Q1 2020 ProPetro Holding Corp Earnings Call

After today's presentation, there will be an opportunity to ask question to ask a question in my Press Star then one on your telephone keep that to withdraw. Your question. Please press Star then too. Please note. This event is being recorded I would now like to turn the conference over to some slack.

[music] G.N. administrative officer. Please go ahead.

Thanks, Good morning, everyone. We appreciate your participation in today's call.

Me today is Chief Executive Officer, Philip go Chief Financial Officer, Darrin, Holderness, and senior Vice President of operations adamant, yes.

Yesterday afternoon, we released our earnings announcement for the first quarter of 2020.

Please note that any comments, we make on todays call regarding projections or expectations of future events or <unk> or forward looking statements covered by the private Securities Litigation Reform Act.

Forward looking statements are subject to several risks and uncertainties many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations.

We advise listeners to review our earnings release and their risk factors discussed in our filings with the FCC.

Also during today's call will reference certain non-GAAP financial measures reconciliations of these non-GAAP measures.

To the most directly comparable GAAP measures are included in our earnings release.

Additionally management continues to provide information to its independent registered public accounting firm to allow to evaluate the sufficiency of the scope of the audit committees internal review and associated findings as well as the company's proposed remediation plan.

Management is working to complete its preparation of quarterly and annual financial statements to allow its independent registered public accounting firm to perform quarterly reviews and audit have annual filings at the financial statements for all of our doing <unk> 2019 filings and for the quarter ended March 31st 2020.

The company continues to work diligently to be concurrent and its filing obligations with the securities and Exchange Commission. It seems reasonably practice practicable and it currently expects to do so prior to the expiration of the additional trading period granted by the NYSE on July 15th 2020.

Finally, after our prepared remarks, we will answer any questions related to our results and operations. However, we will not answer any questions with respect to the internal review the FCC investigation or our outstanding litigation with that I'd like to turn the call over filler.

Thanks, and good morning, everyone.

Looking at the first quarter.

Results were driven by strong first 10 weeks or the quarter.

Operational efficiencies were at an all time high and we enjoyed strong financial results until the rapid declines and all field activity in late March.

Our teams unmatched ability to execute for our customers. During the first quarter is a compelling example of our unique competitive advantages, which we expect to maintain throughout this downturn into an eventual recovery.

I would like to personally thank our entire team for their focus and dedication to their work.

Fleets reached new Heights, working in lock step with our customers and partners at the wellhead.

Surpassing records of pumped time per day, and upholding our strong safety standards.

Looking forward rather than ride the tide amid unprecedented volatility our leadership decided to take the firm's stance and act decisively to protect the core competencies in our business.

Steps taken include proactively shrinking the core of our operations.

Saving costs through collaboration.

And focusing on innovation critical to enable a recovery.

Well no expectation of a near term pricing driven profitability ramp.

Oh Petro is looking within our own operations and doing what is necessary.

<unk> earnings power of our business over the long term.

A lot of unsung heroes Regasification, when the Calvin 19, pandemic strep and I'd like to take this opportunity to take the first responders medical professionals teachers and researchers on their self conscious efforts to safeguard the health of our community.

In addition, I've been impressed with how our employees have responded like true professionals.

These high standards of quality allow our team to safely get the job done for our teammates and customers.

We continue to implement best practices. According to CDC guidelines, another governmental agencies to ensure safe and efficient operations for the duration of the pace of this pandemic.

Unfortunately in late March and throughout April and May deteriorating market conditions resulted in the necessary reductions to our workforce.

We are grateful to all of our impact that team members for their hard work and dedication serving our customers over the years.

Well, we found it prudent to make these reductions.

We prioritize retaining the key critical scales.

To deliver efficient insights services, while protecting our capacity to respond to a market that will eventually improve.

Importantly, the call pieces of our team stand ready to respond to any market condition.

With that I'd like to turns call over to Sam to discuss our financial performance Sam.

Thanks Philip.

Today, we'd like to spend as much time as possible speaking with you about more recent developments. So I'd like to refer you to our press release that was published yesterday for quarter over quarter financial commentary.

That said I would also like to take time to highlight what a solid start to 2020, we had with effective utilization in the first quarter of 18.6 fleets.

Lets strong efficiencies and financial performance.

Along with our track record of execution capabilities Propetro strong balance sheet and capital structure are proving to be valuable attributes to have in a low activity environment.

As we announced yesterday as of March 31st 2020, we had total liquidity of $194.1 million.

Including cash of $143.7 million and $50.4 million available capacity under the company's revolving credit facility, which had an outstanding balance of $110 million at March 31st 2020.

As of May 29, 2020, total cash was $135.9 million and total debt was $70 million.

Total liquidity as of May 29, 2020 was $159.7 million, including cash 23.8.

Cash and $23.8 million of available capacity under pro Petros revolving credit facility.

Although our borrowing base will be adversely impacted by the expected decline or customers activity, our discipline commitment to executing projects with positive returns will also allow us to protect our capital structure. Accordingly, given our current activity forecast, we've reduced our total capex expectations to less than $85 million.

