USWS - Earnings call transcript Q4 2019

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Operator

Greetings, and welcome to U.S. Well Services Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference call is being recorded.

pleasure your my call, for now Shapiro. Josh is to host introduce today’s It you. Thank

begin. may You

Josh Shapiro

Thank good conference Officer. Chief operator, quarter Broussard, for to you, Chief and full XXXX the joining appreciate review and today U.S. us results. you Executive With Well are and Officer; Financial Services year call me webcast morning, and fourth everyone. Joel We O’Neill, Kyle

for prepared their remarks, Following will open the Q&A. be call

earnings. The evening www.uswellservices.com. time-sensitive and XXXX Yesterday to Well fourth on XX-K found later of transcript reading. note its Services The Please Form the any speaks with of X, week. intends or at release year full information earnings only the the U.S. released also this replay file longer website be listening XXXX SEC as therefore, can March quarter may accurate Company’s company be time the this no information of as reported on today, call and that XXXX,

by reflect during management. conference securities views United In addition, meaning These within management the U.S. Well this of contain current the statements call forward-looking forward-looking States laws. of federal the statements the made Services comments may

uncertainties cause results, or those our to However, contingencies performance management. from various statements expressed differ actual materially made the and achievements in by risks, could

The GAAP of measures. with most earnings measures the during listener today’s financial we financial and the is call, comparable risks, non-GAAP release encouraged and non-GAAP in filings to Reconciliations Also, contingencies. are review reference measures our SEC company’s directly those the yesterday’s earnings release. uncertainties to understand these will included to certain

Broussard. Well to Services’ turn to like the now And over call U.S. CEO, Joel Mr. I’d

Joel Broussard

highlights conditions of fourth to moment you accomplished, to am full like U.S. review review take some Well us today’s from this market that In industry that this Josh. Services a to on and morning, XXXX. joining continued Thanks, year. for results proud our challenging to everyone, And amid Well through backdrop. the I XXXX, thank the year. experienced Services’ everything U.S. of difficult Good and we’d quarter deteriorate call

fleets commissioned and quarter work also USWS three fourth during new fleet electric frac went deployed electric in into the first of that XXXX XXXX. a

completed have was XXXX have fleets introduced XX,XXX in stages and Clean over completed our with the in X,XXX electric since We first stages over Fleet XXXX.

in which fracturing expertise leader and utilization market in continues frac We eight conventional approximately of operating X.X year. believe active positioned XX%, a includes fleets electric fully Well currently fleets averaged utilized equivalent Our for fleet rate XXXX USWS U.S. frac well Services fleets as equates fracturing. we as the diesel the all-electric with our to hydraulic fleets. to fleet X.X electric a five we fleets as during expand, of

XXXX, to Adjusted year a was related is per ends. Adjusted million, capital million, revenues. maintenance million fully EBITDA utilized USWS deducting which flat effectively revenue which $XXX generated decrease XXXX full was the to reflects of million or expenditures For relative after approximately XXXX $XX.X fluid XX% $XX.X $XXX.X versus EBITDA EBITDA. fleet adjusted

We to the to leverage X,XXX over Well of technologies hours nearly drive fully its in best-in-class in emerging year, efficiencies course Services capabilities, ability equates per the Over which pumped fleet. demonstrated hours to U.S. XXXX, field. the utilized greater operational XX,XXX for

and and enabled to technology to equipment efficiency decisions supply by inform data Our chain operations designs. was our team’s ability leverage

and hour of this high pump what all using USWS This to An flow are example under harsh of adoption others decision large-bore allows was iron. operating our early days conditions. consistently

frac a operating market share electric and XXXX. overall to maintain XX in our now We the fleet portfolio as will was have differentiating patents with pumping IP, with continue combined additional expanded considerably an fleets pressure patents We be believe property XXX of electric pending. intellectual Our grows. our asset experience

culminating deteriorated, delay in anticipated Throughout fourth the conditions and by shutdowns. jobs course decisions U.S. deceleration holiday impacted Services longer a year, activity adversely customer-driven during quarter. to was the sharp of than Well the market

As a Services lower result, Well U.S. prior active in fleets utilization experienced than quarters.

