NexTier Oilfield Solutions Inc.

Hello, and welcome to the Next Tier Oilfield Solutions Third Quarter Earnings Webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist for pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note, today's event is being recorded. I now would like to turn the conference over to Michael Sabella, Vice President of Investor Relations. Mr. Sabella, please go ahead.

Thank you, operator. Good morning, everyone, and welcome to the Next Tier Oilfield Solutions Earnings Conference call to discuss our third quarter 2021 results. With me today are Robert Drummond, President and Chief Executive Officer, Kenny Pichu, Chief Financial Officer, and Kevin McDonald, Chief Administration Officer at General Counsel. Before we get started, I would like to direct your attention to the forward-looking statements disclaimer contained on 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, and 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 publicly update any forward-looking statements except as may be required under applicable securities laws. We refer you to next year'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's 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 third quarter of 2021, which is posted on our website. With that, I will turn the call over to Robert Drummond, Chief Executive Officer of NextYear.

Thank you, Mike, and thanks to everyone for joining the call. Before we begin, I want to say how excited we are to have Mike join a team. Many of you already know Mike Sabella from his extensive background working with oil and gas investors in both equities and fixed income. Not only will Mike be a valuable addition to our investor base, but his input will also be key to our executive management team's decision-making process as we develop and execute our strategy. Mike, welcome aboard. This last quarter was very important for next year. We completed the strategic acquisition of Alamo Pressure Pumping making Next Tier one of, if not the, premier well completion service provider in the Permian Basin. Combining the Next Tier and Alamo fleets expands what we believe was already an industry leading supply of Tier 4 natural gas powered frac equipment, accelerating our low cost, low carbon strategy. We are excited about the future of the company and the Alamo team is already beating the lofty expectations we set for the transaction. In addition, our legacy next-year business performed very well with another quarter of above-market revenue growth helping to deliver significantly improved profitability. We believe we are in a prime position to capitalize on what looks to be a strengthening market for U.S. land activity heading into 2022 and beyond. Before getting more into the future of next-year, I'd like to review our third quarter and ongoing results. Industry-wide, well completion activity continued to trend upwards in the third quarter relative to the second quarter, adding to the strong activity gains we were achieved earlier this year. And for two quarters in a row, legacy next-year revenue outperformed the overall market growth rate as more of our legacy customers returned to work. As planned, At Legacy Next Year, we deployed the net equivalent of two additional fleets during the third quarter. After accounting for the formation of a Simulfrac fleet, we exited the quarter with 22 active fleets, and consistent with the plan at the time of the acquisition, Alamo deployed its ninth fleet by the end of the third quarter. The combined company exited the third quarter with 31 deployed fleets including 29 domestically, comfortably making Nextier a top three pressure pumper in the U.S. And importantly, we believe we are the largest provider of natural gas-powered, low-cost, low-carbon frack services in the market. Sequentially, total revenue grew 35% to $393 million. Legacy Nextier revenue was up 23%, with reported revenue also benefiting from the inclusion of one month of Alamo. In addition to frac, our wireline, cementing, and coal tubing product lines continue to see improved activity and overall financial performance. Our adjusted EBITDA was $28 million in the third quarter despite the impact from COVID and challenges around logistics and driver availability. I'm proud of the way the team managed through the quarter, especially in September, where we hit our exit run rate commitment of $18 to $20 million of adjusted EBITDA. We exited the third quarter with momentum and have only just started to show the earnings potential of this enterprise. With that as an overview, I'd like to share more about why we're so excited about our position in the market. We believe our integrated completion service package is a unique value proposition for like-minded customers that focus on lowering the total cost at the well site as well as lowering carbon emissions. Based on the deployed truck count, we retain our position as the largest wireline plug-and-perf business, which helps to drive efficiency in our integrated frack fleets. We are now looking to expand integrated wireline to Alamo where that makes sense. But critically, our integrated offering goes far deeper than simply pairing our pressure pumping fleets with our wireline trucks and pump down units. We are increasingly showing our customers the benefits of our next hub digital platform for innovative downhill technologies and most recently, our power solutions fueling business. Through the downturn, We have leveraged the AI-driven capability of our Next Hub to help grow our Last Mile prop-up delivery logistics business. Our Last Mile strategy is to offer customers fit-for-purpose solutions that focus on the lowest landed cost without putting our own capital at risk, and we don't invest in boxes or silos. Last Mile is not a one-size-fits-all service, as we believe it requires a flexible business model. For example, the rise in demand of Simulfrac fleets has created new challenges for last mile and logistics operations. We are routinely deploying options that deliver more product per load and offer more storage at the well site. And we've shown our customers that we can reliably deliver commodities at a competitive landed cost. Overall, we are pleased with the results we achieved in the third quarter. Even as we continue to strive to find ways for further improvement, there are several factors that helped us to gather momentum through the quarter. First, for Legacy Next Tier, the strong top line growth was the result of targeted investments we made to convert and enhance our fleet during the downturn, leading to rapid fleet deployment during the recovery. Second, and as expected, We saw a strong returning customer base during the quarter as our legacy customers returned to work. And finally, the first month of results from our latest acquisition is already having an impact on earnings. We are poised for continued improvement as we enter what we think will be a strong market in 2022 and beyond. However, getting there was not without its challenges. We've increased our headcount by almost 40% this year at Legacy Next Year alone, a monumental undertaking for any organization. Our people stepped up when we needed them most, and we truly appreciate the effort the team has put forth this year. In addition to Mike, we've added Matt Gillard as Chief Operating Officer, and Joe McKee, previously Alamo's President, continues to run Alamo. Both will be key members of the operational teams going forward. We believe we've put together a winning team here at NextTier, and we're confident our strategy will unlock underlying value for all of the NextTier stakeholders through the coming cycle. Commodity price momentum has accelerated in the first part of the fourth quarter, and many experts are predicting that a multi-year recovery is underway. And while we're not planning our business, With these most bullish outlooks in mind, it behooves us to mention that the broader market sentiment today is more optimistic than it's been in many years. The supply side remains disciplined, led by both OPEC Plus and U.S. Shell. This discipline should lengthen the cycle and smooth volatility, making it easier for us to plan and run our business for the longer term. There's no doubt that the market is improving. but our customers do remain cautious. It will take time for sentiment to fully recover from the past 18 months. Nevertheless, it is obvious that the oil and gas industry needs to increase activity to satisfy growing global energy demand. Most believe that this means global EMP capital spending needs to increase significantly from the current levels. And while we acknowledge that the energy transition is well underway, We also think there is a renewed appreciation that the oil and gas industry will need to be part of the energy solution for years to come. Next tier stands ready to do our part. Our fleet of Tier IV DGB equipment is completely sold out. A consistent message that we hear across the industry. If there was a Tier IV DGB fleet available today, the fleet could likely be put to work tomorrow at a premium rate. Next year has been on the leading edge of this transition to clean natural gas power. Customers are increasingly recognizing the opportunity that dual fuel provides to both lower emissions and realize significant fuel cost savings, a powerful combination. As we roll into 2022, we plan to allocate our fresh fleet to like-minded customers that recognize the advantages of a fully integrated approach to lowering costs and emissions. And while we are industry leaders in dual fuel, our conventional diesel fleet play an important role in our tiered service package. Next tier is a better service provider if we can offer customers multiple levels of service value at price point that match their needs. from fully integrated gas-powered completion fleets to conventional frac fleets. We continue to have meaningful capacity of idle diesel equipment that we can use to add scale if the right opportunity presents itself. Our third quarter exit was strong, and October was better still, but the second half of the fourth quarter is notoriously hard to predict. The typical seasonal headwinds from holiday slowdowns and the potential for budget exhaustion will no doubt impact the frack industry just as it does every year. But commodity prices gives us confidence that the seasonal factors could be more subdued relative to previous years. Nonetheless, as always, there's a fair amount of uncertainty in the fourth quarter and into year end. we are prudently preparing for whatever our customers decide. Consistent with what we have said previously, we're making final preparations at Legacy Next Tier to deploy another Tier 4 dual fuel fleet in the U.S. late in the fourth quarter. We will also be deploying an upgraded Tier 4 dual fuel fleet via Alamo operations early in the first quarter. We remain committed to capital and pricing discipline and beyond this, we do not anticipate deploying additional fleets in the first half of 2022. Demand and pricing are showing signs of further improvement and customer conversations have been increasingly constructive. Our current scale puts us in an enviable position where we do not feel that we need to chase suboptimal profitability work and will instead focused on customers looking for dedicated integrated completion fleets in 2022. Many of our fleet additions over the past year have been in response to our traditional customer base returning to work. We will focus our efforts on deepening these existing relationships while also aligning with new like-minded customers as we continue finding ways to make our operations safer and more efficient. We are starting to see real progress on the pricing front, albeit from a very low base. We are encouraged by the conversations we are having with our customers. So far, the net gains have been small and have only had modest impact to our reported results. But broadly, we echo the positive pricing sentiments we have heard from our peers throughout the earnings season. With our efforts around integration, and expanding scope at the well site, as well as our structurally lowered cost base, we are building the company to be able to achieve prior cycle margins without having to recover all the previous pricing concessions that we've made since 2018. We expect to make significant progress on this as we move into 2022. Like the rest of the industry, We are dealing with our own inflationary cost pressures as prices on everything from steel, chemicals, sand, trucking, and labor are all moving higher. So far, our team has done a great job of working with customers to immediately pass on those increases as they come through. We are simply not in a position to absorb cost inflation at our current pricing levels. Prudently, As we make plans for our business over the next year, we must assume inflationary factors will continue to impact our cost structure well into 2022. Our customers understand that we need to see real pricing traction beyond cost inflation as we head into next year. We are confident that tightening supply and demand dynamics in the frack market should support strong net pricing gains as the cycle unfolds. Regarding our operations in Saudi Arabia, we recently came to terms with our partner, Nessar, to divest our unconventional freight fleet in the region. Over the past two years, the partnership has successfully worked together to increase the efficiency of multistage completion operations for the customer to a level that now rivals that of U.S. land. We think the outcome has been a resounding success for all parties involved. And our terms always contemplated an exit option that culminates with the sale of the unconventional equipment to NESR. And we're executing that option in the fourth quarter. We leave our partner and our customer in a good position to continue operating at the new efficiency level with an excellent training program and state-of-the-art workflows. For next year, we will redeploy our capital and people back to the U.S. land to help manage our growing operations here in the most capital-efficient manner possible. We still remain in the Middle East with Nassar through a consulting services agreement on a conventional frac fleet, and we stand ready to grow our presence in the region for work that meets our capital return threshold. Natural gas-capable equipment is a significant and growing portion of our fleet, and this equipment is at the heart of our low-cost, low-carbon strategy. Lowering emissions for our customers has never been more important. But equally as important to executing our tiered pricing strategy is that these fleets offer significant fuel cost savings, even at current commodity prices. Safe and reliable resources of natural gas are critical to maximizing the emissions and fuel savings benefits of a Tier 4 dual fuel fleet. And to that end, back in July, we successfully launched our power solutions fueling business in the Permian Basin. Our initial investment was sufficient to blend and deliver enough compressed natural gas, CNG, and field gas to power our integrated frac fleets, and we were sold out in the fourth quarter. The initial results are great, and our proprietary integrated solution is increasing gas substitution rates by 20% or more relative to prior results. This is a clear value proposition for both our natural gas-powered frac fleets and for this new and evolving business model. We invested counter-cyclically to upgrade our fleet without adding capacity to the overall market. Further, the Alamo acquisition accelerated that strategy, giving us a lengthy runway of Tier IV diesel equipment that can be upgraded much more efficiently compared to the cost to convert Tier 2 equipment to Tier 4 dual fuel. Lengthening supply chain delays and rising inflation could create issues for peers if they decide to undertake a similarly intensive process. Equipment quality is core to our execution, and the capital and acquisition decisions we've made over the past two years are the foundation for future profitable growth. We skated to where we thought the puck was going to be, and we were right. As part of our integrated approach, we are constantly looking for ways that we can use technology to add value to our partnership with customers. And to that end, during the third quarter, we successfully completed our first major project using the proprietary IntelliSTEM frac optimization system. As part of this innovative process, Nextier deploys Selexa's Carina system, which uses a fiber-equipped sensing wireline cable to monitor fracture performance in real time, allowing us and our customers to alter completion design and maximize well productivity. Nextier's dedicated wireline fleet and our NextHub Digital Center make us natural leaders for the deployment of this new technology. Next year remains committed to disciplined growth during the coming cycle, and we are extremely focused on generating strong free cash flow in 2022. We will enter next year with a high quality fleet of natural gas powered equipment, and our upgrade program should largely be completed by the end of 2021. We do see some attractive growth opportunities to expand our power solutions business, but nonetheless, free cash flow generation is a priority starting next year. Now, before I turn it over to Kenny, I wanted to give an update on the acquisition of Alamo, which we closed at the end of August. While it has only been just over two months, so far the combination is playing out better than we had hoped. The Alamo team is delivering at a high level and, as promised, continues to offer its exceptional pre-acquisition service model to our customers. Alamo's deep customer relationships were complementary to Legacy Next Tier. These relationships give us a sizable footprint in the Midland Basin, where we see further opportunity for growth. According to third-party sources, combined, we are now the largest completion company in the Permian Basin as measured by current active fleets. Critically, Alamo's equipment is highly compatible with our Next Hub digital solutions, which should help lift Alamo's already strong financial performance. In addition, we are already on track to surpass the $10 million of synergies we originally expected to achieve from the transaction with growing confidence that we can get up to $15 million run rate of annualized cost and capex energies by the second quarter of 2022. We are excited about the future and next year. The oil and gas markets are improving and confidence is growing amongst our customers. We've used the past 18 months to transform the company to be ready for what we knew was an inevitable recovery. And with the recovery upon us, We're ready to deliver on what we promised. I'll now pass the call over to Kenny to discuss the third quarter financial results.