Good morning, and welcome to the Liberty Oilfield Services Third Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note today's event is being recorded.

Some of our comments today may include forward-looking statements, reflecting the company's view about future prospects, revenues, expenses or profits. These matters involve risks and uncertainties that could cause actual results to differ materially from our forward-looking statements.

These statements reflect the company's beliefs based on the current conditions that are subject to certain risks and uncertainties that are detailed in the company's earnings release and other public filings. Our comments today also include non-GAAP financial and operational measures.

These non- GAAP measures including EBITDA, adjusted EBITDA, and pre-tax return on capital employed are not a substitute for GAAP measures and may not be comparable to similar measures of other companies.

A reconciliation of net income to EBITDA and adjusted EBITDA and the calculation of pre-tax return on capital employed, as discussed on this call, are presented in the company's earnings release, which is available on its Web site. I would now like to turn the conference over to Liberty's CEO, Chris Wright. Please go ahead..

Good morning everyone, and thank you for joining us. We're pleased to discuss with you today our third quarter 2018 results. In partnership with our customers, the Liberty team continues to drive high efficiency operations, which are a win for Liberty and a win for our customers.

Strong cash generation in the third quarter enabled us to execute on returning $60 million of cash to shareholders in the form of a regular quarterly dividend, and repurchasing 2.4% of our total outstanding shares, while reducing our net debt to $20 million. In the dynamic market conditions that we are in, customer relationships are paramount.

Fortunately, Liberty's whole business is built around customer partnerships. As our customer's plans change or market conditions change, we work with our customers to adapt. As we mentioned in our last call, Q3 began with customer scheduling challenges and they continued throughout the quarter in various fashions.

Despite these challenges, our third quarter results were strong with revenue of $559 million, and net income was $66 million or $0.49 per fully diluted share. Adjusted EBITDA for the quarter was $117 million or $21.2 million for average active frac fleet on an annualized basis.

Working in concert with customers, Liberty continues to drive innovation and operational efficiency across the entire fleet. This performance translates to strong demand for Liberty's high efficiency fleets that deliver differential frac services.

Premium service quality coupled with basin and customer diversity positions the company to believe that it will continue to generate strong returns on capital employed regardless of how the market unfolds in the next few quarters. Liberty was built for long-term success as illustrated by the 12 months pre-tax return on capital employed of 43%.

Liberty's geographically-diversified operations continue to be in high demand, and our long-term partnership strategy allows us to work closely with customers to make the most efficient use of our assets and expertise to lower our customer's cost of production.

During the third quarter, additional local sand volumes continue to come online driving down well cost for our customers. We have ramped up to pumping over 70% local sand in the Permian Basin currently.

The frac pricing environment has been weakening modestly in the second-half of 2018 as pressure pumping supply that was built for expected Permian completions growth outstripped the flattening completions growth curve.

In a normal year, fourth quarter revenue typically declines mid-single digits sequentially due to the holiday season and budget management by producers. Current indications for the fourth quarter suggest that this is not an unreasonable expectation for this year. Global oil markets remain constructive.

The rapid pace of inventory draw has slowed significantly, but days used in storage reflect relatively normal inventory levels. Markets are focused on the loss of Iranian oil due to the return of sanctions and continued decline of Venezuela's oil output.

These significant output declines are being roughly offset by increases in oil production from Saudi, Russia, and the United States. Today's $65 to $70 oil prices provide strong well returns for our customers.

With a supportive macro commodity environment and the projected increase in takeaway capacity coming online in major basins, we would expect the supply/demand balance for frac services to tighten and pricing to strengthen in the second-half of 2019. Demand for dedicated efficient fleets looks to be strong in 2019.

For the entire third quarter, we ran 22 active frac lease. We anticipate deployment of our 23rd and 24th fleets in the first-half of 2019. These fleets are currently under construction. As an example of one of our recent efficiency-focused technical efforts, Liberty is focused on the dynamics and logistics environment.

Despite increasing use of in-basin sand, more than 60% of the sand Liberty pumps next year, is expected to move by rail. We will make more than 300,000 truck trips hauling sand. We are developing the next generation of our software to streamline the management of this process.

