Q2 2019 Earnings Call
That's a that's a reasonable assumption.
Okay. Okay, great. Thanks, very much will turn it back.
Absolutely. Thank you thanks for.
Our next question comes from that's fashion off with Howard wheel.
Hey, good morning, guys.
<unk>.
I guess this if we can talk about how the other non pressure bumping business progressing, particularly that to do a <unk>.
Business that would be helpful.
This is Jim happy to.
You know it was a it was a decent quarter I think for most of our other businesses.
Thrutubing continues to benefit from a one you know some of its new products and some of it's innovative technologies.
Yes sequentially revenue was was was flatish, but it's it continues to be a good performer for us.
Coil tubing, we're upgrading the fleet. So you don't need to to work on that a little bit, but it did improve sequentially.
You know are snapping service line improved rental tools was was flat I mean, all this is kind of.
Transparent to you at this point so the other businesses or.
Or you know kind of performing well actually better than the recount, but kind of along with completion.
Completion activity and and everything else. So it's it's it's a.
Relatively flat.
Environment's sequentially.
Oh and of course pressure mind revenues didn't fruit by their we're talking about the dynamics relating to that.
So as you guys think about building incompletions activity declining in second half is that family of thinking for the rest of the non backed up bumping business as well.
Okay.
And I understand we don't have any real visibility into third quarter of fourth quarter.
But.
Just if I think about what would your your or lead thoughts on 2020 U.S.
Activity would be what would you change I guess.
Based on the bottles, yes.
Okay.
Oh.
But in terms of your <unk> what percentage of your fleet was.
I was running a zipper flat racks.
[laughter] currents gym again are supercroc and 24 hour percentages state fairly fairly consistent over the recent quarters about about between 16 and 65% of our work in the second quarter was was zipper rack versus versus traditional.
Service intensity seems to be leveling out at this point, there's not a discernible.
Real change one way or the other regarding if we're talking about the sand.
No profit per stage of that sort of thing. It seems it's it's leveling out at this point.
Yeah.
And then maybe just one last question. So as you add these two fleets. They will have a fourth quarter. In fact is that correct not into a quota.
Yes, minimal minimal impact on third quarter, it'll be more fourth quarter, which again will were expecting it to be a difficult environment. So uncertain about what the contributions to fade, but we do.
They all thanks equal we expect it will be working som in the fourth quarter and and.
Position very well when hopefully one activity picks up a bit in early twenties, I'm 20 compared to the beautiful.
That's good thank you very much appreciate dances.
Yeah, Thanks for car.
Our next question comes from George O'leary, with Tudor, Pickering halt and company.
Well anyway.
Hi, Georgia.
So I'm just trying to think about the the cadence of activity in the second quarter. Given you guys haven't closed the book on July but just to think about how maybe July might have started off.
You may be described just.
Utilizations stages to hours Pond. However, you guys think about it days worked on April versus June for your fleets any any color there or even just direction Lee how activity trend. It throughout the quarter would be would be helpful. Again, just to frame the thought process for how third quarter might start out.
George we get into trouble every time, we talk about granular detail no pun and actually that was a pun intended. So we're we're we're not going to talk about weeks or or that sort of thing during the quarter. We can say that the end of the quarter was a bit stronger than the beginning but but let's not go down a rabbit hole about how much stronger or percentages or things like that.
We published our second quarter financial results, they're just going to have to stand as as they are.
Right right there.
It's okay, and then from the third quarter perspective, it just with the to flee deliveries could you frame that just came to the cat back spend in the back half his excuse three going to be that the heaviest quarter from the cap ex perspective.
Slightly heavier yeah.
Alright, guys list.
Mansards I'll turn it back over.
Alright towards thank you.
Our next question comes from Chris playing with Wells Fargo.
Morning.
<unk>.
Sort of question actually about the coil business I think you mentioned that it was actually tracking pretty well, but the Catholics cut is coming primarily from canceling to coil orders has there been any deterioration in pricing there or is this mostly you just you know cap ex disciplined driven.
I think more more the ladder where where.
Pleased with the progress so far with the the new units that we brought in there they're getting into the fleet then up to speed in establishing good customer relationship. So so we feel that that could be a nice you know contributor going forward. If the environment. You know allows it pricing certainly is very competitive remains competitive and you know all segments. So.
Our industry of course.
But I wouldn't say that there's been you know near term discernible.
Changes in pricing you know some of that is we witness new.
[noise] excuse me [noise].
Technology that we've we've brought on board is very similar but different than than what we've had in the past. So so we're still sort of in a discovery mood.
As well so we can't really compare you know last year to this year, but but we we think there are some.
Yeah reasonable opportunities for us and and and happy that we have them in our fleet now.
Okay.
