Good morning, and welcome to The Liberty Oilfield Services Q3 2021 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. 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 in 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.
Good morning, everyone, and thank you for joining us to discuss our Q3 2021 Operational and Financial Results. Our Q3 results show solid growth momentum with a 12% sequential increase in revenue 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. Q3 revenue was $654 million, compared to $581 million in the Q2 . Adjusted EBITDA in the Q3 was $32 million, compared to $37 million in the Q2 . The Q3 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 logistics 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 integration and COVID-related disruptions. We are actively addressing the supply chain, logistics, and integration challenges that are continuing into the Q4 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 among operators that not only is 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 for quality service providers is important for operators, and they recognize it is 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 four 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 fleets 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 for digiFrac 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 perf pumping time. We are excited that just one week later, this team did it again. Hitting 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 Downing. 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 continues to outpace the gradual return of supply, as evidenced by the energy crises in Europe, China and India. Global oil and gas supply remains constrained by under-investment 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 U.K. 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've seen is expected to continue in the Q4 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 delivered cost to our customers. I'll hand it off to Ron to discuss the significant value PropX will bring to the Liberty organization.
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, their custom designed for efficiency, containerized sand handling equipment for both wet and dry material maximizes delivered 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 today 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 drying 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 improvements 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 pad 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 for 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 proppants, 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.
Thank you, Ron. Good morning, everyone. Our Q3 results showcase 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 that hurt our profitability still exist, but we are aggressively managing them to moderate the effect on future results. We're excited by the accretive PropX acquisitions that will complement these efforts. Let's look at our results in greater detail. In the Q3 of 2021, revenue increased 12% sequentially to $654 million from $581 million the second quarter, reflecting the combination of increased activity, high quantity pass-through, price pass-through, and increased service prices. Revenue in the U.S. was approximately a 10% sequential increase on relatively flat staffed fleet.
Top line growth was achieved despite supply chain 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 $500. Results also included transaction and other costs of $1.6 million. Fully diluted net loss per share was $0.22 in the Q3 compared to $0.29 in the second quarter. Q3 Adjusted EBITDA was $32 million compared to $37 million in the Q2 . 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 that 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 the transportation of sand and other materials. We are taking measures to streamline our logistics network and pass through fast rising transportation costs. The purchase of PropX and the full integration of the PropConnect software with Oracle Transportation Management that drive a fast-paced system will be the long-term solution to streamlining logistics, reducing the quantity of drivers needed, reducing cost per mile.
Maintenance costs were approximately $8 million higher than normal due to integration and COVID-related disruptions, including the impact of fewer maintenance support personnel due to labor supply constraints, higher failure rates of maintenance parts as we transition the legacy delivery teams to Liberty's predictive maintenance software and the industry-wide pandemic-driven supply chain inefficiencies. As we discussed last quarter, and Chris mentioned in his prepared remarks, the labor market across the whole country and in all industries is a challenging place. Successfully providing superior service to our customers is driven by Liberty's commitment to our team members. Liberty historically has been insulated from the turnover issues that have been part of this industry over the last 10 years.
In this quarter, we announced the transition of all of our field crews to the historical Liberty two on, two off week schedule that we believe promotes crew efficiency, reduces turnover, and most importantly, supports our goal of being the safest completions company in North America. We've seen turnover rate move back towards historical Liberty levels, and that will be a financial fruit in the future quarters. General and administrative expense totaled $32 million and included $3.8 million of stock-based compensation.
Excluding stock-based compensation and accounts receivable balance in the second quarter, G&A expense increased by $5 million in the Q2 . This increase was driven by the restoration of sales 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 Q3, and we also recorded a non-cash adjustment of $4.9 million related to tax receivable agreement gains. Income tax expense totaled $1 million related to Canadian operational Q3 results.
We ended the quarter with a cash balance of $35 million, reflecting an increase from Q2 levels. Total term debt was $106 million net of deferred financing costs and original issue discount. There was a $60 million drawn on the ABL facility at month-end, and total liquidity available under the credit facility was $268 million at the end of the quarter. 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 provides for a $100 million increase in the aggregated commitment to a total of $350 million. In conjunction, the term loan maturity date was extended by two years with no calls and no substantial payments due until 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 the 30-day average share closing price of $13. The $90 million purchase price represents approximately 4.7x the estimated standalone 2021 EBITDA. As Ron described, this acquisition will further integrate our completion services with proper equipment, logistics and integrated software that will improve our operational logistics efficiency.
