RPC INC [RES] Filings

10-Q 1 res-20230331x10q.htm 10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2023

Commission File No. 1-8726

RPC, INC.

(Exact name of registrant as specified in its charter)

Delaware		58-1550825
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2801 Buford Highway, Suite 300, Atlanta, Georgia 30329
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code -- (404) 321-2140

Securities Registered under Section 12(b) of the Act:


Title of each class:	Trading Symbol(s)	Name of each exchange on which registered:
Common stock, par value $0.10	RES	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 21, 2023, RPC, Inc. had 216,369,714 shares of common stock outstanding.

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RPC, INC. AND SUBSIDIARIES

Table of Contents

		Page No.
Part I. Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets –As of March 31, 2023 and December 31, 2022	3

	Consolidated Statements of Operations – For the three months ended March 31, 2023 and 2022	4

	Consolidated Statements of Comprehensive Income – For the three months ended March 31, 2023 and 2022	Error! Bookmark not defined.

	Consolidated Statements of Stockholders’ Equity – For the three months ended March 31, 2023 and 2022	6

	Consolidated Statements of Cash Flows – For the three months ended March 31, 2023 and 2022	7

	Notes to Consolidated Financial Statements	8 – 18

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20 – 27

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27

Item 4.	Controls and Procedures	27

Part II. Other Information

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 3.	Defaults upon Senior Securities	28

Item 4.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	29

Signatures		30

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RPC, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2023 AND DECEMBER 31, 2022

(In thousands)


	March 31,		December 31,
	2023		2022
ASSETS		(Unaudited)
Cash and cash equivalents	$	177,904	$	126,424
Accounts receivable, net of allowance for credit losses of $5,920 in 2023 and $7,078 in 2022		400,359		416,568
Inventories		98,073		97,107
Income taxes receivable		24,346		42,403
Prepaid expenses		16,028		17,753
Other current assets		2,914		3,086
Total current assets		719,624		703,341
Property, plant and equipment, less accumulated depreciation of $768,195 in 2023 and $775,334 in 2022		375,461		333,093
Operating lease right-of-use assets		28,801		28,864
Goodwill		32,150		32,150
Other assets		31,794		31,565
Total assets	$	1,187,830	$	1,129,013
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Accounts payable	$	114,357	$	115,213
Accrued payroll and related expenses		19,968		33,161
Accrued insurance expenses		4,097		3,232
Accrued state, local and other taxes		5,987		4,296
Income taxes payable		513		499
Pension liabilities		1,150		9,610
Current portion of operating lease liabilities		10,578		10,728
Other accrued expenses		1,864		1,864
Total current liabilities		158,514		178,603
Long-term accrued insurance expenses		9,167		7,149
Long-term retirement plan liabilities		22,559		23,106
Deferred income taxes		44,990		37,473
Long-term operating lease liabilities		19,638		19,517
Other long-term liabilities		5,267		5,430
Total liabilities		260,135		271,278
Commitments and contingencies (Note 9)
STOCKHOLDERS’ EQUITY
Preferred stock, $0.10 par value, 1,000,000 shares authorized, none issued		—		—
Common stock, $0.10 par value, 349,000,000 shares authorized, 216,369,714 and 216,609,191 shares issued and outstanding in 2023 and 2022, respectively		21,637		21,661
Capital in excess of par value		—		—
Retained earnings		909,335		856,013
Accumulated other comprehensive loss		(3,277)		(19,939)
Total stockholders’ equity		927,695		857,735
Total liabilities and stockholders’ equity	$	1,187,830	$	1,129,013

The accompanying notes are an integral part of these consolidated financial statements.

