Greetings, and welcome to the Nine Energy Service First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your first speaker, Heather Schmidt, Vice President of Investor Relations. Thank you Ms. Schmidt. You may begin..

Thank you. Good morning everyone and welcome to the Nine Energy Service earnings conference call to discuss our results for the first quarter of 2020. On the call with me today are Ann Fox, President and Chief Executive Officer; and Guy Sirkes, Chief Financial Officer. We appreciate your participation.

Some of our comments today may include forward-looking statements, reflecting Nine's views about future events. Forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations.

We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today also include non-GAAP financial measures.

Additional details and a reconciliation to the most directly comparable GAAP financial measures are also included in the first quarter press release and can be found in the Investor Relations section of our website. I will now turn the call over to Ann Fox..

Thank you, Heather. Good morning everyone, and thank you for joining us today to discuss our first quarter results for 2020. I want to begin by thanking all our current and former Nine employees for their dedication and sacrifice through these very difficult times.

Many of them have been with us for close to a decade and have helped shaped the company into what it is today. Additionally, I am happy to report that as of today, Nine has no known confirmed cases of the coronavirus within the organization.

The health and safety of our employees and our community remains our highest priority and we will continue to closely follow CDC and federal and state guidelines to ensure we are not putting anyone at risk and are maintaining safe standards across the organization. Now moving on to Q1.

This quarter, revenue fell below management's original guidance and adjusted EBITDA fell within the range of management's original guidance. Revenue came in lower than original guidance due to rapidly deteriorating market conditions beginning in early March.

As you all know, this has been an extremely volatile market with the energy industry suffering from both significant global crude demand reductions of 25 million to 30 million barrels or more, related to the COVID-19 pandemic, as well as a flood of supply hitting the market from Saudi Arabia, causing crude prices to drop by over 65% by the end of March from the 2020 peak in January.

In response to this price decline, our customers quickly began further cuts to 2020 CapEx plans, dropping rigs and releasing frac crews as the current oil price is clearly not profitable or sustainable for North American shale.

These curtailments are affecting all our service lines of which none are immune from both meaningful revenue declines and incremental pricing pressure. Coming into 2020, the Northeast and other gassy regions were already depressed, with sub $2 natural gas prices and CapEx budgets down over 30% year-over-year.

We are now seeing Permian operators which we previously anticipated to be more stable, reduce CapEx budgets at significant rates and severely cutting back or completely discontinuing activity.

Additionally, we are watching crude storage very closely and monitoring how unavailable storage capacity could and is currently affecting our customers' activity levels. We have already seen some of our customers completely suspend activity until the storage issue is resolved.

Despite market conditions, rapidly declining throughout the quarter, we have maintained sizeable cash on the balance sheet with our current cash position as of March 31, 2020 at $90.1 million. We will talk in much more detail about liquidity and cost reductions later in the call.

During the quarter, all of our service lines saw revenue declines ranging from approximately 7% to 20%. Drilling often lags completion, so our Cementing division saw the least amount of degradation with flat activity versus Q4, while Coiled Tubing days worked were down approximately 13%.

Excluding Tools, pricing was down approximately 5% to 9% across service lines with Coiled Tubing seeing the most pricing deterioration as that service line battles the macro backdrop as well as new equipment coming into the market.

Total stages completed for Completion Tools increased 26% quarter-over-quarter due to stronger composite plug sales in January and February when CapEx budgets had initially reset especially in the Northeast region. Company revenue for the quarter was $146.6 million, net loss was $300.9 million and adjusted EBITDA was $10.3 million.

Basic EPS was negative $10.22 per share. Adjusted net loss for the quarter was $14.9 million or negative $0.51 per share. ROIC for the first quarter was negative 3%. One of Nine's top priorities for 2020 is the commercialization and market penetration of our new dissolvable and composite plug technology which has not changed.

Our new low-temp dissolvable plug was successfully commercialized during Q1 and the timeline for our high-temp and new composite plug remain on track for Q2 and Q3 respectively.

