Q1 2023 RPC Inc. Earnings Call
Good morning, and thank you for joining us for RPC, Inc. 's first quarter 'twenty 'twenty financial earnings Conference call today's call will be hosted by Ben Palmer, President and CEO and Mike Smith Chief.
Chief Financial Officer also hosting 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 and instructions will be provided at that time for you to queue up for questions I would like to advise everyone. This conference call is being recorded Jim will get us started by reading the forward looking disclaimer.
Yeah.
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.
The statements that will be made on this call could be forward looking nature.
A number of known and unknown risks I'd like to refer you to our press release issued today, along with our 2022 10-K and other public filings.
All of which can be found on Rpc's website at RPC talked yet.
Today's earnings release and conference call will also be referring to several non-GAAP measures of operating performance.
These non-GAAP measures or adjusted net income adjusted diluted earnings per share adjusted operating profit EBITDA and adjusted EBITDA. We're using these non-GAAP measures today, because they allow us to compare performance consistently over various periods.
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 measures to operating income net income and diluted earnings per share were to the most directly comparable GAAP measures.
Please review these disclosures if you're interested in seeing how they're calculated.
If you've not received our press release for any reason please visit our website at RPC dot net or coffee.
Now I'll turn the call over to our president and CEO and Paul.
Thanks, Joan and thank you for joining our call. This morning.
Rpc's first quarter financial results reflect the strong operating environment similar to the fourth quarter.
Although oil and natural gas prices declined earlier this year.
For our services remain tight by historical standards.
Multi year periods of under investment exploration and production companies couple industry discipline.
Leaves us constructive importantly current side.
The vast majority of our services the vast majority of service companies have been using the recovery.
Place equipment that was wearing out.
Rather than adding new capacity.
It is our view that this is necessary for the long term.
Wholesale services industry.
We expect to allocate capital over the next several quarters to enhance the service effectiveness.
Various lines of businesses.
So improving our ESG profile.
Our CFO , Mike Smith will discuss the quarter's financial results after which I'll provide some closing comments.
Thanks, Dan.
Start with the first quarter 2023 sequential financial overview.
First quarter revenues decreased slightly to $476 $6 million.
482 million in the prior quarter.
The nominal decrease in revenues was primarily caused by weather disruptions and a change in job mix and pressure pumping Rpc's largest service line.
Cost of revenues during the first quarter also decreased slightly to $305 $3 million 308 with $6 million in the prior quarter.
As a percentage of revenues cost of revenues remained the same at 64, 64% compared to the prior quarter.
Selling general and administrative expenses increased to $42 $2 million in the first quarter of 2023 compared to $38 2 million in the fourth quarter of 'twenty two.
This increase was driven by higher expenses that are typically incurred in the first quarter, including payroll taxes and 401k employer match.
During the first quarter of 2023, RPC also reported $17 4 million defined.
Defined benefit pension plan termination charge.
During Q2 2023, we expect to record an additional settlement charge of approximately $1 $2 million associated with the final termination of this plan.
In connection with the transfer of the plans liabilities to a third party RPC made a $4 million cash contribution during the first quarter.
Operating profit during the first quarter decreased by 19, 3% to $98 7 million from $112 3 million in the prior quarter.
Adjusted operating profit was $108 million in the first quarter.
Six 3% decrease compared to $115 2 million in the prior quarter.
Adjusted EBITDA also decreased slightly by three 9% to $132 $9 billion from $138 4 million in the prior quarter.
Our technical services revenue segment revenues decreased by one 3% to $452 million.
This segment generated $103 $5 million of operating profit compared to a $110 5 million in the prior quarter.
Support and services revenues increased three 3% during the first quarter of 2023.
Turning to prior quarter.
Operating profit was $6 $6 million compared to $6 7 million in the prior quarter.
I'll now discuss our third quarter results compared to the same quarter in the prior year.
Revenues increased $476 7 million to $476 7 million from.
From $284 6 million adjusted operating profit increased to $108 million from an operating profit of $23 million.
Adjusted EBITDA increased to $132 $9 million from EBITDA of 43 million. These increases were driven by higher customer activity levels and improved pricing, resulting in our adjusted diluted earnings per share improving to 39.
Seven.
The same quarter of the prior year.
Our technical services segment revenues increased 69, 7% to $452 million.
And segment operating profit increased to $103 5 million from $21 8 million in the same quarter of the prior year.
Our support services segment revenues increased 35%.
$4 7 million.
And segment operating profit increased to $6 7 million from $2 8 million in the same quarter of the prior year.
Now I'll discuss our capital expenditures in the horizontal pressure pumping fleet count.
Capital expenditures were $65 3 million in the first quarter.
We currently estimate full year 2023 capital expenditures to be between 250 and $300 million.
