Q2 2020 RPC Inc Earnings Call
Morning, and thank you for joining us for the RPC Inc. second quarter Twentytwenty financial earnings Conference call.
Today's call will be hosted by the Copel, President and CEO, Ben Palmer Chief Financial Officer also present isn't Jim Landers, Vice President of corporate finance.
At this time, all participant lines or 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 queue up for questions.
I would now like to advise everyone that this call is being recorded.
Jim will get us started by reading the forward looking disclaimer.
Thank you Pauline and good morning to everyone before we begin our call today I want to remind you that in order to talk about our company. We're going to mentioned a few things that are not historical facts. Some of the statements that will be made on this call could be forward looking in nature and reflect a number of known and unknown risks I'd like to refer you to.
Our press release issued today, along with our 2019 10-K and other public filings outline those risks all of which can be found on Rpcs website at RPC Dot net in today's earnings release and conference call, we'll be referring to several non-GAAP measures of operating performance.
These non-GAAP measures or adjusted net loss adjusted loss per share adjusted operating loss EBITDA and adjusted EBITDA.
Using these non-GAAP measures today, because they allow us to compare performance consistently over various periods without regard to nonrecurring items.
In addition, RPC is required to use EBITDA to report compliance with financial covenants under our revolving credit facility.
Our press release and our website contain reconciliations of these non-GAAP financial measures to operating loss net loss and loss per share, which are the nearest GAAP financial measures.
Please review these disclosures if you're interested in seeing how they are calculated.
Not received our press release like one please.
Side again at RPC Dot net for a copy.
We'll now turn the call over to our President and CEO Rick.
Hi, Thank you Jim.
This morning, we issued our earnings press release for RPC second quarter of 2020.
As we anticipated the twin impacts of the Cobot 19 pandemic and global oil bought have caused a swift steep decline in oilfield activity over the past few months.
The rig count failed to historic excuse me to historical lows and Rpcs quarterly revenues fell to their lowest level since 2004.
We address this rapid disk disruption by reducing costs and managing working capital, which resulted in more than doubling our cash during the quarter.
Our CFO Ben Palmer will discuss this another financial results in more detail after which I will offer some additional thoughts about the near term. Thank you Rick.
The second quarter of 2020 revenues decreased to 89.3 million compared to 358.5 million in the prior year revenues decreased due to lower activity levels and pricing compared to the second quarter to prior year adjusted operating loss for the second quarter was 35.9 million compared to an operator.
Again calm of 8.4 million in the second quarter of the prior year adjusted EBITDA for the second quarter was negative 17.8 million compared to EBITDA of 51.2 million in the same period of the prior year.
For the second quarter of 2020, RPC reported a 10 cents adjusted loss per share.
Compared to three cents diluted earnings per share in the prior year.
Cost of revenues during the second quarter was 80 million or 89.6% revenues compared to 265.1 million or 73.9% of revenues during the second quarter of 2019.
Cost of revenues declined primarily due to decreases in expenses consistent with lower activity levels and rpcs cost reduction initiatives cost of revenues as a percentage of revenues increased because of the negative leverage of these expenses over significantly lower revenues. This percentage increase was slightly offset by lower material.
Sales and supplies expenses as a percentage of revenues calls by shift in pressure pumping job mix.
Selling general and administrative expenses decreased to 28.8 million in the second quarter compared to 43.3 million in the second quarter the prior year.
These expenses decreased due to lower employment cost primarily the result of Rpcs cost reduction initiatives during the previous several quarters.
Depreciation and amortization decreased 19 point Sixmillion second quarter 2020.
Fair to 42.9 million in the second quarter of prior year, depreciation and amortization decreased significantly because of asset impairment charges recorded during the past several quarters.
Technical services segment revenues for the quarter decreased 76.2% compared with same quarter prior year operating loss in the second quarter was 34.1 million compared to a 6.9 million operating profit in the second quarter to prior year. This loss was due to lower activity and pricing.
Our sports services segment revenues for the quarter decreased 57.2% <unk> compared to the same quarter in the prior year operating loss in the second quarter 2020 was 1.9 million compared to a 4 million dollar operating profit in the second quarter to prior year.
On a sequential basis RPC second quarter revenues decreased 63.4%.
Yes to 89.3 million from 243.8 million in the prior quarter.
This was due to the significant significant decline in industry activity that began in March.
Cost of revenues during the second quarter of 2020 dirt decreased by 101.9 billion or 56% due to lower materials and supplies and fuel expenses caused by decreased activity.
And lower employment cost, resulting primarily from head count reductions.
As a percentage of revenues cost of revenues increased significantly from 74.6% in the first quarter, 89.6% and the second quarter.
Selling general and administrative expenses during the second quarter decreased 21.2% to 28.8 million from 36.5 million in the prior quarter.
See incurred.
And adjusted operating loss of 35.9 million during the second quarter compared to an <unk> two and adjusted operating loss.
13.2 million in the prior quarter.
Rpcs adjusted EBITDA was negative 17.8 million in the second quarter compared to adjusted EBITDA of 25.8 million in the prior quarter.
