RPC, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. RPC provides oilfield services and equipment, primarily in the United States, through Technical Services and Support Services. The filing was signed February 28, 2024.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $1.617 billion | $1.602 billion |
| Operating income | $245.0 million | $287.9 million |
| Operating margin | 15.1% | 18.0% |
| Net income | $195.1 million | $218.4 million |
| Diluted EPS | $0.90 | $1.01 |
| Net margin | 12.1% | 13.6% |
| Operating cash flow | $394.8 million | $201.3 million |
| Capital expenditures | $181.0 million | $139.6 million |
| Cash and cash equivalents at year-end | $223.3 million | $126.4 million |
Cash flow from operations less capital expenditures was approximately $213.8 million in 2023, compared with $61.7 million in 2022. The year-over-year cash flow improvement included a favorable working-capital contribution, notably lower accounts receivable.
Current assets were $727.1 million and current liabilities were $151.9 million at year-end, a current ratio of approximately 4.8. RPC had no revolving-credit-facility borrowings; $83.4 million of the $100 million facility was available after letters of credit. Reported lease liabilities totaled $27.2 million. The company said existing cash and capitalization should cover requirements for at least 12 months.
Material changes versus FY2022
- Revenue rose 1.0%, as higher cementing revenue following the Spinnaker acquisition and growth in several other service lines largely offset lower pressure-pumping activity.
- Pressure-pumping revenue fell to $771.5 million from $846.9 million. Technical Services revenue was essentially flat at $1.516 billion, while Support Services revenue rose 18.7% to $101.3 million; Support Services operating income increased to $26.5 million from $18.1 million.
- Operating income declined 14.9% and net income declined 10.6%. SG&A rose 11.7% to $165.9 million, reflecting a vendor-dispute settlement and Spinnaker-related costs. Depreciation and amortization increased 30.2% to $108.1 million.
- Results included $18.3 million of non-cash pension settlement charges as RPC completed termination of its defined-benefit plan. The company also made a $5.4 million cash contribution to fund the termination.
- On July 1, 2023, RPC acquired Spinnaker for approximately $79.3 million, expanding cementing operations into the Permian and Mid-Continent basins. Spinnaker contributed $44.8 million of revenue and $4.7 million of net income after acquisition. Its valuation included $13.2 million of identifiable intangible assets and $18.7 million of goodwill.
Outlook, risks and other notable items
- Management expects near-term demand for RPC’s services to remain consistent with 2023 levels and anticipates 2024 oilfield activity to be broadly consistent with 2023. These are expectations, not guaranteed results.
- RPC expects 2024 capital expenditures of $200 million to $250 million, primarily for maintenance and efficiency improvements, selected growth, and pressure-pumping fleet capacity. A Tier 2 diesel fleet is expected to be replaced with a Tier 4 dual-fuel fleet.
- Management views oil prices as sufficient to support customer activity, but highlights commodity-price volatility, lower natural-gas prices, customer capital-spending decisions, geopolitical conflicts, weather, competition and service-sector efficiency as factors that can affect activity, pricing and utilization.
- Other material risks include skilled-labor availability and wage pressure, supply constraints and equipment costs, environmental and hydraulic-fracturing regulation, cybersecurity threats, international political risk, and potential liability from accidents or environmental events. RPC reported no material cybersecurity incident to date.
- Ongoing sales and use tax audits include issues with outcomes that cannot currently be estimated. Management stated that routine litigation and the proceedings described were not expected to have a material adverse effect; outcomes remain uncertain.
- RPC paid $0.16 per share in dividends during 2023 and declared a $0.04-per-share dividend payable in March 2024. Its buyback authorization had 13.8 million shares remaining at year-end; repurchases are discretionary.
- The controlling shareholder group held more than 50% of voting power; management, directors and affiliates collectively held approximately 60% of outstanding shares. RPC qualifies as a controlled company under NYSE rules.
- The auditor issued unqualified opinions on the financial statements and internal controls. The audit identified valuation of Spinnaker’s acquired intangible assets as a critical audit matter. Management and the auditor excluded Spinnaker, representing 6% of assets and 3% of revenue, from their year-end internal-control assessments.
Important facts for investors to verify
- Whether the expected 2024 activity levels and $200 million–$250 million capital-spending range are being realized, and the effect of fleet replacement on utilization and returns.
- Spinnaker’s ongoing contribution, integration progress and cementing growth relative to the acquisition price and recorded goodwill and intangible assets.
- How much of the strong 2023 operating cash flow reflects sustainable earnings versus working-capital timing, particularly receivables and fourth-quarter activity.
- The financial effect, if any, of unresolved sales and use tax audits, insurance claims, and other contingencies; the filing does not provide a clear estimate for certain audit exposures.
- Future dividend and buyback decisions, available liquidity after capital spending, and the implications of concentrated voting control for public shareholders.