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ProPetro Holding Corp. Second Quarter 2019 Results

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ProPetro Holding Corp. reported its Q2 2019 results.

Preliminary Second Quarter 2019 Highlights

• Total revenue for the quarter was $529.5 million, as compared to $546.2 million for the first quarter of 2019.
• Net income was $36.1 million, or $0.35 per diluted share, compared to $69.8 million, or $0.67 per diluted share, for the first quarter of 2019.
• Adjusted EBITDA⁽¹⁾ for the quarter was $126.6 million compared to $150.3 million for the first quarter of 2019.
• Effective utilization for the second quarter was 25.6 fleets.
• As previously announced, ProPetro plans to deploy three new-build electrically powered DuraStim® hydraulic fracturing fleets⁽²⁾ beginning in late 2019.

Dale Redman, Chief Executive Officer, commented, “ProPetro continues to benefit from the close relationships we have formed in the Permian basin with our customers and supply chain. Our team continues to demonstrate an exceptional focus on serving the needs of our customers. In turn, our customers have supported us through a volatile macro environment. I appreciate every customer and employee for their support and contributions to our business.”

The delay in the Form 10-Q is due to an ongoing review by the audit committee of the Company’s board of directors which initially focused on the disclosure of agreements previously entered into by the Company with AFGlobal for the purchase of DuraStim® hydraulic fracturing fleets and effective communications related thereto. A corrective release regarding these agreements which addressed the disclosure issue was previously issued on June 28, 2019.

As part of the review, the audit committee expanded its work to include, among other items, expense reimbursements and certain transactions involving related parties or potential conflicts of interest, as described in the Company’s current report on Form 8-K filed today, August 8, 2019. While the additional work has resulted in the reversal of certain expense reimbursements, the establishment of a disclosure committee and other improvements, the audit committee and management have not identified to date any items that would require revision or restatement of the Company’s historical financial statements. The audit committee expects to complete its review within the next 30 days.

ProPetro expects to file a Form 12b-25, Notification of Late Filing, with the Securities and Exchange Commission. The Company currently expects to file the Form 10-Q as soon as possible following the completion of the review, subject to any definitive conclusions of the review that would cause further delay. ProPetro will announce revised details for the second quarter earnings conference call as soon as possible.

Preliminary Second Quarter 2019 Financial Summary

Revenue for the second quarter of 2019 was $529.5 million, a decrease of 3% as compared to revenue of $546.2 million for the first quarter of 2019. The decrease was primarily attributable to a slight decrease in customer activity. During the second quarter of 2019, 97.4% of total revenue was associated with pressure pumping services, similar to 97.4% in the first quarter.

Cost of services excluding depreciation and amortization for the second quarter of 2019 increased slightly to $386.2 million from $381.5 million during the first quarter of 2019. The increase was primarily attributable to increased costs associated with materials as well as increased repairs and maintenance expense. As a percentage of pressure pumping segment revenues, pressure pumping cost of services increased to 72.6% from 69.7% in the first quarter of 2019.

General and administrative expense was $27.9 million as compared to $18.5 million in the first quarter of 2019. The increase was due in part to approximately $5.1 million in professional and other advisory costs incurred in connection with the audit committee’s review described above. General and administrative expense, exclusive of stock-based compensation, deferred IPO bonus, retention expense, and legal fees (including fees associated with the audit committee’s review) was $16.7 million, or 3.2% of revenue, for the second quarter of 2019.

Net income for the second quarter of 2019 totaled $36.1 million, or $0.35 per diluted share, versus $69.8 million, or $0.67 per diluted share, for the first quarter of 2019.

Adjusted EBITDA for the second quarter of 2019 was $126.6 million, compared to $150.3 million in the previous quarter. Adjusted EBITDA margin for the second quarter of 2019 was 23.9% as compared to 27.5% for the first quarter of 2019.

Operational Highlights and Fleet Expansion

Effective utilization of the Company’s fracturing assets during the second quarter of 2019 was 25.6 fleets. ProPetro currently expects effective utilization in the third quarter of 2019 to be approximately 25 fleets. The slight decrease in utilization is primarily attributable to a decrease in customer activity.

As previously announced, the Company plans to deploy three electrically powered DuraStim® hydraulic fracturing fleets beginning in late 2019. Each of these fleets consists of 36,000 HHP and associated auxiliary and mixing equipment and power generation. These fleets will be deployed to two existing customers on a dedicated basis with the first fleet expected to be deployed before the end of 2019.

During the quarter the Company also expanded its cementing and coiled tubing operations by deploying one additional new-build cementing unit and one additional new-build coiled tubing unit, bringing total current cementing capacity to 22 units and total coiled tubing capacity to 9 units. Also, as previously announced, ProPetro plans to organically expand its cementing operation by two additional units during the remainder of 2019.

Liquidity and Capital Spending

As of June 30, 2019, total cash was $36.3 million and total debt was $150.0 million. Total liquidity at the end of the second quarter of 2019 was $146.5 million, including cash and $110.2 million of available capacity under the Company’s $300 million revolving credit facility. As of August 6, 2019, the Company’s net debt was approximately $11.4 million, which represents outstanding debt of $130.0 million less cash of $118.6 million. We believe our conservative capital structure positions us well to balance customer demand for our new generation DuraStim® fleets and other competing uses of cash.

Capital expenditures incurred during the second quarter of 2019 were $161.2 million. Of the total capital expenditures incurred, approximately $102.1 million was associated with growth capital (primarily related to the DuraStim® hydraulic fracturing fleets and associated power generation) and approximately $59.1 million was associated with maintenance capital. Based on expected utilization, the Company now estimates maintenance capital spending to be approximately $6-7 million per active fleet (inclusive of fluid ends) during 2019.

Outlook

“ProPetro is excited to be a leader in technological advances in our sector that will allow our customers to more efficiently complete their projects. We will continue to execute upon our differentiated business model. While we currently face a challenging and volatile market and commodity price environment, we currently remain confident in our ability to remain highly utilized as our core customer base remains committed to disciplined capital spending that should drive sustainable activity levels over the long run,” commented Dale Redman.