Good morning. And thank you for joining us for RPC, Inc.’s Third 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 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 are 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 would 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 our conference call we will be referring to several non-GAAP measures of operating performance.

These non-GAAP measures are adjusted net loss, adjusted net income, adjusted loss per share, adjusted earnings per share, adjusted operating loss, adjusted operating profit, EBITDA and adjusted EBITDA.

We are using these non-GAAP measures today because they allow us to compare our performance consistently over various periods without regard to non-recurring items. In addition, RPC’s required to use EBITDA to report compliance with financial covenants under our credit facility.

Our press release today and our website contain reconciliations of these non-GAAP financial measures to operating loss or income, net loss or income and losses or diluted earnings per share, which are the nearest GAAP financial measures. Please review these disclosures, if you are interested in seeing how they are calculated.

Our press release issued today and our website contains reconciliations of these. If you have not received our press release and would like to see one, please visit our website at www.rpc.net for a copy. I will now turn this 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 2019. RPC’s significant sequential revenue declines were driven primarily by declines in customer activity in pressure pumping. In addition, changes in job mix negatively impacted revenue, pricing remains broadly -- remained broadly flat during the quarter.

Although, many service companies are idling fleets, the pressure pumping industry continues to be over-supplied partially due to increasing industry efficiencies. Given current market conditions, we initiated a strategic review of our operations during the third quarter.

Our CFO, Ben Palmer, will discuss this and other financial results in more detail after which I will have a few closing comments..

Thank you, Rick. In connection with our strategic review, we undertook an extensive operational assessment. We began closing several pressure pumping related facilities, retiring older, less capable pressure pumping equipment and reducing the number of staff fleets, and operational and administrative employee head count.

As a result of our efforts to-date we recorded impairment and other charges of $71.7 million during the third quarter. For the third quarter, revenues decreased to $293.2 million, compared to $440 million in prior year. Revenues decreased compared to the prior year, primarily due to lower pricing and activity.

Adjusted operating results for the third quarter of 2019 was a $21 million operating loss compared to $54.6 million operating profit in the third quarter of the prior year. Adjusted EBITDA for the third quarter was $22.8 million, compared to $97.8 million for the same period as last year.

For the third quarter of 2019, RPC reported an $0.08 adjusted loss per share, compared to $0.23 diluted earnings per share in the prior year. Cost of revenues during the third quarter of 2019 was $225.2 million or 76.8% of revenues, compared to $300.9 million or 68.4% of revenues during the third quarter of 2018.

Cost of revenues decreased consistent with lower activity levels due to lower materials and supplies expenses, employment costs and other expenses that vary with activity levels. Cost of revenues as a percentage of revenues increased due to unfavorable job mix, more competitive pricing for our services and labor cost inefficiencies.

Selling, general and administrative expenses increased slightly to $42.6 million in the third quarter, compared to $41.8 million in the third quarter of the prior year. Depreciation and amortization expense was $44.7 million during the third quarter of 2019, an increase of 4%, compared to $43 million in the prior year.

Our Technical Services segment revenues for the quarter decreased 34.8% compared to the same quarter in the prior year. Operating results excluding impairment and other charges in the third quarter of 2019 were in $18.2 million loss, compared to $56.2 million profit in the prior year.

These decreases were due to both lower pricing and lower activity within our pressure pumping service line. Our Support Services segment revenues for the quarter were flat at $18.7 million.

Now I will discuss our sequential results, RPC’s third quarter revenues sequentially decreased 18.2% to $293.2 million from $358.5 million in the second quarter, due to lower activity levels and change in customer job mix.

Cost of revenues during the third quarter of ‘19 decreased by $39.9 million or 15%, due primarily to decreases in materials and supplies expenses, and other expenses, which vary with activity levels.

As a percentage of revenues, cost of revenues increased from 73.9% in the second quarter to 76.8% in the current quarter due primarily to labor inefficiencies and increasingly competitive pricing for our services.

Selling, general and administrative expenses decreased slightly to $42.6 million during the third quarter of the year, compared to $43.3 million in the prior quarter. RPC generated an adjusted operating loss of $21 million during the third quarter of ‘19, compared to an $8.4 million operating profit in the prior quarter.

RPC’s adjusted EBITDA was $22.8 million, compared to EBITDA of $51.2 million in the prior quarter. Technical Services segment revenues decreased by $63.6 million or 18.8% to $274.5 million in the third quarter. The segment incurred an $18.2 million operating loss, compared to $6.9 million operating profit in the prior quarter.

Our Support Services segment revenues in the third quarter were $18.8 million, compared to $20.5 million in the prior quarter. Operating profit was $1.6 million in the third quarter, compared to $4 million operating profit in the prior quarter. During the third quarter, RPC operated an average of 16 pressure pumping fleets.

