RPC Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
January 30, 2025
Skip to Participants
Operator

Good morning and thank you for joining us for RPC Inc. 4th Quarter and Year End 2024 Earnings Conference Call. Today's call will be hosted by Ben Palmer, President and CEO and Mike Schmidt, Chief Financial Officer. At this time, all participants are in listen only mode. Following the presentation, we will conduct a question and answer session.

Operator

I would like to advise everyone that this conference call is being recorded. I will now turn the call over to Mr. Schmidt.

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

Thank you, and good morning. Before we begin, I want to remind you that 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. Please refer to our press release issued today, along with our 2023 10 ks and other public filings that outline those risks, all of which can be found on RPC's website at www dotrpc.net. In today's earnings release and conference call, we'll be referring to several non GAAP measures of operating performance and liquidity. We believe these non GAAP measures allow us to compare performance consistently over various periods.

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

Our press release and our website contain reconciliations of these non GAAP measures to the most directly comparable GAAP measures. I'll now turn the call over to our President and CEO, Ben Palmer.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Thanks, Mike, and thank you for joining our call. This morning, we reported results that continue to reflect the challenges of the OFS market. Though we did have some bright spots in the Q4 and some positive developments heading into 2025, the environment overall remains highly competitive and seasonal slowdown certainly impacted parts of our business as customers faced typical 4th quarter seasonal issues related to budget exhaustion, holiday downtime and unpredictable weather. While recent quarters showed more weakness in pressure pumping without performance in other service lines, 4th quarter results in pumping showed some signs of improvement after a difficult Q3. Pressure pumping generated higher revenues while our non pumping services tracked more with the industry activity declines.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Market dynamics remain largely unchanged with the spot and semi dedicated market amply supplied with horsepower capacity and pricing remaining under pressure as OFS companies compete to maximize utilization. Bottom line, pressure pumping in the 4th quarter was up 3% sequentially, while all other service lines in aggregate declined 3%. For the full year, however, pumping was off by 24%, while other service lines declined only 2%. We believe bolstering our other less capital intensive service lines over time with organic investments and potential acquisitions will help drive growth and reduce volatility in our financial results. We are encouraged by the general optimism around the energy industry with the new presidential administration and the opportunities that may present themselves in the coming years for our customers.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

However, many aspects of energy supply and demand remain unclear. While activity increases could provide tailwinds for OFS providers, significant increases in oil and gas supplies might pressure energy prices and have negative consequences on completion activity. At the end of the day, we have limited visibility on actual policy and regulatory changes and the impact those might have on our results. But one thing remains unchanged, we are eager to serve our customers and deliver outstanding service regardless of how the macro and legislative landscapes evolve. Shifting to 4th quarter service line commentaries, I'll start with pressure pumping.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Despite some sequential gains in fracking coming off a soft Q3, we reiterate that we continue to exercise economic discipline opting to idle certain assets rather than operate them without adequate returns. Consistent with our Q3 results, we still see a difference in demand within our frac assets for our Tier 4 GGBs where we have better visibility with more dedicated customers. At this point, we have relatively solid commitments for these fleets through parts or all of 2025 and we are delivering excellent well site performance with respect to gas substitution and overall efficiencies. Conversely, demand remains a headwind for our legacy diesel equipment resulting in more aggressive pricing. We intend to upgrade our fleet over time and continue to rigorously assess the through cycle economics to justify our capital investments.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Of course, if and when we invest in Tier 4 DQB assets, we will pull older equipment out of service so we don't add the industry frac capacity. Looking at our non pressure pumping service lines, we were pleased by some specific developments, but not satisfied with overall results. In total, these service line revenues were down 3% with mixed performance from business to business. Coiled tubing was up low double digits with some new business wins contributing to growth. Cementing also increased in the quarter with strong revenues, operations and cost execution.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Downhole tools revenues declined modestly in the quarter due to seasonal factors. While 2025 may be challenging from an overall market perspective, we are pleased with our progress on 2 key new products as we've mentioned on previous calls. Our recently launched 3.5 inches downhole motor is gaining traction and we look forward to further momentum in 'twenty five for this lower pressure high rate motor. We also recently launched our new un plug system, which uses our perf pods to block flow at each individual perforation rather than a single point above each stage. This provides numerous advantages over traditional single point isolation.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Field trials were completed in Q3 of 2024 and we are now in full commercial deployment having completed hundreds of stages across many well sites. We see this technology as being well positioned to capture share of the North American land frac plug market and believe it has the potential to be a positive growth catalyst that is largely independent of broader OFS demand. Rental tools also declined slightly in the quarter due mostly to seasonal factors. Mike will now discuss the quarter's financial results. Thanks, Ben.

