RPC, Inc. (NYSE: RES) — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. RPC provides oilfield services, primarily in the U.S., through Technical Services and Support Services. Financial figures below are in millions unless stated otherwise.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $330.4 | $459.6 | $1,222.9 | $1,119.7 |
| Operating income | $22.7 | $92.2 | $195.7 | $175.6 |
| Net income | $18.3 | $69.3 | $154.9 | $131.4 |
| Diluted EPS | $0.08 | $0.32 | $0.71 | $0.61 |
| Operating margin | 6.9% | 20.1% | 16.0% | 15.7% |
- Q3 cost of revenues, excluding depreciation and amortization, was 72.4% of revenue versus 67.4% a year earlier; SG&A was 12.7% versus 8.3%. For the nine-month periods, cost of revenues improved to 66.2% from 69.6%, while SG&A rose to 10.5% from 9.9%.
- Nine-month operating cash flow was $299.1 versus $40.9; capital expenditures were $148.8 versus $90.2. Operating cash flow less capital expenditures was approximately $150.3. Cash increased to $171.9 from $126.4 at year-end 2022.
- At September 30, current assets were $686.4 and current liabilities $140.1. RPC had no revolving-credit borrowings; $83.4 million of the $100 million facility was available per the debt footnote. The balance sheet reports lease liabilities, but no material funded bank debt.
Material changes versus prior periods
- Q3 revenue fell 28.1% year over year, primarily from lower customer activity and more competitive pricing. Technical Services revenue declined 30.5%, largely due to pressure pumping; Support Services revenue increased 14.8%, supported by rental tools.
- Q3 net income and diluted EPS declined substantially, reflecting the revenue contraction and lower operating leverage. Management cited relatively fixed direct employment and SG&A costs as contributing to margin pressure.
- Nine-month revenue increased 9.2%, driven by improved pricing, higher activity and a larger pressure-pumping fleet. Nine-month net income rose 17.9% despite an $18.3 million pension settlement charge recorded in 2023.
- RPC acquired Spinnaker Oilwell Services effective July 1, 2023, for total consideration of $79.3 million, funded with cash. Spinnaker contributed $22.2 million of Q3 revenue and $1.8 million of net income. The preliminary allocation includes $18.7 million of goodwill and $13.2 million of amortizable intangibles; the purchase-price allocation remained subject to finalization.
Outlook, risks and unusual items
- Management expects 2023 capital expenditures, excluding Spinnaker, of $200 million to $250 million, focused on equipment maintenance and selected growth. It expects demand to improve in Q4 after what it described as a temporary Q3 moderation, while emphasizing that activity and pricing depend on commodity markets and customer spending.
- Management believes cash and capitalization will cover liquidity needs for at least 12 months and does not currently expect to draw on the revolver. It expects to continue quarterly cash dividends, subject to industry conditions and financial factors. A $0.04-per-share dividend was declared October 24, payable December 11, 2023.
- Key risks include oil and gas price volatility, reduced customer capital spending, competitive pricing and excess service capacity, labor and input-cost pressures, geopolitical events, weather, regulation, cybersecurity, and concentration of cash deposits at one financial institution.
- The $18.3 million pension settlement charge related to the ongoing plan termination; RPC contributed $5.4 million to the plan during the first nine months and expected minimal further contributions for 2023. Ongoing sales-and-use-tax audits remain a contingency; the company said a material loss was remote and could not be reasonably estimated. Ordinary-course litigation was not expected to have a material adverse effect.
- The filing reports no material change in risk factors, no material off-balance-sheet arrangements, and effective disclosure controls. RPC was in compliance with credit-facility covenants.
Important facts for investors to verify
- Reconcile the revolver availability figures: the debt note says $83.4 million available with $16.6 million of letters of credit, while MD&A says $83.6 million available with $16.4 million outstanding.
- Assess whether the Q3 drop in pressure-pumping activity and pricing persisted or reversed after quarter-end; the filing provides management’s expectation, not a quantified revenue or earnings forecast.
- Track the final Spinnaker purchase-price allocation and integration results, including whether expected revenue synergies materialize.
- Review capital spending against the $200–$250 million full-year outlook, and monitor cash generation, dividends, buybacks and the impact of the pension settlement.
- Confirm the status and potential exposure of sales-and-use-tax audits and monitor commodity prices, customer activity and service-sector pricing.