USWS - US Well Services Inc. (USWS) CEO Kyle O'Neill on Q2 2022 Results - Earnings Call Transcript
US Well Services, Inc. (USWS)
Q2 2022 Earnings Conference Call
August 11, 2022, 11:00 ET
Company Participants
Kyle O'Neill - President, CEO & Director
Joshua Shapiro - SVP & CFO
Conference Call Participants
Derek Podhaizer - Barclays
Donald Crist - Johnson Rice & Company
Presentation
Operator
Greetings, and welcome to the U.S. Well Services second quarter earnings conference call. [Operator Instructions].
I would now like to introduce your host for today, Vice President of Finance. Thank you. You may begin.
Unidentified Company Representative
Thank you, operator, and good morning, everyone. We appreciate you joining us for the U.S. Well Services conference call and webcast to review the second quarter 2020 results. Joining us on the call this morning are Kyle O'Neill, Chief Executive Officer; and Josh Shapiro, Chief Financial Officer. Following their prepared remarks, the call will be open for Q&A.
Yesterday evening, U.S. Well Services released its second quarter 2022 earnings. The earnings release can be found on the company's website at www.uswellservices.com. Company also intends to file its Form 10-Q with the SEC this afternoon.
Please note that the information reported on this call speaks only as of today, August 11, 2022, and therefore, time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States Federal Securities laws. These forward-looking statements reflect the current views of U.S. Well Services management. However, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listeners are encouraged to review today's earnings release and the company's filings with the SEC to understand those risks, uncertainties and contingencies.
Also, during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release.
And now I would like to turn the call over to U.S. Well Services' CEO, Mr. Kyle O'Neill.
Kyle O'Neill
Thanks, and good morning, everyone. Since our last quarterly earnings call, we have seen a rapid strengthening in the fundamentals of the frac service market. We deployed the first of our new build Nyx Clean Fleet and entered into an agreement to merge with ProFrac. To say that the second quarter of 2022 was busy and exciting for U.S. Well Services is truly an understatement.
Before I provide our outlook on the state of the market, I'd like to briefly discuss our transaction with ProFrac, I'm very excited about this transaction because I believe ProFrac is uniquely positioned to continue innovating electric fracturing technology and pursuing the market opportunity for these fleets. Together, our companies will have the largest electric fleet in the industry, and the second largest fleet by total horsepower. I have great confidence that ProFrac will leverage their existing capabilities, our next-generation frac technology in both of our outstanding workforces to deliver incredible results for the industry, our customers and our combined company shareholders.
As previously noted, we expect this transaction to close in the fourth quarter of 2022. Today, the U.S. frac market is effectively sold out. Years of underinvestment and attrition have finally caught up to the industry. The supply of high-quality equipment can no longer meet the demand of E&P customers. Additionally, supply chain disruptions and a tight labor market are making it increasingly difficult to adequately staff, supply and maintain active fleets. As a result of this dynamic, service and equipment pricing is at the best levels we have seen in years.
I'd like to point out that while demand for pressure pumping services is generally robust, we continue to believe that the strongest demand is for next-generation fracturing technologies such as our Clean Fleets that offer best-in-class efficiencies, significant fuel cost savings in an industry-leading environmental footprint. During the second quarter, our commercial team worked hard to negotiate with our customers to continue improving the terms of our service agreements in order to improve the profitability of our fleets. We continue to experience strong commercial tailwinds as a result of the favorable market backdrop.
While we are certainly benefiting from the market upturn, we also recognize the deteriorating macroeconomic environment that has led to the recent pullback in crude oil prices. At this point, it is likely that we may be entering into recession, and that persistent high inflation is continuing to recap on markets and consumers. However, as we evaluate the economic outlook, it is our view that an economic recession should pose a manageable risk to our business due to the structural undersupply of oil and natural gas and the depleted inventory levels. We believe that demand for output from U.S. Shale remains strong for the next several years and that the result will be a favorable environment for efficient frac service companies with a demonstrated track record and an ability to deploy next-generation technologies.
At U.S. Well Services, we have always focused on developing new technologies to meet the constantly evolving needs of our customers. In June, we began taking delivery of our first new build Nyx Clean Fleet, and commenced operations with that fleet in the Rockies in July. Our team is excited to deliver the highest levels of service quality, fuel cost savings and emissions performance with this latest generation of clean fleet technology. Our second Nyx Clean Fleet is being constructed now, and is expected to deploy in the field in late Q3.
With all that was going on, we posted our strongest financial results since the second quarter of 2021. Revenues for the second quarter were $69 million, up 67% sequentially, and adjusted EBITDA was $7.5 million, up from a $3.5 million loss in the first quarter of 2022. I am very proud of all that our team has accomplished. And to that end, I want to thank all of the U.S. Well Services employees whose dedication, commitment and hard work has allowed us to continue delivering high-quality innovative services and solutions for our customers.
With that, I'll turn the call over to Josh to review our financial performance in more detail.
Joshua Shapiro
Thanks, Kyle, and good morning, everyone. U.S. well Services averaged 6 active fleets during the quarter with a utilization rate of 92%, resulting in 5.5 fully utilized fleets. We currently have 7 active fleets and expect to average just over 7 active fleets for the third quarter of 2022.
Total revenue for the second quarter was $68.8 million, up from $41.2 million last quarter. Total revenue increased 67% sequentially, and service and equipment revenue increased 3% on a per hour basis. Our cost of sales for the quarter was $55.2 million, up 36% quarter-over-quarter from $40.7 million in the second quarter of 2022. The increase was driven primarily by higher active fleet count and continued cost inflation for labor, consumables and third-party services.
