Participants

Michael Schmit; Chief Financial Officer, Vice President, Corporate Secretary; RPC Inc

Benjamin Palmer; President, Chief Executive Officer, Director; RPC Inc

Stephen Gengaro; Analyst; Stifel, Nicolaus & Co

Donald Crist; Analyst; Johnson Rice

John Daniel; Analyst; Daniel Energy Partners

Presentation

Operator

Good morning and thank you for joining us for our RPC Inc. first quarter 2025 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 a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at this 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.

Michael 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 2024 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-gap measures of operating performance and liquidity.
We believe these non-gap measures allow us to compare performance consistently over various periods. Our press release and our website contain reconciliations of these non-gap measures to the most directly comparable GAAP measures. I'll now turn the call over to our President and CEO Ben Palmer.

Benjamin Palmer

Thanks, Mike, and thank you for joining our call. Today we will talk about our first quarter results in the acquisition we just closed in early April as well as share our views about the increasing tariffrin macro uncertainties. We are encouraged by the start of the year with respect to our financial performance and excited to bring Pintail into the RPC portfolio. Further, we are confident that our strong balance sheet, even following the funding of the acquisition provides a solid cushion in uncertain times while still affording us the ability to invest as attractive opportunities arise.
First quarter results can be summarized as stable revenues with some EBITDA growth. Recall that our fourth quarter held up relatively well in a sluggish market. That we weren't necessarily expecting a typical seasonal pickup heading into the first quarter. Nevertheless, we were pleased with our financial results, especially sequentially the doc.
As we look across the service lines for the quarter, pressure pumping revenues were essentially flat sequentially, and all of the service lines and aggregate declined 1%. We worked diligently to drive utilization, though it did come with some pricing concessions. We are balancing the pricing and utilization strategy to service our customers while not performing work at levels that generate inadequate returns. We still see higher utilization with our frac assets for our tier four DGBs where we have better visibility with dedicated customers and continue to deliver solid well-site performance.
On the other hand, demand and utilization remains challenging for tier two diesel equipment. The spot and semi-dedicated frac market are amply supplied with horsepower capacity, and pricing remains highly competitive as competitive as [OFS] companies compete to maximize utilization. In the current frac pricing environment, capital investments must be rigorously evaluated, and we suspect some smaller, less well capitalized competitors may disproportionately struggle to maintain asset quality and performance. Some may even exit the business. We are certainly hearing more about pumping equipment for sale at low prices. We believe these are mostly assets with limited useful lives, indicating that some providers are opting to monetize and exit rather than maintain and reinvest. We see this as a positive, potentially tightening frac supply and leading to firmer pricing, but this may take some time to play out.
Our 2025 plans still do not include a new frac fleet, though if and when we invest in incremental frac equipment, we would expect to retire older fleets. Looking at our non-pressure pumping service lines, combined revenues were down 1% sequentially in the first quarter with no individual service line up or down a significant amount. In short, it was a fairly stable quarter across most of the business. Down tools revenues were flat. Several of our regions delivered solid growth in the quarter but were offset by some unusual weather disruptions in the Rocky Mountains and other regions.
Our new drill and unplugged products continue to gain early traction in the market, and we're pleased with the response, but these are still too small to move the needle on our overall financial results. We look forward to more progress and we'll share updates on key milestones as appropriate. Coal tubing was down a few points in the quarter cementing was flat and rental tools at a nice gain of about 7% as that business did see a noticeable b to begin the new year.
From a strategic standpoint, we believe bolstering these less capital-intensive service lines with organic investments and acquisitions will help drive growth, improve our customer mix, and reduce volatility in our financial results. And with that, I'll segue into the Pintail completions acquisition. We have been talking increasingly in recent quarters about our optimism for executing acquisitions. We have set several potential transactions since acquiring Spinnaker in 2023, and we were very pleased with our ultimate outcome, acquiring Pintail in an agreed transaction.
The total purchase price was $245 million comprised of $170 million in cash, a $50 million seller note, and $25 million dollars of issued stock. While we had ample cash to fund the total purchase price, we believe the nodes and stock provide increased alignment and incentives as we move forward together. Pintail's a leading wireline perforation services provider offering some of the newest and most efficient high performance conventional and electric equipment in the industry with more than 30 active fleets. It has a fairly concentrated customer base of blue chip EMPs, and all of its operations serve the Permian Basin. The Pintail management team is well regarded in the industry, having established a reputation for delivering outstanding customer service in a safe and efficient way with low emissions. Pintail generated $409 million in revenues in 2024. We believe it has reached critical mass and expect revenues to trend with the overall market. Its customer retention is a testament to the strength of its relationships and consistent well site performance.
We note that the quarterly revenue was in the $100 million range in each quarter last year. With no discernible seasonality or year-long directional trend in their top line results. We have not disclosed specifically profitability measures. However, our general expectation is for EBITDA margins to continue to track at about 20% plus or minus a few points.
Pintail will maintain its operational approach, and we expect a relatively light integration with most of our efforts focused on back-office support and financial reporting. It's day to day operations will remain largely unchanged, and the management team will remain focused on serving its customers. With respect to the strategic rationale of the deal, you may recall that during our 4th quarter call, we highlighted several strategic imperatives to executing our goals. Improve margins and execution and optimize our assets. Increase operational scale through M&A. We balance our portfolio with a focus on high cash flow generating service lines and strengthen our customer mix by increasing our focus on blue chip EMPs given industry consolidation.
Pintail is very well aligned with those imperatives. Adding over $400 million of revenues certainly adds operational scale and meaningful share in wireline. Pintail is also a high cash flow producing business with relatively low capital intensity, and its exclusive focus on blue chip customers is something we find very appealing. This acquisition is a great fit with our strategic direction as we continue to expand our completion services capabilities and focus on overall company growth and free cash flow.
Looking at our 2024 revenues, pro forma with the addition of pintail, pressure pumping was 32%. Wireline increased from 1% to 23%. Downhole tools was 21%, coal tubing was 7%, and cementing was 6%. All other businesses together would represent approximately 11%. Furthermore, the Pintail transaction would move our Permian concentration up to approximately 60% of total revenues. With that, Michael will now discussed the quarter's financial results as well as some notes on the pintail transaction.