<unk> for the full year, 2020 of which $40.1 million well spent in the first quarter. The vast majority of capital spending in 2020 will be on maintenance Capex.

Okay, all our historically lean capital structure has proven beneficial as we continue to maintain stable level of working capital as well as positive net cash balance for the remainder of 2020.

Our efficient GNS structure, and blue chip customer base favorably position us to preserve our liquidity and capital structure. During these times depressed activity.

In the near term, we will lean on all of these advantages that we have outlined as we currently expect to average between three and four effectively utilized crews in the second quarter 2020.

Finally, we would also like to know that we expect a significant portion of our near term revenue to consist of compensatory idle fees stemming from contractual provisions with pioneer natural resources intended to supplement our financial health during times of depressed activity.

These fees will provide critical support during periods of unprecedented declines in activity as intended with that I would like to turn it back to filler.

Right Sam Thanks.

We have previously announced our team continues to focus on ways to streamline our operating cost structure.

And we've already executed on many cost saving initiatives, including the following.

Rightsizing, our labor footprint, while maintaining our core talent.

Today, we have reduced our workforce over 65% since mid March.

Significantly reducing maintenance.

Net capital expenditures and field level consumer goods.

Negotiating all pricing for expandable items materials used in day to day operations and large component replacement parts.

Internalizes certain support functions that were previously outsourced.

And reducing compensation of all officers executives and directors.

Well, we will undoubtedly continue to look for ways to streamline our cost structure.

But believe that our swift and decisive actions have put the company positioned to main our competitive advantages without risking our financial stability.

As activity recovers over the medium term.

Spectra remain retain our core competency a flavor talent.

M. retention.

Our people and customers have driven our outperformance in the past and we expect that to continue beyond this downturn in activity.

Now for a brief update on our Verastem project.

Due to rapidly declining oil field activity in the second half of March management decided to reevaluate deployment, but first terrorist in fleet.

And delight further operations.

However, moving forward individual burst in pumping units will continue to be tested and developed by working alongside conventional equipment to the allowed to allow the company ample time to collect data in various operating conditions.

Our manufacturing partners will also continue to past and run the dollar stem units in a more controlled environment at the manufacturing and testing facilities.

We along with our customers fully intend to redeploy the dura stem equipment on a larger scale when market conditions improve.

As we've said many times previously our team and many of our customers continue to hold a strong belief.

<unk> pressure pumping mous significantly evolve.

For our industry industry to remain competitive on a global scale and we feel that tourist and can play a role and making those critical advancements.

In addition to cutting cost and Rightsizing our business in the nurse near term.

<unk> Petro remains laser focused on.

Building on our Homefield advantage in the Permian Basin.

Leveraging our solid customer relationships, while also internally protecting our uniquely collaborative culture.

We're also proactively seeking additional ways to deploy technology to reduce pip location and streamline processes within our own walls to foster the innovation necessary to rebound from this downturn.

I understand the value a seamless execution during times of depressed activity in pricing.

Efficiently delivering value to our customers is the best way to ensure were chosen for the next project and as such for Petrello lean on its unmatched service quality and safety performance to capitalize on a future demand driven recovery.

But no near term expectation that pricing improvement or significant activity improvement.

Our goals are to remain cash flow positive in 2020.

And retain the core of our business.

Both of which are a travel achievable based on current expectations.

Lastly, Petro means a best in class Sufficiency story that will survive and capitalize on opportunities during this downturn and beyond.

With that I'd like to turn it over the operator for questions Hey.

We will now begin the question answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before passing that Keith.

Withdraw your question. Please press Star then to at this time of the momentarily.

Oh assemble our roster.

Our first question is from George on the away from TPH and company.

Go ahead.

Good morning, guys.

I want to George.

Just curious on the the P. XT contract in idle payments, obviously, a nice buffer for you guys to have <unk>. Most folks don't have contracts and you are end market, our contracts with any teeth and.

So just curious how that the payments works if if it's just kind of that cost coverage mechanism. If theres any margin embedded in there and then how many fleets you guys get idle payments for yeah, Theres, an upper bound to that.

Thanks, Georgia sand.

That's as you can imagine when we when we were putting this contract in place too.

I think smoothed out the curves in the volatility of of our sector in our industry, we never could have imagined the time.

Like like this one where were activity would drop so violently so quickly but that said given that we do have eight eight fleets committed to pioneer as we as we outlined in and in some information we released.

Last night.

They're these these these idle fees come come into play when when they are working fewer than those eight committed crews and we don't have work elsewhere for those acres. There are some fine points and technicalities that we don't necessarily want to get into today.

On the particular pricing on those idle fees and how exactly that they work, but but given.

How low activity was going to be in the second quarter. We thought it was appropriate to just outlined the dollar value that we were looking at there in the second quarter in the back half of the year.

Okay and that's that's helpful. And then the the outlet commentary and makes sense to me not expecting much of a rebound in the back half that they've been some kind of rumblings as crude oil has moved above 30, and then two WT as you know reached 35.

