UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________[ ] to __________

[ ]

Commission File Number:file number 001-38025

MATLIN & PARTNERS ACQUISITION CORPORATIONU.S. WELL SERVICES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

81-1847117

(State or other jurisdiction of

(I.R.S. Employer incorporation or

organization)

(I.R.S. Employer

Identification Number)No.)

 

585 Weed Street

New Canaan, CT1360 Post Oak Boulevard, Suite 1800, Houston, TX

06840

77056

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:(203) 864-3144

Not applicable

(Former name or former address, if changed since last report) 

code (832) 562-3730

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   NoYes No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive DateData File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesYes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

 (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes[ ]Yes [X]No

 

As of November 3, 2017, there were 32,500,000May 9, 2019, the registrant had 54,440,374 shares of the Company’s Class A common stock, par value $0.0001 (the “Class A common stock”)Common Stock and 8,125,00013,937,332 shares of Class B Common Stock outstanding.

Securities registered pursuant to Section 12(b) of the Company’s Class F common stock, par value $0.0001 (the “Class F common stock”) issued and outstanding.Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

CLASS A COMMON SHARES $0.0001, par value

WARRANTS

USWS

USWSW

NASDAQ Capital Market

NASDAQ Capital Market

 

MATLIN & PARTNERS ACQUISITION CORPORATION

 


TABLE OF CONTENTS

 

Page No.

PART I

FINANCIAL INFORMATION:INFORMATION

Item 1.

Financial Statements:Statements (Unaudited)

2

Condensed Consolidated Balance Sheets as of September 30, 2017 (Unaudited) and December 31, 2016 (Audited)

2

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 (Unaudited) and Three Months Ended September 30, 2016 (Unaudited) and Period from March 10, 2016 (inception) through September 30, 2016 (Unaudited)

3

Condensed Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2017 (Unaudited)

4
CondensedConsolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 (Unaudited) and for the Period from March 10, 2016 (inception) through September 30, 2016 (Unaudited)

5

4

Condensed Consolidated Statements of Stockholders’ Equity

6

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

7

Item 2.

Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations

16

25

Item 3.

Quantitative and Qualitative Disclosures AboutDisclosure about Market Risk

21

31

Item 4.

Controls and Procedures

21

31

PART II – OTHER INFORMATION:

Item 1.

PART II

Legal ProceedingsOTHER INFORMATION

21

32

Item 1.

Legal Proceeding

32

Item 1A.

Risk Factors

22

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22

32

Item 3.

Defaults Upon Senior Securities

22

32

Item 4.

Mine Safety Disclosures

22

32

Item 5.

Other Information

22

32

Item 6.

Exhibits

36

SIGNATURES

22

37

1

 

1


U.S. WELL SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

PART I – FINANCIAL INFORMATION(in thousands, except share and per share amounts)

(unaudited)

 

 

 

March 31, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,395

 

 

$

29,529

 

Restricted cash

 

 

509

 

 

 

507

 

Accounts receivable (net of allowance for doubtful accounts of

   $189 in 2019 and 2018)

 

 

84,141

 

 

 

58,026

 

Inventory, net

 

 

11,912

 

 

 

9,413

 

Prepaids and other current assets

 

 

12,169

 

 

 

16,437

 

Total current assets

 

 

128,126

 

 

 

113,912

 

Property and equipment, net

 

 

447,126

 

 

 

331,387

 

Intangible assets, net

 

 

25,991

 

 

 

27,890

 

Goodwill

 

 

4,971

 

 

 

4,971

 

Deferred financing costs, net

 

 

1,800

 

 

 

2,070

 

TOTAL ASSETS

 

$

608,014

 

 

$

480,230

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

158,475

 

 

$

89,360

 

Accrued expenses and other current liabilities

 

 

25,766

 

 

 

17,044

 

Notes payable

 

 

2,381

 

 

 

4,560

 

Current portion of long-term equipment financing

 

 

12,390

 

 

 

3,263

 

Current portion of long-term capital lease obligation

 

 

18,521

 

 

 

25,338

 

Current portion of long-term debt

 

 

-

 

 

 

900

 

Total current liabilities

 

 

217,533

 

 

 

140,465

 

Long-term equipment financing

 

 

37,550

 

 

 

8,304

 

Long-term capital lease obligation

 

 

4,210

 

 

 

-

 

Long-term debt

 

 

135,366

 

 

 

91,112

 

TOTAL LIABILITIES

 

 

394,659

 

 

 

239,881

 

Commitments and contingencies (NOTE 15)

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Class A Common Stock, par value of $0.0001 per share; 400,000,000 shares

 

 

 

 

 

 

 

 

   authorized; 52,927,034 shares issued and outstanding as of

   March 31, 2019 and 49,254,760 issued and outstanding as

   of  December 31, 2018

 

 

5

 

 

 

5

 

Class B Common Stock, par value of $0.0001 per share; 20,000,000 shares

 

 

 

 

 

 

 

 

   authorized; 13,937,332 shares issued and outstanding as of

   March 31, 2019 and December 31, 2018

 

 

1

 

 

 

1

 

Additional paid in capital

 

 

206,008

 

 

 

204,928

 

Accumulated deficit

 

 

(39,560

)

 

 

(17,383

)

Total stockholders' equity attributable to U.S. Well Services, Inc.

 

 

166,454

 

 

 

187,551

 

Noncontrolling interest

 

 

46,901

 

 

 

52,798

 

Total Stockholders' Equity

 

 

213,355

 

 

 

240,349

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

608,014

 

 

$

480,230

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


U.S. WELL SERVICES, INC.

Item 1. Financial StatementsCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

139,772

 

 

 

$

171,606

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of services (excluding depreciation and

   amortization)

 

 

109,681

 

 

 

 

138,428

 

Depreciation and amortization

 

 

37,844

 

 

 

 

25,920

 

Selling, general and administrative expenses

 

 

8,620

 

 

 

 

4,337

 

Loss on disposal of assets

 

 

6,904

 

 

 

 

2,929

 

Loss from operations

 

 

(23,277

)

 

 

 

(8

)

Interest expense, net

 

 

(5,115

)

 

 

 

(7,401

)

Other income

 

 

27

 

 

 

 

317

 

Loss before income taxes

 

 

(28,365

)

 

 

 

(7,092

)

Income tax expense

 

 

124

 

 

 

 

-

 

Net loss

 

 

(28,489

)

 

 

 

(7,092

)

Net loss attributable to noncontrolling interest

 

 

(6,217

)

 

 

 

-

 

Net loss attributable to U.S. Well Services, Inc.

 

$

(22,272

)

 

 

$

(7,092

)

 

 

 

 

 

 

 

 

 

 

Loss per common share (See Note 11):

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.45

)

 

 

$

(0.14

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

47,398

 

 

 

 

47,940

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


U.S. WELL SERVICES, INC.

MATLIN & PARTNERS ACQUISITION CORPORATION
CONDENSED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

  September 30, 2017  December 31, 2016 
  (Unaudited)  (Audited) 
ASSETS:        
Current assets:        
Cash $853,555  $65,620 
Prepaid expenses  153,639   - 
Deferred offering costs  -   154,380 
Total current assets  1,007,194   220,000 
Investments and cash held in trust account  325,829,443   - 
Total assets $326,836,637  $220,000 
         
LIABILITIES AND STOCKHOLDERS' EQUITY:        
Current liabilities:        
Accounts payable and accrued expenses $187,502  $- 
Due to affiliate  71,034   - 
Note payable  -   200,000 
Total current liabilities  258,536   200,000 
Deferred underwriting commissions  10,250,000   - 
Total liabilities  10,508,536   200,000 
         
Class A common stock subject to possible redemption; $0.0001 par value; 31,132,810 shares (at redemption value of $10.00 per share) as of September 30, 2017 and none issued or outstanding as of December 31, 2016  311,328,100   - 
         
Stockholders' equity:        
Preferred stock, $0.0001 par value, 1,000,000 shares authorized, none issued or outstanding  -   - 
Class A common stock, $0.0001 par value, 90,000,000 shares authorized, 1,367,190 shares issued and outstanding (excluding 31,132,810 shares subject to possible redemption) as of September 30, 2017 and none issued or outstanding as of December 31, 2016  137   - 
Class F common stock, $0.0001 par value, 10,000,000 shares authorized, 8,125,000 and 8,625,000 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively  813   863 
Additional paid-in-capital  4,621,481   24,137 
Retained earnings (accumulated deficit)  377,570   (5,000)
Total stockholders' equity  5,000,0001   20,000 
Total liabilities and stockholders' equity $326,836,637  $220,000 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(28,489

)

 

$

(7,092

)

Adjustments to reconcile net loss to cash provided by

 

 

 

 

 

 

 

 

operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

37,844

 

 

 

25,920

 

Provision for losses on accounts receivable

 

 

-

 

 

 

444

 

Provision for losses on inventory obsolescence

 

 

12

 

 

 

85

 

Non-cash interest

 

 

-

 

 

 

3,525

 

Loss on disposal of assets

 

 

6,904

 

 

 

2,929

 

Amortization of discount on debt

 

 

749

 

 

 

-

 

Deferred financing costs amortization

 

 

336

 

 

 

518

 

Share-based compensation expense

 

 

1,059

 

 

 

1,012

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(26,115

)

 

 

(16,077

)

Inventory

 

 

(2,044

)

 

 

1,638

 

Prepaids and other current assets

 

 

4,702

 

 

 

(58

)

Accounts payable

 

 

9,331

 

 

 

12,954

 

Accrued liabilities

 

 

8,041

 

 

 

1,364

 

Accrued interest

 

 

683

 

 

 

-

 

Net cash provided by operating activities

 

 

13,013

 

 

 

27,162

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(52,442

)

 

 

(7,770

)

Net cash used in investing activities

 

 

(52,442

)

 

 

(7,770

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of revolving credit facility

 

 

9,025

 

 

 

-

 

Proceeds from issuance of long-term debt

 

 

35,000

 

 

 

-

 

Proceeds from issuance of note payable

 

 

-

 

 

 

1,394

 

Repayments of note payable

 

 

(2,179

)

 

 

(784

)

Repayments of amounts under equipment financing

 

 

 

 

 

 

 

 

agreements

 

 

(6,683

)

 

 

(4,066

)

Principal payments under finance lease obligation

 

 

(4,379

)

 

 

(2,273

)

Deferred financing costs

 

 

(1,487

)

 

 

-

 

Net cash provided by (used in) financing activities

 

 

29,297

 

 

 

(5,729

)

Net (decrease) increase in cash and cash equivalents

   and restricted cash

 

 

(10,132

)

 

 

13,663

 

Cash and cash equivalents and restricted cash,

   beginning of period

 

 

30,036

 

 

 

5,923

 

Cash and cash equivalents and restricted cash,

   end of period

 

$

19,904

 

 

$

19,586

 

 

SeeThe accompanying notes toare an integral part of these condensed consolidated financial statements.

4


U.S. WELL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

(unaudited)

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Supplemental cash flow disclosure:

 

 

 

 

 

 

 

 

Interest paid

 

$

3,359

 

 

$

1,843

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Changes in accrued and unpaid capital expenditures

 

 

59,784

 

 

 

7,160

 

Assets under finance lease obligations

 

 

10,451

 

 

 

-

 

Notes payable for purchases of equipment

 

 

36,280

 

 

 

-

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 


2

5



U.S. WELL SERVICES, INC.

MATLIN & PARTNERS ACQUISITION CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS STOCKHOLDERS' EQUITY

(in thousands, except share amounts)

(Unaudited)

 

 

 

Class A Common

Stock

 

 

Class B Common

Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Members'

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paid in

 

 

Members'

 

 

Accumulated

 

 

Accumulated

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Interest

 

 

Deficit

 

 

Deficit

 

 

Interest

 

 

Equity

 

Balance, December 31, 2017

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

-

 

 

$

137,885

 

 

$

(93,622

)

 

$

-

 

 

$

-

 

 

$

44,263

 

Deemed contribution related to

   unit-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,012

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,012

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,092

)

 

 

-

 

 

 

-

 

 

 

(7,092

)

Balance, March 31, 2018

 

 

-

 

 

$

-

 

 

 

-

 

 

$

-

 

 

$

-

 

 

$

138,897

 

 

$

(100,714

)

 

$

-

 

 

$

-

 

 

$

38,183

 

  

Three Months

Ended September 30,

  Nine Months
Ended
September 30,
  

Period from
March 10, 2016 (inception)
through

September 30,

 
  2017  2016  2017  2016 
  (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited) 
Revenues $-  $-  $-  $- 
General and administrative expenses  (258,729)  -   (664,662)  (5,000)
Loss from operations  (258,729)  -   (664,662)  (5,000)
Interest income  798,570   -   1,509,443   - 
Income before income taxes  539,841   -   844,781   - 
Provision for income taxes  254,514   -   462,211   - 
Net income (loss) $285,327  $-  $382,570  $(5,000)
                 
Weighted average number of shares outstanding:                
Basic(1)  9,520,413   8,625,000   9,285,767   8,134,146 
Diluted  40,625,000   8,625,000   32,068,223   8,134,146 
                 
Net income (loss) per common share:                
Basic $0.03  $(0.00) $0.04  $(0.00)
Diluted $0.01  $(0.00) $0.01  $(0.00)

 

 

Class A Common

Stock

 

 

Class B Common

Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Members'

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paid in

 

 

Members'

 

 

Accumulated

 

 

Accumulated

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Interest

 

 

Deficit

 

 

Deficit

 

 

Interest

 

 

Equity

 

Balance, December 31, 2018

 

 

49,254,760

 

 

$

5

 

 

 

13,937,332

 

 

$

1

 

 

$

204,928

 

 

$

-

 

 

$

-

 

 

$

(17,383

)

 

$

52,798

 

 

$

240,349

 

Adoption of ASC 606 as of

   January 1, 2019 (Note 1)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

95

 

 

 

27

 

 

 

122

 

Exercise of warrants

 

 

1,412,372

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Restricted stock granted to

   employees

 

 

2,213,027

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Class A Common stock granted

   to board members

 

 

46,875

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

331

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

87

 

 

 

418

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

749

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

206

 

 

 

955

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,272

)

 

 

(6,217

)

 

 

(28,489

)

Balance, March 31, 2019

 

 

52,927,034

 

 

$

5

 

 

 

13,937,332

 

 

$

1

 

 

$

206,008

 

 

$

-

 

 

$

-

 

 

$

(39,560

)

 

$

46,901

 

 

$

213,355

 

 

SeeThe accompanying notes toare an integral part of these condensed consolidated financial statements.

 

(1)This number excludes an aggregate of up to 31,132,810 shares subject to possible redemption on September 30, 2017.

 

3


U.S. WELL SERVICES, INC.

MATLIN & PARTNERS ACQUISITION CORPORATION
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2017

(Unaudited)

  Class A Common Stock  Class F Common Stock  

Additional

Paid-in

  Retained
Earnings
(Accumulated
  Stockholders' 
  Shares  Amount  Shares  Amount  Capital  Deficit)  Equity 
Balance at December 31, 2016  -  $-   8,625,000  $863  $24,137  $(5,000) $20,000 
Sale of Class A common stock to public  32,500,000   3,250   -   -   324,996,750   -   325,000,000 
Forfeiture of Class F common stock to Sponsor  -   -   (500,000)  (50)  50   -   - 
Sale of 15,500,000 Private Placement Warrants  -   -   -   -   7,750,000   -   7,750,000 
Offering costs  -   -   -   -   (16,824,469)  -   (16,824,469)
Class A common stock subject to possible redemption  (31,132,810)  (3,113)  -   -   (311,324,987)  -   (311,328,100)
Net income  -   -   -   -   -   382,570   382,570 
Balance at September 30, 2017  1,367,190  $137   8,125,000  $813  $4,621,481  $377,570  $5,000,001 

See accompanying notes to condensed financial statements. 

