RPC, Inc. ( RES)

Q3 2011 Earnings Call

October 26, 2011 9:00 am ET

Executives

Jim Landers – Vice President, Corporate Finance

Richard A. Hubbell – President and Chief Executive Officer

Ben M. Palmer – Vice President, Chief Financial Officer and Treasurer

Analysts

Neal Dingmann – Suntrust Robinson Humphrey

John Daniel – Simmons & Company International

Scott Burk – Canaccord Genuity

Andrea Sharkey – Gabelli & Company

John Lawrence – Tudor Pickering & Co.

Matt Beeby – Global Hunter Securities, LLC

Megan Repine – FBR Capital Markets

Doug Garber – Dahlman Rose & Co.

Daniel Devine – Gabelli & Co.

Thomas Escott – Pritchard Capital Partners

Presentation

Operator

Good day everyone and thank you for joining us for the RPC Inc.’s Third Quarter 2011 Earnings Conference Call. Today’s 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 a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to be queued up for questions. I would now like to advise everyone that this conference call is being recorded.

Jim will get us started by reading the forward-looking disclaimer.

Jim Landers

Thank you and good morning. Before we begin our call today, I want to remind you that in order to talk about our company, we’re 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 2010 10-K and other public filings that outline those risks. All these documents can be found on our website at www.rpc.net.

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. Also, we’re required to use EBITDA to report compliance with financial covenants under our revolving credit facility. Our press release today in 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’ve not received our press release and would like one, please call us at 404-321-2140 and we’ll forward one to you immediately.

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

Richard A. Hubbell

Thank you, Jim. This morning we issued our earnings press release for RPC’s third quarter ending September 30, 2011. Following my comments, Ben Palmer will discuss our financial results in more detail.

I’m pleased to report to our shareholders that RPC once again generated record revenues, profits, and EBITDA. Despite a number of operational challenges, our pressure pumping, coiled tubing, downhole tools, and nitrogen service lines all experienced sequential improvement. I’m also pleased to announce that RPC’s Board of Directors in response to strong operating results and balance sheet and as a short confidence in the company’s future performance increased the quarterly dividend to our shareholders from $0.08 to $0.10, a 25% increase.

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

Ben M. Palmer

Thank you, Rick. For the quarter ended September 30, 2011, revenues increased to $502.2 million, 66.2% increase compared to the prior year. These higher revenues resulted from a larger fleet of equipment, higher utilization and improved pricing.

EBITDA for the third quarter was $180 million compared to $107.9 million for the same period last year and operating profit for the quarter was $134.5 million compared to $74.4 million in 2010. Our net income during the current quarter was $83.1 million or $0.57 diluted earnings per share.

Cost of revenues increased from $162.5 million in the prior year to $279.9 million in the current year. This increase in costs resulted from higher business activity levels and 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 increased from 53.8% in the prior year to 55.7%, due to increased costs and some operational inefficiencies resulting from logistical challenges in our raw materials supply chain as well as increases in the market price of several high-demand raw materials used in our pressure pumping service line.

Selling, general and administrative expenses during the quarter were $37.2 million, an increase of 12.4% compared to $33.1 million in the prior year. However, because of our ability to leverage these fixed costs over higher revenues, SG&A costs as a percentage of revenues decreased from 11% last year to 7.4% this year. Depreciation and amortization was $46.5 million for the third quarter, an increase of $13.4 million over the prior year. This increase is a result of higher capital expenditures over the past 12 months.

Our technical services segment revenues increased 73% due to improved utilization of a larger fleet of equipment and improved pricing. Operating profit increased to $127.9 million compared to $65.2 million in the prior year. This improvement was due to higher revenues together with improved pricing and the associated leverage of fixed costs.

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