Good morning. My name is Melissa, and I will be your conference operator today. At this time I would like to welcome everyone to the Patterson-UTI Energy First Quarter 2019 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Mike Drickamer, Vice President of Investor Relations you begin your conference.

Thank you, Melissa. Good morning. And on behalf of Patterson-UTI Energy, I'd like to welcome you today's conference call to discuss results of the first quarter ended March 31, 2019. Participating in today's call will be Mark Siegel, Chairman; Andy Hendricks, Chief Executive Officer; and Andy Smith, Chief Financial Officer. A quick reminder that statements made in this conference call that state the company's or management's plans, intentions, beliefs, expectations or predictions for the future are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, the Securities Act of 1933, and the Securities Exchange Act of 1934. These forward-looking statements are subject to risks and uncertainties as disclosed in the company's Annual Report on Form 10-K and other filings with the SEC. These risks and uncertainties could cause the company's actual results to differ materially from those suggested in such forward-looking statements for what the company expects. The company undertakes no obligation to publicly update or revise any forward-looking statement. The company's SEC filing may be obtained by contacting the company or the SEC, and are available through the company's website and through the SEC's EDGAR System. Statements made in this conference call include non-GAAP financial measures. The required reconciliations to GAAP financial measures are included on our website, www.patenergy.com, and in the company's press release issued prior to this conference call. And now, it's my pleasure to turn the call over to Mark Siegel for some opening remarks. Mark?

Thanks Mike. Good morning and welcome to Patterson-UTI's conference call for the first quarter of 2019. We are pleased you could join us today. This morning I will turn the call over to Andy Smith who will review the financial results for the quarter ended March 31. He will then turn the call over to Andy Hendricks, who will share some comments on our operational highlights, and as well as our outlook. After Andy's comments, I will provide some closing remarks before turning the call over to questions. Andy?

Thanks Mark. As set forth in our earnings press release issued this morning for the first quarter we reported a net loss of $28.6 million or $0.14 per share on revenues of $704 million. Consolidated adjusted EBITDA for the first quarter was $191 million. Given market conditions during the first quarter we opportunistically accelerated share repurchases and invested $75 million to buy back 5.4 million shares of our common stock which represents 2.5% of our shares outstanding at the beginning of the year. In total since the beginning of 2018, we have spent $226 million on the repurchase of 14.7 million shares in the open market or 6.6% of the share that were outstanding at the end of 2017. We will continue to evaluate opportunities to repurchase our shares particularly when we feel our stock is significantly undervalued. At March 31, we had approximately $175 million remaining under our share repurchase authorization. In addition to the share buybacks we also paid dividends of $8.5 million in the quarter. Our balance sheet remains strong. Even after more than $80 million of combined share buybacks and dividends in the first quarter, our cash balance at March 31 improved to $249 million, our $600 million revolver remains undrawn and we remained modestly levered with a net-debt-to-capital ratio of 20.5%. Cash capital expenditures for the first quarter totaled $118 million down from $161 million in the fourth quarter. We completed two major rig upgrades during the first quarter and have no additional major rig upgrades planned at this time. We are maintaining our forecast for 2019 CapEx of $465 million as we laid out in our fourth quarter call. Partially offsetting our expected capital expenditures of the fairly regular receipt of proceeds from disposals of older assets, I suspect that many of you do not include this cash flow towards in your estimates. Last year we generated $47 million of cash from asset sales and during the first quarter we generated $9 million of cash from asset sales. Given our focus on new technology, some of the older asset has limited utilities to our fleet of super-spec rigs and pressure pumping equipment. As we continue to review our facility and equipment needs, the sale of these assets continue to be an efficient way to partially offset the capital expenditures needed to operate our business. For the second quarter depreciation expense is expected to be approximately $260 million. SG&A is expected to be $32 million, and our effective tax rate is expected to be approximately 20%. With that, I'll now turn the call over to Andy Hendricks.

