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RPC, Inc. Reports Second Quarter 2015 Financial Results

 

 

ATLANTA, July 29, 2015 - RPC, Inc. (NYSE: RES) today announced its unaudited results for the second quarter ended June 30, 2015. RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oilfield companies engaged in the exploration, production and development of oil and gas properties throughout the United States and in selected international markets.

 

For the quarter ended June 30, 2015, revenues decreased 48.9 percent to $297.6 million compared to $582.8 million in the second quarter of last year. Revenues decreased compared to the prior year due to lower activity levels and pricing in our major service lines. Operating loss for the quarter was $52.5 million compared to operating profit of $103.0 million in the prior year. Net loss for the quarter was $34.1 million or $0.16 loss per share, compared to net income of $63.3 million or $0.29 diluted earnings per share last year. Earnings before interest, taxes, depreciation and amortization (EBITDA) decreased to $17.6 million compared to $160.4 million in the prior year.¹ For the six months ended June 30, 2015, revenues decreased 35.1 percent to $703.8 million compared to $1.1 billion last year. Net loss for the six month period was $26.5 million, or $0.12 per share, compared to net income of $102.7 million, or $0.47 diluted earnings per share last year.

 

Cost of revenues during the second quarter of 2015 was $241.6 million, or 81.2 percent of revenues, compared to $374.3 million, or 64.2 percent of revenues, during the second quarter of last year.  Cost of revenues decreased due to lower costs resulting from lower activity levels, reduced personnel and incentive compensation, and price reductions from suppliers, partially offset by the impact of increasing service intensity.  Additionally, as a result of a change in accounting estimate, replacement parts totaling approximately $11.5 million were charged to cost of revenues rather than being capitalized. As a percentage of revenues, cost of revenues increased compared to the prior year due to significantly lower pricing for our services and cost inefficiencies resulting from lower activity levels. 

 

Selling, general and administrative expenses were $40.4 million in the second quarter of 2015 compared to $47.6 million in the second quarter of 2014. These expenses decreased due to lower total employment costs, including primarily incentive compensation, and other expenses which vary with activity levels. As a percentage of revenues, these costs increased to 13.6 percent in the second quarter of 2015 compared to 8.2 percent in the second quarter of 2014 primarily due to the relatively fixed nature of these costs during the short term. Depreciation and amortization increased to $69.8 million during the quarter compared to $56.5 million in the second quarter of the prior year due to capital equipment placed in service during the previous four quarters.

 

RPC’s gain on disposition of assets was $1.7 million during the second quarter of 2015, compared to a loss of $1.4 million during the second quarter of 2014.  This shift resulted from a change in accounting estimate implemented in 2015 in which the cost of certain pressure pumping components was recorded as cost of revenues upon installation, rather than being capitalized.  The net impact of this change on operating income during the quarter was not material; however, loss on dispositions and depreciation decreased due to this change in accounting estimate. Interest expense during the second quarter of 2015 was $390 thousand, an increase compared to $49 thousand during the second quarter of the prior year. Interest expense during the second quarter of this year was higher because interest expense during the second quarter of 2014 included a credit related to the favorable outcome of a sales tax audit.

 

¹ EBITDA is a financial measure which does not conform to generally accepted accounting principles (GAAP). Additional disclosure regarding this non-GAAP financial measure is disclosed in Appendix A to this press release.

 

 

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Second Quarter 2015 Earnings Release

 

Discussion of Sequential Quarterly Financial Results

 

RPC’s revenues for the quarter ended June 30, 2015 decreased by $108.7 million or 26.8 percent compared to the first quarter of 2015. Revenues decreased due to lower activity levels and pricing for our services, partially offset by increased service intensity in pressure pumping and a larger fleet of equipment in this service line. Cost of revenues during the second quarter decreased by $50.8 million or 17.4 percent due to lower activity levels and RPC’s ongoing cost management efforts during the quarter, partially offset by increased cost of component replacements. Cost of revenues as a percentage of revenues increased from 72.0 percent in the first quarter of 2015 to 81.2 percent in the second quarter due to significantly lower pricing for our services. Selling, general and administrative expenses during the second quarter of 2015 decreased by $2.2 million, or 5.3 percent, compared to the first quarter. Operating profit decreased from $6.2 million in the first quarter of 2015 to an operating loss of $52.5 million in the second quarter. Income before income taxes declined from $11.3 million in the first quarter of 2015 to a loss of $52.6 million in the second quarter. Net income declined from $7.5 million in the first quarter of 2015 to a net loss of $34.1 million in the second quarter, and diluted earnings per share declined from $0.04 in the first quarter of 2015 to a loss per share of $0.16 in the second quarter of 2015.

 

Management Commentary

 

“RPC’s financial results during the second quarter of 2015 reflect our industry’s declining activity levels and competitive pricing for our services,” stated Richard A. Hubbell, RPC’s President and Chief Executive Officer. “The average U.S. domestic rig count during the second quarter was 907, a decrease of 51.1 percent compared to the same period in 2014, and a decrease of 35.4 percent compared to the first quarter of 2015. The average price of natural gas was $2.70 per Mcf, a 40.7 percent decrease compared to the prior year, and a 4.3 percent decrease compared to the first quarter of 2015. The unconventional rig count declined by 45.6 percent compared to the prior year and 33.1 percent sequentially. The average price of oil during the quarter was $57.53 per barrel, a 44.3 percent decrease compared to the prior year but a 17.4 percent increase compared to the first quarter of 2015. Our sequential revenue decline was slightly less than overall industry declines because of the increasing service intensity of pressure pumping, which is RPC’s largest service line.

 

“RPC continues to pursue prudent cost reduction measures to manage our short-term financial results without sacrificing service quality and our long-term operational capabilities. While we were disappointed during the quarter by declining activity levels, we see indications that U.S. domestic activity levels have troughed and that excess service capacity is undergoing attrition. Furthermore, we believe that the recent oil price weakness has added an additional level of uncertainty to our visibility regarding near-term activity levels. In an operating environment in which financial strength is an important advantage, we are pleased to report that the balance on our syndicated credit facility once again declined during the second quarter. As of June 30, 2015, the balance on this facility was $54.9 million, a decline of $100.7 million compared to the end of the first quarter. At our Board of Directors’ meeting yesterday, our Board voted not to pay a dividend this quarter. We are prioritizing our operational flexibility and the enhancement of our long-term strategic capabilities during this point in the cycle, and believe that a temporary suspension of RPC’s quarterly dividend is in the best long-term interests of our shareholders,” concluded Hubbell.

 

 

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Second Quarter 2015 Earnings Release

 

Summary of Segment Operating Performance

 

RPC’s business segments are Technical Services and Support Services.

 

Technical Services includes RPC’s oilfield service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer’s well. These services are generally directed toward improving the flow of oil and natural gas from producing formations or to address well control issues. The Technical Services segment includes pressure pumping, coiled tubing, hydraulic workover services, nitrogen, downhole tools, surface pressure control equipment, well control, and fishing tool operations.

 

Support Services includes RPC’s oilfield service lines that provide equipment for customer use or services to assist customer operations. The equipment and services offered include rental of drill pipe and related tools, pipe handling, inspection and storage services and oilfield training services.

 

Technical Services revenues decreased 49.3 percent for the quarter compared to the prior year due to lower activity levels and pricing as compared to the prior year, partially offset by increasing service intensity and a larger fleet of equipment in our pressure pumping service line, which is the largest service line within Technical Services. Support Services revenues decreased by 43.4 percent during the quarter compared to the prior year due principally to lower pricing and activity levels in the rental tool service line, which is the largest service line within this segment. Both Technical and Support Services reported operating losses due to lower revenues, partially offset by cost control efforts undertaken in each service line.