Q4 2019 Earnings Call

Good morning, and welcome to the next year, oilfield Solutions fourth-quarter and full-year 2019 conference call as a reminder today's call is being recorded off at this time. All participants are unable to know only mode a brief question-and-answer session will follow the formal presentation for opening remarks and introductions. I would like to turn the call over to Daniel Jenkins Place. I'm invested relations for next year, please go ahead sir. Thank you operator. Good morning everyone and welcome to the next tier oilfield Solutions earnings conference call to discuss our results for the fourth quarter and full-year 2019 with me today or Robert Drummond president and chief executive officer Kenny pshew Chief Financial Officer. We appreciate your participation before we get started. I'd like to direct your attention to the forward-looking statements disclaimer contained in the news release that we issued yesterday afternoon, which is currently posted in the investor relations section of the company's website our club.

this morning include statements that speak to the

Companies expectations Outlook or predictions of the future which are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties many of which are beyond the company's control that could cause our actual results to differ materially from those expressed in or implied by these statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. We refer you to next year's disclosures regarding risk factors and forward-looking statements in our annual report on form 10-K recent current reports on form 8-k and other Securities and Exchange Commission filings, additionally our comments a day also include non-gaap Financial measures additional details and a Reconciliation to the most directly comparable gaap Financial measures are included in our press release that is posted on our website with that. I'll turn the call over to Robert Drummond Chief Executive Officer of next year.

Thank you, Daniel. And thanks everyone for joining us on the call this morning before we get started. I'd like to make a few comments regarding the current and rapidly evolving Market backdrop for just 72 hours post the unexpected actions taken by OPEC and the resulting Decline and crude oil prices while it's too early to determine the impact of these events. We're closely assessing a situation including potential activity responses by remp customers.

Notwithstanding, the recent commodity price volatility next here is able to remain Nimble and it's poised to effectively navigate these challenges. This includes a strong balance sheet and liquidity position that allows us to be both offensive and defensive.

one way on our debt maturity until 2025

alignment with a base of resilient customers and a track record of adjusting our cost structure in response to market conditions.

I would also like to provide a few comments regarding the evolving coronavirus situation. We take seriously the personal impact This Thread has had on so many around the world and our thoughts go out to those directly impacted by the virus.

And next year we are taking all appropriate precautions to help protect the health and well-being of our employees.

With that said before we discuss our latest results for the fourth quarter and full-year. I'd like to start by reiterating next year's value proposition.

Which Drive each day to help our customers win by accelerating production and lowering their cost per Boe.

When executed successfully this drives leading performance for customers provides an engaging work environment for employees benefits to communities in which we operate em and generates differentiating returns.

I'm excited about our performance and positioning relative to our peers. We have a management system built to deliver leading service quality and insatiable drive for continuous Improvement and a strong International growth opportunity with Nasser.

Also as a result of the formation of next year and our recent Well Services divestiture, we have a strong balance sheet the ability to capture significant cost synergies and free cash flow generation that will enable us to execute on Capital allocation priorities.

In addition one of the things that I'm most excited about it is our platform for innovation.

That is focused on the application of technology to both reduce costs and improve efficiency for our company and our customers.

Our Innovation platform will enhance our ability to achieve industry-leading efficiencies reliability and safety while further enabling us to implement a very practical approach to sustainable operations.

Will expand more on next year's competitive advantages later in our call, but now I'd like to provide an update on the fourth quarter. We ended the year with a strong quarterly performance extending our track record of delivering on our commitment while the fourth quarter was expected to be challenging the magnitude of the activity declined was among the most intense the industry has experienced recently Dead We faced reduced activity from typical year-end seasonality compounded by heightened levels of budget exhaustion as our customers remain fiscally disciplined.

The activity slowed down impacted the volume of work across the industry and increased activity gaps in Frank calendars resulting in highly competitive pricing environment month despite this challenging backdrop. We were successful during the fourth quarter and delivering strong performance by staying close to our customers and managing. What's in our control. I'd like to touch on a few highlights from our fourth quarter performance.

We generated $648 million of pro forma revenue and $78 of pro forma adjusted ebitda, which were within or at the high end of our most recent guidance range. We generated annualized pro forma adjusted gross profit for Fleet a 15.6 million dollars maintaining our position as leader in relative performance.

When including the full quarterly results of both Legacy King and C&J we generated combined adjusted free cash flow of $55 million dollars in the fourth quarter off when excluding management adjustments mostly from merger and integration cost.

