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spk02: Good morning, and thank you for joining us for RPC Inc.' 's second quarter 2022 Financial Earnings Conference call. Today's call will be hosted by Ben Palmer, President and CEO, and Mike Schmidt, Chief Financial Officer. Also hosting 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 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 and good morning everyone. 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 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 issue today, along with our 2021 10K 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 EBITDA, which is a non-GAAP measure of operating performance. RPC uses EBITDA as a measure of operating performance because it allows us to compare performance consistently over various periods without regard to changes in our capital structure. We're also required to use EBITDA to report compliance with financial covenants under our revolving credit facility. Our press release today and our website provide a reconciliation of EBITDA to net income, which is the nearest GAAP financial measure. Please review that disclosure if you're interested in seeing how it's calculated. If you've not received our press release for any reason and would like one, please visit our website again at rpc.net for a copy. I will now turn the call over to our new president and CEO, Ben Palmer. Hey, Jim.
spk04: Thanks. Thank you all for joining our call this morning. As Jim mentioned, I'm pleased to take on the new role as president and CEO of RPC. During the second quarter, Rick Hubble was named executive chairman of the board of directors and will remain active with the company. We also welcomed Mike Smith, our new CFO, to the corporate management team. Together, we will work with our outstanding operational teams and continue the tradition of managing RPC in a conservative, strategic, shareholder-friendly manner. I would also like to take a moment to thank all of our employees for their dedication and hard work providing safe, high-quality services to our customers. Let me begin with a few highlights regarding our second quarter 2022 earnings press release that was issued this morning. RPC's second quarter financial results reflect a full quarter of strong utilization and improving pricing that are the result of geopolitical events earlier in the year. These conditions have renewed our understanding that the world needs hydrocarbon energy from politically stable markets such as the United States. Although oil prices declined towards the end of the quarter, they remain at levels that motivate our customers to drill and complete new wells. In addition, the highest natural gas prices in more than 10 years now provide a renewed incentive for our customers to drill and complete natural gas-directed wells. We are pleased to manage a number of completion-oriented service businesses in thriving domestic markets. RPC continues to focus on managing labor shortages, equipment lead times, customer budgets, and inflationary pressures, but we do not believe these issues will materially impact our ability to generate strong financial results. Given our favorable view of the intermediate-term operating environment, we have allocated capital over the next 12 months to enhance the effectiveness and competitiveness of our pressure pumping fleet and improve our ESG profiles. With that overview, I would like to introduce our new CFO, Mike Smith.
spk07: Thanks, Ben. I'm pleased to be part of RPC and excited to help contribute to the company's success. Let me start with the second quarter 2022 sequential financial overview. Second quarter revenues increased by 31.9% to $375.5 million from $284.6 million in the prior quarter due to higher customer activity levels and pricing improvements. Cost of revenues during the second quarter increased by 4.1% to $260.9 million from $208.8 million in the prior quarter. As a percentage of revenues, cost of revenues improved slightly to 69.5% from 73.4% in the prior quarter, due to the leverage of direct employment costs over higher revenues coupled with improved pricing for RPC services. Selling and general administrative expenses during the second quarter increased by 12.8% to $36.2 million from $32.1 million in the prior quarter, primarily due to employment-related costs, including variable incentive compensation consistent with improved operating performance. Operating profit during the second quarter was $60.4 million compared to $23 million in the prior quarter. EBITDA was $80.6 million compared to $43 million in the prior quarter. Our technical services segment revenues increased by $89.8 million or 33.7%. This segment generated a $59.8 million operating profit compared to $21.8 million in the prior quarter. The improvements in operating results were driven primarily by higher customer activity levels and improved pricing. Our support services segment revenues increased by 6.2% to $19.4 million. Support services operating profit was $3.3 million compared to $2.8 million in the prior quarter. Now I'll discuss our current quarter results compared to the same period in the prior year. For the second quarter of 2022, Revenues increased to $375.5 million compared to $188.8 million in the same quarter of the prior year. Revenues increased due to improved pricing and higher customer activity levels as well as a larger fleet of active pressure pumping equipment. Operating profit for the second quarter was $60.4 