Good morning, and thank you for joining us for the RPC, Inc. Third 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.

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 we 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 rpc.net. In today's earnings release and conference call, we refer to several non-GAAP measures of operating performance. These non-GAAP measures are adjusted net loss, adjusted loss per share, 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 credit facility. Our press release and our website contain reconciliations of these non-GAAP financial measures to net loss, loss per share and net income, 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 again at rpc.net for a copy. I will now turn the call over to our President and CEO, Rick Hubbell.

Thanks, Jim. This morning, we issued our earnings press release for RPC's third quarter of 2021. During the third quarter of 2021, oilfield drilling and completion increased as exploration and production companies responded to higher commodity prices. RPC was ready to meet increased demand with equipment and crews. Our revenues increased and RPC generated quarterly net income for the first time in more than 2 years. As the quarter progressed, commodity prices continued to increase and near-term industry forecasts predicted supply-demand dynamics favorable to our industry. We began the fourth quarter of 2021 with a new state-of-the-art pressure pumping fleet and net pricing tractions in most of our service lines. Offset to these favorable dynamics include supply chain constraints and increasing cost pressures, which we will continue to manage as we move forward in this industry up cycle. Our CFO, Ben Palmer, will discuss this and other financial results in more detail, after which I will provide some closing comments.

Thank you, Rick. For the third quarter of 2021, revenues increased to $225.3 million compared to $116.6 million in the third quarter of the prior year. Revenues increased due primarily to higher activity levels and improved pricing compared to the third quarter of the prior year. Operating profit for the third quarter was $8 million compared to an operating loss of $31.8 million in the same quarter of the prior year. EBITDA for the third quarter was $26.5 million, compared to EBITDA of negative $12.3 million in the same quarter of the prior year. Our diluted earnings per share for the third quarter were $0.02 compared to an $0.08 loss per share in the same quarter of the prior year. Cost revenues -- cost of revenues during the third quarter of 2021 was $170.6 million or 75.7% of revenues compared to $100.9 million or 86.5% of revenues during the third quarter of 2020. Cost of revenues increased primarily due to expense -- increases in expenses consistent with higher activity levels, such as materials and supplies expense, maintenance and repairs costs and fuel costs. Cost of revenues as a percentage of revenues decreased primarily due to the leverage of higher revenues over direct employment costs that increased to the lower rate than the increase in revenues. During the quarter, RPC recorded a CARES Act tax credit that was largely offset by the resolution of a long-term contractual dispute with a vendor. Selling, general and administrative expenses were $31.4 million in the third quarter of 2021 compared to $32.4 million in the third quarter of the prior year. Selling, general and administrative expenses decreased from 27.8% of revenues in the third quarter of last year to 14% of revenues in the third quarter of 2021 due to leverage of higher revenues over…

Thank you, Ben. It became clear this quarter that many E&Ps, including those among our customer base who are private operators, are beginning to respond with conviction to higher commodity prices and forecast of global energy shortages. Our calendars are filling up and we are optimistic about the fourth quarter. In spite of the traditional holiday-related slowdown at this time of the year, we are also looking forward to a stronger 2022. As we operate in this improving environment, we are closely watching emerging challenges in our business, chemicals, components and labor shortages, together with cost increases and third-party logistics are all developing as operational issues. In addition, we are also monitoring reports of shortages of tubular goods and other items used by our customers. which could cause delays in the need for our services. The continued volatile environment in which we operate makes forecasting difficult. But I'm pleased that our financial strength has allowed us to remain competitive as we begin to realize the benefits of higher commodity prices and an improving operating environment. At the end of the third quarter, RPC's cash balance was approximately $81 million and we remain debt-free. I'd like to thank you for joining us for this 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 Stephen Gengaro with Stifel.

I guess 2 things for me. And I'll start with -- you talked about the frac fleet at 7 fleets and you mentioned technical services pricing and activity improvements. Can you give us a sense for what you're seeing specifically on the pressure pumping side? And how do you think that kind of flows through into 2022?

Stephen, this is Ben. We are beginning to see some improvement. And we're now in the bidding season that will very much impact next year. So we're trying to position ourselves. We're trying to do what we can to increase pricing wherever we can and where necessary. We're certainly having the discussions with our customers about the ability to pay for the type of equipment that they desire. So we're watching that very closely, and we are hopeful that we'll experience some of that pricing improvement next year and as well as some continued strong activity levels. So we think it's headed in the right direction.

And then as you talked about the Tier 4 DGB fleet. And we've been hearing for a while there's sort of at least a utilization premium, if not a price premium for these assets. But we've also started to hear pricing moving for the traditional diesel fleets as well. Are you seeing that same trend?