Today, our team has been extremely pleased with the performance of our low-temp pluga as well as the interest from our customers in trying the technology with several customers transitioning from running trials to commercial customers.

During Q1, we successfully ran numerous full wellbores of the low-temp Stinger plugs in the Permian Basin and Northeast region for multiple customers. Those areas provide very challenging well conditions with cold downhole temperatures. The full wellbore trials have provided efficiency and cost savings for our customers.

In the Permian, the trials went so well, we replaced the operator's previous plug provider for future work and we are leveraging these successes across regions with other operators. As is the case for many operators, this customer has temporarily suspended completion activity.

We still anticipate the Stringer product will be deployed once this work resumes, which serves as one example of how the current environment impacts the pace of technology adoption. We will continue to market this technology, especially as our customers look for new ways to drive efficiencies and cut cost in their wellbores.

But this market backdrop provides a significant headwind and delay in the near term adoption of our plugs or any new technology being introduced in the industry. Our customers rightfully so are currently extremely focused on adjusting capital budgets reducing activity and cutting costs.

Additionally completion engineers have much less or no activity in wellbores to allocate towards new technology trials. Operators' risk tolerance is at an all-time low, which is also delaying trials and runs we had previously anticipated during Q2 and into Q3.

With that said I still believe we will deploy our previously scheduled trials and commercial commitments as well as secure new ones once customers have worked through their adjustments and have resumed some level of activity.

I am confident in this, because the tools have performed very well and new technology like the dissolvable plugs are one of the very few ways for our customers to now reduce cycle times and lower costs as performance-related efficiencies like stages completed per day have flattened.

Cost reductions and efficiency gains, as well as safety and environment impacts, will become even more of a focus as we navigate lower oil prices.

I would now like to turn the call over to Guy to walk through our debt and liquidity profile, as well as detailed financial information for the quarter, before I provide an outlook for Q2 and the remainder of the year..

Thank you, Ann. Before we get into detailed financial information, I want to touch on our debt and liquidity profile. In conjunction with the Magnum acquisition, we issued a $400 million bond with interest payments of approximately $35 million per year.

We saw an opportunity to purchase a portion of our bonds on the open market at a significant discount lowering our annual cash interest expense, while reducing our overall debt outstanding. During Q1, we purchased approximately $13.8 million of the senior notes for approximately $3.5 million in cash.

Subsequent to March 31, 2020 we repurchased an additional $15.9 million of the senior notes for approximately $3.9 million in cash. We purchased the notes using cash on the balance sheet, and our ABL credit facility remains undrawn.

As of March 31, 2020, Nine's cash and cash equivalents were $90.1 million, with $93.5 million of availability under the revolving ABL credit facility, resulting in a total liquidity position of $183.6 million, as of March 31, 2020. As of March 31, 2020 we had $92.6 million in the accounts receivable.

We also had $63.1 million in inventory the majority, of which is related to Completion Tools. We are closely monitoring our customers for any potential bad debt expense, but do anticipate working capital will be a significant source of cash for the remainder of the year.

We are confident with the cash on the balance sheet, working capital contribution and cost reductions made throughout the organization that, we will be able to maintain strong levels of liquidity. During the first quarter, our revenue totaled $146.6 million, with adjusted gross profit of $20.6 million.

During the first quarter, we completed 1,044 Cementing jobs, an increase of approximately 2% versus the fourth quarter. The average blended revenue per job decreased by approximately 8%. Cementing revenue for the quarter was $48.6 million, a decrease of approximately 7% quarter-over-quarter.

During the quarter, we did not receive any incremental Cementing units. Due to activity declines, we have stacked nine of our 37 Cementing spreads. At this time, we anticipate receiving the three remaining Cementing units related to 2019 CapEx in Q4.

During the first quarter, we completed 9128 Wireline stages, a decrease of approximately 4% versus the fourth quarter. The average blended revenue per stage decreased by approximately 5%. Wireline revenue for the quarter was $45 million, a decrease of approximately 9%.

