Q1 2020 Earnings Call
Greetings and welcome to these how much energy first quarter conference call.
At this time, all participants one in listen only mode.
Weve question answer session will follow the formal presentation.
And once you require upward as this is sort of conference. Please press Star then well on the telephone keypad.
As a reminder, discomfort is being recorded.
It's now my pleasure to introduce your host, which George Vice President IR and Treasurer.
Thank you you may begin so.
Thank you operator, and good morning, everyone. We appreciate you joining us for the select energy Services' conference call and webcast to review, our financial and operational results for the first quarter 2021.
With me today are Hollywood, Donnie, our President and Chief Executive Officer, and Nics, Weichai, Senior Vice President and Chief Financial Officer.
Before I turn the call over I have a few housekeeping items to cover.
A replay of todays call will be available by webcast and accessible from our website at select energy services Dot com.
We'll also be a record a telephonic replay available until May 20, or 2020. The access information for this replay was also included in yesterday's earnings release.
Please note that the information reported on this call speaks only as of today may six 2020.
And therefore time sensitive information may no longer be accurate as of the time, the replay listening or transcript reading.
In addition, the comments made by management. During this conference call may contain forward looking statements within the meaning of the United States Federal Securities laws.
These forward looking statements reflect the current views of flex management, however, various risks uncertainties and contingencies could cause our actual results performance or achievements to differ materially from those expressed in the statements made by management.
The listener is encouraged to read our annual report on form 10-K for the year ended December 31st 2019, or subsequent quarterly reports on form 10-Q, and our current reports on form 8-K to understand those risks uncertainties and contingencies.
Also please refer to our first quarter earnings announcement released yesterday for reconciliations of non-GAAP financial measures.
And now I would like to turn the call over to our President and CEO Hollywood Donny.
Thanks, Chris Good morning, everyone. Thanks for joining US today last couple of months has certainly been momentous not just for our industry from San Harold will first and foremost we've been focused on keeping our people say well continuing to support our customers critical operation during this watershed event.
Well the first quarter's results marked a continuation of our successful cash generation effort and solid operational execution, Oh that Nick review the quarter and I'll focus my remarks on the actions, we're taking to meet the challenges of today's market.
Thanks to our financial philosophy continued execution, both operationally and in terms of maintaining capital discipline. We entered this crisis with ample liquidity and no debt.
We have no intention of using our strong balance sheet as a result did not take swift action on our cost structure.
The unprecedented speed and scale the activity decline or industry requires transformational not incremental solution and these actions are already being taken by the team.
The core of our strategy centers, while protecting our strong balance sheet and liquidity and emerging on the other side of this downturn in a position to capitalize on the opportunity we expect will be there.
Doing so requires difficult far reaching decision we started to aggressively manage costs downward in mid March the speed and immediate impact of these decisions can already seen our first for M&A, which was down over 10% from the fourth quarter after adjusting for severance and non recurring Paul.
Oh mitigation is a top priority and we're attacking it across the board.
In that vein I'd like to follow up on some of the eye on March 31st press release and update you on our latest actions and target.
First we increased our annualized S DNA savings target and expect our third quarter 2020 annualized run rate should be down 30% relative to the 2019 fourth quarter run rate and down 40% relative to the 2019 total.
We're lowering our net capex target further to no more than $20 million and its 20 million will consist overwhelmingly of maintenance capital.
Our employee head count was reduced by 50% as at the end of April relative to the peak in the first for <unk>.
But more context to that effort, that's almost 2000 people.
These decisions are always most difficult include many find people who served the company easily and professionally.
Resolute, however, in our commitment to align our workforce to our customers activity in real time.
We've reduced pay by at least 10% nearly across the board with further reductions beyond that for executive management and our board of directors.
In addition to these reductions we're instituting furlough program for several parts of our organization.
We've made adjustments to our business to streamline reporting structures and remove layers well concentrating shared services across all segments and eliminating individual silos.
This restructuring enable not just further cost reduction, but a more comprehensive integrated sales and support ever.
We have terminated dozens of leases for facilities and housing, yes, as we consolidate our operation and have renegotiated payment terms across a number of our least yards and facility.
As it pertains to our vendors and third party service providers, we've negotiated millions of dollars a discount and adjusted pricing terms to reflect the current bar.
