NEX (2021 - Q2)

Good morning and welcome to the NexTier Oilfield Solutions Second Quarter 2021 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'd like to turn the conference call over to Kevin McDonald, Chief Administrative Officer and General Counsel for NexTier. Please go ahead, sir. Kevin Mc

Thank you, operator. Good morning, everyone and welcome to the NexTier Oilfield Solutions earnings conference call to discuss our second quarter 2021 results. With me today are Robert Drummond, President and Chief Executive Officer; and Kenny Pucheu, Chief Financial Officer. Before we get started, I would like to direct your attention to the forward-looking statements disclaimer contained in the news release that we issued yesterday afternoon, which is currently posted in the Investor Relations section of the company's website. Our call this morning includes statements that speak to the company's expectations, outlook or predictions of the future, which are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties, many of which are beyond the company's control, which could cause our actual results to differ materially from those expressed in or implied by these statements. We undertake no obligation to revise or update publicly any forward-looking statements, except as may be required under applicable securities laws. We refer you to NexTier's disclosures regarding risk factors and forward-looking statements in our Annual Report on Form 10-K, subsequently filed quarterly reports on Form 10-Q, and other Securities and Exchange Commission filings. Additionally, our comments today also include non-GAAP financial measures. Additional details and a reconciliation to the most directly comparable GAAP financial measures are included in our earnings release for the second quarter of 2021, which is posted on our website. With that, I will return the call over to Robert Drummond, Chief Executive Officer of NexTier.

