RPC, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. RPC provides oilfield services, primarily in the United States, through Technical Services and Support Services. This unaudited quarterly report covers the three and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Amounts below are in millions except per-share data.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $375.5 | $188.8 | $660.1 | $371.4 |
| Operating income (loss) | $60.4 | ($1.2) | $83.5 | ($11.7) |
| Net income (loss) | $46.9 | ($0.7) | $62.0 | ($10.4) |
| Diluted EPS | $0.22 | $0.00 | $0.29 | ($0.05) |
- Q2 operating margin was approximately 16.1%, compared with a loss margin of approximately 0.6% in Q2 2021. Q2 net margin was approximately 12.5%.
- First-half operating cash flow was $42.9 million, down from $54.9 million. The $98.7 million increase in accounts receivable was a principal working-capital use of cash, partly offset by other working-capital changes.
- First-half capital expenditures were $50.6 million, versus $25.9 million a year earlier. Investing cash outflow was $43.4 million; financing cash outflow was $3.6 million. Cash declined $4.2 million from year-end to $78.2 million.
- At June 30, current assets were $583.2 million and current liabilities were $173.2 million. RPC reported no revolver borrowings; $16.3 million of letters of credit left $83.7 million available on its $100 million facility. It was in covenant compliance. The facility was extended to June 2027.
- The balance sheet reports $21.3 million of current finance lease liabilities and $17.8 million of long-term operating lease liabilities. Total liabilities were $258.4 million and stockholders’ equity was $706.7 million.
Material changes versus the prior comparable period
- Q2 revenue rose 98.9%; first-half revenue rose 77.8%. Management attributed growth to higher customer activity, improved service pricing, and a larger active pressure-pumping fleet.
- Technical Services drove most of the increase: Q2 revenue was $356.1 million, up from $176.1 million, and segment operating income was $59.8 million versus $1.4 million. Support Services revenue was $19.4 million versus $12.6 million, with operating income of $3.3 million versus a $2.4 million loss.
- Cost of revenue rose in dollars with activity and higher materials, repair, labor, and fuel costs, but fell to 69.5% of Q2 revenue from 77.2%. SG&A rose to $35.9 million from $29.4 million but declined to 9.6% of revenue from 15.6%, reflecting operating leverage.
- U.S. domestic rig count averaged 719 in Q2 versus 453 a year earlier. International revenue declined 7.5% in Q2 and 29.3% for the first half; management expects it to remain below 10% of consolidated revenue.
Outlook, commentary, and risks
- Management expects 2022 capital expenditures of approximately $150 million, mainly for equipment maintenance and selected growth opportunities. It also expects $24 million of 2022 finance lease payments, including a $20 million final payment in Q3.
- RPC expects to refurbish an existing pressure-pumping fleet for service in early 2023 and says a newly ordered fleet is expected to arrive in the first half of 2023. Management sees near-term demand improving, supported by activity and commodity prices, but results depend on customer spending and market conditions.
- Management said existing cash and capitalization should provide sufficient liquidity for at least 12 months and that it does not currently expect to use the revolver for liquidity needs. This is a forward-looking expectation, not a guarantee.
- The defined-benefit pension plan termination is expected to be completed in early 2023. RPC anticipates a final cash contribution of approximately $7–8 million and a pre-tax, noncash settlement charge; the unamortized plan loss was approximately $23 million at June 30 and the final charge may change.
- Inflation in labor, materials, fuel, and equipment components may pressure costs; RPC says it has raised prices to cover much, but not all, of these increases. Risks also include oil and gas price or activity declines, competition, customer concentration, geopolitical events, weather, regulation, and international operations.
- Sales and use tax audits are ongoing. The company said a material loss related to a tax assessment was remote, but some exposures could not be estimated. Ordinary-course litigation was not considered likely to have a material adverse effect.
- After quarter-end, the board reinstated a regular quarterly cash dividend of $0.02 per share, payable September 9, 2022 to holders of record August 10. Future dividends remain subject to business and financial conditions.
Most important facts for investors to verify
- Whether activity and pricing improvements persist and translate into cash generation as receivables and other working-capital needs rise.
- Whether planned $150 million 2022 capex, lease payments, and the 2023 fleet projects remain on schedule and within expected cost.
- Whether service-price increases continue to offset inflation and whether Technical Services profitability is sustainable.
- The final pension termination contribution and settlement charge, and developments in sales-tax audits and other contingencies.
- Whether the reinstated dividend is maintained and how capital allocation, including any share repurchases, evolves.