Jim Landers - Vice President, Corporate Finance Rick Hubbell - President and CEO Ben Palmer - Chief Financial Officer.

Jacob Lundberg - Credit Suisse Brad Handler - Jefferies Praveen Narra - Raymond James Marc Bianchi - Cowen & Co. LLC John Daniel - Simmons & Company Ryan Pfingst - B. Riley FBR, Inc George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc. Tommy Moll - Stephens, Inc. Waqar Syed - Goldman Sachs & Co. LLC.

Good morning and thank you for joining us for RPC Incorporated Second Quarter 2018 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.

[Operator Instructions] 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 2017 10-K and other public filings that outline those risks, all of which can be found on our RPC's website at www.rpc.net. I also need to say that in today's earnings release and conference call, we'll be referring EBITDA which is 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 are also required to use EBITDA to record compliance with financial covenants under our credit facility.

Our press release issued today on our website contains reconciliations of these non-GAAP financial measures to net income, which is the nearest GAAP financial measure. Please review that disclosure if you're interested in seeing how they are calculated.

If you've not received our press release for any reason, 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 second quarter of 2018. The average U.S. domestic rig count during the second quarter of 2018 was 1,039, a 16.1% increase compared to the same period in 2017, and a 7.6% increase compared to the first quarter of 2018.

Oilfield activity improved moderately during the second quarter as favorable oil prices supported our customers' drilling and completion activities. We are generally pleased with our operational performance during the quarter. However, increasing competition has limited the ability of oilfield service companies to raise prices at the present time.

Our CFO, Ben Palmer will review our financial results in more detail after which I'll have a few closing comments. .

Thank you, Rick. For the second quarter, revenues increased to $467.9 million compared to $398.8 million in the prior year. Revenues increased due to higher activity levels, and a larger fleet of revenue-producing equipment. EBITDA for the second quarter was a $119.2 million compared to $110.3 million for the same period last year.

Operating profit for the quarter increased $75 million, compared to $67 million in the prior year. Our diluted earnings per share were $0.28, compared to $0.20 last year. Cost of revenues during the second quarter was $312.1 million or 66.7% of revenues, compared to $254 million, or 63.7% of revenue during the same period last year.

Cost of revenues increased primarily due to higher employment costs, materials and supplies expenses, and other expenses which vary with activity levels. As a percentage of revenues, cost of revenues increased due to job mix and higher fuel prices.

Selling, general and administrative expenses were $42.5 million in the second quarter compared to $40.3 million last year. As a percentage of revenues, these cost decreased from 10.1% in the prior year to 9.1% due to leverage of higher revenues over primarily fixed cost.

Depreciation and amortization was $40.1 million during the second quarter of 2018, a decrease of 2.8% compared to $41.3 million in the prior year.

Technical Services segment revenues for the quarter increased 16.7% compared to the second quarter of the prior year due to higher activity levels, improved pricing for our services and a larger fleet of active revenue-producing equipment. Operating profit increased to $75.6 million compared to $70.9 million in the prior year.

Our Support Services segment revenues for the quarter increased by 35.4%, while operating profit was [$1.3] [ph] million, which compares to an operating loss of $3.3 in the same period last year. On a sequential basis, our second quarter revenues increased again to $467.9 million from $436.3 million in the prior quarter.

Revenues increased due to larger fleet of revenue-producing equipment, and slightly higher activity levels. RPC's operating profit during the second quarter was $75 million compared to $60.8 million in the prior quarter.

Cost of revenues during the second quarter of 2018 increased by $16.5 million, or 5.6%, due primarily to higher materials and supplies, expenses associated with higher activity levels. As a percentage of revenues, cost of revenues remained relatively unchanged.

Selling, general and administrative expenses during the second quarter decreased by $1.3 million, or 2.9%, compared to the prior quarter. RPC's EBITDA increased from $103.7 million in the prior quarter to $119.2 million in the current quarter.

