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Good morning, and welcome to the NexTier Oilfield Solutions First Quarter 2020 Conference Call. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.
For opening remarks and introductions, I'd like to turn the call over to Kevin McDonald, Executive Vice President, Chief Administrative Officer & General Counsel for NexTier. Please go ahead, sir.
Thank you, operator. Good morning, everyone. And welcome to the NexTier Oilfield Solutions earnings conference call to discuss our first quarter 2020. With me today are Robert Drummond, President and Chief Executive Officer; and Kenny Pucheu, Chief Financial Officer.
Before we get started, I'd like to direct your attention to the forward-looking statements disclaimer contained in the news release that we issued yesterday afternoon, which is currently posted in the Investor Relations section of the Company's website. Our call this morning includes statements that speak to the Company's expectations, outlook or predictions of the future, which are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties, many of which are beyond the Company's control that could cause our actual results to differ materially from those expressed in or implied by these statements.
We undertake no obligation to revise or update publicly any forward-looking statements for any reason. We refer you to NexTier’s disclosures regarding risk factors and forward-looking statements in our annual report on Form 10-K, recent current reports on Form 8-K, and other Securities and Exchange Commission filings. Additionally, our comments today also include non-GAAP financial measures, additional details and reconciliation to the most directly comparable GAAP financial measures are included in our press release that is posted on our website.
With that, I'll turn the call over to Robert Drummond, Chief Executive Officer of NexTier.
Thank you. Kevin. And thanks everyone for joining the call this morning. I'd like to start by addressing the ongoing Covid-19 pandemic that continues to impact so many across the country and around the world. Our focus remains on taking all appropriate actions and precautions to help protect the health and well-being of our employees, partners and the communities in which we operate. During the first quarter, we quickly implemented a response plan focused on risk mitigation from the office to the well site. We continue to support our people and hope that by acting quickly and decisively, we can continue to stay ahead of the curve and continue to strengthen our relationships with our customers and partners. I commend my colleagues across the industry that have prioritized a response and encourage everyone to remain vigilant in protecting themselves and those around them.
Turning to the first quarter, despite challenges throughout the quarter, we delivered strong results. Revenue was $628 million just 3% lower sequentially despite only two months of contribution from our Well Support Services business following our recent divestiture. Adjusted EBITDA totaled $72 million compared to $78 million last quarter delivering flat sequential adjusted EBITDA margins. We had an average of 27 fully utilized completion fleets. On this base, we generated annualized adjusted gross profit per fleet of $13.4 million, which once again positions us near the top of the competitive stack. We generated adjusted free cash flow $24 million in the first quarter excluding one-time inflows. And I'm proud to report we are nearing completion of our integration related to the Keane and C&J merger and have recently captured our targeted run rate cost synergies of $125 million.
From an operating perspective, company started out as expected including increased activity as customers got back to work to start the year and budget exhaustion and seasonal headwinds abated. We averaged 25 pro forma fully utilized frac fleet in the fourth quarter and achieved a steady increase in deployment throughout the first quarter reaching 31 deployed and were complete in early March. We were very pleased with our strong start to the year. The industry though was then faced with sudden unforeseen and unprecedented circumstances including major shocks to both supply and demand beginning in early March. Covid-19 has resulted in significant demand destruction for all products, driven by significant slowdown in worldwide economic activity. This has also resulted in an increasingly utilized global storage network, extreme commodity price volatility and the onset of unprecedented global oil production shut-in, while the recent agreement by OPEC plus nation is part of a path towards improvement, commodity prices remain under pressure and supply demand imbalances are forecasted to persist.
As expected producers have responded urgently and in a range of way including drastic reductions in budget and outright completion stoppages. Given the unprecedented pace of deterioration, several producers have updated their budgets multiple times over a short period. As a result, during the final weeks of the quarter we experienced a significant decline in our deployed fleet as compared to our first quarter average. While the situation is fluid as commodity prices remain volatile, here's what we believe. First, near-term activity will continue to deteriorate and visibility will remain low as producers slash activity in light of a fundamentally full all storage environment. We've seen this manifest with completion activity declines outpacing the rig count production. Second, activity declines will take on a variety of arrangement including temporary completion stoppages and activity reduction, situation remains dynamic almost day-to-day making the achievement of scheduled efficiency even more challenging in the near term.
Third, not all EMP operators will be impacted similarly given varying hedge position, geographic footprint. Access storage and financial strength. For example, we expect activity in gas basin where we have a sizable footprint to be more stable. And fourth, the exact duration and magnitude of the downturn is unclear driven by uncertainty related to the virus resolution, its widespread economic impact and the need to work through a significant global crude inventory build. While the downturn in industry activity associated with the Covid-19 outbreak came on quickly and without warning, NexTier is well-positioned to deal with the situation and we are customed to change due to our history and strong management processes.
