Q4 2020 Nextier Oilfield Solutions Inc Earnings Call

[music].

Good morning, everyone and welcome to the next tier oilfield solutions fourth quarter and full year 2020 conference call.

As a reminder, today's call is being recorded.

This time, all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

For opening remarks, and introductions I'd like to turn the conference call over to Kevin Mcdonald, Chief administrative officer, and General Counsel for next year.

Sir Please go ahead.

Thank you operator.

Morning, everyone and welcome to the next tier oilfield solutions earnings conference call to discuss our fourth quarter and full year 2020 results.

With me today are Robert Drummond, President and Chief Executive Officer, and Kimi Peashooter, Chief Financial Officer.

Before we get started I would 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 call. This morning includes statements that speak to the company's 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, which 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, except as may be required under applicable securities laws.

We refer you to next year's disclosure regarding risk factors and forward looking statements in our annual report on form 10-K subsequently filed quarterly reports on form 10-Q and.

And other Securities and Exchange Commission filings.

Additionally, our comments today also include non-GAAP financial measures.

Additional details and a reconciliation to the most directly comparable GAAP financial measures are included in our earnings release for the fourth quarter of 2020, and with respect to 2019 related non-GAAP financial measures and on.

Our earnings release for the fourth quarter of 2019, each of which are posted on our website.

With that I will turn the call over to Robert Drummond, Chief Executive Officer of next year.

Thank you Kevin.

And thanks, everyone for joining us this morning.

The fourth quarter capped off what was perhaps one of the most challenging years ever facing the oil and gas industry.

Driven in large part by the demand destruction, resulting from COVID-19.

Despite this our team remained focused on delivering for our customers and best positioning next year for the future.

As we stated during next year's second quarter 2020 earnings call.

As we were in the depths of the downturn our objectives was to position the company for the long term.

The day, we look forward to discussing how we delivered on this commitment on maintaining a strong balance sheet.

Establishing a leading market readiness program.

And investing in initiatives positioning next year as a complete integrated solutions provider.

We maintained a sharp focus on responsible operations.

And demonstrating balance between redeploying equipment into service and pricing discipline.

I'll start with an overview of highlights for the fourth quarter.

We grew our revenue base by more than 30%.

But on overall rebound in activity from trough levels.

We were successful in driving this increase in activity through the profitability.

Delivering fourth quarter, adjusted EBITDA of $8 million.

Spanning margins by over 500 basis points, and resulting in Incrementals of approximately 20 per cent.

We averaged 17 deployed and 14 fully utilized fleets for the quarter.

Oh from 13 deployed on the 11th fully utilized fleets in the prior quarter.

We have successfully redeployed 11 fleets since the end of June with minimal startup cost evidencing the strength of our readiness program.

Our readiness program is designed to profitably deliver job ready equipment.

And trained personnel on demand.

Gives us confidence in our ongoing ability to efficiently capture business development opportunities with new and returning customers.

We furthered our work scope expansion strategy with meaningful growth in our integrated logistics services.

While our new power solutions business announced last quarter has been met with clients' enthusiasm and interest.

Elevating the strong future potential of this service.

These two growth avenues continues to be an important component of our strategy to drive greater revenue on pull through to other services.

While upholding our commitment to sustainability by further lowering the emissions profile for next year and our customers.

And lastly, we exited the year with $276 million on cash.

Meaningfully above the $255 million that we committed to in early 2020.

This was achieved even with the additional strategic spending on tier four dual fuel upgrades that we announced in the fourth quarter.

Our success in increasing next year's cash balance reflects the vigilance, we maintain around cost control and capital efficiency.

While balancing investments for the future.

I'm proud of the team for their perseverance and continuing to deliver on our commitments and again demonstrating the quality of our people at all levels of the organization.

While 2020 was challenging for economies businesses and communities around the world. We were very successful in driving results adapting our business model and focusing in on executing our long term strategic initiatives.

We advanced our strategic initiatives that will solidify our leadership position and responsible operations.

While improving our medium and long term position.

And a year filled with numerous challenges we successfully integrated our merger of equals so solidified the performance driven culture of next tier strained.

Strains on our operations with the successful divestiture of our major operating segments.

And navigated the unprecedented market impacts of COVID-19.

With that backdrop in mind I'd.

I'd like to share several key highlights from 2020.

First we marked the first year anniversary of Keens merger was seeing day to for them next year.

We have achieved and in most instances outperformed the milestones and rationale set forth at the announcement of the deal.

We advanced our position as the largest natural gas powered fleet deployed in the U S. We increased our investment in tier four dual fuel capabilities through the conversion of existing equipment.

On the integral part of our carbon reduction and overall ESG strategy.

Since the merger, we've announced a reduction of 650000 nameplate tier two diesel horsepower that can be considered as permanently out of the market.

Taking these steps will bolster our maintenance inventory overtime and partially fund our carbon reduction initiatives.

Additionally.

Through our tier four DGB strategy, we continued converting more existing horsepower in our fleet to be fueled by natural gas.

We launched next to your power solutions.