Yes. I would say so. Yes, yes. There's there is some bifurcation in terms of our customers, in terms of their degree of desire for the "ESG friendly" equipment. So we expect to continue to have a blend of the older Tier 2 and the newer equipment. We think there'll be a market for both. So it will take some time for that to evolve, but doing everything we can to get as much equipment at acceptable pricing as possible.

And just one final quick one. Can you give us the product line breakdown?

Stephen, this is Jim. Yes, absolutely. Happy to. So the percentages I'm going to give are the percentage of consolidated RPC revenue that these major service lines comprised. So the largest was pressure pumping, which was 42.8% of consolidated RPC revenue for the quarter. The second largest was our downhole tools service business ThruTubing Solutions and that was 27.5% of revenue. Number 3 is coiled tubing at 11.9% of revenue. After that, we have nitrogen, which was 4.0% of revenue. Right behind that is rental tools, which is in our Support Services segment, that was 3.8% of revenue. And thanks for the question.

[Operator Instructions] Your next question comes from the line of Waqar Syed with ATB Capital Markets.

Just want to know that this Tier 4 fleet, is that going to be the eighth active fleet in Q4?

We expect to have 8 in Q4. Yes.

Okay. And then beyond that, as you look into next year, first quarter, are you planning on adding additional Tier 4 fleets?

Not. There are no plans at this point in time. We don't have anything else on order would I guess, be the answer to that question.

Okay. And if you were to order any equipment, what would be the lead time to get deliveries if you've explored that?

I don't have a specific answer to that. Certainly, a reasonable question. We understand with supply chain and everything else that and anecdotes that the time frame is lengthening. So to be honest, we don't know.

And just one final question. In terms of the market dynamics, certainly, we hear about pricing improvements, but we also hear about industry adding new capacity. As you get into bids, are you still seeing a large number of companies’ pumpers bidding into individual jobs? Or are you seeing a little bit more -- few companies now and it's getting much tighter?

Waqar, this is Jim. There are fewer people bidding, but if you're talking about pressure pumping, there is still plenty of idle equipment out there. So pricing is improving, Activity levels are good, but its pricing and competitive nature is still very competitive.

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

I guess this question on the Tier 4 sort of the financing update -- the fleet for the DGB fleet. Is that -- it seems like a relatively new concept. Do you think that expands in traction? And just can you speak to what the balloon payment would be when it comes due?

John, you were going in and out a little bit. Can you repeat that?

Yes. Sorry. The question was just about the leasing arrangement on the new fleet. Do you think that's going to be a new concept for other RPC or the industry? And can you just address -- tell us what the balloon payment will be?

Well, if you look at the balance sheet and see what the liability is, the balloon payment would be around $17 million after a year. And I can't speak to whether it's an industry trend. I don't believe it is. This -- I'll speak maybe a minute to the relationship with CAT and what we're doing. Caterpillar did have this equipment built, but it was purpose-built, built in a way for them to be able to do this field follow project group. That's what they call it. And it's my understanding, clear understanding that that's not -- their business is not going to be to manufacture equipment like this. They did it specifically to be able to test this new technology as we've indicated in our comments about maximizing fuel usage, controlling emissions and managing maintenance costs. So that's what we are in the process of testing with them. They have some power systems, control technology, software that they are testing that they've used in other industries, I think mining in particular. And so they are using us as an experiment, if you will, and we're pleased to do that. They're obviously a world-class company dedicated to the oil and gas industry, and we're very pleased to be teamed with them. We think that will give us a jump start. We expect -- they expect and we expect that the technology will work great. We'll add a year under our belt with that technology and I think it will -- so we'll have a jump start on it if we decide to utilize it ourselves going forward. So we're excited to be teamed up with them, and it's helping us in a lot of ways. As I said, they are very professional, world-class company, and we've learned a lot. We think it's helping us also with some of our internal digital initiatives. And so it's just getting started. The E&P customer is certainly aware of the testing and the experiment. And they too, from my understanding, they too are very excited and pleased with the progress that's being made and what the opportunities are, so we're really excited by that.

Fair enough. On the pricing front, as you guys are negotiating increases, is this the case whether -- are they going in effective immediately? Or is it -- is it a January 1st concept where as you start the new year, the prices go up?

John, this is Jim. It's a little bit of both. We're in the spot market. People who know us know. And so we are gaining some price increases with the next completion. This is also a contract renewal season, and we're focusing on pricing for existing MSAs but pricing for 2022. So there will be some more of this, we hope, on January 1st.

And you do have a follow-up question from the line of Stephen Gengaro with Stifel.

So just curious, so we've seen, obviously, when revenue is moving around a lot your incremental margins can be kind of funky from quarter-to-quarter. And it seems like you're getting better overhead absorption now and things are starting to normalize a bit. Can you give us a sense of, if we thought about 2022 versus '21, what types of incremental margins you think would be a reasonable target to be thinking about?

