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ProFrac Holding Corp. Second Quarter 2022 Results

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   |    Friday,August 12,2022

ProFrac Holding Corp. reported financial and operational results for its second quarter ended June 30, 2022.                                                         

2Q Highlights:

• Total revenue grew approximately 40% sequentially to $589.8 million over 2022 first quarter revenue, on a pro forma basis for the FTSI acquisition,⁽¹⁾ of $421.6 million, and up over 70% over 2022 first quarter reported revenue of $345.0 million
• Net income rose to $70.1 million, which included $38.8 million of stock compensation expense related to a deemed contribution from a related party
• Net income excluding stock compensation expense related to a deemed contribution was $108.9 million, up over 350% compared to 2022 first quarter reported net income of $24.1 million
• Adjusted EBITDA⁽²⁾ increased over 100% sequentially to $210.6 million compared to 2022 first quarter Adjusted EBITDA, on a pro forma basis for the FTSI acquisition,⁽³⁾ of $99.4 million
• Annualized Adjusted EBITDA per fleet excluding Flotek was $28.1 million on 31 average active fleets during the quarter
• Announced pending acquisition of U.S. Well Services, Inc. in late June and expect to close the transaction in the fourth quarter of 2022
• Upsized Term Loan by $150 million and closed on the acquisition of the SPS Monahans assets in late July 2022
• Second quarter results include the consolidation of Flotek results after May 17, 2022 which contributed $15.4 million in revenue and ($7.5) million in Adjusted EBITDA

Ladd Wilks, ProFrac Holding Corp.'s Chief Executive Officer, stated, "Our business performed extremely well during the second quarter.  We had 31 average active fleets during the quarter and we are currently deploying our first electric fleet into the field. We do not have plans to activate any additional conventional fleets at this time. We continue to focus our supply chain and our team on our existing fleets and our electric deployments. I am proud to partner with our customers and our team to continue pushing for a better, safer service company that provides best-in-class products and services, while focusing on driving superior returns for our shareholders."

Matt Wilks, Executive Chairman, added, "Over the past several quarters, we have been focused on executing our Acquire, Retire, Replace^(TM) strategy and scaling our Vertical Integration strategy.  As such, we are very pleased to report tremendous growth metrics during our second quarter which highlights the strong value of both strategies. The second quarter demonstrates our two-prong strategy in action because this is our first full quarter that includes the fleets acquired in the FTSI transaction. This is also the time that vertical integration matters the most.  We are excited and look forward to continue proving the value creation potential of our two-prong growth strategy to our new investors as a public company as we integrate our most recently announced acquisitions."

Second Quarter 2022 Financial Results

For the second quarter of 2022, consolidated revenues totaled $589.8 million, or approximately $76 million per fleet on an annualized basis.  On a pro forma basis for the FTSI acquisition, this compares to $421.6 million in the first quarter, or $54.4 million per fleet on an annualized basis. The increase was driven by higher average pricing, higher activity levels achieved with our fleets, and more materials provided to our customers.

Selling, general, and administrative costs ("SG&A") was $87.5 million and included $38.8 million of stock compensation expense related to a deemed contribution, $4.2 million of costs attributable to Flotek, $4.1 million in acquisition related expenses and included a full quarter of SG&A from FTSI.  Higher costs were also driven by incentive compensation costs and acquisition related expenses during the quarter.

The stock-based compensation expense related to a deemed contribution of $38.8 million was related to shares sold by Farris Wilks and Dan Wilks (or entities they control) (collectively the "Wilks") to Ladd Wilks and Matt Wilks, respectively. These transfers were completed in connection with the IPO and the accounting treatment resulted in stock-based compensation funded directly by the Wilks.

Net income for the second quarter totaled $70.1 million. Net income excluding the stock compensation expense related to a deemed contribution from related parties was $108.9 million, compared to $24.1 million for the first quarter.

Adjusted EBITDA totaled $210.6 million in the second quarter, or $27.2 million per fleet on an annualized basis.  Excluding the operating results attributable to Flotek, Adjusted EBITDA totaled $218.0 million, or $28.1 million per fleet on an annualized basis.

