[Management View] RPC management emphasized the operational and financial impact of the Pentel acquisition, which diversified revenue streams and improved cash flow. However, it also introduced elevated non-deductible costs, increasing the effective tax rate. The shift to more dedicated customer relationships in pressure pumping led to less spot market exposure but contributed to a service mix with lower material revenue content and ongoing operational inefficiencies.
[Outlook] Management is cautious regarding the second half of the year due to a reduction in rig activity. They expect the full-year effective tax rate to be in the mid-thirties, reflecting ongoing acquisition-related costs. Future guidance on the Pentel segment will not be provided, increasing forecast uncertainty for that unit.
[Financial Performance] Total revenues increased 26% sequentially, driven by the full quarter impact of the Pentel acquisition. Excluding Pentel, revenues were down 3% sequentially. Adjusted diluted EPS was $0.08, reflecting $0.03 in adjustments related to acquisition employment costs. Adjusted EBITDA was $65.6 million, up from $48.9 million in the previous quarter, with a margin increase of 90 basis points to 15.6%.
[Q&A Highlights] Question 1: Ben, you still have an enviable cash position and balance sheet. Could you elaborate on the go-forward acquisition strategy, particularly your preference for consolidation opportunities to drive more scale in a particular service or region, or expanding into other services and geographic markets? Answer: Our strategy remains focused on scale in existing service lines, but we are selective due to current market volatility. We are opportunistic, looking at existing service lines and diversification outside the oilfield. We are well-positioned to take advantage of natural gas activity when it picks up.
Question 2: With continued pricing pressures and a potential Q4 slowdown, how does this impact your M&A strategy? Are you pausing acquisitions, or do you see better opportunities in the first half of next year? Answer: We are not pausing but are more selective. The current environment may create different opportunities, and we will be ready to take advantage of them.
Question 3: The addition of the two and seven-eighths unit is impressive. Have you seen any field results, and is there enough interest to warrant a second unit? Answer: The results have been very good, and the unit is staying busy. We have not placed additional orders yet, as we are being selective with investments.
Question 4: Could you touch on the segment outlook for the second half of the year, particularly the pressure pumping market? Answer: Pressure pumping has had a challenging quarter, but we see more activity and certainty with dedicated customers. We expect minimal seasonal slowdown and potential sequential improvement.
Question 5: What is the free cash flow outlook for the second half of the year? Answer: The second half will be better than the first half, with decent free cash flow expected due to the level of CapEx and the inclusion of Pentel for both quarters.
Question 6: How do you see pricing in wireline playing out in Q3 and Q4, particularly with Pentel? Answer: Pricing pressure is intense, especially in the Permian. However, Pentel remains accretive, and we are cautiously optimistic about its performance.
[Sentiment Analysis] The tone of the management was cautious but optimistic, focusing on strategic selectivity and prudent capital allocation. Analysts' questions reflected concerns about market volatility, pricing pressures, and the impact of acquisitions on future performance.
[Risks and Concerns] - Increased third-party nonproductive time in pressure pumping, leading to operational inefficiencies. - Elevated effective tax rate due to acquisition-related employment costs. - Competitive market conditions and pricing pressures, particularly in wireline services. - Uncertainty in rig activity and macroeconomic factors impacting future performance.
[Final Takeaway] RPC's Q2 2025 performance was significantly influenced by the Pentel acquisition, which drove revenue growth but also introduced higher non-deductible costs. Management remains cautious about the second half of the year due to market volatility and reduced rig activity. Despite these challenges, RPC is strategically positioned to leverage its diversified service lines and strong balance sheet to navigate the competitive landscape and capitalize on future opportunities.