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Edited Transcript of FRAC.N earnings conference call or presentation 7-May-19 12:30pm GMT

Q1 2019 Keane Group Inc Earnings Call

HOUSTON May 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Keane Group Inc earnings conference call or presentation Tuesday, May 7, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gregory L. Powell

Keane Group, Inc. - President & CFO

* Kevin M. McDonald

Keane Group, Inc. - Executive VP, General Counsel & Secretary

* Robert Wayne Drummond

Keane Group, Inc. - CEO & Director

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Conference Call Participants

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* Connor Joseph Lynagh

Morgan Stanley, Research Division - Equity Analyst

* John Matthew Daniel

Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service

* Marc Gregory Bianchi

Cowen and Company, LLC, Research Division - MD

* Stephen David Gengaro

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst

* Thomas Allen Moll

Stephens Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning and welcome to the Keane Group First Quarter 2019 Conference Call. As a reminder today's call is being recorded. (Operator Instructions)

For opening remarks and introductions, I'll turn the call over to Kevin McDonald, Executive Vice President and General Counsel for Keane Group.

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Kevin M. McDonald, Keane Group, Inc. - Executive VP, General Counsel & Secretary [2]

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Thank you, operator, and good morning, everyone. Joining me today are Robert Drummond, Chief Executive Officer; and Greg Powell, President and Chief Financial Officer. As a reminder some of our comments today will include forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. Reflecting Keane's views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward looking statements. The Company's actual results could differ materially due to several important factors including those risks and uncertainties described in the Company's Form 10-K for the year-ended December 30, 2018, recent current reports on Form 8-K and other Securities and Exchange Commission filings, many of which are beyond the Company's control.

We undertake no obligation to revise or update publicly any forward looking statements for any reason. Additionally we may refer to non-GAAP measures including adjusted EBITDA and adjusted gross profit during the call. Please refer to our public filings and disclosures including our earnings press release for definitions of our non-GAAP measures and the reconciliation of these measures to the directly comparable GAAP measures.

With that, I turn the call over to Robert.

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Robert Wayne Drummond, Keane Group, Inc. - CEO & Director [3]

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Thank you, Kevin, and thanks everyone for joining us on the call this morning. I'd like to start by highlighting several of our key accomplishments from the quarter. First, I'm pleased with our financial performance reflecting efficiency driven top tier profitability on a per fleet basis. We generated first quarter revenue of $422 million above the upper end of our guidance and adjusted EBITDA of $64 million at the high end of our guidance. These results were primarily driven by the resolution of new business opportunities and effective cost control.

Second, we stay close to our customers and made strategic investments to keep a portion of our idle fleet staffed and market-ready. And during the first quarter we were awarded a new fleet under a dedicated agreement with an existing customer in the SCOOP/STACK. We are happy to help a partner and excited to re-enter this key Basin where we expect to jointly drive improved efficiency.

Third, we continued to run our business in a safe and efficient manner while staying responsive to and focused on our customers. This includes controlling cost across our operations and support structure while maintaining the investments required to keep our fleet fresh. Included in this is innovation through technology and techniques to drive continuous improvements. We also remained laser-focused on safety, a key differentiator for Keane, which enables us to operate for the caliber of customers we partner with and honors our commitment to our employees. We're off to a great start this year. We are managing risk and the well-being of our stakeholders even better than our industry leading performance in 2018.

Fourth, our dedicated contracting model remains intact and continues to play out as designed. We've long discussed how our dedicated model is a key differentiator and the benefit it affords to both parties. We believe these benefits have become even more visible as we're now seeing the relative performance delineation for Keane versus the market including the top tier profitability per fleet. Our partnerships enable improved completion efficiency as demonstrated by our first quarter performance where our combined frac and wireline completion crews, improved efficiency on a sequential basis. We are pleased with our current customer portfolio. We have been proactive to secure committed work and provide a platform for executing on safety, efficiency, and continuous improvement.