Despite the rapid decline in activity, our decremental EBITDA margin was only 28% due to our cost reduction efforts.
[noise] Technical services segment revenues decreased a 147.2 million or 64.6%.
80.5 million and the second quarter. This was due to significantly lower activity levels and pricing.
Rpcs technical services segment incurred a 34.1 million dollar operating loss.
Impaired to an operating loss of 12.2.
Yes.
Our support services segment revenues decreased by 7.3 million or 45.5%.
8.8 million in the second quarter.
Operating loss was 1.8 million compared to 1.5 million operating profit in the prior quarter.
During the second quarter RBC operated up to four horizontal pressure pumping fleets and is and is currently operating three horizontal frac fleets in the Permian basin.
At the end of the second quarter 2020, Rpcs pressure pumping capacity remained at approximately.
28000 hydraulic horsepower.
Second quarter 2020 capital expenditures were 14 million and we currently estimate for year capital expenditures to be $50 million to $60 million with that I'll turn it back over to read for a few closing remarks. Thanks man.
Though the rig count declined once again last week.
We believe domestic completion activity pass the trough during the second quarter.
We anticipate oilfield activity and Rpcs revenues will improve modestly during the third quarter. However, I want to emphasize that we're unsure whether this is the beginning of a sustained cyclical recovery.
Because of this cautious outlook.
Which is shared by many in our industry. We will continue to focus on cost management and capital expenditure controls our focus will remain on maintaining our financial strength.
Which will include rigorous pricing discipline.
During the coming quarters. This may hinder our revenue growth, but will preserve the condition of our equipment until we were able to secure opportunities to generate sufficient returns.
My opening remarks, I mentioned that our improve I mentioned, our improved cash position.
In fact or.
145 million in cash at the end of the second quarter was the highest in decades.
Thank you for joining us for Rpcs Conference call. This morning, and at this time, we will open up the lines for your questions.
And thank you in order to ask a question Sam. Please press Star then the number one on your telephone keypad well pause for just a moment to compile puts you in a roster.
Your first question comes from John Daniel Daniel Energy partner.
Gosh. Good morning, just one question for me sorry, that's it.
A big picture question as it relates to equipment strategy.
How you see the the optimal fleet going forward and.
What types of investments affinity would you expect to make which you know more continuous Judy pumps.
Tier four DGP type engines et cetera, just you could talk about.
Just the fleet outlook over the next several quarters into 2021.
As a big picture question. This is Ben.
Yes.
Well.
At the present time, we've been we've been studying that for quite some time course electric fleets there for for a while we're we're all the rage and and of course with what the downturn and and other issues and challenges people have had with the electric fleets.
That's something we have not here recently spent as much time with.
We are not currently.
Planning to spend a tremendous amount invest a tremendous amount of additional equipment as you can imagine at this point in time, given where we are.
In the cycle and given the uncertainties, but but it's something we continue to study we understand that having appropriately configured equipment.
With cake technological capabilities and.
S.G. compliant or or or helpful type of equipment will be.
More important as we move forward, we are making have been making for a while and are making some modest investments.
And our our processes and our people and a little bit of Capex with respect to upgrading some of our existing equipment with dual fuel and things like that but it's something we're going to.
We're going to take it slow we've obviously pared back our operating capabilities and pumping.
A tremendous amount.
We talked about our pricing discipline and that's something that.
We're going to we have to recognize that that any additional investments in technology or equipment has to be paid for overtime. So.
We are going to make sure that and the relative near term, if we're going to put out more equipment or make investments we need to be comfortable.
At adequate returns are going to be generated from putting that equipment out. So so that's our number one priority today, we'll still have will continue to study the technological technology alternatives evaluate those.
But for the near term again, it's going to be generating sufficient returns to be able to pay for that over a period of time and that we have to see that first before we make any any meaningful commitments. That's fair I'll squeeze one follow up and do you see since any customers at this point mandating it or is it just inquiries.
Do you what do you got in terms of the dual fuel.
Et cetera.
Well mandate may be strong, but certainly.
Encouraged.
It it helps to habit.
And.
So we we again, we are making some investments in that direction and those are not those are still fairly modest, but but again recognizing that we have to pay for.
For all of those things as we as we move forward.
Okay, Great you guys, let me ask a question. Thanks.
Yeah sure John.
Your next question comes from the line of Cameron luck Rich with Stephens, Inc.
Thanks for taking my question.
Hi, Karen.
First I wanted to start on the balance sheet, great to see cash growing by as much as it did.
You guys have historically.
Really put an emphasis on keeping to clean strong balance sheet.
And that definitely pays off at a time like this just wondering how you see that progressing over time would maybe to see to continue that trajectory continue to keep cash at a at a healthy level, maybe maybe keep ramping up on the revolver. Just wondering how you see that progressing through the downturn.
Well I'll take that this been again.
We are fortunate enough with the the cares Act.
With with some of the losses that were generating that we're now going to be able to carry carry those back and carry him back at higher tax rates.
We had strong profitability and some of the carry back years, so we're going to be able to carry that back in generator.