Our culture is focused on constantly challenging the status quo and our customers appreciate our nimbleness and track record of continuous improvement in risk management, completion efficiency and innovation. We've been quick to deploy new technology and technique that drive tangible improvement in these areas and we will continue to do so. We believe in forging lasting partnerships with customers and vendors, these relationships combined with our people's dedication, mobility, teamwork, collaboration and swift action have continuously led to a differentiated result for us and our partner. Our objective remains the same. We are determined to be the most cost efficient completion company in the US by utilizing data and rapidly deploying technology in a process that drives ever improving cost efficiency and safe operation.
The US land and oil and gas business is currently under pressure but is not permanently shrinking. And we believe it will grow again when the economy gets restarted, the call on US production again increasing. As such we've organized ourselves in a manner that will allow for rapid response to future opportunity. We are preparing for a worst-case short-term scenario while preserving our ability to react quickly through opportunities created by our enhanced sales organization. Our deliberate actions cover two primary pillars. Protecting our balance sheet and aligning our cost structure to demand. Starting with a balance sheet protection, where our decisions are centered on preserving cash. This remains a top priority for next year that will help us navigate these challenging market conditions. We've taken several steps to further fortify our balance sheet position. And I'll highlight a few. First, we acted decisively shift our CapEx playbook and reduce future spending. As previously announced, we lowered our 2020 total capital expenditures by more than 50% from our previous guidance and reflect a decrease of over 60% as compared to pro forma spending in 2019.
This reduction included idling a significant portion of our previously active completion fleet in line with market demand, while narrowing our innovation and technology investment to initiative with near-term return. We continue to evaluate all ways to reduce CapEx particularly in the event of a prolonged market downturn, while maintaining our diligent approach to maintenance.
Second, we recently executed on the divestiture of our Well Support Services business, streamlining our operation, unlocking further cost reduction and accelerating approximately five years of free cash flow onto our balance sheet. Our sale generated approximately $94 million a total proceeds including $59 million in cash at closing and $34 million in bonds guaranteed to par by make-whole provision by March 2021. With the actions taken we exited the first quarter with total liquidity of $591 million comprised of $489 million in cash including $175 million in revolver draw and $101 million of revolver availability. We expect our actions to further benefit our balance sheet as we continue to navigate the road ahead. Our customers have expressed confidence in our financial health as several have communicated that in the current environment financial strength and sustainability are critical factors in who they choose to form of it.
Our second set of aggressive and proactive action involves sizing of our operations and cost structure to market demand, while preserving our ability to react quickly and expand when activity rebound. We are nearing completion of the integration of Keane and C&J and recently achieved our targeted $125 million of run rate cost synergy. As a result of the environment, we have transitioned our effort and are now intensely focused on the larger scope of business transformation. Since early March we've removed a significant base of cost from our system across variable and fixed component, which are incremental to the $125 million of run rate cost synergies mentioned earlier. This highly proactive transformation involved planning, coordination and execution from our entire team. We assess the situation accurately in early March, started taking actions immediately to significantly reduce the size of our organization and manage costs accordingly.
These cost savings are derived from reducing our headcount, operational footprint and overhead cost or lower activity levels across multiple geography. Our swift and proactive measures respond to near-term activity declines, as well as longer-term structural challenges that streamline, simplify and flatten several functions within the organization. Steps taken to streamline the organizational distance with our strategy and unrelenting focused on optimizing our cost structure, the advantages of which we will continue to benefit from as the market pick up.
Let's walk through some of the key drivers. Starting at the top of the company, we reduce our executive leadership cash costs by approximately 60% including significant reductions in cash compensation of temporary salary and bonus reduction. We restructured and reduced the size of our senior leadership organization by 40% in a way that maximizes our managerial talent with a streamlined team taking on expanded role. Our Board of Directors has taken similar responsive measures including a reduction in the number of directors by three and a 20% reduction in cash compensation in line with the executive team.
We adjusted the size of our overall workforce to a level aligned with expected market demand. As of today, we've reduced our workforce by nearly two-thirds. In addition to these workforce actions, we've implemented compensation reductions for all of our employees. These combined actions will drive a 75% run rate reduction in our total labor cost, lowering annual cash compensation expense by more than four $400 million. We've adapted to the current environment swiftly and aggressively by rationalizing our operating and facilities footprint through strategic reduction and consolidation while maintaining a competitive footprint in every basin in which we operate.
These actions have resulted in the reduction of about one third of our commercial site and when factoring in our recent Well Support Services divestiture, we've now exited more than 60% of our site. We've addressed non-discretionary and other costs including the elimination of our 401-k.The suspension of non-essential travel and long-term alignment of arrangement with key suppliers. Not only will these actions help reduce the cost of running our business, but should also lead to better informed decision, faster response times to customer needs and changes in the ever-evolving business environment. While necessary, these actions have been very difficult especially because of the quality of the people involved. We are humbled by everyone's professionalism and understanding during these challenging actions. The NexTier people are second to none. And I cannot possibly thank all of them enough of what they do for our customers and our company, both historically and in the future.
As I noted, we sharpened our focus on select, high-impact innovation opportunity centered around our surface and digital enabled project. During the first half of 2020, we are completing our strategic spin on a few key initiatives we've already committed to. For 2020, this includes two primary initiatives. First, the upgrade of a portion of our practically dual fuel DGB engine technology capable of burning compressed natural gas or filled natural gas, while lowering OpEx. Second, digital initiatives including frac control optimization and equipment health monitoring, which we believe will provide a significant opportunity to drive down maintenance spending and deliver capital efficiency over the long term.
