Q4 2021 US Well Services Inc Earnings Call

Greetings and welcome to U S well services fourth quarter earnings Conference call.

At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

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A reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. Joshua apparel. Thank you you may begin.

Thank you operator, and good morning, everyone. We appreciate you joining us for the U S. Well services conference call and webcast to review the full year and fourth quarter of 2021 results joining us on the call. This morning are Joel Broussard, Chief Executive Officer, and Kyle O'neill Chief Financial Officer. Following the prepared remarks call will be open for Q&A.

Yesterday evening U S. Well services released its full year and fourth quarter of 2021 earnings.

The earnings release can be found on the company's website at U S. Well services Dot Com. The company also filed its Form 10-K with the SEC yesterday evening. Please note that the information reported on this call speaks only as of today March 31, 2022, and therefore time sensitive information may no longer be accurate at 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. 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 state.

State by management <unk>.

We are encouraged to review today's earnings release, and the company's filings with the SEC to understand those risks uncertainties and contingencies.

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 now I'd like to turn the call over to U S well Services' CEO , Mr. Joel Broussard.

Thanks, Josh and good morning, everyone I'd like to start off by thanking our U S well services team for all their hard work throughout the year.

2021 was a critical transition year for U S. Well services failed was.

Significant change and challenges.

Despite the distractions throughout the year, our dedicated team remain laser focused on delivering safe and efficient operations for our customers.

I'm incredibly proud of the many milestones successes our team achieved during the last 12 months, including.

Generating 250 million of revenue for the year and $40 million of adjusted EBITDA.

Our conventional diesel fleet, which brought our active fleet count from <unk> 11 in Q1 to five by Q3.

Executing over 40 individual asset sales of our conventional equipment and power generating assets to raise approximately $120 million.

Reduced our senior secured term loan by $125 $6 million during 2021, and repaid an additional $17 $8 million. So far in the first quarter. So carrying a zero percent interest rate for Q1, 2022, and a 1% cash interest rate floor.

Our term loan for the balance of 2022.

So three licenses for our clean fleet technology for $22 $5 million validating the value and quality of our IP portfolio.

Design, then next claim fleet. The next generation of electric Frac technology initiated construction of for these new fleets.

While new contracts are extending existing contracts for all of our existing electric fleet in three of our four new builds.

Expanded our operational footprint into Rocky mountains, with the opening of our vernal Utah facility.

Executed multiple capital raises to bolster our liquidity and fund our growth Capex plans.

While the results of these achievements did that show up in the fourth quarter results, we have strongly positioned to compete and succeed in 2022 and beyond.

Results for the fourth quarter illustrates some of the difficulty we face an undertaking the strategic transformation as well as the macroeconomic headwinds stopped by the entire industry.

We continued to be impacted by our reduced rig count during the period as a result of our transition away from diesel equipment, yes.

Fewer fleets to absorb field and corporate level overhead impacting our profitability. However, we expect to see greater overhead absorption as we began to rollout our new fleet starting in Q2 of this year.

We were impacted by typical seasonality with 4.1 fully utilized fleets active during the fourth quarter as compared to five in a third operations were materially impacted by the both lack of truck drivers and inability of our customers to obtain all of of sand and water required for their operations.

During the quarter, we had $16 four days of downtime per fully utilized fleet or a total of 67 days due to these constraints.

During the fourth quarter, we began to see green shoots with respect to the pricing environment for pressure pumping services. Despite the signs of improving pricing. The difficulties noted earlier continued to impact us through the first two months of 2022.

However, beginning in March.

We are starting to realize the benefits of our strategic moves and expect results to improve throughout the rest of the year. We are seeing an even greater demand from E&P companies for the next generation <unk>.

Solutions, such as electric clean fleets and feel confident this momentum will continue to bill.

With this backdrop U S well services ideally position.

We believe we have the most premium pressure pumping fleet in the market today, we have five all electric fleets that offer industry, leading fuel cost savings and greenhouse gas emission reductions.

Such commands premium pricing relative to both conventional and <unk> equipment.

We continue to grow our fleet with the addition of four new next clean fleets, the first of which we deployed in Q2.

Our value proposition is undeniable and it drives the demand and premium pricing for our fleets relative to alternative technologies. This is further demonstrated by a significant rise in diesel prices and cost of diesel in the field has risen to over $5 per gallon from $3.50 per gallon in the fourth quarter, which means.

Our customers can save an additional one 5 million per fleet per month.

With that I'll turn it over to Kyle to review, our fourth quarter financial results.

Thanks, Joel and good morning, everyone I'll start off by reviewing the fourth quarter of 2021 before adding some additional color on our full year 2021 results. We averaged five active fleets during the quarter with a utilization rate of 82%, which equates to $4 one fully utilized fleets.

Here's to 89% utilization and five fully utilized fleets for the third quarter of 2021.

U S well services reported total revenue of $38 9 million for the fourth quarter, which is down 31% from third quarter revenue of $56 5 million.

Largely driven by nonproductive time related to sand and water constraints in the northeast integral seasonality.

Total nonproductive time during the quarter due to sand and water shortages totaled 67 days were $16 four days per fully utilized fleets.

Cost of sales in the fourth quarter was 41 $4 million down.

