NexTier Oilfield Solutions Inc.

Good morning and welcome to the Next-Tier Oilfield Solutions Second Quarter 2021 Conference Call. As a reminder, today's call is being recorded. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. For opening remarks and introductions, I would like to turn the call over to Kevin McDonald, Chief Administrative Officer and General Counsel for next year. Please go ahead, sir.

Thank you, operator. Good morning, everyone. and welcome to the Next Tier Oilfield Solutions Earnings Conference call to discuss our second quarter 2021 results. With me today are Robert Grumman, President and Chief Executive Officer, and Kenny Pichu, 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 calls include statements that speak to the company's expectations, outlook, or predictions of the future, which are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties, many of which are beyond the company's control, which could cause our actual results to differ materially from those expressed in or implied by these statements. We undertake no obligation to revise or update publicly any forward-looking statements, except as may be required under applicable securities laws. We refer you to next year's disclosure regarding risk factors and forward-looking statements in our annual report on Form 10-K, subsequently filed quarterly report 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 NextYear.

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 next year, 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 impacting 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 simulfrac fleets, and exited the corridor with 21 fleets deployed. As noted, late in the corridor, we also accelerated the fleet activation cost for two more Tier IV dual-fuel simulfrac fleets to be deployed into Q3. It was worth noting that simulfrac fleets can require as many as double the number of pumps of a normal zipperfrac job. Against this growing base of activity, total revenue grew 28% to $292 million. Our wireline, cementing, and coiled tubing services lines continued to improve margins and increase 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 costs 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 continue 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. Shell 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 into 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 next-year employees across our product lines 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 frac intensity associated with simulfrac 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 Simulfrac 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 Simulfrac, 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 are 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 in frack schedules, which, combined with continued increase in frack 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 demands, created transitory startup costs and challenges in Q2. While Next Year has been a leader in deploying the simulfrac 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 SimulFract Stage Pairing. This technique reduces the operator's cost per barrel by taking existing drilling data, analyzing the downhole rock properties, and matching the four or six wells across the simulfrac pad to create optimized pair for every simulfrac 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 Simulfrac processes and workflows being utilized today. Simulfrac stage pairing will help connect our extensive Simulfrac operational experience to real reservoir properties. We believe that this technology will allow NextTier to deploy a more cost-effective solution that delivers higher production to the operator. Associated with the growth in frac intensity, or incremental cost and enhanced maintenance requirements for some of the equipment. In Q2, we tested the boundaries of our Simulfrac experience and pushed to achieve rates higher than we had previously reached, which we underestimated in our Q2 commercial agreements. We are addressing these issues with our customers as we exit in Q2 and enter Q3. Compounding the financial impact of concentrated growth in the second quarter was an isolated fire-related incident on one of our fleets, 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 well site. 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 cost incurred as our equipment and employees are deployed have 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 simulfrac 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 have to and beyond. We believe we are 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 next year for the eventual market recovery. With the recovery underway, we are positioned with one of the industry's largest fleets of tier four 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 to consume their own field 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 Next Hub digital infrastructure and MDT control systems, has allowed Nextier to reduce overall well cost improve well site ESG performance, and optimize completions to drive increased production. However, we believe we have only just begun to scratch the surface of 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 in development and immediately deliver a best-in-class customer portal to each of our frack 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.