4

MATLIN & PARTNERS ACQUISITION CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS

  Nine Months Ended  Period from
March 10, 2016 (inception)
through
 
  

September 30,

2017

  September 30,
2016
 
  (Unaudited)  (Unaudited) 
Cash flows from operating activities:        
Net income (loss) $382,570  $(5,000)
Changes in prepaid expenses  (153,639)  - 
Changes in accounts payable and accrued expenses  187,502   5,000 
Changes in due to affiliate  71,034   - 
Interest earned in Trust Account  (1,509,443)  - 
Net cash used in operating activities  (1,021,976)  - 
         
Cash flows from investing activities:        
Cash deposited in Trust Account  (325,000,000)  - 
Interest income released from Trust Account for taxes  680,000   - 
Net cash used in investing activities  (324,320,000)  - 
         
Cash flows from financing activities:        
Proceeds from sale of Class A common stock to public  325,000,000   - 
Proceeds from sale of Class F common stock to the Sponsor  -   25,000 
Proceeds from sale of Private Placement Warrants  7,750,000   - 
Note payable borrowings and advance  75,000   200,000 
Note payable payment  (275,000)  - 
Payment of offering costs  (6,420,089)  (151,750)
Net cash provided by financing activities  326,129,911   73,250 
         
Increase in cash  787,935   73,250 
Cash at beginning of period  65,620   - 
Cash at end of period $853,555  $73,250 
         
Supplemental disclosure of non-cash financing activities:        
Deferred underwriting commissions $10,250,000  $- 

See accompanying notes to condensed financial statements. 

5

MATLIN & PARTNERS ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)(unaudited)

 

NoteNOTE 1 — Description of Organization and Business Operations– DESCRIPTION OF BUSINESS

Organization and General

U.S. Well Services, Inc. (the “Company”), f/k/a Matlin & Partners Acquisition Corporation (the “we”Corp (“MPAC”), “us”, “our”is a Houston, Texas-based oilfield service provider of well stimulation services to the upstream oil and natural gas industry. The Company engages in high-pressure hydraulic fracturing in unconventional oil and natural gas basins in the United States. The fracturing process consists of pumping a specially formulated fluid into perforated well casing, tubing or “Company”),open holes under high pressure, causing the underground formation to crack or fracture, allowing nearby hydrocarbons to flow more freely up the wellbore.

The Company was incorporated in Delaware in March 2016 as a blank checkspecial purpose acquisition company, in Delaware on March 10, 2016. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more operating businesses or assets that the Company has not yet identifiedtarget businesses.

On November 9, 2018 (the “Initial Business Combination”“Closing Date”).

From March 10, 2016 (inception) through March 15, 2017, the Company’s efforts were limited to organizational activities and activities relating to its initial public offering (“Public Offering”) described below, and since the Public Offering, the search for a target business with which to consummate an Initial Business Combination. The Company will not generate any operating revenues until after completion of its Initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash from the proceeds derived from the Public Offering and investment securities purchased with such proceeds.

Sponsor and Financing

The Company’s sponsor is MP Acquisition Sponsor, MPAC acquired USWS Holdings LLC, a Delaware limited liability company (the “Sponsor”(“USWS Holdings”), pursuant to the Merger and Contribution Agreement, dated as of July 13, 2018, and subsequently amended (as amended, the “Merger and Contribution Agreement”). The registration statement foracquisition, together with the Company’s Public Offering was declared effectiveother transactions contemplated by the United States SecuritiesMerger and Exchange Commission (the “SEC”) on March 9, 2017. On March 15, 2017,Contribution Agreement are referred to herein as the Company consummated the Public Offering of 32,500,000 units (“Units” and, with respect to the Class A common stock included in the Units being offered, the “Public Shares”), which includes a partial exercise by Cantor Fitzgerald & Co., the sole underwriter for the Public Offering (the “Underwriter”) of its over-allotment option in the amount of 2,500,000 Units at $10.00 per Unit, generating gross proceeds of $325,000,000, which is described in Note 3.

Simultaneously“Transaction”. In connection with the closing of the Public Offering and the sale of the Units, the Company consummated a private placement (“Private Placement”) of an aggregate of 15,500,000 warrants (“Private Placement Warrants”) at a price of $0.50 per Private Placement Warrant,Transaction, MPAC changed its name to the Sponsor and the Underwriter, generating gross proceeds of $7,750,000, which is described in Note 4.

Transaction costs amounted to $16,824,469, consisting of $6,000,000 of underwriting fees, $10,250,000 of deferred underwriting commissions (which are held in the Trust Account (defined below)) and $574,469 of Public Offering costs. As described in Note 7, the $10,250,000 of deferred underwriting commissions are contingent upon the consummation of an Initial Business Combination by March 15, 2019.

The Trust Account

U.S. Well Services, Inc.

Following the closing of the Public Offering on March 15, 2017, an amount of $325,000,000 from the net proceeds of the Public Offering and the Private Placement was placed in a trust account (“Trust Account”). The proceeds held in the Trust Account may be invested only in U.S. government treasury bills with a maturity of 180 days or less or in money market funds investing solely in U.S. treasuries and meeting certain conditions under Rule 2a-7 under the Investment Company Act, as determined by the Company, until the earlier of: (i) the consummation of the Initial Business Combination, or (ii) the distribution of the Trust Account, as described below, if the Company is unable to complete the Initial Business Combination within 24 months from the closing of the Public Offering (the “Combination Period”) or upon any earlier liquidation of the Company. The remaining proceeds outside the Trust Account may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses.

6

 The Company’s amended and restated certificate of incorporation provides that, other than the withdrawal of interest to pay taxes, if any, none of the funds held in the Trust Account will be released until the earlier of: (i) the completion of the Initial Business Combination; (ii) the redemption of any Public Shares that have been properly tendered in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation to modify the substance or timing of its obligation to redeem 100% of its Public Shares if it does not complete the Initial Business Combination within the Combination Period; and (iii) the redemption of 100% of the Public Shares if the Company is unable to complete an Initial Business Combination within the Combination Period (subject to the requirements of law). The proceeds deposited in the Trust Account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the Company’s public stockholders.

Initial Business Combination

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Public Offering, althoughTransaction, substantially all of the net proceedsCompany’s assets and operations are intended to be applied generally toward consummating the Initial Business Combination. Nasdaq Capital Marketheld and conducted by U.S. Well Services, LLC (“NASDAQ”USWS LLC”) rules provide that, a wholly owned subsidiary of USWS Holdings, and the Company’s Initial Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80%only assets are equity interests representing 79.2% ownership of USWS Holdings as of March 31, 2019.

Unless the balance in the Trust Account (less any deferred underwriting commissionscontext otherwise requires, “the Company”, “USWS”, “we,” “us,” and taxes payable on interest earned) at the time of the signing of a definitive agreement in connection with the Initial Business Combination. There is no assurance that the Company will be able to successfully affect an Initial Business Combination.

The Company will provide its stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would require the Company to seek stockholder approval under applicable law or stock exchange listing requirement. The public stockholders will be entitled to redeem their shares“our” refer, for a pro rata portion of the amount then on deposit in the Trust Account ($10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). The Company will proceed with an Initial Business Combination only if the Company has net tangible assets of at least $5,000,001 upon such consummation and a majority of the outstanding shares voted are voted in favor of the Initial Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the SEC, and file tender offer documents with the SECperiods prior to completing an Initial Business Combination. If, however, a stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or other legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with an Initial Business Combination, the Company’s directors, officers and the Sponsor have agreed to vote their Founder Shares (as defined in Note 4) and any Public Shares they may acquire during or after this offering in favor of approving an Initial Business Combination.

If the Company holds a stockholder vote or there is a tender offer for shares in connection with an Initial Business Combination, a public stockholder will have the right to redeem its shares for an amount in cash equal to its pro rata share of the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, including interest but less taxes payable. As a result, such shares of Class A common stock will be recorded at redemption amount and classified as temporary equity upon the completion of the Public Offering, in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, “Distinguishing Liabilities from Equity.”

7

The Company will also provideTransaction, to USWS Holdings and its stockholders with the opportunity to redeem allsubsidiaries and, for periods upon or a portion of their Public Shares in connection with any stockholder vote to approve an amendment to the Company’s Amended and Restated Certificate of Incorporation that would affect the substance or timing of the Company’s obligation to redeem 100% of Public Shares if it does not complete a Business Combination within the Combination Period. The stockholders will be entitled to redeem their shares for a pro rata portion of the amount then on deposit in the Trust Account ($10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). There will be no redemption rights with respect to the Company’s Warrants (as defined in Note 3) in connection with such a stockholder vote to approve such an amendment to the Company’s Amended and Restated Certificate of Incorporation. Notwithstanding the foregoing, the Company may not redeem shares in an amount that would cause its net tangible assets to be less than $5,000,001.

Pursuant to the Company’s amended and restated certificate of incorporation, if the Company is unable to complete the Initial Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than ten business days thereafter subject to lawfully available funds therefor, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest (which shall be net of taxes payable, and less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.

The Company’s directors and officers and the Sponsor have agreed (i) to waive their redemption rights with respect to their Founder Shares and Public Shares in connection withafter the completion of the Initial Business Combination,Transaction, to US Well Services, Inc. and (ii) to waive their rights to liquidating distributions from the Trust Account with respect to their Founder Shares if the Company fails to complete the Initial Business Combination within the Combination Period (although they will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares they hold if the Company fails to complete the Initial Business Combination within the Combination Period). The Underwriter also agreed to waive its rights to deferred underwriting commissions held in the Trust Account in the event the Company does not consummate the Initial Business Combination within the Combination Periodsubsidiaries, including USWS Holdings and in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per Unit in the Public Offering. Placing funds in the Trust Account may not protect those funds from third party claims against the Company. Although the Company seeks to have all vendors, service providers, prospective target businesses or other entities it engages execute agreements with the Company waiving any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such persons will execute such agreements.its subsidiaries.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Notwithstanding the foregoing redemption rights, if the Company seeks stockholder approval of its Initial Business Combination and it does not conduct redemptions in connection with its Initial Business Combination pursuant to the tender offer rules, the Company’s Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended, or the Exchange Act), will be restricted from redeeming its shares with respect to an aggregate of 20% or more of the shares sold in the Public Offering. However, there is no restriction on the Company’s stockholders’ ability to vote all of their shares for or against an Initial Business Combination.

8

In the event of a liquidation, dissolution or winding up of the Company after an Initial Business Combination, the Company’s stockholders are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of stock, if any, having preference over the common stock. The Company’s stockholders have no preemptive or other subscription rights. There are no sinking fund provisions applicable to the common stock, except that the Company will provide its stockholders with the opportunity to redeem their Public Shares for cash equal to their pro rata share of the aggregate amount then on deposit in the Trust Account, upon the completion of the Initial Business Combination, subject to the limitations described herein.

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements of the Company are presented in U.S. dollars in conformity withwere prepared using generally accepted accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuantthe instructions to Form 10-Q and Regulation S-X. Accordingly, these financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read in conjunction with the accountingannual financial statements included in the Company's 2018 Annual Report on Form 10-K (the “Annual Report”).

The accompanying unaudited condensed consolidated financial statements and disclosure rulesaccompanying notes present the consolidated financial position, results of operations, cash flows, and regulationsequity of the SecuritiesCompany as of and Exchange Commission (“SEC”),for the three months ended March 31, 2019 and reflect2018. The interim data includes all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position as of September 30, 2017 andresults for the interim period. The results of operations and cash flows for the periods presented. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. Interim resultsthree months ended March 31, 2019 are not necessarily indicative of the results of operations expected for the entire fiscal year ended December 31, 2019.

Principles of Consolidation

The condensed consolidated financial statements comprise the financial statements of the Company its wholly owned subsidiaries, and its subsidiaries that it controls due to ownership of a full year.majority voting interest. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the Company. All significant intercompany balances and transactions are eliminated upon consolidation.


Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. Under this method, acquired assets, including separately identifiable intangible assets, and any assumed liabilities are recorded at their acquisition date estimated fair value. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We regularly evaluate estimates and judgments based on historical experience and other relevant facts and circumstances. Significant estimates included in these financial statements primarily relate to allowance for doubtful accounts, allowance for inventory obsolescence, estimated useful lives and valuation of property and equipment and intangibles, impairment assessments of goodwill and other intangibles, Level 2 inputs used in fair value estimation of term loans, accounting for business combination, and the assumptions used in our Black-Scholes and Monte Carlo option pricing models associated with the valuation of share-based compensation. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments with an original maturity at the date of acquisition of three months or less. Cash and cash equivalents consist of cash on deposit with domestic banks and, at times, may exceed federally insured limits.

Restricted Cash

Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded in restricted cash in our condensed consolidated balance sheets. The restricted cash in our condensed consolidated balance sheet represents cash transferred into a trust account to support our workers’ compensation obligations.

 

The unaudited interimfollowing table provides a reconciliation of the amount of cash and cash equivalents reported on the condensed financialconsolidated balance sheets to the total of cash and cash equivalents and restricted cash shown on the consolidated statements should be read of cash flows (in conjunction withthousands):

 

 

March 31, 2019

 

 

December 31, 2018

 

Cash and cash equivalents

 

$

19,395

 

 

$

29,529

 

Restricted cash

 

 

509

 

 

 

507

 

Cash and cash equivalents and restricted cash

 

$

19,904

 

 

$

30,036

 

Inventory

Inventory consists of proppant, chemicals, and other consumable materials and supplies used in our high-pressure hydraulic fracturing operations. Inventories are stated at the audited financial statementslower of cost or net realizable value. Cost is determined principally on a first-in-first-out cost basis. All inventories are purchased and notes thereto included in the final prospectus filedused by the Company in the delivery of its services with no inventory being sold separately to outside parties. Inventory quantities on hand are reviewed regularly and write-downs for obsolete inventory are recorded based on our forecast of the SEC datedinventory item demand in the near future. As of March 9, 201731, 2019 and December 31, 2018, the Company had inventory reserves of $0.6 million for obsolete and slow-moving inventory.

On certain contracts with our proppant vendors, we take ownership of proppant as it leaves the auditedsand mines. These in transit inventories are recognized as part of Inventory in our condensed consolidated balance sheets. As of March 31, 2019 and December 31, 2018, in transit inventories were nil and $0.3 million, respectively.

Property and Equipment

Property and equipment are carried at cost, with depreciation provided on a straight-line basis over their estimated useful lives. Expenditures for renewals and betterments that extend the lives of the assets are capitalized. Amounts spent for maintenance and repairs, which do not improve or extend the life of the related asset, are charged to expense as incurred.


Impairment of Long-lived Assets

Long-lived assets, such as property and equipment and amortizable identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When making this assessment, the following factors are considered: current operating results, trends and prospects, as well as the effects of obsolescence, demand, competition and other economic factors. We determine recoverability by evaluating whether the undiscounted estimated future net cash flows of the asset or asset group are less than its carrying value. When impairment is indicated, we proceed to Step 2 of the impairment test and measure the impairment as the amount by which the assets carrying value exceeds its fair value. Management considers a number of factors such as estimated future cash flows, appraisals and current market value analysis in determining fair value. Assets are written down to fair value if the concluded current fair value is below the net carrying value.

Goodwill

Goodwill is not amortized, but is reviewed for impairment annually, or more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable. Judgements regarding indicators of potential impairment are based on market conditions and operational performance of the business.

As of December 31, or as required, the Company performs an impairment analysis of goodwill. The Company may assess its goodwill for impairment initially using a qualitative approach (“step zero”) to determine whether conditions exist that indicate it is more likely than not that a reporting unit’s carrying value is greater than its fair value, and if such conditions are identified, then a quantitative analysis will be performed to determine if there is any impairment. The Company may also elect to initially perform a quantitative analysis instead of starting with step zero. The quantitative assessment for goodwill is a two-step assessment. “Step one” requires comparing the carrying value of a reporting unit, including goodwill, to its fair value, which the Company estimates using the income approach. The income approach uses a discounted cash flow model, which involves significant estimates and assumptions, including preparation of revenue and profitability growth forecasts, selection of a discount rate, and selection of a terminal year multiple. If the fair value of the respective reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and no further testing is required. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is to measure the amount of impairment loss, if any. “Step two” compares the implied fair value of goodwill to the carrying amount of goodwill. The implied fair value of goodwill is determined by a hypothetical purchase price allocation using the reporting unit’s fair value as the purchase price. If the carrying amount of goodwill exceeds the implied fair value, an impairment charge is recorded to write down goodwill to its implied fair value.

