Logo of jester cap with thought bubble.

Image source: The Motley Fool.

RPC Inc (NYSE:RES)
Q4 2019 Earnings Call
Jan 29, 2020, 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 Fourth 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. At this time, all participants are in a listen-only mode. 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. I would like to advise everyone that this conference call is being recorded. Jim will get us started by reading the forward-looking disclaimer.

James C. Landers -- Vice President of Corporate Finace

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

In today's earnings release and in 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 performance consistently over various periods without regard to non-recurring items. In addition, RPC is required to use EBITDA to report compliance with financial covenants under our revolving credit facility. Our press release issued 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 are calculated. If you've not received our press release for any reason, please visit our website again at www.rpc.net for a copy. I will now turn the call over to our President and CEO, Rick Hubbell.

Richard A. Hubbell -- President and CEO

Thank you, Jim. This morning, we issued our earnings press release for RPC's fourth quarter of 2019. During the fourth quarter, we continued to execute our downsizing plans, first disclosed in October, including closing various facilities and scrapping equipment. In addition, we reduced headcount by approximately 21% since the end of the second quarter. Our CFO, Ben Palmer, will discuss this and other financial results in more detail, after which I will have a few closing comments.

Ben M. Palmer -- Chief Financial Officer, Secretary & Treasurer

Thank you, Rick. During the fourth quarter, we recorded additional impairment and other charges of $10.6 million related primarily to severance and underutilized assets, bringing the total of impairment and other charges to $82.3 million in 2019. We do not currently expect any additional significant charges based on this review. For the fourth quarter of 2019, revenues decreased to $236 million compared to $376.8 million in the prior year. Revenues decreased due to lower activity levels resulting from a more pronounced fourth quarter seasonal decline than in the prior year, lower pricing, and a smaller fleet of pressure pumping equipment. Adjusted operating loss for the fourth quarter was $17.3 million compared to an operating profit of $19.7 million in the fourth quarter of the prior year. Adjusted EBITDA for the fourth quarter was $23.2 million compared to EBITDA of $61.7 million in the same period of the prior year. For the fourth quarter of 2019, RPC reported a $0.07 adjusted loss per share compared to a $0.06 diluted earnings per share in the prior year.

Cost of revenues during the fourth quarter of 2019 was $176.9 million or 75% of revenues compared to $274.4 million or 72.8% of revenues during the fourth quarter of 2018. Cost of revenues decreased primarily due to lower materials and supplies expenses and other expenses associated with lower activity levels. In addition, cost of revenues declined due to lower employment costs as a result of our downsizing. Cost of revenues as a percentage of revenues increased primarily due to significantly lower activity levels and more competitive pricing for our services. Selling, general and administrative expenses decreased to $36.8 million in the fourth quarter compared to $40 million in the fourth quarter of the prior year and this was due to lower employment costs. Depreciation and amortization expense was $40.3 million during the fourth quarter of 2019, a decrease of 5.2% compared to $42.6 million in the prior year.

Technical Services segment revenues for the quarter decreased 38.7% compared to the same quarter of the prior year. Excluding impairment and other charges, we incurred an operating loss of $17.2 million in the fourth quarter of 2019 compared to 19.9% [Phonetic] operating profit in the prior year. These results were due to lower pricing and activity in the fourth quarter of 2019. Our Support Services segment revenues for the quarter decreased 13.2% compared to the same quarter in the prior year. Operating profit in the fourth quarter of 2019 was $1.2 million compared to $2.5 million in the prior year. On a sequential basis, RPC's fourth quarter revenues decreased 19.5% to $236 million from $293.2 million in the third quarter due primarily to pronounced seasonally lower activity levels and slightly lower pricing. Cost of revenues during the fourth quarter of 2019 decreased by $48.3 million or 21.5% due to lower activity levels and our cost reduction actions. As a percentage of revenues, cost of revenues decreased from 76.8% in the third quarter to 75% in the current quarter due primarily to a favorable job mix within RPC's pressure pumping service line. Selling, general and administrative expenses decreased to $36.8 million during the fourth quarter of the current year compared to $42.6 million in the prior quarter. RPC generated an adjusted operating loss of $17.3 million during the fourth quarter of 2019 compared to an adjusted operating loss of $21 million in the prior quarter. Our adjusted EBITDA was $23.2 million compared to adjusted EBITDA of $22.8 million in the prior quarter.

Our Technical Services segment revenues decreased by 55.6% [Phonetic] or 20.3% to $218.9 million in the fourth quarter. The Technical Services segment incurred a $17.2 million operating loss in the current quarter compared to an operating loss of $18.2 million in the prior quarter. Our Support Services segment revenues in the fourth quarter were $17.1 million compared to $18.8 million in the prior quarter. Operating profit was $1.2 million in the fourth quarter compared to $1.6 million operating profit in the prior quarter. At the end of the fourth quarter, RPC operated 10 pressure pumping fleets. We will continue to adjust the number of fleets based on conditions and customer activity level. At year-end '19, RPC's pressure pumping fleet totaled approximately 735,000 hydraulic horsepower.

