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NexTier Oilfield Solutions (NYSE:NEX)
Q1 2020 Earnings Call
May 6, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the NexTier Oilfield Solutions First Quarter 2020 Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] For opening remarks and introductions,

I would like to turn the call over to Kevin McDonald, Chief Administrative Officer and General Counsel for NexTier. Please go ahead, sir.

Kevin McDonald -- Executive Vice President, Chief Administrative Officer & General Counsel

Thank you, operator. Good morning, everyone, and welcome to the NexTier Oilfield Solutions earnings conference call to discuss our first quarter 2020 results. With me today are Robert Drummond, President and Chief Executive Officer; and Kenny Pucheu, Chief Financial Officer. Before we get started, I would like to direct your attention to the forward-looking statements disclaimer contained in the news release that we issued yesterday afternoon, which is currently posted in the Investor Relations section of the company's website. Our call this morning includes statements that speak to the company's expectations, outlook or predictions of the future, which are considered forward-looking statements. These forward-looking statements are subject to risks and uncertainties, many of which are beyond the company's control that could cause our actual results to differ materially from those expressed in or implied by these statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. We refer you to NexTier's disclosures regarding risk factors and forward-looking statements in our annual report on Form 10-K, recent current reports on Form 8-K and other Securities and Exchange Commission filings. Additionally, our comments today also include non-GAAP financial measures. Additional details and a reconciliation to the most directly comparable GAAP financial measures are included in our press release that is posted on our website.

With that, I turn the call over to Robert Drummond, Chief Executive Officer of NexTier.

Robert Drummond -- President & Chief Executive Officer

Thank you, Kevin, and thanks, everyone, for joining the call this morning. I'd like to start by addressing the ongoing COVID-19 pandemic that continues to impact so many across the country and around the world. Our focus remains on taking all appropriate actions and precautions to help protect the health and wellbeing of our employees, partners and the communities in which we operate. During the first quarter, we quickly implemented the response plan focused on risk mitigation from the office to the well site. We continue to support our people and hope that by acting quickly and decisively, we can continue to stay ahead of the curve and continue to strengthen our relationships with our customers and partners. I commend my colleagues across the industry who have prioritized a response and encourage everyone to remain vigilant in protecting themselves and those around them.

Turning to the first quarter. Despite challenges throughout the quarter, we delivered strong results. Revenue was $628 million, just 3% lower sequentially despite only two months of contribution from our Well Support Services business following our recent divestiture. Adjusted EBITDA totaled $72 million compared to $78 million last quarter, delivering flat sequential adjusted EBITDA margins. We had an average of 27 fully utilized completion fleets. On this base, we generated annualized adjusted gross profit per fleet of $13.4 million, which once again positions us near the top of the competitive stack. We generated adjusted free cash flow, $24 million, in the first quarter, excluding onetime inflows. And I'm proud to report we are nearing completion of our integration related to the Keane and C&J merger and have recently captured our targeted run rate cost synergies of $125 million.

From an operating perspective, the company started out as expected, including increased activity as customers got back to work to start the year and budget exhaustion and seasonal headwinds abated. We averaged 25 pro forma fully utilized frac fleets in the fourth quarter and achieved a steady increase in deployment throughout the first quarter, reaching 31 deployed and more complete in early March.

We were very pleased with our strong start to the year. The industry though was then faced with sudden unforeseen and unprecedented circumstances, including major shocks to both supply and demand beginning in early March. COVID-19 has resulted in significant demand destruction for oil products, driven by a significant slowdown in worldwide economic activity. This has also resulted in an increasingly utilized global storage network, extreme commodity price volatility and the onset of unprecedented global oil production shut down. While the recent agreement by OPEC+ nations is part of the path toward improvement, commodity prices remain under pressure as supply and demand imbalances are forecasted to persist. As expected, producers have responded urgently and in a range of ways, including drastic reductions in budget and outright completion stoppages. Given the unprecedented pace of deterioration, several producers have updated their budget multiple times over a short period. As a result, during the final weeks of the quarter, we experienced a significant decline in our deployed fleet as compared to our first quarter average.

While the situation is fluid, as commodity prices remain volatile, here's what we believe: first, near-term activity will continue to deteriorate and visibility will remain low as producer/activity in light of a fundamentally full oil storage environment. We've seen this manifest with completion activity declines outpacing the rig count reduction; second, activity declines will take on a variety of arrangements, including temporary completion stoppages and activity reductions. Situation remains dynamic almost day-to-day making the achievement of schedule efficiency even more challenging in the near term; third, not all E&P operators will be impacted similarly given varying hedge position, geographic footprint, access to storage and financial strength. For example, we expect activity in gas basin where we have a sizable footprint to be more stable; and fourth, the exact duration and magnitude of the downturn is unclear, driven by uncertainty related to the virus resolution, it's widespread economic impacts and the need to work through a significant global crude inventory build.

While the downturn in the industry activity associated with the COVID-19 outbreak came on quickly, and without warning, NexTier is well positioned to deal with the situation, and we are accustom to change due to our history and strong management process. Our culture is focused on constantly challenging the status quo, and our customers appreciate our nimbleness and track record of continuous improvement in risk management, completion efficiency and innovation. We've been quick to deploy new technology and techniques that drive tangible improvements in these areas, and we will continue to do so. We believe in forging lasting partnerships with customers and vendors, these relationships combined with our people's dedication, mobility, teamwork, collaboration and swift action have continuously led to a differentiated result for us and our partners. Our objective remains the same. We are determined to be the most cost-efficient completion company in the U.S. by utilizing data and rapidly deploying technology in a process that drives ever-improving cost efficiency and safe operation. The U.S. land and oil and gas business is currently under pressure, but is not permanently shrinking. And we believe it will grow again when the economy gets restarted, the call on U.S. production again increases. As such, we've organized ourselves in a manner that will allow for rapid response to future opportunities. We are preparing for a worst case short-term scenario while preserving our ability to react quickly through opportunities created by our enhanced sales organization. Our deliberate actions cover two primary pillars: protecting our balance sheet and aligning our cost structure to demand.

