Good morning and welcome to the ProPetro Holding Corporation's fourth quarter 2018 earnings conference call. All participants will be in listen-only mode [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Sam Sledge, Director of Investor Relations, Mr. Sledge, please go ahead..

Thanks and good morning everyone. We appreciate your participation in today's call. As in the past, with me today are Chief Executive Officer, Dale Redman, and Chief Financial Officer, Jeff Smith.

Yesterday afternoon, we released our earnings announcement for the fourth quarter and full year ended December 31, 2018, which is available on our website at www.propetroservices.com. In addition, this morning we posted a presentation on our website, which summarizes our results.

Please note that any comments we make on today's call regarding projections or our expectations for future events are forward-looking statements covered by the Private Securities Litigation Reform Act. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control.

These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. Also, during today's call, we will reference certain non-GAAP financial measures.

Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. Finally, after our prepared remarks, we will answer any questions you may have. So with that, I'd like to turn the call over to Dale..

Thanks, Sam and good morning everyone. We appreciate you joining us for today's call. 2018 was another transformational period for ProPetro and the most financially successful year in our history. Throughout 2018, we continued to organically grow our fleet and differentiate ourselves with premium execution at the wellsite.

Our unwavering focus on driving value for blue-chip producers in the Permian has allowed us to achieve industry leading levels of fleet utilization, which has resulted in consistent, operational and financial success.

I want to thank everyone on the ProPetro team for their continued hard work and dedication and supported by proven, long-term business model. Jeff will go into more detail in his comments, but first I would like to provide you with a few financial highlights for the full year of 2018.

We grew year-over-year total revenue by 74% to $1.7 billion, increased net income to $173.9 million and almost 14 times higher than 2017 and posted more than a 180% increase in adjusted EBITDA growing to $388.5 million from $137.4 million in 2017.

Driving our impressive financial performance was a 31% increase in our legacy business fleet capacity to 905,000 horsepower across 20 fleets at the end of 2018 from 690,000 horsepower across 16 fleets entering the year.

As important was our best-in-class fleet utilization throughout the year including during the fourth quarter when many others in our space idled capacity.

I was especially pleased with our ability in 2018 to enhance our industry-leading safety and performance metrics in this high-growth environment, including increasing the employee headcount of our legacy operation by over 50% from the end of 2017.

Safety will always remain our top priority and I commend all of our employees on their ability to ensure safe operations that not only benefit our workforce, but also those of our customers and supply chain partners.

Looking more specifically at our operations during the fourth quarter, we saw continued increased adoption in the use of West Texas Regional Sand by our customers.

This not only benefits customers through lower well cost but also provides us the opportunity to source sand closer to the wellhead and drive increased efficiencies in our logistics operations. During the fourth quarter, approximately 71% of our sand we used was sourced locally as compared to 57% for Q3.

We expect customer preference for regional sand to continue to grow this year given the now sufficient amount of local production capacity. Turning to fleet capacity, we entered the fourth quarter with 860,000 horsepower across 19 fleets and early in the period, we deployed an additional new build fleet dedicated for long-term use by a new customer.

The result was an average active count of 20 fleets or 905,000 horsepower for the fourth quarter. We also deployed two new-build cementing units in the past few months, bringing our total current cementing fleet capacity to 21 units.

In response to increased customer demand, we plan to add two new build units to support our cementing operations later this year. We ended 2018 with four coiled tubing units in our legacy business, including the addition of a large diameter unit during the year.

We are proud to report that our coiled tubing division recently drilled out plugs on two of the longest laterals in the Permian, ranging beyond three miles in lateral length and almost five miles in total measured depth. Congratulations to our coiled tubing team for their efforts to redefine what can be accomplished at the wellsite.

As we've discussed many times in the past, we expected 2018 would be a year in which pressure pumpers would differentiate themselves through their ability to adapt to changing customer needs, including the need for continued improvement in wellsite performance and enhanced efficiencies to drive down well costs.

We believe our operational and financial outperformance during the past year clearly validates the differentiated model that ProPetro has built and executed on for many years. This model is squarely focused on taking the long view in a cyclical business with transitory periods of volatility.

