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spk03: Greetings and welcome to the U.S. Wealth Services First 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. It is now my pleasure to introduce your host, Mr. Josh Shapiro, Vice President of Finance. Thank you. You may begin.
spk02: Thank you, Operator, and good morning, everyone. We appreciate you joining us for the U.S. Wealth Services Conference call and webcast to review the first quarter 2021 results. Joining us on the call this morning are Joel Broussard, Chief Executive Officer, and Kyle O'Neill, Chief Financial Officer. Following their prepared remarks, this call will be opened up for Q&A. Earlier this morning, U.S. Wealth Services released its first quarter 2021 earnings. The earnings released can be found on the company's website at www.uswealthservices.com. The company 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, May 17, 2021, 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. Wealth Services CEO, Mr. Joel Broussard.
spk08: Thanks, Josh, and good morning, everyone. The U.S. Wealth 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, resulting in a lost week of 70% of our active fleet. Despite the winter 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 oil was devastated as the global economy shut down in response to COVID-19, which took WTI prices below zero before selling in the high 20s and low 30s per barrel. There appeared to be limited prospects for improvement in commodity prices, and the number 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 per barrel thanks to a combination of demand growth and a restrained response from global oil producers. First quarter results posted by the U.S. shale producers demonstrated that the industry is able to earn returns and generate free cash flow at these commodity prices. While hydraulic fracturing activity and the number of active fleets across the industry has rebounded with commodity prices, frac service pricing has yet to recover. Today, we estimate that there are around 200 active fleets working in the U.S., many of which are working at prices that we believe are unsustainable. Because the market for conventional diesel-powered frac services continues to be oversupplied, Service pricing has been unable to rise off trough levels set during the depths of the pandemic. At the same time, E&P operators are demanding next generation fracturing technologies that minimize the cost and greenhouse gas emissions associated with well completions. U.S. Well Services has a solution. Our proprietary clean fleet technology offers best-in-class fuel cost reductions and offers industry-leading greenhouse gas emissions performance. Consider this. At today's delivered diesel prices, a typical tier 4 diesel frac fleet operating at 9,000 psi and 100 barrels per minute would consume between $1.5 and $1.8 million worth of diesel per month. If performed by a clean fleet, the same job would consume between $150,000 to $200,000 of fuel gas resulting in substantial cost savings and significant reduction in greenhouse gas and small producing emissions. The fuel cost savings from using a clean fleet could be as high as $3,500 per pump hour. That is to say the E&P customer would pay $3,500 per hour over prevailing market rates for diesel equipment without impacting its costs while hedging its service costs. Meanwhile, the service company can make money at these levels and reinvest in its equipment and people. We firmly believe that clean fleet technology represents the future of the hydraulic fracturing industry. Moving forward, U.S. Well Services will continue to focus on innovating and offering best-in-class electric fracturing services and solutions. In the near term, our team is working with customers to raise service pricing on our conventional diesel-powered equipment and is confident phased pricing increases will be implemented throughout the remainder of the year. However, we continue to monitor pricing across our portfolio and react swiftly if market pricing remains depressed. With that, I will turn the call over to Kyle.
spk04: Thanks, Joel, and good morning, everyone. Before I dive into the first quarter financial results, I'd like to comment on the recent SEC statement regarding the accounting and reporting for SPAC-related 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 as 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. The restatement has no impact on our operations, revenue, operating income, or other key non-GAAP financial metrics such as adjusted EBITDA. With that, I'll now turn to the review of our first quarter. U.S. Wealth Services averaged 10 active fleets during the quarter. with a utilization rate of 88%, resulting in 8.8 fully utilized fleets. As Joel noted, the winter storm in February caused a work shutdown for seven of our fleets for an average of seven days. If not for this work stoppage, we would have averaged 9.3 fully utilized fleets for the quarter. We generated $76 million of revenue for the first quarter of 2021, up 59% from $48 million in the fourth quarter of 2020. The sequential increase in revenue was driven by the uptick in our active fleet count and was offset by an estimated $5 to $5.5 million of revenue lost due to the work shutdown during the winter storm. While service and equipment revenue was up 54% sequentially, pricing on a per pump hour basis declined 5% sequentially due to the redeployment of conventional fleets and market pricing. As Joel mentioned earlier, we have initiated discussions with our customers regarding price increases and we'll continue to evaluate the economics of each fleet in our portfolio to ensure that we're maximizing value for our shareholders. Our cost of sales for the quarter was $63 million, up 48% quarter over quarter from $43 million in the fourth quarter of 2020. While most of the sequential increase in our cost of sales is attributed to higher labor, repair and maintenance, and costs associated with higher active fleet count, U.S. Well Services began to see signs of inflation during the quarter. Most notably, we have seen costs for chemicals, accommodations, and trucking rise significantly since the beginning of the year and are continuing to work to mitigate the impact of these inflationary pressures on our financial results. SG&A was $7.4 million in the first quarter of 2021. Net of stock-based compensation and other non-cash charges, SG&A was $5.9 million, which compares to $5.6 million for the fourth quarter of 2020. The sequential increase in SG&A primarily related to personnel costs and professional fees. Adjusted EBITDA for the first quarter was $11.5 million, up from $1.8 million in the fourth quarter of 2020. Annualized adjusted EBITDA for fully utilized fleet was $5.2 million, up from $1.4 million in the prior quarter. On an accrual basis, U.S. Wealth Services spent approximately $9.6 million on maintenance capital expenditures during the first quarter of 2021. Turning to our balance sheet, the company ended the first quarter of 2021 with over $32 million in liquidity, consisting of $18 million of cash on hand and $14 million of availability under our ABL facility. With that, I'd like to turn the call back to Joel for some final remarks.
spk08: Thanks, Kyle. Although this market environment remains challenging, U.S. Wealth Service is 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 FRAC services continues to evolve. Operator, please open the call up for Q&A.
spk03: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you 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 the start key. One moment while we poll for questions. Our first question comes from the line of Ian McPherson with Simmons. You may proceed with your question.
spk00: Thanks. Good morning, Joel. Kyle, how are you? Good morning, Ian. Good morning. Great. How are you? Good. Thanks. So I wanted to get your view on how margins should should improve coming out and 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 per-fleet basis going from now until the end of the year, do you think? And you can airbrush that answer as much as you care to, but I'd like to get a sense for how we begin to harvest EBITDA and cash flow from the footprint that you've covered now.
spk08: Well, Ian, as we all know, we're looking at our peers and others that After CapEx, everybody's still negative. So pricing does have to come up on the diesel fleets. However, on our electric fleets, 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. 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 either going to, you know, 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 than some of our peers, but the conversations are happening, and margins have to come up on our diesel equipment, or we won't work them.
spk00: 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. Interested in that particular component as well. This is the total picture for cash generation and liquidity balances towards the end of the year.
spk04: Yeah, that's exactly right. We did have kind of a working capital build in Q1 as we redeployed some of those fleets. So, yeah, you know, kind of in a normalized operating environment, you know, we would expect to see that cash flow profile continue to improve throughout the year.
spk00: Okay. Good. Thank you, gentlemen. Thank you. Thank you.
spk03: Our next question comes from the line of Stephen Gingaro with CIFL. You may proceed with your question.
spk01: Thanks. Good morning, gentlemen. Good morning. A couple things. So one is on the On the conventional side, I think your maintenance capex per fleet is like $5.5 million-ish per year. A, is that right? And B, does that suggest you won't deploy fleets on the conventional front unless they're generating some number higher than that?
spk04: Correct. Yeah, you've hit that. Yeah, that's about right, and 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.
spk01: Okay, and on the E-Fleet side, can you just remind us sort of where you stand from a contractual perspective, just so I have sort of the most updated data? Yeah.
spk08: We currently have five electric fleets working. We expect all of those to work through the end of the year, except maybe our original one we built in 2014. It has worked as of now through October.
spk01: Okay. And two other quick ones. One is you mentioned, I think on the last call, for about $50 million in CapEx, you could you could deploy two incremental E-fleets based on equipment you have in the yards, et cetera. A, is that still about the right number? B, where do you stand on that thought process?
spk08: Actually, that number is coming down. We think that we could upgrade the two original fleets we built with just pumps for around $30 million. 30 to 35.
spk01: Great. And then just as a final one, and this follows up on Ian's question, in the quarter you mentioned 5, 5.5 million of revenue impact. Your adjusted EBITDA was about 11.5. Can you give us a sense for what the EBITDA impact or even the per fleet EBITDA impact was? And then additionally, can you Where's the moment? I guess what I'm thinking about is can EBITDA or fleet get the double digits this year or no because of the dilutive effect of the conventional assets? Kyle, go ahead and take that one.
spk04: Sure, yeah. Yeah, I think getting the double digits across the entire fleet this year will be challenging, largely because of the current market for our diesel equipment.
spk01: And EBITDA impact from the quarter, do you have any sense for what it was on that five? Is it just sort of in the two to three million range or is it?
spk04: I think it's, I mean, you know, I think it's probably closer to a million to a million and a half EBITDA impact.
spk01: Great. Thank you. Thank you.
spk03: Our next question comes from the line of John Daniel with Daniel Energy Partners. You may proceed with your question.
spk06: 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 smidgening of softening. Do you think that's a reflection of front-end-loaded customer budgets, too fast of reactivations amongst your frack brethren? Just a little bit more color would be helpful.
spk08: I think it's both of what you're speaking of. When I say slightly softening, we're just seeing some of the people that came out of the gate wanting more spot fleets than, hey, we'll take it for the rest of the year. That's what we're seeing. And we're still seeing pricing in the $6,000 and below pump range, which we all know is negative cash flow once you add CapEx in there. Okay.
spk06: And then the last one for me, just with the cleaner emission fleets, with the rise in diesel prices, how would you characterize, you know, inquiries and interest on the part of customers today versus, you know, three to four months ago on this technology?
spk08: It's been drastic. You know, we've done several test pads with our original fleet. We've built 14 for customers. We made an announcement on one of them, which was Callen. Right. There's probably six. Five others that we're going to be doing test pads for this year. RFPs are coming out strictly electric. When in the past we saw diesel and electric. So we're excited. I don't think diesel, I hope diesel prices isn't going down. And the higher diesel prices go up, the more savings. I mean, 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, you know, as you've seen, we've renewed contracts with EQT and Range in the past and Shell. We've extended contracts for all three of those. So they're seeing the efficiencies, they're seeing the fuel savings, and they're seeing the emissions reduction.
spk06: Okay, got it. And I guess the last one for me, Joel, would be if someone came to them tomorrow with a, a contract in hand, which was accommodating to you, how quickly could you get the next electric fleet deployed?
spk07: Um, January one. Okay. Thank you very much. Thank you.
spk03: Our next question comes from the line of Daniel Burke with Johnson rice and company. You may proceed with your question.
spk05: Yeah. Good morning guys. All right. Good morning.
spk08: What's happening?
spk05: Not much. I, uh, I think I've really only got one left, but, um, really, and it's on the topic we've, we've, we've danced upon, uh, in Q and a, but in terms of, of adding incremental, uh, clean fleets, I guess I just wanted to better understand it. It looked like you guys, um, you know, raised a bit of incremental debt and equity in the first quarter. So, uh, what, what do you need? Are you willing to make, uh, those investments, uh, to bring an extra fleet or two to market without that customer commitment or, um, or are you already making that investment now in anticipation of that customer demand being there? Just not clear on the sequencing.
spk08: We haven't ordered any fleets yet, and we're negotiating with different clients for contracts as we speak. Nothing has been solidified. Okay.
spk05: All right. Really, guys, that's all I was looking for was that piece of clarity. I'll leave it there.
spk08: Again, 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 to an all-electric company, and that still is our goal.
spk05: That's good to hear. Again, guys, thank you. Thank you for squeezing me in.
spk07: Thank you.
spk03: Our next question comes from the line of Stephen Gingaro with CFO. You may proceed with your question.
spk01: Thanks. I wanted to follow up on two things. One was, can you give us a range of the difference in EBITDA per fleet for your E-Fleets versus your conventional fleets currently? Kyle, you want to take that one?
spk04: Yeah. Historically, we haven't broken out that range. the difference in profitability between the two fleets. So, I think it's something that, you know, we look at our whole portfolio, but we, you know, we have put on there that our, you know, operating costs and operating and maintenance costs are 40% to 45% less than traditional diesel fleet.
spk08: Okay. Thanks.
spk01: Because what I was trying...
spk08: And also, CapEx is drastically less than the conventional fleet, maintenance CapEx. Exactly.
spk04: I was just going to say, it's about the same magnitude.
spk01: Okay. Oh, yeah, because what I was trying to get to is when we think about 2021 and maybe hopefully 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, so I look out to 21 and 22, and I was just actually just sort of looking at the consensus numbers right now, which I'm not asking you to bless, but let's say the consensus numbers are, you know, 50 and 90 in EBITDA on 21 and 22. What does that mean for free cash? Is there a way to think about that?
spk04: Yeah, I mean, I think that, you know, the guidance we've given before is, you know, $5 to $5.5 million of EBITDA for our diesel equipment and $2 to $3 million for the electric equipment. So you can kind of back into a maintenance capex number and... take that out of your EBITDA to get to your free cash flow capacity.
spk01: Okay. All right. Thank you, guys. It's helpful. Thank you. You're welcome.
spk03: Ladies and gentlemen, we have reached the end of today's question and answer session. Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful rest of your day.
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