Good morning. And thank you for joining us for RPC, Inc.’s Third Quarter 2022 Financial Earnings Conference Call. Today's call will be hosted by Ben Palmer, President and CEO; and Mike Schmit, Chief Financial Officer. Also hosting is Jim Landers, Vice President of Corporate Services. [Operator Instructions] 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 2021 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 will be referring to EBITDA, which is non-GAAP measure of operating performance. RPC uses EBITDA as the 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 today and our website provide reconciliation a reconciliation of EBITDA to net income, the nearest GAAP financial measure. Please review that disclosure if you are interested in seeing how it's calculated. If you have 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, Ben Palmer.

Hi, Jim. Thanks. And thank you all for joining our call this morning. RPC’s third quarter financial results reflect continued improvement in both utilization and pricing, and we are achieving operating leverage over our fixed costs. We believe this cycle currently has room to run to in large part, to the multi-year period of low investment, coupled with the fact that this is shaping up as a margin rather than a build cycle. Although oil prices declined quarter-over-quarter, they remain at levels that motivate our customers to drill and complete new wells, further supported by high natural gas prices. Given our favorable view of the operating environment, we will allocate capital over the next several quarters to enhance the service effectiveness of our various service lines while improving our ESG profile. We have also made several small opportunistic and strategic investments that will improve our competitive position. We are pleased to manage a comprehensive completion oriented business. We cover nearly every aspect of the process of completing oil and gas wells, something very few service companies can claim. From tubing-conveyed perforating, to hydraulic fracturing, to our industry-leading milling and clean out services, as well as many services in between RPC is the full service provider for our customers’ completion needs. And then when customers need to work over existing wells, we have that covered too. Finally, as wells near the end of their life, we can handle the plugging and abandonment process in a safe and environmentally-friendly way, managed by our well controlled expertise. I would like to thank all our employees for their dedication, working through the many operating challenges, taking advantage of opportunities, and executing well in the current environment. Our CFO, Mike Schmit, will discuss this and our financial results in more detail, after which I will provide some closing comments.

Thanks, Ben. I'll start with a third quarter 2022 sequential financial overview. Third quarter revenues increased by 22.4% to $459.6 million from $375.5 million in the prior quarter due to higher customer activity levels and pricing improvements, as well as increasingly favorable job mix. Cost of revenues during the third quarter increased by 18.7% to $309.8 million from $260.9 million in the prior quarter. As a percentage of revenues, cost of revenues improved to 67.4% from 69.5% in the prior quarter, due to the leverage of direct employment costs over higher revenues, coupled with improved pricing for RPC's services. Selling, general and administrative expenses during the third quarter increased by 6.6% to $38.2 million from $35.9 million in the prior quarter, primarily due to employment related costs, including variable incentive compensation consistent with improved operating performance. Operating profit during the third quarter increased by 52.6% to $92.2 million from $60.4 million in the prior quarter. This was due to some large revenue improvements coupled with our ability to pass along some inflationary costs increases, while effectively controlling our SG&A expenses. EBITDA increased by 40.3% to $113 million from $80.6 million in the prior quarter. Our Technical Services segment revenues increased by 22.4% to $435.8 million. This segment generated an $89.5 million operating profit compared to $59.8 million in the prior quarter. The improvements in operating results were driven by higher customer activity levels, improved pricing and a larger, active fleet of pressure pumping equipment. Our Support Services segment also improved with revenues increasing by 22.8% to $23.8 million. Operating profit was $5.3 million compared to $3.3 million in the prior quarter, largely driven by our rental tools service line. I'll now discuss our current quarter results compared to the same quarter in the prior year. Revenues increased to $459.6 million…

