November 26, 2020

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Cactus Announces First Quarter 2020 Results

HOUSTON--(BUSINESS WIRE)--Cactus, Inc. (NYSE: WHD) (“Cactus” or the “Company”) today announced financial and operating results for the first quarter of 2020. Highlights Increased revenues 9.9% from fourth quarter 2019 to $154.1 million, with growth across all business lines; Grew income from operations 11.4% sequentially to $40.2 million; Reported net income of $33.1 million(1) and diluted earnings per Class A share of $0.40(1); Generated net income, as adjusted(2) of $30.8 million and diluted earnings per share, as adjusted(2) of $0.41; Reported Adjusted EBITDA(3) and related margin(4) of $54.1 million and 35.1%, respectively; Generated cash flow from operations during the first quarter of 2020 of $45.2 million; Reported cash balance of $230 million and no debt outstanding as of March 31, 2020; Reported record U.S. land market share of 32.9%, up from 30.9% during the fourth quarter of 2019; Announced measures expected to increase total annualized operating cost savings to approximately $60 million from the $35 million previously announced; and The Board of Directors declared a quarterly cash dividend of $0.09 per share. Financial Summary Three Months Ended March 31, December 31, March 31, 2020 2019 2019 (in thousands) Revenues $ 154,139 $ 140,238 $ 158,875 Income from operations $ 40,185 $ 36,085 $ 48,492 Operating income margin 26.1 % 25.7 % 30.5 % Net income (1) $ 33,098 $ 31,274 $ 48,446 Net income, as adjusted (2) $ 30,785 $ 27,721 $ 36,871 Adjusted EBITDA (3) $ 54,145 $ 48,413 $ 59,049 Adjusted EBITDA margin (4) 35.1 % 34.5 % 37.2 % (1) Net income during the first quarter of 2020 is inclusive of $1.0 million in non-routine charges related to severance incurred in connection with workforce reduction initiatives undertaken during the first quarter. Net income during the fourth quarter of 2019 is inclusive of $4.8 million in additional income related to the revaluation of the tax receivable agreement liability and $2.7 million of net additional tax expenses associated with various non-routine items. Net income during the first quarter of 2019 is inclusive of a deferred tax benefit of $8.2 million which resulted in a total income tax benefit of $1.0 million during the quarter and $1.0 million in secondary offering related expenses. (2) Net income, as adjusted and diluted earnings per share, as adjusted are non-GAAP financial measures. These figures assume Cactus, Inc. held all units in Cactus Wellhead, LLC (“Cactus LLC”), its operating subsidiary, at the beginning of the period. Additional information regarding net income, as adjusted and diluted earnings per share, as adjusted and the reconciliation of GAAP to non-GAAP financial measures are in the Supplemental Information tables. (3) Adjusted EBITDA is a non-GAAP financial measure. See definition of Adjusted EBITDA and the reconciliation of GAAP to non-GAAP financial measures in the Supplemental Information tables. (4) The percentage of Adjusted EBITDA to Revenues. Scott Bender, President and CEO of Cactus, commented, “Our outperformance versus broader oilfield activity levels during the first quarter was encouraging, and Cactus posted revenue growth across all business lines, even as U.S. rig activity declined on a sequential basis. Despite the noticeable drop in activity toward the end of the quarter, our results were generally consistent with our expectations. In late March, Cactus demonstrated its strategy of quickly responding to the macroeconomic environment, by reducing its cost structure and capital expenditures. The quarter also highlighted the Company’s ability to generate significant free cash flow, with cash growing by approximately $28 million during the period, net of over $6 million in dividends and associated distributions. “Given the magnitude of the activity change, we are expecting lower revenues and margins across all of our business lines in the second quarter. With crude storage nearing full capacity and predictions for the U.S. rig count to continue falling at a historic rate, Cactus has instituted a second round of cost savings, which will reduce U.S. headcount by an additional 28 percent and increase total annualized payroll related costs savings to approximately $60 million, $25 million above the amount announced in early April. With customer drilling and completion activity currently in sharp decline, we expect subsequent quarters to highlight Cactus’ variable cost structure and ability to offset a meaningful portion of the expected reduction in revenue.” Mr. Bender concluded, “Cactus demonstrated its ability to deliver positive margins and free cash flow during the last industry downturn. Going forward, we believe the capital-light nature of the business and strong balance sheet will enable the company to successfully navigate through this cycle. We believe the anticipated industry changes will provide the opportunity to gain market share and emerge as a stronger company in a more favorable competitive environment. As always, our first priority will be the health and safety of our Associates, and we will continue to operate the business with a focus on improving our operational processes while maximizing returns and free cash flow.” Revenue Categories Product Three Months Ended March 31, December 31, March 31, 2020 2019 2019 (in thousands) Product revenue $ 87,031 $ 83,371 $ 86,640 Gross profit $ 30,896 $ 31,059 $ 33,622 Gross margin 35.5 % 37.3 % 38.8 % First quarter 2020 product