UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
or
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission File No.
(Exact name of registrant as specified in its charter)
| ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
(Address of principal executive offices) | (Zip code) |
(
(Registrant’s telephone number, including area code)
Securities Registered under Section 12(b) of the Act:
Title of each class: |
| Trading Symbol(s) |
| Name of each exchange on which registered: |
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.
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).
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 | ☐ | ☒ | |
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
As of April 19, 2024, RPC, Inc. had
RPC, INC. AND SUBSIDIARIES
Table of Contents
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RPC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2024, AND DECEMBER 31, 2023
(In thousands, except share and par value data)
March 31, | December 31, | |||||
| 2024 |
| 2023 | |||
ASSETS | (Unaudited) | Note 1 | ||||
Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net of allowance for credit losses of $ | | | ||||
Inventories |
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Income taxes receivable |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Property, plant and equipment, less accumulated depreciation of $ | | | ||||
Operating lease right-of-use assets | | | ||||
Finance lease right-of-use assets | | | ||||
Goodwill |
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Other intangibles, net | | | ||||
Retirement plan assets | | | ||||
Other assets |
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Total assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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LIABILITIES |
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Accounts payable | $ | | $ | | ||
Accrued payroll and related expenses |
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Accrued insurance expenses |
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Accrued state, local and other taxes |
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Income taxes payable |
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Unearned revenue | | | ||||
Current portion of operating lease liabilities | | | ||||
Current portion of finance lease liabilities and finance obligations | | | ||||
Accrued expenses and other liabilities |
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Total current liabilities |
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Long-term accrued insurance expenses |
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Retirement plan liabilities |
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Deferred income taxes |
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Long-term operating lease liabilities |
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Long-term finance lease liabilities | | | ||||
Other long-term liabilities | | | ||||
Total liabilities |
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Commitments and contingencies (Note 12) |
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STOCKHOLDERS’ EQUITY |
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Preferred stock, $ |
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Common stock, $ |
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Capital in excess of par value |
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Retained earnings |
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Accumulated other comprehensive loss |
| ( |
| ( | ||
Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | | ||
The accompanying notes are an integral part of these consolidated financial statements.
3
RPC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2024, AND 2023
(In thousands except per share data)
(Unaudited)
Three months ended | |||||||
March 31, | |||||||
| 2024 |
| 2023 | ||||
Revenues | $ | | $ | | |||
COSTS AND EXPENSES: |
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Cost of revenues (exclusive of depreciation and amortization shown separately below) |
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Selling, general and administrative expenses |
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Pension settlement charges | — | | |||||
Depreciation and amortization |
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Gain on disposition of assets, net |
| ( |
| ( |
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Operating income |
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Interest expense |
| ( |
| ( |
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Interest income |
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Other income, net |
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Income before income taxes |
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Income tax provision |
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Net income | $ | | $ | | |||
Earnings per share |
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Basic | $ | | $ | | |||
Diluted | $ | | $ | | |||
Dividends paid per share | $ | | $ | | |||
The accompanying notes are an integral part of these consolidated financial statements.
4
RPC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2024, AND 2023
(In thousands)
(Unaudited)
Three months ended | |||||||
March 31, | |||||||
| 2024 |
| 2023 | ||||
Net income | $ | | $ | | |||
Other comprehensive income: |
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Pension settlement and adjustment, net of tax |
| — |
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Foreign currency translation |
| ( |
| ( |
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Comprehensive income | $ | | $ | | |||
The accompanying notes are an integral part of these consolidated financial statements.
5
RPC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2024, AND 2023
(In thousands)
(Unaudited)
Three months ended March 31, 2024 | |||||||||||||||||
Accumulated | |||||||||||||||||
Capital in | Other | ||||||||||||||||
Common Stock | Excess of | Retained | Comprehensive | ||||||||||||||
| Shares |
| Amount |
| Par Value |
| Earnings |
| Loss |
| Total | ||||||
Balance, December 31, 2023 |
| | $ | | $ | — | $ | | $ | ( | $ | | |||||
Stock issued for stock incentive plans, net |
| |
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| — |
| — |
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Stock purchased and retired |
| ( |
| ( |
| ( |
| ( |
| — |
| ( | |||||
Net income |
| — |
| — |
| — |
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| — |
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Dividends |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||
Foreign currency translation |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Balance, March 31, 2024 | | $ | | $ | — | $ | | $ | ( | $ | | ||||||
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 |
| | $ | | $ | — | $ | | $ | ( | $ | | |||||
Stock issued for stock incentive plans, net |
| |
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| — |
| — |
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Stock purchased and retired |
| ( |
| ( |
| ( |
| ( |
| — |
| ( | |||||
Net income |
| — |
| — |
| — |
| |
| — |
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Dividends | — |
| — |
| — |
| ( |
| — | ( | |||||||
Pension adjustment, net of taxes |
| — |
| — |
| — |
| — |
| |
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Foreign currency translation |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Balance, March 31, 2023 | | $ | | $ | — | $ | | $ | ( | $ | | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
RPC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2024, AND 2023
(In thousands)
(Unaudited)
Three months ended March 31, | |||||||
| 2024 |
| 2023 | ||||
OPERATING ACTIVITIES |
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Net income | $ | | $ | | |||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Stock-based compensation expense |
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Gain on disposition of assets, net |
| ( |
| ( |
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Deferred income tax provision |
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Pension settlement charges |
| — |
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Other non-cash adjustments | | | |||||
(Increase) decrease in assets: |
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Accounts receivable |
| ( |
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Income taxes receivable |
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Inventories |
| ( |
| ( |
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Prepaid expenses |
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Other current assets |
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Other non-current assets |
| ( |
| ( |
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Increase (decrease) in liabilities: |
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Accounts payable |
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| ( |
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Income taxes payable |
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Unearned revenue | ( | — | |||||
Accrued payroll and related expenses |
| ( |
| ( |
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Accrued insurance expenses |
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Accrued state, local and other taxes |
| ( |
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Other accrued expenses | ( | ( | |||||
Pension and retirement plan liabilities |
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| ( |
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Long-term accrued insurance expenses |
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Other long-term liabilities |
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Net cash provided by operating activities |
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INVESTING ACTIVITIES |
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Capital expenditures |
| ( |
| ( |
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Proceeds from sale of assets |
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Net cash used for investing activities |
| ( |
| ( |
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FINANCING ACTIVITIES |
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Payment of dividends |
| ( |
| ( |
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Cash paid for common stock purchased and retired |
| ( |
| ( |
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Cash paid for finance lease and finance obligations | ( | — | |||||
Net cash used for financing activities |
| ( |
| ( |
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Net (decrease) increase in cash and cash equivalents |
| ( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period | $ | | $ | | |||
Supplemental cash flows disclosure: | |||||||
Income tax payments, net | $ | | $ | | |||
Interest paid | $ | | $ | | |||
Supplemental disclosure of noncash investing activities: | |||||||
Capital expenditures included in accounts payable | $ | | $ | | |||
The accompanying notes are an integral part of these consolidated financial statements.
7
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, 2024, are not necessarily indicative of the results to be expected for the year ending December 31, 2024.
The balance sheet at December 31, 2023 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, 2023.
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
Certain prior year amounts have been reclassified to conform to the presentation in the current year.
2. RECENT ACCOUNTING STANDARDS
Recently Issued Accounting Standards Not Yet Adopted:
ASU No. 2023-07: Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures: The amendments in this ASU require an entity to disclose the title and position of the Chief Operating Decision Maker (CODM) and the significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss. These amendments are effective for annual disclosures beginning in 2024 and interim disclosures beginning in the first quarter of 2025, with early adoption permitted. These amendments are effective retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting these provisions on its consolidated financial statements.
ASU No. 2023-09: Income Taxes (Topic 740): Improvements to Income Tax Disclosures: The amendments in this ASU require an entity to include consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid, disaggregated by jurisdiction. These amendments are effective for annual disclosures beginning in 2025, with early adoption permitted for annual financial statements that have not yet been issued. The Company is currently evaluating the impact of adopting these provisions on its consolidated financial statements.
8
3. BUSINESS ACQUISITION
Effective July 1, 2023 (Effective Date), the Company completed its acquisition of all of the outstanding equity interests in Spinnaker Oilwell Services, LLC (Spinnaker), pursuant to a Merger Agreement (Merger Agreement) with Catapult Energy Services Group, LLC, as the representative of the Sellers.
Spinnaker, headquartered in Oklahoma City, Oklahoma, is a leading provider of oilfield cementing services in the Permian and Mid-Continent basins. Spinnaker operates
The supplemental pro forma financial information presented below has been prepared using the acquisition method of accounting and is based on the historical financial information of Spinnaker and RPC. This proforma financial information does not necessarily represent what the combined company’s revenues or results of operations would have been had the acquisition been completed on January 1, 2023, nor do they intend to be a projection of future operating results of the combined company. It also does not reflect any operating efficiencies or potential cost savings that might be achieved from synergies of combining Spinnaker and RPC.
The following table provides unaudited supplemental pro forma financial information as if the acquisition had occurred on January 1, 2023.
Three months ended March 31, | |||||
(in thousands) | 2024 | 2023 | |||
Revenues | $ | | $ | | |
Net income | | | |||
4. 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.
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 titled Business Segment Information.
Our contracts with customers are generally short-term in nature and generally consist of a single performance obligation – the provision of oilfield services. RPC contracts with its customers to provide the following services by reportable segment:
9
Technical Services
Support 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
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 titled Business Segment Information for disaggregation of revenue by operating segment and services offered in each of them and by geographic regions.
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 and are shown below:
March 31, | December 31, | |||||
(in thousands) |
| 2024 |
| 2023 | ||
Unbilled trade receivables | $ | | $ | | ||
Substantially all of the unbilled trade receivables disclosed were or are expected to be invoiced during the following quarter.
Unearned revenue
Contract liabilities represent payments received in advance of satisfying the Company’s performance obligation and are recognized over time as the service is performed. Of the $
10
5. DEPRECIATION AND AMORTIZATION
Depreciation and amortization disclosed in the Consolidated Statements of Operations related to the following components:
Three months ended | ||||||
March 31, | ||||||
(in thousands) |
| 2024 | 2023 | |||
Cost of revenues | $ | | $ | | ||
Selling, general and administrative expenses | | | ||||
Total | | | ||||
6. 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. The following table shows the restricted shares of common stock (participating securities) outstanding and a reconciliation of outstanding weighted average shares:
Three months ended | |||||||
March 31, | |||||||
(in thousands) |
| 2024 |
| 2023 | |||
Net income available for stockholders | $ | | $ | | |||
Less: Adjustments for earnings attributable to participating securities | ( | ( | |||||
Net income used in calculating earnings per share | $ | | $ | | |||
Weighted average shares outstanding (including participating securities) |
| |
| | |||
Adjustment for participating securities |
| ( |
| ( | |||
Shares used in calculating basic and diluted earnings per share |
| |
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7. STOCK-BASED COMPENSATION
The Company has issued various forms of stock incentives, including, incentive and non-qualified stock options, time-lapse restricted shares and performance share unit awards under its Stock Incentive Plans to officers, selected employees and non-employee directors.
In the first quarter of 2024, the Company issued time-lapse restricted shares to some of the selected employees that will vest ratably over a period of
In addition to time-lapse restricted shares, officers and selected employees are also eligible to receive performance share unit awards that vest at different levels based on pre-established financial performance targets with a modifier for stock performance based on total shareholder return. The Company periodically evaluates the portion of performance share unit awards that are probable to vest and updates compensation expense accruals accordingly.
As of March 31, 2024, there were
11
Stock-based employee compensation for both the time-lapse restricted shares and performance share awards, was as follows:
Three months ended | ||||||
March 31, | ||||||
(in thousands) |
| 2024 | 2023 | |||
Pre-tax expense | $ | | $ | | ||
After tax expense | $ | | $ | | ||
The following is a summary of the changes in non-vested restricted shares for the three months ended March 31, 2024:
Weighted Average | |||||
| Shares |
| Grant-Date Fair Value | ||
Non-vested shares at January 1, 2024 | | $ | | ||
Granted |
| |
| | |
Vested |
| ( |
| | |
Forfeited |
| ( |
| | |
Non-vested shares at March 31, 2024 |
| | $ | | |
The total fair value of shares vested was $
The table above does not include any of the activity related to performance share unit awards since they are not currently issued or vested.
8. 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, cementing, 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.
12
Segment Revenues:
RPC’s operating segment revenues by major service lines are shown in the following table:
Three months ended | |||||||
March 31, | |||||||
(in thousands) |
| 2024 |
| 2023 | |||
Technical Services: |
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Pressure Pumping | $ | | $ | | |||
Downhole Tools | |
| | ||||
Coiled Tubing | |
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Cementing | | | |||||
Nitrogen | |
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Snubbing | |
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All other | |
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Total Technical Services | | | |||||
Support Services: |
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Rental Tools | | | |||||
All other |
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Total Support Services | | | |||||
Total revenues | $ | | $ | | |||
The following summarizes revenues for the United States and separately for all international locations combined for the three months ended March 31, 2024 and 2023. 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% of RPC’s consolidated assets, and therefore are not presented.
| Three months ended | ||||||
March 31, | |||||||
(in thousands) |
| 2024 |
| 2023 | |||
United States revenues | $ | | $ | | |||
International revenues | |
| | ||||
Total revenues | $ | | $ | | |||
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.
13
Summarized financial information with respect RPC’s reportable segments for the three months ended March 31, 2024, and 2023 are shown in the following table:
Three months ended | ||||||
March 31, | ||||||
(in thousands) |
| 2024 |
| 2023 | ||
Revenues: |
|
|
|
| ||
Technical Services | $ | | $ | | ||
Support Services |
| |
| | ||
Total revenues | $ | | $ | | ||
Operating income: |
|
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Technical Services | $ | | $ | | ||
Support Services |
| |
| | ||
Corporate expenses |
| ( |
| ( | ||
Pension settlement charges | — | ( | ||||
Gain on disposition of assets, net |
| |
| | ||
Total operating income | | | ||||
Interest expense |
| ( |
| ( | ||
Interest income |
| |
| | ||
Other income, net |
| |
| | ||
Income before income taxes | $ | | $ | | ||
As of and for the three months ended | Technical | Support | ||||||||||
March 31, 2024 |
| Services |
| Services |
| Corporate |
| Total | ||||
(in thousands) |
|
|
|
|
|
|
|
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Depreciation and amortization | $ | | $ | | $ | | $ | | ||||
Capital expenditures |
| |
| |
| |
| | ||||
Identifiable assets | | | | | ||||||||
As of and for the three months ended | Technical | Support | ||||||||||
March 31, 2023 |
| Services |
| Services |
| Corporate |
| Total | ||||
(in thousands) | ||||||||||||
Depreciation and amortization | $ | | $ | | $ | | $ | | ||||
Capital expenditures |
| |
| |
| |
| | ||||
Identifiable assets | | | | | ||||||||
9. 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.
14
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, |
| 2024 |
| 2023 | ||
(in thousands) | ||||||
Beginning balance | $ | | $ | | ||
Provision for current expected credit losses | ( |
| | |||
Write-offs | ( |
| ( | |||
Recoveries collected (net of expenses) | |
| — | |||
Ending balance | $ | | $ | | ||
10. 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) | 2024 | 2023 | ||||
Raw materials and supplies | $ | | $ | | ||
Finished goods | |
| | |||
Ending balance | $ | | $ | | ||
11. OTHER INTANGIBLES, NET
Intangible assets are amortized over their legal or estimated useful life. The following table provides a summary of the gross carrying value and accumulated amortization by each major intangible class as of March 31, 2024, and December 31, 2023:
March 31, 2024 | December 31, 2023 | |||||||||||
(in thousands) | Gross | Accumulated Amortization | Gross | Accumulated Amortization | ||||||||
Finite-lived Intangibles: | ||||||||||||
Customer relationships | $ | | $ | ( | $ | | $ | ( | ||||
Trade names and trademarks | | ( | | ( | ||||||||
Software licenses | | ( | | ( | ||||||||
Patents and technology | | ( | | ( | ||||||||
$ | | $ | ( | $ | | $ | ( | |||||
Amortization expense for each of the periods presented follows:
Three months ended | |||||||
March 31, | |||||||
(in thousands) |
|
| 2024 | 2023 | |||
Amortization of finite-lived intangible assets | $ | | $ | | |||
Estimated amortization expense based on balances as of March 31, 2024, were as follows: $
15
12. 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 estimates of assessment costs have been included in Accrued state, local and other taxes.
The Company has an outstanding 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.
13. RETIREMENT PLANS
The Company’s multiemployer Retirement Income Plan (Plan), a trusteed defined benefit pension plan, was fully terminated in 2023. Amounts related to the three months ended March 31, 2023 is disclosed below:
|
| March 31, | |||
(in thousands) | 2023 | ||||
|
| $ | | (1) | |
|
| | (1) | ||
Settlement loss | | ||||
Net periodic benefit cost | $ | | |||
| (1) | Reported as part of Selling, general and administrative expenses in the accompanying Consolidated Statements of Operations. |
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 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 $
The SERP liabilities include participant deferrals, net of distributions, and are stated at fair value of approximately $
14. NOTES PAYABLE TO BANKS
The Company has a revolving Credit Agreement with Bank of America and
16
100% owned domestic subsidiaries whose assets equal substantially all of the consolidated assets of the Company and its subsidiaries. The Credit Agreement has a maturity date of June 22, 2027.
The Credit Agreement contains
As of March 31, 2024, 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 |
| ● | the Base Rate, which is a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus |
In addition, the Company pays an annual fee ranging from
The Company has incurred total loan origination fees and other debt related costs associated with this revolving credit facility in the aggregate of approximately $
As of March 31, 2024, RPC had
Three months ended | |||||||
March 31, | |||||||
(in thousands) |
| 2024 |
| 2023 |
| ||
Interest incurred | $ | | $ | |
| ||
Interest paid | | | |||||
15. 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, 2024, the effective rate reflects a provision of
17
16. 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:
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. Equity securities are stated at fair value of approximately $
Trading securities are comprised of the SERP assets, as described in the note titled Retirement Plans, and 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, 2024, there were no significant transfers in or out of levels 1, 2 or 3.
Under the Company’s revolving credit facility, there was
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.
17. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consists of the following:
Foreign | |||||||||
Currency | |||||||||
(in thousands) |
| Translation | Total | ||||||
Balance at December 31, 2023 | $ | ( | $ | ( | |||||
Change during the period: |
|
| |||||||
Before-tax amount |
| ( |
| ( | |||||
Balance at March 31, 2024 | $ | ( | $ | ( | |||||
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Foreign | |||||||||
Pension | Currency | ||||||||
(in thousands) |
| Adjustment |
| Translation |
| Total | |||
Balance at December 31, 2022 | $ | ( | $ | ( | $ | ( | |||
Change during the period: |
|
|
| ||||||
Before-tax amount |
| |
| ( |
| | |||
Tax expense | ( | — | ( | ||||||
Pension settlement charges, net of taxes | | | |||||||
Reclassification adjustment, net of taxes: |
|
|
|
| |||||
Amortization of net loss (1) |
| |
| — |
| | |||
Total activity for the period |
| |
| ( |
| | |||
Balance at March 31, 2023 | $ | ( | $ | ( | $ | ( | |||
(1) | Reported as part of Selling, general and administrative expenses. |
18. CASH PAID FOR COMMON STOCK PURCHASED AND RETIRED
The Company has a stock buyback program to repurchase up to
Shares purchased for withholding taxes represent taxes due upon vesting of time-lapse restricted shares granted to employees. Total share repurchases for 2024 and 2023 year to date are detailed below:
Three months ended | Three months ended | |||||||||||||
March 31, 2024 | March 31, 2023 | |||||||||||||
| No. of shares | Avg. price | Total cost |
| No. of shares | Avg. price | Total cost | |||||||
Shares purchased for withholding taxes | | $ | $ | | | $ | $ | | ||||||
Open market purchases | | | | | ||||||||||
Total | | $ | $ | | | $ | $ | | ||||||
19. SUBSEQUENT EVENTS
On April 23, 2024, the Board of Directors declared a regular quarterly cash dividend of $
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
The following discussion should be read in conjunction with the Consolidated Financial Statements included elsewhere in this document. See also Forward-Looking Statements on page 25.
RPC, Inc. (RPC or the Company) provides a broad range of specialized oilfield services primarily to independent and major oilfield companies engaged in exploration, production and development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest, Rocky Mountain and Appalachian regions, and in selected international locations. The Company’s revenues and profits are generated by providing equipment and services to customers who operate oil and gas properties and invest capital to drill new wells and enhance production or perform maintenance on existing wells. We continuously monitor factors that impact current and expected customer activity levels, such as the prices of oil and natural gas, changes in pricing for our services and equipment, and utilization of our equipment and personnel. Our financial results are affected by geopolitical factors such as political instability in the petroleum-producing regions of the world, the actions of the OPEC oil cartel, overall economic conditions and weather in the United States, the prices of oil and natural gas and our customers’ drilling and production activities.
The discussion of our key business and financial strategies set forth under the Overview section in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2023, is incorporated herein by reference. In 2024, the Company’s strategy of utilizing equipment in unconventional basins has continued. During the three months ended March 31, 2024, capital expenditures totaled $52.8 million, primarily for capitalized maintenance and upgrades of our existing equipment. We currently expect capital expenditures to be between $200 million and $250 million during 2024 and to be directed primarily towards capitalized maintenance of our existing equipment and selected growth opportunities including a new Tier 4 dual-fuel fleet expected to be placed into service during the second quarter of 2024.
During the first quarter of 2024, total revenues of $377.8 million decreased by $98.8 million or 20.7% compared to the same period in the prior year. The decrease in revenues is primarily due to lower industry activity levels and more competitive pricing, partially offset by revenues from the Company’s recent acquisition of Spinnaker. International revenues represented 2.6% of total revenues in the first quarter of 2024 compared to 1.5% in the same period of the prior year. We continue to pursue international growth opportunities, but the nature of this work is unpredictable and we believe that international revenues will continue to be less than ten percent of RPC’s consolidated revenues in the foreseeable future.
Cost of revenues decreased to $276.6 million in the first quarter of 2024 from $305.3 million in the same period in the prior year. The decrease was primarily due to reduced expenses consistent with lower activity levels, such as materials and supplies expenses, maintenance and repairs expenses and fuel costs. These costs decreased less than the revenue decrease given the fixed nature of some of these costs, including labor, and the timing of maintenance and repairs.
Selling, general and administrative expenses decreased to $40.1 million in the first quarter of 2024 from $42.2 million in the first quarter of 2023 primarily due to a decrease in variable expenses consistent with lower activity levels, partially offset by operating expenses from recently acquired Spinnaker.
Income before income taxes was $35.8 million for the three months ended March 31, 2024, compared to $93.2 million during the same period of 2023. Diluted earnings per share were $0.13 for the three months ended March 31, 2024, compared to $0.33 per share in the same period of 2023. Net cash provided by operating activities decreased to $56.6 million for the three months ended March 31, 2024, compared to $132.5 million in the same period of 2023 primarily due to a decrease in net income during the first three months of 2024.
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Outlook
The current and projected prices of oil, natural gas and natural gas liquids are important catalysts for U.S. domestic drilling activity and can be impacted by economic developments as well as geopolitical disruptions, such as the continuing conflicts in the Middle East as well as Russia and Ukraine. RPC believes that oil prices remain at or above levels sufficient to motivate our customers to continue drilling and completion activities.
The majority of the U.S. domestic rig count remains directed towards oil. During the first quarter of 2024, approximately 81% of the U.S. domestic rig count was directed towards oil, slightly above the prior year. We believe that oil-directed drilling will remain the majority of domestic drilling, and that natural gas-directed drilling will remain a low percentage of U.S. domestic drilling in the near term. However, we believe that natural gas-directed drilling will increase in the future because of favorable long-term market dynamics. This projected higher demand for oil and natural gas should drive increased activity in most of the basins in which RPC operates.
We continue to monitor the market for our services and the competitive environment, including the current trends and expectations with regard to environmental concerns and related impact on our equipment fleets. The growing efficiency in recent years with which oilfield completion crews are providing services is a catalyst for the oversupplied nature of the oilfield services market.
We have selectively upgraded our existing equipment to operate using multiple fuel sources and to take advantage of advances in technology and data collection. RPC continues to maintain and upgrade our current fleet capacity of revenue-producing equipment. We intend to remain highly disciplined about investing in new incremental revenue-producing equipment capacity and will only make such investments if we believe the projected financial returns of such capital expenditures meet our financial return criteria. Furthermore, the Company does not intend to add incremental pressure pumping capacity to the industry given the oversupplied nature of oilfield services mentioned above. The Company is allocating capital to maintain the capacity of our pressure pumping fleet to offset anticipated future fleet retirements. During 2023, the Company placed into service a new pressure pumping fleet, replacing existing older equipment sent out for refurbishment. During 2024, the Company will be replacing a Tier 2 diesel fleet with a new Tier 4 dual-fuel fleet.
Effective July 1, 2023, the Company acquired Spinnaker Oilwell Services, LLC (Spinnaker), a leading provider of oilfield cementing services in the Permian and Mid-Continent basins. The acquisition of Spinnaker expanded RPC’s legacy cementing business in South Texas to basins in which we currently provide other services. See the note titled Business Acquisition for additional information.
Results of Operations
Three months ended |
| ||||||
March 31, | |||||||
| 2024 |
| 2023 | ||||
Consolidated revenues [in thousands] | $ | 377,833 | $ | 476,668 | |||
Revenues by business segment [in thousands]: | |||||||
Technical | $ | 356,394 | $ | 451,991 | |||
Support | 21,439 | 24,677 | |||||
Consolidated operating income [in thousands] | $ | 32,349 | $ | 90,657 | |||
Operating income (loss) by business segment [in thousands]: | |||||||
Technical | $ | 31,956 | $ | 103,533 | |||
Support | 3,599 | 6,644 | |||||
Corporate | (4,420) | (5,081) | |||||
Pension settlement charges | — | (17,375) | |||||
Gain on disposition of assets, net | 1,214 | 2,936 | |||||
Average U.S. domestic rig count | 623 | 760 | |||||
Average natural gas price (per thousand cubic feet (mcf)) | $ | 2.15 | $ | 2.66 | |||
Average oil price (per barrel) | $ | 77.46 | $ | 75.97 | |||
22
THREE MONTHS ENDED MARCH 31, 2024 COMPARED TO THREE MONTHS ENDED MARCH 31, 2023
Revenues. Revenues of $377.8 million for the three months ended March 31, 2024, decreased 20.7% compared to the three months ended March 31, 2023. The decrease in revenues is primarily due to lower industry activity levels and competitive pricing, partially offset by financial results from the Company’s recent acquisition of Spinnaker.
During the first quarter of 2024, the average price of oil was 2.0% higher but the average price of natural gas was 19.2% lower, both as compared to the same period in the prior year. The average domestic rig count (Source: Baker Hughes, Inc.) for the three months ended March 31, 2024, was 18.0% lower than the same period in 2023.
The Technical Services segment revenues for the first quarter of 2024 decreased by 21.2% compared to the same period of the prior year due primarily to a decrease in Pressure Pumping revenues due to lower industry activity and more competitive pricing, partially offset by financial results from the Company’s recent acquisition of Spinnaker. Technical Services reported operating income of $32.0 million during the first quarter of 2024 compared to operating income of $103.5 million in the first quarter of 2023. The decrease in Technical Services operating income was primarily due to a decrease in pressure pumping activity, competitive pricing and reduced fixed cost absorption. Support Services segment revenues for the first quarter of 2024 decreased by 13.1% compared to the same period in the prior year, primarily due to lower activity levels within rental tools. Support Services reported operating income of $3.6 million for the first quarter of 2024 compared to operating income of $6.6 million for the first quarter of 2023. First quarter 2024 Support Services operating profit decreased by $3.0 million compared to the first quarter of the prior year due to lower activity levels and lower revenues over costs that are relatively fixed during the short term.
Cost of revenues. Cost of revenues decreased 9.4% to $276.6 million for the three months ended March 31, 2024, compared to $305.3 million for the three months ended March 31, 2023. Cost of revenues decreased primarily due to reduced expenses consistent with lower activity levels, such as materials and supplies expenses, maintenance and repairs expenses and fuel costs. These costs decreased less than the revenue decrease given the fixed nature of some of these costs, including labor, and the timing of maintenance and repairs. In accordance with Staff Accounting Bulletin (SAB) Topic 11.B, cost of revenues presented on the Consolidated Statements of Operations excludes depreciation and amortization totaling $27.3 million for the first quarter of 2024 compared to $21.8 million for the first quarter of 2023.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased to $40.1 million for the three months ended March 31, 2024, compared to $42.2 million for the three months ended March 31, 2023, primarily due to a decrease in variable expenses consistent with lower activity levels, partially offset by operating expenses from recently acquired Spinnaker.
Depreciation and amortization. Depreciation and amortization increased 24.4% to $30.0 million for the three months ended March 31, 2024, compared to $24.1 million for the three months ended March 31, 2023. Depreciation and amortization increased due to capital expenditures in the past year, coupled with additional depreciation from the acquisition of Spinnaker.
Gain on disposition of assets, net. Gain on disposition of assets, net was $1.2 million for the three months ended March 31, 2024, compared to a gain on disposition of assets, net of $2.9 million for the three months ended March 31, 2023. The gain on disposition of assets, net is generally comprised of gains and losses related to various property and equipment dispositions or sales to customers of lost or damaged rental equipment.
Other income, net. Other income, net was $767 thousand for the three months ended March 31, 2024, compared to $761 thousand for the same period in the prior year.
Interest expense and interest income. Interest expense increased to $234 thousand for the three months ended March 31, 2024, compared to $72 thousand for the three months ended March 31, 2023. Interest expense includes facility fees on the unused portion of the credit facility and the amortization of loan costs. Interest income increased to $3.0 million compared to $1.9 million in the prior year due to a higher average cash balance coupled with higher investment yields.
Income tax provision. Income tax provision was $8.4 million during the three months ended March 31, 2024, compared to $21.7 million tax provision for the same period in 2023. The effective tax rate was 23.4%for the three months ended March 31, 2024,
23
compared to a 23.3% effective tax rate for the three months ended March 31, 2023. The decrease in income tax provision and increase in effective tax rate is primarily related to a decrease in pretax income.
Liquidity and Capital Resources
Cash Flows
The Company’s cash and cash equivalents decreased $11.1 million to $212.2 million as of March 31, 2024, compared to cash and cash equivalents of $223.3 million as of December 31, 2023.
The following table sets forth the historical cash flows for the three months ended March 31, 2024 and 2023:
Three months ended March 31, |
| ||||||
(In thousands) |
| 2024 |
| 2023 |
| ||
Net cash provided by operating activities | $ | 56,559 | $ | 132,523 | |||
Net cash used for investing activities | (49,006) | (61,015) | |||||
Net cash used for financing activities | (18,664) | (20,028) | |||||
Cash provided by operating activities for the three months ended March 31, 2024, decreased by $76.0 million compared to the three months ended March 31, 2023, primarily due to the decrease in net income. In addition, working capital was a use of cash of $3.9 million in the first quarter of 2024, compared to being a source of cash of $20.1 million in the same period last year. Working capital was a use in the current quarter primarily due to the following: a decrease of $15.2 million in unearned revenue, offset by a net favorable change of $11.3 million in other working capital components comprised primarily of accrued payroll, accounts receivable, accounts payable and taxes receivable. The decrease in unearned revenue was due to the satisfaction of performance obligations that were associated with a customer cash prepayment we received last year. The changes in the other components were mainly due to the timing of payments and receipts.
Cash used for investing activities for the three months ended March 31, 2024, decreased by $12.0 million compared to the three months ended March 31, 2023, primarily due to a decrease in capital expenditures primarily due to the timing of new equipment deliveries and consistent with lower business activity levels.
Cash used for financing activities for the three months ended March 31, 2024, decreased by $1.2 million compared to the three months ended March 31, 2023, primarily due to a decrease in repurchases during 2024 of the Company’s common shares in the open market.
Financial Condition and Liquidity
The Company’s financial condition as of March 31, 2024, remains strong. We believe the liquidity provided by our existing cash and cash equivalents and our overall strong capitalization will provide sufficient liquidity to meet our requirements for at least the next twelve months. The Company’s decisions relating to the amount of cash to be used for investing and financing activities are influenced by our capital position, and the expected amount of cash to be provided by operations. RPC does not currently expect to utilize our revolving credit facility to meet these liquidity requirements.
The majority of our cash and cash equivalents are held at a single financial institution and are in excess of amounts insured by the Federal Deposit Insurance Corporation (FDIC). This financial institution is among the largest in the United States and we believe it is a safe place to hold our deposits.
The Company currently has a $100.0 million revolving credit facility that matures in June 2027. The facility contains customary terms and conditions, including restrictions on indebtedness, dividend payments, business combinations and other related items. In the second quarter of 2023, the Company amended the revolving credit facility. Among other matters, the amendment (1) extends the termination date for revolving loans from July 26, 2024 to June 22, 2027, (2) replaces LIBOR with Term SOFR as an interest rate option in connection with revolving loan borrowings and reduces the applicable rate margins by approximately 0.25% at each pricing level, (3) introduces a 1.00% per annum floor for base rate borrowings, (4) permits the issuance of letters of credit in currencies other than U.S. dollars. As of March 31, 2024, RPC had no outstanding borrowings under the revolving credit facility, and letters of credit
24
outstanding relating to self-insurance programs and contract bids totaled $16.4 million; therefore, a total of $83.6 million of the facility was available. The Company was in compliance with the credit facility financial covenants as of March 31, 2024. For additional information with respect to RPC’s facility, see the note titled Notes Payable to Banks of the Consolidated Financial Statements.
Cash Requirements
The Company currently expects capital expenditures to be between $200 million and $250 million in 2024 and to be directed towards both capitalized maintenance of our existing equipment and selected growth opportunities. The Company is allocating capital to maintain the capacity of its pressure pumping fleet to offset anticipated future fleet retirements. During 2023, the Company placed into service a new pressure pumping fleet, replacing existing older equipment sent out for refurbishment. During 2024, the Company will be replacing a Tier 2 diesel fleet with a new Tier 4 dual-fuel fleet. The actual amount of capital expenditures in 2024 will depend primarily on equipment maintenance requirements, expansion opportunities, and equipment delivery schedules.
The Company has ongoing sales and use tax audits in various jurisdictions subject to varying interpretations of statutes. The Company has recorded the exposure from these audits to the extent issues are resolved or are probable and reasonably estimable. There are issues that could result in unfavorable outcomes that cannot be currently estimated. See note of the Consolidated Financial Statements titled Commitments and Contingencies for additional information.
The Company has a stock buyback program to repurchase up to 49,578,125 shares in the open market, including an additional 8,000,000 shares authorized for repurchase by the Board of Directors in the second quarter of 2023. As of March 31, 2024, 12,768,870 shares remained available to be repurchased. During the three months ended March 31, 2024, the Company repurchased 1,010,258 shares in the open market. During the three months ended March 31, 2023, the Company repurchased 1,132,364 shares in the open market. The Company may repurchase outstanding common shares periodically based on market conditions and our capital allocation strategies considering restrictions under our credit facility. The stock buyback program does not have a predetermined expiration date. For additional information with respect to RPC’s stock buyback program, see note of the Consolidated Financial Statements titled Cash Paid for Common Stock Purchased and Retired.
On April 23, 2024, the Board of Directors declared a regular quarterly cash dividend of $0.04 per share payable June 10, 2024, to common stockholders of record at the close of business on May 10, 2024. The Company expects to continue to pay cash dividends to common stockholders, subject to industry conditions and RPC’s earnings, financial condition, and other relevant factors.
INFLATION
The Company purchases its equipment and materials from suppliers who provide competitive prices and employ skilled workers from competitive labor markets. If inflation in the general economy increases, the Company’s costs for equipment, materials and labor could increase as well. In addition, increases in activity in the domestic oilfield can cause upward wage pressures in the labor markets from which it hires employees, especially if employment in the general economy increases. Also, activity increases can cause supply disruptions and higher costs of certain materials and key equipment components used to provide services to the Company’s customers. In recent years, the price of labor and raw materials increased due to higher oilfield activity and labor shortages caused by the departure of skilled labor from the domestic oilfield industry in prior years. These cost increases moderated during 2023 but remain high by historical standards.
OFF BALANCE SHEET ARRANGEMENTS
The Company does not have any material off balance sheet arrangements.
RELATED PARTY TRANSACTIONS
Marine Products Corporation
In conjunction with the spin-off of its former power boat manufacturing segment conducted through Chaparral Boats, Inc., RPC and Marine Products Corporation (Marine Products) entered into various agreements that define the companies’ relationship. RPC charged Marine Products for its allocable share of administrative costs incurred for services rendered on behalf of Marine Products
25
Corporation totaling $324 thousand for the three months ended March 31, 2024, and $306 thousand for the comparable period in 2023.
Other
The Company periodically purchases, in the ordinary course of business, products or services from suppliers that are owned by officers or significant stockholders of or affiliated with certain directors of RPC. The total amounts paid to these affiliated parties were $284 thousand for the three months ended March 31, 2024, and $715 thousand for the three months ended March 31, 2023.
RPC and Marine Products own 50% each of a limited liability company called 255 RC, LLC that was created for the joint purchase and ownership of a corporate aircraft. RPC recorded certain net operating costs comprised of rent and an allocable share of fixed costs of $51 thousand for the three months ended March 31, 2024, and $50 thousand for the three months ended March 31, 2023.
CRITICAL ACCOUNTING POLICIES
The discussion of Critical Accounting Policies is incorporated herein by reference from the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2023. There have been no significant changes in the critical accounting policies since year-end.
IMPACT OF RECENT ACCOUNTING STANDARDS
See note to the Consolidated Financial Statements titled Recent Accounting Standards for a description of recent accounting standards, including the expected dates of adoption and estimated effects on results of operations and financial condition.
SEASONALITY
Oil and natural gas prices affect demand throughout the oil and natural gas industry, including the demand for the Company’s products and services. The Company’s business depends in large part on the economic conditions of the oil and gas industry, and specifically on the capital expenditures of its customers related to the exploration and production of oil and natural gas. There is a positive correlation between these expenditures and customers’ demand for the Company’s services. As such, when these expenditures fluctuate, customers’ demand for the Company’s services fluctuates as well. These fluctuations depend on the current and projected prices of oil and natural gas and resulting drilling activity and are not seasonal to any material degree.
FORWARD-LOOKING STATEMENTS
Certain statements made in this report that are not historical facts are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “estimate,” “focus,” “plan,” and similar expressions generally identify forward-looking statements. Such forward-looking statements may include, without limitation, statements that relate to our business strategy, plans and objectives, and our beliefs and expectations regarding future demand for our equipment and services and other events and conditions that may influence the oilfield services market and our performance in the future. Forward-looking statements made elsewhere in this report include, without limitation, statements regarding: our expectations regarding revenue recognition with respect to our contracts with our customers; our ability to continue to monitor factors that impact current and expected customer activity levels, such as the prices of oil and natural gas, changes in pricing for our services and equipment, and utilization of our equipment and personnel; the effect of geopolitical factors such as political instability in the petroleum-producing regions of the world, the actions of the OPEC oil cartel, overall economic conditions and weather in the United States, the prices of oil and natural gas, and our customers’ drilling and production activities on our financial results; our strategy of utilizing equipment in unconventional basins; our expectation that capital expenditures will be approximately $250 million during 2024 and our expectation that such expenditures will be directed primarily towards capitalized maintenance of our existing equipment and selected growth opportunities including a new Tier 4 dual-fuel fleet expected to be placed into service during 2024; our plans to continue to pursue international growth opportunities; our belief that international revenues will continue to be less than ten percent of our consolidated revenues in the foreseeable future; our belief that current and projected prices of oil, natural gas and natural gas liquids are important catalysts for U.S. domestic drilling activity and can be impacted by economic developments as well as geopolitical disruptions, such as the continuing conflicts in the Middle East as well as Russia and Ukraine; our belief that oil prices remain at or above levels sufficient to motivate our customers to maintain drilling and completion activities; our belief that the
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majority of the U.S. domestic rig count remains directed towards oil; our belief that oil-directed drilling will remain the majority of domestic drilling, and that natural gas-directed drilling will remain a low percentage of U.S. domestic drilling in the near term; our belief that natural gas-directed drilling will increase in the future because of favorable long-term market dynamics and our belief that this projected higher demand should drive increased activity in most of the basins in which we operate; our plans to continue to monitor the market for our services and the competitive environment including the current trends and expectations with regard to environmental concerns and related impact on our equipment fleets; our belief that the growing efficiency with which oilfield completion crews are providing services is a catalyst for the oversupplied nature of the oilfield services market; our belief that most of the feasible efficiency gains have been realized and that a number of our smaller competitors have ceased operations; our plans to continue to maintain and upgrade our current fleet capacity of revenue-producing equipment; our plans to remain highly disciplined for about adding new incremental revenue-producing equipment capacity and to expand only when we believe the projected financial returns of such capital expenditures meet our financial return criteria; our intent with respect to adding incremental pressure pumping capacity to the industry given the oversupplied nature of oilfield services; our plans to allocate capital to maintain the capacity of our pressure pumping fleet to offset anticipated fleet requirements; our plans to replace a Tier 2 diesel fleet with a recently ordered Tier 4 dual-fleet; the strength of our financial condition; our plans with respect to our stock buyback program; our belief that the liquidity provided by our existing cash and cash equivalents and our overall strong capitalization will provide sufficient liquidity to meet our requirements for at least the next twelve months; our belief that we will not need our revolving credit facility to meet our liquidity requirements; our expectations to continue to pay cash dividends to common stockholders, subject to industry conditions and our earnings, financial condition and other relevant factors; our belief that if inflation in the general economic increases, our costs for equipment, materials and labor could increase as well; our belief that increases in activity in the domestic oilfield can cause upward pressures in the labor markets from which it hires employees, especially if employment in the general economy increases; our belief that activity increases can cause supply disruptions and higher costs of certain materials and key equipment components used to provide our services to our customers; the effect of the changes in foreign exchange rates on our consolidated results of operations or financial condition; and the impact of lawsuits, legal proceedings and claims on our financial position and results of operation.
Such forward-looking statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes to be appropriate. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of RPC to be materially different from any future results, performance or achievements expressed or implied in such forward-looking statements. Risk factors that could cause such future events not to occur as expected include the following: the volatility of oil and natural gas prices; our concentration of customers in the energy industry and periodic downturns; our business depends on capital spending by our customers, many of whom rely on outside financing to fund their operations; dependence on our key personnel; our ability to identify or complete acquisitions; our ability to attract and retain skilled workers; some of our equipment and several types of materials used in providing our services are available from a limited number of suppliers; whether outside financing is available or favorable to us; increasing expectations from customers, investors and other stakeholders regarding our environmental, social and governance practices; our compliance with regulations and environmental laws; the combined impact of the OPEC disputes and the COVID-19 pandemic on our operating results; possible declines in the price of oil and natural gas, which tend to result in a decrease in drilling activity and therefore a decline in the demand for our services; the ultimate impact of current and potential political unrest and armed conflict in the oil producing regions of the world, including the current conflict involving Israel and the Gaza Strip, which could impact drilling activity, adverse weather conditions in oil or gas producing regions, including the Gulf of Mexico; competition in the oil and gas industry; the Company’s ability to implement price increases; the potential impact of possible future regulations on hydraulic fracturing on our business; risks of international operations; reliance on large customers; our operations rely on digital systems and processes that are subject to cyber-attacks or other threats; and our cash and cash equivalents are held primarily at a single financial institution. Additional discussion of factors that could cause actual results to differ from management’s projections, forecasts, estimates and expectations is contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and in this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk exposure through borrowings on its credit facility. As of March 31, 2024, there were no outstanding interest-bearing advances on our credit facility, which bear interest at a floating rate.
Additionally, the Company is exposed to market risk resulting from changes in foreign exchange rates. However, since the majority of the Company’s transactions occur in U.S. currency, this risk is not expected to have a material effect on its consolidated results of operations or financial condition.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures – The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to its management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, March 31, 2024 (the Evaluation Date), the Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level as of the Evaluation Date.
Changes in internal control over financial reporting – There were no changes in the Company’s internal control over financial reporting during the first quarter of 2024 which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
RPC is involved in litigation from time to time in the ordinary course of its business. RPC does not believe that the outcome of such litigation will have a material adverse effect on the financial position or results of operations of RPC.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
Period |
| Total Number of Shares (or Units) Purchased | Average Price Paid Per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (2) | ||||
January 1, 2024 to January 31, 2024 |
| 320,255 | (1) | $ | 7.26 | — | 13,779,128 | ||
February 1, 2024 to February 29, 2024 |
| 399,947 | (2) | 7.38 |
| 399,947 | 13,379,181 | ||
March 1, 2024 to March 31, 2024 |
| 613,068 | (2) |
| 7.47 |
| 610,311 | 12,768,870 | |
Total |
| 1,333,270 | $ | 7.39 |
| 1,010,258 | 12,768,870 |
| (1) | Represent shares repurchased by the Company in connection with taxes related to vesting of certain restricted shares. |
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| (2) | The Company has a stock buyback program to repurchase up to 49,578,125 shares in the open market, including an additional 8,000,000 shares authorized for repurchase by the Board of Directors in the second quarter of 2023. As of March 31, 2024, 12,768,870 shares remained available to be repurchased. During the three months ended March 31, 2024, there were 1,010,258 shares purchased in the open market. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During the three months ended March 31, 2024, no director or officer, as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended, of the Company
ITEM 6. EXHIBITS
Exhibit |
| Description |
3.1(a) | ||
3.1(b) | ||
3.1(c) | ||
3.2 | ||
4 | ||
31.1 | ||
31.2 | ||
32.1 | Section 906 certifications for Chief Executive Officer and Chief Financial Officer. | |
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
104
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
RPC, INC. | ||
/s/ Ben M. Palmer | ||
Date: April 25, 2024 | Ben M. Palmer | |
President and Chief Executive Officer | ||
(Principal Executive Officer) | ||
/s/ Michael L. Schmit | ||
Date: April 25, 2024 | Michael L. Schmit | |
Vice President, Chief Financial Officer and Corporate Secretary | ||
(Principal Financial and Accounting Officer) |
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