Rpc Inc Q4 FY2025 Earnings Call

Good morning, and thank you for joining us for RPC, Inc.'s Fourth Quarter 2025 Earnings Conference Call. Today's call will be hosted by Ben Palmer, President and CEO, and Mike Schmit, Chief Financial Officer. I will now turn the call over to Mr. Schmit.

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 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.

Thanks, Mike, and thank you for joining our call this morning. Today, we'll talk about our fourth quarter results and provide you with a few operational highlights. Fourth quarter results reflect a sequential revenue decline across the majority of our service lines, while October and November were consistent with third quarter monthly activity, we saw weakness in December, particularly later in the month. During the quarter, service lines other than pressure pumping represented 70% of total revenues and saw a 4% sequential decrease compared to the third quarter of 2025. Although we did see revenues increase at Spinnaker's cementing business, Patterson Tubular Services storage and inspection business and Cudd Pressure Control, snubbing and well control businesses. Within Technical Services, Thru Tubing Solutions downhole tools revenues decreased 9% sequentially. We saw growth in our Southeast and Northeast regions; our largest region, the Western Mid-Con, which includes Elk City and Odessa locations was flat sequentially. Weakness was experienced in the international and the Rocky Mountain regions. Thru Tubing Solutions is a market leader in downhole completion tools and includes a portfolio of products and advanced technologies. We have seen success building since our late 2024 rollout of the A-10 downhole motor. The new motor is positioned in the completions market to specifically address today's longer laterals and higher flow rates. We believe this tool technology provides customers with unmatched performance and has resulted in incremental share gains. Thru Tubing Solutions continues to expand the rollout of its new metal-on-metal power section component called Metal Max. The product allows for a shorter motor design, higher torque output, reduced downtime and improved performance in demanding downhole environments. This improved technology allows us to expand into new markets due to these advantages. We initially prototyped the Metal Max motor in a few key geographic areas and have recently expanded into other regions. Thru Tubing Solutions continues to actively market and develop its UnPlug technology. This innovative product reduces and sometimes eliminates the need for bridge plugs during the completion of a well and delivers faster drill-out times while achieving highly effective stage isolation. While the product is early in its life cycle, adoption has steadily increased. Also within Technical Services, Cudd Pressure Controls revenues were up 1% sequentially, led by increases in well control activity and snubbing, which was up 13% as this equipment was well utilized during the quarter. Cudd Pressure Control snubbing business expects to take delivery of a big bore snubbing unit in 2026 that is specifically designed for cavern gas storage work. This unit was built to support a long-term customer of their storage well maintenance schedule over the next several years. This work is regulatory driven and is part of our effort to continue diversifying into other markets. Coiled tubing, our largest service line within Cudd Pressure Control, was down 2% sequentially after a really strong third quarter. Our new 2 7/8-inch unit continued to be well utilized. We are upgrading an existing coil unit to handle the larger 2 7/8-inch tubing and it is expected to be in service by the middle of 2026. Pintail Completions, the largest wireline provider in the Permian Basin, experienced a decline in revenues of 3% during the quarter. Given our market position, we expect 2026 to trend closely with large Permian operator activity. Cudd Energy Services pressure pumping business saw a 6% sequential decrease. This decline largely related to holiday shutdowns and a fleet we idled in October. We do not expect to reactivate any fleets until returns improve. Many of our businesses have been impacted by recent winter storms early in the first quarter. While activity is expected to continue as conditions improve, these lost operating days are not fully recoverable and the associated costs incurred will impact near-term profitability. RPC's focus remains on leveraging our strong balance sheet and maximizing long-term shareholder returns. We continue to strategically grow our less capital-intensive service lines, both organically and through acquisitions. With that, Mike will now discuss the quarter's financial results.

