RPC Inc (RES) 2005 Q4 法說會逐字稿

Good morning. Thank you for joining us for RPC's fourth quarter 2005 earnings conference call. Today's call will be hosted by Rick Hubbell, President and CEO, Ben Palmer, CFO, and Jim Landers of the Corporate Finance and Investor Relations department. [OPERATOR INSTRUCTIONS] Jim will get us started by reading the forward-looking statement. Jim.

Good morning. Before we begin our call today I want to remind everyone 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'll make on the call today could be forward-looking in nature and they reflect a number of known and unknown risks. I would like to refer to you our press release issued this morning along with our 2004 10-K, our third quarter 10-Q and other SEC filings that we've done recently which outline these risks. All of these can be found on our website at www.rpc.net. If you have not received our press release today for any reason and would like to, please call us at 404-321-2140 and we'll fax or e-mail one to you immediately. I am now going to turn the call over to our President and CEO, Rick Hubbell.

Jim, thank you. This morning we issued our earnings press release for the fourth quarter ended December 31, 2005. Ben Palmer will discuss our financial results in more detail in a few minutes. This time I would like to provide you with our operational highlights. First, revenues for the fourth quarter were higher than the previous year by over 37%. Our results continue to reflect continued high activity levels, an increase in pricing and growth in our capacity. The domestic and international side of our businesses performed very well this quarter. All of the industry indicators favor positive results for RPC. The average domestic rig count during the fourth quarter was 1,478 or 18% higher than the same period in 2004. In comparison to last year, the price of oil increased 23% and the price of natural gas increased by nearly 88%.

Our domestic revenues grew at a higher rate than the rig count due to the continued investment in our operating capacity and strong performance in the oil producing regions of the domestic markets in which we operate. Both Technical and Support Services experienced stronger results due to increased drilling count and related customer activity levels. Technical Services revenues rose 44% for the quarter compared to the prior year. This was driven by pricing increases, additional capacity and higher domestic and international activity levels. We have realized a significant amount of this increase within our pressure pumping division. Support Services revenues increased by 8.2% during the quarter compared to the prior year. This increase was lower than the increase in the Technical Services and the increase in rig count. This was due to the segment's exposure to the Gulf of Mexico, which has been weak since the hurricanes in the third quarter. Also, this segment included the results of our marine liftboats, the sale of our marine liftboats during part of the fourth quarter in 2004. With that overview I'll hand it over to our CFO, Ben Palmer.

Thanks, Rick. For the current quarter revenues increased 37.3% to 117.6 million, which compared to 85.6 million last year. Our operating profit for the quarter was 27.4 million compared to 15.9 million in the prior year. Net income was 21.5 million or $0.33 diluted earnings per share, compared to 11.3 million or $0.17 diluted earnings per share last year. Net income for the fourth quarter of this year included an income tax credit of $0.05 per diluted share and operating profit for the fourth quarter of '04 included a net gain on disposition of assets of 3.3 million or $0.05 per diluted share. The income tax credit that we recorded in the fourth quarter related to some tax refunds that we received related to an amendment of some prior year tax returns. We've mentioned this previously in some of our filings.

Cost of services rendered and goods sold was 59.9 million, which was 51% of revenues compared to 47.1 million or 55% in the prior year. The dollar increase was due to those costs that vary with revenues and higher activity levels, including our personnel expenses, including incentive compensation, our maintenance and repairs expenses, materials, and supplies expenses, and fuel costs. As a percentage of revenues these costs decreased because of our improved pricing, higher equipment and personnel utilization, and our ability to leverage the fixed costs in this category over the higher revenues. Our selling, general and administrative expenses increased from 17.7 million last year to 19.9 million this year. This was due primarily to higher salary and wage expenses as well as -- or as we added some administrative personnel with higher activity levels and it also included additional incentive compensation. As a percentage of revenues, these costs declined to 16.9% of revenues compared to 20.6% last year, as we experienced positive leverage of these costs over the higher revenues.