Fair amount of additional cash between now and year end, which is which is great and then we'll be able to.
Yet.
Additional refund sometime in.
Did that 2021 as well so that's that's going to help.
With the new tax law before the cares Act you were not able to take you were not able to carry back taxable losses now we were able to at least in the short term that's going to be very very helpful for us.
We certainly don't want to rely on that.
For the long long term.
So.
We we are hopeful that we will have a challenge and building our cash because we're hopeful that business activity levels will improve enough that we'll have some working capital growth and we'll need to use some of that cash. So we would actually prefer that there were positive trends taking place that we didnt that we don't have nearly as much cash on the balance sheet understand how all that.
Works.
And.
No that we need to have it available yet in the event of.
The eventual upcycle growth that will experience, so I don't know that.
Yes, I our plan right now is not to say that we want to keep cash above a certain level. We just want to have a sufficient amount paying upon the.
The status of the business and the direction of the business and things like that but we clearly we do not want to get to a point.
I've heard that we're trying to fund operations from Walmart.
Cash balance so that certainly as a primary tenants. So we'll keep keep the balance sheet strong we'll still have the strong financial position then we'll we'll certainly maintain that oh for.
Wherever as far as we're concerned.
That will make sense great.
Thanks Ben.
Sure. My next question I, just wanted to talk about.
Maybe activity levels in the back half of the year.
It does sound like.
You guys right going we've been hearing so far this earnings season, which is.
Completion should start to pick up in.
Hopefully see the bottom in Twoq.
Just wondering right now maybe from and RPC perspective, how many fleet you guys have working.
And does the activity cadence going into the back half.
Contemplate.
Just building.
On the efficiency that you guys have on those current fleets or do you think you could see the potential to bring back some more fleets in the back half.
Cameron. This is this is Jim.
So our view of things right now is that we have passed the trough.
June was a little better than May july's, a little better than June, but we do think we're going to plateau here in the next month or so so.
Our CEO was saying that you didn't see this is the beginning of as of a sustained recovery.
Like the kinds that we've seen in previous recoveries, having said all that and given our real focus on financial returns in businesses like pressure pumping well all our businesses.
With that speaks to is being very conservative about putting fleets back into the field. So when it or additional fleets in the field. So whenever possible I think we're going to try to.
Increased utilization on existing assets before we activated another.
Fleet, we'd have to have some some believed that there was going to be fairly high activity out of that so.
The outlook is murky right now.
There may be another fleet coming back in the field this year.
But we don't think there's much more than that.
Make sense, Jim Thanks, a bunch of I'll turn it back.
Great. Thanks Kim.
Your next question comes from the line of Chase Mulvehill with Bank of America.
Hey, good morning, everybody.
Hey, Jason.
I guess I guess, if we can kind of flush out threeq you outlook a little more here.
I don't know trying to be willing to kind of put some bounce around you know how much revenue or what do you think revenue would be in Threeq, you or maybe how much it could be up it seems like it will be up and then maybe.
Hopefully we can talk incrementals here.
And what type of Incrementals, we should expect in Threeq you.
Okay.
Well.
I will say that we feel that.
We have sufficient per person, we should not have to add much at all to our cost structure when I think about our our.
Overhead anytime soon.
Desktop site, we have great too much but I think we have the ability with our processes and systems, and so forth and where weve repurpose position from a geographical standpoint that we feel comfortable that we can certainly from an infrastructure standpoint generate some strong incrementals with additional revenue as it relates to.
Well site personnel.
We have.
Opportunity there as well to generate some very strong incrementals.
I think for at least the next couple of quarters, even if we have.
Modest too modest improvement and revenues so.
Hi, we're not really not prepared to give any estimates.
What revenues are going to be in the third quarter, I will say kind of relative to the the question earlier, our concern to is about what.
What might happen again in the fourth quarter, we know that oftentimes.
Oh agreements are made with customers now in the fall of each year.
We will.
We'll bid appropriately aggressive to try to get those opportunities, but again, realizing that we know overtime, we have to generate sufficient returns or or we won't have a viable business. So we're not going to contribute to weak weak pricing.
Across across our industry. So we're not we're going to hold firm on that.
And.
So again, so the incremental should be very strong when we have additional revenue, we do have a little bit of opportunity on SGN a side with some of the cost cuts didnt happen until kind of the during the first half of the quarter. So there will be a little bit of additional reductions slight reduction in SGN a moving forward.
And.
So incremental should be strong Jeff do you want anything to add to that.
Chased the only thing that I would add is that when the numbers or negative for.
You are kind of at the customer some things if it doesn't make alright.
Incrementals can be calculated but they don't indicate all that much I mean is been saying, we think third quarter revenue will be higher than second quarter and our.
Bottom line EBITDA loss will narrow.
And when you put those two numbers and it was spreadsheet you end up with a kind of kind of strange incrementals, but certainly we think third quarter, we better than second quarter.
Yes, yes, maybe I can.
So a little differently about this.
We just kind of think about the path towards.
Positive EBITDA and maybe just kind of talk about breakeven EBITDA, what kind of levels. The quarterly revenue do you think you actually need to be able to kind of reach that breakeven EBITDA level.
