LBRT - Liberty Oilfield Services - Earnings Call Transcript Q3 2021

Operator: Good morning and welcome to the Liberty Oilfield Services Third Quarter 2021 Earnings Conference Call. Please note this event is being recorded. Some of our comments today may include forward-looking statements reflecting the company’s view about future prospects, revenues, expenses or profits. These matters involve risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. These statements reflect the company’s beliefs based on current conditions that are subject to certain risks and uncertainties that are detailed on the company’s earnings release and other public filings. Our comments today also include non-GAAP financial and operational measures. These non-GAAP measures, including EBITDA, adjusted EBITDA and pre-tax return on capital employed are not a substitute for GAAP measures and may not be comparable to similar measures of other companies. A reconciliation of net income to EBITDA and adjusted EBITDA and the calculation of pre-tax return on capital employed, as discussed on this call are presented in the company’s earnings release, which is available on its website. I would now like to turn the conference over to Liberty’s CEO, Chris Wright. Please go ahead.

Chris Wright: Good morning, everyone and thank you for joining us to discuss our third quarter 2021 operational and financial results. Our third quarter results show solid growth momentum, with a 12% sequential increase in revenues on both higher activity and service pricing. Our team delivered this growth, while navigating acquisition integration activities, cost inflation and the disruptive impact of the pandemic on global supply chains and labor availability. Third quarter revenue was $654 million compared to $581 million in the second quarter. Adjusted EBITDA in the third quarter was $32 million compared to $37 million in the second quarter. The third quarter benefited from service price increases, but Liberty was not immune to the serious supply chain issues the world faces today as faster cost increases more than offset higher prices during the period. Increased transportation costs and driver shortages, maintenance personnel, supply chain constraints and integration costs hurt margins in the period. We estimate that rapidly increasing logistic costs that were not passed through to customers in the quarter were approximately $12 million and maintenance costs were $8 million higher than normal due to the integration and COVID-related disruptions. We are actively addressing the supply chain, logistics and the integration challenges that are continuing into the fourth quarter to moderate their impact on margins. We all know the COVID pandemic has caused meaningful disruptions in the labor market. Liberty has taken significant steps to address the effects and we are starting to come out of the other side of these challenges. Michael and Ron will expand on these issues and opportunities. There is now widespread recognition amongst operators that is not only the availability of next-generation equipment limited, but even more scarce, is high-quality service partners with best-in-class efficiency and technical expertise to drive higher performance. We believe this tightness in the market versus quality service providers is important for operators and they recognize it’s critical to have the right partnerships in place today to be successful over the coming years. There is significant interest in Liberty’s digiFrac electric fleet. We have completed 4 very successful field trials and over 30 technical and factory deep dives with customers and the response is overwhelmingly positive. We are excited to announce the execution of the first two multiyear arrangements to deploy digiFrac fleet in 2022 with two of the field trial partners. We are also in active negotiations with the others. The technical innovation and engineering control that these fleets exhibit, combined with the leading emissions profile and Liberty’s operational excellence is a combination that is hard to beat. We are continuing our multiyear deployment strategy centered around choosing the best partners, strategic frac deployments and strong returns on incremental capital deployed. Operational efficiency came to the forefront during the quarter. In late September, we announced that Liberty frac and wireline teams worked in concert to achieve 24 hours midnight to midnight of continuous plug and perk pumping time. We are excited that just 1 week later, 15 did it again, giving the ambitious goal of Liberty’s operation 1440 is an incredible feat, delivering a full 1,440 minutes of pumping time with zero non-productive and non-pumping time, requires a remarkable effort of coordination and efficiency. Our team achieved this due to our 10-year focus on real-time data tracking and predictive analytics and due to our partnership with Kaiser-Francis and Downlink. Surveying the macro, worldwide economic activity continues to grow, driving higher demand for energy, despite the impact of supply chain disruptions, material shortages, labor scarcity, rising costs and COVID-related uncertainty. Energy demand continued to outpace the gradual return of supply as evidenced by the energy crisis in Europe, China and India. Global oil and gas supply remains constrained by underinvestment in both oil and gas production and the associated infrastructure. The urgent desire of many to see oil and gas transitioned away is running headlong into reality. In the year 2000, hydrocarbon supplied 86.1% of global energy, falling by less than 2% to 84.3% in 2020. Under investment in oil and gas infrastructure, whether it be shrinking the natural gas storage capacity in the United Kingdom or hindering the permitting of U.S. LNG export facilities will surely lead to thousands of preventable deaths this winter among those unable to afford skyrocketing heating bills or surging food prices due to a global shortage of natural gas, driving up fertilizer prices. Strong oil, gas and natural gas liquids prices are bolstering demand for frac services, particularly among private E&Ps. The positive momentum we have seen is expected to continue in the fourth quarter and into 2022. Our customers demand modern, environmentally-friendly solutions with high-performance operations and strong partnerships. We are in a highly advantaged position with top-tier technology innovation, engineering prowess, service quality and ESG-friendly solutions. As we continue to look for ways to improve our efficiency and build value, we are very excited to announce our acquisition of PropX, a leading provider of environmentally friendly last mile proppant delivery solutions. PropX has also been a long-time equipment and service provider to Liberty. The dynamic team at PropX is a great cultural fit with Liberty. The addition of PropX integrates the latest proppant delivery technologies and software into our supply chain, including their new ESG friendly wet sand handling technology and expertise. We will continue to bring PropX technology, equipment and services to the whole industry. Together, we believe these solutions will reduce the environmental impact of last mile delivery and lower our total delivery cost to our customers. I will hand it off to Ron to discuss the significant value PropX will bring to the Liberty organization.

