ProPetro Holding Corp. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Unaudited results. ProPetro provides oilfield services, principally hydraulic fracturing, with operations focused on the Permian Basin.
Financial performance
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $282.7 million | $116.9 million | $668.2 million | $273.0 million |
| Operating income (loss) | $22.7 million | $(15.9) million | $9.9 million | $(45.1) million |
| Net income (loss) | $22.0 million | $(13.6) million | $2.5 million | $(35.8) million |
| Diluted earnings (loss) per share | $0.25 | $(0.26) | $0.03 | $(0.84) |
| Adjusted EBITDA and margin | $47.8 million; 16.9% | $1.3 million; 1.1% | $94.7 million; 14.2% | $1.6 million; 0.6% |
| Operating cash flow | Not presented separately for the quarter | Not presented separately for the quarter | $78.7 million | $(5.7) million |
For Q3, pressure-pumping revenue was $271.9 million and segment Adjusted EBITDA was $50.0 million, a margin of 18.4%. For the first nine months, those amounts were $639.4 million and $98.3 million, respectively, with a 15.4% margin. Adjusted EBITDA is a non-GAAP measure and should not be treated as a substitute for GAAP results or cash flow.
Liquidity, debt and investment
- At September 30, cash and cash equivalents were $51.0 million, down from $133.6 million at December 31, 2016. Working capital was $26.5 million, versus $105.0 million.
- Total debt was $41.9 million, including $25.0 million borrowed under the $150 million asset-based revolving facility and $16.9 million in equipment financing. The facility is secured by substantially all company assets; a 1.0x fixed-charge coverage test can apply when availability falls below specified thresholds.
- Nine-month investing cash outflow was $189.6 million, primarily reflecting fleet and equipment purchases; financing cash inflow was $28.3 million. Capital expenditures in the cash flow statement were $193.8 million.
- The March 2017 IPO generated approximately $170.1 million in net proceeds for the company. Proceeds were used to repay term debt, fund additional fleets and equipment, and for general corporate purposes.
Changes, outlook and risks
- Revenue increased 141.8% in Q3 and 144.7% for the nine-month period versus 2016, driven by higher customer activity, a larger fleet, stronger demand and improved pricing. Management attributed materially improved pressure-pumping margins to greater pricing power.
- The company reported 16 hydraulic fracturing fleets and 690,000 HHP after a further fleet was deployed in Q4. It expected an additional 45,000-HHP fleet before the end of Q1 2018, which would bring capacity to 735,000 HHP. A Q3 fleet-utilization figure is not clearly stated; management said the fleet had been 100% utilized since September 2016.
- Management described Permian activity and demand as strong, while emphasizing that results depend on oil and gas prices and customers’ spending decisions. The filing gives no formal financial guidance.
- Unusual or notable expenses included $29.0 million of nine-month losses on asset disposals, $7.7 million of deferred IPO bonuses and $8.7 million of stock-based compensation. The prior-year period included a $7.0 million debt-extinguishment gain, which did not recur.
- Accounts receivable rose to $160.0 million from $115.2 million, while accounts payable increased to $181.7 million from $129.1 million. Management cited working-capital needs associated with higher activity. The company cautioned that customer activity and cash generation are sensitive to commodity prices and market conditions.
- Management said ordinary-course legal matters were not expected to materially affect the company. No material changes to previously disclosed principal risk factors were reported. Disclosure controls were deemed effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether utilization, fleet deployment and the planned additional fleet translate into sustained pricing, margins and returns on capital.
- Receivable collections, customer credit quality, payable levels and the effect of working capital on liquidity.
- Future capital spending and cash requirements relative to operating cash flow and availability under the ABL facility.
- The reasons for continuing asset-disposal losses and whether they remain elevated as activity and equipment intensity increase.
- Exposure to oil and gas price volatility, customer spending changes, competition, operating hazards and facility covenants.