Q1 2024 Patterson-UTI Energy Inc Earnings Call

Ladies and gentlemen, welcome to the Patterson UTI first quarter 2024 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator: Ladies and gentlemen, welcome to the Patterson-UTI first quarter 2024 conference call. All lines have been placed on mute to prevent any background noise.

If you'd like to ask a question during that time. Please press star followed by the number one I got telephone keypad.

If you want to withdraw your question.

Operator: Press Star followed by the number one.

As a reminder, today's call is being recorded I would now hand todays call over to Mike Sabella, Vice President of Investor Relations. Please go ahead Sir.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, please press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by number one. As a reminder, today's call is being recorded. I will now hand today's call over to Mike Sabella, Vice President of Investor Relations. Please go ahead, sir.

Michael James Sabella: Thank you, Operator. Good morning, and welcome to the Patterson-UTI earnings conference call to discuss our first quarter 2024 results. With me today are Andy Hendricks, President and Chief Executive Officer, and Andy Smith, Chief Financial Officer. As a reminder, statements that are made in this conference call that refer to the company's or management's plans, intentions, targets, beliefs, expectations, or predictions for the future are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties as disclosed in the company's SEC filings, which could cause the company's actual results to differ materially.

Michael James Sabella: Thank you operator, good morning, and welcome to Patterson UTI.

Michael James Sabella: Earnings Conference call to discuss our first quarter 2024 results with me today are Andy Hendricks, President and Chief Executive Officer, and Andy Smith, Chief Financial Officer. As a reminder, statements that are made in this conference call that refer to the company's or management's plans intentions targets beliefs expectations or predictions for the few.

Michael James Sabella: <unk> are considered forward looking statements. These forward looking statements are subject to risks and uncertainties are disclosed in the company's SEC filings, which could cause the company's actual results to differ materially. The company takes no obligation to publicly update or revise any forward looking statements.

Michael James Sabella: <unk> made in this conference call include non-GAAP financial measures. The required reconciliation to GAAP financial measures are included on our website.

Michael James Sabella: <unk> dot com and in the company's press release issued prior to this conference call I will now turn the call over to Andy Hendricks, President Patterson Uti's Chief Executive Officer.

Michael James Sabella: The company undertakes no obligation to publicly update or revise any forward-looking statements. Statements made in this conference call include non-GAAP financial measures. The required reconciliation to GAAP financial measures is included on our website, patenergy.com, and in the company's press release issued prior to this conference call. I will now turn the call over to Andy Hendricks, President and Chief Executive Officer of Patterson-UTI.

William Andrew Hendricks: Thank you, Mike, and welcome to Patterson-UTI's first quarter conference call. The first quarter unfolded largely as we anticipated, with another quarter of strong free cash flow.

William Andrew Hendricks: Thank you, Mike and welcome to Patterson Utis first quarter conference call.

William Andrew Hendricks: The first quarter unfolded, largely as we anticipated with another quarter of strong free cash flow.

William Andrew Hendricks: The steady environment continued in the oil basins, with activity and production relatively consistent with late last year. In the natural gas basins, our customers are being impacted by weak natural gas prices, and they are responding by reducing activity, as we expected. Against this backdrop, Patterson-UTI delivered strong results during the quarter, and we met our guidance in each of our operating segments. The results in the first quarter demonstrate the free cash flow generating capabilities of the company, even as we invest to maintain our position as a long-term winner in U.S. shale drilling and completion. And we expect to continue returning a significant amount of cash to shareholders.

William Andrew Hendricks: The steady environment continued in the oil basins with activity and production relatively consistent with late last year and.

William Andrew Hendricks: The natural gas basins are customers, who are being impacted by weak natural gas prices and they are responding by reducing activity as we expected.

William Andrew Hendricks: Against this backdrop Patterson UTI delivered strong results during the quarter and we met our guidance in each of our operating segments.

William Andrew Hendricks: The results in the first quarter demonstrates the free cash flow generating capabilities of the company, even as we invest to maintain our position as a long term winner in the U S shale drilling and completion.

William Andrew Hendricks: And we expect to continue returning a significant amount of cash to shareholders.

William Andrew Hendricks: [noise] bifurcation amongst oilfield product and service providers is presenting an opportunity for high quality companies to generate strong free cash flow even in a slightly softening market.

William Andrew Hendricks: Bifurcation amongst oil field product and service providers is presenting an opportunity for high-quality companies to generate strong free cash flow, even in a slightly softening market. We are investing in technologies that enhance the efficiency of the U.S. shale model, and this should improve the returns and free cash flow profile of our company over the long term. Our customers are recognizing and rewarding providers that have a differentiated service offering, and Patterson-UTI stands amongst the leaders across multiple product and service lines.

William Andrew Hendricks: We are investing in technologies that enhance the efficiency of the U S shale model and this should improve the returns and free cash flow profile of our company over the long term.

William Andrew Hendricks: Our customers are recognizing and rewarding providers that have a differentiated service offering and Patterson UTI stands amongst the leaders across multiple product and service lines.

William Andrew Hendricks: Differentiation has driven this cycle, and we believe that if we invest in the right technologies and deliver a consistent and repeatable, top-quality product for our customers, we will be rewarded with higher activity and utilization, and our results are the best evidence. We delivered another strong quarter in Q1, and both our drilling and completions businesses again outperformed. We expect this outperformance will continue over the long term. On the macro outlook for oil basins, activity has remained steady, supported by high oil prices. In the near term, customer consolidation is muting the market's response to high oil prices.

William Andrew Hendricks: Differentiation is define this cycle and we believe that if we invest in the right technologies and deliver consistent and repeatable top quality product for our customers, we will be rewarded with higher activity and utilization in our results are the best evidence we delivered another strong quarter in Q1 in both our drilling and completions businesses again.

William Andrew Hendricks: Outperform we.

William Andrew Hendricks: We expect this outperformance will continue over the long term.

William Andrew Hendricks: On the macro outlook in all basins activity has remained steady supported by high oil prices and the.

William Andrew Hendricks: The near term customer consolidation is muting the market's response to strong oil prices. This should resolve over time and at current oil prices, we anticipate some modest demand upside in all basins. Starting later this year.

William Andrew Hendricks: This should resolve over time, and at current oil prices, we anticipate some modest demand upside in oil basins starting later this year. However, weak natural gas prices are impacting industry activity in the near term. So far, activity in natural gas basins has held up better than we'd anticipated, particularly in the Northeast. But we are seeing more natural gas activity reductions continuing in Q2, and we expect natural gas activity is likely to then remain steady with second-quarter levels through the rest of the year. Nevertheless, our long-term positive view on natural gas is unchanged.

William Andrew Hendricks: Weak natural gas prices are impacting industry activity in the near term so far activity in natural gas basins has held up better than we had anticipated, particularly in the northeast.

William Andrew Hendricks: But we are seeing more natural gas activity reductions continuing in Q2, and we expect natural gas activity is likely to then remains steady with second quarter levels through the rest of the year.

William Andrew Hendricks: Nevertheless, our long term positive view on natural gas is unchanged, new LNG exports and growing demand for power in the U S will require increased production.

William Andrew Hendricks: New LNG exports and growing demand for power in the U.S. will require increased production, with natural gas remaining part of the industry growth narrative for 2025 and beyond in our drilling services segment. In our drilling services segment, we had another strong quarter with our rig count again outperforming the industry average. Pricing on recent term contracts remains stable, and margins have been resilient.

William Andrew Hendricks: With natural gas remaining parts of the industry growth narrative for 2025 and beyond.

William Andrew Hendricks: And our drilling segment services in our drilling services segment, we had another strong quarter with a rig count again outperforming the industry average pricing on recent term contracts remains stable.

William Andrew Hendricks: Margins have been resilient.

William Andrew Hendricks: In the U.S., we started the second quarter operating 118 rigs, and we are currently operating 116 rigs. We have line of sight for a couple more rig drops as our customers respond to natural gas prices and as customer consolidation creates some potential reduction in near-term activity. We continue to see very high demand for our Tier 1 drilling assets, and we believe our rig fleet is positioned to outperform the market with upside even if the overall market is flat.

William Andrew Hendricks: In the U S. We started the second quarter operating a 118 rigs and we are currently operating 116 rigs. Although we have line of sight for a couple more rig drops as our customers respond to natural gas prices and as customer consolidation creates some potential reduction in near term activity.

William Andrew Hendricks: We continue to see very high demand for our tier one drilling assets and we believe our rig fleet is positioned to outperform the market with upside even if the overall market is flat.

William Andrew Hendricks: Customer consolidation will create a period of churn, which we are starting to see in the second quarter, but this should be followed by a high-grading process, and that transition is when Patterson-UTI should see the most benefits.

William Andrew Hendricks: Customer consolidation will create a period of churn, which we're starting to see in the second quarter, but this should be followed by high grading process and that transition is when Patterson UTI should see the most benefit we are excited about the way the market is taking shape over the long term.

William Andrew Hendricks: We are excited about the way the market is taking shape over the long term. On the technology front, we're seeing great results from the investments we've made to add automation systems to the drilling rig controls. Over half of our race today are running our Cortex operating system and our Cortex KeyEdge devices.

William Andrew Hendricks: On the technology front, we're seeing great results from the investments we've made to add automation systems to the drilling rig controls.

William Andrew Hendricks: Over half of our rigs today are running our cortex operating system and our cortex key edge devices.

William Andrew Hendricks: Demand is high, and we have allocated a portion of our CAPEX to continue adding these systems. The growing presence of these products on our rigs is enhancing the value of our service offerings. We are also advancing the way we power our rigs by beginning to integrate our GridAssist package with our EcoCell lithium battery technology. Often, high-line power is accessible, but not in adequate quantities to fully power the rig by itself. Our grid assist package can complement the grid power to fully power the rig, even when the utility is only providing a fraction of the electricity.

William Andrew Hendricks: Demand is high and we have allocated a portion of our capex to continue adding these systems.

William Andrew Hendricks: The growing presence of these products on our rigs is enhancing the value of our service offerings.

William Andrew Hendricks: We're also advancing the way we power our rigs by beginning to integrate our grid assist package with our eco cell lithium battery technology.

William Andrew Hendricks: Often highline powers accessible, but not an adequate quantities to fully power of the rig by itself.

William Andrew Hendricks: Our grid assist package can complement the grid power to fully power of the rig.

William Andrew Hendricks: Even when the utility is only providing a fraction of the electricity.

William Andrew Hendricks: Grid assist has shown the ability to substantially decrease the cost of powering a rig and slash emissions by up to 90% compared to rigs that are still using diesel generators.

William Andrew Hendricks: GridAssist has shown the ability to substantially decrease the cost of powering a rig and slash emissions by up to 90% compared to rigs that are still using diesel generators. Our technologies differentiate Patterson-UTI's drilling business and should give our rigs a sustainable advantage over many peers in the industry. In completion services, we had another strong quarter. The operational integration with next year is largely complete, marking a significant milestone for the company. The team's dedication and expertise have been exceptional. The leadership within the group has shown skill and commitment through this process, and we extend our sincerest gratitude for everyone's outstanding efforts.

William Andrew Hendricks: Our technologies differentiate Patterson uti's drilling business and should give our rigs a sustainable advantage over many peers in the industry.

William Andrew Hendricks: In completion services, we had another strong quarter the operational integration with next year is largely complete marking a significant milestone for the company.

William Andrew Hendricks: The team's dedication and expertise has been exceptional the leadership within the group has shown skill and commitment through this process and we extend our sincerest gratitude for everyone's outstanding efforts.

William Andrew Hendricks: Looking ahead, we remain focused on identifying additional synergies to further enhance our position as completion leaders. The benefits so far have been obvious, with relatively steady financial performance compared to the pre-merger entities, even as the market has slowed. This is evidence that the merger is creating value. We have achieved our $200 million annualized synergy target faster than we initially expected.

William Andrew Hendricks: Looking ahead, we remain focused on identifying additional synergies to further enhance our position as well as completion leader.

William Andrew Hendricks: The benefits so far had been obvious with relatively steady financial performance compared to the pre merger entities, even as the market has slowed.

William Andrew Hendricks: This is evidence that the merger is creating value we.

William Andrew Hendricks: We have achieved our $200 million annualized synergy target faster than we initially expected.

William Andrew Hendricks: During this integration.