Our Technical Services segment revenues increased by $30.8 million, or 7.3% to $449.9 million in the second quarter. Operating profit was $75.6 million compared to $65 million in the prior quarter. Our Support Services segment generated revenues in the second quarter of $18.1 million, or 4.6% higher than revenues of $17.3 million in the prior quarter.

Operating profit was $1.2 million in the second quarter compared to an operating loss of $900,000 in the prior quarter. RPC's pressure pumping fleet increased during the second quarter by approximately 100,000 hydraulic horsepower to 1,50,000. This additional horsepower was used to supplement our existing fleets.

We have no outstanding orders to expand our pressure pumping fleet but we continuously evaluate the size and makeup of our fleet to meet our customers' requirements. Second quarter 2018 capital expenditures were $99.2 million. And we expect full year 2018 capital expenditures to be approximately $280 million.

At the end of the second quarter, our cash balance was $94.2 million, and we continue to have no outstanding debt. And with that, I'll turn it back over to Rick for some closing remarks..

Thank you, Ben. RPC continues to partner with its customers to improve operational efficiencies and provide safe services. We are aware of the industry's concerns regarding potential Permian Basin takeaway capacity constraints.

The Permian Basin is our largest market and while we have not yet experienced any reduction in our activities due to this issue, it represents a risk to our near-term financial results. We operate in a number of other oilfield basins in the domestic U.S.

market, and are prepared to move equipment and personnel to other operating basins should conditions warrant. Yesterday our Board of Directors approved a $0.10 per share dividend. Year-to-date RPC spent $40.1 million on stock repurchases and paid out $43.2 million in dividend and invested a $149.7 million in capital expenditures.

Including these uses of cash, RPC ended the second quarter with more cash than at the end of 2017. Thank you for joining us for the call this morning. And at this time, we will open up the lines for your questions. .

[Operator Instructions] We will now take our first question from Jim Wicklund of Credit Suisse. .

Hey, good morning, guys. This is Jake on for Jim. I was wondering could you just talk about current competitive dynamics and pricing in the Permian. You kind of referenced it in the in the press release, but a little more color would be helpful..

This is Ben. In terms of the current environment, clearly lots of people are talking about additional fleets being reactivated.

We've taken delivery of some additional equipment, so there clearly is increased competition in the market, and given the nature of the jobs, the larger jobs that we and several of our competitors are interested in winning, where activity levels can be a little bit lumpy. And they were during the second quarter and I expect they'll continue to be.

In terms of pricing, as we indicated, we haven't been able to increase pricing, but a lot of that depends on job mix and trying to get the right balance between what we're able to get from a pricing perspective relative to the utilization we're able to achieve.

So that's an ongoing process for us to try to find a good balance between the two of those. And I would say typically for us in an environment like this where pricing is not moving up, our tendency is to probably err on the side of not chasing prices down too quickly. And sometimes that may result in us in terms of testing the market.

We may miss some opportunities; so I think that's our tendency. We think that's the right long-term decision in this type of market. The wear and tear on the equipment is quite extensive and we want to make sure that we're getting paid as much as we can relative to that wear and tear.

So it's an ongoing process that we go through, and we expect will continue to perform reasonably well, but we do expect there could be some lumpiness in our results. So competition is still there, it always is. It's -- the pressure pumping market in particular is very dynamic, and continues to be dynamic. And so we think it'll shake out.

We think that it's still a market and a segment that we're going to continue to compete in aggressively, and looking at our fleet as we indicated making sure we have the right amount and makeup of our fleet is something we continuously look at, and we're looking at very closely now..

Okay.

So if I understood correctly it sounds like prices that just moving sideways and you haven't actually seen any negative movement in price?.

Price is determined in a lot of different ways, right. It's job mix and the type of jobs, but in general I would say, yes, clearly prices are not moving up and it's probably more of a struggle to maintain pricing, but we don't see it collapsing at this point, that for sure. .

And then in the release you commented that no plans to order any new equipment I guess in terms of return hurdle or maybe it's just a visibility question what would you guys need to see to feel confident ordering more equipment at this point?.

