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.
spk00: Thank you for joining us for RPC, Inc.' 's fourth 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 a 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 your questions. I would like to advise everyone that this conference is being recorded. Jim will get us started by reading the forward-looking disclaimer.
spk02: Thank you 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 these statements that will be made on this call could be forward-looking in nature and reflect a number of known and unknown risks. I'd like to refer you to our press release issued 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 at 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 income or loss, adjusted net income or loss per share, adjusted operating profit or 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 covenants under our revolving credit facility. Our press release issue today and our website contain reconciliations of these non-GAAP financial measures to operating loss, net loss, loss per share, which are the nearest GAAP financial measures. Please review these disclosures if you're interested in seeing how they are calculated. If you have not received our press release and would like one, please visit our website, again, at rpc.net for a copy. I will now turn the call over to our President and CEO, Rick Hall.
spk05: Thank you, Jim. This morning we issued our earnings press release for RPC's fourth quarter of 2021. Industry conditions continued to improve throughout 2021 as the average U.S. domestic product rig count, and oil prices both increased over 80% compared to the fourth quarter of 2020. RPC's financial results improved as demand for our services increased, resulting in higher activity levels and better pricing. In addition, we did not experience the typical holiday slowdown in the fourth quarter of 2021. Our CFO, Ben Palmer, will discuss this and other financial results in more detail, after which I will provide more closing comments.
spk03: Thank you, Rick.
spk02: For the fourth quarter of 2021, revenues increased to $268.3 million compared to $148.6 million in the same quarter of the prior year. Revenues increased due to higher customer activity levels, resulting in higher utilization of our existing equipment and pricing improvements. Operating profit for the fourth quarter was $20.1 million compared to an adjusted operating loss of $11.3 million in the same quarter of the prior year. EBITDA for the fourth quarter was $39.4 million compared to adjusted EBITDA of $7.8 million in the same quarter of the prior year. Diluted earnings per share for the fourth quarter were $0.06 compared to $0.03 adjusted loss per share in the same quarter of the prior year. Cost of revenues during the fourth quarter was 200.6 million or 74.8 million, I'm sorry, 74.8% of revenues compared to 117.9 million or 79.3% of revenues during the fourth quarter of 2020. Cost of revenues increased primarily due to increases in expenses consistent with higher activity levels, such as materials and supplies, maintenance and repairs, employment costs, and fuel costs. Cost of revenues as a percentage of revenues decreased primarily due to the leverage of higher revenues over direct employment costs and improved pricing for RPC services. Selling general and administrative expenses increased to $32.1 million in the fourth quarter of 2021 from $26 million a year ago due to favorable employment-related cost adjustments in the fourth quarter of the prior year. Selling general administrative expenses decreased from 17.5 percent of revenues in the fourth quarter of last year to 12 percent of revenues in the fourth quarter of 2021. This was due to the leverage of higher revenues over costs that are relatively fixed during the short term. Depreciation was 18.9 million in the fourth quarter of 2021 compared to 18 million in the same quarter of the prior year. Our technical services segment revenues for the fourth quarter were 254.4 million That's an 83.1% increase compared to 139 million in the same quarter in the prior year. This is due to higher customer activity levels resulting in higher utilization of our existing equipment and pricing improvements. Segment operating profit in the fourth quarter of 2021 was 20.5 million compared to an 11.3 million operating loss in the fourth quarter of the prior year. Our support services segment revenues for the fourth quarter were $13.8 million, so a 43% increase compared to $9.7 million in the same quarter of the prior year. Segment operating loss in the fourth quarter of 2021 was $373,000. This is compared to an operating loss of $2.6 million in the fourth quarter of the prior year. On a sequential basis, fourth quarter revenues increased 19.1% to $268.3 million due to higher customer activity levels resulting in higher utilization of our existing equipment and pricing improvements. Cost of revenues during the fourth quarter increased 