RPC - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered stable topline and improved profitability: revenue $332.9M (-1% q/q, -11.9% y/y), diluted EPS $0.06 (flat q/q, down y/y), and EBITDA $48.9M with margin expansion to 14.7% (+100 bps q/q) on lower costs despite competitive pricing in pressure pumping.
• Results beat S&P Global consensus: EPS $0.06 vs $0.049* and revenue $332.9M vs $326.7M*, driven by cost discipline (lower insurance, transportation/fuel, and materials) and a favorable mix; EPS was held back by a normalized tax rate (27.2%) versus Q4’s unusually low rate.
  Values retrieved from S&P Global.
• RPC closed the $245M Pintail Completions acquisition on April 1; management expects 2025 EPS and cash flow accretion. Pintail did ~$409M 2024 revenue with ~20% EBITDA margins, adding scale in Permian wireline and shifting mix toward lower-capex, higher FCF services.
• Capital allocation remains conservative: $326.7M cash and no debt at quarter-end; dividend maintained at $0.04/share; 2025 capex framework raised/incremented post-deal to $165–$215M for the next nine months (was $150–$200M for 2025) as the company prioritizes maintenance and returns on capital in an uncertain macro/tariff backdrop.

What Went Well and What Went Wrong

• What Went Well

  • EBITDA increased 6% q/q to $48.9M; margin up 100 bps to 14.7% on lower insurance, transportation/fuel (less customer-furnished fuel), and materials/supplies costs, despite flat pressure pumping revenue.
  • Rental tools grew with seasonal pickup; Support Services operating income +3% q/q; Technical Services operating income +32% q/q on cost actions.
  • Strategic M&A: Pintail adds >$400M revenue, ~20% EBITDA margin, ~30+ fleets, and Tier 1 E&P customer base in Permian; expected to be accretive in 2025. “We are excited for our combined prospects to bring world-class well completion services to our customers” — CEO Ben Palmer.

• What Went Wrong

  • Pricing pressure persists in pressure pumping; Tier 2 diesel demand remains soft, with spot/semi-dedicated markets oversupplied and highly competitive.
  • SG&A rose to $42.5M (12.8% of revenue) due to IT implementation and slightly lower revenue; normalized tax rate (27.2%) reduced net income vs Q4.
  • YoY declines: revenue (-11.9%), EPS ($0.06 vs $0.13), EBITDA ($48.9M vs $63.1M) and EBITDA margin (14.7% vs 16.7%) reflecting a tougher OFS environment.

Transcript

Operator (participant)

Good morning, and Thank you for Joining us for RPC's Q1 2025 Earnings Conference Call. Today's call will be hosted by Ben Palmer, President and CEO, and Mike Schmit, Chief Financial Officer. At this time, all participants are in the listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at this time for you to queue up for questions. I would like to advise everyone that this conference call is being recorded. I will now turn the call over to Mr. Schmit.

Michael Schmit (CFO)

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 2024 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 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 and our website contain reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. I'll now turn the call over to our President and CEO, Ben Palmer.

Ben Palmer (President and CEO)

Thanks, Mike, and thank you for joining our call. Today, we will talk about our Q1 results and the acquisition we just closed in early April, as well as share our views about the increasing tariff-driven macro uncertainties. We are encouraged by the start of the year with respect to our financial performance and excited to bring Pintail into the RPC portfolio. Further, we are confident that our strong balance sheet, even following the funding of the acquisition, provides a solid cushion in uncertain times while still affording us the ability to invest as attractive opportunities arise. Q1 results can be summarized as stable revenues with some EBITDA growth. Recall that our Q4 held up relatively well in a sluggish market; thus, we were not necessarily expecting a typical seasonal pickup heading into the Q1.

