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Good morning, and welcome to the Keane Group First Quarter 2018 Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] For opening remarks and introduction, I would like to turn the call over to Kevin McDonald, Executive Vice President and General Counsel of Keane Group. Thank you. Go ahead.
Good morning, and welcome to Keane Group's First Quarter 2018 Conference Call. Joining me today are James Stewart, Chairman and 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 31, 2017, 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 for the reconciliation of these measures to the directly comparable GAAP measures.
With that, I will turn the call over to James.
Thank you, Kevin, and thanks, everyone, for joining us on the call this morning. I'm extremely proud of our team and our performance despite a challenging environment faced in the first quarter. As was widely reported, the industry experienced significant headwinds resulting from extreme weather and supply chain disruptions. Despite this adversity, our team executed delivering first quarter revenue and annualized adjusted gross profit fruitfully, in line with the ranges we communicated in February. Our performance in this environment is rooted in the quality of our customers and our longstanding strategy of working under dedicated agreements. This approach is what gives us the ability to work closely with our partners to find solutions to challenges, such as those faced in the first quarter.
Since we started this company with one frac crew and a single blue chip customer, with whom we still partner today, we've remain committed to the dedicated fleet model. We believe that our approach is better for utilization, efficiency and financial performance through cycles. In the first quarter, this model proved itself once again, providing steady work and insulating Keane from the competitive shuffling we've heard about in the market.
With these transitory factors improving throughout the quarter and now largely behind us, we are able to fully realize the growth trajectory of our business. Our performance today and favorable outlook is built on 2 key operating principles: our dedicated fleet model and intense focus on safety and efficiency.
Our strategy has always been to allow high-quality customers who value our partnership and delivering world-class safety, efficiency and continuous improvement. Our dedicated agreement approach allows us to maximize the businesses while remaining responsive to changes in our input costs and the market pricing for our services. The benefits of this strategy have been proven through cycles and has been evident in our margin progression as a public company.
While a key part of the efficiency equation is working for the right customers, the second component is how we drive efficiency internally. This all starts with our culture, and we accomplish this in 3 ways. The first component of delivering efficiency is our management platform, including accountability, oversight and reporting across our company. The second way we achieve efficiency is by ensuring our equipment is well maintained, operating without safety incidents and ensuring the reliable delivery of raw materials. And finally, by investing in both downhole and surface technology that continues to improve our efficiency. We are confident that our approach will continue to drop benefits for our customers, employees and shareholders.
Turning to the macro. Dynamics for our business remain highly constructive, including ongoing tightness in supply and demand of quality completion for horsepower. Today, the industry is working to meet the shortfall through a combination of additional recommissioning and newbuilds. Since the start of the year, total U.S. rig count has increased by nearly 10%, including approximately 13% in each of the Permian and Marcellus Basins. This steady improvement in rig count, combined with the growing inventory of docks, should sustain the momentum and continued growth for U.S. well completions.
Quality of maintenance factors are likely to keep a portion of idle horsepower on the fence, while increasing intensity trends are leading to a growing pace of equipment attrition for already deployed equipment. We believe these factors will impede the industry's ability to experience a significant base of net supply additions, as a sizable portion of newbuilds will be used as horsepower replacement.
Keane is well positioned in this environment, given our robust preventive maintenance program and component supply agreement, allowing us to keep our fleets fresh and ready to execute.
At the end of last year, and in response to these supportive fundamentals, we ordered 150,000 newbuild hydraulic horsepower, reflecting 3 additional hydraulic fracturing fleets. In February, we entered into a dedicated customer agreement for the first of our 3 newbuild fleets to support completions activity in the Marcellus/Utica. We are pleased to announce that our first newbuild fleet will be deployed by late May or roughly 1 month ahead of our original schedule. We look forward to expanding our footprint in the region and deepening our relationship with a longstanding customer.
We're also excited to announce that we entered into an agreement for the second of our newbuild fleet to support completions in the Permian Basin. The new fleet is expected to be delivered by the end of second quarter. Both newbuild agreements reflect annualized adjusted gross profit per fleet of greater than $20 million.
We've received multiple inquiries from both existing and new customers with regards to the third newbuild fleet and expect to have a dedicated agreement in place well in advance of delivery by the end of the third quarter of 2018.