Thanks, Ben. Our fourth quarter financial results with sequential comparisons to the third quarter of 2025 are as follows: revenues decreased 5% to $426 million compared to Q3. Breaking down our operating segments: Technical Services, which represented 95% of our total fourth quarter revenues was down 4%. Support Services, which represented 5% of our revenues, was down 18%. The following is a breakdown of the fourth quarter revenues for our largest service lines. Pressure pumping, 27.6%; wireline, 24.1%; downhole tools, 22.4%; coiled tubing, 9.7%; cementing, 5.9%; rental tools, 3.4%. Together, these service lines accounted for 93% of our total revenues. As disclosed in this morning's press release, we made the decision to expense wireline cables that were previously being capitalized beginning in the fourth quarter. This was due to a change in our useful lives because of increased activity and change in work type. The impact is seen primarily through an increase in cost of revenues and a reduction in capital expenditures, but also a modest decrease in depreciation and amortization. Cost of revenues, excluding depreciation and amortization, was $337 million compared to $335 million in the previous quarter. This increase was primarily related to expensing wireline cables and other materials and supplies expenses related to job mix. SG&A expenses were $48 million, up slightly from $45 million. As a percent of revenue, SG&A increased 120 basis points to 11.2%, primarily due to employee incentives and higher other related employment costs. The effective tax rate was unusually high during the quarter. The higher rate was primarily due to the liquidation of our company-owned life insurance policies that were part of the previously announced dissolution of the company's nonqualified supplemental retirement income plan, coupled with the nondeductible portion of acquisition-related employment costs. Adjusted diluted EPS was $0.04 in the fourth quarter. Adjustments totaled $0.06 and related to expenses of wireline cables purchased and capitalized from previous quarters, acquisition-related employment costs and a significant increase in tax expense related to taxable gains on the sale of the company-owned life insurance policies and other investments related to the liquidation of the company's nonqualified supplemental retirement income plan. Adjusted EBITDA was $55.1 million, down from $67.8 million due to the broad-based declines across the majority of the businesses. Adjusted EBITDA margin decreased 230 basis points sequentially to 12.9%. The adjustments made to EBITDA were made to make future periods more comparable. Operating cash flow to date was $201.3 million and after CapEx of $148.4 million, free cash flow was $52.9 million. The change to expensing wireline cables reduced both operating cash flow and CapEx, but resulted in no change to free cash flow. At quarter end, we had approximately $210 million in cash, a $50 million seller finance note payable and no borrowings from our $100 million revolving credit facility. Payment of dividends totaled $35.1 million year-to-date through Q4 '25. During the quarter, we paid $8.8 million in dividends. Full year 2025 capital expenditures were $148 million, primarily related to maintenance CapEx and inclusive of opportunistic asset purchases as well as our ERP and other IT system upgrades. Capital expenditures were $12 million lower due to wireline cables being expensed rather than capitalized in the fourth quarter. Additionally, we saw approximately $15 million in anticipated capital expenditures delayed into 2026. Due to this delay, we expect 2026 capital expenditures in the range of $150 million to $180 million. We'll adjust our spend based on activity levels. I'll now turn it back over to Ben for some closing remarks.

Thank you, Mike. 2025 was a challenging year with year-end oil prices reaching their lowest level since COVID. While we have seen recent improvement in oil and natural gas prices, we need further increases to spur significant customer activity levels. Our management teams have experienced many cycles over the years, and we will continue to focus on costs, returns and maintaining financial flexibility. This flexibility allows us to take advantage of opportunities that arise and to pursue growth opportunities through selective investment for organic growth, investment in new technologies and M&A within our existing markets and the broader energy sector. I want to thank all of our employees who put in tremendous work to drive high levels of service and value to our customers. Thank you for joining us this morning. And at this time, we're happy to address any questions you might have.

Your first question comes from the line of Don Crist with Johnson Rice.

My first question, and Ben, I don't want to pin you down to any kind of guidance for the first quarter. But given the weather impacts for the first, call it, 2 weeks of the year, do you think it kind of shakes out similar to the fourth quarter directionally? And again, I'm not looking for specific numbers here.

To be honest, Don, that's a great question. We're still analyzing the impact. While we are quite geographically diversified, we have significant concentrations in the Permian and in the Mid-Con, Oklahoma, both of which were hit pretty hard. I understand your concern, but we don't have a clear answer yet. However, it's certainly not an insignificant issue.

Right. I understand it's hard to quantify given we still got a lot of winter left. So my second question would be, we've seen a lot of your competitors have challenges in outside of pressure pumping and the other business lines that you operate in. A lot of that equipment starts to move overseas to the Middle East and other places for unconventional type development. Are you seeing that other business lines, Thru Tubing and coil and wireline start to normalize or some of your competitors go away and have a little bit less competition there as that equipment moves overseas?

There might be some impact from that, but it's not significant yet. However, any impact can be beneficial. We have noticed that some of our competitors in different service areas are reorganizing, being sold, or absorbed by other companies. This could indicate that the current market pressures are affecting some of the less financially stable firms. Hopefully, this situation will work in our favor as we progress.

