ProPetro Holding Corp. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. ProPetro provides pressure-pumping services, primarily hydraulic fracturing, in the Permian Basin, plus cementing and coiled-tubing services. Amounts below are in U.S. dollars; financial statement figures are unaudited.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Service revenue | $216.9 million | $106.1 million | $378.3 million | $501.2 million |
| Operating loss | $11.7 million | $31.3 million | $40.4 million | $38.8 million |
| Net loss | $8.5 million | $25.9 million | $28.9 million | $33.7 million |
| Diluted loss per share | $0.08 | $0.26 | $0.28 | $0.33 |
| Adjusted EBITDA (non-GAAP) | $35.7 million | $25.4 million | $55.7 million | $100.3 million |
| Adjusted EBITDA margin (non-GAAP) | 16.5% | 23.9% | 14.7% | 20.0% |
- Cash flow: First-half operating cash flow was $61.5 million, compared with $96.9 million in 2020. Investing activities used $50.9 million, including $52.2 million of capital expenditures. Financing activities used $6.6 million. Cash increased $3.9 million to $72.7 million.
- Balance sheet and liquidity: At June 30, cash was $72.7 million, accounts receivable $138.3 million, current assets $217.1 million and current liabilities $156.8 million. Total liabilities were $222.0 million. There were no borrowings under the ABL facility; reported total liquidity was $140.8 million, including $68.1 million of facility availability.
- Debt facility: The ABL facility has stated capacity of $300 million, subject to its receivables-based borrowing base; the June 30 borrowing base was approximately $71.8 million. The facility matures December 2023 and is secured by substantially all company assets.
Changes versus comparable periods
- Q2 revenue more than doubled year over year as demand recovered and average effectively utilized fleets rose to approximately 13.1 from 4.0. However, first-half revenue fell 24.5%, primarily due to customer pricing discounts and customers directly sourcing certain consumables.
- First-half average active fleets were approximately 11.7 versus 11.1 a year earlier. First-half idle-fee revenue fell to $5.3 million from $34.1 million; in Q2 it was $1.0 million versus $32.6 million.
- Despite higher Q2 revenue, the adjusted EBITDA margin declined to 16.5% from 23.9%; management attributed cost ratios to activity mix and the prior-year period’s substantial idle-fee revenue. For the first half, adjusted EBITDA fell 44.5% and margin declined to 14.7% from 20.0%.
- Interest expense declined with the reduction in debt; the company reported no debt outstanding at June 30. No impairment expense was recorded in first-half 2021, compared with $16.7 million in first-half 2020. Loss on asset disposals remained significant at $28.1 million in the first half of 2021.
Outlook, risks and unusual items
- Management described a recovery in oilfield activity and cited WTI at approximately $72 per barrel on July 28, 2021, while noting continued depressed oilfield-service pricing, inflation, supply-chain disruption and skilled-labor shortages. It said results could improve if activity, pricing and labor availability improve, and the company meets customers’ lower-emissions needs. No numerical revenue, earnings or cash-flow guidance was provided.
- 2021 capital spending was expected to focus primarily on maintenance, including converting conventional Tier II equipment to lower-emissions Tier IV DGB equipment. The filing does not provide a quantified full-year capital expenditure forecast.
- The company had 1.423 million HHP of available equipment, including 108,000 HHP of DuraStim electric equipment. DuraStim field trials were expanded, but supply-chain disruptions could delay commercialization; the company’s target had been to commercialize its first fleet in the second half of 2021, subject to successful testing. Decisions on optional additional DuraStim equipment remained uncertain.
- Pioneer accounted for $130.7 million of Q2 revenue and owed approximately $84.9 million at June 30, including unbilled receivables. The filing notes that customer collection ability may be affected by industry conditions.
- The company received $2.1 million from a Texas sales and excise/use tax audit refund, recorded in first-quarter other income. It also received insurance reimbursements of approximately $6.7 million in the first half for costs related to the SEC investigation and shareholder litigation.
- A shareholder class action, derivative litigation and SEC investigation remained pending. The company made no provision because outcomes could not be reasonably estimated. A sand supplier lawsuit alleging shortfall fees was also contested; management said its outcome could not be estimated and did not expect a material adverse effect.
- Other disclosed risks include COVID-19 and possible renewed disruption, commodity prices and customer spending, competition and pricing, emissions-related regulation and equipment transition costs, customer defaults, and LIBOR transition. Management reported disclosure controls were effective and no material change in internal controls during the quarter.
Key facts for investors to verify
- Whether fleet utilization and pricing improve enough to offset cost inflation and the decline in idle-fee revenue.
- Collection timing and credit exposure related to Pioneer, which represented a substantial share of accounts receivable.
- Available ABL capacity and borrowing-base movements as eligible receivables change; reported liquidity includes undrawn facility availability.
- DuraStim testing, supply availability, commercialization timing and the potential capital required for lower-emissions equipment.
- Developments, potential costs and insurance recoveries related to the SEC investigation, shareholder lawsuits and sand supplier claim.
- Adjusted EBITDA and margin are non-GAAP measures; compare them with GAAP losses and cash flows, and review the company’s stated adjustments.