This includes new tier four dual fuel equipment and we.
Recently placed into service for a similar amount of all equipment has been set up for refurbishment.
Consistent with the prior quarter.
We operated in a highly utilized horizontal pressure pumping fleets during the first quarter of 2023.
We expect to continue operating this number of fleets throughout the remainder of the year.
I'll now turn it back over to Ben for some closing remarks, thanks, Mike.
First quarter of 2023 was an excellent quarter for RPC.
Notwithstanding some minor weather disruptions.
Oil and natural gas prices dropped during the quarter it did not materially impact demand for our services.
With oil prices rebounding early in the second quarter, and we are optimistic about ongoing strength of the cycle as the year vessel.
A big Thank you is warranted to our employees for delivering the results again this quarter.
I want to thank our corporate and enterprise services employees, our business unit leaders operations managers in our well site employees.
All of them are working tirelessly to provide quality services to our customers every day.
RBC looks to continue our tradition of generating industry, leading Rossi and returning capital to our shareholders.
The first quarter of 2023, we repurchased one 1 million shares for approximately $9 million.
Our cash dividend per.
Per share or $8 $7 million per quarter.
This morning, we announced Rpc's board approved an increase in our share repurchase authorization.
The declared another cash dividend of <unk> per.
Per share.
Over the last decade, RPC has returned over $554 million to shareholders through a combination of dividends and over to Mark.
Share repurchases.
Thanks for joining us this morning and at this point, we're happy to address any questions.
If you would like 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.
One.
Your first question is from Stephen <unk> of Stifel. Please go ahead. Your line is open.
Thanks, Good morning, everybody.
Okay.
I guess a couple of things.
You mentioned the expectation to continue to operate 10 fleets throughout the year can you give us sort of your perspective on the supply demand and pricing dynamics in the fresh property market right now.
Okay.
David This is Ben.
Like we indicated it stays strong.
We have had some discussions with some customers about pricing.
We are working with them to minimize.
Any impact on our results.
There are there are there are some changes there are some.
As typically happens, we're moving around some fleets and things like that to stay busy maintain our efficiencies.
Limit our downtime, but we don't see any big changes at this point in time. So we think it's still as we indicated as tight by historical standards.
So we still feel good about where we are.
And when you when you look at what you see in the in the order book relative to sort of natural attrition of the fleet.
Are you seeing much net growth in the overall market over the next three or four quarters.
We see various bits of information is provided as I said in my comments.
Sure.
Peers across the oilfield services are doing a pretty good job of trying to not <unk>.
Difficultly incorrect increased capacity or certainly.
New equipment is being what we're doing the same thing right, it's typically to replace existing equipment to work.
How us maintain our fleet level, what we said.
They're older equipment out for reefer.
Equipment that we're removing now once it comes back.
Koby.
There'll be another fleet that will take out of service.
We expect to remain active fleets for the time.
And we are hopeful that others are doing the same thing we figures indication that that's the case there may be a temporary periods of where somebody.
Believes that they have extra capacity because they can put in additional fleet in.
The field for a period of time.
Equipment is wearing out.
Yeah.
You do have to continue spending too.
To maintain your fleet. So we're hopeful that that discipline will remain.
In place going forward.
Great. Thank you and just one more quick one can.
Can you run through the revenue by product line for the for the first quarter.
Yes, David So this is Jim.
The.
We value so I'm about to give are the percentage of consolidated RPC revenue.
That is comprised by each of these service lines, So our largest and the first quarter of 2023 was pressure pumping at.
At 55, 6% of revenues.
Our second largest service line was downhole tools and motors, which up thru tubing solutions brand, that's 22, 5% of revenues.
Number three is coiled tubing, which is eight 4% of revenues.
Number four is rental tools, which is three 7% of revenues.
Then comes nitrogen at two 5% revenues.
Finally, nothing which was one 5% of consolidated RPC revenues for the first quarter.
Thanks, Greg.
That's great. Thank you Jamie.
Our next question is from Don Crist of Johnson Rice. Please go ahead. Your line is open.
Good morning, gentlemen, how are you all.
Great.
I wanted to.
Kind of asking a follow up as to to Stephen's question. I know you had a lot of fleets that were.
As a percentage of your total fleet count that were dedicated in either the haynesville or the gas basins.
How many of those have kind of moved around or been shifted to more oily basins is gas.
Gas has been a little bit weaker in the first quarter.
Okay.
Hey, John this is Jim.
Yes.
Well, let me correct you a little bit on that we haven't had.
Fleets working in the Haynesville for a while.
Starting when you might be doing over the last summer we reactivated a fleet that was in east, Texas, but it's been working west, Texas. So we really have not moved to the fleets around we've still got.
We got to in the mid continent, and the rest are in in the Permian So there.
There hasn't been.
