Q4 2021 RPC Inc Earnings Call
Okay.
Good morning, and thank you for joining us for RPC, Inc. 's fourth quarter 2021 financial earnings Conference call.
Today's call will be hosted by Rick Hubbell, President and CEO , and Dan Palmer Chief Financial Officer.
Also present is Jim Landers, Vice President of corporate services.
At this time all participants are in a listen only mode.
Following the presentation, we will conduct a question and answer session.
Instructions will be provided at that time for you to queue up for your questions.
I would like to advise everyone that this conference is being recorded.
Jim will get us started by reading the forward looking disclaimer.
Thank you and good morning, 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 these 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.
<unk> issued today, along with our 2020 10-K and other public filings that outline those risks all of which can be found on rpc's website at www Dot RPC dot 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 income or loss adjusted.
Adjusted net income or loss per share.
Adjusted <unk>, adjusted operating profit or 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 issued today and our website contain reconciliations of these non-GAAP financial measures to operating loss net loss loss per share, which are the nearest GAAP financial measures. Please review these disclosures if you're interested in seeing how they are calculated.
You have not received our press release and would like one please visit our website again at RPC Dot 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.
Yes release for Rpc's fourth quarter of 2021.
Industry conditions continued to improve throughout 2021 as the average U S domestic.
Rig count and oil prices, both increased over 80% compared to the fourth quarter of 2000 Twenty's.
Rpc's financial results improved as demand for our services increased resulting in higher activity little levels and better pricing.
In addition, we did not experience the typical holiday slowdown in the fourth quarter of 2021.
Our CFO Ben Palmer will discuss this and other financial results in more detail after which I will provide more closing.
Thank you Rick.
For the fourth quarter of 2021 revenues increased to $268 3 million compared to $148 6 million in the same quarter of the prior year revenues.
Increase due to higher customer activity levels, resulting in higher utilization of our existing equipment and pricing improvements.
Operating profit for the fourth quarter was $20 1 million compared to an adjusted operating loss of $11 3 million at the same quarter of the prior year.
EBITDA for the fourth quarter was $39 4 million compared to adjusted EBITDA of $7 8 million in same quarter of the prior year.
Diluted earnings per share for the fourth quarter or six cents compared to three <unk> adjusted earnings per share in the same quarter of the prior year.
Cost of revenues during the fourth quarter was $200 6 million or $74 8 million I'm, sorry, 74, 8% of revenues compared to $117 9 million or 79, 3% of revenues during the fourth quarter of 2020.
Cost of revenues increased primarily due to increases in expenses consistent with higher activity levels, such as materials and supplies maintenance and repairs.
<unk> costs and fuel costs.
Cost of revenues as a percentage of revenues decreased primarily due to the leverage of higher revenues over direct employment cost and improved pricing see services.
Selling general and administrative expenses increased to $32 1 million in the fourth quarter 'twenty, one from $26 million.
A year ago due to favorable employment related cost adjustments in the fourth quarter of the prior year.
Selling general administrative expenses decreased from 17, 5% of revenues in the fourth quarter of last year to 12% of revenues in the fourth quarter of 2021. This was due to the leverage of higher revenues over cost that are relatively fixed or in the short term.
Depreciation was $18 9 million in the fourth quarter of 2021 compared to $18 million in the same quarter of the prior year or.
Our technical services segment revenues for the fourth quarter were $254 4 million, that's an 83, 1% increase compared to 139 million in the same quarter in the prior year.
Due to higher customer activity levels, resulting in higher utilization of our existing equipment and pricing improvements segment operating profit in the fourth quarter of 2021 was $25 million.
Third an $11 3 million operating loss in the fourth quarter of the prior year.
Our support services segment segment revenues for the fourth quarter were $13 8 million or 43% increase compared to $9 7 million in the same quarter of the prior year.
Segment operating loss in the fourth quarter of 2021 was 373000.
As compared to an operating loss of $2 6 million in the fourth quarter of the prior year.
