美國
證券交易委員會
華盛頓特區20549
表格
1934年證券交易所法案
截至2024年6月30日季度結束
或
1934年證券交易所法案
過渡期間從____________至____________
委託文件號碼。
（依憑章程所載的完整登記名稱）
| ||
(成立地或組織其他管轄區) | （國稅局雇主身份識別號碼） |
(總部辦公地址) | （郵遞區號） |
(
（註冊人的電話號碼，包括區號）
根據本法案第12條(b)註冊的證券：
請打勾表示是否申報人（1）根據1934年證券交易法第13條或15(d)條的要求，在過去12個月內已提交所有應提交的報告（或者在要求提交這些報告的較短時間內提交該報告），並且（2）在過去90天內一直適用這些申報要求。
請用勾選表示是否在過去12個月內向本章節第232.405條的第(§232.405)款規定提交過互動數據文件，或在註冊商被要求提交此類文件的較短期間內。
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大型加速歸檔人 | ☐ | ☒ | |
非加速歸檔人 | ☐ | 小型報告公司 | |
新興成長型企業 |
如果一家新興成長型企業，請勾選“是”表示註冊人選擇不使用根據證券交易所法第13(a)條所提供的任何新的或修改後的財務會計準則的延長過渡期來遵守。 ☐
請在核准印章處打勾，表明公司是否為外殼公司（根據《交易所法》第120億2條所定義）。是
截至2024年10月18日，RPC, Inc.已經
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RPC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2024 AND DECEMBER 31, 2023
(In thousands, except share and par value data)
September 30, | 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 |
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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 AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(In thousands except per share data)
(Unaudited)
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2024 |
| 2023 |
| 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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| ( |
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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 | $ | | $ | | $ | | $ | | ||||
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 AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(In thousands)
(Unaudited)
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||||
Net income | $ | | $ | | $ | | $ | | |||||
Other comprehensive income: |
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Pension settlement and adjustment, net of tax |
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| — |
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Foreign currency translation |
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| ( |
| ( |
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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 AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(In thousands)
(Unaudited)
Nine months ended September 30, 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 |
| ( |
| ( |
| ( |
| ( |
| — |
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Net income |
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Cash dividends ($ |
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| — |
| — |
| ( |
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Foreign currency translation |
| — |
| — |
| — |
| — |
| ( |
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Balance, March 31, 2024 | | $ | | $ | — | $ | | $ | ( | $ | | ||||||
Stock issued for stock incentive plans, net | | | | — | — | | |||||||||||
Stock purchased and retired | — | — | ( | | — | — | |||||||||||
Net income | — | — | — | | — | | |||||||||||
Cash dividends ($ | — | — | — | ( | — | ( | |||||||||||
Foreign currency translation | — | — | — | — | ( | ( | |||||||||||
Balance, June 30, 2024 | | $ | | $ | — | $ | | $ | ( | $ | | ||||||
Stock issued for stock incentive plans, net | ( | ( | | — | — | | |||||||||||
Stock purchased and retired | ( | ( | ( | | — | ( | |||||||||||
Net income | — | — | — | | — | | |||||||||||
Cash dividends ($ | — | — | — | ( | — | ( | |||||||||||
Foreign currency translation | — | — | — | — | | | |||||||||||
Balance, September 30, 2024 |
| | $ | | $ | — | $ | | $ | ( | $ | | |||||
Nine months ended September 30, 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 |
| ( |
| ( |
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Net income |
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Cash dividends ($ | — |
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| — |
| ( |
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Pension adjustment, net of taxes |
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| — |
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Foreign currency translation |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||
Balance, March 31, 2023 | | $ | | $ | — | $ | | $ | ( | $ | | ||||||
Stock issued for stock incentive plans, net | | | | — | — | | |||||||||||
Stock purchased and retired | ( | — | ( | | — | ( | |||||||||||
Net income | — | — | — | | — | | |||||||||||
Cash dividends ($ | — | — | — | ( | — | ( | |||||||||||
Pension adjustment, net of taxes | — | — | — | — | | | |||||||||||
Foreign currency translation | — | — | — | — | | | |||||||||||
Balance, June 30, 2023 |
| | $ | | $ | — | $ | | $ | ( | $ | | |||||
Stock issued for stock incentive plans, net | ( | ( | | — | — | | |||||||||||
Stock purchased and retired | ( | ( | ( | | — | ( | |||||||||||
Net income | — | — | — | | — | | |||||||||||
Cash dividends ($ | — | — | — | ( | — | ||||||||||||
Foreign currency translation | — | — | — | — | ( | ( | |||||||||||
Balance, September 30, 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 NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
(In thousands)
(Unaudited)
Nine months ended September 30, | |||||||
| 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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Gain due to benefit plan financing arrangement |