Thank you, Kevin. And thanks everyone for joining us today. Yesterday, we announced the strategic acquisition of Alamo Pressure Pumping, a leading Permian well completion service provider. Before getting more into this transaction, and its significant benefits to NexTier, I'd like to review our second quarter and ongoing results. Activity continues to recover and visibility into the second half of the year improved along with the plans of some of our legacy customers. We're now set up for growth in excess of 25% for consecutive quarters, and the visibility gave our team the confidence to make some strategic decisions to ramp the hiring of people and prepare equipment ahead of our high Q3 growth expectations. These decisions, though impact in Q2 results put our team in a great position to capitalize on visibility of growth into the back half of 2021 and into 2022, where we expect a much more linear rebound in relative activity growth. We deployed three additional frac fleets during Q2, including two simul-frac fleets and exited the quarter with 21 fleets deployed. As noted late in the quarter, we also accelerated the fleet activation cost for two more Tier 4 dual-fual simul-frac fleet to be deployed into Q3. It was worth noting that simul-frac fleet can require as many as double the number of pumps of a normal zipper frac. Against this growing base of activity, total revenue grew 28% to $292 million. Our wireline, cementing and cold tubing services lines continue to improve margins and increased activity. Overall, while we're pleased with the sequential top line growth, and have confidence in the continuation of that trend into Q3, unexpected transitory operational factors and fleet activation cost impacted Q2 profitability. Despite this impact to near-term profitability, we're confident that the investments made will allow us to begin to harvest the benefits during the back half of the year and set the business up for great trajectory into 2022. With that as an overview, I'd like to share more about what we're seeing in the market. Commodity prices continued to maintain strong improvement and momentum relative to the averages in March of this year, crude oil prices at the end of July are up 19% while natural gas prices are up 47% over the same period. This marks the latest stair step improvement in commodity prices as economic activity, along with demand continues to grow in tune with reduced global economic restrictions. The supply side remains very disciplined overall, thanks to the leadership from both OPEC-Plus and U.S. shale producers. At the end of July, and compared to the average price realized in June of last year, oil and gas prices are up 93% and 129% respectively. With this as a backdrop, demand for all of our services is increasing. As we continue our fleet deployments in the Q3, enabling what we expect to be our second consecutive quarter with 25 plus percent revenue growth, we grew our team substantially in preparation. From the beginning of April, through the end of June, we added over 400 NexTier employees across our product line to support our growing field operations. This cadence and level of hiring was significantly more than we had originally anticipated. Also, core to our execution is equipment quality and maintenance. This commitment is the foundation of our market readiness initiative and aligns with our low cost, low carbon strategy. Further, the increased rack intensity associated with simul-frac operations is changing the maintenance requirements and schedules in a manner that increases cost and requires ongoing adjustments to our commercial and operating models. Investments in our equipment over the last 18 months are the foundation for future profitable growth and we have continued to make progress on converting our fleet to use natural gas as a primary fuel. From the beginning of May, through the first week of July, we deployed over 100 pumps, the majority of which are Tier 4 dual-fuel, a market that continues to be sold out. This included a simul-frac fleet deployed in early July. We also began preparing for two more Tier 4 dual-fuel fleets in the coming months, with at least one being for simul-frac and all for legacy customers returning to work. While we have continued to invest in converting our fleet to support our low carbon strategy, I want to emphasize that we're removing conventional diesel powered engines from the market in the process. In addition to enhancing the fleet, with more dual fuel capability, we continue to standardize the fleet with our proprietary frac MDT Control System, which enables more digital interfaces with the equipment and lowering total cost of operations. The market continues to improve, and we are responding rapidly to scale our operations. But the activity growth has not been linear over the past few months. The market continues to improve responding rapidly to scale our operations. But the activity growth has not been linear over the last few months. The industry recovery over the last year or so included extreme volatility and frac schedules, which combined with continued increase in frac intensity is posing unique challenges across the industry. Our team is skilled at navigating the staffing, equipment readiness, and operational challenges associated with these factors. However, the process of meeting these challenges was even more pronounced in the second quarter than originally expected. As we responded to an unusual concentrated level of growth, these dynamics in conjunction with continued increases in frac intensity demand created transitory startup cost and challenges in Q2. While NexTier has been a leader in deploying the simul-frac process with our customers at ever increasing treatment rates, with hundreds of wells completed over the last two years, more equipment on each job cannot be the only answer to its adoption across the industry. New technologies must be applied to achieve optimal injectivity and improve the overall performance and utilization of the equipment on location. In the second quarter, NexTier launched a new offering from our lateral sciences portfolio called simul-frac stage pairing. This technique reduces the operators cost per barrel by taking existing drilling data, analyzing the downhill rock properties and matching the four or six wells across the simul-frac pad to create optimized pair for every simul-frac stage. We believe utilization of this technique will ultimately improve the injectivity of the frac treatments, improve the long-term production of the treated wells, and lower the equipment costs for each operation all with minimal changes to the current simul-frac processes and workflows being utilized today. Simul-frac stage pairing will help connect our extensive simul-frac operational experience to real reservoir properties. We believe that this technology will allow NexTier deploy a more cost effective solution that delivers higher production to the operator, associated with the growth in frac intensity, our incremental cost and enhanced maintenance requirements for some of the equipment. In Q2, we tested the boundaries of our simul-frac experience and push to achieve rates higher than we had previously reached, which we underestimated in our Q2 commercial agreements. We're addressing these issues with our customers as we exited Q2 and entered Q3. Compounding the financial impact of concentrated growth in the second quarter was an isolated fire related incidents at one of our fleet, resulting in a total loss. Due to our team's training, quick action and adherence to strict safety protocols, I'm glad to report that there were no injuries to any parties at the wellsite. The lesson learned from the potential root causes have been applied across the overall fleet and supplier base to further de risk future operations. We responded quickly and have already taken possession of the replacement equipment, which is largely being funded by insurance proceeds. To quantify the impact, our second quarter results included approximately $10 million of EBITDA degradation associated with these combined startup inefficiencies and operational factors. We believe this rapid ramp in activity during Q2 and Q3 is unprecedented and transitory. The costs incurred as our equipment and employees are deployed has significant impact on startup asset utilization and ultimately our financial performance. However, the associated operational adjustments made are already benefiting the business. As an example of the lessons learned, late in the quarter, we made a strategic decision to accelerate preventative maintenance processes in preparation for additional Q3 simul-frac fleet deployments. We expect Q3 revenue to increase at least another 25% sequentially, and have already deployed the first of these fleets, the associated out-of-period fleet activation costs taken in Q2 are estimated at approximately $7 million. We made the decision to get ahead of the growth preparation rather than try to maximize Q2 profitability. Pricing continues to improve off the very low base, resulting from concessions made during the downturn. At the same time, we have seen the benefits of gradual pricing improvements being offset by ongoing white space in the calendar. While pricing is improving, overall economics and contract structure are below our requirements for deploying additional horsepower. Except for the three previously mentioned fleets of Tier 4 dual-fuel equipment addressing legacy customer demand, we do not anticipate deploying additional horsepower or increasing headcount throughout the remainder of the year, unless the economics are much improved. We now plan to maximize the earnings opportunity created by the significant revenue growth we are experiencing. We have a significant amount of capacity deployed with the major cost to deploy already funded, which we believe positions us for a strong half two and beyond. We believe we're now incredibly well positioned as a leader in natural gas powered equipment, which constitutes a large portion of our deployed horsepower today. We've remained strategic throughout the downturn to best position NexTier for the eventual market recovery. With the recovery underway, we're positioned with one of the industry's largest fleet of Tier 4 dual-fuel equipment and a fully integrated completion solutions offering. This includes our power solutions business, which began commercial operations in July, supplying compressed natural gas and making it easy for our customers consume their own fuel gas. Our investments go beyond just gas powered horsepower and surface equipment. Through the downturn, we remain focused on the long-term role that digital will play in our future operations. This focused approach, primarily investments in our NexHub digital infrastructure and MDT control systems, has allowed NexTier to reduce overall well cost, improve wellsite ESG performance and optimize completions to drive increased production. However, we believe we have only just begun to scratch the surface for the benefits of our digital investment. At the recent URTC Conference, we announced the launch of a strategic technology partnership with Corva, the leader in real time drilling and completion analytics. We expect this partnership will allow NexTier to forego millions of dollars and development and immediately deliver a best-in-class customer portal to each of our frac fleets. We believe this partnership allows NexTier to rapidly increase our deployment of digital offerings, harnessing the power of data and visualization to deliver on our low cost low carbon strategy. We believe the recent significant investments in our equipment and staffing will be harvested in 2022 and 2023 as market conditions continue to improve, which combined with an expected pricing reset should drive further momentum in our earnings power next year and beyond. I'll now like to pass the call over to Kenny, to discuss our second quarter results.