As part of our efforts to constantly evaluate additional partners that are a good fit for our dedicated model, we're excited to have recently brought on Richard Vaclavik as Chief Commercial Officer of Keane. Richard is an industry veteran having spent more than 3 decades at Halliburton and brings invaluable experience and customer relationships to our team. And finally we continue to believe in the industrial logic of consolidation. We will remain opportunistic in pursuing additional strategic consolidation while maintaining a disciplined approach on value, fit and maintaining the strength of our balance sheet.

Turning now to an operational update. Last quarter we discussed plans to enter the DJ Basin with a newly developed Whisper Fleet that meets local noise regulations. Customer interest remains high and we are currently taking delivery and mobilizing assets to the region. In the meantime Colorado's regulatory environment is evolving, creating some uncertainty in the region. We believe our Whisper Fleet will provide Keane with an opportunity to enter a new basin with world-class technology and we are in the process of evaluating commercial opportunities for this asset. This should provide an earnings momentum lever for the back half of this year.

Looking ahead, our strong first quarter results are providing momentum as we head into the second quarter. As producer budgets have reset, winter has passed and many of the industry's transitory issues are beginning to clear up, we echo recent comments by others that pricing for completion services appears to be stabilizing. We describe this to fewer manned fleet competing for work as the industry continues to idle fleet. This is also due in part to equipment attrition and the impact of continued increases in job intensity. Additionally we've seen an improvement in macro conditions across the industry including a recovery in West Texas Intermediate oil prices.

While we're encouraged by this backdrop, we continue to plan our business under the assumption of a relatively range bound environment. As we see here today, we have 23 fleets deployed with most of them committed for full utilization through at least 2019 providing us with visibility and a strong base-load of cash flow. Additionally we have idle market-ready frac fleet providing us the ability to quickly capitalize on upside opportunities as they arise without any additional investment. In a scenario where these incremental fleets are not deployed, we reiterate our expectations to generate more than $100 million of free cash flow in 2019 and remain committed to creating shareholder value by effectively managing our capital allocation.

With that, I'd now like to turn the call over to Greg to discuss the financials.

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Gregory L. Powell, Keane Group, Inc. - President & CFO [4]

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Thanks, Robert. Turning to our financial performance for the first quarter. Revenue totaled $421.7 million, a decrease of approximately 13% compared to the fourth quarter and slightly above the high end of our guidance driven by the addition of a new fleet during the quarter and improvements in operating efficiencies on our best performing fleets. Within our completion services segment, revenue totaled $412 million. The sequential decline of 13% was driven by the factors we discussed in our guidance last quarter including disruptions from severe weather, delays in pad readiness and reductions in net pricing.

I'd point out that revenue is influenced by job mix and we continue to be pleased with our top tier profitability performance on a per fleet basis. In addition, the first quarter included an approximately $20 million revenue impact associated with direct sourcing of sand by certain customers. For the first quarter, we operated 23 total fleets including the addition of a new dedicated agreement with an existing customer during the quarter and when factoring in white space we had the equivalent of 21 fully utilized fleets. On a fully utilized per fleet basis annualized adjusted gross profit was $16.2 million, compared to $20.9 million in the fourth quarter and in line with our guidance of between 15 and $17 million .

Revenues for our other services segment, which includes our cementing operations totaled $9.7 million for the first quarter of 2019 compared to revenue of $11.4 million in the fourth quarter of 2018. Total Company adjusted EBITDA in the fourth quarter was $64.1 million at the high end of our guidance range and compared to $88.4 million in the prior quarter. I'd remind you that the first quarter results included approximately $10 million of investment and labor and maintenance costs associated with maintaining several market-ready fleets.

