Q4 2019 Earnings Call
Greetings and welcome to U.S., well services fourth quarter earnings Conference call.
This time, all participants are not listen only mode. A brief question and answer session will follow the formal presentation.
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As a reminder, this conference call is being recorded.
It is now my pleasure to introduce your host for today's call Josh apparel.
Thank you you may begin.
Thank you operator, and good morning, everyone. We appreciate you joining us for the U.S., While services conference call a webcast for you for your fourth quarter 2019 results with me today are jokers, our Chief Executive Officer, Cowen Neal Chief Financial Officer, following their prepared remarks called the opening for Q1 day.
Yesterday evening U.S., while services released its full year fourth quarter 2019 or in the earnings release can be found on the company's website at www Dot U.S. wall services Dotcom. The company also intends to file 2019 form 10-K with the FCC. Later. This week. Please note that the information reported on this call speaks only as of today.
March 14, 2012, and therefore time sensitive information they no longer be accurate as at the time any replay listening or transcript reading. In addition, the comments made by management. During this conference call may contain forward looking statements within the meaning of the United States Federal Securities laws. These forward looking statements reflect the current views.
Yes, well services management, however, various risks uncertainties and contingencies could cause our actual results performance or achievements to differ materially from those expressed in the statements made by management. The listener is encouraged to review yesterday's earnings release in the company's filings with the FCC understand those risks uncertainties and can.
Tendencies also during today's call will reference certain non-GAAP financial measures reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in our earnings release and now I'd like to turn the call over the U.S., while services CEO Mr. Jokers art.
Thanks, Josh Good morning, everyone and thank you for joining us in today's call to review U.S. well services.
All in fourth quarter results 2019.
In 2019, I industry experience challenging market conditions that continued to deteriorate through the year.
I am proud of everything that U.S. welfare should accomplish.
Among the difficult backdrop and would like to take a moment to review some of the highlights from the year.
You SWS deployed three new electric Frac fleets in 2019, and also commission a fourth electric fleet that went into work during the first part of 2020.
We have completed over 4000 stages with our electric fleets in 2019 and have completed over 12000 stages since the clean fleet was first introduced in 2014.
Our expertise and operate electric Frac fleets continues to expand and we believe weve positioned you SWS as the market leader and electric fracturing.
U.S. well services fleet. Currently includes five all of that you're not drag hydraulic fracturing fleets as well as our eight conventional diesel fleet.
We averaged 9.9 active frac fleets during 2019 with the utilization rate of approximately 89%, which equates to a fully utilize fleet equivalent of 8.8 fleet for the year.
For the full year 2019, you SWS generated revenue of 514.8 million, which reflects a 21% decrease relative to 2018 revenues.
Adjusted EBITDA was 118 million, which is effectively flat versus 2018 adjusted EBITDA adjusted EBITDA I pray fully utilized fleet was approximately 13.4 million or 11.7 million after deducting maintenance capital expenditures related to fluid ends.
Over the course of the year U.S. well services demonstrated its best in class operational capabilities and ability to leverage emerging technologies to drive greater efficiencies in the field.
We pump.
Or 36600 hours in 2019, which equates to nearly 4200 hours per fully utilize fleet.
I fear to see was enabled by our operations and technology teams ability to leverage data to inform supply chain decisions and equipment design.
An example of this was our early adoption of using all large bore flow aren't.
This decision and others are what allows U.S. dollar yet to consistently prop hi, our days into harsh operating conditions.
Our inner electro property portfolio was expanded considerably in 2019.
We now have 30 patents with additional <unk> and four patents pending we believe our IP combined with our experience operating and maintain electric Frac fleets will continue to be a deferred rent trading asset as electric fleet share of the overall pressure pumping market grows.
Throughout the course of the year market conditions deteriorated.
Culminating in a sharp deceleration activity during the fourth quarter.
U.S. well services was adversely impacted by customer driven decisions to delay jobs at a longer than anticipated holiday shutdowns as a result, U.S. well services active fleets experience a lower utilization.
Then in prior quarters.
During the fourth quarter, you SWS averaged eight point active fleet down from 9.3 fleets in the previous quarter utilization was 84%, resulting in a 6.8 fully utilized fleets now from 8.4 fully utilize feeds into third quarter of 2019.
Revenue for the fourth quarter was 92.7 million, which represents a 29% sequential decline relative to the third quarter 2019.
You SWS generated an adjusted EBITDA of approximately 12.1 million for the fourth quarter <unk> compared to 35.3 million for the third part of 2019.
Well I'm market pricing.
And the oldest oversupply of horsepower remain critical challenges for our industry U.S. well services has been successful and deploy our equipment for high quality customers. We're currently operating 11 active fleet of which four or the new generation electric Frac fleets. The recent outbreak of the Corona Vice.
