Q1 2020 Earnings Call
[music].
Greetings and welcome to the U.S. well services first quarter earnings Conference call.
This time, all participants are to listen only mode.
A question answer session will follow the formal presentation.
If anyone should require operator assistant started a conference. Please press star zero on your telephone keypad.
As a reminder of this conference is being recorded.
It is now my pleasure to introduce your host Josh Shapiro, Vice President Finance and Investor Relations. Thank.
Thank you Mr. Shapiro you may begin.
Thank you operator, and good afternoon, everyone. We appreciate you joining us for the U.S., While services conference call and webcast review first quarter 2020 results.
Joining us on the call this afternoon, or <unk>, Chief Executive Officer, and colonial Chief Financial Officer.
Following their prepared remarks, the called the open for Q1 day.
People are best practices for social dispensing. The team is joining this call from different locations. So please forgive any issues coordinating responses to your questions.
This morning U.S., while service is released its first quarter 2020 earnings the earnings release can be found on the company's website at www Dot U.S., while services Dot Com. The company also filed its first quarter 2020 form 10-Q would that you see this afternoon.
Please note that the information reported on this call speaks only as of today May 11, 2020, and therefore time sensitive information may no longer be accurate as of the time of any replay listening or transcript reading.
In addition, the comments made by management. During this call may contain forward looking statements within the meaning of the United States Federal Securities laws.
These forward looking statements reflect the current views of U.S., while 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.
Listeners are encouraged to review today's earnings release, and the company's filings with the FCC to understand those risks uncertainties and contingencies.
Also during today's call will reference certain non-GAAP financial measures reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and now I'd like to turn the call over to U.S., while services CEO Mr. Jones Broussard.
Thanks, Josh and good afternoon, everyone.
The crude oil demand destruction, resulting from the global covert 19 pandemic has created the most challenging operating environment in the history of I industry.
It should kind of no surprise that hydraulic fracturing activity slowed sharply.
Some analysts estimating that there I'd view as 50 Frac fleets in operation versus approximately 350 at this time last year and approximately 250 at the beginning of of this year.
Before I view, the key highlights and first quarter I liked is Scott you at.
The spot to these extraordinary challenging.
And what we're doing to best position the company moving forward.
We began developing our spot.
Plan in late February Edwin monitored the spread of covert 19, we started with steps to ensure the health and safety of I employees and customers.
Safety is our top priority.
You asked well start to develop new operating procedures and distributed additional pp sanitizing cleaning supplies to all shopping field locations transact against the spread of the virus why we work.
We put screening procedures in place, including tempered checks pride to leading hotels in man camps, and we are collaborating with all of that our customers to ensure the well being of everyone working at U.S. WCS website.
Well enabled our corporate employees to work from home and we'll follow local guideline for reopening non essential business location.
My early March conversations with our customers shifted from safety protocols to concerns regarding regarding declining global demand, but crude oil and a potential applications. It would have on their completions program.
And anticipation of challenging times ahead, we quickly and aggressively cut costs and moved to that had liquidity.
Since the mid March reduced head count by over 55%, bringing total head count the fewer than for 25 active employees from nearly 1000 employees at the end of February.
We restructured our management team eliminating layers overhead between our senior executives and feel operation Dean.
Additionally.
The remaining employees, we made across the board cut to compensation and benefit.
Anyway, they 20% reduction in salary for senior management and our board.
I procurement team is working with vendors to reduce the cost of all goods and services, we use and we will be strictly let me think capital expenditures to critical maintenance related expenditures for the balance of the year.
Finally, and most importantly, we completed the capital raise that allowed us to amend our credit agreement boosting liquidity and getting a substantial runway to work that this market downturn.
Carl will go through the specific to later, but the key point or that we extended the maturity date of both credit agreement.
Two.
2025, and suspended scheduled cash payments, a principal and interest on our term loan for 24 month.
As a result, our next scheduled payment on the term loan is.
Thirtyth 2022.
Preserving approximately 60 million of cash principal and interest payments over that period.
The speed and the magnitude of this downturn has required us to take extreme action.
