FTS International, Inc. (FTSI) CEO Mike Doss on Q1 2020 Results - Earnings Call Transcript
FTS International, Inc. (NYSE:FTSI) Q1 2020 Results Earnings Conference Call April 30, 2020 10:00 AM ET
Company Participants
Mike Doss - Chief Executive Officer
Lance Turner - Chief Financial Officer, Treasurer
Conference Call Participants
Dhruv Kharbanda - Tudor, Pickering, Holt & Co.
Stephen Gengaro - Stifel
Andrew Ginsburg - R.W. Pressprich
David Honeycutt - Amundi Pioneer
John Daniel - Daniel Energy
Stan Manoukian - Independent Credit Research
Dan Kutz - Morgan Stanley
Operator
Thank you and good morning everyone. We appreciate you joining us for the FTS International conference call and webcast to review first quarter 2020 results. As a reminder, this conference is being recorded for replay purposes. Presenting today's prepared remarks is Mike Doss, CEO, who will also be joined by Lance Turner, CFO and Buddy Petersen, COO, for the Q&A portion of the call.
Before we begin, I would like to remind everyone that comments made on today's call that include management's plans, intentions, beliefs, expectations, anticipations or predictions for the future are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from those expressed in any forward-looking statement.
These risks and uncertainties are discussed in the company's Annual Report on Form 10-K and in other reports the company files with the SEC. Except as required by law, the company does not undertake any obligation to publicly update or revise any forward-looking statements. The company's SEC filings may be obtained by contacting the company and are available on the company's website, ftsi.com and on the SEC's website, sec.gov.
This conference also includes discussions of non-GAAP financial measures. Our earnings release includes further information about these non-GAAP financial measures as well as reconciliations of these non-GAAP measures to their most directly comparable GAAP measure. We do not provide forward-looking reconciliations for forward-looking non-GAAP measures because the timing and nature of excluded items are unreasonably difficult to fully and accurately estimate.
With that, I will now turn the call over to Mike Doss. Please go ahead.
Mike Doss
Thank you and good morning everyone. I will begin with a few observations on the market and then outline the measures we have taken in response. After that, I will cover our financial and operational results for the quarter, followed by Q&A.
In response to significantly lower prices, primarily due to the economic effects of COVID-19, U.S. oilfield activity is falling rapidly. At today's oil prices, new well completions no longer make economic sense for nearly all operators. Most have dramatically scaled back or suspended completions altogether. Our customers started dropping fleets in the second half of March and we ended the quarter with 17 active fleets. We currently have four working.
In addition to fewer fleets, significant pricing concessions were necessary in order to retain work. In the near term, the outlook for pressure pumping is more challenging than it's ever been. We are hopeful that the economy can reopen in the next month or so, which will begin to restore crude oil demand. Combined with lower production that will be occurring over the next few months, including the announced cuts from OPEC+ and shut-ins due to storage being full, we could see a more balanced oil market in the second half.
Relative to oil, gassy areas are in better shape, but current opportunities for new work are far and few between. It's possible that lower associated gas production moves prices higher and if that occurs, we are in a good position to work with those operators. Given the outlook, we have taken a series of aggressive measures to reduce costs and preserve liquidity.
First, we are reducing crews that no longer have scheduled work and releasing the crews-related support staff. Second, we have reduced all employee labor costs through a combination of layoffs, rolling furloughs, wage and salary reductions and the suspension of our short term incentive plan. Since February, we have reduced our total company active headcount by over 800 employees or nearly 65%. Finally, we are working with all of our vendors to reduce pricing, obtain temporary abatements and renegotiate fixed fee arrangements. Many of our non-labor costs are under annual arrangements and we are aggressively addressing every single one of them.
Despite the current headwinds, our first quarter results held up well even though activity began dropping off in the second half of March. Revenue was $151.5 million, up 6.5% sequentially, while our stage count was up 8.5%. Adjusted EBITDA was $21.7 million, down from $22.7 million in the fourth quarter. The drop in activity in March cost us about $5 million in EBITDA. Annualized adjusted EBITDA per fleet was $5.4 million compared to $5.5 million in the fourth quarter.