Thanks, Robert. Second quarter revenue totaled $292 million, compared to $228 million in the first quarter, marking a sequential increase of 28% driven primarily by increased activity levels, and added capacity across all our product and service lines. Total second quarter adjusted EBITDA was approximately $5 million compared to $1 million in the first quarter, mainly driven by revenue activity growth in all our business lines partially offset by approximately $10 million in cost related to operational inefficiencies, including the impact of the fire incident and startup costs to support the high level of activity growth. In addition, we faced an impact of approximately $7 million for future readiness and startup costs, consisting mainly of labor and maintenance OpEx. In our Completion Services segment, second quarter revenue totaled $269 million million in the first quarter, a sequential increase of approximately 29%. Completion Services segment adjusted gross profit totaled $20 million, compared to $15 million in the first quarter. During the second quarter, we operated the equivalent of 18 fully utilized fleets exiting with 21 fleets deployed with additional capacity of people and equipment for two additional fleets, one of which was a Tier 4 dual-fuel simul-frac fleet deployed in the first week of July. On a fully utilized basis, annualized adjusted gross profit per fleet, which includes frac and bundled wireline totaled $4 million flat to the first quarter, mostly due to startup costs incurred to deploy the additional Q3 fleets already mentioned. In our Well Construction and Intervention Services segment, revenue totaled $23 million, an increase of approximately 21% compared to $19 million in the first quarter. Adjusted gross profit totaled $3 million compared to $2 million in the first quarter. EBITDA for the second quarter was $15 million, when excluding management net adjustments of $10 million, adjusted EBITDA for the second quarter was $5 million. Management adjustments included a gain on insurance proceeds from the fire, the reduction in pre-merger tax audit estimate and a gain on the financial investment partially offset by stock compensation expense, bad debt expense related to the well support services divestiture and estimated legal expenses related to pre-merger litigation, approximately $9 million of total net management adjustments or cash, mostly related to the insurance proceeds. Second quarter selling, general and administrative expense totaled $21 million, compared to $16 million in the first quarter, excluding management net adjustments, adjusted SG&A expense totaled $20 million down from $21 million in the prior-quarter. We continue to hold our SG&A flat despite our strong revenue and activity growth. Turning to the balance sheet, we exited the second quarter with $250 million of cash compared to approximately $272 million in the first quarter, driven by ongoing capital investment, and our low cost low carbon strategy partially offset by strong sequential recovery and collections activity. Total debt at the end of the quarter was $334 million, net of debt discounts and deferred finance costs and excluding finance lease obligations, compared to $335 million in the first quarter. Net debt at the end of the second quarter was approximately $84 million. We exited the second quarter with total available liquidity of approximately $372 million comprised of cash of $250 million and availability of approximately $122 million under our asset base credit facility. Cash flow provided by operations was $15 million, driven mostly by strong cash collections. Cash flow used in investing activities totaled $34 million for most of additional investments in our Tier 4 dual-fuel carbon reducing technologies, maintenance CapEx and investments in our power solutions business. This resulted in free cash flow use of $90 million for the second quarter. With that, I'd like to pass it back to Robert to discuss our acquisition of Alamo in greater detail.

Thanks, Kenny. Yesterday, we announced the agreement to acquire 100% of the pressure pumping operations of Alamo Pressure Pumping. We're incredibly excited to get the power of our combined platform and our ability to transaction that fits hand and glove with the low cost, low carbon strategy, we have been communicating for the past year. I encourage you to take a look at our investor presentation posted on our website. Let's start with a brief overview of Alamo headquartered in Stanton, Texas, in the heart of the Midland Basin, and founded in 2017. Alamo is positioned today as the largest private pressure pumper in the Permian, as measured by active fleet, and one of the largest Permian pressure pumpers as measured by next generation horsepower. The company primarily operates in the Midland Basin and has a superior track record for safety and execution on behalf of its high quality and efficiency focused customer base. Company's assets are primarily comprised of nine hydraulic fracturing fleets, a large majority of which are powered with the latest CAT Tier 4 engines, and most of which are naturally gas powered, or easily converted to Tier 4 DGB. In total, the company's fleet is comprised of approximately 460,000 of some of our industry's newest hydraulic horsepower, nearly all of which is fully utilized. We'd like to share several key strategic highlights of the transaction. The acquisition of Alamo accelerates and magnifies the impact of our next generation technology strategy, and is entirely complementary with our low cost, low carbon ESG focused approach. Over the last several quarters, we have invested in the conversion of existing horsepower to Tier 4 dual-fuel technology, today's acquisition of Alamo's highly utilized CAT Tier 4 fleet with a significant DGB capabilities combined with our own secures the leadership position, and it's important and sold out portion of the market. Pro forma for this transaction more than half of the combined NexTier fleet will be natural gas powered and standardized around a CAT platform, providing comprehensive engine management and then enterprise telemetrics, a seamless operational system and a low total cost of ownership. We think we have the most gas powered fleets deployed in the market, which includes all dual fuel and frac combined. Pro forma, our fleet will be a Permian leader for low carbon well completions as a result of this combination, NexTier will be the third largest deployed fleet in the U.S. land and a leader in the Permian meaningfully adding to our presence in this growing market. Alamo's predominantly Midland Basin focused Permian position, combined with NexTier's existing Delaware Basin centric position provides attractive intra basin diversification within the Permian. This new dynamic strengthens NexTier's overall attractive geographic diversification that now covers most major producing basins in the U.S. In addition, Alamo's customer base is highly complementary to NexTier's, making the combined company's customer portfolio truly best-in-class. We also believe this acquisition will be easy to integrate into NexTier while providing significant pull through opportunities. The Alamo President and CEO, Joe McKie will continue to run the Alamo operations under the Alamo brand, without disruption to their existing customers or employees. Joe and I will pursuit customer value-added opportunities to plug into NexTier's well established digital capabilities, last mile logistics and newly established power solution capabilities. This will be a relatively simple and low risk integration process, since Alamo's operations are based on a single high performing operating base. While we expect to create an estimated $10 million in synergies and generate additional revenue associated with integrating wireline pump down perforating, and last mile logistics, the value of this merger is not driven by cost synergies, but by accelerating and providing for long-term cash flow generation. As we have successfully launched our Power Solutions Integrated Fuel Services, the addition of significant low carbon natural gas powered hydraulic horsepower to the NexTier platform expands the potential for additional value creation for NexTier and our customers. Before I turn the call over to Kenny to discuss the financial rationale of the deal, I want to point out that we were very successful at conserving our cash during the COVID downturn, so as to give us the ability to make strategic moves like this one at the right time. We have frequently stated that the strength of our balance sheet was a key differentiator for NexTier and now is the time we shift to using it offensively. I believe that this is exactly the right time for this acquisition. With that, I'd like to ask Kenny to provide more details around the financial merits of this acquisition.