We certainly appreciate the spirit of partnership and shared sacrifice many have shown here.
I've been told an honor to see our leaders throughout the organization right, especially incredibly difficult challenge and not just to implement these tough decision, but often times develop and initiate these actions independently.
But it sounds like say, thank you to all our employees.
Well this market has many challenges. It's also reinforced many of our strength such as our disciplined balance sheet diversified geographic presence and comprehensive business model, which will lead the opportunities ahead.
Our national footprint, our exposure across the full our lifecycle and our significant investments in technology. In recent years are all proving to be advantageous in the current environment.
Our strong franchises and Gassier basins are holding up fairly well today and were able to ensure these areas and customers continue to get that that's what we have to offer including our leading technology solution.
The rapid decline activity driven by not economical prices will certainly have a material negative impact on our 2020 earnings relative to last year.
Lack of visibility today is driven by many factors outside our control, which makes it difficult to offer much for looking financial guidance at this time.
This witness a magnitude or the revenue drop like margin preservation extraordinarily challenging even as we make cost reduction in real time.
That said Capex an S. DNA are largely within our control and we're committed to delivering the de cuts there.
Well do so while continuing to safely and effectively serve our customers through this period.
With that I'll hand, it over to connect to walk through our first quarter financial performance in more detail.
Thank you Holly and good morning, everyone. Holly outlined we're certainly an entirely different environments today than we were in for much of the first quarter, where relentlessly focused on driving cost out of the system and emerging from this downturn with our balance sheet capabilities intact.
Ability to forecast is imperative this market given the complexity of factors at work globally on both the demand and supply side.
Many of which are frankly outside of our ability to provide an educated perspective on much less influence.
With that involves I'll cover the current quarter's results more succinctly that I ordinarily do and refrain from offering and a detailed financial guidance for subsequent quarters.
Our $41 million a free cash flow in the first quarter quarter. That's historically been challenging from a working capital perspective increased our cash on hand to over 114 million at the ended the quarter, while still having zero on that zero debt in a fully undrawn revolver.
We kept net capex restrained under 6 million and continue to execute on our search share repurchase program buying back a little over 5 million worth of shares.
It is total free cash flow represents over 50% of the entry points of our initial 2020 target of $80 million to $100 million of free cash flow. We're withdrawing this guidance given the current economic uncertainty.
However, rest assured that positive free cash flow and maintaining a strong balance sheet remain our core priorities will influence every decision we continued to make during the side.
So let generated total revenue of $278 million in the first quarter slight increase over the fourth quarter stood at 76 million.
Within the quarter, we saw solid recovery of January February before March falter, and the face of the Opex plus breakdown and the overall impact of covered 19.
Our segments were generally stable from revenue perspective, with an increase in water infrastructure due to a full quarter of operations from the new Mexico pipeline.
However, gross margins were impacted by severance and yard closure costs, along with some asset specific challenges and water infrastructure.
Adjusted EBITDA, which decreased to $24 million in the first quarter from 29 million in the fourth quarter was comparably impacted by these gross margins declines as well as an additional bad debt accrual at just under $2 million.
Just once this quarter were significant most notably the impairment of the totality of our goodwill balance of 266 million. Another 9 million impairment of intangible value connected with the trademark in a tangible asset impairment of a little over 3 million other special items for the quarter included 3.5 million of severance expenses connected to workforce reduction.
During the quarter and 2 million of yard closure expense accruals.
These special expenses led to a net loss net loss for the quarter $291 million.
Water services segments revenues decreased 2% sequentially to 150 million in the first quarter from $153 million in the fourth.
Segment generated gross profit before depreciation and amortization of $20 million in the first quarter compared to 27 million in the fourth reflecting a decline in segment gross margin from 17% to 14%.
Driven mostly by severance and yard closure costs, along with some additional pricing pressure late in the quarter.
The water infrastructure segments, all revenues increased by 10% to 58 million in the first quarter from $52 million in the fourth quarter.
Gross profit before DNA decreased from $12 million to $10 million quarter on quarter and gross margin before DNA decreased from 23% during the fourth quarter to 17% in the first quarter.
Full quarter of operations from the New Mexico pipeline boosted overall revenue volume declines through our high margin by clock and pipeline in March certainly impacted overall margins.
