Rpc Inc (RES) Q1 2026 Earnings Call Transcript

Good morning, and thank you for joining us for the RPC Incorporated First 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. 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 is being recorded. I will 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. Today, we'll talk about our first quarter results and provide you with a few operational highlights. First quarter results reflect a sequential revenue increase across the majority of our service lines, despite the winter storms early in the quarter. Demand strengthened as the quarter progressed. Within technical services, through tubing solutions, downhole tools revenues increased 11% sequentially. We saw broad-based strength, with most geographic regions growing double digits. Through Tuning Solutions is a market leader in downhole completion tools with a portfolio of products supported by proprietary technologies. We have introduced a number of new products in recent years that have helped expand our market leadership position. Through Tuning Solutions continues the rollout of its new metal-on-metal power section, MetalMax. Adoption is accelerating with growth across both geographic markets and motor size offerings as inventory availability expands. Metal Max's performance and design characteristics are enabling entry into new markets and applications previously served by traditional power section components. Over the past six months, Metal Max has strategically displaced conventional power sections but still only represents 15 percent of our power section utilization. We continue to see meaningful opportunities for further displacement as customers increasingly recognize the product's performance and value. Through tubing solutions on plug technology, which replaces traditional bridge plugs, is picking up momentum with several operators opting to utilize the technology as their primary stage isolation method. We're also seeing success with our new surface vibratory technology, particularly in longer laterals. Overall, our downhold tools business is benefiting from longer laterals and the need for technologies to deal with the related completion challenges. Also within technical services, cut pressure controls revenues were down 7% sequentially, led by weakness in the Rockies region and tough comparables in well control as the fourth quarter had multiple large well control events. This was partially offset by nitrogen, which was up 13 percent, and snubbing, which was up 8 percent as equipment was well utilized during the quarter. Cut pressure control snubbing business is expected to receive and begin testing the big bore snubbing unit later this month. This unit was specifically designed for cavern gas storage work and was built to support a long-term customer with its storage well maintenance schedule. This work is regulatory-driven and is part of our effort to continue diversifying into other markets. Coil tubing, our largest service line within CUD pressure control, was down 7% sequentially. Coil tubing faced tough comparables in the Rockies and Northeast regions. Our new 2-7-8 unit continued to be well-utilized, and we are upgrading an existing unit to handle the larger 2-7-8 inch tubing. Pintel completions, the largest wireline provider in the Permian Basin, generated revenues that were relatively flat sequentially. Given our leading market position, we expect Pintel's business to trend closely with large Permian operator activity. Cut Energy Services' pressure pumping business saw a 20% sequential revenue increase due to job mix primarily from operators to whom we provided materials and supplies along with fuel during the quarter we have no plans to reactivate fleets at current pricing levels but we are cautiously optimistic based on higher oil prices and less calendar white space however natural gas takeaway capacity particularly in new mexico could limit improvement in customer activity overall we see recent geopolitical developments as incrementally positive as pricing pressures appear to be subsiding and current activity is being supported by higher commodity prices. However, we believe operators are cautious and concerned about the duration of higher crude prices and the perception of capital budget increases in the equity market. As such, we have only seen modest responses by customers since the Middle East events began. Our focus remains on full cycle returns, but our balance sheet affords us the optionality of leaning into certain markets where we see additional upside. We will continue to evaluate these opportunities with our focus being on cash flow generation and maximizing value over the long term. With that, Mike will now discuss the quarter's financial results.