It will directly confront the logistics challenges we face today as a clear example of our strategy of investing for 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 the cycles. Capital expenditures were about $56 million for the quarter, including approximately $10 million of one-time fleet monetization. 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've 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 during 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.
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.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. First question comes from Scott Gruber with Citigroup. Please go ahead.
Yes, good morning.
Morning, Scott.
Chris, you and peers have been pushing pricing now for a few quarters, and it appears you're offsetting, you know, the inflation across the system but not getting much net pricing. You know, 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? Overall, just kind of how you think about the potential magnitude of net pricing gains that are possible, you know, as we head into next year.
You bet, Scott. We actually feel pretty good about things. Just remember how low things sunk five quarters ago. 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 result of that. Pricing is continuing to move up in the current quarter, but the larger movement in pricing double digits will be starting Q1. Most of those price moves have already been agreed with our existing customers. We feel pretty good about where things are going. We wish they had moved faster, but you know, things are going to a good place.
No, it's good to hear. You know, just digging in a little bit more on kind of what's driving the pricing. You know, there's still a lot of legacy Tier 2 equipment on the sidelines, and obviously there's 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. That, you know, 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, you know, more scarcity of quality next gen equipment, or is it crew scarcity? You know, 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've seen in past cycles, just kind of overall, what does that mean for kind of potential on securing net pricing and the magnitude. You know, you talk about double digits, but kind of what is the scarcity of quality crews mean for pushing pricing?
Yes. It's Scott, you made a good mention. It's both of those things, and you are right, they are separate forces. You know, mostly among the larger public operators, yeah, there's a very strong desire to 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 natural gas as opposed to diesel. So that is driving inflation. I would say that's driving the differential pricing between next generation fleets, you know, down the line. There's really a continuum from Tier 2 to Tier 2 diesel to Tier 4. Tier 2 dual fuel, Tier 4, Tier 4 dual fuel, and now, you know, fully gas burning and maybe at the top of that stack digiFrac.
There is a pricing differential driven by that. There's also sort of a macro tailwind of just a tighter market of quality crews, because the labor challenges makes the whole market tight. There's also sort of a differential between the quality of the crew you're getting. Yes, you know, it does not take too many incremental fleets that have deployed over the last few months to meaningfully tighten that market now today. If you're just standing up two rigs and you wanna get a quality frac fleet today, that's meaningfully more difficult than that was six months ago.
Got it. The 10% improvement that you foresee, that's kind of across the board on average that you expect for Liberty?
Yeah. I mean, like, I left it more generic as double digit, but yes, we are getting price rises, net price rises in Q1 across the board. You know, look, there's a stronger demand. There's probably a growing bifurcation in the pricing you get for environmentally friendly next generation fleets versus Tier 2. All of the economics of all of them are floating meaningfully upwards, you know. Then again, it's very gradual so far, but you'll see a more meaningful jump in that in the start of next year.
Great to hear. Appreciate the color. Thank you.
Thanks.
Our next question comes from Stephen Gengaro with Stifel. Please go ahead.
Thanks. Good morning, everybody. Two things from me. One, just following 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, you know, $6 to 7 million rise in EBITDA per fleet, right? 'Cause it sort of directly falls to the bottom line, net. Is that a reasonable starting point as you think about next year versus second half 2021?
You know, look, it's not gonna be. I think your math is reasonable, but you know, it won't be, you know, abrupt. Immediately on January 1, everything changes. Most of these are agreed, a lot phase in January 1. Some are tiers that'll phase in over the year. Are we gonna see that much of an increase in EBITDA per fleet YoY? Absolutely.
Great. Okay, thank you for that clarification. Then my second one is it's around PropX and just, like, really two questions. One is just how we think about, you know, how it folds in, and I assume it's gonna 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.
You know, honestly, we're not that worried about that. You know, a lot of PropX's other business is with, you know, 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. Yeah, we're excited about PropX for two reasons. One is directly integrating our technology development efforts will make Liberty's efficiency, 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.
Thanks.
Stephen, I think I'd add to that point just a little bit. You know, as 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 gonna be working with all of our E&P clients on that. That's another way that we're gonna 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 in the areas where it'll work, it'll be great. It'll, you know, again, it really takes trucks off the road, it makes the world safer, it takes emissions out of the air.
These are these things that PropX has been working on, where really what we're doing is we're giving them a bigger megaphone, a bigger backbone to take this to market to help the whole industry. We'll sell it to everybody, whether it's a frac company, E&P company, sand company, et cetera.
Excellent. Thank you for the color.
Our next question comes from Taylor Zurcher with Tudor, Pickering, Holt & Co. Please go ahead.