That's that's created concerns about global economic growth and crude all demand, resulting in a rapid decline in oil prices.
Although the ultimate impact to our business is unclear at this time any recession, our sustained period of slowing economic growth would be detrimental.
We have village visually monitoring the situation and maintaining an active dialogue with our customers. So that you SWS can react rapidly as needed.
I would point out the there over 90% of you SWS fleet is working on either ICANN tracked it our dedicated basis, we believe our limited exposure to the spot market as an asset.
In a volatile markets such as this one.
Over the long term, we believe U.S. well services combination of top tier efficiency and leading edge technology offers customers a new unique value proposition.
Our electric Frac technology provides the optimal combination of fuel cost savings for customers.
Emissions reductions and reduce ownership cost.
And the current market environment demand for these next generation fleets significantly outpacing demand for conventional diesel powered equipment and we believe that there will be an additional.
Opportunities to deploy fleets and generate attractive returns on capital.
Management team is continuously evaluating near term risk, including fluctuations in commodity prices, along with long term opportunities to create value for shareholders.
With that I would turn it over to cow nail our chief financial Officer.
Thanks, Joel and good morning, everyone.
As Joe mentioned revenue for the full year 2018 was approximately $514.8 million, 21% from 2000 eighteens revenue of $648.8 million. This year over year decrease was primarily driven by the continued trend for customers to self source materials, such as seen in chemicals.
And proppant storage and transportation.
It's context 2018, we sold sand to customers know or 50% of our active fleet months as compared to roughly 10% in 2018.
Well this trend is led to a large reduction in revenues, our adjusted EBITDA margins of actually improved as their business mix continues to shift towards higher margin service and equipment revenue.
Year over year service equipment revenue actually increased by 12%.
Our cost of services.
As approximately $384 million in 2019 compared to 533 million in 2018.
Decrease in cost of services was primarily driven by lower costs and materials being seen in chemicals and transportation.
Although you SWS pleaded approximately 24% more stages per active fleet in 2019 versus 2018 or repair and maintenance costs increased by only 1% year over year. This is largely attributable to a higher proportion electric lease in our portfolio in 2019 versus 2018.
We've often stated that the cost of ownership is lower for electric Frac fleet relative to conventional diesel or dual fuel frac equipment. This point is often overlooked is evident in our financial performance leave at lower cost to maintain electric fleets is a critical competitive advantage, particularly in a challenging market. This is the one in which we operate today.
As Jay costs were approximately $31.9 million in 2018 down 8% from 2018 levels of $34.5 million.
Excluding stock based compensation and transaction related costs as gene a increased year over year from 15.9 million in 2018 25.3 million in 2019.
The increase was primarily driven by public company costs, such as reported expenses increased corporate headcount.
We generated approximately $118 million of adjusted EBITDA in 2019 that compares to $117.4 million in 2018 equates to an adjusted EBITDA margin approximately 23%.
It is 18% in 2018.
It was wells generated approximately $13.4 million of adjusted EBITDA per fully utilize fleet.
Turning now to capital expenditures in 2019 whole Capex was approximately $279.6 million on accrual basis.
$196.6 billion.
Those capital expenditures for growth initiatives, all of which was directed towards new electric fleets.
$34.7 million of our Capex was for fleet enhancements such as the purchase of large for act is another supporting equipment.
Hi, the U.S. wells spend approximately $48.3 million on maintenance Capex in 2019 of which 14.8 was for fluid ends. This equates to an annual total maintenance capex per fully utilized fleet of approximately $5.5 million of which 1.7 was for fluids.
As of December 30, Onest 2019, you us wells had approximately $52.4 million a total liquidity comprised of $41.4 million of cash restricted cash on hand at $11 million of availability under our ABL facility.
Let's take a moment.
Review key highlights from the fourth quarter of 2018.
As Joe mentioned, you as well services and entered the fourth quarter prepared to be nearly fully utilized several of our customers elected to push back work from the mid fourth quarter. The late fourth quarter or early first quarter of 2020, leaving leaving us with fully crewed fleets that remain inactive for a large portion of court.
Revenue in the fourth quarter declined 29% sequentially to $92.7 million decrease in revenue was driven by fewer fleets working and lower utilization, resulting from a larger than normal share of stacked frac work.
Our cost of service decreased 16% sequentially to 76.1 million driven largely by the reduction in activity levels or the cost of services declined overall or labor cost per active fleet increased 8% as we carried more personnel they required to support active operations.
Adjusted EBITDA for the fourth quarter was approximately $12.1 million from 35.3 in the third quarter.
Adjusted EBITDA margins were approximately 13% compared to 27% in the third quarter of 19.
The fully utilized basis, you as well services generated $7.2 million adjusted EBITDA per fleet.
Were $6.4 million after deducting fluid and Capex.
