ProFrac Holding Corp. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. ProFrac provides hydraulic fracturing and related services, equipment manufacturing, and frac sand. The company completed its IPO and corporate reorganization on May 12, 2022; results combine predecessor operations before that date with the reorganized public company afterward, limiting comparability.
Financial performance
Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $589.8 | $174.8 | $934.8 | $324.4 |
| Operating income (loss) | $95.5 | $(2.8) | $129.7 | $(22.9) |
| Net income (loss), consolidated | $70.1 | $(8.6) | $94.2 | $(34.6) |
| Net income attributable to ProFrac Holding Corp. | $6.6 | — | $6.6 | — |
| Adjusted EBITDA | $210.6 | $34.1 | $302.0 | $51.8 |
| Cash provided by operating activities | — | $84.5 | $26.8 |
- Q2 revenue grew 237% year over year; six-month revenue grew 188%. Management attributed growth to higher activity, active fleets, pumping hours and pricing, as well as the FTSI acquisition. Q2 average active fleets were 31 versus 14; average WTI was $108.72/barrel versus $66.09.
- Q2 operating margin was approximately 16.2%; Adjusted EBITDA margin was approximately 35.7%. Adjusted EBITDA is a non-GAAP measure and is not a substitute for GAAP earnings or cash flow.
- Q2 cost of revenue excluding depreciation was $340.6 million. Selling, general and administrative expense was $87.5 million, including substantial stock-based compensation and acquisition-related costs. Interest expense was $13.5 million, and debt-extinguishment loss was $8.8 million.
- Consolidated net income includes businesses and interests not attributable to public shareholders. ProFrac Holding’s attributable income was $6.6 million, or $0.16 per Class A share, for the quarter and six-month period.
Balance sheet, debt and liquidity
- At June 30, 2022, cash and cash equivalents were $73.7 million; total assets were $1.664 billion. Working capital was $283.7 million, compared with $5.0 million at year-end 2021. Current assets were $735.8 million and current liabilities $452.1 million.
- Gross debt was $495.0 million, including $143.4 million under the asset-based revolver and $302.4 million under the term loan; cash less gross debt was approximately $421.4 million. The term loan carried a 10.0% rate at quarter-end and matures March 2025. The ABL rate was 5.5%; remaining availability was approximately $47.4 million after letters of credit.
- Operating cash flow was $84.5 million, investing cash outflow $388.3 million and financing cash inflow $374.2 million for the first half. Investing included the FTSI acquisition, BPC investment and capital expenditures. Capital expenditures were $116.1 million.
- Debt covenants required minimum liquidity of $30 million under the term loan and $5 million under the ABL. The company reported compliance with applicable covenants and no defaults at June 30.
Material changes, outlook and risks
- Acquisitions and investments: ProFrac acquired FTSI in March for stated purchase consideration of $405.7 million. It began consolidating Flotek in May as its primary beneficiary, despite not having access to Flotek’s cash or liquidity. The Flotek acquisition included $82.3 million of goodwill; purchase accounting remained preliminary.
- IPO and debt: The IPO and over-allotment generated approximately $303.9 million of net proceeds. ProFrac used proceeds for the FTSI-related equity redemption and debt repayments, including $143.8 million of term-loan paydown.
- Post-quarter events: On July 25, ProFrac acquired the Monahans sand businesses for $90 million cash plus approximately $10 million of working-capital adjustments. It also amended its term loan to increase facility size by $150 million, with a potential additional $100 million of delayed-draw loans, and added an uncommitted $100 million ABL incremental facility. These amendments do not establish that all incremental amounts were borrowed.
- USWS transaction: A merger agreement signed in June contemplated a fourth-quarter 2022 close, subject to conditions including USWS shareholder approval. ProFrac expected approximately $270 million of stock consideration, to assume about $55 million of debt and repay about $170 million of USWS debt. Financing and completion were not assured.
- Capital spending outlook: The 2022 capital budget, excluding acquisitions, was $265–$290 million. It included $65–$70 million for three electric-powered fleets and $25–$30 million for the West Munger sand mine. Management expected to fund the program from operating cash flow and said spending would be aligned with customer demand.
- Management commentary and exposures: Management cited stronger utilization and pricing, alongside inflation in inputs, supply-chain constraints and higher costs. It said U.S.-based and vertically integrated supply reduced exposure to global disruptions. The company does not hedge commodity prices; a 1% rise in interest rates was estimated to add about $4.5 million in annual interest expense on quarter-end debt.
- Contingencies and unusual items: The Vista Sand case sought approximately $8.3 million, with trial docket call scheduled for September 2022. A separate FTSI case had an earlier approximately $33 million judgment reversed on appeal and remanded for a new trial; insurance carriers were appealing an appellate finding, and the company did not expect a material adverse effect. A $4.0 million litigation accrual was recorded in Q2. IPO-related deemed stock compensation was also a significant expense.
- Other obligations: A tax receivable agreement generally entitles certain holders to 85% of qualifying tax savings. The company estimated that early termination or a change of control could require an immediate payment exceeding $500 million. The Q2 filing also reports a $15.6 million accrued tax distribution to redeemable noncontrolling holders.
- Forward-looking results remain exposed to energy prices and activity, customer concentration/defaults, competition, financing and refinancing needs, acquisitions and integration, regulation, operational hazards, supply costs, and merger completion and financing risks.
Investor verification priorities
- Track cash conversion and working-capital demands, particularly the increase in receivables and inventories, against reported operating cash flow.
- Confirm actual borrowings, interest costs, covenant headroom and liquidity after the July financing amendments, Monahans acquisition and any USWS financing.
- Reconcile consolidated earnings and Adjusted EBITDA to income attributable to ProFrac Holding shareholders, including Flotek and redeemable noncontrolling interests.
- Monitor USWS shareholder approval, closing conditions, total debt repayment and stock dilution; verify the final transaction consideration and funding.
- Assess whether the capital budget, electric-fleet and sand-mine projects remain within plan and are supported by customer commitments and cash flow.
- Review final acquisition accounting, Flotek’s performance and liquidity limitations, litigation developments, and the potential timing and amount of tax receivable agreement payments.