Ron Gusek: Thank you, Chris. We are excited by the opportunity to both strengthen Liberty’s logistics efficiency and technology, while also continuing to offer these leading solutions to the industry as a whole, whether we are performing the frac services or not. PropX is a leading provider of last mile proppant delivery solutions, including containerized sand equipment, well-site proppant handling equipment and logistics software across North America. In the most recent Kimberlite survey, 60% of the E&Ps surveyed expressed a preference for containerized sand handling on their locations. Today, PropX systems can be found on approximately 25% of all frac locations. Founded in 2016 as a solution to optimize on-road trucking delivery of sand, they are custom-designed for efficiency, containerized sand handling equipment for both wet and dry material, maximizes delivers load capacity and flexibility. The system utilizes the widest cross-section of trucks in the market. This has led to logistics efficiency and environmental benefits from lower delivery rates, faster turnarounds, fewer trucks required and reduced emissions due to lower idle time. Liberty has been a long-time customer of PropX. In fact, as part of the integration of OneStim, we are in the process of moving legacy OneStim fleets to PropX box systems across North America as this is the more efficient and cleaner facilitator of sand transportation in the industry. The rapid innovation and ingenuity of PropX continue to date in the nascent wet sand business. Through their ongoing work with early adopter Ovintiv, PropX has built the equipment and expertise to become the premier provider of this technology. Wet sand handling technology is a key enabler of the next step in cost and emissions reductions in the proppant industry. It is an ESG-friendly solution that allows for the delivery of wet sands to operators. Customarily, sand processing requires sand to be washed and dried prior to transport and the dried is the highest emitting process at a sand mine. PropX’s wet sand handling equipment allows for the transportation and usage of wet sand, eliminating the drying process, reducing costs and emissions. We view wet sand handling and delivery as a disruptive force in the last mile delivery business in terms of lowering total costs and reducing environmental impact. As we look ahead, we see many opportunities for localizing the supply chain with smaller scale, wet sand mines using the PropX system, providing real, sustainable cost savings across the value chain. We are also thrilled to have PropConnect, the latest real-time logistics software, which raises efficiency for operators and service providers across the space. The PropConnect well site and software automation platform is available to customers for sale or as a hosted software-as-a-service. It drives better visibility and automation from source to dispatch to well site and billing. Internally at Liberty, we plan to integrate PropConnect with our Oracle transportation management system and other existing logistics development efforts to streamline supply chain, delivery and operations. We expect this integration will modernize last mile delivery, enable our driver quick pay initiative and bring significant improvement in cost efficiency and geo optimization. An early trial of the next-generation software platform in the Permian, enabled a 20% reduction in the number of truckers required to keep a PAT supplied with proppant through end-to-end optimization of truck flow. The new platform also enhances Liberty’s ability to partner with a broader range of trucking providers from the independent owner-operator to the largest firms. They will benefit from clear line of sight to utilization levels and automated invoice workflow, speeding payment times to inside of a week. Safety is paramount to Liberty and driving is the most dangerous activity we undertake. We believe direct oversight in the last mile space provides us the strongest opportunity to drive continued improvement in this area. The transaction positions Liberty as an integrated provider of completion services offerings with proppant, equipment, logistics and integrated software that will improve Liberty’s operational efficiency. It is representative of our relentless focus on building value over the long-term. By integrating the latest proppant delivery technologies and software into our supply chain, we believe we will reduce the environmental impact of last mile delivery and lower our total delivered cost to our customers. With that, I’d like to turn the call over to Michael Stock, our CFO, to discuss our financial results.

Michael Stock: Thank you, Ron. Good morning, everyone. Our third quarter results showcased the hard work by the Liberty team. We delivered a solid top line result, improving overall service prices, utilization and efficiency, despite ongoing global supply chain disruptions and integration activities. The challenges to profitability still exist, but we are aggressively managing them to moderate the effect on future results. We are excited by the accretive PropX acquisition that will complement these areas. Let’s look at our results in greater detail. In the third quarter of 2021, revenue increased 12% sequentially to $654 million from $581 million in the second quarter, reflecting the combination of increased activity, high-quality price pass-through and increased service prices. Revenue in the U.S. was approximately a 10% sequential increase on relatively flat staff. Top line growth was achieved despite supply chain and logistics challenges that are impacting our industry as a whole and the integration issues that Liberty is navigating in our first year of the OneStim acquisition. Our net loss after tax was $39 million. Net loss included a gain on the remeasurement of our TRA liability that positively impacted results by approximately $5 million. Results also included transaction and other costs of $1.6 million. Fully diluted net loss per share was $0.22 in the third quarter compared to $0.29 in the second quarter. Third quarter adjusted EBITDA was $32 million compared to $37 million in the second quarter. The decline in adjusted EBITDA was a result of several factors. Logistics costs negatively impacted EBITDA by approximately $12 million from driver shortages, higher transportation costs and we did not pass-through as quickly as they materialized during the quarter. Driver shortages across the country are at an all-time high and our industry is heavily dependent on transportation of sand and other materials. We are taking measures to streamline and – the logistics angle and pass-through fast rising transportation costs. The purchase of PropX with full integration of the PropConnect software with Oracle transportation management that drive the fast pay system with the long-term solution to streamline logistics, reducing the quantity of drivers needed to reduce cost per mile. Maintenance costs were approximately $8 million higher than normal due to the integration and COVID-related disruptions, including the impact of fewer maintenance for personnel due to labor supply constraints, higher value rate of maintenance plans as we transition the legacy teams to Liberty’s predictive maintenance software and industry-wide pandemic driven supply chain network efficiencies. As we discussed last quarter, Chris mentioned in his prepared remarks, the labor market across the whole country and in all industries is a challenging class. Successfully providing superior service to our customers is driven by Liberty’s commitment to our team users. Liberty historically has been insulated from the turnover issues that have been part of this industry over the last 2 years. In this quarter, we announced the transition of all of our field crews to the start hopefully 2-on, 2-off week schedule that we believe promotes crew efficiency, reduces turnover and most importantly, supports our goal to be the safest completions company in North America. We are seeing turnover rate move back towards historical Liberty levels and that will be a financial fruit for the future quarters. General and administrative expense totaled $32 million and included $3.8 million of stock-based compensation. Excluding stock-based compensation, accounts receivable balance in the second quarter, G&A expense increased by $5 million in the second quarter. This increase was driven by the restoration of salaries and profitability bonuses and compensation increases totaling $2.4 million. Higher legal and professional service costs of $1.1 million and increased IT and other costs to support our new larger integrated business post the OneStim acquisition of $1.6 million. The current quarterly run-rate is a reasonable estimate for the fourth quarter. Net interest expense and associated fees totaled $4 million for the third quarter and we also recorded a non-cash adjustment of $4.9 million related to tax receivables. Income tax expense totaled $1 million related to Canadian operational third quarter results. We ended the quarter with a cash balance of $35 million, reflecting an increase in second quarter levels. Total liquidity was $106 million net of deferred financing costs and original issue discount. There was a $60 million drawn on the ABL facility at and total liquidity available under the credit facility was $268 million . In October, we amended our secured asset-based revolving credit facility. The amendment extends the maturity date of the facility from September 2022 to October 2026 and revised for $100 million increase in the aggregate commitment to a total of $350 million. In conjunction, the term loan maturity date was extended by 2 years with no substantial payment was due up to maturity in September 2024. We are excited to announce the acquisition of PropX for an aggregate purchase price of approximately $90 million, subject to normal closing adjustments. It is consisting of $13.5 million in cash and the equivalent of 5.8 million shares of Liberty’s common stock valued at $76.5 million based on a 30-day average share closing price of $0.13. The $90 million purchase price represents approximately 4.7x their estimated standalone 2021 EBITDA. As Ron described, with this acquisition, Liberty will further integrate our completion services, with proppant equipment, logistics and integrated software, that will improve our operational logistics efficiency that will directly confront the logistics challenges we face today is a clear example of that strategy of facing to the future and maintaining a clear focus on technology innovation, highly efficient operations and a strong balance sheet to deliver on greater value for our shareholders through . Capital expenditures were $56 million for the quarter and that included approximately $10 million of OneStim fleet digitization. As we look ahead, we see the momentum we have created this year will set us up well for executing in 2022. Customer pricing recovery is speeding up. We have addressed the unique personnel challenges of 2021. Logistics and supply chain will continue to be a challenge, but the issues are identified and being addressed. The management team continues to be amazed and proud of how the Liberty team has performed in these tough times and are excited to see what they can do with the tailwind at their back. With that, I will turn the call back to Chris before we open for Q&A.

