Cactus Announces Fourth Quarter and Full Year 2020 Results

HOUSTON–(BUSINESS WIRE)–Feb 24, 2021–
Cactus, Inc. (NYSE: WHD) (“Cactus” or the “Company”) today announced financial and operating results for the fourth quarter and full year 2020.
Fourth Quarter 2020 Highlights

  • Revenue of $68.1 million;
  • Income from operations of $8.4 million;
  • Net income of $6.1 million (1) and diluted earnings per Class A share of $0.07 (1);
  • Net income, as adjusted (2) of $6.3 million and diluted earnings per share, as adjusted (2) of $0.08;
  • Adjusted EBITDA (3) and related margin (4) of $19.8 million and 29.1%, respectively;
  • Cash flow from operations of $21.9 million;
  • Cash balance of $288.7 million and no bank debt outstanding as of December 31, 2020; and
  • In January 2021, the Board of Directors declared a quarterly cash dividend of $0.09 per share. 

Financial Summary

    Three Months Ended   Twelve Months Ended
    December 31,   September 30,   December 31,   December 31,   December 31,
    2020   2020   2019   2020   2019
    (in thousands)   (in thousands)
Revenues   $ 68,090     $ 59,789     $ 140,238     $ 348,566     $ 628,414  
Income from operations   $ 8,423     $ 12,556     $ 36,085     $ 70,039     $ 183,150  
Operating income margin   12.4 %   21.0 %   25.7 %   20.1 %   29.1 %
Net income (1)   $ 6,136     $ 10,886     $ 31,274     $ 59,215     $ 156,303  
Net income, as adjusted (2)   $ 6,287     $ 9,517     $ 27,721     $ 55,179     $ 139,862  
Adjusted EBITDA (3)   $ 19,844     $ 24,550     $ 48,413     $ 121,022     $ 228,999  
Adjusted EBITDA margin (4)   29.1 %   41.1 %   34.5 %   34.7 %   36.4 %
(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 fourth quarter of 2019 is inclusive of $4.8 million in additional income related to the revaluation of the tax receivable agreement liability and $2.7 million of net additional tax expenses associated with various non-routine items. Net income for the full year 2020 is inclusive of $1.9 million in non-routine charges related to severance and $0.6 million in expense related to the revaluation of the tax receivable agreement liability. Net income for the full year 2019 is inclusive of $5.3 million in additional income related to the revaluation of the tax receivable agreement liability, $1.0 million in offering related expenses and $2.6 million of net additional tax expenses associated with various non-routine items.
(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, “Our industry-leading technology and continued ability to execute placed Cactus in an excellent position to capitalize on the cyclical market recovery that is now underway. As such, Cactus achieved record Product market share (1) during the fourth quarter, as we supplied wellhead equipment for approximately 43% of the U.S. land rigs in operation. Full year and fourth quarter 2020 results highlighted our ability to generate substantial free cash flow and maintain strong margins even in challenging markets.
“Looking to the first quarter of 2021, we expect further gains in rigs followed will benefit our Product business. Additionally, we have witnessed meaningful sequential growth in Rental activity to start the year as customers return to higher-end suppliers with a focus on safety and technology. We expect double digit revenue growth on a percentage basis across all our business lines sequentially during the first quarter, even when accounting for the impact of the adverse weather witnessed in recent weeks.
“In addition to the increased activity witnessed during the fourth quarter, there are a number of positive developments unfolding for Cactus. The macroeconomic environment and associated demand for our products and services is clearly improving in the U.S., as noted by our early 2021 outlook. On the R&D front, we are currently in the late stages of developing technologies specifically designed to reduce the environmental impact of flow control equipment and assist our customers in realizing their ESG-related goals. Additionally, we made our first shipments of equipment to the Middle East in January 2021, which should provide opportunities for growth in the region this year.”
Mr. Bender concluded, “Our performance and recent developments provide grounds for optimism about the trajectory of the business. As always, we will operate with a focus on margins, returns, and creating value for our shareholders.”

