Nextier Oilfield Solutions Inc (NEX) 2017 Q1 法說會逐字稿

Good morning and welcome to the Keane Group First Quarter 2017 Conference Call. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. For opening remarks and introductions, I would like to turn the call over to Kevin McDonald, Executive Vice President and General Counsel for Keane Group.

Thank you. Good morning, everyone and thank you for joining us today. With me today are James Stewart, Chairman and Chief Executive Officer of Keane and Greg Powell, President and Chief Financial Officer.

Before we provide our prepared remarks, I would like to remind all participants that our comments today will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 regarding future expectations about the Company's business, management's plans for future operations or similar matters which are subject to certain risks and uncertainties.

The Company's actual results could differ materially due to several important factors, including those risk and uncertainties described in the Company's Form 10-K filing with the Securities and Exchange Commission, many of which are beyond the Company's control. Any forward-looking statements we make today are only as of today's date and we undertake no obligation to publicly update or review any forward-looking statements.

Additionally, we may refer to non-GAAP measures, including adjusted EBITDA and adjusted gross profit during the call. Please refer to our public filings and disclosures, including this earnings press release for definitions of our non-GAAP measures and the reconciliation of these measures to the directly comparable GAAP measures.

With that, I would now like to turn the call over to James.

Thank you, Kevin, and thanks everyone for joining us on the call this morning. We are pleased to report another strong quarter of operating and financial results, as our team executed extremely well to start the year. On a sequential basis, revenues increased by approximately 60% to $240 million. Adjusted EBITDA more than doubled to $13.1 million and annualized adjusted gross profit per fleet increased by 42% to $6.3 million.

We exited 2016 with 13 active frac fleets. During the first quarter, we deployed two new fleets in early January, a third at the beginning of March and a fourth at the end of March, for a total of 17 deployed fleets at the end of the quarter. On an average basis, we operated 15.5 frac fleets during the first quarter.

We are encouraged by our first quarter performance and the significant growth we realized, but are even more excited about the significant margin improvement, embedded and inherent, in our performance over the next several quarters. It is critical to remember Keane's core strategy and partnering with efficient industry-leading and well capitalized customers under long-term dedicated agreements. Partnering with our customers under dedicated agreements, in addition to our technology and engineering capabilities [will serve as the] foundation of strong, lasting relationships, ones that offer more stability and outperform through cycles, ultimately providing greater value to our business and the stakeholders over the long term.

This strategy also provides unique line of sight that we're able to gain by partnering closely with our customers and becoming an integrated part of their completions process. This provides visibility to our future schedule and drives ongoing efficiency improvements. These efficiencies enable Keane to deliver leading profitability. In today's inflationary, environment our dedicated agreement strategy immediately benefits from greater overall demand and activity for our business, particularly given our speed to market and efficiency, which enabled us to deploy four additional fleets during the first quarter.

However, the pricing and margins on our core portfolio benefit on a three to six-month lag basis relative to those working on spot until upon at which dedicated agreements reach their pricing reopeners. More than 80% of the revenue generated from our active fleets in the first quarter were based on pricing levels entered into during the fourth quarter of 2016. We're fine-tuning our prospective contract structures to make them even more responsive as we progress through the up cycle.

Overall, we are proud of our performance during the first quarter and are even more excited about our positioning as we progress throughout the year. Greg will offer greater detail related to our financial performance during his remarks, but first I wanted to take this opportunity to provide a fresh update on what we're seeing and hearing in the industry, as I've just returned from visiting many of our customers. Overall, I'll summarize my takeaways to three main points.

First, activity and growth plans remain robust across our customer and geographic base. Second, quality, reliable and safe completion services are currently facing demand in excess of supply. And third, Keane's scale and ability to quickly react to market demand positions us to benefit from future growth and tightness in the market.

So, first, on overall activity. The market for US completion services remains very strong, particularly for operators with well-maintained fleets, providing safe and high quality service and technology like Keane. On our fourth quarter call, we noted that the pace of recovery has accelerated relative to the dynamics we saw at the start of the year and since then we've seen additional momentum in the rate of improvement. In fact, we are six months ahead in terms of demand and fleet deployment at this point in the year relative to our expectations to start the year.

