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RPC, inc (NYSE:RES)
Q2 2021 Earnings Call
Jul 28, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and thank you for joining us for RPC Inc.'s Second Quarter 2021 Financial Earnings Conference Call. Today's call will be hosted by Rick Hubbell, President and CEO; and Ben Palmer, Chief Financial Officer. Also present is Jim Landers, Vice President of Corporate Services. [Operator Instructions] I would like to advise everyone that this conference call is being recorded. Jim will get us started by reading the forward-looking disclaimer.

James C. Landers -- Vice President of Corporate Finance

Thank you, Andrea, 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 in nature and reflect a number of known and unknown risks. I would like to refer you to our press release issued today, along with our 2020 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. These non-GAAP measures are adjusted net loss, adjusted loss per share, adjusted operating loss, EBITDA and adjusted EBITDA. We're using these non-GAAP measures today because they allow us to compare performance consistently over various periods without regard to nonrecurring items. 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 financial measures to operating loss, net loss and loss per share, which are the nearest GAAP financial 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 will now turn the call over to our President and CEO, Rick Hubbell.

Richard A. Hubbell -- Chief Executive Officer, President & Director

Jim, thank you. This morning, we issued our earnings press release for RPC's second quarter of 2021. The second quarter represented a transition quarter for RPC. We saw numerous signs of increased demand for our services and have a full frac calendar for most of the third quarter. This is the most visibility we have had since pre-COVID. Nevertheless, we did experience an air pocket in June customer activity due to some jobs being pushed and heavier rains in the Permian. July is shaping up to be substantially better than our second quarter run rate and the remainder of the third quarter appears consistent with July at this point. Our CFO, Ben Palmer, will discuss this and other financial results in more detail, after which I will provide some closing comments.

Ben M. Palmer -- Vice President, Chief Financial Officer & Corporate Secretary

Thank you, Rick. Second quarter of 2021, revenues increased to $188.8 million compared to $89.3 million in the second quarter of the prior year. Revenues increased due primarily to higher activity levels and improved pricing compared to the second quarter of the prior year. Revenues also increased in the second quarter of 2021 because the second quarter of the prior year was severely impacted by COVID-19. This impact affected all of our year-over-year comparisons. Operating loss for the second quarter was $1.2 million compared to an adjusted operating loss of $35.9 million in the second quarter of the prior year. EBITDA for the second quarter of this year was $17.3 million compared to adjusted EBITDA of negative $17.8 million in the same period of the prior year. We approached breakeven per share results in the second quarter of 2021 compared to an adjusted loss per share of $0.10 in the second quarter of 2020. Cost of revenues during the second quarter of 2021 was $145.8 million or 77.2% of revenues compared to $80 million or 89.6% of revenues during the second quarter of the prior year. Cost of revenues increased primarily due to increases in expenses consistent with higher activity levels. Cost of revenues as a percentage of revenues decreased due to the leverage of higher revenues over certain direct costs, fixed direct costs. Selling, general and administrative expenses increased to $29.4 million in the second quarter of this year compared to $28.8 million in the second quarter of the prior year. These expenses included higher bad debt expense and expenses consistent with higher activity levels, primarily offset by lower [Indecipherable]. Depreciation and amortization decreased slightly to $17.9 million in the second quarter of 2021 compared to $19.6 million in the second quarter of the prior year as capex has remained relatively low.