revenue increased $3.7 million, or 4.4%, sequentially, as sales of wellhead equipment and production related equipment increased largely due to higher market share. Gross profit decreased $0.2 million, or 0.5%, sequentially, with margins declining 180 basis points. The first quarter of 2020 included approximately $1.4 million in non-cash charges related to inventory obsolescence reserves. Cactus’ estimated market share(1) increased to 32.9% in the first quarter of 2020 versus 30.9% during the fourth quarter of 2019 and 29.1% during the first quarter of 2019. (1) Additional information regarding market share and rigs followed is located in the Supplemental Information tables. Rental Three Months Ended March 31, December 31, March 31, 2020 2019 2019 (in thousands) Rental revenue $ 36,163 $ 28,215 $ 38,497 Gross profit $ 16,824 $ 12,821 $ 20,706 Gross margin 46.5 % 45.4 % 53.8 % First quarter 2020 rental revenue increased $7.9 million, or 28.2%, sequentially, as customers increased completion activity and the Company witnessed greater adoption of its recent innovations. Gross profit increased $4.0 million, or 31.2%, sequentially and margins increased 110 basis points largely due to depreciation expense representing a lower percentage of revenue during the period. Field Service and Other Three Months Ended March 31, December 31, March 31, 2020 2019 2019 (in thousands) Field service and other revenue $ 30,945 $ 28,652 $ 33,738 Gross profit $ 7,134 $ 4,594 $ 6,832 Gross margin 23.1 % 16.0 % 20.3 % First quarter 2020 field service and other revenue increased $2.3 million, or 8.0%, sequentially, as higher customer activity drove an increase in associated billable hours and ancillary services. Gross profit increased $2.5 million, or 55.3%, sequentially, with margins improving by 710 basis points sequentially due to higher labor utilization during the quarter, largely due to the impacts of fewer holidays and greater customer activity. Selling, General and Administrative Expenses (“SG&A”) and Other SG&A for the first quarter of 2020 was $13.7 million (8.9% of revenues), compared to $12.4 million (8.8% of revenues) for the fourth quarter of 2019 and $12.7 million (8.0% of revenues) for the first quarter of 2019. The first quarter of 2020 includes a $0.6 million non-cash charge associated with a provision for expected credit losses on accounts receivable. Apart from this charge, the sequential increase was due to higher foreign exchange losses and stock-based compensation, which offset lower incentive compensation expense accruals. Separately, we recorded severance expenses of $1.0 million during the first quarter of 2020 associated with headcount reductions. Liquidity and Capital Expenditures As of March 31, 2020, the Company had $230.2 million of cash, no bank debt outstanding and the full $75.0 million of capacity available under its revolving credit facility. Operating cash flow was $45.2 million for the first quarter of 2020, attributable to strong operating results, which offset an increase in working capital. During the first quarter, the Company made dividend payments and associated distributions of $6.5 million. Net capital expenditures for the first quarter of 2020 were $8.3 million, driven largely by additions to the Company’s fleet of rental equipment, including recent innovations. As previously disclosed, the Company expects full year 2020 net capital expenditures to be in the range of $20 to $30 million, with the majority weighted toward the first six months of the year. Quarterly Dividend The Board of Directors (the “Board”) has approved the payment of a cash dividend of $0.09 per share of Class A common stock to be paid on June 18, 2020 to holders of record of Class A common stock at the close of business on June 1, 2020. A corresponding distribution of $0.09 per CW Unit has also been approved for holders of CW Units of Cactus Wellhead, LLC, which will have the same record and payment dates as applicable to the dividend declared with respect to the Company’s Class A common stock. Conference Call Details The Company will host a conference call to discuss financial and operational results tomorrow, Thursday, April 30, 2020 at 9:00 a.m. Central Time (10:00 a.m. Eastern Time). The call will be webcast on Cactus’ website at www.CactusWHD.com. Institutional investors and analysts may participate by dialing (866) 670-2203. International parties may dial (630) 489-9861. The access code is 1375824. Please access the webcast or dial in for the call at least 10 minutes ahead of start time to ensure a proper connection. An archived webcast of the conference call will be available on the Company’s website shortly after the end of the call. About Cactus, Inc. Cactus designs, manufactures, sells and rents a range of highly engineered wellhead and pressure control equipment. Its products are sold and rented principally for onshore unconventional oil and gas wells and are utilized during the drilling, completion and production phases of its customers' wells. In addition, it provides field services for all its products and rental items to assist with the installation, maintenance and handling of the wellhead and pressure control equipment. Cactus operates service centers in the United States, which are strategically located in the key oil and gas producing regions, including the Permian, SCOOP/STACK, Marcellus, Utica, Eagle Ford and Bakken, among other areas, and in Eastern Australia. Cautionary Statement Concerning Forward-Looking Statements Certain statements contained in this press release constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of Cactus’ control, that could cause actual results to differ materially from the results discussed in the forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology including “may,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “continue,” “potential,” “will,” “hope” or other similar words and include the Company’s expectation of future performance contained herein. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state other “forward-looking” information. You are cautioned not to place undue reliance on any forward-looking statements, which can be affected by assumptions used or by known risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other factors noted in the Company’s Annual Report on Form 10-K, any Quarterly Reports on Form 10-Q and the other documents that the Company files with the Securities and Exchange Commission. The risk factors and other factors noted therein could cause actual results to differ materially from those contained in any forward-looking statement. Cactus, Inc. Condensed Consolidated Statements of Income (unaudited) Three Months Ended March 31, 2020 2019 (in thousands, except per share data) Revenues Product revenue $ 87,031 $ 86,640 Rental revenue 36,163 38,497 Field service and other revenue 30,945 33,738 Total revenues 154,139 158,875 Costs and expenses Cost of product revenue 56,135 53,018 Cost of rental revenue 19,339 17,791 Cost of field service and other revenue 23,811 26,906 Selling, general and administrative expenses 13,662 12,668 Severance expenses 1,007 - Total costs and expenses 113,954 110,383 Income from operations 40,185 48,492 Interest income, net 410 23 Other expense, net - (1,042) Income before income taxes 40,595 47,473 Income tax expense (benefit) 7,497 (973) Net income $ 33,098 $ 48,446 Less: net income attributable to non-controlling interest 14,115 21,639 Net income attributable to Cactus Inc. $ 18,983 $ 26,807 Earnings per Class A share – basic $ 0.40 $ 0.69 Earnings per Class A share - diluted (a) $ 0.40 $ 0.59 Weighted average shares outstanding - basic 47,270 38,719 Weighted average shares outstanding - diluted (a) 75,395 75,246 (a) Dilution for the three months ended March 31, 2020 and March 31, 2019 includes $15.1 million and $23.0 million of additional pre-tax income attributable to non-controlling interest adjusted for a corporate effective tax rate of 26% and 24%, respectively, and 28.0 million and 36.3 million weighted average shares of Class B common stock plus the effect of dilutive securities. Cactus, Inc. Condensed Consolidated Balance Sheets (unaudited) March 31, December 31, 2020 2019 (in thousands) Assets Current assets Cash and cash equivalents $ 230,202 $ 202,603 Accounts receivable, net 95,236 87,865 Inventories 100,301 113,371 Prepaid expenses and other current assets 9,535 11,044 Total current assets 435,274 414,883 Property and equipment, net 162,871 161,748 Operating lease right-of-use assets, net 24,872 26,561 Goodwill 7,824 7,824 Deferred tax asset, net 217,916 222,545 Other noncurrent assets 1,338 1,403 Total assets $ 850,095 $ 834,964 Liabilities and Equity Current liabilities Accounts payable $ 34,476 $ 40,957 Accrued expenses and other current liabilities 19,275 22,067 Current portion of liability related to tax receivable agreement 14,630 14,630 Finance lease obligations, current portion 6,498 6,735 Operating lease liabilities, current portion 6,535 6,737 Total current liabilities 81,414 91,126 Deferred tax liability, net 1,511 1,348 Liability related to tax receivable agreement, net of current portion 201,902 201,902 Finance lease obligations, net of current portion 4,033 3,910 Operating lease liabilities, net of current portion 18,809 20,283 Total liabilities 307,669 318,569 Equity 542,426 516,395 Total liabilities and equity $ 850,095 $ 834,964 Cactus, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) Three Months Ended March 31, 2020 2019 (in thousands) Cash flows from operating activities Net income $ 33,098 $ 48,446 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization 10,980 8,881 Deferred financing cost amortization 42 42 Stock-based compensation 1,973 1,676 Provision for expected credit losses 625 - Inventory obsolescence 1,353 224 Loss on disposal of assets 961 863 Deferred income taxes 4,848 (2,796) Changes in operating assets and liabilities: Accounts receivable (8,244) (15,597) Inventories 8,306 (8,875) Prepaid expenses and other assets 1,497 2,156 Accounts payable (8,142) 192 Accrued expenses and other liabilities (2,136) (973) Net cash provided by operating activities 45,161 34,239 Cash flows from investing activities Capital expenditures and other (9,441) (14,655) Proceeds from sale of assets 1,103 808 Net cash used in investing activities (8,338) (13,847) Cash flows from financing activities Payments on finance leases (1,764) (1,846) Dividends paid to Class A common stock shareholders (4,281) - Distributions to members (2,203) (235) Repurchase of shares (1,356) (1,474) Net cash used in financing activities (9,604) (3,555) Effect of exchange rate changes on cash and cash equivalents 380 438 Net increase in cash and cash equivalents 27,599 17,275 Cash and cash equivalents Beginning of period 202,603 70,841 End of period $ 230,202 $ 88,116 Cactus, Inc. – Supplemental Information Reconciliation of GAAP to non-GAAP Financial Measures Net income, as adjusted and diluted earnings per share, as adjusted (unaudited) Net income, as adjusted and diluted earnings per share, as adjusted are not measures of net