Q4 2024 RPC Inc Earnings Call
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Speaker Change: Good morning and thank you for joining us for RPC Inc.'s fourth quarter and year-end 2024 Earnings Conference Call.
Speaker Change: Instructions 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. I will now turn the call over to Mr. Schmit.
Thank you and good morning.
Speaker Change: Before we begin, I want to remind you that some of the statements that will be made on this call could be forward-looking in nature and reflect a number of known and unknown risks.
Speaker Change: Please refer to our press release issued today, along with our 2023 10-K and other public filings that outline those risks, all of which can be found on RPC's website at www.rpc.net.
Speaker Change: In today's earnings release and conference call, we'll be referring to several non-GAAP measures of operating performance and liquidity.
Speaker Change: We believe these non-gap measures allow us to compare performance consistently over various periods.
Speaker Change: Our press release and our website contain reconciliations of these non-GAP measures to the most directly comparable GAP measures. I'll now turn the call over to our President and CEO, Ben Palmer.
Speaker Change: Thanks, Mike, and thank you for joining our call. This morning we reported results that continue to reflect the challenges of the OFS market.
Speaker Change: So we did have some bright spots in the fourth quarter and some positive developments heading into 2025.
Speaker Change: While recent quarters showed more weakness in pressure pumping without performance in other service lines, fourth quarter results in pumping showed some signs of improvement after a difficult third quarter.
Speaker Change: Pressure pumping generated higher revenues, while our non-pumping services tracked more with the industry activity declines.
Speaker Change: Market dynamics remain largely unchanged with the spot and semi-dedicated market amply supplied with horsepower capacity and pricing remaining under pressure as OFS companies compete to maximize utilization.
Speaker Change: Bottom line, pressure pumping in the fourth quarter was up 3% sequentially, while all other service lines in aggregate declined 3%. For the full year, however, pumping was off by 24%, while other service lines declined only 2%.
Speaker Change: We believe bolstering our other less capital intensive service lines over time with organic investments and potential acquisitions will help drive growth and reduce volatility in our financial results.
Speaker Change: We are encouraged by the general optimism around the energy industry with the new presidential administration and the opportunities that may present themselves in the coming years for our customers.
Speaker Change: However, many aspects of energy supply and demand remain unclear. While activity increases could provide tailwinds for OFS providers,
Speaker Change: Significant increases in oil and gas supplies might pressure energy prices and have negative consequences on completion activity.
Speaker Change: At the end of the day, we have limited visibility on actual policy and regulatory changes.
and the impact those might have on our results.
Speaker Change: But one thing remains unchanged, we are eager to serve our customers and deliver outstanding service regardless of how the macro and legislative landscapes evolve.
Speaker Change: Shifting to fourth quarter service line commentaries, I'll start with pressure pumping.
Speaker Change: Despite some sequential gains in fracking coming off a soft third quarter, we reiterate that we continue to exercise economic discipline.
Speaker Change: Opting to idle certain assets rather than operate them without adequate returns. Consistent with our third quarter results, we still see a difference in demand within our FRAC assets for our Tier 4 GGBs, where we have better visibility with more dedicated customers.
Speaker Change: At this point, we have relatively solid commitments for these fleets through parts or all of 2025, and we are delivering excellent well-site performance with respect to gas substitution and overall efficiencies.
Speaker Change: Conversely, demand remains a headwind for our legacy diesel equipment, resulting in more aggressive pricing. We intend to upgrade our fleet over time and continue to rigorously assess the through-cycle economics to justify our capital investments.
Speaker Change: Of course, if and when we invest in Tier 4 DQB assets, we will pull older equipment out of service so we don't add to industry capacity.
Speaker Change: Looking at our non-pressure plumbing service lines, we were pleased by some specific developments that are not satisfied with the overall results.
Speaker Change: In total, the service line revenues were down 3% with mixed performance from business to business. Coal tubing was up low double digits with some new business wins contributing to growth. Cementing also increased in the quarter with strong revenues, operations, and cost execution.
Speaker Change: Downhole Tools revenues declined modestly in the quarter due to seasonal factors. While 2025 may be challenging from an overall market perspective, we are pleased with our progress on two key new products, as we've mentioned on previous calls.
Speaker Change: Our recently launched 3.5-inch downhole motor is gaining traction, and we look forward to further momentum in 2025 for this lower-pressure, high-rate motor.
Speaker Change: We also recently launched our new unplug system, which uses our perf pods to block flow at each individual perforation.
Speaker Change: rather than a single point above each stage. This provides numerous advantages over traditional single-point isolation. Field trials were completed in Q3 of 24, and we are now in full commercial deployment, having completed hundreds of stages across many well sites.
Speaker Change: We see this technology as being well positioned to capture share of the North American land frack plug market and believe it has the potential to be a positive growth catalyst that is largely independent of fraud or OFS demand.
