Cactus, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Cactus designs, manufactures, sells and rents wellhead and pressure-control equipment and provides related field services, primarily to oil and gas producers. Figures below are in millions of dollars unless otherwise noted.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $184.5 | $115.4 | $500.6 | $308.7 |
| Operating income | $51.3 | $20.8 | $126.5 | $49.7 |
| Net income | $41.5 | $17.2 | $104.4 | $47.1 |
| Net income attributable to Cactus, Inc. | $31.4 | $12.6 | $79.2 | $34.6 |
| Basic / diluted EPS | $0.52 / $0.51 | $0.22 / $0.21 | $1.32 / $1.30 | $0.64 / $0.58 |
- Revenue increased 60% year over year in Q3 and 62% for the first nine months. Product revenue was the largest category; nine-month product, rental, and field service and other revenues were $328.1 million, $73.1 million, and $99.4 million, respectively.
- Calculated Q3 gross margin was approximately 36.5% versus 28.5% a year earlier; operating margin was 27.8% versus 18.0%. Nine-month gross and operating margins were approximately 34.2% and 25.3%, versus 26.8% and 16.1% in 2021.
- Nine-month operating cash flow was $78.6 million, up from $52.1 million. Investing cash outflow was $19.5 million, mainly capital expenditures; financing cash outflow was $37.2 million, including dividends, member distributions, and lease payments. Cash increased by $19.0 million to $320.6 million.
- There was no debt outstanding. The amended revolving credit facility provides up to $80 million, all available at quarter-end; the company reported compliance with its covenants. Working capital was $494.8 million.
Changes and management commentary
- Year-over-year growth reflected higher customer drilling and completion activity, increased product sales, and cost-recovery measures. Q3 revenue rose 8.4% sequentially from Q2, led by product and rental revenue.
- Management cited continued inflation in labor and operating costs, although overseas freight constraints had eased and some raw-material and component costs were moderating. Costs increased more slowly than revenue overall, supporting improved margins.
- Oil and natural gas prices and U.S. onshore activity remained volatile. Management noted that private E&P operators accounted for most recent U.S. rig additions; a shift in activity between private and public customers can create both risks and opportunities.
Outlook, risks, and contingencies
- Management estimated 2022 net capital expenditures of approximately $25 million and stated that cash, operating cash flow, and available borrowing capacity should cover liquidity needs for at least the next 12 months. No revenue or earnings guidance was provided.
- Key risks include commodity-price volatility and recession concerns, customer spending decisions, inflation and labor availability, supply-chain and freight disruptions, and customer credit risk. One customer accounted for approximately 10% of revenue in the first nine months of 2022.
- The tax receivable agreement liability totaled $288.5 million, including $27.7 million current. Cactus paid $11.7 million under the agreement in 2022. Early termination or certain change-of-control events could accelerate a substantial payment.
- Management said ordinary-course disputes and lawsuits are not expected to materially affect the company. The filing reported no material changes to previously disclosed risk factors and stated disclosure controls were effective.
Investor facts to verify
- Whether activity levels and revenue growth continue, particularly across private and publicly traded E&P customers.
- Whether pricing and cost recovery can offset labor, freight, materials, and other operating-cost pressures.
- Whether working-capital needs, especially inventory and receivables, affect cash conversion as the business grows.
- The timing and amount of future tax receivable agreement payments and related tax assumptions.
- Whether 2022 capital expenditures remain near the estimated $25 million and dividends remain supportable by cash generation.