Thanks, Ben. Our first quarter of financial results was sequential comparisons to the fourth quarter of 2025 are as follows. Revenues increased 7% to $455 million compared to Q425. Breaking down our operating segments, technical services, which represented 95% of our first quarter revenues, was up 7%. Support services, which represented 5% of revenues, was flat. the following is a breakdown of our first quarter revenues for our largest service lines pressure pumping was 31 percent downhole tools was 23.3 percent wireline 22.7 percent coiled tubing 8.5 percent cementing 5.8 percent and rental tools three percent together these service lines accounted for 94 percent of our total revenues cost of revenues excluding depreciation and amortization was 356 million dollars compared to 330 million in the previous quarter this increase was primarily related to job mix as we provided higher levels of materials and supplies and fuel for customers during the quarter in addition the prior period also reflected the impact of transitioning of wireline cables accounting to expensing sgna expenses are 48 million dollars up slightly from the prior quarter as a percent of revenues sgna decreased 60 basis points to 10.6 primarily due to only a modest increase in sgna with the increase in revenues depreciation and amortization was 43 million dollars up from 39 million dollars in the prior quarter fourth quarter dna reflected a three million dollar reduction related to the change in wire line cable accounting the effective tax rate was unusually high during the quarter due to the disproportionate impact of permanent non-deductible items mainly acquisition related employment costs on a relatively low pre-tax income adjusted the diluted eps was three cents in the first quarter, adjustments totaled $0.03 per share and related to acquisition-related employment costs. Adjusted EBITDA was $53.5 million, down from $55.1 million. Adjusted EBITDA margin decreased 110 basis points sequentially to 11.8%. The decrease was due to several factors, including higher materials and supplies, higher fuel costs, and lower other income. Operating cash flow year-to-date was $31 million and CapEx of $32 million. Free cash flow was negative $1 million. Operating cash flow was negatively impacted by increased revenues that resulted in higher working capital, specifically higher accounts receivable being a meaningful use of cash along with unearned revenue that we benefited from in the fourth quarter partially offset by higher accounts payable. At quarter end, we had approximately $201 million in cash, a $50 million seller finance no payable, and no borrowings on our $100 million revolving credit facility. Our regular cash dividend remains unchanged at $0.04 per share. Dividend payments totaled $8.9 million. We expect 2026 capital expenditures in the range of $160 to $180 million dollars we raised the low end of the range versus the prior quarter due to opportunistic asset purchases that we were able to deploy recall our 2026 range includes approximately 15 million dollars delayed from late 2025. we will adjust our spend based on project returns and opportunity i'll now turn it back over to ben for some closing remarks thank you mike we are cautiously optimistic about the rest of the year as commodity prices are more supportive of activity than they were entering 2026.

Much will depend on operators' ability to hedge at higher prices, the duration of higher commodity prices, and service companies' discipline in a more supportive market. I want to thank all of our employees who have put in tremendous work to provide 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.

To ask a question, simply press star 1 on your telephone keypad. Again, that is star 1 to ask a question. And we'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Don Crist with Johnson Rice. Please go ahead.

Morning, guys. Thanks for letting me in. Hopefully, you all are doing well.

Yes, thanks.

Obviously, things are moving pretty quick with the conflict overseas and oil pricing where it is today. But just your thoughts around the spot market here and pricing in the spot market. You know, obviously, compared to your competitors, you have more spot market exposure, generally speaking. Just curious as to what you're seeing and hearing from your customers out there.

Okay. Thanks for the question, Don. Um, we, as part of what we, you know, tried to relay in our comments there is certainly this environment with the prices is supportive. I'll say that we have seen some firming, we have seen instances of some firming.

I wouldn't say it is not broad based yet at this point. um so i would say it's incrementally positive but like i said it's not really broad based yet at this point hey and and don just to sorry to interrupt just to point out too you know spot really impact you're referring to pressure pumping and you know that's really only only 31 percent of our overall revenue well i was just pointing that out is that across all kind of product lines, right?

Because I would assume that through tubing and coil, which is the fastest kind of return dollars from an operator's perspective, would see some firming as well.

Some, but they have a lot of larger customers. So really, I mean, the spot is not as big a part of their business as it is for pumping.