income as determined by GAAP. Net income, as adjusted and diluted earnings per share, as adjusted are supplemental non-GAAP financial measures that are used by management and external users of the Company’s consolidated financial statements. Cactus defines net income, as adjusted as net income assuming Cactus, Inc. held all units in Cactus LLC, its operating subsidiary, at the beginning of the period, with the resulting additional income tax expense related to the incremental income attributable to Cactus, Inc. Net income, as adjusted, also includes certain other adjustments described below. Cactus defines diluted earnings per share, as adjusted as net income, as adjusted divided by weighted average shares outstanding, as adjusted. The Company believes this supplemental information is useful for evaluating performance period over period. Three Months Ended March 31, December 31, March 31, 2020 2019 2019 (in thousands, except per share data) Net income $ 33,098 $ 31,274 $ 48,446 Adjustments: Severance expenses, pre-tax (1) 1,007 - - Other non-operating income, pre-tax (2) - (4,778 ) - Secondary offering related expenses, pre-tax (3) - - 1,042 Income tax expense differential (4) (3,320 ) 1,225 (12,617 ) Net income, as adjusted $ 30,785 $ 27,721 $ 36,871 Diluted earnings per share, as adjusted $ 0.41 $ 0.37 $ 0.49 Weighted average shares outstanding, as adjusted (5) 75,395 75,405 75,246 (1) Represents non-routine charges related to severance benefits. (2) Represents non-cash adjustments for the revaluation of the liability related to the tax receivable agreement. (3) Reflects fees and expenses recorded in first quarter 2019 in connection with the offering of Class A common stock by certain selling stockholders, excluding underwriting discounts and selling commissions incurred by the selling stockholders. (4) Represents the increase or decrease in tax expense as though Cactus, Inc. owned 100% of Cactus LLC at the beginning of the period, calculated as the difference in tax expense recorded during each period and what would have been recorded, adjusted for pre-tax items listed above, based on a corporate effective tax rate of 26.0% on income before income taxes for the three months ended March 31, 2020, and 24.0% for the three months ended December 31, 2019 and March 31, 2019. (5) Reflects 47.3, 47.1, and 38.7 million weighted average shares of basic Class A common stock and 28.0, 28.0 and 36.3 million of additional shares for the three months ended March 31, 2020, December 31, 2019, and March 31, 2019, respectively, as if the weighted average shares of Class B common stock were exchanged and canceled for Class A common stock at the beginning of the period, plus the effect of dilutive securities. Cactus, Inc. – Supplemental Information Reconciliation of GAAP to non-GAAP Financial Measures EBITDA and Adjusted EBITDA (unaudited) EBITDA and Adjusted EBITDA are not measures of net income as determined by GAAP. EBITDA and Adjusted EBITDA are supplemental non‑GAAP financial measures that are used by management and external users of the Company’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. Cactus defines EBITDA as net income excluding net interest, income tax and depreciation and amortization. Cactus defines Adjusted EBITDA as EBITDA excluding the other items outlined below. Cactus management believes EBITDA and Adjusted EBITDA are useful because they allow management to more effectively evaluate the Company’s operating performance and compare the results of its operations from period to period without regard to financing methods or capital structure, or other items that impact comparability of financial results from period to period. EBITDA and Adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or any other measure as determined in accordance with GAAP. The Company’s computations of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Cactus presents EBITDA and Adjusted EBITDA because it believes they provide useful information regarding the factors and trends affecting the Company’s business. Three Months Ended March 31, December 31, March 31, 2020 2019 2019 (in thousands) Net income $ 33,098 $ 31,274 $ 48,446 Interest income, net (410 ) (390 ) (23 ) Income tax expense (benefit) 7,497 9,979 (973 ) Depreciation and amortization 10,980 10,590 8,881 EBITDA 51,165 51,453 56,331 Severance expenses (1) 1,007 - - Other non-operating income (2) - (4,778 ) - Secondary offering related expenses (3) - - 1,042 Stock-based compensation 1,973 1,738 1,676 Adjusted EBITDA $ 54,145 $ 48,413 $ 59,049 (1) Represents non-routine charges related to severance benefits. (2) Represents non-cash adjustments for the revaluation of the liability related to the tax receivable agreement. (3) Reflects fees and expenses recorded in first quarter 2019 in connection with the offering of Class A common stock by certain selling stockholders, excluding underwriting discounts and selling commissions incurred by the selling stockholders. Cactus, Inc. – Supplemental Information Depreciation and Amortization by Category (unaudited) Three Months Ended March 31, December 31, March 31, 2020 2019 2019 (in thousands) Cost of product revenue $ 1,028 $ 893 $ 765 Cost of rental revenue 7,342 7,014 5,517 Cost of field service and other revenue 2,385 2,500 2,450 Selling, general and administrative expenses 225 183 149 Total depreciation and amortization $ 10,980 $ 10,590 $ 8,881 Contacts Cactus, Inc.John Fitzgerald, 713-904-4655 Director of Corporate Development and Investor Relations [email protected] Read full story here

