RPC Inc (RES) 2018 Q2 法說會逐字稿

Good morning, and thank you for joining us for RPC, Inc. Second Quarter 2018 Financial Earnings Conference Call. Today's call will be hosted by Rick Hubbell, President and CEO; and Ben Palmer, Chief Financial Officer. Also present is Jim Landers, Vice President of Corporate Finance. (Operator Instructions) I would like to advise everyone that this conference call is being recorded. Jim will get us started by reading the forward-looking disclaimer.

Thank you, and good morning. Before we begin our call today, I want to remind you that in order to talk about our company, we're going to mention a few things that are not historical facts. Some of the statements that will be made on this call could be forward-looking in nature and reflect a number of known and unknown risks. I'd like to refer you to our press release issued today, along with our 2017 10-K and other public filings that outline those risks, all of which can be found on 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 are also required to use EBITDA to report compliance with the financial covenants under our credit facility. Our press release issued this morning in our website contain reconciliations of this non-GAAP financial measure to net income, which is the nearest GAAP financial measure. Please review that disclosure if you're interested in seeing how it's calculated.

If you’ve not received our press release for any reason, please visit our website again at www.rpc.net for a copy.

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

Thank you, Jim. This morning, we issued our earnings press release for RPC's second quarter of 2018. The average U.S. domestic rig count during the second quarter of 2018 was 1,039, a 16.1% increase compared to the same period in 2017, and a 7.6% increase compared to the first quarter of 2018.

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

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

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

EBITDA for the second quarter was $119.2 million compared to $110.3 million for the same period last year. Operating profit for the quarter increased to $75 million compared to $67 million in the prior year.

Our diluted earnings per share were $0.28 compared to $0.20 last year.

Cost of revenues during the second quarter was $312.1 million or 66.7% of revenues compared to $254 million or 63.7% of revenues during the same period last year. Cost of revenues increased primarily due to higher employment costs, materials and supplies expenses and other expenses which vary with activity levels. As a percentage of revenues, cost of revenues increased due to job mix and higher fuel prices.

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

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

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

Operating profit increased to $75.6 million compared to $70.9 million in the prior year.

Our Support Services segment revenues for the quarter increased by 35.4%, while operating profit was $1.2 million, which compares to an operating loss of $3.3 million in the same period last year.

On a sequential basis, our second quarter revenues increased, again, to $467.9 million from $436.3 million in the prior quarter. Revenues increased due to a larger fleet of revenue-producing equipment and slightly higher activity levels.

RPC's operating profit during the quarter -- during the second quarter was $75 million compared to $60.8 million in the prior quarter.

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

Selling, general and administrative expenses during the second quarter decreased by $1.3 million or 2.9% compared to the prior quarter.

RPC's EBITDA increased from $103.7 million in the prior quarter to $119.2 million in the current quarter.

Our Technical Services segment revenues increased by $30.8 million or 7.3% to $449.9 million in the second quarter. Operating profit was $75.6 million compared to $65 million in the prior quarter.

Our Support Services segment generated revenues in the second quarter of $18.1 million or 4.6% higher than revenues of $17.3 million in the prior quarter.

Operating profit was $1.2 million in the second quarter compared to an operating loss of $900,000 in the prior quarter.

RPC's pressure pumping fleet increased during the second quarter by approximately 100,000 hydraulic horsepower to 1,050,000. This additional horsepower was used to supplement our existing fleets. We have no outstanding orders to expand our pressure pumping fleet, but we continuously evaluate the size and makeup of our fleet to meet our customers' requirements.

Second quarter 2018 capital expenditures were $99.2 million, and we expect full year 2018 capital expenditures to be approximately $280 million.

At the end of the second quarter, our cash balance was $94.2 million, and we continue to have no outstanding debt.

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

Thank you, Ben. RPC continues to partner with its customers to improve operational efficiencies and provide safe services. We're aware of the industry's concern regarding potential Permian Basin takeaway capacity constraints. The Permian Basin is our largest market. And while we have not yet experienced any reduction in our activities due to this issue, it represents a risk to our near-term financial results. We operate in a number of other oilfield basins in the domestic U.S. market and are prepared to move equipment and personnel to other operating basins should conditions warrant.

Yesterday, our Board of Directors approved a $0.10 per share dividend. Year-to-date, RPC has spent $40.1 million on stock repurchases, paid out $43.2 million in dividends and invested $149.7 million in capital expenditures. Including these uses of cash, RPC ended the second quarter with more cash than at the end of 2017.

Thank you for joining us for the call this morning. And at this time, we'll open up the lines for your questions.

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

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

This is Ben. I -- in terms of the current environment, clearly, lots of people are talking about additional fleets being reactivated. We've taken delivery of some additional equipment. So there clearly is increased competition in the market. And given the nature of the jobs, the larger jobs that we and several of our competitors are interested in winning, we're -- activity levels can be a little bit lumpy, and they were during the second quarter, and I expect they'll continue to be. In terms of pricing, as we indicated, we haven't been able to increase pricing. But a lot of that depends on job mix and trying to get the right balance between what we're able to get from a pricing perspective relative to the utilization we're able to achieve. So that's an ongoing process for us to try to find a good balance between the 2 of those. And I would say, typically, for us, in an environment like this where pricing is not moving up, our tendency is to probably err on the side of not chasing prices down too quickly. And sometimes that may result in us -- in terms of testing the market, we may miss some opportunities. So I think that's our tendency. We think that's the right long-term decision in this type of market. The wear and tear on the equipment is quite extensive, and we want to make sure that we're getting paid "as much as we can" relative to that wear and tear. So it's an ongoing process that we go through. And we expect we'll continue to perform reasonably well, but we do expect there could be some lumpiness in our results. So the competition is still there. It always is. The pressure pumping market, in particular, is very dynamic and continues to be dynamic. And so we think it will shake out. We think that it's still a market and a segment that we're going to continue to compete in aggressively. And looking at our fleet, as we indicated, making sure we have the right amount, and makeup of our fleet is something we continuously look at and we're looking at very closely now. So...

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

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

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

Jake, this is Jim. Right this moment, financial returns are higher than our cost of capital, but perhaps lower than our internal hurdle rates for newbuild. Certainly more visibility. Certainly, we want to get the Permian Basin takeaway capacity behind us – or takeaway capacity issue behind us. A long-term contract of the kind that we had in the 2005 to 2010 or 2010 to 2013 time period would be extremely helpful. We just don't see those right now. So that's what prompted Ben's comment about no newbuilds at the present time.

And I'd add to that -- I think -- to add further to that is, it -- I think when we see -- at the point in time we make the decision to order new equipment, the question's going to be more of is that an increase to our fleet size? Or is that reconfiguration?. So that's -- and we don't have the answer to that question right now. So we'll -- certainly, at the time we make that decision and announce what we've done, we'll characterize it in that way. Is it fleet expansion or is it repositioning the fleet or changing up the fleet to meet our customers' requirements? So that's, again, something that we're always looking at. It's something we're looking at more intensely at this point in time. We're kind of now into the -- into our planning season and beginning to look a little longer term. We certainly -- we sense -- through the comments that we're saying here, we sense no urgency to place any orders for equipment. And that's where we stand right now.

Got you. And if I could sneak one more in. Can you just talk a bit about current thoughts on spot versus dedicated? What do you think the optimal configuration would be given the market? And where do you guys stand today?

I would say, again, that to dedicated or not dedicated, there's a range of possibilities there. But we clearly have more "dedicated work" today than we did in the last 3 months or 6 months ago. I think we would like more for the right pricing and level of utilization, but that's always the mix. So we're probably somewhere less than 50%. And it might be nice at the right level of pricing and utilization maybe something north of 50% would be a good place to be.

We'll now have our next question from Brad Handler of Jefferies.

Could you please give us a little bit more of your -- what you're hearing and seeing in the Permian today? Appreciate that you haven't had any activity disruption. I think that's what you said. But I guess I'm curious. If you look at the broader market, for example, are you hearing of any crews being released perhaps? And I'm going to throw a couple of questions out just to make it harder for you to keep track of them, okay? But have you, in your own experience, seen any change in the urgency on the part of your customers, right, that might be affecting the utilization of your crews that are working for them? Let me -- well, actually, I'll stop there, and I'll make it easy. But just some commentary on that sense of the current Permian would be great.

Brad, this is Jim. We have not yet seen any customers say that they were going to complete a well, but now they aren't due to concerns about takeaway capacity. There have been -- our customers -- our E&Ps in the area have talked publicly about that. And we all have access to that information, but nothing -- there's nothing that we have seen. Operationally, we do not see any urgency to get something done now before things conceivably get difficult in a few months. One thing that people do say out in that region is it's hard to make really blanket statements about takeaway capacity because of the flexibility involved. I mean, we know anecdotally that there are times when it would cost you a whole lot per barrel if you want to transport oil to a refinery at a given time. But if you're willing to wait 36 hours, they'll slot you in, and it can be a lot cheaper. And that's not a panacea for an issue that may be coming towards us, but that's the kind of calculation that, I think, we see our customers doing right now and trying to work through it. I mean, some of our peers have said, the math is the math about takeaway capacity and production. But -- and we also know that customers may not tell us everything that they are thinking and fearing 6 months from now either. So we just haven't seen it operationally. We've not seen an issue operationally yet.

Okay. That's helpful. Maybe as a follow-up, and it's a related one. I think we're all trying, of course, to get -- to reframe our own sense of the second half of the year to the extent that we can't. And I think we recognize how quickly things might change and make it hard to do that. But there is an expectation in the estimates for you guys of healthy sales growth in the second half of the year versus the first half, healthy operating income growth as a result. We know you do have your 21st fleet for the full quarter, right? So I think that's certainly a positive. So far, I guess, you're suggesting, no, that you're not seeing any pricing. And I guess what I just heard you say is that, all else equal, you're not necessarily seeing a lessening of urgency around the work. So are you able -- I know this isn't exactly your style, but are you able to kind of comment on the expectations that are out there for improvement even in the third quarter, and say, "Yes. Based on what you see today, that seems somewhat reasonable.” That seems like it might be a stretch, given the challenging environment in -- absent of any takeaway issues, but just the challenging environment with respect to pricing and additional equipment in the region.

Brad, this is Jim again. Let's enhance your framing of that a little bit. Everything you just said was accurate. And based on published data, we see that the completion count grew in the second quarter, and our job count grew as well. So we're maintaining market share and doing that sort of thing. However, second quarter was choppy. And the nature of this pad drilling and completion and there's strains in the systems, some of which relate to us, some of which relate to other service providers, who are getting these very service-intense wells completed, that leads to some choppiness. And that makes the overall macro trends that we're all discussing here -- it makes us a little bit hesitant to just say, "Third quarter is going to be up in to the right from the second quarter just because of the choppiness." And I regret that it's so uncertain. It doesn't help us either. But we just know that there's choppiness. Jobs get pushed for various reasons. A lot of things are happening in the system right now, which makes the overall macro hard to translate into near-term predicable operational results.

Okay, understood. Maybe if I just could steal one more quick one. Some comments -- you mentioned a willingness to reposition. Do you expect to be making that decision a bit more on your own? Do you expect -- or does the customer have to take you there if you were to reposition a fleet to another basin?

The latter would be great. If a customer said -- I'm just making this up, "I'm laying down 2 rigs in the Permian, but doing 2 more in the Eagle Ford," that would be ideal. But you've known us a long time, Brad. We've moved pressure pumping equipment from established bases to other established bases many times. And because we are in other basins in South Texas, East Texas, the Mid-Continent and the Bakken, we can easily move that equipment. In the past 1.5 years, we've moved equipment back and forth between Oklahoma and North Dakota, and also borrowed equipment from East Texas and South Texas to work in West Texas. So we have the established locations there and can easily do that. It would be much better if a customer was welcoming us back to that area, but we've got customers there now.

We'll go over to our next question from Praveen Narra from Raymond James.

If I could ask a follow-up to Brad's question. I guess, one, could you give us kind of where the zipper frac percentage stood for Q2? And given the takeaway issues, have you -- do you expect to see or have you seen any early indications of a trend of that percentage slowing?

Let's see, Praveen. We've got the number for you.

You see no indications of it slowing.

Right.

It looks like Q2, it was 60% zipper, 40% traditional.

Correct.

And then in terms of going back to the ordering of new equipment, particularly this supplement. I guess, based on your comments, you don't expect to need to make that decision in the near term. Is there a point in time where you feel like you will have to make that decision? That -- is that before year-end? Or can we wait until times are just better to figure out if we need to do a fleet reconfiguration or if we need to order that more supplemental equipment?

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

Okay, great. If I could just sneak one more in. Can you talk about kind of how much of your sand was self-sourced, and any -- whether you've pumped in-basin sand and how that process has gone for you thus far?

Sure. So during the second quarter of 2018, about 70% of the sand that we pumped was sand that we procured and brought to the job site. That's up a little bit from a very small amount from first quarter. We have pumped a little bit of in-basin sand. I don't personally know of any indications from the field whether it went well or poorly. I think it's fine. I mean, we're fairly agnostic to it from an operational point of view. There are logistical differences, but it's -- we're happy to do it if that's what the customer wants, and we're paid for it.

We'll have our next question from Marc Bianchi from Cowen.

Following up on Praveen's question -- following up on Praveen's question last question there about sand, can you talk about any of the pricing trends that you've seen? I'm just curious. A number of these mines seemed to have come on in West Texas now, and it seems like pricing has been holding up thus far. But just curious if you have any thoughts for what's going on, on the ground.

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

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

No. Yes.

Hard to say. Hard to say that.

Yes. I don't know if we have enough data points to draw a conclusion.

Yes. And that's true.

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

Yes, absolutely. Happy to. So for the second quarter, as a percentage of RPC's consolidated revenues, pressure pumping was 57.5%. Thru Tubing Solutions was 23.0%. Coiled tubing was 5.9% of consolidated revenues. And our fluid pumping and production rental tool business that does pump down some other things was 4.7% of consolidated revenues. Then rental tools was the fifth largest, and it was 2.7% of consolidated revenues for the quarter.

Okay, great. And I appreciate that third quarter has a lot of uncertainty to it. But if you just sort of maintain your, call it, June run rate into the third quarter, just so that we get a sense of what may be the goalposts are this for you in the third quarter, could you hazard a guess kind of what kind of revenue we could be expecting? Could it be up $50 million from second to third if nothing changes from where you sit today?

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

Okay, okay. And just 2 more, if I could. The CapEx increased about $30 million from what the prior guidance was, if I have that right. Could you talk to the reason for that and kind of thoughts on how CapEx will progress from beyond here?

Good question. I mean, it's nothing in particular. I think it does relate to our coiled tubing service line, but again, not that big of a number. And I don't know that, that portends anything necessarily for '19. We're in the midst of our planning now and the discussion we have about the frac fleet and what we're going to do near term and longer term. We're in the throes of that now. So we're not sure about '19. We're not placing any bets yet on '19.

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

The market's not bad right now. I mean, we're making money. So I know that's self-evident. If rigs -- if activity slows in the Permian, our sales forces has contacts and is working in every other region that we work. And they are -- I'm sure they'll be ready to call on customers and line up work and get things moving if the market allows. So we are not talking about stacking fleets at this point.

Let me see if I can connect a couple of dots. Jim talked about current returns on our frac assets that they're not bad. They're not -- they've been better, but they're not bad. So in my mind, in our mind that means we could capture -- if the calendar opened up tremendously, we would have the ability to go in and would be willing to lower prices some. But as I discussed, our tendency is to not have -- we don't want to lead the race to the bottom on pricing. We think, for us, the best approach is just to try to stay a little bit behind that if pricing is stable or going down. I mean, we're trying to get the best pricing, "the best pricing we can get" relative to utilization. So we're trying to find that -- always trying to find that balance. So we think there's -- whatever you want call it, there's the ability for pricing to go down some more before we would actively and "permanently" or for a period of time stack any equipment over a quarter.

We'll go over to our next question from John Daniel of Simmons & Company.

Jim, I guess, I want to come back to the whole Q3 thing, and let me just kind of start off some thoughts. As we -- as you think about a few dynamics here, we know competitive pricing is on the rise. We know new capacity is still set to enter the market. And if I recall correctly, Halliburton stated an intent to keep equipment working, which to me is code for potential price discounting. We haven't seen any customers yet slow down, but we have evidence that some already have in the Permian and the Marcellus. We've seen some completions get delayed already. And it seems, in the current environment, we're more likely to see more delays as opposed to accelerations. Q2 had choppiness. And again, so therefore, Q3 more likely. I mean, just package all of it together, it feels to me like revenues are probably down in Q3, and perhaps as much as 5% to 10%. Where am I wrong?

Well, John, first of all, if the litany of items you just named comes to pass, then, yes, revenue will fall sequentially between second and third quarter. It absolutely will. We're seeing one of our large peers continuing to put some reconditioned equipment that it bought from a competitor in the market. That's happened in second quarter, and we believe that will -- we believe, based on what they've said it will continue out in third quarter. We have some smaller people who want to become larger people, and they are putting a lot of equipment in the market right now. And so we've seen some -- we're -- Ben mentioned that pricing is -- has not declined for us. That's true. But in some parts of the market, pricing has declined. So I'm not saying you're right or wrong. But if the things that you just enumerated come to pass, then pricing will fall.

And revenue.

And revenue will fall, yes.

I mean, look, I'm not trying to pick on you, but there are some things that are way outside your control right now. And it does have an impact at some point. So...

Yes.

I'm just managing my own expectation.

Right.

Let's assume my diatribe was right. It would then seem to point that, again, from a top line perspective, as you look out to Q4 knowing that we typically have holidays in Q4, that hasn't changed, seasonality comes into play, Q4 is likely lower than Q3, all else being equal. Would you disagree with that?

That's the normal trend.

Yes. All else being equal, that would be accurate, yes.

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

That's a believable story.

Yes.

Now you guys have been great stewards of shareholder capital and all that good stuff. And you haven't been acquisitive in recent years. You haven't shown the propensity to overpay for assets. But given what's likely to be choppy here and given that we just keep hearing so many companies out there who want to sell, do you ever have an interest in sort of changing old habits and, I mean, a bit less disciplined in consolidating the space? Or should we assume that you maintain discipline and let others do that bit?

John, this is Jim. First of all, you're right. There are a lot of companies who want -- that want to sell right now for various reasons. A lot of companies. They're smaller, so that's -- there are a lot of companies. We're -- we will probably let others do the consolidation. If it happens, every cycle for the last 15 years people have said the mid-tier pressure pumpers ought to consolidate. And they never do except under duress. So until that duress comes, and it may at some point, we don't see the consolidation happening. Now I think when you do consolidation in our space, you're helping the market more than you're helping yourself. So if consolidation does occur, we will probably be on the sidelines as we have been in the past, unless there's just a fantastic situation with a much different geography, management team that we just can't let go of that sort of thing. But we typically haven't seen those.

Well, I very much appreciate your candor as always. I do have one just technical question, and I'll (inaudible) around. But can you guys speak to just the trends that you're seeing in fluid end life? And I'll then turn it over to others.

Fluid end life -- and actually, fluid end life is increasing for us. It has to do more with how we work them rather than the different kind of fluid ends. We've just been managing it differently. First quarter, fluid end expense was actually a bit higher than fourth quarter. But second quarter was a bit lower. Some of that is just the unpredictable nature of when fluid ends are going to break. You don't know when you're going to have a flat tire in your car until you do. But in general, fluid end life has been increasing a little bit.

And we'll take our next question from Ryan Pfingst of B. Riley FBR.

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

Let's see...

It's down a little bit.

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

Mid-single-digit decline.

Yes.

Mid-single-digit?

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

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

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

We'll go over to our next question from George O'Leary of Tudor, Pickering, and Holt.

You talked about kind of the geographic presence of your frac spreads, and you guys are in a number of different plays across the U.S. And in one of John's questions, you also mentioned there are some pockets where pricing is maybe under pressure more so than others. I just wondered if you could speak to any relative pockets of strength and relative pockets of weakness as you look across the various basins that your pressure pumping spreads play in today?

George, sitting here thinking about it, it's kind of hard to say. Things have been good in the Bakken. Things have been okay in the Mid-Continent in the second quarter. The choppy nature of a lot of things that goes on makes it difficult to say that any region is particularly better or worse than others. As we always say, this equipment has wheels and can move around. But some [say places] isn't necessarily bad, but there are no standouts one way or the other.

Okay, that's helpful. And then I noticed, just a housekeeping item, but the corporate costs dipped quarter-on-quarter. I guess, what was the driver of that? Is that some explicit cost-cutting efforts? Or is that just quarterly noise?

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

We'll go over to our next question from Tommy Moll from Stephens.

So it seems like with the current headwinds in terms of frac pricing, there are couple of competing schools of thought where some industry participants are more focused on remaining disciplined on price and margin. And I would include you in that category. And then you've got a whole roster of others who are playing the market share game. So I wondered if you could give us any insight into who, which types of players are being the most aggressive in terms of price. Is it the large incumbents in the market? Is it some of the newer entrants? Do you see any discrepancy in the price that old versus new equipment is bid out for? And in terms of the customers that some of these more market share-oriented players are going after, does it feel like there's good overlap in terms of your customer base? Or is it a different segment of the market that they might be going after most aggressively?

Tommy, those are all good questions. This is Jim. I would say that the aggressive de novo upstart competitors or the ones who've been more aggressive on pricing that we've seen, they want to build a big company. And they're not -- may not even be thinking about market share. They just want to put a lot of equipment in the field and get big. We don't know of any empirical trends where new equipment gets better pricing or whatever. It does come down to reliability, speed, that sort of thing. So perhaps, new equipment does get better pricing because the service provider and the customer believe that the equipment will perform more efficiently. So there might be that cause and effect in play.

Reasonable question. This is Ben. I mean, everybody's trying to compete. We do hear some of the larger players are -- they the large market share. And whether they're trying to maintain that share or whether they're just trying to seek their optimum or close to optimum levels of pricing and utilization of that, I think it's both segments. I mean, it's a reasonable question, but I think everybody's trying to compete pretty hard. And as I think you're alluding to, and as I have said, we tend to not try to race to the bottom. So we -- then we have a little bit more fairway. So let’s see how it shakes out.

Yes. Well, that leads to my next question, which is in terms of your own plans for capital allocation, you've indicated today you have no new -- no plans for new equipment. You have a pristine balance sheet and a healthy cash balance. So given where we are in terms of the pressure pumping cycle, how do you rank your priorities in terms of accumulating cash? Maybe it's to then deploy for new equipment when we hit newbuild economics or get a little closer versus potentially getting more aggressive with capital returns?

I think -- this is Ben. I think -- I mean, I think we'll still have a mix of all 3. And I think in terms of ordering new equipment, I think I've said before I expect we will place some orders for new equipment before the end of 2019, I believe. And obviously, there's lots of time. We haven't made any decisions yet. There's lots of times -- a long time to evaluate that and change our mind. But our prediction will be right now that I believe we will order some new equipment and perhaps take delivery of some new equipment before the end of 2019. But we're, again, not ready to make that decision right now. We have no plans presently, so I think that will still be in the mix of our capital allocation at this point. As Jim alluded to, the results aren't bad. They've been better, but they're not bad. And returns are decent, just not great. And everyone knows that the decision about whether you add more equipment -- and there's a time period between order and delivery and place and service. And so there's a long lead time. So there's a lot of forward thinking that has to go into place to make the decision and take that business risk that you're making the right decision. But -- and it is a long-term decision, but we do try to time those decisions and those cash outlays to some degree. And sometimes, you get it right. And sometimes, you don't. But I think -- to come back to your original question, I think we'll continue to have a similar mix across the 3 uses of our cash and capital.

(Operator Instructions) We will now take our next question from Waqar Syed from Goldman Sachs.

As you look at your fleet, could you give us a mix of what assets may be candidates for retirement in the coming years? We typically hear from some manufacturers that equipment that is 10 years old and has gone through maybe 3 cycles of rebuilding may need to be retired. Is there any asset that you have in your fleet that are more than 10 years old and may need to be replaced in the coming years?

This is Ben. Yes, we certainly have some equipment that's more than 10 years old. We're not at this point in time. And that may be a reasonable or an appropriate time frame, but we have not yet come to that particular conclusion. But I expect the equipment that we would retire is probably the older equipment, the lower horsepower. We are -- we have opportunities with some of other service lines to maybe repurpose some of the equipment. We see that as an opportunity. So that's part of our discussion is going to be do we take it out of the fracking fleet and put it into, say, fluid pumping or -- and to support some of our other service lines. So we see that as an opportunity to reallocate that capital in a way that continue to produce nice returns despite the age of the equipment, and the wear and tear on the equipment won't be quite as significant. So I think -- so I clearly think it would be the older equipment has the highest probability of being carved out of the fleet and replaced with higher horsepower equipment.

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

Well, that would be our decision. Our decision would be, are we buying more equipment to maintain the size of the fleet net-net. Again, that decision hasn't been made yet. And it will just -- it will depend. A reasonable question, but we don't yet know. At the point in time we order equipment, will it be a net addition to the fleet? I don't expect at this point in time, if I have to predict, that we would expect to have any significant decrease in the size of the fleet, but don't yet know whether we'll be increasing the size of the fleet when it comes time to order more equipment and add it to our fleet.

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

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

Now trucking and things like that, is that -- is there any issues there? Or no?

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

And so given what you're seeing with pricing that you're saying it could be at best stay flat, may come under pressure a little bit here, is there any ability to pass on higher trucking or labor costs to the customer or in the current market will all be absorbed by the pumpers?

Waqar, maybe the best way to answer that is that we do pricing proposals. And those pricing proposals that we do include what we know to be our costs coming up. So we price it into our work. But then you get into a place where the free market may get competitive. And you may -- at this point, as Ben said a couple of times, we're -- we have a bias towards letting unprofitable work go rather than take it. So we factor those costs into our proposals and then see where it goes from there. But we do our best to know our cost -- know what our costs are going to be and to be honest with ourselves and our customers about what they are.

And depending upon the commitment we're making to the customer and what that relationship is and the length of the engagement that we're talking about, we would try to have that language or that discussion with the customer to say, "Hey, we're pricing this today. This work's going to last for umpteen weeks. We'd like the opportunity. Would you be willing to entertain if there were particular input cost increases that you would be open to discussing the possibility of us adjusting our pricing to be able to capture those cost increases?" So there is that opportunity. Sometimes there may be shorter term, shorter engagements that we could get caught by cost increases, but -- or impacted by cost increases. But again, that's all part of trying to position ourselves with our customers and likewise our customers position themselves with us to try to protect each other and try to be within a reasonable range of what market pricing is.

That was the last question, and we will pass back now to speakers for a conclusion.

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

Ladies and gentlemen, this concludes today's conference call. As a reminder, this call will be replayed within 2 hours on www.rpc.net. Thank you for your participation. You may now disconnect.