UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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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 |
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organization) |
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Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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.
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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 [✓]No
As of July 30, 2021, the registrant had
TABLE OF CONTENTS
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Page No. |
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PART I |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements (Unaudited) |
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2 |
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3 |
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4 |
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6 |
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8 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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1
U.S. WELL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
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June 30, 2021 |
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December 31, 2020 |
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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 $ as of June 30, 2021 and December 31, 2020, respectively) |
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Inventory, net |
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Assets held for sale |
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- |
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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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Intangible assets, net |
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Goodwill |
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Deferred financing costs, net |
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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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Total current liabilities |
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Warrant liabilities |
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Long-term debt |
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Convertible senior notes |
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- |
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Long-term equipment financing |
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Long-term capital lease obligations |
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- |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (NOTE 17) |
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Mezzanine equity: |
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Series A Redeemable Convertible Preferred Stock, par value $ shares authorized; June 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $ |
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Series B Redeemable Convertible Preferred Stock, par value $ shares authorized; June 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference of $ |
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Stockholders' deficit: |
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Class A Common Stock, par value of $ and December 31, 2020, respectively |
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Class B Common Stock, par value of $ December 31, 2020, respectively |
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- |
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- |
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Additional paid in capital |
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Accumulated deficit |
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Total Stockholders' deficit |
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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.
2
U.S. WELL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Revenue |
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$ |
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$ |
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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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Impairment of long-lived assets |
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- |
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- |
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- |
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Litigation settlement |
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- |
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- |
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Loss (gain) on disposal of assets |
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( |
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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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Patent license sales |
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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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- |
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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 expense (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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( |
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Net loss attributable to noncontrolling interest |
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- |
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( |
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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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( |
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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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( |
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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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( |
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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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Deemed dividends on Series B preferred stock |
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( |
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- |
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( |
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- |
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Exchange of Series A preferred stock for convertible senior notes |
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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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$ |
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$ |
( |
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Loss per common share (See Note 14): |
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Basic and diluted |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Weighted average common shares outstanding: |
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Basic and diluted |
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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 CASH FLOWS
(in thousands)
(unaudited)
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Six Months Ended June 30, |
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2021 |
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2020 |
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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 provided by (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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( |
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Impairment of long-lived assets |
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- |
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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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Convertible senior notes converted into sales of patent licenses |
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( |
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- |
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Amortization of debt discount, premium and issuance costs |
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Paid-in-kind interest on convertible senior notes |
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- |
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Loss on extinguishment of debt |
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- |
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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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Prepaids and other current assets |
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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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( |
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Net cash provided by (used in) operating activities |
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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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( |
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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 used in investing activities |
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( |
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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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- |
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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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- |
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Proceeds from issuance of convertible senior notes |
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- |
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Proceeds from issuance of notes payable |
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- |
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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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( |
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Proceeds from issuance of common stock, net |
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Deferred financing costs |
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( |
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( |
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Net cash provided by (used in) financing activities |
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( |
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Net increase (decrease) in cash and cash equivalents and restricted cash |
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( |
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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.
4
U.S. WELL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(unaudited)
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Six Months Ended June 30, |
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2021 |
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2020 |
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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 Class A common stock to senior secured term loan lenders |
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- |
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Issuance of Series B preferred stock to senior secured term loan lenders |
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- |
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Exchange of Series A preferred stock for convertible senior notes |
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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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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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- |
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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 STOCKHOLDERS' DEFICIT
(in thousands, except share amounts)
(unaudited)
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Three Months Ended June 30, 2021 |
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Class A Common Stock |
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Class B Common Stock |
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Additional Paid in |
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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, March 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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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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- |
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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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Exchange of Series A preferred stock for convertible senior notes |
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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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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 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Accrued Series B preferred stock dividends |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Balance, June 30, 2021 |
|
|
|
|
|
$ |
|
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020 |
|
|||||||||||||||||||||||||||||
|
|
|
Class A Common Stock |
|
|
Class B Common Stock |
|
|
Additional Paid in |
|
|
Accumulated |
|
|
Noncontrolling |
|
|
Total |
|
||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interest |
|
|
Deficit |
|
||||||||
|
Balance, March 31, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
( |
) |
|
Class A common stock issuance |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Conversion of Class B common stock to Class A common stock |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Share-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Restricted stock forfeitures |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Deemed and imputed dividends on Series A preferred stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Accrued Series A preferred stock dividends |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Accrued Series B preferred stock dividends |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance, June 30, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
( |
) |
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 (continued)
(in thousands, except share amounts)
(unaudited)
|
|
|
Six Months Ended June 30, 2021 |
|
|||||||||||||||||||||||||||||
|
|
|
Class A Common Stock |
|
|
Class B Common Stock |
|
|
Additional Paid in |
|
|
Accumulated |
|
|
Noncontrolling |
|
|
Total |
|
||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interest |
|
|
Deficit |
|
||||||||
|
Balance, December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
( |
) |
|
Class A common stock issuance |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Conversion of Class B common stock to Class A common stock |
|
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Conversion of Series B preferred stock to Class A common stock |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Exchange of Series A preferred stock for convertible senior notes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Share-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Tax withholding related to vesting of share-based compensation |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Restricted stock forfeitures |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Deemed and imputed dividends on Series A preferred stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Accrued Series A preferred stock dividends |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Accrued Series B preferred stock dividends |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance, June 30, 2021 |
|
|
|
|
|
$ |
|
|
|
|
- |
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020 |
|
|||||||||||||||||||||||||||||
|
|
|
Class A Common Stock |
|
|
Class B Common Stock |
|
|
Additional Paid in |
|
|
Accumulated |
|
|
Noncontrolling |
|
|
Total Equity |
|
||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Interest |
|
|
(Deficit) |
|
||||||||
|
Balance, December 31, 2019 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Class A common stock issuance |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Conversion of Class B common stock to Class A common stock |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Share-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Tax withholding related to vesting of share-based compensation |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Restricted stock forfeitures |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Deemed and imputed dividends on Series A preferred stock |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Accrued Series A preferred stock dividends |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Accrued Series B preferred stock dividends |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance, June 30, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
- |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
( |
) |
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”), f/k/a Matlin & Partners Acquisition Corp (“MPAC”), is a Houston, Texas-based technology-focused oilfield service company focused on hydraulic fracturing for oil and natural gas exploration and production (“E&P”) companies in the United States. The process of hydraulic fracturing involves pumping a pressurized stream of fracturing 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 hydraulic fracturing process, “propping” them open to facilitate the flow of hydrocarbons from the reservoir to the well.
The Company’s fleets consist of mobile hydraulic fracturing units and other auxiliary heavy equipment to perform fracturing services. The Company has two designs for hydraulic fracturing units: (1) Conventional Fleets, which are powered by diesel fuel and utilize traditional internal combustion engines, transmissions, and radiators and (2) Clean Fleet®, which replaces the traditional engines, transmissions, and radiators with electric motors powered by electricity generated by natural gas-fueled turbine generators. Both designs utilize high-pressure hydraulic fracturing pumps mounted on trailers. The Company refers to the group of pump trailers and other equipment necessary to perform a typical fracturing 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 hydraulic fracturing service provider and that it expects to fully exit the diesel frac market by the end of 2021.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements were prepared using generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Regulation S-X. 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 Amendment No. 1 to Annual Report on Form 10-K/A for the year ended December 31, 2020 (the “Amended Annual Report”), filed with the Securities and Exchange Commission (“SEC”) on May 17, 2021.
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 June 30, 2021 and December 31, 2020, and for the three and six months ended June 30, 2021 and 2020. 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 and six months ended June 30, 2021 are not necessarily indicative of the results of operations expected for the entire fiscal year ended December 31, 2021.
