RPC, Inc.

Q2 2021 Earnings Conference Call

7/28/2021

spk00: Good morning, and thank you for joining us for RPC, Inc.' 's Second Quarter 2021 Financial Earnings Conference Call. Today's call will be hosted by Rick Hubbell, President and CEO, and Ben Palmer, Chief Financial Officer. Also present is Jim Landers, Vice President of Corporate Services. 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. Jim will get us started by reading the forward-looking disclaimer.
spk05: Thank you, Andrea, and good morning. Before we begin our call today, I want to remind you that in order to talk about our company, we're going to mention a few things that are not historical facts. Some of the statements that we've made on this call could be forward-looking in nature and reflect the number of known and unknown risks. I would like to refer you to our press release issue today, along with our 2020 10-K and other public filings that outline those risks, all of which can be found on RPC's website, www.rpc.net. In today's earnings release and conference call, we'll be referring to several non-GAAP measures of operating performance, These non-GAAP measures are adjusted net loss, adjusted loss per share, adjusted operating loss, EBITDA, and adjusted EBITDA. We're using these non-GAAP measures today because they allow us to compare performance consistently over various periods without regard to non-recurring items. In addition, RPC is required to use EBITDA to report compliance with financial governance under our revolving credit facility. Our press releases today and our website contain reconciliations of these non-GAAP financial measures to operating loss, net loss, and loss per share, which are the nearest GAAP financial measures. Please review these disclosures if you're interested in seeing how they're calculated. If you have not received our press release for any reason, please visit our website at rbc.net. I will now turn the call over to our President and CEO, Rick Hubbell.
spk01: Jim, thank you. This morning we issued our earnings press release for RPC's second quarter of 2021. The second quarter represented a transition quarter for RPC. We saw numerous signs of increased demand for our services and have a full FRAC calendar for most of the third quarter. This is the most visibility we have had since pre-COVID. Nevertheless, we did experience an air pocket in June customer activity due to some jobs being pushed and heavy rains in the Permian. July is shaping up to be substantially better than our second quarter run rate, and the remainder of the third quarter appears consistent with July at this point. Our CFO, Ben Palmer, will discuss this and other financial results in more detail, after which I will provide some closing comments.
spk04: Thank you, Rick. Second quarter of 2021 revenues increased to 188.8 million compared to 89.3 million in the second quarter of the prior year. Revenues increased due primarily to higher activity levels and improved pricing compared to the second quarter of the prior year. Revenues also increased in the second quarter of 2021 because the second quarter of the prior year was severely impacted by COVID-19. This impact affected all of our year-over-year comparisons. Operating loss for the second quarter was $1.2 million compared to an adjusted operating loss of $35.9 million in the second quarter of the prior year. EBITDA for the second quarter this year was $17.3 million compared to adjusted EBITDA of negative $17.8 million in the same period of the prior year. We approached breakeven per share results in the second quarter of 2021 compared to an adjusted loss per share of $0.10 in the second quarter of 2020. Cost of revenues during the second quarter of 2021 was $145.8 million or 77.2% of revenues compared to $80 million or 89.6% of revenues during the second quarter of the prior year. Cost of revenues increased primarily due to increases in expenses consistent with higher activity levels. Cost of revenues as a percentage of revenues decreased decreased due to the leverage of higher revenues over certain direct costs, fixed direct costs. Selling general and administrative expenses increased to $29.4 million in the second quarter of this year compared to $28.8 million in the second quarter of the prior year. These expenses included higher bad debt expense and expenses consistent with higher activity levels, primarily offset by lowers. Appreciation and amortization decreased slightly to $17.9 million in the second quarter of 2021, compared to $19.6 million in the second quarter of the prior year, as CapEx has remained relatively low. Our technical services segment revenues for the quarter increased 118.7% compared to the same quarter in the prior year, due to significantly higher activity and some pricing improvements. Segment operating profit in the second quarter of 2021 was $1.4 million compared to $34.1 million operating loss in the second quarter of the prior year. Our sports services segment revenues for the quarter increased 44.1% compared to the same quarter in the prior year. Segment operating loss this year was $2.4 million compared to an operating loss of $1.9 million in the second quarter of the prior year. On a sequential basis, Our second quarter revenues increased 3.4% from $182.6 million in the prior quarter due to activity increases in most of our service lines. The improvement was negatively impacted by multiple fact jobs pushing into July. Cost of revenues during the second quarter of 2021 was $145.8 million, relatively unchanged from the prior quarter. As a percentage of revenues, cost of revenues decreased from 80.1% in the first quarter of this year to 77.2% to the second quarter due to a favorable job mix and several service lines, as well as the impact of the CARES Act employee retention credit that we recognized during the quarter. Selling general and administrative expenses during the second quarter of 2021 decreased 3.9% to $29.4 million. from $30.6 million in the prior quarter, and this was also due to the impact of the retention tax credit. RPC incurred an operating loss of $1.2 million during the second quarter of 2021 compared to an operating loss of $10.5 million in the prior quarter. RPC's EBITDA was $17.3 million during the quarter compared to EBITDA of $7.8 million in the first quarter. Our technical services segment revenues increased by 3.5 million or 2% to 176.1 million in the second quarter due to increased activity levels in most of the segment's service lines. RPC's technical services segment generated a 1.4 million operating profit in the current quarter compared to an operating loss of 5.8 million in the prior quarter. Support services segment revenues increased by 2.7 million, or 26.8%, to 12.6 million during the second quarter. Operating loss was 2.4 million compared to an operating loss of 2.9 million in the previous quarter. During the second quarter, RPC operated up to six horizontal pressure pumping fleets, and early in the third quarter, we reactivated, at minimal cost, a seventh fleet to meet incremental demand. Second quarter 2021 capital expenditures were $14.1 million, and we currently estimate full-year 2021 capital expenditures to be approximately $65 million, comprised primarily of capitalized maintenance for existing equipment and selected growth opportunities. With that, I'll turn it back over to Rick for some closing remarks.
spk01: Thanks, Ben. Second quarter revenues improved sequentially as drilling and completion activities continued to increase to improving oil prices and a strengthening economy. We are pleased with the increased activity levels and our ability to pass through costs increased to our customers. We have not yet been able to consistently achieve net pricing improvements, but are optimistic that that will change soon. Our ESG-friendly Tier 4 and dual-fuel frac equipment is in very high demand, and we expect to see pricing power here first. We begin the third quarter with indications that our customer base is responding to higher commodity prices with increased drilling and completion plans during the remainder of the year and into 2022. At the end of the second quarter, RPC's cash balance was 121 million, and we remained debt-free. I would like to thank you all for joining us for RPC's conference call this morning. And at this time, we'll open up the lines for your questions.
spk00: At this time, if you would like to ask a question, please press star, then the number 1 on your telephone keypad. Once again, to ask a question, please press star, then the number 1. Your first question comes from the line of Ian McPherson with Piper Sandler.
spk02: Thanks. Good morning, gentlemen. Good morning. Hi there. So it sounds like third quarter is shaping up nicely, even though you're not getting a great net price and you have some confidence that that's lurking around the corner. Does third quarter top line look up double digits at this point, or could you refine that a little bit for us?
spk05: Yeah, this is Jim. Yes, that's very much in the realm of possibility.
spk02: Okay. You mentioned the CARES Act benefit and the Q2 margins. I'm sorry if I missed where that was specified. If it wasn't, could you help us with that as we think about the incremental for Q3?
spk04: Yeah. The overall number for the quarter was just under $4 million, $3.9 million. and about half a million of that is in our corporate costs, and the remainder, about $3.5 million or so, $3.4 million, is primarily in technical services, so that would be in technical services operating profit. We reported $1.4 million operating profit, so it would have been about a $2 million operating loss without that credit.
spk02: Okay. Okay, thanks. And then last one for me, just with regard to the optimism on net pricing improvement, do you see that as a possibility by the end of this year, or are you thinking about that more in terms of the first half of 2022 at this point?
spk04: I think we're hopeful that we will see some pricing improvement. We see the market tightening and increasing activity, so we are hopeful, but we remain conservative, but we are hopeful and we are you know, we're pushing forward and doing everything we can to try to help that along.
spk02: Certainly. All right. Well, thanks very much. Appreciate it. Okay. Thanks, Ian.
spk00: Your next question comes from the line of Stephen Gungaro with Stifel.
spk03: Thanks, and good morning, gentlemen.
spk05: so so a couple things i'd start with can you um do you mind breaking down the uh the revenue uh within technical services or for the major product lines yeah steven this is jim happy to do that so the numbers i'm about to give are the percentage of consolidated revenue for the quarter for our major service lines our largest service line is pressure pumping that's 38.2 of consolidated revenues next comes through tubing solutions at 31.2% of consolidated revenues. Behind that is coil tubing at 10.8% consolidated revenues. Then comes rental tools in our services segment, which was 4.5% of consolidated revenues. Finally, nitrogen was 4.3% of consolidated revenues. Great. Thank you.
spk03: So when you look at the margin profile, and obviously there are some moving pieces in the quarter that you alluded to, how should we think about the deployment of an additional fleet within pressure pumping and that impact on margins as we sort of try to triangulate that with just overall revenue growth and how the margins sort of flush out to get into the back half of the year?
spk05: Steven Hayes, Jim again. So we wouldn't put a fleet in the field if we didn't think it had, you know, acceptable returns. The margin profile right now is such that pressure pumping is a little bit lower margin than some of our other large service lines. So it will be bottom line accretive in dollars, hard to say about margin percent. It will also absorb some more overhead. So, I mean, it truly is hard to say, but it will enhance our bottom line in the third quarter, hard to say about percentages.
spk03: Okay, and just a quick follow-up to that. So when you think about the – and I don't know if you could talk about it sort of in incrementals or just sort of margin change as we get into the third quarter. I know it's always hard when you're kind of dealing with low numbers still and you're coming off the bottom, so the incrementals can get a little bit funky. But do you envision if you got to the – you know, give or take 10% revenue growth that you said was realistic, would you envision a positive opt-in number excluding, you know, the gain on asset sales and the CARES?
spk05: Positive operating income is certainly in the realm of possibility.
spk03: Yeah.
spk05: Okay. Great.
spk03: All right. I appreciate the color. Thanks.
spk05: Sure.
spk03: Thank you, Stephen.
spk00: Your next question comes from the line of John Daniel with Daniel Energy Partners.
spk06: Hey, guys. Thanks for putting me on. Good morning, John. Good morning, John. If you guys could just sort of opine on when you might try to deploy fleet number eight. What's the demand set behind that?
spk04: Well, it's a good question, John. You know, as soon as we were comfortable, right, as soon as we have demand visibility, we indicated the frack calendar early in the third quarter is quite full. Our team has remained, I think, done a really good job of trying to remain disciplined and not, you know, getting too far ahead of ourselves. We kind of had a plan to try to roll things out. And conservative and slow pace. So I would say right now they're not aggressive plans right now. And obviously to deploy a fleet, you need to have incremental additional personnel. So at this very moment, we are not aggressively hiring for an eighth fleet. Right. But, you know, we're always ready, and recruiting is an ongoing program. So we have it down that we can get people in relatively quickly. But at this point, I don't – I mean, we are hopeful that sometime during the third quarter we will maybe be heading in that direction. But at this very moment, that's not in our plans to say, hey, we probably should put another one in place in the next – six weeks, four weeks.
spk06: Fair enough. Sort of another, I got two more for you. The next one relates to, you know, you go from, call it seven fleets from six. Again, just doing simple math, that's, call it 15% increase. Is that type of percent increase representative of the other product lines in terms of step-up in activity for Q3? Probably not that significant. Okay. Fair enough. And then the last one just relates to just your general thoughts on, you know, with labor being as tight as it is and with COVID cases rising, just how much of a concern do you think that is? Or what's the strategy if you start getting, you know, cases popping up out in West Texas?
spk05: John, this is Jim. It'll be the same game plan that we've, executed over the past year and a half, which is social distancing, checking people in, having more people than you theoretically need because of quarantines that happen. It wasn't pleasant, and it did increase costs over the past year and a half. But that game plan worked. It was good for our employees. It complied in every respect with customer requirements. It did cost incrementally more, but that's what we would do if it happens.
spk04: Okay. This is Ben. John, this is Ben. We're certainly not experts, but I would say in recent months, the impact has not been – Jim is right that there have been incremental costs over that entire time frame. Recently, we haven't had any significant or direct impact that we're aware of. I'm hopeful, or my reading of the tea leaves is that hopefully this will not have a significant impact on us. If it does have some incremental impact, we'll respond to it. We have processes and procedures in place to be able to address it. But once we had all those things in place, it was relatively rare, maybe a strong word, but it was not constant that we were being impacted by COVID. So I'm hopeful that, number one, I'm hopeful that the spread or the increase in cases will not impact us significantly, but if it begins to impact us, I think we can operate through it fairly effectively.
spk06: Okay. And then I guess the last one would be just as the customers are looking at this, is it sort of a full steam ahead and get the job done, or do you sense the same level of conservatism, like, you know, in terms of the policies out in the field? The reason I ask is just because every time we talk to any service company, it's, you know, labor is, like, the number one issue, right? And there's not a lot of backup capacity. That's the whole basis for the question here. Right. Right.
spk04: So, all right. Well, I'll turn it. We're not. Yeah, we're not hearing a lot of anecdotes about issues with that right now. Certainly labor is an issue, but we're not hearing that it's COVID related, that it's an issue. Okay.
spk06: Thanks, guys. Thanks, John. Thanks, John.
spk00: Your next question comes from the line of Taylor Zirker with Tudor Pickering.
spk07: Hey, guys. Thanks for taking my question. You talked about some customer-related operational delays impacting pressure pumping in Q2, and just hoping you could give us a bit more color as to what was going on there and what sort of impact that had on Q2. And it also sounds like, in the same vein, that the frack calendar for Q3 is fully booked with at least seven horizontal fleets. So just curious if you could help frame, you know, what the issues in Q2 move into the whole calendar in Q3. and how we should be thinking about effective utilization for those six to seven horizontal spreads you have.
spk05: Taylor Shim, we had some just customer operational delays in second quarter. I know we've already said that. Some of it was related to heavy rain in West Texas, and some of it was just related to the job pushes that happen when you're trying to orchestrate, you know, 20 sets of logistics on a job site. So those things happened, and they do continue to pop up. As a result, our utilization of the fleets that we had in the field was certainly not what it was in the first quarter. It was down by a good bit. With seven fleets, we see high utilization in the third quarter, so we've got one more horizontal fleet out with what we see right now is a calendar with no white space. We can't guarantee that There won't be other job delays because they come up unexpectedly. But, you know, we do feel pretty good about utilization. It'll be from all intents and purposes practically full utilization for us in the third quarter.
spk07: Okay, great. And maybe shifting gears a bit outside of pressure pumping, here I'm thinking about cold tubing and through tubing solutions. Just curious how you're thinking about those service lines heading into the back half of the year, maybe relative to frac. I know cold tubing is still a challenge from a pricing perspective. But any green shoots from a pricing or activity perspective in those sorts of service lines over the back half of the year?
spk04: I'd say, you know, there probably is a little bit more – net pricing improvement there again i wouldn't say it's strong or turning up higher or or significantly but but our teams are doing a good job asking for it pushing for it i think we are having some success in our ability you know when we talk about frac you know increasing is you know going from six to seven fleets being 15, 16% increase in capacity, you know, that gives us the ability there to quote-unquote ramp or increase revenue more quickly than some of our other service lines. We don't have as much idled capacity in those other service lines. So it would take a lot more, you know, overall activity to have those service lines the pressure pump can at this point in time, right, just given the numbers. But we are saying, I would say that we are experiencing, without regard to the increase in capacity, we are experiencing even more improvement on those other service lines than we are FRAC. But FRAC, again, can produce a higher percentage increase due to adding that incremental capacity at this point in time.
spk07: Yeah, that makes sense. Thanks for the answers.
spk00: And once again, to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Steven Gennaro of Steeple.
spk03: Thanks. Two quick follow-ups, gentlemen, and I apologize if I missed this. The six fleets in the quarter, was the utilization of those fleets down a bit from the first quarter because of those jobs being pushed out?
spk05: Yes, yes. That's what impacted utilization.
spk03: And did you give a utilization number, Jim? I'm sorry if I missed it.
spk05: We didn't. You know, it's kind of hard to portray because everybody's denominator is a little bit different, but it was down, you know, by, you know, 30% or so from first quarter.
spk03: Okay. Thank you. And then just the second question I have, and you alluded to sort of the pricing dynamics that you see in the market right now. What are you seeing from your perspective on pricing for different assets within pressure pumping? Are you seeing any of this sort of bifurcation that we hear from others and sort of what our customer is looking for? And if you can just kind of remind us the makeup of your assets right now. Are you talking about pressure pumping, Stephen? Yes. Oh, I am. Sorry. Yes. Okay.
spk05: So of the six fleets that we had in the second quarter, four are ESG-friendly, either because they're Tier 4 or they're dynamic gas blending, so they have the natural gas component to them. I think a good way to characterize it is if you have ESG-friendly pressure pumping equipment, you can achieve pretty decent utilization at today's pricing. you don't get premium pricing. You get market pricing and decent utilization. There's increased demand. And you can mix in the dynamic gas blending equipment with regular diesel equipment. So you can effectively make pretty high utilization of everything. And I hope that's answering your question.
spk03: Yeah, no, that adds some color. I appreciate it. Good. I think I'm in good shape. Thanks for the help.
spk00: I would now like to turn the call over to Mr. Landers for any closing.
spk05: Okay. Well, thank you. Thanks, everybody, who called in and participated today. We appreciate it and hope you have a good day. We'll talk to you soon.
spk00: Ladies and gentlemen, as a reminder, this call will be available for replay on www.rpc.net within two hours following the completion of the call. Thank you for your participation. This concludes today's conference call. You may now disconnect.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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