On a sequential basis fourth quarter revenues increased 19, 1% to $268 3 million due to higher customer activity levels, resulting in higher utilization of our existing equipment and pricing improvements.
Cost of revenues during the fourth quarter increased 17, 6% to $200 6 million from 176 million in the prior quarter.
As a percentage of revenues cost of revenues decreased slightly from 75, 7% in the prior quarter to 74, 8%.
In the fourth quarter due to leverage of higher revenues over employment cost again, which are relatively fixed or in the short term.
Okay.
Selling general administrative expenses during the fourth core Inc. During the fourth quarter increased slightly to $32 1 million from $31 4 million in the prior quarter, resulting in positive leverage on higher revenues.
As a result of these improvements operating profit during the fourth quarter was $21 million compared to $8 million in the prior quarter.
Our EBITDA was $39 4 million.
In the fourth quarter compared to EBITDA of $26 5 million.
Yes.
Technicals Technical services segment revenues increased by 42 6 million or 21%.
To $254 4 million.
During the fourth quarter due to higher customer activity levels, resulting in improved utilization of our existing equipment and pricing improvements.
Rpc's technical services segment generated a $20 5 million operating profit in the current quarter.
Compared to operating profit of $8 3 million in the prior quarter.
Our support services segment revenues increased by two 5% to $13 8 million in the fourth quarter.
Operating loss was 373000 compared to an operating loss of 55000 in the prior quarter.
During the fourth quarter RPC operated eight horizontal pressure pumping fleets as we mentioned during our last call. We added a tier four dual fuel fleet at the end of the third quarter.
As an upgraded replacement and not as an increase in our overall fleet capacity.
Fourth quarter 2021 capital expenditures were $22 7 million and full.
Full year 2021 capital expenditures were $67 6 million.
We currently estimate full year 2022 capital expenditures to be approximately 125 million.
<unk>, primarily of capitalized maintenance for existing equipment and selected growth opportunities with that I'll now turn it back over to Rick for some closing remarks.
Thanks Man this year RPC reactivated idle pressure pumping equipment.
As market pricing and customer demand has consistently improved.
In addition, we are happy to report that almost two thirds of our active horizontal pressure pumping fleet is ESG friendly.
We are encouraged by recent improvements in the operating environment, our overall financial results and the outlook for 2022 .
We will continue to evaluate economics to support upgrading our equipment fleet.
During this era of unprecedented challenges, we want to thank our employees for.
We're providing safe high quality services to support our country's energy infrastructure.
At the end of the fourth quarter.
The end of the fourth quarter Rpc's cash balance was approximately $82 million and we remain debt free.
We'd like to thank you for joining us on our conference call. This morning and at this time, we will open the lines up for your questions.
At this time I would like to inform everyone. If you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your first question comes from the line of Steven <unk> with Stifel.
Hi, Thanks, good morning, gentlemen.
Hey, Steven.
So.
Two things for me to start can you speak a little bit about what youre seeing just in general.
On the pressure pumping pricing side I mean, we've heard.
Obviously, we've heard some some positive pricing traction and just curious what youre seeing specifically as far as net pricing improvements and how do you think that kind of flows into sort of incremental margin performance and technical services as we go forward.
Steve This is Ben.
We are experiencing net net pricing improvements.
Some of it in some of the pricing improvements and increase our revenue is to cover.
As increased pricing to cover some of the increased cost that we're experiencing supply chain or otherwise so theres a lot going on with you know how much of the contribution is from.
Again that pricing improvement how much of there's a lot of dynamics right that are going to pull them on there, but clearly utilization is improving.
We are getting some pricing net pricing traction.
We do expect that to continue to progress.
It's not it's not on it's.
It's something we're looking at every day and constantly but we do think in this environment, we feel with the current level of utilization and discuss discussions with our customers that that we will continue to be able to continue to capture net pricing improvements as we move forward. So we.
We see a continuation of.
The positive Incrementals that we were able to generate in the fourth quarter versus the third.
But theres, a little bit, it's a little bit difficult to predict given the costs and some of the other.
