James C. Landers - RPC, Inc. Richard A. Hubbell - RPC, Inc. Ben M. Palmer - RPC, Inc..

Rob J. MacKenzie - IBERIA Capital Partners LLC John Daniel - Simmons & Company International George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc. B. Chase Mulvehill - Wolfe Research, LLC Matthew Johnston - Nomura Securities International, Inc. Tom P. Curran - FBR Capital Markets & Co. James Wicklund - Credit Suisse Securities (USA) LLC (Broker).

Good morning, and thank you for joining us for RPC Inc.'s Third Quarter 2016 Financial Earnings Conference Call. Today's call will be hosted by Rick Hubbell, President and CEO; and Ben Palmer, Chief Financial Officer. Also present is Jim Landers, Vice President of Corporate Finance. At this time, all participants are in a listen-only mode.

Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. I would like to advise everyone that this conference call is being recorded. Jim will get us started by reading the forward-looking disclaimer..

Thank you, and good morning. Before we begin our call today, I want to remind you that in order to talk about our company, we're going to mention a few things that are not historical facts. Some of the statements that will be made on this call could be forward-looking in nature and reflect a number of known and unknown risks.

I'd like to refer you to our press release issued today, along with our 2015 10-K, and other public filings that outline those risks. All of which can be found on RPC's website, at www.rpc.net. In today's earnings release and conference call, we'll be referring to EBITDA, which is a non-GAAP measure of operating performance.

RPC uses EBITDA as a measure of operating performance, because it allows us to compare performance consistently over various periods without regard to changes in our capital structure. We're also required to use EBITDA to report compliance with financial covenants under our bank credit facility.

Our press release today and our website provide a reconciliation of EBITDA to net income, the nearest GAAP financial measure. Please review that disclosure, if you're interested in seeing how it's calculated. If you've not received a copy of our press release and would like one, please visit our website again at www.rpc.net for a copy.

I will now turn the call over to our President and CEO, Rick Hubbell..

Thank you, Jim. This morning, we issued our earnings press release for RPC's third quarter of 2016. During the third quarter activity improved as the rig count increased. Our revenues increased sequentially for the first time in seven quarters. Pricing for our services has yet to improve, but seems to be stabilized.

We continue to price our jobs to achieve a minimum projected contribution levels. In addition to our third quarter earnings announcement, we also announced this morning that our board of directors voted yesterday to pay a $0.05 cents per share year-end dividends in December. This dividend continues an unbroken 20-year history of annual dividends.

While we do not presently believe that the oil field is beginning a robust recovery, we're confident about RPC's financial strength and ability to operate in the current environment. Our CFO, Ben Palmer will now review our financial results in more detail, after which I will have a few additional comments..

Thank you, Rick. For the third quarter revenues decreased to $175.9 million compared to $291.9 million in the prior year. Revenues decreased compared to the prior year due to lower industry activity levels, equipment utilization and pricing for our services.

EBITDA for the third quarter decreased a negative for $4.4 million compared to positive $15.4 million for the same period last year. Operating loss for the quarter increased to $56.4 million compared to a loss of $52.9 million in the prior year. Our loss per share was $0.18 compared to a loss per share of $0.16 in the prior year.

Cost of revenues decreased from $234.6 million in the third quarter of the prior-year to $146.6 million in the current year due primarily to lower activity coupled with reduced personnel head count and incentive compensation.

Cost of revenues as a percentage of revenues increased from 80.4% in the prior year to 83.4% due to inefficiencies resulting from lower activity levels and continued low pricing for our services. Selling, general and administrative expenses decreased from $37.3 million in the third quarter of the prior year to $34.9 million this year.

The decrease resulted primarily from lower total employment costs due to head count reductions. SG&A expenses, as a percentage of revenues, increased from 12.8% last year to 19.8% this year. Depreciation and amortization was $52 million during the third quarter of 2016, a decrease of 24.7% compared to $69 million in the prior year.

The decrease results from minimal capital expenditures during the past two years. Net loss from disposition of assets was $3.8 million in the third quarter of the prior year compared to a net gain of $1.1 million this year. Our Technical Services segment revenue for the quarter decreased 39.8% compared to the third quarter of the prior year.

Segment operating loss was $48.6 million compared to $44.2 million loss in the prior year. Revenues and operating results decreased due to lower activity levels and pricing. Our Support Services segment revenues for the quarter decreased 39% and operating loss was $5.5 million compared to a loss of $1.9 million in the same period last year.