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, 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.
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)
Restricted Cash
The following table provides a reconciliation of the amount of cash and cash equivalents and restricted cash reported on the condensed consolidated balance sheets that sum to the total of the same amounts shown on the condensed consolidated statements of cash flows:
|
|
|
June 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
Restricted cash |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and restricted cash |
|
$ |
|
|
|
$ |
|
|
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.
The Company separately identifies and accounts for certain critical components of its hydraulic fracturing 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.
In the first quarter of 2020, our review of impairment of long-lived assets necessitated a review of the useful lives of our property and equipment. Current trends in hydraulic fracturing equipment operating conditions, such as increasing treating pressures and higher pumping rates, along with the increase in daily pumping time are shortening the useful life of certain critical components we use. We determined that the average useful life of fluid ends and fuel injectors was less than one year, which resulted in our determination that costs associated with the replacement of these components would no longer be capitalized, but instead expensed as they are used in operations. This change in accounting estimate was made effective in March 2020 and accounted for prospectively.
Assets Held for Sale
Assets that are classified as held for sale are measured at the lower of their carrying amount or fair value less expected selling costs (“estimated selling price”) with a loss recognized to the extent that the carrying amount exceeds the estimated selling price. The classification is applicable at the date upon which the sale of assets is probable and the assets are available for immediate sale in their present condition. Upon determining that an asset meets the criteria to be classified as held for sale, the Company ceases depreciation and reports the assets, if material, in assets held for sale in its condensed consolidated balance sheets.
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)
When the net carrying value of an asset designated as held for sale exceeds its estimated fair value, which we estimate based on the estimated selling price, we recognize the difference as an impairment charge. When an impairment charge is recorded, subsequent changes to the estimated selling price of assets held for sale are recorded as gains or losses to the condensed consolidated statements of operations wherein the recognition of subsequent gains is limited to the cumulative loss previously recognized. During the six months ended June 30, 2021, the Company recorded
Goodwill
Goodwill is not amortized, but is reviewed for impairment annually, or more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable. Judgements regarding indicators of potential impairment are based on market conditions and operational performance of the business.
As of December 31 of each year, or as required, the Company performs an impairment analysis of goodwill. The Company may assess its goodwill for impairment initially using a qualitative approach to determine whether conditions exist that indicate it is more likely than not that a reporting unit’s carrying value is greater than its fair value, and if such conditions are identified, then a quantitative analysis will be performed to determine if there is any impairment. The Company may also elect to perform a single step quantitative analysis in which the carrying amount of the reporting unit is compared to its fair value, which the Company estimates using a guideline public company method, a form of the market approach. The guideline public company method utilizes the trading multiples of similarly traded public companies as they relate to the Company’s operating metrics. An impairment charge would be recognized for the amount by which the carrying amount of the reporting unit exceeds the reporting unit’s fair value, and only limited to the total amount of goodwill allocated to the reporting unit.
Warrant Liabilities
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 issued public warrants and private placement warrants (collectively, the “public and private placement warrants”) in connection with its initial public offering in November 2018. Additionally, 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 (“Series A warrants,” and together with the public and private placement warrants, the “warrants”). All our outstanding warrants are recognized as liabilities. Accordingly, we recognize the 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.
Convertible Notes and Convertible Preferred Stock
When the Company issues convertible notes or convertible preferred stock, it first evaluates the balance sheet classification of the convertible instrument in its entirety to determine whether the instrument should be classified as a liability under ASC 480 and second whether the conversion feature should be accounted for separately from the host instrument. A conversion feature of a convertible note instrument or certain convertible preferred stock would be separated from the convertible instrument and classified as a derivative liability if the conversion feature, were it a standalone instrument, meets the definition of an “embedded derivative” in ASC 815-15. Generally, characteristics that require derivative treatment include, among others, when the conversion feature is not indexed to the Company’s equity, as defined in ASC 815-40, or when it must be settled either in cash or by issuing stock that is readily convertible to cash. When a conversion feature meets the definition of an embedded derivative, it would be separated from the host instrument and classified as a derivative liability carried on the condensed consolidated balance sheet at fair value, with any changes in its fair value recognized in the condensed consolidated statements of operations.
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)
If a conversion feature does not meet the conditions to be separated and accounted for as an embedded derivative liability, the Company then determines whether the conversion feature is “beneficial”. A conversion feature would be considered beneficial if the conversion feature is “in the money” when the host instrument is issued or, under certain circumstances, at a later time. The beneficial conversion feature (“BCF”) for convertible instruments is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The intrinsic value is generally calculated at the commitment date as the difference between the conversion price and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible. If certain other securities are issued with the convertible security, the proceeds are allocated among the different components. The portion of the proceeds allocated to the convertible security is divided by the contractual number of the conversion shares to determine the effective conversion price, which is used to measure the BCF. The effective conversion price is used to compute the intrinsic value. The value of the BCF is limited to the basis that is initially allocated to the convertible security.
If the convertible note contains a BCF, the amount of the proceeds allocated to the BCF reduces the balance of the convertible note, creating a discount which is amortized over the note’s term to interest expense in the condensed consolidated statements of operations.
When a convertible preferred stock contains a BCF, after allocating the proceeds to the BCF, the resulting discount is either amortized as deemed dividends over the period beginning when the convertible preferred stock is issued up to the earliest date the conversion feature may be exercised, or if the conversion feature is immediately exercisable, the discount is fully amortized at the date of issuance.
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:
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• |
Level 1–inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. |
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• |
Level 2–inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
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• |
Level 3–inputs are unobservable for the asset or liability. |
The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of June 30, 2021 and December 31, 2020:
Senior Secured Term Loan. The fair value of the Senior Secured Term Loan is $
Equipment financing. The carrying value of the equipment financing approximates fair value as its terms are consistent with and comparable to current market rates as of June 30, 2021 and December 31, 2020, respectively.
Warrants. The Company’s warrants are accounted for as liabilities and measured at fair value. See “Note 8 – Warrant Liabilities” for fair value measurements associated with the Company’s warrants.
Convertible Senior Notes. As of June 30, 2021, 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.
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 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.
Patent License Sales. On June 24, 2021, the Company issued a Convertible Senior Note (See “Note 11 – Convertible Senior Notes”) convertible into a patent license agreement. On June 29, 2021, the holder exercised its right to convert the Convertible Senior Note in full and the Company entered into a Patent License Agreement (the “License Agreement”), which provides the licensee a option to purchase up to
The sales of the right to use the Company’s patented Clean Fleet® technology is a single performance obligation. The Company recognizes the income associated with the patent license sales at the point in time when the Company satisfies its performance obligation by granting the purchaser the right to use the patented Clean Fleet® technology and transfer of control has occurred. The patent license sales are recognized as other income in our condensed consolidated statement of operations.
Accounts Receivable
Accounts receivable are recorded at their outstanding balances adjusted for an allowance for doubtful accounts. The allowance for doubtful accounts is determined by analyzing the payment history and credit worthiness of each 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 six months ended June 30, 2021, the Company entered into an Assignment of Claim Agreement (the “Assignment”) with a third-party, whereby the Company transferred to the third-party all right, title, and interest in the Company’s claim in the amount of $
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 tables show the percentage of revenues from our significant customers for the periods indicated:
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Three Months Ended June 30, |
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2021 |
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2020 |
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Customer B |
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Customer C |
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Customer E |
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Customer F |
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Customer H |
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* |
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Customer I |
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* |
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Six Months Ended June 30, |
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2021 |
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2020 |
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Customer A |
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* |
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Customer B |
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Customer C |
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Customer E |
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Customer F |
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Customer H |
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* |
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An asterisk indicates that revenue is less than |
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|||||||
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)
The following table shows the percentage of trade receivables from our significant customers:
|
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June 30, 2021 |
|
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December 31, 2020 |
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Customer B |
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Customer C |
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* |
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Customer D |
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* |
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Customer E |
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* |
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Customer F |
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|
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Customer G |
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* |
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Customer H |
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* |
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Customer I |
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* |
|
||
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An asterisk indicates that trade receivable is less than |
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Income Taxes
The Company, under ASC 740, Accounting for Income Taxes, uses the asset and liability method of accounting for income taxes, under which deferred tax assets and liabilities are recognized for the future tax consequences of (i) temporary differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and (ii) operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are based on enacted tax rates applicable to the future period when those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period the rate change is enacted. A valuation allowance is provided for deferred tax assets when it is more likely than not the deferred tax assets will not be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.
