RPC, Inc. (RES) Earnings Call Transcript & Summary

You You Good morning, and thank you for joining us for RPC Inc's second quarter 2026 earnings 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 listen-only mode. Thank you. 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. We'll now turn the call over to Mr. Schmidt. 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 10K 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.

Thank you, Mike, and thank you for joining our call this morning. Before turning to our second quarter results, I want to briefly address the CES succession announcement we made in June. As we announced, I plan to retire as President and CEO and step down from the board by the end of 2026, following 30 years with RPC. The board has initiated a search for my successor, which is expected to conclude before year end, and I will remain in an advisory capacity to support a smooth leadership transition. It's been the privilege of my professional life to spend the past three decades at RPC. Together with our talented team, we've built a diversified platform underpinned by strong brands, low leverage balance sheet and a disciplined focus on full cycle returns. I'm committed to working closely with the board to ensure continuity for our employees, customers and shareholders. And in the meantime, our focus remains on discipline execution, prudent capital allocation, and delivering long-term shareholder value. With that, let's turn to our second quarter results, and I'll provide you with a few operational highlights. While industry activity levels remained relatively subdued, RPC delivered sequential revenue growth and meaningful margin expansion driven by strong execution, improved job mix, technology adoption, and contributions from targeted investments. Within technical services through tubing solutions, downhole tools revenues increased 10% sequentially. We saw broad-based strength with our Rocky Mountain region growing more than 20% sequentially. ThruTubing Solutions is a market leader in downhole completion tools with a portfolio of products supported by proprietary technologies and our patent portfolio. Over the last several years, we have introduced new motor sizes, new motor components, split string tools, surface tools, and stage isolation products, just to name a few. These products have been well received and allow us to continue our market leadership. Retrieving Solutions has introduced new sizes of its metal on metal power section called Metal Max, along with expanding availability across districts. This has resulted in increased addressable market and improved Metal Max penetration. MetalMax's performance and design characteristics are enabling entry into new markets and applications previously served by traditional power section components. The product reduces the number of trips an operator has to make out of the hole, reducing non-productive time. Our ThruTubing Solutions team completed multiple horseshoe wells in the Permian, exceeding 27,000 feet over the last several weeks. In addition to long lateral sections, these wells have added friction and complexities due to the turns. We collaborate with operators to package a solution that will drill out the well in the most efficient and reliable way. Through Teeming Solutions Unplugged technology, which replaces traditional drill bridge plugs, continues to have success during In the quarter, we had several additional customers trial this product. Overall, our downhole tools business is benefiting from more complex and longer laterals that are well-suited for our technology solutions. Also within technology services, Cut Pressure Control's revenues were up 8% sequentially, led by coil tubing, snubbing, and well control. Cut Pressure Control's snubbing business was up 14% sequentially. We received a big bore snubbing unit during the quarter and began work in early June. The unit has since mobilized to a multi-project job. The Big Boar's design features make it ideally suited for cavern gas storage inspections, which is regulatory driven. This is part of our effort to continue diversifying beyond well completions. Coil tubing, our largest service line within Cub Pressure Control, was up 6% sequentially. Coil tubing had the strongest growth in Elk City, which serves multiple basins. as well as growth in Pennsylvania and Michigan. We saw increased utilization across all of our larger diameter units with the two and seven H unit fully utilized. As part of our multi-year quality of the strategy, we have accelerated our investments here. expect a total of three 2-8 7th capable units by year end with two coming from real trailer upgrades to previously modernized units and one from the previously delivered Trailblazer unit. These upgrades provide additional large-sampler capabilities to be deployed to the highest-return markets. While the wireline market conditions remain highly competitive, we have remained disciplined on pricing and continue to maintain a strong position with key customers. Intel wireline revenues were down 16% sequentially. Revenues were impacted by customer activity reductions and lost crews due to aggressive competitor pricing. Cut Energy Services pressure pumping business saw a 1% sequential revenue decrease. Revenues benefited from slightly improved pricing but was also offset by slightly lower pump hours. Job mix impacted revenues as we saw less fuel and M&S costs and revenues but benefited our profit margin. Our focus remains on continuing to earn an appropriate return on our equipment over a cycle, but without significant activity changes, we do not see meaningful increases in pricing. Generally we have no plans to reactivate fleets at current levels. However, we are encouraged by easing gas takeaway constraints and the potential for 27 EMP budgets to reflect a more supportive commodity price environment. Current oil prices are more supportive of activity levels. However, the volatility from geopolitical events creates a less certain environment for customer investment decisions. We believe operators are being cautious due to uncertainty around the duration and ultimate levels of commodity prices. We do not expect a significant change in activity near term, but we acknowledge the dynamic nature of the market and are in a position to respond. Our focus is on controllable factors, strong full cycle returns, and cash flow generation. With that, I'll now have Mike discuss the quarter's financial results. Thanks, Ben.

