Business context and reporting period
ProPetro Holding Corp. (NYSE: PUMP) filed this Form 10-K for the fiscal year ended December 31, 2021. The company provides hydraulic fracturing, cementing and coiled-tubing services, primarily in the Permian Basin. Fourth-quarter figures below are unaudited; financial amounts are in U.S. dollars.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $874.5 million | $789.2 million |
| Operating loss | $68.7 million | $131.2 million |
| Net loss | $54.2 million | $107.0 million |
| Adjusted EBITDA (non-GAAP) | $135.0 million | $141.5 million |
| Adjusted EBITDA margin (non-GAAP) | 15.4% | 17.9% |
| Cash provided by operating activities | $154.7 million | $139.1 million |
| Capital expenditures | $165.2 million | $81.2 million |
| Cash and cash equivalents at year-end | $111.9 million | $68.8 million |
| ABL borrowings at year-end | None | None |
At December 31, 2021, total liquidity was $169.3 million, including $57.4 million of ABL availability. Total assets were $1.061 billion, current assets $251.1 million and current liabilities $173.8 million. Accounts payable rose to $152.6 million from $79.2 million; shareholders’ equity was $826.3 million.
Fourth-quarter 2021 revenue was $246.1 million and net loss was $20.2 million; gross profit was $58.7 million. Revenue was lower than the third quarter’s $250.1 million, while the quarterly net loss widened from $5.1 million.
Material changes versus prior period
- Annual revenue rose 10.8%, primarily as customer activity recovered; average effectively utilized fleets increased about 20% to approximately 12 from 10.
- Cost of services increased 13.3%, faster than revenue, and cost of services rose to 75.7% of revenue from 74.0%. Management cited greater activity, labor and supply-chain inflation, and higher freight costs.
- Net loss narrowed by $52.8 million, aided by the absence of 2020’s $38.0 million impairment charge and lower depreciation and G&A. Adjusted EBITDA nevertheless declined 4.6%.
- Operating cash flow increased to $154.7 million. Investing cash outflow was $104.3 million, including $45.3 million paid for Tier IV DGB equipment; asset-sale proceeds included $36.0 million from two turbines.
- Cash increased by $43.1 million during 2021. The company had no ABL borrowings at year-end and repaid $130.0 million of borrowings during 2020.
Outlook, commentary, risks and unusual items
- Management projected 2022 capital expenditures of $250 million to $300 million, subject to activity and market conditions. It expected to convert an additional 125,000 HHP to Tier IV DGB equipment, with conversion costs of approximately $74 million, and anticipated deliveries through the first half of 2022.
- Management said a recovery in rig count and oil prices could support improved results, but service pricing remained depressed and labor shortages, inflation and supply constraints weighed on profitability. The filing gives no specific revenue or earnings guidance.
- Customer concentration is a key exposure: Pioneer accounted for 54.2% of 2021 revenue, and the top five customers accounted for 85.7%. Pioneer may terminate or partially terminate its services agreement effective December 31, 2022, 2024 or 2026.
- The $64.6 million 2021 loss on asset disposals included $3.5 million on the sale of the two turbines; much of the recurring disposal loss relates to replacement of major pumping-equipment components. The turbines sold for less than their approximately $39.5 million net book value.
- DuraStim electric equipment had a carrying value of approximately $90 million and had not been commercialized. Failure to deploy it successfully or find alternative uses could lead to impairment.
- The Logan securities lawsuit remained in discovery; the company recorded no provision because the outcome could not be reasonably estimated. The SEC investigation was settled in November 2021 with no monetary penalty and no ongoing undertakings. A separate shareholder demand was under review. A sand supplier lawsuit involving alleged shortfall fees was in early stages; management said it could not estimate the outcome and did not expect a material adverse effect.
- Other risks include cyclical oilfield demand, Permian Basin concentration, customer credit and contract risks, changing environmental and emissions requirements, water availability, safety and insurance exposure, and potential sand-contract shortfall fees. The company self-insures up to $10 million per occurrence for certain wellsite fire or explosion losses.
- The independent auditor gave unqualified opinions on the financial statements and internal controls; management also concluded controls were effective. No cash dividends were anticipated in the foreseeable future.
Important facts for investors to verify
- Whether Pioneer renews or renegotiates its agreement ahead of the December 31, 2022 termination option, and how the company could redeploy committed fleets.
- Whether pricing and utilization improve enough to offset labor, materials and other inflation, and whether the 2022 capital program is funded without materially reducing liquidity.
- Progress, customer adoption and returns on the planned Tier IV conversions, alongside deployment plans and impairment risk for DuraStim equipment.
- Developments in the Logan lawsuit, shareholder demand and sand-supplier litigation, including any change to estimated exposure or insurance coverage.
- Working-capital movements, especially accounts receivable and accounts payable, and the effect of customer activity on borrowing-base availability.
- Reconcile non-GAAP Adjusted EBITDA with GAAP results: 2021 Adjusted EBITDA included $9.5 million of idle fees, versus $47.2 million in 2020.