Cactus(WHD) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's financial statements, management's discussion and analysis of financial condition, market risk disclosures, and internal controls for the period Item 1. Financial Statements The financial statements for Q1 2021 reflect a downturn in the oil and gas industry, showing decreased revenue and net income compared to Q1 2020, while total assets and liabilities increased, maintaining strong liquidity Condensed Consolidated Balance Sheets Balance Sheet Summary (as of March 31, 2021 vs. December 31, 2020) | Account | March 31, 2021 ($ thousands) | December 31, 2020 ($ thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 291,970 | 288,659 | | Accounts receivable, net | 57,633 | 44,068 | | Total current assets | 439,407 | 425,142 | | Total assets | 877,865 | 815,594 | | Liabilities & Equity | | | | Total current liabilities | 55,056 | 48,915 | | Liability related to tax receivable agreement | 251,082 | 204,351 | | Total liabilities | 318,815 | 264,824 | | Total stockholders' equity | 559,050 | 550,770 | Condensed Consolidated Statements of Income Income Statement Summary (Three Months Ended March 31) | Metric | 2021 ($ thousands) | 2020 ($ thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Total revenues | 84,417 | 154,139 | -45.2% | | Income from operations | 11,635 | 40,185 | -71.0% | | Net income | 15,136 | 33,098 | -54.3% | | Net income attributable to Cactus Inc. | 11,559 | 18,983 | -39.1% | | Diluted EPS | $0.19 | $0.40 | -52.5% | Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Three Months Ended March 31) | Cash Flow Activity | 2021 ($ thousands) | 2020 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 15,747 | 45,161 | | Net cash used in investing activities | (2,028) | (8,338) | | Net cash used in financing activities | (10,483) | (9,604) | | Net increase in cash | 3,311 | 27,599 | - The significant decrease in net cash from operating activities in Q1 2021 compared to Q1 2020 was primarily due to lower net income[104] Notes to Condensed Consolidated Financial Statements - For the three months ended March 31, 2021, one customer represented 12% of consolidated revenue, compared to 10% for the same period in 2020[32] Revenue by Category (Three Months Ended March 31) | Revenue Category | 2021 ($ thousands) | % of Total | 2020 ($ thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Product revenue | 51,956 | 61% | 87,031 | 57% | | Rental revenue | 12,489 | 15% | 36,163 | 23% | | Field service and other | 19,972 | 24% | 30,945 | 20% | | Total revenue | 84,417 | 100% | 154,139 | 100% | - As of March 31, 2021, the total liability from the Tax Receivable Agreement (TRA) was $251.1 million[47] - In March 2021, a secondary offering of 6,325,000 shares of Class A common stock was completed by selling stockholders. Cactus did not receive any proceeds from this sale[52] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2021's year-over-year revenue and profitability decline to the industry downturn, noting sequential recovery driven by rising oil prices and a strong balance sheet with significant cash and no debt Executive Summary & Market Factors - Cactus designs, manufactures, sells, and rents highly engineered wellhead and pressure control equipment primarily for U.S. onshore unconventional oil and gas wells[61] - Revenue is derived from three sources: products (61% in Q1 2021), rentals (15%), and field services (24%)[63][64] - Demand for products and services is heavily dependent on oil and gas industry activity, influenced by commodity prices, rig counts, and well completion levels[65] Recent Developments and Trends - The weekly average U.S. onshore rig count increased from 295 in Q4 2020 to 377 in Q1 2021, indicating a recovery in drilling activity[70] - In response to recovering demand, the company added over 100 associates in Q1 2021 and began reinstating wage reductions implemented in 2020[34][72] - The company faces rising costs for raw materials, particularly steel, and increased freight costs due to supply chain disruptions, which may adversely affect margins[74] Consolidated Results of Operations Q1 2021 vs Q4 2020 Performance | Metric | Q1 2021 ($ thousands) | Q4 2020 ($ thousands) | QoQ Change | | :--- | :--- | :--- | :--- | | Total Revenues | 84,417 | 68,090 | +24.0% | | Income from Operations | 11,635 | 8,423 | +38.1% | | Net Income | 15,136 | 6,136 | +146.7% | - The 24% sequential increase in revenue was driven by higher sales of wellhead equipment and greater customer completion activity in response to rising oil prices[78][79] Q1 2021 vs Q1 2020 Performance | Metric | Q1 2021 ($ thousands) | Q1 2020 ($ thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenues | 84,417 | 154,139 | -45.2% | | Income from Operations | 11,635 | 40,185 | -71.0% | | Net Income | 15,136 | 33,098 | -54.3% | - The 45.2% year-over-year revenue decline resulted from lower drilling and completion activity by customers due to the industry downturn that began in March 2020[90][91] Liquidity and Capital Resources - As of March 31, 2021, the company had $292.0 million in cash and cash equivalents and no outstanding borrowings under its ABL Credit Facility[100] - The company had $63.7 million of available borrowing capacity under its ABL Credit Facility as of March 31, 2021[100] - Net capital expenditures for Q1 2021 were $2.0 million. The full-year 2021 forecast for net capital expenditures is estimated to be between $10 million and $15 million[102] Cash Flows Cash Flow Comparison (Three Months Ended March 31) | Cash Flow Activity | 2021 ($ thousands) | 2020 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 15,747 | 45,161 | | Net cash used in investing activities | (2,028) | (8,338) | | Net cash used in financing activities | (10,483) | (9,604) | - Cash from operations decreased primarily due to lower net income. Cash used in investing decreased due to lower capital expenditures on the rental fleet in 2021[104][105] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that its exposure to market risk has not changed materially since December 31, 2020, as detailed in its 2020 Annual Report on Form 10-K - There have been no material changes in the company's exposure to market risk since the end of the previous fiscal year[107] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during Q1 2021 - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2021[108] - No changes occurred in internal control over financial reporting during Q1 2021 that have materially affected, or are reasonably likely to materially affect, these controls[109] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and a list of exhibits filed with the report Item 1. Legal Proceedings The company is involved in various routine lawsuits and disputes arising in the ordinary course of business, with management believing no pending matters will have a material adverse effect on financial condition - Management believes that pending or threatened legal matters are unlikely to have a material adverse impact on the company's financial condition[111][112] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K or other SEC filings - No material changes in risk factors have occurred since those described in the 2020 Annual Report[113] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2021, the company repurchased 100,101 shares of Class A common stock from employees to satisfy tax withholding obligations for vested restricted stock units Issuer Purchases of Equity Securities (Q1 2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2021 | — | $ — | | February 2021 | 38,916 | $29.03 | | March 2021 | 61,185 | $32.82 | | Total | 100,101 | $31.35 | - The repurchased shares were from employees to satisfy tax withholding obligations related to vested restricted stock units[115] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q report, including corporate governance documents and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - The report includes required exhibits such as the Certificate of Incorporation, Bylaws, and CEO/CFO certifications pursuant to the Sarbanes-Oxley Act[117]