RPC, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. RPC provides oilfield services in the United States and selected international markets through Technical Services and Support Services. A group including Chairman R. Randall Rollins and director Gary W. Rollins controlled more than 50% of the company’s voting power.
Financial performance and liquidity
- Revenue: $243.8 million, down 27.2% from $334.7 million a year earlier. Technical Services revenue fell 27.5% to $227.7 million; Support Services fell 21.9% to $16.1 million.
- Profitability: Operating loss was $218.7 million versus $2.2 million in Q1 2019; net loss was $160.4 million versus $0.7 million. Diluted loss per share was $0.76. Results included $205.5 million of impairment and other charges, primarily noncash. Excluding those charges, operating loss was approximately $13.2 million.
- Costs and margins: Cost of revenues was $181.9 million, or 74.6% of revenue, versus 75.4%. SG&A was $36.5 million, or 15.0% of revenue, versus 13.6%; depreciation and amortization was $39.3 million, or 16.1% of revenue, versus 12.7%.
- Cash flow and investment: Operating cash flow was $54.8 million, down from $77.1 million. Capital expenditures were $25.0 million versus $62.3 million; investing cash outflow was $21.4 million. Cash increased $32.6 million to $82.6 million.
- Debt and liquidity: No revolver borrowings were outstanding; $105.2 million of the $125 million facility was available after letters of credit. RPC reported $118.2 million of current liabilities and said it was in covenant compliance and expected liquidity to cover at least the next 12 months. The facility maturity date is reported inconsistently: the credit agreement note says July 26, 2023, while MD&A says October 26, 2023.
- Other balance-sheet items: Total assets were $869.1 million, down from $1.05 billion at year-end 2019, primarily reflecting the impairment. Total liabilities were $197.9 million. The company recorded a $58.4 million income tax benefit.
Material changes and management outlook
- Management attributed weaker results to lower activity and pricing across most service lines, reduced customer drilling and completion activity, and lower oil and gas prices. Average U.S. rig count was 785 versus 1,043; average oil price was $47.23 per barrel versus $54.58, and average natural gas price was $1.92 per mcf versus $2.92.
- The COVID-19 pandemic and OPEC-Russia disputes triggered a review of long-lived assets. RPC recorded $204.8 million of long-lived asset impairments, entirely in Technical Services, mainly affecting pressure pumping and coiled tubing. Goodwill was not impaired. Management cautioned that further impairments, including goodwill impairment, could occur if conditions deteriorate.
- RPC reduced its workforce, adjusted compensation, lowered expenses, and cut planned capital spending. Management expected oilfield activity to decline at a historically high rate in the near term and cited oversupply, competition, and service-efficiency gains as pressure on pricing and equipment utilization.
- Outlook: 2020 capital expenditures were expected to be approximately $50 million, primarily for maintenance. The filing provides no specific revenue or earnings guidance. The common dividend remained suspended, with no timetable for resumption.
- The tax benefit included a $13.1 million benefit related to carrying back the 2019 net operating loss under the CARES Act, offset in part by a $35.9 million discrete provision related primarily to deferred tax items; management described the net discrete provision as $22.8 million.
- Risks include prolonged low oil prices, pandemic-related disruption, customer capital constraints and cancellations, competition and pricing pressure, and potential further asset impairments. Sales and use tax audits are ongoing; some possible unfavorable outcomes cannot currently be estimated. RPC said ordinary-course litigation was not expected to materially affect its financial position or results.
Key facts for investors to verify
- Whether industry activity and pricing worsen enough to require additional asset impairments or further cost reductions.
- Cash generation, receivables and customer credit quality as activity declines, and the assumptions supporting management’s 12-month liquidity assessment.
- The recoverability and timing of tax benefits, including the CARES Act carryback and deferred-tax estimates.
- The correct revolving-credit-facility maturity date and continued compliance with its covenants.
- Conditions and timing, if any, for reinstating the dividend; management gave no timetable.