Good morning and thank you for joining us for the RPC's Incorporated, First Quarter 2019 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 to queue up for questions. I would like to also advise this conference call is being recorded. Jim will get us started by reading the forward-looking disclaimer. Jim, please go ahead, sir..

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 2018 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 are also required to use EBITDA to report compliance with financial covenants under our revolving credit facility.

Our press release issued today and our website, contains reconciliations of this non-GAAP financial measure, to net income, which is the nearest GAAP financial measure, please review that disclosure. If you're interested in seeing how it's calculated.

If you've not received our press release for any reason, please visit our website at www.RPC.net for 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 first quarter of 2019, our activity levels declined compared with the previous quarter because of seasonal weakness and inconsistent customer activity levels, we believe that the pressure pumping.

The market continues to be over-supplied because of the increasing efficiency achieved by completion service providers within our businesses, other than pressure pumping our activity levels were in line with the sequential changes in the rig count and completion activities in the U.S. domestic oilfield.

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

Thank you, Rick. For the first quarter, revenues decreased to $334.7 million compared to $436.3 million in the prior year. Revenues decreased compared to the same period of the prior year, due to lower pricing and lower activity levels within RPC's pressure pumping service line.

EBITDA for the first quarter was $40.8 million compared to $103.7 million for the same period last year. Operating profit for the prior year was $60.8 million compared to an operating loss of $2.2 million in the first quarter of 2019.

For the first quarter of 2019, RPC reported no earnings per share compared to $0.24 diluted earnings per share in the prior year. Cost of revenues during the first quarter of 2019 was $252.4 million or 75.4% of revenues compared to $295.6 million or 67.7% of revenues during the first quarter of 2018.

Also revenues decreased consistent with lower activity levels due to lower materials and supplies expenses within RPC's pressure pumping service line, as well as lower maintenance and repair and fuel expenses. Cost of revenues as a percentage of revenues increased due to lower revenues and labor costs that are relatively fixed in the short-term.

Selling, general and administrative expenses were $45.4 million in the first quarter compared to $43.8 million last year. Depreciation and amortization expense was $42.5 million during the first quarter of 2019 an increase of 13.4% compared to $37.5 million in the prior year.

Our Technical Services segment revenues for the quarter decreased 25.1% compared to the same quarter in the prior year. Operating profits in the first quarter of 2018 was $65 million compared to an operating loss of $4.5 million in the current quarter.

These decreases were due to lower pricing and lower activity within our pressure pumping service line. Our Sports Services segment revenues for the quarter increased 19.1% and operating profit improved to $3.1 million compared to an operating loss of 905,000 in the same period last year.

On a sequential basis RPC's first quarter revenues decreased 11.2% to $334.7 million from $376.8 million in the fourth quarter. Revenues decreased due to lower pricing and lower activity levels. Cost of revenues during the first quarter of 2019 decreased $22 million or 8% primarily due to decreases in materials and supplies expenses.

As a percentage of revenues, cost of revenues increased 2.6 percentage points from 72.8% in the fourth quarter to 75.4% in the current quarter. This is due to lower revenues and labor costs and inefficiencies resulting from lower activity levels.

SG&A expenses were $45.4 million during the first quarter of the current year compared to $40 million in the prior quarter due in part to higher employment costs primarily payroll taxes. RPC had a $2.2 million operating loss during the first quarter of 2019 compared to $19.7 million operating profit in the prior quarter.

Our EBITDA decreased from $61.7 million in the prior quarter to $40.8 million in the current quarter. RPC's pressure pumping fleet remains unchanged at approximately $1,050,000 hydraulic horsepower. Our first quarter 2019 capital expenditures were $62.3 million and we currently estimate 2019 capital expenditures to be approximately $280 million.

At the end of the first quarter our cash balance was $113 million and we continued to have no outstanding debt. And with that, I'll turn it back over to Rick for some closing remarks..

Ben, thank you. As we begin the second quarter, moderately higher oil prices and resolution of recent Permian basin takeaway capacity concerns should provide positive catalysts for near-term market opportunities.

With continued focus on increasing our operating efficiencies and providing quality services, we can improve the value we provide to our customers. Yesterday, RPC's Board of Directors approved a quarterly dividend of $0.05 per share. Thank you for joining us for RPC's conference call this morning.

At this time, we will open up the lines for your questions..

Thank you. [Operator Instructions] Your first question will come from Connor Lynagh with Morgan Stanley..

Thanks. Good morning..

Good morning, Connor..

Just wondering if you guys could talk about, obviously pressure pumping was probably weighing on margins in the first quarter here, I'm wondering if you could talk about how the profitability was in that business relative to the rest of technical services and then just how we could expect that to trend as we move through the year here?.