Deferred Financing Costs

Costs incurred to obtain financing are capitalized and amortized to interest expense using the effective interest method over the contractual term of the debt. At the balance sheet date, deferred financing costs related to the term loans are presented as a direct deduction from the debt liability, while deferred financing costs related to the revolver facility are presented as deferred financing costs, net, on the condensed consolidated balance sheets.

Fair Value of Financial Instruments

Fair value is defined under Accounting Standards Codification (ASC) 820, Fair Value Measurement, as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels are defined as follows:

Level 1–inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2–inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3–inputs are unobservable for the asset or liability.


The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of March 31, 2019 and December 31, 2018:

Cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses and other current liabilities. These carrying amounts approximate fair value because of the short maturity of the instruments or because the carrying value is equal to the fair value of those instruments on the balance sheet dates.

Second Lien Term Loan. The carrying value of the Second Lien Term Loan approximates fair value as its terms are consistent with and comparable to current market rates as of March 31, 2019 and December 31, 2018.

Revenue Recognition

Effective January 1, 2019, the Company adopted a comprehensive new revenue recognition standard, ASC 606, Revenue from Contracts with Customers. The details of the significant changes to accounting policies resulting from the adoption of the new standard are set out below. The Company adopted the standard using a modified retrospective method, allowing the Company to apply the cumulative effect of the standard in the Form 8-K filed bymost current period presented as an adjustment to retained earnings. As a result of the change in accounting principle, the Company withrecorded a $0.1 million increase in retained earnings due to the SECtiming of expense recognition related to certain sales commissions considered to be costs of acquiring customer contracts.

Under the new standard, revenue recognition is based on March 21, 2017.the customer’s ability to benefit from the services rendered in an amount that reflects the consideration expected to be received in exchange for those services. Taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore excluded from revenues in the Company’s financial statements.

 

Emerging Growth CompanyThe Company’s revenues consist of providing hydraulic fracturing services for either a pre-determined term or number of stages/wells to exploration and production (E&P) companies operating in the onshore oil and natural gas basins of the United States. Revenues are earned as services are rendered, which is generally on a per stage or fixed monthly rate basis. Customers are invoiced according to contract terms either upon the completion of a stage, the completion of a well or monthly with payment due typically 30 days from invoice date.

 

Hydraulic fracturing is a well-stimulation technique intended to optimize hydrocarbon flow paths during the completion phase of wellbores. The process involves the injection of water, sand and chemicals under high pressure into shale formations. The Company’s performance obligations are satisfied over time, typically measured in number of stages completed or the number of pumping days a fleet is available to pump for a customer in a month. A field ticket is created for each stage completed that records all services performed, including any chemicals and proppant consumed in completing the stage. The field ticket is signed by a customer representative and evidences the amounts to which the Company has a right to invoice and thus to recognize as revenue. All revenue is recognized when a contract with a customer exists, collectability of amounts subject to invoice is probable, the performance obligations under the contract have been satisfied over time, and the amount to which the Company has the right to invoice has been determined. Contract fulfillment costs, such as mobilization costs and shipping and handling costs, are expensed as incurred and are recorded in cost of services in the unaudited condensed consolidated statements of operations. A portion of the Company’s contracts contain variable consideration; however, this variable consideration is typically unknown at the time of contract inception, and is not known until the job is complete, at which time the variability is resolved. Examples of variable consideration include the amount of consumables (such as chemicals and proppants) that will be used to complete a job.

The Company has elected to use the “as invoiced” practical expedient to recognize revenue based upon the amount it has a right to invoice upon the completion of each performance obligation per the terms of the contract. The practical expedient permits an entity to recognize revenue in the amount to which it has a right to invoice the customer if that amount corresponds directly with the value to the customer of the entity’s performance completed to date. The Company believes that this is an accurate reflection of the value transferred to the customer as each incremental obligation is performed.

The Company has elected to expense sales commissions paid upon the successful signing of a new customer contract as incurred if the related contract will be fully satisfied within one year. For contracts that will not be fully satisfied within one year, these incremental costs of obtaining a contract with a customer will be recognized as a contract asset and amortized on a straight-line basis over the life of the contract.


Accounts Receivable

Accounts receivable are recorded at their outstanding balances adjusted for an allowance for doubtful accounts. The allowance for doubtful accounts is determined by analyzing the payment history and credit worthiness of each debtor. Receivable balances are charged off when they are considered uncollectible by management. Recoveries of receivables previously charged off are recorded as income when received. The Company held a reserve for doubtful accounts amounting to $0.2 million as of March 31, 2019 and December 31, 2018.

Major Customer and Concentration of Credit Risk

The concentration of our customers in the oil and natural gas industry may impact our overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade receivables.

The following table shows the percentage of revenues from our significant customers for the three months ended March 31, 2019 and 2018:

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Customer A

 

15.5%

 

 

29.0%

 

Customer B

 

*

 

 

21.2%

 

Customer C

 

12.0%

 

 

12.6%

 

Customer D

 

20.0%

 

 

12.6%

 

Customer E

 

10.9%

 

 

*

 

Customer F

 

10.2%

 

 

*

 

An asterisk indicates that revenue is less than ten percent.

The following table shows the percentage of trade receivables from our significant customers as of March 31, 2019 and December 31, 2018:

 

 

March 31, 2019

 

 

December 31, 2018

 

Customer A

 

11.4%

 

 

18.4%

 

Customer B

 

*

 

 

17.7%

 

Customer C

 

*

 

 

10.8%

 

Customer D

 

22.4%

 

 

26.1%

 

Customer E

 

14.7%

 

 

*

 

Customer F

 

*

 

 

13.0%

 

Customer G

 

11.6%

 

 

*

 

An asterisk indicates that trade receivable is less than ten percent.


Share-Based Compensation

The Company measures share-based compensation costs at the award’s fair value on the grant date. Employee share-based compensation is recognized as an expense over the requisite service period which is typically the period over which the award vests, or upon the occurrence of certain vesting events. Forfeitures are recognized as they occur. Non-employee share-based compensation is recognized over the period in which the related services are rendered.

Income Taxes

Prior to the completion of the Transaction, the Company was a limited liability company and was treated as a partnership for federal and certain state income tax purposes. As such, the results of operations were allocated to the members for inclusion in their income tax returns and therefore no provision or benefit for federal or certain state income taxes was included in our financial statements prior to the completion of the Transaction.

The Company under ASC 740 uses the asset and liability method of accounting for income taxes, under which deferred tax assets and liabilities are recognized for the future tax consequences of (i) temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and (ii) operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are based on enacted tax rates applicable to the future period when those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period the rate change is enacted. A valuation allowance is provided for deferred tax assets when it is more likely than not the deferred tax assets will not be realized.

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at March 31, 2019. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.

NOTE 3 – ACCOUNTING STANDARDS

Recently Adopted Accounting Pronouncements

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholdershareholder approval of any golden parachute payments not previously approved.

Further, sectionSection 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

9


Net Income Per Common Share

Net income per common share is computed by dividing net income applicableIn May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers and subsequent amendments thereto. This pronouncement requires entities to common stockholders by the weighted average number of common shares outstanding during the period, plus, to the extent dilutive, the incremental number of shares of common stock to settle warrants, as calculated using the treasury stock method. At September 30, 2017, the Company had outstanding warrants to purchase 24,000,000 shares of common stock. These shares were excluded from the calculation of diluted income (loss) per common share because their inclusion would have been antidilutive. An aggregate of 31,132,810 shares of Class A common stock subject to possible redemption at September 30, 2017 have been excluded from the calculation of basic income (loss) per common share since such shares, if redeemed, only participate in their pro rata share of earnings from the Trust Account. Due to a loss during the period ended September 30, 2016, diluted loss per common share is the same as basic loss per common share. At September 30, 2016, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company under the treasury stock method.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accountsrecognize revenue in a financial institution, which, at times, may exceedway that depicts the Federal depository insurance coveragetransfer of $250,000. The Company had not experienced losses on these accounts and management believes the Company is not exposedpromised goods or services to significant risks on such accounts.

Financial Instruments

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheets.

Use of Estimates

The preparation of the balance sheets in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Offering Costs

The Company complies with the requirements of FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A — “Expenses of Offering.” Offering costs were $16,824,469 (including an underwriting fee of $6,000,000 and deferred underwriting commissions of $10,250,000), consisting principally of costs incurred in connection with formation and preparation for the Public Offering. These offering costs were charged to additional paid in capital upon closing of the Public Offering on March 15, 2017.

Redeemable Class A Common Stock

As discussed in Note 1, all of the 32,500,000 shares of Class A common stock sold as parts of the Units in the Public Offering contain a redemption feature which allows for the redemption of Class A common stock under the Company’s Liquidation or Tender Offer/Stockholder Approval provisions. In accordance with FASB ASC 480, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of FASB ASC 480. Although the Company has not specified a maximum redemption threshold, its amended and restated certificate of incorporation provides that in no event will the Company redeem its public sharescustomers in an amount that would cause its net tangible assetsreflects the consideration which the entity expects to be less than $5,000,001.

10

entitled to in exchange for those goods and services. In August 2015, the FASB deferred the effective date of ASU 2014-09. Since the original issuance of ASU 2014-09, the FASB has issued several amendments and updates to this guidance, and additional amendments and updates are currently being considered by the FASB. The Company recognizes changes in redemption value immediately as they occur and will adjustadopted the carrying valueguidance on January 1, 2019. The adoption of this ASU did not have a material impact on the security to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable Class A common stock shall be affected by charges against additional paid in capital. Accordingly, at September 30, 2017, 31,132,810 of the 32,500,000 shares of Class A common stock included in the Units were classified outside of permanent equity at its redemption value. There were no shares of Class A common stock outstanding at December 31, 2016.condensed consolidated financial statements.

 

Income TaxesIn January 2017, the FASB issued ASU 2017-1, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance will be effective for emerging growth companies for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company adopted the guidance as of January 1, 2019 and did not experience any impact on the condensed consolidated financial statements.

 

The Company followsIn November 2015, the asset and liability methodFASB issued ASU 2015-17, Income Taxes (Topic 704): Balance Sheet Classification of accountingDeferred Taxes. ASU No. 2015-17 eliminated the current requirement for income taxes under FASB ASC 740, “Income Taxes.” Deferredorganizations to present deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets as current and liabilitiesnon-current in a classified balance sheet. Instead, companies are measured using enacted tax rates expectedrequired to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect onclassify all deferred tax assets and liabilities as non-current. The standard is effective for interim and annual periods beginning after December 15, 2016. The Company adopted this new guidance as of December 31, 2018, the first period in which the Company had deferred taxes. The adoption of this guidance did not have a change in tax ratesmaterial impact on the Company’s condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary,intended to reduce deferred tax assets to the amount expected todiversity in practice around how certain transactions are classified within the statement of cash flows. The new guidance will be realized.

FASB ASC 740 prescribes a recognition thresholdeffective for emerging growth companies for fiscal years beginning after December 15, 2018, and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of September 30, 2017. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at September 30, 2017. interim periods within fiscal years beginning after December 15, 2019; however early adoption is permitted. The Company is currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, Topic 842). Topic 842 requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. We expect to adopt Topic ASC 842 using the effective date of January 1, 2020 as the date of our initial application of the standard. Consequently, financial information for the comparative periods will not awarebe updated. We are currently evaluating the impact of any issuesour pending adoption of Topic 842 on our consolidated financial statements. We currently expect that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon our adoption of Topic 842, which will increase our total assets and total liabilities that we report relative to such amounts prior to adoption. The Company chose to use the modified retrospective with applied transition method upon adoption of the standard. Under this adoption method, all leases that are in effect and in existence as of, and subsequent to transition date will be applied as of the transition date, with a cumulative impact to retained earnings in that period. Prior period financial statements would be stated under review that could resultthe old guidance ASC 840 with no change to prior periods or disclosures associated with prior period.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates the second step of the previous two-step quantitative test of goodwill impairment. Under the new guidance, the quantitative test consists of a single step in significant payments, accruals or material deviation fromwhich the carrying amount of the reporting unit is compared to its position.fair value. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the amount of the impairment would be limited to the total amount of goodwill allocated to the reporting unit. The guidance does not affect the existing option to perform the qualitative assessment for a reporting unit to determine whether the quantitative impairment test is necessary. The new guidance will be effective for emerging growth companies for fiscal years beginning after December 15, 2021; however, early adoption is permitted. The Company is subject to income tax examinations by major taxing authorities since inception. At September 30, 2017currently evaluating the impact of adopting the new guidance on the consolidated financial statements.


NOTE 4 – PREPAIDS AND OTHER CURRENT ASSETS

Prepaids and other current assets as of March 31, 2019 and December 31, 2016,2018 consisted of the Company had no material deferred tax assets.following (in thousands):

 

Marketable Securities Held in Trust Account

The amounts held in the Trust Account represent proceeds from the Public Offering and the Private Placement of $325,000,000 which were invested in a money market instrument that invests in United States treasury obligations with original maturities of six months or less and can only be used by the Company in connection with the consummation of an Initial Business Combination.

 

 

March 31, 2019

 

 

December 31, 2018

 

Prepaid insurance

 

$

4,176

 

 

$

6,011

 

Recoverable costs from insurance

 

 

456

 

 

 

3,540

 

Sales tax receivable

 

 

1,987

 

 

 

1,987

 

Other receivables

 

 

-

 

 

 

895

 

Income tax receivable

 

 

810

 

 

 

810

 

Other current assets

 

 

4,740

 

 

 

3,194

 

Total prepaid expenses and other current assets

 

$

12,169

 

 

$

16,437

 

 

Recent Accounting Pronouncements

Management does not believeIn March 2017, some of our turbine equipment that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.

Note 3 — Public Offering

Pursuantwe use to the Public Offering, the Company sold 32,500,000 Units, including a partial exercise of the Underwriter’s over-allotment option of 2,500,000 Units. The Units were sold atoperate our Clean Fleets was damaged in an offering price of $10 per Unit, generating gross proceeds of $325,000,000.accident. As a result, we incurred costs primarily to rent replacement equipment in order to continue our operations. Recoverable costs from insurance included costs of $2.9 million we incurred as of December 31, 2018, which was recovered from the insurance company in January 2019.

NOTE 5 – INTANGIBLE ASSETS

A summary of intangible assets as of March 31, 2019 and December 31, 2018 consisted of the Underwriter’s partial exercisefollowing (in thousands):

 

 

Estimated

Useful

Life (in

years)

 

Gross

Carrying

Value

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

As of March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Order backlog

 

3

 

$

15,345

 

 

$

12,277

 

 

$

3,068

 

Trademarks

 

10

 

 

3,132

 

 

 

678

 

 

 

2,454

 

Patents

 

20

 

 

22,955

 

 

 

2,486

 

 

 

20,469

 

Covenants not to compete

 

2

 

 

1,524

 

 

 

1,524

 

 

 

-

 

Customer relationship

 

1

 

 

132

 

 

 

132

 

 

 

-

 

 

 

 

 

$

43,088

 

 

$

17,097

 

 

$

25,991

 

As of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Order backlog

 

3

 

$

15,345

 

 

$

10,742

 

 

$

4,603

 

Trademarks

 

10

 

 

3,132

 

 

 

600

 

 

 

2,532

 

Patents

 

20

 

 

22,955

 

 

 

2,200

 

 

 

20,755

 

Covenants not to compete

 

2

 

 

1,524

 

 

 

1,524

 

 

 

-

 

Customer relationship

 

1

 

 

132

 

 

 

132

 

 

 

-

 

 

 

 

 

$

43,088

 

 

$

15,198

 

 

$

27,890

 

The intangible assets are amortized over the period the Company expects to receive the related economic benefit. Amortization expense related to amortizable intangible assets was $1.9 million and $2.1 million, for the three months ended March 31, 2019 and 2018, respectively, and is included as part of depreciation and amortization in the consolidated statements of operations.