With that as an overview of the fourth quarter, I'd like to review our performance for the full year.

In June, we were excited to announce the merger between C&J Energy Services and Keane group forming an industry-leading us land completions company.

in our short time

Since announcement and subsequent closing we've been successful in reaching important milestones and achievements.

First we close the merger with C&J and implemented a well-planned and executed integration process while maintaining a Relentless focus on delivering for customers and ensuring continued safety and service quality including one of the lowest total recordable incident rates in our company's history second. We remain on track to realize $155 of annualized run-rate cost synergies by the end of the second quarter of 2020. In addition. We've identified approximately eighty million dollars of incremental cash, which Kenny will provide more detail on later in the call.

Third we completed a comprehensive equipment rationalization program updating our go-forward marketing capacity by permanently removing wage base of equipment details of which we provided on our last earnings call.

Fourth we announced our entry into a new world-class Basin by deploying equipment from the US to the Middle East North Africa region via a partnership with Nessa demonstrating our ability to remain Nimble and responsive to Market opportunities.

In summary. I'm very proud of our 2019 achievements on Monday. We announced the divestiture of our well Support Services segment to Basic Energy Services for approximately 94 million dollars of total consideration.

This strategic transaction further positions. Next here is one of the largest completion Services Company predominantly focused on the land market in addition this transaction strengthens. Our balance sheet reduces our cost structure and capital spending improves our overall risk profile and increases our financial flexibility off.

So now let's move to what we're currently seeing in the marketplace.

As we put our twenty-twenty plan together the market backdrop look very similar to what we experience entering 2019 a range-bound macro-environment with a rep a sea of completions equipment and a reduction in overall Capital spending by the MPS.

Just this week. We've witnessed the material drop in commodity prices driven by the impact of global supply and demand Dynamics, which is causing us to re-evaluate our twenty-twenty plan.

Woman activity perspective the first quarter started as expected with levels continuing to increase through early March as our customers got back to work early in the year off.

However, we expect activity levels going forward to be at risk as a result of the current market volatility.

Full impact of which we are still assessing as facts continue to evolve.

From a pricing perspective over capacity and customer spending constraints have resulted in adjustments and we continue to partner with our customers on driving efficiencies and deploying Innovation to reduce operating costs all of which are helping to offset these Market headwinds.

This challenging environment provides a playing field for differentiation, and we're proud to emerge as a leader on this front while we would prefer to have a more supportive Market backdrop. We are excited about unique levers. We have to drive further delineation versus the market for next year.

Within the competitive landscape companies with a clear operational Playbook.

track record of execution and strong balance sheet providing Financial Firepower will outperform

we keep it simple and focused is further separate ourselves across three main tenets optimizing our cost structure delivering industry-leading efficiency and safety off and maximizing the customer value proposition via innovation.

so first on optimizing our cost structure

we maintain an unrelenting focus on cost optimization and we continue to Target opportunities to achieve a low-cost position across direct materials maintenance and football game while maintaining exceptional service quality.

We have a track record of making proactive decisions necessary to align our operations and costs with market conditions and now have a larger platform on which to execute that strategy.

The second pin is delivering industry-leading safety and efficiency.

We have a Relentless focus and operating model. It's built around optimizing efficiencies which continues to serve as the foundation of our partnership approach. It requires three ingredients include not working for the right customers delivering a high level of execution and injecting innovation.

Our efficiency improvements have been partially driven by the bundling of Wireline with our Frac fleets within our completion Services segment.

As a result of our integrated management structure, we have successfully Incorporated are bundling strategy across the significant portion of our deployed Fleet. I am excited about the progress we've made in the fact that more and more of our customers are reaping the benefits of are bundled completion platform.

The third tenant is maximizing the customers value proposition via innovation.

We believe it's strategically deploying new tools and technologies will enable us to deliver step-change efficiency improvements and lower overall cost structure.

we continue to

Focused on technology deployment across three main areas surface subsurface and digital our Innovation strategy is simple deliver advancements that provides improved operational performance and enable real-time data-driven decision-making.

These advancements will permanently drive cost out of the system and improve reliability to provide tangible value for next year and our customers.

We have a consistent history of successfully capturing efficiencies as evidenced by improvements and pump hours and stages completed per day. We are proud of these achievements. However, we believe the name of efficiency Improvement will come from the implementation of innovation including digitally enabled Technologies.