And now I'll talk a little bit about our sequential results. RPC's third quarter revenues increased 23% to $175.9 million from $143 million in the prior quarter. Revenues increased due to our long-term presence in the Permian Basin and higher overall activity levels in most service lines.

Cost of revenues during the third quarter of 2016 increased by $19.6 million or 15.4% due to higher activity levels. Cost of revenue as a percentage of revenues decreased from 88.8% in the prior quarter to 83.4% this quarter, as a result, again of higher utilization.

Selling, general and administrative expenses during the third quarter of 2016 decreased by $1.6 million or 4.4% compared to the second quarter, due to lower total employment cost. SG&A expense as a percentage of revenues decreased from 25.5% in the prior quarter to 19.8% in this quarter due to higher revenues over relatively fixed costs.

RPC's consolidated operating loss in the third quarter of $56.4 million was an improvement of $18.8 million over a $75.2 million loss in the prior quarter. RPC's sequential EBITDA improved $14.7 million from negative $19.1 million to negative $4.4 million in the third quarter.

Our Technical Services segment generated revenues of $163.3 million, 24.5% higher than revenues of $131.2 million in the prior quarter due to increases in many of our major service lines within this segment. Operating loss was $48.6 million compared to a loss of $65.7 million, a 26% improvement.

Revenues in our Support Services segment increased 6.6% and incurred an operating loss of $5.5 million in the third quarter, compared to a loss of $7.2 million in the second quarter, a 22.6% improvement.

As of the end of the third quarter, RPC's pressure pumping fleet totaled 927,000 hydraulic horsepower, of which approximately half is unmanned, but available to work, relatively unchanged from the end of the second quarter. While utilization improved in many markets, we've not placed any unmanned equipment back in service.

As of September 30, RPC's total head count was approximately the same as at the end of the second quarter. Capital expenditures during the second quarter were $6.6 million and RPC's full year 2016 capital expenditures are currently projected to be approximately $35 million.

We continue to remain focused on maintaining a strong balance sheet and ensuring our equipment is adequately maintained and ready to work. Now, with that, I'll turn it back over to Rick for some closing remarks..

Thanks, Ben. Industry activity began to increase during the third quarter of 2016, and pricing for our services appears to have stabilized. We have not yet observed consistent pricing improvements in any of our geographic markets or service lines.

We continue to maintain our equipment through the downturn and have not reactivated any of our idle fleets, in spite of the increased activity. We also continue to maintain our financial strength, and at the end of the third quarter our balance sheet showed $139 million in cash with no debt.

I'd like to thank you for joining us this morning for RPC's conference call. And at this time, we will open up the lines for your questions..

We'll take our first question from Rob MacKenzie with IBERIA Capital..

Good morning guys..

Hi, Rob..

Good morning..

Obviously, it was a very strong quarter for you guys. Can you give us some better color in terms of how the profitability improved so much quarter-on-quarter, particularly in the context of all the anecdotes we hear where a lot of work is being priced at or below EBITDA breakeven.

I understand you guys have resisted that, but the gain on profitability is striking nonetheless?.

Yeah. Rob, this is Jim. I'll start and maybe everybody else can jump in. You are very familiar with our metaphor of the call option, keeping locations and people in place and equipment in place that we wouldn't have needed a few quarters ago or even last quarter. When some work came up, we were able to do it.

So we didn't have to hire new people to do the work that we did. We had underutilized people. We had equipment that's in good shape and locations that were there waiting for some work. So I think that is the single largest contributor to it. Then also the Permian Basin, to the extent anything has improved, has improved more than anything else.

And we've got a good presence there. I don't think it's a whole lot more complicated than that honestly..

Okay..

This is Ben. I don't have anything to add. We don't know exactly what's going on at each one of our competitors, and I think we're just there.

We've been bidding all along and bidding at prices that we're comfortable with, that we think maybe have a chance to win some new work with customers, and it's fallen where its fallen and we ended up having a good quarter..

Great. And then can you guys talk some more about – you comment in the press release about checking with vendors about availability of raw materials and components. I presume you're talking about both a) sand and perhaps even treating iron and other equipment items.

Can you give us some more details on that and where you see the state of a) both sand supply and sand logistics at this point given the rapid growth in sand consumption?.

