Q2 2021 RPC Inc Earnings Call

And for now.

Okay.

Okay.

Good morning, and thank you for joining us for RPC, Inc. 's second quarter 2021 financial earnings Conference call.

The call will be hosted by Rick Hubbell, President and CEO and Ben.

Our Chief Financial Officer also present is Jim Landers, Vice President of corporate services at.

At this time all participants are in listen only mode. Following the presentation, we will conduct a question and answer session.

Instructions will be provided at that time for you to queue up for.

Questions.

I would like to advise everyone that this conference call is being recorded.

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

Thank you Andrea good morning, before we begin our call today I want to remind you of in order to talk about our company, we're going to mention a few things.

That are not historical facts some of the statements made on this call could be forward looking in nature and request for a number of known.

Among the risks I would like to refer you to our press release issued today all of our 2020.10-K and other public filings it outlines the Austria.

All of which can be found on RPC.

Rpc's website.

Www 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 or adjusted net loss adjusted loss per share adjusted operating loss EBITDA and adjusted.

So 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 of RPC is required to use EBITDA to report compliance with financial covenants under our revolving credit facility.

Our press release issued the patient.

The data slides contain reconciliations of these non-GAAP financial measures to operating loss net loss and loss per share which are of the nearest GAAP financial measures. Please review these disclosures if you're experiencing other concomitant <unk>.

The numbers each of our press release for any reason please visit our website.

RPC net for us.

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

This morning, we issued our earnings press release for Rpc's second quarter of 2021.

The second quarter represented of the transition quarter for RPC, we saw numerous signs of increased demand for our services.

And have a full product calendar for most of the third quarter. This is the most visibility we have had since pre COVID-19.

Nevertheless, we did experience an air pocket in June customer activity due to some jobs being pushed and heavy rains in the Permian.

July of shaping up to be.

Potentially better than our second quarter run rate and the remainder of the third quarter of the figures consistent with July at this point.

Our CFO of Ben Palmer will discuss this and other financial results in more detail after which I'll provide some closing comments and thank you Rick.

Second quarter of 2000.

The supply revenues increased to $188.8 million compared to $80.

$89.3 million in the second quarter of the prior year.

Revenues increased due primarily to higher activity levels and improved pricing compared to the second quarter of the prior year.

Revenues also increased in the second quarter of 2020.

1 because of the second quarter of the prior year was severely impacted by COVID-19, this impact affected all of our year over year comparisons.

Operating loss for the second quarter was $1.2 million compared to an adjusted operating loss of $35.9 million in the second quarter of the prior year EBITDA for the second quarter. This year.

$21.3 million compared to adjusted EBITDA of negative $17.8 million in the same period of the prior year, we approached breakeven per share results in the second quarter of 2021 compared to an adjusted loss per share of 10, and the second quarter of 2020.

Cost of revenues during.

With second quarter of 2021, $145.8 million or.

For 77, 2% of revenues compared to 80 million for 89, 6% of revenues during the second quarter of the prior year.

Cost of revenues increased primarily due to increases in expenses consistent with higher activity levels.

During the sow cost of revenues as a percentage of revenues decreased decreased due to the leverage of higher revenues over certain direct costs fixed direct costs.

Selling general and administrative expenses increased to $29.4 million in the second quarter of this year compared to $28.8 million in the second.

Quarter of the prior year.

The these expenses included higher bad debt expense and expenses consistent with higher activity levels, primarily offset by lower.

Yes.

Depreciation and amortization decreased slightly to $17.9 of the in the second quarter of 2021 compared to $19.

6 million in the second quarter of the prior year as Capex has remained relatively low.

Our technical services segment revenues for the quarter increased to 118, 7% compared to the same quarter in the prior year due to significantly higher activity and some pricing improvement.

Segment operating profit.

Second quarter of 2021 was $1.4 million compared to $34.1 million operating loss in the second quarter of the prior year.

Our support services segment revenues for the quarter increased 44, 1% compared to the same quarter in the prior year segment operating loss. This year was $2.4 million compared to an operating.

$1.9 million in the second quarter of prior year.

On a sequential basis, our second quarter revenues increased 3.4% from $182.6 million in the prior quarter due to activity increases in most of our service lines the.

The improvement was negatively impacted by multiple.

The law jobs pushing into July.

Cost of revenues during the second quarter of 2021, because of $145.8 million relatively unchanged from the prior quarter as.

As a percentage of revenues cost of revenues decreased from 81% in the first quarter of this year to 77, 2% to the <unk>.

Second quarter due to a favorable job mix in several service lines as well as the impact of the cares act of employee retention credit that we recognized during the quarter.

Selling general and administrative expenses during the second quarter of 2021 decreased 3.9% to $29.4 million.

