ProPetro Holding Corp. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. ProPetro provides hydraulic fracturing, wireline and cementing services, primarily in the Permian Basin. Results include Silvertip wireline operations for all of 2023; Silvertip was acquired in November 2022, limiting comparability with 2022.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $423.8 million | $333.0 million | $1,282.6 million | $930.8 million |
| Operating income (loss) | $44.7 million | $13.7 million | $138.6 million | $(20.9) million |
| Net income (loss) | $34.8 million | $10.0 million | $102.7 million | $(11.0) million |
| Diluted EPS | $0.31 | $0.10 | $0.90 | $(0.11) |
| Adjusted EBITDA (non-GAAP) | $107.7 million | $90.0 million | $339.7 million | $232.5 million |
| Adjusted EBITDA margin (non-GAAP) | 25.4% | 27.0% | 26.5% | 25.0% |
Q3 margins: Operating margin was approximately 10.5% and net margin approximately 8.2%. Revenue rose 27.3% year over year, while Adjusted EBITDA increased 19.7%; the EBITDA margin fell 1.6 percentage points. Management attributed revenue growth to higher customer activity and pricing and Silvertip wireline, which contributed $52.8 million of the year-over-year increase. Higher service costs, including inflation and fluid-end replacement costs, weighed on quarterly profitability.
Nine-month changes: Revenue grew 37.8% and Adjusted EBITDA grew 46.1%. The company moved from a $11.0 million net loss to $102.7 million of net income. Results benefited from higher activity, improved pricing and utilization, and the addition of wireline; 2022 also included a $57.5 million impairment charge and a $10.7 million tax refund that lifted other income.
Cash flow, investment and liquidity
- Operating cash flow was $305.1 million for the nine months, versus $175.0 million a year earlier. Investing cash outflow was $312.8 million, including $320.7 million of capital expenditures; financing cash outflow was $26.8 million.
- Cash and cash equivalents were $54.3 million at September 30, 2023, down from $88.9 million at year-end 2022. Operating cash flow less capital expenditures was approximately negative $15.7 million.
- Total liquidity was reported as approximately $179.6 million: $54.3 million cash and $125.3 million of ABL availability. ABL borrowings were $45.0 million; the borrowing base was approximately $176.3 million. The amended facility has $225 million stated capacity and matures June 2, 2028. The nine-month weighted-average borrowing rate was 6.51%.
- Reported operating and finance lease liabilities totaled approximately $46.0 million. Future contractual commitments include approximately $105.1 million for four electric fracturing fleet leases, $56.9 million for a power-equipment lease, and a $22.4 million remaining sand take-or-pay commitment.
Business changes, outlook and risks
- At quarter-end, fracturing capacity included 1,354,500 HHP: 447,500 HHP of Tier IV dual-fuel, 42,000 HHP of electric equipment and 865,000 HHP of conventional Tier II equipment. Management expected lower-emissions equipment to reach about 65% of the portfolio by the end of the first half of 2024. Delivery timing for leased electric fleets was expected to extend into 2024.
- No specific earnings or revenue guidance was provided. Management said results depend on customer activity, commodity prices, service pricing, labor and equipment costs, and the company’s ability to meet customer demand for lower-emissions equipment. It noted a 12% decline in Permian rig count from January through September 2023, associated with reduced completion demand and pricing pressure, and typically weaker November–December activity from seasonality.
- Effective January 1, 2023, ProPetro revised estimated useful lives for certain equipment and began expensing fluid-end replacements rather than capitalizing them. This change reduced net income by $2.8 million in Q3 and $10.0 million for the nine months. Shorter useful lives also increased depreciation; premature power-end failures contributed $32.7 million of depreciation for the nine-month period.
- The company repurchased and retired 4.2 million shares for $36.3 million during the nine months, with $63.7 million remaining under its $100 million authorization as of September 30. Repurchases are discretionary and funded from cash and expected free cash flow; the filing cautions that the program may not be completed or increase long-term share value.
- Unusual items included $29.4 million of nine-month asset-disposal losses, including equipment conversion/decommissioning and equipment written off following a March 2023 wellsite fire. The Logan shareholder lawsuit settlement received final court approval in May 2023, with insurers funding the settlement. Texas tax audits remained ongoing, with outcomes not reasonably estimable; the filing reported no material environmental violation notice.
- Principal risks include oil and gas price and activity volatility, inflation and interest rates, customer and counterparty liquidity, competition, supply-chain and labor constraints, lower-emissions transition costs and execution, weather and operating hazards, and regulatory, litigation and geopolitical developments. The company also disclosed uninsured bank-deposit exposure above FDIC limits and self-insurance up to $10 million per occurrence for certain wellsite fires or explosions.
Important facts for investors to verify
- Whether customer activity, pricing and fleet utilization can sustain earnings as rig counts and completion demand fluctuate.
- How much of reported growth and margins reflects the Silvertip acquisition versus organic volume, pricing and efficiency gains.
- Whether operating cash flow can cover maintenance and conversion capital needs, lease obligations and planned repurchases without materially increasing borrowing.
- Delivery, cost and utilization of lower-emissions fleets, and the effect of equipment useful-life changes and replacement costs on margins.
- Developments in tax audits, litigation and insurance recoveries, and whether customer advances and receivables convert to cash as expected.