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Edited Transcript of USWS.OQ earnings conference call or presentation 7-Nov-19 3:00pm GMT

Q3 2019 US Well Services Inc Earnings Call

Nov 11, 2019 (Thomson StreetEvents) -- Edited Transcript of US Well Services Inc earnings conference call or presentation Thursday, November 7, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joel N. Broussard

U.S. Well Services, Inc. - President, CEO & Director

* Josh Shapiro

U.S. Well Services, Inc. - VP of Finance & IR

* Kyle P. O'Neill

U.S. Well Services, Inc. - CFO

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Conference Call Participants

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* Daniel Joseph Burke

Johnson Rice & Company, L.L.C., Research Division - Senior Analyst

* Derek John Podhaizer

Barclays Bank PLC, Research Division - Equity Research Analyst

* John Matthew Daniel

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

* Stephen David Gengaro

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

* Solomon Cohen

Cohen & Company Asset Management - Portfolio Manager

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Presentation

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Operator [1]

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Greetings, and welcome to the U.S. Well Services Third Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Josh Shapiro, Vice President of Finance for U.S. Well Services. Thank you. You may begin.

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Josh Shapiro, U.S. Well Services, Inc. - VP of Finance & IR [2]

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Thank you, operator, and good morning, everyone. We appreciate you joining us for the U.S. Well Services conference call and webcast to review 2019 third quarter results. With me today are Joel Broussard, Chief Executive Officer; and Kyle O'Neill, Chief Financial Officer. Following their prepared remarks, the call will be opened for Q&A.

Yesterday evening, U.S. Well Services released its third quarter 2019 earnings. The earnings release can be found on the company's website at www.uswellservices.com. The company also intends to file third quarter 2019 Form 10-Q with the SEC later this week.

Please note that the information reported on this call speaks only as of today, November 7, 2019, and therefore, time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading.

In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of U.S. Well Services management. However, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listener is encouraged to review yesterday's earnings release and the company's filings with the SEC to understand those risks, uncertainties and contingencies.

Also during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release.

Now I'd like to turn the call over to U.S. Well Services' CEO, Mr. Joel Broussard.

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [3]

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Thanks, Josh. Good morning, everyone, and thank you for joining us on the call to review U.S. Well Services' third quarter results. USWS navigated challenging market conditions during the quarter and generated solid operational and financial performance. I will begin this morning by -- this morning's call by reviewing some of the key highlights from Q3.

U.S. Well Services had 12 total available fleets for the third quarter. On average, 9.3 fleets were active with a utilization rate of 90%, resulting in an 8.4 fully utilized fleets. Although total revenues declined 14% sequentially to $130.9 million, our revenue per fully utilized fleet increased by 7% quarter-over-quarter to an annualized rate of $62.6 million per fleet.

On a fully utilized basis, USWS generated approximately $16.9 million of annualized adjusted EBITDA per fleet as compared to $16.4 million for the second quarter of 2019, which equates to a 3% increase.

After taking into account maintenance CapEx associated with fluid ends, we generated approximately $16.1 million of adjusted EBITDA per fully utilized fleet.

U.S. Well Services continued to demonstrate its operating efficiencies during the quarter, growing our average stage count per fully utilized fleet by 6% to 576 stages. We have talked a lot about growing efficiencies over the last several quarters and how we believe U.S. Well Services operate at the efficient frontier. I would like to provide some additional color on this point.

I am proud to say that in July, we set a company record pumping approximately 124 million pounds of sand in a 27-day period with a single fleet. This equates to approximately 4.6 million pounds of sand pumped per day. For this, I'd like to congratulate my team on a job well done. We believe that the efficiency for our frac service provider is best measured based on hours pumped per day. We see one of our competitors noted that they achieved a single day pump time of 21.8 hours versus an industry average of 12 to 15 hours per day. During the third quarter, our single day maximum pump time was 22.2 hours.

