NexTier Oilfield Solutions Inc.

Good morning, and welcome to the Nextier Oilfield Solutions second quarter 2022 conference call. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. For opening remarks and introductions, I would like to turn the conference over to Mike Sabella, Vice President of Investor Relations for Nextier. Please go ahead, sir.

Thank you, Operator. Good morning, and welcome to Next Tier Oilfield Solutions earnings conference call to discuss our second quarter 2022 results. With me today are Robert Drummond, President and Chief Executive Officer, Kenny Pichu, Chief Financial Officer, and Kevin McDonald, Chief Administrative Officer and General Counsel. 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 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 filings. Additionally, our comments today also include non-GAAP financial measures. Additional details and the reconciliation to the most directly comparable GAAP financial measures are included in our earnings release for the second quarter of 2022, which is posted on our website. With that, I will turn the call over to Robert Drummond, Chief Executive Officer of Next Year.

Thank you, Mike, and thanks to everyone for joining the call. Macro conditions for U.S. frac completion services strengthened considerably since our last earnings call. We believed the frac market was already nearly sold out at the start of Q2, and since then, frac demand has taken another move higher. It's clear to us that record high industry-wide utilization is restricting our ability to keep up with completion demand. Simply put, we believe that the availability of fracked fleets is one of the main bottlenecks impeding U.S. land, oil, and natural gas production growth for at least the next 18 months, which is a very bullish factor for extending the length of this cycle compared to previous ones. We believe there's a significant pinup demand for our services due to the near sold-out nature of hydraulic fracturing services. Capital constraints coupled with supply chain inefficiencies are inhibiting our industry's ability to increase the supply of frac fleets to match demand. In addition, significant underinvestment over the last several years coupled with increased operational intensity that is driving wear and tear on this equipment is further limiting our ability to respond to demand. We believe that it could take the industry several years to correct this imbalance, likely extending the current favorable pricing environment beyond 2023. While we remain optimistic on FRAC fundamentals, we cannot ignore the emerging concerns in the economy with high inflation and growing talk of global recession. As a result of a structural production deficit brought on by years of global underinvestment, high energy prices are a core driver of the current inflationary environment. These structural issues will need to be addressed before commodity price inflation can ultimately be brought back under control. We believe U.S. shale is well positioned to help fill this global supply deficit, signaling a continuation of strong well completion demand over the medium term. We firmly believe that affordable energy is critical to a fair and prosperous society and should be a top consideration when contemplating global social goals. Though there are no quick fixes to the current structural supply deficit, a more reliable energy policy is badly needed to help society avoid potential worst case scenarios. Importantly, we believe U.S. Shell must play a role in solving the world's energy needs and ensuring future energy security. So now to our second quarter results. For next year, our second quarter improved significantly from Q1, and with a strong June, we exceeded both our initial guidance and our operational update from mid-June. It was a record quarter for next year both in adjusted EBITDA and adjusted net income per share. Adjusted net income of $99 million was a record for our company, as was adjusted net income per diluted share of 39 cents. Our sequential revenue was up 33%, and for the fifth consecutive quarter, we grew our revenue over 25%. significantly outpacing overall industry frac activity. Our revenue was up 189% compared to the same quarter last year. We did not deploy any additional horsepower in Q2, and we don't expect to deploy any additional horsepower for the remainder of 2022 while continuing to deliver growth. As mentioned, total revenue grew 33% sequentially to $843 million. Revenue growth outpaced our initial expectations with both gross and net pricing accelerating faster than we previously anticipated. We also saw efficiency gains relative to Q1 as a strong demand environment and a loaded frac calendar overtook the prior quarter's seasonal and transitory disruptions. Additionally, We continue to gain market share with our well site integration strategy, adding value for next tier and our customers. We expect revenue to grow eight to 10% sequentially in Q3, despite not adding additional horsepower. We doubled our adjusted EBITDA from $83 million in Q1 to $166 million in Q2, and increasing from $5 million in the same quarter last year. We achieved strong adjusted EBITDA incrementals of 40% on our top line growth, with our adjusted EBITDA margin increasing over 650 basis points compared to Q1. We see further margin expansion in Q3. And for the second consecutive quarter, we achieved positive free cash flow. Our free cash flow generation grew considerably in Q2, and we expect free cash flow generation will improve again in the second half. The recovery for the frack industry is a function of the strengthening market backdrop. Our ability to thrive in this strong market is a function of our people, and next year has one of the best teams in the business. The resilience of our people does not go unnoticed. many of whom work in high intensity environments and extreme weather conditions. Next year's top priority is keeping our employees safe. In Q2, we forfeited some potential efficiency upside to ensure our employees stayed safe in the triple digit summer heat. We will continue to tell our employees to adapt their pace to prioritize their safety in line with these conditions. This is just the right decision for next year and our customers. Net pricing recovery accelerated in Q2, a function of strong demand and a near sold-out frat market. The full impact of the most recent round of pricing negotiations won't be seen in our reported results until the beginning of 2023. Even then, net pricing will still average over 15% below pre-COVID levels. Meanwhile, the quality of our technology deployed has improved dramatically since pre-COVID. We see a continued path to recapture all COVID-related pricing concessions, which combined with our latest digitally enhanced lower cost operating model would result in improved profitability and margins relative to prior cycles. As we clearly laid out in our June update, We believe profitability and margins this cycle are set to outperform previous cycles. Our counter-cyclical investments to increase well site integration and convert more than half of our fleet to utilize natural gas are significantly enhancing our returns. In short, we see improved cycle dynamics compared to prior cycles, and we are very confident significant upside remains even from expected Q3 levels. At our March investor day, we highlighted that our integrated service platform could add $7 million per year of value on a fully integrated completions well site. Our integrated services platform continues to gain traction across our FRAC footprint, and we still have significant runway to expand our market share in these services. Over the past several years, we have divested non-core assets and businesses that are not suited for advancing our integration strategy and used the proceeds to accelerate our well site integration capability in the most capital efficient manner. Fitting this theme, we are divesting our coal tubing assets in an all-cash transaction valued at approximately $22 million. While we see value in participating in the coal tubing market, we see an opportunity for this capital to be repurposed within our WellSight integration platform. We are pleased with the performance of our core businesses, and the divestiture of our core Cuban assets will not have a material impact on future operating results. If you remember, one year ago we announced our agreement to acquire Alamo, and this transaction has been a great success. Alamo is nearly fully integrated with the next tier team, The business has operated with minimal interruptions and our teams have learned a tremendous amount from each other. We're very pleased with the operational and financial performance of these integrated enterprise as we hit the one year anniversary. We are also very happy to say that the retention of Alamo's customer base has been a success. With respect to Alamo joining next year, the whole has proven to be truly greater than the sum of the parts. This transaction accelerated our winning strategy and aligned with our approach of allocating capital to high return investments. In the case of Alamo, we used our strong and liquid balance sheet to convert more of the combined fleet to be powered by natural gas in an extremely capital efficient manner. This transaction also made us the number one pressure pumper in the Permian Basin by active fleet count, a title that we still carry today. At NextTier, we have a history of adding value through opportunistic M&A transactions. Given the state of the oilfield services market today, with a strong multi-year outlook and limited capital dollars, we believe we are positioned well as an attractive counterparty for potential future transactions. Our strong and liquid balance sheet is a huge strength for us, especially at this point in the cycle. We are excited by the industry dynamics entering Q3. With strong demand from a healthy and profitable customer base and record-high frack fleet utilization, seasonally, the third quarter is typically the strongest quarter of the year, and we expect this historical trend to continue this year. Our fleet today is sold out, and we do not have plans to deploy any additional horsepower until we activate our first electric frack fleet early in 2023. Demand and pricing momentum remains strong, and we are already having conversations with our customers on their 2023 plans much earlier than the normal cadence. For next year, we're making final plans today to optimize our FRAC calendar for 2023 by aligning with the most efficient customers who value integration. The commercial landscape also provides opportunities for reoccurring discussions on market pricing and ensures inflationary pressures are passed through. Though still early, we are nearly booked for 2023 and are very excited about the outlook. As announced, when providing our operational update in late June, our first electric fleet will be deployed early in 2023. Our view that frac capacity as one of the main bottlenecks restricting U.S. oil and natural gas production growth, gives us conviction in this capital commitment. Nevertheless, even with this conviction, as well as the attractive return profile we see for this investment, this was not a decision we took lightly. We remain firmly committed to capital discipline, and we fully intend to balance potential investments in high-return projects against our top financial priority for sustainable free cash flow through the cycle. We continue seeing a future for FRAC moving more and more towards natural gas power. We intend to continue to move our fleet in that direction responsibly over time, and our leading position in natural gas powered equipment will help us profitably reach this long-term goal while still generating sustainable free cash flow. Our disciplined approach to investing is already yielding strong benefits. We expect to see accelerating free cash flow in the second half, driven by both higher profitability and less impact from working capital headwinds. We believe we are positioned to generate free cash flow in excess of $225 million in 2022, and this is an improvement from our late June update as we gain greater visibility in our second half outlook. working capital requirements, and supply chain inflation. We also see significant upside to free cash flow again in 2023. For 2022, we continue to plan to use this free cash flow to bolster our liquidity and reduce net leverage, driving quickly to our ultimate capital structure goal of zero net debt, which we believe we can achieve early in 2023. We will remain flexible with our capital allocation strategy thereafter, prioritizing maintaining a strong and liquid balance sheet, affording us significant optionality through the cycle, and providing opportunities for continued investment in the highest return projects, including accretive M&A transactions. The market backdrop for FRAC is better than it's been in years. Demand for our services is strong, And given the capital and supply chain constraints, we see a multi-year up cycle unfolding for U.S. land well completion services. Our prior fleet enhancing counter-cyclical investments has us well positioned to capitalize on this cycle with expanding returns and strong free cash flow. I'll now pass the call over to Kenny to discuss the second quarter results in more detail.