We've kinda hung in all right at those levels that some players are falling over adding activity back is there any dialogue that you're having with customers that suggest that Q2 or you know and maybe may may actually be the trough or is it ever did it does it appear everyone's still remaining fairly disciplined on the capital deployment front even.

At these crude oil prices.

Yes, I believe though it's kind of a little bit of both I think.

Yes, our RMP partners are also remaining capital disciplined as well as.

Initiating tops again as far as what our ability is to.

Redeployed fleets.

They.

Get ready to pick up activity on their side.

So all in all since it's been.

The talking been negative for the most part this beginning or into the first quarter began second quarter. It seems like.

There are some more bright spots a bright spots that we're seeing and with our talks with our customers.

So Georges fell about you know my view is we're probably at the trough.

We don't have a feel it if this optimism as a soft too.

Recovery, it's going to go out and that's going to go down if you kind of rate.

Everything, there's probably more things weighing against.

No a big recovery more on the downside, but I.

I would caution everyone.

Activity could pick up but it may not be profitable activity may not be cost effective activity. So to some extent if you see others activity picking up ahead of us it might be more of how their pricing their equipment to go to work as we said we plan to make maintain cash flow.

Positive that the fleet level.

All right. That's that's very helpful guys I'll turn it back over thanks.

Our next question is from Sox signed me come from J.P. Morgan well ahead.

Thank you Hey, good morning.

I mean, where Sean.

No three to four cruise fully utilized in the second quarter could you talk about the exit rate versus the average maybe how many crews are still active and.

What that profit per fleet can look like once you've been able to adjust your cost structure.

A great question, Sean the Sam.

I think I think the kind of the three to four.

Effectively utilized fleet number that we called out in the in the scripted remarks earlier is probably about as far as we're going to go there there are.

Certain time periods within the second quarter, where we've seen activity, obviously come down pretty sharply in the beginning of the corner.

Bounce around a little bit.

Exit exit the quarter lower than we entered the quarter.

But we don't I don't we're not sure if yeah.

The snapshot of a working fleet at any given point in a quarter is is necessarily useful data point, but we will say that.

Obviously, we we came into the quarter with with more fleets active then will be leaving the corridor.

And then a number of active fleets currently.

Yeah at work there given yeah, given that the numbers bounced around so much in the last six weeks were just I don't think we're in a place to quota quota actively number today.

Got it I appreciate that so then on the.

Yes, the fleets.

Just couple of clarifying points. There curious are there any cost associated they're they're being embedded in those numbers and.

You know it in the commentary last night, you noted that the that the number is going down in the back after the year is that because you're expecting more fleets to go back to work or something contractual there could you maybe just elaborate on that changed from the second quarter into third quarter.

Yeah, It will be though the idle fees as we as we've outlined previously are meant to just dampened the blows if some of this volatility for us so given given that pioneer chooses to idle fleet any at any given point in time and were well in lock step with them and in close contact with them on an ongoing basis of their their plans moving forward.

So we're kind of making our own decisions internally as if we if we want to carrying it any additional costs.

That would that would make those idle fees not cost free I guess to bridge to the deployment of another fleet that that being said that's not necessarily what we're doing right now we think that we've.

Sure shrunk our operations to fit today's activity.

And and from a pioneer standpoint, we would we would simply just reiterate the guy that that they've given in terms of fleet activity being two to three fleets for the for the balance of the year.

Got it okay. Thank you.

Our next question is from Tom Minichiello from Stephens go ahead.

Good morning, and thanks for taking my questions.

Good morning.

Sam just to clarify the last comment you made a regarding the.

And your guide and how it.

May impact you guys should we think of the three to four crews. The you mentioned being effectively utilized as.

Inclusive of whatever you're running.

TXT or in addition to.

No that would be that would be inclusive. So the three to four number we quoted this morning, that's that's our total fleet count Okay got it. Thank you.

And then I wanted to follow up on dearest.

[music].

The decision.

Too.

Modify the deployment of the first fleet is certainly understandable in this macro environment I'm curious are there also.

Aspects of the technology that you're still needing to refine specifically when its configured to run as an all electric fleet, what's the status there and where do you guys doing to tweak any of those configurations for when the market does recover and you may want.

To go to market with a fully electric fleet.

Yes, I mean this is Adam.

Yeah, I mean, especially during these times when we have in a more controlled to bought by environment, We're continuing to make.

Adjustments to both the physical attributes of the a pressure pumping on the on the unit itself and then as one of the software as far as all the.

Oh stuff, leading up to the poppers bars, the transformers the turbine the PDN the electric the electrical delivery component of it.

That is pretty much work pretty flawlessly so.

Only things right now that were that we're focusing on us being able to just make small adjustments to the equipment and be able to reduce redeployed on a smaller scale and continue to perfect. The direction of technology. During these the press star.

Tommys, Sam again, I'll add to that but I think.

Part of your question was getting at if we're if were maybe if were for filling some of the.

Benefits of.

The electrical system by not having the entire fleet together and I guess the short answer is to that is yes, you're not going to capitalize as much on things like fuel savings if.