SGT was approximately 7.4 million in the fourth quarter of 2019 compared to 8.2 in Q3 of 2019, excluding share based compensation and transaction costs as DNA was 6.1 million in the fourth quarter compared to 6.8 in the third quarter.
At this time I'd like to return the call back over to Joel Broussard for some final remarks.
Thanks, Kyle we believe U.S., well services as well position entering 2020, and we believe operational capabilities cutting edge technology and alignment with that customer goals of reducing completion costs, while improving environmental stewardship, we'll continue to serve as a key differentiator for us going for it.
With the uncertainty that has permeating the market at the moment you SWS management is actively monitoring our operations that ought to be able to react swiftly to any adverse impacts on our business, while remaining keenly focused on creating long term value.
With that I would like to turn the call over to the operator for questions and answers.
Thank you we will now be conducting a question and answer session. If you'd like to ask your question. Please press star one on your telephone keypad and confirmation tomo indicate your line is in the question Q you May press Star too if you like to remove your question from the Q.
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Please ask one question and one follow up question then re queue for additional questions. One moment. Please why we poll for questions.
My first question comes from Stephen Gengaro with Stifel. Please proceed with your question.
Thank you and good morning.
Good morning, I guess, I guess I'll start with two things.
First is you talked about a have an 11 weeks deployed and I think you're talking about 10 under contract or dedicated arrangements.
As we think about one tier one and 2020 what is the embedded profitability look like relative to what we've seen.
In 2000 Nike.
Oh, Steven nuclear we don't give up.
Formal guidance, but I think we were clear in our press release that we're seeing a.
Pricing pressure in Q1.
That being said, we yet we're taking a hard look at every cost in our cost structure tend to look to offset any pricing declines. We have thank you are also.
Anytime that we're deploying crews and we've talked about this past we will staff up you know a month two months ahead of time to ensure adequate training and we're doing the right people onsite supposedly cruise.
That caused us to carry axis head count in 2019, so that's another area that we'll see improvement in 2020.
Okay and so when you when you if you were to think about the.
Our effective utilization of the 11 points dessert, only where you could ballpark Alabama.
We're thinking about fourth quarter.
It's that visit that it's a tough one because of.
Customer frac calendars can move around.
You know you few days of delay or catch up with a rate can ever have an impact on that but I think that will well, we're optimistic that we'll see utilization.
Your next as what we had in Q4.
Okay. Thanks, and then just.
I will follow when you when we look at.
And when you're talking to your customers on the east suite side negotiated conventional side.
It sounds like.
Over the last couple of months, if it's probably been a little stickier and you probably been able to.
Preference from usually it seems to be pretty high I mean are you continuing to see that I mean are you seeing that the profitability gap there whiting versus where it was six months ago is maybe price is holding up better free fleets is that a reasonable way to think about.
Yes, the profitability between decent electric the gap is widening.
Let's say okay.
Yeah, and we're seeing that both through.
Our our pricing and obviously lower cost.
Right.
Operating costs.
Okay. Thank you.
Thank you.
Our next question comes from Dillon, Glosser with Simmons and company. Please proceed with your question.
Hey, good morning, guys.
Hey, good morning early morning.
Just wanted to briefly touch on your electric fleet and do you guys expect to deploy.
The idle electric fleet in either Q1 or Q2, and additionally, it can you talk and your expectations for future electric.
Frac deployment expansion.
Yes, the the idle electric fleet as one of the first ones, we bill what the triplex pumps.
We Oh, we have their interest however, we're going to wait to see if Ah.
We can get a full calendar <unk> before we go through the costs of putting a crew on for three or four months.
Understood and I think you guys mentioned on previous calls you had already invested in some of the assets to build a new electric fleet have you guys invested any further not if so or if not how much is remaining on that if you could you remind you that number.
We have about 30 million left on on one fleet that we decided.
On to build it build it out if we have a long term contract.
Right I agree and.
I guess you'd have lot had active dialogue and and I think we'd want to be ready to strikes. We have like we said in the past we have all the long long lead items would be ready to go.
So you put the final touches on long term acumen.
Okay, Great I guess last thing it ask on that is there a major difference in.
Customer desire for the older Electric fleet did you guys currently have versus maybe finishing out the that new build.
Yeah, everybody wants the Newbuilds fleet for sure.
They want the latest latest version.
Yeah, I mean that that fleet was designed back in 2000 dirt 12 13 went to work in 14, it's it's a tried plex or they're all triplex pumps.
And so it's it's very well suited for larger pads.
We have less moves for for a month or per year, and lower rate lower pressure calibrate more brush.
And we're seeing today.
Thank you for that color and I guess last question for me and <unk> in the release in prior commentary you guys mentioned pricing pressure is that pricing pressure more of it making pricing flat from Q4 to Q1 or as pricing come down from Q4 Q1 in.
