RPC, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. RPC provides specialized oilfield services, primarily in the U.S., through Technical Services and Support Services. All amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $116.6 | $293.2 | $449.7 | $986.4 |
| Operating loss | $(31.8) | $(92.6) | $(288.0) | $(86.4) |
| Net loss | $(16.4) | $(69.2) | $(202.0) | $(63.7) |
| Diluted loss per share | $(0.08) | $(0.33) | $(0.95) | $(0.30) |
- Q3 cost of revenues was 86.5% of revenue, versus 76.8% a year earlier; SG&A was 27.8% versus 14.5%. Lower revenue left the company with poorer expense absorption despite cost reductions.
- Nine-month operating cash flow was $131.4 million, compared with $169.7 million. Capital expenditures were $52.3 million versus $209.3 million; investing cash outflow was $34.9 million versus $196.9 million. Cash rose $95.6 million to $145.6 million.
- At September 30, current assets were $430.3 million and current liabilities $93.3 million. Total liabilities were $163.3 million; these include operating lease, pension and insurance obligations.
- No borrowings were outstanding under the revolving credit facility. After $19.8 million of letters of credit, $80.2 million of the $100 million facility remained available. RPC reported covenant compliance.
Material changes and drivers
- Q3 revenue fell 60.2% year over year, reflecting lower activity and pricing. U.S. domestic rig count averaged 254, down from 920; well completions fell approximately 74% year over year. International revenue was $5.8 million, down 67.0%.
- Technical Services generated $109.3 million of Q3 revenue and a $24.9 million operating loss. Support Services generated $7.3 million and a $3.8 million operating loss, versus operating income of $1.6 million a year earlier.
- Q3 operating loss narrowed from the prior year, which included $71.7 million of impairment and other charges; there were no such charges in Q3 2020. However, nine-month 2020 results included $207.2 million of charges, mainly $204.8 million of long-lived asset impairments recorded in Q1. Goodwill was not impaired.
- Nine-month revenue declined 54.4%; the nine-month operating loss worsened substantially, reflecting lower activity and the 2020 impairment charges. Depreciation and amortization also fell after those impairments.
- Dividends remained suspended; none were paid in the first nine months of 2020, compared with $32.2 million paid in the 2019 period.
Outlook, risks and unusual items
- Management expected weak U.S. completion activity and near-term oilfield activity around then-current levels, citing depressed oil prices, COVID-19, OPEC-related market disruption, customer capital constraints, industry overcapacity and competitive pressure on service pricing and utilization.
- Management forecast 2020 capital expenditures of approximately $60–$70 million, mainly for maintenance and selected pressure-pumping equipment upgrades. It described a strategy of minimal investment and continued expense scrutiny.
- Management said existing cash and capitalization should meet liquidity needs for at least 12 months and it did not expect to need revolver borrowings. The credit agreement amendment reduced the facility from $125 million to $100 million, lowered the minimum tangible net worth covenant from $600 million to $400 million, and increased pricing and commitment fees.
- The company stated that further deterioration in oilfield conditions could lead to additional asset impairments, potentially including goodwill. Other key risks include commodity prices, COVID-19, competition, customer concentration, regulation, geopolitical events and weather.
- The nine-month tax benefit was $86.9 million, including a $21.3 million net discrete tax provision related primarily to deferred-tax revaluations, partly offset by CARES Act-related carryback benefits. Q3 included $3.6 million of net beneficial discrete tax items.
- RPC disclosed accelerated restricted-stock amortization following the death of its chairman. The footnote reports $3.3 million, while the MD&A text appears to say $33 million; the filing text is inconsistent and the precise amount should be verified. In October, the pension plan added a lump-sum election window expected to trigger non-cash settlement charges when distributions occur in December 2020.
- RPC had ongoing sales and use tax audits; some potential unfavorable outcomes could not be estimated. Management said ordinary-course litigation was not expected to materially affect results. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether the Q3 improvement in consolidated operating loss reflects sustainable operating progress, given continuing segment losses and the prior-year impairment comparison.
- The restricted-stock amortization amount: the filing’s $3.3 million footnote conflicts with the apparent $33 million MD&A figure.
- Actual 2020 capital expenditures against the $60–$70 million forecast and the company’s ability to maintain liquidity under prolonged weak activity.
- Oilfield activity, service pricing, customer capital availability, and any further asset impairment or pension settlement charges.
- Tax benefit realizability, unresolved sales-tax audit exposure, and the terms and covenant headroom of the amended credit facility.