SG&A was $17.7 million, down from $22.7 million in the fourth quarter, with the decline driven by cost-cutting measures, many of which had been implemented even before the current downturn. Excluding stock comp, SG&A was $14.6 million in the first quarter, down from $16.9 million in the fourth quarter. For the second quarter, SG&A is expected to be in the range of $11 million to $12 million, excluding approximately $3 million of stock comp.
Net loss for the first quarter was $11.7 million or $0.11 per share. Cash flow from operating activities was $13.2 million and includes an $11 million annual supply contract settlement fee, offset by a working capital release of about $9 million. CapEx was $16.4 million for the quarter, up from $14.9 million in the fourth quarter of last year. The increase was driven by frontloaded purchasing of certain components as well as expenditures for dual fuel conversion kits. Our total dual fuel capacity now stands at seven fleets. For the full year, we now expect CapEx to be in the range of $30 million to $35 million and we will be looking for ways to reduce that further if this environment persists.
We ended the first quarter with just under $200 million of cash and net debt of $238 million. During the quarter, we repurchased $22.6 million of our term loan due 2021 at a discount of $2 million. That leaves $67.4 million remaining on the term loan, along with $370 million of notes due 2022. We continue to work with our advisers on liability management alternatives. The goal remains the same, find the optimal mix of discount capture, maturity extension and liquidity preservation.
Our average active fleet count was 16 in the first quarter compared to 16.5 in the fourth quarter. As I mentioned earlier, we ended the quarter with seven fleets. Today, we have four working, with two in West Texas, one in South Texas and one in the Northeast. We currently expect to average three to four active fleets in the second quarter. We completed 431 stages per fleet in the first quarter, our highest level ever, due to our crews and customers working together to achieve more pumping hours per day and more pumping days per month.
Looking forward to the second quarter, our stages per fleet will be choppy given customer scheduling gaps. While our active fleets have been running at about 85% utilization, in the second quarter we expect utilization to fall to the 50% to 60% range. Despite that, I have full confidence that our crews will continue to perform as efficiently each and every day they are on location.
We pride ourselves on being a nimble company that adapts quickly to changing business conditions. However, this environment is especially challenging. Even at our low point in 2016, we still had 11 fleets operating. Currently, the gross profit contribution from the three to four fleets that we have working is not expected to offset all of the fixed costs and our cost of sales, which means that we will likely have slightly negative gross profit in the second quarter. That plus SG&A expense means that we will have negative EBITDA, which we expect to be in the area of $13 million to $15 million, plus or minus.
Given an expected working capital release of about $20 million, we expect to be roughly cash flow breakeven in the second quarter. Looking to the second half of the year, the outlook is far too uncertain to give even rough guidance. But suffice to say that if current conditions persist, we will be in a cash burn situation.
Lastly, I would like to conclude with a few comments on the health and safety of our employees. Even with all the changes that are happening, safety remains our top priority. We have a contingency plan in place should we see a direct impact from COVID-19 on our work sites. Fortunately, we do not have any confirmed cases within our employee base to-date that we are aware of. We are taking all necessary precautions with social distancing, face coverings, cleaning, office closures and remote working for SG&A staff where possible.
That's all I have for prepared remarks. Operator, let's please go to the Q&A.
Question-and-Answer Session
Operator
[Operator Instructions]. The first question is from Dhruv Kharbanda from Tudor, Pickering, Holt & Co. Please go ahead.
Dhruv Kharbanda
Hi guys. Thank you for taking my questions. So to start, what portion of your cost reduction measures were reflected in your Q1 results? And then what's the total amount you expect to achieve? And by what point in the year? And then secondly, what percentage of your cost savings are structural or fixed versus pure variable cost reductions? And then, are there any incremental structural costs you can remove via facility consolidation, et cetera, over the coming months?
