Cactus, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Cactus designs, manufactures, sells and rents wellhead and pressure-control equipment and provides related field services, primarily to onshore oil and gas customers. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $170.2 | $108.9 | $316.1 | $193.3 |
| Operating income | $44.2 | $17.3 | $75.2 | $28.9 |
| Net income | $35.8 | $14.8 | $62.9 | $29.9 |
| Net income attributable to Cactus, Inc. | $27.1 | $10.4 | $47.8 | $22.0 |
| Diluted EPS | $0.44 | $0.18 | $0.78 | $0.37 |
- Q2 revenue rose 56% year over year; first-half revenue rose 64%. Q2 revenue increased 16.7% sequentially from Q1 2022.
- Q2 revenue mix: products $112.2 million, rentals $23.7 million, and field service and other $34.3 million. First-half category growth year over year was 69%, 70%, and 45%, respectively.
- Q2 operating margin was approximately 26.0%, versus 15.9% a year earlier. Net margin was approximately 21.0%, versus 13.6%.
- First-half operating cash flow was $48.2 million, compared with $43.2 million in 2021. Investing cash outflow was $12.9 million, mainly for rental equipment and the Bossier City facility; financing cash outflow was $24.2 million, including dividends and share repurchases. Cash increased $10.0 million to $311.7 million.
- At June 30, cash was $311.7 million, total current assets $594.5 million and current liabilities $113.6 million. The company had no debt outstanding and reported $75.0 million of available ABL capacity. Finance and operating lease obligations were present.
Changes and management commentary
- Growth reflected higher customer drilling and completion activity, increased sales of wellhead and production equipment, and cost-recovery efforts. The U.S. onshore rig count rose, with private E&P operators driving much of the recent activity increase.
- Costs rose with activity and inflation, including materials, freight, wages, fuel and field personnel. Management said supply constraints and inflationary pressures were expected to continue for the foreseeable future, while overseas freight tightness and some input costs had begun to moderate.
- Management estimated 2022 net capital expenditures of $20 million to $30 million. It said cash, operating cash flow and available borrowings should cover anticipated needs for at least 12 months, including working capital, capital spending, TRA payments, taxes and distributions.
- On July 25, 2022, after quarter-end, the ABL commitment increased from $75 million to $80 million and maturity was extended to July 25, 2027, subject to an earlier-maturity provision tied to certain other indebtedness.
Risks, contingencies and unusual items
- Management cited volatile oil and gas prices, possible recession and rising interest rates, customer spending discipline, supply-chain delays, inflation, freight and labor costs, and the risk that cost increases may not be recovered. The Freeport LNG facility shutdown and the Russia-Ukraine conflict were also identified as market uncertainties.
- The tax receivable agreement liability was $300.4 million, including $11.8 million current. Early termination or certain change-of-control events could accelerate a substantial payment; the company may defer payments if cash is unavailable, with interest generally accruing.
- First-half income tax expense was $11.5 million, versus a $2.7 million benefit in 2021, partly reflecting differences in valuation allowance releases and other tax items. First-half other expense included a $1.1 million noncash TRA liability revaluation.
- Ordinary-course disputes and litigation were disclosed; management did not expect them to have a material adverse effect. The filing reported no material risk-factor changes beyond those previously disclosed. Disclosure controls were deemed effective, and no material second-quarter change in internal control was reported.
Important facts for investors to verify
- Whether activity and revenue growth, especially among private E&P customers, is sustained and translates into profitable demand.
- Whether cost-recovery measures offset continuing inflation, freight, materials and labor pressures.
- Working-capital trends: first-half receivables increased $36.5 million and inventories increased $30.7 million, partly reflecting higher activity and extended in-transit inventory.
- Cash requirements for the $300.4 million TRA liability, dividends, member distributions and planned capital expenditures.
- Terms and availability under the amended ABL facility, and any updates to capex expectations or the risks described by management.