So you've deployed wonder stem pump in into a conventional.

Diesel fleet, but that it by by doing that allows us to continue to gather data.

And fine tune in optimize.

There are stand pumps themselves so that when we are ready to redeploy.

An entire fleet all the gathered that that we've we've we've continued to learn throughout this low activity.

And I'd just add you know.

Our customers are still very anxious to to the boy the equipment they understand.

In this scenario what makes sense for both us and the customer not to be proving out the technology in times like net this just little tolerance for.

For those types of things too to work through.

But and incoming inquiries now on on.

No potentially use of their stem from a couple of customers.

Okay.

Thank you gentlemen, I'll turn it back.

Our next question has some Ian Macpherson from Cements go ahead.

Thanks, Good morning, gentlemen, I just wanted to clarify Im sorry, if I Miss this but you did report a positive cash.

Oh progression and ended the quarter through the end of May did that include the Q2 idle payments from pioneer already and at that and that new balance.

This is Derek <unk> it it did not.

Okay.

So.

Thanks for clarifying that.

More structurally.

After being an unrivaled growth story.

For the past few years, what do you think you're going to be the biggest challenges retrenching now.

For a normalized future that will be better than.

And today.

You're not.

Accustomed to stacking.

So much equipment, introducing so much of your workforce, where where do you think the biggest pain points are they need to manage towards to be able to get back into settle next year.

Anticipating a miss some some form of a better normalized market and how do you preserved the quality given given so much.

Attraction in the short term on the equipment and labors.

Great Great question and this is Sam.

I think I think it's.

It's fairly simple up I don't think any of us would say.

It is easy, but the focus for us has to continue to be on our execution at the well site.

Safety and well being of our employees that that are enabling that execution.

Fission sees is going to continue to be.

An increasing value add for our partners upstream.

If we if we can continue to help them create value through efficiency.

In our operation then I mean, we think we will we will remain extremely competitive.

We will we will coupled that with our continued focus on what we think is the premier or resource play on this side of the world.

Density in this area is gonna be very important.

And if we can if we can keep our focus on the Permian and keep our execution it at industry, leading levels and then I think.

I think we'll be very competitive.

And this is Adam to add to Sam's comments I would say.

Even in this unprecedented time lease we remain.

I'm confident that we retained the part of our.

Employees that.

Our able to.

Recruit and call back a the needed.

Workforce as we ramp back up when times improve.

Weve.

Also implemented certain strategies on rotating equipment to be able to keep equipment in good health.

Through this downturn and to be able to deploy it when needed.

The we'll see a quite a large expansion and useful Weiss estimates across the entire fleet not not simply simply it's working in some please park.

Correct correct.

Thank you gentlemen.

Thanks, Dan.

Our next question, there's some Marc Bianchi from College Carlin go ahead.

Thank you I.

I wanted to go back to the.

To the idle fleet discussion are idle fees, a discussion quickly and just think about it in the context of overall gross profit. So it sounds like you're really not I'm gonna have any associated costs or at least for now with those idle idle payments what about the rest of the business.

Is it maybe safe to say that you know the rest of the business can be gross profit breakeven or better even during second quarter.

Yeah. That's that's this is saying that's definitely the intention I don't I don't think we have.

At the at the fleet level of our operating fleets have any intention of operating below gross profit levels, Yeah, I think isn't as a subsidy.

Yep Yep, and then as a as I think about the Gionee here, you know you announced kind of the plans to to lower some costs, there and I suspect whatever you're doing is ongoing.

Is there is there a level quarterly level, we should see that trend towards through 20, and then how do we think about you know what that looks like as activity ramps back up as it is there a certain savings that you think could be retained as activity comes back.

Yeah Gee, that's a great question on DNA. We've we've traditionally operated very very annoying operated very in a very lean manner at the at the DNA level. We'd also know because if I mean, we are.

Within our client gnh structure that.

<unk>.

Not all of our G.N. agents people in fact, it's far from that it's it's made up of other components of which we do think there will be.

Savings.

But they don't come as quickly as say.

Some of the variable cost savings that come with stacking a frac fleet.

So we're working through all those right now I don't know if we can quote you remember.

I think our near term goal would be to get it below what what you saw in one Q.

HM Okay. Thanks for that and then maybe if I could just one more.

Question for fill up.

Well I, how should how should investors think about your tenure in in the CEO position.

<unk> is this expected to be sort of a permanent role for you or is it a matter of you know getting getting the filings wrapped up and you know maybe.

Getting getting things back in order and then perhaps I'm looking for for a replacement on a more permanent basis.

Yeah, I don't think it's any different than probably any other CEO certainly not now coming to.

The main thing is to get current the operations running fine and obviously the biggest.

Objective of the board and myself is to get succession planning up and underway.

I'm not the youngest guy in the world.

Probably most of these guys are at my age so theres a lot of development going on in succession planning at some point it'll make sense for <unk> for me to step out of the C hero and.

The next person ready to go so I don't view it any different my situation than any CEO and the business right now honestly.

Okay. Thanks, very much I'll turn it back.

