10-Q: RPC Inc. Q3: Acquisition Boosts Revenue, Profits Decline

RPC Inc. reported a significant revenue increase in the third quarter of 2025, driven by the Pintail acquisition, but net income and operating cash flow declined due to higher costs and an elevated tax rate.

Summary

• Revenues for the three months ended September 30, 2025, increased 32.4% to $447.1 million, primarily due to the Pintail acquisition.
• Net income for the three months ended September 30, 2025, decreased 30.9% to $13.0 million, or $0.06 diluted earnings per share, compared to $18.8 million, or $0.09 diluted earnings per share, in the prior year.
• For the nine months ended September 30, 2025, revenues increased 11.2% to $1.20 billion, while net income decreased 55.4% to $35.1 million, or $0.16 diluted earnings per share.
• The effective tax rate was unusually high at 42.6% for the three months and 37.7% for the nine months ended September 30, 2025, primarily due to non-deductible acquisition-related employment costs.
• Cash provided by operating activities decreased to $139.5 million for the nine months ended September 30, 2025, from $255.2 million in the prior year, mainly due to unfavorable changes in working capital and lower net income.
• Free cash flow decreased significantly to $21.7 million for the nine months ended September 30, 2025, from $75.8 million in the prior year.
• The acquisition of Pintail Alternative Energy, L.L.C. on April 1, 2025, for $170 million cash, $25 million in RPC common stock, and a $50 million secured note, contributed $99.8 million in revenue and $7.2 million in net income for Q3 2025.
• Capital expenditures for the nine months ended September 30, 2025, were $117.8 million, down from $179.5 million in the prior year, with full-year 2025 capital expenditures expected to be between $170 million and $190 million.
• The pressure pumping market remains highly competitive and over-supplied, with declining rig counts impacting activity levels, asset utilization, and pricing.
• The company implemented the One Big, Beautiful Bill Act (OBBBA) provisions, resulting in a $17.1 million increase in deferred income tax liability and income taxes receivable, but no impact on the effective tax rate for the periods presented.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative. While revenue growth from the Pintail acquisition is a positive, the significant decline in net income, diluted EPS, operating cash flow, and free cash flow, coupled with a high effective tax rate and persistent competitive pressures in key segments, indicates underlying challenges. The acquisition's benefits are currently offset by integration costs and market conditions, leading to a weaker profitability profile.

Positives

• Total revenues increased by 32.4% for the three months and 11.2% for the nine months ended September 30, 2025, primarily driven by the Pintail acquisition.
• The Pintail acquisition added $99.8 million in revenue and $7.2 million in net income for the three months ended September 30, 2025, and is strategically building on the company's oilfield services platform in the Permian Basin.
• Adjusted EBITDA increased by 30.9% to $72.3 million for the three months ended September 30, 2025.
• The company's financial condition remains strong, with sufficient liquidity from existing cash and cash equivalents to meet requirements for at least the next twelve months without utilizing the revolving credit facility.
• Implementation of the OBBBA provisions resulted in a $17.1 million increase in deferred income tax liability and income taxes receivable due to 100% bonus depreciation and immediate expensing of R&D costs, providing future tax benefits.
• The company has no outstanding borrowings under its $100 million revolving credit facility, with $84.2 million available as of September 30, 2025.

Negatives

• Net income decreased significantly by 30.9% for the three months and 55.4% for the nine months ended September 30, 2025, compared to the prior year.
• Diluted earnings per share decreased to $0.06 for the three months and $0.16 for the nine months ended September 30, 2025, from $0.09 and $0.37, respectively, in the prior year.
• Net income margin declined to 2.9% for both the three and nine months ended September 30, 2025, from 5.6% and 7.3% in the prior year periods.
• Operating income for the nine months ended September 30, 2025, decreased by 44.0% to $48.7 million.
• Cash provided by operating activities decreased by $115.7 million to $139.5 million for the nine months ended September 30, 2025, primarily due to unfavorable changes in working capital and lower net income.
• Free cash flow decreased by 78.5% to $4.1 million for the three months and 71.3% to $21.7 million for the nine months ended September 30, 2025.
• The effective tax rate was unusually high at 42.6% for the three months and 37.7% for the nine months ended September 30, 2025, mainly due to non-deductible acquisition-related employment costs.
• The pressure pumping market remains highly competitive and over-supplied, with efficiency gains contributing to excess capacity, impacting activity levels, asset utilization, and pricing.
• Interest income decreased to $1.7 million for the three months and $6.8 million for the nine months ended September 30, 2025, due to a lower average cash balance following the Pintail acquisition.

