Q3 2024 RPC Inc Earnings Call
Good morning, and thank you for joining us for RPC, Inc. 's third quarter 2024 conference call.
Today's call will be hosted by Ben Palmer, our President and CEO, and Mike Schmidt Chief Financial Officer.
Speaker Change: 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.
Speaker Change: We'd like to advise everyone that this conference call is being recorded.
Speaker Change: I will now turn the call over to Mr. Schmidt.
Mr. Schmidt: Thank you and good morning.
Third quarter revenues.
Mr. Schmidt: The following is a breakdown of third quarter revenues by our top five service lines.
Speaker Change: Pressure pumping was 38, 4%.
Speaker Change: <unk> tool.
Speaker Change: 9%.
Speaker Change: Coiled tubing eight 8%.
Speaker Change: <unk>, 8%.
<unk> tools five 2%.
Speaker Change: Together these five accounted for 89% of our total revenues.
Speaker Change: Yes.
Speaker Change: Cost of revenues, excluding depreciation and amortization during the third quarter decreased by $14 8 million to $247 5 million.
Speaker Change: A 6% decrease a point less than the revenue decline.
Speaker Change: The lower cost of revenues stemmed primarily from lower equipment costs, sorry, lower employment costs.
Speaker Change: We closed a small pumping location and reduce the head count of this of this and other operating locations.
Speaker Change: Cost of revenues also decreased due to lower maintenance and repair expenses and materials and supplies, reflecting lower activity levels.
SG&A expenses were $37 7 million up slightly from $37 $4 million larger.
Speaker Change: Largely reflecting the fixed costs of our support functions.
Speaker Change: Diluted EPS was <unk> <unk> in the third quarter down from 15.
Speaker Change: In the second quarter, there were no non-GAAP adjustments to either EPS figures.
Speaker Change: EBITDA was $55 2 million down from $68 $5 million with EBITDA margins decreasing 240 basis points sequentially to 16, 4%.
Speaker Change: For the quarter operating cash flow was $70 7 million and after Capex of $51 7 million free cash flow was $19 million.
Speaker Change: On a year to date basis operating cash flow was $255 2 million and after capex of $179 5 million, our free cash flow was $75 7 million.
Speaker Change: We know that while year to date free cash flow is down from 2023.
Speaker Change: And we'll be lower for the full year.
Speaker Change: As industry conditions have been more challenging.
Speaker Change: There were some timing benefits, especially in Capex and working capital that boosted last year's free cash flow at the expense of this year.
Speaker Change: All told despite a tough environment, we still expect strong cash flow this year.
Speaker Change: And that our trailing two year average would still be quite robust.
Speaker Change: We still expect Capex to finish 2024 within our guided range of $200 million to $250 million.
Speaker Change: During the quarter, we paid $8 6 million in dividends.
Speaker Change: Sandy's where stock.
Speaker Change: B a more natural.
Speaker Change: So we have both of those stores.
Speaker Change: Okay. Thank you and then on the Frac side of the business.
Speaker Change: I don't know if you'd be willing to answer so I'll ask anyways.
Speaker Change: If let's say the U S completion market just stays stable for a year or two right now a little bit of volatility in Q of workers seasonality and all that normal stuff, but what's the optimal fleet size for you guys from a marketing perspective.
Speaker Change: I think you just have like 10 or 11 fleets on a regular back say a year ago. Yes is there any color you could say because that obviously has implications for capex and everything else.
Speaker Change: Yeah, Yeah yeah.
Speaker Change: If it remains stable being where it is now it's obviously going to be lower than that 10, or 11, and that's where we are now.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: And as you know trying to define and say how many are being marketed and all of that if you have anything less than that all sort of hard to.
Speaker Change: Could you give a guide but.
Speaker Change: But I think it's I think it's lower it's going to be more the mix.
Speaker Change: <unk>.
Speaker Change: We continue to be committed to the Frac market right. We're just trying to be prudent in trying to rebalance our portfolio as we've talked about and you never know.
Speaker Change: You never know, what's going to happen around the corner I guess, we do know theres going to be volatility.
We are committed to continue to upgrade.
Speaker Change: <unk> over time.
Speaker Change: And but.
Speaker Change: But it's it's probably a lower number just because because of the efficiencies and lower for us.
Speaker Change: Thanks, if it was lower the overall industry. If there were if the discipline.
Speaker Change: Can remain overall that would help everybody.
Speaker Change: So for us it is.
Speaker Change: It's probably lower.
Speaker Change: And I think with the continued upgrade of our fleet I think we could actually yes.
Speaker Change: Net net end up in a better place but thats.
Speaker Change: We're trying to ask now we're going through.
Speaker Change: Our planning process next year and of course looking at our long term plans.
Speaker Change: Sure.
Speaker Change: We're still contemplating that question, it's a good questions.
Speaker Change: Okay, and I got one more if I may.
Speaker Change: The going back to acquisitions and I know you want to speak in general terms at this but you alluded to a lot of opportunities would you say that those are more characterized by PE firms trying to finally get out of their investments or are these distressed opportunities, where you can step in or something else.
Speaker Change: Are all of the above.
Speaker Change: A combination.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: I would say a combination yes, just thinking through kind of the backlog covenant so not not a clear theme is sort of I guess I'm sorry, that's correct yes.
That's all I have thank you for including me.
Speaker Change: Very good thanks John.
Speaker Change: Your next question comes from the line of Stephen <unk> with Stifel. Please go ahead.
Thanks, Good morning, everybody.
Speaker Change: Good morning, Steve.
Stephen: So two from me and maybe ill stay on the M&A side and I apologize if I missed a little bit of this but one of the one of the things we've seen kind of over the last 20 plus years, but clearly over the last 10 was the lack of kind of interest from investors around some of the smaller.
Speaker Change: I am very small oil service players and.
Speaker Change: The reason I bring it up because I'm thinking about consolidation being kind of a key driver maybe.
Speaker Change: Of success, and creating larger businesses, but when you think about consolidation.
Speaker Change: How do you balance sort of the.
Speaker Change: May be buying something or a couple of businesses that could be a little more commoditized, but kind of create critical mass in those businesses versus making sure you buy something that's kind of differentiated or unique in some way.
Speaker Change: Okay, and you talked about and I guess, what I'm asking is can you create value by by kind of rolling up some some kind of more commoditized businesses or not and how do you think about that.
Speaker Change: That wouldn't be our first choice to do that.
Speaker Change: Clearly, we want to try to find very good businesses, whether it be quote unquote commoditized service or not.
I think thats that would be more of the key for us.
Speaker Change: And that's our.
Speaker Change: Our focus and I think.
Speaker Change: In this particular market as we're sort of alluding to that I think we're somewhat uniquely positioned I think to be.
Speaker Change: <unk>.
Speaker Change: Good purchaser I think I think we know there is some.
Speaker Change: Parties out there that.
Speaker Change: They care about where they land and they care about.
Speaker Change: Earlier on John's question that care about the consideration they receive and in the culture and the environment that they come into and I think we check a lot of those boxes for us.
Speaker Change: Companies that are that are looking to exit and find their next phone so.
Speaker Change: But to answer your question, we don't want to get bigger just to get bigger I understand your question I know that scale investment scale is very important that's something that.
Speaker Change: We do want to try to address and think we are positioned to do.
And of course that investment scale, if done correctly can generate some operational scale and some cost leverage as well. So that's what we're trying to pursue.
Speaker Change: The change that.
Speaker Change: <unk> has been discussed for oilfield services for a long time.
Speaker Change: Really haven't been there hasn't been a lot of those transactions yet.
Yes.
Speaker Change: Perhaps perhaps that will pick up a bit and.
Speaker Change: And we will see but that's our strategy, we'll see what happens.
Speaker Change: Great.
Speaker Change: Thank you for the details that's helpful. And then the other question is just kind of back on the Frac side are you.
Speaker Change: How are you thinking about the.
Speaker Change: The 25 pricing dynamic I don't know, if you mentioned it earlier or not but.
Speaker Change: We've kind of heard kind of mixed from some of your competitors so far but how do you think about whats your view of kind of how pricing evolves next year.
Speaker Change: As we sit here right now today.
Speaker Change: Not one.
Speaker Change: <unk>.
Speaker Change: We're not going to go into it and spend or do things expecting pricing to improve.
Speaker Change: A significant amount so we're trying to position ourselves to take advantage of things to improve but we're trying to be prudent as well so.
Speaker Change: It just feels like it's more of the same hopefully theres going to be some discipline.
Speaker Change: We've idled some assets, we've reduced our head count.
Speaker Change: My father's do that that would help.
Speaker Change: And reducing fleet.
Speaker Change: Marketed fleets and things like that so.
Speaker Change: We're not counting on pricing to be better in 'twenty five.
Speaker Change: And with that possibility the discussion about maybe the improvement in the natural gas market might help a bit in any sort of improvement like that could help.
Speaker Change: But we're not counting on it.
Speaker Change: Okay, great. Thank you for the details.
Speaker Change: Thanks.
Speaker Change: Pete.
Speaker Change: Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
Speaker Change: Your next question comes from the line of Don Crist with Johnson Rice. Please go ahead.
Hey, Thanks for letting me back in at the end here, Ben If you were going to upgrade another fleet.
Speaker Change: What kind of.
Speaker Change: Decision point would that entail and how long would that take if you wanted to add another tier four DGB.
Speaker Change: Okay.
Speaker Change: John it's probably still not.
Speaker Change: Nine months or so to get all of our full fleet.
Speaker Change: In place.
And but we're looking at a variety of things.
Speaker Change: <unk>.
Speaker Change: We're talking to some of the component manufacturers about some alternative technologies, we're talking to some.
Speaker Change: Smaller Oems were looking at a variety of things chances are the next.
Speaker Change: <unk> firm.
Speaker Change: Commitment that's directly in hand would probably be another.
Speaker Change: Tier four fleet for us.
Speaker Change: But we're looking at a variety of things there is a lot of different technologies.
Speaker Change: That are available and.
Speaker Change: So.
Speaker Change:
Speaker Change: So thats out, but I think we have a little bit of time.
Speaker Change: And would you require like a three year contract or something to do that or would you kind of do it more on the spot market.
Speaker Change: Oh.
Speaker Change: We at this point.
Speaker Change: Yeah.
Speaker Change: We would not we would not require a long term contract.
Speaker Change: When we place an order for that type of equipment that would be because where we are in our.
Fleet.
Speaker Change: The evolution of our fleet and the need to replace and to maintain and things like that so probably would we certainly would try to pursue that but at this point in time, we wouldn't require anything like a three year contract certainly.
Speaker Change: Talking to the team we certainly at least.
Speaker Change: Multi month contract would be would be nice and something that certainly would support that decision.
Speaker Change: I appreciate the color. Thank you.
Speaker Change: Yes, Thanks Bill.
Speaker Change: There are no further questions at this time I will now turn the conference back over to Mr. Ben Palmer for closing remarks.
Ben Palmer: Alright, well. Thank you everybody for listening in we appreciate it and hope you have a good rest of the day take care.
Speaker Change: A recording of today's call will be available on RPC dot net within two hours. Following the completion of the call. This concludes today's call you may now disconnect.
Speaker Change: [music].