Cactus(WHD) - 2020 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for Q1 2020 show total assets increased to $850.1 million, while revenues slightly decreased to $154.1 million and net income fell to $33.1 million due to higher costs - The financial statements are prepared on a consolidated basis, including Cactus Inc. and its subsidiary Cactus Wellhead, LLC, with Cactus Inc. consolidating results and reporting a non-controlling interest[26] Condensed Consolidated Balance Sheet Highlights (as of March 31, 2020) | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $230,202 | $202,603 | | Total current assets | $435,274 | $414,883 | | Total assets | $850,095 | $834,964 | | Liabilities & Equity | | | | Total current liabilities | $81,414 | $91,126 | | Total liabilities | $307,669 | $318,569 | | Total stockholders' equity | $542,426 | $516,395 | Condensed Consolidated Statement of Income (Three Months Ended March 31) | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Total revenues | $154,139 | $158,875 | | Income from operations | $40,185 | $48,492 | | Net income | $33,098 | $48,446 | | Net income attributable to Cactus Inc. | $18,983 | $26,807 | | Earnings per Class A share - diluted | $0.40 | $0.59 | Condensed Consolidated Statement of Cash Flows (Three Months Ended March 31) | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $45,161 | $34,239 | | Net cash used in investing activities | ($8,338) | ($13,847) | | Net cash used in financing activities | ($9,604) | ($3,555) | | Net increase in cash and cash equivalents | $27,599 | $17,275 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the severe impact of COVID-19 and oil price instability on demand, leading to a 3.0% revenue decline and cost-saving measures, while maintaining a strong liquidity position Executive Summary & Business Overview Cactus designs, manufactures, sells, and rents wellhead and pressure control equipment for onshore oil and gas wells, operating in a single segment with revenue from products, rentals, and field services - For the three months ended March 31, 2020, revenue was composed of 57% product sales, 23% rentals, and 20% field service and other, a mix similar to the prior year period[77] Recent Developments and Trends Q1 2020 experienced severe market disruptions due to the COVID-19 pandemic and oil price war, resulting in reduced customer capital expenditure and significant workforce reductions - The combination of the COVID-19 pandemic and geopolitical oil price instability has led to a severe decline in oil demand and significant reductions in customer capital expenditure budgets for 2020[37][86] - The U.S. onshore rig count, a key indicator of demand, dropped from an average of 763 in Q1 2020 to 448 by April 24, 2020, and is expected to continue declining[86] - In response to the downturn, the company reduced its U.S. workforce by 277 employees in March and an additional 212 in April, also implementing salary reductions for executives and other employees, and reduced board compensation[39][71][89] - The U.S. Trade Representative granted certain tariff exclusion requests on Chinese imports, applying retroactively from September 24, 2018, to August 7, 2020, temporarily relieving tariff costs on some imported products[90] Consolidated Results of Operations Q1 2020 total revenues decreased by 3.0% to $154.1 million, with income from operations falling 17.1% to $40.2 million, impacted by higher costs and severance expenses Consolidated Operating Results (Three Months Ended March 31) | | 2020 (in thousands) | 2019 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $154,139 | $158,875 | ($4,736) | (3.0)% | | Product revenue | $87,031 | $86,640 | $391 | 0.5% | | Rental revenue | $36,163 | $38,497 | ($2,334) | (6.1)% | | Field service and other revenue | $30,945 | $33,738 | ($2,793) | (8.3)% | | Income from operations | $40,185 | $48,492 | ($8,307) | (17.1)% | | Net income | $33,098 | $48,446 | ($15,348) | (31.7)% | - Product revenue remained stable due to product mix, drilling efficiencies, and increased market share, offsetting the lower rig count[93] - Rental and Field Service revenues decreased due to lower completion activity and increased competition[94][95] - Total costs increased by 3.2%, driven by higher cost of product revenue (tariffs, inventory reserves), higher depreciation on the rental fleet, and $1.0 million in severance expenses[91][96][97][100] Liquidity and Capital Resources The company maintains a strong liquidity position with $230.2 million in cash and no debt, increased operating cash flow to $45.2 million, and reduced its 2020 capital expenditure forecast - As of March 31, 2020, the company had $230.2 million in cash and cash equivalents, no outstanding borrowings, and $75.0 million of available capacity under its ABL Credit Facility[105] - The 2020 net capital expenditure forecast has been reduced to a range of $20 million to $30 million, primarily for rental fleet investments[108] Cash Flow Summary (Three Months Ended March 31) | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $45,161 | $34,239 | | Net cash used in investing activities | ($8,338) | ($13,847) | | Net cash used in financing activities | ($9,604) | ($3,555) | Quantitative and Qualitative Disclosures About Market Risk The company's exposure to market risk has not materially changed since the end of the 2019 fiscal year - The company's exposure to market risk has not changed materially since December 31, 2019[115] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting during Q1 2020 - Based on an evaluation, the principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of March 31, 2020[116] - No changes occurred in internal control over financial reporting during the first quarter of 2020 that have materially affected, or are reasonably likely to materially affect, these controls[117] PART II - OTHER INFORMATION Legal Proceedings The company is involved in routine lawsuits and disputes, but management does not believe their outcomes will have a material adverse effect on financial condition or results of operations - The company is party to lawsuits arising in the ordinary course of business, but management believes it is unlikely that these will have a material adverse impact on its financial condition[119][120] Risk Factors This section updates the key risk factor, emphasizing that the COVID-19 pandemic's severe impact on oil and gas demand, combined with oversupply, could materially affect the company's financial condition - The report updates a key risk factor to highlight that demand for the company's products is directly affected by oil and gas prices and customer spending[122][123] - The effects of the COVID-19 pandemic have collapsed oil demand, which, coupled with oversupply and limited storage, could materially and adversely impact the company's financial condition and results, with the full duration and extent of the downturn remaining uncertain[127] Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2020, the company repurchased 55,996 shares of Class A common stock at an average price of $24.22 to satisfy employee tax withholding obligations Issuer Purchases of Equity Securities (Q1 2020) | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | January 1-31, 2020 | — | $ — | | February 1-29, 2020 | 39,779 | $28.79 | | March 1-31, 2020 | 16,217 | $13.00 | | Total | 55,996 | $24.22 | - The repurchased shares of Class A common stock were from employees to satisfy tax withholding obligations related to vested restricted stock units[129] Exhibits This section lists exhibits filed with the Form 10-Q, including Amended and Restated Bylaws and CEO/CFO certifications required by the Sarbanes-Oxley Act - Key exhibits filed with this report include: - Amended and Restated Bylaws of Cactus, Inc. - CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - CEO and CFO Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002[133]