X-point the fleets, active previous down X.X USWS the During in fleets from quarter. quarter, fourth averaged

XXXX. Utilization fully fleets utilized third fully quarter resulting third for XXXX. fleets quarter sequential third to relative adjusted as Revenue the X.X million million fourth compared of utilized XX%, the XX% EBITDA a now the was X.X of an a the in to which decline of for quarter million, quarter of quarter USWS the from $XX.X fourth approximately $XX.X $XX.X was XXXX. generated in represents for

U.S. quality horsepower customers. industry, Well remain for Services critical While our challenges successful of equipment market been deploying and has our in pricing oversupply high for

are operating recent The rapid new crude growth the about has fleets, coronavirus fleets. generation demand, electric global which of active outbreak frac prices. resulting XX economic currently and a concerns We oil four decline the oil created in in of are

to growth would impact ultimate period recession our business this slowing of economic the detrimental. Although be at time, sustained or is unclear any

an are XX% market, dedicated one. a situation is that rapidly maintaining customers dialogue asset visually active such We believe spot fleet out monitoring working over is react I limited there are and so that USWS an a as contracted needed. exposures basis. our can our point We this the in or would market volatile of USWS as with either on

value U.S. and a unique Well we leading-edge proposition. Over of Services, efficiency believe combination technology, offers top-tier customers the long-term,

deploy Our combination opportunities on ownership significantly demand environment, capital. we fleets cost generate equipment, conventional optimal for reduced returns these and for technology provides fleets diesel-powered In current emissions costs. for fuel savings market outpaces will and an demand there of customers, next-generation believe electric that and the attractive additional the to frac reductions be

to in is near-term Our fluctuations value for shareholders. prices our evaluating along opportunities commodity create risk, continuously including with team long-term management

over will I it Officer. turn Chief Financial With Kyle O’Neill, that, to our

Kyle O’Neill

and Joe, Thanks, good morning, everyone.

$XXX.X full such the for chemicals as decrease from revenue primarily million, mentioned, our was XXXX approximately and for revenue customers down proppant self-source transportation. materials to This continued and Joel As million. $XXX.X sand, driven XX% XXXX’s was the of year year-over-year by trend storage

in XXXX, fleet in active customers we XX% to over In in sand our of as XX% this XXXX. months to roughly compared sold context,

adjusted reduction as has While margins trend actually equipment service to equipment and actually revenue our higher-margin increased this shift EBITDA have our service to business led a XX%. improved by continues revenues, Year-over-year, towards and revenue. mix in large

$XXX being in services cost was to million decrease driven XXXX of compared chemicals by of and services in primarily million approximately cost materials, was $XXX Our transportation. XXXX. and lower The cost in sand

repair XXXX. per largely fleets in portfolio costs of more in Although USWS This active maintenance electric attributable XXXX XXXX, higher and stages by completed versus only proportion increased our X% approximately our is year-over-year. in the fleet to XXXX versus XX%

ownership performance. in lower for cost we fleet the frac of today. frac maintain is We’ve dual electric evident such equipment. as market, one which fuel cost but that challenging particularly competitive conventional point diesel relative overlooked to believe in lower a often the is We financial to often electric stated our advantage, is is or in fleets a operate that This critical

SG&A costs were approximately levels X% $XX.X XXXX $XX.X million down in from of million. XXXX,

$XXX.X million adjusted as EBITDA corporate XX% million approximately fleet. costs, Excluding to margin adjusted of compares generated EBITDA year-over-year $XXX in XX% driven such fully and XXXX. approximately to approximately from This SG&A compensation XXXX. versus per costs, $XX.X primarily headcount. public utilized That XXXX and million increased stock-based an XXXX. of in million by in Well We million adjusted EBITDA $XX.X to This expenses equates company transaction-related XXXX. U.S. generated increased increase reporting in was in $XX.X

of million Turning was for growth was expenditures and expenditures. $XX.X our directed to for now accrual $XXX.X million were total as of packages large-bore of which CapEx XXXX, equipment. was enhancements, capital CapEx all basis. initiatives, purchase capital In approximately new on $XXX.X fleets. towards supporting such the electric of fleet an other iron those million

