Q2 2019 Earnings Call
This is the conference operator speaking the CJ energy service or any conference call, where we get five after we just kinda CRC you remain on the line and <unk>.
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Earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to try your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Daniel Jenkins, Vice President of Investor Relations. Please go ahead.
Thank you operator.
Good morning, everyone and welcome to the C N J Energy services earnings conference call to discuss our results for the second quarter of 2019.
With me today are Don <unk>, President and Chief Executive Officer, and Young case, one Garland, our Chief Financial Officer, We appreciate your participation.
Before we get started I'd like to direct your attention to the forward looking statements disclaimer contained in both the news release that we issued this morning and the related presentation.
Both of which are currently posted in the Investor Relations section of the company's website.
Under the IR home and event calendar settings.
Our call. This morning include statements that speak to the company's expectations outlook or predictions of the future which are considered forward looking statements. These forward looking statements are subject to risks and uncertainties many of which are beyond the company's control that could cause our actual results to differ materially from those expressed in or implied by these statements.
I refer you to see in Jays disclosures regarding risk factors and forward looking statements in our annual report on Form 10-K , and subsequently filed quarterly reports on Form 10-Q .
Our comments today also include non-GAAP financial measures additional details and a reconciliation to the most directly comparable GAAP financial measures are included in our news release related presentation.
With that said I'd like to turn the call over to Don <unk>, President and Chief Executive Officer of Sanjay Energy services.
Thanks, Daniel Good morning, everyone.
Thank you for joining us today to discuss our second quarter 2019 operational and financial results.
Turning to slides four and five of the posted presentation I am pleased to share with you a few of our financial and operational highlights from the second quarter.
Consolidated revenue totaled 501 million and we grew adjusted EBITDA approximately 5%.
52 million and generated 26 million or free cash flow.
During the second quarter market conditions became increasingly challenging and the operating environment remains extremely competitive.
We focused our efforts on and were successful in reducing our overall cost structure disposing of non core assets and implementing technologies that increase both efficiency and profitability.
We responded quickly with cost reduction efforts that included the restructuring of our research and technology Division.
Elimination of two executive management positions.
The flattening of the management structure in our cementing business.
And the other workforce reductions.
All of these efforts helped to reduce adjusted asked you they expensed, 20% year over year, and 11% sequentially and should result in further cost improvement over the coming quarters.
Also the implementation of our upgraded Sep ERP system early in the third quarter positions us well for further productivity and efficiency improvements.
In our well support services segment, we doubled adjusted EBITDA and return the segment back to double digit profitability margins as we expected.
I'm also pleased to announce that on July 30, Onest 2019, we closed the sale of the majority of our South and West, Texas fluids management assets in keeping with our previous comments around seeking strategic alternatives.
For that business within this segment.
Although the sale will result in lower segment revenue in the third quarter, the transfer of people and assets to the buyer along with additional facility closures should result in improved segment profitability over the coming quarters.
In our completion services segment revenue and profitability decreased sequentially, primarily due to lower utilization in our fracturing business and competitive pricing in our wireline and pump down businesses.
In our fracturing business, we experienced increased white space in our Frac calendar, driven by certain fracturing fleets catching up to customer drilling rigs due to high levels of operational efficiency and we experienced changes in customer work scope that resulted in fewer multi well pads.
And instances of lower margin Recompletion activity.
In response to lower activity levels, we strategically stock two horizontal and one vertical fleet, which allowed us to maintain our profitability and better align our overall fleet utilization with current market conditions and customer demand.
Our smaller footprint late in the quarter resulted in profitability of 11.3 million and adjusted EBITDA per fully utilized fleet.
Compared to 12 million in the prior quarter.
And our wireline and pump down businesses revenue increased 11% sequentially in line with previous guidance as customer activity levels improved.
Especially in the Bakken after harsh weather conditions in the first quarter contributed to a very slow start to the year.
However profitability in these businesses remained flat due to continued pricing pressure, mostly from new market entrants higher consumable cost as customers push for more gallons per run and reduced asset deployment as customers began to release their deployed frac fleets.
