RPC, Inc. — Form 10-Q Summary
Business context and reporting period. RPC provides oilfield services and equipment to oil and gas producers, principally in the United States. This unaudited filing covers the quarter and nine months ended September 30, 2016; financial amounts below are in millions of dollars unless otherwise noted.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $175.9 | $291.9 | $508.0 | $995.8 |
| Operating loss | $(56.4) | $(52.9) | $(206.7) | $(98.9) |
| Net loss | $(38.9) | $(35.2) | $(120.1) | $(61.7) |
| Loss per share, diluted | $(0.18) | $(0.16) | $(0.56) | $(0.29) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $94.6 | $386.3 |
| Capital expenditures | Not stated for quarter | Not stated for quarter | $24.9 | $155.2 |
- Revenue fell 39.8% in Q3 and 49.0% year to date. Management attributed the declines primarily to lower industry activity, equipment utilization and service pricing, partly offset by higher service intensity.
- Cost of revenues was 83.4% of revenue in Q3 versus 80.4% a year earlier, and 85.6% year to date versus 77.2%. Selling, general and administrative expense was 19.8% of Q3 revenue versus 12.8%, and 22.6% year to date versus 12.0%. Lower revenue and operating inefficiencies weighed on margins.
- At September 30, cash and cash equivalents were $139.1; current assets were $455.8 and current liabilities $87.1. Total assets were $1,052.9 and stockholders’ equity $837.8. Cash increased from $65.2 at year-end 2015.
- RPC had no revolving-credit borrowings at September 30. The amended facility provides for up to $125 million, subject to a receivables-based borrowing base and letters of credit. Outstanding letters of credit totaled $17.7. The amended agreement requires at least $700 million of tangible net worth; RPC reported compliance.
- Operating cash flow declined by $291.7 year over year. Management cited unfavorable working-capital changes, higher net losses, lower depreciation and amortization, and reduced long-term liabilities. The filing reports no material off-balance-sheet arrangements.
Material changes and unusual items
- Both Technical Services and Support Services reported operating losses. Technical Services revenue was $163.3 in Q3 and $470.0 year to date; Support Services revenue was $12.6 and $38.0, respectively. Pressure pumping and rental tools were particularly affected by weak activity and pricing.
- Year-to-date net loss included a $15.7 income-tax benefit from favorable resolution of an uncertain state tax matter. The nine-month effective tax rate was 41.9%, compared with 35.2% in 2015.
- RPC reported a $3.9 year-to-date gain on asset dispositions, versus a $1.1 loss in 2015. Other income was $0.3 year to date, versus $4.9 in 2015, which included proceeds from a legal settlement. SG&A included a $2.0 contingent professional fee related to resolution of an open tax matter.
- The June 2016 credit-facility amendment added a receivables borrowing base and security interest in accounts receivable, and replaced leverage and debt-service covenants with a minimum tangible-net-worth covenant.
Outlook, risks and contingencies
- Management expected U.S. oilfield activity to increase moderately in the near term, while noting it had limited long-term visibility. It believed the downturn had reached a trough, but expected oversupply of service equipment and personnel to constrain pricing recovery until activity improves significantly.
- Full-year 2016 capital expenditures were projected at approximately $35 million, primarily for maintenance of existing revenue-producing equipment; $24.9 million had been spent through September. RPC planned minimal fleet expansion and emphasized liquidity, cost control and a conservative capital structure.
- Management said liquidity should be sufficient for at least the next 12 months. Risks include oil and gas price and rig-count volatility, customer spending and financial stability, competition and pricing pressure, labor and material cost increases, regulation of hydraulic fracturing, international operations, weather, geopolitical events and reliance on large customers.
- RPC disclosed ongoing sales and use tax audits; some potential unfavorable exposures could not be estimated. It stated ordinary-course litigation was not expected to have a material adverse effect.
- The quarterly dividend had been suspended since 2015. On October 25, 2016, the board approved a special $0.05-per-share dividend payable December 9 to holders of record November 10. Resumption of regular dividends was described as conditional on industry conditions, earnings, financial condition and other factors.
Important facts for investors to verify
- Whether revenue, utilization and service pricing stabilize or recover, particularly in pressure pumping and rental tools.
- Whether working-capital cash generation remains adequate as customer activity and collections change.
- Available borrowing capacity under the receivables-based facility after eligible receivables and letters of credit, and continued compliance with the tangible-net-worth covenant.
- The assumptions behind the $35 million capital-expenditure outlook and the special dividend, including the impact of any recovery-related spending or cost inflation.
- Developments in tax audits and other contingencies that the filing says cannot currently be estimated.