RPC Inc
NYSE:RES
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
5.6036
8.04
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
You don't have any saved screeners yet
Good morning, and thank you for joining us for RPC Inc.'s Fourth Quarter 2017 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'd 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 2016 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 will be referring to 2 non-GAAP measures of operating performance. The first is EBITDA. 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.
And the second set of non-GAAP financial measures are net income and diluted earnings per share excluding the impact of the implementation of Tax Reform. Management believes that presenting the operating results without the impact of implementation of Tax Reform enables us to compare RPC's operating performance consistently over various time periods. Our press release issued today and our website contain reconciliations of these non-GAAP financial measures to net income, which is the nearest GAAP financial measure. Please review that disclosure if you're interested in seeing how these things are calculated.
If you've not received our press release for any reason and would like one, 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 fourth quarter of 2017. The average U.S. domestic rig count during the fourth quarter of 2017 was 921, an increase of 56.4% compared to the same period in 2016 but a decrease of 2.6% compared to the third quarter of 2017. RPC revenues decreased by 9.3% sequentially due to higher-than-expected seasonal slowdowns, including customer budget constraints. We finished the fourth quarter with $91 million in cash.
Based on our financial results, strong balance sheet and lower corporate tax rates in 2018, our Board of Directors has increased our regular quarterly cash dividend to $0.10 per share.
Our CFO, Ben Palmer, will review our financial results in more detail, after which I will have a few closing comments.
Okay. Thank you, Rick.
For the fourth quarter, revenues increased to $427.3 million compared to $221 million in the prior year. Revenues increased compared to prior year due to higher activity levels and improved pricing for our services, higher service intensity and a larger fleet of active, revenue-producing equipment.
EBITDA for the fourth quarter increased to $101.1 million compared to $15.7 million for the same period last year.
Operating profit for the quarter increased to $60.3 million compared to an operating loss of $32.2 million in the prior year.
During the fourth quarter of 2017, RPC recorded a net discrete tax benefit of $19.3 million as a result of the Tax Reform enacted during the quarter. The benefit was primarily due to the revaluation of deferred tax items using the lower corporate tax rates effective in 2018, partially offset by adjustments related to permanent tax law changes.
Excluding the $19.3 million or $0.09 diluted earnings per share benefit of Tax Reform, net income for the fourth quarter of 2017 was $38.4 million or $0.18 diluted earnings per share compared to a net loss of $21.1 million or $0.10 loss per share last year.
Cost of revenues during the fourth quarter was $285.7 million or 66.9% of revenues compared to $173 million or 78.3% during the same period last year. Cost of revenues increased primarily due to higher employment costs and materials and supplies expenses, both of which were driven by higher activity levels.
As a percentage of revenues, cost of revenues decreased due to leverage of higher revenues over direct employment costs, improved pricing for our services.
Selling, general and administrative expenses were $42 million in the fourth quarter compared to $35.8 million in the same period last year. These expenses increased due to higher compensation costs, primarily incentive compensation due to improved profitability. As a percentage of revenues, these costs decreased to 9.2% compared to 16.2% in the same period last year due to the leverage of higher revenues over primarily fixed costs.
Depreciation and amortization were $38 million during the fourth quarter of 2017, a decrease of 21.4% compared to 80 -- compared to $48.4 million in the prior year.
Our Technical Services segment revenue for the quarter increased 96% compared to the fourth quarter of the prior year due to improved pricing and higher activity levels. Operating profit increased to $67 million compared to an operating loss of $26.2 million in the prior year.
Our Support Services segment revenues for the quarter increased by 43.7%, while the operating loss decreased 76% compared to the same period last year due to improved activity levels and pricing in the rental tool service line, which continues to be the largest service line within this segment.
Now I'll discuss our sequential results.
RPC's fourth quarter revenues decreased to $427.3 million from $471 million in the fourth -- in the prior quarter. Revenues decreased due to temporary activity declines caused by seasonal slowdowns, including year-end customer budget constraints. This was partially offset by improved pricing and a larger fleet of active, revenue-producing equipment.
RPC's operating profit during the fourth quarter of 2017 was $60.3 million compared to $97.4 million in the prior quarter, a decrease of 38.1%.
Cost of revenues during the fourth quarter decreased by $9.1 million or 3.1% due to lower materials and supplies expenses resulting from lower activity levels, partially offset by higher total employment costs due to increased headcount.
