U.S. Well Services, Inc.

Greetings and welcome to the U.S. Wealth Services Third 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 you to your host, Josh Shapiro, 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. Wealth Services conference call and webcast to review the third 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, the call will be open for Q&A. Earlier this morning, U.S. Wealth Services released its third quarter 2021 earnings. The earnings release can be found on the company's website at uswealthservices.com. The company also intends to file its Form 10-Q with the SEC this afternoon. Please note that the information reported on the call speaks only as of today, November 12, 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 meeting of the United States Federal Securities Laws. These forward-looking statements reflect the current views of US Wealth 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'll 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. Now I'd like to turn the call over to U.S. Well Services CEO, Mr. Joel Broussard.

Thanks, Josh, and good morning, everyone. The third quarter of 2021 marked the beginning of U.S. Well Services' transition to becoming a fully electric pressure pumping service provider. At the beginning of the second quarter, we were operating five active conventional fleets, and by the end of August, we retired the last of our active conventional fleets. Our results for the third quarter illustrate some of the difficulty we faced in undertaking this strategic transformation, as well as the macroeconomic headwinds felt by the entire industry. As we phased out conventional fleet operations, U.S. Well Services staffed fleet count decreased to five fleets from a peak of 11 fleets earlier this year. Although this resulted in reduced headcount for field employees, overall staffing levels remained elevated in order to ensure that we were able to ramp back up early next year when our new NINCS clean fleets are deployed. This challenge was amplified by rising labor costs across the industry. Not only did we have fewer fleets to absorb fuel and corporate personnel costs, but we also implemented a wage increase for employees in late Q3 in order to improve workforce retention. Additionally, U.S. World Service has spent nearly $2 million during the third quarter as we transition to outsource power generation business model for certain fleets and to prepare legacy conventional diesel equipment for sale. In early October, we sold three turbine generators for approximately $35 million using proceeds to repay term loan borrowing. In connection with that sale, we entered into a service agreement whereby labor maintenance, mobilization, and other key costs related to the turbine generators will be borne by the buyers in exchange for a fixed monthly fee. We also felt the impact of inflation across our supply chain during the third quarter. Rising input prices along with costs for services like trucking and logistics impact our results. Although we worked actively to mitigate inflation and pass cost increases along to our customers, it was difficult to track the pace of inflation for much of the quarter. In spite of these challenges, we remain very optimistic about the future of U.S. well services. Over the last several quarters, the pressure pumping industry landscape has changed dramatically. What were once considered gimmicks by many E&P customers, electric fleets and dual fuel fleets have become the most sought after technologies. Increasingly, we are seeing customers require a service company offer a next generation solution such as electric or dual fuel in order to bid for work. With this backdrop, US 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. As such commands premium pricing relative to both conventional and dual fuel equipment. In late Q1 of 2022, We will deliver the first NEEX clean fleet, a 60,000 horsepower consisting of 10 dual pumping units. By the beginning of Q3 2022, we expect to have taken delivery of our fourth NEEX fleet, bringing our total fleet to nine all-electric spreads. We also believe we are the leading technology innovator in our industry. Our expanding intellectual property portfolio has considerable value and demonstrated by a recent license agreement with Profract. We are the only pressure pumper to successfully power full fleets using electricity transmitted over high lines, and our proprietary Azure-based industrial IoT platform enables advanced automation and data capture that lowers our cost, improves operating efficiency, and provides enhanced insights and transparency for our customers. Our value proposition is undeniable, and it drives the demand for the premium pricing for our fleets relative to alternative technologies. Take, for instance, our recent project with a customer operating in West Virginia. Over the course of two paths, we displaced approximately 1.5 million gallons of diesel fuel, saving roughly 3.6 million, and cut the customer's CO2 equivalent emissions by 25% versus conventional diesel technology. I would like to comment on our balance sheet transformation. Since the beginning of the year, U.S. Wealth Services repaid nearly $90 million of our senior secured term loan and fully converted our Series B convertible preferred stock into common equity. Reducing our debt load and simplifying our capital structure are critical elements to our strategy. We believe ongoing debt reductions will be a key source of value creation for our shareholders. Before I turn it over to Kyle, I want to thank the U.S. World Services team for their hard work during such an important time in the company's history. The sacrifice and efforts our team continues to make is what separates us as an operator and enables us to be on the forefront of pressure plumbing technology innovation.