RPC, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. RPC provides specialized oilfield services through Technical Services and Support Services, primarily in the United States.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $377.8 million | $476.7 million |
| Operating income | $32.3 million | $90.7 million |
| Net income | $27.5 million | $71.5 million |
| Diluted EPS | $0.13 | $0.33 |
| Cash from operations | $56.6 million | $132.5 million |
| Capital expenditures | $52.8 million | $65.3 million |
- Operating margin was approximately 8.6%, versus 19.0% in Q1 2023; net margin was approximately 7.3%, versus 15.0%.
- Cash and cash equivalents were $212.2 million at March 31, down from $223.3 million at year-end. Current assets were $713.3 million and current liabilities $150.0 million.
- RPC had no borrowings under its $100 million revolving credit facility and was in compliance with its covenants. The filing reports $16.6 million of letters of credit in the debt note, implying $83.4 million available; MD&A reports $16.4 million of letters of credit and $83.6 million available.
- Total liabilities were $263.9 million; the filing reports no outstanding revolving-credit borrowings. Interest expense was $0.2 million.
- Operating cash flow less capital expenditures was approximately $3.8 million, compared with $67.2 million in Q1 2023. Dividends paid were $8.6 million and cash spent repurchasing shares was $9.9 million.
Material changes versus prior year
- Revenue declined 20.7%, which management attributed mainly to lower industry activity and more competitive pricing, partly offset by Spinnaker acquisition revenue. The average U.S. rig count fell 18.0% to 623; average oil prices rose 2.0%, while natural gas prices fell 19.2%.
- Technical Services revenue fell 21.2% to $356.4 million and operating income fell to $32.0 million from $103.5 million. Support Services revenue fell 13.1% to $21.4 million and operating income fell to $3.6 million from $6.6 million.
- Cost of revenues fell 9.4%, less than the revenue decline, as some costs—including labor—were relatively fixed. Depreciation and amortization rose 24.4% to $30.0 million, reflecting recent capital investment and Spinnaker.
- Q1 2023 included a $17.4 million pension settlement charge; there was no comparable charge in Q1 2024. Despite that prior-year charge, operating income was substantially lower in Q1 2024.
- Operating cash flow declined primarily with net income; working capital used $3.9 million of cash in Q1 2024 versus providing $20.1 million in Q1 2023, including the use of cash as previously received customer prepayments were recognized as revenue.
Outlook, risks, and other notable items
- Management expects 2024 capital expenditures of $200 million to $250 million, primarily for maintenance and selected growth, including a Tier 4 dual-fuel fleet expected to enter service in Q2. Spending depends on maintenance needs, growth opportunities, and delivery schedules.
- RPC says it intends to remain disciplined about adding capacity and does not plan to add incremental pressure-pumping capacity given industry oversupply. Management expects sufficient liquidity for at least the next 12 months and does not expect to need the revolver.
- Management considers oil prices sufficient to support customer activity, but highlights oil and gas price volatility, customer spending, competition and excess service capacity, labor and supply costs, geopolitical conflict, weather, regulation, and cyber risks. International revenue was 2.6% of total and is expected to remain below 10% in the foreseeable future.
- Sales and use tax audits are ongoing. RPC says a material loss is remote, but some potential outcomes cannot currently be estimated. The company does not believe ordinary-course litigation will materially affect its financial position or results.
- The 2024 quarterly dividend of $0.04 per share was declared after quarter-end. RPC repurchased 1.01 million shares in the open market during the quarter; 12.77 million shares remained authorized for repurchase.
- Disclosure controls were deemed effective, and the company reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Reconcile the facility-availability discrepancy: $83.4 million in the debt note versus $83.6 million in MD&A.
- Track whether lower activity and pricing pressure persist, particularly in pressure pumping, and whether Spinnaker offsets weakness in other service lines.
- Compare realized 2024 capital expenditures with the $200 million–$250 million outlook and monitor the Tier 4 fleet’s delivery and deployment.
- Monitor operating cash flow and working-capital movements, especially as the prior-year customer prepayment is fully recognized.
- Review developments in sales and use tax audits, customer demand, and the company’s cash concentration at a single financial institution.