We've already seen return on these investment as our enhanced service offering was more capable of addressing and maintaining a declining base of customers work. While our digital initiatives have made our headcount even more efficient and supports the level of workforce adjustment we've made. In addition to these great strides we are making across innovation NexTier is further differentiated through our natural gas oriented position in the Marcellus Utica dating back at the beginning of our company where we maintain a strong customer base that is sustained by our streamlined and well-positioned footprint in the region. Separately, last year we deployed a completion fleet from the US to Saudi Arabia via a US-based contract with our partner NESR. Our partnership is off to a very good start. I'm proud of our team's ability to deliver leading service quality and efficiency. This arrangement benefits all the parties involved as it furthers NESR's business development and brings world-class efficiencies to the end customer.
We continue to believe this reflects a unique growth opportunity for NexTier in the future. Before I pass things over to Kenny, I'd like to make a few comments on our industry. We know this is a cyclical industry, but it's difficult to see thousands of our industry colleagues being released from their jobs. The employment loss in this sector will be tough on all of us. At the same time, we're empathetic to those that continue to be impacted by the Covid-19 outbreak. No two cycles are sustained but our industry has been through challenging times before. Our industry and the people in it are strong and resilient. They stay focused when times get tough, innovate when change is needed and are optimistic when our uncertainty is prevalent.
With this is our collective track record, I'm confident that we'll persevere once again. We'll come out on the other side with stronger or perhaps fewer company. I stand ready to take advantage of a more constructive market and will continue to proudly deliver critical energy services for the benefit of Americans and so many around the world.
With that I'll now turn things over to Kenny.
Thank you, Robert. Total first quarter revenue totaled $628 million compared to pro forma revenue with $648 million in the fourth quarter. The sequential decrease was driven by the divestiture of our Well Support Services business in early March, coupled with the pricing impact from Q4 contract re-openers which were partially offset by the increase in utilization and strong operational performance. Total first quarter adjusted EBITDA was $72 million compared to $78 million pro forma adjusted EBITDA in the fourth quarter. The sequential decrease was due to the divesture of the Well Support Services business. Excluding the divestiture of this segment, our first quarter performance was relatively flat as compared to the fourth quarter. Price reductions in all basins were partially offset by higher utilization and aggressive cost reductions from both our synergy program and our quick and decisive actions to adjust the challenging market conditions in March.
In our Completion Services segment, first quarter revenue totaled $513 million compared to pro forma revenue of $510 million in the fourth quarter, remaining relatively flat. Completion Services segment adjusted gross profit totaled $98 million compared to pro forma adjusted gross profit of $106 million in the fourth quarter. During the first quarter, we deployed an average of 29 completions fleet and when factoring in activity gaps, we operated the equivalent of 27 fully utilized fleet. On a fully utilized basis, annualized adjusted gross profit per fleet which includes frac and bundled wireline total $13.4 million compared to pro forma annualized adjusted gross profit of $15.6 million per fleet in the fourth quarter, which continues to position NexTier as a leader in relative peer performance.
In a Well Construction and Intervention Services segment revenue totaled $57 million compared to pro forma revenue of $58 million in the fourth quarter. Adjusted gross profits totaled $9 million unchanged as compared to the fourth quarter. In our Well Support Services segment revenue totaled $58 million compared to pro forma revenue of $81 million in the fourth quarter. The decrease was driven by the divestiture of the Well Support Services segment in early March. As Robert noted, our sale generated $94 million of total proceeds including $59 million in cash at closing before transaction costs, escrow amounts and subject to customary working capital adjustment. And $34 million in bonds guaranteed to par by a make-whole provision.
Segment adjusted gross profit total $12 million compared to pro forma segment adjusted gross profit of $15 million in the fourth quarter. Adjusted EBITDA for the first quarter includes management adjustments of approximately $52 million, consisting primarily of $34 million for impairment of assets including goodwill, $13 million of merger and integration cost; $9 million of market adjustments and $6 million of non-cash stock compensation spent all partially offset by the $8 million gain on the sale of Well Support Services business. On the $52 million in management adjustments during the first quarter approximately $40 million were non-cash.
First quarter selling, general and administrative expense totaled $57 million compared to pro forma SG&A of $70 million in the fourth quarter; excluding management adjustment adjusted SG&A expense totaled $48 million compared to pro forma adjusted SG&A of $54 million in the fourth quarter.
Turning to the balance sheet. We exited the first quarter with $314 million of cash and $175 million drawn on our revolver for a total of $489 million, compared to $255 million of pro forma cash at the end of the fourth quarter. Total debt at the end of the first quarter was $512 million; net of discounts and deferred finance cost and excluding finance lease obligations compared to $338 million in the fourth quarter. We made a strategic and defensive decision to draw on our asset based credit facility in March to maximize our cash position during unprecedented challenges in the market.
