RPC Inc (RES) 2014 Q2 法說會逐字稿

Good morning and thank you for joining us for RPC, Incorporated's second-quarter 2014 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.

(Operator Instructions)

I would like to advise everyone that this conference call is being recorded.

Jim will get us started by reading the forward looking disclaimer.

Thank you.

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

I would like to refer you to our press release issued today, along with our 2013 10-K and other public filings, all of which outline those risks. You can find those on RPC's website at www.rpc.net.

I also need to tell you that in today's earnings release and conference call, we'll be referring to EBITDA, which is a non-GAAP measure of operating performance. RPC uses EBITDA as a measure of operating performance because it allows us to compare performance consistently over various periods without regard to changes in our capital structure. We're also required to use EBITDA to report compliance with financial covenants under our revolving credit facility.

Our press release today and 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 have not received our press release and would like one, please visit our website -- again, it's www.rpc.net -- for a copy.

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

Thanks, Jim.

This morning we issued our earnings press release for RPC's Second Quarter of 2014. RPC's revenues for the quarter increased 27.4% compared to the second quarter of 2013. Our revenues, which represented a quarterly record for RPC, increased due to higher activity levels, increased service intensity, and a slightly larger fleet of revenue-producing equipment.

Sequentially, our revenues increased by 16%. This increase was due to higher activity levels in all of our major service lines and the absence of winter weather challenges that negatively impacted first-quarter results.

Second-quarter operating profit, net income and EBITDA all improved both sequentially and year over year. Yesterday, the Board of Directors declared a regular quarterly dividend of $0.105 per share.

Our CFO, Ben Palmer, will now review the financial results in more detail.

Thank you, Rick.

Second-quarter revenues increased to $582.8 million compared to $457.6 million in the prior year. These higher revenues resulted primarily from higher activity levels in our major service lines, increasing service intensity in pressure pumping, and a slightly larger fleet of revenue-producing equipment.

EBITDA for the second quarter increased by 33.2% to $160.4 million compared to $120.4 million for the same period last year. Operating profit for the quarter increased 51.8%, to $103 million, compared to $67.9 million in the prior year.

Our diluted earnings per share were $0.29, compared to $0.19 in the prior year. Despite pricing for our services not improving, we generated record revenues. Consistently high activity levels, including strong utilization of personnel and equipment throughout the quarter coupled with concentration on service-intensive work, benefited RPC's results.

Cost of revenues increased from $287.6 million in the second quarter of the prior year to $374.3 million, due primarily to higher activity levels and greater service intensity, again, within our pressure pumping service line. Cost of revenues as a percentage of revenues increased from 62.8% in the prior year to 64.2%, due to increased materials and transportation expenses. As one example, we incurred increased logistics costs because of rail interruptions, requiring us to use more expensive trucking for timely delivery of raw materials.

Selling, general and administrative expenses during the second quarters of 2014 and 2013 were $47.6 million. Accordingly, SG&A expenses as a percentage of revenues decreased from 10.4% last year to 8.2% this year. Depreciation and amortization were $56.5 million during the second quarter of 2014, an increase of 7.1% compared to $52.8 million in the prior year.

Our Technical Services segment revenues for the quarter increased 28.4% compared to the prior year. Operating profit for this segment increased 50.8% to $99.7 million, or 18.3% of revenues compared to $66.1 million, or 15.6% of revenues, during the same period in the prior year. Revenues increased primarily due to higher activity levels in the service lines within this segment, and operating profit increased primarily due to fixed-cost leverage.

Our second-quarter Support Services segment revenues increased 14.6%, and our operating profit increased 27.1% compared to the same period in the prior year. This improvement was due primarily to higher activity levels and improved job mix within the rental tool service line, which is the largest service line within this segment.

On a sequential basis, RPC's second-quarter revenues increased to $582.8 million from $501.7 million in the first quarter. Cost of revenues increased from $330 million to $374.3 million due to increased activity levels and growing service intensity.

Cost of revenues as a percentage of revenues decreased from 65.8% in the first quarter to 64.2% in second quarter, due primarily to personnel cost leverage and lower maintenance and repair costs. SG&A expenses as a percentage of revenues were 8.2% in the second quarter, a decrease compared to 9.7% in the first quarter due to cost leverage.

RPC's effective tax rate decreased slightly to 39%. (technical difficulty)

All right, are we back on, I guess?

You are live.

Okay, thank you.

Friends, sorry about that. We lost the call for reasons that we aren't sure of, but we're back. Ben Palmer was talking, making some sequential financial comments; and he's going to continue with those at this time.

