Q3 2019 Earnings Call
Tell him all participants are in in listen only mode.
Following the presentation, we will conduct a question and answer session instructions will be provided at that time for you to Q my for questions I would like to advise everyone that this conference call is being recorded.
And we'll get it started by reading the forward looking disclaimer.
Thank you and good morning.
Before we begin or pay today I want to remind you that in order to talk about our company. We're gonna mentioned a few things that are not historical facts. Some of the statements made on this call could be forward looking in nature and reflect a number of known and unknown risks I would like to refer you to our press release issued today along with her 2018 Jay.
<unk> public filings outline those risks.
All of which can be found rpcs website at www dot for PC Dot net.
In today's earnings release, and enter conference call will be we're referring to several non-GAAP measures of operating performance.
These non-GAAP measures or adjusted net loss adjusted net income.
Adjusted loss per share adjusted earnings per share.
Adjusted operating loss adjusted operating profit.
EBITDA and adjusted EBITDA.
We're using these non-GAAP measures today, because they allow us to compare and perform compare our performance consistently or various periods.
Out regards to nonrecurring items.
In addition, rpcs required to use EBITDA to report compliance with financial covenants under our credit facility.
Our press release today and a website contain reconciliations of these non-GAAP financial measures to operating loss or income net loss or in and losses for diluted earnings per share, which are the nearest GAAP financial measures.
Please review these disclosures if you're interested in seeing other calculated.
Our press release issued today on our website contain reconciliations of these.
If you have not received our press release and we'd like to see one please visit our website at www Dot once you see dot.
Maybe.
I will now turn this whole <unk>, president and CEO Rick.
Thank you Jim.
This morning, we issued our earnings press release for Rpcs third quarter of 2019.
RPC significant sequential revenue declines were driven primarily by declines in customer activity in pressure pumping.
In addition changes in job mix negatively impacted revenue.
Pricing remains rose.
Remained relatively flat during the quarter.
Although many service companies or idling leaves the pressure pumping industry continues to be oversupplied, partially due to increasing industries efficiencies.
Given current market conditions, we initiated a strategic review over operations during the third quarter.
Our CFO been Wholl discuss this and other financial results in more detail.
After which all have a few closing.
Like you're right.
In connection with our strategic review, we undertook an extensive operational assessment, we began closing several pressure pumping related facilities.
Retiring older less capable pressure pumping equipment.
Reducing the number of staff fleets and operational and administrative employee head count.
As a result of our efforts to date, we recorded impairment and other charges of 71.7 million during the third quarter.
For the third quarter revenues decreased to 293.2 million compared to 440 million in prior year.
Revenues decreased compared to the prior year, primarily due to lower pricing and activity.
Adjusted operating results for the third quarter 2019 was a 21 million dollar operating loss compared to 54.6 million operating profit in the third quarter of the prior year.
Adjusted EBITDA for the third quarter was 22.8 million compared to 97.8 million for the same period last year.
For the third quarter 2019, RPC reported an eight cents adjusted loss per share.
Fair 23 cents diluted earnings per share in the prior year [noise].
Cost of revenues during the third quarter of 2019 was 225.2 million or 76.8% of revenues.
Compared to 300.9 million over 68.4% of revenues during the third quarter 2018.
Cost of revenues decreased consistent with lower activity levels due to lower materials and supplies expenses employment costs and other expenses that vary with activity levels.
Cost of revenues as a percentage of revenues increased due to unfavorable job mix more competitive pricing for our services and labor cost inefficiencies.
Selling general and administrative expenses increased slightly to 42.6 million in the third quarter compared to 41.8 million in the third quarter bar here.
Depreciation and amortization expense was 44.7 million during the third quarter 2019, an increase of 4% compared to 43 million in the prior year.
Our technical services segment revenues for the quarter decreased 34.8% compared to the same quarter in the park operating results excluding impairment another charges in the third quarter 2019 were 18.2 million loss compared to 56.2 million profit in the prior year.
These decreases were due to both lower pricing and lower activity within our pressure pumping service line.
Our sport services segment revenues for the quarter were flat at 18.7 million.
Now I'll discuss our sequential results.
Arps These third quarter revenues sequentially decreased 18.2% to 293.2 million from 358.5 million in the second quarter due to lower activity levels and changing customer job mix.
Cost of revenues during the third quarter of 19 decreased by 39.9 billion or 15%.
Due primarily to decreases in materials and supplies expenses and other expenses, which Barry with activity levels.
As a percentage of revenues cost of revenues increased from 73.9% the second quarter to 76.8% and the current quarter due primarily to labor inefficiencies and increasingly competitive pricing for services.
Selling general and administrative expenses decreased slightly to 42.6 million during the third quarter of year compared to 43.3 million in the park poor.
Obviously generated an adjusted operating loss of 21 million during the third quarter of 19 compared to an 8.4 million operating profit in the park.