Connor, this is Jim. It weighed on revenue and it also weighed on profitability. So, as we alluded to - as we've discussed, the rest of technical services kind of moved with the rig count. So pressure pumping did have profitability issues partially offset by lower cost of materials and supplies.

Sand costs declined during the quarter, so that was a positive. But in general, pressure pumping weighed on profitability. We don't disclose that service lines, bottom line in our disclosure. Going forward, at this point, the March exiting run rate would tell you that the second quarter looks better. March was the best month of the quarter measurably.

But we have very little visibility right now. So a number of our customers have engaged us to do things and had jobs slowdowns for various reasons. So we just don't have a lot of - we don't have a lot of visibility, so things look better in second quarter, but real lack of visibility at this time..

That's fair.

I mean, if we use the fourth quarter as sort of a mark here, do you think you will be in line better than between first quarter and fourth quarter? Could you just sort of frame that?.

Second quarter looks a little bit better than fourth quarter, Connor, and they were going out on a limb saying that, but yes, a little bit better than the fourth quarter for second quarter..

Understood. Yes, understood. That's helpful. And maybe just a high level one here. There's been some concern that you are - your fleet is relatively suboptimal for the market today.

Can you just frame how you think about the assets strategically?.

Connor, this is Ben. In terms of our pressure pumping fleet, we have talked about that we are adding a couple of fleets during 2019. We have equipment available today that we call 21 fleets.

I expect you're right, the new equipment we're adding is certainly newer, higher spec, able to more efficiently, lower maintenance performed the type of work that we and others are interested in pursuing and executing. We would expect we've been going through a process. We're making decisions about abilities to repurpose some of the older pumps.

And I would expect by the time we get to the end of the year, we're still going to be talking about that we look at our fleet as something around 21 fleets. So despite the fact that we're adding pumps that comprise two fleets, I expect the fleet number will start relatively unchanged.

So from that perspective, we are upgrading our overall fleet with those additions and some of the other projects initiatives that we've been working on, doing some investments to upgrade some of our older or not brand new equipment to bring it up to higher specs as well.

So we are improving the capability of the fleet and focusing our efforts on the equipment that is capable of working for the more intense activities and basins..

Okay, if I could just follow up on that, and I'll turn it back here.

Just beyond the replacement that you're doing this year how long of a replacement cycle do you see within the firm and how do you think that if you exit with 21 fleet this year, how much more do you need to do in the upgrade cycle?.

Well, that's a reasonable question that we've talked about in the last couple of years that we're maybe unique among some of our like size peers that that we are focusing on maintaining our financial strength. And we are in this business and we're in the pressure pumping business and we're going to continue to invest relatively regularly.

We talked to them again. We've talked about that over the last couple of years. So I think we will continue to invest in terms of picking a number now, in terms of how that replacement or upgrade cycle will go. We don't have definitive plans at this point in time.

Obviously, we're in a difficult period and the decision that we made last year to add the fleets we're adding. We still feel good about that. We think that even despite the current environment. We think that's the right long-term decision.

But that decision was made months ago, right? And the markets continued to evolve and change and I expect to continue - it will continue to do the same. So that's something that we will continue to review. But we'll continue to invest in the business at some level. We're not going to let the business decline or go in disrepair.

Our equipment that we have that's targeted work is in good shape and well maintained and we'll continue to do that. That's been our long-term strategy and we'll stick with that..

Understood. Thanks a lot..

Sure. Thanks, Connor..

Our next question will be from Praveen Narra from Raymond James..

Hey, good morning, guys..

Hi, Praveen..

I guess if I could ask a quick follow-up to Connor's question on the 2Q number.

Was that revenues higher or do we think EBITDA could be higher than what it was in 4Q?.

Praveen, this is Jim. The question that I've heard was revenue. And so the answer that was revenue..

Okay..

EBITDA, same answer..

Okay, great. And I guess if I heard correctly, it sounded like CapEx is higher than your prior expectations. I heard $280 million.

Can you frame for us, what's driving that? Is it higher utilization of equipment for the year? Our expectation - is it something else, I guess what's driving the change?.

Well, it may be higher than what we talked about during the call last time. But it's consistent with what we had in our 10-K, so what has been put out there. And it's not really that large of a difference. One thing we did do. We were able to pick up a few additional brand new pressure pumping equipment at a significant discount.

So we pursued that opportunity. Again, given that our capital position, we were able to do that, and are glad that we took those steps. So we - again, we're investing for the future and the long-term. A lot of the things that are in process were put in place some time ago and - but much of that is under our control.

