RPC Inc (RES) 2013 Q4 法說會逐字稿

Good morning, and thank you for joining us for RPC Inc's fourth-quarter and year-end 2013 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 listen-only mode.

(Operator Instructions)

I would like to advise everyone that this conference is being recorded. Jim will get us started by reading the forward-looking disclaimer.

Thank you, and good morning. I am going to do the forward-looking disclaimer. Before I do that, I'd like to tell everybody that we're having one of our rare winter storms in Atlanta, which is RPC Corporate Headquarters, and the three participants on this call are not in their usual places. So I'm going to ask everyone's indulgence, if things don't go as smoothly as we would like them to, as we hope they have in the past.

So before we get started, I need to remind you that in order to talk about our Company today, 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 2012 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 are also 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 the capital structure. We are also required to use EBITDA to report compliance with financial covenants under our revolving credit facility.

The press release today and on our website provide a reconciliation of EBITDA to net income, which is the nearest GAAP financial measure. Please review that disclosure if you're interested in seeing how we calculate it. If you haven't received a press release for any reason, you can see our website. Again, www.rpc.net for a copy. And 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 fourth quarter of 2013. Following my comments, Ben Palmer will discuss our financial results in more detail. In this highly competitive environment, we are pleased to report a 3.6% year-over-year increase in RPC's fourth-quarter revenues. Our revenues increased due to the higher activity levels and greater service intensity, and to a lesser extent the larger fleet of equipment in the fourth quarter of 2013 compared to last year. On a sequential basis, our revenues declined by less than 1% in spite of the holidays and winter weather. This too was due to higher service intensity and high activity levels in many of our service lines.

However, fourth-quarter operating profit, EBITDA and net income declined sequentially and year-over-year. Our profitability declined because of the competitive pricing for our services. Our pressure pumping fleet, which now operates exclusively in the spot market, continues to face intense competition but we are pleased with our success in securing new work. Our Board of Directors voted yesterday to increase our quarterly dividend by 5% from $0.10 per share last quarter to $0.105 per share this quarter. Our CFO, Ben Palmer, will now review our financial results in more detail for the fourth quarter of 2013.

Thank you, Rick. For the quarter ended December 31, 2013, revenues increased 3.6% to $487 million compared to revenues of $469.9 million in the prior year. These higher revenues resulted finally from higher activity levels in most of our largest service lines. EBITDA for the quarter decreased 18% to $119.4 million compared to $145.6 million for the same period last year. Operating profit for the quarter decreased 27.8% to $64.5 million compared to $89.3 million in the prior year. Our diluted earnings per share for the quarter were $0.17, a 34.6% decrease compared to $0.26 in the prior year.

Cost of revenues increased from $279.4 million to $318.9 million in the current year due to higher activity levels and greater service intensity within our pressure pumping service line. Cost of revenues, as a percentage of revenues, increased from 59.5% in the prior year to 65.5% in the current year, due primarily to lower pricing for our services, an increase of materials and supplies expense due to job mix. Selling general and administrative expenses during the quarter were $45.5 million compared to $44.7 million in the prior year. SG&A expenses as a percentage of revenues decreased slightly from 9.5% last year to 9.4% this year. Depreciation and amortization were $54.3 million, a decrease of 1.8% compared to $55.3 million in the prior year.

Our Technical Services revenues for the quarter increased 4.3% compared to the prior year. Operating profit decreased to $65.4 million, or 14.4% of revenues compared to $85.6 million or 19.7% of revenues during the same period in the prior year. Revenues increased due to greater service intensity and an improved job mix within the segment. Operating profit declined in the segment due to more competitive pricing as we have discussed previously. Our fourth-quarter Support Services segment revenues decreased by 4.8% and operating profit decreased by 26.8% compared to the same period in the prior year. Again, due primarily to lower pricing within the rental tools service line, which is still the largest service line within the segment.

On a sequential basis, RPC's fourth-quarter consolidated revenues were down slightly to $487 million, despite inclement weather and holiday shutdowns. Cost of revenues increased from $303.7 million in the prior quarter to $318.9 million due to increased activity levels and corresponding increases in materials and supplies expense and employment costs. Cost of revenues as a percentage of revenues increased from 61.8% in the third quarter to 65.5% in the fourth quarter due to service intensive work in the spot market.

SG&A expenses as a percentage of revenues were 9.4% in the fourth quarter, a slight improvement compared to 9.6% in the third quarter. RPC's effective tax rate increased to 42.3% in the fourth quarter due to a state income true-up adjustment of approximately $1.3 million. RPC's sequential EBITDA decreased 14.9% from $140.3 million in the third quarter to $119.4 million in the fourth quarter, and our EBITDA margin decreased from 28.6% to 24.5%.