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RPC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(In thousands except per share data)

(Unaudited)


	Three months ended
	March 31,
	2023		2022
Revenues	$	476,668	$	284,624
COSTS AND EXPENSES:
Cost of revenues		305,250		208,837
Selling, general and administrative expenses		42,197		36,240
Pension settlement charge		17,375		—
Depreciation and amortization		24,125		19,466
Gain on disposition of assets, net		(2,936)		(2,954)
Operating income		90,657		23,035
Interest expense		(72)		(178)
Interest income		1,855		15
Other income, net		761		504
Income before income taxes		93,201		23,376
Income tax provision		21,677		8,297
Net income	$	71,524	$	15,079
Earnings per share
Basic	$	0.33	$	0.07
Diluted	$	0.33	$	0.07
Dividends paid per share	$	0.04	$	—

The accompanying notes are an integral part of these consolidated financial statements.

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RPC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(In thousands)

(Unaudited)


	Three months ended
	March 31,
	2023		2022
Net income	$	71,524	$	15,079
Other comprehensive income:
Pension adjustment and reclassification adjustment, net of taxes		16,678		195
Foreign currency translation		(16)		116
Comprehensive income	$	88,186	$	15,390

The accompanying notes are an integral part of these consolidated financial statements.

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RPC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(In thousands)

(Unaudited)


	Three months ended March 31, 2023
								Accumulated
				Capital in				Other
	Common Stock			Excess of		Retained		Comprehensive
	Shares	Amount		Par Value		Earnings		Loss		Total
Balance, December 31, 2022	216,609	$	21,661	$	—	$	856,013	$	(19,939)	$	857,735
Stock issued for stock incentive plans, net	1,149		115		1,687		—		—		1,802
Stock purchased and retired	(1,388)		(139)		(1,687)		(9,523)		—		(11,349)
Net income	—		—		—		71,524		—		71,524
Dividends	—		—		—		(8,679)		—		(8,679)
Pension adjustment, net of taxes	—		—		—		—		16,678		16,678
Foreign currency translation	—		—		—		—		(16)		(16)
Balance, March 31, 2023	216,370	$	21,637	$	—	$	909,335	$	(3,277)	$	927,695


	Three months ended March 31, 2022
								Accumulated
				Capital in				Other
	Common Stock			Excess of		Retained		Comprehensive
	Shares	Amount		Par Value		Earnings		Loss		Total
Balance, December 31, 2021	215,629	$	21,563	$	—	$	640,936	$	(20,708)	$	641,791
Stock issued for stock incentive plans, net	1,037		104		1,393		—		—		1,497
Stock purchased and retired	(190)		(19)		(1,393)		502		—		(910)
Net income	—		—		—		15,079		—		15,079
Pension adjustment, net of taxes	—		—		—		—		195		195
Foreign currency translation	—		—		—		—		116		116
Balance, March 31, 2022	216,476	$	21,648	$	—	$	656,517	$	(20,397)	$	657,768

The accompanying notes are an integral part of these consolidated financial statements.

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RPC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(In thousands)

(Unaudited)


	Three months ended March 31,
	2023		2022
OPERATING ACTIVITIES
Net income	$	71,524	$	15,079
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other non-cash charges		24,131		19,343
Stock-based compensation expense		1,802		1,497
Gain on disposition of assets, net		(2,936)		(2,954)
Deferred income tax provision		2,536		6,975
Pension settlement charge		17,375		-
(Increase) decrease in assets:
Accounts receivable		16,209		(26,586)
Income taxes receivable		18,057		1,056
Inventories		(959)		(5,326)
Prepaid expenses		1,725		(3,771)
Other current assets		141		677
Other non-current assets		(236)		2,875
Increase (decrease) in liabilities:
Accounts payable		(3,389)		(168)
Income taxes payable		14		326
Accrued payroll and related expenses		(13,193)		6,529
Accrued insurance expenses		865		(4,749)
Accrued state, local and other taxes		1,691		1,091
Other accrued expenses		(1,074)		(1,746)
Pension and retirement plans liabilities		(4,723)		(2,548)
Long-term accrued insurance expenses		2,018		(1,142)
Other long-term liabilities		945		1,790
Net cash provided by operating activities		132,523		8,248