Starting with the balance sheet protection. where our decisions are centered on preserving cash. This remains a top priority for NexTier that will help us navigate these challenging market conditions. We've taken several steps to further fortify our balance sheet position, and I'll highlight a few: first, we acted decisively to shift our capex playbook and reduce future spending. As previously announced, we lowered our 2020 total capital expenditures by more than 50% from our previous guidance and reflects a decrease of over 60% as compared to pro forma spending in 2019. This reduction included idling a significant portion of our previously active completion fleet in line with market demand while narrowing our innovation and technology investment to initiatives with near-term returns. We continue to evaluate all ways to reduce capex, particularly in the event of a prolonged market downturn while maintaining our diligent approach to maintenance. And second, we recently executed on the divestiture of our Well Support Services business, streamlining our operations, unlocking further cost reduction and accelerating approximately five years of free cash flow onto our balance sheet. Our sale generated approximately $94 million of total proceeds, including $59 million in cash at closing and $34 million in bonds guaranteed to par by make-whole provision by March 2021. With the actions taken, we exited the first quarter with total liquidity of $591 million, comprised of $489 million in cash, including $175 million in revolver draw and $101 million of revolver availability. We expect our actions to further benefit our balance sheet as we continue to navigate the road ahead. Our customers have expressed confidence in our financial health as several have communicated that in the current environment, financial strength and sustainability are critical factors in who they choose to partner with. Our second set of aggressive and proactive actions involve sizing of our operations and cost structure to market demand. While preserving our ability to react quickly and expand when activity rebounds. We are nearing completion of the integration of Keane and C&J, and recently achieved our targeted $125 million of run rate cost synergies. As a result of the environment, we have transitioned our efforts and are now intensely focused on the larger scope of business transformation. Since early March, we've removed a significant base of cost from our system across variable and fixed components, which are incremental to the $125 million of run rate cost synergies mentioned earlier. This highly proactive transformation involved planning, coordination and execution from our entire team. We assessed the situation accurately in early March, started taking actions immediately to significantly reduce the size of our organization and manage costs accordingly. These cost savings are derived from reducing our headcount, operational footprint and overhead costs for lower activity levels across multiple geographies. Our swift and proactive measures respond to near-term activity declines as well as longer-term structural challenges that streamline, simplify and flatten several functions within the organization. Steps taken to streamline the organization are consistent with our strategy and unrelenting focus on optimizing our cost structure the advantages of which we will continue to benefit from as the market develops.

Let's walk through some of the key drivers. Starting at the top of the company. We reduced our executive leadership cash cost by approximately 60%, including significant reductions in cash compensation from temporary salary and bonus reduction. We restructured and reduced the size of our senior leadership organization by 40% in a way that maximizes our managerial talent with a streamlined team taking on expanded roles. Our Board of Directors has taken similar responsive measures, including a reduction in the number of directors by three and a 20% reduction in cash compensation in line with the Executive team. We adjusted the size of our overall workforce to a level aligned with expected market demand. As of today, we have reduced our workforce by nearly 2/3. In addition to these workforce actions, we've implemented compensation reductions for all of our employees. These combined actions will drive a 75% run rate reduction in our total labor cost, lowering annual cash compensation expense by more than $400 million. We've adapted to the current environment swiftly and aggressively by rationalizing our operating and facilities footprint through strategic reduction and consolidation while maintaining a competitive footprint in every basin in which we operate. These actions have resulted in the reduction of about 1/3 of our commercial site. And when factoring in our recent Well Support Services' divestiture, we've now exited more than 60% of our sites. We've addressed nondiscretionary and other costs, including the elimination of our 401 match, the suspension of nonessential travel, and long-term alignment of arrangements with key suppliers. Not only will these actions help reduce the cost of running our business, but should also lead to better informed decisions, faster response times to customer needs and changes in the ever-evolving business environment.

While necessary, these actions have been very difficult, especially because of the quality of the people involved. We are humbled by everyone's professionalism and understanding during these challenging actions. The NexTier people are second to none. I cannot possibly thank all of them enough for what they do for our customers and our company, both historically and in the future.

As I noted, we sharpened our focus on select high-impact innovation opportunities centered around our surface and digital-enabled projects. During the first half of 2020, we are completing our strategic spend on a few key initiatives we've already committed to. For 2020, this includes two primary initiatives: first, the upgrade of a portion of our frac fleets with Dual-fuel DGB engine technology, capable of burning compressed natural gas or filled natural gas while lowering opex; second, digital initiatives, including frac control optimization and equipment health monitoring, which we believe will provide a significant opportunity to drive down maintenance spending and deliver capital efficiency over the long term. We've already seen return on these investments as our enhanced service offering was more capable of addressing and maintaining a declining base of customer work. While our digital initiatives have made our headcount even more efficient and supports the level of workforce adjustments we've made. In addition to these great strides we are making across innovation, NexTier is further differentiated through our natural gas oriented position in the Marcellus/Utica, dating back to the beginning of our company, where we maintain a strong customer base that has sustained our streamlined and well positioned footprint in the region. Separately, last year, we deployed a completion fleet from the U.S. to Saudi Arabia via a U.S.-based contract with our partner, NESR. Our partnership is off to a very good start. I'm proud of our team's ability to deliver leading service quality and efficiency. This arrangement benefits all the parties involved as it furthers NESR's business development and brings world-class efficiencies to the end customer. We continue to believe this reflects a unique growth opportunity for NexTier in the future.

