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spk00: Good morning and thank you for joining us for RPC Inc's second quarter 2024 conference call. Today's call will be hosted by Ben Palmer, President and CEO, and Mike Schmidt, Chief Financial Officer. 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. If you'd like to advise everyone that this conference is being recorded, I'll now turn the call over to Mr. Schmidt.
spk02: Thank you and good morning. Before we begin, I want to remind you that 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. Please refer to our press release issued today along with our 2023 10-K 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 be referring to several non-GAAP measures of operating performance and liquidity. We believe these non-GAAP measures allow us to compare performance consistently over various periods. Our press release issued today and our website contain reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. I will now turn the call over to our president and CEO, Ben Palmer.
spk05: Thanks, Mike, and thank you for joining our call. This morning, we reported second quarter results that reflected resilient performance across many of our service lines, while pressure pumping results remains challenged. Though we understand that pressure pumping is our largest service line and sometimes used as the barometer for the health of our business, we want to underscore the diversity of our operations and customer base. Our non-pressure pumping areas performed solidly in the quarter, balancing out our results. Due to sequential growth in many service lines, our overall sales were only down modestly, with EBITDA growing sequentially. We are not satisfied with these results and will continue to push further on efficiencies and cost controls, but we're certainly encouraged by profit growth in a difficult environment. Our total revenues declined 4%, with pressure pumping down 17%, and other service lines in aggregate up 8%. The frac market remains highly competitive, and while our pricing is stabilizing, general activity in the spot and semi-dedicated market has been solved. Our utilization is below ideal operating levels, with white space arising in the calendar, sometimes on short notice. While attempting to quickly redeploy assets at lower price points to drive utilization, we remain disciplined in our approach and continue to idle certain crews rather than chase economically unattractive business. With respect to our FRAC assets, our Tier IV DGB fleets have been highly utilized with strong demand from semi-dedicated customers. As anticipated, we have deployed a new Tier IV DGB fleet, bringing us to three in total. Our crews are delivering gas substitution rates that we believe are among the best in the industry, and our customers are pleased with our efficiency and performance on site with these assets. Our intention is to continue upgrading our fleet without adding to our fleet count. To summarize the pressure pumping outlook, we continue to feel the competitive impact of frack crews in the Permian that were previously in gassy basins. This fracked supply, coupled with ongoing operating efficiency gains, continue to keep pump power capacity in the Permian ahead of demand. Ultimately, we believe these challenging conditions could force less well-capitalized smaller players out of the market, but it may take some time to reduce supply in that fashion. On the demand side, the rig count remains soft with hopes of stabilizing near term and rig count growth potentially not coming until next year. In this environment, we are working diligently to control costs, evaluating additional efficiency actions, and will maintain a disciplined operating and financial approach. The health of our balance sheet and diversity of our service lines should serve us well in the near term to navigate these pressures, while giving us the flexibility to invest in high-quality and demand equipment. In pivoting to our non-pressure pumping service lines, we were very pleased with top-line performance. We saw our best quarter over the past year in downhole tools, with solid 7% growth, putting that unit back in the range of $100 million in quarterly revenues. This is our second largest service line, and we continue to be an innovation leader in this area. We recently have been testing a new product with initial success, a larger downhole motor, which is delivering high performance in plug drill outs with lower pressure drop, improved M&R efficiency, and is especially effective in increasingly longer laterals. Customer interest is high, and we look forward to continued rollout of this product in the coming quarters, and are optimistic we can build off of this early positive momentum. Toilet tubing, our next largest service line, also grew nicely in the quarter, up 18%. We're picking up traction in some specialized plug and abandonment work using proprietary directional drilling and magnetic ranging. While regulatory processes and administrative tasks in California have been timing obstacles, Our technology and execution on this P&A work has created an opportunity to expand this business with a large E&P likely next year. In the meantime, we are doing similar work for other customers in other regions with positive results. Lastly, both cementing and rental tools delivered solid quarters, with cementing up 1% sequentially and rental tools up about 9%. Each of these four service lines we highlighted also showed margin improvement during the quarter. The key takeaway is that our non-pumping activities performed well in the quarter, demonstrating the strength of our total portfolio of services and diversity of our customers, even in a landscape marked by customer consolidation. Mike will now discuss the quarter's financial results.
spk02: Thanks, Ben. Second quarter results with sequential comparisons to the first quarter of 2024 are as follows. Revenues decreased 4% to $364 million, driven primarily by lower pressure pumping activity, as all of our other key service lines were up in the quarter. Breaking down our operating segments, technical services, which represented 94% of our total second quarter revenues, decreased 4%, also driven by pressure pumping. Support services were up 6% and represented 6% of our total second quarter revenues. The following is a breakdown of our second quarter revenues for our top five service lines. Pressure pumping was 40.4%. Downhole tools, 27.6%. Coiled tubing, 10.7%. Cementing, 7.7%. Rental tools, 4.8%. Together, these top five service lines accounted for 91% of our total revenues. Cost of revenues Excluding depreciation and amortization during the second quarter decreased by $14.3 million to $262.3 million, or a 5% decrease, a point higher than the revenue decline. The lower cost of revenues stem primarily from lower fuel costs, which are essentially a function of activity and pass-throughs to our customers, and lower material and supplies, such as sand. SG&A expenses were $37.4 million, down from $40.1 million. This decrease was due to lower employment costs, including incentive compensation. Diluted EPS was 15 cents in the second quarter, up from 13 cents in the first quarter. There were no non-GAAP adjustments to our EPS. EBITDA was $68.5 million, up 9%, from $63.1 million, with EBITDA margins increasing 210 basis points sequentially to 18.8%. Again, there were no adjustments made to these measures for unusual items either. For the quarter, operating cash flow was $127.9 million, and after capex of $75 million, free cash flow was $52.9 million. We note that the second quarter had a large CapEx spend as we made final payments and accepted delivery of our new Tier 4 DGB fleet. Our year-to-date CapEx was $128 million, and our expected full-year CapEx range of $200 million to $250 million remains unchanged. During the quarter, we paid $8.6 million in dividends. we maintained a strong balance sheet, including a cash position of $261.5 million at quarter end. As we mentioned on our last call, early in the second quarter, we received a $53 million tax refund related to past tax years. As a result of this refund, we trued up the related tax accruals, these one-time true-ups in conjunction with our normal quarterly tax adjustments, resulted in a 17.8% effective tax rate for the quarter, which is lower than our usual tax rate. We do not expect our rate to be this low in future quarters. I will now turn it back over to Ben for some closing remarks.
spk05: Thank you, Mike. So as we wrap things up, I just want to share our views on capital allocation and potential investments in the business. For starters, our discipline and strong cash generation has given us the flexibility and ample liquidity to make strategic investments in the business. Two of our most likely areas of potential future investment to deploy significant capital are upgrades to our frac fleet and acquisitions. We have and will likely continue to invest in Tier 4 DGB equipment given the growing preference for dual fuel fleets from certain customers. And you have heard us say before that we will be patient with respect to electric fleets as technology and customer preferences evolve. While some of our competitors are already offering electric fleets, we are confident that over time we can acquire similar assets and capabilities and that we will be able to compete successfully. The other area of potential investment is M&A, including businesses in our non-pressure pumping service lines, such as coil tubing, downhole tools, wireline, and cementing. We are very pleased with our purchase of Spinnaker a year ago, which brought scale and new customers and regions to our cementing operations. With integration complete, we've been increasingly seeking out other opportunities. Our thesis that a challenging market might present attractive opportunities for patient buyers such as ourselves could prove out and allow us to make another meaningful investment in the business. As usual, I'll close by reiterating that in an often volatile market, our discipline remains consistent with a focus on financial stability and long-term shareholder returns. I also want to thank all our employees who work tirelessly to deliver high levels of service and value to our customers. Thanks for joining us this morning, and at this time, we are happy to address any questions.
spk00: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you're called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. And again, press star one to join the queue. Your first question comes from the line of Stephen Gingaro of Stiefel. Your line is open.
spk04: Thanks. Good morning, gentlemen. Thanks for taking the question. So a couple of things for me. I think the first is, and I'm not sure how to, how to ask this exactly, but when you think about M&A in the U.S. market, what are kind of the key either products and or even just financial parameters that you're looking for when you're kind of considering M&A versus buying your own stock, for example?
spk05: Well, certainly identifying... areas, and there are a few, some of which we're already in, service lines that we're already in that could have nice free cash flow fundamentals. We're looking for acquisitions that are accretive from a cash flow perspective and also from an earnings valuation perspective. And we think, we've talked over time, that valuations seem to be getting a little more reasonable than they had been in previous years, and we think that creates opportunities for people like us that are well capitalized and are attractive in attracting companies that want to become part of our company. I think another key aspect, of course, is the people that can come along with a good M&A transaction that could come in and become a part of our company and help us move forward. It's looking for a balance. It's not necessarily one versus the other. You didn't say it was, but we're looking for an appropriate balance. There are some that we're looking at that are quite appealing. We'll see whether they happen, but again, we're going to continue to be patient and expect we'll be successful.
spk04: Okay, thank you. And the other one, and you mentioned in the press release about the pressure pumping business and the competitiveness of it, and I missed a little bit of the beginning of the call, so I apologize if I'm asking something you talked about. But when you think about the market dynamics, and it feels to us like the pressure pumping business has gotten better, more consolidated over the last five, seven years. yet on periods where activity is low, there's going to be competitiveness. What have you seen kind of in this current, you know, kind of downdraft and activity that's different or similar to prior markets from just a customer conversation and pricing discussion?
spk05: It's a reasonable question. I don't know that, you know, customer conversations are any different, right? They're putting out bids and quotes and, Looking for the right combination of quality services and price, it's very competitive. There is frac capacity that's being added to the market, the markets in which we compete, be that in people moving in from gassy basins into more oily basins where we have large operations or people bringing on additional E-fleet capacity. Many of our peers, both smaller peers and even larger peers, are fiercely competing for business for their incrementally larger equipment. As we've said, our intention is not to add capacity to the market, but net-net, at least in the short term, with some of this E-fleet capacity coming on board, it is creating more capacity in the market, so it makes it more challenging. We try to be very disciplined. We don't like to work just to be busy, so we have lost some bidding opportunities, as I've indicated, to both smaller players that are always very competitive on price, but even we've had some peers that have come in and offered what we believe are lower prices than we're willing to work at. So we'll... continue to be disciplined, make appropriate adjustments to the business to try to position us to do as well as we can and figure out how to continue to compete successfully in that segment of the market.
spk04: Thanks. And then one final one for me, and I know this is a little bit tough, but when we think about 2025, one of the things that we've been, honestly, a bit surprised by is that the oil activity has been weaker than we thought. And clearly M&A is part of that. What do you think about going into next year? What do you think that the, your customers need to see to, to, to maybe restart or at least get some momentum in, in drilling completion activity in the U S market?
spk05: Well, uh, with, with respect to, well, let me speak to, I guess in terms of the gassy basins, uh, we, we are, uh, happy that we have basin diversity. If the gas market were to pick up, we'll even more directly benefit from that. That's one thing about the gas market. With respect to oil, I guess just like always, they want to look and believe that they've got a fair way of oil prices that they can make money at. They're looking at their production and they certainly are continuing to remain disciplined. They've got a choice of service providers, so they're continuing to press us on pricing and press us to be ever more efficient, and that can be a good thing. I mean, we're all learning to become more efficient, but in the short term, that can create even additional capacity, obviously without adding equipment. you know, if there's not enough completion activity, certainly production will begin to come down. So if demand remains sufficiently high, things should begin to balance out. And I would expect activity to pick up some at that point. But you know as well as I do that predicting oil prices is difficult. And of course, with the new discipline of the EMPs, you know, higher oil prices not necessarily directly translate into more activity. So I guess they've got to see both industry-wide, you know, balance of supply and demand or, you know, increase or decrease in one or the other that spurs additional activity. And they're watching it. And at some point with activity, we'll have to pick up. But the timing of that, of course, is difficult to predict.
spk06: Great. Thank you for all the color.
spk00: Thank you, Steve. Your next question comes from the line of John Daniel of Daniel Energy Partners. Your line is open.
spk03: Hey, guys. Just a couple for me this morning. Thanks for including me. When you look around at the market, a lot of your competitors have sort of ceased reinvesting in their fleets. I mean, at least as you talk to the OEMs and the fabricators, there's not a lot of rebuild activity. And it sounds like some of the component parts like engines, et cetera, are stocking up. I'm just curious, given your balance sheet and the ability to be opportunistic, does it make sense to stock up on things like Tier 4 DGB engines? Could you get them at an attractive price given the market softness?
spk05: Good question. Yes, that is an opportunity. We actually have been proactive back when there were supply chain disruptions, and so we had more engines than we would otherwise have. But no, certainly that is an opportunity. I wouldn't say we're playing the market on frack engines, right, and trying to build up on those. But certainly there is an opportunity to take advantage of that. We're hearing the same thing from fabricators. And fortunately, we don't see fabrication pricings coming down significantly, but incrementally on the margin, it should help us some.
spk03: Okay. And then you touched briefly on M&A. I'm just curious, since you're willing to answer, do you see any actionable opportunities in the second half? And if you can't answer that, as you look at opportunities, do you see them as more tuck-in opportunities or transformative? If you could elaborate what the desires are, that'd be great.
spk05: Well, both. I mean, we're open to both. It takes some time to close on a transaction. I mean, there are some that we've been looking at. We've constantly been looking, even over the last year since we closed Spinnaker. So there are a few that we are looking at. We're hopeful that there's at least one that could be actionable this year, but That's hard to know. We certainly don't count on it, but expecting that. And we don't emphasize suck-ins versus transformational, right? I mean, we're certainly open to both.
spk03: But it does sound like this is a bit more of a priority. Would I be wrong to think of it that way?
spk05: Well, priority, always a priority, but I think just the timing. The timing may be right. I think we are an attractive company with our balance sheet. I think some people are naturally drawn to us in part because of that, that we can execute. We do have the funding available to do that. With a good balance sheet, certainly there's not with a If there were another, call it transformational transaction to come along, we don't. Our clean balance sheet doesn't present an opportunity of leverage, problematic leverage situation. No, that's right. So I think we're well positioned to be able to, we would be a good merger partner either way.
spk03: Okay. I appreciate you letting me ask some questions. Thanks, guys. Sure. Thank you, John. Appreciate it.
spk00: Your next question comes from the line of Chuck Minervino of Susquehanna. Your line is open.
spk01: Thanks. Good morning. Good morning. Hey, I was just wondering if you could provide some of your thoughts on kind of the technical services outlook here in 3Q and 4Q. I know it declined there in second quarter, and you had a pretty stable margin there, pretty, you know, flattish. But Just kind of curious if you kind of see 3Q being fairly similar to 2Q levels, or if there's anything there we should be aware of?
spk02: Yeah. I mean, I think it is. We haven't typically given guidance, but I mean, we're looking at Q3 not to be significantly different. You know, as we mentioned, we've had A little bit of disappointment in pressure pumping, but all of our other service lines have done really well and continue to do well. So, you know, I think we don't see any significant shift. Obviously, we're hoping pressure pumping returns a little bit, but, you know, what we're seeing right now is in the near term, anyway, it looks very similar.
spk01: Gotcha. And then also in the support services segment, you know, kind of the non-pressure pumping business lines, really good margin expansion there in the second quarter and growth kind of despite a weaker rig count. Can you just kind of put that into context for us for third quarter or the remainder of the year? Is that margin level kind of a level that you feel like you can hold?
spk05: in the second quarter and do you still think you can kind of outgrow that recount i know that's kind of tough to do over the long haul but but just kind of curious what your thoughts are there yeah uh this has been chuck um we we don't see any particular thing that will would uh translate directly into continued significant outperformance but but it's it's well positioned it's a relatively more steady business we did have you know a couple of good things happen during the quarter there but but i see sort of more steady steady activity there as well gotcha um all right that's it for me thank you thank you again if you would like to ask a question press star then the number one on your telephone keypad
spk00: With no further questions at this time, this concludes the Q&A session. I'll now turn the conference over to Mr. Ben Palmer for closing remarks.
spk05: All right. Thank you very much, operator. Appreciate everybody listening in. I understand or I think I was informed that there was a large acquisition announced this morning and a call got moved to this time slot. So we appreciate those of you who, you know, called in to listen to the call this morning and ask some questions. We appreciate it and look forward to catching up with you and hope you have a good rest of the day.
spk00: This concludes today's conference call. A replay of the conference call will be available on rpc.net within two hours following the completion of this call. You may now disconnect.
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