We benefited from this investment as we were awarded a new fleet deployment, providing momentum to our second quarter earnings and a majority of the remaining costs have been eliminated to align with current market conditions. Adjusted gross profit totaled $84 million for the first quarter compared to $113.9 million in the prior quarter. Adjusted EBITDA for the first quarter includes adjustments of approximately $8.1 million accounted for in SG&A driven by $4 million of non-cash stock compensation expense and approximately $4 million related to the resolution of a legal matter from 2015. Selling general and administrative expenses totaled $27.9 million for the first quarter compared to $28.5 million in the prior quarter. Excluding onetime items SG&A totaled $19.8 million compared to $23.2 million in the fourth quarter of 2018. The higher SG&A during the fourth quarter reflects investments in technology.

Turning to the balance sheet we remained committed to maintaining a high quality balance sheet and liquidity profile. We exited the first quarter with cash and cash equivalents of $83.7 million compared to $80.2 million at the end of the fourth quarter. We generated approximately $58.4 million of operating cash flow for the quarter. Capital expenditures during the first quarter of 2019 totaled approximately $50 million driven by maintenance CapEx and investments in technology. For 2019 our CapEx budget is front-end weighted as we invest to maximize benefits from strategic initiatives.

Total debt at the end of the first quarter was approximately $340 million net of unamortized deferred charges and excluding capital lease obligations largely unchanged versus the fourth quarter. Net debt at the end of the first quarter was approximately $257 million resulting in a leverage ratio of approximately 0.7x on a trailing 12 month basis. We exited the year with total available liquidity of $255 million which includes cash and availability under asset-based credit facility. We exited the first quarter with $100 million of availability on our buyback program coming off more than $105 million of buybacks completed in 2018. We did not make any additional stock repurchases during the first quarter as we continue to balance our capital allocation.

Turning now to our second quarter guidance. For the second quarter our assets will be comprised of 23 deployed fleets. Based on our current outlook and the remaining challenges to a portion of the frac calendar, we expect to achieve utilization of approximately 90% resulting in the equivalent of 21 fully utilized fleets for the quarter. On this base total revenue for the second quarter is expected to range between 400 and $420 million , which is driven by job mix including self-sourcing of sand rather than activity, which we expect to increase.

On our last earnings call, we shared our expectation for approximately $20 million of EBITDA tailwind exiting the first quarter including $10 million related to strategic investments in market-ready and staff capacity and $10 million from an abatement of activity disruption. During the quarter our strategic investment paid off from a commercial perspective and we added a dedicated fleet while further reducing our cost. With regards to the $10 million of white space in our frac calendar, we believe this will continue to impact our results in the second quarter. However we view this is transitory and should improve over the near-term. We remain confident that certain of our customers will be successful in eliminating these bottlenecks resulting in earnings momentum over the coming quarters.

We expect annualized adjusted gross profit for the second quarter to range between 17 and $19 million on a fully utilized per fleet basis. Layering in approximately $20 million of G&A, this would imply adjusted EBITDA between approximately 70 and $80 million . For our other services segment, which is made up of our cementing business, we expect second quarter revenue to be in the range of $6 million to $7 million on gross margins of approximately 10%. Given developments in the market and consistent with what we've said in the past, we recently decided to idle cementing activity in one operating region while remaining focused where we realized more constructive economics. We'll continue to monitor the market and maintain flexibility to restart idled operations.

In summary, we're pleased with our first quarter performance. We expect earnings growth in the second quarter including sequential adjusted EBITDA growth of 17% at the midpoint of our guidance. And we reiterate our expectation to generate over $100 million of free cash flow in 2019.

I'd now like to hand the call back over to Robert for some final remarks.

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Robert Wayne Drummond, Keane Group, Inc. - CEO & Director [5]

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Before we open up the lines for Q&A, I want to reiterate 4 points. First we delivered another strong quarter with adjusted EBITDA at the high end of our guidance, our dedicated model of partnering with high quality customers is delivering differentiated performance and visibility while our unrelenting focus on safety ensures the well-being of our employees and customers. Second, we're encouraged by the recent improvement in commodity prices and are well-positioned to grow as the market permits. We'll continue to stay nimble and responsive to market opportunities. Third, we are well-positioned to deliver further earnings upside to our base of top tier profitability via improvements in the frac calendar and dry powder associated with our 6 idle market-ready fleets which are deployable with no additional investment. I'd point out that our current plan for 2019 does not include any contribution from these idle fleets.