Thanks, Robert. I'll now share the financial rationale for the transaction. First, attractive valuation and accretion at a transaction valuation of approximately $268 million, we're acquiring roughly 460,000 of predominantly next gen or easily convertible horsepower for $582 per horsepower and a multiple of approximately 3.4 times based on expected achieved EBITDA earn-out thresholds, which is significantly below NexTier's current trading multiples and that of our public peers. Second, accelerating free cash flow generation. Today's transaction accelerates NexTier's path of positive free cash flow in early 2022 driving shareholder values and improving NexTier's already strong liquidity position. Third, maintaining a strong and flexible balance sheet. Pro forma for the transaction, we're are positioned with $272 million of total liquidity. Additionally, with the accelerated path to free cash flow generation, we meaningfully improve our ability to drive cash flow back onto the balance sheet with a high performing set of assets. We remain positioned with no near-term debt maturities, which combined with our strong liquidity position allows us to continue to remain both offensive and defensive. Before passing things back over to Robert for closing comments, I'd like to comment on our outlook. As macro conditions and commodity prices further improve and become increasingly constructive, we're seeing further improvement in demand for completion services. For standalone NexTier, our calendar is expected to be effectively full for the third quarter. We expect to operate 21 fully utilized frac fleets during the quarter and forecast to exit the quarter with 23 deployed fleets. In addition, we'll be adding highly utilized capacity from Alamo with a transaction closed date expected at the end of August. Combined and based on this forecast transaction close timing, we expect to generate total revenue of between $390 million and $420 million. This forecast reflects a sequential increase of between 35% and 44% driven by the addition of Alamo's business for approximately one month, and previously mentioned increased Tier 4 dual-fuel work that carries improved profitability. On this base of activity on a combined basis, we expect to generate at least $30 million of adjusted EBITDA in the third quarter. The increased cadence of profitability of NexTier at the back half of the quarter, and the addition of Alamo, the Q3 monthly exit runway is expected to reach approximately $18 million to $20 million. With our fleet upgrade program, largely completed during the first half of the year. In addition to the fleet we added in early July, we're expected to convert two additional fleets to Tier 4 dual-fuel during the second half of the year, standalone next year. We'll provide additional details on Alamo's upgrade program following the completion of the transaction. For the full-year of 2021, we reiterate that the second half of the year we'll see increased strategic CapEx investments as compared to the first half of the year in addition to the increased capacity for maintenance CapEx of additional fleets for NexTier and the Alamo transaction. Our investments for the year are primarily comprised of Tier 4 dual-fuel upgrades, investments in our Power Solutions business and maintenance. Our readiness program in addition to our NexHub equipment health management program is demonstrating value. As year-to-date, we have been able to achieve $5 million of CapEx spend below the $2.5 million target for 2021. As we noted, 2021 is an investment year for NexTier, as we continue to invest in our low cost, low carbon strategy, including Tier 4 dual-fuel conversions, and our Power Solutions business. Combined with the investments we made in 2020, we're positioning NexTier to harvest these investments in the coming years. These investments allowed us to high grade and standardize a significant portion of our equipment base, which is now more marketable, and overall is expected to reduce costs in emissions for NexTier and our client base. With that, I'll hand it back to Robert for closing comments.

Thanks, Kenny. In closing, I would like to reiterate that the startup challenges had strategic investments that we faced in Q2 are transitory in nature, and do not change our strategy or position as a leader in low cost low carbon operations. We have great momentum going into H2 with returning customers that are adding to an already strong existing customer. We're seeing success in our ability to integrate additional scope with the wellsite and our customers are realizing the value created through integration. We're working closely with our partners to improve our commercial agreements to address the changing simul-frac environment, which is expected to show up in our Q3 profitability. We believe macro fundamentals are setting up to be foundationally stronger and more supportive of a stable commodity price. With global demand increasing and balance long-term supply fundamentals, our investments made in 2020 and 2021 on enhancing and standardizing our fleet, combined with our acquisition of Alamo accelerates our free cash flow and strategic plans to deliver higher efficiency, lower cost integrated completion operations with a byproduct of reduced emissions for our customers. We believe that we're now positioned for the right part of the market at the right time. With that, operator, we'd like to open up the call for Q&A. Thank you.

