RPC, Inc. — Q1 2021 Form 10-Q
Business and period. RPC provides oilfield services to oil and gas exploration, production and development companies. This unaudited filing covers the three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Amounts below are in millions of dollars unless stated.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $182.6 | $243.8 |
| Operating loss | $(10.5) | $(218.7) |
| Net loss | $(9.7) | $(160.4) |
| Diluted loss per share | $(0.05) | $(0.76) |
| Cash provided by operations | $9.3 | $54.8 |
| Capital expenditures | $11.8 | $25.0 |
- Revenue fell 25.1%; cost of revenues declined 19.6% to $146.2 million. Cost of revenues rose to 80.1% of revenue from 74.6%, and SG&A was 16.8% of revenue versus 15.0%.
- Technical Services revenue was $172.6 million, down 24.2%; the segment recorded a $5.8 million operating loss. Support Services revenue was $10.0 million, down 38.0%, and its operating loss was $2.9 million.
- Cash and cash equivalents were $85.4 million at March 31, up from $84.5 million at year-end 2020. Current assets were $449.6 million and current liabilities $103.5 million.
- RPC had no revolving-credit borrowings; $18.2 million of letters of credit left $81.8 million available under its $100 million facility, which matures in July 2023. The company reported covenant compliance. Total liabilities were $176.9 million; the filing reports no outstanding bank debt.
- Operating cash flow decreased $45.6 million year over year, primarily reflecting lower revenue and a smaller favorable working-capital contribution. Investing cash use was $7.8 million and financing cash use was $0.6 million.
Material changes and unusual items
- The 2020 comparison includes $205.5 million of impairment and other charges, primarily impairments of Technical Services assets. There were no such charges in Q1 2021. Lower depreciation and amortization in 2021 also reflected prior-period impairments.
- Revenue declines reflected lower activity and pricing; the average U.S. rig count was 396 versus 785. Higher commodity prices did not yet translate into a recovery in service demand.
- Income tax benefit was $0.7 million, compared with $58.4 million in Q1 2020. RPC used the discrete tax method in Q1 2021 because small changes in projected annual income materially affected the estimated annual tax rate; the quarter included $1.2 million of net discrete tax provision.
- Interest expense increased to $0.4 million, principally due to interest associated with resolution of a state well-servicing tax audit.
Outlook, risks and contingencies
- Management expects 2021 capital expenditures of approximately $55 million, mainly for maintenance and selected pressure-pumping upgrades for dual-fuel capability; $11.8 million had been spent by March 31.
- Management expected near-term U.S. well-completion activity to remain weak despite higher oil, natural gas and natural gas liquids prices, citing subdued industry activity and customer capital constraints. It did not expect meaningful fleet-capacity expansion absent adequate projected returns.
- Management said existing cash and capitalization should cover requirements for at least 12 months and does not expect to need the revolver for liquidity. No 2021 pension contribution was made or expected for the remainder of the year.
- The common-stock dividend, suspended in July 2019, had no announced resumption timetable. No open-market repurchases occurred in the quarter; 139,519 shares were withheld/repurchased for taxes on vested restricted stock.
- Risks include oil and gas price and activity volatility, COVID-19 effects, competition and pricing pressure, completion efficiencies, labor and material cost increases, weather, geopolitical events, regulation, international operations and reliance on large customers. Management noted ongoing sales- and use-tax audits; some potential exposures could not be estimated. Routine litigation was not expected to have a material adverse effect.
Important facts for investors to verify
- Whether revenue, pricing and well-completion activity recover, particularly in Technical Services, and whether Support Services returns to profitability.
- Whether operating cash flow improves and the company can fund its approximately $55 million capital-spending plan from cash and operations.
- Available revolver capacity, covenant compliance and any change in the no-borrowings position.
- Whether labor, fuel and materials inflation can be passed through to customers without further margin pressure.
- Developments in tax audits and other contingencies, dividend resumption plans, and the timing and economics of any future fleet upgrades.