Hey, guys. Thanks for taking my question. My first question is on the supply chain, that you talked about kind of two buckets, logistics and maintenance, where costs ramped pretty notably sequentially. The logistics side is, it's pretty straightforward to me. My question is really on the maintenance side, but when you're talking about $8 million of extra maintenance costs, 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?
Taylor, it's a great question. Actually, there is a lot of, you know, in general inflation that's rolling through the cost structure of everybody at the moment. Yeah, we didn't highlight those. You know, that's to some degree normal course. I mean, I'll just throw out one as an example. You know, tire prices are up 10%, right? I mean, significantly, rubber prices. You know, 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 were trying to focus on there to see when you look at our business, where there's two places where integration costs, personnel issues, and maintenance practices, et cetera, all sort of come together. There's two places you can do that. One is efficiency.
The key thing is, you know, our operations team's doing an amazing job with, you know, the integration issues around supply chain, keeping efficiency up. The other place that you see 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 is how much it's gonna cost. Now, that is something that when you get turnover and you get integration and we change systems, you know, sort of that wear and tear can spike, but it doesn't happen one to one, right? It's not about how you run the equipment this month is gonna change your cost this month.
What we're doing is we're seeing sort of the back end of the wave from the start of the integration and some of the personnel issues over the summer, really hit in Q3. Some of them are gonna 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. We called it out to try and explain to people how that works.
All right, thanks, Michael. That's super helpful. My follow-up's on digiFrac, encouraging to see you guys ink 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? Then, part two, any color that you'd be willing to provide on the economics behind these two fleets. I know you talked earlier about double-digit pricing improvement next year. I'm sure digiFrac's a big piece of that, and I suspect at the high end of that. Just looking for any sort of color on the economic returns that you're expecting from this incremental digiFrac equipment in 2022.
You bet, Taylor. Yeah, there are contracts behind these, but as we've always been, you know, we never talk about the details of our commercial arrangements. You know, for us, we were careful to choose the right partners that have a long runway in front of them that have been partners of us for a while. Of course, the economics are strong. Very strong return on the new deployed capital for us. Yeah, those are the two things that matter, the right partners, the right runway in front of how long that equipment will work, and very strong returns on an incremental capital. On digiFrac deals we've agreed, and there are many more in discussions. Obviously, there's a lot of interest from partners. We're excited about them because they're big wins for both sides.
They're huge ESG and even operational performance improvements for our customers. There's great efficiencies with them. There's lower fuel costs, but of course, there's very strong economics for Liberty in deploying that incremental new capital.
All right, good to hear. Thanks for the answers.
Thank you. Have a good one.
Our next question comes from Connor Lynagh with Morgan Stanley. Please go ahead.
Yeah, 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?
Yeah, Connor, as we said, you know, when you look at their pro forma 2021 earnings was about 4.7x EBITDA, you know, the valuation. You kind of back calculate it to that. You know, they're obviously being an equipment, mostly an equipment rental business, you know, go down probably lower. They don't go as low during the lows, right? They're going to rebound a little bit from there, but obviously not as fast as frac company. There's incremental improvements from there, but we wanted to give kind of people a sort of handle on where to start from the bottom line.
Okay, got it. Thank you. Maybe just a higher level one here. Obviously, with the acquisition of OneStim and now PropX, you've definitely become more integrated and sort of broader in your completions equipment offering. So I'm curious, are there any other areas you feel are necessary or potentially just value accretive for you to pursue in the completions 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?
We're always looking at deals. You know, you rarely 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.
You know, are there other technologies, other enabling things that might be a good fit for Liberty? Certainly possible. I mean, we don't feel anything is necessary. It's not like we need to buy anything else, but we continually evaluate stuff. If we think it's accretive to our earnings going forward and it helps us build a stronger competitive advantage, you know, then we're interested. Then it goes down to is it a good cultural fit? You know, are we gonna be able to pull it off? There's a lot of factors there. We're always looking and yeah, it's certainly not impossible to see more things like this going forward.
Got it. 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?
I think your comment is generally right. We look at everything. Yeah, technology, things that make us better, are the most appealing.
Understood. Thanks very much.
Thanks.
Our next question will come from Chase Mulvehill with Bank of America. Please go ahead.
Hey, good morning. I guess, you know, a few follow-up questions here. You know, I guess first, maybe I'll just follow up on Connor's question, you know, thinking about further integration. You know, would you think about kind of, you know, being further integrated in fluid ends or aftermarket or perf guns or anything like that, where you could save, you know, costs there?
