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spk01: Good morning and thank you for joining us for RPC's Inc's first quarter 2023 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 this conference call is being recorded. Jim will get us started by reading the forward-looking disclaimer.
spk10: 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 issued today, along with our 2022 10K and other public filings that outline those risks, all of which can be found on RPC's website at rpc.net. In today's earnings release and conference call, we'll also be referring to several non-GAAP measures of operating performance. These non-GAAP measures are adjusted net income, adjusted diluted earnings per share, adjusted operating profit, EBITDA, and adjusted EBITDA. We're using these non-GAAP measures today because they allow us to compare performance consistently over various periods. In addition, RPC is required to use EBITDA to report compliance with financial covenants under our revolving credit facility. Our press release issued today and our website contain reconciliations of these non-GAAP measures to operating income, net income, and diluted earnings per share, which are the most directly comparable gap measures. Please review these disclosures if you're interested in seeing how they are calculated. If you have not received our press release for any reason, please visit our website at rpc.net for a copy. I'll now turn the call over to our President and CEO, Ben Baldwin.
spk09: Thanks, Jim, and thank you for joining our call this morning. RPC's first quarter financial results reflect a strong operating environment similar to the fourth quarter. Although oil and natural gas prices declined earlier this year, demand for our services remained tight by historical standards. The multi-year period of underinvestment by exploration and production companies coupled with industry discipline leaves us constructive on the length of the current cycle. The vast majority of service companies have been using the recovery to replace equipment that was wearing out rather than adding that new capacity. It is our view that this is necessary for the long-term health of the oilfield services industry. We expect to allocate capital over the next several quarters to enhance the service effectiveness of our various lines of businesses, while also improving our ESG profile. Our CFO, Mike Smith, will discuss the quarter's financial results, after which I will provide some closing comments. Thanks, Ben.
spk08: I'll start with the first quarter 2023 sequential financial overview. First quarter revenues decreased slightly to $476.6 million from $482 million in the prior quarter. The nominal decrease in revenues was primarily caused by weather disruptions and a change in job mix and pressure pumping, RPC's largest service line. Cost of revenues during the first quarter also decreased slightly to $305.3 million from $308.6 million in the prior quarter. As a percentage of revenues, cost of revenues remained the same at 64% compared to the prior quarter. Selling general and administrative expenses increased to $42.2 million in the first quarter of 2023, compared to $38.2 million in the fourth quarter of 22. This increase was driven by higher expenses that are typically incurred in the first quarter, including payroll taxes and 401 employer match. During the first quarter of 2023, RPC also recorded a $17.4 million defined benefit pension plan termination charge. During Q2 2023, we expect to record an additional settlement charge of approximately $1.2 million associated with the final termination of this plan. In connection with the transfer of the plan's liabilities to a third party, RPC made a $4 million cash contribution during the first quarter. Operating profit during the first quarter decreased by 19.3% to $90.7 million from $112.3 million in the prior quarter. Adjusted operating profit was $108 million in the first quarter. a 6.3% decrease compared to $115.2 million in the prior quarter. Adjusted EBITDA also decreased slightly by 3.9% to $132.9 million from $138.4 million in the prior quarter. Our technical services revenue, segment revenues decreased by 1.3% to $452 million. This segment generated $103.5 million of operating profit compared to $110.5 million in the prior quarter. Support services revenues increased by 3.3% during the first quarter of 2023 compared to the prior quarter. Operating profit was $6.6 million compared to $6.7 million in the prior quarter. We'll now discuss our current quarter results compared to the same quarter in the prior year. Revenues increased to $476.7 million from $284.6 million. Adjusted operating profit increased to $108 million from an operating profit of $23 million. Adjusted EBITDA increased to $132.9 million from EBITDA of $43 million. These increases were driven by higher customer activity levels and improved pricing. resulting in our adjusted diluted earnings per share improving to $0.39 compared to $0.07 in the same quarter of the prior year. Our technical services segment revenues increased 69.7% to $452 million, and segment operating profits increased to $130.5 million from $21.8 million in the same quarter of the prior year. Our supported services segment revenues increased 35% to $24.7 million, and segment operating profit increased to $6.7 million from $2.8 million in the same quarter of the prior year. Now we'll discuss our capital expenditures and the horizontal pressure pumping plate count. Capital expenditures were $65.3 million in the first quarter. We currently estimate full-year 2023 capital expenditures to be between $250 and $300 million. This includes new Tier 4 dual-fuel equipment that we've recently placed into service, while a similar amount of older equipment has been sent out for refurbishment. Consistent with the prior quarter, we operated 10 highly utilized horizontal pressure pumping fleets during the first quarter of 2023. We expect to continue operating this number of fleets throughout the remainder of the year. I'll now turn it back over to Ben for some closing remarks.
spk09: Thanks, Mike. First quarter of 2023 was an excellent quarter for RPC, notwithstanding some minor weather disruptions. While oil and natural gas prices dropped during the quarter, it did not materially impact demand for our services. With oil prices rebounding early in the second quarter, goes on. A big thank you is warranted to our employees for delivering the results again this quarter. I want to thank our corporate and enterprise services employees, our business unit leaders, our operations managers, and our well site employees. All of them are working tirelessly to provide quality services to our customers every day. RPC looks to continue our tradition of generating industry-leading ROIC and returning capital to our shareholders. In the first quarter of 2023, we repurchased 1.1 million shares for approximately $9 million and doubled our cash dividend of 4 cents per share for 8.7 million per quarter. This morning, we announced RPC's board approved an increase in our share repurchase authorization and declared another cash dividend of 4 cents per share. Over the last decade, RPC has returned over $554 million to shareholders through a combination of dividends and open market share repurchases. Thanks for joining us this morning, and at this time, we're happy to address any questions.
spk01: If you would like 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 the star one. Your first question is from Steve Gengaro of Stifo. Please go ahead. Your line is open.
spk03: Thanks. Good morning, everybody. I guess a couple things. You mentioned the expectation to continue to operate 10 fleets throughout the year. Can you give us sort of your perspective on the supply-demand and pricing dynamics in the pressure pumping market right now?
spk09: Steven, this has been, like we indicated, it's staying strong. We have had some We're working with them to minimize any impact on our results, but there are some changes. As typically happens, we're moving around some fleets and things like that to stay busy and maintain our efficiencies and limit our downtime, but we don't see any big changes at this point in time.
spk07: we still feel good about where we are.
spk03: And when you look at what you see in the order book relative to sort of natural attrition of the fleet, are you seeing much net growth in the overall market over the next three or four quarters?
spk09: We see various bits of information that's provided. And as I said in my comments, I think peers across the oil field services are doing a pretty good job of trying to not significantly increase capacity. There's certainly new equipment that's being, we're doing the same thing, right, but it's typically to replace existing equipment or to allow us to maintain our fleet level while we send other older equipment out for refurb. The equipment that we're removing now, once it comes back in the coming There'll be another fleet that will take out of service. So we expect them to remain at 10 fleets for the time being. And we're hopeful that others are doing the same thing. We think there's indication that that's the case. There may be temporary periods of where somebody believes that they have extra capacity that they can put an additional fleet in the field for a period of time. But this equipment is wearing out. And you do have to continue spending to maintain your flip. So we're hopeful that that discipline will remain in place going forward.
spk03: Great. Thank you. And just one more quick one. Can you run through the revenue by product line for the first quarter?
spk10: Yes, David. Sure. Absolutely. This is Jim. The values I'm about to give are the percentage of consolidated RPC revenue that is comprised by each of these service lines. So our largest in the first quarter of 2023 was pressure pumping at 55.6% of revenues. Our second largest service line was downhole tools and motors, which are through tubing solutions brand. That's 22.5% of revenues. Number three is coil tubing. 8.4% of revenues. Number four is rental tools, which is 3.7% of revenues. Then comes nitrogen at 2.5% of revenues.
spk07: Finally, snuffing, which was 1.5% of consolidated RPC revenues for the first quarter. Thanks for that question.
spk03: Great. That's great. Thank you, Jim.
spk01: Thank you. Next question. is from Don Christ of Johnson Rice. Please go ahead. Your line is open.
spk04: Good morning, gentlemen. How are y'all? I wanted to kind of ask a follow-up as to Stephen's question. I know you had a lot of fleets that were as a percentage of your total fleet count that were dedicated in either the Haynesville or the gas basins. How many of those have kind of moved around or been shifted to more oily basins as gas has been a little bit weaker in the first quarter?
spk10: Hey Don, this is Jim. Let us correct you a little bit on that. We haven't had fleets working in the Hainesville for a while. Starting, what you might be thinking of is last summer, we reactivated a fleet that was in East Texas, but it's been working in West Texas. We really have not moved any fleets around. We've still got two in the mid-continent and the rest are in the Permian.
spk09: So there hasn't been, you know, any geographic movement for a while. Our operating model is that we can move the fleets, as Jim indicated. The fleet from East Texas has done a little bit of work in that area, but more than in West Texas. And from time to time, depending upon calendar and opportunities and things like that, some of the, one or two of the, or one typically of the mid-con fleets might do some work closer to West Texas. So that's something that our managers are, and sales team are,
spk04: Okay, my mistake there. I was thinking some old data. And kind of talking about the supply chain, I think I heard you correctly that you're going to refurbish two fleets this year. How does that supply chain look? Is inflation kind of subsiding there and lead times coming down? Or is it kind of status quo as to the way that it has been over the past nine months or so where it takes 12 months to get an engine?
spk07: Well, I think it's a little bit too soon to probably say that it's improved significantly. We think certainly there are signs that that may be the case.
spk09: Some of the very high demand components we've been planning ahead and making sure that we have that availability before we initiate these refurb programs. So it's just something we've had to plan through and coordinate with our many very valuable suppliers and things like that. So it hasn't been an issue, but there are We've got a plan that we've laid out based on expected activity levels and intensity of activity when we think our equipment needs to be overhauled or refurbished. So we're able to put that planning in place, make the commitments, put the commitments in place to be able to have the key components available when we want to undertake the refurbishment activity. And even as we have to do the same thing leading into this new Just takes a little bit of planning. But I don't know, again, that we've yet seen any significant let up in the pricing.
spk07: But I wouldn't be surprised if there's a little bit, given some of the volatility we've seen lately.
spk04: Okay. I appreciate the color. I'll turn it back. Thank you. Thank you. Thanks, Don.
spk01: Your next question is from Derek Podhazer of Barclays. Please go ahead. Your line is open.
spk05: Hey, good morning, guys. I just wanted to go back to that changing job mix in pressure pumping. Just if we can expand on that comment, just some more color around. Is that a spot market versus dedicated? Is it a customer type, private versus public? Maybe just a little more color on your changing job mix within pressure pumping.
spk09: Well, I think you guys can, and I think we were, well, weather impacted us a little bit, but the job mix, too. We had a little bit less fuel that we provided. You know, there's not a whole lot of margin on the fuel, so it, quote, unquote, impacted revenue, but didn't have as significant an impact on our margins. And that was a little bit of, I think that in one case, it may have been an existing customer who changed their mind about whether they wanted to provide it or not. It may have been a new customer that we went to The mix of our customers has not really changed significantly. We do have a lot of, you know, privates as customers, but we have a nice mix between the public and the private, so it really hasn't changed a lot in the first quarter compared to the fourth quarter last year.
spk08: Yes, that comment is probably more referring to, as Ben mentioned, a mix of the services provided. Every single job is slightly different. That's what we're doing. Um, you know, and what we're asked to do, and that's the depths of the wells and everything. So every, every job is slightly different. Some jobs are more profitable than others. And so that's probably more rather than, you know, the mix of the type of customer. It's more of a specific type of job.
spk10: And, Derek, this is Jim. I'll jump in too. Another variable is how much sand we provide versus how much our customers provide. That really didn't change Q4 to Q1. Another variable is 24-hour versus 12-hour revenue. We're pretty much maxed out there. That did not change either. So as Ben mentioned, it has to do with fuel. There's nothing else that is meaningful from a macro perspective, i.e., private versus public, or any change in what customers are doing. It moves around a little bit, but not a whole lot.
spk05: Okay, that's very helpful. Then maybe just on spot market versus dedicated, I guess, how much percentage of your fleet's on the spot market versus dedicated, and what are the big differences that you're seeing before between those two markets? It seems like there's a bit of bifurcation between those two markets right now, so any comments around that would be helpful.
spk10: So it's about 50-50, spot versus dedicated, and dedicated doesn't mean what it meant a long time ago. It means that we have six- to nine-month commitments. From our perspective, there's not a lot of discernible difference between those two types of relationships.
spk05: Got it. Okay. That's helpful. And then just my last question, and we've been hearing from some of your peers, moving fleets from the Haynesville into Permian. I just Are you seeing that? Is that putting any pressure on your pricing, on the conversations you have with your customers, with the threat of being displaced by a large appear? Is there any color around fleet movements from the Hainesville into the Permian affecting your operations?
spk10: I think it's pretty reasonable to say that the natural gas weakness, the weakness of the price of natural gas is certainly going to slow down some uh completion uh the drilling because the contracts may not may not slow down or the completion will be that you know we think that we've heard some peers and you have to talk about moving some fleets um it's not like we were in the haynesville doing beansville natural gas work anyway so it's not uh that's not evident to us on on sort of the first order um uh certainly at the margin uh there's a little less tightness in a place like the Permian, but that just manifests itself in maybe a little more white space in calendars, but to us, it's not material at this time.
spk09: Our team does a fabulous job of staying up-to-date across the market and does a terrific job of being able to minimize that white space when volatility begins to occur. respond to that, and we think the impact at this point in time of those changes and the moving around is going to be, will not be significant.
spk05: Got it. Have you had to move some fleets around the Permian to different customers yet? Yes, we have done a little bit of that.
spk07: We're in the process of doing a little bit of that, yeah.
spk08: But that's for us. I mean, we're always moving nuts. I wouldn't say it's significantly more than normal
spk05: Okay. Great. Really appreciate the time and color, guys. I'll turn it back. Thank you. Thanks, Derek.
spk01: Your next question is from John Daniel of Daniel Energy Partners. Please go ahead. Your line is open.
spk06: Thank you. Good morning, guys. Hey, John. Hey, Jim. Just a quick question about businesses besides FRAC. where you have exposure to some of the other basins except the Permian, right? Because we tend to focus on the Permian and FRAC. But can you walk us through, and I'm not looking for numbers here, but just the visibility in the other basins for your other services, call it today, versus what you had three to six months ago?
spk07: John, this is Jim. Thanks for asking a question about something other than pressure pumping.
spk10: So, Threatening Solutions has a really good market share and a really widespread market presence. They're a good thing to look at. They've talked about some weakness in East Texas, in the Hainesville, and a little bit of weakness in the Northeast, in Pennsylvania, where they have a presence. So, that's one thing we've noted in our operational reviews, getting ready for
spk07: Yeah, with lower gas prices. But at this point, still nothing.
spk09: Same as again, and similar to pressure pumping, they're able to move around from customer to customer.
spk06: But would you say, guys, that the, let's just pick up, you know, the MidCon or Bakken, do you enjoy the same type of visibility there as you do in the Permian? Has it been a discernible change?
spk07: I guess that's another way of thinking about it. I guess not discernible enough.
spk09: Okay. It's a good question, but not certain enough to comment on at this point in time. Okay.
spk06: Fair enough. If we go back to six to seven weeks ago when oil prices kind of crapped out and there was a lot of fear in the market, there was a lot of requests from EMPs for some price relief, et cetera, and some companies made some concessions and others didn't. My question is if when you were going through that process, if you were, if you happen to be in the camp that made some concessions, what was the discussion about, Hey, what if oil prices go back to 80, 85? Is there, do you get, how quickly can you recapture that? I guess that's the question.
spk07: I mean, I guess I'll just make a comment.
spk08: We're heavier in the sort of, you know, market and we have less long-term contracts than some of our competitors. So we can kind of, respond more quickly to higher prices.
spk09: And so we were as maybe impacted as some of the others. And I think to your point, John, I think, you know, I'm sure that was alluded to. The team's been very good at being appropriately aggressive with pricing. So we're ready to, you know, make those adjustments when we need. a fuel right. So that particular item, again, doesn't have a big impact on us. But again, a very appropriate question, as you always ask. But working through it and certainly mindful, and we all understand that we do need to generate sufficient returns to continue to invest in the business to be able to meet our customers' demand and stuff.
spk10: John, it probably goes without saying, but we better say it anyway. Sentiment today is a whole lot better than it was when prices were lower and going lower, oil prices, than where they are today. We also have the ability, we haven't done this yet, but we certainly maybe signal to some of our suppliers that we would like to or may need to talk to them about cost reductions on their side, which could help our margins should that come up.
spk06: Fair enough. Okay. Well, thank you for letting me in with you again. I appreciate it.
spk09: John, I thought maybe you were calling for some roadside assistance.
spk06: Yeah, really?
spk09: Well, you know, I will say this.
spk06: You should give him, like, Employee of the Year Award because he takes my money.
spk10: Anyway, thanks, John. The I-20 out there, they go a lot faster. So I'm glad you're okay.
spk06: Yes, thank you very much. Okay, take care.
spk10: See you, John.
spk00: Again, if you would like to ask a question, please press star 1 on your telephone keypad. There are no further questions at this time.
spk01: I will now turn the call over to Jim Landers for closing remarks.
spk10: Okay, thank you. We appreciate everybody who called in to listen this morning, and we appreciate the questions and the conversations. Look forward to talking to everybody soon. Have a good day.
spk01: This conference call will be replayed on www.rpc.net within two hours following the completion of this call. This concludes today's conference call. Thank you for your participation. You may now disconnect.
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