Which integrates our completions and logistics capabilities with field gas treatment.

Gas compression and gas delivery.

This effort makes it cost effective and easier for our customers to transition their operations to a lower carbon footprint.

We fully integrated our digital platform across the value chain.

Key enabler to our low cost low carbon strategy and next hub is at the center of our operating model.

We continue to structurally drive out cost with fourth quarter, adjusted SG&A, nearly 57% lower than the first quarter.

We executed a full E. R. P M H R. I S system upgrade during the integration.

Which arms next year with a world class per platform for conducting our business realizing back office efficiencies as well as an even stronger platform for future acquisitions and integrations.

We have enough star market readiness strategy and business development capabilities.

Nearly tripling our fleet count since the trough with minimal startup cost.

And even with this high level of re commission activity, we upheld our commitment to customers by delivering operational efficiencies and safety performance at our best and our combined company's history.

And as I've said before we have the best people on the industry and I would like to thank each and every next year employee for their contribution and Brazilians.

No doubt we will look back on 2020 is a pivotal year for next year.

Our action set up the company for the long term success.

The unprecedented challenges that we faced.

So turning now to Q for market conditions.

Police and activity improved throughout the third quarter with this momentum extending into the fourth quarter.

Our customers upheld a robust seasonal pace of activity through the end of the year.

While this dynamic was generally expected the overall resiliency of activity in December was somewhat better than we anticipated.

While activity levels have improved.

The mix of customer work and other factors is leading to continued utilization headwinds.

We are experiencing calendar utilization challenges as customer schedules open up gaps between jobs.

Operators continue to ramp up activity.

As anticipated.

This coupled with continued weak market pricing.

Weighted on the earnings power of our platform in the fourth quarter.

As we advance through the first quarter, we're seeing similar levels of activity gaps and some unplanned weather delays that will put pressure on the rate of recovery in Q1.

However, looking into the future we do see some of these calendar inefficiencies beginning to abate, especially as some of our long term customers will begin to add meaningful activity through the year.

Turning to the overall market fundamentals, we are encouraged by the recent stabilization of crude oil prices around 50 to $60 per barrel, which if maintained we believe could drive a healthy level of future investment and activity in U S shale.

I'm most estimates U S land began 2020 with $20 million and nameplate hydraulic horsepower.

However, a significant portion of that has not been active on a long time and it's not in any condition to be able to address future demand.

Since then.

The amount of supply has been retired.

For next year.

Like many others did our part to retire excess diesel powered capacity and permanently remove equipment.

Much of which had worked in the previous year.

With this recent supply attrition, it's now estimated that the total market supply bass is approximately 12 to 13 million horsepower and we believe that not all of it is marketable due to the high cost of reactivation.

In addition horsepower intensity for each fleet continues to grow as our industry adopts more complex completion techniques and we believe that when horsepower returns it will likely be utilized across fewer fleets.

From a macro perspective.

As an increasing percentage of people are vaccinated and economies continue to recover on improve.

We believe a greater call on U S shale production will be needed to meet returning global energy demand.

Supported by higher oil prices, we expect this dynamic to drive a robust U S land activity increase in 2022.

It begins to emerge and customer planning in the second half of this year.

In this scenario, we agree to with estimates by many industry participants at day.

Market could require about 200 to 225 frac fleets to keep U S shale production flat.

We believe this level of activity sets up a favorable climate climate to recruit service pricing.

Conceded at the bottom of the downturn.

Further on.

The increase in call on emissions reduction, we expect there to be an even greater demand for gas powered fleet than we're seeing today.

We're overall bullish on this equation.

Compounding our optimism is a relatively under supply of natural gas powered horsepower.

As we estimate only 20 to 25 per cent of the horsepower that is deployed and working on the market today can utilize natural gas as a power source and meet the growing need for carbon reducing solutions.

While the macro continues to play out we are focused on what's in our control and best positioning next year for the market recovery.

We are excited and motivated by several of our key growth initiatives that we have completed and are currently underway.

Worst.

Our low cost low carbon strategy is now deeply ingrained in all aspects of our organization and culture.

The additional D. G Bay conversion upgrades to our current fleet bolster our capabilities to drive lower cost and reduced emissions for next year and our customers.

We are intensely focused on optimizing gas substitution across our fleet.

Enabled by proprietary capabilities like next hub and M. D T Frac controls Cup.

Coupled with the growing expertise of our power solutions business.

Importantly, we have included cost effective gas substitution and safety performance as components of executive compensation.

Demonstrating our complete alignment with these ESG goals.

Additionally, we are currently field testing on the Eplex system under our new arrangement with N O V.

Further advancing our options for deploying carbon reducing technologies into the market.

In support of our strategy of prioritizing responsible operations, we remain committed to allocating all future frac growth capital to equipment that lowers emissions.

We believe that multiple natural gas power technologies will be utilized.

As we strive to lower the emissions of our industry and next here intends to maintain a leading position by providing our customers with solutions and price points that meet their specific requirements.

Second is the launch of our power solutions business.