NOTE 3 – ACCOUNTING STANDARDS
Except as discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2021, as compared to the recent accounting pronouncements described in the Amended Annual Report, that are of significance, or potential significance to the Company.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, requiring a customer in a cloud computing arrangement that is a service contract to follow the guidance in ASC 350-40 in determining the requirements for capitalizing implementation costs incurred to develop or obtain internal-use-software. The new guidance will be effective for emerging growth companies for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption is permitted. The Company adopted ASU 2018-15 on January 1, 2021, and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
NOTE 4 – PREPAIDS AND OTHER CURRENT ASSETS
Prepaids and other current assets consisted of the following:
|
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June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Prepaid insurance |
|
$ |
|
|
|
$ |
|
|
|
Recoverable costs from insurance |
|
|
- |
|
|
|
|
|
|
Income tax receivable |
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|
|
|
|
|
|
|
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Other current assets |
|
|
|
|
|
|
|
|
|
Total prepaid expenses and other current assets |
|
$ |
|
|
|
$ |
|
|
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)
During the six months ended June 30, 2021, the Company prepaid $
The $
NOTE 5 – INTANGIBLE ASSETS
A summary of intangible assets consisted of the following:
|
|
|
Estimated Useful Life (in years) |
|
Gross Carrying Value |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
|||
|
As of June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Patents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
As of December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Patents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The intangible assets are amortized over the period the Company expects to receive the related economic benefit. Amortization expense related to amortizable intangible assets was $
As of June 30, 2021, the estimated amortization expense for future periods is as follows:
|
Fiscal Year |
|
Estimated Amortization Expense |
|
|
|
Remainder of 2021 |
|
$ |
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total |
|
$ |
|
|
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)
NOTE 6 – PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
|
|
|
Estimated Useful Life (in years) |
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Fracturing equipment |
|
1.5 to 25 |
|
$ |
|
|
|
$ |
|
|
|
Light duty vehicles (1) |
|
|
|
|
|
|
|
|
|
|
|
Furniture and fixtures |
|
|
|
|
|
|
|
|
|
|
|
IT equipment |
|
|
|
|
|
|
|
|
|
|
|
Auxiliary equipment |
|
2 to 20 |
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
Term of lease |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and amortization |
|
|
|
|
( |
) |
|
|
( |
) |
|
Property and equipment, net |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
As of June 30, 2021 and December 31, 2020, the Company had capitalized $ |
Depreciation and amortization expense related to property and equipment was $
The Company recognized a gain of $
Assets Held for Sale
In May 2021, the Company announced its commitment to becoming an all-electric hydraulic fracturing services provider and that it expects to fully exit the diesel frac market by the end of 2021. As a result, the Company has been executing a plan to sell its diesel fracturing equipment. As of June 30, 2021, the Company has classified $
NOTE 7 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Accrued payroll and benefits |
|
$ |
|
|
|
$ |
|
|
|
Accrued taxes |
|
|
|
|
|
|
|
|
|
Accrued interest |
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
$ |
|
|
|
$ |
|
|
NOTE 8 – WARRANT LIABILITIES
Warrants
As of June 30, 2021, a total of
During the three and six months ended June 30, 2021, the Company issued
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)
Fair Value Measurement
The Company’s 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 (Level 1) |
|
|
Other Observable Inputs (Level 2) |
|
|
Unobservable Inputs (Level 3) |
|
|
Total |
|
||||
|
As of June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public warrants |
|
$ |
|
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
|
Private placement warrants |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Series A warrants |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
As of December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 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 determined using the Black-Scholes valuation method.
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 June 30, 2021 |
|
|
|
|
|
|
|
|
|
Expected remaining life |
|
|
|
|
|
|
||
|
Volatility rate |
|
|
|
|
|
|
||
|
Risk-free interest rate |
|
|
|
|
|
|
||
|
Expected dividend rate |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
As of December 30, 2020 |
|
|
|
|
|
|
|
|
|
Expected remaining life |
|
|
|
|
|
|
||
|
Volatility rate |
|
|
|
|
|
|
||
|
Risk-free interest rate |
|
|
|
|
|
|
||
|
Expected dividend rate |
|
|
|
|
|
|
||
NOTE 9 – NOTES PAYABLE
During the six months ended June 30, 2021,
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)
NOTE 10 – DEBT
Long-term debt consisted of the following:
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Senior Secured Term Loan |
|
$ |
|
|
|
$ |
|
|
|
ABL Credit Facility |
|
|
|
|
|
|
|
|
|
PPP Loan |
|
|
|
|
|
|
|
|
|
USDA Loan |
|
|
|
|
|
|
|
|
|
Equipment financing |
|
|
|
|
|
|
|
|
|
Capital leases |
|
|
|
|
|
|
|
|
|
Total debt principal balance |
|
|
|
|
|
|
|
|
|
Unamortized debt discount and issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Current maturities |
|
|
( |
) |
|
|
( |
) |
|
Net Long-term debt |
|
$ |
|
|
|
$ |
|
|
Senior Secured Term Loan
On June 24, 2021, the Company, USWS LLC, as the borrower, and all other subsidiaries of the Company entered into a Fifth Amendment (the “Fifth Term Loan Amendment”) to the Senior Secured Term Loan Credit Agreement (as amended, the “Senior Secured Term Loan”) with CLMG Corp., as administrative and collateral agent, and the lenders party thereto. The Senior Secured Term Loan matures on
Pursuant to the Fifth Term Loan Amendment, the agent and lenders agreed to make certain modifications and amendments to the Senior Secured Term Loan to, among other things, permit the incurrence of debt and liens in connection with the Convertible Senior Notes as described in “Note 11 – Convertible Senior Notes”. Additionally, pursuant to the Fifth Term Loan Amendment, other covenants were amended including, but not limited to, certain covenants relating to collateral, asset dispositions, and special purpose entities used for stand-alone equipment financings. In the Fifth Term Loan Amendment, the Company also agreed to a mandatory prepayment of $
The deferral period for interest on the Senior Secured Term Loan was shortened by three months, to January 1, 2022, in accordance with the Fifth Term Loan Amendment, and the Senior Secured Term Loan will resume incurring interest at that date at the applicable benchmark rate, subject to a
|
|
• |
the outstanding principal amount of the Senior Secured Term Loan is equal to or less than $ |
|
|
• |
the outstanding principal amount of the Senior Secured Term Loan is equal to or less than $ |
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 Fifth Term Loan Amendment, did not result in a significant modification or extinguishment resulting in no change in accounting for the Senior Secured Term Loan. In connection with the Fifth Term Loan Amendment, the Company paid $
During the six months ended June 30, 2021, the Company made principal payments of $
As of June 30, 2021, the outstanding principal balance of the Senior Secured Term Loan was $
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)
ABL Credit Facility
On June 24, 2021, the Company, USWS LLC, and all other subsidiaries of the Company entered into a Fourth Amendment (the “Fourth ABL Amendment”) to the 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. The ABL Credit Facility matures on April 1, 2025.