And then my follow up and just to follow up on Mccars question based on a scale is you know an important issue for profitability and Frakking at least an hour you you know as you focus on cost and efficiency are are you make any tough decisions or you know evaluating whether you might need to exit any of these buttons going forward.
Oh sure I mean, we're always looking at what our operational platform looks like.
Yeah, and the question about.
Operational efficiencies with scale, you know, we're saying with the mix of our business with materials more customers provide.
Materials, you know that scale from logistic standpoint becomes all things equal or less.
Less important it really gets down to having quality equipment and delivering.
You know.
Quality of service.
Scale can have some benefits but.
But I think you know we we evaluate you know our <unk>, we evaluate our reserve result service on bus service nine and location by location and so we'll continue to.
Two yeah monitor that performance and make what we believe are appropriate.
Appropriate adjustments. So we're willing to do that or are looking at that very hard and and.
Yeah, and look looking at the dynamics and the changes in industry in our customers are changing and so forth and so.
As we opened up our comments were taking a hard look into businesses.
Given the current environment into that were just during that time of year right. We're starting up our planning process. So it's a good time to go.
Go through that.
Okay. Thanks, I'll turn it back.
Sure well, we'll take our next question from Connerly knock on Wood Morgan Stanley .
Yeah caring.
Okay.
I think because I think we've covered a fair bit here. So I'll just I'll just ask <unk>.
<unk>, you're creating and the customer bases, that's driving the the expectations of the downturn activity. If there is already clear trend between.
Private smaller companies larger companies is it is there anything you'd point to on that front, that's driving the outlook there.
<unk>. This is Jim not not not really you could argue it I mean, probably already got a couple of different ways.
Public companies, you know maybe under more scrutiny on their budgets.
Private companies may or may not have great financing it's.
We you know we certainly understand the question we understand that it's an important one but there's nothing dishonorable.
For us that's that's really clear enough to talk about.
Okay fair enough, yeah actually weren't one one more do.
Margin certainly it sounds like you've got a fair bit of inefficiency.
Right now if we think about.
You know what what things could look like next year activity is flatish could this year, how large of an impact would.
Decreasing some of the.
Underperforming fleets staffing or something like that how big of a of a libraries, that's addressing labor efficiency.
Conor so that is the biggest lever we can pull.
At this point and.
We just haven't done the work to come up with it I mean, there we.
It would.
Certainly improve our our technical services margins by.
A number of basis points, even the revenue would be lower.
I just don't have a good number one share with you right now it's a valid question then.
Okay, all right. Thanks, a lot to bring it back.
Thanks.
Well take our next question from Brad Handler with Jefferies.
Oh, Thanks for letting me back in.
I guess I'll read those.
Hi, Thank you I was thinking about the Weve, some others have poked and prodded on this thing but.
If we're looking at and just looking at the third quarter again in coil, you're still getting two new units.
The contribution from two new units as well as I think for upgraded units in the third quarter.
So there's a reasonable chance if demand is there that that revenues are up nicely in coil.
Perhaps revenues could still go up and Thrutubing. It seems to have its own dynamics, sometimes I know, it's obviously affected by the macro but I guess, what I'm getting at is.
I'm wondering if there's a chance that pumping is down but others offset it.
And so revenues are more flat than not and in that case, maybe if this is a question ultimately about margin mix, but could margins.
[noise] if revenues are flat could do margins hold up today naturally rise naturally fall because of that mix.
Brad the the the mix shift that you're outlining for third quarter would probably have would probably give an upward bias to margins other things equal that's our that's our caveat.
The.
The idea is that you are bringing up or are are valid you talking about more coiled tubing units coming you're talking about thru tubing solutions.
Doing well.
So we could.
We could very easily see a.
A muted sequential decline in revenues, but we're not seeing that third quarters necessarily doom and gloom, but I'll just have to come back to the the lack of visibility that we have right now.
Sure Thats fair Okay. Good I appreciate you just sort of validating thinking a little bit and then I guess just one more from me.
And it's probably it's probably and just sort of understanding the mindset. So if we think about your choice.
Your consideration in terms of investing in new fracking equipment.
A lot of it is independent of the market because it's all the efficiencies that you described in answer to an earlier question.
But I suppose the problem. The problem is the topline still if you just can't get comfortable with the utilization being adequate to realize those savings than than a spreadsheet. If you will the returns fall. Apart is that is it kind of where you are sitting right now with the choice to continue to refresh your fleet.
There might be might be in two parts of the spread on ones. One is just no. One is just the natural refreshing of our pressure pumping fleet.
The work continues to be very hard on the equipment.
It doesn't care how much money it earns for you. The work is still hard on it and we are dedicated to being in the pressure pumping business. We also have the capital strength due to replace equipment when that when that comes up so.
We certainly want to be mindful of capital allocation and our own balance sheet and various other things but in general.
If the market is decent we will certainly replace our pressure pumping equipment, there's another comment too which relates to elect electric frac fleets.
We've been looking at them for a long time and talking to customers about it but they cost a lot more and in the current environment.
If we can't keep the economics that we bring by investing 40% more hundred Frac fleet.
And can have some reasonable assurance of that then we're going to let somebody else make that investment and figure out how that works.
So.
Okay.
I hope on responding to your question by by thinking about those two ways on three announcements well I think that and again this is Ben I think.
You're right the net new core equipment with.
Higher capability and so forth is a net positive but the decisions.
Or are driven to by expectations.
Yes.
Several years.
Several a few years or performance in terms of paybacks to until there is a little more clarity about the competitive environment in the market and our competitors. We know that many of our competitors are really really struggling and what's going to happen to them. How many are going to have to how many more are going to have to go out of business or restructure and how when are they going to come back into the market.
Just like our customers are being much more focused on free cash flow. We always have been we have generated.
We've always been focused on returns to shareholders in buybacks and dividends and trying to be prudent with our capital investments and managing our balance sheet minimizing our.
Our debt and all those all those sorts of things so we're not.
We're focused on those things were not focused on trying to grow the fleet.
We much of our fleet.
He is capable of doing the type of work that we're looking to perform some of it is less than ideal. So so we're looking at again assessing that fleet and perhaps making some adjustments to it.
Whatever adjustments, we do at this point won't affect what our.
Capacity or activity levels have been in recent quarters right. Because we had equipment is essentially done.
Then stack not man is not working so that's going to be some natural rethinking about what the fleet needs to look like and then we can move forward from there and right make decisions about what we think the current imbark what the environment is today, what the environment is going to be in and assess our investments in light of whatever the latest facts are and right now the facts are that that to us is that.
There's not an opportunity in the near term.
It's too uncertain to be putting out an additional.
Capital for expansion of our fleet Thats our assessment at this point in time, and what we would expect for 2020, but.
We'll see as the coming quarters unfold.
I got it that makes sense.
Thank you for the for expanding on it Okay. That's it for me. Thank you again.
And Brad Thanks.
Our next question comes from Jillian Gloucester with Simmons energy.
Hey, good morning, gentlemen, thank you for squeezing mourning I will try to be quick.
On the last call you guys mentioned potential levers that you could pull to augment free cash generation.
Can you speak to those and if there is levers to remain an option.
I think the levers that we referred to last quarter, probably were personnel. We had improved performance from first quarter second quarter, all things being equal we were pleased with that but those are still and we talked about those earlier those are the.
The primary levers is going to be on the.
Number of man fleets and our costs in general.
So.
Those are the levers that would be our Austin, primarily our labor costs.
Okay. Okay. Thank you.
And last one from me you guys increased your stock repurchases. This past quarter can you speak to your strategy with that moving forward.
And are you guys likely to increase your share buybacks before reinstating the dividend.
No. That's that's that's a decision that the board makes.
Based on the recommendations and the current environment given that we've suspended our dividend and that sort of thing up.
Theres a lot of dynamics that go into that reasonable question.
But.
Obviously, the buybacks, there's more flexibility in terms of the timing with which you can make those decisions as opposed to the dividend. Obviously gets approved at the board meeting and that has a specific timeframe on it so.
That's just to say that maybe it's more likely that we would do some share repurchases before the dividend was put back into place for that may just be the timing of.
Our visibility on decisions relative to when the board meetings occur and and those decisions can be made.
Okay Awesome. Thank you guys for answering my questions I'll turn it back.
Thanks.
As a reminder, everyone that is star one to ask a question we will take our next question from Chuck Minervino with Susquehanna.
Hi, good morning, guys.
Thank you.
Hey.
I know a lot's been covered.
I just wanted to get a little bit more color on what you're thinking on pricing in pressure pumping for the remainder of the year just kind of thinking about the second half of last year.
When activity started to kind of rollover.
The pricing impact that happened I guess this year, you're looking for some some weaker activity as well, but but obviously coming off of a different pricing point than you would have been last year.
But also offsetting that you have a bunch of the equipment in the industry stacked. So just kind of trying to get your mindset or what you guys are thinking as far as.
Do you think pricing will take a leg down with that.
That activity slowdown or do you think it's more of a there's not much left to give.
Yes.
Chuck This is Jim more the latter.
We certainly can conceive of activity decline in the second half of the year, but I don't think we're going to give up.
We as an industry are going to give up any more pricing as you kind of pointed out I think we certainly all no.
We and our peers have been stacking fleets this year, rather than working at sub optimal pricing, which wears out the equipment.
Et cetera. So.
I think.
There will always be the marginal competitor who's willing to price 10, or 20% lower than than everyone else, but that group is probably getting smaller and.
