Executive Summary / Key Takeaways

• RPC, Inc. is strategically leveraging its robust, debt-free balance sheet to pursue accretive acquisitions and targeted organic investments aimed at diversifying its service portfolio and enhancing free cash flow generation.
• The recent acquisition of Pintail Alternative Energy significantly bolsters RPC's position in the high-growth Permian Basin and adds meaningful scale in the less capital-intensive wireline segment, aligning with the goal to reduce reliance on the volatile pressure pumping market.
• Despite a challenging Q1 2025 marked by lower overall activity and pricing pressure, particularly in pressure pumping, RPC maintained profitability and generated positive free cash flow, demonstrating operational discipline.
• Investments in differentiated technology, such as Tier 4 dual-fuel fleets, new downhole tools, and innovative unplug systems, provide competitive advantages and support the strategy to offer higher-efficiency services.
• While the market faces uncertainty from commodity price volatility, geopolitical factors, and tariffs, RPC's strong financial position and strategic focus on M&A and technology position it to capitalize on potential opportunities and navigate headwinds.

Setting the Stage: A Disciplined Player in a Volatile Market

RPC, Inc. stands as a specialized provider of oilfield services and equipment, primarily serving independent and major oil and gas companies across the United States and select international markets. Operating through its Technical Services and Support Services segments, the company offers a range of solutions critical to the exploration, production, and maintenance of oil and gas wells. The Technical Services segment, encompassing high capital and personnel intensive services like pressure pumping, coiled tubing, and downhole tools, is closely tied to completion and production activities. The Support Services segment, including rental tools and pipe services, is more influenced by drilling activity.

The oilfield services industry is inherently cyclical and highly competitive, heavily influenced by fluctuating commodity prices, geopolitical events, and drilling activity levels. The first quarter of 2025 saw the average price of oil slightly higher (up 1.9%) and natural gas significantly higher (up 70.4%) compared to the prior year period. However, the average domestic rig count was lower (down 6.5%), reflecting a complex market dynamic where higher prices haven't uniformly translated into increased activity. This environment is further complicated by industry oversupply, particularly in pressure pumping, where efficiency gains have added pump hour capacity, leading to intense pricing competition and pressure on asset utilization.

Against this backdrop, RPC has historically maintained a conservative financial posture, characterized by a debt-free balance sheet and a focus on generating free cash flow. This discipline has been a cornerstone of its strategy, enabling the company to weather downturns and position itself for strategic growth initiatives. Recognizing the volatility inherent in certain service lines, particularly pressure pumping, RPC has embarked on a strategic evolution aimed at rebalancing its portfolio. The goal is to bolster less capital-intensive, higher free cash flow generating businesses through both organic investments and targeted acquisitions, while simultaneously enhancing its technological capabilities and strengthening relationships with blue-chip E&P customers.

Technological Edge and Innovation Pipeline

Technology plays a crucial role in differentiating RPC within the competitive oilfield services landscape. The company has made deliberate investments in upgrading its equipment and developing innovative solutions to enhance efficiency and performance for its customers.

A key area of focus has been the pressure pumping fleet, with investments in Tier 4 dual-fuel assets. These newer fleets offer significant operational advantages, including the ability to utilize natural gas, which can be more cost-effective and environmentally friendly than diesel. RPC's operational performance on its existing Tier 4 DGB assets has been strong, achieving a gas substitution efficiency averaging around 65% over recent quarters. This metric is highlighted as being among the best in the industry, demonstrating the company's ability to effectively operate these advanced assets and deliver value through fuel cost savings for customers. The addition of a new Tier 4 dual-fuel fleet in Q2 2024 further enhanced this capability, and the company plans to retire older Tier 2 diesel fleets as new equipment comes online, ensuring that these investments upgrade capabilities without adding to overall industry capacity.

Beyond pressure pumping, RPC is developing and deploying new technologies in other service lines. In Downhole Tools, the company has launched a new 3.5-inch downhole motor designed for lower pressure, high-rate applications, which is gaining traction in the market. More notably, RPC has introduced a new unplug system utilizing proprietary "pods" technology. This innovative solution aims to displace traditional bridge plugs used in completion operations. The stated benefits include potentially greater efficiency and cost savings for customers by plugging individual perforations rather than requiring a single isolation point above each stage. Field trials were completed in Q3 2024, and the technology is now in full commercial deployment, having completed hundreds of stages. The company is also leveraging its specialized tool technology in coiled tubing for emerging opportunities like plug and abandonment work, such as a project anticipated in California.