Pursuant to the Fourth ABL Amendment, the lenders agreed to make certain modifications and amendments to the ABL Credit Facility to, among other things, permit the incurrence of debt and liens in connection with the Convertible Senior Notes.
The ABL Credit Facility is subject to a borrowing base which is calculated based on a formula referencing the Company’s eligible accounts receivables. As of June 30, 2021, the borrowing base was $
USDA Loan
In November 2020, we entered into a Business Loan Agreement (the “USDA Loan”) with a commercial bank pursuant to the United States Department of Agriculture, Business & Industry Coronavirus Aid, Relief, and Economic Security Act Guaranteed Loan Program, in the aggregate principal amount of up to $
Payments of Debt Obligations due by Period
As of June 30, 2021, the schedule of the repayment requirements of long-term debt is as follows:
|
|
|
Principal Amount |
|
|
|
Fiscal Year |
|
of Long-term Debt |
|
|
|
Remainder of 2021 |
|
$ |
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total |
|
$ |
|
|
NOTE 11 – CONVERTIBLE SENIOR NOTES
On June 24, 2021, the Company entered into a Note Purchase Agreement (as amended, the “Note Purchase Agreement”). As of June 30, 2021, pursuant to the Note Purchase Agreement, the Company issued $
Cash Notes. On June 24, 2021, in connection with the Private Placement, the Company issued and sold $
Exchange Notes. On June 24, 2021, in connection with the Private Placement, the Company issued and sold $
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 $
The carrying value of the Convertible Senior Notes is as follows:
|
|
|
June 30, 2021 |
|
|
|
Principal |
|
$ |
|
|
|
PIK interest |
|
|
|
|
|
Unamortized debt premium |
|
|
|
|
|
Unamortized debt discount and issuance costs |
|
|
( |
) |
|
Net Convertible Senior Notes |
|
$ |
|
|
In June 2021, the Company received $
The Convertible Senior Notes bear interest at a rate of
Each Equity Linked Note, subject to earlier conversion, is due and payable on
Additionally, following the first anniversary of the Note Purchase Agreement, and at any time in which there are
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 in 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 issued were initially measured at fair value as they were considered new instruments issued concurrently to extinguish the Series A preferred stock. See “Note 12 – Mezzanine Equity” for the discussion of Series A preferred stock exchange.
The initial measurement at fair value of those certain Equity Linked Notes resulted in the Company recording a premium of $
We incurred transaction costs related to the issuance of the Convertible Senior Notes of $
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)
NOTE 12 – 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 |
|
||
|
Series A preferred stock as of December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
Exchange of Series A preferred stock for Convertible Senior Notes |
|
|
( |
) |
|
|
( |
) |
|
Deemed and imputed dividends on Series A preferred stock |
|
|
- |
|
|
|
|
|
|
Accrued Series A preferred stock dividends |
|
|
- |
|
|
|
|
|
|
Series A preferred stock as of June 30, 2021 |
|
|
|
|
|
$ |
|
|
At the initial closing of the Series A preferred stock purchase agreement on
During the three months ended June 30, 2021, the Company exchanged
As of June 30, 2021,
Series B Redeemable Convertible Preferred Stock
The following table summarizes the Company’s Series B Redeemable Convertible Preferred Stock, par value $
|
|
|
Shares |
|
|
Amount |
|
||
|
Series B preferred stock as of December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
Conversion of Series B preferred stock to Class A common stock |
|
|
( |
) |
|
|
( |
) |
|
Accrued Series B preferred stock dividends |
|
|
- |
|
|
|
|
|
|
Series B preferred stock as of June 30, 2021 |
|
|
|
|
|
$ |
|
|
In February 2021 and May 2021,
As of June 30, 2021,
NOTE 13 – STOCKHOLDERS’ EQUITY
Shares Authorized and Outstanding
Preferred Stock
The Company is authorized to issue
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)
Class A Common Stock
The Company is authorized to issue
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. The ATM Agreement relates to an “at-the-market” offering program. Under the ATM Agreement, the Company will pay Piper Sandler an aggregate commission of up to
During the three and six months ended June 30, 2021, the Company sold
Class B Common Stock
The Company is authorized to issue
As of December 31, 2020, there were
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 14 – 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.
Basic and diluted net income (loss) per share excludes the income (loss) attributable to and shares associated with the
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)
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 June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
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 |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
Exchange of Series A preferred stock for Convertible Senior Notes |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
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 income (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 June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
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 Class B common stock convertible into Class A common stock |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
NOTE 15 – SHARE-BASED COMPENSATION
Share-based compensation expense consisted of the following:
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
||||
|
Restricted stock |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DSUs |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
Pool A Awards |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
Pool B Awards |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
Total |
|
$ |
|
|
(1) |
$ |
|
|
(2) |
$ |
|
|
(3) |
$ |
|
|
(4) |
|
(1) |
$ |
|
(2) |
$ |
|
(3) |
$ |
|
(4) |
$ |
Restricted Stock
The following table summarizes the restricted stock activity for the six months ended June 30, 2021:
|
|
|
Shares |
|
|
Weighted- Average Grant-Date Fair Value per Share |
|
||
|
Non-vested restricted stock as of December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
- |
|
|
|
- |
|
|
Vested |
|
|
( |
) |
|
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
Non-vested restricted stock as of June 30, 2021 |
|
|
|
|
|
$ |
|
|
As of June 30, 2021, the total unrecognized compensation cost related to restricted stock was $
Stock Options
The following table summarizes the stock option activity for the six months ended June 30, 2021:
|
|
|
Shares |
|
|
Weighted- Average Exercise Price per Share |
|
|
Weighted-Average Remaining Contractual Life (in years) |
|
|||
|
Outstanding as of December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
Exercised |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Forfeited/Expired |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Outstanding as of June 30, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
Exercisable as of June 30, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
As of June 30, 2021, the total unrecognized compensation cost related to stock options was $
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)
Deferred Stock Units (“DSUs”)
The following table summarizes the DSUs activity for the six months ended June 30, 2021:
|
|
|
Units |
|
|
Weighted- Average Grant Date Fair Value per Unit |
|
||
|
Non-vested DSUs as of December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
- |
|
|
|
- |
|
|
Vested |
|
|
( |
) |
|
|
|
|
|
Forfeited |
|
|
- |
|
|
|
- |
|
|
Non-vested DSUs as of June 30, 2021 |
|
|
|
|
|
$ |
|
|
As of June 30, 2021, the total unrecognized compensation cost related to DSUs was $
Pool A Performance Awards
In the fourth quarter of 2020, the Company made grants of Pool A Performance Awards (“Pool A Awards”) to certain key employees of the Company. The Company accounted 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. The Pool A Awards became fully vested as of January 1, 2021. Since the settlement will not occur until the fifth anniversary of the grant date, the Company considered the delayed settlement as a post-vesting restriction which impacted the determination of grant-date fair value of the award.
As of June 30, 2021, the fair value of the Pool A Awards liability was remeasured to $
During the three and six months ended June 30, 2021, the Company recorded additional compensation cost of $
Pool B Performance Awards
In the fourth quarter of 2020, the Company made grants of Pool B Performance Awards (“Pool B Awards”) to certain key employees of the Company. The Pool B Awards vest over three years in equal installments each year on the anniversary of the vesting effective date, subject to the grantee’s continuous services through each vesting period.
On January 1, 2021,
As of June 30, 2021, the total unrecognized compensation cost related to Pool B Awards was $
NOTE 16 – INCOME TAXES
On March 27, 2020, the President signed the CARES Act into law.
The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions and is subject to examination by the taxing authorities.