INVESTING ACTIVITIES
Capital expenditures		(65,300)		(19,084)
Proceeds from sale of assets		4,285		3,825
Net cash used for investing activities		(61,015)		(15,259)

FINANCING ACTIVITIES
Payment of dividends		(8,679)		—
Cash paid for common stock purchased and retired		(11,349)		(910)
Cash paid for finance lease		—		(1,323)
Net cash used for financing activities		(20,028)		(2,233)

Net increase (decrease) in cash and cash equivalents		51,480		(9,244)
Cash and cash equivalents at beginning of period		126,424		82,433
Cash and cash equivalents at end of period	$	177,904	$	73,189

Supplemental cash flows disclosure:
Income tax payments (refunds), net	$	922	$	(333)
Interest paid	$	41	$	43
Supplemental disclosure of noncash investing activities:
Capital expenditures included in accounts payable	$	11,866	$	7,020

The accompanying notes are an integral part of these consolidated financial statements.

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

The accompanying unaudited consolidated financial statements include the accounts of RPC, Inc. and its wholly-owned subsidiaries (RPC or the Company) and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These consolidated financial statements have been prepared in accordance with Accounting Standards Codification (ASC) Topic 810, “Consolidation” and Rule 3A-02(a) of Regulation S-X. In accordance with ASC Topic 810 and Rule 3A-02 (a) of Regulation S-X, the Company’s policy is to consolidate all subsidiaries and investees where it has voting control.

In the opinion of management, all adjustments (all of which consisted of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023.

The balance sheet at December 31, 2022 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2022.

A group that includes Gary W. Rollins, Pamela R. Rollins, Amy Rollins Kreisler and Timothy C. Rollins, each of whom is a director of the Company, and certain companies under their control, controls in excess of fifty percent of the Company’s voting power.

2. RECENT ACCOUNTING STANDARDS

Recently Adopted Accounting Standards:

●

ACCOUNTING STANDARDS UPDATE (ASU) No. 2021-08: Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers: The amendments in this ASU address diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination, by adopting guidance requiring an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer would recognize and measure the acquired contract assets and contract liabilities in the same manner that they were recognized and measured in the acquiree's financial statements before the acquisition. The Company adopted these provisions in the first quarter of 2023 prospectively to future business combinations and the adoption did not have a material impact on its consolidated financial statements.

3. REVENUES

Accounting Policy:

RPC’s contract revenues are generated principally from providing oilfield services. These services are based on mutually agreed upon pricing with the customer prior to the services being delivered and, given the nature of the services, do not include the right of return. Pricing for these services is a function of rates based on the nature of the specific job, with consideration for the extent of equipment, labor, and consumables needed for the job. RPC typically satisfies its performance obligations over time as the services are performed. RPC records revenues based on the transaction price agreed upon with its customers.

Sales tax charged to customers is presented on a net basis within the accompanying Consolidated Statements of Operations and therefore excluded from revenues.

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Nature of services:

RPC provides a broad range of specialized oilfield services to independent and major oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the United States and in selected international markets. RPC manages its business as either (1) services offered on the well site with equipment and personnel (Technical Services) or (2) services and tools offered off the well site (Support Services). For more detailed information about operating segments, see Note 6.

RPC contracts with its customers to provide the following services by reportable segment:

Technical Services

●Includes pressure pumping, downhole tools services, coiled tubing, nitrogen, snubbing and other oilfield related services including wireline, well control, fishing and pump down services.

Support Services

●Rental tools – RPC rents tools to its customers for use with onshore and offshore oil and gas well drilling, completion and workover activities.

●Other support services include oilfield pipe inspection services, pipe management and pipe storage; well control training and consulting.

Our contracts with customers are generally short-term in nature and generally consist of a single performance obligation – the provision of oilfield services.