Net debt at the end of the first quarter was approximately $23 million resulting in a leverage ratio of near zero on a trailing pro forma 12 months basis. We exited the first quarter with total available liquidity of approximately $591 million comprised of cash of $489 million including $175 million of asset based credit facility borrowings and availability of approximately $101 million under our asset based credit facility. Cash flow from operations was $48 million during the first quarter while cash flow used in investing activities totaled $39 million driven by maintenance CapEx and selected investments in technology. This resulted in free cash flow of $9 million during the first quarter excluding $15 million in merger and integration cash cost, adjusted free cash flow for the $24 million in the first quarter.
Due to ongoing market volatility and uncertainty, we are not going to provide forward-looking guidance on activity levels or financials. Nevertheless, we can provide some color regarding our recent activity evolution. As we reported, we had 31 fleets deployed and working as recently as early March. That number declined by more than half by the end of April and we would expect further declines in line with overall market activity. We are, however, also prepared to address potential market opportunities that could provide a range of activity profiles. You can see from the cost control measures we have already taken that we are being cautious regarding near-term activity as our customers deal with the current inventory issues.
With that I'll hand it back to Robert for closing comment.
Thanks Kenny. We announced yesterday that after nearly a decade of dedicated service to Keane and now NexTier, Greg Powell will be leaving the company later this month. Greg has been a key element to our success since the very beginning, playing critical roles in every single milestone and achievement throughout our company's evolution. From a company with a single fleet in the Northeast to a leading completions provider in the country. I've been privileged to work closely with Greg these last several years and consider him to be one of the most talented leaders and executives I've ever partnered with. We thank him for executing a world-class integration process that will benefit NexTier on an ongoing basis. Greg has left an enduring mark on our organization and his impact will continue to benefit us over the long term. I know I speak on behalf of all of our stakeholders. He will be missed and we wish him nothing but continued success in the future.
Before we open up the lines for Q&A, I'd like to leave everyone with several points. First, the energy industry is in the midst of an unexpected and unprecedented downturn. The impacts are likely to be experienced for an extended period of time and only the strongest will survive. Second, financial strength remains paramount. We've quickly pivoted to balance sheet protection by focusing our capital expenditures aligning with market activity and driving the additional cost reduction. Our fortified balance sheet positions us the last and persevere. Third, our platform and strategy continued to differentiate NexTier. This includes our unique international outlet, attractive gas rich basin exposure to the Northeast. Platform for innovation and a base pressure equipment.
Finally, we have a strong management system and a long track record of meeting our commitment, forging lasting partnerships, maintaining capital discipline and efficiently integrating validation. While the challenge ahead is real, we are well-positioned for the long haul and I like our relative position in the market now and in the future.
So in closing, I want to thank our customers for their loyalty and commitment and assure them that we're here for them for the long term as they navigate this period of low commodity prices. I want to thank the NexTier team, including management and our hard-working field employees for their extra effort. They're focused on our customers, their loyalty and the dedication, safety and efficiency. I simply could not be surrounded by better people. We are working together to create opportunities that will allow us to encourage our departed comrades to rejoin the team. To our shareholders and other stakeholders, we are managing the company for the long haul and will continue to work diligently to protect our strong balance sheet to give us the continued ability to act both offensively and defensively as the market gets sorted out in the coming quarters.
With that we'd now like to open up the line for Q&A.
[Operator Instructions]
Our first question comes from Sean Meakim with JP Morgan. Please go ahead.
Robert, Kenny, good morning. So thanks for all the -- for going through all the specific cost actions you take in both to integration, as well as reacting to the current environment. When you resize the fixed cost structure, is there any reason it looks materially different than what standalone key may have looked like back in 2018 just considering how new fleet you'll likely be running later on 2020 and how long does it take you to get there?
Thanks for the question, Sean. Definitely, we've looked at it from that lens and anticipate being able to create SG&A structure that is in tune with Keane prior to the merger with C&J, if not somewhat smaller considering the current activity status. When do we expect to make it, we made a little bit of progress. You can see in Q1. We're making a huge amount of progress since call it the second week of March and we intend to get there in Q3. You'll see that, Kenny, would you like to give a little more color perhaps.
Yes. On the SG&A, I mean, we're seeing a nearly a 40% reduction in Q2 versus Q1. I'll just add that we are seeing the benefit of the Well Services divestiture as we had planned in terms of SG&A reduction. So all those combined, we're going to see a significant reduction in Q2 as we head towards Q3 and potentially getting below the $80 million annualized/
Got it. That's very helpful. Thank you. And then I guess in recognizing the difficulty in forecasting without any visibility, can we just talk about what you'll manage the business to in the near term? So in other words to maintain that fortified balance sheet you need to avoid burning cash for an extended period of time. How confident are you and your ability to sustain positive cash margins net of maintenance capital full company overhead, if we assume that activity stays fairly low through 2021.
