NexTier Oilfield Solutions Inc. provided an operational update and guidance for the fourth quarter of 2021.
Fourth Quarter 2021 Guidance & Recent Highlights
• Total revenue guidance of $500-510 million for Q4 2021, reflecting an increase of more than 25% compared to Q3 2021
• Reported adjusted EBITDA(1) guidance of $75-80 million for Q4 2021, includes approximately $18 million in expected gain on sale of assets
• Averaged 30 deployed and 29 fully-utilized fleets in Q4 2021 vs. 25 deployed and 24 fully-utilized fleets in Q3 2021
• Consistent with prior guidance, exited Q4 2021 with 31 deployed fleets with 1 additional staffed fleet ready for Q1 2022 deployment
"The strong momentum we experienced when exiting the third quarter continued through year-end," said Robert Drummond, President and Chief Executive Officer of NexTier. "The expected sequential gains resulted from solid growth across the entire NexTier enterprise, enhanced by the inclusion of a full quarter of Alamo contribution versus just one month in Q3 2021. Further, market indicators suggest that the pace of market recovery is increasing and frac service supply is rapidly tightening.
"We're only just beginning to see the financial benefits of our integrated completion service model, which offers our customers higher efficiency and a path to lower costs and emissions," Drummond continued. "Our integrated model will be a distinct competitive advantage for NexTier and our partners as we enter the next phase in US shale's evolution. Supply chain disruptions and the newest COVID variant will continue to pose a challenge for our operations, but we're confident we have the right team in place to minimize disruptions and any related financial impacts."
"NexTier is beginning to experience the benefits from our countercyclical investment strategy, with the guidance revealing signs of strong, profitable growth as we exited 2021," said Kenny Pucheu, Executive Vice President and Chief Financial Officer of NexTier. "Despite typical holiday seasonality, our Q4 2021 guidance suggests a step change in profitability per active frac fleet relative to Q3 2021 and we anticipate further gains throughout 2022.
"As an early adopter of low cost and emission technologies, NexTier is reaching the end of its two-year strategic conversion to a predominately natural gas capable fleet," Pucheu added. "These investments were funded substantially by the sale of non-core businesses and assets, allowing us to minimize new capital deployed while repositioning the company as a leader in natural gas powered frac solutions. We enter 2022 with momentum, the industry's largest natural gas capable fleet, and a supportive market backdrop."
Fourth Quarter Expected One-Time Gains
Adjusted EBITDA guidance of $75-80 million for the fourth quarter includes an expected $18 million in one-time gain on the sale of assets. During Q4 2021, NexTier continued down the path of divesting diesel-powered frac equipment and other non-core assets to fund conversions of equipment to be powered by natural gas. These divestitures and resulting significant accounting gains in Q4 2021 came via previously announced equipment sales outside of the US as well as through trade-ins of excess diesel equipment in exchange for Tier 4 DGB conversions and conversion kits. These gains reflect our commitment to reallocate capital through the sale and trade in of conventional diesel equipment for conversion to dual fuel.
Consistent with prior commentary, for the first quarter of 2022, NexTier expects to operate an average of 32 deployed frac fleets. The company was operating 31 fleets exiting Q4 2021 and intends to deploy one additional upgraded Tier 4 dual fuel frac fleet in Q1 2022.
Sequentially, we anticipate net pricing gains in Q1 2022 and increased utilization, with the expectation that we can achieve double-digit annualized EBITDA per fleet by the end of Q1 2022.
"We see a constructive demand backdrop for US onshore completion services as we begin 2022," added Robert Drummond. "Supply of frac services has tightened considerably over the past year, and NexTier is in a great position to recapture a significant portion of the pricing concessions we made to help our customers through COVID while also benefitting from value provided by its leading position of premium horsepower. We remain confident that pricing can exit 2022 up double-digits from 2021's exit. NexTier remains intently focused on Free Cash Flow ("FCF") and we anticipate being on a sustained path to significant FCF generation beginning in 2022."
The Company continues our coronavirus protocols focused on compliance with regulatory requirements and the safety of our partners, employees, and the communities in which we operate, while mitigating the impact on our financial performance. We continue to encourage our workforce to practice safe behaviors in the workplace and while away from work to help prevent community spread of COVID-19. In December, however, the Company experienced higher levels of employee absenteeism resulting from the surge in COVID-19 cases associated with the Omicron variant. It is possible that these negative effects will continue until infection rates decline. The future progression of the pandemic remains uncertain, including with respect to new or potential variants.