This hasn't been easy, but I employees have stepped up to meet the challenge ahead on.
Their hard work dedication and ingenuity or what enables us to off a best in class service quality and technologically differentiation.
U.S. well services will emerge from the downtime stronger.
And poised to be an industry leader for the long term.
Our results for the first quarter 2020 reflect the roller coaster nature of the past several lot.
While the company face challenges to where the ended the quarter, we started off the quarter from a position of strength.
We deployed a new electric fleet in January to work for shell and grow active fleet count too.
10.7 from eight in Q4 2019.
Our utilization picked up in January and February relative to Q4 levels before declining in large resulting in at 84% utilization for the quarter or 8.9 fully utilized fleet.
We grew revenue to 112 million from 93 million in the fourth quarter of 2019 and good gross profit margins to 24% from 18 is that over the same period.
In early April we finalized the contract to provide Qt with electric Frac services for up to three years assuming.
The exercise of all optional extension I want to congratulate my team for this huge when this is a testament to our technology and operational capabilities.
You asked well services generated 12.7 million of adjusted EBITDA in the first quarter or 21.8 million bloating and reserve for accounts receivables, which caught with touch on later.
Hydraulic fracturing activity is likely to remain muted through the end of 2020 as the growing supply demand imbalance for oil combine with severely depressed crude prices will likely force many producers to focus on shutting in production rather than drilling and completing new wells.
With that said, we're adapting to the current reality and positioning of the company to succeed as market conditions improve.
We began reallocating resources to the Marcellus region in early Q4, 2019 to increase our exposure to gas basin and currently have to contract electric please work in an area.
<unk> plan to use a disciplined pricing strategy and we're focused on maintaining our technology technological advances and operational efficiencies. So that demand for fleets remained strong as activity levels improve.
With that I would turn call over the call our Chief Financial Officer.
Thanks, Joel good afternoon, everyone.
Revenue increased by 20% sequentially $212 million driven by an increase in the number back to fleets, we had working during the quarter.
Service equipment revenues increased 22% compared to the force fourth quarter and we also experienced a 23% sequential increase in the sale of consumables, including San chemicals, and trucking services, our cost of sales increased to $85.1 million were 12% compared to Q4 2019.
Driven by activity levels, and the cost consumable sold to customers.
[noise], despite a 40% increase in pumping hours a quarter over quarter and a change to our accounting policy to expense fluid ends our aren't at repair and maintenance expense only increased 6% quarter over quarter.
That's you know they totaled $19.1 million for the first quarter of 2020, because we evaluated distressed of the current commodity price environment has placed on the market you made a decision to create an allowance reserve equal to approximately 10% of are outstanding accounts receivable.
Excluding the accounts receivable reserve severance and stock based compensation. That's you know it was $8.4 million for the quarter as compared to 6.1 million for the fourth quarter 2019.
The increase was primarily driven by increased professional fees.
The sudden and drastic declining commodity prices also triggered an impairment review of our long life assets under GAAP accounting rules.
As a result, we booked a $148 million noncash impairment charge during the period.
You must well services reported adjusted EBITDA of 12.7 million for the first quarter of 2020.
5% sequentially from 12.1.
Reported adjusted EBITDA for Q1 includes the accounts receivable allows discussed earlier.
Moving to the charge for that reserve the company generated $21.8 million of adjusted EBITDA, which equates to 9.8 million of adjusted EBITDA per fully utilize fleet.
During the quarter U.S., well services spent $23 million on Capex.
It's 13 million was related to the new electric fleet, we deployed during the period.
The balance of was for maintenance Capex.
We do not expect to incur any additional growth capex during the year.
And expect maintenance Capex decreased as a result to fewer working fleets the majority of which will be electric and other cost reduction measures initiated during the quarter.
As the impacts of the covert 19 pandemic became clear our team took swift action to rationalize their cost structure targeting labor and compensation expense first.
We reduced our workforce to align with her with current levels of activity.
In conjunction with those layoffs, we cut pay starting with a 20% reduction in salary for senior management and the board reduced all other salaried and hourly employees paid by 10% in 5% respectively.
