Nextier Oilfield Solutions Inc (NEX) 2017 Q2 法說會逐字稿

Good morning, and welcome to the Keane Group's Second Quarter 2017 Conference Call. As a reminder, today's call is being recorded. (Operator Instructions) For opening remarks and introductions, I'd like to turn the call over to Kevin McDonald, Executive Vice President and General Counsel for the Keane Group. Please go ahead, sir.

Good morning, and welcome to Keane Group's second quarter 2017 conference call. Joining me today are James Stewart, Chairman and Chief Executive Officer; and Greg Powell, President and Chief Financial Officer.

As a reminder, some of our comments today will include forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, reflecting Keane's views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. The company's actual results could differ materially due to several important factors, including those risks and uncertainties described in the company's Form 10-K for the year ended December 31, 2016; Form 10-Q for the quarter ended March 31, 2017; recent current reports on Form 8-K; and other Securities and Exchange Commission filings, many of which are beyond the company's control. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

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 our 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 will turn the call over to James.

Thank you, Kevin, and thanks, everyone, for joining us on the call this morning. We're pleased to report strong second quarter results, including 35% sequential growth in revenue to $323 million, growth in our adjusted EBITDA to $36 million from $13 million in the previous quarter and annualized gross profit per fleet of $10.5 million compared to $6.3 million in the first quarter. We exited the second quarter with 19 active hydraulic fracturing fleets, placing 2 new fleets into service during the quarter, for an average of 18.3 deployed fleets. We expect to place our 20th fleet into service in August, which, combined with 5 active RockPile fleets, brings Keane's total active fleet count to 25. Importantly, much of the growth we experienced this year has been driven by the deployment of additional fleets to support existing customers' activity, validating our strong partnerships with these quality producers.

The higher pace of completions demand during the first few months of the year continued and accelerated during the second quarter of 2017 as the rig count continued to climb. As a result, demand for hydraulic fracturing continues to exceed dispatchable supply, and pricing continues to improve, solidifying the fundamental economics for U.S. onshore completion services. This view is corroborated by what we're seeing and hearing in the field from current and prospective customers, who are unable to secure frac crews to support their ongoing completions programs. We expect this trend of constructive supply and demand dynamics to continue as a portion of the horsepower that was reported available by other providers during the prior cycle remains idle today, and likely does not return to service without substantial new capital investment. This attrition in market capacity is largely driven by asset retirements and equipment cannibalization, which we believe will more than offset the nominal newbuild horsepower additions seen and expected in 2017.

Another factor contributing to the strong demand for hydraulic fracturing services is the higher service intensity required to support modern frac jobs, which elevates the bar for equipment quality, leads to accelerated maintenance frequency and required incremental horsepower per fleet. As a result, providers of high-quality, safe and reliable completion services like Keane continue to experience increasing customer demand, translating to improved pricing and margins. Additionally, our technology capabilities enhance the value and level of engagement we are able to offer our customers.

Looking ahead, we believe that completions activity is set for a robust second half of '17, given these strong fundamentals combined with the natural actual lag between drilling and completions. However, we remain in constant dialogue with our customers and others in the industry to assess the potential impact of ongoing commodity price volatility on their future activity. Today, plans from our customers remain unchanged. However, we estimate that even a moderate rig count decline still supports a constructive balance of supply and demand for completion services.

We believe that 2 differentiating factors add resiliency and greater visibility to our business. First is our strategy of partnering with top-tier customers with large, efficient and sustainable drilling programs that are designed for continuity through cycles. As we've said, and is evident in the progression of our gross profit per fleet, all of our fleets work under flexible dedicated agreements with the ability to recapture market pricing and cost escalation.

Second is our expansive footprint, which features geographic and commodity diversification with operations focused on both oil and natural gas well completions, including a leadership position in the Marcellus/Utica. From an asset deployment perspective, Keane's strong capital position supports our consistent maintenance program through cycles, driving what we believe is an industry-leading average recommissioning cost of approximately $2 million per fleet. The value of our maintenance program is evidenced by the successful recommissioning of 7 frac fleets in 2017, all of which are currently deployed and generating attractive and accelerating incremental margin.