<unk> hundred $80.6 million of the prior quarter and this was also due to the impact of the.

Retention tax credit.

RPC incurred an operating loss of $1.2 million during the second quarter of 2021 compared to an operating loss of $10.5 million in the prior quarter.

Rpc's EBITDA of $17.3 million.

For the quarter compared to EBITDA of $7.8 million in the first quarter.

Our technical services segment revenues increased by $3.5 million or 2% to $176.1 million in the second quarter due to increased activity activity levels in most of the segments service lines.

During these technical services segment generated a $1.4 million operating profit in the current quarter compared to an operating loss of $5.8 million in the park.

Support services segment revenues increased by $2.7 million or 26, 8%.

The $12.6 million during the second quarter.

Operating loss was $2.4 million compared to an operating loss of $2.9 million in the previous quarter.

During the second quarter RPC operated up to 6 horizontal pressure pumping fleets and early in the third quarter, we reactivated at minimal cost of seventh fleet to meet incremental.

The maintenance.

Second quarter of 2021 capital expenditures were $14.1 million and.

And we currently estimate full year 2021 capital expenditures to be approximately $65 million.

Comprised primarily of capitalized maintenance for our existing equipment.

<unk> selected growth.

Opportunities with that I'll turn it back over to Rick for some closing remarks. Thanks Ben.

Second quarter revenues improved sequentially as drilling and completion activities continued to increase due to improving improving oil prices and the strengthening economy.

We are pleased with the increased activity levels.

And our ability to pass through cost increase to our customers.

We have not been able we have not yet been able to consistently achieve net pricing improvements, but are optimistic that that will change soon.

Our ESG from.

The only tier 4 dual fuel frac equipment is in very high demand and we expect.

See pricing power here first.

We began the third quarter with indications that our customer base is responding to higher commodity prices with increased drilling and completion plans during the remainder of the year and into 2022.

At the end of the second quarter of Rpc's cash.

<unk> $121 million and we remain debt free.

I would like to thank you all for joining us for Rpc's Conference call. This morning, and at this time, we will open up the lines for your questions.

At this time of you would like to ask a question. Please press star.

The number 1 on your telephone keypad.

Cash once again to ask a question please.

And the number 1 the.

First question comes from the line of Ian Macpherson with Piper Sandler.

Hey, good morning, gentlemen.

Good morning.

Hi, there.

Sounds like third quarter shaping up nicely, even though youre.

Was that at a.

Great net pricing you have some confidence of that.

Thats lurking around the corner.

For the third quarter topline book up double digits at this point for could you refine that a little bit for us.

Yeah.

This is Jim yes, that's very much in the realm of possibility.

Okay.

With the you mentioned the cares act benefit in the Q2 margins.

I'm, sorry, if I missed where that were specified development could you help us with that is the thing about the incremental for Q3.

Yes.

The.

The overall number for the for the quarter was just under 4 million $3.9 million.

And about half of million of that is in.

Our corporate costs and the remainder of about 3.

$5 million of side of $3.4 million has been primarily in technical services said that would be in technical services operating profit.

We reported $1.4 million operating profit. So it would have been about 2 million of operating loss without that credit.

Okay.

Simple things and then last 1 for me just with regards.

Regards of the optimism on net pricing improvement.

Do you see that is the possibility by the end of this year or are you thinking about that more in terms of the first half of 2022 at this point.

I think we're hopeful that we will see some pricing improvement that we can see the market tightening and increasing activity. So so we are hopeful.

We remain we remain conservative, but we are hopeful and we are.

We are pushing forward in and doing everything we can to.

To try to help that along.

Alright, well. Thank you very much appreciate it.

Okay. Thanks, Ian.

Your next question comes.

For the line of Stephen <unk> with Stifel.

Thanks, and good morning, gentlemen.

Please go ahead.

So just for a couple of things.

I would start with can you do you mind breaking down the the revenue within technical services or for the major product lines.

Steven This is Jim happy to do that.

So the numbers I'm about to give are the percentage of consolidated revenue for the quarter for our major service lines of alert.

This service line is pressure pumping.

<unk> 38, 2% of consolidated revenues next comes tubing solutions.

<unk> at 31, 2% of consolidated revenues.

Behind that is coil tubing.

At 10, 8% consolidated revenues.

The income rental tools and our suite of services segment.

Which was for 5% of consolidated revenues.

Finally nitrogen was for 3% of consolidated revenues.

Great. Thank you.

So.

When you look at the.

The margin profile and obviously there are some moving pieces in the quarter that you alluded to.

Hi.

How should we think about the deployment of an additional fleet within pressure pumping.

And that impact on margins as we said of trying to triangulate that with just the.

