Cactus, Inc. — Q1 2022 Form 10-Q
Business context and period. The filing reports unaudited results for the three months ended March 31, 2022. Cactus designs, manufactures, sells and rents wellhead and pressure-control equipment and provides related field services, primarily to oil and gas customers. It operates in one business segment.
Key financial metrics
Amounts are in millions, except per-share data and percentages.
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $145.9 | $84.4 | +72.8% |
| Operating income | $31.0 | $11.6 | +166% |
| Operating margin | 21.2% | 13.8% | +7.4 percentage points |
| Net income | $27.1 | $15.1 | +78.9% |
| Net income attributable to Cactus, Inc. | $20.6 | $11.6 | +78.4% |
| Class A EPS, basic / diluted | $0.35 / $0.34 | $0.24 / $0.19 | |
| Operating cash flow | $17.2 | $15.7 | |
| Cash and equivalents at period end | $297.7 | $292.0 | Compared with March 31, 2021 |
| Debt outstanding | None | None |
Revenue mix in Q1 2022 was product sales $94.0 million (65%), rentals $22.3 million (15%), and field service and other $29.5 million (20%). Capital expenditures and other investing outflows were $7.7 million; net cash used in investing was $7.3 million. Financing activities used $14.2 million, including $6.7 million of dividends paid. Cash declined $3.9 million from year-end 2021.
At March 31, 2022, current assets were $546.4 million and current liabilities were $102.5 million. The company had no borrowings under its $75 million asset-based revolver, reported the full $75 million as available capacity, and was in compliance with its covenants. The total tax receivable agreement liability was $295.4 million, including $11.8 million current.
Material changes versus comparable periods
- Year over year, product revenue rose 81%, rental revenue 79%, and field-service and other revenue 48%, reflecting higher customer drilling, completion, rental and service activity, along with cost-recovery efforts.
- Costs also increased: total costs and expenses rose 57.9% year over year, including higher materials, freight, wages, fuel and other activity-related costs. Revenue growth outpaced expense growth, lifting operating margin to 21.2% from 13.8%.
- Compared with Q4 2021, revenue increased 12.3% and operating income increased 20.5%. Net income attributable to Cactus increased 37.2% sequentially; the company attributed the change in other expense primarily to non-cash remeasurement of its TRA liability.
- Income tax expense was $2.7 million, versus a $4.1 million tax benefit in Q1 2021. The prior-year benefit included a partial valuation allowance release; Q1 2022 included tax benefits related to equity compensation, deferred-tax remeasurement and CW Unit redemptions.
Outlook, commentary and risks
- Management estimated 2022 net capital expenditures of $20 million to $30 million. It stated cash on hand, operating cash flow and available revolver borrowings should be sufficient for at least the next 12 months. No revenue or earnings guidance was provided in the filing.
- Management reported higher commodity prices and rising U.S. onshore rig activity, including a Q1 weekly average of 616 rigs versus 377 a year earlier. It also noted that activity remained below 2019 levels and that recent rig additions were concentrated among private E&P operators.
- Inflation, steel and component costs, freight expense, shipping delays, supply constraints and labor costs were pressuring the business. Management cautioned that elevated commodity and freight costs might not normalize in 2022 and could weigh on margins absent successful cost recovery.
- The Ukraine conflict, volatile energy prices, potential recession, COVID-related disruptions, customer activity and spending, supply-chain interruptions, and raw-material availability are among the stated uncertainties. The company added a specific risk factor concerning the Ukraine conflict.
- The TRA generally entitles holders to 85% of specified realized or deemed tax savings. Early termination or certain change-of-control events could accelerate a substantial payment. Management said ordinary-course litigation was not expected to materially affect the company.
- The company declared $0.11 per Class A share in dividends during the quarter. It repurchased 79,431 shares from employees to meet tax withholding obligations on vested awards; this was not described as a discretionary repurchase program.
Important facts for investors to verify
- Whether customer activity and commodity-price conditions support continued revenue growth, particularly as private-operator activity and rig efficiencies change.
- Whether pricing and cost-recovery actions can offset continued inflation in materials, freight, labor and other operating inputs.
- How working-capital needs, including inventory and in-transit stock, affect operating cash flow and planned capital spending.
- The expected timing and amount of TRA payments, and the potential financial effect of acceleration upon early termination or specified transactions.
- Whether the $20 million to $30 million 2022 net-capex estimate and the stated liquidity outlook remain current; the filing provides no specific earnings or revenue forecast.