Thank you, Mike. Discussions about fossil fuel-based energy have been prominent this year with several opposing viewpoints seeking to dominate the conversation. These many voices have caused a confusing public policy response that combined with a potential near term recession, create uncertainty for U.S. E&Ps, their service companies and external capital sources. We look through this noise and believe that carbon-based energy will remain the dominant source of the globe's power for the foreseeable future. When it is produced and used responsibly, it is a compliment to alternative energy. And considering the world's hydrocarbon energy sources, there is no more stable geography with abundant resources than North America. For these reasons, our industry should enjoy a strong operating environment for some time. Though we know hydrocarbon pricing is volatile and downturns in our industry are likely to occur. Our understanding of this unpredictability is one reason RPC has thrived longer than most of our peers have existed. This view informs our decision to maintain a strong balance sheet and continue our focus on capital allocation and profitability, which drives financial returns and positions us to take advantage of opportunities without needing to rely on external capital. We believe this approach benefits our long-term shareholders as well. Thanks for joining us this morning, and at this time, we are happy to discuss any questions.

[Operator Instructions] Our first question comes from Don Crist with Johnson Rice. Your line is open.

Morning gentlemen, how are you all today?

Good, Don. Good to hear from you.

I wanted to ask about supply chain, number one. I mean, I know you have equipment on order which is supposed to be delivered here in the fourth quarter or early in 2023. Just wanted to know if those delivery times are still kind of on track? And if you could just expand on the greater supply chain and if things are getting better or worse from, call it, six months ago?

This has been – by and large the receipt of a refurbished fleet in the fourth quarter is generally on time may be a little bit extended. The receipt of the new fleet that we ordered several months ago is scheduled for late first quarter or early second quarter, which is not far off what our original plans were. So at this point, we're not hearing of any significant delays. But we're certainly not hearing vendors say that it's going to be sooner than they had planned. Right. It continues to be a challenge and one that we have to work through each and every day and try to plan ahead. We've worked with our vendors to try to commit to and place orders in advance to try to address some of the disruption that results from that. But we are experiencing some challenges with routine or large repairs that are required, not refers, but large repairs on pumps that's causing some challenges here and there to meet the requirement for having sufficient pumps. We're comfortable with where we are, but it's an ongoing challenge to try to get the pump repairs turned around as quickly as we would like to. So everybody is still citing that as a challenge. And maybe it's improving a little bit, but I wouldn't say there has been a big change. It's still something that we have to work on every day.

And just to be clear, that's like at a warning cat or somebody like that just kind of delayed for everybody.

Right. That's correct.

Okay. And my second question, I mean, obviously you are going to generate a lot of free cash flow as we move into 2023, after you get past these CapEx items for these two fleets. You put the dividend in place, but can you give us just broader thoughts on shareholder returns? And putting money back to shareholders, whether it would be stock hold, buybacks or anything like that? Just broader comments on what you are going to do with cash as we move into 2023?

Sure, sure. That's a great question. Yes, we did reinstate last quarter. We've held a dividend steady as you've seen this morning for this quarter. You are correct, we are expecting at this point to generate a lot of free cash flow certainly over the next couple of years, 2023, 2024. We will have some slightly higher spending on CapEx probably next year compared to this year. But that's to be expected. But it should result in a lot of free cash flow. We certainly have a history of returning cash to shareholders through a combination of dividends. I would expect that's something we look at and discuss with the board each quarter. I expect as we discuss the free cash flow will improve. I expect that will be something we'll take a very hard look at and would expect some increases there. We haven't bought any stock back in quite a while. I think that's certainly a possibility depending upon looking at the return profile and looking at the share price relative to our expectations of value that certainly is an alternative. But we too will continue to maintain our equipment, maintain our capacity as long as the business environment supports it. And it certainly does at this point in time and we expect it will for the foreseeable future.

Okay. I appreciate the color and I'll turn it back.

Thanks, Don.

[Operator Instructions] Our next question comes from John Daniel with Daniel Energy Partners. Your line is open.

Hey, good morning, guys.

Good morning John.

Housekeeping questions for me. I think you said nine horizontal fleets on averaged in Q3, did you have any vertical fleets in addition to those nine?

Yes. We do have a couple of vertical fleets, John, that do operate consistently.

I'll make sure. And then you've got the one fleet that'll be placed into service in 2023 and then the new fleet so just from a – not that I'm modeling you guys, but just a sequence here, go basically visibility to having 11 horizontal fleets running next year. Is that right...?

