RPC INC (RES) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Presentation

The following discussion should be read in conjunction with Selected Financial Data and the consolidated financial statements included elsewhere in this document. See also Forward-Looking Statements on page 3. Discussions of year-to-year comparisons of 2023 and 2022 items that are not included in this Form 10-K can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 on our Annual report on Form 10-K for the year ended December 31, 2023, which Item is incorporated herein by reference.

Overview

RPC, Inc. provides a broad range of specialized OFS primarily to independent and major oilfield companies engaged in exploration, production and development of oil and gas properties throughout the United States, including the southwest, mid-continent, Gulf of America, Rocky Mountain and Appalachian regions, and in selected international markets. The Company’s revenues and profits are generated by providing equipment and services to customers who operate oil and gas properties and invest capital to drill new wells and enhance production or perform maintenance on existing wells.

Several key trends discussed above in Item 1., Business, were key drivers of the Company’s results in 2024:

Revenues during 2024 totaled $1.4 billion, a decrease of 12.5% compared to 2023. This decrease was primarily due to lower industry activity levels across service lines and competitive pricing. The Company’s pressure pumping revenues (largest service line within Technical Services) were the largest contributor to the revenue decrease.

Operating Profit for 2024 was $97.5 million, a 60.2% decrease compared to the prior year. This decrease is primarily due to lower industry activity levels, competitive pricing and reduced fixed cost absorption.

Net income for 2024 was $91.4 million, or $0.43 earnings per share compared to net income of $195.1 million, or $0.90 earnings per share in 2023.

Cash flows from operating activities increased to $349.4 million in 2024 compared to $394.8 million in 2023. During 2024, capital expenditures totaled $219.9 million which included the purchase of a new Tier 4 dual-fuel fleet, coupled with capitalized maintenance and upgrades of our existing equipment.

As of December 31, 2024, there were no outstanding borrowings under our credit facility.

How We Evaluate Our Operations

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We use Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) Adjusted EBITDA, Adjusted EBITDA margin and Free cash flow, all non-GAAP measures, to evaluate and analyze the operating performance of our businesses.

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We believe that EBITDA, Adjusted EBITDA, Adjusted EBITDA margin and Free cash flow are important indicators of performance. Adjusted EBITDA is defined as EBITDA, adjusted for unusual (income)/expenses. Adjusted EBITDA margin reflects Adjusted EBITDA as a percentage of revenues. Management believes that EBITDA, Adjusted EBITDA and Adjusted EBITDA margin enable investors to compare the operating performance of our core business consistently over various time periods without regard to changes in our capital structure. Management believes that Free cash flow, which measures our ability to generate needed cash from

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business operations, is an important financial measure for evaluating RPC’s financial condition. Our definition of Free cash flow is limited, in that it does not represent residual cash flows available for discretionary expenditures, since the measure does not deduct the payments required for debt service and other contractual obligations or payments made for business acquisitions.

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EBITDA, Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools and should not be considered as an alternative to net income/(loss), operating income/(loss), and related margins, or any other measure of financial performance presented in accordance with accounting principles generally accepted in the United States of America (GAAP). Similarly, Free cash flow should be considered in addition to, rather than as a substitute for GAAP presentation of net cash provided by operating activities, as a measure of our financial condition.

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See Non-GAAP Financial Measures below for a reconciliation of EBITDA and Adjusted EBITDA to net income, and Adjusted EBITDA margin to net income margin, the most directly comparable financial measure calculated and presented in accordance with GAAP and a reconciliation of Free Cash Flow to Operating Cash Flow, the most directly comparable financial measure calculated and presented in accordance with GAAP.

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Results of Operations

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Year Ended December 31, 2024, Compared to Year Ended December 31, 2023

Revenues. Revenues of $1.4 billion for 2024 decreased 12.5% compared to 2023, with both Technical Services segment and Support Services segment revenues each declining. The decrease in revenues is primarily due to lower industry activity levels across service lines and competitive pricing. Revenues for pressure pumping, the Company’s largest service line, decreased 24%, while all other service lines combined decreased 2%.

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Technical Services segment revenues of $1.3 billion for 2024 decreased 12.5% compared to the prior year. The decrease in Technical Services revenue was primarily due to a decrease in pressure pumping activity and price competition. The decline in pressure pumping, as well as lower revenues in coiled tubing, were partially offset by growth in cementing. Cementing revenue increased compared to 2023 as the Company benefitted from a full year of results from the mid-2023 acquisition of Spinnaker. Support Services segment revenues for 2024 decreased by 12.2% compared to the prior year, primarily due to lower activity levels within rental tools.

