RPC(RES) - 2020 Q2 - Quarterly Report

Filing Information This report is a Form 10-Q filed by RPC, INC, an accelerated filer, for the quarter ended June 30, 2020 - The document is a Quarterly Report (Form 10-Q) filed by RPC, INC for the quarterly period ended June 30, 2020[1][2] - RPC, INC is classified as an accelerated filer[3] - As of July 24, 2020, RPC, Inc had 215,123,252 shares of common stock outstanding[3] Part I. Financial Information This part presents the company's unaudited financial statements and management's analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) Unaudited consolidated financial statements and accompanying notes for the period ended June 30, 2020 Consolidated Balance Sheets A snapshot of the company's assets, liabilities, and equity at the end of the reporting period Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $145,405 | $50,023 | | Accounts receivable, net | $109,183 | $242,574 | | Inventories | $93,392 | $100,947 | | Property, plant and equipment, less accumulated depreciation | $278,358 | $516,727 | | Total assets | $782,868 | $1,053,218 | | Total current liabilities | $58,814 | $101,402 | | Total liabilities | $134,215 | $222,885 | | Total stockholders' equity | $648,653 | $830,333 | - Total assets decreased by approximately 25.6% from December 31, 2019, to June 30, 2020, primarily due to reductions in accounts receivable and property, plant, and equipment[7] - Cash and cash equivalents significantly increased by 190.7% from $50,023 thousand at December 31, 2019, to $145,405 thousand at June 30, 2020[7] Consolidated Statements of Operations Details the company's revenues, expenses, and net income or loss over the reporting period Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $89,300 | $358,516 | $333,077 | $693,172 | | Operating (loss) income | $(37,530) | $8,387 | $(256,237) | $6,226 | | Net (loss) income | $(25,093) | $6,171 | $(185,516) | $5,432 | | Basic (Loss) Earnings per share | $(0.12) | $0.03 | $(0.87) | $0.02 | | Diluted (Loss) Earnings per share | $(0.12) | $0.03 | $(0.87) | $0.02 | | Dividends per share | $0.00 | $0.05 | $0.00 | $0.15 | - Revenues for the three months ended June 30, 2020, decreased by 75.1% year-over-year, and for the six months, decreased by 51.9% year-over-year[8] - The company reported significant operating losses and net losses for both the three and six months ended June 30, 2020, primarily due to impairment and other charges of $207,175 thousand for the six-month period[8] Consolidated Statements of Comprehensive (Loss) Income Reports net income alongside other comprehensive income items, such as currency translation adjustments Consolidated Statements of Comprehensive (Loss) Income (in thousands) | Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income | $(25,093) | $6,171 | $(185,516) | $5,432 | | Other comprehensive income (loss) | $500 | $507 | $520 | $778 | | Comprehensive (loss) income | $(24,593) | $6,678 | $(184,996) | $6,210 | - The company reported a comprehensive loss of $(184,996) thousand for the six months ended June 30, 2020, a significant decline from comprehensive income of $6,210 thousand in the prior year[11] Consolidated Statements of Stockholders' Equity Shows changes in the company's equity accounts over the reporting period Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | December 31, 2019 | June 30, 2020 | | :--- | :--- | :--- | | Total Stockholders' Equity | $830,333 | $648,653 | | Retained Earnings | $832,113 | $649,844 | | Net loss (six months ended June 30, 2020) | N/A | $(160,423) | | Stock issued for stock incentive plans, net (six months ended June 30, 2020) | N/A | $2,097 | | Stock purchased and retired (six months ended June 30, 2020) | N/A | $(792) | - Total stockholders' equity decreased by $181,680 thousand from December 31, 2019, to June 30, 2020, primarily due to the net loss incurred[13] Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $122,099 | $93,430 | | Net cash used for investing activities | $(25,919) | $(122,477) | | Net cash used for financing activities | $(798) | $(39,573) | | Net increase (decrease) in cash and cash equivalents | $95,382 | $(68,620) | | Cash and cash equivalents at end of period | $145,405 | $47,642 | - Net cash provided by operating activities increased by $28,669 thousand (30.7%) for the six months ended June 30, 2020, compared to the prior year, despite a net loss, driven by favorable changes in working capital[15] - Capital expenditures decreased significantly from $132,253 thousand in 