The Company’s effective tax rate on continuing operations for the six months ended June 30, 2021 was (
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)
We follow guidance issued by the FASB in accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the condensed consolidated financial statements and applies to all income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the condensed consolidated financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement.
We have considered our exposure under the standard at both the federal and state tax levels. We did
After consideration of all of 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 17 – 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.
The Company was named a defendant in a case filed on January 14, 2019 in the Superior Court of the State of Delaware styled Smart Sand, Inc. v. U.S. Well Services LLC, C.A. 19C-01-144 PRW. Smart Sand, Inc. (“Smart Sand”) alleged that the Company breached a multi-year contract under which Smart Sand supplied frac sand to the Company. Smart Sand claimed damages of approximately $
Equipment Purchase Agreement
On June 29, 2021, the Company entered into an Equipment Purchase and Sale Agreement to purchase equipment for $
Sand Purchase Agreements
The Company entered into agreements for the supply of proppant for use in its hydraulic fracturing operations. Under the terms of these agreements, the Company is subject to minimum purchase quantities on a monthly, quarterly, or annual basis at fixed prices or may pay penalties in the event of any shortfall.
As of June 30, 2021, the Company’s contracted volumes in dollars was $
Lease Agreements
The Company has various operating leases for facilities with terms ranging from
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)
Rent expense was $
The following is a schedule of minimum future payments on non-cancellable operating leases and capital leases as of June 30, 2021:
|
Fiscal Year |
|
Operating Leases |
|
|
Capital Leases |
|
||
|
Remainder of 2021 |
|
$ |
|
|
|
$ |
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
2023 |
|
|
|
|
|
|
|
|
|
2024 |
|
|
|
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
|
|
|
Total minimum future rentals |
|
$ |
|
|
|
$ |
|
|
The total capital leases payments include a nominal amount of imputed interest.
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. The amount of estimated claims incurred, but not reported was $
NOTE 18 – RELATED PARTY TRANSACTIONS
On June 24, 2021, Crestview Partners (“Crestview”) purchased $
On April 1, 2020, Crestview purchased
NOTE 19 – SUBSEQUENT EVENTS
Convertible Senior Notes
On July 12, 2021 and July 13, 2021, the Company issued an additional $
On July 27, 2021, the Company issued an additional $
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 interest and settlement terms for the Convertible Senior Notes issued in July 2021 are the same as the Equity Linked Notes previously issued in June 2021. See “Note 11 – Convertible Senior Notes” for additional information.
Assets Held for Sale
Subsequent to June 30, 2021, the Company classified an additional $
During July 2021, we received $
27
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, 2020, included in our Amendment No. 1 to Annual Report on Form 10-K/A for the year ended December 31, 2020 (our "Amended Annual Report"), as filed with the Securities and Exchange Commission (the "SEC") on May 17, 2021. 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 "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 declining prices and market conditions, including reduced 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; our ability to convert to an all electric hydraulic fracturing service provider and to exit the diesel frac market; 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, such as the delta variant; acts of war or terrorist acts and the governmental or military response thereto; and cyber-attacks adversely affecting our operation. This 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 Report and in our Amended 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 Report to the “Company”, “USWS”, “we”, or “our” shall mean U.S. Well Services, Inc. and its subsidiaries.
Overview
We provide high-pressure, hydraulic fracturing services in oil and natural gas basins. Both our conventional and Clean Fleet® hydraulic fracturing fleets are among the most reliable and highest performing fleets in the industry, with the capability to meet the most demanding pressure and pump rate requirements. We operate in many of the active shale and unconventional oil and natural gas basins of the United States and our clients benefit from the performance and reliability of our equipment and personnel. Specifically, all of our fleets operate on a 24-hour basis and have the ability to withstand 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. In May 2021, we announced our commitment to becoming an all-electric hydraulic fracturing service provider and that we expect to fully exit the diesel frac market by the end of 2021. As a result of this strategic transition, we expect to become the first publicly-traded, pure-play electric completions services provider.
28
How the Company Generates Revenue
We generate revenue by providing hydraulic fracturing services to our customers. We own and operate a fleet of hydraulic fracturing units to perform these services. We 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, sand and chemical volumes and transportation.
Our Costs of Conducting Business
The principal costs involved in conducting our hydraulic fracturing services are labor, maintenance, materials, and transportation costs. A large portion of our costs are variable, based on the number and requirements of hydraulic fracturing jobs. We manage our fixed costs, other than depreciation and amortization, based on factors including industry conditions and the expected demand for our services.
Materials include the cost of sand delivered to the basin of operations, chemicals, and other consumables used in our operations. These costs vary based on the quantity and quality of sand and chemicals utilized when providing hydraulic fracturing services. Transportation represents the costs to transport materials and equipment from receipt points to customer locations. Labor costs include payroll and benefits related to our field crews and other employees. 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 hydraulic fracturing 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 June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Materials |
|
$ |
6,737 |
|
|
$ |
2,490 |
|
|
$ |
15,453 |
|
|
$ |
12,938 |
|
|
Transportation |
|
|
3,220 |
|
|
|
1,427 |
|
|
|
6,259 |
|
|
|
10,970 |
|
|
Labor |
|
|
24,003 |
|
|
|
10,172 |
|
|
|
47,689 |
|
|
|
43,281 |
|
|
Maintenance |
|
|
14,916 |
|
|
|
6,746 |
|
|
|
31,511 |
|
|
|
22,617 |
|
|
Other (1) |
|
|
10,376 |
|
|
|
8,176 |
|
|
|
20,971 |
|
|
|
24,359 |
|
|
Cost of services |
|
$ |
59,252 |
|
|
$ |
29,011 |
|
|
$ |
121,883 |
|
|
$ |
114,165 |
|
|
(1) |
Other consists of fuel, lubes, equipment rentals, travel and lodging costs for our crews, site safety costs and other costs incurred in performing our operating activities. |
Significant Trends
The global health and economic crisis sparked by the COVID-19 pandemic and the associated decrease in commodity prices has significantly impacted industry activity since late in the first quarter of 2020. Weaker economic activity and lower demand for crude oil, driven by the persistence of the COVID-19 pandemic, adversely impacted our business, resulting in a reduction in our active fleet count and fleet utilization levels throughout much of 2020. During the fourth quarter of 2020, crude oil prices averaged $42 per barrel and since then have been increasing, averaging approximately $66 per barrel during the second quarter of 2021. As commodity prices have continued to improve demand for hydraulic fracturing services and the number of working fracturing fleets have also increased significantly.
In May 2021, we announced our plan to exit the diesel frac market by the end of 2021 pursuant to our strategy of becoming an all-electric hydraulic fracturing services provider. As a result, we have been executing on our plan to sell our diesel fracturing equipment. We plan on using proceeds from these sales to reduce outstanding indebtedness and for general corporate purposes, including the buildout of our next-generation all-electric fracturing fleets. Additionally, we expect the corresponding reduction of average active fleets to have a short-term significant impact on our results of operations starting in the third quarter of 2021 as we end our remaining contracts which utilize diesel frac equipment. Specifically, we expect revenues, cost of services, and depreciation to start declining in the third quarter of 2021, until such time we are able to generate business activity from the new buildout of next-generation all-electric fracturing fleets.