As a percentage of revenues, cost of revenues increased from 62.6% in the third quarter to 66.9% in the fourth quarter due to inefficiencies resulting from lower activity levels, partially offset by improved pricing.
Selling, general and administrative expenses during the fourth quarter of 2017 increased by 5.7% compared to the prior quarter.
Excluding the impact of Tax Reform as discussed earlier, net income for the fourth quarter of 2017 was $38.4 million or $0.18 diluted earnings per share, compared to $57.3 million or $0.26 diluted earnings per share in the prior quarter.
RPC's sequential EBITDA decreased from $137.5 million in the prior quarter to $101.1 million in the fourth quarter, and the EBITDA margin decreased from 29.2% to 23.6%.
Our Technical Services segment generated revenues of $411 million, 9.8% lower than revenues of $455.7 million in the prior quarter. Operating profit was $67 million compared to $104.3 million. Our operating margin in this segment decreased from 22.9% to 16.3%.
Our Support Services segment generated revenues of $16.3 million or 6.9% higher than revenues of $15.3 million in the prior quarter. Operating loss decreased to $1.6 million in the fourth quarter compared to $2.1 million in the prior quarter.
Our pressure pumping fleet as of the end of the quarter remained unchanged to 925,000 hydraulic horsepower.
RPC's total headcount increased 6% during the fourth quarter.
Fourth quarter 2017 capital expenditures were $42.5 million, and the full year 2017 CapEx was $117.5 million. We expect full year 2018 capital expenditures to be approximately $265 million, which will be directed towards both maintenance of our equipment and new revenue-producing equipment. A portion of this will be directed towards completing the purchase of 127,000 hydraulic horsepower that we ordered in 2017.
At the end of 2017, our cash balance was $91 million with no outstanding debt.
Since the majority of RPC's business is in -- is domestic, we expect the recently-enacted Tax Reform to have a meaningful positive impact on our financial results through increased earnings and operating cash flow in 2018 and beyond.
We currently estimate our annual effective tax rate in 2018 will be in the range of 20% to 25%.
I will now turn it back over to Rick for some closing remarks.
Thanks, Ben.
We recognize RPC's fourth quarter results interrupted the positive trends of several -- of past several quarters. However, we are pleased with the full year 2017 results. Higher oil and natural gas prices, along with improving industry trends, are indications that demand for our services will remain strong.
The planned additions to our pressure pumping fleet are anticipated to be placed in service during the second quarter. In addition, during the fourth quarter of 2017, we continued to recruit and train employees to staff the additional equipment and meet market demand.
Thank you for joining us for RPC's conference call this morning. And at this time, we will open up the lines for your questions.
[Operator Instructions] We'll take our first question from Chase Mulvehill with Wolfe Research.
So I guess the first question is, is maybe can you talk about kind of the impact to 4Q kind of the moving parts there you talked about budget exhaustion. So I don't know if maybe you can maybe talk about fleet utilization, where that was in 4Q. And then kind of as we look into the first quarter, do you expect kind of that utilization to snap back in the first quarter?
[indiscernible]?
Sure.
Chase, this is Jim. Utilization -- fleet utilization in pressure pumping was the main catalyst for the sequential revenue decline. Pricing actually improved a little bit. And from a revenue and not profitability at this point, pricing actually improved a bit. But there was extreme seasonality. December, as you might expect, was the worst month of an otherwise good quarter. We had some customers who told us in late November that they were running out of their budget, and then were giving people the month off. We did have some weather impact in North Dakota, but the majority of it was just people saying we're out of our budget for right now and we're just really slowing down during December. We chose not to fill up the calendar with lower-margin work because that would make 2018 a little bit harder. We've been trying to educate customers about higher pricing for us to provide a good service to them and just felt that trying to fill up the calendar with lower-margin work was not the right long-term decision. SO it really was utilization. Utilization absolutely fell off.
And Chase, I -- excuse me, this is Ben. I would say that with our business model and with our customer base, that there's a lot of movement that goes on. And so it happens that customers slow down and start up, and part of our focus is to try to get aligned with our portfolio of customers to get us as fully utilized as possible. And as you can imagine, given late in the fourth quarter, given seasonal holidays, weather, all those other things, it was much more of a challenge to try to fill the calendar up. And as Jim said, we didn't want to -- we weren't going to run out and offer large discounts to get the work. We thought that over the long term would be detrimental. So we were impacted the way we were impacted. And you asked the question about how's the calendar looking at this point, and it is filling back up nicely. Certainly, it's always -- when there's seasonal impacts, there will be a ramp-up, but we're very comfortable with 2018. And several of the comments we made earlier about higher oil prices and strong customer demand and all those other things, we are very -- we're still very optimistic about 2018. And what we're focused on is how we perform over time. We all know and we understand that people are shocked or -- about the way the quarter is. But we look back over the last -- certainly the last 3 quarters and even the full year of '17, and we feel really good about the way '17 turned out. And we think once results are posted, we think our results will match up favorably over that time period. And we feel good about 2018, and we feel good about the first quarter, so we're not worried about it. It didn't turn out exactly like we hoped it would, but we're not overly concerned about it.