Fourth quarter 2019 capital expenditures were $41.4 million and the full-year total of $250.6 million and we currently estimate 2020 capex to be approximately $80 million. With that, I'll turn it back over to Rick for a few closing remarks.

Richard A. Hubbell -- President and CEO

Ben, thank you. As 2020 begins, we are focused on improving utilization and well site execution as well as effectively managing our costs. We believe the actions taken as a result of our strategic assessment better align our operations with current market conditions. Despite the challenging environment during 2019 and approximately $250 million of capital expenditures, we ended the year with $50 million in cash and no debt. We will continue to maintain a strong balance sheet and allocate capital to maximize long-term shareholder returns. 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.

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 Tommy Moll, Stephens Inc.

Tommy Moll -- Stephens Inc. -- Analyst

Good morning and thank you for taking my questions.

Richard A. Hubbell -- President and CEO

Sure, Tommy.

Tommy Moll -- Stephens Inc. -- Analyst

So I think I heard that at the end of 2019, you had 10 fleets in the field for pressure pumping and I was curious as you look across Q1 as of today and understanding that a lot can change, but as of today, do you feel like that's about the right number of fleets to be running? As a follow on to that, whenever the market does improve, to the extent that you might want to put more equipment to work, is it just a function of hiring up for the additional fleets or will there be some capital required to do that?

Ben M. Palmer -- Chief Financial Officer, Secretary & Treasurer

This is Ben. Yes, again at the end of the year, we had 10 fleets and as much as the fleets that we talk about as how those are staffed and they are pretty fully staffed and ready to go to work. We do have another three to four fleets worth of equipment standing by that would require minimum capex to put into service, but we think 10 fleets available to work is the right number at this point in time, but we'll watch it very carefully. As Rick indicated, we want to be very focused on the calendar, the white spaces in the calendar, being as utilized as we can with those 10 fleets and being very careful and thoughtful about trying to increase the number of fleets or the number of personnel in those fleets given the current environment. There still is a lot of uncertainty and we've had some -- we believe some nice success in the fourth quarter. That includes what we were able to generate in the fourth quarter, but also some of the wins we've had from a customer perspective. So we feel better about the first quarter, but there is still as I said, there's a lot of uncertainty and we're going to have to watch it very closely and again focused on the utilization of those 10 fleets, getting that really, really high and be really, really particular about and thoughtful about whether we were to increase that.

Tommy Moll -- Stephens Inc. -- Analyst

Thank you. That's all helpful and as a follow-up, is it fair to say that we're in the late innings or maybe the game has ended in terms of the downsizing initiatives, it sounds like we've hit the right number of fleets, the footprint in terms of locations is smaller than a quarter ago. So is that a fair characterization and through that process, any insight you can give us into how the customer mix may or may not have shifted or the type of work you've gone after may or may not have shifted would also be helpful to know. Thank you.

Ben M. Palmer -- Chief Financial Officer, Secretary & Treasurer

In terms of downsizing steps, as we'd indicated, we from a P&L perspective, we feel like we're done at this time with our strategic review and any significant adjustments that we're going to make, I mean there's always, we'll be watching and we'll make adjustments based on how things -- how the first quarter progresses and how we look and think about what's before us for the second quarter, but at this point in time we're done from a action standpoint and from a P&L impact standpoint. In terms of changes in the type of work we're doing, I would -- I don't believe there's really been any change in the mix of work because of the change in our staffing or the locations we're operating out of, it's the same as it has been and as we described the last quarter.

Tommy Moll -- Stephens Inc. -- Analyst

Okay, thank you, I will turn it back.

Richard A. Hubbell -- President and CEO

Thanks, Tommy.

Operator

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

Connor Lynagh -- Morgan Stanley -- Analyst

Thanks, good morning.

Richard A. Hubbell -- President and CEO

Hey, Connor.

Connor Lynagh -- Morgan Stanley -- Analyst

Just wondering if you guys could give some color on how you're seeing work in the first quarter is shaping up, I assume it's better than the fourth quarter, but maybe, maybe not, just broad thoughts on the market and the trajectory of activity this year?

James C. Landers -- Vice President of Corporate Finace

Yeah, Connor, this is Jim. First thing to say is that January is trending better than December was. So we're seeing -- we saw a pronounced seasonal slowdown as we've discussed in fourth quarter and we're certainly coming back seasonally. It is a little bit of a slow start in January, but we're finishing the month pretty strong. An overarching concern though continues to be our customers' ability to get the capital to work in 2020. That's been a concern and it remains a concern and we just don't have any visibility into how that part of things is going to pan out. All we can tell you again with the caveat of very low visibility is that first quarter is certainly trending up from December as we saw it, but again, very little visibility.