Any geographic movement for for a while.
Our operating model is that we can move to fleets as Jeff indicated.
Our fleet from East, Texas is a little bit of work in that area, both for us and in West, Texas and from time to time, depending upon.
Calendar opportunities and things like that some of the one or two of them are.
One typically a bit contemplates might do support.
Or to West Texas.
That's something that our managers are in sales team work with all the time.
Optical and placement.
Fleets given opportunities.
Hi.
Okay <unk>.
<unk> taken some old data.
And kind of.
Talking about the supply chain I think I heard you correctly that youre going to refurbish two fleets this year.
How does that supply chain look as inflation kind of subsiding there or.
Lead times coming down or is it kind of status quo as to the way that it has been over the past.
Nine months or so where it takes 12 months to get an engine.
Okay.
Well I think it's a little bit too soon to properly size of this improves significantly. We think certainly there are signs that that may be the case some of the very high demand deposits we've been planted.
Thank you sure that we have that availability before we initiate these referral program. So it's just something we've had.
<unk> grew at coordinate with our many very valuable suppliers and things like that so.
It hasn't it hasn't been an issue, but there are long lead times. We just have to plan ahead for we've got we've got a plan that we've laid out there based on expected activity levels of intensity of activity when we say our equipment needs to be.
Overall, our refurbished so we're able to put that planning in place make the commitments.
But the commitments in place to be able to have the key components available.
Want to undertake refurbishment activity and EBIT.
Even as we do.
Same thing leading into this new <unk>.
Tier four equipment that we've recently received and placed in service we had to several months ago.
Secure.
Key components to be able to complete parts of that.
Assemblage.
It just takes a little bit of planning.
But I.
I don't know that we've yet to see any significant lead up in the pricing.
I wouldn't be surprised if there is a little bit given some of the volatility we've seen lately.
Okay I appreciate the color I'll turn it back thank you.
Thank you.
Your next question is from Derek <unk> of Barclays. Please go ahead. Your line is open.
Hey, good morning, guys I just wanted to go back to that they're changing jobs.
Changing job mix and pressure pumping just if we can expand on that comment just some more color around is that a spot market versus dedicated ended at customer type private versus public maybe just a little more color on your changing job mix within pressure pumping.
Well, thank you guys.
I think we referred well weather impacted us a little bit, but the job mix two we had a little bit less fuel that we provided you know theres not a whole lot of marginal. If you also good quarter growth impacted revenue, but didn't have as significant of an impact on our margins.
And that was a little bit of I think a workplace that may have been an existing customer who changed their mind about whether they wanted to rather than not.
A new customer that we went to.
The mix of our customers has not really changed significantly that we do have a lot of.
The privates as customers, but we have a nice mix between the public and the private so it really hasnt changed a lot.
In the first quarter compared to the fourth quarter last year, yes that comments, probably more referring Sten mentioned mix for the services provided every single job is slightly different as to what we're doing in <unk>.
But we're asked to do it at a depth of wells and everything. So every every job slightly different ends that some adults are more profitable than others.
So thats probably more of it rather than.
Mix of the type of customer and it's more of a specific type of job.
And Eric This is Jim I'll jump into.
Another variable is how much sand, we provide versus how much our customers provide that really didnt change Q4 to Q1.
Other variable is 24 hour versus 12 hour revenue.
We're pretty much maxed out their debt did not change either so as Ben mentioned it has to fuel it doesn't.
There is nothing else.
That is meaningful from a macro perspective, I E private versus public or any change in what customers are doing.
It moves around a little bit.
Not a whole lot.
Got you. Okay. That's very helpful. And then maybe just on spot market versus dedicated.
I guess, how much percentage of your fleet on the spot market versus dedicated and what are the big differences that youre seeing before but between those two market seems like theres a bit of bifurcation between those two markets right now.
Any comments around that would be helpful.
Yes.
It's about 50 50 spot versus dedicated.
Dedicated doesn't mean, what it meant a long time ago. It means that we have a six to nine months commitments.
<unk>.
From our perspective, Theres not a lot of discernible difference.
Between between those two.
So some types of relationships.
Got it Okay. That's helpful. And then just my last question and we've been hearing from some of your peers move.
Moving fleets from the Haynesville and in the Permian and just are you seeing that or is there any is that putting any pressure on your pricing on the conversations you have with your customers the threat of being displaced by a larger peer just any color around fleet fleet movements from the haynesville into the Permian affecting your operations.
I think it's pretty reasonable to say that the natural gas weakness the weakness depressed natural gas is.
It is certainly going to slowdown.
<unk>.
The drilling because of the contracts may or may not may not slow down the completion will be.
We think that we've heard some gears and you have to talk about movies. Please.
It's not like we were in the Haynesville doing haynesville natural gas work anyway. So it's not.
Yes.
Evident to us on sort of the first quarter.
Certainly at the margin.
Theres a little less.
Tightness in a place like the Permian.
That's just manifest itself in maybe a little more white space in calendars.
But it's not to us it's not material at this time.
Our team.
Fabulous job of staying.
Up to date across the market.
It is.
That's terrific.
Terrific job of being able to minimize that white space with with volatility begins to occur and I think there has been there has been a little bit more volatile.
We're responding to that.
<unk>.
At this point in time those changes on the moving around is going to be.
We will not be significant.
Got it have you had have you had to move some fleets around the Permian and some different customers yet.
Yes, we have done a little bit of that we're in the process.
Yes.
I think thats, where.
Moving not I wouldn't say, it's significantly more than normal for us.
For the last year.
Okay.
Great really appreciate the time and color guys I'll turn it back.
Thank you alright, thanks Derek.
Your next question is from John Daniel of Daniel <unk> Partners. Please go ahead. Your line is open.
Thank you good morning, guys.
And John I'd like to just say Hey, Jim just a quick question about businesses. Besides frac.
Where you have exposure to some of the other basins outside the Permian, we tend to focus on the Permian and.
And Frac, but can you walk us through and I'm not looking for numbers here, but just.
The visibility and the other basins for your other services call. It today versus what you had three to six months ago.
Okay.
John This is Jeff Thanks for asking the question about something other than pressure pumping.
So.
Thru tubing solutions as a really good market share in a really.
Widespread market presence.
They're a good good thing to look at.
They've talked about some weakness.
In East, Texas, and the Haynesville in a little bit a little bit hardness and in the northeast in Pennsylvania, where they have a presence.
That's one thing we've noted in our in our operational reviews getting ready for quarter end.
They said there was a little bit of weakness at places, which we would as you would expect.
Lower gas prices, but at this point still nothing.
Thats, good and similar to the fresh pumping rates don't move around customer interest.
But would you say guys have be let's just pick up you know the midcon or our Bakken do you enjoy the same type of visibility there as you do in the Permian.
Okay.
It has it has been a discernible change I guess is another way of thinking about it.
<unk>.
I guess not discernible enough.
Okay, well, it's a good question, but not start a fair enough.
Comment on that at this point in time, Okay fair enough. If we go back to six to seven weeks ago, when oil prices kind of cropped out and there was a lot of fear in the market.
There was a lot of requests from E&ps for some price relief et cetera, and some companies made some concessions and others did it.
My question is if it were.
When you were going through that process. If you were if you happen to be in the camp that made some concessions.
What was the discussion about hey, what if oil prices go back to 80 85 is there do you get how quickly can you recapture that I guess is the question.
I guess I'll, just make a comment that were heavier in the sort of.
Spot market.
We have less long term contracts with some of our competitors. So we can kind of.
Respond more quickly.
Two higher prices.
We were in as maybe impact some of the others.
And I think to your point, Jon I think.
Yes.
Sure that was alluded to Teva.
<unk> been very good at it.
Appropriately aggressive with pricing right. So we're ready to make those adjustments on a weekday.
We think we're in a good spot relative to those customers and in many.
Whatever changes we may have made we worked really hard with our customers to make it more maybe change the composition of the job.
Made it less expensive that really be.
The same cut in price right. So it was more like what can we do.
Reduce their cost as an example that might be that we're providing the fuel rather than us providing the fuel right. So okay.
Got it that particular item it doesn't have a big impact on us.
But again, a very appropriate question as you guys you always ask.
But but but working through it and certainly mindful and we all understand that we do need to generate sufficient returns to continue to invest in the business to be able to be.
Our customers demand.
So right.
Alright, John it probably goes without saying, but but.
But we better say it anyway sentiment today is a whole lot better than it was when prices were lower and going lower oil prices than where they are today.
We also have the ability you have done this yet, but we certainly.
May be signaled to some of our suppliers that we have.
I'd like to.
Or may need to talk to them about.
Cost reductions from their side, which could help your margins should we should we should that come up fair.
Fair enough, okay, well, thank you for that.
Yes, Jonathan maybe you are calling for some roadside assistance.
I will say.
Like employee of the year Award.
Because he set a timeline on it.
No.
Anyway.
20 out there they go a lot faster.
Our bedroom that yes, thank you very much take care.
Hey, Jeff.
Again, if you would like to ask a question. Please press star one on your telephone keypad.
There are no further questions at this time I will now turn the call over to Jim Landers for closing remarks.
Okay. Thank you, we appreciate everybody who called in to listen this morning, and we appreciate the questions and the conversations.
Look forward to talking to everybody soon.
Good day.
This conference call will be replayed on www Dot RPC dot net within two hours following the completion of this call.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
Yeah.
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Yeah.
Yes.
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