Suspended our for one came matching program, we made changes to certain other benefits some perks, including per diem expenses for field employees.
In total we believe these cuts will contribute approximately $75 million of annualized labor cost savings relative to last 12 months.
These savings will be attributable approximately 90% to cost of sales and 10% to SGN day.
We estimate that 45% was attributable to the reduction and the number of active fleets and $30 million is attributable to restructuring reorganization of our remaining employee base compensation practices.
Additionally, we have been working proactively to reduce the cost materials used including critical components spare parts and consumables.
We're working to substantially reduce or eliminate costs associated with contract labor rental equipment professional fees and other overhead going forward.
These cost reductions should contributed over $10 million on an annualized basis.
Finally, with respect to Capex, we've canceled orders and approximately $11 million fleet enhancing equipment. It would've been delivered throughout 2020.
As Joe discussed earlier in an effort to boost liquidity and extend our runway we issued $22 million of convertible preferred equity in April which was used to fund fees and expenses related to concurrent amendments to our ABL in term loan.
These amendments provide us with exceptional flexibility to manage through this down cycle by reducing the interest rate our term loan to zero percent suspending scheduled amortization payments for 24 months preserving over $60 million of cash over that same period.
We increased a certain concentration limits under our ABL and added a fellow feature which essentially increases the advance rate on our ABL facility, allowing us to access more of the borrowing base.
Finally, we pushed out the maturity dates of both facilities into 2020 fives.
In summary, you us well services is taking swift action to reduce costs boost liquidity and position the company to not only withstand the current market turmoil, but to capitalize on future recovery with that I'll turn the call back over to draw for concluding remarks.
Thanks Kyle.
I would just like to thank our employees for their dedication and tireless efforts during this extremely difficult period.
We would also liked expressed that thanks.
Everyone working hard on the front line in our communities to keep let's say at covert 19 pandemic Princess.
The team at U.S., well services, it's cycle attached to it and we are fully dedicated to making sure. Our company emerges from this crisis as a market leader now whats I know that operators for operator for questions.
Thank you.
We will now be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad a confirmation total indicate indicate that your line is any question Q.
You May press star to if he would like to remove your question from the Q.
More participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star King.
Our first question comes in the line of Stephen Gengaro with Stifel. Please proceed with your question.
Sanction Hello, gentlemen, I hope everybody as well.
I.
I guess, there's two things I want to address the first is.
You cited the new contract Oh, we beat you T I believe.
Well that put four of your fleets reelect, you're gonna conventional under contract.
He is talking about.
He those contracts.
There's not a base load of activity, we should expect going forward.
Or how should we sort of speak about the utilization of the assets or yeah under contract.
Yes, you know thanks to the question. Thanks for joining the call and there's a base load those will be contracted ended the year and going into 2000 and I'm.
21.
Is there a utilization.
Dynamic would be most contracts or will those four fleets be largely utilize throughout the year.
[noise] luxury utilized one of them has named as a break it into fourth quarter separately, because we outperformed.
What they thought we're going to do on a stage on a pop hour per per month basis.
Which it's going to give us an opportunity to do some test trial to other companies I want to drive electric plate and then it kicks back on January one.
Okay. Thank you and then.
As we speak about it so I think you said, though he said the pressures are closely working also what was it was those but when you think about the.
Uh huh.
The thought process I'm, putting.
Additional fleets to work is there or is there any kind of an EBITDA for fleets warranted a cash flow breakeven number we should think about the you'd put equipment back to work.
On me know topline is how many fleets are actually maintained at this point.
Yes, we have.
For for fleets man was though one on one on furlough every other week and we have that's with.
Plan for that went back to work evidently.
And.
We're not going to work for cash flow breakeven, especially on electrical equipment.
Because they fit we still feel we sales is seeing some few things he even with the price and leases loaded.
So I would.
Imagine diesel fleet you know.
Eight to $7 million to $10 million, even I prefer fleet and electric should be 10, plus.
Okay, great. Thank you.
Thank you.
Our next question comes from the line of Daniel Burke with Johnson Rice and company. Please proceed with your question.