$X.X XXXX, which ends. $XX.X $XX.X This annual million million Finally, CapEx was for maintenance per million, of $X.X fluid to which fully total in utilized U.S. maintenance Wells equates was fluid of in of ends. spent fleet CapEx an approximately million for approximately

of As hand U.S. ABL comprised restricted under on $XX.X of XX, cash $XX.X facility. of million Wells of December and liquidity cash $XX our million and had of total million approximately XXXX, availability

key from review fourth to I’d moment quarter the like of highlights XXXX. a take to

As services fourth quarter mid-fourth of quarter XXXX, or to a quarter late with large the work of crude of from back customers us prepared Joel fully push utilized. portion fourth be Several the first entered leaving mentioned, to fleets inactive that the quarter fully the nearly U.S. for early well quarter. our to elected remain

of Revenue XX% lower stack was in working share quarter revenue work. frac sequentially from decrease the declined fourth to million. in fleets $XX.X driven larger-than-normal utilization a resulting fewer The and by

in service decreased XX% the by $XX.X Our reduction activity levels. cost sequentially largely million, driven of to

active X% Although fleet services as the cost active our support operations. per declined than we labor required cost overall, increased carried more personnel of to

the basis, in Well quarter Adjusted deducting approximately XXXX. third EBITDA XX% $X.X the compared quarter EBITDA XX% third Adjusted were the after fluid adjusted fleet, fourth U.S. down generated XX.X% approximately margins of was to CapEx. a On million, quarter. $XX.X end fully EBITDA million million utilized or per $X.X in from of Services for

share-based in SG&A SG&A fourth to to quarter $X.X compared transaction in quarter. compared of X.X% the was QX in was XXXX fourth And third and XXXX. the approximately million quarter compensation $X.X the million of X.X% excluding costs, in

I’d some for time, remarks. to to final turn back like At call Broussard Joel the this over

Joel Broussard

will completion with continue Services Thanks, of in operational Kyle. our costs our positioned forward. differentiator believe alignment capabilities, is for Well cutting-edge and We to serve improving we goals as U.S. environmental key us and while XXXX, well reducing stewardship going entering believe technology a customer

is permeating moment, long-term remaining With on at the keenly to to the operations order impacts business management that our swiftly our to actively while react the on USWS in adverse uncertainty market value. be any is able monitoring focused creating

for With to like the and over operator call answers. to turn that, questions would I the

Operator

Thank you.

from We be Our with question your Gengaro session. a first Stifel. comes [Operator question. Instructions] proceed will Please question-and-answer with conducting now Stephen

Stephen Gengaro

Thank things. morning. start I with good I’ll you two guess, and

I The XX or arrangements. about under you talked first think contract having about dedicated deployed, you and is fleets XX talked

to and we embedded what profitability XXXX, like the is about relative in As what XQ think seen we’ve in XXXX? look

Kyle O’Neill

we being our Stephen, any our look we’re I cost at pressure formal continued hard pricing but declines think offset release to structure to we’re look said, taking we’re That in in give cost seeing pricing Well, have. a that don’t clear in every press guidance, we QX.

I adequate think then in carry time months this any crews. to the to in talked deploying about headcount on-site training, That putting for and up two will people we’re in ensure we’re staff of and that the we new ahead excess caused – we’ve XXXX. those we’re also right a month, crews, us past, time

we’ll area So see that’s improvement where in another XXXX.

Stephen Gengaro

Okay.

if quarter? the when could we’re so fleets, about think thinking when ballpark the there – any that you And you XX the effective first is about utilization of to way were you

Kyle O’Neill

that. on one delay with that had few impact a catch in a in tough around we’re of see But we can move that can QX. we’ll think of excess we’ll a calendars customer I up days optimistic what frac – to because have It’s utilization rig just – and an of

Stephen Gengaro

for e-fleet Is you to for it? are mean, that profitability your a little it then maybe probably at I to probably be you reasonable follow-up. widening e-fleet? and to look the Okay. you’re been Thanks. to of mean, conventional And been about over there high. preference think like a continuing better pretty when way As are the couple where holding and able talking to six months it’s gap on the I as customers last seeing e-fleet we it side, – side seems ago? was just the versus versus months, a When you that. sounded prices stickier, the see

Kyle O’Neill

The Yes. between is diesel the widening. and profitability electric, gap

Stephen Gengaro

Okay.