Before I pass things over to Kenny, I'd like to make a few comments on our industry. We know this is a cyclical industry, but it's difficult to see thousands of our industry colleagues being released from their jobs. The employment loss in this sector will be tough on all of us. At the same time, we're empathetic to those that continue to be impacted by the COVID-19 outbreak. No two cycles are the same, but our industry has been through challenging times before. Our industry and the people in it are strong and resilient. They stay focused when times get tough, innovate when change is needed and are optimistic when uncertainty is prevalent. With this as our collective track record, I'm confident that we'll persevere once again. We'll come out on the other side with stronger but perhaps fewer companies. I stand ready to take advantage of a more constructive market. And we'll continue to proudly deliver critical energy services for the benefit of Americans and so many around the world.

With that, I'll now turn things over to Ken.

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

Thank you, Robert. Total first quarter revenue totaled $628 million compared to pro forma revenue of $648 million in the fourth quarter. The sequential decrease was driven by the divestiture of our Well Support Services business in early March, coupled with the pricing impact from Q4 contract reopeners, which was partially offset by the increase in utilization and strong operational performance. Total first quarter adjusted EBITDA was $72 million compared to $78 million of pro forma adjusted EBITDA in the fourth quarter. The sequential decrease was due to the divestiture of the Well Support Services business. Excluding the divestiture of this segment, our first quarter performance was relatively flat as compared to the fourth quarter. Price reductions in all basins were partially offset by higher utilization and aggressive cost reductions from both our synergy program and our quick and decisive actions to adjust the challenging market conditions in March.

In our Completion Services segment, first quarter revenue totaled $513 million compared to pro forma revenue of $510 million in the fourth quarter, remaining relatively flat. Completion Services segment adjusted gross profit totaled $98 million compared to pro forma adjusted gross profit of 106 deployed, an average of 29 completions fleet and when factor annualized, adjusted gross profit per fleet, which includes frac and bundled wireline, totaled $13.4 million compared to pro forma annualized adjusted gross profit of $15.6 million per fleet in the fourth quarter, which continues to position NexTier as a leader in relative peer performance. In our Well Construction and Intervention Services segment, revenue totaled $57 million compared to pro forma revenue of $58 million in the fourth quarter. Adjusted gross profit totaled $9 million, unchanged as compared to the fourth quarter. In our Well Support Services segment, revenue totaled $58 million compared to pro forma revenue of $81 million in the fourth quarter. The decrease was driven by the divestiture of the Well Support Services segment in early March. As Robert noted, our sale generated $94 million of total proceeds, including $59 million in cash at closing before transaction costs, escrowed amounts and subject to customary working capital adjustments and $34 million in bonds guaranteed the par via make-hold provision. Segment adjusted gross profit totaled $12 million compared to pro forma segment adjusted gross profit of $15 million in the fourth quarter. Adjusted EBITDA for the first quarter includes management adjustments of approximately $52 million, consisting primarily of $34 million for impairment of assets, including goodwill, $13 million of merger and integration costs, $9 million of market adjustments and $6 million of noncash stock compensation expense, all partially offset by the $8 million gain on the sale of Well Support Services business.

On the $52 million of management adjustments during the first quarter, approximately $40 million were noncash. First quarter selling, general and administrative expense totaled $57 million compared to pro forma SG&A of $70 million in the fourth quarter. Excluding management adjustments, adjusted SG&A expense totaled $48 million compared to pro forma adjusted SG&A of $54 million in the fourth quarter. Turning to the balance sheet. We exited the first quarter with $314 million of cash and $175 million drawn on our revolver for a total of $489 million compared to $255 million of pro forma cash at the end of the fourth quarter. Total debt at the end of the first quarter was $512 million, net of discounts and deferred finance costs and excluding finance lease obligations compared to $338 million in the fourth quarter. We made a strategic and defensive decision to draw on our asset-based credit facility in March to maximize our cash position during unprecedented challenges in the market. Net debt at the end of the first quarter was approximately $23 million, resulting in a leverage ratio of near 0 on a trailing pro forma 12-month basis.

We exited the first quarter with total available liquidity of approximately $591 million comprised of cash of $489 million, including $175 million of asset-based credit facility borrowings and availability of approximately $101 million under our asset-based credit facility. Cash flow from operations was $48 million during the first quarter, while cash flow used in investing activities totaled $39 million, driven by maintenance capex and selected investments in technology. This resulted in free cash flow of $9 million during the first quarter excluding $15 million of merger and integration cash costs, adjusted free cash flow totaled $24 million in the first quarter. Due to ongoing market volatility and uncertainty, we are not going to provide forward-looking guidance on activity levels or financials. Nevertheless, we can provide some color regarding our recent activity evolution. As we reported, we had 31 fleets deployed and working as recently as early March. That number declined by more than half by the end of April, and we would expect further declines in line with overall market activity. We are, however, also prepared to address potential market opportunities that could provide a range of activity profiles. You can see from the cost control measures we have already taken that we are being cautious regarding near-term activity as our customers deal with the current inventory issues.

With that, I'll hand it back to Robert for closing comments.