Our next question is from the courts <unk> from Altacorp capital go ahead.

All right. Thank you just one clarification question the.

The Ivas revenues a thought for the final contract that's going to be incremental to the second half active clues that you've been to have into second quarter is that correct.

That is correct.

Okay. Good secondly, how do you have a view on how many fleets are currently active in the Permian for the industry.

We think we think right now, we're probably somewhere around 20.

It's been.

Lower recently.

But it's it's probably I think our shop views 20, or just under 20 fleets in the Permian.

Okay.

And then intensive.

What do you think fleet and cementing trucks like how many are currently active organically meant.

This is Sam again for our first cementing operation we've seen we've seen our are deployed units trend down basically in line with rig count.

We have every indication that we protected our market share there to quote you a specific number of cementing units I don't I don't know if I have that in front of me right now and.

We would we would say that are our coal tubing operation has trended.

Fairly concurrently with our with our Frac operation as as we share a lot of the same customers there.

Sure No interim Sofia.

At the mall, where you know it's linked to yard accounts receivable receivables. We continue to shrink that you know that good thing or any decides they love it down as well what steps are you taking and you know is that something that you're looking at to maintain a growing beyond the capacity of the size of the Nevada.

Well take a look at all options out there, but right now the revolver, we have a sort of a sort of the industry standard.

There's a lot of potential options that we can look at or are somewhat off the table right now with not being current so getting car.

It is definitely a priority to help.

Oh further think about that as we move forward.

Okay, but you know you're right now you have $24 million or so of the revolver capacity available.

He you know are there any concerns at all that is that something that you got to bundle that and.

Yeah, any any comments on that.

I mean it is as you said, it's time, it's tied to the balance of receivables is our activity Prins down so all receivables.

It's it's just a it's it's an unfortunate part of that part of the downturn. So.

What I love to have more capacity, yes, I would that.

Kind of scenario, that's that's that may not be afforded to me at the moment.

And we'll call I think I've got a lot of cash rather than cash positive so exactly.

Yeah, and then they should unlike unlike you know along a lot of a lot of our peers out there that's doing and thank you very much mm.

Our next question in some cases, <unk> well Molehill Oh from Bank of America go ahead.

Hey, good morning, everybody.

So I guess I wanted to Hey, I just wanted to come back to the to the P. XD I guess, maybe just start I guess Twoq you I mean, maybe if we can split you know the conversation up between yeah. You could have three to four fully utilize fleets and then you've got you know effectively four to five effective idled fleets that you're going to get some.

Form of revenue from so I guess first on the three to four active fleets are fully utilize fleets.

How should we think about the profitability of that do you think that your adjusted EBITDA. You know will remain positive for those fleets and then you know for the four to five which gets you to eight I think you said eight earlier that the conference call. So four to five effective idle fleets. How should we think about you know revenue and profitability of that and.

Regarding the four to five I.

I think pioneer or sorry, yes, so I think they actually talked about 20 to 30 million of other revenue in their presentation. There was associated with idle fleets rigs et cetera.

If you said significant portion of revenues are associated with the PST contracts I would think that it would be more than 20 to 30 million. So just kind of add some context. So that if you can.

Oh, yes.

This is Sam there.

There's a lot because there's a lot in that one chase I'll I'll take my best shot at it.

HM.

The idle fees are there's like I said, I think I said earlier.

It's it's not a simple straight line for one unit of time, there are few more intricacies involved in that in a in the idle fees that we don't necessarily details that we don't necessarily care to get into today.

Given a confidential nature of parts of that contract.

With.

With far.

Fleets that we are working in the second quarter.

We just like we outlined earlier expect us stay cash positive at the at the crew level. So that would be EBITDA positive you know EBITDA minus maintenance Capex would get us to our crude level cash flow. That's that's how the calculating that number I think I think you're I think you're familiar fat. So can we pinpoint exactly.

Where that where those numbers will come out for the second quarter right now no not necessarily there were.

Pretty significant amount of moving parts as we as we shrunk our operation and sought some cost savings.

In the first part of a quarter that we're still kind of gathering data.

And looking through the outcomes of some of those movements and as we get into June here to as the dust is settled a little bit.

We are hoping we're hoping to see some more.

Indicative data of of that strategy to keep to keep yes, EBITDA positive and and cash flow positive at the fleet levels. So I'm not I'm not sure necessarily how how helpful that answer is but it's just it's just hard to get detailing some of those areas right now.

Okay can.

Can I have you or talk to the 20 to 30 million that's disclosed MPX. These most recent presentation can we assume that that you are significant portion of revenues that it has to be more than that.

Well, we outlined in our 8-K up that we filed yesterday exactly a range of what are we think our revenue from pioneer idle fees will be in the second quarter I don't know form position to speak to numbers that they've disclosed in there and there are releases or information.

Okay Dan.

Period of time change between when they put that out when we put this out and you know.

Got arm and Jim so.

Understood. So one quick follow up if we can just kind of come back to tourists stem.

