RPC INC Q4 FY2024 earnings call

• The OFS market remains challenging with seasonal slowdowns impacting parts of the business. - Pressure pumping showed signs of improvement in Q4 after a difficult Q3, but was down 24% for the full year. - Non-pumping services had mixed results: coiled tubing up low double-digits, cementing increased, downhole tools declined modestly, rental tools slightly down. - New products launched: 3.5-inch downhole motor gaining traction, new unplug system in full commercial deployment. - Focus on innovation, cost monitoring, IT projects for optimized decision-making, and evaluating noncore asset sales.

In the fourth quarter, pressure pumping was up 3% sequentially, while all other service lines in aggregate declined 3%. For the full year, pumping was off by 24%, while other service lines declined only 2%. Technical Services represented 94% of total revenues in the quarter and was essentially unchanged, while Support Services were down 14% and represented 6% of total fourth quarter revenues. The top five service lines by revenue in the fourth quarter were: pressure pumping (40%), downhole tools (27.9%), coiled tubing (9.9%), cementing (8.3%), and rental tools (4.3%).

• Project to spend between $150 million to $200 million in capital expenditures throughout 2025. - Continuing to evaluate M&A opportunities, focused on high cash flow operations with quality management teams and synergy opportunities.

• Higher insurance costs impacted margins in the quarter. - Intense market competition with pricing pressure in the spot and semi-dedicated market. - Volatility in energy prices and uncertain policy/regulatory changes that could impact results.

Q: Morning guys. Hope you all are doing well. I wanted to start with the Technical Services segment. I mean, obviously, margins compressed a little bit in the fourth quarter there. Was there something in there on the cost side? Because it looks like it was more on the cost side than on the revenue side, like maybe repositioning of fleet for work or something else that we can't readily point to that maybe compress those margins. And do you think those kind of rebound as we move into the first quarter?

A: Yes. Hi Don, this is Mike. We had some higher-than-normal insurance costs during the quarter. We reset our insurance deductibles near the end of the year and actuaries do their thing, and we had some pretty significant increases there. So, that really impacted us during the quarter. So, it was less operational and kind of more -- it was insurance-related operations, but just kind of an unusual event, and we don't anticipate that will be recurring.

Q: Okay. And obviously, there's been a lot of reports that as pressure pumping weakened in the fourth quarter during the RFP season, it was kind of bad timing from that standpoint. But as you kind of look to 2025, do you anticipate any kind of reductions there, particularly on the pressure pumping side, due to increased competition as we kind of move through 2025? I know you're more in the spot market than contracted market, but are you seeing that as well?

A: Don, this is Ben. We -- it's very difficult to predict. Again, we did see some improvement there in the fourth quarter. Many of the customers we work for in the -- during the fourth quarter, we have opportunities with well into 2025. So, at this point in time, we don't we're not currently anticipating any or see on the horizon any particular softness arising. Likewise, we certainly can't say that we are highly optimistic that our revenues there will continue to progress, but we feel pretty good about who we're working for right now and the level of activity we have currently.

Q: Right. Okay. And I think I asked this every quarter, but given your cash hoard on the balance sheet and your propensity to do M&A, how is that market looking today? I mean, obviously, deals kind of slowed down as we moved through 2024 as the bid and ask kind of widened some. But are the bid/ask spreads coming closer into parity or where you think that it's a value to actually deploy some of that capital and grow into some of the other business lines?

A: Yes. We're certainly -- Don, this is Ben. We're certainly interested in trying to create some growth with some accretive acquisitions with respect to the bid/ask spreads and where those are heading or where they've been, I can't -- I mean, we have a number of things we've looked at. I'm not sure we could say that we've got a large enough universe of opportunities to specifically say we're seeing those spreads change. I don't know that we could speak to that directly. Maybe an investment banker seeing many more opportunities could speak to that. But obviously, there's been a lot of volatility, right? The OFS market did see some increase in share prices within the last few weeks, but we've also recently seen some weakness. So, it's variable, difficult to predict, but we'll just have to see. And obviously, that's part of the process to try to reach a deal, reach an agreement that hopefully is a win-win situation and can be accretive to our results. That's clearly what we're looking to achieve.

Q: Can you -- you mentioned in the press release the insurance settlement. And did you give -- or the insurance -- elevated insurance costs, did you give a magnitude of that? I'm trying to kind of calibrate the impact that had on the margins and the EBITDA in the quarter?

A: Yes, I don't think we gave an exact number. It was a few million dollars, and it was less of a settlement and more we have some changes in our deductibles and everybody's insurance costs are going up and ours kind of reset in the fourth quarter. So, the actuaries do their magic, and we are a bit surprised by the amount of the impact, but it definitely impacted our margins.

Q: Okay, great. Thanks. That is helpful. And then just a final one. When you talk to customers on the pressure pumping side, and I know the dynamics are fluid and there's been some pricing pressures as others have talked about, but what are the conversations like as far as kind of contract term and -- I believe you guys have talked a little bit about over the last year trying to get maybe a little bit more -- and a little less spot market work, where does that kind of situation stand right now?

A: Steve, for us, we still don't have any long-term firm contracts. These are all just sort of customer agreements. We are pleased with the direction of the mix of our business. We do have -- we've come into in the last several months, some opportunities that we would call more semi-dedicated. They're not necessarily -- there's not line of sight for the next year plus, but we do have kind of a multi-month view. So, that's good. We're pleased with where it is today. and we'll continue to work on that and try to improve that mix, maintain that and hopefully improve it a bit.

Q: Hi guys. Thank you for taking my question. Morning. How are you? Yes, I guess most of mine got asked. But just in terms on your CapEx guidance for 2025, I know you said $50 million range between it. So, that's kind of pricing in, I guess, one fleet. So, I was just wondering your outlook and whether you think the chances that you're going to get another fleet and what the lead-time for that might be?

A: Well, actually, that range, I think we said that, that does not include a new Tier 4 DGB in that range that we communicated. We're going to watch it. If we can get some firm commitments enough from a customer, we'll certainly move up that decision. But in terms of the timeline, it's probably -- it hasn't changed a whole lot in terms of what we know or what we're told. It's probably a six to nine-month process to get a full fleet ordered and delivered. So, that's kind of where we are. We're playing it that way at this point in time. We'll see. Again, we've got some good customer relationships, semi-dedicated, pretty well keeping us busy. So, we'll see. That will be a decision a little bit down the road. But we'll keep you guys apprised.