Good morning, and welcome to the ProPetro First Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Sam Sledge, Director of Investor Relations. Please go ahead.

Thanks, and good morning, everyone. We appreciate your participation in today's call. As in the past, with me today are Chief Executive Officer, Dale Redman; and Chief Financial Officer, Jeff Smith. Yesterday afternoon, we released our earnings announcement for the first quarter ended March 31, 2018, which is available on our website at www.propetroservices.com. In addition, this morning, we also posted a presentation on our website that summarizes our results. Please note that any comments we make on today's call regarding projections or our expectations for future events are forward-looking statements covered by the Private Securities Litigation Reform Act. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to material -- to differ materially from our current expectations. We advise the listeners to review our earnings release and the risk factors discussed in our filings with the SEC. Also, during today's call, we will reference certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release. Finally, after our prepared remarks, we will answer any questions you may have. So with that, I'll turn the call over to Dale.

Thanks, Sam, and good morning, everyone. We appreciate you joining us for today's call. I'm pleased to report that during the first quarter, we posted record financial results that exceeded our previous expectations, driving our performance with continued strength in activity in the Permian Basin, growing demand for our fully utilized frac fleet and collaborative efforts with our blue chip customer base. While Jeff will go through the details in a few minutes, I wanted to first provide a few key financial highlights, including: revenue of $385.2 million, which was 23% higher than the fourth quarter of 2017; net income of $36.7 million; and an almost 80% increase in adjusted EBITDA from the fourth quarter. I would note that the $76.7 million of adjusted EBITDA recorded for the first quarter represents a margin just shy of 20%. As we discussed on our last call, we entered 2018 on strong footing. During the first quarter, we avoided or mitigated many of the issues our industry faced, including supply chain disruptions due to harsh winter weather in the Northern U.S. Through a close collaboration with supply chain partners, we were able to continue wellsite operations and avoid downtime that was widely reported in our sector. We pride ourselves with having a flexible supply chain, and it proved to be very advantageous during the quarter. One of the important contributing factors to our operating efficiency in the first quarter was the opening of multiple sand mines in the Permian. Although the regional sand play in West Texas is still in its early stages, we are already seeing the beginning signs of added supply chain efficiencies by avoiding rail disruptions and having access to products that are closer to our operating areas. The Permian was also affected by extreme cold weather early in the…

Thanks, Dale, and good morning, everyone. Looking at our sequential results for the first quarter as compared to the fourth quarter of 2017, revenue grew approximately 23% to 385.2 million from 313.7 million in the fourth quarter. Contributing to the increase was a larger fleet size as well as fewer seasonal down days than the prior quarter, leading to improved profitability for the company's pressure pumping and other services. During the first quarter of 2018, 97.4% of total revenue was associated with pressure pumping services, which was consistent with the fourth quarter of 2017. Cost of services, excluding depreciation and amortization, for the first quarter was 298.1 million, as compared to 262 million for the preceding quarter. The increase was primarily due to higher activity levels and fleet size, along with an associated increase in headcount. As a percentage of pressure pumping segment revenues, pressure pumping cost of services decreased to approximately 77%, from 83% for the fourth quarter, due to improved pricing and operating leverage as activity increased without a significant corresponding increase in costs. General and administrative expense was 11.9 million as compared to 10.3 million for the fourth quarter of 2017. G&A expense, exclusive of stock-based compensation, was 11.2 million or 2.9% of revenue for the first quarter of 2018. Net income for the first quarter totaled 36.7 million or $0.42 per diluted share versus 10.1 million or $0.12 per diluted share for the fourth quarter of 2017. Adjusted EBITDA for the first quarter of 2018 was 76.7 million, which was 79% higher than $42.8 million for the preceding quarter and represented a first quarter adjusted EBITDA margin of 19.9%. Turning to the balance sheet and capital spending. We ended the first quarter with cash on hand of $46.4 million and total debt of $117.3 million. During the period, we incurred $80 million of capital expenditures, which primarily reflected capital -- reflected spending on our growth initiatives and maintenance CapEx. Finally, total liquidity as of March 31st was $146.4 million, including $46.4 million in cash and $100 million of capacity under our recently expanded ABL. With that, I'll turn it back to Dale for his closing comments.