I mean, look, we acquired ST9 years ago, so we already made fluid ends and power ends and valves and seats. You know, it's a young business, so we're excited about continued improvements in both performance and cost efficiency in those areas. We've already done that.
Yeah, I would say that that's one of the ways we look at things, Chase, is we look, you know, at technology add-ons where we can sort of improve returns for our customers and improve our business. We've got places in the supply chain where we see that we'd really like to have more control or reach further back where we sort of like want to speed technology improvements or reduce costs. That's another key place that we always look. I think you sort of the original purchase reasoning behind ST9 was that. Obviously, they had a huge technology advantage with the digiFrac design. I think you see that when we took the Freedom Proppant business along with the Lunsden business, right? That was key, West Texas Sand.
The same thing to some degree you would say with PropX, right? We've got, you know, 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 maybe reduce some of the costs of these key containers and handling equipment. But also, it's a huge technology portfolio with the native wet sand technology, which is another key driver, right? So often what you'll see is this cost savings, improving EBITDA, immediately accretive, plus room to build in technology for the future. That's generally how we like to look at acquisitions.
Moving over to kind of the new build, you know, you obviously, you know, you announced the two digiFrac electric fleets. How do you think about, you know, adding capacity today into a market that's oversupplied? Now, I know that kinda there's a higher demand for next gen equipment, but, you know, how do you think about, you know, adding 'cause obviously competitors are doing the same. You know, one would argue that the market doesn't need incremental capacity. You know, are you know, scrapping capacity on the low end as you add new capacity, or is this kinda, you know, net additions to your overall capacity?
You know, look, right now, demand for frac fleets is growing, and the available number of fleets able to work is actually shrinking. You know, 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. 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 sort of 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. For us, it's we never look at that like top-down. Next year, we'll run X number of fleets. We're gonna 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 gonna staff it or work it? Right now, from our existing partners and some newer partners, yeah, there is a strong pull for Liberty right now. I'd say we've been quite disciplined in not, you know, 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. Next year, and certainly with the digiFrac fleets, are they likely to be incremental for Liberty? Yeah, they will be. The supply and demand, it's a different situation right now than it was three quarters ago. Look, when we report results, that's all rearview mirror.
When prices change today, it isn't usually for tomorrow. That's further ahead. Our results are always just a lagged look into what's going on in the marketplace.
Yeah.
Yeah.
The real issue around the real crimp point at the moment is truly trained, effective personnel, right? That's the issue around bringing people, bringing new fleets to work at the moment, right? Logistics and personnel is really the touch point, you know, as opposed to sort of the amount of raw steel that happens to be sitting on the sideline.
Yep, makes sense. One quick follow-up, and in the press release you were pretty candid about, you know, the activity levels and you see increasing activity in the kind of Q4 in 2022. So I guess, specific to Q4 , do you think that you see any seasonality or budget exhaustion or anything like that? When you look out to 2022, do you think the ramp is kinda more first half or second half-weighted?
Yeah. Well, I'll take Q4 and I'll give Chris next year. He's got a better looking glass than me. Q4, you know, when we look out at Q4, we obviously gonna see seasonality, right? You're gonna see, you know, Christmas, Thanksgiving, holiday breaks or other. That's usually a sort of a mid-single digits slowdown in activity in a normal year. You know, once we got past this budget exhaustion over the last three years, which was abnormal, you know, over time. I think that's gonna happen. I think that's gonna get offset for us by sort of increased activity and some increased sort of scheduling earlier part of Q4. I'd see, you know, we're gonna see a slight uptick, probably top line being Q4 is the expectation.
Yeah, going into next year, publics are still very disciplined. Again, we applaud that. We applaud that. You know, prices are gonna be higher next year, and their cash flow is gonna be higher. I think CapEx levels will still be quite modest. You know, production probably mostly around maintenance production levels for the publics, which still means an increase in CapEx. For the privates, you know, it's just a response to the strong economics. I would say there's a measured but continual increase in that CapEx and that activity level. You know, look, we're probably gonna get. Next year, I think the numbers you read around 20%+ total increase in CapEx next year, that's probably a reasonable guess.
Again, think of that, you know, 20-some% spend, you know, half of that's price. 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 prices.
Okay, thanks. I'll take the over on the 20%, though. Thanks, Chris.
We like your view, Jay.
Yeah, you're probably right.
Thanks, Michael.
Our next question will come from Atidrip Modak with Goldman Sachs. Please go ahead.
Hey, guys. Could you maybe at a high level provide any color on what the frac equipment supply-demand picture looks like today? What do you estimate the utilization rate is like, and what does supply, you know, look like as you go into next year? 'Cause there are a lot of your peers who are talking about upgrades, not necessarily electric fleets. Just any color around that.