It's a good question. Look, the reason we made, taken a position of not being able to provide a lot of guidance like we've done in the past is simply because scenario for us on the revenue side is extremely still uncertain. And there's no question that the activity we've already, we're experiencing significant downward activity, but on the cost side we try to give a lot of guidance there because we are, I would say planning for a worst-case kind of short-term intermediate term scenario and taking out dramatic cost as you saw as much as 75% of our total compensation line, but when we look at what our activity looks like going forward. I think you got to be able to first predict and be able to estimate what the total market frac capacity is going to look like.
And then look at it through, this is me given a little bit of guidance. Look at it through our historical market share perspective and we've kind of been in a range of 8% to 12% of the active fleets deployed in the market. That's been true kind of through the process. We're obviously working to increase that but the bottom line is that we're sizing the organization for this kind of Q2, Q3 scenario where the operators are dealing with a full storage environment and or having to shut in production. Kenny, you want to add a little more color?
Yes. On the second part of your question, Sean, the cash flow I mean look we've looked at the scenarios and how they can play out, but even if it stays at these levels that we see here through 2020, I'll just tell you what we see. We do see positive free cash flow generation for 2020 where we'll be able to increase our cash balance at year-end of $255 million this obviously doesn't include any borrowings. This will be helped by our significant working capital that we will liquidate and in addition I just want to mention as we're talking about longer term into 2021, we do have that $34 million bond capture and look this sets us up for 2021 for whatever it brings whether we have to play offense or we have to play defense.
I would also add that we're really not going to try to necessarily optimize the cost structure of the company for the absolute bottom of the market. We'd rather focus on maximizing liquidity so that we got enough room to deal with defensive - dealing with defensive aspects now but we also want to have the runway working capital runway to deal with the ultimate rebound in activity. So we kind of balancing those two.
Our next question comes from Tommy Moll with Stephens. Please go ahead.
Good morning and thanks for taking my question. Robert for the fleet that are currently active, what kind of visibility if any you have for the calendars even in the just the coming days, weeks, month? And then as we proceed through the rest of this quarter in the third quarter what's the go no-go decision based on when you're deciding how many of those to keep active? Is it just insuring your free cash flow breakeven after maintenance or is there another way to think about it?
So good question, Tommy. I would just want to say that the visibility we have is linked to the visibility that our customers have. And if you notice a lot of the market EMP operators are changing their CapEx guidance pretty frequently as the clarity becomes more clear about working with their production. We have loyal, a very loyal customer base and they're sticking with us as we go through this, but it is very difficult to put your finger on out part to Q2 and Q3. We do have customers that are making plans to scenario planning that could have some variation there. As far as how we size ourself and how many fleets we keep deployed, it's very much, I guess the same as for us as it is in the upper side of the market in the sense that we're going to size ourself to what we know we got coming, plus a little bit of flexibility to take advantage of opportunities. So the number of fleets that we have deployed will move pretty rapidly with the market outlook. And you can see from the guidance that we gave about reducing our headcount by two-thirds, it gives you a little bit of view of how dramatic the activity change has occurred and I know everyone's kind looking for a little bit of guidance. And I would just say we talked about in Q1 that we were at reached a peak of 31 deployed fleets. We and I can tell you what we do know is that we exited April on an average of about 17. And the fleet count is going down from there. The market projections by many of all of us have has placed it ranging from 55 to 100 fleets in the market and we would be in that band as well as wide as it is. Did I catch all that question, Tommy?
Yes, sir. That's very helpful. Thank you. Pivoting to a bigger picture question for you, Robert. Consolidation has been a big part of the company's history and during this downturn I suspect we're going to see more opportunities to do so, but on the other hand you're the third largest player in the North American completions market now or the largest pure-play. So I wonder as we go into this downturn does it make sense to continue consolidating or do you look at your asset base now and think it's at full scale and there may not be need to continue to add?
I appreciate that question. I would say, first, we fully appreciate from the macro perspective the benefits of consolidation given the ability to rationalize assets. We've got track record of success doing it and but most recently demonstrated through the good integration process that we've done with C&J. But for us the strategic rationale going to be extremely important. We're going to hold a very high bar to screen the opportunities but it wouldn't be a case I don't think where we see us taking on too much leverage to do it and it would be aimed at stop transactions that would be accretive to our shareholders from the beginning. But having said all that, I do want to say we go into it with an open mind. We've obviously got a view of the competitive landscape in North America and are constantly taking a look at that. And I'm sure so our potential counterparties and that's kind of the logic, but the conditions that have to be very good. And I would say as we get further along and get our reaction time or our reaction finish to this current scenario that we may investigate maybe other ideas around consolidation that are not purely frac.
We keep our mind open to that a well. So we are just now digesting the C&J deal and we're not aggressively in that mode.
Well, I would ask you for an example of what an area might be outside of frac if you're willing to give it but assuming you may not be at this point I'll also be happy to turn it back, appreciate the question and answer.
Yes, look, I appreciate that last part of the question. I would just say is that we're in very early days here and looking for somewhere that our management team could add value and where the industrial logic had some can do what we do today.
Our next question comes from Mark Bianchi with Cohen. Please go ahead.