The pace of recovery over the last three quarters has been exciting for us and our customers. Rig counts in the US continued to improve with first quarter rigs up by an average of 26% as compared to the fourth quarter of 2016. And despite some commodity price volatility in late March and early April, rig counts continued to increase at a rapid pace. In fact, since our fourth quarter and full-year earnings call held in mid-March, rig counts are up by an additional 13%. Overall, the number of active rigs have more than doubled in less than a year from the trough in the rig count registered in May 2016.

While the increase in activity is focused on core basins such as the Permian, we're really seeing a widespread improvement in activity across our operating footprint. This includes the Marcellus/Utica from which Keane traces its roots as a single group company just six years ago. The Northeast is a challenging environment they operate in, where safety and reliability are critical elements to competing. We remain well positioned to win in the Northeast, given supportive gas pricing, our experience, scale, long-term customer relationships and a fleet of well-maintained quality equipment.

Second, a tightening in fundamentals for US completion services. The building momentum behind the recovery in drilling activity translates to greater demand for our completion services, as the industry focuses on timely completion of wells to maximize cash flows. In fact, based on our research and discussions with customers, we believe total deployable horsepower in the industry is approximately [11 million], which we believe is well below the demand required by today's activity levels and expected growth over the next several quarters. As the industry horsepower hurries back to catch up to this unmet demand, we believe that remaining stacked horsepower would take longer and be more expensive to commission and it's more likely to experience performance issues. We reiterate our expectation of deploying our remaining idle fleets at less than $2 million per fleet on average in 45 days or less. With these tightening dynamics underway, we're seeing a flight to quality as operators look to lock up their completion requirements with horsepower capable of serving their needs reliably, safely and efficiently.

We previously stressed that not all horsepower is created equal and we're really seeing the result of that given the resurgence in activity currently taking place across the industry. Additionally, our technology offering increases the value we're able to offer our customers. With our customers' firmly focused on cash flow, the demand for dedicated, reliable completion services is as high as we've seen it since 2011. This dynamic is driving greater pricing power for providers of quality completion services, like Keane.

My recent customer meeting strengthened our conviction that Keane's strategy of partnering with the most efficient customers and aligning for success is the correct one. Efficiency remains an integral part of how we compete and win in the market and expect the importance of that dynamic and its impact on our financial performance to amplify over the coming quarters. The favorable factors that we have discussed, including on our last quarter's earnings call, continue to remain firmly in place. This includes the increasing use of multi-pad drilling, zipper fracing, 24-hour operations, increased service intensity and the application of technology. By partnering with customers who prioritize efficiency and our ability to consistently execute on the well side, we are well positioned to benefit from these favorable trends.

Efficiency also forms a lasting foundation of our long-term relationships and customer agreements. We treat our customer relationships as partnerships and believe this results in much stickier relationships with our customers and underpins a more stable base of cash flow to our business through cycles, as proven by our performance track record, including positive EBITDA throughout 2015 and 2016, above most of our competitors that focused on spot work.

With that I'd like to turn it over to Greg, who will provide a review of our first quarter financial and operating performance and some additional color on the second quarter. Greg?

Thanks, James. Revenue for the first quarter of 2017 totaled $240 million, up 59% from $151 million realized in the fourth quarter of 2016. The increase in revenues was driven by the successful deployment of four additional frac fleets during the quarter, as well as greater efficiencies from the core of our fleet. We averaged approximately 15.5 deployed frac fleets during the first quarter, up from an average of 12.3 fleets in the fourth quarter of 2016.

On a per deployed fleet basis, annualized revenue was $62 million, up from $49.3 million realized in the fourth quarter of 2016, reflecting a combination of fleet growth and efficiency improvements in our core fleet. Approximately 30% of the sequential revenue increase realized during the first quarter was associated with growth generated by our newly deployed fleets, with the remaining 70% derived from our core fleet, based primarily on higher efficiencies. We previously communicated our expectation of sequential growth -- revenue growth of between 30% and 40%, which is based on the actual run rate for the first two months of the quarter. Our actual quarterly results came in stronger than anticipated, driven by exceptional performance by our team and rapidly growing market momentum in March. We typically experienced seasonal impacts in our business in the first quarter, driven by inclement weather and as many of you know, winter exited earlier than is typical in areas like the Northeast and the Bakken. We're excited about the robust efficiency-driven revenue growth we experienced in the first quarter, as it provides us with a higher activity base as we enter our repricing cycle.