Our Technical Services segment revenues for the quarter increased to 118.7% compared to the same quarter in the prior year due to significantly higher activity and some pricing improvement. Segment operating profit in the second quarter of 2021 was $1.4 million compared to $34.1 million operating loss in the second quarter of the prior year. Our Support Services segment revenues for the quarter increased 44.1% compared to the same quarter in the prior year. Segment operating loss this year was $2.4 million compared to an operating loss of $1.9 million in the second quarter of the prior year. On a sequential basis, our second quarter revenues increased 3.4% from $182.6 million in the prior quarter due to activity increases in most of our service lines. The improvement was negatively impacted by multiple frac jobs pushing into July. Cost of revenues during the second quarter of 2021 was $145.8 million, relatively unchanged from the prior quarter. As a percentage of revenues, cost of revenues decreased from 80.1% in the first quarter of this year to 77.2% to the second quarter due to a favorable job mix in several service lines as well as the impact of the CARES Act employee retention credit that we recognized during the quarter. Selling, general and administrative expenses during the second quarter of 2021 decreased 3.9% to $29.4 million from $30.6 million in the prior quarter, and this was also due to the impact of the retention tax credit. RPC incurred an operating loss of $1.2 million during the second quarter of 2021 compared to an operating loss of $10.5 million in the prior quarter. RPC's EBITDA was $17.3 million during the quarter compared to EBITDA of $7.8 million in the first quarter. Our Technical Services segment revenues increased by $3.5 million or 2% to $176.1 million in the second quarter due to increased activity levels in most of the segment's service lines. RPC's Technical Services segment generated a $1.4 million operating profit in the current quarter compared to an operating loss of $5.8 million in the prior quarter. Support Services segment revenues increased by $2.7 million or 26.8% to $12.6 million during the second quarter. Operating loss was $2.4 million compared to an operating loss of $2.9 million in the previous quarter. During the second quarter, RPC operated up to six horizontal pressure pumping fleets. And early in the third quarter, we reactivated, at minimal cost, a seventh fleet to meet incremental demand. Second quarter 2021 capital expenditures were $14.1 million, and we currently estimate full year 2021 capital expenditures to be approximately $65 million, comprised primarily of capitalized maintenance of our existing equipment and selected growth opportunities. With that, I'll turn it back over to Rick for some closing remarks.

Richard A. Hubbell -- Chief Executive Officer, President & Director

Thanks, Ben. Second quarter revenues improved sequentially as drilling and completion activities continued to increase due to improving oil prices and a strengthening economy. We are pleased with the increased activity levels and our ability to pass through cost increase to our customers. We have not been able -- we have not yet been able to consistently achieve net pricing improvements but are optimistic that, that will change soon. Our ESG-friendly Tier four and dual-fuel frac equipment is in very high demand, and we expect to see pricing power here first. We began the third quarter with indications that our customer base is responding to higher commodity prices with increased drilling and completion plans during the remainder of the year and into 2022. At the end of the second quarter, RPC's cash balance was $121 million, and we remain debt-free. I would like to thank you all for joining us for RPC's conference call this morning. And at this time, we'll open up the lines for your questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Ian MacPherson with Piper Sandler.

Ian MacPherson -- Piper Sandler & Co. -- Analyst

Thanks, good morning gentlemen. So it sounds like third quarter is shaping up nicely, even though you're not getting great net pricing, you have some confidence that that's lurking around the corner. Does third quarter top line look up double digits at this point? Or could you refine that a little bit for us?

James C. Landers -- Vice President of Corporate Finance

Ian, this is Jim. Yes, that's very much in the realm of possibility.

Ian MacPherson -- Piper Sandler & Co. -- Analyst

Okay. Previously, you mentioned the CARES Act benefit in the Q2 margins. I'm sorry if I missed where that was specified there. If it wasn't -- could you help us with that as we think about the incrementals for Q3?

Ben M. Palmer -- Vice President, Chief Financial Officer & Corporate Secretary

Yes. I mean we -- the overall number for the quarter was just under $4 million, $3.9 million. And about $0.5 million of that is in our corporate costs and the remainder, about $3.5 million or so, $3.4 million, is in -- primarily in Technical Services. So that would be in the Technical Services operating profit. We reported $1.4 million operating profit, so it would have been about a $2 million operating loss without that credit.

Ian MacPherson -- Piper Sandler & Co. -- Analyst

Great. Okay. And then last one for me, just with regard to the optimism on net pricing improvement. Do you see that as a possibility by the end of this year? Or are you thinking about that more in terms of the first half of 2022 at this point?