Yes.
Chase, we'd be given to answer if we told you that.
[laughter] away.
And Rick I mean, Jim talked about strange numbers strange positive numbers right I mean, the incrementals can be tremendous so with with pricing desperate discipline and cost control discipline. The incrementals could be tremendous so we could very quickly.
To positive EBITDA breakeven.
Okay.
Just one wrote.
One follow up real quick it sounds like that you expect some for Q kind of budget exhaustion or slow down.
Is that just given.
What you because what you've seen in the past or is that what you're hearing from your customers.
I think it's more of that I actually earlier in the year was sort of surmising that maybe.
Fourth quarter, maybe there would be just normal progression restart where it's such a low level of activity now why slowdown in the fourth quarter right yeah.
Yeah.
But I don't know hearing a lot reading a lot about people, saying, maybe it's going to happen again, I think there's perhaps better than a 50 50 chance, but it may be that we mall through you know if theres any sort of pickup in activity.
Many many years in the past the fourth quarter holidays didn't really matter right. If people were busy I needed to get things done they lead work right through the holidays themselves. So.
So we're not sure, but but we know it's a possibility. So we don't want to get out ahead of our skis, we don't want to ramp up add add capacity add.
No.
We don't have the pricing discipline, and we end up ramping up and adding resources are adding capabilities and then we'll get a fourth quarter slow down. That's just that's obviously not helpful. At all so we're it's going to cause us to be a little more careful about how quickly we we ramp up and how aggressively we might ramp up.
Knowing that that backdrop is there that possibility of a slowdown is there.
Okay.
Ill make sense appreciate the color where he will then.
Thanks, Jay Thank you.
Your next question comes from the line, if Ian Macpherson with him.
Thanks, Good morning, everyone.
Thanks for letting me on I wanted to.
Ask if you think that Ian you maybe on mute.
Yes.
Hi.
Jim can you hear me.
Yes, that's.
Im not experiencing can you hear me now Oh, sorry, Okay. We hear you now.
I'm sorry about that.
How do you assess the the collective industry disciplined and we I mean, we hear your clear and applaud your judgment to not put more capacity out there right now they can cure work profitably.
Are you seeing.
Encouraging or discouraging signs of discipline across the competitive field.
I.
I would say I don't know to that.
Yes, with the low levels of activity is hard to say.
I I don't think pricing could go a lot lower I think the question is how discipline will people beta site, we have to get it we have to get the pricing up right got to get it.
No that is going down.
People are scrambling to I think competitors were all scrambling to try to figure out and determine opportunities to to get back to work in trying to partner with our customers and bond solutions that are hopefully mutually beneficial but.
We don't want to start back at low levels with the hope for the promise that that that pricing will improve we don't want to make the commitments unless we see a clear path and hopefully right off the bat see sufficient level, maybe not sufficient to give us adequate long term returns, but we need to have strong enough.
Pricing really makes sense for us to make the commitment to the customer in that pricing that activity level needs to be in place for us to again to make that mutual commitment. So.
I am hopeful I don't out at this very very low level. Some people may be saying that they feel like they need a minimum level of.
Capacity put in the field to remain relevant.
Especially if you don't have a diversified portfolio.
But.
Yes, so it's hard to say I'm hopeful that people will be disciplined overall.
Get get there get their center at life.
Okay.
Well I mean, the other point is if you can get pricing can you can't get.
Industry activity.
Sufficient levels. The other instead of course is to consolidate and add scale through consolidation and we havent typically thought of RPC as a protectionist.
And that scenario, but it is a new world now so I wonder if there's any updated thoughts from you guys with how you're thinking about.
The way that your industry needs to consolidate and your appetite to participate.
Ian This is Jim there.
There are plenty of opportunities to plenty of opportunities being presented for consolidation right now.
We don't need more pressure pumping equipment at this point.
I don't know who does so.
Yes.
If there will be probably incrementally more consolidation this cycle than last.
I think you probably will not see RPC.
Participating unless there is something that's really transformative.
It's hard to figure out what a good deal is when oil field activities at historic lows.
And you don't have a clear vision in the future.
So it'd be hard to hard to see us really participate.
I will comment just been I'll comment I think the current concept is that people can come together with little or no premium that certainly takes one one aspect of.
Doing transaction out of the equation.
But again, there's just so much uncertainty and and.
Many.
Potential candidates.
Even though they as we have gone through geographic goal.
Location justification processes and things like that so some of the.
Some of the work has already been done but.
There are still there would still be a.
A lot of complication.
And then maybe you don't do it but.
But we're going to sit back we'll certainly entertain we have entertain we have looked at we will continue to look at opportunities and and see where it lead us leads us, but we're not saying we need it to survive right. We don't want to we don't want to take on anyone anyone else's problems and issues.
We have enough challenges of our of our own but luckily were well positioned we're not we're not forced to do anything but we will look at opportunities we'll evaluate them.
Yeah.
You never know, but but as Jim said.
We're not not actively.
Pursuing that current.
Good perspective, Thanks, Ben engine for the candor and insights I'll pass it over.