Lance Turner
Yes. I will try to answer that. So in terms of what amount of cost reductions were in the first quarter, I would say, the majority will be in the second quarter. Although we did see, I would probably peg it at 25% as I think about G&A. So I am going to split this up between G&A and kind of operating expenses.
Our G&A is expected just roughly, 2019 was $80 million to $85 million. That number should come down closer to $50 million for 2020. So the run rate in Q1 was a little higher. But as Mike mentioned, we would expect that to come down in the kind of $11 million, $12 million per quarter range. So that's G&A.
On the operating expense front, the cost reductions are going to be massive on the operating expense but a lot of those are going to be variable costs. And so you are talking about well over $100 million but a lot of that is because we are laying down fleets. And so it's hard to think of it in that terms. I think we are reducing the fixed costs in how we operate but at the lower level of activities, it's also hard to quantify.
So the way we are thinking about is more of a bottoms-up as opposed to kind of bridging from the cost structure that we had running 15 to 20 fleets, if that makes sense. We are looking at every single cost bottoms-up and trying to minimize that.
So did I catch all the parts of your question?
Dhruv Kharbanda
Yes. That's super helpful. And then secondly, are you having any dialogue with customers about activity coming back post these frac holidays? Some operators seem to be indicating that they will add activity in the back half of the year or very late 2020. Are you hearing any of this chatter? And does it seem real? Or does it seem hopeful predicated on higher crude oil prices? More specifically to you, starting from the three to four fleets in Q2, do you have any high-level thoughts on how that active fleet count might trend through the rest of the year, assuming we see a bottom sometime over the next three months?
Mike Doss
Yes. Unfortunately, the environment is just way too fluid to really get those kind of conversations with confidence. I mean we are talking with several operators and I think that all of their plans are predicated on a recovery in crude oil prices. So if we see higher crude oil prices sooner, then they will resume activity. But there's just so much uncertainty that we really don't have any guidance on the second half at this point.
I think for the foreseeable future, we think things are going to be depressed, just given the supply demand situation with oil. But I mean, I think operators are looking to come back as soon as they can, but it has to be profitable and obviously make economic sense for them.
Dhruv Kharbanda
That's all I had. Thank you.
Operator
The next question is from Stephen Gengaro from Stifel. Please go ahead.
Stephen Gengaro
Thanks. Good morning gentlemen.
Mike Doss
Good morning Steve.
Stephen Gengaro
Two things, if you don't mind. The first, just to touch on a comment you made about fleet utilization running. It's been running at, you said, about 85% and you are thinking 50%-ish in the short term, 50% to 60%, I think you said. Is that 50% to 60% utilization of the three to four fleets? Is that how I should be thinking about that?
Mike Doss
It is. And so for us, a fully utilized fleet is one that works, what, 26, 27 days, Lance? Is that what we consider fully utilized? And so there's just so many gaps in the calendar spaces, a couple of weeks off between jobs and so forth on the three to four fleets that we have operating that they are just less utilized than they would normally be.
Stephen Gengaro
Okay. Makes sense. And then as we think about the second half and not knowing obviously what activity is going to look like, given what you are doing from a cost-cutting perspective, where do you think you need to be to sort of be cash flow breakeven in the second half in terms of either number of fleets or EBITDA per fleet or something? Is there a guidepost you can give us that could help answer that? Or no?
Mike Doss
That's a tough question. I will make some comments. Lance, you can weigh in as well. Just roughly speaking, as I mentioned on the call on the prepared remarks, that we have given some really significant price concessions, basically taking it down to just a nominal amount of gross profit. So even if we were to add, say, six fleets at that level of gross profit, I think we would probably be closer to breakeven EBITDA at around 10 fleets at the gross profit per fleet that we are currently operating at, if that makes sense. And I think if we were to see some resumption of that magnitude in activity, I would like to think we could recover some on the price, which would help matters further.