Rob, we have checked in with our vendors who provide sort of the disposable iron and things like that, just to remind them that we paid our bills during the downturn and really want them there when things get better, and they've just told us verbally that they're available and that's where – although there could be constraints there.

Supply of sand is very, very high. Logistics, I'm not telling you anything you don't already know, always have been an issue, and it will be again as soon as demand starts increasing. So we just got to think about – we always have to think about logistics, and there's no difference now if there is more demand.

And needless to say, with increasing service intensity, sand logistics, proppant logistics are a big deal. But not supply necessarily. There's a lot to do with logistics..

Okay.

On that front, a couple of quick follow-ups if I may? Number one, it's winter now, but are you guys planning or considering planning to open your small sand mine in the spring? And second, I know you got to typically source Northern White, but are you also looking at alternative sources, say, using more brown sand closer to market at this stage?.

At this point, we are always ready to reopen that sand mine if demand warrants it. So we want to do that and will if there is an opportunity. We produce some sand that people want. As you know there is an increasingly large variety of proppant being used. So we're always trying to look at those sources.

Brown sand not particularly at this time, but, in general, we are trying to survey the sand vendors out there and find out who can take care of us on – again an increasingly wide variety of sand requirements..

Rob, this is Ben. Of course what we're sourcing is what our customers want. And at this point, we don't have much request for brown sand, so we continue to do mostly the Northern White..

Great. Thank you. I will turn it back for now..

Thanks..

We'll take our next question from John Daniel with Simmons & Company..

Hey, thanks. I want to follow on Rob's line of questions, they were very good.

Can you just share with us your positioning on the logistics front? Specifically, your access to in-basin transloads, how many you've got, where they're located, just some color around that?.

Well, John, we have accessed a lot of them. Nothing has changed really since the downturn. I think we have access to nine transload facilities in the Permian..

Okay..

That's one thing that jumps out at me..

Do you have contractual space with them Jim, or like is there a way they can shaft to you and go to other players, raise rates, just any color there?.

It's the oil field, people are kinder than that. But in a few, we do have leases where we're – we maybe – we share in one – in our best transload facility in the Permian, we share it with another service provider and that's locked up. So nothing can interfere with us and the other service provider who utilize that transload facility.

I honestly wouldn't be able to tick down all nine of them and tell you exactly where everything stands..

Are you at all concerned though Jim that given all of demand prophecies that people on our side of the table have and some of them are pretty aggressive, will you have the ability to handle all of that volume given your transload exposure today?.

Yeah. This is Ben. I mean in terms of what we can foresee today again, we have not placed any additional equipment into service. We have a lot of equipment that would be available, we would certainly not pull it out unless we obviously are comfortable with the pricing and availability of materials going forward. So that's something we'll monitor.

I would not say that we've taken any significant defensive measures against the risks that you are talking about. We do have long-term relationships.

And of course again, like Jim said, we know it is the oil field and it is competitive and we will become more increasingly competitive, but that's just something that we continuously monitor and manage, but we have not taken any significant steps at this point..

Okay. I will ask one more and then jump back in the queue. In the press release you say we have not yet observed consistent pricing improvement in any of our geographic markets.

Have you seen any pricing improvement and if so, how much and which product lines and any color there?.

John, we want to begin and end every answer to those kind of questions by saying pricing is not improving in the overall market. We have seen a few cases where during the quarter we, for example, responded to a proposal with higher pricing than we would have responded four months ago or six months ago and won the work.

So there has been some spotty price increase, but it is not enough to impact our financial results. So we've seen it a few places, and it's a very transactional business at this point. There are no long-term contracts in place. So there are a lot of proposals out there, and there have been cases where we did win the work at slightly higher prices.

But I just want to emphasize it's not enough, it's not consistent, it's not across the board and it's not enough to impact our financial results right now..

And when your largest competitor says that they will sacrifice market share for higher margins, have you seen any evidence of them attempting to do that?.

Hard to say at this point..

I would think the examples that Jim is giving, I think, are examples that probably some of those prices that we're quoting in slightly higher prices and we're winning the work, I think that's some indication that there is some foundation there, there is some underlying support.

But as Jim said, we have not yet seen truly definitive and distinctive price improvements..

Thanks, guys..

Thank you..

Thanks, John..

We'll take our next question from George O'Leary with TPH & Company..

