Cactus, Inc. (NYSE: WHD) (“Cactus” or the “Company”) today announced financial and operating results for the second quarter of 2023.
Second Quarter Highlights
- Revenue of $305.8 million and operating income of $48.5 million;
- Net income of $32.5 million and diluted earnings per Class A share of $0.38;
- Adjusted net income(1) of $67.3 million and diluted earnings per share, as adjusted(1) of $0.84;
- Net income margin of 10.6% and adjusted net income margin(1) of 22.0%;
- Adjusted EBITDA(2) and Adjusted EBITDA margin(2) of $115.4 million and 37.7%, respectively;
- Cash flow from operations of $108.1 million;
- On June 7, 2023, announced approval of a $150 million share repurchase authorization;
- On August 1, 2023, the Board of Directors approved a 9% increase to the dividend to $0.12 per quarter;
- Cash and cash equivalents balance of $63.9 million and gross bank debt outstanding of $55 million as of June 30, 2023; and
- As of July 31, 2023, the full balance of the $155 million of bank debt raised to finance the FlexSteel acquisition had been paid off.
Financial Summary | |||||||||||
Three Months Ended | |||||||||||
June 30, | March 31, | June 30, | |||||||||
2023 | 2023(3) | 2022 | |||||||||
(in thousands) | |||||||||||
Revenues | $ | 305,819 | $ | 228,405 | $ | 170,215 | |||||
Operating income(4) | $ | 48,522 | $ | 49,688 | $ | 44,241 | |||||
Operating income margin | 15.9 | % | 21.8 | % | 26.0 | % | |||||
Net income | $ | 32,459 | $ | 52,288 | $ | 35,780 | |||||
Net income margin | 10.6 | % | 22.9 | % | 21.0 | % | |||||
Adjusted net income(1) | $ | 67,279 | $ | 50,682 | $ | 33,409 | |||||
Adjusted net income margin(1) | 22.0 | % | 22.2 | % | 19.6 | % | |||||
Adjusted EBITDA(2) | $ | 115,419 | $ | 79,411 | $ | 55,506 | |||||
Adjusted EBITDA margin(2) | 37.7 | % | 34.8 | % | 32.6 | % | |||||
(1) | Adjusted net income, Adjusted net income margin and diluted earnings per share, as adjusted are non-GAAP financial measures. These figures assume Cactus, Inc. held all units in its operating subsidiary at the beginning of the period. Additional information regarding non-GAAP measures and the reconciliation of GAAP to non-GAAP financial measures are in the Supplemental Information tables. | |
(2) | Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures. See definition of these measures and the reconciliation of GAAP to non-GAAP financial measures in the Supplemental Information tables. | |
(3) | First quarter 2023 results throughout include only one month of FlexSteel results from the close of the acquisition on February 28th, 2023. | |
(4) | Operating income for the second quarter of 2023 includes $18.1 million of expense related to the remeasurement of the earn-out liability associated with the FlexSteel acquisition, $19.3 million of inventory costs associated with the step-up in value of inventory on hand at acquisition, and $8.7 million of intangible amortization expense related to purchase price accounting. Operating income for the first quarter of 2023 includes $4.2 million of inventory costs associated with the step-up in value of inventory on hand at acquisition and $3.7 million of intangible amortization expense related to purchase price accounting. |
Scott Bender, CEO and Chairman of the Board of Cactus, commented, “The second quarter once again showcased our ability to outperform a declining U.S. rig count due to our differentiated products and focus on execution. Revenues increased sequentially in both segments despite lower U.S. activity levels as the quarter progressed. Additionally, our substantial free cash flow generation enabled us to repay all of the $155 million of debt raised for the FlexSteel acquisition within five months of closing, well ahead of plan, leaving us once again free of bank debt.”
“Looking ahead to the third quarter, we anticipate revenue to be down sequentially due to lower U.S. land activity levels, although we expect impacts to the FlexSteel business will lag the activity decline. We also expect margins to remain robust in both segments. We believe the majority of the rig count declines are behind us and are optimistic that drilling activity levels in the fourth quarter will be flat to up.”
