RPC’s Perspective in Q1: KEY Takeaways

In 2025, RPC, Inc. (RES) will likely face pricing pressure as it looks to maintain pressure pumping utilization. The company’s Tier 4 DGBs will see sustained demand, although lower demand for Tier II assets can lead to diesel asset retirement. However, its total frac spreads will not increase in 2025. The recent acquisition also strengthened its Permian operations. RES kept its balance sheet clean in Q1.

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Pressure Pumping Outlook

In our recent article , we have already discussed RPC's (RES) Q1 2025 financial performance. Here is an outline of its outlook. In 2025, RES anticipates that higher tariffs will push equipment prices higher, which can create pressure on the demand for the OFS industry. On the other hand, OFS companies will get more disciplined with their capex decisions. However, if uncertainty pulls crude oil prices too low, completion activities can become unsustainable for some upstream operators.

Utilization and Strategies

In this environment, frac spread and pressure pumper utilization become key factors. RES broadly maintained its asset utilization, but it came at a cost – i.e., lower prices. Also, utilization remained strong in Tier 4 DGBs, but demand and utilization were challenging for the Tier 2 diesel fracks. Because many pressure pumpers look to maintain utilization, HHP supply was sufficient, and pricing was competitive.

If the pressure persists, some less-capitalized pumpers may cease to operate at lower prices. In that case, the supply may fall and prices may rebound. However, such a situation of supply tightening and firmer pricing can take time to develop. Therefore, RES does not plan to include a new frac spread in 2025, although it may add incremental frac equipment and retire older frac spreads during the year.

Acquisition

The other key development in Q1 was the acquisition of Pintail, which can add $400 million of revenue and a share of the wireline market. Its clientele primarily include Tier 1 E&Ps in the Midland and Delaware basins. Pintail also has a robust cash flow and relatively low capital intensity, which would be ideal in the current environment. Pro forma acquisition adds one percentage point to its wireline revenue share. Plus, it would move RES’s Permian concentration up to 60% in total revenues.

Q1 Result and Cost Management

In Q1, RES’s cost of revenues decreased by 3%. Its transportation and fuel declined due to a change in job mix. However, this activity carried less profit, and so, the change was net positive for the company. The job-mix change amounted to lower sand and chemical supplies, which lowered costs. On top of that, it did not repeat the expensive insurance costs, which added to the operating margin in Q1.

The company’s Technical Services segment operating income increased by 32% quarter-over-quarter, while operating income in the Support Services segment improved by 4% from Q4’24 to Q1’25. Despite that, the company's net income decreased by 5.7% during Q1.

RES maintained a debt-free balance sheet as of March 31. Although cash flow from operations decreased, free cash flow improved in Q1 2025 because capex fell more sharply in the past year. This, along with a cash balance of $327 million, allowed for maintaining a steady dividend payment.

Relative Valuation

RES is currently trading at an EV/EBITDA multiple of 3.3x. Based on sell-side analysts' EBITDA estimates, the forward EV/EBITDA multiple is 2.9x. The current multiple is significantly lower than its five-year average EV/EBITDA multiple of 28.6x.

RES's forward EV/EBITDA multiple is expected to contract versus its current EV/EBITDA multiple, which is in contrast to a rise in the multiple for its peers. This implies that the company's EBITDA is expected to decrease versus a rise in EBITDA for its peers in the next four quarters. This typically results in a much lower EV/EBITDA multiple. The stock's EV/EBITDA multiple is in line with its peers' (PUMP, KLXE, and LBRT) average. So, the stock appears to be undervalued compared to its peers.

Final Commentary

In Q1, RES improved its operating profit despite various challenges in the completion industry. Sustaining utilization cost pricing in fracking. On top of that, the increased tariff structure in the US will add to the pressure. As a result, smaller pressure pumpers may find it difficult to operate.

In this uncertainty, RES may retire some Tier II diesel assets. However, the company's Tier 4 DGBs are in high demand and have better visibility. So, its frac spread count may remain unchanged in 2025. The Pintail acquisition in February enhanced its wireline operations in the Permian Basin. RES maintains a debt-free balance sheet, while its FCF improved in Q1 2025. The stock is undervalued compared to its peers.

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