Nevertheless, we were pleased with our financial results, especially sequential EBITDA growth. As we look across the service lines for the quarter, pressure pumping revenues were essentially flat sequentially, and all other service lines in aggregate declined 1%. We worked diligently to drive utilization, though it did come with some pricing concessions. We are balancing the pricing and utilization strategy to service our customers while not performing work at levels that generate inadequate returns. We still see higher utilization within our frac assets for our Tier 4 DGBs, where we have better visibility with dedicated customers and continue to deliver solid, wellsite performance. On the other hand, demand and utilization remain challenging for Tier 2 diesel equipment. The spot and semi-dedicated frac market are amply supplied with horsepower capacity, and pricing remains highly competitive as OFS companies compete to maximize utilization.

In the current frac pricing environment, capital investments must be rigorously evaluated, and we suspect some smaller, less well-capitalized competitors may disproportionately struggle to maintain asset quality and performance. Some may even exit the business. We are certainly hearing more about pumping equipment for sale at low prices. We believe these are mostly assets with limited useful lives, indicating that some providers are opting to monetize and exit rather than maintain and reinvest. We see this as a positive, potentially tightening frac supply and leading to firmer pricing, but this may take some time to play out. Our 2025 plans still do not include a new frac fleet, though if and when we invest in incremental frac equipment, we would expect to retire older fleets.

Looking at our non-pressure pumping service lines, combined revenues were down 1% sequentially in the Q1, with no individual service line up or down a significant amount. In short, it was a fairly stable quarter across most of the business. Downhole tools revenues were flat. Several of our regions delivered solid growth in the quarter, though were offset by some unusual weather disruptions in the Rocky Mountains and other regions. Our new drill and unplug products continue to gain early traction in the market, and we're pleased with the response, but these are still too small to move the needle on our overall financial results. We look forward to more progress and will share updates on key milestones as appropriate.

Coiled tubing was down a few points in the quarter, cementing was flat, and rental tools had a nice gain, up about 7%, as that business did see a noticeable bounce to begin the new year. From a strategic standpoint, we believe bolstering these less cap-intensive service lines with organic investments and acquisitions will help drive growth, improve our customer mix, and reduce volatility in our financial results. With that, I'll segue into the Pintail Completions acquisition. We have been talking increasingly in recent quarters about our optimism for executing acquisitions. We have assessed several potential transactions since acquiring Spinnaker in 2023, and we were very pleased with our ultimate outcome, acquiring Pintail in an agreed-up transaction. The total purchase price was $245 million, comprised of $170 million in cash, a $50 million seller note, and $25 million of issued stock.

While we had ample cash to fund the total purchase price, we believe the note and stock provide increased alignment and incentives as we move forward together. Pintail is a leading wireline perforation services provider, offering some of the newest and most efficient high-performance conventional and electric equipment in the industry, with more than 30 active fleets. It has a fairly concentrated customer base of blue-chip E&Ps, and all of its operations serve the Permian Basin. The Pintail management team is well-regarded in the industry, having established a reputation for delivering outstanding customer service in a safe and efficient way with low emissions. Pintail generated $409 million in revenues in 2024. We believe it has reached critical mass and expect revenues to trend with the overall market. Its customer retention is a testament to the strength of its relationships and consistent wellsite performance.

We note that the quarterly revenue was in the $100 million range in each quarter last year, with no discernible seasonality or year-long directional trend in their top-line results. We have not disclosed specifically profitability measures; however, our general expectation is for EBITDA margins to continue to track at about 20%, +/- a few points. Pintail will maintain its operational approach, and we expect a relatively light integration, with most of our efforts focused on back-office support and financial reporting. Its day-to-day operations will remain largely unchanged, and the management team will remain focused on serving its customers.

With respect to the strategic rationale of the deal, you may recall that during our Q4 call, we highlighted several strategic imperatives to executing on our goals: improve margins and execution, and optimize our assets, increase operational scale through M&A, rebalance our portfolio with a focus on high cash flow generating service lines and strengthen our customer mix by increasing our focus on blue-chip E&Ps, given industry consolidation. Pintail is very well aligned with those imperatives. Adding over $400 million of revenue certainly adds operational scale and meaningful share in wireline. Pintail is also a high cash flow producing business with relatively low capital intensity, and its exclusive focus on blue-chip customers is something we find very appealing. This acquisition is a great fit with our strategic direction as we continue to expand our completion services capabilities and focus on overall company growth and free cash flow.