In connection with our strategic review and fleet assessment, we are in the process of retiring and disposing approximately 400,000 hydraulic horsepower. By year-end 2019, we will have approximately 750,000 hydraulic horsepower, but only have plans to operate non-fleets. We will adjust this number up or down based on market conditions.

Third quarter 2019 capital expenditures were $77 million and we currently estimate 2019 capital expenditures to be approximately $260 million. At the end of the third quarter, our cash balance was $49.5 million and we had no outstanding debt. With that, I will turn it back over to Rick for a few closing comments..

Thanks, Ben. In our second quarter commentary, we stated there were indications -- there were indication of customer activities would decline during the third quarter. These declines occurred and we expect them to continue during the near term.

In addition to enhanced completion techniques, newer equipment and better technology have greatly increased service efficiency. This has reduced our industries requirements for pressure pumping service capacity at any given oilfield activity level. The locations we are closing had inadequate equipment and crew utilization.

The older pressure pumping equipment is being retired because it is no longer it -- no longerly -- no longer effectively meets the industry’s current market requirements, required more maintenance and was not expected to generate adequate returns in the future.

As a result of these steps RPC will be better positioned to compete in a difficult market environment. I’d like to thank you for joining us for RPC’s conference call this morning. And at this time, we will open up the lines for your questions..

Thank you very much. [Operator Instructions] Our first question will come from Praveen Narra, Raymond James..

Hi. Good morning, guys. I guess if you could get a bit….

Hi..

I think, I guess, if we could get a bit more color on the decision making process to retire the equipment. I guess when you guys looked at it, could you talk about kind of the maintenance requirements that equipment needed.

And then any color you can give on maybe the vintage of the equipment or ideally you can provide on the type of equipment that’s being retired?.

Praveen, this is Jim. I think, we have covered a lot, but I am happy to give you a little bit more color on this. As you know and people who have known us for a long time now, we have been in the practice of rebuilding equipment. It was a very good financial decision starting in 2012.

We did that, a lot and we returned it to the field in like-new condition at a 50% or more of replacement cost. What we have ended up with is the increase in 24-hour work, the increase in zipper frac work, especially in the Permian.

What we have ended up with is equipment that is serviceable, but it doesn’t meet the requirements of zipper fracs and just these longer duration jobs. So the maintenance required on that equipment got to be onerous and it just wasn’t performing the way we needed it to.

We also have some -- have had some locations that were not performing all that well. So that was the backdrop to this assessment and this action we have taken. One thing you will notice and everyone knows is that we were buying equipment this year when many of our peers weren’t.

We were doing that because we have the capital strength to do so because we are committed to pressure pumping and because we realized that somewhere equipment was getting older. We just felt it was prudent at this time to really retire some of that older equipment and have a more streamlined operation to face the market we are in..

Okay. So, I guess, if we think about it on a CapEx per fleet basis or however as we go into 2020 and as we think about going forward.

How should we think about the CapEx profile of the remaining fleets for just maintenance CapEx?.

Praveen, with the increased efficiency, we are learning all the time, but we are expecting about $2 million per fleet that we are operating, we will benefit some in 2020 from the perspective of being able to harvest some of the components that are on the equipment that’s being retired.

So what that effect will be we are not -- we haven’t spent a lot of time trying to forecast that. But that would say the number if it’s normally around $2 million, it will be slightly less than $2 million so, but that’s the way we are thinking about that..

Okay.

If I could squeeze one in, on the majority of your cost saving initiatives, can you give an idea of when they took place, I guess, just trying to figure out if they impacted the third quarter if they more impact the fourth quarter?.

Yeah. This has Ben. Definitely will be more fourth quarter and even more in first quarter next year. That’s what we are focused on is looking at how we are going to be positioned as we start 2020. And so the actions that have been taken to-date are, again, some were in third quarter, mid to late third quarter and others are in the fourth quarter..

Thank you very much. Thank you very much guys..

Thank you..

Thanks, Praveen..

Our next question will come from Stephen Gengaro, Stifel..

Thanks. Good morning, gentlemen. I guess, two things, I will start sort of following up on the first question and maybe if you could help us understand this looking forward and thinking about how the third quarter evolved, but when you think about the cost savings and the sort of operating more efficient fleets going forward.

Can you give us any sense for how that should impact the margins in Technical Services and maybe as part of that as we look at the sequential decline 2Q to 3Q, how much of that is sort of older inefficient fleets and how much is related to pressure pumping versus the rest of the business, is there a way to help us sort of work through that a bit?.

This is Ben. I can qualitatively sort of discuss that as we have read and heard from others, September was a particularly weak month for us and that affected some of our service lines that typically aren’t as affected by things like that. So it was kind of across the board for us weak in the quarter. Now we don’t expect this to be a continuing trend.