Yeah, good afternoon guys.
Hi, Daniel.
Maybe one for it for Kyle just.
You know impressive job you know with the effort on that a b L and the term loan in particular, because you talked about liquidity, though is as this year advances.
Level of accounts receivable release do you expect and then maybe.
You know addressed as well what would that declining a our balance will mean for access to access to the ideal.
Cow better I.
Hi, Thanks.
Sure I mean, we obviously went through a lot of different modeling scenarios and looked at yeah worst case.
Scenarios and about 50, 50 different ways and sliced and diced didnt.
That really is what led us to putting together vis vis a relief package that we were able to work out with already be on term loan lenders and by removing that your cash debt service for that period of time, we have an incredibly variable cost structure and given kind of the base load contract economics.
We think that we can.
Easily withstand any type of market going forward and be able to.
Navigate any liquidity.
You know liquidity.
Tightness done over the next 24 month.
Okay. All right. That's helpful. And then maybe maybe the only other one I had really guys was sort of it to come back towards the the for fleets that are active in and Joel just just to return to Stephen's question for a moment I mean, it sounded like you know here in Q2 at least based upon the visibility.
You will have that that you expect those four active fleets to to be pretty much fully utilized is that the right conclusion.
Yeah.
Except in the fourth quarter Shelby, taking a break because we outpaced there and.
Their budget, but we don't thing you know we're currently looking for.
Pretty much the work for our test test from a brand new electrically.
Okay. All right. That's helpful really guys I'll leave it there. Thank you for the time this afternoon.
Thank you Stan.
Our next question comes from the line of Yellen Glosser with Simmons Energy. Please proceed with your question.
Hey, good afternoon, guys and ideally I must admit this but in regards to the contracts you guys haven't place in in the pricing within those contracts.
In the utilization moving forward or the next few quarters as far as suite profitability goes can you just talk about your relative.
You relative your ability to maintain and profitability that you guys have seen in the previous quarters, a with the remaining fleets that you guys have in place today.
Huh.
Sure I mean, I think the the economics of those contracts at stayed the same that being said obviously the business does have some fixed cost components. So overall like while we've we've taken you had dramatic steps to reduce that fixed cost base is being spread out even though it's a lower.
Total dollar about it is being spread out over you know for fleets. If you will show I would I would expect to see some some contraction you know in EBITDA for fleet.
I think would be or a reasonable conclusion, but I think that it's going to.
Having having that having those.
Contracts in place with key customers is a huge benefit huge competitive advantage for us.
Thank you and is far as potential working capital release being a a benefit for you guys through the next few quarters, helping you guys generation some free cash flow with the low base can you just talked about your ex.
Spectators there.
The top.
Yeah sure I mean, I think obviously anytime you coming to markets like this you see a I'm kind of a huge release of your accounts receivable I do think we'll see that balance a work its way down most likely over the next yes.
I would think that it would it would largely be work and that release will largely take place in the second quarter I'm, just getting the timing of our payments and then you'll see things kind of stabilized so our it'd be out a balance will come down obviously want to maintain yeah with plenty of liquidity and availability on the line.
So I think you'll see you'll see both that balance come down as Walter it'd be out, but we'll still be will continue to maintain.
Yeah. So you know adequate liquidity with with the with the margin in there.
Okay, and lastly, with the impairment charge can you guys just talk about your expectation for depreciation going forward.
Oh, Yeah, I mean, I think that ER our arc.
DNA will likely come down 20, or 30% or going forward relative to where Q1.
A run rate.
Okay. Thanks, guys I appreciate your time, well turn it back.
We do a follow up question from the line of Stephen Gengaro with Stifel. Please proceed with your question.
Thanks, just just a follow up you you mentioned I see it response. So my question about so 10 million and then you fleet in seven on others are you.
Well I think about <unk> the.
Activity going forward, you expect to be without positive in the second quarter.
We don't a competing <unk>.
No that's not that we don't want to provide guidance here, but yes, I do we do expect to be the dog.
Okay.
All right I appreciate that thank you.
There are no further questions in queue I'd like to hand, it back to Joan Brossard for closing remarks.
Thank you Alan John accommodate gentlemen, appreciate it lately.
I have a nice ethanol.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
As a reminder of this conference is being recorded.
It's now my pleasure to introduce your host Josh Shapiro, Vice President Finance and Investor Relations.
Mr. Shapiro you may begin.
Thank you operator, and good afternoon, everyone. We appreciate you joining us for the U.S. Wall Services conference call and webcast <unk> first quarter 2020 result, joining us on the call. This afternoon or <unk>, Chief Executive Officer Colonial Chief Financial Officer. Following their prepared remarks called be open for Q1 day in keeping with best Pratt.
Just for social distancing the team is joining this call from different locations. So please forgive any issues coordinating responses to your questions.
This morning U.S., while service is released its first quarter 2020 earnings the earnings release can be found on the company's website at www Dot U.S., while services Dotcom Company also filed its first quarter 2020 form 10-Q would that you see this afternoon.
Please note that the information reported on this call speaks only as of today May 11, 2020, and therefore time sensitive information may no longer be accurate as of the time of any replay listening or transcript reading.
In addition, the comments made by management. During this call may contain forward looking statements within the meaning of the United States Federal Securities laws.
These forward looking statements reflect the current views of U.S., while 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.
Listeners are encouraged to review today's earnings release, and the company's filings with the FCC to understand those risks uncertainties and contingencies.
Also during today's call will reference certain non-GAAP financial measures reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release, and now I would like to turn the call over to U.S., while services CEO Mr. Jolt Broussard.
Thanks, Josh and good afternoon, everyone.
The crude oil demand destruction, resulting from the global covert 19 pandemic has created the most challenging operating environment in the history of I industry.
It should come as no surprise that hydraulic fracturing activity slowed sharply.
With some analysts estimating that there I'd view as 50 Frac fleets in operation versus approximately 350 at this time last year and approximately 250 at the beginning of this year.
Before I view the key highlights in first quarter I like to Scott you at.
Yes, the spot to these extraordinary talent in.
And what we're doing to best position the company moving forward.
We began developing our spot.
Plan in late February as being monitored the spread of Cobot 19, we started with steps to ensure the health and safety of I employees and customers.
Safety is our top priority.
You asked well start to develop new operating procedures and distributed additional pp sanitizing cleaning supplies to all shopping pillowcases transact against the spread as a virus while we work.
We put screening procedures in place, including temperature check prior to leading hotels in man camps, and we are collaborating with all of that our customers to ensure that well being of everyone working at U.S. WCS well site.
Well and able to our corporate employees to work from home and we'll follow local guideline for reopening non essential business location.
By early March conversations with our customers shifted from safety protocols to concerns would go regarding declining global demand, but crude all and a potential applications. It would have on their completions programs.
In anticipation of challenging times ahead, we quickly and aggressively cut costs and moved to enhance liquidity.
Since mid March reduce headcount by over 55%, bringing total head count the fewer than for 25 active employees from nearly 1000 employees at the end of February.
While remaining employed we made across the board cut to compensation and benefits.
Anyway, they 20% reduction in South Africa, Senior management and our board.
Hi, procurement team is working with vendors to reduce the cost of all goods and services, we use and we will be strictly let me think capital expenditures to critical maintenance related expenditures for the balance of the year.
Finally, and most importantly.
We completed a capital raise that allowed us to amend our credit agreement boosting liquidity and getting a substantial runway to work that this market downturn.
Carl will go through the specific to later, but the key point or that we extended the maturity date of both credit agreement.
Two.
2025, and suspended scheduled cash payments, a principal and interest on our term loan for 24 month.
As a result, our next scheduled payment on the term loan is June Thirtyth 2022.
Reserving approximately 60 million of cash rents when interest payments over that period.
The speed and the magnitude of this downturn has required us to take extreme action.
This hasn't been easy, but I employees have stepped up to meet the challenge ahead on.
Their hard work dedication and ingenuity or what enables us to off a best in class service quality and technologically differentiation.
You asked well services will emerge from the downturn stronger.
And poised to be an industry leader for the long term.
Our results for the first quarter 2020 reflect the roller coaster nature of the past several months.
While the company face challenges to where the ended the quarter we started off.
The quarter from a position of strength.
We deployed a new electric fleet in January to work for shell and grow active fleet count too.
10.7 from eight in Q4 2019.
Hi utilization picked up in January and February relative to Q4 levels before declining in March resulting in a 84% utilization for the quarter or 8.9 fully utilized fleet.
We grew revenue to 112 million from 93 million in the fourth quarter 2019, and good gross profit margin to 24% from 18 is that over the same period.
In early April we finalized the contract to provide acuity with electric Frac services for up to three years assuming.
The exercise of all optional extension I want to congratulate my team, but this huge when this is a testament to our technology and operational capabilities.
U.S. well services generated 12.7 million of adjusted EBITDA in the first quarter or 21.8 million bloating and reserve for accounts receivables, which caught with touch on later.
Hydraulic fracturing activity is likely to remain muted through the end of 2020 as the growing supply demand imbalance for oil combined with severely depressed crude prices.
We'll likely fourth many producers to focus on shutting in production rather than drilling and completing new wells.
With that said, we're adapting to the current reality and positioning of the company to succeed as market conditions improve.
Well, we began reallocating resources to the Marcellus region in early Q4, 2019 to increase our exposure to gas basin and currently have to contract electric fleets work in that area going forward and plan to use a disciplined pricing strategy and we're focused on maintaining our technology technological it.
Batches and operation efficiencies, so that demand for our fleet remains strong as activity levels improve.
With that I would turn call over to call, our Chief Financial Officer.
Thanks, Joel good afternoon, everyone.
Revenue increased by 20% sequentially to $112 million driven by an increase the number of active fleet, we had working during the quarter.
Service equipment revenues increased 22% compared to the forced fourth quarter and we also experienced a 23% sequential increase and the sale of consumables, including stand chemicals and trucking services, our cost of sales increased to $85.1 million were 12% when compared to Q4 2019 driven by act.
You levels and the cost consumable sold to customers.
Despite a 40% increase in pumping hours a quarter over quarter and a change to our accounting policy to expense fluid ends our aren't at repair and maintenance expense only increased 6% quarter over quarter.
As junaid totaled $19.1 million for the first quarter of 2020.
As we evaluated the stressed of the current commodity price environment has placed on the market. We made a decision to create an allowance reserve equal to approximately 10% of our outstanding accounts receivable.
Excluding the accounts receivable reserve severance and stock based compensation as Junaid was $8.4 million for the quarter as compared to 6.1 million for the fourth quarter 2019.
The increase was primarily driven by increased professional fees.
The sudden and drastic declining commodity prices also triggered an impairment review of our long lived assets under GAAP accounting rules.
As a result, we booked $148 million noncash impairment charge during the period.
You asked well services reported adjusted EBITDA of 12.7 million for first quarter of 2020.
5% sequentially from 12.1.
Reported adjusted EBITDA for Q1 includes the accounts receivable allows discussed earlier.
Moving this the charge for that reserve the company generated $21.8 million, adjusted EBITDA, which equates to 9.8 billion adjusted EBITDA per fully utilize fleet.
During the quarter us well services spent $23 million on Capex.
It's 13 million was related to the new electric Felipe deployed during the period.
The balance of was for maintenance Capex.
We do not expect to incur any additional growth capex during the year.
And expect maintenance Capex decreased as a result of fewer working fleets the majority of which will be electric and other cost reduction measures initiated during the quarter.
As the impacts of the covert 19 pandemic became clear our team took swift action to rationalize our cost structure targeting labor compensation expense first.
We reduced our workforce to align with the with current levels of activity.
In conjunction with those layoffs, we cut pay starting with a 20% reduction in salary for senior management and the board reduced all other salaried and hourly employees paid by 10% and 5% respectively.
We suspended our form 10-K matching program, we made changes to certain other benefits and perks, including per diem expenses for field employees.
In total we believe these cuts will contribute approximately $75 million of annualized labor cost savings relative to last 12 months.
These savings will be attributable approximately 90% to cost of sales and 10% SGN eight.
We estimate that 45% is attributable to reduction and the number of active fleets and $30 million is attributable to restructuring and reorganization of our remaining employee base compensation practices.
Additionally, we have been working proactively to reduce the cost materials used including critical components spare parts and consumables.
We are working to substantially reduce or eliminate costs associated with contract labor rental equipment professional fees and other overhead going forward.
These cost reductions should contributed over $10 million on an annualized basis.
Finally, with respect to Capex, we've canceled orders and approximately $11 million fleet enhancing equipment that would've been delivered throughout 2020.
As Joe discussed earlier in an effort to boost liquidity and extend our runway we issued $22 million of convertible preferred equity in April which was used to fund fees and expenses related to concurrent amendments to our ABL in term loan.
These amendments provide us with exceptional flexibility to manage through this down cycle by reducing the interest rate our term loan to zero percent and suspending scheduled amortization payments for 24 months preserving over $60 million of cash over that same period.
We increased certain concentration limits under our ABL and added a fellow feature which essentially increases the advanced rates on our ABL facility, allowing us to access more of the borrowing base.
Finally, we pushed out the maturity dates of both facilities into 2020 fives.
In summary, you us well services has taken swift action to reduce costs boost liquidity and position the company to not only withstand the current market turmoil, but to capitalize on future recovery with that I'll turn the call back over to draw for concluding remarks.
Thanks Kyle.
I would just like to thank our employees for their dedication and tireless efforts during this extremely difficult period.
We would also liked expressed that thanks.
Everyone working hard on the front line in our communities to keep let's say at covert 19 pandemic brand said the team at U.S. well services cyclic tested and we are fully dedicated to making sure. Our company emerges from this crisis as a market leader now whats I know that operators.
Operator for questions.
Thank you.
We will now be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad. The confirmation total indicate indicate that your line is into question Q.
You May press Star too if you would like to remove your question from the Q.
More participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star King.
Our first question comes in the line of Stephen Gengaro with Stifel. Please proceed with your question.
Hi, Thanks.
Hello, gentlemen, I hope everybody as well.
I.
Yes, there's two things I want to address.
First themes.
You signed new contract, we beat you to me I believe.
That that four of your fleets re electric gonna conventional under contract.
He is talking about the most contracts or that is that there's not a base load of.
Maybe we should expect going forward.
Or how should we just think about the utilization of the assets that are fun, yeah under contract.
Yes, thanks to the question thanks for joining the call and as a base load.
Those newly contracted ended the year and going into 2000.
Like 21.
Is there a utilization.
Dynamic within those contracts or will those four fleets be largely utilize throughout the year.
Largely utilized one of them has named as a break in it and the fourth quarter.
Separately, because we outperformed.
What they thought willing to do on a stage a pop hour per per month basis.
Which it's going to give us an opportunity to do some test trial to other companies I want to drive Electroplate and then it kicks back on January one.
Okay. Thank you alone.
As we think about it so I think he said he said the pressures are flexible work and also what was what was those but when you think about the.
[music].
Well thought process I'm, putting.
Additional points to work in Europe.
Yeah in kind of an EBITDA for fleets Warren will sort of cash flow breakeven number we should think about that.
Put equipment back to work.
And we know populated how many fleets are actually coming into this plant.
Yes, we have.
For for fleets man with though one on one Unparallel every other week and we have it would.
And for that went back to work evidently.
And.
We're not going to work for cash flow breakeven, especially on electrical equipment.
Because they that Weve stuff you were still seeing some few things you even with the price of leases loaded.
So I would.
Imagine diesel fleet.
Eight $7 million to $10 million, even opera fleet and electric should be 10, plus.
Okay, great. Thank you.
Thank you.
Our next question comes from the line of Daniel Burke with Johnson Rice and company. Please proceed with your question.
Yeah, good afternoon guys.
Hey, Dan.
Maybe one for for Kyle just.