As it relates to the newbuild program, there are several areas I'm excited about. Bringing new fleets online, welcoming new colleagues to our team, some of whom are already onboard and training and helping our customers achieve their goals while continuing on our journey of responsible growth.
So certainly, while not without its challenges, our first quarter performance is something that we are very proud of, and it is the direct result of partnering with the right customers, managing an industry-leading supply chain and responding with creativity and persistence in the face of headwinds. What has me even more excited is the underlying strength and growth opportunities for our business.
With that, I'd now like to turn the call over to Greg.
Thanks, James. During the first quarter of 2018, we maintained full utilization on our hydraulic fracturing fleets, averaging 26 fleets for the quarter. We first achieved full utilization during the third quarter of last year and since then have maintained this position.
Our asset footprint is critical to the growth we've achieved and the opportunities that lie ahead. Today, approximately 50% of our horsepower is deployed in the Permian, roughly 35% in the Marcellus/Utica, with the remaining 15% operating in the Bakken and Eagle Ford.
During the first quarter, approximately 76% of deployed fleets were bundled with wireline, mostly unchanged sequentially and up from 50% during the prior year quarter.
Total revenue for the first quarter totaled $513 million, an increase of 2% compared to the fourth quarter of $501.5 million. Our first quarter revenue performance was driven by price increases from contract reopeners on a portion of our portfolio, offset by impacts from inclement weather early in the quarter and supply chain challenges.
Revenues for our Other Services segment, which reflects our cementing operations, totaled $5.6 million for the first quarter of 2018. This compares to $4.3 million in the prior quarter, excluding revenues associated with our workover rigs sold in November of last year.
We're encouraged by the level of interest we're seeing in the business, including an extension of our partnerships with existing customers and the formation of new relationships. We're also excited about launching strengthening operations in the Permian during the first quarter and growing our footprint in the Bakken.
We remain on track to see strong improvement in both revenues and margins in this segment as we progress throughout the year and into 2019.
Total company adjusted EBITDA in the first quarter totaled $91.3 million compared to $93.8 million in the prior quarter. Adjusted gross profit totaled $109.6 million for the first quarter compared to $113.1 million in the prior quarter.
On a per-fleet basis, annualized adjusted gross profit was $17 million, largely unchanged from $17.3 million in the prior quarter.
Our adjusted EBITDA and gross profit results were impacted by weather and supply chain challenges, partially offset by higher pricing on a portion of our portfolio.
Normalizing for these transitory factors, revenue totaled approximately $530 million, and annualized adjusted gross profit per fleet was approximately $18 million.
The underlying performance of our book in the first quarter was very strong, providing significant momentum for the second quarter and remainder of 2018.
Adjusted EBITDA for the first quarter excludes $29.3 million of onetime expenses comprised of $13.3 million for the final liability adjustment for our CVR associated with the purchase price of the RockPile acquisition in July of 2017, $13 million of costs associated with our secondary equity offering completed in January of 2018 and $3.1 million of noncash stock compensation.
Selling, general and administrative expenses totaled $33.9 million for the first quarter compared to $24.6 million in the prior quarter. Excluding onetime items, SG&A totaled $17.8 million, a slight reduction compared to $18.4 million in the fourth quarter of 2017. Onetime SG&A items for the first quarter included noncash stock compensation expense and costs associated with our secondary equity offering.
We remain focused on SG&A efficiency, and for the first quarter, SG&A, excluding onetime items, represents 3.5% of total company revenues.
Turning to the balance sheet. We exited the first quarter with cash and cash equivalents of $95.5 million, essentially unchanged sequentially. We generated positive operating cash flow of approximately $34 million for the first quarter, partially offset by capital investment and working capital needs associated with our ongoing growth.
We spent approximately $48 million of total capital expenditures during the first quarter, driven by a portion of the spending associated with our 3 newbuild fleets as well as normal maintenance CapEx.
Total debt at the end of the first quarter was approximately $275 million, net of unamortized deferred charges and excluding capital lease obligations, down slightly from the prior quarter. On an annualized run rate basis, first quarter adjusted EBITDA was approximately $365 million, reflecting a leverage ratio of approximately 0.8x.
