ProPetro Holding Corp. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet comparisons are with December 31, 2017. ProPetro provides hydraulic fracturing and complementary oilfield services, primarily in the Permian Basin.
Business context and outlook
Management reported 18 fracturing fleets with 815,000 hydraulic horsepower (HHP), fully utilized since the beginning of 2017. In Q1, it added two 45,000-HHP fleets and upgraded existing fleets by 35,000 HHP. Two additional 45,000-HHP fleets were committed for delivery in Q2 and Q4 2018; management expected capacity to reach 905,000 HHP by year-end.
Management attributed stronger demand to increased Permian drilling and completion activity, greater service intensity, and improved pricing. It noted that oil prices averaged more than $60 per barrel in April 2018 and expected activity to benefit if commodity prices remained at or above recent levels. The filing gives no quantified earnings or revenue guidance.
Financial performance
| Metric | Q1 2018 | Q1 2017 | Change / context |
|---|---|---|---|
| Service revenue | $385.2 million | $171.9 million | Up 124.1% |
| Operating income (loss) | $48.6 million | $(19.1) million | Turned profitable |
| Net income (loss) | $36.7 million | $(24.4) million | Basic EPS $0.44; diluted EPS $0.42 |
| Adjusted EBITDA | $76.7 million | $16.2 million | Non-GAAP; up 372.9% |
| Adjusted EBITDA margin | 19.9% | 9.4% | Up 10.5 percentage points |
| Pressure-pumping revenue | $375.0 million | $163.8 million | Up 128.9% |
| Pressure-pumping Adjusted EBITDA margin | 21.1% | 10.3% | Up 10.8 percentage points |
Cost of services rose 99.3% to $298.1 million, slower than revenue growth. Pressure-pumping cost of services declined to 77.4% of segment revenue from 87.5%, which management attributed to improved pricing relative to costs. General and administrative expense fell 39.9% to $11.9 million, mainly because Q1 2017 included nonrecurring stock compensation and IPO bonus expense. Depreciation and amortization increased 69.8% to $18.9 million as equipment additions expanded the asset base. Loss on asset disposals was $7.7 million, versus $10.4 million. Interest expense declined to $1.3 million from $5.2 million. Income tax expense was $10.4 million, with a 22.0% effective rate.
Cash flow, liquidity, and debt
- Operating cash flow was $54.6 million, compared with cash use of $3.4 million in Q1 2017. Management cited higher earnings, partly offset by working-capital needs as activity and fleet size grew.
- Investing cash use was $74.8 million, including $75.1 million of capital expenditures. Financing provided $42.7 million, including $46.7 million of borrowings.
- Cash increased to $46.4 million from $23.9 million at year-end. Accounts receivable rose to $253.1 million from $199.7 million; accounts payable rose to $254.7 million from $211.1 million.
- Total debt was $117.3 million, up from $72.9 million at year-end: $100.0 million drawn on the ABL facility and $17.3 million of equipment financing. The ABL facility’s capacity was increased from $150 million to $200 million in February 2018. Remaining availability is not clearly stated in the filing text.
- Management identified cash, operating cash flow, and ABL borrowings as liquidity sources, with operations, growth, and debt payments as principal cash uses. It cautioned that future cash generation and capital availability depend on customer activity and oil and gas prices.
Material changes, risks, and other items
- The sharp year-over-year improvement reflected increased customer activity, fleet additions, and higher pricing; it also compares with Q1 2017, which included IPO-related compensation and bonus costs.
- Revenue-recognition guidance (ASC 606) was adopted January 1, 2018 using the modified retrospective method, with no adjustment to prior-period financial statements. Management was evaluating the effect of the forthcoming lease standard.
- Oil and natural gas price volatility, customer spending, competition and pricing, customer defaults, financing availability, execution of growth projects, operating hazards, weather, regulation, and litigation were identified as risks.
- Management said ordinary-course legal matters were not expected to materially affect financial position, results, or liquidity; the company reported no material legal proceedings, no off-balance-sheet arrangements, and no material changes to previously disclosed risk factors. Disclosure controls were deemed effective.
Important facts for investors to verify
- Whether full fleet utilization and announced fleet deliveries translated into sustained revenue growth, pricing, and margins.
- Actual ABL borrowing-base availability, covenant headroom, and the ability to fund expansion and maintenance capital spending.
- Collections and working-capital trends, particularly the growth in receivables and payables relative to revenue.
- Capital expenditure requirements and returns on new fleets, alongside the impact of depreciation and asset-disposal losses.
- Exposure to oil and gas prices, customer activity, and other industry and operational risks; Adjusted EBITDA is a non-GAAP measure and is not a substitute for GAAP results or cash flow.