We also took a $2 million noncash write down in relation to accelerating certain expenses relating to water rights when combined with severance and other nonrecurring costs lower gross margin for DNA by about six percentage points.
Well also chemicals segment held steady at 71 million of revenue in the fourth quarter, but the gross margin before DNA of 16% gross profit before DNA of 11 million.
Recently acquired WCS business took a big step forward following its fourth quarter integration absorbing some of the hit from pricing challenges and operational inefficiencies seen elsewhere in the segment, which decreased manufacturing utilization that arrived in March along with some impact from severance costs.
Looking at our other corporate costs headline, Michigan, a increased by 600000 or about 3% during the quarter.
However, adjusting out severance and other nonrecurring costs of 3.5 million eight are accrued during the quarter SGN, a decreased by 12% or $2.9 million.
We expect these savings to grow in the second and third quarters ultimately expecting to reach our target of a 30% reduction by the third quarter in terms of annualized run rate relative to our run rate entering 2020.
In relation to our full year 20 nights yesterday this would represent a 40% reduction.
Below the line, we accrued a slight tax benefit during Q1, while depreciation declined by two bell 2 million.
We expect to see depreciation continue to decline modestly given the capex reductions made while our effective 2020 tax rate is difficult to forecast at this time.
Given our legacy Noel's, we believe the net benefit from the cares act will be minimal the on the deferral of 2020 cash payroll taxes.
We have zero banks that and anticipate that to continue while enjoying a net cash position of $114 million as of March 30 Onest.
We also anticipate generating positive free cash flow during the second quarter.
During the first quarter, we continue to deploy free cash flow towards share repurchases buying back approximately $5 million worth of shares.
While returning capital to shareholders is an important part of our management philosophy, we will do so from what's in positive free cash flow and are less inclined to do so during times, our cash flow is more uncertain.
We've now posted positive free cash flow for nine consecutive quarters since the rock water merger generating this free cash flow from maintaining a strong balance sheet are core to our philosophy, regardless of the environment.
This imperative to continue to drive our approach to cost reduction resource allocation.
With that I'll turn it over to the operator, well take your questions or Ali wraps up with some concluding remarks operator.
Thank you we will now conduct a question answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
Hey confirmation to indicate your line is another question Q.
You May press Star too if you would like to remove your question from the Q.
Oh participants use the speaker equipment and maybe not this I would to pick up your handset before press the star keys.
Once again that star one to ask a question at this time.
One moment, while we pull for first question.
Our first question comes from JB Lowe with Citi. Please proceed with your question.
Hey, good morning, everyone.
Morning.
Hope you all are doing well I.
I guess I appreciate that that number the clarity on activity is pretty opaque.
Yes, I was just curious on the water service inside if there's any or are there any business lines that you guys are contemplating shutting down completely and not restarting once a recovery kicks in just trying to think about your kind of portfolio optimization strategy.
Sure JV, what I would tell you that we're committed to our service lines and the regions and which were operating I'm now that doesn't mean, we will scale back.
To prepare for lower activity levels, which again is a regional decision and does depend on the service that you're providing in that region. What we have done is we've consolidated operations.
In particular regions and brought service lines together, because frankly, the key is gonna be to position ourselves to to manage the cost structure and they're clearly going to be basins out there that are going to have some.
Some fairly low opportunity revenue opportunities for us in the near term so by consolidating those offerings.
That should help keep our field margins, where we need them, but keeping a nationwide footprint keeping a diverse set of service lines is going to be important to us and yeah. We're seeing the benefit of that now as an example, the northeast.
Oh it was not the most loved region 612 months ago, but it's certainly helping us today as we do have a strong position up there and as a gassier basin, it's continuing to a b b proved to be a bit more resilient. So I'd say, we're committed to the to the service lines in and we're committed to the.
Brent.
Okay. Great. Thanks. My other question was on the infrastructure side, maybe it's a tiny bit more visibility there.
Can you just walk through the no what you're seeing from your your anchor customer on the Permian pipeline have they given any indication to their intentions moving forward and how would that contract work. If they were pulled back activity to the tune significant expense.
Sure. So we did see volume news up through the end of April Oh on that contract that that work down the obligation, there's a 15 million barrel a year obligation.
Under the contract I'd say, we didn't quite get we didn't get to a third of the volumes in the first four months.
