Good morning, and thank you for joining us for the RPC, Inc. Second Quarter 2020 Financial Earnings Conference Call. Today's call will be hosted by Rick Hubbell, President and CEO; Ben Palmer, Chief Financial Officer. Also present is Jim Landers, Vice President of Corporate Finance. I would now like to advise everyone that this call is being recorded. Jim will get us started by reading the forward-looking disclaimer. Thank you, Polly, and good morning to 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 2019 10-K and other public filings that outline those risks, all of which can be found on RPC's website at rpc.net. In today's earnings release and conference call, we'll be referring to several non-GAAP measures of operating performance. These non-GAAP measures are adjusted net loss, adjusted loss per share, adjusted operating loss, 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 nonrecurring items. In addition, RPC is required to use EBITDA to report compliance with financial covenants under our revolving credit facility. Our press release and our website contain reconciliations of these non-GAAP financial measures to operating loss, net loss and loss per share, which are the nearest GAAP financial measures. Please review these disclosures if you're interested in seeing how they're calculated. If you've not received our press release and would like one, please visit our website again at rpc.net for a copy. I will now turn the call over to our President and CEO, Rick Hubbell.

Thank you, Jim. This morning, we issued our earnings press release for RPC's second quarter of 2020. As we anticipated, the twin impacts of the COVID-19 pandemic and global oil glut have caused a swift, steep decline in oilfield activity over the past few months. The rig count fell to historic lows, and RPC's quarterly revenues fell to their lowest level since 2004. We addressed this rapid disruption by reducing costs and managing working capital, which resulted in more than doubling our cash during the quarter. Our CFO, Ben Palmer, will discuss this and other financial results in more detail, after which I will offer some additional thoughts about the near term.

Okay. Thank you, Rick. For the second quarter of 2020, revenues decreased to $89.3 million compared to $358.5 million in the prior year. Revenues decreased due to lower activity levels and pricing compared to the second quarter of the prior year. Adjusted operating loss for the second quarter was $35.9 million compared to an operating income of $8.4 million in the second quarter of the prior year. Adjusted EBITDA for the second quarter was negative $17.8 million compared to EBITDA of $51.2 million in the same period of the prior year. For the second quarter of 2020, RPC reported a $0.10 adjusted loss per share compared to $0.03 diluted earnings per share in the prior year. Cost of revenues during the second quarter was $80 million or 89.6% of revenues compared to $265.1 million or 73.9% of revenues during the second quarter of 2019. Cost of revenues declined primarily due to decreases in expenses consistent with lower activity levels and RPC's cost reduction initiatives. Cost of revenues as a percentage of revenues increased because of the negative leverage of these expenses over significantly lower revenues. This percentage increase was slightly offset by lower materials and supplies expenses as a percentage of revenues caused by a shift in pressure pumping job mix. Selling, general and administrative expenses decreased to $28.8 million in the second quarter compared to $43.3 million in the second quarter of the prior year. These expenses decreased due to lower employment costs, primarily the result of RPC's cost reduction initiatives during the previous several quarters. Depreciation and amortization decreased to $19.6 million in the second quarter of 2020 compared to $42.9 million in the second quarter of the prior year. Depreciation and amortization decreased significantly because of asset impairment charges recorded during the past several quarters. Our Technical Services segment revenues for the quarter decreased 76.2% compared to the same quarter in the prior year. Operating loss in the second quarter was $34.1 million compared to a $6.9 million operating profit in the second quarter of the prior year. This loss was due to lower activity and pricing. Our Sports Services segment revenues for the quarter decreased 57.2% compared to the same quarter in the prior year. Operating loss in the second quarter of 2020 was $1.9 million compared to a $4 million operating profit in the second quarter of the prior year. On a sequential basis, RPC's second quarter revenues decreased 63.4% to $89.3 million from $243.8 million in the prior quarter. This was due to the significant decline in industry activity that began in March. Cost of revenues during the second quarter of 2020 decreased by $101.9 million or 56%, due to lower materials and supplies and fuel expenses caused by decreased activity and lower employment costs resulting primarily from headcount reductions. As a percentage of revenues, cost of revenues increased significantly from 74.6% in the first quarter to 89.6% in the second quarter. Selling, general and administrative expenses during the second quarter decreased 21.2% to $28.8 million from $36.5 million in the prior quarter. RPC incurred an adjusted operating loss of $35.9 million during the second quarter compared to an adjusted operating loss of $13.2 million in the prior quarter. RPC's adjusted EBITDA was negative $17.8 million in the second quarter compared to adjusted EBITDA of $25.8 million in the prior quarter. Despite the rapid decline in activity, our decremental EBITDA margin was only 28% due to our cost reduction efforts. Technical Services segment revenues decreased $147.2 million or 64.6% to $80.5 million in the second quarter. This was due to significantly lower activity levels and pricing. RPC's Technical Services segment incurred a $34.1 million operating loss compared to an operating loss of $12.2 million in the prior quarter. Our Support Services segment revenues decreased by $7.3 million or 45.5% to $8.8 million in the second quarter. Operating loss was $1.8 million compared to $1.5 million operating profit in the prior quarter. During the second quarter, RPC operated up to four horizontal pressure pumping fleets. And is currently operating three horizontal frac fleets in the Permian Basin. At the end of the second quarter of 2020, RPC's pressure pumping capacity remained at approximately 728,000 hydraulic horsepower. Second quarter 2020 capital expenditures were $14 million, and we currently estimate full year capital expenditures to be $50 million to $60 million. With that, I'll turn it back over to Rick for a few closing remarks.

