Cactus Inc.

10/30/2019 | Press release | Distributed by Public on 10/30/2019 18:20

Cactus Announces Third Quarter 2019 Results and Initiates Quarterly Cash Dividend

Cactus Announces Third Quarter 2019 Results and Initiates Quarterly Cash Dividend

HOUSTON--(BUSINESS WIRE)-- Cactus, Inc. (NYSE: WHD) ('Cactus' or the 'Company') today announced financial and operating results for the third quarter of 2019 and the initiation of a quarterly cash dividend.

Third Quarter 2019 Highlights

  • Reported revenue of $160.8 million;
  • Generated income from operations of $47.1 million;
  • Reported net income of $35.8 million(1) and diluted earnings per Class A share of $0.41(1)
  • Generated net income, as adjusted(2) of $36.1 million and diluted earnings per share, as adjusted(2) of $0.48;
  • Reported Adjusted EBITDA(3) and related margin(4) of $58.8 million and 36.6%, respectively;
  • Generated cash flow from operations during the third quarter of 2019 of $49.9 million; and
  • The Board of Directors declared a regular quarterly cash dividend of $0.09 per share.

Financial Summary

Three Months Ended

September 30,
2019

June 30,
2019

September 30,
2018

(in thousands)

Revenues

$

160,808

$

168,493

$

150,658

Income from operations

$

47,123

$

51,450

$

52,133

Operating income margin

29.3%

30.5%

34.6%

Net income (1)(5)

$

35,833

$

40,750

$

43,648

Net income, as adjusted (2)

$

36,097

$

39,173

$

39,157

Adjusted EBITDA (3)

$

58,819

$

62,718

$

61,261

Adjusted EBITDA margin (4)

36.6%

37.2%

40.7%

(1)

Net income during the third quarter of 2019 is inclusive of $4.1 million in additional tax expenses related to the write-off of foreign tax credits and the reduction in expected future state tax benefits.

(2)

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.

(3)

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.

(4)

The percentage of Adjusted EBITDA to Revenues.

(5)

Net income for the second quarter of 2019 is inclusive of $4.0 million in additional tax expense related to a valuation allowance accrual.

Scott Bender, President and CEO of Cactus, commented, 'I am pleased with our results for the third quarter, as the company exhibited resiliency in the face of declining activity with revenues outperforming the trajectory of the U.S. rig count. We continued to demonstrate the differentiated nature of our products and service execution, which has enabled us to maintain our attractive margin profile. Despite softness in overall completion activity, we are pleased with customer acceptance of our recent rental innovations. Once again, the quarter highlighted the Company's ability to generate significant free cash flow, with cash growing by over $36 million during the period.

'Looking to the fourth quarter, lower drilling and completion activity is expected to reduce company revenues, though the impact will be mitigated somewhat as our October Product market share has improved from third quarter levels. While the impact of Section 301 tariffs and the typical seasonality in Field Service present potential margin headwinds, we will continue to operate with a focus on reducing costs and believe the impact of the tariffs will be less severe than previously anticipated.'

Mr. Bender concluded, 'As always, we will maintain our focus on generating free cash flow and attractive returns on capital employed. A lower activity environment should highlight our ability to responsibly manage spending and expenses while generating substantial free cash flow. With this and our strong balance sheet in mind, I am pleased to announce that our board has authorized the introduction of a regular quarterly cash dividend of $0.09 per share, which highlights our ability to return cash to shareholders.'

Revenue Categories

Product

Three Months Ended

September 30,
2019

June 30,
2019

September 30,
2018

(in thousands)

Product revenue

$

92,582

$

94,494

$

79,388

Gross profit

$

34,814

$

36,977

$

32,572

Gross margin

37.6%

39.1%

41.0%

Third quarter 2019 product revenue decreased $1.9 million, or 2.0%, sequentially, as sales of wellhead equipment and production related equipment decreased due to reduced drilling and completion activity from our customers. Gross profit decreased $2.2 million, or 5.8%, sequentially, with margins declining 150 basis points primarily due to the impact of additional Section 301 tariffs. Cactus' estimated market share(1) was 28.6% in the third quarter of 2019 compared to 29.4% during the second quarter of 2019.

