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Service & Supply | Oilfield Services | Third Quarter (3Q) Update

Cactus Reports Third Quarter 2020 Results

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   |    Wednesday,November 04,2020

Cactus, today announced financial and operating results for the third quarter of 2020.

Third Quarter Highlights

  • Revenue of $59.8 million;
  • Income from operations of $12.6 million;
  • Net income of $10.9 million(1) and diluted earnings per Class A share of $0.13(1);
  • Net income, as adjusted(2) of $9.5 million and diluted earnings per share, as adjusted(2) of $0.13;
  • Adjusted EBITDA(3) and related margin(4) of $24.6 million and 41.1%, respectively;
  • Cash flow from operations of $18.9 million;
  • Reduced 2020 net capital expenditure guidance to between $17.5 and $22.5 million;
  • Cash balance of $273.9 million and no bank debt outstanding as of September 30, 2020; and
  • The Board of Directors declared a quarterly cash dividend of $0.09 per share.

     

Financial Summary

 

Three Months Ended

 

September 30,

 

June 30,

 

September 30,

 

2020

 

2020

 

2019

 

(in thousands)

Revenues

$

59,789

 

 

$

66,548

 

 

$

160,808

 

Income from operations

$

12,556

 

 

$

8,875

 

 

$

47,123

 

Operating income margin

21.0

%

 

13.3

%

 

29.3

%

Net income(1)

$

10,886

 

 

$

9,095

 

 

$

35,833

 

Net income, as adjusted(2)

$

9,517

 

 

$

7,367

 

 

$

36,097

 

Adjusted EBITDA(3)

$

24,550

 

 

$

22,483

 

 

$

58,819

 

Adjusted EBITDA margin(4)

41.1

%

 

33.8

%

 

36.6

%

(1)

Net income during the third quarter of 2020 is inclusive of $1.9 million in expense related to the revaluation of the tax receivable agreement liability. Net income during the second quarter of 2020 is inclusive of $0.9 million in non-routine charges related to severance and $1.3 million in additional income related to the revaluation of the tax receivable agreement liability. 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.

Scott Bender, President and CEO of Cactus, commented, “The third quarter once again showcased our ability to outperform the U.S. rig count while maintaining strong margins during what we believe was the bottom of the current U.S. industry cycle. Cactus achieved record Product market share(1) of approximately 38% during the third quarter, highlighting the resiliency of our customer base and our track record of winning new customers. I am also pleased to report that Cactus has now generated positive free cash flow in all eleven quarters since going public in early 2018.

“Looking to the fourth quarter, we expect further gains in rigs followed and associated market share will benefit our Product business. While the near-term focus for our Rental business will continue to be on returns and margins, we are encouraged by the recent improvement in industry completion activity. We believe that total Company quarterly revenues have bottomed and expect an improvement going forward.”

Mr. Bender concluded, “Cactus has proven its ability to generate significant free cash flow and income through the downcycle. In the same vein, management has also further reduced its full year 2020 net capital expenditure budget. We believe the industry's most pronounced activity decline in decades is behind us and we are now turning our attention to the recovery. This team is excited to see the potential benefits that greater operating leverage provides our business as activity levels increase, both in the U.S. and internationally.”

(1)

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

Revenue Categories

Product

 

 

Three Months Ended

 

September 30,

 

June 30,

 

September 30,

 

2020

 

2020

 

2019

 

(in thousands)

Product revenue

$

35,857

 

 

$

40,893

 

 

$

92,582

 

Gross profit

$

15,978

 

 

$

14,931

 

 

$

34,814

 

Gross margin

44.6

%

 

36.5

%

 

37.6

%

Third quarter 2020 product revenue decreased $5.0 million, or 12.3%, sequentially, as sales of wellhead and production related equipment decreased primarily due to lower drilling activity in the U.S., which was partially offset by market share gains. Gross profit increased $1.0 million, or 7.0%, sequentially, with margins increasing 810 basis points driven largely by $5.4 million in credits related to tariff refunds, up from $3.1 million during the second quarter of 2020.

Rental

 

 

Three Months Ended

 

September 30,

 

June 30,

 

September 30,

 

2020

 

2020

 

2019

 

(in thousands)

Rental revenue

$

9,881

 

 

$

11,535

 

 

$

35,528

 

Gross profit

$

234

 

 

$

860

 

 

$

18,334

 

Gross margin

2.4

%

 

7.5

%

 

51.6

%

Third quarter 2020 rental revenue decreased $1.7 million, or 14.3%, sequentially, as our customers’ level of completion activity was lower during the quarter. Gross profit decreased $0.6 million sequentially and margins decreased 510 basis points due largely to depreciation expense representing a higher percentage of revenue during the period.

Field Service and Other

Three Months Ended

 

September 30,

 

June 30,

 

September 30,

 

2020

 

2020

 

2019

 

(in thousands)

Field service and other revenue

$

14,051

 

 

$

14,120

 

 

$

32,698

 

Gross profit

$

4,728

 

 

$

2,634

 

 

$

7,323

 

Gross margin

33.6

%

 

18.7

%

 

22.4

%

Third quarter 2020 field service and other revenue decreased $0.1 million, or 0.5%, sequentially, as lower customer activity drove a slight decrease in associated billable hours and ancillary services. Gross profit increased $2.1 million, or 79.5%, sequentially, with margins increasing by 1,490 basis points sequentially due to lower depreciation, tooling and payroll-related expenses, improved labor and equipment utilization and the rationalization of the Company’s field service vehicle fleet.

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

SG&A for the third quarter of 2020 was $8.4 million (14.0% of revenues), compared to $8.7 million (13.1% of revenues) for the second quarter of 2020 and $13.3 million (8.3% of revenues) for the third quarter of 2019. The sequential decrease was primarily due to lower payroll expenses.

Liquidity, Capital Expenditures and Other

As of September 30, 2020, the Company had $273.9 million of cash and no bank debt outstanding. Operating cash flow was $18.9 million for the third quarter of 2020. During the third quarter, the Company made dividend payments and associated distributions of $6.8 million. The Company also made tax receivable agreement payments and associated distributions of $22.6 million during the third quarter stemming from 2019 imputed tax liabilities.

Net cash used in investing activities represented a cash inflow of $0.1 million during the third quarter of 2020 as capital expenditures were more than offset by proceeds from the sale of assets. The Company reduced its full year 2020 net capital expenditure guidance to between $17.5 and $22.5 million.

During the third quarter, Cactus recognized $6.0 million in refunds pursuant to tariff exclusions granted by the U.S. Trade Representative. The refunds reduced cost of revenue during the period. As previously disclosed, a majority of the Company's tariff exclusions were not extended past August 2020.


Related Categories :

Manufacturing