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    RPC Inc (RES)

    Business Description

    RPC, Inc. (RES) is a specialized oilfield services company that supports independent and major oilfield operators in the exploration, production, and development of oil and gas properties. Operating primarily in the United States, the company provides a wide range of technical and support services essential for well completion, production, and maintenance. Its offerings include pressure pumping, downhole tools, coiled tubing, and rental equipment, among others, tailored to meet the needs of the energy sector.

    1. Technical Services - Provides completion, production, and maintenance services directly to customer wells, including pressure pumping, downhole tools, coiled tubing, cementing, nitrogen, and snubbing.

      • Pressure Pumping - Delivers hydraulic fracturing and other pressure-related services to enhance well productivity.
      • Downhole Tools - Supplies tools and services for wellbore intervention and completion activities.
      • Coiled Tubing - Offers continuous tubing services for well intervention and maintenance.
      • Cementing - Provides cementing services to secure well casings and prevent fluid migration.
      • Nitrogen - Supplies nitrogen services for well stimulation and maintenance.
      • Snubbing - Performs live well intervention services using specialized equipment.

    2. Support Services - Offers equipment rentals and services to assist customer operations, including tubular rentals, pipe inspection, and oilfield training.

      • Rental Tools - Rents tubulars and related tools for drilling and production activities.
      • Pipe Inspection and Storage - Provides inspection and storage services for tubular goods.
      • Oilfield Training - Delivers training programs to enhance operational safety and efficiency.

    Q3 2024 Summary

    Initial Price$6.30July 1, 2024
    Final Price$6.61October 1, 2024
    Price Change$0.31
    % Change+4.92%

    What went well

    • RPC Inc. is strategically pursuing acquisitions to rebalance and grow its portfolio, leveraging its strong cash position and balance sheet to capitalize on M&A opportunities in non-pressure pumping service lines. , , ,
    • The company has developed innovative downhole technology, including revolutionary frac pods and advancements in coiled tubing, which are opening up significant market opportunities, particularly in California and Oklahoma.
    • RPC Inc. is committed to upgrading its fleet, focusing on more efficient Tier 4 DGB equipment, which could enhance operational efficiency and meet customer demand, potentially leading to better financial performance. ,

    What went wrong

    • Fleet Upgrade Delays: The company faces delays of up to 9 months to upgrade and deploy a new fleet, indicating potential challenges in modernizing equipment and capital expenditure concerns.
    • Anticipated Flat Pricing: Management does not expect pricing to improve significantly in 2025, which may adversely affect profitability and revenue growth.
    • Fleet Downsizing: The company is considering reducing its optimal fleet size due to current market conditions, suggesting potential loss of market share or difficulties in maintaining market position.

    Q&A Summary

    1. M&A Bid/Ask Spread
      Q: Is the bid/ask spread narrowing for acquisitions?
      A: Ben Palmer noted that bid/ask spreads in M&A have compressed somewhat, as private sellers recognize they can't demand higher multiples than public valuations. However, they haven't looked at a large enough sample to definitively say how much narrowing has occurred.

    2. Acquisition Financing Flexibility
      Q: Will you use cash or stock for acquisitions?
      A: The company has flexibility due to a strong cash balance and balance sheet. While cash is often preferred by private sellers, they are open to using stock when it fits. They value their stock highly and aim to be prudent, avoiding issuing too much at too low a price.

    3. Acquisition Opportunities
      Q: What types of acquisition targets are you seeing?
      A: Ben Palmer mentioned they are seeing a combination of opportunities, including those from private equity firms looking to exit and distressed assets. There's no clear theme, but they believe they are uniquely positioned to be a good purchaser.

    4. Frac Fleet Optimization
      Q: What's your optimal frac fleet size going forward?
      A: With market stability, the optimal fleet size is lower than the previous 10 or 11 fleets. The company remains committed to the frac market but aims to be prudent and rebalance their portfolio, potentially ending up in a better place with a smaller, more efficient fleet.

    5. 2025 Frac Pricing Outlook
      Q: How do you view frac pricing in 2025?
      A: The company isn't counting on pricing improving significantly in 2025. They hope for market discipline and have idled assets and reduced headcount. Any improvement in the natural gas market might help, but they're not relying on it.

    6. Fleet Upgrade Plans
      Q: What are your plans for upgrading another fleet?
      A: Upgrading to another Tier 4 DGB fleet would take about 9 months. They're exploring alternative technologies and options. At this time, they wouldn't require a long-term contract to proceed with an upgrade.

    7. Downhole Technology Advances
      Q: Can you expand on downhole technology advances?
      A: The company improved how they deliver pods downhole, making it more effective. This could create opportunities in California, especially in coiled tubing and plug and abandonment work affected by seismic shifts. They are encouraged by the large market potential and are conducting tests with customers at their Newcastle, Oklahoma facility.

    8. Consolidation Strategy
      Q: Can value be created by consolidating commoditized businesses?
      A: Rolling up commoditized businesses isn't their first choice. They aim to find very good businesses, whether commoditized or not, focusing on investment scale that can generate operational scale and cost leverage. They are pursuing consolidation to change their position, recognizing that such transactions have been limited but may increase.

    Key Metrics

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    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Technical Services452.0390.02303.07371.051,516.14356.39341.484313.49
    - Pressure Pumping264.8209.82110.62186.3771.54176.26147.156-
    - Downhole Tools107.4101.5996.2692.09397.3493.79100.670-
    - Coiled Tubing40.138.3636.8237.2152.4833.1738.984-
    - Cementing--26.73-64.4827.7528.038-
    - Nitrogen12.112.7212.2110.2847.319.558.346-
    - Snubbing7.17.675.675.9126.354.865.278-
    - All Other (e.g., Wireline, Fishing)20.519.8614.761.5256.6411.0213.012-
    Support Services24.725.8427.3523.45101.3421.4422.66924.16
    - Rental Tools17.718.3320.1217.1573.3015.9717.422-
    - All Other (e.g., Pipe Handling, Training)7.07.517.236.328.045.475.247-
    Total Revenue476.7415.86330.42394.491,617.47377.83364.153337.65
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    United States469.387409.431323.159386.821,588.8367.938353.478326.963
    International7.2816.4277.2587.7328.79.89510.67510.689
    Total Revenue476.668415.858330.417394.561,617.5377.833364.153337.652

    Executive Team

    NamePositionStart DateShort Bio
    Ben M. PalmerPresident and Chief Executive OfficerMay 17, 2022Ben M. Palmer has been the President and Chief Executive Officer of RPC, Inc. since May 17, 2022. Previously, he served as Vice President, Chief Financial Officer, and Treasurer starting in 1996 and as Corporate Secretary in 2018. He also holds executive roles at Marine Products Corporation and has prior experience in finance and auditing at EQ Services and Arthur Andersen LLP. He earned a B.S. in Business Administration from Auburn University.
    Michael L. SchmitVice President, Chief Financial Officer, Treasurer, and Corporate SecretaryMay 17, 2022Michael L. Schmit has served as Vice President, Chief Financial Officer, Treasurer, and Corporate Secretary of RPC, Inc. since May 17, 2022. Previously, he was Chief Accounting Officer at Schweitzer-Mauduit International, Inc. starting in 2019 and held roles at Chart Industries, Inc., including Chief Accounting Officer and Controller in 2019 and 2018. Earlier, he worked at Georgia-Pacific, LLC, and Ernst & Young. He holds a B.S. in Business Administration from the University of Nebraska and is a CPA.
    Richard A. HubbellExecutive Chairman of the BoardMay 17, 2022Richard A. Hubbell has been the Executive Chairman of the Board at RPC, Inc. since May 17, 2022. Previously, he was the company's President from 1987 and Chief Executive Officer from 2003 until May 17, 2022. He also serves as Executive Chairman of the Board at Marine Products Corporation and was its President and CEO since 2001. Before joining RPC, he was Executive Vice President of Rollins Communications, Inc., and joined Rollins, Inc. in 1970. He holds a B.A. in Economics from Westminster College.

    Questions to Ask Management

    1. Given the continued challenges in the pressure pumping market, including idling assets and headcount reductions , how do you plan to balance your commitment to upgrade your fleet over time with the need to maintain financial discipline and avoid adding capacity to an already well-supplied marketplace ?

    2. You mentioned losing a significant pressure pumping customer due to acquisition and the acquiring company's incumbent frac supplier taking over ; what steps are you taking to mitigate the risk of customer consolidation impacting your revenues in the future?

    3. In light of your focus on M&A to grow non-pressure pumping service lines and rebalance your portfolio , and considering that bid/ask spreads have compressed but not significantly , do you believe valuations of potential targets are now acceptable to proceed with acquisitions, and how are you addressing this challenge?

    4. With your new proprietary technology aiming to reduce reliance on bridge plugs by using release pods , what are the potential barriers to widespread adoption among your customers, and how do you plan to overcome them to ensure this technology contributes significantly to your earnings?

    5. Given that demand is more challenged for your legacy diesel equipment fleets , while upgrading to Tier 4 DGB fleets takes approximately nine months , and you are not requiring long-term contracts for such investments , how do you plan to manage this transition period in a highly competitive market with limited pricing visibility ?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateSecond quarter of 2023
    End Date/DurationNo preset expiration date
    Total additional amount8,000,000 shares
    Remaining authorization12,768,870 shares as of September 30, 2024
    DetailsDesigned to repurchase up to 49,578,125 shares in the open market. The program allows flexibility in timing and amount of repurchases based on market conditions, market price, general market and economic conditions, and other factors. It does not obligate the company to acquire any particular amount of common stock and may be suspended or discontinued at any time.

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      • Capital Expenditures (CapEx): Expected to finish 2024 within the range of $200 million to $250 million.

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024
    • Guidance:
      • Technical Services Segment: Expected to be "not significantly different" from Q2 2024.
      • Support Services Segment: Anticipated to remain steady.
      • Pressure Pumping Outlook: Ongoing challenges expected to persist.
      • Capital Expenditures (CapEx): Reiterated full-year 2024 guidance of $200 million to $250 million.
      • Tax Rate: Q2 2024 effective tax rate of 17.8% noted as unusually low.

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      • Capital Expenditures (CapEx): Range of $200 million to $250 million.
      • New Tier 4 Dual Fuel Fleet Deployment: Expected mid-2024.
      • Free Cash Flow and Tax Refund: Received a $52 million tax refund.
      • Shareholder Returns: $10 million on share repurchases and $8.6 million on dividends in Q1 2024.
      • Market Commentary: Cautious optimism for improved activity levels.

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      • Capital Expenditures for 2024: Range of $200 million to $250 million.
      • First Quarter 2024 Outlook: Expected flat to slightly up performance.
      • Pressure Pumping Capacity: New Tier 4 DGB fleet to replace a Tier 2 diesel fleet.
      • Incremental Margins: Expected to be in the mid-teens to 20% range.