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

Shifting to the Q4 financial results with sequential comparisons to the Q3 of 2024, revenues decreased 1% to $335,000,000 driven primarily by lower non pressure pumping activity, specifically downhole tools and rental tools, which offset growth in pressure pumping. Breaking down our operating segments, technical services, which represented 94% of our total revenues in the quarter, was essentially unchanged. Support services were down 14% and represented 6% of our total 4th quarter revenues. The following is a breakdown of our 4th quarter revenues for our top 5 service lines: pressure pumping, 40% downhole tools, 27.9 percent coiled tubing, 9.9 percent cementing, 8.3 percent rental tools, 4.3%. Together, these service lines accounted for 90% of our total revenues.

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

Cost of revenues, excluding depreciation and amortization during the Q4, increased by $2,700,000 to $250,200,000 or a 1% increase. The higher cost of revenues is primarily due to higher insurance costs related to our operations. We also incurred higher employee costs, primarily related to health care benefits, which can fluctuate throughout the year. These cost increases were partially offset by lower maintenance and repair expenses. As you may recall, our pumping operations were particularly soft in the Q3.

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

Thus, we used that downtime to perform more maintenance work on our assets. Given the sequentially higher utilization in the 4th quarter, we performed less of this maintenance work toward the end of the year. SG and A expenses were $41,200,000 up from $37,700,000 largely reflecting the fixed cost of our support service functions as well as timing of year end incentive amounts. Our 4th quarter effective tax rate was 9.1%, which was below the company's typical tax rate, primarily due to the implementation of certain tax strategies and interest received on some tax refunds. Diluted EPS was $0.06 for the 4th quarter, down from $0.09 in the 3rd quarter.

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

There were no non GAAP adjustments to either of those EPS figures. EBITDA was $46,100,000 down from $55,200,000 with EBITDA margins decreasing 270 basis points sequentially to 13.7%. For the quarter, operating cash flow was $94,200,000 and after CapEx of $40,500,000 free cash flow was $53,700,000 For the full year, operating cash flow was $349,400,000 and after CapEx of $219,900,000 our free cash flow was $129,500,000 Of note, our 2024 cash flow included the receipt of a $53,000,000 tax refund earlier in the year as well as some other working capital benefits later in the year related to the timing of customer payments. In light of challenging business conditions, we are pleased with our 2 year cumulative free cash flow of more than $340,000,000 even after adding a Tier 4 DGB fleet in each of those years. This supported steady capital returns to our investors, while still leaving our balance sheet highly liquid and capable of funding growth opportunities.

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

At year end, we had $326,000,000 in cash and no debt on the balance sheet. During the quarter, we paid $8,600,000 in dividends, bringing our 2024 total to more than $34,000,000 We also repurchased nearly $10,000,000 of stock during the year, mostly related to our buyback program. We spent $220,000,000 in 2024 on capital expenditures, finishing within our guided range of $200,000,000 to $250,000,000 We currently project to spend between $150,000,000 to $200,000,000 in capital expenditures throughout 2025. I'll now turn it back over to Ben for some closing remarks.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Thank you, Mike. Coming out of 2024, I'd like to reiterate several things as we enter the New Year and articulate a few strategic operational and capital allocation themes, so you have a firm understanding of our operating philosophy and intentions. Our corporate objective is to create long term shareholder value by delivering world class oilfield services to our customers with a conservative financial management approach. We believe RPC has a well established track record of profitability and free cash flow, despite the many ups and downs of the oilfield services industry. And within this cyclical backdrop, we have exercised financial discipline, which has afforded us the ability to invest in our operations as well as support consistent dividends and periodic share buybacks.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

We believe the company is fairly diversified with an attractive mix of service offerings. Customers and geographic presences, consider ourselves well positioned financially to further invest and grow the business. We see several strategic imperatives to executing on our goals, improve margins and execution and optimize our assets increase operational scale through M and A rebalance our portfolio with a focus on high cash flow service offerings and strengthen our customer mix by increasing our focus on blue chip E and Ps given industry consolidation. As we plan for 2025 and beyond, we have some action plans aligned with these strategic themes, which we believe together will help drive profitable growth, financial strength and long term value. As discussed, we continue to invest in innovation, bringing proprietary and novel services and products to market to distinguish ourselves from our competition.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

We are also diligently monitoring costs, capacity and headcount and we'll continue to take actions to align with demand and maximize margins. Furthermore, we have information technology projects underway to support improved data collection and analysis, which we believe will lead to optimized decision making and improved efficiencies. And lastly, we constantly evaluate sales of non core assets to sharpen our focus on core operations and monetize any non strategic assets. Lastly, with respect to M and A, we continue to evaluate opportunities and feel the environment remains favorable for potential acquisition. We are focused on high cash flow operations with quality management teams, strong customer service and value propositions and synergy opportunities.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

We believe we are a buyer of choice given our reputation in the market for supporting companies we bring under the RPC umbrella and look forward to sharing M and A developments when they materialize. In an often volatile market, our discipline remains consistent with a focus on financial stability and long term shareholder returns. I want to thank all of our employees who worked tirelessly to deliver high levels of service and value to our customers. Thanks for joining us this morning and at this time we're happy to address any questions.

