Business Context and Reporting Period
Company: RPC, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2010
Business Overview: RPC provides specialized oilfield services and equipment to independent and major oil and gas companies. Operations are divided into two segments: Technical Services (completion, production, and maintenance services) and Support Services (equipment rental and pipe handling). The company operates primarily in the U.S. (Gulf of Mexico, mid-continent, etc.) and selected international locations.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2010 |
Six Months Ended June 30, 2010 |
|---|---|---|
| Revenues | $252,896 | $466,040 |
| Cost of Revenues | $139,478 | $269,092 |
| Gross Margin % | 44.8% | 42.3% |
| Operating Profit | $52,089 | $74,657 |
| Net Income | $31,602 | $45,002 |
| Diluted EPS | $0.32 | $0.46 |
| Cash from Operations | N/A (Quarterly) | $47,804 |
| Cash and Equivalents | $3,683 | $3,683 |
| Notes Payable to Banks | $100,850 | $100,850 |
| Total Assets | $710,175 | $710,175 |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 99.1% for the quarter and 53.7% for the six months compared to the same periods in 2009. This was driven by higher activity levels, expanded customer relationships, and improved pricing, particularly in the Technical Services segment.
- Profitability Turnaround: The company returned to profitability. Operating profit improved from a loss of $19.5 million in Q2 2009 to a profit of $52.1 million in Q2 2010. Net income swung from a loss of $11.6 million to a profit of $31.6 million for the quarter.
- Margin Expansion: Cost of revenues as a percentage of revenue decreased significantly (from 71.7% to 55.2% in Q2) due to improved pricing, service intensity in pressure pumping, and cost leverage over higher volumes.
- Working Capital: Accounts receivable increased substantially from $130.6 million (Dec 31, 2009) to $218.3 million (June 30, 2010), reflecting the surge in revenue and business activity.
- Capital Expenditures: Capital spending for the first six months of 2010 was $56.8 million, an increase from $43.2 million in the prior year period, to support fleet expansion.
Guidance, Outlook, and Risks
- Outlook: Management expects consolidated revenues and financial performance to improve throughout 2010. The U.S. domestic rig count has increased significantly since the 2009 trough, and unconventional drilling activity (which utilizes RPC's services heavily) now accounts for 69% of total U.S. domestic drilling.
- Capital Plan: Full-year 2010 capital expenditures are expected to be approximately $210 million. The company plans to refinance and expand its credit facility by the end of the third quarter of 2010.
- Dividends: A quarterly dividend of $0.06 per share was declared on July 27, 2010, payable September 10, 2010.
- Risks and Contingencies:
- Commodity Prices: Results are highly correlated with oil and natural gas prices. Management notes concern regarding near-term weakness in natural gas prices.
- Gulf of Mexico: While the April 2010 disaster did not materially impact Q2 results due to minimal deepwater exposure, the company is monitoring regulatory changes that could affect operations.
- Liquidity: The company maintains a $200 million revolving credit facility with $100.9 million outstanding as of June 30, 2010. $17.6 million of the facility is committed to letters of credit.
Investor Verification Checklist
- Revenue Quality: Verify the sustainability of the 99% revenue growth and the collectability of the $218 million accounts receivable balance.
- Capital Expenditure Execution: Monitor the execution of the remaining $153 million in planned capital expenditures for 2010 and the associated return on investment.
- Debt Refinancing: Confirm the successful refinancing and expansion of the credit facility expected by Q3 2010.
- Commodity Exposure: Assess the impact of fluctuating natural gas prices on drilling activity and RPC's service demand.
- Regulatory Environment: Track new regulations stemming from the Gulf of Mexico incident that may impact operational costs or access to markets.