With this in mind, I'd like to share a recent successes in driving Innovation across the organization.

Focusing on digital I'm proud to announce the launch of next hub which enables our transition to an organization that integrates smart real-time capabilities into a position making process the construction of our new and expanded digital operations center combined with the rollout of Data Insights platform will provide real-time Operational Support and visibility.

In addition these projects will drive real-time operations analysis to make faster decisions and enhance efficiencies streamline our processes further improve maintenance practices and reduce or cost. Our next facility will centralize people and resources to provide a great customer engagement tool that highlights our investment in real-time logistics-management in the open collaboration of data with our partners.

Our initial rollout has been successful and we now have a portion of our active Fleet streaming data with twenty-four-seven Operational Support.

And by the end of 2020 all of our deployed fleets are expected to be connected to next hub to optimize operations maintenance and Logistics.

Another digital initiative that will feed directly in the next hub is all recently developed equipment Health monitoring or THM program. That is Thursday August on extending major component life to improve operational reliability reduced non-productive time and decreased both maintenance objects and capex r e h m programs uses artificial intelligence to predict and reduce premature failure of major component parts.

This initiative has provided notable cost savings as we near completion of the pilot program on a portion of our frat flakes.

By the end of the second quarter of 2020 we expect to have all the active plates being monitored by r e h m program.

Sticking with a digital thing. We also have been investing to standardize our asset base through the installation of our proprietary equipment Control Systems branded under the mobile data Technologies name also known as MDT MDT is wholly owned by next year through a 2013 acquisition by cmj.

NBT Control Systems enable us to better monitor equipment streamlined maintenance programs and reduce unplanned downtime.

Additionally one of the most exciting and value-added features is that we have access to the programming code and are easily able to make changes to the system which allows us to better wage control the advancement of our digital strategy and avoid being reliant on third-party providers.

As we progressed in our digital Journey, we will continue to develop Technologies and further integrate them into our operational platform.

Finally, we have a very practical approach when it comes to managing ESG opportunities and our Innovation initiatives are driving significant advancements wage r e s g profile.

With this in mind, I'd like to share some recent initiatives that we have implemented that demonstrates our commitment to responsible operations.

After successful field trials, we are excited to have recently deployed to rebuild and upgraded fleets with tier for dual-fuel ddb engine Technologies to an existing dedicated customer next year had been a leading test partner with several large oems and was one of the first to fill test and deploy them for fuel fuel Solutions.

We are investing in our hibernate engine idle reduction technology, which enables us to Target a 6% reduction in fuel consumption once fully implemented on all deployed athletes by year-end 2020. And finally the usage of fuel additives in our diesel supply has resulted in reduced fuel consumption and as much a 50% reduction in air emissions.

All of these recently implemented initiatives further demonstrate our practical approach to environmental stewardship. So now before handing handing it over to Kenny, I wanted to comment on Kenny's recent appointment as next two years Chief Financial Officer.

Can he brings more than two decades of Industry experience with much of that time at slumber Jade? Can you join the Keen team in 2016 before its 2017 initial public offering and it's played a critical role in Keene and next year's success to date.

Kenny's.

Combined with his financial competency makes him a great partner to lead the financial efforts across our organization. I look forward to him taking on his expanded role and working alongside our team. If we drive results for our stakeholders with that. I'll now turn the call over the Kenny. Thank you Robert total pro forma fourth quarter Revenue totaled $648,000 compared to $897 in the third quarter, which was within a revised quarter guidance range. The sequential decrease was driven by fewer deployed for athletes and lower activity gym across our service lines due to year-end seasonality and customer budget exhaustion.

Total pro forma fourth quarter adjusted ebitda was $78 which was at the high end of our revised guidance range this compared to 138 million dollars a pro forma adjusted ebitda and the third quarter.

We continue to proactively right size of operations relative to market conditions and expected customer demand, which resulted in lower overall cost structure and higher fourth-quarter profitability wage initially guided.

And our completion Services segment pro-forma fourth quarter Revenue totaled $510 compared to $735 billion dollars in the third quarter. The revenue decline was driven by low-wage employee fleets and decreased activity levels due to seasonality and budget exhaustion.

But please send service segment pro forma gross profit totaled $106 compared to $169 in the third quarter.

During the fourth quarter. We deployed an average of 30 pro forma for athletes and when factoring in activity gaps, we operated the equivalent of 25 fully utilized fleets.