Adjusted EBITDA for the first quarter totaled $13.1 million, more than double the $6.1 million we reported in the prior quarter. Total adjusted gross profit for the first quarter of 2017 was $24.4 million, compared to $13.2 million during the fourth quarter of 2016, representing sequential gross profit incrementals of approximately 12%. On a per fleet basis, annualized adjusted gross profit per deployed fleet improved from $4.4 million to $6.3 million, as we were successful in gaining efficiencies and some price improvement, which more than offset the impact of cost inflation, including sand and logistics. As stated previously, we expect our margins to show improvement as we recapture market pricing and cost escalation under our dedicated agreements with the full impact of leading-edge gross profit per fleet being realized by the end of the third quarter of 2017.

Of our average of 15.5 deployed frac fleets for the first quarter, 58% were bundled with wireline. Our ongoing emphasis on bundling our completion service provides a value-added efficiency tool for both Keane and our customers. We expect an even greater portion of our fleet will be bundled with wireline in the coming months, as we expand the service offering into additional basins beyond the Marcellus, Utica and the Permian.

Reported SG&A expenses were $17.6 million for the first quarter. Excluding $5.5 million of one-time expenses, primarily related to our IPO, first quarter SG&A was $12.1 million compared to $7.9 million reported in the fourth quarter of 2016.

Our adjusted EBITDA results for the first quarter included approximately $14.5 million of one-time items. Of this total, $5.7 million was driven by IPO-related expenses, such as restructuring costs and IPO bonuses for key personnel. An additional $5.5 million was associated with re-commissioning 3.5 additional fleets and $1.6 million was associated with our pre-investment in the bench of labor to enable more rapid and efficient deployment. Our financial results for the first quarter also included approximately $31.6 million of one-time interest expense associated with early debt retirement costs.

The leading-edge pricing and margins we've experienced are improving, especially given our fleet of well-maintained assets that we can redeploy for less than $2 million per spread. Additionally, given our track record of successfully growing with and alongside our customers, we believe that the horsepower we're deploying today will support additional growth activities in the intermediate term.

We recently commented that at today's pricing and margins, we're prepared to deploy all of our remaining idle fleets. In support of this view, we're working aggressively to transition our remaining four fleets from warm to hot status, providing us with maximum flexibility in reacting to market opportunities that we expect in the near term.

However, even with improving market conditions, we remain focused on the following three key priorities with regards to growth. Our top priority is to continue to invest in the maintenance of our active fleet, to ensure we offer the highest quality assets and drive efficiency on the well side. This is even more important with today's highly demanding completions that require more from assets in the field. Our second priority is to continue to deploy idle fleets in a nominal investment of less than $2 million per fleet. The attractive gross profit per fleet that we're able to earn at today's leading-edge pricing supports our preparedness to deploy all remaining fleets. And third, we'll continue to pursue growth opportunities that enable Keane to quickly satisfy additional customer demand, primarily through accretive M&A, while also continuing to closely monitor the newbuild market.

Turning to our balance sheet, we maintain our conservative and flexible capital position. We exited the first quarter of 2017 with total debt of approximately $145 million. During the quarter and as previously announced, we replaced our $100 million asset-based revolving credit facility with a new $150 million credit facility, which among other things, expanded borrowing capacity, extended maturity and reflects more favorable financing terms overall.

In mid-March, we entered into a new five-and-a-half year, $150 million senior secured term loan facility, using a portion of the proceeds to repay the balance of our 12% secured notes. Our new term loan offers significantly lower interest rates and there's greater flexibility overall, including no financial covenants, other than minimum liquidity. The facility may be expandable by an additional $125 million, providing Keane significant flexibility to pursue future growth and acquisitions.

Cash and equivalents at the end of the first quarter were approximately $86 million, compared to year-end cash of approximately $49 million. This $37 million increase in net cash was driven by $97 million of net proceeds raised during our IPO, after giving effect to debt repayments, partially offset by approximately $60 million of cash usage for the first quarter. Key drivers of first quarter cash usage was approximately $23 million for working capital due to higher activity levels across our business, approximately $22 million for capital expenditures and an $11 million for IPO-related costs.

Total liquidity as of March 31 was approximately $192 million. As part of our strategy for equipment excellence, a portion of our CapEx was used to stock our warehouse with critical components. Using our strategic supplier relationships, we have put agreements in place with key suppliers to ensure continuity of supply of key components in a tightening market.