Chris Wright: Thanks, Michael. While the quarter had some challenges, we are very pleased with the trajectory of our business. I want to thank everyone on team Liberty for their tireless efforts. I also thank our customers and our suppliers for their partnership. Back to the operator now to take your questions.

Operator: We will now begin the question-and-answer session. First question comes from Scott Gruber with Citigroup. Please go ahead.

Scott Gruber: Yes, good morning.

Chris Wright: Good morning, Scott.

Scott Gruber: So Chris, you and peers have been pushing pricing now for a few quarters. And it appears you are offsetting the inflation across the system, but not getting much net pricing. What’s your confidence in securing net pricing in the quarters ahead? Is this something we have to wait for the new year for the MSAs to reset to really see it come through in your financials and overall, just kind of how you think about the potential magnitude of net pricing gains that are possible as we head into next year?

Chris Wright: You bet, Scott. We actually feel pretty good about things. Just remember how low things sunk five quarters ago. So, we were getting net pricing improvements from a very low, low over the last four quarters, last quarter, definitely a bump in the road. We drove pricing up, but not as much as we should have and you see the results of that. Pricing is continuing to move up in the current quarter, but the larger movement in pricing of double-digit will be starting Q1. And most of those price moves have already been agreed with our existing customers. So, we feel pretty good about where things are going. We wish they moved faster, but things are going to a good place.

Scott Gruber: It’s good to hear. And just digging in a little bit more on kind of what’s driving the pricing. There is still a lot of legacy Tier 2 equipment on the sidelines. And obviously, there is a preference for low emission kind of next-gen kit, but we also have a scarcity of quality crews out there today, as Michael discussed. And that alone should raise the value of an active experienced crew today. Can you just parse out a little bit for us kind of what’s driving the net pricing? Is it more scarcity of quality next-gen equipment or is it crew scarcity? Any color on that front? And if it’s more driven by crew scarcity, which is just kind of less of a phenomenon than we have seen in past cycles just kind of overall, what does that mean for the kind of potential on securing net pricing? And the magnitude, you talked about double-digits, but kind of what is the scarcity of quality crews means for pushing pricing?

Chris Wright: Yes, Scott, you made it in that in both of those things. And they are – and you are right, they are separate forces, mostly among the larger public operators, yes, there is a very strong desire. They have lower emission fleets. Remember, lower emission fleets run on gas versus oil. So they also have a cost saving or an efficiency there in running on – in running on natural gas as opposed to diesel. So that is driving inflation. I would say that’s driving the differential pricing between next-generation fleets down the line. And there is really a continuum from Tier 2 to Tier 2 diesel to Tier 4, I mean Tier 2 dual fuel, Tier 4, and Tier 4 dual fuel and now fully gas burning and maybe at the top of that stack digiFrac. So there is a pricing differential driven by that. But then there is also sort of a macro tailwind of just a tighter market of quality crews. Because the labor challenges makes the whole market tight, but there is also sort of a differential between the quality of the crew you’re getting. And yes, it does not take too many incremental fleets that are deployed over the last few months to meaningfully tighten that market now today. If you’re just standing up two rigs and you want to get a quality frac fleet today, that’s meaningfully more difficult than that was 6 months ago.

Scott Gruber: Yes. And the 10% improvement that you foresee, that’s kind of across the board on average that you expect for Liberty?

Chris Wright: Yes. I think I have to be more generic at double digit. But yes, we are getting price rises, net price rises in Q1 across the board. Look, there is a stronger demand. There is probably a growing bifurcation in the pricing you get for environmentally friendly next-generation fleet versus Tier 2, but all of the economics of all of them are floating meaningfully upwards. And then again, it’s very valuable so far, but you’ll see a more meaningful jump in that in the start of next year.

Scott Gruber: Great to hear. Appreciate the color. Thank you.

Chris Wright: Thanks.

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

Stephen Gengaro: Thanks. Good morning, everybody. Two things from me. One, just follow-up on the prior line of questioning, when you think about that level of net pricing improvement, double digits, I mean, that theoretically translates to $6 million, $7 million rise in EBITDA per fleet, right, because you sort of directly fall sort of line of its net. Is that a reasonable starting point as you think about next year versus second half ‘21?

Chris Wright: So it’s not going to be – I think your math is reasonable. But it won’t be a rough immediately on January 1, everything changes. Most of these are agreed, a lot phase in January 1, some are tiers that will phase in over the year. But are we going to see that much of an increase in EBITDA per fleet year-over-year? Absolutely.

Stephen Gengaro: Great. Okay, thank you for the clarification. And then my second one is it’s around PropX and just really two questions. One is just how we think about how it folds in, and I assume it’s going to be sort of meshed in and accretive just to the efficiency of operations. But given the market share you talked about, just curious how you think about that business working for third parties. And if you’re worried at all about cannibalization of the work outside of Liberty.

Chris Wright: Honestly, we’re not that worried about that. A lot of PropX’s other business is with people in the proppant business, a lot of direct sourcing for E&P. Some of it certainly is with competitors of ours, but I suspect that business continues on. And if it doesn’t – I don’t think it’s much of a needle mover. So yes, we’re excited about PropX for two reasons. One is directly integrating our technology development efforts will make Liberty’s efficiencies, smoothness, safety and ultimately, cost to deliver better. Also, we have a third-party business that we suspect will continue to grow. And it’s a strong business as well.