Is that part of what you would think, Lance?
Lance Turner
Yes. I think that makes sense. Ultimately, the company was not built to be able to scale up to 28 fleets and down to three fleets. And so we are working on that scalability, but that will take some time.
Stephen Gengaro
Okay. And then just as a follow-up to that. The SG&A line coming down to $11 million or $12 million a quarter, what piece of that is activity driven? And what piece is sort of just effectively largely fixed? So in other words, as we think about the back half of 2021, will that number revert back towards the high teens, assuming activity starts to rebound?
Lance Turner
I think you are probably looking at 50-50. I mean, there are some components in there that will increase. But the structural components will stabilize. And so I am thinking 50-50. And then a lot of that depends on fleet count. Because at 10 fleets, like Mike illustrated, I wouldn't expect much of an increase at all. But when you get into kind of the 20-plus fleets, then you will start to see some of the variable costs in there.
Stephen Gengaro
Okay. Good. Thank you.
Operator
The next question is from the line of Andrew Ginsburg with R.W. Pressprich. Please go ahead.
Andrew Ginsburg
Hi guys. Thanks for taking my question. Hope you are all staying healthy. Just to clarify around the OpEx expense question. So I am going to ask it another way and maybe you will help quantify. So if you had zero fleets running, what would be the fixed cost on the operating expense side? And then is there like, I think you are almost alluding to like a step-up schedule on fixed cost depending on the number of fleets that are actually running. Are you able to quantify either of those for us?
Lance Turner
Yes. There's a lot of nuances to that question. But I think that at zero fleets, I would expect the fixed cost portion to be probably in the $5 million to $10 million range.
Andrew Ginsburg
Okay. And then as you start to pick up activity, like what I was alluding to with the step-up schedule, is that like the right way to think about it? Like if you have five fleets running, that adds another $10 million or $20 million in fixed cost, for example?
Lance Turner
No. I think the fixed costs are mostly related to either fixed fee arrangements or contractual arrangements. And so it wouldn't really scale up at all. In fact, some of the costs are the same at 28 fleets as they are four fleets and those are the ones that we are obviously working on to reduce as we progress throughout the year. But I wouldn't expect it to scale up with fleet count.
Andrew Ginsburg
Okay. Thank you. And then as you guys mentioned, you had four active fleets currently. Just trying to get an indication, what's really the mix of those? Are those all these old ones? Or are most of those the dual fuel ones you have been transitioning to?
Mike Doss
Yes. We have got just, well, three of them are conventional diesel and one of them is Tier 2 dual fuel.
Andrew Ginsburg
Got you. Okay. And then last question from me. So you guys mentioned the possible increase related to drilling for nat gas, if the decrease in associated gas levels supports the price of the commodity. Is that a speculation? Or have you had like a high level of conversations with any of your clients about that?
Lance Turner
No, it's primarily a speculation.
Mike Doss
Yes. I think that there's a general expectation that we could see some recovery in gas. And so we want to make sure that we are dedicating the right resources to cover the Marcellus and the Haynesville in the event that occurs.
Andrew Ginsburg
That does make sense. So that's it from my end. Thanks for the color, guys.
Mike Doss
Sure. You are welcome, Andrew.
Operator
[Operator Instructions]. Your next question is from the line of David Honeycutt from Amundi Pioneer. Please go ahead.
David Honeycutt
Hi guys. Thanks for taking the questions. Just had a quick one on the term loan repayment. Could you just walk us through the thought process behind that in the context of why it is to preserve liquidity? And then I guess, more importantly, what the plan is to deal with the remainder of the loan and also the notes, given that cash flow is going to be getting materially worse over the next couple of quarters? Thanks.
Mike Doss
Yes. I will make a few comments. So the repayment that we did, it's really been our basic strategy to target the term loan first. That is the nearest maturity. And so we did that payment. Repurchases in the market, we did capture some discount, as I mentioned. Not as much discount as we would anticipate in this market. So that was all kind of pre-crisis, pre-mid-March. And so the plan remains to try to resolve the term loan, try to capture more discount on the term loan. As I said, that's the nearest maturity. And I think then we will target the notes next.
