ProPetro Holding Corp. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. Financial statements are unaudited. ProPetro provides hydraulic fracturing and related oilfield services, primarily in the Permian Basin.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $213.5 million | $68.2 million | $385.4 million | $156.1 million |
| Operating income (loss) | $6.3 million | ($15.2 million) | ($12.8 million) | ($29.2 million) |
| Net income (loss) | $4.9 million | ($9.3 million) | ($19.4 million) | ($22.2 million) |
| Adjusted EBITDA | $30.7 million | ($1.8 million) | $46.9 million | $0.2 million |
| Adjusted EBITDA margin | 14.36% | (2.65%) | 12.16% | 0.15% |
| Operating cash flow | Not separately stated for the quarter | ($0.5 million) | $2.1 million |
Q2 basic and diluted earnings per share were $0.06, compared with a $0.24 loss per share in Q2 2016. The six-month loss per share was $0.28, versus $0.60 in the prior-year period. Adjusted EBITDA and its margin are non-GAAP measures.
- Revenue and margins: Q2 revenue rose 213.2%, primarily on higher customer activity, expanded fleet capacity, demand and improved pricing. Pressure-pumping revenue was $203.6 million; its adjusted EBITDA margin increased to 15.40% from 0.85%. For the first half, pressure-pumping margin was 13.14%, versus 2.50%.
- Expenses and unusual items: Q2 cost of services was $176.8 million. The company recorded $9.8 million of asset-disposal losses in Q2 and $20.2 million for the first half, attributing the increase to higher utilization and service intensity. First-half G&A included a $7.0 million IPO bonus and accelerated/other IPO-related stock compensation; total stock-based compensation was $8.0 million.
- Cash, working capital and investment: Cash fell to $25.1 million at June 30 from $133.6 million at year-end. Working capital was $17.7 million, down from $105.0 million; accounts receivable was $147.8 million and accounts payable was $156.0 million. First-half investing cash outflow was $111.4 million, including $112.6 million of capital expenditures.
- Debt and liquidity: Total debt was $16.5 million, largely equipment financing; the former term loan and revolving facility were repaid and terminated. The new $150 million ABL facility was undrawn at quarter-end, subject to an accounts-receivable borrowing base and covenants. The filing reports no off-balance-sheet arrangements.
Material changes and business developments
- On March 22, 2017, ProPetro completed its IPO at $14 per share. It issued 13.25 million shares and received approximately $170.1 million in net proceeds; existing shareholders also sold shares. Preferred stock converted into common stock. Common shares outstanding rose to 83.0 million at June 30 from 52.6 million at December 31.
- IPO proceeds funded repayment of the remaining term loan, fleet and equipment purchases, and general corporate purposes. During the first half, the company repaid $163.1 million of borrowings.
- Management reported 100% hydraulic-fracturing fleet utilization since September 2016. Two additional fleets entered service during Q2 and a third after quarter-end, bringing deployed capacity to 555,000 HHP across 13 fleets. Three more fleets were contracted for delivery and deployment in the second half of 2017, which management said would add 135,000 HHP and bring capacity to 690,000 HHP.
Outlook, commentary and risks
Management described improving Permian activity and service demand, with oil prices generally in the $40–$50 per barrel range during 2017 through July. It cited increasing completion intensity, full fleet utilization, and potential for pricing improvement as supply tightened. The company did not provide specific numerical revenue, earnings or cash-flow guidance. Planned fleet additions and growth spending depend on customer demand and execution.
Results and liquidity remain sensitive to oil and gas prices, customer drilling and completion activity, pricing and competition, customer defaults, access to capital, and the timing and cost of growth projects. The company cautioned that weaker commodity prices or activity could impair cash generation and capital access. Management reported disclosure controls effective at June 30 and no material change in internal control over financial reporting. It stated that ordinary-course legal matters were not expected to have a material adverse effect and reported no material change to previously disclosed risk factors.
Investor verification priorities
- Verify that contracted fleet deliveries, deployment schedules, customer commitments and expected utilization support the stated capacity expansion.
- Track pricing, pressure-pumping margins and the sustainability of the Q2 recovery, including the effect of competition and rising operating costs.
- Assess receivable collections, payables, working-capital needs and liquidity available under the ABL borrowing base as cash declined substantially.
- Review the drivers and recurrence of asset-disposal losses and the cash versus noncash components of reported expenses.
- Reconcile growth and maintenance capital spending, equipment financing maturities and the funding required for planned fleet additions.
- Consider the effects of IPO-related share issuance, stock-based compensation and potential dilution when evaluating per-share results.