Okay. And just one last question for me. Obviously, you've been very prudent with the balance sheet over the years and selectively done M&A, but you've got a pretty large cash hoard right now. Any indication that we could see some stock buybacks? Or are you going to just keep that for M&A in the near term?

We're always evaluating the various uses of our capital and buybacks are certainly one of those choices. And we'll just have to see again, reasonable question. I wouldn't see us necessarily in the near term doing anything dramatically different, but that's in the tool chest, and we're looking at it.

Your next question comes from John Daniel with Daniel Energy Partners. We're always evaluating the various uses of our capital, and buybacks are certainly one of those options. We'll have to see. It's a reasonable question. I wouldn't expect us to do anything dramatically different in the near term, but it's one of the tools we have, and we are considering it.

Today you mentioned that it was idled. Is there anything? Can you hear me okay?

John, a little bit difficult.

Yes, cut out.

How about now?

Yes, much better.

Sorry, just driving in Midland. My question is, with the fleet that was idled in October, I think you said October at least in the fourth quarter, is there anything today which would suggest that you think that fleet comes back this year? And with the reactivation, is it a function of price? Or would it be a function of if you had a sufficient amount of work even at current pricing? Just how do you think about that?

That's a great question. We are constantly assessing opportunities, and it’s crucial for us to be confident that the pricing will be better than what we’ve seen before. We’re not looking to return to previous pricing levels. As we've mentioned over the years, we have some clients with stable programs, which gives us some assurance. It’s really about our confidence in how consistent the work can be at certain pricing. We're not in a rush to reactivate that fleet; we want to ensure it will generate better cash flow than in the recent past, not just for that fleet but overall. We would need to see a high likelihood of gaining additional benefits from bringing it back into operation.

The second question is about mergers and acquisitions. Clearly, you have the financial capability to pursue deals if you choose to. When you consider the market, some of your competitors are focusing on power while others are more concerned with international opportunities. It seems that the number of feasible buyers for traditional land equipment is decreasing. Would you agree with this assessment? Does it suggest that you should proceed with caution? There's no need to rush into deals if there are few buyers. Could you elaborate on that?

I believe that's a solid approach. While I may not have complete knowledge of the entire market, it seems there isn’t excessive competition among those looking to acquire traditional oil field services companies. There are, however, some reputable companies that could enhance our existing service offerings and potentially create a strategic fit, depending on their business trajectory and pricing. We are not in a rush and typically avoid highly competitive bidding situations. It appears unlikely there will be multiple bidders aggressively pursuing a specific target, which places us in a favorable position to be patient. Our balance sheet, along with our capital and cash reserves, provides us with significant flexibility. We are actively considering oil field services, but we also aim to expand our scope beyond traditional boundaries. We've ventured into other energy sectors, such as gas storage. Though our debt is manageable, we appreciate the benefits of diversification, and we are willing to explore new opportunities more broadly than before.

And your next question comes from Derek Podhaizer with Piper Sandler.

Maybe we could just start with some additional insight and maybe some history into the updated wireline accounting treatment. Maybe just why now and not when the deal occurred last year. I think you mentioned a change in work type with the wireline. I'm just trying to understand better really what happened that caused this change?

Sure. Thank you for your question, Derek. In the past, there was an audit, and the wireline was being capitalized. However, the business began to change around the time of our acquisition, shifting towards more simul-frac and tunnel frac work. We closely monitored this and wanted to ensure we were comfortable with it by the end of the year. Previously, we were depreciating the cables over 18 months, which aligns with historical practices. We recognized that the type of work was changing, so we tracked our spending on wireline cables over the last couple of quarters. We became more comfortable with a depreciation period closer to under a year. Instead of allowing it to accumulate and being overly aggressive, we felt it was the right decision to make this switch within our purchase accounting window. By the end of the year, we had enough evidence to proceed with the change. We emphasize free cash flow, and this adjustment does not significantly impact free cash flow at all. Therefore, we concluded that this was the appropriate accounting treatment based on how rapidly we were utilizing the cables, which has notably evolved as the work has changed.

Derek, as you know, too, I mean, we and the pumping industry went through this with fluid issues a number of years ago. So it's not dissimilar in that regard. So I appreciate the question.

Right. Yes. No, that was very helpful. I appreciate the color. And yes, it did remind me of the fluid issue years ago. I guess maybe a question on Thru Tubing Solutions. You talked about international regions and your footprint there. Maybe just can you expand on that, maybe to educate us on the location and the type of technology you're deploying there and how you really see that business growing over the next couple of years?

