Executives: Jay Pfeiffer - Pfeiffer High Investor Relations Bob Devers - CFO Austin Peitz - Senior VP, Field Operations

Analysts: Brandon Dobell - William Blair Bhakti Pavani - Euro Pacific Capital

Operator: Greetings and welcome to the ENSERVCO Corporation 2016 Fourth Quarter Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Jay Pfeiffer, from Pfeiffer High Investor Relations. Thank you, Pfeiffer. You may begin.

Jay Pfeiffer: Hello and welcome to the ENSERVCO’s 2016 fourth quarter conference call. Presenting on behalf of the Company today are CFO, Bob Devers; and Senior VP Field Operations, Austin Peitz, CEO, Rick Kasch was unable to join us today, because he just had some minor foot surgery performed. He will be back added on Monday. As a reminder, matters discussed during this call may include forward-looking statements that are based on management’s estimates, projections and assumptions as of today’s date and are subject to risks and uncertainties disclosed in the Company’s most recent 10-K as well as other filings with the SEC. The Company’s business is subject to certain risks that could cause actual results to differ materially from those anticipated in its forward-looking statements. ENSERVCO assumes no obligation to update forward-looking statements that become untrue because of subsequent events. I will also point out that management’s ability to respond to questions during this call is limited by SEC Reg FD, which prohibits selective disclosure of material non-public information. A webcast replay of today’s call will be available at ENSERVCO.com after the call. Additionally, a telephone replay will be available beginning approximately two hours after the call. Instructions for accessing the webcast or telephone replay are available in today’s news release. With that, I will turn the call over to Austin Peitz. Austin, pleased go ahead.