Risks

• Volatility of oil and natural gas prices can significantly impact customer drilling and completion activities and demand for services.
• Concentration of customers in the energy industry makes the company susceptible to periodic downturns in the sector.
• Dependence on capital spending by customers, many of whom rely on outside financing, poses a risk if financing is unavailable or unfavorable.
• Ability to attract and retain skilled workers is crucial, and upward wage pressures in competitive labor markets could increase costs.
• Reliance on a limited number of suppliers for certain equipment and materials could lead to supply disruptions and higher costs.
• Increasing expectations from customers, investors, and other stakeholders regarding environmental, social, and governance (ESG) practices may require additional investments or changes in operations.
• Compliance with regulations and environmental laws, including potential future regulations on hydraulic fracturing, could increase operational costs or restrict activities.
• Political instability and armed conflict in oil-producing regions, such as the current conflict involving Israel and the Gaza Strip, could impact drilling activity.
• Adverse weather conditions in oil or gas producing regions, including the Gulf of America, can disrupt operations.
• Intense competition in the oil and gas industry, particularly in pressure pumping, and an over-supplied market can limit the company's ability to implement price increases.
• Operations rely on digital systems and processes that are subject to cyber-attacks or other threats.
• The potential for tariffs on imported goods to increase equipment prices and reduce profitability.
• Capital expenditures are determined based on current expectations, and changes in the business model or expectations may cause material increases or decreases in spending plans.

Future Outlook

Management anticipates that oil prices will remain at levels sufficient to continue drilling and completion activities, though recent declines and potential volatility could lead customers to delay completion work. Long-term, projected higher demand for oil and natural gas is expected to drive increased activity in most operating basins. The company will continue to monitor supply and demand for services and the competitive environment, including customer preferences for more efficient equipment. Competition is expected to remain intense due to oversupply in the oilfield services market, particularly in pressure pumping. Capital expenditures for 2025 are projected to be between $170 million and $190 million, primarily for maintenance, opportunistic asset purchases, and ERP implementation. The company plans to continue its multi-year ERP system transformation through a phased approach. Regular quarterly cash dividends are expected to continue, subject to industry conditions and financial performance. The company expects to distribute SERP participant balances in Q4 2025, resulting in an estimated $8 million net cash distribution and a one-time increase in the effective tax rate.

Management Comments

• The increase in revenues was primarily due to revenues of $99.8 million from recently acquired Pintail coupled with revenue increases in coiled tubing and downhole tools, partially offset by a decrease in pressure pumping.
• The pressure pumping market remains highly competitive. The industry continues to be over-supplied and efficiency gains are contributing to excess capacity in the industry.
• These challenges, as well as a declining rig count, have impacted activity levels, asset utilization, and pricing.
• The effective tax rate was unusually high primarily due to the non-deductible portion of Acquisition related employment costs and provision to tax return adjustments.
• Our financial condition remains strong. We believe the liquidity provided by our existing cash and cash equivalents and our overall strong capitalization will provide sufficient liquidity to meet our requirements for at least the next twelve months.
• RPC does not expect to utilize our revolving credit facility to meet these liquidity requirements in the near term.
• Oil prices currently remain at levels sufficient to continue drilling and completion activities, however the recent decline of oil prices and potential further volatility could result in our customers opting to delay completion activity.
• Long-term, projected higher demand for oil and natural gas should drive increased activity in most of the basins in which RPC operates.
• Increased efficiencies in recent years of oilfield completion services and equipment, particularly in pressure pumping, has inherently contributed to oversupply in the Oilfield Services (OFS) market. We believe that competition will remain intense.

Industry Context

The oilfield services industry continues to face significant headwinds, particularly in the pressure pumping sector, which is characterized by intense competition and oversupply. Despite higher natural gas prices (up 44.8% in Q3 2025 vs. Q3 2024 and 64.2% for YTD 2025 vs. YTD 2024), the average price of oil was 14.0% lower in Q3 2025 and 14.1% lower for YTD 2025 compared to the prior year. The domestic rig count also declined by 7.8% in Q3 2025 and 6.3% for YTD 2025, indicating reduced drilling activity. These factors collectively contribute to lower asset utilization and pricing pressure across the sector. RPC's acquisition of Pintail, a wireline perforating service provider in the Permian Basin, represents a strategic move to diversify and strengthen its position in a key active oil-producing region, potentially mitigating some of the broader industry challenges.

