UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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(I.R.S. Employer |
organization) |
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Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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. ☑
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☑
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,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 Act). ☐ Yes
As of May 5, 2022, the registrant had
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
PART I
ITEM 1. FINANCIAL STATEMENTS
U.S. WELL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
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March 31, 2022 |
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December 31, 2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable (net of allowance for doubtful accounts of $ |
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Inventory, net |
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Assets held for sale |
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Prepaids and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Finance lease right-of-use assets |
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Intangible assets (net of accumulated amortization of $ |
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Goodwill |
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Other assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' DEFICIT |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Notes payable |
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Current portion of long-term debt |
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Current portion of equipment financing |
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Current portion of capital lease obligations |
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Current portion of operating lease liabilities |
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Current portion of finance lease liabilities |
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Total current liabilities |
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Warrant liabilities |
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Convertible senior notes |
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Long-term debt |
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Long-term equipment financing |
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Long-term capital lease obligations |
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Long-term operating lease liabilities |
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Long-term finance lease liabilities |
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Other long-term liabilities |
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Total liabilities |
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Mezzanine equity: |
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Series A Redeemable Convertible Preferred Stock, par value $ |
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Stockholders' deficit: |
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Class A Common Stock, par value of $ |
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Additional paid in capital |
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Accumulated deficit |
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( |
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( |
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Total Stockholders' deficit |
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( |
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( |
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TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' DEFICIT |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
U.S. WELL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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Revenue |
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$ |
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$ |
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Costs and expenses: |
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Cost of services (excluding depreciation and amortization) |
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Depreciation and amortization |
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Selling, general and administrative expenses |
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Loss on disposal of assets |
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Loss from operations |
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( |
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Interest expense, net |
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( |
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( |
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Change in fair value of warrant liabilities |
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( |
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( |
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Loss on extinguishment of debt |
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( |
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- |
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Other income |
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Loss before income taxes |
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( |
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( |
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Income tax benefit |
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- |
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- |
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Net loss |
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( |
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( |
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Net loss attributable to noncontrolling interest |
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- |
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( |
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Net loss attributable to U.S. Well Services, Inc. |
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( |
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( |
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Dividends accrued on Series A preferred stock |
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( |
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( |
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Dividends accrued on Series B preferred stock |
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- |
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( |
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Deemed and imputed dividends on Series A preferred stock |
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- |
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( |
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Deemed dividends on Series B preferred stock |
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- |
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( |
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Net loss attributable to U.S. Well Services, Inc. common stockholders |
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$ |
( |
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$ |
( |
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Loss per common share (See Note 15): |
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Basic and diluted (1) |
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$ |
( |
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$ |
( |
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Weighted average common shares outstanding: |
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Basic and diluted (1) |
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(1) Prior periods have been adjusted to reflect the 1-for- reverse stock split on September 30, 2021. See Note 2, Reverse Stock Split, for details.
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
U.S. WELL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to cash used in operating activities: |
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Depreciation and amortization |
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Change in fair value of warrant liabilities |
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Provision for losses on accounts receivable |
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Provision for losses on inventory obsolescence |
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Loss on disposal of assets |
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Non-cash lease expense |
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Amortization of debt discount, premium and issuance costs |
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Paid-in-kind interest |
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Loss on extinguishment of debt, net |
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Share-based compensation expense |
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Changes in assets and liabilities: |
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Accounts receivable |
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( |
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Inventory |
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( |
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( |
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Prepaids and other current assets |
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( |
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( |
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Accounts payable |
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( |
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Accrued liabilities |
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( |
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( |
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Accrued interest |
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Net cash used in operating activities |
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( |
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( |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of property and equipment |
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( |
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Proceeds from sale of property and equipment and insurance proceeds from damaged property and equipment |
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Net cash provided by (used in) investing activities |
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( |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from revolving credit facility |
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Repayments of revolving credit facility |
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( |
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( |
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Proceeds from issuance of long-term debt |
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Proceeds from issuance of long-term debt and warrants |
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Repayments of long-term debt |
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( |
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( |
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Payment of fees related to debt extinguishment |
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( |
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Proceeds from issuance of notes payable |
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Repayments of notes payable |
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( |
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( |
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Repayments of amounts under equipment financing |
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( |
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( |
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Principal payments under capital lease obligations |
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( |
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Principal payments on finance lease liabilities |
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( |
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Proceeds from issuance of common stock and warrants in registered direct offering, net |
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Proceeds from issuance of common stock via the ATM Agreement, net |
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Deferred financing costs |
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( |
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Net cash provided by financing activities |
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Net increase in cash and cash equivalents and restricted cash |
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Cash and cash equivalents and restricted cash, beginning of period |
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Cash and cash equivalents and restricted cash, end of period |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
U.S. WELL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(unaudited)
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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Supplemental cash flow disclosure: |
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Interest paid |
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$ |
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$ |
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Non-cash investing and financing activities: |
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Issuance of warrants to term C loan lenders |
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Issuance of warrants to purchasers of Class A common stock in registered direct offering |
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Issuance of warrants to placement agent in registered direct offering |
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Conversion of Series B preferred stock to Class A common stock |
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Deemed and imputed dividends on Series A preferred stock |
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Accrued Series A preferred stock dividends |
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Accrued Series B preferred stock dividends |
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Changes in accrued and unpaid capital expenditures |
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Assets under capital lease obligations |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
U.S. WELL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(in thousands, except share amounts)
(unaudited)
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Class A Common |
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Class B Common |
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Additional |
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Accumulated |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Interest |
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Deficit |
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Balance at December 31, 2021 |
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$ |
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- |
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$ |
- |
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$ |
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$ |
( |
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$ |
- |
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$ |
( |
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Adoption of ASC 842, Leases on January 1, 2022 |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Class A common stock issuance |
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- |
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- |
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- |
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- |
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Warrants issuance |
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- |
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- |
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- |
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- |
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- |
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- |
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Share-based compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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Tax withholding related to vesting of share-based compensation |
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( |
) |
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- |
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- |
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- |
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( |
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- |
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- |
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( |
) |
Restricted stock forfeitures |
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( |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Accrued Series A preferred stock dividends |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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( |
) |
Net loss |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
Balance at March 31, 2022 |
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$ |
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- |
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$ |
- |
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$ |
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$ |
( |
) |
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$ |
- |
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$ |
( |
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Class A Common |
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Class B Common |
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Additional |
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Accumulated |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital (1) |
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Deficit |
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Interest |
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Deficit |
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Balance at December 31, 2020 |
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$ |
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$ |
- |
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$ |
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$ |
( |
) |
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$ |
- |
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$ |
( |
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Class A common stock issuance |
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- |
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- |
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- |
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- |
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Conversion of Class B common stock to Class A common stock |
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- |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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Conversion of Series B preferred stock to Class A common stock |
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- |
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- |
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- |
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- |
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- |
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Share-based compensation |
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- |
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- |
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- |
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- |
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- |
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Tax withholding related to vesting of share-based compensation |
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( |
) |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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( |
) |
Restricted stock forfeitures |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
|
Deemed and imputed dividends on Series A preferred stock |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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( |
) |
Accrued Series A preferred stock dividends |
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- |
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- |
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|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Accrued Series B preferred stock dividends |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at March 31, 2021 |
|
|
|
|
$ |
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
( |
) |
(1)
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
NOTE 1 – DESCRIPTION OF BUSINESS
U.S. Well Services, Inc. (the “Company,” “we,” “us” or “our”), is a Houston, Texas-based technology-focused oilfield service company focused on electric powered pressure pumping services for oil and natural gas exploration and production companies in the United States. The process of pressure pumping involves pumping a pressurized stream of fluid—typically a mixture of water, chemicals, and proppant—into a well casing or tubing to cause the underground mineral formation to fracture or crack. Fractures release trapped hydrocarbon particles and provide a conductive channel for the oil or natural gas to flow freely to the wellbore for collection. The propping agent or proppant becomes lodged in the cracks created by the stimulation process, “propping” them open to facilitate the flow of hydrocarbons from the reservoir to the well.