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Cost of revenues. Cost of revenues decreased 4.9% to $1.0 billion for 2024 compared to the prior year. Cost of revenues decreased primarily due to reduced expenses consistent with lower activity levels, such as materials and supplies expenses and

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maintenance and repairs expenses. These costs decreased less than the revenue decrease given the fixed nature of some of these costs, including labor, and the timing of maintenance and repairs. In accordance with SAB Topic 11.B, cost of revenues presented on the Consolidated Statements of Operations excludes depreciation and amortization totaling $120.6 million for 2024, compared to $97.7 million in the prior year.

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Selling, general and administrative expenses. Selling, general and administrative expenses decreased to $156.4 million in 2024 compared to $165.9 million in the prior year. The decrease was primarily due to a decrease in variable expenses consistent with lower activity levels as well as lower incentive compensation.

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Depreciation and amortization. Depreciation and amortization increased 22.6% to $132.6 million in 2024, compared to $108.1 million in 2023. Depreciation and amortization increased due to capital expenditures in the past year, and to some extent from investments made during 2023 (2024 had a full year of depreciation of those assets versus a partial year in 2023). In addition to standard capital spending on repairs, maintenance, replacements, and upgrades, the Company purchased a Tier 4 dual fuel frac fleet in both 2023 and 2024. The incremental depreciation related to these investments was a key driver in the depreciation increase in 2024.

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Gain on disposition of assets, net. Gain on disposition of assets, net was $8.2 million in 2024 compared to a gain on disposition of assets, net of $9.3 million in 2023. The gain on disposition of assets, net is generally comprised of gains and losses related to various property and equipment dispositions or sales to customers of lost or damaged rental equipment.

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Other income, net. Other income, net was $2.9 million in 2024 compared to other income, net of $3.0 million in the prior year.

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Interest expense and interest income. Interest expense was $724 thousand in 2024 compared to $341 thousand in the prior year. Interest expense includes facility fees on the unused portion of the credit facility and the amortization of loan origination costs. Interest income increased to $13.1 million compared to $8.6 million in the prior year due to higher average cash balances.

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Income tax provision. Income tax provision was $21.4 million during 2024, compared to $61.1 million tax provision in the prior year. The effective provision rate was 18.9% for 2024, compared to a 23.9% effective provision rate for the prior year. The decrease in the effective tax rate in 2024 compared to the prior year is due to the strong impact of beneficial discrete adjustments on a decreased pretax income.

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Net income, net income margin and diluted earnings per share. Net income was $91.4 million in 2024, or $0.43 diluted earnings per share, compared to net income of $195.1 million in 2023, or $0.90 diluted earnings per share. Net income margin was 6.5% for 2024, compared to 12.1% in 2023.

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Adjusted EBITDA and Adjusted EBITDA margin. Adjusted EBITDA was $233.0 million, and Adjusted EBITDA margin was 16.5% in 2024 compared to $374.4 million and 23.1% in 2023. The decline in 2024 was primarily due to lower revenues, associated negative operating leverage and fixed cost absorption.

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Cash provided by operating activities and Free cash flow. Cash provided by operating activities decreased to $349.4 million in 2024, from $394.8 million in 2023. Free cash flow decreased to $129.5 million in 2024, from $213.8 million in 2023 primarily due to a decrease in cash provided by operating activities, driven by lower net income partially offset by favorable working capital changes. Free cash flow in 2024 was also impacted by an increase in capital expenditures.

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Non-GAAP Financial Measures

Reconciliation of GAAP and non-GAAP Financial Measures

Disclosed above are non-GAAP financial measures of EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, and Free cash flow. These measures should not be considered in isolation or as a substitute for performance or liquidity measures prepared in accordance with GAAP.

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A non-GAAP financial measure is a numerical measure of financial performance, financial position, or cash flows that either 1) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statements of operations, balance sheet or statement of cash flows, or 2) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented.

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Set forth below are reconciliations of these non-GAAP measures with their most directly comparable GAAP measures.

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Liquidity and Capital Resources

Cash and Cash Flows

The Company’s cash and cash equivalents were $326.0 million as of December 31, 2024, $223.3 million as of December 31, 2023, and $126.4 million as of December 31, 2022.

