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Cactus Announces Second Quarter 2018 Results

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Cactus, Inc. (NYSE:WHD) ("Cactus" or the "Company") today announced
financial and operating results for the second quarter of 2018.

Second Quarter 2018 Highlights

  • Increased revenues 20.4% from the first quarter 2018 to $138.5
    million, with double digit growth in all business lines;
  • Grew income from operations 32.0% sequentially to $46.5 million;
  • Generated net income of $41.5 million;
  • Reported diluted earnings per share of $0.46;
  • Increased Adjusted EBITDA(1) and related margin(2)
    to $55.1 million and 39.8%, respectively, from $42.7 million and
    37.1%, respectively, in the first quarter 2018; and
  • Generated cash flow from operations of $42.1 million.

Financial Summary

    Three Months Ended
June 30,
2018
    March 31,
2018
    June 30,
2017
(in thousands)
       
Revenues $ 138,543 $ 115,110 $ 81,877
Income from operations $ 46,487 $ 35,217 $ 22,073
Operating income margin 33.6% 30.6% 27.0%
Net income $ 41,542 $ 26,408 $ 16,578
Adjusted EBITDA (1) $ 55,117 $ 42,672 $ 27,662
Adjusted EBITDA margin (2) 39.8% 37.1% 33.8%
     
(1) 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.
(2) The percentage of Adjusted EBITDA to Revenues.
 

Scott Bender, President and CEO of Cactus, commented, "The second
quarter was strong, resulting in double digit sequential revenue growth
across all of our business lines and regions. The improvement in margins
reflects our operating leverage and differentiated supply chain
capabilities.

"We expect operating results in the third quarter of 2018 to continue to
validate the strength of our business model with new and existing
customers. Our 15 locations throughout the U.S. provide us flexibility
to manage changes in activity across various basins. In addition, we
believe the breadth and profile of our customer base better positions us
to deal with potential Permian takeaway issues."

Mr. Bender continued, "Looking to the fourth quarter and early 2019, we
expect to commence commercialization of new completions innovations that
we have been developing in concert with key customers."

Revenue Categories

Product

                  Three Months Ended
June 30,
2018
    March 31,
2018
    June 30,
2017
(in thousands)
       
Product revenue $ 73,281 $ 58,926 $ 45,245
Gross profit $ 28,266 $ 21,860 $ 15,749
Gross margin 38.6% 37.1% 34.8%
 

Second quarter 2018 product revenue increased $14.4 million, or 24.4%,
sequentially, driven primarily by greater sales volume of wellhead and
production equipment. Gross profit increased $6.4 million sequentially
with margins improving 150 basis points due to more favorable supply
chain execution. Cactus' estimated market share(3) was 26.0%
for second quarter 2018 compared to 26.4% for first quarter 2018, while
the U.S. onshore quarterly rig count averaged 1,017 rigs in second
quarter 2018 compared to 948 rigs in first quarter 2018.

Rental

                Three Months Ended
June 30,
2018
    March 31,
2018
    June 30,
2017
(in thousands)
       
Rental revenue $ 34,944 $ 29,145 $ 18,805
Gross profit $ 20,992 $ 16,969 $ 9,591
Gross margin 60.1% 58.2% 51.0%
 

Second quarter 2018 rental revenue increased $5.8 million, or 19.9%,
sequentially, due to the Company's enhanced ability to respond to the
increased demand across nearly all the major U.S. basins in which the
Company operates. Gross profit increased $4.0 million sequentially with
margins improving 190 basis points, resulting from a combination of
volume, improved operating efficiencies and pricing.

Field Service and Other

                  Three Months Ended
June 30,
2018
    March 31,
2018
    June 30,
2017
(in thousands)
       
Field service and other revenue $ 30,318 $ 27,039 $ 17,827
Gross profit $ 7,080 $ 5,502 $ 4,067
Gross margin 23.4% 20.3% 22.8%
 

Second quarter 2018 field service and other revenue increased $3.3
million, or 12.1%, sequentially, due to an increase in billable hours
and ancillary services associated with greater volume of product sales
and rental activity. Gross profit increased $1.6 million sequentially
with margins increasing 310 basis points due to higher average pricing
for billable services compared to first quarter 2018.

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

SG&A for second quarter 2018 was $9.9 million (7.1% of revenues),
compared to $9.1 million (7.9% of revenues) for first quarter 2018 and
$7.3 million (9.0% of revenues) for second quarter 2017. The sequential
increase is primarily related to $0.4 million higher non-cash
stock-based compensation expense, as well as increased public company
costs.

Supplemental Information

Assuming Cactus, Inc. held all units in Cactus Wellhead, LLC ("Cactus
LLC"), its operating company subsidiary, at the beginning of the period,
with the resulting additional income tax expense related to the
incremental income attributable to Cactus, Inc., the Company's diluted
earnings per share would have been $0.46 for second quarter 2018. The
Company believes this supplemental information is useful for evaluating
performance period over period. The table below sets forth additional
detail regarding the adjusted amounts.