Jake, this is Jim. Right this moment, financial returns are higher than our cost of capital, but perhaps lower than our internal hurdle rates for new-build, certainly more visibility, certainly we want to get the Permian Basin takeaway capacity behind us, takeaway capacity issue behind us.

A long-term contract of the kind that we had in 2005 to 2010 or 2010 to 2013 time period would be extremely helpful. We just don't see those right now. So that's what prompted Ben's comment about no new bills at the present time..

And I'd add -- I’d like to add further to that is I think when we see at the point in time we make the decision to order new equipment, the question is going to be more of is that increase to our fleet size or is that reconfiguration. So that's and we don't have the answer to that question right now.

So we'll certainly at the time we make that decision and announce what we've done will characterize it in that way. Is it fleet expansion or is repositioning the fleet or changing up the fleet to meet our customers' requirements. So that's again something that we're always looking at. Is something we're looking at more intensely at this point in time.

We're kind of now into our planting season and beginning to look a little longer term. We said certainly sense -- we sense through the comments that we're saying here we sense no urgency to place any orders for equipment, and that's where we stand right now..

Got you. And if I could sneak one more in.

Can you just talk a bit about current thoughts on spot versus dedicated? What do you think the optimal configuration would be given the market and where do you guys stand today?.

I would say again that to dedicated or not dedicated, there's a range of possibilities there, but we clearly have more “dedicated work” today than we did and in the last three months or six months ago.

I think we would like more for the right pricing and level of utilization, but that's always the mix, so we're probably somewhere less than 50% and it might be nice at the right level of pricing and utilization maybe something north of 50% would be a good place to be..

Our next question from Brad Handler of Jefferies. Please go ahead..

Thanks, good morning, all.

Could you please give us a little bit more of what you're hearing and seeing in the Permian today? Appreciate that you haven't had any activity disruption I think that's what you said, but I guess I'm curious if you look at the broader market for example, are you hearing of any crews being released perhaps and I'm going to throw a couple questions out just to make it harder for you to keep track of them, okay, but have you --.

Okay, great, sure..

Great, right. Have you in your own experience seen any change in the urgency on the part of your customers, right that might be affecting the utilization of your crews that are working for them? Let me -- I actually I'll stop there, I'll make it easy but just some commentary on that sense of the current [Permian] [ph] would be great..

Brad, this is Jim. We have not yet seen any customers say that they were going to complete a well, but now they aren't due to concerns about takeaway capacity. There have been -- our customers -- E&Ps in the area have to talk publicly about that. We all have access to that information, but nothing, there's nothing that we have seen operationally.

We don't see --we do not see any urgency to get something done now before things conceivably get difficult in a few months. One thing that people do say out in that region is it's hard to make really blanket statements about takeaway capacity because of the flexibility involved.

I mean we know anecdotally that there are times when it would cost you a whole lot per barrel if you want to transport oil to a refinery at a given time, but if you're willing to wait 36 hours, they'll slot you in and it can be a lot cheaper. And that's not a panacea for an issue that may be coming towards us.

But that's the kind of calculation that I think we see our customers doing right now, and trying to try to work through it. I mean some of our peers have said the math is the math about takeaway capacity and production, but and we also know that customers may not tell us everything that they're thinking and fearing six months from now either.

So we just haven't seen it operationally. We've not seen an issue operationally yet..

Okay, that's helpful, thank you. Maybe as a follow-up and it's a related one. I think we're all trying of course to take get, to reframe our own sense of the second half of the year to the extent that it we can.

And I think we recognized how quickly things might change and make it hard to do that, but there is an expectation in the estimates for you guys of healthy sales growth in the second half of the year versus the first half healthy operating income growth, as a result we know you do have your 21st fleet for the full quarter, right.

So I think that's certainly a positive, so far I guess you're suggesting, no, that you're not seeing any pricing and I guess what I just heard you say is that all else equal you're not necessarily seeing a lessening of urgency around the work.