17.6% to $200.6 million from $170.6 million in the prior quarter. As a percentage of revenues, cost of revenues decreased slightly from 75.7% in the prior quarter to 74.8% in the fourth quarter due to leverage of higher revenues over employment costs, again, which are relatively fixed during the short term. Selling general administrative expenses during the fourth quarter increased slightly to 32.1 million from 31.4 million in the prior quarter, resulting in positive leverage on higher revenues. As a result of these improvements, operating profit during the fourth quarter was 20.1 million compared to 8 million in the prior quarter. Our EBITDA was 39.4 million. in the fourth quarter compared to the 26.5 million. Technical services segment revenues increased by 42.6 million or 20.1% to 254.4 million during the fourth quarter due to higher customer activity levels resulting in improved utilization of our existing equipment and pricing improvements. RPC's technical services segment generated a $20.5 million operating profit in the current quarter compared to operating profit of $8.3 million in the prior quarter. Our support services segment revenues increased by 2.5% to $13.8 million in the fourth quarter. Operating loss was $373,000 compared to an operating loss of $55,000 in the prior quarter. During the fourth quarter, RPC operated eight horizontal pressure pumping fleets. As we mentioned during our last call, we added a Tier 4 dual-fuel fleet at the end of the third quarter as an upgraded replacement and not as an increase in our overall fleet capacity. Fourth quarter 2021 capital expenditures were $22.7 million, and full year 2021 capital expenditures were $67.6 million. We currently estimate full-year 2022 capital expenditures to be approximately $125 million, comprised primarily of capitalized maintenance for existing equipment and selected growth opportunities. With that, I'll now turn it back over to Rick to do some closing remarks.
spk05: Thanks, Ben. This year, RPC reactivated idle pressure pumping equipment as market pricing and customer demand has consistently improved. In addition, we are happy to report that almost two-thirds of our active horizontal pressure pumping fleet is ESG friendly. We are encouraged by recent improvements in the operating environment, our overall financial results, and the outlook for 2022. We will continue to evaluate economics to support upgrading our equipment fleet. During this era of unprecedented challenges, we want to thank our employees for providing safe, high-quality services to support our country's energy infrastructure. At the end of the fourth quarter, RPC's cash balance was approximately $82 million, and we remained debt-free. We'd like to thank you for joining us on our conference call this morning, and at this time we will open the lines up for your questions.
spk00: At this time, I would like to inform everyone, if you would like to ask a question, please press star then the number one on your telephone keypad. Your first question comes from the line of Stephen Zingaro with Stifel.
spk01: Thanks. Good morning, gentlemen. Hi, Stephen. So two things for me to start. Can you speak a little bit about what you're seeing Just in general, on the pressure pumping pricing side, I mean, we've heard, you know, obviously we've heard some positive pricing traction. And just curious what you're seeing specifically as far as net pricing improvements and how do you think that kind of flows into sort of incremental margin performance and technical services as we go forward?
spk02: Steve, this is Ben. We are experiencing net pricing improvements, and some of the pricing improvements and increase of revenue is to cover – is increased pricing to cover some of the increased cost that we're experiencing, supply chain or otherwise. So there's a lot going on with how much of the contribution is from Again, net pricing improvement, there's a lot of dynamics, right, that are going on there. But clearly utilization is improving. We are getting some pricing, net pricing traction. We do expect that to continue to progress. It's something we're looking at every day and constantly, but we do think in this environment we feel with the current level of utilization and discussions with our customers that we will continue to be able to continue to capture net pricing improvements as we move forward. So we see a continuation of you know, the positive incrementals that we were able to generate in the fourth quarter versus the third. But there's a little bit, you know, it's a little bit difficult to predict given the costs and some of the other supply chain and personnel issues that are arising COVID and so forth here early in the first quarter. We're hoping those things are going to work We hope that situation, especially with COVID, is going to work itself out here pretty quickly. But we feel good about the progress we've made and what we believe we can achieve here as we get into 2022.
spk01: Great. Thank you. And you mentioned your estimate for 2022 CapEx. And you had eight fleets, I believe, working in the quarter. Is any of that targeted towards reactivation of additional fleets? I actually think about the fleet count in the first half of 2022.
spk02: Steven, this is Jim. First half of 2022, I would think of it as being fairly constant to where we're starting the year. We're assessing a number of things. One of them is activation of another fleet. We've got some fairly new and good quality equipment that can be reactivated if demand warrants it. Also remember capitalized maintenance on pressure pumping fleets. We're pretty active right now, so you have to budget for that. for that as well when it comes to pressure pumping. We don't have any new equipment on order at this time. We don't know how long it would take for new equipment to be delivered, but we know it would be a little while. So even if we placed an order today, you wouldn't see a new additional fleet in the field from us during the first half of the year. And what I would say, Dan, I would – This has been, I would add to that, that we have been up to this point really trying to focus more on generating sufficient cash flow on fleets, we do activate much more than trying to get as many fleets in the field as possible. So that still continues to be the top priority. We're very interested in activating another fleet if the economics, as Rick mentioned in his comments, if the economics are there currently and expected to be in the future, You know, we'll begin to – we'll do that. We'll take that action. But we are most focused on trying to sufficiently utilize and capture returns on the fleets that we do deploy into the field. So that's the top part.
spk01: Great. Thank you, gentlemen.
spk02: Thanks, Stephen.
spk00: Your next question comes from the line of John Daniel with Daniel Energy Partners.
spk03: Hey, guys, thanks for concluding me. And I just want to sort of dig in a little bit more to Stephen's questions. But as you look at the budget, I know you mentioned you don't have anything on order now, but does that $125 million contemplate that? I'm just trying to sort of get a sense for where that growth capex would be allocated.
spk02: Hey, John, it's Jim. You know, there's probably a placeholder for a new fleet. Sure.
spk03: Do you have a preference at this point, Jim, whether it's Tier 4 dual fuel or do you take the step to do something different? Tier 4 dual fuel.
spk02: Tier 4 DGB. Got it. That's a good flavor.
spk03: That's a good flavor. Okay. Last one for me just on the crew counts. I think you said the average eight. Where would you expect to be, call it, end of March?
spk02: End of March.
spk03: Just sort of.
spk02: We'll still be there. Yeah, we'll still be there. Okay. Yeah. Perfect. Yeah. Remember, we do have the vertical. We're talking about horizontal here. Yeah. Yeah. End of March. Fair enough. All right, guys.
spk03: That's all we really have. I appreciate your time. Thank you, Jack. Thanks.
spk00: Once again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Stephen Gingaro with Stateful.
spk01: Stephen Gingaro Thanks. I just wanted to follow up. Jim, do you mind giving the product line breakdown of the segments?
spk02: Jim Collins Yeah, Stephen, thanks. Thanks for the question. I was going to do it if no one asked. So, for the fourth quarter of 21, and this is as a percentage of consolidated RPC revenues, pressure pumping was 46.8 percent of revenues. Through tubing solutions was 26.0% of revenues. Coil tubing was 10.1% of revenues. Nitrogen was 3.9% of revenues. Rental tools, 3.4%. And snubbing was 1.8% of consolidated RPC revenues for the quarter.
spk01: Great. Thanks. And while we're on the topic of non-pressure pumping, What have you seen on the pricing front outside of pressure pumping? And we talk a lot about the frac business, but when you look at the pricing dynamics in the other areas, are they – how should we think about just the pricing dynamics there?
spk02: In our other big service lines, they're favorable as well, Stephen. We've had net pricing, as we refer to it in the business now, in our larger service lines. In one case, a new price book was issued. In another case, just lower discounts on the existing price book. So it's... It's favorable among our larger service lines. All the large service lines are gaining pricing, pumping by the nature of the services offered. There's a lot more cost right now, cost increases that are flowing through. So that's a little bit more difficult to peg exactly what the price increases are. The other service line is not affected as much, but certainly that too is a headwind or a component of the overall net pricing chain. But, yes, as Jim said, all the large service lines have been pushing for pricing and have been successful thus far in having those flows work into our results.
spk01: Thank you. And if you don't mind, one more. We've been hearing more about whether because of trucking or availability in general. On the Frax hand side, have you seen any disruptions,
spk02: to activity at the well site because of an inability to get to get sand on time steven this is jim no we have not experienced any any job delays because of disruptions in in sand deliveries but there's been a lot of moving around between invasive sand and northern white and how to get it. We know it's been a problem in the oil field. It has not to date been disruptive to us, but it's a risk for sure.
spk01: Okay, great. Thanks for the call, gentlemen. Thank you. Thank you, Stephen.
spk00: Your next question comes from the line of VEB International with Coker Comer.
spk06: Hi, how are you doing? Good, Babs. Good to hear from you. Well, impressive results, and thanks for taking my question. You just talked about sand issues, not sand issues specifically, but logistic issues and everything. Just wanted to see if there was any revenue impact in 4Q because of raw material or labor shortages.
spk02: This has been nothing significant enough for us to quantify or to say. Certainly, there are challenges, right? There are ongoing challenges in some of our service lines. We may have a little more headcount to plan for or have extra capacity because of some of the COVID issues. But But it's not clear from a revenue, missing out on revenue. There's not a lot of that that we've experienced today. But there's a lot of discussion about how much work is going into remaining busy and remaining highly utilized. But thus far, we've been able to work through it. Got it. Yeah. One other note about sand is that in the fourth quarter of 21, we used more in-basin sand as a percentage of total uh than than ottawa sand um and that has a slight negative revenue impact just because the way the markups the cost in the market so that was a slight negative not huge but a slight offset to the other increases got it and i guess i was where i was trying to go with this i think in the precedes you talked about those issues could impact operations in one queue so just how do you think that plays out over the next couple of quarters Well, I think just what we're saying, we're just, you know, we're trying to be, you know, forthcoming with there are challenges, there are supply chain challenges, personnel issues with COVID, and so we're just indicating that it could be an issue, right? These challenges and risks are there, but everybody's working really hard to to do everything they can to overcome it. And we were very pleased with the way the fourth quarter turned out. You know, leading up to the fourth quarter, we had little idea about, you know, there was no certainty that it would be as strong as it was. So we were pleased to see that. We think it will, you know, all things equal compared to prior years. You know, we're able to get off, you know, start the new year, you know, rather than from a, stall and having to crank back up, you know, we're able to just sort of continue on. So that's very positive, and we're certainly pleased about that and glad we didn't have to experience that severe fourth quarter slowdown again. So, again, so I think more of what we're trying to just indicate is those risks are there, and we're keeping them top of mind and trying to continue to work through them, which we've been able to successfully do thus far.
spk06: So maybe a numerical question. So if you look at last couple of quarters, revenues have grown close to 20%. My understanding is the completion was still lagging drilling, and I think it could now be at par with drilling as we move forward. Just like if I think about the next quarter, maybe 20% or maybe somewhat less than that. I don't know, mid-teens, 20% revenue growth with this 30% incremental that we have seen last two quarters. Is that a fair way to think about the next quarter?
spk02: Devs, the more modest incrementals are right, 25%, 30% incrementals on our revenue growth. And we're factoring – we're saying that rather than the traditional 40% incrementals you'd see at RES and an upcycle. And part of that is because of, you know, just increased costs and just the – at the very least, the friction involved with that. We think first quarter revenues will be slightly up from fourth quarter, but not as high as the – statistic you just gave. Remember, fourth quarter was strong because it was strong and because we didn't have a lot of impact. The overall environment is very favorable, but there's a little bit of a slow start in January. So, you know, the revenue growth that you're quoting on a sequential basis, we would see more in second through fourth quarter, perhaps, than fourth to first quarter. And, again, as we're trying to discuss in this call, you know, we don't have any COVID slowdowns or any other issues right now, but they are risks, and we're very aware of them. So that's why we're calling them out in this discussion. Got it.
spk06: All right. That's all for me, gentlemen. Thank you so much.
spk02: Thanks, Debs.
spk00: Your next question comes from the line of Don Chris with Johnson Rice.
spk04: Morning, guys. How are you all today? Good, Don.
spk05: Welcome to the group.
spk04: Thank you. Thank you, Jim. One quick question on your contract status right now. I mean, obviously the pricing environment is very good. How many of your fleets are in spot work right now and getting the updated pricing versus, you know, on six-month or one-year deals where it may be kind of lagging a little bit on that?
spk02: This is Ben. You know, there's obviously not a bright line between, you know, spot and term, but we still, the majority of our fleets are still on spot, but we do have a nice mixture of some of the, you know, longer term work. Call it, you know, three are on contract and the other five are mostly focused on spot work. But we've had, you know, some amount of churn on – I say churn. There's been some turnover in some of those three dedicated contracts. So I don't know that that's completely locked in or we're not necessarily working on – those three are not necessarily working on the same pricing we were working on, say, in the third quarter of last year. So we like that mix. We like the current mix of work that we have.
spk04: Okay. And you've always had a very good balance sheet, and on our models, you're building cash going into 22 and 23. Do you all have any dedicated use for that cash, or do you just see it kind of building on the balance sheet for now?
spk02: This is Ben. We don't currently have any tentative plans that we have to announce, but we are looking at the alternatives we'd like at this point in time that that we do have some alternatives that we hadn't had over the last couple of years. So we're weighing those various alternatives. We obviously used to be a dividend payer. That's something we're looking at very closely. We would love to reinitiate that. That's something we're looking at very closely. Stock buybacks is something that we've used historically and also have not done much of that in the last couple of years. But I would still say our you know, high up on the list is looking at opportunities to invest directly in the business. We're, you know, looking very closely at the economics today and what we expect the economics to be over the next several years and making that determination about if and when to make some additional acquisitions of equipment. But I'll say as it relates to pressure pumping, One of the things that we're continuing to do, similar to what we did in the third quarter of 2019, you know, we peeled off, we retired, we decommissioned, whatever you want to call it, a lot of our equipment and pared it down to what we thought would be reasonably capable of working, I think, our team. Our teams did a great job doing that back in the third quarter of 2019. I think that served us very well. And that's something we do continuously, but something we're really focused on right now to really get a good handle on what is our capacity, what is our workable capacity. You know, in the comment that we made in our pre-call there or when we were reading the transcript is that So we kind of view that Tier 4 fleet that we added not to really be adding to our overall incremental capacity because we have identified some additional equipment that we're going to be disposing of, that we're going to be cutting up, making sure it doesn't reenter the market. But that's something we want to stay on top of. We want to make sure we have a realistic view of what our – Equipment capacity is what is capable of going back to work, and if it's not able to go back to work, we want to not have it hang around. We want to try to get rid of it. So, again, that fleet we added late in the third quarter, we don't really view that as adding to our overall capacity. It's really more of a replacement and an upgrade. So that's been our approach, and that's what we'll continue to do.
spk04: I appreciate all the color. I'll turn it back. Thanks.
spk02: Sure.
spk04: Thanks, Don.
spk00: Once again, if you would like to ask a question, please press star, then the number one on your telephone keypad. And at this time, there are no further questions. I would like to turn the call back over to Mr. Jim Landers for closing remarks.
spk02: Thanks for everybody who called in to listen today and for questions. We enjoyed the discussion. Have a good day, and we will see you soon.
spk00: This concludes today's conference. You may now disconnect. As a reminder, today's replay will be available at www.rpc.net within two hours. Thank you for your participation. You may now disconnect.
Disclaimer