RPC Inc. (RES)

Q2 2010 Earnings Conference Call

July 28, 2010 09:00 am ET

Executives

Jim Landers - VP, Corporate Finance

Rick Hubbell - President & CEO

Ben Palmer - VP, CFO & Treasurer

Analysts

Jeff Tillery - Tudor, Pickering, & Holt

Andrea Sharkey - Gabelli

John Tasdemir - Canaccord

William Conroy - Pritchard Capital Market

Rob MacKenzie - FBR Capital Markets

Thomas McNamara - Impala

Presentation

Operator

Good morning and thank you for joining us for RPC, Incorporated's second quarter 2010 earnings conference call. Today's call 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. (Operator Instructions) Jim will get us started by reading the forward-looking disclaimer.

Jim Landers

Thank you, Katie, and good morning, everybody. 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 will be 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 RPC's 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. I invite you to review that disclosure if you're 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.

Rick Hubbell

Thank you, Jim. This morning we issued our earnings press release for the quarter ended June 30, 2010. In a few minutes, Ben Palmer will discuss our financial results in more detail. At this time I would like to provide you with a few operational highlights.

The second quarter of 2010 was RPC's third consecutive quarterly improvement following the severe downturn of 2009 and at the same time representing one of our best quarters. Our success and continued sequential improvement are the direct result of our ability to serve our customers' increasing needs.

Our employees have effectively anticipated and responded to the industry's transformation to unconventional drilling and completion and movement into new geographic regions. While our pressure pumping business accounts for a large portion of our financial results, improved pricing and activity levels for our other service lines, including coil tubing, rental tools, and snubbing contributed to the second quarter's improved results.

In response to additional customer opportunities, we have committed to increase our pressure pumping fleet by an additional 50,000 horsepower. This increase is in addition to the 90,000 horsepower announced during our last conference call. All this equipment should be delivered by the end of the first quarter of 2011, at which time we will have 430,000 hydraulic horsepower in service.

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

Ben Palmer

Thank you, Rick. For the quarter ended June 30th, revenues increased to $252.9 million, a 99.1% increase compared to the prior year. EBITDA for the second quarter was $85.2 million compared to $13.5 million the same period last year. RPC reported an operating profit for the quarter of $52.1 million compared to an operating loss of $19.5 million in 2009.

Our net income during the current quarter was $31.6 million or $0.32 diluted earnings per share. Cost of revenues in the second quarter increased from $91.1 million in the prior year to $139.5 million in the current year. This increase in costs was due to a variety of factors all relating to higher business activity levels, and this included salaries and wages, incentive compensation, materials and supplies, maintenance and repairs, and fleet and transportation cost.

Costs of revenues for the second quarter as a percentage of revenues decreased from 71.7% in the prior year to 55.2%. This decrease was due primarily to increased operational leverage associated with higher revenues resulting from our work in unconventional formations, together with decreased discounts and overall greater utilization.

Selling, general, and administrative expenses during the quarter were $29.5 million, an increase of 26.1% over the prior year of $23.4 million. Because of our ability to leverage these fixed costs over higher revenues, SG&A costs as a percentage of revenues decreased from 18.4% last year to 11.7%.

Depreciation and amortization was $33.4 million for the second quarter, an increase of approximately $1 million over the prior year. Our technical services segment revenues increased 105% due to improved utilization of the entire fleet and improved pricing.

Operating profit was $46.3 million compared to an operating loss in the prior year of $15.2 million. This improvement was due to higher revenues and the associated leverage of fixed costs.

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