Connor Lynagh -- Morgan Stanley -- Analyst

That's helpful and I mean at this point, would you say that there is any further degradation in pricing? Would you say there is any positive moves in pricing or are we relatively stable? And I guess if you could couch [Phonetic] that relative to fourth quarter and then just on a go-forward basis?

James C. Landers -- Vice President of Corporate Finace

It's stable at this point. I don't think the pressure pumpers are taking any more price concessions and it was fairly stable in fourth quarter, although that's not a good quarter to measure, but we feel stable at this point.

Connor Lynagh -- Morgan Stanley -- Analyst

Got it. Appreciate it.

James C. Landers -- Vice President of Corporate Finace

Sure, Thanks.

Richard A. Hubbell -- President and CEO

Thanks.

Operator

Thank you. Our next question will come from Ian McPherson, Simmons.

Ian Macpherson -- Simmons Energy -- Analyst

Hey, thanks, good morning.

James C. Landers -- Vice President of Corporate Finace

Good morning, Ian.

Ian Macpherson -- Simmons Energy -- Analyst

Hey, Jim. Last quarter, the target was going to -- was to end at nine fleets, seven horizontal and two vertical and you're now at 10. It sounds like you are level loaded at 10 and I presume that is based on a slightly better work board than you had anticipated, but you said that January is trending better than December, but I guess I'm struggling with how that compares to Q4 on average because December might not be emblematic of the Q4 average, is that the right interpretation?

Richard A. Hubbell -- President and CEO

In turn [Phonetic], yeah, it would be hard without you knowing what December was like, but the first quarter, I mean we went through the RFP season. I think we had a lot of success. We feel better again about our calendar and the amount of work we have. On your question about the number of fleets, good question and good observation that we talked about nine before and we're at 10 as I sort of talked about, the number of nine versus 10 really the number of people we have for those nine and 10 is probably more important than whether it's nine or 10. So we are not 100% staffed for the 10, but having 10 fleets kind of lined up and ready to go gives us a little bit more flexibility to respond to our customers. So I wouldn't deem that to be a significant change, but certainly going from nine to 10 is better than going from nine to eight. So I guess that perhaps reflects a little bit of optimism, but I wouldn't think it's significant as one good thing, but we do as Jim indicated, the first quarter is clearly better than fourth, appears to be and we feel good about that. So said another way, I don't know, have we bottomed, we're reading things about people saying that they think it has bottomed, we're certainly hopeful that it has, the fourth quarter was a difficult quarter, we had some bright spots and we had some difficult spots, but overall, we're pretty pleased with the quarter, but we're hopeful again that it is the bottom, we're not 100% counting on it, we're going to remain conservative with our spending and our costs and our staffing to make sure again we're focused on utilization, we're focused on utilization of our people and equipment and we want to make sure that gets up to an appropriate level and pricing as well, right, we want to be generating the appropriate profitability and cash flow before we try to extend our quote unquote exposure into the future. So we're going to be real diligent about that, obviously focused on our capex and it's -- so we feel like we're in a good spot and we'll be watching things real carefully in the first quarter and heading into the second quarter, we'll make adjustments as we need to.

Ian Macpherson -- Simmons Energy -- Analyst

Good, thanks and then also the G&A came in a little bit lower than we had maybe expected after your commentary last quarter, is that $37 million of G&A, is there anything unusual about that or should we project that on a quarterly basis from here?

Richard A. Hubbell -- President and CEO

There is not too much noise in there, but I would say that, yeah, kind of the high 30 [Phonetic] range is kind of what we're thinking about at this point, but again, we're going to watch all that very closely. First quarter will be very telling for all of us.

Ian Macpherson -- Simmons Energy -- Analyst

Very good. Thank you.

Richard A. Hubbell -- President and CEO

Sure, thanks Ian.

Operator

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

Marc Bianchi -- Cowen -- Analyst

Hey, thanks very much. It sounds like you're saying January is better than December, but still unclear if certainly January is not better than the fourth quarter. Would you anticipate at this point that, that your revenue is up in the first quarter and if you do, could you put some brackets around what kind of increase we should be looking for?

James C. Landers -- Vice President of Corporate Finace

Marc, this is Jim. The reason we sort of caveated things is January had a slow start, but -- and we can't look at this on a weekly basis, but the run rate at the end of January is pretty nice. We would say at this point that first quarter revenue based on everything we know will be slightly higher than fourth quarter.

Richard A. Hubbell -- President and CEO

Which is an improvement from last year.

James C. Landers -- Vice President of Corporate Finace

Yes. Yes, it's a sequential improvement from last year -- yes, easier sequential comps.

Marc Bianchi -- Cowen -- Analyst

And then in terms of profitability, there were some overhead costs that were removed from the third quarter into the fourth quarter and I think we talked about kind of $5 million to $10 million at the time of the third quarter call. Did all of that -- I guess first question is, is that still sort of the number that came out of the business and did all of that hit in fourth quarter or is there some additional benefit we should be thinking about as we move from fourth quarter to first quarter?

James C. Landers -- Vice President of Corporate Finace

Marc, this is Jim again. In general, that's not a bad answer, there is some noise in those numbers. There were -- certainly we captured our costs in the impairment charges, but certainly there were some inefficiencies in fourth quarter, we worked through all of that, that wouldn't happen in first quarter. Also, remember that we had a favorable job mix in the fourth quarter in pressure pumping and that was responsible for some improvement. I have every reason to think that, that favorable job mix will continue in first quarter, but we don't know. So I wish we could be a little more clear with you, but the direction you're going and the numbers you're thinking about I think are good ones, we just don't have a lot of clarity.

Marc Bianchi -- Cowen -- Analyst

Right, OK. Well, thanks for that and I'll turn it back.

James C. Landers -- Vice President of Corporate Finace

Thanks, Marc.

Operator

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

Stephen Gengaro -- Stifel -- Analyst

Thanks, good morning gentlemen.

James C. Landers -- Vice President of Corporate Finace

Hey, Stephen.

Stephen Gengaro -- Stifel -- Analyst

So I guess two things. I guess I'd start with -- can you just do you mind giving us the revenue breakdown in Technical Services and then as a follow on to that when you -- when I think about this and we think about the margin being weighed down by pressure pumping in Technical Services given the current environment and you did mention the favorable product mix, but I was just curious if you had any commentary on how -- what I think is lower pressure pumping revenue, how that impacted the margins in Technical Services?

Richard A. Hubbell -- President and CEO

Sure, let me emphasize the first part of your question because it's the easier answer, but let me give some service line revenue percentages for the quarter. So what I'm about to give you is percentage of consolidated RPC revenue for our five largest service lines for the fourth quarter. So our largest service line was pressure pumping, which accounted for 38.2% of revenues. Our second largest service line was Thru Tubing Solutions, which accounted for 33.4% of revenues. Our third service line was coiled tubing at 8.3% of revenues. Our fourth largest service line was nitrogen, which was 5.1% of revenues and our fifth largest service line was rental tools, which was 4.8% of revenues. As you know, Stephen, we don't disclose profitability or profits by service line. I think we've been fairly clear that pressure pumping has been -- has really had challenged profitability during the 2018-2019 downturn. Things were slightly better in fourth quarter due to our cost cuts. A lot of these cost cuts have taken hold and have started to improve things and also a favorable job [Technical Issues] that's kind of -- what we're better off saying right now.

Stephen Gengaro -- Stifel -- Analyst

Okay, that's fair and then as -- given the cost cuts, it sounds like, and I know you were careful to mention 1Q revenues and sort of thinking about it as up modestly, but do you think margins do trend higher from here at least gradually?

Richard A. Hubbell -- President and CEO

Yeah, I mean based on everything we know, yes.

Stephen Gengaro -- Stifel -- Analyst

Okay.

Richard A. Hubbell -- President and CEO

Modestly.

Stephen Gengaro -- Stifel -- Analyst

Okay, thank you and then just one quick one, capex $80 million, I imagine $45 million or $50 million of that is maintenance capex around pressure pumping. Is the rest also maintenance capex? Are those numbers reasonably accurate?

Richard A. Hubbell -- President and CEO

Yes, at this point, we don't foresee any certainly significant growth capex so [Phonetic] majority of that would be. I would think on the pressure pumping side though, I think the $80 million is probably on the high end. I mean we're being a little bit conservative there I believe with -- if we had 10 fleets at $2 million a fleet, we're looking at $20 million, $25 million. We do have the harvesting of some components on the equipment that we're disposing off, which is going to net that number down. It will be less than that. So I think $80 million is certainly a high number. We'll get -- it will become more perfected obviously as we get into the new year and toward the middle of the year, we'll have a much better idea, but absent any good growth opportunity, that $80 million is certainly a conservative number.

Stephen Gengaro -- Stifel -- Analyst

Great, thank you.

Richard A. Hubbell -- President and CEO

Sure. Thanks, Stephen.

Operator

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

Waqar Syed -- AltaCorp Capital -- Analyst

Thanks for taking the call. Just in terms of your customer mix versus, let's say third quarter of '19, how is the customer mix between private and public change for you and also in terms of regional exposure [Phonetic] on the revenue side, how would you say that stands currently versus maybe third quarter of '19?

James C. Landers -- Vice President of Corporate Finace

Waqar, this is Jim. Customer mix I would say that between public and private companies really has not changed since third quarter. We have several customer relationships now that are high utilization and we expect to be working for them throughout the year. So that's maybe an answer to another question, but our customer mix, the divide between public and private has not changed significantly over the past six months.

Waqar Syed -- AltaCorp Capital -- Analyst

Okay and in terms of regional exposure, how has that changed?

James C. Landers -- Vice President of Corporate Finace

Waqar, I'm going to have to ask you to --

Richard A. Hubbell -- President and CEO

Regional exposure [Speech Overlap].

James C. Landers -- Vice President of Corporate Finace

Oh, regional exposure. The Permian continues to be the center of gravity at RPC, especially after some of our facility closures.

Waqar Syed -- AltaCorp Capital -- Analyst

Okay and then in terms of the first quarter, Technical Services EBIT margins, what do you -- how should we think about the incremental margins that could be in the first quarter?

James C. Landers -- Vice President of Corporate Finace

If you are thinking about incrementals and just responding to a question where we thought that revenue would be slightly up, I would say that incrementals will not be overly robust. So I would say that incrementals would be modest on slight revenue growth. Again, we're challenged with difficult pricing in this environment and so that's not going to drive things any higher. So I'd say incrementals will be modest.

Waqar Syed -- AltaCorp Capital -- Analyst

Is 20% or so modest or is that still high?

James C. Landers -- Vice President of Corporate Finace

That is certainly lower incrementals than we've traditionally done -- generated when revenue increased, so that's probably in the zip code.

Waqar Syed -- AltaCorp Capital -- Analyst

Okay and the average active fleets in the fourth quarter was that, nine is the right number for that?

James C. Landers -- Vice President of Corporate Finace

Between nine and 10. I mean we were kind of going, we were completing our -- the plan of going from a higher number during the third quarter to down to 10 during the fourth quarter. So it was nine or 10 on average.

Waqar Syed -- AltaCorp Capital -- Analyst

Okay and the 10th fleet is a horizontal fleet, the final one?

James C. Landers -- Vice President of Corporate Finace

Yes.

Richard A. Hubbell -- President and CEO

Yes.

Waqar Syed -- AltaCorp Capital -- Analyst

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

James C. Landers -- Vice President of Corporate Finace

Thanks, Waqar.

Operator

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

Christopher Voie -- Wells Fargo -- Analyst

Thanks, good morning.

Richard A. Hubbell -- President and CEO

Hey, Chris.

Christopher Voie -- Wells Fargo -- Analyst

So first if I did my math right, it looks like Thru Tubing, which has been holding in relatively well for most of the rest of the year was actually down pretty significantly in the fourth quarter. I was wondering if you could comment on the dynamics there in the fourth quarter and if you expect a rebound in the first quarter?

Richard A. Hubbell -- President and CEO

Well, no, good pick up. Yes, our downhole tool business, Thru Tubing, was more impacted this fourth quarter than they had been in the previous two slow fourth quarters. So pumping on a sequential basis therefore had a pretty good -- did well and obviously, Thru Tubing was down. It was a bit of a surprise, it was late in the quarter. We have a lot of Mid-Con exposure for downhole tools and that was particularly weak from a completion standpoint. So I think that's one reason. We, for the downhole tool business, are seeing -- we are seeing what [indecipherable] rebound improvement here in January and that's good to see. There is the ability within that business to adjust costs and so forth as needed. So our managers will be looking at that and we'll make adjustments in the first quarter to get the cost aligned if the activity doesn't bounce back -- to whatever extent it bounces back, we'll adjust cost as we need to. So we do expect that to come back, but again that's one of those things as Jim was talking about earlier, there still remains uncertainty and it's very difficult to get a handle on the degree of any bounce back or improvement and talking about incremental margins and things like that, it's not clear that again that there is a strong rebound. We're going to let the world know a lot more as we get toward the end of the first quarter to assess how things are and what further adjustments that we need to make and we're hopeful that we'll be able to again reap rewards of additional utilization and that will flow through to the numbers, but we'll just have to wait and see, it's anytime you're -- hopeful just again bouncing off the bottom anytime you're doing that, who knows, whether it's going to be a strong bounce or not, but we're going to again remain diligent and focused and make sure we don't get ahead of ourselves.

Christopher Voie -- Wells Fargo -- Analyst

Okay, thanks for that and then a follow-up on pressure pumping. So in the fourth quarter, the industry as a whole did a huge amount of stacking and now in the first quarter some of the biggest competitors are talking about being pretty disciplined about redeploying obviously when a lot of fleets are going down, you see a lot of irrational bidding in some cases, trying to hang on to some work. Can you -- so I get that average pricing is probably flattish, but can you give a sense of whether the band of bidding is tightening if it seems like there are fewer irrational competitors, then maybe that's setting the stage for improvement or just what the feel is in terms of the bids that are out there?

James C. Landers -- Vice President of Corporate Finace

Chris, this is Jim. We have, as always during these times seen some of what you characterize as irrational bidding, but less and less and we've seen some people who've done irrational bidding and not been able to perform and so it hasn't really stuck. So we have seen that, but less in fourth quarter than we did earlier in the year. It would be a real stretch to say that supply and demand are in balance in pressure pumping, it would be a real stretch, but there are indications that it might be over the horizon not too far from now if completion activity holds.

Christopher Voie -- Wells Fargo -- Analyst

Okay, thanks. I'll turn it back.

James C. Landers -- Vice President of Corporate Finace

Thanks, Chris.

Operator

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

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

Good morning, guys.

James C. Landers -- Vice President of Corporate Finace

Hey, George.

Richard A. Hubbell -- President and CEO

Good morning.

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

The line in the press release on kind of improving execution in 2020 and winning new customers. I know we've touched on customers a little bit on the call, but can you just kind of run through how you strategically intend to target those new customers and then from an improving execution standpoint, where you are kind of dotting the I's and crossing the T's and what specifically you're doing to improve that execution?

Richard A. Hubbell -- President and CEO

What we're talking about there again I think is the execution is the efficiency, getting more working units out of a day, which translates into more revenue. I think it's safety, it is reporting and digitization. I mean we have initiatives that are -- and we have a lot of that is in place already, but we're continuing to improve on that and our ability to demonstrate to our existing and hopefully growing customer base in terms of what our capabilities are. So that's the main thing we're talking about, consistency of performance, utilization. Our challenge is going to be, we have an outstanding portfolio of customers, but our challenge is going to be again to keep that the calendar filled and as Jim talked about some of these anecdotes with bidding and people not being able to perform, we're going to have to work real hard to coordinate with our customers on our schedule and their schedule and we just have to get those. We have to get the utilization up which is efficiencies and then when we have opportunity to do work, get the volume of work up and those things together can have, as we all know, dramatic positive impacts on our results. So it's those things that we're referring to there when we talk about well site execution.

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

Got it. That's helpful. And then the job mix line was also interesting in the press release and you guys have come to run [Phonetic] it a little bit but curious if we could just peel back the onion a little bit further. With TTS coming down as a percentage of revenues, I would have thought that would have been negative for margin. So what about the job mix within pressure pumping or some of your other businesses was helpful on the cost side, it have something to do with consumables costs, what was kind of the driver, if you could nail it down to one or two things of that improvement or was it really just fixed cost absorption on the idea that you guys got more volume done than you expected during the quarter?

James C. Landers -- Vice President of Corporate Finace

George, this is Jim again. Let's see, you want just one or two bullet points. One is that in pressure pumping, we had a greater percentage of sand used that we brought to the job site. So as we all know that runs through your P&L and is helpful to you. We also have some you know some good customers and they had high utilization during the fourth quarter. Perhaps they were just trying to get a lot of work done before the end of the year. So we had relatively -- now we had a pronounced seasonal slowdown, let's not forget that, but we had some relatively high utilization customers, also maintenance and repair expense was perhaps a little bit lower in pressure pumping. So those were the drivers of some modestly incremental profitability in Q4?

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

Great, that's very helpful color guys. Thanks, good quarter.

James C. Landers -- Vice President of Corporate Finace

Okay. Thanks, George.

Richard A. Hubbell -- President and CEO

Thank you.

Operator

Thank you. Our next question will come from Vebs Vaishnav of Scotiabank.

Vaibhav Vaishnav -- Scotiabank -- Analyst

Hey, good morning and good quarter.

Richard A. Hubbell -- President and CEO

Thanks.

Vaibhav Vaishnav -- Scotiabank -- Analyst

I just, if I want to try to think about what has been said for the call. I just want to make sure I understand it correctly. So about 10 fleets are working in 4Q and around 10 fleets could work in 1Q. You had some better mix in pressure pumping, which may or may not happen in 1Q. I guess lower pricing in 4Q, which will have full impact in 1Q, but then maybe higher utilization in 1Q just because of better January and you would have full impact of cost savings. Taking all that together, is it fair to think your EBITDA per fleet would be higher in 1Q but this [Phonetic] 4Q by I don't know a couple of million dollars on an annualized basis?

Richard A. Hubbell -- President and CEO

It should be better, but in terms of quantifying it, a lot of unknowns there.

Vaibhav Vaishnav -- Scotiabank -- Analyst

Okay, Thru Tubing again like it was down almost I want say 25% or 30%, yes, 29% and typically, I would think Thru Tubing is a higher margin business, so more negative mix if I think about in overall Technical Services business. Is that fair way and like is it fair like let's say if say activity in the US is flat versus fourth quarter and maybe modestly higher, we can have some improvement in Thru Tubing?

Richard A. Hubbell -- President and CEO

Vebs, Thru Tubing revenues or margins or maybe the question is both?

Vaibhav Vaishnav -- Scotiabank -- Analyst

Yeah, I was thinking both.

Richard A. Hubbell -- President and CEO

Yeah, the margins were OK. There will be some fixed cost absorption if Thru Tubing Solutions revenue improved sequentially. So yeah, there could be some higher profit margins there too.

Vaibhav Vaishnav -- Scotiabank -- Analyst

Okay and lastly, if I can ask, the total cost savings. Is there a way you can help us think about how much total cost savings are expected from all the efforts that you guys have taken so far and like it's still to be realized in 1Q or 2Q?

Richard A. Hubbell -- President and CEO

Not an unreasonable question, but to be honest with you, we haven't tried to go through that exercise since what I'm kind of talking about we've made adjustments, we feel good about -- I mean there are so many dynamics with number of fleets Q3 during Q4 and what we've done. It's hard to quantify it. We feel good though with the staffing where we are and like I indicated, we're going to watch the first quarter very, very closely in terms of our results and look and see what if any other adjustments we need to make either to the upside, adding capacity or whatever or whether we need to make adjustments otherwise, but sorry, I can't really quantify it and I'm not -- you know, there are so many dynamics, I'm not sure quantifying it would necessarily provide an answer. We did talk about the fact that our total headcount was down 21% from the end of the second quarter. Obviously, more pronounced in certain parts of the business than others and so we have to see how the first quarter goes and adjust from there.

Vaibhav Vaishnav -- Scotiabank -- Analyst

And I guess maybe if I can squeeze in one last one. I understand you guys don't like to specifically guide on the call, but if I think about directionally, what are the risks for me to think about -- the bigger risks to think about why EBITDA could not be directionally higher in 1Q versus 4Q?

Richard A. Hubbell -- President and CEO

Pressure pumping fleet utilization.

Vaibhav Vaishnav -- Scotiabank -- Analyst

All right, that's all and thank you for taking my questions.

Richard A. Hubbell -- President and CEO

Thanks, Vebs.

Operator

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

Connor Lynagh -- Morgan Stanley -- Analyst

Thanks for putting me back in guys. I have a similar line of questioning about your -- I just wanted to square two comments that you made. One was that incremental margins would be relatively low in the first quarter. The other and maybe I misheard this portion, but I thought that you were saying that there was still a full quarter of impacts to be realized of some of the cost saving initiatives. So can you just help square those. I would think if revenues are relatively flat, but you're getting some cost savings, you probably have higher than normal incrementals, but maybe I'm missing something?

Richard A. Hubbell -- President and CEO

No Connor, there's just noise in these numbers. It's difficult to say with good precision that will allow you all to update your models in a way that you'd be confident with. I know everything is leading to higher incrementals or strong incrementals in first quarter, it's just very difficult to say right now.

Connor Lynagh -- Morgan Stanley -- Analyst

Yeah, that's fair. That's fair. I guess one more just while I'm in here, is there a significant working capital wind down to think about from some of your basin exits or have you sort of already realized the impact of that?

Richard A. Hubbell -- President and CEO

What period? Are you referring to the fourth quarter?

Connor Lynagh -- Morgan Stanley -- Analyst

I'm referring to 2020 in terms of you shut down some facilities and I'm wondering if there is a big cash inflow from working down inventories and things like that or if you've already realized the benefits you would get from that.

Richard A. Hubbell -- President and CEO

Yeah, I wouldn't expect any unusual or significant working capital changes due to our restructuring [Phonetic].

Connor Lynagh -- Morgan Stanley -- Analyst

Thanks a lot.

Operator

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

Christopher Voie -- Wells Fargo -- Analyst

Hi, thanks for putting me back in. I just want to follow up a little bit on pressure pumping in terms of your active fleet. I was wondering if you could give an update on the percentage of the fleet that's Tier 4 versus Tier 2 and whether you have any plans in that $80 million to think about potentially like adding dual fuel capability or any other upgrades that customers might demand?

James C. Landers -- Vice President of Corporate Finace

Chris, it's Jim again. I don't have the specific number of Tier 4 versus something else on our fleet, but the majority of our fleet is Tier 4 right now, the vast majority and we have very few Triplex pumps left. So the majority of our fleet is going to be Tier 4 compliant at this point. Regarding dual fuel, we put that in the same category that sort of next generation pressure pumping equipment. We put that in the same category as maybe e-fleets, which is we will do it at customer request if the economics are there. We have retrofitted pressure pumping fleets in the past for dual fuel and have used them and are happy to do it and it addresses ESG issues and a lot of things, but we would need a specific customer request and some assurance or at least confidence in some regard that the dual fuel fleet would be utilized for that new purpose.

Christopher Voie -- Wells Fargo -- Analyst

Okay, that's helpful and then January kind of slow start and visibility is fairly limited going forward. So I'm curious where the fleet has gotten to right now. Are you pretty happy with the amount of work that the fleet is doing in terms of hours per day et cetera or is there a long way to go to be in what you would consider a targeted efficiency range right now?

Richard A. Hubbell -- President and CEO

Well, I mean there are opportunities to be more highly utilized than we were in the fourth quarter. There are still opportunities. So part of maybe to answer your question, I mean how did we arrive at nine or 10 fleets. The thought was, I mean it's an imperfect science but the thought was how many fleets that we think we could get sufficiently high utilization with over a period of time. So, we settled in on nine or 10. That didn't mean that we thought nine or 10 was the exact right number for the fourth quarter. So again to answer the question, I think there is opportunity to be more utilized with those 10 fleets and we'll watch the first quarter, see how we do and we'll make adjustments as we need to. We certainly did not expect that we would go significantly lower than 10, but we're not afraid to and as I said too, the staffing arrangement is as or more important than the 10 fleet number, right, but we would not be opposed to, we want to be appropriately staffed for the level of work we're going to have over a period of time, right, so we're watching that very closely in the first quarter, off to a decent start. Calendar looks OK. It looks like there is opportunities, but there are going to be challenges to minimize or manage the calendar and so that's a big focus.for us.

Christopher Voie -- Wells Fargo -- Analyst

All right, thanks a lot, turn it back.

Operator

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

Marc Bianchi -- Cowen -- Analyst

Thanks, if I sort of take everything I've heard here, I'm coming up with a first quarter EBITDA of $23 million and $24 million, call it $100 million on a run rate basis, correct me if there is anything wrong with that thinking, but what I'm wondering is at that level, assuming you can get some better utilization, perhaps there is some upside. At what level of EBITDA do you start thinking about restoring the dividend and how do you think about what the right level of dividend would be maybe compared to how much EBITDA you're generating?

Ben M. Palmer -- Chief Financial Officer, Secretary & Treasurer

This is Ben, a reasonable question. Shareholder returns including dividends in particular is something that we think about a lot and are thinking about even more in the current environment. We don't necessarily think about it as a percentage, especially in this environment. Again, it's very difficult knowing what 2020 holds for us, but if we have come off the bottom, we have some cash, we have no debt. We're going do everything in our power to manage the business to where we're generating cash, right. That's the intention and that's what we'll be striving for. So I expect with additional cash being generated, all things being equal, in the coming quarters that we'll be looking very closely at our dividend and our dividend policy and what the appropriate approach is and it's a high priority for us in terms of our capital allocation and we're striving to reinstate or pay a dividend in 2020. That's one way to say it. I mean that's a goal, if you will, to be able to be in a position to pay some type of dividend in 2020.

Marc Bianchi -- Cowen -- Analyst

Okay. Okay, that's helpful and somewhat related to that, there is a number of companies that are trying to exit the pressure pumping business or have sidelined their equipment and are looking for perhaps a dance partner for lack of a better word, how does the thinking about M&A play into your decision about the dividend and then just more generally about how you view maybe combining with some other companies and what the likelihood of that could be?

Ben M. Palmer -- Chief Financial Officer, Secretary & Treasurer

This is Ben. I would not sit here right now and say that that's a high priority for us to be thinking about M&A. Open to opportunities, want to look at opportunities, but it would have to be a sweet deal. We're focused right now on returning shareholder returns and improving our financial position and generating some cash and stabilizing the business and putting in a position to be able to hopefully grow and generate some consistent cash flow. So that's our focus today.

Marc Bianchi -- Cowen -- Analyst

Okay, great, thanks. I'll turn it back.

Ben M. Palmer -- Chief Financial Officer, Secretary & Treasurer

Thanks, Marc.

Operator

Thank you very much. [Operator Instructions] Well speakers, at this time, we have no further questions in the queue. So I would like to turn this conference back over to Jim Landers for any closing remarks.

James C. Landers -- Vice President of Corporate Finace

Thank you. Thank you to everybody who called in to listen in and thanks for the questions. We enjoyed the dialog. We look forward to seeing everybody soon. Thanks.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

James C. Landers -- Vice President of Corporate Finace

Richard A. Hubbell -- President and CEO

Ben M. Palmer -- Chief Financial Officer, Secretary & Treasurer

Tommy Moll -- Stephens Inc. -- Analyst

Connor Lynagh -- Morgan Stanley -- Analyst

Ian Macpherson -- Simmons Energy -- Analyst

Marc Bianchi -- Cowen -- Analyst

Stephen Gengaro -- Stifel -- Analyst

Waqar Syed -- AltaCorp Capital -- Analyst

Christopher Voie -- Wells Fargo -- Analyst

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

Vaibhav Vaishnav -- Scotiabank -- Analyst

More RES analysis

All earnings call transcripts

AlphaStreet Logo