Our Technical Services segment generated revenues of $453.5 million, 1% lower than revenues of $458.2 million in the prior quarter, and operating profit of $65.4 million compared to $86.2 million in the third quarter. Our operating margin in this segment decreased from 18.8% of revenues in the third quarter to 14.4%. This was the first quarter in several years that we operated completely in the pressure pumping spot market. Despite acceptable utilization in the current environment in many regions, competitive market pricing continue to negatively impact our margins.

Revenues in our Support Services segment increased 1.5% due primarily to improved pricing within our rental tools business. Support Services operating profit increased to $6.9 million in the fourth quarter compared to $6 million in the third quarter. Our operating margin in this segment increase from 18.3% in the third quarter to 20.5%. RPC's pressure pumping fleet during the quarter remained at 710,000 hydraulic horsepower. As we have reported previously, we acquired a small amount of pressure pumping equipment at the end of the third quarter. We placed it in service and it began generating revenue during the fourth quarter.

Fourth-quarter 2013 capital expenditures were $41.8 million, a decrease of $9.5 million compared to the third quarter. A significant portion of our total capital expenditures continues to be directed toward capitalized maintenance of our pressure pumping fleet and other operating and support equipments. Based on current industry conditions, we currently expect capital expenditures in 2014 to be similar to the level in 2013.

RPC's outstanding debt under its credit facility at the end of the fourth quarter was $53.3 million, our ratio of debt to total capitalization is 5.2%. We recently amended our credit facility by extending the term to 2019 and reducing the interest rate margin. With that I will turn it back over to Rick for a few closing remarks.

Thanks, Ben. As we discussed in last quarter's conference call, RPC is operating in an environment influenced by several opposing factors. On one hand, we have benefited from the transition from conventional to unconventional drilling and completions. With this change, service intensity has increased tremendously requiring well-maintained equipment, strong supply-chain management, and logistical capabilities. We have anticipated these needs and benefited from our ability to provide the equipment and raw materials necessary to meet customers requirements. We believe these characteristics will continue to present opportunities in the foreseeable future.

On the other hand, rig count has been flat for a few years. Natural gas drilling is at an 18-year low, and there has been a significant increase in available service equipment. Additionally, the increase in rig efficiencies resulting in more pad drilling in 24-hour work has made the equipment oversupply situation even worse. Collectively, these factors have kept pricing for our services very competitive. These contradictory dynamics yield inconsistent operating results even in the short-term.

Although this environment is nothing like previous industry downturns, we believe our conservative management philosophy, including a constant focus on controlling costs and improving processes, serves us well. As Ben just indicated, our total debt to capitalization ratio remains at approximately 5%. Our balance sheet strength allows us to take advantage of strategic opportunities as well as reward our shareholders with actions such as this morning's dividend increase. I'd like to thank you for joining us for RPC's conference call this morning, and at this time we will open the phone lines to answer any of your questions.

(Operator Instructions)

We'll take our first question from Neal Dingmann with SunTrust.

Good morning, gentlemen. Ben, probably for you or Rick, obviously, on the pricing issue out there right now, just the competitive price. I guess my question is more just are the factors regionally specific, and then sort of services?

Is it sort of across the board when you look? Is it pretty much just equivalent if I'm going down the line, Permean, Eagle Ford, Haynesville, as well as I am looking at your pressure pumping through tubing and coil tubing, everything is kind of across-the-board, or is there certain ones just sort of sticking out?

Neal, this is Ben. I would say through tubing has some proprietary tools. They tend to hold up a little bit better, but they too -- you know, there is competitive pressure and there is an even stronger customer pressure on pricing, which is just constant and intense. Otherwise, there aren't any significant differences from service line to service line.

But we are pleased, we mentioned in the comments there, that rental tools had a sequential improvement. One quarter does not a trend make, but we are pleased by that. And actually our nitrogen-service line had a nice quarter. Some of that was maybe natural gas prices and some non-oilfield services that we were able to secure, so we were pleased about that.

So there are some bright spots, but I don't think, again, any particular service line is significantly more difficult than others. Obviously, pressure pumping being our biggest service line in this transition now that we are completely in the spot market certainly had a sequential impact on us.

Okay. I know you all are, obviously, very careful and you have a very solid balance sheet. Looking at sort of two things.

One, are you continuing to see and having people approach you to maybe buy some additional equipment? I know you said you haven't added, obviously, any frac equipment since the third quarter. Secondly, are there other areas you'd consider -- newer plays you would consider moving to, or is that you would wait more on sort of clients bringing you there first?