(1)

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

Rental

Three Months Ended

September 30,
2019

June 30,
2019

September 30,
2018

(in thousands)

Rental revenue

$

35,528

$

39,576

$

38,135

Gross profit

$

18,334

$

20,126

$

22,786

Gross margin

51.6%

50.9%

59.8%

Third quarter 2019 rental revenue decreased $4.0 million, or 10.2%, sequentially, following a decrease in completion activity from the Company's customers. Gross profit decreased $1.8 million sequentially due to lower revenue and an increase in depreciation expense. Margins increased 70 basis points, primarily due to a reduction in costs associated with the utilization of assets, which more than offset increased depreciation expense.

Field Service and Other

Three Months Ended

September 30,
2019

June 30,
2019

September 30,
2018

(in thousands)

Field service and other revenue

$

32,698

$

34,423

$

33,135

Gross profit

$

7,323

$

7,599

$

7,826

Gross margin

22.4%

22.1%

23.6%

Third quarter 2019 field service and other revenue decreased $1.7 million, or 5.0%, sequentially, as lower customer activity drove a decline in associated billable hours and ancillary services. Gross profit decreased $0.3 million, or 3.6%, sequentially.

Selling, General and Administrative Expenses ('SG&A')

SG&A for the third quarter of 2019 was $13.3 million (8.3% of revenues), compared to $13.3 million (7.9% of revenues) for the second quarter of 2019 and $11.1 million (7.3% of revenues) for the third quarter of 2018.

Liquidity and Capital Expenditures

As of September 30, 2019, the Company had $167.5 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 $49.9 million for the third quarter of 2019, attributable to strong operating results and working capital metrics.

Net capital expenditures for the third quarter of 2019 were $9.0 million, driven largely by additions to the Company's fleet of rental equipment, including recent innovations. For the full year 2019, the Company expects net capital expenditures to be in the range of $50 to $55 million.

Quarterly Dividend

Cactus today announced that its Board of Directors (the 'Board') has approved the initiation of a regular quarterly cash dividend. On October 29, 2019, the Board declared a cash dividend of $0.09 per share of Class A common stock to be paid on December 19, 2019 to holders of record of Class A common stock at the close of business on December 2, 2019. A corresponding distribution of $0.09 per CW Unit has been approved for holders of CW Units of Cactus Wellhead, LLC, which will have the same record and payment dates as applicable to the dividend declared with respect to the Company's Class A common stock.

Mr. Bender added, 'Cactus' variable cost business model has demonstrated its ability to generate free cash flow through the cycle. Given our strong balance sheet and continued cash generation, we are well positioned to return cash to shareholders. The implementation of a quarterly dividend, which we hope to grow over time, reflects the confidence we have in our business.'

Conference Call Details

The Company will host a conference call to discuss financial and operational results tomorrow, Thursday, October 31, 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 9897427. 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,' 'hope' 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

September 30,

Nine Months Ended

September 30,

2019

2018

2019

2018

(in thousands, except per share data)

Revenues

Product revenue

$

92,582

$

79,388

$

273,716

$

211,595

Rental revenue

35,528

38,135

113,601

102,224

Field service and other revenue

32,698

33,135

100,859

90,492

Total revenues

160,808

150,658

488,176

404,311

Costs and expenses

Cost of product revenue

57,768

46,816

168,303

128,897

Cost of rental revenue

17,194

15,349

54,435

41,477

Cost of field service and other revenue

25,375

25,309

79,105

70,084

Selling, general and administrative expenses

13,348

11,051

39,268

30,016

Total costs and expenses

113,685

98,525

341,111

270,474

Income from operations

47,123

52,133

147,065

133,837

Interest income (expense), net

373

(270

)

489

(3,370

)

Other income (expense), net

558

-

(484

)

(4,305

)

Income before income taxes

48,054

51,863

147,070

126,162

Income tax expense

12,221

8,215

22,041

14,564

Net income

$

35,833

$

43,648

$

125,029

$

111,598

Less: pre-IPO net income attributable to Cactus LLC

-

-

-

13,648

Less: net income attributable to non-controlling interest

16,494

24,976

57,475

63,191

Net income attributable to Cactus Inc.

$

19,339

$

18,672

$

67,554

$

34,759

Earnings per Class A share - basic

$

0.41

$

0.52

$

1.53

$

1.15

Earnings per Class A share - diluted (a)

$

0.41

$

0.52

$

1.50

$

1.14

Weighted average shares outstanding - basic

47,095

35,821

44,260

30,182

Weighted average shares outstanding - diluted (a)

47,322

36,229

75,337

30,522

(a)

Dilution for the three months ended September 30, 2019 excludes 28.0 million weighted average shares of Class B common stock as the effect would be anti-dilutive. Dilution for the nine months ended September 30, 2019 includes an additional $60.1 million of pre-tax income attributable to non-controlling interest adjusted for a corporate effective tax rate of 24%, and 30.8 million weighted average shares of Class B common stock plus the effect of dilutive securities. Dilution for the three and nine months ended September 30, 2018 excludes 39.1 million and 44.7 million weighted average shares of Class B common stock, respectively, as the effect would be anti-dilutive.

Cactus, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

September 30,

December 31,

2019

2018

(in thousands)

Assets

Current assets

Cash and cash equivalents

$

167,545

$

70,841

Accounts receivable, net

100,305

92,269

Inventories

111,590

99,837

Prepaid expenses and other current assets

7,510

11,558

Total current assets

386,950

274,505

Property and equipment, net

157,124

142,054

Operating lease right-of-use assets, net

26,537

-

Goodwill

7,824

7,824

Deferred tax asset, net

231,224

159,053

Other noncurrent assets

1,478

1,308

Total assets

$

811,137

$

584,744

Liabilities and Equity

Current liabilities

Accounts payable

$

40,959

$

42,047

Accrued expenses and other current liabilities

19,706

15,650

Current portion of liability related to tax receivable agreement

14,815

9,574

Finance lease obligations, current portion

7,361

7,353

Operating lease liabilities, current portion

6,739

-

Total current liabilities

89,580

74,624

Deferred tax liability, net

822

1,036

Liability related to tax receivable agreement, net of current portion

206,105

138,015

Finance lease obligations, net of current portion

5,339

8,741

Operating lease liabilities, net of current portion

20,232

-

Total liabilities

322,078

222,416

Equity

489,059

362,328

Total liabilities and equity

$

811,137

$

584,744

Cactus, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

Nine Months Ended September 30,

2019

2018

(in thousands)

Cash flows from operating activities

Net income

$

125,029

$

111,598

Reconciliation of net income to net cash provided by operating activities

Depreciation and amortization

28,264

21,829

Debt discount and deferred loan cost amortization

126

229

Stock-based compensation

5,257

3,384

Provision for bad debts

255

-

Inventory obsolescence

1,708

932

Loss on disposal of assets

820

1,759

Deferred income taxes

15,072

11,762

Loss on debt extinguishment

-

4,305

Gain from revaluation of liability related to tax receivable agreement

(558

)

-

Changes in operating assets and liabilities:
Accounts receivable

(8,326

)

(21,761

)

Inventories

(14,513

)

(22,866

)

Prepaid expenses and other assets

4,032

(3,835

)

Accounts payable

(4,334

)

8,108

Accrued expenses and other liabilities

4,694

6,906

Payments pursuant to tax receivable agreement

(9,335

)

-

Net cash provided by operating activities

148,191

122,350

Cash flows from investing activities

Capital expenditures and other

(40,526

)

(55,720

)

Proceeds from sale of assets

2,811

1,313

Net cash used in investing activities

(37,715

)

(54,407

)

Cash flows from financing activities

Principal payments on long-term debt

-

(248,529

)

Payment of deferred financing costs

-

(576

)

Payments on finance leases

(5,660

)

(4,456

)

Net proceeds from equity offerings

-

828,168

Distributions to members

(5,853

)

(31,848

)

Redemption of CW Units

-

(575,681

)

Repurchase of shares

(1,529

)

-

Net cash used in financing activities

(13,042

)

(32,922

)

Effect of exchange rate changes on cash and cash equivalents

(730

)

(614

)

Net increase in cash and cash equivalents

96,704

34,407

Cash and cash equivalents

Beginning of period

70,841

7,574

End of period

$

167,545

$

41,981

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

September 30,
2019

June 30,
2019

September 30,
2018

(in thousands, except per share data)

Net income

$

35,833

$

40,750

$

43,648

Adjustments:

Other non-operating (income) expense (2)

(558

)

-

-

Income tax expense differential (3)

822

(1,577

)

(4,491

)

Net income, as adjusted (1)

$

36,097

$

39,173

$

39,157

Diluted earnings per share, as adjusted (1)

$

0.48

$

0.52

$

0.52

Weighted average shares outstanding, as adjusted (4)

75,340

75,375

75,298

(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)

Represents a non-cash adjustment for the revaluation of the liability related to the tax receivable agreement.

(3)

Represents the increase or decrease 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 September 30, 2019 and June 30, 2019 and 24.5% for the three months ended September 30, 2018.

(4)

Reflects 47,095, 46,881, and 35,821 weighted average shares of Class A common stock and 28,018, 28,230 and 39,069 of additional shares for the three months ended September 30, 2019, June 30, 2019 and September 30, 2018, respectively, as if the weighted average shares of Class B common stock were exchanged and canceled for Class A common stock at the beginning of the period, plus the effect of dilutive securities.

Cactus, Inc. - Supplemental Information

Reconciliation of GAAP to non-GAAP Financial Measures

EBITDA and Adjusted EBITDA(1)

(unaudited)

Three Months Ended

September 30,
2019

June 30,
2019

September 30,
2018

(in thousands)

Net income

$

35,833

$

40,750

$

43,648

Interest (income) expense, net

(373

)

(93

)

270

Income tax expense

12,221

10,793

8,215

Depreciation and amortization

10,007

9,376

7,841

EBITDA (1)

57,688

60,826

59,974

Other non-operating (income) expense (2)

(558

)

-

-

Stock-based compensation

1,689

1,892

1,287

Adjusted EBITDA (1)

$

58,819

$

62,718

$

61,261

Nine Months Ended

September 30,
2019

September 30,
2018

(in thousands)

Net income

$

125,029

$

111,598

Interest (income) expense, net

(489

)

3,370

Income tax expense

22,041

14,564

Depreciation and amortization

28,264

21,829

EBITDA (1)

174,845

151,361

Other non-operating (income) expense (2)

(558

)

-

Secondary offering related expenses

1,042

-

Loss on debt extinguishment

-

4,305

Stock-based compensation

5,257

3,384

Adjusted EBITDA (1)

$

180,586

$

159,050

(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 the 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.

(2)

Represents a non-cash adjustment for the revaluation of the liability related to the tax receivable agreement.

Cactus, Inc. - Supplemental Information

Depreciation and Amortization by Category

(unaudited)

Three Months Ended

September 30,
2019

June 30,
2019

September 30,
2018

(in thousands)

Cost of product revenue

$

884

$

762

$

792

Cost of rental revenue

6,384

5,966

4,671

Cost of field service and other revenue

2,558

2,478

2,269

Selling, general and administrative expenses

181

170

109

Total depreciation and amortization

$

10,007

$

9,376

$

7,841

Nine Months Ended

September 30,
2019

September 30,
2018

(in thousands)

Cost of product revenue

$

2,411

$

2,361

Cost of rental revenue

17,867

13,058

Cost of field service and other revenue

7,486

6,098

Selling, general and administrative expenses

500

312

Total depreciation and amortization

$

28,264

$

21,829

Cactus, Inc. - Supplemental Information

Estimated Market Share(1)

(unaudited)

Three Months Ended

September 30,
2019

June 30,
2019

September 30,
2018

Cactus U.S. onshore rigs followed

256

283

282

Baker Hughes U.S. onshore rig count quarterly average

894

963

1,029

Market share (1)

28.6%

29.4%

27.4%

(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/20191030006189/en/

Cactus, Inc.

John Fitzgerald, 713-904-4655

Director of Corporate Development and Investor Relations

[email protected]

Source: Cactus, Inc.