Q1 2022 US Well Services Inc Earnings Call

Okay.

Greetings and welcome to the U S well Services' first quarter earnings conference call.

This time, all participants are in a listen only mode.

<unk> and answer session will follow the formal presentation.

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As a reminder, this conference is being recorded.

Now my pleasure to introduce your host Aaron Simon <unk>, Vice President and corporate Secretary. Thank you Erin 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 first quarter 2022 result.

Joining us this morning on the call are Chief Executive Officer of colony.

Chief Financial Officer, Josh Shapiro following their prepared remarks, the call will be opened for Q&A.

Earlier this morning U S well services released its first quarter 2022 earnings.

The earnings release can be found on the company's website at Www Dot U S well services dotcom.

<unk> services also intends to file its quarterly report on Form 10-Q with the SEC. This morning. Please note that the information reported on this call speaks only as of today and therefore time sensitive information may no longer be accurate.

Time of any replay 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 beans 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 statements made by management. The listeners encourage to review today's earnings release and U S well services.

Filings with the SEC to understand those risks uncertainties and contingencies.

Also during today's call and webcast, 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, and now I would like to turn the call over to U S well Services' CEO , Mr. Kyle O'neill.

Thanks, Darren and good morning, everyone.

Two years ago at this time, the outlet outlook for the pressure pumping industry and the traditional energy industry more broadly was bleak.

The onset of COVID-19, pandemic destroy demand for crude oil and refined products and many question whether the world's demand for oil had Pete and if the industry was viable.

What a difference 24 months can make the price of crude oil and natural gas globally, sending a clear signal to the market, but the world needs more of what our customers produce.

Resulting call on American energy production has created a step change in demand for pressure pumping services at a time when capacity is tight supply change your bottleneck and capital for expansion remains elusive we.

We believe U S. Well services is well positioned in this environment and then our business trajectory is improving with each passing day.

Before we reflect on the first quarter and discuss the business and market outlook I'd like to take a moment to thank our chairman Joel Broussard for his dedication and service to U S well services.

In 2013, when Joel first had the vision of electrifying pressure pumping operations to reduce the environmental impact do you believe the initiative would be successful.

Now less than a decade later largest E&P operators and pressure pumping service providers have largely accepted an electric frac fleets represent the future of the industry.

He has been my great pleasure to work with Joe over the last several years and I look forward to continuing to work closely with him in his new role as our chairman.

The first quarter of 2022 marked a turning point for U S well services and its ongoing transition we generated approximately $41 $2 million of revenue and a loss of $3 $5 billion of adjusted EBITDA for the quarter. We averaged 4.4 fully utilized frac fleets. While these headline results are disappointing.

I believe there is much to be encouraged about beneath the surface.

When we initiated our exit from the diesel pressure pumping market in late Q2 of 2021, we recognize that we would experience shovel corners of turbulent results. Our company has the right people and assets in place to develop build and deploy the next generation of clean fleet technology.

Difficult teens in absorbing these costs with a lower active fleet count is weighed heavily on our quarterly financial performance in.

In 2019, we averaged roughly $2 $6 million of cash G&A per fleet on an average of 9.9 active fleets.

Currently our average cash G&A per active fleet for the last three quarters and for Q1 of 2022 was approximately 4.75 million and $5 $7 million, respectively. As we deliver our new Knicks clean fleets and ramp back up to scale overhead absorption profitability will continue to improve.

Yeah.

Last quarter, we mentioned that we had successfully restructured several existing contracts expected to see the benefit of these changes late in the first quarter of 2022.

Although total revenue only increased 6% sequentially in the first quarter. The month of March totaled over $20 million of revenue or 49% of our revenue for the quarter.

A jump we saw in revenue was partially driven by higher active fleet count, but it was also driven by the fact that our fleets we're positioned with contracted customers at favorable pricing, where they will remain for an extended period of time.

Our annualized March 2022 exit rate was approximately $41 million of revenue per fleet with over $10 million of gross profit contribution per fleet.

Month of April will be a considerable improvement to our March exit rate.

As I said before I believe the business is truly turned the corner.

The value proposition for electric fleets is improving daily diesel prices have hit an all time high and diesel inventories are low in many parts of the country.

Fight the sharp rise in natural gas prices, we are continuing to see a widening gap between the fuel cost for conventional diesel fleet electric fleet powered by field gas.

Historically, we've seen our customers say between 1 million and $1 $5 million per month using field gas in today's environment. We believe these fuel savings exceed $2 $5 million per month.

Finally, one last point of encouragement that I'll make is the trend in our repair and maintenance costs our decision to exit the diesel pressure pumping market was driven by two main considerations first we believe the electric segment of the market offers premium pricing higher barriers to entry and second we believe that the electric fleets are longer.

<unk> assets with lower maintenance costs with our fleet now almost fully electric we've seen our repair and maintenance costs on a per pump hour basis decreased 40% relative to full year 2019 levels over the long term our ability to generate higher revenue lower operating costs and overheads spread across the larger fleet should be.

Result in some of the most attractive economics and our industry.

We think our business is incredibly well positioned moving forward since mid 2019 pressure pumping service companies have leveraged spare capacity to support increasing completion intensity and to further maintenance.

Today, the industry capacity is as tight as it's been in nearly a decade.

Most service providers are sold out and for most of the lead time to deliver a new fleet is both long and uncertain.

As a result, leading edge pricing has recovered meaningfully now exceeds pre pandemic levels, even as adjusted for inflation.

Right now the biggest challenges that face pressure peppers or cost inflation labor scarcity and logistical bottlenecks, creating shortage of goods. These challenges not only impacts service provider's ability to ensure operational continuity and quality.