Turning to M&A. We are excited to have completed our strategic acquisition of RockPile Energy Services in early July, and I'm pleased to report that our integration efforts are on schedule and proceeding as planned. This transaction is another clear example of Keane's disciplined growth strategy and commitment to execution evident throughout the company's history. In addition to achieving greater scale through the approximately 25% growth in our hydraulic fracturing fleet, the RockPile acquisition also supplements Keane's capabilities in adjacent service offerings that have attractive fundamentals, including cementing, where we are further evaluating opportunities for optimization and growth. We're excited to welcome the RockPile management and field employees to the Keane team, and look forward to working together to grow our combined platform.

I'd now like to turn the call over to Greg, who will provide an update on our growth strategy, our review of our second quarter performance and expectations for the third quarter.

Thanks, James. We are pleased by the pricing and margin improvement Keane experienced during the first half of the year, and encouraged by the ongoing momentum and positive market indicators for the second half of 2017. On our first quarter earnings call in May, we indicated that leading-edge annualized gross profit per fleet was in the range of $12 million to $13 million. The tailwinds present at the time have persisted and have led to an additional step-up in leading-edge annualized gross profit per fleet of greater than 20%. While the trajectory we're seeing is positive, we do not yet believe that leading-edge margins are supportive of newbuilds. We believe this is the case for 2 primary reasons. First, to achieve the return we require to deploy new capital based on acquisition costs for increasingly larger fleets, in addition to related maintenance CapEx, annualized gross profit would need to exceed or have line of sight to more than $20 million per fleet, above where we see the market today. Second, we believe today's uncertain macro backdrop and volatility will encourage discipline and restraint in evaluating newbuild projects. The impact of the market outlook is likely amplified, given the increased capital demands for maintaining current equipment and more restrictive capital access than in previous cycles. In summary, our organic growth triggers are based on 2 key criteria focused on maximizing value for our shareholders and customers: first, line of sight to sustainable customer demand; and second, return economics that are consistent with our targeted rate of return.

Turning now to financials. Revenue for the second quarter of 2017 totaled $323 million, an increase of 35% compared to $240 million reported in the first quarter, driven by higher pricing from contract reopeners on a portion of our portfolio and the deployment of 2 additional hydraulic fracturing fleets in April and May. We averaged 18.3 deployed hydraulic fracturing fleets during the second quarter, up from an average of 15.5 fleets during the first quarter, exiting the second quarter with 19 deployed fleets versus 17 at the end of the first quarter.

Second quarter fleet commissioning costs totaled approximately $3 million for the recommissioning of 2 fleets, in line with our historical average of $2 million per fleet or less.

Adjusted EBITDA for the second quarter totaled $36 million, an increase of approximately 175% compared to the $13.1 million achieved during the first quarter of 2017.

Adjusted gross profit totaled $47.8 million for the second quarter, almost double the $24.3 million from the first quarter, representing sequential adjusted gross profit incrementals of approximately 28%.

Annualized adjusted gross profit per fleet was $10.5 million, up from $6.3 million in the prior quarter, due to pricing improvement and a reduced rate of input cost inflation.

Adjusted EBITDA for the second quarter excluded approximately $9.9 million of onetime items, primarily comprised of fleet commissioning costs, noncash stock compensation expense, accruals on various litigation matters and acquisition and integration costs.

We continue to focus on integrated completion services, including the bundling of frac and wireline. Of our 18.3 average deployed fleets during the second quarter, 64% were bundled with wireline, an increase compared to 58% bundled during the first quarter. Bundling remains a key differentiator for Keane and a major source of efficiencies on the job site.

Selling, general and administrative expenses totaled $22.3 million for the quarter compared to $17.6 million in the first quarter. Excluding onetime items, SG&A during the second quarter totaled $11.9 million compared to $12.1 million in the prior period.

Onetime items in SG&A for the second quarter included noncash stock compensation expense, accruals for various litigation matters and acquisition and integration costs related to our acquisition of RockPile. Our ability to maintain SG&A with continued growth in our operations reflects the fixed cost absorption inherent in our business model, in addition to ongoing expense management initiatives.

Turning to the balance sheet. We exited the second quarter with cash and equivalents of approximately $76 million compared to approximately $86 million at the end of the last quarter. Sequential cash usage of approximately $10 million was primarily driven by positive operating cash flow, offset by CapEx and debt service.