And finally we're committed to generating leading returns, maintaining a strong balance sheet and allocating capital in a manner that balances growth opportunities with free cash flow. As such we continue to expect more than $100 million of free cash flow generation in 2019.

With that, we'd like to open up the lines for Q&A. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is coming from Connor Lynagh of Morgan Stanley.

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Connor Joseph Lynagh, Morgan Stanley, Research Division - Equity Analyst [2]

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So I wanted to confirm some of the comments you made on pricing trends. So you saw stabilization in the quarter. I think last quarter you said that you have been pretty proactive in marching to the market in fourth quarter. So is there any continued effect in the second quarter from lowered pricing or is the change in revenue purely job mix?

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Robert Wayne Drummond, Keane Group, Inc. - CEO & Director [3]

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Good question, Connor. As we stated last quarter, we've going to be proactive in the latter part of Q4 and throughout Q1 in order to secure the work with our customer partners throughout the whole year of 2019. So we set pricing, the impact of that pricing we called out is about $25 million in Q1 and about $5 million in Q4, put us in a position for the big part of our book being set through 2019. So we'd like being in that position. If you ask me about the market, the spot market which we participate somewhat less than some and perhaps. I would say that, that market, like many of others have said is kind of -- has bottomed out and gives us a bit of a playing field to use our dry powder as we get into the second half of this year to look for opportunities where we might play some fleet that are in economic -- around our economic hurdles. So no further impact in price is expected from us. As far as the impact to Q1, most of that being called out in the white space area.

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Connor Joseph Lynagh, Morgan Stanley, Research Division - Equity Analyst [4]

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Makes sense. And so the market has stabilized now, would you say the opportunities, obviously you guys are less involved in the spot market, but would you expect to see pricing rise there or do you think that there is going to be an activity rebound or just broadly speaking what are your thoughts on the market this year?

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Robert Wayne Drummond, Keane Group, Inc. - CEO & Director [5]

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You need some sort of fluctuation in activity to move price one way or the other typically. And I would say that what's occurred in the market I think is a number of competitors like us have idle fleet that has taken some capacity -- ready-capacity off the market, which is a positive. And probably the resulting factor has been the stabilization. As far as an increase, perhaps it's going to take an increase in overall activity related to the oil price environment where rig count actually goes up a bit. And it's hard to predict that, it'll be difficult to make a living in that area predicting it. But you would say that, the operators cash flow, they're supported by the increase in oil price and what they end up doing in the second half of the year with that is yet to be determined. But I would say generally, optimistically trending upward would be what I would say. But we don't participate in it as routinely as day to day. And again, I would reiterate that, us taking the actions that we took in Q1 put us in an excellent position to be able to project $100 million of free cash flow that we're still standing behind as we go into in the middle of Q2 right now.

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Connor Joseph Lynagh, Morgan Stanley, Research Division - Equity Analyst [6]

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It's probably a joke somewhere in there about making a living, predicting these things. But I'll leave that...

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Robert Wayne Drummond, Keane Group, Inc. - CEO & Director [7]

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Thanks, Connor.

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Operator [8]

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Our next question is coming from John Daniel of Simmons & Company.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [9]

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Hey, guys. Can you just remind me what portion of the fleets are dedicated and then how things you expect to play out -- the customers that are dedicated, what are they telling you for Q4. Just trying to -- how do you manage that if they're dedicated. We expect a slowdown. I know it's long ways off, but just trying to get a sense for how you'll manage should we slow down?

