Cactus, Inc. 2024 Q2 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2024. Cactus, Inc. is a leading provider of wellhead and pressure control equipment (Pressure Control segment) and spoolable pipe technologies (Spoolable Technologies segment) for the onshore oil and gas industry. The company operates primarily in the U.S. with limited international presence. Following the acquisition of FlexSteel in February 2023, the company operates in two distinct segments.
Key Financial Metrics
| Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 |
|---|---|---|---|---|
| Total Revenues | $290.4 million | $305.8 million | $564.5 million | $534.2 million |
| Operating Income | $79.8 million | $48.5 million | $142.4 million | $98.2 million |
| Net Income (Total) | $63.1 million | $32.5 million | $112.9 million | $84.7 million |
| Net Income Attributable to Cactus Inc. | $49.8 million | $24.8 million | $88.8 million | $67.6 million |
| Diluted EPS (Class A) | $0.75 | $0.38 | $1.35 | $1.02 |
| Cash and Cash Equivalents | $246.5 million | $63.9 million | $246.5 million | $63.9 million |
| Operating Cash Flow (YTD) | $164.2 million | $168.5 million | $164.2 million | $168.5 million |
| Debt Outstanding | $0 | $0 | $0 | $0 |
Liquidity: The company has no bank debt outstanding. It maintains $220.1 million in available borrowing capacity under its Amended ABL Credit Facility. Cash and cash equivalents increased to $246.5 million from $133.8 million at year-end 2023.
Material Changes vs. Prior Period
- Revenue: Q2 2024 total revenue decreased 5.0% year-over-year (YoY) to $290.4 million. However, YTD revenue increased 5.7% to $564.5 million. The Q2 decline was driven by a decrease in the Pressure Control segment (down 6.0% YoY) due to lower drilling and completion activity. Conversely, the Spoolable Technologies segment grew 44.4% YTD due to the full inclusion of FlexSteel operations compared to only four months in the prior year.
- Profitability: Operating income increased significantly by 64.5% YoY in Q2 to $79.8 million. This improvement was largely driven by a reduction in the "Change in fair value of earn-out liability" expense, which dropped from $18.1 million in Q2 2023 to $2.9 million in Q2 2024.
- Segment Performance:
- Pressure Control: Revenue declined due to lower customer activity. Operating income decreased 14.8% YTD.
- Spoolable Technologies: Revenue surged 44.4% YTD. Operating income turned from a loss of $5.8 million in YTD 2023 to a profit of $46.4 million in YTD 2024, excluding significant one-time acquisition-related expenses in the prior year.
- Cash Flow: Operating cash flow remained robust at $164.2 million YTD 2024, slightly down from $168.5 million in 2023, primarily due to working capital outflows. Investing cash outflows were minimal ($14.1 million) compared to $639.5 million in 2023, which included the FlexSteel acquisition payment.
Guidance, Outlook, and Risks
- Capital Expenditures: Management estimates net capital expenditures for the full year 2024 will range from $35 million to $45 million, focused on rental fleet investments and manufacturing enhancements.
- Earn-Out Liability: The contingent consideration earn-out period for the FlexSteel acquisition ended June 30, 2024. The final liability is $37.0 million, expected to be paid in August 2024.
- Share Repurchases: The company has $146.3 million remaining under its $150 million share repurchase program authorized in June 2023.
- Dividends: Cash dividends of $0.24 per share were declared for the six months ended June 30, 2024.
- Risks: Demand is highly correlated with oil and gas industry activity levels (drilling rigs, completions). Geopolitical conflicts and commodity price volatility remain key risks. The company is evaluating the impact of the OECD "Pillar Two" global minimum tax rules, though management anticipates an immaterial impact for 2024.
Investor Verification Checklist
- Verify the sustainability of the Spoolable Technologies segment's growth given the full-year comparison advantage in 2024.
- Monitor the $37.0 million earn-out payment scheduled for August 2024 and its impact on cash balances.
- Assess the impact of declining U.S. land drilling rig counts (down 13% from 2023 average) on the Pressure Control segment's future revenue.
- Review the Tax Receivable Agreement (TRA) liability of $265.1 million and the associated cash payment obligations.
- Confirm the company's ability to maintain liquidity given the upcoming earn-out payment and ongoing capital expenditure plans.