Good morning, guys..

Hey, George..

I thought it was encouraging to hear you guys talking about potentially looking at recruiting and maybe even actively recruiting at this point.

I guess, when did the tide kind of turn from letting people go to adding folks back? And does this speak to some of the maybe pricing green shoots that you potentially see going forward or is it some other driver that's pushing you guys to hire some folks back?.

George, this is Jim. We started actively recruiting people that we had let go around the middle of the third quarter when we saw increasing activity. It didn't have to do with pricing. In fact, pricing is going to be a hindrance to getting a lot of people back at this point, but we started around the middle of the third quarter..

Okay. That's very helpful. And then yesterday we heard one of your competitors mention they're taking some horsepower and moving it down into the Permian Basin.

I guess, a) are you seeing more instances of that or increasing instances of folks taking this equipment on wheels and pushing it down into the Permian? And then, b) as you did see some pockets of pricing power, did that actually tend to be in some other markets outside of a market that may have more idle capacity than some others?.

George, your characterization of the dynamic is accurate. We have seen people come to the Permian because it's the least bad right now and does offer some promise for the future. So we have seen that. We have started to see a little less slack in some of the other markets because of some equipment that's left those markets.

Again, not enough to be meaningful, but that dynamic is at play and could be at play if other markets start to get more active..

All right.

And then maybe just sneaking in one more if could, could you guys provide the kind of the revenue breakout by sub-segment within Technical Services?.

Absolutely. Happy to do that. So the percentages I'm about to give are third quarter revenue as a percentage of consolidated RPC revenue. Number one is pressure pumping at 42.1%. Number two is ThruTubing Solutions at 24.1%. Number three is coiled tubing at 10.5%. Number four is nitrogen at 7.8%, and those are all in our Technical Services segment.

Number five is something in Support Services, which is Patterson Tubular Services, our tubular handling inspection and storage business that was number five at 3.3% of revenue..

Great. Thank you guys very much..

Thanks, George..

We'll take our next question from Chase Mulvehill with Wolfe Research..

Hey, good morning..

Hey, Chase..

Good morning..

Hey.

So I guess the first question I want to hit on, if we think about potential for kind of fleet reactivations, could you talk to that a little bit and the potential for kind of additional crew expenses or refurb or fluid ins (20:36) or anything like that to hit ahead of kind of before revenues hit?.

Chase, this is Jim. Idle fleet reactivation is pretty far in the future, given what we know right now and what we see before us. The more important thing right now is crew reactivation, new hiring, crew utilization, crew management, that kind of thing.

We are continuing the policy of we're not going to activate idled equipment until pricing is enough better that we have some decent financial returns. So we just are not going to do that.

And as for cost to refurbish that idle fleet – and we've been saying all along, and I think now we continue to see evidence of it -- that we've maintained the equipment pretty well, so cost to reactivate idle equipment, when that time comes, will be minimal. So, it's just not in the near term forecast at this point..

Yeah. This is Ben. I believe that's an accurate statement. Certainly there'll be some CapEx when the equipment comes up, but it should be very minimal. I can't say there's going to be none. Would it show up? I don't know whether – it depends on what the numbers look like at the time.

But as Jim said, we're going to remain disciplined and not bring crews back until we're quite comfortable that pricing is where it needs to be and we expect it's going to remain. Our frac calendar now on our manned equipment is reasonably full. Between now and year end that can be dynamic, so.

The holiday impact is a little bit uncertain right now, about whether that will have an impact or not. But as Jim said, we'll just watch it and remain nimble, and we talked about kind of getting back to the head count number. We said in our notes that head count had not changed.

We have seen some attrition and had a few lay-offs very, very early in the third quarter. And as Jim talked about we began to recruit when we saw the activity come back, so we basically hired about the same number of people that had left us..

Okay..

And so that process is in place and can be expanded as needed..

Okay.

So, what's utilization of your crew fleets today?.

Chase, it's hard to measure, and we don't disclose it all that much. It is higher than it was at the end of second quarter. There is more fleet utilization to come if the work can be arranged right. But it's still fairly low..

Okay. All right. So I'll kind of look at 4Q and try to understand kind of what all this means for 4Q.

And how should we think about revenues and incrementals as we go into 4Q?.