Mr. Bender concluded, “The integration of the FlexSteel business has been proceeding smoothly, and we are very pleased to report the first full quarter of results since the acquisition closed. Revenue, margins and cash flow generation all exceeded our expectations, and we continue to be excited about the growth potential of the business under our ownership. Additionally, we are pleased to have our new share repurchase authorization in place to allow us to invest in Cactus stock during what we perceive to be market price dislocations.”
Segment Performance
Upon completion of the FlexSteel acquisition, we re-evaluated our reportable segments and now report two business segments, Pressure Control (legacy Cactus) and Spoolable Technologies (FlexSteel). All corporate and other costs not directly attributable to either segment have been included in Pressure Control results.
Pressure Control
Three Months Ended | |||||||||||
June 30, | March 31, | June 30, | |||||||||
2023 | 2023 | 2022 | |||||||||
(in thousands) | |||||||||||
Pressure Control | |||||||||||
Revenue | $ | 199,134 | $ | 194,655 | $ | 170,215 | |||||
Operating income | $ | 54,540 | $ | 49,439 | $ | 44,241 | |||||
Revaluation gain on TRA liability(1) | — | 3,417 | — | ||||||||
Depreciation and amortization expense | 9,127 | 7,992 | 8,915 | ||||||||
Segment EBITDA(2) | 63,667 | 60,848 | 53,156 | ||||||||
Stock-based compensation | 4,086 | 3,091 | 2,350 | ||||||||
Revaluation gain on TRA liability(1) | — | (3,417 | ) | — | |||||||
Transaction related expenses(3) | 2,191 | 8,581 | — | ||||||||
Adjusted Segment EBITDA(2) | $ | 69,944 | $ | 69,103 | $ | 55,506 | |||||
Operating income margin | 27.4 | % | 25.4 | % | 26.0 | % | |||||
Adjusted Segment EBITDA margin(2) | 35.1 | % | 35.5 | % | 32.6 | % | |||||
(1) | Represents non-cash adjustments for the revaluation of the liability related to the TRA. | |
(2) | Segment EBITDA, Adjusted Segment EBITDA and Adjusted Segment EBITDA margin are non-GAAP financial measures. See definition of these measures and the reconciliation of GAAP to non-GAAP financial measures in the Supplemental Information tables. | |
(3) | Reflects fees and expenses recorded in connection with the FlexSteel Acquisition and related financing. |
Second quarter 2023 Pressure Control revenue increased $4.5 million, or 2.3%, sequentially, as sales of wellhead and production related equipment improved primarily due to higher customer activity relative to the declining rig count. Operating income increased $5.1 million, or 10.3%, sequentially, with margins increasing 200 basis points primarily due to lower transaction expenses offset partially by an increase in the allowance for doubtful accounts. Adjusted Segment EBITDA increased $0.8 million, or 1.2%, sequentially, with Adjusted Segment EBITDA margins decreasing 40 basis points.