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Robert Wayne Drummond, Keane Group, Inc. - CEO & Director [10]

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So John, what we said in the past is that, a majority of our 23 deployed fleets are dedicated. And I think that, the customer base that we operate with has been one that's been very clear to us about what our plans were going to be even in Q4 of last year as they are projected 2019. So they haven't wavered from that. And I would argue that, they would probably stick to that plan pretty well. As we get into Q4 though, have the holiday impact is out there and it's variable and again difficult to predict. So I think it depends a little bit upon what the [macro] and oil price is doing at that particular time. And on the efficiency of frac efficiently and how well we've consumed the inventory to get towards the end of the year. And at the end of their inventory, there will be a decision point at that point. I think our current guidance will probably say, we would expect to see a slight typical holiday slowdown in Q4, but nothing major and nothing that is guided at this point by anybody that I know of.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [11]

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Okay. And then last one for me, just on the other services, just how you are approaching that, the other areas where you operate and plans to redeploy asset, consolidation within that segment. Just your thoughts on where you take that from here?

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Robert Wayne Drummond, Keane Group, Inc. - CEO & Director [12]

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So we mentioned a bit on our last call that we were looking at our cementing business for example. And during the latter part of Q1, we took the position to idle our cementing business in one of the regions. And I mean, idle it, we wish we idled all of the pump units there. And the reason we did it was simply because the macro there was a little bit different than what we had been planning. And from a margin perspective, we were able to improve our Q2 margin projection by getting rid of the area that was delivering losses essentially. So that's an example of deployment. Otherwise, I would say, we still see the benefit. I think I understand really question there a bit.

The industrial logic around consolidating this fragmented space that we work in, the industrial logic, there is still very solid. We kind of believe that when you get out of the volatility that we've had typically and get into an environment that we kind of project in is relatively flat from where we're at right now through the year that the ability for individual companies to differentiate on profitability and overall performance enables it to be better evaluated. And perhaps that gives you a scenario where the value of the synergies become more apparent and at a one plus one of a combo can be greater than 2. So we feel like that's still part of the way we think about it.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [13]

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But it's safe to say, pressure pumping would still be the focal point from M&A as opposed to wireline or cementing. Is that...

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Robert Wayne Drummond, Keane Group, Inc. - CEO & Director [14]

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Yes, look, we like being very focused in U.S. land in a completion space. We do like the pairing of our wireline with our freight fleets because statistically it's proven that we're much more efficient significantly so statistically when we pair ourselves together. So sticking to our strengths and more or less focused on in that area, we think is a good place to be. Especially with the outlook as positive it is we think and the oil price improvement the space that we're in is a space that the Globes go had to go to for production increases in the future. We like where we are. Especially the fact that, we have a customer base that allows us to protect the balance sheet, keep our fleet fresh and ready to go. And with 6 fleets in our mix today that we can deploy with no CapEx investment, this gives us a chance to take advantage of whatever macro upside occurs whether it be in the latter half of this year or early in 2020.

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Operator [15]

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Our next question is coming from Tommy Moll of Stephens.

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Thomas Allen Moll, Stephens Inc., Research Division - Research Analyst [16]

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I wanted to ask about the CapEx that you have earmarked for some strategic initiatives particularly in terms of digital and downhole. Any more details or updates you could offer there?

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Gregory L. Powell, Keane Group, Inc. - President & CFO [17]

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Yes, so -- hey, Tommy, so the first comment I'd make is the CapEx is front-end weighted, right. So the CapEx plan for the year of $140 million which we reiterated in the release, $100 million of that's maintenance CapEx and $40 million is strategic. Of that $40 million we probably spent about $25 million in the first quarter and we'll spend $15 million in the second. So we'll spend $90 million of the $140 in the first half and then $50 million in the second half. And that's just so we can get on these initiatives earlier in the year and maximize the returns. I'd say it's consistent with what we've said in the past their technology strategy is around 3 legs of the stool, it's around digital, it's around surface technology and downhole. So a piece of that $40 million is the Whisper Fleet we put out in the first quarter. There's other well side efficiency investments we're making on articulating arms to speed up the transition time between wellheads. And then some additional investments that are -- that we're proving up that are proprietary, but they're all round either driving more efficiency, more pump time minute a day or reducing our cost to deliver service.