Ron Gusek: And Steve, I think I will add just a little bit. That is one of the key technology enablers for the future here is the wet sand handling business, right? I mean that’s a key differentiator as we move forward. I think we’re going to be working with all of our E&P clients on that. And it’s another way that we’re going to be focusing on driving down the ESG footprint of frac industry for our large small clients across the board. It doesn’t work everywhere, but the areas where it will work, it will be great, it will – again, it’s really take trucks off the road, it makes the world safer. It takes emissions out of the year. This is these things that PropX has been working on. We’re really what we’re doing is we’re giving them a bigger needle phone, a bigger back barge to take this to market that’ll help the whole industry and we will sell it to everybody, whether it’s a frac company, E&P company, sand company, etcetera.

Stephen Gengaro: Excellent. Thank you for the color.

Operator: Our next question comes from Taylor Zurcher with Tudor Pickering and Holt. Please, go ahead.

Taylor Zurcher: Hi, guys. Thanks for taking my question. My first question is on the supply chain. You talked about kind of two buckets logistics and maintenance, where costs ramped pretty notably, sequentially. The logistics side is pretty straightforward to me. And so my question is really on the maintenance side. But when you’re talking about $8 million of extra maintenance cost, is that really raw materials cost inflation on things like fluid ends? Or what’s going on there in Q3? And how should we think about that piece of the equation for Q4 and beyond?

Michael Stock: Hi, Taylor. So it’s a great question. Actually, there is a lot of general inflation that’s rolling through the cost structure of everybody at the moment. Yes. And we didn’t highlight those that to some degree, normal costs. I mean, I’ll just throw one as an example, tire prices are up 10%, right? I mean significantly rubber prices. You’ve got issues around supply chain everywhere. So those are places we didn’t call out. But I think one of the things we are trying to focus on there is to see when you look at our business, where – there is two places where integration costs, personnel issues and maintenance etcetera all sort of come together. There is two places you can do that is, one is efficiency. And the key thing is our operations team did an amazing job with the integration, issues around supply chain, keeping efficiency up. But the other place that you see there that rolls through your financial statements is really your cost of operation, but frankly, all maintenance costs, right. Depending on how you run the equipment, it’s meant how much it’s going to cost. Now that is something that when you get turnover and you get integration, and we change systems, sort of that wear and tear can spike. But it doesn’t happen one-to-one right. It’s not how you run the equipment this month, it’s going to change your cost this month. So what we’re doing is we’re seeing sort of the banking of the way from the start of the integration and to the personnel issues over the summer, really get in Q3. Some are going to hit in Q4 then roll off in Q1. We’re actively like aggressively mitigating those at the moment. But again, I think that’s where you see it turn up in the financial statements. And we recall that to try and explain to people how that works.

Taylor Zurcher: Thanks, it’s super helpful. And my follow-up is on digiFrac, encouraging to see you guys in some multiyear arrangements. I guess my question is, you’re talking about arrangements here. Should we translate that sort of terminology as being analogous to a firm contract for these first two fleets? And then part two, any color that you’d be willing to provide on the economics behind these two fleets, whether – I know you talked earlier about double-digit pricing improvement next year, I am sure digiFrac is a big piece of that and I suspect at the high end of that, but just looking for any sort of color on the economic returns that you’re expecting from this incremental digiFrac equipment in 2022?

Chris Wright: You bet, Taylor. So yes, look, there are contracts behind these. But as we’ve always been, we never talk about the details of our commercial arrangements. But – so for us, it was careful to choose the right partners that have a long runway in front of them that have been partners of us for a while. And of course, the economics are strong, very strong return on the new deployed capital for us. Yes, those are the two things that matter, the right partners, the right windshield in front of how long that equipment will work and very strong returns on incremental capital. And digiFrac deals we’ve agreed, and there are many more discussions. Obviously, there is a lot of interested partners. We’re excited about it because they are big wins for both sides. There are huge ESG and even operational performance improvements for our customers. There is great efficiencies with them. There is lower fuel costs, but of course, there is very strong economics for Liberty in deploying that incremental new capital.

Taylor Zurcher: Alright. Good to hear. Thanks for the answers.

Chris Wright: Thank you. Have a good one.

Operator: Our next question comes from Connor Lynagh with Morgan Stanley. Please, go ahead.

Connor Lynagh: Yes, thanks. Just a clarifying question to start here, I might have missed, but I was just curious, did you give any sort of earnings contribution expectations for the PropX assets or just any sort of high level framework for how we should think about it affecting your sort of mid-cycle EBITDA per fleet?

Ron Gusek: Yes, Connor, as you state, when you look at their 2020 – their pro forma 2021 earnings was about 4.7x EBITDA was the valuation. So you kind of back calculate into that. They are obviously being an equipment, mostly an equipment rental business, how go down probably lower, they don’t go as low during the lows, right? So they are going to rebound a little bit from there, but obviously not as fast as a frac company. So, there is incremental improvements from there but we wanted to give kind of people a sort of handle as we start from moment.

Connor Lynagh: Okay, got it. Thank you. Maybe just a higher level one here, obviously, with the acquisition of OneStim and now PropX, you definitely become more integrated and sort of broader in your completions equipment offering. So I am curious, are there any other areas you feel are necessary or potentially just value-accretive for you to pursue in the completion of the supply chain or do you feel like the footprint as it stands right now is the right way to be for the coming cycle here?

Chris Wright: So we’re always looking at deals. You really hear about them because we don’t do many of them, but we’re always looking at deals. I think the industry views Liberty as a nice acquirer. I think people like our culture and the way we do business. So we get approached a lot. Are there other technologies, other enabling things might be a good fit for Liberty, certainly possible. We feel really be necessary. It’s not like we need to buy anything else, but we continually evaluate stuff. And we think it’s accretive to our earnings going forward and helps us build a stronger competitive advantage, then we’re interested. And then it goes down to be is it a good cultural fit, are we going to pull it off. So there is a lot of factors there. But we’re always looking and – yes, it’s certainly not impossible to see more things like this going forward.

Connor Lynagh: Got it. And just to clarify that the comment there, it sounds like you would probably be more interested in pursuing more sort of technology-focused acquisitions as opposed to capacity or how are you thinking about that as where valuations are right now?

Chris Wright: I think your comment is generally right. We look at everything. We look at everything. But yes, technology, things that make us better are the most appealing.

Connor Lynagh: Understood. Thanks very much.

Chris Wright: Thanks.

Operator: Our next question will come from Chase Mulvehill with Bank of America. Please, go ahead.

Chase Mulvehill: Hey, good morning. I guess a few follow-up questions here. I guess first, maybe I’ll just follow-up on Connor’s question. Thinking about further integration, would you think about kind of being further integrated in fluid ends or aftermarket or perf codes or anything like that where you could save costs there?

