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Keane Group, Inc. (NYSE:FRAC)
Q3 2018 Earnings Conference Call
November 1, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Keane Group third quarter 2018 financial and operating results call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Kevin McDonald, Executive Vice President, General Counsel, and Secretary. Please go ahead.

Kevin McDonald -- Executive Vice President, General Counsel, and Secretary

Thank you and good morning, everyone. Joining me today are Robert Drummond, Chief Executive Officer and Greg Powell, President and Chief Financial Officer. As a reminder, some of our comments today will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, reflecting Keane's views about future events.

These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. The company's actual results can differ materially due to several important factors, including those risks and uncertainties described in the company's Form 10-K for the year ended December 31st, 2017, recent current reports on Form 8-K and other Securities and Exchange Commission filings, many of which are beyond the company's control.

We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Additionally, we may refer to non-GAAP measures, including adjusted EBITDA and adjusted gross profit during the call. Please refer to our public filings and disclosures, including our earnings press release for definitions of our non-GAAP measures and the reconciliation of these measures to the directly comparable GAAP measures.

With that, I'll turn the call over to Robert.

Robert Drummond -- Chief Executive Officer

Thank you, Kevin and thanks, everyone for joining us on this call this morning. It's been an exciting first 90 days. It's been especially great working closely with James, Greg, and the rest of the executive team. Since joining Keane in early August, I spent a lot of time traveling to our various field locations getting to know our people. I also spent time with customers learning more about their relationship with Keane and exploring ways we can continue expanding our already strong partnership.

These visits with customers have been particularly exciting, giving me the opportunity to reconnect with many of the folks I've worked with at other points in my career. While it's been only a few short months, I feel right at home. Keane's platform is best-in-class and I'm truly excited about Keane's performance and the company's future. Many have asked about my early observations since joining. I'll highlight three.

First, I've been impressed by Keane's people, including our management team, many whom I've known for many years. People like me who have no resumes working in this sector excel in environments like I'd offered here, where you can use the skills you picked up along the way while also being nimble in the decision-making process? This is the refreshing environment where we can make things happen quickly that adds value to our stakeholders.

Second, I've been impressed by Keane's customer relationships. Keane's clearly defined dedicated fleet mall provides a solid foundation to build strong bonds with high-quality, like-minded customers. It seems to me the definition of dedicated fleet used in the market varies widely. Let me describe what this means for us. It means having contracts in place with terms that require both parties to commit via written agreement, dedicated resources in customers offices, key performance indicators to monitor and track performance, technology injected across the operation and having relationships up and down the chain.

This is the approach that James, Greg, and Keane's team have built and employed since the beginning. I can say firsthand that it's unique and a key differentiator in this market. Our customers embrace this arrangement because it provides financial alignment and a platform for continuous improvement to the efficiency at the well site.

Third, I've been impressed by Keane's execution. This all starts with safety, where Keane is second to none. It's ingrained in how we work every day and our track record is what gives us the license to work with the caliber of customers that we do. And most importantly, it's what allows our employees, our customers, as well as third parties to go home safely at the end of each day.

Our execution is evident in the high operational efficiency achieved in our crews, which is a key ingredient for ensuring we provide valuable customers and shareholders. As I mention, the partner relationship with our customers creates the ideal situation, not only for risk mitigation, but also for ongoing improvement in operational efficiencies. This relationship, combined with the fact that the large majority of our frack spreads are paired with our own pump down perforating crews creates alignment, completion teams, and an environment where continuous improvement is easier to achieve.

I found it difficult to create this multi-product line environment in the past, but at Keane, it was built that way from the start. One key indicator that has continuously improved is hours pumped per completions crew. For the third quarter, this important metric finished at an all-time high and remains a major focus of our service delivery. With data and analytics, we are tracking and analyzing our operating procedure time in minutes to find additional ways to optimize our techniques to further improve operating efficiency and profitability.

Our effort to continuously improve operational efficiency and production results are enabled by technology. Our engineering and technology center is working closely with our client and our field operations to drive both frack effectiveness and production enhancements, with products like Release that improved the performance and utilization of produced water for fracturing fluid.

We are a company focused primarily on the US land completions business, which allows us to dedicated our technology efforts completely to this portion of the market, which I consider an advantage. Our technology focus on both surface and down to frack efficiency for this market. The surface technology effort is focused on lowering total cost of ownership and improving the reliability of our equipment. We see this as an opportunity-rich environment.

