RPC, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. RPC provides oilfield services and related equipment to oil and gas customers. Comparisons are with Q1 2015 unless otherwise noted. Financial amounts below are in millions of dollars, except per-share data.
Financial performance
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $189.1 | $406.3 |
| Operating profit (loss) | $(75.1) | $6.4 |
| Net income (loss) | $(32.5) | $7.5 |
| Diluted EPS | $(0.15) | $0.04 |
| Cash from operating activities | $53.5 | $200.6 |
| Capital expenditures | $9.6 | $103.5 |
- Revenue fell 53.5%, reflecting lower customer activity and service pricing. Domestic revenue declined 55.4%; international revenue fell 15.0% to $16.3 million.
- Cost of revenue was 85.3% of revenue, versus 72.0%. Depreciation and amortization was 32.1% of revenue, versus 16.2%; SG&A was 23.0%, versus 10.4%. Lower utilization, pricing pressure, maintenance costs, and relatively fixed costs weighed on margins.
- Technical Services revenue decreased 53.6%, and Support Services revenue decreased 51.7%; both segments reported operating losses.
- Operating cash flow declined $147.1 million, primarily from a $95.1 million unfavorable working-capital change and lower earnings. Cash nevertheless increased $43.1 million during the quarter, to $108.3 million.
Financial position and liquidity
At March 31, 2016, total assets were $1,155.2 million and stockholders’ equity was $919.8 million. Current assets were $463.5 million and current liabilities were $81.9 million. RPC had no borrowings under its $125 million revolving credit facility, which matures in January 2019, and reported compliance with its financial covenants. A separate $35 million uncommitted letter-of-credit facility had $29.3 million outstanding for self-insurance programs and contract bids. Management said available cash and capitalization were expected to meet requirements for at least the next 12 months.
Changes, outlook, and risks
- The average U.S. rig count fell 61.3% year over year to 543. Management cited historically low activity and intense pricing competition; it expected the domestic rig count to decline further in Q2 2016 before potentially stabilizing later in the year. Near-term activity and results remained uncertain.
- Management expected approximately $50 million of 2016 capital expenditures, primarily for maintenance of existing equipment. It planned minimal fleet expansion and emphasized liquidity, cost controls, and a conservative capital structure.
- A $42.5 million income-tax benefit included a $15.7 million discrete benefit related to resolution of an open state-tax matter. The quarter also included a $2.0 million contingent professional fee associated with that matter. The discrete tax benefit increased reported earnings relative to the result absent that item.
- The common dividend had been suspended since Q2 2015. Management said resumption was expected to depend on earnings, financial condition, and other relevant factors. No open-market repurchases occurred in Q1; 294,166 shares were acquired in January in connection with taxes on vested restricted stock.
- Risks cited include continued low oil and gas prices and drilling activity, service-price pressure, customer financial health, competition, regulatory changes affecting hydraulic fracturing, international operations, weather, and sales/use-tax audits. The filing said some potential audit outcomes could not currently be estimated; ordinary-course litigation was not expected to have a material adverse effect.
Key facts for investors to verify
- Whether customer activity and pricing stabilize, and whether RPC can restore segment profitability under prevailing commodity and rig-count conditions.
- Whether operating cash flow and working capital remain adequate as receivables and customer activity change.
- How much of the reported tax benefit is nonrecurring and whether any tax-audit exposures become estimable or result in unfavorable outcomes.
- Whether planned capital expenditures, the undrawn credit facility, and covenant compliance support liquidity through the downturn.
- Any conditions or timing for resuming dividends, which remain subject to the company’s financial condition and other factors.