Chris Wright: I mean, look, we acquired FT 9 years ago. So we already make fluid ends and power ends and valves and sieves. It’s a young business. So we’re excited about continued improvements in both performance and cost efficiency in those areas. But yes, we’ve already done that.

Ron Gusek: Yes, I would say that’s one of the ways we look at things, Chase. Is, we look at technology add-ons where we can sort of improve returns for our customers and improve our business. We’ve replaced it in the supply chain, where we see that we really like to have more control or reach further back where we sort of like what speed technology improvements will reduce costs. That’s another key place that we always look. And I think sort of the original purchase reasoning behind the was bad. Obviously, there is huge technology advantage with the digiFrac design. I think you see that when we took the Freedom Proppants business along with the OneStim business, right? That was the West Texas sand. The same thing, to some degree, you would say it was with prop and you’ll see the same theme with PropX, right? We’ve got – it’s a key supplier for us. It’s sort of a one-stop shop is what we need. We need to make sure we have access to it, and we can help them make and reduce some of the costs of these key containers and handling equipment, but also it’s a huge technology portfolio with a nascent wet sand technology, which is another key driver right. Also what you will see is this cost savings, improving EBITDA, immediately accretive plus room to building technology for the future. That’s generally how we like to look at acquisitions.

Chase Mulvehill: And moving over to kind of the new build, you obviously, you announced the two digiFrac electric fleets. How do you think about adding capacity today into a market that’s oversupplied? Now I know that kind of there is a higher demand for next-gen equipment. But how do you think about adding because obviously, competitors are doing the same. And one would argue that the market doesn’t need incremental capacity, are you scrapping capacity on the low end as you add new capacity? Or is this kind of net additions to your overall capacity?

Chris Wright: Look, right now, demand for frac fleet is growing and the available number of fleets able to work is actually shrinking. You hear announcements of some electric frac fleets being built, that number is way below the amount of equipment just from attrition on an annual basis that’s happening right now. So we have two trends in the industry right now, growing slowly, but growing demand for frac fleets and shrinking supply of frac fleets. That’s where the macro we’re in right now, which is what’s driving the continued improvements and actually improvements to a pretty good place sometime next year. So for us, it’s – we never look at that like top down. Next year, we will run x number of fleets. We’re going to add x or subtract y. That’s just not the way we do it. It’s always a bottom-up customer-by-customer dialogue. Is that customer strategic? What needs do they have? What are the economics for it? How are we going to staff it or work it? So right now, from our existing partners and some newer partners, yes, there is a strong pull for Liberty right now. I’d say we’ve been quite disciplined in not just saying yes to everyone and bringing tons of new fleets out. In fact, we’ve held the line on fleets for a long time right now. But next year, and certainly, with the digiFrac fleets, are they likely to be incremental for Liberty? Yes, they will be. They will be. Supply and demand, it’s a different situation right now than it was three quarters ago. Now look, we have four results. That’s all review mirror. And when prices change today, it isn’t usually for tomorrow. That’s further ahead. So our results are always just a lag look into what’s going on in the marketplace.

Ron Gusek: And the real view around the real crew point at the moment is truly trained, effective personnel, right? That’s the issue around bringing – people bringing new fleets with – logistics and personnel is really the touch point as opposed to sort of the amount of raw steel that just happens to be sitting on side line.

Chase Mulvehill: Yes. Make sense. One quick follow-up. And in the press release, you were pretty candid about the activity levels, and you see increasing activity into kind of 4Q and 2022. So I guess specific to 4Q, do you think that you see any seasonality or budget exhaustion or anything like that? And then when you look out to 2022, do you think the ramp is kind of more first half or second half weighted?

Ron Gusek: Yes. Well, I’ll take Q4 and I’ll give Chris next year, he has been looking lot for me. Q4, when we look at in Q4, we are obviously going to see seasonality, right. You are going to see Christmas, Thanksgiving, holiday breaks, and no more that’s usually sort of a mid-single digits slowdown in activity in a normal year, once we’ve got past this budget exhaustion over the last 3 years, which was over time. So I think that’s going to happen. I think that’s going to get offset for us by sort of increased activity and some increase of scheduling earlier part of Q4. So I’d say, we’re going to see a slight uptick probably top line in Q4 is the expectation.

Chris Wright: Yes. And going into next year, publics are still very disciplined. And again, we applaud that. We applaud that. Prices are going to be higher next year and their cash flow is going to be higher. But I think CapEx levels will still be quite modest. Production, probably mostly around maintenance production levels for the public, which still means an increase in CapEx but for the private, it’s just a response to the strong economics. So I would say there is a measured but continual increase in that CapEx and that activity level. So look, we’re probably going to get – next year, I think the numbers you read around 20% plus total increase in CapEx next year, that’s probably a reasonable yes. But again, think of that 27% spend, half of that’s price. So there’ll be increased activity levels next year. It’s not a stair step in January. I think it’s probably more gradual and spread out over the year, depending upon commodity, commodity prices.

Chase Mulvehill: Okay, thanks. I will take the over on the 20% though. Thanks, Chris.

Michael Stock: You , Chase.

Chase Mulvehill: Thanks, Michael.

Operator: Our next question will come from Atidrip Modak with Goldman Sachs. Please, go ahead.

Atidrip Modak: Hi, guys. Could you – maybe at a high level, could you provide any color on what the frac equipment supply demand picture looks like today? Would you estimate the utilization rate is like? And what does supply look like as you go into next year? Because there are a lot of your peers who are talking about upgrades, not necessarily electric fleets. Just any color around that.

Chris Wright: Yes. It’s harder with frac fleets than with drilling rigs. Is – what’s happened is the intensity of frac work has continued to migrate up. People, economics are poor. So people in – they have a frac week sitting and an engine goes down and you need major compo. There is a lot of – we hear, there is a lot of pilfering of parts and competitors. So it’s – you can’t just fly over and count how many large frac fleets there are. But I will tell you the excess capacity of steel is definitely shrinking. So the equipment is being worn out. As Michael said, probably the single biggest challenge is if you’re going to deploy a new frac fleet or even keep the one you’ve got going. It’s the skilled labor that can work efficiently and safely. The human side is probably the biggest pinch point in frac fleets. But the seal and quality seal is also getting tighter. There is visibility into that as well. We keep an internal, and I think in just the last few months, a pretty high-quality account of active frac fleets by basins and across North America. And we have probably a 3-month projection ahead of what’s going to happen with that due to facing dialogue with everyone running frac fleets. We have the –we don’t publish that. We probably never will. But that gives us kind of an insight of where things are going. And obviously, a dialogue with customers, which is every day across many people, Liberty, kind of reinforces our feel that ability to get quality crews today. It’s harder than it was 3 months ago, much harder than it was 6 or 9 months ago. And I think probably a widespread belief it will be harder still 3 to 6 months from now.