Capital expenditures to improve our existing fleet of equipment as well as purchases of new equipment, were approximately 17 million during the fourth quarter and 73 million for the year. These capital expenditures were primarily in our largest and more profitable service lines. Our balance sheet still remains very strong. We had 12.8 million in cash and cash equivalents at quarter end and had no long-term debt. Like to also point out, as announced a couple of weeks ago, the Board of Directors declared an increased cash dividend to $0.05 per share, which represents an 85% increase. With that I will turn it back over to Rick for a few more comment's.

Ben, thank you very much. 2005 was an excellent year for RPC. We are optimistic about the coming year given the status of the current industry indicators, the utilization of our equipment and people, and the impact of our new price book. Based on the best information we have at this time, we remain very optimistic regarding RPC's performance in 2006. As Ben stated earlier, we spent approximately 73 million in capital expenditures during 2005. We continue to remain optimistic about the current environment, so we believe that there are continued opportunities for us to expand. We plan to increase the capital expenditures in 2006 even beyond the level of investment undertaken in 2005. This may require RPC to seek outside financing.

Of course, the actual amount we spend may be impacted by availability from our vendors, delivery schedules and other factors. In spite of our optimism and continued investment in our business, we are aware that the domestic oilfield is a cyclical industry and we are closely monitoring all applicable indicators that could cause an overall decline in the economy, ultimately resulting in less favorable industry conditions. As we close our year, I would like to thank all of our employees for their hard work and determination, which resulted in 2005 being a year of record for RPC. I would also like to reiterate, as we have stated in the past, that we do not issue earnings guidance and can neither confirm nor deny the validity of any published analyst estimates. I would like to thank you for joining us this morning and at this time we would be happy to entertain any questions you may have.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Rob MacKenzie with FBR.

Good morning, guys.

Good morning.

Good quarter.

Thanks.

Just a housekeeping question for you on the tax credit. What was the dollar amount of that in the fourth quarter?

About 3.3 million.

Okay. '06 CapEx, can you give us some more detailed guidance, what kind of range you're currently looking in.

As I said before, a lot of it is based on the availability of the equipment and delivery schedules. We have found that in ordering some of these things, some of the delivery schedules have slipped out into the third, fourth quarter of this year and even into the first quarter of next year. It could be in excess of $100 million.

Okay. That actually leads very well into my next question. We've heard comments out of Schlumberger and others that if you haven't had your capital committed for '06 six, nine months ago, that chances are you are not going to get deliveries in '06. How do you look right now in terms of, specifically, how much do you expect -- can you get delivered in '06? Is it actually going to be more than '05 or is it really more of a pushing out some of your capacity out to '07, at this point?

We think that -- we started some months ago on this. So we have gotten in line for some of these deliveries and it is certainly delayed more than we would like. Some of it may be delayed into '07, but we're fairly optimistic about it.

Would it be fair to continue to say you all continue to expect to spend your free cash flow growing the company organically?

Yes.

And then perhaps even some more financing if need be?

That's correct.

On the outlook for the U.S. land market here, been a lot of concern in the stock market the past couple days with natural gas prices coming down, testing $7. What are you hearing the past couple days from your clients about declining natural gas prices with regard to the work they have upcoming?

Rob, this is Jim. That seems to be just a blip at this point. We certainly haven't heard anything in the past few days to indicate any weakness and, as we all know, the rig count was up whatever it was up on Friday, 15 or 19 or whatever, so no clouds on the horizon here because of natural gas prices going down.

Where do you all internally start getting concerned and perhaps put a hold on hiring and a hold on uncommitted capacity expansions if gas prices keep falling? What's your threshold you're looking at?

Rob, this is Ben. I don't know there's a specific price in mind. It is going to be discussions with our customers and our feeling for the mood among our customers in terms of their in scheduling work and things like that. We don't really have a particular price in mind.

How would you characterize the mood in the past couple weeks versus three, four months ago?

I can't say that I personally can speak for the other two here have heard anything specific in that regard, certainly I guess people would prefer that it be at appropriately higher levels without being too high. But I personally have not heard anything specific.

Rob, the metrics we look at on a daily basis continue to be real strong.

Okay. Fair enough. And then one final numerical question and I'll hand it back. Looks like your DSOs, if my numbers are right, jumped about 80 days in the fourth quarter, from 71, 72 where they had been running. Is there something behind that? Is there a problem with some payables with one or two clients?

Rob, this is Ben. No, nothing in particular. I think it is just a kind of a spike in our revenues recently, some of it is a little bit of the increases we've experienced in our international business, which tend to take a little bit longer to collect, but nothing in particular.

Okay. Thanks. I will turn it back.

Thanks, Rob.

Your next question comes from the line of Tom Escott with Pritchard Capital.

Good morning, fellas.

Good morning, Tom.

Two things related to pressure pumping. One, when your customers call you for a job, what lead time are you quoting them? Can you go out and do a pressure pumping job in ten days or are you pushed out three, four weeks? What's that lead time there?

Tom, this is Jim. Don't have a real good update on that right at the moment. It continues to be, though, that we are scheduling things a number of months in the future.

A number of months in the future.

Yes. As we have in the past. I would say that it's pretty much the same as it would have been the last time we quoted it to you.

In other words, the equipment market has stayed very, very tight indeed, that's not really changed any.

That is correct, yes. That's accurate.

Okay. Second related, somewhat related question on operating costs. Whether it is pressure -- may be different from the pressure pumping segment versus snubbing or other segments of the business, but what are you experiencing in operating cost inflation, I guess, labor, materials, et cetera? There may not be a simple answer to that, but that's the question.

Tom, this is Ben. I will attempt to take a piece of that. I think certainly we are experiencing some pressure from the personnel side, certainly it is very, very important that we retain our personnel and there is a lot of competition for them in the marketplace. So I think it is something we are managing very well, but there are things to be addressed there. As it relates to some of our materials and supplies, mostly on the pressure pumping side, we did experience more so back in the fourth quarter with the impact of the hurricanes, some difficulty in getting some acid and of course the sand still remains pretty tight as well. It is something we feel like we're working through fairly well, but certainly there are pressures there.

On pressure pumping particularly, with the factors you just referred to, do you feel that you've been able to raise price sufficiently to offset those cost factors or is it perhaps there's any margin pressure from those things?

I would say up to this point, as you know, it is a very fluid situation. I would say up to this point in the near-term we have been able to increase prices more than the price increases in the other area, materials price increase.

Okay. Thank you.

Sure. Thanks, Tom. [OPERATOR INSTRUCTIONS]

You have a follow-up from the line of Rob MacKenzie with FBR.

Tom addressed some good pressure pumping questions there. Following up on just some guidance issues, tax rate came down a fair bit throughout 2005. Where should we expect that as a run rate going forward?

Rob, I would say around 38/39. We did have a few discreet items in there and those are sometimes -- they are difficult to predict, but our estimated rate without those discreet items I'd expect to be 38, 39%.

Okay. SG&A, how much do you expect that to go up in the coming year?

We currently don't have any particular plans that would make it increase any different than it has on a trend. That's a little bit difficult to predict. We are adding a few personnel here and there with the higher activity levels and some other things we're doing.

Kind of constant as a percent of revenues would be fair?

Say again?

Constant as a percentage of revenues would be reasonable?

Last couple of quarters we've experienced pretty good leverage within those costs and I would expect at this point for that to continue to be the case, cost of leverage.

And then another question on pressure pumping capacity. It is a question that a lot of people ask of your competitors and others. How much horsepower -- do you guys have a solid number for roughly what percentage horsepower is being added to the industry over the next four, six quarters?

In the industry, Rob?

Yes, in the industry.

Our sources would be the same as yours. No, short answer. We don't have any particular insight into it.

Okay. Needless to say, based on how your scheduling jobs and the lead time for jobs, you think there is more than enough demand to soak up that added capacity at this point.

Yes, absolutely at this point. No doubt about that.

Okay. Thank you.

Thanks, Rob.

At this time there are no further questions. Do you have any closing remarks?

Yes, this is Jim Landers. I would just like to tell everyone that we appreciate you calling in today and listening to our call and everyone have a good day. Thank you.

Thank you for participating in today's conference call. You may now disconnect.