I will comment on the new equipment. I think we haven't seen as many opportunities. There seem to be more in the last three to six months. Not as much today.

Jim, you want to comment on maybe moving into other plays?

Sure, Neal. Sort of a similar stories you would hear from our peers, Neal. We think there is some growing activity in the TMS, Tuscaloosa Marine Shale, and we feel that this may be a better year for the Utica than in the past, so we are prepared to work there. We have got locations nearby, certainly close enough to serve both of those areas.

You know, the Permian basin and everything going on in West Texas continues to evolve and continues to the exciting. We've got a big presence there, and are ready to go anywhere we can in that whole region of West Texas to do some good work. Other than that, there's nothing that is brand new that you haven't yet heard about.

Okay. And then just lastly, just on the frac, overall not just your frac horsepower, but just overall in the segment, is there still quite a bit more frac horse power that is coming out? New horse power coming out? I just haven't heard anything around this, if you or Ben can comment on that.

Neal, I don't believe that there is a whole lot more pressure pumping hydraulic horsepower coming. We don't know of any, although there may be some incremental ads, but don't know of any.

Very good. Thank you all.

Thank you.

And we will go next to Rob MacKenzie with Iberia Capital.

Good morning, guys.

Hey, Rob.

Question for you I guess on the technical services, costs, and/or margins. Obviously, revenue came in fairly strong, but your cost line went way up. Can you help bridge me from 3Q to 4Q on how that played out, and also give us some feel on how to think about that going forward?

This is Ben. I would say, clearly, there was a large negative impact, and we did have some of our final contract work roll off, so we had to -- you know, our strategy was to go and quickly get that equipment working again. We were successful in doing that, so we are very pleased about that.

And that is difficult to do, to stay busy. We think -- or we know that our focus now is going to be on trying to create the operational efficiency to bring up those margins. We think there is opportunity to do that.

We have identified some pretty significant changes, logistical type changes that we can make negotiating with some vendors and things like that we think we can make some meaningful improvements. But you first have to get the work, and we feel like that was our main focus in the fourth quarter. You know, the fourth quarter is always very difficult with the weather and holidays and things like that.

Again, with the volume of work, we are very pleased. Now we just need to work to improve the margins.

Okay. Thanks.

Jim, do you have anything to add to that?

Not really, Ben, except that our cost of raw materials is not increasing in many areas. It is declining, so I guess I'll stick with what you said.

That's true. And a mix of the work is something -- you know, some of the higher-priced -- well, the resin-coated and ceramic products took a bit of an upturn, and that is something we are working through, as well. We think there is opportunity there to try to capture more margin, but that seems to be a trend of the higher priced, not because of inflation but just a more specialty profit usage was a bit higher in the fourth quarter than previous quarters.

Right. The margin on that is a bit lower at this point.

Okay, thanks. I guess my follow-up is when we were on the road with you and Clint late last year, Jim, I know you both sounded pretty bullish on the outlook for growth in the business in 2014. Any kind of change to your viewpoint there?

No, Rob. It is still there. Everything that we and so many of our peers say are true.

Longer laterals, greater service intensity. Every time we spend time with our operations people we hear the same things.

They are more -- there's more going on with different kinds of profit. Somebody I know called a science experiment. There's a lot of that good stuff going on.

We just went from -- our last contract expired and we got put into the spot market there. And then some other new business that we garnered just happen to have unfavorable margin characteristics because of the harsh pricing environment and some of the margins on some of the materials and supplies that this new work used. That's just where we ended up for the fourth quarter.

We watch it very closely. You know, the oil-field trends come up when you're least expecting them, but none of our view of the world has changed in the past quarter, even with the margin decline we just reported.

We like the discipline, again, that the industry pressure pumpers seem to be having on capacity adds. That's a positive.

Certainly, natural gas prices firming a little bit, so that would help everybody tremendously. If we had more work and some equipment rolling to some of those gassier basins, obviously, that would free things up tremendously.

Great, thank you, and just a housekeeping question. I apologize if you said it earlier. Did you say at what percentage of your technical services was pumping, Jim?

I did not say it. Of consolidated RPC revenue, pressure pumping was 56% of revenue, coil tubing was 8.9%. Through tubing solutions, which is our second biggest service line, as you know, was about 15.6% of revenue.

Any update on what percentage of your business is derived from the Permian now in most recent quarters?