This business provides the expertise treatment and delivery surfaces to integrate and optimize the supply of natural gas to our frac fleets.

C N G compressed natural gas or field gas.

Or ideally both.

The rationale behind power solutions is to make it easy for our customers to reduce their carbon emissions.

<unk> from diesel to natural gas due next heaters integrated platform that aligns our priorities.

We are positioned to do this more effectively than current solutions.

Since announcing this business last quarter, we for.

See the incredible interest and positive feedback from our customers.

We're now having conversations with customers about integrating gas supply that we've never had before evidence seen tremendous value on even more fully integrated completions platform.

These are strategic investments that allow us to expand our work scope.

Leveraging the infrastructure already embedded in our footprint.

We expect our power solutions business to be a key driver of returns and we are expecting attractive threshold economics.

Third presently.

We are seeing a more rapid growth rate in our logistics business and our underlying credit business.

Our logistics business provides last mile logistics.

And optimized commodity management.

Providing the lowest landed cost to the well side.

With the implementation of digital and AI, driven logistics, the tools have changed and more and more customers are realizing that next here is positioned to provide a more cost efficient and reliable logistics platform.

We have Mexico, assessable, when converting customers, who are looking to optimize their self sourced logistics and commodity management.

We are extremely excited about the potential pull through opportunity into our core completion services offering as well as supporting our power solutions business in the future.

Fourth.

We have line of sight into greater activity with customers with which we have a strong incumbent position and a strong track record of achieving high efficiencies.

These customers are expected to come back later in the year and enter 2022.

Which combined with our strong foundation of current customers for my strong base of activity over the next several quarters.

Our expanded well side offering and diverse geographic footprint provides an integrated platform at the well side.

Wireline.

Brac power.

Power solutions and logistics services working as a completion team.

This integrated approach combines with the new digital tools will get next hub provides a higher level of efficiency to help the operator and lower commodity cost to the well site.

While reducing emissions and improving safety performance.

Together this reflects the strong embedded earnings potential of our platform.

As activity recovers and normal outages over the next 12 months.

We used the integration period during 2022 rebuild next year to adapt and create value through the full multi year cycle.

We will continue to maintain a strong balance sheet and financial flexibility, which remains core to our strategy.

We are encouraged by improvement in activity in 2021, and our strategic investments will allow us to continue to build out our low carbon platform.

Our team remains intensely focused on positioning next here to drive differentiation and value for all of our stakeholders.

I'll now turn things over to Kent.

Thank you Robert total.

Total fourth quarter revenue totaled $215 million compared to $164 million in the third quarter.

This marks a sequential increase of 31 per cent.

Which was primarily driven by increased activity growth across all of our policy for service lines.

As well as continued strong operational performance.

This was partially offset by continued inefficiencies in calendar utilization.

Bottom line when next tiers up for well site, we are operating at historic best level of operational performance.

Total fourth quarter, adjusted EBITDA was $8 million compared to a loss of $2 million in the third quarter.

In addition to the higher sequential activity levels.

We maintain our relentless focus on continuing to lower our cost of operations.

And our scope on the wealth side integrating service offerings.

Which despite the calendar headwinds on the quarter for us.

And on Incrementals of approximately 20 per cent.

Total adjusted EBITDA for the full year 2020 was approximately $79 million.

I fully realizing our merger synergies ahead of schedule and taking quick action around cost control. We were successful in managing adjusted EBITDA Decrementals. Despite the many headwinds present throughout the year.

In our completion services segment fourth quarter revenue totaled $200 million compared to $154 million in the third quarter.

Completion services adjusted gross profit totaled $24 million compared to $15 million in the third quarter.

During the fourth quarter, we deployed an average of 17 completion fleets.

When factoring in activity gaps, we operated equivalent on the 14th fully utilized fleets.

On a fully utilized basis annualized adjusted gross profit per fleet.

Includes frac and bundled wireline totaled $6 $2 million.

That's a $5 $5 million per fleet in the third quarter.

To help frame the impact of calendar inefficiencies I'd like to provide the following anecdote.

Assuming two additional working days per completion sleep per mile for the quarter across the fleet.

Which is still below our pre COVID-19 average and reflects an increase of just 10%.

We estimate that we would have generated an additional $7 million to $8 million and adjusted EBITDA during the fourth quarter effectively doubling our reported performance.

In our well construction and intervention services segment revenue totaled $15 million.

Up approximately 50% compared to $10 million in the third quarter and we expect this momentum to continue.

Adjusted gross profit totaled $1 million compared to $1 million of adjusted gross loss in the third quarter.

Posted sequential Incrementals of 34 per sub.

The improvement in results on both of our cement and cultural and business lines.

As a result of market share growth and focused basins that will generate returns now and over the long term.

Adjusted EBITDA for the fourth quarter excludes management net gain adjustments of approximately $3 million.

Consistent primarily of a gain on a financial investment.

Again on the make whole provision on the basic notes received as part of the wall support services divestiture in March net.

Realized gains on merger acquisition and market related settlements, partially offset by noncash stock compensation expense.