Okay. So when we think about the first quarter and we think about all your fleet, I think you exited the year, I guess, maybe it was around 20, 21 fleets. When we think about the utilization of those fleets in the first quarter, do you think you'll be fully utilized? Or are there still going to be some gaps kind of in utilization as you look to fill up that calendar?
Now I think as I just indicated, there'll be a ramp-up. You can't go from slower and immediately ramp back up. So for the full quarter, we'll have a ramp-up where it was a little bit slow. But the calendar is filling up. I think we'll be back -- at the end of the third quarter, we'll be back at levels that look very similar to the third quarter.
Okay. And then the incrementals on that activity ramp through the first quarter, is it fair to kind of -- if we kind of bookend you on the low end at 30% incrementals to the high end of 40%?
Chase, this is Jim. There are actually a few more wiggles there if you think about incrementals. One reason for the margin decline in fourth quarter was that we've hired and trained a lot of people. Ben just mentioned, I think, that our employee count -- headcount increased by 6%. So we're actually looking for higher incrementals, if that's your question, Q4 to Q1 incrementals. We look for them to be higher than in the 40% range. I don't know much higher right now. It depends on the ramp-up, as Ben mentioned. But we anticipate nice incrementals in the first quarter.
Yes.
Next, we go to James Wicklund with Crédit Suisse.
Can you remind us who your -- not percentages or who's the top, but who are some of your top 3 customers in the Permian in no particular order?
Jim, this is Jim. We actually don't disclose that. We haven't had to disclose a customer that was over 10% for quite some time, and I can -- it's a forward-looking statement, but we're not going to be disclosing one in our 2017 10-K either. But let me answer your question or try to answer without naming names. Our customers tend to be the independents in the Permian, the larger players in the Permian. In general, there is a weighting towards private companies versus mid-cap or small-cap public companies. And if we could show you the names, that's kind of what you'd see.
Okay, that's helpful. I appreciate that. And Halliburton had noted that costs had been an issue. And they called out regional sand as a positive for people in the hydraulic fracturing business in the Permian later this year as that sand comes on. Can you talk about what your sand business is doing and what you're seeing in the sand business? Did you make more money than you thought or not make as much money as you thought in sand? Can you talk about how that impacted Q4?
Sure. Just to level set a couple of things, we have not used any regional sand in the Permian yet. We've talked to our suppliers, and they are lining up to provide us with reasonable sand if that's what our customers want, and we're willing and happy to do that if that's where we go. So there's no regional sand in any of our answer. We're aware of what other people talked about in terms of cost inflation. We have not seen it in trucking specifically. In fact, our demurrage expense is minimal, and it even declined in the fourth quarter even as a percentage of revenue or as a percentage of total cost. Sand did not really increase much during the quarter, so it's probably -- if you're thinking about marginal sand...
Marginal delta quarter-over-quarter then attributed to sand at all?
Yes. Yes, it was not really a non-event for us...
Yes.
In terms of a change.
Next, we'll go to Tommy Moll with Stephens.
On frac pricing, do you have any sense of how much room there may be to run as we start the new year? And do you have any sense on timing of any price increases? Is there a bit of a lull as we wait for CapEx budgets to be set? Or do you think it's still just run-rating up with no pause even as the year begins here?
Tommy, this is Jim. That's a great question, but a very difficult question. Our most recent field intelligence is that customer budgets probably aren't going to be set until February of this year. There was article on The Wall Street Journal yesterday, I'm sure everybody has seen, talking about how customers are acting right now. But commodity prices are strong. And as Ben has said a couple of times, we think activity is going to be really good in 2018. So there's clearly a bias for price increases. I think that first quarter, as people ramp up and everything else, the cadence of pricing increases will be muted in first quarter, although we think it will be there. We see pricing acceleration given everything we know now more in second and third quarter. But again, that's a difficult one to call.