2019 to $38,659 thousand in 2020[15] Notes to Consolidated Financial Statements Provides detailed disclosures and explanations for the figures presented in the financial statements Note 1. General Outlines the basis of presentation for the unaudited interim financial statements - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and include all necessary adjustments[17][18] - A group including the Company's Chairman and his brother controls over fifty percent of the Company's voting power[20] Note 2. Recent Accounting Standards Discusses the adoption and potential impact of new accounting pronouncements - The Company adopted ASU No. 2016-13 (CECL) in Q1 2020, resulting in an immaterial cumulative-effect adjustment to retained earnings, and plans to continue recording an allowance on trade receivables based on aging and economic conditions[21] - ASU No. 2017-04, simplifying the goodwill impairment test, was adopted prospectively in Q1 2020[21] - ASU No. 2019-12, simplifying income tax accounting, is effective in Q1 2021, and the Company is evaluating its impact[24] Note 3. Revenues Details the company's revenue recognition policies and disaggregated revenue data - RPC's contract revenues are primarily generated from specialized oilfield services, with performance obligations satisfied over time as services are performed[25][31] Timing of Revenue Recognition (in thousands) | Type | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Oilfield services transferred over time | $89,300 | $358,516 | $333,077 | $693,172 | | Total revenues | $89,300 | $358,516 | $333,077 | $693,172 | - Unbilled trade receivables (contract assets) decreased from $52,052 thousand at December 31, 2019, to $21,578 thousand at June 30, 2020[34] Note 4. Impairment and Other Charges Explains significant non-recurring charges related to asset impairments - The Company recorded $207,175 thousand in pre-tax impairment and other charges for the six months ended June 30, 2020, primarily due to long-lived asset impairments in the Technical Services segment[39] - These charges were triggered by drastic declines in oilfield drilling and completions, substantial decline in global oil demand due to COVID-19, and geopolitical tensions[35][36] - Goodwill was deemed not impaired as the fair value of each reporting unit exceeded its net book value[38] Note 5. Earnings Per Share Provides the calculation of basic and diluted earnings per share Net (Loss) Income and Shares Used in EPS Calculation (Six Months Ended June 30, in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net (loss) income available for stockholders | $(185,516) | $5,432 | | Net (loss) income used in calculating earnings per share | $(185,516) | $5,098 | | Shares used in calculating basic and diluted earnings per share | 212,360 | 212,415 | Note 6. Stock-Based Compensation Details expenses and unrecognized costs related to stock incentive plans - As of June 30, 2020, there were 3,850,000 shares available for grant under the 2014 Stock Incentive Plan[43] Stock-Based Compensation Expense (Pre-tax, in thousands) | Period | 2020 | 2019 | | :--- | :--- | :--- | | Three months ended June 30 | $2,017 | $2,436 | | Six months ended June 30 | $4,114 | $4,888 | - Total unrecognized compensation cost related to non-vested restricted shares was $45,512 thousand as of June 30, 2020, expected to be recognized over a weighted-average period of 4.2 years[46] Note 7. Business Segment Information Presents financial data for the company's reportable operating segments - RPC manages its business under two reportable segments: Technical Services (well-site equipment and personnel) and Support Services (off-well-site services and tools)[47][48][49] Segment Revenues (Six Months Ended June 30, in thousands) | Segment | 2020 | 2019 | | :--- | :--- | :--- | | Technical Services | $308,232 | $652,113 | | Support Services | $24,845 | $41,059 | | Total revenues | $333,077 | $693,172 | Segment Operating (Loss) Income (Six Months Ended June 30, in thousands) | Segment | 2020 | 2019 | | :--- | :--- | :--- | | Technical Services | $(46,307) | $2,392 | | Support Services | $(299) | $7,155 | | Corporate Expenses | $(6,469) | $(7,958) | | Impairment and Other Charges | $(207,175) | $0 | | Total operating (loss) income | $(256,237) | $6,226 | Note 8. Current Expected Credit Losses Describes the methodology and impact of the new credit loss accounting standard - The Company adopted ASU No. 2016-13 (CECL) on January 1, 2020, with an immaterial cumulative-effect adjustment to retained earnings[57] Allowance for Credit Losses Roll-Forward (2020, in thousands) | Metric | Amount | | :--- | :--- | | Beginning Balance, January 1 | $5,181 | | Provision (benefit) for current expected credit losses | $(828) | | Write-offs | $(302) | | Balance as of June 30 | $4,051 | - The estimate of current expected credit losses was not significantly impacted by the current and expected future economic and market conditions surrounding the COVID-19 pandemic[57] Note 9. Inventories Reports the value of inventories held by the company at the end of the period Inventories (in thousands) | Date | Amount | | :--- | :--- | | June 30, 2020 | $93,392 | | December 31, 2019 | $100,947 | Note 10. Employee Benefit Plan Discloses information about the company's retirement and supplemental benefit plans Net Periodic Benefit Cost (Six Months Ended June 30, in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net periodic benefit cost | $525 | $140 | - The Company did not make contributions to its Retirement Income Plan during the six months ended June 30, 2020 or 2019[60] Supplemental Retirement Plan (SERP) Trading Gains (Losses), Net (Six Months Ended June 30, in thousands) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Trading gains (losses), net | $(958) | $3,636 | Note 11. Notes Payable to Banks Details the terms, availability, and covenant compliance of the company's credit facility - The Company has a $125 million revolving credit facility maturing on July 26, 2023[64][65] - As of June 30, 2020, there were no outstanding borrowings under the facility, and $105.2 million was available after accounting for letters of credit[68][70] - The Company was in compliance with financial covenants as of June 30, 2020, but acknowledges a risk of breaching them under current industry conditions[65] Note 12. Income Taxes Explains the company's effective tax rate and the impact of recent tax legislation Effective Tax Rate | Period | 2020 | 2019 | | :--- | :--- | :--- | | Three months ended June 30 | 35.7% benefit | 29.6% provision | | Six months ended June 30 | 28.0% benefit | 30.0% provision | - The Company recognized a discrete tax benefit of $13.1 million in Q1 2020 due to the CARES Act, allowing a five-year carryback of 2019 net operating losses to a 35% tax rate year[73] - A net discrete tax provision of $35.8 million was recorded for the six months ended June 30, 2020, related to the revaluation of certain deferred tax assets and liabilities[73] Note 13. Fair Value Disclosures Provides fair value measurements for financial and non-financial assets using a three-level hierarchy - The Company uses a three-level hierarchy for fair value measurements, distinguishing between observable and unobservable inputs[74] Fair Value Measurements at June 30, 2020 (in thousands) | Asset Type | Total | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Equity securities | $101 | $101 | $0 | $0 | | Investments measured at net asset value | $27,520 | N/A | N/A | N/A | | Assets held for sale (non-recurring) | $5,385 | $0 | $5,385 | $0 | - No significant transfers between fair value levels occurred for the period ended June 30, 2020[75] Note 14. Accumulated Other Comprehensive (Loss) Income Details the components and changes in accumulated other comprehensive income (AOCI) Accumulated Other Comprehensive (Loss) Income (in thousands) | Component | December 31, 2019 | June 30, 2020 | | :--- | :--- | :--- | | Pension Adjustment | $(20,908) | $(19,990) | | Foreign Currency Translation | $(2,315) | $(2,713) | | Total | $(23,223) | $(22,703) | - In Q1 2019, the Company reclassified approximately $2.7 million of stranded tax effects related to its pension plan from AOCI to retained earnings due to the Tax Cuts and Jobs Act[83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on financial performance, liquidity, and market outlook amid industry challenges Overview Highlights the severe industry disruption and its impact on Q2 2020 financial results - The oil and gas industry experienced an unprecedented disruption in Q2 2020 due to the COVID-19 pandemic and OPEC disputes, leading to drastic declines in oilfield drilling and completions[89][90] Key Financial and Operational Changes (Q2 2020 vs Q2 2019) | Metric | Q2 2020 | Q2 2019 | Change | | :--- | :--- | :--- | :--- | | Revenues | $89.3M | $358.5M | -75.1% | | International revenues | $6.8M | $14.8M | -54.0% | | Loss before income taxes | $(39.0)M | $8.8M | N/A | | Diluted loss per share | $(0.12) | $0.03 | N/A | - The Company implemented headcount reductions, employee furloughs, and compensation cuts to adjust its cost structure in response to expected low revenue levels[90] Outlook Discusses near-term expectations for the oilfield services market and key industry metrics - U.S oilfield well completion activity is expected to remain weak in the near term due to continued low oil prices and depressed industry activity, with the domestic drilling rig count falling to the lowest level ever recorded in Q2 2020[98] Average Prices and Rig Count (Q2 2020 vs Q2 2019) | Metric | Q2 2020 | Q2 2019 | Change | | :--- | :--- | :--- | :--- | | Average oil price (per barrel) | $27.32 | $59.89 | -54.4% | | Average natural gas price (per mcf) | $1.71 | $2.57 | -33.4% | | Average U.S. domestic rig count | 392 | 989 | -60.4% | - The market for several oilfield completion services, including pressure pumping, has become oversupplied due to increased efficiency, leading to negative consequences for pricing and equipment utilization[101] Results of Operations Provides a detailed analysis of revenue and expense fluctuations by segment Consolidated Financial Performance (Three Months Ended June 30, in thousands) | Metric | 2020 | 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | | Revenues | $89,300 | $358,516 | -75.1% | | Operating (loss) income | $(37,530) | $8,387 | N/A | | Cost of revenues (% of revenues) | 89.6% | 73.9% | +15.7 pp | | SG&A expenses (% of revenues) | 32.2% | 12.1% | +20.1 pp | | Depreciation and amortization (% of revenues) | 21.9% | 12.0% | +9.9 pp | Consolidated Financial Performance (Six Months Ended June 30, in thousands) | Metric | 2020 | 2019 | Change (YoY) | | :--- | :--- | :--- | :--- | | Revenues | $333,077 | $693,172 | -51.9% | | Operating (loss) income | $(256,237) | $6,226 | N/A | | Cost of revenues (% of revenues) | 78.7% | 74.7% | +4.0 pp | | SG&A expenses (% of revenues) | 19.6% | 12.8% | +6.8 pp | | Depreciation and amortization (% of revenues) | 17.7% | 12.3% | +5.4 pp | - Technical Services segment reported an operating loss of $34.1 million in Q2 2020 (vs $6.9 million profit in Q2 2019), and Support Services reported an operating loss of $1.8 million (vs $4.0 million profit in Q2 2019), both due to lower pricing and activity levels[113] Liquidity and Capital Resources Assesses the company's cash position, cash flows, and capital expenditure plans - Cash and cash equivalents totaled $145.4 million as of June 30, 2020, and the Company believes its liquidity will be sufficient for at least the next twelve months without needing its revolving credit facility[134][137] Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $122,099 | $93,430 | | Net cash used for investing activities | $(25,919) | $(122,477) | | Net cash used for financing activities | $(798) | $(39,573) | - Capital expenditures for 2020 are expected to be approximately $50 to $60 million, primarily for maintenance of existing equipment, with $38.7 million spent as of June 30, 2020[139] - The Board of Directors suspended RPC's dividend to common stockholders on July 22, 2019, with no timetable for resumption[145] Inflation Discusses the impact of inflation and oilfield activity on operating costs - The Company's costs for equipment, materials, and labor are influenced by general economic inflation and oilfield activity levels[146] - Labor costs and prices for certain raw materials declined throughout 2019 and into Q2 2020 due to declining oilfield activity[146] Off Balance Sheet Arrangements Confirms the absence of material off-balance sheet arrangements - The Company does not have any material off-balance sheet arrangements[147] Related Party Transactions Discloses transactions with affiliated companies and other related parties - RPC charged Marine Products Corporation $433,000 for administrative services during the six months ended June 30, 2020[148] - The Company paid $610,000 to affiliated parties for products or services during the six months ended June 30, 2020[149] - Charges to the Company from Rollins, Inc for administrative services and rent aggregated $52,000 for the six months ended June 30, 2020[152] Critical Accounting Policies States there have been no significant changes to critical accounting policies - There have been no significant changes in the Company's critical accounting policies since the fiscal year ended December 31, 2019[153] Impact of Recent Accounting Standards References the financial statement notes for details on new accounting standards - Refer to Note 2 of the Notes to Consolidated Financial Statements for a description of recent accounting standards, including expected adoption dates and estimated effects[154] Seasonality Explains that business demand is driven by market prices rather than seasonality - The Company's business demand is primarily influenced by oil and natural gas prices and customer capital expenditures, rather than being materially seasonal[155] Forward-Looking Statements Cautions readers about the risks and uncertainties inherent in forward-looking statements - The report contains forward-looking statements that are subject to known and unknown risks, uncertainties, and other factors, which may cause actual results to differ materially[156][159] - Key risk factors include the combined impact of OPEC disputes and the COVID-19 pandemic, declines in oil and natural gas prices, political unrest, adverse weather, and competition[159] Item 3. Quantitative and Qualitative Disclosures about Market Risk Details the company's exposure to interest rate and foreign exchange rate risks - The Company is subject to interest rate risk through borrowings on its credit facility, but had no outstanding interest-bearing advances as of June 30, 2020[160] - Foreign exchange rate risk is not expected to have a material effect on consolidated results or financial condition, as the majority of transactions occur in U.S currency[161] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and internal control over financial reporting - The Company's disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of June 30, 2020[162][163] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[164] Part II. Other Information This part contains other required disclosures, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings Discloses the status of legal proceedings and their potential financial impact - RPC is involved in litigation from time to time in the ordinary course of its business[166] - The Company does not believe that the outcome of such litigation will have a material adverse effect on its financial position or results of operations[166] Item 1A. Risk Factors Updates on material risks, focusing on the impacts of the COVID-19 pandemic and OPEC disputes - No material changes from previously disclosed risk factors, except for those related to the combined impacts of OPEC disputes and the COVID-19 pandemic[167] - These impacts have resulted in an abrupt and steep decline in economic activity, strained U.S oil storage infrastructure, and historically volatile oil prices[167] - In response to the downturn, the Company has reduced its workforce, instituted compensation adjustments, and reduced its expense structure and capital expenditures[168] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports on the company's stock repurchase activities during the quarter Shares Repurchased in Q2 2020 | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 1, 2020 to April 30, 2020 | 455 | $2.50 | | May 1, 2020 to May 31, 2020 | 202 | $3.37 | | June 1, 2020 to June 30, 2020 | 1,332 | $3.24 | | Totals | 1,989 | $3.08 | - The repurchased shares represent shares bought back in connection with taxes related to the vesting of certain restricted shares, not open market purchases[171] - As of June 30, 2020, 8,248,184 shares remain available to be repurchased under the current authorization, which does not have a predetermined expiration date[170] Item 3. Defaults upon Senior Securities Confirms no defaults on senior securities occurred during the reporting period - No defaults upon senior securities were reported[172] Item 4. Mine Safety Disclosures References the exhibit containing required mine safety disclosure information - Mine Safety Disclosures are included in Exhibit 95.1 to this Form 10-Q[173] Item 5. Other Information Indicates no other material information is required to be reported for the period - No other information is reported in this section[175] Item 6. Exhibits Lists all exhibits filed as part of the quarterly report - The exhibits include corporate governance documents (Restated Certificate of Incorporation, Amended and Restated Bylaws), Section 302 and 906 certifications, Mine Safety Disclosures, and XBRL Instance and Taxonomy Extension Documents[176] Signatures Provides the official sign-offs by the company's executive officers - The report was signed on July 31, 2020, by Richard A Hubbell, President and Chief Executive Officer, and Ben M Palmer, Vice President, Chief Financial Officer and Corporate Secretary[180]