Q2 2022 US Well Services Inc Earnings Call

Greetings and welcome to the U S well services second 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. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

Now I'd like to introduce your host for today, Brian Weekly Vice President of Finance. 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 second quarter 2022 results joining us on the call. This morning are Kyle O'neill, Chief Executive Officer John .

Shapiro Chief Financial Officer.

Following their prepared remarks, the call will be opened for Q&A, yes.

Yesterday evening U S. Well services released its second quarter 2022 earnings the earnings release can be found on the company's website at Www Dot U S well services dotcom.

Also intends to file its Form 10-Q with the SEC. This afternoon.

Please note that the information reported on this call speaks only as of today August 11, 2022, 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 conference call may contain forward looking statements within the meaning of the.

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 statements made by management.

The listener is 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, and now I would like to turn the call over to you.

Small services CEO , Mr. Carl Looney.

Thanks, Brian and good morning, everyone. Since our last quarterly earnings call. We've seen a rapid strengthening in the fundamentals of the Frac service market deployed the first of our Newbuild next clean fleets and entered into an agreement to margin profile.

In the second quarter of 2022 was busy and exciting for U S. Well services is truly an understatement.

Before I provide our outlook on the state of the market I'd like to briefly discuss our transactional progress I'm very excited about this transaction because I believe <unk> is uniquely positioned to continue innovating electric fracturing technology pursuing the market opportunity for these fleets together our companies will have the largest electric fleet in the industry.

And the second largest fleet by total horsepower.

Confidence that program leveraging our existing capabilities are a next generation Frac technology in both of our outstanding Workforces to deliver incredible results for the industry.

<unk>, our combined company shareholders.

As previously noted we expect this transaction to close in the fourth quarter of 2022.

Today, the U S. Frac market is effectively sold out years of Underinvestment in attrition has finally caught up to the industry.

Supply of high quality equipment, no longer meet the demand and E&P customers. Additionally, supply chain disruption disruptions in a tight labor market are making it increasingly difficult to adequately staff supply maintain active fleets as.

As a result of this dynamic service and equipment pricing is at the best levels, we've seen in years.

I'd like to point out that while demand for pressure pumping services is generally robust.

Continue to believe that the strongest demand is for next generation fracturing technologies, such as our clean fleets that offer best in class efficiencies significant fuel cost savings.

Industry, leading environmental footprint.

During the second quarter, our commercial team worked hard to negotiate with our customers to continue improving the terms of our service agreements in order to improve the profitability of our fleets. We continue to experience strong commercial tailwind as a result of a favorable market backdrop, while we.

We are certainly benefiting from the market upturn, we also recognized the deteriorate deteriorating microeconomic environment.

Led to the recent pullback in crude oil prices.

At this point it is likely that we may be entering into recession and the persistent high inflation is continuing to wreak havoc on marketing consumers. However, as we evaluate the economic outlook is our view then economic recession should pose a manageable risk to our business due to the structural under supply of oil and natural gas and the depleted inventory.

Levels we.

Believe that demand for output from U S. Shale remains strong for the next several years and that the result will be a favorable environment for efficient Frac service companies with a demonstrated track record and ability to deploy next generation technologies.

Yeah.

U S well services, we've always focused on developing new technologies to meet the constantly evolving needs of our customers in June we began taking delivery of our first newbuild Nick's clean fleet and commenced operations with that fleet in the Rockies in July .

Team is excited to deliver the highest levels of service quality fuel cost savings and emissions performance with this latest generation clean fleet technology or.

Our second next fleets being constructed now and is expected to deploy in the field in late Q3.

With all that was going on we posted our strongest financial results since the second quarter of 2021.

Revenues for the second quarter was $69 million up 67% sequentially and adjusted EBITDA was $7 $5 million up from $3 $5 million loss in the first quarter of 2022, I am very proud of all that our team has accomplished and to that end I want to thank all of the U S well service employees, whose dedication commitment.

And hard work has allowed us to continue delivering high quality innovative services and solutions for our customers.

With that I'll turn the call over to Josh to review, our financial performance in more detail.

Thanks, Kyle and good morning, everyone.

U S well services averaged six active fleets during the quarter with a utilization rate of 92%, resulting in $5 five fully utilized fleets. We currently have seven active fleets and expect to average just over seven active fleets for the third quarter of 2022.

Total revenue for the second quarter was $68 8 million up from $41 2 million last quarter total revenue increased 67% sequentially and service and equipment revenue increased 3% on a per hour basis.

Our cost of sales for the quarter was $55 2 million up 36% quarter over quarter from $40 7 million in the second quarter of 2022. The increase was driven primarily by higher active fleet count and continued cost inflation for labor consumables and third party services S.

SG&A was $9 4 million in the second quarter of 2022.

Net of stock based compensation and other noncash charges SG&A was $10 4 million, which compares with $6 6 million for the first quarter of 2022.

I would note that we recorded the reversal of $3 $1 million of share based compensation expense related to the forfeiture of certain restricted stock awards during the quarter.

The increase in SG&A on a sequential basis was driven primarily by professional fees and increased personnel costs.

