ProPetro Holding Corp. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also reports unaudited fourth-quarter results. ProPetro provides hydraulic fracturing and related oilfield services, primarily in the Permian Basin.
Financial and operating highlights
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $789.2 million | $2,052.3 million |
| Operating income (loss) | $(131.2) million | $221.4 million |
| Net income (loss) | $(107.0) million | $163.0 million |
| Diluted earnings (loss) per share | $(1.06) | $1.57 |
| Adjusted EBITDA (non-GAAP) | $141.5 million | $519.1 million |
| Adjusted EBITDA margin (non-GAAP) | 17.9% | 25.3% |
| Net cash from operating activities | $139.1 million | $455.3 million |
| Capital expenditures | $81.2 million | $400.7 million |
- FY2020 cost of services was $584.3 million, or 74.0% of revenue, versus 71.6% in 2019. Pressure-pumping Adjusted EBITDA margin was 22.5%, down from 26.7%.
- Fourth-quarter revenue was $154.3 million and net loss was $44.1 million; gross profit was $38.7 million. Revenue rose from $133.7 million in Q3, while the net loss widened from $29.2 million.
- At year-end, cash was $68.8 million, total assets were $1.05 billion, shareholders’ equity was $870.8 million, and debt was zero. ABL availability was $51.9 million, for total liquidity of $120.7 million.
- Cash fell by $80.3 million during 2020. Operating cash flow was $139.1 million, investing cash outflow was $94.2 million, and financing cash outflow was $125.2 million, principally reflecting repayment of $130.0 million of ABL borrowings.
Material changes versus 2019
- Revenue declined 61.5%, primarily as COVID-19, the oil-market disruption and lower E&P completion activity reduced demand and pressured pricing. Average effectively utilized fleets fell to about 10.2 from 23.9.
- Cost of services declined 60.3%, less than the revenue decline; its share of revenue increased. Management attributed the deterioration chiefly to customer discounts and lower utilization.
- Impairment expense increased to $38.0 million from $3.4 million, including $9.4 million of goodwill and $28.6 million of property and equipment impairments. ProPetro also recorded $58.1 million of asset-disposal losses.
- ProPetro repaid its $130.0 million year-end 2019 ABL balance. Year-end cash nevertheless declined from $149.0 million to $68.8 million.
- The company shut down flowback operations in March and drilling operations in September, disposing of those assets. It planned to retire approximately 150,000 HHP of conventional Tier II equipment.
- Customer concentration increased: the top five customers generated 86.5% of 2020 revenue, versus 77.1% in 2019. Pioneer alone represented 42.5% of revenue.
Outlook, risks and unusual items
- Management expected 2021 capital expenditures of $115 million to $130 million, including approximately $37 million for Tier IV dual-fuel equipment and conversions, subject to market conditions and customer demand. Capital spending was expected to focus mainly on maintenance and lower-emissions equipment.
- Management said liquidity could improve gradually in 2021 if oil-market conditions recovered, but warned that continued or renewed COVID-19 disruption, weak prices, lower activity or pricing pressure could harm revenue, cash flows and liquidity. WTI averaged approximately $39 per barrel in 2020 and was about $62 on March 3, 2021.
- DuraStim electric fracturing equipment was still in limited testing; the stated goal was to commercialize its first fleet in the second half of 2021. The company also committed to 50,000 HHP of Tier IV dual-fuel equipment expected in the first half of 2021.
- Liquidity is sensitive to eligible receivables and customer concentration: the borrowing base declined from $55.6 million at year-end to approximately $48.9 million on March 3, 2021. The ABL facility has a $300 million stated capacity, but actual availability is constrained by its borrowing base and covenants.
- Pioneer’s services agreement covers up to 10 years but gives Pioneer termination rights at year-end 2022, 2024 and 2026. Idle fees from Pioneer were $47.2 million in 2020 and $13.3 million in 2019.
- The SEC investigation, securities class action and shareholder derivative lawsuit remained unresolved. The company said outcomes could not be predicted and recorded no provision because the outcomes could not be reasonably estimated. Potential costs, penalties and reputational effects remain uncertain.
- Other risks include the Permian concentration, volatile commodity prices, environmental and emissions regulation, equipment transition costs, sand-supply minimum commitments, customer credit exposure and potential future impairments. The company reported no material off-balance-sheet arrangements.
- The financial statements received an unqualified audit opinion, and the auditor also gave an unqualified opinion on internal control over financial reporting as of December 31, 2020. The audit identified related-party transactions as a critical audit matter, citing previously reported control weaknesses related to identifying and approving such transactions.
Important facts for investors to verify
- Whether fleet utilization, pricing and operating cash flow recover enough to support planned 2021 capital expenditures without materially eroding liquidity.
- Actual ABL availability and borrowing-base changes, especially given receivables concentration and the large Pioneer relationship.
- Pioneer’s renewal or termination decision and the expected effect on fleet utilization, revenue and idle fees.
- Commercial performance, delivery timing and economics of DuraStim and Tier IV equipment, and whether additional impairments or conversion spending are needed.
- Developments and potential financial exposure in the SEC investigation and pending lawsuits; the filing does not provide a clear estimate of possible losses.
- How non-GAAP Adjusted EBITDA reconciles to GAAP results and the significance of adjustments, including idle fees and unusual expenses.