RPC CFO Discusses Q3 2010 - Earnings Call Transcript

RPC CFO Discusses Q3 2010 - Earnings Call Transcript
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RPC (

RES

)

Q3 2010 Earnings Call

October 27, 2010 9:00 am ET

Executives

Richard Hubbell – President, Chief Executive Officer

Ben Palmer – Chief Financial Officer

Jim Landers – Vice President, Corporate Finance

Analysts

Max Barrett – Tudor, Pickering, Holt & Co.

Robert Mackenzie – FBR Capital Markets

John Daniel – Simmons & Co.

Joe Gibney – Capital One Southcoast

John Tasdemir – Canaccord Adams

Andrea Sharkey – Gabelli & Co.

William Conroy – Pritchard Capital Partners

Presentation

Operator

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Good morning and thank you for joining us for the RPC Incorporated’s Third Quarter 2010 Earnings conference call. Today’s conference will be hosted by Rick Hubbell, President and CEO; and Ben Palmer, Chief Financial Officer. Also present is Jim Landers, Vice President of Corporate Finance.

At this time, all participants are in listen-only mode. The following presentation will be conducted in question and answer session. Instructions will be provided at that time for you to queue up for questions. I would like to advise everyone that this conference is being recorded.

Jim will get us started by reading the forward-looking disclaimer. Please go ahead, Mr. Landers.

Jim Landers

Thank you, Denise, and good morning. Before we begin our call today, I want to remind you that in order to talk about our Company, we are going to mention a few things that are not historical facts. Some of the statements that we’ve made on this call could be forward-looking in nature and reflect a number of known and unknown risks. I’d like to refer you to our press release issued today along with our 2009 10-K and other public filings that outline those risks, all of which can be found on our website at

www.rpc.net

.

I also need to inform you in today’s earnings release and conference call, we’ll be referring to EBITDA which is a non-GAAP measure of operating performance. RPC uses EBITDA as a measure of operating performance because it allows us to compare performance consistently over various periods without regard to changes in our capital structure. We are also required to use EBITDA to report compliance with financial covenants under our revolving credit facility. Our press release today and our website provide a reconciliation of EBITDA to net income, which is the nearest GAAP financial measure. Please review that disclosure if you are interested in seeing how it’s calculated.

If you have not received our press release, please call us at 404-321-2140 and we’ll provide one to you immediately.

I will now turn the call over to our President and CEO, Rick Hubbell.

Richard Hubbell

Jim, thank you. This morning we issued our earnings press release for RPC’s third quarter ending September 30, 2010. In a few minutes Ben Palmer will discuss our financial results in more detail.

I’m very pleased to announce that RPC, through the hard work of our employees, generated record revenues, profits, and EBITDA for the quarter. This is a remarkable turnaround from where we were just 12 months ago. While the demand for our pressure pumping services continues to lead our financial results, our other services lines including down hole tools, rental tools, and coiled tubing contributed greatly to the quarter’s improved results.

With that overview, Ben Palmer, our CFO, will provide some financial details.

Ben Palmer

Thank you, Rick. For the quarter ended September 30, 2010, revenues increased to 302.2 million, 129% increase compared to the prior year. These higher revenues resulted from our work in unconventional formations together with improved pricing and overall higher utilization.

EBITDA for the third quarter was 107.9 million compared to 19 million in the same period last year. RPC reported an operating profit for the quarter of 74.4 million compared to an operating loss of 14.9 million in 2009. Our net income during the current quarter was 46.3 million or $0.47 diluted earnings per share.

Cost of revenues in the third quarter increased from 90.4 million in the prior year to 162.5 million in the current year. This increase in costs resulted from higher business activity levels and the associated costs, including materials and supplies, total employment costs, and maintenance and repairs. Cost of revenues for the third quarter as a percentage of revenues decreased from 68.4% in the prior year to 53.8% due to improved operational leverage resulting from higher revenues.

Selling, general and administrative expenses during the quarter were 33.1 million, an increase of 44.9% over the prior year of 22.8 million. However, because of our ability to leverage these fixed costs over higher revenues, SG&A costs as a percentage of revenues decreased from 17.3% last year to 11%.

Depreciation and amortization was 33.1 million for the third quarter, which is approximately the same as the prior year.

Our technical services segment revenues increased 130% due to improved utilization of the entire fleet and improved pricing. Operating profit was 65.2 million compared to an operating loss in the prior year of 9.5 million. This improvement was due to higher revenues and the associated leverage of fixed costs.

Revenues in our support services segment, which is comprised mainly of our rental tool service line, increased 116%. This segment generated operating profit of 12 million compared to an operating loss of 1.8 million last year, primarily due to higher activity in the service lines within this segment.

Sequentially RPC’s business experienced a continued improvement compared to the previous quarters in 2010 without any meaningful increase in equipment capacity before the end of the third quarter. Our consolidated revenues during the third quarter increased again to 302.2 million from 252.9 million in the second quarter, which was a 19.5% increase. Revenues increased with higher activity levels including the number of jobs and the intensity. Also pricing continued to improve over prior quarters, especially in horizontal drilling including shale formations.

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