Of these $3 million on mezzanine adjustments during the fourth quarter effectively all were noncash.

Fourth quarter, selling general and administrative expenses totaled $23 $7 million.

Compared to $25 $5 million from the third quarter.

Clothing management adjustments adjusted SG&A expense totaled $26 million.

Reflecting a decrease of 57 per cent.

Vs Q1 of 'twenty one.

As we noted last quarter, we achieved our target run rate SG&A of $80 million ahead of schedule and are well positioned to maintain this level going forward.

Turning to the balance sheet.

We exited the fourth quarter with $276 million of cash compared to $305 million of cash at the end of the third quarter and meaningfully ahead of the $255 million target we set at the beginning of the year.

Total debt at the end of the fourth quarter was $336 million net of debt discounts and deferred finance costs, and excluding finance lease obligations compared to $336 million in the third quarter.

Net debt at the end of the fourth quarter was approximately $60 million.

We exited the fourth quarter with total available liquidity of approximately $349 million.

Comprised of cash of $276 million and availability of approximately $73 million on there are asset based credit facility.

Cash flow used in operations was $14 million during the fourth quarter driven.

Driven by the increase in working capital required for fun Q for growth.

While cash flow used in investing activities totaled $13 million driven by maintenance capex on additional investments in on tier four dual fuel car by reducing technologies.

This resulted in free cash flow use of $26 million for the fourth quarter.

For the full year total Capex, which includes investments in software and on next to your ERP upgrades totaled $124 million.

And then within the updated range, we announced on our third quarter call.

Turning to our outlook for.

From a capex perspective due to the range of outcomes on the market, we are providing an outlook for the first half of this year.

We will continue to invest on the quality and readiness of our assets for.

The first half of 2021, we expect our continued efforts on redeem.

Houston maintenance capex to yield a spend of approximately $3 million per fleet on an annualized basis for profit.

Total of approximately $3 million for the remaining service lines and software.

For the remaining portion of our Capex, which is comprised of strategic investments. We are planning to invest approximately $25 million to $30 million on our ESG strategy.

Which includes continued investment in gas powered equipment.

Power solutions business.

For our strategic capital remains highly flexible and we will adapt our investment cadence based on the shape of the recovery.

And demand for our gas powered equipment.

From a profitability perspective, we are currently seeing improved completions activity as we navigate through the first quarter.

However, as Robert noted pricing remains suppressed and we continue to navigate calendar inefficiencies.

As a result, we expect first quarter revenue to be modestly higher sequentially in the range of five to 10 per cent.

Well, we expect to realize 15 fully utilized fleets and 18 fleets deployed in the quarter.

Taking into account the expected impact of current inclement weather conditions in areas that make up a majority of our operations.

Which is shutting down operations for unexpected three to four days.

Our adjusted EBITDA is forecasted to be in the range of $5 million to $10 million for the first quarter.

In the first quarter, we continue to balance our speed of deploying additional capacity into the market.

With the pace of price recovery.

We do believe dynamics are building towards a tighter frac market.

The significant earnings potential associated with calendar improvements reflects the potential for an attractive set up as we navigate the remainder of this year after the next.

Based on our current line of sight, our expectation is that overall second quarter activity and resulting profitability will be.

Significantly improved.

Customers are returning with dedicated and robust completions programs.

He's white space.

In addition pricing should continue to improve particularly on the gas powered portion of asleep.

With that I'll hand, it back to Robert for closing comments.

Thanks Kenny.

I want to leave you with a few key takeaways.

Although 2021 is showing some improvement versus the second half of 2020.

We are recovering from a very low base of activity.

Based on improving market conditions, and our customer mix, we see 'twenty 'twenty, one steadily improving throughout the year with supply and demand potentially becoming more balanced.

When looking at next year's relative position on a through cycle basis.

I'd like to highlight our points of distinction as the market recovery takes hold.

Next year continues to have a large fleet of equipment that is market ready.

It can be deployed across any basin with our established footprint in the U S and in the Middle East and North Africa through our differentiated outlet with NASA.

Next year has a largest deployed wireline and plug and perf business in the U S land today.

A growing and increasingly healthier well construction and intervention platform in the right basins with significant market ready capacity.

Next year, we will deliver incremental returns from our sizable and growing tier for gas powered fleet and will be strengthened by the deployment of our power solutions business in the back half of this year.

This part of the business is focused on the upper tier of the stratified market with improved pricing fundamentals.

Next year, we'll continue to harness our newly tooled and advanced logistics capabilities and provide additional pull through opportunities to fully integrate our completions platform.

Next here has established a track record for supporting improved improving service delivery of all of these initiatives by leveraging the digitally enabled capabilities from next hub that facilitate responsible operations by supporting reduced emissions operating cost and safety risk.

Finally net.

Next year has the balance sheet to make countercyclical investments that will position us as a market leader.

As a meaningful recovery takes hold.

In summary.

We are very excited about the future of next year and we look forward for the next phase of our evolution.

With that.

Now like to open up the lines for Q&A after.

Operator.

Yeah.

Ladies and gentlemen, with that we'll begin today's question and answer session.