| ( | — |
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Deferred income tax provision |
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Pension settlement charges |
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Other non-cash adjustments | | | |||||
Decrease (increase) 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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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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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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Purchase of business |
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Proceeds from benefit plan financing arrangement |
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Re-investment in benefit plan financing arrangement |
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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 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 (refund) 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 and nine months ended September 30, 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:
Accounting Standards Update (ASU) No. 2023-07: Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures: These amendments 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 has
ASU No. 2023-09: Income Taxes (Topic 740): Improvements to Income Tax Disclosures: These amendments 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.
Securities and Exchange Commission (SEC) Final Rules: Climate related Disclosure: The SEC adopted final rules designed to enhance public company disclosures related to the risks and impacts of climate-related matters. The new rules require disclosures relating to climate-related risks and risk management as well as the board and management’s governance of such risks. In addition, the rules include requirements to disclose the financial effects of severe weather events and other natural conditions in the audited financial statements and disclose information about greenhouse gas emissions, which will be subject to a phased-in assurance requirement. On April 4, 2024, the SEC stayed its climate disclosure rules to “facilitate the orderly judicial resolution” of pending legal challenges. If litigation is resolved in favor of the SEC, a majority of the final rules are effective for RPC beginning in the year 2026.
8
3. BUSINESS ACQUISITION
Effective July 1, 2023, the Company completed its acquisition of all of the outstanding equity interests in Spinnaker Oilwell Services, LLC (Spinnaker), pursuant to a 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. This acquisition significantly expanded RPC's cementing business from its presence in South Texas to basins in which it currently provides other services. Spinnaker is included in our Technical Services Segment.
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.
The following table provides unaudited supplemental pro forma financial information as if the acquisition had occurred on January 1, 2023.
Nine months ended September 30, | ||
(in thousands) | 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:
Technical Services
9
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:
September 30, | 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. All 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 | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
(in thousands) |
| 2024 | 2023 |
| 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 | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
(in thousands) |
| 2024 |
| 2023 |
| 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) |
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Adjustment for participating securities |
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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. As of September 30, 2024, there were
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 our 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, fishing and water management. 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.
11
Support Services consist primarily of drill pipe and related tools, pipe handling, pipe inspection and storage services, and oilfield training 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.
Segment Revenues:
RPC’s operating segment revenues by major service lines are shown in the following table:
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
(in thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Technical Services: |
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Pressure Pumping | $ | | $ | | $ | | $ | | |||||
Downhole Tools |
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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 | | |
| |
| | |||||||
Total Support Services | | | | | |||||||||
Total revenues | $ | | $ | | $ | | $ | | |||||
The following summarizes revenues for the United States and separately for all international locations combined for the three and nine months ended September 30, 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 |
| Nine months ended | ||||||||||
September 30, | September 30, | ||||||||||||
(in thousands) |
| 2024 |
| 2023 |
| 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.