Okay. And then if I could just ask one follow-up. At risk of putting the cart in front of the horse here, I'll ask it anyway. You're in an enviable position given the clean balance sheet and the reduced tax bill after the recent reform. That combined with the significant free cash flow you should be able to generate even after the increased dividend, which is good to see this morning. Can you help us think about, say, when we get toward the end of the year, what the priorities would be for the cash on the balance sheet? Would you still look at new-build opportunities at this point in the cycle? Or would you squint a little harder maybe on the shareholder return side?
This is Ben. Yes, good question. We've not made those decisions at this point in time. I think that the capacity adds that we have on order now equate to about a 15% increase in our capacity. And we expect, though, from an actual capacity increase in terms of fleets we're probably looking at something more like in the mid-single digits. So maybe something more like 5% rather than 15% improvement in our capacity. It will allow us to more consistently work on larger and more intense jobs, which is a net positive, but it won't result in a 15% increase in our number of fleets. That's also to say that I would not be surprised for us at the end of 2018 that we maybe have not repurposed -- retired and/or repurposed some of our frac pumps into some of our less intensive service lines, which would then say that we would look to maybe placing some more orders. We don't have any commitments at this point in time for any capacity beyond what we've already announced, but I expect there will be -- that will be a serious consideration for us in the coming months to be looking at that. So from that perspective, we're always looking for a healthy balance, and I think that's what we'll actually do. But I expect there will be continued investment in our pressure pumping fleet. And question whether there'll be a net increase in our capacity with whatever additional ordering we do over the next several quarters, but I expect there will be some more orders placed.
Next question comes from George O'Leary with Tudor, Pickering, Holt & Co.
In looking at the Technical Services segment and following on to some of the prior segments and just trying to think through your comments around the budget exhaust in Q4 maybe not quite what you would consider a snapback as we enter Q1 '18. I guess relative to maybe third quarter expectations, that you'll be running a little bit more horsepower, and pricing is the same even though utilization might not be as good as it was in the third quarter, is there a shot at getting back from a top line perspective to those Q3 levels? Or is there even a possibility that you guys could do better than that in the first quarter?
George, this is Jim. We talked about the ramp in Q1, but we really think certainly in our pressure pumping business we can be back to Q3 revenue levels certainly in sort of an exiting run rate of Q2. And that's kind of the best information we can give you right now. I don't know if that's full quarter but certainly exiting run rate for Q2.
That's super helpful. And maybe can you just -- the breakdown of revenue kind of by business line that you guys often give on the call?
Sure, absolutely. And I want to amend the answer I just gave. We're thinking more like end of Q1 could be that third quarter '17 run rate.
Said another, the frac calendar will be, we think, full by the end of the first quarter. So we'll be exiting the first quarter that looks more like Q3.
Yes, yes. And then, George, your -- answer to your second question about our major service lines. So for the fourth quarter on a consolidated basis, pressure pumping accounted for 59.2% of RPC revenue, Thru Tubing Solutions accounted for 20.8% of consolidated revenue, coiled tubing accounted for 7.0% of RPC revenue, rental tools was 2.3% of revenue and nitrogen was 2.0% of consolidated RPC's revenues. And that's for the fourth quarter '17. Thanks for your questions.
Next, we'll go to Will Thompson with Barclays.
I think, Jim, you've highlighted before that the kind of the rig count is a pretty good representation of your customer mix. A number of your competitors have highlighted their preference to work on a dedicated basis with more efficient E&Ps. Can you maybe help us understand the pros and cons of being able to tame maybe higher spot pricing with smaller E&Ps versus gaining maybe more efficiencies with some of the more efficient, larger-cap E&Ps?
Yes, sure, Will. That's certainly the debate in our space right now. We understand that continues. On the positive side, if you have contracts with highly efficient big E&Ps, you get to plan your work really well. And you get to line out your logistics, which is increasingly important. You know where you're going to be over the next few months. And that's all helpful. We continue to talk to our field guys about contracts and what we think the contracts are -- what sort of contractual agreements people are getting into. And we honestly believe at this time that they aren't that helpful for kind of the following reasons, which is that in a time where you have a fairly full calendar and people are doing big jobs, and the big discussion now is zipper frac work, which is a growing part of our work. The discussion is that you have those operational efficiencies anyway even if you're in the spot market. So a lot of the contractual agreements that we understand are being -- are inked today are ones in which the customer promises a percentage of their work, or when they work, you will get -- you will do this kind of pricing, that sort of thing. But it's not a true take-or-pay economics that we saw back in the 2010 through 2013 time period. Now if you look at our fourth quarter of 2017, a reasonable question would be, if RPC had contracts, would revenue have declined the way that it was? We don't know. We might have been a little bit insulated from the downturn with people who were working the whole time. But we might not. We've seen these contractual relationships in the oilfield be such that when the customer decides they're going to slow down, you slow down, too. So that's how...
I would say, yes -- just a few follow-up comments on that, and I alluded to this earlier a little bit, that we have a list of customers. We don't work for all of our customers every month. They're -- we're able to move them around. That's our biggest model, is to be flexible and manage the frac calendar and manage the slots that are available with the customer, and that's our approach and that's our focus. Some people's business model, maybe we're not set up to do that. We would rather have a limited number of customer relationships and have some degree of certainty, if you will, about where the work is going to come from. We -- our model is more of let's be prepared to move quickly from customer to customer, to opportunity to opportunity. And I think what we've seen in the last 2 quarters perhaps, and I think the fourth quarter, again, as I point out, is unusual in that it didn't have the holidays and also with the potential for budget constraint issues. But I think the third quarter is an illustration of where it can work really, really well. The fourth quarter is an illustration of where it can be negative, exacerbated by the fact that it is the fourth quarter. But I think if you were to go back and see how we performed certainly over the last 3 quarters and over the full year 2017, I'll say again that I think our performance and returns will match up favorably within the industry. And couple that with the fact that our frac calendars are filling back up. There will be a ramp-up during the first quarter, but first quarter is going to be good, and we feel superstrong about the rest of 2018 and we'll bounce back. Again, fourth quarter wasn't what we wanted it to be but not really all that unexpected. And if our customers are becoming more capital disciplined, I think maybe we're a little bit of -- we -- that hurt us a little bit in the fourth quarter, but the long term, it's going to be a good thing.
Okay. And then in terms of the $265 million of '18 CapEx, can you just maybe help quantify how much of that is to be allocated to the new-builds versus maintenance?
Probably $70 million or $80 million to new-build and the remainder to maintenance.
We'll next go to John Daniel with Simmons & Company.
Just a couple here. One, I think in your response to one of the questions as it relates to new capacity, you made a statement that you do expect to place orders for more equipment. Can you elaborate on that?
John, this is Ben. I do expect -- I think at some time in the future, we will place an order for new equipment. We have no plans now. We aren't in active discussions or negotiations, but it's something we'll look at this year. Whether we place an order this year or not, I don't know. I wouldn't be surprised, but I don't know. There's no plans at this point in time. We know there are lead times on equipment and things like that, so we have to figure out where we -- we have to kind of read the future and where we think things are going and when we think we'll have a need because of increased demand and/or because of equipment attrition. So I think we will place an order for new equipment at some time in the future, but we don't know when at this point in time.
Fair enough, will pass through later. Okay. You also said in response to a comment -- a question that you did not make any large discounts on price to get work when things slowed down. Did you see your competition do this?
John, this is Ben. We don't really know exactly what our competition did in the fourth quarter. So that would be my response. We don't know.
Yes. Don't know, yes.
All right. But is it -- I guess the concern would be there's a lot of capacity coming to market, including the number of new start-ups. I'm just curious, if you tend to work in the spot market and not have dedicated fleets, are you more susceptible to the risk that one of these emerging companies could be a bit more assertive or -- on price concessions to win that work? I mean, is there any evidence that you lost work to a customer, to someone else, or perhaps you lost a frac crew? Is there somebody that poached your crew? I mean, that's -- we're hearing this stuff from some of these emerging companies, and I'd just like you to address that, sort of, given how you characterize your customer base.
Yes. John, this is Ben. And you said poached a crew. We don't know. Taken work away because of pricing or poached the crew?
So either. And really 2 things, I'll say. I mean, it could be did somebody who's a new player give a better price to win some work? Or some of these start-up companies, you guys, I'm sure, know this, they don't have training programs, right. They're -- they look at you or your competitors as their training program, right. They -- have you seen any people stealing your crews? I know headcount was up for you, which would say that maybe that didn't happen. But just some thoughts on that.
All right. Well, thoughts. For me, that is a characteristic of our industry and fracturing as well. It's happened in the past. It will be something we'll have to continue to combat. Did it happen in the fourth quarter? I think there probably are some examples we could point to. We don't -- rarely do we know exactly where our customer's coming from and the reasons for their -- for they deferring work or whatever. Did they accept our bid or not. Is that somebody offered a lower price or they didn't want to work. We don't always know exactly. But I -- it wouldn't surprise me if some work -- every quarter has missed because of pricing perhaps. But yes, our calendar was very, very full in the third quarter, less full in the fourth quarter for the reasons that we've talked about. But I think there will continue to be competition for personnel. We hope our customers -- this is always the case -- there are going to be people that go out and try to win work with super low pricing. There are examples where their work aren't -- it isn't always up to the quality standards. And oftentimes, not always but oftentimes, customers that we may have lost because of that super low pricing may end up coming back to us. It's just the nature of the industry, and it will -- and that will continue to be the case. We always hope that quality of service will matter more and more, and we think that'll be a net benefit to us. But those same characteristics exist in the oilfield today.
That's fair. Look, I'm not trying to beat you guys up since you're my first company reporting. So therefore, I guess, I'm...
That's right. We know.
Well, and I'm not trying to -- sometimes, I do sound -- I'm not trying to sound too defensive either, but those things still exist.
Yes. I've only got 2 final quick ones. One, speak to margins. Jim, I know you sort of -- you guys said that revenues should be back to that Q3 run rate by end of Q2 or end of Q1. Do you -- and you also noted that you believe pricing will go higher in Q2, Q3. Is it therefore safe for us to assume you expect margins in Q2, Q3 to be in excess of what you -- where they were in Q3 '17?
Well, there's a lot of moving -- John, understand that there are a lot of moving parts.
Yes, I know.
So I think there's potential for that. We were -- certainly, we were pleased with the results in the third quarter, and it was logical to say, too, obviously, that made the fourth quarter a difficult compare. But I -- suffice it to say that, obviously, we would be pleased that they got back up to third quarter levels, and I think there's certainly a high probability that, that would be the case.
John, the bias is definitely towards us reaching third quarter margins -- third quarter 2017 margins this year.
Next, we'll go to Thomas Curran with B. Riley FBR.
Jim, I know that you diligently maintain your own proprietary industry-level supply-demand model for frac horsepower. From year-end to year-end, so from the exit of 2017 through the end of this year, how much do you have total marketed industry capacity increasing at this point? And how has that changed from the 3Q call? So if you guys are currently set to increase your total fleet by net 15%, how much in your model do you have the total industry market fleet increasing?
Tom, I really appreciate the question, especially about the proprietary nature of my intellectual property. I have not updated it yet. I have not updated it yet. And we'll -- we just had year-end and that sort of thing. We still believe -- or we have believed and still do that demand is greater than supply. And we also think that there's hidden attrition or whatever attrition that people don't really understand that well because of the sort of componentized nature of pressure pumping equipment. We think people got in a lot of orders before the Tier 4 regulations came into effect and that people are kind of standing back, maybe waiting for other people to test the new equipment. That's what we've heard in channel checks. I don't know how much credibility there is to that. So we think that demand for pressure pumping capacity will remain higher. And I appreciate the reminder from my to-do this for my analysis coming up. I'll be happy to talk about that once we get it together. I just don't have it right now.
And I'll add. I mean, this may be logical or obvious. But from our illustration, we're adding 15% of our capacity, but we think it's really only going to add a net 5% from a fleet perspective. So if we're an illustration -- I don't know if everybody else would be the same as us or not. Probably not. Some may be higher, some would be lower with whatever capacity adds they're bringing onboard. Whatever capacity that people put out there and say capacity is going to go from whatever the numbers are, 14 to 18 or whatever the numbers are, that doesn't equate to, percentage-wise, that much more capacity. It takes a lot more capacity to fill in -- attrition is unknown. It's difficult to quantify. I think the amount of horsepower on these larger jobs is -- continues to increase. And so the math works out that, again, the frac capacity is going to remain tight, I think.
And just to clarify, when you talk about, Jim, foreseeing demand surpassing supply still and then it remaining tight, are you saying that in your model, even after you've added all of the new-build orders that you're aware of out there market-wide, that as you look to the end of 2018, you would still see demand exceeding supply at that point or at least be tight market?
Yes, Tom. Based on primarily what we know now, we would agree with that. Also, remember that we define a fleet that is workable as one that is well maintained, has logistical capacity to support it and has an assembled and trained crew ready to work the equipment. So it's not just buying equipment from suppliers, it's -- and logistical constraints seem to be lower than they were in previous up-cycles. But the employment, the personnel issues, are probably higher at this point. So yes, recruiting, screening, hiring and training employees is as big a deal as buying engines and transmissions at this point. So yes, we put all that in there, we think the market remains undersupplied.
Yes. And that's roughly consistent with how I would define marketed capacity, which is why specifically used that modifier marketed. And then I'm sorry if I missed this in your exchange with Wicklund, but have you shared what -- how your frac sand intensity changed in 4Q? And if not, could you provide us with that?
We'd be happy to. We did not, in the discussion with Jim, go over that. Our sand per stage is down slightly. Our frac stages per well is up very slightly, about 2% to 3%, which doesn't matter a whole lot. But frac sand intensity is down just a bit. It's down in mid-single digits sand per stage.
Right, which is the metric you've consistently used for measuring intensity, correct?
Yes, that is correct.
Okay. Last one for me, which is also a follow-up to that exchange you had with Jim. When it comes to however big your largest customer currently is, whether -- I know it's sub-10%, whether it's 8% or 5%, has that single largest customer changed from mid-2017 through end 2017?
I don't believe so. I do not believe so.
The next question comes from Ken Sill with SunTrust Robinson Humphrey.
I hope you're sandbagging a little bit on the rebound in Q1, but no reason to push things. Kind of following up on the sand topic a little bit. Are you seeing any of your customers looking at self-sourcing sand? That seems to be a big conversation for -- with all this brown sand coming on in the Permian, is the operators think they can save a lot of money self-sourcing. I've been a skeptic on it, but...
Yes. Okay. Certainly, Ken, that's another big topic in our space right now. There's always that pressure, no pun intended, from a number of customers. We choose customers who are willing to look to us to provide that service. So actually, the percentage of sand we pumped in fourth quarter that was ours, either from our mine or sand that we procured and delivered, was actually up a few basis points from third quarter. So it's something we -- when we're selecting customers and they're selecting us, we always tell them that we need to and very much want to be responsible for the sand. And there are a lot of reasons why that's a good thing for us and we think for the customer as well, as we've all discussed.
All right. So...
We don't think it's a huge trend, or it didn't impact fourth quarter results in a negative way.
Yes.
I think you have to have a certain scale to want to take on a sand contract as an E&P guy. And I know plenty of pressure pumping companies that would be happy to let them take that risk.
Well, I'd say right.
Yes. I guess one of those things that works -- it works about 1/3 of the time.
Yes. However, it was interesting to hear you guys say logistics hasn't been an issue yet. How are you guys moving sand? And I would think that given trucker shortages, the costs for moving sand per load would be going up. But it sounds like you're not really seeing that. Or is it not just as bad as last cycle?
Ken, the answer is both. I mean, we -- majority of our sand comes FOB the transload facility. In the last of upcycle, we really worked on our logistical capacity and our relationships with our vendors. It may sound trite a year or so into the upturn, but we pay our bills during the downturn. And our suppliers remember that and they really want to work with us. So I mentioned earlier that demurrage, which to me is a good measure of certain dynamics, was actually down in fourth quarter from third quarter. So it has to do with just managing the vendor relationships, trying to be a big customer to them. And thus far, knock on wood, we haven't had the logistical issues with railroads that we had in, say, 2013, 2014 in the last up cycle, so.
Okay, great. And then last question -- I actually was kind of -- I've got more than one question, but I'll just ask one. So 127,000 new horsepower, if that's kind of 5%, does that imply that's going to be 1 fleet, 1 new fleet, and then the rest of horsepower is going to be allocated out to other fleets? Or am I doing that math...
Yes. Yes. Yes, that's what that implies.
Yes. And the horsepower can go -- the older pumps that have lower pumping capacity can go to our vertical and acid locations, of which we have 2 in the Permian. And then also pump-down. You've seen the jobs where you've got wire line in these unconventional completions, and you use 2 or 3 lower-rated pressure pumping trucks to do pump-down between stages. So that is a business line, a small one, but one that we think we can grow by repurposing this older equipment.
And then have you guys seen a change in the number of your crews working on single versus multiple pads? And any trends in pad sizes in the Permian? And I'll stop there.
The -- that is moving incrementally higher. The amount of our revenue -- the percentage of revenue, for example, that was pad work -- or, I'm sorry, zipper frac work in fourth quarter was incrementally a little bit higher than it was in third quarter. So that's inching higher for us.
Now we'll go to Bart Rekucki with Citigroup.