It is -- you know, using pressure pumping as a proxy for the Company, which is a decent way to do it probably -- well, pressure pumping is in the low 40%s still. Probably 43% to 45% of revenue. Consolidated RPC would be in the mid 30%, maybe a little bit higher range.

Great. Thank you very much. I will turn it back.

Okay, Rob. Thanks.

And we will go to John Daniel, with Simmons and Company.

Thanks. Hey, Jim, a couple questions. How full is the job board today and, at this point, have you had to turn down any jobs in any of your regions?

Haven't had to turn anything down, John, but we are -- the job board continues to be full. Obviously, I'm on the spot market now, but we continue to be busy. I am not aware of any turndowns recently.

Okay. And then with respect to your 2014 operating budget, are you treating the Q4 margin's as an anomaly, or do you think we start the year off sort of in the mid to higher-teens margin?

We think in terms of 2014 operating results, we are starting from a lower base than third quarter of 2013. Third-quarter 2013 was, perhaps, especially high.

Fourth-quarter was a little bit lower than what our run rate is. That gives you a wide range to bracket it.

First-quarter operating margins will be probably better than fourth quarter, but not a whole lot at this point. Ben, if you have anything else to add.

I think that's probably accurate. I think there's an opportunity for it to be decently better, but there's lots that we are working on.

We've identified some opportunities I think that will help. But we are working on it every day.

Jim, my last question just on the pressure pumping business with respect to trying to measure utilization. I think you guys talked about what was it, acceptable utilization?

How much of the horsepower it either idle or to the extent there can be upside to utilization. How should we think about that?

We don't have any idle horsepower. We have talked and we talked to a lot of other friends on the call with us this morning that for us the Marcellus Shale -- or the Appalachian area is the least utilized. About 10% of our equipment is there that needs to be more utilized.

You know, we are not at full utilization, or, certainly, utilization that would cause pricing influx at this point. So there's some room to grow there.

Okay. But aside from the Marcellus, you say room to grow at other basins, as well?

You know, utilization was higher in the fourth quarter. I regret that it didn't show up in the operating income line but it showed up in the revenues.

I think mid continent improved, Oklahoma improved but could get better. South Texas was busy, and as Ben mentioned in his comments, the equipment that we bought in third quarter did work in fourth quarter, so utilization is okay. We're busy.

John, I would add -- this is Ben. I think that there is clearly opportunity to increase utilization further with additional 24 hour work and just being able to work with our customers to get more steady work.

Again, there is a lot of -- we talked about the volatility in our results, often times due to the volatility of our work and the lack of consistency. So we are trying to work hard to create a little more consistency and predictability there, which will allow us to continue to manage our costs and drive those down and that will help the margins, as well.

Okay. I will wrap up with this one. I'm just trying to think about utilization, what's the upside to the extent.

Good quarter in Q4 with respect to top-line results and how should we look at revenue as we head into Q1? Is there much upside if we assume that pricing is off the table?

It would seem that there is not as much upside in revenues. Am I wrong in that assumption, Jim?

Well, first of all, if we can put weather aside because we are having trouble in Atlanta with weather, but if you take out holidays and weather -- well, the weather in the fourth quarter cost us about 3%. So, let's say there's no weather impact in first quarter, which is not true but let's say there's not any, that would get you 3% right there. And then no midweek Christmas and New Year's holidays.

So just based on that alone, first-quarter should, in terms of revenue, should be higher than fourth quarter. We do know of some new work that has started here in late January in pressure pumping in a couple of our regions. So I can say that sequentially first-quarter 2014 revenue could be 5% to 7% higher than fourth quarter.

It could be, but the nature of this work, it can be quite choppy. That's part of the point that we have tried to make. There's a lot of volatility, a lot of choppiness.

But I think what Jim said is, certainly, there is the potential for us to be able to achieve that. I wouldn't be surprised if it was closer to flat or only slightly up, but that is achievable what Jim said.

Okay. Thanks, guys.

Thanks.

And the next we will go to Michael Marino with Stephens Inc.

Good morning.

Hey, Mike.

I wanted to clarify on the pricing commentary. Did spot pricing in the pumping business decline from Q3 to Q4?

Michael, this is Jim. I can say with as much sincerity as I have, and it's my true belief, stop market pricing for the pressure pumping business did not decline between third quarter and fourth quarter. We moved from a contract to spot market work.

We were very busy in the fourth quarter with that crew, but it was at lower margins because it was in the spot market. And then we have job mix, as well -- job mix issues. We got some new revenue in the fourth quarter that was very service intensive, which in general is good, but the mix of raw materials that we used to provide those services didn't have the high margins on it.

