RPC, Inc. — Q1 2019 Form 10-Q
Business context and period: RPC provides oilfield services in the U.S. and selected international markets, principally through Technical Services and Support Services. This unaudited filing covers the three months ended March 31, 2019; comparisons are with Q1 2018 unless noted. Dollar figures are in millions unless stated otherwise.
Financial results
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $334.7 | $436.3 |
| Operating income (loss) | $(2.2) | $60.8 |
| Net income (loss) | $(0.7) | $52.1 |
| Diluted EPS | $0.00 | $0.24 |
| Cash from operations | $77.1 | $109.7 |
| Capital expenditures | $62.3 | $50.5 |
- Gross margin was approximately 24.6%, down from 32.3%; operating margin was approximately negative 0.6%, versus 13.9%.
- Cost of revenues was $252.4 million, or 75.4% of revenue, versus $295.6 million, or 67.7%. SG&A rose to $45.4 million from $43.8 million; depreciation and amortization increased to $42.5 million from $37.5 million.
- Technical Services revenue fell 25.1% to $314.1 million; segment operating loss was $4.5 million, compared with $65.0 million of operating income. Support Services revenue rose 19.1% to $20.6 million, with operating income of $3.1 million versus a $0.9 million loss.
- Cash and cash equivalents were $113.0 million at quarter-end. Current assets were $577.9 million and current liabilities $163.5 million.
- No revolving-credit borrowings were outstanding. Of the $125 million facility, $105.5 million was available after $19.5 million of letters of credit. The facility matures in July 2023; RPC reported covenant compliance.
- Operating lease liabilities totaled $46.9 million following adoption of the new lease standard. No other debt balance is identified in the provided filing text.
Changes, outlook and risks
- Revenue declined 23.3%, primarily from lower pricing and activity in pressure pumping, RPC’s largest service line. Domestic revenue fell 24.8%; international revenue increased 9.2% to $20.7 million. The average U.S. rig count was up 8.0%, but management said rig count alone is less indicative than well-completion activity.
- Management cited increased competition and more efficient completion crews contributing to oversupply, weaker pricing and utilization, with pressure on near-term results. It expected U.S. well-completion activity to remain at current levels or decline near term. Higher oil prices in Q1 were described as moderately positive for near-term activity; management noted natural-gas prices remained insufficient to spur more gas-directed activity.
- Management expected approximately $280 million of 2019 capital expenditures, mainly for revenue-producing equipment and maintenance. It said existing cash and capitalization should cover requirements for at least 12 months.
- Q1 operating cash flow fell $32.5 million year over year, primarily because of lower earnings, partly offset by favorable working-capital changes. Investing cash use was $56.2 million; financing cash use was $24.2 million. Cash declined $3.2 million during the quarter.
- The Q1 dividend was $0.10 per share. On April 23, 2019, the board declared a $0.05 quarterly dividend, payable June 10; management said the reduction would strengthen the capital structure amid market uncertainty. The company also had 8.8 million shares remaining under its repurchase authorization.
- Other income fell to $0.4 million from $5.4 million; Q1 2018 included $5.2 million of property-insurance proceeds. The 2018 effective tax rate also benefited from a $7.5 million discrete tax benefit; Q1 2019’s effective tax rate was 26.5%.
- Risks include oil and gas price and activity swings, competitive pricing, customer capital spending, weather, geopolitical conditions, regulation, international operations and reliance on large customers. Sales and use tax audits are ongoing; some potential unfavorable outcomes cannot currently be estimated. RPC said ordinary-course litigation was not expected to materially harm its financial position or results.
- RPC adopted lease accounting in Q1, recording right-of-use assets and lease liabilities; management reported no material effect on earnings or cash flows. It also reclassified approximately $2.7 million of stranded pension tax effects from accumulated other comprehensive loss to retained earnings.
Investor facts to verify
- Whether pressure-pumping pricing, utilization and completion activity stabilize or weaken further, and how that affects segment profitability.
- Progress against the approximately $280 million capital-spending plan and the returns from new equipment.
- Cash generation, available credit and covenant compliance as market conditions evolve.
- The sustainability of the reduced $0.05 quarterly dividend and any future share repurchases.
- Developments in tax audits and other contingencies, and the impact of market risks described in the filing.