RPC, Inc. (NYSE: RES) — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. RPC provides specialized oilfield services, principally in the United States, through Technical Services and Support Services. Unaudited interim financial statements.
Financial performance
Amounts below are in USD millions except per-share data. Comparisons are with the corresponding 2021 period.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $459.6 | $225.3 | $1,119.7 | $596.7 |
| Operating income (loss) | $92.2 | $8.0 | $175.6 | $(3.8) |
| Net income (loss) | $69.3 | $5.3 | $131.4 | $(5.1) |
| Diluted EPS | $0.32 | $0.02 | $0.61 | $(0.02) |
| Operating margin | 20.1% | 3.5% | 15.7% | (0.6)% |
- Q3 revenue more than doubled year over year, up 104%; nine-month revenue increased 87.7%. Management attributed growth to higher customer activity, improved service pricing, and a larger active pressure-pumping fleet.
- Technical Services generated Q3 revenue of $435.8 million and operating income of $89.5 million; Support Services generated $23.8 million and $5.3 million, respectively. Both segments improved from the prior-year quarter.
- Cost of revenue was 67.4% of revenue in Q3 versus 75.7% a year earlier; SG&A was 8.3% versus 14.0%. The company cited improved pricing and operating leverage, while noting higher labor, materials, maintenance, and fuel costs.
- Nine-month operating cash flow was $40.9 million, versus $26.4 million. Accounts receivable growth used $211.4 million of cash, reflecting higher activity; capital expenditures were $90.2 million. Investing cash outflow was $78.7 million and financing cash outflow was $8.8 million.
Financial position and liquidity
- At September 30, cash was $35.9 million, down from $82.4 million at year-end 2021. Current assets were $655.1 million and current liabilities $198.2 million (current ratio approximately 3.3).
- Total assets were $1,055.6 million and stockholders’ equity $773.4 million. Accounts receivable rose to $470.0 million from $258.6 million; unbilled receivables were $140.9 million.
- No borrowings were outstanding under the $100 million revolving credit facility; $83.7 million remained available after $16.3 million of letters of credit. The facility matures in June 2027, and RPC reported covenant compliance. The filing reports no finance lease liabilities on the September 30 balance sheet.
- Dividends of $0.02 per share were paid in Q3. A further $0.02 quarterly dividend was declared after quarter-end, payable December 9, 2022.
Outlook, risks, and notable items
- Management expected 2022 capital expenditures of approximately $150 million, primarily for maintenance and selected growth. It also expected approximately $24.3 million in 2022 finance-lease payments, including an approximately $20 million final payment in Q4.
- Management described near-term demand as improving, citing higher oil and gas prices, increased rig and completion activity, and improved competitive conditions. It plans to prioritize maintaining and upgrading existing capacity, with a refurbished pressure-pumping fleet expected in early 2023 and an ordered fleet expected in the first half of 2023. These are expectations, not guaranteed results.
- Management said cash and capitalization should meet liquidity needs for at least 12 months and did not expect to use the revolving facility for that purpose. Risks include commodity-price declines, geopolitical events, weather, competition, cost inflation and supply constraints, customer concentration, regulation, and international operations.
- The defined-benefit pension plan termination was expected in early 2023. RPC anticipated an $8–9 million final cash contribution and a pre-tax, noncash settlement charge; the unamortized plan loss was approximately $22.7 million at September 30, 2022 and could change.
- Sales-and-use-tax audits are ongoing. RPC said a material loss on a reported state tax assessment was remote; other potential outcomes could not be estimated. Ordinary-course litigation was not expected to have a material adverse effect.
- SERP investment and liability fair values generated nine-month losses of approximately $5.2 million and $4.9 million, respectively, recorded through SG&A. RPC also reported higher raw-material and labor costs, and said it could not assure that service-price increases would continue to offset them.
Most important facts to verify
- Whether elevated revenue and margins persist as customer activity, commodity prices, and service pricing change.
- Receivables collection and working-capital requirements, given the substantial increase in accounts receivable and unbilled balances.
- Actual 2022 capital spending and lease payments, plus delivery, refurbishment, and expected returns of the pressure-pumping fleets.
- The ultimate pension-plan termination timing, cash contribution, and settlement charge.
- Developments in tax audits, inflation and equipment supply constraints, and the company’s ability to maintain pricing and liquidity.