The end product will provide complete visibility of our proppant supply chain, including rail, transload, and last mile in one platform, all integrated with our ERP system.

Geo-fencing, route monitoring, EBOLs, and integration with ELOG technology will provide the ability for optimized last mile dispatching across each basin with a strong focus on safety. Ultimately, these improvements increase our efficiency and benefit our customers, and this is just one example of our relentless pursuit of improvement.

I will now hand the call over to Michael Stock, our CFO to discuss our financial results..

Good morning. We are pleased with our third quarter 2018 results. The Liberty team worked tirelessly to provide exceptional execution for our clients and deliver strong financial results in the face of customer scheduling and choppiness.

For the third quarter 2018, revenue decreased 11% to $559 million from a record $628 million in the second quarter of 2018. Net income totaled $66 million in the third quarter compared to the net income of $95 million in the second quarter. Third quarter's adjusted EBITDA decreased 21% to $117 million from $149 million in the second quarter.

Annualized adjusted EBITDA per fleet decreased to $21.2 million in the third quarter compared to the $28 million in the second quarter.

Although the annualized adjusted EBITDA per fleet was down from a record setting second quarter, we are very pleased with the third quarter earnings numbers especially in the face of the scheduling issues the team had to deal with.

As we've said, we are returns focused company and at the end of the day sustaining cash flows from investment drives returns. Sustaining cash flow per fleet is a metric we use to measure through cycle fleet profitability and it is an important metric we use as an input to deciding future capital commitments.

We define sustaining cash flow per fleet as the expected annualized adjusted EBITDA per fleet versus our expected annual maintenance capital per fleet.

Through the third quarter, our year-to-date annualized adjusted EBITDA per fleet was $23.2 million, and as previously announced, our expected annual maintenance capital for this year is approximately $2.5 million per fleet.

General and administrative expenses excluding $2.2 million of fleet activation cost, totaled $22.5 million for the quarter or 4% of our revenues. Third quarter G&A included stock-based compensation expense of $1.6 million. Interest expense and associated fees totaled $3.6 million for the quarter.

Third quarter income tax expense totaled $12 million compared to $16 million in the second quarter. Liberty was not subject to income tax prior to its initial public offering. For the remainder of 2018, we expect our reported income tax expense to be approximately 16% of pre-tax net income.

For the fully diluted earnings per share calculations, our effective tax rate would be 24%. We ended the quarter with a cash balance of $87 million and total net debt of $107 million. At quarter-end, we had no borrowings drawn under our ABL credit facility and total liquidity, including availability under the credit facility was $337 million.

As we discussed previously, in order to seek the best long-term returns for our shareholders, we will follow a prudent strategy of maintaining a strong balance sheet, investing in compelling growth opportunities and returning capital to shareholders when appropriate.

In the third quarter, we paid our first quarterly dividend of $0.05 per share and announced authorization for $100 million share repurchase program. During the third quarter, we repurchased 2.8 million shares, reducing our total outstanding share count by 2.4%. As of September 30, 2018, the total remaining authorization is $46 million.

Additionally, our Board of Directors announced on October 23 a quarterly cash dividend on our common stock of $0.05 per share to be paid on December 20, 2018 to holders of record as of December 6, 2018. With that, I'll turn the call back to Chris before we open up for Q&A..

Liberty's strong financial results, favorable outlook, and strong balance sheet support our balanced strategy of growth and returning capital to our stockholders.

Liberty is committed to creating long-term stockholder value via compounding shareholder value by reinvesting cash flow at high rates of return and returning cash to shareholders as appropriate.

We are excited by the growth opportunities in front of us and the positive long-term outlook for the shale revolution and the benefits that this brings to our industry and the country as a whole. Thank you for joining us and we'll open up for Q&A now..

We will now begin the question-and-answer session. [Operator Instructions] Today's first question will be from John Daniel with Simmons Energy. Please go ahead..

Hey, guys, thanks for putting me in.

Chris, you and your team are regarded as one of the more forward-thinking players as it relates to technology and innovation within the frac market, so with growing signs that E&P customers are exploring electric fleet technology, can you say what your thoughts are on this and when and if we'll see you guys pursue a similar strategy?.

Yes, John. I believe we spoke on it last time, and funny as it may sound, we've been looking at electric frac fleets since we started this company.

We're engineers by training, and so, we're interested in that, but to-date, the two biggest advantages of electric frac fleets is they're dramatically quieter than a standard frac fleet and they burn natural gas instead of diesel. So they reduce fuel cost. But in Liberty, several years ago we developed these quiet frac fleets.

They were as quiet as an electric frac fleet. And about 40% of our capacity is dual fuel, which means that with the newest generation of that, we can get almost 90% of the energy to run those engines from natural gas, 11% supplemented diesel, and then when you have intermittency, you have the robustness to keep running operations.

So we continue to look at electric frac fleets, but right now, the math of the cost of them and the requirement that you have robust, stable delivered natural gas, or operation shut down, they just don't look as attractive as the technologies we have today.

But we will continue to look at them, and as soon as they make sense or they're close to making sense, you'll see Liberty in that space..

Okay.

One follow-up and I'll let others hit on the modeling questions, but with the dual fuel fleets, Chris, do you see any [indiscernible] improvement in the fleet profitability for those -- that 40% of your fleets versus the others or is it still about the same?.

Ultimately there -- the most of the advantage of dual fuel goes to our customers, right, because it saves fuel costs on their operations. And again compared to other efficiencies and things we do, they're meaningful but they're not dramatic. But yes, I mean we probably have a larger percent dual fuel capacity than anyone out there.

So does it open up or favorably positioned us to a few more opportunities having so much dual fuel capacity, it probably does. Is it needle-moving or noticeably different profitability, probably not..

Okay. Thanks for your time..

Yes. Thank you, John..

Next question will be from Sean Meakim with JPMorgan. Please go ahead..

Thanks. Hey, good morning..

Good morning, Sean..

Good morning, Sean..

So Chris, your point on seasonality in the fourth quarter is well-taken but, should we think of that mid-single-digit revenue decline as a midpoint of some type of range. I'd be inclined to think that's more towards the upper end of the range.

And then also given that revenue is less relevant today as we're just having this mix towards local sand, I think the more important metric will be how we think about the range of EBITDA per fleet in 4Q and maybe your confidence level in 4Q being a type of bottom for that….

Yes. All right, Sean. Well, you're right that the seasonality which is full budget management and it holidays and people are shutting down, so it's always a bit of a challenge. I'd say, we're another year older, another year deeper relationships. So, I think we've got probably better use into our customer plans further out this year.

So, we've been able to plan and fill gaps where people have decided to stop early. We've been able to plan a little bit better on that which that probably is offsetting a bit of a natural little bit of revenue decline from greater use of in basin sand.

But I think we feel pretty good going into Q4 in where we stand and how busy all of our fleets will be. Our guess is that that decline in EBITDA per fleet in the fourth quarter is probably around 3 million per fleet decline from Q3 maybe a little less than that.

And our outlook certainly makes up look like Q4 is the bottom, we have multiple discussions right now about Q1 in next year and we are back in the situation we're typically in which is more demand for our fleets, then we have fleet starting in January.

So we're trying to stay loyal, protect the long-term, so we're trying to stay loyal, protect the long-term customers first. You know I think we will cover all the people; we're deeply in conversations with. But this year starting next year looks pretty strong for Liberty..

Yes. Thank you for that detail that's very helpful. And then thinking about the fleets, 23 and 24, and as deployments not going in the first half of 2019, any changes in terms of customer commitments or where they're expected to operate.

And I'm thinking, is there appetites from year end to deliver incremental new builds next year beyond those two or you know given the expected ramp in 2019.

Would that be maybe something a decision point for mid next year for 2020 deliveries?.

No, we monitor that closely. As everyone knows, right, the market in the Permian, there's tons of work going on but the market softened a little bit there. There's a number of idle fleets. So we have customer interest to bring new fleets in that market today. But taking us where the pricing today is weaker there.

In the – you know that you're not quite as impacted by all that in the Rockies. So you know we have more than two hands up for those two fleets that will finish in the first half of the year. You know it's – it is – it's very possible that both of those go into the Rockies. We expect Permian or turn up activity to be more second half weighted.

A dialog about people's plans, they are going to be late this year, they're going to be early next year and look customers. We've – we've got that we're close with, they've got increasing capacity. It's certainly possible that we would add another fleet or two next year. Remember those weeks 23 and 24 they were budgeted to add this year.

But we slowed them down in expectation of the market. We were able to juggle some things and cover the customers we have committed to for this year..

Got it. Great. Thank you for your feedback..

Yes. Thank you..

The next question will be from James West with Evercore ISI. Please go ahead..

Good morning, guys..

Good morning, James..

Hey, Chris, with fleets 23 and 24, it sounds like a demand for those is strong. I know you are trying to time the market as appropriately as you can at this point.

It doesn't sound like they are dedicated to somebody yet, but should we expect either an announcement or as those come to the market as the construction is finished they will go to work basically immediately?.

I mean, they -- for the most part, they are dedicated to someone already. We're just looking at the scope of other customers plans next year and whether where that fits into existing capacity. So, there could be some movement but I think it's pretty clear they will be fully utilized when they deploy.

The issue James is more, we probably got five plus dialogues for those two fleets and really those two will go to the first two that start up under good term. We think we know who those are and we'll continue dialogues with others, that's which I said, it's likely we had another fleet or two next year. We won't add a lot of fleets next year.

But there's going to be meaningful ramp up in West Texas next year and in the Eagle Ford, we have a lot of demand and increase from what we do. So we're continuing the usual dialogues but with existing customers slowing down a little bit, it just pushes off a little bit the urgency to need to add capacity..

Okay. Fair enough. And then a follow-up for me on your sand suppliers I believe you had some contracted sand but it look like in-basin sand ramped up nicely throughout the quarter, help you on the cost side.

Could you just remind us what's your contract status looks like for your sand supply?.

James, this is Ron. Yes from a contract standpoint we've always had a philosophy where we aim to have some amount of our capacity roll-off every year.

That was probably around 30% so maybe kind of a rolling three year sort of average on contract length and so what that meant is that we -- as we ramped up in-basin capacity this year we've just allowed some of our existing northern white contracts to roll-off as they reach their termination point.

So we've had a -- we're in a good situation where we've been able to balance what we've been taking on from an invasion standpoint with the end of northern white capacity we used in the past..

Okay, great. Thanks Ron, and thanks Chris..

Thanks, James..

Next question will be from Jud Bailey with Wells Fargo. Please go ahead..

Thanks. Good morning. Question, Chris on your -- the EBTIDA per fleet you know I think you said around $3 million or so. Is that going to be more price or is that – your expectation of slowing down pumping efficiency for the holidays or could you help us think about what the mix is, that is pushing that down.

Is it more price or is it more expectation of store efficiency because of the holidays?.

It's mostly customer schedule efficiency. The big drop from Q2 and Q3 was just there were more days that fleets were pumping that is the dominant driver of the decline from Q3 to Q2 and it will be the main driver and the decline from Q3 to Q4.

You know just when you have people you guys think you've got a customer you know they sort of ramped up and finished up their spending for this year I'd like to think part of that's due to Liberty's efficiencies, but they ramp up their – I mean, they end their program in the end of October, right. You've got two months or so. You'll get a fill.

We've got people interested in that, but it's not the same crew working on the same wells and the same things. So there's a loss of efficiency and we've got to start when the next customer wants to go, so there is usually a gap between those two. There's a ramp up efficiency getting going, again starting in a new place.

So it's mostly less days fracing and a little bit less efficient operations when you first ramp up and start a fleet with a different set of – different customers at different location..

Okay. That's good color. Thank you. And my follow up is on pricing. As you look into early 2019, how are you in terms of pricing re-openers for your contracts? I know those are – that's usually a pretty fluid situation between you and your customers.

Do you feel like you've already kind of granted some price concessions, I guess or are those to come in early 2019 or how do we think about your portfolio contracts and kind of where pricing is and where you think it could be in the following months?.

Yes. I agree with your comments. For us, it's very fluid. We've always had very much of partnership mentality. We agree typically with a customer that we're going to do X amount of work for them for the year. So there is a plan for it and then, pricing changes as markets change.

Same prices go down and fantastic that's good for us, that's good for our customers. We adjust immediately as that happens. There is excess frac leads out there and sort of service pricing and the software market is softening meaningfully, we adjust our pricing as that happens, up and down.

So, as the market has softened, we moved pricing down together with our customers. The bigger driver of lower frac stages cost for our customers has been decrease in material costs. And just as the relationship season we get things done more quickly which lowers a first stage cost for customers as well.

So, we don't expect any – there is no big cliff change that's going to happen on January 1 for us in pricing at all. In fact you know again it's just less demand for frac capacity in Q4 than in Q1. So if there was any movement of price it might be the opposite direction.

But I would expect pricing actually relatively flat or what it will be in Q4, what it will be in Q1. But I think we'll have a better more efficient you know higher throughput schedule in Q1, but pricing was as dynamic. It is not based on what we may have two fleets in our entire thing.

That are like thoroughly contracted for a full year at a set price, almost all the others agreed upfront. But as market conditions change either way we talk and we adjust as it happens..

Great. Well, I appreciate. Thanks, Chris. I'll turn it back..

You bet. Thanks..

Next question comes from George O'Leary with Tudor Pickering Holt Company. Please go ahead..

Good morning, guys..

Good morning, George..

I noticed the commentary in the press release and discussed today as well, just the pricing in the southern basin has been a little bit softer which makes sense given what we've seen with activity trends.

But I wondered if you could speak specifically to the Permian versus the Eagle Ford within your Southern operations and what you're seeing from a pricing and utilization dynamics perspective in both of those markets?.

Yes. Look, the Permian if you go back six or nine months ago, it was sort of the opposite end of the spectrum right. Demand was growing very fast. People were adding new capacity. But all the fleets that were able to find work in the Marcellus or the Bakken or the Eagle Ford or the Haynesville if they couldn't find work there where did they go.

They went to the Permian, because it was the strongest market, the greatest mismatch in this case more demand than there actually was supply. So now I would say that greatest gap for demand today versus in basin fleets that's greatest in the Permian right now. I don't think the Permian market is going to be terrible.

I think this is a – whatever two quarter, three quarter where things are softer. If you've got a great high efficiency fleet you're going to keep working. But most of the fleets that are not idle, that are idle – I mean they're idle for they're for other for reasons.

And so geographically if you're in the Permian is it easier to drive over to the Eagle Ford than it is with the Marcellus. I mean sure. So I always say -- and where this impacts? I should be clear; where this impacts the most is spot, right.

So you're trying to fill two months or you're trying to get any work you can in the spot, the spot market pricing swings much higher and it swings much lower. So I actually copilots this we don't play of this spot market. So we hear all this stuff and of course the same people looking for work in this spot.

They're throwing bids for dedicated fleets too. So it is market communication, but we're not a spot player. But yes it's a little softer in the Eagle Ford then maybe basins further away from the Permian probably but again markets are dynamic and fleets move in.

And I think we have a long-term structural difference of where profitability is but we've got a short-term softness in the Permian. We're not in the Marcellus Utica itself and they've got a similar you know similar issue there..

Right.

That's very helpful color, Chris, and then I apologize if I miss this by jumping over from another call this morning, but spreads 23 and 24 are those already delivered today and it's just the activities kicking in in 2019 or did you guys actually take the delivery of those a little bit down the road, just curious from a mechanical perspective that's actually played out?.

Yes. They're not delivered today. I think we mentioned before to get exactly the configuration we wanted, we had some delays on that stuff, so it was delayed originally by getting the right components.

So no, both fleets are currently under construction, now could we have less of them and swapped out some less desirable components that will swap out at a later date we could. But given the market conditions, it didn't -- wasn't necessary to do that. They're both under construction.

