Q2 2022 RPC Inc Earnings Call
Good morning, and thank you for joining us for RPC, Inc. 's second quarter 2022 financial earnings Conference call.
Today's call will be hosted by Ben Palmer, President and CEO and Mike Smith, Chief Financial Officer also hosting is Jim Landers, Vice President of corporate services.
This time, all participants are in a listen only mode.
During the presentation, we will conduct a question and answer session.
<unk> 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 and good morning, everyone.
Before we begin our call today I want to remind you that in order to talk about our company, we're going to mention a few things that are not historical facts.
Well some of the statements will be made on this call could be forward looking in nature and reflect a number of known and unknown risks.
To refer you to our press release issued today.
Along with our 2021 and 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 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're 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 which is 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 and would like one please visit our website again at RPC Dot net for a copy.
I'll now turn the call over to our new President and CEO Ben Palmer.
Jim Thanks.
Thank you all for joining our call this morning.
Jim mentioned I'm pleased to take on a new role as president and CEO of RPC.
During the second quarter, Rick Hubbell was named Executive Chairman of the board of directors.
Remain active with the company.
We also welcomed Mike Smith, our new CFO to the corporate management team.
Together, we will work with our outstanding operational teams and continue the tradition of managing RPC and a conservative strategic shareholder friendly manner.
I would also like to take a moment to thank all of our employees for their dedication and hard work, providing safe high quality services to our customers.
Let me get let me begin with a few highlights regarding our second quarter 2022 earnings press release that was issued this morning.
RPC second quarter financial results reflect a full quarter of strong utilization and improving pricing.
That are the result of geopolitical events earlier in the year.
These conditions have renewed our understanding that the world needs hydrocarbon energy from politically stable markets, such as the United States.
Although oil prices declined towards the end of the quarter. They remain at levels that motivate our customers to drill and complete new wells.
In addition, the highest natural gas prices and more than 10 years now provide a renewed and renewed incentive for our customers to drill and complete natural gas directed wells.
We're pleased to manage a number of completion oriented service businesses and thriving domestic markets.
RPC continues to focus on managing labor shortages equipment lead times customer budgets and inflationary pressures, but we do not believe these issues woman materially impact our ability to generate strong financial results.
Given our favorable view of the intermediate term operating environment.
We have allocated capital over the next 12 months to enhance the effectiveness and competitiveness competitiveness of our pressure pumping fleet.
And improve our ESG profile.
With that overview I would like to introduce our new CFO , Mike Smith. Thanks.
Thanks Ben.
I'm pleased to be part of RPC and excited to help contribute to the company's success let.
Let me start with the second quarter 2022 sequential financial overview.
Second quarter revenues increased by 31, 9% to $375 $5 million from $284 $6 million in the prior quarter.
Due to higher customer activity levels and pricing improvements cost of revenues during the second quarter increased by four 1% to two to $260 nine.
$9 million from 208 8 million in the prior quarter as a percentage of revenues cost of revenues improved slightly to 69, 5% from 73, 4% in the prior quarter due to the leverage of direct employment costs over higher revenues, coupled with improved price.
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Selling and general administrative expenses during the second quarter increased by 12, 8% to $36 2 million from $32 1 million in the prior quarter, primarily due to employment related costs, including variable incentive compensation consistent with improved operating performance.
Operating profit during the second quarter was $64 million compared to $23 million in the prior quarter EBITDA was $80 6 million compared to $43 million in the prior quarter.
Our technical services segment revenues increased by $89 8 million or 33, 7%. This segment generated a $59 $8 million of operating profit compared to $21 $8 million in the prior quarter. The improvement in operating results were driven primarily by higher customer activity levels.
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Our support services segment revenues increased by six 2% to $19 4 million support services operating profit was $3 $3 million compared to $2 8 million in the prior quarter.
Now I will discuss our current quarter results compared to the same period in the prior year.
For the second quarter of 2022 revenues increased to $375 $5 million compared to $188 8 million in the same quarter of the prior year.
Revenues increased due to improved pricing and higher customer activity levels as well as a larger fleet of active pressure pumping equipment.
Operating profit for the second quarter was $64 million compared to an operating loss of $1 2 million in the same quarter of the prior year.
EBITDA for the second quarter was $86 million compared to $17 3 million in the same quarter of the prior year.
Our diluted earnings per share were 22 <unk>.
Compared to per share results that approach breakeven in the same quarter of the prior year.