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Cash provided by operating activities for the year ended December 31, 2024, decreased by $45.4 million compared to the year ended December 31, 2023, primarily due to a decrease in net income, partially offset by favorable changes in working capital. Changes in working capital was a source of cash of $116.7 million for the year ended December 31, 2024, compared to a source of cash of $57.8 million in the same period last year. Changes in working capital was a significant source of cash in the current year primarily due to the following: a decrease of $47.9 million in taxes receivable including a $52.8 million federal tax refund received during the second quarter of 2024, coupled with a $48.0 million decrease in accounts receivable. The changes in accounts receivable and the other components of working capital were primarily due to the timing of payments and receipts.

Cash used for investing activities for 2024 decreased by $40.2 million compared to 2023, primarily due to the purchase of Spinnaker during 2023 (as there were no acquisitions in 2024). Capital expenditures were $219.9 million for the year ended December 31, 2024, compared to $181.0 million for the year ended December 31, 2023. Capital investments during 2024 included the purchase of a Tier 4 dual fuel pressure pumping fleet, which replaced a Tier 2 diesel fleet. In addition, certain capital spending items were delayed from 2023 into 2024, which was a contributing factor to the year-over-year increase.

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Cash used for financing activities for 2024 decreased by $11.0 million primarily due to a decrease in repurchases of the Company’s common shares in the open market. The Company paid $34.4 million in dividends and repurchased $9.9 million of common stock in 2024 compared to $34.6 million in dividends paid and $21.1 million of common stock repurchased in 2023.

Financial Condition and Liquidity

The Company’s 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. The Company’s decisions about the amount of cash to be used for investing and financing activities are influenced by our capital position, and the expected amount of cash to be provided by operations. RPC does not expect to utilize our revolving credit facility to meet these liquidity requirements in the near term.

The Company currently has a $100.0 million revolving credit facility that matures in June 2027. The facility contains customary terms and conditions, including restrictions on indebtedness, dividend payments, business combinations and other related items. The revolving credit facility includes a full and unconditional guarantee by the Company's 100% owned domestic subsidiaries whose assets equal substantially all of the consolidated assets of the Company and its subsidiaries. Certain of the Company’s minor subsidiaries are not guarantors. The Credit Agreement’s maturity date is June 22, 2027, and the interest rate is based on Term Secured Overnight Financing Rate (Term SOFR). In addition, the terms of the agreement have a 1.00% per annum floor for Base Rate borrowings and permits the issuance of letters of credit in currencies other than U.S. dollars. As of December 31, 2024, RPC had no outstanding borrowings under the revolving credit facility, and letters of credit outstanding relating to self-insurance programs and contract bids totaled $16.3 million; therefore, a total of $83.7 million of the facility was available. The Company is currently in compliance with the credit facility financial covenants. For additional information with respect to RPC’s facility, see note to the consolidated financial statements titled Long-Term Debt.

Cash Requirements

The Company currently expects capital expenditures to be between $150 million and $200 million in 2025 and to be directed towards both capitalized maintenance of our existing equipment and selected growth opportunities. The Company is allocating capital to maintain the capacity of our pressure pumping fleet to offset anticipated future fleet retirements and is evaluating future investments and options to further upgrade our equipment across the business.

The Company has ongoing sales and use tax audits in various jurisdictions subject to varying interpretations of statutes. The Company has recorded the exposure from these audits to the extent issues are resolved or are probable and can be reasonably estimated. There are issues that could result in unfavorable outcomes that cannot be currently estimated.

The Company has a stock buyback program to repurchase up to 49,578,125 shares in the open market, including an additional 8,000,000 shares authorized for repurchase by the Board of Directors in 2023. There were 1,010,258 shares repurchased on the open market during 2024, and 12,768,870 shares remained available to be repurchased under the current authorization as of December 31, 2024. The Company may repurchase outstanding common shares periodically based on market conditions and our capital allocation strategies. The stock buyback program does not have a predetermined expiration date. For additional information with respect to RPC’s stock buyback program, see note to the consolidated financial statements titled Cash Paid for Common Stock Purchased and Retired.

In the fourth quarter of 2024, the Board of Directors approved the termination of the Supplemental Executive Retirement Plan (SERP). Pursuant to the Internal Revenue Service rules, participant balances will be distributed between 12 and 24 months after termination. The Company is currently evaluating its funding options and timing to distribute participant balances.