Operator

Your first question comes from the line of Don Crist with Johnson Rice. Your line is now open. Please go ahead.

Don Crist
Senior Research Analyst at Johnson Rice & Company L.L.C.

Good morning, guys. Hope you all are doing well.

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

Good morning, everyone.

Don Crist
Senior Research Analyst at Johnson Rice & Company L.L.C.

I wanted to start with the technical services segment. I mean, obviously, margins compressed a little bit in the Q4 there. Was there something in there on the cost side? Because it looks like it was more on the cost side than on the revenue side, like maybe repositioning a fleet for work or something else that we can't readily point to that maybe compress those margins? And do you think those kind of rebound as we move into the Q1?

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

Yes. Hi, Don. This is Mike. We had some higher than normal insurance costs during the quarter. We reset our insurance deductibles near the end of the year and actuaries do their thing and we had some pretty significant increases there.

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

So that really impacted us during the quarter. So it was less operational and kind of more it was insurance related operations, but just kind of an unusual event. We don't anticipate that will be recurring.

Don Crist
Senior Research Analyst at Johnson Rice & Company L.L.C.

Okay.

Don Crist
Senior Research Analyst at Johnson Rice & Company L.L.C.

And obviously, there's been a lot of reports that as pressure pumping weakened in the Q4 during the RFP season, it was kind of bad timing from that standpoint. But as you kind of look to 'twenty five, do you anticipate any kind of reductions there, particularly on the pressure pumping side due to increased competition as we kind of move through 2025? I know you're more in the spot market than contracted market, but are you seeing that as well?

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Don, this is Ben. We It's very difficult to predict. Again, we did see some improvement there in the Q4. Many of the customers we work for during the Q4, we have opportunities with well into 2025. So at this point in time, we don't we're not currently anticipating any or see on the horizon any particular softness arising.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Likewise, we certainly can't say that we are highly optimistic that our revenues there will continue to progress.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

But we feel pretty good about who we're working for right now and the level of activity we have currently.

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

Hey, John,

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

when the year started, we had a lot of weather issues across the country, so that impacted everybody. So that's as we started Q1, things started a little slower, but that's less about customers, more just about weather, and we think that's really going to impact everybody in Q1.

Don Crist
Senior Research Analyst at Johnson Rice & Company L.L.C.

Right. Okay.

Don Crist
Senior Research Analyst at Johnson Rice & Company L.L.C.

And I think I asked this every quarter, but given your cash hoard on the balance sheet, and your propensity to do M and A, how is that market looking today? I mean, obviously, deals kind of slowed down as we move through 2024 as the bid and ask kind of widened some, but are the bid ask spreads coming closer in the parity or where you think that it's a value to actually deploy some of that capital and grow into some of the other business line?

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Yes, we're certainly Don has been up. We're certainly interested in trying to create some growth with some accretive acquisitions with respect to the bid ask spreads and where those are heading or where they've been. I can't I mean, we have a number of things we've looked at. I'm not sure we could say that we've got a large enough universe of opportunities to specifically say we're seeing those spreads change. I don't know that we could speak to that directly.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Maybe an investment banker seeing many more opportunities could speak to that. But obviously there's been a lot of volatility, right? The OFS market did see some increase in share prices within the last few weeks, but we've also recently seen some weakness. So it's variable, difficult to predict, but we'll just have to see. And obviously that's part of the process to try to reach a deal, reach an agreement that hopefully is a win win situation and can be accretive to our results.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

That's clearly what we're looking to achieve.

Don Crist
Senior Research Analyst at Johnson Rice & Company L.L.C.

I appreciate all the color. I'll turn it back. Thanks.

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

Thanks, Don.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Thanks, Don.

Operator

Your next question comes from the line of Stephen Gengaro with Stifel. Please go ahead.

Stephen Gengaro
Stephen Gengaro
Managing Director at Stifel Financial Corp

Thanks. Good morning, gentlemen. I apologize if this was asked. Did you give the product line breakdowns for the quarter?

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

I did, but I'm happy to do it again.

Stephen Gengaro
Stephen Gengaro
Managing Director at Stifel Financial Corp

I can I'll look the transcript. You don't have to say it again. It's fine. Okay. Can you you mentioned in the press release, the insurance settlement and did you give or the insurance elevated insurance costs, did you give a magnitude of that?

Stephen Gengaro
Stephen Gengaro
Managing Director at Stifel Financial Corp

I'm trying to kind of calibrate the impact it had on the margins and the EBITDA in the quarter.