Spoolable Technologies
Three Months Ended | ||||||||||
June 30, | March 31, | June 30, | ||||||||
2023 | 2023 | 2022 | ||||||||
(in thousands) | ||||||||||
Spoolable Technologies | ||||||||||
Revenue | $ | 106,685 | $ | 33,750 | $ | — | ||||
Operating income (loss) | $ | (6,018 | ) | $ | 249 | $ | — | |||
Other non-operating income | — | 121 | — | |||||||
Depreciation and amortization expense | 12,787 | 5,118 | — | |||||||
Segment EBITDA(1) | 6,769 | 5,488 | — | |||||||
Stock-based compensation | 1,237 | 750 | — | |||||||
Remeasurement (gain) loss on earn-out liability(2) | 18,144 | (121 | ) | — | ||||||
Inventory step-up expense(3) | 19,325 | 4,191 | — | |||||||
Adjusted Segment EBITDA(1) | $ | 45,475 | $ | 10,308 | $ | — | ||||
Operating income (loss) margin | (5.6 | )% | 0.7 | % | n/a | |||||
Adjusted Segment EBITDA margin(1) | 42.6 | % | 30.5 | % | n/a | |||||
(1) | Segment EBITDA, Adjusted Segment EBITDA and Adjusted Segment EBITDA margin are non-GAAP financial measures. See definition of these measures and the reconciliation of GAAP to non-GAAP financial measures in the Supplemental Information tables. | |
(2) | Represents non-cash adjustments for the remeasurement of the earn-out liability associated with the FlexSteel Acquisition. | |
(3) | Represents amortization of the FlexSteel inventory step-up adjustment due to purchase price accounting. |
In the second quarter of 2023, Spoolable Technologies generated revenue of $106.7 million and segment operating loss of $6.0 million. Operating loss was inclusive of $19.3 million of inventory costs associated with the step-up in value of inventory on hand at acquisition, $8.7 million of intangible amortization expense, and $18.1 million of expense related to the remeasurement of the earn-out liability associated with the FlexSteel acquisition. Adjusted Segment EBITDA margins increased 1,210 basis points due to the depletion of higher cost material in the prior quarter and improved operating leverage.
Liquidity, Capital Expenditures and Other
As of June 30, 2023, the Company had $55.0 million gross bank debt, $63.9 million of cash and cash equivalents, and $193.3 million availability on our revolving credit facility. Operating cash flow was $108.1 million for the second quarter of 2023. During the second quarter, the Company made dividend payments and associated distributions of $8.7 million.
Net cash used in investing activities represented $6.4 million during the second quarter of 2023. For the full year 2023, the Company now expects net capital expenditures to be in the range of $35 million to $45 million on lower expectations for near-term growth spending given moderating activity levels.
As of June 30, 2023, Cactus had 64,609,498 shares of Class A common stock outstanding (representing 81.3% of the total voting power) and 14,820,100 shares of Class B common stock outstanding (representing 18.7% of the total voting power).
Quarterly Dividend
In August 2023, the Board approved a quarterly cash dividend of $0.12 per share of Class A common stock with payment to occur on September 14, 2023 to holders of record of Class A common stock at the close of business on August 28, 2023. A corresponding distribution of up to $0.12 per CC Unit has also been approved for holders of CC Units of Cactus Companies, LLC.
Conference Call Details
The Company will host a conference call to discuss financial and operational results tomorrow, Tuesday August 8, 2023 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. Please access the webcast for the call at least 10 minutes ahead of the start time to ensure a proper connection. Analysts and institutional investors may click here to pre-register for the conference call and obtain a dial-in number and passcode.
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 or rents a range of highly engineered pressure control and spoolable pipe technologies. 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 its products and rental items to assist with the installation, maintenance and handling of the equipment. Cactus operates service centers throughout North America and Australia, while also providing equipment and services in select international markets.
Cautionary Statement Concerning Forward-Looking Statements
Certain statements contained in this press release and oral statements made regarding the matters addressed in this 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,” “plan,” “should,” “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 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, any Quarterly Reports on Form 10-Q and the other documents that the Company files with the Securities and Exchange Commission. The risk factors and other factors noted therein could cause actual results to differ materially from those contained in any forward-looking statement. Cactus disclaims any duty to update and does not intend to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this press release.
Cactus, Inc. | ||||||||||||||
Condensed Consolidated Statements of Income | ||||||||||||||
(unaudited) | ||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||
(in thousands, except per share data) | ||||||||||||||
Revenues | ||||||||||||||
Pressure Control | $ | 199,134 | $ | 170,215 | $ | 393,789 | $ | 316,114 | ||||||
Spoolable Technologies | 106,685 | — | 140,435 | — | ||||||||||
Total revenues | 305,819 | 170,215 | 534,224 | |||||||||||