Sure. Thanks again.
Your next question comes from the line of Jacob Lundberg with Credit Suisse.
Hey, good morning, guys I just want to.
To start up hey, good morning.
Just wanted to start off asking about some comments that came out of one of the large equipment manufacturer yesterday on their call. They actually referred to some distressed oilfield assets that were being bought in kind of redeployed by some entrepreneurial.
Incline people in the oil field I was just curious if you guys are seeing any of that in the pumping space.
Jay This is Jim that certainly bad news.
If true and were not questioning it we've not we've not seen that in our.
On the ground in our local markets to our knowledge this point.
Okay, that's encouraging.
And then I guess.
We kind of touched on pricing all already there are some kind of widely traded anecdotes during the quarter that sounded that sounded pretty bad.
And it sounds like there is no continued march down in pricing at this level from Premier earlier comments, just a question of well take to to get pricing traction but.
[music].
If you if you think about some of those anecdotes around kind of the worst of what might be called irrational pricing that happened. During Q2 and has that started to go away in other words of we taken away the absolute low of pricing are you still seeing some some very aggressive bids for it for workout.
There.
Correct.
Yeah, Jake the anecdotes and the actual things that happened in second quarter, they're always going to be outliers, who bid.
20% below the pack if anything is it was encouraging and second quarter it was that.
That group of outliers that we're bidding below everybody else was was much smaller and the customer might have acknowledged that they may not be around that much longer so that will just kind of kind of.
Work with them for a while so if anything's positive is that we do think theres more pricing discipline. The last time. We also have heard that some pumpers who were.
Yes, they have some some inventory of proppant are going ahead and working at lower rates just to get rid of the proppant I guess, they're doing.
You know cash accounting rather than accrual basis accounting, so there's going to be some of that as well we think incrementally.
You know that the pricing discipline is better than it was and we think that things. We've heard in second quarter are probably abating, a little bit, but there's a lot of excess horsepower up there. So theres still going to be people, there's always going to be a marginal.
The marginal bidder is going to be lower than everyone else.
Makes sense, if I could sneak one more in may be reading too much into this but I think that the capex commentary was given its 50 to 60 million and if if I'm right I think last call you just talked about 50 million.
Im just curious what kind of explains the delta there.
I mean were later in the year, it's a little more clear than it was otherwise nothing in particular, I mean and reasonable question, but nothing in particular, just trying to frame up the number.
Okay.
No particular thing Thats.
Driving that.
Got it okay. Thanks, guys appreciate it.
Correct.
Okay.
And your next question comes from the line of that's the best shot of Scotia, Howard well.
Hey, good morning to them and and thanks for taking mourners.
Sure.
I guess, if we think about that meet the main added on the street fighter fleets even into next year.
Is there way, we can think about how much more costs could be.
I'm, just trying to think how much excess cash costs.
Fabs it's been.
We can.
Carry a number of additional fleets with our.
Existing.
Infrastructure.
So you so you're correct. There there is some extra that we are carrying.
But we are hopeful we will evaluate as we move forward again, what the opportunity is the speed of the opportunity we're going to main pricing discipline, we don't want to.
We don't want to put out the number of fleets that we can handle from a cost infrastructure standpoint, that's not the goal. The goal is to yet each fleet contributing at a at appropriately.
An appropriate level on a consistent basis right. So thats the priority right now.
We will continue to evaluate what the right costs. It infrastructure is for each area of the company.
Support functions and direct operational support functions will continue to evaluate that as we move forward, but obviously, we all recognize that would just come off incredibly low.
Drilling rig count and even lower completion activity, so who knows where it's going to go from here right. So.
So we're going to give it a little bit of time, we have that opt that look quote unquote, the luxury given a little bit of time seeing how to plays out.
And and and will position ourselves accordingly, but but we're not reacting.
We reacted.
Late first quarter, an end to very early second quarter reacted to what we thought was going to happen, which was a rapid decline activity, which obviously did occur we think bottomed in Canada May June timeframe. So, we'll just see where where it goes from here and and we make the valuations.
While continuously in terms of what the right right structure is but we're not prepared today to say, we now have clear visibility on what what fourth quarter looks like exactly or what first half of next year looks like.
But we'll continue to look at it and evaluate make adjustments as possible, we sit back and look at our infrastructure costs.
As it exists lot longer term or in the intermediate term our issue is not our.
Cost structure, that's not our issue our issue as well.
We don't have enough activity right and.
And we need activity a sufficient pricing. So that's the focus right. Now is what is what is our opportunity from a capacity activity and pricing perspective, and then we can adjust the cost structure from there were not needing to adjust cost structure to survive at this point, but we'll continue to monitor it and and make progress.
Tons in the coming months and and quarters.
I guess.
If you could provide some color.
This talked about activities increasing now.
July even.
But then you would expect activity too.
I do out here, what's driving that exactly.
From an industry perspective that companies perspective.
Yes, thats its just the company perspective, I mean, just restate. Your question. We've said, we think activities improving but we'll probably plateau and that's just based on.
Customer indications in the sales funnel and all that sort of thing.