Greg will discuss our third quarter performance in greater detail, but overall, I can say that we are pleased with the results. For the third quarter, we reported revenue, EBITDA, and annualized adjusted gross profit per fleet above the guidance provided in September. Our operational performance in the Permian Basin was especially strong, driven by the efficiency gains mentioned earlier.

Our completion efficiency is outperforming our original plan and in the third quarter, led to some cases where our completion crews were catching up for our customers drilling rigs, creating whitespace in our frack schedule. As highlighted in our updated guidance, we achieved 89% utilization of our 27 deployed fleets, resulting in the equivalent of 24 fully utilized fleets. Also, in the quarter, we completed our acquisition of RSI and have quickly and efficiently absorbed its horsepower into our portfolio.

From a broader market perspective, here's what we're observing in the field and hearing from our customers related to the fourth quarter. In addition to the impact of improved frack efficiency that surfaced in the third quarter, our fourth quarter completion schedule is likely to develop additional light space due to customer budget exhaustion, early achievement of production targets, ongoing commodity price differentials, and typical weather and holiday-related seasonality. It's important to note that we believe all of these are temporary and we expect our operations to bump as we progress through to 2019.

From a commodity price perspective, fundamentals remain strong and even more constructive that we look ahead into 2019. Year to date, through the end of the third quarter, WTI crude oil prices have averaged approximately $67.00 per barrel. According to the EIA, crude oil prices are expected to average $69 per barrel in 2019 or roughly 15% above the approximately $60.00 per barrel at the start of 2018. From a natural gas side, prices remain strong, currently standing at approximately $3.20 and the strip calling for similar prices next year.

With all this in mind, we're bullish on how 2019 is shaping up. To begin, we expect capital budget recess to be a catalyst to growth entering 2019. For example, we have one independent customer in the Permian that has decided to slow down in mid-November but has communicated to his intentions to start back up at the prior activity levels in January. Additionally, our customers are building strong balance sheet.

The US-driven rate count is stable and expected to grow further in 2019. Budgeting is occurring at higher commodity prices. The drilled uncompleted well count continues to grow and our customers are benefiting from deflation associated with the increased adoption of local fans and general reductions in frack stand pricing.

These are all three bullish factors for the US completion business going forward. Keane, with our well-maintained 1.4 million horsepower of completions equipment, is positioned to take advantage of this healthy market environment. We are using the fourth quarter to prepare for the robust activity that we expect next year by investing in our people and equipment to ensure that we are best-positioned to take advantage of the opportunities that we expect to encounter.

This provides us confidence that even through current market softness, our performance will be industry-leading and we will be ready to continue that role as the segment ramps up in 2019.

With that, I'd like to turn the call over to Greg.

Greg Powell -- President and Chief Financial Officer

Thanks, Robert. Before we further discuss our third quarter performance, I'd like to provide a brief review of our accomplishments this year. While we do expect transitory effects from the factors Robert discussed, the actions we've taken so far this year and continue to take today position Keane to win and outperform. We understand this is a cyclical business and we've always run our company with that in mind. We put to five key approaches to which we've successfully added shareholder value by executing on high return initiatives.

First, we initiated a stock repurchase program earlier this year, enabling us to acquire our stocks at attractive values. As I'll discuss in more detail momentarily, 88 million of shares to date, we continue to believe that buying back our own stock presents an attractive way to drive shareholder return.

Second, we've managed our balance sheet responsibly, positioning us with maximum flexibility in all markets, as demonstrated by our debt refinancing earlier this year. This transaction extended maturity, lowered interest expense, and provided a covenant-free facility, allowing us to be offensive and defensive first cycle.

Third, we continue to build on our track record of being thoughtfully inquisitive, executing on opportunistic and strategic M&A. This includes the attractive bolt-on acquisition of RSI in July, which bolstered our existing asset base at attractive value.

Fourth, and more broadly, we continue to pursue more strategic consolidation, including the potential for peer consolidation. While these deals are more difficult to achieve, we continue to pursue aggressively on our end and believe there are several targets of scale that could make sense at the right time and valuation.

Fifth, we continued to grow our fleet. Our organic growth carries the highest threshold to execute. We have a strong track record of expanding our asset base responsibly when linked directly with long-term customer demand. In 2018, we have organically grown our fleet by approximately 10%.