Our policies adjusted EBITDA was 22.8 million.
Compared to EBITDA of 52 million in the far for.
[noise] Technical services segment revenues decreased by 63.6 million or 18.8% to 274.5 million in the third quarter.
The segment incurred an 18.2 million operating loss compared to 6.9 million operating profit in prior quarters.
Our support service.
Segment revenues in the third quarter 18.8 million compared to 20.5 million in apart or operating profit was 1.6 million in third quarter compared to 4 million operating profit in the park or [noise].
During the third quarter RPC operated an average of 16 pressure pumping fleets.
In connection with our strategic review and fleet assessment, we are in the process of retiring and disposing approximately 400000 hydraulic horsepower.
Our year end 2019, we will have approximately 750000 hydraulic horsepower.
But only have plans to operate non fleets, we will adjust this number up or down based on market conditions.
Third quarter 2019 capital expenditures were 77 million.
Currently estimate 2019 capital expenditures to be approximately 260 million.
At the end of the third quarter, our cash balance was 49.5 million.
We had no outstanding debt.
With that I'll turn it back over to rent for closing comments.
Thanks Ben.
And our second quarter commentary, we stated.
There were indications customers they were indication customer activities would decline during the third.
[noise] these declines occurred and we expect them to continue during the near term.
In addition, enhanced completion techniques newer equipment and better technology have greatly increased service sufficiency.
It has reduced our industry's requirements for pressure pumping service capacity at eating at any given oilfield activity level.
The locations, we're closing have inadequate equipment and crew utilization.
The older pressure pumping equipment is being retired because it is no longer you.
No longer lead no longer effectively meets the industry's current market requirements required more maintenance and was not expected to generate added adequate returns in the future.
As a result of these steps RPC will be in.
We'll be better position to compete in a difficult market environment.
Thank you for joining us for Rpcs Conference call. This morning, and assist I will open up the lines for your questions [noise].
Thank you very much maybe isn't gentlemen at this time, we would like to open the floor for questions. If you would like to ask a question. Please press star one on your telephone keypad now.
Again that is star one to ask a question.
I first question will come from Praveen Narra Raymond James.
Hi, Good morning, guys I guess I agree you could get a bit right I guess, if we get a more color on the decision making process to retire the equipment I guess when you guys looked at it can you talk about kinda maintenance requirements that that equipment needed and then any any color you can give on maybe the vintage or the equipment.
Or a deal you can probably provide on that type of equipment that's being retired.
[noise] proving this is Jim I think we've covered a lot, but im happy to to give you a little bit more color on this as you know when people you've known us for a long time no. We've been in the practice of rebuilding equipment.
It was a very good financial decision starting in 2012, we did that a lot.
And we returned to the field and like new condition at a at a you know.
50% on for more of replacement cost.
What we've ended up with is the increase in 24 hour work the.
The increase in zipper Frac work, especially in the Permian what we've ended up with his equipment that is serviceable, but doesn't doesn't meet the doesn't meet the requirements of UBS zipper Fracs and.
And just these longer duration jobs.
So the maintenance required on that equipment.
Got to be onerous and it just wasn't performing the way we needed it too.
We also have some have had some locations that were not.
Nonperforming all that well so that was that was the backdrop to this this assessment and this action. We've taken one thing you, you'll you'll notice and everyone knows is that we were buying equipment. This year when many of our peers weren't.
We were doing that because we have a capital strength to do so.
Because we're committed to pressure pumping and because we realized that summer buttons getting older. We just felt it was prudent at this time to really really retire some of that older equipment.
And have a more streamlined operations.
Based on market.
Okay. So then I guess, if if we think about it on a capex per fleet basis, or how however, as we go into 2020 and and as we think about going forward. How should we think about the capex profile of the remaining fleets for just maintenance capex.
Remain a you know with with the increased efficiency you know, we're obviously, we're learning all the time, but that we are expecting about 2 million per fleet. There were operating a we will benefit some and 2020 from the perspective of being able to harvest some of the components that are on.
The equipment that's being retired.
So what that effect will be no. We're not we haven't spent a lot of time trying to forecast that but that would say the number if it's normally around too that will be slightly less than two or so.
But that's the way we're thinking about that.
Okay, if I could squeeze one in or on the majority of your cost saving initiatives can you give an idea of when they took place.
Yes, just trying to figure out if they impacted the third quarter, if they more impact fourth quarter.
Yeah. This spin definitely will be more fourth quarter and even more in first quarter next year. That's what we're focused on is looking it.
You know how are we going to be positioned as we start 2020.
Oh.
And so the actions that have been taken to date or again somewhere in third quarter mid to late third quarter and others are in the fourth quarter.
Thank you very much.
Not much has.
Thank you. Thanks, Barry our next question will come from Steven Denaro Stifel.
Thanks, Good morning, gentlemen.
I guess I guess two things I'll start turned following up on the first question.