I think I was told we were on the effective tax rate, which decreased slightly to 39% in the second quarter compared to 39.4%.

RPC's sequential EBITDA increased to $160.4 million in the second quarter from $120.8 million in the first quarter, while the EBITDA margin increased to 27.5% from 24.1%.

Our Technical Services segment generated revenues of $544.4 million, 16.6% higher than revenues of $467 million in the prior quarter. And an operating profit of $99.7 million compared to $64.9 million in the first quarter.

Our operating margin in this segment increased to 18.3% of revenues from 13.9% in the first quarter. Revenues increased primarily due to higher activity levels in the service lines within this segment, and operating profit increased primarily due to fixed costs leverage.

Revenues in our Support Services segment increased to 10.7%, due to improved activity in many of these service lines. Support Services operating profit increased to $9 million in the second quarter compared to $7.5 million in the first quarter. Our operating margin in this segment was 23.4% in the second quarter compared to 21.5% in the first quarter.

RPC's pressure pumping fleet during the quarter grew slightly to 720,000 hydraulic horsepower, as we added a few pumps toward the end of the quarter. Second-quarter 2014 capital expenditures were $72.5 million. A large percentage of these capital expenditures supported growth and maintenance in our pressure pumping service line.

RPC's projected full-year 2014 capital expenditures remain at $375 million. We anticipate placing in service the bulk of the equipment related to our previously-announced pressure pumping expansion plan in early 2015. At the completion of this expansion, our total available horsepower will be 920,000.

RPC's outstanding debt under its credit facility at June 30 was $131.4 million, an increase of $50.6 million compared to the end of the first quarter. This increase was due to working capital requirements associated with higher activity levels and higher capital expenditures during the second quarter. Our ratio of debt to total capitalization was 11.4%.

We remain conservatively capitalized, both by our historical standards and relative to our peers. And we have plenty of capacity for our fleet expansion and additional working capital requirements as they may arise.

With that, I'll turn it back over to Rick for some closing remarks.

Thank you, Ben.

We are pleased with the improvements reflected in our Second-Quarter 2014 Financial Results. RPC's activity levels increased throughout our operating regions, and we believe that our customers value service providers like RPC with well-maintained equipment and capable logistics processes.

Our large operation in the Permian Basin continues to be a bright spot. As of last week, the Permian Basin rig count had increased 19% year to date, in contrast to a flat year in 2013.

In addition, the transition to more unconventional completion work in that market creates more opportunities for RPC's services to be on location longer. We anticipate this recent and favorable development will continue.

Our view of the domestic completion market continues to support the pressure pumping expansion plan we announced at the end of the first quarter. As we receive this equipment and plan for its placement into service, we remain focused on other critical elements of our business including sourcing of raw materials, improving logistical processes and attracting and retaining the right people. All of these issues are becoming increasingly critical.

Thank you for joining us for RPC's conference call this morning. At this time, we will open up the lines to answer any questions you may have.

Thank you.

(Operator Instructions)

Neal Dingmann, SunTrust.

Luke Lemoine, Capital One Securities.

Hey, good morning.

Hey, Luke.

Jim, could you give us the revenue breakdown for the product lines?

Sure, absolutely. Luke, this is for the quarter and this is as a percentage of consolidated RPC revenue. Pressure pumping was 57.5%. ThruTubing Solutions was 15.2%. Coiled Tubing was 8.8%. Snubbing, or hydraulic work-over, was 3.6%. Rental Tools, I'm going to go back up now, was 4.3%. And those are the top ones we usually talk about.

Okay. And then on the additional costs that you incurred in 2Q with the raw materials and transportation, how do you feel about your ability to pass these through in 3Q?

In general we've started to see raw materials cost increases, and we feel good about our ability to pass those costs increases on. We're not seeing market indications that we can affect net pricing increases at this point, but we do believe that we can pass our cost increases on.

Okay. And then, do you have a guess at how much the additional cost impacted Technical Services' margins in 2Q?

There was an impact, Luke. It was minor. If it were material, we would have called it out and discussed it. We don't think it was huge.

Okay, so is it like tens of basis points?

Sure.

And then as you are looking at the exit rate coming out of June, would you say maybe slightly over a third of your revs came in June?

(laughter) Sorry, Luke. I've suffered for three weeks by answering that question from one of our good friends and your colleagues. I'm not going to answer. It was a good quarter. That joke aside, it was a uniformly decent quarter.

Okay. We'll just look at this way. Pumping revs were, it looks like they were somewhere around $335 million for the quarter. Nice increase quarter on quarter. Probably had not much of a benefit for that 10,000 horsepower you added. Wondering on an organic basis, without any pricing, assuming you pick up more efficiency in the third year crews that are on 24/7 go to full 24/7? Do you still think you can increase pumping revs by maybe 10% or 15%?

Yes. That's doable. Without pricing and without additional --

No guarantees, but it's a possibility.

Good deal. And then one last one. The 10,000 horsepower at the end of the quarter, that should take you to 720,000, right?

Correct.

All right, thank you.

Neal Dingmann, SunTrust. Mr. Dingmann, please go ahead. Please check your mute button.

John Daniel, Simmons & Company.

Hello. Good quarter.

Thanks, John.

I won't ask you about monthly growth rates at this time.

Thank you, because we won't answer. (laughter)

The 10% to 15% revenue increase, though, that you did comment on for my good friend Luke, I presume you're referring to sequential improvement? And for Q3?

He was asking if that was a potential without pricing and additional capacity, so that was a utilization question, and the answer is yes.

Okay. With respect to margins, Jim, as you are addressing as well as others, the transportation issues, raw materials and so forth, at this point is there any reason to see margins decline in Q3 or Q4 because of these challenges?

John, there is no reason that we know of now. You and everybody else in the industry know how much more work and focus and how much more delicate it can be getting these issues taken care of. But based on everything we know, we don't see this causing margin declines at this point.

Okay. That clearly will limit margin upside from here in the near term, is a fair statement? It sounds like you don't think you're going to have net pricing this quarter.

Right. With activity levels, the bias is upward. But yes, that is clearly a bottleneck to the pathway to much higher margins.

And then two more for me. How much of the cost increase that you're seeing now is raw material versus the transportation costs? And specifically, we hear a lot about the third-party trucking companies jacking their prices to frac companies themselves.

And then wondering, extrapolating here, do you have your own transportation fleet that moves the proppant from the rail site to the well location? Or are you using third-party providers?

Are your competitors using third-party providers versus internal? Any disadvantage by using third-party providers? A lot of questions there, but trying to understand the situation.

We do not have any internal assets or resources trying to move proppant from rail sites or transloads to the well site. Do we think that's a disadvantage? There may be periods where it is a disadvantage, but there'll be periods where we'll be glad we don't have it.

So there is no active discussion about trying to bring that in-house anytime soon. Our experience is capital flows to where there is demand, and demand stays high, there will be more trucks available to move proppant. And we'd rather not take on that burden or that capital risk.

And relative to what is increasing more, I would say we haven't looked at that specifically, but my guess is it's probably an equal impact between the cost of materials and trucking. But neither is noticeably different than the other.

Got it. And then the last one for me, thank you for the time. The obvious question that we're hearing from folks is you've got a lot of horsepower on order. Others are starting to add capacity. And yet we're now seeing the challenges that the logistics -- more people are citing it in terms of the cost and challenges and so forth.

I'm wondering if you could opine a little bit about your ability to effectively deploy that horsepower in light of these growing challenges. Does that give you any cause for concern? And I will leave it at that.

Cause for concern -- it is never easy. There is never an obvious answer. On the timing of doing these things. We still think it was a good decision. We look forward to getting the equipment.

We think, again, there will be challenges, but we think we can meet them head on. As I talked to the trucking and talked about the availability of raw materials, again it will become available, whether it is immediately when our equipment is here. Or whether it is shortly thereafter or shortly before it's here, there will be more material made available, I expect.

We will focus on the blocking and the tackling. And hopefully with our focus we can do as well, or maybe a little better, than some of the other folks out there.

John, we have done these expansions a few times now over the past seven years. Each time we've learned something. We're not taking any of this lightly, but in percentage terms it's not like we're doubling the fleet.

We just have to keep doing what we have been doing it, and do a little more of it. But we are mindful of shortages of things, and we just keep focusing on it.

Okay. Thanks.

All right, John, thanks.

Rob MacKenzie, Iberia Capital

Good morning.

Hey, Rob.

Talk to me a little bit, if you will, about increasing frac fleet size. That's something that's been an emerging topic once again here in the industry. I know you, a couple quarters ago, added to your fleet in the Bakken and elsewhere.

Where are your frac fleet sizes in terms of horsepower on a year-over-year basis in terms of growth? And where do you see that trending? The gist of my question is how much of the increment of horsepower adds by people are going to be soaked up adding just bulking up existing fleets to where they need to be versus actually adding new crews?

Rob, this is Jim. We understand the question. In general, we were an early adopter of having a larger fleet running at lower speeds and having less down time for maintenance and equipment failures. So that is continuing.

I don't have any specific commentary. We'll work on it and get back to you if we need to. Don't have any specific commentary on in the same region having fleet that is bigger than it was in that same region the previous year.

You know the dynamics as well or better than we do where fleet sizes were big, where they are now. But in general, we are not adding incrementally to the same fleet year over year for the same job. Now if you're talking about 24-hour work, you do need to add a little more equipment. But it's not something that we think of as a big mover of the needle in any regard.

Okay, thanks. Any updates, since you mentioned it, on the percentage of your fleet, either fleet-wide or in the Permian, that's doing 24-hour ops right now?

Yes, this time last quarter we would have told you, and did tell you that it was about a third of the fleet was capable and ready and working on a 24-hour basis. Today that number is a little over 40%.

Okay. Coming back to the pricing conversation, if I may. What are your internal expectations, if you don't mind sharing it with us, for how net pricing will develop going forward?

I understand we haven't really seen much yet, but we're hearing anecdotes about that. And we know people are pushing price. When does it start to stick?

At this point, with really no contracts of the type we had between early 2010 and between 2013, it's a very transactional business. So we do try that whenever we can.

We want to take care of the customer and we talk to them about increasing costs and that sort of thing. But in terms of net pricing, that's really a supply-demand driven issue. It could come at any time. I'm afraid, I listen to what our peers have said, we don't know any better than other people.

As calendars get full and as customers start to ask you when you are available rather than telling you when to be available, those are all indications that we can eventually get some pricing increase. But is it going to happen in August or November or next February? I'm afraid we just don't have any good insight for you.

Said another way, I think our biggest opportunities to improve our profitability is on our processes and our procurement and our logistics. That's a better near-term opportunity than net pricing.

Thank you. That is very helpful. And a final question, a follow-up coming back to the sequential revenue growth you guys talked about, possibly 10% to 50% sequentially in the third quarter. Is that counting the new equipment that's being delivered here shortly? Or just including the incremental adds in 2Q?

That would be the fleet as currently configured. Because the question that was put to us was, with no additional fleet and with no pricing or additional capacity, was that possible? And the answer was yes. That was a utilization question.

Great, thank you.

Jeff Tillery, Tudor, Pickering & Holt

Hey, good morning.

Hey, Jeff.

Jim, just a follow-up on that question, this 10% to 15% comment on pressure pumping revenue potential. The lever there, is that principally more 24-hour work? Or just the calendar getting stacked more fully? I'm curious what the driver of that is.

I think more of it, Jeff, has been -- is just we had nice relatively consistent utilization throughout the quarter, but it could be better. I think it's customers allowing us to work consistently and avoiding interruptions and so therefore being able to get our consistency and our processes down.

I've talked before about the volatility of the work. It still amazes me -- we are still in that period. I think the industry and our customers, we working with our customers, for everybody to win-win, we've got to get to the point where the work is more predictable and steady and scheduled. So everybody can execute and create and achieve the efficiencies that everybody's looking for.

I think this 10% to 15% that we've thrown out there could be achieved, again if it was just fewer interruptions, the work, again, was more consistent and steady. It was relatively consistent compared to the last few quarters, but still could be better.

In my mind that is the way I would describe that we can capture that additional revenue potential is, again, through more steady work and better coordination with our customers. And them being ready when we're ready and vice versa. And being able to get as may stages in as we can.

That's very hopeful. I want to make sure understand this. Is the 10% to 15% what could happen as these things progress? Or what you think is going to happen in the third quarter?

Could happen. It's potential.

As I think about the frac calendar more broadly for the second half of the year, what is your visibility? How far out is it? How does that compare versus what you've seen at other busy times?

It looks good. From a practical point of view it's booked out as far as it needs to be, or can be. It's pretty full.

We've said this before in the spot market, unlike the way things used to be years ago, jobs are longer and more service intense. It was easier to manage when a job was four hours long. Not only was that job easier to do, but if that job slipped for whatever reason, you might be able to find another short duration job to cover it.

Now we're in an environment of one that is very transactional-oriented and spot market-oriented, but the jobs are long in duration. If one gets pushed for some reason, like weather or other issues unrelated to the service provider, you've lost four or five days and it may be hard to replace that. That's the catalyst for the sporadic nature of the work right now.