Kyle O’Neill

lower – Yes. of lower through both operating And we’re actually pricing cost our costs. and seeing that operating

Stephen Gengaro

you. thank Okay,

Kyle O’Neill

Thank you.

Operator

comes question next from question. your Our & with proceed Please Simmons Company. Dylan Glosser with

Dylan Glosser

guys. morning, good Hey,

Joel Broussard

Hey, are good How you? morning.

Kyle O’Neill

Good morning.

Dylan Glosser

electric can QX fleet. expansion? you wanted future electric Do your deploy in And the fleet you either deployment Just talk your to QX? expectations for idle expect frac touch additionally, to on guys electric briefly on for or

Joel Broussard

one of the we Yes. the with built pumps. is ones The idle first electric triplex fleet

a costs crew have interest, a before to however, or for a months. full three to the of on we We we through get wait if calendar we’re see going putting it go can four for

Dylan Glosser

that much in number? electric new calls how I fleet. on in some Understood. build guys a already Could that? so, of If invested any mentioned further you you previous not, us you the to that? that of And guys had you assets remaining is invested Have remind or in think if

Joel Broussard

one we we long-term $XX if out million left decided to fleet We on build contract. on that it have a have about

Dylan Glosser

Right.

Okay. And…

Kyle O’Neill

to We I strike. can and be want active ready we have think dialogue, to

We have long touches the commitment. and include in we – all like to go for we past, be items, we’d the said on lead it once ready the long-term have we final

Dylan Glosser

difference major new that last I’d there is guess, that, older guys I on that currently Okay, versus great. fleet finishing customer out have desire build? in electric maybe a the ask thing for you

Joel Broussard

Yes. fleet, sure. latest They want for the Everybody a build wants new version.

Kyle O’Neill

XXXX. that XXXX, a triplex fleet it’s mean, pumps. all I was to back XXXX, in in Yes. went they’re And work designed triplex and

And for pads. so suited very well larger it’s

less have per moves We or year… per month

Joel Broussard

And lower rate, lower pressure.

Kyle O’Neill

rate, it Lower today. we lower pressure. see And

Dylan Glosser

color. Or pricing has today QX? from for QX? what in that are is from the from to trajectory me. making pricing pressure for is further, there In Thank – And that QX I last come you mentioned expectation? you it guess, flat QX? what And QX maybe And QX commentary, pricing you your is down your to the to seeing what question Is out prior pressure. of from pricing guys more release,

Joel Broussard

the least because quarter, fourth And pricing improvement. ours We think, we think is right got a first in to going low. slight line, flat is maybe pricing from at be the quarter year, so it’s are, to through

Kyle O’Neill

As recently, it’s in to right QX goes, though, say moves commodity think the now. I to QX with far as difficult prices

watching these evaluating still We’re assembles. and

Dylan Glosser

Awesome. Thanks, guys and for it. appreciate your I’ll turn time back.

Kyle O’Neill

you. Thank

Operator

Daniel Our Rice. next Please comes Burke question Johnson proceed question. with your with from

Daniel Burke

Hey, good morning, guys.

Joel Broussard

Daniel. morning, good Hey,

Daniel Burke

then the fleets? – considered the get pricing to would fleets how way And contracts work XX split the into remind be just us also, any to the two see, are of possible working, how contracted those dedicated, you are that Let’s could and works on it fleets buckets?

Kyle O’Neill

think I we’ve Sure. mean, I got…

Joel Broussard

Three dedicated.

