RPC, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter filing; unaudited quarterly results are also included. RPC provides oilfield services and equipment, primarily in the United States, through Technical Services and Support Services.
Financial performance
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $1.595 billion | $728.974 million |
| Operating profit (loss) | $226.217 million | $(238.942) million |
| Operating margin | 14.2% | (32.8)% |
| Net income (loss) | $162.511 million | $(141.246) million |
| Diluted earnings (loss) per share | $0.75 | $(0.66) |
| Operating cash flow | $133.704 million | $101.704 million |
| Capital expenditures | $117.509 million | $33.938 million |
| Cash and cash equivalents at year-end | $91.050 million | $131.835 million |
| Working capital at year-end | $494.775 million | $377.589 million |
| Long-term debt at year-end | None | None |
Cost of revenues was 66% of revenue, versus 83% in 2016. SG&A was 10% of revenue, versus 21%. The filing reports no outstanding credit-facility borrowings; $105.4 million of the $125 million facility was available after letters of credit. Total assets were $1.147 billion and stockholders’ equity was $911.697 million at year-end.
Changes versus the prior year
- Revenue rose 118.8%, driven by higher activity, improved service pricing and intensity, and reactivation of previously idle equipment. Technical Services revenue increased 126.3%; Support Services revenue increased 15.3%.
- Pressure pumping, the largest service line, generated $993.5 million, about 62% of revenue, up from $336.6 million in 2016. Technical Services returned to operating profit; Support Services’ operating loss narrowed.
- Average U.S. rig count rose 72.2% year over year, while U.S. well completions increased 39.9%. International revenue increased 9.1% to $55.8 million, but declined to about 3% of consolidated revenue from 7%.
- Operating cash flow improved, but growth consumed working capital: accounts receivable rose to $377.9 million from $169.2 million. Cash declined by $40.8 million during 2017.
Outlook, risks and unusual items
- Management anticipated moderately improving U.S. oilfield activity in 2018, with oil-directed drilling remaining dominant and natural-gas-directed drilling subdued. It described commodity prices as moderately positive for near-term activity, while cautioning that U.S. production growth could constrain oil prices.
- Management expected approximately $260 million of 2018 capital expenditures, mainly for revenue-producing equipment and maintenance, and planned moderate fleet expansion. It cited drilled-but-uncompleted wells as potential near-term completion-service demand.
- The company expected the Tax Cuts and Jobs Act to support 2018 earnings and operating cash flow. FY2017 results included a $19.3 million discrete tax benefit from deferred-tax remeasurement; the filing states that parts of the tax-reform accounting remained provisional, with completion expected alongside the 2017 tax return. Adoption of share-based payment guidance also contributed a separate approximately $2.8 million tax benefit.
- Other favorable 2017 items included a $2.0 million sales-tax settlement and a $1.9 million property-insurance recovery. Net gains on asset dispositions were $4.5 million.
- Principal risks include volatile oil and gas prices and customer spending, stronger competition and pricing pressure, skilled-labor and equipment/material supply constraints, weather, safety and environmental exposure, regulation of hydraulic fracturing, international political and currency risks, and uncertain insurance or litigation costs. Management said routine legal proceedings were not expected to have a material adverse effect.
- RPC declared a 43% increase in its regular quarterly dividend, from $0.07 to $0.10 per share, in January 2018, and expanded its share-repurchase authorization by 10 million shares in February. Dividend continuation remains subject to business and financial conditions.
- The company reported effective internal control over financial reporting; Grant Thornton issued unqualified opinions on the financial statements and internal controls.
Most important facts to verify
- Whether activity, pricing and utilization gains persisted, and whether the planned $260 million of 2018 capital spending generated adequate returns.
- Whether receivables and working-capital needs converted into cash as activity expanded; operating cash flow was materially below net income in 2017.
- The final tax-reform accounting and the extent to which the 2017 tax benefit and projected 2018 tax effects are recurring.
- Whether competitive capacity, labor and input-cost inflation, or commodity-price changes eroded service pricing and margins.
- Dividend and repurchase capacity relative to cash generation, liquidity, and the January 2019 maturity of the revolving credit facility.
- Governance and trading considerations: insiders, directors and affiliates held about 73% of shares, and the company used the NYSE controlled-company exemption.