million compared to an operating loss of $1.2 million in the same quarter of the prior year. EBITDA for the second quarter was $80.6 million compared to $17.3 million in the same quarter of the prior year. Our diluted earnings per share were 22 cents compared to per share results that approached breakeven in the same quarter of the prior year. Cost of revenues during the second quarter of 2022 was $260.9 million or 69.5% of revenues compared to $145.8 million or 77.2% of revenues during the same 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 due to leverage of direct employment costs over higher revenues. Selling and general administrative expenses increased to $35.9 million in the second quarter of 2022 from $29.4 million in the same quarter of the prior year, primarily due to increases in employment-related costs. Selling general and administrative expenses decreased to 9.6% of revenues in the second quarter of 2022 compared to 15.6% of revenues in the same quarter of the prior year due to the leverage of costs that are relatively fixed during the short term over higher revenues. Depreciation and amortization was $20.1 million in the second quarter of 2022 compared to $17.9 million in the same quarter of the prior year. Our technical services segment revenues for the second quarter were $356.1 million, a 102.2% increase compared to $176.1 million in the same quarter of the prior year. Segment operating profit was $59.8 million compared to $1.4 million in the same quarter of the prior year. The improvements in technical services operating results were driven by higher customer activity levels resulting in higher utilization of our existing equipment and pricing improvements. Our support services segment revenues for the second quarter were $19.4 million, a 53.5% increase compared to $12.6 million in the same quarter of the prior year. Segment operating profit in the second quarter of 2022 was $3.3 million compared to an operating loss of $2.2 million in the same quarter of the prior year. During the second quarter, RPC operated eight horizontal pressure pumping fleets and reactivated a ninth horizontal fleet near the end of the quarter. which had an immaterial impact on our results for the quarter. Second quarter, 2022 capital expenditures were $31.5 million. We currently estimate the full year 2022 capital expenditures to be approximately $150 million, roughly split between capitalized maintenance for existing equipment and selected growth opportunities. Maintenance capital expenditure estimates have been increased to include the costs to refurbish an existing fleet that will be placed into service in 2023. In addition, RPC will make an approximately $20 million final payment on a final lease for pressure pumping fleet acquired in 2021. I'll now turn it back over to Ben for some closing remarks.
spk04: Thank you, Mike. Our confidence in the current industry outlook supported by our financial strength has encouraged us to make investments to enhance the capacity of our completions-oriented businesses, including pressure pumping. Previous upcycles have resulted in our industry adding significant capacity, inevitably outpacing demand. In contrast, our current focus is on long-term investments to maintain our productive capacity generate industry-leading financial returns, and leverage technology to perform our services in an environmentally friendly manner. In addition, we are pleased to reinstate a regular quarterly dividend. This action by our Board of Directors is further evidence of our confidence in the strength of the current cycle and commitment to our shareholders. Thanks for joining us this morning, and at this time, we are happy to address any questions.
spk02: At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Stephen Gingaro with Stifel. Your line is open.
spk00: Thanks. Good morning. Good morning. So two things for me, if you don't mind. The first is you talked about the reactivation, refurbishment and new construction. And when you're thinking about the refurbishment, just kind of curious how you think about the CapEx needed and also within your current fleet of idle assets. You may have mentioned this and I might have missed it. Is there much more that can be refurbed and brought back into the market? And how do you think about that investment decision?
spk04: Steven, this is Ben. Let me begin with the last question or the last part of your question. We have one, maybe two more idle fleets that could be reactivated without requiring significant investment. And to your earlier point on the refurbishment, just to confirm, that is a project that has been initiated and that spending is expected to, all of that spending is expected to occur before the end of this year. And that refurbished fleet would be put into service fairly early in 2023. So that's included in that. So the updated numbers, I think last quarter we reported 115 million was our expected capex. Now it's up to 150. So that's a decent part of that increased capex is the decision to do that refurbishment, which we had previously not necessarily expected to do in 2022.
spk00: And then there's a new construction for delivery in first half 23. Is that incremental capex there in 23?
spk04: that spending will be in 23.
spk00: That'll be 23, okay. And when you're looking at that asset build, are you thinking about customer commitments? Have you had conversations with customers? Any plans for duration you might want? How should we think about that?