Well, ex-holiday impact, revenue should increase sequentially based on what we know now. It's hard to say that, considering holidays, that the same revenue increases will occur – same sequential revenue increases will occur Q3 to Q4 that occurred Q2 to Q3. And incrementals should still be decent given everything we know right now..

Okay. Maybe I will try one more.

September revenues and EBITDA margins, how does that compare to what you saw in the average for 3Q?.

Yeah, I think the best comment we'll be willing to give on that is that July was the worst month of the quarter and August and September were better, so..

Is there a big difference between August and September?.

Not huge..

Okay. All right. And then the last one and I'll turn it back over.

Thinking about the amount of sand pumped in 3Q, how much did this actually increase sequentially?.

It increased – I probably don't have a great number. I mean it did increase, call it – the amount of sand probably....

Yeah, the amount of sand, and then we can talk about the intensity?.

The amount of sand, probably in the 20% to 25% range..

Okay.

And what did you see from an intensity standpoint?.

It didn't increase a whole lot. It did increase but not a whole lot. We are still dealing with some very small numbers here, and so changes may not have really global meaning to them because the numbers are very small still..

Okay..

I mean one big customer could significantly impact some of these metrics that are very important. We understand they are important, but could very significantly impact something like proppant intensity..

Excuse me to interrupt. But I think the customer mix has a much bigger impact than the trends of service intensity over a short period of time, for one quarter to the next. Okay.

I think that's another way of saying what Jim is trying to say, is it's hard to draw a lot of conclusions about the overall industry based on our numbers from quarter-to-quarter. But I think the overall trend of service intensity increasing is probably still in place, but to draw definitive conclusions on our number are a little bit tricky..

Yeah it is difficult..

What percentages of jobs do you supply the sand versus your customer supplying it?.

We supply sand for the majority of the jobs. We actually don't have a percentage in front of us right now..

Okay. For the majority, that's fine. Okay. All right. That's all. I will turn it back over. Thanks, Jim. Thanks Ben. (26:22)..

Yes, thank you..

All right..

We'll take our next question from Matthew Johnston with Nomura..

Hey, good morning, guys..

Hey, Matt..

Good morning..

What kind of pricing gains do you need to see from today's levels to incentivize you to start reactivating some of these stacked pressure pumping spreads?.

Matt, it's market specific, because we're starting – we'd be starting from different places, but anywhere from 15% on the low-end to 25%, or 30% on the high-end. So it's a big range..

Okay. Got it. Fair enough. I think that's it for me. Everybody else asked all the other good questions. So, thanks. Great quarter, guys..

All right, Matt. Thank you..

We'll take our next question from Tom Curran with FBR Capital Markets..

Good morning, guys..

Hey, Tom..

Returning to the distinction you just drew between the impact of changes in your customer mix over the short-term versus that of higher level service trends, how has your customer mix evolved from where your working horsepower bottomed?.

Well, during the third quarter we have probably done more work for smaller customers in a lot of our markets where we've been there for a while in some of our locations at the Permian Basin.

So our customer base today has some new customers, customers we have not done business with before or done business with recently, and a lot of them are on the smaller side rather than some of the bigger guys.

If that's responding to your question?.

It is.

And with the incremental demand indications you are currently fielding, the conversation, the tenders out there, if your work trajectory were to evolve as expected and I guess also in the best case scenario, how would you expect that customer mix to evolve going forward? Would you expect a shift towards your larger customers maybe some of your more traditional dominant customers?.

Tom, we have so little visibility right now. That's a hard – it's a great question, it's just a hard one to answer. We have so little visibility into future at this point..

I think when the market begins to tighten, I don't think we'll really know where it's going to evolve and it's not a bad question, but we don't really know, we'll just have to react to what we see, but when the market does tighten as it is somewhat right now, but as it continues to tighten we'll see, are we going to end up with customers trying to lockup some of our fleets and we wouldn't be opposed to allocating a certain percentage of our fleets to some of our larger customers if we can get enough assurance of steady work.

But it's something we just happen to standby and be prepared to react to what opportunities present themselves..

Okay. And then on the competitive side, we all know several of your one-time small-to-mid cap pumping rivals are either in or just emerged from Chapter 11.

As they've moved past the financial restructuring phase of their reorganization plans and begun to focus on operations again, how does their return to the market compare to your expectations? And by your expectations I mean specifically with regards to bidding behavior and the apparent shape their fleets are in, how much horsepower do they seem to be bringing back and how are they approaching bidding?.

