Cactus, Inc. (NYSE:WHD) Q2 2019 Earnings Conference Call August 1, 2019 10:00 AM ET Company Participants John Fitzgerald - Director of Corporate Development and Investor Relations Scott Bender - President, Chief Executive Officer and Director Stephen Tadlock - Vice President and Chief Financial Officer Conference Call Participants Marshall Adkins - Raymond James & Associates, Inc. Chase Mulvehill - BofA Merrill Lynch Scott Gruber - Citigroup Inc. George O'Leary - Tudor, Pickering, Holt & Co. Connor Lynagh - ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 or (713) 626‑8800 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001‑38390 Cactus, Inc. ...

[PART I - FINANCIAL INFORMATION](index=7&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) Cactus, Inc. reported **$158.9 million** in Q1 2019 revenues and **$48.4 million** net income, with total assets reaching **$742.6 million** and new lease accounting standard adoption Condensed Consolidated Statements of Income (Q1 2019 vs Q1 2018) | Metric | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | **Total Revenues** | **$158,875** | **$115,110** | **+38.0%** | | Product Revenue | $86,640 | $58,926 | +47.0% | | Rental Revenue | $38,497 | $29,145 | +32.1% | | Field Service & Other Revenue | $33,738 | $27,039 | +24.8% | | **Income from Operations** | **$48,492** | **$35,217** | **+37.7%** | | **Net Income** | **$48,446** | **$26,408** | **+83.5%** | | Net Income Attributable to Cactus Inc. | $26,807 | $3,753 | +614.3% | | **Earnings per Class A share - diluted** | **$0.59** | **$0.14** | **+321.4%** | Condensed Consolidated Balance Sheets Highlights | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $88,116 | $70,841 | | Total current assets | $315,199 | $274,505 | | Total assets | $742,633 | $584,744 | | Liability related to tax receivable agreement | $224,542 | $147,589 | | Total liabilities | $326,272 | $222,416 | | Total stockholders' equity | $416,361 | $362,328 | - The company adopted the new lease accounting standard ASC Topic 842 on January 1, 2019, resulting in the recognition of operating lease right-of-use assets of **$25.3 million** and corresponding lease liabilities[66](index=66&type=chunk)[68](index=68&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Q1 2019 revenue growth was driven by increased market share and drilling activity, supported by strong liquidity and projected capital expenditures for fleet investments - Product revenue increased **47% YoY**, primarily due to increased market share and customer activity, with active U.S. onshore drilling rigs followed increasing by **19%**[144](index=144&type=chunk) - Rental revenue increased **32% YoY**, driven by investments in the rental fleet to meet higher completion activity[145](index=145&type=chunk) - The company estimates net capital expenditures for 2019 to range from **$60 million to $65 million**, primarily for rental fleet investments[158](index=158&type=chunk) Cash Flow Summary (Q1 2019 vs Q1 2018) | Cash Flow Activity | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $34,239 | $38,565 | | Net cash used in investing activities | ($13,847) | ($15,687) | | Net cash used in financing activities | ($3,555) | ($22,640) | [Quantitative and Qualitative Disclosures About Market Risk](index=51&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes in its market risk exposure since December 31, 2018, consistent with its prior annual report disclosures - There have been no material changes in the company's exposure to market risk since December 31, 2018[171](index=171&type=chunk) [Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of March 31, 2019, due to a previously identified material weakness, with no new material changes in Q1 2019 - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were not effective as of March 31, 2019[172](index=172&type=chunk) - The ineffectiveness is due to a previously disclosed material weakness in internal control over financial reporting, identified in the 2018 Annual Report[172](index=172&type=chunk) - There were no changes in internal control over financial reporting during Q1 2019 that materially affected or are likely to materially affect internal controls[173](index=173&type=chunk) [PART II - OTHER INFORMATION](index=53&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=53&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine legal disputes, which management does not expect to materially impact its financial condition or operations - The company is party to lawsuits arising in the ordinary course of business, but management does not expect them to have a material adverse impact[175](index=175&type=chunk)[176](index=176&type=chunk) [Risk Factors](index=53&type=section&id=Item%20lA.%20Risk%20Factors) No material changes to the company's previously disclosed risk factors have occurred since the 2018 Annual Report - There have been no material changes in risk factors from those described in the 2018 Annual Report[177](index=177&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q1 2019, the company repurchased **44,906** Class A shares at **$32.79** per share to cover employee tax withholding obligations from vested restricted stock units Share Repurchases in Q1 2019 | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | January 1-31, 2019 | - | $ - | | February 1-28, 2019 | 44,906 | $32.79 | | March 1-31, 2019 | - | $ - | | **Total** | **44,906** | **$32.79** | - The repurchased shares were from employees to satisfy tax withholding obligations related to vested restricted stock units[179](index=179&type=chunk) [Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section lists required exhibits, including CEO and CFO certifications and XBRL data files, filed as part of the quarterly report - The report includes required exhibits such as CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, and XBRL data files[182](index=182&type=chunk)

Cactus, Inc. (NYSE:WHD) Q1 2019 Earnings Conference Call May 2, 2019 10:00 AM ET Company Participants John Fitzgerald – Director-Corporate Development and Investor Relations Scott Bender – Chief Executive Officer Steve Tadlock – Chief Financial Officer Joel Bender – Senior Vice President and Chief Operating Officer Conference Call Participants Tommy Moll – Stephens, Inc. David Anderson – Barclays George O'Leary – Tudor, Pickering, Holt & Co Scott Gruber – Citigroup Chase Mulvehill – Bank of America Merrill ...