Can I ask a question you May press Star and then one.

For all your questions you May press star two.

If you are using a speaker phone we do ask for you. Please pick up your handset before pressing the numbers to ensure the best sound quality.

Once again that is star and then one for you.

And the question for you.

Our first question today comes from Sean <unk> from Jpmorgan. Please go ahead with your question.

Thank you Hey, good morning.

Good morning, John Good morning, Sean.

I'd like to start with.

Focusing on the profitability cadence for the Frac fleet.

So you noted.

White space negatively impacted your EBITDA it for Q.

You're getting a little more volume in the first quarter versus working on a ton more.

We're gonna be lose some days potentially given the extreme weather.

Maybe three to four days you quantified that.

As we think about the path towards.

Some form of normalized EBITDA per fleet could you maybe just walk through the building blocks from where we are staying.

In the first quarter to what gets us to a more normalized level of profitability per fleet. What do you think that number it looks like in this current cycle.

Hi, Sean for the question I'll start out and let Kenny put a little color to it.

And I would just say that obviously profitability per fleet coming off about bottom of the downturn is probably the worst part of any cycle that are that we've experienced before.

But we see a pathway.

Significant number of profitability levers to allow us to pool, our way back out of it.

Fundamentally I'd say yeah.

Rice is a in a position and you know that will sit at the worst part of the downturn, so getting base price recouping a bit.

Will take place starting basically now working through that process over the next multiple quarters.

But also pointing out that as we.

Develop our next Gen fleet deal for you or equally weighted whatever directions are our customers go those are in more demand than supply demand in that market is better so the chances for having more profitability around price in those areas.

It is prevalent.

And then we got we're building on this last mile.

Logistics tooling that we have come.

<unk> put in place over the last year, that's really changed the game and we're calling back a lot of.

Of the profit delivery with a number of customers because these tools change normally integrated model allows us to do a little bit more cost effective than had been done previously so we're seeing that already and we'll see more of that.

And also I would say when we get into the second half for the year power solutions will become being deployed and with that we will see additional revenue and profitability strange coming in around on Frac fleets.

And since the merger.

You know we've had our our integrated platform around wireline club pump down perforating right, it's been very key.

Teens previous existence.

Differentiated.

Frac stages per fleet.

Routinely delivered.

And since the merger not everybody not every test from fully understood that and the fluctuation of percentage of crews that are running integrated versus non integrated has fluctuated a bit.

And I'd say somewhere between a range of 60% to 80%. So we need to move that up a little bit more as we have brought in some new customers. During this last say two or three quarters debt are getting used to that process and testing it out a bit so upside there as well.

And then lastly, I'd say on a reservoir technologies.

More and more customers, taking the look at engineering completions in Houston lateral science team.

Place the completions and the most preferential spot in the reservoir along the horizontal they improved their dollars per barrel. So all of those levers.

For us the ability to move off its low point.

And and move back to a mid range is significantly higher than I would say all of those things. We believe can add as much as 8 million annualized.

Annualized per fleet.

Did you give a little more color perhaps on that.

Yes, good morning, Sean So Robert talked about all these kind of points of distinction and.

Now, we believe that debt over time.

As we add these capabilities and on a full cycle basis for next year.

As Robert mentioned, we should be able to deliver between six and $10 million of additional EBITDA per fleet, which will be incremental to base diesel profitability.

You know that that range is going to be based on.

The integration of the services. So the more integration that we have would be more on the upper end of the range.

Okay.

That's really helpful. Yeah, I really really good walk through there I appreciate that.

And then you know it sounds like you're seeing some bifurcation in the market between.

Dual fuel fleets versus traditional.

There's something I think we were expecting for this cycle.

But are you really seeing it just in terms of utilization uplifts or.

Can you get pricing leverage.

And that part of the market relative to what might be seen in among traditional fleets.

So Sean you know supply demand impacts.

But everything obviously.

And inside the activity that's deployed day and Brad in the U S. You know about 25 per spin on it has the capabilities of using natural gas as a power source, whether it be an equally or dual fuel fleet, either tier two or tier for.

That Florida market sold out so.

There's no question about getting price differential in net in that arena and you know as we mentioned on our last call.

We have deployed.

Our pricing structure debt, we'd call E S G probe and ESG platform that.

Provide different levels of guarantee diesel displacement from natural gas with platinum being higher than that.

On pro.

Oh, that's it.

And for it on our part to give our customers different price points to enter a market where they won't be at vs admission versus gas diesel arbitrage and so forth. So.

This is the reason that we plan to continue to invest and grow that for the fleet because the customer interest is on the increase not on the decrease.

We we liked it a lot and but the Bottomline is steel and I didn't really mention that in.

For the question is that the foundation is you're building up a little bit has to do with.

With the low end of the market is doing.

<unk> place in the cycle. So if you are out there.

Price in tier two diesel fleet extremely low.

Art.

Our our price is a delta to that as it relates to gas power.

Okay.

Understood Thanks very much.

Thank you John appreciate the question.

Okay.

