RPC, Inc. (NYSE: RES) — Q3 2019 Form 10-Q
Business context and period: RPC provides oilfield services in the U.S. and selected international markets. This unaudited quarterly filing covers the three and nine months ended September 30, 2019; comparisons are with the corresponding 2018 periods.
Key financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $293.2M | $440.0M | $986.4M | $1,344.3M |
| Operating income (loss) | $(92.6)M | $54.6M | $(86.4)M | $190.4M |
| Net income (loss) | $(69.2)M | $50.0M | $(63.7)M | $162.0M |
| Diluted EPS | $(0.33) | $0.23 | $(0.30) | $0.75 |
| Operating cash flow | Not separately provided | Not separately provided | $169.7M | $322.0M |
- Revenue fell 33.4% in Q3 and 26.6% year to date. Cost of revenues declined more slowly, causing the gross margin (revenue less cost of revenues) to contract to 23.2% in Q3 from 31.6%, and to 24.7% year to date from 32.4%.
- Q3 included $71.7M of impairment and other charges, including $34.6M for asset abandonment, $14.3M for assets held for sale, $16.0M for equipment retirement, $5.5M of inventory write-downs and $1.3M of severance. RPC said $5.9M was expected to have a cash impact.
- Technical Services drove the downturn: Q3 revenue declined 34.8% to $274.5M and the segment recorded an $18.2M operating loss, versus $56.2M operating income a year earlier. Pressure-pumping revenue fell to $111.2M from $237.5M. Support Services Q3 revenue was broadly flat at $18.8M.
- Cash and equivalents were $49.5M at September 30, down from $116.3M at year-end 2018. Current assets were $481.1M and current liabilities $136.2M. Total liabilities were $254.7M; the filing reports no outstanding revolver borrowings.
- The $125M revolving facility had $104.4M available after $20.6M of letters of credit. RPC reported covenant compliance. Operating cash flow less capital expenditures was approximately negative $39.6M for the first nine months.
Changes versus prior period
- The sharp decline in activity and pricing reversed prior-year profitability: Q3 and nine-month results moved from substantial operating and net income to losses.
- SG&A rose modestly in dollars but increased to 14.5% of Q3 revenue from 9.5%; cost of revenues rose to 76.8% of revenue from 68.4%, reflecting lower revenue, competitive pricing and labor inefficiencies.
- Year-to-date operating cash flow fell by $152.2M. Capital expenditures increased to $209.3M from $199.6M, while dividends paid fell to $32.2M from $64.6M.
- RPC adopted lease accounting in 2019, recognizing $35.6M of operating lease right-of-use assets and $41.2M of lease liabilities at September 30. Prior-year figures were not restated.
Outlook, risks and other notable items
- Management expected U.S. well-completion activity to decline in the near term and said customers anticipated reducing drilling and completion activity in Q4 2019. Lower oil prices, oversupply of completion services, increased competition, pricing pressure and lower equipment utilization were identified as headwinds.
- Management forecast approximately $260M of 2019 capital expenditures, primarily for revenue-producing equipment and maintenance; $209.3M had been spent through September.
- The board suspended the common dividend on July 22, 2019. RPC said resumption would depend on earnings, financial condition and other factors, with no timetable. Management believed liquidity was sufficient for at least the next twelve months.
- RPC cited potentially favorable factors including drilled-but-uncompleted wells and lower costs or improved availability for some materials and skilled labor. International revenues were expected to remain below 10% of consolidated revenue.
- Ongoing sales and use tax audits could produce unfavorable outcomes that the company said were not currently estimable. RPC did not expect ordinary-course litigation to materially affect its financial position or results. No material off-balance-sheet arrangements were reported.
- Principal risks include oil and gas prices and customer spending, competition and ability to raise prices, hydraulic-fracturing regulation, weather, geopolitical conditions, international operations and reliance on large customers.
Most important facts for investors to verify
- Whether activity, pricing and utilization stabilize, particularly in pressure pumping, and how these trends affect segment profitability.
- Whether planned capital spending is sustainable given weaker operating cash flow and current demand; monitor cash and revolver availability.
- Final cash costs and realized proceeds from asset retirements, location closures and assets held for sale; the $71.7M charge included estimates subject to change.
- Conditions and timing, if any, for reinstating dividends, and continued compliance with credit-facility covenants.
- Developments in sales and use tax audits and other contingencies for which the filing does not provide a clear estimate of potential exposure.