The Company’s fleets consist mostly of all-electric, mobile pressure pumping equipment and other auxiliary heavy equipment to perform stimulation services. The Company's Clean Fleet® electric fleets replace the traditional engines, transmissions, and radiators used in conventional diesel fleets with electric motors powered by electricity. The Company utilizes high-pressure hydraulic fracturing pumps mounted on trailers and refers to the group of pump trailers and other equipment necessary to perform a typical job as a “fleet” and the personnel assigned to each fleet as a “crew”. In May 2021, the Company announced its commitment to becoming an all-electric pressure pumping services provider and since then it has sold most of its legacy, diesel-powered pressure pumping equipment. We have retained some of our legacy, diesel-powered pressure pumping equipment for use during our transition to support our electric fleets and bridge the time gap between our customers' current service needs and the deployment of our newbuild Nyx Clean Fleets®. Upon delivery, our Nyx Clean Fleets® are intended to replace any conventional fleet in operation.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Regulation S-X issued by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all information or notes required by GAAP for annual financial statements and should be read in conjunction with the annual financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”), filed with the SEC on March 30, 2022.
The accompanying unaudited condensed consolidated financial statements and accompanying notes present the consolidated financial position, results of operations, cash flows, and stockholders’ deficit of the Company as of March 31, 2022 and December 31, 2021, and for the three months ended March 31, 2022 and 2021. 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 results for the interim periods. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations expected for the entire fiscal year ended December 31, 2022.
Our operations are organized into a single business segment, which consists of pressure pumping services, and we have
Reverse Stock Split
8
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
Principles of Consolidation
The condensed consolidated financial statements comprise the financial statements of the Company and its wholly owned subsidiaries. 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.
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 long-lived assets, impairment assessments of goodwill and other long-lived assets, valuation of right-of-use assets and lease liabilities, estimates of fair value of warrant liabilities, term loan, and convertible senior notes, and the valuation of share-based compensation and certain equity instruments. Actual results could differ from those estimates.
Restricted Cash
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported on the condensed consolidated statements of cash flows:
|
|
March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Cash and cash equivalents and restricted cash |
|
$ |
|
|
$ |
|
Accounts Receivable
Accounts receivable are recorded at their outstanding balances adjusted for an allowance for doubtful accounts. Revenue earned and recognized in advance of invoice issuance creates assets referred to as “unbilled receivables”. Unbilled receivables are presented on a combined basis with accounts receivable. Allowance for doubtful accounts is determined by analyzing the payment history and credit worthiness of each customer. Receivable balances are charged off when they are considered uncollectible by management. Recoveries of receivables previously charged off are recorded as income when received.
During the first quarter of 2021, the Company wrote-off accounts receivables of $
Inventory
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.
9
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
The Company separately identifies and accounts for certain critical components of its pressure pumping units including the engine, transmission, and pump, which requires us to separately estimate the useful lives of these components. For our other service equipment, we do not separately identify and track depreciation of specific original components. When we replace components of these assets, we typically estimate the net book values of the components that are retired, which are based primarily upon their replacement costs, their ages and their original estimated useful lives.
Leases
At inception, the Company determines whether an arrangement is a lease and the appropriate lease classification as operating or finance. When a lease is identified, a right-of-use asset and the corresponding lease liability are recorded on the lease commencement date based on the present value of the remaining lease payments over the lease term on the condensed consolidated balance sheet. In the event a lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on information available at the commencement date in determining the present value of the remaining lease payments. Leases may include options to extend or terminate the lease. The Company generally does not include renewal or termination options in its assessment of the leases unless extension or termination for certain assets is deemed to be reasonably certain. The Company has elected the practical expedient to not recognize lease assets and liabilities for leases with a term of 12 months or less. Operating lease expenses are recognized on a straight-line basis over the lease term. The Company also has some lease agreements with lease and non-lease components, which are accounted for as a single lease component.
Right-of-use assets are assessed periodically for impairment if events or circumstances occur that indicate the carrying amount of the asset may not be recoverable. The Company monitors events and modifications of existing lease agreements that would require reassessment of the lease. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding right-of-use asset.
Warrants
The Company evaluates all its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity and ASC 815-15, Derivatives and Hedging—Embedded Derivatives. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or equity is evaluated pursuant to ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity.
The Company’s issued and outstanding Public Warrants, Private Placement Warrants and Series A Warrants are recognized as liabilities. Accordingly, we recognize these warrant instruments as liabilities at fair value upon issuance and adjust the instruments to fair value at the end of each reporting period. Any change in fair value is recognized in our condensed consolidated statements of operations. The Public Warrants are valued using their quoted market price since they are publicly traded and thus had an observable market price. The Private Placement Warrants are valued using a Monte Carlo simulation model. The Series A Warrants are valued using the Black-Scholes option pricing model.
The Company’s issued and outstanding Term C Loan Warrants, RDO Investor Warrants and Placement Agent Warrants are recognized as equity.
See “Note 9 – Warrants” for additional disclosure of the Company’s outstanding warrants.
Fair Value of Financial Instruments
Fair value is defined under 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:
The following is a summary of the carrying amounts and estimated fair values of our financial instruments:
Senior Secured Term Loan. The fair value of the Senior Secured Term Loan is $
10
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
Term C Loan. The fair value the Term C Loan is $
Equipment financing. The carrying value of the equipment financing notes approximates fair value as its terms are consistent with and comparable to current market rates as of March 31, 2022 and December 31, 2021, respectively.
Warrants. Certain of the Company’s outstanding warrants are accounted for as liabilities and measured at fair value. See “Note 9 – Warrants” for fair value measurements associated with the Company’s warrants.
Convertible Senior Notes. The fair value of the Convertible Senior Notes is $
Revenue Recognition
The Company recognizes revenue based on 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.
The Company’s performance obligations are satisfied over time, typically measured by the number of stages completed or the number of pumping days a fleet is available to pump for a customer in a month. 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. 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.
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.
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:
|
|
Three Months Ended March 31, |
||
|
|
2022 |
|
2021 |
Customer A |
|
|
* |
|
Customer B |
|
* |
|
|
Customer C |
|
|
||
Customer E |
|
* |
|
|
Customer F |
|
|
||
Customer H |
|
* |
|
|
Customer K |
|
|
* |
|
|
|
|
|
|
An asterisk indicates that revenue is less than ten percent. |
11
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
The following table shows the percentage of trade receivables from our significant customers:
|
|
March 31, 2022 |
|
December 31, 2021 |
Customer A |
|
|
* |
|
Customer C |
|
|
||
Customer D |
|
|
* |
|
Customer F |
|
|
||
Customer J |
|
* |
|
|
Customer K |
|
|
||
|
|
|
|
|
An asterisk indicates that trade receivable is less than ten percent. |
Income Taxes
The provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the Company updates the estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company records a cumulative adjustment.
The Company’s effective tax rate on continuing operations for the three months ended March 31, 2022 and 2021, was
The Company is subject to taxation in the U.S. The tax years subsequent to 2018 remain open and subject to examination by federal and state taxing authorities in which the Company is subject to tax. The Company is not under examination in any other jurisdictions.
As of March 31, 2022, the Company has provided a valuation allowance against all federal and state deferred tax assets. Management continues to evaluate the realizability of deferred tax assets and the related valuation allowance. If management's assessment of the deferred tax assets or the corresponding valuation allowance were to change, the Company would record the related adjustment to income during the period in which management makes the determination. After consideration of all the information available, management determined that a valuation allowance was appropriate, as it is more likely than not that the Company will not utilize its net deferred tax assets.
NOTE 3 – ACCOUNTING STANDARDS
Except as discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2022, as compared to the recent accounting pronouncements described in the Annual Report, that are of significance, or potential significance to the Company.
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“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, ASU 2019-01 and ASU 2020-02 (collectively, “ASC 842”). ASC 842 requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. On January 1, 2022, the Company adopted ASC 842, using the modified retrospective with applied transition method and recognized a cumulative impact to retained earnings in that period, which allowed the Company to continue to apply the legacy guidance in Topic 840, Leases, including its disclosure requirements, in the comparative periods presented in the year of adoption. The Company elected to apply certain practical expedients, whereby it will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases.
On January 1, 2022, upon adoption of the new leasing standard, the Company recognized operating right-of-use assets of $
12
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes specific exceptions to the general principles in Topic 740 in GAAP. The new guidance also improves the issuer’s application of income tax-related guidance and simplifies GAAP for franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. The Company adopted ASU 2019-12 on January 1, 2022, using the prospective method of transition. The adoption did not have a material impact on the Company's condensed consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The new guidance will be effective for smaller reporting companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2020-06 on January 1, 2022, using the modified retrospective method of transition. The adoption did not have a material impact on the Company's condensed consolidated financial statements.
