U.S. Well Services, Inc.
Q1 2021 Earnings Call Transcript

Published: 17 May 2021

[Operator:]

Greetings, and welcome to the U.S. Well Services First Quarter Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Josh Shapiro, Vice President, IR. Thank you, you may begin.

[Josh Shapiro:]

Thank you, operator, and good morning, everyone. We appreciate you joining U.S.for the U.S. Well Services conference call and webcast to review the first quarter 2021 results. Joining U.S.on the call this morning are Joel Broussard, Chief Executive Officer; and Kyle O'Neill, Chief Financial Officer. Following their prepared remarks, the call will be opened up for Q&A. Earlier this morning, U.S. Well Services released its first quarter 2021 earnings. The earnings release can be found on the company's website at www.uswellservices.com. The Company also intends to file its Form 10-K with the SEC this afternoon.

[Joel Broussard:]

Thanks, Josh and good morning, everyone. The U S. Well Services' team delivered another strong quarter with significant growth in both revenue and adjusted EBITDA. During the quarter, our operations were impacted by the freeze in Texas results in a loss week of 70% of our active fleet. Despite the wind storm and other challenges we faced redeploying fleets, the USWS team did an incredible job. I'm proud of the way this team continues to execute for our customers. Kyle will dive into the specifics of our first quarter financial results. But 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 was oil devastated as the Global Economy shutdown and response to COVID-19, which took WTI prices below zero before selling in the high twenties and low thirties profile. There appear to be limited prospects for improvement and commodity prices. And the numb of active U.S. frack fleets dropped below 50. The market backdrop for the upstream oil and gas sector has improved a great deal since that time. WTI crude oil prices have stabilized above $60 for about, thanks to a combination of demand growth and a restrained response from global oil producers. First quarter results posted by the U S share produces demonstrated that the industry is able to earn returns and generate free cash-flow at these commodity prices, while hydraulic fracking activity in the number of active fleets across the industry has rebounded with commodity prices.

[Kyle O'Neill:]

Thanks, Joel and good morning everyone. Before I dive into the first quarter financial results, like to comment on the recent SEC statement regarding the accounting and reporting for speculated warrants. In mid-April, the SEC released a statement informing companies with warrants issued by SPACs, 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 is equity. As a result, we and many other companies formed through business combinations with SPACs, have restated our financial statements to correct the classification of warrants as a liability.

[Joel Broussard:]

Thanks Kyle. Although this market environment remains challenging U.S.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 frack services continues to evolve. Operator, please open the call up for Q&A

[Operator:]

Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Ian MacPherson from Simmons. You may proceed with your question.

[Ian MacPherson:]

Thanks. Good morning, Joel. Kyle, how are you?

[Joel Broussard:]

Great. How are you?

[Ian MacPherson:]

Good thanks. So, I wanted to get your view on how margins should improve coming out. You had the Q1 weather impacts and you've scaled up to, you know, basically doubling your footprint from where you were a year ago ahead of the full benefit, or 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 tailwinds how much EBITDA leverage do you have on a perfectly basis going from now until the end of the year, do you think? And you, you can airbrush that answer as much as you care to, but I'd like to get a sense for you know, how we begin to harvest the cash flow from the footprint that you've recovered now?

[Kyle O'Neill:]

And as we all know, we're looking at up here as and others that up to CapEx everybody's still negative. So pricing does have to come up on the electric on the diesel fleets, however, on our electric fleets where we're satisfied with the margins and they're dragging our diesel fleets up, simply because the cost savings to the client. We're seeing a little softening in the market and we feel that there's around 200 fleets working, not 220 and some of these fleets are going to the spot market, but we're, we're either going, you know, w we're having difficult conversations with our clients now on the diesel equipment. And we have, you know, of course we have less of them to have with some of my peers, but the conversations are happening and margins have to come up when I diesel equipment or we won't work.

[Ian MacPherson:]

Got it. And then Kyle, do you have 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 in the first quarter. I'm interested in that particular component as well as just the total picture for cash generation and liquidity balances towards the end of the year. Yeah,

[Kyle O'Neill:]

That's it that's exactly right. We did have kind of a working capital build in Q1 as we redeployed some of those fleets. So you know, kind of in a normalized operating environment, you know, we would expect to see that cash flow profile and continue to improve throughout the year.

[Operator:]

Our next question comes from the line of Stephen Gengaro from Stifel. You may proceed with your question.

[Stephen Gengaro:]

Thanks. Good morning, gentlemen. A couple things. So one is on the conventional side, I think your maintenance CapEx for fleet is like $5.50 million ish per, per year A, is that right? And B does that suggest you won't deploy fleets on the conventional front and luster of generating some number higher than that?

[Joel Broussard:]

Correct. Yeah, that's about right. That's, you're exactly right. We won't deploy unless we can, more than cover our maintenance CapEx. It's got to be cash flow creative.

[Stephen Gengaro:]

Okay. And on the, on the fleet side can you just remind us sort of the where you stand from a contractual perspective? Just so I have the sort of most updated data

[Joel Broussard:]

At currently we have electric fleets working. We expect all of those to work through the end of the year, except maybe our original one which we built in 2014. It has worked as of now through October.

[Stephen Gengaro:]

Okay. And two other quick ones. One is you mentioned, I think on the last call for about $50 million in CapEx, you could, deploy to incremental E-fleets based on equipment you have in the yards, et cetera. Is that A, is that still about the right number or B? Where do you stand on that thought process?

[Joel Broussard:]

Actually, that number is as coming down. We think that we could upgrade the two original fleets we built with just pops for around 30 million hours. 30 to 35

[Stephen Gengaro:]

Okay. Great. And then just as a final one, and this follows up on Ian's question you're in the quarter, you mentioned $5 to $5.50 million of revenue impact. Your adjusted EBITDA was about $11.50. Can you give us a sense for what the EBITDA impact or even the perfectly but dying path was? And then additionally is where's the moment like I'm going to, I guess what I'm thinking about is can EBITDA per fleet get the double digits this year or no because of the dilutive effect of conventional assets?

[Joel Broussard:]

Kyle ,now can take that one?

[Kyle O'Neill:]

Sure. Yeah, I think getting to double digits across the entire fleet this year will be will be challenging largely because of the current market for diesel equipment.

[Stephen Gengaro:]

And an EBITDA impact from the quarter, do you have any sense for what it was on that? Is it just sort of it a 2 to 3 million range or is it...

[Kyle O'Neill:]

I think it's, I mean, you know, I think it's probably closer to $1 million to $1.5 million.

[Operator:]

Next question comes from the line of John Daniel with Daniel Energy Partners. You may proceed with your question.

[John Daniel:]

Hey guys. Joel, thank you for the color. I just want to follow up a little bit on your comment about activity and just what I'm going to refer to as a snitching of softening. D do you think that's a reflection of front end loaded customer budgets to faster reactivations amongst your frack ? Just a little bit more color would be helpful.

[Joel Broussard:]

I think it's both of what you are speaking of, where, when I say slightly softening, we're just seeing some of the people that came out of the gate, one more spot fleets than then, Hey, we'll take it from the rest of the year. That's what we're seeing. And then and we still say in pricing, in the 6,000 and below pump range, which we all know is a negative cash flow. Once you have a much at CapEx in there.

[John Daniel:]

Okay and then the last one from me, just with the cleaner mission fleets with the rise in diesel prices, how would you characterize inquiries and interest on the part of customers today versus three to four months ago on this technology?

[Joel Broussard:]

It's been drastic, we've done several test pads with our original fleet. We built core team for customers. We made an announcement on one of them, which was calling, right? There's probably five others that were going to be doing test pads for this year. RFP’ are coming out with strictly electric when in the past we saw diesel and electric. So we we're excited I don't think this is a hope these surprises it and going down and the higher diesel prices go up, the more savings on the, we have one customer that we've been working with since 17, I mean, 18, sorry, they're spending $2.4 million a month in diesel. And it's real. And now, as you've seen, we've renewed contracts with EQT and range in the past and shell we've extended contracts, all three of those. So they're seeing the efficiencies, they're seeing the fuel savings and they're seeing the emissions reduction.

[Joel Broussard:]

Okay. Got it. And I guess the last one for me, Joel, would be if someone came to them tomorrow with a contract in hand, which was accommodating to you, how quickly could you get the next electric fleet deployed?

[Joel Broussard:]

January one.

[Joel Broussard:]

Okay. Thank you very much.

[Operator:]

Our next question comes from the line of Daniel Burke - Johnson Rice & Company. You may proceed with your question.

[Daniel Burke:]

Yeah. Good morning guys.

[Joel Broussard:]

Good morning. What's happening?

[Daniel Burke:]

How much I think I've really only got one left, but really and it's on the topic we've danced upon in Q&A but in terms of adding incremental Clean Fleets, I just wanted to better understand it. It looked like you guys you know, raised a bit of incremental debt and equity in the first quarter. So what, what do you need, are you willing to make those investments to bring an extra fleet or two to market without that customer commitment or are you already making that investment now? In anticipation of that customer demand being there, I'm just not clear on the sequencing.

[Joel Broussard:]

We haven't ordered any fleets yet where and we're negotiating with different clients for contracts as we speak. Nothing has been solidified.

[Daniel Burke:]

Okay. All right. Really guys, that's all I was looking for was that piece of clarity, I'll leave it there

[Joel Broussard:]

Again. You know, one thing I'll add is that we've always said for the last several years, since we've been well, two years, that we were going to eventually transition from to an all electric company and that still is our goal.

[Daniel Burke:]

That's good to hear again, guys, you thank you for squeezing me in. Thank you.

[Operator:]

Our next question comes from Stephen Gengaro with Stifel. You may proceed with your question.

[Stephen Gengaro:]

Thanks. I wanted to follow up on two things. One was, can you give us a range of the difference in EBITDA per fleet, in your for your E-fleets versus your conventional fleets currently?

[Joel Broussard:]

Kyle, you want to take that one?

[Kyle O'Neill:]

Yeah, Historically we haven't broken out that the difference approximately between the two fleets. So I think it's something that we look at. We look at our whole portfolio but we have put on there that are, you know, operating costs and an operating and maintenance costs are 40 to 45%, less than a traditional piece of fleet.

[Stephen Gengaro:]

okay, thanks and also CapEx is drastically less than a conventional fleet maintenance CapEx.

[Kyle O'Neill:]

Exactly. I was just going to say it's about the same magnitude.

[Stephen Gengaro:]

Okay. Cause what I was getting where I was trying to get to is when we think about, the 20, 21 and maybe, you know, hopefully 20210, 2022 is a different year. Right. But when you have, when you look at, you know, whatever the EBITDA expectations might be for the company as I, so I would look out the 21 and 22, I was just actually just sort of looking at the consensus numbers right now, which am I asking you to bless, but, let's say the consensus numbers are, you know, 50 and 90 in any event that 21 to 22, what does that mean for free cash? Is there a way to think about that?

[Kyle O'Neill:]

Yeah. I mean, I think that, you know, the guidance we've given before is, you know, 5 to 5 million bucks of EBITDA or diesel equipment and $2 million to $3 million for the, for the electric equipment. So you can kind of back and do a maintenance CapEx number and take that out of your EBITDA to get to your free cash flow fasting.

[Stephen Gengaro:]

Okay. All right. Thank you guys. Helpful.

[Operator:]

Ladies and gentlemen, we have reached the end of today's question and answer session. Thank you for your participation. This concludes today's teleconference You may disconnect your lines at this time and have a wonderful rest of your day.