Our next question comes from Ian Macpherson from Simmons. Please go ahead with your question.

Good morning, Robert and Kenny I appreciate all the detail in the prepared remarks.

I wanted to follow up on.

Hey, I wanted to follow up on the.

The strategic ESG related Capex.

You've guided for the first half do you see that day.

More front half weighted and so would you you would we could imagine some.

Positive EBITDA pull through from the power solutions and other technology spending in the first half and also lower second half capex as well or do you think that that will continue to project.

Ratably.

After after the first half.

The Guy I appreciate that there's no question that I would say debt.

If you look at our situation on our balance sheet.

In the middle of the downturn at least as it become apparent when it was going to look like.

We decided to be defensive burst and manage our cash balance and liquidity. We finished last year with more cash than we.

Sure.

Right.

For it for us to take advantage of our of our balance sheet, we need to be opportunistic as well and you know call it kind of balance in defense with offense.

And making some investments in power solutions and <unk>, both of which have a lot of market support and good return profiles is.

Is that the reason we got it only for the first half was because we got some visibility.

It's clear for us in the first half around demand.

But I would not necessarily say that we would be DUC firsthand.

Nominated on our spend because we are very bullish about 2022 custom.

Our customer base that we have.

Do you see how the customers that they have.

Reacting to this response, you've seen the small independents moves faster to add capacity drilling rigs for example.

And I would say each customer moves to their own cadence.

We got some visibility about 2022 debt that we need to invest to be ready for so we go on reserve answering that a bit about the second half for the year as we get this a little more clarity with that.

But Kevin would you add little more color on that price.

Yeah. Good morning, so but from a from a cash balance perspective, our goal is to maintain a healthy cash balance through H, one 'twenty 'twenty, one we called out our our EBITDA guidance for Q1, we have line of sight to customers returning in Q2, and we're expecting our EBITDA would be up vs versus Q1.

But look what I would say on on your specific question about strategic spend $25 million $30 million.

A portion of that on an H one will be power solutions, we will be ratably spending on that power solutions capital throughout the year.

And then the rest of that $25 million to $30 million will be on additional tier four DGB conversions.

I guess both for battery.

Patrick.

If you Miss the window years, albeit a bright spot.

Right.

So so Robert where we're just high level should we think about the substitution rates on your your dual fuel.

Lee just generalized moving progressively from start to finish over the course of the year given.

These investments and given probably the increased customer uptake as you as you build out the scale of the platform that.

It will really be you know.

Unique to next year.

Yeah.

Well I think that debt ESG pro ESG platinum pricing.

Pricing structure is unique to us at this point.

And what you are able to use your fleet and.

In various combinations to achieve those displacement mode.

Do you mind makes tier to tier four DGB.

Tier for.

DGB tier four dual fuel system.

With the.

Fuel fuel kit from the same manufacturers can get you know.

<unk> 80 per cent displacement.

Whereas take a tier two debt has somebody else's kit put on it it could be in a dirty splicing, so you'd take on.

Mix of that to get to a point.

With real time control do we have the next you're able to demonstrate to the customer and deliberate in the way.

For demonstrating what you did and justify on price point. So all I'd say is I think we differentiate their bid not only with the size of the fleet, but the way in which we operate.

By using OEM matched yet and and control systems that allow us to doubt it did that the debt kind of address the question.

It does yes, and I think really what I want.

Curious.

Where are those metrics trending.

Are you below 50% on average per day in and you might be at 60 or 65% on a blended average you know a year from now or or those types of numbers way off the way off the mark.

Yeah, I think so.

Look it up.

It's a oh.

Don't go on process.

And how to clean fleet to specific operating conditions that you maybe he made them on one one pump a little less on the other two begin to balance it out to optimize the flow and we get better every month at it Alex.

Alright.

We have to meet those threshold price points for ESG Pro and he is he platinum's we meet those.

No matter, what we had to do that.

But you know if.

If you really are as.

As we get smarter and the controls get better we will continue to improve the net in that arena.

And it's not as simple as just running index, you ordinarily would and expect that to change you have to get the data and then you'd have to dial your tuning of the.

On the 20th pumps on location to maximize on them.

You understand what I'm, saying.

Yes, absolutely.

Thanks, very much I'll pass it over I appreciate it.

Okay.

Our next question comes from Mike Sabella from Bank of America. Please go ahead with your question.

Hey, good morning, everyone.

More on it.

I was wondering if you could just kind of talk to us a little bit about a.

For the reactivation from here.

Do you think you know it sounds you know nothing really planned on <unk>.

It kind of sounds like Q twos, maybe better and once you are there are there more reactivation as needed and then.

You know as we think about you know what you all were willing to do.

Kind of with respect to.

Profitability needed to reactivate equipment.

You know what what do you guys need to see in order to bring more work with in the back.

Hey, I appreciate the question and this reflects a little bit about our stated objectives and.

And our strategy around our readiness program you hadn't seen as a callout reactivation costs, because we've got them.

The bottom of this downturn. We've built in is readiness program that we were investing almost a million a month to be keep our fleet ready to go.

And we put since the bottom 11 fleets back to work.

And when we look at when we look into next quarter, we got a pipeline.

Interesting to us the pipeline of opportunities that we can see some upside.

But your point is very well taken and that we're not going to do it at a per.

It did are not accretive to where we're at today, because it's got to get better.

So I would just say is that you can probably see us leaking upward a little bit in our deployment, depending on the opportunities and one thing I would say the dynamic has occurred over the last quarter or two debt.

While we see on the deployment of fleets increasing.

And the efficiency during the time in which we're actually pumping is excellent as it hurts embarked on better competitors comment similarly.

But as the customer to wrapping up the <unk>.

Thing doesn't flow as smooth and perhaps the slight spaces opened up on the calendar in between pads or in between well, sometimes or Oh.

For causing some hiccups.

And the profitability of laws on the Frac side, so I.

I Hope I gave a little color.

Okay.

Yeah got it thanks.

And then you know kind of a year on from from the Kansian day merger, maybe just a little update on thinking about how you all think on M&A from here is there anything interesting out there and.

If so what a potential deal for next year.

It look like.

Well, we see there's a lot of there's a lot of.

Need for consolidation in the sector, there's a lot of companies and he's got a few bleeds and create zone.

It's a very challenging environment in comms.

We I think have demonstrated the ability to integrate very well and we got I think capabilities or even better now that we have some of our business systems in place that we spent a lot of money on in the past to get in place.

You know on our strategy around being able to convert more to using natural gas as a fuel source would be core to our industrial logic behind any kind of M&A.

But I would also say day, because we have an open mind, because we can see the benefits of how consolidation that can work for synergies to be captured in the business is good for us and our customers and counterparties.

And our priority one.

Well be looking for us we'd be thinking a lot around.

How would we supplement our strategy.

ESG and gas.

And utilizing digital to perhaps improve operations of counterparty.

Vs.

Just consolidated for the sake of <unk>.

Putting the resources on the last hands.

We have on open mind, and we want everybody to know that and so we feel that day, we could be a good counterparty.

Okay.

Got it thanks al.

I appreciate I appreciate the question.

Our next question comes from cornered Lang from Morgan Stanley. Please go ahead with your question.

Yeah. Thanks.

I was wondering if you could just help us think through.

One of the earlier questions was sort of alluding to this as well.

But so you called out I think it was seven $7 million to $8 million of calendar inefficiency.

As we think through the second quarter.

Should we think about you guys getting that back or are there other things on price or efficiency that we should think about I'm just trying to think through.

You know as we sort of get past what sounds like a.

A pretty challenging first quarter.

How much should we think about your profitability potentially expanding.

So I appreciate that question and I don't think we called it out as much as we could have probably been this week. We're having this earnings call today, we unfortunately had to.

For the ability to see what's going on out in the Permian for example, where a significant.

A portion of our activity cars in three or four day to sit down and it's we're not we don't have clear visibility about it backs out of that yet because there's going to be disruptions in the supply chain around on mines and everything I think.

And we were saying you know that's a.

At least $5 million and in the quarter of Q1.

When you start thinking about the way in our earnings release came out I saw something in the morning, I think that part of it's got to be taken into consideration that we would have that did this call. A few days earlier, who would have known that debt was going to be the case.

So that's one thing second thing about the white space, we see mid quarter now we've seen some of that.

Same kind of issues, but we also see visibility past.

And and I think that we would be guiding Q.

Q2 strong worldwide, we tried to do a little bit.

I hear remarks from.

Can you do go on any color.

Yeah, I would just say that you know since the downturn on the depth of the downturn, we've built up a solid foundational base of activity.

And as we mentioned in our prepared remarks, we have some long standing customers and turning so.

So we see adding two to three fleets in Q2, and we see expanding.

Both the margins and the profitability per fleet versus Q1.

Alright, perfect. That's that's helpful color I appreciate it.

I guess just on that on a longer term sense I think you guys had called out.

You think the market needs 200 to 225 fleets to us.

The balance production, there's there's a lot of different data sources out there. These days on Frac fleets. They don't always agree.

I guess could you just sort of normalize how much you think that is in terms of incremental tweaks being added to the market and I guess by most accounts. We are hearing producers do you want us for to reach that stabilizing point this year.

Do you think Thats a mid this year event wafers here event do you think it happens on all of this year, just what's your sort of thinking on the on the.

Trajectory to reach that.

I think it's a good point you make that a lot of people can't fleets differently, you know day.

Applaud virtually.

Versus satellite looking and everything is I'll, just say that we try to take all that data might go on call and we kind of think current leaking out around 165, something like that with a quarter of it being roughly.

Natural gas and so on me.

And I think debt our view is that that fleet count will continue to leak upwards.

It probably peak in Q3, and we would call that you know is.

165, you know the way we do it is normalizing right now it would be like some like 190.

You know towards the end of Q on Q3.

Probably a little bit of seasonal impact in Q4, and then we see 2022.

All of these customers standard referred to and.

No. We we we got we got a lot of we feel very strong about 2022.