Hey, thanks. Kenny, I just wanted to go back to your comment about the free cash throughout the year. I thought I heard you say something about a $200 million number at the end of the year and I just maybe I misheard because I'm looking at the cash balance right now at 190. Can you just kind of run through what your commentary was there again?
Yes. Sure. So I was just pointed out that from what we see today if Q2 stayed the way it is through 2020 that we would see a positive free cash flow generation increasing 2020 ending cash over our ending balance of 2019 to $255 million. That was the comment.
Got you. Okay. That's great. In terms of the working cap expectation there, can you talk a little bit about how much you would expect to release in that commentary? What's realistic --?
Sure. When we put the two companies together as we said we identified a lot of opportunities on working capital efficiencies. On the client side, we still see a lot of opportunity to incrementally increase that working capital efficiency and even on the supplier side; we've been making really good inroads collaboratively with our supplier base. So we still see a trend of working capital of efficiency that we called out last quarter in terms of incremental efficiency. But in general with this market environment, this downturn you're going to see working capital being a significant contributor to our free cash flow from both our incremental efforts and also the shape of the revenue and the activity.
So I would just say it's going to be significant portion of our free cash flow generation in 2020.
Okay. Fair enough. In terms of the exposure to gas basins, can you help maybe say how many fleets you have there and maybe if there's any visibility on what that piece does over the next couple quarters given indications from customers and so forth?
So thanks for the question, Mark. We haven't really given any guide on for competitive reasons how many fleets we have operating in the gas basin, but I would point out that Keane originated in the Marcellus Utica region and we've had a very consistent customer base that we've actually been able to grow a little bit in the last couple quarters. So it was -- it is a coming with the oil situation we have even bigger contributing factor for our overall activity profile. As far as the relative prospects in gas versus oil, it is distinguishing himself as we look out in the next few quarters. You can need to see that in commodity pricing a bit. So we really like the position that we have. And we had taken some actions a couple of quarters ago to kind of rationalize our footprint in the northeast that made us even more cost competitive up there. So we've been able to show that to our customers while maintaining our consistent service efficiency and safety record up there. So we like it a lot. It's important to us and we got some very good customers. I believe the best ones operating in the region.
Our next question comes from Scott Gruber with Citigroup. Please go ahead.
Yes. Good morning, gentlemen. Robert, to think about in a longer-term view here, how do you think about how the completion business evolves here in the US? And how does the industry help the E&Ps time incremental efficiency gains but also make a margin in the process? I'm sure there's a digital angle to this, but in addition you previously mentioned potentially adding non-stock businesses, is that simply from a diversification angle? Is there a bundling angle here in terms of how you go to market? Are there new contract models possibly that you're contemplating? Just overall how do you think about -- how you help customers drive additional efficiency gains but also capture some margin for yourselves in the process.
That's a good question. Look, there's a lot that we can continue to do from the efficiency perspective as we look into the future. I do believe first from a macro perspective that the call on US production is going to come back. The much bigger question is kind of maybe when and when it does that the customers that I mean the competitors or the service companies that can deliver the most cost-effective or cost-efficient service will be the ones that win out the most. As far as what other services you would want to roll into that? I would say as a service company can increase the scope of the services they provide in the completion network, the opportunity to leverage fixed cost and the opportunity to improve efficiency on a bigger scale is increasing.
We went through a phase where the operators were doing some vertical integration. And it was prevalent even as we come out of Q1 because they had challenges at some points of the cycle gaining access. And we believe that as things move into the future, if the service company like us can put together a bigger scope that we'll have more to work with to take efficiencies further, but make efficiencies even more prevalent. So that's one avenue. We've been about a year into the investments into our digital programs that are really focused on primarily just that. We talked about some of the bigger service companies speaking of digital. They're often talking about revenue opportunities generated by digital, but I just want to distinguish ourselves at the stage we're in today, our investments are around improving cost efficiency.
We rolled out next hub in the last quarter's call. This is a center for bringing in logistics and equipment health monitoring and alloy operations around the well site into a hub so we can leverage talent, leverages our engineering across a bigger scope reducing the total number of people required to do the job for example. Lowering the equipment health monitoring aspect of the digital program is having the data where you need it when you need to make decisions to prevent early failures of equipment for example. We think these programs have the capability to take 20% to 30% out of our operating maintenance cost profile over time by eliminating early failures even using artificial intelligence to how you control the pump systems themselves.
So through scope increase and through digital applications and through blocking and tackling that we're very good at when it comes to general efficiencies and working closely with customer partners, we think there's a lot more to be had there. And I think customers going to be very sensitive and looking at that in the future and that's what we think preferentially our market share is going to increase over time.
Now that makes a lot of sense. And I know everyone's reacting for the market right now give up you and your customers because you talk with the senior leaders that are your customers either side conversations today around expanding the envelope of the services that are the top tier provider like NexTier can bring to the world stage. I'm just thinking is this can be more of a push from the services industry or is there going to be some pull from customers to kind of have a shift in the model here moving away from that ala carte model and maybe towards more bundling of services here in the US.