Yeah. You know, it's harder with frac fleets than with drilling rigs. You know, what's happened is the intensity of frac work has continued to migrate up. People, you know, economics are poor, so people when they have a frac fleet sitting and an engine goes down or they need a major component, we hear there's a lot of pilfering of parts and competitors. So it's you can't just fly over and count how many parked frac fleets there are. But I will tell you the excess capacity of steel is definitely shrinking. You know, equipment's being worn out.
As Michael said, you know, probably the single biggest challenge is if you're gonna 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 steel and quality steel is also getting tighter. There's visibility into that, as well. We keep an internal, and I think in just the last few months, a pretty high quality frac count of active frac fleets by basins and across North America. We have probably a three-month projection ahead of what's gonna happen with that due to basic dialogues with everyone running frac fleets. We don't publish that. We probably never will. But that gives us kind of an insight of where things are going.
Obviously a dialogue with customers, which is, you know, every day across many people at Liberty, kinda reinforces our feel that it's the ability to get quality crews today, it's harder than it was three months ago, much harder than it was six or nine months ago. I think probably a widespread belief it will be harder still three to six months from now.
I think I'll comment on the upgrade cycle a little bit there, the second part of your question there, Atidrip. It's interesting. What we're seeing now is you are seeing people, and Liberty as well, as engines come into their, say, five-year, they're in their 10-year retrofit, the upgrade. They're getting upgraded, they may be getting upgraded to a Tier 4. There is some decent differences there. You can sort of do some things with the cooling systems, et cetera. Some of the Tier 4 engines are getting upgraded into dual fuel DGB. That's happening, but that's happening slowly, right? There is a supply chain that's relatively small. That can't happen very quickly.
I do think over the next five to seven years, what you're gonna see is that sort of like the bottom end, the rump end of that diesel fleet. You know, there's sort of a lot of attrition on the back end of the older Tier 2s, the stuff that was built, you know, more than 10 years ago. Then the better versions of those Tier 2s, the stuff that was built sort of, you know, in that sort of, you know, 10- to five-year brigade, you know, they'll probably migrate up into the Tier 4 DGB. You know, I'd say, Ron, you might agree, but say five-10 years from now, it'll be mostly in that sort of Tier 4 DGB, electric fleet realm, you know, 10 years from now.
Do you agree with that one?
I think that's a fair statement, Mike.
Got it. Thanks. That's very helpful. The next question around digiFrac. Great to see the developments obviously, but could you provide any updates around CapEx plans around those fleets that you have on agreement now?
Yeah, I can. You know, sort of as you can see, we're starting to spend money on these, you know, these arrangements, the digiFrac links. You'll probably see approximately about $25 million of spending in Q4 rolling into the Q4 numbers, you know, depending, it'll depend on deliveries. You know, our CapEx numbers will be, you know, sort of towards the high end of our range, plus about that $25 million of digiFrac. It's gonna be a little higher than the high end of our range, you know, for the full year. But excellent investments, those. I think the rest of that you'll see roll into, you know, the majority of it in Q1 and then a little bit into Q2 as they get, you know, they start getting ready for deployment. 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, would probably be the best place to talk about, the, you know, kind of the long-term plans. Once we get through the end of this year, talking about our long-term deployment plans, we'll probably give a view into the full view of next year's CapEx, et cetera, around the beginning of the year timeframe, I would expect.
Great. Thank you. Looking forward to that. I'll turn it over.
We're looking forward to seeing you all in person.
Our next question comes from Ian MacPherson with Piper Sandler. Please go ahead.
Hey, good morning. Thanks. Chris, you mentioned that 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 Q3 was basically pricing and utilization improvement on basically a constant deployed fleet count?
Yes.
Michael, you've talked about not an immediate, a gradual, probably two- or three-part recovery of the margin headwinds that you encountered in the Q3. What would you hazard you could recover of that $20 million from Q3 into Q4? Or is that not guidable at this point?
You know, I think it's, you know, 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. You know, we'll be managing through the sort of maintenance noise that's driven by the personnel. That could well be similar in Q4 and then sort of drop off in Q1. But that we'll get a little more clarity on in the next month.
Okay. Then, since I've been so quick, I'll squeeze in a third one, if I may. On PropX, wet sand is still fairly embryonic in the industry, yes. I would imagine that the further penetration of that would be an angle of incremental accretion, above and beyond the sort of trailing accretion for that business. Would you confirm that? What do you think the runway is for, you know, maximum or realistic penetration of wet sand, across your fleet over the next couple of years?