Right now we have – we have enough equipment today and we've done some work trying to put an additional fleet together with older equipment. With some of the other challenges it can be a little bit hit or miss. So it's not, it hasn't been consistently operating yet. But we would expect with the spending that we've talked about with the refurb and the new fleet next year that it may result in one net additional horizontal fleet, that's what we're planning on at this point in time. But what we'll see how things play out and as I refer to some of the pumps, trailers that are hung up with some of the – some of our repair shops if some of those free up that gives us some more flexibility. But right now we think it will result in just one net ad because we will need to withdraw another older fleet and probably either retire it depending upon which one it is but we would expect to pull another older fleet out and send it or refer during 2023 as well.

Fair enough. As you well know, we tend to focus a lot on frack here when we do your calls, but you've got a lot of other really good businesses. From a high level can you just walk us through what you're seeing and things like ThruTubing coil just visibility particularly like in coil because you've had some recent industry consolidation. Any changes there in terms of utilization pricing as the markets consolidated? Just opine if you will on some of the other business units would be appreciated?

I'll start and the other two can add to things I may leave out. You're right, there has been some consolidation in coiled tubing, we've seen – we have seen some improvement there. It's, I think there's still room to make additional improvements, but we're pleased with the progress we've been able to make there with our downhole tools, many of which are proprietary in nature, very much tied to completion activities that we're seeing. Nice improvements there and some new tools that we'd come out with. And there were new versions of existing tools that we come out with that are being accepted by the market. So overall, all the businesses, some have recovered quicker than others. I would frac just like many of our peers. It's gotten off a really quick start. I would say some of our other service lines are a little bit behind and maybe have a little bit of additional room to run, but we have seen improvements.

Okay. And then I guess...

Yes. Hey John, this is Michael, I'll just add all of our major service lines improved quarter-over-quarter from a revenue and profitability and also year-over-year. So some more on a greater percentage, but obviously pressure pumping in ThruTubing Solutions are two largest, but we did improve across all service lines.

Okay. Is there...

John is a Jim. I'll come in at the end and just say that we saw some good pricing improvement in coiled tubing during the quarter. We also have some maintenance to do it at coiled tubing, so – but we saw some good pricing there.

Okay. Does one stand out as going to get the nicest Christmas present this year and which one?

A rising tide let's all those...

Right. Fair enough. Got it. You guys are so good. Thank you for your time.

Thanks John.

Yes, John, thanks

[Operator Instructions] We have reached the end of the question-and-answer session, and I'll turn the call back over to Jim Landers for closing remark.

Okay. I would like to provide a little more information and then also give people time to queue up in case anybody else wants to come in. I'd like to share with everybody the revenue percentages of our major service lines. So what I'm about to give you is the percentage of consolidated RPC revenue that each of the following service lines accounted for in the third quarter – third quarter only. So our largest service line is pressure pumping, which was 56.1% of consolidated revenues during the third quarter. Second largest is downhole tools ThruTubing Solutions which was 22.4% of revenues. Number three was coiled tubing 8.1% of revenues. Number four was rental tools which is in our support services segment, and that was 3.9% of revenues. Then the last one I'll mention was snubbing. Snubbing was 1.5% of revenues for the third quarter. Just wanted to make sure that everybody had that information for their modeling and there is apparently another question. So we will look forward to hearing that.

Your next question comes from Simon Wong with Gabelli. Your line is open.

Hi. Good morning, gentlemen.

Good morning, Simon.

Hey Simon.

You mentioned in your prepared remarks, you mentioned that you may from a few small investments – strategic investments can you talk a little bit about that?

Yes. Simon there are a number of them none of them individually significant. We've been able to one case a supplier, we have been able to acquire the assets of the supplier that we think will be a nice addition and we expect to result in some cost savings to us over time. As we integrate that into our business, it was not significant enough to separately talk about, but we're excited about it and think it presents a nice opportunity for us. Also there are at least two or three others none of which are within pressure pumping or some of the other service lines that we've talked about this morning. We've been able to pick up we've had the opportunities to pick up some additional equipment that fit in nicely and filled some gaps and geographic gaps we had where there was some demand. So we expect that to help us out here in the next couple of quarters as well.