These technological advancements are central to RPC's strategy. They contribute to a competitive moat by offering differentiated services that can improve customer efficiency and reduce costs. While major competitors like Schlumberger and Halliburton possess broader digital and integrated technology platforms, RPC's targeted innovations in specific service lines aim to provide distinct performance advantages in their niches. For investors, these technologies represent potential drivers of market share gains, higher utilization rates for specialized equipment, and improved profitability, contributing to the long-term value creation thesis.

Competitive Positioning and Market Dynamics

The oilfield services market is characterized by intense competition across all service lines. Major international players like Schlumberger (SLB), Halliburton (HAL), and Baker Hughes (BKR) offer comprehensive service portfolios and possess significant scale, technological depth, and global reach. These larger competitors often have strong relationships with major E&P companies and are increasingly focused on integrated solutions and digital technologies. For instance, SLB's digital transformation efforts and advanced analytics offer significant efficiency gains, while HAL emphasizes integrated completion systems. BKR is strong in equipment and energy transition technologies.

RPC competes directly with these majors and numerous smaller, regional players, particularly in the U.S. land market. In the highly competitive pressure pumping segment, RPC faces pressure from oversupply and aggressive pricing strategies from peers seeking to maximize utilization. While RPC's Tier 4 dual-fuel fleets are in demand, its legacy Tier 2 diesel equipment faces utilization challenges, requiring more aggressive pricing to fill the calendar. Management notes hearing about older pumping equipment being sold at low prices, suggesting some smaller players may be exiting or monetizing assets rather than reinvesting, which could potentially tighten supply over time, but this is expected to take time to impact pricing.

Compared to the major integrated players, RPC operates on a smaller scale. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, RPC holds an estimated 5-7% aggregate market share. Its financial performance, while solid, generally shows lower growth rates and margins compared to the larger, more diversified majors. For example, RPC's TTM EBITDA margin of 16.94% lags SLB's 21% and HAL's 19%, though it is higher than BKR's 11%. This suggests the majors benefit from scale and potentially higher-margin service mixes or technological premiums.

However, RPC's competitive strategy leverages its agility, cost discipline, and targeted technological investments to carve out profitable niches. Its focus on cost efficiency can translate into lower operating costs, potentially allowing it to compete effectively on price in certain segments while maintaining profitability. The development of specialized tools and technologies, like the unplug system, offers differentiation that can appeal to customers seeking specific performance benefits. Furthermore, RPC's strong balance sheet provides a significant advantage over less well-capitalized competitors, enabling it to invest in fleet upgrades and pursue strategic M&A opportunities even when market conditions are challenging. The company's deep relationships with a diverse customer base, including smaller private E&Ps and larger blue-chip companies, also provide resilience, although E&P consolidation can pose risks, as seen with the loss of a significant pressure pumping customer in 2024.

Financial Performance and Liquidity Strength

RPC's financial performance in the first quarter of 2025 reflected the challenging market conditions. Revenues decreased by 11.9% year-over-year to $332.9 million, primarily driven by lower activity levels and pricing pressure in the pressure pumping segment. This revenue decline flowed through to profitability, with operating income falling to $12.4 million from $32.3 million in the prior year period. Net income decreased to $12.0 million, resulting in diluted earnings per share of $0.06, down from $0.13 in Q1 2024. EBITDA also declined to $48.9 million from $63.1 million, with the EBITDA margin compressing to 14.7% from 16.7%. The decrease in profitability was attributed to lower revenues, associated negative operating leverage, fixed cost absorption, and an increase in selling, general, and administrative expenses due to ERP system implementation costs. Depreciation and amortization also increased due to recent capital expenditures, including the new Tier 4 fleet.

Despite the decline in profitability, RPC maintained a strong financial position and generated positive cash flow. Cash and cash equivalents stood at $326.7 million as of March 31, 2025, largely unchanged from the end of 2024. The company remains debt-free. Net cash provided by operating activities was $39.9 million in Q1 2025, a decrease from $56.6 million in the prior year, primarily due to lower net income and unfavorable working capital changes (a $6.9 million use of cash). However, cash used for investing activities decreased significantly to $27.4 million from $49.0 million, mainly due to lower capital expenditures ($32.3 million in Q1 2025 vs. $52.8 million in Q1 2024). This resulted in free cash flow of $7.6 million for the quarter, an increase from $3.8 million in the prior year, demonstrating the company's ability to manage capital spending effectively in response to market conditions.

RPC's liquidity is robust, supported by its substantial cash balance and an undrawn $100 million revolving credit facility, with $83.9 million available as of March 31, 2025. This financial strength is a core component of the investment thesis, providing the flexibility to navigate market volatility, fund strategic initiatives, and return capital to shareholders. The company is in compliance with all credit facility covenants and does not anticipate needing to draw on the facility in the near term.