As you might have expected given the fall off in March and April, but we do currently have visibility to some plans in the back half of the year to take volumes off of the system under that contract.
Now obviously jobs can push it in this particular environment nothing is guaranteed so if that were to happen, though the way the contract will work.
Is that you'll get to the ended the year, you'll measure the actual volumes delivered relative to the $15 million commitment and if there is a shortfall in the first quarter 2021, we would settle up in cash.
One thing to keep in mind, though is that.
While we would receive the cash we won't actually books that earnings until we've delivered the water. So we would have a deferred liability on our books. So we want we wouldn't be able to show the benefit of the any short fall under the take or pay and 2020 only in 2021, we actually deliver.
The volume that the cash will we will settle up on a cash basis in Q1 of next year. If the volumes don't get a don't get delivered this year.
Okay perfect. That's that's great detail last one for me was just on the the Bakken system no you're from large customers in the Bakken to really go back activity two pretty significant extent I'm just any.
Any ideas on I know, obviously threeq to Fourq is probably out the window in terms of outlook, but the twoq you.
How much could we see volumes down in the Bakken.
Yeah, we're not expecting.
Volumes of any size in the second quarter up and in the Bakken you've seen the pricing differentials. It just doesn't make sense for those producers to be putting all on the market, So where we're planning to hunker down and the Bakken and again, we'll protect our position there will will drive the cost structure down.
So that we can bridge until activity levels due to improved but but we're not forecasting any meaningful volumes in Q2.
Okay perfect. Thanks, I'll re queue.
Sure. Thanks JB.
Our next question comes from Kirk Hello, with RBC. Please proceed with your question.
Hey, good morning hope everybody in your respective families or are healthy and well.
Thank you Kurt you too.
Thank you. Thank you so oh, the I understand and appreciate the dynamics at play where you know.
Difficult to provide any any sort of a insights and visibility on no earnings and other dynamics, but I am I am kind of curious on this front right when you.
We just take a look at the business that the individual businesses water water services infrastructure and chemicals.
I was hoping that you can give us a lease some color as to how to think about maybe decremental margins you know as we go through this process and maybe you can kind of a help us address that in the context of a maybe a pre cost savings decremental progression and then maybe oppose cost savings decremental progression that well will handle the top.
Blind estimates on our end, but if you can give us some sense on the decrementals I'd be great.
Yes, maybe talk Directionally [noise].
Certainly all of our businesses are highly completions oriented so the directionally on that top line you know to your point you can't make your adjustments, we do have some production exposure in each of the segments, but its you know tend to 15%.
So beat you can think through that piece when you think about incrementals in Decrementals I'd say, the two that stand out and and Nick can play me up here, a little bit, but if you think about the chemicals business because of the operating leverage and the fixed cost basis of the manufacturing business.
It will have higher decrementals in a downturn like this but then obviously higher incremental which is what we were seeing for that business over the back half of last year in and frankly up through the first couple of months of this year, we were continuing to improve upon our margins. There and then also on the infrastructure.
Right, partially because of the take or pay that that we were just talking about but also a you know just the lower costs associated with operating your pipeline systems, you do have higher margins on those so for example, where we're not forecasting any meaningful.
Walk in volumes across that Charleston line that will lead to lower a hard to higher detrimentals lower margin, but again on the other side of that higher higher incrementals.
Yeah, I think to fill you add on kind of the the actions, we're taking up the field level, we've consolidated yards close a lot of yards renegotiated leases to both reduce the absolute cost and push out the cash payments or at least a portion of the cash payments.
Of course, the head count reductions and compensation reductions.
Lower insurance, but there is a certain amount of fixed overhead you can take up with running the yard and maintaining operation. That's why the revenue estimate there is really important for us to be able to offer educated guidance on decrementals there.
Okay I agree I appreciate that that dynamic and maybe if I take one step further.
So, Indiana appreciate that you're not providing specific.
Guidance, So just generally and Directionally here would you would you expect to be EBITDA and free cash flow positive on a full year basis.
I'll, maybe certain again, Nick can can tack on her but.
Clearly our goal is through the main EBITDA positive, but it will depend on how low activity levels go as Nick just mentioned you know you had some fixed car a fixed cost a yard level property taxes are a facility leases those sorts of things and then obviously the public company, we have certain requirements.
