Q3 2019 Earnings Call
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Greetings and welcome to the F. T S International's third quarter 2019 earnings call. During the presentation, all participants will be in listen only mode. Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the foreign or telephone if at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded Tuesday November 15 2019.
I would now let's turn the conference over to Michael Mussina. Please go ahead.
Thank you and good morning, everyone. We appreciate you joining us for the F. T S International Conference call and webcast third you third quarter 2019 results.
Presenting on today's prepared remarks, as Mike Doss CEO , who also be joined by Lance Turner CFO and body Peterson see how are the Q and a portion of the call.
Before we begin I would like to remind everyone that comments made on today's call thing clued management's plans intentions beliefs expectations anticipations or predictions for the future are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from those expressed in any forward looking statement.
These risks and uncertainties are discussed in the Companys annual report on Form 10-K and in other reports the company files with the FCC, except as required by law. The company does not undertake any obligation to publicly update or revise any forward looking statements.
The company that SEC filings may be obtained by contacting the company and are available on the company's website ft. Aside dot com and on the Fccs website at <unk> Dot Gov.
This conference call also includes discussions on non-GAAP financial measures. Our earnings release includes further information about these non-GAAP financial measures as well as reconciliations of these non-GAAP measures to their most directly comparable GAAP measure.
I'll now turn the call over to Mike Doss After you size CEO Mike.
Thank you good morning, everyone.
Overall, the third quarter was a challenging quarter, our fleet count and stay just came in as we expected earlier in the quarter Heller pricing concessions to retain work were higher than Weve had expected.
Despite that we were free cash flow positive and reduced our net debt by 58 million during the quarter.
The Frac market remains oversupplied and ultra price competitive as a result of lower activity driven by a combination of increased completion efficiencies and S&P capital discipline.
Revenue was 186 million in the third quarter down 18% sequentially, while our stage count was down only 2.5%. The decrease in revenue was due to more customers supply in their own sand and lower service pricing. Our average active fleet count was 19.8 compared to 21 and the second quarter we.
Ended the quarter with 18 fleets of those 11 were active in West Texas.
Three in South, Texas to and Midcon, one in the northeast and one that is putting this time in east, Texas in South Texas.
We continue to see a significant amount of white space on the calendar, which resulted in our active fleets being only 83% utilized.
Therefore on a fully utilized basis, our fleet count would have been three fleets fewer.
Operationally, we improved our already high efficiency in terms of stages in pumping hours per fleet.
Our top five fleets routinely average 17 18 pumping hours a day.
I'm incredibly proud of our crews who do day in day out are dedicated to providing our customers with outstanding service quality.
Not only that but I'm pleased to report that we had no recordable incidents that is a T.R.I.R.M. zero point zero zero and as their quarter.
Adjusted EBITDA was 20.6 million in the third quarter down from 41.9 million in the second quarter.
On a per active sleep basis, our annualized adjusted EBITDA was 4.1 million, what the decrease compared to the second quarter, primarily due to lower pricing.
In addition, our third quarter results were impacted by about 5 million of cost headwinds related to a onetime transition to improved fluid in components and excess carry and crew costs.
These costs will not recur in the fourth quarter.
Yes, Gionee, which includes all stock based compensation was 21.1 million in the third quarter approximately flat from the second quarter and inline with our guidance.
Our net loss was 10.8 million in the third quarter or a negative 10 cents per share included in these results as they 7 million dollar gain.
On the sale of our entire interest in the Fts Sino Fts joint venture in 5.1 million of impairment and other charges.
Looking forward, we expect to average between 15 and 16 fleets in the fourth quarter, it's worth noting that fleet count is less meaningful at current levels for profitability.
Any incremental fleets that we could push into the market would likely come at a lower profit than our current fleet average and therefore would contribute little to the bottom line or cash generation.
Given the uncertainties with the current slowdown we do not currently had a guide for fourth quarter adjusted EBITDA per fleet, but expect it to be positive. We also will be free cash flow positive.
In the third quarter <unk> free cash flow is 29.6 million.