In our well construction and intervention services segment revenue decreased sequentially due to lower than anticipated customer activity levels, and a more competitive pricing environment in our cementing business.
However segment profitability increased 8% due to assets returning to service in our coil tubing business and cost reductions in our cementing business.
The lower overall drilling rig count resulted in lower customer activity levels, and our cementing business, especially our largest operating base in the west, Texas and the mid continent.
In response and in line with our returns focused strategy, we further reduced reduced our cost structure by stacking lower utilized equipment consolidating facilities closing unprofitable districts and reducing labor in operational costs.
In our coiled tubing business. We returned two large diameter units to service in West, Texas by late May and increased overall asset utilization late in the quarter, which was partially offset by continued soft activity levels in both south, Texas and the mid continent.
In our well support services segment.
Revenue was essentially flat with profitability doubled compared to the prior quarter, resulting in double digit segment profitability margins.
During the second quarter higher customer activity levels in most of our operating basins improved weather conditions and additional workdays with longer daylight hours all resulted in improved segment profitability.
In our rig services business, we benefited from improved customer activity levels in both California, and the Bakken and we experienced the highest deployed rig count in California, and the mid continent in over a year.
This improvement was partially offset by rig declines in west, Texas, an area that remains very competitive.
We deployed additional trucks in California to meet growing customer demand in our fluids management business and now with the sale of our South and West, Texas fluids assets, California will be our largest operating base in our fluids management business going forward.
Even though segment revenue will decline in the third quarter due to the asset sale, we are focused on increasing profitability over the coming quarters as we further streamlined our asset base close underperforming districts and reallocate assets to more profitable locations.
Shifting the focus to our recent technology initiatives, our wireless and disposable game changer Perforating gun system continues to be the guy of choice by our customers and we estimate just over $4 million of cost savings in the second quarter, when compared to third party pricing for perf guns and wireless accessories.
The adoption of our game changer gun system has grown to 81% of all gotten shot during the second quarter of 2019.
We also continue to experience customers tailoring are changing gotten configurations at much greater frequency as compared to last year and having our own internal manufacturing organization allows us to respond rapidly to our customers' needs in order to meet the timelines of further wells.
In addition, we have experienced in over 200% improvement on runs premise run in the second quarter, when comparing our game changer gun systems to conventional gardens.
The next version of our disposable perforating gun system, which we expect to introduce early next year, we'll have a more flexible design fewer components for arming and will be compatible with charges from all of the leading manufacturers to accommodate ever changing customer preferences.
Additionally.
We have now installed reached us cable systems on approximately one third of our perf and plug wireline trucks, we plan to have 50% of our trucks installed with these systems by year end 2019.
The combination of our game changer Perforating gun system reached us cable systems, and a 24 rig lock foot Connex systems, we have deployed in the field allows us to complete more stages per fleet per day in a safer more cost efficient manner.
With regard to technology initiatives within our fracturing business. We have continued with the installation of the latest fire suppression systems on our Frac pumps, and we expect to have most of our fleets equipped with this technology.
By year end.
In addition, we continued to upgrade our pumps and lenders with our proprietary MDG control systems, enabling us to send more data to the cloud in order to increase efficiencies and prevent instances of catastrophic failure, a major parts and components.
Our data analytics program continues to progress with all of our active fleets now streaming data to the cloud.
With that I will turn the call over to J.K. to review our second quarter financials, then I will wrap up today's call when additional thoughts on the operating environment and an update on our merger of equals with Keane.
Thanks, Don.
Good morning, everyone.
Now moving to slide five in the slide deck, we posted our earnings release, this morning, and focusing on our consolidated results.
Second quarter revenue decreased 18% year over year, and 2% sequentially to 501 million.
We generated an adjusted net loss of just over $13 million in the second quarter or a loss of 28% 20 cents per diluted share.
This compared to adjusted net income of approximately 35 million or 52 cents per diluted share in the prior year period, and an adjusted net loss of approximately 19 million or 28 cents per diluted share in the prior quarter.