                 
Three Months Ended
June 30, 2018

(in thousands, except
per share data)

Net income $ 41,542
Adjustment:
Income tax expense differential (a)   (6,632 )
Net income, as adjusted $ 34,910  
 
Diluted earnings per share, as adjusted $ 0.46  
 
Weighted average shares outstanding, as adjusted (b)

75,219

 
    (a)   Represents the increase 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 of $4.7 million recorded during second
quarter 2018 and what would have been recorded based on a corporate
effective tax rate of 24.5% on $46.2 million of income before income
taxes.
(b) Reflects 26,450 shares of Class A common stock plus 48,440
additional shares as if the Class B common stock was exchanged and
canceled for Class A common stock at the beginning of the period,
plus the dilutive effect of restricted stock unit awards.
 

Liquidity and Capital Expenditures

As of June 30, 2018, the Company had $28.4 million of cash on hand, no
bank debt outstanding and the full $50.0 million of capacity available
under the Company's revolving credit facility. Operating cash flow was
$42.1 million for second quarter 2018 and $80.7 million for the first
six months of 2018, reflecting strong operating results.

Net capital expenditures were $15.7 million for second quarter 2018 and
$31.3 million for the first six months of 2018. The majority of the
spend related to investments in rental equipment, particularly frac
valves, to meet strong customer demand for the Company's differentiated
frac rental equipment.

Other Events

On July 16, 2018, Cactus closed a public offering of 11,196,562 shares
of its Class A common stock at $33.25 per share and received $359.3
million of net proceeds after deducting underwriting discounts. Cactus
contributed the net proceeds to its operating company subsidiary, Cactus
LLC, in exchange for common units representing limited liability company
interests in Cactus LLC ("CW Units"). Cactus LLC then used the net
proceeds to redeem 11,196,562 CW Units from certain of the other owners
of Cactus LLC and a corresponding number of shares of Class B common
stock were canceled.

After these transactions, Cactus has outstanding 37,646,562 shares of
Class A common stock (representing 50.3% of the total voting power) and
37,243,210 shares of Class B common stock (representing 49.7% of the
total voting power). There was no change in the total aggregate number
of shares of Class A common stock and Class B common stock outstanding
of 74,889,772 following the completion of the offering.

Conference Call Details

Cactus will host a conference call to discuss financial and operational
results tomorrow, Thursday, August 2, 2018 at 9:00 AM Central Time
(10:00 AM Eastern Time).

The call will be webcast on Cactus' website at www.CactusWHD.com.
Institutional investors and analysts may participate by dialing (888)
220-8474. International parties may dial (323) 794-2591. The access code
is 8571623. 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

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 (including fracturing)
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 15 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 one service center 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," 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

June 30,

Six Months Ended

June 30,

2018     2017 2018     2017
(in thousands, except per share data)
Revenues        
Product revenue $ 73,281 $ 45,245 $ 132,207 $ 78,283
Rental revenue 34,944 18,805 64,089 31,780
Field service and other revenue   30,318         17,827     57,357         30,317  
Total revenues   138,543         81,877     253,653         140,380  
 
Costs and expenses
Cost of product revenue 45,015 29,496 82,081 52,691
Cost of rental revenue 13,952 9,214 26,128 17,487
Cost of field service and other revenue 23,238 13,760 44,775 24,698
Selling, general and administrative expenses   9,851         7,334     18,965         13,437  
Total costs and expenses   92,056         59,804     171,949         108,313  
Income from operations   46,487         22,073     81,704         32,067  
 
Interest expense, net (248 ) (5,186 ) (3,100 ) (10,172 )
Other income (expense), net   -         -     (4,305 )       -  
Income before income taxes 46,239 16,887 74,299 21,895
Income tax expense (a)   4,697         309     6,349         463  
Net income $ 41,542 $ 16,578 $ 67,950 $ 21,432
Pre-IPO net income $ - $ 16,578 $ 13,648 $ 21,432
Post-IPO net income $ 41,542 $ - $ 54,302 $ -
 

Components of post-IPO net income:

Net income attributable to non-controlling interest $ 29,208 n/a $ 38,215 n/a
Net income attributable to Cactus Inc. $ 12,334 n/a $ 16,087 n/a
 
Earnings per Class A share - basic $ 0.47         n/a   $ 0.61         n/a  
Earnings per Class A share - diluted (b) $ 0.46         n/a   $ 0.60         n/a  
 
Weighted average shares outstanding - basic 26,450 n/a 26,450 n/a
Weighted average shares outstanding - diluted (b) 26,779 n/a 26,734 n/a
     
(a) Cactus has historically not been subject to U.S. federal income tax
at an entity level. Subsequent to the IPO, Cactus, Inc. will incur
federal and state income tax on its share of income from Cactus LLC.
(b) Dilution excludes 48.4 million shares of Class B common stock as the
effect would be anti-dilutive.
       

Cactus, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

 
June 30, December 31,
2018     2017
(in thousands)
Assets
Current assets
Cash and cash equivalents $ 28,403 $ 7,574
Accounts receivable, net 97,569 84,173
Inventories 77,954 64,450
Prepaid expenses and other current assets   5,372       7,732  
Total current assets   209,298       163,929  
 
Property and equipment, net 118,599 94,654
Goodwill 7,824 7,824
Deferred tax asset, net 70,307 -
Other noncurrent assets   47       49  
Total assets $ 406,075     $ 266,456  
 
Liabilities and Equity
Current liabilities
Accounts payable $ 44,226 $ 35,080
Accrued expenses and other current liabilities 17,221 10,559
Capital lease obligations, current portion 6,374 4,667
Current maturities of long-term debt   -       2,568  
Total current liabilities   67,821       52,874  
 
Capital lease obligations, net of current portion 9,260 7,946
Deferred tax liability, net 712 416
Liability related to tax receivable agreement 62,989 -
Long-term debt, net   -       241,437  
Total liabilities   140,782       302,673  
 
Equity (deficit)   265,293       (36,217 )
Total liabilities and equity $ 406,075     $ 266,456  
 

Cactus, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

       
Six Months Ended June 30,
2018     2017
(in thousands)
Cash flows from operating activities
Net income $ 67,950 $ 21,432
Reconciliation of net income to net cash provided by operating
activities
Depreciation and amortization 13,988 10,902
Debt discount and deferred loan cost amortization 219 876
Stock-based compensation 2,097 -
Inventory obsolescence 830 -
Loss on disposal of assets 706 118
Deferred income taxes 4,094 83
Loss on debt extinguishment 4,305 -
Changes in operating assets and liabilities
Accounts receivable (12,647 ) (25,996 )
Inventories (14,943 ) (16,493 )
Prepaid expenses and other assets 2,387 (1,248 )
Accounts payable 7,302 12,445
Accrued expenses and other liabilities   4,417         4,304  
Net cash provided by operating activities   80,705         6,423  
 
Cash flows from investing activities
Capital expenditures (32,128 ) (16,468 )
Proceeds from sale of assets   780         586  
Net cash used in investing activities   (31,348 )       (15,882 )
 
Cash flows from financing activities
Principal payments on long-term debt (248,529 ) (1,284 )
Revolver borrowings - 5,000
Payments on capital leases (2,788 ) (860 )
Net proceeds from IPO 469,621 -
Distributions to members (30,275 ) -
Redemptions of CW Units   (216,425 )       -  
Net cash (used in) provided by financing activities   (28,396 )       2,856  
 
Effect of exchange rate changes on cash and cash equivalents   (132 )       49  
 
Net increase (decrease) in cash and cash equivalents 20,829 (6,554 )
 
Cash and cash equivalents
Beginning of period   7,574         8,688  
End of period $ 28,403       $ 2,134  
       

Cactus, Inc. – Supplemental Information

Reconciliation of GAAP to Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA(1)

(unaudited)

 
Three Months Ended
June 30,
2018
      March 31,
2018
      June 30,
2017
(in thousands)
Net income $ 41,542 $ 26,408 $ 16,578
Interest expense, net 248 2,852 5,186
Income tax expense 4,697 1,652 309
Depreciation and amortization   7,367   6,621   5,589
EBITDA (1) 53,854 37,533 27,662
Loss on debt extinguishment - 4,305 -
Stock-based compensation   1,263   834   -
Adjusted EBITDA (1) $ 55,117 $ 42,672 $ 27,662
 
 
Six Months Ended
June 30,
2018
June 30,
2017
(in thousands)
Net income $ 67,950 $ 21,432
Interest expense, net 3,100 10,172
Income tax expense 6,349 463
Depreciation and amortization   13,988   10,902
EBITDA (1) 91,387 42,969
Loss on debt extinguishment 4,305 -
Stock-based compensation   2,097   -
Adjusted EBITDA (1) $ 97,789 $ 42,969
 
(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 expense, income
tax and depreciation and amortization. Cactus defines Adjusted
EBITDA as EBITDA excluding (gain) loss on debt extinguishment and
stock-based compensation.
 
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.
     

Cactus, Inc. – Supplemental Information

Depreciation and Amortization by Category

(unaudited)

 
Three Months Ended
June 30,
2018
      March 31,
2018
      June 30,
2017
(in thousands)
Cost of product revenue $ 793 $ 776 $ 745
Cost of rental revenue 4,433 3,954 3,635
Cost of field service and other revenue 2,039 1,790 1,105
Selling, general and administrative expenses   102   101   104
Total depreciation and amortization $ 7,367 $ 6,621 $ 5,589
 
 
Six Months Ended
June 30,
2018
June 30,
2017
(in thousands)
Cost of product revenue $ 1,569 $ 1,562
Cost of rental revenue 8,387 7,188
Cost of field service and other revenue 3,829 1,942
Selling, general and administrative expenses   203   210
Total depreciation and amortization $ 13,988 $ 10,902
     

Cactus, Inc. – Supplemental Information

Estimated Market Share(3)

(unaudited)

 
Three Months Ended
June 30,
2018
      March 31,
2018
      June 30,
2017
 
Cactus U.S. onshore rigs followed 264 250 211
Baker Hughes U.S. onshore rig count quarterly average 1,017 948 870
Market share (3) 26.0% 26.4% 24.3%
 
(3) 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.

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