ProPetro Holding Corp. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; comparisons are with the same periods in 2017. ProPetro provides hydraulic fracturing and complementary oilfield services, primarily in the Permian Basin. Its pressure-pumping segment is its sole reportable segment.
Financial results and liquidity
| Metric | Q2 2018 | Six months 2018 |
|---|---|---|
| Service revenue | $459.9 million | $845.1 million |
| Operating income | $53.6 million | $102.1 million |
| Net income | $39.1 million; $0.45 diluted EPS | $75.8 million; $0.87 diluted EPS |
| Adjusted EBITDA (non-GAAP) | $96.0 million; 20.9% margin | $172.7 million; 20.4% margin |
| Operating cash flow | Not separately provided in the filing text | $124.4 million |
| Capital expenditures | Not separately provided in the cash-flow statement | $152.2 million cash outflow |
At June 30, cash was $27.1 million, accounts receivable $316.5 million, and current liabilities $306.1 million; working capital was approximately $49.8 million. Total debt was $105.7 million, including $95.0 million outstanding under the amended $200 million ABL facility and $10.7 million of current equipment financing. The filing does not state clear unused borrowing availability. Cash increased $3.2 million from year-end.
Changes versus the prior comparable periods
- Q2 revenue rose 115.4% and six-month revenue rose 119.3%, driven by higher customer activity, fleet size, demand, and pricing. Pressure-pumping revenue increased 119.0% in Q2 and 123.4% for the six-month period.
- Net income improved from $4.9 million to $39.1 million in Q2; for the six months, results shifted from a $19.4 million loss to $75.8 million profit.
- Adjusted EBITDA increased 213.0% in Q2 and 268.4% for the six months. Pressure-pumping margins also improved, to 21.9% in Q2 and 21.5% for the six months.
- Operating cash flow improved from a $0.5 million use to $124.4 million provided. Investing cash use rose to $149.9 million, primarily reflecting equipment purchases and maintenance spending.
- Total debt increased to $105.7 million from $72.9 million at year-end 2017. The company increased ABL capacity from $150 million to $200 million in February 2018.
Outlook, commentary, and risks
Management reported that its 19 hydraulic-fracturing fleets, totaling 860,000 HHP, had been 100% utilized since the beginning of 2017. One new 45,000-HHP fleet entered service during Q2; another 45,000-HHP fleet was committed for expected delivery in Q4 2018, which would bring capacity to 905,000 HHP. Management cited stronger Permian activity, service intensity, and pricing, while noting that results depend on customer spending and volatile oil and gas prices. The filing provides no numerical earnings or revenue guidance.
Unusual items include losses on asset disposals of $19.0 million in Q2 and $26.7 million for the six months; management attributed the increase to fleet size, job intensity, and equipment activity. Six-month tax expense was $22.4 million, with a 22.8% effective rate. Management said ordinary-course legal matters were not expected to materially affect the company; no material legal proceedings were reported. It also reported no material change in principal risk factors, no off-balance-sheet arrangements, and effective disclosure controls.
Key risks include oil and gas price volatility and its effect on customer activity, competition and pricing, customer defaults, access to financing, equipment and operating hazards, and the ability to execute growth plans within budget. ABL covenants include a springing 1.0x fixed-charge coverage requirement if excess availability falls below specified thresholds.
Important facts for investors to verify
- Whether fleet utilization, expected Q4 fleet delivery, and pricing gains are sustained, and how much of revenue growth reflects activity versus pricing.
- ABL borrowing-base availability, covenant headroom, and the company’s capacity to fund capital spending and debt service.
- Receivable collection and working-capital trends: accounts receivable rose to $316.5 million, including $43.4 million of accrued unbilled revenue.
- The recurring level of equipment replacement and disposal losses, and the effect of high capital expenditures on future cash generation.
- Exposure to oil and gas price changes, customer concentration or default risk, and the possible impact of ordinary-course claims.