They'll both be done in the first half of next year and they'll both be deployed in the first half of next year. So we did mention earlier yes, there's significant demand for those two fleets, so we're quite confident that they will both go to dedicated work as soon as they're done and as soon as they arrive..

Great.

I'll sneak in one more if I could, does fleets 23 and 24, you talked about maybe having five guys who are interested for those two fleets is -- do we feel more likely today to put those with incumbent customers or are you looking to new dancing partners?.

There's always a bias to incumbent, there's always a bias. So, if we have incumbent partners and they have a strong need and we have a meeting of minds there that's always where they go first. And both of those fleets will probably be with incumbent players.

But part of it is maybe someone got a fleet today and they need a fleet and half, they could be fill a gap there and we fill the other half with someone else. But right now, what we're really trying to do is giving exactly customer plans for next year and exactly how much capacity that takes.

But our customer profile and customer makeup next year will not be meaningfully different than it is this year. It is not meaningfully different today than it was six months or so ago. So, [indiscernible] gradual addition of new customers, but that's not the main driver of growth..

Great. Thanks very much, Chris..

You bet. Thanks for the questions..

Our next question will be from Connor Lynagh with Morgan Stanley. Please go ahead..

Yes. Thanks. Good morning..

Morning, Connor..

Good morning, Connor..

I'm wondering if we can get your take on the proposition 112 initiative and just sort of your thoughts where things are heading, what your response would be if things go the wrong way for the industry just generally your take on where that stands?.

Well, I'll start right off with saying that we are not in favor of Proposition 112….

Thanks….

-- and together – if you – the industry in Colorado which is a pretty tight knit community has come together in many many ways to educate the State of Colorado the leaders in Colorado and the folks on what this issue is what it means what we do as an industry, I think everyone the positive that will come out of all this is we've spent a ton of effort reaching out in communicating with the broader community something we haven't done enough in the past.

We had a rally two weeks ago with the Mayors across Colorado. And believe it or not the Mayors of the 10 biggest cities in Colorado all 10 have come out against Proposition 112, and either spoke at the rally or sent a written statement passionately on why they oppose this measure.

So we've put great efforts in educating the population of Colorado through multiple avenues, and by all the indications or data we have those efforts have been effective, and they continue to be effective. So we feel pretty good about where we stand right now, but the boats are counted in six days..

That's fair.

And I guess how should we think about if, if things were to go the wrong way, I mean, is there a backlog of work that you guys are going to have regardless you have some time, you know like what would be the impact on your operations just broadly?.

Yes, in the short-term nothing. But yes, there was a – there was actually a rather large permit backlog in Colorado. I've seen it estimated anywhere from 1.5 years to 5 years.

So yes, the DJ basin doesn't turn on a dime if it did pass for sure it's a negative for, sure there's a scramble, and there's a change, of course it will be challenged in the courts. You can't just take everyone's property, be a democratic bone, there will be a battle about that, but activity levels will not change right after Election Day.

But if it went the wrong way, if things went poorly, yes, there is -- there will be a declining activity, but probably pretty gradually, and for liberty, I mean, we will fight to the end, but for liberty, all our assets are on wheels. And I think we would have plenty of time to orderly deploy it elsewhere..

Fair. Thanks a lot for the color..

You bet. Thanks for the interest..

Our next question will be from Scott Gruber with Citi. Please go ahead..

Yes, good morning..

Morning, Scott..

What level of CapEx is left on fleets 23 and 24 that will hit in 2019? Is there much left?.

Yes. So Scott, we'll obviously take the deposits on the equipment, and some of that – some of the ancillary equipment is being delivered on the equipment in some of that - some of the ancillary equipment is being delivered. So, about $60 million of the CapEx rollover into 2019 that was planned for 2018..

Was that $16 million or….

Six-zero, 60..

$60 million. Okay, got you. And was 3.3 staffed during the quarter.

Was that the start-up cost that hit in the quarter?.

Yes. It's hiring engineers that -- we do hire engineers way in advance. We do hire some crew leaders or move crew leaders into different positions. So yes, we are constantly refreshing people for that. And so, yes, yes a good chunk of the hiring for fleet 23 is done..