Total debt at the end of the second quarter was approximately $145 million, effectively unchanged compared to the first quarter of 2017. From a run rate perspective, our second quarter adjusted EBITDA performance represents an attractive debt to adjusted EBITDA ratio of approximately 1x. Net debt at the end of the second quarter was approximately $69 million.

Concurrent with our RockPile acquisition completed in July, we expanded our term loan facility by $131 million, bringing total pro forma debt, net of unamortized deferred charges and excluding capital lease obligations, to approximately $276 million, and representing debt to adjusted EBITDA on our second quarter run rate performance of just under 2x. Pro forma for our expanded term loan facility, net debt is approximately $200 million.

When considering contribution from the fully utilized RockPile assets and the margin momentum in our base fleet, we expect leverage to reduce over the coming quarters as, we maintain our focus on a flexible and conservative capital profile.

Liquidity as of June 30 totaled approximately $198 million, including cash and credit facility availability. This liquidity allows us to be offensive with regards to opportunistically executing on growth opportunities and defensive in the event of weakened market conditions.

As we've continued to execute on our growth plan and approach full deployment of our hydraulic fracturing fleets, evolving demand characteristics have resulted in moderate adjustments to our fully utilized fleet capabilities. Our mix of deployments, which include a heavy concentration in high-demand basins like the Permian/Delaware and Marcellus/Utica, coupled with an overall increase in service intensity via longer laterals and increasing prevalence of multi-well pad drilling and zipper fracs, higher rate jobs and the requirement of spare capacity to support normal maintenance, has required average fleet size to increase from 40,000 horsepower to 45,000 horsepower per fleet. As a result, we expect to be effectively fully deployed on our approximately 1.2 million hydraulic horsepower when we place our 25th hydraulic fracturing fleet into service in August, with a 26th newbuild fleet previously ordered by RockPile deployed during the fourth quarter. Importantly, the revenues and margins we are generating reflect these higher horsepower demands from our customers. Additionally, our ability to optimize horsepower, along with potential shifts in our basin mix, could create additional capacity and allow us to achieve further fleet deployments on the same base of hydraulic horsepower. Further, the increase in horsepower requirements per fleet should be constructive to supply and demand dynamics.

Looking ahead to the third quarter of 2017. We expect revenue for the third quarter of 2017 to increase between 45% and 60% sequentially. We expect approximately 60% of this increase to be driven by contribution from 5 active fleets acquired during the RockPile transaction and the remaining 40% driven by higher pricing and continued execution across our fleet as well as the deployment of an additional fleet in August.

From a gross profit perspective, we've provided frequent commentary on the momentum of annualized adjusted gross profit per fleet progression since the start of the year, which improved from $4.4 million during the fourth quarter of 2016 to $10.5 million during the second quarter. As indicated earlier, we've seen leading-edge gross profit per fleet improve by greater than 20% as compared to the $12 million to $13 million reported in May. We expect leading-edge annualized gross profit per fleet to increase to mid to high teens, driven by ongoing tightness in hydraulic fracturing capacity. Based on current market conditions, we expect our full portfolio of fleets to move towards these leading-edge margins ratably through the end of 2017, as we utilize our periodical reopeners to achieve market pricing, partially offset by higher input costs.

As we stated in May, ancillary service assets we acquired as part of the RockPile acquisition together represent current annual revenue run rate of between $35 million and $40 million and gross margins of between 10% and 15%.

Before we open the call up for questions, we want to provide some clarifying comments to address questions we received since issuing earnings. In the final set of tables found in our earnings release, we provide a bridge between adjusted gross profit and adjusted EBITDA.

For the 3 months ended June 30, 2017, the bridge has 6 adjusting line items to reconcile between the 2 metrics. The $3.7 million listed as other income represents a onetime settlement. In the following line, the same settlement is then backed out of the acquisition and integration costs. The combination of these 2 line items results in an adjustment to EBITDA of $2.5 million, which reflects the acquisition and integration costs associated with our RockPile acquisition. This should help provide a clearer understanding of our adjustments to reach $35.994 million of adjusted EBITDA.

With that, we'd be happy to take your questions. Operator?

(Operator Instructions) Our first question today is coming from Jud Bailey from Wells Fargo.

