RPC, Inc. — 2022 Form 10-K Summary
Business context and reporting period
RPC provides oilfield services and equipment to oil and gas producers, primarily in the United States. Its Technical Services segment performs well-site services, including pressure pumping, downhole tools and coiled tubing; Support Services includes equipment rentals, pipe services and training. This filing covers the fiscal year ended December 31, 2022; it reports full-year results, not standalone fourth-quarter financial statements.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $1.602 billion | $864.9 million |
| Operating income | $287.9 million | $16.3 million |
| Net income | $218.4 million | $7.2 million |
| Diluted EPS | $1.01 | $0.03 |
| Cash from operations | $201.3 million | $47.7 million |
| Capital expenditures | $139.6 million | $67.6 million |
| Cash and cash equivalents at year-end | $126.4 million | $82.4 million |
Cost of revenues fell to 67.9% of revenue from 76.7%, implying gross margins of approximately 32.1% and 23.3%, respectively. SG&A declined to 9.3% of revenue from 14.3%. Operating margin was approximately 18.0%, versus 1.9%. The effective tax rate was 24.6%, compared with 56.1%.
Technical Services revenue was $1.516 billion and segment operating income was $281.6 million. Support Services revenue was $85.4 million and segment operating income was $18.1 million. Pressure pumping represented 53% of total revenue.
RPC had no revolver borrowings at year-end; $82.5 million of its $100 million facility was available after $17.5 million of outstanding letters of credit. Total liabilities were $271.3 million and stockholders’ equity was $857.7 million. The company reported current assets of $703.3 million and current liabilities of $178.6 million. Cash from operations less capital expenditures was approximately $61.7 million, a simple derived measure rather than a company-reported free-cash-flow metric.
Material changes versus the prior year
- Revenue increased 85.2%, attributed to higher customer activity, improved pricing and a larger active pressure-pumping fleet. The average U.S. rig count rose 51.3%.
- Operating income rose substantially as revenue growth and improved pricing outweighed higher materials, fuel, maintenance and labor costs.
- Operating cash flow increased by $153.6 million, while accounts receivable increased and absorbed $157.9 million of cash, reflecting higher activity.
- Capital expenditures more than doubled. Cash dividends resumed in the third quarter; 2022 dividends totaled $0.04 per share.
- RPC recorded a $2.9 million non-cash pension settlement charge. It reported no goodwill impairment in 2022; the prior-year comparison was also free of impairment charges, while 2020 included substantial impairments.
Outlook, risks and unusual items
- Management expected 2023 capital expenditures of $250 million to $300 million, for maintenance and selected growth, including pressure-pumping fleet capacity. It expected near-term activity to remain consistent with the late-2022 rig-count level and demand to continue improving, while describing these expectations as subject to market conditions.
- Management expected international revenue to remain below 10% of total revenue in 2023. Natural-gas price declines early in 2023 were viewed as a near-term risk to gas-directed activity; management cited export demand and infrastructure as potential longer-term supports.
- Management expected a first-quarter 2023 pre-tax, non-cash pension settlement charge based on approximately $22.5 million of unamortized plan losses at year-end. It also anticipated a final cash contribution of approximately $6 million to $10 million as the defined benefit plan was terminated and annuities purchased.
- Principal risks include oil and gas price volatility and customer capital spending; intense competition and service-price pressure; labor availability and wage inflation; supply constraints and input costs; weather, safety and environmental exposure; customer concentration; and geopolitical, regulatory, cybersecurity and pandemic risks. One private E&P customer represented approximately 11% of 2022 revenue.
- RPC reported routine litigation and ongoing sales and use tax audits; management did not expect the legal proceedings to materially affect the company. Some audit exposures could not be reasonably estimated. The company reported no material off-balance-sheet arrangements.
- The company’s financial statements received an unqualified audit opinion, the auditor reported no critical audit matters, and management and the auditor concluded internal control over financial reporting was effective as of year-end.
Important facts for investors to verify
- Whether revenue growth, pricing and segment profitability continued after the 2022 recovery, and whether the expected activity outlook materialized.
- Cash conversion and receivables collection as activity expanded; accounts receivable rose to $416.6 million from $258.6 million.
- Actual 2023 capital spending, returns on pressure-pumping fleet investments, and the effect of equipment maintenance and input-cost inflation on margins.
- The final pension settlement charge and cash contribution, and completion of the plan termination.
- Exposure to the customer representing 11% of revenue and the company’s dependence on the cyclical oilfield industry.
- Dividend sustainability and capital allocation: management said dividends were expected to continue, subject to earnings, financial condition and industry conditions.