Austin Peitz: Thanks Jay and thank you all for joining us. Well, needless to say, we are very happy to have 2016 in our rearview mirror. Before I get into my general remarks, I want to take a moment to thank you for all your continued support and interest in ENSERVCO. We would like to everyone to know that we are working very hard to pursue opportunities to continue to grow our business, improve our margins and restore shareholder value for those of you who have been with us for long-term and those of you who are new investors with ENSERVCO. We have some great opportunities in 2017 and now, it’s just a matter of executing and capitalizing on this. The good news is that the recovery in oil prices over the last few quarters has resulted in an increase [ph] in customer activity. In addition, we are experiencing some encouraging results from growth initiatives we set in motion more than a year ago. Bob is going to recap our 2016 performance in a few minutes. But because most of you are on this call to hear about where we are going as opposed to where we’ve been, I am going to focus my comments on some aspects that had positioned us to return to year-over-year increases in revenue and operating margins beginning in the first quarter of 2017. As you know, we don’t give formal guidance, but that is important to provide some insight on the positive trends we’re experiencing in Q1. First, as I just mentioned, late in the fourth quarter we started seeing an increase in customer activity that has carried over into the first quarter. And increase in completions and maintenance activities in particular has led a higher demand for our well enhancement services on a year-over-year basis. Additionally, despite the warm temperatures of February and March, January’s temperatures were more typical than average winter. As a result, we are expecting higher overall revenue and improved gross profit margins in the first quarter as compared with the first quarter of 2016. Right now, on an unaudited basis, our first quarter revenues through February was up approximately 49% compared to last year and our EBITDA in the same period is up approximately 68%. This is welcoming news for us after two years of reporting year-over-year declines in revenue and operating margin, as had most of our peers. We think it validates the industry outlook that the downturn has bottomed and the most signs are pointing to a slow to steady recovery. ENSERVCO’s well enhancement services that I just referenced which include frac water heating, hot oiling and acidizing comprise about 73% of our overall revenue base. I believe it is noteworthy that despite the challenging environment we faced throughout 2016, this segment of our business was still able to generate a gross profit of $2.2 million for the year. Highlights in the well enhancement services business encompass, both legacy and newer areas of operation. On the legacy side, we had a pretty decent year in North Dakota. Although revenues were down in these markets, we still generated solid gross margins throughout 2016 with hot oiling really picking up toward the end of the year. Another bright spot in the success we’ve had and continue to have in our Eagle Ford expansion initiatives. Looking back, our Eagle Ford revenue doubled in 2016. Looking forward, we think there is more room to grow in the Texas operation as we continue to win new business and as activity in the Eagle Ford basin continues to pick up. I’ll provide you a few more details about that in just a moment. One of our most exciting developments in the recent months is the traction we are achieving with our new water transfer segment. Just to remind you, we acquired water transfer assets at a distress price in the first quarter of 2016. We spent the first couple of quarters organizing and marketing strategy and rolling out the service to our existing customer base as well as few new customer prospects. In the third quarter, we won our first three water transfer jobs and then saw revenue in this segment increase to $150,000 in the fourth quarter when the work was performed. In Q4, we were awarded five additional water transfer opportunities, which will commence in 2017. To-date, we have realized water transfer revenue of approximately $675,000 and have at least one job in process. We had a lot of start-up expenses and carrying costs related to the business line 2016 that contributed fairly significantly to our overall net loss for the year. But as we said in our news release today, we expect solid growth in the water transfer revenue for the remainder of 2017. And looking out over in the long term, we expect this segment to become an increasingly meaningful component of our operation. In terms of scheduling with water transfer, right now, we are very solid with no gaps. We have at least one job going on that all given times and sometimes up to three to four jobs going on simultaneously on the schedule. That’s our status as of today, schedules are always subject to change but right now we feel confident in sharing this. Our initial water transfer jobs in the third and fourth quarters were primarily single service opportunities. But lately, we’ve been bundling water transfer with our heating services and finding this to be a very competitive advantage we envisioned when we launched this service last year. We recently added two new customers through service bundling, anticipate adding another shortly; these are all with major E&Ps. Two final thoughts on water transfer. We are evaluating opportunities for geographic expansion of this service which so far has been limited to Colorado. We’re looking at several basins but because we have limited physical assets in this segment, we are going to follow the best opportunities. Our pipeline is solid enough that we’ve been adding new personnel and training existing personnel to handle the increased workload. Water transfer revenue more than quadrupled in Q1 of 2017 over Q4 of 2016, and we definitely see that this service becoming a very important contributor to the revenue and profitability going forward. Geographically, we’re seeing increased activity in Colorado, North Dakota and Texas are staying busy in our primary basins as winning our share of the work. However, competition for this work remains fierce. While we continue to enjoy strong relationships with many of our customers, pricing, quality, reliability and safety are playing increasing roles in the terms of the new business wins. Those attributes have always been very strong suits for us. And on the subject of pricing, we are starting to see some gradual improvement in that area. As I said, our Eagle Ford expansion was huge for us in 2016 and is likely to continue growing in the current year. Our fleet count there remains the same as in Q3 with 21 trucks and crews and our utilization is steadily growing as we add new customers for both hot oiling and acidizing services. The journey is still out on the HydroFLOW bacteria and scale treatment project. Although our test programs have shown promising results with this product, we have again achieved the level of consistency that’s led to move beyond field trials. In summary, we are beginning to enjoy industry tailwinds for the first time in the long time and we intend to take full advantage of that. With that, I’ll turn it over to Bob Devers. Bob?