Look, Scott, it's early days for sure but just thinking about the operators are dealing with the scenarios it's tough for them too, they're dealing with low commodity prices and when they start to really dig into their organizations like we are, they're looking for ways to rationalize cost and productivity every way possible. And I think it's going to be a process that we're going to try to create a bit, but there's been a little bit of discussions in that area. But it's definitely early innings.
Our next question comes from Stephen Gengaro with Stifel. Please go ahead.
Thanks. Good morning. Two things, if you don't mind. Just one to follow up just on an earlier question I think from Mark. Your cash balance comment that you made; you ended 2019 at $255 million, it jumped in the first quarter, is your comment around a rise from year-end 2019 to 2020? Where do you -- can you give any color where you think you'll be relative to the end of the first quarter?
Yes. It is a rise from year end to the end of the year. We're not going to give any color on Q2 but what we are saying is that excluding our ABL draw we will have incremental cash on a balance sheet by the end of the year versus year end 2019.
Okay. Great. Thank you. Do you see working capital liquidation from these levels though? Is that fair?
Yes.
Okay. And then thank you and just one follow up, as we think about your maintenance CapEx per fleet per year with fleets being idle and I'm sure some negotiations, how should we think about that number for the balance of 2020? Is it coming down at all versus history or you think it's pretty stagnant versus where it's been?
No. So in 2019 we averaged about $4 million in maintenance CapEx per fleet. We committed to reducing that to about $3.5 million to $4 million. What we're seeing today to achieve our guidance of the $100 million to $120 million in 2020. We're going to achieve about a 20% to 30% per fleet reduction off of that $3.5 million to $4 million per fleet.
We are going to achieve that. One of the factors in achieving that will be some inventory consumption as well as the fact that we're running smaller, a smaller fleet of asset.
Thank you and then just one follow up to that. As you -- as you have discussions with customers now I know things are extremely dynamic. Are you seeing a strong preference or ability to deploy some of the newer assets more rapidly or is our big customer preference or is it -- there's too volatile right now to have a good sense?
I would say most of our customers are focused on the key performance indicators on how they run their business. It's a home; it's a mix of the equipment and the people in the process and everything. But I would say that the investments that we called out that we made in the front half of this year and a latter part last year around dual fuel has been preferential a little bit in the market not everywhere still and there's a long ways from them being everywhere can supply filled gas everywhere needs to be, but assets that can burn natural gas CNG or diesel do have some places in the market where they are preferred. It's our investment.
Our next question comes from Chris Bell with Wells Fargo. Please go ahead.
Thanks. Good morning. So thanks for all the clarity on the cash front, just curiously if you have a little more color obviously 2Q is very volatile. You had a lot of cost come out as well. Can you give a little bit of sense around EBITDA? Whether you expect that could be whether breakeven is a decent bogie to think about for the quarter? Because I, there's a pretty wide range on how it could shake out and given the visibility that have so far just curious if you can give kind of a benchmark on EBITDA.
Look, that's what we meant when we said we weren't really going to be able to guide because while we've given a lot of pretty clear guidance on the cost side. The fluctuation on inactivity day-to-day makes it very difficult to predict your revenue side of it. So the range is pretty broad depending upon how many active fleet you're working. In a time like this where the customers are changing their minds a lot, it's not the most efficient operating environment to operate in. So why basing a schedule or efficiency can be a bit less kind of during those periods. But it's not so much about the short-term Q2, Q3 that we're focused on.
We're obviously taking out a large amount of cost demonstrating that we got our eyes on the ball there, but I'd say protecting the balance sheet and the liquidity position to give us the ability to capture the value that's going to be in them -- in this marketplace once things do get kind of sorted then we can get a more clear view of what the activity profile is going to look like. I think there's where the more -- the most value creation is going to occur in our space is the company's best position to do that. We're going to do both obviously but we're going to be focused on having that liquidity that gives us the ability to have the working capital platform to capture the growth as it gets in the next year or the year after that even.
But even in the worst case scenario like Q2 and the point we're trying to make is that we're going to have more cash next year at the beginning of the year than we do this year, thanks to the working capital input. And we're going to be very well positioned to deal with a defensive mode if the market is bad or offensively if the market gives us a lot of opportunity.
Okay. That's fair. Thanks. And then to follow up obviously activity is the big mover but there's been a lot of requests for pricing. Some different answers from some of your peers on whether there's movement there, but given how hard it is to clawback have you seen much of a change in pricing? And if so, can you quantify?
Yes. So we said last quarter that as we rolled into the beginning of this year is much like the year before that we did have to yield pricing and in a way we would typically call on those pricing concessions back through improved efficiency and better cost management. We were on that track in Q1 if you notice that our margin, EBITDA margins were flat versus Q4. That was with price concessions similar to the year before. After the virus scenario when people were shuffling to get through -- get to the point we're at right now there were some further price concessions and we've had further costs reductions as well. But it's still very fluid and we're not going to try to quantify it, but just keeping in mind that the decisions we make around pricing are going to -- go back to my previous comment that we're trying to manage the cash and manage the balance sheet to give us the longest runway and the most opportunity on the upside.
Our next question comes from Chase Mulvehill with Bank of America. Please go ahead.