Thank you. At this time, we will begin the question-and-answer session. And the first question comes from Chase Mulvehill with Bank of America.

Hey, good morning, everybody.

Good morning, Chase.

Congrats on a nice deal here. Obviously this accelerates the enhancement of the next gen fleets. And you guys were probably going to be spending a little bit more on CapEx on some upgrades, if you didn't do the deal. So maybe just kind of if I can ask the question about, the CapEx that you plan to spend on upgrades over the medium term, following kind of Alamo upgrades or deal. I mean, it looks like maybe after the deal, you probably have 13 to 14 Tier 4 fleets, and you're going to have 31 active at the end of the quarter. So I don't know if maybe you could just talk to plans for upgrading the fleets after the deal closes, for the pro forma fleet, you'll necessarily have to speak to just Alamo, and then maybe the cost to upgrade some of these from Tier 2 to Tier 4.

Thank you for the question, Chase and you're right. One of the strategic benefits of this deal for us was accelerating our already strategy focused on increasing the amount of our fleet that uses natural gas. When you're converting Tier 2 to Tier 4 DGB, we're taking Tier 2 horsepower out of the market, that's a relatively expensive conversion, compared to simply taking Tier 4 pumps and making them Tier 4 DGB, about half the cost to do that. But it's common fact that the market is really looking for this kind of equipment right now. And if you were trying to do it organically, there's extreme limited inventory. We mentioned having to replace a fleet last quarter, we basically scraped up the inventory that was around the U.S. of CAT Tier 4 DGB to do that, and you noticed Alamo had made an acquisition of some of the other market horsepower, that another competitor was getting rid of during the last quarter as well. So the point being is that the only way we could accelerate this strategy was do an acquisition like this. And we're very pleased that we were able to get that over the hump.

Yes, Chase, I would just add, we called out we're going to be adding two additional Tier 4 DGB fleets, this is on the NexTier side, late Q3, and then one on Q4, those are Tier 2 to Tier 4 conversions. If you look on the Alamo side, they've been basically same strategy as us, they've been converting their fleet, they're in the process of converting another fleet right now. And then there's another fleet that would be converted likely by the end of Q1 of next year. So basically, we have at least four fleets that are in the conversion process, as we speak, that are all going to be Tier 4 DGB.

Okay, all right. Perfect. And if I could follow-up on the simul-frac commentary, obviously, you guys are picking up a lot of simul-frac fleet from some of your customers, and we hear a lot about it on the E&P conference calls. So maybe, could you just speak to the profitability of those fleets, maybe EBITDA per fleet? I think you said the horsepower requirements could be up to kind of 2x of a typical fleet. So, are you getting kind of 2x, the EBITDA per fleet for the simul-frac fleets, if not then what do you think needs to happen for you to be able to get to that? Is it kind of better supply chain maintenance, is it better pricing like what do you think needs to happen to ensure that you get the adequate profitability on some of these simul-frac?

That's good question, Chase. Simul-frac uptake in the market has been on the increase, particularly in the Permian area. Our customer base has been quick to do so. And I would say that it's been a process of continued increasing levels of intensity around that, around that process up to the point, as I mentioned in a call that as much as double the amount of horsepower on location, the issue there is, during the startup process, you got a lot of moving parts around, support around that huge volumes, a lot of number of trucks, a lot of number of pumps. As you get your cadence working with the full supply chain, there's what we call a lot of pressure during Q2, we were in the process of extreme rapid deployment of which a couple of them were really big simul-frac trucks. So I would say in general, profitability is very - is very good. And you have to build your commercial agreements around them by horsepower. But when you have a big process like that, you have to look at the white space that can be occurred with any kind of hiccup around the support structure. And when I mentioned in there, that we're working with our customers to relook at our commercial agreements, part of that is around that area. You got two wireline operations embedded in the middle, you have all the trucks doubled up in volume around the support the thing, so I would say, once you get your cadence going, the profitability is very good. But in the process of Q2, we were trying to build a cadence up around two or three of those deployments. So, we got hundreds of wells of experience, and we feel good about where that is. But at the end of the day, starting straight up on simul-frac, it takes a little bit of a dance and we've had to tighten up some of our maintenance schedules around portions of the of the equipment to supply net simul-frac fleet in order to reduce the risk associated with the increased volume. So the bottom line is that's when we talk about adding Q2 being transitory, we've just had to move up our maintenance process to tighter intervals and the corresponding costs associated with that, we're working through our commercial agreements as we were working into Q3. That's kind of an over level for simul-frac but the bottom line is, I think the operators are trying to decide what level makes sense when you talk about rates and pressures on the same well.

Okay. Perfect.

And if it is okay?

Yes, perfect. Thanks, Robert.

Thank you. And the next question comes from Stephen Gengaro with Stifel.

Thanks. Good morning, gentlemen and congrats on the deal.

Thanks, Stephen.

Two things, if you don't mind one, and just to follow-up on Chase's question, as you work through these simul-frac jobs, is there a risk you get, more profitable per horsepower per fleet while operating, and maybe that two times level for two times horsepower, but then mobilization costs kind of eat into that and do you think you can manage through that where these jobs will be sort of at least equally, if not more profitable, as you sort of get that cadence going, that you referenced?