Bob Devers: Thank you, Austin, and hello everyone. Before I get into our Q4 results, I want to comment on our new segment presentation on the face for our consolidated statement of operations and our footnotes to our financial statements. Going forward, we’ll be breaking out revenue in the segments and with corresponding direct operating costs underneath, so the readers can get a better feel for how we’re doing in each of the individual revenue segments in terms of revenue growth and segment operating gross profits. In light of our new water transfer segment and in interest of transparency, we felt this format would be more useful to our stockholders. Also, I want to touch on a loan amendment that we signed with PNC yesterday. The amendment was entered into to modify our covenants and keep us in compliance with our covenants through the maturity of that loan. Now, the fourth quarter results. Total revenue in Q4 decreased to $6.7 million from $8.6 million in the same quarter last year due to reduced drilling and completion activity related to lower commodity prices and warm weather in our two largest heating markets. With regard to our operating segments, oil enhancement services started off slow due to warm weather and our two largest heating markets. Traditionally, frac heating in the Marcellus region has been one of the largest contributors to our revenue and margins but contributed virtually nothing in our most recent heating season. Fortunately, normal winter came in mid-December and frac heating activity picked up significantly in Colorado, Wyoming and Oklahoma. We were fortunate to add three new large customers to our frac heating business. Due to late start to the heating season, well enhancement revenues in Q4 declined $2.3 million from the same quarter last year. This included a $648,000 decrease in hot oiling and a $2.1 million decrease in frac water heating and was partially offset by a $413,000 increase in acidizing due in large part to the expansion into Eagle Ford basin. Despite the challenges of the slow start to the heating season and additional labor cost preparing for the season, this segment produced a 166,000 gross profit in Q4. As Austin mentioned, water transfer activity picked up in Q4 with a $153,000 of revenue compared to $31,000 in Q3. Water transfer had a $343,000 gross loss in Q4, primarily due to start-up cost to prepare for the jobs in the fourth quarter and upcoming first quarter. Construction service revenues were $599,000 as the Company finished up this large dirt hauling project in Colorado and completed a couple of smaller projects later in the quarter. Construction services had a $59,000 gross loss, primarily due to higher equipment rental costs on our Colorado project. We continued to deemphasize lower margin water hauling activity in the fourth quarter when revenue was lower by $296,000 as compared to the fourth quarter of 2015. We did achieve a small gross profit of $36,000 for the segment in Q4 2016. Total operating expenses in Q4 were up 7% to $10 million from $9.4 million year-over-year. Additional labor costs incurred while we were waiting for heating season to start, combined with higher equipment repair costs, contributed to a higher operating costs in well enhancement services. Startup and operating costs for our new water transfer and construction services division accounted for $1.2 million increase in the operating cost in Q4. General and administrative expenses decreased 23% to $885,000, and patent litigation and defense costs remained relatively flat in the $43,000 range. Depreciation expense increased $23,000 to $1.9 million due to the additional water transfer assets in Q1. Net loss in Q4 was $2.7 million or $0.07 per diluted share versus a net loss of $890,000 or $0.02 per diluted share a year ago. Adjusted EBITDA was a negative $1.2 million versus a positive $1 million in the same quarter last year. This reflected the decline in higher margin well enhancement service revenue as well as a startup cost related to new business initiatives. Turning to our full year results. Total revenue in 2016 declined 37% to $24.6 million from $38.8 million in the same period last year due to lower drilling and completion activity related to depressed commodity prices, warm weather in both the first and fourth quarter of 2016 and lower water hauling services. In regards to segment activity, well enhancement service revenue was $17.9 million versus $32.8 million last year, frac water heating revenue was lower by $11.7 million, and hot oiling was down $3.1 million, partially offset by a $633,000 increase in acidizing revenue, mostly due to the Eagle Ford expansion. Despite the industry challenges and warm weather impact, the well enhancement segment produced a $2.2 million gross profit for the full year. Water transfer service revenue was $184,000 and construction revenue was $2.7 million for the full year versus no revenue in these categories last year. Water transfer showed $1.4 million gross loss for the full year, but remember, we really didn’t get -- didn’t really start generating meaningful revenue until the fourth quarter and we are incurring startup and carrying costs since the beginning of 2016. Construction services generated a $279,000 gross loss, primarily due to the equipment rental costs overruns on the Colorado project, which was completed in October 2016. Water hauling revenue declined by $2 million year-over-year but managed to show a $40,000 gross profit. Total operating expenses declined by 10% or $3.8 million in 2016; this was due to the combination of lower costs of delivering well enhancement services associated with reduced activity, warm weather and a de-emphasis on water hauling. These cost reductions were partially offset by water transfer startup expenses and carrying costs related to our construction service business and the Colorado project. General and administrative expenses for 2016 were 11% lower at $3.8 million versus $4.3 million last year due to headcount reductions and other cost reduction measures. Patent litigation and defense costs were down 72% to $152,000 from $537,000 year-over-year. Non-cash depreciation and amortization increased 19% to $6.9 million due to the addition of water transfer assets. Net loss for 2016 was $8.6 million or $0.22 per diluted share versus a net loss of $1.3 million, or $0.03 per diluted share in 2015. Adjusted EBITDA through the year was a loss of $3.3 million, compared to a positive $6.3 million in the same period last year. As of December 31st, stockholders’ equity totaled $14.4 million and our total liabilities to stockholder equity came in at 1.9 to 1. At December 31st, we had approximately $4.5 million available under our line of credit and we are in compliance with our debt covenants. As I mentioned earlier, the PNC amendment that we signed yesterday should allow us to be in compliance with our covenants through the maturity of the loan. Our fleet remains unchanged from last quarter. We are not currently contemplating any new CapEx programs and our capital spending through the year will be primarily related to maintenance CapEx. And with that, we’ll turn the call over to moderator for questions. Moderator?

Operator: Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Brandon Dobell with William Blair. Please proceed with your question.