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Thomas Allen Moll, Stephens Inc., Research Division - Research Analyst [18]

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And any idea when we may get more detail on some of the proprietary investments? Certainly it's understandable we don't want to go too far down that road today, but when should we expect to learn more from you about how that's going?

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Gregory L. Powell, Keane Group, Inc. - President & CFO [19]

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Yes, I think, we'll share it over time, I mean, we're on this kind of 2 year to 3 year journey to take out, as I've said before 20% to 30% of our operating cost that's going to be -- it's going to be ratable as we go through that process. So as soon as we have things we can share that don't jeopardize our competitive situation, we'll share it with you guys in the right forum.

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Thomas Allen Moll, Stephens Inc., Research Division - Research Analyst [20]

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Okay. Greg, and then I wanted to follow up on the level of interest you have in the DJ. Could you characterize for us what the dynamics are in that Basin just from a competitive standpoint. How far along you are in your customer conversations. Most likely you go in with an existing customer, new customer, just anything you could share and maybe also in terms of timing when you might hear an update from me there?

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Robert Wayne Drummond, Keane Group, Inc. - CEO & Director [21]

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Good question, Tommy. Thank you for it. Obviously with the recent regulatory evolution in Colorado, maybe it introduced a little bit of uncertainty as the customers work through that. But the customer interest for us remain very high. We're currently deploying that fleet into the region now with an experienced crew. We've had some recent marketing customer events in Denver because you can imagine, customers getting ready to make a decision, to make a change from a vendor that he is probably already pretty well happy with. It's important he can kind of touch the assets, meet people, look at the local management. So that's a process we're going through right now. We're very encouraged, but I would say, it's the second half of the year event. And I would point out that, in our current forecast or run rate for the second half of the year, we don't have any of that in there just to be conservative. But we're happy with the fleet. This is new technology and it's exciting. We're looking forward to Internet basin and feel that we're walking into a bit of welcomed arms just a little cautious as they sort out the changes that are occurring in the market there -- potential changes.

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Operator [22]

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(Operator Instructions) Our next question is coming from Marc Bianchi of Cowen and Company.

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Marc Gregory Bianchi, Cowen and Company, LLC, Research Division - MD [23]

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First I wanted to ask about this additional $10 million of tailwind that you guys have been talking about. It sounded like, during first quarter this was kind of a pad readiness and weather issue. If I have it right and now it sounds like there's maybe the pad readiness is continuing here into the second quarter. But kind of curious if you could talk about in little more detail what's driving that and if you have any line of sight to getting it resolved?

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Robert Wayne Drummond, Keane Group, Inc. - CEO & Director [24]

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Well look, I'll start out by just speaking to the white space, which is we've attributed in a bit of that impact to. I would just say, we're not trying to factor in any kind of improvement in the rate of the cadence that we typically have with our customer partners. It's just we're dealing with a little bit atypical bottlenecks that have been a situation where you'd been plan to be on a schedule at a certain rate. And then -- well access issues occurred that didn't keep us on that cadence. So as it -- how does that play out from here is that we work closely with our customers and we can see that getting back to their normal cadence is on the horizon. It's just difficult at this particular time to say exactly when. Greg, would you comment a little bit about how much of that's built in perhaps are the band of our guidance?

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Gregory L. Powell, Keane Group, Inc. - President & CFO [25]

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Yes, there was $20 million of tailwind we mentioned coming out of 1Q, the $10 million we achieved which was a combination of putting an additional fleet to work for an existing customer and then eliminating some extra carry costs we had in the system. So that $10 million has been delivered in the second quarter guidance. The other $10 million, I'd say, at the high end of our EBITDA guidance range, we guided $70 million to $80 million. To get to that high end of that range, we're going to need some of that white space to dissipate is the way I would think about it. And then the remaining portion of that white space would be incremental for future earnings as they're mitigated.

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Robert Wayne Drummond, Keane Group, Inc. - CEO & Director [26]

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It's not really something we worry about. It's certainly difficult to predict exact timing.

