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. 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..

Thank you, Andria 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 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 will 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 non-recurring 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 in 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 are calculated. If you've not received our press release for any reason, please visit our website at rpc.net. 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 second quarter of 2021. This second quarter represented a transition quarter for RPC. We saw numerous signs of increased demand for our services and have a full broad [ph] calendar for most of the third quarter. This is the most visibility we've had since pre-COVID.

Nevertheless, we did experience an pocket in June customer activity due to some jobs being pushed and heavy rains in the Permian. July is shaping up to be substantially better than our second quarter runway and the remainder of third quarter appears consistent with July at this point.

Our CFO Ben Palmer will discuss this and other financial results in more detail and I'll provide some closing comments..

Thank you, Rick. Second quarter of 2021 revenues increased $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 imported 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 COVID19. This impact affected all of our year-over-year comparisons. [Audio gap] operating loss for the sector [ph] of the prior year.

EBITDA for the second quarter this year was $17.3 million compared to adjusted EBITDA of negative $17.8 million in the same period of the prior year. We approach 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 from 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 cost. 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 in some pricing improvement. Segment operating profit in the second quarter of 2021 was $1.4 million compared with $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 fact [ph] jobs pushing into July.

Cost of revenues in 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 favourable 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 compared to $0.6 million in the prior quarter and this is also due to the impact of the retention tax credit.

RPC incurred an operating loss of $1.2 million during the second quarter 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 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. RFC'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.

Support services segment revenues increase 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 or seventh fleet to meet incremental demand.

In the second quarter, 2021 capital expenditures we're $14.1 million and we currently estimate full year 2021 capital expenditures to be approximately $65 million comprised by merely of capitalized maintenance for our existing equipment and selected growth opportunities. With that I will turn it back over to Rick for some closing remarks..

Thanks Ben. Second quarter revenues improved sequentially as drilling and completion activities continued to increase through improving oil prices and a strengthening economy. We were pleased with the increased activity levels and our ability to pass through costs increase to our customers.

We have not yet been able to consistently achieve net pricing improvements, but are optimistic that that will change soon. Our ESG preferences in tier four and dual fuel frack 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, RPCs 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..

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

So it sounds like third quarter shaping up nicely, even though you're not giving great net pricing. You have some confidence that that's lurking around the corner.

Is third quarter top line book up double-digits at this point or could you refine that a little bit for us?.

This is Jim. Yes. That's very much in the realm of possibility..

Okay. You mentioned the Cares Act benefit and the Q2 margins. I'm sorry if I missed where that was specified there.

If it wasn't, could you help us with that the incremental for Q3?.

Yeah. we -- that 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 technical services operating profit. We reported $1.4 million operating profits.

So it would have been about a $2 million operating loss without that credit..

Okay. Thanks.

And then last one for me just with regards 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 2020 at this point?.

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 were rank conservative, but we are hopeful and we are -- we're pushing forward and doing everything we can to try to help that one..

Certainly. All right. Well thanks very much. Appreciate it..

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

Thanks. And good morning, gentlemen.

So, a couple things I'll start with can you -- do you mind breaking down the revenue within technical services or for the major product lines?.

Yeah. Stevens 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 through tubing solutions at 31.2% of consolidated revenues, behind that is coiled tubing at 10.8% consolidated revenues, then comes rental tools and our technical services segment, which was 4.5% of consolidated revenues. Finally, nitrogen was 4.3% of consolidated revenues..

Thank you.

So, 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 margins sort of flush out as we get into the back half of the year?.

Stephen, hey this is 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 would be bottom line accretive in dollars, hard to say about margin percent.

It will also absorb some more overhead. So it truly is hard to say, but it will enhance our bottom line third quarter. Hard to say that percent..

Okay. Just a quick follow-up to that, so when you think about I don't know if you could talk about of incrementals or just sort of margin change as we get into the third quarter. I know it's always hard when you're kind of dealing with low numbers still and you're coming off a bottom sort of incrementals can get a little bit funky.

But do you envision if you got to the give or take 10% revenue growth that you said was realistic? Would you envision a positive OpEx number excluding the gain on asset sales and the Cares?.

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

Okay, great. I appreciate the color..

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

Hey Guys, thanks for putting me on. I'm wondering if you guys could just sort of opine on when you might try to deploy a fleet number.

What's the demand set behind that?.

Well, that's a good question, John. 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. 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 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 incremental additional personnel. So at this very moment, we are not aggressively hiring for an eighth fleet, right.

But, we're always ready and recruiting as an ongoing program. So we have it down that we can get people in relatively quickly.

But, but at this point I don't -- 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..

Fair enough. Sort of another, I got two more for you. The next one relates to. You go from call it seven fleets from six, 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?.

Probably not that significant..

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, 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?.

John, this is Jim and it'll probably -- it'll be the same game plan that we've executed over the past year and a half, which is social distancing, checking people in, having more people than you theoretically need because of quarantines, but that happened.

It wasn't pleasant and it did increase costs over the past year and a half, 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..

Okay..

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 cost over that entire time, right and 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, once we had all those things in place, it was relatively rare, maybe a strong word, 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..

Okay.

And then I guess the last one would be just as the customers are looking at this as it's 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, labor is like the number one issue right? And there's not a lot of backup capacity, that's the whole basis for the question here..

Right. 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, that is an issue. .

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

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 will be 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 what the issues in Q2 calendar in Q3 and how we should be thinking about effective utilization for those six to seven horizontal spreads you have?.

Taylor it's Jim. We had some customer operational delays in 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 happened when you're trying to orchestrate, 20 sets of logistics on a job site. So those things happened and they do continue to pop up.

As a result, our utilization completes we had in the field was certainly not what it was in the first quarter. It was more in the -- it was it was down by a good bit. With seven fleets, we see higher utilization in the third quarter.

So we've got one more horizontal fleet out with what we see right now is a calendar with no white space and we can't guarantee that there won't be other job delays because they come up unexpectedly. But we feel pretty good about utilization that will be from all intents and purposes practically full utilization for us in the third quarter..

Okay, great.

And maybe shifting gears a bit outside of pressure pumping here, I'm thinking about cold tubing and through tubing solutions, just curious how you're thinking about those service lines heading into the back half of the year, maybe relative to frac? I know coal tubing still a challenged from a pricing perspective, but any green shoots from a pricing or activity perspective and those sorts of service lines over the back half of the year?.

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.

I think we are having some success in our ability and we talk about frac increasing as going from six to seven fleets being 15%, 16% increase in capacity that gives us the ability there to quote unquote, 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 pump can at this point in time, right, just given the numbers.

But we are -- I would say that we are experiencing without regard to the increasing capacity, we are experiencing even more improvement on those other service lines that we aren't correct, but frac again, can produce a higher percentage increase due to the adding that incremental capacity at this point then..

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

Thanks.

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

Yes. Yes. That's what impacted utilization..

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

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

Okay. Thank you.

And then just the second question I have relative -- 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 this sort of bifurcation that we hear from others and what are customers looking for? And if you can just kind of remind us the makeup of your assets right now?.

Are you talking about pressure pumping, Steven?.

Yes, I am sorry. Yes..

So the current, sure. So of the six fleets that we had in the second quarter, four are ESG friendly, either because they are tier four or their dynamic gas blending. So we have the natural gas component to it.

I think a good way to characterize it is if you have ESG friendly pressure pumping equipment, you can achieve pretty decent utilization at today's pricing. You don't get premium pricing, you can 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 pretty high utilization of everything and I hope that answered your question..

Yeah, no, that adds some color. I appreciate good. I think I'm in good shape. Thanks for the help..

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

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..

Ladies and gentlemen, this call will be available for replay on www.rpc.net within two hours following the completion of the call. Thank you for your participation. This concludes today's conference call. You may now disconnect..