Thanks Andy. In contract drilling our rig count during the first quarter averaged 175 rigs, a decrease of eight rigs from the fourth quarter as customers slowed activity in reaction to the sharp drop in oil prices late last year. During the first quarter, average rig revenue per day increased $620 to $23,590 more than offsetting a $310 increase in average rig operating costs per day. As a result, average rig margin per day increased $310 to $9,700 our highest average rig margin per day since early 2016. At March 31, we had term contracts for drilling rigs providing for approximately $650 million of future dayrates drilling revenue. Based on contracts currently in place, we expect an average of 104 rigs operating under term contracts during the second quarter at an average of 59 rigs operating under term contracts during the 12 months ending March 31, 2020. Turning now to our contract drilling outlook. Higher oil prices have not yet translated to higher rig demand which remains subdued as customers have been delaying plans to pick up incremental high spec rigs. While I fully recognize that it is counterintuitive with WTI in the mid-60s, in the near term we expect our rig count will decline further bottoming this quarter in the mid-150s. Therefore for the second quarter, we expect our rig count will average approximately 160 rigs with some potential upside from private operators. With super-spec utilization over 90%, we expect our average rig margin per day for the second quarter to be similar to first quarter levels. Turning now to pressure pumping. As expected, completion activity slowed in the first quarter. We ended the first quarter with 16 active spreads compared to 20 at the end of the fourth quarter as we choose to reduce active spreads to lower…

Thanks Andy. Last quarter I commented that the fourth quarter decrease in oil prices were surprising in terms of both the magnitude and the speed of the decline. In the first quarter, the speed and magnitude of the recovery in oil prices has been almost as surprising. It now appears that the decrease in drilling and completion activity will be much less severe than some had forecast in late 2018. While we all feel more comfortable with oil prices in the mid-60s, the question many are asking is how do we attract investors back into the energy sector. We believe the current tightening focus on returns is a positive for the industry and we share that conviction which conviction we have held for many years. At Patterson-UTI we have focused and remained focused on the efficient allocation of capital and we have restrained capital spending when investment opportunities did not meet our hurdles, while at the same time investing in our drilling and pressure pumping fleets were unwarranted. For 2019, our expectation for capital expenditures is 27% below the 2018 capital spending levels. This reduction in capital spending is leading to increase cash flow generation which we have been returning to shareholders. In the first quarter alone, we returned more than $80 million to shareholders through stock repurchases and dividends. Since the first quarter of 2018, we have returned approximately $265 million to shareholders including $226 million of share repurchases. Returning capital to shareholders is not new for us. Since the merger of Patterson and UTI in 2001, we have returned more than $1.6 billion to shareholders while growing and strengthening the quality of both our drilling and pressure pumping fleets. We believe that we are well-positioned for the current market. We have always prudently used leverage in such the strength of balance sheet has allowed us to respond and market opportunities. I'm pleased to announce today the company declared a quarterly cash dividend on its common stock of $0.04 per share to be paid on June 20, 2019 to holders of record as of June 6 2019. With that, I would like to both commend and thank the hard-working men and women who make up this company. We appreciate your continuing efforts. Operator, we would now like to open the call for questions.

[Operator Instructions] Your first question comes from the line of Sasha Sanwal from UBS Securities. Your line is open.

Maybe just to start off in drilling kind of given the typical 30 day notification period, can you give us some more color on the visibility of the guidance of the rig count kind of bottoming in Q2 in the mid-150s and any early thoughts on the second half 2019 rig count given your customer conversations?

So we've spent a lot of time really trying to understand our customers' current sentiment even given the recent run-up in WTI. And the customers are still delaying plans that they may have made towards the end of last year in terms of increasing activity. But what we do see is that our rig count will bottom somewhere in the second quarter maybe early in the second quarter in the mid-150s. So from our view today, the second quarter does appear to be the bottom of the rig count. And as I mentioned earlier, we think we do have some upside on the average of 160 for Q2 especially from private operators who may make some decisions faster than some of the public operators that are out there.

And maybe sticking at drilling, can we get your thoughts on margin progression for the remainder of the year specifically as we kind of think about kind of returning to closer to normalized costs, as well as maybe kind of given essentially some of the rigs that have been released from presumably lower spec lower margin rigs, how that kind of play into rig margins as well?

Well, we are especially encouraged and pleased that our current rig margins have set a new high since 2016. And if you look at any progressions in the second half, it's very difficult to get any visibility past Q2 right now but we are encouraged by where WTI is trading today.