But Lance, did you have any other comments on that?
Lance Turner
Yes. I mean, ultimately, we are looking at all options and pursuing what makes the most sense.
David Honeycutt
Okay. So I guess should we expect you to, on a quarterly basis going forward, to keep buying in the term loan? Or that will be subject to whatever the operating cash flow looks like?
Mike Doss
I think it will be subject to the outlook, cash flow, kind of the direction of the company and the Board and the execution of our liability management strategy. So it's hard to say at this point.
David Honeycutt
Got it. Thank you.
Operator
The next question is from the line of John Daniel from Daniel Energy. Please go ahead.
John Daniel
Hi guys. Thanks for putting me in. If you said this in your prepared remarks, Mike, I totally missed it and I apologize. But can you just talk to what the geographic exposure is today? And if we sort of languish in this crappy market for a few quarters, what might that geographic exposure be three to four quarters from now?
Mike Doss
Sure. A little bit difficult to answer, so I will just have to give kind of my gut feeling at this point. In terms of where we are geographically, I mentioned two in West Texas and actually I made a slight mistake there, one of them is in Utah currently, working there, one in West Texas, one in South Texas, one in the Northeast. So that's where we have our fleets working currently.
I think with oil, I think it still has a lot of downside to it. And I think that there are companies that are still reacting and still slowing and winding operations down. I just don't see much activity for the next couple of quarters in oily areas. That could obviously change with what goes on with the macro. And I mentioned also on one of the questions, I think the gassy areas have more potential. And so we are dedicating resources to those areas.
John Daniel
Okay. But do you see and I hate putting you on the spot, so I apologize. But what's the optimal scale to maintain a base of operation in a geographic area? I mean I know you don't want to cut and run after just a couple of months. But just how do you think about that? Does that make sense?
Lance Turner
Sure.
Mike Doss
Yes. It does. I think at a very minimum, I would like to keep two fleets to keep on operating districts. To justify an operating district, obviously, more fleets makes a lot more steam. But I think we are dealing with some extraordinary situations right now. So at the Northeast, we got one fleet. Not optimal, but I do think there's potential there. So rather than shut it down because it's not critical mass, I don't think that makes sense currently.
John Daniel
Okay. And obviously, I know you guys would be regularly talking to your clients and I know they are in crisis mode right now, but do they appreciate what's about to happen to them if companies like yourself can't maintain scale and start pulling out? They rave about their service cost declines. But that changes rapidly when there's only one or two people bidding for the work in the future. I was curious if you could speak to that.
Mike Doss
Yes. Well, I am actually hopeful that happens. But I don't think our clients are particularly interested in that. I think that they kind of take for granted that there's a lot of service companies out there that are all hungry for work. It's been that way for quite some time. And I still feel like that would be their expectation even if this persists for a few quarters.
Buddy, do you have any other thoughts on that?
Buddy Petersen
Totally agree.
Mike Doss
Totally agree? Okay.
John Daniel
Yes. Okay, guys. Well, good luck out there.
Mike Doss
Thank you.
Operator
There is a follow-up from the line of Stephen Gengaro with Stifel. Please go ahead.
Stephen Gengaro
Thanks gentlemen. Just quickly, I mean, obviously, when we are thinking about the balance sheet going forward, can you shed any light on kind of your plans of attack here under different scenarios as we kind of move through the next 12 to 18 months?
Mike Doss
Yes. I will take a stab at that. Yes, there's really a lot of uncertainty because, I mean, we are negotiating and we are working with our advisers and our Board to try to figure out what's optimal. I mean we definitely want to come out of this, however long this downturn is, nine months, 12 months, maybe beyond, we want to come out of this with a sustainable capital structure. And so we know that we need to push out maturities. We know that we need to preserve liquidity during this time and trying to work all of those objectives. There are just so many alternatives that we are evaluating, it's hard to give much guidance other than what the end goal is that we would like to achieve.
Stephen Gengaro
Okay. Yes. That's fair. I just figured I would ask. We are kind of watching things unfold here. But thanks for your color.
Mike Doss
Sure.
Operator
The next question is from the line of Stan Manoukian from Independent Credit Research. Please go ahead.
Stan Manoukian
Good morning. Thanks for taking my questions. First, I would like to ask, did you repurchase this term loan after you had hired your restructuring advisers or before?
Lance Turner
It was independent of the hiring and the restructurings. We have been working with advisers for, I think we mentioned it on the last call. So we have been working with advisers for a while. It's just that the environment changed, therefore our strategy has to change.
Stan Manoukian
All right. And then in regards to the second quarter cash flows, your cash flow from working capital will offset sort of negative gross profits and SG&A. But do you expect to still generate breakeven cash flows after paying off the coupon for the bonds or before paying the coupon?
Lance Turner
It will be before based on kind of what we laid out. I think Mike mentioned kind of a negative 13% to 15% EBITDA. You will have a little bit of CapEx in there. You will have the working capital offsetting that. And then the semiannual coupon payment will be in Q2.
Stan Manoukian
So at the end of the day, it looks like the second quarter should be probably a bottom of the whole debacle in the industry. And if the industry gradually started sort of turning around for better at the end of the second quarter, which we don't know, of course and no one knows, but hypothetically, what kind of working capital, how steep will be your cash need in working capital during the recovery? So I am trying to understand, what kind of liquidity you will need sort of to rebound your operations under different scenarios?
Lance Turner
Yes. That's a good question. I view the magnitude of the working capital needs as steep as the industry rebounds. And so if we were to paint a picture that you would have a very, very sharp recovery, which I don't think is kind of what we are hearing and seeing, then we would need a steep working capital. But my expectation is it would be gradual. The market remains in an oversupplied situation even at demand levels six to nine months ago. And so at these new levels, I don't expect a significant ramp-up in pricing or a really, really steep return of pressure-pumping fleets. But we will be monitoring that, obviously.
Stan Manoukian
And you don't expect it to rebound sharply because the economy is, I mean, maybe prices are not likely to sort of rebound shortly as well, right? Or at least that's what your conversations with your customers indicate, right? So how should I think about that?
Mike Doss
That's exactly right. That's our current expectation. I think we are dealing with a situation where we are likely to have a lot of large shut-ins when the U.S. storage is full. And it really depends on the shape of the demand recovery. But for a period of time, we are going to have a surplus of inventory that needs to be worked off. And if that ends up to be incorrect and this ends up being a sharp recovery, then great, we will adapt to it and certainly take advantage of it. But we are not really anticipating that anytime in the foreseeable future.
Stan Manoukian
Right. And then there are a lot of ominous conversations in the media about the future of the U.S. fracing industry. And let's face it, fracing has not made a lot of money for neither shareholders nor drillers, for anyone. And so what kind of probability you think your clients are assigning to the gradual decline in the future of fracing in this country? I am not asking about what you would consider, I am asking what your conversations with your customers sort of indicated? How significant this probability is in their opinion?
Mike Doss
Yes. So we do have a lot of conversations with clients, but really haven't had those kind of conversations, just to be honest. I mean we are dealing kind of with a bit of a crisis management really as an industry right now. And so I think the focus is really just more on the near term. But I think there's a general recognition that the costs need to get reduced in the industry in order to remain competitive. And I do think that production likely will be lower than where it peaked out and just to create a more sustainable situation for E&P and OFS to be able to provide decent returns to shareholders. And it certainly hasn't been that way for the last five-plus years. But perhaps this crisis will give an opportunity for things to consolidate to become lower cost, more efficient and so forth.
Stan Manoukian
Good luck guys. Thank you very much.
Operator
The next question is from the line of Dan Kutz from Morgan Stanley. Please go ahead.
Dan Kutz
Hi. Thanks. Good morning. So I just wanted to kind of confirm what your marketed capacity is at right now? I believe you guys said that you have laid down nine fleets, exited 1Q with seven fleets and the guidance is for three to four fleets at 50% to 60% utilization. So I just kind of wanted to understand around the furlough component. Is it that you have seven marketed fleets but the crews that aren't working are furloughed? And even, I guess going a level deeper, for the three to four fleets that you expect to be working in 2Q, did the furloughs kick in at the times that those fleets have white space? Or is it more that those three to four fleets would kind of incur labor costs for the full quarter? And I apologize if you guys have addressed any of these already, but appreciate any color there.
Mike Doss
Sure. I will try to answer part of your question and you can let me know if you need any further detail. So in terms of marketed fleets, it's really, we have fleets that we could put to work for any number of opportunities that come our way. And so you could say we have several marketed fleets, but they are not staffed. But we have staff on the four fleets that are working and they are going to incur an entire quarter's worth of labor costs. I think they are in the scheduling gaps. Over time, it will be less but for the most part, an entire quarter of labor costs for each of those fleets.
We do have one standby fleet that's working at reduced wages that's available on very short notice for an opportunity that we are working on. But other than that, we don't really keep excess crews on staff in hopes of work. So if we do see a resumption of activity or recovery, we will do similar to what we did coming out of the last downturn and we will deploy a fleet probably every 30 to 45 days which is the time it would require to get the fleet in good working order, make sure that we have a quality staff, a quality crew that we can deploy.
Did that answer your question?
Dan Kutz
That's really helpful color, yes. And so I appreciate the comments on the fixed cost component of cost of sales. I was wondering if you guys could kind of unpack the variable side or if there's any color that you can give there in terms of what the maybe percentage-wise, labor per fleet is versus repair and maintenance versus materials? And specifically on the repair and maintenance, I was wondering if you guys have like a good, what your assumptions are for repair and maintenance for a fleet in kind of a normalized scenario? And then also if there's any potential room for saving there, maybe from pulling parts off of some of the stacked fleets for replacement? So just any color around the variable component would be really helpful.
Mike Doss
Yes. I will make a start. And Lance, you can correct me if I say anything wrong. So in terms of labor, it's about $450,000 a month per fleet. And it's, like I say, more fleets, we have got more crews, that's roughly the cost of a crew. In terms of repairs, $600,000, $700,000 a month under normal conditions, just in terms of repair expense. A lot of that is fluid and related, probably half of that is fluid and related, maybe a little less than that.
I think during this time where we are shrinking crews, we do tend to see some deflation in repair costs just simply because some of the major repairs and other things you are not doing. So I would anticipate between maybe $300,000 to $400,000 a month in kind of this depressed scenario.
And in terms of other direct costs, maybe $300,000 a month, but that really varies based on the fleet. Are we providing sand containers and covering that lease? That would be considered a direct cost. And high-pressure iron and other direct costs, around $300,000 a month. So you can just multiply by three for the quarterly figures on that. That's a little bit more detail than we have normally have given, but those are rough estimates.
In terms of materials, sand, chemicals, fuel, it's almost, we just ignore those. We don't put margin on them. We don't provide fuel on hardly any fleets anymore. In terms of sand, 90%, 95% of our customers are now providing sand. It really varies quite a bit. But for us, it's just simply a pass-through. Really, the same thing for chemicals, very little, if any, markup.
Dan Kutz
Great. That's really helpful color. Thanks a lot guys. I will turn it back.
Operator
There are no further questions at this time. I will turn it over to Mike Doss for closing comments.
Mike Doss
All right. Well, thank you, everyone, for your interest in FTSI. We look forward to speaking to you again next quarter.
Operator
That does conclude the conference call for today. We thank you for your participation and you can now disconnect your lines.
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