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spk00: Good morning and thank you for joining us for RPC Inc's fourth quarter and year-end 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 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. 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 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 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 gap 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, please visit our website at rpc.net for a copy. I will now turn the call over to our President and CEO, Ben Palmer.
spk04: Thanks, Jim, and thank you for joining our call this morning. 2022 was an exceptional year, and we finished the year with very strong results in the fourth quarter. I would like to start by thanking our employees for an outstanding 2022. Their hard work and dedication in overcoming many challenges made our success possible. We look forward to building on our achievements and expect continued success in 2023. RPC's fourth quarter financial results showed very little impact from weather-related or holiday downtime. Furthermore, our customers continued to work throughout the fourth quarter with no evidence of budget exhaustion. Although oil prices have recently moderated from their highs, they remain above levels sufficient to motivate our customers to drill and complete new wells. While pressure pumping is certainly a core business for RPC, we are much more than just a pure play pressure pumper. In fact, we are one of the very few companies that can provide nearly all the services required to complete oil or gas wells. This diversification represents a competitive advantage for RPC and adds value as a leading provider of completion services for our customers. Our CFO, Mike Smith, will discuss this and other financial results in more detail, after which I will provide some closing comments.
spk02: Thanks, Ben. I'll start with the fourth quarter 2022 sequential financial overview. Fourth quarter revenues increased by 4.9% to $482 million from $459.6 million in the prior quarter due to improved pricing in most of our service lines and higher equipment utilization supported by a full quarter of operation for our most recently reactivated pressure pumping fleet. Cost of revenues during the fourth quarter decreased slightly to $308.6 million from $309.8 million in the prior quarter. As a percentage of revenues, cost of revenues improved to 64% from 67.4% in the prior quarter due to improved job mix and continued strong pricing for our services. Selling general and administrative expenses were $38.2 million in both the fourth and third quarters of 2022. During the fourth quarter of 2022, RPC also recorded a $2.9 million defined benefit pension plan charge related to a lump sum settlement offered to plan participants. During Q1 2023, we expect to record a settlement charge of approximately $22.5 million associated with the final termination of this plan. Also in connection with the transfer of the plan liability to a third party, RPC expects to make an approximately $10 million cash contribution also in the first quarter of 23. Operating profit during the fourth quarter increased by 21.9%, to $112.3 million from $92.2 million in the prior quarter. EBITDA increased by 19.8% to $135.5 million from $113 million in the prior quarter. Our technical services segment revenues increased by 5.1% to $458.1 million. This segment generated $110.5 million of operating profit compared to $89.5 million in the prior quarter. The improvements in operating results were driven by higher customer activity levels, improved pricing, and a larger active fleet of revenue producing equipment. Support services revenues were unchanged during the fourth quarter of 2022 compared to the prior quarter. Operating profit, though, was $6.7 million compared to $5.3 million in the prior quarter. Now I'll discuss our current quarter results compared to the same quarter in the prior year. Revenues increased to $482 million from $268.3 million. Operating profit increased to $112.3 million from $20.1 million. EBITDA increased to $135.5 million from $39.4 million. These increases were driven by higher customer activity levels, improved pricing, resulting in our diluted earnings per share improving to 40 cents compared to 6 cents in the same quarter of the prior year. Our technical service segment revenues increased 80.1% to $458.1 million in segment operating profit increased $110.5 million from $20.5 million in the same quarter of the prior year. Our support services segment revenues increased 73.1% to $23.9 million, and segment operating profit increased to $6.7 million from an operating loss of $373,000 in the same quarter of the prior year. Now I'll briefly discuss our capital expenditures and horizontal pressure pumping fleet count. Capital expenditures were $49.3 million in the fourth quarter. We currently estimate full year 2023 capital expenditures to be approximately $250 to $300 million, including a new tier four dual fuel fleet we plan to place into service during the second quarter at which time we expect to take down an existing fleet for refurbishment. During the fourth quarter, we operated 10 highly utilized horizontal pressure pumping fleets. We expect to continue operating 10 horizontal fleets throughout 2023. I will now turn it back over to Ben for some closing remarks. Thank you, Mike.
spk04: Our confidence in the current industry outlook, along with our view of how that should translate to our financials, has encouraged us to make investments in our completion-oriented businesses. 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 and selectively improve our current productive capacity, also to generate industry-leading returns on invested capital, and leverage technology to perform our services in an environmentally friendly manner. Through a combination of dividends and open market share repurchases, RPC has returned over $536 million to shareholders over the last decade. As evidence of our confidence in the strength of the current cycle and commitment to our shareholders, we announced this morning an increase in our regular quarterly cash dividend from $0.02 to $0.04 per share. Thank you for joining us this morning, and at this time, we're happy to address any questions you may have.
spk00: Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause just a moment to compile a Q&A roster. And we'll take our first question from Stephen Gengaro at Stiefel.
spk03: Thank you, and good morning, everybody. Hey, Stephen. So a few things for me, if you don't mind. I guess the first is when you look at the current pressure pumping market and what you see in the industry dynamics, we think, and I think there's a lot of people out there who are sort of sensing a much different approach by operators as far as adding assets, et cetera. In the field, what do you see? Is your experience similar to that? And maybe talk a little bit about how you think about new build economics right now.
spk05: Steven, you talk about operators adding assets. I think you mean us, not our customers.
spk03: Yeah, I mean pressure pumpers in general. Yeah.
spk04: Well, Steven, this is Ben. I think that there is investment that's taking place. I think more than whether there's investment taking place is ultimately what the overall capacity equation is going to look like. We're working really hard, or we're committed to a plan to, as I indicated in my comments, we're trying to more or less maintain our existing capacity, but we're upgrading that. We're making investments where we need to to make sure that we can continue to provide a quality service, but we want to utilize our existing equipment and get as much out of it as we can if it can generate, you know, adequate returns and provide a quality service. We don't want to take it out of service too quickly, but then we have the long lead times for new equipment, so getting the timing right between when an existing fleet will be ready to retire or lay down, right, that's tricky and that's not something we're trying to necessarily say those are going to happen on precisely the same date. But we're really looking at, you know, we're committed to, you know, trying to generate free cash flow during this particular cycle. As I indicated, we've returned a lot of cash to shareholders over time. Our history shows that we've done that and we continue to be committed to that. So our, you know, in return, you asked about our returns and the way we think about that, you know, the return profile or what, what one would reasonably expect 12 or 14 months ago versus where we are today obviously it's completely different right so so we don't all of a sudden wake up and say well today or last month or last quarter uh the return indications are unbelievable so so we should ramp our our our spend or our investment you know we're trying to we expect to remain disciplined we want to go know at an appropriate pace having a a longer term plan and try to execute against that plan and and allow us to take advantage of the opportunities be there provide services to our customers maintain our existing capacity more or less uh selectively grow but but maintain our capacity and and focus on that continuing to return uh excess cash to shareholders so hopefully that's responsive. And I don't know if anybody else has any other additional comments on that.
spk02: Yeah, this is Mike. I'll just add one thing to think about, too. When you order new equipment and pressure pumping right now, there could be up to a year lead time. So you're making a huge financial commitment and betting on what the market's going to be a year from now. So that's the other kind of consideration is we're thinking about capital allocation to CapEx.
spk05: And Stephen, one last thing. We have been in a period of underinvestment for a very long time, probably since 2015. At this time, the drilling rigs and the completion demand has pretty much soaked up the available frack spreads. And back to Mike's comment, it is going to take a while to catch up with that. And people do seem to be being disciplined at this point. That's always subject to change in our industry. But There's a level of discipline that we haven't seen before. Nobody's stood up in the canoe yet, so we believe that we've got a good runway here.
spk03: Great. That's very helpful. Thank you. The other two quick ones, you mentioned the delivery of the new Tier 4 DGB, and then I think you said you're going to take an existing clear and refurbish it. Is that fair? Will that go back to work, or does it just depend on on timing and demand, and has there been any trouble getting the necessary parts to refurb the asset?
spk04: The refurb, yeah. I mean, we'll refurb it so that it can come back to work, right? When the brand new fleet comes in around the same time, we'll take down one of our older fleets that we'll spend some money and upgrade it, and once it's upgraded, we expect There are other fleets that need to be either refurbed or otherwise dealt with. As we indicated, we're expecting still to have 10 horizontal fleets working, more or less 10 horizontal fleets working throughout 2023. With the gives and the takes of ones going down for refurb and that sort of thing. Supply chain still, we've been managing through that. We have some good vendor relationships and It's always a challenge, but we think we're in pretty good shape with that. We won't know, obviously, until it's completed. We are concerned, but we'll stay on top of it and make sure that it gets turned around in the timeframe that we're planning on. But we're working through that, and we're confident that our schedule and our plan will allow us, as I said, to continue to operate around 10 horizontal fleets throughout the year.
spk03: Thank you. And then just one other quick one. Jim, do you mind just running through the segment breakdown by the revenue by product line?
spk05: Absolutely. Thanks for the question. So I didn't have to do it in closing comment. For the fourth quarter, the percentages I'm about to give are percentages of each of our largest service lines as a percentage of total or consolidated RPC revenues. So the largest revenue for the fourth quarter was pressure pumping at 56.9%. The second largest was downhole tools at 20.8%. Number three was coiled tubing at 8.4% of consolidated revenues. Our nitrogen service line was 2.3% of consolidated revenues. I'm sorry, I got out of order there. Rental tools, which is in our support services segment, was 3.6% of consolidated revenues. Let's see, I mentioned nitrogen. Snubbing was 1.6% of consolidated revenues for the fourth quarter.
spk03: Great. Thanks for the details, gentlemen.
spk10: Thank you, Stephen.
spk03: Thanks.
spk00: We'll go next to Don Crist at Johnson Rice.
spk08: Good morning, gentlemen. Hey, Don. You know, we've seen a little bit of moderation in the gas rig count. I just wondered if that is affecting pressure pumping at all. And to take that a step further, you know, we've heard that there's a little bit of weakness in the gas plays, but the assets are finding home in the oil plays. Can you broadly just talk about your pressure pumping calendar?
spk05: um and and kind of is there any shifting between the plays as of late don this is jim uh your point is a good one um i would say not yet because there's still so much you know demand is still greater than supply i would say if there's anything uh regarding the natural gas market weakness weakness it's more an opportunity cost than anything else i mean when you have no we have no white space in the calendar uh something that might have happened in the future but doesn't impact near-term results.
spk04: And I'll add, a very large percentage of our activity is directed toward oil wells, and it's just been that way. We've not consciously made the shift. We've been talking about it, but have not made a conscious shift to try to move assets or focus on the primarily gas basins as of this
spk02: Yeah, I think right now we're about 80% or a little more.
spk08: Okay. I appreciate that color. And one more from me, you know, you called out pricing in the fourth quarter as one of the reasons why you outperformed kind of consensus expectations. How broad based was that? And, you know, was it more skewed to pressure pumping or coil? And can you just kind of run down you know, how pricing has been, you know, across two or three year segments?
spk04: Relative to the, talking about the fourth quarter results, I don't know that there was, I think the increases in pricing has been sort of a steady process over the last quarter or two. There wasn't, we had some nice wins, especially with the new fleet that we put into service in the fourth quarter. It went to work with a, you know, at a nice, It was a good piece of workforce. So there was not a tremendous increase in the fourth quarter. I think the fourth quarter was driven as much by efficiency. The fact, as we indicated, there was very little fourth quarter normal slowdown, number one. And number two, though, it was just a good job mix that wasn't quite as hard on our equipment, and we were able to be really efficient. There was minimal white space, as there has been in earlier quarters, but so I think it was just a combination of a good job mix, good efficiency on those jobs that we were working on, just overall good execution. The guys have done a tremendous job taking advantage of the opportunities that have been presented.
spk08: Okay, and one final one for me. Do you have any major contract roles as we kind of move into the first quarter? I don't know if you had quarterly openers or whatnot on your contracts, but any significant pricing uplift from contract roll expected in the first quarter?
spk04: By the nature of our portfolio, no, but we are continuing to work on pricing, but there's no specific whatever event or contract rolling that would have an individually significant impact, but we do see some additional you know, improvement opportunity as we move forward.
spk08: I appreciate all the color. I'll turn it back. Thank you.
spk06: Thank you. Thanks, John.
spk00: We'll go next to John Daniel at Daniel Energy Partners.
spk07: Hey, good morning, guys. Thank you for including me. Good morning to you, John. I have a quick question on the CapEx budget. I think you said 250 to 300 is the guide for this year, and My monkey math is correct. You're at 140-ish for 22. I'm curious, within that CapEx budget, and aside from the one fleet that you have on order, is there any additional new equipment orders that are anticipated in that budget, or is that all maintenance?
spk04: There's plenty of refurbishment in there, John.
spk05: Yeah. Yeah.
spk04: certainly maintenance capex uh there's not any other significant new bills and part and part of the part of the you know part of the makeup for you know a lot of things that go into how much you spend in capex not only the commitment you make with the timing of when the equipment is ready and delivered and all that sort of thing so some of the number in that we're talking about in 23 or some delays from 22, right? So I think our CapEx came in a little bit lower than we had, quote unquote, indicated earlier. Okay. But we're comfortable with the level of spend, and no, there's not any other significant, certainly, capacity increases that are there, and that fleet we're taking here in the In the current quarter, too, there's not a capacity increase. As we've talked about, we're staying around that 10 operating fleet. Fair enough.
spk07: And I know on the new fleet, it's a dual-fueled Tier 4. I'm curious, as you look at the other parts of your business, because you said it in your opening remarks, you're more than just frack. Is there any effort to pursue electrification, whether it be on wireline or coil, anything in the other segments?
spk04: Not to any significant degree. That technology is something that we're certainly trying to watch and monitor. We do have an opportunity coming up to utilize an electric pump within the hydraulic fracturing service line, but it's more of a dip to toe in than put in all the chips at this point.
spk07: Fair enough. Last one for me, and not to be even nervous, Nellie, but we have had a few E&P contacts tell us that they've started to ask for relief in light of the gas price coming back, etc. And I'm curious, they're not widespread analysts, by the way, but what's your message to your guys when that first request comes in to RPC about granting relief? Do you tell your guys to tell the customer to pound sand or just what's your message going to be to them when those requests are coming in?
spk05: Pound sand, that's a mixed metaphor.
spk04: Well, our guys in the field don't need to be told what to do. They understand, but there are other opportunities. I think that too helped other customer opportunities. So I think there's confidence at this point in time that we do have some alternative choices. Now, it's not, you know, that can take some time and that can be disruptive, but I think their response at this point in time would be, you know, we're always, you know, our customers are important to us and there may be other ways to maybe give some relief, but it might be maybe you increase your activity or whatever, right? Fair enough. So we would look to try to find a way that we would not step backwards. We need to continue to move forward with respect to our net pricing that we're getting, pricing and utilization.
spk02: And I'll add our costs have gone up significantly as well and continue to with all the capital investments and maintenance. We're not really getting any relief on those fronts either. So we have a lot of demand.
spk05: Yeah, and demand is still greater than supply, so the market can sort this out.
spk07: Yeah, no, I agree. I'm just asking the question to see what you think.
spk05: Yeah, sure. That's fair.
spk07: You always ask good questions. All right, guys. Take care. Thanks all for including me.
spk06: Okay. See you soon. Thanks.
spk00: We'll move next to Derek Podhazer at Barclays.
spk01: Hey, good morning. I just wanted to get your thoughts. on attrition. I mean, I don't think we've really seen attrition in an upcycle. We look over the past couple of decades. You're obviously bringing a new fleet. You're going to take one off the sidelines and refurb. I think that's a form of attrition. Pumps staying on the sideline longer because maintenance swings have extended out due to supply chains. Maybe beefing up your current fleet going from 50,000 horsepower to maybe 60,000 plus. Just love your take on what attrition is today. all the different parts of it, because I think that's one thing that's being underestimated by the broader market and why frack supply is going to stay tight through 2023.
spk04: Well, we obviously don't have direct visibility into our competitors. We can only speak to kind of what we see. And yes, I mean, the activity levels are very high. Much of the work is, or a lot of the work can be very, very whatever damaging, difficult on the equipment. As I indicated, the fourth quarter, we had some nice work that wasn't quite as difficult as some previous quarters. So that can vary some from quarter to quarter. So our guys are doing great work trying to forecast out if this amount of activity with this type of work, when might the appropriate time be to to take a fleet either completely out of service or send it off for refurb and things like that. I think there is some belief, too, from some of our key operating personnel that the attrition may be being underestimated, that maybe it's going to be difficult. Now, there is, as I indicated earlier, there is a lot of spending going on. There is a lot of new equipment orders going amongst our peers, but there's a lot of discussion about the fact that they too are not going to, they're not striving for net additions to their fleet. So that's implying that they plan to take some of that equipment out of service. But it certainly could happen with what you're saying. It could be that it's being underestimated. I think everybody or most everybody recognizes that it is real. And I think supply will remain tight. I guess the question being, how tight might it be? If the attrition ends up being even higher, yes. I mean, it'll be great for those of us that are still working.
spk01: I know it's helpful, Culler. Just a question on maybe some of your private peers. Are you seeing any new entrants coming in, just given where economics are? Or are you seeing some of your I know there's been a few acquisitions. Just a sense on the private market, because I also feel like there's this narrative around private pumpers coming into the market and overbuilding, like we saw in past cycles. But we'd love to hear your view on this.
spk04: We've heard some examples of some privates coming on, not to any large degree. We tend to hear when we ask the question is that private equity is not coming in in a big way. So that's great. That's kind of, to my recollection, has been the issue in the prior two or three strong cycles we've had when private equity comes in big. And so, you know, if they more or less stay on the sidelines or don't come in in a big way, hopefully we'll be able to try to keep supply and demand appropriately balanced.
spk01: Okay, that's up. Well, then just one more for me, if I could. I know you're not going into the EFRAC markets yet, but I just wanted to get your updated thoughts on that. Are you waiting for that technology to be de-risked? The other day, the biggest pumper out there was talking about how there's obviously an adoption curve that everyone's trying to get up on. We just love your take on what EFRAC is, how you're looking at it, how you've been looking at the different examples of it, your view on coming up the learning curve. and maybe some of the challenges that some of your peers might face as they look to scale electric frac?
spk04: We've heard examples of companies or situations where it's been a struggle. We've watched it. We've studied it some. It's not a tremendous focus for us, but we do have an opportunity to take a pump that we're going to be able to partner with a vendor to be able to use that and do some testing for both them and for us. And that'll help us along the learning curve and them as well. So we still at this point, and obviously the new fleet that we have coming in early this year is dual fuel. I think the transition, just like other companies, uh transitions of technology like this will take a period of time so there's going to continue to be i think plenty of demand and strong demand for traditional diesel equipment uh more so you know the dgb and so we're moving in that direction so uh i foresee for the foreseeable future that you know the majority of our spending will be on the traditional equipment i don't see a shift in the near term for us to go to EFRAC, but we are experimenting with it. We do want to learn about it. There may be some other applications on ancillary equipment that may benefit us, but in terms of a full fleet for us, that's a little bit down the road, I think, at this point.
spk05: Yeah, and Derek, since we don't have firsthand experience, what I'm about to say may be wrong, but based on everything we've heard, the economics don't yet work. Something else to think about.
spk01: Got it. And one more, if I can just squeeze it in. Could you give us a refresh on how many Tier IV DGBs you have now, or dual fuels? Give me the breakdown of those 10 fleets in the different categories.
spk10: Sure. Let's see. Always a moving target. Let's see.
spk05: So our active horizontal fleet has five ESG-friendly fleets, and that's Tier 4 DGB, Tier 2 DGB, plus five Tier 2 diesels. By the second quarter of 2024, we expect our ESG-friendly composition to be closer to 75%.
spk04: Because we have two tier four diesel. They're not DGB, but they're tier four. So it's kind of a combination. So about half today of our horizontal fleets are very much ESG friendly. And we expect that that'll move closer to 70% sometime in the next 18 plus months.
spk01: Got it. Very helpful. Appreciate all the color. I'll turn it back. Sure. Thank you.
spk05: Thanks, Derek.
spk00: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. We'll pause just a moment. And at this time, we have no further questions. I'll turn the conference back over to Jim for any closing remarks.
spk05: Thank you. We appreciate everybody who called in to listen today. We appreciate the questions and enjoyed the conversation. Hope everybody has a good day, and we will talk to you soon.
spk00: And this concludes today's conference call. You may access the replay of today's conference on www.rpc.net within two hours following the completion of the call. Thank you for your participation. You may now disconnect.
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