Ben M. Palmer -- Vice President, Chief Financial Officer & Corporate Secretary

I think we're hopeful that we will see some pricing improvement. We see the market tightening and increasing activity. So we are hopeful, but we remain -- we remain conservative, but we are hopeful and we're pushing forward and doing everything we can to try to help that along.

James C. Landers -- Vice President of Corporate Finance

Alright, well thanks very much, appreciate it.

Operator

Your next question comes from the line of Stephen Gengaro with Stifel.

Stephen David Gengaro -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Thanks and good morning gentlemen. So a couple of things. I'll start with, can you -- do you mind breaking down the revenue within Technical Services or for the major product lines?

James C. Landers -- Vice President of Corporate Finance

Yes, Stephen, this is Jim. Happy to do that. So the numbers I'm about to give are the percentage of consolidated revenue for the quarter for our major service lines. Our largest service line is pressure pumping. That's 38.2% of consolidated revenues. Next comes Thru Tubing Solutions at 31.2% of consolidated revenues. Behind that is coiled tubing at 10.8% consolidated revenues. Then comes rental tools in our Support Services segment, which was 4.5% of consolidated revenues. Finally, nitrogen was 4.3% of consolidated revenues.

Michail Paraskevopoulos -- Marktfeld -- Analyst

Great. So by -- when you look at the margin profile -- and obviously, there are some moving pieces in the quarter that you alluded to. How should we think about the deployment of an additional fleet within pressure pumping and that impact on margins as we sort of try to triangulate that with just the overall revenue growth and how the margin sort of flushed out as we get into the back half of the year?

James C. Landers -- Vice President of Corporate Finance

Stephen, it's Jim again. So we wouldn't put a fleet in the field if we didn't think it had acceptable returns. The margin profile right now is such that pressure pumping is a little bit lower margin than some of our other large service lines. So it will be bottom line accretive in dollars, hard to say about margin percent. It will also absorb some more overhead. So I mean, it truly is hard to say, but it will enhance our bottom line in the third quarter. Hard to say about percentage though.

Stephen David Gengaro -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Okay. And just as a -- just a quick follow-up to that. So when you think about the -- and I don't know if you could talk about sort of incrementals or just sort of margin change as we get into the third quarter. I mean I know it's always hard when you're kind of dealing with low numbers still and you're coming off of bottom so the incrementals can get a little bit funky. But do you envision -- if you get to the, give or take, 10% revenue growth that you said was realistic, would you envision a positive OPEC number excluding the gain on asset sales and the [CARES?]

James C. Landers -- Vice President of Corporate Finance

Positive operating income, it is certainly in the realm of possibility.

Stephen David Gengaro -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Ok, Great. Alright I appreciate the [Indecipherable] thanks

James C. Landers -- Vice President of Corporate Finance

Sure thank you Stephen

Operator

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

John Daniel -- Analyst

Hey guys, thanks for putting me on. If you guys could just sort of opine on where -- when you might try to deploy fleet #8? What's the demand set behind that?

James C. Landers -- Vice President of Corporate Finance

Well, it's a good question, John.

Ben M. Palmer -- Vice President, Chief Financial Officer & Corporate Secretary

As soon as we are comfortable, right? As soon as we have demand visibility. We indicated the frac calendar early in the third quarter is quite full. We -- our team has remained -- I think, done a really good job of trying to remain disciplined and not getting too far ahead of ourselves. We kind of had a plan to try to roll things out and a conservative and slow pace. So I would say right now, they're not aggressive plans right now. And obviously, to deploy a fleet, you need to have an incremental additional personnel. So at this very moment, we are not aggressively hiring for an eighth fleet, but we're already -- always ready and recruiting is an ongoing program. So we had it down that we can get people in relatively quickly. But at this point, I don't -- I mean, we are hopeful that sometime during the third quarter, we will have -- maybe be heading in that direction. But at this very moment, that's not in our plans to say, hey, we probably should put another one in place in the next six weeks or four weeks.