In short, it means, putting the needs of our customers first, while ensuring our stakeholders enjoy an environment that supports collective, long-term success.

With the continued push to full manufacturing mode, highlighted by pad development and increased demand for more efficient services, we believe our unique position will continue to benefit not only our company and our customers, but as important, our shareholders throughout 2019 and beyond.

I will now turn it over to Jeff for more detailed discussion of our financial performance, Jeff?.

Thanks, Dale. I could not agree more with you regarding our team's extraordinary performance in 2018, and I also want to personally thank everyone for their continued outstanding efforts.

Looking specifically at our sequential results for the fourth quarter; revenue fell slightly to $425.4 million from $434 million for the third quarter of 2018, contributing to the decrease was the increased adoption of cheaper regional sand as compared to the third quarter as well as expected holiday seasonality.

During the fourth quarter of 2018, 97.8% of total revenue was associated with pressure pumping services compared to 97.1% for the preceding quarter.

Cost of services, excluding depreciation and amortization for the fourth quarter was $300.4 million as compared to $320.1 million during the third quarter, primarily driving a decrease was cheaper regional sand volumes and the related savings.

As a percentage of pressure pumping segment revenues, fourth quarter pressure pumping cost of services decreased to approximately 70% from 74% in the third quarter. General and administrative expense was $15 million as compared to $12.8 million for the third quarter of 2018.

The increase was primarily attributable to higher insurance costs and legal fees. General and administrative expense exclusive of stock-based compensation and deferred IPO bonus was $12.7 million or 3% of revenue for the fourth quarter of 2018.

Net income for the fourth quarter of 2018 totaled $51.8 million or $0.59 per diluted share versus $46.3 million or $0.53 per diluted share for the third quarter of 2018. Adjusted EBITDA increased approximately 9% to $112.4 million for the fourth quarter of 2018 from $103.4 million in the previous quarter.

Adjusted EBITDA margin was approximately 26% as compared to approximately 24% for the third quarter of 2018. Turning to the balance sheet and capital spending, we ended the year with cash on hand of $132.7 million and total debt of $70 million.

During the fourth quarter, we incurred capital expenditures of $367.9 million including $317.7 million for the Pioneer transaction and $50.2 million for spending on ProPetro's growth initiatives as well as maintenance capital.

Finally, total liquidity as of December 31, 2018, was $258 million, including cash and $125 million of capacity under the ABL. As we have said in the past, all possible shareholder return initiatives remain on the table with proceeds from near-term future cash generation prioritized toward debt repayment. With that, I'll turn it back to Dale..

Thanks, Jeff. I will take this opportunity to give a brief update on the integration of the transformational transaction with Pioneer Natural Resources.

As previously announced on December 31, 2018, we closed on our acquisition of Pioneer's pressure pumping service operations, including a collective 510,000 horsepower across eight frac fleets as well as the addition of four coiled tubing units and a world-class operations and maintenance facility.

As important, we entered into a strategic 10-year service agreement with Pioneer and brought more than 600 folks into the ProPetro family of employees. We could not be happier with the performance and professionalism that our new teammates have shown as they continue to push the envelope operationally at the wellsite every day.

We are also excited about our expanded relationship with Pioneer and we'll continue to provide unsurpassed service to their world-class operation as they harvest their Tier 1 Permian acreage over the coming years.

Our business is off to a strong start in 2019 and we look forward to supporting our customers as they continue to focus on capital discipline and enhanced returns for the shareholders.

As we've said in the past, we believe the Permian's transition to more pad development, longer laterals, increasing frac volumes and working days will continue to bifurcate the pressure pumping market. We welcome this challenge and we will continue to compete for and partner with the best operators in the Permian.

We believe these changes will help our industry, continue to drive down well cost to keep the Permian competitive on a global scale. We look forward to continued close collaboration with all of our partners in the value chain as we strive to drive competitive and consistent returns. We will now open it up for questions..

We will now begin the question-and-answer session [Operator Instructions]. The first question, I think, it comes from Kurt Hallead with RBC. Please go ahead..