William Andrew Hendricks: During this integration process, the team has continued to advance our transition to natural gas-powered frack equipment in a capital-efficient manner. We deployed our latest round of Emerald electric track equipment throughout the month of April, with the fleet integrated with our power solutions and going to work in West Texas for a large established customer. So far, the results have been fantastic, with the equipment averaging over 21 hours per day since it started up. A great achievement for a new fleet.

William Andrew Hendricks: Integration process. The team has continued to advance our transition to natural gas powered frac equipment in a capital efficient manner.

William Andrew Hendricks: We deployed our latest round of Emerald electric Frac equipment throughout the month of April with the fleet integrated with our power solutions and going to work in West, Texas for a large established customer.

William Andrew Hendricks: So far the results have been fantastic with the equipment, averaging over 21 hours per day since it started up a great achievement for a new fleet.

William Andrew Hendricks: We remain on track to grow our electric Frac horsepower to 140000 by the middle of the year and upon delivery, we still expect that almost 80% of our fleets will be able to be powered by natural gas.

William Andrew Hendricks: We remain on track to grow our electric frack horsepower to 140,000 by the middle of the year. And upon delivery, we still expect that almost 80% of our fleets will be able to be powered by natural gas. We are also field testing other 100% natural gas-powered frac technologies, and the flexibility is one of the biggest benefits of not overly relying on one solution. We think our full suite of natural gas-powered frack assets, including our dual-fuel equipment, is as competitive as any company in the industry. Overall, we expect our nameplate horsepower will continue to decline as we retire older diesel assets.

William Andrew Hendricks: We are also field testing other 100% natural gas powered Frac technologies and the flexibility is one of the biggest benefits of not overly relying on one solution.

William Andrew Hendricks: We think our full suite of natural gas powered frac assets, including our dual fuel equipment is as competitive as any company in the industry.

William Andrew Hendricks: Overall, we expect our nameplate horsepower will continue to decline as we retire older diesel assets.

William Andrew Hendricks: We suspect others are taking a similar approach to retiring older assets as the industry gets more disciplined with capital deployment. We're also excited by what we have seen from our submitting business following the integration of Legacy Patterson-UTI into next year's operations. We have seen strong market penetration, and as our customers are extending laterals, they are asking for higher quality cementing equipment, leading to bifurcation in this market, similar to what we are seeing in Prague.

William Andrew Hendricks: We suspect others are taking similar approach to retiring older assets as the industry is getting more disciplined with capital deployment.

William Andrew Hendricks: We're also excited by what we have seen from our cementing business. Following the integration of legacy Patterson UTI in next year operations, we have seen strong market penetration and as our customers are extending laterals. They are asking for higher quality cementing equipment, leading to bifurcation in this market similar to what we're seeing in Frac. We believe are submitting.

William Andrew Hendricks: We believe our cementing business is well positioned to continue to improve results. Regarding our customer base, we believe much of the churn has already occurred for this year, and we think the rest of the year should be relatively steady, with a steady customer book and a likelihood that frack activity will improve somewhat in Q3. We think U2 is likely to be the low point for our company this year in terms of frack activity.

William Andrew Hendricks: Business is well positioned to continue to improve results.

William Andrew Hendricks: Regarding our customer base, we believe much of the churn has already occurred for this year and we think the rest of the year should be relatively steady with.

William Andrew Hendricks: With a steady customer book and a likelihood that frac activity will improve somewhat in Q3.

William Andrew Hendricks: We think Q2 is likely the low point for our company. This year in terms of Frac activity.

William Andrew Hendricks: We had some customer-specific gaps that opened up on our calendar during Q2, and those customers should resume normal activity by Q3. Our drilling product segment continues to perform exceptionally well. Altera reached a new company record for revenue generated per industry rig in the U.S., highlighting the strength of our offerings in the domestic market. Internationally, we saw strong growth with revenue abroad of more than 15% compared to the first quarter a year ago.

William Andrew Hendricks: We've had some customer specific gaps that opened up on our calendar during Q2 and those customers should resume normal activity by Q3.

William Andrew Hendricks: Our drilling products segment continues to perform exceptionally well alterra reached a new company record for revenue generated per industry rig in the U S. Highlighting the strength of our offerings in the domestic market.

William Andrew Hendricks: Internationally, we saw strong growth with revenue abroad of more than 15% compared to the first quarter a year ago.

William Andrew Hendricks: These results highlight the effectiveness of our drilling products in meeting the evolving needs of our global customer base. We remain optimistic about the growth prospects of the drilling product segment, even in a flattish U.S. onshore market, and Altera's international business is expected to achieve high-teens revenue growth this year, primarily driven by strong performance in the Middle East. Altera also had its first successful run in the North Sea, which is a market where the company has not historically participated.

William Andrew Hendricks: These results highlight the effectiveness of our drilling products and meeting the evolving needs of our global customer base.

William Andrew Hendricks: We remain optimistic about the growth prospects of the drilling products segment, even in a flattish U S onshore market.

William Andrew Hendricks: <unk> International business is expected to achieve high teens revenue growth. This year, primarily driven by strong performance in the middle East.

William Andrew Hendricks: Alterra also had its first successful run in the North Sea, which is a market where the company has not historically participated.

William Andrew Hendricks: Early results in that region have been great, and we have been awarded other sections of the project. This is a great example of expanding into a new market. The strategic investments we are making will set us up for profitable growth, even in a relatively flat market. At the same time, we are delivering strong free cash flow and returning a significant amount of cash back to our investors. We consider this balanced capital allocation strategy critical for enhancing shareholder value over the long term, and we are optimistic that we can continue delivering on this approach. I'll now turn it over to Andy Smith, who will review the financial results for the first quarter.

William Andrew Hendricks: Early results in that region have been great and we have been awarded other sections of the project. This is a great example of an expansion into a new market.

Andy Smith: The strategic investments, we are making will set us up for profitable growth even in a relatively flat market at the same time, we are delivering strong free cash flow and returning a significant amount of cash back to our investors.

Andy Smith: Consider this balanced capital allocation strategy critical for enhancing shareholder value over the long term and we are optimistic that we can continue delivering on this approach.

Andy Smith: Thanks, Andy. Total reported revenue for the quarter was $1,510,000,000. We reported net income attributable to common shareholders of $51 million, or $0.13 per share, in the first quarter. This included $12 million in merger and integration costs.

William Andrew Hendricks: Now I'll turn it over to Andy Smith, who will review the financial results for the first quarter.

Andy Smith: Thanks, Andy.

Andy Smith: Reported revenue for the quarter was $1.510 billion, we reported net income attributable to common shareholders of $51 million or <unk> 13 per share in the first quarter. This.

Andy Smith: This included $12 million in merger and integration expenses.

Andy Smith: Our adjusted net income attributable to common shareholders, excluding the merger and integration expenses was $61 million or <unk> 15 per share and assumes a 21% federal statutory tax rate on those charges.

Andy Smith: Our adjusted net income attributable to common shareholders, excluding the merger and integration expenses, was $61 million, or $0.15 per share, and assumes a 21% federal statutory tax rate on those charges. Adjusted EBITDA for the quarter totaled $375 million, which also excludes the previously mentioned merger and integration. Our weighted average share count was 408 million shares during Q1, and we exited the quarter with 404 million shares outstanding. Our free cash flow for the first quarter was $139 million.

Andy Smith: Adjusted EBITDA for the quarter totaled $375 million, which also excludes the previously mentioned merger and integration expenses.

Andy Smith: Our weighted average share count was 408 million shares during Q1, and we exited the quarter with 404 million shares outstanding.

Andy Smith: Our free cash flow for the first quarter was $139 million.

Andy Smith: During the first quarter, we returned $130 million to shareholders, including <unk> <unk> per share dividend and $98 million used to repurchase 9 million shares annualize. The amount we returned to shareholders totaled to more than 10% of the market cap at the end of the first quarter.

Andy Smith: During the first quarter, we returned $130 million to shareholders, including an $0.08 per share dividend and $98 million used to repurchase 9 million shares. Annualized, the amount we return to shareholders totaled more than 10% of the market cap at the end of the first quarter. During the first quarter, we generated significant free cash flow, and we opportunistically accelerated our share repurchase program given the dislocation between the share price and our view of the intrinsic value of a share of Patterson-UTI stock. In just two quarters since we closed the next-year merger and the Altera acquisition, we have repurchased 4% of the post-deal shares outstanding. Our board has declared an 8 cent per share dividend for Q2.

Andy Smith: During the first quarter, we generated significant free cash flow and we opportunistically accelerated our share repurchase program given the dislocation between the share price and our view on the intrinsic value of a share of Patterson UTI stock.

Andy Smith: In just two quarters since we closed the nextera merger and the Altera acquisition.

Andy Smith: We have repurchased 4% of the post deal shares outstanding.

Andy Smith: Our board has declared an <unk> <unk> per share dividend for Q2.

Andy Smith: For 2024, we still expect to use at least $400 million to pay dividends and repurchase shares which would exceed our targeted return of more than 50% of free cash flow to shareholders.

Andy Smith: For 2024, we still expect to use at least $400 million to pay dividends and repurchase shares, which would exceed our targeted return of more than 50% of free cash flow to shareholders. In addition to the cash we returned to shareholders in the first quarter, we used more than $30 million to pay down capital leases and retire debt as we look to maintain our low leverage and strong capital structure. In our drilling services segment, our first quarter revenue was $458 million.

Andy Smith: In addition to the cash returned to shareholders in the first quarter, we used more than $30 million to pay down capital leases and retire debt as we look to maintain our low leverage and strong capital structure.

Andy Smith: In our drilling services segment first quarter revenue was $458 million.

Andy Smith: Drilling Services' Adjusted Gross Profit totaled $186 million during the quarter, and U.S. Contract Drilling, which totaled 11,024 operating days... Average rig revenue per day was $35,680, with average rig operating cost per day of $19,510. The average adjusted rig gross profit per day was $16,170, a decrease of less than $200 from the prior quarter. As of March 31st, we had term contracts for drilling rigs in the U.S., providing for approximately $527 million of future day rate drilling revenue.

Andy Smith: Drilling services adjusted gross profit totaled $186 million during the quarter.

Andy Smith: In U S contract drilling, which are 11 24 operating days.

Andy Smith: Average rig revenue per day was $35 $680 with average rig operating cost per day of $19 $510.

Andy Smith: The average adjusted rig gross profit per day was $16170 a decrease of less than $200 from the prior quarter.

Andy Smith: At March 31, we had term contracts for drilling rigs in the U S providing.

Andy Smith: Providing for approximately $527 million of future day rate drilling revenue.

Andy Smith: Based on contracts currently in place, we expect an average of 70 rigs operating under term contracts during the second quarter of 2024 and an average of 41 rigs operating under term contracts over the four quarters ending March 31, 2025.

Andy Smith: Based on contracts currently in place, we expect an average of 70 rigs operating under term contracts during the second quarter of 2024, and an average of 41 rigs.

Andy Smith: Operating under term contracts over the four quarters ending March 31 2025.

Andy Smith: And our other drilling services businesses other than U S contract drilling, which is mostly international contract drilling and directional drilling first quarter revenue was $64 million with an adjusted gross profit of $8 million for.

Andy Smith: In our other drilling services businesses, other than U.S. contract drilling, which is mostly international contract drilling and directional drilling, first quarter revenue was $64 million with an adjusted gross profit of $8 million. For the second quarter, in U.S. contract drilling, we expect to average 114 active rigs compared to 121 active rigs in the first quarter, with adjusted gross profit per day expected to be down roughly $300 from the first quarter. Aside from U.S. contract drilling, we expect other drilling services adjusted gross profit to be down slightly compared to the first quarter.

Andy Smith: For the second quarter and U S contract drilling we expect to average 114 active rigs compared to 121 active rigs in the first quarter with adjusted gross profit per day expected to be down roughly $300 from the first quarter.

Andy Smith: Aside from U S contract drilling we expect other drilling services adjusted gross profit to be down slightly compared to the first quarter.

Andy Smith: Reported revenue for the first quarter in our completion services segment totaled $945 million with an adjusted.

Andy Smith: Reported revenue for the first quarter in our completion services segment totaled $945 million, with an adjusted gross profit of $199 million. Most of the sequential change in revenue was a function of lower activity and a mixed shift away from higher revenue jobs in Haynesville, with some limited impact from changes in pricing relative to the fourth quarter. We are pleased with our results in Appalachia, where activity was relatively steady. As expected, the Haynesville was the largest declining basin during the quarter.

Andy Smith: And gross profit of $199 million.