Your next question comes from the line of Marshall Adkins from Raymond James. Your line is open.

First of all I think we all applaud on your return of capital and focus on returns it seems like you guys are leading the pack in that regard. On pressure pumping, you improved efficiencies pretty meaningfully in a deteriorating activity environment. So Andy could you spend a minute just telling us what you're doing differently or how things have changed to where you able to do better than I think most of the stock in pressure pumping?

Well I need to give the credit to our pressure pumping teams working in the field of there. Our teams have been working hard. And this is the second quarter that we've been able to improve margins in a very challenging market. But they are doing the right things or making the right decisions. They've scaled for the changes in activity that are out there at a faster pace than even the activities changed. And so we are getting our handle around various costs. We're working those down. We continue to work those down and there's still some room for improvement. And at the same time, we're improving our uptime on the spreads. And as you can see we're producing more stages per month, more stages per quarter per spread.

So you have a few stack fleets out there. Help us understand what metrics you're looking at before you activate them. You look like your fleet operations was on an annualized basis maybe kind of $9.5 million of EBITDA per fleet which seems to be better than cash breakeven. What are you going to be looking at to reactivate those other ones?

Well we certainly see that our margins are better than cash breakeven. Everybody knows that we do capitalize fluids in. However, so far this quarter and projects throughout the year show that our CapEx spend on fluid in should be lower this year than it was last year. Our teams have done a great job. Not just the conversion to stainless over the last year and half, we started earlier on that and trying different designs and different materials. But our teams have also found ways which you're going to understand this to do some repairs on stainless which is a bit complex but we're testing that in the field and we think we have upside there too on the maintenance CapEx spend on our side in terms of fluid in. So we do feel confident that we're producing free cash flow out of this business. For us though it's just amount of getting to internal hurdle rates where it makes sense. And in today's market we just don't see changing rig, we don't see increasing levels of activity in the second quarter. We see our own activity relatively flat and our financials relatively flat quarter-on-quarter. But again similar to drilling we are encouraged by where WTI is trading and the potential that we might have later in the year but we don't have that visibility yet.

Is there a specific hurdle rate though that you're looking at to put them back? Or is it kind of just more depending on increasing the market and the type of customer - that type of thing?

Our internal hurdle rates have been moving a bit with the market so we try to have to adjust that quarter-on-quarter based on how the market's doing. The market is still oversupplied and still have some challenges, but we're pleased with the efforts our teams have been making in this area.

Your next question comes from the line of Scott Gruber with Citigroup. Your line is open.

Just wanted to start by touching on where you guys are seeing from a stock rate perspective on super-spec rigs. Are there starting to slip a bit here given that the activity pullback or crude price is helping with your pricing power?

Well we're seeing our rig count continuing to come down a bit. We think that that's more driven by the non-super-spec, non-high-spec rigs that we still work in the fleet. In terms of super-spec the utilization is still over 90% will still be over 90% in the second quarter based on our current projection. And so we're still very encouraged by that. And our margin projections for the second quarter essentially flat in drilling due to some indication of what we're seeing in terms of pricing.

So it sounds like maybe pullback is pretty limited here. But in terms of looking at your rig count versus peers and versus the banker overall count it seems like shares slipping a little bit here into 2Q. Are you guys just holding the line a bit more on rates given the expectation that customers will be coming back for more rigs over the next 12 months?

Yes, we think very highly of our APEX rig line and so with the pride we have in that I think that's reflected in the dayrates that we want to get for those rigs.

Your next question comes from the line of Sean Meakim with JPMorgan. Your line is open.

Andy maybe could you give us a sense of what the next looks like in terms of the operator types that are dropping rigs and the types of rigs that they're dropping during the second quarter towards the visibility that you have. And you mentioned private E&Ps could offer some upside. How do you think about the timing lag between oil prices and those types of operators picking up rigs?

Well with the changes in WTI we saw at the end of last year and resetting of our nearest company's budgets on the E&P side that's what's driven the decline. And all the statistics show that privates were slowing down at a faster pace than some of the publics in the first quarter. But at the same time privates can move quickly when oil prices move up. And oil prices have been moving up, up to the mid-50s has been more of a recent event in the last week. And that's where we think there is some potential upside. So yes there's operator mix there is the number of operators that are out there because the actual operator count of operators ahead of week one rig shrank in the first quarter. But with WTI moving back to the mid-60s that's where we see some potential upside. The challenge we're having gets back to visibility. And we're giving you the projections of 160 on average with the best visibility that we have today. But over the last week we had WTI move up to the mid-60s so that's where we see some potential upside.