In the fourth quarter of 2024, the Company entered into a multi-year systems transformation program to upgrade our ERP and supply chain systems. We are currently in the early phases and expensed the majority of non-recurring costs incurred in 2024. We plan to continue the ERP implementation through a phased approach with costs being incurred over the next few years.

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On January 28, 2025, the Board of Directors declared a regular quarterly cash dividend of $0.04 per share payable March 10, 2025, to common stockholders of record at the close of business on February 10, 2025. The Company expects to continue to pay cash dividends to common stockholders, subject to industry conditions and RPC’s earnings, financial condition, and other relevant factors.

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Inflation

The Company purchases its equipment and materials from suppliers who provide competitive prices and employ skilled workers from competitive labor markets. If inflation in the general economy increases, the Company’s costs for equipment, materials and labor could increase as well. In addition, increases in activity in the domestic oilfield can cause upward wage pressure in the labor markets from which it hires employees, especially if employment in the general economy increases. Also, activity increases can cause supply disruptions and higher costs of certain materials and key equipment components used to provide services to the Company’s customers. In recent years, the price of labor and raw materials have increased. These cost increases have moderated but remain high by historical standards.

Outlook

The current and projected prices of oil, natural gas and natural gas liquids are important catalysts for U.S. domestic drilling activity and can be impacted by economic and policy developments as well as geopolitical disruptions, such as the continuing conflicts in the Middle East as well as Russia and Ukraine. RPC believes that oil prices currently remain above levels sufficient to motivate our customers to maintain drilling and completion activities. Long-term, projected steady higher demand for oil and natural gas should drive increased activity in most of the basins in which RPC operates.

We continue to monitor the supply and demand for our services and the competitive environment, including trends such as increasing customer preferences for lower emission and more efficient equipment. Increased asset efficiency in recent years of oilfield completion fleets, particularly in pressure pumping, has inherently contributed to oversupply in the OFS market. We believe that most of the feasible operating efficiency gains have been realized, but competition is expected to remain at a high level.

Contractual Obligations

The Company’s obligations and commitments that require future payments include certain non-cancelable leases, purchase obligations, amounts related to the usage of corporate aircraft, distribution related to SERP terminations, ongoing ERP implementation and other long-term liabilities. We expect to fund these obligations primarily through cash generated from our operations. See note titled Leases and note titled Employee Benefit Plans in the Notes to consolidated financial statements for additional details.

Off Balance Sheet Arrangements

The Company does not have any material off balance sheet arrangements.

Related Party Transactions

See note titled Related Party Transactions in the Notes to consolidated financial statements for a description of related party transactions.

Critical Accounting Estimates

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require significant judgment by management in selecting the appropriate assumptions for calculating accounting estimates. These judgments are based on our historical experience, terms of existing contracts, trends in the industry, and information available from other outside sources, as appropriate. Senior management has discussed the development, selection and disclosure of its critical accounting estimates requiring significant judgments and estimates with the Audit Committee of our Board of Directors. The Company believes the following critical accounting estimates involve estimates that require a higher degree of judgment and complexity:

Credit loss allowance for accounts receivable — Substantially all of the Company’s receivables are due from oil and gas E&Ps in the United States, selected international locations and foreign, nationally owned oil companies. Our credit loss allowance is determined using a combination of factors to estimate the risk of uncollectibility so that our receivables are appropriately stated. Our established credit evaluation procedures seek to minimize the amount of business we conduct with higher risk customers. Our customers’ ability to pay is directly related to their ability to generate cash flow on their projects and is significantly affected by the volatility in the price of oil and natural gas. Credit loss allowance for accounts receivable is recorded in selling, general and administrative expenses. Accounts are written off against the allowance when the Company determines that amounts are uncollectible, and recoveries of amounts previously written off are recorded when collected. Significant recoveries will generally reduce the required provision in the period of recovery, thereby causing credit loss allowance to fluctuate significantly from period to period. Recoveries were insignificant in 2024, 2023 and 2022. We record specific provisions when we become aware of a customer's inability to meet its

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financial obligations, such as in the case of bankruptcy filings or deterioration in the customer's operating results or financial position. If circumstances related to a customer change, our estimate of the realizability of the receivable would be further adjusted, either upward or downward.

