RPC(RES) - 2021 Q4 - Annual Report

PART I Item 1. Business RPC, Inc. is a holding company providing specialized oilfield services and equipment primarily to oil and gas companies in the U.S. and select international markets, with performance tied to commodity prices and drilling activity - RPC, Inc. operates as a holding company for several oilfield services companies, including Cudd Energy Services and Patterson Services, organized into Technical and Support Services segments[9][10] - In 2021, an estimated 65% of revenues were related to oil-directed activities, while 35% were related to natural gas[11] - International revenues accounted for 4% of consolidated revenues in 2021, a decrease from 6% in 2020, primarily due to lower activity in Algeria and Saudi Arabia[44] - The company's primary growth strategy is to generate long-term returns through effective capital management, focusing on organic growth, strategic investments, and selective acquisitions[46][47] Business Segments RPC's operations are divided into Technical Services and Support Services, with Technical Services, particularly Pressure Pumping and Downhole Tools, being the primary revenue driver in 2021 Revenue Contribution by Key Service Lines (2019-2021) | Service Line | 2021 Revenue % | 2020 Revenue % | 2019 Revenue % | | :--- | :--- | :--- | :--- | | Pressure Pumping | 43% | 37% | 42% | | Downhole Tools | 29% | 34% | 34% | | Coiled Tubing | 10% | 9% | 7% | | Nitrogen | 4% | 5% | 4% | | Rental Tools (Support) | 4% | 4% | 4% | - Technical Services include capital and personnel-intensive services performed directly at the customer's well, such as pressure pumping, downhole tools, and coiled tubing[12] - Support Services primarily involve equipment rentals (like drill pipe) and consulting services offered off the well site, with demand driven by customer drilling activity levels[13] Industry The U.S. oil and gas industry, RPC's primary market, is highly volatile and has shifted towards unconventional wells, which comprise over 80% of U.S. drilling and require more of RPC's specialized services - The U.S. domestic rig count rose by approximately 138% between August 2020 and early Q1 2022, recovering from a historic low[37] - U.S. well completions, a key activity driver for RPC, increased by 32.8% in 2021 to 9,810 wells, compared to 7,387 in 2020[38] - Unconventional wells, which require more of RPC's services like pressure pumping and coiled tubing, have comprised over 80% of U.S. domestic drilling since 2016, a trend RPC views as a permanent positive driver[43] Competition RPC operates in a highly competitive oilfield services industry, competing on factors like equipment availability, service quality, safety reputation, technical proficiency, and price against a range of providers - The oilfield services industry is highly competitive, with principal competitive factors being product availability, service quality, safety, technical skill, and price[53] - Competitors range from dominant global players like Halliburton, Baker Hughes, and Schlumberger to more similarly sized peers such as Liberty Oilfield Services and Patterson-UTI Energy[54] Human Capital RPC's employee count increased to 2,250 in 2021, reflecting business cyclicality, with the company focusing on talent management through diversity, development, compensation, and safety programs Employee Headcount | Year End | Employees | | :--- | :--- | | 2021 | 2,250 | | 2020 | 2,005 | - Key human capital objectives include fostering diversity, employee development, providing competitive compensation and benefits, and ensuring workplace safety[55] - The company is investing in technology to reduce the number of employees on a job location and minimize their exposure to safety hazards[62] Item 1A. Risk Factors RPC faces significant risks primarily related to the volatility of oil and natural gas prices, competition, labor shortages, and the controlling ownership structure - Demand for services is highly dependent on volatile oil and natural gas prices, which affect customers' capital investment decisions[72] - The company operates in a highly competitive industry, and its ability to compete depends on service quality, availability, safety, and price[80] - A controlling group, including the Chairman of the Board, holds over 50% of the company's voting power, effectively controlling operations and limiting the voice of public stockholders[96][97] - The business is exposed to risk from potential shortages of skilled labor, which could impair growth and profitability[83] - The COVID-19 pandemic previously caused unprecedented disruption and could continue to negatively impact financial results if conditions worsen[89] Item 2. Properties RPC owns or leases approximately 65 offices and operating facilities, with its corporate headquarters in Atlanta, Georgia, being leased and major operational hubs located across key oil and gas regions - The company owns and leases approximately 65 facilities, with its principal executive offices in Atlanta, Georgia being leased[106] - Major owned operational hubs are located in Texas, Louisiana, Oklahoma, Wyoming, and Utah[107] - Key leased facilities for operations, sales, and administration are in Midland and The Woodlands, Texas[108] Item 3. Legal Proceedings RPC is involved in various routine legal proceedings, such as commercial and personal injury claims, which management believes will not materially adversely affect its financial condition - The company is party to routine legal proceedings, primarily involving commercial claims, workers' compensation, and personal injury[108] - Management believes the outcome of pending lawsuits and claims, even if adverse, would not materially impact the company's financial condition[108] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities RPC's common stock trades on the NYSE under RES, with 216,586,626 shares outstanding as of February 18, 2022, and 8,248,184 shares remaining for repurchase under its program - RPC's common stock is listed on the NYSE under the symbol RES, with 216,586,626 shares outstanding as of February 18, 2022[115] - No shares were repurchased during the fourth quarter of 2021. As of December 31, 2021, 8,248,184 shares were available for repurchase under the existing program[117] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, RPC's financial performance improved significantly with revenues increasing 44.6% to $864.9 million and a return to profitability, driven by higher customer activity and stronger commodity prices Outlook RPC's outlook is favorable, supported by a significant recovery in commodity prices and customer activity, with well completions rising 33% in 2021 and anticipated increased drilling - Well completions, a more meaningful indicator for RPC than rig count, increased by approximately 33% in 2021 compared to 2020[138] - The company believes recent price increases in oil, natural gas, and natural gas liquids have encouraged customers to increase drilling and completion activities[139] - RPC believes the competitive market for its services will improve in the near term due to realized efficiency gains, the exit of some competitors, and increased customer activity[141] Results of Operations For the year ended December 31, 2021, RPC's revenues increased 44.6% to $864.9 million, resulting in an operating income of $16.3 million and net income of $7.2 million, a significant turnaround from the prior year's loss Consolidated Financial Highlights (2019-2021) | Metric (in thousands, except per share) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Consolidated Revenues | $864,929 | $598,302 | $1,222,409 | | Technical Services Revenues | $815,046 | $556,488 | $1,145,554 | | Support Services Revenues | $49,883 | $41,814 | $76,855 | | Consolidated Operating Income (Loss) | $16,291 | $(309,635) | $(114,288) | | Net Income (Loss) | $7,217 | $(212,192) | $(87,111) | | Diluted Earnings (Loss) Per Share | $0.03 | $(1.00) | $(0.41) | - Revenues in 2021 increased by $266.6 million (44.6%) compared to 2020, primarily due to higher activity levels and improved pricing as the market recovered from COVID-19 shutdowns[145] - Cost of revenues as a percentage of revenues decreased from 80.4% in 2020 to 76.7% in 2021 due to better leverage of direct costs and improved pricing[146] - The significant improvement in net income for 2021 was driven by higher profitability and the absence of the large impairment charges ($217.5 million) recorded in 2020[150][154] Liquidity and Capital Resources RPC maintained a strong liquidity position with $82.4 million in cash at year-end 2021, no outstanding debt, and projected capital expenditures of $120 million for 2022 Cash and Cash Flow Summary (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Cash and cash equivalents (end of period) | $82,433 | $84,496 | | Net cash provided by operating activities | $47,719 | $77,958 | | Net cash used for investing activities | $(47,631) | $(42,659) | | Net cash used for financing activities | $(2,151) | $(826) | - The company's financial condition remains strong, with sufficient liquidity from cash on hand to meet requirements for at least the next twelve months without needing its credit facility[159][161] - Capital expenditures are expected to increase to approximately $120 million in 2022, up from $67.6 million in 2021, for maintenance and selective growth[163] - As of December 31, 2021, there were no outstanding borrowings under the $100 million revolving credit facility, with $83.7 million available[162] Item 8. Financial Statements and Supplementary Data The consolidated financial statements for 2021 show total assets increased to $864.4 million, total liabilities rose to $222.6 million, and the company achieved a net income of $7.2 million Consolidated Balance Sheets As of December 31, 2021, RPC's total assets increased to $864.4 million, primarily due to higher accounts receivable, while total liabilities rose to $222.6 million Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $82,433 | $84,496 | | Accounts receivable, net | $258,635 | $161,771 | | Total current assets | $492,010 | $428,359 | | Property, plant and equipment, net | $254,408 | $264,411 | | Total assets | $864,365 | $790,505 | | Total current liabilities | $130,849 | $79,565 | | Total liabilities | $222,574 | $158,938 | | Total stockholders' equity | $641,791 | $631,567 | Consolidated Statements of Operations For 2021, RPC reported revenues of $864.9 million, a 44.6% increase, achieving an operating income of $16.3 million and a net income of $7.2 million, reversing the prior year's loss Consolidated Statement of Operations Summary (in thousands) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenues | $864,929 | $598,302 | $1,222,409 | | Cost of revenues | $663,262 | $480,739 | $919,595 | | Operating income (loss) | $16,291 | $(309,635) | $(114,288) | | Income (loss) before income taxes | $16,448 | $(309,431) | $(113,101) | | Net income (loss) | $7,217 | $(212,192) | $(87,111) | | Diluted earnings (loss) per share | $0.03 | $(1.00) | $(0.41) | Consolidated Statements of Cash Flows In 2021, RPC generated $47.7 million in cash from operating activities, used $47.6 million for investing, and saw cash and cash equivalents decrease slightly to $82.4 million at year-end Consolidated Statement of Cash Flows Summary (in thousands) | Account | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $47,719 | $77,958 | $209,141 | | Net cash used for investing activities | $(47,631) | $(42,659) | $(235,788) | | Net cash used for financing activities | $(2,151) | $(826) | $(39,592) | | Net (decrease) increase in cash | $(2,063) | $34,473 | $(66,239) | | Cash and cash equivalents at end of period | $82,433 | $84,496 | $50,023 | Note 15: Business Segment and Entity Wide Disclosures In 2021, Technical Services generated $815.0 million in revenue with a $24.4 million operating profit, while the United States accounted for 96.4% of total revenues Segment Revenues and Operating Profit (Loss) - 2021 (in thousands) | Segment | Revenues | Operating Profit (Loss) | | :--- | :--- | :--- | | Technical Services | $815,046 | $24,434 | | Support Services | $49,883 | $(5,725) | | Corporate | — | $(13,300) | Revenues by Major Service Line - 2021 (in thousands) | Service Line | Revenues | | :--- | :--- | | Pressure Pumping | $369,028 | | Downhole Tools | $247,019 | | Coiled Tubing | $88,946 | Revenues by Geography (in thousands) | Region | 2021 | 2020 | | :--- | :--- | :--- | | United States | $833,686 | $562,390 | | International | $31,243 | $35,912 | | Total | $864,929 | $598,302 | Item 9A. Controls and Procedures As of December 31, 2021, RPC's management concluded that disclosure controls and internal control over financial reporting were effective, a conclusion affirmed by an unqualified audit opinion - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[360] - The independent registered public accounting firm, Grant Thornton LLP, audited the effectiveness of internal control over financial reporting and issued an unqualified opinion[361] PART III Items 10-14 (Directors, Executive Compensation, Security Ownership, etc.) Information for Items 10 through 14, covering directors, executive compensation, and security ownership, is incorporated by reference from the company's 2022 Proxy Statement - Detailed information regarding directors, executive compensation, stock ownership, and related party transactions is incorporated by reference from the 2022 Proxy Statement[366][371][372] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all consolidated financial statements, schedules, and exhibits filed as part of the Form 10-K report, including corporate documents and SEC-required certifications - This section contains the index of all financial statements, schedules, and exhibits filed with the 10-K report[380]