On a fully utilize basis pro forma annualized adjusted gross profit purfleet, which includes Frac and bundled Wireline total of 15.6 million dollars compared to eighteen point six million dollars per Fleet in the third quarter.

Despite the difficult market conditions in the fourth quarter or financial performance continues to position us as a leader a relative Pier performance and remains a key differentiator for next year.

They're well construction and intervention services segment pro forma Revenue total 58 million dollars compared to sixty seven million dollars in the reporter. If this was driven by lower average deployed unit and decreased activity levels due to seasonality and budget exhaustion pro forma adjusted ebitda totaled 7.2 million dollars compared to nine point 1 million dollars a third-quarter results in a pro forma segment adjusted ebitda margin of 12%

In our well Support Services segment pro forma Revenue total $81 compared to $95 million in the third quarter. The decrease was driven by the divestiture of the majority of fluids management assets, the third-quarter budget exhaustion and year-end seasonality.

Segment adjusted ebit a total 9.2 million dollars compared to twelve point four million dollars in the third quarter resulting in pro forma segment adjusted ebitda margin of 11%

ProForm adjusted ebitda for the fourth quarter includes management adjustments of approximately 87.5 million dollars.

Consisting of $55 of merger and integration costs driven by Severance and accelerated on cash compensation expense.

One point three million dollars of a non-cash impairment mostly associated with the retirement of the Keen trade name five point six million dollars of non-cash compensation expense and 14.5 million dollars of other costs driven by tax and litigation reserves and facility closures.

The eighty seven point five million dollars in management adjustments during the fourth quarter. Approximately thirty-six million dollars were non-cash.

Full form of fourth-quarter selling General and administrative expenses totaled seventy million dollars compared to 102 million dollars in the third quarter excluding management adjustments pro forma adjusted sg&a expense totaled $54 compared to $66 in the third quarter.

Turn it to the balance sheet. We exited the fourth quarter with $255 million dollars of cash this compared to just over $270 of pro form of cash at the end of the third quarter back was net of the $65 special dividend paid to Legacy. CJ shareholders upon closing of the merger.

Total debt at the end of the fourth quarter was $338 and that of debt discounts and deferred Finance costs and excluding Finance lease obligations, which was effectively unchanged versus third quarter.

That that at the end of the fourth quarter was approximately 83 million dollars resulted in a leverage ratio of 0.2 times on a trailing pro-forma 12-month basis.

We exited the fourth quarter with total available liquidity of approximately $559 which included cash of $255 and availability of approximately 34 million dollars under our asset-based credit facility.

When including the full quarterly results of both Legacy Kina C&J cash flow from operations was Forty-Eight million dollars during the fourth quarter cash flow used in investing activities told the 50 million dollars give them my business complex and further investments in technology this resulted in free cash flow use of six million dollars, you're in the fourth quarter, excluding $61,000 of merger and integration cash costs adjusted free cash flow to those 55 million dollars in the fourth quarter.

We consummated a deal to divest our will support services segment to Basic Energy Services for ninety three point seven million dollars of total consideration, which was signed and closed on Monday, March 9th. We received fifty nine point four million dollars of cash at closing and just over thirty four million dollars of basic senior secured notes with a make-whole protection feature at par with a scribe capital a private investment firm with over three billion dollars of assets under management.

as it relates to

The senior secured notes portion of the consideration. I would like to highlight a few features of the deal.

The notes are accompanied by a make-whole guarantee apart, which guarantees the payment of 34.4 million dollars to next year if the notes are held for one year post closing.

In the event of a basic restructuring or credit rating downgrade in conjunction with a change in control and make all protection feature can be triggered which guarantees a notice Redemption at par hath note holders. We're entitled to 10:00 and 3 quarter percent annual coupon paid semi-annually during the whole.

Total deal consideration of just under $94 reflects approximately five years of free cash flow before taking into account and incremental six million dollars of corporate sg&a savings for next year wage.

In December 2019. We announced the capital return program that is supported by our strong balance sheet and projected free cash flow generation.

Due to trading restrictions associated with our Well Services ivester, we have yet to purchase any shares and our previously announced Capital return program.

You have a recent volatility and uncertainty in the macro-environment. We are re-evaluating our Capital allocation priorities.

We believe our strong balance sheet and liquidity position enhanced by the proceeds from our Well Services divestiture provides us the financial flexibility to execute on multiple priorities as we gain more insight on the impact to our business from the recent Market volatility. We will refine and execute our Capital allocation program. We look forward to providing updates on the execution of our program throughout the year.