So are you able --I know this isn't exactly your style, but are you able to kind of comment on the expectations that are out there for improvement even in the third quarter and say, yes, based on what you see today that seems somewhat reasonable, that seems like it might be a stretch given the challenging environment in absent any takeaway issues, but just the challenging environment with respect to pricing and additional equipment in the region..

Brad, this is Jim again. Let's enhance your framing up of that a little bit. Everything you just said was accurate and based on published data. We see that the completion count grew in the second quarter, and our job count grew as well. So we're maintaining market share and doing that sort of thing.

However, second quarter was choppy and the nature of this pad drilling and completion and their strains in the system some of which relate to us, some of which relate to other service providers, who are getting these very service intense wells completed that leads to some choppiness.

And that makes the overall macro trends that we're all discussing here, it makes us a little bit hesitant to just say third quarter is going to be up into the right from second quarter just because of the choppiness. And I'm --I regret that it's so uncertain.

It doesn't help us either, but we just know there's choppiness --there's choppiness, jobs get pushed for various reasons. A lot of things are happening in the system right now, which makes the overall macro hard to translate it into near-term predictable operational results..

Okay, understood. Maybe if I could just steal one more quick one. Some comments you mentioned a willingness to reposition.

Do you expect to be making that decision a bit more on your own? Do you expect -- or does a customer have to take you there if you were to reposition a fleet to another base?.

The latter would be great if a customer said I'm just making this up.

I'm laying down two rigs in the Permian but doing two more in the Eagle Ford, that would be ideal, but you've known as long time Brad, we've moved pressure pumping equipment from established bases to other established bases many times, and because we're in other basins and South Texas, East Texas and Mid Continent and the Bakken, we can easily move that equipment.

In the past year and a half, we've moved equipment back and forth between Oklahoma and North Dakota. And also borrowed equipment from East Texas and South Texas to work in West Texas. So we have these established locations there and can easily do that.

It would be much better if a customer was welcoming us back to that area, we've got customers there now..

Our next question from Praveen Narra from Raymond James. Please go ahead..

Hi, good morning, guys.

If I can ask a follow-up the Brad's questions I guess one could you give us kind of where zipper frac percentage stood for 2Q, and given the takeaway do you expect to see or have you seen any early indications of a trend to that percentage slowing?.

Now let's see, Praveen, we've got the number..

40%, you see no indications of it slowing. It's like Q2 it was 60% zipper, 40% traditional..

Okay, correct. .

And then in terms of going back to the ordering of new equipment particularly to supplement, I guess based on your comments you don't expect to need to make that decision in the near term.

Is there a point in time where you really feel like you will have to make that decision? Is that before year-end or can we wait until times are just better to figure out if we need to do a fleet reconfiguration or if we need to order that more supplemental equipment?.

Praveen, this is Jim. We're just --we are flexible and nimble, and we'll just address the issue as it comes up with an understanding what the lead time is. So there no imminent plans to do much reconfiguration at this point..

Perfect, right. If I could just sneak one more in.

Can you talk about kind of how much of your sand was self sourced and any --whether you've pumped in basin sand and how that process has gone for you thus far?.

Sure. So during the second quarter of 2018 about 70% of the sand that we pumped was, it was sand that we procured and brought to the job site. That's up a little bit from a very small amount from first quarter. We have pumped a little bit of in Basin sand. I don't personally know of any indications from the field whether it went well or poorly.

I think its fine and we're fairly agnostic to it from an operational point of view. There are logistical differences, but it's --we're happy to do it that's what the customer wants and we paid for it..

Our next question from Marc Bianchi - Cowen. Please go ahead..

Thank you. Following up on Praveen's last question there about sand.

Can you talk about any of the pricing trends that you've seen? I'm just curious the number of these mines seem to have come on in West Texas now and seems like pricing has been holding up thus far, but just curious if you have any thoughts for what's going on the ground?.

Marc, if your question is about pricing trends for West Texas in Basin sand, we haven't pumped enough of it to really have any insight for you..