Turning now to where we are today, in early September, we provided third quarter guidance to reflect efficiency dynamics that began to emerge in our business. As we've been discussing since becoming a public company, our efficiency on the jobsite is industry-leading. We've always maintained a focus on efficiency, constantly targeting improvement.

Early in our efforts, we were able to go after structural improvement, driven by pad drilling, zipper frac, and 24-hour operations. We've been working diligently at it. While our efforts allowed us to focus on cutting nonproductive hours over the last 12 months, more recently, we've been working to shave off minutes. This includes initiatives aimed at reducing time between stages and leveraging technology.

When you do this successfully across the board, it adds up. For the third quarter, all 27 of our fleets were deployed. However, when factoring in white space, we had the equivalent of 24 fully utilized fleets. While we've always operated at very high efficiency levels, our efficiencies went through a step change as we progress through 2018. This has resulted in a narrowing of the wedge between drilling efficiencies and frack efficiencies, causing our crews to catch up to several drilling rigs.

Said another way, when we finish one pad and move to start on the next, our customers weren't yet ready for us. At the same time, while duck inventories have been building across the industry, we've been able to keep pace with these as well.

Turning to our financial performance for the quarter, total revenue totaled $558.9 million, a decrease of approximately 3% compared to the second quarter total of $578.5 million. Third quarter revenue came in slightly above the high-end of the guidance range. Revenue for our other services segment, which includes our cementing operations totaled $10.5 million for the third quarter of 2018. This represents a sequential increase of approximately 22% as compared to the $8.6 million reported in the second quarter and reflects the continuing ramp of our cementing operation.

We've experienced continued interest in the business for both existing and new customers. We're also seeing further benefits at greater scale as we roll out new units in the Permian and Bakken and expect the business to experience further ramp in utilization and profitability over the coming quarter.

The company total adjusted EBITDA in the third quarter totaled $100.9 million, above our revised guidance and compared to the $111.3 million we reported in the prior quarter. Adjusted gross profit totaled $122.3 million for the third quarter compared to $130.8 million in the prior quarter. On a per fleet basis, annualized adjusted gross profit was $20.5 million, slightly above the prior quarter and guidance.

Adjusted EBITDA for the third quarter excludes approximately $6.8 million of one-time gains. This represents the net of $14.9 million of gains from insurance proceeds received associated with the previously incident in July 2018, partially offset by $4.8 million for non-cash stock compensation expense, $2.8 million for legal contingencies, and approximately $500,000 of cost associated with our acquisition of RSI completed in July.

Selling, general, and administration expensive totaled $27.8 million for the third quarter, compared to $24.1 million in the prior quarter. Excluding one-time items, SG&A totaled $19.9 million compared to $18.9 million in the second quarter of 2018.

One-time SG&A items for the third-quarter of approximately $7.9 million was primarily driven by $4.8 million for non-cash stock compensation expense and $2.8 million for litigation-related matters. Our SG&A efficiency remains best in class with third quarter SG&A excluding one-time items representing just 3.5% of total company revenues.

Turning to the balance sheet, we exited the third quarter with cash and cash equivalents of $82.8 million, compared to $109.5 million at the end of the second quarter. We generated positive operating cashflow of approximately $108 million for the third quarter.

Capital expenditures during the third quarter totaled approximately $90 million, driven by spending associated with our new bill of fleet, local maintenance CapEx, as well as investments in technology.

Total debt at the end of the third quarter was approximately $341 million net of un-amortized deferred charges and excluding lease obligations, essentially unchanged as compared to the second quarter. On an annualized run rate basis third quarter adjusted EBITDA was approximately $404 million reflecting a leverage ratio of approximately 0.8.

Net debt at the end of the third quarter was approximately $258 million. We excited the third quarter with total available liquidity of approximately $291 million, which includes cash plus availability under our asset-based credit facility.

Our three-pronged approach to capital allocation remains unchanged. This includes investing in growth, maintaining and improving our balance sheet, and capital return. We were proud of the further progress we made with regard to our share repurchase program during the third quarter.

Following the $100 million program becoming effective in the second quarter, we got off to a strong start repurchasing $40 million through the end of the second quarter. In July, we announced that the board authorized a reset in the program back to $100 million.

During the third quarter of 2018, we completed an additional $29 million of repurchases and thus far during the third quarter, we completed a further $18 million of repurchases. Taken together, we've repurchased $88 million of our stock, retiring approximately 6.6 million shares or roughly 6% of outstanding shares prior to the program's implementation.