Payment terms:

RPC’s contracts with customers state the final terms of the sales, including the description, quantity, and price of each service to be delivered. The Company’s contracts are generally short-term in nature and in most situations, RPC provides services ahead of payment - i.e., RPC has fulfilled the performance obligation prior to submitting a customer invoice. RPC invoices the customer upon completion of the specified services and collection is generally expected between 30 to 60 days after invoicing. As the Company enters into contracts with its customers, it generally expects there to be no significant timing difference between the date the services are provided to the customer (satisfaction of the performance obligation) and the date cash consideration is received. Accordingly, there is no financing component to our arrangements with customers.

Significant judgments:

RPC believes the output method is a reasonable measure of progress for the satisfaction of our performance obligations, which are satisfied over time, as it provides a faithful depiction of (1) our performance toward complete satisfaction of the performance obligation under the contract and (2) the value transferred to the customer of the services performed under the contract. RPC has elected the right to invoice practical expedient for recognizing revenue related to its performance obligations.

Disaggregation of revenues:

See Note 6 for disaggregation of revenue by operating segment and services offered in each of them and by geographic regions.

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Contract balances:

Contract assets representing the Company’s rights to consideration for work completed but not billed are included in accounts receivable, net in the accompanying Consolidated Balance Sheets are shown below:


	March 31,		December 31,
(in thousands)	2023		2022
Unbilled trade receivables	$	83,032	$	103,498

Substantially all of the unbilled trade receivables disclosed were or are expected to be invoiced during the following quarter.

4. EARNINGS PER SHARE

Basic and diluted earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the respective periods. In addition, the Company has periodically issued share-based payment awards that contain non-forfeitable rights to dividends and are therefore considered participating securities. Restricted shares of common stock (participating securities) outstanding and a reconciliation of weighted average shares outstanding is as follows:


	Three months ended
	March 31
(in thousands)	2023		2022
Net income available for stockholders	$	71,524	$	15,079
Less: Adjustments for earnings attributable to participating securities		(1,136)		(208)
Net income used in calculating earnings per share	$	70,388	$	14,871

Weighted average shares outstanding (including participating securities)		217,152		216,242
Adjustment for participating securities		(3,503)		(2,990)
Shares used in calculating basic and diluted earnings per share		213,649		213,252

5. STOCK-BASED COMPENSATION

In April 2014, the Company reserved 8,000,000 shares of common stock under the 2014 Stock Incentive Plan with a term of 10 years expiring in April 2024. This plan provides for the issuance of various forms of stock incentives, including, among others incentive and non-qualified stock options and restricted shares. As of March 31, 2023, there were 906,053 shares available for grant.

In the first quarter of 2023, the Company issued time-lapse restricted shares to certain employees that will vest ratably over a period of four years. In addition, the Company granted performance share unit awards to its executive officers and certain other employees that vest based on the achievement of pre-established financial performance targets and relative total shareholder return performance. The awards will be issued at different levels based on the performance achieved with a cliff vesting at the end of fiscal year ending 2025. The Company evaluated the portion of the award that are probable to vest and has accrued compensation expense at 100 percent of the target award.

Stock-based employee compensation expense for both the time-lapse restricted shares and performance share unit awards was as follows:


	Three months ended
	March 31,
(in thousands)	2023		2022
Pre-tax expense	$	1,802	$	1,497
After tax expense	$	1,382	$	1,130

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of the changes in non-vested restricted shares for the three months ended March 31, 2023:


		Weighted Average
	Shares	Grant-Date Fair Value
Non-vested shares at January 1, 2023	3,248,728	$	6.87
Granted	1,180,400		9.60
Vested	(803,264)		8.69
Forfeited	(31,514)		8.84
Non-vested shares at March 31, 2023	3,594,350	$	7.35

The total fair value of shares vested was $7.4 million during the three months ended March 31, 2023 and $2.8 million during the three months ended March 31, 2022. Excess tax benefits or deficits realized from tax compensation deductions in excess of, or lower than, compensation expense are recorded as either a beneficial or detrimental discrete income tax adjustment. This was a favorable adjustment of $133 thousand for the three months ended March 31, 2023 and a detrimental adjustment of $669 thousand for the three months ended March 31, 2022. The table above does not include any of the activity related to performance share unit awards since they are not currently issued or vested.