In addition, we received 32.7 million of proceeds from the sale of our interest in Santo Fts that allowed us to reduce our net debt by 58 million during the quarter.
Capex was 13 million into third quarter compared to 14.8 million in the second quarter. We now expect our full year Capex for 2019 to be between 50 and 55 million.
We continue to be by far the most capital efficient pressure pumper in this space, thanks to our in house manufacturing capabilities.
As of September Thirtyth, we had 204 million of cash and our net debt was 256 million a 58 million dollar reduction during the quarter and 74 million dollar reduction.
Year to date.
And maybe hard to believe but our net debt was over 1 billion current management team took over four years ago.
Given the current environment cash is king as a result, we plan to keep approximately 200 million of cash on the balance sheet for the time being.
Along with having an undrawn revolver.
Our outstanding debt consists of two pieces and 90 million dollar term loan due 2021 and 370 million.
Senior notes due 2022.
I'll handle the 2021 term loan maturity with existing liquidity and expected cash generation. It will seek to refinance our 2022 notes as the market allows.
Turning now to our priorities as an organization, we are taking aggressive actions to reduce costs.
We have reviewed all areas and we are targeting 10 million per quarter of cost savings to rightsize the business for current conditions.
The cost reductions will occur in labor.
All right in other direct costs and operations and corporate Gionee, including base salary cuts for the executive team at my discretion.
We will have a partial quarter impact other reductions in the fourth quarter, and then a full quarter impact in the first quarter.
Importantly, these measures will not compromise our ability to spring back quickly when the market improves as we successfully demonstrated in 2017 and 18.
As for Labor and arent M. What are the enablers for cost savings is our use of technology, specifically, our automation project, which has been three years into making.
We're now at the point, where our proprietary software not only makes a real time recommendations based on equipment health data.
It takes action automatically and less overwritten.
To save components reduce damage accumulation and provide greater stability when completing a stage.
Computer assisted operations is the way the feature for Fts and ultimately the entire industry.
We are years ahead of our competitors on this.
In our release you saw that we have decided to reduce our total capacity by six fleets the equivalent of 300000 hydraulic horsepower.
That will take our total capacity the 28 fleets the equivalent of 1.4 million hydraulic horsepower as a reminder, and 2017 and 18, we operated with an average of only 24 active fleets and generated nearly 800 million of adjusted EBITDA over those two years.
As our fleet is uniform the fleets being retired our entirely capable of handling today's job designs. However, they have been stack since 2015 requires significant rebuilds and are unlikely to return to service.
They will be strip for parts slightly reducing our capex spend and the frames will be cut up.
Strategically and thinking about the next few years, we expect to upgrade a number of our fleets to dual fuel capability, including potentially tier four dual fuel and evaluate investing and next generation electric pumped designs.
Even though we think theres a place for electric fleets in the future. The economics do not work in today's environment. However, dual fuel makes a ton of sense.
By year end, we will have five tier two dual fuel fleets and expect to convert at least two more in early 2020 <unk>.
The conversion cost is 1.5 million per fleet down from 2 million previously.
And they have an average diesel displacement rate of approximately 50%.
In addition, we recently purchased two cats, new tier four final dynamic gas blending or de GB engines.
We are currently testing them in the field to measure their performance under a range of operating conditions. The diesel displacement rate of these engines is expected to average approximately 75%.
We're also measuring the emissions profile of these engines along with our other fleet configurations to help us work with our customers and achieving their SG objectives.
We're excited about the potential of the new CAD BGB engines, because they may deliver 75% of the diesel fuel savings that customers are looking for.
And only one fifth of the cost of electric sleep.
That's all for my prepared prepared remarks, we'll now turn it over to questions.
Operator.
Thank you if he would like to register a question. Please press the one followed by the four on your telephone.
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When most of these five first question.
[noise]. Our first question comes from line of George O'leary with Tudor Pickering, Holt and company. Please proceed with your question.
Morning, Michael running less.
Good morning.
The first question I had is really on the cost side is what I just want to make sure I heard that right did you say that target is.
$10 million a corridor and then you laid out a couple of.