Thanks, Jeff. As evidenced by our strong start during the first quarter, we believe we are ideally positioned for further differentiation and continued success in 2018. The fundamentals of operating in the Permian remained strong, and we see a growing need for efficient services. Our discussions with customers clearly tells us that the market remains undersupplied for the unique offerings we provide. As we announced earlier this year, we are responding through further targeted expansion of our frac fleet and other services. This includes the addition of two new build fleets. The first fleet commenced operations last month, with the second fleet to be deployed in this year's fourth quarter. Similar to our two most recently deployed fleets, these fleets will work for customers on a long term, dedicated basis in the Delaware Basin, where we are seeing a significant demand for more efficient pressure pumping services. In addition, to better serve our customers' needs and improve internal efficiencies, we previously announced that we plan to use the remaining 14 Tier 2 engines in inventory to increase the average size of our legacy fleets to approximately 45,000 horsepower per fleet. This additional horsepower was successfully deployed into our legacy fleets by the end of the first quarter. We are also seeing growth in other services, including our recent deployment of 1 new build cementing unit and 1 new build coiled tubing unit. Driven by customer needs, we plan to deploy 2 more cementing units later this year. As appropriate, we look forward to capitalizing on additional growth opportunities for our other service offerings. Given the expected continued dynamic operating environment, we anticipate demand for our services to remain solid, and we'll continue to embrace our methodical and tactical approach to increasing profitability by partnering and collaborating with our customers. As we discussed on our last call, for 2018, we believe enhanced wellsite performance and execution through customer and supply chain partnerships will be key. We expect these things will begin to differentiate pressure pumpers in the Permian as the recovery transition to more of a manufacturing mode. Given our success through multiple cycles, we will believe we are uniquely positioned to provide differentiated execution in this environment. As such, we remain strictly focused on: addressing the needs of our customers; ensuring we have the right equipment in the right places at the right time to help solve complex technical issues; avoiding bottlenecks and inefficiencies by working closely with supply chain vendors and support services; and continuing to attract top-quality personnel and retain our best-in-class workforce. With that focus in mind, coupled with the long-term manufacturing approach of our customers, we enjoyed premium visibility and believe there will be significant opportunities for long-term strategic partnerships across the value chain for ProPetro. In short, we believe we are in a great position to succeed in 2018 and beyond. So with that, we will open up -- open it up for questions. Operator?

[Operator Instructions] And our first question comes from Marshall Adkins of Raymond James. Please go ahead.

The activations that you've been doing, I assume those are all the legacy Tier 2 engines you ordered last year. And I think you just mentioned that the rest of them are going to go to fill in gaps in your other existing fleets. At what point in time -- first of all, is that correct? And secondly, at what point in time do you start bringing in the Tier 4 engines? And does that require a pricing increase? Walk me through the logic on the transition of Tier 4 engines, if you will.

Yes. Marshall, first of all, you're correct that we did expand all of those engines into the fleet, and there are no more. So we've not given guidance on added capacity, but we do anticipate that will increase, if we should, the cost of the fleets that we add from roughly $31 million per fleet to between $34 million and $35 million per fleet. So obviously, the payback metrics that we have targeted, that we've given guidance on, will expand to those type payback metrics in our pricing.

So that implies roughly a 10 plus -- 10% to 15% kind of flow-through to pricing as you, and I presume the rest of the industry, transition at Tier 4. Is that a good ballpark way to think about it?

Well, I think your math's better than mine, but I would assume that's pretty close to being true.

Okay. And then the follow-up there, you're adding more horsepower to the existing fleets. I've heard from numerous E&P operators that the industry, not so much you, but some of your peers, competitors, et cetera, are seeing a lot more downtime as we run these fleets harder, they're having to bring a lot more capacity out on location. Is that what's driving the additional horsepower adds to the existing fleets? And could you just address the attrition issue that you guys are seeing and what you feel the industry is seeing?

I think, Marshall, we've been pretty clear through our short time as a public company to say that not all horsepower is equal. And I really can only speak to our situation. And the 45,000 number is basically -- puts us in a great position, and we don't see the need for added horsepower on location in any of the operating areas that we are currently in. So I think that's probably all I would say to that question.

Marshall, just to add to that. If you go back to when we did our IPO in March of 2017, we had 420,000 horsepower on the ground at that time, and that was allocated amongst 10 fleets. So at that point in time, we only had 42,000 horsepower per fleet for those legacy fleets. So the use of 14 of those engines to add 14 pumps to the legacy fleets, all that does is actually bring those 10 fleets up to that 45,000 horsepower number that we've been talking about.

Our next question comes from Tommy Moll of Stephens.

So your profitability at the fleet level took a big step up here in Q1. On my math, you're hovering around $18 million EBITDA per year range. So that's even higher than where you were at Q3 last year. But to hit that $18 million number, how much of the improvement that you guys saw was efficiency versus price driven? How far north of that did you exit in Q1? And is there any help you can give us in terms of what might be a sustainable range going forward here in Q2 and 3?

Yes. When you look at the increase or analyze the increase in the revenue from Q4 to Q1, I can tell you that about 30% of that revenue increase was based upon stages pumped by the two incremental fleets that we put on the ground. But the remaining 70% of that revenue increase in the quarter was driven by a combination of pricing and efficiency. And I will say it was primarily efficiency because between from quarter-over-quarter, we actually pumped 18.8% more stages than in the fourth quarter, and the stages per fleet increased by 7.3%. And you also had an increase in our zipper frac percentage from 65% in Q4 to 69% in Q1. So all of that in combination provided for the additional profitability.

And any additional lift you think you may get on efficiency here as we get into some pretty robust activity levels in Q2 and 3? Or do you feel like you're pretty much hitting on all cylinders here?

I think we would say that $18 million per fleet, annualized EBITDA per fleet, if there's not a cap on that necessarily, but we would say that an uptick in that beyond that point is going to be driven primarily by additional efficiencies. Those additional efficiencies will come from an even higher percentage of our work being zipper fracs, a lower percentage being due to vertical wells and then some combination of additional 24-hour work.

And then just as a follow-up here, one of the recent trends for some of your peers, it doesn't sound like for you guys, but there has been some choppiness in terms of spot pricing in the Permian. That said, demand in the basin is still robust. So I would think it's mostly a supply issue. Can you guys give us any sense of what you're seeing out there? Is it more some of these new private entrants coming into the market? Is it in the larger publics who were trying to bring old equipment back to work? And do you feel pretty well insulated from all that noise given you're operating under a fundamentally different dedicated fleet model?

Yes, Tommy, I think we've been pretty clear with our messaging. There's a lot of ways to play this game. Over the long haul, we're, again, going to stick with a dedicated model. And I think everybody is coming to the realization as this switches to the manufacturing mode, that is the way to play this and to really be laser focused with blue chip customers that have the acreage position and the wherewithal to have these continuous drilling programs. So we may have taken a little hit earlier because of the frothiness of the spot market. But over the long haul, we're confident, and that's given us a lot of visibility going forward in this unbelievable market.

Our next question comes from James Wicklund of Credit Suisse. Please go ahead.

Tommy actually answered my biggest question, which was really on margins, how you grow it from here, but I'll ask it a different way. Your 19.9% EBITDA margins, Halliburton is out there saying that 20% is normalized. Investors now believe that once we hit 20%, that there will never be any margin expansion, there will never be anymore pricing improvement, and we are essentially done. Is that right?

Well, I mean, that's one way to look at it, James. But I can tell you, if you're focused on the right things and your starting point, it depends on where you were, but I can tell you this, if you are really good at execution, I think you're going to get your uplift there. And if you're collaborating with your customers in a manner that you're in sync and you're trying to accomplish the same thing, and that's reduce cost and get more done in a day as others have said, that's really where your uplift is going to be without disrupting the well economics of your customers. And we've been very clear and telegraphed that over the last 1.5 years. So no, we're not done. There will continue to be advances from a technological standpoint that we're right in the middle of, and that's going to come in a lot of different ways that we can be more specific throughout the year. But we are very excited.

Okay, let me ask this. In terms of your ability to wring more out through efficiencies, basically to raise your margins, right, over time? You're a baseball player. What inning are we in?

Oh, I think we're in the early innings. I don't think we're bringing in the setup guy or the closer anytime soon.

Perfect. Okay. And for my follow-up, you've mentioned partnerships with your supply chain and partnerships with your customers is a great deal. And when we think partnerships, we always think about Schlumberger talking about performance-based compensation and stuff. Can you give us a little granularity as to how broadly you define or how tightly you define some partnerships? And I understand just working in line with your customers, but are you entering into any like strategic-type, what we call, strategic partnerships with your customers and especially your supply chain?

Yes, Jim, we absolutely feel like we're in a situation, a special time where when you have this much visibility and you have these type of well performances across a basin, it allows you to plan your business better. And if you've acted really good during the cyclicality of this business and you gained the trust of your customers and your suppliers, I think it opens you up to a lot of really neat opportunities to enhance your business and all others affected by it. So I won't get specific, but I can tell you it's the most exciting time in my 30-plus years of being in this space. So more to come, Jim.

I thought you're only like 41 or 42. You must have started really early.

I did, I did.

Our next question comes from George O'Leary of TPH & Co.

And I appreciate the color you've given on efficiencies from a stages per day perspective. I thought the comment was interesting, you had a couple of fleets that may roll to 24-hour work at some point. I was wondering, I believe there were two that hadn't yet done the 24-hour work last time I spoke to you guys. Is that still the case? Or have those already shifted? Or will they be shifting going forward? How should we think about the switch from 12 to 24 across your fleet? And how many fleets might have upside there?

Yes. We actually had 3 out of the fleets that -- of the existing fleet that we're still working on non-24-hour basis. That possibility does exist. We're constantly working with the customers to try to make that migration as we think it's more efficient for -- obviously, more efficient for us but also more efficient for them. But we'll see how that progresses through Q2.

And for my second question, I guess, there were some white space on the calendar in the fourth quarter, and then there is also some -- you guys did a heavier dose of vertical work. I wonder if you could update us on the mix between horizontal and vertical work across your fleet. And then how many fewer nonrevenue days you saw in the calendar of Q1 versus Q4? Any color there would be super helpful just in framing the efficiencies quarter-over-quarter.

I think our results in Q1 actually overcame a couple of things in that we did, like everybody here in the Permian, probably did have a few days right at the beginning of the calendar year where we lost some time, probably just a few days that would fall in that category. And I can also tell you that our zipper percentage from Q4 to Q1 actually went up from 5% to 6%. But the...

Vertical.

Vertical, I'm sorry, vertical work. But the increase in the zipper percentage from 65% to 69% more than overcame that and allowed us to enhance the profitability.

Great, that's very helpful. And the continued investment in things like coiled tubing and cementing makes a lot of sense. And if you guys are trying to execute for your customers, it certainly helps you do that. I guess, the decision to add two more cementing units, is that just more driven by some of the bottlenecks you might be seeing in basin or because guys aren't getting the full well construction done such that you guys can come in and execute the frac job? And I understand you guys are always targeting good returns on incremental investments. But are you actually seeing good pricing and economic improvement in that cementing business itself?

Yes. I think it's a testament to the guys that are managing and running that segment. The demand for that service is really strong. And as you know, the rig count continues to go up, which puts a lot of pressure on the cementing segment, and these guys really do not like to wait on cementing, these drilling departments within our customer base. And our ability to get there when we say we're going to get there and those folks not having to wait on cement is a big deal. So that's a great segment to continue to build out. And we see some [indiscernible].

Our next question comes from Sean Meakim of JPMorgan.

So just a question on capital allocation. I think in your model -- or sorry, in our model, you're going to have a lot of cash flow into 2019. I'm just curious how we should think about the timing of decisions on capital deployment to impact '19? And just how you weigh growth capital versus shareholder returns of capital as we go through the next year 1.5 years or so?