The overall revenue growth and how are the margins sort of flushed out of the get into the back half of the year.

Stephen Hey, it's Jim again.

So we wouldn't put of fleet in the field, if we didnt think its Scott.

Acceptable.

The acceptable returns.

The margin profile right now.

As <unk>.

Such debt pressure pumping is a little bit lower margin than some of our other large.

Lines.

So it will be.

Bottom line accretive in dollars.

Hard to say about margin margin percent.

It will also absorbed some of our overhead so.

I mean, it truly is hard to say, but it will it.

It will enhance our bottom line in third quarter.

The hard to say that presented.

Services Okay.

The quick follow up for that.

When you think about.

The.

If you could talk about instead of an incrementals are just sort of margin.

<unk> as we get into the third quarter I know, it's I know, it's always hard when you are kind of dealing with low number still in the coming off of bottom.

Yes.

Incrementals can get a little bit funky for.

<unk> do you envision if you if you got to the.

Give or take 10% revenue growth debt.

Said was realistic.

Would you envision.

A positive Op Inc.

Number of excluding.

Of the gain on asset sales and the cash.

<unk>.

Positive operating income.

Certainly in the realm of possibility, yes, okay for the quake.

Alright, I appreciate the color. Thanks.

Sure. Thank you Susan.

Your next question comes from the line of John Daniel with Daniel Energy Partners.

Hey, guys, thanks for putting the on.

So I'm wondering.

If you guys could just sort of.

Opine on where when you might try to deploy fleet number 8.

What's the demand set behind that.

Well, it's a good question John.

<unk>.

Yeah as soon as soon as we're comfortable right and as we have.

Demand visibility.

The indicated the Frac calendar early in the third quarter is quite full.

We our team has remained.

They've done a really good job of trying to remain disciplined and not getting too far ahead of ourselves.

So we kind of ahead of plan to try to roll things out.

And the.

The conservative and slow pace.

So I would say right now theyre not aggressive plans right now in absolutely the deploy of fleet you need to have incremental additional personnel. So.

At this very.

Barry moment, we are we are not aggressively hiring for an eighth fleet right.

But we're already always ready and recruiting is an ongoing program. So we have of down that we can get people in relative relatively quickly, but at this point idle.

And we are hopeful that sometime during the third quarter, we will of.

Maybe the heading in that direction, but at this very moment.

That's not in our plans to say Hey, we probably should other 1 in place in the next 6 weeks for.

For weeks.

Fair enough.

Sort of another I've got 2 more for the next 1 relates to your go from call. It 7 fleets from 6 again, just doing simple math that's call. It 15% increase is that type of percent increase representative of the other product lines in terms of step up in activity.

For Q3.

Probably not that significant net okay fair enough and then the last 1 just.

Relates to just.

And your general thoughts on with labor being as tight as it is.

And with Covid cases rising interest.

How much of a concern do you think that is or what's the strategy. If you start getting.

Cases, popping up out in the West Texas.

Yeah.

John This is Jim it will it'll be the same game plan that we've ex.

Executed over the past year, and a half which is social distancing checking people in.

Having more people than you theoretically need because of the quarantines that happened it wasn't pleasant and it did increased costs over the past year and a half but that game plan work. It was good for our employees the complied.

The respect with customer requirements it did cost of incrementally more.

That's what we would do if it happens okay.

With.

The spin but.

John This is Ben.

We're certainly not experts, but I would say in the recent mark the impact the impact has not been.

Jim is right that there have been incremental cost over that entire time.

But the recently, we haven't had any significant of our direct impact that we're aware of.

I'm hopeful of my reading of the tea leaves as debt.

This will not have a significant impact on us if it does have some incremental impact will respond to it we have processes and procedures in place to be able.

To address it but but once once we had all of those things in place.

It was relatively rare made the strong word but it was not constant that we were being impacted by COVID-19. So I'm hopeful that number 1 im hopeful that debt.

The the spread or the increase in cases.

This will not impact us significantly, but if it against the impact US I think we can operate through it fairly effectively okay. And then I guess the last 1 of the just the customers are looking at this as sort of a full steam ahead and get the job done already sits at the same level of.

Conservatism.

Some of <unk>.

In terms of the policies out of the field.

The reason I ask is just because every time, we talk to any service company labors for the number 1 issue right and Theres not a lot of back of capacity that's the the whole basis for the question here.

Alright, alright.

Alright.

No.

Alright, well ill start that we're not.

Yes, we are.

Hearing a lot of anecdotes about issues with that right now certainly labor is an issue, but we're not hearing that it's COVID-19 related debt.

An issue.

Thanks, guys.

Thanks, John It's Joe.

Your next question comes from the line of payments are current.

Tudor Pickering.

Hey, guys. Thanks for taking my question.