For the second quarter of 2019, we generated adjusted EBITDA of just under 52 million, which decreased 43% year over year, but increased 5% sequentially.
Turning to slide seven and focusing on the business segments.
Completion services segment revenue decreased 22% year over year, and 1% sequentially to approximately 322 million in the second quarter of 2019.
Segment, adjusted EBITDA decreased 43% year over year, and 12% sequentially to just under 48 million in the second quarter of 2019.
As done previously mentioned, we experienced more white space in our fracturing calendar that resulted in fracturing revenue decreasing 7% sequentially to 220 million.
I would also encourage everyone to review the reconciliation table in the back of our earnings press release as we have tried to make up profitability per fleet metrics more comparable to our peers.
In our wireline and pumping businesses revenue increased 11% sequentially to 92 million due to increased customer activity levels, especially in our largest operating basin of the Bakken, but profitability was essentially flat primarily due to continued pricing pressure and increased consumable costs due to a customer's preference for more guns for Ron.
Turning to slide eight.
Well construction and intervention services segment revenue decreased 27% year over year, and 8% sequentially to approximately $73 million in the second quarter of 2019.
Segment, adjusted EBITDA decreased year over year, but increased 8% sequentially to just under 7 million in the second quarter of 2019.
The sequential decrease in segment revenue was due to fewer large diameter units in service in both April and May and nickel tubing business.
And lowered a drilling rig counts and continued pricing pressure in our cementing business as Dan previously mentioned.
Segment profitability increased sequentially, primarily due to the streamlining of cost in our cementing business.
Now turning to slide nine.
Well support services revenue increased 8% year over year and was essentially flat sequentially at 106 million.
Segment, adjusted EBITDA increased 17% year over year and doubled sequentially to just over 13 million in the second quarter of 2019.
The sequential increase in profitability was due to a higher customer activity levels improved weather and additional workdays with longer daylight hours.
Turning to slide 10, and moving to expenses.
Adjusted as DNA expense decreased 20% year over year, and 11% sequentially to $46 million, which was primarily driven by an 11% decrease in SGN. They headcount since year end 2018.
As a percentage of consolidated revenue adjusted as DNA expense fell to 9.2% from 10.1% in the prior quarter, which highlights the positive impact of our cost streamlining efforts in the quarter with sequential revenue decrease.
Looking ahead to the third quarter expect as DNA expense on an unadjusted basis to range between 50, and 55 million, which includes expected merger related costs.
Depreciation and amortization expense increased 7% year over year, but decreased 3% sequentially to $58 million in the second quarter.
The sequential decrease was primarily driven by the roll off of select fully depreciated assets.
Looking ahead to the third quarter, we expect DNA expense to range between 54 and 58 million.
From a tax perspective, and as we have previously previously reported.
We expect that we will not be a cash tax payer in 2019 outside of normal state and local taxes.
We also expect our effective tax rates to be close to zero.
No.
Turning to slide 11.
In the second quarter of 2019, we generated free cash flow of approximately 26 million.
Due to continued strong cash flow generation from operations closely managing working capital and disciplined deployment of capital expenditures.
With regards to capital expenditures, we recognize that factors into markets and the behavior of our customers have changed and we continue to change our approach to capital spending that is more and more focused on maintaining our equipment and increasing our efficiencies in order to improve returns and generate additional free cash flow.
In the second quarter, we used $43 million of cash to fund capital expenditures.
Which decreased 11% sequentially and came in below our previous guidance range of 55 to 65 million.
In addition at the midpoint, we have reduced our 2019 full year capital expenditure budget by 6% with a revised change of 140 to 116 million 40 year, primarily due to reduced growth capital expenditures.
Going forward.
We will continue to rigorously streamline costs and manage capital expenditures in order to generate additional free cash flow in the second half of 2019.
Staying on slide 11, and moving to liquidity and the balance sheet.
Our cash balance was just over $114 million at the end of the second quarter.
Additionally, we had no draws.