Tom, it's a little bit too early to tell. Our understanding is that they remain very aggressive on their bidding. There have been mid management and senior management changes. So it's really hard to tell what the behavior, what the philosophy is going to be. So we don't know.

We think they continue to be aggressive on bidding which obviously is bad news for us..

Okay. Last line of questioning for me.

Would you give us an update on the mutually beneficial lines as Cudd has formed with other service companies such as TADCO? What is the number and nature of them? And if you shouldn't manage to make certain strategic acquisitions before this recovery in valuations get away from you, do you think of this as an alternative approach to ensuring you have access to all the completion related offerings you might to – you'd want to given how the pressure pumping market is evolving?.

Well, Tom, you mentioned TADCO, given – I mean those kind of – they aren't strategic alliances necessarily as much as just mutual recommendations that help us get on the job and do a better job for our customer.

The TADCO technology, I can definitely point to some revenue that we got through in the third quarter and use that technology, but there are no formal alliances.

There are great companies, there are a lot of other great people as you know when you get on an oil field, job site, there are a lot of people there doing a lot of things, so they are just people we mutually recommend. So there's nothing maybe to tie that up.

There is nothing that is currently going on or immediately pending regarding strategic alliances with technology that we can really need to talk about..

All right. I appreciate all the answers guys..

Okay. Thanks Tom..

We will take a follow-up from John Daniel with Simmons & Company..

You guys are kind to let me back in. Thank you..

Absolutely John..

Okay. I've got a few more here for you. The dividend, congrats on putting that back in place.

But is that a one-time payment or should we expect an ongoing quarterly dividend of $0.05?.

That should be viewed at the current time as a special year-end dividend..

Special, okay. Got it. Also depreciation, Jim, it keeps dropping sequentially....

Right..

And given the earlier comment about – I mean things are getting better but we're not off to the races yet, I'm assuming that as you think about capital spending next year, we are probably a little bit higher than $40 million but not going crazy here so $40 million to $60 million range, a reasonable position for modeling purposes..

Talking about for next year?.

Yeah, he is....

Next year, yes. I know you guys haven't hit the budget yet, but ballpark..

If nothing significantly changes from here, I would agree with that..

Okay.

So assuming that then is the number, Jim, what happens to depreciation?.

We didn't say that was the number..

All right. But look, I'm just trying to get to where your depreciation number is because we all try to model a lot of companies are looking at incrementals, but as this depreciation keeps moving lower, there is a big delta in your incrementals on EBITDA and EBIT this quarter and trying to understand the trajectory here..

It's dropping about $4 million a quarter..

Got it.

Does that accelerate in the next year or not, if we have a $40 million to $60 million budget for CapEx?.

No, I think it remains about $4 million..

$4 million a quarter. Okay, got it. Thank you. I'm going to come back to the revenue guidance if you will, up in Q4 versus Q3.

Can you frame for us Jim, do you expect to continue to beat the rig count or not?.

We will probably beat the rig count by a little bit. We beat the rig count by more than a little bit this quarter, third quarter, but I mean our current belief is that we will beat the rig count, but not by a whole lot. But the rig count is improving, as you know..

Not too bad. Okay.

So if you beat the rig count and given the cost controls, do you think – is there – what's your prophecy? Could EBITDA be breakeven or better in Q4 or still negative?.

It could be a breakeven, a little bit better..

Okay. All right.

Total horsepower today stands at what, and what is idle?.

Well, we said in our comments that, same as last quarter, about 50% of it is unmanned..

50% unmanned okay. Sorry. I must have been dozing off. I missed that one. Okay.

And then how many frac fleets are on the 24/7 schedule versus daylight ballpark?.

In the 70% to 75% range are on 24-hour schedule..

Awesome. That's it, guys. Thank you very much for your help, as always..

Thanks John. We'll talk you later..

Thank you..

Thanks..

We will take our next question from Jim Wicklund with Credit Suisse..

Good morning guys. Sorry I am late..

Hi Jim..

I kept hitting the button and it didn't work. Let me ask a follow-up to Tom's question on the companies that have gone into, through, some out of bankruptcy. As I understand it, those companies have still been operating in the market.

You've been competing with C&J and Basic and whoever else you compete with through the whole process, right?.

Yes, sir. That's correct..