We did not receive any incremental Wireline units during the quarter and have stacked 14 of our 47 units, including two remedial units in North Dakota. In Completion Tools, we completed 21,337 stages, an increase of approximately 26% versus the fourth quarter. Completion Tools revenue was $32.2 million, a decrease of approximately 10%.

This decline was mostly related to product mix with an increase of composite plugs sold especially in the Northeast region. During the first quarter, our Coiled Tubing days worked decreased by approximately 13%. The average blended day rate for Q1 decreased by approximately 9%. Coiled Tubing utilization during the first quarter was 45%.

Coiled Tubing revenue was $20.7 million, a decrease of approximately 20%. Due to current and forward looking market conditions, we have closed our Coiled Tubing facility in the MidCon region. We did not receive any incremental Coiled Tubing units during the quarter and have stacked four of our 14 units.

We will evaluate stacking additional units across services lines as activity and pricing dictates. During the first quarter, the company reported a net loss of $309 million or $10.22 per basic share, which includes goodwill impairment charges of $296.2 million, associated with the Tools Cementing and Wireline reporting units.

The impairment was driven by a sharp deterioration in oil field activity and capital markets. Despite the sizeable impairment that we took on our Completion Tools' goodwill, we still have strong belief in the long-term growth of this business and our long-term thesis remains intact.

The company reported selling, general and administrative expense of $16.4 million, compared to $20.3 million for the fourth quarter. This decrease was largely due to cost reductions across the organization, which Ann will cover in detail later in the call.

Depreciation and amortization expense in the first quarter was $12.7 million compared to $15.4 million in the fourth quarter. The company recognized income tax benefit of approximately $2.1 million in the first quarter of 2020, resulting in an effective tax rate of 0.7% against year-to-date results.

The benefit provided by both the net operating loss provisions of the CARES Act, and the goodwill impairment recorded during the quarter are the primary components of the company's 2020 tax position. During the first quarter, the company reported net cash provided by operating activities of $745,000.

The average DSO for the first quarter was approximately 57.5 days compared to 53.4 days in Q4. Total capital expenditures were $1.4 million, of which approximately 73% was maintenance CapEx. I'll now turn it back to Ann to discuss our Q2 and 2020 outlook..

Thank you, Guy. There is very little visibility for 2020 at this time, but the outlook remains extremely challenging. We are anticipating steep activity declines of more than 50% versus Q1, coupled with pricing pressure in Q2 and Q3, and likely throughout the remainder of the year, which will be reflected in earnings across all service lines.

Q2 will be an extremely difficult quarter, with many operators suspending all activity due to oil prices and/or storage capacity issues. How severe and how long these declines last are still unknown, but we are anticipating this continues into at least Q3 and likely Q4. At this time, we anticipate many U.S.

CapEx budgets may decline by more than half, year-over-year and U.S. land rig counts could potentially reach near or below 300. U.S. active frac crews could also decline to as low as 90 to 100, which averaged over 300 during 2019 and between 150 to 200 in 2016.

We have seen some large operators delaying their entire rig programs, while others are shutting in a portion of their wells due to unprofitable oil price or storage capacity issues. With so much uncertainty in the macro backdrop, we are focused on what we can control and our highest priority is the preservation of cash and our debt service.

We have swiftly made a number of changes and cost reductions across the organization enabling Nine to endure a depressed market for a prolonged period and preserve cash, because of our high variable cost and asset light business model, we are uniquely positioned to quickly stretch and contract with the market through corresponding CapEx and OpEx reductions with variable cost comprising a vast majority of our cost base in normal markets.

As a reminder, on our last call, we guided to $20 million to $25 million of total 2020 CapEx based on a different anticipated activity level. With the stacking of equipment and our ability to delay growth capital, our new CapEx guidance will range from $10 million to $15 million.

This includes approximately $5.6 million of our 2019 capital expenditure related to our cementing spreads, which have been delayed into 2020. To-date, we have taken significant cost cutting measures and can and will continue to reduce costs as the market dictates.