Operating cash flow was $39.5 million which was impacted by a working capital build due to increased pricing, increased activity levels, and increased materials provided to our customers.

The Company's average active fleet count for the second quarter was 31 fleets. 

Outlook

The Company is deploying its first electric fleet during the third quarter and expects to average approximately 31 active fleets for the full quarter. We expect to deploy two more electric fleets in the fourth quarter. There are no current plans to reactivate any conventional or dual fuel fleets for the remainder of 2022.

The Company also expects incremental improvement in third quarter results, as compared to the second quarter attributable to further bundling of materials with our pressure pumping services, continued pricing improvements, and the anticipated deployment of our first electric fleet. 

Business Segment Information

The Stimulation Services segment generated revenues in the second quarter of 2022 of $576.6 million, which resulted in $196.1 million of Adjusted EBITDA.

The Manufacturing segment generated revenues of $34.9 million in the second quarter of 2022, which resulted in $9.4 million of Adjusted EBITDA.  Approximately 88% of the Manufacturing segment's revenue was intercompany.

The Proppant Production segment generated revenues of $17.5 million in the second quarter of 2022, which resulted in $12.6 million of Adjusted EBITDA.  Approximately 66% of the Proppant Production segment's revenue was intercompany.

Our other business activities generated revenues of $15.4 million in the second quarter of 2022, which resulted in $(7.5) million of Adjusted EBITDA.

The Other business activities solely relate to the results of Flotek Industries, Inc. ("Flotek"). In May 2022, the Flotek shareholders approved the issuance of $50 million in initial principal amount of convertible notes that are convertible into Flotek common stock in exchange for amending our supply agreement to increase the term to ten years and the scope to 30 fleets. We were also granted the right to designate four of seven directors to Flotek's board of directors.  As a result of our right to appoint directors without a direct equity interest, we determined that Flotek is a variable interest entity ("VIE"). We further determined that the Company is the primary beneficiary of the VIE, primarily due to our ability to appoint four of seven directors to Flotek's board of directors. As a result, and in accordance with GAAP, subsequent to May 17, 2022, we have accounted for this transaction as a business combination using the acquisition method of accounting and Flotek's financial results from May 17, 2022 to June 30, 2022 have been consolidated into our consolidated financial statements.

Capital Expenditures and Capital Allocation

Capital expenditures for full year 2022 are expected to range from $265 million to $290 million, which represents the high end of the range provided previously, due to increased activity levels and costs.  The first electric fleet has been deployed for field trials and is expected to be fully deployed prior to the fourth quarter.  The West Munger sand plant is expected to be operational by the beginning of the fourth quarter of this year.  

Balance Sheet and Liquidity

Total gross debt outstanding as of June 30, 2022 was $495.0 million, $17.5 million of which was attributable to Flotek. Gross debt outstanding excluding amounts attributable to Flotek was $477.5 million, compared to $648.0 million as of March 31, 2022.

Total cash and cash equivalents as of June 30, 2022, was $73.7 million, $33.1 million of which was attributable to Flotek. Cash and cash equivalents excluding amounts attributable to Flotek was $40.6 million, compared to $28.7 million as of March 31, 2022.

As of June 30, 2022, and excluding amounts attributable to Flotek, the Company had $88.0 million of liquidity, including $40.6 million in cash and cash equivalents and net availability of $47.4 million under its asset-based credit facility.

On July 25, 2022, the Company entered into an amendment to its Term Loan Credit Facility to increase the size of the facility by $150 million, with an uncommitted option to obtain commitments for a potential additional $100 million of delayed draw loans before the earlier to occur of (i) the consummation of the pending acquisition of U.S. Well Services, Inc. and (ii) March 31, 2023.

SPS Monahans Acquisition

On July 25, 2022, the Company acquired SP Silica of Monahans, LLC, and SP Silica Sales, LLC (collectively, "SPS Monahans"), the West Texas subsidiaries of Signal Peak Silica, for approximately $90 million in cash plus approximately $10 million in working capital closing adjustments.