ProPetro Holding Corp. — Q1 2019 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2019, compared with Q1 2018. ProPetro provides oilfield services, primarily hydraulic fracturing in the Permian Basin. Its December 2018 Pioneer acquisition expanded pressure-pumping capacity; average active fleets rose to approximately 27 from 17.4 a year earlier, and capacity reached 1.415 million HHP.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Revenue | $546.2 million | $385.2 million |
| Operating income | $93.8 million | $48.6 million |
| Net income | $69.8 million | $36.7 million |
| Diluted EPS | $0.67 | $0.42 |
| Adjusted EBITDA (non-GAAP) | $150.3 million | $76.7 million |
| Adjusted EBITDA margin (non-GAAP) | 27.5% | 19.9% |
| Cash from operating activities | $36.1 million | $54.6 million |
| Cash used in investing activities | $177.9 million | $74.8 million |
| Cash and cash equivalents | $79.5 million | $132.7 million at Dec. 31, 2018 |
| Long-term debt | $160.0 million | $70.0 million at Dec. 31, 2018 |
| Current assets / current liabilities | $449.7 million / $302.7 million | $349.3 million / $352.8 million at Dec. 31, 2018 |
Revenue increased 41.8% year over year, and net income rose 90.2%. Pressure-pumping revenue increased 41.9%; its Adjusted EBITDA margin improved to 28.4% from 21.1%. Management attributed margin improvement to cost controls and lower costs for certain consumables. Cost of services was 69.9% of total revenue, versus 77.4% in the pressure-pumping segment in Q1 2018. The filing reports a 23.9% effective tax rate for Q1 2019.
Material changes, liquidity, and notable items
- Investing cash outflow was elevated amid fleet growth and the Pioneer transaction; management cites approximately $110 million cash paid for acquired assets, $18.4 million deposited toward two DuraStim fleets, and $1.5 million for ancillary equipment. The DuraStim fleets were expected to be delivered and placed in service in Q4 2019.
- Operating cash flow fell despite higher earnings, primarily because of the timing of receivables and payments. Accounts receivable rose to $357.5 million from $203.0 million at year-end; Q1 operating cash flow included a $154.5 million cash use from receivables.
- The company borrowed an additional $90 million under its ABL facility during the quarter. The facility has $300 million stated capacity and matures in December 2023; actual borrowing availability is subject to the borrowing base and is not clearly stated in the filing text.
- Pioneer accounted for approximately 29.3% of Q1 revenue. Amounts due from Pioneer were $93.7 million at March 31, 2019, versus $15.7 million at year-end.
- Loss on disposal of assets increased to $19.2 million from $7.7 million. Depreciation and amortization rose 74.9% to $33.1 million, reflecting the larger asset base.
- The company adopted the new lease accounting standard in 2019, recognizing operating and finance lease liabilities; no opening retained-earnings adjustment was recorded.
Outlook, risks, and contingencies
No specific revenue, earnings, or capital-spending guidance is provided. Management described improving Permian activity and demand, citing March 2019 average WTI crude oil prices of $58.15 per barrel, greater service intensity, and customer demand. It cautioned that customer activity and company cash flows depend on volatile oil and gas prices and that future cash flows may not be sufficient to fund planned capital expenditures. Other identified risks include competition, customer defaults, financing availability, operating hazards, weather, regulation, and execution of growth projects. Management said ordinary-course legal matters were not expected to materially affect financial position, results, or liquidity; no material legal proceeding or material change to previously disclosed risk factors was reported.
Important facts for investors to verify
- Actual ABL borrowing-base availability, covenant headroom, and liquidity after the quarter’s increased borrowings and capital spending.
- Collection timing and credit exposure related to the large receivable balance, particularly Pioneer’s $93.7 million balance and concentration in revenue.
- Expected delivery, commissioning, utilization, and returns on the DuraStim fleets and broader fleet expansion.
- Whether improved margins and activity can persist amid oil-price volatility, competitive pricing, and rising depreciation and asset-disposal losses.
- Cash requirements for continued capital expenditures and the extent to which operating cash flow can fund them.