ProPetro Holding Corp. — FY 2022 Form 10-K
Business context and period. This annual report covers the fiscal year ended December 31, 2022; the supplied filing text does not provide a clear standalone fourth-quarter income statement. ProPetro provides hydraulic fracturing, wireline and cementing services, primarily in the Permian Basin. Hydraulic fracturing generated 89.3% of 2022 revenue. The company acquired Permian wireline provider Silvertip on November 1, 2022, and discontinued coiled tubing operations effective September 1, 2022.
Financial performance and position
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $1,279.7 million | $874.5 million |
| Operating income (loss) | $(2.6) million | $(68.7) million |
| Net income (loss) | $2.0 million | $(54.2) million |
| Diluted earnings (loss) per share | $0.02 | $(0.53) |
| Adjusted EBITDA and margin | $316.6 million; 24.7% | $135.0 million; 15.4% |
| Net cash provided by operating activities | $300.4 million | $154.7 million |
| Capital expenditures | $365.3 million | $165.2 million |
Cost of services was $882.8 million, or 69.0% of revenue, versus $662.3 million, or 75.7%, in 2021. At December 31, 2022, cash, cash equivalents and restricted cash totaled $88.9 million, including $10.0 million of restricted cash; accounts receivable was $215.9 million. Total liabilities were $381.8 million and shareholders’ equity was $954.0 million. ABL borrowings were $30.0 million. Reported total liquidity was $155.2 million, comprising cash and restricted cash of $88.9 million and ABL availability of $66.3 million.
Material changes versus 2021
- Revenue rose 46.3%, reflecting higher customer activity, improved pricing, greater fleet utilization and $31.2 million of Silvertip revenue after acquisition. Average effectively utilized fleets increased 25% to approximately 15.
- Adjusted EBITDA increased 134.5%; management attributed improved service-cost ratios to pricing, operating efficiencies and reduced downtime, partly offset by inflation.
- Operating cash flow increased, but investing cash use rose to $349.7 million, largely due to equipment investment, maintenance and growth spending, and the Silvertip acquisition.
- Silvertip consideration totaled $148.1 million, including 10.1 million shares valued at $106.7 million, $30.0 million cash, assumed debt payoff and closing costs. The share issuance increased dilution.
- The company recorded a $57.5 million impairment of idle DuraStim equipment and a $13.8 million loss on the coiled-tubing asset sale. Total loss on disposal of assets was $102.2 million.
Outlook, risks and unusual items
- Management projected 2023 capital expenditures of $250 million to $300 million, subject to market conditions, customer demand and equipment needs. It expected lower-emissions equipment to comprise approximately 65% of the hydraulic fracturing portfolio in 2023, versus approximately 35% in 2022.
- Four leased electric fracturing fleets, each 60,000 HHP, were expected to be delivered in the second half of 2023; one had a three-year customer services commitment. The filing also discloses substantial equipment and power-equipment commitments.
- ProPetro cited volatile oil prices, inflation, supply-chain constraints, interest rates, skilled-labor availability, regulation and the capital cost and execution risks of transitioning to lower-emissions equipment. Results are also seasonal, with typical fourth-quarter pressure from weather, holidays and customer budget exhaustion.
- Customer concentration is significant: Pioneer, Endeavor Energy Resources and XTO Energy accounted for 33.1%, 28.3% and 15.0% of 2022 revenue, respectively. Pioneer’s Fleet Two agreement was scheduled to end May 12, 2023 at Pioneer’s request; Fleet One was scheduled to end August 31, 2023. Loss of work may affect utilization and revenue.
- Unusual income included a $10.7 million net sales, excise and use tax refund and $2.7 million non-cash equipment inventory received in a warranty settlement; a $1.6 million unrealized investment loss partly offset these items. The $30.0 million Logan securities-litigation settlement was paid by insurers; final court approval was pending as of the filing.
- The auditor issued unqualified opinions on the financial statements and internal controls. Silvertip’s controls were excluded from management’s and the auditor’s 2022 internal-control assessment while integration proceeded.
Most important facts for investors to verify
- Whether 2023 capex and electric/Tier IV conversion spending remain within management’s projected range and produce expected utilization and returns.
- Whether Pioneer work is replaced following the Fleet Two release and the scheduled Fleet One contract end, given the concentration of revenue among a few customers.
- How much of reported earnings and Adjusted EBITDA reflects recurring operations versus asset disposals, impairment, litigation-related costs and unusual tax or warranty items.
- Whether inflation, supply constraints and labor costs can be passed through to customers without weakening pricing or utilization.
- Current liquidity and borrowing-base availability, which can change with eligible receivables, alongside committed lease, equipment-purchase and sand obligations.