Good morning and congratulations Dale and Jeff and rest of the team on superb performance in a really challenging market, kudos. You're welcome. So I think you alluded to continue kind of positive dynamics as it relates to your business model, and very specifically to your business model.

Just wondered if you can give us some general characterization, how you see things evolving as we get through the first quarter, just general sense on, we are hearing some still general softness in the market and you guys seem to be bucking that trend, just kind of give us some color around that, that will be really helpful?.

Yeah, Kurt, I guess the best way to probably answer that question is we have the best seat in the house and we wouldn't trade for it, how's that?.

So in the context of the Pioneer acquisition you guys closed that deal at the very end of the year.

So as we think about adding that dynamic and adding that business in to your revenue stream, I was wondering if you can just give us an update of how we should be thinking about that for the full year and maybe at a minimum basis what you think the incremental revenue contribution could be for that business?.

I think previously when we closed the transaction on that call we had given some guidance and the way that has played out thus far and what we anticipate to project for the year, the revenue stream and profitability from those fleets will be consistent with what that previous guidance was.

We don't have any information to think that it would defer at this point..

The next question comes from James West with Evercore. Please go ahead..

This is actually Jason Bandel on for James this morning. So first question, we've done a lot of work recently on trying to get the industry to shift more toward a returns focused strategy. I know you guys have that focus and you have also some like-minded peers as well, but there are still some undisciplined players out there.

Given that 27 of your 28 fleets are working, how can you work with your customers in this environment to be able to meet your return threshold and is there a certain level where you think you guys will start to look to stack fleets if you don't meet that threshold? How should we think about that?.

Well, Jason, as you've probably studied our model and since we entered this space back in late 2010, early 2011, we always -- we're very transparent in what kind of payback metrics we had to have in order to organically grow this business and we've got a lot of history as we built the company from 20,000 horsepower to 900,000 plus horsepower with that transparency and with that model.

And then as we did the recent M&A activity with Pioneer, we were along the same lines of staying with those payback metrics. So, it really helps that you have customers that appreciate what it takes to run this business and the capital that it takes.

So, we'll stay with the same discipline since we started the business and, I think, you can run every economic model or equation you want and return on capital, I think, we would probably lead the pack in most of those categories. So I think, that's how we would answer that..

And as a related follow-up then obviously the focus this year is going to be on integrating the Pioneer assets and proving efficiencies with that side of the business.

Looking forward, do you think you guys now have the right scale for your business given your focus in the Permian here?.

Yeah, we're sitting in a really good spot, Jason, I mean, to, and it's a testament to the operation, operating team and their ability to execute on a day-to-day basis.

I'll give a shout out to what they were able to do in short order and to integrate what they did with those 600 folks without losing any operating prowess that they have at the wellsite. So, I think, that speaks to the depth and the ability that this operation team has to, it is just unprecedented..

The next question comes from Praveen Narra with Raymond James. Please go ahead..

I guess if we could just start on the fourth quarter just in terms of what you guys saw -- lot of your competitors saw and we heard about a lot of efficiency weakness and utilization weakness, you obviously didn't seem to see that, but I guess your EBITDA per fleet increased in the fourth quarter as we were expecting, can you talk about whether there was actually any inefficiencies that could have made that better or whatever you could have seen there to help bridge?.

I guess I would term our fourth quarter efficiencies as relatively flat relative to the third quarter in all of the metrics that we use to judge that, zipper frac percentage was very consistent at 83% to 84%. I will say that the stages -- our total stages that we pumped in Q4 over Q3 was up about 4%, but we also added a fleet.

So you have to take that into consideration. When you look at the actual stages pumped per fleet, we're probably down about 1%, but there's nothing strange about that considering the seasonality of the holidays.

So in total, I guess, we considered efficiency to be relatively flat quarter-over-quarter, the enhancement to our profitability in Q4 over Q3 was primarily driven by our cost structure in a couple of line items, specifically sand and fuel, that is how we gained that additional profitability..