Cost of revenues during the second quarter of 2022 was $269 million or <unk> 69, 5% of revenues compared to $145 8 million or <unk> 77, 2% of revenues during the same quarter of the prior year.
Cost of revenues increased primarily due to increases in expenses consistent with higher activity levels.
Cost of revenues as a percentage of revenues decreased due to leverage of direct employment costs over higher revenues.
Selling and general administrative expenses increased to $35 9 million in the second quarter of 2022 from $29 $4 million in the same quarter of the prior year, primarily due to increases in employment related costs, selling general and administrative expenses decreased to $9 <unk>.
6% of revenues in the second quarter of 2022 compared to 15, 6% of revenues in the same quarter. The prior year due to the leverage of costs that are relatively fixed or in the short term over higher revenues.
Depreciation and amortization was $21 million in the second quarter of 2022 compared to $17 9 million in the same quarter prior year.
Our technical services segment revenues for the second quarter were $356 $1 million.
102, 2% increase compared to $176 $1 million in the same quarter of the prior year segment operating profit was $59 8 million compared to $1 4 million in the same quarter of the prior year the improvements in technical services operating results were driven.
Given by higher customer activity levels, resulting in higher utilization of our existing equipment and pricing improvements.
Our support services segment revenues for the second quarter were $19 4 million, a 53, 5% increase compared to $12 6 million in the same quarter of the prior year.
Segment operating profit in the second quarter of 2022 was $3 $3 million compared to an operating loss of $2 2 million in the same quarter of the prior year.
During the second quarter RPC operated eight horizontal pressure pumping fleets and reactivated eight nine horizontal fleet near the end of the quarter, which had an immaterial impact on our results for the quarter.
Second quarter 2022 capital expenditures were $31 $5 million we.
Currently estimate the full year 2022 capital expenditures to be approximately $150 million.
Roughly split between capitalized maintenance maintenance for existing equipment and selected growth opportunities maintenance capital expenditure estimates have been increased to include the cost to refurbish an existing fleet that will be placed into service in 2023.
In addition, RPC will make an approximately $20 million final payment on the final lease for pressure pumping fleet acquired in 2021, I will now turn it back over to Ben for some closing remarks.
Thank you Mike.
Our confidence in the current industry outlook supported by our financial strength has encouraged us to make investments to enhance the capacity of our completions oriented businesses, including pressure pumping.
Previous up cycles have resulted in our industry, adding significant capacity inevitably outpacing demand.
In contrast to our current focus is on long term investments to maintain our productive capacity.
<unk> generated industry, leading financial returns and leverage technology to perform our services in an environmentally friendly manner.
In addition, we are pleased to reinstate a regular quarterly dividend.
This action by our board of Directors is further evidence of our confidence in the strength of the current cycle and commitment to our shareholders.
Thanks for joining us this morning and at this time, we are happy to address any questions.
At this time I would like to remind everyone in order to ask a question.
Please press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Steven <unk> with Stifel. Your line is open.
Hi, Thanks, good morning.
Hey, Stephen good morning.
So so two things to me if you don't mind. The first is you talked about the.
Reactivation refurbishment and new construction and when do you thinking about the refurbishment just kind of curious how you think about the capex needed and also.
Within your your current.
Fleet of idle assets right. You May have mentioned this and I may have missed it is there much more that can be refurbished and brought back into the market and how do you think about that investment decision.
Okay.
Stephen This is Ben.
Let me begin with the last question or last part of your question. We have one maybe two more idle fleets that could be reactivated without requiring significant investment.
And to your earlier point on the refurbishment just to confirm that that is a project that has been initiated and that spending is.
As expected to all of that spending is expected to incur occur.
Before the end of this year.
And and that refurbished fleet would be put into service fairly early in 2023.
So that's included in that so the updated numbers I think last quarter, we reported a $115 million was our expected capex now it's up to 150 so.
That's.
A decent part of that increased Capex is the decision to do that refurbishment, which we had previously not necessarily expected to do in 2022.
And then there's the new construction for delivery in first half 'twenty three is that incremental capex there in 'twenty three.
At that spending will be in 'twenty three.
23, Okay, and when you're when you're looking at that asset built are you.
Are you thinking about customer commitments have you had conversations with customers.
Any sense for duration you might want how should we think about that.
Good question, Yeah, obviously.
Question or I'm, sorry, our discussions with customers all the time.
We do not have a specific step up excuse me a specific customer opportunity.
<unk> been tagged or identified.