Just a quick question. Can you just comment on how much of your work is zipper fracs right now and where do you guys expect that to go over the next year or so?
I believe it was 47% in fourth quarter. We do expect it to go incrementally higher, as we said. And -- I'm sorry, it was actually down a little bit between third quarter and fourth quarter but still is in the mid-40s as a percentage of total. We expect it to go higher at -- it can never be 100% because it's certainly not 100% in the Permian. We think it's more like 70% or 75%. And we have a couple of crews that do vertical and acid work, and that, by definition, is not a zipper -- not zipper work. So just to clarify, third quarter, 47% of our pressure pumping work was -- of our stages were zipper, and it was 43% in fourth quarter. So that's actually a decline. I apologize for that. And we think it can go higher, and that's a good thing. We don't think it's going to be 100%, and we think it's going to move very slowly higher but will continue to.
Now we'll go to Praveen Narra with Raymond James.
If I can just ask a follow-up to John's question, just make sure I understand it correctly. It terms -- it sounded like to me that the bid success rate didn't have any material change quarter-on-quarter. Did I read that correctly?
Success rate for what? I'm sorry. We didn't -- because...
Yes, I guess the number of bids that -- yes, I guess the number of bids you put out, and then the number of those bids that were accepted by the customer didn't seem to -- it didn't sound like it changed all that much.
No, that was not a dynamic that drove our results one way or the other. So yes, there was no change there.
Okay, perfect. And then I guess given the additional downtime you guys saw in the fourth quarter, did we see the R&M percentage tick up, just taking advantage of that idle time?
Good question. And the answer is -- I'm almost there. It actually did tick up a little bit as a percentage of revenues. So just to clarify for everybody, for Praveen's question, maintenance and repair expense as a percentage of revenue did increase in fourth quarter partially because revenue was down and partially because we took the time to do some more maintenance, exactly. Good question.
Okay. And I guess as you kind of look at the incremental Tier 4 build cost from your first blush, what kind of increasing costs are you guys expecting that to take on?
If you think about it -- if you think about the cost per horsepower, we think it's going to be about 15% higher cost per horsepower. The engines cost more and there are some ancillary equipment relating to emissions on Tier 4 stuff, and I think that's -- I don't want to give the number. I know -- I've sort of heard the number. But we think that Tier 4 equipment will cost 10% to 15% more than Tier 2 equipment that we currently...
And just to be sure, that's across the entire fleet or the entire cost of the fleet, not just the engine -- all the engine transmission, et cetera?
Yes, that would be a completely outfitted fleet with the LAS units and hydration units and crew supervisor pickups. And all that sort of fully kitted out fleet, we think, would be 10% to 15% higher if you're doing Tier 4 rather than Tier 2 equipment.
[Operator Instructions] We'll next go to Jon Hunter with Cowen.
So first off, trying to get a feel for the revenue progression through the fourth quarter. Assuming October and November we're pretty strong, how much lower was December revenue versus November?
We don't give intra-quarter information. But suffice it to say, and I think we said this earlier, December obviously was the weakest.
Right. Okay. And then on pricing, you said pricing was up in the fourth quarter or you expect another increase in the first. Assuming, and correct me if I'm wrong, pricing was up, say, mid-single digits in the fourth, would you expect a similar increase in the first quarter or perhaps a little bit more?
Pricing was only slightly up in the fourth quarter, and we expect that it will be probably low single digits. And yes, again, I think everybody was probably impacted some, again, by seasonal factors, and so there will be a little bit of a ramp-up. So I would say that it's going to be, again, probably up single -- low single digits.
Okay, that's helpful. I guess the last one for me is, on the horsepower you have coming in the second quarter of 2018, do you have customer commitments for that horsepower yet?
Because we don't have contracts, we don't have any firm, but we're going through the process, as we always do, coordinating with our customers, and the frac calendar even in the second quarter is being discussed. So we -- said another way, we are confident that we will get good utilization out of that additional fleet during the second quarter.
It looks like there are no further questions at this time, so I'd like to turn the call back over to Mr. Jim Landers for any additional or closing remarks.
Okay. Well, thank you. We appreciate everyone calling in to listen. We appreciate the questions. Look forward to seeing everybody and talking soon during the first quarter. Take care.
That does conclude today's call. We thank everyone for their participation. We'd like to remind you that this conference call will be replayed on www.rpc.net within 2 hours of the -- of this time. Once again, we thank you for your patience. You may now disconnect.