Adjusted EBITDA for the second quarter was $7 5 million, which is a significant improvement relative to the loss of 3 million for the first quarter of 2022 on an annualized basis adjusted EBITDA per fully utilized fleet.

$5 4 million for the quarter on.

On an accrual basis U S. Well services spent approximately $7 $3 million on maintenance capital expenditures during the second quarter of 2022 and deployed approximately $36 7 million for growth capital expenditures related to our Newbuild clean fleets, we anticipate spending approximately $65 million to $85 million over the remainder of the year as we continue.

Building out these tweaks.

Turning to the balance sheet. The company ended the second quarter of 2022 with $36 million of total liquidity, consisting of $18 billion of cash and restricted cash and $18 million of ABL availability with that I'd like to turn the call back to Kyle for some final remarks.

Thanks, Josh we believe the future of our industry is bright and that our clean fleet technology has been important role to play facilitating efficient economic safe and responsible development of our country's natural resources.

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

Okay.

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

A confirmation tone will indicate your line is there any question queue you.

You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing this darkies once again that's star one at this time one moment, while we poll for our first question.

Our first question comes from Derek <unk> with Barclays. Please proceed.

Hey, good morning, guys.

Hey, good morning Derek.

Just wanted to first touch on maybe you can talk about just the overall supply and the supply response out of the market just from the demand that we're seeing in and obviously the pricing indicators and how fast pricing has been moving up so we've heard from your peers. Some tier two equipment coming out we've heard about the tier four DGB new builds obviously electrics a whole different.

Current subject and where where you guys play, but just from where you're sitting in your insight into the market just as investors might be getting a little worried that we're going to be back to 2018 cycle, where we've had a big supplier of spots I just love to get your your thoughts around what you're seeing out in the field why you think supply so constrained even though.

We're seeing some tier two diesel has come out just relate to get some high level thoughts or just your thought on the overall supply side.

Sure.

I mean, what we're seeing right now is that the market is incredibly tight.

The work that our customers are asking us to do now it.

It takes increased horsepower a lot of the existing industry fleet is pretty aged and so.

The reliability of these pumps.

It is not as good so you've got to have more more pumps on location.

The swap them out.

I think we're going to be in a pretty tight market for quite a while just given the the overall age of the industry.

The lack of investment in previous years.

The need to maintain maintain production.

Josh anything yet.

Sure I mean, one thing I would add there is that I think.

Youre seeing more discipline from the industry this time around.

I think that the service companies are kind of following E&P companies lead and B.

Understanding that.

They don't want to be in a boom and bust cycle and so deploying capital only where it makes sense and where there is a real commitment from the E&P customers. So I think we will not heal flood of supply to the market and just given the tightness in supply chains I think in order to get.

Massive build cycle underway.

We're ways off from that.

Got it.

Here.

Second question back to the Frac side can you talk about any supply chain bottlenecks that might limit the scaling of E. Frac from an initial expectations obviously the.

The combined company of U S and pro Frac, how it has a pretty ambitious target to get to it as far as their yearend E Frac fleet count.

What would make if any fleets to slip into 2023, just we've heard some stuff some of your peers, maybe pushing out some of their <unk> deployments by a quarter or two just just want to hear from you guys. If that's still a reachable goal are things might slip to next year and what would be the limiting factor on the so.

On the supply chain to get there.

Yes sure.

I think that anytime you're constructing.

The new equipment.

Theres always a there can always be bottlenecks.

Kings to work out I think that where we are for our.

The plan for that were.

They've committed to build we got.

The first one out of the second one will be rolling out here in the next couple of months and then the third.

Third and the fourth I think we've got all the key components.

Just working out some of the some of the Kinks anytime.

Anytime you put a put a new pump on a test line.

There's always going to be something that you got to work through so it's just making sure that that.

All of these are all these pumps are running in the fields worthy.

When they rollout I think that's probably the biggest risk.

Ton time deployment.

Feel pretty good about about what our goals are.

Going forward I think trying to build out beyond what's been announced.

We do have some concern of surround things like Transformers in Dft's. That's why we have purchased two more fleets worth of those long lead items.

But don't have plans currently to.

To develop those.

Yeah, We may we may change that view as we get into our 2023 budgeting.

But we'll see there.

Got it very helpful. Thanks, guys I'll turn it back.

Thanks.

Our next question comes from Don Crist with Johnson Rice. Please proceed.

Good morning, guys. How are you all.

Dan how are you.

Pretty good.

Derek stole my question on the supply side supply chain side, but can I ask about logistics in general.

Obviously in the winter time in the northeast there were some sand issues and some truck issues.

Can you just talk about how the rails and the trucking is progressing now.

Those are they still tight or has that been mostly alleviated as of now.

Yeah, I think that the.

The market still is tied there its been there has been some relief, but we still are seeing.

Delays from time to time for for sand and in particular water.

Okay.

Okay.

That's all I've got for now I'll turn it back thanks.

Alright, thank you.

Thank you at this time there are no further questions in queue I would like to turn the call back over to Mr. O'neal for closing comments.

Thanks, everyone for dialing in have a great day.

Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time and thank you for your participation and have a great day.