Outstanding under our credit facility, which had approximately $266 million of Brooklyn capacity, resulting in total liquidity of $380 million.
As at quarter end.
We plan to maintain financial philosophy that is focused on a disciplined capital deployment strategy and protecting our strong balance sheet and liquidity position.
With that I will turn the call back over to Don for a few for closing comments.
Thank you Jay Kay.
If we turn our attention to the third quarter, we expect our consolidated revenue to decline mid to upper single digits sequentially due to the divestiture of the majority of our south and West, Texas fluids management assets, which closed on July 30, Onest continued white space in our fracturing calendar and lower activity levels and continued pricing pressure in our cementing business.
In our completion services segment, we have limited visibility towards the end of the quarter. We are preparing for instance is a budget exhaustion and delayed completion activity.
We will continue to monitor market conditions and customer demand closely and we will adjust our deployed Frac fleet counts accordingly.
Even though we anticipate improved financial results in our coiled tubing business from the return of two large diameter units to service with efficient customers in West, Texas, We expect our cementing business will continue to face challenging headwinds that will negatively affect well construction and intervention services segment revenue in the third quarter.
After improving late in the first quarter, the drilling rig count service by our cementing business began to decline again in the second quarter, specifically in our largest operating basin in West, Texas, and the mid continent, both of which remain extremely competitive.
If current market conditions persist we are prepared to further streamline our cost structure and stack additional equipment during the third quarter.
And our well support services segment, we expect revenue to decline upper single digits due to the fluids management asset divestiture, which should be partially offset by slightly improved activity levels in our rig services and special services businesses.
We remain focused on the things that we can control and we will stay committed to maintaining capital spending discipline and generating additional free cash flow in the second half of 2019.
Before I turn the call over to questions I would like to make a few comments regarding the exciting merger announcements you made in late June regarding our proposed merger of equals with Jean.
You announced merger of equals will create one of the largest us oilfield services companies in the lower 48 and will create a bigger more stable platform for future growth and expansion of our core product lines and technologies.
The vast majority of conversations I have had with our employees customers and vendors are supportive and positive on this potential transaction.
We remain on track to close the merger in the fourth quarter of 2019.
We received early termination of the waiting period under the HSR provisions with the department of Justice, which satisfies a major condition to the closing of the proposed merger.
The integration planning process has commenced and is progressing well.
We remain excited about the potential of creating one of the largest oilfield service companies that focuses on the us market.
In closing I want to thank our employees for their continued hard work and dedication our employees have stayed focused on meeting our customers needs and delivering our products and services with the highest levels of service quality and safety.
Their continued hard work and dedication positions the company well for the future.
Thanks, again for joining us on our call today and we appreciate your interest in CNG.
Operator, we're now ready to open the call to questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
So its charter your question. Please press Star then two at this time, we will pause momentarily to assemble the roster.
Okay.
And our first question today comes from Tommy Mode with Stephens, Inc. Please go ahead.
Good morning, and thanks for taking my questions.
Morning, Tommy.
So I wanted to start on the Frac business, where you had some white space on anticipated and sounds like latter part of second quarter.
And maybe some more into third quarter can you generalize at all in terms of.
Type of customer or basin or any other way where that was concentrated or was it pretty broadly distributed across your active fleets.
No it was.
You are fairly specific with.
Few customers that had delays in terms of the completion programs, where with really some of our most efficient frac fleets and quite frankly with very very efficient drilling programs.
We had to essentially caught up on the completion side of things and there was a pause.
That came.
Very short notice.
In both cases for delays and the activity and really didnt allow us enough time to to be able to redirect those fleets elsewhere, so that slowed us down pretty significantly and on top of that I would say there is a few of the.
Spot fleets that we had out there that we saw a little bit more white space than we had seen earlier in the quarter. So and again that was more of a I think even in the pace of completion.
That.
They were following and and moving it a little bit more leisure really rates as they move through the quarter and kind of looked at the pace. They would continue through the end of the year. So.
As we come into Q3.
We've got another fleet that has been dedicated for one of our very large customers that we know midway through this quarter.
We'll basically be ending that.
The work that we're doing for them as they have essentially shut down the budget in that part of the country.
Moved from a gas very gas rich environment, moving the dollars to an oil.
Rich environment.
And so we're looking for potential opportunities for that fleet at this point, but.
It's only going to get to stay deployed if we can do that in the level of profitability.
And quite frankly utilization that makes sense. So that's really kind of the largest unknown at this point in terms of Q3 going into Q4, there's clearly a lot of.
Noise. The visibility is quite low we are anticipating certainly at least the normal seasonality that we get in Q4.
My personal opinion is we'll probably see some additional.
White space in the fourth quarter, though as we do see some of the budget exhaustion that we haven't specifically been told about yet in many cases, but.
We're anticipating we see some of that there. So that's sort of our expectation for the second half generally things getting a little bit.
Slower before they turn back up hopefully at the start of 2020.
Okay. Thank you for that Don and I wanted to follow up with a question on the divestiture.
I understand you may not be able to give all of this but.
But ill ask it and anything you can give would be helpful.
Are you able to comment on.
The net proceeds we should expect.
Or potentially on how many of your active trucks.
You're going to have left in the fluids management business and last point to my admittedly long question.
Any other non core divestiture opportunities you think might be actionable.
Pretty close with Keane. Thanks.
Yes, so with respect to this specific transaction, where we sold our west and South Texas fluids management business were not disclosing the proceeds from that particular sale, but but I will say, we've not only made that one particular divestiture, we're continuing to and have continued to get out of the fluids business outside of California.
Basically completely and then we're moving in that direction very rapidly so.
You will see outside of California, we won't really have a fluids business per se.
We continue to look at opportunities for the rig business.
And as well as opportunities for the overall, California, well support services group in general and there are some.
Ongoing discussions and some interest in the market in that particular area again, we've seen that that group continue to actually improve their bottom line and perform quite well, but being non core we think it does make sense.
To continue focusing on.
Looking for opportunities to two.
Divest ourselves of that particular business I would add as well that that group has done an exceptionally good job of controlling costs and that's something we've really focused on here as we got through the quarter.
With our completions business and with our.
Intervention.
Business as well so we've seen a lot of cost reduction.
In terms of shutting down fleets in terms of closing facilities.
In terms of SGN a.
Production reductions that are quite significant on a quarter on quarter basis, we turned on our SAP implementation basically.
The second week of July we've seen some impact already from that we expect to continue to see pretty significant impact with respect to the overall costs associated with the business and.
I think we've got a lot of things that we've already done that we're seeing some of the early fruits from.
But we're going to continue to see that the cost base come down across the business lines. As we go through Q3 and go into Q4, So we're really focusing hard on the notion of controlling what we can and staying on top of the.
The overall activity level, so that we can keep our profitability up and obviously stay focused on free cash flow.
Thank you Don I'll turn it back.
Great. Thank you.
And our next question comes.
Comes from Chase Mulvehill with Bank of America. Please go ahead.
Hey, good morning, gentlemen.
Okay. So I want to I guess I will stick with Frac here here to start.
Yes, when did you end up stacking those two horizontal fleets in one vertical fleet into Q.
Yes, so we had the one vertical fleet that we laid down.
In may.
And then the first horizontal fleet was laid down mid June and the second horizontal fee, we actually didnt physically lay down until the very end of the quarter. It did sit idle low from about June six though on as we are looking for opportunities to.
But that fleet back to work or potentially move the fleet with the same customer to another basin.
I once we got.
Clear indication that there wasn't anything out there that met our financial requirements and and the customer Didnt have a need for that fleet in a different area. We made the decision to shut that down so the two horizontals actually.
When went down really post Q2, if you will it wasn't working the last three weeks the other one went down.
Very late in the quarter.
Okay great.
And it sounds like that you have got some uncertainty on one more horizontal fleet in Threeq you. So.
One of those might go down in the mid Con. So you know it looks like you might be running 12 or 13 horizontal fleets in Threeq you.
When we think about the mix here for how many of those are dedicated versus spot and then maybe how much you think will be running zipper.
In Threeq, maybe some color there would be helpful.
Yes. So we're currently 14 equivalent horizontal fleets and the one vertical fleet.
The vertical feet continues to stay active as you say, we've got one fleet add.
At risk here.
In the middle of this quarter, which is coming up pretty soon and we will take a look at whether or not we can deploy that somewhere.
If not obviously, we'll make the decision to shut that down get those costs down.
By the way, we haven't specified the basin that thats in.
At this point, but.
Because that there are.
A couple of different moving parts in the equation, but he got its one horizontal fleet at risk currently so if that shuts down we'd be at 13 horizontal equivalent sorry, 13, horizontals and and one vertical.
And what does it look like for zipper work in Threeq, maybe relative to Twoq for those fleets.
The zipper work continues to be roughly two thirds to three quarters of our our business overall and that overall pattern hasn't changed for the dedicated fleets were seeing maybe a slight reduction in the spot market of zipper working going to some more single wells up but again, that's becoming a smaller and smaller portion of the overall fleet.
Okay, I'll turn it back over and re queue. Thank you.
Thank you. Thank you.
And our next question comes from Chris Wetherbee with Wells Fargo. Please go ahead.
Good morning, Hey, Chris.
Hi, Chris Hi.
I'm curious if you can discuss.
What your processes for just deciding whether to stack of fleet, if its visibility for work or the expected level working get if youre trying to play in the spot market I don't know if you can describe if there really is any spot market at all right now.
And then secondly.
Obviously, you described the environment as competitive are you seeing requests for lower pricing on your fleets that are relatively busy right now and.
Do you think pricing is moving lower across the portfolio.
Our people getting up price at this point.
Yes, so in terms of our criteria. If we have a dedicated fleet for instance, like the one we bought in Q3 currently that's running that the customer has decided to.
You take a look at shutting down that activity for at least the remainder of the year, what we'll do is.
Specifically go look at opportunities to dedicated with another customer we'd be looking forward. The notion of very high utilization, where we would be able to continue to go from well to well and generate the kind of.
EBITDA dollars that we're currently seeing and about the the average we've got for the fleet level.
If we don't see something that's dedicated we do obviously look at the spot market and see if theres opportunities out there, but as you say that that market is really quite tough at this point and in general we're not looking to add or keep any additional fleets in the spot market. So I would say.
Overall.
The likelihood of that fleet going into the spot market and staying in the spot market would be quite low.
As far as pricing you know for the fleets that we've got working I think we've seen that bottom.
And we were not really seeing any particular pressure there I know when the spot market. It continues to be at this struggle out there and you will see folks occasionally.
Throw at a lower price in an effort to try and keep their spot fleets working.
That's a game that we're not playing if the pricing continues to drop in that market. You know, that's that's where we did see for instance, dropping the one vertical fleet.
Well, we just didnt really see the kind of returns that made sense for the horizontal fleets I will follow that same philosophy, we're not interested in working at lower prices than we're currently at we're really interested in keeping our.
EBITDA per fleet somewhere in the range that we're currently setting.
Okay. That's helpful. Thanks, and then on wireline and pump down that seems to be trending pretty well is there a tailwind there from more bundling activity cross your fleets already actually gaining share.
Outside of your own press releases as well.
Yes, we've actually seen the revenue will come up nicely from Q1, as we expected with both wireline and and the pump down business I will say, though there is a number of new entrance into that market. We're seeing people come in they are trying to get their business.
Up and running trying to get there.
Customer base in place and so the pricing has suffered somewhat.
Thats why although we saw the revenue come up quite nicely the profitability really stayed quite flattish for us. So so we're protecting the profitability there and protecting.
The kind of customer relationships that weve established over the years.
I think you're going to see probably more and more in that area.
Customers declaring that they are having difficulty generating the kind of margins that they want but certainly a number of new entrants in the marketplace have made that a pretty challenging market in terms of being able to to do anything on the pricing side.
In addition, we mentioned it in the script, we're seeing a trend where most of our customers if not virtually all our shooting more and more guidance per stage in an effort to continuously improve the overall productivity they've seen some good results in a number of cases so.
The kind of volume of guidance that we've seen from say last year on a.
On a per stage basis is quite striking and its really affected our overall.
Perforating gun numbers and just to give you some rough numbers, we we averaged through much of most of last year about 25000 guns per month that we would shoot we've seen that go in excess of 40000 guns per month.
With essentially the same fleet in fact, even with a few.
Few less trucks wireline units running so its really been a.
Change in the mindset of the customers quite frankly have the ability to charge.
Significantly more for those additional guidance is limited when you've got a tough pricing environment like this.
That has affected a little bit the profitability of the wireline business as I say, we're we're getting more and more revenue, but the margin.
Staying relatively flattish the profitability rather stay relatively flattish at this point.
Okay. Thanks for the color.
Thank you.
And our next question comes from Brad Handler with Jefferies. Please go ahead.
Thanks, guys good morning.
I was actually hoping congrats.
Thanks, Good morning, as it turns out I guess as a follow up to the last question I was hoping you could put some.
Put some numbers around some of the pricing pressure you are experiencing in wireline and then and then I guess cementing as well.
So with that let me this is young case.
Let me talk about the cementing.
Over the quarter cementing pricing was down.
And start to select basins.
And utilization was down approximately 6%.
With regards to the third quarter, we are expecting a flat to down.
Pricing environments, mainly due to competitors low pricing, but also a flat utilization as the market conditions in that market the stock to stabilize.
In terms of.
In terms of the.
The fracturing pricing.
Sorry to wireline pricing my my apology.
Wireline byline pricing.
Slightly down during the quarter with activity, while up primarily in the north area like Bakken.
Which is traditionally a strong area for the company.
And.
In terms of associated wireline trucks.
That number still sits around.
40% to 50% depending on the month.
Of our of our fracturing fleets.
And.
As has done to us alluding to.
The strong increase in terms of the guns per run.
Hitting to a consumables number in terms of the plan now that has been increasing we're working actively with our R&D.
Team to have to reduce the manufacturing cost.
As well as the extra will cost for the guns that we source externally.
So we expect some improvement towards the end of the year as those plans start to lead to turn into execution.
But.
A little bit disappointing on such a good increase of activity to see some of that margin eroded away by the higher consumable costs.
Sure sure. Thanks, Jack I appreciate all that all that color if I could come back to the cementing commentary.
Perhaps.
Perhaps you can explain some of the dynamics for us with respect to why it was down and I guess, what I'm thinking about is.
I think you all had tried to shift some of your exposure in a sense. If you will sort of quote high grade customers.
Are you seeing other sort of chasing the same direction, so and I don't know if it's still surface casing.
That we're talking about right or the surface surface portion of the cement job but.
Is that some of the dynamic you just have.
People following kind of the trends of who's working and therefore, you'd just have that much more.
Cement or on cement or competition, and that's what's really driving it and maybe you can even comment.
Separately, if you can comment on which basins are experiencing.
Yes, so there's certainly several different factors at play one in general will be our largest basin.
With regards to cementing is certainly west Texas.
But you are there and elsewhere, we continue to see the overall rig count trending down through the quarter. So certainly there is less cementing work just in general associated with that and I think in an effort to keep costs under control, we've seen a little bit of a change in approach to the bidding process that many of the customers out in the marketplace or taking it. So they are no longer necessarily awarding this cementing job in terms of.
Surface intermediate and production string to a single company will see cases, where they are in fact bidding out each portion of the Wellbore. That's cause I think the attention of the cementing our fast companies in general to be fairly aggressive as far as winning especially the one string word you obviously, you've got a lot a lot larger volumes and potentially a little bit better profitability. So it's a bit of a mixture of some change in behavior with regard to the bidding process and then.
The existing players in an ever shrinking rig count trying to hang on to share and generate as many dollars as they can so hopefully that answers your question, but it is a tough environment out there and we've seen a number of.
