RPC Inc (RES) 2025 Q4 法說會逐字稿

Good morning, and thank you for joining us for RPC Inc's fourth quarter 2025 earnings conference call. Today's call will be hosted by Ben Palmer, President and CEO; and Mike Schmit, Chief Financial Officer. (Operator Instructions)

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. 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 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 our 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.

I'll now turn the call over to our President and CEO, Ben Palmer.

Thanks, Mike, and thank you for joining our call this morning. Today, we'll talk about our fourth quarter results and provide you with a few operational highlights. Fourth quarter results reflect a sequential revenue decline across the majority of our service lines. While October and November were consistent with third quarter monthly activity, we saw weakness in December, particularly later in the month.

During the quarter, service lines other than pressure pumping represented 7% of total revenues and saw a 4% sequential decrease compared to the third quarter of 2025. Although we did see revenues increase at Spinnaker Group's cementing business, Patterson's Services, storage and inspection business and cut pressure control, snubbing and well control businesses.

Within Technical Services, Thru Tubing Solutions downhole tools revenues decreased 9% sequentially. We saw growth in our Southeast and Northeast regions, our largest region the Western MidCon, which includes El City and Odessa locations, was flat sequentially. Weakness was experienced in the international and the Rocky Mountain regions.

Thru Tubing Solutions is a market leader in downhole completion tools and includes a portfolio of products and advanced technologies. We have seen success building since our late 2024 rollout of the [A10] downhole motor. The new motor is positioned in the completions market to specifically address today's longer laterals and higher flow rates. We believe this tool technology provides customers with unmatched performance and has resulted in incremental share gains.

Thru Tubing Solutions continues to expand the rollout of its new metal on metal power section component called Metal Max. The product allows for shorter motor design, higher torque output, reduce downtime and improve performance and demanding downhole environments. This improved technology allows us to expand into new markets due to these advantages. We initially prototyped the Metal Max motor in a few key geographic areas and have recently expanded into other regions.

Thru Tubing Solutions continues to actively market and develop its unplug technology. This innovative product reduces and it can sometimes eliminate the need for bridge plugs during the completion of a well and delivers faster drill-out times while achieving highly effective stage isolation. While the product is early in its life cycle, adoption has steadily increased.

Also, within Technical Services, Pressure Controls, revenues were up 1% sequentially led by increases in well control activity and snubbing, which was up 13% as this equipment was well utilized during the quarter. At Pressure Control snubbing business expects to take delivery of a big bore snubbing unit in 2026 that is specifically designed for cavern gas storage work. This unit was built to support a long-term customer, their storage well maintenance schedule over the next several years. This work is regulatory driven and as part of our effort to continue diversifying into other markets.

Coil tubing, our largest service line within cut Pressure Control was down 2% sequentially after a really strong third quarter. Our new 2 and [78] unit continues to be well utilized. We are upgrading an existing coil unit to handle the larger 2 7/8-inch tubing and is expected to be in service by the middle of 2026.

(inaudible) completions, the largest wireline provider in the Permian Basin experienced a decline in revenues of 3% during the quarter. Given our market position, we expect 2026 to trend closely with large Permian operator activity.

Cut Energy Services press pumping business saw a 6% sequential decrease. This decline largely related to holiday shutdowns and a fleet we idled in October. We do not expect to reactivate any fleets until returns improve.

Many of our businesses have been impacted by recent quarter storms early in the first quarter. While activity is expected to continue as conditions improve, these lost operating days are not fully recoverable, and the associated costs incurred will impact near-term profitability. RPC's focus remains on leveraging our strong balance sheet and maximizing long-term shareholder returns. We continue to strategically grow our less capital-intensive service lines, both on organically and through acquisitions.

With that, Mike will now discuss the quarter's financial results.

Thanks, Ben. Our fourth quarter financial results where sequential comparisons to the third quarter of 2025 are as follows: revenues decreased 5% to $426 million compared to Q3. Breaking down our operating segments, Technical Services, which represented 95% of our total fourth quarter revenues was down 4%. Support Services, which represented 5% of our revenues, was down 18%.

The following is a breakdown of the fourth quarter revenues for our largest service lines, pressure pumping 27.6%, wireline, 24.1%; downhole tools, 22.4%; coiled tubing, 9.7%; cementing 5.9%; and rental tools, 3.4%. Together, these service lines accounted for 93% of our total revenues.

As disclosed in this morning's press release, we made the decision to expense wireline cables that were previously being capitalized beginning in the fourth quarter. This was due to a change in our useful lives because of increased activity and change in work type. The impact is seen primarily through an increase in cost of revenues and a reduction in capital expenditures, but also a modest decrease in depreciation and amortization.

Cost of revenues, excluding depreciation and amortization, was $337 million compared to $335 million in the previous quarter. This increase was primarily related to expensing wireline cables and other materials and supply documents related to job mix.

SG&A expenses were $48 million, up slightly from $45 million. As a percent of revenue, SG&A increased 120 basis points to 11.2%, primarily due to employee incentives and higher other related implanted costs. The effective tax rate was unusually high during the quarter. The higher rate was primarily due to the liquidation of our company-owned life insurance policies that are part of the previously announced dissolution of the company's nonqualified supplemental retirement income plan, coupled with the nondeductible portion of the acquisition-related deployment costs.

Adjusted diluted EPS was $0.04 in the fourth quarter. Adjustments totaled $0.06 and related to the (inaudible) of wireline cables purchased and capitalized from previous quarters, acquisition-related employment costs and a significant increase in tax expense related to taxable gains on the sale of the company-owned life insurance policies and other investments related to the liquidation of the company's nonqualified supplemental retirement income plan.

Adjusted EBITDA was $55.1 million, down from $67.8 million due to the broad-based declines across the majority of the businesses. Adjusted EBITDA margin decreased 230 basis points sequentially to 12.9%. The adjustments made to EBITDA were made to make future periods more comparable.

Operating cash flow to date was $201.3 million, and after CapEx of $148.4 million, free cash flow was $52.9 million. The change to expensing wireline cables reduced both operating cash flow and CapEx but resulted in no change to free cash flow.

At quarter end, we had approximately $210 million in cash. a $50 million seller-financed note payable and no borrowings from our $100 million revolving credit facility. Payment of dividends totaled $35.1 million year-to-date through Q4 '25. During the quarter, we paid $8.8 million in dividends.

Full year 2025 capital expenditures were $148 million primarily related to maintenance CapEx and inclusive of opportunistic asset purchases as well as our ERP and other IT system upgrades. Capital expenditures were $12 million lower due to wireline cables being expensed rather than capitalized in the fourth quarter.

Additionally, we saw approximately $15 million in anticipated capital expenditures delayed in 2026. Due to this delay, we expect 2026 capital expenditures in the range of $150 million to $180 million. We'll adjust our spend based on activity levels.

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

Thank you, Mike. 2025 was a challenging year with year-end oil prices reaching its lowest level since COVID. While we have seen recent improvement in oil and gas natural gas prices, we need further increases in dispersed significant customer activity levels.

Our management teams have experienced many cycles over the years, and we will continue to focus on costs returns and maintaining financial flexibility. This flexibility allows us to take advantage of opportunities that arise and to pursue growth opportunities through selective investment for organic growth, investment in new technologies and M&A within our existing markets and the broader energy sector.

I want to thank all of our employees who put in tremendous work throughout high levels of service and value to our customers. Thank you for joining us this morning. And at this time, we're happy to address any questions you might have.

(Operator Instructions) Don Crist, Johnson Rice.

Good morning, guys. I hope you all are doing well. My first question, and Ben, I don't want to pin you down to any kind of guidance for the first quarter. But given the weather impacts for the first, call it, two weeks of the year, do you think it kind of shakes out similar to the fourth quarter directionally? And again, I'm not looking for specific numbers here.

To be honest with you, Don, it's a great question. We're still trying to analyze the impact. We do have -- we're quite geographically diversified, but we are concentrated in the Permian and in the MidCon, Oklahoma and both of those areas were hit pretty hard. So a reasonable question. I understand why you're asking, but we don't know yet. But certainly, it's not insignificant. Put it that way.

Right. I understand it's hard to quantify given we still got a lot of winter left. So my second question would be, we've seen a lot of your competitors have challenges in outside of pressure pumping and the other business lines that you all operate in. And a lot of that equipment start to move overseas, the Middle East and other places for unconventional type development. Are you seeing that other business lines, Thru Tubing and coil and wireline start to normalize or some of your competitors go away and have a little bit less competition there as that equipment moves overseas?

Maybe a little bit of that. I don't know that it's a tremendous amount yet. But certainly, every little bit can help. There have been -- we've heard of some competitors and some of those other service lines that are obviously, reorganizing or being sold absorbed by other competitors. So perhaps that is an indication that the market stress is getting to some of the less well-capitalized companies. And hopefully, that will invert our benefit as we move forward.

Okay. And just one last question for me. Obviously, you've been very prudent with the balance sheet over the years and selectively done M&A, but you've got a pretty large cash hoard right now. Any indication that we could see some stock buybacks? Or are you going to just keep that for M&A in the near term?

We're always evaluating the various uses of our capital and buybacks are certainly one of those choices and we'll have to a reasonable question. I wouldn't see us necessarily in the near term doing anything dramatically different, but that's in the tool chest, and we're looking at it.

John Daniel, Daniel Energy Partners.

Thanks for including me. You mentioned that the rig was idle in -- is there anything...

(technical difficulty)

John, a little bit difficult.

Can you hear me okay? How about now? How about now?

Much better.

Sorry, just driving the Midland. My question is, with the fleet that was idled in October, I know you said October at least in the fourth quarter, is there anything today which would success that you think that fleet comes back this year? And is -- with the reactivation is it function of price? Or would it be a function of if you had a sufficient amount of work even at current pricing? Just how do you think about that?

It's a good question. I would have to -- I mean, we're always looking and evaluating opportunities where, I would say, the probability as we would need to be really comfortable that it's incrementally better pricing. We're not looking for the same pricing at the prior activity levels, right? And as we've always talked over the years, some of the given -- I mean, we do have some customers that we do have nice, steady programs with. So it's always a combination of our confidence in how -- say the activity can be at a certain pricing and so forth.

So I think we're not in a panic to try to put that fleet back to work. We want to make sure we're comfortable it's going to be generating probably better cash flow than we've recently been experiencing not just for that fleet. But just overall, we would want to present a pretty high profitability that we would have an incremental benefit from bringing the back in service.

Okay. Fair enough. The second question is about M&A. Obviously, you guys have the balance sheet to prosecute deals should you wish to. When you think -- step back and think about just the market, you've got some of your peers that are chasing power, others will be more focused on international. It would seem that the universe realistic buyers of traditional land equipment is kind of diminishing. I don't know if it's -- I think that's a reasonably fair statement. Is that -- would you agree with that? And does it argue you take be very careful. I mean just take your time. There's no rush to do deals if there's limited buyers. Just if you could kind of bloviate on that.

I think that's a good way to set it up. Yes, there -- I'm not (inaudible) in the entire market. But yes, I don't think there's a whole lot of competition out there for people seeking to buy traditional oilfield services companies, but there are some good companies out there that could be of ones that would either add to some of our existing service lines. It could be a really good strategic fit. But all of it depending on, of course, the trajectory of their business and the price and all of those sorts of things.

So yeah, we're not in panic. We traditionally don't lend -- lean into highly competitive bidding situations. And to the entire point, there's probably not going to be situations where there's multiple bidders aggressively going after a particular target. So I think that's a nice position to be in that we can be patient. We do have the balance sheet, not only the capital capacity, but the cash gives us a lot of flexibility and so OFS is something we're looking at.

But we do want to be -- we want to open up the aperture of what's the possible. We've been doing some things that are on the edges of other parts of energy, like some of the gas storage work, we don't have any yet that's a significant amount, but we like that diversification. And so we have enough factor to look at even more broadly than we may have in the past.

(Operator Instructions) Derek Podhaizer, Piper Sandler.

Good morning, guys. Maybe we could just start with some additional insight -- just some additional insight and maybe some history into the updated wireline accounting treatment. Maybe just why now and not when the deal occurred last year, I think you mentioned a change in work type with the wireline. Just trying to understand better really what happened that caused this change?

Sure. Derek, thanks for the question. Previously, they had an audit. And previously, they were capitalized in wireline, but their business has started changing about the time that we had the acquisition. It's more simul-frac, travel frac and just working more. So it's something we kept our eyes on and that we wanted to make sure we were comfortable with by the end of the year.

We were only depreciating them over 18 months previously, which was kind of where they historically have been. But we knew that the type of work was changing. And so we were just monitoring over the last couple of quarters, how much spend we were having on wireline cables. And we were more comfortable that it's closer to under a year.

And so rather than letting them build over time and be aggressive, we thought the right thing to do was within our first accounting window. We have enough evidence to at this point before year-end to go ahead and make the switch.

And we focus on free cash flow here, and it doesn't have a ton of -- it has 0 free cash flow impact. So for us, we just thought it was the correct accounting treatment as we looked at kind of how quickly we were using up the cables, which has really changed and started changing as the work changed.

Derek, as you know, too, I mean, we and the pumping industry went through this with fluid -- in a number of years ago. So it's not dissimilar -- as giving dissimilar in that regard. So appreciate the question.

Right. No, that was very helpful. I appreciate the color. And you did remind me of the fluid issue years ago.

I guess maybe a question on Thru Tubing Solutions. You talked about international regions and your footprint there. Maybe can you expand on that, maybe educate us on the location and the type of technology you're deploying there? And how you really see that business growing over the next couple of years?

Well, with respect to the color on international, we have pared back significantly our international business from where we were a number of years ago. Thru Tubing Solutions has the largest presence internationally of our service lines. The Middle East is where we have the most activity and that's the area that experienced the weakness that we were referred to.

In Canada is the area where we do some work historically and have center work in Canada consistently.

Got it. Is there any renewed focus as far as the Middle East and the buildout of unconventionals and through being a potential growth trajectory for you, maybe reigniting just given the unconventional build out of the Middle East? Or is that not the correct read through?

It's possible. We've kind of several years to kind of change our business model there. So we had less of a physical presence, we're making the tools and the technology available, so yes. I mean, I think our tools certainly can perform very well in those environments like we do here in the state. So I would expect and hope that we would have some improvement there.

But like I said, we're not directly the -- ourselves. So we're working through other groups and making our tools available to them. So we'll have to say hopefully they can be successful and we can increase some revenues there. So it's not anything that we're counting on in any of our current forecast, but we hope it does come to fruition.

Got it. Okay. That's helpful. And then maybe just a third question, a quick state of the union on the current spot market in pressure pumping. How is the competition and it's always been oversupplied, but you stack the fleet, and I'm sure some of your competitors have stacked fleet.

I'm not sure if any of the smaller mom-and-pop privates have gone away just given where pricing and activity has gone to. Obviously, we have accelerating attrition as well. So maybe could you help us further understand the state of the market today? Do you see competition reducing any sort of secular fundamental improvement that we could potentially see in the spot market as we work through the year?

We're not seeing anything dramatic yet at this point. Of course, some there's -- some of the consolidation that was occurring over the last couple of years has resulted in us selling off some of the some of the properties and things like that, and that brings in some of the customers that are more spotty looking, if you will. So it could create some opportunities, but it's really more of the same.

I think discipline we're trying to be disciplined and begin with our pricing. Again, one of the reasons we idled the fleet, we've trended a little bit of headcount. So we're trying to do what we can to make the best of the situation. We are certainly continuing to maintain the business, but the returns just improved, and we're hopeful that competitors, there are some mom-and-pops out there that are difficult to compete with. But we continue to support pressure pumping, but we're focused on some of the other service lines that are less capital-intensive and we'll see where all that takes us.

Chuck Minervino, Susquehanna.

Good morning. I was just wondering if you could talk a little bit about that 2026 CapEx. It sounds like you had some deferred spend from 2025. But then also, I guess, the wireline cable now comes out of the CapEx. Maybe they were offsetting each other, but if they are you still going to have CapEx up in 2026. So was just curious if you can kind of touch on that a little bit and if there's maybe room for that to come down if you're looking to generate a little bit more free cash flow during the year.

Well, I think we put out there, I think it's a conservative number and that it's maybe larger, we could have said something smaller, but we're trying to be realistic with respecting our near term and longer-term plans. I mean, we've always -- certainly, if things move dramatically in one way or the other, so there's awful time -- long lead times on that. So sometimes you can't immediately cut it off.

But we scrutinize our CapEx very, very carefully. Certainly, there's opportunities to reduce it if conditions warrant, the way we run the business, our management teams, they look at their plans, they come up with their CapEx plans. But they know that in terms of unapproved or undelivered equipment, it's always subject to us together with them, making the decision that we're not going to spend that money. So it's not committed, if It's in the budget. That doesn't mean it can be spent. So we scrutinize it very carefully.

So there is an opportunity for that number to come down, and likewise, there could be opportunities for it go up slightly right or something if the opportunity comes along that we can pursue. We've got the balance sheet to be able to do that. So -- but yeah, everybody understands that at the end of the day, the free cash flow is where the rubber meets the road and everybody buys into that and understands and just trying to do what's prudent to be able to support our businesses and selectively grow them, but obviously be very, very mindful and particular and selective about CapEx investments will continue to be it.

Got it. And then just one other. In Support Services, I know not a huge piece of the overall revenue pie, but the rental tool revenue, down pretty sharply. It sounds like in the late in the year, I know there's always seasonality late in the year. Was that particularly kind of sharper than you've seen historically? And I was just kind of curious if there was any reason for it or any more color you can provide?

Yes. It is -- it was more acute. That business -- nice little business that's been really, really steady. So I won't say it was a surprise -- kind of thing can always happen in the fourth quarter. It's kind of a you can have 1 or 2 customers that slow down for whatever reason. And I think it too was impacted in the Rockies, similar to Thru Tubing Solutions that we talked about. So it's kind of 1 or 2 customer specific that impacted that.

So it's really just -- some of it was not permanent delays. I mean, it's just, obviously, they're a rental tool company and drilling. So this was some delays on drilling some wells. But we leave so many delays. It was just delaying it slightly. So it's not a lost opportunity or anything like that. It was just a delay.

The other comment on that is they had a really great third quarter. But I mean, that is pretty tough comparable.

There are no further questions at this time. I will now turn the call back over to Ben Palmer for closing remarks.

Thank you very much, operator. We appreciate everybody calling in and listening and look forward to talking to some of you perhaps later today, and hope you have a good rest of the day. Take care.

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