Andy Smith: Most of the sequential change in revenue was a function of lower activity and a mix shift away from higher a higher revenue jobs in the haynesville with some limited impact from changes in pricing relative to the fourth quarter.

Andy Smith: We are pleased with our results in Appalachia, where activity was relatively steady as.

Andy Smith: As expected the Haynesville was the largest declining basin during the quarter.

Andy Smith: Our natural gas-powered equipment continues to be sold out with high demand and a widening operating cost savings compared to diesel equipment. However, our completion activity has declined slightly to start the second quarter, mostly in natural gas basins where customers continue to slow activity in response to low natural gas prices. Additionally, we have a few dedicated fleets that are operating with plan gaps in the schedule.

Andy Smith: Our natural gas powered equipment continues to be sold out with high demand.

Andy Smith: Widening operating cost savings compared to diesel equivalent.

Andy Smith: Our completion activity has declined slightly to start the second quarter, mostly in natural gas basins, where customers continued to slow activity in response to low natural gas prices.

Andy Smith: Additionally, we have a few dedicated fleets that are operating with planned gaps in the schedule.

Andy Smith: For the second quarter, we expect completion services revenue of approximately $860 million with an adjusted gross profit of around $170 million. We expect an improvement in activity in the third quarter as our dedicated and long-term customers resume completion activity after the pads are drilled. First quarter drilling products revenue totaled $90 million, which was up 2% sequentially. Adjusted gross profit was $41 million. In the U.S., drilling product market share hit a record for the company in the first quarter, and the segment again saw an improvement in revenue per U.S. industry rig as Altera continues to perform very well.

Andy Smith: For the second quarter, we expect completion services revenue of approximately $860 million with an adjusted gross profit of around $170 million.

Andy Smith: We see an improvement in activity in the third quarter as our dedicated and long term customers resumed completion activity. After the pads are drilled.

Andy Smith: First quarter drilling products revenue totaled $90 million, which was up 2% sequentially.

Andy Smith: Adjusted gross profit was $41 million in the U S drilling product market share hit a record for the company in the first quarter and the segment again saw an improvement in revenue per U S industry rig as altera continues to perform very well.

Andy Smith: Internationally, revenue improved sequentially, with gains largely coming from our operations in the Middle East. Direct operating costs included a non-cash charge of $2 million associated with the step-up in asset value of the drill bits that were on the books at the time the Altera transaction closed. The same purchase price accounting adjustment increased reported segment depreciation and amortization by $6 million during the quarter. We expect the impact of these non-cast charges will reduce as we move through 2024 and will likely be negligible thereafter.

Andy Smith: Internationally revenue improved sequentially with gains largely coming from our operations in the middle East.

Andy Smith: Yes.

Andy Smith: Direct operating costs included a noncash charge of $2 million associated with the step up in asset value of the drill bits that were on the books at the time of the Alterra trends at the time, the Altera transaction close.

Andy Smith: Same purchase price accounting adjustment increase reported segment depreciation and amortization by $6 million during the quarter.

Andy Smith: We expect the impact of these noncash charges will reduce as we move through 2024 and will likely be negligible thereafter.

Andy Smith: For the second quarter, we expect drilling products results to be roughly in line compared to the first quarter.

Andy Smith: For the second quarter, we expect drilling products results to be roughly in line compared to the first quarter. We see growth internationally, largely offsetting typical seasonality in Canada during spring break. Other revenue totaled $18 million for the quarter with $7 million in adjusted gross profit. We expect other second quarter revenue and adjusted gross profit to be flat compared to the first quarter. The reported selling, general, and administrative expense in the first quarter was $65 million.

Andy Smith: We see growth internationally, largely offsetting typical seasonality in Canada with the spring breakup.

Andy Smith: Other revenue totaled $18 million for the quarter was $7 million and adjusted gross profit.

Andy Smith: We expect other second quarter revenue and adjusted gross profit to be flat with the first quarter.

Andy Smith: Reported selling general and administrative expense in the first quarter was $65 million for Q2, we expect SG&A expense of $65 million.

Andy Smith: In Q2, we expect SG&A expense of $65 million. On a consolidated basis for the first quarter, total depreciation, depletion, amortization, and impairment expense totaled $275 million. For the second quarter, we expect total depreciation, depletion, amortization, and impairment expense of approximately $265 million. During Q1, total CapEx was $227 million, including $83 million in drilling services.

Andy Smith: On a consolidated basis for the first quarter total depreciation depletion amortization and impairment expense.

Andy Smith: $275 million for the second quarter, we expect total depreciation depletion amortization and impairment expense of approximately $265 million.

Andy Smith: During Q1, total capex was $227 million, including $83 million in drilling services $123 million in completion services $60 million in drilling products and $5 million in other incorporate.

Andy Smith: $123 million in completion services, $16,000,000 in drilling products, and $5,000,000 in other incorporated. For the second quarter, we expect total CapEx of roughly $180 million, with most of the sequential reduction coming from a decline in CapEx in the Completion Services segment. We expect our annual capex spend will be $740 million or less. Our focus remains on maintaining flexibility to adapt to market conditions as needed, and we continue to expect to convert at least 40% of our adjusted EBITDA to free cash flow in 2024. We closed Q1 with nothing drawn on our revolving credit facility, as well as $170 million of cash on hand. Additionally, we do not have any senior note maturities until 2028.

Andy Smith: For the second quarter, we expect total capex of roughly $180 million with most of the sequential reduction coming from a decline in capex in the completion services segment.

Andy Smith: We expect our annual Capex spend will be $740 million or less.

Andy Smith: Our focus remains on maintaining flexibility to adapt to market conditions as needed and we continue to expect to convert at least 40% of our adjusted EBITDA to free cash flow in 2024.

Andy Smith: We closed Q1 with nothing drawn on our revolving credit facility as well as $170 million of cash on hand, we do not have any senior note maturities until 2028.

Andy Smith: We expect to generate another quarter of strong free cash flow in the second quarter, although likely slightly below what we saw in the first quarter. We have a long track record of returning substantial cash to our investors. Since the start of 2022, we have returned more than 80% of our free cash flow to our investors. And over that same time, we have seen a steady improvement in our free cash flow conversion. Simply put, we're turning more of our adjusted EBIT into free cash flow than in the past, and we're committed to giving a significant amount of that free cash flow back to shareholders.

Andy Smith: We expect to generate another quarter of strong free cash flow in the second quarter, although likely slightly below what we saw in the first quarter.

Andy Smith: We have a long track record of returning substantial cash to our investors since the start of 2022, we have returned more than 80% of our free cash flow to our investors.

Andy Smith: Over that same time, we have seen a steady improvement in our free cash flow conversion.

Andy Smith: Simply put we are turning more of our adjusted EBITDA to free cash flow that in the past and we are committed to giving a significant amount of that free cash flow back to shareholders.

Andy Smith: In the eight months since the merger between next year and Patterson UTI was finalized.

Andy Smith: In the eight months since the merger between Nexstier and Patterson-UTI was finalized, our integration efforts have exceeded our most optimistic expectations. The team's achievements during this relatively short time frame are evident, and the completion services segment has remained resilient despite challenging market conditions. The operational integration is largely complete, and we have now achieved our goal to realize more than the $200 million in annualized synergies which we announced at the time of the transaction.

Andy Smith: Our integration efforts have exceeded our most optimistic expectations.

Andy Smith: Team's achievements during this relatively short time frame are evident in the completion services segment has remained resilient despite challenging market conditions.

Andy Smith: The operational integration is largely complete and we have now achieved our goal to realize more than the $200 million in annualized synergies, which we announced at the time of the transaction.

Andy Smith: We remain committed to identifying additional cost synergies and revenue opportunities. There is still ample room for improvement in our completions business, and we are actively pursuing strategies to enhance its performance. We are confident in our ability to deliver additional value to our shareholders through these efforts. I'll now turn the call back over to Andy Hendricks for closing remarks.

Andy Smith: We remain committed to identifying additional cost synergies and revenue opportunities.

William Andrew Hendricks: Still ample room for improvement in our completions business and we are actively pursuing strategies to enhance its performance.

William Andrew Hendricks: We are confident in our abilities to deliver additional value to our shareholders through these efforts.

Andy Smith: I'll now turn the call back over to Andy Hendricks for closing remarks.

William Andrew Hendricks: Thanks, Andy. As we've discussed, the results for the first quarter of 2024 were strong, and I'm still very constructive on our industry for all of 2024, with Patterson-UTI positioned to continue to generate strong free cash flow. Oil prices have shown relative stability, and there is no visibility on any substantial or additional supplies of crude entering the market that will change the current commodity price dynamic. The oil basins in the U.S. drive the vast majority of our activity. There continues to be strong demand for technology in today's market, including more drilling rig control automation, natural gas-fueled frack technology using electric pumps, Well Placement Analytics, and New Drill Bit Design.

William Andrew Hendricks: Thanks, Andy as we've discussed the results from the first quarter of 2024 were strong and I'm still very constructive on our industry for all of 2024 with Patterson UTI positioned to continue to generate strong free cash flow.

William Andrew Hendricks: Oil prices have shown relative stability and there is no visibility on any substantial or additional supplies of crude entering the market that will change the current commodity price dynamic.

William Andrew Hendricks: The oil basins in the U S drive the vast majority of our activity.

William Andrew Hendricks: There continues to be strong demand for technology in today's market, including more drilling rig control automation natural gas fueled frac technology using electric pumps.

William Andrew Hendricks: Well placement analytics and new drill bit designs.

William Andrew Hendricks: As well, the last year in our industry has demonstrated how the service market in the U.S. has become more disciplined, where although we have seen some softness in the gas markets, overall activity and pricing have held up better than in similar historical years. We believe all this translates to a better operational environment for our company and a more investable sector for the market. I'd like to thank all of our teams across Patterson-UTI for all their hard work to successfully integrate the companies over the last eight months and achieve the targeted synergies of over $200 million.

William Andrew Hendricks: As well the last year in our industry has demonstrated how the service market in the U S has become more disciplined where although we are seeing some softness in the gas markets overall activity and pricing has held up better than similar historical years.

William Andrew Hendricks: We believe all of this translates to a better operational environment for our company and a more investable sector for the market.

William Andrew Hendricks: I'd like to thank all of our teams across Patterson UTI for all their hard work to successfully integrate the companies over the last eight months and achieved the targeted synergies of over $200 million.

William Andrew Hendricks: Patterson UTI remains in a strong position, we continue to focus on high returns.

William Andrew Hendricks: Patterson-UTI remains in a strong position. We continue to focus on high returns, capital efficient ways to grow our profitability, and to return cash to shareholders through our regular dividend and share buyback. We still expect that we will return at least $400 million this year through dividends and share repurchases, which in a flat market should mean further growth in our earnings per share and also return on capital through a steady reduction in the share count.

William Andrew Hendricks: <unk> efficient ways to grow our profitability and to return cash to shareholders through our regular dividend and share buybacks. We still expect that we will return at least $400 million.

William Andrew Hendricks: This year through dividends and share repurchases, which in a flat market should mean further growth in our earnings per share and also return on capital through a steady reduction in share count.

William Andrew Hendricks: Finally, I'd like to thank all the hardworking women and men at Patterson-UTI for what they do to responsibly provide energy to the world. With that, I'd like to hand it back to Tameka, and we'll open the lines for Q&A. Thank you.

William Andrew Hendricks: Finally, I would like to thank all the hardworking women and men at Patterson UTI for what they do to responsibly to provide energy to the world.

Tameka: With that I'd like to hand, it back to Mika and we'll open the lines for Q&A.

Tameka: Thank you as a reminder, if you would like to ask a question press star followed by the number one on your telephone keypad.

Operator: Thank you. As a reminder, if you would like to ask a question, press star followed by the number one on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue, press star 1. We will pause for just a moment to compile the Q&A roster. Your first question is from Luke Lamone with Piper Sadler.

Luke Lamone: It's a good question had been asset and you would like to remove yourself from the queue Press Star one.

Operator: POS with just a moment to compile the Q&A roster.

Luke Lamone: Yes first question is from the line of Luke the Mylan with Piper Sandler.

Luke Lamone: Hey, good morning, good morning, A&D could you.

Luke Lamone: Could you talk a little bit about where you are with your well site integration within Frac.

Luke Lamone: Uh, yeah, so, uh, you know... One of the premises of the merger and, you know, certainly one of the big synergy buckets is the integration of services that are vertical to us on, you know, what was essentially the frack fleets that we had at Patterson-UTI before the merger. So just to remind everybody, you know, at Nextier, really excited about what they've accomplished over the years, especially with the ability to integrate wireline systems, case-told wireline, and perforating. And the real benefit to that is you don't have, you know, as I've said before, a $50 million frack spread waiting on a million-dollar wireline truck.

Luke Lamone: Yes so.

Luke Lamone: And one of the premises of the merger and certainly one of the big synergy buckets is the integration of services that are vertical to us on.

Luke Lamone: It was essentially the frac fleets that we had at Patterson UTI before the merger.

Luke Lamone: So just to remind everybody next year really excited about what they have accomplished over the years, especially with the ability to integrate wireline systems cased hole wireline and perforating and.

Luke Lamone: The real benefit to that is you don't have as I've said before a $50 million frac spread waiting on $1 billion wireline truck will essentially make sure that everything is working like it needs to be as efficient as possible.

Unknown Executive: We'll essentially make sure that everything's working like it needs to be as efficient as possible. Next to that, you have Next Mile Logistics, which is, you know, a trucking delivery company of substantial size that makes sure that our frack fleets are never waiting on sand, that we always have the sand we need delivered to the pads when we need it, both dry sand and wet sand, you know, whatever is required for those particular jobs.

Unknown Executive: Next to that you have.

Unknown Executive: Next model logistics, which is a trucking delivery company.

Unknown Executive: Substantial size.

Unknown Executive: Which make sure that our frac fleets are never waiting on sand that we always have the sand we need delivered to the pads when we needed both dry and wet sand whatever is required for those particular jobs and when you think about <unk>.

Unknown Executive: And when you think about how, you know, we're doing more simulfrac and sometimes trimulfrac, those are very large volumes of sand that have to be delivered, and you never want to be able to hold up operations, hold up the number of stages per day. Next on the list would be the power solution systems that we have, where we actually create CNG in the basin, we can deliver CNG to the well site, we can blend natural gas, and we can do that and efficiently power the systems at the well site and what that does for us by being able to manage that blending of fuel gas and CNG at the well site we can increase the percent substitution so we can reduce fuel costs for customers in the field we can also reduce emissions by burning more natural gas so in general we believe that we get higher substitutions because we have this capability than other companies.

Unknown Executive: Now, we're doing more simulcast <unk> and sometimes triangle frac. Those are very large volumes of sand that have to be delivered and you never want to be able to hold up operations hold up the number of stages per day.

Unknown Executive: Next on the list would be the <unk>.

Unknown Executive: The power solution systems that we have where we actually create CMG and the basin, we can deliver <unk> to the well site.

Unknown Executive: We can blend natural gas.

Unknown Executive: And we can do that and efficiently power of the systems at the well site and what that does for us by being able to manage that blending of fuel gas and <unk> at the well site. We can increase the percentage of substitution. So we can reduce fuel costs for customers in the field. We can also reduce emissions by burning more natural gas.

Unknown Executive: In general we believe that we get higher substitution because we have this capability than than other companies.

Unknown Executive: After that, you've got the NetSub and the real-time systems, and we're monitoring equipment, monitoring the status of equipment, trying to do predictive analysis on when we need to make changes in the field just to maximize the uptime on the equipment and maximize the number of stages per week and stages per month that we get. And so we continue to add each of those to the fleets we had at Patterson-UTI pre-merger and work through all that.

Unknown Executive: After that you've got the nex hub and the real time systems, and we're monitoring equipment, we're monitoring the status of equipment.

Unknown Executive: Try to do predictive analysis on when we need to make changes in the field to maximize the uptime on the on the equipment and maximize the number of stages per weakens stages per month that we get and so we continue to add each of those into the.

Unknown Executive: At least we had a patterson UTI pre merger and work through all that.

Unknown Executive: I would say it's still an ongoing process, and we'll work through it for the rest of the year. But we had several wins early on last year and will continue to roll it out. It's just part of the normal operation these days as we've really essentially completed the integration. Yeah. Hey, Luke, I would add to that a little bit, talking broader about the synergies and sort of what we said early on, you know, recall the $200 million that we expected to get.

Speaker Change: I would say, it's still an ongoing process and we will work through it for the rest of the year, but we had several wins early on last year and continue to roll. It out it's just as part of the normal operation. These days as we really essentially completed the integration, yes, Hey, Luke I would add to that a little bit torgan broader about the synergies and sort of what we said early on.

Unknown Executive: Yeah, hey Luke, I would add to that a little bit, talking broader about the synergies and sort of what we said early on, you know, recall that of the $200 million that we expected to get, we thought that would be about a third of the supply chain, a third of SG&A, and a third on the sales sort of integration side. I would say that we've overachieved in the supply chain, probably hit our number pretty close on SG&A, and are probably a little bit under on the well side integration, but that's largely due to the market backdrop.

Unknown Executive: Recall that of the $200 million that we expected to get.

Unknown Executive: We thought that would be about a third supply chain, a third SG&A and a third on the sales sort of integration side.

Unknown Executive: Well site integration side.

Unknown Executive: I would say that we've over achieved in supply chain, probably hit our number pretty close on SG&A.

Unknown Executive: Are probably a little bit under on the on the wealth side integration, but thats largely data market backdrop. So we've got additional opportunity there as we go forward as market conditions improve I think we've got more opportunity to really increase the amount we get out of that.

Unknown Executive: So, we've got additional opportunity there as we go forward, and if market conditions improve, I think we've got an opportunity to really increase the amount we get out of the Okay, that's helpful. And then you'll both talk about the gaps in the

Unknown Executive: Okay. That's helpful and then Youll both talked about the gaps in the dedicated fleets in <unk> is this just on natural gas or diesel oil basins as well and then you talked about <unk>, Frank Andy being up from <unk> <unk>.

Unknown Executive: It's early but could this be above <unk> as well in <unk> or were between <unk> and <unk> kind of a good starting point for now so we have we have some white space in the calendar in Q2, where we have actually more than one of our E&P customers that.

Unknown Executive: So, we have some white space on the calendar in Q2 where we have actually more than one of our EMP customers that, you know, Completion has been running so efficiently that we're bumping up against the drilling rig. And so, in discussions with the teams, it looks like we'll have more inventory in place in Q3. So, we're just in a situation where we're bumping up the drilling rigs in Q2, and then in Q3, we'll have steadier work out of those same practices.

Unknown Executive: Completions has been running so efficient that we're bumping up against the drilling rig and so.

Unknown Executive: In discussions with the teams it looks like we will have more inventory in place in Q3. So we're just we're in a situation where we're bumping up the drilling rigs in Q2 and then in Q3, we will have steadier work out of those same frac fleets.

Speaker Change: Okay, alright, thanks, so much.

Unknown Executive: Your next question is from the line of Jim Rollyson.

James Michael Rollyson: Your next question is from the line of Jim Rollyson with Raymond James.

James Michael Rollyson: Raymond James.

James Michael Rollyson: Hey, good morning, guys good morning, Jim.

James Michael Rollyson: Andy There as you mentioned this and it's been a pretty popular topic, obviously the gas market has been pretty soft here of late but the setup going into next year and probably for the next few years.

William Andrew Hendricks: Andy, you mentioned this, and it's been a pretty popular topic. Obviously, the gas market's been pretty soft here of late, but the setup going into next year, and probably for the next few years, seems to be gaining traction both on the LNG front and the kind of data center-driven electricity implications for gas demand. Have you guys put any pencil to paper just to think about what you believe the impact will be on both frack and drilling activity as we roll into 25 and beyond on, you know, how much activity do we need to actually produce the volumes that are required based on where some of the demand estimates are? I'm just curious.

William Andrew Hendricks: Seems to be gaining traction both on the LNG front and the kind of data center driven electricity implications for gas demand.

William Andrew Hendricks: Have you guys put any pencil to paper just to think about what you believe the impact will be on both frac and drilling activity as we roll into 'twenty five and beyond on how.

William Andrew Hendricks: How much activity do we need to actually <unk>.

William Andrew Hendricks: Produced the volumes that are required based on where some of the demand estimates are I'm. Just curious it seems like we're in this short term people will then focus on the soft market condition, but as we go into next year.

William Andrew Hendricks: It seems like we're in this short term. People have been focused on this soft market condition. But as we go into next year, it seems like this is going to rapidly change and tighten up markets, especially on the gas side, which tightens the overall thing. But just kind of curious about your big picture view as we roll into next year.

William Andrew Hendricks: It seems like this is going to rapidly change and tightened up markets, especially on the gas side, which tightens. The overall thing, but just kind of curious your big picture view as we roll into next year.

William Andrew Hendricks: Yeah, so, you know, we've got natural gas production along the Gulf Coast and, you know, feeding into Henry Hub, and then, of course, we have all the associated gas coming in from the Permian these days. This year we were supposed to get another BCF in the pipelines coming out of the Permian, competing against gas essentially in the Haynesville, which is why we've seen the Haynesville continue to stay soft.

Speaker Change: Yes so.

William Andrew Hendricks: We've got natural gas production, along the Gulf Coast.

William Andrew Hendricks: Feeding into Henry hub, and then of course, we have all the associated gas coming in from the Permian. These days. This year, we were supposed to get another bcf and the pipelines coming out of the Permian competing against gas essentially in the Haynesville, which is why we've seen the haynesville continues to stay soft.

William Andrew Hendricks: We don't today have visibility on any increase in natural gas for the end of 2024. However, we do have some natural gas customers that have been talking to us about adding a rig or increasing activity to start to plan for things in 2025. I think we're all just trying to understand right now what it looks like in terms of more pipeline capacity coming from the Permian, and how does that compete against Haynesville gas? Interestingly enough, I was talking to one of our customers the other day, and we were discussing take-away from the Permian.

William Andrew Hendricks: We don't today have visibility on any increase in natural gas for the end of 'twenty four.

William Andrew Hendricks: We do have some natural gas customers that have been talking to us about adding a rig or increasing activity to start to plan for <unk> in 2025.

William Andrew Hendricks: We're all just trying to understand right now what does it look like in terms of more pipeline capacity coming from the Permian and how does that compete against Haynesville gas.

William Andrew Hendricks: We ended up I was talking to one of our customers. The other day and we were discussing takeaway from the Permian some of the E&ps actually have natural gas takeaway over to California at the same time, so not all the associated gas is coming from the Permian to the Gulf Coast and hitting Henry hub, and California is still going to have strong demand.

William Andrew Hendricks: Some of the EMPs actually have natural gas taken away to California at the same time. So not all the associated gas is coming, you know, from the Permian to the Gulf Coast and hitting Henry Hove. And California is still going to have strong demand for utilities, you know, with natural gas, you know, and that gets into the whole data center discussion. In 2025 and going forward, the U.S. is going to be exporting more LNG.

William Andrew Hendricks: Or utilities with natural gas.

William Andrew Hendricks: That gets into the whole data center discussion.

William Andrew Hendricks: 2025 and going forward.

William Andrew Hendricks: The U S is going to be X 40, more LNG theres contracts in place for the new plants coming online, especially on the Texas Gulf Coast.

William Andrew Hendricks: There are contracts in place for the new plants coming online, especially on the Texas Gulf Coast, which is going to require more natural gas. It's not apparent that there are enough pipelines coming from the Permian that negate the need for Haynesville gas. So it does seem like that Haynesville gas is going to be required sometime in 2025 to start increasing activity and certainly going into 2026. And so structurally, you know, I'm bullish on what's happening.

William Andrew Hendricks: The Texas Gulf Coast, who is going to require more natural gas is.

William Andrew Hendricks: Not apparent that there is enough pipelines coming from the Permian.

William Andrew Hendricks: Negates the need for Haynesville gas. So it does seem like the haynesville gas is going to be required.

William Andrew Hendricks: Sometime in 'twenty five to start increasing activity and certainly going into 'twenty six and so structurally on bullish for what's happening with LNG exports from the increasing need for data centers in the U S.

William Andrew Hendricks: With LNG exports, the increasing need for data centers in the U.S., and natural gas going over to California from the Permian so that it's not all competing, you know, in the Gulf Coast area. It sets it up structurally well for 2025 and beyond.

William Andrew Hendricks: With natural gas going over to California from the Permian So that it's not all competing in the Gulf Coast area.

William Andrew Hendricks: It sets it up structurally well for 2025 and beyond.

Speaker Change: Yes, that's kind of what I was thinking.

William Andrew Hendricks: Yep, that's kind of what I was thinking, and switching gears a little bit on the drilling services side for your US rig business. You know, costs have obviously trended up over time for a whole host of reasons, but I did notice that they actually ticked down for the first time in several quarters this quarter. And I'm just curious what the driver was and maybe how you guys are thinking about costs going forward, in part in the second quarter related to the 300 margin daily margin drop, but also just beyond the second quarter. Yeah, and some of it's related to the change in the rig count.

William Andrew Hendricks: And switching gears, a little bit just on the drilling services side for your U S rig business.

William Andrew Hendricks: Costs have obviously trended up over time for a whole host of reasons, but did notice that they actually ticked down for the first time in several quarters this quarter and I'm just curious what the driver was and maybe how you guys are thinking about costs going forward.

William Andrew Hendricks: Part of the second quarter related to the 300 margin daily margin drop, but also just beyond the second quarter.

William Andrew Hendricks: Yeah, some of it's related to the change in the rig count, and our rig count in the first quarter held up better than we thought it would, and so we do think we will lose a couple more rigs going into Q2 from where we are today, but not a big change. So I think you are going to see our costs, because of the changes in the rig count, kind of moving up and down, but essentially, they're still relatively flat if you had a flat rig count.

William Andrew Hendricks: And some of it is related to the change in the rig count and our rig count in first quarter held up better than we thought it would.

William Andrew Hendricks: So we do think we lose a couple more rigs going into Q2 from where we are today.

William Andrew Hendricks: But not a not a big change.

William Andrew Hendricks: So I think you are going to see our cost because of the changes in the rig count.

William Andrew Hendricks: For the quarter basis kind of moving up and down.

William Andrew Hendricks: But essentially theres still relatively flat if you had a flat rig count.

William Andrew Hendricks: We will see maintenance capex moderate as activity moderates, and then maintenance capex come back up as activity comes back up as well. So all in all, we think we're in line there and still producing strong free cash flow. Great. Thanks, Andy.

Speaker Change: We will see.

William Andrew Hendricks: Maintenance capex moderate as activity moderates, and then maintenance Capex come back up as activity comes back up as well so all in all.

William Andrew Hendricks: We think we're in line, there and still producing strong free cash flow.

Speaker Change: Great. Thanks, Andy Thanks.

William Andrew Hendricks: Your next question is your line of Scott Gruber with Citigroup.

Scott Andrew Gruber: Your next question is from a line by Scott Gruber with Citigroup.

Scott Andrew Gruber: Yes, good morning, good morning, good morning.

Scott Andrew Gruber: Yes.

William Andrew Hendricks: So staying on the rig side, Andy, if your rig count is flattish from here, you know, from that 2Q level, do we expect margins to be flattish as well in 3Q and 4Q?

Scott Andrew Gruber: Sustained on the rig side, Andy if you would count as is flattish from here.

Scott Andrew Gruber: From that <unk> level should we expect margins to be flattish as well in <unk> and <unk>.

William Andrew Hendricks: Yeah I was just looking at projections again and you know what we're seeing is you know like I said we're going to have a couple more rigs coming down in Q2 and I think that margins and rig count are likely to bottom somewhere in that Q2, Q3 timeframe this year whereas you know it's a little bit different on the completion side as I mentioned earlier you know completions had a different circumstance where we're going to see their activity bump up a little bit in Q3 with less white space so you know Q2 is kind of the bottom for completions for us but on the rig side it's probably across Q2, Q3.

Scott Andrew Gruber: Yes, I was just looking at projections again.

William Andrew Hendricks: What we're seeing is like I said, we're going to have a couple more rigs coming down.

William Andrew Hendricks: In Q2, and I think that margins in rig count or likely to bottom somewhere in that Q2 Q3 timeframe. This year.

William Andrew Hendricks: Whereas it's a little bit different on the completion side as I mentioned earlier completions had a different circumstance, where we're going to see their activity bump up a little bit in Q3 with less white space.

William Andrew Hendricks: So Q2 is kind of the bottom for completions for us, but on the rig side, it's probably across Q2 Q3.

Speaker Change: Got you.

William Andrew Hendricks: And then, you know, on the completion side, obviously, the gas side of the business is weak today, hopefully bottoming out, and obviously, you highlighted the gaps in the schedules that will impact 2Q, but just curious, you know, in Texas and on the oil side, has the business been pretty steady for you guys, or have you guys, you know, seen some reduction in activity on that side of the business as well, and if you have, you know Yeah, in the oil basins, we just remain relatively steady outside.

William Andrew Hendricks: And then on the completion side, obviously, the gas side of the businesses is weak today, hopefully bottoming out.

William Andrew Hendricks: And obviously you highlighted that the gaps in the schedule that will impact in Q.

William Andrew Hendricks: But just curious.

William Andrew Hendricks: Texas and on the oil side.

William Andrew Hendricks: Has the business been pretty steady for you guys or have you guys seen some reduction in activity on that side of the business as well and if you had.

William Andrew Hendricks: You see a path to recapture some of that share in the second half.

William Andrew Hendricks: Yeah, in the oil basins, we just remain relatively steady outside of, you know, completions, efficiency being higher than we planned, and bumping up against the drilling rigs and needing some more inventory. But we've seen it relatively steady in the oil basins. You know, everybody's talked about the decreases in gas prices in the Haynesville, and we're going to see the Northeast moderate a little bit, but I believe that's transitory as structurally they just kind of get that market back into balance.

William Andrew Hendricks: Yeah in the oil basins, we just remain relatively steady outside of completions efficiency being higher than we planned and bumping up against the drilling rigs and needing some more inventory, but we're seeing it relatively steady in the oil basins.

William Andrew Hendricks: Everybody has talked about the decreases in gas in the Haynesville, we're going to see the northeast moderate a little bit, but I believe that's transitory as structurally they just kind of get that market back into balance.

William Andrew Hendricks: Which is why, you know, I think that, you know, Q2 is likely the bottom in completions and then, you know, across Q2, Q3 for drilling. But back to oil, it's just been steady, and, you know, oil is 80% of what happens in the U.S. market today.

William Andrew Hendricks: Which is why I think that Q2's likelihood bottom and completions across Q2 Q3 for we're drilling but back to oil it's just been steady.

William Andrew Hendricks: Oil is 80% of what happens in the U S market today.

Scott Andrew Gruber: I got it. Thank you. Thank you. Your next question.

Speaker Change: Got it thank you thanks.

Scott Andrew Gruber: Your next question is from the line of Alexa Paycheck with Goldman Sachs.

Alexa Patrick: Your next question is from the line of Alexa Patrick with Goldman Sachs.

Alexa Patrick: Hey, good morning team I wanted to touch on capital returns briefly how should we be thinking about the cadence of share repurchases through 2024, and then is this level of capital returns something we should use standard going forward. When we think about free cash flow payout. Thank you.

William Andrew Hendricks: Yeah. In terms of the cadence of how we intend to sort of buy back stock, I don't want to forecast too much, obviously, I mean, we're committed to returning at least 50%. This year, we've committed to returning at least 400 million combined between dividends and buyback. But I don't want to give too much of an expectation as to how exactly we're going to do that. We'll remain opportunistic as best we can but still stay within those sort of parameters and those commitment levels that we've given you.

Alexa Patrick: Yes.

William Andrew Hendricks: In terms of the cadence of how we intend to sort of buy back stock I don't want to forecast too much. Obviously, we're committed to returning at least 50%. This year, we've committed to returning at least $400 million combined between dividends and buybacks.

William Andrew Hendricks: But I don't want to give too much of an expectation as to how exactly we're going to data.

William Andrew Hendricks: We will remain opportunistic as best we can but still stay within those parameters and those commitment levels that we've given you.

William Andrew Hendricks: And going forward, again, I don't want to give too much of an expectation going into 2025. We're still committed to the 50% return, but we'll just have to judge at the time how and we expect to do that.

William Andrew Hendricks: And then going forward again, I don't want to give too much of an expectation going into 2025, we are still committed to the 50% return.

William Andrew Hendricks: But we'll just have to judge at the time, how and we expect to do that yes.

William Andrew Hendricks: Yeah, the part that's exciting to me is that, with the structural changes in the oil market that we've seen over the last few years and the increased level of discipline that we've seen in oilfield services, we're just in a really good position to generate strong free cash flow and return cash to shareholders. And so, you know, we're still confident in our ability to commit to returning at least $400 million this year through dividends and buybacks.

William Andrew Hendricks: And the part that is exciting to me is that.

William Andrew Hendricks: With the structural changes in the oil market that we've seen over the last few years and the increased level of discipline that we've seen in oilfield services. We're just in a really good position to generate strong free cash flow and return cash to shareholders.

Speaker Change: So we're still confident in our ability to committed to returning at least $400 million this year through dividends and buybacks and what we said as Andy mentioned is we want to give at least 50% of our free cash flow back to shareholders. But this market is in really good shape for us to do that for a multi year period, yes, touching on what Andy just said it.

William Andrew Hendricks: And what we've said, as Andy mentioned, is that we want to give at least 50% of our free cash flow back to shareholders. But this market's in really good shape for us to do that for a multi-year period. Yeah, I mean, touching on what Andy just said, it's a... A bit of a unique situation for us right now because we're generating in what we think

William Andrew Hendricks: Yeah, I mean, touching on what Andy just said, it's a... A bit of a unique situation for us right now because we're generating what we think is a pretty good amount of free cash flow at the same time, but our stock price is just not where we would expect it to be given Okay, that's very helpful.

William Andrew Hendricks: It's a bit of a unique situation for us right now because we are generating.

William Andrew Hendricks: Well, we think is a pretty good amount of free cash flow at the same time, our stock price is just not where we would expect it to be given the.

William Andrew Hendricks: Operational backdrop that we have and so we think it's a great opportunity to buy back shares in this type of an environment.

Speaker Change: Okay. That's very helpful. And then on M&A briefly you have been historically very acquisitive, how are you thinking about M&A.

William Andrew Hendricks: Industry consolidation picking up and then do you think theres any incremental opportunities for technology focused M&A.

Speaker Change: So in general we've been busy over the last year plus and for.

William Andrew Hendricks: So in general, we've been, you know, busy over the last year plus, and for the last eight months, focused on integration, and we're still working on some integration. But we're really happy with the structure of the company that we have right now. You know, we cover a lot of the sector between contract drilling, directional drilling, drill bits, completions, wireline, cementing, natural gas power systems, I mean, you name it, we're covering right now and are very strong in all those sectors across North America. And we have international growth opportunities with Altera drill bits. And so we just think we're in really good shape.

William Andrew Hendricks: For the last eight months focused on integration and still working on some integration, we're really happy with the structure of the company that we have right now.

William Andrew Hendricks: Cover a lot of this sector between contract drilling.

William Andrew Hendricks: Directional drilling drill bits completions wireline cementing natural gas power systems, I mean, you name. It we're covering right now and very strong and all of those sectors across North America, and we have international growth opportunities with Alterra drill bits.

William Andrew Hendricks: So we just think we're really good shape, so there's <unk>.

William Andrew Hendricks: So there's, you know, people have asked at times, hey, is there anything more that you believe that you need in the company? And the answer is no, we have everything we need right now. We have done acquisitions in the technology space in the past, relatively small compared to what we did in the previous year. There may be opportunities to do that going forward. We'll just have to wait and see.

William Andrew Hendricks: I've asked at times, Hey is there anything more that you believe that you need in the company and the answer is no. We have everything we need right now.

William Andrew Hendricks: We have done acquisitions in the technology space in the past.

William Andrew Hendricks: Relatively small to what we've done in the previous year.

William Andrew Hendricks: There may be opportunities to do that going forward, we'll just have to wait and see but.

William Andrew Hendricks: But we're really focused on just running what we have today and continuing integration, continuing synergy. I do think there's room for more consolidation in the sector, and I think there probably will be companies that you see that come together, especially when you get into the companies that are smaller market caps than we are. I think you'll see that some of those companies find opportunities to pull themselves together and create new entities, and that's going to be very positive structurally for the market. As I mentioned earlier, I'm upbeat about the structure of the market today, and I actually only think it will improve going forward.

William Andrew Hendricks: We're really focused on just running what we have today and continue to an integration continuing capture synergies.

William Andrew Hendricks: I do think there's room for more.

William Andrew Hendricks: Consolidation in the sector and I think there probably will be companies that you see that come together, especially when you get into the companies that are smaller market caps than we are I think youll.

William Andrew Hendricks: Ceded some of those companies find opportunities to pull themselves together and create new entities and that's going to be very positive structurally for the market as I mentioned earlier.

William Andrew Hendricks: Beat about the structure of the market today, and I actually only think it improves going forward.

Speaker Change: Thanks, Peter that's very helpful I'll turn it over.

Derek John Podhaizer: Your next question is from the line of Derek Podhaizer with Barclays.

William Andrew Hendricks: Next question is from the line of Paul Cheng.

Derek John Podhaizer: With Barclays.

William Andrew Hendricks: Hey guys, I wanted to ask about that ten million dollar gain that we saw at completion services. Maybe you can expand on what that is and if it's repeatable going forward.

Derek John Podhaizer: Hey, guys wanted to ask about that $10 million of gain that we saw in our completion services. Maybe if you can expand on what that is and if it's repeatable going forward.

Derek John Podhaizer: Yes, I wouldn't say, it's repeatable going forward this was.

William Andrew Hendricks: Yeah, I wouldn't say it's repeatable going forward. This was a legal situation we got into with one of our suppliers that was finally settled. We settled it in the quarter, and, you know, it's a one-time event.

William Andrew Hendricks: A legal situation, we got into with one of our suppliers.

William Andrew Hendricks: Finally settled.

William Andrew Hendricks: In the quarter and to.

William Andrew Hendricks: A one time event.

Derek John Podhaizer: Got it. And then maybe just to go back to Luke's question up at the top of the call, asking about, you know, where completion services can go from a gross profit perspective, just the fact that you have fleets going back to work, and utilization picking up in the third quarter. Can we get back to first-quarter levels, or will we fall somewhere between 1 and 2Q?

Speaker Change: Got it and then maybe just to go back to lose question at the top of the call asking about where our completion services can go from a gross profit perspective, just the fact that you have fleets going back to work utilization picking up in the third quarter can we get back to first quarter levels are obese fall somewhere between one and <unk>.

William Andrew Hendricks: I actually think we can get back to the first quarter levels because I think what you're going to see from some of our EMP customers over the next year is that they're looking at how much improvement they've been getting in frack efficiency and now how they're short on inventory. And so you may actually see them increase drilling capacity by adding a rig here or there, just so that they can keep inventory in front of the frack spread. And that's what we need to be able to do that, just take some of that white space out of the calendar. But I think we'll see some of the EMPs do that.

Speaker Change: So we think we can get back to the first quarter levels, because I think what youre going to see from some of our E&P customers over the next year as they're looking at how much improvement they've been getting in frac efficiency and know how they're short on inventory and so you actually may see an increase.

William Andrew Hendricks: Drilling capacity by adding a rig here there just so that they can keep inventory in front of the frac spread and that's what we need to be able to do that it just takes them that white space out of the calendar, but I think we will see some of the e&ps do that.

Speaker Change: Got it that's helpful. Appreciate that.

William Andrew Hendricks: That's helpful; I appreciate that. The last one is just an update on EFRAC. Sounds like you put another Emerald Fleet out there, and they're gonna be at 140,000 horsepower by mid-year. Can you just discuss this? Are you getting multi-year contracts here? What does the payback look like? Any early results, indications on that R&M expense, maintenance, cap-backs, just help us understand more about the benefits you're seeing out of your EFRAC program so far. Oh, and also, are you buying power, or are you leasing power?

William Andrew Hendricks: The last one just an update around E. Frac sounds like he played another MLP out there I know you're going to be at 140000 horsepower by mid year can you just discuss about are you getting multiyear contracts here what are the payback looks like any early results indications on that R&M expense maintenance Capex just help us understand more about the benefits Youre seeing I think E. Frac program so far.

William Andrew Hendricks: I would also argue buying power or you leasing power.

William Andrew Hendricks: So today we're getting long-term We have agreements with customers who have multi-year drilling programs, and so that suits us really well for the deployment of the new E-Fleets and the Emerald systems. Really excited about how that deployment's gone; as I mentioned earlier, the startup on those operations has gone really smoothly.

William Andrew Hendricks: So today, we're getting long term.

William Andrew Hendricks: Agreements with customers, who have multi year drilling programs and so that suits us really well for deployment of the new E fleets and the Emerald systems really.

William Andrew Hendricks: We're really excited about how that deployment has gone as I mentioned earlier.

William Andrew Hendricks: Startup on those operations has gone really smooth.

William Andrew Hendricks: We are actually buying the equipment in terms of the frac spreads, unlike others who are probably out there leasing equipment, but we are leasing the power because the power gets used in different ways, where we feel it's in our best interest to own the actual frac equipment and actually buy it using CAPEX. So you actually see... The electric frack. Transcripts provided by Transcription Outsourcing, LLC.

William Andrew Hendricks: We are actually buying the equipment in terms of the frac spreads. Unlike others, who were probably out there leasing equipment, but we are leasing the power because of the power gets used in different ways, where we feel it's in our best interest to own the actual frac equipment and actually buy it using capex. So you actually see.

William Andrew Hendricks: The electric Frac.

William Andrew Hendricks: Spreads fleets in our Capex budget.

William Andrew Hendricks: But we are leasing the power systems.

Derek John Podhaizer: Great. I appreciate the color. I'll turn it back.

Speaker Change: Great appreciate the color I'll turn it back.

Derek John Podhaizer: Your next question is from the line of Iran's Joanne with J P. Morgan.

Arun Jayaram: Your next question is from the line of Arun Jaran with J.P. Morgans.

Arun Jayaram: Yes, good morning, Andy maybe just a follow up.

William Andrew Hendricks: Yeah, good morning, Andy, maybe just to follow up. You guys have always taken a pragmatic approach regarding fleet renewal, and I was wondering if you could maybe comment on thoughts on incremental eFleet deployments versus the 100% gas technology, it sounds like you were looking at. Maybe you could discuss some of the pros and cons around each of those technologies.

William Andrew Hendricks: You guys have always taken a pragmatic approach regarding fleet renewal and I was wondering if you could maybe comment on.

William Andrew Hendricks: Thoughts on incremental fleet.

William Andrew Hendricks: Deployments versus the 100% gas technology. It sounded like that you were looking at maybe you could discuss some of the pros and cons around each of those technologies.

William Andrew Hendricks: Sure.

William Andrew Hendricks: No.

William Andrew Hendricks: We continue to rollout the fleets this year and we will likely continue to rollout E fleets over the next few years as well as part of our Capex budget and retire older equipment at the same time there is demand for the fleets. We did agreements for multi years on multi year projects and some of the bigger operators and so.

William Andrew Hendricks: You know, we continue to roll out E-Fleets this year, and we will likely continue to roll out E-Fleets over the next few years as part of our CapEx budget and retire older equipment at the same time. There is demand for E-Fleets. We get agreements for multi-years on multi-year projects with some of the bigger operators, and so, you know, there is demand for that. You've got certain operators that say, yeah, I'd really like to have the E-Fleet, and it's part of our competence that we have in the company, and we like the way they run.

William Andrew Hendricks: There is demand for that and <unk> got certain operators would say I'd really like to have easily.

William Andrew Hendricks: And as part of our competency that we have in the company and we like the way they run but we also at the same time don't want to be tied to a single solution in terms of new technology and so we are running some 100% gas recip engines.

William Andrew Hendricks: But we also, at the same time, don't want to be tied to a single solution in terms of new technology. And so, you know, we are running some 100% gas re-sip engines that are direct drives into pumps. We do that on some jobs.

William Andrew Hendricks: A direct drive into pumps, we do that on some jobs, we run turbine direct drive systems on some jobs as well in general we use those to supplement the dual fuel to increase the natural gas consumption in <unk>.

William Andrew Hendricks: We run turbine direct drive systems on some jobs as well. In general, we use those to supplement the dual fuel to increase the natural gas consumption and substitution on some of those jobs. But, you know, clients still like the flexibility of dual fuel. We still have some customers that have gas on some pads, but they don't have gas on all pads. And in some cases, you know, distances for CNG trucking don't necessarily make sense.

William Andrew Hendricks: Substitution on some of those jobs.

William Andrew Hendricks: But.

William Andrew Hendricks: Clients still like the flexibility out there with the dual fuel we still have some customers that have gas on some pads, but they don't have gas on all pads and in some cases distances for CMG trucking don't necessarily make sense and so I think youre going to see multiple solutions.

William Andrew Hendricks: And so, I think you're going to see multiple solutions. It's, you know, Tier 4 DGB is still going to be a strong part of the market and a large part of what we do. You'll see us continue to add electric spreads, you know, tied to 100% natural gas generators. And then you'll see us add other newer technologies, whether it be gas re-sip direct drive to the pumps or turbines direct drive to the pumps for various reasons, depending on what makes sense in the basin for different customers. But we have experience operating all those systems, and we'll take a balanced approach to the new technology.

William Andrew Hendricks: Tier four DGB is still going to be a strong part of the market in large part of what we do.

William Andrew Hendricks: Youll see us continue to add electric spreads tied to a 100% natural gas generators.

William Andrew Hendricks: And then you'll see us add other newer technologies, whether it be gas recip direct drive to the pumps or turbines direct drive to the pumps for various reasons, depending on what makes sense in the basin for different customers, but we have experienced operating all of those systems.

William Andrew Hendricks: We will take a balanced approach on the new technology.

Speaker Change: Great. Thanks, Andy.

William Andrew Hendricks: Follow up.

William Andrew Hendricks: On the E&P side, Andy we continue to see.

William Andrew Hendricks: Efficiency gains with.

William Andrew Hendricks: E&ps.

William Andrew Hendricks: More regularly touting the ability to.

William Andrew Hendricks: 18 to 21 hour.

William Andrew Hendricks: Pumping hours per day pretty remarkable achievements on the drilling side, we continue to see a lot of efficiency gains.

William Andrew Hendricks: Faster cycle times I was wondering as to.

William Andrew Hendricks: Given this dynamic.

William Andrew Hendricks: Customers are working your equipment harder and harder. Are you shifting your philosophy on performance-based contracts from day work and talking to us about some of the ways you're adapting your contracting structure to take advantage of, to win in some of these efficiency gains that you're providing at the well site? Yeah, I'll start with completions first.

William Andrew Hendricks: Customers are working your equipment harder and harder.

William Andrew Hendricks: Are you shifting your philosophy on performance based contracts from day work and talk to us on some of the ways you are adapting.

William Andrew Hendricks: Your contracting structure to take advantage.

William Andrew Hendricks: To win in and some of these efficiency gains are you providing at the well site.

William Andrew Hendricks: Yeah, I'll start with completions first. We essentially get paid by the stage. So, you know, the faster we get the stages out there per week, per month, the better that is in terms of capital efficiency for us. So that's certainly a win.

Speaker Change: Yes, I'll start with completions first Sn.

William Andrew Hendricks: Essentially get paid by the stage.

William Andrew Hendricks: So we the faster at the stages out there per week per month, the better that is in terms of capital efficiency for us.

William Andrew Hendricks: So that's certainly a win and on the power solutions as we continue to integrate power solutions onto our Frac fleets.

William Andrew Hendricks: And on the power solutions, as we continue to integrate power solutions onto our flack fleets, you know, we can play in the arbitrage on the natural gas prices and, you know, additional revenue around there, and we get part of that fuel savings. On the drilling side, we do have some performance-based contracts in place. We also continue to work with operators for various other things. There are technological additions that are happening on the rigs as well.

William Andrew Hendricks: We can play in the arbitrage on the natural gas prices and generate additional revenue around there and we get part of that fuel savings on the drilling side, we do have some performance based contracts in place.

William Andrew Hendricks: We also continue to work with operators for various other things. There is technology additions that are happening on the rigs as well and so we do believe that we continue to push up.

William Andrew Hendricks: And so we do believe that we continue to push up revenue per day through the addition of technology. But one of the things to consider is when you're looking across all the companies, you're really apples and oranges because different companies report different services in that revenue per day. And so when we report revenue per day for our contract drilling business, we're giving you the revenue per day for the contract drilling rigs without other services blended in. But we do believe we're very competitive. You know, when we're out there, bidding on work, and, you know, we are certainly up there in the top quartile of what we earn on the rig.

William Andrew Hendricks: Revenue per day through the addition of technology.

William Andrew Hendricks: One of the things to consider is when youre looking across all of the companies Youre really apples and oranges because different companies report different services in that revenue per day, and so when we report revenue per day for our contract drilling business, we're giving you the revenue per day for the contract drilling rigs without other services blended in but we do believe.

William Andrew Hendricks: We were very competitive when we're out there bidding.

William Andrew Hendricks: Bidding on work in.

William Andrew Hendricks: We are certainly up there in the top quartile of what we earn on the rigs.

Speaker Change: Great. Thanks, a lot.

William Andrew Hendricks: Yes.

William Andrew Hendricks: Your next question is your line of Steven <unk> with Stifel.

Stephen David Gengaro: Your next question is from the line of Stephen Gengaro, Wasifo.

Stephen David Gengaro: Two things for me. The first is that you mentioned owning the E-fleets. I'm pretty sure next year you used to lease at least a couple of those E-fleets. Have you purchased those, or are they still on a lease-to-own arrangement?

Stephen David Gengaro: Thanks, Good morning, everybody.

Stephen David Gengaro: Two things from me the first you mentioned owning the fleets.

Stephen David Gengaro: I'm pretty sure next year.

Stephen David Gengaro: You still lease at least a couple of those if we have you have you purchased those or are they still on.

Speaker Change: It's kind of a lease to own arrangement.

William Andrew Hendricks: No, we never leased any E-fleets. We did have some leased equipment. We bought some of that equipment out. We still have some small leases, but we've never released any...

Speaker Change: No, we never leased and easily.

William Andrew Hendricks: We did have some leased equipment, we bought some of that equipment out we still have some small leases.

William Andrew Hendricks: Narrow leased and equally.

Stephen David Gengaro: Okay, so I apologize. I thought there was someone in that type of arrangement.

William Andrew Hendricks: Okay.

Stephen David Gengaro: Apologize I thought there were some on that type of arrangement.

Stephen David Gengaro: So from a bigger picture perspective, you mentioned sort of the efficiencies on the Frac side and how that has played into maybe a little white space on the calendar. When we think about just kind of the market in the medium term.

Stephen David Gengaro: Our efficiency gains on the on the completion side.

William Andrew Hendricks: So from a bigger picture perspective, you mentioned sort of the efficiencies on the frac side and how that has played into maybe a little white space on the calendar. When we think about just kind of the market, you know, in the medium term, are our efficiency gains on the completion side outpacing the rig side at this point? And does that impact the way we should think about the number of completion crews necessary relative to the rig count?

Stephen David Gengaro: Outpacing the rig side.

William Andrew Hendricks: At this point and does that impact sort of the way, we should think about the number of completion crews necessary relative to the rig count.

William Andrew Hendricks: I think what will happen is you'll see an increase in the rig count I think that.

William Andrew Hendricks: I think what will happen is you'll see an increase in the rig count. I think that operators are seeing companies like ourselves improve efficiencies over the last couple of years, and what they were planning in terms of inventory, we're catching up on that. And so I think, like I mentioned earlier, you'll see a few that may add rigs, and part of that is because we're drilling longer laterals, and so we're on the locations a little bit longer with the rigs than we were in the past as well. And so when you add up multiple wells on a pad at longer laterals than what we've drilled in the past, completion is bumping up again.

William Andrew Hendricks: Operators are seeing.

William Andrew Hendricks: Like ourselves improve efficiencies over the last couple of years.

William Andrew Hendricks: And what they were planning in terms of inventory.

William Andrew Hendricks: We're catching up on that and so I think like I mentioned earlier, you'll see a few.

William Andrew Hendricks: EMEA add rigs and part of that is because.

William Andrew Hendricks: We're drilling longer laterals and so we're on the locations a little bit longer with the rigs than we were in the past as well and so when you add up multiple wells on a pad and longer laterals and what we drilled in the past that into completions is bumping up against them.

Speaker Change: Okay very good thank you.

Stephen David Gengaro: Okay, very good. Thank you.

Stephen David Gengaro: Keith.

Stephen David Gengaro: Your next question is from the line of Rob <unk> with Bank of America.

Saurabh Pant: Your next question is from the line of Saurabh Pant with Bank of America.

Saurabh Pant: Hi, Good morning, Andy maybe I'll just ask one on the E fleet side first.

William Andrew Hendricks: Hi, good morning, Andy. Maybe I'll just ask one on the E-Fleet side first. Last quarter, Andy, if I remember correctly, you teased us a little bit about some technologies you are developing in-house. Can you give us a little update on that? What are you doing, if you can talk about that? And what should we expect over the next couple of years from an in-house development standpoint?

William Andrew Hendricks: Last quarter, Andy if I remember correctly, you teased us a little bit about some technologies you are developing in house can you give us a little update on that what are you doing if you can talk to that and what should we expect over the next couple of years from in House development standpoint.

William Andrew Hendricks: So, you know, post-merger, I would say that's still pretty new. The teams have been looking at, you know, what do we think, you know, E-fleets should look like going forward and in the future. And when I say the teams, I'm talking about the experience we have in our next year completions and the teams that have been operating the E-fleets that we've been running, plus our teams within our current power electrical engineering division that have actually built some of the control systems and variable frequency drive houses for E-fleets in the past and do that for our drilling systems and have experience, you know, running thousands of AC induction motors and other systems.

William Andrew Hendricks: So poe.

William Andrew Hendricks: Post merger I would say, that's still pretty new the teams have been looking at.

William Andrew Hendricks: What do we think.

William Andrew Hendricks: <unk> fleet should look like going forward and in the future and when I say the teams I'm talking about the experience we have in our next year completions and the teams that have been operating in the fleets that we have been running plus our teams within.

William Andrew Hendricks: Our current power electrical engineering division that have actually built.

William Andrew Hendricks: Some of the control systems and variable frequency drive houses for fleets in the past and do that for our drilling systems and have experience running.

William Andrew Hendricks: AC induction motors and other systems and then even on our drilling side, where we have.

William Andrew Hendricks: And then, you know, even on our drilling side, where we have, you know, manufactured and assembled drilling rigs with cable management systems and, you know, power systems and battery backup systems. And so, you know, putting all those teams together puts us in a unique position to take a fresh look at what we think EFRAC needs to look like. And so I'd say it's still early days, but I am excited by what I've been hearing from the workshops that the teams have been running. I don't think you'll see anything new from us this year because it does take time to, you know, engineer and manufacture, but, you know, we'll keep you posted as we work through it.

Speaker Change: We have.

William Andrew Hendricks: Manufactured or assembled drilling rigs with cable management systems and power.

Andy Smith: Okay, no, that's helpful, Andy. Thank you. And then one, Andy Smith, maybe for you.

Andy Smith: Power systems, and battery backup systems, and so putting all those teams together puts us in a unique position to take a fresh look at what we think <unk> needs to look like.

Speaker Change: It's still early days, but I.

Speaker Change: Im excited from what I've been hearing from the workshops with the teams had been running.

Speaker Change: I don't think Youll see anything new from us this year, because it does take time to engineer and manufacture but.

Speaker Change: We will keep you posted as we work through.

Speaker Change: Okay. No. That's helpful. Andy. Thank you and then Andy Smith may be for you.

Andy Smith: I know you reiterated at least 40% EBITDA to free cash flow conversion outlook. Can you give us a little help on the moving pieces within that, Andy? I know you got it to the CapEx number. I'm assuming that's unchanged. Maybe a little bit of color on working capital, cash taxes, anything else that we should be mindful of as we think about conversion?

Andy Smith: You reiterated that at least 40% the EBITDA to free cash flow conversion outlook can you give us a little help on the moving pieces within that Andy I know you guided to the capex them, but I'm, assuming that's unchanged, maybe a little bit color on working capital cash taxes anything else that we should be mindful of as we think about conversion.

Andy Smith: Yeah, so working capital, again, will fluctuate throughout the year. Recall, if you recall, in the fourth quarter of last year, we received a relatively large prepayment from one of our customers. That has worked itself off in the first quarter.

Andy Smith: Yes.

Andy Smith: Working capital again will fluctuate throughout the year recall, if you if you if you recall.

Andy Smith: In the fourth quarter of last year, we received a relatively large prepayment from one of our customers that has worked itself off in the first quarter now what will happen and that's against the large customer.

Andy Smith: Now, what will happen, again, it's a large customer; it will rebuild some receivables from that customer over the course of the second quarter. So, I would expect that the second quarter will be a little lighter than the first quarter, but then we'll kind of get back to the same sort of working capital performance that we had in the first quarter and the third and then in the fourth quarter, depending upon what they decide to do, and historically, they have decided.

Andy Smith: We will rebuild some some receivable from that customer over the course of the second quarter. So I would expect that the second quarter is a little lighter than the first quarter, but then we will kind of get back to the same sort of working capital performance that we had in the first quarter and the third.

Andy Smith: And then in the fourth quarter, depending upon what they decide to do and historically they decided to.

Andy Smith: Advanced Pay in the fourth quarter; we'll see if that comes through this year or not. So, that's not really been counted on in terms of our free cash flow conversions, so that would be upside. But, you know, I would expect that, you know, you'll see this kind of working capital will be a little bit less of a source in the second quarter and then more of a source of cash in the third quarter.

Andy Smith: Sort of advance pay in the fourth quarter, we will see if that comes through this year or not so.

Andy Smith: That's not really been counted on in terms of our free cash flow conversion, so that would be upside.

Andy Smith: But I would expect that.

Andy Smith: Youll see it kind of working capital will be a little bit.

Andy Smith: Less of a source in the second quarter, and then more of a source of cash in the third and fourth quarter.

Andy Smith: Okay. Okay. Perfect. Anything on cash taxes we should be mindful of, Andy, for this year versus last year? Cash taxes will be negligible. You know, we're planning for somewhere in the neighborhood of $20 million to $30 million.

Speaker Change: Okay. Okay. Both again anything on cash taxes, we should be mindful off Andy for the field.

Andy Smith: Negligible in our plan for somewhere in the neighborhood of $20 million to $30 million a share in cash taxes.

Saurabh Pant: Okay, okay, awesome. Okay, Andy. Thank you. I'll turn it back on. Thank you.

Speaker Change: Okay awesome, Okay, Andy Thank you I've done it back thank you.

Speaker Change: Your next question is from the line of the car side with ATB capital markets.

Waqar Mustafa Syed: Your next question is from the line of Waqar Syed with ATB Capital Markets.

William Andrew Hendricks: Thank you for taking my question. Andy, in terms of active pressure pumping fleets, how have they changed over the last couple of quarters?

Waqar Mustafa Syed: Thank you.

Waqar Mustafa Syed: Taking my question.

William Andrew Hendricks: And Andy.

Waqar Mustafa Syed: In terms of active pressure pumping fleets.

William Andrew Hendricks: They changed.

Waqar Mustafa Syed: Over the last couple of quarters.

William Andrew Hendricks: Well, good morning, Waqar. It's actually hard to quantify because we've had to take some fleets and put them together to do simulfrax and trimulfrax. And so, you know, the fleet count actually changes on a month-to-month basis internally as we look at the numbers. And so we really try to stay focused more on, you know, hydraulic horsepower hours in terms of how we look at the business. And so, you know, internally, it becomes less of an interesting number to try to assess how many fleets we have out there and more about how much active horsepower that we have out there. And when we're looking to do calculations on the business, like I said, we use hydraulic horsepower hours because that takes into account flow rates, pressures, volumes, and how much time we're out on location doing it.

Andy Smith: Well good morning, Waqar, it's actually hard to quantify because we've had to take some fleets and put them together to do sign will frac and triangle Fracs and so the fleet count actually changes on a month to month basis internally as we look at the numbers and so we really tried to stay focused more on.

William Andrew Hendricks: Hydraulic horsepower hours in terms of how we look at the business and so.

William Andrew Hendricks: Internally.

William Andrew Hendricks: It becomes less of an interesting number to try to assess how many fleets we have out there and more about how much active horsepower that we have out there.

William Andrew Hendricks: And we're looking to do calculations on the business like I said, we're using hydraulic horsepower hours because that takes into account flow rates pressures volumes and how much time are out on location doing things.

William Andrew Hendricks: Okay.

Waqar Mustafa Syed: Maybe if I asked in a different way, how has manned horsepower changed? In the last couple of quarters, has it remained relatively similar, and all the changes in revenues are more a factor of that horsepower having less utilization, or is it more that some of the horsepower you've set aside as well because of weaker demand?

Speaker Change: Maybe if I ask it.

Waqar Mustafa Syed: A different way.

Waqar Mustafa Syed: How has demand public changed.

Waqar Mustafa Syed: And the last.

Waqar Mustafa Syed: A couple of.

Waqar Mustafa Syed: Quarters as it remained relatively similar and audit.

Waqar Mustafa Syed: The changes in revenues.

Waqar Mustafa Syed: That horsepower, having less utilization or is it more that some of the horsepower you decided as well because of weaker demand.

Speaker Change: Yes, so if you look at.

William Andrew Hendricks: Yeah, so if you look at all the horsepower that we're running, you know, there's still strong demand for electric cars. The total horsepower active that we're using has come down a little bit, just because of the softening in the market and also a little bit of softening in pricing that you've seen, and not new to anybody in the industry, but I expect that to really kind of bottom out in the second quarter, and we see a little bit of an inflection in the third quarter.

William Andrew Hendricks: If you look at across all the horsepower that we're running.

William Andrew Hendricks: Still strong demand for the electrics.

William Andrew Hendricks: Total horsepower active that we're using has come down a little bit just because of the softening in the market.

William Andrew Hendricks: And also a little bit of softening in pricing that <unk> seen and not new to anybody in the industry.

William Andrew Hendricks: But I expect that really kind of bottoms in the second quarter, and we see a little bit of an inflection in the third quarter.

William Andrew Hendricks: Okay.

Waqar Mustafa Syed: And do you, could you provide us with a color coded chart showing what's the mix of E-fleets, you know, Tier 4 DGBs and then Tier 2 dual fuel and Tier 2 diesel?

Speaker Change: Could you provide us the color like whats the mix of the fleet.

Waqar Mustafa Syed: Tier four DGB, and then tier two dual fuel and due to diesel.

Speaker Change: Yes, we have 140000 horsepower that will have of <unk> this year.

William Andrew Hendricks: Yeah, we have 140,000 horsepower that we'll have of E this year. And overall, about 80% of our fleet can burn natural gas. So that leaves you with about 20% that are just Tier 2, that don't have the ability to run dual fuel. And as we progress through this year and next year, you'll see that just kind of fade away and drop out. You'll see us, over time, slowly reduce the amount of horsepower overall just because we just don't need Tier 2 anymore. And we're gonna be disciplined about how we add new technology as we go.

William Andrew Hendricks: And overall, it's about 80% of our fleet can burn natural gas. So that leaves you with about 20% that are just.

William Andrew Hendricks: Tier two that don't have the ability to run dual fuel and as we progress through this year and next year, you'll see that just kind of stayed away and drop out.

William Andrew Hendricks: Youll see us over time, I believe slowly reduce the amount of horsepower overall, just because we just don't need that tier two anymore and we're going to be disciplined about how we add new technology as we go.

Speaker Change: Okay great.

Waqar Mustafa Syed: Great. Well, that's all for me. Thank you very much.

Speaker Change: For me Thank you very much.

Waqar Mustafa Syed: <unk>.

Waqar Mustafa Syed: Your next question is from the line of Keith <unk> with RBC capital markets.

Keith Mackey: Your next question is from a line Keith MacKay with RBC Capital Markets.

Keith Mackey: Hi, Good morning, just wanted to ask about rig pricing specifically, Andy how are conversations unfolding on the rig side, certainly things have been a little bit more stable than than they might have been in prior cycles, but rig count has come down and there is a quite a bit of impending consolidation.

William Andrew Hendricks: Hi, good morning. I just wanted to ask about rig pricing. Specifically, Andy, how are conversations unfolding on the rig side? You know, certainly things have been a little bit more stable than they might have been in prior cycles, but the rig count has come down, and there is quite a bit of impending consolidation, especially in the Permian. Maybe some are looking to use that to get discounts on rigs. Just curious how those conversations are unfolding, and what is your message or your mechanism to maintain an appropriate price or what you view as an appropriate price in this market that's maybe driving some of that stability?

William Andrew Hendricks: <unk>, especially in the Permian.

William Andrew Hendricks: And maybe some some are looking to use that to get to.

William Andrew Hendricks: Discounts on rig so just curious how those conversations are unfolding and what is your message or your your mechanism to to maintain an appropriate price or what you view as an appropriate price.

William Andrew Hendricks: In this market, that's maybe driving some of that stability.

Keith Mackey: Yeah, I think what you see in the market today is that when we talk about Tier 1 Superspec rigs, the pricing is stable. And so even though some of them may not be working right now, just because of the changes in the market with consolidation that you're seeing, those rigs will go back to work at some point. As the consolidation process happens, you'll see lower tier rigs drop out of that consolidation process and get replaced back by Tier 1 Superspec. So what we've seen is at Tier 1 Superspec, that market has remained relatively stable. Okay, perfect. That's it for me. Thanks very much.

Speaker Change: Yes, I think what you see in the market today is when we talk about tier one super spec rig that pricing is stable and so even though some of them may not be working right now just because the changes in the market with consolidation that youre seeing.

Keith Mackey: Those rigs will go back to work at some point.

Keith Mackey: As the consolidation process happens youll see lower tier rigs drop out of that consolidation process and get replaced back to tier one super spec. So what we've seen is at the <unk>.

Keith Mackey: Tier one super spec that market has remained relatively stable.

Speaker Change: Okay perfect. That's it for me thanks very much.

Keith Mackey: Okay.

Keith Mackey: Your next question is from the line of John Daniel with Daniels Energy partners.

John Daniel: Your next question is from a line by John Daniel with Daniel's Energy Partners.

John Daniel: Hey, good morning.

William Andrew Hendricks: Hey, good morning. Andy, you noted that the market structure is likely to improve, and I think we all believe and hope that activity starts to rebound late this year a little bit but probably a bit more next year, and I'm just wondering when you have that combo of those two things, it would seem that things could tighten relatively quickly. So what would your approach be to price?

John Daniel: Andy you noted that the market structure is likely to improve and I think we all believe that activity starts to rebound later this year, a little bit probably a bit more next year.

William Andrew Hendricks: And I'm just wondering when you have that.

William Andrew Hendricks: <unk> of those two things.

William Andrew Hendricks: It would seem that things could tighten relative liquidity quickly so what would your approach be to pricing.

William Andrew Hendricks: Well, typically, you know, in a very disciplined environment, as activity moves up, pricing moves up, too.

Andy Smith: Well typically.

William Andrew Hendricks: In a very disciplined environment as activity moves up pricing moves up.

William Andrew Hendricks: When you see when you look at the tier one super spec rig market. Historically, that's how it's played out is that the demand for those rigs have increase you've seen increases in pricing along with activity.

William Andrew Hendricks: And when you see, you know, when you look at the Tier 1 super spec rig market, historically, that's how it's played out, is that the demand for those rigs has increased, you've seen increases in pricing along with activity. And you know, it's interesting how, on the completion side, the market has structurally improved over the last few years. And I think there is a bifurcation in the market. And so, you know, as leading technology players find themselves in higher demand, then I think you're going to see those same companies have the ability to move prices up at the same time as well.

William Andrew Hendricks: It's interesting how the on the completion side the market has structurally improved over the last few years and I think there is a bifurcation in the market and so.

William Andrew Hendricks: Leading technology players find themselves in higher demand than I think youre going to see those same companies have the ability to move pricing up at the same time as well.

William Andrew Hendricks: Okay.

John Daniel: I mean, I figured that as much. I just didn't know with the current sort of pressures by some within the E&P industry to... eek out concessions and take advantage, despite the $80 oil, if there would be, kind of a leading question, but maybe a bit more incentive to push prices a little bit harder.

William Andrew Hendricks: I mean, I figured that as much actually I know with the current service.

John Daniel: Shares by some within the E&P industry that sorry.

John Daniel: He got concessions and take advantage despite $80 oil if there would be.

John Daniel: Kind of a leading question, but maybe a bit more incentive.

John Daniel: To push pricing a bit harder.

William Andrew Hendricks: Yeah, I think all of us in the industry have discussed on our last couple calls that as the natural gas markets have softened, there's been a softening in pricing there as well, and I think you're hearing from the EMPs that they've got some concessions. But I really think at this point, you know, especially given our view of where we are and when we think our various service lines are going to bottom out, that, you know, you're hearing that concessions have happened.

John Daniel: Yes.

John Daniel: I think all of us in the industry.

William Andrew Hendricks: <unk> discussed over our last couple of calls is as the natural gas markets have softened that theres been a softening in pricing there as.

William Andrew Hendricks: As well I think youre hearing from the E&ps that they've got some concessions, but I really think at this point, especially given our view of where we are and when we think our various service lines are going to bottom out that.

William Andrew Hendricks: Youre hearing that concessions have happened I don't think youre going to hear a lot about concessions going forward.

William Andrew Hendricks: I don't think you're going to hear a lot about concessions going forward. I think that, you know, pricing is really stabilized at this point, and with any activity increase in either Tier 1, 2, or EFAC or, you know, higher-end technology and completions that you're going to have, you're going to see pricing move up on those.

William Andrew Hendricks: Pricing.

William Andrew Hendricks: Pricing has really stabilized at this point and with any activity increase in your tier one super spec rig.

William Andrew Hendricks: <unk> E frac or higher end technology, and completions that youre going to have you're going to see pricing move up on us.

Speaker Change: Okay, and then I know you mentioned.

John Daniel: Okay, and then I know you mentioned in response to one question that you'll likely expand eFleets next year. Not looking for you to necessarily quantify that, but given the lead times on various components, have you gone ahead and started placing those orders? And what are they telling you in terms of when you get them?

John Daniel: So one question that you'll likely expand E fleets next year, not looking for you to necessarily quantify that but.

John Daniel: Given the lead times on <unk>.

John Daniel: Various components of your have you gone ahead and started placing those orders and what are they telling you in terms of when you get it.

William Andrew Hendricks: So we've been working with suppliers, and we understand their ability to deliver and their ability to, you know, meet our needs as we get into next year. And so, you know, there are no real challenges there for us delivering more next year. I would say that, you know, our teams are working well with the suppliers, and there are no issues. And it's just, you know, we've mentioned it before, now that we're a larger company, in terms of completions, and with the size and scale that we have, with the demand for new technology, we certainly want to be a part of that.

John Daniel: So we've been working with suppliers and so we understand their ability to deliver.

William Andrew Hendricks: And their ability to meet our needs as we get into next year and so.

William Andrew Hendricks: No real challenges there for us delivering more.

William Andrew Hendricks: Next year I would say that our teams are working well with the suppliers and no issue and as we've mentioned it before now that we're a larger company in terms of completions and with the size and scale that we have with the demand on the new technology, we certainly want to be part of that and so we will continue to add electric and other.

William Andrew Hendricks: And so we will continue to add electric cars and other new technologies a little bit at a time over the next few years as part of our CapEx budget.

William Andrew Hendricks: Other new technologies, a little bit of time over in a measured way over the next few years as part of our Capex budget.

John Daniel: Okay, and then the final one for me, just going back to the comment you made about market structure likely to improve. I'm assuming you were talking about the completions market, but... By any chance, were you also applying that to the drilling space as well?

Speaker Change: Okay and then the final one from me just going back to the comment you made about market structure are likely to improve I'm, assuming you were talking about the completions market.

John Daniel: By any chance, we offset applying that to the drilling space as well.

William Andrew Hendricks: Don, I appreciate the clarification because I was really leaning more towards completions and completions-related services, you know, not just hydraulic fracturing, but you've got case-told wireline, you've got others, and I think over time you'll see some of the smaller companies, or smaller public market cap companies, start to come together, and that'll just structurally improve the market over the next year. Okay. Thank you.

Speaker Change: John I appreciate the clarification, because I was really leaning more towards completions in completions related services, not just hydraulic fracturing, but you've got cased hole wireline, you've got others and I think over time Youll see some of the smaller companies or smaller public market cap companies start to come together and that will just structurally improve the market over the next year or two.

William Andrew Hendricks: <unk>.

John Daniel: Got it. Thank you for including me.

Speaker Change: Got it.

Speaker Change: Thank you for including me.

John Daniel: Thanks.

John Daniel: At this time there are no further audio questions I will now hand, the call back over to the presenters for any closing remarks.

Operator: At this time, there are no further audio questions. I'll now hand the call back over to the presenters for any closing remarks.

Speaker Change: Nice to meet you I'd like to thank everybody that dialed into the call. Today. We are really excited about where we are in the market and our ability to generate strong free cash flow and return that to shareholders even in a relatively steady market. So thanks a lot.

William Andrew Hendricks: Thanks, Tamika. I'd like to thank everybody that dialed into the call today. We're really excited about where we are in the market and our ability to generate strong free cash flow and return that to shareholders, even in a relatively steady market. So, thanks a lot.

Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.

Operator: This concludes today's call. Thank you for joining us. You may now disconnect your lines.

Operator: Okay.

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