How much was the investment altogether?

I don't know, it may have contributed to our cost $20 million, $25 million.

Okay. Got it. Thank you.

Thanks Simon.

Some of which I'll point out, excuse me, somewhere I pointed that some closed here in the fourth quarter, so they wouldn't be reflected in the current results.

[Operator Instructions]

I'd like to make a comment. I'm sure it'll be if not currently on people's minds will be, several of our peers who have reported about increased working capital, we certainly too have experienced an increase in our working capital with the significant rise in revenue. So that's not unexpected but Mike, do you want to talk a minute about that?

Yes. And I'll just – this is Mike, I'll just mention it is opportunity for us to focus over the next couple quarters to get cash in as we do have a lot of capital expenditures planned as Ben mentioned. So we look at that as an opportunity for us and something that we're focused on.

That'll help us generate some additional free cash flow next year. So we're, that'll be a good thing.

Our next question comes from Andrew Pelisek with Millennium. Your line is open.

Hi gentlemen. Just wanted to touch on the seasonal slowdown mention in the press release. I know that this is something we see just about every year and wondering how the dynamic compares to previous years and whether budget exhaustion is a motivation versus a reluctance to give up a hot crew. So just curious if you could talk about that dynamic?

Andrews, its Jim. It's always – it's always unpredictable, so that's one thing we can guarantee. We think that this year cause capacity's tight. We think that E&Ps are going to be reluctant to give up a crew that's running and may want to keep them busy between Thanksgiving and New Year's, just so they don't – that crew doesn't go somewhere else because there is a waiting list. And we want to keep our utilization high, so we – our group could make another selection if we get sideline for a month-and-a-half. Also, I'll point out I don't think it's that important anymore, but Christmas and New Year's do fall on a weekend, which is kind of helpful. Having said all that there could be budget exhaustion. Our E&Ps continue to talk about capital discipline, so there could be some slow down and then weather is always the wild card in fourth quarter.

And I'll say just talking to our business unit leaders, we're not hearing any discussion about significant downtime. So for all the reasons Jim referenced we're hopeful that it'll be relatively mild and that, that not only helps the fourth quarter, it helps the first quarter because we'll be able to get off to a quicker start, right. The problem has always been when there's a relatively hard stop that we've experienced some over the last a few times over the last four or five years. It even affects the first quarter, because it takes everybody again to sort of time for them to Gen back-up and begin to get active again. So it should help us roll effectively and efficiently into early 2023.

Great. Makes sense. Appreciate the thoughts.

Sure. Thanks Andrew.

Our next question comes from Joel Etzler with Coeli Energy. Your line is open.

Yes. Hi guys. Thanks for taking my question. I actually wanted to ask about Q4 as well, but I can just skew the question a bit. And so you expect the activity to be flattish in Q4 or strong, so to speak. In terms of pricing can I ask if you are – if you have expectations for further net pricing increases into Q4?

Joel, this is Jim. Yes, we do. We believe that supply and demand imbalances and our customer's needs will allow the market to give us increased net pricing improvements during the fourth quarter and the visibility we have in 2023. So yes, we think pricing is strong.

But I think to be clear about the fourth quarter, I don't, as Jim said, I mean pricing, there's opportunities for pricing, continued pricing improvement to some degree that will possibly impact the fourth quarter. But I would not at all be surprised if fourth quarter is a little less strong or weaker than the third quarter. I mean, that's just to be expected. It's not trudging ahead quickly enough that we would blow past any days off from our customers, but we do expect it to continue to be a very good quarter and we'll be able to get started very early in 2023.

Okay. So moderately lower activity, but maybe slightly higher prices?

Correct. There you go. Thank you. Very well said.

Thank you so much.

Thanks Joel.

[Operator Instructions] There are no further questions at this time. I'll turn the call back over to Jim Landers.

Thank you and thanks everybody who called in and who listened. We appreciate it and hope everyone has a good day. We will talk to you soon.

As a reminder, today's conference call will be replayed on www.rpc.net within the next two hours. This concludes today's conference call. You may now disconnect.