Cactus(WHD) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The financial statements for the period ended September 30, 2023, reflect significant changes primarily due to the FlexSteel acquisition, impacting assets and overall financial performance Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (unaudited) | (in thousands) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $63,738 | $344,527 | | Inventories | $203,517 | $161,283 | | Property and equipment, net | $345,222 | $129,998 | | Intangible assets, net | $183,974 | $— | | Goodwill | $200,723 | $7,824 | | Total assets | $1,464,150 | $1,118,896 | | Liabilities & Equity | | | | Total current liabilities | $177,367 | $116,649 | | Total liabilities | $454,079 | $408,451 | | Total stockholders' equity | $1,010,071 | $710,445 | | Total liabilities and equity | $1,464,150 | $1,118,896 | - The balance sheet reflects the impact of the FlexSteel acquisition, with significant increases in Property and equipment, Intangible assets, and Goodwill compared to year-end 2022. Cash and cash equivalents decreased substantially, reflecting the use of cash for the acquisition[14] Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income Highlights (unaudited) | (in thousands, except per share data) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $287,870 | $184,481 | $822,094 | $500,595 | | Operating income | $87,603 | $51,296 | $185,813 | $126,527 | | Net income | $68,019 | $41,520 | $152,766 | $104,383 | | Net income attributable to Cactus Inc. | $52,580 | $31,425 | $120,224 | $79,185 | | Earnings per Class A share - diluted | $0.80 | $0.51 | $1.82 | $1.30 | - Total revenues for Q3 2023 increased by 56.0% YoY, and for the nine months ended September 30, 2023, revenues increased by 64.2% YoY, largely driven by the inclusion of FlexSteel's results[17] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (unaudited) | (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $248,602 | $78,605 | | Net cash used in investing activities | ($645,242) | ($19,496) | | Net cash provided by (used in) financing activities | $116,651 | ($37,187) | | Net decrease in cash and cash equivalents | ($280,789) | $18,954 | - The significant use of cash in investing activities ($645.2 million) reflects the acquisition of FlexSteel. This was partially funded by cash from financing activities, including $169.9 million net proceeds from a Class A common stock issuance and $155.0 million in debt proceeds (which was subsequently repaid)[26][132] Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies and events, primarily focusing on the FlexSteel acquisition, its funding, and the resulting new business segment - On February 28, 2023, the company completed the acquisition of FlexSteel for total cash consideration of $621.5 million, plus a potential earn-out payment of up to $75.0 million[34] - The acquisition was funded through a combination of $165.6 million in net proceeds from a public stock offering, $155.0 million in borrowings under an Amended ABL Credit Facility, and available cash[35] - As a result of the acquisition, the company now operates in two business segments: Pressure Control and Spoolable Technologies[30][86] Preliminary Purchase Price Allocation for FlexSteel Acquisition | (in thousands) | Amount | | :--- | :--- | | Net assets acquired | $434,566 | | Goodwill | $192,899 | | Fair value of consideration transferred | $627,465 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes significant revenue growth to the FlexSteel acquisition and Pressure Control segment activity, while noting sequential declines in Q3 revenue and strong liquidity Executive Summary and Business Segments - Cactus is an equipment solutions provider for onshore oil and gas markets. The company acquired FlexSteel, a leading provider of spoolable pipe technologies, on February 28, 2023[94] - The company now operates in two segments: - Pressure Control: Designs, manufactures, sells, and rents wellhead and pressure control equipment[99] - Spoolable Technologies: Designs, manufactures, and sells spoolable pipe and associated fittings under the FlexSteel brand[100][103] Recent Developments and Trends Key Industry Indicators | | Q3 2023 | Q2 2023 | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | :--- | :--- | | WTI Oil Price ($/bbl) | $82.25 | $73.54 | $77.27 | $98.96 | | Natural Gas Price ($/MMBtu) | $2.59 | $2.16 | $2.46 | $6.74 | | U.S. Land Drilling Rigs | 627 | 698 | 689 | 688 | - Drilling and completion activity levels declined in Q3 2023, with the average U.S. land drilling rig count decreasing. However, oil prices rose 12% in Q3 compared to Q2 2023[107] Consolidated Results of Operations Q3 2023 vs Q2 2023 Results (Sequential) | (in thousands) | Q3 2023 | Q2 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $287,870 | $305,819 | ($17,949) | (5.9)% | | Pressure Control Revenue | $182,484 | $199,134 | ($16,650) | (8.4)% | | Spoolable Tech. Revenue | $105,386 | $106,685 | ($1,299) | (1.2)% | | Total Operating Income | $87,603 | $48,522 | $39,081 | 80.5% | - The sequential decrease in Pressure Control revenue was due to reduced activity. The significant increase in total operating income was mainly due to a $5.1 million gain on the earn-out liability in Q3, compared to an $18.1 million loss in Q2, for the Spoolable Technologies segment[113][114] Nine Months 2023 vs 2022 Results (YoY) | (in thousands) | 9M 2023 | 9M 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $822,094 | $500,595 | $321,499 | 64.2% | | Pressure Control Revenue | $576,273 | $500,595 | $75,678 | 15.1% | | Spoolable Tech. Revenue | $245,821 | $— | $245,821 | nm | | Total Operating Income | $185,813 | $126,527 | $59,286 | 46.9% | - The year-over-year increase in revenue and operating income was driven by the inclusion of the Spoolable Technologies segment ($245.8 million in revenue) and a 15.1% increase in Pressure Control revenue from higher activity[119][120] Liquidity and Capital Resources - As of September 30, 2023, the company had $63.7 million in cash and cash equivalents[124] - The company had $222.9 million of available borrowing capacity under its Amended ABL Credit Facility with no outstanding borrowings[124] - In June 2023, the board authorized a share repurchase program for up to $150 million of its Class A common stock[125] - Estimated net capital expenditures for the full year 2023 are expected to range from $35 million to $40 million[128] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to market risk exposure since year-end 2022, except for previously disclosed interest rate risk - There have been no material changes in the company's exposure to market risk since year-end 2022, other than previously disclosed changes to interest rate risk[133] Controls and Procedures Management concluded that disclosure controls were effective as of September 30, 2023, excluding the recently acquired FlexSteel business from the assessment - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of September 30, 2023[134] - The assessment of internal controls over financial reporting excluded the recently acquired FlexSteel business, which is permissible for up to one year following an acquisition[135] PART II - OTHER INFORMATION Legal Proceedings The company is involved in routine legal disputes, none of which are expected to have a material adverse impact on its financial condition - The company is party to lawsuits arising in the ordinary course of business but does not expect them to have a material adverse impact on its financial condition[138] Risk Factors The company reports no material changes to existing risk factors, but adds a new one concerning the Middle East conflict and its potential impact on oil prices and global conditions - A new risk factor has been added regarding the recent conflict in the Middle East, which may cause volatility in oil prices and adversely affect the business[142] Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the current reporting period - Not applicable[143] Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the third quarter of 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended September 30, 2023[144] Exhibits This section lists the exhibits filed as part of the Form 10-Q report, including required CEO and CFO certifications - The report includes required exhibits such as CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[146]