Michael Stock: Yes. And I’ll comment on the upgrade cycle a little bit there. The second part of your question there again. It is interesting. What we’re seeing now is you are seeing people when – Liberty as well. As engines come into the, say, 5-year, there is a 10-year retrograde, the upgrade – they are getting upgraded, they are maybe getting upgraded to a Tier 4. There is decent differences there to do some things with cooling systems, etcetera, some of the Tier 4 engines are getting upgraded into dual fuel DGB. So they are tapping slowly, right? There is a supply chain that’s relatively small. So that count happen very quickly. But I do think over the next 5 to 7 years what you be. It’s going to see that the bottoming, the ramping of that diesel fleet, the sort of a lot of attrition on the back end of the older Tier 2s, the stuff that was built more than 10 years ago. And then the better versions of those Tier 2, some was built in the sort of in there 10 to 5 years ago, they’ll probably migrate up into the Tier 4 DGB. So say, Ron, you might agree, let’s say, 5, 10 years from now. It will be mostly in their sort of Tier 4 DGB electric fleet round 10 years from now. Would you agree, I think that’s fair statement, Mike.

Atidrip Modak: Got it. Thanks, that’s helpful. And then the next question around digiFrac. So great to see the developments, obviously, but could you provide any updates around CapEx plans around those fleets that you have on agreement now?

Michael Stock: Yes, I can. So as you can see, we’re starting to spend money on these arrangements at digiFrac fleet. You’ll probably see approximately about $25 million of spending in Q4 rolling into the Q4 numbers. Depending on how depend on deliveries? Yes. So our CapEx numbers will be sort of towards the high end of our range, plus about that $25 million of digiFrac. That’s going to be a rise in the high end of that range. For the full year, excellent investments those. So I think the rest of that, you’ll see roll into the majority of it in Q1 and then a little bit into Q2 as they start getting ready for deployment. So that’s sort of the range there. Long-term, I think what you’ll see is probably at your Goldman conference in January. I think will probably be the best place to talk about the kind of the long-term plans once we get through the end of this year, talking about our long-term deployment plans. We will probably give a view into the full view of next year’s CapEx, etcetera, around the beginning of the year timeframe, I would expect.

Atidrip Modak: Perfect. Thank you. Look forward to that. I will turn it over.

Chris Wright: We are looking forward to seeing you.

Operator: Our next question comes from Ian MacPherson with Piper Sandler. Please go ahead.

Ian MacPherson: Hi, good morning. Thanks. Chris, you mentioned that your – you have held the line on fleet deployments through the year, which I know we saw in prior quarters. From that, would we deduce that your 12% revenue increase in the third quarter was basically pricing and utilization improvement on basically a constant deployed fleet count?

Chris Wright: Yes.

Ian MacPherson: Yes. Okay. So Michael, when you get from – you have talked about not immediate, a gradual probably two or three-part recovery of the margin headwinds that you encountered in the third quarter, what would you hazard you could recover of that $20 million from Q3 into Q4, or is that not guidable at this point?

Michael Stock: I think obviously tough to guide at this present point in time. But I think a number of the logistics costs will get passed through to clients. We are managing through the sort of maintenance noise that’s driven by the personnel. They could well be similar in Q4 and then sort of drop-off in Q1, but that will give a little more clarity on the next month.

Ian MacPherson: Okay. And then since I have been so quick, I will squeeze in a third one, if I may. On PropX, wet sand is still fairly embryonic in the industry, yes. And so I would imagine that the further penetration of that would be an angle of incremental accretion above and beyond the sort of the trailing accretion for that business. Would you confirm that? And then what do you think the runway is for maximum or realistic penetration of wet sand across your fleet over the next couple of years?

Ron Gusek: Ian, I think you have got that exactly right. I think it’s early days in that technology. It’s been a little while coming to fruition. But now I think we are in a position where it’s fully commercial and lots of upside opportunity there. I think as you look at and it won’t apply every place, of course. There are environments where it’s probably not going to make sense, but there are certainly a number of environments. And I am guessing you could think of a few where when you think about longer last mile hauling distances, for example, and ready availability of material nearby well sites that we could process with a mobile buying. It will allow us an opportunity to dramatically reduce trucking distances, dramatically reduce the number of trucks. I heard a story just yesterday or the day before about one of these early mobile line operations, what used to be 22 trucks servicing a well site is now down to five. So, just a dramatic step forward in terms of that reduction in costs and emissions. And we see that as an opportunity, not every place, but in a number of places, and certainly in some of the core basins where a lot of the fleet is deployed.

Ian MacPherson: Got it. Thank you, Ron. Thanks team. I will pass it over. I appreciate it.

Ron Gusek: Thank you.

Operator: Our next question comes from Roger Read with Wells Fargo. Please go ahead.

Roger Read: Thank you. Good morning. Maybe to just follow-up the last question you had had there. Your answer to it is we are trying to think about not just the recovery of the inflationary issues here, but also the net pricing commentary about ‘22. Given that we are bringing so many costs out, the addition of the wet sand handling another factor in that, how should we think about sort of top line and bottom line performance as we look at ‘22 versus, say, back – looking at ‘18 or ‘19? And I know that’s a little tough because the company has changed quite a bit. But I am just trying to understand some of the productivity and efficiency issues relative to what the, let’s say, the baseline business is capable of generating here. So, it’s a broad question probably for you, Chris, but I just want to sort of understand what the company can generate.

Michael Stock: Yes. I will take this one, Roger, a little bit. I mean I think one of the things you will look at, when you look at the difference between top line and bottom line, it will depend on how much the reduction in the cost of operations, production of sand, reduction sort of in-basin sand, wet sand etcetera, we were providing that for our clients. That really becomes a bit of a pass-through rate. So, you will probably see bottom lines won’t get back to that average to the lateral foot stage out of what they were. That’s why we have always thought about this big returns basically on EBITDA for economic generating unit or capital expenditure, which we call a fleet. So, I think what we do is we get back to that. It takes a while to get back to that 2018 levels, right. I mean, sort of we are a structurally smaller industry that has been a little structurally oversupplied a bit what you are seeing, though, you are just seeing some really good start of season discipline in the industry, right. We started seeing real without costs. We are starting to see some acquisitions that are actually reducing the amount of players. So, I think what we are doing is we are getting into a structurally better industry that where we get back to those mid-cycle margins, and we could do well. But then you will probably see that happen on a relatively lower cost per well, so therefore, a lower top line.

Chris Wright: And Roger, just a follow-up. From a customer perspective, yes, look, well costs are going to drift up next year from what they were, but nowhere near to where they were just 2 years or 3 years ago. The shale revolution has continued to be lean and mean and continue to develop more efficiencies. So, I mean look, it’s drilling economics for our customers right now have never been better in the shale revolution. And I think next year, they will still be outstanding. They may be single-digit probably all-in increase of well costs, and strong commodity prices. So, I think that – and we love to see the industry continue to get more efficient. But again, it’s in different cycles. Our customers are already there in the great return world, and we are still not quite there yet.

Roger Read: Okay, I appreciate it. And just one follow-up on the maintenance part of the cost issues in the third quarter. As we think about what that was, is that – you couldn’t get equipment or replacement pieces, spare parts, etcetera? Was it that the cost of that is up combination? And how do you – are we seeing any improvements in that overall supply chain at this point or just continues to be a headwind?

Michael Stock: Supply chain continues to be a headwind, right. There is obviously the costs have moved up on maintenance, past, etcetera. I think our team did a good job of like maintaining that at sort of like a reasonably effective level. The key thing we were highlighting there really is what failure rate issue. The failure rate really comes down to how you run the equipment, right. That comes to turmoil, they come with sort of integration that comes with employee turnover, etcetera, that has gone up. And I think that goes away over the next sort of two quarters. But generally, yes, I mean, inflation is going to be an issue in those underlying partners highlighted one with the tires gets going up by 10%, etcetera. But I think you are going to see some real supply chain constraints. As you have seen, the issues we have got off the Port of Long Beach is really affecting everybody. And just-in-time sort of delivery system that we all got used to it, it was incredibly efficient is definitely there are going to be times where there are key parts for equipment that are just going to be suddenly become unavailable and you are going to be stranded – expand on that.

Ron Gusek: Yes. Maybe a few things on that. Just to add a little more color to what Michael said about cost of operations. As we work through this transition, we moved from two different maintenance platforms, ultimately working to consolidate on one as much as we as need to make that as seamless as possible. There were a few hiccups in the road and those things ultimately impacted maintenance. And so we will get back to those things. We will get to a place where that is back to the way it has always been in Liberty’s history. And I think we will see those improvements coming modestly through the remainder of the year, but really into next year. From a supply case standpoint, as Michael said, we are really starting to see some potential issues with components availability, things like air filters and bearings are starting to show up as potential supply chain issues. And so we have our supply chain team working hard on that to make sure we mitigate any operational impact, but those things sometimes come with a pricing impact.

Roger Read: Absolutely. Thank you.

Operator: Our next question comes from Keith Mackey. Please go ahead.

Keith Mackey: Hi. Good morning and thanks for taking my question today. Just wanted to start out with net pricing and your outlook for 2022, can you maybe just break that down a little bit in terms of how that would compare in the U.S. versus Canada?

Chris Wright: The U.S. it’s some lower than in Canada. There is more players in the U.S. There is more violent swings in the level of activity. But look, there is pricing improvement going on in the U.S. There is pricing improvement going on in Canada. Is the movement a little more dramatic in the U.S., probably so.

Keith Mackey: Okay. Got it. Thanks for the color. And just finally, on say, the OneStim integration, just in terms of people, equipment, processes, there were some additional maintenance sort of this quarter. Can you just maybe comment on how far along that integration process is and either percent of completion or inning of the game, if you will. And just when we should start to expect to see some of that stuff drop off?

Michael Stock: Yes. I mean I would say it didn’t vary, right. I think it depends on where you are sort of – if you are thinking about the IT intellectual property transfer, we are probably in the fourth inning and kind of rounding third base. We are doing well, but we have a long way to go, there is a lot of data, a lot of sort of transitions going on there. I think operationally, I think we are further along. I think Ron would probably say we are in the expansion. Things are going well. We are integrating crews. I think we move to two and two as we come through the end of the year, is a key part of that as we exit Q1, I think we are on to more on the operational on the maintenance side.

Ron Gusek: Yes. I think to Michael’s point, certainly from the operations side, we are moving along well there and getting to the last innings in the game and it’s a bit of an analogy. I think we have got the integration from a maintenance standpoint. We have got the teams working closely together there. We are getting a lot of those early hurdles with understanding the differences between the assets as a simple example, we use resets on the fluid and they use oil. And so we are running those differences and coming to the right spot together as a team on those things. So, that – a lot of that stuff is behind us. We have got a lot of new initiatives from the tech development team that are ultimately going to take us to a better place going forward. Our official intelligence, predictive analytics, things like that, that are going to bring – they are going to bring us to another level even yet from a maintenance standpoint, I think.

Chris Wright: I would say on the sales side of this, I think we are at the bottom of the night.

Michael Stock: Yes, I think we have got a lead going into the world series and we are doing well on that one. I think it’s going well. I think that will be sort of really complete this year. I think that’s going well. I think engineering is probably very much the same way, right. I think on the same thing on chemicals, sort of some of the things that we are doing on the design side with it, Chris.

Chris Wright: And just to follow-up Ron’s point, in the tech development, which was one of the exciting things for us. Some are getting like us invest long-term in technologies to disrupt things. That’s not a three month, or even a 12-month turnaround. That’s a multiyear turnaround. And we saw some opportunities with the efforts they were doing plus the efforts we were doing and what we could do together, that would be a big deal. So, those teams are feverishly working together as one team on that. But those technologies and that technology hitting our business, that’s still 1 year, 2 years, 3 years out, but we are excited about that stuff. But you won’t see it on the ground in our business for another 1 year to 3 years.

Keith Mackey: Perfect. Thanks very much. I appreciate the color.

Chris Wright: Thanks.

Operator: Our next question comes from John Daniel with Daniel Energy Partners. Please go ahead.

John Daniel: Hi everyone. Thank you for putting me in. I got on a little bit late, so if you touched on this earlier, I apologize. But on the 24 hours of continuous pumping time achieved, as we have gone back and looked at that, the success of that, how much of that was driven by you and your operations versus how much was customer planning, third-party services performing well? Just what’s your analysis tell you of what may allow that to happen?

