RPC, Inc. (RES)

RES 
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RPC, Inc. (RES)

Q2 2008 Earnings Call Transcript

July 23, 2008 9:00 am ET

Executives

Jim Landers – VP, Corporate Finance

Rick Hubbell – President and CEO

Ben Palmer – CFO

Analysts

Mike Drickamer – Morgan Keegan

Jeff Tillery – Tudor Pickering Holt & Co.

Frank Saldana – Bonanza Capital

Bill Dezellem – Tieton Capital Management

Doug Garber – FBR Capital Markets

Robert Mackenzie – FBR Capital Markets

Presentation

Jim Landers

Good morning, this is Jim Landers, VP of Corporate Finance with RPC. And I would like to thank you for joining us for our second quarter 2008 earnings conference call. Today's call is hosted by Rick Hubbell, our President and CEO, and Ben Palmer who is our Chief Financial Officer.

At this time all of you are in listen-only mode. Following our presentation, we're going to conduct a question-and-answer session. And our operator will provide instructions for you at that time for you to queue up for questions.

I would like to advise everyone that this conference call is being recorded. I would also like to advise you that before we begin our call I need 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 would like to refer you to our press release issued this morning along with our 2007 10-K and our other public filings that outline those risks. All of which can be found on our Web site at www.rpc.net.

I also need to inform you that in today's earnings release and in our conference call this morning we will be referring to EBITDA which is a non-GAAP financial measure of operating performance. We use EBITDA at RPC 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 are required to use EBITDA to record our compliance with the financial covenants under our revolving credit facility.

In our press release today and our Web site show reconciliation of EBITDA to net income, which is the nearest GAAP financial measure. So I invite you to review that disclosure if you're interested in seeing how it’s calculated. If you’ve not received our press release please call us at 404-321-2140, and we will fax or e-mail one to you immediately.

With those opening remarks, I will now turn it over to Rick Hubbell who is our President and CEO.

Rick Hubbell

Jim, thank you. This morning we issued our earnings press release for the second quarter ended June 30, 2008. 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. RPC experienced significant sequential improvements in its results during the second quarter. Not only did revenues increase by almost 9% from the previous quarter, but our managers were able to successfully convert these increased revenues into greater profitability.

Most of our key financial performance measurements saw improvements. While we are optimistic the oil and gas industry will continue to maintain its high activity levels increased competition and capacity persist in our business. The equipment we added during the past several years is allowing RPC to generate record revenues, however, higher cost and discounting continues to negatively affect profitability relative to the results seen in 2006 and early '07. Our daily challenge is to operate efficiently in an environment characterized by high activity levels coupled with persistent competitive and cost pressures.

With that overview I will turn it over to our CFO, Ben Palmer.

Ben Palmer

Thank you, Rick. For the quarter ended June 30, 2008 revenues increased 25.5% compared to the prior year to $214.6 million primarily due to our capacity addition. EBITDA for the second quarter was $67.1 million, an increase of 15.8%. Operating profit for the quarter was $37.8 million compared to $38.7 million in the prior year. Operating profit includes an increase in depreciation of $10.5 million compared to the prior year.

Net income was $22.5 million or $0.23 diluted earnings per share compared to $23.8 million or $0.24 diluted earnings per share last year. Cost of services rendered and goods sold for the quarter as a percentage of revenue was 56% compared to 51.6% in the prior year. This percentage of revenue increase was due primarily to higher materials and supplies and fuel cost. Our customers continue to be reluctant to share in this cost increases.

Our selling, general and administrative expenses during the quarter increased only 7.1%, $27.1 million last year to $29 million this year, primarily due to increased personnel and other costs consistent with our higher activity levels.

We are pleased to report that SG&A as a percentage of revenues decreased from 15.8% last year to 13.5%. Depreciation and amortization increased significantly from $18.7 million last year to $29.1 million this year. This increase was due to the large amount of equipment that we place in service in the last 12 months.

Our support service segment, which is comprised mainly of our rental tool service line experienced a decrease of 4.6% in revenues and 20.4% in operating profit compared to the prior year. This revenue decrease was due to lower pricing and occurred despite increased activity level. Operating profit in this segment also declined as a result of increased depreciation expense.

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