Regulatory and and legally a and obviously we have other commitments that we have to deal with it but I'll tell you. We are absolutely managing cost on a daily basis and trying to match that up with our activity levels.
And every dollar spent get get scrutinized. So we are by no means has given up on on maintaining that EBITDA neutral to positive that we will have tracked to see Hello, Hello revenues go relative to the activity levels. When we think about the cash flow, obviously, we were able to France.
Strong free cash flow, the first quarter and and are confident over the back nine months of this year will add to that cash balance and so it's just it's going to be incredibly important to us to make sure that we essentially defend the balance sheet that we work so hard to create and <unk>.
You should expect Swift action from us.
Okay I really appreciate that color during this difficult time. Thank you there thanks for.
Our next question comes from conference call wrong with B. Riley FBR. Please proceed with your question.
Good morning.
Uh huh.
I just want to echo the sentiment.
Oh my peers in.
Expressing my wishes to you and all your your loved ones.
For water infrastructure, and one Q, what where the revenue per cent you chairs of the Bakken pipeline into your our network what that each of those systems accounted for as a percentage of the topline.
Yeah, Tom is it's a little typical to a kind of separate out each individual asset there when you're talking about the bucket infrastructure network, the a new Mexico pipeline.
The GR our system and in the transfers off those each of those systems.
The ones that once a stick to it its critics at pretty into entered into it in some cases on each other but overall that bucket accounts for about 90% of the infrastructure. There. When you include the transfers office systems and then.
General sourcing that may or may not be directly connected to the systems there.
How about just for the Bakken then in its entirety as a geographic market for that division.
Yeah. The Bakken, it's always said it was definitely.
Okay pretty steep decline in March there you can think of that is down about 33% to 40% from.
Last quarter.
Oh.
Actually so sort of backing for one Q in its entirety.
Down that amount.
Relative to Fourq you.
Correct.
Great and then sticking with water infrastructure.
Given that the darwinian competitive landscape out there and you're growing number of financially struggling to distress rivals.
How would you characterize the evolution and attractiveness of your post Frac investment opportunity set.
Versus your pre Frac, one and on the inorganic side, how would you also compared the deal flow in dynamics for cost customer divestiture opportunities versus just standard.
Bolt on acquisition prospects.
Yeah, I think when you think about infrastructure in particular, Tom It's one of those that operators, maybe I'll backup a little bit operators are certainly thinking through this downturn maybe differently than they have the past few and they are taking D.
But internally versus looking to manage their variable costs just through the service providers and that'll clearly have implications as we as we work through what the new World is going to look like and more and more and we were starting to see this trend actually leading into.
The downturn is that operators were focusing their efforts on obviously there their core expertise, which is you know understanding the rock and drilling in EM, creating the production out of that and left so some of the more ancillary services water being one of this.
And and I think we were making good progress in advancing.
Conversations and how we can help manage that it totality for our customers obviously with what's happened in the market today, everybody very internally focused and and just trying to drive out those obvious costs and not really looking at making strategic moves and how they think about managing some.
Parts of the business I also think there were a lot of.
Water infrastructure assets on the market.
Coming into it does it to the downturn that there's just no buyers to speak up out there. So that market has dried up so I don't expect you to see.
Systems changing hands in the very near term, but but I do think that momentum we were starting to see in how water was managed that will come back to us when when they start to see the market's picked up again, because as I mentioned in my prepared remarks big.
Aren't incremental changes that are going on in the entry industry. They really are going to be transformational I think have water is managed could be one of those.
Great knowing yes, so sounds like.
Operationally react first and then strategically reassessing portfolio rationalize later.
Okay last one for me every Q4 water services.
How much was a temporary transfer pricing down sequentially and year over year in once you.
I don't have an exact number on it but I will tell you. There there has been pricing pressure and environment like this the competitive landscape landscape starts to get.
Obviously strained if if not a desperate and so the pricing discipline. His his not not been there what we'll see however is that those those folks will eventually price themselves.
Out of business and we've already started saying competitors falling out either regionally or on their totality of opposing up shop. So this is something that will probably take a quarter or two to really run its course, but I do think the competitive landscape looks pretty different on the back side of this.
But until then we are going to continue to have that pricing pressure, which requires us to look very carefully and question our cost structure not only at the corporate level, but at the field level to ensure that we can continue to deliver positive feel margin and what I would say is again this is why.