And maybe you could help us understand is looking forward thinking about how the third quarter evolve, but when you think about the cost savings and.
And the you know sort of operating morphine fleets going forward.
Can you give any sense for how that should impact the margins in technical services and maybe as part of that as we look at the sequential decline to Q3 Q.
How much of that is sort of older inefficient fleets and how much is related to pressure pumping versus the rest of the businesses are way to help us sort of work through that a bit.
Oh this is Ben I I can oh, qualitatively sort of discuss that as as we've read and heard from others. You know September was a particularly.
So weak month for us and that affected some of our service lines. It typically aren't as affected by things like that so it was kind of across the board for US weekend. The quarter now we don't expect this to be a continuing trend, but the beginning of the fourth quarter was a little bit better than that which was good to see but but nothing we're going to.
Count on in terms of continuing upper trajectory from this point. So it was kind of across the board also job mix can contributed to some of the revenue declines more customers applaud materials.
Which has been a obviously recent trend and and impacted us.
From quarter to quarter.
We.
Also [noise].
You know and I think I mentioned, let me clarify one other comment I said that.
Other actions, we're taking are going to be more mid to late fourth quarter not early in the fourth quarter in terms of head count reductions, but but like I said earlier, we're we're kind of focused on where we're going to enter 2020, how do we get position for 2020, not so much as you know where we're going to land in the fourth quarter. We know fourth quarter is gonna be difficult has been the last two years.
Oh, we're not expecting anything different this year.
[noise] agree. Thank you and then as a follow up is is when you look at you know you're the composition of your pressure pumping fleet and what it looks like going forward versus maybe where it was a year ago. When you could have referenced retiring equipment that was basically.
Serviceable, but but but really not profitable.
Can you give us sort of the village of that equipment and goes we should think about the overall market. It would seem like this has got to be a trend across the industry, which maybe helps balance the market a little bit over the next couple of quarters is there.
These are weighted sort of thing about the age of the equipment or not because there's just been sort of rebuilding done over the years.
Okay.
Stephen It's Jim Landers as you know when everyone else knows on the call pressure pumping is this assemblage of componentized equipment. So it's hard to put an age on it.
However, if you really try to think about the units and how old they are.
If you start with June 32019, RPC and end up at December 30, Onest of 2019, the average age of our fleet.
We'll have dropped fallen by almost 40%.
So that's a qualitative comment we can give you a right now.
Okay. That's helpful directly thank you gentlemen.
Sure.
Thank you very much. Our next question will come from Chase Mulvehill Bank of America.
Hey, good morning, I guess real quickly just a follow up on Stephen's question.
Basically if I look at your fleet, you've got 750000 horsepower now it looks like I guess, maybe if you can confirm this 450000 that was built over you didn't call at the last five years.
So that's kind of question one in a follow up on that how much in the 750000 is tier four engines.
Okay.
Uh huh.
Chase this is Jim I'm not sure how much actually is is tier four we did buy some new equipment that was grandfathered in tier two certainly everything we've we've purchased this year and you know about our 3000 horsepower pumps. Those are all to your four I just don't have that number.
And from Europe .
Oh I'm sorry to beat the first part of question Oh, Yeah. The first part was I was trying to do the math on it looks like about 450000 horsepower was actually built in the past five years does that number sand about right.
Ah, Yes, that's about right.
Okay great.
And can we talk a little bit about fourth quarter, I mean, obviously, you're going from 16 to 19 man fleets and so you know that probably Elon, obviously, the industry's contracting in the fourth quarter, but you know you taking down you know taking out some cost and reducing the number of man fleet should help support.
You know a profitability somewhat so I don't know if you could maybe just help us framer or understand you know the impact to revenue and then ultimately what kind of impact that may have on margins as we get into the fourth quarter.
Chase. This has been yeah fourth quarters varied dip very difficult to predict all things equal obviously, we would expect revenue to come down we are in the process. Some have been in the process and moving from 16 to non fleets were not all the way there at this point, but.
They are getting there so as we get to the end of 2019, we expect to be at nine and as I expressed in my comments will be more or less than that as conditions change the benefit of reducing the fleet is that we'll be focused on our more high.
Really capable equipment, not having to to maintain and at times.
Struggle with the equipment to perform some of the more demanding work. So it will allow us to be more focused also with the fewer crews were expecting to be more efficient, we'll have a less white space in the calendar.
We're going to be more disciplined in terms of.
Bidding our jobs and what what jobs. We are except we think this is hopefully with other people idling equipment disposing of equipment and doing some of the same will help with some of the discipline to get the overall market balance sooner than it might be otherwise so we don't want to contribute to that.
Oh, so we're going to try to become much more disciplined again with how we.
How we did or the levels at which we bid.
And and have less wide space and focus on our operating procedures on location to be much more.
Efficient and effective and get our efficiencies Oh, all those things together should should allow us to improve our margins.