Our efficiency and organizational focus on technology and continuous improvement have positioned U.S. Well Services as a value-added partner for our customers. We believe our approach to the business has helped us gain an edge in commercial activity, which is critical in a challenging operating environment like the one we face today.

I would also like to mention U.S. Well Services' commitment to environmental stewardship. We believe our Clean Fleet technology is the most environmental-friendly solution for hydraulic fracturing. Through mid-October, we have seen our Clean Fleet reduce greenhouse gas emissions by approximately 49 metric tons per hour relative to our conventional fleet, a 87% reduction.

To put this in perspective, the EPA estimates that a typical car emits 4.6 metric tons per year. By replacing a single conventional frac fleet with a Clean Fleet, the equivalent of emissions from 43,400 cars would be eliminated. If the 325 conventional fleets that we estimate to be active today were all replaced with Clean Fleets from U.S. Well Services, the emissions reduction would be equivalent to taking 98.5% of private and commercial automobiles in the state of California off the road.

The last thing I would like to touch on is our IP. USWS made significant progress expanding its intellectual property portfolio during the third quarter. We received 1 new patent and had additional 15 patents go pending, bringing our total portfolio to 23 awarded patents with 97 pending.

There is no doubt that the hydraulic fracturing industry remains under pressure, and we are not immune to the challenges this market presents. I mentioned last quarter that we elected to idle one conventional fleet. While we expect this equipment to support our ongoing business, we have no intention of marketing this fleet as a stand-alone unit going forward. USWS is encouraged by what we are seeing across the industry, as service companies are retiring auto horsepower, which should improve frac service pricings over time.

Looking forward to the fourth quarter, we expect activity levels to remain low across the industry as the E&P sector experiences budget exhaustion issues. With that said, our outlook at U.S. Well Services is optimistic entering into 2020.

USWS has considerable commercial success recently. In our earnings release, we announced that we entered into a new long-term contract to provide electric hydraulic fracking services for our customer in the Northeast. In addition, we successfully extended contracts for 4 conventional fleets for 2020 and signed new contracts or dedication agreements for 3 other fleets. Including the new electric fleet we plan to deploy in early Q1 2020, we expect to begin next year with 9 of our 13 fleets contracted or dedicated. Based on active commercial discussions, we have visibility into work for all of our fleets.

I credit our commercial success to U.S. Well Services' partnership with its customers, operational excellence and tireless efforts from our marketing team.

As market conditions have evolved, USWS has worked with customers to align our incentives so that both parties can operate efficiently and generate attractive rates of return on our assets.

In conclusion, U.S. Well Services had a strong third quarter. We look forward to continuing to deliver for our customers and our shareholders in the fourth quarter and into 2020.

With that, I will turn the call over to Kyle O'Neill, our Chief Financial Officer.

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Kyle P. O'Neill, U.S. Well Services, Inc. - CFO [4]

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Thanks, Joel, and good morning, everyone. Revenue in the third quarter declined 14% to $130.9 million when compared to the second quarter. Revenues generated by providing services and equipment declined 11% over the same time period, while revenues from consumables, which includes sand, chemicals and transportation were down 22% in the period. These decreases are primarily related to lower fleet -- to lower active fleet count and continued increases in the number of customers self-sourcing consumables.

Although our total revenues declined during the period, our total revenue per fully utilized fleet actually increased 7% over the second quarter, and our service and equipment revenue per fully utilized fleet increased 11% over the same time period.

Cost of services in the third quarter decreased by approximately 15% to $90.8 million as compared to the second quarter of 2019. During the period, our cost of labor declined approximately 18%, driven by lower activity levels, and cost of consumables decreased by 22% quarter-over-quarter, again, because of an increasing number of customers self-sourcing consumables.

SG&A rose to $8.2 million in the third quarter from $7.6 million in the second quarter. After adjusting for stock-based compensation and onetime fees, SG&A was $6.8 million during the quarter versus $5.9 million in the second quarter.

Adjusted EBITDA decreased 17% during the quarter to $35.3 million. Our annualized EBITDA per fully utilized fleet increased 3% during the period to $16.9 million per fleet versus $16.4 million in the second quarter of 2019.