So, I guess, as we move forward on those -- on sand and fuel, you mentioned most of your customers or 71% were sourced locally, has the mix changed in terms of the percentage you guys are providing versus the percentage they're providing and is there any difference in profitability among those fleets?.

No, it didn't change in Q4, of course, with the Pioneer transaction since they sell source it will change going into Q1, but Q4, we are very consistent, I think we probably had four out of those 20 fleets were actually self-sourcing.

So the percentage didn't change, the benefit that we got was we finally got full access to a lot of the contracted sand volumes that we had, and also to the extent we buy on the spot market, obviously the spot market prices have declined as well. So, all of those benefited us from a profitability standpoint..

And if I could squeeze one more in, just in terms of, you mentioned in the press release efficiencies, you're pleased with that you've seen so far, 2018 was tremendous, you guys did a tremendous job in terms of efficiencies last year, can we keep the same level in 2019 or improve upon it, can we stay kind of this mid-80s percent, zipper frac can actually improve, how do we look at that?.

Yes, we do, we think we can, and a lot of that has to do with who you're working for and their ability to continue to increase efficiency. So, yes Praveen, I think we are very confident and comfortable with our team and our customers and our supply chain partners and all inclusive, everyone's ability to just stay on that move upward on efficiency..

The next question comes from George O'Leary with Tudor, Pickering, Holt. Please go ahead..

I guess I really just wanted to start off with the Pioneer agreement that you guys have in place that is a super impressive item to have, super impressive area to have in your quiver going forward.

I guess, thinking about how pricing works in that contract, my understanding is that pricing can wiggle to some extent, I wonder if you could provide more color on kind of the mechanism that drives pricing within the contract and when that mechanism kicks in?.

George, I think how I would answer that is, we've got 2.5 years of history of how we handle pricing with those guys. I think the best way to answer that is, look, we have things built in there that we are allowed to-we are guaranteed to pay for this equipment in 3 to 3.5 years. I think that's the better way to look at pricing.

And the other thing that gives us a lot of confidence is the team's ability to get more done in a 24-hour period, just enhances that profitability under this contract even more.

So I hope that's not being vague, but I want everybody to walk away very confident that this is a win-win on both sides of the equation and that's possible with this type of arrangement..

That's helpful. And I think you heard on Pioneer's earnings call, they spoke very highly of you guys, from an execution standpoint that makes good sense to me.

Maybe sticking with that contract a little bit and just the Pioneer transaction, they talked a lot about you guys bringing up the efficiencies of their fleets hours per day, stages per day, pumped, whatever metric you want to look at, but it looks that they have a facility and do some repair and maintenance in-house is my understanding, so any learnings for you guys and any potential cost savings from an R&M standpoint that you all might be able to achieve from this transaction.

And then secondarily just flowing from this question from a repair and maintenance CapEx perspective going forward, I think, historically, I will point it to 6% of revenues, which is a good bogey to think about going forward, kind of rolling all the changes together that we've seen in all this year?.

I'll let Jeff handle the repair and maintenance, but what I would say probably to your first question, George, we've thought the acquisition was great because we could take two entities and take the best of both practices from an operational standpoint across the spectrum that would enhance both companies or that horsepower in general.

And that's what we're seeing. To put a number on that enhancement, it's a little premature, but we feel very confident that we'll see some benefit to the best practices of both being implemented across that horsepower..

Yes, George, I think you're absolutely correct that historically we did kind of guide to 6% of revenue; on last quarter's call, I kind of upped that guidance a little bit based upon a revenue line that was being dramatically affected by self-sourcing and the conversion to lower priced regional sand, we had kind of given guidance, that percentage probably needed to go up to 7%.

We have kind of given that, and that's very consistent with where we actually were for 2018.

But we have kind of given that some thought, considering now we've got the Pioneer fleets and now we've got a much higher percentage of our fleet that is self-sourcing, and we continue to have an ever-increasing percentage of the sand being regional and given that, I think that the guidance that we would like to give prospectively is to convert that percentage of revenue guidance to more of a fixed dollar amount per fleet per year and the guidance we would give will be $6 million per year per fleet and obviously that includes fluid ends and I can also tell you fluid ends comprise about 45% of that $6 million number..