And then on the pumping side thinking about the gap between current economics and those that would precipitate reactivations. You call those optimization efforts well done on the margin for the quarter. To what extent can that gap be narrowed in terms of things within your control where things are, where are the economics are today versus where they need to be in order for you to put more equipment into the market?

It's difficult to have visibility to put more equipment into the market today given the rig count still coming down a little bit more and the visibility we have on industry activity in the second quarter and we believe our activity is going to be relatively flat quarter-on-quarter. Our financials are relatively flat quarter-on-quarter, but we continue to improve internal efficiencies. We decreased by one spread and so our internal efficiencies - the state of spread continues to move up. So we think internally Patterson-UTI our Universal Pressure Pumping still has some upside even though our visibility on activity is an activity its relatively flat. I think to see that change we're going to need to see an increase in the rig count and our visibility on rig count today looks like Q2 is likely a bottom in the rig count given where WTI is trading today.

Right if I could just make one additional comment which really applies comment to what Shasha's question was to Marshall's comment to Scott's and to now yours Sean. If you think about it in fourth quarter when budgets were being set we saw in this incredible downdraft in the price of WTI and budgets being set against that backdrop. And in our mind it's not entirely surprising that is taking operator and E&P companies some amount of time to rethink what they want to do with budget particularly with pressure from shareholders to generate optimal returns on capital. So in my mind what we're seeing is kind of a setup for very positive eventually, but we're not certain exactly when that event occurs and that event occurs when and in fact 100-plus E&P companies publicly E&P companies decide that along the hold mid-60s oil pricing is something that they can count on and that their activity levels should be calibrated based on it. Right now they will have perhaps that confidence or that willingness to step out and we understand that. And we're giving you our numbers based on what we're seeing right now in front of us. But we think that could change quickly.

Your next question comes from the line of Jud Bailey from Wells Fargo. Your line is open.

Quick question Andy you referenced the expectation of small privates falling oil price and oil prices are up. But just to clarify are you getting more inquiries or inbounds from customers as of yet? I mean has the dialogue change at all or is it still been pretty quiet on that front. Just trying to differentiate between kind of what you're expecting I mean what you're starting to hear from customers?

Yes. First off I'd like to clarify one thing not all privates are small. Some of them are actually very large operators out there and we're certainly happy to do work for them. I wouldn't say that the tone or the discussions with the customers has changed yet. And I use that word yet a bit softly. But we do see potential upside because of where WTI is trade. And like I mentioned we all know that this is kind of recent that WTI's move to the mid-60s. So given where it's trading I think there's some potential upside and it's the private that can move quicker. When it comes to the public operators and the sentiment there our sales and marketing teams deal with the drilling engineers, the drilling manager, completion engineers, completion managers. And they are coming back and saying these guys are under pressure to stay within cash flows stay within budget. That's an interesting conversation to have with drilling managers and completion managers. But now in the E&P organization it's been pushed down to that level that's a bit of a shift. So we'll have to wait and see how the operators that are publics react to higher cash flows that they're getting at these oil prices. But in our view certainly the privates can move faster in this area.

And then my follow-up is on just thinking about dayrates structure. And it's kind of alluded to earlier but I want to probably ask in a different way. Is the rate environment that you're seeing today sufficient that it's all of - if rig don't move and your rig count were to just stay say flat for a while. Would you expect to maintain margin per day above this 11,000 a day, is that based on where you're seeing leading edge today?

Yes. We expect we would anticipate margins would still stay relatively flat.

Your next question comes from the line of Tommy Moll from Stephens Inc. Your line is open.

So I wanted to drill down a little bit on your commentary around Superior QC and to make an analogy to the trends we've seen in two prospect rigs. One of the priorities for the industry in your company has been over time to try to capture as much of the value as you're bringing to customers when you invest capital to upgrade a rig and bring a new rig into the market, those rigs being much more efficient than the alternatives. And so now as we're shifting more to a technology focus and this is time back to your comments on Superior QC. What's the commercial strategy to make sure that over time as you can offer customers more technology driven capability that you capture the full that you demonstrate the value to them and then capture it?