During the third quarter, U.S. Well Services incurred $1.7 million of maintenance CapEx related to fluid ends versus $3.8 million for the second quarter. This equates to $800,000 per fleet in the third quarter versus $1.5 million per fully utilized fleet in the second quarter. After taking into account this maintenance CapEx on our fluid ends, U.S. Well Services generated $16.1 million of adjusted EBITDA per fully utilized fleet versus $14.9 million in the second quarter of 2019.

Turning to our capital expenditures. U.S. Well Services spent approximately $14.5 million on CapEx in the third quarter. Of this, $5 million was related to maintenance CapEx, including the $1.7 million for fluid ends noted earlier, and $1.4 million was for fleet enhancement and $8.1 million was for growth CapEx related to our newbuild electric fleet. This new fleet will be deployed in Q1 of 2020 for Shell.

Going forward, we expect to incur an additional $20 million to $25 million of growth CapEx related to this fleet. As of the end of the third quarter, U.S. Well Services had a total cash on hand of $32.8 million as well as $28.7 million available under our asset-backed revolving credit facility, bringing our total liquidity position to $61.5 million.

With that, I'd like to turn it back to Joel for his closing comments.

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [5]

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Now before we get into Q&A, I want to provide some concluding thoughts on how U.S. Well Services has positioned the company to remain a preferred service provider in a challenging industry environment.

Attrition of older horsepower is inevitable, given the service intensity and demands of our customers. In response to our customer needs, USWS has focused on developing and implementing technologies and best practices that allow us to operate at maximum efficiency and reduce our operating costs.

Going forward, we believe that companies like USWS, who continue to deliver innovation and high service quality will be rewarded. We remain dedicated to providing first-class execution and are excited about the future prospects for U.S. Well Services.

I will now turn it over to the operator and open the call up for Q&A. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from John Daniel with Simmons & Company.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [2]

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I just got a few. Joel, you mentioned a fleet that had 22 hours of pumping time, which is off the charts good. Was that an electric or conventional fleet?

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [3]

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Conventional.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [4]

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Okay. Got it. And then I don't know if you can comment on this, but I'll try. I think it was several months ago, you filed a lawsuit against a competitor on patent infringement. Can you just update us where that stands?

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [5]

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We can't comment on ongoing litigation. I'm sorry.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [6]

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Fair enough. E&P companies increasingly like to talk about their ESG focus when it comes to their willingness to engage in discussions for electric fleets. Does their lip service to ESG match up yet with their willingness to pay for the ESG benefits associated with your technology? And if so, when would you expect to see the next wave of new electric orders?

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [7]

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John, a select -- a few are and those who have signed contracts with us. And as we mentioned earlier that the impact of going all electric is pretty unbelievable, going to take all the cars off and all of them goes off in the streets of California. I will note what's going to drive them to it. Well, it's going to be legislative or them doing the right thing.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [8]

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Okay. We've heard some stuff and read about just there are tenders out there or at least maybe not tenders but sort of just request for quotes from a few of the large majors for -- whether it be electric or dual fuel. Can you just kind of walk us through that trend, what you're seeing? I know you don't want to name customers, but just in terms of what's out there in terms of the real interest.

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Kyle P. O'Neill, U.S. Well Services, Inc. - CFO [9]

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Sure, Matt -- John, this is Kyle. I think we're definitely seeing an increase in inbound calls. We've been on a couple of here, industry education program here in terms of really trying to get out there in front of as many customers as possible and educate them exactly how our system works and what the benefits are. A lot of that work is, again, continues to pay off with a number of the inbound calls we're now receiving. But -- and I said it's a long sales cycle, and we feel very optimistic about this movement gaining real traction, and customers have -- really embraced the technology going forward.

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [10]

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John, I see a huge disconnect on the lip service from the executive level to -- from the executive level of our E&Ps, from the procurement and operational people when it comes to the admissions.

