RPC, Inc. (RES) Q3 2026 Earnings Call Transcript

Operator: Good morning, and thank you for joining us for RPC, Inc.'s Third Quarter 2026 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 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: 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.

Ben Palmer: Thanks, Mike, and thank you for joining our call this morning. Today, we will talk about our third quarter results and provide you with a few operational highlights. While completion activity levels remained relatively subdued this quarter, RPC overall generated sequential revenue growth and particularly strong margin expansion driven by solid operational execution, strong cost leverage in several product lines, technology adoption, and contributions from targeted investments. Within Technical Services, Cudd Pressure Control's largest service line, coiled tubing was up 20% sequentially. Coiled tubing revenue increased across all districts. Results during the quarter benefited from exceptionally strong job and equipment mix, which will be challenging to consistently replicate. We have taken delivery of the third 2 7/8th reel trailer. Recall, this is an upgrade to an existing unit and not an incremental unit. We now have two additional units that are capable of a 2 7/8th reel replacement upgrade. These large diameter units continue to generate attractive utilization and support our strategy of investing in areas where we see strong full cycle returns. Cudd Pressure Control snubbing revenues were up 12% sequentially. The big bore snubbing unit, which went into service during the second quarter, saw its first full quarter of work during the third quarter. The unit is designed for cavern storage inspections, which is regulatory driven. This work has multi-year visibility, but likely has the strongest seasonality in the second and third quarter of each year. Also within Technical Services, Thru Tubing Solutions downhole tools revenues decreased 2% sequentially, primarily on lower fishing activity after several strong quarters. We continued to experience growth in our core product offerings, resulting in growth in our Rocky Mountain, Northeast, Southeast, and foreign districts. Thru Tubing Solutions is a market leader in downhole completion tools, with a portfolio of products supported by proprietary technologies in our patent portfolio. Our R&D team has developed a variety of enhanced tools and products that further our market leadership. Thru Tubing Solutions has introduced new sizes of MetalMax, its metal-on-metal power section, increasing availability and adoption across districts. Some of our early adopter districts have MetalMax utilized on more than half of their jobs. MetalMax's performance and design characteristics are enabling entry into new markets and applications. The product reduces the number of trips an operator has to make out of hole, reducing non-productive time, and is capable of running in harsher conditions than traditional power sections. Our Thru Tubing Solutions team is pushing the limits with operators. During the quarter, our downhole tools set new depth records in the Bakken and Montney formations. These results further validate the performance advantages of our technology portfolio and support continued market share gains. Overall, our downhole tools business is benefiting from more complex and longer laterals that are well suited for our technology solutions. Turning to wireline, revenues declined 8% sequentially. Pintail's EBITDA margins have consistently been in the mid-single digit range for the last few quarters. While Pintail has maintained its leading Permian market position, persistent pricing weakness combined with increased cost pressures have reduced our initial long-term earnings expectations for this business. Therefore, during the quarter, we recorded non-cash impairment charges of $74.5 million related to Pintail wireline. Cudd Energy Services pressure pumping revenues, including acid, increased 3% sequentially. Pressure pumping revenues benefited from slightly improved pricing but was offset by slightly lower pump hours. Pump hours were modestly impacted by non-Cudd, non-productive time, including customer delays, mostly related to third-party logistics issues. Job mix was relatively consistent with the prior quarter. Both revenue and cost per pump hour increased marginally on a sequential basis. Our gas-burning pressure pumping equipment is well-utilized with white space created by external factors. Industry spare capacity appears meaningfully lower than it was several quarters ago. We expect to maintain our current working fleets and will wait for returns to further improve before reactivating equipment. We have seen growing customer interest in our enhanced production techniques on existing wells. We were able to generate these revenues with non-gas-burning equipment and smaller crews. While customer schedules currently indicate holiday impacts may be somewhat less severe than the last several years, we still expect normal year-end seasonality to affect activity levels across many of our service lines and for customer schedules to remain fluid up until the holidays. Macro volatility has persisted with inflation pressures occurring in multiple areas. E&P operators, as a whole, appear to be cautiously optimistic regarding commodity prices. Although concerns around demand, inflation, and geopolitical developments continue to create uncertainty. Overall, the oilfield service market is more constructive, but certain service lines need additional pricing improvements to justify reinvestment. We will continue prioritizing returns and focus on controlling factors we can influence. With that, Mike will now discuss the quarter's financial results.

Mike Schmit: Thanks, Ben. Our third quarter financial results with sequential comparisons to the second quarter of 2026 are as follows. Revenues increased 1% to $468 million. Breaking down our operating segments, Technical Services, which represented 95% of our total third quarter revenues, were up 1%. Support Services, which represented 5% of revenues, were up 3%. The following is a breakdown of our third quarter revenues for our largest service lines. Pressure pumping, 30.8%. Downhole tools, 24.6%. Wireline, 17.5%. Coiled tubing, 10.4%. Cementing, 5.7%. Rental tools, 3.8%. Together, these service lines accounted for 93% of our total revenues. Cost of revenues, excluding depreciation and amortization, was $350 million, compared to $346 million in the previous quarter. SG&A expenses were $51 million, largely unchanged from the $52 million in the prior quarter. Depreciation and amortization was $43 million, similar to the previous quarter. The impairment reduces future depreciation and amortization by approximately $3 million per quarter. The effective tax benefit rate was 19.2% during the quarter. Adjusted diluted EPS was $0.10 in the third quarter. Adjustments totaled $0.30 per share and related to the impairment charges and acquisition-related employment costs. Adjusted EBITDA was $71.5 million, up from $66 million in the prior quarter. Adjusted EBITDA margin increased 100 basis points sequentially to 15.3%. Several of our service lines experienced particularly strong activity during the quarter, and we expect normal seasonal patterns to potentially impact results as we move into the fourth quarter. Net cash provided by operating activities during the quarter was $41 million. After CapEx of $40 million, free cash flow was $1 million. Free cash flow was impacted by working capital increasing $25 million during the quarter, primarily driven by strategic inventory purchases, including key components in short supply, as well as the timing of customer collections and vendor payments. At quarter end, we had approximately $177 million in cash, a $30 million note 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 $27 million year to date. We expect 2026 capital expenditures in the range of $155 million-$175 million. Certain equipment deliveries previously anticipated for 2026 are now expected in 2027. Although additional timing changes remain possible. Assuming additional slippage does not occur, we currently expect 2027 CapEx to be similar to 2026. As always, we will evaluate CapEx based on returns and adjust spending based on our opportunities. I'll now turn it back over to Ben for some closing remarks.

Ben Palmer: Thanks, Mike. While we remain cautious regarding the pace of broader industry improvement and the impact of normal year-end seasonality, we believe RPC is well-positioned with a diverse portfolio of businesses, differentiated technologies, a strong balance sheet and the financial flexibility to pursue attractive opportunities while continuing to generate cash and deliver strong full-cycle returns. I want to thank all of our employees who 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 are happy to address any questions.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To 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. Your first question comes from the line of Don Crist with Johnson Rice. Your line is open. Please go ahead.

Don Crist: Hi, guys. Thanks for letting me in. Ben, I wanted to ask about early 2027 indications. We are hearing that some of the larger companies are looking to add more services as they go into 2027. I know most of your services outside of pressure pumping are in that realm. Just any indication as to what 2027 looks like, just on an early look today?

Ben Palmer: Hey, Don. Good morning. Appreciate you being on. Early 2027, I would say that we are optimistic. As we indicated, we think the E&Ps, both the large and the small are encouraged by commodity prices. So we are feeling pretty good about next year. I would say net positive. Obviously, there is always uncertainty. We are not seeing full steam ahead, but clearly, we are set up and positioned and expect things. Hopefully, the fourth quarter slowdown is going to be a little bit more muted than it has been in some of the past few years. And hopefully, we will get off to a good start early next year. Oftentimes, when it slows down a lot in the fourth quarter, it takes a while to get cranked back up. Maybe that slowdown will be a little more muted, and we can get the year started off pretty strongly and capture some of that enthusiasm that we think is out there that you're referring to.

Don Crist: I appreciate that color. You touched on this in the press release, but I wanted to ask about labor. We're hearing some pretty strong reports that data center construction and other industries are pulling away from the oil field. I just wanted to know if you're experiencing any of that and seeing any inflation on the labor side as data centers ramp up.

Mike Schmit: Hey, Don. This is Mike. Yeah, I think labor is tightening up a little bit, and a lot of reasons for that. It does impact cost and availabilities, so I think some of the things you're hearing is probably consistent with some of the things we're seeing too.

Ben Palmer: I would say, Don, this has been that we always over the years, have had competition for labor. I wouldn't suggest, or would say that this particular instance, it's not particularly more difficult than it has been in other past difficult times. It's just something we deal with. It's something we actually always have to deal with from time to time. It's just there's different reasons why labor can be difficult to attain and retain. But we are rocking along okay, but that is something that we do hear anecdotes about.

Don Crist: Okay. Just the last one from me. You have some spare equipment sitting on the sidelines and some cash to refurbish it if you need to. Any thoughts as to reactivating another crew as we move into 2027? Is the demand there?

Ben Palmer: If our additional capacity were ready to go tomorrow, there's a likelihood we could find a place for it to work. But, we need pricing to move up quite a bit. We need to have a compelling reason. We would need to have some sort of firm commitment from a customer to be able to move in that direction. We're going to keep our additional capacity on the sideline at this point in time. We're doing a little bit of prep behind the scenes over time, but we're not moving aggressively forward to try to reactivate more equipment at this time.

Don Crist: I appreciate the color. I'll turn it back. Thanks.

Ben Palmer: Thank you, Don.

Operator: We have reached the end of the Q&A session. I will now turn the call back to Mr. Ben Palmer for closing remarks.

Ben Palmer: Well, appreciate you listening in this morning. We are looking forward to a good 2027. We appreciate you and hope you have a good rest of the day.

Operator: This concludes today's call. A reminder that the conference call will be replayed on www.rpc.net within two hours following the completion of the call. Thank you for attending. You may now disconnect.