But we're quite confident with the level of inquiry and the relationships, we have with customers in the basins in which we're operating our hydraulic fracturing fleets.
But we're very confident that we'll be able to.
Secure.
Additional work for that equipment.
And and we want to point out again or to clarify that.
We do not expect that our.
Our productive capacity will be increasing with these increasing investments so the timing when.
When we add either of the refurbished fleet.
Or add this brand new fleet it may not be.
The same day, but very shortly thereafter, we're expecting we're projecting that we will either need to retire a fleet just due to the wear and tear on it.
Or.
Take it out of service and began an additional refurbishment that decision will be made later, which of those two things we do but we expect this this newer upgraded equipment will be coming into service about the same time, we will have to take some of our in service fleets.
Back out of service, we will have to idle them and make a decision about whether we retire them completely or whether we again a refurbished effort on them.
Great. Thank you.
And then one final one maybe for Jim you have the revenue breakdown by segment.
Sure Steven absolutely.
Yes.
So I'm going to give some revenue by service line. This is for the second quarter of 2022, and the percentages are a percentage of consolidated revenues.
Our largest service line is pressure pumping it was 51, 8% of consolidated RPC revenues.
Second largest service line is our downhole tools and motors business thru tubing solutions.
It was 23, 9% of consolidated revenues.
Number three was coiled tubing coiled tubing was nine 7% of consolidated revenues.
Following behind that is rental tools, which is our largest service line within support services. It was three 8% of consolidated revenues.
And then our nitrogen business was two 9% of revenues in the last one to bring up is snubbing hydraulic workover, which was one 9% consolidated revenues for the second quarter. Thanks for the question Steven Yes.
Great No that's very helpful. Thank you gentlemen.
Alright. Thanks.
Thanks.
Your next question comes from the line of John Daniel with Daniel Energy Partners. Your line is open.
Hey, guys impressive quarter.
Thank you I guess the first one is I think you mentioned in the prepared remarks, you had eight horizontal fleets.
During the during Q2 and at nine today's did I is that right.
That is correct.
And do you have any vertical fleets in addition to that.
We do we do have a couple of vertical fleets.
Okay.
Then.
Just.
Understand the guidance here.
For Q, I guess theres not a formal guidance for Q3, the safe to assume an average nine horizontal fleets and two vertical fleets for the quarter all else being equal.
Yes.
Got it and then on the.
On the new fleet that Youre doing.
If you said this I apologize I was distracted.
Is it.
Tier four dual fuel can you just provide a little bit of color on.
The makeup of the asset that you're buying.
Yes.
Correct.
Your description tier four DGB.
And we are also buying kind of a suite of support equipment for that as well. We don't believe we need anymore tractors, but we have the other support equipment like blenders and things like that.
Okay EMEA.
You may or may not have this data handy, but then my final question, but just we saw this week.
Lastly, I can't remember next year selling its coil assets to gladiator that serve the emerging consolidation in coil that's happening can you speak benches.
Your views on the coil market, what you guys might have accurate today plans to expand in that product line just any any color on that particular segment would be appreciated.
Sure John .
Yes, we are seeing some improvement in coal tubing.
We do not currently have plans to make any significant.
If I can improvement army.
Additions within that service line, but we like it it's a good complement and a good component in our service offerings.
And able to capture some opportunities to bundle bundle some services with particular customers, which has been beneficial.
We do have some.
17, large diameter coil tubing.
And 10 or 11 smaller diameter coil tubing units.
Talk about the current capacity and and as I said, we are not actively pursuing any additions to that capacity.
Fair enough guys. Thank you again and congrats on putting a dividend back in place.
Thanks, John Thanks Julia.
Again, if you would like to ask a question press star followed by the number one on your telephone keypad.
Your next question is from the line of Donald Crist with Johnson Rice. Your line is open.
Good morning, gentlemen, how are you all doing today.
Good Don good to hear from you. Thank you.
I just wanted to clarify the answer you gave to Stephen's question first.
So the refurbished.
Fleet and the new fleet that you're ordering that's going to keep you at nine fleets correct youre going to youre going to <unk>.
Retire two fleets when those come active is that the way that I heard that answer correctly.
More or less we do have one or two incremental fleets that still are idle.
That could potentially be reactivated.
But we are expecting given the.
So we do have the capacity to be able to put one or two additional fleets to work.
Without any incremental spending but this incremental spending that we are doing to both refurbish and.
An existing fleet.
And by a new fleet, we think that the timing of that coming in as or going to correspond pretty closely.