The fleets that have been sidelined at this point.
Certainly certainly speak to a little more discipline.
Than we've seen in past cycles and I'll add this is Ben I'll add that the pricing dynamic to there that goes into that is what is the activity that you are going to be able to get and sustained so pricing in and of itself is.
Piece of it and it's good to talk about it in that that single dimension, but it's really.
It's really has several dimensions and so.
When you price the work, it's not always clear exactly how much volume you are going to get so it's hard to compare one pricing sometimes too.
Another but.
So we are still striving to try to improve our utilization we're not we're not striving at this point to get more business by lowering pricing, we're trying to be successful at winning work at.
Appropriate levels of pricing and get the volumes up to where it can.
Improve our our results and hopefully as Jim alluded to hopefully the industry is getting.
Just like everybody just like our customers are becoming more.
Disciplined and we need to all reach that.
Point.
With no supply and demand and and so forth that that we all can get back to.
A period of time.
Reasonable returns.
Okay. Thank you and I just one other question separately.
We have seen a transaction in the space.
And and Frac in pressure pumping.
I just wanted to get your thoughts on.
It sounds like there's some companies out there that are looking to exit their pressure pumping businesses, maybe there's other companies that are looking to expand.
An ad and find the scale benefits.
Just wanted to know your thoughts on kind of how the industry is going to kind of progress over the next six months do you anticipate seeing more transactions and a consolidation of the industry.
Or do you think it's going to be it's going to be hard for companies that want someone to write them a check.
And to get paid for some of those assets.
This is Dan I feel that in the current environment.
No it would be difficult to two.
Value.
The many of the company or the companies that maybe would want to exit and like you said, we want to have a check written and that sort of thing we've always viewed that.
The scale can be we alluded this talked about this earlier sketch to scale.
Can be can be beneficial.
But.
We have a pretty diverse geographic.
And dispersed geographic exposure to the market.
So we have a pretty good feel for that we don't need.
We would we ourselves would not need to acquire somebody to get exposure to another basin.
So that wouldn't benefit us and the whole thing with equipment configuration in age and capability and all that but those situations are.
Quite complex and normally somebody who's again wanting to exit the business.
Having your equipment.
Properly maintained is.
Challenge so.
There's a lot of discussion about combinations, taking place and that it could be beneficial and.
If it is beneficial I would love for it to continue its not something that we're going to be.
It's unlikely that we would actively pursue and drought a bid up to two.
No add additional.
Pressure pumping capacity or resources to our company.
Got it thank you very much.
Well take a follow up question from Marc Bianchi with Cowen.
Please go ahead.
Thank you.
I guess I, just just wanted to speak through something somewhat philosophically.
Around your business and kind of the outlook over the next number of quarters, if we think that third quarter activity declines.
Your revenue declines along with that and maybe the second half of this year is perhaps a bottom in us activity.
It sounds like you know whatever the margin leverage is on that if we put.
40%, decrementals or or something on a on a topline decline of maybe mid single digits. We can get you to mid Fortys EBITDA per quarter.
It sounds like maybe there is there's more cost cutting opportunity that that that could occur maybe pricing for competition for competitive pricing is waning as you mentioned earlier.
Could we perhaps see your EBITDA bottoming in that.
$45 million to $55 million range in the back half of this year, and that's kind of where things settle out assuming the market doesnt change a whole lot.
Or are there other puts and takes that you think you would.
You would add to that.
Mark that's a that's a reasonable view, but we are we are definitely not trying to give guidance on what third quarter is going to be like and if you look at our fourth quarter and our peers fourth quarters over the past couple of years. They were pronounced slowdowns. So I would not venture any sort of guess as to what fourth quarter.
EBITDA might look like under.
Under really any kind of scenario so.
Yes, Yes, I guess I was where I was trying to go with that is if we think that something in that range.
In the Fortys is is a.
Perhaps a low on a on a run rate basis as we go into 2020, Ben mentioned earlier kind of $150 million or less of of Capex.
You don't have any interest expense your taxes would be minimal.
So it seems like you could be perhaps cash generative.
In that scenario on a sustainable basis.
Do you think Thats thats, the right way to think about it or am I missing anything.
Okay.
Thats, a fair view and something we would.
Really want to manage to.
Right cash flow neutral okay.
Great. Thank you very much.
Yes, Thanks, I will turn it back.
And that concludes the question and answer session I would like to turn the call back over to Jim Landers for any additional or closing remarks.
Okay, Lisa Thank you and thanks to everybody for spending last hour and 10 minutes with us.
We'll be seeing all of you soon we hope everyone has a good day. Thanks.
And that does conclude todays presentation as a reminder, the conference call will be replayed on www RPC deignan within two hours. Following the completion of the call. Thank you for your participation and you may now disconnect.