You know in Kinda talk to how you expect kinda your electric sleep configuration to evolve over time, I guess I Wanna, specifically ask about turban sizes.

I know, there's an aftermarket if you decided you know that maybe you wanted to go as some smaller turbines or anything.

Are you looking into this about potentially using smaller turbines or are you guys still kinda I'm going to use the larger you know wind turbine option when we think about the electric fleets.

Well I think there's there's.

Open questions on that right that's a.

Just pro Petro provide the power does our customer provide the power does a third party provide the power right now we've got the two turbans.

I think I mentioned on the last call that you know our desire is.

The turban it has been flawless its preferred <unk> extremely well unfortunately, when you're cycling up and down on turbans the greenhouse gas emissions.

Probably are not where we would like them to be.

Never could be some control technology or don't doesn't know what that would be in terms of cost in.

A little bit availability, you'll see us run. These stores then pumps in a single pumps in the field.

With that they're a pack, which is a different power generation source more of a reset and turban.

And you know well, obviously evaluate that I think the emissions profile on that look pretty good as it relates to greenhouse gas. So there's a number of open questions out there so.

It's a broader questions and size of turban I believe.

Chases Gotta am I'll, just I'll, just add to that I'm, a little bit I think weve. What we've said previously before is that it it probably won't be a uniform approach to every fleet. It it very well could be in the future, but as we see it today, we look at the need to our customers that are interested in it.

Electric technology, it very well could be various different tools that we that we deploy to execute on our on our electric offering you know big turbans small turbans more conventional generation.

Probably all the but all the above in the near term.

Okay I really appreciate all the color I'll turn it back over.

Our next question is from Scott Grabber from Citigroup.

Go ahead.

Yes, good morning.

Morning.

And Oh, sorry, if you answered this earlier, but how should we.

I think a maintenance capex goes perfectly basis for the linearity.

Historically, we've we've quoted that number around $7 million annualized per crew.

On our last conference call. We we quoted a number that would be less than that maybe trending towards 5 million on annualized basis in the and the in the back half of this year.

I don't I don't think we would necessarily change.

Change that guide today, but we're working very hard to drive.

Driver maintenance Capex down as Adam mentioned earlier through different very strategy to rotating equipment extending.

The calendar life of all of our equipment. So I think I think theres. Some some savings to be had their near term and we're going to keep working on that up to that you guys over the next couple of quarters of our of our initiatives.

There.

And that 5 million or so does that fully loaded that that doesn't include.

Well in components off of other pumps it.

No. We don't have any plans to cannibalize any equipment near term right now that would be.

That would be a last resort option, it's more it's more around the rotation of equipment.

And increasing the average fleet size on location, that's going to allow us to drive that number down.

Gotcha.

And then there was a comment that you know when activity starts to pick up its probably not going to be profitable work and that's.

Pretty obvious just given where utilization is that right.

The question is you would you guys be satisfied with putting fleets back to work at something just above cash break even when you actively good starts to resume or when do you think about demanding a price fell to cover corporate overhead and restart cost and.

Well, you working on reducing maintenance Capex I imagine there. They eventually could be some pressure upward a maintenance capex as well do you guys.

Are you willing to two demand to pray still early on to the become more corporate cash breakeven. It if you end up sacrificing share.

A couple of quarters. It just seems like there's no movement on price because utilization is so low you in the industry could just being a position where at the corporate level.

We are burning cash for a couple of years I was just is is a big child for everybody. So yes in the early innings of recovery I guess the question here do demand or the price, but really on even if you end up sacrifice the share for a little while.

Scott This is Sam I'll take a shot at that I think the short answer is it it it depends.

We we have a luxury of having a customer base that we've worked with for quite some time in some instances some of these more active customers <unk> well in excess of five years. So.

So our are working relationships and the transparency that we've we've shown.

Basically all of these dedicated customers that we service is gonna be extremely helpful. We think as activity begins to pick back up that said, we're going to be more apt to be more flexible and more willing to redeploy equipment with with customers that we have a very good history with.

Coming out of.

2016, I think we showed a pretty.

A pretty great ability to redeploy equipment around market rates and kind of continue to grind.

Efficiencies in pricing higher together, where we were winning alongside our customers.

Does pricing need to move higher for our services in our sector to be more profitable I think everybody would agree yes. We we think that's a two way street and will animal and will collaborate with our customers as much as possible to help them a fair needs is as wells produce.

Value to the extent we can.

Yeah, I think in the long term.

Pricing has to get to a point, where you get a return on your investment because you're going to have to reinvest and.

Your equipment.

In services over time near terms a different story.

Just my observation on the big problems in the service industry.

Is there too quick to go back to work.

Negative margins and only create bigger problems for themselves down the road.

Core equipment.

Sufficient operations.

We don't plan to take that path.

But near term.

Cash flow breakeven.

At the fleet levels, it's a good goal for us and when we pick it up it's got to get beyond corporate.

Covering corporate it you've got to get a return sometime on your equipment to continue doing best.

No I think you hit the nail and the the head industry needs the discipline, even at low utilization levels to.

Start demanding better returns so.

