RPC Inc (RES) 2023 Q4 法說會逐字稿

Good morning and thank you for joining us for RPC, Inc. fourth quarter 2023 conference call. Today's call will be hosted by Ben Palmer President and CEO, and Mike Smith, Chief Financial Officer. At this time, all participants are in a listen-only mode. And following the presentations, we will conduct a question and answer session and instructions will be provided at that time for you to queue up for questions, but I'd like to advise everyone that this conference call is being recorded. I'll now turn the call over to Mr. Mr. Smith.

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 2022 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 for 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.

Thank you, Mike, and thank you for joining our call this morning, we closed out the year with strong strong sequential fourth quarter revenues and EBITDA increases as expected, following a soft third quarter. And for the year, we delivered adjusted EBITDA of $374 million and free cash flow of 214 million. We also completed the acquisition of Spinnaker to strengthen and diversify our business and we are still able to end the year debt-free. We have a solid balance sheet that can support both investments in our business and consistent returns of capital to shareholders to elaborate further on the fourth quarter, we started off strong but felt the impact of falling oil prices later in the quarter. During our third quarter call, we noted that with all above 80, we and our customers should have a favorable environment for activity and utilization at that time, we had indications from our customers that there would be a limited holiday slowdown. Obviously, oil fell below 80 in early November and dipped below 70 in early December. This decline caused completion postponements in more holiday downtime than originally anticipated for the fourth quarter financial results did show a substantial improvement from a very soft third quarter. The December law prevented us from delivering even higher growth. Our pressure pumping activities increased sharply from the third quarter, but still below our expectations regarding pricing discipline, as expected, we were able to secure work at more attractive pricing in the fourth quarter and certain opportunities we opted to forego during the third quarter. As for our workforce, our 10 horizontal fleets plus our two vertical fleets remain staffed, but we are monitoring conditions closely and will implement contingent cost actions as well.

Spinnaker acquisition was an important strategic decision for RPC, growing our cementing business, increasing our scale and expanding our customer relationships. Performance remains solid despite a softer environment. Integration on all fronts has gone well and we are excited about its future.

Mike will now discuss the quarter's financial results.

Thanks, Ben. I'll start with a few quick financial highlights for the year and then go into some more detail about the fourth quarter. For the full year 2023, revenues were 1.6 billion, increasing 1% versus last diluted EPS was $0.9, which included a $0.07 negative impact from pension settlement costs in the first half of the year. So adjusted EPS was $0.97 and adjusted EBITDA was essentially flat at 374 million. We generated strong operating free cash flow in 2023. Operating cash flow was 395 million. And after CapEx of $181 million. Free cash flow was 214 million. Recall we spent nearly 79 million to acquire the Spinnaker cementing business in early Q3. For the year, we spent 21 billion on share repurchases, of which 19 million was through our buyback program. We also paid 35 million in dividends, thus returning more than 50 million of capital to our shareholders. Our strong financial position of $223 million at year end, as well as our projected future cash generation flow continue to support organic investments in our business, potential M&A activities and further capital returns to our shareholders while also providing a solid cash buffer in an uncertain market, we are proud of our continued strong financial position, a function of our ongoing discipline and consistent, conservative approach.

Now I'll cover our fourth quarter results for sequential comparisons to the third quarter of 2023, revenues increased 19% to 395 million, driven by a significant increase in pressure pumping revenues. Last quarter, we signaled a strong sequential rebound and that's what we experienced.

Breaking down our operating segments. Technical Services revenues increased 22%, driven by growth in pressure pumping activity. Our largest service line, technical services represented 94% of our total fourth quarter revenues. For our Support Services segment revenues were down 14% and represented 6% of our total revenues in the quarter. The following is a breakdown of our fourth quarter revenues for our top five service lines pressure pumping was 47.2% of revenue, downhole tools, 23.3%. Coiled tubing, 9.4%, cementing 6.5% and rental tools 4.4%. Together, these top five service lines accounted for 91% of our revenues, cost of revenues excluding depreciation and amortization during the fourth quarter grew to 279.4 million from $239.1 million or a 17% increase. We did see some operating leverage in the quarter, particularly on fixed labor costs. Sg&a expenses were 38.1 million, down from 42 million. The reduction in SG&A expenses was due to a variety of discretionary cost controls, coupled with lower incentive compensation. Diluted EPS was $0.19 in the fourth quarter, up from $0.08 in the third quarter there were no non-GAAP GAAP adjustments to those EPS figures.

Adjusted EBITDA increased 53% to 79.5 million, with adjusted EBITDA margin increasing 440 basis points to 20.1%.

Now I'll discuss our 2023 and expected 2024 capital spending. As mentioned, capital expenditures were $181 million for 2023 below our expected range of 200 million to 215. Given market conditions that evolved in the latter half of the year, we tightly managed capital expenditures and the completion of some projects were delayed into early 2024. For the coming year, we again project capital expenditures to be in the range of 200 million to 250 million. A key element of this plan is the delivery of a new Tier four DGB fleet, which we expect to place into service by the end of the second quarter.

I'll now turn it back over to Ben for some closing remarks by Mike.

So bottom line, we rebounded sharply from the third quarter air pocket. However, falling oil prices and customer indications of budget exhaustion late quarter curve. The magnitude of that bounce back build visibility is, of course, limited in January. Weather has been a challenge, but we are getting signals from our customers for general near term stability potential for growth as the year progressed.

As Mike referenced, our capital spending plans for 2024 include a new Tier four DGB fleet, which will replace a Tier two diesel fleet. Thus, we won't be adding pressure pumping capacity to the marketplace. Consistent with previous comments, we're taking a patient and disciplined approach to upgrading our pressure pumping assets to more attractive dual fuel and lower emission.

Well, with the addition of this Tier four DGB fleet, we will have three in total plus to Tier two DGB fleets and three Tier four diesel fleet. Additionally, we are operating two Tier two diesel vertical fleets. So in total, eight of our 10 horizontal fleets will be ESG-friendly. We remain on the sidelines with respect to electric fleets until their solutions we feel make economic sense for our business and costs.

Lastly, with Spinnaker integration essentially complete we're looking for additional strategic acquisitions to strengthen our business. While RPC currently offers or offers a wide variety of services required by both large and small E & P's, we see opportunities to increase our scale and broaden our customer relationships. 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, supporting our $0.04 per share quarterly cash dividend, which our Board just approved together with opportunistic share buybacks.

I'd like to thank our employees across the company for another year of dedication and resilience. We are especially proud that Thru Tubing Solutions, our downhole tools company has been recognized as a 20 top23 workplace of Oklahoma. This prestigious Accolade is a testament to our commitment to fostering a vibrant and inclusive work environment. You'll be able to read more about our values as well as other corporate initiatives as we plan to issue RPC's first sustainability sustainability report very soon.

In closing, I want to reiterate it and often volatile market. Our discipline remains consistent with our focus on financial stability and long-term shareholder returns.

Thanks for joining us this morning. And at this time, we're happy to address any questions.

(Operator Instructions) Stephen Gengaro, Stifel.

Thanks. Good morning, everybody.

Good morning. So a couple of things for me. What I would start with is on the pressure pumping side, can you give us a sense for how many horizontal frac fleets you ran on average in the quarter? And kind of how do you see that evolving as the year progresses?

Well, Stephen, they all were staffed as we indicated that they all did some work during the quarter. But with Barry, of course, and I think the way we would expect that to evolve in 2024 is they will either become are more busy or we'll make the decision to maybe reduce the number of fleets we have feel right now, we're confident with where things are going in the first quarter that we need to keep all of those fleets appropriately staffed. And so for the time being, that's what we expect and we're counting on, but we'll take the appropriate action if it doesn't and then an outcome.

Okay. Thanks. And then And that actually leads into my other question which was you on the technical services side, you and you clearly had up your margin doubled right sequentially on the operating income line. You despite it sounds like carrying costs and having maybe more staff fleets actually work the whole quarter. But how does how does that lay out the kind of margin trajectory slow and or incremental margins in technical services as we go forward? I know it's going to vary based on revenue, et cetera, but kind of is there any parameters you can give us to sort of think about, you know, how the incremental margin performs given the costs that are in place?

It's a reasonable question. Obviously, the incrementals this quarter were tremendous because of the large increase in revenue, and that's why quite typical, I would say yes. And obviously, it depends on the amount of revenue and job mix, a lot of different things. But clearly, we're not going to see we would not expect to see of that percentage of incremental margins going forward. But with revenue gains and increases, we would expect to see something in the 10s, mid 10s, perhaps 20%. But first quarter, again, starting off with the way it is not it's Q4 is kind of a reasonable base to compare with the first quarter. It looks like we don't know exactly, but start now.

Okay. And I think like many other people have said it's a little bit slow. It's always when we slow down late and late in the fourth quarter, it takes a little bit of time for it to crank back up. So so we'll have to deal with that.

And just to clarify, and thank you, the margin coming mid to high 10s or 20s. Is that and absolute margin overtime? Is that was that an incremental margin you're referring to?

I was actually referring to incremental obviously depends on the amount of revenue growth. So we're not expecting anything outside of store or unusual.

So I've got great. Thanks. Thanks for the detail.

Sure.

Derek Podhaizer, Barclays.

Hey, good morning, guys. Hoping you can maybe expand on what types of services you're looking to increase for scale and enhance your growth outlook. You mentioned some potential acquisitions. Just maybe some more color around what types of services are products you're looking to get into?

Good question. We have in your pressure pumping, obviously, is our largest service line, but is by far the largest market right in the oilfield. So there's a big market out there to go after many of our other service lines downhole tools, coil tubing, you many of the larger ones that we've referenced here, we have meaningful market share cementing. We have a decent market share, especially with cementing in the regions where we operate. We have very strong market share in those particular regions, and we hope to achieve the same with cementing and teaming up with Spinnaker Spinnaker in our South Texas market where we've been operating for a number of years. We think there's great opportunity down there to bring some of Spinnaker as customer relationships and capabilities to bear down there. So that's an opportunity, cementing, coil tubing. We have a good market share. That's a good business. That's something that we brought along in the last couple of years. And the downhole tools there, there might be some opportunities to expand there. So we're looking to expand for the most part own yes, we're look into some of those particular service lines that I'm representing are with some of the larger customers that have a lot of activity. And so we are looking to expand on that and those particular service lines up reference. So the ones where we have good scale and good market share now. And those would be the ones we would focus on primarily.

Got it. That's helpful. And then just on the pumping, is that more of an equipment comment like locally looking to bolster your equipment base or maybe services around the frac, but more of those ancillary services like wireline profit, logistics, Power Solutions things of that nature on

The ones I've referred to are not directly tied to pressure pumping. I think the commitment and the requirement to internally develop source some of those capabilities can be acquired. It's a lot a lot of our larger peers, some of these systems and capabilities they have beyond wireline, we have a small wireline business. So we do wireline it's just not something that's fits.

So what we've talked about is pretty pretty small and wireline is used for a lot of different things, not just for the completion of the well, but we'll be selective. We think, with our very good market share with some of these other service lines. That's going to be the primary focus, but we're certainly open to other opportunities, our larger peers with some of the larger customer gas getting a lot of attention right now, but there are many other customers other than the ones that can benefit from it fully integrated, a tremendous infrastructure to bring out to not every customer has the type of number of wells and the type of fields that require that type of setup and that would benefit from that type of capability. There are plenty of customers who you need. I need the breadth of services that we offer. So that's where we're aligned to that's where we're set up. That's where we have our historical relationships. And I expect for the time being that's that's where we'll focus as it relates to procurement.

Got it. That makes sense. And then just a follow-up for me. Maybe just talk about the competitive landscape in frac among those those smaller players. You know, the the privates that we don't get great insight to me those Tier two diesel players. I'm not sure if you come across them when you bid work or just to get out in the field, but there's been anecdotes of bankruptcies and Lane data equivalent, but just any insight that you guys can provide from what you've seen would be helpful.

Right. Not a whole lot specific. Obviously, we see them from time to time in here that I know sometimes when we miss opportunities, it might be to one of those smaller players. Obviously, the pressure pumping equipment to upgrade and continue to invest in that equipment. It's expensive and it's not everybody can afford to do that. So hopefully, maybe we'll have a shakeout in that regard, maybe that that part of the market will further improve, and we're certainly set up to take advantage of that. We had when the market tightened in the first and second quarter of 2023, we had we had tremendous financial results within pressure pumping and obviously the market loosened up a bit. We think some of the smaller players as you're indicating, I think it will be a difficult challenge as it always is for them to be able to expand. So hopefully, that market will improve a bit. And we have certainly overall in North America, we have a relatively small market share in pressure pumping, but within the regions and in particular, customers that we focus on, again, that don't need all of these massive infrastructure. Yes, we're pretty well positioned and do well at that mark,

But I appreciate all the color. I'll turn it back to.

Got it. Thank you.

(Operator Instructions) Stephen Gengaro with Stifel.

I just wanted to follow up. Thanks. On churn, we've heard a lot about kind of pricing bifurcation in the market between low-emission assets and older assets. And also sort of the difference between sort of spot pricing for pressure pumping versus sort of contracted or committed arrangements. Can you comment on that?

It's getting more and more complicated the more fully integrated, whatever you want to call it, some of our larger peers that have all this infrastructure to be able to bring to a well site. They're obviously getting paid something for that, but that requires an additional investment, right? So that their investment, all things being equal is like per fleet, if you will. It's a lot higher than our investment, right? So it's very difficult to the I think to talk about pricing. But because of those various aspects that you peel back, the various services that are being offered again, we have a number of services, some of which work from time to time with our pressure pumping fleet. And we don't we watch our pressure pumping service line. We monitor each of the service lines individually, there is some opportunity to bundle services, but that's not something that we we focus on per se, right? We tried to be the best we can be at a particular service we're trying to execute. Clearly, clearly, it seems that some of the very large E & P's appreciate score says the word appreciate, will contract will look for some of the service providers that do have a multitude of different services to bring. But there are a lot of customers who still like to on bundle customers love to have competitors.

They're not going to give all their business to one service company. It's never happened and now it's not going out. I believe it's going to happen in the future so we're continuing to improve our fleet. We're following our roadmap. It's certainly adjustable, but we have a roadmap that says as our equipment wears out, we're going to we're going to invest and buy new equipment, and it certainly will be equipment that is newer has additional capabilities where we are a significant percentage of our fleet today can burn natural gas and that is appealing to some of our customers, not every one of our customers. So we're moving that along and where those decisions that we're making are their financial decisions. They're not decisions just to say we want to have we want to do whatever it takes to have X percentage of our fleet have a particular characteristic a point in time. We're leading we're leading the market and our customers and the demand dictates when we make those investments so that we're moving that along. Obviously, the ordering of this new Tier four fleet moves us along that path. That's again, that's consistent with our roadmap. And Mike said, it is flexible in terms of the exact points when we we take delivery and pay for that type of equipment, but we're executing on that, that plan for the long term, and we're improving our fleet as well as we do that.

Great. Kyle, that's good color. Thank you.

Sure. Thanks.

Derek Podhaizer, Barclays.

Hey, guys. Just wanted to ask about your exposure to a couple of basins. Primarily the Haynesville and MidCon and Eagleford. I mean, these basins are the ones that came under the most pressure as gas started to capitulate and gas has been pretty lethargic here pushed out to 2025. So can maybe take some time for those three basins and give us a sense of what you're seeing as far as activity and customer conversations?

Yes, you said three basis, Haynesville, we aim our Mid-Con, Haynesville Mid-Con, a lower-cost, Mid-Continent, Haynesville. We we have historically had pressure pumping in South Texas and the Haynesville. We've not been there for many years and probably 15, 16 we've moved out of those basins of Haynesville in particular is very on intensive work, very, very high pressure. And it's just something that we are not not focused on in the last few years. Many of our other service lines, downhole tools in particular, that's not as sensitive to those types of pressures. We have a very good business in the Haynesville and South Texas and certainly the Mid-Con. We still have pressure pumping that we do in the Mid-Con that South Texas, we've done some work in South Texas. We have in our cementing operation that's down there. But right now, we're not looking to make a significant move into either South Texas or the or the Haynesville at this point in time, but there have been some opportunities for us that we have pursued in South Texas with pressure pumping. But to reiterate, our downhole tools company has significant market share and they operate in all the basins around or around the US pressure pumping. We're a little more focused, if you will, on the basins where we're the best positioned and rental tools is another one that's kind of in all the basins.

But a lot of the service lines that we are spread out are things that we can move easily to where there is activity in need for that equipment. So as Ben mentioned, if you think pressure pumping, we're really more Permian, we have little, yes, fit, others, but our other service lines are definitely more spread out, but that's not heavily impacted because we can move that stuff pretty quickly to where the need is.

And then maybe just sort of thoughts on the E&P consolidation wave that we're starting to see. I mean, you mentioned throughout the call you work for maybe some of those smaller companies that could be targets of the large large-cap independents looking to gain share and share, I mean, have you had any customers that have been acquired yet? Have you seen an impact to your to your services? Just maybe some color on how you guys are thinking about that.

We were impacted somewhat in the third quarter with pressure pumping. That was a contributing factor to that air pocket. Since that time we have not pressure-pumping has not been impacted heretofore in the last several quarters with some of the consolidation that's taking place. Our other service lines have not seen an impact from the from that consolidation. And we hope and expect that they'll actually be a benefit, Alex. We do work or the other service lines that we've referenced do work for many of these large, highly active of all E&P companies. So if we're working or too high activity producers operators, we hope to continue to do that in the future.

If we're already working for both of them, we would expect to continue to work perform in the future. So we don't we've not seen any negative impact other than the third quarter. And we've not seen any further or any of the recent consolidations that not directly impact us and for some people have written that they said that they think kind of the taking out of some of the smaller to midsize operators may be coming to an end, right? There's a lot of consolidation at that upper end, which might which might impact kind of the more concentrated, larger pressure pumpers more than it would have shrunk. So anyway. So that's that's my take on that.

Got you. That's helpful. And just last one, just to just to clarify on your outlook for first quarter, do you expect just top line and profitability to be flat just given the given the weather, the slow start from the E & P's or do you or do you see upside of that? You're talking about incrementals at the top of the Q&A or maybe this is a flat to up how you're thinking about first quarter earnings?

Yes, I guess I can start, Tom. That's probably a good way to think about it sort of flat to up with exactly as you described at the end of the year, the winter season kind of slowed, and that was a little bit of it slow start. We had some weather in January, but we have a lot of positive signs coming into the next couple of months. So And similar to what we've heard some of the others folks that have announced the last couple of days and it's similar sort of flat to up. No huge increase or decrease we're expecting currently.

Got it. Great. Appreciate guys. Turn it.

Thank you there.

At this time and no further questions, I'll now turn the call back over to Ben Palmer for closing remarks.

Thank you, operator. Appreciate it, and thank you, everybody, for joining our call and appreciate your interest and attention in Florida catching up. Thank you.

Yes, ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect your lines.