Okay and fair to say it's not having any influence on pricing for sand from other regions at this point..

It's hard to say, hard to say that..

We have enough data points to draw a conclusion..

Yes. And that's true. .

Okay.

Jim, could you share with us the business mix by product line?.

Yes, absolutely, happy to. So for the second quarter as a percentage of RPC's consolidated revenues, pressure pumping was 57.5%.

Thru tubing solutions was 23.0%, coil tubing was 5.9% of consolidated revenues, and our fluid pumping and production rental tool business that does pump down and some other things was 4.7% of consolidated revenues, then rental tools was the fifth largest and it was 2.7% of consolidated revenues for the quarter..

Okay, great, thanks for that. And appreciate that third quarter has a lot of uncertainty to it, but if you just sort of maintain your call it June run rate into the third quarter just so that we get a sense of what may be the goal posts are for you in the third quarter.

Could you hazard a guess kind of what kind of revenue we could be expecting? Could it be up $50 million from second and third if nothing changes from where you sit today?.

Marc, a couple things mixed in that question. I mean June was a good month. So it's hard to take June as a jumping-off point when we see things being pretty choppy. So it's just very hard to say..

Okay and just two more if I could. The CapEx increased about $30 million bucks from what prior guidance was if I have that right.

Could you talk to the reason for that and kind of thoughts on how CapEx would progress from beyond here?.

The question I mean it's nothing in particular. I think it does relate our coil tubing service line, but again not big of a number. And I don't know that that portends anything necessarily for 2019. We're in the midst of our planning now, and the discussion we have about the frac fleet and what we're going to do near-term and longer term.

We're in the throes of that now. So we're not sure about 2019. We're not placing in bets yet on 2019..

Sure, yes, okay.

And then just last one, understand that there's a lot of uncertainty and there's probably lots of variables into it, but assuming there is some disruption in the third quarter, can you give us at least a decision tree or some sense of what goes into deciding to park any fleets? And how much how much worse is the market need to get before you get to that point?.

Marc, the market is not bad right now. I mean we're making money. So I know that's self-evident. If rigs-- if activity slows in the Permian, our sales forces has contacts and is working in every other region that we work.

And they are --I'm sure they'll be ready to call on customers and line up work and get things moving if the market allows .So we are not talking about stacking fleets at this point..

Let me see if I can connect a couple of dots. Jim talked about current returns on our track assets that they're not bad, they're not --they've been better, but they're not bad. So in my mind, in our mind that means we could capture if the calendar opened up tremendously.

We would have the ability to go in and would be willing to lower prices some, but as I discussed, our tendency is to not --we don't want to lead the race to the bottom on prices. We think for us best approach is to try to stay a little bit behind that if pricing is stable or going down.

I mean we're trying to get the best pricing, the best pricing we can get relative to the utilization. So we're trying to find that always trying to find that balance.

So we think there's whatever you want to call it, there's the ability for pricing to go down some more before we would actively and permanently or for a period of time stack any equipment over a quarter..

Our next question from John Daniel of Simmons & Company. Please go ahead..

Hey, guys. Thanks put me in. Jim, I guess I want to come back the whole Q3 thing, and let me just kind of start off some thoughts. As we think about a few dynamics here we know competitive pricing is on the rise. We know new capacity is still set to enter the market.

And if I recall correctly, Halliburton stated intent to keep equipment working which to me is code for a potential price discounting. You haven't seen in customers yet slowdown, but we have evidence that some already have in the Permian and the Marcellus, seen some completions get delayed already.

And it seems in the current environment, we're more likely to see more delays as opposed to accelerations.Q2 had choppiness and again so therefore, Q3, more likely. I mean just package on it together it feels to me like revenues are probably down in Q3 and perhaps as much as 5% to 10%.

Where am I wrong?.

Well, John, first of all, if the litany of items you just names comes to pass, then yes, revenue will fall sequentially between second and third quarter. It absolutely will. We're seeing one of our large peers continuing to put some reconditioned equipment that it bought from a competitor in the market.

