ProPetro Holding Corp. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. ProPetro provides hydraulic fracturing, wireline and cementing services, primarily in the Permian Basin. Results include Silvertip wireline operations, acquired in November 2022; coiled tubing operations were discontinued in September 2022.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $435.2 million | $315.1 million | $858.8 million | $597.8 million |
| Operating income (loss) | $52.5 million | ($40.3 million) | $93.9 million | ($34.5 million) |
| Net income (loss) | $39.3 million | ($32.9 million) | $68.0 million | ($21.0 million) |
| Diluted EPS | $0.34 | ($0.32) | $0.59 | ($0.20) |
| Adjusted EBITDA (non-GAAP) | $112.8 million | $75.9 million | $232.0 million | $142.5 million |
| Adjusted EBITDA margin | 25.9% | 24.1% | 27.0% | 23.8% |
Revenue rose 38.1% in Q2 and 43.7% for the first half, reflecting higher customer activity, improved pricing and the addition of wireline services. Wireline contributed $63.8 million of Q2 revenue growth and $126.4 million of first-half growth. Hydraulic fracturing accounted for about 79% of revenue; wireline for 14.7% and cementing for about 6.3%.
Cost of services increased 36.1% in Q2 and 39.0% year to date, with higher activity, consumables, inflation and acquired wireline costs. Management cited improved utilization, operational efficiencies and pricing as supporting lower service-cost ratios. The company reported no impairment expense in 2023, versus a $57.5 million DuraStim equipment impairment in the first half of 2022.
Cash flow, balance sheet and capital allocation
- First-half operating cash flow was $187.0 million, compared with $103.3 million a year earlier. Investing cash outflow was $221.7 million, including $223.8 million of capital expenditures. Cash, cash equivalents and restricted cash declined to $62.1 million from $88.9 million at year-end.
- At June 30, cash and restricted cash included $12.2 million restricted for customer-contract expenditures. Total liquidity was approximately $169.6 million: $62.1 million of cash and $107.5 million of ABL availability.
- Long-term debt was $60.0 million, up from $30.0 million at December 31, 2022. The June amendment increased stated ABL capacity to $225 million and extended maturity to June 2, 2028; the borrowing base was approximately $173.5 million. The facility is secured by substantially all company assets. The reported six-month weighted average borrowing rate was 6.21%.
- In July, ProPetro repaid $15 million of borrowings; it reported July 31 liquidity of approximately $175.2 million. These are post-quarter figures.
- The board authorized a $100 million repurchase program through May 31, 2024. In Q2, the company repurchased and retired 2.3 million shares for $17.5 million, averaging $7.63 per share; $82.5 million remained authorized at quarter-end.
Changes, outlook and notable items
- Effective January 1, 2023, ProPetro changed estimated useful lives for certain equipment and began expensing replacement fluid ends rather than capitalizing them. The change reduced Q2 and first-half net income by $3.9 million and $7.3 million, respectively. Shorter useful lives also increased depreciation; premature power-end failures contributed $24.3 million of first-half depreciation.
- Management described a 3% decline in Permian rig count from January through June 2023, contributing to reduced service demand and pricing pressure. It also cited inflation, labor and equipment costs, supply-chain constraints, commodity-price volatility and potential recessionary conditions as risks. Fourth-quarter seasonality may reduce activity.
- ProPetro had received 390,000 of 452,500 HHP of committed Tier IV DGB equipment and expected the remaining 62,500 HHP by year-end. Management expected lower-emissions equipment to reach about 65% of its hydraulic-fracturing portfolio by year-end 2023, compared with about 35% in 2022. Delivery of most of four leased electric fleets was expected in the second half of 2023.
- Disclosed commitments include approximately $96.4 million for electric-fleet leases, $59.6 million for a power-equipment lease, $16.4 million for remaining 2023 Tier IV DGB purchases and a $29.2 million remaining sand take-or-pay commitment. These commitments add to capital and liquidity requirements.
- First-half asset-disposal losses were $25.1 million, including losses related to equipment decommissioning/conversion and a March wellsite fire. ProPetro is self-insured up to $10 million per occurrence for certain wellsite fire or explosion losses.
- The Logan shareholder class-action settlement received final court approval in May 2023; insurers funded the settlement. Several Texas tax audits were ongoing or planned, and their outcomes could not be reasonably estimated. A July 2023 agreement to sell the corporate office property was expected to generate approximately $5.0 million, subject to customary closing requirements.
- No formal earnings or capital-expenditure guidance is stated in the filing. Management said future capital spending depends on activity, emissions requirements, customer demand and market conditions. It cautioned that cash flows may not be sufficient to maintain planned spending and share repurchases.
Important facts for investors to verify
- Whether customer activity and pricing remain resilient given the reported rig-count decline and oil-market uncertainty.
- Actual spending, delivery timing and utilization of Tier IV DGB and electric fleets, and returns on these investments and lease commitments.
- ABL borrowing-base availability, covenant headroom and liquidity after debt repayment, capital expenditures and repurchases.
- Effects of the useful-life estimate change, equipment failures and fire-related losses on future costs, depreciation and cash needs.
- Progress and cost of the share repurchase program, including the impact on liquidity and the applicable excise tax.
- Outcomes of tax audits and any material developments in legal, environmental or insurance matters.