I'll turn it to our outlook for the first quarter.

We experienced increased activity levels through early March versus the fourth quarter across all of our business lines in our completion segment. We expect to achieve an average of 20 a month fully utilized fleets in the first quarter versus twenty-five in the fourth quarter. We expect increased activity levels to be offset by lower overall pricing in the divestiture of our will support services segment on March 9th.

We have always taken pride in our management system that has provided strong visibility into our business as a result. We have routinely provided robust guidance and delivered on those commitments month. However with the rapidly evolving market conditions, we have decided not to provide detailed guidance for the first quarter until we have been able to fully assess the impact of recent macroeconomics to our business turning on the topics.

Next to your eyes invested in its asset base over the years and has a well-maintained fleet or maintenance capex with the focus on Innovation and extending the useful life on our Frac assets m c Capital Fleet reducing to 3.5 to 4 million dollars per utilized Fleet with the divestiture of the Well Services segment reducing the overall capex maintenance, requirements of the other service lines at current activity levels is approximately twenty-five million dollars strategic Capital expenditures for 2020 will be $60 off primarily focused on converting existing conventional fact pumps the dual-fuel capability in order to burn CNG or natural gas from the field as Robert mentioned. We have taken off of multiple d g b upgrades and the first quarter. So the Strategic Catholics pin is committed and will be front and loaded in the first half of 2020.

in addition

We will spend twenty million dollars on Deal related expenditures to unlock synergies including harmonizing for our controls Business Systems and consolidating Facilities house based on recent developments in the macro. We do have the ability to flex the majority of the capex budget would shifts and demand for our services as both the maintenance and deer-related spin-off is linked to activity and can be reduced to accordingly.

Finally, we are excited about our cash flow generation prospects with continued cost control measures and expected Synergy capture and 20 20 in addition to our previously announced 125 million dollars of cost synergies associated with the merger. I am pleased to report that we have identified approximately $80 of cash synergies that we expect to real life is before year-end.

We have identified sixty million dollars from targeted incremental working Capital Improvements, and we expect to realize by implementing best practices from both Legacy competition. Additionally. We have identified twenty million dollars of proceeds from various property and equipment sales that we expect to close this year.

Even though we anticipate an additional forty million dollars a d related costs and twenty20. We are forecasting meaningful free cashflows and ratio.

These additional cost synergies in combination with the cash proceeds from our will support services divestiture further strengthen our balance sheet and position is nicely to execute on our Capital allocation priorities with that. I'll hand it back to Robert for closing comments.

Thanks, Kenny. And before we open up the lines for Q&A. I want to highlight a few key points first. We have a strong balance sheet that will help us navigate these challenging market conditions.

The proceeds from The Well Services divestiture and now still Monday strengthen our already formidable liquidity position.

Second the integration has progressed ahead of schedule and we're laser-focused on the even the Synergy targets that we've previously conveyed third. The recent market conditions have been challenging but we are focused on controlling our own destiny, but generating free cash flow. We continue to focus on right-sizing our business in line with market conditions. I expected customer demand.

Fourth we remain committed to harvesting Innovation and investing in technologies that were fundamentally changed the way we conduct our business and permanently drive cost out of the system with that with now like to open up the lines for Q&A operator. Thank you. We will now begin the question-and-answer session to ask a question. I started in one on your touchtone phone. If you're using a speakerphone. We asked you please pick up your handset before pressing the keys to enjoy your question, please press * then two today's first question comes from Tommy mall. It's Stevens, please go ahead good morning, and thanks for taking my questions.

Hey, Tommy.

I wanted to ask about the dedicated customers. You've got if you go back to the end of 2018 you guys proactively addressed some of the pressures in the market place where you basically traded some price for visibility into your 2019 activity, which resulted in a pretty good outcome for you guys. All things considered odd. Sounds like you did something similar at the end of nineteen. So I wondered if you could just comment on how that RFP season went in anything. We should know there and then to the extent you can understand this is volatile and early but just a any idea you you have about how this current environment they play out in terms of the dedicated agreements were barely dry. And now the the world has changed in terms of Akron table.