Look we fully expected to be equal or greater profitability, because the customers who are using simul-frac are efficiency minded customers, the kind of customers that work well with us and that we like to work with because the upside associated was ever increasing, pump times per fleet, but you do have to get the cadence working, and sometimes you don't come straight out of the box, and I'll remind everyone that we just came out of one of the most incredible downturns ever. And as we redeploy, we're working a few bugs, I call it growing pains that we suffered in Q2, that we are, as we speak now, kind of got past. So I think that you'll see that that works is just that simul-frac are continuously pushing the envelope to determine what's the ideal per well treatment versus the amount of equipment or location, things like that. So it's a process that gets tweaked with each customer as they gain experience.

Great, thanks. And as a follow-up, and this is maybe a two-parter, but you did a - you gave a lot of really good detail in your PowerPoint, you posted on your website. And the two questions around it were your NexTier adjusted legacy kind of EBITDA number, you use the consensus. And I'm curious is that in any way you guys blessing that consensus, and maybe more importantly, the $80 million of Alamo incremental EBITDA figures suggest $9 million or $10 million of EBITDA per fleet, is that a reasonable expectation and sort of what needs to happen to pricing to get to those kind of numbers?

So, Stephen, good question. And we're careful not to try to get too far in the future of - Q2. But I would say this, we did point out kind of the exit of Q3 run rate of our NewCo with just one month of Alamo. And if you extrapolated that and took a look at that, you could see the answer to that question is that, we're in that ballpark for sure. And I would also say that, bringing Alamo on board, these guys are - they're very good at what they do. And they were able to keep their self fully loaded through the 2020 downturn. And they're on a good solid run rate. And they're not in a process of really ramping up, although they're adding a couple of crews, kind of during this transition period. So I think that it requires very little difference from our current run rate for that demonstration on that slide would be accurate.

And I would just add because you asked about the Alamo side, we published that page to show the earn out would be indicative of attractive valuation, just to kind of underpin that $80 million, and then we're confident with the synergy capture of $10 million. So, that's why we put the $90 million there. And one more follow-up. You mentioned pricing, there will have to be some pricing increase in 2022, to reach that 205 consensus that's put out there.

Okay, great. Thank you for the color, gentlemen.

Thanks, Steve.

Thank you. And the next question comes from Connor Lynagh with Morgan Stanley.

Yes, thanks. I just wanted to stay on that pricing topic and reconcile some of the comments you guys have made around that front. So I think you'd said basically to reactivate additional fleets, the economics aren't really there. I just wanted to understand so you're reactivating some fleets in the near-term here, is that because their customers you know, and you know the efficiency is going to be there that you don't need pricing, and then next fleets, it's a little more uncertain, what their pricing that you gained on those, basically, if you can just help me understand the dynamics of that?

Thanks, Connor, good question. So the added fleets are with customers that we have legacy relationships with. And that had been guiding towards that - towards deployments. We did get price with those deployments that are in terms of where we're trying to get to. But even though, at the same time that we're getting price, as we roll into Q3, it's also going against inflation somewhat. So I would just say is that, we're in the first step of price move coming out of this downturn, we just discussed, and we had to get, we had to get more. And we've moved up all of the pricing that we deploy on any new opportunities for work. So I mean, we would expect either we lose it at that, or we pick up work that is more accretive and net price - includes net price increase. So, I just don't know how fast that's going to occur depends on, I think the supply and demand of the overall market and what some of the diesel providers do in the market, because we do get a differential between gas powered fleets, and diesel powered fleets. But diesel powered fleets can define the low-end of the market. So that's moving, I think, if you look at moving into next year, and we have say 250, or 260 fleets deployed, with a significant portion of those being simul-frac more and more being the case, we're reaching a point where we're getting close to consuming the horsepower that's in the market. And I think that will provide the basis for recouping the price that we - had yielded during the worst part of this COVID downturn.

Makes sense, it sort of seems like the consensus is moving towards there being essential for pricing power as you move into work programs for 2022. I guess the big variables that could drive that, to your point are higher tier equipment being sold out, demand is just outright increasing, or just people pushing price, as there's sort of natural renegotiation periods. I mean, which of those three do you think is really most important, what's sort of your view on how significant industry pricing power is going to be as people negotiate for 2022?

Well, one of the reasons we did this deal is because in that upper tier of Tier 4, emission friendly equipment, it also burns natural gas, that part of the market is sold out now and will continue to be sold out. And obviously, in that environment, we need to be improving our returns to recoup our investment. So that's one thing. But I also say, as we roll into next year, most of the desperation, I think that occurred in the market, maybe on the low end around some of the diesel power fleets has been relaxed a bit, and people can competitively begin to move their price up. So I think it's kind of like a number of factors. But the big one being, supply and demand and consumption of horsepower, and the increase in demand around it, I think supply demands coming together. So fundamentally, markets getting healthier. So that provides a platform for everybody to take advantage of.

Makes sense. I'll turn it back. Thank you.

Thank you, sir.

Thank you. And the next question comes from Derek Podhaizer with Barclays.

