Cactus, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Cactus provides equipment, rentals and services to onshore oil and gas markets through Pressure Control and Spoolable Technologies (FlexSteel). Unless otherwise noted, amounts are in millions.
Financial performance
- Revenue: $274.1, up 20.0% from $228.4. Product revenue rose to $207.5 from $159.5; rental revenue fell to $23.9 from $27.8; field service and other revenue increased to $42.7 from $41.1.
- Operating income: $62.6, up 25.9% from $49.7. Operating margin was 22.8%, compared with 21.8%.
- Net income: $49.8, down 4.7% from $52.3. Net income attributable to Cactus, Inc. was $39.0, down 9.2%; diluted EPS was $0.59 versus $0.63.
- Cash flow: Operating cash flow was $86.3, versus $60.5. Capital expenditures and other investing outflows were $7.9; net cash used in investing was $6.8. Cash increased by $60.5 to $194.3.
- Liquidity and debt: Current assets were $617.0 and current liabilities $190.7 (working capital of $426.3). No debt was outstanding; available ABL borrowing capacity was $216.7, with $1.1 of letters of credit. The company reported covenant compliance.
- Other obligations: The tax receivable agreement (TRA) liability totaled $270.9, including $20.9 current. Finance and operating lease obligations were also recorded.
Segments and changes versus comparable periods
- Pressure Control: Revenue was $175.0, down 10.1% year over year, and operating income was $51.7, down 18.2%. Management cited lower drilling and completion activity, reduced equipment sales and rentals, lower gross margins and higher SG&A.
- Spoolable Technologies: Revenue was $99.1 versus $33.8 and operating income was $16.4 versus $0.2. The year-over-year comparison is not like-for-like: 2023 included only one month of FlexSteel results following its February 28 acquisition.
- Consolidated revenue growth also reflects the partial-period FlexSteel comparison. Versus Q4 2023, revenue was nearly flat at $274.1, while operating income fell 20.4% to $62.6, including the earn-out remeasurement expense.
- Reported 2024 operating income included a $13.3 non-cash loss from the increase in the FlexSteel acquisition earn-out liability, which rose to $34.1. Q1 2023 included $3.5 of other income from a TRA liability revaluation and a net tax benefit from specific tax items; 2024 income tax expense was $13.4 versus $1.9.
Outlook, risks and contingencies
- Management estimates 2024 net capital expenditures of $45–$55 and expects cash on hand, operating cash flow and available borrowing capacity to cover needs for at least the next 12 months, including capex, TRA payments, dividends and repurchases.
- Demand depends on oil and gas activity. Management reported Q1 U.S. land drilling and completion activity was flat sequentially and about 10% below the 2023 full-year average. Natural gas prices declined sequentially; oil prices were broadly flat.
- Management cautioned that commodity volatility, the conflicts in Ukraine and the Middle East, and potential supply-chain effects could affect the business. Long-term liquidity also depends on industry, economic, raw-material and operating conditions.
- FlexSteel may earn up to $75.0 in contingent consideration if specified revenue targets are met; the payment is expected no later than Q3 2024. The filing reports routine legal matters and says management does not expect them to have a material adverse effect. No material changes to reported risk factors were identified.
Important facts for investors to verify
- How much of reported revenue and profit growth reflects FlexSteel’s partial-period comparison, and how underlying segment trends are developing.
- The assumptions and remaining revenue targets behind the $34.1 earn-out liability and potential payment of up to $75.0.
- Cash generation, ABL availability and timing of TRA payments against the $270.9 TRA liability and planned $45–$55 of 2024 capital expenditures.
- Pressure Control demand, margins and customer activity, alongside Spoolable Technologies’ revenue and operating performance excluding earn-out remeasurement effects.
- The causes and sustainability of the elevated 2024 tax expense compared with the unusual tax items in Q1 2023.