John Daniel -- Analyst

Fair enough. Sort of another -- I got two more for you. The next one relates to -- you go from, call it, seven fleets to -- from 6. Again, just doing simple math, that's, call it, 15% increase. Is that type of percent increase representative of the other product lines in terms of step-up in activity for Q3?

Ben M. Palmer -- Vice President, Chief Financial Officer & Corporate Secretary

Probably not that significant.

John Daniel -- Analyst

Okay. Fair enough. And then the last one just, it relates to just your general thoughts on -- with labor being as tight as it is and with COVID cases rising, just how much of a concern do you think that is? Or what's the strategy if you start getting cases popping up out in West Texas?

James C. Landers -- Vice President of Corporate Finance

John, this is Jim. It will be the same game plan that we've executed over the past 1.5 years, which is social distancing, checking people in, having more people than you theoretically need because of quarantines that happened. It wasn't pleasant, and it did increase costs over the past 1.5 years. But that game plan worked. It was good for our employees. It complied in every respect with customer requirements. It did cost incrementally more, but that's what we would do if it happens.

Ben M. Palmer -- Vice President, Chief Financial Officer & Corporate Secretary

This is Ben. But -- John, this is Ben. We're certainly not experts. But I would say in recent months, the impact has not been -- and Jim is right that there have been incremental costs over that entire time frame. Recently, we haven't had any significant or direct impact that we're aware of. I'm hopeful or my reading of the tea leaves is that hopefully, this will not have a significant impact on us. If it does have some incremental impact, we'll respond to it. We have processes and procedures in place to be able to address it. But once we had all those things in place, it was relatively rare, maybe strong work, but it was not constant that we were being impacted by COVID. So I'm hopeful that -- number one, I'm hopeful that the spread or the increase in cases will not impact us significantly. But if it begins to impact us, I think we can operate through it fairly effectively.

John Daniel -- Analyst

Okay. And then I guess the last one would be just as the customers are looking at this, is it sort of a full steam ahead and get the job done? Or do you sense the same level of conservatism like in terms of the policies out in the field? The reason I ask is just because every time we talk to any service company, it's -- labor is like the #1 issue, right? And there's not a lot of backup capacity. That's the whole basis for the question here.

James C. Landers -- Vice President of Corporate Finance

Right. Right. All right.

Ben M. Palmer -- Vice President, Chief Financial Officer & Corporate Secretary

Yes. We're not hearing a lot of anecdotes about issues with that right now. Certainly, labor is an issue, but we're not hearing that it's COVID related issue.

John Daniel -- Analyst

Ok thanks guys

Operator

Your next question comes from the line of Taylor Zurcher with Tudor Pickering.

Taylor Zurcher -- Tudor, Pickering, Holt & Co. Securities, LLC -- Analyst

Hey guys, thanks for taking my question. You talked about some customer-related operational delays impacting pressure pumping in Q2. And just hoping you could give us a bit more color as to what was going on there and what sort of impact that had on Q2. And also sounds like, in the same vein, that the frac calendar for Q3 is fully booked with at least seven horizontal fleets. So just curious if you could help frame, with the issues in Q2 and into calendar in Q3, how we should be thinking about effective utilization for those six to seven horizontal spreads you have?

James C. Landers -- Vice President of Corporate Finance

Taylor, it's Jim. We had some just customer operational delays in the second quarter. I know we've already said that. Some of it was related to heavy rain in West Texas and some of it was just related to the job pushes that happen when you're trying to orchestrate sets of logistics on a job site. So those things happen and they do continue to pop up. As a result, our utilization of the fleets that we had in the field was certainly not what it was in first quarter. It was more in the -- it was down by a good bit. With seven fleets, we see high utilization in the third quarter. So we've got one more horizontal fleet out with what we see is that right now is a calendar with no white space. We can't guarantee that there won't be other job delays because they come up unexpectedly. But we do feel pretty good about utilization. That will be from all intents and purposes, practically full utilization for us in the third quarter.