Thanks for that question. Tommy, you know as you point out we we were looking at twenty twenty planning. It looked a lot like the transition from 2018 to 2019 before the most recent open at the disruption. So we were a bit on the same Playbook, you know in nineteen over 18. We we yielded price and then we clawed it back efficiency and and cost management cuz we have improved our pumping hours per Fleet and in 2020, you know, the Playbook is going to be very much the same as far off the success of 2020 / 2019. I would say we had the usual puts and takes you can see our Fleet count in q1 moved up versus Q4 off and are dedicated agreements or not exactly the same but they but as far as who they far but about the same ratio.

So we feel good about that transition. In fact, you know the bottom for us probably was November and our Fleet count was climbing in December and January and in February month and then in March, we reach this point where we have this bit of a disruption. We we already see some impacts occurring, you know on the fleet set were participating on the fringes of the stock market today where customers had some discretionary capabilities to slow down operations. So that's the reason we kind of were we didn't really guide real specifically for q1, but I would also say is that our long-term relationships with our customers are they take it seriously as we do and you know, I think that would expect those

Arrangements to hold fast, but I think all of our customers are in the process right now deciding what they're going to do and that will be determined, you know, probably in the coming days and and it's not for sure within the coming weeks. So we're being cautionary and staying focused on you know, operations and making sure that we we continue to get better, but it's kind of the store for us.

Okay. Well, I'm sure.

There'll be plenty more questions on on the near-term Outlook, but for my follow-up, I wanted to Pivot to the nesser partnership that you guys announced. What can you share with us in terms of how you're partnering with them to go to market? It's some of your core service lines, but just in anything you can share about the mechanics of how that partnership works. And then on the financial side, can you give us anything on the magnitude and timing of when it it's expected to hit your p&l?

So good question Tommy. Thank you. Look I might boast just for a minute and say I think this is one of those deals where it's actually a three-way win, you know, it's a win for aramco because in a day, they're seeing their efficiencies improved dramatically as necessary and next got together to deliver efficiencies and a sort of win because that's got to bring you import US Bank performance on fracking Wireline into their unconventional for a and that's been a positive stage counts are up dramatically versus historian and then for us it's obvious win because we got a low-risk entry, you know into an a part of the world rich and hydrocarbon and for a customer base that we got a lot of respect for overtime. I say the Dynamics of that it's really built around and I think it's a unique partnership that's built around mutual respect between a next and next and next year.

That will be difficult to replicate so it's important for us. You know, we're doing what we do what we do well and we got our fracking Wireline put together and so far. I have been very good. I take my hat off to the next tier employees have made that track over there and we have you know, safety and efficiency wise have been performing a right up to our standards and I I figured that to messrs leadership related to the facilities and the partnership that we've built so long

On the upside. I think it's very much linked to messrs relationships all across the Middle East North Africa region, and the further development of style fracking operations in in that region. So I like where we're positioned and I think you know, you're you see that in our you'll see that in a way. I mean already into for the impact of of those operations. So if you ask me about what it's going to look like going forward I'm saying that we're in good shape with the operations. We got going on and we feel pretty good about kind of a a growth potential link directly with Messer.

But certainly a differentiated aspect of the story and one will look forward to follow and going forward. I will turn it back.

Thank you. Tom question today comes from Stevens and it's default, please go ahead.

Thanks and good morning.

Morning, I was a very good overview on the on the prepared comments. I just had a couple of follow-ups and I think what I'd start with is as you think about, you know, flea suckers deployments and and how many feet you have active in the US market. Can you give us a sense for kind of the profitability parameters around kind of the Go versus no go decision and and how you think you know both for you but then as an industry, how do you think the industry reacts? I mean, obviously we've seen the tradition already but you think this accelerates that of attention we be thinking about both from your perspective and and your view of the of the macro Frank Market assuming, of course, we kind of get a slow down at it seems like we are sort of on the on a brink of here.

Thank you. I like that question. And I would say you know how we make decisions that we run into business to generate free cash flow. So looking at price that can generate profitability that pays for the maintenance capex of the individual Frac fleets, which can guide is a little bit that we expect to take down in 2020 versus 2019 as well as each individual Fleet share of the sg&a structure of the company and then drive or decisions found that and every effort that we have is to lower that operating cost constantly so that we can continuously use that leverage in the marketplace either four margin five for market share. So that that's a battle that's it's ongoing constantly and I think we have a bunch of levers that other people don't have right now because of the luckily timeliness of authors

With with between Keene and C&J that we got a little a little more cost variables variable cost to address and a Synergy aspects of doing that gave us a bit of a advantage.