Robert Drummond -- President & Chief Executive Officer

Thanks, Kenny. We announced yesterday that after nearly a decade of dedicated service at Keane and now NexTier, Greg Powell will be leaving the company later this month. Greg has been a key element to our success since the very beginning. Playing critical roles in every single milestone and achievement throughout our company's evolution, from a company with a single fleet in the Northeast to a leading completions provider in the country. I've been privileged to work closely with Greg these last several years and consider him to be one of the most talented leaders and executives that I've ever partnered with. We thank him for executing a world-class integration process benefiting NexTier on an ongoing basis. Greg has left an enduring mark on our organization and his impact will continue to benefit us over the long term. I know I speak on behalf of all of our stakeholders, he will be missed, and we wish him nothing but continued success in the future.

Before we open up the lines for Q&A, I'd like to leave everyone with several points: first, the energy industry is in the midst of an expected and unprecedented downturn. The impacts are likely to be experienced for an extended period of time and only the strongest will survive; second, financial strength remains paramount. We've quickly pivoted to balance sheet protection by focusing our capital expenditures, aligning with market activity and driving additional cost reductions. Our fortified balance sheet positions us to last and persevere; third, our platform and strategy continues to differentiate NexTier. This includes our unique international outlet, attractive gas rich basin exposure in the Northeast, platform for innovation and a base of fresh equipment; finally, we have a strong management system and a long track record of meeting our commitment, forging lasting partnerships, maintaining capital discipline and efficiently integrating consolidation. While the challenge ahead is real, we are well positioned for the long haul. And I like our relative position in the market now and in the future.

So in closing, I want to thank our customers for their loyalty and commitment and ensure them that we're here for them for the long term as they navigate this period of low commodity pricing. I want to thank the NexTier team, including management and our hard-working field employees for their extra effort, their focus on our customers, their loyalty and the dedication to safety and efficiency. I simply could not be surrounded by better people. We are working together to create opportunities that will allow us to encourage our departed comrades to rejoin the team. To our shareholders and other stakeholders, we are managing the company for the long haul, and we'll continue to work diligently to protect our strong balance sheet to give us the continued ability to act both offensively and defensively as the market gets sorted out in the coming quarters.

With that, we'd now like to open up the line for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Sean Meakim with JPMorgan.

Sean Christopher Meakim -- JP Morgan Chase -- Analyst

Robert, Kenny, so thanks for all for the for going through the specific cost actions you've taken, both for the integration as well as reacting to the current environment. When you resized the fixed cost structure, is there any reason it looks materially different than what stand-alone Keane may have looked like back in 2018, just considering how few fleets will likely be running later on 2020? And how long does it take you to get there?

Robert Drummond -- President & Chief Executive Officer

Thanks for the question, Sean. Definitely, we've looked at it from that lens and anticipate being able to to create an SG&A structure that is in tune with Keane prior to the merger with C&J, if not somewhat smaller, considering the current activity status. When do we expect to make it? We made a little bit of progress. You can see in Q1. We're making a huge amount of progress since, call it, the second week of March. And we intend to get there in Q3. You'll see that. Kenny, would you give a little more color, perhaps?

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

Yes. On the SG&A, I mean, we're seeing nearly a 40% reduction in Q2 versus Q1. And I'll just add that we are seeing the benefit of the Well Servicing divestiture as we had planned in terms of SG&A reduction. So all those combined, we're going to see a significant reduction in Q2 as we head toward a Q3 and potentially, getting below the $80 million annualized.

Sean Christopher Meakim -- JP Morgan Chase -- Analyst

Got it. That's very helpful. And then I guess, recognizing the difficulty in forecasting without any visibility. Can we just talk about what you'll manage the business to in the near term? So in other words, to maintain that four to five balance sheet, you need to avoid burning cash for an extended period of time. How confident are you in your ability to sustain positive cash margins, net of maintenance capital, full company overhead, if we assume that activity stays fairly low through 2021?

Robert Drummond -- President & Chief Executive Officer

It's a good question. Look, the reason we've made the taken the position of not being able to provide a lot of guidance like we've done in the past is simply because a scenario for us on the revenue side is extremely still uncertain. And there's no question that the activity we've already we're experiencing significant downward activity. But on the cost side, we try to give a lot of guidance there because we are, I would say, planning for a worst case kind of short term, immediate term scenario and taking out dramatic costs, as you saw, as much as 75% of our of our total compensation line. But when we look at what our activity looks like going forward, I think you got to be able to first predict and be able to estimate what the total market frac capacity is going to look like. And then look at it this is me giving a little bit of guidance. Look at it through our historical market share perspective. And we've kind of been in a range of 8% to 12% of the active fleets deployed in the market. That's been true kind of through the process, we're obviously working to increase that. But the bottom line is that we're sizing the organization for this kind of Q2, Q3 scenario where the operators are dealing with a full storage environment and are having to shut in production. Kenny, you want to add a little more color?

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

Beyond the second part of your question, Sean, on the cash flow. I mean, look, we've looked at the scenarios and how they can play out. But even if it stays at these levels that we see here through 2020, I'll just tell you what we see. We do see positive free cash flow generation for 2020, where we'll be able to increase our cap balance at year end of $255 million. This obviously doesn't include any borrowings. This will be helped by our significant working capital that we will liquidate and in addition, I just want to mention, as we're talking about longer-term into 2021, we do have that $34 million bond capture. And look, this sets us up for 2021 for whatever it brings, whether we have to play offense or we have to play defense.

Robert Drummond -- President & Chief Executive Officer

I would also add that we're really not going to try to, necessarily, optimize the cost structure of the company for the absolute bottom of the market. And we'd rather focus on maximizing liquidity. So that we've got enough room to deal with the defensive dealing with the defensive aspects now, but we also want to have the runway, working capital runway to deal with the ultimate rebound in activity. So we're kind of balancing those 2.

Sean Christopher Meakim -- JP Morgan Chase -- Analyst

It's very helpful. Feedback thanks.