Yesterday, we announced that our Board of Directors has authorized an increase in the program's capacity back to $100 million. This marks the second such increase authorized by our board since the program's implementation earlier this year. Additionally, the program's expiration was extended to September 2019 from a previous expiration of February 2019. We continue to believe the stock repurchases at attractive value represents one of the best uses of our cash to drive investor returns and Keane remains committed to opportunistically executing on additional repurchases.

Turning now to our outlook, the fourth quarter always carries its own set of variables, including weather and seasonality, but also present this year were the factors Robert discussed, including budget exhaustion, early achievement of production targets, and commodity price differentials.

While our business does a good job in mitigating many of the headwinds faced by the industry, like others, we're not immune to the emerging market dynamics. During this quarter, we're investing in people and equipment, keeping several crews out to maximize our speed to market given our constructive view for 2019.

For the fourth quarter, our assets will be comprised of 29 fleets, of which we expect 25 to be deployed. Of these 25 deployed fleets, expect to achieve utilization of approximately 90%, driven by whitespace in the frac calendar, resulting in the equivalent of 22 fully utilized fleets for the quarter.

On this pace, total revenue is expected to range between $470 million and $500 million. We expect annualized adjusted gross profit per fleet for the third quarter to range between $16 million and $18 million. Included in these numbers is approximately $15 million of labor and maintenance costs associated with keeping the bulk of our capacity hot so that when the market picks up, we're ready to go.

So, when looking at our fourth quarter, it's representative of a prolonged period, we would right size and believe Keane would generate approximately $90 million of adjusted EBITDA per quarter. For cementing, we previously guided the run rate performance by year end of between $70 million and $90 million on margins between 20% to 25%.

While we're seeing a continued ramp in the business, we're seeing the timing of the growth shift somewhat to the right. We reiterate our expectations to achieve the original target, but now expect to do it in the first half of '19. We now expect to exit 2018 at run rate revenue of approximately $50 million to $60 million at a margin of approximately 15%.

Looking further out, while it's too early to approach 2019 with too much precision, we wanted to play in how we're thinking about next year. Robert discussed the constructive commodity price that we expect in 2019, which we believe will support robust spending by our customer base.

First let's think about how our business performed in 2018. Year to date through the third quarter, we've delivered approximately $300 million in adjusted EBITDA. Our guidance for the fourth quarter, assuming approximately $20 million in G&A, implies approximately $75 million at the midpoint. This means we're anticipating achieving approximately $375 million of adjusted EBITDA for the full-year 2018.

Looking back at our performance in the second and third quarter of 2018, we delivered annualized gross profit per fleet of approximately $20 million. Applying that to our full base of 29 fleets and layering in $80 million of annualized G&A with run rate adjusted EBITDA of approximately $500 million.

Framing the downside, our annualized fourth quarter guidance excluding the $15 million of expenses while keeping our asset market ready would equate to approximately $360 million of adjusted EBITDA. Taking the midpoint between these two scenarios would result in approximately $430 million of adjusted EBITDA.

Now, let's layer in potential scenarios for the cadence of growth in 2019, not that this represents our base case, but let's assume for a moment that conditions do not improve during the first half of the year and we see a similar environment to what we're expecting in the fourth quarter. That would deliver approximately $180 million of adjusted EBITDA for the first half of 2019.

Now, let's assume for a moment that you have a bullish outlook on the second half as we do. Taking the second quarter and third quarter as we just discussed, we would approximately $250 million of adjusted EBITDA during the second half of 2019. Taken together, this would apply full-year adjusted EBTIDA performance of $430 million. Even if you apply a discount for ramp inefficiency, the potential outcomes for 2019 are attractive.

Again, it's way too early to truly forecast 2019, but based on what we know today, this hopefully provides the framework on how to think about the year. We would expect the momentum in earnings generated during the second half of 2019 to carry in to 2020, driven by the inventory of duct, likelihood of a constructive commodity price environment, and more than ample takeaway capacity in the Permian.

With that, we'd like to open up the lines for Q&A. Operator?

Questions and Answers:

Operator

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessarily to pick up your handset before pressing the * key. One moment please while we poll for questions.

Our first question comes from the line of Sean Meakim from J.P. Morgan. Please proceed with your question.