But the beginning of the fourth quarter was a little bit better than that, which was good to see, but nothing we are going to count on in terms of a continuing upward trajectory from this point, so it was kind of across the Board.

Also job mix contributed to some of the revenue declines, more customer supplied materials, which has been obviously a recent trend and impacted us from quarter-to-quarter.

We also -- I think, I mentioned, let me clarify another comment, I said, that other actions we are taking are going to be more mid to late fourth quarter if not early in the fourth quarter in terms of headcount reductions.

But like I said earlier, we are kind of focused on where we are going to enter 2020, how do we get positioned for 2020, not so much as where we are going to land in the fourth quarter. We know fourth quarter is going to be difficult, has been in the last two years, we are not expecting anything different this year..

Great. Thank you. And then, as a follow-up is, when you look at your, the composition of your pressure pumping fleet and what it looks like going forward versus maybe where it was a year ago and you sort of referenced retiring equipment that was basically serviceable, but really not profitable.

Can you give us sort of the vintage of that equipment and because as we start to think about the overall market, it would seem like this has got to be a trend across the industry, which may be helps balance the market a little bit over the next couple of quarters, is there a way to sort of think about the age of the equipment or not because there has been sort of rebuilding done over the years?.

Stephen, it’s Jim Landers. As you know and everyone else knows on the call, pressure pumping is this assemblage of component equipment, so it’s hard to put in age on it.

However, if you really try to think about the units and how old they are, if you start with June 30, 2019 at RPC and end up at December 31, 2019, the average age of our fleet will have dropped, fallen by almost 40%, so that’s a qualitative comment we can give you right now..

Okay. No. That’s helpful directionally. Thank you, gentlemen..

Sure..

Thank you very much. Our next question will come from Chase Mulvehill, Bank of America..

Hey. Good morning. I guess, real quickly, just to follow up on Stephen’s question. Basically if I look at your fleet and you have got 150,000 horsepower, now it looks like, I guess, maybe if you can confirm this 450,000 of that was built over, call it the last five years.

And then, so that’s kind of question one and then a follow-up on that, how much in the 750,000 is Tier 4 engines?.

Chase, this is Jim. I am not sure how much actually is Tier 4. We did buy some new equipment that was grandfathered in Tier 2. Certainly, everything we have purchased this year and you know about our 3,000 horsepower pumps, those are all Tier 4. I just don’t have that number in front of me right now.

And I am sorry, can you repeat the first part of your question?.

Yeah. The first part was it, I was trying to do the math on it looked like about 450,000 horse power was actually built in the past five years.

Does that number sound about right?.

Yes. That’s about right..

Okay. All right. And can we talk a little bit about fourth quarter, I mean, obviously, you are going from 16 to 19 manned fleets. So that, probably, and then, obviously, the industry is contracting in the fourth quarter, but you are taking down -- taking out some costs, reducing the number of manned fleets should help support profitability somewhat.

So I don’t know if you could maybe just help us frame or understand the impact to revenue.

And then, ultimately, what kind of impact that may have on margins as we get into the fourth quarter?.

Chase, this is Ben. Fourth quarter is very, very difficult to predict, all things equal, obviously, we would expect revenue to come down. We are in the process of -- have been in the process of moving from 16 to 9 fleets, we are not all the way there at this point, but are getting there.

So as we get to the end of 2019, we expect to be at nine, and as I expressed in my comments, will be more or less than that as conditions change.

The benefit of reducing the fleet is that we will be focused on our more highly capable equipment, not having to maintain and at times struggled with the equipment to perform some of the more demanding work, so it will allow us to be more focused.

Also with the fewer crews, we are expecting to be more efficient will have less white space in the calendar.

We are going to be more disciplined in terms of bidding our jobs and what jobs we accept, we think this is hopefully with other people idling equipment, disposing of equipment and doing some of the same will help with some of the disciplined to get the overall market balance sooner than it might be otherwise.

So we don’t want to contribute to that, so we are going to try to become much more disciplined, again with how we bid or the levels at which we bid and have less white space and focus on our operating procedures on location to be much more efficient and effective and get our efficiencies up.

All those things together should allow us to improve our margins. Where the margins are going to go? So many variables in place. But we should have be more efficient with our labor, we will be able to be more focused on operating procedures and our own efficiency when on location and all those things should result in an improved performance..

Right.

And then just to clarify, when you said, improved margins you mean over the next few quarters not in the fourth quarter, correct?.