The next question comes from Tommy Moll with Stephens. Please go ahead..

I wanted to start with your outlook on the completions market in the Permian, you're now the largest pressure pumper in the basin, that you've got a good view into what's going on.

You saw a lot of operators respond quickly at the end of last year when oil broke below 50, started hearing a lot more about capital discipline as budget started coming out. Then again, now we're back above 55 and you guys have been able to keep your crews busy through all that.

That said, to some extent the market around you is got to eventually have an impact or you've got to be aware of it anyway.

So I'd be curious to know how would you characterize it currently and how do you think the year unfolds and to what extent do you expect will continue to see divergence between your platform and a lot of the rest?.

Yes, there's a lot of things in that question Tommy to answer, but I'll give a few of those a shot. So, you've heard us talk, you've kind of spend some time with the management team on the road.

I think what you're going to see throughout the year, the capital discipline, shareholder return of our customers is going to be very -- you're going to need very efficient operations on location to deliver a lot of different things. And it's -- from the seed asset on a day-to-day basis and watch our people execute on location.

I want to be clear, these customers where we've award the efficient frac fleets and completion operations. And this is not a 2019 game, a 2020 game, this is the next 10- to 20-year game.

And they're going to hook their wagon to people that day-in day-out can deliver and they're also going to reward them with payback metrics that allow them to provide them with the people and equipment on location to win over and over and over and that's the way we view it, and that's what we're seeing.

So, we can't worry about what's going on in other shops, that's their business and we're not going to apologize either for being able to execute the way we are. So, I hope that answers some of your questions, but you're going to be rewarded for being efficient on location..

Understood and appreciate the insight. As a follow-up, I wanted to turn to a more model type question. You've got a lot of moving pieces in Q1, primarily relating to the Pioneer contribution that'll hit the P&L.

Can you guys give us a sense of even just some ranges on average fleet count, average EBITDA per fleet? And then also you called out in the release a few growth CapEx items.

So, we've got just the guide on maintenance CapEx for your existing fleets, but can you give us a sense of what the growth component would be for '19 or maybe just what the total budget looks like?.

Yeah, I think, when we announced the Pioneer acquisition, we gave guidance that in Q1, given the ramp up and that horsepower for them, I think, we kind of got it in Q1 to being about 26.5 of the 28 fleets being active and operational. And at this point, we would not change that guidance. So, I would plan on that.

From an EBITDA standpoint, the only guidance we have really given there in the past that I would kind of reinforce today is that, we don't have any reason to believe that our legacy fleets would be any different than what we experienced in Q4.

The Pioneer fleets as we've said, the payback metrics on those fleets may be slightly behind the legacy fleets, but nothing of considerable amount. With regard to CapEx, gave you the information on the maintenance CapEx.

On growth CapEx, yeah, the release we announced, two additional cementing units and one large diameter coiled tubing unit, and at this point in time, that's all the additional growth CapEx that we're going to give guidance on..

And just a ballpark on what the number might be for those three units, Jeff?.

You'd be in the neighborhood of somewhere between $10 million to $12 million..

The next question comes from Scott Gruber with Citi. Please go ahead..

Jeff, just some additional color on the legacy fleet EBITDA being similar to 4Q, can you provide some color on the impacts of more stages versus any movement in pricing?.

There really wasn't any substantial movement in pricing. I mean, the only big effect we had on pricing was the conversion to regional sand, that was the biggest driver of any change in pricing.

So, all of the additional profitability that came really was driven by the higher percentage of regional sand and the price that we were able to acquire that regional sand at, as well as some renegotiated fuel arrangements with our fuel providers. That's really what drove that profitability in Q4..

While I was referring more to your previous comments on 1Q, where it sounds like the expectation is that the -- with the strong start to the quarter that EBITDA per fleet on the legacy fleets should be similar to what you saw in 4Q.

And I was just talking about that the drivers behind that, where you have less seasonality, it sounds like efficiency is good, so efficiency maybe up a little bit, I'm just trying to mention that relative to any pricing degradation that you're expecting in 1Q?.