Good luck to get to you guys appreciate the color.

Thanks.

Next question is some verbs those slots from Scotiabank go ahead.

Hey, guys and good morning.

Uh huh.

I wanted to understand the Matt obviously maintenance Capex, what's its fleet. So if I think about 40 million of maintenance Capex for the remaining nine months.

And I think five to seven none enough maintenance capex eight.

Implies about eight to 10 working fleet and we know second quite it would be like to do for fleet.

Is the implication that in second half it could be.

Some like you're thinking about maybe 10 to 12 liter Lucky.

Vibes I don't I don't know front, a position to get into any any additional detail in terms of fleet count numbers as we look at our capex for the rest of the year.

And look at just the near term activity.

Expectations that we have.

That that seemed like a appropriate number.

Maybe with some slight conservatism baked into that.

But.

Just as we know things things can change very quickly to the upside or downside I think for for the remainder of the year that that'll be a number that we'll continue to get you updates on as we as we report and ER.

And additional quarters this year.

And understandable.

No I don't.

Do they have any maintenance capex associated embedded in your guidance.

Not not any not any significant portion we do I need to part of.

Part of what those idle fees could be used for could be a warm stacking equipment or keeping things ready, but not any not any significant extent, though.

Our next question is some can't get Lambert from Credit Suisse go ahead.

Hi, just thinking about the contract structure that you guys have with pioneer and obviously helps you protect a invested capital base and downturns like this.

How do you think about the ability to make that contract structure more wide spread through your business or are there any other mechanisms you might be able to use to reduce some of the cash flow cyclicality in your business.

Oh, Great question, Jack the Sam again it at all.

Our our sector undoubtedly needs, a little more consistency and and and we know that we've been trying to provide that consistency through having very efficient operations and partnering with blue chip customers just like pioneer.

We're we're not sure theres another opportunity just like just like the one that we've we've executed on the pioneer out there given that we purchased.

A good amount of assets from them.

And set up this contract, but are there going to be small opportunities to possibly get more contractual in the future. Yes. We think there are.

What that will look like I think I think we're trying to figure that out.

As we go here would would be like more.

Contracts like yes, yes, but it's it's it would be hard given that given the opportunities like the one we had with pioneer and that's just don't necessarily exist.

Okay, and just just a follow up on that is I'm just kind of curious if you've had any maybe in the current environment. It's more difficult, but you got any conversations with customers about some sort of a maybe not exactly what you have with pioneer, but some sort of a contract structure that would deliver a little more stability in your business and.

How you characterize appetite and in any of those conversations you had the past.

Oh I mean in this environment, there's there's really not any right now as you can imagine in the in the past I think it's been it's been an idea at certain points in time, and maybe just been socialized with certain customers.

Like I said, we're hoping that there's opportunities for that but but right now we're more focused on.

On you know, our our internal operation and then and taking care of our team and and our customers that do have activity right now.

Understood and then just on on Q1 I was wondering if you could just touch on how efficiencies trended in the quarter relative to Q4 now how should we think about that outlook for for to Q and second half of the year operating at a very level low very low levels of activity.

Yeah, I mean, <unk>, but if you if you just look at the numbers of certain operating metrics efficiencies were.

We're off the charts again comparable to Q4 in many ways Q4 was kind of a record internal record setting quarter for us.

Flat to up and slightly up and some of the most importantly in important operating metrics.

I think the one personally stuck out to me was was how how much quarter over quarter Q4 to Q1 that we.

Cut back on downtime, yet again kind of.

Oh, Petro specific downtime, mostly to deal with equipment downtime.

So everything kind of continues to trend into right direction there.

Okay, and any any commentary on how you think that could look in Q2 and the second half just think about maybe some inefficiencies that might come through the system, just just given the low level of of activity.

Yes, I could lose that.

Oh, Yeah, let me so far I mean efficiencies it remains you know.

Extremely I like Sam mentioned I think those efficiencies can remain there just because of.

The access the additional access to the equipment that we have the way, we're rotating that the availability to but more equipment. During these low activity time friends on location to make sure that.

We are remaining up and running for longer periods of the day as far as.

Less downtime like Sam mentioned, and that's kind of whats help us in that aspect is being able to have the additional equipment out there location and rotated but as well.

As far as the personnel those those guys out there the field have been performing at a high level.

Even through this.

These tough times.

I appreciate the commentary thanks guys.

Our next question is from Blake and then from Wolfe Research go ahead.

Hey, Thanks, Good morning domains me to beat a dead horse here on the pioneer fleets I'm just wondering.

Yeah, I think its state somewhere that the idling payments are contingent on you know your ability to go out and Mark those three to other opportunities now theoretically you want to market. The non pioneer fleets first and there are a lot of on utilized reconnect category is it conceivable that you know moving forward, maybe next year to year after that that.

Pioneer run fewer than eight spread and you're able to market at least one or two though spread to other customers there's ever move those spreads and those assets from the agreement and is there any you know recourse. The pioneer can then come back and bring those spreads back into the agreement.

