RPC - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue was $420.8M, up 26% sequentially; excluding Pintail’s $98.9M contribution, adjusted revenue fell 3%. Adjusted EBITDA rose to $65.6M with margin up 90 bps to 15.6%, while GAAP diluted EPS was $0.05 and adjusted diluted EPS was $0.08.
• Versus S&P Global consensus, revenue modestly beat, adjusted EBITDA was above, but adjusted EPS missed: Revenue $420.8M vs $417.5M consensus*, Adjusted EBITDA $65.6M vs $63.4M*, Adjusted EPS $0.08 vs $0.092* (GAAP EPS $0.05).
• Mix and pricing were headwinds in pressure pumping (down 18% QoQ) due to weather, non‑productive time (NPT), and customer delays; non‑pumping service lines (downhole tools, coiled tubing, rental tools) grew sequentially and now comprise ~74% of total revenues.
• Management raised 2025 capex outlook to $165–$215M (incl. Pintail for 9 months) and guided full‑year effective tax rate to mid‑30s; declared a $0.04 quarterly dividend.

What Went Well and What Went Wrong

What Went Well

• Non‑pressure pumping service lines delivered sequential growth: downhole tools, coiled tubing, and rental tools increased; Technical Services +27%, Support Services +14% QoQ.
• Pintail acquisition added scale and diversified wireline; contributed ~$99M in Q2 revenue and accretive 2025 outlook. “Pintail brings significant scale, a blue chip customer base…”.
• Adjusted EBITDA improved to $65.6M and margin to 15.6% (+90 bps QoQ), aided by Pintail and SG&A leverage to 9.7% of revenue (-310 bps QoQ).

What Went Wrong

• Pressure pumping revenue fell 18% QoQ amid weaker activity, pricing pressure, weather, external NPT (up >200% per management), and customer startup delays, particularly in June.
• GAAP net income declined to $10.1M (EPS $0.05), with an unusually high 41.3% effective tax rate largely driven by non‑cash acquisition‑related employment costs (largely non‑deductible).
• Wireline pricing pressure intensified in Permian; management expects slightly lower Pintail EBITDA margins than previously communicated (still strong operating cash flow), tempering near‑term profitability.

Transcript

Operator (participant)

Good morning and thank you for joining us for RPC Inc's second quarter 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 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 that this conference call is being recorded. I will now turn the call over to Mr. Schmit.

Mike 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 this morning. Today, we will talk about our second quarter results, which incorporate a full quarter of the recent Pintail acquisition. In addition, we will share our views about the impacts we are seeing from increasing macro and geopolitical uncertainties, which were prevalent during the quarter. Second quarter results reflect a sequential improvement due to the full quarter impact of our Pintail acquisition. While many of our legacy service lines saw modest revenue increases, pressure pumping continued to experience a challenging environment. Pressure pumping was negatively impacted by lower industry activity overall, but also by weather, third-party non-productive time, and customer calendar delays. We saw more than a 200% increase in third-party non-productive time, which was most pronounced in June. This, combined with customer delays, resulted in operational inefficiencies. Pressure pumping is now primarily deployed with dedicated customers.

This customer shift has increased our mix with simul frac and twin frac operations, which generally requires additional equipment and less cut supplied materials. The market overall remains very competitive, and we are cautious regarding the second half of the year, given the reduction in rig activity over the last several weeks. Our 2025 plans include the testing of 100% natural gas pressure pumping units as part of our strategies to evaluate alternative technologies. Our first unit is expected to be deployed in the third quarter. Non-pressure pumping service lines represented 74% of total revenues during the second quarter. Revenues without the contribution of Pintail were up 7%. We saw revenue growth in downhole tools, coiled tubing, rental tools, and our tubular services. Downhole tools revenues were up 6% sequentially.

We saw particular strength in our Northeast and Rocky Mountain regions, which is a testament to Thru Tubing Solutions' broad geographic exposure. Thru Tubing Solutions' A10 motor and unplugged technology products continue to gain early traction in the market. We believe the new A10 motor has resulted in incremental share gains through our already robust market position. The A10 motor is gaining a lot of traction and has been utilized by more than 50 customers to date. The product really demonstrates its value on longer laterals and wells that need higher flow rates. Turning to our unplugged technology, we had multiple demonstrations during the quarter with customer use expanding. We are still very much in the early adopter and testing phase of this product's lifecycle, but we are pleased with its performance and feedback we've received thus far.

Recall, this product reduces the need for bridge plugs and drill out time in a well and achieves highly effective stage isolation. Coiled tubing was up 12% sequentially, and in late June, we took delivery of the largest coiled tubing unit in the U.S., which began promptly working in July. This 7/8 unit is uniquely suited for large pad customers who drill long laterals and has had multiple customers expressing a strong interest. Over the last couple of years, we've made investments in cut pressure control that provide additional opportunities for coiled tubing and snubbing in late 2025 and into 2026. Cut pressure control has been able to partner with other RPC service lines with new applications to generate additional revenue. Many revenues were roughly flat sequentially, and we saw rental tool revenues increase 17% versus the prior quarter, partly due to weather impacts on the last quarter.

Wireline, including our much smaller legacy business, increased substantially quarter over quarter due to the Pintail acquisition. Pintail is the largest wireline provider in the Permian Basin, an operational leader with a well-regarded management team and a blue-chip customer base. The acquisition further diversifies our portfolio, increases our scale through M&A, improves our cash flow profile, and strengthens our customer mix. Our portfolio of various services and products with strong brands and operational leadership has provided resiliency throughout the years. Pintail revenues contributed approximately $99 million in the second quarter, or 23% of total revenues. given Pintail share position, we expect revenues to trend with the overall market and have historically experienced limited seasonality due to its focus on dedicated 24/7 customers. In our SEC filings following the transaction, additional financial data was provided.

The wireline market, too, remains challenging, with pricing pressure intensifying during the quarter as smaller competitors and less consistent work attempted to increase their utilization. We saw relatively consistent gun usage during the quarter, however, competitive pricing leads us to expect slightly lower EBITDA margins than previously communicated, but still strong operating cash flow. From a strategic standpoint, we believe bolstering these less capital-intensive service lines with organic investments and selective acquisitions will help drive growth, improve our customer mix, and reduce volatility in our financial results. We believe our balance sheet provides us optionality, including executing selective acquisitions. Spinnaker and Pintail were well-positioned as these companies participated in markets we had familiarity with, but provided us a leading brand and leadership to significantly scale up in the respective service lines.

While relatively small, we also have been able to deploy cash to purchase assets in existing service lines to enhance and expand our offerings. With that, Mike, we'll now discuss the quarter's financial results as well as some notes on the Pintail campaign.

Mike Schmit (CFO)

Thanks, Ben. Our second quarter financial result with sequential comparisons to the first quarter of 2025 are as follows. Revenues increased 26% to $421 million. Excluding Pintail revenues, revenues were down 3%. Breaking down our operating segments, technical services, which represented 94% of our total second quarter revenues, was up 27%. Support services, which represented 6% of our total second quarter revenues, was up 14%. The following is a breakdown of the second quarter revenues for our largest service lines. Pressure pumping was 25.9%. Wireline was 24.7%. Downhole tools was 23.7%. Coiled tubing was 8.5%. Cementing was 6.6%. Rental tools was 4.3%. Together, these service lines accounted for 94% of our total revenues. Cost of revenues, excluding depreciation and amortization, was $318 million compared to $245 million in the previous quarter.

This increase was primarily due to the addition of Pintail, as our cost of revenues, excluding Pintail, declined 3% sequentially. The lower cost of revenues from our legacy businesses was primarily attributable to lower materials and supplies, which saw declines in pressure pumping due to lower activity and job mix changes during the quarter. We also saw modest declines in employment-related costs. SG&A expenses were $40.8 million, down from $42.5 million. As a percentage of revenue, these expenses decreased 310 basis points to 9.7%, reflecting minimal additional SG&A from the Pintail acquisition, leveraging our SG&A costs over higher revenues, as well as the capitalization of some costs associated with our IT system upgrades and ERP implementation. Our second quarter's effective tax rate was 41.3%, which was significantly higher than our previous quarter's effective tax rate.

The effective tax rate was unusually high this quarter, primarily due to the acquisition-related employment costs associated with the Pintail acquisition, which contributed to lower pre-tax income and which are largely non-deductible for tax purposes. We expect our effective tax rate to be negatively impacted through the life of the acquisition-related employment costs due to their accounting treatment, which differs from their tax treatment. We expect our full year 2025 effective tax rate percentage to be in the mid-30s. Adjusted diluted EPS was $0.08 in the quarter. Adjustments totaling $0.03 were entirely related to the acquisition-related employment costs. Adjusted EBITDA was $65.6 million, up from $48.9 million, with the margin increasing 90 basis points sequentially to 15.6%. Operating cash flow was $92.9 million, and after a CapEx of $75.3 million, free cash flow was $17.6 million.

Free cash flow year to date reflected a negative working capital impact related to a large customer prepayment received in the fourth quarter of 2024. At quarter end, we had $162 million in cash, a $50 million seller finance note payable, and nothing outstanding on our $100 million revolving credit facility. During the quarter, we paid $8.8 million in dividends. 2025 capital spending is expected to be between $165 million and $215 million, inclusive of Pintail for nine months, mostly related to maintenance and opportunistic asset purchases, as well as our IT system upgrades and ERP implementation. I'll now give a few comments on our recent acquisition of Pintail. As previously stated, we expect the acquisition to be accretive in 2025. The acquisition-related employment costs are non-cash for the quarter and are expected to continue at a similar quarterly amount over three years.