Operator

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

Thomas Allen Moll -- Stephens Inc -- Analyst

Robert, for the fleet that are currently active, what kind of visibility, if any, do you have for the calendars even in just the coming days, weeks to month? And then as we proceed through the rest of this quarter and the third quarter, what's the go, no-go decision based on when you're deciding how many of those to keep active? Is it just ensuring your free cash flow breakeven after maintenance? Or is there another way you think about it?

Robert Drummond -- President & Chief Executive Officer

So good question, Tommy. I would just want to say that the visibility that we have is linked to the visibility that our customers have. And if you notice a lot of the market, E&P operators are changing their capex guidance pretty frequently as the clarity becomes more clear about working with their production. We have loyal a very loyal customer base, and they're sticking with us as we go through this. But it is very difficult to put your finger on out part of Q2 and Q3. We do have customers that are making plans to scenario panning that could have some variation there. As far as how we size ourselves and how many fleets we keep deployed? It's very much, I guess, the same for us as it is in the upper side of the market in the sense that we're going to size ourselves to what we know we got coming. Plus a little bit of flexibility to take advantage of opportunities. So the number of fleets that we have deployed will move pretty rapidly with the market outlook. And you can see from the guidance that we gave about reducing our headcount by 2/3. That gives you a little bit of view of how dramatic the activity change has occurred. And I know everyone is kind of looking for a little bit of guidance. And I would just say, we talked about in Q1 that we were at reached a peak of 31 deployed fleets. We and I can tell you what we do know is that we exited April on an average of about 17, and the fleet count is going down from there. The market projections by many of all of us have placed it ranging from 55 to 100 fleets in the market. And we would be in that band as well, as wide as it is. Did I catch all that question, Tom?

Thomas Allen Moll -- Stephens Inc -- Analyst

Yes, sir. That's very helpful. Pivoting to a bigger picture question for you, Robert. Consolidation has been a big part of the company's history. And during this downturn, I suspect we're going to see more opportunities to do so. But on the other hand, you're the third largest player in the North American completions market now as the largest pure play. So I wonder as we go into this downturn, does it make sense to continue consolidating? Or do you look at your asset base now and think it's at full scale and there may not be a need to continue to add?

Robert Drummond -- President & Chief Executive Officer

I think I appreciate that question. I would say, first, we fully appreciate from the macro perspective the benefits of consolidation, given the ability to rationalize assets. We've got a track record of success doing it. And most recently demonstrated through the good integration process that we've done with C&J. But for us, the strategic rationale is going to be extremely important. We're going to hold a very high bar to screen the opportunities, but it wouldn't be a case, I don't think, where we'd see us taking out too much leverage to do it, and we'll be aiming to stop transactions that would be accretive to our shareholders from the beginning. But having said all that, I do want to say, we go into it with an open mind. We've obviously got a view of the competitive landscape in North America and are constantly taking a look at that, and I'm sure so are potential counter parties. And that's kind of the logic. But the conditions would have to be very good. And I would say, as we get further along and get our reaction time our reaction to finish to this current scenario that we might investigate, maybe other ideas around consolidation that are not purely frac, we keep our mind open to that as well. So we are just now digesting the C&J deal, and we're not aggressively in that mode.

Thomas Allen Moll -- Stephens Inc -- Analyst

Well, I would ask you, for an example, of what an area might be outside of frac, if you're willing to give it, but assuming you may not be at this point, I'll also be happy to turn it back. I appreciate the questions and answers.

Robert Drummond -- President & Chief Executive Officer

Yes. Look, I appreciate that last part of the question. I would just say is that we're in very early days here. And looking for somewhere that our management team could add value and where the industrial logic had some kin to what we do today.

Thomas Allen Moll -- Stephens Inc -- Analyst

There are no other questions.

Operator

Our next question comes from Marc Bianchi with Cowen. Please go ahead.

Marc Gregory Bianchi -- Cowen and Company -- Analyst

Kenny, I just wanted to go back to your comment about the free cash throughout the year. I thought I heard you say something about a $200 million number at the end of the year. And I just maybe I misheard because I'm looking at the cash balance right now at $490 million. Can you just kind of run through what your commentary was there again?

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

Yes. Sure. So I was just pointing out that from what we see today, if Q2 stayed the way it is through 2020, that we would see a positive free cash flow generation increasing 2020 ending cash over our ending balance of 2019 to $255 million. That was the comment.

Marc Gregory Bianchi -- Cowen and Company -- Analyst

Got you. Got you. Okay. That's great. And in terms of the working cap expectation there, can you talk a little bit about how much you would expect to release in that commentary? What's real...

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

Sure. When we put the two companies together, as we said, we identified a lot of opportunities on working capital efficiencies. On the client side, we still see a lot of opportunity to incrementally increase that working capital efficiency. And even on the supplier side, we've been making really good inroads collaboratively with our supply base. So we still see a trend of working capital efficiency that we called out last quarter in terms of incremental efficiency. But in general, with this market environment, this downturn, you're going to see working capital being a significant contributor to our free cash flow from both our incremental efforts and also the shape of the revenue and the activity. So I would just say it's going to be a significant portion of our free cash flow generation in 2020.

Marc Gregory Bianchi -- Cowen and Company -- Analyst

Okay. Fair enough. In terms of the exposure to gas basins, can you help maybe say how many fleets you have there? And maybe if there's any visibility on what that piece does over the next couple of quarters given indications from customers and so forth?

