Q4 2022 RPC Inc Earnings Call
Good morning, and thank you for joining us for RPC, Inc. 's fourth quarter and year end 2022 financial earnings Conference call.
Today's call will be hosted by Dan Palmer, President and CEO and Mike Smith, Chief Financial Officer also hosting is Jim Landers, Vice President of corporate services.
At this time all participants are in listen only mode. Following the presentation. We will conduct a question and answer session and instructions will be provided at that time for you to queue up for questions.
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, before we begin our call today I want to remind you that in order to talk about our company, we're going to mention a few things that are not historical facts.
Some of the statements that will be made on this call could be forward looking nature and reflect a number of known and unknown risks I'd like to refer you to our press release issued today, along with our 2021 10-K and other public filings that outline those risks all of which can be fed 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 or.
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 please visit our website at RPC Dot net for a copy I will now turn the call over to our President and CEO Ben Palmer.
Thanks, Jim and thank you for joining our call. This morning.
2022 was an exceptional year and we finished the year with very strong results in the fourth quarter.
I would like to start by thanking our employees for an outstanding 2022.
Their hard work and dedication and overcoming many challenges made our success possible.
We look forward to building on our achievements and expect continued success in 2023.
Rpc's fourth quarter financial results showed very little impact from weather related or holiday downtime.
Furthermore, our customers continue to work throughout the fourth quarter with no evidence of budget exhaustion.
Although oil prices have recently moderated from their highs they remain above levels sufficient to motivate our customers to drill and complete new wells.
Yeah.
Well pressure pumping is certainly a core business for RPC, we were much more than just a pure play pressure pumper and.
In fact, we are one of the very few companies that can provide nearly all of the services required to complete all of our gas wells.
This diversification represents a competitive advantage for RPC and adds value as a leading provider of completion services for our customers.
Our CFO , Mike Smith will discuss this and other financial results in more detail after which I'll provide some closing comments.
Thanks Ben.
I'll start with the fourth quarter 2022 sequential financial overview.
Fourth quarter revenues increased by four 9% to $482 million from $459 6 million in the prior quarter.
Due to improved pricing and most of our service lines and higher equipment utilization supported by a full quarter of operation for our most recently are reactivated pressure pumping fleet.
Cost of revenues during the fourth quarter decreased slightly to $308 6 million from $309 8 million in the prior quarter.
As a percentage of revenues cost of revenues improved to 64% from 67, 4% in the prior quarter due to improved job mix and continued strong pricing for our services.
Selling general and administrative expenses were $38 $2 million in both the fourth and third quarters of 2022.
During the fourth quarter of 2022 RPC also recorded a $2 9 million dollar defined benefit pension plan charge related to a lump sum settlement offered to plan participants.
During Q1, 2023 we expect to record a settlement charge of approximately $22 $5 million associated with the final termination of this plan.
Also in connection with the transfer of the plan liability to a third party RPC expects to make an approximately $10 million cash contribution also in the first quarter of 'twenty three.
Yeah.
Operating profit during the fourth quarter increased by 21, 9% to $112.3 million from $92 2 million in the prior quarter.
EBITDA increased by 19, 8% to $135 5 million from $113 million in the prior quarter.
Our technical services segment revenues increased by five 1% to $458 $1 million.
This segment generated a $110.5 million of operating profit compared to $89 5 million in the prior quarter.
Improvements in operating results were driven by higher customer activity levels improved pricing and a larger active fleet of revenue producing equipment.
Support services revenues were unchanged during the fourth quarter of 2022 compared to the prior quarter.
Operating profit was $6 $7 million compared to $5 3 million in the prior quarter.
Now I'll discuss our current year or sorry, our current quarter results compared to the same quarter in the prior year.
Revenues increased to $482 million from $268 $3 million operating profit increased to 102 $12.3 million from $20 1 million.
EBITDA increased to $135 $5 million from $39 4 million. These increases were driven by higher customer activity levels improved pricing, resulting in our diluted earnings per share improving to 40 compared to six in the same quarter of the prior year.
Our technical services segment revenues increased 81% to $458 $1 million in segment operating profit increased $110 five to $110 $5 million from $25 million in the same quarter the prior year.
Our support services segment revenues increased 73, 1% to $23 $9 million and segment operating profit increased to $6 7 million from an operating loss of $373000 in the same quarter of the prior year.
Now I'll briefly discuss our capital expenditures and horizontal pressure pumping fleet count.
Capital expenditures were $49 $3 million in the fourth quarter we.
We currently estimate full year 2023 capital expenditures to be approximately $250 million to $300 million, including a new tier four dual fuel fleet, we plan to place into service during the second quarter at which time, we expect to take down an existing fleet for refurbishment.
Yeah.
During the fourth quarter, we operated 10 highly utilized horizontal pressure pumping fleets we expect.
To continue operating 10 horizontal fleets throughout 2023.
I will now turn it back over to Ben for some closing remarks, Thank you Mike.
Our confidence in the current industry outlook, along with our view of how that should translate to our financials.
It has encouraged us to make investments in our completion oriented businesses.
Previous up cycles have resulted in our industry, adding significant capacity.
Inevitably outpacing demand.
In contrast, our current focus is on long term investments to maintain and selectively improve our current productive capacity.
Also to generate leading industry, leading returns on invested capital.
And leveraged technology to form our services in an environmentally friendly manner.
Through a combination of dividends and open market share repurchases RPC has returned over $536 million to shareholders over the last decade.
As evidence of our confidence in the strength of the current cycle and commitment to our shareholders. We announced this morning, an increase in our regular quarterly cash dividend from <unk> to <unk> per share.
Thank you for joining us this morning and at this time, we're happy to address any questions you may have.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Well pause just a moment to compile the Q&A roster.
And we will take our first question from Stephen Chin borrow at Stifel.
Thank you and good morning, everybody.
Thanks, David.
So if you a few things for me if you don't mind.
I guess the first is when you when you look at the current pressure pumping market.
And what you see in the industry dynamics.
You know, we think and I think there's a lot of people out there who are sort of sensing a much different approach by operators as far as adding assets et cetera.
In the field, what do you see as your experienced similar to that and maybe talk a little bit about how you think about Newbuild economics right now.
Okay.
Steve when you're talking about operators, adding assets I think you mean us not not our customers.
I mean, sorry, I mean pressure pumper in general Yeah.
Yeah.
Yeah.
Well it seem this is Ben.
I think that there there is investment that's taking place I think more than.
Whether theres investment taking place is ultimately what the overall capacity equation is going to look like.
We're working really hard to.
We're committed to a plan to as I.
I indicated in my comments, we're trying to more or less maintain our existing capacity, but we're upgrading that we're making investments where we need to to make sure that we can continue to provide us.
Quality service, but we want to utilize our existing equipment right and get as much out of it as we can if it can if it can.
Generate an.
Adequate returns and provide a quality service. So we don't want to take it out of service too quickly, but but then but then we have the long lead times for new equipment, so getting the timing right between.
When an existing fleet will be.
Be ready to retire or lay down right. That's tricky and that's not something we're trying to necessarily say those are going to happen on precisely the same date, but ER, but we're really looking out you know we're committed to.
You know trying to generate free cash flow.
During this particular cycle as I indicated we've turned returned a lot of cash to shareholders over over time, our history shows that we've done that we continue to be committed to that.
So our <unk> and.
In return you asked about our returns in the way we think about that.
You know the return profile or what what one would reasonably expect 12 or 14 months ago versus where we are today, obviously, it's completely different right. So so we don't all of a sudden wake up and say well today or last month or last quarter.
The return indications are unbelievable. So so we should ramp our spend or our investment we're trying to we expect to remain disciplined we want to go.
Inappropriate pace pace have enough a longer term plan and try to execute against that plan and allow us to take advantage of the opportunities be there to provide services to our customers maintain our existing capacity more or less.
Selectively grow but maintain our capacity and.
And focus on that continuing to return excess cash to shareholders. So hopefully that's responsive.
Body else has any other additional comments on that yes. This is Mike I'll just add one thing to think about too when you order new equipment in pressure pumping right now there could be up to a year lead time, so you're making a huge financial commitment.
And betting on what the market is going to be a year from now so that's the other kind of consideration as we're thinking about capital allocation.
Capex and Steven So one last thing we have been in a period of Underinvestment for a very long time, probably since 2015.
At this time.
The market for the drilling rigs and the completion.
Demand is pretty much soaked up the.
The available available frac spreads and back to Mike's comment it is going to take a while to catch up with that and people do seem to be being disciplined at this point, that's always subject to change in our industry, but there's.
There's a there's a level of discipline that we haven't seen before.
Nobody stood up in the canoe yet so were we.
Sure.
We believe that we've got a good runway here.
Great.
That's very helpful. Thank you.
The other two quick ones you mentioned the delivery of the new tier four DGB and then there were the.
I think you said youre going to take an existing <unk> and refurbish. It is that fair or will that go back to work or is it just depend on on.
And on timing and demand and has there been any trouble getting the necessary parts to refurb the asset.
The reefer, but yeah, I mean, we will refurbish said that it came to can come back to work right.
When the new.
Brand New fleet comes in.
The same time, we will take down one of our older fleets that are that we will spend some money in and upgrade it and once it is upgraded we expect there'll be there there are other fleets that need to be either refurb door or otherwise dealt with so.
As we indicated we're expecting still to have 10 horizontal fleets working more or less 10 or horizontal fleets working throughout 2023, so with the gives and takes of.
Once going down for refurb and that sort of thing supply chain still we've been managing through that we have some good vendor relationships and.
It's always a challenge, but but but we think we're in pretty good shape with that.
We won't know obviously until its completed.
We are concerned, but we'll stay on top of it.
And make sure that it gets turned around in the timeframe that we're planning on.
But but but we're working through that and we're confident that our schedule and our our plan will allow us as I said to continue to operate around 10 horizontal fleets throughout the year.
Thank you and then just one other quick one.
Jim do you mind, just running through the segment breakdown by the revenue by product line.
Absolutely. Thanks for the question so I didn't have to do with some closing comments.
For the for the fourth quarter.
The percentages I'm about to give are percentages of each of our largest service lines as a percentage of total or consolidated RPC revenue. So the largest.
Service line, the largest revenue for the fourth quarter was pressure pumping at 56, 9%.
The second largest was downhole tools at 28%.
<unk> three was coiled tubing at eight 4% of consolidated revenues.
Our nitrogen service line was 2.3% of consolidated revenues I'm, sorry, I got out of order there are rental tools, which is in our support services segment was 3.6% of consolidated revenues, let's see I mentioned nitrogen snubbing was one 6% of.
Revenues for the fourth quarter.
Great. Thanks for the details gentlemen.
Alright, Thank you Steven.
We will go next to Don Crist with Johnson Rice.
Good morning, gentlemen.
<unk> done.
You know, we've seen a little bit of moderation in the gas rig count.
I just wondered if that acting pressure pumping at all and to take that a step further you know we've heard that there is a little bit of weakness in the gas plays but but the assets are finding home and in the oil plays can you broadly just talk about your pressure pumping calendar.
And kind of is there any shifting between the plays as of late.
Dan This is Jim.
Your point is a good one I would say not yet because there's still so much demand is still greater than supply I would say if there's anything.
Regarding the natural gas market weakness weakness, it's more an opportunity cost to anything else I mean, when you have no we have no white space in the calendar.
Something that might have happened in the future, but it isn't going to it doesn't impact near term results and I'll add this is Ben I in a very large percentage of our activity is directed toward oil wells and it's just been that way we have not consciously made the shift we've been talking about it but have not made a call.
A shift to try to move.
Move assets or focus on the primary primarily gas basins as of that.
Yes, I think right now we're about 80% oil.
Or a little more.
Okay.
Okay, I appreciate that color and one more from me.
You called out pricing in the fourth quarter is one of the reasons why you outperformed kind of consensus expectations.
How broad based was that and was it more skewed to pressure pumping our coil and can you just kind of run down.
How pricing has been.
Across two or three year segments.
Relative to the if you're talking about the fourth quarter results I I don't I don't know that there was I think the increases in pricing.
<unk> been sort of a steady process over the last quarter or two there wasn't.
We had some nice wins, especially with the new fleet that we put into service in the fourth quarter. It went to work with a at a nice.
It was it was a good piece of workforce.
<unk>.
So there was not a.
This increase in the fourth quarter I think the fourth quarter was driven as much by.
Efficiency. The fact as we indicated there was no there was very little.
Fourth quarter normal slowdown number one and number two though.
It was just a good job mix that that.
Well I can tell you it wasn't quite as hard on our equipment and we were able to be really efficient.
There was minimal white space as there has been in earlier quarters, but so I think it was just a combination of a good job mix good efficiency on those jobs that we were working on just overall good good execution that the guys have done.
A tremendous job, taking taking advantage of the opportunities there.
It had been presented.
Okay and one final one for me do you have any major contract roles as we kind of move into the first quarter I don't know if you had quarterly openers or whatnot on your contracts, but any any significant pricing uplift from contract roll expected in the first quarter.
But by the nature of kind of our portfolio no, but but we are continuing to work on pricing.
But there's no specific whatever event or contract rolling that would have.
Individually significant impact, but we do see some additional.
Improvement opportunity.
As we move forward.
I appreciate all the color I'll turn it back thank you.
Thank you thanks Don.
We will go next to John Daniel Daniel Energy Partners.
Hey, good morning, guys.
Thank you for including that one John .
I have a quick question on the Capex budget I think you said $2 50 to 300 and the guide for this year and.
My Monkey math is correct you're around 150 100, Fortyish for 'twenty two I'm curious.
Within that Capex budget and aside from the one fleet that you have on order is there any additional new equipment orders.
Yes.
That are anticipated in that budget or is that all maintenance.
Okay.
Okay.
Third quarter's net theres plenty of refurbishment in there John .
And certainly maintenance Capex, there's not any other significant new bills.
<unk> and <unk> and part of the part of the.
Part of the makeup for a lot of things that go into how much you're spending capex not only the commitments you make with the timing of when the equipment is ready and delivered and all that sort of thing. So some of the number.
In that we're talking about in 'twenty, three or some delays from 22 right. So I think our paradigm or capex came in a little bit lower than we had quote unquote indicated earlier.
Okay.
But we're comfortable with the level of spend and no. There is not any other significant certainly.
<unk> increases that are there in that fleet were taking here in the us.
In the current quarter or two is not a capacity increase thats.
We've talked about we're staying around that 10 operating.
Fair enough.
And I know on the nuclear.
Fuel tier four I'm curious when you as you look at the other parts of your business because you said it in your opening remarks that you are more than just Frac are you is there any efforts.
A few electrification, whether it be on wireline or coil and thing the other segments.
Not to any significant degree.
The.
That technology is something that we're certainly trying to.
Watch and monitor we do have opportunity coming up too.
Take take to utilize an electric pump within the hydraulic fracturing service line.
But it's more of a dip the toe in and then then.
Put in all the chips at this point fair.
Fair enough last one for me and not to beat a nervous Nellie, but we have had a few E&P contacts tell us that they've started to ask for relief and light asking either.
Yes.
Gas price coming back et cetera, and I am curious theyre not widespread and it has by the way but.
What's your message to your guys when that first request comes into RPC about granting relief that detail you guys. It tell the customer to pound sand or just whats your message is going to take to them.
Start coming that Sanchez, that's a mixed metaphor.
Our guys in the field don't they don't need to be told what to do there.
They understand but.
But there are other opportunities right.
I think that two helped other customer opportunities so.
I think theres confidence at this point in time that we do have some alternative choices now it's not.
That can take some time and that can be disruptive but.
But I think their response at this point in time would be.
We're all the way our customers are important to us and there may be other ways to maybe you give some relief, but it might be maybe you increase your activity or whatever right now, but we would look we would look to try to find a way that we would not step backwards, we need to continue though.
Move forward with respect to our.
Net pricing.
We're getting pricing and utilization and all of that our costs have gone up significantly as well and continue to with all the capital investments in maintenance and it's.
We're not really getting any relief.
On those fronts either so.
Yes, there are a lot of demand.
Demand is still greater than supply side, so the market has to <unk>.
Sort this out.
Yeah, No I agree I'm, just asking the question to see what Jeff, which sure you always ask good questions.
Thank you Erinn, Thanks offers and glared at me.
Okay. Thanks.
We'll move next to Derrick part Hazer at Barclays.
Hey, good morning, I, just wanted to get your thoughts.
On attrition I mean, I don't think we've really seen attrition on an up cycle, we look over the past couple of decades.
You, obviously bring a new fleet, you're going to take one off the sidelines and refurb I think that's a form of attrition pumps.
Staying on the sideline longer because maintenance things have extended out due to supply chain, maybe beefing up your current fleet going from 50000 horsepower to maybe 60000, plus just love your take on what attrition is today.
All the different parts of that because I think thats, one thing thats being underestimated by the broader market and why Frac supply is going to stay tight through 2023.
Well the spend we obviously don't have direct visibility into our competitors, we can only speak to kind of what we see in yes, I mean, the activity levels are very high.
Much of the work is.
A lot of the work can be very very.
Uh huh.
We're damaging difficult on the equipment as I indicated the fourth quarter, we had some nice work there wasn't quite as as difficult as some previous quarters. So that can vary from quarter to quarter. So.
Our guys are doing great work trying to forecast out if this amount of.
The activity with this type of work.
When might be appropriate time to take our fleet. These are completely out of service or send it all for refurb and things like that.
I think there is some belief too from from some of our.
Key operating personnel that the attrition maybe being under estimated that maybe it's going to be difficult. Now there is as I indicated earlier there is a lot of spending going on there is a lot of new equipment orders amongst our peers, but theres a lot of discussion about the fact that.
Say too, we're not going to they're not striving for net additions to their fleet. So thats, implying that they plan to take some of that equipment out of service but.
It certainly could happen with what you are saying it could be that is being underestimated.
I think I think everybody or most everybody recognizes that it is real.
And I think supply will remain tight I guess question being how tight might it be if the attrition ends up being even higher yes.
Will that.
There'll be <unk>.
For those of us that are still still working.
That's helpful color.
Do you guys. Just a question on maybe some some of your private peers are you seeing any new entrants coming in just given where economics are.
Are you seeing some of your private maybe leaving I know theres been a few acquisitions.
Just a sense on the private market because I also feel like there is this there.
This narrative around private pumps coming into the market and overbuilding like we saw in past cycles, but wed love to hear your view on this.
Okay.
We've heard some examples of some some privates coming on not not in to any large degree.
What we tend to hear when when we asked the question is that private equity is not coming in in a big way. So that's great. That's kind of to my recollection has been.
The issue in the prior two or three strong cycles. We've has when private equity comes in big and.
And so yes, if they if they are more or less say on the sidelines or don't come in in a big way.
Hopefully, we'll be able to try to keep supply and demand appropriately balanced.
Got it Okay. That's helpful. And then just one more for me if I could.
No you are not going into the frac markets, yet, but I just wanted to get your updated thoughts on that are you waiting for.
That technology to be de risks the rest of the other debt.
The biggest pumper out there has talked about how there's obviously.
The option curve that everyone's trying to get up on which is <unk>.
Love your take on what E. Frac is how you're looking at it you can look at the different examples of it your view on coming up the learning curve.
And maybe some of the challenges that some of your peers might face as they look to scale electric frac.
We've heard.
Samples of companies or situations, where it's been a struggle.
We've watched it we've studied it some it is.
Not a tremendous focus for us.
But we do have an opportunity to take some.
Some.
A pump.
That we're going to be able to partner with a vendor to be able to use that and do some testing for both them and for us.
That will help.
US along the learning curve and them as well. So so we still at this point and obviously the new fleet that we have coming in early this year is dual fuel I think the transition just just like other <unk>.
Transitions of technology like this will take a period of time, so theres going to continue to be high.
Plenty of demand and strong demand for traditional.
Diesel equipment more so the DGB and so we're moving in that direction. So.
I foresee for the foreseeable future that the majority of our spending will be on the traditional equipment I don't see a shift in the near term for us to go to <unk>, but we are experimenting with it we do want to learn about it.
There may be some other applications on ancillary equipment that may benefit us, but in terms of our full fleet for us that's a little bit down the road I think at this point.
Yes.
Eric since we don't have firsthand experience, what I'm about to say may be wrong, but based on everything we've heard the economics don't yet work.
Yep.
<unk> will talk about.
Got it and one more if I can just squeeze it in can you give us a refresh on how many tier four DGB as you have now or dual fuels the breakdown of those 10 fleets and the different categories.
Sure.
Yes.
We are moving towards let's see.
So our active horizontal fleet has five ESG friendly fleets.
And that's tier four DGB.
<unk>.
<unk>.
Tier four tier two DGB plus.
Plus plus.
Five tier two diesels by the second quarter 2024, we expect this we expect our DGB or I'm, sorry, our ESG friendly.
Composition to be closer to 75%.
Because we have to we have to.
Tier four diesel theyre, not DGB, but their tier four so it's kind of a comp so about half today of our horizontal fleets are very much <unk>.
ESG friendly and we expect that that will move closer to 70% of them sometime in the next 18 plus months.
Got it very helpful. I appreciate all the color I'll turn it back. Thank you. Thanks Terry.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad will pause just a moment.
And at this time, we have no further questions I will turn the conference back over to Jim <unk> for any closing remarks.
Thank you, we appreciate everybody who called in to listen today. We appreciate the questions and enjoyed the conversation hope everybody has a good day and we will talk to you soon.
And this concludes today's conference call you May access the replay of today's conference on Www Dot RPC dot net within two hours following the completion of the call.
For your participation you may now disconnect.
[music].
Yeah.
[music].
Okay.
[music].
Okay.
Yes.
Okay.
[music].
Yes.
Okay.
[music].
Yes.
[music].