I mean, it's possible that you get an uptick -- a little uptick in efficiency above the, what I quoted for what we experienced in Q4 as far as zipper percentages and stages per fleet.

So, yeah, I mean that in and of itself could probably drive a little bit of additional profitability, we would anticipate that our cost structure, other than perhaps an increasing percentage movement toward regional sand above the 71% we had in Q4 to probably add a little to that as well.

But, it's really too early in the quarter to actually give any guidance or projection toward that..

And I know you guys have been testing a different style of pump.

It sounds like there's not going to be any growth CapEx allocated to new technology on the frac side this year, is that fair?.

Yeah. I think, we're working always pushing the envelope on what's the next thing to lower well cost and be more efficient on the wellsite and we will continue those discussions with our manufacturers. And I think that's probably the way to end that conversation..

The next question comes from Chase Mulvehill with Bank of America Merrill Lynch. Please go ahead..

I guess a quick follow-up on the 2019 CapEx, the maintenance CapEx that you gave, does that include kind of any incremental CapEx that might be required on the PXD fleet?.

Well, as we've kind of given previous guidance, that PXD fleet was extremely well maintained. So, we have not -- it's not like we're starting with one step backwards there and having to spend extra money to get it going up and operational. It was well maintained. Today, we got it..

I mean, on the PXD fleet deployment, could you talk about if you started up the seventh fleet and then maybe the timing on the eighth fleet?.

Probably the way we would look at it is through the first quarter, we'll average 26.5 fleets and going forward, we'll be working with PXD on what their plans are. I wouldn't give you any guidance. That's going to be their decision. And we'll work with them when they need it..

And then just a quick follow-up talking about frac sand and you know the in-basin that you're sourcing. Have you renegotiated any of your frac sand contracts yet? We've heard of some renegotiations out there in the market for Permian Basin sand contracts.

Have you renegotiated any?.

Yes, Chase. Really, the good news about having the scale and the platform that we have, the supply chain partners we have are very proactive with us and usually they beat us before we ask.

So, there have been some movements in our arrangements with our vendors that -- on the sand side that they moved south from where our contract volumes or pricing were and we're in really, really good position to move those well costs down for our customers..

The next question comes from Blake Gendron with Wolfe Research. Please go ahead..

First, on the Pioneer deal just given how differentiated it is, the success that you've had with that, how can you replicate that with some of the other customers that you work with, should we assume that you're kind of implicitly working this kind of model through the rest of your exposure or would you press release.

I know there is one particular customer in the Delaware, I think, that you're trying to replicate a longer-term relationship with.

Can you give us an update on how you think about the commercial strategy moving forward?.

Yes, Blake, you hit the nail on the head and philosophically that's the way we've always ran our business. So our customers will probably dictate how they want to message it to the street or to their Board. So, nothing changed here. It's not something we'll ask.

I mean, our customers have been really good about following through with their commitments on when they ask for horsepower, they're going to help us pay for it. So could there be some of those things? Yes. Is it something we're pushing? No. And if our customers want that, we're more than willing to participate.

But we're in a really good position with this customer base out here, and I think they feel really good about our ability to execute. So, I hope that I'm not trying to answer your question, but that's going to be dictated by your customer..

And then if we look at the [indiscernible] services that you guys are growing, are you guys growing those service lines, coil and cementing specifically kind of independently from your frac fleet or is it kind of a step for step and then if we think about the profitability of those service lines, have we hit the inflection point specifically in cementing where it's going to start to be additive from a margin standpoint?.

No, I mean, I think we've hit an inflection point at all, I think those are too very good businesses that we consider to be additional tools in our tool box to actually serve our existing customers and they produce very consistent margins and we feel very confident in the managers that we happen to have in those divisions and that's kind of driven our decision to spend additional capital in those two areas.

The payback metrics there are exceptional. So, it's a good sound investment..

And then finally, just a housekeeping. You noted debt pay down as a capital allocation here, I know you're not all that levered.

So what's the proper leverage for the business, are you trying to get to a completely debt-free balance sheet?.

