ProPetro Holding Corp. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. ProPetro provides pressure-pumping and related oilfield services, primarily in the Permian Basin. Financial amounts below are in millions unless otherwise noted.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $333.0 | $250.1 | $930.8 | $628.4 |
| Operating income (loss) | $13.7 | $(5.9) | $(20.9) | $(46.3) |
| Net income (loss) | $10.0 | $(5.1) | $(11.0) | $(34.0) |
| Diluted EPS | $0.10 | $(0.05) | $(0.11) | $(0.33) |
| Adjusted EBITDA and margin | $90.0; 27.0% | $42.1; 16.8% | $232.5; 25.0% | $97.8; 15.6% |
Q3 revenue rose 33.2%; pressure-pumping revenue increased 34.7%. Management attributed growth to higher customer activity and improved pricing. Average utilized fleets increased to about 14.8 from 13.8 year over year. Pressure-pumping adjusted EBITDA margin was 31.0% in Q3 versus 22.0% a year earlier. Adjusted EBITDA is a non-GAAP measure and excludes specified costs and other items.
For the first nine months, revenue increased 48.1% and adjusted EBITDA rose 137.7%, but the company remained loss-making under GAAP. Results included a $57.5 million impairment of DuraStim equipment, $75.2 million in asset disposal losses, and $9.7 million of other income, including a $10.7 million net tax refund. Q3 asset disposal losses were $36.6 million; the quarter also included $34.1 million of legal settlements and $28.2 million of G&A expense.
Cash flow, liquidity and capital
- Nine-month operating cash flow was $175.0 million, versus $109.3 million in 2021. Investing cash outflow was $240.0 million, including $247.2 million of capital expenditures; financing cash outflow was $3.7 million.
- Cash declined to $43.2 million at September 30, 2022 from $111.9 million at year-end 2021. Current assets were $300.2 million and current liabilities $253.8 million.
- No ABL borrowings were outstanding at quarter-end. Reported total liquidity was $154.5 million, including $111.3 million of facility availability. The borrowing base was approximately $116.4 million; the $150 million ABL facility matures in April 2027 and is secured by substantially all company assets.
- Capital spending was elevated as the company invested in fleet maintenance and lower-emissions equipment. Management stated 2022 capital expenditures would primarily support maintenance, Tier IV DGB conversions, strategic purchases and ancillary equipment; no specific full-year total guidance was provided.
Material developments, outlook and risks
- Effective September 1, ProPetro exited coiled tubing, selling the assets to STEP for approximately $2.8 million cash and 2,616,460 STEP shares valued at $11.9 million. It recorded a $13.8 million sale loss. STEP shares were valued at $8.5 million at quarter-end, with a $3.3 million unrealized loss.
- The company recorded a $57.5 million impairment after DuraStim electric fracturing equipment failed to meet manufacturer specifications or company expectations. A related warranty settlement included $2.7 million of equipment inventory recorded as noncash income.
- ProPetro reported 1.315 million HHP of available equipment at quarter-end, including 215,000 HHP of Tier IV DGB equipment. It had commitments for approximately $43 million of additional Tier IV DGB equipment and an estimated $49.3 million electric-fleet lease arrangement. Lease payments were expected to begin after delivery in the second half of 2023.
- Market conditions improved with higher activity and pricing, but management cited inflation, supply-chain tightness and labor availability as potential constraints on profitability. It cautioned that seasonal operating declines typically occur in November and December and that a market downturn could materially affect results and cash flows. Transitioning to lower-emissions equipment may require substantial capital.
- Pioneer generated approximately $100.2 million, or about 30% of Q3 revenue. A revised 2022 agreement covered six fleets; agreements announced October 31 provide for two committed fleets in 2023, subject to termination and release rights.
- The $30 million Logan shareholder-litigation settlement was covered by insurance; the insurer paid it in October 2022. Other legal and vendor matters also contributed to settlement and legal costs. A Texas fuel-tax audit remained ongoing, with its final outcome not reasonably estimable.
- On November 1, 2022, the company entered into the Silvertip acquisition for 10.1 million ProPetro shares, $30 million cash and certain other closing and transaction costs. This post-quarter transaction is a material share issuance and cash use.
- The Inflation Reduction Act introduces methane-emissions charges for certain covered sources beginning in 2024 and incentives that could accelerate the shift from fossil fuels. ProPetro identified these provisions as potential risks to customers and demand for its services.
Disclosure note: The financial statements show Q3 income tax expense of $2.8 million, while the MD&A describes a $2.8 million tax benefit. The filing text is internally inconsistent on this item.
Investor verification priorities
- Reconcile the Q3 income-tax presentation and confirm the treatment of tax benefits and expenses.
- Review cash conversion, receivables and working-capital movements alongside high capital spending and current liquidity.
- Assess DuraStim impairment and warranty recovery, remaining equipment commitments, and expected returns on lower-emissions investments.
- Verify the terms, funding, share issuance and post-quarter impact of the Silvertip acquisition.
- Monitor customer concentration, especially Pioneer, and the timing and economics of its 2023 fleet agreements.
- Track legal contingencies, insurance recoveries and the remaining Texas tax audits.