U.S. Well Services Inc. (USWS) Q4 2021 Earnings Conference Call March 31, 2022 11:00 AM ET

CompanyParticipants

Josh Shapiro - Vice President of Finance & Investor Relations
Joel Broussard - President & Chief Executive Officer
Kyle O誰eill - Chief Financial Officer

Conference Call Participants

Operator

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. [Operator Instructions] A reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Josh Shapiro. Thank you. You may begin.

Josh Shapiro

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 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, the call will be open for Q&A.

Yesterday evening, U.S. Well Services released its full year and fourth quarter 2021 earnings. The earnings release can be found on the company's website at uswellservices.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 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 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 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'd like to turn the call over to U.S. Well Services CEO, Mr. Joel Broussard.

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, filled with significant change and challenges. Despite 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 milestone successes our team achieved during the last 12 months, including generating $250 million of revenue for the year and $40 million of adjusted EBITDA; phasing out our conventional diesel fleet which brought our active fleet count from 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; securing a 0% interest rate for Q1 2022 and a 1% cash interest rate for our term loan for the balance of 2022; sold three licenses for our Clean Fleet technology for $22.5 million, validating the value and quality of our IP portfolio; designed the Nyx Clean Fleet, the next generation of electric frac technology and initiated construction of four of these new fleets; won new contracts for -- or extended existing contracts for all of our existing electric fleets in three of our four newbuilds; expanded our operational footprint into the 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 not show up in the fourth quarter results, we have strongly positioned the company to succeed in 2022 and beyond. Our results for the fourth quarter illustrates some of the difficulty we faced in undertaking the strategic transformation as well as the macroeconomic headwinds felt by the entire industry. We continue to be impacted by our reduced fleet count during the period as a result of our transition away from diesel equipment. This allows fewer fleets to absorb field and corporate level overhead, impacting our profitability. However, we expected to see great overhead absorption as we begin to roll out 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 the third. Our operations were materially impacted by both, lack of truck drivers and inability of our customers to obtain all of the sand and the water required for their operations.

During the quarter, we had 16.4 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 continue 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 solutions such as electric clean fleets and feel confident this momentum will continue to build. With this backdrop, U.S. Well Services is ideally positioned. 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. And such commands premium pricing relative to both conventional and dual fuel equipment.

We continue to grow our fleet with the addition of four new Nyx Clean Fleets, the first of which we deployed in Q2. Our value proposition is undeniable and it drives the demand in premium pricing for our fleets relative to alternative technologies. This is further demonstrated by a significant rise in diesel prices. The 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 $1.25 million per fleet per month.

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

Kyle O誰eill

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 4.1 fully utilized fleets. This compares 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 the third quarter revenue of $56.5 million largely driven by nonproductive time related to sand and water constraints in the Northeast and typical seasonality. Total nonproductive time during the quarter due to sand and water shortages totaled 67 days or 16.4 days per fully utilized fleets.

Cost of sales in the fourth quarter was $41.4 million, down 29% sequentially. A reduction in the cost of sales was related to lower active fleet count and a 50% reduction in the amount of sand and consumables sold during the period. SG&A for the fourth quarter was $6.8 million compared to $11.1 million for 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. This 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 Nyx Clean Fleets and additional long lead time components for future fleets. We expect to spend between $5 million and $10 million on growth CapEx during the first quarter. The majority of the capital expenditures for these new fleets will be incurred closer to when the fleets are delivered beginning in Q2 of 2022.

Turning now to our balance sheet. The company ended 2021 with $20.2 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 with the company's 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 $120.7 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 that balance down to $102.9 million. As a result of the significant debt reduction, the company secured an interest rate of 0% for the first quarter of 2022 and a cash interest rate of 1% and 4.25% PIK for Qs two through four of 2022, resulting in cash savings of nearly $9.8 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. Our cost of sales for 2021 was $221 million as compared to $187.8 million in 2020 or an 18% increase. 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 and administrative expense decreased to $32.6 million from $43.6 million in 2020. Excluding stock-based compensation and noncash charges for doubtful collections of accounts receivable, SG&A totaled $23 million compared to $23.5 million in 2020.

Net loss attributable to the company was $70.6 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 [ph] capital expenditures were $53.5 million, of which $24.1 million was related to maintenance capital expenditures. The remaining $29.4 million was for growth capital expenditures related to our newbuild electric fleets.

And with that, I'll turn it back over to Joel for closing remarks.

Joel Broussard

Thanks, Kyle. Since we introduced the first all-electric fleet in 2014, U.S. Well Services has been vocal advocates for electric pressure pumping technology. No other technology offers the same combination of economics, ESG and HSSE 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 technology, expertise and personnel to deliver for its customers and create value for shareholders. And we continue to believe that the future is very bright for this company.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Alex Hopper [ph] with Stifel. Please proceed with your question.

Unidentified Analyst

Thank you. Good morning, everyone. And thank you for taking my questions.

Joel Broussard

Good morning, Alex.

Unidentified Analyst

Good morning. So the first question I have here, 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, 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? I believe you said Q2 but I was just wondering if you could give a little bit more color around that.

Joel Broussard

Kyle, you want to take that?

Kyle O誰eill

Absolutely. Yes. 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 an increase in our profitability. First fleet goes to work in Q2. Second fleet will be the end of Q2, early Q3. And then the next two fleets will be in Q3 and Q4. So by year-end, we'll exit the year with a dramatically improved profitability profile.

Unidentified Analyst

Got it. And if I could just squeeze in a second question here. You also commented during the call about some continued difficulty against frac sands and mine. I was just curious to see if you're starting to continue to create inefficiency at the well site because of that and kind of when you guys expect or might expect to see that start to normalize.

Joel Broussard

Kyle?

Kyle O誰eill

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 Q2.

Unidentified Analyst

Okay, so kind of the same. Okay, awesome.

Joel Broussard

And we -- in March also, due to different customer promises that -- with trucking and sand and water.

Unidentified Analyst

Got it. Okay. Thank you for the color.

Operator

We've reached the end of the question-and-answer session. I'd now like to turn the call back over to Joel Broussard for closing comments.

Joel Broussard

Thank you, everybody, for joining. You have a great weekend.

Operator

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