Before opening up the lines for Q&A, we wanted to offer some additional visibility into how our second quarter is shaping up thus far. As James commented in his remarks, demand for quality and reliable horsepower continues to improve. Even as the market absorbs a higher percentage of previously idled equipment, we continue to see demand in excess of dispatchable horsepower. For the second quarter of 2017, we expect revenues to be higher by 25% to 35% sequentially, which includes the benefits of our newly deployed fleets.

We track and manage the performance of our business on adjusted gross profit per fleet basis, which allows us to allocate resources and assess the profitability of our deployed fleets. During the fourth quarter of 2016, annualized adjusted gross profit per fleet was $4.4 million. For the first quarter of 2017, our annualized adjusted gross profit per fleet improved to $6.3 million. As you recall, we previously noted that leading-edge pricing was driving annualized adjusted gross profit per fleet of $10 million to $11 million. We expect to capture approximately half of the differential during the second quarter of 2017, with the remaining margin improvement reflected by the end of the third quarter of 2017. In addition and given continued momentum in the market, we're currently seeing leading-edge annualized gross profit per fleet take another step up in the range of 20% or more relative to the $10 million to $11 million, which we anticipate will flow through our dedicated agreements as they reopen throughout the year. As a reminder, 2014 peak margins exceeded $20 million annualized gross profit per fleet. Given the continued tightness in the market, we expect margins to progress toward peak levels.

We believe this trajectory of new fleet deployments in the first quarter sets us up well for another strong quarter of sequential growth, as all four newly deployed fleets will realize a full quarter contribution to our results. We were able to commission an additional fleet in April and expect to condition a second fleet in late May, bringing our total active fleets to 19 out of 23.

With that we thank you again for your time and now we'd like to open it up for Q&A. Operator?

(Operator Instructions) Ole Slorer, Morgan Stanley.

Congrats being off to a strong start here. My first question is, [you announced] that you are upwards of 19 crews that you have a line of sight that you can go to 23, but you are talking -- you're seeing near-term opportunities. At the same time, I think you mentioned that the industry is at [11 million] horsepower with [13 million] in theory could be deployed. So in other words, a similar expansion capacity to what you have yourself. Could you talk a little bit about the -- you said $2 million on average. It looks to me as if you've spent a little bit less than that and what you have activated so far. So you could talk a little bit about the challenge now of getting the last four crews to -- or fleets to work, the costs versus what you've done already?

We've been pretty consistent on bringing these fleets out at an average of $2 million. The quality of the fleet is pretty consistent all the way to the back of the fence. So we feel pretty confident and have kind of details on the punch list for the remaining equipment to be right in that $2 million zip code.

And with respect to the contracts that you have, could you talk a little bit more about the movement in input costs? You mentioned it's moving up very fast and faster than the repricing of your contracts. Are those costs continuing to move higher, or are they stabilizing and how should we think about the relative timing of repricing; is it a quarterly repricing that you have, or could you give a little bit more color?

The contracts are set up to do two things. One, to recover cost escalation, and two, to mark-to-market on the leading-edge pricing. And the first quarter was kind of an unusual squeeze, as the sand experienced hyperinflation and certainly pressure on demand of the finer grades with the ramps, as some of the mines were coming out of the winter shutdown. We've seen that dissipate, both on the availability side, we've seen better availability here coming into the second quarter and the rate of inflation has ceased. So we're seeing pricing starting to stabilize. Our contracts open, we've got a chunk of the portfolio that's quarterly and a chunk that's on six months. So that's why we in our prepared remarks, we said on a ratable basis, we should get from that $6.3 million GP per fleet, up to the leading edge, ratably between kind of now and the end of the third quarter.

And just finally, you highlighted monitoring in newbuildings. Could you talk a little bit about what will the strategy be -- what you'd need to see in order to go ahead with newbuildings?

Yes, I mean we have kind of a set of priorities that have been pretty consistent. Our goal is, number one, to maximize returns on the existing portfolio; we do that through the contract re-openers and pricing to increase profitability, but also the longer we work with customers, we drive more efficiency, which is a win-win for us and our customers. The second priority is deploying the idle fleets at leading-edge profitability. And the third is either M&A or newbuild to add capacity. We would want to see -- for newbuild economics, we'd want to see gross profit per fleet, either see it or have line of sight to something close to $20 million GP per fleet; we're not there yet. So, newbuilds, we're monitoring the market, but it's not something we're looking to exercise until we see improvements in the economics.

Sean Meakim, JPMorgan.

I just wanted to talk maybe a little bit about the efficiency gains that you highlighted, just curious how you characterize those, meaning how much was customer-driven during the quarter as your customers are ramping their activity, versus how much was due to some internal initiatives at Keane? And then just, I guess, a sense for what the pull-through can be going forward, that's driving some of that improvement in GP per fleet.

Yes Sean, this is Greg. The major driver on the core efficiency that drove kind of two-thirds of the revenue growth, fourth quarter to first quarter, was the weather in December. We had a major cold snap that put pressure on the ability to move assets and disrupted operations. So, couple of weeks in December really put some pressure, and then a better weather situation in the first quarter, as we mentioned. So a couple of weeks when you're running these many fleets, adds a lot to efficiency. Also, when we're starting up new fleets, there is a learning curve, as you and the customer are getting to know each other, that's why it's really important on this partnership model, the longer you work with the customer, you start to speak the language and you get some of that efficiency of working together. So we saw some of that tailwind as well in the first quarter.

And then just thinking about the fleets from a geographic basis, are you seeing any material deviations in terms of profitability across the fleets; that could be -- pricing headwinds could be different in one basin versus the other, or input cost could be different. So just curious, some of the puts and takes there across the different basins?

Yes, we are not really seeing major diversion. It seems to be a national pricing market, sometimes there's temporary dislocation. We've ramped some fleets up in the Bakken. And over the downturn, some competitors have exited the Bakken. So, sometimes you get temporary dislocation on supply and demand. But given most of these assets are mobile and there's a big enough footprint to move around the sand and the infrastructure for that, most of the time it's kind of a national pricing market from our perspective.

Jud Bailey, Wells Fargo.

I wanted to follow up on the commentary on kind of the potential, I guess, to reactivate the rest of your four spreads. Based on the conversations you're having today, do you think it's a reasonable possibility you could have all of those working by year-end, or is that too aggressive of a time frame, could you maybe kind of give us a little more color on your thought process, based on your customer dialog on the timing of the last four fleets?

Yes Jud, this is James. Yes, I think the way to look at that would be, we're working hard now to get the [balance four] ready to go. And I think they'll all trickle in no later than the end of the year. The customer demand that we're seeing is just from what we have in Keane is in the double-digit range at the moment.

And as you're thinking about -- are you maintaining the same contract kind of philosophy or structure with these -- if you deploy those four, would you consider going more on a spot basis with any of these, or you've had success with kind of the partnership as you put it, will we think about these on like 6-month or 12-month type contracts, the lock-in pricing, or how do we think about that as that last tranche of spreads potentially go to work?

Yes, I think they will all be on a dedicated arrangement of some sort. But the contract terms continue now to get better. So [the bottom spread] and the contracts get better, standby charges or white space charges and those kind of things. So the returns of the new deals are continuing to increase.

And my last question is on, if you could maybe touch a little bit more on your sand contracts and procurement. It sounds like you're seeing pricing kind of stabilize. Do you feel good about where you are in terms of being able to source sand the rest of the year, if you were to put those last four spreads to work?

Yes, I mean, the stability has been certainly welcome here after the kind of dogfight we were in, in the first quarter on availability and the rate of inflation. We continuously look at our portfolio and layering contracts. We've always said, we try to have 80% contracted, but as the service intensity has gone up and the usage per customer has gone up, that 80% has gotten diluted. So we've been layering in some additional contracts. We consider ourselves an early mover on the Permian expansion, so we're working with some of our partners to make sure we have early access to that supply, which we think, as others have shared, will be a game changer for the Permian. And we have a set of customers that are poised to use the sand and eliminating the rail and having local access will help with our -- not only cost, but also responsiveness and turning of assets. So, yes, I mean overall we feel very well positioned with our sand situation and we're excited about the fact that the availability and the rate of inflation have dissipated as we've gotten into the second quarter.

(Operator Instructions) John Daniel, Simmons & Co.

Just want to better understand the timing of the gross profit per fleet expansion, following up on what you guys said. But I know it's $10 million to $11 million is leading edge per the press release. And then I think you said that through some of your pricing arrangements or recent increases, you expect to get 20% above that level -- $10 million to $11 million level. When -- is that a Q4 event?

So John, the way I would think about it is, we guided prior that we're sitting at $6.3 million today, and we were going to kind of $10 million to $11 million leading-edge, so call it $10.5 million, and we were going to do that ratably between now and the end of the third quarter. That leading edge has now taken a tick up, so we'll see a little bit of that in the second quarter and we'll see a more substantial piece of that in the third quarter. And then by year-end, I think it's fair to -- with current leading edge that we're seeing today, it'd be closer to $13 million on the portfolio than $10 million to $11 million.

And that's assuming no more reactivation costs which you're going to have, right?

That's correct; that's exclusive of reactivation cost.

How many of your fleets right now employ a well site sand storage solution?

Zero. I mean, we use our traditional model. We've got 120 pneumatic trucks that we've got deployed into the highest-velocity basins. We've either through us or our customer, we've evaluated four or five of the solutions and we're trying to find the right one that fits for Keane. We think it's pretty early days on those solutions and there's new ones coming out. So we continue to evaluate them and we will pick probably a supplemental last mile solution to supplement our traditional pneumatic sand sinking model, but we've not done that as of today.

Do you expect that this year and do you have -- some people sell the units others rent, do you have a preference as to how you would deploy that?

We don't. It will come down to the best economic answer for us, but the thing we're laser focused on and the reason we want to kind of prove out and test these various models is to understand the impact on efficiency. We control now the sand from the mine to the well site and that's been an important part of our efficiency equation and before we let go of any of that equation, we want to make sure we find the right partner and a proven solution.

Final one for me is just coming back to sand, it's a popular topic these days, you mentioned that it looks like you're partnering with some of these folks that are developing mines in basin, which is great. Are you going to reduce your purchasing of sand maybe from [Wisconsin Northern white] sand and is that -- just first answer that question, and do you see less consumption of Northern white sand?

No, I don't think we see less. I think this will be supplemental. And as I think others have said, the brown sand won't be for every customer and we'll have to see how that trend takes over time. We certainly have some customers that are using in-basin sand today and are excited about getting more of it, but we'll use this is as a way to supplement our sand portfolio as opposed to cannibalize. It's part of the growth needs that I mentioned earlier.

So on a blended basis, your sand prices should go down, because it's cheaper to get the in-basin stuff, fair?

Absolutely, yes. And we expect that based on what our partners are telling us, we expect that to kind of come online in early 2018, and everybody shared some of the challenges with bringing that online. So we're kind of monitoring that closely.

And then finally, sorry to be long-winded here, but at this point have any of the Northern white sand players suggested to you that they will be lowering prices this year in response to the New Texas sand?

Not as of today.

Do you expect it?

I don't know. I think it's just going to depend on the overall supply and demand equation. And if the white sand gets under pressure though, there will be a decrease, but I think we got some time here before a significant enough amount of this brown sand comes on to really influence that equation.

Michael LaMotte, Guggenheim.

Would you'll mind giving a quick run through of the current geographic distribution of the 19 active crews, just maybe a walk up from where we were at the time of the IPO?

Yeah, Michael, it's six in Marcellus/Utica, six in West Texas, four in North Dakota and two in Oklahoma. That's 18 and then there'll be another one -- the 19th will go into the Permian in late May.

And then in terms of the customer mix, how much of the growth has been increased penetration with your pre-existing customers versus new customers?

It's been a little bit above. It's been more a pull from our existing customers, which has been exciting, because we already kind of have that relationship and experience under our belt. We currently have three customers with two fleets and one customer with three fleets. So of those 18 fleets we have working today, there's 13 customers that make that up, which from us is the right balance on concentration and it also gives us the ability to really focus on those relationships.

And I would imagine that there is customer scale, not just basin scale when you think about efficiency as well?

Absolutely. Correct.

And then on the sand contracts themselves, you've talked about total volume coverage targeting that 80% number. How much flex is there in terms of the actual mesh mix within those volumes, and do you have flexibility if a customer product consumption profile is changing from [40-70 to 100 or from 30-50 to 40-70]?

Not as much as we'd like Michael. That's part of what really caused the inflation in the first quarter, as we were -- us and our competitors were all trying to draw the same mix from the mines, and the mines couldn't handle it, and there was some capacity down, so it forced us to go very deep into some spot relationships that we've developed over the years, and use our railcar portfolio and everything we could do creatively, just to get the jobs done and meet the demands out there. That's starting to settle a little bit now, but the mix continues to be a problem for the industry. I think these brown mines being heavily fine mesh are going to help with that. But the mix that you mentioned is a constraint in the Northern white portfolio that we have contracted.

And then on the trucking side, do have a sense as to what that capacity number looks like relative to, say, the [11 million] of workable frac capacity, is there proportionate amount of trucking?

I don't have a line of sight to the capacity on the trucking. I mean, we have our own fleet. We've been ramping up to help ensure supply and mitigate some of the inflation. There's a lot of idle capacity coming back online from operators who are getting a little bit more healthy and seeing better economics. And then the last thing is, the more of these alternative last mile solutions that come online, they use something other than a pneumatic to haul the sand to the well site, really helps that whole capacity situation on traditional pneumatics.

So, I guess, not as much inflation on the final mile or trucking side that we're seeing actually in the sand?

Not as much on a rate basis, but we have seen some inflation on trucking, particularly in the Permian.

Is it per mile or is it just because of the distances, there have been --

No, it's per mile. It's because of the pickup, they've increased the rate tables.

And then last one for me, just sort of strategically as I think about the pace at which the final crews will go back to work, relative to the lead time to order newbuild equipment and the lag to sort of get to that target of gross profit per fleet, would you be okay with a few quarters of just capturing price and having no fleet growth, either through M&A, newbuild or reactivation, or does M&A look like a more interesting sort of backfill, until you get to that target gross profit? And if so, how are you thinking about relative value now, given the pull back in the sector?

If the economics aren't there and if the M&A doesn't fit our profile, which I can get to in a minute, or the newbuild economics don't make sense, we're happy to harvest the portfolio and allow our pricing to cycle through and to the leading edge, and the leading edge at that point will probably continue to improve and drive efficiency with our customers. So we don't have a trigger that says when we get to a certain fleet number, you got to go do something that's unnatural. We'll stay disciplined to the playbook. On the M&A side, we always keep an active pipeline. We're very disciplined on making sure we buy quality and fit. And we said at the IPO, we're excited to have a new currency to do that with, but we got to find a transaction that's a good fit and we look at a lot of deals and not all of them hit the screen. So we'll continue active on that front. The relative value basis, as our values come down, hopefully valuation expectations have come down commensurate. So, we can find a place to get a deal done.

And let me echo my congratulations on a good job coming out of the gate.

(Operator Instructions) J.B. Lowe, Bank of America.

My first question is just on, if you guys are seeing any inflation on component or equipment pieces when you're talking about restarting your fleets or just ongoing maintenance? And I guess also, what kind of numbers are you baking in on a maintenance CapEx per fleet basis for the year?

We've not yet seen any kind of tightening on supply or inflation on major components or consumables. That still seems to be hanging in there. And the maintenance CapEx, the service intensity continues to push the envelope with longer laterals and higher rate and we're seeing maintenance CapEx in the neighborhood of $3.5 million per fleet per year.

Is that up year-over-year?

Yes.

Do you see that going up next year, most likely?

It just depends on how the service intensity kind of continues to cycle through, but I mean we took a step change up from last year and we'll just have to see how the activity -- because everybody keeps pushing the envelope on service intensity.

You had a $20 million [as your] working capital for first quarter. What do you guys see over the balance of the year?

We were guiding 25% to 35% revenue growth. So I think, our working capital efficiency has maintained in line with historical and very strong. So we're not seeing degradation in any of the working capital efficiency metrics. So this is primarily growth. So I think it's fair to assume the same trajectory we had fourth quarter to first quarter, adjusted for the lower revenue growth of 25% to 35% versus 60% is probably a good indication.

Last one just on M&A. You guys mentioned stuff wasn't hitting your screen. Is that just on the pressure pumping side, are you looking beyond just the frac?

We're looking beyond, we're trying to look at everything in the completions envelope, so we can stay focused. We don't have interest in going vertical integration or international. I mean we're trying to stay disciplined. So there's certainly other things within the completions envelope that we're looking at and it just comes down to fit and value.

John Daniel, Simmons.

Just real quick Greg, how much backup capacity is out there today on your fleets, and is that trend increasing or decreasing as we move forward throughout the year?

Yes, I mean we've always kind of rigged in 20% redundancy in the line. That trend for us has not changed over time, because we're confident in the performance of our equipment. But I think you see variability across companies on that.

Thank you. At this time, I'd like to turn the floor back over to Mr. Stewart for closing comments.

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