A quick follow-up question. Greg, I just want to make sure I heard you correctly. So because your -- the size of your -- each spread is going up to 45,000 horsepower, the legacy Keane fleet was 23 fleets. Then you're going to add 6 RockPile, which would take you to 29. Do I understand you correctly now that fully deployed, you're going to be 26 fleets, but the average size is going to be bigger? I just want to make sure I heard that right.

Yes, that's correct. And the 26 -- we'll be at 25 with the additional one going on in August. And then the 26th will commence when delivered in the fourth quarter.

Okay, all right. I just want to make sure. Second question is just kind of looking forward and kind of thinking about the market. If let's say you get to year-end, call it, mid to high-teens on gross profit per fleet, pricing is stabilized and activity kind of levels off, I'm trying to think through. How should we think about your margins in a -- I don't know, a flash environment? I would assume there are probably some additional operating efficiencies you could achieve to help margins. Pricing may or may not move around, but how should we think about your margins as you think into next year if activity were to kind of level off kind of the different moving pieces from a margin perspective?

Yes. I mean, look, operating efficiencies is something we're always working on. I think the local sand in the Permian's going to be a big tailwind for all of us in the industry. But as far as the moderate reduction in the rig count, our view is if the rig count stays north of 750, which is a couple hundred below the current rate, the frac supply and demand still stays pretty constructive. So we're optimistic that there's still going to be pricing upside to that high teens run rate going into '18 if the frac supply and demand stay constructive where they are today.

Our next question today is coming from Sean Meakim from JPMorgan.

So Greg, we've talked historically about having some lag in terms of the resetting of pricing in your contracts. And you've been trying to -- as you're reworking them with customers, speeding up that reactivity of the escalators, I think RockPile already had more spot-like pricing in their contracts. You talked about this a little bit in your prepared remarks, but what does the kind of mix of contracts look like today now that RockPile is part of the fleet? And I guess, how do you see that progressing as we get towards year-end?

Yes. So that's exactly right. In our next generation of contracts, we're trying to make them more responsive. So as contracts come up for renewal or we enter new ones, and most of that was around 2 things: number one, moving from 6-months adjustments to quarterly; and also allowing them to be more responsive to changes in our input costs to recover escalation sometimes intra-quarter. I'd say, just based on new fleets we put to work, we probably -- in RockPile, we probably have 30%, 40% of the fleet is more responsive now, and the other 60% to 70% is at least 1-year deals that we started the year with that will renew kind of going into '18. So that's about the mix of where we are today, and we'll continue to try to move the legacy portfolio to more responsive agreements.

Got it, okay. That's very helpful. And then I just wanted to talk a little about the M&A market. How is that -- how has the M&A market changed now that the IPO market looks a bit more challenged than it did a few months ago? And I think not just for frac, but also thinking about this collection of ancillary services that you have now as well.

Yes. I think it certainly makes it more constructive. I mean, M&A has always been a part of the fabric of our company. We've got times in the past where we've grown organically and times when we grow through M&A. So it's a piece of our growth strategy, but it's whatever the most accretive path to growth is. So we continue to keep an active pipeline. And with that IPO alternative kind of being choppy, it certainly helps build up our pipeline of opportunities. So I'd say the opportunity set is probably pretty robust right now. And we're looking at a comprehensive set of deals, like we always do, across the completions -- the whole completions envelope.

And I guess, one last one, just tied to that, if I could real quick, would be to say, thinking about your frac fleet, we talked in the past about trying to get the best through-cycle returns, not necessarily building for peak. 2018 is a bit uncertain. How do you think about what's the right size of fleet for frac?

The right amount of horsepower for the company?

Yes, yes, on a through-cycle basis.

Yes. We've never really had a horsepower bogey out there. We just try to grow responsibly. And we feel like at 1.2 million horsepower, we have critical mass in basins to get the density we're looking for in the overhead leverage. So growth opportunities going forward won't be set on a horsepower bogey. Those will just be set on something that's accretive and makes sense. And it's consistent with the backdrop. There's a lot of murkiness out there on the backdrop. And the way we think we'll get clarity to that backdrop is when our customers start to set their plans and their budgets. So I think until we see some of that get a little bit clearer, we're going to be pretty disciplined.