Our second quarter results reflect the additional shares issued in conjunction with the transaction. These results also reflect lower interest income from the lower cash balance and higher interest expense due to the seller note when comparing results to last year. The preliminary purchase price allocation details can be found in our second quarter 10-Q. Going forward, we will not be providing specific guidance on Pintail. I'll now turn it back over to Ben for some closing remarks.

Ben Palmer (President and CEO)

Thank you, Mike. Uncertainty around the economy, tariffs, and commodity markets have created a challenging operating environment. As the company is seeing tariff impacts, we're taking steps to either mitigate or factor these cost increases into our pricing. Lastly, the current oil prices are unlikely to stimulate significant activity increases in the near term in the overall industry. RPC is no stranger to business cycles and uncertain demand environments. We will continue to manage our business by focusing on prudent capital investments and capital allocation decisions, control costs, and utilize our balance sheet and liquidity to take advantage of opportunities as they arise. Our mix of service lines, customers, and patient exposures provide beneficial diversification. I want to thank all our employees who work tirelessly to deliver high levels of service and value to our customers.

Thank you for joining us this morning, and at this time, we'd be happy to address any questions.

Operator (participant)

If you would like to ask a question, please press star one on your telephone keypad. We will pause for a moment to compile the Q&A roster. Your first question comes from John Daniel with Daniel Energy Partners. Please go ahead.

John Daniel (Founder and President)

Hey, guys, thanks for having me. Ben, you still have an enviable cash position and balance sheet, and I'm just curious if you could elaborate a bit on the go-forward acquisition strategy. To help frame what I'm looking for is really your preference for consolidation opportunities to drive more scale in a particular service or region, or whether you think the best opportunity is to try to expand into other services and/or other geographic markets. That's part one. I'll let you touch on that.

Ben Palmer (President and CEO)

Okay. Thank you, Challenge. Yes, that's still our strategy. Over time, obviously, in the last couple of quarters, with some of the volatility and uncertainty around future activity levels, it makes the evaluation of current oil field, domestic oil field opportunities a little bit more difficult to analyze and price and that kind of thing. We're certainly looking. I think scale for us and some of our existing service lines is certainly a possibility. We're going to be in the current environment. We'll be selective and we'll be mindful of the difficulty in trying to determine appropriate valuations. With respect to, as historically we've done, we're much more opportunistic. There are certainly on the lookout on some of our existing opportunities around some of our existing service lines. The ability to diversify outside the oil field is something that we look at as well.

Not necessarily focused on particular regions, but as I indicated in some of our remarks, we feel like we've benefited historically from the diversification and Thru Tubing Solutions in particular has a strong position in several basins throughout the U.S. If and when natural gas activity picks up, we're very well positioned to take advantage of that.

John Daniel (Founder and President)

Thank you. A follow-up, if I may, on the M&A strategy, but at least within a couple of the service lines, and you touched on it a little bit, there's a bit of continued pricing pressures, predatory pricing, if you will. You have the backdrop, presumably, of a Q4 slowdown, just to see if the trend is consistent with prior years. I'm curious if it would seem that for some of your peers, it's about to get worse. How does that play into just hitting the pause on M&A and maybe there's better opportunities surface, call it, first half of next year?

Ben Palmer (President and CEO)

I'll let you answer that. I kind of touched on that. I think we wouldn't say we put a pause on, but certainly, we're not leaning into the wind quite as much as we have been.

John Daniel (Founder and President)

Okay.

Ben Palmer (President and CEO)

You're right. I think, you know, if and when things are shaking out, that could create some different type of opportunities and situations that we'll be ready to take advantage of.

John Daniel (Founder and President)

Okay. I got an easier one for you now. The addition of that 2.875 is obviously an impressive unit. I'm curious, and you've only had a few weeks, but you mentioned good customer interest so far. I'm curious if you have any field results from it yet that you can speak to and whether or not you believe at this stage there's enough interest to warrant a possible second unit. If you could just provide some color, it would be helpful.

Ben Palmer (President and CEO)

Yeah, the results so far have been very good, very impressive. We're really pleased with that. It's staying very, very busy thus far. In terms of a second unit, we haven't entertained that yet. I think that we certainly haven't placed any additional orders at this point in time. It is more of a wait-and-see. We're trying to be very selective with our investments. You can see that our CapEx is down versus the prior year, despite some of these additions that we've been able to make. We're being very, very careful about that.

John Daniel (Founder and President)

Okay, thank you for including me.

Ben Palmer (President and CEO)

Thank you, John.

Mike Schmit (CFO)

Thanks, John.

Ben Palmer (President and CEO)

Appreciate it.

Operator (participant)

Your next question comes from the line of Charles Minervino with Susquehanna. Please go ahead.

Charles Minervino (Equity Research Analyst)

Hi, good morning.

John Daniel (Founder and President)

Morning.

Charles Minervino (Equity Research Analyst)

I was wondering if you could touch on the segment outlook a little bit in the second half of the year. I think your comments about the frac market, I think cautious in the second half of the year. I know it was down quite a bit in 2Q. I don't know if now the market has kind of settled there or if you anticipate a little bit of another leg down in the pressure pumping piece as you work into 3Q. I guess that's my first one, if you can address that.

Ben Palmer (President and CEO)

Pressure pumping in particular, you know, those of you who are familiar with our historical results, pressure pumping has had kind of a challenging quarter in each of the last two years, and that was the third quarter of the last two years. This year, it's the second quarter. We are seeing, as I indicated, we are much more aligned with more highly dedicated customers that began during the second quarter and continues into the third quarter. We see a lot more activity and a lot more certainty around our calendar heading into the third quarter and hopefully into the fourth quarter with some of these dedicated customers who typically, you know, don't have as much of a seasonal slowdown. We expect, hope, and expect that, you know, that's going to minimize the otherwise normal seasonality that occasionally hits the fourth quarter.

The fourth quarter of the last two years had been actually better than the third quarter of the last two years for the reason I indicated. Just there's been unexpected white space and excessive non-productive time and things like that. We're hopeful, again, with the customer lineup for pressure pumping that we have at this point in time, that we'll actually see a sequential, an opportunity to have some improvement. The mix, as we indicated too, the mix of the work has less materials and supplies. The revenue change may be a little bit different, right? Obviously, more materials and supplies increases your revenues. We may have revenues that are lower than they would otherwise be, but we expect we'll be staying a lot more busy.

Charles Minervino (Equity Research Analyst)

I was wondering if you could just touch a little bit on free cash flow outlook for the second half of the year.

Ben Palmer (President and CEO)

I would first say, you know, we noted in our comments about the first half, free cash flow was impacted by a, you know, it was actually around a $45 million prepayment received in the fourth quarter last year that negatively impacted free cash flow. On a quote-unquote "adjusted basis," you know, it would have been closer to, I guess, that $63 million or something. The back half of the year is going to be certainly better than the first half for the following reason. We don't know whether we'll receive another prepayment or not. We're not counting on that with respect to, you know, planning for and, you know, analyzing our expectations around free cash flow. With the level of CapEx we have that we signaled, we think we'll have decent free cash flow for the second half.

Charles Minervino (Equity Research Analyst)

Okay. Just one more for me. I think you mentioned pricing and wireline getting a little bit more aggressive. Just wondering how that, how you think that plays out a little bit in kind of the results in 3Q and 4Q. Does that, is that kind of tied to Pintail a little bit? Is that how we should be thinking about it?

Mike Schmit (CFO)

Yeah. Definitely Pintail. One other thought, you know, on free cash flow, we only had Pintail for one quarter in the first half of the year, and we'll have them for both quarters in the second half of the year. That should help us because, as we said, we expect them to be accretive for the year. Yeah, I mean, our existing wireline business was very small. You can think about that. It is pretty much Pintail there. They're also heavily in the Permian, which has had, you know, some of the biggest struggle in the last, in the most recent quarter. That impacts Pintail as well as our pressure pumping business more than our other businesses. You can kind of see that, you know, in the revenue increases and results. That would have an impact there. You know, as we've said, it's still accretive.

You know, the numbers are available in the 8K that we had a couple, about a month back that were, you know, extremely good in recent previous years. They're just impacted like everyone in the Permian. As Ben indicated, we have a really strong position with Pintail. They're as busy or more busy than anyone else in the Permian and have great customer relationships and all the reasons we bought them. You know, we're not, we're, you know, still cautiously optimistic.

Ben Palmer (President and CEO)

Yeah, we think the management team is working really hard on costs where they can, in response to the more challenging environment. Certainly, the uncertainty around that came about because of Liberation Day and the impact, again, on the overall market and customers' appetite for increasing activity levels, obviously, and decreasing some of their activity levels. Pintail is still well positioned, and they'll be a nice contributor.

Charles Minervino (Equity Research Analyst)

Thank you.

Ben Palmer (President and CEO)

Thank you.

Operator (participant)

There are no further questions at this time. I'll now turn the call back over to Mr. Ben Palmer for closing remarks.

Ben Palmer (President and CEO)

All right. Thank you, everybody. Appreciate you listening in, and look forward to catching up later, and hope you have a good rest of the day.

Operator (participant)

This concludes today's call. A replay of today's events will be available at www.rpc.net within two hours following the completion of the call. Thank you all for joining. You may now disconnect.