While these reductions have been aggressive and swift, they should not impede the ongoing safety as well as well site execution and standards our customers expect from Nine. These annual reductions include the following.

We have reduced our annual payroll by approximately $50 million, which represents a head count and payroll reduction of more than 50%. These reductions are always extremely difficult and we will continue to adjust as activity dictates.

We will maintain key employees that have previously led the organization through the severe downturn in 2016 and then quickly transition to capture growth during a recovery. Head count reductions are spread throughout basins and across service lines as well as the corporate level amongst support functions.

We will continue to evaluate head count reductions and act quickly as market conditions change. Employees with salaries over a certain threshold have taken salary reductions ranging from 10% to 15%, including executives, which was effective April 1, 2020. This is in addition to the cancellation of cash bonuses for the entire organization for the year.

Our Directors have also agreed to reduce their cash retained for Board services by at least 50% effective April 1, 2020. We have suspended the 401(k) match effective April 1, 2020 and are also working very closely with our vendors and service providers for cost and fee reduction, as well as securing alternative vendors when warranted.

Finally, we look at our interest expense as our only true fixed cost. We are focused on ways to eliminate or reduce fixed costs, including renegotiating lease agreements, facility consolidation, IT and insurance costs, because of the dynamic market, we like many others will not be providing Q2 guidance at this time.

This quarter is likely to be one of the worst the oil field and this company has ever seen. We have prided ourselves on providing accurate guidance for the market and too many unknowns remain at this time. While the outlook is very draconian in near term, there will be opportunity for those companies that can survive.

These times also prove how important both product and geographic diversity is for oil field service companies. At the beginning of the year, the gassy regions appeared to be the most vulnerable.

However, significant CapEx reduction in the Northeast and Haynesville coupled with reduction in activity in major oil producing regions, and the resulting decrease in associated gas production has resulted in stronger future natural gas prices and could provide a potential opportunity for further increases in 2020 and 2021.

Our exposure to these regions, could provide a significant advantage for the company and partially offset declines in the oily region. Today, we remain focused on preserving our cash and maintaining value for our shareholders. We have proven our ability during the last downturn to gain significant market share and manage costs.

Additionally, we can quickly ramp our business and capitalize on a growing market. In 2016, we generated approximately $10 million of adjusted EBITDA growing that to approximately $141 million in 2018.

We have strategically designed an elastic and flexible business model with significant operating leverage, which allows us to transition quickly with the market. This adaptability is imperative, as I am always reminded, how volatile and dynamic this industry is. We will now open up the call to Q&A..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Sean Meakim with JPMorgan. Please proceed with your question..

Thank you. Good morning..

Good morning..

So, Ann, I guess to start thinking about sources of cash. In terms of working capital, it was $35 million source of cash last year and that was a year in which revenue was flat to up. But as a result your working capital in the balance sheet is about 40% lower than what it was a year ago.

Revenue is falling much harder this year, but also maybe gets cut in half year-on-year. We can assume collections maybe a bit more challenging at least in terms of timing. Perhaps there's some dissolvable inventory, built but not as much as you would have hoped.

So as we think through those moving parts, sizing working capital as a source of cash this year, can it be more than what we saw in 2019? Just trying to think through kind of how all that spits out on the other side..

So, Sean, it certainly could be. There's a lot of variables there. And I will flip this over to Guy Sirkes..

Hey, Sean. So look I think you should think about our receivables moving with revenue. As you note, there could be some difficulties with customer stretching collections. We think we have a high quality customer base. And so while we're certainly monitoring, it we still expect that to be a good source of cash. On inventories, you're right.

Obviously, it's more difficult to monetize inventories when the revenue is lower, but we are -- we're following that very closely and we're going to work -- we're going to try to work that balance down through the course of the year..

Got it. Okay. I appreciate that. So then the challenge -- one of the challenges in this environment is the revenue falls much faster than you can take cost out.

