Cactus, Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the provided filing text does not give standalone fourth-quarter financial results.
Business context
Cactus designs, manufactures, sells and rents wellhead and pressure-control equipment and provides related field, repair and refurbishment services, primarily for U.S. onshore oil and gas wells. It operates as one business segment. Product, rental, and field service and other revenues represented 64%, 14%, and 22% of FY2021 revenue, respectively.
Financial and operating highlights
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $438.6 million | $348.6 million |
| Operating income / margin | $75.4 million / 17.2% | $70.0 million / 20.1% |
| Net income | $67.5 million | $59.2 million |
| Net income attributable to Cactus, Inc. | $49.6 million | $34.4 million |
| Class A EPS, basic / diluted | $0.90 / $0.83 | $0.73 / $0.72 |
| Operating cash flow | $63.8 million | $143.4 million |
| Capital expenditures and other | $13.9 million | $24.5 million |
| Cash and cash equivalents at year-end | $301.7 million | $288.7 million |
Gross profit was approximately $121.4 million, or 27.7% of revenue, versus $111.6 million, or 32.0%, in 2020. Cash flow from operations less capital expenditures and other was approximately $49.8 million, compared with $118.9 million in 2020. The cash-flow comparison reflects, among other factors, increased receivables and inventory in 2021 and $14.2 million of tariff refunds received in 2020.
Year-end current assets were $518.5 million and current liabilities were $92.6 million. Cactus had no borrowings outstanding under its asset-based revolving credit facility and reported $75.0 million of available capacity. It reported no debt outstanding; finance lease obligations totaled $10.7 million, and operating lease liabilities totaled $22.5 million. The tax receivable agreement (TRA) liability was $281.6 million, including $11.8 million classified as current.
Changes versus FY2020
- Revenue increased 25.8%. Product revenue rose 35.8% to $280.9 million and field service and other revenue rose 27.1% to $96.1 million, reflecting higher customer activity and pricing/cost-recovery efforts.
- Rental revenue declined 6.9% to $61.6 million. Management cited slower recovery in completion rentals and excess competing equipment.
- Costs rose faster than revenue: total costs and expenses increased 30.4%. Higher materials, freight, wages and personnel costs, along with the absence of prior-year tariff credits, weighed on margins.
- Operating cash flow fell to $63.8 million, primarily because of working-capital investment, especially accounts receivable and inventories.
- Net income attributable to Cactus, Inc. increased 44.0%, also reflecting its larger ownership of Cactus LLC following redemptions of legacy units. Cactus Inc.’s ownership rose to 78.0% from 63.3%.
Outlook, commentary and risks
- Management anticipated further activity growth in 2022, subject to adverse changes in fossil-fuel demand and other market conditions. The U.S. onshore rig count increased to 570 at year-end 2021 from 332 at year-end 2020.
- Estimated 2022 net capital expenditures were $20 million to $30 million, mainly for rental fleet investment, manufacturing capacity and research and development.
- Management said elevated materials, freight and labor costs could pressure margins; it did not expect commodity and freight prices to normalize until late 2022 and cautioned that costs might not return to prior levels.
- Principal risks include oil and gas price and activity volatility, customer spending and credit risk, labor and supply-chain constraints, inflation, COVID-19 impacts, regulatory and climate-related changes, hydraulic-fracturing and wastewater restrictions, and geopolitical uncertainty following Russia’s invasion of Ukraine.
- The TRA is a material liquidity and transaction risk: it requires payments to eligible holders equal to 85% of specified realized or deemed tax savings. A hypothetical termination at year-end 2021 was estimated to require a discounted payment of $361.9 million; actual amounts may differ and could exceed realized tax benefits in certain circumstances.
- The board increased the quarterly Class A dividend to $0.10 per share in July 2021 and to $0.11 in January 2022. Future dividends remain at the board’s discretion.
- Management reported effective internal control over financial reporting; the auditor gave unqualified opinions on the financial statements and internal controls. The TRA liability was identified as a critical audit matter.
Important facts for investors to verify
- Whether drilling and completion activity, especially among private E&P customers, sustains demand and supports rental recovery.
- Whether pricing and cost recovery offset higher materials, freight, wages and other inflationary costs.
- How working-capital growth, customer collections and inventory obsolescence affect operating cash flow.
- The assumptions, timing and cash burden of the $281.6 million TRA liability, including potential acceleration upon a change of control.
- The status of the 2022 capital-spending plan, dividend sustainability and available borrowing capacity.
- Customer concentration: one customer represented approximately 12% of FY2021 revenue.