Chris Wright: Yes. I mean, a key thing is its advance of all of those things together. So, everyone has got to be able to do that. This is high rate pumping in the Permian, water supply. I would say I call it the wellhead, you have got to not have a hiccup. The switching of the from well to well, perforating operations, frac operations. So John, I would say, look, you only can get something like that when every piece works. One of those – I think the second one we did, the 24 hour midnight to midnight, it actually continued for like 35 hours. So, that’s a lot of things going together well. But if you got one weak link in that chain, it doesn’t happen. It doesn’t happen. So look, that’s an aspiration we want to get to more and more, but that’s a long ways from being standard operating procedure, but it is great. It pushes every aspect of the things on location. Where is the weak link in logistics or the weak link in keeping the pumps online and the weak link in maintain the blenders and the designs and the controls. We are seeing different things from different stages and we want to respond to those. So, I can’t really allocate percentage. It’s just a team effort in concert. I wish I had a better answer John.

Ron Gusek: John, I think the neat thing about that story is it’s truly built on 9 years, 10 years of a Liberty foundation now. We have been measuring every minute of every day. Since the day we started, we talked about that over and over and over again. But it is that, that has provided us a level of understanding around the things we needed to be focused on to get there. If you don’t measure it, you can’t go out and address it. And so I think we put ourselves in a position to understand where those opportunities were, where we needed to be focused on. And ultimately, the partners we needed to bring to the table to achieve that success.

Chris Wright: I got several e-mail from customers. “Hey, congrats. We wanted to be the first.” So, there is a competitive dynamic, among our frac crews, among our customer partners. So, that’s what animates the progress here.

John Daniel: Well, it’s remarkable. Just – you guys because of some of the attributes we are having you on wireline having on sand. I didn’t know if there is fleets, it was because it was all you or if it was a case where it was just you fracking and another person with the wireline and maybe a third-party sand. That’s what I was trying to drive at, like how much is but – I don’t know if that…?

Chris Wright: It helps for sure that we are a large part of that supply chain. We have control over a wider number of the relevant partners on that location. So yes, that’s probably not precedent, but that happened now and not 12 months ago.

John Daniel: Alright. I want to come back to just the active activity, lots of different views on what a U.S. active fleet count is and what the working count is. But if you kind of take that 20% E&P capital spending up year-over-year, and I agree with you, it’s probably higher. I mean my dumb guy math says that would suggest 20 to 30 incremental fleets. Is that from where we are today? Does that pass your smell test or do you think just your thoughts there?

Chris Wright: It does. It does.

John Daniel: Okay. And then the last one is an housekeeping, so I apologize, but the two multi-year agreements with digiFrac, it’s two agreements, but is it one fleet in each agreement, or is it multiple fleets?

Chris Wright: One fleet in each of those agreements.

John Daniel: Got it. Okay. Thank you very much for your time.

Chris Wright: Thanks John.

Operator: Our next question comes from Arun Jayaram with JPMorgan. Please go ahead.

Arun Jayaram: Yes. Good morning. Chris, I was wondering if you could maybe elaborate on the bidding process to secure the new contracts for the two digiFrac fleets? Could you talk about the competitive nature of those? What sealed the deal you think for Liberty and maybe just the overall broad investment criteria you are utilizing. In an undersupplied market, how are you thinking about adding additional digiFrac fleets into this environment?

Chris Wright: I don’t know if I told – all of our markets are competitive for sure. But the deals we make in most of everything we are going to do next year is just an ongoing dialogue with the existing partners. It isn’t like we throw in 80 bids and hope we win 25 of something, that – Liberty’s way. Almost everything is we have got an existing partner or we have got a partner we want to add, or they would want to add. So, it’s mostly back and forth discussions among two parties. For sure, they are getting competing numbers and other solicitors or unsolicited throwing in. But you don’t need the dialogue of all these things. The technology of what digiFrac is versus the others. The quality of the people at Liberty, the way we stand by our agreements come hell or high water, what happens. We just saw with COVID, oh my God, the best of laid plans can get disrupted by something happening. So, I think it’s mostly a two-way back and forth negotiation to find the right balance of what’s a big win for our partner, what makes compelling sense for Liberty to do and to deploy meaningful amount of new capital in today’s marketplace, yes, the economics better be strong, the comfort in the long-lasting nature of that better be strong. So, all of those pieces are there. But I think with digi and with Liberty’s history, there is lots of opportunities for that. So, our biggest decision is going to be how many of them to deploy. And again, that’s a customer-by-customer, partnership-by-partnership, constrained, obviously, by balance sheet and investments and returns. But it’s – yes, it’s not a – it’s not a field, closed bid, fingers crossed and then one answer. It’s a process.

Arun Jayaram: That’s helpful. And just for my follow-up, Chris, how are you thinking about more inflationary pressure, supply chain challenges for the industry broadly, raw material inflations, etcetera? How should we think about your sustaining or maintenance CapEx per fleet as we go into 2022, if we wanted to take a conservative approach? Historically, we have been kind of modeling around $3 million of fleet. But what – how is that evolving as you see things for next year?

Chris Wright: Yes. I will take it a little bit and Ron can chime in on this one. Yes, it definitely got inflation in the system there, right. I mean I think if you look at it, I mean steel prices, we think, probably have peaked. But really, they probably haven’t is the cost of the part yet, right, is probably – I mean steel prices are up, about 60% plus, Ron?

Ron Gusek: Yes. To Michael’s point, I think we have seen here we have seen the plateau of that, but that hasn’t run all the way through to us yet. Our supply chain is probably five months to six months longer than like a power end we are in. I think we are also going to feel inflation as companies work to deal with these supply chain challenges off the coast. We continue to hear significant inflation in shipping rates in trucking rates, and that’s all ultimately got to flow through to the end customer. And so I think we will continue to feel some of that as part of our CapEx costs headed into next year.

Chris Wright: Given where the amount of steel, maybe it’s probably in the low-double digits. We think that’s probably rolling through in sort of yes, but it’s sort of heavy equipment parts across all industries. I haven’t seen – I am waiting to see some of the earnings calls come out and read from the transcripts. But I would assume that probably where we are with policy. We are going to offset some of that with efficiency we are going to offset some of that with longer life with better design. And that is the goal of Ron and with teams and the engineering that’s going on at the moment. That’s one of the reasons we invested in ST9. So, we could control that supply chain all the way back to the forge. It’s sort of our heaviest steel part. So, those – those are the moves that we are making to make sure that we can counter these, but we do get a lot of the inflation.

Arun Jayaram: Great. Thanks a lot.

Operator: Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Chris Wright for any closing remarks.

Chris Wright: Thanks, everyone, for your time today and thoughtful questions in these very interesting times. But these interesting times have presented challenges for us, but certainly, opportunities as well. Look forward to talking to you again in three months.

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