The estimated credit loss allowance is based on our evaluation of the overall trends in the oil and gas industry, financial condition of our customers, our historical write-off experience, current economic conditions, and in the case of international customers, our judgments about the economic and political environment of the related country and region. In addition to reserves established for specific customers, we establish general reserves by using different percentages depending on the age of the receivables which we adjust periodically based on management judgment and the economic strength of our customers. The net credit loss allowance as a percentage of revenues ranged from 0.4% to 0.8% over the last three years. Increasing or decreasing the estimated general reserve percentage by 0.50 percentage points as of December 31, 2024, would have resulted in a change of approximately $1.1 million in the recorded provision for current expected credit losses.

Insurance expenses — RPC self-insures certain risks related to general liability, workers’ compensation, vehicle, property, and employee health insurance costs, up to policy-specified deductible limits. For employee health insurance, RPC maintains stop-loss coverage to limit its financial exposure on high-cost claims. The estimated cost of claims under these self-insurance programs is accrued as incurred, though actual settlement may occur in future periods. These estimates may be adjusted over time based on claim developments. Any portion of outstanding claims expected to be paid beyond one year is classified as long-term accrued insurance expenses. These claims are monitored, and the cost estimates are revised as developments occur relating to such claims. The Company has retained an independent third-party actuary to assist in the calculation of a range of exposure for these claims. As of December 31, 2024, the Company estimates the range of exposure to be from $17.8 million to $22.3 million. The Company has recorded liabilities as of December 31, 2024, of $20.1 million, which represents management’s best estimate of probable loss.

Long-lived assets including goodwill — RPC carries a variety of long-lived assets on its balance sheet including property, plant and equipment and goodwill. Impairment is the condition that exists when the carrying amount of a long-lived asset exceeds its fair value. Goodwill is the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. The Company conducts impairment tests on goodwill annually during the fourth quarter, or more frequently if events or changes in circumstances indicate an impairment may exist. The Company completes a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. Assessment of goodwill impairment is conducted at the level of each reporting unit. Technical Services and Support Services, comparing the estimated fair value of each reporting unit to the reporting unit’s carrying value, including goodwill. The fair value of each reporting unit is estimated using an income approach and a market approach. The income approach uses discounted cash flow analysis based on management’s short-term and long-term forecast of operating performance. This analysis includes significant assumptions regarding discount rates, revenue growth rates, expected profitability margins, forecasted capital expenditures and the timing of expected future cash flows based on market conditions. If the estimated fair value of a reporting unit exceeds its carrying amount, the goodwill of the reporting unit is not considered impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is measured and recorded.

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In addition, the Company conducts impairment tests on long-lived assets, other than goodwill, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. For the impairment testing on long-lived assets, other than goodwill, a long-lived asset is grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Estimated future undiscounted cash flows expected to result from the use and eventual disposition of the asset group are compared to its carrying amount. If the undiscounted cash flows are less than the asset group’s carrying amount, then the Company is required to determine the asset group's fair value by using a discounted cash flow analysis. This analysis is based on estimates such as management’s short-term and long-term forecast of operating performance, including revenue growth rates and expected profitability margins, estimates of the remaining useful life and service potential of the assets within the asset group, and a discount rate based on weighted average cost of capital. An impairment loss is measured and recorded as the amount by which the asset group's carrying amount exceeds its fair value.

Acquisition of business — In accounting for our acquisitions, we evaluate whether a transaction pertains to an acquisition of assets, or to an acquisition of a business. A business is defined as an integrated set of assets and activities that is capable of being conducted and managed for the purpose of providing a return. Asset acquisitions are accounted for by allocating the cost of the acquisition to the individual assets and liabilities assumed on a relative fair value basis; whereas the acquisition of a business requires assets acquired and the liabilities assumed to be recognized at the acquisition date fair values, separately from goodwill. The excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed, is recorded as goodwill. The Company uses its best estimates and assumptions to accurately value assets acquired, and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable. However, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the business acquisition date, the Company may have to record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

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Upon the conclusion of a business acquisition’s measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the Consolidated Statements of Operations.

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Accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates for intangible assets, pre-acquisition contingencies and any contingent consideration, where applicable. Although management believes that the assumptions and estimates the Company has made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

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Impact of Recent Accounting Pronouncements

See note titled Significant Accounting Policies in the Notes to the consolidated financial statements, which is incorporated herein by reference for a description of recent accounting standards, including the expected dates of adoption and estimated effects on results of operations and financial condition.

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