Hey, good morning. Just a question on the deal. Just curious of your thoughts on the best practices that you can pull from Alamo and adopt under legacy NexTier, and then what you can bring over to the Alamo team to help make their operations better, just want to know, just your high level thoughts on what you bring to the table and what Alamo brings to the table on a combined company basis?

I appreciate that question because there's a lot to do with what we make - what reason we made decision. When we look at the whole market out there and do kind of a funnel assessment of who would be a good partner for us, we've done that twice with the C&J deal. It was a rich opportunity around synergies. And then in this past, we looked at whose strategy overlaid with us and fit perfectly. And we were able to get lined up with a company like Alamo that's been doing the same thing we're doing, deploying Tier 4 and making it gas-powered. So they also have a very strong position in the Midland Basin. The Permian Basin being divided in loosely between Midland Basin and the Delaware Basin. And we have a bigger position in the Delaware. They have a bigger position of their fleets in the Midland Basin. And what the customer base they have there is very efficient, and they do an excellent job. So it's not like we're doing a deal here to teach Alamo anything about what they do. However, when you look at the opportunities around revenue synergies, where we have the biggest wireline fleet in the U.S. and it's deployed on about 75% of our frac fleets where our efficiency levels are much better when we work as a team like that, opportunities to do the same with Alamo are there. We do the last-mile logistics and sand delivery on the majority of our fleets, and they currently do not. So the opportunity to use the scale we've built around our digital tools for logistics is an easy fit. And then the NexHub digital things that we called out about bringing visualization to the fleets, not changing the way they operate, but just giving more visibility to the customer has been - something that customer base has been very attracted, too. And then lastly, I didn't mention it, but a little bit in our earnings call because we've got so much information going on. But we went commercial with our Power Solutions business recently, and it's come out of the box, working very well, supplying compressed natural gas to our own fleet, while also facilitating the use of customers on fuel gas to their - a mixture of the two. So these things are very easy to bring to the combined company, and it doesn't interfere with any of the excellent technique that Alamo already has in frac. And bottom line is, when you look at maintenance practices between the two of us, there's going to be upside or all around that, we think. How do you get maximum benefit out of your fluid ends? And how do you get massive benefits out of your power ends, things like that? So it's just rich with opportunity. But we're not compelled to do this deal around cost synergies. There's going to be some easy ones around supply chain and some of the things to deploy with their fleets we have in stock in our organization that can make that easy. We'll do the back office, right, payroll and some of the comp and ben things that are easy. But this is not the same kind of integration that we had to do with C&J. So we're excited about it being easy to integrate. And I'm glad you asked that question.

Great, that's very helpful. I appreciate the color. And then maybe a question for Kenny on getting a little more color on the CapEx side. Could you provide us where you see it falling for the second half of the year? And then just thinking about 2022, you talked about harvesting some of the investments that you made. Just thinking about a more normalized environment post the conversions that you already laid out. Maybe help us around kind of where you see maintenance CapEx being given now you have the increased CapEx per fleet, thinking about simul-frac versus non simul-frac. Just a little bit more color and if you could provide any more concrete details around that would be helpful.

Yes, so look on CapEx, we called out that H2 is going to be greater than H1 as it relates to the NexTier fleet. We're continuing to make strategic investments in dual fuel. I just called out two additional ads in addition to the one that we made in July. We're rounding out our Power Solutions investment, and then we're taking on Alamo. So if you look at our maintenance CapEx per fleet, we've been able year-to-date, and we expect the same in H2, to be below our $2.5 million per fleet hurdle that we set. A lot of that has to do with health monitoring and even in the fact that we've been doing more simul-frac work, and that's on a per fleet basis. If you look at Alamo's fleet, it's a younger fleet. They operate primarily in the Midland Basin, which has less intensity on the equipment. So the CapEx - the maintenance CapEx per fleet for them is substantially lower than that $2.5 million. So whenever you look at NexTier, most of the strategic investments that we made in 2020 and 2021 will be wound down. There'll be some fleet enhancements that we do on the Alamo fleet that I mentioned earlier. Those will be just converting Tier 4 to Tier 4 DGB, so less CapEx. So we see NexTier as being significantly less CapEx as it relates to the strategic side. I think on the blended side, we'll have reduced maintenance CapEx per fleet. And we plan to just harvest the cash flow and put the cash back on the balance sheet that we're paying for Alamo.

Got it. Very helpful. And then just one more, if I could sneak it in. Any updates around your eFrac offering, some of the field trials that you've been announcing? Any update there? And then I know you're also doing a direct drive solution that you've been investing in. Just any color around that, just kind of where that is versus the eFrac side?

So good question. We're still out there and doing some selective field testing of our eFleet pump. Right now, as we speak today on a high line power test, the solution around eFrac is always going to be around what is the best, most commercially effective power source, the turbines versus our gen sets that burn gas with Caterpillar-type engines, or high line power. All the customers are looking at all three of these simultaneously, and each has a little opportunity set. So we're still in the process technically of proving all of that out. We're in good shape. Everything - we like the way - technically, everything is sorting out. Now it is a commercial solution around getting a line of sight to return on investment. I think in - I think sort of the story in eFrac in general, our direct drive pump system is - was also used in a field test most recently, but we do not have a contract for either of those two at the moment. But we are in discussions for many different opportunities around it for 2022-type application.

Got it. Okay, great. Thank you very much.

Thank you.

Thank you. And the next question comes from John Daniel with Daniel Energy Partners.

