Business Context and Reporting Period
Company: RPC, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2009
Business Overview: RPC provides specialized oilfield services and equipment to independent and major oil and gas companies in the U.S. and internationally. Operations are divided into two segments: Technical Services (completion, production, maintenance) and Support Services (equipment rental, pipe handling). The company is an accelerated filer with 98,407,052 shares of common stock outstanding as of July 29, 2009.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2009 | Six Months Ended June 30, 2009 |
|---|---|---|
| Revenues | $127,018 | $303,289 |
| Net (Loss) Income | $(11,624) | $(7,158) |
| Operating (Loss) Profit | $(19,498) | $(11,101) |
| Diluted EPS | $(0.12) | $(0.07) |
| Cash from Operating Activities | N/A | $103,530 |
| Cash and Cash Equivalents | $2,812 | $2,812 |
| Notes Payable to Banks | $123,550 | $123,550 |
| Capital Expenditures | N/A | $(43,214) |
Margins (Six Months 2009):
- Cost of Revenues: 66.3% of revenue
- Selling, General & Administrative: 16.8% of revenue
- Depreciation & Amortization: 21.2% of revenue
Material Changes vs. Prior Period
- Revenue Decline: Revenues for the three months ended June 30, 2009, decreased 40.8% compared to the same period in 2008. For the six months, revenues decreased 26.4%. This was driven by lower service pricing due to competition and reduced equipment utilization.
- Profitability Shift: The company reported a net loss of $11.6 million for the quarter and $7.2 million for the six months, compared to net income of $22.5 million and $37.2 million, respectively, in the prior year periods. Operating profit turned negative due to revenue declines and increased depreciation.
- Cost Structure: Cost of revenues as a percentage of revenue increased by 15.7 percentage points in the quarter and 8.6 percentage points for the six months, primarily due to lower pricing and higher material requirements for service-intensive work.
- Depreciation: Depreciation and amortization increased 11.0% for the quarter and 14.0% for the six months compared to the prior year, resulting from capital expenditures made in the previous year to expand capacity.
- Debt Reduction: Outstanding borrowings under the revolving credit facility decreased to $123.6 million from $174.5 million at year-end 2008.
Guidance, Outlook, and Risks
- Outlook: Management expects revenues for 2009 to be lower than 2008. The company anticipates operating and net losses for the full year 2009. The U.S. domestic rotary drilling rig count fell 56.5% from its peak in late 2008, though it appears to have stabilized in Q3 2009.
- Capital Expenditures: Expected to be approximately $70 million for 2009 (down from previous years), focused on maintenance and specific contracted projects rather than fleet growth.
- Liquidity: The company maintains a $296.5 million revolving credit facility with $157.9 million available as of June 30, 2009. Management believes liquidity is sufficient for the next 12 months.
- Dividends: The Board approved a reduced cash dividend of $0.04 per share (down from $0.07 in the prior quarter) to strengthen the capital structure.
- Risks: Significant exposure to oil and natural gas price volatility, geopolitical instability, and intense competition leading to pricing pressure. The company faces ongoing sales and use tax audits with uncertain outcomes.
Investor Verification Checklist
- Verify the sustainability of the 40.8% revenue decline and the impact of the 56.5% drop in U.S. drilling rig counts on future bookings.
- Confirm the company's ability to maintain liquidity given the projected full-year 2009 net loss and reduced dividend.
- Assess the effectiveness of expense reduction measures against the rising cost of revenues as a percentage of sales.
- Review the status of ongoing sales and use tax audits and potential liabilities.
- Monitor the utilization rates of the existing equipment fleet versus the reduced capital expenditure plan.