Ian, I think you've got that exactly right. You know, I think it's early days in that technology. It's been a little while coming to fruition, but now I think we're in a position where it's fully commercial and lots of upside opportunity there. I think as you look at. 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'm guessing you could think of a few, where you know 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 mine. It would 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 mine operations. What used to be 22 trucks servicing a well site is now down to five. Just a dramatic step forward in terms of that reduction in cost and emissions. 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.
Got it. Thank you, Ron. Thanks, team. I'll pass it over. Appreciate it.
Thanks, Ian.
Our next question comes from Roger Read with Wells Fargo. Please go ahead.
Yeah. Thank you. Good morning. Maybe to just follow up, the last question Ian had there, your answer to it, is we're trying to think about not just the recovery of the inflationary issues here, but also the net pricing commentary, you know, about 2022. Given that we're wringing so many costs out, the addition of the wet sand handling, you know, another factor in that, how should we think about sort of top line and bottom line performance as we look at 2022 versus, say, back, you know, looking at 2018 or 2019? I know that's a little tough because the company's changed quite a bit, but I'm 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.
It's a broad question probably for you, Chris, but I just wanna sort of understand what the company can generate.
Yeah, no, I'll 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, right? It will depend on how much, you know, the reduction in the cost of operations, reduction of sand, reduction of, you know, sort of in-basin sand and wet sand, et cetera. You know, when we're providing that for our clients, that really becomes a bit of a pass-through, right? So you'll probably see bottom lines won't get back to that average, you know, per lateral foot, per stage, per pound of the what they were. So that's why we've always thought about this thing as returns basically on an end of economic generating unit or capital expenditure, which we call a fleet.
I think what we do is we get back to that. I just, you know, it's gonna take us a while to get back to our 2018 levels, right? I mean, you know, sort of, you know, we're a structurally smaller industry that has been a little structurally oversupplied. I think what you're seeing, though, is you're seeing some really good discipline in the industry, right? We're starting to see driving out costs. We're starting to see some acquisitions that are actually reducing the amount of players. I think what we're doing is we get into a structurally better industry that where we get back to those mid-cycle margins, and we can do well.
that you'll probably see that happen on a relatively lower cost per well, so therefore a lower top line.
Roger, just to follow up, you know, from a customer perspective, yeah, look, well costs are gonna drift up next year from what they were, but nowhere near to where they were just two or three years ago. The shale revolution has continued, you know, to be lean and mean and continue to develop more efficiencies. I mean, look, the drilling economics for our customers right now have never been better in the shale revolution. I think next year they will still be outstanding. You know, there may be single digits probably all in, increase in well costs, you know, and strong commodity prices. So I think that. We love to see the industry continue to get more efficient. You know, but again, it's in different cycles.
Our customers are already there in the great return world and we're still not quite there yet.
Okay. Appreciate it. Just one follow-up on the maintenance part of the cost issues in the Q3. As we think about what that was, is that you couldn't get equipment or replacement pieces, spare parts, et cetera? Was it that the cost of that is up, combination? Are we seeing any improvements in that overall supply chain at this point or just continues to be a headwind?
The supply chain continues to be a headwind, right? There's obviously, you know, cost that moved up on the maintenance part, et cetera. You know, 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 more of a failure rate issue. The failure rate really comes down to how you run the equipment, right? And that comes with turmoil, that comes with sort of integration, that comes with, you know, employee turnover, et cetera. That has gone up. I think that goes away over the next, you know, sort of, you know, two quarters. Generally, yeah, I mean, inflation is gonna be an issue in those underlying parts.
I just highlighted one with the tires just going up by 10%, et cetera. I think you're gonna see some real supply chain constraints as you're seeing, you know, the issues we've got off the Port of Long Beach is really affecting everybody. You know, our just-in-time sort of delivery system that we all got used to, it was incredibly efficient, is definitely there are going to be times where there are key parts, you know, for equipment that are just gonna be suddenly become unavailable and people are gonna be scrambling. Ron Gusek, you may want to expand on that.
Yeah, I maybe a few things on that just to add a little more color to what Michael said, thinking about cost of operations. You know, as we work through this transition, we move from you know, two different maintenance platforms ultimately working to consolidate on one. As much as we aim to make that as seamless as possible, there were a few hiccups in the road and those things ultimately impacted maintenance. So we'll get past those things. We will get to a place where that is back to the way it has always been in Liberty's history. I think we'll see those improvements coming modestly through the remainder of the year, but really into next year.
