Cactus, Inc. — FY 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context
Cactus designs, manufactures, sells and rents wellhead and pressure-control equipment, and provides related field, repair and refurbishment services. Its customers primarily operate onshore oil and gas wells. The company operates mainly in the United States, with facilities in Australia and China, and reports one business segment.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $348.6 | $628.4 |
| Operating income | $70.0 | $183.2 |
| Operating margin | 20.1% | 29.1% |
| Net income | $59.2 | $156.3 |
| Net income attributable to Cactus, Inc. | $34.4 | $85.6 |
| Basic / diluted EPS | $0.73 / $0.72 | $1.90 / $1.88 |
| Cash provided by operating activities | $143.4 | $209.6 |
| Cash used in investing activities | $18.1 | $55.9 |
| Cash used in financing activities | $40.2 | $21.7 |
Gross profit, calculated as revenue less product, rental and field-service costs, was approximately $111.6 million, or 32.0% of revenue, versus $234.8 million, or 37.4%, in 2019. Cash and cash equivalents were $288.7 million at year-end, up from $202.6 million. The company had no borrowings under its credit facility and reported $45.2 million of available capacity; it was in compliance with facility covenants. It also had $6.1 million of finance lease obligations and $22.1 million of operating lease liabilities.
The total tax receivable agreement (TRA) liability was $204.4 million, including $9.3 million classified as current. An estimated $315.1 million payment would have been due if the TRA had been terminated at year-end under the stated assumptions; this is an estimate, not a current payment obligation. The 2020 Class A dividend rate was $0.36 per share.
Material changes versus 2019
- Revenue fell 44.5%. Product revenue declined 42.1% to $206.8 million, rental revenue declined 53.3% to $66.2 million, and field-service and other revenue declined 41.6% to $75.6 million.
- Operating income fell 61.8%, and net income fell 62.1%, reflecting the sharp activity decline and operating deleverage.
- Operating cash flow declined by $66.3 million, although cash increased by $86.1 million overall. Working-capital movements and $14.2 million of tariff refunds supported 2020 operating cash flow.
- SG&A declined 23.1% to $39.7 million amid personnel and cost reductions. The company recorded $1.9 million of severance expense.
- Rental revenue became a smaller share of sales: 19% in 2020 versus 22% in 2019. Product sales represented 59% and field service and other 22% of 2020 revenue.
Outlook, management commentary and risks
Management described itself as cautiously optimistic about recovery but said customer activity remained significantly below 2019 and early-2020 levels. The U.S. onshore rig count averaged 295 rigs in the fourth quarter of 2020, down 63% from the comparable 2019 period; it was 380 rigs as of February 19, 2021. Management cited recovering commodity prices and activity, while emphasizing uncertainty around the pandemic and energy demand. The filing provides no formal revenue or earnings guidance.
Management estimated 2021 net capital expenditures of $10 million to $15 million, excluding acquisitions, mainly for rental-fleet investment. It expected available cash, operating cash flow and credit-facility capacity to cover the next 12 months of working capital, capital spending, expected TRA payments, taxes and distributions.
- COVID-19, oil and gas price volatility, and customer drilling and completion budgets continue to affect demand; future pandemic effects are uncertain.
- Tariffs on covered imports from China returned to 25% after a temporary exclusion ended August 7, 2020. The company received $14.2 million in tariff refunds during 2020.
- Other material risks include raw-material and freight costs, labor availability, competition, customer credit and consolidation, environmental and climate regulation, hydraulic-fracturing restrictions, equipment liability, cybersecurity and foreign-exchange exposure.
- TRA payments could be accelerated by certain transactions or termination and may exceed actual cash tax savings. The company is a holding company dependent on distributions from Cactus LLC to meet its obligations.
- Cadent and Cactus WH Enterprises held approximately 11% and 23%, respectively, of voting power at year-end; their interests may differ from those of other shareholders.
The company reduced its global workforce by approximately 50% by mid-2020, reinstated 145 employees before year-end, and continued hiring as activity improved. Wage reductions were partially rolled back effective late January 2021. The 401(k) match was suspended effective June 1, 2020. No material pending litigation was reported. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Whether oilfield activity and customer spending recover sufficiently to restore revenue, utilization and margins.
- Whether the $288.7 million cash balance and $45.2 million available credit capacity remain adequate as the company funds operations, capital spending, dividends and TRA obligations.
- The assumptions, timing and sensitivity underlying the $204.4 million recorded TRA liability and estimated $315.1 million termination payment.
- The sustainability of the $0.36 annual dividend rate given business conditions and the board’s discretion over future dividends.
- The impact of resumed tariffs, supply-chain disruption, inventory obsolescence and raw-material or freight inflation on costs and working capital.