Yesterday, Nuverra Environmental Solutions (NESC) delivered its fourth-quarter and full-year results for 2013. While it wasn't a fantastic report, it also wasn't as lousy as the majority of its quarterly earnings reports from last year. That alone is a step in the right direction.

Leaving behind the legacy
In addition to reporting fourth-quarter financial numbers, Nuverra Environmental Solutions also reported three very significant news items. The company announced it sold its Industrial Solutions segment Thermo Fluids for $175 million. It also announced that board members Richard Heckmann and Lou Holtz were retiring, and it announced a settlement in the class action litigation regarding its former subsidiary China Water and Drinks.

The $175 million sale price for Thermo Fluids is a very positive development for the company despite the fact that this business was just acquired in 2012 for $245 million. That acquisition never lived up to its promise as the business never provided the predictable revenue and earnings stream that was promised, nor was it the strategic fit for an oil-field service company. Freeing the company from that legacy mistake now provides Nuverra with a healthy dose of cash that can be used to bolster its balance sheet.

Source: Nuverra website  

The other legacy mistake that the company put to rest in the quarter was the settlement of the class action lawsuit regarding China Water and Drinks. The company will pay $13.5 million in cash as well as 847,990 in shares of Nuverra common stock to settle the suit. While the company believes this case was without merit, it decided that it was in its best interest to settle the matter in an effort to put all of its legacy issues behind it.

The final legacy matter that saw resolution on the quarter was the announcement that both Richard Heckmann and Lou Holtz (yes, that Lou Holtz) would be retiring from the board of directors. Heckmann was the founder of the legacy business that became the foundation of Nuverra, but he was also the one behind the failed acquisitions of Thermo Fluids and China Water and Drinks. While he had success in the past building water-related businesses, his attempts to repeat that success didn't always work out at Nuverra. The retirement of Heckmann and the former star football coach from the board, in addition to the two other legacy issues addressed this quarter, basically removes all traces of the Heckmann legacy from Nuverra.

What's next for Nuverra?
With its past now in the past, the company can focus on the future. That future has it focusing on being a pure-play environmental solutions provider for the oil and gas industry. The company has two important paths that will drive its success, which are shown on the following slide.

Source: Nuverra Environmental Solutions investor presentation (link opens a PDF) 

First, the company's joint venture with Halliburton (HAL 3.08%) is about to launch. The H2O Forward water recycling system now has all the necessary assets and permits to treat water at Nuverra's facility. But the start of the Halliburton led project was delayed by severe winter weather in the Bakken region. Because of that, Halliburton and Nuverra expect to begin in the second quarter of this year. That venture really is critical to the future growth at Nuverra.

The other important segment going forward is the company's new focus on handling drilling solids. Nuverra recently completed its landfill facility in the Bakken Shale region. The next phase of that project is a thermal desorption facility, which is a treatment and recycling center for oilfield solids that's located at the company's Bakken landfill site. This facility is expected to be operational in the fourth quarter of this year and represents a unique expansion to the company's environmental solutions.

This facility, when combined with the Halliburton water recycling initiative, really sets Nuverra apart in the region as a full-cycle provider of environmental solutions. In order for Nuverra to find success in the future these two offerings need to deliver as promised. Further, the company will then need to replicate these unique assets across additional shale basins in order to for investors to forget its poor performance over the past few years. 

Investor takeaway
With its legacy issues now in the rear-view mirror, Nuverra can finally focus all of its effort on providing environmental solutions to energy companies. That business isn't yet firing on all cylinders as it continues to battle the weather and competitive pressures. But taking off the internal pressure from legacy issues will at least give the company a fighting chance to battle its external foes.

That doesn't make Nuverra the top stock to buy this year