RPC, Inc. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing also reports fourth-quarter results; it is an annual report, not a standalone quarterly filing. Amounts are in U.S. dollars.
Business context
RPC provides oilfield services and equipment, primarily in the United States, through Technical Services (including pressure pumping, downhole tools and coiled tubing) and Support Services (including rental tools, pipe inspection and training). In 2019, approximately 82% of revenue related to oil activity and 18% to natural gas; international revenue was about 5%.
Key financial metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $1.222 billion | $1.721 billion |
| Operating profit (loss) | ($114.3 million) | $210.0 million |
| Operating margin | (9.3%) | 12.2% |
| Net income (loss) | ($87.1 million) | $175.4 million |
| Diluted earnings (loss) per share | ($0.41) | $0.82 |
| Cash from operating activities | $209.1 million | $389.0 million |
| Capital expenditures | $250.6 million | $242.6 million |
| Cash and cash equivalents at year-end | $50.0 million | $116.3 million |
| Working capital at year-end | $335.5 million | $475.7 million |
| Long-term debt | None | None |
Cost of revenues was 75.2% of revenue, versus 68.7% in 2018; SG&A was 13.8%, versus 9.8%. The company recorded $82.3 million of impairment and other charges. Its $125 million revolving facility had no borrowings at year-end.
Fourth-quarter 2019 revenue was $236.0 million, compared with $376.8 million in fourth-quarter 2018. RPC reported an operating loss of $27.9 million and net loss of $23.4 million for the quarter, versus operating profit of $19.7 million and net income of $13.4 million a year earlier.
Material changes versus 2018
- Full-year revenue fell 29.0%, primarily due to lower activity and pricing in Technical Services. Technical Services revenue declined 30.5% to $1.146 billion and the segment moved from $216.7 million operating profit to a $33.0 million operating loss.
- Support Services revenue rose 4.2% to $76.9 million, and segment operating income increased to $10.0 million from $4.6 million.
- Operating cash flow decreased by $179.9 million. Cash declined by $66.2 million over the year, while capital expenditures remained high.
- The company suspended its common-stock dividend in July 2019. Dividends paid per share for the full year were $0.15, compared with $0.47 in 2018.
- RPC recognized $82.3 million of impairment and other charges, including asset abandonment, write-downs of property held for sale, retirement of older equipment, inventory write-downs and severance costs.
Outlook, commentary and risks
- Management expected U.S. well-completion activity, revenue and earnings to decline in the near term, citing customer budget restraint, lower commodity prices, competitive pressure and excess pressure-pumping capacity. It noted that service intensity and demand for modern equipment could support activity, but viewed pricing and utilization prospects as adverse.
- RPC estimated 2020 capital expenditures of approximately $80 million, with most directed to maintenance. Management said it expected no defined-benefit pension contributions in 2020 and anticipated resuming dividends only when earnings, financial condition and other factors permitted; no timetable was provided.
- Management identified commodity-price volatility, customer access to financing, competitive pricing, hydraulic-fracturing regulation, labor and supplier availability, severe weather, operational accidents and environmental liabilities, international political risks, and cybersecurity threats as material risks.
- Routine legal proceedings include commercial, workers’ compensation and personal-injury claims. Management did not expect their outcomes, even if adverse, to materially affect the company’s business or financial condition. The company reported effective internal controls, and the independent auditor gave unqualified opinions on the financial statements and internal control.
- RPC adopted the new lease standard in 2019, recording right-of-use assets and lease liabilities; management said adoption did not materially affect operations or cash flows.
Important facts for investors to verify
- Reconcile the revolving-credit availability disclosure: MD&A reports $19.5 million of letters of credit and $105.5 million available, while Note 8 reports $21.6 million and $103.4 million available.
- Track whether the expected near-term declines in completion activity, service pricing and equipment utilization materialized, particularly in pressure pumping and Technical Services.
- Assess cash generation against maintenance needs and the 2020 capital-expenditure estimate, and monitor liquidity after the dividend suspension.
- Review the assumptions underlying the $82.3 million impairment and restructuring-related charges, potential further asset impairments, and the recovery value and timing of assets held for sale.
- Monitor progress toward any dividend resumption and any changes in credit-facility capacity, covenants or letter-of-credit usage.