Q2 2020 US Well Services Inc Earnings Call

Thank you operator, and good morning, everyone. We appreciate you joining us for the U.S. Wall Services Conference call webcast to review second quarter 2000.

20 results joining us on the call. This morning, <unk>, Chief Executive Officer, and colonial Chief Financial Officer. Following their prepared remarks called be open for Q1 day.

Yesterday evening, U.S. wall services, where we sit second quarter 2020, or the earnings release can be found on the company's website at www Dot U.S. while services dotcom.

The company also intends to file second quarter 2020 form 10-Q with the FCC. This afternoon.

Please note that the information reported on this call speaks only as of today August six 2020, and therefore time sensitive information may no longer be accurate as the time of 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 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 Kirby review today's earnings release, and the company's filings with the CCGT 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 now but.

Turning the call over to U.S., while service CEO Mr., Joe for sorry.

Thanks, Josh and good morning.

Second quarter 2020 presented the mode.

Severe challenges ever faced by the modern oil and gas industry.

As economies across the globe shut down and after the slowdown spread up covert 19 demand and pricing for crude all collapse.

You asked all the gas producers aggressively reduced drilling and completions operations beginning in mid March and have only very refill I'd be glad to increase activity.

Our strategy at U.S. Wall services has always been to position the company have evolved through down cycles.

Value long term partnerships with our customers that have historically provided us with better utilization and pricing stability across our fleet during challenging market environment.

Well our business was certainly not immune to the term all I'm proud of how the business performed through such a difficult market.

We saw accurate breakout drop from 10.7 in the first quarter to 4.3 in the second quarter.

Ralph the quarter three of our four new generation electorate fleet, we're working along with one of our conventional fleet.

Currently we are operating five active frac fleets.

We recently deployed our fourth new generation electric fleet to work for previous customer in the Permian Basin.

With the addition of this late we now have to look at fleets work in the Permian to electric fleets in the northeast and one convinced hopefully in the Eagle Ford.

Our inactive equipment as well maintained and radical work when demand picks back up.

We continue to evaluate opportunities to we redeployed easily mobile only do so the pricing and duration of work justify the staffing training and capital needs required to fill the job.

Based on some estimates.

Well the number of working Frac fleets through the quarter I fleets may have accounted for nearly 10% of the total market.

Well this isn't the way we want to grow market share. We're pleased with the strength of our partnerships with our customers.

That helped us maintain utilization.

We're delivering true value to our customers in the bunker fuel cost saving operating efficiency and reduce carbon footprint, which is why we believe demand remains strong for electric brightly even in today's challenging environment.

You asked well services posted positive adjusted EBITDA for the second quarter, thanks to both our customer contract.

And our team's ability to rapidly cut costs as the market deteriorated.

On annualized basis, we generate approximately 10 million of adjusted EBITDA per fully utilized fleet, which demonstrate the earnings power as deli <unk> utilization of our electric correctly.

As challenging as this downturn has been we still believe the opportunity to U.S. well services, a great competitors and equipment.

Or exiting the market at accelerating rate, helping to bring the market closer ballot.

More importantly, we have seen a growing awareness from S&P companies that they must evolve the way.

They operate in order to me goals of lowering well costs and minimizing the environmental impact of their completion program.

We offer the market a proprietary proven.

Suite of technology that allows them to achieve these goals as well as best in class service.

As such this company is well positioned to lead the industry and this evolving market.

With that I would turn the call over to Collyn.

Only able to discuss our financial results.

Thanks, John Good morning, everyone.

Revenue decreased 64% sequentially to $40 million, driven by sharp reduction or active fleet count service equipment revenue decreased 59% compared to the first quarter in consumable sales, including San chemical and trucking services decreased by 90% as customers continued to move to self.

Sourcing materials in order to to cut well costs.

Our cost of sales decreased to $29 million, 66% decline relative to Q1, resulting in our gross profit margin increasing to 27% versus 24% in Q1 of 2020.

These improvements were largely driven by the Twitch implementation of our cost cutting initiatives.

As Junaid totaled 5.2 million for the second quarter or 4.1 million after excluding stock based compensation and onetime transaction costs.

This compares to 8.4 million in the first quarter of 2020.

The reduction yes, you name was largely attributable to our cost cutting initiatives.

Reduction in professional fees.

[noise] useful services reported adjusted EBITDA of $8.5 million for the second quarter of 2020 down 34% sequentially from $12.7 million.

Adjusted EBITDA for fully utilize fleet was approximately $10 million for the second quarter as compared to $4.3 million in first quarter.

Certainly our adjusted EBITDA margins improved 21% in the second quarter versus 11% in Q1.

Cash from operations was approximately $33 million as compared to an 11 million dollar use of cash for the first quarter.

Sequential increase is attributable to improve margins reduced interest expense increased collections.