We all recognize that in the heavy capital business of drilling rigs, the operators have had the benefit of the increased efficiency from the latest rig technology that we brought out over the years. Especially during this downturn that we went through 2015/2016 we're just now getting our margins up to a new high from 2016. But there's been a value capture on the operative side for the last few years. Our rig margins have been moving up and that's certainly going to help that and this moving in the right direction. But what you see as well that we're doing is we're starting to layer-on technology and with drilling rigs are high capital investments layering on technologies such as Superior QC or as we talked about on last quarter's call. Our CORTEX operating system and some of the software applications that were writing for CORTEX these are low capital investments, but they bring significant value to operators. And so it's our intent to pricing in that value where we can on top of the rig cost and we're not saying this is done in a dayrate fashion. But we're finding new mechanisms to capture our share and the value of the performance and we'll continue to work on that. But the good news is on our side these are low capital investments that have the potential to bring value down the road.

Make sense and thank you. As a follow up I wanted to ask if you have any thoughts within pressure pumping on some of the commentary bubbling up around electric fleets. Is that something that you guys have looked at have interest in have a view on that you do want to share?

I think electric fleets are interesting. They are driven by gas turbines so you have to have a source of natural gas to drive them. So they fit certain select markets in certain select fields we have access to natural gas. Right now we're trying to maintain discipline around our capital spend and adding another frac spread into the mix just doesn't seem to be the right thing for us to do.

Your next question comes from the line of Marc Bianchi from Cowen. Your line is open.

I suppose this is somewhat related with the idea of capital allocation to the pumping business. You guys have done a good job to improve the performance in that business from where it was a couple of quarters ago. And I think if we go back to a few quarters ago there were some questions from investors about is this business really the right business to have when you've also got a very strong drilling business. So I guess interested to hear any updated thoughts on how pumping fits in strategically for Patterson. We noticed that you added pumping margin to the annual comps so certainly focused on turning performance there. But just curious if you could give us a high-level view of how you see it strategically going forward?

So we certainly recognize that we're not getting full value in the share price for the investments that we've had in the pressure pumping, but we've been in this business for a long time we've been in pressure pumping. Universal started in 1980. It's a solid franchise with a solid name. We've got two good quarters in improving the margins in tough market and we think we can continue to improve the margins going forward. So right now we're staying focused on continuing to improve the performance and efficiencies of our business.

I guess I would try I have one additional product if you think about the two core business that are driven the revolution in U.S. production of oil and natural gas it is longer horizontal wells to drill by sophisticated drilling equipment and sophisticated frac equipment during the multi-stage purpose and simulations. We're industry leaders in both of those fields and proud of that kind of exposure. We recognize that the investment community today is not giving us credit for it but our approach right this minute is to show the community that we're really great operators in both businesses.

And then just a question more near term on the guidance for costs per day for drilling I would have anticipated that to be lower sequentially just based on the absence of payroll that seasonal in first quarter. Is there something offsetting that on the increased side? Or can you kind of talk to how cost is progressing from first quarter and maybe in the back half of the year?

This is Andy Smith. With the rig count forecast obviously coming down you have some fixed cost that are now being spread across that lower rig count which offsets what you rightly point out which is the seasonal effect in the first quarter of some higher payrolls taxes and things.

Your next question comes from the line of Kurt Hallead from RBC. Your line is open.

Thanks for the updates and the perspective you kind of providing on some of the near-term dynamics in the marketplace. So maybe I could just start on the land drilling front and the context of the backdrop what kind of indications Andy are you getting or any change in indications from your customer rig base regarding upgrading of assets and the kind of the demand pull for some more higher-spec assets for rig that are not currently in the market? Any updates on thoughts on how that may play out in the back half of the year?

Yes, we do two major upgrades that we delivered early in the year. We'll do some smaller upgrades on our existing working rigs over the next couple of quarters. But in general as Andy mentioned earlier we don't have any plans of giving more major upgrades in today's market we just don't believe it make sense and it's just not a good use for our capital. So the super-spec market is tight it's over 90% there is no reason for us to do major upgrade and take a high-spec to super-spec right now.