If we get -- if we look past the second quarter, can you maybe just give us a sense of how you think the business is positioned to avoid burning cash? Again, the second quarter is going be quite challenging, but beyond that how you feel the business is positioned to be able to sustain itself without having to consume cash on a multi quarter basis?.

Yes, it's really a great question, because, of course, some folks think, hey, we've shut-in so much associated gas now in the Permian, we could see some green shoots towards the late back half of the year maybe beyond that in the gassy region. So all of this is obviously weighted towards what your assumptions for activity pickup are.

But I would say that you duly note that Q2 is going to be difficult for OFS companies because their revenue fell so hard and so fast. And so although you're taking cost out quickly, you're going to see some of that drag on the EBITDA and subsequently on the cash position for Q2.

That should -- I really underscore should ameliorate for Q3 because most of the folks in the community will have rightsized their businesses for the remaining activity that's left behind. So, if that's the case then you should see that cash burn ameliorates.

I only caveat that because, of course, if you did see some pickup that was even anemic you could start to see drawing down that working capital a bit as well. But to answer your question, Q2 should reflect the biggest drag from a cash perspective because April and May are going to reflect some costs that really shouldn't be there in Q3.

Again also this is -- of course, everyone's waiting for these West Texas operators to restart albeit again anemic in late Q3, Q4. If for some reason there's a resurgence of COVID due to cold weather -- there's any number of scenarios that could occur.

So, what we're doing here as a management team is really trying to plan for all of them with the absolute focus on preservation of that cash and we feel like we're in a good position to do that right now..

Very good. Thank you..

Thank you. Our next question comes from Chris Voie with Wells Fargo. Please proceed with your question..

Thanks. Good morning. Just wanted to check on activity across the businesses. So I think you called out about 90 to 100 frac spreads potentially working in the second quarter. If it plays out like that that's about a two-threads decline in revenue.

How do you expect your various businesses to fare in that environment? I imagine potentially cementing fares better than the others, but curious if you could just give a kind of a rank order on revenues across your businesses?.

Yes. So, it is a bit lower average frac spread count than we saw in 2016. So, I think -- again, you saw the business do $10 million of adjusted EBITDA in 2016, but there was a bit more work. At the same time, I don't think we had -- well, I know we didn't have the same footprint from a tools perspective.

So, I would say that it's a bit of a nuanced answer Chris because we're extraordinarily strong in that Northeast market in particular on the tool side. So, if we see some green shoots in activity that will be a very good thing for this company. So, it's hard for us to pinpoint exactly what happens to the revenue.

And I would say that the correlation isn't dollar-for-dollar because even in West Texas you know we've got big anchor customers some of whom are still doing completions right now. So, we're still doing completions activity in West Texas.

So, you might have the nuances of big customers in certain regions that from kind of a 100,000-foot level look awful. So, it's -- I don't think it's a one-for-one, but clearly, the revenue line is going to get absolutely hammered in this environment. We expect that. We're watching our OpEx very carefully. And as I said it's like an elastic band.

So, we should be able to and are taking these costs out because fortunately for us, it's -- a lot of it is labor and materials..

Sure. Okay, that's helpful. And then to follow up maybe on Cementing, a very strong business for you. I kind of view that as maybe a two-tier market where you and a few large competitors are obviously doing very well and then there's a lot of also-rans that seem to be exiting in various basins.

Are you seeing that? And can you maybe paint a picture on whether that results in a even stronger market structure post -- it's probably a bit too early to get excited about what it looks like on the--.

Right. No, I mean on the one hand as a member of the leadership team I would say you are -- you've got your hand in front of your face and you need to be very focused on the near-term.

But and I hate to use the word excited because this has been a heart wrenching period for all of us as we have swiftly and quickly let a number of extraordinarily talented folks out the door.

But what is exciting about this period is it's so painful and it's so quick that it really clears the deck for market share gains even upon any anemic return of activity. So, last time around, we almost doubled the stages completed in the U.S.

and that was before -- really the big four either had significant financial troubles and/or had made strategic choices to not play in the scrappy man land game. So, I actually think this sets Nine up for potentially tremendous market share gains moving through this downturn.

So, the other side of this river that we're crossing here is really promising and I think very few people will make it across. I think very few teams will keep carrying. I think you'll see a lot of teams just give up and they'll say, this is too bad and especially for the companies where they're just not as committed to it.

And our team just doesn't do that. So, in some ways this is exactly what we needed frankly..

Okay.

And if you think about the footprint is there any chance for expansion inorganically or is the financial position just a little too challenging for thinking like that?.

we are open to any and all alternatives, that's our job. We're always reviewing and looking at options to create value for our shareholders. But obviously if you can -- you can create the very same growth organically and depending on the speed of which you can do that -- you would do that anytime right because you don't pay a premium.

But we're always looking at that. So, when we kind of get our heads up above water and we see where this thing takes us certainly this team will be pounding the ground for opportunities. And I'll just remind you that we acquired our composite plug technology in August of 2015.

So, it's not like we can't find opportunities even when things look really dark. So, again not -- we're definitely not hanging our heads.

We just want to be sure we paint an accurate picture with the information that we have for the marketplace right now which is near-term extraordinarily challenging and medium and long-term may present significant opportunity..

Okay. Thanks for the color. I'll turn it back..

Thank you. Our next question comes from George O'Leary with Tudor, Pickering, Holt & Company. Please proceed with your question..

Good morning Ann, good morning Guy. The gas point you made earlier is an interesting one because we have seen gas prices rise.

I just wondered if you could speak to the level of dialog to the extent there is any at this point you guys are having with customers who are actually mulling over at getting activity back at some point this year in the gassy basins in particular.

Is that an actual discussion at this point, or is it more of just price may have risen, so you would assume some activity comes back? Just curious so any color there?.

no one knows what's going to happen, just as in January folks thought this COVID thing was a Chinese issue, okay. So I just -- I really caution folks from kind of plans and discussions that customers may have from just recognizing that this is incredibly dynamic. So yes, there are conversations; yes, there are plans.

But at this point, plans are more fluid than we have ever seen them before..

That's well understood..

And also George you remember in January, the worst place you could be was in a gas region, right? And not even four months later, it's the one area of opportunity. So let's just be realistic in how quickly and how rapidly people's views are changing, which only can point us back to the importance of diversity..

Sure. That makes perfect sense. And then an impressive level of face value of debt bought back at a very substantial discount realizing that the debt markets kind of trade by appointment and the price that you see on your Bloomberg, isn't always reflective of what you can actually go purchase that debt back.

One, how liquid is that market and how much more do you guys think you might be able to get done? And if that's a fair question then just strategically, is kind of a primary use of any free cash flow that you guys may generate this year going to go towards trying to buy back debt at a discount, or do you just look to kind of hunker down and stack cash on the balance sheet? How do you think about those levers?.

Sure. I'm going to flip that over to my new CFO, Guy Sirkes..

So look -- I mean we're studying the market now. We felt comfortable with our liquidity position and our cash balance such that we went in and acquired some of the bonds. There's not a lot more color I can provide. We're looking at it. It is a potential use of cash.

But at the same time, we want to make sure that we have adequate liquidity to make it to the other side of this..

Okay. That's helpful. And then I'll just sneak one more in. I guess a lot of people prodded at working capital, so I won't prod any further there.

But just as far as cash inflows that we may not be modeling for the year go, any other sources of inflows whether it's early monetization of NOLs, things associated with the CARES Act, anything on that front that we may not be contemplating that may be a cash tailwind for the year?.

George, nothing that's very large. I mean we've got some -- a few payments that we're expecting to receive and some fairly small things with the CARES Act, but nothing that's going to really move the needle in a material way..

All right. Thanks for the color..

Thanks, George, be safe..

Thank you. Our next question comes from J.B. Lowe with Citi. Please proceed with your question..

Hey, good morning, Ann, good morning, Guy. .

Yes, hi..

Good morning..

Good to hear your voice. Just wanted to follow up on the -- kind of the liquidity commentary you were just talking about.