Down 29% sequentially reduction in cost of sales was related to lower active fleet count and a 50% reduction the amount of sand and consumables sold during the period.

SG&A for the fourth quarter was $6 8 million compared.

Compared to $11 1 million.

The third quarter of 2021.

Excluding share based compensation SG&A was $5 million for the fourth quarter versus $6 5 million in the.

Third quarter, the sequential decrease was primarily related to a reduction in personnel costs.

Adjusted EBITDA was a loss of $7 9 million for the fourth quarter of 2021, and we incurred approximately $2 $8 million of maintenance capital expenditures on an accrual basis.

During the fourth quarter U S. Well services spent approximately $6 $7 million of growth capital expenditures related to the four Newbuild next clean fleets and additional long lead time components for future fleet, we expect to spend between five and $10 million on growth Capex. During the first quarter. The majority of the capital expenditures for these new fleets.

B incurred closer to when the fleets are deliberate beginning in Q2 of 2022.

Turning now to our balance sheet. The company ended 2021 with $22 million of total liquidity, consisting of $9 $1 million of cash and $11 1 million of availability under our ABL facility.

In late February the company closed on a $21 5 million first lien last out financing and in March the company raised $46 $3 million of equity proceeds.

Pro forma for the associated fees and expenses. The Companys total liquidity increased to $84 $6 million. The proceeds of these capital raises will be used to fund our growth capital expenditures as well as general corporate purposes.

As of December 31, 2021, we had approximately $127 million outstanding principal on our senior secured term loan.

To date in the first quarter U S. Well services has repaid an additional $17 $8 million, bringing the balance down to $102 $9 million.

As a result of the significant debt reduction the company secured and interest rates zero percent for the first quarter of 2022, and a cash interest rate 1%.

And for two 5% pick for Qs two through four of 2022, resulting in a cash savings of nearly $98 million for the year.

Shifting now to our full year 2021 results, we generated revenue of $250 million, reflecting a modest increase relative to $244 million in 2020.

Cost of sales for 2021 $221 million as compared to $187 8 million in 2020 or an 18% increase.

The increase in our cost of service is primarily attributable to an increase in labor costs as well as costs associated with procuring third party power generation services as the company transitioned away from owning its own power generation assets.

Selling general administrative expense decreased to $32 6 million from $43 $6 million in 2020.

<unk> stock based compensation noncash charges for doubtful collections of accounts receivable SG&A totaled $23 million.

Compared to $23 5 million in 2020.

Net loss attributable to accompany was $76 million for the full year of 2021 as compared to $229 3 million for 2020.

Adjusted EBITDA for 2021 was $40 million, which equates to $6 2 million per fully utilized fleet.

Full year 2020 capital expenditures were $53 5 million of which $24 one was related to maintenance capital expenditures.

Meaning $29 4 million was for growth capital expenditures related to our Newbuild electric fleets.

And with that back over to Joel for closing remarks.

Thanks, Kyle since we introduced the first all electric fleet in 2014 U S. Well services has been vocal advocate for electric pressure pumping technology no. Other technology offers the same combination of economics.

S G and H SSC benefits.

Which is why electric fleets continue to grow as a share of the overall U S pressure pumping fleet U S. Well services has the fleet.

<unk> expertise and personnel to deliver for our customers to create value for shareholders and we continue to believe that the future is very bright for this company.

Thank you, we'll now be conducting a question and answer session.

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Our first question comes from Alex Shreve Hopper with Stifel. Please proceed with your question.

Thank you and good morning, everyone and thank you for taking my question planting Alex.

Good morning. So first question I have you I believe you kind of touched on this during the call, but basically as you continue to roll out your full complement of Frac fleets East do you expect to see a sharp increase in profitability and if so how should we start to think about the timing of when we should start to see that materialize.

You said Q2 I was just wondering if you could give a little bit more color.

Around that.

Oh, you want to take that.

Absolutely Yeah, I mean in Q4 and in Q1, so far I mean, we've definitely been impacted our profitability has been impacted by only having four to five fleets running so we have.

The same G&A that we had last year when we had 11 fleets running so as we ramp up these fleets, which will also be a better price than what we experienced in 2021.

You'll definitely start to see increased our profitability first fleet goes to work in Q2.

Secondly will be the end of Q2 early Q3 and then the next two fleets will be in Q3 and Q4, so by yearend we will.

At the year with a dramatically improved profitability profile.

Got it got it thank you for that.

I could just squeeze in a second question here you also commented during the call about.

Some continued difficulty in getting Frac sand mine and I was just curious to see if so if you're starting to continue to create inefficiency at the well site because of that and then kind of when you guys expect or.

They might expect to see that start to normalize.

Scott.

I think that.

We're really going to start to see the benefits of that really beginning with these new fleets rolling out starting in Q Q2.

Okay, so kind of the same okay.

Awesome.

And we in March also do too.

Different customer promises that with trucking and sand and water.

Okay.

Got it okay. Thank you for that growth.

We have reached the end of the question and answer session I would now like to turn the call back over to Joel Broussard for closing comments. Thank.

Thank you everybody for joining you all have a great weekend.

Okay.

This concludes today's conference call you may disconnect. Your lines at this time and have a wonderful day.