HOUSTON–(BUSINESS WIRE)–Cactus, Inc. (NYSE: WHD) (“Cactus” or the “Company”) today announced financial and operating results for the first quarter of 2020.

Highlights

  • Increased revenues 9.9% from fourth quarter 2019 to $154.1 million, with growth across all business lines;
  • Grew income from operations 11.4% sequentially to $40.2 million;
  • Reported net income of $33.1 million(1) and diluted earnings per Class A share of $0.40(1);
  • Generated net income, as adjusted(2) of $30.8 million and diluted earnings per share, as adjusted(2) of $0.41;
  • Reported Adjusted EBITDA(3) and related margin(4) of $54.1 million and 35.1%, respectively;
  • Generated cash flow from operations during the first quarter of 2020 of $45.2 million;
  • Reported cash balance of $230 million and no debt outstanding as of March 31, 2020;
  • Reported record U.S. land market share of 32.9%, up from 30.9% during the fourth quarter of 2019;
  • Announced measures expected to increase total annualized operating cost savings to approximately $60 million from the $35 million previously announced; and
  • The Board of Directors declared a quarterly cash dividend of $0.09 per share.

Financial Summary

Three Months Ended

March 31,

December 31,

March 31,

2020

2019

2019

(in thousands)

Revenues

$

154,139

$

140,238

$

158,875

Income from operations

$

40,185

$

36,085

$

48,492

Operating income margin

26.1

%

25.7

%

30.5

%

Net income (1)

$

33,098

$

31,274

$

48,446

Net income, as adjusted (2)

$

30,785

$

27,721

$

36,871

Adjusted EBITDA (3)

$

54,145

$

48,413

$

59,049

Adjusted EBITDA margin (4)

35.1

%

34.5

%

37.2

%

(1)

Net income during the first quarter of 2020 is inclusive of $1.0 million in non-routine charges related to severance incurred in connection with workforce reduction initiatives undertaken during the first quarter. Net income during the fourth quarter of 2019 is inclusive of $4.8 million in additional income related to the revaluation of the tax receivable agreement liability and $2.7 million of net additional tax expenses associated with various non-routine items. Net income during the first quarter of 2019 is inclusive of a deferred tax benefit of $8.2 million which resulted in a total income tax benefit of $1.0 million during the quarter and $1.0 million in secondary offering related expenses.

(2)

Net income, as adjusted and diluted earnings per share, as adjusted are non-GAAP financial measures. These figures assume Cactus, Inc. held all units in Cactus Wellhead, LLC (“Cactus LLC”), its operating subsidiary, at the beginning of the period. Additional information regarding net income, as adjusted and diluted earnings per share, as adjusted and the reconciliation of GAAP to non-GAAP financial measures are in the Supplemental Information tables.

(3)

Adjusted EBITDA is a non-GAAP financial measure. See definition of Adjusted EBITDA and the reconciliation of GAAP to non-GAAP financial measures in the Supplemental Information tables.

(4)

The percentage of Adjusted EBITDA to Revenues.

Scott Bender, President and CEO of Cactus, commented, “Our outperformance versus broader oilfield activity levels during the first quarter was encouraging, and Cactus posted revenue growth across all business lines, even as U.S. rig activity declined on a sequential basis. Despite the noticeable drop in activity toward the end of the quarter, our results were generally consistent with our expectations. In late March, Cactus demonstrated its strategy of quickly responding to the macroeconomic environment, by reducing its cost structure and capital expenditures. The quarter also highlighted the Company’s ability to generate significant free cash flow, with cash growing by approximately $28 million during the period, net of over $6 million in dividends and associated distributions.

“Given the magnitude of the activity change, we are expecting lower revenues and margins across all of our business lines in the second quarter. With crude storage nearing full capacity and predictions for the U.S. rig count to continue falling at a historic rate, Cactus has instituted a second round of cost savings, which will reduce U.S. headcount by an additional 28 percent and increase total annualized payroll related costs savings to approximately $60 million, $25 million above the amount announced in early April. With customer drilling and completion activity currently in sharp decline, we expect subsequent quarters to highlight Cactus’ variable cost structure and ability to offset a meaningful portion of the expected reduction in revenue.”

Mr. Bender concluded, “Cactus demonstrated its ability to deliver positive margins and free cash flow during the last industry downturn. Going forward, we believe the capital-light nature of the business and strong balance sheet will enable the company to successfully navigate through this cycle. We believe the anticipated industry changes will provide the opportunity to gain market share and emerge as a stronger company in a more favorable competitive environment. As always, our first priority will be the health and safety of our Associates, and we will continue to operate the business with a focus on improving our operational processes while maximizing returns and free cash flow.”

Revenue Categories

Product

Three Months Ended

March 31,

December 31,

March 31,

2020

2019

2019

(in thousands)

Product revenue

$

87,031

$

83,371

$

86,640

Gross profit

$

30,896

$

31,059

$

33,622

Gross margin

35.5

%

37.3

%

38.8

%

First quarter 2020 product revenue increased $3.7 million, or 4.4%, sequentially, as sales of wellhead equipment and production related equipment increased largely due to higher market share. Gross profit decreased $0.2 million, or 0.5%, sequentially, with margins declining 180 basis points. The first quarter of 2020 included approximately $1.4 million in non-cash charges related to inventory obsolescence reserves. Cactus’ estimated market share(1) increased to 32.9% in the first quarter of 2020 versus 30.9% during the fourth quarter of 2019 and 29.1% during the first quarter of 2019.