Stephen, this is Jim. So our incrementals second, third quarter were respectable, but not characteristic of RES in a typical up cycle. So based on $85 oil and $6 Henry Hub or whatever it is today and the way 2022 looks, we would look for sequentials to be at least approaching what they were in traditional up cycles in the past. So that would be higher than today, but we -- higher than this quarter, I should say. But we still have these cost increases we're dealing with. I want to make it clear that we pass those cost increases along, but that always takes some management, which again, we're doing. But that causes us to be a little less optimistic about hitting 40% or 45% sequentials in the coming year.

Okay. Great. And then the other just follow-up just sort of when you think about the -- I guess it gets to your capital allocation but also gets to the pressure pumping business in general. How do you think -- when you make an investment for a new asset, right, let's say, it's a Tier 4 DGB, what types of either contract commitments or returns are you thinking about to justify the investment?

This is Ben. It's a very good question. Is there a clear runway to appropriate returns or clear vision or view or contractual relationship that leads to an appropriate return today? No, there's not, but we and the industry need to be moving in that direction much sooner than later. So it's a little bit of whatever you want to call it, betting on the come or doing what we feel like we need to do. I mean we're working on a road map in terms of what it's going to look like or need to look like over the next, say, 2 or 3 years for us to continue to replace by, modify whatever our equipment. So that's something we've been working on and we'll continue to work on to try to draw that out that we can have decision points with particular financial returns in mind before we pull the trigger. We all know that there are long lead times on equipment. There is uncertainty about what future business conditions might look like, including pricing, in particular, so you have to make judgments and take risks. So adding this new Tier 4 DGB, it is a risk, but there are lots of benefits to being partnered up with Caterpillar. So again, that was certainly a significant factor in us making this particular commitment and it lined up well with what we're trying to accomplish and what we see is our road map going forward. But it didn't hurt that the nature of the arrangement with the finance lease and all that. Obviously, it allowed us to -- and then it was really Caterpillar's choice. But we're fine with that. That allowed us to defer the payment for a substantial portion of the cost of the equipment. So that worked out okay, worked out well also. So anyway, so we're trying to look at that road map. We're trying to establish our targets and our returns. Clearly, we're all -- we -- in terms of what overall returns we need to achieve and what returns we want to achieve over time, we're honing in on that too in terms of what we believe industry and we can achieve. And we'll build that road map around that and we'll execute on that as we move forward.

[Operator Instructions] Your next question comes from the line of Veb Vaishnav with Coker and Palmer.

Thank you for including me. So just a quick -- maybe just 2 quick questions. One on the Tier 4 DGB, the newbuild. Will it be used as -- will it be used as like 1 fleet? Or would it be broken down into several fleets?

Definitely in the first year with this partnership with Caterpillar, it will be maintained together.

Okay. That’s helpful. And as we think about improvement in pricing and as we think about that versus seasonality or holidays in 4Q, is it fair to think if -- in terms of EBITDA per fleet, it could be modestly higher because of the Tier 4 DGB? But outside that, how should I think about EBITDA per fleet increasing from 3Q to 4Q?

That particular question is difficult to answer. Let's speak to Q4 though. Obviously, there's always seasonality in our business in Q4. Weather is not predictable, but there are holidays and that sort of thing. We believe, based on looking at our calendars right now that we are not going to experience the same level of seasonality this Q4 that we typically do, plus we're in an improving environment. So EBITDA per fleet or RPC's results in general, at this point, look kind of flattish sequentially. Also, it bears mentioning that the Thanksgiving is on Thursday, but Christmas and New Year's come on a Saturday. So that's modestly helpful as well. So we just don't think we're going to experience the same level of seasonality that we normally do. EBITDA per fleet is not something that we talk about because everybody calculates it differently.

Fair enough. And maybe one last quick one, if I could. Just thinking about upgrades. So like you talked about, maybe there's not -- it's not in plan for another newbuild, but how are you thinking about more upgrades to Tier 4 DGB?

Well, that's part of our road map. Again, we're going through and evaluating the different options we have for the equipment we have today and what the options are for trying to -- and what returns. Again, we need to have in hand or be expecting to generate as we move forward. I mean it's a good question. We have some opportunity. We've done some upgrading of our Tier 4 -- I mean Tier 2 equipment. We have not yet upgraded any Tier 2 equipment to Tier 4, but that is an option and it is one of the things that we are evaluating about whether we put that on our road map or not.

[Operator Instructions] At this time, there are no further audio questions. We'll now turn the call back over to Mr. Jim Landers for closing remarks.

Thank you, and thanks to everybody who called in and for the questions. We enjoyed the discussion, and we look forward to talking to everyone soon. Have a good day.

Thank you, and thank you for your participation. This concludes today's conference call. You may now disconnect.