12
Summarized financial information with respect RPC’s reportable segments for the three and nine months ended September 30, 2024, and 2023 are shown in the following table:
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
(in thousands) |
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Revenues: |
|
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|
|
|
|
|
| ||||
Technical Services | $ | | $ | | $ | | $ | | ||||
Support Services |
| |
| |
| |
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Total revenues | $ | | $ | | $ | | $ | | ||||
Operating income: |
|
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Technical Services | $ | | $ | | $ | | $ | | ||||
Support Services |
| |
| |
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| | ||||
Corporate expenses |
| ( |
| ( |
| ( |
| ( | ||||
Pension settlement charges | — | — | — | ( | ||||||||
Gain on disposition of assets, net |
| |
| |
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Total operating income | | | | | ||||||||
Interest expense |
| ( |
| ( |
| ( |
| ( | ||||
Interest income |
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| | ||||
Other income, net |
| |
| |
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Income before income taxes | $ | | $ | | $ | | $ | | ||||
As of and for the nine months ended | Technical | Support | ||||||||||
September 30, 2024 |
| Services |
| Services |
| Corporate |
| Total | ||||
(in thousands) |
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Depreciation and amortization | $ | | $ | | $ | | $ | | ||||
Capital expenditures |
| |
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Identifiable assets | | | | | ||||||||
As of and for the nine months ended | Technical | Support | ||||||||||
September 30, 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.
13
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:
Nine months ended September 30, |
| 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 the first-in, first-out method or the weighted average cost method.
September 30, | 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 September 30, 2024, and December 31, 2023:
September 30, 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 | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
(in thousands) |
| 2024 | 2023 |
| 2024 | 2023 | ||||||
Amortization of finite-lived intangible assets | $ | | $ | | $ | | $ | | ||||
Estimated amortization expense based on balances as of September 30, 2024, were as follows: $
14
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 and nine months ended September 30, 2023, are disclosed below:
| Three months ended |
| Nine months ended | ||||
(in thousands) | September 30 2023, | September 30 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 $
During 2024 the Company received $
The SERP liabilities include participant deferrals, net of distributions, and are stated at fair value of approximately $
15
Effective October 22, 2024, the termination of the SERP was approved by the Board of Directors. The Internal Revenue Service (IRS) rules require a 12 month waiting period before liquidating the SERP after termination has been approved. The participant balances are expected to be distributed in the fourth quarter of 2025.
14. NOTES PAYABLE TO BANKS
The Company has a revolving Credit Agreement with Bank of America and
The Credit Agreement contains
As of September 30, 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 September 30, 2024, RPC had
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
(in thousands) | 2024 |
| 2023 |
| 2024 |
| 2023 |
| |||||
Interest incurred | $ | | $ | | $ | | $ | |
| ||||
Interest paid | | | | | |||||||||
16
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, at the end of each successive interim period to the Company’s current annual estimated tax rate.
For the three months ended September 30, 2024, the effective rate reflects a provision of
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 September 30, 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
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 September 30, 2024 | $ | ( | $ | ( | ||
Foreign | |||||||||
Pension | Currency | ||||||||
(in thousands) |
| Adjustment |
| Translation |
| Total | |||
Balance at December 31, 2022 | $ | ( | $ | ( | $ | ( | |||
Change during the period: |
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Before-tax amount |
| |
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Tax expense | ( | — | ( | ||||||
Pension settlement charges, net of taxes | | | |||||||
Reclassification adjustment, net of taxes: |
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Amortization of net loss (1) |
| |
| — |
| | |||
Total activity for the period |
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| |
| | |||
Balance at September 30, 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:
Nine months ended | Nine months ended | |||||||||||||||||
September 30, 2024 | September 30, 2023 | |||||||||||||||||
(in thousands except per share data) |
| No. of shares | Avg. price | Total cost |
| No. of shares | Avg. price | Total cost | ||||||||||
Shares purchased for withholding taxes | | $ | $ | | | $ | $ | | ||||||||||
Open market purchases | | | | | ||||||||||||||
Total | | $ | $ | | | $ | $ | | ||||||||||
18
19. SUBSEQUENT EVENTS
On
| ● | Termination of the SERP; see Note titled Retirement Plans for additional information; and |
| ● | Declaration of a regular quarterly dividend of $ |
Also, effective October 22, 2024, the Executive Committee of the Board of Directors approved the formation of a wholly owned captive insurance company, as part of the Company’s enterprise-wide multi-year insurance strategy to more efficiently manage its insurance costs.
19
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 26.
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, other shifting trends in our industry, 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.
During the third quarter of 2024, total revenues of $337.7 million increased by $7.2 million or 2.2% compared to the same period in the prior year. Income before income taxes was $23.5 million for the three months ended September 30, 2024, compared to $24.9 million during the same period of 2023. Diluted earnings per share were $0.09 for the three months ended September 30, 2024, compared to $0.08 per share in the same period of 2023.
Net cash provided by operating activities decreased to $255.2 million for the nine months ended September 30, 2024, compared to $299.1 million in the same period of 2023 primarily due to a decrease in net income during the first nine months of 2024 compared to the same period in the prior year, partially offset by favorable changes in working capital due primarily to a $52.8 million federal tax refund received during the second quarter of 2024.
20
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 third quarter of 2024, approximately 82% 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 over time because of favorable long-term market dynamics. This projected higher demand for natural gas should drive increased activity in several 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 and is evaluating future investments and options to further transition our asset base toward dual-fuel or electric equipment. During the nine months ended September 30, 2024, capital expenditures totaled $179.5 million, primarily for capitalized maintenance and upgrades of our existing equipment, coupled with a new Tier 4 dual-fuel fleet that was placed into service during the second quarter of 2024. 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.
Results of Operations
Three months ended | Nine months ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Consolidated revenues [in thousands] | $ | 337,652 | $ | 330,417 | $ | 1,079,638 | $ | 1,222,943 | ||||
Revenues by business segment [in thousands]: | ||||||||||||
Technical | $ | 313,492 | $ | 303,069 | $ | 1,011,370 | $ | 1,145,078 | ||||
Support | 24,160 | 27,348 | 68,268 | 77,865 | ||||||||
Consolidated operating income [in thousands] | $ | 19,204 | $ | 22,711 | $ | 87,021 | $ | 195,737 | ||||
Operating income (loss) by business segment [in thousands]: | ||||||||||||
Technical | $ | 16,344 | $ | 18,912 | $ | 78,498 | $ | 199,462 | ||||
Support | 5,286 | 6,861 | 13,264 | 21,425 | ||||||||
Corporate | (4,216) | (4,840) | (11,083) | (14,593) | ||||||||
Pension settlement charges | — | — | — | (18,286) | ||||||||
Gain on disposition of assets, net | 1,790 | 1,778 | 6,342 | 7,729 | ||||||||
Average U.S. domestic rig count | 586 | 649 | 604 | 709 | ||||||||
Average natural gas price (per thousand cubic feet (mcf)) | $ | 2.10 | $ | 2.59 | $ | 2.11 | $ | 2.47 | ||||
Average oil price (per barrel) | $ | 76.57 | $ | 82.17 | $ | 78.60 | $ | 77.23 | ||||
21
THREE MONTHS ENDED SEPTEMBER 30, 2024 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2023
Revenues. Revenues of $337.7 million for the three months ended September 30, 2024, increased 2.2% compared to the three months ended September 30, 2023. The increase in revenues is primarily due to higher pressure pumping activity levels compared to a particularly soft year-ago quarter. Pressure pumping remains highly competitive. Management believes the industry continues to be over-supplied, with frac fleets from gassy basins moving into the Permian over the past year and efficiency gains that are consistently adding pump hour capacity to the industry. These challenges have recently resulted in activity, asset utilization, and pricing trending lower. International revenues represented 3.2% of total revenues in the third quarter of 2024 compared to 2.2% in the same period of the prior year. We believe that international revenues will continue to be less than ten percent of RPC’s consolidated revenues in the foreseeable future.
During the third quarter of 2024, the average price of oil was 6.8% lower and the average price of natural gas was 18.9% 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 September 30, 2024, was 9.7% lower than the same period in 2023.
The Technical Services segment revenues for the third quarter of 2024 increased by 3.4% compared to the same period of the prior year due primarily to an increase in Pressure Pumping revenues, partially offset by lower coiled tubing revenues. Technical Services reported operating income of $16.3 million during the third quarter of 2024 compared to operating income of $18.9 million in the third quarter of 2023. The decrease in Technical Services operating income was primarily due to lower pricing in pressure pumping and several other service lines, as well as lower activity levels in coiled tubing. Support Services segment revenues for the third quarter of 2024 decreased by 11.7% compared to the same period in the prior year, primarily due to lower activity levels within rental tools. Support Services reported operating income of $5.3 million for the third quarter of 2024 compared to operating income of $6.9 million for the third quarter of 2023. Third quarter 2024 Support Services operating profit decreased by $1.6 million compared to the third 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 increased 3.5% to $247.5 million for the three months ended September 30, 2024, compared to $239.1 million for the three months ended September 30, 2023. Cost of revenues increased primarily due to an increase in expenses consistent with higher activity levels, such as materials and supplies expenses and maintenance and repairs expenses. These costs increased slightly more than the revenue increase 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 $31.8 million for the third quarter of 2024 compared to $25.6 million for the third quarter of 2023.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased to $37.7 million for the three months ended September 30, 2024, compared to $42.0 million for the three months ended September 30, 2023, primarily due to a decrease in incentive compensation expense.
Depreciation and amortization. Depreciation and amortization increased 23.4% to $35.0 million for the three months ended September 30, 2024, compared to $28.4 million for the three months ended September 30, 2023. Depreciation and amortization increased due to capital expenditures in the past year.
Gain on disposition of assets, net. Gain on disposition of assets, net was $1.8 million for both the three months ended September 30, 2024, and for the three months ended September 30, 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 $1.0 million for the three months ended September 30, 2024, compared to $804 thousand for the same period in the prior year.
Interest expense and interest income. Interest expense increased to $261 thousand for the three months ended September 30, 2024, compared to $101 thousand for the three months ended September 30, 2023. Interest expense includes facility fees on the unused portion of the credit facility and the amortization of loan costs. Interest income increased to $3.5 million compared to $1.5 million in the prior year due to a higher average cash balance.
22
Income tax provision. Income tax provision was $4.7 million during the three months ended September 30, 2024, compared to $6.5 million for the same period in 2023. The effective tax rate was 19.9% for the three months ended September 30, 2024, compared to 26.3% for the three months ended September 30, 2023. The decrease in the 2024 effective tax rate is primarily due to a favorable change in permanent adjustments and favorable discrete adjustments, mainly resulting from provision to tax return entries.
NINE MONTHS ENDED SEPTEMBER 30, 2024, COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2023
Revenues. Revenues of $1.1 billion for the nine months ended September 30, 2024, decreased 11.7% compared to the nine months ended September 30, 2023. The decrease in revenues is primarily due to lower industry activity levels across service lines and competitive pricing.
During the first nine months of 2024, the average price of oil was 1.8% higher but the average price of natural gas was 14.6% lower, both as compared to the same period in the prior year. The average domestic rig count (Source: Baker Hughes, Inc.) for the nine months ended September 30, 2024, was 14.8% lower than the same period in 2023.
The Technical Services segment revenues for the first nine months of 2024 decreased by 11.7% compared to the same period of the prior year due primarily to a decrease in Pressure Pumping revenues, as well as most other service lines, due to lower industry activity and more competitive pricing. Technical Services reported operating income of $78.5 million during the first nine months of 2024 compared to operating income of $199.5 million during the first nine months 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 nine months of 2024 decreased by 12.3% compared to the same period in the prior year, primarily due to lower activity levels within rental tools. Support Services reported operating income of $13.3 million for the first nine months of 2024 compared to operating income of $21.4 million for the first nine months of 2023. Support Services operating profit for the first nine months of 2024 decreased by $8.1 million compared to the first nine months 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 2.9% to $786.4 million for the nine months ended September 30, 2024, compared to $810.1 million for the nine months ended September 30, 2023. Cost of revenues decreased primarily due to reduced expenses consistent with lower activity levels, such as materials and supplies expenses and maintenance and repairs expenses. 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 $88.7 million for the first nine months of 2024 compared to $71.2 million for the first nine months of 2023.
Selling, general and administrative expenses. Selling, general and administrative expenses decreased to $115.2 million for the nine months ended September 30, 2024, compared to $127.8 million for the nine months ended September 30, 2023, primarily due to a decrease in variable expenses consistent with lower activity levels as well as incentive compensation.
Depreciation and amortization. Depreciation and amortization increased 23.8% to $97.4 million for the nine months ended September 30, 2024, compared to $78.7 million for the nine months ended September 30, 2023. Depreciation and amortization increased due to capital expenditures in the past year.
Gain on disposition of assets, net. Gain on disposition of assets, net was $6.3 million for the nine months ended September 30, 2024, compared to a gain on disposition of assets, net of $7.7 million for the nine months ended September 30, 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 $2.5 million for the nine months ended September 30, 2024, compared to $2.2 million for the same period in the prior year.
Interest expense and interest income. Interest expense increased to $594 thousand for the nine months ended September 30, 2024, compared to $246 thousand for the nine months ended September 30, 2023. Interest expense includes facility fees on the unused portion of the credit facility and the amortization of loan costs. Interest income increased to $9.8 million compared to $6.0 million in the prior year due to a higher average cash balance.
23
Income tax provision. Income tax provision was $20.1 million during the nine months ended September 30, 2024, compared to $48.8 million for the same period in 2023. The effective provision rate was 20.3% for the nine months ended September 30, 2024, compared to 24.0% effective provision rate for the nine months ended September 30, 2023. The decrease in the 2024 effective tax rate is primarily due to a favorable change in permanent adjustments and favorable discrete adjustments, mainly resulting from provision to tax return entries, expiration of statute limitations, and interest on refunds received.
Liquidity and Capital Resources
Cash Flows
The Company’s cash and cash equivalents increased $53.6 million to $276.9 million as of September 30, 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 nine months ended September 30, 2024 and 2023:
Nine months ended September 30, | ||||||
(In thousands) |
| 2024 |
| 2023 | ||
Net cash provided by operating activities | $ | 255,215 | $ | 299,142 | ||
Net cash used for investing activities | (165,333) | (215,045) | ||||
Net cash used for financing activities | (36,304) | (38,647) | ||||
Cash provided by operating activities for the nine months ended September 30, 2024, decreased by $43.9 million compared to the nine months ended September 30, 2023, primarily due to a decrease in net income, partially offset by favorable changes in working capital. Change in working capital was a source of cash of $77.1 million in the nine months ended September 30, 2024, compared to $40.9 million in the same period last year. Changes in working capital during the nine months ended September 30, 2024, is comprised of the following: a decrease of $51.3 million in taxes receivable primarily due to a $52.8 million federal tax refund received during the second quarter of 2024, coupled with a $49.4 million decrease in accounts receivable, partially offset by an unfavorable change of $15.7 million in unearned revenue. The decrease in unearned revenue was due to the satisfaction of performance obligations that were associated with a customer cash prepayment we received in 2023. The changes in the other components were mainly due to the timing of payments and receipts.
Cash used for investing activities for the nine months ended September 30, 2024, decreased by $49.7 million compared to the nine months ended September 30, 2023, primarily due to the purchase of Spinnaker during 2023, partially offset by an increase in capital expenditures primarily due to the timing of new equipment deliveries. Capital expenditures were $179.5 million for the nine months ended September 30, 2024, compared to $148.8 million for the nine months ended September 30, 2023.
Cash used for financing activities for the nine months ended September 30, 2024, decreased by $2.3 million compared to the nine months ended September 30, 2023, primarily due to a decrease in repurchases of the Company’s common shares in the open market.
Financial Condition and Liquidity
The Company’s financial condition as of September 30, 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 third quarter of 2023, the Company amended the revolving credit facility. Among other matters, the amendment (1) extends the
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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, and (4) permits the issuance of letters of credit in currencies other than U.S. dollars. As of September 30, 2024, RPC had no outstanding borrowings under the revolving credit facility, and letters of credit outstanding relating to self-insurance programs and contract bids totaled $16.5 million; therefore, a total of $83.5 million of the facility was available. The Company was in compliance with the credit facility financial covenants as of September 30, 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 our pressure pumping fleet to offset anticipated future fleet retirements and is evaluating future investments and options to further transition our asset base toward dual-fuel or electric equipment. During the second quarter of 2024, the Company replaced 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 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. These audits involve 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 September 30, 2024, 12,768,870 shares remained available to be repurchased. During the three months ended September 30, 2024, there were no shares repurchased by the Company in the open market. During the three months ended September 30, 2023, the Company repurchased 136,692 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 October 22, 2024, the Board of Directors approved the termination of the Supplemental Executive Retirement Plan (“SERP”). Pursuant to the Internal Revenue Service rules, participant balances will be distributed 12 months after the termination of the SERP. The Company expects to distribute participant balances in the fourth quarter of 2025 and is currently evaluating its funding options.
Also, on October 22, 2024, the Board of Directors declared a regular quarterly cash dividend of $0.04 per share payable December 10, 2024, to common stockholders of record at the close of business on November 11, 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 while labor shortages caused by the departure of skilled labor from the domestic oilfield industry in prior years. These cost increases have moderated but remain high by historical standards.
OFF BALANCE SHEET ARRANGEMENTS
The Company does not have any material off balance sheet arrangements.
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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 Corporation totaling $858 thousand for the nine months ended September 30, 2024, and $786 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 $1.3 million for both the nine months ended September 30, 2024, and the nine months ended September 30, 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 $153 thousand for the nine months ended September 30, 2024 and $150 thousand for the comparable period in 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, trends in the industry, 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 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 expectation that capital expenditures will be between $200 million and $250 million during 2024 and our expectation that such expenditures will be directed primarily towards capitalized maintenance of our existing equipment and
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selected 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 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 in recent years with which oilfield completion crews are providing services is a catalyst for the oversupplied nature of the oilfield services market; our plans to continue to maintain and upgrade our current fleet capacity of revenue-producing equipment; our plans to remain highly disciplined about investing in new incremental revenue-producing equipment capacity and to make such investments only when we believe the projected financial returns of such capital expenditures meet our financial return criteria; our intent not to add 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 retirements and our evaluation of future investments and options to further transition our asset base toward dual-fuel or electric equipment; our belief that the industry continues to be over-supplied, with frac fleets from gassy basins moving into the Permian over the past year and efficiency gains that are consistently adding pump hour capacity to the industry; 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 inability to estimate the outcomes of sales and use tax audits in various jurisdictions; the termination of the Supplemental Executive Retirement Plan and distribution of the balances and payment options with respect to such plan; 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 safety of our financial institution; the seasonality of our business; 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, especially in pressure pumping, and adverse impacts from the industry being over-supplied; limits to 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.
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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 September 30, 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.
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, September 30, 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 – Effective July 1, 2023, the Company completed its acquisition of all of the outstanding equity interests in Spinnaker Oilfield Services LLC (Spinnaker). Management had elected to exclude Spinnaker’s internal controls from its assessment of the Company’s internal control over financial reporting contained in its 10-K for the year ended December 31, 2023, based on the guidelines established by the Securities and Exchange Commission. As of July 1, 2024, Spinnaker has been fully integrated into our reporting systems and all of our disclosure controls and procedures have incorporated Spinnaker effectively. There were no other changes in the Company’s internal control over financial reporting during the third 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
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During the three months ended September 30, 2024, no director or officer, as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended, of the Company
On October 22, 2024, the Board of Directors approved the termination of the SERP. Pursuant to the rules of the IRS, the participant balances must be distributed between 12 months and 24 months after the termination has been approved.
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: October 24, 2024 | Ben M. Palmer | |
President and Chief Executive Officer | ||
(Principal Executive Officer) | ||
/s/ Michael L. Schmit | ||
Date: October 24, 2024 | Michael L. Schmit | |
Vice President, Chief Financial Officer and Corporate Secretary | ||
(Principal Financial and Accounting Officer) |
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