Got you.

So your sales are just up the hire for fleet 24 early next year?.

That's correct..

That's correct?.

That's correct..

Got you. And then, I heard your response on the pricing side.

But, if we just put pricing to the side, Chris, as we think about the activity trends as they start to improve early next year, where do you think EBITDA per fleet could go in 1Q and 2Q if you want to opine upon it? So based upon your expectation around activity improvement in the mix of that activity, where to get starting point for us to think about EBITDA per fleet in 1Q and 2Q?.

As you probably see in the past, we're not big crystal ballers. So it's a outlook and where we feel pretty good about Q1, you look today at Q4. Now, we talk about numbers here because we're up third in the way through the quarter already. We pretty much know where every fleet is going to be every day. So that's an easier thing.

So I don't know – I'll turn it over Michael, but I think that's probably best to wait and see how it unfolds. But I think we'll have a – we feel pretty good about 2019 and that's all four quarters..

Yes. And I agree and as come to the press release, we think the pricing, you know kind of the map is going to tighten the second half the pricing is going to improve and obviously, we've said that we think Q1 we think Q4 probably be the bottom. So, Q1 will be although the same or above Q4. So I think from the -- you can extrapolate..

Got you. And one big factor in the investment community has been debating around you know when that pricing power pendulum swings back your ways. There's efficiency you guys are obviously the efficiency leader in the industry.

What are you guys seeing if – you know if you put side just some of the slowdown around pipe constraints and seasonality but on year-over-year basis, the type of efficiency improvements are you guys seeing and where do you think that goes in 2019?.

It continues to rise. You know and it's for a number of different reasons, some use new technologies, things that we developed that just save minutes on location. A lot of it is just aligning and planning better with customers.

There is third-party services, there is corporations, but no, I think certainly within the Liberty family efficiency will be higher next year than it is this year, and will – and we hope and I believe will say that's going to be true every year.

That's a major factor in choosing the customer realigned with, I think it's a major factor in customers choosing our customers choosing to align with Liberty and yes, our goal is to keep getting that done more everyday with every fleet we've got. So yes, I think that trend continues..

And do you think it slows down at all, do you think it slows down at all or do you think you keep pace and is it a double digit type pace for the increase in 2019, if you could ballpark it for us?.

No. I would doubt that. Look -- but obviously at the start of our businesses, you pick the low hanging fruit first, right.

We were the odd guys that showed up -- you know accounting just for the minutes of every day you know that didn't -- that didn't seem like rocket science but I would say in the beginning we had a lot of low hanging fruits and as you get further into it there's still plenty of rooms for improvement but you can't get the big ones first.

So, yes, the rate of improvement of efficiency, yes, that probably slows with time..

Got it, makes sense. Thank you..

Yes. You bet. Thanks for the questions..

Next question will be Blake Gendron with Wolfe Research. Please go ahead..

Hey, thanks. Good morning. Thanks for taking my question..

Good morning, Blake..

And I apologize if I'd missed it earlier but comments from key customers that seem in the DJ about CapEx potentially pulling back in 2019. It seems like you have really good visibility into the fourth quarter but as you think about your business in 2019, is there some sort of a contingency plan, are you not worried about the backlog of work for 2019.

It seems like we've heard some good things activity wise out of the powder and obviously the Bakken is close by, how do you think about maybe the CapEx guidance from key customers?.

Yes. From what we've heard so far I think CapEx guidance in general for our key customers next year will be up. Their production is up and oil prices are up. So, yes, I think we feel pretty good about growth in our business next year and our customers in general feel pretty good about their growth.

And that's not every customer right, some are going to shrink, some are going to grow. But when you average across it I think and in our customer universe I think in our customer universe next year it will be up..

Okay, great. And then for the Texas fleets, are you still in the process of aligning with customers and are you switching customers to try to find that right fit.

Or have you identified those customers that you plan on galvanizing a longer term relationship with?.