(1) Additional information regarding market share and rigs followed is located in the Supplemental Information tables.

Rental

Three Months Ended

March 31,

December 31,

March 31,

2020

2019

2019

(in thousands)

Rental revenue

$

36,163

$

28,215

$

38,497

Gross profit

$

16,824

$

12,821

$

20,706

Gross margin

46.5

%

45.4

%

53.8

%

First quarter 2020 rental revenue increased $7.9 million, or 28.2%, sequentially, as customers increased completion activity and the Company witnessed greater adoption of its recent innovations. Gross profit increased $4.0 million, or 31.2%, sequentially and margins increased 110 basis points largely due to depreciation expense representing a lower percentage of revenue during the period.

Field Service and Other

Three Months Ended

March 31,

December 31,

March 31,

2020

2019

2019

(in thousands)

Field service and other revenue

$

30,945

$

28,652

$

33,738

Gross profit

$

7,134

$

4,594

$

6,832

Gross margin

23.1

%

16.0

%

20.3

%

First quarter 2020 field service and other revenue increased $2.3 million, or 8.0%, sequentially, as higher customer activity drove an increase in associated billable hours and ancillary services. Gross profit increased $2.5 million, or 55.3%, sequentially, with margins improving by 710 basis points sequentially due to higher labor utilization during the quarter, largely due to the impacts of fewer holidays and greater customer activity.

Selling, General and Administrative Expenses (“SG&A”) and Other

SG&A for the first quarter of 2020 was $13.7 million (8.9% of revenues), compared to $12.4 million (8.8% of revenues) for the fourth quarter of 2019 and $12.7 million (8.0% of revenues) for the first quarter of 2019. The first quarter of 2020 includes a $0.6 million non-cash charge associated with a provision for expected credit losses on accounts receivable. Apart from this charge, the sequential increase was due to higher foreign exchange losses and stock-based compensation, which offset lower incentive compensation expense accruals. Separately, we recorded severance expenses of $1.0 million during the first quarter of 2020 associated with headcount reductions.

Liquidity and Capital Expenditures

As of March 31, 2020, the Company had $230.2 million of cash, no bank debt outstanding and the full $75.0 million of capacity available under its revolving credit facility. Operating cash flow was $45.2 million for the first quarter of 2020, attributable to strong operating results, which offset an increase in working capital. During the first quarter, the Company made dividend payments and associated distributions of $6.5 million.

Net capital expenditures for the first quarter of 2020 were $8.3 million, driven largely by additions to the Company’s fleet of rental equipment, including recent innovations. As previously disclosed, the Company expects full year 2020 net capital expenditures to be in the range of $20 to $30 million, with the majority weighted toward the first six months of the year.

Quarterly Dividend

The Board of Directors (the “Board”) has approved the payment of a cash dividend of $0.09 per share of Class A common stock to be paid on June 18, 2020 to holders of record of Class A common stock at the close of business on June 1, 2020. A corresponding distribution of $0.09 per CW Unit has also been approved for holders of CW Units of Cactus Wellhead, LLC, which will have the same record and payment dates as applicable to the dividend declared with respect to the Company’s Class A common stock.

Conference Call Details

The Company will host a conference call to discuss financial and operational results tomorrow, Thursday, April 30, 2020 at 9:00 a.m. Central Time (10:00 a.m. Eastern Time).

The call will be webcast on Cactus’ website at www.CactusWHD.com. Institutional investors and analysts may participate by dialing (866) 670-2203. International parties may dial (630) 489-9861. The access code is 1375824. Please access the webcast or dial in for the call at least 10 minutes ahead of start time to ensure a proper connection.

An archived webcast of the conference call will be available on the Company’s website shortly after the end of the call.

About Cactus, Inc.

Cactus designs, manufactures, sells and rents a range of highly engineered wellhead and pressure control equipment. Its products are sold and rented principally for onshore unconventional oil and gas wells and are utilized during the drilling, completion and production phases of its customers' wells. In addition, it provides field services for all its products and rental items to assist with the installation, maintenance and handling of the wellhead and pressure control equipment. Cactus operates service centers in the United States, which are strategically located in the key oil and gas producing regions, including the Permian, SCOOP/STACK, Marcellus, Utica, Eagle Ford and Bakken, among other areas, and in Eastern Australia.

Cautionary Statement Concerning Forward-Looking Statements

Certain statements contained in this press release constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of Cactus’ control, that could cause actual results to differ materially from the results discussed in the forward-looking statements.