Looking at our 2024 revenues, pro forma with the addition of Pintail, pressure pumping was 32%, wireline increased from 1%-23%, downhole tools was 21%, coiled tubing was 7%, and cementing was 6%. All other businesses together would represent approximately 11%. Furthermore, the Pintail transaction would move our Permian concentration up to approximately 60% of total revenues. With that, Michael will now discuss the quarter's financial results as well as some notes on the Pintail transaction.

Michael Schmit (CFO)

Thanks, Ben. Shifting to the Q1 of financial results with sequential comparisons to the Q4 of 2024, revenues decreased 1% to $333 million. Breaking down our operating segments, technical services, which represented 94% of our total Q1 revenues, was down 1%. Support services, which represented 6% of our total Q1 revenues, were up 1%. The following is a breakdown of our Q1 revenues for our top five service lines. Pressure pumping was 40.1%, downhole tools 28.2%, coil tubing 9.6%, cementing 8.3%, rental tools 4.6%. Together, these accounted for approximately 91% of our total revenues. Cost of revenues, excluding depreciation and amortization, decreased by $6.4 million to $243.9 million, or 3% during the Q1. The lower cost of revenues can be mainly accounted for by lower expenses in three categories.

First, transportation and fuel declined due to job mix, as we provided less fuel to our customers. This typically carries little to no profit, so it was actually a positive margin impact for us. Second is lower material and supplies. As the mix of our jobs changes quarter to quarter, so does the amount of sand and chemicals we supply on these jobs. Lastly, we noted in the Q4 that insurance costs were elevated. The same level of expense did not repeat this quarter, thus contributing to a modest sequential improvement in the Q1. SG&A expenses were $42.5 million, up from $41.2 million, as a percentage of revenues increased 50 basis points to 12.8%, reflecting increased IT modernization project expenses and slightly lower revenues. Our Q1 tax rate was 27.2%, more in line with our normalized tax rate.

Recall that our Q4 of 2024 tax rate was unusually low due to the impact of tax planning strategies and interest received on past refunds. Notably, we had higher sequential EBITDA. The increase in tax rate drove a slight sequential net income decline compared to Q4 2024. Diluted EPS of $0.06 in the Q1 was flat versus the Q4. EBITDA was $48.9 million, up from $46.1 million, with EBITDA margin increasing 100 basis points sequentially to 14.7%. For the quarter, operating cash flow was $39.9 million, and after capex of $32.3 million, free cash flow was $7.6 million. At quarter end, we had $327 million in cash and no debt on the balance sheet. During the quarter, we paid $8.7 million in dividends.

Regarding the 2025 capital spending expectations, we now project $165 million-$215 million, inclusive of Pintail for the next nine months, mostly related to maintenance. Shifting now to some Pintail modeling notes. Pintail closed after the Q1, so there was no material P&L, balance sheet, or cash flow impact from the deal in our results. We are not providing explicit accretion guidance for the transaction, but we do expect it to be accretive to EPS and cash flow for 2025. Based on our comments, you should be able to make reasonable projections for revenues and EBITDA, which will be in large part influenced by overall OFS market conditions. Beyond the EBITDA impact, please note a few other modeling items. Capex for Pintail will likely be up to $20 million on an annualized basis, with depreciation expected to approximate annualized capex.

We will lose interest on the $170 million cash portion of the transaction funding, as well as incremental interest expense on the $50 million seller note. It has a floating rate of SOFR plus 200 basis points. Lastly, based on the share price, immediately before April 1, we issued approximately 4.5 million shares. We will complete purchase accounting in the coming months and note that certain future expenses impacted by the purchase price allocation and related valuation, including the amortization of intangible assets, were not contemplated in these figures. On another topic, you may have seen the company has filed an S-3 registration statement with the SEC, which includes registering the Rollins Family Control Group shares. The Rollins Family has been a long-time shareholder with ongoing representation on our board. They have always been supportive of the company, and we do not believe this changes that relationship.

We view the registration of the Control Group shares as good corporate housekeeping. I'll now turn it back over to Ben for some closing remarks.

Ben Palmer (President and CEO)

Thank you, Mike. To wrap up, I want to touch on the macro environment. We have entered a period of high uncertainty and limited visibility with respect to tariffs and their impact on inflation and the economy in general. Tariffs in the current form will likely push equipment prices higher, put even more pressure on the industry to be disciplined with capital spending. More broadly, the potential economic impact from tariffs and trade disputes increases uncertainty and contributed to oil prices falling to the low $60 range. Oil at these prices makes it difficult for some customers to justify continued completion activities at prior levels, but only time will tell. News flow and market developments are dynamic in the current environment. We, as well as OFS competitors and upstream and downstream players in the value chain, will have to navigate these uncertainties as we assess investment commitments.

However, despite some mild turbulence and unknowns, a few things remain unchanged. Our balance sheet is strong, our dividends secure, and we have ample liquidity to ride out volatility and still capitalize on opportunities as they arise. We believe the company has an attractive mix of service lines and brands, customers, and geographic presences, and will execute our strategy with patience and discipline, including our pursuit of additional acquisitions. On a separate note, we'd like to welcome Steve Lewis to our board of directors after being elected this week. Steve retired from the law firm Troutman Pepper, formerly Troutman Sanders, in 2023, where he had served in various leadership roles, including chairman and CEO. At the same time, Gary Rollins and Pam Rollins have retired from our board. We thank them for the years of contributions, leadership, and service.

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'd be happy to address any questions you may have.

Operator (participant)

At this time, in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of Stephen Gengaro with Stifel. Please go ahead.

Ben Palmer (President and CEO)

Good morning. Steve, you may be on mute.

Operator (participant)

Steve, go ahead.

Stephen Gengaro (Managing Director)

Can you hear me?

Ben Palmer (President and CEO)

Yeah. We can hear you.

Stephen Gengaro (Managing Director)

Oh, there you go. Yeah, I put it. Didn't like me. When we, you talked a little bit about this, I think, on the fair remarks. When we think about the pressure pumping market in general, are you seeing, what are you seeing in sort of pricing conversations? Are you seeing any differences kind of versus prior periods of softness in the market?

Ben Palmer (President and CEO)

I think I understand the question. Each one of these cycles are different, yet they're very much the same. I think some of what's happening is, again, with all the uncertainty about what's going on and the fact that things could, in fact, flip back, I think our customers are scrambling. They're trying to respond to their potential impact with lower oil prices. They're trying to do what they can. Service companies like us are trying to hang in there and do the best we can to try to be accommodating to our customers, yet we're trying to maintain our business as well. I don't know that the discussions are completely different, but I think the circumstances are perhaps a bit different, and that may impact slightly those discussions. It's all about the give and take in trying to reach, hopefully, a decent place for both parties.

Stephen Gengaro (Managing Director)

Okay. Great. Following Pintail, can you just kind of remind us, when you think about capital allocation, kind of what the priorities are? When you're looking at M&A, what are sort of the two or three most important criteria you look for?

Ben Palmer (President and CEO)

Obviously, we want accretive transactions. We certainly, adding to existing businesses that we have that have good, strong brands is certainly a criteria. Again, looking for customers, we want more exposure to the larger customers that should translate into more steady business, less volatility. Also looking for companies, service lines that have good free cash flow generating capability. We all know that pressure pumping is a very large part of the overall well completion cost, but it is highly competitive right now. We still are committed to that business, but we're looking to grow in some other service lines and with brands that, brands with good management teams that can produce some good free cash flow. That is really our priority, more exposure to E&P customers and businesses with good free cash flow potential at prices that are accretive to our results.

Stephen Gengaro (Managing Director)

Great. Thanks. The one final one was when, I do not want to give you the wrong numbers here, but when we think about the Pintail business, I think it was running kind of close to about $90 million in revenue a quarter based on the info that was disclosed. Is that about the right starting point right now as we think about layering it in?

Ben Palmer (President and CEO)

Stephen, we said in our earlier comments that they did a little over $400 million in 2024, and each quarter was right at $100 million. I think $100 million, more, less, or whatever, they've kind of as we indicated, they've kind of reached their critical mass. Certainly not completely obliterated or can't avoid the overall market forces that are in place. In round numbers, probably closer to $100 million.

Stephen Gengaro (Managing Director)

Great. All right. Thank you for the details.

Ben Palmer (President and CEO)

Thank you. Appreciate your questions.

Operator (participant)

Again, if you would like to ask a question, press star, followed by the number one on your telephone keypad. Your next question comes from the line of Don Crist with Johnson Rice. Please go ahead.

Don Crist (Research Analyst)

Good morning, guys. How are we all today?

Ben Palmer (President and CEO)

How are you? Good morning, Don.

Don Crist (Research Analyst)

Are you seeing any shift in kind of customer activity? I know pressure pumping's generally a large topic of discussion, but in your other service line, are you seeing any shift away from high Capex projects, i.e., new wells and new pads towards workovers or anything like that that may have a bigger impact to EMP's cash flows with smaller dollars?

Ben Palmer (President and CEO)

That's a reasonable question, Don. I think it's a little bit early to know that or to have a whole lot of feedback on that. That certainly seems reasonable. In prior cycles, that type of shift has occurred. We are certainly watching for that sort of thing. Good question.

Don Crist (Research Analyst)

Okay. On a typical job kind of timeline, what is your visibility normally? I mean, if you're either fracking a well or a pad, rather, do you have visibility on the next two pads or just the next pad? When is that decision point made normally in normal kind of business cycle to where we can kind of forecast how far out you know kind of what you're going to be doing?

Ben Palmer (President and CEO)

Our frack business historically, as you and others know, has been more of the spot market and semi-dedicated. It depends on the size of the customer and the nature of the type of work we are doing. Typically, for the semi-dedicated customers, we have some visibility for months at a time, maybe not a year or more, but we certainly typically have some level of visibility. Spot market, much less so. We do have a calendar. We watch the calendar. We maintain the calendar. We are always trying to work and minimize the white space, be that with a dedicated customer, semi-dedicated, or spot. It just depends on the customer. Some of our other service lines that have more dedicated work, the visibility is a bit longer. As you can imagine, though, customers are right now, they are looking at different alternatives.

As we see it right now, kind of looking ahead, early in the Q2, things look to be relatively stable, but it's hard to know. Again, uncertainty is the word of the day or the time right now. We know that there are discussions going on, and we'll just have to wait and see and get prepared for and then react to whatever happens.

Don Crist (Research Analyst)

Okay. One of your competitors reported last night and talked about a kind of uptick in gas-directed activity, whether it be in the Eagle Ford or Mid-Continent or other places. Are you seeing any hiccup yet, or is that still a couple of months down the road, do you think?

Ben Palmer (President and CEO)

I think probably a little further down the road. We are hearing a little bit. We do have exposure to some natural gas-focused basins, especially with our downhole tools business. Very traditionally strong natural gas plays. Our downhole tools business is very well equipped to be able to move people and equipment around very easily and quickly. Having those operating locations in place, we will be able to jump very quickly onto opportunities with that service line and a couple of our other service lines. Less so for pressure pumping. We do have some exposure to the Mid-Continent. If things were to pick up there, we could certainly take advantage there. The biggest opportunity for us is probably it would be on the downhole tool side.

Don Crist (Research Analyst)

Okay. I appreciate the color. I'll turn it back to the operator. Thanks.

Ben Palmer (President and CEO)

Thanks, Don. Appreciate it.

Operator (participant)

Your next question comes from the line of John Daniel with Daniel Energy Partners. Please go ahead.

John Daniel (Founder and CEO)

Hey, Ben. Thanks for including me. Just a couple of quick ones. I think in your prepared remarks, you noted some of the older pumping equipment out there is being sold by presumably some of your competitors. I'm just curious if you can talk about whether it's frack equipment or other assets in your portfolio. Do you guys see a need to sell assets? Just your thoughts on that equipment re-entering the market.

Ben Palmer (President and CEO)

What was the very end of your comment?

John Daniel (Founder and CEO)

Some of your peers, I think you know, have sold or are trying to sell some of their older Tier 2 equipment. Others are smaller companies who are selling assets just to try to generate cash. You guys clearly do not need to generate cash because your balance sheet's fine. I'm just curious if you could broadly speak about what you're seeing in terms of who's buying some of that equipment, just your thoughts on that side of the market.

Ben Palmer (President and CEO)

It's a good question. Again, we have, as we indicated, have seen some opportunities. I don't know who might be buying that. We have rarely, over the years, found an opportunity that we were comfortable trying to make investments in a used piece of equipment. We have done a little bit of that, but not in a wholesale way. Maybe kind of thinking about the question too, we talked about the fact that we monitor our equipment, and when it comes to end of life or inefficient operations or whatever for frac, we look to move those assets out. We don't like to stack them up.

In the last year or two, when that need or opportunity arose, we've been able to reallocate some of those assets to other of our service lines that can use that type of equipment and can contribute very nicely to the other service lines. We've done some of that. If we were to sell our equipment, we've been very diligent about trying to make sure it can or doesn't re-enter the frack market. That could include selling it overseas or being able to disassemble the parts and try to distribute it that way. We're very keenly aware of trying to introduce any more equipment that can be competitive in the market.

John Daniel (Founder and CEO)

Okay. The next one, thanks for that. The next one is on CapEx, just quickly. Q1 CapEx was called low 30s, which means you're underspending relative to the guidance. You're on the low end, if you will. What would you need to see to sort of accelerate that spend in the back half of the year? Is there more of a chance that we would see that CapEx dollars be allocated to further accretive M&A opportunities?

Michael Schmit (CFO)

Hey, I'm John. This is Mike. Yeah, I think it will be based on market conditions overall. We're looking to spend the CapEx we need to maintain our equipment, or if there is something accretive, we'll spend the money on that as well. We are really looking at trying to see what we're really going to need to spend to meet all our customer needs for the year because no one knows really what's happening overall, the macro conditions out there.

We have really pushed back or asked our businesses to really look at whether they need to do that this year or if we can hold off next year just so we also are not spending all our cash on equipment that we are not going to get a good return on in the short term so that we still have a strong balance sheet so we can do further acquisitions also. We are still projecting to probably pick up a little bit of spending as the year goes on, but hopefully that kind of gives a little bit of color as to how we think about it. I do not know, Ben, do you want to add anything else?

Ben Palmer (President and CEO)

Yeah, I was just going to say, John, I think, yeah, the Q1 number, there was a little bit of managing there trying to actually not spend where we don't need to spend, but I think it was just sort of the timing worked out to where it was a relatively low annualized spend. That was, I think, just the way everything fell out in terms of.

John Daniel (Founder and CEO)

Got it. One quick final one for me. As the year unfolds with the uncertainty, I presume you're going to see lots of M&A opportunities. Just given Pintail's strong presence in the Permian, would you say that you're, would you be more inclined to be focused on further consolidating the Permian market, not just, say, wireline, but other services? Are you sort of somewhat agnostic and willing to look at other basins?

Ben Palmer (President and CEO)

I think that's a good question. We're agnostic or we're open to opportunities in other basins as well. Again, with the impending expected opportunities in the natural gas basins, now may be a good time before things really do pick up big time. Maybe there's an opportunity to pick something up that has exposure to some of those other basins that we could take advantage of. I think we're looking at talking about several things. Our discussions are not all around, "We need to focus on the Permian." Our discussions are around, "Let's look for appropriate opportunities." Each company and each business and each service line and each brand has different attributes. We're open. We're open.

John Daniel (Founder and CEO)

Okay. Thank you for including me.

Ben Palmer (President and CEO)

Sure. Thank you.

Michael Schmit (CFO)

Thanks, John.

Operator (participant)

This concludes our question-and-answer session. I will now turn the call back over to Ben Palmer.

Ben Palmer (President and CEO)

Thank you all for listening in and your questions. We appreciate it. I hope you have a good rest of the day and look forward to catching up. Take care.

Operator (participant)

Today's call will be available for replay on rpc.net within two hours following the completion of the call. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.