Hey guys, good job on the deal. Robert, just one question. It's more of a - sorry, a real big picture, but to those who say that the Tier 4 dual fuel is just simply the bridge to electric and direct drive solutions, do you sense that is the view of some of your customers?

Look, I think that everybody is still trying to disclose what the ultimate destination looks like largely about the discussion I was just having around a power solution. But I would say, no matter what the aspirations are around eFrac, for example, if you've got 250 fleets in the market, I think you know the count of eFleets today, it's a very small portion of that we had highlighted in the Investor Day. But if we were to go to - if the market wanted to go to electric immediately, it would be billions of dollars required to deploy those fleets. So I think commercially, the market has to change a lot. And I would argue that there's still some testing going on that's actually measuring the emission rates around all the different type next-gen solutions. And one thing we believe is that, for sure, Tier 4 dual fuel is in the sweet spot of all of those factors. And how long will that be? I would say, I think it will be for a long time. I think what happens on the fleet attrition is going to come out of diesel on the low end. And you fast forward a number of years and we get into a point where the fleet attrition on Tier 2 diesel, maybe then the investment around electric would be more prevalent.

Okay.

That's my view on it, John.

Fair enough. And then last one, you guys have done a good job of jumping ahead of the peer group in terms of the proportion of a fleet that's Tier 4 DGB. I'm just curious if you could tell us today, if you decided to go to fleet 2022 and wanted to conversion, what's that lead time to get the Tier 4 DGB engines right now?

Well, I think that you can only - we can only convert what's in the market. But if you had to go, I think, and try to go buy Tier 4 engines, I mean there's not an inventory right now. I think it's like in the neighborhood of, say, 0.5-year, four, six months before - if you try to make a big order, I think before you can get to engines, then you have to begin the process of building out for the assemblies.

And John, I would just add, we're going to be receiving pro forma significant amount of Tier 4 pumps. So for us, really, it's just about getting the kits to convert those Tier 4 to Tier 4 DGB. So we also have some acceleration there on the ability to get ahead of anything that comes out in the market.

Okay. Appreciate it. Thank you very much.

Thanks.

Thank you. And the next question comes from Waqar Syed with Altacorp Capital.

Thank you. This is Waqar Syed from ATB Capital Markets. Just a quick question. In your numbers reported in the back of the press release, you mentioned that there was a loss on equity security investment of $1.3 million. Could you maybe elaborate what stocks were you owning? And what's the strategy around owning public company equities?

Yes. Look, Waqar, I appreciate the question. So look, during the COVID downturn, we had a unique opportunity to trade some aged and potentially bad debt receivables for stock. And we did that. And that investment just moves with the market. So we fully recovered the value of those receivables, and we still have on the balance sheet some of these - remaining.

Okay, great. That's answers my question. Thank you very much.

You're welcome.

And the next question so far from Stephen Gengaro with Stifel.

Thanks for taking the couple of follow-ups just quickly. Kenny, do you have a sense for incremental EBITDA per quarter or per year from the Alamo assets?

Well, we called it out in the presentation, Steve. I don't know if you've seen it. But if you just take the earn-out, which we believe is indicative of the future earnings potential for Alamo, the earn-out starts at $80 million.

No, no. Sorry, I meant to ask for the depreciation, just D&A.

Depreciation, yes look, a lot of that will shake out with the purchase accounting. But today, their D&A is somewhere around $48 million as provided by their company financials. But obviously, there will be some purchase accounting as we roll that in. But that's where they're at today. Sorry for that, Steve.

Thank you. And one other quick one on the pricing side. We've heard from a couple of your competitors already, and it just has sounded like pricing has been kind of slow to develop. And you had mentioned how sold out and how high the demand is for some of the higher-end assets. Do you think - is any of this related to sort of the timing of the public E&Ps, maybe ramping spending next year or the urgency that they have? Because it feels like the high-end assets should be seeing better pricing momentum. But I keep hearing it hasn't quite materialized. I'm just curious your take on sort of the dynamics there and how you think it evolves.

Well, I think if you look at what has occurred from the bottom of the total response to the big freeze period we went through and the whole process of deploying assets and people, I think it's a process that's playing out. Price begins to move. And our customers' balance sheets are being healed up a lot. They're generating a lot of cash. And I think they can understand the situation that we're dealing with around inflation as well as the underperformance of our sector in general on frac and the need for price. So I think that we're seeing it, but we've got to have more. And I think that - I'm pretty sure I could speak for companies on that, and I hope to see that, that happens. We - but I think that our customer base was more back half-centric on their plans to return. It's been pretty well-known in the market that the privates move quicker in the first half of this year with rig count and frac deployment versus the more publics. And that's playing into our favor in the back half of the year. So as we get reestablished, I think the opportunity to begin to change price on the reopeners that you have of many of your agreements is on the increase.

Great. Thank you.

Thank you.

And that does conclude the question-and-answer session. I would like to turn the floor to Mr. Robert Drummond for any closing comments.

Thank you, Keith. Look, I just want to end up, I think, to say thank you to all the NexTier employees and for the dedication to our customers and our company and to their collective safety as we've been ramping up in activity. And I also want to publicly welcome the Alamo people to our team. We're very excited to have Joe and that management team joining our group. These guys are very good. We're going to make a great team together. So thanks very much for participating in today's call.

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