Net debt at the end of the first quarter of 2018 was $179 million.
Total available liquidity at the end of the first quarter, which includes availability under our asset-based credit facility, stood at approximately $302 million.
We continue to employ a three-pronged capital allocation approach, including investing in growth, maintaining and improving our balance sheet and capital return. We recently took an important step in implementing our capital return program with the authorization of a stock repurchase program of up to $100 million in late February. After receiving board authorization, we prepared a trading plan, and following its customary blackout period, the program became effective in the second quarter. We are excited to now have this program in place and remain committed to returning value to shareholders.
Looking ahead to the second quarter, we expect total revenues to increase to between $555 million and $575 million, driven by improvements in efficiency, price and contribution from the first of our newbuilds in late May. On a per-fleet basis, we continue to expect annualized adjusted gross profit to exit the second quarter at approximately $20 million, up from an average of $18 million in the first quarter when normalizing for transitory factors.
We're seeing strong momentum in our cementing business, and we expect this ramp to continue during the second quarter and throughout the remainder of 2018. We reiterate our expectation for run rate revenue at the end of 2018 between $70 million and $90 million on gross margins of between 20% and 25%.
With that, we'd like to open up the lines for Q&A. operator?
[Operator Instructions] Our first question comes from the line of James West with Evercore.
James and Greg, there's been a lot of mixed commentary from some of your competitors this quarter around pricing trends, utilization trends, et cetera. Seems to me like you and companies like Halliburton kind of have this figured out. You are sold out, if you're adding some capacity, but it's basically spoken for. You're raising pricing. What do you attribute this mixed bag of commentary to? And is it right -- and am I correct in thinking that you guys are running a very efficient operation and/or capitalizing on what is a very, very tight market?
Yes, I mean, that's a good question. I think there's several things driving that. I mean, I think, the first thing driving that has been, I would call it, the fundamental shift in our customers' business model about working within their cash flow on their drilling program and completion program. And once that's done, that's driven our customers to behave a little bit different now than they did a few years ago in choosing their completion provider because it's all about -- there's pricing, but the biggest impact to the bottom line is efficiency. So safe efficiency is really the name of the game today and not so much unit price, although we've been able to get some of that. But the customers are focusing on long-term value today versus unit costs. And that's driving the success of the market for us with that, and it really drives the need to have well-maintained equipment and a safe operation.
And I guess, a follow-up to that is that I've heard kind of a lot of commentary during the quarter about certain of your competitors, I'm not going to name names on a conference call, but being replaced by yourself and by some others. Is that -- am I accurate in that description of the market that, I think, you're backing it up by saying by -- by talking about your quality and safe operations. But it seems like some of the other companies are having some pretty not insignificant execution issues.
Yes, I mean, I mentioned in the commentary about the shuffling, right. So there has been some competitors shuffling and has created opportunities for Keane.
Our next question comes from the line of Sean Meakim with JPMorgan.
So on capital allocation, you guys have been very consistent on the approach from the start. A lot of the measures we talked to, though, are getting concerned about where we are in the economic cycle [indiscernible] there can be a concern [indiscernible] is pretty good right now, particularly the lower 48. I guess, in the next couple of years, at some point, is there a demand as a challenge for oil? And so -- that's why there's [indiscernible] with respect to [indiscernible] incremental capital deployment. So given that backdrop, [ can you talk a little bit how you think we can see the way you're after between incremental capital ] versus the earnings stock as we get into next year?
Yes. Yes, Sean. So I mean, I don't think anything has changed on that front other than with the rig count going up, and we think things are going to continue to tighten, and there should be some pricing opportunity beyond what we've guided for the exit of the second quarter. If the commodity hangs in there and the rig count growth continues, we expect further tightening. That's just going to expand our cash flow generation. We're still committed to the same priorities. The first priority is to keep the balance sheet bulletproof. That's been successful for 7 years and gotten us through cycles and allow us to be both defensive and then opportunistic on M&A or organic growth. Organic growth is kind of a piece of the strategy. We did that with these 3 fleets. But it's -- I'd say it's pretty disciplined where we got to see -- we laid out a couple criteria for this last order on demand signals from our customers, combined with the economic threshold when we sell those. So we ordered the fleets, and we're seeing the fruit of that decision now. And then the third one is capital return. We launched the buyback program. In the prepared remarks, we talked -- in the earnings release we talked about -- when you launch a buyback program like that, we have a blackout period that kind of got us through the whole first quarter. So the program wasn't able to be active in the first quarter, but it's active now, and we'll be giving kind of quarterly updates on that. So we're excited with the buyback as our first foray into capital return for our investors. And being a public company for 5 to 6 quarters, we're excited to be able to launch that early in our life cycle here.