Forward-looking statements can be identified by the use of forward-looking terminology including “may,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “continue,” “potential,” “will,” “hope” or other similar words and include the Company’s expectation of future performance contained herein. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state other “forward-looking” information. You are cautioned not to place undue reliance on any forward-looking statements, which can be affected by assumptions used or by known risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other factors noted in the Company’s Annual Report on Form 10-K, any Quarterly Reports on Form 10-Q and the other documents that the Company files with the Securities and Exchange Commission. The risk factors and other factors noted therein could cause actual results to differ materially from those contained in any forward-looking statement.

Cactus, Inc.

Condensed Consolidated Statements of Income

(unaudited)

Three Months Ended March 31,

2020

2019

(in thousands, except per share data)

Revenues

Product revenue

$

87,031

$

86,640

Rental revenue

36,163

38,497

Field service and other revenue

30,945

33,738

Total revenues

154,139

158,875

Costs and expenses

Cost of product revenue

56,135

53,018

Cost of rental revenue

19,339

17,791

Cost of field service and other revenue

23,811

26,906

Selling, general and administrative expenses

13,662

12,668

Severance expenses

1,007

Total costs and expenses

113,954

110,383

Income from operations

40,185

48,492

Interest income, net

410

23

Other expense, net

(1,042)

Income before income taxes

40,595

47,473

Income tax expense (benefit)

7,497

(973)

Net income

$

33,098

$

48,446

Less: net income attributable to non-controlling interest

14,115

21,639

Net income attributable to Cactus Inc.

$

18,983

$

26,807

Earnings per Class A share – basic

$

0.40

$

0.69

Earnings per Class A share – diluted (a)

$

0.40

$

0.59

Weighted average shares outstanding – basic

47,270

38,719

Weighted average shares outstanding – diluted (a)

75,395

75,246

(a)

Dilution for the three months ended March 31, 2020 and March 31, 2019 includes $15.1 million and $23.0 million of additional pre-tax income attributable to non-controlling interest adjusted for a corporate effective tax rate of 26% and 24%, respectively, and 28.0 million and 36.3 million weighted average shares of Class B common stock plus the effect of dilutive securities.

Cactus, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

March 31,

December 31,

2020

2019

(in thousands)

Assets

Current assets

Cash and cash equivalents

$

230,202

$

202,603

Accounts receivable, net

95,236

87,865

Inventories

100,301

113,371

Prepaid expenses and other current assets

9,535

11,044

Total current assets

435,274

414,883

Property and equipment, net

162,871

161,748

Operating lease right-of-use assets, net

24,872

26,561

Goodwill

7,824

7,824

Deferred tax asset, net

217,916

222,545

Other noncurrent assets

1,338

1,403

Total assets

$

850,095

$

834,964

Liabilities and Equity

Current liabilities

Accounts payable

$

34,476

$

40,957

Accrued expenses and other current liabilities

19,275

22,067

Current portion of liability related to tax receivable agreement

14,630

14,630

Finance lease obligations, current portion

6,498

6,735

Operating lease liabilities, current portion

6,535

6,737

Total current liabilities

81,414

91,126

Deferred tax liability, net

1,511

1,348

Liability related to tax receivable agreement, net of current portion

201,902

201,902

Finance lease obligations, net of current portion

4,033

3,910

Operating lease liabilities, net of current portion

18,809

20,283

Total liabilities

307,669

318,569

Equity

542,426

516,395

Total liabilities and equity

$

850,095

$

834,964

Cactus, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

Three Months Ended March 31,

2020

2019

(in thousands)

Cash flows from operating activities

Net income

$

33,098

$

48,446

Reconciliation of net income to net cash provided by operating activities:

Depreciation and amortization

10,980

8,881

Deferred financing cost amortization

42

42

Stock-based compensation

1,973

1,676

Provision for expected credit losses

625

Inventory obsolescence

1,353

224

Loss on disposal of assets

961

863

Deferred income taxes

4,848

(2,796)

Changes in operating assets and liabilities:

Accounts receivable

(8,244)

(15,597)

Inventories

8,306

(8,875)

Prepaid expenses and other assets

1,497

2,156

Accounts payable

(8,142)

192

Accrued expenses and other liabilities

(2,136)

(973)

Net cash provided by operating activities

45,161

34,239

Cash flows from investing activities

Capital expenditures and other

(9,441)

(14,655)

Proceeds from sale of assets

1,103

808

Net cash used in investing activities

(8,338)

(13,847)

Cash flows from financing activities

Payments on finance leases

(1,764)

(1,846)

Dividends paid to Class A common stock shareholders

(4,281)

Distributions to members

(2,203)

(235)

Repurchase of shares

(1,356)

(1,474)

Net cash used in financing activities

(9,604)

(3,555)

Effect of exchange rate changes on cash and cash equivalents

380

438

Net increase in cash and cash equivalents

27,599

17,275

Cash and cash equivalents

Beginning of period

202,603

70,841

End of period

$

230,202

$

88,116

Cactus, Inc. – Supplemental Information

Reconciliation of GAAP to non-GAAP Financial Measures

Net income, as adjusted and diluted earnings per share, as adjusted

(unaudited)

Net income, as adjusted and diluted earnings per share, as adjusted are not measures of net income as determined by GAAP. Net income, as adjusted and diluted earnings per share, as adjusted are supplemental non-GAAP financial measures that are used by management and external users of the Company’s consolidated financial statements. Cactus defines net income, as adjusted as net income assuming Cactus, Inc. held all units in Cactus LLC, its operating subsidiary, at the beginning of the period, with the resulting additional income tax expense related to the incremental income attributable to Cactus, Inc. Net income, as adjusted, also includes certain other adjustments described below. Cactus defines diluted earnings per share, as adjusted as net income, as adjusted divided by weighted average shares outstanding, as adjusted. The Company believes this supplemental information is useful for evaluating performance period over period.