Well, I guess, where those costs will come out of the system, I guess, which which of those buckets are the most meaningful to achieve that targeted 10 million dollar.
Ballpark what moves the needle the most.
So yeah. So what moves the mid single doses are an M expense and particularly fluid ends we did introduce a new components that are longer lasting and so we've got expectations around that and then other expectations about how we manage total horsepower in the field I think we can get more efficient on on our NIM.
Okay, great that's.
It's helpful and then on the fluid in side is it.
Like a unique design of the fluid in total is it something about the metallurgy, what what helps along at the life of that fluid and.
It's a combination of both.
Using applying the sleeve technology as well as the metallurgy changes.
Okay.
That's helpful and then on the the upgrade side that the decision to upgrade to DDB tier two.
A lot assumes that cost per fleet is not a super elevated.
Number and it does get your 50% displacing the diesel but on the DDB cheer for side.
My understanding is the cost to do that is something like $10 million, a fleet or about half a million dollar and engine can you have to put a whole new engine on the system am I in the right ballpark, there and how do you guys think about what's going to be the key driver of making the decision whether to press forward DDB tier four or not.
So you're exactly right ballpark at the cost to convert a fleet is about 10 million.
And so, but we think that that that fleet will have a higher market value just given the fuel savings and the fact that their new engines.
And so yeah, we would look for situations, where we can get a pay back in one year.
Ideally with a new customer.
Alright, great I'll turn it over thanks guys.
[noise]. Thank you. Our next question comes the line of subsurface data with Howard Weil. Please proceed with your question.
Hey, good morning, and thank you for taking my questions.
I guess this oh, if it can help me you had talked presses odd why take out those six fleets and steel steel keeps 28 fleets that would be helpful.
Well certainly so we did a careful review of all of a horsepower and just the evaluated the the fleets that had been stacked since 2015. They are repairable fleets, but they do would require significant rebuilds. We just decided there will be better for us to use the parts to reduce our costs.
Current spend.
And the and then redirect our efforts like I said to dual fuel and then down the road electric pumps, which is really where we see things potentially going.
Okay.
If you get an opportunity to let's say put dose and in many fleets back.
How much capex I'd be talking about so that's a big it somehow they could get to 20. It feeds back is it is in a way we can think about how much capex would be required to being to bring them back.
Well, Unfortunately, they're leaving the system entirely and so like I said, there will be strip.
Oh, I'm, sorry, I meant like that the fleet that that's still remaining.
Oh, the 28, Oh, yes, yes.
So it's really kind of a sliding scale and so last did you may want to give some ranges for them to get us back up to 28, Yeah I mean.
I think the first 20 should be pretty minimal and so then I'd say it starts from call. It zero to two to 3 million as you get closer to 28 rough estimate.
Got it perfectly right hopefully yes.
Okay.
As we think about Capex what 2020.
Like I should think about and that due to 3 million fleet of maintenance Capex plus.
Updates that you've talked about so submitted on 50 to 60 million of Capex is that in ballpark for next year.
Yeah.
We're still looking at about two and a half million per fleet per year and maintenance Capex and then there will be at a couple of million of of the conversions.
So I think that's I think thats right. So far this year, we have built the conversions into the maintenance Capex numbers. So we've been able to actually fund those conversions with with the two and a half million.
I think we're certainly going to strive to do the same thing next year as well just depends on how many conversions. We do I think right now really slated for two in the first quarter.
Got it.
Last one if I may so, leaving from 8 million up fleet to 4 million up.
I think it takes some step down in Q4, Q and then any any help or any based on any conversation with customers snake, how you'd think about what when she was good shape like.
Yes, So we don't have a guide on the adjusted EBITDA for fleet that we anticipate and there's just so much uncertainty, particularly with utilization as we go through the rest of the year as far as first quarter, we're having conversations with customers. Many of them, we'll be going back to work so fleets that they have.
Idled or slow down in the in the fourth quarter will be going back as capital budgets reset.
But just don't have a current good number on that were in the middle of RFP season, as as we speak so we're going to try to be competitive and we anticipate our fleet count will be going up compared to fourth quarter.