Our technology has helped us right by being able to eliminate.
Some of the labor that goes in to two providing our services that automation allows us and positions us to be able to execute at a lower I'll say ticket than some of our competitors, who don't have that similar technology, Tom from a year on year perspective.
Most of that pricing decrease would have come last year up January February were solid in March correct.
Probably on the lives of 15% to 20% year on year, but the majority of that took place in the past there.
Helpful. I. Appreciate you are taking my questions.
Sure. Thank you.
Our next question comes from Ian Macpherson with Simmons. Please proceed with your question.
Thanks, Good morning, everyone. Holly also on the the a the topic of how things might look.
On the other side with the recovered but.
Ultimately smaller market for some time, how do you think that will impact the the mix between.
Fresh and recycled water.
Applications, we've obviously seen a push towards you know integrating more recycling into programs and that's more of a secular theme a that's being generated then thrust upon your customers, but now I mean, skip push waterborne through the BOPUS presume would be much.
Scarce on the other side of the so do you think that your asset footprint today is.
We'll need to be modified.
With respect to how that mix of recycled versus freshwater sourcing make look for your for now.
That's a really good and interesting question and certainly maybe one clarification I would make on behalf of all of our customers is it very seldom is fresh water being used its brackish or industrial or some other waste stream versus using freshwater but that's obviously.
Frank from from produced water, but one of the things that will make it very challenging over the next year is.
The ability to leverage the opportunity to use large volumes of produced water just when you're when your completion program I'll say as out of sync and it more debt more haphazard, it's more challenging to prepare it's more challenging to make sure you have water and all the right spot.
And so.
Interestingly enough I think in the near term are the way that will support our customers will be a little different and that will be satisfied their need probably die by accessing more water sources other than just their produced water. So I do think it's possible that in the near term we see the.
None are produced water this utilized as a percentage of the total water could go down.
I don't have any reason to bleed. However that operators are continued to be committed to maximizing the use of produced water over the longer term.
So when I think about our footprint, obviously, we have our systems that we used to deliver completion water in the Bakken and in new Mexico that are not movable, but when you think about the rest of our assets and the water rights, we have there quite spread out and and we have a lot.
Average inventory of those to be able to satisfy those needs in the near term. So I don't see any meaningful adjustments to how we think about it.
Strategically or footprint wide frankly in the near term or or the or the long term, but you probably will see a shift in any volume produced water that that the industry is able to utilize here in the near term.
That makes sense, thanks, Holly I would've thought.
Ask a follow up have you.
Just.
Regardless of the cash flow fibers.
You had good working capital to release, the first quarter or use one of the to God. It's almost provided is another positive.
Working capital and ultimately free cash flow aspiration for Q2, but when we look at your reduced Capex for this year. When we look at what your exit rate Capex will be in the second half.
Is that a level that is sustainable or do you think that we should think about that is a good artificially low.
Capex level that will need requires some catch up from deferred maintenance spending within the next few quarters.
Sure in so it is sustainable within this environment.
With an environment that is enjoying a recovery than than our capex would need to move higher things attractive thing about this business you have a lot of.
Discrete more small dollar items.
You do in a more capital intensive fixed asset heavy type of business that business typically you need to spend money on those assets to ensure their and working order when when a recovery would return that's often significant money, we talk about integrated drilling systems and software packages and things like that.
Our assets are generally a.
Lighter than that and lower dollar and costs less to maintain when there.
Storage state.
So you're you're not spending that money to for example, keep lifelock whos in Prime work more every week when you haven't rolled up in the yard waiting for the next job. So yes that is sustainable in this environment.
We're not deferring a lot of maintenance that will need to pay extra or in coming years.
But environment that looks more like January and February than you would expect capex move buyer.
Got it. Thank you both very much good luck.
Thank you. Thank you.
Next question comes from Sean Mckean with JP Morgan. Please proceed with your question.
Thank you good morning.
Uh huh.
This is somewhat related to the topic of maintenance capital, but for the broader market.
You mentioned the desperation of your competitors with some falling out of basins or even altogether I'm curious where that lay flat inventory goes do we see the capacity of the industry shrink or irrespective of the current state of competitors.
What are the factors that will drive what supply looks like on the other side.
Yeah, I think one.
One thing to keep in mind is that people have probably been fairly capital constrained or disciplined over the course is the last year.
