RPC's CEO Discusses Q1 2012 Results - Earnings Call Transcript

RPC Inc. (RES)

Q1 2012 Earnings Call

April 25, 2012; 09:00 am ET

Executives

Rick Hubbell - President & Chief Executive Officer

Ben Palmer - Chief Financial Officer

Jim Landers - Vice President of Corporate Finance

Analysts

John Daniel - Simmons & Company

Doug Garber - Dahlman Rose

Neal Dingmann - Suntrust

Andrea Sharkey - Gabelli & Company

Jeff Tillery - Tudor Pickering Holt

Megan Repine - FBR Capital Markets

Michael Marino - Stevens Inc.

Tom Escott - Pritchard Capital

Patrick Schindler - IBERIA Capital Partners

Jeff Spittel - Global Hunter Securities

John Wengraf - Courage Capital Management

Ben Swomley - Morgan Stanley

Presentation

Operator

Good morning and thank you for joining us for the RPC Incorporated, first quarter 2012 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 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 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 2011 10-K and other public filings that outline those risks, all of which can be found on RPC’s website at www.rpc.net.

In today’s earnings release and conference call we will 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 of financial covenants under our revolving credit facilities.

Our press release today and our website provide a reconciliation of EBITDA to net income, to 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 for any reason, please visit our website that I just mentioned to see a copy.

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 RPC’s first quarter of 2012. Following my comments, Ben Palmer will discuss our financial results in more detail.

During the quarter we continued to improve our management of logistical issues and procurement of raw materials. This together with the delivery of additional revenue producing equipment ordered in 2011, combined to allow us to generate sequential and year-over-year improvements in revenue net income and EBITDA.

I am pleased with our quarterly results, the decline in natural gas prices to a 10 year low and the resulting decline in natural gas drilling activity continues to impact RPC’s activity levels and pricing. This environment together with several operational issues is materiality affecting our industry.

During the first quarter of 2012 RPC paid its largest dividend, repurchased the most stock and invested the highest capital expenditure amount in our history. Despite these uses of cash, the balance on our credit facility declined from the end of 2011 in our ratio of debt to total capitalization as a conservative 18%. We will discuss that in more detail in a few moments after our CFO Ben Palmer reviews our financial results for the first quarter of 2012.

Ben Palmer

Thank you, Rick. For the quarter ended March 31, 2012 revenues increased to $502.6 million, a 31.6% increase compared to the prior year. These higher revenues resulted from a larger fleet of equipment, higher activity levels and a favorable job mix in several service lines.

EBITDA for the first quarter was $183.3 million compared to $146.2 million for the same period last year and operating profit for the quarter was $130.9 million compared to $106.3 million in 2011. Our net income during the current quarter was $80.8 million or $0.37 per diluted earnings per share.

Cost of revenues increased from $201.3 million in the prior year to $273.8 million in the current year, resulting from higher business activity levels and associated costs, including total employment in materials and supplies. Cost of revenues for the first quarter as a percentage of revenues increased from 52.7% in the prior year to 54.5%, due primarily to lower pricing in many of our service lines, as well as the lower margins generated on more service intensive jobs.

Selling, general and administrative expenses during the quarter were $44.9 million, an increase of 24.6% compared to $36.1 million in the prior year, due to increased headcount consistent with higher activity levels. However, because of our ability to leverage these fixed costs over higher revenues, SG&A costs as a percentage of revenues decreased from 9.4% last year to 8.9% this year.

Depreciation and amortization were $51.6 million for the first quarter, an increase of 30.4% compared to $39.5 million in the prior year. This increase is a result of additional equipment placed and serviced over the past 12 months.

Our Technical Services segment revenues increased 32.1% due to an increase in the fleet of revenue producing equipment and higher activity levels. Operating profit increased to $123.5 million compared to $99.9 million in the prior year. This improvement was due to higher revenues from a lager fleet of revenues producing equipment.

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