NexTier Oilfield Solutions Inc.

And welcome to the next year Oilfield Solutions second quarter 2023 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 Mike Zabella Vice President of Investor Relations for NextTier. Please go ahead, sir.

Thank you, operator. Good morning, and welcome to the NextTier Oilfield Solutions Earnings Conference call to discuss our second quarter 2023 results. With me today are Robert Drummond, President and Chief Executive Officer, Kenny Pichu, Chief Financial Officer, Matt Gillard, Chief Operating 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, 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 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 10Q and other securities and exchange commission filings. Additionally, our comments today also include non-GAAP financial measures. Additional details and a reconciliation of the most directly comparable GAAP financial measures are included in our earnings release for the second quarter of 2023, which is posted on our website. With that, I will turn the call over to Robert Drummond, Chief Executive Officer of NextEar. Thank you, Mike.

And thanks to everyone for joining the call today. The second quarter was another strong quarter for next year. Consistent with our guidance, revenue was moderately higher sequentially, resulting in improved EBITDA and operating profits. And we delivered another quarter of strong free cash flow and a high return on capital. Our fleet activity levels remained resilient even as the broader completions market temporarily slowed. demonstrating the value of our well-side integration strategy to both next-tier and our customers. The performance is a testament to the strength of the team we've built at next-tier, and I could not be prouder of the way we continue to deliver through a challenging environment. Our commercial strategy aligned us with like-minded customers that strive for excellence and appreciate the value that we create. And our operations team delivered another efficient quarter. This combination will serve us well at all points in the cycle. From our customers' perspective, Nextier controls a critical path to maximizing their returns. Their trust in our team to deliver has helped us retain customers even as those same customers have slowed spending, with several key customers choosing a Nextier fleet over other service providers. In the second half, We believe we enjoy a strong competitive position relative to the peer group. The previously announced merger with Patterson UTI will allow us to apply our strategy across a larger asset base, including utilizing our power solutions to accelerate the transition to a more fuel efficient and emissions friendly fleet, while also enhancing our digital capabilities and growing our well site integration addressable market. For the fourth consecutive quarter, we generated an annualized return on invested capital of more than 35%, and free cash flow was very strong again. Adjusted net income was $158 million for the quarter, and our adjusted diluted earnings per share of 68 cents was up 3% from last quarter. Total revenue of $945 million was up 1% sequentially and was 12% higher than the same quarter last year. We delivered the highest top line in the company's history, and we once again saw growth on another modest increase in pricing relative to the first quarter, even as our active fleet count exited Q2 lower than where it started. Adjusted EBITDA of $234 million was 3% higher sequentially and up 41% from the second quarter of last year. We saw strong incremental margins and improved our adjusted EBITDA for the ninth consecutive quarter. And we again operated in a very capital efficient manner. We generated strong free cash flow of $128 million despite making the final Alamo earn-out payment during the quarter, which negatively impacted free cash flow by $37 million. Our CapEx budget was also weighted toward the first half, and we anticipate free cash flow will remain strong in Q3. During Q2, we repurchased more than 2 million shares of stock for around $18 million. In the first half, We purchased more than 8 million shares for roughly $71 million. We have $66 million remaining on our commitment to return $250 million to shareholders by the end of 2023. Given the pending merger with Patterson, we have suspended our share repurchase program, although the combined company remains committed to targeting a return of 50% of free cash flow to investors. consistent with the next-tier capital allocation strategy. Shifting to the macro, overall U.S. land completion activity slowed as Q2 progressed, following the decline in the U.S. rig count that started late last year. In natural gas basins, activity has so far played out as expected, and Marcellus has proven to be relatively resilient while the Haynesville is taking the brunt of the activity decline. Natural gas basin activity is already down almost 20 fleets from the peak, and we think natural gas activity is now approaching the trough. Already, the Henry Hub natural gas forward strip has started to reflect the reality that activity will need to move higher from here to ultimately fill the growing global call on U.S. natural gas. The Haynesville has already seen a large increase in drilled but uncompleted wells, which we believe indicates producers are preparing to add completion activity by next year. In oil basins, completion demand has softened, albeit only modestly so far, while in the near term there has been more noise than we previously expected in the oil basins. Our views over the long term remain largely unchanged. Despite near-term economic uncertainty, all signs point to higher global oil demand over the coming years, and accordingly, we believe U.S. land oil activity will need to move higher than