q3 FY2023151153 - The fiscal year 2023 capital expenditure budget is projected to be between $6.0 million and $7.0 million, funded by cash from operations155 - The capitalized costs of oil and natural gas properties were below the full cost valuation ceiling as of March 31, 2023, requiring no impairment charge159 Results of Operations The company's results of operations showed significant improvement for both the three and nine months ended March 31, 2023, driven by increased production from acquisitions and higher realized natural gas prices, leading to a 43.5% increase in quarterly revenue and a 144.6% increase in quarterly net income to $14.0 million, alongside increased operating costs Three-Month Performance vs. Year-Ago Quarter | Metric | Q3 FY2023 | Q3 FY2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $36.9M | $25.7M | +43.5% | | Net Income | $14.0M | $5.7M | +144.6% | | Avg. Daily Production (BOEPD) | 7,089 | 5,567 | +27.3% | | Avg. Realized Price per BOE | $57.79 | $51.27 | +12.7% | Nine-Month Performance vs. Prior Year | Metric | 9M FY2023 | 9M FY2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $110.3M | $66.9M | +64.9% | | Net Income | $35.1M | $17.8M | +97.4% | | Avg. Daily Production (BOEPD) | 7,314 | 5,456 | +34.1% | | Avg. Realized Price per BOE | $55.06 | $44.75 | +23.0% | - The increase in revenue was primarily driven by a 27.3% increase in average daily production for the quarter and a 130.6% increase in realized natural gas prices, largely due to strong differentials at the Jonah Field166 Item 3. Quantitative and Qualitative Disclosures About Market Risks The company is exposed to market risks primarily from volatile energy commodity prices and interest rate fluctuations, potentially mitigated by derivative financial instruments for hedging, though no contracts were open as of March 31, 2023, and interest rate risk on cash and SOFR-based credit facility borrowings is not currently hedged - The company's primary market risks are energy commodity price volatility and interest rate changes199201 - The company may use derivative instruments to hedge against commodity price declines but does not use them for speculative purposes, with no open derivative contracts as of the report date199176 - Interest rate risk exists for cash balances and potential borrowings under the Senior Secured Credit Facility, which is tied to the SOFR rate201 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective204 - No material changes to the company's internal control over financial reporting occurred during the quarter ended March 31, 2023205 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is subject to various claims and contingencies in the normal course of business, with further details incorporated by reference from Note 10 of the unaudited condensed consolidated financial statements regarding accruals for probable and estimable material losses - Information regarding legal proceedings is incorporated by reference from Note 10, "Commitments and Contingencies" in the financial statements20684 Item 1A. Risk Factors This section refers to the detailed description of risk factors included in the company's Annual Report on Form 10-K for the fiscal year ended June 30, 2022, with no new or updated risk factors presented in this quarterly report - The report directs readers to the risk factors detailed in the Annual Report on Form 10-K for the year ended June 30, 2022208 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended March 31, 2023, the company repurchased a total of 638,386 shares, primarily under the publicly announced share repurchase program authorized in September 2022, with approximately $21.2 million remaining available for future repurchases through December 31, 2024 Issuer Purchases of Equity Securities (Q3 FY2023) | Period | Total Shares Purchased | Avg. Price Paid per Share | Shares Purchased Under Program | Max Value Remaining Under Program (in thousands) | | :--- | :--- | :--- | :--- | :--- | | January 2023 | 80,733 | $6.46 | 80,733 | $24,479 | | February 2023 | 255,981 | $6.32 | 252,125 | $22,885 | | March 2023 | 301,672 | $5.76 | 300,931 | $21,152 | - The Board of Directors approved a share repurchase program on September 8, 2022, authorizing up to $25.0 million of its common stock through December 31, 2024210 Item 6. Exhibits This section lists the documents filed as exhibits with the Form 10-Q, including the Tenth Amendment to the Credit Agreement, an employment offer letter for the COO, and various officer certifications required by the Sarbanes-Oxley Act - Filed exhibits include the Tenth Amendment to the Credit Agreement with MidFirst Bank and certifications from the Principal Executive Officer and Principal Financial Officer216