Cactus, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. Cactus designs, manufactures, sells and rents pressure-control equipment and spoolable pipe technologies for oil and gas operations.
Business context and material changes
Cactus acquired FlexSteel on February 28, 2023, adding the Spoolable Technologies segment. The acquisition was funded with equity proceeds, borrowings and cash; the $155.0 million borrowed was repaid in July 2023. FlexSteel contributed $340.2 million of revenue from acquisition through year-end, so consolidated growth versus 2022 is not a like-for-like measure.
Industry activity softened during 2023: average U.S. land drilling rigs fell 5% year over year to 667, WTI averaged $77.58 per barrel versus $94.90, and Henry Hub natural gas averaged $2.53/MMBtu versus $6.45.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $1,097.0 million | $688.4 million | +59.4% |
| Operating income | $264.4 million | $174.7 million | +51.3% |
| Net income | $214.8 million | $145.1 million | +48.0% |
| Net income attributable to Cactus, Inc. | $169.2 million | $110.2 million | +53.5% |
| Diluted EPS | $2.57 | $1.80 | +42.8% |
| Operating cash flow | $340.3 million | $117.9 million | +$222.4 million |
| Capital expenditures | $44.0 million | $28.3 million | +$15.7 million |
Operating margin was approximately 24.1% and net margin approximately 19.6%. Revenue mix was 74% products, 10% rentals and 16% field service and other, compared with 66%, 14% and 20%, respectively, in 2022. Pressure Control revenue increased 9.9% to $756.7 million and segment operating income rose 16.9% to $236.9 million. Spoolable Technologies reported $340.2 million revenue and $62.2 million operating income from the acquisition date; results included purchase-accounting and earn-out-related costs.
Operating cash flow improved mainly on higher earnings, lower inventory purchases and stronger receivable collections. Investing cash outflow was $654.8 million, primarily reflecting the FlexSteel acquisition. Financing cash inflow was $103.3 million, including the equity offering; Cactus ended the year with $133.8 million cash and no borrowings outstanding. It had $216.0 million of available ABL borrowing capacity, net of letters of credit.
Total assets were $1,522.6 million and total liabilities $457.8 million at year-end. The balance sheet included a $270.9 million Tax Receivable Agreement (TRA) liability, of which $20.9 million was current. Finance lease obligations totaled $16.6 million. The company declared dividends of $0.46 per Class A share for 2023 and had $149.7 million remaining under its $150 million repurchase authorization.
Outlook, commentary and risks
Management expects existing cash, operating cash flow and available borrowing capacity to cover material cash needs for at least the next 12 months. Estimated 2024 net capital expenditures are $45 million to $55 million, primarily for rental equipment, international expansion, supply-chain diversification and facility improvements. No specific revenue or earnings guidance was provided. The company said it currently intends to maintain its quarterly dividend at $0.12 per share, subject to board approval and business conditions.
The FlexSteel acquisition includes a potential earn-out of up to $75 million, payable no later than the third quarter of 2024 if revenue-growth targets are achieved. Its estimated fair value was $20.8 million at year-end, including a $14.9 million increase recognized as expense in 2023. The CFO took on leadership of Spoolable Technologies in the fourth quarter and was replaced by an interim CFO; management intended to appoint a new CFO during 2024.
- Results remain exposed to volatile oil and gas prices, drilling and completion activity, customer spending, competition and customer credit risk.
- Management cited possible supply-chain disruption and higher freight costs, including from Red Sea shipping disruptions, as well as wage inflation and availability of skilled labor.
- Environmental, climate, hydraulic-fracturing and permitting changes could raise costs or reduce customer activity. Product failures, safety incidents, litigation, cybersecurity events and foreign-exchange movements are additional risks.
- The TRA can require substantial payments: estimated termination value at December 31, 2023 was $256.8 million discounted, based on assumptions, versus an undiscounted liability of approximately $397.0 million. A change of control or early termination could accelerate payments.
- Auditors issued unqualified opinions on the financial statements and internal control. Management concluded controls were effective, but FlexSteel—31% of consolidated revenue and 24% of assets excluding goodwill and acquired intangibles—was excluded from the 2023 internal-control assessment and audit of controls.
- Management reported no pending litigation expected to have a material adverse effect. The audit identified the TRA liability and FlexSteel intangible-asset valuation as critical audit matters.
Key facts for investors to verify
- How much of reported growth and earnings reflects FlexSteel, and how are the two segments performing on a comparable basis after purchase-accounting charges?
- Whether FlexSteel meets the earn-out revenue targets, and the resulting payment, integration progress and realized acquisition benefits.
- Current CFO appointment, leadership continuity and whether FlexSteel controls are incorporated into the company-wide control assessment.
- Cash generation, working-capital trends, capital spending and the capacity to fund dividends, buybacks and TRA obligations through an industry slowdown.
- Assumptions underlying the $270.9 million TRA liability and the potential liquidity impact of accelerated payments.