NOTE 4 – PREPAIDS AND OTHER CURRENT ASSETS
Prepaids and other current assets consisted of the following:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Prepaid insurance |
|
$ |
|
|
$ |
|
||
Recoverable costs from insurance |
|
|
|
|
|
|
||
Income tax receivable |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Total prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
During the three months ended March 31, 2022 and 2021, the Company prepaid $
The Company has insurance coverage in place covering, among other things, property damage up to certain specified amounts. During the three months ended March 31, 2022, the Company received $
NOTE 5 – PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
|
|
Estimated |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Pressure pumping equipment (1) |
|
|
$ |
|
|
$ |
|
|||
Light duty vehicles (2) |
|
|
|
|
|
|
|
|||
Furniture and fixtures |
|
|
|
|
|
|
|
|||
IT equipment |
|
|
|
|
|
|
|
|||
Auxiliary equipment |
|
|
|
|
|
|
|
|||
Leasehold improvements |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
||
Less: accumulated depreciation and amortization |
|
|
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
|
|
$ |
|
|
$ |
|
13
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
Depreciation and amortization expense related to property and equipment was $
Assets Sales
In May 2021, the Company announced its commitment to becoming an all-electric pressure pumping services provider and since then has sold most of its legacy, diesel-powered pressure pumping equipment. As of March 31, 2022, the Company did have any assets classified as held for sale. As of December 31, 2021, the Company had classified $
During the three months ended March 31, 2022, the Company received $
The Company recognized a loss of $
NOTE 6 - LEASES
As described in “Note 3 - Accounting Standards” the Company adopted ASC 842, Leases, on January 1, 2022. Prior periods presented have not been adjusted and continue to be reported in accordance with the legacy guidance in ASC 840, Leases. The Company’s capital lease assets and related accumulated amortization were recorded as property and equipment and the capital lease liabilities were recorded as current and long-term capital lease obligations on the condensed consolidated balance sheet as of December 31, 2021. See “Note 5 - Property and Equipment, Net” and “Note 11 - Debt” regarding disclosure of capital leases.
The Company has operating and financing leases for office facilities, light duty vehicles and equipment. The Company does not have any material lessor arrangements.
The weighted average remaining lease term and discount rates used in the measurement of the Company’s right-of-use assets and lease liabilities are as follows:
|
|
March 31, 2022 |
Weighted average remaining lease term: |
|
|
Operating leases |
|
|
Finance leases |
|
|
Weighted average discount rate: |
|
|
Operating leases |
|
|
Finance leases |
|
The components of lease expense consisted of the following:
|
|
Three Months Ended |
|
|
|
|
March 31, 2022 |
|
|
Operating lease expense |
|
$ |
|
|
Short-term lease expense |
|
|
|
|
Finance lease expense: |
|
|
|
|
Amortization of right-of-use assets |
|
|
|
|
Interest on lease liabilities |
|
|
|
|
Total |
|
$ |
|
In accordance with prior guidance, ASC 840, rent expense was $
14
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
Supplemental cash flow information related to leases is as follows:
|
|
Three Months Ended |
|
|
|
|
March 31, 2022 |
|
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
Operating cash flows used for operating lease |
|
$ |
|
|
Financing cash flow used for finance leases |
|
$ |
|
|
Right-of-use assets upon adoption of ASC 842 and obtained in exchange for new lease liabilities |
|
|
|
|
Operating leases |
|
$ |
|
|
Finance leases |
|
$ |
|
As of March 31, 2022, the future maturities of lease liabilities are as follows:
Fiscal Year |
|
Operating Leases |
|
|
Finance Leases |
|
||
Remainder of 2022 |
|
$ |
|
|
$ |
|
||
2023 |
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
||
Total lease payments |
|
|
|
|
|
|
||
Less: imputed interest |
|
|
( |
) |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
|
$ |
|
As of December 31, 2021, in accordance with prior guidance, ASC 840, the minimum future payments on non-cancellable operating leases and capital leases are as follows:
Fiscal Year |
|
Operating Leases |
|
|
Capital Leases |
|
||
2022 |
|
$ |
|
|
$ |
|
||
2023 |
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
The total capital lease payments include imputed interest.
In October 2021, the Company completed a sale-leaseback transaction for a short-term operating lease. The Company deferred a $
NOTE 7 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Accrued payroll and benefits |
|
$ |
|
|
$ |
|
||
Accrued taxes |
|
|
|
|
|
|
||
Accrued interest |
|
|
|
|
|
|
||
Deferred gain on sale-leaseback |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
15
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
NOTE 8 – NOTES PAYABLE
The Company enters into various premium finance agreements with a credit finance institution to pay the premiums on insurance policies for its directors’ and officers’ liability, general liability, workers’ compensation, umbrella, auto and pollution coverage needs. During the three months ended March 31, 2022 and 2021,
NOTE 9 – WARRANTS
Warrants issued and outstanding consisted of the following:
|
Balance Sheet Classification |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Public Warrants |
Liability |
|
|
|
|
|
|
||
Private Placement Warrants |
Liability |
|
|
|
|
|
|
||
Series A Warrants |
Liability |
|
|
|
|
|
|
||
Term C Loan Warrants |
Equity |
|
|
|
|
|
|
||
RDO Investor Warrants |
Equity |
|
|
|
|
|
|
||
Placement Agent Warrants |
Equity |
|
|
|
|
|
|
Public Warrants and Private Placement Warrants
The Company issued public and private warrants in connection with its initial public offering in November 2018 (the "Public Warrants" and "Private Placement Warrants"). As of March 31, 2022, the outstanding Public Warrants and Private Placement Warrants were exercisable for an aggregate of
Series A Warrants
The Company issued warrants to certain institutional investors in connection with the Company’s private placement of Series A preferred stock on May 24, 2019 (the “Series A Warrants”). The Company issued additional warrants to the purchasers in quarterly installments beginning nine months after May 24, 2019 and ending on March 31, 2022.
During the three months ended March 31, 2022 and 2021, the Company issued
As of March 31, 2022, the outstanding Series A Warrants were exercisable for
Term C Loan Warrants
On February 28, 2022, in connection with the entry into the Term C Loan, the Company issued
On March 1, 2022, in connection with the entry into the Term C Loan, the Company issued
16
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
The Term C Loan Warrants were offered in a private offering that is exempt from registration under the Securities Act, and may not be offered or sold in the United States absent such registration or an exemption from the registration requirements of the Securities Act.
The Term C Loan Warrants are recognized as equity in the condensed consolidated balance sheet. See “Note 11 - Debt” for additional disclosure on the accounting for the Term C Loan and Term C Loan Warrants.
RDO Investor Warrants and Placement Agent Warrants
On March 11, 2022, the Company completed a registered direct offering for
The RDO Investor Warrants are exercisable to purchase an equivalent number of shares of Class A common stock at an initial exercise price of $
The Company also issued
The RDO Investor Warrants and Placement Agent Warrants are recognized as equity in the condensed consolidated balance sheet. See “Note 14 - Stockholders’ Equity” for additional disclosure on the accounting for the RDO Investor Warrants and Placement Agent Warrants.
Fair Value Measurement
The Company’s Public Warrants, Private Placement Warrants and Series A Warrants are accounted for as liabilities measured at fair value upon issuance, with subsequent changes in fair value reported in the Company’s condensed consolidated statements of operations each reporting period.
The following tables present the Company's fair value hierarchy for liabilities measured at fair value on a recurring basis:
|
|
Quoted Prices in Active Markets |
|
|
Other Observable Inputs |
|
|
Unobservable Inputs |
|
|
Total |
|
||||
As of March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Public Warrants |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Private Placement Warrants |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Series A Warrants |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
As of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Public Warrants |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Private Placement Warrants |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Series A Warrants |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
Public Warrants. The fair value of the Public Warrants are classified as Level 1 in the fair value hierarchy and is valued using quoted market prices, as they are traded in active markets.
Private Placement Warrants. The fair value of the Private Placement Warrants are classified as Level 2 in the fair value hierarchy and is determined using a Monte Carlo simulation model.