Brandon Dobell: Thanks. Good afternoon, guys. Maybe, Austin, some initial comments on the pricing environment, particularly in acidizing and hot oiling. How has it trended so far this year, and what kind of expectations should we have this year for how prices look versus 2016?

Austin Peitz: You bet, Brandon. So, what we’re seeing right now is we’re seeing an opportunity with the increased activity for some recovery. In fact, we’ve already implemented a few price increases upwards of approximately 8% to 10% in some areas. However, some of those pricing increasing opportunities are kind of limited by basin. So, we’re seeing a few opportunities -- it just kind of depends on the geographic area and the demand. So, we are seeing some, we’ve implemented some right now, and we definitely anticipate some in the very short future, additional ones.

Brandon Dobell: Okay. And then, given the progress so far in the water transfer business, it sounds like you are a little bit equipment constrained. So, how do we think about the water transfer business, if you guys don’t add any new or add a new equipment, or is there a chance that you go out and purchase some more capacity, so you can grow beyond, I guess just grow beyond Colorado where you are right now?

Austin Peitz: So, we are constrained with physical assets. However, at this point in time, we probably haven’t even reached 40% utilization of our assets right now. We anticipate full utilization of our assets in the short-term. And right now, we’re not contemplating any CapEx to purchase additional assets. However, that could change based upon workload. What we’ve done at this time is we have negotiated a very competitive rate to rent assets and keep the margin in the business going forward. And the folks that we have got some agreements in place as far as renewal rates, they operate in many basins. So, we have access to their assets to perform the work.

Brandon Dobell: And maybe Bob, just a quick one, as you think about capital needs in the business. Maintenance capital this year, sounds like it’s going to be the way to think about cash out the door. So, is that going to be a 1 million, 2 million bucks or do you think -- is that the right way to start at this point for maintenance capital?

Bob Devers: Yes, you are correct; it’s going to be solely maintenance capital. It’ll probably be in the $1 million range; it just kind of depends upon equipment and timing. Some of our larger items are if we have a coil repair here or there, and those are hard to predict. But for the most part, it’s mostly CapEx. And I would say in the 1, 1.2 to 1.5 million range is probably where we will be.

Austin Peitz: And to add just a little bit to that Brandon, right now with some geographic expansion of operations anticipated, some of that number will hedge a little bit on some CapEx we may have to do for relocation of assets.

Brandon Dobell: And final one for me. You mentioned some activity up in the Bakken. Given that that’s one of the higher cost in overall basins, how do we think about the prospects there for you guys versus taking some of that equipment and putting it someplace else, like for example Texas, Colorado seems to be in general a breakevens or lower?

Austin Peitz: Yes, for sure. That’s good question. However, there is a -- we’re experiencing a large increase in demand, and part of that’s contributed to -- North Dakota is coming out of a pretty rough winter, which has been great for us up there. And a lot of folks have left that area. So, we are winning some new business with new customers. And the season is longer, so we are definitely taking that into perspective when we are trying to figure out how to allocate assets versus up there, versus Texas. But right now what we are seeing is big ramp up in activity and especially in the maintenance activities where this time of year is where we are trying to focus some efforts for second and third quarter where we are coming out of the frac heating revenue possibilities.

Operator: Your next question comes from the line of Bhakti Pavani from Euro Pacific Capital. Please proceed with your question.

Bhakti Pavani: Just a quick question on the frac water heating business. I know Austin mentioned that the weather has been a little on the warmer side in the month of March. So, how has the utilization changed from compared to the first two months versus March?

Austin Peitz: So, what happened was is -- right now, our primary areas of operation for frac water heating is going to be Oklahoma, Colorado, Wyoming and a little bit North Dakota. It warmed up at the end of February, carried on into the first few weeks of March but we’re fortunate enough that weather has turned back a little bit clearly, which has helped us out tremendously. So, as far as looking at it in perspective, it’s still been very warm out in the Northeast and Pennsylvania and Ohio, West Virginia region. Overall, it’s kind of all over the board as far as utilization, frac water heating but in our more active basins over here and Colorado, and that segment alone we’re probably still 65%, 70% utilized at this current time.

Bhakti Pavani: So, the numbers you quoted, the unaudited numbers in terms of revenue and EBITDA, would it be safe to assume that those are going to be consistent through the first quarter, so we can expect that performance in Q1 versus -- of 2017 versus Q1 of 2016?

