DEAR STOCKHOLDERS,
In 2023 we experienced both strong momentum in the early part of the year as well as the challenge of slowing industry activity in the second half of the year. Despite a somewhat uncertain environment, we delivered solid financial performance with stable revenues of $1.6 billion and a substantial increase in cash flow generation, with cash provided by operating activities of almost $395 million. With commodity markets settling down from the geopolitical events of 2022 in eastern Europe, we focused on capitalizing on strong demand early in 2023, and then managing through softer demand as the year progressed. Both average oil prices and U.S. rig counts finished the year lower. While near-term visibility is limited, we plan to continue prudently investing in our business, upgrading our assets, and diligently managing our cost structure to make sure we are aligned with industry demand. We completed the strategic acquisition of Spinnaker, a high-quality cementing business. Spinnaker is a highly complementary asset that enhances our service offerings, increases our scale, and broadens our customer base. We are pleased with the transaction and subsequent integration and, most importantly, the outstanding management team who joined the RPC family. RPC’s 2023 revenues increased by 1% to $1.62 billion year-over-year. While our revenues increased slightly for the year, we experienced stronger performance in the first half of the year as 2022 momentum carried through the second quarter of 2023. During the second half of 2023 we faced reduced fleet utilization as a declining industry rig count slowed demand for our services. After reaching over 780 in November of 2022, the U.S. rig count steadily drifted lower to the 620 range toward the end of 2023. Cost of revenues (which excludes depreciation and amortization) was $1.09 billion for 2023, unchanged compared to the prior year, as we realized operating leverage on our fixed assets and labor costs. Throughout the year we made periodic adjustments to our fleet staffing levels in response to customer demand indications, oil price movements, and other industry dynamics. We were pleased that most cost items that had been sources of inflationary pressures in the previous two years were generally stable in 2023. Selling, general and administrative expenses (SG&A) increased 11.7% to $165.9 million in 2023 compared to $148.6 million in the prior year. The increase was primarily due to costs related to the settlement of a vendor dispute coupled with the incremental SG&A expenses of the Spinnaker business. Depreciation and amortization (D&A) increased 30.2% to $108.1 million in 2023, compared to $83.0 million in 2022, due to capital expenditures in the past year coupled with amortization of acquired intangible assets related to the acquisition of Spinnaker. We generated operating income of $245.0 million in 2023, compared with operating income of $287.9 million in 2022. The decline stemmed primarily from a $15.4 million increase in pension settlement charges and $25.1 million of higher D&A, both of which are non-cash items. Net interest income of $8.3 million in 2023 was up significantly compared to $0.6 million in 2022 due to higher interest yields earned on cash and much higher average cash balances from strong cash generation throughout 2023. We did not draw on our credit facility during 2022 or 2023. We recorded net income of $195.1 million in 2023 compared to net income of $218.4 million last year. Diluted earnings per share was $0.90 in 2023 compared to $1.01 last year. Earnings before interest, taxes, depreciation and amortization(1) (EBITDA) was $356.1 million in 2023 compared to $372.1 million in 2022. Excluding the impact of the pension settlement charges referenced above, adjusted net income(1) was $209.0 million in 2023 versus $220.6 million last year, adjusted diluted earnings per share(1) was $0.97 in 2023 versus $1.02 last year, and adjusted EBITDA(1) was $374.4 million in 2023 versus $375.0 million last year. The average U.S. domestic drilling rig count, a traditional indicator of our industry’s activity levels, decreased 5%, from 723 in 2022 to 688 in 2023. However, the year-end rig count in December 2023 of 622 was 20% lower than the year-end 2022 count of 779, reflecting some downward pressure on industry activity throughout 2023. While the U.S. drilling rig count is an important measure of our customers’ activity levels, the U.S. well completion count also is significant because most of our services are directed toward oilfield completion activities. During 2023 there were 12,250 oil and gas well completions reported in the U.S. domestic market, which was an increase of 8% compared to 11,341 well completions reported for 2022. The average price of oil during 2023 was $77.55 per barrel, a decrease of 18% compared to an average price of $94.89 in 2022. The price of natural gas decreased more significantly to an average price of $2.54 per Mcf, a 61% decline compared with the average price of $6.44 per Mcf in 2022. Commodity prices faced significant upward pressure following the escalation of the Russia-Ukraine conflict in early 2022, but oil and gas prices have since subsided. Cash provided by operating activities in 2023 was $394.8 million, nearly doubling the $201.3 million generated last year. Operating cash flow benefited significantly from working capital changes; working capital was a source of cash in 2023 of $57.8 million, while it was a use of cash in 2022 of $122.5 million. Capital expenditures in 2023 increased to $181.0 million, from $139.6 million in 2022. Our capital expenditures were directed toward the addition of upgraded pressure pumping assets and maintenance of existing equipment. We also invested $78.8 million to acquire Spinnaker. RPC ended 2023 with $223.3 million in cash, a significant increase compared to $126.4 million in cash at the end of 2022. Looking toward 2024, we will continue to invest in our assets with the addition of a new Tier 4 dual-fuel pressure pumping fleet. We are focused on upgrading our asset base while not increasing industry capacity and will remain prudent and conservative with our capital investments. As a result of strong operating performance and cash flow and our dedication to shareholder returns, RPC continued to return cash to shareholders through both dividends and stock buybacks. In 2023 we paid $34.6 million in common stock dividends and bought back $18.7 million of stock under our share repurchase program (nearly 2.5 million shares). We are pleased that our strong cash generation and overall solid financial performance provided the ability to invest in the business and return capital to shareholders, and still leave the balance sheet highly liquid and debt free. We also have another important milestone we are proud to share – the publication of our first corporate sustainability report. Beyond increasing regulatory, operational, and disclosure requirements around ESG (Environmental, Social and Governance), we understand that communication about our ESG-related initiatives is important to customers, suppliers, employees, and investors. We look forward to making continued progress on all sustainability fronts and sharing updates through these reports on an annual basis. As we begin 2024, we want to recognize our employees across the company for another year of dedication and resilience. We are especially proud that Thru Tubing Solutions, our downhole tools company, has been recognized as a 2023 Top Workplace by both USA TODAY and The Oklahoman. This prestigious accolade is a testament to our commitment to fostering a vibrant and inclusive work environment. We would also like to thank our loyal customers, who continue to choose RPC for our reliability, value proposition and overall outstanding service. I want to express to all our stakeholders that we remain committed to the financial discipline and conservative approach that has been our hallmark for decades and the backbone of our longevity and success. Sincerely,
Ben M. Palmer
President and Chief Executive Officer |