6. BUSINESS SEGMENT INFORMATION

RPC’s reportable segments are the same as its operating segments. RPC manages its business under Technical Services and Support Services. Technical Services is comprised of service lines that generate revenue based on equipment, personnel or materials at the well site and are closely aligned with completion and production activities of the customers. Support Services is comprised of service lines which generate revenue from services and tools offered off the well site and are more closely aligned with the customers’ drilling activities. Selected overhead including certain centralized support services and regulatory compliance are classified as Corporate.

Technical Services consists primarily of pressure pumping, downhole tools, coiled tubing, snubbing, nitrogen, well control, wireline and fishing. The services offered under Technical Services are high capital and personnel intensive businesses. The Company considers all of these services to be closely integrated oil and gas well servicing businesses and makes resource allocation and performance assessment decisions based on this operating segment as a whole across these various services.

Support Services consist primarily of drill pipe and related tools, pipe handling, pipe inspection and storage services, and oilfield training and consulting services. The demand for these services tends to be influenced primarily by customer drilling-related activity levels.

The Company’s Chief Operating Decision Maker (“CODM”) assesses performance and makes resource allocation decisions regarding, among others, staffing, growth and maintenance capital expenditures and key initiatives based on the operating segments outlined above.

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Segment Revenues:

RPC’s operating segment revenues by major service lines are shown in the following table:


	Three months ended
	March 31,
(in thousands)	2023		2022
Technical Services:
Pressure Pumping	$	264,801	$	119,898
Downhole Tools		107,404		81,070
Coiled Tubing		40,066		26,850
Nitrogen		12,097		7,603
Snubbing		7,091		6,212
All other		20,532		24,716
Total Technical Services	$	451,991	$	266,349

Support Services:
Rental Tools	$	17,676	$	13,063
All other		7,001		5,212
Total Support Services	$	24,677	$	18,275

Total revenues	$	476,668	$	284,624

The following summarizes revenues for the United States and separately for all international locations combined for the three months ended March 31, 2023 and 2022. The revenues are presented based on the location of the use of the equipment or services. Assets related to international operations are less than 10 percent of RPC’s consolidated assets, and therefore are not presented.


	Three months ended
	March 31,
(in thousands)	2023		2022
United States revenues	$	469,387	$	275,345
International revenues		7,281		9,279
Total revenues	$	476,668	$	284,624

The accounting policies of the reportable segments are the same as those referenced in Note 1 to these consolidated financial statements. RPC evaluates the performance of its segments based on revenues, operating profits and return on invested capital. Gains or losses on disposition of assets are reviewed by the CODM on a consolidated basis, and accordingly the Company does not report gains or losses at the segment level. Inter-segment revenues are generally recorded in segment operating results at prices that management believes approximate prices for arm’s length transactions and are not material to operating results.

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Summarized financial information with respect RPC’s reportable segments for the three months ended March 31, 2023 and 2022 are shown in the following table:


	Three months ended
	March 31,
(in thousands)	2023		2022
Revenues:
Technical Services	$	451,991	$	266,349
Support Services		24,677		18,275
Total revenues	$	476,668	$	284,624
Operating income:
Technical Services	$	103,533	$	21,811
Support Services		6,644		2,780
Corporate expenses		(5,081)		(4,510)
Pension settlement charge		(17,375)		—
Gain on disposition of assets, net		2,936		2,954
Total operating income	$	90,657	$	23,035
Interest expense		(72)		(178)
Interest income		1,855		15
Other income, net		761		504
Income before income taxes	$	93,201	$	23,376

As of and for the three months ended

Technical

Support

March 31, 2023

Services

Corporate

Total

(in thousands)

Depreciation and amortization

22,008

2,104

24,125

Capital expenditures

63,002

1,313

985

65,300

Identifiable assets

851,689

82,530

253,611

1,187,830


As of and for the three months ended	Technical		Support
March 31, 2022	Services		Services		Corporate		Total
(in thousands)
Depreciation and amortization	$	16,974	$	2,427	$	65	$	19,466
Capital expenditures		16,624		2,410		50		19,084
Identifiable assets		616,961		74,021		200,186		891,168

7. CURRENT EXPECTED CREDIT LOSSES

The Company utilizes an expected credit loss model for valuing its accounts receivable, a financial asset measured at amortized cost. The Company is exposed to credit losses primarily from providing oilfield services. The Company’s expected allowance for credit losses for accounts receivable is based on historical collection experience, current and future economic and market conditions and a review of the current status of customers’ account receivable balances. Due to the short-term nature of such receivables, the estimated amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers’ financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible and recoveries of amounts previously written off are recorded when collected.

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a roll-forward of the allowance for credit losses that is deducted from the amortized cost basis of accounts receivable to present the net amount expected to be collected:


Three months ended March 31,	2023		2022
(in thousands)
Beginning balance	$	7,078	$	6,765
Provision for current expected credit losses		1,074		1,131
Write-offs		(2,232)		(1,708)
Recoveries collected (net of expenses)		—		2
Ending balance	$	5,920	$	6,190

8. INVENTORIES

Inventories consist of (i) raw materials and supplies that are consumed providing services to the Company’s customers, (ii) spare parts for equipment used in providing these services and (iii) components and attachments for manufactured equipment used in providing services. In the table below, spare parts and components are included as part of raw materials and supplies; tools that are assembled using components are reported as finished goods. Inventories are recorded at the lower of cost or net realizable value. Cost is determined using first-in, first-out method or the weighted average cost method.


	March 31,		December 31,
(in thousands)	2023		2022
Raw materials and supplies	$	96,478	$	95,384
Finished goods		1,595		1,723
Ending balance	$	98,073	$	97,107

9. COMMITMENTS AND CONTINGENCIES

Sales and Use Taxes - The Company has ongoing sales and use tax audits in various jurisdictions and may be subjected to varying interpretations of statute that could result in unfavorable outcomes. In accordance with ASC 450-20, Loss Contingencies, any probable and reasonable estimate of assessment costs have been included in accrued state, local and other taxes.

The Company has received a state tax notification of audit results related to sales and use tax and with its outside legal counsel has evaluated the perceived merits of this tax assessment. The Company believes the likelihood of a material loss related to this contingency is remote and cannot be reasonably estimated at this time. Therefore, no loss has been recorded and the Company currently does not believe the resolution of this claim will have a material impact on its consolidated financial position, results of operations or cash flows.

10. PENSION AND RETIREMENT PLANS LIABILITIES

The following represents the net periodic benefit cost and related components of the Company’s multiemployer Retirement Income Plan (Plan), a trusteed defined benefit pension plan:


	Three months ended March 31,
December 31,	2023		2022
(in thousands)
Interest cost	$	40	$	243
Expected return on Plan assets		—		—
Amortization of net losses		220		253
Settlement loss		17,375		—
Net periodic benefit cost	$	17,635	$	496

During the first quarter of 2023, as part of the termination of the Plan, the Company completed an annuity purchase to transfer the risk from the Plan to a commercial annuity provider for substantially all of the remaining Plan participants through the liquidation of investments in the Plan and an additional cash contribution of $4.0 million. As part of this transfer, the Company

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

recognized a pre-tax, non-cash settlement charge of $17.4 million representing the accelerated recognition of actuarial losses. The Company continues to utilize an expected return on plan assets of zero percent for the current period due to the nature of investments and their short-term duration. Additionally, the Company recorded a payable for approximately $430 thousand to Marine Products Corporation (MPC), which represents reimbursement of funds paid using MPC’s assets in the Plan to settle the Company’s participant liabilities. The Company plans to repay the amounts owed to MPC in the second quarter of 2023. The Company did not contribute to this Plan during the three months ended March 31, 2022.

The Company expects to recognize an estimated additional pre-tax, non-cash settlement charge of approximately $820 thousand and make an additional cash contribution to the plan of $1.2 million, in the second quarter of 2023. The final amount of settlement charge is subject to change based on the actual return on plan assets. The Company currently expects the Plan to be fully terminated in the second quarter of 2023.

The Company permits selected highly compensated employees to defer a portion of their compensation into the non-qualified Supplemental Retirement Plan SERP). The Company maintains certain securities primarily in mutual funds and company-owned life insurance (COLI) policies as a funding source to satisfy the obligation of the SERP that have been classified as trading and are stated at fair value totaling $24.6 million as of March 31, 2023 and $24.2 million as of December 31, 2022. Trading gains related to the SERP assets totaled approximately $400 thousand during the three months ended March 31, 2023, compared to trading losses of approximately $1.5 million during the three months ended March 31, 2022. The SERP assets are reported in non-current Other assets in the accompanying Consolidated Balance Sheets and changes in the fair value of these assets are reported in the accompanying Consolidated Statements of Operations as compensation cost in Selling, general and administrative expenses.

The SERP liabilities include participant deferrals net of distributions and are stated at fair value of approximately $22.6 million as of March 31, 2023 and $23.1 million as of December 31, 2022. The SERP liabilities are reported in the accompanying Consolidated Balance Sheets in Long-term retirement plan liabilities and any change in the fair value is recorded as compensation cost within Selling, general and administrative expenses in the accompanying Consolidated Statements of Operations. Changes in the fair value of the SERP liabilities represented unrealized gains of approximately $417 thousand during the three months ended March 31, 2023, compared to unrealized losses of approximately $1.4 million during the three months ended March 31, 2022.

11. NOTES PAYABLE TO BANKS

The Company has a revolving Credit Agreement with Bank of America and four other lenders which provides for a line of credit of up to $100.0 million, including a $35.0 million letter of credit subfacility, and a $35.0 million swingline subfacility. The facility contains customary terms and conditions, including restrictions on indebtedness, dividend payments, business combinations and other related items. The revolving credit facility includes a full and unconditional guarantee by the Company's 100 percent owned domestic subsidiaries whose assets equal substantially all of the consolidated assets of the Company and its subsidiaries. The Credit Agreement’s maturity date is June 22, 2027.

The Credit Agreement has three financial covenants. When RPC’s trailing four quarter EBITDA (as calculated under the Credit Agreement) is equal to or greater than $50.0 million: (i) the consolidated leverage ratio cannot exceed 2.50:1.00 and (ii) the debt service coverage ratio must be equal to or greater than 2.00:1.00; otherwise, the minimum tangible net worth must be greater than or equal to $400.0 million.

As of March 31, 2023, the Company was in compliance with all covenants.

Revolving loans under the amended revolving credit facility bear interest at one of the following two rates at the Company’s election:

●

Term SOFR; plus, a margin ranging from 1.25% to 2.25%, based on a quarterly consolidated leverage ratio calculation, and an additional SOFR Adjustment ranging from 10 to 30 basis points depending upon maturity length; or

●

the Base Rate, which is a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) Bank of America’s publicly announced, “prime rate,” (c) the Term SOFR plus 1.00%, or (d) 1.00%; in each case plus a margin that ranges from 0.25% to 1.25% based on a quarterly consolidated leverage ratio calculation.

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In addition, the Company pays an annual fee ranging from 0.20% to 0.30%, based on a quarterly consolidated leverage ratio calculation, on the unused portion of the credit facility.

The Company has incurred total loan origination fees and other debt related costs associated with this revolving credit facility in the aggregate of approximately $3.7 million. These costs are being amortized to interest expense over the remaining term of the loan, and the remaining unamortized balance of $312 thousand at March 31, 2023 is classified as part of non-current Other assets.

As of March 31, 2023, RPC had no outstanding borrowings under the revolving credit facility, and letters of credit outstanding relating to self-insurance programs and contract bids totaled $17.4 million; therefore, a total of $82.6 million of the facility was available. Interest incurred, which includes facility fees on the unused portion of the revolving credit facility and the amortization of loan costs, and interest paid on the credit facility were as follows for the periods indicated:


	Three months ended
	March 31,
(in thousands)	2023		2022
Interest incurred	$	59	$	65
Interest paid		41		43

12. INCOME TAXES

The Company generally determines its periodic income tax expense or benefit based upon the current period income or loss and the annual estimated tax rate for the Company adjusted for discrete items including changes to prior period estimates. In certain instances, the Company uses the discrete method when it believes the actual year-to-date effective rate provides a more reliable estimate of its income tax rate for the period. The estimated tax rate is revised, if necessary, as of the end of each successive interim period during the fiscal year to the Company’s current annual estimated tax rate.

For the three months ended March 31, 2023, the effective rate reflects a provision of 23.3 percent compared to a provision of 35.5 percent for the comparable period in the prior year. The decrease in effective tax rate is primarily related to an increase in pretax income together with favorable discrete adjustments for the quarter ended March 31, 2023.

13. FAIR VALUE DISCLOSURES

The various inputs used to measure assets at fair value establish a hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three broad levels as follows:

1.Level 1 – Quoted market prices in active markets for identical assets or liabilities.

2.Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

3.Level 3 – Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that market participants would use.

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the valuation of financial instruments measured at fair value on a recurring basis in the balance sheets as of March 31, 2023 and December 31, 2022:

Fair Value Measurements at March 31, 2023 with:

Quoted prices in

Significant

active markets

other

Significant

for identical

observable

unobservable

(in thousands)

Total

assets

inputs

(Level 1)

(Level 2)

(Level 3)

Assets:

Equity securities

307

—

Investments measured at net asset value

24,575

Fair Value Measurements at December 31, 2022 with:

Quoted prices in

Significant

active markets

other

Significant

for identical

observable

unobservable

(in thousands)

Total

assets

inputs

(Level 1)

(Level 2)

(Level 3)

Assets:

Equity securities

305

—

Investments measured at net asset value

24,175

The Company determines the fair value of equity securities that have a readily determinable fair value through quoted market prices. The total fair value is the final closing price, as defined by the exchange in which the asset is actively traded, on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs. Marketable securities comprised of the SERP assets, are recorded primarily at their net cash surrender values, calculated using their net asset values, which approximates fair value, as provided by the issuing insurance or investment company. Significant observable inputs, in addition to quoted market prices, were used to value the equity securities. The Company’s policy is to recognize transfers between levels at the beginning of quarterly reporting periods. For the quarter ended March 31, 2023, there were no significant transfers in or out of levels 1, 2 or 3.

Under the Company’s revolving credit facility, there was no balance outstanding at March 31, 2023 and December 31, 2022. Borrowings under our revolving credit facility are typically based on the quote from the lender (level 2 inputs), which approximates fair value, and bear variable interest rates as described in Note 11. The Company is subject to interest rate risk, to the extent there are outstanding borrowings on the variable component of the interest rate.

The carrying amounts of other financial instruments reported in the balance sheet for current assets and current liabilities approximate their fair values because of the short maturity of these instruments. The Company currently does not use the fair value option to measure any of its existing financial instruments and has not determined whether it will elect this option for financial instruments acquired in the future.

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RPC, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

14. ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive (loss) income consists of the following (in thousands):


			Foreign
	Pension		Currency
	Adjustment		Translation		Total
Balance at December 31, 2022	$	(17,307)	$	(2,632)	$	(19,939)
Change during the period:
Before-tax amount		4,065		(16)		4,049
Tax expense		(935)				(935)
Pension settlement charge, net of taxes		13,379				13,379
Reclassification adjustment, net of taxes: