RPC Inc (RES) 2019 Q1 法說會逐字稿

Good morning, and thank you for joining us for the RPC, Inc. First Quarter 2019 Financial Earnings Conference Call. Today's call will be hosted by Rick Hubbell, President and CEO; and Ben Palmer, Chief Financial Officer. Also present is Jim Landers, Vice President of Corporate Finance. (Operator Instructions) I would like to also advise this conference call is being recorded.

Jim will get us started by reading the forward-looking disclaimer. Jim, please go ahead, sir.

Thank you, and good morning. Before we begin our call today, I want to remind you that in order to talk about our company, we're going to mention a few things that are not historical facts. Some of the statements that will be made on this call could be forward-looking in nature and reflect a number of known and unknown risks. I'd like to refer you to our press release issued today, along with our 2018 10-K and other public filings that outline those risks, all of which can be found on RPC's website at www.rpc.net.

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

Our press release issued today on 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 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 first quarter of 2019. Our activity levels declined compared with the previous quarter because of seasonal weakness and inconsistent customer activity levels. We believe that the pressure pumping market continues to be oversupplied because of the increasing efficiency achieved by completion service providers. Within our businesses other than pressure pumping, our activity levels were in line with the sequential changes in the rig count and completion activities from the U.S. domestic oilfield.

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

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

EBITDA for the first quarter was $40.8 million compared to $103.7 million for the same period last year.

Operating profit for the prior year was $60.8 million compared to an operating loss of $2.2 million in the first quarter of 2019.

For the first quarter of 2019, RPC reported no earnings per share compared to $0.24 diluted earnings per share in the prior year.

Cost of revenues during the first quarter of '19 was $252.4 million or 75.4% of revenues compared to $295.6 million or 67.7% of revenues during the first quarter of 2018. Cost of revenues decreased consistent with lower activity levels due to lower materials and supplies expenses within RPC's pressure pumping service line as well as lower maintenance and repair and fuel expenses. Cost of revenues as a percentage of revenues increased due to lower revenues and labor cost that are relatively fixed in the short term.

Selling, general and administrative expenses were $45.4 million in the first quarter compared to 400 -- or, I'm sorry, compared to $43.8 million last year. Depreciation and amortization expense was $42.5 million during the first quarter of '19, an increase of 13.4% compared to $37.5 million in the prior year.

Our Technical Services segment revenues for the quarter decreased 25.1% compared to the same quarter in the prior year. Operating profit in the first quarter of '18 was $65 million compared to an operating loss of $4.5 million in the current quarter. These decreases were due to lower pricing and lower activity within our pressure pumping service line.

Our Support Services segment revenues for the quarter increased 19.1%, and operating profit improved to $3.1 million compared to an operating loss of $905,000 in the same period last year.

On a sequential basis, RPC's first quarter revenues decreased 11.2% to 30 -- $334.7 million from $376.8 million in the fourth quarter. Revenues decreased due to lower pricing and lower activity levels.

Cost of revenues during the first quarter of '19 decreased $22 million or 8% primarily due to decreases in materials and supplies expenses. As a percentage of revenues, cost of revenues increased 2.6 percentage points from 72.8% in the fourth quarter to 75.4% in the current quarter. This is due to lower revenues and labor cost inefficiencies resulting from lower activity levels. SG&A expenses were $45.4 million during the first quarter of the current year compared to $40 million in the prior quarter due in part to higher employment cost, primarily payroll taxes.

RPC had a $2.2 million operating loss during the first quarter of '19 compared to $19.7 million operating profit in the prior quarter.

Our EBITDA decreased from $61.7 million in the prior quarter to $40.8 million in the current quarter. RPC's pressure pumping fleet remains unchanged at approximately 1,050,000 hydraulic horsepower.

Our first quarter 2019 capital expenditures were $62.3 million, and we currently estimate 2019 capital expenditures to be approximately $280 million. At the end of the first quarter, our cash balance was $113 million, and we continue to have no outstanding debt.

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

Ben, thank you. As we begin the second quarter, moderately higher oil prices and resolution of recent Permian Basin takeaway capacity concerns should provide a positive catalyst for near-term marketing opportunities -- market opportunities. With continued focus on increasing our operating efficiencies and providing quality services, we can improve the value we provide to our customers. Yesterday, RPC's Board of Directors approved a quarterly dividend of $0.05 per share.

Thank you for joining us for RPC's conference call this morning. At this time, we will open up the lines for your questions.

(Operator Instructions) Your first question will come from Connor Lynagh with Morgan Stanley.

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

Connor, this is Jim. It weighed on revenue and it also weighed on profitability. So as we alluded to, as we've discussed, the rest of Technical Services kind of moved with the rig count. So pressure pumping did have profitability issues, partially offset by lower cost in materials and supplies. Sand cost declined during the quarter, so that was a positive. But in general, pressure pumping weighed on profitability. We don't disclose that service line's bottom line as -- in our disclosure.

Going forward, at this point, the March exiting run rate would tell you that the second quarter looks better. March was the best month of the quarter, measurably so, but we have very little visibility right now. So a number of our customers have engaged us to do things and had job slowdowns for various reasons, so we just don't have a lot of visibility. So things look better in second quarter, but real lack of visibility at this time.

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

Second quarter looks a little bit better than fourth quarter, Connor, and I know we're going out on a limb saying that. But yes, a little bit better than fourth quarter for second quarter.

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

Connor, this is Ben. In terms of our pressure pumping fleet, we have talked about that we are adding a couple of fleets during 2019. We have equipment available today that we call 21 fleets. I expect -- you're right, the new equipment we're adding is certainly newer, higher spec, able to more efficiently lower maintenance, perform the type of work that we and others are interested in pursuing and executing. We would expect -- we've been going through a process. We're making decisions on our abilities to repurpose some of the older pumps. And I would expect by the time we get to the end of the year, we're still going to be talking about that we look at our fleet as something around 21 fleets. So the -- despite the fact that we're adding pumps that comprise 2 fleets, I expect the fleet number will still be relatively unchanged. So from that perspective, we are upgrading our overall fleet with those additions, and some of the other projects, initiatives that we've been working on, doing some investments to upgrade some of our older or not brand-new equipment to bring it up to higher specs as well. So we are improving the capability of the fleet and focusing our efforts on the equipment that is capable of working for the more intense activities in the basins.

Okay. If I could just follow up on that and I'll turn it back here. Just beyond the replacement that you're doing this year, how long of a replacement cycle do you see? How do you think that if you exit with 21 fleets this year, how much more do you need to do in the upgrade cycle?

Well, that's a reasonable question. Now we talked about in the last couple of years that we're maybe unique among some of our like-sized peers that we are focusing on maintaining our financial strength. And we are in this business and we're in the pressure pumping business, and we're going to continue to invest relatively regularly. We talked -- again, we talked about that over the last couple of years. So I think we will continue to invest in terms of picking a number now. In terms of how that replacement or upgrade cycle will go, we don't have definitive plans at this point in time. Obviously, we're in a difficult period. And the decision that we made last year to add the fleets we're adding, we still feel good about that. We think that even despite the current environment, we think that's the right long-term decision, but that decision was made months ago, right? And the markets continue to evolve and change. And I expect to continue -- it will continue to do the same. So that's something we will continue to review, but we'll continue to invest in the business at some level. We're not going to let the business decline or go and disappear. Our equipment that we have that's targeted work is in good shape, it's well maintained, and we'll continue to do that. That's been our long-term strategy and we'll stick with that.

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

I guess if I could ask a quick follow-up to Connor's question on the 2Q number. Was that -- revenue is higher? Or do we think EBITDA could be higher than what it was in 4Q?

Praveen, this is Jim. The question that I've heard was revenue and so the answer to that [I would say] was revenue. EBITDA, same answer.

Okay. Great. And I guess if I heard correctly, it sounded like CapEx is higher than your prior expectation. I heard $280 million. Can you frame for us what's driving that? Is it higher utilization of equipment for the year, higher expectation? Is it something else? I guess what's driving the change?

Well, it may be higher than what we talked about during the call last time, but it's consistent with what we have in our 10-K. So it what has been put out there. I would -- and it's not really that large of a difference. One thing that we did do, we were able to pick up a few additional brand-new pressure pumping equipment at a significant discount, so we pursued that opportunity. Again, given that our capital position, we were able to do that and are glad that we took those steps. So we -- again, we're investing for the future and the long term. A lot of the things that are in process were put in place some time ago and -- but much of it is under our control. I'm sure it will come up about the dividend reduction that we put in place this quarter. And we -- again, we think that's the prudent thing to do in the short term. It doesn't necessarily signal that we think that, obviously, we're still paying a dividend and we managed that over time. And there's always the opportunity, based on our results and our capital strength, we could change that dividend again. We could adjust it again upwards as the results allow us. So that's where we are.

Rick, I guess if I can ask one more. In terms of staffing levels, it sounds like you guys are maintaining. At least, it appears that way, that you guys are maintaining a little bit more staffing than the current environment calls for. Is -- one, is that correct? And then two, is that -- sorry, do you -- are you guys kind of employing in preparation for an uplift? Or how do you guys think about it?

Praveen, this is Jim. That's true to a degree. We have more staff than we need right this moment -- for this moment's activity level. But we have well-maintained fleets ready for opportunities and new equipment coming. Labor is always an issue in the oilfield, so we are trying to think long term about our staffing levels, and that leads to a few more employees than we would need right this moment. That's correct.

Next question will be from Scott Gruber from Citigroup.

So just a question on some of the drivers around the 2Q rise in revenue and EBITDA, which sounds promising. How many fleets did you have active in 1Q on the frac side? How many do you have active today? How many do you think you will have active in 2Q? And where do you think you'll exit 2Q? Just think about the ramp and the number of active fleets and what you're seeing there.

Sure, Scott. This is Jim. We -- as we discussed in our Q4 call, we ended the fourth quarter with 16 active fleets, and that is a good average to think about for first quarter. We have 21 fleets ready to go -- mechanically sound and ready to go, but we had 16 manned fleets during the quarter. We think, based on how the frac calendar looks, we might get another fleet active sometime in the middle of second quarter, so perhaps next month in May. And again, back to the earlier comment that we don't have much visibility, that's kind of all the visibility we have right now.

Got you. And what do you see on the pricing side right now? It sounds like the deterioration is slowing. One of your larger peers is still calling for a sequential headwind in 2Q versus 1Q, albeit one that is shrinking. And what do you guys see on the pricing front?

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

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

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

And that will be before the dividend or after the dividend?

It will -- certainly before and expect afterward as well.

Our next question will be from Tommy Moll with Stephens Inc.

So you mentioned a couple times that the oversupply condition in the pressure pumping market resulted partly from increasing efficiency. Can you talk about maybe if you're looking at the relationship between crews to rigged -- frac crews to drilling rigs, where you think we are now, how you think that has trended in recent quarters? And any rate of change you see going forward? I presume that's what you were referencing in your comments on efficiency. So anything you can do to enlighten us there would be appreciated.

Sure, Tommy. This is Jim. A simple frac demand model and empirical data would have told you that a year or so ago, that ratio was 2-point something, let's call it 2.5 or 2.6:1. Today, in the Permian, based on data that all -- probably all of us on this call could look at, that number looks more like 3.5 or 3.6:1. There is a lot of increasing efficiency, as many of us know, with the advent and the growth in -- the advent of and the growth in zipper fracs and the 24-hour work and just all the efficiency that has accrued from that. If there is a positive now, and if you're pressure pumper, that can only go on for so long. You can't increase the amount of zipper frac work that you do infinitely. You can't work more than 24 hours a day. So that rate of increase is certainly decreasing and may have topped out. But that change in ratio of drilling rigs to frac crews has really driven oversupply beyond and made the market oversupply sooner than most of us would have thought.

And I'll add on to that, this is Ben, that, of course, there's a lot of discussion about equipment being worn out to the extent with that level of efficiency and utilization, so that's certainly a positive for the group over time if the attrition rate is higher than people expect, have expected or they're experiencing higher attrition rates. So it's not something that we count on. But we think that, too, is a trend. They both have to work to get it, right? If people are working harder and harder and more and more, equipment is going to wear out quicker. And that, together with a lot of disruptions in the market, with a lot of M&A activity and things like that, that there's -- those disruptions may actually be opportunities for us, I believe.

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

Well, I think, to be honest, there wasn't a complex algorithm that we ran to make that decision. I think we just felt that it was a prudent decision given where we were to cut it. It's something that, typically, we don't -- people don't like a lot of volatility in the dividend, but we kind of look at it over the full year. If the year improves going forward, there's every opportunity to increase it. We have, in many of the last several years, paid a year-end special dividend. So whatever adjustments we need to make to whatever we think the appropriate payout is for the full year could be factored into that year-end special dividend. So we just felt that it was a near-term prudent thing to do to give us some cushion in the current environment. We obviously have borrowing capacity if we needed it. We don't expect that we're going to, but that's another cushion that's available to us. So like I said, it was not any sort of complex decision. We historically paid out, as many other traditional dividend-paying companies, anywhere from 20% to 30-plus percent of our earnings over time. And I expect over time that will be where we'll end up. And we are shareholder-return focused in many ways. We bought back a little stock during the first quarter, paying a dividend regularly. So we've been doing all these things for many years, and we're continuing to do that, but also managing the balance sheet and the financial strength and our condition and ability to continue to invest prudently in the business over time and not -- we're going to do that -- continue to do that more steadily over time.

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

I guess I'm trying to understand the 2Q guide just a little bit better. And so if we just kind of stripped it down a little bit and just try -- the implied uplift of EBITDA per fleet, if I'm doing the math right, it looks like you're expecting about a $5 million to $6 million of annualized EBITDA per fleet uplift when we think about 2Q versus 1Q. Can you confirm that for us?

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

And I agree with that, Chase. This is Ben. When Jim talked earlier about -- and he's right. The visibility is not as long term as we would like it to be, but it is true. And we're viewing with operations. The frac calendar is certainly more full for the second quarter. And thus, Jim's qualitative comments on the second quarter. But reasonable question, but difficult to answer.

Okay. And maybe I can kind of approach it this way. When we think about January, February, March, you said that March was the best month. From an EBITDA per fleet, if we look at March versus January, maybe can you talk to the difference between how March was -- what the run rate looked like for March versus January?

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

Okay. All right. That will work there. Last one, I'll turn it back over. I guess with that 100,000 horsepower, it's kind of a replacement as we kind of roll forward throughout the year. As we roll into 2020, and I know that it's really early, but should we just kind of -- in our model kind of think about continued replacement CapEx as we go forward? Or is kind of this 100,000 horsepower it and kind of you feel good with your fleet as you exit the year?

I think for a long-term model, yes. I think that sort of spending by year would be appropriate. Now that would not roll up to the $280 million or so that we're projecting because there were other CapEx in there for coil tubing and things like that, that are not necessarily at this point in time expected to be as routine as the pressure pumping. So -- but that is a reasonable, I think, long-term assumption at this very point in time.

Our next question will be from Vebs Vaishnav with Howard Weil.

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

Well, one may have noticed that SG&A was a little high. There were a number of unusual things there that would have flowed through, some of it directly, but some of them indirectly into pressure pumping. We had a couple of legal litigation-type accruals. We have a higher 401(k) match for our employees that flowed through. There were -- we are -- we have been investing some in information technology that did flow through and hit the quarter. And those investments are for a variety of reasons where -- that's some initiatives where we're upgrading our network and we're looking at some new collaboration and data analysis tools that helps us both on the well side, but also in office automation with things like recruiting and job proposals and gathering data at the well site. It's going to help us but help our customers as well. So that too added somewhat to the first quarter cost. As you know, the SG&A was about $45 million in the first quarter. It was $40 million in the fourth quarter. The fourth quarter had some -- had probably some "positive adjustment," so it's kind of a difficult comparison. So probably, the run rate is probably somewhere between $43 million and $44 million going forward for SG&A. So some of those things would have naturally flowed through to pressure pumping, but the biggest issue, of course, was the revenues and utilization and efficiency of our fleets.

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

Sure, Vebs. This is Jim again. Let's go ahead and do the -- let's go ahead and do the revenue breakdown. So this is for the quarter, and as a percentage of consolidated revenues, pressure pumping was 44.2%. Thru Tubing Solutions, our second biggest service line, was 32.8%. Coil tubing was 6.0%. Rental tools 4.2%. And nitrogen 3.4%. Just a -- I mean a 30,000-foot view of the other businesses, they were all moving with -- certainly with the rig count. There was a slight sequential decline. Thru Tubing continues to perform well because of some innovative products. Coil tubing, we are adding some new units this year, the first of which will be delivered in May. So coil tubing could have been better, but we have good expectations for it this year as it has new -- as it gets new and higher capacity units for long-length lateral completions. So the Canadian spring break-up kind of impacts us in thru tubing a bit, but the other businesses are just moving with what we know of as the well completion count in the U.S. domestic market, the markets we operate in and, of course, the rig count. So pressure pumping was the service line that moved our results this quarter.

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

So a lot of the questions have been asked and answered, but there's always more, just so you know. So one thing you had talked about last quarter is moving to more dedicated fleets. And I was wondering where do you guys stand now in terms of exposure to spot versus dedicated fleets of the 16 that are marketed right now?

Ken, this is Jim. That number -- that percentage has not changed much, if any. I would say that about 70% of our pressure pumping fleets, which are currently active, are dedicated. And as we've all discussed, but if -- can't repeat it too many times, I guess. In today's market, dedicated gives you some ability to look at through utilization and plan for your logistics, that sort of thing. But there are no take-or-pay economics, and pricing does move with the market. So it is a handshake agreement that a customer has some work planned. And if they do that work, if it's not -- if things don't impact it because of other service line issues or various other things, then we will do that work. So it's not a guarantee of utilization. It's just a guarantee that the customer will give us the work that they have when they have it. So -- but to answer your question, about 70% of our pressure pumping fleets are dedicated at this time.

And kind of a follow-up there. I mean so pricing is not firm and it moves with time. You indicated that you're not -- when you lose business to lower spot, it's not by as much. I guess the implication is that you're still walking away from some super low price business.

Yes, certainly, certainly. We lose business every day, and I won't say we're happy to do it, but we realize that's the right solution.

Yes. And going back to the attrition thing. I mean Halliburton was talking about attrition is going to balance the market. You guys mentioned that adding 2 fleets a year out of a 20-fleet, 21-fleet business seems reasonable. So I guess it depends on where pricing is. But is pricing at a level where you could support keeping a fleet around for 10 years at current levels? Or is there a point where 5, 6, 7 years in, you just can't justify rebuilding and replacing to keep it going?

Ken, this is Ben. There's obviously a lot of dynamics that go into that. But now as the market cycles and pricing utilization moves, reasonable question, but the intensity of -- we'll know more over the coming years. The intensity obviously has really picked up, the intensity in the utilization overall for our industry. If there's one -- our utilization has been not what we want it to be, so our equipment has not been wearing out as much as we would ideally like it to be at this point in time. So I think those dynamics and whether it's new equipment, upgrading equipment, replacing parts, there's a lot of things we're doing, other initiatives we have around understanding our maintenance and repairs better and how our equipment is performing and how we might execute the jobs to manage our M&R, reduce our M&R cost, there's a lot of things that go into that. And everybody is working real hard to create those additional cost efficiencies for us, which, ultimately, will inure to the customer, but also -- so to us. But this industry has been through a lot in the last several years. There are a lot of other cost relationships and dynamics going on. And we're working real hard every day, again, putting some of these other tools in place for us to understand our cost even better and understand the data that our equipment is able to produce and provide to us, so that we can understand, again, better how to configure the equipment and execute jobs and, again, ultimately manage our cost and maximize our profitability.

Okay. Then one final question. How much of your sand volumes were internally sourced this quarter?

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

And then is that sand going mostly to the Permian? Or is it going mostly to the other regions as Permian local sand picks up?

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

Our next question will be from Marc Bianchi with Cowen.

I was hoping to talk a little bit more about the progression in first quarter. I think we certainly are and I suspect some investors are scratching their head thinking your fleets in the fourth quarter were about 18. You were down to 16 in first quarter and then talking about maybe adding one here in the second quarter. But your profitability has really swung around quite a bit. I'm wondering if there was some real inefficiencies. You kind of alluded to it in the press release commentary during the first part of the first quarter, and maybe that sort of resolved itself. Maybe it was just a pad or 2 that were just inefficient for you. Maybe you could talk through it qualitatively like that just to give us some more comfort in the exit rate profitability and how you can kind of deliver the second quarter above fourth quarter even with 1 or 2 fewer fleets.

Marc, this is Jim. We'll try to tell you everything that's useful. It was a slow start to the year with people not -- coming back late from the holidays, not being in a hurry, not getting their budgets, all the things that we say many first quarters of most years. There was some weather impact as well. And we -- as we have the balance sheet strength, not to lay people off and to keep equipment maintained and be ready to go when times get better. So we had some serious labor inefficiencies in the first 2 months of the year. I won't say that those labor inefficiencies have been completely solved or were completely solved in March. But we had -- we just had a lot of inefficiencies in January and February. You cannot fire people tomorrow and hire them or other new people back 3 weeks from now. And I honestly think, even if we knew then what we know now, we still would have kept things in place and kept equipment maintained and ready to go during those first 2 months of the year. So it was just unfortunate.

March was better, again, quantitatively. We put some money to the bottom line in March and the -- again, very little visibility, but we certainly see March continuing for the next few months, as far as we know. The frac calendar is fuller -- more full, and things just look better. And if that doesn't give enough comfort, I understand that. We may just have to wait until second quarter earnings before we can get whole -- can get everybody a whole lot more comfortable with where we are.

Sure, sure. But that's helpful perspective for us. For the customers and the work that you've picked up here towards the end of the first quarter and what you see into the second, how would you characterize that? And we can make our own assumptions about what happens in the back half, but if it's large programs with big public E&Ps that have a plan for the remainder of the year, maybe we'd feel one way about the duration of that business versus it being smaller players that are responding to the commodity price and maybe you're going to complete 1 or 2 more wells and then go away in the back half of the year. Is there any kind of color you can provide there?

Yes.

Well, I'll -- this is Ben. I would say that we have heard or the numbers indicate some of the private players are getting more busy with increasing the commodity price. Whether that's sustainable or not, we don't know, but that should be a net positive for us. And I would say, in terms of the increase in activity that we're seeing, it at this point is not a lot of these high-volume, completions-oriented, large E&Ps. But I think that's our opportunity. That's what we're working on. We're working on trying to secure much more of that work. And I think with a lot of this M&A activity and a lot of what's going on in the industry, I expect there'll be more disruptions. And again, I think that presents -- given our current position, I think that presents opportunities -- more relative opportunities for us maybe for -- than for some other people in the market.

Our next question will be from George O'Leary from Tudor, Pickering, Holt & Co.

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

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

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

Yes.

Sure. And that's helpful. And then maybe just thinking about the way Q1 played out in the pressure pumping business, can you say whether the -- I think -- if we think back to Q4, there was some hope that maybe utilization would be better quarter-on-quarter. The way it sounds like today, that didn't materialize for a number of different reasons, weather included. But what was the bigger pain point in the first quarter? Was it pricing, which seems like the pressure has abated there? Or was it utilization?

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

And then maybe just one more if I could. Does it seem like in April, based on what you've seen so far, I realize we're not fully at the end of the month yet, that utilization is actually up over March? Or were you guys implying that March is a good month and April looks kind of flattish with March?

More the latter. April looks flat to March.

Our next question will be from Mike Urban from Seaport Global.

So I wanted to dig in a little bit on the continued strategy and move toward the dedicated fleets. At a high level, makes absolute sense, just better visibility, better ability to manage your utilization, which, as we saw from your results, is a clear driver for profitability. But at the same time, everybody would like to do that. Everybody wants to work with the big efficient operators with visible programs. How do you convince a customer to do that? How do you win that work? What's your value prop relative to your competitors in doing that?

Mike, it's Jim. We do have a lot of good programs in place. We're known as a high-quality provider. We are buying new equipment. And from the look -- from -- it appears that not many of our peers are buying new equipment. We're putting a lot of confidence in the new continuous duty, high horsepower pressure pumping equipment that we bought in 2018 and are continuing to take more delivery out in 2019. We have some high-capacity pumps, one of which is going to be shown at OTC next month, so you can go since you're in Houston and take a look at it. And we feel like that increased efficiency and less downtime, which, we believe will benefit us and our customers, is a way to win work, as well as just seasoned management and that type of thing.

So there's no magic bullet. There's no patented process that's going to win pressure pumping work for us, but we're just going to get in there and work and talk about our new equipment and our processes in place and just with commodity prices are constructive. As Ben has mentioned, there seems to be a lot of churn among our largest customers in terms of who's going to own whom and who's going to operate where, and that sort of frothiness always can provide opportunities for you -- for us or for someone. So that is our best answer at this time.

Got you. And then how do you think about the decision to put a fleet replacing a dedicated fleet with the customer? Is that always better just because the utilization is much higher and then the visibility is much higher? Or is there a situation where you say, "Hey, we will keep this fleet in the spot market," and that's the better answer? And I guess that's just kind of taking together a side of that last question, I mean, since everybody kind of does want to be a dedicated provider. You guys have the scale. You have the balance sheet to maybe be a little more opportunistic and kind of be the large high-quality spot provider and maybe that is a differentiated strategy. So I guess the question is how do you think about the decision whether to keep a fleet in the spot market or move it to a dedicated customer?

Well, other things equal, we'd rather be dedicated if we believe that the long-term profitability contribution dollars of having that fleet dedicated will work for us. It's more than just pricing per stage per se. We have looked at the job design, what sort of proppant they're using, what's the wear and tear, what's the projected wear and tear on our equipment going to be, what pressures and pump rates are we using -- that tells you a lot of about your wear and tear -- potential wear and tear. And then also try to look at the customer's drilling program and see how much confidence we have that the 2 or 3 pads, I'm just making that up hypothetically, the 2 or 3 pads they have for us, which ought to last 9 months or a year, how likely is that to get done in a timely basis that will ensure us good -- or give us confidence about good utilization. I mean that's kind of what you think about, to get something tied up and dedicated work where it's going to be hard on the equipment and you may not get good utilization is not a situation we want to be in. So you just have to weigh those factors.

Got you. And then if I could just sneak in just a quick housekeeping follow-up. Do you have the revenue percentage number for snubbing? Was that material in the quarter?

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

Our next question will be from John Watson with Simmons & Company.

Other than continuous-duty pumps, are there other specs within frac that your customers are interested in or specs that you're considering as you're adding new equipment?

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

Okay, okay. Great. And you and others are adding large-diameter coil equipment as we've talked about. Can you give us an update on the coil tubing pricing environment and your expectations for how that might trend moving forward?

Hard to have empirical data because we don't have those new large-diameter coil tubing units in the market yet. I mean I think one -- I know one was delivered in April, so we'll know soon. But we do believe there's a market for those large-diameter coil tubing units, which can go out 10,000, 12,000 feet. We also think that there are not that many players in the -- from the ground up-built, large-diameter coil tubing unit, so we think that, that's -- there's a good market for us there. In terms of revenue per running foot charges that we expect, I mean, we have some internal analysis to justify the capital expenditure, but we don't have any empirical data to share with you.

Sure. Okay. So part of the uplift for Q2 is more coil tubing equipment. Is that fair to say?

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

Our next question will be from Chuck Minervino with Susquehanna.

Just wanted to touch on the 2Q qualitative color a little bit more. It just seems to get to some of the -- and I understand, it's very fluid right now, but to kind of get back to a little bit above 4Q levels on both the revenue and the EBIT side, you've got to do pretty good growth in the revenues, which I think is very possible with the utilization bump. I guess my question really was it looks to me like the incremental margins need to be kind of in that 50%, maybe 50%-plus range. And I guess I just wanted to ask, I guess, historically, we're a little bit more used to seeing those types of incrementals when you're getting pricing as well. Is it -- is -- am I right about that kind of number? And I guess maybe it's because 1Q just had a lot of noise in it and very low utilization, so there's like a little bit of a benefit from that. But can you just help me understand, like, can you get those types of incremental margins when you're not really getting pricing?

Chuck, this is Jim. Your point is a good one. However, I wouldn't say that first quarter had noise in it so much as extremely underutilized resources. So the incremental is on underutilized resources, which you don't have to add to with incremental revenue should be pretty good. I mean the incrementals 40% or 50%, something like that, we just do not have the visibility to tell you right now. You're also making good point that pricing certainly [boosts] your incrementals a good bit so...

Okay, okay. And yes, I guess that you're right, maybe noise wasn't the right word, but the point of lower utilization in 1Q, I guess, was what really kind of impacted. And then just a second question on the decision to potentially bring another fleet out. Can you just talk around some of the thought process there? I guess maybe one thought would have been if -- you have got to see pricing get to a certain point or maybe you believe that the utilization will be at such a level that, that's a good return decision. Can you just talk a little bit about that?

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

So again, that decision was made some time ago. We're in this business. We think it's going to be a good business. We think obviously this is a very difficult time right now. Operationally, returns are not good right now in this particular time frame. But I think it will shake out. Higher oil prices, equipment attrition and all those things, I mean, some of it is nothing is ever 100% certain in business, but we think it's -- obviously, we think it's a prudent investment. And we're set to work real hard to manage our cost and get our activity levels up and do what we have to do to manage our results and generate cash and return capital to shareholders.

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

I wanted to follow up on one of the earlier lines of questioning. I'm -- so if I'm doing the math right here, your pressure pumping revenue, I think, was down about 19% sequentially. Could you give us any color? Do you have the numbers there on what was volume and what was price? Like, what was stage countdown quarter-over-quarter? And then how much was probably average pricing? What were kind of the contributing factors there?

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

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

It actually was not. Our customers sourced more of the sand in first quarter than they did in fourth quarter, and that's just a tactical customer mix kind of answer. But the fact that the price of sand declined muted the revenue and contribution impact that, that would have had. So kind of a strange. We have some puts and takes during the quarter on that one.

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

Yes, yes. If your question is first quarter to second quarter, it's a quarterly question, the answer is yes, that's reasonable. Yes.

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

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

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.