With our need to take some existing fleets back out of service.
Okay.
If we do not if we.
Let's say, we did add just to clarify if we did add one additional fleet reactivate one additional fleet that we have today, we would go to 10 alright.
Alright, but but just refurbishment and the brand new fleet, we would take two fleets out windows fleets come back into service. So we would be still be yet turn if we added one more but currently we're at nine and <unk>.
Evaluating the next move with respect to the currently idle fleet.
Okay I just didn't want to have you.
11, or 12 fleets in 'twenty, three that would be that would be incorrect. Okay.
Can you talk to.
The time lag right now if you wanted to order new engines from Caterpillar is it still in the 30 plus week range today.
It is extended.
Been doing some work too.
And with Cat working with the suppliers. So so we've been kind of ordering ahead and things like that but yes. The lead time is is quite quite long.
These.
These decisions this isn't necessarily part of your question, but to talk about the.
The decisions to add this new fleet and do this refurbishment, we've been talking to vendors for quite a while so.
I think our guys did a great job of maintaining those supplier relationships.
We didn't make the decision until this quarter to pull the trigger on those those.
Projects, but.
It took a lot of work a lot of discussion and a lot of coordination in negotiation with those vendors to put ourselves in a position to be able to pull the trigger when we did so kudos to our operational guys for that network.
And to that point.
The lead times for any additional equipment are quite extended obviously, we've all read about that and have seen that that lead times are quite long.
Okay and just one final question for me can you talk about contracting.
Behavior amongst the E&ps today, I mean, obviously, we've been hearing about a little bit of a scramble for 'twenty three suite.
Alrighty of supply on the pressure pumping side can you speak to that and are you in discussions today to to lockup fleets for 'twenty three at current pricing.
Yes.
We have some we do not today have any significant amount of contract long term contracts for 2023, we are in discussions.
We like our market position.
Especially in the Permian with our mix of customers.
We would kind of say, we have sort of half and half between more spot type customers and half that or where we have some level of extended contract terms with a customer usually allows us the ability to increase pricing, if theyre material price increases and things like that.
But those contracts are.
At this point.
They are not.
Usually a 12 months in duration. They are usually a shorter time period, but that allows us to do a lot of planning and gain a lot of efficiency in terms of our operations. So we're pleased with that mix right now.
Okay I appreciate it I'll turn it back.
Thank you thanks, David questions.
Again, if you would like to ask a question press star followed by the number one on your telephone keypad.
Your next question is from the line of Joel Etzler with Holly Energy. Your line is open.
Hi, guys. Thanks for taking my question.
Can you hear me.
Yes, yes, yes.
I just wanted to clarify this so I understand.
Properly. The you said that you increased the Capex guidance from 115 250.
But.
And that was mainly due to the refurb fleet that is that you are paying for at the end of the year. But then you also said that it was minimal spur.
Spending on those fleets that you're refurbishing.
But it sounds like quite a lot.
I wanted to understand what I missed there.
Yes, yes, the reactivation, we very recently reactivated an idle fleet and we did not require much capex to be able to reactivate.
Okay.
The one that you're referring is is more expensive.
Yes, that's that is significant spend thats doing a very thorough very <unk>.
Extensive refurbishment.
The new technology.
It's taking existing trailers chain.
Changing out the major components too.
The higher capacity in the newer technology to more.
Emissions.
Less emissions and there are a lot more efficiency. So that's a significant amount.
Hum.
Okay and then.
On the balloon payment that you have this year is that part of the <unk>.
Capex guidance.
No, but we did want to call it out.
That $20 million final balloon payment is not in the $150 million so no but.
So we could think of it as Capex I guess.
In that sense sure certainly a demand requirement.
And my final question would be on the Newbuild that you are.
As I understand it you are paying for early in the year.
'twenty three.
<unk>.
With all the supporting.
Equipment that youre getting what is the price you're paying for that.
In round numbers.
We think again with with the discussions and the negotiation we have with the vendor. We think we received pretty good pricing given the timing of our negotiation. So in round numbers it was about $50 million.
Okay.
Thank you very much.
Thank you.
There are no further questions at this time I will now turn the call back over to Mr. Jim Landers.
Thank you operator, and thanks to everybody who called in to listen and we appreciate the questions as well.
I'll talk to a lot of you very soon and I hope you have a good day. Thank you again.
As a reminder, today's conference call will be replayed on www Dot RPC dot net within two hours following the completion of this call.
For participating this concludes today's call you may now disconnect.
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