It didn't just start now so I think when we look at the lives remaining on various assets across the services that we we supply you know you're probably getting to a little Oh. These assets are getting a little longer in the twos or the fact that is it the right size of asset anymore.
Or that was the other thing we were seeing that being eight inch tenants 12 inch whos or the size of the separators. Your cash units, we use in our well testing are all these various areas that as completions were becoming larger more integrated.
A more complex the equipment needs have been changing and my sense is that what what we will see happen. Sean is that there will be smaller undersized older equipment that doesn't necessarily make it back into the space and in the recovery. So I would expect.
There to be less capacity on the other side.
Well I think you make a good pentair about the mix changing.
Could you maybe give us take a stab at.
Hi, you would.
You will describe the mix within your inventory of call it smaller less favorable versus larger more favorable and how that.
His distinguished from the overall capacity of the industry.
It's all said a little harder to speak to what you know everybody else's inventory looks like other than more anecdotally that I feel like we have been making investments to upgrade upsize, our our capacity over the last couple of years.
Maybe more aggressively than then some because we have had the cash flow to support that and when I look it at our fleet I was very confident and the way we were executing last year with the right kind of equipment. So if that provide you some level.
Perspective on what we were able to fully support our business last year with the that with advanced and rightsize equipment and so when you look at activity levels today that we havent meaningful in that and utilized.
But rightsized equipment.
Right right. Okay. Thank you.
Our next question comes from Tommy Mode with Stephens. Please proceed with your question.
Good morning, and thanks for taking my question.
Hi, good morning.
[laughter], Nick I wanted to double back to a comment you made about a 15% to 20% decline.
For a water services pricing could I didn't quite catch all the details there. So if you could just run through that again.
Well take that one first that was in relation to year on year pricing specifically.
Not pricing today.
Question was supposed to take it back to first quarter 2019 at how much as pricing deteriorated since then.
Okay. So that's one Q 20 versus once your 19.
Correct.
Okay.
And then.
For water services and on the other segments. If you can comment.
Can you remind us what your peak to trough pricing looks like in the last downturn.
And I anticipate your answer is going to that it was less volatile than a lot of other completion oriented service lines, but if you could frame that force it would be helpful. And then also.
Is there any reason to think fit the range might be.
Better or worse this time around thanks.
At a high level, how many I would say through the last downturn I'm sorry. The 14, then bottoming out and 16 that we would have seen a 30% to 35% a reduction in pricing across the across the business.
I'd say our mix today is a little different given the addition of some of the infrastructure.
We have you know a similar amount of our business it production oriented and protected but I would say that given where reaching a point. However, today that pricing, there's really not much further that that we see it going in it in a way that we would be.
Willing to support just because as I mentioned earlier, we're going to protect positive field margin.
And if you go materially below where we are today that certainly become probably untenable in certain regions and in certain service line and that will then of course lead to driving the service providers out of the out of the market and so any pricing at that level I think would be temporary.
Okay, because people can't can't sustain it.
And then obviously is he is we think through that as I mentioned earlier, the maybe one silver lining of sorts for the whole industry is that I think operators. In addition to looking to service cost there looking internally to drive out costs.
I think that that will be more of this be a larger contributor to the solution through this downturn than it was in prior downturns.
I'd point out that go up in 2014, the industry a much higher margins at much higher starting point from which to.
Reduce pricing.
We entered.
This downturn with so I think I think it's also unrealistic from that perspective to do expect the same level pricing decrease.
Fair enough.
Thank you and I'll turn it back.
Thanks.
This concludes our two when they session I would like to turn it back to MS Hollywood them for closing comments.
Thank you.
Obviously this is going to be a tough year on all this in the industry, but I do believe select is unique in terms of our debt free balance sheet and the large cash position that we built in and I hope what you take away from from US is our priority is to protect and enhance that flexibility rather than somehow allowing it to.
Good to breed some level of complacency and you know the coming quarters, they're gonna be challenging and we know that but we also knows the industry won't stay in this state forever and the future is going to belong to the companies who are the most efficient the companies that have best capitalized and and those that act the fastest.
To transform their businesses to match the current market that we're operating in and you have our commitment that we're going to take every action to position ourselves to to lead that group as a company. So thanks again for joining US. This morning, and you guys have a good day.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.