Bob Devers: Yes, Bhakti, this is Bob. That’s a tough question because you know the fracing business picks up and drops off; it can pick up a drop off pretty quickly. As Austin mentioned, I think the utilization is kind of hung in there in March. So, I would say that’s probably fair to say.

Bhakti Pavani: Okay, perfect. Certainly very exciting opportunities on the water transfer business side. So, you did mention that there are five new customers that have been added and the revenue has been quadrupled. Could you maybe provide some additional color on how should we think from the margin standpoint, given there is only 40% utilization at this time? And how should it progress throughout the end of this year?

Austin Peitz: So, right now, the opportunities that we have in place, we have the physical assets to complete the tasks, the ones that we have on the schedule that have been confirmed and awarded to us. Right now, the preliminary numbers that we ran with the work we have already performed and we’ve forecasted out, we’re estimating those numbers to average right around 25% gross profit margins. However, with the geographic expansion, and maybe having -- the potential of having to rent some and lease some assets, right now, we are estimating that’s going to impact gross profit margins by around 8% to 9% just depending on the areas of operations. So, there is going to be some cost saving opportunities in other areas versus lease. So, there is still some -- we are pursuing a lot of opportunities outside of those five as well. So, it’s kind of all over the board, depending on the final decision made.

Bob Devers: Yes. Just to add, I think a lot of that depends upon kind of the length of the push on the water transfer job. And so, as we go forward, a lot of the jobs we have lined up, we have an idea on the length of push for those jobs, but yes, they may even vary depending upon the water source. So, it’s going to fluctuate. But, the good news is I think we’ve got a lot of opportunities out there, so we can pick higher margin jobs, so.

Austin Peitz: And longevity in conjunction.

Bob Devers: Yes.

Bhakti Pavani: Perfect. That’s great color, guys. Couple more, with regards to water hauling, I know you guys are deemphasizing that business line. How should we think about for this year? Is it going to be phasing out by the end of this year, or do you think there would be some revenue there in that line of business?

Austin Peitz: For sure. No, I don’t think we will have -- at this time, there is no discussions about phasing it out completely. What we have done when we elaborated on deemphasizing, we have really drilled down and made sure that the work was profitable as we reported for one of the first times in a while. Through the quarter, there was still gross profit left in the business. We have idled assets. So, there is potential for opportunities in the future to maybe put some of the assets back to work and higher margins but right now, we are just leaving the assets idled and continue with fewer [ph] out and taking care of core business where there is margin left in the business.

Bhakti Pavani: With regards to construction services, how should we think about that business line? Is it going to be continuing at the current level because I know you guys had a gross loss, because of the higher rental equipment. So, how should we think about that line?

Austin Peitz: Yes, for sure. So, we’re still doing the smaller jobs where that’s more in our scope of abilities instead of jumping off into the big Colorado project we’ve done. We’ve drilled down and made sure there is profit in the business where we can really manage and do it right. And so, we dropped back our focus to just focus on smaller projects, instead of jumping into the big projects. So, the revenue is going to come way down; there will be hit and miss jobs going forward but profitable business instead of operating as a loss.

Bhakti Pavani: Got it. And just last one of the HydroFLOW, I know you did mention that it’s still at the field of testing level. So, just kind of wondering, do you have any existing tests that are going on currently and would it be safe enough to assume that there would be some kind of revenue from that line in 2017 or that’s too early to say?

Austin Peitz: So, we are in a -- we have some tests, we just finished up in Colorado. We’re compiling the results right now and going to be presenting them to the customer. It was a field trial, so there was no revenue based. We are pursuing some opportunities that we’ve been contacted on in South Texas where that we anticipate there is a lot higher demand for the services. And we are in the middle of some projects that will result in some one-time revenue aspects, outside of the oil and gas industry. It won’t be -- those are not big projects but it will result in revenues. So, it’s still up for jury in a sense, we continue to move forward and have discussions on weekly.

Bhakti Pavani: Okay. That’s it from my side. Thank you very much.

Austin Peitz: Thank you.

Operator: [Operator Instructions] There are no further questions in the queue. I’d like to hand the call back over to management for closing comments.

Austin Peitz: Well, thanks again for joining us on our call today. We want to really extend our appreciation for the support. And we hope to stay in touch and bring further results and shareholder value to you guys, our new team as well as Jay and our team. And we thank you for the opportunity to have time this morning and look forward to talking to you in the near-future. Thank you, guys.

Operator: Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.