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

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It would just seem to me -- I mean, I'm assuming you might not want to formally announce it, but it seems realistic that you'll have another electric fleet built in 2020 above and beyond the shelf fleet, I guess, is where I'm going.

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [12]

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No comment.

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Operator [13]

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Our next question is from Daniel Burke with Johnson Rice.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [14]

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Maybe wanted to delve a little bit into the commercial outlook, maybe the financial outlook headed into 2020. Good to get the detail on the 9 fleets lined up to be working as of now with potential for more in early 2020. But could you talk at all about what type of expectations you might have in terms of EBITDA per utilized fleet looking out to that period of time. And I guess one thing I'm curious about, it seems like you'll have the full quarter's contribution from the electric fleet contract announced today in the Northeast, plus you're picking up Shell. So I would think that will be supportive. On the flip side, I would assume there'll be pressure on the diesel side and pressure on pricing in general. But anything you guys can add would be helpful.

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [15]

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To the contrary, all of these equipment, we expect to be working first quarter of next year.

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Kyle P. O'Neill, U.S. Well Services, Inc. - CFO [16]

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Yes. That's right. And we really -- we're not providing guidance at this time. But we do expect to see some pricing pressure on some of our fleets. But these are the markets where our long-term partnering and contracting strategy really bears fruit.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [17]

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Got it. And then Joel or Kyle, last quarter, we got maybe this detail. In terms of fleets that are dedicated versus contracted in 2020, you've got the electrics that will be contracted. Do you have any diesels that will remain in the contracted bucket in 2020?

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [18]

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Yes. Most definitely will be. Yes, we only have 2 dedications out of those, the ones we announced.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [19]

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Okay.

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [20]

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And that's through 2020 and beyond. Yes.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [21]

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All right, guys. That's helpful. Maybe just a quick one here, Kyle. For clarity, I assume this is the case, but the $20 million to $25 million of growth CapEx for the Shell fleet, that's total remaining CapEx, and that would include what's in accrued as well as what has not yet hit the balance sheet?

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Kyle P. O'Neill, U.S. Well Services, Inc. - CFO [22]

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No. This is remaining...

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [23]

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Remaining to be incurred. Sorry, remaining to be incurred.

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Josh Shapiro, U.S. Well Services, Inc. - VP of Finance & IR [24]

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And Daniel, we would expect that, that gets paid out over the course of 2020. We've been able to work out terms for some critical vendors so that the cash impact doesn't hit all of Q4.

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Daniel Joseph Burke, Johnson Rice & Company, L.L.C., Research Division - Senior Analyst [25]

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Got it. And I guess, I'll try to cram one more in just on the very near term for Q4. The press release suggests you guys dipped to 7 fleets at the end of Q3 and bounced back up to 9. It's encouraging to see what looks like sort of a counter-seasonal trend. Anything to point to that's driven that? I guess I'll leave it there.

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [26]

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Well, we had some of our older contracts roll off and we had to reposition the fleets in different customers, but 2 of those fleets went with existing customers that had existing fleets.

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Kyle P. O'Neill, U.S. Well Services, Inc. - CFO [27]

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Yes. And the exit rate, that was just -- that was the active we count on a day at a point in time. I think a better metric to always look at is kind of the average active fleets or average fully utilized fleets for the quarter.

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Operator [28]

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Our next question is from Derek Podhaizer with Barclays.

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Derek John Podhaizer, Barclays Bank PLC, Research Division - Equity Research Analyst [29]

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Just wanted to break apart some of the profitability gains that you saw. Maybe you can help kind of bucket it between what you're able to capture via the efficiency step-up and then also letting that one fleet go and idle that. How much of a drag was that on profit? Just if you can help kind of expand on the reason for the pick-up in profitability per fleet.

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [30]

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That one fleet that we idled was our first fleet we built, and it rolled off of a legacy contract. So the uptick was due to 2 of our fleets rolling off of long-term contracts.

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Derek John Podhaizer, Barclays Bank PLC, Research Division - Equity Research Analyst [31]

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Got it. And then just your thought...

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [32]

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That was signed in the downturn in 2016.

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Derek John Podhaizer, Barclays Bank PLC, Research Division - Equity Research Analyst [33]

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Got it. That's helpful. I know you mentioned that you're not marketing that -- that idled fleet is not going to be marketed as a stand-alone fleet. I mean when you look across the rest of your conventional and maybe even your older Clean Fleet, I mean, how are you thinking about it? Are there any other future sort of retirements or anything you can rightsize or maybe pull some pumps off to increase the capacity on your other fleets? Just thinking about all the attrition and recalibration we've seen so far across the press room as to help with the oversupply. Just kind of thinking about where -- what else could you do besides taking that one fleet out?

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [34]

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Not until 2021. 2020, we think all our diesel fleets have spoken for, and will be working.

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Kyle P. O'Neill, U.S. Well Services, Inc. - CFO [35]

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But we constantly evaluate that. If we need to spend maintenance CapEx on anything, we look at where that's going to work, what the pricing is, what the length of duration to ensure that we're going to hit our target rate of return on any CapEx dollars we spend.

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [36]

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And we've always said from the beginning that we're going to replace our diesel fleet to electric, and this was the first case.

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Derek John Podhaizer, Barclays Bank PLC, Research Division - Equity Research Analyst [37]

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Got it. That's helpful. Just last one for me. Just thinking about the 2020 CapEx, I know you've mentioned that the $20 million to $25 million, some of that will bleed into 2020. Anything besides the maintenance CapEx, which you've given out, we can bifurcate that between the diesel and the clean. I mean anything else that we should expect via fleet enhancements to come into 2020 for the total budget?

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [38]

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No.

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Kyle P. O'Neill, U.S. Well Services, Inc. - CFO [39]

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Yes. I think we're always evaluating new technologies and new innovations. I mean that's a real cornerstone of U.S. Well Services' strategy. So I wouldn't say -- there is no number that we guide to or commit to spending on fleet enhancement, but not to say it's not possible.

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Operator [40]

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Our next question is from Steve Gengaro with Stifel.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [41]

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Just a quick question, as you think about -- obviously, the fourth quarter looks soft across the industry. But when you look at your pricing discussions and conversation with customers around the e-fleet versus the conventional fleet. I mean 4Q may be a tough time comparison based on your contracts. But what are you seeing now versus maybe what you saw 6 to 9 months ago as far as the stickiness and willingness of customers to pay maybe a different price for the e-fleets versus conventionals.

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [42]

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I think it's reflective in our numbers. When you look at our EBITDA per fleet, our electric fleets are definitely in the top tier of our total EBITDA per fleet, which drags up our diesel fleets.

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Kyle P. O'Neill, U.S. Well Services, Inc. - CFO [43]

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You're right.

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [44]

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Annualized EBITDA.

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Stephen David Gengaro, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [45]

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Is there a way to think about that going forward as we look out and try to think about the...

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [46]

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Yes. We were starting to realize some of the fuel savings. At the beginning, when we started this and the diesel market was high, we would give the clients all the diesel savings. Now it's pretty much split. So we're making more money on our electric fleets than diesel fleets in the current market.

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Kyle P. O'Neill, U.S. Well Services, Inc. - CFO [47]

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Yes. We've had greater success in maintaining or sustaining our pricing on the electric fleets than conventional. And so we kind of move it back into premium pricing on our electric fleets. Because from the E&Ps perspective, they look at what we charge, which we call service and equipment, plus the diesel fuel they've got to buy. And then they compare that to the equipment and service and equipment rental price that we charge on the electric. And they are better off with the electric, but we are starting to share those fuel savings.

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Operator [48]

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Our next question is from Solomon Cohen with Cohen & Company.

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Solomon Cohen, Cohen & Company Asset Management - Portfolio Manager [49]

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Congratulations on the quarter. Just wanted to get some more color on the debt profile right now. I know you'd mentioned a strong liquidity position. How do you envision that evolving over time? And do you have any deleveraging targets in mind at this point?