Speaker Change: Rental tools also declined slightly in the quarter to mostly the seasonal factors. Mike will now discuss the quarter's financial results.
Thanks, Dan.
Mike: Shifting to the fourth quarter financial results with sequential comparisons to the third quarter of 2024, revenues decreased 1% to $335 million.
Mike: driven primarily by lower non-pressure pumping activity, specifically downhole tools and rental tools which offset growth in pressure pumping.
Mike: Breaking down our operating segment, technical services, which represented 94% of our total revenues in the quarter, was essentially unchanged.
Mike: Support services were down 14% and represented 6% of our total fourth quarter revenues.
Mike: The following is a breakdown of our fourth quarter revenues for our top five service lines. Pressure pumping, 40%.
Downhole tools, 27.9 percent.
Mike: Coiled tubing, 9.9%. Cementing, 8.3%. Rental tools, 4.3%. Together these service lines accounted for 90% of our total revenues.
Mike: Cost of revenues excluding depreciation and amortization during the fourth quarter increased by $2.7 million to $250.2 million, or a 1% increase.
Mike: The higher cost of revenues is primarily due to higher insurance costs related to our operations. We also incurred higher employee costs primarily related to health care benefits, which can fluctuate throughout the year.
Mike: These cost increases were partially offset by lower maintenance and repair expenses.
Mike: As you may recall, our pumping operations were particularly soft in the third quarter. Thus, we used that downtime to perform more maintenance work on our assets.
Mike: Given the sequentially higher utilization in the fourth quarter, we perform less of this maintenance work toward the end of the year.
Mike: SG&A expenses were $41.2 million, up from $37.7 million, largely reflecting the fixed cost of our support service functions, as well as timing of year-end incentive amounts.
Mike: Our fourth quarter effective tax rate was 9.1%, which was below the company's typical tax rate, primarily due to the implementation of certain tax strategies and interest received on some tax refunds.
Mike: Deluded EPS was $0.06 for the fourth quarter, down from $0.09 in the third quarter. There were no non-gap adjustments to either of those EPS figures.
Mike: For the quarter, operating cash flow was $94.2 million, and after CapEx, a $40.5 million free cash flow was $53.7 million.
Mike: For the full year, operating cash flow was $349.4 million and after CapEx of $219.9 million, our free cash flow was $129.5 million.
related to the timing of customer payments.
Mike: In light of challenging business conditions, we are pleased with our two-year cumulative free cash flow of more than $340 million, even after adding a Tier 4 DGB fleet in each of those years.
Mike: This supported steady capital returns to our investors while still leaving our balance sheet highly liquid and capable of funding growth opportunities.
Mike: At year end, we had $326 million in cash and no debt on the balance sheet.
Mike: During the quarter, we paid $8.6 million in dividends, bringing our 2024 total to more than $34 million. We also repurchased nearly $10 million of stock during the year, mostly related to our buyback program.
Mike: We spent 220 million dollars in 2024 on capital expenditures, finishing within our guided range of 200 million to 250 million dollars.
Mike: We currently project to spend between $150 to $200 million in capital expenditures throughout 2025.
Mike: I'll now turn it back over to Ben for some closing remarks.
Ben Palmer: Thank you, Mike. Coming out of 2024, I'd like to reiterate several themes as we enter the new year and articulate a few strategic, operational, and capital allocation themes so you have a firm understanding of our operating philosophy and intentions.
Ben Palmer: Our corporate objective is to create long-term shareholder value by delivering world-class oilfield services to our customers.
with the Conservative Financial Management Approach.
Ben Palmer: We believe RPC has a well-established track record of profitability and free cash flow, despite the many ups and downs of the oilfield services industry. And within this cyclical backdrop, we have exercised financial discipline, which has afforded us the ability to invest in our operations, as well as support consistent dividends and periodic share buybacks.
Ben Palmer: We believe the company is fairly diversified, with an attractive mix of service offerings, customers, and geographic presences. Consider ourselves well positioned financially to further invest and grow the business.
Ben Palmer: We see several strategic imperatives to executing on our goals. Improve margins in execution and optimize our assets. Increase operational scale through M&A.
Ben Palmer: We balance our portfolio with a focus on high cash flow service offerings.
Ben Palmer: and strengthen our customer mix by increasing our focus on blue chip EMPs given industry consolidation.
Ben Palmer: As we plan for 2025 and beyond, we have some action plans aligned with these strategic themes, which we believe together will help drive profitable growth, financial strength, and long-term value.
Ben Palmer: As discussed, we continue to invest in innovation, bringing proprietary and novel services and products to market to distinguish ourselves from our competition.
Ben Palmer: We are also diligently monitoring costs, capacity, and headcount, and will continue to take actions to align with demand and maximize margins.
Ben Palmer: Furthermore, we have information technology projects underway to support improved data collection and analysis, which we believe will lead to optimized decision making and improved efficiencies.
Ben Palmer: And lastly, we constantly evaluate sales of non-core assets to sharpen our focus on core operations and monetize any non-strategic assets.
Ben Palmer: Lastly, with respect to M&A, we continue to evaluate opportunities and build the environment.
Ben Palmer: remains favorable for a potential acquisition. We are focused on high cash flow operations with quality management teams.
Ben Palmer: Strong customer service and value propositions and synergy opportunities. We believe we are a buyer of choice given our reputation in the market.
Ben Palmer: for supporting companies we bring under the RPC umbrella and look forward to sharing M&A developments when they materialize.
Ben Palmer: In an often volatile market, our discipline remains consistent, with a focus on financial stability and long-term shareholder returns.
Ben Palmer: I want to thank all of our employees who work tirelessly to deliver high levels of service and value to our customers.
Ben Palmer: Thanks for joining us this morning and at this time we're happy to address any questions.
Ben Palmer: At this time, I would like to remind everyone in order to ask a question, press star, then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Dawn Christ with Johnson Rise. Your line is now open. Please go ahead.
Good morning, guys. Hope y'all are doing well.
I wanted to start with the technical services segment.
Speaker Change: I mean, obviously margins compressed a little bit in the fourth quarter there. Was there something in there on the cost side, because it looks like it was more on the cost side than on the revenue side, like maybe...
repositioning a fleet for work or...
Speaker Change: something else that we can't readily point to that maybe compress those margins. And do you think those kind of rebound as we move into the first quarter?
Yeah, hi Don, this is Mike. We had...
Speaker Change: some higher than normal insurance costs during the quarter. You know, we reset our insurance deductibles near the end of the year and, you know, actuaries do their thing and we had some...
Speaker Change: pretty significant increases there so that that really impacted us during the quarter so it was less operational and kind of more it was insurance related operations but just kind of an unusual event we don't anticipate that will be you know recurring
Okay.
Speaker Change: You know, obviously there's been a lot of reports that as, you know, pressure pumping weekend in the fourth quarter during the RFP season, it was kind of bad timing from that standpoint. But as you kind of look to the 25, do you do you anticipate any kind of?
Speaker Change: reductions there, particularly on the pressure pumping side, you know, due to increased competition as we kind of move through 25. I know you're more in the spot market than contracted market, but are you seeing that as well?
Don, this is Ben.
Speaker Change: It's very difficult to predict. Again, we did see some improvement there in the fourth quarter. Many of the customers we work for during the fourth quarter, we have opportunities with well into 2025, so at this point in time, we don't
Speaker Change: We're not currently anticipating any or see on the horizon any particular softness arising. Likewise, we certainly can't say that we are highly optimistic that.
Speaker Change: that our revenues there will continue to progress, but we feel pretty good about who we're working for right now and the level of activity we have currently.
Hey John, what are...
John: When the year started, we had a lot of weather issues across the country, so that impacted everybody. As we started Q1, things started a little slower, but that's less about customers and more just about weather, and we think that's really going to impact everybody in Q1.
Speaker Change: Right, okay. And I think I ask this every quarter, but given your cash hoard on the balance sheet...
and your propensity to do M&A.
Speaker Change: How is that market looking today? I mean, obviously, deals kind of slowed down as we moved through 24, as the bid and ask kind of widened some, but are the bid ask spreads coming closer in the parity or where you think that it's a?
Speaker Change: value to actually deploy some of that capital and grow into some of the other business lines?
We're certainly interested in trying to create some growth
Creative Acquisitions with respect to the
that have spreads and where those is.
Speaker Change: or heading or where they've been. You know, I can't, I mean, we have a number of things we've looked at. I'm not sure we could say that we've got a large enough universe of opportunities to specifically say, you know, we're seeing those spreads.
Speaker Change: I don't know that we could speak to that directly, maybe an investment banker has seen many more opportunities could speak to that, but obviously there's been a lot of volatility, right?
Speaker Change: The OFS market did see some increase in share prices, you know, within the last few weeks, but we've also recently seen some weakness, so it's bearable.
Speaker Change: difficult to predict but we'll just have to see obviously that's that's part of the the process to try to you know try to
Speaker Change: reach a deal, reach an agreement that hopefully is a win-win situation and can be accretive to our results. That's clearly what we're looking to achieve.
I appreciate all the color. I'll turn it back. Thanks.
Thank you, Don.
Speaker Change: Your next question comes from the line of Steven Gingero with CIFL. Please go ahead.
Thanks. Good morning, gentlemen.
Speaker Change: I apologize if this was asked. Did you give the product line breakdowns for the quarter?
Speaker Change: I did, but I'm happy to do it again. I'll look at the transcript. You don't have to say it again. It's fine. OK.
Speaker Change: Can you, can you, you mentioned in the press release the insurance settlement and did you give it, or the insurance, elevated insurance costs, did you give a magnitude of that?
Speaker Change: I'm trying to calibrate the impact I had on the margins in the EBITDA in the quarter.
Speaker Change: Yeah, I don't think we gave an exact number. It was a few million dollars and it was less of a settlement and more we have.
Speaker Change: You know, some changes in our deductibles and, you know, everybody's insurance costs are going up. Ours kind of reset in the fourth quarter.
Speaker Change: The actuaries do their magic, and we were a bit surprised by the amount of the impact. But it definitely impacted our margins.
Speaker Change: Okay, great. Thanks, that is helpful. And then just the final one, when you...
Speaker Change: And I believe you guys have talked a little bit about, over the last year, trying to get maybe a little bit more term and a little less spot market work. Where does that kind of...
situations stand right now.
For us,
Speaker Change: We still don't have any long-term firm contracts. These are all just sort of customer agreements. We are pleased with the direction of the mix of our business. We do have.
Speaker Change: We've come into, in the last several months, some opportunities that we would call more semi-dedicated. They're not necessarily, there's not line of sight for the next year plus, but we do have kind of a multi-month
Speaker Change: view. So that that's good. We're pleased with where it is today and we'll continue to work on that and try to improve that mix, maintain that and hopefully improve it a bit.
Great.
The final question I had was...
Speaker Change: You've talked on the dual-fuel fleet side, and I'm pretty sure to date you haven't done anything on the electric side.
Speaker Change: You know, we've heard that operators kind of prefer the flexibility of dual fuel in a lot of cases. What do you see in the market? Is it something that you're considering or you think you'll stick with sort of the dual fuel approach?
Speaker Change: Yeah, you know, it varies from customer to customer and dual fuel does have some flexibility that electric doesn't. That is a true statement.
ow ur
Speaker Change: Right or wrong, lack of electric fleet capability. We're not going to lean into that and begin to invest in that over a multi-year prospect.
Speaker Change: Will, you know, is it an issue? I mean, it's a segment of the market that we're currently not competing in, and we're not going to compete in that from an organic perspective. So we'll continue to lean in there's.
You know, the technology continues to evolve and change.
Speaker Change: Uh, you know, customers like to have the latest and greatest, uh, technology.
There are some new technologies that are on the horizon.
Speaker Change: We'll just say we'll continue to monitor it. We do like the flexibility of the Tier 4 dual fuel. And so we'll see where it goes from there. But we're not going to lean into an electric offering from an organic perspective.
Great. Okay. Thank you for the call, Joan.
Thank you. Thank you.
Speaker Change: Your next question comes from the line of Cosimo Boda with Ghibelli. Your line is now open.
Cosimo Boda: Hi guys, thanks for taking my question. Morning, how are you?
Cosimo Boda: Yeah, I guess most of mine got asked, but just in terms on your CapEx guidance for 2025, I know you said you have a $50 million range between it, so that's kind of pricing in.
Cosimo Boda: I guess one fleet, so I was just wondering your outlook and whether you think.
Cosimo Boda: The chances that you're going to get another flea and what the lead time for that might be.
Cosimo Boda: Well, actually, that range, I think we said that that does not include a new Tier 4 DGP in that range that we communicated.
We're going to watch it, if we can get some...
Cosimo Boda: If we can get some firm commitments enough from a customer, we'll certainly move up that decision in terms of the timeline.
Cosimo Boda: It's probably, it hasn't changed a whole lot in terms of what we know or what we're told. It's probably a six to nine month process to get a full fleet ordered and delivered. So that's kind of where we are.
Cosimo Boda: Playing it that way at this point in time. We'll see. Again, we've got some good customer relationships, semi-dedicated, pretty well, you know, keeping us busy. So, we'll see. That'll be a decision a little bit down the road. But we'll keep you guys apprised.
Cosimo Boda: Okay, awesome. Thank you. Thanks for the update. I'll turn it back.
Thank you.
Speaker Change: Again, if you would like to ask a question, press star 1 on your TaoFone keypad.
Thank you. Bye.
Speaker Change: There are no further questions at this time. That concludes our Q&A session. I will now turn the conference back over to Mr. Ben Palmer for closing remarks.
Ben Palmer: Thank you very much everybody. I appreciate you joining us this morning and appreciate your questions and your interest.
Speaker Change: Hope you have a good rest of the day and look forward to touching base. Take care.
Speaker Change: Ladies and gentlemen, that concludes today's call. Please be reminded that the conference call will be replayed on rpc.net within two hours following the completion of the call. You may now disconnect. Thank you all for joining.
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