Hey, thanks for squeezing me in gentlemen. I guess first question I had I just want to make sure that I heard you right. I think -- I think I heard you said you exited April at 17 fleet. Can you confirm that? And if so, that's actually a little bit better than the rig count is down since then and definitely better than what we're hearing from some of your peers. So maybe if you can kind of talk about is their customer concentration or something that is helping you kind of outperform your peers when we think about how many active fleet you have out there today.
So, Chase, I clarify only by saying that was an average number and at the back side of April was obviously lower than the entry point of April. And I would also say that in a mode we're in right now in the overall market it depends on kind of who you working for on the timing as it relate to kind of who's shutting down operations and where they're adding a pad or whatever, lots of different factors. So I think that the comment I made about market share is one that I would say that we saw I think a little bit blip to the upside on market share in April. We did, but how that shakes out the rest of the quarter difficult to predict.
Okay. All right. And then so how we should think about it is just 8% to 12% market share as we go forward we all make our own assumptions about the fleet count, but then when we think about profitability. I don't know if you know I know you probably don't want to speak to 2Q specifically but just how should we through the year end just kind of walk us through overall how you should -- how we should be thinking about gross profit per fleet for the remainder of the year? I don't know if you want to give us the exact numbers, but do you think it will remain positive on average for the rest of the year?
Chase, look every single part of the P&L is in flux, revenue, every single cost line and I would just say it's going to be very difficult to look at the business the same way we had previously during these -- during Q2 and perhaps even a report in Q3. We do have a fixed cost base that we're trying to lower in every manner possible outside of labor even especially and that as you get to a smaller fleet count that is applied across that makes it challenging. So is there a range, profitability in tune with the range of market share? Yes. Could that range dip in the negative territory in the bottom of the cycle? Yes. And would -- is that what we foresee? We had -- we're not going to try to guide that because it's too difficult on the top-line right now. But I like the way you categorize it. You got that 8% to 12% market share range to look at when you're doing your modeling on that-- on the total market and give you a view of it. And that combined with our guidance on, taking $400 million out of our compensation line and gives you a good feel I think for what the ranges would like.
Yes. Now just to add our cost has -- we've always said our costs are highly variable. And I believe that we've demonstrated with the cost actions that we've taken promptly that they are variable. Maybe if I can comment on the decrementals. If you look at our history we have been able to deliver decent decremental. So I mean I'll take Q4 versus Q3 is less than 25%. I mean I would say that a good result would have similar decrementals in Q2 versus Q1.
And I'd also add that when you think about the cuts we've already made. I think we've been the most proactive in the market as far as deciding to do it quick and in implementing. If you are trying to size the organization for the worst part of this production shutdown in the US, you'd have to cut a lot more muscle out of the organization than we've done. And we think it's important to be able to protect that to perhaps furloughs instead of layoffs or keeping a crew or two available to take care of the opportunities itself, pipelines bringing forward. But the main thing I want to point out is it we really do think the value creation prospects around having your assets ready to go; having a muscled up staff ready to man them up and having a balance sheet and liquidity associated with being able to fund all that and we really set up very well for all three of those.
And one point I want to make is when you got this kind of fluctuation and activity where the bottom is falling out of completion activity in just one quarter. How you protect those assets are very key and the program that we got put in place, I'm extremely pleased using our digital program that this new as well to be able to give us a virtual understanding of where every component is placed and how it's being maintained while in warm stack. So we are looking at all three of those aspects.
Our next question comes from Waqar Syed with AltaCorp Capital. Please go ahead.
Thanks for taking my question. You sent one fleet to Saudi Arabia. Do you see prospects for additional in future? Number one and number two, how much horsepower does that involve?
Thank you for the question. We did send a fleet a while back it's been working very successfully in the unconventional field in Saudi, unconventional gas in conjunction with our partner NESR, who is the front partner in that arrangement and managing all the business development. We stated a couple times that we see this is a growth opportunity for ourselves on very much linked to NexTier's ability to continue to create business development opportunities. So, yes, how many horsepower, I would say you got about 1.25 of a fleet of a conventional horsepower fleet from the US in country there now. And we believe the prospects for adding to that in the near term are pretty good.
Okay. And how do you account for the revenues and costs and margins for that towards the, what's the right way to think about it?
I would just say that their incremental to our US dollars and margins.
Okay. So it's just fully consolidated all of the revenues and costs?
That's correct in our completion services segment.
Okay. And then in terms of you, you guided to SG&A down, I miss that number. You said SG&A would be down by almost how much in the second quarter?
Nearly 40% versus Q1.
Okay. Could you provide any guidance on the D&A side as well?
Yes. So look on the D&A side we're going to be less than $300 million for the full year. So significant reduction versus last year with the purchase of C&J in the purchase accounting.
Okay and then in terms of non-cash compensation for Q2 and onwards any guidance there?
I would say it'd be aligned with Q1 maybe a little bit down.
Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Mr. Robert Drummond for any closing remarks.
Yes. Just quickly thank you very much for participating in today's call and your interest in NexTier. Hope you guys are staying safe in the environment and look forward to seeing you. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.