So I do not believe that spot market pricing has taken another leg down. It was just the situation for us relating to those contract to spot and new work anomalies on the margins.

Okay. Thanks for clarifying.

Could we have managed it better and tried to be much more profitable on the different raw materials? Sure, we could have tried. I don't know if we could have gotten better margins.

Is that mix function -- is that mix a function of which basins were more active, or was it just kind of the way it fell to you guys in the quarter?

This is Ben, it can be customer specific and basin. You know, customers often times do change pretty quickly. Selecting it was a combination of both of those things; basins and customer preferences.

But is it something that you see -- I mean, is it something that you can predict will continue, or is that kind of maybe some of the reason for your comments around choppiness?

The latter, yes, what you just said.

Okay. And then just to clarify, were there any start up costs associated with the new fleet or new equipment that may be impacted margins?

No.

Okay. Thank you. That's all I had.

Okay, Michael. Thanks.

And we will take our next question from Michael Cerasoli with Goldman Sachs.

Thanks. You mentioned earlier about seeing a little bit of a pickup in the usage of ceramic and resin-coated sand. I'm just curious, can you maybe give a little more color on this?

Are E&P more focused on production, is that how they are expressing it? Or have we moved away from cost control, does that -- you know, I guess there is more belief I guess that the spending is going to materialize in 2014 than say 2013?

Michael, this is Jim. Good question. Your premise is right, it is consistent.

We are seeing more ceramic usage and higher-end profits. Some of it is oil related, some of it I am afraid I personally don't have a great answer as to whether our customers want their initial production to be a whole lot higher and they are making bad financial decision where they might have been asked where they might not have been six months ago. Kind of hard to say.

Okay. And then maybe -- go ahead.

I'm sorry, this is Ben. I was just going to say, we will know a lot more next quarter. Again, there was some movement in customers we were working with and things like that, so we will know more next quarter after the quarter shakes out.

Okay, and then just continuing on that theme, maybe give an update on your 24 hour work. You know, how much are you doing? Are you kind of along with that whole production theme, are you seeing any indications from customers, Permean or anywhere else, who want to move more in that direction?

Michael, this is Jim. We have about one-third of our crews and one-third of our equipment dedicated to 24 hour work, meaning they are geared up for it. They are ready and able and they do some 24 hour work. They do not do 24 hour work all the time, and they are sort of scattered throughout our area -- our company.

More in West Texas now than in the past. I think we all know that trend perhaps, and a consistently high amount in the Marcellus. You know, if those 24 hour crews and equipment -- there is room for them to be utilized more.

Okay, and you mentioned utilization can improve in the Marcellus. Was that more of a 4Q comment?

I'm just kind of looking at gas prices. Have you seen any sort of reaction in the Marcellus? Is the underutilization more of an energy infrastructure issue in that region?

We believe it is an energy infrastructure issue, take away capacity issue, and fourth quarter actually was -- in terms of revenue, might have been a little better than third quarter, that is something -- that's a phenomenon we have observed for a good two, two plus quarters -- two to three quarters. Too much gas, not enough pipeline to take it away.

Okay. And then separately, you do have a position and you have some equipment in the Fayetteville and Haynesville. I realize that it is really just more of the front months that have kind of gone up in price, have you seen any sort of activity increase in those more gas-driven plays?

Just to clarify, we don't have any equipment or any activity in the Fayetteville Shale in Arkansas right now, but we are in the other places. Also in the mid continent is where we have seen a little bit of increase due to the increase in spot price of natural gas.

For us at RPC, we see that in our small diameter coil-tubing services and in nitrogen. Those are two things that you would use to work over old gas wells and enhance production.

What we have also seen or have been reported to us is that, with rig efficiencies and QuickTime to drill and lower costs, sometimes you make the choice to drill a new well rather than work over an old well. You make that choice today. That's not the same choice you might have made 5 or 10 years ago, but it's a phenomenon we are seeing today.

That's great. Thank you very much.

Okay, thanks.

(Operator Instructions)

And we will take our next question from Mark Bianchi with Cowen and Company.

Hey, good morning, guys.

Hey, Mark.

Following up to some of these questions about utilization and your commentary about the spot market. How much of your work is true call-out work and how much is sort of dedicated where there is some visibility because you are consistently working with the same customer? How does that impact your utilization to the extent you have more dedicated work?

Mark, it gets into -- and we'll kind of pass this question around a little bit. I hate to say that it gets into semantics, but it does a little bit.

We do have plenty of pricing agreements, and I would call those roughly half of our fleet. Maybe a little more. I might give you a different number on it.