Kyle O’Neill

or no really is the some cancel and is agreement customer for what to under cancel contracts. of call The it’s year. there’s to under contract, rest between – a dedicated difference are pricing the a convenience. penalty there ability type let’s if two are a Three say, dedications The were the where we a for,

the it they have However, financial contain they cancel of get a some no there’s penalty. type work, running, that we fleet may but our us, language have – says could we

Daniel Burke

me to a the assuming in and more And CapEx that, revenue Maybe year-end or growth think for no let’s how electric – help you base think think XXXX added in Okay, capital Thanks got on no about see. starting you’re on the to it. in working front. about, guys. insights since financial one can maybe on from Any fleets CapEx new pretty XXXX? at side, Kyle, about low both how further

Kyle O’Neill

set which capital Yes. of QX of kind did out from get new pick now, into customers we’ll I right that I up mean, – we’ve QX, bit to another transition set, of couple in payment think and anytime we working a stretch we cycle. one as a of see customers little we kind that

see and we’ll think bit little release I of So improve. a should there

fleet CapEx On included of million about CapEx I in line. the XXXX, million can side, per think will new we that CapEx, growth – total in was ends, our with maintenance that $X.X fluid $X.X and be and a no

working that We’re bring throughout down year. very to diligently the number

on on help the some pumps, into vibrations our components, directly we’re reduced there. focused CapEx seeing repair reduce technology importantly, which We’re developments, price reductions can more maintenance MD, like that but and maintenance translates things and us our FRAC in and

range think of kind for had got XXXX, number same the eye to last $X reduce where ended kind we a we that to sharp throughout CapEx million I So that million. but very maintenance for $X of up the is million we’ve year. $X.X year,

Daniel Burke

Joel. And last one, then maybe great. Okay, a

industry fleet, made Just pretty well. terms stages impressive in as of XXXX strides the efficiencies per improvement and in in good

what of make in you can mix the to stages electric you gains in the in maybe As at think a XXXX, with but that partly of presents I attributable fleet you you look XXXX, further terms active recognize per set customer opportunity do to XXXX? you, fleets can is achieve greater

Joel Broussard

many we I There’s day. question. efficiencies. XX% think great only XXXX, were And XXXX – a so over That’s hours from we in increased and a on

slight, hours So day X% we’re as between and efficiencies. wireline maybe bucking but XX it’s up well in aggressive from in been not a X% to to that XXXX increase swaps as and XXXX, a

Daniel Burke

in appreciate terms have should guys makes it in you a I day. pump Maybe that’s per stages. give better those. hours Maybe sense. do But, that Okay. okay, phrased that of I metric

for there. time. you it guys. the right, Thank all I’ll Okay, leave

Joel Broussard

Daniel. you Thank much, so

Operator

Our next Stephen question proceed Stifel. is your with with Please Gengaro from question.

Stephen Gengaro

wanted a on working follow-up, capital as just I to follow-up the Just question.

look a mentioned comment Was improvement we it year comment? I sort when think Or should needs? some of the was think, XXXX the on XXXX. XQ Kyle, full full of sort year, full versus at you the year more working capital I about

Kyle O’Neill

I think, it’s both.

for I the full an think see you’ll and QX starting – in in year. improvement

Stephen Gengaro

the just just you pressure the on quarters. side, supply-demand look overall some now over as things about And five and current think three Okay, sort then seen on attrition we’ve like you what’s perspective, the your overall right you view from of and next the at fleet sort looks market or think pumping of what world the of thanks. an about

Joel Broussard

working, XXX. high and overall was The it XXX to dropped fleets

I think it’s companies, to XXX going with be in low XXXs. possibly That’s the take. be consolidation, working. E&P fleets our it downturn the we’re could with seeing And on new high,

Stephen Gengaro

Great, you. Okay. thank

Joel Broussard

you. Thank

Operator

questions turn further for I’d to at At to Broussard floor this comments. Mr. time. closing this no over are like There point, back the

Joel Broussard

all for Appreciate everything. joining. you Thank

Operator

gentlemen, thank for and participation. conclude teleconference. Ladies you today’s your does This

disconnect a lines, have day. and wonderful may You your

U.S. Well Services (USWS) 4 Mar 202019 Q4 Earnings call transcript