Plus the fact that oils in the low fortys, which is not exciting.
Okay.
And maybe just switching to keep yes.
Assumption is tedious.
And just trying to think about.
But any additional cost savings plan.
Yes is it more.
Turning to positive EBITDA would be more driven by just activity increases.
I know there are opportunities all over the company right when that time comes to say hey, we need to take cost reduction efforts I would just go back to come earlier comments, which I won't restate, but but there are opportunities.
Everywhere.
But we're going to see how things play out.
We continue to make small adjustments here and there, but we don't we don't feel the the pressure at this point in time to make further.
Incremental additional significant cuts were going to react or what we see in the market in the coming months and quarter. So and that same is true TTS same is true is pumping its history with our support functions, it's true across across the company. So we're will react to what we see.
As it will give a little more time see where it seems to shake out see what our position is and will go from it.
Okay. That's very helpful. Thank for taking my questions.
Thanks, Thanks hubs.
Your next question comes from the line of George O'leary with TPH and company.
Morning, guys.
George.
Hey, Jim I wondered if you could just break down revenue by business for us.
Sure George absolutely glad to so the percentages I'm about to give or percentages of consolidated or PC revenues by our major service lines.
So during second quarter, our largest service line in terms of revenue was thru tubing solutions at 37.6% of revenue.
Second largest was pressure pumping at 26.6%.
Our third largest service line was coiled tubing at 10.0%.
Number four was nitrogen at 6.3% and number five was rental tools, which is in our support services segment.
That was 5.7% of consolidated RBC revenue.
Great that was very helpful and then.
Taking about just.
Shots on goal for incremental work it sounds like the fleet yet active today or in the Permian Basin and is that right you guys envision.
Staying most active or are there any shots on goal in other geographies that that may be in enticing to you. All just trying to think about from a geographic distribution, where you're having active customer discussions about potentially.
Adding activity backend ambitious utilization within existing spread that's that's out there in the field working today.
Georgia Inferring that your question is pressure pumping and so you're pretty much pretty much right. There we've got.
We're in the Permian and and you know the mid continent, and that's where the.
The becoming opportunities are and that's where we're active now.
We don't do pressure pumping in the northeast and haven't for almost five years now, but just to their their hands of greater activity levels in the northeast.
With some of our other service lines.
Are already everything's relative during these times, but are relatively better than.
Than some other areas I mean, you really have task when at the numbers, but our businesses working in the northeast, Pennsylvania, Ohio.
Or are doing relatively.
Better than some other places so just going to bring that up it's not a pressure pumping comment that's an RBC.
Overall market comment.
Great. Thank you guys for the color.
Sure sure George Thank you.
Your next question comes from the line of Chris Boy with Wells Fargo.
Thanks, Good morning.
Hey, Chris.
I guess first could you touch on expectations for growth rates by business in the third quarter, obviously, it looks like pressure pumping a shrunk a lot is that can be the fastest grower in the third quarter, maybe you could rank them.
Chris This is Jim that's that's a hard when we just got a question about consolidated growth and we are prepared to.
To give that out and if so.
Logically, we really aren't prepared to do that with the service lines either.
You know there.
All of all of them have shown some increases in activity I don't know that there'll be any standouts, we reported third quarter, though with the way, we you know with our position with.
Excuse me with pressure pumping with the number of fleets, we sort of alluded to.
If and as we are successful, adding one more fleet that does and if it is that and it will be at.
Adequate pricing inadequate activity that produce the percentage increase potential yes is the greatest in pressure pumping.
Okay Fair enough and then is it fair to assume that Theres, a pretty decent sized margin gap for pressure pumping compared to the rest of the businesses, where it would have lowest margins right now.
Yes.
These are strange times and actually that is.
Not exactly accurate I mean, let's let's give ourselves from credit for all the work we've done cutting costs in pressure pumping.
And we're talking about just just small variances here, but pressure pumping as margins are actually.
A little bit better than the average, let's just say.
Which at which historically would not be case in a down cycle like so yes. So that's that's a change we've made to the business that I think has positioned us well to really again captures the upside opportunity to the to the earlier comment about the ability to increase the revenues. So we are trying to improve the over.
Overall average quality of our fleet performance customer relationships and all those other things and I think theres been a lot of.
Work down in that area and I think I think it's it's positioned well from this point, obviously would depend upon the number of opportunities. We we win but those opportunities will come to us unless there is sufficient pricing and activity they will have to be at certain.
You know levels before we're going to be willing to make that commitments. So it's not about volume. It's about at this point, it's all about adequate contribution and that translates into adequate.
Margins.
Okay that makes sense and maybe one last one given the performance improvement you've had so far through this quarter improves last few months if activity continued at the current rate you think you could EBITDA losses, maybe in half in the third quarter compared to the second quarter.
The.
Hello.
Not trying to give a plant flippant answer but the answer is yes sure. That's very very much within the realm rentals could be very it will be very strong yet so that's very much in their own possibility.
Okay, great. Thanks ill turn it back.
Sure. Thanks.
Your next question comes from the line of Commerce Lynch with Morgan Stanley.
Yes. Thanks.
I think Archie you don't want to get eight.
I want to give way too much.
Right.
Just trying to think about blacks.
It would take.
Are you guys see in the market.
Yes.
I mean, maybe broader question a little bit but.
Yes.
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Okay.
So.
It is the issue the duration.
Customer commitment that.
Good.
Hi.
Right.
Maybe you could just frame for us how much improvement.
Yes.
Yes.
Okay.
Kind of kind of this is Jim audio is a little bit unclear, let let me restate. The question and we'll answer I think your question is.
In order to reactivate some pressure pumping fleets, what would we need to see.
And I'll I'll kind of start with an answer.
One domain domain answer is activity levels on a daily weekly and monthly basis, and a belief that those activity levels have some duration to them.
Some length.
And so the issue is been customers with sporadic activity levels, we're doing everything they want us to do but they don't want us to do that much.
At the pricing market pricing today, if you're going to generate financial returns you really have to have high activity levels. The other opportunity of course is better pricing, but we're trying to be realistic on the levers we can pull and it's just it's just.
Daily weekly and monthly activity levels, and then the expected length of time that that will take place.
No I think gems summary isn't good one piece of daily weekly monthly and we really we need to see you never know as we sit around and talk about it you never know till after the fact right how much activity, you're really going to get but but we want to set as much as we can expectations or have expectations with.
Customer and there were share and those expectations, when we're making decisions about the number of.
Fleets, we want to activate and put in the yield and staff and support and all those other things. So we're we're going to.
We continue to be again as we've talked about we wanted to disciplined about that and.
And we think we've made great strides in that regard.
Type of customer relationships, we have today compared to a year ago or even nine months ago is a lot different.
So we are.
We are we're doing today, what we talked about.
A few quarters ago that we wanted to get to obviously, we haven't huh.
Relatively small number fleets out, but but the profile looks like what we have been shooting for and we'll we'll grow that Anand and.
We'll grow that as we can but but but only if we get again the level of.
Activity you can't talk about just pricing have talked about pricing in activity together and that has to be over time periods longer than even a few short months right you want to longer commitment, but but that's difficult for the customer in this environment difficult for us, but that's something again that will monitor.
Sure and we'll want to make sure that that we can beacons system or try to be do everything we can to be consistent with the performance and we think that that will improve.
And prove that results and I think we're we have seen the beginnings of that I think we're in a good position given.
At the low low levels of activity that we saw in the second quarter. So we're pleased with where we're positioned and again, we'll monitor it in the coming month in quarters and adjust accordingly.
Yeah I appreciate it.
Radiata aquatic there's a little bit better.
Target, particularly good working from home.
So one question could contribute a little bit is.
Deflation in your supply chain, so in past cycles, it's maybe taken.
The prices of parts and potentially consumables like send into like a bit longer to deflate relative to pressure pumping pricing.
Is there any tailwind that we think about in that regard.
Certainly.
You know impact might come on a bit of a lag regardless, but can you help us think through if you're sort of variable margin is going to be improving at all through the back half of the or.
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No, it's not supply chain, but we aren't experiencing upward upward pressure on labor prices right now.
We have saying we comment excuse me Jim for Japan, We commented on that the pressure pumping job mix has changed a bit with MNS and fuel and things like that we are we're seeing what a lot of other people are the customers providing in general.
We're often providing that.
We are.
We are not is interested.
In the percentage margins were getting we are trying to achieve sufficient contributions from our fleet, whether that's through equipment and personnel only whether that can be supplemented with or where the customer wants us to bring San provide the fuel and things like that we're looking at the overall contribution.
Mobility and so the margin obviously changes the percentage margin changes quite a bit whether we provide the materials or not but we're going to need to have an appropriate net contribution from that fleet before we're going to make the commitment. So so it will depend on the mix up the work and.
And that's not yes, it's hard to say, where that's where thats going to go again, we can change the percentage mix of our our business overall with the winning of only one or two additional.
Fleet, our fleet expansion opportunities. So so not sure what the future Mapr portend in terms of.
Margin percentage from this point cold.
I appreciate it thanks.
Sure.
Your next question comes from the line of Blake Kendra from Wolfe Research.
Thanks, Good morning, guys. Thanks for joining me on here I wanted to approach.
The lss disciplined topic from the M.P. angle you know, it's understandable appreciating that.
Most of the jobs apply bid on a very small lot maybe on a per pad basis really ever since the pandemic started.
And through the back half the year I suspect that would be the same on one hand, you appears have been we're disappointed just because it would make sense to reactivate a spread for.
On favorable economics on the other hand, it allows the and piece the kind of go dumpster diving so to speak with those few competitors that did well below market price.
I'm just wondering when the MPS re budget for this coming year do you expect them to.
Potentially throughout larger job lots, maybe more dedicated arrangements like we've seen in the past and if they do that do you think they're going to put more of a have a premium on business continuity and the quality of the wholesale service supplier as opposed to going for some of these folks that they recognize that the company may not not last another week or two and so they have other.