That does give you some more visibility, but not a whole lot more. As Ben has said a couple times, the sporadic nature of this work, projects are starting and stopping and tend to move around a whole lot. So it is not as much visibility as we might hope, frankly.

This is Ben. I would agree with that, and I think that is our opportunities to work with our customers to create this additional efficiency for them and for us.

You know, I think we want to work toward some level of broader commitment, whether it is contractual or not, but at least from a relationship standpoint so that we can get our work to be a little more steady. Again, that gives us the opportunity to better control our costs and in the end that benefits the customer.

Sure, makes sense. One sort of modeling question. Corporate ticked down sequentially here I think by about $1 million. Is that something that can be maintained, or was there something unusual there. How should we think about that corporate line for 2014?

I don't know that there was anything in particular. I would see SG&A remaining fairly consistent. You know, the average of the last couple quarters is a good indicator.

That line fluctuates with new operational location, and expansion of support staff, and things like that, and there is no big initiatives in place. We are comfortable, we are getting leverage with the additional revenue, and we are always working to try to control those costs and manage them as well we can. But I wouldn't expect any significant increase or decrease.

A piece of it, certainly, is dependent upon profitability, so if 2014 turns out a bit more robust as we are expecting, there'll be a little more incentive comp, but that would clearly be covered by increased revenues and profitability. I wouldn't expect any unusual variation going forward.

Okay. Super.

Last one for me on the rental tools. There was some strength that you experience. Can you elaborate on that?

Is that something that should continue going forward? How should we think about the rental tools going for 2014?

Yes, Mark, this is Jim. We did have some better pricing on rental tools in the fourth quarter compared to the third quarter. That was a very transactional business.

We have expanded into the Permian basin with rental tools. That is a decent part of our revenue right now, so that has improved, and some other areas our pricing, again, very transactional, but our pricing has improved, as well. You know, I think pricing is probably a bit better in the Permian. There's so much going on there now.

The shift from the old legacy vertical drilling and completion, to horizontal or unconventional, however, you want to define it, is continuing there. That is, again, more service intensive and gives us more opportunities for revenue, including things like rental tools.

Thank you.

It was probably targeted successes with individual customers and things like that. So we are quite pleased with it. I would not want to hold it out to be there is a continuous upward trend -- a confirmed upward trend in rental tools, but we are very pleased with the improvement and do expect it to hold.

Okay. Thanks very much.

Okay, Mark. Thank you.

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

Good morning, gentlemen. A question, when a crew rolls off a contract these days on to spot, what is my pricing differential?

What was the difference in the fourth quarter just on a pricing basis, not margin basis, but pricing basis? What are we dropping?

Obviously, it depends on circumstance.

I understand. I'm talking generally.

Generally, we have not had a lot of -- not had a lot of contract work over the last 6 to 9 months. This was sort of a specific situation, and in this particular case it was pretty dramatic.

So we don't really have any other experiences to relate to, to try to come up with a general comment. I understand your question, and it's a good one, but I'm not sure we have enough examples to pull from.

Now, I assume that you would like to do more contract work. What is the impediment of a company signing you up to do contract work?

Well, Jim, the pricing would be really low right now.

You'd rather be in the spot market and work through that until business gets better before committing the term at these levels?

That is accurate.

And how many players are there in the Permian that you guys compete against these days? Last thought it was something like 27.

38 to 40 if you are talking about pressure pumping in the Permian basin. And at some level we compete with all of them.

We are number 3 in the Permian for pressure pumping, but there are 35 behind us, and we do compete with all of them at some level. We differentiate ourselves with quality, well-maintained equipment, good safety programs, but price is another component of that, as well.

That's a lot of footsteps behind you, no question.

It is. Yes, sir.

Do you run into a cost inflation? I know it's expensive to find places for people to stay and find people. What are you battling in terms of cost inflation in the Permian?

Labor still, Jim. Some of the raw materials costs prices have actually not increased, and some cases have decreased. Labor continues to be the big thing -- or not continues, but labor is the big thing right now.

Okay, gentlemen. I appreciate it, thank you very much.

Sure.

And we will take our next question comes from Matt Conlan, with Wells Fargo.

Thanks, guys, Jim just asked my question about why you are not winning contracts. That makes sense that you don't want to lock in at these prices. Unrelated, when you reference the customers using higher-end proppants, does that include a shift from finer sand up to 20/40 sand?

This is Ben, I would say it's much more the resin coated. The impacts we are talking about are moving to resin coated and ceramics. I think the grade of the sand, the screen size for the sand is much smaller impact on that.

Okay, great. Thank you very much for the clarity on that.