I'm sure it will come up about the dividend reductions that we put in place this quarter. And we again, we think that's the prudent thing to do. And the short-term, it doesn't necessarily signal that we think that obviously we're still paying a dividend and we manage that over time.

And there's always the opportunity based on our results and our capital strength. We could change that dividend. Again, we could adjust it again upwards as the results allow us. So that's where we are..

Right. I guess I can ask one more, in terms of staffing levels, it sounds like you guys are maintaining at least appears that way.

Do you guys are maintaining a little bit more staffing then the current environment calls for? One, is that correct? And then two, is that a strategy you guys are kind of employing in preparation for an uplift or how do you guys think about it?.

Praveen, this is Jim. That's true to a degree. We have more staff than we need right this moment, for this moment activity level. But we have well maintained fleets, ready for opportunities and new equipment coming; labor is always an issue in the oilfield.

So we are trying to think long-term about our staffing levels and that leads to a few more employees than we would need right this moment. That's correct..

Okay, perfect. Thank you very much guys..

Thank you..

All right. Thanks Praveen..

Next question will be from Scott Gruber from Citigroup..

Yes. Good morning..

Hey, Scott..

So just a question on some of the drivers around the 2Q raise in revenue and EBITDA which sounds promising.

How many fleets did you have active in 1Q on the frac side? How many do you have active today? How many do you think have actives in 2Q? And where do you think you'll 2Q just thinking about the ramp and the number of active fleets and what you're seeing there?.

Sure. Scott, this is Jim. As we discussed in our Q4 call, we ended the fourth quarter with 16 active fleets and that is a good average to think about for first quarter. We have 21 fleets ready to go mechanically sound and ready to go. But we had 16 man fleets during the quarter.

We think based on how the frac calendar looks; we might get another fleet active sometime in the middle of second quarter. So perhaps next month in May, and again, back to the earlier comment that we don't have much visibility. That is kind of all the visibility we have right now..

Gotcha. And what do you see on the pricing side right now? It sounds like, the deterioration is slowing. One of your large appears is still calling for a sequential headwind and 2Q versus 1Q. I'll be one that is shrinking.

What do you guys see on the pricing front?.

Right now, we do think the rate of decline is slowing. We know anecdotally that if we miss a job because of pricing, it's not by as much as it was October, November of last year..

Got it.

And then just thinking about the dividend EBITDA improvement in 2Q CapEx is up some from your previous guidance? Do you have line of sight to getting to free cash positive in the second half of the year? What do you need to see improvement on pricing to get there?.

We believe that we will manage the business certainly in the long-term to be free cash flow positive. Our goal at this point is to be free cash positive for 2019. And there are a number of levers that we can push and pull to get there. So that's our expectation that even after, yes, we will be cash flow positive this year..

And that would be before the dividend or faster the dividend..

It will certainly before and I expect afterwards as well..

Okay, great. Thanks for the color..

Thanks..

Thanks Scott..

Thank you. Our next question will be from Tommy Moll with Stephens Incorporated..

Good morning. Thanks for taking my question..

Sure. Tommy..

So you mentioned a couple times that the oversupplied condition and the pressure pumping market results partly from increasing efficiency.

Can you talk about maybe if you're looking at the relationship between crews to rig, frac crews to drilling rigs? Where you think we are now, how you think that has trended in recent quarters and any rate of change you see going forward? I presume that's what you were referencing in your comments on efficiency.

So anything you can do to enlighten us there would be appreciated?.

Sure. Tommy, this is Jim. A simple frac demand model and empirical data would have told you that a year or so ago that ratio was two point something, let's call it 2.5 or 2.6 to 1. Today in the Permian based on data probably all of us on this call could look at that number looks more like 3.5 or 3.6 to 1.

There is a lot of increasing efficiency as many of us know with the advent and the growth - the advent of and the growth in zipper fracs and the 24 hour work and just all the efficiency that has accrued from that. If there's a positive now and if you're pressure pumper that can only go on for so long.

You can't increase the amount of zipper frac work that you do infinitely. You can't work more than 24 hours a day.

So that rate of increases certainly decreasing and may have topped out, but that change in the ratio of drilling rigs to frac crews has really driven oversupply beyond and made the market oversupplied sooner than most of us would have thought..

And I'll add onto that. This is Ben. Of course, there's a lot of discussion about equipment being worn out to the extent with that level of efficiency and utilization. So that's certainly a positive for the group over time. If the attrition rate is higher than people expect have expected or - they are experiencing higher attrition rates.

So that's not something that we count on, but we think that too is a trend. They both have to work together, right.

If people are working harder and harder and more and more equipment is going to wear out quicker and that together with a lot of disruptions in the market with a lot of the M&A activity and things like that there's - those disruptions may actually be opportunities for us I believe..