Yes. Well, with respect to the color on international, we have pared back significantly our international business from where we were a number of years ago. Thru Tubing Solutions has the largest presence internationally of our service lines. The Middle East is where we have the most activity, and that's the area that experienced the weakness that we were referring to.

In Canada, an area where we've done some work historically and have center work up in Canada consistently.

Got it. Is there any renewed focus as far as the Middle East and the build-out of unconventionals and Thru Tubing being a potential growth trajectory for you, maybe reigniting just given the unconventional buildout of the Middle East? Or is that not the correct read-through?

It's possible. We kind of several years ago, changed our business model there. So we have less of a "physical presence." We're making the tools and the technology available. So yes, I mean, I think our tools certainly can perform very well in those environments like they do here in the states. So I would expect and hope that we would have some improvement there. But like I said, we're not directly there ourselves. So we're working through other groups and making our tools available to them. So we'll have to see. Hopefully, if they can be successful and we can increase the revenues there. So it's not anything that we're counting on in any of our current forecasts, but we hope it does come to fruition.

Got it. Okay. That's helpful. And then maybe just a third question, a quick state of the union on the current spot market in pressure pumping. How is the competition? It's always been oversupplied, but you stack the fleet, and I'm sure some of your competitors have stacked fleet. I'm not sure if any of the smaller mom-and-pop privates have gone away, just given where pricing and activity has gone to. Obviously, we have accelerating attrition as well. So maybe could you help us further understand the state of the market today? Do you see competition reducing? Any sort of secular fundamental improvement that we could potentially see in the spot market as we work through the year?

We're not seeing any significant changes at this moment. While some consolidation over the past couple of years has led us to sell off certain properties, which brings in some inconsistent customers, it could also create opportunities. However, the situation is largely unchanged. We are committed to being disciplined with our pricing. One reason we have idled our fleet and reduced headcount is to manage the situation effectively. While we are maintaining the business, we need to see improved returns. We recognize that there are some smaller competitors that are challenging to compete against. We are continuing to invest in pressure pumping while also focusing on other service lines that require less capital, and we will see how it develops from here.

Your next question comes from the line of Chuck Minervino with Susquehanna.

I was just wondering if you could talk a little bit about that 2026 CapEx. It sounds like you had some deferred spend from 2025. But then also, I guess, the wireline cable now comes out of the CapEx. Maybe they were offsetting each other. But if they are, you still going to have CapEx up in 2026. So I was just curious if you can kind of touch on that a little bit and if there's maybe room for that to come down if you're looking to generate a little bit more free cash flow during the year?

I believe we've provided a conservative estimate. It might be larger than what we could have projected. We're aiming for realistic expectations regarding our short-term and long-term plans. If there are significant changes, it can be challenging to adjust capital expenditures immediately due to long lead times. However, we monitor our CapEx very closely. There are certainly chances to reduce it if circumstances require it. Our management teams establish their CapEx plans, but any unapproved or undelivered items always depend on whether we decide not to spend that money. Being part of the budget doesn't guarantee that it will be used. We carefully evaluate it, and there's potential for that figure to decrease. Conversely, we might also find opportunities to increase it slightly if a viable option arises, as our balance sheet can support that. Ultimately, everyone appreciates that free cash flow is essential, and we are committed to supporting and growing our businesses while being very deliberate about our CapEx investments. We will continue this approach.

Got it. And then just one other. In Support Services, I know not a huge piece of the overall revenue pie, but the rental tool revenue down pretty sharply, it sounds like late in the year. I know there's always seasonality late in the year. Was that particularly kind of sharper than you've seen historically? And I was just kind of curious if there was any reason for it or any more color you can provide?

Yes, it was more pronounced. The business has been consistently steady, so I wouldn't say it was unexpected. These kinds of fluctuations can occur in the fourth quarter, often due to one or two customers slowing down for various reasons. Similar to Thru Tubing Solutions, the Rockies region was also affected. It was primarily specific to a couple of customers. Some of these were not permanent delays; they were just temporary setbacks in drilling. We believe these delays do not represent lost opportunities, but rather just a slight postponement.

The other call out on that is they have a really great third quarter. So I mean, they had a pretty tough comparable.

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

Thank you very much, operator. We appreciate everybody calling in and listening and look forward to talking to some of you perhaps later today, and hope you have a good rest of the day. Take care.

Today's call will be available for replay on www.rpc.net within 2 hours following the completion of the call. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.