And I noticed that your accounts receivable jumped in the quarter by about $30 million. Is that just a function of specific contracts, specific payment terms? Is that anything that is indicative of a change in trend?

We don't believe so, we don't have any large particular problem areas. I think it was just sort of that we had a nice uptick in revenues and business, and I think it just flowed through into the AR line for the quarter. No particular issues there.

Okay, great. Thank you very much, guys.

Thanks, Matt.

We will take our next question from Byron Pope with Tudor, Pickering, Holt.

Good morning, guys. With regards to the 2014 CapEx being flattish year over year, you have generally couched your recent CapEx at maintenance levels, so I'm trying to gauge call it $200 million of 2014 CapEx, is there much growth CapEx in there for any of your service lines, perhaps through tubing, or did essentially maintenance levels spending for you guys?

This is Ben. Again, it continues to be primarily maintenance level spending. There is a few specific planned additions, a little bit in pressure pumping, a very little bit in coil tubing that we can see at this point in time. Obviously, it could go higher or lower depending upon what we see and what happens to industry conditions.

To your point, it's still a large percentage. 70% plus more on maintaining the size of our fleet.

And then just a related question. I know you guys are returns on capital focused, not asking for specific numbers, but could you rank for your larger service lines where we are currently in the cycle, how they would rank in terms of returns on capital or payback or however you guys look at it internally? I'm just trying to gauge which of your service lines, how they would rank in terms of returns or payback.

I always say when I'm asked that question that returns are, clearly, are measured over an extended period of time. Pressure pumping is, clearly, under the most pressure compared to where it has been historically. I think our proprietary tools, own down hole tools, the investment in that business unit is certainly the highest, so I would say of those top three, I would say down-hole tools is the highest, followed by coil tubing and then pressure pumping.

Thanks. That's it for me, guys.

We will take our next question from Thomas Braun with FBR Capital Markets.

Good morning, guys.

Hey, Tom.

Returning to the major dry gas basins. Could you refresh us on what percentage of your frac horsepower and coil tubing fleet respectively are based in the Haynesville and Barnett?

Tom, this is Jim. I can run through that. Those are some easy answers. Let's do pressure pump first.

We don't do any pressure pumping work or have any assets in the Barnett. In the Haynesville right now, we have in Eastern Texas, northern Louisiana, Haynesville kind of work it's 5% of the fleet.

In terms of coil tubing, our coil tubing units are a lot more mobile. I would say a similar percentage of the coil tubing fleet is working around in East Texas, Haynesville area, and maybe a unit or two in the Barnett, but not much. So those are small areas for both of us -- for both of those service lines.

Okay. And then in Haynesville, have you had any preliminary indications, however soft and premature from customers that they are considering an activity response to the continued uptrend in gas prices or what more they might need to see there? And then, secondly, when it comes to the Barnett, is that a market you would consider entering should we start to see an activity response on the dry gas front?

Yes. A quick answer is we will go wherever our customers want us to go. If that is the Barnett, that would be fine.

We have not been in that market ever. It seems to be awfully price competitive and hasn't worked out for us.

In terms of the Haynesville, we see more indications that the price of natural gas is going to help activity in places like Oklahoma than we are yet seeing in the Haynesville. We have always said, or our operations people have said for a while, that it would take a sustained above $5 natural gas price to get things going in the Haynesville again.

You see some things in the cotton Valley and that area that are -- that respond a little better to increase in natural gas prices. You know, the Haynesville for us would probably be the last place to come back.

And I would add, this is Ben, that the characteristics of the Haynesville with the high pressure, and the wear and tear on the equipment that it would have to be something pretty special for us to want to rush back in there.

Okay, thank you. That's helpful. Last one for me.

You commented earlier that you have remained pleasantly surprised by the continued discipline by your peers when it comes to frac horsepower construction. What about on the coil-tubing side? What is the outlook in 2014 for new capacity additions?

There are some private equity sponsored companies that continue to add coil-tubing units. I don't know of any that are being added right this moment, first quarter 2014, but we know that in third and fourth quarter there were some coil tubing adds by some of the private equity fund companies out there -- their startups.

Okay. Appreciate --

I think overall a lot of the bigger competitors I think are -- they are aware of the returns, as we talked about earlier, and the pressures. We think there is decent constraint out there.

But between the two markets, it sounds as if the smaller, private equity funded startups still haven't quite been entirely discouraged yet.

Yes, that's correct. That capital seems to be perhaps more patient than one might think.

Right. Thanks, guys.

Thank you.

And we will go next to Daniel Burke, with Johnson Rice.

Good morning, guys.

Morning.

Morning, Daniel.

Ben, I thought I heard you allude earlier in the Q& A to some self-help initiatives. I think you talk about the potential for meaningful improvement to margins. We just wondered if self-help has been sort of a popular topic, you collaborate on anything you all are contemplating?

Good question. We don't really have any named initiative or anything like that. It is just something that we always do, always trying to look at your -- look to control our costs, justify our infrastructure and support cost.

And I think the bigger opportunity for us, again, as we move around and do this work, establishing logistical capabilities and establishing relationships with vendors, that is really where the opportunity is. If we can create that efficiency and at least some improved level of commitment and coordination with the customers, it gives us an opportunity to create those efficiencies and work on our processes and things like that to be able to drive our cost down. So that is some of the initiatives we are working on internally is to be able to establish those capabilities in infrastructure to be able to drive our cost down and create some consistency.

It's just very difficult when you're constantly moving around the amount of equipment that is required to perform these big projects. So we need that consistency of work.

I think customers are so focused on trying to drive their costs down. So they have the upper hand right now. But I think longer term they, and we, want to get to the point where we can have better processes and better control over our costs, so that is just the types of things we are trying to focus on and focus our best people on to make sure that we are looking for every opportunity to source materials, source vendors and, again, just work on our internal processes.

Okay. That's helpful.

Two real quick specific ones. It was my impression that the contract that rolled turned to spot, that was effectively October 1. In terms of capturing that transition?

Yes.

Okay, maybe a final one. Just in terms of -- any change in international activity from Q3 to Q4? I know it's a very small part of the business, but just trying to partly capture it through the through tubing description. Just thought I'd ask that one.

Jim, if I'm not mistaken, I think international was down a bit sequentially, and we are looking at to expect international pick back up a little bit here in the first quarter. Yet to be seen whether it has a meaningful impact of not, but I think it will be incrementally sequentially better.

Yes, Ben, that is accurate. Daniel was referring to through-tubing solutions, which about 18% of that revenue is international.

We have some other international revenue in our hydraulic work over area that did decline from third to fourth quarter, so that was not a variance we called out, as you pointed out. It's a small percentage of our revenue, but, yes, other international did decline third to fourth.

Thank you guys.

Okay. Thank you.

(Operator Instructions)

And we will take our next question from John Daniel, with Simmons and Company.

Hey, Jim. Thanks for putting me back in.

Just to cover a follow-up. You guys alluded to the pricing arrangements that you all have. Are any of those below spot market today?

No. They are spot.

They are spot, okay. And do any of the arrangements have performance-based metrics that, should your efficiencies approve, it allows for pricing movement?

John, I am one step away from those, but, no, I don't believe that they have performance metrics involved with them. I do know, because I witnessed it recently, that there are very frequent conference calls between the customer and us, our operations people. But I don't believe there is an opportunity in a contract to change your pricing if you do better.

Okay. And then just on the maintenance CapEx. First of all, on that discussion you all noted that there will be a little bit of incremental pressure pumping expansion this year. Can you quantify a little bit?

You know, it's very early in the year, but we are talking 5%.

Maybe another fleet, basically. Is that fair?

Yes.

Because the question, obviously, given the huge drop-off in margins, it begs the question why do it?

Right.

It's a good question. And we haven't done it yet.

Does it at least suggest that you are feeling a lot better about the market that you'd even be contemplating building a new fleet?

We are very -- we feel very good about the long term, and what's long term. I think there is excitement about the potential for 2014 and, certainly, with the continued industry trends that we talked about with the longer laterals and greater service intensity and things like that, we think, clearly, there's lots of opportunities for us.

You haven't said this but a 5% incremental improvement, that's just filling in some slots and opportunities here and there. It is not really a wholesale edition.

Now, some of that spending we are talking about in support of equipment and things like that, as well. But as you know, we are quite disciplined and the future only knows how well it will perform in the next quarter or two or three, after it's added. We feel good about our position right now, and where we are located and we think it's a good long-term decision for us.

Fair enough.

I'm sorry. Let me just say one thing. This is Jim.

It's almost 10:00 here on the East Coast. We don't want to cut people off, but if we have anymore questions, we will take just one more question if there are any more.

And there are no further -- and there are no further questions at this time.

Okay. And I didn't know that, folks. That was not handicapped at all.

With no more questions, we appreciate everybody listening in and your questions in the discussion this morning. Hope everybody has a good day. Thank you.

This concludes today's conference. As a reminder, this call will be available for replay on the Company's website within two hours. Thank you for attending.