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RPC, Inc. Reports Fourth Quarter 2017 Financial Results
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PR Newswire
ATLANTA, Jan. 24, 2018
ATLANTA, Jan. 24, 2018 /PRNewswire/ -- RPC, Inc. (NYSE: RES) today announced its unaudited results for the fourth quarter and year ended December 31, 2017. RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oilfield companies engaged in the exploration, production and development of oil and gas properties throughout the United States and in selected international markets.
For the quarter ended December 31, 2017, revenues increased by 93.4 percent to $427.3 million compared to $221.0 million in the fourth quarter of last year. Revenues increased compared to the prior year due to higher activity levels and improved pricing for our services, higher service intensity, and activation of previously idled revenue-producing equipment. Operating profit for the quarter was $60.3 million compared to an operating loss of $32.2 million in the prior year. Net income for the fourth quarter was $57.7 million or $0.27 diluted earnings per share.
During the fourth quarter of 2017, RPC recorded a net discrete tax benefit of $19.3 million as a component of tax expense as a result of the "Tax Cuts and Jobs Act ("Tax Reform")" enacted during the quarter. The benefit resulted primarily from the revaluation of deferred tax items using the lower corporate tax rates, offset by adjustments related to permanent tax law changes, effective January 1, 2018. Excluding the impact of Tax Reform, net income for the fourth quarter of 2017 was $38.4 million or $0.18 diluted earnings per share, compared to a net loss of $21.1 million or $0.10 loss per share last year.1
Earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter was $101.1 million compared to $15.7 million in the prior year.2 For the twelve months ended December 31, 2017, revenues increased by 118.8 percent to $1.6 billion compared to $729.0 million last year. Net income for the twelve-month period was $162.5 million or $0.75 per diluted share. Net Income excluding the impact of Tax Reform was $143.2 million, or $0.66 diluted earnings per share, compared to net loss of $141.2 million, or $0.66 loss per share last year.
Cost of revenues during the fourth quarter of 2017 was $285.7 million, or 66.9 percent of revenues, compared to $173.0 million, or 78.3 percent of revenues, during the fourth quarter of last year. Cost of revenues increased primarily due to higher employment costs and materials and supplies expenses, both of which were driven by higher activity levels. As a percentage of revenues, cost of revenues decreased due to leverage of higher revenues over direct employment costs and improved pricing for our services.
Selling, general and administrative expenses were $42.0 million in the fourth quarter of 2017 compared to $35.8 million in the fourth quarter of 2016. These expenses increased due to higher compensation costs, primarily incentive compensation, as well as other expenses consistent with higher activity levels and improved profitability. As a percentage of revenues, these costs decreased to 9.8 percent in the fourth quarter of 2017 compared to 16.2 percent in the fourth quarter of 2016, due to the leverage of higher revenues over primarily fixed expenses. Depreciation and amortization decreased to $38.0 million compared to $48.4 million in the fourth quarter of the prior year.
Discussion of Sequential Quarterly Financial Results
RPC's revenues for the quarter ended December 31, 2017 decreased by $43.7 million, or 9.3 percent, compared to the third quarter of 2017. Revenues decreased due to lower activity levels caused by higher than expected seasonal slowdowns, including year-end customer budget constraints. This was partially offset by improved pricing and a larger active fleet of revenue producing equipment. Cost of revenues during the fourth quarter of 2017 decreased by $9.1 million, or 3.1 percent, due to lower materials and supplies expenses resulting from lower activity levels, partially offset by higher total employment costs due to increased headcount. As a percentage of revenues, cost of revenues increased from 62.6 percent in the third quarter to 66.9 percent in the fourth quarter due to inefficiencies resulting from lower activity levels, partially offset by improved pricing for our services. RPC's operating profit during the fourth quarter was $60.3 million, a decrease of $37.1 million, or 38.1 percent, compared to the third quarter operating profit of $97.4 million. EBITDA for the fourth quarter decreased by $36.5 million, or 26.5 percent, compared to the prior quarter.
Management Commentary
"The average U.S. domestic rig count during the fourth quarter of 2017 was 921, an increase of 56.4 percent compared to the same period in 2016, but a decrease of 2.6 percent compared to the third quarter of 2017," stated Richard A. Hubbell, RPC's President and Chief Executive Officer. "The average price of natural gas during the fourth quarter was $2.90 per Mcf, a 4.6 percent decrease compared to the prior year, and a 1.7 percent decrease compared to the third quarter of 2017. The average price of oil during the fourth quarter was $55.37 per barrel, a 12.4 percent increase compared to the prior year and a 15.1 percent increase compared to the third quarter of 2017. Compared to the prior year, RPC's fourth quarter 2017 revenues increased at a rate greater than the change in these industry metrics because of high demand for oilfield service providers capable of operating in highly service-intensive environments. On a sequential basis, our revenues decreased at a greater rate than would be implied by industry metrics because of higher than expected seasonal slowdowns.
"We recognize that RPC's fourth quarter results interrupted the strong trends of the past several quarters; however, we are pleased with full year 2017 results. We believe that higher oil and natural gas prices, as well as larger macro trends in global supply and demand, will encourage our customers to continue to increase their activities during 2018. During the fourth quarter of 2017, we continued to recruit and train employees to staff additional equipment that we anticipate placing in service during the second quarter of 2018 to meet accelerating market demand. RPC finished the fourth quarter with $91.0 million in cash. Capital expenditures during the quarter were $42.5 million, directed toward both maintenance of our equipment and initial payments on new revenue-producing equipment.
"Since the majority of RPC's business is domestic, we expect the recently enacted Tax Reform to have a meaningful positive impact on our financial results through increased earnings and operating cash flow in 2018. We estimate our annual effective tax rate in 2018 will range from 20 to 25 percent," concluded Hubbell.
Summary of Segment Operating Performance
RPC manages two operating segments - Technical Services and Support Services.
Technical Services includes RPC's oilfield service lines that utilize people and equipment to perform value-added completion, production and maintenance services directly to a customer's well. These services are generally directed toward improving the flow of oil and natural gas from producing formations or to address well control issues. The Technical Services segment includes pressure pumping, coiled tubing, hydraulic workover services, nitrogen, downhole tools, surface pressure control equipment, well control and fishing tool operations.
Support Services includes RPC's oilfield service lines that provide equipment for customer use or services to assist customer operations. The equipment and services offered include rental of drill pipe and related tools, pipe handling, inspection and storage services, and oilfield training services.
Technical Services revenues increased by 96.0 percent for the quarter compared to the prior year due to improved pricing, higher activity levels and a larger active fleet of revenue-producing equipment as compared to the prior year, particularly within our pressure pumping service line, which is the largest service line within Technical Services. Support Services revenues increased by 43.7 percent during the quarter compared to the prior year due primarily to improved activity levels and pricing in the rental tool service line, which is the largest service line within this segment. Technical Services reported an operating profit during the quarter compared to an operating loss in the prior year, while Support Services reported a smaller operating loss for the fourth quarter of 2017 as compared to the prior year.
| (in thousands) | | Three Months Ended December 31, | | | Twelve Months Ended December 31, | ||||
| | | 2017 | | 2016 | | | 2017 | | 2016 |
| | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Technical Services | $ | 410,972 | $ | 209,634 | | $ | 1,538,351 | $ | 679,654 |
| Support Services | | 16,327 | | 11,363 | | | 56,876 | | 49,320 |
| Total revenues | $ | 427,299 | $ | 220,997 | | $ | 1,595,227 | $ | 728,974 |
| Operating profit (loss): | | | | | | | | | |
| Technical Services | $ | 67,021 | $ | (26,223) | | $ | 251,476 | $ | (203,804) |
| Support Services | | (1,606) | | (6,681) | | | (12,228) | | (26,021) |
| Corporate expenses | | (3,882) | | (3,313) | | | (17,561) | | (17,037) |
| (Loss) Gain on disposition of assets, net | | (1,249) | | 4,001 | | | 4,530 | | 7,920 |
| Total operating profit (loss) | $ | 60,284 | $ | (32,216) | | $ | 226,217 | $ | (238,942) |
| Interest expense | | (104) | | (115) | | | (426) | | (681) |
| Interest income | | 466 | | 171 | | | 1,494 | | 467 |
| Other income (expense), net | | 2,745 | | (478) | | | 5,531 | | (204) |
| | | | | | | | | | |
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