Robert Drummond -- President & Chief Executive Officer

So thanks for the question, Marc. We haven't really given any guide on for competitive reasons, how many fleets we have operating in the gas basin. But I would point out that Keane originated in the Marcellus/Utica region, and we've had a very consistent customer base that we've actually been able to grow a little bit in the last couple of quarters. So it is a but coming with the oil situation we have an even bigger contributing factor for our overall activity profile. As far as the relative prospects in gas versus oil, it is distinguishing itself as we look out in the next few quarters. You see that in the commodity pricing a bit. So we really like the position that we have. And we had taken some actions a couple of quarters ago to kind of rationalize our footprint in the Northeast that made us even more cost competitive up there. So we've been able to show that to our customers while maintaining our consistent service efficiency and safety record up there. So we like it a lot, it's important to us, and we've got some very good customers. I believe the best ones operating in the region.

Marc Gregory Bianchi -- Cowen and Company -- Analyst

Okay, thanks for that. Robert, I'll turn it back

Robert Drummond -- President & Chief Executive Officer

Thanks, Marc.

Operator

Our next question comes from Scott Gruber with Citigroup. Please go ahead.

Scott Andrew Gruber -- Citigroup Inc -- Analyst

Robert, thinking of a longer-term view here, how do you think about how the completion business evolves here in the U.S.? And how does the industry help the E&Ps time incremental efficiency gains but also make a margin in the process. I'm sure there's a digital angle to this. But in addition, you previously mentioned potentially adding non-frack businesses. Is that simply from a diversification angle? Is there a bundling angle here in terms of how you go-to-market? Are there new contract models possibly that you're contemplating? Just overall, how do you think about how you help customers drive additional efficiency gain, but also capture some margin for yourselves in the process?

Robert Drummond -- President & Chief Executive Officer

That's a good question. Look, there's a lot that we can continue to do from the efficiency perspective as we look into the future. I do believe, first, from a macro perspective that the call on U.S. production is going to come back the bigger much bigger question is kind of maybe when. And when it does, that the customers that I mean, the competitors or the service companies that can deliver the most cost-effective or cost-efficient service will be the ones that win out the most. As far as what other services you would want to roll into that? I would say as a service company can increase the scope of the services they provide in the completion network, the opportunity to leverage fixed costs and the opportunity to improve efficiency on a bigger scale is increasing. We went through a phase where the operators were doing some vertical integration, and it's prevalent even as we come out of Q1 because they had challenges at some points of the cycle gaining access. And we believe that as things move into the future, if a service company like us can put together a bigger scope, it will have more to work with and to take efficiencies and further them. Make efficiencies even more prevalent. So that's one avenue.

We've been about a year into the investments into our digital programs that are really focused on primarily just that. You talk about some of the bigger service companies speaking to digital, they're often talking about revenue opportunities generated by digital. But I just want to distinguish ourselves, at the stage we are in today, our investments are around improving cost efficiency. And we rolled out NEX hub in the last quarter's call. This is a center for bringing in logistics and equipment health monitoring and all the operations around the well site into a hub, so we can leverage talent, leverage our engineering across a bigger scope, reducing the total number of people required to do job, for example. Lowering the equipment health monitoring aspect of the digital program is having the data of where you need it when you need to make decisions to prevent early failures of equipment, for example. We think these programs have the capabilities to take 20% to 30% out of our operating maintenance cost profile over time by eliminating early failures, using artificial intelligence to how you control the pump systems themselves. So through scope increase and through digital applications and through blocking and tackling that we're very good at when it comes to general efficiencies and working closely with customer partners, we think there's a lot more to be had there. And I think customers are going to be very sensitive and looking at that in the future, and that's why we think, preferentially, our market share is going to increase over time.

Scott Andrew Gruber -- Citigroup Inc -- Analyst

That makes a lot of sense. And I know everyone's reacting to the market right now, both you and your customers. But as you talk with the senior leaders or your customers, are there side conversations today around expanding the envelope of the services that a top-tier provider like NexTier can bring to the well site? I'm just thinking that, is this going to be more of a push from the services industry? Is there going to be some pull from customers to kind of have a shift in the model here, moving away from that A La Carte model and maybe toward a more bundling of services here in the U.S.?

Robert Drummond -- President & Chief Executive Officer

Look, Scott, I say, it's early days for sure. But just thinking about the operators are dealing with a scenario that's tough for them and too dealing it with low commodity prices. And when they start to really dig into their organizations like we are, they're looking for ways to rationalize cost and productivity every way possible. And I think it's going to be a process that we're going to try to create a bit. But there's been a little bit of discussions in that area, but it's definitely early innings.

Scott Andrew Gruber -- Citigroup Inc -- Analyst

Got it. Appreciate the color. Thank you.

Robert Drummond -- President & Chief Executive Officer

Yeah. Thank you.

Operator

Our next question comes from Stephen Gengaro with Stifel. Please go ahead.

Stephen David Gengaro -- Stifel, Nicolaus & -- Analyst

Two things, if you don't mind. Just one to follow-up just on an earlier question, I think, from Marc. Your cash balance comment that you made, you ended 2019 at $255 million. It jumped in the first quarter. Is your comment around a rise from year-end 2019 to 2020? Where can you give any color on where you think you'll be relative to the end of the first quarter?

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

Yes, it is a rise from it's a rise from year-end to the end of the year. We're not going to give any color on Q2. But what we are saying is that, excluding our ABL draw, we will have incremental cash on our balance sheet by the end of the year versus year-end 2019.

Stephen David Gengaro -- Stifel, Nicolaus & -- Analyst

Okay. Great. And do you see working capital liquidation from these levels, though, is that fair?

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

Yes.

Stephen David Gengaro -- Stifel, Nicolaus & -- Analyst

Okay. And then just one follow-up. As we think about your maintenance capex per fleet per year, with fleets being idle and I'm sure some negotiations, how should we think about that number for the balance of 2020? Is it coming down at all versus history? Or do you think it's pretty stagnant versus where it's been?

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

No. So in 2019, we averaged about $4 million of maintenance capex per fleet. We committed to reducing that to about $3.50 million to $4 million. What we're seeing today to achieve our guidance of $100 million to $120 million in 2020. We're going to achieve about a 20% to 30% per fleet reduction off of that $3.5 million to $4 million per fleet.

We're going to achieve that. One of the factors in achieving that will be some inventory consumption as well as the fact that we're running smaller a smaller fleet of assets.

Stephen David Gengaro -- Stifel, Nicolaus & -- Analyst

And then just one follow-up to that. As you have discussions with customers now, and I know things are extremely dynamic, are you seeing a strong preference or ability to deploy some of the newer assets more rapidly? Is there a big customer preference or is it to too volatile right now to have a good sense?

Robert Drummond -- President & Chief Executive Officer

I would say most of our customers are focused on the key performance indicators on how they run their business. It's a whole it's a mix of the equipment and the people and the process and everything. But I would say that the investments that we called out that we made in the front half of this year and in the latter part of last year, around Dual-fuel has been a preferential a little bit in the market. Not everywhere still, and there's a long way it's going to be in everywhere, can supply field gas everywhere it needs to be. But assets that can burn natural gas, CNG or diesel, do have some places in the market where they are preferred against our investment.

Operator

Our next question comes from Chris Voie with Wells Fargo. Please go ahead.

Christopher F. Voie -- Wells Fargo Securities, -- Analyst

So thanks for all the clarity on the cash front. Just curious if you could give a little more color. Obviously, 2Q is very volatile, but you've had a lot of cost out as well. Can you give a little bit of sense around EBITDA, whether you expect that could be whether breakeven is a decent bogey to think about for the quarter because there's a pretty wide range on how it could shake out and given the visibility that I have so far. Just curious if you can give kind of a benchmark on EBITDA?

Robert Drummond -- President & Chief Executive Officer

Look, that's what we meant when we said we weren't really going to be able to guide because while we've given a lot of pretty clear guidance on cost side, the fluctuation in activity day-to-day makes it very difficult to predict the revenue side of it. So the range is pretty broad, dependent upon how many active fleets you can work. And in a time like this where the customers are changing their minds a lot. It's not the most efficient operating environment to operate in. So white space in the schedule, our efficiency can be a bit less kind of during those periods. But it's not so much about the short-term Q2, Q3 that we're focused on. We're obviously taking out a large amount of cost, demonstrating that we got our eyes on the ball there. But I'd say, protecting the balance sheet and the liquidity position to give us the ability to capture the value that's going to be in this marketplace. Once things do get kind of sorted, and we can get a more clear view of what the activity profile is going to look like. I think there is where the most value creation is going to occur in our space, is the company's best positioned to do that. We're going to do both, obviously, but we're going to be focused on having that liquidity that gives us the ability to have the working capital platform to capture the growth as it gets into next year or the year after that, even. But even in the worst-case scenario, like Q2, and the point we're trying to make is that we're going to have more cash next year at the beginning of the year than we do this year, thanks to the working capital input, and we're going to be very well positioned to deal with a defensive mode if the market is bad or offensively if the market gives us a lot of opportunity.

Christopher F. Voie -- Wells Fargo Securities, -- Analyst

Okay, that's fair. And then to follow up, obviously, activity is the big mover, but there's been a lot of requests for pricing, some different answers from some of your peers on whether there's movement there. But given how hard it is to claw back, have you seen much of a change in pricing? And if so, can you quantify?

Robert Drummond -- President & Chief Executive Officer

Yes. So we said last quarter that as we rolled into the beginning of this year, it is most like a year before that we did have to yield pricing, and we would typically claw in those pricing concessions back through improved efficiency and better cost management. We were on that track in Q1. If you notice that our margin EBITDA margin was flat versus Q4. That was with price concessions similar to the year before. After the virus scenario, when people were shuffling to get through get to the point we're at right now, there were some further price concessions and we've had further cost reductions as well, but it's still very fluid, and we're not going to try to quantify it. But just keeping in mind that the decisions we make around pricing I'm going to go back to my previous comment, that we're trying to manage the cash and manage the balance sheet to give us the longest runway and the most opportunity on the upside.

Operator

Our next question comes from Chase Mulvehill with Bank of America. Please go ahead.

Chase Mulvehill -- BofA Merrill Lynch -- Analyst

I guess, first question I had I just want to make sure that I heard you right. I think I heard you say that you exited April at 17 fleets. Can you confirm that? And if so, that's actually a little bit better than the rig count is down since then and definitely better than what we're hearing from some of your peers. So maybe if you can kind of talk about, is there customer concentration or something that is helping you kind of outperform your peers when we think about how many active fleets you have out there today?

Robert Drummond -- President & Chief Executive Officer

So Chase, I'll clarify only by saying that, that was an average number. And at the backside of April was obviously lower than the entry point of April. And I would also say that in a mode we're in right now in the overall market, it depends on kind of who you're working for on the timing as it relates to kind of who's shutting down operations and where they're at in a pad or whatever, lots of different factors. So I think that the comment I made about market share is one that I would say that we saw, I think, a little bit blip to the upside on market share in April we did. But how that shakes out the rest of the quarter, it's difficult to predict.

Chase Mulvehill -- BofA Merrill Lynch -- Analyst

Okay. All right. And then so how we should think about it is just your 8% to 12% market share as we go forward, we all make our own assumptions about the fleet count. But then when we think about profitability, I don't know if I know you probably don't want to speak to 2Q specifically, but just how should we through the year end, just kind of walk us through, overall, how we should be thinking about gross profit per fleet for the remainder of the year? I don't know if you want to give us exact numbers, but do you think it will remain positive on average for the rest of the year?

Robert Drummond -- President & Chief Executive Officer

Chase, look, every single part of the P&L is in flux. Revenue, every single cost line. And I would just say it's going to be very difficult to look at the business the same way we had previously during these during Q2 and perhaps even early partials of Q3. We do have a fixed cost base that we're trying to lower in every manner possible outside of labor even, especially. And that as you get to a smaller fleet count, that is applied across that and makes it challenging. So is there a range of profitability in tune with the range of market share? Yes. Could that range dip into negative territory in the bottom of the cycle? Yes. And would is that what we foresee? We're not going to try to guide that because it's too difficult on the top line right now. But I like the way you categorize it. You got that 8% to 12% market share range to look at when you're doing your modeling on the total market and to give you a view of it. And that, combined with our guidance on taking $400 million out of our compensation line and give you a good feel, I think, is what the ranges look like.

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

Yes. And I would just add that our cost has we've always said our costs are highly variable. And I believe that we've demonstrated with the cost actions that we've taken, promptly, that they are variable. Maybe if I can comment on the decrementals. If you look at our history, we have been able to deliver decent decrementals. I mean I'll take Q4 versus Q3 is less than 25%. I mean, I would say that a good result, we would have similar decrementals in Q2 versus Q1.

Robert Drummond -- President & Chief Executive Officer

And I'd also add that when you think about the cuts we've already made, I think we've been proactive in the market as far as deciding to do it quick and implementing it. Is that if you were trying to size the organization for the worst part of this production shutdown in the U.S., you'd have to cut a lot more muscle out of the organization than we've done. And we think it's important to be able to protect that through perhaps furloughs as to layoffs or keeping a crew or two available to take care of the opportunities that the sales pipeline is bringing forward. But the main thing I want to point out is that we really do think the value creation prospects around having your assets ready to go, having a muscled up staff ready to man them up and having the balance sheet and liquidity associated with being able to fund all of that and we're really set up very well for all three of those. And one point I wanted to make is when you got this kind of fluctuation in activity, where the bottom is falling out of completion activity in just one quarter, how you protect those assets are very key and the program that we got put in place, I'm extremely pleased with, using our digital program, that's new as well, to be able to give us a virtual understanding of where every component is placed and how it's being maintained while in warm stacked. So we're looking at all three of those aspects.

Chase Mulvehill -- BofA Merrill Lynch -- Analyst

Okay, all right. That's very helpful. I'll turn it back over thank you.

Operator

Our next question comes from Waqar Syed with Altacorp Capital. Please go ahead.

Waqar Mustafa Syed -- AltaCorp Capital Inc. -- Analyst

You sent one fleet to Saudi Arabia. Do you see prospects for additional in future, number one? And number two, how much horsepower does that involve?

Robert Drummond -- President & Chief Executive Officer

Thank you for the question. We did send a fleet a while back. It's been working very successfully in the unconventional field in Saudi unconventional gas in conjunction with our partner, NESR, who is the front partner in that arrangement and managing all the business development. We've stated a couple of times that we see this as a growth opportunity for ourselves on very much linked to NESR's ability to continue to create business development opportunities. So yes, how many horsepower? I would say you got about 1.25 of a fleet of a conventional horsepower fleet from the U.S. in the country there now. And we believe the prospects for adding to that in the near-term are pretty good.

Waqar Mustafa Syed -- AltaCorp Capital Inc. -- Analyst

And how do you account for the revenues and costs and margins for that? What's the right way to think about it?

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

I would just say that they're incremental to our U.S. dollars and margins.

Waqar Mustafa Syed -- AltaCorp Capital Inc. -- Analyst

Okay. So it's just fully consolidated, all of the revenues and costs?

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

That's correct. In our Completion Services segment.

Waqar Mustafa Syed -- AltaCorp Capital Inc. -- Analyst

Okay. And then in terms of you guided to SG&A down. I missed that number. You said SG&A would be down by almost how much in the second quarter?

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

Nearly 40% versus Q1.

Waqar Mustafa Syed -- AltaCorp Capital Inc. -- Analyst

Okay. Could you provide any guidance on the D&A side as well?

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

Yes. So look, on the D&A side, we're going to be less than $300 million for the full year, so significant reduction versus last year with the purchase of C&J and the purchase accounting.

Waqar Mustafa Syed -- AltaCorp Capital Inc. -- Analyst

Okay. And then in terms of noncash compensation for Q2 and onwards, any guidance there?

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

I would say it'd be in line with Q1, maybe a little bit down.

Operator

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

Robert Drummond -- President & Chief Executive Officer

Yes, just quickly. Thank you very much for participating in today's call and your interest in NexTier. Hope you guys are staying safe in the environment and look forward to seeing you. Thank you.

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

Kevin McDonald -- Executive Vice President, Chief Administrative Officer & General Counsel

Robert Drummond -- President & Chief Executive Officer

Kenneth Pucheu -- Senior Vice President & Chief Financial Officer

Sean Christopher Meakim -- JP Morgan Chase -- Analyst

Thomas Allen Moll -- Stephens Inc -- Analyst

Marc Gregory Bianchi -- Cowen and Company -- Analyst

Scott Andrew Gruber -- Citigroup Inc -- Analyst

Stephen David Gengaro -- Stifel, Nicolaus & -- Analyst

Christopher F. Voie -- Wells Fargo Securities, -- Analyst

Chase Mulvehill -- BofA Merrill Lynch -- Analyst

Waqar Mustafa Syed -- AltaCorp Capital Inc. -- Analyst

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