The estimated amortization expense for future periods is as follows (in thousands):

Fiscal Year

 

Estimated

Amortization

Expense

 

Remainder of 2019

 

$

4,165

 

2020

 

 

1,461

 

2021

 

 

1,461

 

2022

 

 

1,461

 

2023

 

 

1,461

 

Thereafter

 

 

15,982

 

Total

 

$

25,991

 

NOTE 6– PROPERTY AND EQUIPMENT, NET

Property and equipment as of March 31, 2019 and December 31, 2018 consisted of the over-allotment option,following (in thousands):

 

 

Estimated

Useful

Life (in years)

 

March 31, 2019

 

 

December 31, 2018

 

Fracturing equipment

 

1.5 to 10 years

 

$

562,018

 

 

$

449,685

 

Light duty vehicles

 

5 years

 

 

7,279

 

 

 

6,455

 

Furniture and fixtures

 

5 years

 

 

277

 

 

 

231

 

IT equipment

 

3 years

 

 

5,694

 

 

 

5,339

 

Auxiliary equipment

 

2 to 20 years

 

 

38,892

 

 

 

24,118

 

Leasehold improvements

 

Term of lease

 

 

411

 

 

 

335

 

 

 

 

 

 

614,571

 

 

 

486,163

 

Less: Accumulated depreciation and amortization

 

 

 

 

(167,445

)

 

 

(154,776

)

Property and equipment, net

 

 

 

$

447,126

 

 

$

331,387

 

Depreciation and amortization expense was $35.9 million and $23.8 million for the Sponsor forfeited 500,000 sharesthree months ended March 31, 2019 and 2018, respectively.

Capital leases. In November 2018 and January 2019, we entered into two capital leases. The equipment under the capital lease in November 2018 was received at end of Class F common stockDecember 2018 and placed into service in 2019. The total amount capitalized under these capital leases was $29.8 million, presented as part of fracturing equipment in property and equipment, and the related accumulated depreciation was $5.5 million and $0 as of March 31, 2019 and December 31, 2018, respectively.

In January 2019, through equipment financing, we purchased certain equipment that were previously under capital leases entered into in August and September 2017. As a result, a difference of $0.1 million between the purchase price and the carrying amount of the capital lease obligation was recorded as adjustment to the carrying amount of the equipment. The total amount capitalized under this equipment financing was $7.6 million, presented as part of fracturing equipment in property and equipment.

The future minimum lease payments related to the capital leases as of March 31, 2019 amounts to $24.2 million, of which $18.3 million and $5.9 million are due in the remainder of 2019 and in 2020, respectively. Included in these amounts is imputed interest totaling $1.5 million.


NOTE 7 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities as of March 31, 2019 and December 31, 2018 consisted of the following (in thousands):

 

 

March 31, 2019

 

 

December 31, 2018

 

Accrued payroll and benefits

 

$

10,484

 

 

$

7,087

 

Accrued taxes

 

 

11,006

 

 

 

8,119

 

Other current liabilities

 

 

4,276

 

 

 

1,838

 

Accrued expenses and other current liabilities

 

$

25,766

 

 

$

17,044

 

NOTE 8 –SHORT – TERM NOTE PAYABLE

On March 15, 2018, the Company obtained insurance for its workers' compensation and pollution coverage needs. The Company entered into a premium finance agreement with a credit finance institution to pay the premiums. The aggregate amount of the premiums financed was $1.1 million at an interest rate of 4.2%. Under the terms of the agreement, the Company agreed to pay 15 equal monthly payments of $0.1 million beginning April 15, 2018 through maturity on June 15, 2019. The payments include nominal interest expense. The note had an outstanding balance of $0.2 million and $0.4 million as of March 31, 2019 and December 31, 2018, respectively.

On September 15, 2018, the Company obtained insurance for its general liability, workers' compensation, umbrella, auto and pollution coverage needs. The Company entered into a premium finance agreement with a credit finance institution to pay the premiums. The aggregate amount of the premiums financed was $5.1 million at an interest rate 5.5%. Under the terms of the agreement, the Company agreed to pay nine equal monthly payments of $0.6 million beginning October 15, 2018 through maturity on June 15, 2019. The payments include interest of approximately $0.1 million. The note had an outstanding balance of $1.7 million and $3.4 million as of March 31, 2019 and December 31, 2018, respectively.

On November 9, 2018, the Company obtained insurance for its directors and officers liability coverage needs. The Company entered into a premium finance agreement with a credit finance institution to pay the premiums. The aggregate amount of the premiums financed was $0.8 million at an interest rate of 5.5%. Under the terms of the agreement, the Company agreed to pay nine equal monthly payments of $0.1 million beginning December 9, 2018 through maturity on August 9, 2019. The payments include nominal interest expense. The note had an outstanding balance of $0.4 million and $0.7 million as of March 31, 2019 and December 31, 2018, respectively.

NOTE 9 – DEBT

Long-term debt as of March 31, 2019 and December 31, 2018 consisted of the following (in thousands):

 

 

March 31, 2019

 

 

December 31, 2018

 

First Lien Credit Facility

 

$

65,000

 

 

$

55,975

 

Second Lien Term Loan

 

 

75,000

 

 

 

40,000

 

Equipment financing

 

 

49,939

 

 

 

11,567

 

Capital leases

 

 

22,731

 

 

 

25,338

 

Total debt

 

 

212,670

 

 

 

132,880

 

Unamortized discount on debt and debt issuance costs

 

 

(4,633

)

 

 

(3,963

)

Current maturities

 

 

(30,911

)

 

 

(29,501

)

Net Long-term debt

 

$

177,126

 

 

$

99,416

 

First Lien Credit Facility

The First Lien Credit Facility has a borrowing capacity of $65.0 million. Borrowings under the First Lien Credit Facility bear interest at a per annum rate equal to LIBOR plus 6%, and have a maturity date of May 31, 2020.


The First Lien Credit Facility contains various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, distributions, transactions with affiliates, mergers, consolidations, dispositions of assets and other provisions customary in similar types of arrangements.

As of March 31, 2019 and December 31, 2018, the outstanding revolver loan balance under the First Lien Credit Agreement was $65.0 million and $56.0 million, respectively, and classified as long-term debt in the condensed consolidated balance sheets. On May 7, 2019, the First Lien Credit Facility was refinanced (see Note 4)17 – Subsequent Events).

Second Lien Term Loan

Each UnitThe Second Lien Term Loan consists of one sharea second lien term loan in principal amount of $40.0 million, all of which was borrowed on December 14, 2018, and delayed draw term loans in the principal amounts of $20.0 million and $15.0 million, which were borrowed in the first quarter of 2019. Loans made under the term loan facility bear interest on the outstanding principal amount at a per annum rate equal to LIBOR plus (x) 7.75% from the second lien closing date through the first anniversary of the Company’s Class A common stock, $0.0001 par value per share,second lien closing date and one warrant (“Warrant”). Each Warrant entitles(y) 11.50% from the holder to purchase one-half of one share of Class A common stock at an exercise price of $5.75 per half share ($11.50 per whole share). Each Warrant will become exercisable onday immediately succeeding the later of 30 days after the completionfirst anniversary of the Company’s Initial Business Combinationsecond lien closing date to the maturity date plus, in each case, subject to certain qualifications, an additional interest amount equal to (a) 0.75% per annum for the period beginning April 1, 2019 through June 30, 2019, (b) 1.75% per annum for the period beginning July 1, 2019 through September 30, 2019 and (c) 3.00% on or 12 months fromafter October 1, 2019. However, the closing of the Public Offering andadditional interest amount will expire five yearsbe zero on or after the completion of the Company’s Initial Business Combination or earlier upon redemption or liquidation. Once the Warrants become exercisable, the Company may redeem the outstanding warrants in whole and not in part at a price of $0.01 per Warrant upon a minimum of 30 days’ prior written notice of redemption, if and only if the last sale price of the Company’s Class A common stock equals or exceeds $24.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company senthas replaced the noticeFirst Lien Credit Facility with an asset-based first lien credit facility. The Company is required to make quarterly principal payments beginning in the second fiscal quarter of redemption2019.

All of the loans made under the Second Lien Credit Agreement have a maturity date of May 31, 2020.

The Second Lien Term Loan contains various covenants, including, but not limited to, limitations on the Warrant holders.incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, merger, consolidations, dispositions of assets and other provisions customary in similar types of arrangements.

All obligations of the Company under both the First Lien Credit Facility and Second Lien Term Loan are secured by a continuing security interest in all of the Company's rights, title, and interest in and to substantially all our assets. On May 7, 2019, the Second Lien Term Loan was refinanced to a long-term obligation (see Note 17 – Subsequent Events). As we had intent to refinance as of March 31, 2019, in addition to actual refinancing on May 7, 2019, we classified the current portion of Second Lien Term Loan amounting to $2.3 million as long-term debt on our condensed consolidated balance sheet as of March 31, 2019.

As of March 31, 2019, the outstanding principal balance under the Second Lien Term Loan was $75.0 million, classified as long-term debt in the condensed consolidated balance sheet as of March 31, 2019.

Equipment Financing

From 2016 through 2019 the Company entered into security agreements with financing institutions for the purchase of certain fracturing equipment. These financing agreements with maturities through 2023 had a total balance of $49.9 million, and a weighted average interest rate of 7.2% per annum as of March 31, 2019. One of the financing agreements with an outstanding principal balance of $22.8 million was all due within one year as of March 31, 2019. This financing agreement was refinanced on May 7, 2019 to a long-term obligation (see Note 17 – Subsequent Events). As the Company had intent to refinance this obligation as of March 31, 2019, and such refinancing was completed on May 7, 2019, this $22.8 million equipment financing agreement has been reclassified as long-term equipment financing on our condensed consolidated balance sheet as of March 31, 2019. After refinancing, the current portion of long-term equipment financing in the condensed consolidated balance sheet as of March 31, 2019 totals $12.4 million. As of December 31, 2018, these financing agreements had a total balance of $11.6 million, of which $3.3 million was due within one year. The weighted average interest rate for these agreements was 6.3% per annum as of December 31, 2018.


Payments of Debt Obligations due by Period

Presented in the following table is a schedule of the repayment requirements of long-term debt as of March 31, 2019 (in thousands):

 

11

 

 

Principal Amount

 

 

 

of Long-term Debt

 

Remainder of 2019

 

$

28,160

 

2020

 

 

11,167

 

2021

 

 

5,594

 

2022

 

 

4,157

 

2023

 

 

748

 

Thereafter

 

 

162,844

 

Total

 

$

212,670

 

 

Note 4 — Related Party TransactionsNOTE 10 – SHAREHOLDERS’ EQUITY AND MEMBER’S INTEREST

Shares Authorized and Outstanding

Private Placement Warrants

Simultaneously with the Public Offering, the Sponsor and the Underwriter purchased an aggregate of 15,500,000 Private Placement Warrants (14,500,000 Private Placement Warrants by the Sponsor and 1,000,000 Private Placement Warrants by the Underwriter) at a price of $0.50 per Private Placement Warrant, generating total proceeds of $7,750,000. Each Private Placement Warrant is exercisable for one-half of one share of the Company’s Class A common stock at a price of $5.75 per half share ($11.50 per whole share). A portion of the purchase price of the Private Placement Warrants was added to the proceeds from the Public Offering held in the Trust Account pending completion of the Initial Business Combination such that at the closing of the Public Offering $325 million was held in the Trust Account. If the Initial Business Combination is not completed within the Combination Period, then the proceeds from the sale of the Private Placement Warrants held in the Trust Account will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants issued to the Sponsor and the Underwriter will expire worthless.

The Private Placement Warrants are not transferrable, assignable or salable until 30 days after the completion of the Initial Business Combination and the Private Placement Warrants are non-redeemable so long as they are held by the Sponsor, the Underwriter or their permitted transferees. The Private Placement Warrants may be exercised for cash or on a cashless basis. If the Private Placement Warrants are held by someone other than the Sponsor, the Underwriter or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by holders on the same basis as the Warrants underlying the Units issued in the Public Offering. In addition, for as long as the Private Placement Warrants are held by the Sponsor or the Underwriter or its designees or affiliates, they may not be exercised after March 9, 2022. Otherwise, the Private Placement Warrants have terms and provisions that are identical to the Warrants underlying the Units issued in the Public Offering including as to exercise price, exercisability and exercise period.

Founder Shares

On March 31, 2016, the Sponsor purchased 7,187,500 shares (the “Founder Shares”) of the Company’s Class F common stock, $0.0001 par value, for $25,000 or $0.004 per share. In May 2016, the Company effectuated a 1.2-for-1 stock split in the form of a dividend, resulting in an aggregate of 8,625,000 Founder Shares outstanding, including an aggregate of up to 1,125,000 shares subject to forfeiture by the Sponsor to the extent that the Underwriter’s over-allotment was not exercised in full, so that the Sponsor would collectively own 20% of the Company’s issued and outstanding shares after the Public Offering. As a result of the Underwriter’s election toexercise its over-allotment option to purchase 2,500,000 Units on March 15, 2017 and waiver of the remainder of its over-allotment option, 625,000 Founder Shares were no longer subject to forfeiture and 500,000 Founder Shares were forfeited.As used herein, unless the context otherwise requires, “Founder Shares” shall be deemed to include the shares of Class A common stock issuable upon conversion thereof. The Founder Shares are identical to the Class A common stock included in the Units sold in the Public Offering except that the Founder Shares automatically convert into shares of Class A common stock at the time of the Company’s Initial Business Combination and are subject to certain transfer restrictions, as described in more detail below.Holders of the Class F common stock and holders of the Class A common stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders, except as required by law.

12

The Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell any of its Founder Shares until the earlier of (i) one year after the completion of the Initial Business Combination; and (ii) the date on which the Company consummates a liquidation, merger, capital stock exchange, reorganization, or other similar transaction after the Initial Business Combination that results in all the Company’s public stockholders having the right to exchange their shares of common stock for cash, securities or other property. Notwithstanding the foregoing, if the last sale price of the Company’s Public Shares equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 trading-day period commencing at least 150 days after the Initial Business Combination, the Founder Shares will be released from the lock up.

Registration Rights

The holders of Founder Shares, Private Placement Warrants and Warrants that may be issued upon conversion of working capital loans (and any shares of common stock issuable upon the exercise of the Private Placement Warrants or Warrants issued upon conversion of the working capital loans) are entitled to registration rights pursuant to a registration rights agreement. These holders are entitled to make up to three demands, excluding short form registration demands, that the Company register such securities for sale under the Securities Act. In addition, these holders will have “piggy back” registration rights to include their securities in other registration statements filed by the Company. However, the registration rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lock up period for the securities to be registered. The Company will bear the expenses incurred in connection with the filing of any such registration statements.

Related Party Transactions

Prior to the closing of the Public Offering, the Sponsor had made $275,000 in loans and advances to the Company. The loans and advances were non-interest bearing, unsecured and due on the earlier of June 30, 2017 or the closing of the Public Offering. The loans and advances of $275,000 were fully repaid upon the consummation of the Public Offering on March 15, 2017.

The Company has a due to affiliate balance of $71,034 as of September 30, 2017 for expenses paid by the Sponsor and its affiliate on behalf of the Company.

Note 5 — Investments and Cash Held in Trust Account

Upon the closing of the Public Offering and the Private Placement, $325,000,000 was placed in the Trust Account. At September 30, 2017, the Company’s Trust Account consisted of $98,086 of cash and $325,731,357 in investment securities, with investment securities consisting only of money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended, which invest only in direct U.S. government obligations. Such investment securities are carried at cost, which approximates fair value.

13

Note 6 — Fair Value Measurements

The following table presents information about the Company’s assets that are measured on a recurring basis as of September 30, 2017 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability.

  September 30, 2017  Quoted
Prices
in Active
Markets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Other
Unobservable
Inputs
(Level 3)
 
Investments in money market fund held in Trust Account $325,731,357  $325,731,357  $-  $- 
Total $325,731,357  $325,731,357  $-  $- 

Note 7 — Deferred Underwriting Commissions

The Underwriter was paid a cash underwriting fee of two percent (2.0%) of the gross proceeds of the Public Offering, excluding any amounts raised pursuant to the overallotment option, or $6,000,000. In addition, the Underwriter is entitled to aggregate deferred underwriting commissions of $10,250,000 consisting of (i) three percent (3.0%) of the gross proceeds of the Public Offering, excluding any amounts raised pursuant to the overallotment option, and (ii) five percent (5.0%) of the gross proceeds of the Units sold in the Public Offering pursuant to the overallotment option. The deferred underwriting commissions will become payable to the Underwriter from the amounts held in the Trust Account solely in the event that the Company completes the Initial Business Combination, subject to the terms of the underwriting agreement.

