Q1 2025 RPC Inc Earnings Call

Speaker Change: Good morning and thank you for joining us for our PC Inc's first quarter 2025 earnings conference call. Today's call will be hosted by Ben Palmer, President and CEO and Mike Schmit, Chief Financial Officer.

Speaker Change: At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at this time for you to queue up for questions.

Speaker Change: 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: All of which can be found on RPC's website at www.rpc.net

Speaker Change: In today's earnings release, in conference call, we'll be referring to several non-GAAP measures of operating performance and liquidity.

Speaker Change: We believe these non-GAAP measures allow us to compare performance consistently over various periods. Our press release and our website contain reconciliations of these non-GAAP measures to the most directly comparable GAAP measures .

Speaker Change: I'll now turn the call-overs to our president and CEO , Ben Palmer.

Ben Palmer: Thanks Mike, and thank you for joining our call. Today we will talk about our first quarter results in the aqua system we just closed in early April , as well as share our views about the increasing tariff driven macro uncertainties.

Ben Palmer: We encouraged by the start of the year with respect to our financial performance and excited to bring Pentele into the RPC portfolio.

Ben Palmer: Further, we are confident that our strong balance sheet, even following the funding of the acquisition provides a solid cushion in uncertain times, while still affording us the ability to invest as attractive opportunities arise.

Ben Palmer: First quarter results can be summarized as stable revenues with some even dark growth.

Ben Palmer: We're called that our fourth quarter held up relatively well in a sluggish market. Thus, we weren't necessarily expecting a typical seasonal pickup heading into the first quarter. Nevertheless, we were pleased with our financial results, especially sequentially, the dockroads.

Ben Palmer: As we look across the service lines for the quarter, pressure-pumping revenues were essentially black sequentially, and all other service lines and act get declined 1%.

Ben Palmer: We worked it diligently to drive utilization that would did come with some pricing concessions.

Ben Palmer: We are balancing the pricing and utilization strategy to service our customers while not performing work at levels that generate inadequate returns.

Ben Palmer: We still see higher utilization with our Frank Assets for our Tier 4 DGBs, where we have better visibility with dedicated customers and continue to deliver solid, well-site performance.

Ben Palmer: On the other hand, demand and utilization remains challenging for Tier 2 Deeds to equip them. The spot, and semi-dedicated frack market, are amply supplied with horsepower capacity, and pricing remains highly competitive.

has been competitive as OFS companies compete to maximize utilization.

Ben Palmer: In the current fracking environment, capital investments must be rigorously evaluated and we suspect some smaller, less well-capitalized competitors may disproportionately struggle to maintain asset quality and performance.

Ben Palmer: We believe these are mostly assets with limited useful lives indicating that some providers are opting to monetize and exit rather than maintain and reinvest.

Ben Palmer: We see this as a positive, potentially tightening, frank supply and leading to former pricing that this may take some time to play out.

Ben Palmer: Our 2025 plans still do not include a new frack fleet, though if and when we invest in incremental frack equipment, we would expect to retire older fleets.

Ben Palmer: Looking at our non-pressure pumping service lines, combined revenues were down 1% sequentially in the first quarter, with no individual service line up or down a significant amount.

Ben Palmer: Downhold Tool of Revenue's Reflat, several of our regions delivered solid growth in the quarter, but were offset by some unusual weather disruptions in the Rocky Mountains and other regions.

Ben Palmer: Our new drill and unplugged products continue to gain early traction in the market, and we're pleased with the response, but these are still too small to move the needle on our overall financial results. We look forward to more progress and we'll share updates on key milestones

Ben Palmer: Colterving was down a few points in the quarter, cementing was flat and rental tools had a nice gain of about seven percent. As that business did see a noticeable bounce to begin the new year.

Ben Palmer: From a strategic standpoint, we believe bolstering these less capital intensive service lines with organic investments and acquisitions will help drive growth, improve our customer mix, and reduce volatility and our financial results. And with that, I'll segue into the Pentele completions acquisition.

Ben Palmer: We have been talking increasingly in recent quarters about our optimism for executing acquisitions. We have assessed several potential transactions since acquiring Spendaker in 2023, and we were very pleased with our ultimate outcome.

acquiring pen tail and an agreed of transaction.

Ben Palmer: The total purchase price was $245 million, a comprised of $170 million in cash, a $50 million dollar seller note, and 25 million of issued stock.

Ben Palmer: While we had ample cash to fund the total purchase price, we believe the note and stock provide increased alignment and incentives as we move forward together.

Speaker Change: Pentel's leading wireland preparation services provider offering some of the newest and most efficient high-performance conventional and electric equipment in the industry, with more than 30 active fleets.

Speaker Change: It has a fairly concentrated customer base of Blue Chip EMPs and all of its operations serve the Permian Basin.

Speaker Change: The Penteau Management team is well regarded in the industry having established a reputation for delivering outstanding customer service in a safe and efficient way with low emissions.

Speaker Change: Penthouse generated 409 million revenues in 2024. We believe it has reached critical mass and expect revenues to trend with the overall market. Its customer retention is a testament to the strength of its relationships and consistent well-sighted performance.

Speaker Change: We note that quarterly revenue was in the $100 million range in each quarter last year with no dissonable seasonality or year-long directional trend in their top line results.

Speaker Change: We have not disclosed specifically profitability measures however our general expectation is for either Donald margins to continue to track, to track at about 20% plus or minus a few points.

Speaker Change: Pentel will maintain its operational approach and we expect a relatively light integration with most of our efforts focused on back-office support and financial reporting. Its day-to-day operations will remain largely unchanged and the management team will remain focused on serving its customers.

Speaker Change: With respect to the strategic rationale of the deal, you may recall that during our fourth quarter call we highlighted several strategic imperative to executing on our goals.

Speaker Change: Improve margins and execution and optimize our assets, increase operational scale through M&A. We balance our portfolio with a focus on high cash flow generating service lines and strengthen our customer mix by increasing our focus on blue GMP's given industry consolidation.

Speaker Change: Tantel is very well aligned with those imperatives. Adding over 400 million of revenues certainly at its operational scale and meaningful share in WARLA.

Speaker Change: This acquisition is a great fit with our strategic direction, as we continue to expand our completion services capabilities and focus on overall company growth and pre-cash flow.

Speaker Change: Looking at our 24 revenues, pro-forma with the addition of 10-tail, pressure pumping was 32 percent.

Speaker Change: Waterline increased from 1% to 23%, downhole tools was 21%, cold tubing was 7%, and cementing was 6%.

All other businesses together would represent approximately 11%.

Speaker Change: with that Michael now discusses the course financial results as well as some notes on the

Mike Schmit: Thanks Ben. Shifting to the first quarter of financial results was sequential comparisons to the fourth quarter of 2024.

Revenue's decreased 1% to $333 million.

Mike Schmit: Breaking down our operating segments, technical services, which represent 94% of our total first quarter revenues was down 1%

Mike Schmit: Support Services, which represented 6% of our total first quarter revenues, were up 1%.

Mike Schmit: The following is a breakdown of our first quarter revenues for our top five service lines. Pressure pumping was 40.1%.

Downhole tools, 28.2%.

Coiled tubing 9.6%, cementing 8.3%,

Mike Schmit: Rental tools, 4.6%. Together, these accounted for approximately 91% of our total revenues.

Mike Schmit: Cost of revenues excluding depreciation and amortization decreased by $6.4 million to $243.9 million or 3% during the first quarter.

Mike Schmit: The lower cost of revenues can be mainly accounted for by lower expenses in three categories.

Mike Schmit: First, transportation and fuel decline due to job mix as we provided less fuel to our customers. This typically carries little to no profit, so it's actually a positive margin impact for us.

Mike Schmit: Second is lower material and supplies. As the mix of our jobs changes quarter to quarter, so that the amount of sand and chemicals we supply on these jobs.

Mike Schmit: Lastly, we noted in the fourth quarter that insurance costs were elevated. The same level of expense did not repeat this quarter, thus contributing to a modest sequential improvement in the first quarter.

Mike Schmit: S.G.&A expenses were $42.5 million up from $41.2 million as a percentage of revenues increased 50 basis points to 12.8%. Reflecting increased IT modernization project expenses.

and slightly lower revenues.

Mike Schmit: Recall that our fourth quarter of 2024 tax rate was unusually low due to the impact of tax planning strategies and interest received on past refunds.

Mike Schmit: Notably, we had higher sequential EBIDA, the increase in tattray drove a slight sequential in that income decline compared to Q4, 24.

Mike Schmit: deluded the EPS of six cents and the first quarter was flat first the fourth quarter.

Mike Schmit: Ibadah was $49.48.9 million up from $46.1 million with Ibadah margin increasing 100 basis points sequentially to 14.7%.

Mike Schmit: For the quarter, operating cash flow was $39.9 million, and after CapEx of $32.3 million, free cash flow was $7.6 million.

Mike Schmit: At quarter-end, we had $327 million in cash and no debt on the balance sheet.

During the quarter, we paid $8.7 million dividends.

Mike Schmit: Regarding the 2025 capital spending expectations, we now project $165 to $215 million, inclusive a pin tail for the next nine months, mostly related to maintenance.

shifting now to some quintail modeling notes.

Mike Schmit: Pindale closed after the first quarter, so there was no material P&L balance sheet or cash flow impact from the deal in our results.

Mike Schmit: We are not providing explicit accretion guidance for the transaction, but we do expect it to be creative to EPS and cashflow for 2025.

Mike Schmit: Based on our comments, you should be able to make reasonable projections for revenues in EBITDA which will be a large part of more influence by overall OFS market conditions.

Mike Schmit: Beyond the EBITDA impact, please note a few other modeling items. CapEx for Puntill will likely be up to $20 million on an annualized basis, with depreciation expected to approximate annualized CapEx.

Mike Schmit: We will lose interest on the $170 million cash portion of the transaction funding, as well as incur incremental interest expense on the $50 million seller note.

Mike Schmit: It has a floating rate of sofa plus 200 basis points.

Mike Schmit: Lastly, based on the share price immediately before April 1st, we issued approximately 4.5 million shares.

Mike Schmit: We will complete purchase accounting in the coming months and know that certain future expenses impacted by the purchase price allocation and related valuation, including the amortization of intangible assets were not contemplated in these figures.

Mike Schmit: On another topic, you may have seen the company's file in S3 Registration Statement with the SEC, which includes registering the Rollins Family Control Group shares.

Mike Schmit: The Rollins family has been a long time shareholder with ongoing representation on our board. They have always been supportive of the company and we do not believe this changes that relationship.

Mike Schmit: We view the registration of the control group's shares and good corporate housekeeping.

Mike Schmit: I'll now turn it back over to Ben for some closing remarks. Thank you, Mike.

Speaker Change: To wrap up, I want to touch on the macro environment. We've entered a period of high uncertainty and limited visibility with respect to tariffs and their impact on inflation and the economy in general.

Ben Palmer: Tariffs in the current form will likely push equipment prices higher, put even more pressure on the industry to be disciplined with capital spending.

Ben Palmer: More broadly, the potential economic impact from tariffs and trade disputes increases uncertainty and contribute it to all prices falling to the low $60 range.

Ben Palmer: We, as well as OFS competitors and upstream and downstream players in the value chain, will have to navigate these uncertainties as we assess investment commitments.

Ben Palmer: However, despite some mild turbulence and unknowns, a few things remain unchanged. Our balance sheet is strong, our dividends secure, and we have ample liquidity to ride out volatility and still capitalize on opportunities as they arise.

Ben Palmer: We believe the company has an attractive mix of service lines and brands, customers and geographic presences and will execute our strategy with patience and discipline, including our pursuit of additional acquisitions.

Speaker Change: On a separate note, we'd like to welcome Steve Lewis, our board of directors after being elected this week.

Steve Lewis: Steve retired from the law firm, Troutman Pepper, formerly Troutman Sanders in 2023, where he had served in various leadership roles, including Chairman and CEO .

Steve Lewis: At the same time, Gary Rollins and Pam Rollins have retired from our board. We thank them for the years of contributions, leadership and service.

Steve Lewis: in an often volatile market, our discipline remains consistent with a focus on financial stability and long-term shareholder returns.

Steve Lewis: I also want to thank all our employees who worked tirelessly to deliver high levels of service and value to our customers.

Steve Lewis: Thanks for joining us this morning and at this time, we'd be happy to address any questions you may have.

Steve Lewis: At this time, in order to ask a question, press star then the number one on your telephone keypad.

Speaker Change: and your first question comes from the line of Stephen Gengaro with Stiefel.

please go ahead.

Steve, you may be on mute.

Please go ahead.

Can you hear me?

Oh, there you go. The operator didn't like me.

Speaker Change: You talked a little bit about this, I think, on the prayer remarks, but when we think about the pressure pumping market in general, what are you seeing in pricing conversations and are you seeing any differences versus prior periods of softness in the market?

Of

Speaker Change: I think I understand the question. You know each one of these cycles are different yet they're very much the same. I think some of what's happening is again with all the uncertainty about what's going on in the fact that things could in fact flip back. I think.

Speaker Change: and our customers are scrambling, they're trying to respond to their potential impact with lower oil prices, so they're trying to do what they can. Service companies like us are trying to...

Speaker Change: you know, hang in there and do the best we can to try to be accommodating to our customers yet, you know, we're trying to, you know, we're trying to maintain our business as well. So, I don't know the discussions are completely different, but I think circumstances are perhaps a bit different and that may...