SG&A was $9.4 million in the second quarter of 2022. Net of stock-based compensation and other noncash charges, SG&A was $10.4 million, which compares with $6.6 million for the first quarter of 2022. I would note that we recorded a reversible $3.1 million of share-based compensation expense related to the forfeiture of certain restricted stock awards during the quarter. The increase in SG&A on a sequential basis was driven primarily by professional fees and increased personnel costs.
Adjusted EBITDA for the second quarter was $7.5 million, which is a significant improvement relative to the loss of $3.5 million for the first quarter of 2022. On an annualized basis, adjusted EBITDA per fully utilized fleet was $5.4 million for the quarter. On an accrual basis, U.S. Well Services spent approximately $7.3 million on maintenance capital expenditures during the second quarter of 2022, and deployed approximately $36.7 million for growth capital expenditures related to our new build clean fleets. We anticipate spending approximately $65 million to $85 million over the remainder of the year as we continue building out these fleets.
Turning to the balance sheet. The company ended the second quarter of 2022 with $36 million of total liquidity, consisting of $18 million of cash and restricted cash and $18 million of ABL availability.
With that, I'd like to turn the call back to Kyle for some final remarks.
Kyle O'Neill
Thanks, Josh. We believe the future of our industry is bright and that our Clean Fleet technology has an important role to play in facilitating the efficient, economic, safe and responsible development of our country's natural resources. Operator, please open up the call for Q&A.
Question-and-Answer Session
Operator
[Operator Instructions]. Our first question comes from Derek Podhaizer with Barclays.
Derek Podhaizer
Just wanted to first touch on -- maybe you can talk about just the overall supply and the supply response side of the market. Just from the demand that we're seeing and obviously, the pricing indicators and how fast pricing has been moving up. So we've heard from your peers some Tier 2 equipment coming out. We've heard about the Tier IV DGB new builds. Obviously, electric is a whole different subject in where you guys play. But just from where you're sitting in, and your insight into the market, just as investors might be getting a little worried that we're going to be back to 2018 cycle where we've had a big supply response. I'd just love to get your thoughts around what you're seeing out in the field, why you think supply is so constrained even though we're seeing some Tier 2 diesels come out. Just would like to get some high-level thoughts on just your thought on the overall supply side.
Kyle O'Neill
Sure. I mean what we're seeing right now is that the market is incredibly tight. The work that customers are asking us to do now takes increased horsepower, a lot of the existing industry fleet is pretty aged. And so the reliability of these pumps, they're just not as good. So you've got to have more pumps on location to be able to swap them out. And I think we're going to be in a pretty tight market for quite a while, just given the overall age of the industry and the lack of investment in previous years and the need to maintain production. Josh, anything you want to add there?
Joshua Shapiro
Sure. I mean one thing I would add there is that I think you're seeing more discipline from the industry this time around. I think that the service companies are kind of following the E&P companies lead and understanding that -- they don't want to be in a boom-and-bust cycle. And so deploying capital only where it makes sense and where there's a real commitment from the E&P customers. So I think we will not see a flood of supply to the market. And just given the tightness in supply chains, I think in order to get a massive build cycle underway, it would -- we're ways off of that.
Derek Podhaizer
Got it. Good. I'd like to hear it. Second question, back to the e-frac side. Can you talk about any supply chain bottlenecks might limit the scaling of e-frac from an initial expectations? Obviously, the combined company of U.S. and ProFrac have -- has a pretty ambitious target to get to as far as their year-end e-frac fleet count. What would make, if any, fleet slip into 2023? Just we've heard some of your peers maybe pushing out some of the e-frac deployments by a quarter or 2. Just want to hear from you guys if that's still a reachable goal or things might slip to next year. And what would be the limiting factor on the supply chain to get there?
Kyle O'Neill
Yes, sure. I think that anytime you're constructing the new equipment, there's always -- there can always be bottlenecks and kings to work out. I think that where we are for our -- the plan for that we're -- have committed to build. We've got the first one out. The second one will be rolling out here in the next couple of months. And then the third and the fourth, I think we've got all the key components. It's just working out some of the kinks. Any time you put a new pump on a test line, there's always going to be something that you've got to work through. So it's just making sure that all these pumps are ready and field-worthy when they roll out.
I think that's probably the biggest risk to on-time deployment. So I feel pretty good about what our goals are. Going forward, I think we're trying to build out beyond what's been announced. We do have some concerns around things like transformers and VFDs. That's why we have purchased 2 more fleets worth of those long lead items, but don't have plans currently to develop those. We may change that view as we get into our 2023 budgeting, but we'll see you there.
Operator
Our next question comes from Don Crist with Johnson Rice.
Donald Crist
Derek stole my question on the supply chain side. But can I ask about logistics in general? Obviously, in the wintertime in the Northeast that there were some sand issues and some truck issues. Can you just talk about how the rails and the trucking is progressing now? Have those -- are they still tight? Or has that been mostly alleviated as of now?
Kyle O'Neill
Yes. I think that the market still is tight there. It's been -- there has been some relief, but we still are seeing delays from time to time for sand, and in particular, water.
Operator
At this time, there are no further questions in queue. I would like to turn the call back over to Mr. Kyle O'Neill for closing comments.
Kyle O'Neill
Thanks, everyone, for dialing in. Have a great day.
Operator
Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation, and have a great day.
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US Well Services, Inc. (USWS) CEO Kyle O'Neill on Q2 2022 Results - Earnings Call Transcript