Capital expenditures for the quarter totaled $4 million of which 3.5 million was direct towards maintenance Capex and the balance was for growth Capex that was a carryover from Q1.

As of June Thirtyth, the company had total liquidity of $13.4 million.

Since the onset of Coven 19 endemic or top priorities had been the seating wellbeing of our employees customers and vendors to this and we have and we will continue to exhaust all options to bolster our liquidity to allow us to manage through this historic downturn [noise]. Examples of these include the previously announced there.

And initiatives, which resulted in higher margins and increased fleet profitability during the quarter.

Amending our credit facilities to among other things provide for interest and amortization relief for 24 months.

[noise] and exploring the various krona virus relief programs, such as deferral of employers social security taxes carry back of net operating losses in the pay Ted Paycheck Protection program, which we applied for it and received in late July.

With that I'll turn the call back over to Joel for some closing remarks.

Thanks.

Although we believe the words is behind US there's no doubt that the challenges remain the market continues to be oversupplied with horsepower and demand for Frac services will only began to fully recover what economic conditions normalize.

At U.S. welfare to our continued dedication to improving our service quality customer relationship.

Technological they're different station.

Our relentless.

And we think that will position not deliver long term value to our vector.

I want to thank everyone. It on the U.S. lots are the team for their tireless work and dedication to ensuring the safety and efficiency of operations. That's difficult time now I'll turn it over the operator for questions.

Thank you.

We will now be conducting a question that occupation.

If you would like to ask a question. Please press Star then one you telephone keypad.

The confirmation 10 would indicate your line is the question Q.

You May proceed start thank you [laughter] Loxo Luca question from acute.

Call participants you can speak equipment it might be makes it appears to be bumpy happy people pushing this talk you.

Please ask one question and one follow up question and then repeat what additional question.

One moment piece will be poll for questions.

[laughter].

We have a question from Daniel Burke Johnson Rotten Company.

Hey, guys good morning.

Hey, good morning, Daniel Daniel.

Hey, let's just was just curious on the.

Good news on the deployment of the remaining new Gen Electric fleet can you.

Maybe give us some color on the duration of the work program a that youve secured for the fleet.

Yes, we feel that Oh, it will work, but 90% the of the rest of the year age and I've said the rest of the year and full time next year.

Okay, and that's with the same client bridging into next year.

No. We think it ill go to another client that has a a one of our other fleets already.

Contract.

Okay that that helps and Ah.

Can we assume that the economics you achieve on that fleet here in the second half the year are similar to sort of the I think the hurdles you you tossed out for for sort of a your electric fleets Joe on the on the last earnings call.

It should be in line with what our fleet to earning today correct.

On this quarter.

That's that's that's good to hear.

That's great and then the only other one really I had was ER, maybe I'll just the financial side.

Given the net working capital position I'd assume the working capital release or that you all experienced in a in Q2, you know wont wont continue into the second half the year, but just to just to be clear there Kyle or working capital D. as a source of funds in in Q3 or is it more likely be news.

Well through the remainder of the year.

I think it's more likely to be neutral obviously, it depends on kind of activity levels, but I.

I think we've kind of what kind of come down that working capital slope and have.

Stabilized so expected to be neutral.

Understood and then I guess, maybe just the last one just a little bit more open ended then Joel your your comments on up you know.

Making sure that that that fleet deployments will meet your your economic hurdles I I think a sensible, but can you just talk about what do you see in terms of the landscape on the diesel side, you know what does that like what would it what level of discussions are you having with clients, what's what's maybe the probability of fighting an opportunity before.

Our year end for an incremental diesel fleet.

I mean that all depends what price all does of course and.

We're not going to work on diesel fleet that have negative EBITDA or negative cash flow you know, even if it's slightly positive EBIT I have negative cash flow when you consider maintenance capex, we're not going to do it as you can see I, we think a lot of questions come out of the market.

A lot of companies have gone away that have done. This it you know they've even with doing it back in mid last year bidding at negative.

Negative cash flow and and you see what's happened some of these companies, either getting out or or or having financial issues. So.

Okay.

We as as I guess to sum it up is that what we're not going to work for negative cash flow and we're seeing a lot of bids on diesel fleet at negative cash flow.

Fair enough that Matt I think the two to two summing up we better job but.

A client and we were.

Hi, I thought a 20 bed.

I think I think that sums it up well I mean and again a couple that's on the capital discipline and.

Hi, guys that that's it for me I'll leave it there.

Thank you Daniel I appreciate it.

I've answered the question at this time I would like to hand, it back to Josh <unk> closing remarks.

Thanks, everybody.

Thank you everybody have a good day I appreciate it.

Ladies and gentlemen, thank you for your participation. This does conclude todays teleconference. You may now disconnect your lines.