Supply chain and in personnel issues that.
Our arising COVID-19 and so forth youre early in the first quarter, we're hoping those things are going to work.
Work.
We hope that situation, especially with Covid is going to work itself out here pretty quickly but.
But we feel good about the progress we've made in and what what.
What we believe we can achieve here as.
As we get into 2022.
Great. Thank you and when you you mentioned your.
Your estimate for 2022 Capex.
And you had eight fleets I believe working in the quarter do you.
Is any of that targeted towards reactivation of additional fleet, how should we think about.
The fleet count in the in the first half 'twenty two.
Steven This is Jim.
The first half of 2022, we would think of it as being.
Fairly constant to where to where we're starting the year.
We.
We're assessing a number of things one of them is activation of.
I have another fleet, we think we've got some.
Some some fairly new and good quality equipment that can be reactivated if demand.
If demand warrants it also remember our.
Capitalized maintenance on pressure pumping fleets, we're pretty active right now so you have to budget for that.
For that as well when it comes to pressure pumping.
We don't have any new equipment on order.
We don't know how long it would take for new equipment to be delivered but we know it would be a little while so even replacement order today you wouldn't see.
A new additional fleet in the field from us during the first half of the year.
And what operators spin I would.
This is Ben I would add to that that we have been up to this point.
Tried really trying to focus.
More on generating sufficient cash flow on fleets, we do activate much more than trying to get as many fleets in the field as possible. So that still continues to be the top priority, we would and we're very interested in activating another fleet.
If the economic as Rick mentioned in his comments if the economics are there currently and I expect it to be in the future.
We'll begin to two.
We will do that we'll take that action, but we are most focused on trying to sufficiently utilize and capture.
Returns on the fleets that we do.
Deploy into the field. So that's the that's the top priority.
Great. Thank you gentlemen.
Thanks Steven.
Your next question comes from the line of John Daniel with Daniel Energy Partners.
Hey, guys. Thanks for including me in just wanted to dig in a little bit more to Steven's question, but as you look at the budget. I know you mentioned you don't have anything on order now, but does that $125 million contemplate that I'm just trying to.
Sort of get a sense for where that growth capex would be allocated.
Hey, John it's Jim.
You know, there's there's probably a placeholder for a new fleet sure.
Do you have a preference at this point, Jim whether it's tier four dual fuel or do you take the step to do something different.
Tier four dual fuel tier four DGB.
Got it okay.
Okay.
Last one for me just on the debt.
Crew counts I think you said you averaged eight.
Uh huh.
Where would you I mean.
Where would you expect to be call. It end of March.
End of March.
Just sort of we're still be day.
Okay.
Yeah, I mean, we do have the vertical fleet, we're talking about horizontal here into.
Into March.
Fair enough all right guys that's already approved.
You get your time.
Thank you Jack Thanks.
Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your next question comes from the line of Stephen <unk> with Stifel.
Hi, Thanks, I just wanted to follow up Jim you might given the product line breakdown of the segments.
Yes, Steven Thanks. Thanks for the question I was going to do it if no one asks.
So for the fourth quarter of 'twenty one.
And this is as a percentage of consolidated RPC revenues pressure pumping was 46, 8% of revenues.
Thru tubing solutions was 26.0% of revenues coiled tubing was 10, 1% of revenues nitrogen was three 9% of revenues rental tools, three 4% and snubbing was one 8% of consolidated RPC revenues for the quarter.
Great Thanks, and while we're on the topic of non pressure pumping.
What have you seen on the on the pricing front outside of pressure pumping and we've talked a lot about frac business, but when you look at the pricing dynamics in the other areas are they.
How should we think about just the pricing dynamics there.
In our other big service lines, they are favorable as well Stephen we've had.
Net pricing as we referred to it in the business now.
In our largest service lines.
In some cases in one case, a new price book was issued in another case, just lower discounts on the existing price book So it's.
It's favorable among our largest larger service lines all the large service like this have been all of our service lines our <unk>.
