ProPetro Holding Corp. — Q1 2017 Form 10-Q
Business context and period. This unaudited filing covers the three months ended March 31, 2017, with comparisons to Q1 2016. ProPetro provides hydraulic fracturing and complementary oilfield services, primarily in the Permian Basin. Pressure pumping is its sole reportable segment. The company completed its IPO on March 22, 2017.
Key financial results
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $171.9 million | $87.9 million; up 95.5% |
| Operating loss | $19.1 million | $14.0 million loss |
| Net loss | $24.4 million; $0.43 per share | $12.9 million; $0.37 per share |
| Adjusted EBITDA (non-GAAP) | $16.2 million; 9.44% margin | $2.0 million; 2.32% margin |
| Pressure-pumping Adjusted EBITDA (non-GAAP) | $16.9 million; 10.33% margin | $3.0 million; 3.80% margin |
| Cash from operations | $3.4 million used | $14.2 million provided |
| Capital expenditures | $50.9 million cash outflow | $12.2 million cash outflow |
| Cash and cash equivalents | $85.6 million | $133.6 million at December 31, 2016 |
| Total debt | $17.8 million | $179.4 million at December 31, 2016 |
| Working capital | $75.0 million | $105.0 million at December 31, 2016 |
Q1 2017 cost of services was $149.6 million; G&A was $19.9 million; depreciation and amortization was $11.2 million; and loss on disposal of assets was $10.4 million. Interest expense was $5.2 million. Total assets were $521.2 million and shareholders’ equity was $374.2 million at quarter-end. Adjusted EBITDA is a non-GAAP measure and should not be treated as a substitute for GAAP results or operating cash flow.
Material changes and notable items
- Revenue growth reflected higher customer activity, demand, and pricing. Pressure-pumping revenue rose 106% to $163.8 million; revenue from other services declined 3.5%, mainly because Permian drilling rigs were idled.
- Pressure-pumping cost of services fell to 87.5% of segment revenue from 92.2%, which management attributed to improved pricing without a corresponding increase in costs. Total company Adjusted EBITDA margin rose to 9.44% from 2.32%.
- Net loss widened despite higher revenue. Q1 included approximately $6.4 million of IPO cash bonuses, $7.4 million of stock-based compensation, and a $3.0 million write-off of deferred loan costs in connection with debt retirement. The reported loss on asset disposals was $10.4 million, versus $4.8 million a year earlier.
- The March IPO generated $170.1 million in net proceeds to the company. Proceeds were used in part to repay the remaining $71.8 million term loan balance; the company also reported approximately $63.6 million used for additional fracturing fleets and related equipment. Existing shareholders also sold shares in the offering.
- The company repaid its prior term loan and revolving credit facility and entered a five-year, $150 million asset-based revolving credit facility. It was undrawn at March 31; borrowing availability is based on eligible receivables and customary reserves. A 1.0x springing fixed-charge coverage ratio applies when availability falls below specified thresholds.
- Operating cash flow turned negative, while capital spending increased substantially. Management attributed the operating cash use mainly to increased working-capital needs as activity expanded. Cash declined by $48.0 million during the quarter.
Outlook, risks, and contingencies
Management reported that its 10 hydraulic fracturing fleets, with 420,000 HHP of deployed capacity, had been 100% utilized since September 2016. It expected four additional fleets to be delivered and deployed during 2017, including two in Q2, and stated that these would add 90,000 HHP and bring aggregate capacity to 600,000 HHP. The filing does not provide formal quantitative earnings or revenue guidance.
Management described improving industry conditions, citing oil prices in the low-$50-per-barrel range through April 2017, increased Permian rig activity, and stronger demand and pricing for fracturing services. It cautioned that results and liquidity depend heavily on customer drilling and completion activity and volatile oil and natural gas prices. Other cited risks include competition, customer defaults, access to capital, execution and cost of growth projects, operating hazards, weather, regulation, and litigation.
The company reported no material off-balance-sheet arrangements and no legal proceedings believed likely to have a material adverse effect. Management stated that disclosure controls were effective at the reasonable-assurance level and that there were no material changes in internal control over financial reporting during the quarter. Management also said there had been no material change in previously disclosed risk factors.
Important facts for investors to verify
- Whether new fleet deliveries and deployment occur on schedule, and whether utilization and pricing remain strong as Permian capacity expands.
- Cash conversion and working-capital requirements as activity grows, alongside the planned pace and funding of capital expenditures.
- Availability under the ABL facility after borrowing-base calculations and reserves, and compliance with its covenants and springing coverage test.
- The extent to which reported earnings and Adjusted EBITDA reflect recurring operations versus IPO-related bonuses, stock compensation, asset-disposal losses, and debt-cost write-offs.
- The precise capacity arithmetic: management describes 420,000 HHP currently, 90,000 HHP of additions, and 600,000 HHP aggregate capacity; investors should review the fleet deployment details underlying those figures.