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Inside RPC, Inc.’s Value Drivers

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May. 18 2016, Updated 6:06 a.m. ET

Revenue growth by segment

RPC, Inc.’s (RES) Technical Services and Support Services segments both performed poorly in fiscal 1Q16 on a YoY (year-over-year) basis. Technical Services saw a ~54% one-year revenue fall in 1Q16, whereas Support Services witnessed a ~52% revenue decline during the same period.

Since 1Q15, RES’s total revenues decreased by 53.5%. The entire OFS (oilfield equipment and services) industry, in fact, was negatively affected by continued rig count declines and budget cuts in upstream energy companies’ E&P (exploration & production).

Inside RPC, Inc.'s Value Drivers

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Operating and net income

RES’s Technical Services reported a $63.2 million loss in operating income in 1Q16, as compared with a $5.8 million gain in 1Q15. Both of RES’s operating segments have recorded operating losses in the past four quarters.

In 1Q16, RES’s reported net income fell to a $32.5 million loss, as compared with $7.5 million in net income in 1Q15. By comparison, Baker Hughes (BHI), RES’s larger market cap peer, reported a $981 million net loss in 1Q16. RES makes up only 0.08% of the iShares US Oil Equipment & Services (IEZ), but for investors looking for diversified exposure to the OFS industry, OFS makes up 78% of IEZ.

What’s affecting RES’s value drivers?

The following three factors are playing a hand in RES’s value position:

  • E&P activity level declines and continued pricing pressure on RES’s services
  • inefficiencies resulting from lower activity levels
  • higher maintenance and repair expenses

On the flip side, however, increased service intensity in the pressure pumping service line and savings from cost-control measures have both partially offset these negative factors for RES.

Continue to the next part for our discussion of RES’s debt.

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