As far as the macro impact on overall, I would just say that supply and demand is well-documented to be you know, oversupplied on on the horsepower side and not you know, it's probably we were probably headed down a path. It was going to take a couple of years to get fully sorted out. Certainly the market has had some attrition in horse power and ongoing consumption of horsepower as it relates to efficiency improvements, but but at the end of the day it was going to take a a significant amount of time I would argue if we do have a major correction or out of activity here related to this oil price flux that it's going to put a lot of pressure on the system and the companies that have debt or have a debt walls coming and going to have a dick reaction perhaps how they price in the market longer term than they then then they maybe were hoping for so so bottom line is that they may be the scenario if you try and look at the bright side.

That's the situation we have with all track is that it very likely can excel.

Right the overall fix of supply and demand.

Hope that address your question, you know that that did thank you and it just just as a as a as a follow-up in Prior periods like this have have you guys found me that your differentiation is is sort of magnified as a positive or do you think it it becomes less important where where your customers are off just Ultra focused on price. How do you think what have you seen from that perspective historically?

You know, of course that would vary by customer, but I would say many of the customers who have a very long-term View and have many thousands of Wells to drill and complete the ultimately, you know producer assets take different value views about how they work with partners and how much they look at the full of value equation is or relates to you know, a thousand C's and how much you getting for what you spend. So I think that that varies, you know widely across the market but as far as

How the Mark is going to react I think is there. Is there another Playbook that looks just like this one. I don't know. This has been a dramatic quick change and how that plays out wage. You know, I don't want to use the word unprecedented necessarily, but it's not just kind of close to that.

Great. Well, well, thank you for your for your answers very helpful.

Our next question today comes from thank you. Next question comes from JP Morgan, please. Go ahead.

Thank you morning. Hey Sean, how you doing?

Good Robert the release last night indicated. There's an incremental eighty million of cash savings that you found. I think you mentioned on the call earlier, but I don't think we got a lot of incremental details so far can maybe give us some granularity on those savings and when you roll up the the cost associated with integrating the two companies with these savings. I'm just curious. How do we come out for twenty twenty-six sounds like the net impact is positive for cash. And is that part of what gives you the confidence on that free cash flow profile for this year?

Hey Sean, it's Greg. Good morning. I'll make a few points on the synergies first first, the $125 million a p&l synergies remains intact with with kind of the following sequences for 1920 with 3 million of synergies in the fourth quarter in nineteen expect twenty million in the first half of 20 as we ramp and then 66 million in the second half of 20 as we achieved $125 billion run rate by the end of 2q. So we expected deliver that $125 billion run rate p&l synergies, regardless of the market conditions off. The eighty million of incremental costs energy is the ones that can't even mentioned their newly identified consists of sixty million from working capital driven by efficiencies. Not not volume and $20 off the disposition of excess assets related to property and Equipment as we consolidate facilities. We've accessed properties Etc.

These are expected to deliver.

On the cash throughout twenty-twenty and these synergies do not include the elimination of twenty million a capex or any other benefits from The Well Service transaction on the deal cost. I think we should I think we have a story here. That's that's compelling, you know versus you know, the deals I've worked on in the past the the total cash deal cost. We spent $72 million dollars in nineteen and we took another $60 million and twenty of cash in 20. It'll be forty million through the p&l is Kenny mentioned and then twenty million in capex that makes up the sixties. They get you to a total deal Costco cash cost of 132 on the Synergy side. We're going to get $125 million from the p&l $83 million which will be realized in twenty $20 billion in cash which will be in 2020 and about twenty million in capex savings, which is part of what's leading to the reduced maintenance capex that Kennedy talked about so that's about $225 million of cash Center birth.

Versus the hundred and thirty-two of total cash deal cost. So you're looking at less than one year payback. So if you look at the total equation, you know through the kind of year 18 a month cycle. It's it's a very compelling pay back on on the investment.

Thanks for that Greg. I got I think that's very detailed very helpful. So that kind of leads me to back to the capital allocation question. So, you know, it's understood that there's a desire to see how the dust settles down here given the events of the last few days. But you know, uh your shares around 70% the last few months 90% since the IPO. Obviously you're not alone in the sector, but I'm trading at 20% of Fleet replacement. Just curious if you if you generate the cash the expect to win 2020 even in a more challenging volume environment wage, um, are there better places to put that free cash flow than back into the stock as we go through the year?

Good question Sean. Obviously one is right in the Forefront of our mind. We have been restricted through this this deal with with basic up until now, you know, we announced that a hundred million and it been a bit anxious to take advantage of it. But with the amount of uncertainty that's in the market as we sit here today that it just seems more prudent not to take the

You know that the it was so tempting to buy the stock right now, but better we think to sit on the cash during this period until we can see how things shake out just for the sake of not having to regret later do I think there's a better return than than our stock at $2? I do not.

Right. Okay, very fair. Thank you. Thank you next question today.

Morgan Stanley

Please go ahead.

Thanks morning guys.

Morning, I was wondering if we could talk through your cost structure. I serve my understand you guys don't have a lot of visibility right now. But can you help us think through how much of your costs within the segments are, you know at the field level or at the crew level versus How to Think Through how the fixed costs might Trend if if activities being reduced, I appreciate the merger synergies a little challenging, but any help you can get there would be appreciated.

That's can't go ahead. Yeah. Hi. This is Kenny good question. So when you look at the cost of goods sold Dynamics, I would just say that, you know, the direct costs that's related field are going to be a very high percentage the support costs that are in the fields. We kept very lean over the years and through this integration. So that percentage is low. So the, you know, the variability and the same as it relates to activity is very high. So, you know, as we as we've done in the past we've been able to adjust our cost structure quickly to any Market change and should we expect to do that here in addition to that. You've seen our reduction in sg&a that was both from a Synergy perspective and also from a scheduling perspective with with what the decline in the market that we saw so, you know, we look at at all angles. We're looking at cost of goods sold direct. We're looking at the support structure. Yep.

Also looking in sg&a to make sure that we can be the most competitive that we can and and in generate free cash flow.

One other thing I might just add is that you know, we had started a a over a year ago while like keying in investing in our digital program related to equipment Health monitoring and using data to help us lower operating costs in general and I think this is going to we we factor that into our twenty-twenty cost structure going forward and we want to be able to out of that strategic capex pool continue to keep that funded because the return is very it's very good great question.

Got it. That's helpful. And it strikes me that in Prior downturns or even just quarters where utilization is low the the industry in general kind of gets hurt by the fact that you deploying assets and people on site and maybe your customers are in such a hurry. So you just sort of eating cost and not earning Revenue. Maybe maybe your your model address that somewhat but I think through the ability to mitigate that risk with your customers if they if they do this at a slow down.

I'm sorry. We had a little cut out on the phone there. Could you repeat that middle part of the question?

Yeah, the question was was basically just if if you have an ability to manage the potential for customers to to be in sort of less of a hurry if you will, it seems like the industry is dead suffered previously from deploying assets and people on site not really earning revenue or their changes. You can make to your pricing structure or your compensation structure that could help you mitigate the the idle time so to speak.

I got it. Thank you.

Look for us for anybody profitability is very much linked to efficiency and the management of of the white space in the in the schedule obviously worked with with customers to get in the front end of that planning process is is very key. But we do have a a history of being able to fluctuate are variable cost down as part of that associated with Personnel cost with the business and I think that goes to planning a bit and and having the right amount of spare capacity if you will and when I mean by that is it there's plenty of capacity in the market as far as assets, but having hot stacked off a hot available assets mainly the equipment ready to go and it's manned.

You know the bigger your your scale the more leverage you can have their to use that where it's needed. So, you know, it's it's really about how accurate You Came the predicting what it's going to look like and and managing cost towards that I think you know as we get smarter with the digital information and the data we can make decisions more in real life. It's also an aspect to it keeping the supply chain right in tune with with the activity. Those are all kind of factors that are incremental one, you know one decision to the next.

Hope that helped.

Yeah, that's helpful. Thanks for the thoughts.

Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to Mister Roberts for closing remarks.

I thank you very much. And before we end the call today, I'd like to publicly thank the employees of next year for all their hard work dedication. Our employees continue to focus on delivering excellent service to our customers throughout the integration process while maintaining one of the best safety records in our company's history in addition. I'd like to recognize all the former well Support Services employees. Thank them for their contributions to both Legacy C&J and the next tier this transaction with basic provides an opportunity for our former employees to continue building upon their success with delivering strong service quality and safety within an organization fully dedicated to the Well Servicing business. Finally. We look forward to updating you on the progress of our and performance on our first quarter call in early, May. Thanks to everyone for joining the call. Have a good day.

Thank you, sir. This includes today's conference call. You mean disconnect your lines and have a wonderful day.