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

Revenue Categories

Product
   
    Three Months Ended
    December 31,   September 30,   December 31,
    2020   2020   2019
    (in thousands)
Product revenue   $ 43,020     $ 35,857     $ 83,371  
Gross profit   $ 13,268     $ 15,978     $ 31,059  
Gross margin   30.8 %   44.6 %   37.3 %

Fourth quarter 2020 product revenue increased $7.2 million, or 20.0%, sequentially, as sales of wellhead and production related equipment increased primarily due to higher drilling activity and increased market share in the U.S. Gross profit decreased $2.7 million, or 17.0%, sequentially, with margins decreasing 1,380 basis points driven largely by a $5.2 million decrease in credits related to tariff refunds. Absent these credits, gross margins would have increased approximately 100 basis points sequentially.

Rental
 
    Three Months Ended
    December 31,   September 30,   December 31,
    2020   2020   2019
    (in thousands)
Rental revenue   $ 8,590     $ 9,881     $ 28,215  
Gross profit (loss)   $ (826)     $ 234     $ 12,821  
Gross margin   (9.6) %   2.4 %   45.4 %

Fourth quarter 2020 rental revenue decreased $1.3 million, or 13.1%, sequentially, as our customers’ utilization of our rental equipment declined during the quarter. Gross profit decreased $1.1 million sequentially and margins decreased 1,200 basis points due largely to a $0.6 million decrease in credits related to tariff refunds and depreciation expense representing a higher percentage of revenue during the period.

Field Service and Other
   
    Three Months Ended
    December 31,   September 30,   December 31,
    2020   2020   2019
    (in thousands)
Field service and other revenue   $ 16,480     $ 14,051     $ 28,652  
Gross profit   $ 4,957     $ 4,728     $ 4,594  
Gross margin   30.1 %   33.6 %   16.0 %

Fourth quarter 2020 field service and other revenue increased $2.4 million, or 17.3%, sequentially, as higher customer activity drove an increase in associated billable hours and ancillary services. Gross profit increased $0.2 million, or 4.8%, sequentially, with margins decreasing by 350 basis points sequentially due to reduced labor utilization associated with the holidays and a reduction in savings related to the optimization of the Company’s vehicle fleet.
Selling, General and Administrative Expenses (“SG&A”)
SG&A for the fourth quarter of 2020 was $9.0 million (13.2% of revenues), compared to $8.4 million (14.0% of revenues) for the third quarter of 2020 and $12.4 million (8.8% of revenues) for the fourth quarter of 2019. The sequential increase was primarily due to higher payroll and safety and training related expenses due to an increase in headcount.
Liquidity, Capital Expenditures and Other
As of December 31, 2020, the Company had $288.7 million of cash and no bank debt outstanding. Operating cash flow was $21.9 million for the fourth quarter of 2020. During the fourth quarter, the Company made dividend payments and associated distributions of $5.0 million.
Net cash used in investing activities represented $1.7 million during the fourth quarter of 2020. Net capital expenditures for the full year 2020 were $18.1 million. For the full year 2021, the Company expects net capital expenditures to be in the range of $10 to $15 million.
Quarterly Dividend
In January 2021 the Board of Directors (the “Board”) approved and the Company announced the payment of a cash dividend of $0.09 per share of Class A common stock to be paid on March 18, 2021 to holders of record of Class A common stock at the close of business on March 1, 2021. A corresponding distribution of up to $0.09 per CW Unit has also been approved for holders of CW Units of Cactus Wellhead, LLC.
Conference Call Details
The Company will host a conference call to discuss financial and operational results tomorrow, Thursday, February 25, 2020 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. Institutional investors and analysts may participate by dialing (833) 665-0603. International parties may dial (929) 517-0394. The access code is 3572986. 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, Inc.
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 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 service centers in the United States, which are strategically located in the key oil and gas producing regions, including the Permian, Marcellus, Utica, Haynesville, Eagle Ford, Bakken and SCOOP/STACK, among other areas, and 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,” “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 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, 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, Inc.
Condensed Consolidated Statements of Income
(unaudited)
   
    Three Months Ended December 31,   Twelve Months Ended December 31,
    2020   2019   2020   2019
    (in thousands, except per share data)
Revenues                
Product revenue   $ 43,020     $ 83,371   $ 206,801     $ 357,087
Rental revenue     8,590       28,215     66,169       141,816
Field service and other revenue     16,480       28,652     75,596       129,511
Total revenues     68,090       140,238     348,566       628,414
                 
Costs and expenses                
Cost of product revenue     29,752       52,312     131,728       220,615
Cost of rental revenue     9,416       15,394     49,077       69,829
Cost of field service and other revenue     11,523       24,058     56,143       103,163
Selling, general and administrative expenses     8,976       12,389     39,715       51,657
Severance expenses               1,864      
Total costs and expenses     59,667       104,153     278,527       445,264
Income from operations     8,423       36,085     70,039       183,150
                 
Interest (expense) income, net     (150 )     390     701       879
Other income (expense), net           4,778     (555 )     4,294
Income before income taxes     8,273       41,253     70,185       188,323
Income tax expense     2,137       9,979     10,970       32,020
Net income   $ 6,136     $ 31,274   $ 59,215     $ 156,303
Less: net income attributable to non-controlling interest     2,934       13,216     24,769       70,691
Net income attributable to Cactus, Inc.   $ 3,202     $ 18,058   $ 34,446     $ 85,612
                 
Earnings per Class A share – basic   $ 0.07     $ 0.38   $ 0.73     $ 1.90
Earnings per Class A share – diluted (a)   $ 0.07     $ 0.38   $ 0.72     $ 1.88
                 
Weighted average shares outstanding – basic     47,610       47,128     47,457       44,983
Weighted average shares outstanding – diluted (a)     47,985       75,405     75,495       75,353
(a)    Dilution for the twelve months ended December 31, 2020 includes $26.2 million of additional pre-tax income attributable to non-controlling interest adjusted for a corporate effective tax rate of 24.0%, and 27.9 million weighted average shares of Class B common stock plus the dilutive effect of restricted stock unit awards. Dilution for the three and twelve months ended December 31, 2019 includes an additional $13.6 million and $73.7 million of pre-tax income attributable to non-controlling interest adjusted for a corporate effective tax rate of 24.0% and 28.0 million and 30.1 million weighted average shares of Class B common stock, respectively, plus the effect of dilutive securities.
Cactus, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
   
    December 31,   December 31,
    2020   2019
    (in thousands)
Assets        
Current assets        
Cash and cash equivalents   $ 288,659   $ 202,603
Accounts receivable, net     44,068     87,865
Inventories     87,480     113,371
Prepaid expenses and other current assets     4,935     11,044
Total current assets     425,142     414,883
         
Property and equipment, net     142,825     161,748
Operating lease right-of-use assets, net     21,994     26,561
Goodwill     7,824     7,824
Deferred tax asset, net     216,603     222,545
Other noncurrent assets     1,206     1,403
Total assets   $ 815,594   $ 834,964
         
Liabilities and Equity        
Current liabilities        
Accounts payable   $ 20,163   $ 40,957
Accrued expenses and other current liabilities     11,392     22,067
Current portion of liability related to tax receivable agreement     9,290     14,630
Finance lease obligations, current portion     3,823     6,735
Operating lease liabilities, current portion     4,247     6,737
Total current liabilities     48,915     91,126
         
Deferred tax liability, net     786     1,348
Liability related to tax receivable agreement, net of current portion     195,061     201,902
Finance lease obligations, net of current portion     2,240     3,910
Operating lease liabilities, net of current portion     17,822     20,283
Total liabilities     264,824     318,569
         
Equity     550,770     516,395
Total liabilities and equity   $ 815,594   $ 834,964
Cactus, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
   
    Twelve Months Ended December 31,
    2020   2019
    (in thousands)
Cash flows from operating activities        
Net income   $ 59,215     $ 156,303  
Reconciliation of net income to net cash provided by operating activities        
Depreciation and amortization     40,520       38,854  
Deferred financing cost amortization     168       168  
Stock-based compensation     8,599       6,995  
Provision for expected credit losses     342       355  
Inventory obsolescence     4,840       2,552  
(Gain) loss on disposal of assets     (2,480 )     236  
Deferred income taxes     6,948       25,403  
(Gain) loss from revaluation of liability related to tax receivable agreement     555       (5,336 )
Changes in operating assets and liabilities:        
Accounts receivable     44,829       4,204  
Inventories     18,201       (17,592 )
Prepaid expenses and other assets     6,177       438  
Accounts payable     (19,434 )     (607 )
Accrued expenses and other liabilities     (10,893 )     6,994  
Payments pursuant to tax receivable agreement     (14,207 )     (9,335 )
Net cash provided by operating activities     143,380       209,632  
         
Cash flows from investing activities        
Capital expenditures and other     (24,493 )     (59,703 )
Proceeds from sale of assets     6,346       3,755  
Net cash used in investing activities     (18,147 )     (55,948 )
         
Cash flows from financing activities        
Payments on finance leases     (5,317 )     (7,484 )
Dividends paid to Class A common stock shareholders     (17,140 )     (4,244 )
Distributions to members     (16,304 )     (8,392 )
Repurchase of shares     (1,445 )     (1,549 )
Net cash used in financing activities     (40,206 )     (21,669 )
         
Effect of exchange rate changes on cash and cash equivalents     1,029       (253 )
         
Net increase in cash and cash equivalents     86,056       131,762  
         
Cash and cash equivalents        
Beginning of period     202,603       70,841  
End of period   $ 288,659     $ 202,603  
Cactus, Inc. – Supplemental Information
Reconciliation of GAAP to non-GAAP Financial Measures
Net income, as adjusted and diluted earnings per share, as adjusted
(unaudited)
 
Net income, as adjusted and diluted earnings per share, as adjusted are not measures of net income as determined by GAAP. Net income, as adjusted and diluted earnings per share, as adjusted are supplemental non-GAAP financial measures that are used by management and external users of the Company’s consolidated financial statements. Cactus defines net income, as adjusted as net income assuming Cactus, Inc. held all units in Cactus LLC, its operating subsidiary, at the beginning of the period, with the resulting additional income tax expense related to the incremental income attributable to Cactus, Inc. Net income, as adjusted, also includes certain other adjustments described below. Cactus defines diluted earnings per share, as adjusted as net income, as adjusted divided by weighted average shares outstanding, as adjusted. The Company believes this supplemental information is useful for evaluating performance period over period.
   
    Three Months Ended   Twelve Months Ended
    December 31,   September 30,   December 31,   December 31,
    2020   2020   2019   2020   2019
    (in thousands, except per share data)
Net income   $ 6,136   $ 10,886     $ 31,274     $ 59,215     $ 156,303  
Adjustments:                    
Severance expenses, pre-tax (1)                     1,864        
Other non-operating (income) expense, pre-tax (2)         1,865       (4,778 )     555       (5,336 )
Secondary offering related expenses, pre-tax (3)                           1,042  
Income tax expense differential (4)     151     (3,234 )     1,225       (6,455 )     (12,147 )
Net income, as adjusted   $ 6,287   $ 9,517     $ 27,721     $ 55,179     $ 139,862  
                     
Diluted earnings per share, as adjusted   $ 0.08   $ 0.13     $ 0.37     $ 0.73     $ 1.86  
                     
Weighted average shares outstanding, as adjusted (5)     75,740     75,622       75,405       75,495       75,353  
(1)   Represents non-routine charges related to severance benefits.
(2)   Represents non-cash adjustments for the revaluation of the liability related to the tax receivable agreement.
(3)    Reflects fees and expenses recorded in the first quarter of 2019 in connection with the offering of Class A common stock by certain selling stockholders, excluding underwriting discounts and selling commissions incurred by the selling stockholders.
(4)    Represents the increase or decrease 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 recorded during each period and what would have been recorded, adjusted for pre-tax items listed above, based on a corporate effective tax rate of 24.0% on income before income taxes for the three and twelve months ended December 31, 2020 and December 31, 2019 and 25.5% for the three months ended September 30, 2020.
(5)    Reflects 47.6, 47.5, and 47.1 million weighted average shares of basic Class A common stock and 27.8, 27.9 and 28.0 million of additional shares for the three months ended December 31, 2020, September 30, 2020, and December 31, 2019, and 47.5 and 45.0 million weighted average shares of basic Class A common stock and 27.9 and 30.1 million of additional shares for the twelve months ended December 31, 2020 and December 31, 2019, respectively, as if the weighted average shares of Class B common stock were exchanged and canceled for Class A common stock at the beginning of the period, plus the effect of dilutive securities.
Cactus, Inc. – Supplemental Information
Reconciliation of GAAP to non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
(unaudited)
 
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, income tax and depreciation and amortization. Cactus defines Adjusted EBITDA as EBITDA excluding the other items outlined below.
 
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.
   
    Three Months Ended   Twelve Months Ended
    December 31,   September 30,   December 31,   December 31,
    2020   2020   2019   2020   2019
    (in thousands)   (in thousands)
Net income   $ 6,136   $ 10,886     $ 31,274     $ 59,215     $ 156,303  
Interest (income) expense, net     150     (218 )     (390 )     (701 )     (879 )
Income tax expense     2,137     23       9,979       10,970       32,020  
Depreciation and amortization     9,258     9,762       10,590       40,520       38,854  
EBITDA     17,681     20,453       51,453       110,004       226,298  
Severance expenses (1)                     1,864        
Other non-operating (income) expense (2)         1,865       (4,778 )     555       (5,336 )
Secondary offering related expenses                           1,042  
Stock-based compensation     2,163     2,232       1,738       8,599       6,995  
Adjusted EBITDA   $ 19,844   $ 24,550     $ 48,413     $ 121,022     $ 228,999  
(1)   Represents non-routine charges related to severance benefits.
(2)   Represents non-cash adjustments for the revaluation of the liability related to the tax receivable agreement.
Cactus, Inc. – Supplemental Information
Depreciation and Amortization by Category
(unaudited)
   
    Three Months Ended   Twelve Months Ended
    December 31,   September 30,   December 31,   December 31,
    2020   2020   2019   2020   2019
    (in thousands)   (in thousands)
Cost of product revenue   $ 813   $ 802   $ 893   $ 3,506   $ 3,304
Cost of rental revenue     6,664     6,936     7,014     28,063     24,881
Cost of field service and other revenue     1,601     1,803     2,500     8,075     9,986
Selling, general and administrative expenses     180     221     183     876     683
Total depreciation and amortization   $ 9,258   $ 9,762   $ 10,590   $ 40,520   $ 38,854
Cactus, Inc. – Supplemental Information
Estimated Market Share
(unaudited)
 
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.
   
    Three Months Ended
    December 31,   September 30,   December 31,
    2020   2020   2019
Cactus U.S. onshore rigs followed   127     91     246  
Baker Hughes U.S. onshore rig count quarterly average   295     240     796  
Market share   43.1 %   37.9 %   30.9 %

 
View source version on businesswire.com:https://www.businesswire.com/news/home/20210224006099/en/
CONTACT: Cactus, Inc.
John Fitzgerald, 713-904-4655
Director of Corporate Development and Investor Relations
IR@CactusWHD.com
KEYWORD: UNITED STATES NORTH AMERICA TEXAS
INDUSTRY KEYWORD: ENERGY OTHER ENERGY OIL/GAS
SOURCE: Cactus, Inc.
Copyright Business Wire 2021.
PUB: 02/24/2021 04:45 PM/DISC: 02/24/2021 04:45 PM
http://www.businesswire.com/news/home/20210224006099/en