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RPC Inc (NYSE:RES)
Q3 2019 Earnings Call
Oct 23, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and thank you for joining us for RPC, Inc.'s Third 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] Following the presentation, we will conduct a question-and-answer session, instructions will be provided at that time for you to queue up for questions. [Operator Instructions]

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

Jim Landers -- Vice President of Corporate Finance.

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 would 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 our conference call we'll be referring to several non-GAAP measures of operating performance. These non-GAAP measures are adjusted net loss, adjusted net income, adjusted loss per share, adjusted earnings per share, adjusted operating loss, adjusted operating profit, EBITDA and adjusted EBITDA.

We're using these non-GAAP measures today because they allow us to compare our perform -- compare our performance consistently over various periods without regard to non-recurring items. In addition, RPC's required to use EBITDA to report compliance with financial covenants under our credit facility. Our press release today and our website contain reconciliations of these non-GAAP financial measures to operating loss or income, net loss or income and losses or diluted earnings per share which are the nearest GAAP financial measures.

Please review these disclosures, if you're interested in seeing how they're calculated. Our press release issued today on our website contain reconciliations of these. If you have not received our press release and would like to see one, please visit our website at www.rpc.net for a copy.

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

Richard A. Hubbell -- President and Chief Executive Officer

Thank you, Jim. This morning we issued our earnings press release for RPC's third quarter of 2019. RPC's significant sequential revenue declines were driven primarily by declines in customer activity in pressure pumping. In addition, changes in job mix negatively impacted revenue, pricing remains -- remained broadly flat during the quarter, although many service companies are idling fleets, the pressure pumping industry continues to be over-supplied partially due to increasing industry efficiencies.

Given current market conditions, we initiated a strategic review of our operations during the third quarter, our CFO, Ben Palmer will discuss this and other financial results in more detail after which I'll have a few closing comments.

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Thank you, Rick. In connection with our strategic review, we undertook an extensive operational assessment. We began closing several pressure pumping related facilities, retiring older, less capable pressure pumping equipment and reducing the number of staff fleets and operational and administrative employee head count. As a result of our efforts to-date we recorded impairment and other charges of $71.7 million during the third quarter.

For the third quarter revenues decreased to $293.2 million compared to $440 million in prior year. Revenues decreased compared to the prior year, primarily due to lower pricing and activity. Adjusted operating results for the third quarter of 2019 was a $21 million operating loss compared to $54.6 million operating profit in the third quarter of the prior year. Adjusted EBITDA for the third quarter was $22.8 million compared to $97.8 million in for the same period as last year.

For the third quarter of 2019, RPC reported an $0.08 adjusted loss per share compared to $0.23 diluted earnings per share in the prior year. Cost of revenues during the third quarter of 2019 was $225.2 million or 76.8% of revenues, compared to $300.9 million or 68.4% of revenues during the third quarter of 2018. Cost of revenues decreased consistent with lower activity levels due to lower materials and supplies expenses, employment costs and other expenses that vary with activity levels.

Cost of revenues as a percentage of revenues increased due to unfavorable job mix. more competitive pricing for our services and labor cost inefficiencies. Selling, general and administrative expenses increased slightly to $42.6 million in the third quarter compared to $41.8 million in the third quarter of the prior year. Depreciation and amortization expense was $44.7 million during the third quarter of 2019, an increase of 4% compared to $43 million in the prior year.

Our Technical Services segment revenues for the quarter decreased 34.8% compared to the same quarter in the prior year. Operating results excluding impairment and other charges in the third quarter of 2019 were in $18.2 million loss compared to $56.2 million profit in the prior year. These decreases were due to both lower pricing and lower activity within our pressure pumping service line. Our Support Services segment revenues for the quarter were flat at $18.7 million.

Now I'll discuss our sequential results. RPC's third quarter revenues sequentially decreased 18.2% to $293.2 million from $358.5 million in the second quarter due to lower activity levels and change in customer job mix. Cost of revenues during the third quarter of '19 decreased by $39.9 million or 15% due primarily to decreases in materials and supplies expenses and other expenses, which vary with activity levels.

As a percentage of revenues, cost of revenues increased from 73.9% in the second quarter to 76.8% in the current quarter due primarily to labor inefficiencies and increasingly competitive pricing for our services. Selling, general and administrative expenses decreased slightly to $42.6 million during the third quarter of the year compared to $43.3 million in the prior quarter. RPC generated an adjusted operating loss of $21 million during the third quarter of '19 compared to an $8.4 million operating profit in the prior quarter. RPC's adjusted EBITDA was $22.8 million compared to EBITDA of $51.2 million in the prior quarter. Technical Services segment revenues decreased by $63.6 million or 18.8% to $274.5 million in the third quarter. The segment incurred an $18.2 million operating loss compared to $6.9 million operating profit in the prior quarter. Our support services segment revenues in the third quarter were $18.8 million compared to $20.5 million in the prior quarter. Operating profit was $1.6 million in the third quarter compared to $4 million operating profit in the prior quarter.

During the third quarter, RPC operated an average of 16 pressure pumping fleets. In connection with our strategic review and fleet assessment, we are in the process of retiring and disposing approximately 400,000 hydraulic horsepower. By year-end 2019, we will have approximately 750,000 hydraulic horsepower but only have plans to operate non-fleets. We will adjust this number up or down based on market conditions. Third quarter 2019 capital expenditures were $77 million and we currently estimate 2019 capital expenditures to be approximately $260 million. At the end of the third quarter, our cash balance was $49.5 million and we had no outstanding debt.