That's happened in the second quarter and we believe that will -- we believe based on what they've said, it will continue having third quarter. We have some smaller people who want to become larger people, and they are putting a lot of equipment in the market right now.

And so we've seen some -- we're -- Ben mentioned that pricing has not declined for us that are true, but in some parts of the market pricing has declined. So I'm not saying you're right or wrong, but if the things that you just enumerated come to past and then pricing will fall..

And revenue --.

And revenue will fall, yes. .

I mean look I'm not trying to pick on you but there's some things that are way outside your interval right now, and it does have an impact at some point. So I'm just manage it my own expectation, I assume that my diatribe was right.

It would then seem to point that again from a top line perspective as you look at the Q4 knowing that we typically have holidays in Q4, that hasn't changed, seasonality comes into play. Q4 is likely lower than Q3 all those being equal.

Would you disagree with that?.

Yes, that's the normal trend, yes, all those being equal that would be accurate, yes..

That's a normal trend. So I mean there's a reality that EBITDA can be lower in Q3 and then lower in Q4 before leveling out then once take away capacity issues are fixed, it starts the recovery. I just-- again I know you don't give a specific number but that feels like the right trend here..

That's a believable story..

Yes..

Now you guys have been great stewards of shareholder capital and all that good stuff. And you haven't been acquisitive in recent years. You haven't shown the propensity to overpay for assets. But given what's likely to be choppy here and given that we just keep hearing so many companies out there want to sell.

Do you ever have an interest in sort of changing old habits? And I mean a bit less discipline and consolidating in this space or should we assume that you maintain discipline and let others do that bit?.

John, this is Jim. First of all, you're right. There are a lot of companies who want to -- that want to sell right now for various reasons. A lot of companies. They're smaller so that's -- but there are a lot of companies. We're --we will probably let others do the consolidation.

If it happens every cycle for the last 15 years people have said the mid tier pressure pumpers ought to consolidate, and they never do except under duress. So until that duress comes, and it may at some point, we don't see the consolidation happening.

And I think when you do consolidation in our space, you're helping the market more than you're helping yourself. So if consolidation does occur, we will probably be on the sidelines as we have been in the past. Unless there's just a fantastic situation with a much different geography, management team that we just can't let go, that's sort of thing.

But we typically haven't seen those..

Well I very much appreciate your candor as always. I do have one just technical question, and I'll bounce around but you guys speak to just the trends that you're seeing and fluid in life, and I'll then turn it over to others..

On fluid in life is actually -- fluid in life is increasing for us. It has to do more with how we work them rather than the different kind of fluid ends. We've just been managing it differently. First-quarter fluid end expense was actually a bit higher than fourth quarter, but second quarter was a bit lower.

Some of that is just the unpredictable nature of when fluid ends are going to break. You don't know when you're going to have a flat tire in your car until you do. But in general fluid-end life has been increasing, a little bit..

We take our next question from Ryan Pfingst of B. Riley FBR. Please go ahead..

Hey, good morning, guys.

Jim, how did your frac sand per stage metric evolve sequentially in 2Q?.

Let's see. It was down a little bit, flat to down a little bit. Let's see, it did decline.

Mid single-digits client.

Yes. .

Mid-single digit..

Yes and we don't see that as it -- I mean it's meaningful because it drives your financial results, but it -- we don't see that as a trend, it's just probably a job mix issue..

Okay, thank you.

And then have you been on more jobs lately that have encountered well interference issues or heard of any of your customers complaining about interference issues?.

Yes, yes. We call it communication in our company, and yes there's been a lot more of that recently on hand..

Our next question from George O’Leary from Tudor, Pickering, Holt. Please go ahead..

Good morning, guys. You talked about kind of the geographic presence of your frac spreads and you guys are in a number of different pays across the US and in one of John's questions you also mentioned there are some pockets where pricing is it may be under pressure more so than others.