29
Results of Operations
Three months ended June 30, 2021, compared to the three months ended June 30, 2020
(in thousands, except percentages)
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
2021 |
|
|
% (1) |
|
|
2020 |
|
|
% (1) |
|
|
Variance |
|
|
% Variance |
|
||||||
|
Revenue |
|
$ |
78,799 |
|
|
100.0% |
|
|
$ |
39,837 |
|
|
100.0% |
|
|
$ |
38,962 |
|
|
97.8% |
|
|||
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (excluding depreciation and amortization) |
|
|
59,252 |
|
|
75.2% |
|
|
|
29,011 |
|
|
72.8% |
|
|
|
30,241 |
|
|
104.2% |
|
|||
|
Depreciation and amortization |
|
|
9,836 |
|
|
12.5% |
|
|
|
17,358 |
|
|
43.6% |
|
|
|
(7,522 |
) |
|
(43.3)% |
|
|||
|
Selling, general and administrative expenses |
|
|
7,214 |
|
|
9.2% |
|
|
|
5,220 |
|
|
13.1% |
|
|
|
1,994 |
|
|
38.2% |
|
|||
|
Litigation settlement |
|
|
35,000 |
|
|
44.4% |
|
|
|
- |
|
|
0.0% |
|
|
|
35,000 |
|
|
100.0% |
|
|||
|
Loss (gain) on disposal of assets |
|
|
(545 |
) |
|
(0.7)% |
|
|
|
853 |
|
|
2.1% |
|
|
|
(1,398 |
) |
|
(163.9)% |
|
|||
|
Loss from operations |
|
|
(31,958 |
) |
|
(40.6)% |
|
|
|
(12,605 |
) |
|
(31.6)% |
|
|
|
(19,353 |
) |
|
*(2) |
|
|||
|
Interest expense, net |
|
|
(7,333 |
) |
|
(9.3)% |
|
|
|
(5,665 |
) |
|
(14.2)% |
|
|
|
(1,668 |
) |
|
29.4% |
|
|||
|
Change in fair value of warrant liabilities |
|
|
(136 |
) |
|
(0.2)% |
|
|
|
(1,364 |
) |
|
(3.4)% |
|
|
|
1,228 |
|
|
*(2) |
|
|||
|
Patent license sales |
|
|
22,500 |
|
|
28.6% |
|
|
|
- |
|
|
0.0% |
|
|
|
22,500 |
|
|
100.0% |
|
|||
|
Loss on extinguishment of debt |
|
|
(839 |
) |
|
(1.1)% |
|
|
|
- |
|
|
0.0% |
|
|
|
(839 |
) |
|
*(2) |
|
|||
|
Other income |
|
|
23 |
|
|
0.0% |
|
|
|
45 |
|
|
0.1% |
|
|
|
(22 |
) |
|
*(2) |
|
|||
|
Income tax expense (benefit) |
|
|
(27 |
) |
|
(0.0)% |
|
|
|
13 |
|
|
0.0% |
|
|
|
(40 |
) |
|
*(2) |
|
|||
|
Net loss |
|
$ |
(17,716 |
) |
|
(22.5)% |
|
|
$ |
(19,602 |
) |
|
(49.2)% |
|
|
$ |
1,886 |
|
|
(9.6)% |
|
|||
|
(1) |
As a percentage of revenues. Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding. |
|
(2) |
Not meaningful. |
Revenue. The increase in revenue was primarily attributable to an increase in business activity due to economic recovery from the COVID-19 pandemic and depressed oil prices in the prior period. Our average active fleet count during the period increased to 9 fleets compared to 4 fleets in the prior comparable period. However, we expect revenue to decline in future quarters as we end our remaining diesel fracturing equipment-related contracts in the third quarter of 2021.
Cost of services, excluding depreciation and amortization. The increase in cost of services, excluding depreciation and amortization, was attributable to the increase in business activity due to economic recovery from the COVID-19 pandemic and depressed oil prices in the prior period. Similar to revenue, we expect cost of services, excluding depreciation and amortization, to decline in future quarters as we end our remaining diesel fracturing equipment-related contracts in the third quarter of 2021.
Depreciation and amortization. The decrease in depreciation and amortization was primarily due to the lower cost basis of depreciating long-lived assets because of impairment losses recorded in the first quarter of 2020. We expect depreciation and amortization to decline in future quarters as we execute on our plan to sell our diesel fracturing equipment.
Litigation settlement. The Company was named as a defendant in a lawsuit filed in January 2019 by a vendor alleging that the Company breached a multi-year contract. In June 2021, following entry of the final judgement by the court in favor of the vendor, the Company entered into a settlement agreement whereby it paid $35.0 million in cash.
Selling, general and administrative expenses. The increase in selling, general, and administrative expenses was primarily attributable to reinstatement of salary levels during the second quarter of 2021 due to improved economic conditions as compared to the prior period. Additionally, there was an increase in share-based compensation expense during the second quarter of 2021 as compared to the prior period due to the equity awards issued in the fourth quarter of 2020.
Loss (gain) on disposal of assets. The amount of loss on disposal of assets fluctuates period over period due to differences in the operating conditions of our hydraulic fracturing equipment, such as wellbore pressure and rate of barrels pumped per minute, that impact the timing of disposals of our hydraulic fracturing pump components and the amount of gain or loss recognized. In May 2021, the Company announced its plan to exit the diesel frac market and began selling its diesel fracturing equipment. As a result, we recognized a gain on disposal of assets during the second quarter of 2021 as compared to a loss on disposal of assets in the prior period.
30
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.
Patent license sales. On June 24, 2021, the Company issued $22.5 million in principal amount of a Convertible Senior Note that was convertible into a patent license agreement (the “License Agreement”). On June 29, 2021, the holder exercised its right to convert the Convertible Senior Note in full and the Company entered into the License Agreement, which provides the licensee a five-year option to purchase up to 20 licenses to build and operate electric hydraulic fracturing fleets using the Company’s patented Clean Fleet® technology. Upon entry into the License Agreement, the Company sold three licenses to build and operate three electric frac fleets, each valued at $7.5 million.
Six months ended June 30, 2021, compared to the six months ended June 30, 2020
(in thousands, except percentages)
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
|
2021 |
|
|
% (1) |
|
|
2020 |
|
|
% (1) |
|
|
Variance |
|
|
% Variance |
|
||||||
|
Revenue |
|
$ |
155,057 |
|
|
100.0% |
|
|
$ |
151,872 |
|
|
381.2% |
|
|
$ |
3,185 |
|
|
2.1% |
|
|||
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services (excluding depreciation and amortization) |
|
|
121,883 |
|
|
78.6% |
|
|
|
114,165 |
|
|
286.6% |
|
|
|
7,718 |
|
|
6.8% |
|
|||
|
Depreciation and amortization |
|
|
20,942 |
|
|
13.5% |
|
|
|
49,366 |
|
|
123.9% |
|
|
|
(28,424 |
) |
|
(57.6)% |
|
|||
|
Selling, general and administrative expenses |
|
|
14,604 |
|
|
9.4% |
|
|
|
24,277 |
|
|
60.9% |
|
|
|
(9,673 |
) |
|
(39.8)% |
|
|||
|
Impairment of long-lived assets |
|
|
- |
|
|
0.0% |
|
|
|
147,543 |
|
|
370.4% |
|
|
|
(147,543 |
) |
|
100.0% |
|
|||
|
Litigation settlement |
|
|
35,000 |
|
|
22.6% |
|
|
|
- |
|
|
0.0% |
|
|
|
35,000 |
|
|
100.0% |
|
|||
|
Loss on disposal of assets |
|
|
1,891 |
|
|
1.2% |
|
|
|
5,097 |
|
|
12.8% |
|
|
|
(3,206 |
) |
|
(62.9)% |
|
|||
|
Loss from operations |
|
|
(39,263 |
) |
|
(25.3)% |
|
|
|
(188,576 |
) |
|
(473.4)% |
|
|
|
149,313 |
|
|
* (2) |
|
|||
|
Interest expense, net |
|
|
(13,516 |
) |
|
(8.7)% |
|
|
|
(13,621 |
) |
|
(34.2)% |
|
|
|
105 |
|
|
(0.8)% |
|
|||
|
Change in fair value of warrant liabilities |
|
|
(7,287 |
) |
|
(4.7)% |
|
|
|
5,189 |
|
|
13.0% |
|
|
|
(12,476 |
) |
|
*(2) |
|
|||
|
Patent license sales |
|
|
22,500 |
|
|
14.5% |
|
|
|
- |
|
|
0.0% |
|
|
|
22,500 |
|
|
100.0% |
|
|||
|
Loss on extinguishment of debt |
|
|
(839 |
) |
|
(0.5)% |
|
|
|
- |
|
|
0.0% |
|
|
|
(839 |
) |
|
*(2) |
|
|||
|
Other income |
|
|
52 |
|
|
0.0% |
|
|
|
51 |
|
|
0.1% |
|
|
|
1 |
|
|
* (2) |
|
|||
|
Income tax expense (benefit) |
|
|
(27 |
) |
|
(0.0)% |
|
|
|
(737 |
) |
|
(1.9)% |
|
|
|
710 |
|
|
* (2) |
|
|||
|
Net loss |
|
$ |
(38,326 |
) |
|
(24.7)% |
|
|
$ |
(196,220 |
) |
|
(492.6)% |
|
|
$ |
157,894 |
|
|
* (2) |
|
|||
|
(1) |
As a percentage of revenues. Percentage totals or differences in the above table may not equal the sum or difference of the components due to rounding. |
|
(2) |
Not meaningful. |
Revenue. The increase in revenue was primarily attributable to an increase in business activity due to economic recovery from the COVID-19 pandemic and depressed oil prices in the second quarter of 2020. Our average active fleet count during the period increased to 10 fleets compared to 8 fleets in the prior comparable period. However, we expect revenue to decline in future quarters as we end our remaining diesel fracturing equipment-related contracts in the third quarter of 2021.
Cost of services, excluding depreciation and amortization. The increase in cost of services, excluding depreciation and amortization, was attributable to the increase in business activity due to economic recovery from the COVID-19 pandemic and depressed oil prices in the prior comparable period. Similar to revenue, we expect cost of services, excluding depreciation and amortization, to decline in future quarters as we end our remaining diesel fracturing equipment-related contracts in the third quarter of 2021.
Depreciation and amortization. The decrease in depreciation and amortization was primarily due to the lower cost basis of depreciating long-lived assets because of impairment losses recorded in the first quarter of 2020. We expect depreciation and amortization to decline in future quarters as we execute on our plan to sell our diesel fracturing equipment.
Selling, general and administrative expenses. The decrease in selling, general, and administrative expenses was primarily attributable to our recording of a bad debt reserve of $9.0 million in the first quarter of 2020 due to the economic downturn at the end of that prior period.
31
Impairment of long-lived assets. As a result of impairment tests that we performed in the first quarter of 2020, we determined that the carrying value of long-lived assets exceeded their fair value. Therefore, we recorded an impairment charge of $147.5 million in the first quarter of 2020 to reduce the carrying value of property and equipment and finite-lived intangible assets to fair value. No such impairment charge was recorded during the six months end June 30, 2021.
Loss on disposal of assets. The amount of loss on disposal of assets fluctuates period over period due to differences in the operating conditions of our hydraulic fracturing equipment, such as wellbore pressure and rate of barrels pumped per minute, that impact the timing of disposals of our hydraulic fracturing pump components and the amount of gain or loss recognized. The decrease in the loss on disposal of assets was primarily attributable to the assets sold during the second quarter of 2021 and the significant decrease in loss on disposal of assets related to fluid ends, due to a change in accounting estimate related to their useful life during the second quarter of 2020. Beginning in the second quarter of 2020, fluid ends are expensed as they were used in operations, due to their shortened useful life estimate.
Litigation settlement. The Company was named as a defendant in a lawsuit filed in January 2019 by a vendor alleging that the Company breached a multi-year contract. In June 2021, following entry of the final judgement by the court in favor of the vendor, the Company entered into a settlement agreement to pay $35.0 million in cash, among other things. The cash portion of the settlement agreement was paid in June 2021.
Patent license sales. On June 24, 2021, the Company issued $22.5 million in principal amount of a Convertible Senior Note that was convertible into the License Agreement. On June 29, 2021, the holder exercised its right to convert the Convertible Senior Note in full and the Company entered into the License Agreement, which provides the licensee a five-year option to purchase up to 20 licenses to build and operate electric hydraulic fracturing fleets using the Company’s patented Clean Fleet® technology. Upon entry into the License Agreement, the Company sold three licenses to build and operate three electric frac fleets, each valued at $7.5 million.
Liquidity and Capital Resources
Our primary sources of liquidity and capital resources are cash on the balance sheet, cash flow generated from operating activities, proceeds from the issuance of equity, proceeds from the issuance of Convertible Senior Notes, and borrowings and borrowing capacity under our ABL Credit Facility.
We believe that our current cash position, working capital balance, favorable payment terms under our Senior Secured Term Loan, borrowing capacity under our ABL Credit Facility, and amounts raised from the issuance of Convertible Senior Notes and shares of Class A common stock under the ATM Agreement will be sufficient to satisfy the anticipated cash requirements associated with our existing operations for at least the next twelve months.
Senior Secured Term Loan and ABL Credit Facility
As of June 30, 2021, our Senior Secured Term Loan is not subject to financial covenants but is subject to certain non-financial covenants, including but not limited to, reporting, insurance, notice and collateral maintenance covenants as well as limitations on the incurrence of indebtedness, permitted investments, liens on assets, asset dispositions, paying dividends, transactions with affiliates, mergers, consolidations and special purpose entities used for stand-alone equipment financings. In addition, 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 June 30, 2021, the borrowing base was $46.3 million and the outstanding revolver loan balance was $33.7 million. As of June 30, 2021, we were in compliance with all of the covenants under our Senior Secured Term Loan and our ABL Credit Facility.
USDA Loan
In November 2020, we entered into a Business Loan Agreement (the “USDA Loan”) with a commercial bank pursuant to the United States Department of Agriculture, Business & Industry Coronavirus Aid, Relief, and Economic Security Act Guaranteed Loan Program, in the aggregate principal amount of up to $25.0 million for the purpose of providing long-term financing for eligible working capital. Interest payments are due monthly at the interest rate of 5.75% per annum beginning on December 12, 2020 but principal payments are not required until December 12, 2023. During the fourth quarter of 2020, we received proceeds amounting to $22.0 million under the USDA Loan. In January 2021, we received the remaining proceeds amounting to $3.0 million.
The USDA Loan is subject to certain financial covenants. The Company is required to maintain a Debt Service Coverage Ratio (as defined in the USDA Loan) of not less than 1.25:1, to be monitored annually, beginning in calendar year 2021. Additionally, the Company is required to maintain a ratio of debt to net worth of not more than 9:1, to be monitored annually based upon year-end financial statements beginning in calendar year 2022.
32
Convertible Senior Notes
In June 2021, we issued an aggregate of $125.5 million in principal amount of 16.0% Convertible Senior Secured (Third Lien) PIK Notes due June 2026 (the “Convertible Senior Notes”) in exchange for cash and shares of Series A preferred stock. In June 2021, we received cash proceeds of $86.5 million. We used a portion of the proceeds to pay a litigation settlement of $35.0 million and expect that the remaining proceeds will be used for general corporate purposes, including capital growth. As of June 30, 2021, we had $103.0 million of principal outstanding of the Convertible Senior Notes, which are convertible into the shares of the Company’s Class A common stock. In July 2021, we issued an additional $11.0 million in aggregate principal amount of Convertible Senior Notes under the Note Purchase Agreement to certain investors for cash.
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 Class A common stock. In accordance with the terms of the ATM Agreement, the Company may offer and sell shares of its Class A common stock over a period of time. The ATM Agreement relates to an “at-the-market” offering program. Under the ATM Agreement, the Company will pay Piper Sandler an aggregate commission of up to 3% of the gross sales price per share of Class A common stock sold under the ATM Agreement. On March 19, 2021, the Company increased the number of shares of Class A common stock that it may offer in accordance with the terms of the ATM Agreement by an additional $39.7 million in excess of the original amount of $10.3 million. During the six months ended June 30, 2021, the Company sold 15,006,317 shares of Class A common stock for total net proceeds of $13.6 million and paid $0.4 million in commissions under the ATM Agreement. Since inception on June 26, 2020 through June 30, 2021, the Company has sold a total of 15,798,575 shares of Class A common stock under the ATM Agreement for total net proceeds of $14.0 million and paid $0.4 million in commissions.
Cash Flows
(in thousands)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
$ |
(28,371 |
) |
|
$ |
21,513 |
|
|
Investing activities |
|
(16,288 |
) |
|
|
(25,720 |
) |
|
Financing activities |
|
97,460 |
|
|
|
(33,255 |
) |
Operating Activities. Net cash provided by (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, losses on disposal of assets, changes in fair value of warrant liabilities and share-based compensation and the impact of changes in operating assets and liabilities. Net cash used in operating activities was $28.4 million for the six months ended June 30, 2021 primarily due to a litigation settlement of $35.0 million and $3.0 million of working capital payments from proceeds under our USDA Loan.
Net cash provided by operating activities was $21.5 million for the six months ended June 30, 2020, primarily attributable to accelerated collections of accounts receivables, which was offset in part by interest payments of $24.3 million related to our Senior Secured Term Loan.
Investing Activities. Net cash used in investing activities decreased by $9.4 million from the prior corresponding period, primarily due to reduced growth and maintenance capital expenditures due to the decline in business activity that occurred at the end of the first quarter of 2020 and continued into the second quarter of 2020. Net cash used in investing activities was $16.3 million for the six months ended June 30, 2021, primarily due to $24.8 million in purchases of property and equipment, which related to maintaining and supporting our existing hydraulic fracturing equipment and payments made to replace damaged property and equipment. This was offset in part by $6.4 million of insurance proceeds related to the damaged property and equipment and $2.1 million of proceeds from the sale of property and equipment.
Net cash used in investing activities was $25.7 million for the six months ended June 30, 2020, primarily due to $40.8 million in purchases of property and equipment, consisting of $16.0 million related to maintaining and supporting our existing hydraulic fracturing equipment and $24.8 million related to growth. This was offset in part by proceeds of $15.0 million from the sale of certain property and equipment.
33
Financing Activities. During the six months ended June 30, 2021, cash provided by financing activities reflected proceeds of $24.7 million under our ABL Credit Facility, $3.0 million of proceeds from issuance of long-term debt, $86.5 million of proceeds from the issuance of Convertible Senior Notes, $9.1 million of proceeds of notes payable and proceeds of $13.6 million from the issuance of common stock, offset in part by payments related to our ABL Credit Facility of $14.8 million, long-term debt of $12.6 million, notes payable of $3.7 million, equipment financing arrangements of $1.7 million and debt issuance costs of $6.6 million.
During the six months ended June 30, 2020, cash used in financing activities reflected repayments related to our ABL Credit Facility of $33.4 million, repayment of long-term debt of $2.5 million, repayment of notes payable of $4.1 million, repayments of equipment financing agreements of $1.5 million, repayments of finance leases of $2.8 million and debt issuance costs of $20.1 million. This was offset by $19.9 million in net proceeds from the issuance of Series B preferred stock and $11.2 million of proceeds 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 generate incremental distributable cash flow. Fleet enhancement capital expenditures include expenditures on new equipment related to existing fleets that increase the productivity of the fleet. Capital expenditures for growth and fleet enhancement initiatives are discretionary.
We classify maintenance capital expenditures as expenditures required to maintain or supplement existing hydraulic fracturing fleets. We budget maintenance capital expenditures based on historical run rates and current maintenance schedules. Growth capital expenditures relate to adding additional hydraulic fracturing fleets and are based on quotes obtained from equipment manufacturers and our estimate for the timing of placing orders, disbursing funds and receiving the equipment. Fleet enhancement capital expenditures relate to technology enhancements to existing fleets that increase their productivity and are based on quotes obtained from equipment manufacturers and our estimate for the timing of placing orders, disbursing funds and receiving the equipment.
We continuously evaluate our capital expenditures and the amount we ultimately spend will depend on several factors, including expected industry activity levels and company initiatives. We intend to fund most of our capital expenditures, contractual obligations and working capital needs with cash on hand, cash generated from operations, borrowing capacity under our ABL Credit Facility and other financing sources.
Off-Balance Sheet Arrangements
We are a party to transactions, agreements or other contractual arrangements defined as “off-balance sheet arrangements” that could have a material future effect on our financial position, results of operations, liquidity, and capital resources. The most significant of these off-balance sheet arrangements include equipment and sand purchase commitments disclosed in “Note 17 – Commitments and Contingencies” in the Notes to Condensed Consolidated Financial Statements.
We do not have a retained or contingent interest in assets transferred to an unconsolidated entity, we do not have any obligation under a contract that would be accounted for as a derivative instrument, and we do not have any interest in entities referred to as variable interest entities.
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.
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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 June 30, 2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the quarter ended June 30, 2021, due solely to the material weakness in our internal control over financial reporting with respect to the classification of the Company’s warrants as components of equity instead of as liabilities as more fully described in our Amended Annual Report. Notwithstanding the material weakness, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows as of the dates and for the periods presented in accordance with GAAP.
Remediation Plan for Material Weakness in Internal Control over Financial Reporting and Status
Management implemented remediation steps to address the material weakness, described above and to improve our internal control over financial reporting. Specifically, we expanded and improved our review process for complex securities and related accounting standards. We further plan to improve this process by enhancing access to accounting literature, research materials and documents and increasing communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications.
Changes in Internal Control over Financial Reporting
Other than the changes described above, there were no changes made in our internal control over financial reporting during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II
Item 1. Legal Proceedings.
See “Note 17 – 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 Amended Annual Report. See also Part I, Item 2 “Disclosure Regarding Forward-Looking Statements” of this Quarterly Report on Form 10-Q.
Our planned exit from the diesel frac market may negatively impact our liquidity and our ability to generate revenues and service our outstanding indebtedness for a period of time.
In May 2021, we announced our commitment to becoming an all-electric hydraulic fracturing service provider and that we expect to fully exit the diesel frac market by the end of 2021. We have sold a portion of our diesel frac equipment and expect to continue to sell off the remainder of our diesel frac equipment, which has and will result in a reduction in the number of fleets we have available to provide hydraulic fracturing services until we are able to build out our all-electric hydraulic fracturing equipment. Until we are able to complete the build out of the electric equipment, we expect to generate less revenue, which may adversely impact our ability to service our outstanding indebtedness. Additionally, the decrease in revenue will result in a reduction in the borrowing base available under our ABL Credit Facility, which may adversely impact our liquidity.
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.
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Item 6. Exhibits
The exhibits required to be filed or furnished by Item 601 of Regulation S-K are listed below.
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350. |
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. |
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101.INS* |
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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. |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document |
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101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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104* |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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Filed herewith. |
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** |
Furnished herewith. |
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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 August 12, 2021.
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U.S. WELL SERVICES, INC. |
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By: |
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/s/ Joel Broussard |
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Name: |
Joel Broussard |
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Title: |
President, Chief Executive Officer, and Director |
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/s/ Kyle O’Neill |
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Name: |
Kyle O’Neill |
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Title: |
Chief Financial Officer
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