Cementing companies actually shut down operations in parts of the.
The country.
Depending on what the activity levels have been doing there and it's it's become one of the more competitive product lines here over the last few quarters.
Right.
Right well Thats helpful. I appreciate the color unfortunate.
Fortunate dynamic obviously, but I appreciate that appreciate the answers I will turn it back thanks.
Thank you.
And our next question comes from John Daniel with Simmons. Please go ahead.
Hey, guys just a couple from me on the truck sales.
Are you guys able to tell us what the Navy yard again, what the truck hours or.
Trucks that were sold in Q2.
John its Daniel Jenkins.
The only numbers that we put out there the numbers in the back of our earnings call packet and that included the assets that where we are actually sold in July . So those were second quarter numbers. We obviously operate those assets in the second quarter. We closed on the deal in late July let let me do a little digging and we can talk about on that offline. We're also going to update our material and as we report third quarter to kind of show.
What the pro forma business looks like without those assets.
Awesome and did it include SW days or is it just trucks.
It did include some of the SW days not all.
Okay. So essentially it was it's really three components. So we had the fluid handling trucks.
A number of our salt water disposal wells and a good number of Frac tanks.
Okay. Thank you and then Adam and action.
And the employees.
And that have been offered new employment by the MD acquirer.
The assets.
And so as a result of that you will see the headcount of the company coming down over the next quarter.
Okay got it and speaking of head count and labor situation, when we speak to most of the companies out there one of the crisis.
Pricing is below the 2014 levels and yet labor rates are 23% higher than back that particularly when and segments like well servicing.
I'm just curious.
Given.
Actions in activity yard closures, all that stuff I am assuming the labor situation is not as bad as it used to be.
And assuming that is right it looks like in the industry actually lower wages to try to enhance margins I know it sounds like an awful strategy, but it might be necessary just your thoughts.
Yes, I would say in general the labor situation has eased up a little bit it's amazing, though on the trucking side for drivers there is still a general shortage, which is.
Kind of amazing I would say, there's been a little bit of relief with respect to that in terms of you addressing the wage situation I think thats something that is going to have to be a wait and see sort of let's see where the market settles out quite frankly, we're having pretty good success is continuing to get our margins up even with the fact that labor costs have continued to rise and that again has been so just a lot of hard work and focus on streamlining our operations overall staying in the.
Areas, where the activity is still strongest in the pricing has hung in there and.
We're doing that without having to affect the the kind of rates that we're paying our folks.
John in General our focus has been on the areas that we can control and they basically making sure. The footprint is in line with the requirements and and as those has where the market is but also making sure that we cut out to any unnecessary costs.
In terms of as DNA, but also operating costs.
And remain very very focused on driving.
Free cash flow and returns of the business that way.
Okay, and last one and would you be willing to give us.
Yes, not where cash will be at the end of Q3.
We expect.
Free cash flow at had they not dissimilar level. That's what we saw in in in Q2, perhaps a couple of million higher but.
Just slightly shy of 30.
Okay. Thank you.
Thank you. Thank you.
This will conclude our question and answer session I'd like to turn the conference back over to Don Gatwick for any closing remarks.
Great. Thank you operator, I want to thank everyone for joining us today for the call and really do you just want to stress a couple of key points one of them being that we've been aggressively moving in the direction of cost control as we've seen the market take a few turns and with the expectation that we may see some more of that in the third and especially the fourth quarter.
We're getting ahead of that situation very aggressively will continue to grow control cost control the things that we can.
In a very aggressive manner. So we can keep the cash flow up.
Make sure that we're operating in a very prudent way and then, especially I want to add.
And on the notion that with the.
Hopefully.
Merger happening in Q4, I think the upside to that is really really tremendous for both companies for both ourselves and and gene and we expect to see some very nice.
Impact to the operating.
The environment for the combined entity as we move into 2020, so very excited about that and I think youre going to see a real powerhouse in terms of.
A new company in the office space. So thank you again for joining US today, we appreciate it.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Your lines at this time and have a wonderful day.