I just wondered if you could speak to any relative pockets of strength and relative pockets of weakness as you look across the various basins that your pressure pump spreads playing today..

George, just saying thing about it's kind of --it's kind of hard to say, things have been good in the Bakken, things have been okay in the Mid Continent in second quarter. The choppy nature of a lot of things that goes on, that's going on, it makes it difficult to say that any region is particularly better or worse than others.

As we always say this equipment has wheels and can move around. But some saying isn't necessarily bad but there are no standouts one way or the other..

Okay, that's helpful. And then I notice just a housekeeping item that the corporate costs dipped quarter-on-quarter.

I guess what was that the driver of that? Is that some explicit cost-cutting efforts? Or is that just quarterly noise?.

The quarterly noise. I think it's primarily just the higher employment taxes in the first quarter..

Our next question from Tommy Moll from Stephens. Please go ahead..

Good morning, thanks for taking my questions. So it seems like with the current headwinds in terms of frac pricing, there are a couple competing schools of thought where some industry participants are more focused on remaining discipline on price and margin, and I would include you in that category.

And then you've got a whole roster of others who are playing the market share game. So I wondered if you could give us any insight into whom or which types of players is the most aggressive being in terms of price.

Is it the large incumbents in the market? Is it some of the newer entrants? Do you any discrepancy and the price that old versus new equipment? Is that --is bid out for? And in terms of the customers that some of these more market share oriented players are going after, does it feel like there's good overlap in terms of your customer base or is it a difference segments of the market that they might be going after most aggressively?.

Tommy, those are all good questions. This is Jim. I would say that the aggressive de novo upstart competitors or the ones who've been more aggressive on pricing that we've seen. They want to build a big company and they're not expanding anything about market share. They just want to put a lot of equipment in the field and get big.

We don't know of any empirical trends where new equipment gets better pricing or whatever. It does come down to reliability, speed that sort of thing. So perhaps new equipment does get better pricing because the service provider and the customer believed that the equipment will perform more efficiently.

So that there might be that causing effect in play. .

Reasonable questions. This is Ben. I mean here everybody's trying to compete. We do here some of the larger players or they have the large market share and whether they trying to maintain that share or whether they're just trying to seek their optimum or close to optimum levels of pricing and utilization. I think it's both segments.

I mean it's reasonable question, but I think everybody's trying to be compete pretty hard and as I think you're alluding to, and as I have said, we tend to not try to race to the bottom. So we then --we have a little bit more fairway, so see how it shakes out..

Yes, well that leads to my next question which is in terms of your own plans for capital allocation given. You've indicated today you have no new -- no plans for new equipment. You have a pristine balance sheet and a healthy cash balance.

So given where we are in terms of the pressure pumping cycle, how do you rank your priorities in terms of accumulating cash maybe to then deploy for new equipment when we hit new build economics or get a little closer versus potentially getting more aggressive with capital returns?.

I think, this is Ben. I think I mean I think we'll still have a mix of all three. And I think in terms of ordering new equipment I think I said before I expect we will place some orders for new equipment before the end of 2019, I believe. And obviously, there is lots of times we haven't made any decisions yet.

There's lots of times, a long time to evaluate that and change our mind but my prediction will be right now that I believe we will order some new equipment and perhaps take delivery of some new equipment before the end of 2019, but we're again not ready to make that decision right now. We have no plans presently.

So I think that'll still be in the mix of our capital allocation at this point. Jim alluded to the result -- the results aren't bad.

They've been better but they're not bad, and returns are decent just not great, and everyone knows that the decision about whether you add more equipment and there's a time period between order and delivery and place and service, and so there that there's a long lead time, so there's a lot of forward thinking that has to go into place to make the decision.

And take that business risk that you're making the right decision, but in --and it is a long-term decision, but we do try to time those decisions and those cash outlays to some degree and sometimes you get it right, and sometimes you don't, but I think come back to your original question, I think we'll continue to have a similar mix across the three uses of our cash and capital..