Series A Warrants. The fair value of the Series A Warrants are classified as Level 2 in the fair value hierarchy and is determined using the Black-Scholes option pricing model.
17
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
The following assumptions were used to calculate the fair value for the Private Placement Warrants and Series A Warrants:
|
|
Private Placement Warrants |
|
Series A Warrants |
As of March 31, 2022 |
|
|
|
|
Expected remaining life |
|
|
||
Volatility rate |
|
|
||
Risk-free interest rate |
|
|
||
Expected dividend rate |
|
|
||
|
|
|
|
|
As of December 31, 2021 |
|
|
|
|
Expected remaining life |
|
|
||
Volatility rate |
|
|
||
Risk-free interest rate |
|
|
||
Expected dividend rate |
|
|
NOTE 10 – CONVERTIBLE SENIOR NOTES
On June 24, 2021, the Company entered into a Note Purchase Agreement (as amended, the “Note Purchase Agreement”) to issue
During the year ended December 31, 2021, pursuant to the Note Purchase Agreement, the Company issued $
The carrying value of the Convertible Senior Notes is as follows:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Principal |
|
$ |
|
|
$ |
|
||
PIK interest |
|
|
|
|
|
|
||
Unamortized debt premium |
|
|
|
|
|
|
||
Unamortized debt discount and issuance costs |
|
|
( |
) |
|
|
( |
) |
Net convertible senior notes |
|
$ |
|
|
$ |
|
As of March 31, 2022, the Convertible Senior Notes are convertible into
Equity Linked Notes. In June 2021 and July 2021, in connection with the Private Placement, the Company issued and sold $
In June 2021, in connection with the Private Placement, the Company issued and sold $
In accordance with ASC 480, the Company evaluated the Equity Linked Notes and determined they should be classified as liabilities due to the unconditional obligation to settle the notes for a variable number of shares of the Company’s Class A common stock based on a fixed monetary amount known at inception. Certain of the Equity Linked Notes were initially measured at fair value as they were considered new instruments issued concurrently to extinguish the Series A preferred stock.
18
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
License Linked Note. On June 24, 2021, in connection with the Private Placement, the Company issued and sold a Convertible Senior Note in the principal amount of $
NOTE 11 – DEBT
Long-term debt consisted of the following:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Senior Secured Term Loan |
|
$ |
|
|
$ |
|
||
Term C Loan |
|
|
|
|
|
|
||
ABL Credit Facility |
|
|
|
|
|
|
||
USDA Loan |
|
|
|
|
|
|
||
Equipment financing |
|
|
|
|
|
|
||
Capital leases |
|
|
- |
|
|
|
|
|
Total debt principal balance |
|
|
|
|
|
|
||
Senior Secured Term Loan future interest payable |
|
|
|
|
|
|
||
Unamortized debt discount and issuance costs |
|
|
( |
) |
|
|
( |
) |
Current maturities |
|
|
( |
) |
|
|
( |
) |
Net long-term debt |
|
$ |
|
|
$ |
|
Senior Secured Term Loan
On May 7, 2019, the Company, U.S. Well Services, LLC (“USWS LLC”), as the borrower, and all the other subsidiaries of the Company entered into a Senior Secured Term Loan Credit Agreement (as amended, the “Senior Secured Term Loan Agreement”) with CLMG Corp., as administrative and collateral agent, and the lenders party thereto. Upon entering the Senior Secured Term Loan Agreement, the Company borrowed $
On February 28, 2022, the Company, USWS LLC and all the other subsidiaries of the Company entered into the sixth term loan amendment to the Senior Secured Term Loan Agreement with CLMG Corp., as administrative agent and term loan collateral agent, and the lenders party thereto, to make certain modifications to the Senior Secured Term Loan Agreement, including, but not limited to, the interest rates, principal payments, certain covenants relating to collateral, approved growth capital expenditures, and mandatory prepayments.
The Senior Secured Term Loan interest rate was
The Senior Secured Term Loan requires quarterly principal payments of $
Since April 2020, the Company has accounted for the Senior Secured Term Loan as a troubled debt restructuring under ASC 470-60, Troubled Debt Restructurings by Debtors. The subsequent amendments, including the sixth term loan amendment, did not result in a significant modification or extinguishment resulting in no change in accounting for the Senior Secured Term Loan.
During the three months ended March 31, 2022, the Company made principal payments of $
As of March 31, 2022, the outstanding principal balance of the Senior Secured Term Loan was $
19
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
Term C Loan
The sixth term loan amendment to the Senior Secured Term Loan Agreement also provided for an additional tranche of last-out term loans (the “Term C Loan”) of up to $
The Term C Loan was funded by a syndicate of institutions and individuals (collectively, the “Term C Loan Lenders”), including related parties, Crestview Partners and its affiliates and David Matlin, and was extended on a last-out basis in the payment waterfall relative to the existing Senior Secured Term Loan, and was otherwise made on the general terms and conditions consistent with the Senior Secured Term Loan.
The Term C Loan shall bear interest at a benchmark rate, subject to a
After repayment of the Senior Secured Term Loan in full, the Company will pay to the Term C Loan Lenders the following premium upon any repayment, prepayment or acceleration of the Term C Loan:
In connection with the entry into the Term C Loan, the Company issued an aggregate total of
The fair value of the Term C Loan was $
The fair value of the Term C Loan Warrants was $
|
|
February 2022 Warrants |
|
|
March 2022 Warrants |
|
||
Exercise price |
|
$ |
|
|
$ |
|
||
Contractual term |
|
|
|
|
||||
Volatility rate |
|
|
|
|
||||
Risk-free interest rate |
|
|
|
|
||||
Expected dividend rate |
|
|
|
|
See “Note 9 - Warrants” for additional disclosure regarding the Term C Loan Warrants.
As of March 31, 2022, the outstanding principal balance of the Term C Loan was $
ABL Credit Facility
On May 7, 2019, the Company, USWS LLC, and all the other subsidiaries of the Company entered into an ABL Credit Agreement (as amended, the “ABL Credit Facility”) with the lenders party thereto and Bank of America, N.A., as the administrative agent, swing line lender and letter of credit issuer. As of March 31, 2022, the aggregate revolving commitment under the ABL Credit Facility is $
20
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
The ABL Credit Facility is subject to a borrowing base which is calculated based on a formula referencing the Company’s eligible accounts receivables. On March 31, 2022, the borrowing base was $
Payments of Debt Obligations due by Period
As of March 31, 2022, the schedule of the repayment requirements of long-term debt is as follows:
|
|
Principal Amount |
|
|
Fiscal Year |
|
of Long-term Debt |
|
|
Remainder of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
NOTE 12 – 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.
Purchase Commitments
During 2021, the Company entered into an Equipment Purchase and Sale Agreement to purchase equipment. The purchase commitments under this agreement are reflected in the table below. The Company intends to fund the commitments due in the next twelve months under the Equipment Purchase and Sale Agreement through additional financing transactions and cash on hand.
Additionally, during the first quarter of 2022, the Company placed orders for other equipment which will be delivered throughout 2022, related to the buildout of its new Nyx Clean Fleets®. Under the terms of the purchase orders, the Company is subject to a penalty fee for any equipment cancelled prior to delivery. As of March 31, 2022, total cost of equipment not yet received by the Company under the purchase orders was $
As of March 31, 2022, future minimum purchase commitments for equipment are as follows:
Fiscal Year |
|
|
|
|
Remainder of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
Total |
|
$ |
|
Self-insurance
The Company established a self-insured plan for employees’ healthcare benefits except for losses in excess of varying threshold amounts. The Company charges to expense all actual claims made during each reporting period, as well as an estimate of claims incurred, but not yet reported. Estimated claims incurred, but not reported as of March 31, 2022 and December 31, 2021 was $
21
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
NOTE 13 – MEZZANINE EQUITY
Series A Redeemable Convertible Preferred Stock
The following table summarizes the Company’s Series A Redeemable Convertible Preferred Stock, par value $
|
|
Shares |
|
|
Amount |
|
||
Balance at December 31, 2021 |
|
|
|
|
$ |
|
||
Accrued Series A preferred stock dividends |
|
|
- |
|
|
|
|
|
Balance at March 31, 2022 |
|
|
|
|
$ |
|
As of March 31, 2022, the Series A preferred stock outstanding were convertible into
Series B Redeemable Convertible Preferred Stock
On April 1, 2020, the Company issued Series B Redeemable Convertible Preferred Stock, par value of $
During the first quarter of 2021,
As of March 31, 2022 and December 31, 2021, there were
NOTE 14 – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue
Class A Common Stock
The Company is authorized to issue
ATM Agreement. On June 26, 2020, the Company entered into an Equity Distribution Agreement (the “ATM Agreement”) with Piper Sandler & Co. relating to the Company’s shares of Class A common stock. In accordance with the terms of the ATM Agreement, the Company may offer and sell shares of our Class A common stock over a period of time pursuant to an “at-the-market” offering program. Under the ATM Agreement, the Company will pay Piper Sandler an aggregate commission of up to
The following table presents information with respect to shares of Class A common stock sold under the ATM Agreement during the periods indicated:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Shares of Class A common stock sold |
|
|
|
|
|
|
||
Total net proceeds |
|
$ |
|
|
$ |
|
||
Commission paid |
|
$ |
|
|
$ |
|
22
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
Since inception on June 26, 2020 through March 31, 2022, the Company has sold a total of
On April 26, 2022, the Company entered into a new Equity Distribution Agreement (the “2022 ATM Agreement”) with Piper Sandler & Co. relating to the Company’s shares of Class A common stock to replace the former ATM Agreement, which had expired on April 26, 2022. See “Note 18 - Subsequent Events” for additional disclosure regarding the 2022 ATM Agreement.
Registered Direct Offering. On March 11, 2022, the Company completed a registered direct offering of
The proceeds received were allocated as $
|
|
RDO Investor Warrants |
|
|
Placement Agent |
|
||
Exercise price |
|
$ |
|
|
$ |
|
||
Contractual term |
|
|
|
|
||||
Volatility rate |
|
|
|
|
||||
Risk-free interest rate |
|
|
|
|
||||
Expected dividend rate |
|
|
|
|
Class B Common Stock
The Company is authorized to issue
During the three months ended March 31, 2021,
Warrants
As of March 31, 2022, the Company has issued and outstanding Term C Loan Warrants, RDO Investor Warrants and Placement Agent Warrants, which are recognized as equity. See “Note 9 - Warrants” for disclosure regarding the Term C Loan Warrants, RDO Investor Warrants and Placement Agent Warrants.
Noncontrolling Interest
During the first quarter of 2021, the remaining noncontrolling interest holders of USWS Holdings exchanged all of their respective shares for the Company’s Class A common stock. Accordingly, USWS Holdings became the Company’s wholly owned subsidiary as of March 31, 2021.
NOTE 15 – EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional Class A common shares that could have been outstanding assuming the exercise of stock options and warrants, conversion of Series A and Series B preferred stock, conversion of Class B common stock, vesting of restricted shares of Class A common stock, conversion of Convertible Senior Notes and issuance of Class A common stock associated with the deferred stock units and certain performance awards.
23
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
Basic and diluted net income (loss) per share excludes the income (loss) attributable to and shares associated with the
The following table sets forth the calculation of basic and diluted earnings (loss) per share for the periods indicated based on the weighted average number of shares of Class A common stock outstanding:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Basic net income (loss) per share |
|
|
|
|
|
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss attributable to U.S. Well Services, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss attributable to cancellable Class A common stock |
|
|
|
|
|
|
||
Basic net loss attributable to U.S. Well Services, Inc. shareholders |
|
|
( |
) |
|
|
( |
) |
Dividends accrued on Series A preferred stock |
|
|
( |
) |
|
|
( |
) |
Dividends accrued on Series B preferred stock |
|
|
|
|
|
( |
) |
|
Deemed and imputed dividends on Series A preferred stock |
|
|
|
|
|
( |
) |
|
Deemed and imputed dividends on Series B preferred stock |
|
|
|
|
|
( |
) |
|
Basic net loss attributable to U.S. Well Services, Inc. Class A common shareholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Denominator: |
|
|
|
|
|
|
||
Weighted average shares outstanding |
|
|
|
|
|
|
||
Cancellable Class A common stock |
|
|
( | ) |
|
|
( | ) |
Basic and diluted weighted average shares outstanding |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Basic and diluted net loss per share attributable to Class A common shareholders |
|
$ |
( |
) |
|
$ |
( |
) |
A summary of securities excluded from the computation of diluted earnings per share is presented below for the applicable periods:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Dilutive earnings per share: |
|
|
|
|
|
|
||
Anti-dilutive stock options |
|
|
|
|
|
|
||
Anti-dilutive warrants |
|
|
|
|
|
|
||
Anti-dilutive restricted stock |
|
|
|
|
|
|
||
Anti-dilutive deferred stock units |
|
|
|
|
|
|
||
Anti-dilutive shares from Pool B Awards |
|
|
|
|
|
|
||
Anti-dilutive Series A preferred stock convertible into Class A common stock |
|
|
|
|
|
|
||
Anti-dilutive Series B preferred stock convertible into Class A common stock |
|
|
|
|
|
|
||
Anti-dilutive Convertible Senior Notes convertible into Class A common stock |
|
|
|
|
|
|
||
Potentially dilutive securities excluded as anti-dilutive |
|
|
|
|
|
|
24
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
NOTE 16 – SHARE-BASED COMPENSATION
Share-based compensation expense consisted of the following:
|
|
Three Months Ended |
|
|
|||||
|
|
March 31, |
|
|
|||||
|
|
2022 |
|
|
2021 |
|
|
||
Restricted stock |
|
$ |
|
|
$ |
|
|
||
Stock options |
|
|
|
|
|
|
|
||
Deferred stock units |
|
|
|
|
|
|
|
||
Pool A Awards |
|
|
|
|
|
|
|
||
Pool B Awards |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
(1) |
$ |
|
(2) |
Restricted Stock
Pursuant to the Amended and Restated U.S. Well Services, Inc. 2018 Stock Incentive Plan (as amended, the “LTIP”), the Company grants shares of restricted Class A common stock (“restricted stock”) to certain employees and directors. 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 or director of the Company prior to the lapse of the restriction. Restricted stock granted to employees generally vests over
The following table summarizes the restricted stock activity for the three months ended March 31, 2022:
|
|
Shares |
|
|
Weighted- |
|
||
Outstanding at December 31, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Outstanding at March 31, 2022 |
|
|
|
|
$ |
|
As of March 31, 2022, the total unrecognized compensation cost related to restricted stock was $
Stock Options
The following table summarizes the stock option activity for the three months ended March 31, 2022:
|
|
Shares |
|
|
Weighted- |
|
|
Weighted-Average |
|
|||
Outstanding at December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|||
Exercised |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Forfeited/Expired |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Outstanding at March 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|||
Exercisable at March 31, 2022 |
|
|
|
|
$ |
|
|
|
|
25
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
As of March 31, 2022, the total unrecognized compensation cost related to stock options was $
Deferred Stock Units
The Company awards deferred stock units (“DSUs”) to certain key employees of the Company pursuant to the LTIP. Each DSU represents the right to receive
The following table summarizes the DSUs activity for the three months ended March 31, 2022:
|
|
Units |
|
|
Weighted- |
|
||
Outstanding at December 31, 2021 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Outstanding at March 31, 2022 |
|
|
|
|
$ |
|
As of March 31, 2022, the total unrecognized compensation cost related to DSUs was $
Pool A Performance Awards
The Company grants Pool A Performance Awards (“Pool A Awards”) to certain key employees of the Company. Each Pool A Award represents the right to receive, at the Company’s election, a fixed monetary amount either in cash or a variable number of shares of the Company’s Class A common stock based on its closing share price on the date of settlement. The Pool A Awards vest in full
The Company accounts for the Pool A Awards under liability accounting as a result of the fixed monetary amount that could be settled either in cash or a variable number of shares of the Company’s Class A common stock. Since the settlement will not occur until the fifth anniversary of the grant date, the Company considers the delayed settlement as a post-vesting restriction which would impact the determination of grant-date fair value of the award.
During the third quarter of 2021, the Company granted Pool A Awards that fully vested on January 1, 2022. As of March 31, 2022, the fair value of the Pool A Awards liabilities were remeasured to $
As of March 31, 2022, the total unrecognized compensation cost related to Pool A Awards was $
Pool B Performance Awards
The Company grants Pool B Performance Awards (“Pool B Awards”) to certain key employees of the Company. Each Pool B Award represents the right to receive, at the Company’s election, either a cash payment calculated in accordance with the award agreement, or a fixed number of shares of the Company’s Class A common stock. The Pool B Awards vest over
26
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
The following table summarizes the Pool B Awards activity for the three months ended March 31, 2022:
|
|
Fair Value |
|
|
Outstanding at December 31, 2021 |
|
$ |
|
|
Granted |
|
|
|
|
Vested |
|
|
( |
) |
Forfeited |
|
|
( |
) |
Outstanding at March 31, 2022 |
|
$ |
|
As of March 31, 2022, the total unrecognized compensation cost related to Pool B Awards was $
NOTE 17 – RELATED PARTY TRANSACTIONS
Crestview III USWS TE, LLC and Crestview III USWS, L.P. and its affiliates (collectively, “Crestview Partners”) are part of an affiliate group which have an ownership interest in the Company of greater than
David Matlin is a member of the Company’s Board of Directors.
Convertible Senior Notes
On June 24, 2021, Crestview Partners purchased $
Term C Loan and Term C Loan Warrants
On February 28, 2022, Crestview Partners contributed $
On March 1, 2022, David Matlin contributed $
See “Note 9 - Warrants” and “Note 11 - Debt” for additional disclosure regarding the Term C Loan and Term C Loan Warrants.
NOTE 18 - SUBSEQUENT EVENTS
2022 ATM Agreement
On April 26, 2022, the Company entered into a new Equity Distribution Agreement (the “2022 ATM Agreement”) with Piper Sandler & Co. relating to the Company’s shares of Class A common stock to replace the former ATM Agreement, which expired on April 26, 2022. In accordance with the terms of the 2022 ATM Agreement, the Company may offer and sell shares of our Class A common stock over a period of time pursuant to an “at-the-market” offering program. Under the 2022 ATM Agreement, the Company will pay Piper Sandler an aggregate commission of up to
27
U.S. WELL SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except shares and per share amounts, or where otherwise noted)
Resignation of President and Chief Executive Officer and Chief Administrative Officer
Joel Broussard resigned as President and Chief Executive Officer of the Company and Matthew Bernard resigned as Chief Administrative Officer of the Company, each resignation effective April 30, 2022 (the “Effective Date”).
Following Mr. Broussard’s resignation as President and Chief Executive Officer, he will continue to serve as a member of the Company’s Board of Directors and has been appointed as the non-executive Chairman of the Board as of the Effective Date. David Treadwell, who served as the Chairman of the Board, transitioned to Lead Independent Director concurrent with Mr. Broussard becoming Chairman of the Board. In connection with Mr. Bernard’s resignation, he has entered into an independent contractor agreement with the Company under which he will provide certain consulting services to the Company.
In connection with their resignation, Mr. Broussard and Mr. Bernard each entered into a Separation and Release Agreement with the Company (together, the “Separation Agreements”). Pursuant to Mr. Broussard’s Separation Agreement, he will receive a cash lump sum payment in the amount of $
In addition, in connection with Mr. Broussard’s continued services as a consultant to the Company and its affiliates, on the Effective Date the Company granted
Appointment of new President and Chief Executive Officer and Chief Financial Officer
Effective on the Effective Date, Kyle O’Neill was appointed as the Company’s President and Chief Executive Officer and Josh Shapiro was appointed as the Company’s Senior Vice President and Chief Financial Officer. Mr. O’Neill previously served as the Company’s Chief Financial Officer and Mr. Shapiro previously served as the Company’s Vice President, Finance.
On April 30, 2022, the Company awarded Mr. O’Neill and Mr. Shapiro an aggregate total of
28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes in Item 1. “Financial Statements” contained herein and our audited consolidated financial statements as of December 31, 2021, included in our Annual Report on Form 10-K for the year ended December 31, 2021 (our "Annual Report"), as filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2022. The information provided below supplements, but does not form part of, our unaudited condensed consolidated financial statements.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains “forward-looking statements” as defined in Section 27A of the United States Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements usually relate to future events, conditions and anticipated revenues, earnings, cash flows or other aspects of our operations or operating results. Forward-looking statements are often identified by words such as “believes,” “expects,” “intends,” “estimates,” “projects,” “anticipates,” “will,” “plans,” “may,” “should,” “would,” “foresee,” or the negative thereof. The absence of these words, however, does not mean that these statements are not forward-looking. These statements are based on our current expectations, beliefs and assumptions concerning future developments and business conditions and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All of our forward-looking statements involve risks and uncertainties (some of which are significant or beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. These factors include geological, operating and economic factors and changes in prices and market conditions, including changes in expected or realized oil and gas prices and demand for oilfield services and changes in supply or demand for maintenance, repair and operating products, equipment and service; the effectiveness of management's strategies and decisions; our ability to obtain financing, raise capital and continue as a going concern; our ability to implement our internal growth and acquisition growth strategies; general economic and business conditions specific to our primary customers; our ability to collect accounts receivable; compliance with our debt agreements and equity-related securities; volatility in market prices; our ability to satisfy the continued listing requirements of Nasdaq with respect to our Class A common stock and warrants or to cure any continued listing standard deficiency with respect thereto; changes in government regulations; our ability to effectively integrate businesses we may acquire; new or modified statutory or regulatory requirements; availability of materials 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 natural disasters, catastrophes and severe weather conditions, including floods, hurricanes and earthquakes; public health crises, such as a pandemic, including the COVID-19 pandemic and new and potentially more contagious variants of COVID-19; acts of war or terrorist acts and the governmental or military response thereto; and cyber-attacks adversely affecting our operation. This Quarterly Report identifies other factors that could cause such differences. There can be no assurance 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, including under “Risk Factors” in this Quarterly Report and in our Annual Report. We caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. We assume no obligation and do not intend to update these forward-looking statements. Unless the context otherwise requires, references in this Quarterly Report to the “Company”, “USWS”, “we”, or “our” shall mean U.S. Well Services, Inc. and its subsidiaries.
Overview
We provide pressure pumping services in oil and natural gas basins. Our Clean Fleet® electric 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 May 2021, we announced the next generation of our Clean Fleet® technology with the unveiling of our newly designed Nyx Clean Fleet®. We anticipate the first Nyx Clean Fleet® to be delivered in the second quarter of 2022.
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 our fleets operate on a 24-hour basis and have the ability to withstand high utilization rates, which results in more efficient operations. Our senior management team has extensive industry experience providing pressure pumping services to exploration and production companies across North America. Since announcing our commitment to becoming an all-electric pressure pumping services provider in May 2021, we have sold most of our legacy, diesel-powered pressure pumping equipment. We have retained some of our legacy, diesel-powered pressure pumping equipment for use during our transition to support our electric fleets and bridge the time gap between our customers' current service needs and the deployment of our newbuild Nyx Clean Fleets®. Upon delivery, our Nyx Clean Fleets® are intended to replace any conventional fleet in operation.
29
How the Company Generates Revenue
We generate revenue by providing pressure pumping services to our customers. We own and operate fleets of pressure pumping equipment to perform these services. We seek to enter into contractual arrangements with our customers or fleet dedications, which establish pricing terms for a fixed duration. Under the terms of these agreements, we charge our customers base monthly rates, adjusted for activity and provision of materials such as proppant and chemicals, or we charge a variable rate based on the nature of the job including pumping time, well pressure, proppant and chemical volumes and transportation.
Our Costs of Conducting Business
The principal costs involved in conducting our pressure pumping services are labor, maintenance, equipment rentals, including the rental of power generation equipment, materials, and transportation costs. A large portion of our costs are variable, based on the number and requirements of pressure pumping jobs. We manage our fixed costs, other than depreciation and amortization, based on factors including industry conditions and the expected demand for our services.
Materials include the cost of proppant delivered to the basin of operations, chemicals, and other consumables used in our operations. These costs vary based on the quantity and type of proppant and chemicals utilized when providing pressure pumping 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. Most of our employees are paid on an hourly basis. Maintenance costs include preventative and other repair costs that do not require the replacement of major components of our fleets. Maintenance and repair costs are expensed as incurred.
The following table presents our cost of services for the periods indicated (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Labor |
|
$ |
13,180 |
|
|
$ |
23,686 |
|
Maintenance |
|
|
5,119 |
|
|
|
16,595 |
|
Power generation equipment rentals |
|
|
8,492 |
|
|
|
- |
|
Materials |
|
|
3,459 |
|
|
|
7,030 |
|
Transportation |
|
|
1,948 |
|
|
|
3,039 |
|
Other (1) |
|
|
8,525 |
|
|
|
12,281 |
|
Cost of services |
|
$ |
40,723 |
|
|
$ |
62,631 |
|
Significant Trends
Since our announcement in May 2021 of our commitment to becoming an all-electric pressure pumping services provider, we have sold most of our legacy, diesel-powered pressure pumping equipment. The proceeds received from these sales were used to reduce the outstanding principal balance of our Term A and Term B Loan (collectively the “Senior Secured Term Loan”), which resulted in no cash interest payments for the first quarter of 2022 and an interest rate of (i) 1.0% per annum in cash and (ii) 4.125% per annum PIK interest from April 1, 2022 through December 31, 2022.
Our revenues and operating costs remained lower in the first quarter of 2022 versus the first quarter of 2021, as we continued to experience a lower average active fleet count resulting from our ongoing exit from the diesel pressure pumping market. However, we experienced an uptick in our utilization rate as a greater proportion of our fleets were working under contract as opposed to the spot market, and thus less exposed to customer “white space.” We expect to see our average active fleet count continue to increase as we begin taking delivery of our newbuild Nyx Clean Fleets® beginning in the second quarter of 2022.
During the first quarter of 2022, prompt month futures contracts for WTI crude oil and Henry Hub natural gas averaged $94.92 per Bbl and $4.57 per MMBtu, respectively, as compared to $77.17 per Bbl and $4.85 per MMBtu, respectively, in the fourth quarter of 2021. We benefitted from the upward trend in commodity prices, as higher demand for pressure pumping services combined with increasing scarcity of available crews and equipment resulted in a favorable environment for deploying crews and negotiating pricing and other terms with customers. However, during the period, we continued to experience cost inflation for certain goods and services as well as non-productive time driven by supply chain issues such as our customers’ inability to source sufficient materials and transportation for goods. We anticipate that these trends will persist throughout the remainder of 2022.
We expect that completions activity and demand for pressure pumping services will remain elevated throughout the year. We also anticipate that the rising price of diesel fuel will continue to improve the economic benefit of switching from conventional to electric pressure pumping, further increasing demand for next-generation, all-electric fleets such as our Clean Fleets® and Nyx Clean Fleets®.
30
Results of Operations
Three months ended March 31, 2022, compared to the three months ended March 31, 2021
(in thousands, except percentages)
|
|
Three Months Ended March 31, |
|
|
|
|
|
|||||||||||
|
|
2022 |
|
|
% (1) |
|
2021 |
|
|
% (1) |
|
Variance |
|
|
% Variance |
|||
Revenue |
|
$ |
41,150 |
|
|
100.0% |
|
$ |
76,258 |
|
|
100.0% |
|
$ |
(35,108 |
) |
|
(46.0)% |
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Cost of services (excluding depreciation and amortization) |
|
|
40,723 |
|
|
99.0% |
|
|
62,631 |
|
|
82.1% |
|
|
(21,908 |
) |
|
(35.0)% |
Depreciation and amortization |
|
|
5,700 |
|
|
13.9% |
|
|
11,106 |
|
|
14.6% |
|
|
(5,406 |
) |
|
(48.7)% |
Selling, general and administrative expenses |
|
|
8,372 |
|
|
20.3% |
|
|
7,390 |
|
|
9.7% |
|
|
982 |
|
|
13.3% |
Loss on disposal of assets |
|
|
3,056 |
|
|
7.4% |
|
|
2,436 |
|
|
3.2% |
|
|
620 |
|
|
25.5% |
Loss from operations |
|
|
(16,701 |
) |
|
(40.6)% |
|
|
(7,305 |
) |
|
(9.6)% |
|
|
(9,396 |
) |
|
* (2) |
Interest expense, net |
|
|
(7,968 |
) |
|
(19.4)% |
|
|
(6,183 |
) |
|
(8.1)% |
|
|
(1,785 |
) |
|
28.9% |
Change in fair value of warrant liabilities |
|
|
(746 |
) |
|
(1.8)% |
|
|
(7,151 |
) |
|
(9.4)% |
|
|
6,405 |
|
|
*(2) |
Loss on extinguishment of debt |
|
|
(1,651 |
) |
|
(4.0)% |
|
|
- |
|
|
0.0% |
|
|
(1,651 |
) |
|
100.0% |
Other income |
|
|
1,321 |
|
|
3.2% |
|
|
29 |
|
|
0.0% |
|
|
1,292 |
|
|
* (2) |
Income tax expense (benefit) |
|
|
- |
|
|
0.0% |
|
|
- |
|
|
0.0% |
|
|
- |
|
|
* (2) |
Net loss |
|
$ |
(25,745 |
) |
|
(62.6)% |
|
$ |
(20,610 |
) |
|
(27.0)% |
|
$ |
(5,135 |
) |
|
* (2) |
Revenue. The decrease in revenue was primarily attributable to a lower active fleet count in the first quarter of 2022 compared to the prior comparable period as we began to transition to an all-electric pressure pumping service provider in May 2021. For the three months ended March 31, 2022, our average active fleet count decreased to 4.7 fleets compared to 10.0 fleets in the prior comparable period.
Cost of services, excluding depreciation and amortization. The decrease in cost of services, excluding depreciation and amortization, was attributable to the decrease in variable costs as activity was reduced with a lower number of active fleets in the first quarter of 2022 compared to the prior period. This was offset by costs associated with procuring third-party power generation services as we transitioned away from owning power generation assets starting in October 2021.
Depreciation and amortization. The decrease in depreciation and amortization was primarily due to the sale of most of our diesel-powered pressure pumping equipment during the second half of 2021.
Selling, general and administrative expenses. The increase in selling, general, and administrative expenses was primarily attributable to an increase in consulting fees, information technology costs and reinstatement of salary levels after the first quarter of 2021.
Loss on disposal of assets. The amount of gain or loss on disposal of assets fluctuates period over period due to differences in the operating conditions of our pressure pumping equipment, such as wellbore pressure and rate of barrels pumped per minute, which impacts the timing of disposals of our pump components. Additionally, during the three months ended March 31, 2022, we recognized $2.9 million of losses associated with the sale of property and equipment.
Interest expense, net. The increase was primarily attributable to the interest expense associated with the Convertible Senior Notes issued during the second quarter of 2021.
Loss on extinguishment of debt. During the three months ended March 31, 2022, we recognized a loss on extinguishment of debt for the unamortized debt discount and issuance costs and prepayment fees associated with the early repayment of our Senior Secured Term Loan.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity and capital resources have historically been cash, cash flow generated from operating activities, proceeds from the issuance of debt or equity and borrowings under our ABL Credit Facility. As of March 31, 2022, our total liquidity was $49.6 million, consisting of $41.1 million of cash and restricted cash and $8.5 million of availability under our ABL Credit Facility.
31
Our short-term and long-term liquidity requirements consist primarily of capital expenditures, payments of contractual obligations, including debt service obligations and working capital.
We believe that our current cash position, current and expected working capital balances, favorable cash interest payment terms under our Senior Secured Term Loan Agreement, availability under our ABL Credit Facility, proceeds received from issuance of debt or equity, as well as amounts raised from the issuance of Class A common stock under our 2022 ATM Agreement, and other anticipated sources of credit will be sufficient to satisfy cash requirements associated with our existing operations, capital expenditures and contractual obligations for the next twelve months. Although there is no assurance, we plan to satisfy our long-term financial obligations through operating cash flows that we could generate as we increase our number of working fleets with our planned additions of Nyx Clean Fleets® and additional financing as our long-term financial obligations mature.
Sources of Cash
During the first quarter of 2022, we raised approximately $68.4 million of gross proceeds from the issuance of approximately $46.9 million common equity through a registered direct offering and under our ATM Agreement and borrowings of $21.5 million under the last-out senior secured term loan (the “Term C Loan”). We intend to use the proceeds for general working capital, including the funding of capital expenditures related to our newbuild Nyx Clean Fleets®.
Registered Direct Offering. On March 11, 2022, we completed a registered direct offering of 14,180,375 shares of Class A common stock and 14,180,375 RDO Investor Warrants for gross proceeds of approximately $25.0 million, before deducting placement agent fees and other offering expenses. We intend to use the net proceeds for working capital purposes, including the funding of certain capital expenditures.
ATM Agreement. During the three months ended March 31, 2022, we sold 9,767,941 shares of Class A common stock for total net proceeds of $21.3 million and paid $0.6 million in commissions under the ATM Agreement. Since inception on June 26, 2020 through March 31, 2022, we sold a total of 15,086,100 shares of Class A common stock under the ATM Agreement for total net proceeds of $36.4 million and paid $1.1 million in commissions.
2022 ATM Agreement. On April 26, 2022, we entered into a new Equity Distribution Agreement (the “2022 ATM Agreement”) with Piper Sandler & Co. relating to our shares of Class A common stock to replace the former ATM Agreement, which expired on April 26, 2022. We may offer and sell up to a total of $50.0 million in shares of our Class A common stock in an “at-the-market” offering program over a period of time pursuant to the 2022 ATM Agreement. No shares may be sold under the 2022 ATM Agreement until the registration statement filed on April 26, 2022 has been declared effective by the SEC.
Cash Flows
(in thousands)
|
Three Months Ended |
|
|||||
|
March 31, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Net cash provided by (used in): |
|
|
|
|
|
||
Operating activities |
$ |
(7,445 |
) |
|
$ |
(11,016 |
) |
Investing activities |
|
6,158 |
|
|
|
(7,825 |
) |
Financing activities |
|
33,310 |
|
|
|
31,824 |
|
Operating Activities. Net cash used in operating activities primarily represents the results of operations exclusive of non-cash expenses, including depreciation, amortization, provision for losses on accounts receivable and inventory, interest, impairment losses, (gains) losses on disposal of assets, changes in fair value of warrant liabilities, loss on extinguishment of debt and share-based compensation and the impact of changes in operating assets and liabilities. Net cash used in operating activities was $7.4 million for the three months ended March 31, 2022 primarily due to the working capital build associated with the deployment of additional fleets during the quarter.
Net cash used in operating activities was $11.0 million for the three months ended March 31, 2021, primarily attributable to the redeployment of pressure pumping fleets. While we experienced an increase in customer activity during the second half of the quarter, the related collection of receivables is not expected until the second quarter of 2021. Additionally, we made working capital payments of $3.0 million using proceeds from our USDA Loan.
Investing Activities. Net cash provided by investing activities increased by $14.0 million from the prior corresponding period, primarily related to insurance proceeds related to damaged property and equipment. Net cash provided by investing activities was $6.2 million for the three months ended March 31, 2022, primarily due to $5.2 million in proceeds from the sale of property and equipment and $12.0 million of insurance proceeds related to damaged property and equipment. This was offset by $11.1 million in purchases of property and equipment, consisting of $10.3 million related to growth capital expenditures and the remainder related to maintaining and supporting our existing pressure pumping equipment.
32
Net cash used in investing activities was $7.8 million for the three months ended March 31, 2021, primarily due to $14.2 million in purchases of property and equipment, related to maintaining and supporting our existing pressure pumping equipment and payments made to replace damaged property and equipment. This was offset by $6.4 million of insurance proceeds related to damaged property and equipment.
Financing Activities. Net cash provided by financing activities was $33.3 million for the three months ended March 31, 2022, primarily attributable to gross proceeds of $68.4 million from the issuance of long-term debt, common stock and warrants, offset in part by $17.8 million of payments on our Senior Secured Term Loan, $14.2 million of net payments on our ABL Credit Facility and debt issuance costs of $1.1 million.
Net cash provided by financing activities was $31.8 million for the three months ended March 31, 2021, primarily attributable to net borrowings of $12.2 million on our ABL Credit Facility, $8.1 million of net proceeds from notes payable and net proceeds of $10.7 million from the issuance of common stock.
Contractual Cash Obligations and Other Commitments
Our material cash commitments from known contractual and other obligations consist primarily of debt service obligations, including interest, operating and finance leases, and purchase commitments.
Senior Secured Term Loan. As of March 31, 2022, the outstanding principal balance of our Term A and Term B Loan (collectively the “Senior Secured Term Loan”) was $103.0 million, of which $5.0 million is due within one year. The Senior Secured Term Loan matures on December 5, 2025. As of March 31, 2022, we were in compliance with all of the covenants under our Senior Secured Term Loan.
The Senior Secured Term Loan interest rate is 0.0% for the first quarter of 2022 and an interest rate of (i) 1.0% per annum in cash and (ii) 4.125% per annum PIK interest from April 1, 2022 through December 31, 2022. The Senior Secured Term Loan requires quarterly principal payments of $1.25 million until March 31, 2023 and $5.0 million from June 30, 2023 through September 30, 2025, with final payment due at maturity.
Term C Loan. As of March 31, 2022, the outstanding principal balance of our Term C Loan was $21.8 million and matures on December 5, 2025. Our Term C Loan has a PIK interest rate of 14.0% and contains provisions with up to a 100% premium payable upon any repayment, prepayment or acceleration. As of March 31, 2022, we were in compliance with all of the covenants under our Term C Loan.
ABL Credit Facility. All borrowings under our ABL Credit Facility 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. As of March 31, 2022, we had no outstanding balance on our ABL Credit Facility. The ABL Credit Facility matures on April 1, 2025. As of March 31, 2022, we were in compliance with all of the covenants under our ABL Credit Facility.
Capital Expenditures. Our business requires continual investments to upgrade 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 add additional fleets and generate incremental distributable cash flow. Fleet enhancement capital expenditures include expenditures on new equipment related to technology enhancements to existing fleets that increase the productivity of the fleet.
During the three months ended March 31, 2022, our capital expenditures was $11.1 million. We currently expect that growth capital expenditures, on an accrual basis, will be approximately $95 million to $115 million for the remainder of 2022, primarily related to the buildout of our four new Nyx Clean Fleets® and associated equipment. Capital expenditures for growth and fleet enhancement initiatives are discretionary. We continuously evaluate our capital expenditures and the amount we ultimately spend will depend on several factors, including expected industry activity levels and company initiatives.
33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES.
Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Under 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 (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the quarter ended March 31, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the quarter ended March 31, 2022.
Changes in Internal Control over Financial Reporting
There were no changes made in our internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
34
PART II
ITEM 1. LEGAL PROCEEDINGS.
See “Note 12 – Commitments and Contingencies” in the Notes to Condensed Consolidated Financial Statements for further information.
ITEM 1A. RISK FACTORS.
Except as set forth below, no material changes have occurred from the risk factors previously disclosed in the Company’s Annual Report. See also Part I, Item 2 “Disclosure Regarding Forward-Looking Statements” of this Quarterly Report on Form 10-Q.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
35
ITEM 6. EXHIBITS
The exhibits required to be filed or furnished by Item 601 of Regulation S-K are listed below.
Exhibit No. |
|
Description |
3.1 |
|
|
3.2 |
|
|
3.3 |
|
|
3.4 |
|
|
3.5 |
|
|
3.6 |
|
|
4.1 |
|
|
4.2 |
|
|
4.3 |
|
|
4.4 |
|
|
4.5 |
|
|
4.6 |
|
|
4.7 |
|
|
4.8 |
|
|
4.9 |
|
|
4.10 |
|
|
4.11 |
|
|
4.12 |
|
|
4.13 |
|
|
4.14 |
|
|
4.15 |
|
36
4.16 |
|
|
4.17 |
|
|
4.18 |
|
|
10.1 |
|
|
10.2 |
|
|
10.3 |
|
|
10.4 |
|
|
10.5 |
|
|
10.6 |
|
|
10.7 |
|
|
31.1* |
|
|
31.2* |
|
|
32.1** |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. |
32.2** |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. |
101.INS* |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
104* |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
** Furnished herewith.
37
SIGNATURES
Pursuant 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 on May 16, 2022.
|
U.S. WELL SERVICES, INC. |
|
|
|
|
|
By: |
|
|
|
|
|
|
|
|
/s/ Kyle O’Neill |
|
|
Name: |
Kyle O’Neill |
|
Title: |
President, Chief Executive Officer, and Director |
|
|
|
|
/s/ Josh Shapiro |
|
|
Name: |
Josh Shapiro |
|
Title: |
Chief Financial Officer
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