Where the margins are going to go so many so many variables in place we should have.
The more efficient with our labor will be able to be more focused on operating procedures and around.
Efficiency went on location and all those things should result in an improved.
Okay.
Right and then just just to clarify when you said improved margins you mean over the next few quarters not in the fourth quarter correct.
Probably not port fourth quarter is very difficult, where where we're focused on getting ready for 2020.
Hard to know where fourth quarter is going to be a there will be to shake out you know the timing differences with some of the lay offs and so forth that that are taking place you know exactly where that's kind of following what what the impact is gonna be is.
Is that we haven't spent a lot of time trying to forecast what that's going to be we're focused on.
Getting in position to begin 2020.
Okay already I've got a few more questions I'll jump back into queue. Thanks inpatient for Eagle. Thanks. Thanks.
Thank you Kim next question will come from Marc Bianchi.
Colin.
There's a lot of noise here with with all these actions you're taking in the third and fourth quarter I was hoping we could talk about what the profitability might look like when we get through this process. One way I was thinking about it is you're going to have nine fleets, assuming the market remains steady.
With those nine fleets and perhaps earning 10 million Bucks a fleet so that piece of the business could be earning 10 million Bucks of fleet or 90 million Bucks on an annualized basis kind of once we get to the other side of this is that the right way to think about it or are there any other puts and takes you that.
[noise] or Mark this is Jim that's a very appropriate way to think about it.
Except we're looking at seven horizontal fleets in two verticals leads so two vertical fleets would be earning less generating less EBITDA, but the 10 million EBITDA per fleet in the current market environment is a is a good goal and wanted to with one towards which were striving right now so yes.
Okay.
That's that's helpful and then on the on the Capex you mentioned I think $2 million a fleet. So if we've got nine fleets. You know that's just 18 million Bucks I'm sure that there's a bunch more capex that we would likely see in 20 and I know you probably don't have your plan together, but can you talk about you know just.
Generally what the rest of the business requires and maybe you perhaps put a range around expectations for for 20 for us.
A reasonable question.
At this point in time, we don't have any large outstanding orders that we would fall into 2020, no. We've talked about the capex for this year. There's some additional spending this year to wrap wrap everything up we spent some money this year and coal tubing. We spent some money obviously in pressure pumping at this point in time that unless market.
Additions change, we don't see any large gross.
Initiatives requirements and so forth. So we believe and again we are as you indicated we're in the midst of.
With all these changes you described in his noise, which is true.
We're working through that right now, but we believe capex will be.
Minimal next year, thank certainly less than 100 million you know, maybe maybe 80 unless market conditions change things, it's things slow down in deteriorate, we'll we'll adjust our pressure pumping fleet a staff fleets further which will reduce our maintenance capex if industry conditions improve.
Will increase.
And so that number will go up but at this point in time kind of steady state.
Maybe 80 million.
Okay, well, that's great color guys I appreciate it and I'll turn it back.
Thanks Mark.
Thank you next question comes found that Scott Gruber Citigroup.
Yes, good morning.
Hey, Scott.
Just to follow on the last line a a question.
Well, you're referring to.
The kinda 80 90 million.
Are there the goal is getting a 10 billion per fleet size that total company or is that just specific to pressure pumping.
Now that's been some of the industry metrics for the pressure pumping fleets. So that's on LIBOR.
I trunk, Doug I, just wanted to clarify so and then when you think about those types of target.
They are these reasonable targets for the first half of 20, assuming no change in Mark and no change in pricing. If you get there just with the actions you're taking.
We we certainly believe it's possible, but again.
Highly yeah market is very difficult, we're certainly shouldn't board and ER and we'll see where it'll play we're going to get into early 2020 see out things.
How things are going make make the appropriate adjustments and go from there reasonable question, but Oh, we would.
We would hope so and there with the efficiencies will have certainly that will be a contributor and a lot of it again will depend on.
Job mix and things like that so I'm still work in progress.
Yeah, and I know the than the market.
It's very uncertain at this point, but is there any way to put some color around the magnitude of activity recovery early next year that would facilitate.
Such recovery and your EBITDA, assuming no price change that just thinking about volumes you know what type of volumes will be required to get there.
Got it this is Jim that that's that's a hard when it's moving target.
We don't have a great number right now for you.
Okay, Okay and overhead how should we think about overhead for 2020.
Well at this point in time, I guess, we've been on about a 43 million a quarter run rate.
We are.
Ah implementing plans to get that down Uh huh.
Early 2020 to lease get that down between five and 10% and again, we'll be taking a deeper dive into our various costs and from there will react to again market conditions in industry.
Conditions, so that's our.
Target at this point.
And we should assume a run rate for Q for now.
So let's start to come down.
Yes, yes.
Okay.
Yeah.
I'll circle back thank you.
Thanks Scott.
Thank you. My next question will come found that Chris Svezia Wells Fargo.