Makes sense that's awesome. Thank you for taking my questions.
Good luck.
Our next question comes from line of Stephen Gengaro with Stifel. Please proceed with your question.
Thank you and good morning, gentlemen.
Oh, I guess two things should maybe if you know my first.
When you talk about the the conversions Oh.
I guess the conversion should a dual fuel tier two suites.
Can you give me a sense or the customers willing to.
Sure the cost savings with new how does it impact price or is it more of an impact on the utilization of those assets that gets you saw the to the payback carriage.
You know it used to be the case, where if we did it a dual fuel conversion. We can have an add on to the stage price and recover the cost.
But in this today's market I consider it really the cost of doing business. So many customers are seeking the fuel savings.
And.
Actually provide all the fuel to all our jobs currently and so any savings would would accrue to them directly.
But that I wanted to have money that we have to spend two to convert is really just the cost of.
Keep in the customer happy basically.
Okay well that's that's helpful. Thank you and then.
As a follow up to Vebs question.
If you were to have to make an estimate I don't know if you're willing to or not but if you will look at the first quarter.
And if you assume that your efficiency with similar.
The re queue.
Wouldn't that lead to what type of step down EBITDA per fleet based upon completion.
You know I'd say it it's still being the range maybe a.
Maybe a million lower if sufficiency were equal if I were to guess.
Hey, guys located kinda calculated to guess.
Okay. Thank you and there hasn't been a lot more pricing movement, there hadn't been a lot of pricing movement in the last call. It 30 to 60 days I think the expectation is that.
Yeah. The this RFP season will dictate the pricing for Q1, and that's that's where the Murkiness is that right now.
I appreciate that color. Thank you and then just one final one when you when you talked about free cash flow positive for Q.
Exactly.
Yeah, the working capital that answer to that or is it.
Or is it more sort of stagnant working capital and just based on operations.
No there's going to be can continued working capital heading into the year end. There usually is just lower efficiencies in November and December do the holidays, you'll get those the October amounts collected so I would expect.
Somewhere in the range of 20 million of working capital.
Hi level great.
Alright, I appreciate the answers thank you.
Thank you. Our next question comes from line, Andrew Ginzburg with R.W. Pressprich. Please proceed with your question.
Good morning, guys. Thanks for taking my call.
So I kind of wanted just touch on that last question show.
It looks like for the quarter it'd be 16 to 17 million EBITDA number to kind of breakeven on a on a cash flow basis right show.
We have that 20 million of working capital and then we said we expect additional cost savings of 39 for the quarter from kind of the cost review.
Well that the cost savings would be closer to an annual number I think the target was 10 million per quarter with with only a partial realization in the fourth quarter of this year.
Okay, and so there won't be an opportunity to take out 30 million.
In Q4.
Okay, and then you said there really hasn't been too many pricing concession show you would kind of expect to EBITDA to stay relatively flat, if maybe a little bit off if anything for the fourth quarter due to the to the cost stage.
Yeah, I think a lot of it depends on on efficiency I'd say that there's I think the question earlier was if efficiency stayed the same as Q3, what would profitability look like it would look a little lower but not not significant price action in the last call. It 30 to 60 days.
And so I think a lot of it will depend on efficiency heading into November and December our are typically always lower efficiency.
Because of holidays in some customers work through and shut down for eight hours for Christmas and some customers will shut down the whole week for Christmas and Thanksgiving and just depends on where where their plans are and what their what their outlook is for the rest of the or.
That makes sense and then last question in terms of where we're having to the fleets located show it looked like during the third quarter, you're able to take some fleet out of the Permian and bring them into the Scoop stack area basin.
As you kind of she activity picking up for their first quarter do you kind of see that trends show happening or do you see maybe more a little bit more activity picking back up in the Permian just just some thoughts on that.
I think that.
Question surrounding whether Permian activity will increase in Q1 versus how activity will increase Q1 in scoop stack I think both of those are a little bit subject to you know we don't have a lot of clarity there my expectation would be.
Both both will reset there will be customers that reset their budget in both basins. So I don't see any big changes.
Okay all right. Thank you.