Probably not, fourth quarter is very difficult, we are focused on getting ready for 2020, hard to know where fourth quarter is going to be, that will be shaking the timing differences with some of the layoffs and so forth that are taking place, exactly where that’s going to fall and what the impact is going to be is difficult, we haven’t spent a lot of time trying to forecast what that’s going to be, we are focused on getting and positioned again 2020..

Okay. All right. I have got a few more questions but I will jump back in the queue. Thanks Ben. Thanks, Jim. Very good..

Thanks..

Thank you. Our next question will come from Marc Bianchi, Cowen..

There is a lot of noise here with all these actions you are taking in the third quarter and the fourth quarter, I was hoping we could talk about what the profitability might look like when we get through this process.

One way, I was thinking about it is, you are going to have nine fleets, assuming the market remains steady with those nine fleets, and perhaps, earning $10 million a fleet. So that piece of the business could be earning $10 million a fleet or $90 million on an annualized basis kind of once we get to the other side of this.

Is that the right way to think about it or are there any other puts and take you would add?.

Marc, this is Jim, that’s a very appropriate way to think about it, except we are looking at seven horizontal fleets and two vertical fleets.

So two vertical fleets would be earning less -- generating less EBITDA, but the $10 million EBITDA per fleet in the current market environment is a good goal and one to which -- one towards which we are striving right now, so, yes..

Okay. That’s helpful. And then on the CapEx, you mentioned I think $2 million of fleet. So, if we have got nine fleets, that’s just $18 million. I am sure that there is a bunch more CapEx that we would likely see in ‘20 and I know you probably don’t have your plan together.

But can you talk about just generally what the rest of the business requires and maybe, perhaps, put a range around expectations for ‘20 for us?.

Reasonable question, at this point in time, we don’t have any large outstanding orders that would fall into 2020. We have talked about the CapEx for this year. There is some additional spending this year to wrap everything up. We spent some money this year in coiled tubing, we spent some money, obviously, in pressure pumping.

At this point in time, unless market conditions change, we don’t see any large growth initiatives requirements and so forth. So, we believe, and again, we are, as you have indicated, we are in the midst of and with all these changes you described it as noise, which is true. We are working through that right now.

But we believe CapEx will be minimal, next year, I think, certainly, less than $100 million, maybe $80 million unless market conditions change. If things slow down and deteriorate we will adjust our pressure pumping fleet, staff fleets further which will reduce our maintenance CapEx.

If industry conditions improve will increase the fleets and so the number will go up. But at this point in time, kind of a steady state maybe $80 million..

Okay. Well, that’s great color guys. I appreciate it and I will turn it back..

Thanks, Marc..

Thank you. Our next question will come from Scott Gruber, Citigroup..

Yes. Good morning..

Hey, Scott..

Just to follow on the last line of questions.

Were you referring to the kind of $80 million, $90 million of EBITDA, the goal of getting to $10 million per fleet, is that total company or is that just specific to pressure pumpings?.

That’s been some of the industry metrics for the pressure pumping fleets, so that’s only a part..

Okay. I just wanted to clarify.

So and then when you think about those types of targets, are these reasonable targets for the first half of ‘20, assuming no change in mark and no change in pricing, can you get there just with the actions you are taking?.

We, certainly, believe it’s possible, but again, highly the market is very difficult. We are certainly shooting for and we will see where it will apply. We are going to get into early 2020 to see how things are going to make the appropriate adjustments and go from there.

Reasonable question but we would hope so, and with the efficiencies we will have certainly that will be a contributor and a lot of it again will depend on job mix and things like that, so still a work in progress..

Yeah. And I know the market it’s very uncertain at this point.

But is there any way to put some color around the magnitude of activity recovery early next year that would facilitate such recovery in your EBITDA assuming no price change, just thinking about volumes, what type of volumes will be required to get there?.

Scott, this is Jim. That’s a hard one that’s moving target. We don’t have a great number right now for you..

Okay. Okay.

And overhead, how should we think about overhead for 2020?.

At this point in time, I guess, we have been on about a $43 million a quarter run rate. We are implementing plans to get that down by early 2020 to at least get that down between 5% and 10%, and again, we will be taking a deeper dive into our various costs and from there we will react to again market conditions and the industry conditions.

So that’s our target at this point..

And we should assume run rate in 4Q for now or it will start to come down?.

Yes. Yes..

Okay. I will circle back. Thank you..

Thanks, Scott..

Thank you. Our next question will come from Chris Voie, Wells Fargo..

Good morning..

Hey, Chris..

First question, I guess, I wonder if you could give a little color -- a little more color on the nine fleets.

Is essentially the nine going to be what you expect to have working at the end of the year or is that we expect to have ready to go to market in 1Q ‘20 based on the visibility you have for work to start the year?.

We are hopeful it, whether it’s all going to be working on 12/31, not sure, but we expect that those will be working or certainly gearing up to begin work in early 2020. And like I said if, I mean, if we get early 2020 and something less than nine appear to be sufficiently busy will make additional adjustments.

We are going to respond to what we see before us, we are going to strive for efficiency, we are going to strive for utilization, utilization first, then efficiency on the well site and we will see where to go, where it goes from there..

Okay.

And then on the closing locations, I was wondering if you could give an update in terms of the basin presence, has there been any kind of exiting of basins related to this and could we get a breakdown of where the nine fleets we expect to have at year end where they would be in terms of the basins?.

Chris, this is Jim. We will not have a pressure pumping presence in the Bakken and we are streamlining locations in Texas. We will still have a strong big presence in the Permian and can service other areas as well..

Okay.

And if I could just squeeze one last one in usually give a breakdown of the revenues are business, I was wondering if you could maybe read those out?.

Yes. Chris absolutely happy to. So the numbers I am about to share are percentages of RPC’s consolidated revenue for the third quarter, this is by service lines. The largest service line for the third quarter was Thru Tubing Solutions at a little over 38% of revenue, 38.1%.

For the third quarter number two was pressure pumping at 37.9% and after that, of course, we follow fairly rapidly coiled tubing was 6.7% of consolidated third quarter revenue. Rental tools, which is in our Support Services segment was 4.3% of consolidated revenue, our nitrogen service line was 3.5% of consolidated revenue for the third quarter..

All right. Thank you..

Sure. Thanks, Chris..

Thank you. Our next question will come from Vebs Vaishnov, Howard Weil..

Hey. Good morning and thank you for taking my question..

Hey, Vebs..

Okay. I guess the remaining 750,000 horsepower.

How many fleets is that, is that like around 15?.

It’s around 13 to 14, yeah..

Okay.

And the fleets that you are regarding, are you like cutting them up or selling them, how are you disclosing them?.

Good question. We are in the midst of kind of planning for that. But clearly don’t want the pumps to come back and compete against us.

So it will be a variety of things we will be selling some components will be cutting up what we otherwise think can’t be sold and there are few that we are repurposing and other parts of our business for, but a good question and we definitely want to take them, we will be taking them completely out of the hydraulic fracturing market..

If I think about the third quarter and this is, again, just me trying to do some gymnastic, it seems like EBITDA per fleet was negative, obviously, you are going from 16 fleets to nine fleets.

Is it fair to think that those nine fleets are actually EBITDA positive fleets or is there a way you can help us like what’s the range of EBITDA per fleet that you guys saw within your fleet?.

Hey, Vebs. This is Jim. You properly described that exercise as gymnastics and we agree. We have some regions and we have talked about this in our conversations, we have some regions in some locations that are doing well and pressure pumping. And we are very interested in replicating that success with a smaller number of fleets.

So I can’t give you an EBITDA per fleet range, some was positive and some of the fleets were positive and fine, fine doesn’t mean great but they were fine, others due to the problems in the issues we have discussed were otherwise. That’s why we are making the change..

And I guess, you mentioned, about the mix impacting third quarter, could you provide some color like how what that mix was and how much of the impact was that?.

I am sorry can you clarify the impact of miss..

Job..

Oh! Job. Yeah. Sure. Yeah. Sure. So that too is a good question.

During the third quarter the percentage of proppant that our customers provided really increased a lot, and as a result of that, probably, third of our sequential revenue decline in pressure pumping is attributed to us bringing less of the sand to the job and therefore that sand are now for P&L..

And last one, if I may.

So we are closing down less profitable locations and the fleets, have you guys, can you just talked about what changes have you made in sales force, so that you can align with customers who have higher utilization?.

It’s a focus of ours, not really prepared to today to dive into a long discussion. But clearly, we are looking for the much discussed and a more dedicated work and we are going to do that through focusing our efforts, improving our fleet and crew quality and data accumulation and analytics, but we will have more on that later..

Okay. Thank you for taking my questions..

Sure. Thanks Vebs..

Thank you. Our next question will come from Connor Lynagh, Morgan Stanley..

Thanks. Good morning..

Hi, Connor..

I am wondering if we could, I am not sure if you guys have quantified the so I apologize if you missed it -- if I missed it.

But have you quantified just the absolute dollar amount of impacts to EBITDA that closing some of these facilities and shutting down some of these crews is going to have and any commentary around timing of that would be appreciated?.

Connor, this is Ben. We have not quantified it, but I indicated that there were some reductions that took place in the middle of the third quarter and other actions as we have gone along there will be others that will be mid-to-late in the fourth quarter..

Okay. That’s fair. Yeah.

I mean, if we think about, if we are looking at, say your cost of sales in the third quarter, could you quantify maybe as a percentage of that how much is related to the facilities that are going to be no longer operating by sometime next year?.

The actual, well, we don’t -- reasonable question. We don’t really look at it that way, obviously, it depends on the relationship of the revenue to the cost. We sort of look at it is, we are limiting our exposure, right? Our fixed cost exposure as it relates to crew cost and things like that.

We want to fill up the calendar, improve our utilization and focus on efficiency on the well site. So, again, reasonable question, I am not sure it really gives if we have the number, I am not sure that translates into anything other than how we have reduced again our fixed cost exposure.

Certainly, there is less opportunity with less crews to generate revenue, but we believe that we will be all things equal, as we go into 2020, we are going to have better margins, a better cost relationship as we are right sizing to the amount of work that we can do on a regular basis at a appropriate -- higher utilization levels..

Okay. That’s fair. I appreciate it’s not maybe how you look at it.

So I try one different way, which is just how of what you have chosen to shutdown, how large of an EBITDA drag would that have been in the third quarter, just any way you can frame this up, just so we can think about, obviously, we all have different views around what next year looks like, but I am just try to think about how much cost savings there is still to flow through?.

This is Jim. Very, very hard estimates. You can drive a truck through this estimate. But somewhere between $5 million and $10 million and EBITDA..

Got it. Thanks very much guys..

Thanks..

Thank you. Our next question will come from Waqar Syed, AltaCorp Capital..

Thanks for taking my question.

Could you provide some outlook for your other businesses Thru Tubing and coiled tubing business what you are seeing there?.

Those businesses too are experiencing some of the same weakness, like, we talked about in the end of the third quarter with a little bit of a bounce back early in the fourth quarter, which was good to see a little bit of a relief.

One of the things we are doing as part of our strategic review, we are looking at opportunities to try to get our various service lines to be able to work a little closer together. We are hopeful that’s going to generate some positive benefits as well more to come on that later. But we have made some strides in that direction.

With some of the investments we made in coiled tubing in the last several quarters and we kind of scrubbed the coiled tubing service line last year with little or no P&L impact. But we kind of trimmed the fleet here and there with some of our older equipment.

So we feel pretty good about the quality, the size, the capability of the coiled tubing equipment that we have. And so we look forward to the benefit of trying to touch the customer’s well as many times as possible with our various services is something we talked about a lot over the years.

We have had some success from time to time, but we are hopeful that maybe we can generate additional, overall, benefits and opportunities to bring some of those things a little bit closer together..

How about the pricing in coiled tubing, could you quantify that weighted sense today versus where it was maybe in a few months ago?.

Pricing in all of our service lines is not continue to fall precipitously. It’s been more of a utilization sort of play, hope -- I am hopeful that the industry and it appears that maybe reached the point where people aren’t going to be able to continue to drive pricing down and we don’t want to continue to contribute to that sense in the industry.

So we are going to try to become a little more disciplined in that regard and we try to make sure we are getting our utilization up and make sure that our performance is at least reasonable and that’s a work in process. But, again, to answer your question pricing has not been following tremendously and a lot of it depends on mix, of course..

No. As you reduce your pressure pumping size of the fleet, you go down to about nine, so certainly you could benefit from utilization for individual asset. But on the other hand, you would also lose economies of scale and so do -- I mean, you mentioned that you are going to be out of Bakken.

But when we think about it, with all the assets be close together in a basin or would there be some extra costs that may creep up, on a per unit basis just because you may not have economies of scale as you operate?.

Waqar, this is Jim. In our pressure pumping experience over the last almost exactly 20 years and operating in multiple basins. We believe that economies of scale exist within a basin but not across basins. So to be in a region that’s a very long distance from other areas just doesn’t help you. It doesn’t help you with proppant logistics.

It doesn’t help you with sharing crews. It doesn’t help you with sharing equipment and that the -- for many customers the decision making process is decentralized even when it’s centralized it’s still made on a regional basis.

So it’s a good question, but we do not think that getting out of basins -- a specific basin hurts us from an economy of scale point of view, we actually think that by focusing more in certain basins, the economies of scale that are there to be gained, we can gain more of those..

That exactly was my point that would you be then all focused just in the Texas area, so you get the economies of scale in that area and be out of the Rockies, completely in Northeast and other areas or?.

So, yeah, that’s part of the business plan....

That….

And hopefully, in line and the economies of scale are probably pretty elusive, but those that are able to be gained, we stand a better chance of realizing those..

Fair enough. Thank you very much. Best of luck..

Thanks..

Thank you..

Thank you very much. Our next question will come from George O’Leary, Tudor, Pickering, Holt & Company..

Good morning, guys..

Hi, George..

With respect to the CapEx commentary, there is the potential to spend $80 million or less in 2020, that’s obviously a material cut, which it seems a prudent move in the current environment. And if you guys go back and look at 2016 or we obviously dropped at a much lower rig count.

You guys spent $34 million in CapEx that year, is it possible that if the market pans out to be as bad as it is today or as bad as it may get in the fourth quarter, do you guys spend closer to that level of CapEx, the $34 million versus the $80 million. The fleet will be smaller, it seems like you guys are rationalizing some facilities as well.

So actually seems like there is a potential for CapEx to come at a well lower year-over-year, but I also don’t want to set falsely low expectation..

George, this is Ben. Yes. There is that possibility. We are going to be working really hard as we did in ‘16 and do every year that really scrutinize our CapEx and there certainly is that possibility that it will be lower than the $80 million number that we mentioned..

Okay. And then just piling on to that question, but a slightly different angle from kind of a free cash flow perspective, you guys also did a really good job in the ‘15 and ‘16 downturn of blowing down working capital and I realized some of that just happens naturally as revenue declines, but it seems like there is the other sand business.

So and where you already have some costs and you could sell that then for some like on the Thru Tubing Solutions side also, probably, a potential for diverter sales and things of that nature to avoid free cash flow.

Just curious, realize it depends to the degree to which revenue declines, but is working capital, a source of cash next year as you guys see it today?.

George, this is Jim, you bring up some good factors and thanks again for the history lesson to our friends, you may not remember 2016 with that CapEx level was. The answer is yes. We try to manage prudent -- we try to manage working capital very prudently, and I think, we have a good record of that.

All the factors you brought up, are there and possible, let’s do acknowledge though that we are starting from a lower revenue run rate, so collection of receivables won’t quite be the boon to cash that it would be otherwise. And we have been trying to manage inventory pretty well.

So there will be those impacts should 2020 have declines from beyond third quarter, fourth quarter for a second and we will, absolutely, manage to a sound balance sheet whatever it takes..

Great. Thanks for the color guys. Good luck with the restructuring..

Thanks, George..

Thank you. Our next question will come from Tommy Moll, Stephens, Inc..

Good morning and thanks for taking my questions. .

Sure, Tommy..

So for the nine fleets that you are planning to have active once we get to the beginning of next year.

Could you comment on how utilization has trended in recent months for those nine, is it at a level that you are pleased with or is there still a lot more work to be done to improve utilization on those?.

Tommy, it’s Jim. It’s a good question. Hate to answer by saying that it’s a moving target.

One reason, it’s a moving target is as you know, we have just put 100,000 new horsepower in the field in July, August and September, and is performing well for us and the utilization is high because of how well it how well it performs and good customer acceptance in several regions, so that’s a positive.

So we have got some fleets that their utilization is, I will just characterize it as acceptable, but not where it needs to be, some of that has to do with spotty customer activities. We have got some good customers that we work for very steadily and that utilization is fantastic.

We have got some other customers that we work for and do a good job for, in fact in some cases, the job is too good and we finish early in that refers back to the increasing service efficiency in our part of the industry and how that can some ways hurt you.

So utilization it needs to improve but in some places it is decently acceptable for us right now..

Okay. Thank you. And as a follow-up there, again, if we look at the pro forma for the beginning of next year, you are at 750,000 horsepower, so call it 13 or 14 fleets for the four or five you are planning to have idle at that time.

In the event you wanted to bring those back to work, other than hiring people, is there deferred maintenance that would you be required to address when bringing those back to the field or should we think of them as essentially ready to work but for being staffed?.

Tommy, they are ready to work, all we would need to do is crew them up..

Okay. Thank you very much. That’s all from me..

Okay. Thanks..

Thank you..

Thank you very much. Our next question will come from Dylan Glosser, Simmons Energy..

Hi. Good morning, guys..

Good morning..

Hi Dylan..

When you guys mentioned 16 active fleets in Q3, how utilized are those fleets and if you were to think about those on a more fully utilized basis, similar to what some competitors provide, would that number be closer to nine or so?.

Let’s wait and see what our competitors say happened during the third quarter. Utilization was low, utilization dropped off in third quarter some we are going to answer it this way..

Late in the third quarter?.

Yeah. Yeah. Ben said earlier that pricing has not fallen materially our declines have had to do with utilization/activity and then the job mix issue that we mentioned earlier. And to say it another way, we have got some fleets in some locations that we are very highly utilized in third quarter, others that were not..

And that’s the reason we began the move go to go from something that look like 16 fleets down to nine. I mean, that’s the reason for the adjustment and is nine going to be the right number, we are hopeful that 10 or 11 is going to be the right number, we don’t know.

But we are getting down to nine, we will assess the market and we will adjust from there..

Okay. Thank you. As a follow up to that and as far as the clarity for January and February in 2020, given that you guys plan to have about nine fleets moving into 2020.

Is it fair to say that visibility for January isn’t super clear yet and that you maybe haven’t received a great intel from the customers indicating a meaningful ramp up in January?.

That’s fair. There is a broad range of customer indications right now. We are also watching very closely as and everyone else in the analyst community is, our customers’ capital constraints and capital sources, the debt equity private equity markets don’t seem to be open for our customers right now.

In some cases doing some creative financing as was discussed on Wall Street Journal this week, so we are actually looking a lot at their financial capabilities and $55 oil ought to be, okay, but we are interested in their capital constraints. So we don’t have a lot of visibility right now is probably the best answer..

Okay. Great. And if I could just squeeze one more in, as far as the CapEx plans for next year, I know you guys maybe talking about the range of around $80 million and with the possibility of maybe even going to lower.

With that being said, is it fair also to say that you guys are not expecting order and your replacement horsepower next year and maybe push that off to 2021?.

Yeah. We have no plans at this point to order any pressure pumping equipment. We are pleased with the 750,000 hydraulic horsepower. A lot of work went into determining where that line of demarcation is. So we like what we are left with. And believe we have retired very, very few pumps in the last 20 years that we have been in business.

So we are pleased with the quality and the capability of that 750,000 hydraulic horsepower and believe that it can operate with certainly maintenance CapEx will be required, but they can operate for the next several years.

And so decision on replacement horsepower will be obviously well thought out and looked at very, very carefully, but we don’t believe we are going to have to have any replacement horsepower in the near-term..

Okay. Awesome. Thank you guys for taking my questions and I will turn it back..

Absolutely..

Thank you very much. Our next question will come from Blake Gendron, Wolfe Research..

Hey. Thanks for squeezing me in. I know you don’t have great visibility into the horsepower that your peers are stacking and cutting up, but maybe talking about the horsepower that’s come to market over the past six months.

First, can you quantify maybe the amount of horsepower on the sale block now versus six months ago and then when you look at the horsepower itself, how much would you categorize as equipment that you would have otherwise stacked, probably, won’t come back ever versus horsepower that is viable in the current market dynamic?.

Blake, it’s Jim.

When you talked about on the sale block you are referring to potential transactions correct because we aren’t selling equipment, is that what you are asking?.

Yeah. I know you are not selling equipment, but what you can see from….

Okay..

…peers bringing their horsepower to market?.

Yeah. We haven’t looked at anything closely enough to give you a comment that would be meaningful. There is plenty of pressure pumping horsepower per sale, I would assume..

Okay.

And then moving to next year CapEx coming down, assuming you get okay utilization and the EBITDA per spread that you expect or at least improvement, what’s the preference for cash build versus maybe reinstating shareholder returns next year?.

We will have to wait and see, always focused on shareholder returns, but we will have to wait and see. That’s a decision we make on an ongoing basis. Reasonable question, but we do like shareholder returns..

Okay. Perfect. Thanks..

Thank you. Our next question will come from Stephen Gengaro, Stifel..

Thank you. Just a quick follow-up, when you think about the reduction in your pressure pumping fleet going into 2020.

Is there any impact there that we should think about on its impact on other product lines and any sort of related revenue and/or kind of complementary services you provide around that, that could impact your other product lines in 2020 with fewer frac fleets working?.

That is a very good question and the answer is no impact..

Okay. Great. It’s about to clarify but thanks for your help..

Yeah. Yeah. Absolutely..

Good question..

Thank you. Our last question will come from Vebs Vaishnav, Howard Weil..

Hey. Thank you. And I guess just one follow-up question because of, I think, you guys said something about $5 million to $10 million EBITDA per fleet.

I couldn’t really understand what it was what you are talking about that was a drag in 3Q and that’s how much your EBITDA per fleet will improve in 4Q or was that like where view would like to go to?.

Vebs, this is Jim. The question and I am the one who answered it was. What was the drag of the fleets that are being eliminated. And my estimate, I said, you could drive a truck through that estimate is between $5 million and $10 million EBITDA on a quarterly basis. So that was the question and the answer.

And I am told that the webcast cut off for a little while, so I apologize for that, if there are any follow-ups, we can clarify, just on what we said not additional information..

That’s helpful. Thank you..

Sure, Vebs..

Thank you very much. At this time, we have no further questions in the queue. So I’d like to turn the conference back over to Jim Landers..

Thank you, Shantelle. Thank you everybody for spending the last hour with us. We appreciate your interest. Look forward to talking to many of you soon and seeing you soon. Thanks..

Thank you very much. Ladies and gentlemen, at this time this conference has now concluded. You may disconnect your phone lines and have a great rest of the week. Thank you..