Got it, and I appreciate that. And then just -- maybe circle back to the [indiscernible] question a little bit. Since you are working on dedicated agreement, Jim, [indiscernible] and the spot market. And we're seeing conflicting perspective [indiscernible] in that market. Can you guys give us a sense of where you think you stand in terms of your average contract today? As you said in the quarter, you were benefiting from reopeners that were on that, bringing your numbers higher. So just kind of where you're seeing how your contracted set most relative to what's in the spot market today?
Yes. So I mean, yes, it feels like -- there's been a transitory issue kind of on the spot market with all the winter weather issues that happened. But the spot market, I think, is also shrinking as our customers are going into more full-blown development, manufacturing mode. And I think there has been a temporary kind of price change in the spot market due to that. But I think with the local sand and things coming on in Texas, weather clearing up and all that, I think the demand on that side as we go through the year is going to continue to increase. It is probably going to go back up to a more normalized level close to the dedicated model.
to Okay. To clarify, is that -- would your expectation be that where we are today, contract reopeners continue to be a tailwind for your raw business?
Based on what we see today, yes.
Yes, I mean, Sean, the reopeners just -- the reopeners have 2 components to it. They have cost -- you know cost inflation recovery, and we're very active on that front. And then they got market adjustment, which is net price. So the first priority is to recover our costs. We're seeing inflation on labor to retain our best people and keep our safety and service quality up and some, certainly, on the trucking, which people have heard about. So the first priority is recovering the cost inflation and then, after that, going after net price. But the -- I think, as James mentioned, efficiency -- as far as profitability, efficiency is a lever that both us and our customers are laser focused on.
Our next question comes from Tommy Moll with Stephens Inc.
So a few months ago, when you all reported on Q4, WTI was hanging around $64. Rig count was well below 1,000 at that time. Then over the past few months, both of those have ticked up pretty nicely. And today, we're in the $68 range for the commodity and have well over 1,000 rigs working. So if you've -- as you've had conversations with customers over the past few months, are they asking you to add more fleets this year? And the reason I ask is that, on the one hand, we've heard from some of the large contract drillers in the past couple weeks, and they're all saying that they see strong demand to add more rigs throughout the rest of the year. You set that against what some of the E&Ps have indicated, and they may be a little more hesitant to start discussing increasing CapEx budget. So I don't feel like the dam has broken, but maybe it's bulging in the middle, and I'd just like to get your take about what your conversations are like with customers.
Yes, I think that's a good question. I mean, we have -- customers already this year have increased and ask for more crews. And then as oil price continues to hang in that mid- to upper 60s, and obviously, their cash flows are going to have more cash to spend as the year goes on. But the way it feels to us is that, constantly, we work in those models. And I think we're going to see some more increase in the second half of the year based on that if we stay in this range.
Yes. Okay. And then as a follow-up, I just wanted to hear about how you all navigated the sand issues in the first quarter. I know you've got a pretty sophisticated supply strategy, and was just hoping you could lay out for some of the issues you encountered and then how you navigated around them.
Yes, it was definitely a challenge. It was kind of widespread disruption. It was rail. It was mine issues. It was flooding. It was local mines being delayed. And then even recently, when I thought we'd seen everything, the water levels in the northeast were too high for sand barges to land, right? So hopefully, we've seen about everything on the sand disruption front. You navigate that by using all your resources. So we have contract relationships we leaned on. We have spot relationships. We got a set of pneumatic assets that allow us to go move sand longer distances without relying on third parties. It was a combination of all those things. We were kind of an early mover in the local sand game, so we had a lot of options there to work with. We're big believers in that. So a combination of those things. We didn't go unscathed, right? I mean, most of our -- we didn't shut down jobs, but most of our disruption was going longer distances and incurring more costs to keep the efficiency going, which is part of that commitment we make to our customers. So it wasn't unscathed, but it looks like we're on the other side of that. Those seem to be dissipating rapidly. There's kind of pockets of -- in early April, we saw pockets of some disruption in the Northeast through these barges and a little bit of rail, lingering kind of rail congestion. But on a widespread basis, I think we're mostly out of the woods on the sand-related transitory disruption.
Our next question comes from the line of Jud Bailey with Wells Fargo.
I was hoping to follow up on the line of questioning from Sean a little bit earlier and, more specifically, maybe ask you about have you seen or have you seen changes as you're in a dedicated fleet market from a pricing standpoint? As you've marketed the newbuilds over the last 30, 60 days, have pricing discussions changed for the better or for the worse? Just trying to get an idea of as you're trying to get new commitments on those fleets, how has leading-edge kind of pricing commentary evolved in the last few months?
Yes, I'd say, Jud, I'd say it's hung in there. Just to clarify what our dedicated model is because these dedicated agreements with high-efficiency customers that we've been kind of talking about for years has now become kind of a hot topic for people to talk about versus the spot market. But just for us, the dedicated agreements more than kind of a form of contract. It's kind of a partnership. We're not selling a service. We're kind of selling our company. We find customers that have shared values on safety and efficiency. The relationships go up and down the org. We're both focused on continuous improvement kind of finding a better way every day to do things and injecting technology, and that's been part of our culture for 7 years when we started with one dedicated agreement. So the reason we're able to hold pricing and get these kind of economics in this environment is because we find customers that are looking at the long-term game and the system economics versus just unit price and knowing if they can get a vendor and a partner out there that can deliver more stages and help them bring down their spread costs and get their cash flows on online faster, that's a better value sell than trying to just drive down the unit price, which is the old model we've seen from operators.
Okay. All right. I appreciate that. And my follow-up is, Greg, you may have mentioned it, but I missed it. Did you give any CapEx guidance for the year? Does the CapEx expectation change with some of your commentary regarding cementing in the Permian? And maybe talk about any capital commitment as you get that going.
Yes, the CapEx is exactly the same as what we put out there prior to 230 to 240 range that the newbuilds are coming in exactly in line, and the maintenance CapEx is on pace. So we'll see more of that kind of weighted, and there's going to be a big slug in the second quarter with some growth CapEx payments on the fleets. But we're still committed to the exact same number we provided last quarter.
Our next question comes from the line of Michael LaMotte with Guggenheim.
Greg, on the revenue guidance for Q2, the revenue per fleet, I guess, the implied growth quarter-on-quarter is in the 7% to 8% range. Can you, perhaps, just in this follow-on discussion of efficiency versus price, give us a sense as to what the breakout, how that -- what that mix looks like. Is it 2/3 utilization, 1/3 price, something like that?
Yes, I think that's probably a good split, 2/3 utilization efficiency and 1/3 price. And that price is made up of both cost recovery and a little bit of net price.
Okay. And then on the first quarter, in your dedicated contracts, you're getting some compensation for your nonproductive time, right?
Right.
Okay. So that certainly helps. And then is there any whitespace on the -- in the second quarter? Is there upside to the numbers from utilization standpoint as you see it now?
There's no whitespace. I mean, I think, what we -- that's why we provided a range out there to kind of give the kind of bookends on kind of high-efficiency case and the low. So I think we're excited about that growth and momentum on efficiency and profitability going into the second quarter. And the second quarter and third quarter are great quarters for this business. And with what we've dealt with in the fourth quarter and first quarter, we're looking forward to a little bit smoother sailing for the operations.
Okay, great. And then last one from me on demand outside the Permian. Obviously, the last 12 months, it's been almost exclusively Permian, but differentials are pretty wide now. You've got almost $10, I think, between [Clearbrook] and Midland. I'm just curious, as the weather does improve, how the Bakken and the Eagle Ford are looking in terms of demand.