Gaining pricing pumping with by the nature of the services offered there is a lot more cost right that cost increases that are flowing through so that's a little bit more difficult to peg exactly what the price increases are the other service lines not affected as much but certainly that that too is a headwind or a <unk>.
<unk> of the overall net pricing change, but yes, all of the wireless jumps at all the large service lines have been.
Pushing for pricing.
And have been successful, thus far and in having those flow through into our results.
Thank you and then if you don't mind one more.
We've been hearing more about whether it's because of trucking ore availability in general on the Frac sand side have you seen any disruptions to activity at the well site because of an inability to get to get sand.
Tom.
Steven This is Jim no we have not experienced any any job delays because of disruptions in and sand deliveries, but theres been a lot of moving around between in basin sand in.
Northern white and how to get it we know it's been a problem in the oilfield.
Not to date been.
<unk> been disruptive to us.
But it's a risk for sure.
Okay, great. Thanks for the color gentlemen.
Thank you thank you Steven.
Your next question comes from the line of Dan <unk>.
With Coker Palmer.
Hi, how are you doing.
Good <unk> good evening.
Impressive results and thanks for taking my question.
You guys talked about San issue not sandwiches, specifically about logistics issues and everything so just wanted to see if there was any revenue impact in <unk> because of raw material and labor shortages.
This is Ben.
Nothing.
Significant enough for us.
To quantify or to say certainly there are challenges are either ongoing.
Challenges.
In some of our service lines, we may have a few more a little more head count or planned for or have extra capacity because of some of the COVID-19 .
Issues.
But it's not clear from a revenue missing out on revenue.
A lot of that that we've experienced to date, but.
A lot of discussion about how much work is.
Going into remaining busy and remaining highly utilized but but thus far we've been able to work through it.
Got it.
Beds one other one other note about sand is that in the fourth quarter of 'twenty. One we used more in basin sand as a percentage of total.
Then then Ottawa sand.
And that has a slight negative revenue impact just because the way the markets the cost in the market. So that was a slight negative not huge but a slight offset to the other increases.
Got it and then I guess I was trying to go with US I think in the press release you talked about.
Issues could impact operations and <unk>. So just how do you think that plays out over the next couple of quarters.
Well I think just what we're saying we're just we're trying to be.
Forthcoming with there are challenges our supply chain challenges personnel issues with Covid and so we're just indicating that it could be an issue right into these challenges and risks are there.
But everybody is working really hard to do everything they can to.
Overcome it and.
We were very pleased with the way the fourth quarter turned out.
Leading up to the fourth quarter, we had little idea about.
There is no certainty that it would be as strong as it was so we were pleased to see that.
We think it will all things equal compared to prior years, we're able to get off.
Start the new year.
Rather than from a <unk>.
Stall and having to crank back up.
We're able to just sort of continue on so thats very positive and we are.
Certainly pleased about that and glad we didn't have to experience that severe fourth quarter slowdown again so.
Again, so I think more of what we're trying to just indicated as those risks.
Are there and we're keeping on top of mind in and trying to.
Continue to work through which we've been able to successfully do thus far.
Yeah.
So maybe a numerical question if we look at the last couple of quarters revenues have grown close to 20%.
My understanding is the completions was still lagging drilling and I think it could now be at par the drilling as we move forward.
If I think about the next quarter, maybe 20% or maybe somewhat less than that.
I don't know mid teens, 20% revenue growth will be the study, but in an agreement that we have seen last two quarters is that fair way to think about the next quarter.
Okay.
Beds.
The more modest incrementals are right.
25%, 30% Incrementals on our revenue growth.
And where we are factoring we are saying that rather than the traditional 40% incrementals you'd see it in an up cycle <unk>.
Part of that is because of.
Or just increased costs.
And just the at the.
It really is the friction involved with that.
We think our first quarter.
Revenues will be slightly up from fourth quarter, but not not as high as the.