Speaker Change: in fact, slightly those discussions, but it's all about the give-and-take in

you know, reach hopefully a decent place for both parks.

Speaker Change: Okay, great. And then following Pintail, or can you just kind of remind us when you think about capital allocation, kind of what the priorities are and when you're looking at M&A, what are sort of the two or three most important criteria you look for?

Speaker Change: Well, obviously we want creative transactions. We certainly know adding to existing

Speaker Change: Businesses that we have that have good strong brands is certainly a criteria. But again, looking for customers we want more exposure to the larger customers that should translate into a more steady business, less volatility.

Speaker Change: also looking for companies, service lines that have good free cash flow generating capability. You know, we all know that pressure pumping is a very large part of the overall well-completion cost.

Speaker Change: but he is highly competitive right now. We still are committed to that business.

Speaker Change: that brands with good management teams that can produce some good free cash flows. So that's really our product. More 500 MP customers and businesses with good free cash flow potential at prices that can never be agreed up to our results.

Speaker Change: Great thanks and the one the one final one was when I'm just I don't want to give you the wrong number share, but when we when we think about the the pin tail business.

Speaker Change: I think it was running kind of close to about 90 million in revenue a quarter based on the the info that was this close. Is that about the right starting point right now as we think about layering it in?

you know

https://www.michaelschmitt.com

Speaker Change: So, but certainly not completely aware or can't avoid the overall market forces that are in place, but in round numbers probably closer to 200.

Great. All right, thank you for the details.

Thank you for your questions.

Speaker Change: Again, if you would like to ask a question, press star, followed by the number one on your telephone keypad.

Speaker Change: and your next question comes from the line of Don Christ with Johnson Race. Please go ahead.

Bye.

Don Christ: Good morning, guys. How are you all the day? Good morning, Don.

Um...

Speaker Change: Are you seeing any shift in kind of customer activity, and I know pressure pumping is generally a large topic of discussion, but in your other service lines, are you seeing any shift

Speaker Change: High CapEx projects, i.e. new wells and new pads towards workovers or anything like that that may have a bigger impact to ENPs cash flows with smaller dollars.

Speaker Change: That's a reasonable question, Don. I think it's a little bit early to know that or to have a whole lot of feedback on that. That certainly seems.

Speaker Change: reasonable and in prior cycles that type of shift has occurred so we're certainly watching for that sort of thing.

Good question.

Speaker Change: Fracking a well or a pad rather do you have visibility on the next two pads or just the next pad like when is that decision point made normally in normal kind of business cycle to where we can kind of forecast like how far out you know kind of what you're going to be doing. [inaudible]

Speaker Change: Well, our track business historically, as you and others know, has been more of the spot market and semi-dedicated, so it depends on the size of the customer and the nature of the type of work we're doing. Typically, for the semi-dedicated customers we have some visibility for...

Speaker Change: at a time, maybe not a year or more, but we certainly typically have some level with visibility, spot market much, much less so. But, you know, we do have a calendar, we watch the calendar, we maintain the calendar, we're always trying to work and minimize the white space, be that with.

Speaker Change: a bit longer. As you can imagine, those customers are right now, you know, they are looking at different alternatives and

Speaker Change: and as we see it right now, kind of looking ahead, you know, early in the second quarter things look to be relatively stable, but, you know, it's hard enough, again, uncertainty is the word of the day or the time right now.

Speaker Change: We know that there are discussions going on and we'll just have to wait and see and get prepared for and then react to whatever, whatever happens.

Speaker Change: Okay, and one of your competitors reported last night and talked about a kind of uptick in gas directed activity, whether it be in the in the Eagle Ferdinand or other places, are you seeing any pickup yet or is that still a couple of months down the road, you think?

Speaker Change: I think probably a little further down the road. We are hearing a little bit. We do have exposure to some natural gas focus spaces, especially with our downhole tools business.

Speaker Change: and it was very traditionally a strong natural gas place. Our downhill tools business is very well equipped to be able to move people in equipment around very easily and quickly. So having those operating locations in place will be able to.

Speaker Change: John , very quickly on to opportunities with that service line and a couple of our other service lines. Less so for pressure pumping, we do have some exposures to the mid-con. So if things were to pick up there, we could certainly take advantage there, but the biggest opportunity for us is...

Speaker Change: is probably, it would be on the downhill to the south.

Speaker Change: Okay, I appreciate the color. I'll turn it back to the operator. Thanks.

Thank you, Doc. Appreciate it.

Speaker Change: Here next question comes from the line of John Daniel with Daniel Energy Partners. Please go ahead.