And the way things are lining up.

If oil price stays kind of in the ranges and we're on now.

And some people would say might be higher than that.

We like it but we don't see 2021 have an explosive upside on this.

It's a steady leeco upward and I've heard others say debt you can see front end loading occurring in capex spend by the E&ps and I would not argue the logic of that I would just say that it's customer specific.

And that there's different kind of customers that have the independents versus the big guys. For example, and they have different timelines and so forth and we looked at it from a two arm and that's the way we see it.

Got it that's all helpful. Maybe just one quick follow up there just in terms of the incremental adds both this year and what potentially you are hearing about to some extent next year I appreciate the visibility is not.

That good that far out but is your thinking that this is more.

Sort of large public independents is it more the majors more privates, just or is there really not a sort of directional trend you would point to there.

I think it's going to be kind of all of the above but it's different right. I mean, if you got a company.

Company has been going through a consolidation on their own behalf and they spend the time right now on getting prioritization is done and the integrations done you'll see their spending and they bought it too low.

Producing so they're going to do that.

And I think that's kind of the driver if you got a duck out you got some backlog inventory to deal with that is another factor. So there there are a number of those but.

I feel pretty good about 2022 is it from the big players whether they'd be you know how on a small or large public companies. They got a lot of inventory.

Inventory and a lot of.

Activity capabilities that are that they're going to go after.

And I think two.

2021, they've got a lot of commitments related to bill on their balance sheet, and returning cash to shareholders and they're going on to keep debt.

They're going to make that happen almost regardless of oil price in 'twenty, one I think.

Got it alright, thanks for the color.

I appreciate it.

Once again, if he would like to ask a question. Please press star and then one to withdraw your question you May Press Star two.

Our next question comes from Chris Voie from Wells Fargo. Please go ahead with your question.

Good morning, Thanks for taking my question maybe.

Maybe on the pricing a little bit more there.

I understand that you have kind of different tiers of pricing for different products, but has there any been any conversation about pricing actually increasing so any any agreements for higher price in the future yet or is it still a matter of hoping that you know supply excuse me demand increases and those discussions will come.

Look I would say that.

The pricing discussion is an ongoing thing and forgot this dynamics and mostly the dynamics or down in the diesel burning fleet category that they've got a lot of capacity still in the market.

But I'd also say is that.

Yeah.

For us.

So we kind of said our market share would be somewhere between eight and 12% of the frac market.

<unk>.

We would.

Have we would vary our price them around to try to.

Test the market around how that kind of shakes out a bit.

Yeah, I would say is that our customers appreciate I think in general that the pricing that day it weakens.

You can see that.

Downturn is not the same.

And these discussions will take all different kind of forms pricing structure to commodity recapture to salary reinstate months to market movements and I think that our debt that's already started.

And I think it's going to take us a little bolt on to play out and I've heard some competitors talking about already having deals, but I would say nobody really opra operate in isolation that is something that we all are pretty much looking at the same things for the same opportunity. So.

From a pricing from here I Hope you caught me is saying that he's got it has to go up because its really on sustainable obviously.

But our customers are also dealing with the turmoil that they've had to go through because of Covid and we want to continue to work with.

The process and make it work for both of those but it's a it's a steady and I'll go on process.

There'll be wins and losses along for.

Okay. That's helpful. Thank you and the follow up.

Earlier, you mentioned.

You talked about horsepower per fleet, increasing I think there's a few different reasons for that whether it's Simon for acts or.

On kind of the flurry of equipment getting put out there some of which as you know maybe not a perfect condition, where where does your stand right now and how do you think that's been involved for the industry going forward are we going to see significantly higher horsepower per fleet.

Going forward compared to what we saw in 2018 2019 for instance.

We certainly see it leaking upward.

And the amount of horsepower consumed per fleet and you know it's got mixed impacts on the business. Some frac is a is a bigger part of our business all the time and it's a significant part of our business, we're getting quite good at it.

Some things about it is beneficial.

Well, you got lower rate and trading pressures per well and little bit less wear and tear perhaps on the equipment, but it takes more equipment at the well site.

And.

Having to adapt our pricing models and utilization and efficiency models to day to day.

Change in market.

I think in general you know.

Production and being linked to the mass and placed in the lateral and operators are seeing the benefits of that and obviously would continue to go down that path.

This for us.

Adapt our pricing remuneration structure to make it work right and that's again something that's in the process of evolving now.

Okay.

Great. Thank you.

Thank you for question.

Yeah.

Operator, we are bringing on legacy.

Okay.

I think that I think that was the last question.

Correct and I'd like to turn the conference call back over to you Mr. John <unk> for any closing remarks.

Hey, Thank you very much Jamie I appreciate it.

I want thank everyone for participating todays call and for your interest in next year, we say flexibility.

Our teeth chattering is because we were in a conference room in a hotel and know he brazen.

Houston is learning how to adapt with it. So thank you very much from the interest and we look forward to next quarter.

And ladies and gentlemen, thank you very much for participating in today's call and for your interest in next year.

Our call has concluded you may now disconnect your lines.