Three Months Ended

March 31,

December 31,

March 31,

2020

2019

2019

(in thousands, except per share data)

Net income

$

33,098

$

31,274

$

48,446

Adjustments:

Severance expenses, pre-tax (1)

1,007

Other non-operating income, pre-tax (2)

(4,778

)

Secondary offering related expenses, pre-tax (3)

1,042

Income tax expense differential (4)

(3,320

)

1,225

(12,617

)

Net income, as adjusted

$

30,785

$

27,721

$

36,871

Diluted earnings per share, as adjusted

$

0.41

$

0.37

$

0.49

Weighted average shares outstanding, as adjusted (5)

75,395

75,405

75,246

(1)

Represents non-routine charges related to severance benefits.

(2)

Represents non-cash adjustments for the revaluation of the liability related to the tax receivable agreement.

(3)

Reflects fees and expenses recorded in first quarter 2019 in connection with the offering of Class A common stock by certain selling stockholders, excluding underwriting discounts and selling commissions incurred by the selling stockholders.

(4)

Represents the increase or decrease in tax expense as though Cactus, Inc. owned 100% of Cactus LLC at the beginning of the period, calculated as the difference in tax expense recorded during each period and what would have been recorded, adjusted for pre-tax items listed above, based on a corporate effective tax rate of 26.0% on income before income taxes for the three months ended March 31, 2020, and 24.0% for the three months ended December 31, 2019 and March 31, 2019.

(5)

Reflects 47.3, 47.1, and 38.7 million weighted average shares of basic Class A common stock and 28.0, 28.0 and 36.3 million of additional shares for the three months ended March 31, 2020, December 31, 2019, and March 31, 2019, respectively, as if the weighted average shares of Class B common stock were exchanged and canceled for Class A common stock at the beginning of the period, plus the effect of dilutive securities.

Cactus, Inc. – Supplemental Information

Reconciliation of GAAP to non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

(unaudited)

EBITDA and Adjusted EBITDA are not measures of net income as determined by GAAP. EBITDA and Adjusted EBITDA are supplemental non‑GAAP financial measures that are used by management and external users of the Company’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. Cactus defines EBITDA as net income excluding net interest, income tax and depreciation and amortization. Cactus defines Adjusted EBITDA as EBITDA excluding the other items outlined below.

Cactus management believes EBITDA and Adjusted EBITDA are useful because they allow management to more effectively evaluate the Company’s operating performance and compare the results of its operations from period to period without regard to financing methods or capital structure, or other items that impact comparability of financial results from period to period. EBITDA and Adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or any other measure as determined in accordance with GAAP. The Company’s computations of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Cactus presents EBITDA and Adjusted EBITDA because it believes they provide useful information regarding the factors and trends affecting the Company’s business.

Three Months Ended

March 31,

December 31,

March 31,

2020

2019

2019

(in thousands)

Net income

$

33,098

$

31,274

$

48,446

Interest income, net

(410

)

(390

)

(23

)

Income tax expense (benefit)

7,497

9,979

(973

)

Depreciation and amortization

10,980

10,590

8,881

EBITDA

51,165

51,453

56,331

Severance expenses (1)

1,007

Other non-operating income (2)

(4,778

)

Secondary offering related expenses (3)

1,042

Stock-based compensation

1,973

1,738

1,676

Adjusted EBITDA

$

54,145

$

48,413

$

59,049

(1)

Represents non-routine charges related to severance benefits.

(2)

Represents non-cash adjustments for the revaluation of the liability related to the tax receivable agreement.

(3)

Reflects fees and expenses recorded in first quarter 2019 in connection with the offering of Class A common stock by certain selling stockholders, excluding underwriting discounts and selling commissions incurred by the selling stockholders.

Cactus, Inc. – Supplemental Information

Depreciation and Amortization by Category

(unaudited)

Three Months Ended

March 31,

December 31,

March 31,

2020

2019

2019

(in thousands)

Cost of product revenue

$

1,028

$

893

$

765

Cost of rental revenue

7,342

7,014

5,517

Cost of field service and other revenue

2,385

2,500

2,450

Selling, general and administrative expenses

225

183

149

Total depreciation and amortization

$

10,980

$

10,590

$

8,881

Contacts

Cactus, Inc.
John Fitzgerald, 713-904-4655

Director of Corporate Development and Investor Relations

[email protected]

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