Morning.
Hey, Chris.
First question I guess I Wonder if you could give a little color around a little more color on the nine fleets.
<unk> is essentially the nine gonna be what you expect have working at the end of the year or is that when you expect to have ready to go to market Q1 20 based on the visibility you have for work to start the year.
Well, we're hopeful it you know whether it's all going to be working on 12 31, not sure, but not we expect a that [laughter] that those will be working or certainly gearing up to begin work in early 2020.
Like I said, if I mean, if we get to early 2020 in.
Something less than nine appear to be sufficiently busy we'll we'll make additional adjustments.
Where we're going to respond to what <unk>.
What we see before US yeah, we're going to strive for efficiency.
We're going to strive for utilization.
Utilization first than than efficiency on the well site and we'll see where to go where it goes from there.
Okay, and then on the the closing locations I was wondering if you could give an update in terms of the bays and present. It has there been any kind of exiting a basins related to this and could we get a breakdown of where the nine fleets. They expect to have at year end, where they would be in terms of the basin.
Chris This is Jim.
We will not have a pressure pumping presence in the Bakken.
And we are streamlining locations in in Texas.
We'll still have a strong.
The presence in the Permian and can service other areas as well.
Okay I just squeeze one last one and usually give a breakdown of the revenues I business I was wondering if you could maybe read those out.
Yes, Chris absolutely happy too so the numbers I'm about to share our percentages of Rpcs consolidated revenue.
For the third quarter. This is by service lines.
The largest.
Largest service line for the third quarter was thru tubing solutions at a little over 38% of revenue 38.1%.
For the third quarter, a number two was pressure pumping at 37.9%.
And after that of course, we fall off fairly rapidly coiled tubing was 6.7% of consolidated third quarter revenue.
Rental tools, which is in our support services segment was 4.3% consolidated revenue.
Our nitrogen service line was 3.5% of consolidated revenue for third quarter.
Alright, thank you.
Sure. Thanks, Chris.
Thank you My next question will come fans that.
This nice.
Howard Weil.
Hey, good morning, and thank you for taking my question a bit.
Okay.
I guess, the remaining say when they get 50000 horsepower. How many features that exactly kind on 15.
It's around 13 to 14 yeah.
Okay.
And the fleets that you had been guiding you like cutting.
Our selling them.
Disposing that.
It's good question, we are in the midst of kind of planning for that clearly don't want to pumps to come back and compete against us. So it'll be a variety of things will be selling some components will be cutting up what we otherwise think can't be sold.
And there are fuse that we are repurchasing in other parts of our business for but but a good question, we definitely want to take them all will be taking them completely.
Out of the hydraulic fracturing market.
[noise] I'd think about a quicker and this is again just trying to do something.
Take up it seems like maybe that the fleet was negative obviously, you're going from 69 seats.
Is it fair to think that was nine feet I actually.
Positive seats.
They can help us like what's the range of EBITDA fleet that you guys saw the danger fleets.
He believes this this is Jim you properly described that exercises gymnastics and we agree.
We have some regions and we've talked represent conversations we have some regions and some locations that are doing well in pressure pumping.
And we are very interested in and replicating that success with a smaller number fleets. So you know I can't give you an EBITDA per fleet range.
Some was was was positive and and some of the fleets were positive and fine fine doesn't mean, great, but they were fine others due to the problems and issues. We've discussed we're we're we're otherwise that's where we're making the change.
[noise] and.
You mentioned about the mix impacting talked quite a good usually like some kind of like what that mix was how much jumping back like that.
I'm, sorry can you clarify mixed impact of Mikkel job so job yes.
Yeah sure. So that too is a good question during the third quarter the percentage of proppant that our customers provided.
Really increased a lot.
And as a result of that probably a third.
Our sequential revenue decline in pressure pumping is attributed to.
US us, bringing less of the sand to the job and therefore that San <unk> group you know.
Okay and last one if I may so yeah.
Closing down less profitable.
Locations and the fleets have you guys can you just talked about what changes have you made in sales force. So that you can align with customers who have higher utilization.
Well it is the focus of ours are not really prepared today to dive into a long discussion, but clearly we're looking for the much discussed no more dedicated work and we're going to do that through.
Focusing our efforts improving our fleet and crude quality and.
Yeah, Yeah data data accumulation and analytics, but we'll have more on that later.
Thank you for taking my questions.
Sure Thanks steps.
Thank you I next question will come from Kinda Atlanta Morgan Stanley .
Thanks morning.
Hey corner I'm wondering if we could Ah I I'm not sure. If you guys have quantified. This do I apologize if you missed it if I missed it but.
Have you quantified just the absolute dollar amount.
Okay impacts to EBITDA that that closing some of these facilities and and shutting down some of these crews is going to happen in any commentary around around timing of that wouldn't be appreciated.
Car. This has been we have not quantified it but I indicated that there were some reductions that twice in the middle of the third quarter and other actions as we've gone along and they'll they'll be.