Thank you. As a follow-up, I wanted to shift to the dividends.

When you were thinking through with the board where to set the new level, was there a payout you had in mind in terms of net income or maybe more appropriately for this year free cash flow base, just given the growth CapEx that you have planned or otherwise? What was the philosophy on deciding where to land with the new dividend policy and then going forward as the market improves? How should we think about the process there to the extent you would come back and raise it at some point?.

Well, I think, to be honest, there wasn't a complex algorithm that we ran to make that decision. I think we just felt that it was a prudent decision given where we were and cut it. It's something that typically we don't, people don't like a lot of volatility in the dividend, but we kind of look at it over the full-year.

If the year improves going forward, there's every opportunity to increase it. We have in many of the last several years paid a year-end special dividend. So whatever adjustments we need to make to whatever we think the appropriate payout is for the full-year could be factored into that year-end special dividends.

So we just felt that it was near-term prudent thing to do to give us some cushion. In the current environment, we obviously have borrowing capacity if we needed it. We don't expect that we're going to, but that's another cushion. That's available to us. So like I said, it was not any sort of complex decision.

We've historically paid out as many other traditional dividend paying companies anywhere from 20% to 30% plus of our earnings over time. And I expect over time that'll be where we'll end up. And we are shareholder return focused in many ways. We bought back a little stock during the first quarter, paying a dividend regularly.

So we've been doing all those things for many years and we're continuing to do that. But also managing the balance sheet and the financial strength and our condition and the ability to continue to invest prudently in the business over time and not - we're going to do that, continue to do that more steadily over time..

Okay. Thank you. That's all for me..

Thanks..

Thanks, Tommy..

Our next question will be from Chase Mulvehill with Bank of America Merrill Lynch..

Hey, good morning..

Good morning..

Good morning, Ben. I guess I'm trying to understand the 2Q guide just a little bit better, and so if we just kind of stripped it down a little bit and just tried the implied uplift of EBITDA per fleet.

If I'm doing the math right, it looks like you're expecting about a $5 million to $6 million of annualized EBITDA per fleet uplift and we think about 2Q versus 1Q.

Can you confirm that for us?.

Chase, this is Jim. That's hard to confirm. If we could maybe approach it from another direction, again we sit several times on the call that we have no visibility right now. But if we take a March results and what we know about the second quarter calendar, that's where our qualitative assessment about revenue and potential EBITDA for Q2 comes from..

And I agree with that, Chase..

Okay..

It's been - when Jim talked earlier about, and he's right. The visibility is not as long term as we would like it to be, but it is true. And reviewing with operations, the frac calendar, it is certainly more full for the second quarter, and thus Jim's qualitative comments on the second quarter, but reasonable question, but difficult to quantify..

Okay. Maybe I can kind of approach it this way.

When we think about January, February, and March, so that March was the best line, from an EBITDA per fleet, if we looked at March versus January, maybe can you talk to the difference between how March was with the run rate looked like from March versus January?.

Chase, this is Ben. We'd really not like to get enter quarter and we'll just say that January, February were not very good at all and March was much better..

Okay. That will work there. Last one, I'll turn it back over. I guess with the 100,000 horsepower is kind of replacement as we kind of roll forward throughout the year. As we roll into 2020 and I know that it's really early.

But should we just kind of in our model kind of think about, continued replacement CapEx as we go forward or is kind of this 100,000 horsepower and kind of you feel good with your fleet as you exit the year?.

I think for a long-term model, yes. I think that that sort of spending by year would be appropriate. Now that that would not roll up to the two 80 or so that we're projecting because number other CapEx and therefore coiled tubing and things like that that are not necessarily at this point in time expect it to be as routine as the pressure pumping.

So but that is a reasonable. I think it's not long-term assumption at this very point in time..

Okay, all right. I'll turn it back over. Thanks, Jim..

Thanks..

Thanks Chase..

Thank you. Our next question will be from Vebs Vaishnov with Howard Weil..

Hey, thank you for taking my question..

Good morning, Vebs..

Good morning.

Just - was there anything one-time thing in 1Q that was - that reduced the pressure pumping profitability?.

Well, one may have noticed that SG&A was low, high. There were a number of unusual things there that would have flow through some of it directly, but some of it indirectly into pressure pumping. We had a couple of legal litigation type accruals. We have a higher 401(k) match for our employees that flow through.

There were - we have been investing some in information technology that that did flow through and hit the quarter. And those investments are for a variety of reasons.

Some initiatives where we're upgrading our network and we're looking at some new collaboration and data analysis tools that helps us both on the well site, but also in office automation with things like recruiting and job proposals and gathering data at the well site, it's going to help us, but help our customers as well.

So that to add somewhat to the first quarter cost. As the SG&A was about $45 million in the first quarter. It was $40 million in the fourth quarter. The fourth quarter had probably some “positive adjustments”. So it's kind of a difficult comparison. So probably the run rate is probably somewhere between $43 million and $44 million going forward for SG&A.

So some of those things would have naturally flowed through to pressure pumping. But the biggest issue of course was the revenues and the utilization and efficiency of our fleets..

Got it.

And fair to say obviously the pressure pumping, a drill that decline and that's expected to show the most improvement from 1Q to 2Q? How are the other businesses like thru tubing, coiled tubing working and if you could please also give the breakdown for the revenues?.

Sure Vebs, this Jim again. Let's go ahead and do the revenue breakdown. So this is for the quarter and as a percentage of consolidated revenues, pressure pumping was 44.2% thru tubing solutions or second biggest service line was 32.8%, coiled tubing was 6.0%, rental tools 4.2%, and nitrogen 3.4%.

Just I mean 30,000 foot view of the other businesses, they are all moving with certainly with the rig count there was a slight sequential declined, thru tubing continues to perform well because of some innovative products. Coiled tubing, we are adding some new units this year, the first of which will be delivered in May.

So coiled tubing, could have been better, but we have good expectations for it this year as it has new as it gets new and higher capacity units for long link collateral completions. So Canadian spring breakup kind of impacts us in thru tubing a bit, but the other businesses are just moving with what we know of as the well completion count in the U.S.

domestic market, the markets we operate in and of course the rig count. So pressure pumping was the service line that moved our results this quarter..

All right. That's very helpful. Thank you for taking my questions..

Sure, Vebs. Thanks..

Our next question will be from Ken Sill with SunTrust Robinson..

All right, thanks. Good morning..

Hi, Ken..

So a lot of the questions have been asked and answered. But there's always more to know. So one thing you had talked about last quarter is moving to more dedicated fleets.

And I was wondering where do you guys stand now in terms of exposure to spot versus dedicated fleets of the 16 that are marketed right now?.

Ken, this is Jim. That number, that percentage has not changed much, if any. I would say that about 70% of our pressure pumping fleets, which are currently active, are dedicated.

And as we've all discussed but if can't repeated too many times, I guess, in today's market dedicated gives you some ability to look at your utilization and plan for your logistics, that sort of thing. But there are no take or pay economics and pricing does move with the market.

So it is a handshake agreement that a customer has some work planned and if they do that work, if it's not, if things don't impact it because of other service line issues or various other things, then we will do that work.

So it's not a guarantee of utilization, it's just a guarantee that the customer will give us the work that they have, when they have it. So but to answer your question about 70% of our pressure pumping fleets are dedicated at this time..

Yes. And kind of follow-up there. I mean, so pricing is not firm and it moves with time. You indicated that you're not - when you lose business to lower spot, it's not by as much.

I guess the implication is that you're still walking away from some super low price business?.

Yes, certainly. We lose bids every day and I want to say we're happy to do it, but we realized that's the right solution..

Yes. And going back to the attrition thing, I mean, Halliburton was talking about attrition is going to balance the market. You guys mentioned that GE adding two fleets a year out of a 20 fleet, 21 fleet business seems reasonable.

So I guess it depends on where pricing is, but is pricing at a level where you could support keeping a fleet around for 10 years at current levels? Or is there a point where five, six, seven years in, you just can't justify rebuilding and replacing it to keep it going?.

Ken, this is Ben. There is obviously a lot of dynamics that go into that analysis as the market cycles and pricing and utilization moves. Reasonable question. But the intensity of the - we'll know more over the coming years. The intensity obviously has really picked up the intensity and the utilization overall for our industry. Yes, if there's one.

Our utilization has been not what we want it to be. So our equipment has not been wearing out as much as we would ideally like it to be at this point in time.

So I think those dynamics and whether it's new equipment, upgrading equipment, replacing parts, and there's a lot of things we're doing, other initiatives we have around understanding our maintenance and repairs better, and how our equipment is performing and how we might execute the jobs to manage our MNR, reduce our MNR costs.

There's a lot of things that go into that and everybody's working real hard to create those additional cost efficiencies for us, which ultimately will newer to the customer, but also so to us. But this industry has been through a lot in the last several years. A lot of cost relationships dynamics going on and we're working real hard every day.

Again, putting some of these other tools in place for us to understand our cost even better and understand the data that our equipment is able to produce and provide to us so that we can understand even better how to configure the equipment and execute jobs, and again, ultimately manage our costs and maximize our profitability..