Yes, Mike -- Michael. Yes, I mean, we're seeing some pickup in the Eagle Ford, so we're going to need some calls on that. And then now we're coming out of the winter, we're seeing some -- the customers talking about picking up on the Bakken. They're switching around, how they're doing the completions up there now and getting their costs more in line. So there is some increases in other basins besides the Permian.
Any chance that of the 2 that are still looking for -- into 2 newbuilds they're still looking for work that they could go outside the Permian?
There's only one left. The one extra hole -- Permian. There is one left, and we're talking to maintenance. It's kind of being competed nationally. So it could go where the best customer opportunity is and the best economics.
[Operator Instructions] Our next question comes from the line of Marc Bianchi with Cowen and Company.
Following up on the last question about other markets outside the Permian, just curious how much of a pricing or profit differential do you see among the various markets that you have right now? Is it a wide band -- fair to think that Permian's really the most profitable market, and they kind of fall off from there? Just more color around that would be great.
Yes. I mean, it's a national market. You might have some temporary differences if one kind of goes faster than the other, but at the end of the day, it's a national market equipment's very mobile, I would say -- I would assume that it's pretty much the same across the board.
Okay. And if some of these -- the differential ends up becoming an issue and some of the takeaway capacity issues we've heard from the Permian become an issue, is it -- how likely are you to move fleets, given your dedicated model, away from the Permian? Just wondering if there's a distinction there just because you're dedicated.
Not likely because of the customers that we work for there are either majors or larger independents with steady programs.
Yes, we wouldn't expect our customers to have disruption.
Yes.
Right. Okay. And then on the gross profit per fleet, you guys have a little bit differentiation bringing through the wireline services. Can you help us understand kind of how much of that profit that you're able to achieve is really driven by wireline and how much of an uplift opportunity could be there from pulling through more of that capability?
Yes. I mean we don't break that out. It's -- for us, we've always said it's a huge benefit on the efficiency side of the equation because we control our own destiny there, and we give the customers a single point of accountability. And our only interest in wireline is kind of the bundled solution. We don't have any standalone wireline, and we're bundled almost at 80%. And when we bring the new fleets online, we'll keep the bundling solution going.
Are there other wireline conveyed parts of the completion that you can bring into your offering thinking of, perhaps, perforating or bridge plugs or anything like that?
Yes, we do. Today, we do the whole plug and perf. So it used to be -- if you'd go to the well site, you'd have a pressure control operator, crane operator in 3 different companies. We offer all that today. When it comes to plugs and things like that, that's an evolving technology and something -- that's something we could look at, either organically or through M&A, but there's nothing kind of imminent.
Our next question comes from John Daniel with Simmons & Company.
I guess, Greg, the first one for me is can you speak to desires for further fleet expansion and when that decision will be made?
Yes, I mean, I think we're focused on bringing these 3 fleets online. We kind of look at the demand from our customers and make sure that feels sustainable, and then we look at the economics like we did last time. Right now, there's nothing imminent on newbuild. I think we'll absorb this. As we've said before, we're major proponents of consolidation. We think it's more constructive to consolidate than to grow the pie, and we continue to evaluate harvest and evaluate all types of different opportunities on the M&A side. But we have a track record of doing that. We certainly think there's benefit to scale and consolidation in this business, John. So I think you'd -- yes, we did a little bit of organic here. I think you'd -- our next round of growth would preferably be through M&A. We're also happy to harvest our portfolio, generate cash flow and return that to shareholders.
Fair enough. And one of the prior -- a lot of questions earlier on the dedicated agreements. I think you noted there's a market adjustment factor. I'd like you to expand on that, if possible, because my question is, is your competition, some of whom aren't performing, if they are forced to drop price in order to try to incentivize a customer to use them, and the customers come back to you and say, "Hey, this is the not -- this is market price," and therefore, you have to adjust your dedicated price?
Yes. Yes, that's kind of how it works. But where kind of the rubber meets the road is that's got to be a comparable quality partner, and a lot of our relationships are long term. So the customer -- our customers got to decide if they want that price to go down, what kind of service comes with that. And then that's where we kind of discuss and see where we go forward. We've not -- over the last 6 months, while there's been this shuffling out there, we've not had one kind of price reduction or anything in that vein with our dedicated portfolio.
Okay. Fair enough. And then a final one from me. Just -- are there any new pump designs or technology development efforts on your way that you guys are developing? And if so, just can you provide some color on what you're looking to do differently going forward?
Yes, I mean, I don't -- we plan to share some stuff down the road when we get a little further advanced. But there's a lot of stuff we're working on, what I'd call, surface technology. I mean, the industry has done a lot on downhole technology, and we have products and engineering capability around that. But on the service, our equipment is being asked to do so much more today, but the design of the equipment across the industry is the same as it's been about for 30 years. And the improvements that have been made are incremental in the form of materials and different things. So we're doing a lot on surface technology to study the effects on our equipment and leverage some things that have been done in other industries to kind of get smarter with the whole goal of lowering the total cost of ownership. And that includes everything from getting better diagnostics and smarter equipment to even looking at new wholesale pump designs that are more fit for purpose for what we're doing today. And as we develop these, we'll probably hold a Technology Day at some point and share some of the things we're up to.
[Operator Instructions] Our next question comes from the line of William Thompson with Barclays.
You alluded to earlier the labor inflation with the recent fleet deployments. Can you talk about staffing and some of the challenges there? That was supposed to be a major supply constraint. Some of your peers have kind of downplayed those concerns, but clearly, there's -- we're seeing some of the cost inflation come through. I assume maybe there's more challenge to staffing the fleets in the Permian than in Marcellus.
Yes, I mean, we're very excited where we sit today from a personnel standpoint on the new fleets where we got -- we got most of personnel onboard, and we're rotating them through training in the system. So we've been very successful in getting personnel. It's not easy. As James and I said before, it's a challenging part of this business to attract the right talent and retain them. And the inflation yield, the wages in the downturn, when we gave 80% price away, the wages only went down 10%, right. So we're seeing some inflation of wages, but they never took a dramatic -- a decrease in the downturn. So -- and the inflation is -- it's a small part of our cost of goods sold in relation to materials and maintenance and other things in the income statement. So we are seeing some labor inflation, and we're able to pass that through in pricing. And as we sit today, we're very happy with the execution on recruiting and staffing that we're seeing across the company.
Okay, that's helpful. And then, I think, your answer to Tommy's question, it sounded like you're describing the 10 plagues of Egypt during 1Q. So I was trying to understand that the seasonality of the business, and should we kind of expect severe winter, obviously it's an outdoor sport continue into like one in fourth quarter on an annual basis? And obviously, you're insulated somewhat by the dedicated agreements, but should we kind of expect that seasonality to happen going forward?
Yes. I mean that's kind of a Farmers' Almanac question. I mean, either the weather is so crazy these days that sometimes you don't get a winter, and then sometimes you get an elongated winter. So yes, there's seasonality in the business. It is an outdoor sport. But sometimes it's mild, and the roads stay open. And other times, you get freezing in West Texas like we saw this year, which is debilitating. So it just depends.
And then last one from me. Obviously, wireline has been bundled with the completion business. Just on the cementing side, maybe talk about supply/demand and pricing dynamics you're seeing there? And just because we talk a lot about frac. I'm just trying to get a sense on what may be the dynamics that are happening in that market.
Yes, I mean, on the cementing side, there's a lot less suppliers for that, that can do all those strings. The service center may get in the long strings. And we're seeing strong demand for that. And as we ramp that, I mean, we're on or maybe a little bit ahead of our plan for that. And then the customers as we demand -- our cement crews, the demand is there for that as soon as we get it ready and comfortable, they can go deliver.
Is it fair to think the pricing can go down as much in the downturn, therefore, the upside is [ relatively limited relative to performance. ]
Yes, I don't think the pricing was down as much on that one. I mean, it's a totally different service than the completions.
This concludes our question-and-answer session. I would like to turn the call back over to Mr. James Stewart for any closing remarks.
Thank you, and thanks once again for joining us on our call this morning. I'm extremely proud of our team's execution in the first quarter, and we're excited about a strong outlook for the second quarter and the remainder of 2018. We have the right model and expect our approach to continue to drive leading performance. We look forward to updating you again soon. Thank you again for joining us, and have a great day.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.