ProPetro Holding Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. ProPetro provides hydraulic fracturing, wireline and cementing services, primarily in the Permian Basin. Results are unaudited. Dollar amounts below are in millions unless otherwise stated.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Service revenue | $405.8 | $423.6 | Down 4.2% |
| Operating income | $30.3 | $41.5 | Down 26.9% |
| Net income | $19.9 | $28.7 | Down 30.6% |
| Diluted EPS | $0.18 | $0.25 | Down $0.07 |
| Adjusted EBITDA | $93.4 | $119.2 | Down 21.6% |
| Adjusted EBITDA margin | 23.0% | 28.1% | Down 5.1 percentage points |
| Operating cash flow | $74.8 | $73.1 | Up $1.8 |
| Capital expenditures incurred | $39.8 | $97.2 | Down $57.3 |
Hydraulic fracturing generated $309.3 million of revenue, down 7.5%; wireline revenue was $60.8 million, down 2.8%; and All Other, including cementing, was $35.7 million, up 34.5%, largely reflecting the Par Five acquisition. Management attributed lower fracturing revenue to reduced customer activity and pricing; effectively utilized fracturing fleets averaged about 15 versus 16 a year earlier.
Cost of services rose 2.9% to $288.6 million despite lower revenue. Fracturing cost of services was 70.5% of segment revenue versus 65.4% a year earlier, reflecting weaker activity and pricing and cost inflation. Depreciation and amortization increased 36.4% to $52.2 million. The prior-year comparison included $34.6 million of asset-disposal losses, versus $6.5 million this quarter; the 2023 amount was reclassified to conform to the current presentation. Q1 2024 other income of $1.4 million included $2.0 million of insurance reimbursements, partly offset by an unrealized investment loss.
At March 31, 2024, cash was $46.5 million, current assets were $360.0 million and current liabilities were $304.0 million. Long-term debt was $45.0 million, unchanged from year-end; the ABL borrowing base was approximately $192.1 million, with $155.5 million available. Reported total liquidity was approximately $202.0 million, including cash. The ABL facility matures June 2, 2028; its Q1 weighted-average borrowing rate was 7.21%. Cash increased $13.1 million during the quarter. Financing cash use was $27.9 million, including $22.5 million of share repurchases and $4.2 million of finance-lease payments.
Material changes and notable items
- Par Five, acquired in December 2023, contributed $9.6 million of revenue and $8.6 million of cost of services in Q1 2024; it was not included in the comparable 2023 quarter.
- ProPetro repurchased and retired 3.0 million shares for $22.5 million, averaging $7.58 per share. On April 24, 2024, the board increased total repurchase authorization to $200 million and extended the program to May 31, 2025; $125.8 million remained authorized as of that date.
- Lower-emissions equipment comprised approximately 60% of hydraulic fracturing equipment in 2023. ProPetro expects this share to reach approximately 65% by the end of the first half of 2024. Available hydraulic horsepower at quarter-end was 1,539,500, including 452,500 Tier IV DGB and 222,000 FORCE electric-powered horsepower.
Outlook, risks and contingencies
- Management expects 2024 capital expenditures of $200 million to $250 million, funded from cash, operating cash flow and, if needed, ABL borrowings. Spending is expected to support maintenance, asset-life extensions, lower-emissions conversions and other equipment needs; actual spending depends on activity, customer demand and market conditions.
- In April 2024, ProPetro entered into a three-year-or-contracted-hours contract with Exxon Mobil to provide two FORCE fleets and other completion services, with an option to add a third fleet. The filing does not provide a clear value for the contract.
- ProPetro cited oilfield activity and pricing, commodity prices, inflation, labor and supply-chain costs, interest rates, customer credit and geopolitical developments as key uncertainties. It warned that lower activity or inability to pass through costs could adversely affect results. Four FORCE fleet leases carry estimated commitments of approximately $100.7 million, excluding purchase options; the power-equipment lease commitment is approximately $47.6 million. A sand agreement has a remaining $13.1 million take-or-pay commitment.
- The company accrued $6.0 million for an estimated settlement of a Texas motor vehicle and fuel-tax audit. Two other Texas tax audits remained ongoing, with outcomes not reasonably estimable. ProPetro also self-insures certain wellsite fire and explosion losses up to $10 million per occurrence; no related accrual was recorded.
- Disclosure controls were not effective at the reasonable-assurance level because of a previously reported material weakness involving accounting-system access and manual journal-entry controls. Management reported implementing remediation measures and testing them, but the weakness will not be considered remediated until controls operate effectively for a sufficient period.
Important facts for investors to verify
- Whether fracturing activity and customer pricing stabilize, and whether cost inflation continues to pressure segment margins.
- Progress, cost and returns on FORCE fleet deployment and other lower-emissions investments, including delivery of remaining equipment.
- Execution and economics of the Exxon Mobil contract, including whether the optional third fleet is added.
- Capital spending, lease commitments, ABL availability and cash generation relative to the expanded share-repurchase authorization.
- Resolution of the Texas tax audits and sustained effectiveness of the controls remediation.