That would be absent any additional growth CapEx beyond what we just talked about, I think that, yes, we would like to get to a debt free state, once again, we don't, we took on a little bit more on a temporary basis with Pioneer transaction with the cash portion of that acquisition price. We'd like to get that repaid.

We evaluate that on an ongoing constant basis.

Try to keep as much dry powder as possible for some of -- any additional strategic relationship type opportunities that might develop, and to be honest, that's really where growth CapEx beyond what we've announced is probably going to come from, if it does, is some type of a strategic relationship with another customer..

[Operator Instructions] The next question comes from Stephen Gengaro with Stifel. Please go ahead..

Two quick ones.

The first, just to clarify, I think you mentioned four of your 20 legacy fleets you are sourcing sand for, is it correct?.

It is exactly the opposite..

Just the opposite, they are self-sourcing on four out of the 20. We source 16 out of the 20..

Yes, exactly.

Do you see that -- I got that backwards, but do you see that shifting or how are those or are they baked into these contracts or will that shift away more toward the customers as we go through the next year or two?.

We don't see it shifting, Stephen. You know, if a company does shift in that direction, I think we're in a position where we're fine with that and we'll adjust accordingly. But we're pretty confident in where we are with that situation with our customers over the life of what have we been serving them.

But again it's not something we're concerned about if they want to move in that direction. But I think they trust us to be good stewards of that product and we've demonstrated that over the last several years as we've transitioned to the regional sand..

And then just as a follow-up. I understand it's a non-cash cost in the asset disposal line.

Is there any thought or is there any chance to sort of shift the depreciation parameters to smooth that out?.

Not at this time. We wouldn't change the practice from what we've been doing. So, I mean, as far as your modeling goes, you can plan on being relatively consistent..

Our next question comes from Ken Sill with SunTrust. Please go ahead..

One big question I am going to ask it in a different way. Copying somebody sincerest form of flattery and you guys are getting great margins, so more and more of your peers are saying we're moving more to this dedicated model where we try to work more closely with the customers.

I guess there's not much you can do to change their behavior, but how much of a gap do you think there is in performance between you and in some of your better peers?.

I probably -- that's not probably something Ken we spend much time on, really, we just, we pay attention to what we can get done in a 24-hour period with our customers and really focus on that. What others do is, it really, that's not our business and we just need to take care of what we're doing.

So, I'm probably not answering your question, but, look, we've got to take care of what we do and focus on being the best at what we do and that's, we'll continue to do that and that's served us pretty well as we built out the platform and we will let our customers talk about that. I think that's a better way to handle it.

And I think that's how I would answer your question..

It's a tough question to answer anyway. I've got another more of a detailed question.

So, one of things you cited for better margins this quarter was a change in your fuel contract with your supplier, how, is that a sustainable margin? My understanding is that fuel costs are generally a pass-through plus a margin or is your relationship with your customer is different on fuel now?.

No, I mean, what we were able to do is I think leverage some of the size that we've now accumulated especially after having announced the Pioneer transaction and you're absolutely correct that, I mean, the fuel cost is pretty much a quoted price plus some margin that's relatively consistent, but there is a piece of that total pricing that relates to some of the service component and the rental equipment that they bring to site and that's the piece that we were able to negotiate a better price on..

And then finally, I'm going to ask, when can we expect the other services to break-even.

I guess, one way to ask that is how many crews or coiled tubing units or cementing units do you need to have enough volume for that business to kind of move to break-even and cover overhead costs?.

I mean, our projections actually show within that other services category, the real profitability there lies in the coiled tubing division, and with the scale that we've amassed there, we actually do project that at some point in time during 2019, you will see that flip to the positive..

Okay, great. That's all I got..

Cementing is in pressure pumping. So, that wouldn't have an effect on..

Yes, so cementing is buried and the coiled tubing is a separate unit -- separate business, right? Thanks..

Okay..

This concludes our question-and-answer session. I would now like to turn the conference back over to Dale Redman for any closing remarks..

Appreciate you all tuning in today and have a great day and see you in several months..

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect..