Cactus Announces Second Quarter 2019 Results

Published

HOUSTON--(BUSINESS WIRE)-- Cactus, Inc. (NYSE: WHD) (“Cactus” or the “Company”) today announced financial and operating results for the second quarter of 2019.

Second Quarter 2019 Highlights

  • Increased revenues 6.1% from first quarter to a record $168.5 million, with growth across all business lines;
  • Grew income from operations 6.1% sequentially to $51.5 million;
  • Reported net income of $40.8 million and diluted earnings per Class A share of $0.45, inclusive of $4.0 million of additional tax expense related to a valuation allowance accrual;
  • Generated net income, as adjusted(1) of $39.2 million and diluted earnings per share, as adjusted(1) of $0.52;
  • Reported Adjusted EBITDA(2) and related margin(3) of $62.7 million and 37.2%, respectively; and
  • Generated cash flow from operations during the second quarter of 2019 of $64.1 million.

Financial Summary

Three Months Ended

 

June 30, 2019

March 31, 2019

June 30, 2018

 

(in thousands)

 

 

Revenues

$

168,493

$

158,875

$

138,543

 

Income from operations

$

51,450

$

48,492

$

46,487

 

Operating income margin

 

30.5%

 

30.5%

 

33.6%

 

Net income (4)

$

40,750

$

48,446

$

41,542

 

Net income, as adjusted (1)

$

39,173

$

36,871

$

34,910

 

Adjusted EBITDA (2)

$

62,718

$

59,049

$

55,117

 

Adjusted EBITDA margin (3)

 

37.2%

 

37.2%

 

39.8%

 

(1)

Net income, as adjusted and diluted earnings per share, as adjusted are non-GAAP financial measures. These figures assume Cactus, Inc. held all units in Cactus Wellhead, LLC (“Cactus LLC”), its operating subsidiary, at the beginning of the period. Additional information regarding net income, as adjusted and diluted earnings per share, as adjusted and the reconciliation of GAAP to non-GAAP financial measures are in the Supplemental Information tables.

(2)

Adjusted EBITDA is a non-GAAP financial measure. See definition of Adjusted EBITDA and the reconciliation of GAAP to non-GAAP financial measures in the Supplemental Information tables.

(3)

The percentage of Adjusted EBITDA to Revenues.

(4)

Net income during the second quarter of 2019 is inclusive of $4.0 million of additional tax expense related to a valuation allowance accrual, and net income for the first quarter of 2019 is inclusive of a deferred tax benefit of $8.2 million which resulted in a total income tax benefit of $1.0 million during the first quarter.

Scott Bender, President and CEO of Cactus, commented, “I am pleased with our results for the second quarter in the face of a declining rig count environment. We reported sequential revenue growth across all business lines and generated the highest quarterly revenue and Adjusted EBITDA in the Company’s history. Growth was driven by continued market share gains in our Product business and higher production tree demand. We also continued to see strong demand for our differentiated Rental offerings. The quarter highlighted the ability of the business to generate significant free cash flow, with cash growing by over $43 million during the period.

“While the second quarter was strong, lower drilling and completion activity will likely impact our revenues during the third quarter. As previously stated, we also anticipate the impact of Section 301 tariffs to pressure Product margins during the second half of 2019.”

Mr. Bender concluded, “As always, we will continue to focus on generating free cash flow and attractive returns on capital employed. We now expect capital expenditures for 2019 to be in the $50 to $60 million range. A meaningful portion of this will continue to be related to our new frac innovations, which have been very well received in the field. A lower activity environment should highlight our ability to responsibly manage expenses and generate substantial free cash flow.”

Revenue Categories

Product

Three Months Ended

June 30, 2019

March 31, 2019

June 30, 2018

(in thousands)

 

Product revenue

$

94,494

$

86,640

$

73,281

Gross profit

$

36,977

$

33,622

$

28,266

Gross margin

 

39.1%

 

38.8%

 

38.6%

Second quarter 2019 product revenue increased $7.9 million, or 9.1%, sequentially, as sales of wellhead equipment and production related equipment increased due to greater market share and more wells turned in-line by the Company’s customers. Gross profit increased $3.4 million, or 10.0%, sequentially, with margins improving 30 basis points primarily due to product mix and leverage of the Company’s fixed cost base. Cactus’ estimated market share(1) was 29.4% in the second quarter of 2019 compared to 29.1% during the first quarter of 2019.

(1)

 

Additional information regarding market share is located in the Supplemental Information tables.

Rental

Three Months Ended

June 30, 2019

March 31, 2019

June 30, 2018

(in thousands)

 

Rental revenue

$

39,576

$

38,497

$

34,944

Gross profit

$

20,126

$

20,706

$

20,992

Gross margin

 

50.9%

 

53.8%

 

60.1%

Second quarter 2019 rental revenue increased $1.1 million, or 2.8%, sequentially, following continued strength in completion activity from the Company’s customers. Gross profit decreased $0.6 million sequentially with margins down 290 basis points, primarily due to increased costs associated with the redeployment of assets as well as increased depreciation expense.

Field Service and Other

Three Months Ended

June 30, 2019

March 31, 2019

June 30, 2018

(in thousands)

 

Field service and other revenue

$

34,423

$

33,738

$

30,318

Gross profit

$

7,599

$

6,832

$

7,080

Gross margin

 

22.1%

 

20.3%

 

23.4%

Second quarter 2019 field service and other revenue increased $0.7 million, or 2.0%, sequentially. Gross profit increased $0.8 million, or 11.2%, sequentially due to improved revenue mix during the quarter.

Selling, General and Administrative Expenses (“SG&A”)

SG&A for second quarter 2019 was $13.3 million (7.9% of revenues), compared to $12.7 million (8.0% of revenues) for first quarter 2019 and $9.9 million (7.1% of revenues) for the second quarter 2018. The sequential increase is primarily related to higher incentive compensation accruals associated with outperformance during the quarter.

Liquidity and Capital Expenditures

As of June 30, 2019, the Company had $131.1 million of cash, no bank debt outstanding and the full $75.0 million of capacity available under its revolving credit facility. Operating cash flow was $64.1 million for second quarter 2019, attributable to improved operating results and working capital metrics.

Net capital expenditures for second quarter 2019 were $14.9 million, driven largely by additions to the Company’s fleet of rental equipment, including new innovations. For the full year 2019, the Company expects capital expenditures to be in the range of $50 to $60 million.

Conference Call Details

The Company will host a conference call to discuss financial and operational results tomorrow, Thursday, August 1, 2019 at 9:00 a.m. Central Time (10:00 a.m. Eastern Time).

The call will be webcast on Cactus’ website at www.CactusWHD.com. Institutional investors and analysts may participate by dialing (866) 670-2203. International parties may dial (630) 489-9861. The access code is 9795497. Please access the webcast or dial in for the call at least 10 minutes ahead of start time to ensure a proper connection.

An archived webcast of the conference call will be available on the Company’s website shortly after the end of the call.

About Cactus, Inc.

Cactus designs, manufactures, sells and rents a range of highly engineered wellhead and pressure control equipment. Its products are sold and rented principally for onshore unconventional oil and gas wells and are utilized during the drilling, completion and production phases of its customers' wells. In addition, it provides field services for all its products and rental items to assist with the installation, maintenance and handling of the wellhead and pressure control equipment. Cactus operates service centers in the United States, which are strategically located in the key oil and gas producing regions, including the Permian, SCOOP/STACK, Marcellus, Utica, Eagle Ford and Bakken, among other areas, and in Eastern Australia.

Cautionary Statement Concerning Forward-Looking Statements

Certain statements contained in this press release constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of Cactus’ control, that could cause actual results to differ materially from the results discussed in the forward-looking statements.

Forward-looking statements can be identified by the use of forward-looking terminology including “may,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “continue,” “potential,” “will,” or other similar words and include the Company’s expectation of future performance contained herein. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state other “forward-looking” information. You are cautioned not to place undue reliance on any forward-looking statements, which can be affected by assumptions used or by known risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other factors noted in the Company’s Annual Report on Form 10-K and any Quarterly Reports on Form 10-Q. The risk factors and other factors noted therein could cause actual results to differ materially from those contained in any forward-looking statement.

Cactus, Inc.

Condensed Consolidated Statements of Income

(unaudited)

   

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2019

 

2018

 

 

 

2019

 

 

2018

 

 

(in thousands, except per share data)

Revenues

 

 

 

Product revenue

$

94,494

$

73,281

 

 

$

181,134

 

$

132,207

 

Rental revenue

 

39,576

 

34,944

 

 

 

78,073

 

 

64,089

 

Field service and other revenue

 

34,423

 

30,318

 

 

 

68,161

 

 

57,357

 

Total revenues

 

168,493

 

138,543

 

 

 

327,368

 

 

253,653

 

 

 

 

Costs and expenses

 

 

 

Cost of product revenue

 

57,517

 

45,015

 

 

 

110,535

 

 

82,081

 

Cost of rental revenue

 

19,450

 

13,952

 

 

 

37,241

 

 

26,128

 

Cost of field service and other revenue

 

26,824

 

23,238

 

 

 

53,730

 

 

44,775

 

Selling, general and administrative expenses

 

13,252

 

9,851

 

 

 

25,920

 

 

18,965

 

Total costs and expenses

 

117,043

 

92,056

 

 

 

227,426

 

 

171,949

 

Income from operations

 

51,450

 

46,487

 

 

 

99,942

 

 

81,704

 

 

 

 

Interest income (expense), net

 

93

 

(248

)

 

 

116

 

 

(3,100

)

Other income (expense), net

 

-

 

-

 

 

 

(1,042

)

 

(4,305

)

Income before income taxes

 

51,543

 

46,239

 

 

 

99,016

 

 

74,299

 

Income tax expense

 

10,793

 

4,697

 

 

 

9,820

 

 

6,349

 

Net income

$

40,750

$

41,542

 

 

$

89,196

 

$

67,950

 

Less: pre-IPO net income attributable to Cactus LLC

 

-

 

-

 

 

 

-

 

 

13,648

 

Less: net income attributable to non-controlling interest

 

19,342

 

29,208

 

 

 

40,981

 

 

38,215

 

Net income attributable to Cactus Inc.

$

21,408

$

12,334

 

 

$

48,215

 

$

16,087

 

 

 

 

 

 

 

Earnings per Class A share - basic

$

0.46

$

0.47

 

 

$

1.13

 

$

0.61

 

Earnings per Class A share - diluted (a)

$

0.45

$

0.46

 

 

$

1.07

 

$

0.60

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

46,881

 

26,450

 

 

 

42,819

 

 

26,450

 

Weighted average shares outstanding - diluted (a)

 

47,145

 

26,779

 

 

 

75,326

 

 

26,734

 

(a)

Dilution for the three months ended June 30, 2019 excludes 28.2 million shares of Class B common stock as the effect would be anti-dilutive. Dilution for the six months ended June 30, 2019 includes an additional $42.4 million of pre-tax income attributable to non-controlling interest adjusted for a corporate effective tax rate of 24%, and the weighted average shares of Class B common stock of 32.2 million plus the dilutive effect of 265 shares of restricted stock unit awards, respectively. Dilution for both the three and six months ended June 30, 2018 excludes 48.4 million shares of Class B common stock as the effect would be anti-dilutive.

Cactus, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

 

June 30,

December 31,

2019

2018

(in thousands)

Assets

Current assets

Cash and cash equivalents

$

131,149

$

70,841

Accounts receivable, net

 

112,963

 

92,269

Inventories

 

110,060

 

99,837

Prepaid expenses and other current assets

 

10,363

 

11,558

Total current assets

 

364,535

 

274,505

 

Property and equipment, net

 

155,988

 

142,054

Operating lease right-of-use assets, net

 

24,178

 

-

Goodwill

 

7,824

 

7,824

Deferred tax asset, net

 

239,754

 

159,053

Other noncurrent assets

 

1,486

 

1,308

Total assets

$

793,765

$

584,744

 

Liabilities and Equity

Current liabilities

Accounts payable

$

46,346

$

42,047

Accrued expenses and other current liabilities

 

22,534

 

15,650

Current portion of liability related to tax receivable agreement

 

9,574

 

9,574

Finance lease obligations, current portion

 

7,738

 

7,353

Operating lease liabilities, current portion

 

6,763

 

-

Total current liabilities

 

92,955

 

74,624

 

Deferred tax liability, net

 

865

 

1,036

Liability related to tax receivable agreement, net of current portion

 

221,043

 

138,015

Finance lease obligations, net of current portion

 

6,519

 

8,741

Operating lease liabilities, net of current portion

 

17,853

 

-

Total liabilities

 

339,235

 

222,416

 

Equity

 

454,530

 

362,328

Total liabilities and equity

$

793,765

$

584,744

Cactus, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

Six Months Ended June 30,

 

2019

 

 

2018

 

(in thousands)

Cash flows from operating activities

Net income

$

89,196

 

$

67,950

 

Reconciliation of net income to net cash provided by operating activities

Depreciation and amortization

 

18,257

 

 

13,988

 

Debt discount and deferred loan cost amortization

 

84

 

 

219

 

Stock-based compensation

 

3,568

 

 

2,097

 

Inventory obsolescence

 

1,188

 

 

830

 

Loss on disposal of assets

 

1,403

 

 

706

 

Deferred income taxes

 

7,060

 

 

4,094

 

Loss on debt extinguishment

 

-

 

 

4,305

 

Changes in operating assets and liabilities:

Accounts receivable

 

(20,696

)

 

(12,647

)

Inventories

 

(12,010

)

 

(14,943

)

Prepaid expenses and other assets

 

4,612

 

 

2,387

 

Accounts payable

 

1,691

 

 

7,302

 

Accrued expenses and other liabilities

 

7,316

 

 

4,417

 

Operating lease liabilities

 

(3,351

)

 

-

 

Net cash provided by operating activities

 

98,318

 

 

80,705

 

 

Cash flows from investing activities

Capital expenditures and other

 

(29,924

)

 

(32,128

)

Proceeds from sale of assets

 

1,175

 

 

780

 

Net cash used in investing activities

 

(28,749

)

 

(31,348

)

 

Cash flows from financing activities

Principal payments on long-term debt

 

-

 

 

(248,529

)

Payments on finance leases

 

(3,723

)

 

(2,788

)

Net proceeds from equity offerings

 

-

 

 

469,621

 

Distributions to members

 

(3,848

)

 

(30,275

)

Redemption of CW Units

 

-

 

 

(216,425

)

Repurchase of shares

 

(1,516

)

 

-

 

Net cash used in financing activities

 

(9,087

)

 

(28,396

)

 

Effect of exchange rate changes on cash and cash equivalents

 

(174

)

 

(132

)

 

Net increase in cash and cash equivalents

 

60,308

 

 

20,829

 

 

Cash and cash equivalents

Beginning of period

 

70,841

 

 

7,574

 

End of period

$

131,149

 

$

28,403

 

Cactus, Inc. – Supplemental Information

Reconciliation of GAAP to non-GAAP Financial Measures

Net income, as adjusted and diluted earnings per share, as adjusted(1)

(unaudited)

 

Three Months Ended

June 30, 2019

 

March 31, 2019

 

June 30, 2018

 

(in thousands, except per share data)

 

 

 

 

 

 

Net income

$

40,750

 

$

48,446

 

$

41,542

Adjustments:

 

 

 

 

 

Secondary offering related expenses, pre-tax (2)

 

-

 

 

1,042

 

 

-

Income tax expense differential (3)

 

(1,577)

 

 

(12,617)

 

 

(6,632)

Net income, as adjusted (1)

$

39,173

 

$

36,871

 

$

34,910

 

 

 

 

 

 

Diluted earnings per share, as adjusted (1)

$

0.52

 

$

0.49

 

$

0.46

 

 

 

 

 

 

Weighted average shares outstanding, as adjusted (4)

 

75,375

 

 

75,246

 

 

75,219

(1)

Net income, as adjusted and diluted earnings per share, as adjusted are not measures of net income as determined by GAAP. Net income, as adjusted and diluted earnings per share, as adjusted are supplemental non-GAAP financial measures that are used by management and external users of the Company’s consolidated financial statements. Cactus defines net income, as adjusted as net income assuming Cactus, Inc. held all units in Cactus LLC, its operating subsidiary, at the beginning of the period, with the resulting additional income tax expense related to the incremental income attributable to Cactus, Inc. Net income, as adjusted, also includes certain other adjustments described below. Cactus defines diluted earnings per share, as adjusted as net income, as adjusted divided by weighted average shares outstanding, as adjusted. The Company believes this supplemental information is useful for evaluating performance period over period.

(2)

Reflects fees and expenses recorded in first quarter 2019 in connection with the offering of Class A common stock by certain selling stockholders, excluding underwriting discounts and selling commissions incurred by the selling stockholders.

(3)

Represents the increase in tax expense as though Cactus, Inc. owned 100% of Cactus LLC at the beginning of the period, calculated as the difference in tax expense recorded during each period and what would have been recorded, adjusted for item (2) above, based on a corporate effective tax rate of 24.0% on income before income taxes for the three months ended June 30, 2019 and March 31, 2019 and 24.5% for the three months ended June 30, 2018.

(4)

Reflects 46,881, 46,293, and 26,450 shares of Class A common stock and 28,230, 28,718 and 48,440 of additional shares for the three months ended June 30, 2019, March 31, 2019 and June 30, 2018, respectively, as if the Class B common stock was exchanged and canceled for Class A common stock at the beginning of the period, plus the dilutive effect of 264, 235, and 329 shares for restricted stock unit awards for the three months ended June 30, 2019, March 31, 2019 and June 30, 2018, respectively.

Cactus, Inc. – Supplemental Information

Reconciliation of GAAP to non-GAAP Financial Measures

EBITDA and Adjusted EBITDA(1)

(unaudited)

 

Three Months Ended

June 30, 2019

March 31, 2019

June 30, 2018

 

(in thousands)

 

Net income

$

40,750

$

48,446

$

41,542

Interest (income) expense, net

 

(93)

 

(23)

 

248

Income tax expense (benefit)

 

10,793

 

(973)

 

4,697

Depreciation and amortization

 

9,376

 

8,881

 

7,367

EBITDA (1)

 

60,826

 

56,331

 

53,854

Secondary offering related expenses

 

-

 

 

1,042

 

 

-

 

Stock-based compensation

 

1,892

 

1,676

 

1,263

Adjusted EBITDA (1)

$

62,718

$

59,049

$

55,117

 

Six Months Ended

June 30, 2019

June 30, 2018

 

(in thousands)

 

Net income

$

89,196

 

$

67,950

Interest (income) expense, net

 

(116)

 

 

3,100

Income tax expense

 

9,820

 

 

6,349

Depreciation and amortization

 

18,257

 

 

13,988

EBITDA (1)

 

117,157

 

 

91,387

Secondary offering related expenses

 

1,042

 

 

 

 

-

 

Loss on debt extinguishment

 

-

 

 

4,305

Stock-based compensation

 

3,568

 

 

2,097

Adjusted EBITDA (1)

$

121,767

 

$

97,789

(1)

EBITDA and Adjusted EBITDA are not measures of net income as determined by GAAP. EBITDA and Adjusted EBITDA are supplemental non‑GAAP financial measures that are used by management and external users of the Company’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. Cactus defines EBITDA as net income excluding net interest, income tax and depreciation and amortization. Cactus defines Adjusted EBITDA as EBITDA excluding other items outlined above.

 
Cactus management believes EBITDA and Adjusted EBITDA are useful because they allow management to more effectively evaluate the Company’s operating performance and compare the results of its operations from period to period without regard to financing methods or capital structure, or other items that impact comparability of financial results from period to period. EBITDA and Adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or any other measure as determined in accordance with GAAP. The Company’s computations of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Cactus presents EBITDA and Adjusted EBITDA because it believes they provide useful information regarding the factors and trends affecting the Company’s business.

Cactus, Inc. – Supplemental Information

Depreciation and Amortization by Category

(unaudited)

 

Three Months Ended

June 30, 2019

March 31, 2019

June 30, 2018

 

(in thousands)

 

Cost of product revenue

$

762

$

765

$

793

Cost of rental revenue

 

5,966

 

5,517

 

4,433

Cost of field service and other revenue

 

2,478

 

2,450

 

2,039

Selling, general and administrative expenses

 

170

 

149

 

102

Total depreciation and amortization

$

9,376

$

8,881

$

7,367

 

Six Months Ended

June 30, 2019

June 30, 2018

 

(in thousands)

 

Cost of product revenue

$

1,527

 

$

1,569

Cost of rental revenue

 

11,483

 

 

8,387

Cost of field service and other revenue

 

4,928

 

 

3,829

Selling, general and administrative expenses

 

319

 

 

203

Total depreciation and amortization

$

18,257

 

$

13,988

Cactus, Inc. – Supplemental Information

Estimated Market Share(1)

(unaudited)

 

Three Months Ended

June 30, 2019

March 31, 2019

June 30, 2018

 

Cactus U.S. onshore rigs followed

283

297

264

Baker Hughes U.S. onshore rig count quarterly average

963

1,021

1,017

Market share (1)

29.4%

29.1%

26.0%

(1)

Market share represents the average number of active U.S. onshore rigs Cactus followed (which Cactus defines as the number of active U.S. onshore drilling rigs to which it was the primary provider of wellhead products and corresponding services during drilling) as of mid-month for each of the three months in the applicable quarter divided by the Baker Hughes U.S. onshore rig count quarterly average. Cactus believes that comparing the total number of active U.S. onshore rigs to which it was providing its products and services at a given time to the number of active U.S. onshore rigs during the same period provides Cactus with a reasonable approximation of its market share with respect to wellhead products sold and the corresponding services it provides.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20190731006078/en/

Cactus, Inc. John Fitzgerald, 713-904-4655 Director of Corporate Development and Investor Relations IR@CactusWHD.com

Source: Cactus, Inc.

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