Others that will be mid to late in the in the fourth.
Okay. That's fair Yeah, I mean, if we think about.
If we're looking at so your cost of sales in the third quarter could you could you quantify maybe as a percentage of that how much is related to the facilities that are that are going to be no longer operating by sometime next year.
The actual [noise].
Yeah.
Well.
We don't <unk> reasonable question, we don't really look at it that way obviously it depends on the relationship of the revenue to the cost we sort of look at it is we are limiting our exposure right our fixed cost exposure as it relates to.
Crew cost and things like that we want to fill up the calendar improve our utilization and focus on efficiency.
Well site.
So again reasonable question not sure. It really gives a you know if we if we had the number I'm not sure that translates into anything other than how we've reduced again, our fixed cost exposure, Oh, certainly there's less opportunity with less crews to generate revenue, but but we believe.
We will be Oh, all things equal as we go into 2020, we're going to have better margins better.
A better cost relationship is we are.
Right sizing to the amount of.
Work that we can do on a regular basis at <unk>.
So great utilized.
Higher utilization level.
Okay. That's fair I appreciate if not maybe how you look at it so [laughter] try try one one different way, which is just how.
Of what you've chosen to to shut down how large of in EBITDA drag would that have been in the third quarter. Just anything anyway. You can frame. This afternoon. We can think about obviously, we all have different views around what next year looks like but I'm just trying to think about how much cost savings there is still still to flow through.
[laughter].
This is Jim.
Everybody heard estimates so you can drive of trucks of this estimate but.
Somewhere between five and $10 million.
EBITDA.
Got it thanks very much guys.
Thanks.
Thank you Jim I next question will come from Macquarie Sad Altacorp capital.
Thanks for taking my question I'd like some.
For your other businesses to tubing and according to coiled tubing business and what are you seeing there.
Those businesses to are experiencing some of the same or weakness like we talked about in the end of the third quarter with little bit of a bounce back early in the fourth quarter, which was.
Good to see little bit ever really one of the things we are doing as part of our strategic review, we are looking at opportunities to try to.
Get our various service lines to be able to work a little closer together, we are hopeful that that's going to generate some some positive benefits as well more to come on that later, but but we've made some strides in that direction.
[noise].
With with.
With some of the investments we made in coal tubing, a in the last several quarters and we kind of scrubbed coal.
Coal tubing service line last year with little or no PML impact, but we kind of a trend the fleet here and there was some of our older equipment. So we feel pretty good about the the quality or any of the size the capability of the coal teething equipment that we have and.
So we look forward to the benefit of trying to touch.
The the customer as well as many times as possible with our various services is something we talked about a lot over the years. We've had some success from time to time, but we're hopeful that maybe we can generate.
Additional overall benefits and opportunities to bring some of those things a little bit closer together.
I want to pricing then in coiled tubing I could you quantify that made sense today wishes base was maybe you know a few months ago.
Pricing and all of our service lines is not continued to fall precipitously as it's been more of its been more of a utilization sorta.
[noise] play Oh, I'm hopeful that the industry and it appears that maybe we reached the point where people aren't going to be able to continue to drive pricing down and we don't want to continue to to contribute to do that a sense in the industry. So we're going to try to become a little more disciplined.
In that regard and.
Try to make sure we're getting our utilization up and make sure you know that our performances.
At least reasonable and ER and that's a work in process, but but but again to answer your question pricing has not been following a tremendously and a lot of it depends on mix of course.
No you know as you reduce your especially if something you decided to fleet to you go down to about nine. So certainly you know you could benefit from a utilization for individual asset.
But on other hand, you'd also lose economies of scale.
Okay, and so do you need I mean, you mentioned that you're going to be out of pocket, but then we think about it would with all the assets be goes together.
In a basin.
You know.
Would they be some extra costs that make the Bob on a unit basis, just because you know you may not have economy. This kid and as you operate.
Well car this is Jim and our pressure pumping experience over the last almost exactly 20 years and operating in multiple basins. We believed that economies of scale exist with Anna basin, but not across basins.
So to to be in <unk> in a region. That's a very long distance from other areas. Just doesn't help you. It doesn't help you with with proppant logistics. It doesn't help you with sharing cruise it doesn't help you with.
With that sharing equipment and that the for many customers the decision making processes de centralized even when it's a centralized it's still made on a regional basis. So it's a good question, but we do not think that getting out of basins, a specific basin hurts us from an economy of scale.
Point of view, we actually think that up by focusing.
More in certain basins the economies of scale that are there to be gained we can gain more does.
That's exactly what's the point that would you be then audit focused just in the Texas area. So you get declining to skate in that area and be able to us.
It means the Rockies completely north eastern out of the it is a.
So yes, that's part of the business plan that that is I think line and and you know the the economies of scale are probably pretty elusive, but those that are able to be gain we stand a better chance of.
Realizing those.
And.
Thank you very much best of luck.
Thanks, Mike.
Thank you very much I next question will come from George O'leary Tudor Pickering Holt in company.
Morning, guys.
And George.
With respect to the Capex commentary you know, there's a bit into the same $80 million or less.
20, or 2020, that's obviously a material cabbage.
Correct.
In the current environment.
I'd go back and look at 2016, or we obviously dropped at a much lower rig count me guys spent $34 million in Capex day here.
It's possible that if the market panned out to be.
As bad as it is today or is that it may get in the fourth quarter, you guys spend to closer to that level.
Capex that 34 versus.
80, the fleet will be smaller on it seems like you guys rationalizing some facilities as well as actually seems like there's the potential for capex to come at a well over a year over year, but I also don't want us to falsely little expectation.
George This is Ben yes, there is that possible, we're going to be working really hard as we did in 16 and do every year to really scrutinize our cap at scrutinize, our capex and.
And you know there there certainly is that that a possibility that that it will be lower than 80 number that we mentioned.
Okay and then just.
Piling on to that question, but slightly different angle from from kind of a free cash flow perspective, and also there are really good job into 15 and 16 downturn.
Yeah blowing down working capital.
And it really some that just happens naturally as revenue decline but.
Seems like every deal we understand business, so and where you already have some costs and you can sell that fan person or something like on that thru tubing solutions side also probably a potential for diverse sales and things of that nature boy free cash flow just curious.
Related depends to the degree to which revenue declines, but is working capital a source of cash next year as you guys see it today.
George This is Jim you bring up some good factors and thanks again for the history lesson to our friends, who may not remember 2016 were cut capex level was.
The answer is yes, we try to manage prudent we try to manage working capital very prudently and I think we have a good record of that.
All the factors you you brought up or are there in possible.
Let's let's do acknowledge though that we're starting from a lower revenue run rate. So collection of receivables quite be the boon to cash that it would be otherwise.
And we've been trying to manage inventory pretty well. So are there were there will be those impacts should 2020 or have you know declines from beyond third quarter fourth quarter per second.
And we will you know.
We will absolutely managed to it to a sound balance sheet whatever it takes.
Great. Thanks to the color guys. Good luck with the restructuring.
Thanks George.
Thank you My next question will come from Tommy Mall Stephens, Inc.
Good morning, and thanks for taking my questions.
Oh sure timing.
So for the nine fleets that you're planning to have active once we get to the beginning of next year could you comment on.
How utilization has trended in recent months for those nine is it at a level that you're pleased with.
Or is there still a lot more work to be done to improve utilization on those.
Tommy's Jim <unk>. It's good question hate to see to answer by saying that it's a moving target. One reason, it's a moving target is as you know we have just put 100000 new horsepower in the field and July August and September is performing well for us and the.
Position is high because of how well it how well it performs and and good customer acceptance in several regions. So so that's a positive.
So we've got we've got some fleets that their utilization is a step characterize it as acceptable, but not where it needs to be some of that has to do with spotty customer activities.
We've we've got some good customers that we work for.
You know very steadily and that utilization is fantastic. We've got some other customers that we work for and do a good job for backed in some cases the job is to good and we've we finish early in that that refers back to the increasing service efficiency in our part of the industry and how that.
In summary is hurt you.
So.
Utilization needs to improve but in some places. It is it is decently acceptable for us right now.
Okay. Thank you and a as a follow up there.
Again, if we look at the pro forma for the beginning of next year, you're at 750000 horsepower so call it 13 or 14 fleets.
For the four or five you're playing to have idle at that time.
An event you wanted to bring those back to work.
Other than hiring people is there a deferred maintenance.
That would you'd be required to to address one bringing those back to the field or should we think of them as essentially.
Ready to work, but for being staffed.
Tommy they're ready to work all we would need to do is crude them up.
Okay.
Thank very much that's all for me.
Okay. Thanks.
Thank you very much.
Our next question will come from Delhi, Glassware Simmons energy.
Hey, good morning, guys.
When you mentioned they don't.
When you guys mentioned 16 active fleets in Q3, how utilizer those fleets.
If you were to think of those on and more fully utilize basis similar to what's in competitors provide would that number be closer to nine or so.
Let's wait and see what our competitors they happen during third quarter.
Oh, Yes, you would utilization was low utilization dropped off in third quarter, So I'm going to answer it. This way late in the third quarter, Yeah, Yeah, Ben said earlier that that pricing has not fallen.
Materially our declines have had to do with with utilization slash activity and then job mix.
Issue that we that we mentioned earlier.
And you know to say it another way we've we've got some fleets and some locations that were very highly utilized in third quarter, others that were not and thus the reason where you know began to move go to go from something that look like 16 fleets down to down to not I mean, that's that's the reason for the the adjustment and is not going to be.
The the right number when you know we're hopeful that 10 or 11 is gonna be the right number we don't know, but we're getting down to nine we'll assess the market and we'll we'll adjust adjust from there.
Okay. Thank you as the follow up to that and as far as the clarity for January and February in 2020, given that you guys playing to have bought nine fleets moving into 2020 is it fair to say that visibility for January using a super clear yet and that you maybe haven't received Oh.
Great great until from a customer's indicating a meaningful ramp up in January .
Uh huh.
That's fair there is there's a broad range of customer indications right. Now we're also watching very closely as and everyone else in the analyst community is our customers capital constraints and capital sources.
The debt equity private equity markets.
Don't seem to be opened for our customers right now there in some cases doing some creative financing as was discussed on Wall Street Journal. This week, so we're actually looking.
A lot at their or their financial capabilities.
And you know.
$55 oil ought to be okay.
But we are interested in their capital constraints. So we don't have a lot of visibility right now so.
Probably the best answer.
Okay.
Right and if I could you squeeze one more in as far as the Capex plans for next year I know you guys, maybe talking about the range around 80 million and possibly maybe even going to lower.
With that being said it is it fair also to say that you guys are not expecting order and you're replacing horsepower for next year, maybe for set off the 2021.
Yeah, we have no plans at this point to order any pressure pumping equipment, where we were pleased with the seventh and 50000 hydraulic horsepower a lot of work went into you know determining where that lot of demarcation is so we like what we're left with and.
I believe you know we've retired very very few pumps in the last 20 years that we've been in business. So we are pleased with the quality in the capability of that 750000 hydraulic horsepower and believed that it can operate with certainly maintenance capex will be required but that it can operate for.
The next several years and so decision on replacement horsepower will be obviously.
Well thought well thought out and looked at very very carefully, but we don't believe we're gonna have to have any replacement horsepower in the near term.
Okay Awesome. Thank you guys for taking my questions I'll turn it back.
Absolutely.
Thank you very much I next question will come found that like 10, Tom Wolfe Research.
Hey, Thanks for squeezing me in I know you done a great visibility into the horsepower. The your peers are stacking and cutting up but.
Maybe talking about the horsepower thats come to market over the past six months first can you quantify maybe the amount of horse power on the cellblock.
Now versus six months ago, and then when you look at the horsepower itself how much would you categorize as equipment that you would have otherwise stacked probably won't come back ever versus horsepower that is viable in the current market dynamic.
Blake, it's Jim when you're talking about on the sale block, you're referring to potential transactions correct, because we aren't selling equipment that we are asking.
Yeah, I know, you're not Atlantic women, but what you can see forgot your is bringing their horsepower to market.
Yeah, we haven't looping and closely enough to give you a comment that would be meaningful. There's there is there's there's plenty of pressure pumping horsepower per sale I would assume.
Okay, and then moving to next year Capex coming down assuming you get okay utilization in the EBIT up or spread do you expect a or at least improvement.
What's the preference for task build versus you know maybe reinstating shareholder returns next year.
Oh, well have to wait and see.
Always focused on shareholder returns, but we'll have to wait and see that so.
This decision, we make on ongoing basis reasonable question, but but we do like shareholder returns.
Okay perfect. Thanks.
Thank you Kim next question will come from Steven denial Stifel.
[noise] Okay. Thank you just a quick follow up.
We when you think about the reduction in your pressure pumping fleet or going into 2020 is there any impact there and.
We should think about ondeck on its impact on other product lines, and and any sort of related revenue and or.
Kind of complementary services, you provide around that that could impact your other product line to 2020 with fewer frac fleets working.
That is a very good question and answer is no impact [laughter] [laughter], great just wanted to clarify but thanks for your help yeah, yeah, absolutely good question.
Thank you.
Last question will come from that that's not how would be.
Hey, Thank you and I guess, just one follow up question because of I think you guys said something about five to 10 million it'd be definitely saliq.
I completely understand what it was what you're talking about that wasn't dragging treat you that's how much.
Yes, definitely seed with improving for Q I was that like <unk>.
Like.
Ben This is Jim a question and I'm wondering answered it was Oh, what was the drag of the fleets that are being eliminate [noise].
And my estimate I said, you could drive a truck to that estimate is between five and 10 million on it.
Five and 10 million EBITDA on a quarterly basis. So that's that was the that was the question in the answer.
And I'm told that are the webcast cut off for little while so I apologize for that if there any follow ups. We can win clarifying just on what we said not additional information.
That's helpful. Thank you.
Trips.
Thank you very much at this time, we have no further questions in the queue. So I'd like to turn the conference back over to Jim Landers.
Thank you Shentel. Thank you everybody for spending last hour with US. We appreciate your your interest with we're talking to many of you soon and seeing you soon thanks.
Thank you very much ladies and gentlemen at this time. This conference has now concluded you may disconnect your phone lines and have a great rest a week. Thank you.