Statistic Hugest gave remember fourth quarter was strong because because it was strong and because we didn't have all the impact. The overall environment is very favorable, but theres a little bit of a slow start in January so.
The revenue growth.
The revenue growth that you are quoting on a sequential basis, we would see more in second second through fourth quarter, perhaps than fourth to first quarter.
And again as we are trying to discuss in this call.
We don't have any COVID-19 slowdowns or any other issues right now, but they are risks I mean, we're very aware of them. So that's why we're calling them out and this discussion.
Got it alright, that's it from me gentlemen, thank you so much.
Thanks <unk>.
Your next question comes from the line of Don Crist with Johnson Rice.
Good morning, guys. How are you all today.
Good Don welcome to the group.
Thank you. Thank you Sam.
One quick question on <unk>.
On your contract status right now I mean, obviously in the pricing.
Environment is very good how many of your fleets are in spot work right now and getting the updated pricing versus you know one six months or one year deals where it may be kind of lagging a little bit on that.
Yes. This.
This is Ben.
There's there's obviously not up.
Right line.
Between.
Spot and term, but we still have the majority of our fleets are still on spot, but we do have a nice mixture of some of the longer term term work.
<unk>.
Call it three or on contract and the other fiber.
Mostly focused on spot work.
But we've had some amount of churn on <unk> churn there has been some turnover in some of those three.
Dedicated contracts so.
So I don't know that thats completely locked in or were not necessarily working on those three are not necessarily working on the same pricing we were working on say in the.
The third quarter of last year so.
We liked that mix, we like the current mix of work that we have.
Okay, and you've always had a very good balance sheet and on our models Youre building cash going into 'twenty, two and 'twenty. Three years, you all have any dedicated use for that cash.
Kind of building on the balance for now.
This has been we don't currently have any.
<unk>.
Plans that we have to announce but we are looking at the alternatives and we like at this point in time that that we do have some alternatives that we haven't had over the last couple of years. So we are weighing those various alternatives, we obviously used to be a dividend payer.
That's something we're looking at very closely we would love to Reinitiate that something were looking at very closely.
Stock buybacks are something that we've used historically and also have not done much of that in the last couple of years, but I would still say our.
High up on the list is looking at.
Opportunities to invest directly in the business, we are looking very closely at that.
The economics today, and what we expect the economics to be over the next.
Several years in making that determination about.
And wind.
To make some additional acquisitions of equipment, but I will say as it relates to pressure pumping one of the things that we're continuing to do.
Similar to what we did in the third quarter of 2019, we build off we retired we decommissioned or whatever you want to call. It.
A lot of our equipment.
And paired it down to what we thought would be reasonably capable of working I think our team. Our teams did a great job doing that back in the third quarter of 2019, I think that served us very well.
And that's something we do continuously but something we're really focused on right now to really get a good handle on what is our what is our capacity what is our workable capacity.
And the comment that we made.
<unk>.
And our.
Recall, there or when we were reading the transcript is that.
We kind of view that tier four fleet that we added not to really be adding to our overall incremental <unk>.
Capacity, because we we have identified some additional equipment that we're going to be disposing of that we're going to be cutting up making sure. It doesn't reenter the market, but that's something we want to stay on top up we want to make sure we have a realistic view of what our.
Equipment capacity is what is capable of going back to work and and if it's not able to go back to work we want them.
We want to not have it hanging around we want to try to get rid of it so.
So again.
Fleet, we added late in the third quarter, we don't really view that as adding to our overall.
Capacity, it's really more of a replacement and upgrade so.
That's been our approach and that's what we'll continue to do.
I appreciate all the color I'll turn it back thanks.
Sure. Thanks, Tom.
Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
And at this time there are no further questions I would now like to turn the call back over to Mr. Jim Landers for closing remark.
Thanks.
Thanks for everybody, who called in to listen today and for your questions. We enjoyed the discussion.
Day, and we will see you soon.
This concludes today's conference you may now disconnect as a reminder, todays replay will be available at www Dot RPC dot net within two hours. Thank you for your participation you may now disconnect.