You know impressive job you know with the effort on the Abbeel and the term loan in particular could you talk about liquidity, though is as this year advances.
Level of accounts receivable release do you expect and then maybe a you know addressed as well what would that declining a our balance will mean for access to access to the bill.
Oh, good or.
Hi, Thanks.
Sure I mean, we obviously went through a lot of different modeling scenarios and looked at worst case.
Scenarios, and a 50 50 different ways and sliced and diced didnt.
That really is what led us to putting together vis vis a relief package that we were able to work out with our term loan lenders and by removing that your cash debt service for that period of time, we have an incredibly variable cost structure and given kind of the base load contract economic.
We think that we can.
Easily withstand any type of market going forward and be able to NAV navigate any liquidity.
Equity.
Tightness over the next 24 month.
Okay, Alright, that's helpful. And then maybe maybe the only other one I had really guys was sort of come back towards the the for fleets that are active in and Joel just just to return to Stephen's question for a moment I mean, it sounded like you know here in Q2 at least based upon the visibility.
You will have that that you expect those four active fleets to to be pretty much fully utilized is that the right conclusion.
Yes.
Except in the fourth quarter, a shell we've taken a break because we outpaced there and.
Their budget, but we don't thing you know where current looking for.
Three months of work for our test, that's probably a brand new electrically.
Okay. All right. That's helpful really guys I'll leave it there. Thank you for the time this afternoon.
Thank you extended.
Our next question comes on line of Dolan Glosser with some ins energy. Please proceed with your question.
Hey, good afternoon, guys and I.
I must admit this but in regards to the contracts you guys haven't played.
In the pricing within those contracts.
In the utilization moving forward through the next few quarters as far as we'd profitability goes can you just talk about.
Relative.
To your ability to maintain the profitability did you guys have seen in previous quarters with the remaining for you guys have in place today.
A quick I'm.
Sure I mean, I think the economics of those contracts at stayed the same that being said obviously the business does have some fixed cost components. So overall I think while we've we've taken he had dramatic steps to reduce that fixed cost base. It is being spread out even though is a lower.
<unk> dollar about.
It is being spread out over four fleets. If you will so I wouldn't I would expect to see some some contraction you know in EBITDA for fleet.
I think we'd be or.
Reasonable conclusion, but I think that it's going to.
Having having that having those.
Contracts in place with key customers is a huge benefit he is competitive advantage for us.
Thank you and is far as potential working capital release being a benefit for you guys through the next few quarters, helping you guys generation some free cash flow with the low base can you just talk about your ex.
Dictation there.
The top.
Yeah sure I mean, I think obviously anytime you come into markets. Like this you see a I'm kind of a huge release of your accounts receivable I do think we'll see that balance a work its way down most likely over the next.
I wouldn't think that it would largely be work and that release will largely take place in the second quarter I'm just given the timing of our payments and then you'll see things kind of stabilized so our he'd be out a balance will come down obviously want to maintain yeah with plenty of little available liquidity and availability on the line I'm. So I think you'll see you'll see both that.
I was going down as Walter it'd be out, but what they'll be looking to continue to maintain.
Yeah.
You know adequate liquidity with a with a margin of error.
Okay, and lastly, with the impairment charge can you guys just talk about.
Your expectation for depreciation going forward.
Yeah, I mean, I think that ER, our art BDNA will likely come down 20, or 30% or going forward.
Relative to our Q1.
A run rate.
Okay. Thanks, guys I appreciate your time, well turn it back no problem.
We do a follow up question from a line of Stephen Gengaro with Stifel. Please proceed with your question.
Thanks, just just a follow up you mentioned I see your response. So my question about so 10 million on an equally than seven on others are you.
Well I think about <unk> the.
Activity going forward, you expect to be EBITDA positive in the second core.
We don't [laughter].
I don't know that's not that we don't want to provide guidance here, but yes, I do we do expect to be EBITDA.
Okay.
All right I appreciate that thank you.
There are no further questions in queue I'd like to hand, it back to jump or sorry for closing remarks.
Thank you Alan John accommodate gentlemen, appreciate it lately.
Have a nice Ethernet.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.