And general understanding is that you guys generally work on the demand pull dynamic any way and you won't do any upgrades unless you have on sort of contractual commitments. So I guess I can answer you don't really have any E&Ps asking for incremental rates and looking for upgrades at this point in time?

Not yet.

So Mark and maybe I appreciate the color and the commentary you provided to Mark's question prior knowing you guys think things very in the long-term perspective and/or not kind of suede to kind of alter your viewpoints on the dynamic of being involved in the frac business. So what at some point right that the value is not being recognized they might have to be decision that's being made. And would you guys think of it more in the context of being consolidators of a fragmented market or would be sellers into a fragmented market any thoughts on that?

Kurt my answer to that is that we have spent the past 20-plus years looking for opportunities in every regard. And so as a company that seeks opportunities we're always looking for things which are - will enhanced the company's value to the shareholders. As you know virtually all the people on this call are large shareholders and care a lot about the value of the stock. And so we're always looking at it and trying to make decision should you be an acquire and consolidator in this business? Or should you do something different. We're thinking of all this things all the time in every business that we're in.

Kurt we believe strongly that this sector needs consolidation. My view is that the best groups to do this are the pure play, they consider across the table from each other and come to relative valuations quicker than a company like ourselves that has multiple services. But we think there's lots of room for consolidation with pure play than we think that we're all beneficiaries if this happens.

And when you guys think about the commercialization and the revenue model or business model around, the automation and the drilling apps and algorithms and that dynamic. Some of your competitors have kind of given us some framework around that maybe incremental $250 a day to $500 a day for the absent hosting of the absent potentially after $1500 stay for the automation and operating system dynamics. How do you see the markets changing now yourselves? And how do you see the adoption of this technology evolving?

We're really excited about the potential of this technology not just for instance the CORTEX operating system or the software applications that we can run on top of that along with Superior QC. But when you combine that with our central performance center here in Houston that's collecting and analyzing and data and helping operations down the field 24 hours a day, we just - we think there's a lot of potential upside. What we don't want to do is roll this into a dayrates. We think this has more value than just adding it into a dayrates and we'll look for opportunities to find ways in commercial models to extract value beyond dayrates.

Kurt, one additional thought which goes as follows; we were early into thinking about in regard to our pressure pumping business, sand logistics and how to affect take advantage of the new logistics thinking that in effect the Uber for sand analysis that we talked about a number of quarters ago. We've been thinking about how software improvements could potentially and will potentially have this dramatic impact on the whole drilling business and pressure pumping business as they will make it possible for our customers to be more accurate, more precise, more efficient et cetera. And so we been quietly investing in those areas and working on those areas. But we believe that we're going to be second to no one in developing the technology for the future the industry. We've exceeded disruption, we understand the disruption and we're preparing for the disruption.

Your next question comes from the line of Chase Mulvehill from Bank of America. Your line is open.

I guess I kind to want to head on the rig side, when we think about how many super-spec rigs you have. I think you said you got about 150 today. How many of those are actually idled?

Today we have 10 super-spec rigs idle. I'll remind you utilization is still over 90%.

Yes and then the 10 rigs that you expect to kind of go down over the next few weeks, how many of those are super-spec? And then what basins do you expect to kind of see most of those rigs decline to take place in?

Yes we don't get into those levels of detail and the projections but it'll be a mix of high-specs, super-spec and some our SER rigs as well in various basins.

Are you seeing any pricing pressure from some competition on the super-spec rigs and you just kind of avoiding taking day rigs down?

You know what utilization on super-spec's still over 90%.We see that there's still some relative discipline of that in the market between the major players.

Last one, when I look at your dividend I think about how much you're spending on buybacks versus dividend, how do you think about balancing dividend and buybacks and more meaningfully increase the dividends as such a low level? Especially because investors might look at this and if you increase the dividend you kind of implies that you maybe have a bit stronger commitment to capital discipline?

I think given the amount of stock that we bought back over the period of time that we bought it back. Since the first quarter of 2018 having bought back $226 million worth of stock, I would hope that they wouldn't question our commitment, our sincerity or our conviction. So I think that quite frankly, we have demonstrated in an incredibly clear and appropriate way, the determination to return capital to shareholders. As between dividends and share repurchases I think that that our management team has been thoughtful about trying to have a steadily increasing dividend that we can support forever at the same time take advantage of low stock prices to have an opportunity to in effectuate the capital base. And so I think we've both demonstrated the commitment to returning capital as well as the nimbleness to think about how to do it in the most attractive way for the benefit of all of our shareholders.

Is there a certain metric we think that we should look at about thinking about how much capital you will return to shareholders? Is it all the free cash flow? Is it certain percent of operating cash flow? Internally, how do you think about how much cash flow to return to shareholders?

It's always the conversation that occurs with management several times per quarter and with our board at least at our board meetings on a quarterly basis which lie often in between addition of board meetings. So we're thinking about that's the exact topic always in my mind that's the flip side of how do backed in a capital disciplined manner. And so we're all trying to think about how much do you want to reinvest in our business? What do you think is appropriate levels of reinvestment and what are appropriate and if those excess cash over and above that the investment level how best returning to shareholders? We're not against paying dividends. We've been paying dividends for a very, very long time. We're just trying to make the more opportunistic use of our capital every given moment.

Yes. Just adding to that. The considerations for capital we have a transit debt that comes due in 2020, so that's part of the discussion as well.

Your next question comes from the line of Vebs Vaishnav from Howard Weil. Your line is open.

I guess, if I think about pressure pumping and if I am doing my math correctly, it seems like you guys did about $10 million of EBITDA per fleet for first quarter it's increasing to $11 million in the second quarter, that's before the fluid expensing. When you guys think about being the top operator is the thinking that you can get to call it $15 million $16 million EBITDA per fleet after fluid expensing? Is that how you think about it? Or if just you can help about when you talk about being top operator or top profitability how do you think about it?

While what I've been saying for over a year and it's our objective to be in the top quartile. We continue to improve is as you pointed out. The pace at which we get there will vary quarter-to-quarter but our teams are doing a great job. And I think we'll continue to improve our margins whether you look at it at the gross margin or in terms of EBITDA per spread.

And do you need any pricing help to get there? Or is it just going to be more coming from operational efficiencies? And what if you can expand on what kind of operational efficiency are you looking for? Is it more reduction of some maintenance facility, some leases that get over that would be helpful.

We're looking at all of the above. Of course any upside in pricing will drive margins faster than anything you can do on the cost side. But in today's market that's a little bit as challenging, if the rig count reverses there maybe some upside on the pricing after that with any improvements in activity. But we continue to stay focused on not just the cost but improving internal efficiency where we're generating more stages from more stages per quarter and that will increase mark revenue and margin as well.

And last question I'm going to try my luck with this. Can we get there over the next 12 to 18 months with our pricing?

We'll continue to work in that direction and we'll see how it goes.

Your next question comes from the line of John Watson from Simmons Energy. Your line is open

In the first quarter you have some contracts Will, can you speak to what benefit that might have had to margins if there's a way that you can quantify for us?

It's a benefit of a mix that's I would say our best is neutral some have rolled up, some have rolled down but on balance it's been about neutral.

And would you expect a similarly a neutral net in Q2?

Yes. Especially based on our projections and margins are flat.

Andy Smith mentioned potential for asset sales and asset sales that you've done over the previous quarters. Can you give us any idea what that number could be over the next six to 12 months?

Yes. It's hard to predict. We're looking at any place where we think we have a bit of access or lazy capital on the balance sheet. I mean last year we did $47 million. If you go back historically that looks pretty consistent. That's probably a relatively good number to use. But it can vary up and down from that just depending upon what it is and what the market looks like for those older exit excess assets.

And lastly when you're customers are dropping rigs, do you have any impression of what they're doing on the completion side? Are they keeping their completions activity level? Are they also dropping frac crews when they drop drilling rigs?

You know at the end of the day the rig count is going to drive overall activity. And our change on the pressure pumping site have been improving our internal efficiencies where we would expect our activity to actually be roughly flat quarter-on-quarter. Especially in terms of our internal protection on stage count. So we're benefiting from our improvements in internal efficiencies. But overall it's the rig count that's going to drive productivity across the industry. And again, it appears today that that bottom is likely in second quarter.

[Operator Instructions] Your next question comes from the line of Brad Handler with Jefferies. Your line is open.

I recognize, what I'm going to ask have some sensitivities around it. So let's just say I sort of recognized that I asked that but I'd appreciate any thoughts that you can share. If activity in pumping stays where it is today give or take. Can you consolidate cruise further? What we wake up three months from now and you're actually running 30, 12 or 13 cruise?

I think today that's hard to predict and I think is actually difficult at the same time. We've been working whitespace of the calendar. And there's going to be limitations on how efficient the industry can become. I think when you're looking at overall industry efficiencies. In West Texas with that being one of the last major basins in the U.S. to move to multiwell pads that's driven industry efficiency increases but the rate of change of moving to multiwell pad is going to slow at the same time. So I think we've seen a lot of improvement in efficiency as an industry overall over the last year. But I think that rate of change starts to slow on the completion side because of that.

Sure. Yes I was trying to calibrate your own you're obviously looking hard to trying to do more per fleet every day. And I just don't know how much more room there was on for you specifically.

Not rigs just improve efficiency.

And again in my introductory comment about being sensitive to the question I was standing, if you guys think about, so we have a pretty good conversation going broadly in our space right in the space around too much capacity part of that is a function of efficiencies. There is an attrition conversation and there are signs where individual actors are saying yes, we'll be for certainly for now we're going to be part of that attrition conversation. Where are you in that first of all? And then, if you obviously demand scenarios vary and that's going to affect the answer but is it possible that maybe you say hey, even in much better demand scenarios we're going to sit tight with 15. We probably let the good equipment that sitting idle help limit our CapEx, so we're going to be able to run a fleet of 15 and maybe you consolidate regions. But maybe you kind of build to a smaller business over the medium term. Is that a scenario that you all think about that's obviously very capital discipline? It seems to be that you would be acting in the spirit of being a good actor being a leader in that respect. Is that one of the scenarios that you all think about?

Well, we're certainly focus on capital discipline and I think we're demonstrating that by not working spreads where it doesn't make sense for us just to consume equipment and cash margins that are below our internal hurdle rate. In a scenario and increasing rig count, increasing activity count and pressure pumping that will drive demand to activate more spreads, I suspect we're not the first ones out to activate spreads. We would also want to wait to see the pricing move up as well. And so we're very focused on trying to improve the margin at a pressure pumping business and I suspect others may move actually quicker than we do. But we're not necessarily going to take the lowest price that's out there just to activate spreads at the same time. That's just part of our internal capital discipline discussion.

Sure. Then I guess another way of asking that is we feel like you can figure out a way to have an overhead structure and a regional support structure that supports 20 plus fleets again?

Exactly.

The certainly kind of how you envision your business going forward as long as demand is there I guess but there's been no change to say maybe we are going to be very strong in fewer regions for example or fewer parts of the basin or something which could in essence constrain your business but drive more profitability and more efficiency?

We're always focused on ways to lean on the business but we're not really interested in sort of limiting what we feel is the earnings power. As we look at this business and while we can variablize cost and be able to scale it for whatever market we're in, we think that's the way to look at it. And should there being more demand out there and pricing return, we want to be able to put equipment back to work, right? We still want to do at levels like Andy said, we're running the equipment into the ground for something which is inadequate return that doesn't make any sense to us. So we're going to scale the business appropriately for whatever the market conditions are certainly we can react in whatever timeframe that is.

I guess, I would add one additional thought Brad, which is if you went back to sort of middle of last summer, people who were pretty optimistic that there was going to be a shortage frackers and that demand for frac activity would weight out strip the availability of frac equipment and that has certainly not come to pass in the last six months, but we're not - we haven't put aside that opportunity as being a possibility that we want to be an opposition to enjoy whether and if it does occur.

That makes sense. Certainly, yeah, our collective ability to forecast supply demand balances pretty challenging.

There are no further questions at this time. Mr. Siegel, I turn the call back over to you.

Just like to thank everybody for joining us for our earnings call following the first quarter. Look forward to speaking with you again after our second quarter. Thank you.

This concludes today's conference call. You may now disconnect.