Financial Performance - Total revenues for Cactus Inc. in 2018 were $544.1 million, a 59.5% increase from $341.2 million in 2017[164]. - Net income attributable to Cactus Inc. for 2018 was $51.7 million, compared to a net loss of $8.2 million in 2016[164]. - Net income for 2018 was $150.3 million, a rise of $83.7 million, or 125.8%, compared to $66.5 million in 2017[180]. - Comprehensive income attributable to Cactus Inc. was $51.2 million in 2018, compared to $0 in 2016[275]. - Earnings per Class A share - diluted was $1.58 for 2018, with a weighted average of 32,695 shares outstanding[273]. Revenue Breakdown - Product revenue increased to $290.5 million, up $101.4 million, or 53.6%, primarily due to increased U.S. onshore activity and a 29% rise in average monthly rigs to 272[181]. - Rental revenue reached $133.4 million, an increase of $55.9 million, or 72%, driven by investments in the rental fleet[182]. - Field service and other revenue grew to $120.2 million, up $45.6 million, or 61%, due to higher demand correlated with increased product and rental revenue[183]. Cash and Debt Management - Cactus Inc. had cash and cash equivalents of $70.8 million at the end of 2018, a substantial increase from $7.6 million at the end of 2017[164]. - Long-term debt was reduced to zero in 2018 from $241.4 million in 2017, reflecting the repayment of borrowings using IPO proceeds[166]. - Total debt, excluding capital leases, was $0.0 million at December 31, 2018, down from $248.5 million in 2017[207]. - Interest expense decreased significantly to $3.6 million, down $17.2 million, or 82.7%, due to the repayment of the term loan[189]. Tax and Compliance - Cactus Inc. is subject to a U.S. federal income tax rate of 21% on its share of income from Cactus LLC following its IPO[179]. - Income tax expense for 2018 was $19.5 million, reflecting an effective tax rate of 11.5%, compared to $1.5 million (2.3% effective tax rate) in 2017[191]. - The company intends to make pro rata distributions to unitholders to cover tax obligations and payments under the Tax Receivable Agreement[229]. - The company was in compliance with all covenants under the ABL Credit Facility as of December 31, 2018[228]. Operational Insights - The average U.S. onshore rig count for 2018 was 1,011 rigs, up 18.5% from 853 rigs in 2017 and significantly higher than 483 rigs in 2016[169]. - The rental revenues are primarily dependent on the number of wells completed, with a focus on the number of drilled but uncompleted wells (DUCs) providing additional opportunities[171]. - Cactus Inc. anticipates that market factors such as oil and gas prices will continue to influence demand for its products and services[168]. Capital Expenditures and Investments - The company expects capital expenditures for 2019 to range from $60 million to $65 million, primarily for rental fleet investments[209]. - The company reported capital expenditures of $70.1 million for the year, up from $32.1 million in 2017[279]. Inventory and Accounts Receivable - The allowance for doubtful accounts was $0.6 million as of December 31, 2018, representing approximately 1.0% of consolidated gross accounts receivable[237]. - The inventory obsolescence reserve was $7.3 million as of December 31, 2018, representing approximately 6.8% of consolidated gross inventories, an increase from $5.9 million (8.4%) in 2017[239]. - The company reported a significant increase in accounts receivable, net of allowance, which rose to $92.3 million from $84.2 million in 2017[271]. IPO and Follow-on Offering - Cactus Inc. completed an IPO on February 12, 2018, raising net proceeds of $408.0 million from the sale of 23 million shares at $19.00 per share[283]. - A follow-on offering on July 16, 2018, raised $359.3 million from the sale of 11.2 million shares at $33.25 per share[288]. Market Risks and Economic Factors - The company is exposed to market risks from changes in foreign currency rates and interest rates, particularly due to operations in China and Australia[256][257]. - Inflation has been relatively low in recent years and did not materially impact the company's operations for the years ended December 31, 2018, 2017, and 2016[254]. Tax Receivable Agreement (TRA) - The total liability from the Tax Receivable Agreement (TRA) recorded as of December 31, 2018, is $147.6 million, which includes both current and long-term portions[306]. - The TRA payments are expected to commence in 2019 and continue for 16 years after the last redemption of CW Units, potentially extending over 25 years[314]. - The TRA generally provides for the payment of 85% of net cash savings in taxes realized by the company, with the remaining 15% retained by the company[305].