Further what is your expectation and where are you seeing out there to Dave from maybe what the trajectory is from Q1 to Q2.
We think pricing is going to be flat through the year well leased hours arc is if you want to go so low.
And the pricing from fourth quarter first Florida, we think it's right in line maybe.
A slight improvement.
For Q1 Q2, guys, though.
Moves in commodity prices recently, I think it's difficult to say right yeah, we're still watching evaluate.
Yes.
Okay Awesome. Thanks, guys for your time and I appreciate it I'll turn it back.
Thank you.
Our next question comes from Daniel Burke with Johnson Rice. Please proceed with your question.
Yeah, Good morning, guys.
Hey, Monday.
Oh, let's see.
Anyway to a of the 10 fleets working contracts are dedicated to be possible to get the split into two buckets. And then also could you could you just remind us how how the fleets that are considered contracted work and how pricing works on those fleets.
Sure I mean, I think we've got.
Three dedicated Restauranteur under what we call contracts the difference between the two is the under a contract there isn't there is a.
Here, there's there's no ability to cancel or there's some type of penalty.
If a customer to cancer convenient.
Or dedications or.
Pricing agreement, where it's for let's say year. However, they could they could canceling it may contain since April.
No.
Languages, we ever.
You have a sleep running we get the work, but there's no financial penalty.
Okay got it thanks for that guys in let's see maybe one more in the financial front.
Any any insights on how to think about assuming.
No further growth capex in or no new fleets added in 2020 on the electric side. How can you help me think about how to think about both capex and maybe working capital since you start from a pretty low revenue base. It you're in a in 2020.
Yeah, I mean, I think that right now we've got you anytime anytime we transition from you.
One set of customers to another side, which we did pick up a couple new customers in Q4 in Q1, it will see working capital kind of stretch out a little bit obviously kind of get into that being the cycle. So I think we'll we'll see we'll release there and should improve.
On the Capex side no new.
Broke out backs and again 2000.
19, our total maintenance Capex was <unk> five and happened late per fleet that I included <unk> million seven fluids.
I think that will be in line, we're working very diligently to bring that number down throughout the year.
And we're seeing some some price reductions and components, but more importantly, we're focused on technology developments.
Things like our Frac, and the which can help us reduce the vibrations honor pumps and that directly translates in to reduce the repair and maintenance and maintenance capex here. So.
I think that same same range for maintenance Capex that we had last your thought 6 million Bucks.
Five and a half is that where we end up for 2019, but we've got a very sharp vida to reduce that number throughout the year.
Okay, Great and then or maybe maybe last one Joel just impressive improvement in inefficiencies a in 2019 in terms of a stages per fleet I'm in the industry made pretty good strides as well as you look at that 2020 I recognize that what you can achieve is partly attributable to.
The opportunity set the customer presents to you, but with a maybe a greater mix of electric fleets. In 2020 do you think you can make further gains in terms of states Bracted fleet in 2020.
[noise] [laughter] the great question. The a there's only so many hours in a day and I think were overhead from 18 to 19, we increased 30% oney efficiencies. So we were bucking up to that 24 hours in a day between a well swaps and.
In wireline.
The slight but not as not as aggressive as it's been from 18 and acting maybe maybe a 5% to 8% increase in its interesting okay.
Okay, and maybe I should have phrase that triplet pump hours per day I. Appreciate appreciate that you guys do give those maybe that's a better metric that stages, but ah okay, yeah extended or okay, alright, guys I'll leave it there. Thank you for the time thanks, Dan.
Our next question is from Stephen Gengaro, but Stifel. Please proceed with your question.
Uh Huh [laughter], usually fall I wanted to just.
Follow up on the on the working capital question any color you mentioned some improvement, but when we look at your full year 20 versus my team.
That was the comment on the whole your or was it more a one could you comment I always like sort of thinking about [noise].
For your working capital needs.
I guess, both I guess, you will see an improvement in.
Starting in Q1.
Okay. Thanks, and then as you.
As you look at the the the overall market right now when you start to think about.
Or some of the things we've seen on the freed attrition side and you just think about it.
Just from an overall pressure pumping supply demand perspective, what's what's your [laughter].
Do you.
What the world looks like over the next three to five quarters.
You know they.
The Ohio was 430 fleets working in it.
Dropped to 350, I think whats consolidation, we're saying.
Well I own MP companies, the the new high it's gonna be and the low 300 and.
The downtime approximately 220 click Oregon.
I thought I'd take.
Okay.
Thank you.
Thank you.
There are no further questions at this time at this point I'd like to turn the floor back over to Mr. Bouchard for closing comments.
Thank you all for joining a appreciate everything.
Ladies and gentlemen, thank you for your participation. This does conclude todays teleconference. You may disconnect your lines and have a wonderful day.