Is there a minimum amount of cash and availability on the revolver that you guys would like to keep before you start contemplating any further debt repurchases?.

Yes, I wouldn't say there's a specific number. I think it's just going to depend on how the market is evolving and what our forward visibility is together with our forecast. So I wouldn't guide you to any specific number.

Obviously, just given the heightened level of uncertainty in the marketplace today, I think it's prudent to maintain a higher level of liquidity than normal..

Yes. I would also echo J.B. that for me personally -- and everybody's affected by their past. In 2016, I had repaid the debt back so fast in 2015 as the working capital piled up on the balance sheet that I then really began to understand the word liquidity and I threw the company into a liquidity crunch.

So we're going to be very, very cautious about maintaining and preserving that liquidity. So again, please don't think that we're not conscious of that especially based on our past experiences for sure..

Fair enough. Okay.

And Guy, can you just remind me what covenants you have currently and where do those stand?.

So we don't have any maintenance covenants on the bond or the credit facility. So we do have a springing fixed charge covenant, which will come into play, if we are sufficiently drawn onto the ABL where we have less than $18.75 million of availability. Then there's a springing fixed charge covenant.

But unless we're heavily drawn into the ABL, there are no maintenance covenants..

Okay. Perfect. And last one from me. Just given the rapidity of the decline here, I imagine decrementals are going to be pretty severe in 2Q.

But looking out with the cost cutting activities that you've already implemented how much can you mitigate the decrementals going forward, after what is likely going to be a pretty tough second quarter?.

It's really a great question. And I think Q2, you were spot on, the decremental margin will be severe and we are really hoping to shelter that moving forward. Again, as I echoed earlier, we really have a very variable cost business.

So we are hoping based on our assumptions and what we know, that we've shelter that and the worst decremental that you'll see is in Q2. So, that's what we're planning for..

Okay. Thanks everyone. Stay safe out there..

Thank you very much..

You too..

Thank you. Our next question comes from Waqar Syed with AltaCorp Capital. Please proceed with your question..

Thanks for talking my question and good morning Ann and Guy..

Hi..

Good morning..

So just a couple of questions. First on the revenue per stage in the Completion Tools business, that came down quite a bit. Certainly, mix and prices played a part in that.

But how should we be thinking going forward? Does that mix and price effect continue in the coming quarters as well, or do you think that it may move back up again at least some?.

Well, I think, certainly Q1 was impacted by the quantum of composite plug sales, right. But I think as you level out -- it's really hard to talk about Q2 and Q3, just because Q2 activity is so egregious and so non-existent.

But as you level this out -- really, we've often talked about margin accretion with the increase of dissolvables as a percentage of our mix. So I would really -- I would focus you on to that margin line. And, obviously, the price point for the dissolvables is higher.

So -- and if you could possibly use the word normalize, but if you normalize, then you should see that price point come up for us as well as the margin come up. But that's a normalized market and we're certainly not in one right now..

Sure. Secondly, on the Wireline side we normally see in weak markets, a lot more bundling by some pumping companies that also offer wireline.

Now, if in the medium term we believe that activity picks up, but still remains relatively significantly below the recent highs, do you see risk of market share losses, because the pumping companies are bundling more or not?.

No. No, I don't. Not at all..

Okay. And just one final question.

In terms of the high decremental margins in the Q -- in Q2 what do you mean by high? Is that in the 40%-45% range high, or it could be higher, or you think with cost controls, you could bring it lower?.

Yes. You know what, I really don't want to comment on that, Waqar. We're not giving our typical Q2 guidance, so I won't provide color on that..

Okay, great. Thank you very much. Appreciate the color..

Thank you. There are no further questions at this time. I would now like to turn the floor back over to Ann Fox, President and CEO for closing comments..

Thank you for your participation in the call today. I hope you and your families stay safe and healthy during these very difficult times. Thank you..

Ladies and gentlemen, this has concluded today's telecast. You may now disconnect your lines at this time. Thank you for your participation..