RPC, Inc. (NYSE:RES) Q1 2023 Earnings Call Transcript
RPC, Inc. (NYSE:RES) Q1 2023 Earnings Call Transcript April 26, 2023
RPC, Inc. misses on earnings expectations. Reported EPS is $0.33 EPS, expectations were $0.37.
Operator: Good morning and thank you for joining us for RPC Inc.’s First Quarter 2023 Financial Earnings Conference Call. Today’s call will be hosted by Ben Palmer, President and CEO, and Mike Schmit, Chief Financial Officer. Also hosting is Jim Landers, Vice President of Corporate Services. 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. Jim will get us started by reading the forward-looking disclaimer.
Jim Landers: Thank you, and good morning. Before we begin our call today, I want to remind you that in order to talk about our company, we’re going to mention a few things that are not historical facts. Some of the statements that will be made on this call could be forward-looking and reflect a number of known and unknown risks. I’d like to refer you to our press release issued today along with our 2022 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 also be referring to several non-GAAP measure of operating performance. This non-GAAP measures are adjusted net income, adjusted diluted earnings per share, adjusted operating profit, EBITDA and adjusted EBITDA.
We're using these non-GAAP measures today because they allow us to compare performance consistently over various periods. In addition, RPC is required to use EBITDA to report compliance with financial covenants under our revolving credit facility. Our press release issued today and our website contain reconciliations of these non-GAAP measures to operating income, net income and diluted earnings per share, which are the most directly comparable GAAP measures. Please review these disclosures if you're interested in seeing how they're calculated. If you've not received our press release for any reason, please visit our website at rpc.net for a copy. I'll now turn the call over to our President and CEO, Ben Palmer.
Ben Palmer: Thanks, Jim, and thank you for joining our call this morning. RPC's first quarter financial results reflect a strong operating environment similar to the fourth quarter. Although oil and natural gas prices declined earlier this year, manager services remain tight by total standards. The multiyear period of underinvestment by exploration and production companies, coupled with industry discipline, leaves us constructive on the length of the current cycle. The vast majority of our service -- the vast majority of service companies have been using their recovery to replace equipment that was wearing out rather than adding net new capacity. It is our view that this is necessary for the long-term health of the oilfield services industry.
We expect to allocate capital over the next several quarters to enhance the service effectiveness of our various lines of businesses, while also improving our ESG profile. Our CFO, Mike Schmit, will discuss the quarter's financial results, after which I will provide closing comments.
Mike Schmit: Thanks, Ben. I'll start with the first quarter 2023 sequential financial overview. First quarter revenue decreased slightly to $476.6 million from $482 million in the prior quarter. The nominal decrease in revenues was primarily cautious by weather disruptions and a change in job mix in pressure pumping, RPC's largest service line. Cost of revenues during the first quarter also decreased slightly to $305.3 million from $308.6 million in the prior quarter. As a percentage of revenues, cost of revenues remain the same as 64% compared to the prior quarter. Selling, general and administrative expenses increased to $42.2 million in the first quarter of 2023 compared to $38.2 million in the fourth quarter of 2022. This increase was driven by higher expenses that are typically incurred in the first quarter, including payroll taxes and 401(k) employer match.
During the first quarter of 2023, RPC also reported a $17.4 million defined benefit pension plan termination charge. During Q2, 2023, we expect to record an additional settlement charge of approximately $1.2 million associated with the final termination of this plan. In connection with the transfer of the planned liabilities to a third-party, RPC made a $4 million cash contribution during the first quarter. Operating profit during the first quarter decreased by 19.3% to $90.7 million from $112.3 million in the prior quarter. Adjusted operating profit was $108 million in the first quarter, a 6.3% decrease compared to $115.2 million in the prior quarter. Adjusted EBITDA also decreased slightly by 3.9% to $132.9 million from $138.4 million in the prior quarter.
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Our Technical Services revenue -- segment revenues decreased by 1.3% to $452 million. This segment generated $103.5 million of operating profit compared to $110.5 million in the prior quarter. Support services revenues increased by 3.3% during the first quarter of 2023 compared to the prior quarter. Operating profit of $6.6 million compared to $6.7 million in the prior quarter. I’ll now discuss our current quarter results compared to the same quarter in the prior year. Revenues increased $476.7 million -- to $476.7 million from $284.6 million. Adjusted operating profit increased to $108 million from an operating profit of $23 million. Adjusted EBITDA increased to $132.9 million from EBITDA of $43 million. These increases were driven by higher customer activity levels and improved pricing, resulting in our adjusted diluted earnings per share improving to $0.39, compared to $0.07 in the same quarter of the prior year.
Our Technical Services segment revenues increased 69.7% to $452 million, and segment operating profit increased to $103.5 million from $21.8 million in the same quarter of the prior year. Our Support Services segment revenues increased 35% to $24.7 million and segment operating profit increased to $6.7 million from $2.8 million in the same quarter of the prior year. Now I'll discuss our capital expenditures and horizontal pressure pumping fleet count. Capital expenditures were $65.3 million in the first quarter. We currently estimate full year 2023 capital expenditures to be between $250 million and $300 million. This includes new Tier 4 dual fuel equipment that we recently placed in the service. While a similar amount of old equipment has been sent out for refurbishment.
Consistent with the prior quarter, we operated 10 highly utilized horizontal pressure pumping fleets during the first quarter of 2020. We expect to continue operating this number of fleets throughout the remainder of the year. I'll now turn it back over to Ben for some closing remarks.
Ben Palmer: Thanks, Mike. First quarter of 2023 was an excellent quarter for RPC, notwithstanding some minor weather disruptions. While oil and natural gas prices dropped during the quarter, it did not materially impact demand for our services. With oil prices rebounding early in the second quarter, we are optimistic about the ongoing stream of this cycle as the year goes on. A big thank you is warranted to our employees for delivering the results again this quarter. I want to thank our corporate and enterprise surfaces employees, our business unit leaders, our operations managers and our well site employees. All of them are working tirelessly to provide quality services to our customers every day. We obviously look to continue our tradition of generating industry-leading ROIC and returning capital to our shareholders.
In the first quarter of 2023, we repurchased 1.1 million shares for approximately $9 million and doubled our cash dividend of $0.04 per share or $8.7 million per quarter. This morning, we announced RPC's Board approved an increase in our share repurchase authorization and declared another cash dividend of $0.04 per share. Over the last decade, RPC has returned over $554 million to shareholders through a combination of dividends and opened market share repurchases. Thanks for joining us this morning. At this time, we're happy to address any questions.
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