Our next question today is coming from Connor Lynagh from Morgan Stanley.

So I guess, given that you're not looking to invest in newbuilds right now, you're going to be running this business with a relatively high amount of free cash flow. So I guess, I'm wondering how you think about the best use of those cash? Is it reinvesting in your other service lines? Is it paying down debt? Is it some sort of special dividend or something like that to return cash to shareholders? How do you think about that?

Yes. No, it's a good question. I mean, I think we'll look at the alternatives out there and go with the highest return. Ideally, we'd like to invest in growth. It depends on that backdrop I just mentioned. And the accretion of opportunities through M&A is an opportunity for growth to deploy capital. And certainly, our debt is very flexible. We can pay down portions or all of the debt without prepayment penalties. So that's always an option. But the underlying principle here is keeping the balance sheet strong, both for offensive purposes and allow us to be defensive through cycles, like we did in the last downturn.

Right. So just curious. What would M&A ideally look like for you? Is it a large acquisition that substantially increases your scale? Is it rolling up a small geographic market? Is it building on your other service lines? What's your priority, would you say?

It could be any of those. We kind of cast a broad net. And we harvest opportunities over time, and the priorities of the seller may change over time as things change. So we don't really have a laser focus. We cast a pretty broad net, and then just harvest the opportunities and see what makes sense for the company.

If I could just squeeze one more in here. What do you think the optimal scale of any given basin is?

It feels like you want to have a minimum of probably 2 to 3 fleets. I mean, you want to get to -- multiple fleets allows you to amortize the leadership team in the overhead and get some leverage on logistics. I think you want a minimum of kind of 2 to 3,and then we've got 50% of our capacity in the Permian now. And that's a large business, and so you get some good scale with that. So there is some minimum threshold to just be able to allocate your overhead. And then beyond that, you grow it to what you can handle and still deliver for your customers.

(Operator Instructions) Our next question today is coming from Michael LaMotte from Guggenheim.

Just a few quick ones from me. You've started to use some of the container solutions that are in the market today. What percentage of the fleets are actually using containers? And is that number going to grow, you think, over the next few quarters?

Yes. Michael, it's about 20% today. And the bulk of that came with RockPile, as I mentioned on the RockPile call. Their leadership team are some of the pioneers of the container solutions. They were the -- one of the first ones to get started in that business in North Dakota. So we've tried numerous options out there. We continue to evaluate them. There's -- it seems like there's a new solution coming to market kind of every 6 to 8 weeks. So we've not chosen a preferred provider yet. We're still in that evaluation phase, but I expect the containers to be a part of our ultimate solution.

Okay. And If I think about efficiency on fleets that are fully utilized, do you get more productivity out of those fleets with the containers? And if you move more -- if that 20% goes up, is that really -- is it an accretive move to GP? I mean, is the improvement efficiency greater than the lease and operating costs? Just looking to see how you can get more revenue out of 26 fleets of capacity.

Yes. For us, the containers are more of a cost opportunity as opposed to an efficiency on more output. What allows you to do is you can unload containers into a staging area as opposed to have trucks sitting and potential incurring demurrage should you have a pause or a shutdown in your operations. So the boxes slide to turn trucks faster and put things in the staging area. So most of this is a cost opportunity. I mean, in 6 years, we've never missed a stage because of lack of sand. So we don't think this is going to allow us to put more stages in the ground, but it comes down to a cost opportunity. And because so many of these solutions are in their infancy right now, and they don't have enough scale in each of these solutions, the cost savings are just starting to kind of mature and show up.

Okay. And then, Greg, last one for me. Are there noticeable variances in pricing by region or horsepower per fleet in regions?

No, not discernible. I mean, I think the -- I think sometimes you see temporary price dislocation. But these are mobile assets. And normally, it normalizes itself. And on the horsepower per fleet, everybody's service intensity has been going up across the country. Occasionally, in the Bakken, you might historically see some lower rates leave jobs, but the general migration of the customers everywhere has been going to higher rate and higher pressure and longer laterals.

Our next question today is coming from Rob MacKenzie from Iberia Capital.

I'll echo Michael's final sentiment as well. I did want to dig in still on the -- just the non-frac businesses you acquired with RockPile. Can you give us a feel for -- you've already given us the kind of the revenue run rate. But what are your investment plans either in the cementing businesses or the rest of it to grow it from its currently fairly small level at this point?

