James C. Landers - Vice President Corporate Finance Richard A. Hubbell - President, Chief Executive Officer & Director Ben M. Palmer - Vice President, Chief Financial Officer and Treasurer.

Byron K. Pope - Tudor, Pickering, Holt & Co. Securities, Inc. Rob J. MacKenzie - IBERIA Capital Partners LLC Michael Sabella - Citigroup Global Markets, Inc. (Broker).

Good morning and thank you for joining us for RPC Incorporated's Third Quarter 2015 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 Finance. 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 that time for you to queue up for questions. I would like to advise everyone that this conference is being recorded. Jim will get us started by reading the forward-looking disclaimer..

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 in nature and reflect a number of known and unknown risks.

I'd like to refer you to our press release issued today, along with our 2014 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 in our conference call, we'll be referring to EBITDA, which is a non-GAAP measure of operating performance.

RPC uses EBITDA as a measure of operating performance because it allows us to compare performance consistently over various periods without regard to changes in our capital structure. We are also required to use EBITDA to report compliance with financial covenants under our revolving credit facility.

Our press release this morning and our website provide a reconciliation of EBITDA to net income, which is the nearest GAAP financial measure. Please review that disclosure if you're interested in seeing how it's calculated. If you've not received our press release and would like one, please visit our website at www.rpc.net for a copy.

I will now turn the call over to our President and CEO, Rick Hubbell..

Jim, thank you. This morning we issued our earnings press release for RPC's third quarter of 2015. The third quarter of 2015 can best be summarized as a continued deterioration of the operating environment in the oilfield services industry. Over the last three quarters, the U.S.

domestic rig count has declined from 1,875 rigs at the end of 2014 to 838 at the end of the third quarter, a decline of 55%. As the number of rigs continued to decline, the demand for our services fell accordingly. RPC's business has also been negatively impacted by increasingly competitive forces that continued to drive lower pricing.

Despite the deteriorating conditions, our quarterly results were relatively flat on a sequential basis because of the increased service intensity of our operations. Our CFO, Ben Palmer, will now review our financial results in more detail after which I will have a few comments about the current difficult market conditions..

Thank you, Rick. For the third quarter, revenues decreased to $291.9 million compared to $620.7 million in the prior year. These lower revenues resulted from decreased activity levels and pricing in almost all of our service lines. EBITDA for the third quarter decreased by 90.6% to $15.4 million compared to $163.4 million for the same period last year.

Operating loss for the quarter was $51.5 million compared to operating profit of $106.7 million in the prior year. Our diluted losses per share were $0.16 compared to earnings per share of $0.30 in the prior year.

Cost of revenues decreased from $398.3 million in the third quarter of the prior year to $234.6 million in the current year, due primarily to lower activity levels partially offset by higher service intensity.

Cost of revenues as a percentage of revenues increased from 64.2% in the prior year to 80.4% due to lower pricing for our services and higher maintenance and repair expense.

In addition, RPC recognized $3.8 million in cost due to write-downs in the value of materials and supplies, which were slow moving or could no longer be effectively utilized in providing services to our customers.

Selling, general, and administrative expenses decreased from $50.8 million in the third quarter of the prior year to $35.9 million this year, due primarily to decreased employment costs. SG&A expenses as a percentage of revenue increased from 8.2% last year to 12.3% this year due to negative leverage resulting from lower revenues.

Depreciation and amortization were $69 million during the third quarter of 2015, an increase of 20.7% compared to $57.2 million in the prior year. Depreciation and amortization increased due to assets placed in service over the last year as we completed our recent pressure pumping expansion.

Net loss on disposition of assets was $3.8 million in the third quarter of 2015 compared to a loss of $7.7 million during the third quarter of 2014, primarily due to a change in accounting estimate.

As we discussed last quarter, the cost of certain components of our pressure pumping equipment that were previously capitalized are now being recorded in cost of revenues as maintenance expense upon replacement. The Technical Services segment revenues for the quarter decreased 53% compared to the third quarter of the prior year.

Operating loss was $44.2 million compared to an operating profit of $102.8 million in the prior year. Revenues and operating results decreased due to declines in activity and pricing, partially offset by increasing service intensity. Our Support Services segment revenues for the quarter also decreased 53%.

Operating loss was $1.9 million compared to an operating profit of $14.7 million in the third quarter of the prior year. On a sequential basis, RPC's third quarter revenues decreased to $291.9 million from $297.6 million in the prior quarter, a decrease of 1.9%.

The decrease in revenues was due to slightly lower activity levels, partially offset by increased service intensity. Cost of revenues decreased from $241.6 million to $234.6 million, due primarily to lower activity levels and a reduction in employment cost, despite the $3.8 million in inventory right now.

Cost of revenues as a percentage of revenues also decreased slightly from 81.2% in the prior quarter to 80.4% this quarter. SG&A expenses decreased by $4.5 million, or 11.1%. As a percentage of revenues, these expenses decreased from 13.6% in the prior quarter to 12.3% this quarter.

RPC's operating loss narrowed from $52.5 million in the second quarter of 2015 to a loss of $51.5 million in the third quarter. RPC's sequential EBITDA decreased from $17.6 million to $15.4 million in the third quarter, and the EBITDA margin decreased from 5.9% to 5.3%.

Our Technical Services segment generated revenues of $271.3 million, 1.6% lower than revenues of $275.8 million in the prior quarter. We reported a lower operating loss of $44.2 million compared to a loss of $49.3 million in the second quarter.

Revenues in our Support Services segment declined 5.4% due primarily to decreased activity and pricing in rental tools. Our Support Services segment incurred an operating loss of $1.9 million in the third quarter compared to a loss of $1.5 million in the second quarter. RPC's pressure pumping fleet ended the quarter at 935,000 hydraulic horsepower.

Capital expenditures during the third quarter were $15.9 million and we expect to spend only $10 million in the fourth quarter of 2015. RPC's full-year 2015 capital expenditures are currently projected to be $165 million.

I'm pleased to report that RPC's outstanding debt under its credit facility at September 30 was $19.5 million, a decrease of $205 million since the beginning of the year, and a $35 million decrease since June 30.

This decrease was due primarily to lower working capital associated with lower activity levels, continued focus on collections as well as cost-control initiatives and managing capital expenditures. With that, I'll now turn it back over to Rick for some closing remarks..

Thanks, Ben.

During the quarter, we continued to focus on cost reduction measures including reducing head count by an additional 6% during the quarter, resulting in a 28% reduction year-to-date; restructuring activity-based compensation programs; minimizing non-essential overtime and discretionary spending; and evaluating and repositioning operational locations.

We will continue to ensure that our cost structure and business are appropriately scaled and are ready to take additional actions if business conditions continue to deteriorate. These are difficult times and their impact on RPC and its employees have been severe.

We appreciate all of our employees' hard work, contributions and sacrifice toward improving the situation. RPC has been in the oil and gas service business for over 30 years and encountered multiple downturns during this time.

Our strategy of always maintaining a conservative balance sheet has played a long role in our longevity and will help us to survive this downturn and prosper in the future. Thank you for joining us for RPC's conference call this morning. And at this time, we'll open up the lines for your questions..

Thank you. And we'll go first to Byron Pope with Tudor, Pickering, Holt..

Good morning, guys..

Hey, Byron..

Hey. Jim, as you usually do, could you help us out with the thinking, the revenue, the percentage of revenues? I'm just trying to get a feel for the top line moving pieces.

And then a follow-up question is heading into what feels like a potentially dramatic slowdown, how we should be thinking about your respective service lines that might be more or less impacted?.

Sure. Sure, Byron. First of all, so the numbers we're about to give you are as a percentage of consolidated RPC revenues for the third quarter. Pressure pumping was 52.5%. Thru Tubing Solutions was 18.6%. That's our second biggest service line. Coiled tubing was 8.3%. Nitrogen was 4.3%. Rental tools was about 3.4%. So those are the top lines.

The second part of your question relates to sequential revenue. We don't need to repeat everything that people in the industry have been saying. Fourth quarter does look difficult with the various things going on with E&Ps, probably a protracted holiday slowdown.

We don't see any movements in any of our service lines that will be different from the rest of the trend. In other words, we don't have any indication that pressure pumping, for example, is going to slow down a whole lot compared to other things. They all seem fairly similar at this point. And it's hard to know because we're in a spot market..

Sure..

And it's – we certainly have indications that customers are going to slow down but they're still finding out about their bank lines and all that kind of stuff. So, it's very to know for fourth quarter..

Okay. But as of today, things are still holding up reasonably well, if I think about October versus the last few months..

Yes. Yes. That's correct. Things that we can see on a daily basis are holding up fine which, of course, is relatively speaking but are holding up fine..

Okay. And then last question, quick question from me is just on the CapEx front. If I think about your Q3 level of spending as we progress through this downturn, is it reasonable to think that that – I mean, you framed a full-year CapEx.

So, is it reasonable to think, as we head into next year that that might be the same CapEx run rate to think about for you guys kind of close to a maintenance level?.

At this point..

Yeah. At this point, maintenance, but not $10 million a quarter. I think we are probably looking at $80 million or $90 million, based on everything we know right now for maintenance capital expenditures in 2016. As we all know, the work is very service-intense right now so it requires a lot of maintenance..

Great. Thanks, guys. Appreciate it..

Thanks, Byron..

[Operator Instruction] And we'll go next to Rob MacKenzie with IBERIA Capital..

Thanks, guys. A couple of questions for you.

Can you guys please refresh us where your geographic mix of your fracturing capacity stands today?.

Rob, it's a really fluid situation right now, so we'd rather not share that information specifically which we have in the past. I would say, on the one hand, that it hasn't changed tremendously but we're obviously going through a lot of internal reviews and rationalization and I'd rather not share that at this point..

All right. Maybe if I can ask it a slightly different way.

Given the recent drop in natural gas prices, can you give us a feel for how much of your fleet is exposed to say gassy basins like the Marcellus and others versus the more oily basins like the Permian, Eagle Ford and the Bakken?.

I think the answer is the same. I mean obviously, there is more work in the oily areas than there is the gas areas, but I'd say the previous response would apply..

Yeah..

Okay. Thanks. And my next question is on the cost-cutting initiatives you talked about in the third quarter.

Can you give us a feel for kind of the dollar impact on structural cost savings you expect to see in the fourth quarter from those initiatives?.

Dollar impact, 6% of the work force. I don't think it's a big needle mover. We're continuing to rationalize and review locations and headcounts and things like that. Obviously, it takes a little time to show up. I mean, we're talking maybe $5 million..

Okay.

So, I guess my next question comes back to the last questioner as well, the fourth quarter expectation that this could be a two-month quarter, what specifically though are you guys hearing from your good customers, like Concho and others? Are they, are your customers planning kind of that activity or do you expect some of them to hold up better than the overall industry fear?.

Rob, I'm sorry. We just don't have great answers. I mean on the one hand, we've just done our operational reviews and just done a forecast and nobody has specifically said my big customer and my region is going to slow down, is going to quit in November.

But we just think it's a reasonable assumption that a lot of people are going to stop at Thanksgiving and just not work during December. I mean, we've got some good working relationships on some projects with people, but in the current environment, they could just send everybody home in mid to late November and take December off.

So, I wish we had a more definite answer for you..

No, that's fair. I understand. I just thought I'd try..

Yeah..

And my final question comes to kind of your year-over-year revenue performance. I mean revenue down 53% year-over-year is interesting. It's similar to some of the big cap names who also have an offshore presence, which has been more defensive.

But more specifically, if you have it, what would be interesting is of that 53% drop year-over-year, clearly pricing's down, clearly your job count is down but the intensity is up.

Do you have any kind of numeric intensity metrics you can share with us, like proppant per stage, proppant per well, et cetera, et cetera?.

Yeah, that's a great question. Sequentially, so second quarter, third quarter, I can tell you that service intensity measured as proppant per stage, not necessarily proppant per well, is up, has increased in the mid-teens. So that is the offset. You just mentioned activity down, pricing down, service intensity up.

So, revenue per job or per stage in fracturing is not down as much as the price book might lead you to believe. And it simply is because of the increasing service intensity.

Also along with that, coiled tubing and Thru Tubing Solutions, they're our second and third biggest service lines, they have benefited from that increasing service intensity as well. So, the pricing declines have been harsh and they are continuing. But the one saving grace has been the increase in service intensity. So that is the offset.

We just don't have good year-over-year numbers for you..

Okay. Thank you very much. I'll turn it back..

Sure. Thanks, Rob..

And we'll take our next question from Scott Gruber with Citi..

Hey, good morning. This is Mike Sabella sitting in for Scott..

Okay. Hey, Mike..

I was wondering if you guys could talk just a little bit about the pressure pumping fleet in retirements. And I believe you guys had around 70,000 horsepower pre-shale.

Do you guys still have that around? And then kind of going forward, the current fleet, how much do you guys expect to scrap on that?.

I would – there's been – I can't really think of any. I can't say that there's none. But we would describe it that we have not retired any of our fleet. We've been going through a refurb program in the last two or three years. That continues, albeit at a slightly slower pace.

And that's part of the process we're going through right now with, again, rationalizing our locations and equipment and so forth and going through that evaluation now. So, I don't really have a number for you.

And I'm not sure that our expectation right at this point is that we're going to continue to maintain that size of the fleet, but that's something we're going through now and reviewing..

Okay. And just kind of back, a follow-up on the service intensity and the comment on rising profit.

Proppant per stage, are you seeing proppant per stage go up in the individual basins or shift in activity to basins that require more proppant per stage?.

Mike, this is Jim. Your question is a little bit garbled but I do believe I heard it. That is a consolidated RPC comment and it does relate to job mix and it relates to increasing service intensity in basins where we are also doing more work. So there's a compounding effect there of – so that's not a – like a U.S. land kind of comment.

That's RPC-specific in the basins where we work, where we work the most. I mean, it's – there is a – in the Permian Basin, where we've gone more from vertical to horizontal, that's much – or unconventional. Some of the wells are actually vertical but go though a lot of different layers. So, there's a lot more service intensity there.

There's a lot more service intensity in the Eagle Ford Shale as well. So, that's again, a RPC-specific comment..

Great. Thanks..

Thanks, Mike..

And it appears that there are no further questions at this time. I'd like to turn the conference back to Mr. Landers for any additional or closing remarks..

Okay. Well, thank you very much. We appreciate everyone who called in. We appreciate the questions. We look forward to seeing many of you in the next few months. Hope everybody has a good day. Thank you..

This does conclude today's conference. We thank you for your participation. You may now disconnect..