current levels as production will need to increase. We see the availability of frack fleets once again as the bottleneck to U.S. oil and natural gas production growth by as soon as 2024. In the near term, We think the US land recount will likely bottom this summer with industry frack activity potentially down further from current levels with a trough likely coming later this year. Importantly, we anticipate trough utilization will be significantly higher than the industry has traditionally experienced, a strong indication that the longer term uptrend for the industry is still intact. As we've said previously, our customers are looking through commodity volatility more than they have in the past, a positive for next year that should help reduce the historical volatility in our sector. The scenario in 2022, where frack fleets were in short supply, is still fresh on our customers' minds. Many are hesitant to give up high-performing crews given the positive early view for 2024 frack supply and demand. We believe the call on U.S. land, oil, and natural gas production in 2024 and beyond means industry demand could return to levels we saw earlier this year. Considering new-build frac equipment has likely been insufficient to fully replace fleet attrition, we see a scenario where demand for our services could once again exceed supply by next year. Against this positive long-term macro backdrop and consistent with what we've previously said, if demand softens in the near term, we will choose to stack or redistribute horsepower rather than work at pricing that results in subthreshold returns. During Q2, we idled two frac fleets and redistributed the horsepower to our remaining fleets with opportunities to optimize horsepower levels across all fleets given the high intensity required by the modern frac job. We could idle up to three additional fleets in Q3. We continue to run our business on returns and through cycle free cash flow and not market share or short-term EBITDA targets. Our balance sheet is healthy, with strong free cash flow expected again in Q3, and we will not accelerate the depreciation of our quality assets just to keep working in the near term. Instead, we will use any downtime as an opportunity to invest to fully maintain our fleet and prepare for what we see is a strong recovery in 2024. Our customers are expressing an appreciation for our efforts to strengthen the U.S. land oilfield services industry, which will help U.S. land maintain its position as a low-cost global producer. Our customers are choosing to remain with NextTier due to the value created by the fuel cost arbitrage from our integrated natural gas powered model, which is enhanced by our power solutions CNG fueling business. Our partnership matters, and given the strong setup into 2024, many customers see no reason to make a change today that could disrupt our extremely safe and efficient operations in a recovery. This is not to say that we do not expect to see an impact from the industry slowdown, but however, we have so far been more resilient than the industry average, and we expect that will remain the case. Just over a month ago, you know, we announced that we had agreed to merge with Patterson UTI, another leader in the U.S. land oilfield services market. The combination allows both companies to expand our product offerings and drive value for our customers with Patterson's premier U.S. land drilling franchise complementing the combined company's premier U.S. land completion service product portfolio. We believe the merger of these two great companies has the potential for significant value creation for our shareholders with enhanced scale and $200 million in expected synergies within 18 months after the merger closes. Applying our successful well-side integration strategy across a larger asset base should lift the performance of the entire enterprise. Standalone, each company was already operating a disciplined capital allocation strategy, and the increased scale of the combined company should allow us to tap into the larger universe of potential investors that we believe will appreciate our shared focus on free cash flow, and shareholder returns. And the data analytics capabilities of both companies should not be underestimated. Over time, we are confident that we can monetize the combined drilling and completion data to drive further value creation. The new company will be a leader across the US onshore market, positioning us to more effectively allocate capital and accelerate shareholder returns while also investing in next-generation technologies that should create a sustained competitive advantage through the cycle. Since we announced the merger, Patterson has also announced another acquisition that is highly complementary to their drilling business. Patterson's acquisition of Otero Drill Bits follows a very similar playbook to our integration strategy. In our view, Otero offers mission-critical products and processes around the core asset, in this case, the drilling rig, that can be leveraged with a fully integrated package to improve the process and create value for both the service provider and the customer. In addition, Ulterra's international exposure also offers another potential path for next-tier shareholders to benefit from an expanded geographic footprint. We believe the Ulterra acquisition will further strengthen the combined company and Next Tier shareholders will greatly benefit from this transaction. On our prior conference call, we introduced Next Tier's Chief Operating Officer, Matt Gillard. Matt has played a crucial role in the success of Next Tier since he's joined the company, and he will continue in his role as a leader of the combined completion franchise post-merger. So with that, I'm going to turn the call over to Matt.