Sean Meakim -- J.P. Morgan -- Analyst

Thanks and good morning. Thank you for that framework. I think that was a really helpful scenario analysis. I think it suggests that as long as profitability holds and that's really where investors have been quite concerned, then the negative revision cycle for your numbers have already -- the numbers were already overcorrected on the sell side. I think a common pushback that we hear form investors is that 2Q 18 was really peak levels of profitability because it's enough at that point where capacity can come in and it comes in pretty quickly. So, in a different type of scenario analysis, how do you think about what peak profitability looks like for the business versus mid-cycle. Where does that $20 million fit in?

Robert Drummond -- Chief Executive Officer

We, by the way, did the stock price correction. It's already been on the worse downside already. When you look at Q2 and look at the efficiency levels we were generating at that time, we did improve upon that a bit in Q3. Despite white space in the schedule, we still managed to deliver the over $20 million in gross profit per fleet.

I think there's more efficiencies to be had in the market, in our pumping hours per day or fracks generated per fleet, per month, but there are also going to be some more pricing opportunities once the market influx in activity begins to go up again. Based upon a large duct count that's out there and increasing and the likelihood that the drudgery count actually increases in 2019, that's an environment we believe in the second half that provides opportunities for us to revisit pricing to the upside.

So, I don't think that 20 is necessarily the upside for us as we look at the back half of, say, 2019.

Sean Meakim -- J.P. Morgan -- Analyst

So, you would say that we think $20 million is somewhere between mid-cycle and peak cycle? Is that fair?

Robert Drummond -- Chief Executive Officer

I think so.

Sean Meakim -- J.P. Morgan -- Analyst

The commentary on the completion deficiency was also really timely. As we think about saying all-time highs for your crews in the middle of this year leading to gaps in the schedule. You mentioned there were some more efficiencies to be had. How do we frame how much more runway we have for efficiency gains. I think investors recall the spectra of drilling efficiencies and what that did for the rigs? Can you help us frame how much is left there? I think that's a key part of people trying to understand the supply/demand dynamic.

Greg Powell -- President and Chief Financial Officer

Sean, it's Greg. We've been going hard after this efficiency and I think we started off kind of squeezing a grapefruit and it's getting down to a lemon. The structural improvements with the pad drilling and zipper fracking were step function. Now, like we said in the prepared remarks, we're going after minutes, so time between stages.

The next round of improvements is going to take heavier lifting. It's going to take technology and more investment. We saw high single-digit improvement in pump time over the last three to four months. Year to date, we're probably at 15%. I think you'll still improvements in the future but they're going to be harder to get and probably of a smaller magnitude.

Sean Meakim -- J.P. Morgan -- Analyst

Do you think you'll see more bifurcation between different pumpers to capture those harder to get pieces?

Greg Powell -- President and Chief Financial Officer

I think you will. The other thing on the supply side is in order to hit those efficiency levels, the equipment is being pushed harder than ever and it makes the maintenance cycle more difficult. That's where the investments in pump technology come in to improve reliability. While we're making those improvements, I think as an industry and the service intensity continues to improve what's offsetting the efficiency is these jobs require more horsepower in the jobsite as well as more horsepower for a maintenance rotation.

Sean Meakim -- J.P. Morgan -- Analyst

Got it. Thanks a lot.

Operator

Our next question comes from the line of Steve Snellville from Bank of America Merrill Lynch. Please proceed with your question.

Chase Snellville -- Bank of America Merrill Lynch -- Analyst

Good morning, gentlemen. I guess the first question to kind of follow-up on the M&A. When you're thinking about M&A, is it more kind of just frac-focused or are you thinking about more diversified completion services as well?

Robert Drummond -- Chief Executive Officer

I would say from an M&A perspective anywhere that our current footprint would enable us to deploy a new product line is something that we've got our mind open around. We do like being a completion company focused on US land when we think the macro for that business is really good when the supply side globally comes under a little bit of stress it's going to be more opportunity. Growing our capacity and completion perforating frac is something we would love to do inorganically without adding additional resource, total capacity to the market.

Chase Snellville -- Bank of America Merrill Lynch -- Analyst

Okay. Greg, when you think about M&A, what's your comfort level leverage ratios?

Greg Powell -- President and Chief Financial Officer

Yeah, Chase. I think any bigger deal would be a merger of equals and a conversion of stock. The smaller deals, we're comfortable using our balance sheet with our current leverages under one. I think you guys have seen how we've operated the company. We're five years' private building the company and now ten years' public and we're very conservative on the balance sheet. We're less than one-time leverage now. We like that. Any meaningful deal, I think, would have to have a significant equity component because we have a very low tolerance for leveraging up the balance sheet given the cyclicality of the business.