Note 8 — Stockholders’ Equity

Preferred Stock

The Company is authorized to issue 1,000,00010,000,000 shares of preferred stock with a par value of $0.0001 per share with such designation, rights and preferences as may be determined from time to time by the Company’s Board of Directors. At September 30, 2017March 31, 2019 and December 31, 2016,2018, there were no shares of preferred stock issued or outstanding.

Class A Common Stock

The Company is authorized to issue 90,000,000400,000,000 shares of Class A common stock with a par value of $0.0001 per shareshare. At March 31, 2019 and 10,000,000December 31, 2018, there were 52,927,034 and 49,254,760 shares of Class FA common stock issued and outstanding, respectively. At March 31, 2019, 1,000,000 outstanding shares of Class A common stock were subject to cancellation on November 9, 2024, unless the closing price per share of the Class A Common Stock has equaled or exceeded $12.00 for any 20 trading days within any 30-trading day period, and 609,677 outstanding shares of Class A common stock were subject to the same cancellation provision, but at a closing price per share of $13.50.

Class B Common Stock

The Company is authorized to issue 20,000,000 shares of Class B common stock with a par value of $0.0001 per share. If the Company enters into an Initial Business Combination, it may (depending on the termsAt March 31, 2019 and December 31, 2018, there were 13,937,332 shares of such a business combination) be requiredClass B common stock issued and outstanding. The shares of Class B common stock are non-economic; however, holders are entitled to increase the numberone vote per share. Each share of sharesClass B common stock, together with one unit of USWS Holdings, is exchangeable for one share of Class A common stock which the Company is authorized to issueor, at the same time asCompany’s election, the Company’s stockholders vote on the business combinationcash equivalent to the extentmarket value of one share of Class A common stock.

Warrants

Prior to the Company seeks stockholder approval in connection with the Initial Business Combination. HoldersTransaction, 32,500,000 warrants were issued pursuant to our initial public offering and 15,500,000 warrants were sold simultaneously to Matlin & Partners Acquisition Sponsor, LLC (the “Sponsor”) and Cantor Fitzgerald (the “Underwriter”). Each warrant entitles its holder to purchase one half of the Company’s common stock are entitled to one vote for each common share. At September 30, 2017, there were 32,500,000 sharesshare of Class A common stock (of which 31,132,810 were classified outsideat an exercise price of permanent equity) and 8,125,000$5.75 per half share, to be exercised only for a whole number of shares of Class F common stock issued and outstanding. At December 31, 2016, there were no shares ofour Class A common stock issued and outstanding and 8,625,000 shares of Class F common stock were issued and outstanding.stock. The Founder Shares are identical to the Class A Common Stock included in the Units sold in the Public Offering except that the Founder Shares automatically convert into shares of Class A Common Stock at the time of the Initial Business Combination.

14

Warrants —Warrants will becomewarrants became exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) 12 months from the closing of the Initial Public Offering; provided in each case that the Company has an effective registration statement under the Securities Act covering the issuance of the shares of common stock issuable upon exercise of the warrantsTransaction and a current prospectus relating to them is available. The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of an Initial Business Combination, the Company will use its best efforts to file with the SEC and within 60 business days after the closing of an Initial Business Combination, have an effective registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed. Notwithstanding the foregoing, if the Company’s Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under the Securities Act, the Company, at its option, may require the warrant holders who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement. The warrants will expire five years after the completion of an Initial Business Combinationthat date or earlier upon redemption or liquidation.

The Once the warrants became exercisable, the Company may redeem the outstanding warrants (except with respect to the Private Placement Warrants): (i) in whole and not in part; (ii) at a price of $0.01 per warrant; (iii)warrant upon a minimum of 30 days’ prior written notice of redemption, which we refer to as the 30-day redemption period; and (iv) if, and only if the last reported sale price of our Class Athe Company’s common stock equals or exceeds $24.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third tradingbusiness day prior to the date on whichbefore the Company sendsends the notice of redemption to the warrant holders. The private placement warrants, holders.however, are nonredeemable so long as they are held by the Sponsor, the Underwriter or their permitted transferees.


IfDuring the three months ended March 31, 2019, the Company calls theentered into privately negotiated warrant exchange agreements with certain warrant holders to exchange 10,864,391 public warrants for redemption, management willClass A common stock at a ratio of 0.13 Class A common shares per warrant. As a result, our Class A common shares issued and outstanding increased by 1,412,372 shares.

As of March 31, 2019, there remained 21,635,609 public warrants and 15,500,000 private placement warrants outstanding.

On April 17, 2019, pursuant to a previously announced public warrant exchange offer on March 14, 2019, the Company exchanged an additional 11,640,974 public warrants for Class A common stock at a ratio of 0.13 Class A common shares per warrant. As a result, our Class A common shares issued and outstanding increased by 1,513,340 shares.

Noncontrolling Interest

The Company’s noncontrolling ownership interest in consolidated subsidiaries is presented in the condensed consolidated balance sheet within shareholders’ equity as a separate component and represents approximately 20.8% ownership of USWS Holdings as of March 31, 2019.

Long-Term Incentive Plan

In connection with the Transaction, the Company’s Board of Directors adopted the U.S. Well Services, Inc. 2018 Long Term Incentive Plan (the “LTIP”). An aggregate 8,160,500 shares of Class A common stock were initially available for issuance under the LTIP. Shares issued under the LTIP are further discussed in Note 12 - Share-Based Compensation, herein. The aggregate amount of shares available for issuance as of March 31, 2019 was 4,302,436.

NOTE 11 – EARNINGS (LOSS) PER SHARE

Basic and diluted net income per share excludes the income attributable to and shares associated with the 1,609,677 Class A shares that are subject to cancellation on November 9, 2024 if certain market conditions have not been met. Diluted net income per share excludes the option to require all holders that wish to exercise theeffects of warrants to do so on a “cashless basis”. The exercise price and number ofpurchase 18,567,805 shares of common stock issuable upon exercisebecause the average market price of the warrantsClass A shares during the period did not exceed the exercise price of the warrants. Diluted net income per share excludes the effects of unvested restricted stock because either the market conditions for vesting had not been met as of March 31, 2019 or including them would be anti-dilutive as a result of the Company being in a net loss position for the periods presented.

The Company excluded the Class B shares from the computation of diluted earnings per share because the effect of including them would be anti-dilutive as a result of the Company being in a net loss position for the periods presented.


The following table sets forth the calculation of basic and diluted earnings per share for the periods indicated based on the weighted average number of common shares outstanding for the period subsequent to the corporate reorganization that occurred in connection with the Transaction (in thousands, except share and per share amounts):

 

 

Three Months Ended March 31,

 

 

 

 

2019

 

 

2018

 

 

Basic Net Income Per Share

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

Net loss attributable to U.S. Well

   Services, Inc.

 

$

(22,272

)

 

$

(7,092

)

 

Net loss attributable to cancellable

   Class A shares

 

 

732

 

 

 

230

 

 

Basic net loss attributable to U.S. Well

   Services, Inc. shareholders

 

$

(21,540

)

 

$

(6,862

)

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

49,007,234

 

 

 

49,549,676

 

 

Cancellable Class A shares

 

 

(1,609,677

)

 

 

(1,609,677

)

 

Basic weighted average shares

   outstanding

 

 

47,397,557

 

 

 

47,939,999

 

 

Basic and dilutive net income per share

   attributable to Class A shareholders

 

$

(0.45

)

 

$

(0.14

)

 

NOTE 12 – SHARE-BASED COMPENSATION

Restricted Stock

The Company granted a total of 2,213,023 shares of restricted stock to certain employees of the Company pursuant to the Company’s LTIP during the three months ended March 31, 2019. Restricted stock is subject to restrictions on transfer and is generally subject to a risk of forfeiture if the award recipient is no longer an employee of the Company prior to the lapse of the restriction. Stock-based compensation costs totaling $19.7 million associated with this award will be recognized over the four-year vesting period.

The following table sets forth the restricted stock transactions for the three months ended March 31, 2019:

 

 

 

 

 

 

Weighted-

average

 

 

 

Unvested

 

 

grant-date

fair value

 

Units at beginning of period

 

 

530,000

 

 

$

8.72

 

Granted

 

 

2,213,023

 

 

 

8.91

 

Vested

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

Units at end of period

 

 

2,743,023

 

 

$

8.87

 

The Company also granted 46,875 shares of unrestricted Class A common stock during the three months ended March 31, 2019 to certain board members in exchange for their services as a board member to the Company. These shares are fully vested and the weighted-average grant-date fair value per share is $8.91. Stock-based compensation cost amounting to $0.4 million associated with this award will be recognized over the one-year requisite service period.

The fair value of the restricted and unrestricted stock granted during the three months ended March 31, 2019 was determined using the closing price of the Company’s Class A common stock on the grant date.


Stock Options

The Company granted a total of 1,068,162 stock options to certain employees of the Company pursuant to the Company’s LTIP during the three months ended March 31, 2019. The fair value of stock options on the date of grant was $3.95 per option, which was calculated using the Black-Scholes valuation model. These stock options were granted with seven-year terms and vest over four years in equal installments each year on the anniversary of the grant date. The expected term of the options granted was based on the safe harbor rule of the SEC Staff Accounting Bulletin No. 107 “Share-Based Payment” as the Company lacks historical exercise data to estimate the expected term of these options. The expected stock price volatility is calculated based on the Company’s peer group because the Company does not have sufficient historical data and will continue to use peer group volatility information until historical volatility of the Company is available to measure expected volatility for future grants. The exercise price for stock options granted equals the closing market price of the underlying stock on the date of grant. These options are time-based and are not based upon attainment of performance goals. Stock based compensation costs totaling $4.2 million associated with this award will be recognized over the four-year vesting period.

The following table sets forth the assumptions used in the Black-Scholes valuation model:

Expected option term (years)

 

4.75 years

 

Expected price volatility

 

 

49.0

%

Expected dividend yield

 

 

0.0

%

Risk-free Rate

 

 

2.63

%

Grant date fair value per share

 

$

3.95

 

Grant date exercise price per share

 

$

8.91

 

For the three months ended March 31, 2019, stock-based compensation expense of $1.1 million related to restricted and unrestricted stock grants and stock option grants was recorded, of which $0.3 million is presented as part of cost of services, and $0.8 million presented as part of selling, general, and administrative expenses in the condensed consolidated statement of operations.

As of March 31, 2019, total unrecognized compensation cost related to stock-based compensation grants under the LTIP was $27.5 million. We expect to recognize these costs over a weighted average period of 3.8 years.

2017 Share-Based Compensation

During 2017, USWS Holdings entered into various Class G Unit Agreements pursuant to which 85,800 Class G Units were granted to directors, officers, and key employees of the Company as performance incentives and are generally subject to a four-year vesting period. Each Class G Unit issued is intended to be a “profits interest” within the meaning of Revenue Procedures 93-27 and 2001-43. These Class G Unit grants are classified as equity awards and are subject to vesting and forfeiture under circumstances set forth in the agreements between USWS Holdings and each such directors, officers, and key employees. The fair value of each award is determined using an option pricing model, which is then adjusted for a discount due to lack of marketability. Of the total number of Class G Unit grants, there were 15,000 Class G Units granted to an officer that vested immediately on grant date. The Company recognizes the compensation expense related to these grants from USWS Holdings to its employees in its condensed consolidated statement of operations with a corresponding credit to equity, representing a deemed capital contribution from USWS Holdings. As a result of the Transaction, the vesting of these shares was accelerated pursuant to the Class G Unit agreements. For the three months ended March 31, 2019 and 2018, compensation expense of nil and $1.0 million, respectively, was recorded, of which nil and $0.5 million, respectively, is presented as part of cost of services, and nil and $0.5 million, respectively, is presented as part of selling, general, and administrative expenses in the condensed consolidated statement of operations.

Of the total number of Class G Unit grants, a total of 20,000 Class G Units were granted to two officers, for which units will be fully vested upon satisfaction of a performance condition, which is the sale of the Company, and satisfaction of a market condition. The market condition requires the Enterprise Value, as defined in the grant agreements, to be greater than $450 million and $500 million, respectively, for the two officers at the effective date of sale of the Company. As of the Transaction closing date, both the performance and market conditions were met, resulting in recognition of compensation expense in the fourth quarter of 2018 amounting to $18.3 million, presented as part of selling, general, and administrative expenses in the condensed consolidated statement of operations.

Since all the Class G Unit grants were fully vested as of the Transaction closing date, there is no unrecognized compensation cost as of March 31, 2019.


NOTE 13 – EMPLOYEE BENEFIT PLAN

In 2013, the Company established the U.S. Well Services 401(k) Plan. The Company matches 100% of employee contributions up to 6% of the employee’s salary, subject to cliff vesting after two years of service. Matching contributions were $1.1 million and $0.7 million, for the three months ended March 31, 2019 and 2018, respectively, included in cost of services and selling, general and administrative expenses in the condensed consolidated statement of operations.

NOTE 14 – INCOME TAXES

Prior to the completion of the Transaction, the Company was a limited liability company and was taxed as a partnership for federal and certain state income tax purposes. As such, the results of operations were allocated to the members for inclusion in their income tax returns and therefore no provision or benefit for federal or certain state income taxes were included in our financial statements prior to the completion of the Transaction.

The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions and is subject to examination by the taxing authorities.

The Company’s effective tax rate on continuing operations for the three months ended March 31, 2019 was (0.44)%. The difference between the effective tax rate and the U.S. federal statutory rate is due to state taxes, flow-through income not subject to tax, and a valuation allowance.

We follow guidance issued by the Financial Accounting Standards Board (“FASB”) in accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the consolidated financial statements and applies to all income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the consolidated financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement.

We have considered our exposure under the standard at both the federal and state tax levels. We did not record any liabilities for uncertain tax positions as of March 31, 2019 or December 31, 2018. We record income tax-related interest and penalties, if any, as a component of income tax expense. We did not incur any material interest or penalties on income taxes.

After consideration of all of the information available, management determined that a valuation allowance was appropriate, as it is not more likely than not that the Company will not utilize its net deferred tax assets.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into legislation. As part of the legislation, the U.S. corporate income tax rate was reduced to 21%. Since the Company was previously a flow-through entity, no deferred tax expense was recorded as a result of the reduced tax rate.

NOTE 15 – COMMITMENTS AND CONTINGENCIES

Litigation

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

Sand Purchase Agreements

The Company entered into agreements for the supply of proppant for use in its hydraulic fracturing operations. Under the terms of these agreements, the Company is subject to minimum purchase quantities on a monthly, quarterly, or annual basis at fixed prices or may be adjusted in certain circumstances includingpay penalties in the event of any shortfall. As of March 31, 2019, we estimated and accrued for a stock dividend, or recapitalization, reorganization, merger or consolidation. However,shortfall in quantities. This accrual is presented as part of accrued liabilities on the warrants will notcondensed consolidated balance sheets.


The following is a schedule of the contracted volumes in dollars and minimum commitments under the proppant supply purchase agreements as of March 31, 2019 (in thousands):

 

 

 

 

 

 

Minimum

 

 

 

Contracted

 

 

Commitments

 

Remainder of 2019

 

$

59,125

 

 

$

15,486

 

2020

 

 

37,714

 

 

 

6,998

 

2021

 

 

24,246

 

 

 

2,448

 

Total

 

$

121,085

 

 

$

24,932

 

The minimum commitments represent the aggregate amounts that we would be adjustedobligated to pay in the event that we procured no additional proppant under the contracts subsequent to March 31, 2019.

During the first quarter of 2019, we were involved in a contract dispute with a proppant vendor resulting in the cancellation of the contract. Accordingly, as of March 31, 2019, we have excluded $47.1 million and $48.0 million of contracted and minimum commitments related to this contract, respectively. The litigation involving the contract in dispute is in its early stages, as such no prediction can be made as to the outcome.

Operating Lease Agreements

The Company has various operating leases for issuancefacilities with terms ranging from 24 to 76 months.

Rent expense for the three months ended March 31, 2019 and 2018 was $0.7 million and $0.5 million, respectively, of common stock atwhich $0.6 million and $0.4 million, are recorded as part of cost of services and $0.1 million, $0.1 million, are recorded as part of selling, general and administrative expenses in the condensed consolidated statements of operations, respectively.

The following is a price below its exercise price. Additionally, schedule of minimum future payments on non-cancellable operating leases as of March 31, 2019 (in no event willthousands):

Remainder of 2019

 

$

1,488

 

2020

 

 

1,246

 

2021

 

 

651

 

2022

 

 

476

 

2023

 

 

288

 

Thereafter

 

 

325

 

Total minimum future rentals

 

$

4,474

 

Self-insurance

Beginning June 2014, the Company be requiredestablished a self-insured plan for employees’ healthcare benefits except for losses in excess of varying threshold amounts. The Company charges to net cash settleexpense all actual claims made during each reporting period, as well as an estimate of claims incurred, but not yet reported. The amount of estimated claims incurred, but not reported was $0.3 million as of March 31, 2019 and December 31, 2018, and was reported as accrued expenses in the warrants. Ifcondensed consolidated balance sheets. We believe that the liabilities we have recorded are appropriate based on the known facts and circumstances and do not expect further losses materially in excess of the amounts already accrued for existing claims.

NOTE 16 – RELATED PARTY TRANSACTIONS

During the three months ended March 31, 2019, the Company purchased $1.9 million in chemicals used for our hydraulic fracturing operations from Rockwater Energy Solutions (“Rockwater”), a subsidiary of Select Energy Services (“Select Energy”). Rockwater is unable to complete an Initial Business Combination withinconsidered a related party post-Transaction since following the Combination PeriodTransaction Select Energy and the Company liquidatesshare two board members and a common investor, Crestview Partners. As of March 31, 2019, the funds heldCompany had $1.3 million in accounts payable owed to Rockwater.


NOTE 17 – SUBSEQUENT EVENTS

Senior Secured Term Loan

On May 7, 2019, our subsidiary, US Well Services, LLC as borrower, and we as guarantor, entered into a $250 million senior secured term loan facility (the “Senior Secured Term Loan”) that matures in May 2024. In connection with the Trust Account, holdersclosing of warrantsthe Senior Secured Term Loan, the Company repaid balances outstanding under the First Lien Credit Facility and the Second Lien Term Loan in their entirety and terminated both facilities. Proceeds will also be used for payment of outstanding amounts owed on financed and accrued fracturing equipment, fees and expenses associated with the borrowing and future expansion capital expenditures. The Senior Secure Term Loan bears interest on the outstanding principal at a per annum rate of LIBOR plus 8.25%. The Company is required to make quarterly principal payments beginning on September 30, 2019 equal to 0.5% of the initial principal amount of the loan.

The Senior Secured Term Loan contains various covenants, including, but not receive anylimited to, limitations on the incurrence of such fundsindebtedness, permitted investments, liens on assets, making distributions, transactions with respect to their warrants, nor will they receive any distribution fromaffiliates, mergers, consolidations, disposition of assets and other provisions customary in similar types of arrangements excluding financial covenants. Obligations of the Senior Secured Term Loan are secured by a continuing security interest in all of the Company’s assets held outsiderights, title, and interest in and to substantially all of its assets.

ABL Credit Facility

On May 7, 2019, our subsidiary, US Well Services, LLC as borrower, and we as guarantor, entered into a new asset-backed revolving credit facility (the “ABL Facility”), which provides for commitments in an amount of $75.0 million. The ABL Facility has a borrowing base equal to 85% of eligible accounts receivables and the lesser of 80% of the Trust Accountvalue of eligible unbilled receivables or $15.0 million. The ABL Facility matures in February 2024.

The ABL Facility contains various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, mergers, consolidations, disposition of assets and other provisions customary in similar types of arrangements. The ABL Facility is secured by the respectCompany’s accounts receivable and a secondary security interest in all of the Company’s rights, title, and interest in and to such warrants. Accordingly, the warrants may expire worthless.substantially all of its assets.

 

15


Item 2.ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement's Discussion and Analysis of Financial Condition and Results of Operations

References to the "Company," "us," “our” or "we" refer Matlin & Partners Acquisition Corporation. The following management discussion and analysis ("MD&A") of ourthe financial condition and results of operations of US Well Services, Inc. together with its subsidiaries (collectively "USWS," "Company," "us," "we," or "our") for the three months ended March 31, 2019 should be read in conjunction with our unaudited condensedprevious annual report on Form 10-K, and the consolidated financial statements and related notes included herein.

Cautionary Note Regarding Forward-Looking Statements

All statements other than statements of historical factthereto included in thisour annual reports. The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q including, without limitation,(this "Report") contains “forward-looking statements” as defined in Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward looking statements under "Management's Discussionusually relate to future events, conditions and Analysisanticipated revenues, earnings, cash flows or other aspects of Financial Condition and Results of Operations" regardingour operations or operating results. Forward-looking statements are often identified by the Company's financial position, business strategy and the plans and objectives of management for future operations, are forward- looking statements. When used in this Form 10-Q, words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to us“believes,” “expects,” “intends,” “estimates,” “projects,” “anticipates,” “will,” “plans,” “may,” “should,” or the Company'snegative thereof. The absence of these words, however, does not mean that these statements are not forward-looking. These are based on our current expectation, belief and assumptions concerning future developments and business conditions and their potential effect on us. While management identify forward-looking statements. Suchbelieves that these forward-looking statements are based on the beliefsreasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All of management, as well asour forward-looking statements involve risks and uncertainties (some of which are significant or beyond our control) and assumptions made by, and information currently availablethat could cause actual results to the Company's management. Actual results could differ materially from those contemplated byour historical experience and our present expectations or projections. These factors include the forward- looking statementseffectiveness of management's strategies and decisions, our ability to obtain financing, raise capital and continue as a resultgoing concern, our ability to implement our internal growth and acquisition growth strategies, general economic and business conditions specific to our primary customers, changes in government regulations, our ability to effectively integrate businesses we may acquire, new or modified statutory or regulatory requirements, availability of certainmaterials and labor, inability to obtain or delay in obtaining government or third-party approvals and permits, non-performance by third parties of their contractual obligations, unforeseen hazards such as weather conditions, acts or war or terrorist acts and the governmental or military response thereto, cyber-attacks adversely affecting our operations, other geological, operating and economic considerations and declining prices and market conditions, including reduced oil and gas prices and supply or demand for maintenance, repair and operating products, equipment and service. This Report identifies other factors detailedthat could cause such differences. We cannot assure that these are all of the factors that could cause actual results to vary materially from the forward-looking statements. Factors that could cause or contribute to such differences also include, but are not limited to, those discussed in our filings with the SEC. All subsequent written or oralSEC, including under "Risk Factors" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2019. We caution you not to place undue reliance on any forward-looking statements, attributablewhich speak only as of the date hereof. We assume no obligation and do not intend to usupdate these forward-looking statements. Unless the context otherwise requires, references in this Report to the “Company”, “USWS”, “we”, or persons acting on the Company's behalf are qualified in their entirety by this paragraph.

“our” shall mean US Well Services, Inc. and its subsidiaries.

Overview

We provide high-pressure, hydraulic fracturing services in unconventional oil and natural gas basins. Both our conventional and Clean Fleets hydraulic fracturing fleets are among the most reliable and highest performing fleets in the industry, with the capability to meet the most demanding pressure and pump rate requirements in the industry. We operate in many of the active shale and unconventional oil and natural gas basins of the United States and our clients benefit from the performance and reliability of our equipment and personnel. Specifically, all of our fleets operate on a 24-hour basis and have the ability to withstand the high utilization rates that result in more efficient operations. Our senior management team has extensive industry experience providing pressure pumping services to exploration and production companies across North America.


We are a blank check company incorporatedwere originally formed in March 2016 as a Delaware corporation on March 10, 2016 and formedspecial purpose acquisition company under the name Matlin & Partners Acquisition Corporation for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination withinvolving one or more businesses. We intendOn November 9, 2018, we completed the Transaction with USWS Holdings. As part of the Transaction, we changed our name from Matlin & Partners Acquisition Corporation to effectuate our Initial Business Combination using cash fromU.S. Well Services, Inc. Following the proceedscompletion of the Transaction, substantially all of our Public Offeringassets and operations are held and conducted by USWS Holdings and its subsidiaries, including U.S. Well Services, LLC, and our only assets are equity interests in USWS Holdings. We own a majority of the economic and voting interests of USWS Holdings and are the sole manager of USWS Holdings.

How the Company Generates Revenue

We generate revenue by providing hydraulic fracturing services to our customers. We own and operate a fleet of hydraulic fracturing units to perform these services. We have written contractual arrangements with our customers. Under these contracts, we charge our customers base monthly rates, adjusted for activity and provision of materials such as proppant and chemicals or we charge a per stage amount based on the nature of the stage including well pressure, sand and chemical volumes and transportation.

Our Costs of Conducting Business

The principal costs involved in conducting our hydraulic fracturing services are materials, transportation, labor and maintenance costs. A large portion of our costs are variable, based on the number and requirements of hydraulic fracturing jobs. We manage our fixed costs, other than depreciation and amortization, based on factors including industry conditions and the Private Placementexpected demand for our services.

Materials include the cost of warrantssand delivered to the basin of operations, chemicals, and other consumables used in our operations. These costs vary based on the quantity and quality of sand and chemicals utilized when providing hydraulic fracturing services. Transportation represents the costs to transport materials and equipment from receipt points to customer locations. Labor costs include payroll and benefits related to our field crews and other employees. A majority of our employees are paid on an hourly basis. Maintenance costs include preventative and other repair costs that occurred simultaneously withdo not require the consummationreplacement of the Public Offering,major components of our capital stock, debt or a combination of cash, stockhydraulic fracturing fleets. Maintenance and debt.

repair costs are expensed as incurred.

The issuancefollowing table presents our cost of additional shares of our stock services for the three months ended March 31, 2019, and 2018 (in a business combination:

may significantly dilute the equity interest of investors in the Public Offering, which dilution would increase if the anti-dilution provisions in the Class F common stock resulted in the issuance of Class A shares on a greater than one-to-one basis upon conversion of the Class F common stock;

may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock;

could cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;
may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and

may adversely affect prevailing market prices for our units, common stock and/or warrants.

Similarly, if we issue debt securities, it could result in:

default and foreclosure on our assets if our operating revenues after an Initial Business Combination are insufficient to repay our debt obligations;

thousands):

 

16

Cost of Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Materials

 

$

21,043

 

 

$

51,015

 

Transportation

 

 

14,804

 

 

 

21,605

 

Labor

 

 

32,064

 

 

 

24,391

 

Maintenance

 

 

19,352

 

 

 

17,019

 

Other

 

 

22,418

 

 

 

24,398

 

Cost of services

 

$

109,681

 

 

$

138,428

 

 

acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;

our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;
our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding;

our inability to pay dividends on our common stock;

using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, our ability to pay expenses, make capital expenditures and acquisitions, and fund other general corporate purposes;

limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;

increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and

limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, and execution of our strategy; and other purposes and other disadvantages compared to our competitors who have less debt.

As indicated in the accompanying financial statements, at September 30, 2017, we had $853,555 in cash outside of the Trust Account. We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete our Initial Business Combination will be successful.


Results of Operations

 

(in thousands, except percentages)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

%

 

 

2018

 

 

%

 

Revenues

 

$

139,772

 

 

 

100.0

%

 

$

171,606

 

 

 

100.0

%

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services (excluding depreciation and amortization)

 

 

109,681

 

 

 

78.5

%

 

 

138,428

 

 

 

80.7

%

Depreciation and amortization

 

 

37,844

 

 

 

27.1

%

 

 

25,920

 

 

 

15.1

%

Selling, general and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

expenses

 

 

8,620

 

 

 

6.2

%

 

 

4,337

 

 

 

2.5

%

Loss on disposal of assets

 

 

6,904

 

 

 

4.9

%

 

 

2,929

 

 

 

1.7

%

Loss from operations

 

 

(23,277

)

 

 

(16.7

)%

 

 

(8

)

 

 

(0.0

)%

Interest expense, net

 

 

(5,115

)

 

 

(3.7

)%

 

 

(7,401

)

 

 

(4.3

)%

Other income (expense)

 

 

27

 

 

 

0.0

%

 

 

317

 

 

 

0.2

%

Net loss

 

$

(28,365

)

 

 

(20.3

)%

 

$

(7,092

)

 

 

(4.1

)%

For

Revenues. Revenues decreased by $31.8 million, or 18.6%, to $139.8 million for the three and nine months ended September 30, 2017,March 31, 2019 from $171.6 in the prior corresponding period. The decrease was primarily attributable to more customers self-sourcing consumables such as sand, chemicals, and sand transportation, which we had a net incomewould otherwise provide.

Cost of $285,327services, excluding depreciation and $382,570, respectively. Our entire activity through September 30, 2017, consistedamortization. Cost of formationservices, excluding depreciation and preparationamortization, decreased by $28.7 million, or 20.8%, to $109.7 million for the Public Offeringthree months ended March 31, 2019 from $138.4 million in the prior corresponding period. The decrease was primarily attributable to more customers self-sourcing consumables as discussed above. Cost of services, excluding depreciation and sinceamortization, as a percentage of revenues decreased from 80.7% to 78.5% over this period, primarily due to increased efficiency that resulted from an increase in fleet utilization.

Depreciation and amortization. Depreciation and amortization increased by $11.9 million, or 46.0%, to $37.8 million for the Public Offering,three months ended March 31, 2019 from $25.9 million in the search for a target business with whichprior corresponding period. The increase was primarily due to consummate an Initial Business Combination, and as such, we had no operations and no significant operating expenses. Subsequentdepreciation related to the closingtwo hydraulic fracturing fleets added after the first quarter of 2018.

Selling, general and administrative expenses. Selling, general and administrative expenses increased by $4.3 million, or 98.4%, to $8.6 million for the Public Offering onthree months ended March 15, 2017, our normal operating costs included costs31, 2019 from $4.3 million in the prior corresponding period. Of this amount, $0.9 million was mainly due to head count and salary increases associated with our search forthe Company becoming a target business, costspublicly traded company, and $3.3 million was mainly due to higher professional and legal fees associated with the Company becoming a publicly traded company, and also to support our governancegrowth and public reporting,increased activity.

Loss on disposal of assets. Loss on disposal of assets increased by $4.0 million, or 136%, to $6.9 million for the three months ended March 31, 2019 from $2.9 million in the prior corresponding period. The amount of loss on disposal of assets fluctuate period over period due to differences in operating conditions of our hydraulic fracturing equipment such as wellbore pressure and state franchise taxes.rate of barrels pumped per minute, that impact the timing of disposals of our hydraulic fracturing pump components and amount of gain or loss recognized.

Interest expense, net. Interest expense decreased by $2.3 million, or 30.9%, to $5.1 million for the three months ended March 31, 2019 from $7.4 million in the prior corresponding period. This decrease was primarily attributable to a reduction in our average debt balance resulting from paying off our previous term loan in connection with the Transaction.

Liquidity and Capital Resources

Until the consummation of the Public Offering, our onlyOur primary sources of liquidity were an initial purchase of Founder Shares for $25,000 byand capital resources are cash on the Sponsor,balance sheet, cash flow generated from operating activities, borrowings under bank credit agreements and availability under our revolving credit facility.


On May 7, 2019, our subsidiary, US Well Services, LLC as borrower, and we as guarantor, entered into a total of $275,000 of loans and advances by the Sponsor. The $275,000 loans and advances were non-interest bearing and were paid$250 million senior secured term loan facility (the “Senior Secured Term Loan”) that matures in full on March 15, 2017 in connection with closing of the Public Offering.

On March 15, 2017, we consummated our Public Offering in which we sold 32,500,000 Units at a price of $10.00 per Unit (including the partial exercise of the Underwriter’s overallotment option) generating gross proceeds of $325,000,000 before underwriting fees and expenses. The Sponsor and the Underwriter purchased an aggregate of 15,500,000 Private Placement Warrants (14,500,000 of Private Placement Warrants by the Sponsor and 1,000,000 of Private Placement Warrants by the Underwriter) at a price of $0.50 per Private Placement Warrant in a Private Placement that occurred simultaneously with the Public Offering.May 2024. In connection with the Public Offering,closing of the Senior Secured Term Loan, the Company repaid balances outstanding under the First Lien Credit Facility and the Second Lien Term Loan in their entirety and terminated both facilities. Proceeds will also be used for payment of outstanding amounts owed on financed and accrued fracturing equipment, fees and expenses associated with the borrowing and future expansion capital expenditures. The Senior Secure Term Loan bears interest on the outstanding principal at a per annum rate of LIBOR plus 8.25%. The Company is required to make quarterly principal payments beginning on September 30, 2019 equal to 0.5% of the initial principal amount of the loan.

The Senior Secured Term Loan contains various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, mergers, consolidations, disposition of assets and other provisions customary in similar types of arrangements excluding financial covenants. Obligations of the Senior Secured Term Loan are secured by a continuing security interest in all of the Company’s rights, title, and interest in and to substantially all of its assets.

Additionally, on May 7, 2019, our subsidiary, US Well Services, LLC as borrower, and we incurred offeringas guarantor, entered into a new asset-backed revolving credit facility (the “ABL Facility”), which provides for commitments in an amount of $75.0 million. The ABL Facility has a borrowing base equal to 85% of eligible accounts receivables and the lesser of 80% of the value of eligible unbilled receivables or $15.0 million. The ABL Facility matures in February 2024.

The ABL Facility contains various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, mergers, consolidations, disposition of assets and other provisions customary in similar types of arrangements. The ABL Facility is secured by the Company’s accounts receivable and a secondary security interest in all of the Company’s rights, title, and interest in and to substantially all of its assets.

We believe that our current cash position, cash generated from operations, and additional funds obtained from the Senior Secured Term Loan and borrowing capacity from the new ABL Facility will be sufficient to satisfy the anticipated cash requirements associated with our existing operations for at least the next twelve months.

Cash Flows

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Net cash provided by (used in):

 

 

 

 

 

 

 

 

Operating activities

 

$

13,013

 

 

$

27,162

 

Investing activities

 

 

(52,442

)

 

 

(7,770

)

Financing activities

 

 

29,297

 

 

 

(5,729

)

Net Cash Provided by Operating Activities. Net cash provided by operating activities primarily represents the results of operations exclusive of non-cash expenses, including depreciation, amortization, interest, impairment losses, gains and losses on disposal of assets, and share-based compensation, and the impact of changes in operating assets and liabilities. Net cash provided by operating activities was $13.0 million for the three months ended March 31, 2019, a decrease of $14.2 million from the prior corresponding period. This decrease was primarily attributable to a decrease in revenue, due to more customers self-sourcing their own consumables such as sand, chemicals, and sand transportation. In addition, our working capital needs increased as a result of increased costs associated with us becoming a publicly traded company.

Net Cash used in Investing Activities. Net cash used in investing activities primarily relates to the purchase of $16,824,469 (including an underwriting feeproperty and equipment. Net cash used in investing activities was $52.4 million for the three months ended March 31, 2019, $18.9 million of $6,000,000 and deferred underwriting commissions of $10,250,000). Other incurred offering costs consisted principally of formation and preparation feeswhich related to the Public Offering. A totalmaintaining and supporting our existing hydraulic fracturing equipment, $30.2 million of $325,000,000which related to growth and $3.3 million of the net proceeds from the Public Offering and the Private Placement were deposited in the Trust Account establishedwhich related to fleet enhancements. The investment spend for the benefitthree months ended March 31, 2019 relates to the addition of one hydraulic fracturing fleet that we placed into service in January of 2019, payments for new hydraulic fracturing fleets to be placed in service after the first quarter of 2019, maintaining and supporting the hydraulic fracturing equipment and fleet enhancements to our public stockholders.

existing hydraulic fracturing equipment.

17


 As of September 30, 2017, we have availableNet Cash Provided by Financing Activities. Net cash provided by financing activities primarily relates to us $853,555 of cash on our balance sheet. We will use these funds to identify and evaluate target businesses, perform business, legal and accounting due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination. As of September 30, 2017, we also had $829,443 in interest income available from our investments in the Trust Account to pay for our income tax obligations.

In order to fund working capital deficiencies or finance transaction costs in connection with an intended Initial Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our Initial Business Combination, we would repay such loaned amounts. In the event that our Initial Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be usedrevolving credit facility, long-term debt, and notes payable, offset by repayments of amounts under equipment financing arrangements, notes payable, revolver, long-term debt, and principal payments under the finance lease obligations. Net cash provided by financing activities was $29.3 million for such repayment. Upthe three months ended March 31, 2019. During this period, we received proceeds of $9.0 million from our revolving credit facility and $35.0 million from long-term debt. We also repaid $2.1 million of debt under notes payable, $6.7 million of debt under equipment financing arrangements, $4.4 million of principal under finance lease obligations, and $1.5 million of deferred financing costs.

Capital Expenditures. Our business requires continual investments to $1,500,000 of such loans may be convertible into warrants at a price of $0.50 per warrant atupgrade or enhance existing property and equipment and to ensure compliance with safety and environmental regulations. Capital expenditures primarily relate to maintenance capital expenditures, growth capital expenditures and fleet enhancement capital expenditures. Maintenance capital expenditures include expenditures needed to maintain and to support our current operations. Growth capital expenditures include expenditures to generate incremental distributable cash flow. Fleet enhancement capital expenditures include expenditures on new equipment related to existing fleets that increase the optionproductivity of the lender. The warrants would be identicalfleet. Capital expenditures for growth and fleet enhancement initiatives are discretionary.

We classify maintenance capital expenditures as expenditures required to maintain or supplement existing hydraulic fracturing fleets. We budget maintenance capital expenditures based on historical run rates and current maintenance schedules. Growth capital expenditures relate to adding additional hydraulic fracturing fleets and are based on quotes obtained from equipment manufacturers and our estimate for the Private Placement Warrants,timing of placing orders, disbursing funds and receiving the equipment. Fleet enhancement capital expenditures relate to technology enhancements to existing fleets that increase their productivity and are based on quotes obtained from equipment manufacturers and our estimate for the timing of placing orders, disbursing funds and receiving the equipment.  

We continuously evaluate our capital expenditures and the amount we ultimately spend will depend on a number of factors, including asexpected industry activity levels and company initiatives. We intend to exercise price, exercisability and exercise period. Other than as set forth above,fund the terms of such loans by our Sponsor, an affiliatemajority of our Sponsor or our officerscapital expenditures, contractual obligations and directors, if any, have not been determined and no written agreements existworking capital needs with respect to such loans. We do not expect to seek loans from parties other than our Sponsor, an affiliate of our Sponsor or certain of our officers and directors, if any, as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account.

We expect that we have sufficient resources subsequent to our Public Offering to fund our operations through March 15, 2019. We do not believe we will need to raise additional funds following this offering in order to meet the expenditures required for operating our business. However, if our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an Initial Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our business combination. Moreover, we may need to obtain additional financing either to complete our business combination or because we become obligated to redeem a significant number of our public shares upon completion of our business combination, in which case we may issue additional securities or incur debt in connection with such business combination, which may include a specified future issuance. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our business combination. If we are unable to complete our Initial Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our Initial Business Combination, if cash on hand, cash generated from operations, borrowings under our new Senior Secured Term Loan, ABL Facility and other financing sources.

Debt Agreements

Senior Secured Term Loan and ABL Credit Facility

Refer to “Liquidity and Capital Resources” section herein.

First Lien Credit Facility

On December 14, 2018, our subsidiary, U.S. Well Services, LLC, entered into a Third Amendment (the “Amendment”) to that certain Amended and Restated Senior Secured Credit Agreement, dated February 2, 2017 by and among U.S. Well Services, LLC, as borrower, USWS Holdings and the Company as guarantors, and a syndicate of lenders (the “First Lien Lenders”) and U.S. Bank National Association, as administrative and collateral agent (as amended, the “First Lien Credit Agreement”). The Amendment, among other things, extended the maturity date from February 2, 2020 to May 31, 2020 and permits the borrower to incur the debt under the Second Lien Term Loan (as defined below).

The First Lien Credit Facility has a borrowing capacity of $65.0 million. Borrowings under the First Lien Credit Agreement bear interest at a per annum rate equal to LIBOR plus 6%.

The First Lien Credit Agreement contains various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, merger, consolidations, dispositions of assets and other provisions customary in similar types of arrangements.

Second Lien Term Loan

On December 14, 2018 (“second lien closing date”), our subsidiary, U.S. Well Services, LLC, as borrower, entered into a Second Lien Credit Agreement (the “Second Lien Term Loan”) with USWS Holdings and the Company, as guarantors, the lenders party thereto, and Piper Jaffray Finance, LLC, as administrative agent. The Second Lien Term Loan consists of a second lien term loan in the principal amount of $40.0 million, all of which was borrowed on December14, 2018, and delayed draw term loans in the principal amounts of $20.0 million, which may be drawn on any business day prior to April 1, 2019, and $15.0 million, which may be drawn on any business day prior to June 30, 2019. Loans made under the term loan facility bear interest on the outstanding principal amount at a per annum


rate equal to LIBOR plus (x) 7.75% from the second lien closing date through the first anniversary of the second lien closing date and (y) 11.50% from the day immediately succeeding the first anniversary of the second lien closing date to the maturity date plus, in each case, subject to certain qualifications, plus (a) 0.75% per annum for the period beginning April 1, 2019 through June 30, 2019, (b) 1.75% per annum for the period beginning July 1, 2019 through September 30, 2019 and (c) 3.00% on or after October 1, 2019. Scheduled repayment of principal amount of the loans under the Second Lien Term Loan is insufficient,based on repayment percentage on each quarter beginning in the second fiscal quarter in 2019, including accrued and unpaid interest on the date of such payment.

All of the loans made under the Second Lien Term Loan have a maturity of May 31, 2020.

The Second Lien Term Loan contains various covenants, including, but not limited to, limitations on the incurrence of indebtedness, permitted investments, liens on assets, making distributions, transactions with affiliates, merger, consolidations, dispositions of assets and other provisions customary in similar types of arrangements.

All obligations of the Company under both the First Lien Credit Agreement and Second Lien Term Loan are secured by a continuing security interest in all of the Company's right, title, and interest in and to substantially all our assets.

Contractual Obligations

We enter into certain contractual obligations in the normal course of our business. The following table summarizes our known contractual commitments as of March 31, 2019 (in thousands):

 

 

Less than 1 year

 

 

1 - 3 Years

 

 

3 - 5 Years

 

 

Thereafter

 

 

Total

 

Second Lien Term Loan

 

$

2,250

 

 

$

72,750

 

 

$

-

 

 

$

-

 

 

$

75,000

 

First Lien Credit Facility

 

 

-

 

 

 

65,000

 

 

 

-

 

 

 

-

 

 

 

65,000

 

Equipment financing

 

 

35,234

 

 

 

14,626

 

 

 

80

 

 

 

-

 

 

 

49,940

 

Capital lease obligations (1)

 

 

18,521

 

 

 

4,212

 

 

 

-

 

 

 

-

 

 

 

22,733

 

Estimated interest payments (2)

 

 

17,115

 

 

 

3,631

 

 

 

-

 

 

 

-

 

 

 

20,746

 

Operating lease obligations (3)

 

 

1,884

 

 

 

2,079

 

 

 

512

 

 

 

-

 

 

 

4,475

 

Purchase commitments (4)

 

 

78,655

 

 

 

42,430

 

 

 

-

 

 

 

-

 

 

 

121,085

 

Total

 

$

153,659

 

 

$

204,728

 

 

$

592

 

 

$

-

 

 

$

358,979

 

(1)

Capital lease obligations consist of our obligations on capital leases of fracturing equipment.

(2)

Estimated interest payments are based on outstanding debt balances as of March 31, 2019.

(3)

Operating lease obligations are related to our facilities and office space.

(4)

Purchase commitments primarily relate to supply agreements with vendors for sand purchases. The purchase commitments to sand suppliers represent our annual obligations to purchase a minimum amount of sand from vendors. If the minimum purchase commitments are not met, the agreements generally require the shortfalls or specified penalties to be settled in cash at the end of the year. The purchase commitments disclosed represent the aggregate amounts that the Company would be obligated to pay in the event that the Company procured no additional proppant under the contracts subsequent to March 31, 2019.

During the first quarter of 2019, we may needwere involved in a contract dispute with a proppant vendor resulting in the cancellation of the contract. Accordingly, as of March 31, 2019, we have excluded $47.1 million of contracted commitments related to obtain additional financingthis contract. The litigation involving the contract in orderdispute is in its early stages, as such no prediction can be made as to meet our obligations.the outcome.

 

The above table has not been adjusted to include the effects of the refinancing disclosed as a subsequent event in Note 17.

Off-Balance Sheet Financing Arrangements

We have no obligations, assets or liabilities which would be consideredThe Company’s off-balance sheet arrangements. We doarrangements include the operating leases and unconditional commitments disclosed in the “Contractual Obligations” section herein. For further description of such operating leases and unconditional commitments please see “Note 15 – Commitments and Contingencies” in the Notes to the Condensed Consolidated Financial Statements.

The Company does not participatehave any interest in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.entities.

 


Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to market risks from interest rate and commodity price fluctuations. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debtderivative financial instrument transactions to manage or commitmentsreduce market risk for speculative purposes. Our operations are conducted entirely in the United States; therefore, we have no significant exposure to foreign currency exchange rate risk. The consolidated financial statements are subject to concentrations of other entities, orcredit risk consisting primarily of accounts receivable.

We are subject to interest rate risk on our Senior Secured Term Loan entered into any non-financial assets.

Contractual Obligations

At September 30, 2017, we did not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities.

18

 The Underwriter was paid a cash underwriting fee of 2% of gross proceeds of the Public Offering, excluding any amounts raised pursuanton May 7, 2019. This agreement is subject to an annual interest rate that is indexed to the overallotment option, or $6,000,000. In addition, the Underwriter is entitledLondon Interbank Offered Rate (“LIBOR”). Refer to aggregate deferred underwriting commissions“Item 2. Management's Discussion and Analysis of $10,250,000 consistingFinancial Condition and Results of (i) 3%Operations—Liquidity and Capital Resources.” The impact of the gross proceedsa 1% increase in interest rates on this debt would result in an increase in interest expense of the Public Offering, excluding any amounts raised pursuantapproximately $2.5 million annually.

Our material and fuel purchases expose us to the overallotment option,commodity price risk. Our material costs primarily consist of proppants and (ii) 5%chemicals that are consumed while providing hydraulic fracturing services. Our fuel costs primarily consist of the gross proceeds of the Units solddiesel fuel used by our trucks and other equipment. Our material and fuel costs are variable and are impacted by changes in supply and demand. We generally pass along price increases to our customers; however, we may be unable to do so in the Public Offering pursuantfuture. We do not engage in commodity price hedging activities. However, we have commitments in place with certain vendors to the overallotment option. The deferred underwriting commissions will become payable to the Underwriter from the amounts held in the Trust Account solely in the event that the Company completes an Initial Business Combination, subject to the termspurchase sand. Some of the underwriting agreement.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual resultsthese agreements have minimum purchase requirements. We could materially differ from those estimates. The Company has identified the following as its critical accounting policies:

Emerging Growth Company

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not beingbe required to comply with the auditor attestation requirementspurchase sand and pay prices in excess of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 Further, section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standardmarket prices at the time private companies adoptof purchase. Refer to “Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations” for the new or revised standard. Thiscontractual commitments and obligations table as of March 31, 2019.

The concentration of our customers in the oil and gas industry may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differencesimpact our overall exposure to credit risk in accounting standards used.

Net Income Per Common Share

Net income per common share is computedthat customers may be similarly affected by dividing net income applicablechanges in economic and industry conditions. We extend credit to common stockholders by the weighted average number of common shares outstanding during the period, plus, to the extent dilutive, the incremental number of shares of common stock to settle warrants, as calculated using the treasury stock method. At September 30, 2017, the Company had outstanding warrants to purchase 24,000,000 shares of common stock. These shares were excluded from the calculation of diluted income (loss) per common share because their inclusion would have been antidilutive. An aggregate of 31,132,810 shares of Class A common stock subject to possible redemption at September 30, 2017 have been excluded from the calculation of basic income (loss) per common share since such shares, if redeemed, only participate in their pro rata share of earnings from the Trust Account. Due to a loss during the period ended September 30, 2016, diluted loss per common share is the same as basic loss per common share. At September 30, 2016, the Company did not have any dilutive securitiescustomers and other contracts that could, potentially, be exercised or converted into common stock and then shareparties in the earningsnormal course of the Company under the treasury stock method.our business. We manage our credit exposure by performing credit evaluations of our customers and maintaining an allowance for doubtful accounts.

19

Item 4. Controls and Procedures.

Financial Instruments

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheets.

Offering Costs

The Company complies with the requirements of FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A — “Expenses of Offering.” Offering costs were $16,824,469 (including an underwriting fee of $6,000,000 and deferred underwriting commissions of $10,250,000), consisting principally of costs incurred in connection with formation and preparation for the Public Offering. These offering costs were charged to additional paid in capital upon closing of the Public Offering on March 15, 2017.

Income Taxes

The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of September 30, 2017. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties at September 30, 2017. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception. At September 30, 2017 and December 31, 2016, the Company had no material deferred tax assets.

Redeemable Class A Common Stock

All of the 32,500,000 shares of Class A common stock sold as parts of the Units in the Public Offering contain a redemption feature which allows for the redemption of Class A common stock under the Company’s Liquidation or Tender Offer/Stockholder Approval provisions. In accordance with FASB ASC 480, redemption provisions not solely within the control of the Company require the security to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of FASB ASC 480. Although the Company has not specified a maximum redemption threshold, its amended and restated certificate of incorporation provides that in no event will the Company redeem its public shares in an amount that would cause its net tangible assets to be less than $5,000,001.

The Company will recognize changes in redemption value immediately as they occur and will adjust the carrying value of the security to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable Class A common stock shall be affected by charges against additional paid in capital. Accordingly, at September 30, 2017, 31,132,810 of the 32,500,000 shares of Class A common stock included in the Units were classified outside of permanent equity at its redemption value. There were no shares of Class A common stock outstanding at December 31, 2016.

20

Recent Accounting Pronouncements

The Company’s management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

Through September 30, 2017, our efforts have been limited to organizational activities, activities relating to our Public Offering and since the Public Offering, the search for a target business with which to consummate an Initial Business Combination. We have neither engaged in any operations nor generated any revenues. We have not engaged in any hedging activities since our inception on March 10, 2016. We do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.

The net proceeds of the Public Offering and the sale of the Private Placement Warrants held in the Trust Account have been invested in U.S. government treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

DisclosureUnder the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures are(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and other procedures thatwere effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in ourthe reports filedwe file or submittedsubmit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controlsforms and procedures include, without limitation, controls and procedures designed to ensure that such information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including ourthe Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective.

Changes in Internal Control over Financial Reporting

During the most recently completed fiscal quarter, thereThe Company has been engaged in the process of the design and implementation of the Company’s internal control over financial reporting in a manner commensurate with the scale of the Company’s operations post-Transaction. Except with respect to the changes in connection with such design and implementation, there were no changechanges in ourthe Company’s internal control over financial reporting that hasoccurred during the period covered by this report that have materially affected, or isare reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.


PART II

PART II – PART II – OTHER INFORMATIONItem 1. Legal Proceedings.

During the first quarter of 2019, we were named as a defendant in a Delaware based lawsuit arising out of the cancellation of a sand contract. The litigation is in the pleadings stages. As such, no prediction can be made as to the outcome of the case at this time.

We are involved in various other pending or potential legal actions in the ordinary course of our business. Management is unable to predict the ultimate outcome of these actions because of the inherent uncertainty of litigation. However, management believes that the most probable, ultimate resolution of these matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 1A. Risk Factors.

No material changes have occurred from risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

The Company discloses the following pursuant to Items 1.01, 2.03 and 9.01 of Form 8-K:

Term Loan Credit Agreement

On May 7, 2019, U.S. Well Services, LLC (the “Borrower”), a subsidiary of the Company, and all of the other subsidiaries of the Company entered into a $250 million Senior Secured Term Loan Credit Agreement (the “Term Loan Credit Agreement”) with CLMG Corp., as administrative and collateral agent (the “Term Loan Agent”) and certain other financial institutions. The Term Loan Credit Agreement will mature on May 7, 2024.

The proceeds of the Term Loan Credit Agreement will be used to refinance approximately $198 million of total debt outstanding, pay associated fees and expenses, to fund ongoing capital expenditures related to the construction of Frac Fleets and to pay accrued expenses and accounts payable.

The Term Loan Credit Agreement requires principal payments equal to approximately $1.25 million on the last day of each quarter, with the first installment payable on January 15, 2020 (for amounts due between May 7, 2019 and June 30, 2019). Beginning in September 2019, mandatory quarterly prepayments of a percentage of excess cash flow ranging from 100% to 25% depending on total outstanding debt, must be made, unless such prepayments are declined by the lenders, all as further described in the Term Loan Credit Agreement. The Term Loan Credit Agreement will bear interest at a variable rate per annum equal to the applicable LIBOR rate, subject to a 2.00% floor, plus 8.25%. Default interest is paid at a rate of 2.00% over the then-applicable interest rate. Upon the repayment of the Term Loan Credit Agreement, the Borrower will pay an exit fee equal to 2.00% of the principal amount of loans then repaid and the aggregate principal amount of loans repaid during the 120 days that occurred prior to such repayment.

The Borrower may, at its option, prepay any borrowings under the Term Loan Credit Agreement, in whole or in part, at any time and from time to time.


If the Borrower (x) voluntarily prepays the loans, (y) make a mandatory prepayment in connection with (A) an asset sale (subject to certain thresholds in any period of twelve-consecutive months and certain reinvestment provisions) or (B) the issuance of unpermitted debt or (z) repays the loans in connection with an acceleration (each, a “Specified Repayment”), in each case during the two year period from the closing date, the Borrower must pay a yield maintenance fee in an amount equal to the sum of the interest that would have been payable on the amount repaid  at a rate per annum equal to 8.25% on all scheduled dates for the payment of interest falling after the date of prepayment until the end of such two year period. In addition to the yield maintenance fee described above, in connection with any Specified Repayment, the Borrower must pay a call premium in an amount equal to the product of the amount repaid and the applicable percentage set forth below:

(i)

From the closing date to May 7, 2021, 1.00% ;

(ii)

between May 8, 2021 and May 7, 2022, 2.% ; and

(iii)

between May 8, 2023 and May 7, 2024, 1.00%

The Term Loan Credit Agreement contains a cash waterfall that controls the application and use of revenues and other money received by the Company and its subsidiaries.

The Term Loan Credit Agreement is guaranteed by the Company and each subsidiary of the Company (collectively, the “Loan Parties”) and is secured by a first priority lien on substantially all of the assets of the Loan Parties (other than accounts receivable and certain other ABL Priority Collateral (as defined in the Intercreditor Agreement described below) and a second priority lien on the ABL Priority Collateral.

The Term Loan Credit Agreement contains various representations, warranties and covenants of the Loan Parties for the benefit of the Term Loan Agent and the lenders under the Term Loan Credit Agreement, including reporting covenants, notice covenants, covenants related to the perfection of assets and Frac Fleet maintenance and preservation covenants.

The negative covenants in the Term Loan Credit Agreement include, among other things, limitations (each of which is subject to certain limited exceptions) on the ability of the Loan Parties and their subsidiaries to incur debt, grant liens, enter into transactions resulting in fundamental changes (such as mergers or sales of all or substantially all of the assets of a Loan Party), sell or dispose of assets, deposit and use money other than as permitted by the cash waterfall , make dividends, distributions or repurchases of or other payments in respect of their equity, enter into transactions with affiliates, make investments or repay or redeem certain indebtedness and other covenants the breach of which would result in an event of default, all as further described in the Term Loan Credit Agreement.

The Term Loan Credit Agreement also contains events of default (subject to grace periods for certain events of default, as appropriate) including among others: nonpayment of principal, interest or fees; breach of the affirmative or negative covenants; inaccuracy of the representations or warranties in any material respect; payment default on, or acceleration of, other material indebtedness; bankruptcy or insolvency; material unsatisfied judgments; certain ERISA violations; event of default under the ABL Credit Agreement (defined below) and the related loan documents, invalidity or unenforceability of the Term Loan Credit Agreement or other documents associated with the Term Loan Credit Agreement; and a change of control.

The foregoing description of the Term Loan Credit Agreement is not complete and is qualified by reference to the full text of the Term Loan Credit Agreement, which is attached as Exhibit 10.1 to this report and incorporated herein by reference.

ABL Credit Agreement

On May 7, 2019, the Borrower entered into a $75 million ABL Credit Agreement (the “ABL Credit Agreement”) by and among the Loan Parties, the lenders from time to time party thereto, and Bank of America, N.A., as administrative agent (the “ABL Agent”).  The ABL Credit Agreement will mature on the earlier of May 7, 2024 or 91 days before the maturity of the Term Loan Credit Agreement.

All borrowings under the ABL Credit Agreement are subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties and certifications regarding sales of certain inventory, and to a borrowing base (described below). Borrowings under the ABL Credit Agreement are fully and unconditionally guaranteed jointly and severally by the Loan Parties, other than future unrestricted subsidiaries.

Amounts borrowed under the ABL Credit Agreement are secured by a first priority lien on ABL Priority Collateral (including accounts receivable) and a second priority lien on substantially all of the other assets of the Loan Parties and their subsidiaries (other than ABL Priority Collateral).

The interest rates per annum applicable to loans, other than swingline loans, under the ABL Credit Facility are, at the Borrower’s option, equal to either: (a) the Base Rate, which is calculated as the greatest of (1) the rate of interest publicly announced by Bank of America, as its “prime rate,” subject to each increase or decrease in such prime rate effective as of the date such change occurs, (2) the federal


funds effective rate plus 0.50% and (3) the one month LIBOR Rate, calculated in a manner set forth in the ABL Credit Agreement, plus 1.00%, each of which is subject to an applicable margin, or (b) LIBOR plus an applicable margin. The applicable margin ranges from 0.50% to 1.00% for Base Rate loans and 1.50% to 2.00% per annum for LIBOR loans. Swingline loans bear interest at the Base Rate plus the applicable margin. Until August 3, 2019, the applicable margin shall be 0.75% for Base Rate loans and 1.75% for LIBOR loans.

The unused portion of the ABL Credit Agreement is subject to an applicable fee rate of 0.250% to 0.375% per annum, according to average unused amounts. The Borrower is also required to pay customary letter of credit fees, closing fees, arrangement fees and agent fees.

All borrowings under the ABL Credit Agreement, including swingline loans and issuances of letters of credit, are subject to a borrowing base.  The borrowing base is calculated (subject to certain reserves and other adjustments) as follows:

85% of eligible accounts receivable (net of discounts, claims, credits, allowances and sales, excise and similar taxes); plus

The lesser of (a) 80% of the eligible unbilled accounts (net of discounts, claims, credits, allowances and sales, excise and similar taxes or (b) $15 million;

Borrowings under the ABL Credit Agreement may be prepaid at any time without penalty or premium, subject to customary breakage and similar costs.  If an Event of Default occurs under the ABL Credit Agreement or availability under the borrowing base is less than the greater of 12.5% of the borrowing base or $9.375 million, the ABL Agent may elect to implement cash dominion over all amounts deposited in the collection account, which dominion shall continue, until such time that during each of the preceding 30 consecutive days, no Default or Event of Default has existed and availability has at all times exceeded the greater of (i) 12.5% of the borrowing base and (ii) $9.375 million.

The ABL Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants that, subject to exceptions, limit each Loan Party’s ability to, among other things:

incur, assume or permit to exist additional indebtedness, guarantees and other contingent obligations;

incur liens;

pay certain dividends or make other distributions;

engage in transactions with affiliates;

make certain loans and investments; and

consolidate, merge or sell assets.

The ABL Credit Agreement contains certain customary events of default, including, among other things, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to material indebtedness, certain events of bankruptcy, certain events under ERISA, events of default under the Term Loan Credit Agreement or the related loan documents, material judgments, actual or asserted failure of any guaranty or security document supporting the ABL Credit Agreement to be in force and effect and change of control. If an event of default occurs, the ABL Agent is entitled to take various actions, including the acceleration of amounts due under the ABL Credit Agreement, termination of the commitments under the ABL Credit Agreement and all remedial actions available to a secured creditor.

The Loan Parties intend to use the proceeds from the ABL Credit Agreement for working capital expenditures and other general corporate purposes.

The foregoing description of the ABL Credit Agreement is not complete and is qualified by reference to the full text of the ABL Credit Agreement, which is attached as Exhibit 10.2 to this report and incorporated herein by reference.

Intercreditor Agreement

On May 7, 2019, the Borrower, the Term Loan Agent and the ABL Agent, acting on behalf of the respective lenders under such agreements, entered into the Intercreditor Agreement (the “Intercreditor Agreement”), which was acknowledged by the Loan Parties.

Among other matters, the Intercreditor Agreement governs how the respective priorities of the security interests held by those respective lenders would be administered in the event of default by the Company under the Term Loan Credit Agreement or ABL Credit


Agreement. Under the Intercreditor Agreement, the ABL Agent has a first-priority lien in the assets secured under the respective ABL Credit Agreement and the Term Loan Agent has a second priority lien in those assets. The Term Loan Agent has a first priority lien in substantially all of the other assets of the Loan Parties, and the ABL Agent has a second priority lien in those assets.

The foregoing description of the Intercreditor Agreement is not complete and is qualified by reference to the full text of the Intercreditor Credit Agreement, which is attached hereto as Exhibit 10.3 to this report and incorporated herein by reference.

 

Item 1.

Item 6. Exhibits

Legal Proceedings

None. The exhibits required to be filed or furnished by Item 601 of Regulation S-K are listed below.

 

Exhibit No.

21

 

Item 1A.Risk Factors

Description

As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our prospectus filed with the SEC on March 9, 2017 except we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.Defaults Upon Senior Securities

None

Item 4.Mine Safety Disclosures

Not Applicable.

Item 5.Other Information

None.

Item 6.Exhibits

Exhibit NumberDescription

31.13.1

Second Amended and Restated Certificate of Incorporation of U.S. Well Services, Inc (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K (File no. 001-38025), filed with the SEC on November 16, 2018).

3.2

Amended and Restated Bylaws (incorporated by reference to Exhibit 3.4 of the Registration Statement on Form S-1 (File No. 333-216076), filed with the SEC on February 15, 2017).

10.1*

Senior Secured Term Loan Credit Agreement, dated as of May 7, 2019, among U.S. Well Services, LLC, as borrower, U.S. Well Services, Inc. and all the other subsidiaries of U.S. Well Services, Inc., as guarantors, CLMG Corp., as administrative and collateral agent, and certain other financial institutions.

10.2*

ABL Credit Agreement, dated as of May 7, 2019, among U.S. Well Services, LLC, as borrower, U.S. Well Services, Inc. and all the other subsidiaries of U.S. Well Services, Inc., as guarantors, the lenders from time to time party thereto, and Bank of America, N.A., as administrative agent.

10.3*

Intercreditor Agreement, dated as of May 7, 2019, among the Borrower, CLMG Corp. and Bank of America, N.A.

31.1*

Certification of the PrincipalChief Executive Officer required bypursuant to Rule 13a-14(a)13(a)-14 and Rule 15d-14(a)15(d)-14 under the Securities Exchange Act of 1934, as amended, as adopted1934.

31.2*

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

31.2Certification of the Principal Financial Officer required by Rule 13a-14(a)13(a)-14 and Rule 15d-14(a)15(d)-14 under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.1934.

32.1**

Certification of the PrincipalChief Executive Officer required bypursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.1350.

32.2**

Certification of the PrincipalChief Financial Officer required bypursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.1350.

101.INS

101.INS*

XBRL Instance Document

101.SCH

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PREXBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.

** Furnished herewith.

 

22


SIGNATURES

SIGNATURES

In accordance withPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.authorized on May 9, 2019.

 

MATLIN & PARTNERS ACQUISITION CORPORATION

U.S. WELL SERVICES, INC.

Dated: November 3, 2017

By:

/s/ David J. Matlin

/s/ Joel Broussard

Name:

Name: David J. MatlinJoel Broussard

Title:

President, Chief Executive Officer, and Director

(Principal Executive Officer)  

Dated: November 3, 2017  /s/ Rui Gao

/s/ Kyle O’Neill

Name: Rui Gao

Kyle O’Neill

Title:

Chief Financial Officer

(Principal Financial and Accounting Officer)

23

37