Strategic Growth and Outlook

RPC's strategic focus is firmly on creating long-term shareholder value through disciplined financial management and targeted growth. A key pillar of this strategy is M&A, aimed at rebalancing the portfolio towards less capital-intensive, higher free cash flow generating service lines and increasing exposure to blue-chip E&P customers.

Effective April 1, 2025, RPC completed the acquisition of Pintail Alternative Energy, LLC for $245 million, funded by $170 million in cash, $25 million in RPC common stock, and a $50 million seller note. Pintail is a leading provider of wireline perforating services in the Permian Basin, operating over 30 active fleets. This acquisition is highly strategic, adding significant operational scale and market share in the wireline segment, a business characterized by relatively lower capital intensity and strong free cash flow generation. Pintail generated $409 million in revenue in 2024, with consistent quarterly performance. The acquisition also increases RPC's geographic concentration in the active Permian Basin (pro forma concentration rises to ~60% of total revenues) and brings a concentrated base of blue-chip customers. Management expects the transaction to be accretive to EPS and cash flow in 2025, with Pintail's EBITDA margins anticipated to track around 20% plus or minus a few points. Pintail will be integrated into the Technical Services segment with a relatively light touch on day-to-day operations.

Looking ahead, RPC expects capital expenditures for the remaining nine months of 2025 to be between $165 million and $215 million, inclusive of Pintail. This spending will be directed towards capitalized maintenance and selected growth opportunities, with flexibility to adjust based on market conditions. The company continues its multi-year ERP system implementation, with costs expected over the next few years.

Management acknowledges the high degree of macro uncertainty, particularly regarding tariffs and their potential impact on equipment costs and the broader economy. While current oil prices are seen as sufficient to maintain activity, recent volatility could lead customers to delay completion work. Long-term, steady higher demand for oil and natural gas is expected to drive increased activity. The company is also monitoring potential opportunities arising from E&P consolidation, which could lead to asset divestitures and increased activity from smaller players. RPC remains disciplined in its approach to the competitive environment, focusing on maximizing utilization at adequate returns and not adding to industry capacity with older equipment.

The company's commitment to shareholder returns remains firm, with the Board declaring a regular quarterly cash dividend of $0.04 per share. The strong balance sheet supports the expectation to continue paying dividends, subject to industry conditions and financial performance. The company also has an active stock buyback program, with 12.77 million shares remaining available as of March 31, 2025, although no shares were repurchased in the open market during Q1 2025.

Risks and Challenges

Investing in RPC is subject to various risks inherent in the oilfield services industry. The most significant include the volatility of oil and natural gas prices, which directly impact customer spending on exploration and production activities. A sustained decline in commodity prices could lead to reduced demand for RPC's services, lower utilization, and pricing pressure, negatively affecting financial results.

The highly competitive nature of the industry, particularly the oversupply in pressure pumping, poses a constant challenge to pricing and profitability. E&P consolidation also presents a risk, as merged entities may rationalize their service providers, potentially leading to the loss of significant customers, as experienced by RPC in 2024.

Macroeconomic factors, including the potential impact of tariffs on equipment costs and overall economic conditions, introduce uncertainty. Geopolitical events, while potentially supportive of oil prices, also add volatility and unpredictability to the market. Operational risks, such as equipment breakdowns, accidents, and the ability to attract and retain skilled labor, are also present. Furthermore, the company is subject to ongoing sales and use tax audits and routine litigation, which could result in unfavorable outcomes, although the likelihood of a material loss from a specific outstanding tax assessment is currently considered remote.

Conclusion

RPC, Inc. is navigating a challenging but evolving oilfield services market from a position of financial strength. Its debt-free balance sheet and significant cash reserves provide a solid foundation, enabling the company to pursue a strategic path focused on diversification and growth. The acquisition of Pintail is a significant step in this direction, adding scale, geographic concentration in a key basin, and exposure to a less volatile, high cash flow generating service line with blue-chip customers.

While the core pressure pumping business faces ongoing headwinds from competition and oversupply, RPC's investments in Tier 4 dual-fuel technology and new, differentiated tools in other segments offer avenues for organic growth and competitive advantage. The company's disciplined approach to capital allocation, balancing maintenance CapEx, strategic investments, M&A, and shareholder returns, is crucial in this uncertain environment.

The outlook is tempered by macro uncertainties and market volatility, but potential tailwinds from sustained oil prices and opportunities arising from E&P consolidation could support improved activity levels. Investors should monitor the company's progress in integrating Pintail, the effectiveness of its new technologies in gaining market share, and its ability to maintain pricing discipline and utilization in competitive segments. RPC's strategic evolution, backed by its financial strength, positions it to potentially enhance its long-term profitability and deliver value to shareholders, even as it adapts to the dynamic demands of the energy industry.