Folks on backup for the spot work I'm just wondering if you could characterize how you expect the I guess tenders to evolve here as we reset budgets into next year.
Blake it's Jim.
I'm trying to answer this delicately we did we don't have any great leading edge market information on what you know.
Im essay renewals are going to look like what we have seen this year is that customers have started asking questions about a suppliers financial strength.
And sometimes some BSG questions as well.
However, they they take that information and like reading it and then choose the lowest the lowest price provider. So thats kind of all we know right now, it's probably an evolving story, but I will say this has been I will say that that we've heard at least I've heard at least one.
Anecdote discussion with a customer where it was discussed that that they felt like service availability pumping availability.
Going into 21 could get tight so that was part of our discussion in establishing that relationship in establishing the structure of the arrangement for the next several months because of that quote unquote fear.
So whether that was.
Yes, let's make each other feel good kind of discussion or whether or whether they're right or wrong, but but at least it came up that they felt that.
Access to quality pressure pumping.
Service.
Capacity.
Could very well become constrained and 21, whether that's true or not I don't know, but I like the fact that is at least being discussed so to your point hopefully.
There will be we are striving for more clarity of of activity level duration of activity levels and relationships, where we can we can have that appropriate mix of pricing activity uncertainty of activity over a period of time, it's obviously benefits us and that yet.
The.
Structured correctly, so thats seeking and we are hopeful that will be part of the tender process. This this fall, but we.
I have to wait.
Got it makes sense.
We have a pretty good grasp of oversupply and the pumping market. Fortunately, it's the one sub sectors, where you see tangible attrition.
We've seen some of your your competitors fallen on hard times and maybe some capacity comes out here in the near term just wondering if you would characterize sort of the oversupply, whether it's worse better sort of the same across the auxiliary segments.
It seems some was specialized so maybe not so much there but for.
Coil snubbing nitrogen can you just characterize the status of these markets and assuming that attrition isn't as strong in these subsectors. How do you see this this utilization playing out over time, assuming nominal activity improvement next year.
Blake This is Jim the these other sectors are not as widely followed and there's just not as much transparency on how many how many fleets might be out there. It's not reported on Bloomberg every Wednesday.
But our sense is that.
Some of the other areas are not as oversupplied.
As.
As coiled tubing as pressure pumping in fact, I would say that little more strongly some of those areas or are not as oversupplied.
We don't know about attrition.
From a just a an equipment perspective.
There may be companies going out of business or consolidating and when you consolidate you.
Eliminate the bottom X percent of your equipment. So there maybe some attrition there due to business combinations, rather than just equipment wearing out but our sense is that pressure pumping is the most probably the most oversupply at this point.
Got it and just one housekeeping follow up working capital do you expect it to be a source of cash moving to the back half of the year, obviously not as large of a source in Twoq just wondering what the runway as here in terms of working capital capture.
Yes, if you would actually be the opposite if revenue improved sequentially between second and third quarter and who knows what fourth quarter is that would actually require more working capital because of receivables and inventory.
So that would actually be drawn cash in that scenario.
Got it thanks guys.
Thanks Blake.
Hi, Dan if you would like to ask a question. Please press Star then pin number one I go telephone keypad.
Your next question comes from the line of Scott Gruber with Citigroup.
Hey, guys. This is Stephen on for Scott just wanted to ask a question cost savings in a different way.
You guys initiated a bunch of cost savings early last quarter, but with the comment that incrementals could be that's strange next quarter. It sounds like a full quarter of cost savings in Threeq, you will look different than perhaps partial cost savings felt in twoq.
So I guess barring any change in revenue are you able to gauge how a full quarter of cost savings realized in threeq, you could positively affect EBITDA versus twoq you on a dollar basis.
I kind of made that comment that most of our cost cuts.
You know there weren't there were head count reductions that we took early in the second quarter.
Severance costs are down in the impairment line. So that's depending on how you treat that.
For your purpose.
But but.
Did take some other compensation adjustments that were effective.
The first of May so that's that kind of alludes to my comment that there'll be a slight reduction there'll be some additional reduction in SGN, a moving from second quarter to third quarter. When it relates to above the line. There were some compensation adjustments made there but that becomes.
Much less transparent fence latonya of obviously level of revenues and all those things that come through so I don't know that I would sit here and say that the costs the timing of the cost savings in second quarter versus a full quarter savings is going to be enough to.
Hi.
If I were modeling it I would not put in a huge additional cost savings moving into the third quarter.
Okay that kind of answered your question little bit of improvement on the DNA line, it becomes a little bit more difficult.
On the gross profit line, that's on your assumption about revenues and things like that.
Got to that's helpful. Thank you that's all for me.
Thanks. Thanks.
Thank you there are no further audio questions well now turn the conference back over to Mr., Jim Landers.
We mark.
Thank you probably thanks for everybody, who called in and listened and thanks for the.
The questions in the discussion we look forward to seeing everybody soon as the quarter continues thanks.
And thank you and thank you for your participation in today's conference call.
Today's conference call will be we we played on www Dot RPC dot net within two hours. Following the completion of the call. Thank you. Sir you may now disconnect.
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