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

Yes. I don't think we gave an exact number. It was a few $1,000,000 and it was less of a settlement and more we have some changes in our deductibles and some everybody's insurance costs are going up and ours kind of reset in the Q4. So the actuaries do their magic and we are a bit surprised by the amount of the impact, but it definitely impacted our margins.

Stephen Gengaro
Stephen Gengaro
Managing Director at Stifel Financial Corp

Okay, great. Thanks. That is helpful. And then just a final one. When you talk to customers on the pressure pumping side, and I know the dynamics are fluid and there's been some pricing pressures others have talked about.

Stephen Gengaro
Stephen Gengaro
Managing Director at Stifel Financial Corp

But what are the conversations like as far as kind of contract term? And I believe you guys have talked a little bit about over the last year trying to get maybe a little bit more term and a little less spot market work. Where does that kind of situation stand right now?

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

For us, we still don't have any long term firm contracts. These are all just sort of customer agreements. We are very pleased with the direction of the mix of our business. We do have we've come into in the last several months some opportunities that we would call more semi dedicated. They're not necessarily there's not line of sight for the next year plus, but we do have kind of a multi month view.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

So that's good. We're pleased with where it is today and we'll continue to work on that and try to improve that mix, maintain that and hopefully improve it a bit.

Stephen Gengaro
Stephen Gengaro
Managing Director at Stifel Financial Corp

Great. The final question I had was you've talked on the dual fuel fleet side and I'm pretty sure to date you haven't done anything on the electric side. We've heard that operators kind of prefer the flexibility of dual fuel in a lot of cases. What do you see in the market? And are eFleet something that you're considering or you think you'll stick with sort of the dual fuel approach?

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Yes. It varies from customer to customer and dual fuel does have some flex quality that electric doesn't that is a true statement. We said before and continue to say we're not going to address our right or wrong lack of electric fleet capability. We're not going to lean into that and begin to invest in that over a multi year prospect. You know, is it an issue?

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

I mean it's a segment of the market that we're currently not competing in and we're not going to compete in that from an organic perspective. So we'll continue to lean in. There's the technology continues to evolve and change. Customers like to have the latest and greatest technology. There are some new technologies that are on the horizon.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

So we'll just say we'll continue to monitor it. We do like the flexibility of the Tier 4 dual fuel. And so we'll see where it goes from there. But we're again, we're not going to lean into an electric offering from an organic perspective.

Stephen Gengaro
Stephen Gengaro
Managing Director at Stifel Financial Corp

Great. Okay. Thank you for the color, gentlemen.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Thank you.

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

Thank you.

Operator

Your next question comes from the line of Kasimov Boda with Gabelli. Your line is now open.

Analyst

Hi, guys. Thanks for taking my question. Good morning. How are you?

Michael Schmit
Michael Schmit
CFO & Corporate Secretary at RPC

Good. Yes,

Analyst

I guess most of mine got asked, but just in terms on your CapEx guidance for 2025, I know you said $50,000,000 range between it. So that's kind of pricing in, I guess, one fleet. So I was just wondering your outlook and whether you think the chances that you're going to get another fleet and what the lead time for that might be?

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Well actually that range I think we said that that does not include a new Tier 4 DTP in that range that we communicated. We're going to watch it. If we can get some firm commitments enough from a customer, we'll certainly move up that decision. In terms of the timeline, it's probably it hadn't changed a whole lot in terms of what we know or what we're told. It's probably a 6 to 9 month process to get a full fleet ordered and delivered.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

So that's kind of where we are. We're playing it that way at this point in time. We'll see. Again, we've got some good customer relationships, semi dedicated pretty well keeping us busy. So we'll see.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

That'll be a decision a little bit down the road, but we'll keep you guys apprised.

Analyst

Okay, awesome. Thank you. Thanks for the update.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

I'll turn it back. Thank

Operator

There are no further questions at this time. That concludes our Q and A session. I will now turn the conference back over to Mr. Ben Palmer for closing remarks.

Ben Palmer
Ben Palmer
CEO, President & Director at RPC

Thank you very much everybody. Appreciate you joining us this morning and appreciate your questions and your interest. Hope you have a good rest of the day and look forward to touching base. Take care.

Operator

Ladies and gentlemen, that concludes today's call. Please be reminded that the conference call will be replayed on rpc.net within 2 hours following the completion of the call. You may now disconnect. Thank you all for joining.

Remove Ads
Executives
    • Michael Schmit
      Michael Schmit
      CFO & Corporate Secretary
    • Ben Palmer
      Ben Palmer
      CEO, President & Director
Analysts
    • Don Crist
      Senior Research Analyst at Johnson Rice & Company L.L.C.
    • Stephen Gengaro
      Managing Director at Stifel Financial Corp
    • Analyst
Powered by Quartr
Earnings Conference Call
RPC Q4 2024
00:00 / 00:00

Transcript Sections

Remove Ads