I would say mostly aligned right now with customer. We're talking a tons of new ones that have heard Liberty story, we're showing them things and talking, so it was always a dialogue, look we're newer in that place and we're going to grow a lot in the Permian Basin, but the customer base that uses Liberty capacity today with the Permian.

Yes not meaningfully different than it was six months ago, our key partners are our key partners so yes. So less dynamic then it was six months ago a lot last dynamic then it was 12 months or 18 months ago..

Okay. And then last one from me.

I guess just refresh us if you can on how you think about potentially other basins, namely SCOOP/STACK or are you just focusing on rounding out your scale in existing basins?.

Yes I think where we are today and we look at into next year, the dialogues with existing customers and existing basins, there is well more demand then we will from a CapEx perspective be willing to supply next year. And we're still newer in the Eagle Ford and not that old in the Permian. So we will not expand to any new basin next year.

I think another year the season and grow and build our technical expertise in those basins is reasonable. We are constantly reached out to by folks that are in Haynesville or SCOOP/STACK or the northeast. We got people come down from Canada talk to us about the Montney.

So I think with time you will see us move to additional basins, but I would say slowly and methodically and not next year..

Okay. Excellent. Thanks. I'll turn it back..

You bet, yes, thanks for the question..

Next question will be from Stephen Gengaro with Stifel. Please go ahead..

All right. Thanks. Good morning, gentlemen.

Really just two quick ones, one when you think about the move in EBITDA per fleet in both 3Q and as you think about 4Q, is there a way you can help us understand and I think it's mainly utilization but what the price/utilization impact is on the move in that number?.

Yes, Steven as we stated. I think by far in a way the biggest drivers is utilization. You know we have been expecting some customers choppiness in Q3 down from a very, very highly utilized as we said in Q2 everything lined up almost perfectly. So, a good portion of that drop was natural because things don't go perfectly quarter.

And then in Q4 really you know we do we get this -- sort of holiday slowdown, you had holiday breaks and then kind of the budget management at the end of the year. So yes, by far the dominant portion of that is utilization scheduling. And as we see the southern region, there has been price swinging, slight price weakening.

But across the board, you know it's in the low single-digits..

Thank you. And then as you think about your customer relationship and you mentioned kind of moves in price as the market bounces around on the spot market. How tightly are sort of the price moves in – under your arrangements – are they relative to the spot.

Are there certain moves that could be made on a quarterly basis? How should we think about that?.

They are not relative to the spot, but obviously markets, it is – there is a market for frac services, right.

So what you'll find is we have long deep relationship with our customers and I think, you'll see over time, as frac prices go up, we will not sort of like push the boundaries at the top-end of frac pricing, then we neither either plumb the lows to the bottom-end of the general market.

So these markets -- our pricing moves gently in conjunction with the market other than commodity prices when sand or some major chemicals move, we pass it straight through to our clients and those savings go into helping the well economics..

Great.

And then, just one final quick one, when we think about maintenance CapEx per fleet per year, is -- any changes to sort of that $2.5-ish million number?.

No. I don't think so. I mean, I think as we've said, I think we said about it when we were on the road or about nine months ago, we would expect that to sort of flight move up slowly over the next couple of years to around $3 million a fleet.

So just a bit above that or over the next two or three years, but that's a good number and we have a very conservative capitalization policy. We only capitalize the maintenance on the major re-fibs [ph] of S3 major items on the fleet. Everything else is expense. So yes, I would not expect to see that change markedly..

Very good. Thank you..

At this time, this will conclude today's question-and-answer session. I'd like to turn the conference back over to Mr. Chris Wright for any closing remarks..

Yes. I just want to say thanks to everyone that listened to on the call and for the great and thoughtful questions we had today. And thanks to everyone in the Liberty family, the broader Liberty family that makes us love our jobs and love being a part of the shale revolution, as folks that work in Liberty work hard every single day.

We've got a wonderful passionate crew. We've got a fantastic crew of customers to become our partners, and fantastic suppliers as well, but all of those three entities together have to deal with a dynamic market, and we do it together as humans and love what we do. Thank you for your time today..

The conference has now concluded. We want to thank you for attending today's presentation. And at this time, you may now disconnect..