Michael Schmit

Thanks, Ben. Shifting to the first quarter of financial results with sequential comparisons to the fourth quarter of 2024. Revenues decreased 1% to $333 million. Breaking down our operating segments, technical services, which represented 94% of our total first quarter revenues was down 1%. Support services, which represented 6% of our total first quarter revenues were up 1%. The following is a breakdown of our first quarter revenues for our top five service lines. Pressure pumping is 40.1%. Downhole tools 28.2%. Coil tubing 9.6%, cementing 8.3%. Rental tools 4.6%. Together these accounted for approximately 91% of our total revenues. Cost of revenues, excluding depreciation and amortization, decreased by $6.4 million to $243.9 million or 3% during the first quarter.
The lower cost of revenues can be mainly accounted for by lower expenses in three categories. First, transportation and fuel declined due to job mix as we provided less fuel to our customers. This typically carries little to no profit, so it's actually a positive margin impact for us. Second is lower material and supplies. As the mix of our job's changes quarter to quarter, so does the amount of sand and chemicals we supply on these jobs. Lastly, we noted in the fourth quarter that insurance costs were elevated. The same level of expense did not repeat this quarter, thus contributing to a modest sequential improvement in the first quarter.
Selling, general and administrative expenses were $42.5 million up from $41.2 million as a percentage of revenues increased 50 basis points to 12.8%, reflecting increased IT modernization project expenses and slightly lower revenues. Our first quarter tax rate was 27.2%, more in line with our normalized tax rate. Recall that our fourth quarter of 2024 tax rate was unusually low due to the impact of tax planning strategies and interest received on past refunds.
Notably, we had higher sequential EBITDA. The increase in tax rate drove a slight sequential net income decline compared to Q4 2024. Diluted EPS of $0.06. In the First quarter was flat versus the fourth quarter. EBITDA was $48.9 million up from $46.1 million with EBITDA margin increasing 100 basis points sequentially to 14.7%. For the quarter, operating cash flow was $39.9 million and after CapEx of $32.3 million free cash flow was $7.6 million. At quarter end, we had $327 million in cash and no debt on the balance sheet. During the quarter, we paid $8.7 million in dividends. Regarding the 2025 capital spending expectations, we now project $165million to $215 million inclusive of pintail for the next nine months, mostly related to maintenance.
Shifting now to some pintail modelling notes. Pintail closed after the first quarter, so there was no material PML balance sheet or cash flow impact from the deal in our results. We are not providing explicit accretion guidance for the transactions, but we do expect it to be accretive to EPS and cash flow for 2025. Based on her comments, you should be able to make reasonable projections for revenues in EBITDA, which will be in large part influenced by overall [OFS] market conditions. Beyond the EBITDA impact, please note a few other modelling items. CapEx for Pintail will likely be up to $20 million on an annualized basis, with depreciation expected to approximate annualized CapEx. We will lose interest on the $170 million cash portion of the transaction funding, as well as incremental interest expense on the $50 million seller note. It has a floating rate of sulfur plus 200 basis points. Lastly, based on the share price, immediately before April first, we issued approximately $4.5 million shares.
We will complete accounting in the coming months and note that certain future expenses impacted by the purchase price allocation and related valuation, including the amortization of intangible assets were not contemplated in these figures. On another topic, we may have seen the company has filed an S3 registration statement with the SEC, which includes registering the Rawlings Family control group shares. The Rawlings family has been a longtime shareholder with ongoing representation on our board. They've always been supportive of the company and we do not believe this changes that relationship. We view the registration of the control group shares as good corporate housekeeping. I'll now turn it back over to Ben for some closing remarks.