Chase Snellville -- Bank of America Merrill Lynch -- Analyst

Good to hear. When you think about pricing, how is pricing holding up? Is there any risk as we go into 2019 that we get some debt on some of these fleets on the pricing side?

Greg Powell -- President and Chief Financial Officer

Like Robert mentioned, most of the degradation in the numbers has been driven by utilization. The pricing has been holding up pretty well. The dedicated has been holding up solid because I think our customers understand that this is a temporary dislocation and the other side of this is going to be very strong and the customers want their -- the cost of change is high and they want their dedicated partner that's integrated with them on a set of goals. The dedicated, we've been pleased with how that's held up.

The ones that are expiring or the other fleets, it's pretty tenuous out there. Like Robert said, we're going to be disciplined on economics if that comes at the expense of parking some fleets because we think the other side of this is very robust we expect a sharp recovery in activity in both utilization and pricing. It's hard to put a in the date on that. As we get to '19, we think it's going to get better. Our strategy is to position those fleets to participate in that as opposed to feeling like we're pressured to get into deals that don't have good economics.

Robert Drummond -- Chief Executive Officer

I'd say meanwhile, we're keeping an eye on the stock market and maybe there are opportunities there that are short-scope, short-term that meet our pricing hurdle. We would look at those two because we keep it, as Greg pointed out, the four fleets that we have idle right now, we're investing in those as well as keeping those hot with our people ready to go so that we can move on opportunities.

Greg Powell -- President and Chief Financial Officer

Just to further that, in our fourth quarter guidance, there's $15 million of cost that's 80% labor and then a little bit of routine maintenance on the equipment. We do not have a big deferred maintenance not to get the equipment ready or anything to that effect. So, it's all routine maintenance or upgrades we're doing to the fleet to attack new opportunities. There is $15 million in a P&L to maintain the muscle so that we're ready to go with work that meets our economic threshold.

Steve Snellville -- Bank of America Merrill Lynch -- Analyst

Last one, I'll turn it over -- any percent contracts that cause you some heartburn?

Greg Powell -- President and Chief Financial Officer

No. We're not upside down. We've done a good job of managing to a percent contracted threshold and also mixing in in-basin sand. So, we're comfortable where we are from a contract perspective.

Steve Snellville -- Bank of America Merrill Lynch -- Analyst

All right. Thank you. Robert, War Eagle.

Operator

Our next question comes from the line of Jud Bailey from Wells Fargo. Please proceed with your question.

Judson Bailey -- Wells Fargo-- Managing Director

Thanks. Good morning. Greg, as you think of your active fleet count, you've got 29 fleets, 25 deployed, if you were to think about the first half of '19, would you expect to be back to full utilization on those 25 fleets at some point in the first quarter and do you have visibility on getting that active fleet count back up to 28, 29 or is it to early to say at this point?

Greg Powell -- President and Chief Financial Officer

Thanks. I think it's too early to say. We fell the momentum will pick up mid-first quarter. You start to get back to that 25-level and with continued momentum, you can get to the full utilized level to what we see today. It's fully dynamic with the opportunities that are out there. As the customers are finishing their budgeting process, we'll obviously get some more data on that. That would be a conservative baseline to lay out.

Robert Drummond -- Chief Executive Officer

It's about timing with the activity of momentum in the market.

Judson Bailey -- Wells Fargo-- Managing Director

My follow-up is you guys have highlighted something we've heard from your peers in terms of the frack crews completing the wells. Are you in discussion with your customers for 2019 year on how to smooth things out a bit more, I guess, to adjust for the efficiencies that you made this year and how you avoid the whitespace developing over courses of the next year?

Robert Drummond -- Chief Executive Officer

Absolutely. Our customers are very smart about how they're scheduling. Their models, they improve every year about how fast they drill wells. I would point out that some of the customers that have tapped the brakes in Q4, part of the logic for that is to build up an inventory that allows you to be more efficient. Yes, that's a constant and ongoing discussion. For example, we've improved our frac efficiency as measured by pumping hours by 15% year to date. Pricing structure will adjust to that as well as timing and scheduling. I believe we will continue as a team to get better that way.

Judson Bailey -- Wells Fargo-- Managing Director

If I could squeeze one more in, I guess I'll ask the obligatory electric frac fleet question -- your thoughts on what you've evaluated so far and the cost and what you see as the economics on those right now.