Yes, Sean. I think all of us are sensitive to the talk in the investment community in what their desires are and what they'd like to see out of the sector. All the things will be on the table as we get into that position, and we'll balance the needs of our customers with the needs of our shareholders. And we'll do, as we always have, through our careers, we're going to do the right thing and -- for the business and the shareholders and be in collaboration with both parties. And I think that's where the sector is and where it's going. And we'll use discipline on all fronts, and it's really fun to watch the opportunity that's going to be ahead of all of us that have really good enterprises that throw that cash off. So I think it's a discussion later on in the year as we get into 2019. But we are having those discussions real time, and we'll continue to -- continue with our investors and our customers just as we run our businesses.

Okay, fair enough. I appreciate that. And I guess, just as you go through the cycle, would you consider higher hurdles in terms of returns or try to achieve faster paybacks? Just thinking about if this metric stays static. Or do you think that they evolve as well as you go through the cycle?

Yes. Again, we've given a very methodical, visible progression from a margin perspective over the last 1.5 years or a year plus. And we've -- I think that's been well received by our customers, so they could plan their business. And I think we'll be the benefactor as we continue to have this oil price commodity lift. And I think the way we've managed our margin situation, we -- we're not going to put a ceiling on our margin opportunity, and we're not going to do it on the backs of our customers. I think we've been very clear that we think there's a lot of efficiency gains and operating leverage in this business without increasing price. And so we're in a very unique position from a margin perspective and a payback metric margin to exceed expectations, Sean.

[Operator Instructions] Our next question comes from John Daniel of Simmons & Company.

Got a few for you this morning, nothing hard. Dale, I'll want to go back to the Tier 2, Tier 4 questions that were asked earlier. Do your customers care whether it's a Tier 2 or Tier 4 engine?

I don't think -- not to say that they're not cognizant of things that they need to be sensitive to, but no, that's not an issue in this business at this point. They're more focused on safety and efficiency and those kind of things than they are of the Tier 2 versus Tier 4, and...

It would be premature for us to assume that Tier 4 fleets get a premium price over Tier 2 on that Permian customer base?

No, I wouldn't say that would be a fair statement. I think our customers are in tune with the payback metrics and are willing to take that on. It's not that significant over time. And this do not dramatically change their pricing structure.

John, I think our Q1 numbers kind of show that we're already at a two-year payback on that Tier 4 fleet. So that's kind of already been baked into the current pricing.

Okay, I mean, I'm mistaken. I would assume that they wouldn't care, but that's fair enough. Quick question on the zipper frac work, Jeff, you alluded to that as a driver of efficiency. Can you say -- do you expect more zipper frac work in Q2 versus Q1, therefore, we should assume improved EBITDA per fleet metrics in Q2 versus Q1?

I don't know that we've got a projection for that zipper percentage. I can tell you on a monthly basis, it's kind of moves around substantially. Like, for example, I can tell you in Q1, on a monthly basis, if you look at the three months, that number varied from 65% to 74%. So on a month-to-month basis, it will move around. I don't know that we've got a projection exactly for Q2 at this point in time.

Last one for me just on fluid intake technology. And what, if anything, you guys have looked at, tested thus far? And are you seeing any differences in performance with stuff that's been introduced recently versus, call it the legacy stainless steel fluid ends?

I think it's still a little bit early, John, to answer that. We're encouraged by some of the things we're doing. But I think it's a little early to give any kind of guidance on how that's going to affect financial modeling purposes.

Our next question comes from Daniel Burke of Johnson Rice. Please go ahead.

Staying with John's line of questioning real quick. I recognize the caution that zipper percentage can jump around, but it seems like you guys had a pretty strong exit rate. Is it fair to say the 74% zipper month was the month of March?

No. That's actually January. That -- this kind of goes to show you how much it can fluctuate.

Okay, interesting to see that ping-pong around then. Okay. Let's see, another one. Looking at the slide deck, specifically highlighting no speculative new build. Was just curious how easy it is for you guys to manage equipment lead times with the level of forward visibility customers are willing to provide you in terms of needs for incremental fleets?

Yes. I mean, our guys have made it look really easy. Our team has, along with our manufacturing partners, we don't see anything that's going to change that. And it's hard to express how closely we work on a day-to-day basis with both the customers and the supply chain partners. Everybody is in tandem. And this business is a really hard business on a lot of fronts, and our team and our customers and our suppliers really are the key to that seamlessness.

Okay, Dale. And then maybe the last one I had left was just for Jeff, if you have it available. Do you have a sense for what the remaining growth CapEx budget is for this year on the announced expansion plans you guys have to date?

Yes. I mean, if you look at what the equipment that we've announced and for the year thus far, the total growth CapEx for the year should be in the range of 100 million to 110 million. And then as far as maintenance CapEx, we would stick by our previous guidance of 6% of revenues. So whatever you're modeling for that revenue number, 6% of that, which, in total, that probably puts you slightly in excess of 200 million for the year.

Okay. You mean, just to be clear, 200 million of remaining CapEx for the year?

No, no, total for the year.

Total for the year. Okay. I appreciate that clarification.

Our next question comes from Will Thompson of Barclays. Please go ahead.

You comfortably topped your guidance provided in late March. Maybe help us understand, how did March compare to January, February in terms of EBITDA per fleet?

It was up in March. The difference between our actual results and what the guidance that we gave was, first of all, it's the first time we've given that type of specific guidance. So I can tell you, we're on the conservative side is what we were actually willing to quote. And then secondly, I can tell you that in that last week of March, we actually knocked it out of the park from an efficiency standpoint. If you look at the daily revenue numbers in that last week of March, we actually were booking -- numbers were 12% higher than the earlier portion of March. So that, of course, led to the beat on revenue versus the guidance and also then added to the profitability. But the trend, certainly, was up from beginning to end of the quarter from a profitability standpoint.

And then, Dale, you mentioned the importance of supply chain efficiencies and the benefit you have from the trend towards local Permian sand. Is ProPetro contracting any local sand volumes? And then, how do you see the pricing trend there? Is this simply eliminating any downtime associated with sand delivery delays?

Yes. I think we have entered into some long-term agreements. And the good news there, it's with long-term agreements with people we've dealt with for a long time as we've built the company. And so those relationships are really coming into play here. Obviously, it's going to be great on several fronts. Logistically, it's going to be great. It's also going to be really good for the well economics of our customers and helping them mitigate some of the costs associated with increased intensity of sand volumes and the like. So I think, currently, we pumped about 16 -- 15% to 16% of our sand purchases came from regional mines, and we expect that to continue throughout the year as more of those mines come online. And it's been very well embraced by our customer base, and we're excited to get other mines online.

And then one last quick one for me. It appears that this quarter, we're seeing spot pricing really converge with dedicated agreement pricing. I mean, is that -- should we read into any implications, but longer term, on what that could do to pricing? And then, can you maybe just talk about the cost inflation you're seeing, particularly as you move fleets into the Delaware?

Yes. Will, we just not have not been a major spot provider. So we really can't speak to that market. I'm glad we're -- we've stuck to the dedicated fleet model, and that has really paid off. I don't see that affecting us from a pricing standpoint. These customers want Tier 1-type providers on location. And we just got to make sure we stay in that Tier 1 category and focus on what we do. So I don't know if that answers your question, but that's where we are from a micro perspective.

Will, I can also add to that and say that -- you asked about cost structure, and I say I would -- with the exception of the conversion to the regional sand, where the price is, obviously, going to come down, I would tell you that in Q1, our cost structure was relatively stable.

Our next question comes from Ken Sill of SunTrust.

A lot of great questions have been asked, so I'll deal with a couple of the nitty-gritty ones. First, what would the lead time be now for adding a fleet? I mean, you've got good customer relations. You bought the engines. But if you were to start from scratch, how long would it take you to get one delivered?

Ken, I think that you probably know this before I answer it. But you're definitely looking at 6 to 9 months if you're in good position with the manufacturer. The long lead-time items are engines, transmissions, and that's really the bottleneck. Obviously, with the history we have with our manufacturer, we're probably in a situation to get that a little quicker, and we're watching that real time with the visibility we have with our customers. And does that answer your question? I can't tell you from guys that have not been as active as us what that lead time is.

And I would assume that you were at the shorter end of the scale, and others would be at the closer to 9 months. Time will tell. Another question, I mean, there's been a lot of conversations about, basically, attrition in the fleet. And I guess, my perception, anyways, you don't really see units go out. It's just the fact that over the life of a fleet, you can replace all the parts on a trailer multiple times. So do you guys have a point where you say, okay, is it 7 years, 10 years, 15 years where you say, okay, we're -- or a percentage of like the total trailer, where you say, okay, it's time to just -- we'll not rebuild this one, and we'll start it fresh?

Yes, good question. I don't know that I can answer it. But we -- the life of this equipment, obviously, we're running it a lot harder than we did at any time in history. But we're very confident, as you have eloquently said, replacing large components and rebooting the life of that asset. And I guess, what I would say, we're very comfortable, as we have talked about since we got in the business back in 2010, that the payback metrics need to be two to three years, and that's the metric we look at today, and we're very comfortable with that return on capital, any metric you may use to define that. So I don't know that I answered your question, but we're very comfortable where we are from a normalized margin standpoint. I think the rest of the industry would echo that.

Yes. Just to add to that, I would tell you that the problem that you're talking about, we really haven't had to face yet. When you got 50% of the horsepower, nearly 50% of the horsepower that we have working today has actually been put on the ground in the last 12 months. So we have not faced that type of issue at this point in time.

That's fair. I think it's probably situation-specific how the -- what the answer is, what's the market going to be looking like.

Yes. We agree.

We agree.

One last question. Regional sand mines coming on is going to lower prices. We did see a lot of customers cutting back on the amount of sand they put in the wells when sand prices got hot. Do you think that we're going to see some price elasticity demand for sand that your customers could go back to testing higher loadings as regional sand comes on?

With a great point, we take that will be the case, and that savings will be used to put more sand away or drill more wells. Either way, we win.

Our next question comes from Vebs Vaishnav of Cowen.

So obviously, a pretty solid quarter. Was there anything onetime benefit in that quarter? Or does the sourcing from local sand mines help your margin at all? Or is that -- this profitability sustainable going forward?

We think we're -- this is sustainable, and there was not any onetime situation here at all. I think that's what we're going to see going forward in this market and why we've been so excited to get to this point. So we should be able to take advantage of all the opportunities that are before us.

And it sounds like March profitability was better, so we should be thinking of slightly higher profitability in 2Q. And with the new fleet coming in -- already come in, it should be slightly under 19 fleets. Is that a fair way of thinking for 2Q?

Yes. I mean, I think that, first of all, that is correct as far as the number of fleets. I think that with regards to ramp in profitability, I think that, as we said, it's going to be completely dependent upon efficiencies. And we have no reason to believe that the efficiencies that we enjoyed at the end of the first quarter would not continue, at least at that same level into Q2.

And one last one for me. You guys talked about early innings of efficiency. Can you help us just think about how you think of efficiency? Where is it right now? How high can it go? And what does it really imply for EBITDA per fleet?

Well, I mean, I think that we've kind of quoted a few things. It's stages per fleet per month or quarter. It's the percentage of our work that is vertical versus horizontal. It's the percentage of our work that is zipper. And I think that there is -- the reason why we truly believe that we're not capped at the current level of annualized EBITDA per fleet is because there are -- there is definitely room for improvement in all three of those metrics. And as we work with our customers on scheduling and the efficiency of the jobs on site, we think all of those numbers can still be enhanced more.

Is there a way to think about like this $80 million if you had like very optimal operation, it goes to $20 million, $25 million? Is there any way to bracket that?

We would not give guidance with that at all. I think where we are currently, I think we need to focus on that. And whatever we can gain, we'll relay real time, and you'll see it in the results. But I think we -- yes, couldn't give you guidance on how -- where that could go, okay?

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

Everyone, we really appreciate your time. As we've said before, we really believe this is the year of differentiation in our space. And thank you for all your support. Have a good day.

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