And so, while they maybe desperate from being in bankruptcy and having no money, it's not like they're going to all of the sudden now that they are out of a bankruptcy come back into the market right?.

Right..

Okay..

That's correct. Yeah..

I just wanted to – we've got so many now that are going in that the idea of coming out isn't really an operating gate for them. It's just a legal and financial gate for them, and I just wanted to make sure that I have that right. Now I understand you guys won't be the bigger buyers or consolidators of the business out there through the cycle.

But what are the implications you see in the market today in terms of the fragmented market we've had over the last couple of years? I mean in 2014 there was no pricing improvement. Everything was just utilization because we had so many players. And I don't see a whole lot of these players actually going away.

They actually come out of bankruptcy with a lower cost base.

And so I'm just curious to know what you guys sitting around having a beer on Friday night talk about in terms of the fragmented market and the implications of all the restructurings going forward?.

Jim, this is Jim. And I know that's part of your research thesis, and it is kind of maddening to see equipment come back and the capital markets being so forgiving. It really mutes the rewards that you get if you're somebody who does try to manage your business a little bit better.

I mean, there are no black and whites here, but certainly as you go through bankruptcy and come out, you won't have the budget to maintain your equipment, which service intensity increases. So that's an issue. I think at some point your vendors are going to have some amount of memory and remember that you didn't pay them last time or you paid late.

These guys aren't making a whole lot of money right now. So they like customers who can pay them and pay them on time. So I think that helps us a little bit. The whole crew and management situation is delicate. We know from our field experience that good people have thought about at least or thought about leaving these companies that go into bankruptcy.

And so that's an issue. And in a lot of cases, you can't be a 100% debt financed oil field services company. We've all learned that. So they've got to attract equity capital at some point, and they may not have the best track record to do that. So those are just a few..

I think these smaller players have been and continue to be a thorn in everybody's side, including ours. But they are there and they are able to bid low.

But again, like we've said before, they can't bid low – I guess they can't bid low forever if they come out of bankruptcy like they have, but they will go into bankruptcy again if they did too low for too long.

So I think their capacity to work and impact the market is certainly there at this point, but I think as the market tightens, at least for a period of time, I think they won't be able to keep up. I think it will be less of an impact on us..

Don't all those factors, though, make it more likely that somebody ends up consolidating all these guys?.

Perhaps..

Two guys holding onto the same raft or something. We're just looking at what the industry is going to look like in two years or three years, and I just don't see some of these, to your point, the less well-capitalized stragglers still playing on an independent basis..

But I think the people who have gone out in bankruptcy, their equipment maintenance was, I'm sure, very lacking, as part of what they were having to do to survive.

And we heard anecdotes and seen – we have seen directly and luckily not experienced it, because we haven't executed on some of these transactions that the equipment is in horrible shape takes a tremendous amount of capital to maintain, and if you've fallen behind then to catch-up with your equipment, and I think maybe some investors out there are learning a lesson that to buy a worn-out degradated frac fleet with a desperate uncomfortable company that you got a lot that's you have to deal with, and it's very complicated to work through that.

And maybe some people are going to learn that and that might at least delay or lessen the possibility that somebody comes in and tries to consolidate the industry..

Okay. That's very helpful..

With old weak players..

Exactly, exactly. If you'll indulge me one last clarification. Jim, you had said that you have this quarter new customers that you didn't have last quarter or in the past, or they have come back and that all the increase was on utilization.

I'm just kind of curious how much of your increase was putting more equipment with existing customers and how much of it was putting it with new customers or new customers for the quarter?.

What you are alluding to I guess, Jim, is bigger jobs or longer jobs and there was some of that just because of our Permian presence. So some of the existing customers have done a little bit more and they are doing – and you know the story, big completions that have longer laterals and were there for eight days or nine days.

So more equipment with those customers is definitely a trend..

Okay. Thank you gentlemen very much..

Okay, Jim. Thanks..

We will take a follow-up from Rob MacKenzie with IBERIA Capital..

Thank you guys. My follow-up has already been asked and answered..

Oh okay. Thanks Rob..

And with no further questions at this time. I will turn the call back over to Jim Landers for any additional or closing remarks..

Okay, thank you. Thanks for everybody who called in. Good hearing from you and we will see you all soon. Have a good day..

And that does conclude today's conference. Thank you for your participation and you may now disconnect..