Okay. Then one final question.

How much of your sand volumes were internally sourced this quarter?.

Ken, it was 58% of the sand we use this quarter was provided by us..

And is that sand going mostly to Permian or is it going mostly to other regions as Permian local sand picks up?.

Hard to say and there wasn't a big change in Permian sand in the first quarter..

Okay, great. Thank you..

Thanks..

Thank you. Our next question will be from Marc Bianchi with Cowen..

Thank you..

Good morning, Marc..

Good morning. I was hoping to talk a little bit more about the progression in first quarter.

I think we certainly are and suspect some investors are scratching their head thinking your fleets in the fourth quarter were about 18, you were down to 16 in the first quarter and then talking about maybe adding one here in the second quarter, but your profitability has really swung around quite a bit.

I'm wondering if there was some real inefficiencies you kind of alluded to it in the press release commentary during the first part of the first quarter, and maybe that sort of resolved itself, maybe it was just a pad or two that were just inefficient for you.

Maybe you could talk through it qualitatively like that just to give us some more comfort in the exit rate profitability and how you can kind of deliver the second quarter above fourth quarter even with the one or two fewer fleets?.

Marc, this is Jim. We will try to tell you everything that's useful. It was a slow start to the year with people not coming back late from the holidays, not being in a hurry, not getting their budgets, all the things that we say many first quarters of most years. There was some weather impact as well.

And as we have the balance sheet strength not to lay people off and to keep equipment maintained and be ready to go when times get better. So we had some serious labor inefficiencies in the first two months of the year. I won't say that those labor inefficiencies have been completely solved or were completely solved in March.

But we had - we just had a lot of inefficiencies in January and February. You cannot fire people tomorrow and hire them or other new people back three weeks from now. And I honestly think even if we knew then what we know now.

We still would have kept things in place and kept equipment maintained and ready to go during those first two months of the year. So it was just unfortunate. March was better again, qualitatively. We put some money to the bottom line in March and again, very little visibility.

But we certainly see March continuing for the next few months as far as we know the frac calendar is full or more full and if things just look better. And if that doesn't give enough comfort, I understand that we may just have to wait until second quarter earnings, before we can get everybody a whole lot more comfortable with where we are..

Sure. Sure, but that that's helpful perspective for us.

For the customers and the work that you've picked up here, towards the end of the first quarter and what you see into the second, how would you characterize that? And we can make our own assumptions about what happens in the back half, but if it's large programs with big public E&Ps that have a plan for the remainder of the year, maybe we'd feel one way about the duration of that business versus it being smaller players that are responding to the commodity price.

And maybe you're going to complete one or two more wells and then go away in the back half of the year.

Is there any kind of color you can provide there?.

Well, this is Ben. I would say that, we have heard the numbers indicate some of the private players are getting more busy with increasing the commodity price, whether that's sustainable or not, we don't know. But that should be a net positive for us.

And I would say in terms of the increase in activity that we're seeing it at this point is not - not a lot of these high volume completions oriented large E&Ps. But I think that's our opportunity. That's what we're working on. We're working on trying to secure a much more of that work.

And again I think with a lot of this M&A activity and a lot of what's going on in the industry. I expect there will be more disruptions. And again I think that presents even our current position. I think that presents opportunities - more relative opportunities for us maybe for - then for some other people in the market..

Great. Well, thanks for the comments. I'll turn it back..

Thank you, Marc..

Thank you. Our next question will be from George O'Leary from Tudor, Pickering, Holt and Company..

Good morning, guys..

Good morning..

Hey George..

Just a question on the utilization side, thinking through maybe a couple of ways you guys could possibly frame that either hours pumped, stages pumped or sand volumes pumped per month, any framing of how that trended throughout the quarter and maybe March versus January or March versus Q4 averages just, just might be helpful for us to think about efficiencies and utilization throughout the quarter?.

George, this is Jim, again. I'm not sure I have that right at my fingertips in terms of operational metrics stages per month, not sure we have that in front of us..

Sorry it's not quantitative. But again, March was much stronger than January and February..

Yes..

Sure. That's helpful and then maybe just thinking about the way Q1 played out in that pressure pumping business.

Can you say whether the - I think we get back to Q4, there were some hope that maybe utilization will be better quarter-on-quarter, the way it sounds like today as it that didn't materialize for a number of different reasons, whether included, but what was the bigger pain point in the first quarter was it pricing, which it seems like the pressure has abated there or was it utilization?.

George, it was a bit of both. It was the story of customers just not being in a hurry to get back to work in January, so that's utilization issue and pricing just continues to be a tough fight. So actually pricing did decline a bit in the first quarter. Although we have said that that pressure has abated, pricing did decline in the first quarter..