Our second quarter financial results with sequential comparisons to the first quarter of 2026 are as follows. REVENUES INCREASED 1% TO $461 MILLION. Breaking down our operating segments, technical services, which represented 95% of our total second quarter revenues, were up 1%. support services which represented five percent of revenues were up 11 percent The following is a breakdown of the second quarter revenues for our largest service lines. Pressure pumping, 30.3%. Downhole tools, 25.3%. wireline 19.2%, coil tubing 8.8%. CEMENTING, 6.2%. RENTAL TOOLS, 3.6%. Together, these service lines accounted for 94% of our total revenues. Cost of revenues excluding depreciation and amortization was $346 million compared to $356 million in the prior quarter. This decrease was primarily related to job mix as we provided lower levels of materials and supplies and fuel for customers during the quarter. SG&A expenses were $52 million, up from $48 million in the prior quarter. increase due to some incentive comp, higher bad debt expense, and some other consulting expenses. As a percent of revenue, SG&A increased 60 basis points to 11.2%. Depreciation and amortization was $43 million, slightly up from the previous quarter. The effective tax rate was lower compared to the previous quarter, primarily due to smaller impact of the permanent adjustments on increased pre-tax income. ADJUSTED DELUDED EPS WAS $0.08 PER SHARE IN THE SECOND QUARTER. ADJUSTMENTS TOLD $0.03 PER SHARE AND RELATED TO THE ACQUISITION-RELATED EMPLOYMENT COSTS. Adjusted EBITDA was $66 million, up from $53.5 million. Adjusted EBITDA margins increased 250 basis points sequentially to 14.3%. EBITDA margin benefited by modest pricing improvements, better job mix, operational leverage from higher revenues at several locations, and AND A SALES TAX REFUND. NET CASH PROVIDED BY OPERATING ACTIVITIES YEAR TO DATE is $75 million. And after CapEx of $71 million, free cash flow is $4 million. Working capital has been impacted by higher revenues and the timing of customer payments. AT QUARTER N, WE HAD APPROXIMATELY $180 MILLION IN CASH, $30 MILLION NOTES PAYABLE, AND NO BORROWINGS ON OUR $100 MILLION REVOLVING CREDIT FACILITY, WHICH WE AMENDED AND EXTENDED DURING THE QUARTER THROUGH JUNE 2031. Our regular cash dividend remains unchanged at 4 cents per share. Dividend payments totaled $17.7 million today. We expect 2026 capital expenditures in the range of 170 to 190 million dollars. We raised the range due to targeted growth investments where we see strong full cycle returns, particularly in the areas that can further differentiate our service offerings. Given the timing and lead times, some of the spend may ultimately occur in 2027. we will continue to adjust our spend based on project returns and opportunity.

I'll now turn it back over to Ben for some closing remarks. BEN BEDERSON, Okay. Thank you, Mike. While we remain cautious regarding the pace of broader industry improvement, we believe RPC is well positioned with differentiated technologies, a strong balance sheet, and the financial flexibility to pursue attractive opportunities while continuing to generate cash and deliver strong returns. and strong full cycle returns. I want to thank all of our employees who put in tremendous work to provide high levels of service value to our customers every day. Thank you for joining us this morning, and at this time, we're happy to address any questions.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. Withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. please stand by while we compile the Q&A roster. If you would like to ask a question, please press star 1 to raise your hand. Your first question comes from the line of John Daniel with Daniel Energy Partners. John, your line is open. Please go ahead.

Thank you. Good morning, guys. Morning, John. Ben, first of all, I just want to thank you for the support over the years and wish you a great retirement. Hopefully you'll come to Midland for the Barber Club in November. So, I only really have one question. I have two. Thank you. On the coil tubing, the upgrades, are you seeing... Are they staying in one basin or do you see the opportunities to take them across the U.S.? And just your thoughts on where that could go over the next couple of years.

years in terms of need for more of those units. Um, yes, it.