Yes. I mean, we're probably running about 20%, 25% of the cementing assets that we currently have. So we're evaluating that business. We're evaluating that in the Bakken. And we're ramping that up kind of as we speak, and we'll probably spend the rest of the year looking at that from that standpoint. And then the other assets are some work-over rigs in the Bakken, and they're pretty much fully utilized. So there's really not much upside with that. So the big upside that we would have would be on the cementing side because between the Trican acquisition and then RockPile, we have about 20 or 25 or so -- 24, 25 cement units that we can eventually put to work.

So right now, the cementing's only in the Bakken. And do you foresee building that out again in the Permian and elsewhere potentially?

Well, yes. We're going in the Bakken first and see how that goes and evaluate that. And if it's viable, then we'll continue to expand that into the Permian.

Okay, great. And then coming back to the frac side of the business. I think, Greg, you mentioned comments about the new frac capacity, a big chunk of that at least not being additive to the market. Have you guys seen any impact at all in terms of the new capacity, either from new entrants or people adding existing equipment in terms of the ability to push pricing though the market at this stage?

No, we haven't. Rob, in fact, I was telling somebody the other day, one of the most exciting things is that we get updates on competitor capacity from our investment community, which is find out how many fleets people are running and how aggressively they're going. And the phone calls haven't stopped coming in, and we haven't -- the market's been absorbing that horsepower as fast as people can put it back, which confirms the undersupply situation. So we've now felt that at existing customers, and it hasn't slowed down the phone calls coming in for urgent frac crews.

(Operator Instructions) Our next question today is coming from J.B. Lowe from Bank of America.

My question is kind of similar to the last one. But in terms of you guys say that you're not going to look to add capacity until GP per fleet hits about $20 million, but that's not necessarily to say that your competitors won't be adding well before those profit levels. Is there anything in your contracts that would -- you have the pricing escalators every 6 months or what have you, but is there anything in your contracts that you're looking to do that would protect you on the downside in case pricing takes a turn for the worse here as the rig count may go down next year?

Yes. I mean, look, we're fresh off this down-cycle, so we've been through this. And our strategy with our customers is to kind of work with them through cycles. And our goal is to be the last out in a downturn. And we're not naïve enough to know that we have to mark the contracts to a market pricing. The escalators we have in there give us a softer landing on the way down, and allow us to retain the work in higher utilization. And I think that's -- that the benefit of these contracts really shows up. It's slower on the way up, but it's really protective on the way down. And our performance in kind of '15 and '16 showed the benefit of these contracts versus a large amount of our peer group.

Okay, great. And just to clarify, the revenue guidance growth for Q3, that includes the $10 million or so run rate quarterly from the non-fracking services that you have picked up from RockPile, right?

That's correct, J.B.

Our next question today is coming from Daniel Boyd from BMO Capital Markets.

I think I have mainly a lot of just kind of model-clarifying questions. Given the increase in crew size, can you just help us with the average horsepower that you've had active over the past 2 quarters?

It's -- if you take our fleet numbers and then we've kind of been ratably moving from 40,000 horsepower per fleet up to -- we're now up to 45,000. So if you just take the fleet utilization numbers we have out there and put a -- it was kind of a 40,000 number, and now it's migrated up to 45,000 per fleet with the service intensity and the maintenance requirements.

Okay. So maybe around 42,500 in the first quarter, 45,000 in the second? Is that fair?

Sure.

Okay. So when I run that through the model, it looked like sort of average price per horse as opposed to per crew was up about 7.5% sequentially. And based on the comments that you made about activity driving about 60% of the increase and the other 40% presumably price-driven, is it correct to assume about something in the high teens price improvement you're expecting for the third quarter on a sort of average price per active horse?

Yes. I mean, I think something in the 15% to 20% is reasonable. I mean, there's only -- it's just -- it doesn't go across the whole fleet because there's a portion that reopens. So you get that percentage on a portion of the fleet, but not everything.

Okay. And it just happens to be the timing to where the increase is much greater in 3Q? Or is it because of the acceleration in leading-edge pricing?

Well, I don't know the math you were doing. I mean, the hard part about calculating price on our book over time is a portion reprices. So the price is only relevant to a portion of the book in a quarter. So it's hard to take that price and amortize it over the whole fleet. We could go offline and try to go into more detail, if you want.

Okay, I'll follow-up later. And then just on G&A, can you help us with G&A guidance for the third quarter now that you have RockPile? And maybe give us the G&A guidance with and without stock-based comp.

Yes. So I mean, the way to think about G&A in the current quarter is the actual G&A was $22.3 million. If you take out acquisition integration costs, the $2.5 million, some legal cost of $5 million, and then the stock-based comp, it gets you to the $11.9 million normalized. The reason we backed out stock-based comp is this was a -- when we did the IPO, there was a very heavy loading of initial options to get people loaded up at a multiple of what we'll see on an annual basis. So that's why it was normalized. So if you take the $11.9 million, and if you want to add back the stock comp to that of $3 million, you're in that -- you're in kind of that $15 million, $16 million range, Dan.

Yes. So $15 million, $16 million is what we should expect for 3Q?

Yes. I mean, if you add back the stock comp, and then probably a little bit of growth for adding RockPile in there. So with the stock comp in there, I'd probably put it closer to $17 million, $18 million.

Okay. Including -- and then when you -- if you want to adjust it back out, you would get back down to $15 million?

Correct. Without the stock comp, I'd be a $15 million going forward for the second half, and with it would be at $18 million.

Okay. So then the corporate and other line that you'll report sort of from an operating income perspective is probably going to be then around $23 million, minus $23 million?

Yes. I don't have that detail in front of me. We should probably just take -- in the interest of time, we should probably just kind of go offline on this.

Okay. I'll follow up. And then just can you give us an update on CapEx guidance for the year?

Yes. CapEx guidance for the year is going to be around $90 million to $100 million. We've continued to stay ahead on maintenance CapEx and build -- we've been building components in the warehouse like we've been saying for the last 6 months, and that's allowed us to not have bottlenecks on any components that are out there. So we've got really good deals in place with component suppliers, and we've got good inventory in the warehouse to make sure we can maintain our fleet, which is something we're laser-focused on.

Our next question is a follow-up from Michael LaMotte from Guggenheim.

This is Ishan Kapoor on for Michael. Just wanted to ask, do you have that line of sight to seeing that horsepower per fleet number continue to grow? Or I mean, is it -- are you seeing service intensity start to moderate as pricing on both sand and services comes up?

Yes. I mean, I think it's starting to moderate through certainly a step-function, as everybody's been pushing the envelope on laterals and proppant loading. So yes, I mean, we've started to see it stabilize. And we're comfortable with that range we're in with the current service intensity.

Okay. And then would you guys be able to give the regional fleet breakdown you have today? I know you said 50%.

It's about 50% in the Permian, 30% Marcellus/Utica, 15% Bakken and 5% SCOOP/STACK.

Okay, awesome. And then a final one from us, have you been seeing any shift in sand consumption per well? Or is the source of sand starting to change from Northern White to in-basin? Or have you noticed any operator preference between the 2?

Yes -- no. The bulk of sand is still supplied out of the North, and the fine mesh has continued to be tight. So it's the same dynamic we've been dealing with all year as most of the operators are doing slickwater completions. The local mines in the Permian are just starting to come on in earnest. We're big believers in the local sand. We've got customers that have been pumping it up for 100 mesh, local sand for 2.5 years. And we expect to hide the option rate. So we have signed a couple of contracts for local sand. We're big believers in it. It sounds like the capacity there has doubled. And the perspective capacity -- and just over the last probably 8 weeks, given all the prospective supply coming online, the pricing on this local sand's starting to get more competitive, which from our standpoint makes the opportunity even that much more exciting.

We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Stewart for any further or closing comments.

Thank you. Before we end our call today, we wanted to highlight a few key points on our quarterly performance and positioning going forward. First, we believe our strong performance during the quarter reflects our position as a leading provider of completion services, with the ability to capitalize on favorable market dynamics. Looking ahead, we expect continued improvement in our financial results for the second half of 2017, driven by increased pricing and recent fleet deployments as well as contributions from our RockPile acquisition. Thanks again for joining us today, and we look forward to speaking with all of you again soon. Have a great day.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.