As a reminder to register for question press, the one for [noise].
Our next question comes the line of Stan.
My New Ken with independent creditors Research. Please proceed with your question.
Good morning, Thanks for taking my question I have a couple of them.
First I was wondering if you can elaborate on the incremental cost of.
Keeping the street tied for you.
What is what is exactly that you're saving by the time.
In terms of cash I was wondering if again.
Yes.
Yes, so as far as the fleet retirement, there are some usable components on those fleets that have been stacked for for sometime now and so we'll use those fleets in the parts of those fleets I should say to just offset our expenditures that we would otherwise insurer in the the net impact is what would you say.
That's a few million.
Three or 5 million, probably something in that area approximately.
But otherwise.
Basically doesn't cost too much to keep this plays right. Because you are saying that this fleet wasn't just some condition.
And it was talking to so for Cubo. So if you had anticipated some recovery in the industry.
In April two years this.
But instead, so what I mean or another.
Yeah, and my comment it was really that they are rep repairable. It's just we're we're directing our resources once we get up to a level, let's say 28 fleets, which is where we were basically middle of last year.
That's a good market condition is how we view it and at that point, we will be making investments and other types of pumped designs, we anticipate in the future.
Just redirection of of kind of the strategy and that type of market environment.
Understood and then.
[noise] is youre sort of revenue base.
Broken sort of at the same.
If we must couple of quarters ago, I mean as far as I. Remember you you were generated about 30 or 40% of yourselves from there from the spot.
Trucks right from spot market.
Is that accurate or.
Okay.
Okay. When you run the Atlanta that yeah that.
We're still in that range certainly in this environment.
As customers have reduced their completions.
We've not only reduced our capacity or active capacity, but also a went into the spot market to filling the gaps and so we've we've still maintained a fairly sizable spot market presence.
And what's the average duration, if you're spot contract.
Well I think by virtue of the way, we kind of think about a spot would be mostly on a well to well basis and so it.
It may be jumped into four week agreements or you may have a commitment for that for one particular well for that particular customer.
So it's pretty short term.
And in life.
Everything that is going on where the industry.
Do you have a view of whether your marketing strategy is going to change over time.
Maybe.
2020 of the reason why I'm asking all this is that we have for.
Quite contradictory statements about the market condition about the contract market condition.
The first and second quarter over the next year because people do have some visibility when they talk to their customers a lot of your revenues are coming from the spot market, where you've done to actually have distribution related.
And so I was wondering how do you sort of make projections. So if your budget.
And on the future or sort of utilization if your process.
Having this visibility.
Well it will it certainly can be a challenge you know a lot of our contracts that we have that are dedicated typically are on annual basis, not not all of them that many of them are.
And so we're in the RFP season for that and we anticipate winning some of those with customers that we've been working with Sublets sometime.
Very competitive in terms of the pricing that's does that in the market and there are lot of fleets that are that are chasing work currently even though I think the industry is overall being a bit more disciplined.
[noise] Lance any other additions.
To the a question no I mean, I think yeah, it's important to note.
We we strive for a higher dedicated mix, but as our customers have pulled back we've seen that drop.
Really in the kind of the back half of last year 2018.
And and with the expectation of of increasing that mix over time.
But in a declining market that we've seen throughout 2019.
It's been very difficult to increase that dedicated mix over that time period in those market conditions.
So.
I think when the market stabilizes, our expectation would be to increase that mix.
Like you suggest but historically I don't know that we've had as much stability from our dedicated customers.
In a declining market either yeah.
And I just wanted to clarify one one point as far as the spot versus dedicated distinction, it's not terribly meaningful we certainly prefer dedicated work.
Because it's more can it's more predictable and it's just more ongoing work, it's easier to plan and you get into a group with the customer and get the efficiencies.
Unlike spot work, which is much more choppy it may just be a.
Two well pad here and its four well pad there to single well.
And so its we certainly prefer dedicated but from a from a pricing standpoint.
You know when the market is way oversupplied spot pricing certainly scrapes the bottom of the barrel.