From a supply chain standpoint, as Michael said, we are really starting to see some potential issues with component availability. Things like air filters and bearings are starting to show up as potential supply chain issues. We have our supply chain team working hard on that to make sure we mitigate any operational impact. Those things sometimes come with a pricing impact.
Absolutely. Thank you.
Our next question comes from Keith Mackey. Please go ahead.
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?
You know, look, the U.S. has sunk lower than in Canada. There's more players in the U.S., you know, there's more violent swings in the level of activity. You know, look, there's pricing improvement going on in the U.S., there's pricing improvement going on in Canada. You know, is the movement a little more dramatic in the U.S.? Probably so.
Okay. Got it. Thanks for the color. Just finally on the, on say the OneStim integration, just in terms of, you know, people, equipment, processes, you know, there was some additional maintenance, sort of this quarter. Can you just maybe comment on how far along that integration process is and, you know, in either, you know, percentage completion or inning of the game, if you will? Just, you know, when we should start to expect to see some of that stuff, you know, drop off?
Yeah, I mean, I'd say it would vary, right? I think it depends on where you are. If you're thinking about the IT intellectual property transfer, you know, we are probably in the fourth inning and kind of, you know, rounding third base. We're doing well, but it's a long way to go. It's a lot of data, a lot of sort of transitions going on there. I think operationally, I think we're further along. I think Ron would probably say we're in the seventh inning there. You know, things are going well. We're integrating crews. I think the move to two and two as we come through the end of the year is a key part of that. As we enter Q1, I think we're off to more on the operational, on the maintenance side.
Yeah, I think to Michael's point, certainly from the operations side, we're moving along well there and getting to the latter innings in the game, as a bit of an analogy. I think we've got the integration from a maintenance standpoint. We've got the teams working closely together there. We're getting over a lot of those early hurdles with understanding the differences between the assets. You know, as a simple example, we use pressures on a fluid end, they use oil. We're learning those differences and coming to the right spot together as a team on those things. A lot of that stuff is behind us.
We've got a lot of new initiatives from the tech development team that are ultimately gonna take us to a better place going forward. Artificial intelligence, predictive analytics, things like that that are gonna bring us to another level even yet from a maintenance standpoint, I think.
I'd say on the sales side of this world, I think we're in the bottom of the ninth. You know, I think we've got a lead going into the World Series, and we're doing well on that one. I think it's going well. I think, you know, that'll be sort of really complete this year. I think that's going well. I think engineering is probably, you know, very much the same way, right? I think on the same thing on, you know, chemicals, you know, sort of some of the things that we're doing on the design side with it.
Just to follow up Ron's point, in the tech development, which was one of the exciting things for us. Schlumberger, 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. 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. Those teams are feverishly working together as one team on that. Those technologies and that technology hitting our business, that's still one, two, three years out. We're excited about that stuff, but you won't see it on the ground in our business, you know, for another one to three years.
Perfect. Thanks very much. Appreciate the color.
Great. Great questions. Thanks.
Our next question comes from John Daniel with Daniel Energy Partners. Please go ahead.
Hey, y'all. Thank you for putting me in. I got on a little bit late, so if you touched on this earlier, I apologize. On the 24 hours of continuous pumping time achieved, as you've gone back and looked at that, the success of that, how much of that was driven by, you know, you and your operations versus how much was customer planning, third-party services performing well? Just what's your analysis tell you of what made that allowed that to happen?
Yeah, I mean, the key thing is it's a dance of all of those things together, you know. Everyone's got to be able to do that. You know, this is high rate pumping in the Permian. Water supply, you know, the quality of the wellhead has got to not have a hiccup. The switching from well to well, perforating operations, frac operations. John, I would say, look, you only can get something like that when every piece works. You know, one of those, I think the second one we did, the 24-hour midnight to midnight, it actually continued for like 35 hours.
Okay.
That's a lot of things going together well. If you got one weak link in that chain, it doesn't happen. Look, you know, that's an aspiration we wanna get to more and more. You know, that's a long ways from being standard operating procedure. It's great. It pushes every aspect of the things on location. Where's the weak link in logistics or the weak link in keeping the pumps online or the weak link in maintaining the blenders and the designs and the controls? You know, we're seeing different things from different stages, and we wanna respond to those. I can't really allocate percentages. It's just a team effort in concert. I wish I had a better answer, John.
John, I would say, you know, I think, the neat thing about that story is it's truly built on nine to 10 years of a Liberty foundation. Now, we've been measuring every minute of every day since the day we started. We talk about that over and over and over again. But it is that has provided us the 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. 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.
I got several emails from customers, "Hey, congrats. We wanted to be the first," you know?
Yeah.
There's a competitive dynamic, you know, among our frack crews, among our, you know, customer partners.
Yeah.
That's what, you know, animates progress here.
Well, it's remarkable. I just you know, you guys, because of some of the attributes with having your wireline, having your sand, I didn't know if those fleets, it was because it was all you or if it was a case where it's just you fracking and another person with the wireline and, you know, maybe a third party sand. That's what I was trying to drive at, like how much is. But I don't know if you have that.
It helps for sure that we're a large part of that supply chain. We have control over a wider number of the relevant dance partners on that location. Yes.
Okay.
That's probably not coincidence that that's happened now and not, you know, not 12 months ago.
All right. I wanna 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. If you kind of take that 20% E&P capital spending up year-over-year, and I agree with Chase, it's probably higher. I mean, you know, my dumb guy math says that would suggest, you know, 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.
It does. It does.
Okay. The last one, then housekeeping, so I apologize. The two multiyear agreements for digiFrac, it's two agreements, but is it one fleet in each agreement or is it multiple fleets?
One fleet in each of those agreements.
Got it. Okay. Thank you very much for your time.
Thank you.
Our next question comes from Arun Jayaram with J.P. Morgan. Please go ahead.
Yeah, good morning. Chris, I was wondering if you could maybe elaborate on the, you know, 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're utilizing in a, you know, undersupplied market, how are you thinking about, you know, adding additional, digiFrac fleets into this environment?
Yeah, I don't know if I'd call it. All of our markets are competitive for sure. The deals we make and most of everything we're gonna do next year is just an ongoing dialogue with existing partners. You know, it isn't like we throw in, you know, 80 bids and hope we win 25 of them or something.
Right. Right.
That's not Liberty's way. Almost everything is we've got an existing partner or we've got a partner we wanna add or they wanna add. It's mostly back and forth discussions among two parties. For sure, they're getting competing numbers, either solicited or unsolicited, thrown in. But it's always a 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, you know, come hell or high water, what happens. You know, we just saw with COVID, oh my god, you know, the best of laid plans can get disrupted by something happening. I you know 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 it.
To deploy a meaningful amount of new capital in today's marketplace, yeah, the economics better be strong, the comfort in the long-lasting nature of that better be strong. All of those pieces are there. I think with digiFrac and with Liberty's history, there's lots of opportunities for that. Our biggest decision is gonna be how many of them to deploy. Again, that's a customer by customer, partnership by partnership, constrained obviously by balance sheet and investments and returns. It's a... Yeah, it's not a sealed closed bid, fingers crossed, and then, you know, one answer. It's a process.
That's helpful. Just for my follow-up, Chris, you know, how are you thinking about, you know, more inflationary pressure, supply chain challenges just for the industry broadly, raw material inflations, et cetera? You know, 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? You know, historically, we've been kind of modeling around $3 million a fleet, but how is that evolving, as you see things, for next year?
Yeah, I'll take it a little bit, and then Ron can chime in on this one. Yeah, I mean, you've 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 hit the cost of the parts yet, right?
Right.
There's probably a six-month one, right? I mean, steel prices are up, what, 60+%, Ron?
Yeah. You know, to Michael's point, I think we've seen the plateau of that, but that hasn't run all the way through to us yet. You know, our lead, our supply chain is probably five to six months long on something like a power end or a pin. You know, I think we're also gonna 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 gonna flow through to the end customer. I think we'll continue to feel some of that as part of our CapEx costs headed into next year.
Given the amount of steel, I mean, it's probably in the low double digits. Would you think that's probably rolling through in sort of, you know, those sort of heavy equipment parts across all industries? I haven't seen. It'll be interesting to see some of the earnings calls that come out from CAT and others and sort of read through the transcripts. I would assume that's probably where we're probably seeing. We're gonna offset some of that with efficiency. We're gonna offset some of that with longer life, with better design. I mean, that is the goal of Ron and Lane's technical teams and the engineering that's going on at the moment.
That's one of the reasons we invested in SDI, so we could control that supply chain all the way back to the forge, you know, for some of our heavier steel parts. You know, those are the moves that we're making to make sure that we can kind of mitigate, you know, do the best but you're not immune to inflation.
Great. Thanks a lot.
Ladies and gentlemen, this will conclude our question and answer session. I'd like to turn the conference back over to Chris Wright for any closing remarks.
Hey, thanks everyone for your time today and thoughtful questions in these very interesting times. These interesting times have presented challenges for us, but certainly opportunities as well. I look forward to talking to you again in three months.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.