Financial Data and Key Metrics Changes - In 2018, the company reported revenues of $544 million, an increase of nearly 60% from 2017, and adjusted EBITDA rose almost 90% year-over-year to $213 million [7] - For Q4 2018, revenues were $139.8 million, which was 33.4% higher than the same period last year but 7.2% lower than Q3 2018 [10] - Adjusted EBITDA for Q4 was $53.5 million, representing a 52.7% increase year-over-year but down 12.7% sequentially, with adjusted EBITDA margins at 38.3% compared to 40.7% in Q3 2018 [14][16] - Net income for Q4 was $38.7 million, down from $43.6 million in Q3 2018 [14] Business Line Data and Key Metrics Changes - Product revenues, including consumables used in drilling and production, were $78.9 million, up 38.1% from Q4 2017 but down 0.6% from Q3 2018 [10] - Rental revenues were $31.2 million, an increase of $6.7 million compared to Q4 2017 but a decrease of $6.9 million sequentially due to reduced completion activity [11] - Field service and other revenues were $29.7 million, up $6.6 million year-over-year but down $3.4 million from Q3 2018, attributed to decreased billable hours and typical Q4 seasonality [12] Market Data and Key Metrics Changes - The company's average US market share in its products business increased from 27.4% to 27.8% during the quarter [9] - The company anticipates a sequential increase in rental revenues of approximately 15% in Q1 2019, driven by improved completion activity [23] Company Strategy and Development Direction - The company aims to maintain a focus on free cash flow and returns while being well-positioned to gain market share in 2019 [30] - New completions innovations are expected to generate noticeable revenue in the second half of 2019, with a potential 20% increase in rental revenue run rate by year-end [25] - The company is cautious about overall drilling activity levels despite a modest decline in rig counts, expecting a more muted pullback in spending from E&Ps [21] Management's Comments on Operating Environment and Future Outlook - Management noted that customers were less willing to complete wells due to lower oil prices but expected a normalization of completion activity as budgets reset in the New Year [22] - The company is optimistic about the impact of new rental innovations and the potential for increased market share in the frac rental business [25][86] Other Important Information - The effective tax rate for Q4 was 11.4%, lower than the federal tax rate due to profits from non-controlling interests not being subject to US federal tax [15] - The company’s cash position increased by $28.9 million during Q4, reaching $70.8 million by year-end [17] Q&A Session Summary Question: Can you provide insights on the tariff impact and competitive positioning? - Management expressed a more relaxed stance regarding potential tariff increases, noting that they had accelerated inventory receipts in anticipation of higher tariffs but have not taken similar steps this year [34] - The company believes it is in a good position compared to competitors who rely heavily on China for manufacturing [36] Question: How do you expect margins to unfold in Q1 across each segment? - Margins for rental and product segments are expected to be slightly down, while service margins should see a considerable increase [43] Question: What is the outlook for the frac tree assets and their utilization? - The company reported that gross rental PP&E increased from about $85 million at the end of 2017 to about $124 million at the end of 2018, with plans for further growth [61] Question: How do you see the cadence of completions in 2019? - Management indicated a cautious outlook, expecting a gradual increase in completion activity, particularly in the third and fourth quarters [86]