With that, I'll turn it back over to Rick for a few closing comments.

Richard A. Hubbell -- President and Chief Executive Officer

Thanks, Ben. In our second quarter commentary, we stated there were indications -- there were indication of customer activities would decline during the third quarter. These declines occurred and we expect them to continue during the near term. In addition to enhanced completion techniques, newer equipment and better technology have greatly increased service efficiency. This has reduced our industries requirements for pressure pumping service capacity at any given oilfield activity level. The locations we are closing had inadequate equipment and crew utilization. The older pressure pumping equipment is being retired because it is no longer -- no longer effectively meets the industry's current market requirements, required more maintenance and was not expected to generate added -- adequate returns in the future. As a result of these steps RPC will be better positioned to compete in a difficult market environment.

I'd like to thank you for joining us for RPC's conference call this morning. And at this time, we'll open up the lines for your questions.

Questions and Answers:

Operator

Thank you very much. Ladies and gentlemen, at this time, we would like to open the floor for questions. [Operator Instructions] Our first question will come from Praveen Narra, Raymond James.

Praveen Narra -- Raymond James Financial Inc. -- Analyst

Hey, good morning guys. I guess if you could get a bit -- I guess if we could get a bit more color on the decision making process to retire the equipment. I guess when you guys looked at it could you talk about kind of the maintenance requirements that equipment needed and then any color you can give on maybe the vintage of the equipment or ideally you can provide on the type of equipment that's being retired?

Jim Landers -- Vice President of Corporate Finance.

Praveen, this is Jim. I think we've covered a lot but I'm happy to give you a little bit more color on this. As you know, and people who have known us for a long time now, we have been in the practice of rebuilding equipment. It was a very good financial decision starting in 2012. We did that, a lot and we returned it to the field in like-new condition at a 50% or more of replacement cost. What we've ended up with is the increase in 24-hour work, the increase in zipper frac work, especially in the Permian, what we've ended up with is equipment that is serviceable but it doesn't meet the -- it doesn't meet the requirements of zipper fracs and just these longer duration jobs. So the maintenance required on that equipment got to be onerous [Phonetic] and it just wasn't performing the way we needed it to. We also have some -- have had some locations that were not performing all that well. So that was the backdrop to this assessment and this action we've taken. One thing you'll notice and everyone knows, is that we were buying equipment this year when many of our peers weren't. We were doing that because we have the capital strength to do so because we are committed to pressure pumping and because we realized that somewhere equipment was getting older. We just felt it was prudent at this time to really, really retire some of that older equipment and have a more streamlined operation to face the market [Indecipherable].

Praveen Narra -- Raymond James Financial Inc. -- Analyst

Okay, sir. I guess if we think about it on a capex per fleet basis or however as we go into 2020 and as we think about going forward, how should we think about the capex profile of the remaining fleets for just maintenance capex?

Jim Landers -- Vice President of Corporate Finance.

Praveen, with the increased efficiency, we're learning all the time, but we are expecting about $2 million per fleet that we're operating, we will benefit some in 2020 from the perspective of being able to harvest some of the components that are on the equipment that's being retired. So what that effect will be we're not we haven't spent a lot of time trying to forecast that. But that would say the number if it's normally around $2 million, it will be slightly less than $2 million. So, but that's the way we're thinking about that.

Praveen Narra -- Raymond James Financial Inc. -- Analyst

Okay. If I could squeeze one in, on the majority of your cost saving initiatives, can you give an idea of when they took place? I guess just trying to figure out if they impacted the third quarter if they more impact the fourth quarter.

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Yeah. This has Ben. Definitely will be more fourth quarter and even more in first quarter next year. That's what we're focused on is looking at how we're going to be positioned as we start 2020 and so the actions that have been taken to-date are -- again some were in third quarter, mid to late third quarter and others are in the fourth quarter.

Praveen Narra -- Raymond James Financial Inc. -- Analyst

Thank you very much. Thank you very much guys.

Operator

Thank you.

Unidentified Speaker

Thanks, Praveen.

Operator

Our next question will come from Stephen Gengaro, Stifel.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Thanks, good morning, gentlemen. I guess two things. I'll start sort of following up on the first question and maybe if you could help us understand this looking forward and thinking about how the third quarter evolved. But when you think about the cost savings and the sort of operating more efficient fleets going forward, can you give us any sense for how that should impact the margins in Technical Services and maybe as part of that as we look at the sequential decline 2Q to 3Q, how much of that is sort of older inefficient fleets and how much is related to pressure pumping versus the rest of the business? Is there a way to help us sort of work through that a bit?

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

This is Ben. I can qualitatively sort of discuss that as we've read and heard from others, September was a particularly weak month for us and that affected some of our service lines that typically aren't as affected by things like that. So it was kind of across the board for us weak in the quarter. Now, we don't expect this to be a continuing trend, but the beginning of the fourth quarter was a little bit better than that, which was good to see. But nothing we're going to count on in terms of a continuing upward trajectory from this point. So it was kind of across the board. Also job mix contributed to some of the revenue declines, more customer supplied materials, which has been obviously a recent trend and impacted us from quarter to quarter. We also -- I think I mentioned, let me clarify another comment I said that other actions we're taking are going to be more mid to late fourth quarter if not early in the fourth quarter in terms of headcount reductions, but like I said earlier, we're kind of focused on where we're going to enter 2020. How do we get positioned for 2020, not so much as where we're going to land in the fourth quarter. We know fourth quarter is going to be difficult, has been in the last two years. We're not expecting anything different this year.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Great, thank you. And then as a follow-up is, when you look at your, the composition of your pressure pumping fleet and what it looks like going forward versus maybe where it was a year ago, and you sort of referenced retiring equipment that was basically serviceable but really not profitable. Can you give us sort of the vintage of that equipment and because as we start to think about the overall market, it would seem like this has got to be a trend across the industry, which may be helps balance the market a little bit over the next couple of quarters? Is there a way to sort of think about the age of the equipment or not because there has been sort of rebuilding done over the years?

Jim Landers -- Vice President of Corporate Finance.

Steven, it's Jim Landers, as you know and everyone else knows on the call, pressure pumping is this assemblage of component equipment. So it's hard to put in age on it. However, if you really try to think about the units and how old they are, if you start with June 30, 2019 at RPC and end up at December 31st of 2019, the average age of our fleet will have dropped, fallen by almost 40%, so that's a qualitative comment we can give you right now.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Okay. No, that's helpful directionally. Thank you, gentlemen.

Jim Landers -- Vice President of Corporate Finance.

Sure.

Operator

Thank you very much. Our next question will come from Chase Mulvehill, Bank of America.

Chase Mulvehill -- Bank of America Merrill Lynch Research -- Analyst

Hey, good morning. I guess, real quickly, just to follow up on Stephen's question, basically if I look at your fleet and you've got 750,000 horsepower, now it looks like, I guess, maybe if you can confirm this 450,000 of that was built over, call it the last five years and then, so that's kind of question one and then a follow-up on that, how much is the 750,000 is Tier 4 engines?

Jim Landers -- Vice President of Corporate Finance.

Chase, this is Jim. I'm not sure how much actually is Tier 4. We did buy some new equipment that was grandfathered in Tier 2, certainly everything we've purchased this year and you know about our 3,000 horsepower pumps. Those are all Tier 4. I just don't have that number in front of me right now. And I'm sorry, can you repeat the first part of your question?

Chase Mulvehill -- Bank of America Merrill Lynch Research -- Analyst

Yeah, the first part was if I was trying to do the math on it looked like about 450,000 horse power was actually built in the past five years, does that number sound about right?

Jim Landers -- Vice President of Corporate Finance.

Yes, that's about right.

Chase Mulvehill -- Bank of America Merrill Lynch Research -- Analyst

Okay, right. And can we talk a little bit about fourth quarter. I mean obviously you're going from 16 to 19 manned fleets. So that probably and then obviously the industry is contracting in the fourth quarter but you're taking down -- taking out some faults [Phonetic] , reducing the number of manned fleets should help support profitability somewhat? So I don't know if you could maybe just help us frame or understand the impact to revenue and then ultimately, what kind of impact that may have on margins as we get into the fourth quarter?

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Chase, this is Ben. Fourth quarter is very very difficult to predict. All things equal, obviously, we would expect revenue to come down. We are in the process of -- have been in the process of moving from 16 to 9 fleets. We're not all the way there at this point but are getting there. So as we get to the end of 2019, we expect to be at nine and as I expressed in my comments will be more or less than that as conditions change. The benefit of reducing the fleet is that we'll be focused on our more highly capable equipment. Not having to maintain and at times struggled with the equipment to perform some of the more demanding work. So it will allow us to be more focused. Also with the fewer crews, we're expecting to be more efficient will have less white space in the calendar. We're going to be more disciplined in terms of bidding our jobs and what jobs we accept, we think this is hopefully with other people idling equipment, disposing of equipment and doing some of the same will help with some of the disciplined to get the overall market balance sooner than it might be otherwise. So we don't want to contribute to that. So we're going to try to become much more disciplined, again with how we bid or the levels at which we bid and and have less white space and focus on our operating procedures on location to be much more efficient and effective and get our efficiencies up all those things together should allow us to improve our margins. Where the margins are going to go? So many variables in place but we should have, be more efficient with our labor, we'll be able to be more focused on operating procedures and our own efficiency when on location and all those things should result in an improved performance .

Chase Mulvehill -- Bank of America Merrill Lynch Research -- Analyst

Right. And then just to clarify, when you said, improved margins, you mean over the next few quarters not in the fourth quarter. Correct?

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Probably not. Fourth quarter is very difficult. We are focused on getting ready for 2020, hard to know where fourth quarter is going to be, there'll be the shake out [Phonetic] the timing differences with some of the layoffs and so forth that are taking place, exactly where that's going to fall and what the impact is going to be is (difficult) that we haven't spent a lot of time trying to forecast what that's going to be, we're focused on on getting and positioned again 2020.

Chase Mulvehill -- Bank of America Merrill Lynch Research -- Analyst

Okay. All righty. I've got a few more questions but I'll jump back in the queue. Thanks Ben. Thanks, Jim. [Indecipherable]

Operator

Thank you. Our next question will come from Marc Bianchi, Cowen.

Marc Bianchi -- Cowen Securities -- Analyst

There is a lot of noise here with all these actions you're taking in the third and the fourth quarter, I was hoping we could talk about what the profitability might look like when we get through this process. One way, I was thinking about it is, you're going to have nine fleets. Assuming the market remains steady with those nine fleets and perhaps earning $10 million a fleet, so that piece of the business could be earning $10 million a fleet or $90 million on an annualized basis, kind of, once we get to the other side of this. Is that the right way to think about it? Or are there any other puts and take you'd add?

Jim Landers -- Vice President of Corporate Finance.

Marc, this is Jim, that's a very appropriate way to think about it. Except we're looking at seven horizontal fleets and two vertical fleets. So two vertical fleets would be earning less -- generating less EBITDA. But the $10 million EBITDA per fleet in the current market environment is a good goal and one to which -- one toward which we're striving right now. So, yes.

Marc Bianchi -- Cowen Securities -- Analyst

Okay, that's helpful. And then on the capex, you mentioned I think $2 million of fleet. So, if we've got nine fleets that's just $18 million. I'm sure that there is a bunch more capex that we would likely see in '20 and I know you probably don't have your plan together. But can you talk about just generally what the rest of the business requires and maybe perhaps put a range around expectations for '20 for us.

Jim Landers -- Vice President of Corporate Finance.

Reasonable question. At this point in time, we don't have any large outstanding orders that would fall into 2020. We've talked about the capex for this year. There is some additional spending this year to wrap everything up. We spent some money this year in coiled tubing, we spent some money obviously in pressure pumping. At this point in time, unless market conditions change, we don't see any large growth initiatives requirements and so forth. So, we believe, and again we are, as you've indicated, we're in the midst of and with all these changes you described it as noise, which is true. We're working through that right now, but we believe capex will be minimal, next year, I think certainly less than $100 million, maybe $80 million unless market conditions change, if things slow down and deteriorate we'll adjust our pressure pumping fleet -- staff fleets further which will reduce our maintenance capex if industry conditions improve will increase the fleets and so the number will go up, but at this point in time, kind of a steady state, maybe $80 million.

Marc Bianchi -- Cowen Securities -- Analyst

Okay. Well, that's great color guys, I appreciate it. And I'll turn it back.

Jim Landers -- Vice President of Corporate Finance.

Thanks, Marc.

Operator

Thank you. Our next question will come from Scott Gruber, Citigroup.

Scott Gruber -- Citi Investment Research -- Analyst

Yes, good morning.

Jim Landers -- Vice President of Corporate Finance.

Hey, Scott.

Scott Gruber -- Citi Investment Research -- Analyst

Just to follow on the last line of questions. Were you referring to the kind of $80 million, $90 million of EBITDA. The goal of getting to $10 million per fleet, is that total company or is that just specific to pressure pumpings?

Richard A. Hubbell -- President and Chief Executive Officer

No, that's been some of the industry metrics for the pressure pumping fleets. So that's only [Indecipherable].

Scott Gruber -- Citi Investment Research -- Analyst

Okay. I just wanted to clarify, so, and then when you think about those types of targets are these reasonable targets for the first half of '20, assuming no change in mark and no change in pricing, can you get there just with the actions you're taking?

Jim Landers -- Vice President of Corporate Finance.

We certainly believe it's possible, but again highly the market is very difficult. We're certainly shooting for and we'll see where it will apply. We're going to get into early 2020 to see how things are going to make the appropriate adjustments and go from there. Reasonable question but we would hope so. And with the efficiencies we'll have certainly that will be a contributor and a lot of it again will depend on job mix and things like that. So still a work in progress.

Scott Gruber -- Citi Investment Research -- Analyst

And I know the market it's very uncertain at this point, but is there any way to put some color around the magnitude of activity recovery early next year that would facilitate such recovery in your EBITDA assuming no price change, just thinking about volumes . What type of volumes will be required to get there?

Jim Landers -- Vice President of Corporate Finance.

Scott, this is Jim, that's a hard one, that's moving target. We don't have a great number right now for you.

Scott Gruber -- Citi Investment Research -- Analyst

Okay and overhead, how should we think about overhead for 2020?

Jim Landers -- Vice President of Corporate Finance.

At this point in time. I guess, we've been on about a $43 million a quarter run rate. We are implementing plans to get that down by early 2020 to at least get that down between 5% and 10% and again, we'll be taking a deeper dive into our various costs and from there we'll react to again market conditions and the industry conditions. So that's our target at this point.

Scott Gruber -- Citi Investment Research -- Analyst

And we should assume run rate in 4Q for now? [Indecipherable]

Jim Landers -- Vice President of Corporate Finance.

Yes.

Scott Gruber -- Citi Investment Research -- Analyst

Okay. I'll circle back. Thank you.

Jim Landers -- Vice President of Corporate Finance.

Thanks, Scott.

Operator

Thank you. Our next question will come from Chris Voie, Wells Fargo.

Christopher Voie -- Wells Fargo Securities -- Analyst

Good morning.

Unidentified Speaker

Hey, Chris.

Christopher Voie -- Wells Fargo Securities -- Analyst

First question, I guess, I wonder if you could give a little color -- a little more color on the nine fleets. Is essentially the nine going to be what you expect to have working at the end of the year or is that we expect to have ready to go to market in 1Q '20 based on the visibility you have for work to start the year?

Jim Landers -- Vice President of Corporate Finance.

We're hopeful it -- whether it's all going to be working on 12.31.2019? Not sure, but we expect that those will be working or certainly gearing up to begin work in early 2020. And like I said if, I mean, if we get early 2020 and something less than nine appear to be sufficiently busy will make additional adjustments. We're going to respond to what we see before us, we're going to strive for efficiency. We're going to strive for utilization, utilization first, then efficiency on the well site and we'll see where to go, where it goes from there.

Christopher Voie -- Wells Fargo Securities -- Analyst

Okay. And then on the closing locations, I was wondering if you could give an update in terms of the basin presence, has there been any kind of exiting of basins related to this? And could we get a breakdown of where the nine fleets we expect to have at year-end where they would be in terms of the basins?

Jim Landers -- Vice President of Corporate Finance.

Chris, this is Jim. We will not have a pressure pumping presence in the Bakken . And we are streamlining locations in Texas. We'll still have a strong, big presence in the Permian and can service other areas as well.

Christopher Voie -- Wells Fargo Securities -- Analyst

Okay. And if I could just squeeze one last one in usually give a breakdown of the revenues are business. I was wondering if you could maybe read those out?

Jim Landers -- Vice President of Corporate Finance.

Yes, Chris absolutely, happy to. So the numbers I am about to share are percentages of RPC's consolidated revenue for the third quarter. This is by service lines. The largest service line for the third quarter was ThruTubing Solutions at a little over 38% of revenue, 38.1%. For the third quarter number two was pressure pumping at 37.9% and after that, of course, we follow a fairly rapidly coiled tubing was 6.7% of consolidated third quarter revenue, rental tools, which is in our Support Services segment was 4.3% of consolidated revenue, our nitrogen service line was 3.5% of consolidated revenue for the third quarter.

Christopher Voie -- Wells Fargo Securities -- Analyst

Thank you.

Jim Landers -- Vice President of Corporate Finance.

Sure. Thanks, Chris.

Operator

Thank you. Our next question will come from Vebs Vaishnov, Howard Weil.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Hey, good morning and thank you for taking my question.

Jim Landers -- Vice President of Corporate Finance.

Hey, Vebs.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Okay. I guess the remaining 750,000 horsepower. How many fleets is that, is that like around 15?

Jim Landers -- Vice President of Corporate Finance.

It's around 13 to 14. Yeah.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Okay. And the fleets that you're regarding, are you like cutting them up or selling them? How are you disclosing them?

Jim Landers -- Vice President of Corporate Finance.

Good question. We are in the midst of kind of planning for that, but clearly don't want the pumps to come back and compete against us. So it'll be a variety of things we'll be selling some components will be cutting up what we otherwise think can't be sold and there are few that we are repurposing and other parts of our business for but a good question and we definitely want to take them. We'll be taking them completely out of the hydraulic fracturing market.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

If I think about the third quarter, and this is again, just me trying to do some gymnastic, it seems like EBITDA per fleet was negative, obviously you're going from 16 fleets to nine fleets. Is it fair to think that those nine fleets are actually EBITDA positive fleets is there a way you can help us like what's the range of EBITDA per fleet that you guys saw within your fleet?

Jim Landers -- Vice President of Corporate Finance.

This is Jim. You properly described that exercise as gymnastics and we agree. We have some regions and we've talked about this in our conversations we have some regions in some locations that are doing well and pressure pumping and we are very interested in replicating that success with a smaller number of fleets. So I can't give you an EBITDA per fleet range, some was positive and some of the fleets were positive and fine doesn't mean great but they were fine others due to the problems in the issues we've discussed were otherwise that's why we're making the change.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

And I guess you mentioned about the mix impacting third quarter. Could you provide some color like how what that mix was and how much of the impact was that?

Jim Landers -- Vice President of Corporate Finance.

I'm sorry can you clarify [Indecipherable]. Yeah, sure. So that too is a good question. During the third quarter the percentage of proppant that our customers provided really increased a lot, and as a result of that probably third of our sequential revenue decline in pressure pumping is attributed to us bringing less of the sand to the job and therefore that not [Indecipherable] P&L.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

And last one, if I may. So we are closing down less profitable locations and the fleets, have you guys, can you just talked about what changes have you made in sales force so that you can align with customers who have higher utilization?

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

It's a focus of ours. Not really prepared to today to dive into a long discussion, but clearly we're looking for the much discussed and a more dedicated work and we're going to do that through focusing our efforts, improving our fleet and crew quality and data accumulation and analytics but we'll have more on that later.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Got it, thank you for taking my questions.

Jim Landers -- Vice President of Corporate Finance.

Sure. Thanks Vebs.

Operator

Thank you. Our next question will come from Connor Lynagh, Morgan Stanley.

Connor Lynagh -- Morgan Stanley Research -- Analyst

Thanks, Morning.

Jim Landers -- Vice President of Corporate Finance.

Hey Connor .

Connor Lynagh -- Morgan Stanley Research -- Analyst

If we could, I'm not sure if you guys have quantified the so, I apologize if you missed it -- if I missed it, but have you quantified just the absolute dollar amount of impacts to EBITDA that closing some of these facilities and shutting down some of these cruises [Phonetic] is going to have and any commentary around timing of that would be appreciated?

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Connor, this is Ben, we have not quantified it, but I indicated that there were some reductions that took place in the middle of the third quarter and other actions as we've gone along there will be others that will be mid to late in the fourth quarter.

Connor Lynagh -- Morgan Stanley Research -- Analyst

Okay, that's fair. I mean, if we think about, if we're looking at, say your cost of sales in the third quarter, could you quantify maybe as a percentage of that how much is related to the facilities that are going to be no longer operating by sometime next year?

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

The actual, well, -- reasonable question. We don't really look at it that way. Obviously, it depends on the relationship of the revenue to the cost we sort of look at it is, we are limiting our exposure. Right. Our fixed cost exposure as it relates to crew cost and things like that. We want to fill up the calendar, improve our utilization and focus on efficiency on the well site. So again, reasonable question, I'm not sure it really gives if we have the number. I'm not sure that translates into anything other than how we've reduced again our fixed cost exposure, certainly there is less opportunity with less crews to generate revenue, but we believe that we will be all things equal, as we go into 2020. We're going to have better margins, better-- a better cost relationship as we are right sizing to the amount of work that we can do on a regular basis at a appropriate -- higher utilization levels.

Connor Lynagh -- Morgan Stanley Research -- Analyst

Okay, that's fair. I appreciate, it's not maybe how you look at it. So I try one different way, which is just how of what you've chosen to shut down, how large of an EBITDA drag would that have been in the third quarter? Just any way you can frame this up, just so we can think about, obviously we all have different views around what next year looks like. But I'm just try to think about how much cost savings there is still to flow through.

Jim Landers -- Vice President of Corporate Finance.

This is Jim. Very, very hard estimates, you can drive a truck through this estimate, but somewhere between $5 million and $10 million and EBITDA .

Connor Lynagh -- Morgan Stanley Research -- Analyst

Got it. Thanks very much guys.

Jim Landers -- Vice President of Corporate Finance.

Thanks.

Operator

Thank you. Our next question will come from Waqar Syed, AltaCorp Capital.

Waqar Syed -- AltaCorp Capital Inc. -- Analyst

Thanks for taking my question. Could you provide some outlook for your other businesses ThruTubing and coiled tubing business what you're seeing there?

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Those businesses too are experiencing some of the same weakness, like we talked about in the end of the third quarter with a little bit of a bounce back early in the fourth quarter, which was good to see a little bit of a relief. One of the things we are doing as part of our strategic review. We are looking at opportunities to try to get our various service lines to be able to work a little closer together. We are hopeful that's going to generate some positive benefits as well more to come on that later, but we've made some strides in that direction.

With some of the investments we made in coiled tubing in the last several quarters and we kind of scrubbed the coiled tubing service line last year with little or no P&L impact, but we kind of trimmed the fleet here and there with some of our older equipment so we feel pretty good about the quality, the size, the capability of the coiled tubing equipment that we have and so we look forward to the benefit of trying to touch the customer's well as many times as possible with our various services is something we talked about a lot over the years, we've had some success from time to time, but we're hopeful that maybe we can generate additional overall benefits and opportunities to bring some of those things a little bit closer together.

Waqar Syed -- AltaCorp Capital Inc. -- Analyst

How about the pricing in coiled tubing, could you quantify that weighted sense today versus where it was maybe in a few months ago?

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Pricing in all of our service lines is not continue to fall precipitously. It's been more of, it's been more of a utilization sort of play, hope -- I'm hopeful that the industry and it appears that maybe reached the point where people aren't going to be able to continue to drive pricing down and we don't want to continue to contribute to that sense in the industry. So we're going to try to become a little more disciplined in that regard and we try to make sure we're getting our utilization up and make sure that our performance is at least reasonable and that's a work in process, but again, to answer your question pricing has not been following tremendously . And a lot of it depends on mix, of course.

Waqar Syed -- AltaCorp Capital Inc. -- Analyst

Now, as you reduce your pressure pumping size of the fleet do [Phonetic] you go down to about nine. So, certainly you could benefit from utilization for individual asset, but on the other hand, you would also lose economies of scale and so do -- I mean you mentioned that you're going to be out of Bakken, but when we think about it. With all the assets be close together in a basin, or would there be some extra costs that may creep up, on a per unit basis just because you may not have economies of scale as you operate?

Jim Landers -- Vice President of Corporate Finance.

Waqar, this is Jim. In our pressure pumping experience over the last almost exactly 20 years and operating in multiple basins, we believe that economies of scale exist within a basin, but not across basins. So to be in a region that's a very long distance from other areas just doesn't help you, it doesn't help you with proppant logistics, it doesn't help you with sharing crews. It doesn't help you with sharing equipment and that the -- for many customers the decision making process is decentralized even when it's centralized, it's still made on a regional basis. So it's a good question. But we do not think that getting out of basins -- a specific basin hurts us from an economy of scale point of view, we actually think that by focusing more in certain basins, the economies of scale that are there to be gained. We can gain more of those.

Waqar Syed -- AltaCorp Capital Inc. -- Analyst

That exactly was my point that would you be then all focused just in the Texas area, so you get the economies of scale in that area and be out of the Rockies [Phonetic], completely in Northeast and other areas or?

Jim Landers -- Vice President of Corporate Finance.

So, yeah, that's part of the business plan... [Indecipherable] and the economies of scale are probably pretty elusive, but those that are able to be gained. We stand a better chance of realizing those.

Waqar Syed -- AltaCorp Capital Inc. -- Analyst

Fair enough. Thank you very much. Best of luck.

Jim Landers -- Vice President of Corporate Finance.

Thanks.

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Thank you.

Operator

Thank you very much. Our next question will come from George O'Leary, Tudor, Pickering, Holt & Company.

George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst

Good morning, guys.

Jim Landers -- Vice President of Corporate Finance.

Hi, George.

George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst

With respect to the capex commentary, there is the potential to spend $80 million or less in 2020, that's obviously a material cut which it seems a prudent move in the current environment and if you guys go back and look at 2016 or we obviously dropped at a much lower . You guys spent $34 million in capex that year, is it possible that if the market pans out to be as bad as it is today or as bad as it may get in the fourth quarter? Do you guys spend closer to that level of capex, the $34 million versus the $80 million. The fleet will be smaller, it seems like you guys are rationalizing some facilities as well so actually seems like there is a potential for capex to come at a well lower year-over-year. But I also don't want to set falsely low expectation.

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

George, this is Ben. Yes, there is that possibility. We're going to be working really hard as we did in '16 and do every year that really scrutinize our capex -- scrutinize our capex and there certainly is that possibility that it will be lower than the $80 million number that we mentioned.

George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst

Okay and then just piling on to that question, but a slightly different angle from kind of a free cash flow perspective is also [Indecipherable] a really good job in the '15 and '16 downturn of blowing down working capital and I realized some of that just happens naturally as revenue declines, but it seems like there is the other sand business. So, and where you already have some costs and you could sell that then for some like on the Thru Tubing Solutions side also, probably a potential for diverter sales and things of that nature to avoid free cash flow. Just curious, realize it depends to the degree to which revenue declines, but is working capital, a source of cash next year as you guys see it today?

Jim Landers -- Vice President of Corporate Finance.

George, this is Jim, you bring up some good factors and thanks again for the history lesson to our friends, you may not remember 2016 with that capex level was. The answer is yes. We try to manage prudent -- we try to manage working capital very prudently and I think we have a good record of that all the factors you brought up, are there and possible let's do acknowledge though that we're starting from a lower revenue run rate. So collection of receivables won't quite be the boon to cash that it would be otherwise. And we've been trying to manage inventory pretty well. So there will be, those impacts should 2020 have declines from beyond third quarter, fourth quarter for a second. And we will absolutely manage to a sound balance sheet whatever it takes.

George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst

Great, thanks for the color guys, good luck with the restructuring.

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Thanks, George.

Operator

Thank you. Our next question will come from Tommy Moll, Stephens Inc.

Tommy Moll -- Stephens Inc -- Analyst

Good morning and thanks for taking my questions.

Jim Landers -- Vice President of Corporate Finance.

Sure, Tommy.

Tommy Moll -- Stephens Inc -- Analyst

So, for the nine fleets that you're planning to have active once we get to the beginning of next year, could you comment on how utilization has trended in recent months for those nine? Is it at a level that you're pleased with or is there still a lot more work to be done to improve utilization on those?

Jim Landers -- Vice President of Corporate Finance.

Tommy, it's Jim. It's a good question. Hate to answer by saying that it's a moving target. One reason, it's a moving target is as you know, we have just put 100,000 new horsepower in the field in July, August and September and is performing well for us and the utilization is high because of how well it how well it performs and good customer acceptance in several regions. So that's a positive. So we've got some fleets that their utilization is, I'll just characterize it as acceptable but not where it needs to be some of that has to do with spotty customer activities we've -- we've got some good customers that we work for very steadily and that utilization is fantastic. We've got some other customers that we work for and do a good job for, in fact in some cases, the job is too good and we finish early in that, that refers back to the increasing service efficiency in our part of the industry and how that can some ways hurt you, so utilization, it needs to improve but in some places it is decently acceptable for us right now.

Tommy Moll -- Stephens Inc -- Analyst

Okay, thank you. And as a follow-up there, again if we look at the pro forma for the beginning of next year, you're at 750,000 horsepower. So call it 13 or 14 fleets for the four or five you're planning to have idle at that time. In the event you wanted to bring those back to work. Other than hiring people, is there deferred maintenance that would you be required to address when bringing those back to the field or should we think of them as essentially ready to work but for being staffed?

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Tommy, they are ready to work, all we would need to do is crew them up.

Tommy Moll -- Stephens Inc -- Analyst

Okay, thank you very much. That's all from me.

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Okay, thanks.

Unidentified Speaker

Thank you.

Operator

Thank you very much. Our next question will come from Dylan Glosser, Simmons Energy.

Dylan Glosser -- Simmons Energy -- Analyst

Hey, good morning guys.

Richard A. Hubbell -- President and Chief Executive Officer

Good morning.

Jim Landers -- Vice President of Corporate Finance.

Hey Dylan.

Dylan Glosser -- Simmons Energy -- Analyst

When you guys mentioned 16 active fleets in Q3, how utilized are those fleets? And if you were to think about those on a more fully utilized basis, similar to what some competitors provide? Would that number be closer to nine or so?

Jim Landers -- Vice President of Corporate Finance.

Let's wait and see what our competitors say happened during the third quarter. Utilization was low, utilization dropped off in third quarter some, we're going to answer it this way.

Dylan Glosser -- Simmons Energy -- Analyst

Late in the third quarter?

Jim Landers -- Vice President of Corporate Finance.

Yeah. Ben said earlier that pricing has not fallen materially our declines have had to do with utilization/activity and then the job mix issue that we mentioned earlier. And to say it another way, we've got some fleets in some locations that we're very highly utilized in third quarter, others that were not.

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

And that's the reason we began the move go to go from something that look like 16 fleets down to nine. I mean, that's the reason for the adjustment and is nine going to be the right number? We're hopeful that 10 or 11 is going to be the right number. We don't know, but we're getting down to nine, we'll assess the market and we'll adjust from there.

Dylan Glosser -- Simmons Energy -- Analyst

Okay, thank you. As a follow-up to that. And as far as the clarity for January and February in 2020 given that you guys plan to have about nine fleets moving into 2020, is it fair to say that visibility for January isn't super clear yet and that you maybe haven't received a great, great intel from the customers indicating a meaningful ramp up in January?

Jim Landers -- Vice President of Corporate Finance.

That's fair. There is a broad range of customer indications right now. We are also watching very closely as and everyone else in the analyst community is our customers' capital constraints and capital sources, the debt-equity private equity markets don't seem to be open for our customers right now. In some cases doing some creative financing as was discussed on Wall Street Journal this week. So we are actually looking a lot at their financial capabilities and $55 oil ought to be OK. But we are interested in their capital constraints. So we don't have a lot of visibility right now is probably the best answer.

Dylan Glosser -- Simmons Energy -- Analyst

Okay, great. And if I could just squeeze one more in, as far as the capex plans for next year, I know you guys maybe talking about the range of around $80 million and with the possibility of maybe even going to lower. With that being said, is it fair also to say that you guys are not expecting order and your replacement horsepower next year and maybe push that off to 2021?

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Yeah, we have no plans at this point to order any pressure pumping equipment. We are pleased with the 750,000 hydraulic horsepower, a lot of work went into determining where that line of demarcation is, so we like what we're left with and believe we've retired very, very few pumps in the last 20 years that we've been in business. So we are pleased with the quality and the capability of that 750,000 hydraulic horsepower and believe that it can operate with certainly maintenance capex will be required. But they can operate for the next several years and so decision on replacement horsepower will be obviously well thought out and looked at very, very carefully, but we don't believe we're going to have to have any replacement horsepower in the near term.

Dylan Glosser -- Simmons Energy -- Analyst

Okay. Awesome. Thank you guys for taking my questions and I'll turn it back.

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Absolutely.

Operator

Thank you very much. Our next question will come from Blake Gendron, Wolfe Research.

Blake Gendron -- Wolfe Research, LLC -- Analyst

Hey, thanks for squeezing me in. I know you don't have great visibility into the horsepower that your peers are stacking and cutting up, but maybe talking about the horsepower that's come to market over the past six months. First, can you quantify maybe the amount of horsepower on the sale block now versus six months ago. And then when you look at the horsepower itself, how much would you categorize as equipment that you would have otherwise stacked probably won't come back ever versus horsepower that is viable in the current market dynamic?

Jim Landers -- Vice President of Corporate Finance.

Blake. It's Jim, when you talked about on the sale block you're referring to potential transactions correct because we aren't selling equipment, is that what you're asking?

Blake Gendron -- Wolfe Research, LLC -- Analyst

Yeah, I know you're not selling equipment, but what you can see from up here is bringing their horsepower to market?

Jim Landers -- Vice President of Corporate Finance.

Yeah, we haven't looked at anything closely enough to give you a comment that would be meaningful. There is plenty of pressure pumping horsepower per sale, I would assume.

Blake Gendron -- Wolfe Research, LLC -- Analyst

Okay. And then moving to next year capex coming down, assuming you get OK utilization and the EBITDA per spread that you expect or at least improvement, what's the preference for cash build versus maybe reinstating shareholder returns next year?

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

We'll have to wait and see. Always focused on shareholder returns. But we'll have to wait and see. That's it. This decision we make on an ongoing basis. Reasonable question but we do like shareholder returns.

Blake Gendron -- Wolfe Research, LLC -- Analyst

Okay, perfect. Thanks.

Operator

Thank you. Our next question will come from Stephen Gengaro, Stifel.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Thank you. Just a quick follow-up, when you think about the reduction in your pressure pumping fleet going into 2020. Is there any impact there and that we should think about on it -- on its impact on other product lines. And any sort of related revenue and/or kind of complementary services you provide around that, that could impact your other product lines in 2020 with fewer frac fleets working?

Jim Landers -- Vice President of Corporate Finance.

That is a very good question and the answer is no impact.

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Okay, great. It's about to clarify, but thanks for your help.

Richard A. Hubbell -- President and Chief Executive Officer

Yeah. Absolutely, good question.

Operator

Thank you. Our last question will come from Vebs Vaishnav, Howard Weil.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Hey, thank you. And I guess just one follow-up question, because of, I think you guys said something about $5 million to $10 million EBITDA per fleet. I couldn't really understand what it was what you're talking about that was a drag in 3Q and that's how much your EBITDA per fleet will improve in 4Q or was that like where view would like to go to?

Jim Landers -- Vice President of Corporate Finance.

Vebs, this is Jim. The question and I am the one who answered it was, what was the drag of the fleets that are being eliminated. And my estimate and said, you could drive a truck through that estimate is between $5 million and $10 million EBITDA on a quarterly basis. So that was the question and the answer. And I'm told that the webcast cut off for a little while, so I apologize for that. If there are any follow-ups, we can clarify, just on what we said not additional information.

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

That's helpful. Thank you.

Jim Landers -- Vice President of Corporate Finance.

Sure, Vebs.

Operator

Thank you very much. At this time, we have no further questions in the queue. So I'd like to turn the conference back over to Jim Landers.

Jim Landers -- Vice President of Corporate Finance.

Thank you, Chantelle. Thank you everybody for spending the last hour with us. We appreciate your interest. Look forward to talking to many of you soon and seeing you soon. Thanks.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Jim Landers -- Vice President of Corporate Finance.

Richard A. Hubbell -- President and Chief Executive Officer

Ben M. Palmer -- Vice President, Chief Financial Officer, Treasurer and Corporate Secretary

Unidentified Speaker

Praveen Narra -- Raymond James Financial Inc. -- Analyst

Stephen Gengaro -- Stifel Financial Corp. -- Analyst

Chase Mulvehill -- Bank of America Merrill Lynch Research -- Analyst

Marc Bianchi -- Cowen Securities -- Analyst

Scott Gruber -- Citi Investment Research -- Analyst

Christopher Voie -- Wells Fargo Securities -- Analyst

Vaibhav Vaishnav -- Scotia Howard Weil -- Analyst

Connor Lynagh -- Morgan Stanley Research -- Analyst

Waqar Syed -- AltaCorp Capital Inc. -- Analyst

George O'Leary -- Tudor, Pickering, Holt & Company -- Analyst

Tommy Moll -- Stephens Inc -- Analyst

Dylan Glosser -- Simmons Energy -- Analyst

Blake Gendron -- Wolfe Research, LLC -- Analyst

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