ProPetro Holding Corp. — FY2023 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2023; it is an annual report, not a standalone fourth-quarter report. ProPetro provides hydraulic fracturing, wireline and cementing services, primarily in the Permian Basin. Hydraulic fracturing generated 78.5% of 2023 revenue; 98.1% of revenue came from Permian operations.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $1,630.4 million | $1,279.7 million |
| Operating income (loss) | $130.3 million | $(2.6) million |
| Net income | $85.6 million | $2.0 million |
| Diluted earnings per share | $0.76 | $0.02 |
| Adjusted EBITDA and margin | $404.0 million; 24.8% | $316.6 million; 24.7% |
| Cash from operating activities | $374.7 million | $300.4 million |
| Cash capital expenditures | $370.9 million | $319.7 million |
| Cash, cash equivalents and restricted cash | $33.4 million | $88.9 million |
Revenue less cost of services was $498.6 million, or approximately 30.6% of revenue, versus approximately 31.0% in 2022. Adjusted EBITDA is a non-GAAP measure. Segment Adjusted EBITDA totaled $453.4 million before $49.4 million of unallocated corporate administrative expenses and other reconciliation items.
At year-end, ABL borrowings were $45.0 million, up from $30.0 million; total liquidity was $134.4 million, comprising $33.4 million of cash and $101.0 million of facility availability. The ABL facility has $225 million stated capacity, subject to a $152 million borrowing base, and matures June 2, 2028. The balance sheet showed $967.1 million of net property and equipment and $998.4 million of shareholders’ equity. Lease liabilities were also significant: approximately $55.6 million operating and $47.9 million finance, measured at present value.
Material changes versus FY2022
- Revenue rose 27.4%. Hydraulic fracturing revenue increased 12.0%, while wireline revenue grew to $229.6 million from $31.2 million, mainly reflecting a full year of Silvertip operations versus 61 days in 2022.
- Net income improved substantially, partly because 2022 included a $57.5 million impairment charge on DuraStim electric fracturing equipment. FY2023 had no impairment expense.
- Operating cash flow increased $74.3 million. Cash used in investing activities was $384.1 million, including capital investment and acquisitions; financing activities used $46.1 million, including $51.7 million of share repurchases.
- ProPetro acquired Par Five cementing assets on December 1, 2023, for approximately $25.4 million. The acquisition contributed $4.9 million of revenue and $1.2 million of net income in the reported period.
- The Company revised segment reporting in the fourth quarter: hydraulic fracturing and wireline are now separately reportable; cementing is included in “All Other.” Prior-period segment data was revised for comparability.
Outlook, commentary and risks
- Management expects 2024 capital expenditures of $200 million to $250 million, primarily for maintenance, equipment conversions and ancillary purchases. Spending may vary with activity, customer demand, inflation and supply conditions.
- Management expects the lower-emissions share of available hydraulic fracturing equipment to reach approximately 65% by the end of the first half of 2024, with remaining FORCE electric fleet equipment expected in that period. This transition requires substantial investment; customer demand and returns are uncertain.
- Management says results depend on Permian activity, commodity prices, service pricing and the ability to pass on cost increases. The Permian rig count declined 13% in 2023 to 309 at year-end; management cited reduced demand and pricing pressure. Fourth-quarter seasonality also typically weighs on activity.
- Customer concentration remains material: the top five customers accounted for 63.2% of FY2023 revenue; Endeavor Energy Resources and XTO Energy accounted for 19.7% and 18.2%, respectively. Pioneer-related revenue was $125.1 million in 2023; its committed-fleet agreements ended during the year, and Pioneer announced a merger agreement with Exxon Mobil.
- Key risks include oilfield-cycle exposure, concentrated Permian operations and customers, competition and pricing, inflation and labor costs, equipment and supply-chain needs, environmental and hydraulic-fracturing regulation, water availability, weather and operational hazards, and customer credit risk. Sand agreements include minimum-volume commitments and potential shortfall fees.
- A material weakness in internal control over financial reporting concerns segregation of duties and review of manual journal entries: approvers could modify entries before posting. Management reported additional testing found no material misstatement and described remediation steps, but management and the auditor concluded controls were ineffective at year-end. The auditor issued an unqualified opinion on the financial statements and an adverse opinion on internal control effectiveness.
- Unusual items include $73.0 million of losses on asset disposals, including equipment retirements and fire-related write-offs; $9.5 million of other expense, including audit settlement and health-insurance costs and an unrealized investment loss; and a useful-life estimate change that reduced 2023 net income by $19.1 million, or $0.17 per share.
Important facts for investors to verify
- Whether operating activity, pricing and customer utilization can support margins and cash generation after the 2023 rig-count decline.
- Delivery, deployment, customer commitments and economic returns for the remaining electric fleets and other lower-emissions conversions.
- Customer concentration and the commercial effects of customer consolidation, including the Pioneer–Exxon Mobil transaction.
- Progress in remediating the material weakness and whether controls operate effectively over a sufficient period.
- Capital spending, lease commitments, share repurchases and liquidity relative to the borrowing base and facility covenants.
- Potential exposure from sand minimums, regulatory audits, environmental obligations and other contingencies; the filing does not provide a clear final outcome for ongoing tax audits.