Our next question from Waqar Syed from Goldman Sachs. Please go ahead..

Thanks. As you look at your fleet could you give us a mix of what assets may be candidates for retirement in the coming years? We typically hear from some manufacturers that equipment that is 10 years old and has gone through maybe three cycles of rebuilding may need to be retired.

Is there any asset that you would have in your fleet that are more than ten years old and may need to be replaced in the coming years?.

This is Ben. I guess we certainly have some equipment that's more than ten years old. We're not at this point in time and that may be a reasonable or appropriate timeframe, but we have not yet come to that particular conclusion. But I expect the equipment that we would retire is probably the older equipment, the lower horsepower.

We are -- we have opportunities with some of our other service lines to may be repurpose some of the equipment. We see that as an opportunity so that's part of our decision is going to be do we take it out of the fracing fleet and put it into play fluid pumping or, and to support some of our other service lines.

So we see that as an opportunity to reallocate that capital in a way that continue to produce nice returns despite the age of the equipment, and the wear and tear on the equipment won't be quite as significant.

So I think, I clearly think it would be the older equipment which has the highest probability of being carved out of the fleet and replaced with higher horsepower equipment. .

So if you were to bet like you mentioned there may be some new equipment that you may be ordering would that be mostly for replacement in case you retire some equipment from pumping?.

Well, that would be our decision. Our decision would be are we buying more equipment to maintain the size of the fleet. Net, net, yes, again that decision hasn't been made yet. And it will just --it will depend-- reasonable question, but we don't yet know at the point in time we order equipment, will it be a net addition to the fleet.

I don't expect at this point in time if I had to predict that that we would expect to have any significant decrease in the size of the fleet, but don't yet know whether we'll be increasing the size of the fleet when it comes time to order more equipment and add it to our fleet..

Fair enough.

Now excluding frac sand and are you seeing any inflation or deflation in your input costs for pumping?.

Waqar, this is Jim. If you count-- if you include labor, we are seeing probably some coming increases in the cost of labor, but in general no, other than that we are not. .

Now trucking and things like that is that --is any issues there or no?.

In the financial results you're seeing no in general like in the Permian, we haven't had trucking cost increases yet. We have in a couple of the other basins a little bit. And we think all reasonable projections are that trucking costs will increase in the coming period..

And so given what you're seeing with pricing that you're saying it could be at best they're flat may come under pressure a little bit.

Is there any ability to pass on higher trucking or labor cost to the customer or in the current market will all be absorbed by the pumpers?.

Waqar, may be the best way to answer that is that we do pricing proposals and those pricing proposals that we do include what we know to be our costs coming up.

So we price it into our work, but then you get into a place where the free market may get competitive, and you may -at this point as Ben said a couple times, we are --we have a bias towards letting unprofitable work go rather than take it.

So we factor those cost into our proposals and then see where it goes from there, but we do our best to know our costs, know what our costs are going to be and to be honest with ourselves, and our customers about what they are..

And depending upon the commitment we're making to the customer, and what that relationship is and the length of the engagement that we're talking about. We would try to have that language or that discussion with the customer to say, hey, we're pricing this today, this work is going to last for something weeks.

We'd like the opportunity, would you be willing to entertain if there were particular input cost increases that you would be open to discussing the possibility us adjusting our pricing to be able to capture those cost increases. So there is that opportunity.

Sometimes there maybe shorter term, shorter engagements that we could get caught by cost increases, but or impacted by cost increases, but again that's all part of trying to position ourselves with our customers.

And likewise our customers position themselves with us to try to protect each other and try to be within a reasonable range of what market pricing is..

That was the last question. And we will pass back now to speakers for conclusion. .

Thank you. Thanks everyone. We appreciate the people who called in and listened. And we enjoyed the questions. Hope everyone has a good day. We'll see you soon..

Ladies and gentlemen, this concludes today's conference call. As a reminder, this call will be replayed within two hours on wwe.rpc.net. Thank you for your participation. You may now disconnect..