spk04: Good question. Yeah, obviously, discussion with customers all the time. We do not have a specific excuse me, a specific customer opportunity that's been tagged or identified, but we're quite confident with the level of inquiry and the relationships we have with customers in the basins in which we're operating our hydraulic fracturing fleets that we're very confident that we'll be able to secure additional work for that equipment and And we want to point out again or to clarify that we do not expect that our productive capacity will be increasing with these increasing investments. So the timing when we add either the refurbished fleet or add this brand-new fleet, it may not be – the same day, but very shortly thereafter, we're expecting, we're projecting that we will either need to retire a fleet, just due to the wear and tear on it, or take it out of service and begin an additional refurbishment. That decision will be made later, which of those two things we do, but we expect this newer, upgraded equipment will be coming into service about the same time we'll have to take some of our in-service fleets back out of service. We'll have to idle them and make a decision about whether we retire them completely or whether we begin a refurb effort on them.
spk00: Great. Thank you. That's helpful. And then one final one maybe for Jim. Do you have the revenue breakdown by segment?
spk05: Sure, Stephen. Absolutely. Yeah. So I'm going to give some revenue by service line This is for the second quarter of 2022, and the percentages are a percentage of consolidated revenues. Our largest service line is pressure pumping. It was 51.8% of consolidated RPC revenues. Second largest service line is our downhole tools and motors business through tubing solutions. It was 23.9% of consolidated revenues. Number three was coil tubing. Coiled tubing was 9.7% of consolidated revenues. Following behind that is rental tools, which is our largest service line within support services. It was 3.8% of consolidated revenues. And then our nitrogen business was 2.9% of revenues. And the last one to bring up is snubbing hydraulic work over, which was 1.9% consolidated revenues for the second quarter. Thanks for the question, Steven.
spk00: Yeah, great. No, that's very helpful. Thank you, gentlemen.
spk06: Thank you. Thanks.
spk02: Your next question comes from the line of John Daniel with Daniel Energy Partners. Your line is open.
spk03: Hey, guys. Impressive quarter. Thank you. The first one is I think you mentioned in the preparator mark you have eight horizontal fleets during Q2 and at nine today. Is that right? That is correct. And do you have any vertical fleets in addition to that? We do. We do have a couple of vertical fleets. Okay. So then just understand the guidance here for – well, I guess there's no formal guidance, but Q3, the safe to assume an average of nine horizontal fleets and two vertical fleets for the quarter, all else being equal.
spk04: Yes. That's correct.
spk03: Got it. And then – On the new fleet that you're doing, if you said this, I apologize. I was distracted. But is it a Tier 4 dual fuel? Can you just provide a little bit of color on the makeup, the asset that you're buying?
spk04: Yes, that's correct, your description, Tier 4 DGC. And we are also – buying kind of a suite of support equipment for that as well. We don't believe we need any more tractors, but we have the other support equipment like blenders and things like that.
spk03: Okay. You may or may not have this data handy, but it'll be my final question. But just, you know, we saw this week, or maybe it was last week, I can't remember, the next year selling its coil assets to Gladiator, sort of the emerging consolidation in coil that's happening. Can you speak, Ben, to, you know, your views on the coil market, what you guys might have active today, plans to expand in that product line, just any color on that particular segment would be appreciated.
spk04: Sure, John. Yeah, we are seeing some improvement in coil tubing. We do not currently have plans to make any significant additions within that service line, but we like it. It's a good complement and a good component in our service offerings and able to capture some opportunities to bundle some services with particular customers, which has been beneficial. We do have 17 large-diameter soil tubing units and 10 or 11 smaller-diameter soil tubing units. That's sort of our current capacity. And as I said, we're not actively pursuing any additions to that capacity.
spk03: Fair enough, guys. Thank you again and congrats on putting the dividend back in place.
spk02: Thanks, John. Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your next question is from the line of Donald Crist with Johnson Rice. Your line is open.
spk06: Good morning, gentlemen. How are you all doing today? Good, Don. Good to hear from you.
spk05: Thank you.
spk06: Good. I just wanted to clarify the answer you gave to Steven's question first. So the refurbished fleet and the new fleet that you're ordering, that's going to keep you at nine fleets, correct? You're going to retire two fleets when those come active? Is that the way that I heard that answer correctly?
spk04: More or less, we do have one or two incremental fleets that still are idle that could potentially be reactivated. But we are expecting, given the – so we do have the capacity to be able to put one or two additional fleets to work without any incremental spending. But this incremental spending that we are doing to both refurbish an existing fleet and buy a new fleet, we think that the timing of that coming in is going to correspond pretty closely with our need to take some existing fleets back out of service. So if we do not, if we, let's say we did add, just to clarify, if we did add one additional fleet, reactivate one additional fleet that we have today, we would go to 10, but this refurbishment and the brand new fleet, we would take two fleets out when those fleets come back into service. So we would still be at 10 if we added one more. But currently we're at nine and evaluating the next move with respect to the currently idle fleet.
spk06: Okay. I just didn't want to have you 11 or 12 fleets and 23. That would be incorrect. Okay. Can you talk to the time lag right now if you wanted to order new engines from Caterpillar? Is it still in the 30-plus week range today?
spk04: It is extended. We've been doing some work to working with CAT, working with the suppliers, so we've been ordering ahead and things like that. But yes, the lead time is quite long. And these decisions, this isn't necessarily part of your question, but to talk about the decisions to add this new fleet and do this refurbishment, we've been talking to vendors for quite a while. So I think our guys did a great job of maintaining those supplier relationships. And we didn't make the decision until this quarter to pull the trigger on those those projects, but it took a lot of work, a lot of discussion, and a lot of coordination and negotiation with those vendors to put ourselves in a position to be able to pull the trigger when we did. So kudos to our operational guys for that work. And to that point, the lead times for any additional equipment are quite extended. Obviously, we've all read about that and have seen that, that lead times are quite long.
spk06: Okay. And just one final question for me. Can you talk about contracting behavior amongst the E&Ps today? I mean, obviously, we've been hearing about a little bit of a scramble for 23, you know, surety of supply on the pressure pumping side. Can you speak to that? And are you in discussions today to to lock up fleets for 23 at current pricing?
spk04: We do not today have any significant amount of long-term contracts for 2023. We are in discussions. We like our market position, especially in the Permian with our mix of customers. We would kind of say we have sort of half and half between more spot-type customers and half that are where we have some level of extended contract terms with a customer usually allows us the ability to increase pricing if their material price increases and things like that. But those contracts are, at this point, they're not usually 12 months in duration. They're usually a shorter time period. But that allows us to do a lot of planning and gain a lot of efficiency in terms of our operations. We're pleased with that mix right now.
spk06: Okay. I appreciate it. I'll turn it back. Thank you. Thanks, Tom.
spk02: Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your next question is from the line of Joel Etzler with Coley Energy. Your line is open.
spk01: Hi, guys. Thanks for taking my question. Can you hear me? Yes. Good. I just wanted to clarify this so I understand properly. You said that you increased the CapEx guidance from 115 to 150. And that was mainly due to the refurbed fleet that you're paying for at the end of the year. But then you also said that it was minimal spending on those fleets that you're refurbing. But it sounds like quite a lot. Wanted to understand what I missed here.
spk04: Yeah, yeah. The reactivation. We very recently reactivated an idle fleet, and we did not require much CapEx to be able to reactivate it.
spk01: Okay. But the one that you're refurbing is more expensive.
spk04: Yeah, that is significant spend. That's doing a very extensive refurbishment. You know, the new technology, It's taking existing trailers, changing out the major components to the higher capacity and the newer technology, the more emissions, less emissions, and a lot more efficiency. So that's a significant amount.
spk01: Okay. And then on the balloon payment that you have this year, is that part of the CapEx guidance?
spk04: No. No, but we did want to call it out. That $20 million final balloon payment is not in the $150 million.
spk01: No, but we could think of it as CapEx, I guess, in that sense. Sure, certainly a cash requirement. Yeah, yeah. And my final question would be on the new build that you're, as I understand it, you're paying for early in the year 23. With all the supporting... equipment that you're getting, what is the price you're paying for that?
spk04: In round numbers, we think, again, with the discussions and the negotiation we had with the vendor, we think we received pretty good pricing given the timing of our negotiation. So in round numbers, it was about $50 million. Okay.
spk00: Thank you very much. Thank you.
spk02: There are no further questions at this time. I will now turn the call back over to Mr. Jim Landers.
spk05: Thank you, operator, and thanks to everybody who called in to listen, and we appreciate the questions as well. We'll talk to a lot of you very soon, and I hope you have a good day. Thank you again.
spk02: As a reminder, today's conference call will be replayed on www.rpc.net within two hours following the completion of this call. Thank you for participating. This concludes today's call.
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