RPC, Inc. — Q2 2021 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2021. Financial statements are unaudited. RPC provides oilfield services through Technical Services and Support Services, primarily in the United States.
Financial performance and condition
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $188.8 million | $89.3 million | $371.4 million | $333.1 million |
| Operating loss | $1.2 million | $37.5 million | $11.7 million | $256.2 million |
| Net loss | $0.7 million | $25.1 million | $10.4 million | $185.5 million |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $54.9 million | $122.1 million |
| Capital expenditures | Not provided by quarter | Not provided by quarter | $25.9 million | $38.7 million |
- Q2 revenue increased 111.4% year over year; first-half revenue increased 11.5%. Q2 growth reflected higher activity across major service lines, against a prior-year quarter sharply affected by COVID-19 shutdowns.
- Q2 cost of revenues was 77.2% of revenue, down from 89.6%; selling, general and administrative expense was 15.6% of revenue, down from 32.2%. For the first half, cost of revenues was essentially unchanged as a share of revenue at 78.6% versus 78.7%, while SG&A declined to 16.2% from 19.6%.
- Technical Services generated Q2 revenue of $176.1 million and operating income of $1.4 million, compared with an operating loss of $34.1 million a year earlier. Support Services revenue was $12.6 million; its operating loss widened to $2.4 million from $1.8 million.
- Cash and cash equivalents were $121.0 million at June 30, 2021, up from $84.5 million at year-end 2020. Current assets were $446.2 million and current liabilities $96.2 million. Total assets were $790.2 million and stockholders’ equity $624.1 million.
- RPC had no borrowings under its $100 million revolving credit facility; $17.9 million of letters of credit left $82.1 million available. The facility matures in July 2023, and the company reported compliance with its covenants. The filing does not report outstanding bank debt.
- Operating cash flow fell to $54.9 million from $122.1 million in the first half of 2020, primarily because the favorable working-capital change was smaller. Investing activities used $17.8 million; financing activities used $0.6 million.
Material changes and unusual items
- The first half of 2020 included $207.2 million of impairment and other charges, primarily long-lived asset impairments and severance. No such charges were recorded in the first half of 2021. This significantly affects year-over-year operating and net loss comparisons.
- First-half 2021 revenue gains were concentrated in Technical Services, up 13.1%; Support Services revenue declined 9.0%. International revenue fell 25.1% for the half, though it rose 6.0% in Q2.
- Higher Q2 activity increased cost of revenues and fuel costs; management said improved cost leverage and labor efficiencies reduced cost of revenues as a percentage of revenue. First-half SG&A decreased, principally reflecting prior cost-reduction initiatives.
- Cash generation included a $27.1 million favorable change in key working-capital components, mainly related to a federal tax refund. The first-half tax benefit was $0.7 million versus $72.3 million in 2020; the effective rates were affected by discrete items, including restricted-stock vesting and the employee retention credit.
Outlook, risks, and contingencies
- Management expected 2021 capital expenditures of approximately $65 million, primarily for maintenance, equipment upgrades, and selected pressure-pumping upgrades for dual-fuel capability. Spending may vary with maintenance needs, expansion opportunities, and delivery schedules.
- Management said improving oil, natural-gas, and natural-gas-liquids prices had encouraged customer activity, but emphasized uncertainty around commodity prices, customer spending, activity levels, service pricing, and industry competition. It planned to add or activate equipment selectively based on expected returns and described a persistently efficiency-driven, potentially oversupplied services market.
- Management believed cash and capitalization would be sufficient for at least the next 12 months and did not expect to need the credit facility for liquidity. The common-stock dividend remained suspended, with no timetable for resumption.
- Risks cited include COVID-19 and other economic disruption, oil and gas price declines, OPEC actions, geopolitical events, weather, competition, inability to pass through cost increases, potential hydraulic-fracturing regulation, international operations, and reliance on large customers. Management noted rising labor and raw-material costs and supply-chain disruptions, with no assurance cost increases can be passed to customers.
- The company was evaluating state sales-and-use-tax audit results received July 12, 2021. It considered a material loss remote, had recorded no loss, and said the amount could not be reasonably estimated. Ordinary-course litigation was not believed likely to materially affect financial position or results.
- RPC made no defined-benefit pension contribution in the first half and did not expect further contributions in 2021. Disclosure controls were reported effective; management identified no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether higher customer activity and pricing can continue, and whether the substantial Q2 year-over-year growth is sustainable beyond the COVID-affected comparison period.
- Whether operating performance improves enough to offset cost inflation, competitive pricing pressure, and weaker Support Services results.
- Progress toward the $65 million 2021 capital-spending plan and returns on planned equipment upgrades.
- Cash-flow quality, including the timing and recurrence of tax refunds and working-capital movements.
- Developments in the sales-and-use-tax audit and the company’s ability to maintain liquidity and credit-covenant compliance.
- Any change to the suspended dividend, repurchase activity, or the company’s stated approach to selective fleet investment.