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Marc Gregory Bianchi, Cowen and Company, LLC, Research Division - MD [27]

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But just to make sure I have the message here. Greg, like the $80 million I would assume getting all of that $10 million back. Just to kind of think about where you might be heading into the third quarter if you kind of you're able to get all that.

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Gregory L. Powell, Keane Group, Inc. - President & CFO [28]

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Yes, so Marc, I would say, if we got to the $80 million, we get about half of it. And then there will be another $5 million of opportunity on top of that moving forward.

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Marc Gregory Bianchi, Cowen and Company, LLC, Research Division - MD [29]

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Okay. Okay. Great. And then on CapEx, you went through some of the detail with Tommy. And I think at the last quarter call, it sounded like the maintenance level is around $100 million. As we go into 2020 do you anticipate $100 million being the right maintenance level plus or minus whatever we think on activity? And then should we be also layering in another $40 million or so of this growth for the 2 year to 3 year cost out program you're talking about?

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Gregory L. Powell, Keane Group, Inc. - President & CFO [30]

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I think that's probably right. I mean the maintenance CapEx is variable and it's based on about 4.5 million of fleet, so the $100 million on '22 would be -- '22, '23 would be solid. The strategic investments will just depend on how we prove up this technology and our -- what we look at in our return profile. But there's always some number of whether it's $20 million or $30 million or $40 million of strategic initiatives that we think have a supportive return profile that would probably be prudent to model.

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Operator [31]

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Our next question is coming from Stephen Gengaro of Stifel.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [32]

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Two questions. One maybe partially a follow up on what Marc just asked. When you think about the current pricing environment that you're seeing and that you're living within right now is, would it be reasonable to kind of add that complete $10 million back and say that's sort of where the range would be on a gross profit per fleet basis if you kind of stayed at current pricing and got that $10 million back. Is that a reasonable proxy?

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Gregory L. Powell, Keane Group, Inc. - President & CFO [33]

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I think that's right. I think that's exactly right. With stable pricing, mitigation of the white space, that's kind of the earnings power of the current fleets we have working.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [34]

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Okay. Great. And then as a follow up, when we think about adding incremental fleets back into the mix, what would be sort of the key drivers and parameters for you to do that?

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Gregory L. Powell, Keane Group, Inc. - President & CFO [35]

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Yes, look, I mean, we talk about an economic threshold where our break-even -- we look at breakeven cash flow not just the P&L. And so if you get to $8 million gross profit of fleet and then you have to take care maintenance CapEx and cover your G&A, they get you to break even. And we have no interest in running our fleet and treading water you know to break even. And then our books running at $17 million GP per fleet on the second quarter. So somewhere between that 8 and $17 million you have to look at how strategic the customer relationship is, the opportunity to grow it. So those are the way we think about the bookends. But we have no interest in putting fleets off the fence, breakeven just to practice.

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Robert Wayne Drummond, Keane Group, Inc. - CEO & Director [36]

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And I would add that, I called out that we had added a new Chief Commercial Officer to our team. And I would say, 4, 5, 6 months ago we began a more strategic effort in sales to go find the next set of customers that are motivated by the dedicated model and are focused on efficiency like we are and like we are with our current partners. So take that band that Greg described and how that strategically fits for the future opportunity for us. That would be the logic we would use in place in those fleet. But in no case really go in and just chasing market share for the sake of market share. Our very solid book gives us the flexibility not to have to do that.

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Operator [37]

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At this time I'd like to turn the floor back over to Mr. Drummond for closing comments.

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Robert Wayne Drummond, Keane Group, Inc. - CEO & Director [38]

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Thank you very much. And we appreciate your interest in Keane. And thanks again for joining us on this call this morning. In closing, I want to thank all the hardworking Keane employees for their dedication day in and day out, helping our customers be successful. Thank you and I hope you all have a great day.

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Operator [39]

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Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines at this time and have a wonderful day.