RPC INC Q3 FY2026 earnings call

• Overall Performance: RPC achieved sequential revenue growth and strong margin expansion driven by operational execution, cost leverage, and technology adoption.
• Technical Services Highlights:
  • Coil tubing revenues increased 20% sequentially due to strong job/equipment mix; delivery of the third 2-7-8 reel trailer (an upgrade, not incremental) supports full-cycle return strategies.
  • Snubbing revenues rose 12% sequentially, with the new big-bore unit seeing its first full quarter of work for regulatory-driven cavern storage inspections.
  • Downhole tools revenues decreased 2% sequentially due to lower fishing activity, but core product offerings grew across multiple districts. New MetalMax sizes improved availability, with early adopters using it on >50% of jobs. The team set new depth records in the Bakken and Montney formations.
• Wireline Challenges: Pentel’s EBITDA margins remained in the mid-single digits. Persistent pricing weakness and cost pressures led to a non-cash impairment charge of $74.5 million related to Pentel Wireline.
• Pressure Pumping: Revenues increased 3% sequentially, benefiting from slightly improved pricing but offset by lower pump hours due to third-party logistics delays. Spare capacity is lower than previous quarters; management will wait for improved returns before reactivating idle equipment.
• Market Outlook: Macro volatility persists with inflation concerns. E&P operators are cautiously optimistic about commodity prices. Year-end seasonality is expected to impact activity levels.

Technical Services generated $444 million in revenue (95% of total), up 1% sequentially. Support Services generated $24 million in revenue (5% of total), up 3% sequentially. Specific service line revenue contributions were: Pressure Pumping (30.8%), Downhole Tools (24.6%), Wireline (17.5%), Coiled Tubing (10.4%), Cementing (5.7%), and Rental Tools (3.8%).

• CapEx 2026: Maintained guidance in the range of $155 million to $175 million.
• CapEx Timing: Some equipment deliveries previously anticipated for 2026 have slipped to 2027, though additional timing changes remain possible.
• CapEx 2027: Assuming no further slippage, 2027 capital expenditures are expected to be similar to 2026 levels.
• Q4 Expectations: Management anticipates normal seasonal patterns impacting results as they move into the fourth quarter.

• Impairment Risk: Significant non-cash impairment charges ($74.5 million) recorded for Pentel Wireline due to long-term earnings expectation reductions caused by pricing weakness and cost pressures.
• Labor Market Tightening: Competition for labor is increasing, potentially driven by data center construction and other industries pulling workers from the oilfield sector, leading to higher costs and availability challenges.
• Pricing and Investment Uncertainty: While industry spare capacity is lower, certain service lines require additional pricing improvements to justify reinvestment or reactivation of idle equipment.
• Macro Volatility: Inflation pressures, demand concerns, and geopolitical developments create ongoing uncertainty for E&P operators and service providers.
• Operational Disruptions: Non-productive time, including customer delays and third-party logistics issues, has modestly impacted pump hours in pressure pumping operations.

Q: Analyst asked about early 2027 indications, noting larger companies may add services, and inquired if labor shortages from data center construction are affecting RPC. / A: Ben Palmer expressed optimism for 2027, citing encouragement from commodity prices among both large and small operators. He expects a muted Q4 slowdown compared to recent years, allowing for a strong start next year. Regarding labor, Mike Schmit confirmed tightening conditions impacting costs and availability, consistent with broader industry trends. Ben added that while competition exists, current difficulties are not unprecedented, and they are managing them adequately.

Q: Analyst asked if RPC plans to reactivate spare pressure pumping crews given available cash and equipment. / A: Ben Palmer stated that while there is likely demand for additional capacity, they require significant pricing increases and firm customer commitments to justify reactivation. Consequently, they plan to keep additional capacity sidelined for now, performing only minor preparatory work behind the scenes without aggressive expansion.

Q: Analyst sought clarification on the financial impact of the Pentel impairment and future depreciation schedules. / A: Mike Schmit noted that the $74.5 million impairment reduces future depreciation and amortization expenses by approximately $3 million per quarter. This adjustment reflects the revised long-term earnings expectations for the wireline business amidst persistent pricing weakness and cost pressures.