Benjamin Palmer

Thank you, Mike. To wrap up, I want to touch on the macro environment. We, we've entered a period of high uncertainty and limited visibility with respect to tariffs and their impact on inflation and the economy in general. Tariffs in the current form will likely push equipment prices higher, put even more pressure on the industry to be disciplined with capital spending. More broadly, the potential economic impact from tariffs and trade disputes increases uncertainty and contributed to oil prices falling to the low $60 range. Oil at these prices makes it difficult for some customers to justify continued completion activities at prior levels, but only time will tell.
News flow and market developments are dynamic in the current environment. We, as well as [OFS] competitors and upstream and downstream players in the value chain will have to navigate these uncertainties as we assess investment commitments. However, despite some mild turbulence and unknowns, a few things remain unchanged. Our balance sheet is strong, our dividends secure, and we have ample liquidity to ride out volatility and still capitalize on opportunities as they arise. We believe the company has an attractive mix of service lines and brands, customers, and geographic presences, and will execute our strategy with patience and discipline, including our pursuit of additional acquisitions.
On a separate note, we'd like to welcome Steve Lewis, our board of directors, after being elected this week. Steve retired from the law firm Troutman Pepper, formerly Trout and Sanders in 2023, where he had served in various leadership roles including Chairman and CEO. At the same time, Gary Rawlings and Pam Rawlings have retired from our board. We thank them for the years of contributions, leadership, and service.
In an often volatile market, our discipline remains consistent with a focus on financial stability and long term shareholder returns. I also want to thank all our employees who work tirelessly to deliver high levels of service and value to our customers. Thanks for joining us this morning and at this time we'd be happy to address any questions you may have.

Question and Answer Session

Operator

[Operator instructions]
And your first question comes from a line of Stephen Gengaro with Stifel.
Please go ahead.

Benjamin Palmer

Good morning.
You may be on mute.

Stephen Gengaro

Can you hear me?

Michael Schmit

Yeah.

Stephen Gengaro

Oh, there you go. The operator didn't like me. The, when we, you talked a little bit about this, I think on the prepared remarks, but when we think about the pressure pumping market in general, are you seeing like what are you seeing in sort of pricing conversations and are you seeing any differences kind of versus prior periods of softness in the market?

Benjamin Palmer

I think I understand the question. Each one of these cycles are different, yet they're very much the same. I think some of what's happening is, again, with all the uncertainty about what's going on and the fact that you know things could in fact flip back, I think you know our customers are scrambling, they're trying to respond to, their potential impact with lower oil prices, so they're trying to do what they can, service companies like us are trying to, hang in there and do the best we can to TRY to be accommodating to our customers yet, we're trying to, we're trying to maintain our business as well. So, I don't know that the discussions are completely different, but I think circumstances are perhaps a bit different and that may. Impact slightly those discussions, but it's all about, the give and take in trying to reach hopefully a decent place for both parts.

Stephen Gengaro

Okay, great. And then following pintail or can you just kind of remind us when you think about capital allocation kind of what the priorities are and when you're looking at M&A what are sort of the two or three most important criteria you look for?

Benjamin Palmer

Well, obviously we want, creative transactions, we certainly, adding to existing businesses that we have that have good strong brands is certainly a criteria, but again looking for customers, we want more exposure to the larger customers that should translate into, more steady business, less volatility, also looking for companies, service lines that have good free cash flow generating capability, we all know the pressure pumping is, it is a very large part of the overall, well completion cost, but it is highly competitive right now. We still are committed to that business, but we're looking to grow in some other service lines and with brands. That, brands with good management teams, that can produce some good free cash flow. So that's really our priority, more exposure to EMP customers and businesses with good free cash flow potential at prices that can be accredited to our results.

Stephen Gengaro

Great, thanks. And then the one final one was when, and I'm just, I don't want to give you the wrong numbers here, but when we think about the pintail business, I think it was running kind of close to about $90 million in revenue a quarter based on the info that was disclosed. Is that about the right starting point right now as we think about layering it in?

Benjamin Palmer

Stephen, we said in our earlier comments that they did a little over 400 million in 2024, and each quarter was right at 100, so I think. 100 more or less or whatever, they've kind of as we indicated they kind of reached their critical mass so, but certainly not completely or can't avoid the overall market forces that are in place but in round numbers probably closer to 100. Great.

Stephen Gengaro

All right, thank you for the.

Benjamin Palmer

Details.
Thank you, appreciate the questions.

Operator

[Operator instructions]
And your next question comes from the line of Donald Crist with Johnson Rice . Please go ahead.

Donald Crist

Good Morning guys. How are you all today?

Michael Schmit

Good morning, Don.

Donald Crist

Are you seeing any shift in kind of customer activity and I know pressure pumping is a generally a large topic of discussion, but in your other service line, do you see any shift away from High CapEx projects, i.e., new wells and new pads towards workovers or anything like that that may have a bigger impact to ENP's cash flows with smaller dollars.

Benjamin Palmer

That's a reasonable question, Don. I think it's a little bit early. To know that, or to have a whole lot of, feedback on that certainly seems reasonable and in prior cycles that type of shift has occurred, so, we're certainly watching for that sort of thing. Good question.

Donald Crist

Okay. And on a typical job kind of timeline, like what is your visibility normally. I mean, if you're either, fracking a well or a pad rather, do you have visibility on the next two pads or just the next pad? Like when is that decision point made normally in normal kind of business cycle to where we can kind of forecast like how far out you know kind of what you're going to be doing?

Benjamin Palmer

Well, our frac business, historically, as you and others know, has been more the spot market and semi-dedicated, so it depends on, the size of the customer and the nature of, the type of work we're doing. Typically, for the semi-dedicated customers we have some visibility for months at a time, maybe not a year or more, but we certainly typically have some level of visibility spot market much less so. But we do have a calendar, we watch the calendar, we maintain the calendar. We're always trying to work, and minimize the white space, be that with a dedicated customer, semi-dedicated or spot. So, it just depends on the customer. Some of our other service lines that have more dedicated work, the visibility is a bit longer. As you can imagine though customers are right now, they are looking at different alternatives and. And as we see it right now, kind of looking ahead, early in the 2nd quarter things look to be relatively stable, but, it's hard enough and uncertainty, is the word of the day or the time right now. We know that there are discussions going on and we'll just have to wait and see and get prepared for and then react to whatever happens.

Donald Crist

Okay. And one of your competitors reported last night and talked about a kind of uptick in gas-directed activity, whether it be in the Eagle Ford or midcontinent or other places. Are you seeing any pickup yet or is that still a couple of months down the road, you think?

Benjamin Palmer

I think probably a little further down the road we are hearing a little bit. We do have exposure to some natural gas focused basins, especially with our downhole tools business. It was very traditionally strong natural gas plays. Our downhole tools business is very well equipped to be able to move people and equipment around very easily and quickly. So having those operating locations in place, we'll be able to. Jump very quickly on the opportunities with that service line and a couple of our other service lines, less so for pressure pumping, we do have some exposure to the mid-on, so if things were to pick up there, we could certainly take advantage there, but the biggest opportunity for us is probably it would be on the downhole tool side.

Donald Crist

Okay. I appreciate the colour. I'll turn it back to the operator. Thanks.

Benjamin Palmer

Thank you don. I appreciate it.

Operator

Your next question comes from the line of John Daniel with Daniel Energy Partners. Please go ahead.

John Daniel

Hey Ben, thanks for thanks for including me. Just a couple of quick ones, I think in your prepared remarks. That some of your, some of the older pumping equipment out there is being sold by presumably some of your competitors. I'm just curious if you can talk about is that whether it's frac equipment or other assets in your portfolio, do you guys see a need to sell assets and Just your thoughts on that on that equipment re-entering the market.

Benjamin Palmer

What was the very end of your comment?

John Daniel

What if some of your peers, I think have sold or trying to sell some of their older, tier two equipment. Others are smaller companies are selling assets just to try to generate cash. You guys clearly don't need to generate cash because your balance is fine, but I'm just curious if you could broadly speak about. What you're seeing in terms of who's buying some of that equipment, just your thoughts on that side of the market.

Benjamin Palmer

Oh, it's a good question. Again, we have, as we indicate, have seen some opportunities. I don't know who might be buying that. We have rarely over the years found an opportunity that we were comfortable trying to make investments on in a used piece of equipment, that we have done a little bit of that but not in a whole small way. And maybe kind of, thinking about the question too, we talked about the fact that, we monitor our equipment and when it comes to end of life or inefficient operations or whatever for frac we look to move those assets out. We don't like to stack them up in the last year or two when that need or opportunity arose, we've been able to reallocate some of those assets to other of our service lines that can use that type of equipment. It can be very, it can contribute very nicely to the other service lines, so we've done some of that. If we were to sell our equipment, we, we've been very diligent about trying to make sure it can or doesn't re-enter the frac market. So that could include selling. It overseas or being able to or to disassemble the parts and try to distribute it that way so we're very keenly aware of trying to you know introduce any more equipment that can be competitive in the market.

John Daniel

Okay. The next one, thanks for that. The next one is on CapEx, just quickly, Q1 CapEx is call it low 30s. Which means you're underspending relative to the guidance here on the low end, if you will. What's the, what would you need to see to sort of accelerate that spend in the back half of the year? And is there more of a chance that, we would see that CapEx dollars be allocated to, further creative M&A opportunities?

Michael Schmit

Hey John, Mike. Yes, I think it will just it will be based on market conditions overall. We're looking to spend the CapEx we need to maintain our equipment or if there is something to creative, we, we'll spend the money on that as well, but we are really looking at. Trying to see what we're really going to need to spend to meet all our customer needs for the year because no one knows really what's happening overall the maximum conditions out there so we've really, pushed back or. Ask our businesses to really look at whether they need to do that this year or if we can hold off next year just so we also aren't spending all our cash on equipment that we're not going to get a good return on in the short term so that we still have a strong balance sheet so we, can do further acquisitions also. So, we are still projecting to probably pick up a little bit of spending as the year goes on, but hopefully that kind of gives a little bit. how we think about it.

Benjamin Palmer

Yes, I was just going to say I think yeah, the first quarter number just there was a little bit of managing there trying to, not spend where we don't need to spend, but I think it was just sort of the timing worked out to where it was a relatively low annualized spend that was, I think just the way the everything fell out in terms of.

John Daniel

Then one quick final one for me as the year unfolds with the uncertainty, I presume you're going to see lots of M&A opportunities and just giving Pintail strong presence in the Permian, would you say that your folk would you be more inclined to be focused on further consolidating the Permian market, not just say wireline but other services, or are you sort of somewhat agnostic and willing to look at other bases?

Benjamin Palmer

I think that's a good question. We're agnostic or we're open to the opportunities in other basins as well. And again, with the impending expected opportunities in the natural gas basins, now may be a good time before things really do pick up big time, maybe there's something up that has exposure to some of those other basins that we could take advantage of. So, I think. We're looking at talking about several things. It's, our discussions are not all around. We need to focus on the permit. Our discussions are around let's look for appropriate opportunities and each company and each business and each service line and each brand has different attributes and, so we're open, we're open.

John Daniel

Okay, thank you for including me.

Michael Schmit

Sure, thank you, thanks, John.

Operator

This concludes our question and answer session. I will now turn the call back over to Ben Palmer.

Benjamin Palmer

Okay. Well, thank you all for listening in and your questions. We appreciate it and I hope you have a good rest of the day and look forward to catching up. Take care.

Operator

[operator instruction]
Thank you all for joining. You may now disconnect.