Okay. And then, obviously, you stacked a few fleets over the over the past couple quarters and and i don't know what state those fleets are in but i would assume they that they could be brought back fairly quickly if if that call arises just any thoughts around you know the the yards to to bring back equipment or upgrade equipment here um and the potential cost to bring back a fleet i would assume that it's you know three million bucks just for fluid and stuff like that but any thoughts around the reactivation cost for a fleet um there hadn't been a lot of discussion about that because like i said there really

hadn't been broad-based uh you know uh uh opportunities to really look at that seriously i mean at current pricing levels no we would not reactivate a fleet um there there are some discussions going on that could result in us perhaps looking at that, but we would need some visibility into obviously the pricing and the duration of the work and the volume of the work that was going to occur. In terms of time, the fleets that you've referred to that we have stacked, those are no longer staffed. So it would take some time and some planning to be able to restaff those and uh and you're right the the pumps that that we were to reactivate uh you know that they would be you know not necessarily all of them would need to have fluid ends replaced so so the cost really really depends but historically you're right uh if you needed to replace a full fleet worth of fluid ends that's probably a reasonable estimate but but i think it's still at this moment it's still a little bit early it's a good question reasonable question but it's a little bit early, we're really not talking about leaning into reactivating fleets. I think the first thing we would try to do is take advantage of higher prices and with the fleets that we already have deployed.

And Don, just point out those fleets are both, you know, are tier two diesel fleets, which aren't, you know, as customers are more focused on, obviously, dual fuel and lower cost diesel is pretty expensive right now so that's that's the other factor there i appreciate the color if i could sneak in one more on the labor side are you able to get people today if you if you tried or do you think that that would be more difficult given the you know the current environment and people leaving to go to amazon or other places uh well you know we haven't we haven't been hiring a tremendous amount and not trying to

increase the staffing so we don't know for sure but you know that that could present a challenge yes okay which hopefully we play into again that would hopefully would play into the ability to you know firm up pricing as well right so right exactly i'll turn it back thanks Thank you, Don.

Once again, to ask a question, simply press star 1 on your telephone keypad. Our next question comes from the line of John Daniel with Daniel Energy Partners. Please go ahead.

Hey, guys. Thanks for recording me, John. So, Mike, I mean, we listen to a lot of the EMP calls and read the press releases. It's essentially, you know, flash with a couple of one-offs, I think, Don alluded to, in terms of incremental rigs. But yet, you listen to the land drillers, they're all kind of calling for higher activity in Q2 and with prospects for more work going out in the back half. I'm just curious, what do you think the disconnect is? And for some of your product lines that might be tied more to the drilling side, are they seeing a similar rise of activities maybe with the land drillers? Just any color on there.

I mean, I think that there's hope that obviously as drilling improves, then that will improve some of our businesses you alluded to, and the pricing still hasn't caught up. I mean, there has been upward momentum, but, you know, I think the disconnect is we haven't, and I think other OFS companies haven't really seen the increase in pricing yet to really push us to start moving. so we still have kind of supply demand and so until it actually starts and um we start you know getting a fair price making uh it worthwhile uh you'll probably see more activity i think it's just hopefully we read your uh note this week hopefully that that's accurate and we see 50 new rigs come on that'll help drive price and activity so we you know john our business our

relative business is a relatively small percentage of our total revenue and it's a nice business that has good margins uh you know a lot high fixed costs uh therefore you know uh increased revenue can really drop to the bottom line so it had been a little bit uh had a little bit of a challenge in the in in the last couple of quarters but they're seeing some improvement i don't know that because it's small and you know they have particular regions where they're uh particularly active they're seeing a little bit of improvement but right again wouldn't say that we're seeing anything that's broad based yet fair enough well yeah i hope the forecast is right i hate looking

too stupid um we hope that too yeah the next question i've got is just and i don't know if this this might be too granular and you might not even have the the data in front of you but i'm curious as your guys the businesses talk about quoting activity if you had to hazard a guess the inquiries that are coming in what proportion of them would you characterize as being from the public operators versus private again you might not have that handy but if you do it'd be interesting to hear uh inquiries and questions questions yeah just people reaching out more Not availability, equipment, et cetera.

Probably more of the privates, I would say.

All right. Thanks for including me, guys.

Thank you, John.

And once again, to ask a question, simply press star one. With no further questions in queue, I will now hand the call back over to Mr. Ben Palmer for closing remarks.

Well, thank you for joining this morning. We appreciate it. Appreciate your interest, and hope you have a great rest of the day.

And once again, I would like to remind everyone that the replay on today's call will be available at www.rpc.net within two hours following today's completion of the call. This does conclude today's conference call. You may now disconnect.