But in our dedicated agreements, we often have termination provisions that so if the customer is aware that the market is soft they can come to us and request the pricing concession, we can negotiate that back and forth.
And I suppose if push comes to shove they could always terminated the contract with a 30 or 60 day out.
And so that gives them quite a bit of leverage even at a dedicated arrangements and so its.
Little tough to manage all that and plan around that but we have a lot of ongoing conversations with customers that we've been working for for years and that gives us some albeit not perfect visibility.
And then this choppy market when youre talking about the or increased interest.
Dedicated contracts as opposed to spot market I've industry.
Related to the pricing over this past March.
Is it.
Do you think that the changes changes that you're making to your equipment do think that it will make.
Our sort of your position more competitive in terms of winning new dedicated contracts.
No not necessarily a you know I think we'll still have the same.
Bidding behavior in terms of how we how we respond RFP is we're just trying to knock out some costs too to improve our cash flow.
Understood. Okay. Thank you very much good luck.
Sure. Thank you.
Our next question comes the line of Sohail, you assess with Q investments. Please proceed with your question.
Yeah, Hi, I wanted to follow up on a few items that you.
Touched on earlier.
On the last call in July you guys had talked about.
Seven 8 million EBITDA for fleet in terms of the guidance. It seems like there was a fairly precipitous decline.
In the back half the quarter I, just want to understand kind of what happened in the same call you alluded to sort of a $5 million sort of cut off for adjusted EBITDA for fleet clearly obvious you came in lower than that so what is the right way to think about the the cut off is it EBITDA minus capex breakeven or when what's the level, where you would just stack fleet and it's not worth.
Relative to work anymore.
Sure I'll provide a few comments on that so like I said third quarter was pretty challenging in terms of what happened over the course of the quarter. It's certainly got increasingly competitive as we as we moved through more than we anticipated.
So I talked about a 5 million cut off as far as EBITDA, but unfortunately market forces caused us to go below that for the quarter.
I'd say 2.5 million, which is maintenance capital really is the cut off at that point, it's why bother doing the work if we're burning cash.
I think one one thing that some frac companies do they hold on to work like that with the anticipation of of rebound.
And I can understand that strategy.
But I think we've you know with our with their manufacturing and how we operate we have quite a bit of flexibility. So we can spring back quickly.
If we if we end up losing.
Losing a fleet just do the economics, and so I'm not too worried about carrying a fleet that slightly breakeven.
Cash flow or certainly below breakeven cash flow, we should just let it go in that case.
Got it and second question you know I'm on the existing fleet I understand you're doing some upgrades and whatnot, but just in general what is sort of the useful life left on the existing fleet I mean that 10 years of age. Your fleet is probably already exceeded sort of original expectations. So just wanted to kind of get a sense.
Sure I know you sort of alluded to future.
Spending in future years on on a new types of fleets, but wanted to understand kind of existing fleet. What is the the useful life left.
Sure well it has substantial useful life left and that's really because it's been rebuilt many times over the year. There. So there's a rebuild cycle for each components.
If you're not familiar our fleets are a modular by design.
Which means it's kinda like a giant Lego said you can just swap out an engine if it needs to be rebuilt our replaced the same with the transmission in the radiator. The pump has a shorter useful life can be repaired in some cases, if not just replace did we manufacture those ourselves the fluid in has a useful life of between.
Thousand 1500 hours, depending on operating conditions and so the pieces are just interchangeable and so I would say all of the fleets that we have active today are somewhere in the rebuilt cycle and had been rebuilds.
Multiple times in most cases, we do have some newer pumps in the overall mix.
But but a rebuilt fleet is not that dissimilar from a new fleet.
Got it and that's the primary use of the two and half million maintenance capex per year is to.
Execute those rebuild activities.
Got it thank you very much.
As a reminder to read just for a question press the one form.
Please limit your questions to one question and one follow up question. Thank you. Our next question comes from a line of Chris vote with Wells Fargo. Please proceed with your question.
Hi, guys.
Morning.
I'm just curious so revenue per stage was down about 16% quarter over quarter in Threeq.
Can you comment on how much of that was direct pricing action versus a change in pass through or any other factors.
Yeah.
I'd say, probably 30% to 50% was due to customer provided sand.
And and I'd say, probably 30 to 50 was due to pricing.
And then there's some there's some other items in there in terms of just sand pricing and how much sand is used for the for the number of stages that we are providing that that that made up the balance rough figures.
Okay. That's helpful and then in terms of the all earlier comment.
That EBITDA per fleet.
At similar utilization levels would be about 1 million lower Q1 I assume that includes the cost savings that you've outlined so far on the call.
Correct.
A portion of.
Okay, and then just this week and one more your stays for fleet was actually very strong this quarter I think it's the strongest I see on record in our model.
You know despite a challenging environment, obviously you mentioned.
So 17 18 hours pumping for some of your fleets is very high.
Again, and then you also mentioned about 83% effective utilization in terms of the calendar. So I imagine there is a very wide range of profit per fleet in your portfolio right now.
Against this backdrop with forgiving, so weak and one Q being uncertain.
How are you thinking about the weaker fleets and why keep those active going into you know.
The rest of the year, and even when Q, which might not rebound to strongly depending on how budget shakeout.
Sure.
Okay. So anytime it goes below a maintenance capital. It's a question of when do we want to drop the fleet. If if we can drop it part of it is the state of the customer relationship who were working for one of their future plans what does the outlook for that fleets.
Once it gets below.
Two and half to 3 million, which we have several fleets that are in that range.
It really becomes a question of US just does it make sense to continue to do the work and if it falls below that the answer is in most cases.
Got the fleet.
And just preserved.
Preserve the equipment and a and that burn cash.
Okay. Thank you.
Our next question comes from the line of John Daniel with time and Energy. Please proceed with your question.
Hi, Good morning, guys two topics I want to touch on one on that to your 40 GB you mentioned, you're going to buy a couple of as and test them how long.
Thank you need to test it before you make the so you feel comfortable making the decision to proceed with.
By more.
Sure, Yes, so we've already we've already purchased them and other actually already out in the field currently undergoing testing.
Yeah, I would say you know we've already gotten some good initial indications from from the testing, but I think between 30 and 60 days, we'll have a much better feel for for how they perform and then from that point any investment decision will depend on.
The arrangements that we can come to with customers that doesn't justify the investment.
And as you as you looked at the RFP et cetera that you're bidding on right now how many of them or specifying.
The fleets have to be outfitted with other yeah dual fuel capability and or electric.
Well in <unk>.
It really varies quite a bit and so.
They were meeting all of our customers' needs that had been requested to date on dual fuel tier two dual fuel. So we're meeting all of those current needs. We've got a couple more that there will be adding it wouldn't surprise me. If we have even more additions next year for the for the two tier two conversion.
We'll see if I can sell a couple of the tier four dual fuels and then as far as the electric obviously, we don't have an offering there. So oh sure. So no response, but you know to the extent electric fleet is out there and available.
You know large cap companies are interested in those to capture the fuel savings and okay. Another reason.
I'm just curious if theres been any type of real change in terms of customer demands if you will.
On the dual fuel capability I think back to RFP season last year versus where we are today.
Sure there's more.
That's not a flood, but there's definitely more customers that are that are wanting to capture those fuel savings and so.
Thats why were wrapping that up just to meet their needs.
And the cost of doing that.
No. That's there and then last one for me is just what the RFP season, the stuff that you're bidding on now Mike is it all for debt is at all for dedicated work for all of 2020 or is it just you're bidding on stuff for Q1 Q2, how would you break that out for us.
By and large it's for calendar year.
But there are other packages, where the operator, just simply doesn't have their schedule built out and so they want something for six months and so well, obviously bid on that and a and see if we can get it but by and large it's a 12 month is a typical contract.
Okay and are you seeing any.
Leadership from your larger peers, you might be bidding higher for that dedicated work for 2020 versus where we on the spot market or are they.
Just trying to get since for the where the trend is on the bidding for dedicated work for 2020 versus spot market today.
You know, it's hard to generalize I can't generalize frankly every situation is you need I would say there's not some.
Huge discipline that appears obvious to us but.
It doesn't feel as Loosey goosey as it did in say 2016.
Okay Fair enough. Good luck guys. Thank you for your time.
Sure well.
Our next question comes the line of case Moundsville with Bank of America. Please proceed with your question.
Chase Mulvehill your line is open please.
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Our next question comes the line of Stephen Gengaro with Stifel. Please proceed with your question.
Thank you.
As a follow up.
Hi.
Yes, I understand sort of your your goals right now is one of your goals are they.
Generate cash and de lever you've done a good job with that.
Year to date would you consider anything I mean, given the announcements in some things that Chesapeake has said today would you consider spending 30 or 40 million Bucks.
Buying out.
Their shares and retiring them or not at this point.
Steve I would consider that pretty unlikely and the reason being is that we're focused on de levering and so we had we had the stock repurchase program. That's really just for for open market and Weve nibbled edits, but we've we're slowing down on that and and Delta and won't have any.
Oh purchases in the in the fourth quarter are probably the first quarter, Yes, I mentioned cash is king on a on my prepared remarks, and so we really want to keep the liquidity in order and then and then attack the term loan just given that it's our closest maturity.
No I tend to agree I, just think about ask given what were they had sort of.
So in the release today, Jeff appreciate the comments thank you.
Sure.
Yeah.
Our next question comes the line of Dan cuts with Morgan Stanley . Please proceed with your question.
Hey, Thanks, good morning.
I want it so.
Just one question for me, what kind of high level one.
Given that is kind of shaping up that.
For the second year in a row, we've seen pretty substantial.
Your end headwinds budgeting exhaustion that kind of stuff I guess in conversations with customers and just your own personal views do you think that there's a desire to smooth spending.
And activity.
Throughout the year, a little bit more going forward or just kind of how do you think that that will will evolve.
Overtime.
Sure Dan.
Well, a little difficult to predict that I, certainly would prefer a smoother calendar makes it much easier to execute anda and plan around.
Yes, I think the last couple of years in particular.
With this and N.P. have been under substantial pressure from the capital markets and so I think this year is probably led to a little bit more.
Not dysfunction, but a little bit more inefficiency in terms of of the pattern of activity throughout the year just simply because.
These are trying to respond to that capital markets that pressure. So I think the industry is transitioning.
To become more free cash flow positive to be more investable, and so I think that.
Yes, I think about the future years, it probably will be more level loaded.
And I'd like to talk with operators about making that happen and just because of all the benefits to be had from an efficiency standpoint. So my prediction for next year is we're not going to see as big of a drop off as we saw this year just given.
Kind of the state of the markets if you will.
Sure that that makes a lot a sense and so last year, obviously crude prices where major headwinds in the fourth quarter. This year.
I would characterize more as just capital markets headwinds for.
We're operators and that's kind of the defense if you had to characterize.
I guess end of your spending an activity trends.
For the for that.
Right. That's the dominant theme here is really just.
Living within cash flow living within budget and that just means less for the back back into the year.
Sure. It makes sense. Thanks, a lot guys I'll turn it back.
[noise]. Our next question comes the line of Sohail Youssef with Q investments. Please proceed with your questions.
Hello, This is Adam for Sohail.
Just a question on the debt buybacks.
I I heard the point on the you know kind of focusing on the 2021 term on its a bit of an earlier maturity.
But given that they are fairly similar maturities and the bonds are now 30 points below the term loan.
At what point would you start targeting the bond instead to try to capture that discount.
Yeah, I think certainly the the trading prices the bonds are more attractive than than they have been a in the past a I think when when I think about it if I think the term loan is at a manageable level. Then then I think that opens up the possibility of targeting the bonds.
I I don't I don't have a level to share today, but but that's kind of how I think about it.
And a lot of that depends on.
Liquidity outlook.
Number of different factors that change.
You know monthly if not weekly.
Got it thank you.
[noise] Mr. Dodge there are no further questions at this time I will turn the call back.
All right well. Thank you and thank you everyone for your interest in Fts I and we will look forward to speaking you again next quarter.
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