Last question I had is, is there any movement either on the part of your customers? Or on the part of Cudd, in terms of wanting to go back towards a more contracted model for frac?

Yes. Wanting to? Yes, at the right kind of pricing. And customers have started to talk about that, but the pricing isn't where it needs to be right now.

Thank you.

All right, thanks Jeff.

Daniel Burke, Johnson Rice.

Good morning, guys. Given your fleet distribution, I would assume commentary on logistical challenges is focused pretty specifically on the Permian. But could you describe whether or not those challenges are more broad-based in the Permian market?

Daniel, actually it is the opposite. Because of our presence in the Permian and the well-developed infrastructure there, we have fewer, I won't say no problems, we have fewer problems and it's easier to accomplish. It's some of the other areas where logistical challenges are worse, or more difficult.

I'm not giving anything away by saying the Marcellus and the Bakken have been more difficult logistically. The Eagle Ford Shale has been more difficult than average. Now it's probably better. It would not actually be the Permian.

Okay, that's helpful. This was asked another way, but I'll try anyway. Technical Services incrementals were mid-40%s in the quarter. Any sense, were your pumping incrementals higher or lower than average? Or I'm assuming, probably about equivalent?

That's a good question. Pumping incrementals were, let's just say, with the average, probably.

Okay. And then last one for me. Smaller segment, but could you elaborate on what you meant by improved job mix within the rental tools line?

Oh, sure. Just a job mix that includes more blowout preventers. And we've done, I think, a pretty good job of certifying our blowout preventers in accordance with the new standards. Those are in higher demand than non-certified blowout preventers. That's been helpful to us during the quarter.

Okay, great. I appreciate it. Thanks.

All right, Daniel, thanks.

Marc Bianchi, Cowen.

Hello. Good morning.

Hey, Marc.

Couple questions. First on the increased proppant volumes that you're pumping. Is that, at least with some of the other companies I suspect the case with you, that does dilute the percentage margin that you realize in your pumping business. Can you tell us, in your opinion, how far along we are in that process? Have we leveled off in the proppant per stage or proppant intensity? And how do you see that affecting percentage margins going forward?

Marc, that's a good question. There's a whole mosaic of things at play there. My best answer and others can chime in, is that for certain kinds of work, some of the really good service intensive work, we're probably pumping as much proppant per stage as we can. But that job mix could shift where we would end up pumping -- that really good job with a whole lot of proppant per stage, we could do more of those.

I'm not engineer and I can't tell you when the point of diminishing margins returns hits on pounds of proppant per stage. Clearly it is going up. And what you allude to is the fact that, or what I think you're alluding to is the fact that that will yield more operating profit dollars.

But other things equal, if you're just passing through or just charging for the volume or passing through cost increases, the margins themselves would decline. The reason I said that's kind of a complicated mosaic is that margins have improved because we're working harder, so we're getting leverage on costs and that sort of thing. But good question. I do not know the answer.

I will chime in. I don't know that the trend has shaken out yet. We did see, during the quarter, have seen for the last few quarters, more service intensity pounds per stage, that sort of thing. Whether that's peaked or not, that's hard to say.

When we look across our different operating locations, some are up sequentially and some are down sequentially. It is hard to say; it's customer specific. They and we are experimenting and looking at different treatment options. Again, I'm not sure that that trend has played out yet.

Okay. And then a follow-up, unrelated. On the capacity adds that you've got between now and the beginning of 2015, can you give us your latest thinking on timing by quarter for that additional capacity and where that is likely going at this point?

Marc, the schedule looks pretty good and is really consistent with what we had thought about and what we disclosed earlier. By that I mean we really are going to get a lot of equipment towards the end of third quarter and into the fourth quarter, as far as we know right now.

We've also done this a few times and know that things do slip, and there are critical components perhaps that have to wait for us. We're still saying that we're going to get it in the fourth quarter and into the first quarter before it's effectively in service and working.

The dynamic in terms of even internally trying to come up, certainly we wouldn't be talking about a lot of specifics here. But internally we even look at and think about, with the timing of this equipment coming, can we realistically -- we can be prepared for it to work in the fourth quarter, but are we going to have a holiday slowdown or not? Are we going to have winter weather that's going to impact the first-quarter?

But to Jim's point, we are right now pointing toward the fact that we think we will be capable of deploying it by early 2015. We'll just have to see how much progress we can make with, again, fourth-quarter customer discussions, lining things up. And whether that is working very early 2015 pretty intensely, or whether it spills into middle, late first quarter into second quarter of next year.

We will be prepared and doing everything we can to get it working sooner rather than later. But again, holidays and weather will have a lot of impact on that.

Sure, great. Thanks for the comments. Nice quarter and I will turn it back.

Thank you, Marc.

Doug Dyer, Heartland Advisors.

Just a quick one with regard to the transportation of sand. Do you enter into long-term contracts that you have capacity available to do that? Or is all of the hauling on spot?

For the most part it's spot.

Okay. Thank you.

Sure.

(Operator Instructions)

John Daniel, Simmons & Company

That's for putting me back in. Just a couple more. Jim, you mentioned the job calendar is full in Q3. If you think about the calendar today, how does it compare to relative to what you had in Q2 during the quarter?

During Q2. It is a bit better now.

Okay, and when jobs got --

I want to emphasize, though, I want to follow up by saying that doesn't mean revenue will be better, it just means the calendar is better right now.

Right. I'm not trying to get a revenue number here from you, just so you know. I'm just trying to understand, because last quarter it was pretty full too. And jobs do get pushed for various reasons.

I'm just trying to understand as jobs in Q2 may have been pushed, how much of that was tied to the inability to get the raw materials? Versus customers deciding to go golf and not get a job done that day?

There was very little opportunity cost on the revenue side from not having raw materials to do the job. It has been mentioned earlier, transportation and things like that. There is for little actual lost revenue because we didn't have proppant.

Fair enough. Okay, good. An unrelated question, too. Are there pumps in your fleet today, the legacy vintage stuff that doesn't go through another rebuild process and potentially gets retired in the next year or so?

That is a good question. We've talked about that during the quarter. Not to our knowledge right now. We have some truck chassis from the late 1970s. We have a blender that was built in 1990.

At some point a reasonable Company will look at something and say it is not time to rebuild this again. Let's let it go. But I don't have any knowledge of that kind of retirement of our assets coming up.

Okay. And then the final one for me. Some your smaller peers are adding capacity, both on the frac and coil side. Have you seen any indications of higher employee turnover at this point within your organization?

Yes, but the answer is always been yes. But yes, certainly.

I know it is always high, but is it rising?

I don't know if it is higher now. But we continue to be impacted by that, but always have.

Fair enough. Thanks.

Okay, thanks John.

(Operator Instructions)

Michael Marion, Stephens.

Thanks, good morning. The horsepower, to get to 920,000, just a clarification, do you think that amount of horsepower could be generating revenue by when? Middle of Q1 next year? Is that how to think about it?

This is Ben. I think it is possible that that incremental fleet add, if there is minimal holiday slowdown and no winter impact, it could be working similarly to our legacy fleet by the middle of the first quarter. Will it be? I don't know, but it could be.

The equipment will be coming in, again, some -- a lot of it's going to be coming in late, late third-quarter, during fourth quarter. Where all those factors fall, that's where the revenue will begin. But rest assured that we'll be working hard to get it working as soon as possible.

But that is a reasonable timeline. Middle of Q1 is a reasonable time line to have it all out there?

It'll all be out there. How intensely will be working? That's the unknown.

Got you. And as a follow-up on that, have you already designated basins to which you would add? What I am trying to figure out is, you talked about some pretty big variances across basins from a logistics standpoint.

Does adding scale and horsepower, does that help? So maybe these additions come in basins other than the Permian? Trying to understand how the additional horsepower affects the logistical hurdles and scale and margins across different basins.

To the extent that additional horsepower requires additional raw materials, it does help. It does not help, it hurts. As we get bigger and are approaching the way some of the bigger guys work, do we have more buying power with our suppliers? Absolutely. Or at least probably. So I think there is some puts and takes there. I don't know what the net is.

That's right.

Have you decided what basins you would add to?

Yes, I was going to mention that. We do have preliminary targeted areas. But still plenty of time to adjust that before they actually land. Some of that will depend upon customer negotiations and potential commitments and things like that.

I guess suffice it to say this point that it's going to be spread somewhat similarly to where we're spread today. But we can adjust that over the next quarter.

Sure, okay. Thank you.

Thanks, Michael.

With no for the question in the queue at this time, I'd like to turn the conference back to Jim Landers for any additional or closing remarks.

Okay, thank you, operator. Folks, we apologize once for our technical problem here. But we appreciate everybody staying with us and we appreciate the participation and enjoyed the questions. Everyone have a good day. Thanks.

That does conclude today's presentation. We thank you for your participation. As a reminder, today's conference call will be replayed on www.rpc.net within two hours following the completion of this call.