Cactus, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Cactus designs, manufactures, sells and rents wellhead and pressure-control equipment and provides related field services, primarily to onshore oil and gas customers.
Financial results
Amounts below are in millions of dollars, except per-share data. Q2 comparisons are year over year; first-half comparisons are against the six months ended June 30, 2020.
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $108.9 | $66.5 | $193.3 | $220.7 |
| Operating income | $17.3 | $8.9 | $28.9 | $49.1 |
| Net income | $14.8 | $9.1 | $29.9 | $42.2 |
| Net income attributable to Cactus, Inc. | $10.4 | $6.0 | $22.0 | $25.0 |
| Diluted EPS | $0.18 | $0.11 | $0.37 | $0.51 |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $43.2 | $102.5 |
- Q2 revenue rose 64% year over year, led by product revenue of $70.3 million (+72%); rental revenue was $14.6 million (+27%) and field service and other revenue was $23.9 million (+69%). Operating income increased 95%; operating margin was approximately 15.9%, versus 13.3% a year earlier.
- For the first half, revenue declined 12%, operating income fell 41%, and net income attributable to Cactus declined 12%. Rental revenue fell 43% to $27.1 million; product revenue decreased 4% to $122.3 million and field service and other revenue decreased 3% to $43.9 million. First-half operating margin was approximately 15.0%, compared with 22.2%.
- At June 30, cash and cash equivalents were $309.1 million, versus $288.7 million at year-end. Current assets were $473.8 million and current liabilities $73.6 million. The filing reports no debt outstanding and $75 million of available ABL borrowing capacity; the company was in compliance with facility covenants.
- First-half operating cash flow was $43.2 million, down from $102.5 million, primarily due to lower earnings and increased working-capital use. Investing cash outflow was $4.4 million and financing cash outflow was $18.6 million. Cash increased by $20.4 million during the period.
- The tax receivable agreement liability totaled $285.2 million, including $9.3 million current. The company recorded a $2.7 million income tax benefit for the first half, including benefits from valuation-allowance releases associated with unit redemptions.
Changes, outlook and risks
- Compared with Q1 2021, Q2 revenue rose 29% to $108.9 million and operating income rose 49% to $17.3 million. Product revenue increased 35%, reflecting higher customer drilling and completion activity.
- Management cited stronger commodity prices and customer activity, adding more than 200 associates in the first half and restoring wage and salary reductions implemented in 2020. It anticipated continued, but slower, revenue growth in the second half of 2021, subject to no significant adverse effects on fossil-fuel demand.
- Estimated 2021 net capital expenditures were $10 million to $15 million; first-half net capital expenditures were $4.4 million. Management said cash, operating cash flow and available borrowing capacity should cover anticipated needs for at least the next 12 months.
- Risks include oil and gas price volatility, changes in OPEC+ production, COVID-19 and variants, elevated steel and freight costs that may not be recoverable from customers, and excess competing rental equipment. One customer represented 13% of first-half revenue. A single vendor accounted for approximately 10% of first-half third-party purchases.
- Other notable items: the company incurred $0.4 million of secondary-offering expenses in the first half; selling stockholders received the offering proceeds. Q2 included a $1.0 million non-cash expense from remeasurement of the TRA liability. Management said ordinary-course disputes were not expected to have a material adverse effect. No material changes to reported risk factors or internal controls were disclosed.
Investor facts to verify
- Whether the anticipated second-half revenue growth materialized, and how activity and oil prices evolved.
- Whether steel, freight and other input-cost pressures affected margins or were passed through to customers.
- Whether rental demand recovered despite excess industry equipment, and how customer concentration changed.
- The realizability and timing of tax benefits and the $285.2 million TRA obligation, including potential accelerated payment provisions.
- Cash conversion and working-capital trends, together with actual 2021 capital spending compared with the $10 million–$15 million estimate.