U.S. Well Services, Inc. (NASDAQ:USWS) is a Houston-based oilfield services company that provides pressure pumping services to oil and natural gas exploration and production companies in the United States. The company has been undergoing a significant transformation, transitioning its fleet from traditional diesel-powered equipment to all-electric "Clean Fleet®" technology. This strategic shift aims to position U.S. Well Services as a leader in the industry's push towards more environmentally-friendly and efficient operations.

Business Overview

U.S. Well Services operates in many of the active shale and unconventional oil and natural gas basins across the United States. The company's fleets consist primarily of all-electric, mobile pressure pumping equipment and other auxiliary heavy equipment to perform stimulation services. The company's Clean Fleet® electric fleets are designed to replace the traditional engines, transmissions, and radiators used in conventional diesel fleets with electric motors powered by electricity. This technology allows U.S. Well Services to provide a more reliable and higher-performing service to its customers, while also reducing the environmental impact of its operations.

In May 2021, U.S. Well Services announced its commitment to becoming an all-electric pressure pumping services provider. Since then, the company has sold most of its legacy, diesel-powered pressure pumping equipment as it transitions its fleet to the new Nyx Clean Fleet® technology. U.S. Well Services has retained some of its conventional fleet equipment to support the transition and bridge the gap between customer needs and the deployment of the new all-electric fleets.

Financials

U.S. Well Services has faced significant challenges in recent years, as evidenced by its financial results. For the full year 2022, the company reported annual revenue of $250,463,000, a decrease from the prior year. Net income for the year was a loss of $70,649,000, and operating cash flow was negative $19,277,000. Free cash flow for the year was also negative, at $77,001,000.

The company's quarterly performance has been mixed, with revenue and profitability fluctuating quarter-to-quarter. In the most recent quarter, U.S. Well Services reported revenue of $68,764,000, a 12.7% decrease compared to the same period in the prior year. The company's net loss for the quarter was $9,335,000, an improvement from the $17,716,000 loss in the prior-year quarter.

Liquidity and Capital Structure

U.S. Well Services has taken steps to strengthen its liquidity and capital structure, including the issuance of convertible senior notes and the securing of additional financing. As of the latest reporting period, the company had total liquidity of $35.9 million, consisting of $18.0 million in cash and restricted cash, and $17.9 million in availability under its ABL Credit Facility.

The company's debt structure includes a Senior Secured Term Loan, a Term C Loan, and an ABL Credit Facility. As of June 30, 2022, the outstanding principal balance of the Senior Secured Term Loan was $102.8 million, with $8.8 million due within one year. The Term C Loan had an outstanding principal balance of $22.5 million as of the same date.

U.S. Well Services has also entered into various equipment financing agreements to fund its capital expenditures related to the buildout of its new Nyx Clean Fleets®. As of June 30, 2022, the company had $32.7 million in future minimum purchase commitments for equipment, with $16.3 million due in the remainder of 2022 and $16.4 million due in 2023.

Transition to All-Electric Fleet

The transition to an all-electric fleet is a critical strategic initiative for U.S. Well Services, as it aims to position the company as a leader in the industry's shift towards more environmentally-friendly and efficient operations. The company's new Nyx Clean Fleet® technology is designed to provide a more reliable and higher-performing service to its customers, while also reducing the environmental impact of its operations.

U.S. Well Services has made significant progress in this transition, having sold most of its legacy, diesel-powered pressure pumping equipment. The company expects to continue phasing out its remaining conventional fleet operations as it takes delivery of the new Nyx Clean Fleets®. The first newbuild Nyx Clean Fleet® commenced pressure pumping operations in July 2022, and the company currently expects that growth capital expenditures related to the buildout of its new all-electric fleets will be approximately $65 million to $85 million for the remainder of 2022.

Risks and Challenges

While U.S. Well Services' transition to an all-electric fleet presents significant opportunities, the company also faces a number of risks and challenges. The capital-intensive nature of the transition, combined with the company's recent financial performance, has put a strain on its liquidity and balance sheet. The company's ability to secure the necessary financing to fund its growth initiatives will be crucial to its success.

Additionally, the company operates in a highly competitive industry, and it faces the risk of losing market share to competitors who may be able to offer more cost-effective or technologically advanced services. The availability and cost of skilled labor, as well as the volatility in commodity prices and industry activity levels, also pose significant risks to U.S. Well Services' operations and financial performance.

Recent Developments

Proposed Merger with ProFrac

In June 2022, U.S. Well Services announced that it had entered into an agreement to be acquired by ProFrac Holding Corp. (NASDAQ:PFHC) in a stock-for-stock transaction. Under the terms of the agreement, each share of U.S. Well Services Class A common stock will be converted into the right to receive 0.3366 shares of ProFrac Class A common stock.

The proposed merger is subject to customary closing conditions, including the approval of U.S. Well Services shareholders. If completed, the transaction is expected to create a combined entity with a stronger financial profile and a more diverse service offering, potentially enhancing U.S. Well Services' ability to navigate the challenges it currently faces.

Outlook

U.S. Well Services' transition to an all-electric fleet presents both opportunities and challenges. The company's commitment to reducing the environmental impact of its operations is commendable, and the Nyx Clean Fleet® technology has the potential to provide a competitive advantage. However, the capital-intensive nature of this transition, combined with the company's recent financial performance, has put significant strain on its liquidity and balance sheet.

The proposed merger with ProFrac, if completed, could provide U.S. Well Services with the financial resources and scale necessary to successfully execute its strategic initiatives. However, the company will need to continue to navigate the risks and challenges inherent in its industry, including competition, labor availability, and commodity price volatility.

Conclusion

Overall, U.S. Well Services' transformation represents a significant shift in the oilfield services industry, and the company's ability to successfully navigate this transition will be crucial to its long-term success. Investors will need to closely monitor the company's progress, its financial performance, and the outcome of the proposed merger to assess the viability of U.S. Well Services' long-term strategy.