You talked about some some customer related operational delays impacting the pressure pumping in Q2, and just hoping you could give us a bit more color as to what was going on there and what sort of impact that had on Q2.

Also sounds like in the same vein.

The Frac calendar for Q3's fully book at least 7 horizontal fleet.

Just curious if you could help frame what the issues in Q2.

Total calendar in Q3, and how we should be thinking about the fat.

Think of utilization for the.

The 7 horizontal spreads you have.

The table it's Jim.

We had some customer operational delays in the second quarter I know, we've already you said that some of it was related to heavy rain in the in West, Texas and some of it.

It was just related to 2 of the job pushes that happen. When you are trying to orchestrate.

2 sets of logistics on a on a on the job site. So those of those things happened in the they do continue to pump up as a result of our utilization of the fleets that we have in the field was certainly not what it was in the first quarter.

And it was more in the Inc.

It was down by a good bit.

Please we see high utilization in the third quarter. So we've got 1 more horizontal fleet count.

With what we what we see as of right now of the calendar with the white space and we can't guarantee that there won't be other John delays, because the come up unexpectedly but.

We.

We do feel pretty good about utilization.

That will be from all of all intents and purposes.

Practically full utilization for us in the third quarter.

Okay great.

Maybe shifting gears a bit outside of pressure pumping.

I'm thinking about coiled tubing.

The <unk> solutions.

Just curious how youre thinking about the service line heading into the back half of the year, maybe relative to the Frac.

<unk> been still chat.

Challenged from a pricing perspective, but.

Any green shoots from a pricing or activity perspective, and those sorts of service lines over the back half of the year.

I'd say we.

There probably is a little bit more.

The net pricing improvement there again, I wouldn't say, it's strong or turning up higher or significantly, but but our teams are doing a good job asking for pushing for I think we are having some success.

And.

3 of the ability when we talk about Frac, increasing is going from.

6% to 7 fleets being 15, 16% increase in capacity that that gives us the ability there to kind of a ramp for increased revenue more quickly than some of our other services. Once we don't have.

<unk>.

Idled capacity in those other service lines. So so it would take a lot more overall activity to have those service lines potentially move as significantly as is the pressure pumper can at this point in time right just given the the numbers but.

But we are I would say debt.

Are experiencing.

Without regard to the increasing capacity, we are experiencing even more improvement on those other service lines that we are on track but for.

<unk> again can produce a higher percentage increase due to the adding that incremental capacity at this point of time.

Yes that makes sense. Thanks.

For the answers.

Sure.

And 1 for Dan to ask a question. Please press Star then the number 1 on your telephone keypad. Your next question comes from the line of Steven <unk> of Stifel.

Thanks, 2 quick follow ups, gentlemen, and I apologize if I missed this.

6 fleets in the quarter.

The utilization of those for its down a bit from the second from the first quarter because of those jobs being pushed out.

Yes, yes, that's what impacted utilization and.

And did you give the utilization number Jim I am sorry, if I missed it.

We didn't.

Of this.

It's kind of hard to it's kind of hard to portray it because everybody denominator is a little bit different but it was.

It was down.

Bye.

30% or so from first quarter.

Okay. Thank you and then just the.

The second question I have and you alluded to.

Turning of the pricing dynamics that you see in the market right now what are you seeing from your perspective on pricing for for different assets within pressure pumping are you seeing any.

Of the sort of bifurcation net we hear from others and sort of what are customers looking for.

Yes.

And if you could just kind of remind us the makeup of of your assets right now.

Were you talking about pressure pumping Steve.

Im sorry, yes.

Yes.

Sure.

So.

The current sure.

So of the 6 fleets.

<unk> that we had in the second quarter for our ESG friendly either because of their tier for or their dynamic gas blending some of the financial gas component to them.

I think a good way to characterize it is if you have the ESG friendly pressure pumping equipment.

You can achieve.

Pretty decent.

Utilization at todays pricing you don't get premium pricing.

Market pricing and decent utilization.

There is increased demand and you can you can.

The mix in the dynamic gas blending equip.

Equipment with regular diesel equipment.

So.

Thanks.

You can.

Effectively make pretty high.

Pretty high utilization of of.

Of everything.

And I hope that the answering your question.

That adds some color I appreciate it.

I think I'm in good.

Thanks for the the help.

Okay.

I would now like to turn the call over to Mr. Landers for any closing.

Okay, well. Thank you, thanks, everybody who called in and.

Participating today, we appreciate it and hope you have a good day, we'll talk to you soon.

Ladies and gentlemen, as a reminder of this call will be available for replay on www dot RPC that within 2 hours. Following the completion of the call. Thank you for your participation. This concludes today's conference call you may now disconnect.

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