Robert Drummond -- Chief Executive Officer

Certainly, I would say that it would be silly if I believe paying attention to that dynamic, what's driving it maybe the biggest driver for the whole thing are the fuel efficiencies associated with it. There are other ways to get that. I would say we're keeping an eye on it. I wouldn't want to be the first mover, necessarily, but we feel it's a bit edgy right now. We don't want to be left behind either and perhaps making other investments to take advantage of the dynamic around fuel savings.

Judson Bailey -- Wells Fargo-- Managing Director

Thanks. I'll turn it back.

Operator

Our next question comes from the line of Scott Gruber from Citi. Please proceed with your question.

Scott Gruber -- Citigroup -- Analyst

A couple for Greg here -- Greg, how should we think about start-up costs -- as you had crews next year, you are carrying the extra $15 million in 4Q?

Greg Powell -- President and Chief Financial Officer

I don't think there's anything beyond that. We're going to keep the labor hot. There's a little bit of routine maintenance in the fourth quarter. I don't there's any particular start-up cost. We'll just continue to carry the labor until those crews get revenue to put against it.

Scott Gruber -- Citigroup -- Analyst

Got it. And maintenance, CapEx for next year on a per fleet basis -- is the volume of refurbs any greater or less than 2018?

Greg Powell -- President and Chief Financial Officer

That $4 million maintenance CapEx we've been running per fleet per year, we feel good about that. We keep up with our maintenance. There's not any referred amounts out there. I think you might look at our maintenance CapEx numbers and they might seem higher than some things.

There's mixed bag out there in the industry but what I can assure you is we've got very sophisticated run to fleet model and we keep engine transitions in our pumps fresh so they can handle the service intensity that's demanded out there today. I think in other situations you might see some more lumpy numbers, but our goal is to never have that lumpiness and keep our fleets fresh so they're always updated and they're able to meet the demands we have in the market and can be responsive.

Scott Gruber -- Citigroup -- Analyst

Got it. One last one back on capital deployment -- if we put the M&A decision to the side because I think that's someone unique and not to say it's not appealing or needed in the industry. We just wanted the capital deployment decision down to cash return to investors or investment in new pumps -- how do you guys think about the parameters? We're looking at an improving market here in '19 into '20 improving spot pricing. How do you decide whether it's better to buy your own horsepower?

Greg Powell -- President and Chief Financial Officer

My view is that the numbers we laid out in the 2019 framework are going to give us the framework to execute on all those strategies. Capital return to shareholders is important to us and I think we've shown a track record at executing that here in '18 and we continue to. We laid out some scenarios on EBITDA. There's enough cashflow to keep a responsible balance sheet, return capital to shareholders and make strategic investment. On the new builds, we put a very high threshold on that.

Not only do you have to have a good economic return, but you've got to have a demand signal from your customers that you think is sustainable. New builds are completely on hold. We've got some work to do on getting these fleets utilized. That's our focus right now and returning capital to shareholders should we get different signals from the market as we enter '19 we'll stay nimble on that. The good news is we're confident that we'll have enough capital to execute on that myriad of strategies.

Robert Drummond -- Chief Executive Officer

If you refer back to the guidance too, getting all 29 of our fleets supported allows us to generate $500 million EBITDA numbers on a 12-run rate basis with potentially minimal growth CapEx of any kind. It's a very good spot to be in to have options going forward.

Operator

Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. Robert Drummond for closing remarks.

Robert Drummond -- Chief Executive Officer

Thank you very much and I appreciate your interest in our company and thanks for joining the call. In closing, we're prepared for the future and we expect this overall market to be very favorable for our business for the next few years. We're busy building the company to take advantage of this long-term and we'll continue to look hard for growth opportunities. I would like to take this opportunity to thank all of our hardworking employees for their dedication to helping our customers be successful while keeping themselves safe. This concludes the call. Thank you.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 47 minutes

Call participants:

Kevin McDonald -- Executive Vice President, General Counsel, and Secretary

Robert Drummond -- Chief Executive Officer

Greg Powell -- President and Chief Financial Officer

Sean Meakim -- J.P. Morgan -- Analyst

Chase Snellville -- Bank of America Merrill Lynch -- Analyst

Judson Bailey -- Wells Fargo-- Managing Director

Scott Gruber -- Citigroup -- Analyst

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