Q1 2021 US Well Services Inc Earnings Call
Of your Ww Dot U S well services Dotcom company also intends to file the form 10-Q.
The forward looking statements within the meaning of the.
The United States Federal Securities laws. These forward looking statements reflect the current views of the U S. 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 listeners are encouraged to review today's earnings release.
And the company's filings with the SEC to understand those risks uncertainties and contingencies on.
Also during today's call, we 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 net.
Now I'd like to turn the call over to us well services CEO, Mr. Joel Broussard.
Thanks, Josh and good morning, everyone. The.
The us well services team delivered another strong quarter with significant growth in both revenue and adjusted EBITDA.
During the quarter on operations were impacted by the freight and taxes resulted in a last week.
70% of our active fleet.
Despite the Williston and out of the challenge, we faced redeploying fleets the.
Ws team did an incredible job I am proud of the way the team continues to execute for our customers.
Karla dive into the specifics of our first quarter financial result of before he does I would like to offer a bit of perspective on the current pressure pumping market dynamic.
At this time last year the outlook for the oil and gas industry was bleak demand for crude oil was devastated as the global economy shutdown in response to COVID-19, which took us debit gi prices below zero before selling in the high Twenty's and low thirty's per barrel.
There appear to be.
The limited prospects for improvement in commodity prices.
And the number of active U S. Frac fleets dropped the low 50.
The market backdrop for the upstream oil and gas sector has improved a great deal since that time.
W. Ti crude oil prices have stabilized above $60 per barrel. Thanks to a combination of demand growth and of restrain response from global oil producers.
First quarter results posted by the U S shale producers demonstrated that the industry is able to earn returns and generate free cash flow at these commodity prices.
Well hydraulic fracturing activity and the number of active fleets across the industry has rebounded with commodity prices Frac service pricing has yet to recover.
Today, we estimate that there are around 200 active fleets working in the US many of which are working at prices that we believe are unsustainable.
Because the market for conventional diesel powered Frac services continues to be oversupplied.
Service pricing has been unable to rise of.
The trough level said during the depths of the pandemic.
At the same time E&P operators of demanding next generation fracturing technologies that minimize the cost and greenhouse gas emissions associated with well completion.
U S well services has the solution.
I proprietary claim for <unk> technology offers best in class fuel cost reductions and offers industry, leading greenhouse gas emissions performance.
Instead of this.
At today's delivered diesel prices a typical tier.
For diesel Frac fleet operating at 9000 per site and 100 miles per minute.
Would consume between one five and $1 8 million dollars' worth of diesel from us.
If the song by a claim flee the same job would consume between 150 to $200000 of field gas, resulting in substantial cost savings and significant reduction in the greenhouse gas and smog producing emissions.
The few cost savings from using a clean fleet could be as high as 3500 per pump hour.
That is to say the E&P customer will pay 35 on a per hour over prevailing market rates for a day, so equipment without impacting its cost of our hedging its service costs.
Meanwhile, the service gummy can make money at these levels and reinvest in its equipment and people.
We firmly believe that claim for <unk> technology represents the future of of the hydraulic fracturing industry.
Moving for U S. Well services will continue to do focus on innovating and offering best in class of electric fracturing services and solutions.
In the near term our team is working with customers to raise service pricing on a conventional diesel powered equipment and us confident faith pricing increases will be implemented throughout the remainder of the year. However, we continue to monitor pricing across our portfolio and react swiftly of market pricing remains the.
The press.
With that I will turn the call over to Kal.
Okay.
Thanks, Joel and good morning, everyone.
Before I dive into the first quarter financial results I'd like to comment on the recent FCC statement regarding the accounting and reporting for spec related warrants.
In mid April the FCC released a statement from forming companies with warrants issued by specs maybe.
It may require to be reclassified as liabilities measured at fair value at the end of each reporting period.
The statement has changed the industry accepted practice of accounting for warrants us equity.
As a result, we and many other companies formed true business combinations with specs have restated our financial statements to correct the classification of warrants as of liability.
The restatement has no impact on our operations revenue operating income or other key non-GAAP financial metrics such as adjusted EBITDA.
With that I'll now turn to the review of our first quarter.
U S well services average 10 active fleets during the quarter of the utilization rate of 88%, resulting in 8.8 fully utilized fleets.
As you all noted the winter storm in February caused the workshop down for seven of our fleets for an average of seven days.
If not for this work stoppage, we would've average nine three fully utilized fleets for the quarter.
We generated $76 million of revenue for the first quarter of 2021 of 59% from $48 million in the fourth quarter of 2020.
The sequential increase in revenue was driven by the uptick of our active fleet count and was offset by an estimated $5 million to $500 million of revenue lost due to the workshop down during the winter storm.
While service and equipment revenue was up 54% sequentially pricing on a per pump hour basis declined 5% sequentially due to the redeployment of conventional fleets of market pricing.
As Joel mentioned earlier, we have initiated discussions with our customers regard regarding price increases and well continue to evaluate the economics of each fleet in our portfolio to ensure that we're maximizing value for our shareholders.
Our cost of sales for the quarter was up was $63 million up 48% quarter over quarter from $43 million in the fourth quarter of 2020 or.
While most of the sequential increase in our cost of sales is attributed to higher labor repair and maintenance and costs associated with higher active fleet count us.
The us well services began to see signs of inflation during the quarter.
Most notably we have seen cost for chemicals accommodations and trucking rise significantly since the beginning of the year and are continuing to work to mitigate the impact of these inflationary pressures on our financial results.
SG&A was $7 $4 million in the first quarter of 2021.
Net of stock based compensation and other noncash charges SG&A was $5 9 million, which compares to $5 6 million for the fourth quarter of 2020 the.
The sequential increase in SG&A was primarily related to personnel cost of professional fees.
Adjusted EBITDA for the first quarter was $11 5 million up from $1 $8 million on the fourth quarter of 2020 and.
Annualized adjusted EBITDA per fully utilized fleet was $5 2 million up from $1 $4 million in the prior quarter.
On an on accrual basis U S well services spend approximately $9 $6 million of maintenance capital expenditures during the first quarter of 2021.
Turning to our balance sheet. The company ended the first quarter of 2021 with over $32 million of liquidity consisting of $18 million of cash on hand from $14 million of availability under our ABL facility.
With that I'd like to turn the call back to Joel for some final remarks.
Yes.
Thanks Kyle.
Although this market environment remains challenging us well services excited for what lies ahead. We believe we possess the technology team and track record to deliver for our shareholders and customers as the market for Frac services continues to evolve.
Operator, please open the call up for Q&A.
Thank you we will now be conducting a question and answer session. If you would like to ask the question. Please press star one on your telephone keypad. The confirmation tone will indicate your line is on the question queue. You May press star two if he would like share will be a question from the queue for participants using speaker equipment it may be necessary.
The pickup your handset before pressing the starkey on moment Ollie's poll for questions.
Our first question comes from the line of Ian Macpherson with Cowen You May proceed with your question.
Thanks, Good morning, Joel Kyle how are you.
Good morning, Great how are you.
Good thanks so.
I wanted to get your your your view on how.
Margins should.
Should improve coming out of and you have the Q1 well.
Weather impacts you've scaled up to basically doubling your footprint from where you were a year ago ahead of the full benefit of really much benefit at all with pricing, which is now coming to you over the course of this year progressively so when you think about those tailwind.
How much.
The EBITDA leverage do you have on a per fleet basis going from now until the end of the year to use the Hagen you can airbrushed I'd answer as much of the care too, but I'd like to get a sense for.
How we begin to harvest EBITDA and cash flow from the footprint that you for covered now.
Well the Ian.
As.
As we all know we're looking at up here, then and others that.
After the Capex everybody is still negative so pricing does have to come up on the electric on the diesel fleet.
However, on our electric fleets, where we're satisfied with the margin and they are a drag on our diesel fleets up.
Okay.
On the cost savings for the client.
We're seeing a little softening.
And the market, we feel that there is around 200 fleets working.
220, and some of these fleets of go on on the spot market, but.
We're either going to.
We're having difficult conversations on our clients now on the diesel equipment and we have of course, we have less of them to have the some of the peers, but.
The conversations are happening and margins have to come up on our diesel equipment or we won't work on.
Got it and then.
Kyle do you have any.
Any perspective on how.
Free cash flow could unfold over the balance of the year I know you had some working capital going against you on the first quarter.
Interested in that particular component as well as just the total picture for for cash generation.
Cash and liquidity balance of sorts end of the year.
Yes, that's exactly right, we did have kind of a working capital build.
In Q1, as we redeployed some of those fleets so.
Kind of in a normalized the operating environment, we would expect to see that cash flow profile.
To improve throughout the year.
Okay. Good.
Thank you gentlemen.
Thank you again.
Our next question comes from the line of Stephen <unk> with Stifel. You May proceed with your question.
Hi, Thanks, good morning, gentlemen.
Good morning.
A couple of things so one is.
On the on the conventional side I think.
Thank your maintenance Capex per fleet is like $5 5 million ish per per year.
Is that right and be well.
Does that suggest you won't deploy fleets on the conventional farm on luster of generating some number higher than that.
Correct, yes.
Yes.
Alright.
And Youre exactly right, we wont deploy unless we can more than more than cover cover of our maintenance Capex, it's got to be cash flow accretive.
Okay and on the.
On the fleet side can you just remind us sort of the the.
Where you stand from a contractual perspective, just sorry of the sort of most updated.
Data.
We currently have five of them Electric's five of electric fleets working.
We expect on.
All of those to work through the end of the year, except maybe our original on rebuilt in 2014. It has to work as of now through October.
Okay.
And.
Two other quick ones. One is you mentioned I think on the last call for.
About $50 million on Capex you could.
You could deploy to incremental.
The fleet's based on equipment you have.
Sure.
In the yards et cetera is that a us.
Is that still about the right number of B, where do you stand on that thought process.
Actually that number is coming down.
We think the we could upgrade the two original fleet rebuilt with just pumps for around.
Sure.
The $30 million.
Okay Alrighty for 35.
Great and then just as a final one of this follows up on <unk> question you're.
In the quarter, you mentioned $505 million of of revenue impact your adjusted EBITDA was about 11 and a half.
Can you give us a sense for.
On what the EBITDA impact or even the per fleet EBITDA impact was in <unk> and then additionally, as well.
Okay.
Okay.
Where's the moment.
What I'm thinking about us can EBITDA per fleet get the double digits this year or no because of the dilutive effect of the conventional assets.
Now going to take that one sure.
Sure, Yes, yes, I think I think getting the double digits.
The entire fleet this year will be it will be challenging.
Largely because of the.
Because of the current market for for a diesel equipment.
Alright, and EBITDA impact from the quarter do you of any sense for what it was on the private.
Is it just sort of the.
$2 million to $3 million range or is it.
I think I mean, I think it's probably closer to $1 million of 1 million in the half.
Okay.
Great. Thank you.
Thank you.
Our next question comes from the line of John Daniel with Daniel Energy Partners. You May proceed with your question.
Okay.
Hey, guys Joel Thank you for the color.
I just want to follow up a little bit on your comment about us.
Well I'm on I would refer to as the snow Janine of softening.
Do you think that's a reflection of.
Front end loaded comes from the budgets to SaaS of reactivation of the amongst the <unk>.
Mark Bradley on just a little bit more color on the helpful.
I think it's it's both of them for what you're speaking of.
When I say slightly softening, we're just seeing some of the.
People that came out of the gate wanting more spot fleets than then hey, well take it for the rest of the year, that's what we're seeing in.
And we still say in pricing on the sixth.
<unk> 6000, and below pump range, which.
We all know us.
The negative cash flow once you have much of that capex in there.
Okay.
And then the last one from me just with.
For the cleaner emission fleets.
With the rise in diesel appliances, how would you characterize inquiries and interest on the part of customers today versus.
Great of four months ago on there's no other technology.
It's been drastic we've done several test pads with the original fleet.
The rebuild in 2014 for customers well.
Made announcement on one of them, which was the Cowen right.
There's probably five others that we're going to be doing tests per ads for this year.
Rfps are coming out of the strictly electric.
When in the past, we saw diesel and electric.
So we're excited.
I don't think the use of hope diesel price of it and going down and the higher diesel prices go up the more savings on the way of one customer that we've been working on west in 17 18, sorry.
They are spending $2 4 million all of the muffin diesel.
And.
It's <unk>.
It's real and now.
As you've seen we've renewed contracts with <unk>.
<unk> and range.
In the past and shell, we've extended contracts on all three of the those so they're seeing the efficiencies. They are seeing the fuel savings and they are seeing the emissions reduction.
Okay got it and I guess the last one from the gel with the.
If someone came from the tomorrow with the contract in hand, which is accommodating to you how quickly could you get the next electric fleet deployed.
On January.
January one.
Okay.
Thank you very much.
Thank you.
Okay.
Our next question comes from the line of Daniel Burke with Johnson Rice <unk> Company. You May proceed with your question.
Yes, good morning, guys.
Hi, good morning on what's happening how much.
I think of really only got one left but.
Really it and it's on the topic with <unk>.
We danced upon in Q&A, but in terms of of adding incremental clean fleets I guess I just wanted to better understand it looked like you guys.
Raised a bit of incremental debt and equity in the first quarter. So what do you need or are you willing to make those investments to bring in extra fleet or two to market without the customer commitment or or are you already making that investment.
The investment now in anticipation of that customer demand being there.
Just not clearly sequencing.
We haven't heard of any fleet, yet where.
And we're negotiating that with different clients per contract as we speak nothing has been solidified.
Okay, Alright, really guys Thats all I was looking for was that that piece of clarity.
I'll leave it there.
Again well.
On one thing I'll add is that we've always said for the last several years since we've been well to.
Two years that well and adventures transitioned from.
So on all electric company and that still is our goal.
Okay.
That's good to hear again guys. Thank you. Thank you for squeezing me in.
Okay. Thank you.
Our next question comes from the line of Stephen <unk> with Stifel. You May proceed with your question.
Thanks Jay.
I wanted to follow up on two things one was.
Can you.
Can you give us.
The a range.
Of the difference in the EBITDA per fleet in your.
For your your fleets versus your conventional fleets currently.
Well I'll take that one.
Yes, historically, we havent, we havent broken out of that.
The difference in profitability between the two fleets.
So I think it's.
We look at we look at our whole portfolio.
<unk>.
Well, we haven't put on there that our operating costs and operating and maintenance costs are.
The $40 to 45% less than.
Traditional decently.
Okay. Thanks, Chris.
That's correct.
And also Capex is drastically.
Less than the conventional fleet.
Maintenance Capex.
Yes.
I was just going to say, it's about the same magnitude.
Okay Alright.
Well I was getting we're just trying to get to us when we think about.
2021, and maybe hopefully 2022 is the.
Is a different year right.
You have.
When you look at whatever the EBITDA expectations might be for the company of lifestyle Lookout for 'twenty, one and 'twenty of tier one I was just actually just sort of looking at the consensus numbers right now, which I'm not asking you the blast, but well, let's say the consensus numbers are.
50, and 90 in any EBITDA on 'twenty, one 'twenty two.
What does that mean for free cash.
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Here's the way to think about that.
Yes, I mean, I think that the.
Guidance, we've given before us.
Ethylene box of EBITDA for.
Our diesel equipment and.
$2 million to $3 million for the for the well.
Electric equipment. So you can kind of back into a maintenance capex number.
Take that out of your EBITDA to get to your free cash flow capacity.
Okay, Alright, Thank you guys helpful.
Thank you.
Ladies and gentlemen, we have reached the end of today's question and answer session. Thank you for your participation. This does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful rest of your day.
Okay.
Okay.
Okay.
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Yeah.