But also limit their ability to increase capacity is in reaction to the current market dynamic.

This is why I believe U S. Well services is incredibly well positioned we expect to deploy our first newbuild Nick's clean fleet in Q2, followed by another in early Q3 and two more in early Q4.

We have existing fleets that will be available late this year.

U S well services will have the supply of high spec all electric horsepower to meet our customers' needs.

Our supply chain team has also been actively working to lock in pricing in order to stem the impact of cost inflation for critical goods and services and we continue to work to attract develop and retain the best talent in the industry.

Finally, before Josh goes through the specifics of our financial results I wanted to take this opportunity to thank the U S well services team.

Our team has overcome tremendous challenges over the last several years has demonstrated an unwavering commitment to safety and execution.

Added to show the market, what we can do when we combine best in class people with our best in class technology amidst the favorable market backdrop.

And with that I'll turn it over to Josh.

Thanks, Scott and good morning, everyone U S well services averaged four seven active fleets during the quarter with a utilization rate of 94%, resulting in $4 four fully utilized fleets, we exited the quarter with six active fleets and expect to average six to seven active fleets for the second quarter of 2022.

Revenue for the first quarter was $41 1 million up from $38 9 million last quarter, while total revenue increased 6% sequentially, we saw service and equipment revenue increased 17% quarter over quarter as we began to see the benefit of improving pricing for our services in late Q1.

Revenue from materials, such as sand chemicals, and trucking declined 45% sequentially as we did not provide sand for any of our customers during the first quarter of 2022.

Our cost of sales for the quarter was $40 7 million down 2% quarter over quarter from $41 3 million in the fourth quarter of 2021.

Much of this sequential decrease was driven by lower costs for materials and reduced heavy equipment transportation costs as we completed repositioning our fleet in Q4 to bring equipment to contracted customers for 2020 to work programs.

I would note that we are definitely seeing signs of inflation across our supply chain to date, we've seen costs increased 8% to 10% for most items versus 2021 levels. We believe we've locked in pricing for many critical components throughout the end of the year, we will continue to be impacted by rising cost for fuel and lubricants as well as fluid ends and high pressure iron ore.

Of which are exposed to surgeon cost of underlying commodities.

SG&A was $8 3 million for the first quarter of 2022.

Net of stock based compensation and other noncash charges SG&A was $6 6 million, which compares to $5 million for the fourth quarter of 2021.

Quench will increase in SG&A was primarily related to personnel costs and professional fees.

Adjusted EBITDA for the first quarter was a loss of $3 5 million, which is an improvement relative to the loss of $7 9 million in the fourth quarter of 2021.

On an annualized basis adjusted EBITDA per fully utilized fleet was a loss of $3 2 million for the quarter on an accrual basis U S. Well services spent approximately $2 million on maintenance capital expenditures during the first quarter of 2022 and deployed approximately $10 3 million for growth capital expenditures related to our Newbuild clean fleets, we anticipate.

Lending approximately $95 million to $115 million over the remainder of the year to complete the build out of these fleets.

Turning to the balance sheet. The company ended the first quarter of 2022 with $41 million of cash and restricted cash and $8 $5 million of ABL availability with that I'd like to turn the call back to Kyle for some final remarks.

Thanks, Josh we're excited to deploy our new clean fleets and implement the final phase of our all electric strategy. We think the future is bright for U S well services and look forward to delivering for our customers and our shareholders.

Operator, please open up the call to Q&A.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

<unk> tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for your questions.

Our first questions come from the line of John Daniel Daniel Energy Partners. Please proceed with your question.

Good morning, guys. Thank you for including me.

Yes, you've got the four you've got the four fleets that come this year.

Now, you're probably rather sensitive given official forecast for demand for new fleets in 2023, but I'm just curious can you.

With lead times as long as they are can you speak to maybe some of the component parts. If you will that you may have pre purchased to essentially continue at Newbuild program end of 'twenty through just any color would be appreciated.

Yeah, sure Hey, John So yeah, we do have some of the longer lead time components secured so that to the extent we wanted to react to some of the demand that we're seeing we could deliver fleets in 2023.

And.

What we have today, we can deliver those suites in early 2023. However.

However at this point, we have not made any commitments to build any fleets. Despite the demand that we're seeing.

Fair enough.

The guidance for Q2, the averaging six to seven fleets.

That's included in one diesel fleet or is or two out there.

That's one.

Just one okay. That's all I got good to see the outlook. Thank you guys.

Thanks, Greg.

Thank you. Our next question is coming from the line of Alex Scheibel Hoffman with Stifel. Please proceed with your question.

Hi, Thank you and good morning, everyone and thanks for taking my question.

Hey, good morning.

Yes.

Curiosity can you just help us understand the drivers of our EBITDA per fleet in a if you think it's possible that you could see breakeven levels and a <unk> 22, and maybe the cadence moving forward for the rest of the year.

Yeah, absolutely I mean, I think we put in our press release, you talked about a little bit on the earnings call.

We thought that it will increase our revenue.

Really beginning March one.

That trend.

Part of Q2.

Prior.

EBITDA per fleet up over our gross profit I guess over $10 million in them.

And you can see that growth throughout the year.

Big driver of increased profitability or at least the data that we have.

Paul just getting more fleets.

It's really.

Spread that spread our fixed SG&A costs over more fleet.

Excellent thanks for the color.

Anytime.

Thank you there are no further questions at this time I would like to turn the floor back over to management for any closing comments.

Okay.

Thanks, everyone for joining have a great day.

Yeah.

Ladies and.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.

Have a great day.