Thanks, Ben. Though the rig count declined once again last week, we believe domestic completion activity passed the trough during the second quarter. We anticipate oilfield activity in RPC's revenues will improve modestly during the third quarter. However, I want to emphasize that we are unsure whether this is the beginning of a sustained cyclical recovery because of this cautious outlook, which is shared by many in our industry, we will continue to focus on cost management and capital expenditure controls. Our focus will remain on maintaining our financial strength, which will include rigorous pricing discipline. During the coming quarters, this may hinder our revenue growth but will preserve the condition of our equipment until we are able to secure opportunities to generate sufficient returns. In my opening remarks, I mentioned our improved cash position. In fact, our $145 million in cash at the end of the second quarter was the highest in decades. 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.

Your first question comes from John Daniel with Daniel Energy Partner.

Just one question, if I may. So it's sort of a big picture question as it relates to equipment strategy in terms of how you see the optimal fleet going forward? And what types of investments, if any, would you expect to make with more continuous duty pumps, Tier four DGB type engines, etc.? Just if you could talk about just the fleet outlook over the next several quarters into 2021.

It is a big picture question. This is Ben. Well, at the present time, we've been studying that for quite some time, of course, electric fleets there for a while were all the rage. And of course, with the downturn and other issues and challenges people have had with the electric fleets. That's something we have not here recently spent as much time with. We are not currently planning to spend a tremendous amount, invest a tremendous amount of additional equipment, as you can imagine, at this point in time, given where we are in the cycle and given the uncertainties. But it's something we continue to study. We understand that having appropriately configured equipment with technological capabilities and ESG compliant or helpful type of equipment will be more important as we move forward. We are making have been making for a while and are making some modest investments in our processes and our people and a little bit of CapEx with respect to upgrading some of our existing equipment with dual fuel and things like that. But it's something we're going to take it slow. We've obviously pared back our operating capabilities and pumping a tremendous amount. We talked about our pricing discipline, and that's something that we have to recognize that any additional investments in technology or equipment have to be paid for over time. So we are going to make sure that in the relative near term, if we're going to put out more equipment or make investments, we need to be comfortable that adequate returns are going to be generated from putting that equipment out. So that's our number one priority today. We'll continue to study the technological or technology alternatives, evaluate those. But for the near term, again, it's going to be generating sufficient returns to be able to pay for that over a period of time. And then we have to see that first before we make any meaningful commitments.

That's fair. I'll squeeze one follow-up. And do you see any customers at this point mandating it, or is it just inquiries to you? What have you got in terms of the dual fuel, etc.?

Well, mandate may be strong, but certainly encouraged. It helps to have it. And so we again, we are making some investments in that direction, and those are not those are still fairly modest, but again, recognize that we have to pay for all of those things as we move forward.

Your next question comes from the line of Cameron Lochridge with Stephens, Inc.

Hi. Cameron First, I wanted to start on the balance sheet. Great to see cash growing by as much as it did, you guys have historically really put an emphasis on keeping a clean, strong balance sheet, and that definitely pays off at a time like this. Just wondering how you see that progressing over time? What maybe you see to continue that trajectory, continue to keep cash at a healthy level and maybe keep from having to pull on the revolver? Just wondering how you see that progressing through the downturn as we go forward?

Well, I'll take that. This is Ben again. We are fortunate enough with the CARES Act with some of the losses that we're generating that we're now going to be able to carry those back and carry them back at higher tax rates. We had strong profitability in some of the carryback years, so we're going to be able to carry that back and generate a fair amount of additional cash between now and year-end, which is great, and then we'll be able to get additional refunds sometime in 2021 as well. So that's going to help with the new tax law before the CARES Act, you were not able to take you were not able to carry back taxable losses. Now we were able to, at least in the short term, and that's going to be very, very helpful for us. We certainly don't want to rely on that for the long term. So we are hopeful that we will have a challenge in building our cash because we're hopeful that business activity levels will improve enough that we'll have some working capital growth, and we'll need to use some of that cash. So we would actually prefer that there were positive trends taking place that we didn't that we don't have nearly as much cash on the balance sheet to understand how all that works. And know that we need to have it available in the event of the eventual up cycle growth that we'll experience. So I don't know that our plan right now is to say that we want to keep cash above a certain level. We just want to have a sufficient amount depending upon the status of the business and the direction of the business and things like that. But we clearly we do not want to get to a point ever that we're trying to fund operations from our cash balance. So that certainly is a primary tenant. So we'll keep the balance sheet strong. We'll still have the strong financial position, and we'll certainly maintain that for as far as we're concerned.

My next question, I just want to talk about maybe activity levels in the back half of the year. It does sound like you guys are echoing what you've been hearing so far this earnings season, which is completions should start to pick up, and we've hopefully seen the bottom in 2Q. Just wondering, right now, maybe from an RPC perspective, how many fleets you guys have working and does the activity cadence going to the back half contemplate just building on the efficiency that you guys have on those current fleets? Or do you think you could see the potential to bring back some more fleets in the back half?

Cameron, this is Jim. So our view of things right now is that we have passed the trough. June was a little better than May. July is a little better than June. But we do think we're going to plateau here in the next month or so. So our CEO was saying that you didn't see this as the beginning of a sustained recovery like the kinds that we've seen in previous recoveries. Having said all that and given our real focus on financial returns in businesses like pressure pumping, well, all our businesses what that speaks to is being very conservative about putting fleets back into the field. So whenever possible, I think we're going to try to increase utilization on existing assets before we activate another fleet, we'd have to have some belief that there was going to be fairly high activity out of that. So the outlook is murky right now. There may be another fleet coming back into the field this year, but we don't think there's much more than that at this point. And your next question comes from the line of Chase Molehill with Bank of America.

Ladies, I guess if we can kind of flush out 3Q outlook a little more here. I don't know if you're truly willing to kind of put some bounds around how much revenue or what do you think revenue would be in 3Q? Or maybe how much it could be up, it sounds like it will be up. And then maybe, hopefully, we can talk incrementals here and what type of incrementals we should expect in 3Q?

Well, I will say that we feel that we have sufficient personnel. We should not have to add much at all to our cost structure when I think about our overhead anytime soon. That's not to say we have way too much, but I think we have the ability with our processes and systems and so forth and where we've repositioned from a geographical standpoint that we feel comfortable that we can certainly, from an infrastructure standpoint, generate some strong incrementals with additional revenue as it relates to well site personnel. We have an opportunity there as well to generate some very strong incrementals. I think for at least the next couple of quarters, even if we have modest improvement in revenue. So we're really not prepared to give any estimates of what revenues are going to be in the third quarter. I will say, kind of relative to the question earlier, our concern too is about what might happen again in the fourth quarter. We know that oftentimes, agreements are made with customers in the fall of each year. We'll bid appropriately aggressive to try to get those opportunities. But again, realizing that we know over time, we have to generate sufficient returns or we won't have a viable business. So we're not going to contribute to weak pricing across our industry. So we're going to hold firm on that. And so again, so the incremental should be very strong when we have additional revenue; we do have a little bit of opportunity on the SG&A side. Some of the cost cuts didn't happen until kind of during the first half of the quarter, so there will be a little bit of additional reduction, a slight reduction in SG&A moving forward. And so increments should be strong. Jim, do you want to add anything to that?

Chase, the only thing I'd I would add is that when the numbers are negative or you're kind of at the cusp of some things, it doesn't make incrementals can be calculated, but they don't indicate all that much. I mean, as Ben said, we think third-quarter revenue will be higher than second quarter, and our bottom line, the EBITDA loss will narrow. And when you put those two numbers into a spreadsheet, you end up with a kind of strange incremental. But certainly, we think third quarter will be better than the second quarter.

Maybe I can kind of ask something a little differently about this. And if we just kind of think about the path toward positive EBITDA and maybe just kind of talk about breakeven EBITDA what kind of levels of quarterly revenue do you think you actually need to be able to kind of reach that breakeven EBITDA level?

Chase, you'd be giving the answer if we told you that.

And Rick, I mean, Jim talked about strange numbers, right? I mean, the incrementals can be tremendous. So with pricing discipline and cost control discipline, the incrementals could be tremendous. So we could very quickly move to positive EBITDA or breakeven.

And just one follow-up real quick. It sounds like you expect some 4Q kind of budget exhaustion or slowdown is that just given what you've seen in the past? Or is that what you're hearing from your customers?

Yes. I think it's more of that. Actually, earlier in the year, I was sort of surmising that maybe the fourth quarter, maybe there would be just normal progression. We're at such a low level of activity now, why slow down in the fourth quarter, right? But I don't know, hearing a lot, reading a lot about people saying maybe it's going to happen again. I think there is perhaps better than a 50-50 chance, but it may be that we mall through, if there's any sort of pickup in activity many, many years in the past, the fourth quarter holidays didn't really matter, right? If people were busy and needed to get things done, how they work right through the holidays themselves. So we're not sure, but we know it's a possibility. So we don't want to get out ahead of our skis. We don't want to ramp up and add capacity, if we don't have the pricing discipline and we end up ramping up and adding resources or adding capabilities and then boom, we get a fourth quarter slowdown. That's just that's obviously not helpful at all. So it's going to cause us to be a little more careful about how quickly we ramp up and how aggressively we might ramp up, knowing that that backdrop is there. That possibility of a slowdown is there.

And your next question comes from the line of Ian MacPherson with Simmons.

Thanks, good morning everyone, thanks for letting me on, I wanted to ask if you think that...

Ian, you may be on mute.

Jim, can you hear me? Can you hear me now?

Oh, sorry. Okay. We hear you now.

I'm sorry about that. How do you assess the collective industry discipline? And we I mean we hear you route clear and applaud your judgment to not put more capacity out there right now that can work profitably. Are you seeing encouraging or discouraging signs of discipline across the competitive field?

I would say I don't know that with the low levels of activity. It's hard to say. I don't think pricing could go a lot lower. I think the question is how disciplined will people be to say we have to get the pricing up, right? We got to get it. I don't know that it's going down. People are scrambling to I think competitors were all scrambling, trying to figure out and determine opportunities to get back to work on to partner with our customer and find solutions that are hopefully mutually beneficial. But we don't want to start back at low levels with the hope or the promise that pricing will improve. We don't want to make the commitments unless we see a clear path and hopefully, right off the bat, see sufficient level, maybe not sufficient to give us adequate long-term returns, but we need to have strong enough pricing to really make sense for us to make the commitment to the customer. And that pricing, that activity level needs to be in place for us to, again, make that mutual commitment. So I'm hopeful, I don't know, at this very, very low level. Some people may be saying that they feel like they need a minimum level of capacity put in the field to remain relevant. Especially if you don't have a diversified portfolio. But so it's hard to say. I'm just hopeful that people will be disciplined overall. We really need to get there sooner rather than later.

Okay. Well, I mean, the other point is if you can't get pricing and you can't get industry activity at sufficient levels. The other answer, of course, is to consolidate and add scale through consolidation. And we haven't typically thought of RPC as a protagonist in that scenario, but it is a new world now. So I wonder if there's any updated thoughts from you guys with how you're thinking about the way that your industry needs to consolidate and your appetite to participate?

Ian, this is Jim. There are plenty of opportunities to plenty of opportunities being presented for consolidation right now. We don't need more pressure pumping equipment at this point. And I don't know who does. So there is probably incrementally more consolidation this cycle than last. I think you probably will not see RPC participating unless there's just something that's really transformative. It's hard to figure out what a good deal is when oilfield activity is at historic lows, and you don't have a clear vision of the future. So it would be hard to see us really participating.

I will comment this is Ben. I will comment. I think the current concept is that people can come together with little or no premium, that certainly takes one aspect of doing a transaction out of the equation. But again, there's just so much uncertainty. And many potential candidates, even though they as we have gone through geographical location, justification processes and things like that. So some of the some of the work has already been done, but there would still be a lot of complication too, and don't mean you don't do it, but we're going to sit back. We'll certainly entertain. We have entertained. We have looked at. We will continue to look at opportunities and see where it leads us. But we're not saying we need it to survive, right? We don't want to take on anyone else's problems and issues. We have enough challenges of our own, but luckily, we're well positioned. We're not forced to do anything, but we will look at opportunities, we will evaluate them. And you never know. But as Jim said, we're not actively pursuing that at the current time.

Our next question comes from the line of Jacob Lundberg with Credit Suisse.

I just wanted to start off asking about some comments that came out of one of the large equipment manufacturers yesterday on their call, they actually referred to some distressed oilfield assets that were being bought and kind of redeployed by some entrepreneurial incline people in the oilfield. I was just curious if you guys are seeing any of that in the pumping space?

Jake, this is Jim. That's certainly bad news if true, and I'm not questioning it. We've not seen that on the ground in our local markets, to our knowledge at this point.

Okay. That's encouraging. And then, I guess, we kind of touched on pricing already, there are some kind of widely traded anecdotes during the quarter that sounded pretty bad. And it sounds like there's no continued march down in pricing at this level from your earlier comments, just a question of what it will take to get pricing traction. But if you think about some of those anecdotes around kind of the worst of what might be called irrational pricing that happened during Q2. Has that started to go away? In other words, have we taken away the absolute low of pricing? Or are you still seeing some very aggressive bids for work out there?

Correct. Yes. Jake, the anecdotes and the actual things that happened in the second quarter, there are always going to be outliers who bid 20% below the pack. If anything was encouraging in the second quarter, it was that that group of outliers that were bidding below everybody else was much smaller. And the customer might have acknowledged that they may not be around that much longer. So we'll just kind of work with them for a while. So if anything is positive, it is that. We do think there's more pricing discipline than last time. We also have heard that some pumpers who have some inventory of proppant are going ahead and working at lower rates just to get rid of the proppant. I guess they're doing cash accounting rather than accrual basis accounting. So there's going to be some of that as well. We think incrementally, the pricing discipline is better than it was, and we think the things that we've heard in the second quarter are probably abating a little bit, but there's a lot of excess horsepower out there. So there's still going to be people. There's always going to be a marginal bidder is going to be more than everyone else.

If I could sneak one more in, maybe reading too much into this, but I think the CapEx commentary was given is $50 million to $60 million and if I'm right, I think last call, you just talked about $50 million. I'm just curious what kind of explains the delta there?

We're later in the year. It's a little more clear than it was otherwise, nothing in particular. I mean, a reasonable question, but nothing in particular, just trying to frame up the number. No particular thing that's driving that.

And your next question comes from the line of Vebs Vaishnav with Scotia Howard Weil.

I guess, if we think about that we remain at around three to five fleets even into next year, is there a way we can think about how much more cost could we cut? I'm just trying to think like how much excess cost are you carrying?

This is Ben. We can carry a number of additional fleets with our existing infrastructure. So you're correct, there is some extra that we are carrying. But we are hopeful we will evaluate as we move forward, again, what the opportunity is, the speed of the opportunity. We're going to remain pricing discipline. We don't want to put out the number of fleets that we can handle from a cost infrastructure standpoint. That's not the goal. The goal is to get each fleet contributing an appropriately an appropriate level on a consistent basis, right? So that's the priority right now. We will continue to evaluate what the right cost infrastructure is for each area of the company, support functions and direct operational support functions. We'll continue to evaluate that as we move forward. But obviously, we all recognize that we've just come off an incredibly low drilling rig count and even lower completion activity. So who knows where it's going to go from here, right? So we're going to give it a little bit of time. We have that luxury of given a little bit of time, seeing how it plays out, and we'll position ourselves accordingly. But we're not reacting we reacted late first quarter and then very second quarter reacted to what we thought was going to happen, which obviously did occur, we think, bottomed in kind of the May-June time frame. So we'll just see where it goes from here, and we make evaluations continuously in terms of what the right structure is. But we're not prepared today to say, hey, we now have clear visibility on what fourth quarter looks like exactly or what the first half of next year looks like, but we'll continue to look at it and evaluate it to make adjustments as possible. When we sit back and look at our infrastructure cost, as it exists. Longer-term or in the intermediate term, our issue is not our cost structure. That's not our issue. Our issue is we don't have enough activity, right? And we need activity at sufficient pricing. So that's the focus right now is what is our opportunity from a capacity activity and pricing perspective, and then we can adjust the cost structure from there. We're not needing to adjust the cost structure to survive at this point. But we'll continue to monitor it and make those decisions in the coming months and quarters.

I guess if you could provide some color around you guys talked about well the activity is increasing out June, better, July, even better than you expect the activity to kind of flat out over here. What's driving that? And is that more from an industry perspective? Or is that company's perspective?

Yes, it's just a company perspective. I mean, just to restate your question, we've said we think activity is improving, what will probably plateau. And that's just based on customer indications and the sales funnel and all that sort of thing. Plus the fact the oil is in the low 40s, which is not exciting.

There are opportunities all over the company, right? When that time comes to say, hey, we need to take cost reduction efforts. I would just go back to some earlier comments, what I won't restate, but there are opportunities everywhere, but we're going to see how things play out. We continue to make small adjustments here and there, but we don't feel the pressure at this point in time to make further incremental additional significant cuts, we're going to react to what we see in the market in the coming months and quarters. So and that same is true with TTS. Same true is pumping. It's true with our support functions. It's true across the company. So we'll react to what we see. We'll give it a little more time see where it seems to shake out, see what our position is, and we'll go from there.

Our next question comes from the line of George O'Leary with TPH & Company.

George hey, Jim, I wondered if you could just break down the revenue by business for us.

Sure, George, absolutely glad to. So the percentages I'm about to give are percentages of consolidated RPC revenues by our major service lines. So during the second quarter, our largest service line in terms of revenue was through tubing solutions at 37.6% of revenue. Second largest was pressure pumping at 26.6%, and our third largest service line was coiled tubing at 10%. Number four was nitrogen at 6.3%, and Number five was rental tools, which is in our Support Services segment, that was 5.7% of consolidated RPC revenue.

And then thinking about just shots on goal for incremental work. It sounds like the fleets you have active today are in the Permian Basin. Is that where you guys envision staying most active? Or are there any shots on goal in other geographies that may be enticing to you? I'm just trying to think about from a geographic distribution where you're having active customer discussions about potentially adding activity back in if it's just utilization with an existing spread that's out there in the field working today?

George, I'm inferring that your question is pressure pumping. And so you're pretty much right there. We've got in the Permian and the Mid-Continent, and that's where the coming opportunities are, and that's where we're active now. We don't do pressure pumping in the Northeast and haven't for almost five years now, but just there are hints of greater activity levels in the Northeast with some of our other service lines are already I mean everything is relative are relatively better than some other areas. I mean you really have to squint at the numbers, but our businesses working in the Northeast in Pennsylvania, Ohio are doing relatively better than some other places. So I just thought I'd bring that out. But it's not a pressure pumping comment, that's an RPC overall market coming.

And your next question comes from the line of Chris Voie with Wells Fargo.

I guess, first, could you touch on expectations for growth rates by business in the third quarter? Obviously, it looks like pressure pumping has shrunk a lot. Is that going to be the fastest grower in the third quarter? Maybe if you could ramp that?

Chris, this is Jim. That's a hard one. We just got a question about consolidated growth, and we aren't prepared to give that out. And so logically, we really aren't prepared to do that with the service lines either. They all of them have shown some increases in activity. I don't know that there will be any standouts when we report third quarter.

With the way with our position with pressure pumping with the number of fleets we've sort of alluded to if and as we are successful in adding one more fleet that does and if it is that, and it will be at adequate pricing and adequate activity, the percentage increase potential, yes, is the greatest in pressure pumping.

Okay, fair enough. And then is it fair to assume that there's a pretty decent-sized margin gap for pressure pumping compared to the rest of the businesses where it would have the lowest margins right now?

These are strain times and actually that is not exactly accurate. I mean, let's give ourselves some credit for all the work we've done, cutting costs and pressure pumping. And we're talking about just small variances here, but Pressure Pumping's margins are actually a little bit better than the average, let's just say.

Which historically would not be the case in a down cycle like this. So that's a change we've made to the business that I think has positioned us well to really, again, capture the upside opportunity to the earlier comment about the ability to increase the revenue. So we are trying to improve the overall average quality of our fleet performance, customer relationships and all those other things. And I think there's been a lot of work done in that area. And I think it's positioned well. From this point, obviously, it would depend upon the number of opportunities we win, but those opportunities won't come to us unless there's sufficient pricing and activity. It'll have to be at certain levels before we're going to be willing to make that commitment. So it's not about volume, it's about at this point, it's all about adequate contribution, and that translates into adequate margins.

Okay, that makes sense. And maybe one last one. Given the performance improvement that you had so far through this quarter, improvements the last few months, if activity continued at the current rate, do you think you could cut EBITDA losses maybe in half in the third quarter compared to the second quarter?

I'm not trying to give a flip answer. The answer is, yes, sure. That very much within the...

Metals will be very strong.

Yes, so that's very much in the one possibility.

And your next question comes from the line of Connor Lynagh with Morgan Stanley.

I think obviously you don't want to give away too much competitive information here. But just trying to think about Flex, it would take in the market where you guys see in the market to consider reactivating I mean maybe we could broaden the question a little bit, but actually, pressure pumping is where a lot of people are focusing on abating guys. So is the issue, the duration of customer commitment that have good visibility on work program continuing to be on a single cad? Is it the price? Maybe you can just frame for us, how much improvement do we need to see in some of those larger industry markers or in order for me to be quick capacity back in?

Connor, this is Jim. Audio is a little bit unclear. Let me restate the question, and we'll answer. I think your question is, in order to reactivate some pressure pumping fleets, what would we need to see? And I'll kind of start with an answer. One, the main answer is activity levels on a daily, weekly and monthly basis and believe that those activity levels have some duration to them, some length. And so the issue has been customers with sporadic activity levels we're doing everything they want us to do, but they don't want us to do that much. At the pricing at market pricing today, if you're going to generate financial returns, you really have to have a high activity. The other opportunity, of course, is better pricing, but we're trying to be realistic on the levers we can pull. And it's just daily, weekly, and monthly activity levels and the expected length of time that that will take place. Anything to add?

No. I think Jim's summary is a good one. He said daily, weekly, monthly, and we really we need to see and you never know as we sit around and talk about it. You never know till after the fact, right? How much activity you're really going to get, but we want to set as much as we can, expectations or have expectations with the customer and that we're sharing those expectations when we're making decisions about the number of fleets we want to activate and put in the yield and staff and support and all those other things. So we're going to continue to be. Again, as we've talked about, we want to be disciplined about that. And we think we've made great strides in that regard of the type of customer relationships we have today compared to a year ago or even nine months ago, is a lot different. So we are we're doing today what we talked about a few quarters ago that we wanted to get to. Obviously, we have a relatively small number of fleets out, but the profile looks like what we have been shooting for and we'll grow that and we'll grow that as we can. But only if we get, again, the level of activity, you can't talk about just pricing and talk about pricing and activity together, and that has to be over time periods longer than even a few short months, right? You want a longer commitment. But that's difficult for the customer in this environment difficult for us. But that's something, again, that we'll monitor and we'll want to make sure that we can be consistent or try to be do everything we can to be consistent with the performance. And we think that that will improve the results. And I think we're we have seen the beginnings of that. I think we're in a good position given the low, low, low levels of activity that we saw in the second quarter. So we're pleased with where we're positioned. And again, we'll monitor it in the coming months and quarters and adjust accordingly.

I appreciate that. Hopefully, the quality is slightly better working from home. One question to consider is the deflation in your supply chain. In previous cycles, it might have taken longer for the prices of parts and consumables like sand to stabilize relative to pressure pumping pricing. Is there any support we should anticipate in this regard? From a profit and loss perspective, there could be a delay. Can you help us understand if your variable margin is expected to improve in the second half of the year?

Well, it's not supply chain, but we aren't experiencing upward pressure on labor prices right now.

We have seen comment excuse me, Jim, for jumping. We commented on that the pressure pumping job mix has changed a bit with M&S and fuel and things like that. We are we're seeing what a lot of other people are that customers are providing in general we're often providing that. We are we are not as interested in the percentage margins we're getting, we are trying to achieve sufficient contributions from our fleet, whether that's through equipment personnel only, whether that can be supplemented with where the customer wants us to bring sand, provides the fuel and things like that. We're looking at the overall contribution capability and so the margin obviously changes the percentage margin changes quite a bit, whether we provide materials or not. But we're going to need to have an appropriate net contribution from that fleet before we're going to make the commitment. So it will depend on the mix of the work. And that's not it's hard to say where that's going to go. Again, we can change the percentage mix of our business overall with the winning of only one or two additional fleet expansion opportunities. So not sure what the future may portend in terms of margin percentage from this point forward. And your next question comes from the line of Blake Gendron from Wolfe Research.

I wanted to approach the OFS discipline topic from the E&P angle. It's understandable, appreciating that most of the jobs are probably bid on a very small lot, maybe on a per pad basis really ever since the pandemic started and through the back half of the year, I suspect that would be the same. On the one hand, you and peers have been more disciplined just because it wouldn't make sense to reactivate a spread for unfavorable economics. On the other hand, it allows the E&Ps to kind of go dumpster diving, so to speak, with those few competitors that bid well below market price. I'm just wondering when the E&Ps rebudget for this coming year, do you expect them to potentially throw out larger job lots, maybe more dedicated arrangements like we've seen in the past? And if they do that, do you think they're going to put more of a premium on business continuity and the quality of the oil field service supplier as opposed to going for some of these folks that they recognize that the company may not last another week or two until they have other folks on backup for the spot work. I'm just wondering if you could characterize how you expect the, I guess, tenders to evolve here as we reset budgets into next year?

Blake, it's Jim. I'll try to answer this stuff early. We don't have any great leading edge market information on what MSA renewals are going to look like. What we have seen this year is that customers have started asking questions about a supplier's financial strength. And sometimes in ESG questions as well. However, they take that information and like reading it and then choose the lowest price provider. So that's kind of all we know right now. It's probably an evolving story.

But I will say this is Ben, I will tell you that that we've heard at least, I've heard at least one anecdote discussion with a customer where it was discussed that they felt like service availability, pumping availability going into 2021 could get tight. So that was part of our discussion in establishing that relationship and establishing the structure of the arrangement for the next several months because of that clinical fear. So whether that was let's make each other feel good kind of discussion or whether they're right or wrong, but at least it came up that they felt that the access to quality pressure pumping service capacity could very well become constrained in 2021, whether that's true or not. I don't know. But I like the fact that it's at least being discussed. So to your point, hopefully, there will be. We are striving for more clarity of activity level, duration of activity levels and relationships where we can have that appropriate mix of pricing and activity and certainty of activity over a period of time. It obviously benefits us and the E&P is structured correctly. So seeking, and we are hopeful that will be part of the tender process this fall, but we just have to wait and see.

We have a pretty good grasp of oversupply in the pumping market. Fortunately, it's the one subsector where you see tangible attrition. We've seen some of your competitors falling on hard times and maybe some capacity comes out here in the near term. Just wondering if you could characterize sort of the oversupply, whether it's worse, better, sort of the same across the auxiliary segments. TTS seems somewhat specialized, so maybe not so much there. But for coil, snubbing, nitrogen. Can you just characterize the status of these markets? And assuming that attrition isn't as strong in these subsectors, how do you see this utilization playing out over time assuming nominal activity improvement next year?

Blake, this is Jim. These other sectors are not as widely followed, and there's just not as much transparency on how many fleets might be out there. It's not reported on Bloomberg every Wednesday. But our sense is that some of the other areas are not as oversupplied as coiled tube as pressure pumping. In fact, I'd say that a little more strongly. Some of those areas are not as oversupplied. We don't know about attrition from an equipment perspective but there may be companies going out of business or consolidating. When you consolidate, you eliminate the bottom X percent of your equipment. So there may be some attrition there due to business combinations rather than just equipment wearing out. But our sense is that pressure pumping is the most probably the most oversupplied at this point.

And just one housekeeping follow-up. Working capital, do you expect it to be a source of cash moving to the back half of the year, obviously, not as large of a source in 2Q, but just wondering what the runway is here in terms of working capital capture?

Yes, it would actually be the opposite. If revenue improved sequentially between second and third quarter and the fourth quarter as that would actually require more working capital because of receivables and inventory. And so that would actually be a draw on cash in that scenario. Your next question comes from the line of Stephen for Scott.

Hey guys, I just wanted to ask a quick question on cost savings in a different way. You guys initiated a bunch of cost savings early last quarter. But what's the comment that incrementals could be that strange next quarter it sounds like a full quarter of cost savings in 3Q will look then perhaps partial cost savings felt in 2Q. So I guess barring a change in revenue, are you able to gauge how a full quarter of cost savings realized in 3Q could positively affect EBITDA versus 2Q on a dollar basis?

And I kind of made that comment that most of our cost cuts, there were headcount reductions that we took early in the second quarter, the severance costs are down in the impairment line. So that's depending on how you treat that for your purpose. But it did take some other compensation adjustments that were effective the 1st of May. So that kind of alludes to my comment that there will be a slight reduction. There will be some additional reduction in SG&A moving from second quarter to third quarter when it relates to above the line, there were some compensation adjustments made there, but that becomes much less transparent, depends a lot on, obviously, level of revenues and all those things that come through. So I don't know that I would sit here and say that the cost the timing of the cost savings in the second quarter versus a full quarter savings is going to be enough to if I were modeling it, I would not put in a huge additional cost savings moving into the third quarter. Hopefully, that kind of answers your question. A little bit of improvement on the SG&A line. It becomes a little bit more difficult on the gross profit line, depends on your assumption about revenues and things like that.

There are no further audio questions. We'll now turn the conference back over to Mr. Jim Landers for closing remarks. Thank you, Polly. Thanks for everybody who called in and listened, and thanks for the questions and the discussion. We look forward to seeing everybody soon as the quarter continues. Thanks. And thank you, and thank you for your participation in today's conference call. Today's conference call will be replayed on www.rpc.net within two hours following the completion of the call. Thank you. You may now disconnect.