Like the short answer to that is is that the view the eight fleets exist in the agreement to that specific checkpoints and the and determine the duration of the agreement will will simply do our best.

Now to deploy that equipment work with pioneer on their plans.

You know to mitigate any any access fees and in the future.

Gotcha, and then you may have touched on it in another question, but the strategic outlook for the other services segment.

It's been a segment.

The challenge in terms of generating EBITDA I'm, just wondering you don't out at some of these auxiliary service lines, you, Atlanta, or structurally oversupplied, whether or not.

You'd be aptitude for wind those down in any any capacity.

Yeah, the revenue associated with far other services segment is is totally in part due to our coal tubing operations.

We've said this in the past, but the main reason why that my best segment gets drawn negative is because that's also where our corporate overhead costs our house.

Could we possibly get that positive in the future, possibly but but coal keeping in most recent times has has been profitable at the division level. It's just there's just a little noise or not and not in that segment well, we like I said earlier we.

We overlap quite a bit between coal tubing and frac in terms of customer base.

It's not technically we're not packaging those things together, but we are we are using our cooperation in lock step with multiple of our Frac crews, we think that that provides value in efficiency.

To to our customers operation as well so as long as there's still a decent demand there and we are able to make a return at the at the division level at a coal tubing and we will we will continue to operate.

That's a that's totally fair and then one more you know it seems like going to be task positive here through the worst of the downturn I'm just wondering what your preferences for building cash on the balance sheet versus paying down debt and if you have a target absolute amount of debt to keep on the balance sheet moving forward.

And this is Derek do you know just following how our revolver works is.

<unk>.

Borrowing bases Redetermine monthly and I need to stay within the guidelines of that so that is that goes down.

I think you'll you'll see us further paying down debt to stay with them within the bounds of our agreement.

Got it thanks.

Our next question is from John Daniel from Daniel Energy Partners go ahead.

Hi, guys, thanks for but man.

Hi, Dan you mentioned your your guesstimate of 20 fleets running in the basin today.

Obviously, you're not going to give guidance on where you'll be at the end of the year, but based off of that quoting activity, you're seeing what would be your gas for the basins fleet count by year end or somewhere in the fourth quarter.

Oh, Great question, John I'm, not I'm not sure we have a shop view on that right now the or our focus is a little bit.

More near term than that we just hope it's it's higher than it is today.

Fair enough. Okay, then how about this how would you characterize the level of inbound calls from customers getting quotes and the last week or two versus where you where you know when oil was completely collapsing.

Well I think I think it's we've been getting quotes all along and when when oil was completely collapsing we were giving him for what we thought were different reasons at that time than we are today.

As you know, we just we staying pretty close contact with.

Most of our customers as we've had.

Quite a long working relationship with.

With our dedicated customer base, so I don't.

The the conversations are different but I don't I don't think the frequency of them is much different.

Yeah.

So on I, just got two more quick ones like in asked about a very good question I want to piggyback on that.

I know when you're in the prices right now it's hard to think big picture strategically, but yeah as you sit back as a management team, what's the optimal size for pro Petro.

I mean do you try to get back at 20, plus fleets already or you're better off being a 12 importantly company.

Once the market recovers just your thoughts there.

Great Great question, I think through having a little bit more slack in the system from an equipments standpoint that we are able to justify a larger average fleet size in terms of downtime and efficiencies and productivity all those things.

We will continue to look at that.

Hard to say that it but it would ever be you know and then in the mid Twentys again or that it would ever need to be in the mid Twentys again.

In terms of our.

Total capacity, but we're we're looking for that balance in terms of how much equipment is the right amount of equipment to put on location to maximize.

Operational efficiencies.

Got it sounds like the more equipment on location is probably.

Permanent as opposed to your just doing it now because there's a lot of available equipment.

No Yeah, John John This is Adam a I wouldn't say, it's probably but definitely a it it is a big.

Part of what we're doing now to extend the the counter life of the equipment.

I.

I would say going forward like we've always done with like what we leaned on our blue chip customer base to kinda dictate where we need to be but model here. We've always had is to ensure that as we increase activity level and had a crude that.

We do it at a pace where.

We had them on the as the last is just as good as the for the next is just as good as the last that we've added we definitely don't want to have any.

Decline in performance or safety measures as we ramp up activity level. So we'll do that at a pace that we've always like I said internally here make sure that we can.

Perform at the same high level for each fleet we had.

This concludes our question and answer session I would like to turn the call back to fill it up for closing remarks.

Thank you and thank everyone for joining us this morning, I'd like to just reiterate a few important points before we close out.

First we truly believe that we have the best people in the pressure pumping business. This is evidenced by many years of execution excellence and we expect to maintain this competitive advantage going forward.

Second we expect the main maintain our strong net cash position and expected to be an asset when activity recovers.

Third in the near term will focus even more intensely than we ever have on execution at the well site and we believe this will continue to differentiate our service.

And finally, our blue chip customer base that hold some of the best acreage and economics in the upstream energy.

Industry will continue to be a foundational difference for us. So thanks again for joining us and.

Well catch up on the next quarter. Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.