Taylor Zurcher -- Tudor, Pickering, Holt & Co. Securities, LLC -- Analyst

Okay. Great. And maybe shifting gears a bit outside of pressure pumping, and here I'm thinking about coiled tubing and Thru Tubing Solutions, any -- just curious how you're thinking about those service lines heading into the back half of the year maybe relative to frac. I know coiled tubing is still challenged from a pricing perspective. But any green shoots from a pricing or activity perspective in those sorts of service lines over the back half of the year?

James C. Landers -- Vice President of Corporate Finance

I'd say we -- there probably is a little bit more net pricing improvement there. I wouldn't say it's strong or turning up higher or significantly, but our teams are doing a good job asking for it, pushing for it. And I think we are having some success in our ability when we talk about frac increasing is going from six to seven fleets being 15%, 16% increase in capacity. That gives us the ability there to "ramp or increase revenue" more quickly than some of our other service lines. We don't have as much idle capacity in those other service lines. So it would take a lot more overall activity to have those service lines potentially move as significantly as pressure pumping can at this point in time, right? Just give them the numbers. But we are saying -- I would say that we are experiencing -- without regard to the increase in capacity, we are experiencing even more improvement on those other service lines than we are on frac. But frac again can produce a higher percentage increase due to the adding that incremental capacity at this point in time.

Operator

[Operator Instructions] Your next question comes from the line of Stephen Gengaro of Stifel.

Stephen David Gengaro -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Ah thanks. Two quick follow-ups, gentlemen, and I apologize if I missed this. The six fleets in the quarter, was the utilization of those fleets down a bit from the second -- from the first quarter because of those jobs being pushed out?

James C. Landers -- Vice President of Corporate Finance

Yes. Yes, that's what impacted utilization.

Stephen David Gengaro -- Stifel, Nicolaus & Company, Incorporated -- Analyst

And did you give a utilization number, Jim? I'm sorry, if I missed it.

James C. Landers -- Vice President of Corporate Finance

We didn't -- it's kind of hard to portray because everybody's denominator is a little bit different, but it was down by 30% or so from first quarter.

Stephen David Gengaro -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Okay. Thank you. And then just the second question I had, and you alluded to sort of the pricing dynamics that you see in the market right now. What are you seeing from your perspective on pricing for different assets within pressure pumping? Are you seeing any of the sort of bifurcation that we hear from others and sort of what our customers are looking for? And if you could just kind of remind us the makeup of your assets right now?

James C. Landers -- Vice President of Corporate Finance

Were you talking about pressure pumping, Stephen?

Stephen David Gengaro -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Yes, I am. Sorry, yes.

James C. Landers -- Vice President of Corporate Finance

So of the six fleets that we had in the second quarter, four are ESG friendly, either because they're Tier four or their dynamic gas blending -- so have the natural gas component to them. I think a good way to characterize it is if you have a ESG-friendly pressure pumping equipment, you can achieve pretty decent utilization at today's pricing. You don't get premium pricing and get market pricing and decent utilization. There's increased demand, and you can mix in the dynamic gas blending equipment with regular diesel equipment. So you can effectively make pretty high utilization of everything. And I hope that's answering your question.

Stephen David Gengaro -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Yah that add some color, I appreciate it. I think im in good shape thanks for the help/

Operator

I would now like to turn the call over to Mr. Landers for any closing.

James C. Landers -- Vice President of Corporate Finance

Okay. Well, thank you. Thanks, everybody who called in and participated today. We appreciate it and hope you have a good day. We'll talk to you soon.

Operator

[Operator Closing Remarks]

Duration: 28 minutes

Call participants:

James C. Landers -- Vice President of Corporate Finance

Richard A. Hubbell -- Chief Executive Officer, President & Director

Ben M. Palmer -- Vice President, Chief Financial Officer & Corporate Secretary

Ian MacPherson -- Piper Sandler & Co. -- Analyst

Stephen David Gengaro -- Stifel, Nicolaus & Company, Incorporated -- Analyst

Michail Paraskevopoulos -- Marktfeld -- Analyst

John Daniel -- Analyst

Taylor Zurcher -- Tudor, Pickering, Holt & Co. Securities, LLC -- Analyst

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