Corporate Governance

Legal Proceedings

• A putative class action complaint was filed by stockholders alleging certain bylaw provisions regarding fee-shifting violated Delaware law. The company amended its bylaws to remove the challenged provisions and settled the attorneys' fees for $100,000.
• The company is a party to various routine legal proceedings primarily involving commercial claims, employee liability, workers' compensation claims, and personal injury, none of which are expected to have a material adverse effect on financial position or results of operations.
• Ongoing sales and use tax audits in various jurisdictions may result in unfavorable outcomes, but the likelihood of a material loss is considered remote and not reasonably estimable at this time.

Related Party Transactions

• RPC provides administrative services to Marine Products Corporation, a company with shared directors and executive officers, with charges totaling $821,000 for the nine months ended September 30, 2025.
• The company periodically purchases products or services from suppliers owned by officers or significant stockholders affiliated with certain directors, totaling $46,000 for the nine months ended September 30, 2025.
• RPC and Marine Products Corporation jointly own 255 RC, LLC for a corporate aircraft, with RPC recording net operating costs of $138,000 for the nine months ended September 30, 2025.
• A group including directors Amy R. Kreisler and Timothy C. Rollins, their family members, and controlled companies, controls over 50% of the company's voting power.
• A shelf registration statement on Form S-3 registers for the resale of up to 127,235,202 shares of common stock held by LOR, Inc. and its affiliates, the company's largest stockholder.

Stakeholder Impact

• Shareholders: Experienced significant dilution in EPS, but received regular quarterly dividends. The stock buyback program remains active, but no shares were repurchased in the open market during the period. A legal settlement regarding bylaws impacted shareholder rights and company expenses.
• Employees: The termination of the Supplemental Retirement Plan (SERP) will result in distribution of participant balances in Q4 2025. Acquisition-related employment costs are being recognized over time for certain employees.
• Customers: The company's performance is highly dependent on customer capital expenditures and drilling activity, which are influenced by volatile oil and natural gas prices and rig counts. Competitive pricing in the pressure pumping market may benefit customers.
• Creditors: The company maintains a strong financial condition with no outstanding borrowings on its revolving credit facility, indicating low immediate credit risk.
• Suppliers: The company's costs for equipment and materials could increase due to inflation and potential tariffs on imported goods.

Next Steps

• Distribute participant balances from the Supplemental Retirement Plan (SERP) in the fourth quarter of 2025.
• Continue the multi-year ERP system transformation program through a phased approach, incurring costs over the next few years.
• Make the first principal payment of $20 million on the Seller Note within the next 12 months, with the remaining $30 million payable over two years thereafter.
• Evaluate future investments and options to further upgrade equipment across the business, with capital expenditures expected to be between $170 million and $190 million in 2025.
• Continue to pay regular quarterly cash dividends to common stockholders, subject to industry conditions and financial performance.

Key Dates

Recommendation

RPC Inc. presents a mixed financial picture. While the Pintail acquisition significantly boosted revenue, the substantial decline in net income, diluted EPS, operating cash flow, and free cash flow, coupled with an unusually high effective tax rate, raises concerns about profitability and cash generation. The oilfield services market, particularly pressure pumping, remains highly competitive and oversupplied, posing ongoing challenges to pricing and utilization. The company's strong liquidity and strategic acquisition in the Permian Basin offer long-term potential, and the ERP implementation could improve efficiencies. However, the immediate financial performance indicates a period of integration and market headwinds. A 'hold' recommendation is appropriate as investors should monitor the successful integration of Pintail, the impact of the high tax rate, and any signs of improvement in the competitive landscape before making further investment decisions.

Keywords

Oilfield Services, RPC Inc., Pintail Alternative Energy, Permian Basin, Wireline Perforating, Q3 2025 Earnings, SEC 10-Q, Energy Sector, Oil & Gas, Pressure Pumping, Technical Services, Support Services, Acquisition, Financial Results