And then maybe just one more if I could. Is it seemed like in April based on what you have seen so far and I realize we are not fully at the end of the month yet that utilization is actually up over March or were you guys implying that margin is a good month in April looks kind of flattish with March..

But more of the latter April looks flat to March..

All right. I will leave it there. Thanks for the color guys..

Okay. George, thank you..

Thank you. Our next question will be from Michael Urban from Seaport Global..

Thanks. Good morning, guys..

Good morning, Mike..

So what was dig in a little bit on the continued strategy and move toward dedicated fleets at high level makes absolute sense just better visibility better ability to manage your utilization, which as we saw from your result is a clear driver of profitability, but you know at the same time everybody would like to do that everybody wants to work with the big efficient operators with visible programs? How do you convince our customer to do that? How do you win that work what your value prop relative to your competitors and doing that?.

Mike, it's Jim. We do have a lot of good programs in place. We are known as a high quality provider. We are buying new equipment and from it appears that not many of our peers are buying new equipment.

We are putting a lot of confidence in the new continuous duty, high horsepower pressure pumping equipment that we bought in 2018 and are continuing to take more delivery of in 2019. We have some high capacity pumps, one of which is going to be shown it OTC next month.

So you can go since here in Houston and take a look at it and we feel like that increased efficiency and less downtime, which we believe will benefit us and our customers, is a way to win work, as well as just season management and that type of thing.

So there is no magic bullet, there is no patented process that's going to win pressure pumping work for us, but we are just going to get in there and work and talk about our new equipment and our processes in place and just with commodity prices are constructive.

As Ben has mentioned, there seems to be a lot of churn among our larger customers in terms of who's going to own whom and who's going to operate where and that sort of frothiness always can provide opportunities for you, for us or for someone. So that is our best answer at this time..

Yes, Jim, then how do you think about the decision to put a fleet replacement a dedicated fleet with the customer, is that always better just because the utilization is much higher and then the visibility is much higher, or is there a situation where you say, we will keep this fleet in the spot market and that's a better answer.

And I guess that's just kind of taking the other side of that last question, I mean since everybody kind of does want to be a dedicated provider. You guys have the scale, you have the balance sheet to maybe be a little more opportunistic and kind of BV the large high quality spot provider maybe that is a differentiated strategy.

So I guess the question is, how do you think about the decision, the other whether to keep a fleet in the spot market or move it to a dedicated customer..

Well, other things equal, we'd rather be dedicated if we believe that the long-term profitability contribution dollars of having that fleet dedicated with work force.

It's more than just pricing per stage, per se, we have to look at the job design, what sort of proppant they're using what's the wear and tear, what's the projected wear and tear on our equipment is going to be what pressures and pump rates are we using that tells you a lot about your wear and tear potential wear and tear.

And then also trying to look at the customers drilling program and see how much confidence we have that the, you know, two or three pads just making that up.

Hypothetically, the two or three pads they have which auto last nine months or a year, how likely is that to get done in a timely basis that will ensure as good or, you know, give us confidence about good utilization.

I mean that's kind of what you think about to get something tied up and dedicated work where it's going to be hard on the equipment, and you may not get good utilization is not a situation, we want to be and so you just have to weigh those factors..

That's it, thanks. And then if I could sneak in.

Just a quick housekeeping follow-up, do you have revenue percentage number four versus nothing was that material in the quarter?.

It was not material. And it was about - it was the same as in the prior quarter in the prior year. Roughly, it was about 1% of revenues..

Okay, great. That's all for me. Thank you..

Okay. Thanks..

Thank you. Our next question will be from John Watson with Simmons..

Hey, good morning guys..

Good morning..

Other than continuous duty pumps are there other specs within frac that your customers are interested in your specs that you are considering as you are adding new equipment?.

Pumps in the continuous duty components, I guess we define those here as engines and transmissions that work. That have more durability to smaller footprint is important. Not ultimately important that's important as well. That might be all it's worth discussing on this call right now..

Okay, great. Thanks, Jim.

And you and others are adding large diameter coil equipment as we have talked about, can you give us an update on the coiled tubing pricing environment and your expectations for how that might trend moving forward?.

Hard to have empirical data because we don't have those new large diameter coiled tubing units in the market yet. I mean, I think, one, I know, one was delivered in April. So we will know soon, but we do believe there is a market for those larger AMR coiled tubing units which can go out 10,000, 12,000 feet.

We also think that there are not that many players from the ground up build larger AMR coiled tubing units. So we think that there is a good market for us there in terms of revenue per running foot charges that we expect and we have some internal analysis to justify the capital expenditure, but we don't have any empirical data to share with you..

Okay.

So part of the uplift for Q2 is more coiled tubing equipment, is that fair to say?.

Some of it a small percentage of it is. What we think is going to be better for us is just constructive commodity prices and some better pressure pumping utilization again back to that March exiting run rate following through into second quarter. It's what we think is going to drive our results a little more in the second quarter than other things..

Right. Makes sense. Thanks for squeezing me in guys. I appreciate it..

Sure, John..

Thank you. Our next question will be from Chuck Minervino with Susquehanna..

Hi, good morning..

Hi, Chuck..

Just wanted to touch on the 2Q qualitative color a little bit more. It's just seems to get some of the - and I understand it's very fluid right now, but to kind of get back to a little bit above 4Q levels on both the revenue and the EBIT side. You got to do pretty good growth in the revenues, which I think is very possible with the utilization bump.

My question really was, it looks to me like the incremental margins need to be kind of in that 50%, maybe 50% plus range. And I guess I just wanted to ask, I guess historically were a little bit more used to seeing those types of incrementals when you're getting pricing as well.

Am I right about that kind of number? And I guess maybe it's because 1Q just had a lot of noise in it and very low utilization.

So there's like a little bit of a benefit from that, but can you just help me understand like can you get those types of incremental margins when you're not really getting pricing?.

Chuck, this is Jim. Your points are good one. However, I wouldn't say that first quarter had noise in it so much as extremely underutilized resources. So the incrementals on underutilized resources, which you don't have to add to with incremental revenue should be pretty good. I mean are the incrementals 40% or 50% something like that.

We just do not have the visibility to tell you right now. You're also making good point that pricing certainly [grosses] your incrementals a good bit, so..

Okay. Okay. I guess that you're right maybe noise wasn't the right word, but the point of lower utilization in 1Q. I guess that was - what really kind of impacted. And then just a second question on the decision to potentially bring another fleet out.

Can you just talk around some of the thought process there? I guess maybe one thought would have been if - you kind of see pricing get to a certain point or maybe you believe that the utilization will be at such a level that that's a good return decision.

Can you just talk a little bit about that?.

This is Ben. What we talked about as we made the decision in several months ago to this new fleet.

And I think it's part of our regular - at this point time our regular routine addition to the fleet to enhance and upgrade and knowing that attrition is an issue and it has been quite a while since we've retired many or in some cases, any or almost there have been very few retirements that we've had, and I think it's time to that we'll be doing that.

So again, that decision was made sometime ago. We're in this business. We think it's going to be a good business. We think obviously this is a very difficult time right now. Operationally returns are not good right now in this particular timeframe. But I think it will shake out. Our oil prices equipment attrition and all those things.

I mean, some of it is nothings ever 100% certain business. But we think it's - obviously we think it's a prudent investment and we set to work real hard to manage our costs and get our activity levels up and do what we have to do to manage our results and generate cash and return capital to shareholders..

Got it. Thank you, guys..

Thanks..

Thank you. And our next question will be from Jud Bailey from Wells Fargo..

I wanted to follow-up on one of the earlier lines of questioning. If I knew the math right, your pressure pumping revenue, I think was down about 19% sequentially.

Could you give us any color? Do you had the numbers there on what was the volume and what was price, like what was stage count down quarter-over-quarter and then how much was probably average pricing? What were the kind of the contributing factors there?.

Jud, this is Jim. Majority of it was price. About 80% of the decline related to price. The rest - they were 20% related to utilization..

Okay, thanks.

And it was there any port - how do we think about any movement in sourcing of sand? Was that much of a factor?.

It actually was not our customers sourced more of the sand in the first quarter than they did in fourth quarter and that's just a tactical customer mix kind of answer.

But the fact that the price of sand declined muted the revenue and contribution impact that would have had, so kind of kind of a strange, we have some puts and takes during the quarter on that one..

Okay, all right.

And then my follow-up is just thinking about the second quarter and based on the monthly progression in the first quarter and maybe how April shaping up? Is it reasonable to think about your stage count our proppant pumped in the second quarter being up mid to high single-digits? Does that strike you as a reasonable objective based on kind of what you're seeing today? Just trying to think about how to think about the second quarter from an activity standpoint?.

Yes.

If your question is, first quarter to second quarter, it's a quarterly question?.

Correct..

The answer is, yes. That's reasonable. Yes..

Okay, all right. I'll turn it back. Thank you..

Thank you. And I'd now like to turn the call back to our presenters for closing remarks..

Thank you. Carrie. We appreciate everyone calling in and listening and the questions. Look forward to seeing a lot of you soon and talking to a lot of you soon. Have a good day. Bye-bye..

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect..