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RPC (NYSE:RES)

Q3 2013 Earnings Call

October 23, 2013 9:00 am ET

Executives

Jim Landers - Vice President of Corporate Finance

Richard A. Hubbell - Chief Executive Officer, President, Director, Chief Executive Officer of Marine Products Corporation, President of Marine Products Corporation and Director of Marine Products Corporation

Ben M. Palmer - Chief Financial Officer, Principal Accounting Officer, Vice President and Treasurer

Analysts

Neal Dingmann - SunTrust Robinson Humphrey, Inc., Research Division

John M. Daniel - Simmons & Company International, Research Division

Luke M. Lemoine - Capital One Securities, Inc., Research Division

Michael Cerasoli - Goldman Sachs Group Inc., Research Division

Marc G. Bianchi - Cowen and Company, LLC, Research Division

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Bryan Merolla - Cleveland Research Company

Operator

Good morning and thank you for joining us for the RPC's Third Quarter 2013 Earnings Conference Call. Today's call will be hosted by Rick Hubbell, President and CEO; and Ben Palmer, Chief Financial Officer. Also present is Jim Landers, Vice President of Corporate Finance. [Operator Instructions] I would like to advise everyone that this call is being recorded today. Jim, will you get us started by reading the forward-looking disclaimer?

Jim Landers

Thank you, Mary, and good morning, everybody. 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 we 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 2012 10-K and other public filings that outline those risks, all of which can be found on RPC's website at www.rpc.net.

Also in today's earnings release and conference call, we have referred and will be referring to EBITDA, which is a non-GAAP measure of operating performance. RPC uses EBITDA as a measure of operating performance because it allows us to compare performance consistently over various periods without regard to changes in our capital structure. We are also required to use EBITDA to report compliance with financial covenants under our revolving credit facility. Our press release today and our website provide a reconciliation of EBITDA to net income, the nearest GAAP financial measure. Please review that disclosure if you're interested in seeing how it's calculated. If you've not received our press release for any reason, please visit our website at www.rpc.net to view a copy.

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

Richard A. Hubbell

Thank you, Jim. This morning, we issued our earnings press release for RPC's third quarter of 2013. Following my comments, Ben Palmer will discuss our financial results in more detail.

In this highly competitive environment, we are pleased to report a 4% year-over-year increase in RPC's third quarter revenues. The third quarter of 2013 marked our third year-over-year revenue increases since the second quarter of 2012. Our quarter was highlighted by a strong operational execution in service-intensive completion activities, which resulted in higher utilization of our personnel and equipment. A lackluster natural gas drilling environment has created a geographical concentration of service providers in active basins, and continues to pressure pricing for our services.

Our CFO Ben Palmer, will now review our financial results in detail for the third quarter of 2013.

Ben M. Palmer

And thank you, Rick. Year-over-year results are covered in the press release, so I'll just focus my comments now on the sequential results.

RPC's third quarter consolidated revenues increased from $457.6 million in the second quarter to $491.1 million, an increase of 7.3% due to higher activity levels in our largest service lines. Our earnings per share for the third quarter were $0.25 compared to $0.19 in the second quarter. Cost of revenues increased from $287.6 million in the prior quarter to $303.7 million due to increased activity levels and corresponding increases in materials and supplies expense and employment costs. Cost of revenues as a percentage of revenues improved from 62.8% in the second quarter to 61.8% in the third quarter due primarily to higher utilization and improved job mix.

SG&A expenses as a percentage of revenues were 9.6% in the third quarter, an improvement compared to 10.4% in the second quarter. This decrease was due primarily to leverage of higher revenues over fixed costs, coupled with sequentially lower bad debt expense.

RPC's sequential EBITDA increased 16.5% from $120.4 million in the second quarter to $140.3 million in the third quarter. And our EBITDA margin improved from 26.3% to 28.6%.

Our Technical Services segment generated revenues of $458.2 million, 8.1% higher than revenues of $424 million in the prior quarter, an operating profit of $86.2 million compared to $66.1 million in the second quarter. Our operating margin in this segment increased from 15.6% of revenues in the second quarter to 18.8%. Many of our service lines within this segment experienced improved utilization, however, the pricing environment remained challenging.

Revenues in our Support Services segment decreased 1.7% due primarily to highly competitive pricing within our rental tools business. Support Services operating profit decreased to $6 million in the third quarter compared to $7.1 million in the second quarter. Our operating margin in this segment decreased from 21.1% of revenues in the second quarter to 18.3%. RPC's pressure pumping fleet during the quarter increased by 30,000 hydraulic horse power to approximately 710,000. This equipment did not generate revenue during the third quarter, but is prepared to work in the fourth quarter in the Permian Basin and the Bakken.

Third quarter 2013 capital expenditures were $51.4 million, a decrease of $4.1 million compared to the second quarter. Currently, we expect capital expenditures for full year 2013 to be approximately $225 million. A significant portion of our total capital expenditures continues to be directed towards capitalized maintenance for our pressure pumping fleet and the other operating and support equipment.

RPC's outstanding debt under its credit facility at the end of the third quarter was $51.4 million. The balance decreased by $15.8 million compared to the end of the second quarter. Our ratio of debt to total capitalization is 5.1%, which is the lowest level in the 7 years that we have utilized outside capital.

With that, I'll turn it back over to Rick for closing remarks.

Richard A. Hubbell

Thank you, Ben. Our customers continue to drill and complete increasingly service-intensive wells. This provides greater opportunities for our equipment and personnel to remain on the job sites for longer periods and provide more services. As we have discussed before, the service industry is currently burdened by overcapacity. However, we believe the pace of new equipment additions has slowed significantly and many of our aggressively capitalized competitors cannot afford to adequately maintain their equipment. Until these developments influence day-to-day pricing negotiations, it is unrealistic to expect RPC to generate consistently improving sequential results.

For the remainder of 2013, we believe our industry will remain in a mild cyclical downturn categorized by flat rig count, competitive pricing and a seasonal slowdown. We are encouraged by higher well counts, increased net footage and greater service intensity, all of which positively impact business prospects. The quality of RPC's equipment and personnel allows us to successfully compete and benefit from these market trends.

Thank you for joining us for RPC's conference call this morning. At this time, be open -- we'll open up the lines to answer any questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Neal Dingmann with SunTrust.

Neal Dingmann - SunTrust Robinson Humphrey, Inc., Research Division

I'm wondering, guys, obviously, we know there's still the capacity that's out there. I know you guys have been pretty optimistic, as far as when you added that one spread not long ago. I mean, I guess, my question would be, if you continue to see deals like that, I guess, number one, is that something you're interested in? And would it have to be equipment that's already being put to work? I mean, I'm just wondering at your thought process when you look at some of this, maybe, potential equipment that's out there?

Ben M. Palmer

I think, Neal, this is Ben. At the right price, certainly, we're interested. I don't believe that equipment will become available that would be working on any sort of consistent basis. I don't think that would be factored into our decision about whether we were to buy it or not. But, yes, if it's a good price, and there are, as we kind of alluded to here, there have been other opportunities presented; small groups of equipment, spreads of equipment over here and there, and we are looking at those opportunities.

Neal Dingmann - SunTrust Robinson Humphrey, Inc., Research Division

Okay, and then it, obviously, I think you all have, obviously, a great reputation. I've talked to operators, such as in the Eagle Ford, that will only use you guys now. I'm wondering, like, as you go to other areas, like if you would look at Utica or some areas where you don't have as big a presence, would you only grow if you would move there with an operator that you're already using? Or would you -- guys with, like, one of these spreads, or some of those equipment that you're adding, would you just decide to sort of up and go there without having a contract in place?

Jim Landers

Neal, this is Jim. Our preference, our strong preference is to go somewhere where we have a customer waiting for us whose going to use us. Historically, that's always worked better for us. I appreciate your comment about our reputation and we hope that, that -- we hope and believe that, that spreads throughout the oil field. But it's still a very regionalized business from a customer point of view. So you really you have to prove yourself if you go in without a strong customer relationship. So our preference is to have a customer relationship.

Ben M. Palmer

I'll say. This is Ben, again. With pricing and conditions as competitive as they are, it's very difficult to lock up long-term relationships. And I'm not sure we'd want to do that on a fixed price sort of basis at this point. Hopefully, we're bottoming out and we certainly wouldn't want to commit for the long term, unless it was an attractive price, which, again, in this environment is difficult to obtain. But it continues to be very, very competitive. We are very pleased with our results. I'm glad that we have had some improvement, sequentially and year-over-year, but it's still tough out there.

Neal Dingmann - SunTrust Robinson Humphrey, Inc., Research Division

Okay, and last question if I could. Smaller unit -- I know you guys did pretty decent in snubbing side, and I know some of these, we continue to hear about more and more wells with higher pressure. I'm just wondering just, the snubbing business in general, been what you sort of view as far as the outlook for that? I mean has it changed much, in your opinion, from what you can see? I mean, it just seems like operators that I talk to, whether it's a TMS or Utica, some of these newer plays are mentioning that, again, when they pull the fracs and to do some of these things, they're now thinking they're just going to go in and use snubbing initially. So I'm just wondering if that's -- if you're starting to see that yet? If that's something that we potentially could see more of a '14 event?

Ben M. Palmer

We haven't seen it to a significant degree. Snubbing recently has shown a little bit of an improvement and we're encouraged by that. But I think it's more from trying to focus on larger, more special situations rather than just making the equipment available. Snubbing in many cases is an alternative to other solutions. And many times it's not the cheaper solution. So I think we're trying to focus on the specialized applications, which sort of are much more suited, I think, to our -- we think we have a very experienced, very capable group of people within our snubbing service line, and I think those specialty opportunities are what's really going to carry snubbing for a while. We're certainly available and willing and would love to and do some of the type of work you referred to. But yet, it has not yet taken hold to be something that's losing any sort of consistent business for us.

Operator

And we'll take our next question from John Daniel with Simmons & Company.

John M. Daniel - Simmons & Company International, Research Division

First is, just want to get a sense on your frac -- the equipment utilization for your frac fleet. How do you guys measure it internally? And where is that rate today? And just as a follow-up, what percent of the frac fleet did not work at all in Q3? Anything there would be helpful.

Jim Landers

John, this is Jim. As you know, measurement of utilization is difficult -- pressure from equipment, given the changing nature of the business over the past 7 years. So we all know that, but just as a baseline. But I got to give you an answer. If 3Q of 2011 was effectively 100% utilization, we probably got down to 70%, and now we're back up to 80%. So the numerator and denominator there, just determined by the benchmarking of a good feed times. So that's kind of where we are.

We didn't have any equipment that didn't work during the quarter. However, the Marcellus did slow down a good bit towards the end of the quarter.

John M. Daniel - Simmons & Company International, Research Division

Okay. So then given -- if everything effectively, worked at some point, does that give you confidence to think that the 30,000 horsepower you got in Q3 will go to work in Q4? And if so, do you already have a crew lined up for that?

Jim Landers

Part -- has been mentioned, part of it's going to Permian and we're very confident that it will work in the fourth quarter. The other part that's going to the Bakken is going to generate revenue. We expect to generate revenue. It will supplement an existing fleet there. We'll make an existing fleet bigger, which will allow us to compete more effectively for some bigger and more important jobs. And we have employees for both of those collections of assets.

John M. Daniel - Simmons & Company International, Research Division

Okay. That incremental equipment, does that help -- I mean, I know you don't want to hang your hat too much on this continued sequential gains in revenue, given the choppiness, but does that incremental fleet addition or equipment lead to better revenues in Q4? Or does the seasonality offset that?

Ben M. Palmer

We are -- John, this is Ben. From listening to our customers, we think there is going to be a seasonal impact this year. There was last year. In this type of environment where things are not solidly and absolutely progressing forward, my experience says that in that environment, and based on what we're hearing anecdotally, that I think there will be a fourth quarter slowdown. I think last year, first quarter '13, did not come back as quickly as many people expected, including us. But we're more confident that our customers will get back to work early in '14. Because I think there is some bit of momentum, but it's just not so strong that everybody says, "Well, we can't slow down now." I think they will slow down in the fourth quarter but they'll be prepared to start back up early next year.

John M. Daniel - Simmons & Company International, Research Division

Okay. And then last quick one for me, what percent of the frac fleet today is dual fuel capable? And what are you doing going forward in terms of, like, adding more kits or so forth, to have that capability?

Jim Landers

Yes, John, this is Jim, again. A minimal amount of our pressure pumping fleet is dual fuel capable. We did it at the request of a customer and I'm glad that we did it. Future conversions to dual fuel capability will be at the request of and in cooperation with the customer, and we anticipate that to be small at this point.

Operator

And we'll take our next question from Luke Lemoine with Capital One Securities.

Luke M. Lemoine - Capital One Securities, Inc., Research Division

Jim, could you give us the splits of revenues between pressure pumping and coil tubing?

Jim Landers

Sure, Luke, glad to. This is for the third quarter, pressure pumping was a little over 55% of revenue, 55.3%; coiled tubing was 8.8% of revenue; and ThruTubing Solutions, our downhole immersion tools division, was 15.4% of revenue.

Luke M. Lemoine - Capital One Securities, Inc., Research Division

Okay, and then on the pressure pumping increase, it looks like revenues increased about $22 million here. You talked about kind of better scheduling, better job mix. What portion of that was better job mix and just better scheduling?

Jim Landers

Well, better job mix accounted for not quite half of that. The rest of it was probably better scheduling, higher utilization kind of thing.

Luke M. Lemoine - Capital One Securities, Inc., Research Division

Okay. And then, do you still have 2 crews on 24/7?

Jim Landers

Available for 24/7, yes. That doesn't -- don't infer from that, that they are working 24 hours a day all the time. They're available for it.

Luke M. Lemoine - Capital One Securities, Inc., Research Division

Okay, so the job mix was mainly maybe Permian going from vertical to horizontal or so?

Jim Landers

That was one of them. We also had a nice quarter in the Eagle Ford as well. And in the mid-continent, we did a lot better in third quarter than we've done in previous quarters.

Richard A. Hubbell

I think one of the things -- let me comment on that. One of the things I think we pride ourselves on is trying to tell it like it is. And people -- I think that John earlier referred to the choppiness of the business right now, and that's what we've been talking a lot about now. I think that's the way it is. We did have, obviously by our results, had some nice successes during the quarter. Again, wish I could say that those were long-term commitments and they were locked in, and we have backlogs of work and everything else that are guaranteed going forward. And that is not the case. So the work is still very choppy. We referred in our press release about the geographical concentration of equipment, with service companies in these active basins. And it's important to point out, too, that even within the geographical locations, there's concentration of the work because of the multi-well pads. So it just makes it very difficult, especially in this, again, competitive environment because of the concentration, it's very difficult to be absolutely confident that you're going to have steady and steadily improving utilization.

Now we're out there competing every day. Again, this indicates that we've done well. We're, again, pleased with it and, compared to some other people that have reported, I think the results are good. But it's still -- it's a real challenge, and we recognize that, and continuing to work on trying to address those issues and position ourselves as well as possible to be able to obviously win as much of that work as possible and be as highly utilized as we can be. But again, it's very -- it still remains very competitive.

Luke M. Lemoine - Capital One Securities, Inc., Research Division

Okay, got it. And then in the Permian, how many crews do you have that are, from time to time, doing the horizontal work?

Jim Landers

Luke, this is Jim. That is a great question. I don't have a really good answer, but it is substantial. It is -- it probably mirrors the basin at this point, which would be in the 40% range. I may come back to you with a different answer during our conversation here, but, yes, that's about right.

Luke M. Lemoine - Capital One Securities, Inc., Research Division

Okay. Then the new 30,000 horsepower in 4Q, should we kind of model that coming in around mid-4Q? Is that a fair assumption?

Jim Landers

Yes, I think that's fair. Fourth quarter is a bad time to put equipment to work, especially in North Dakota with the winter issues. But yes, we've got to step up and say it's going to generate revenue. Mid-quarter is fine.

Operator

And we'll take our next question from Michael Cerasoli with Goldman Sachs.

Michael Cerasoli - Goldman Sachs Group Inc., Research Division

So we're hearing that you expect this new horsepower to work in 4Q, despite the seasonal slowdown. Also, you just made that comment about the Bakken, and then you made the comment earlier about customers getting back to work earlier in 2014 than they did last year. And then the utilization measures you talked to are up from the trough to about 80%. What does this tell us in terms of kind of the market or you guys getting pricing power back? And I realize that's not something that's going to happen in the next quarter or 2, but using your utilization measures, is this something we need to see sustainably above 80%? Or should we be looking for something higher as a threshold?

Jim Landers

Mike, this is Jim. I think sustainably above 80% would be a good way to get some pricing power. The other factor, Rick mentioned in his comments and we had talked about in our discussions, is that new equipment additions are slowing, and we do feel, without throwing stones at anybody, that some of our smaller competitors who are more aggressively capitalized cannot maintain their equipment. And so they're having to park it or cannibalize parts from one unit to get it somewhere else. So we think that's going to help also. But it's going to take time. So when we get pricing power back in a couple of quarters, I hope so. Some people say it would be sooner than that, but I think a safe assumption might be a couple of quarters, mid-2014. Let us get through the whatever seasonal slowdown we have and get through the first quarter.

Ben M. Palmer

We've said before, a very definitive thing that would help us is if the demand in the natural gas basins were to pick up at all, I think that will have a tremendous benefit for everyone from a pricing perspective.

Michael Cerasoli - Goldman Sachs Group Inc., Research Division

Right. Okay. And then kind of on that same line of questioning, just thinking about the Permian, does the Permian -- would that be the reasons -- play that gets pricing power back first? Or is the market still so fluid that equipment could come in from other areas? Or is it still coming in from other areas to kind of hold that market back and it's sort of one of those things where maybe the less attractive plays because the equipment might be leaving, might have the opportunity to get pricing power back before, say, a more active play like the Permian?

Jim Landers

The Permian is probably the place where it would come back first.

Michael Cerasoli - Goldman Sachs Group Inc., Research Division

Okay, and then just my last question will just be on kind of getting a little bit more color on coiled tubing. Just kind of -- if you could just give us some -- little bit more market color on how that asset class is shaping up as -- are we, I guess, what you're seeing in terms of demand for the varying diameters, as well as just, I guess, for the asset class itself?

Jim Landers

Yes, Mike, well, sequentially, coiled tubing's revenues change was fairly flat. Job mix helped sort of our revenue per day measure. Utilization was down a touch. We all know that there've been a lot of coiled tubing units that come on the market recently. But there's a lot of needs for coiled tubing so that seems to be counteracting it at this point, at least. The demand right now is really for the 2-inch coiled tubing units. We have some 2 3/8-inch coiled tubing units as well that we use, but the demand seems to be for 2-inch coiled tubing units.

And I'm going to -- this is Jim again. I'm going to add on to Luke Lemoine question's from a while ago. We stated that 40% was about what we thought we were doing in terms of horizontal completion work, horizontal and directional completion work in the Permian. I want to confirm that. It is about 40%.

Operator

And we'll take our next question from Marc Bianchi with Cowen and Company.

Marc G. Bianchi - Cowen and Company, LLC, Research Division

I had a question with respect to the efficiency improvements and kind of the utilization improvements you're seeing in your pressure pumping business. It's clear that you're seeing an uptick there, and that's helping margins. How much more margin improvement could you get without pricing? Just through operational efficiencies, logistical efficiencies, perhaps more 24/7 work, just kind of curious how much more room there is to run there?

Jim Landers

Marc, it's Jim. That is a great question. The jury is still out on how much more profitability you get out of 24-hour work. We aren't doing enough of it to really give you any empirical data. I mean, I think clearly our team is picking up nickels and dimes wherever they can. We saw some nice efficiency gains here in the third quarter. So that could continue. But there's only -- you're at a point of measuring marginal returns. You might have another 100 basis points or so without pricing but that would probably be it, barring any real decline in the price of proppants or anything like that. If customers go to more pad drilling, and we get that work, see, that's a feast or famine kind of deal, pad drilling and 24-hour work, I guess the big word is bifurcation, if you're doing it, it's great, if you're not, it's really bad. So it's good to be doing it and you need to stay on that trend as it's happening. So another 100 basis points or so, I think beyond that, it gets difficult.

Marc G. Bianchi - Cowen and Company, LLC, Research Division

Got you. Okay. But how much of your work right now is pad drilling?

Jim Landers

Very little. We are doing some. It's less than 20% for sure.

Operator

And we'll take our next question from Daniel Burke with Johnson Rice.

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Just to return to the lack of visibility that exist here in the near-term. I thought I heard you all say earlier that Marcellus activity, it kind of tailed off near the end of Q3 and, presumably, is still a little lighter here in Q4. I was wondering, the Eagle Ford and the mid-con highlighted these areas of high utilization. Has that, at least so far, continued into Q4?

Jim Landers

Yes.

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

And did -- is there -- do you have visibility that suggest that at least through Thanksgiving, you'll maintain the work stream in those 2 areas?

Jim Landers

I mean, we don't have any indication that we won't. I apologize for the double negative, but it's hard to say that there's strong visibility that will just keep on. In a environment without contracts or with pricing agreements, which are nice, but not these contracts, it's difficult. And that's not to say we have a bad outlook on the fourth quarter. It's just cloudy.

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Understood. And then maybe one -- it looks like, as you all -- I think, it said last quarter that TTS did have a pretty nice bounce back. I know there were some seasonal impacts in the business in Q2. But anything of note going on in that? It looks like revenue was up $8 million or $10 million if I did my math right. Anything sort of nonrecurring in that number? Or is that sort of trajectory sustainable over the next couple of quarters? Or that sort of top line level is sustainable?

Jim Landers

Yes. We feel like that's sustainable, Daniel. You alluded to some things we talked about in the second quarter, which were Canadian spring breakup and bad weather in North Dakota, which impacted that service line. And those things did not happen in the third quarter. And so -- but there was nothing extraordinary about the third quarter. It's good, but not extraordinary from that point of view.

Richard A. Hubbell

But they will not be immune to the seasonal slowdown.

Jim Landers

Right.

Daniel J. Burke - Johnson Rice & Company, L.L.C., Research Division

Okay, okay, understood. And then I think one of the other things that you all voiced about TTS is some concern about increasing price competition in that business. I mean, I'd assume the margins held up pretty well given the volume gains from Q2 to Q3 though?

Jim Landers

Right. Right. But we're just trying to look ahead and we see some increasing competition in that business.

Operator

[Operator Instructions] And we'll take our next question from Bryan Merolla with Cleveland Research.

Bryan Merolla - Cleveland Research Company

A real quick -- I know that there was a contract, I think, that came due at the end of September. It was one that we had some concern over because our belief was that it was struck kind of late '11, early '12. I know you guys are a month in here into the fourth quarter. You're now kind of x that contract. I mean, is there any thoughts on how that impacts kind of going forward, just from a margin utilization standpoint? Or is that -- was that just a piece of the Marcellus slowdown? Or just any color around that would be really helpful.

Jim Landers

Yes, Bryan, this is Jim. Yes, that was a nice contract and a good customer. The contract reached the end of its term in late September and was not renewed. So that equipment is working in the spot market. And we will miss it, so that's a shame.

The good news is that, that contract was in the Permian basin and so that equipment working in the spot market with a good crew is working in a good place to be working the spot market. So it will have some impact, but we know that the equipment and the crew are working today. Will revenue and margins be lower for that particular collection of assets? The answer is yes. But we don't think it's going to be a huge deal at this point.

Operator

And we'll take our next question from John Daniel with Simmons & Company.

John M. Daniel - Simmons & Company International, Research Division

Just a couple of follow-ups for, like, Jim. As you look at the fleet that are in the spot market today, you talked about the pricing challenges, which is widely known. But those fleets specifically in the spot market, as you look at pricing, Q2 versus Q3, how much change did you really see in terms of downward pressure?

Jim Landers

We didn't see any between Q2 and Q3. So spot to say back to you, spot market pricing between Q2 and Q3 did not decline. But it did not get any better.

John M. Daniel - Simmons & Company International, Research Division

Fair enough. I just tried to differentiate between the blended pricing with contract roles versus what's actually happened in the spot market.

Acquisitions have not played a meaningful role for you guys in a long time. But in opening remarks on several locations, you alluded to the overcapacity. Does that give you -- the references to that, does that change your views on acquisitions going forward? Because you should generate good cash flow next year.

Jim Landers

It does a little bit. There are several elements to the decision-making process with acquisitions. Sometimes when you make an acquisition, you're helping the market more than you're helping yourself, that you're worrying about capacity and things like that, capacity issues. There a lot more acquisitions that are being presented now here in the third quarter and the fourth quarter, so a lot more. So we're continuing to look but you have the whole issue of how well the equipment has been maintained, and some of those we've been looking are in distressed situation. Almost by definition, a distressed situation is equipment that's not been well maintained. So that's a big variable, and the customer relationships that's affect things as well.

John M. Daniel - Simmons & Company International, Research Division

Okay, and last one for me, Jim. You guys mentioned in the Q&A that roughly 20% or so of the work, or maybe a little bit less, is on pads. As you look at sort of the grease board, the fill level into the Q4 and even in Q1, are you seeing more jobs on the board that will be pad projects? Or is it still kind of about the same?

Jim Landers

I don't know, but the answer is probably a bias upward in terms of pad drilling work, pad drilling completion for us.

Operator

And that does conclude today's question-and-answer session. I would like to turn the conference back over to Mr. Jim Landers for any additional or closing remarks.

Jim Landers

Okay, thanks, Mary, and thank you to everyone who called in to listen to our results this morning. And we also enjoyed the discussion. Hope everybody has a good day. We'll talk to you soon. Bye-bye.

Operator

And that does conclude today's call. And as a reminder, a recording of today's call will be available within 2 hours on the RPC website. We appreciate your participation and you may now disconnect.

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