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Kyle P. O'Neill, U.S. Well Services, Inc. - CFO [50]

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I think as -- once we get our last electric fleet online, you're going to see our CapEx spend drop off pretty significantly in 2020 as well as adding that EBITDA contribution. So we expect to see strong free cash flow delivered in 2020 will allow us to pay down debt.

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Solomon Cohen, Cohen & Company Asset Management - Portfolio Manager [51]

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Got it. And just as a quick follow-up. Do you have any color going into year-end what depreciation for 2019 is going to look like?

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Kyle P. O'Neill, U.S. Well Services, Inc. - CFO [52]

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I don't have that off the top of my head, but I can -- we can come back to you with an estimate.

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Operator [53]

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Our next question is a follow-up from John Daniel with Simmons & Company.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [54]

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Okay. I've got a dumb question for you. The -- you got the 13 -- the 13 fleets are all spoken for, it sounds like for 2020, but 9 of which are dedicated. Is that right?

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Kyle P. O'Neill, U.S. Well Services, Inc. - CFO [55]

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No.

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [56]

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No. Well, it's almost spoken for. 9 are contracted.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [57]

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So contracted or dedicated?

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [58]

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Dedicated and 2 are -- only 2 are dedicated. So 7 are contracted, 2 are dedicated. And the other ones, we've been awarded the work, but the paper haven't been done yet.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [59]

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Okay. So here's -- that was dumb question number one. Dumb question two is when you look at these contracted and dedicated fleets, because they're contracted and dedicated, should we assume that they are always fully utilized, right, as you go about how you...

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [60]

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Yes.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [61]

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Yes?

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Josh Shapiro, U.S. Well Services, Inc. - VP of Finance & IR [62]

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No. I think -- John, I think you'll still see some gaps in utilization from time to time. I think if you looked at what we've been doing through the first 9 months of the year, the utilization is roughly around 90%, between probably 85% at the low point to mid-90s. And so I think that's probably a good way to think about the business. Because customers are always going to have some breaks in there. There's going to be things that come up. Short though they might be, they will impact utilization.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [63]

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Got it. And then you mentioned in the release, you've got -- the release, you said you had 7 active fleets, 2 Appalachia, 2 Eagle Ford, 3 Permian. What do you expect that geographic breakdown to be in early 2020?

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Kyle P. O'Neill, U.S. Well Services, Inc. - CFO [64]

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Yes, about the same. I think we'll be handing 2 more in the Permian, right?

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [65]

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Correct. Yes.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [66]

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So the Permian grows, the other -- the Eagle Ford and Appalachia are basically flat?

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [67]

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Actually, 3 more in the Permian with the new shale fleet.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [68]

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Okay. Got it. And Joel, hypothetically, you were to order a new electric fleet, hypothetically, what would the -- are you seeing any reasons that the CapEx per fleet comes -- is coming down just as you guys get better at building these things? And what would that number roughly be?

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [69]

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Our next fleet, we feel we can go up to $30 million because we already have the generator. And some other assets.

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John Matthew Daniel, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [70]

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Impressive. And then the last one, sorry to ramble here. But I know electric is sort of -- is your forte. Would you entertain buying Tier 4 DGB engines for your conventional fleet?

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [71]

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No, John. I mean we've had some Tier 4 engines. Actually, we've had 4 of them fail with less than 2,600 hours. We feel that -- I feel personally, the useful life of these things are going to be 60% of a Tier 2, and it's not the answer. The answer is 12 to 18 hours a day is electric motor for the future.

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Operator [72]

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There are no further questions at this time. I'd like to turn the floor back to management for closing remarks.

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Joel N. Broussard, U.S. Well Services, Inc. - President, CEO & Director [73]

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Thank you all for joining the call. Good day.

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Operator [74]

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Thank you. This concludes today's conference. You may disconnect your lines at this time, and have a wonderful day.