RPC, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. RPC provides specialized oilfield services, primarily in the United States. This unaudited report covers the quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods unless noted. Its reportable segments are Technical Services and Support Services.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $415.9 million, up 10.7% | $892.5 million, up 35.2% |
| Operating income | $82.4 million, versus $60.4 million | $173.0 million, versus $83.5 million |
| Net income | $65.0 million, versus $46.9 million | $136.5 million, versus $62.0 million |
| Diluted EPS | $0.30, versus $0.22 | $0.63, versus $0.29 |
| Cost of revenue as % of revenue | 63.9%, versus 69.5% | 64.0%, versus 71.2% |
Management attributed revenue growth principally to improved service pricing, higher customer activity and a larger active pressure-pumping fleet. Technical Services revenue was $390.0 million in Q2; Support Services revenue was $25.8 million. Q2 segment operating income was $77.0 million and $7.9 million, respectively.
Cash flow and investment. Six-month operating cash flow was $177.6 million, compared with $42.9 million. Investing cash outflow was $174.8 million, including $104.5 million of capital expenditures and a $79.0 million advance toward the Spinnaker acquisition. Financing cash outflow was $28.7 million, including $17.3 million of dividends and $11.4 million of share repurchases. Cash declined to $100.5 million from $126.4 million at year-end.
Debt and liquidity. RPC had no revolver borrowings at June 30, 2023. Of its $100 million revolving facility, $83.6 million was available after $16.4 million of outstanding letters of credit. The facility matures in June 2027; RPC reported covenant compliance and said existing cash and capitalization should meet liquidity needs for at least 12 months. Total liabilities were $240.8 million, including operating lease and retirement-plan liabilities; the filing reports no outstanding bank debt.
Material changes and unusual items
- Six-month results included an $18.3 million pension settlement charge, with $0.9 million recorded in Q2. The charge was associated with termination of the Retirement Income Plan. RPC contributed $5.4 million to the plan during the first half and expected minimal further contributions in 2023.
- Q2 SG&A increased to $43.6 million from $35.9 million, partly due to a vendor dispute settlement and Spinnaker-related costs. Six-month SG&A was $85.8 million versus $72.1 million.
- Effective July 1, 2023, RPC acquired Spinnaker Oilwell Services for a stated purchase price of $79.5 million. Spinnaker operates 18 cementing spreads in the Permian and Mid-Continent basins and will join Technical Services. Purchase-price working-capital adjustments remained subject to finalization.
- On July 25, the board declared a $0.04-per-share quarterly dividend, payable September 11, 2023.
Outlook, commentary and risks
RPC expected 2023 capital expenditures of $200 million to $250 million, primarily for maintenance, upgrades and selected growth opportunities. Management said it would be disciplined about adding equipment capacity and expected demand to improve over the next several quarters, while noting a temporary moderation in customer activity. The company expects international revenue to remain below 10% of consolidated revenue in the foreseeable future.
Management cited oil and gas prices, customer capital spending, drilling and completion activity, competition, weather and geopolitical developments as important business drivers. It also highlighted inflationary pressure on labor, materials and equipment, skilled-worker availability, supplier constraints, environmental and regulatory requirements, cyber risks, and the concentration of cash at one financial institution. These expectations are forward-looking and subject to the risks described in the filing. RPC said it had no material off-balance-sheet arrangements and did not expect ordinary-course litigation to have a material adverse effect. A sales-and-use-tax assessment was considered remotely likely to cause a material loss; the potential amount could not be reasonably estimated.
Important facts for investors to verify
- Whether pricing, fleet utilization and customer activity sustain revenue growth and improved cost-of-revenue ratios.
- How the $200–$250 million capital-spending plan and Spinnaker acquisition affect cash, returns and future results.
- The effect of the one-time pension settlement charge, and whether remaining pension contributions are minimal as expected.
- Cash generation and working-capital trends, including the impact of receivable collections and payment timing.
- Developments in oil and gas prices, competitive conditions, labor and input costs, and the unresolved tax audits.