John Daniel: Again, thanks for including me. Just a couple of quick ones, I think, and you're prepared to mark if you noted some of your, some of the older pumping equipment out there is being sold by, there's only some of your competitors. I'm just curious if you can talk about, is that, whether it's frack, equipment, or other assets in your portfolio? Do you guys see a need to sell assets?

John Daniel: and just your thoughts on that equipment re-entering the market.

What was the very end of your comment?

John Daniel: What's some of your peers I think you know have sold or are trying to sell some of their older you know tear-to-equipment others or you know smaller companies are selling assets just try to generate cash you guys clearly don't need to generate cash just about just fine, but I'm just curious if you could broadly speak about you know.

John Daniel: What you're seeing in terms of who's buying some of that equipment, just your thoughts on that side of the market.

John Daniel: Oh, it's a good question. Again, we have, as we indicate, have seen some opportunities. I don't know who might be buying that. We are rarely...

John Daniel: We monitor our equipment and when it comes to end of life or in inefficient operations or whatever for Frank we look to.

John Daniel: you know, move those assets out. We don't want to stack them up.

John Daniel: in the last year or two when that need or opportunity arose, we've been able to reallocate some of those assets to other of our service lines that can use that type of equipment, it can contribute very nicely to the other service lines, so we've done some of that.

John Daniel: if we were to sell our equipment, we've been very diligent about trying to make sure it can or doesn't re-enter the frack market, so that could include selling.

Michael Schmit, Ph.D.

John Daniel: Okay. The next one, thanks for that. The next one is on CapEx just quickly.

Q1 CapEx, let's call it low 30s.

Speaker Change: which means you're understanding relative to the guidance here on the low end, if you will. What would you need to see to accelerate that spend in the back half of the year?

John Daniel: and is there more of a chance that, you know, we would see that CAPEX dollars be allocated to, you know, a further accretive M&A opportunities.

Pierre-John Ames, Mike, of... [inaudible]

John Daniel: Yeah, I think it will just, it'll be based on market conditions overall. We're looking to spend the, Capix, we need to to maintain our equipment, or if there is something that are creative, you know, we'll spend the money on that as well.

but we are really looking at...

John Daniel: trying to see what we're really going to need to spend.

John Daniel: to meet all our customer needs for the year because no one noticed really what's happening overall the matter of the conditions out there so we've really

You know...

Pushback or order.

John Daniel: asked our businesses to really look at whether they need to do that this year or if we can hold up next year just so we also aren't spending all our cash on equipment that we're not going to get a good return on in the short term so that we still have a strong

balance sheets so we can do further acquisitions also.

John Daniel: You know, we are still projecting to probably take up a little bit spending a year goes on.

Hopefully, that kind of gives a little bit.

John Daniel: The color is kind of, we think about it, and I've been doing something else. Yeah, I was just going to say John , I think you had the first quarter and I'm just, there was a little bit of managing there, trying to, you know, actually not spend, or we don't need to spend, but I think it was just...

John Daniel: sort of the timing worked out to where it was a relatively low annualized spin that was, you know, I think, just the way the...

everything

well.

Anderson. Got it. Emptance.

Speaker Change: and they want the quick final one for me as the year unfolds with the uncertainty. I presume you're going to see lots of M&A opportunities and

Speaker Change: I've just given Pentale's strong presence in the Permian. Would you say that your folk, would you be more inclined to be focused on further consolidating the Permian market, and I'm not just haywireland, but other services, or are you sort of somewhat agnostic and willing to look at other basins?

I think that's a good question. We're not back.

Speaker Change: We're agnostic or we're open to opportunities and other basins as well and again with the impending expected

Speaker Change: in the natural gas basins. Now, maybe a good time. Before things really do pick up big time, you know, maybe there's an opportunity, something up that has exposure to some of those others.

and other basins that we could take advantage of. So, I think...

Speaker Change: You know, we're looking at talking about several things. Our discussions are not all around. We need to focus on the Permian. Our discussions are around.

Speaker Change: Let's look for appropriate opportunities and each company and each business and each service line and each brand has different attributes and so so we're open we're open okay thank you for

Sure, thank you, thanks, John .

Speaker Change: This concludes our question and answer session. I will now turn the call back over to Ben Palmer.

Speaker Change: Thank you all for listening in and your questions. We appreciate it and hope you have a good rest of the day and look forward to catching up. Take care.

Speaker Change: Today's call will be available for replay on rpc.net within two hours following the explanation of the call. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

[inaudible] Ben Palmer Gengaro

Speaker Change: Teacher Settings Play The Scene Make the Deletions Play the Scene Wow!