RPC, Inc. (NYSE:RES) Q1 2024 Earnings Call Transcript April 25, 2024

RPC, Inc. misses on earnings expectations. Reported EPS is $0.13 EPS, expectations were $0.17. RPC, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and thank you for joining us for RPC, Inc.'s First Quarter 2024 Conference Call. Today's call will be hosted by Ben Palmer, President and CEO; and Mike Schmidt, Chief Financial Officer. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. 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.

Mike Schmit: Thank you, and good morning. 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. 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. In today's earnings release and conference call, we'll be referring to several non-GAAP measures of operating performance and liquidity. We believe these non-GAAP measures allow us to compare performance consistently over various periods. Our press release issued today and our website contain reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. I'll now turn the call over to our president and CEO, Ben Palmer.

Ben Palmer: Thanks, Mike, and thank you for joining our call this morning. Before we get started, I'd like to take a moment to share some unfortunate and sad news. Our long-time Head of Investor Relations and Vice President of Corporate Services, Jim Landers, passed away a few weeks ago after a long and courageous battle with cancer. I worked closely with Jim here at RPC for more than 20 years, and he was a tremendous contributor to the company in so many ways. I'm sure those of you listening today were lucky enough to work with him over the years know he was also a great friend and colleague. He will truly be missed by all of us. Shifting to the quarter, as you can see from our earnings release, the first quarter was a soft start to the year in what feels like a muted oil field services market.

Though we did not give explicit financial guidance for the first quarter, we did expect more staple EBITDA. Our activity level and pressure pumping was down modestly on a sequential basis compared to the fourth quarter of 2023, contributing to our overall results finishing below our original expectations. Unlike some recent quarters where we have seen more volatility in pressure pumping compared to other service lines, revenue performance was generally consistent throughout the business. Our total revenues declined about 4% with pressure pumping down 5% and other service lines in aggregate down 3%. The frac market remains highly competitive. We have seen some fleets moving into the Permian and from gassy plays, adding capacity to an already crowded basin.

In addition, ongoing operating efficiency gains have created additional pump hour capacity. Regarding pricing, motivation to keep assets utilized and absorb fixed costs has certainly impacted industry pricing compared to year-ago levels. We are working vigorously to control costs to be as competitive as possible in this environment. We are also balancing our interest in putting our assets to work with our preference to not burn them out on low return projects. Our Tier 4 DGB fleets are highly sought after and generally serve semi-dedicated customers. Regarding our new Tier 4 dual fuel fleet, we eagerly await bringing those assets into service around mid-year and expect to have solid utilization for this new fleet for the remainder of 2024. We highlight that our operational performance on existing Tier 4 DGB assets has been quite strong.

For example, our gas substitution efficiency has sustained an average of above or about 65% over the past few quarters. We believe this efficiency metric is among the best in the pumping industry and demonstrates our ability to effectively operate these high quality assets and drive value for our customers. As we have said before, we intend to continue to invest in fleet upgrades. To reiterate, when we place the new Tier 4 DGB fleet in service in a few months, we will be pulling a Tier 2 diesel fleet out of service, though we do not add to industry capacity, likely repurposing those assets in other parts of our business or keeping them as spare parts and equipment. We continue to monitor the market for electric fleets. While we do see the benefits of this evolving technology, we also see some potential shifts around the ideal long-term technical and power source solutions.

We will continue to invest in our fleet with a strong focus on upgrading to Tier 4 dual fuel. In our view, dual fuel assets have a long demand runway and we will focus our efforts and capital in this direction until we fill the risk return profile on investments in electric fleets is further in our favor. Regarding how we see the next few quarters playing out, visibility remains limited, but we are certainly encouraged by the recent increase in oil prices, the WTI reaching above $80 a barrel recently. The rally is, in part, attributed to geopolitical events, which can be, of course, unpredictable and reverse quickly, but also supported by a strong US economy. If this level is sustained, we are cautiously optimistic that many of the smaller private EMPs that make up the spot in semi-dedicated pressure pumping market will steadily increase activity, while the larger EMP stick to budget expenditures and exercise capital discipline.

Mike will now discuss the quarter's financial results.

Mike Schmit: Thanks, Ben. I'll now discuss the first quarter results with sequential comparisons to the fourth quarter of 2023. Revenues decreased 4% to $378 million, driven by a combination of moderately lower industry activity and some competitive pricing concessions. Breaking down our operating segments, Technical Services revenues decreased 4%, driven by pressure pumping, our largest service line within that segment. Technical Services represented 94% of our total first quarter revenues. Support Services were down 9% and represented 6% of our total quarter revenues. The following is a breakdown of our first quarter revenues for our top five service lines. Pressure pumping, 46.6%. Downhole tools, 24.8%. Coiled tubing, 8.8%.

Cementing, 7.3%. Rental tools, 4.2%. So together, these top five service lines accounted for 92% of our total revenues. Cost of revenues, excluding depreciation and amortization during the first quarter, decreased by $2.8 million to $276.6 million from $279.4 million, or a 1% decrease. Despite lower sales, total employment expenses were flat and maintenance and repairs cost increased slightly compared to the fourth quarter, contributing to margin compression. On another note, materials and supplies were a higher percentage of our sales mix, which also impacted our margins. SG&A expenses were $40.1 million, up slightly from $38.1 million. The increase in SG&A was due to total employment costs and was in part due to the timing of certain accruals.

Diluted EPS was $0.13 in the first quarter, down from $0.19 in the fourth quarter. There were no non-GAAP adjustments to these figures. Adjusted EPS -- sorry, adjusted EBITDAs was $63.1 million, down from $79.5 million with adjusted EBITDA margin decreasing 340 basis points to 16.7%. Again, there were no adjustments made to these measures for unusual items. Operating cash flow was $56.6 million and after CapEx of $52.8 million, free cash flow was $3.8 million. We noted that second quarter will have a heavy spend as we make final payments and accept delivery of our new Tier 4 DGB fleet. While our guided CapEx range of $200 million to $250 million in 2024 remains unchanged, we may manage the lower end of that range depending on market conditions in the second half of the year.

During the quarter, we spent nearly $10 million on share repurchases, of which $7.5 million was under our buyback program. And we paid $8.6 million in dividends. Thus, we returned more than $16 million of capital to our shareholders between our cash dividend returns and our buyback program. We continue to maintain a debt-free balance sheet with a strong cash position of $212 million at quarter-end. We remain proud of our healthy financial position, a function of our ongoing discipline and conservative approach. We're also pleased to share that subsequent to the end of the quarter, we received a $52 million tax refund, including interest from the IRS this week related to past tax years. I'll now turn it back over to Ben for some closing remarks.

Ben Palmer: Thanks, Mike. So looking ahead, we are encouraged by oil price trends and optimistic for an uptick in rig count. This should translate into improved activity, which would hopefully be accompanied by disciplined pumping capacity management in the marketplace. We also see potential for increased activity by smaller EMPs as a fallout from the wave of M&A in the larger M&A space -- EMP space. As mergers and acquisitions close, we see possible non-core asset divestitures with the acreage moving into the hands of our customers. We would be well positioned to capitalize on this trend, given our deep customer relationships. We are strong not only with spot and semi-dedicated customers and pressure pumping, but our other service lines have excellent relationships with both small and large EMPs. We continue to be presented with opportunities to use our strong balance sheet to grow the business.

We're confident that in time we will find attractive acquisitions to increase our scale, bolster our service lines, broaden our customer relationships, and of course, provide a solid return on capital. As we said last quarter, we are patient buyers and believe a potential silver lining to current industry conditions will be the availability of attractive acquisition targets. In the meantime, our balance sheet is quite strong, affording our $0.04 per share quarterly cash dividend and opportunistic share buybacks. If over time we maintain an elevated cash position, we would likely assess options to return additional capital to investors at an accelerated pace. In closing, I want to reiterate that in an often volatile market, our discipline remains consistent, with a focus on financial stability and long-term shareholder returns.

And thank you to all our employees who worked tirelessly to deliver high levels of service and value to our customers. Thanks for joining us this morning, and at this time we're happy to address any questions.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Stephen Gengaro with Stifel. Please go ahead.

See also

20 Best Wellness Retreats in the US and

American Politicians are Buying These 10 AI Stocks.

To continue reading the Q&A session, please click here.