ProPetro (PUMP) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements (Unaudited) The company's Q1 2024 results show decreased revenue and net income year-over-year, alongside stable operating cash flow and a growing asset base Condensed Consolidated Balance Sheets Total assets grew to $1.53 billion by March 31, 2024, driven by increased cash and operating lease assets, while total liabilities also rose Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $46,458 | $33,354 | | Accounts receivable, net | $273,709 | $237,012 | | Total current assets | $360,036 | $310,809 | | Property and equipment, net | $947,138 | $967,116 | | Operating lease right-of-use assets | $109,362 | $78,583 | | Total Assets | $1,534,260 | $1,480,312 | | Liabilities & Equity | | | | Accounts payable | $189,216 | $161,441 | | Total current liabilities | $303,984 | $271,149 | | Long-term debt | $45,000 | $45,000 | | Noncurrent operating lease liabilities | $56,481 | $38,600 | | Total Liabilities | $536,106 | $481,920 | | Total Shareholders' Equity | $998,154 | $998,392 | Condensed Consolidated Statements of Operations Q1 2024 service revenue and operating income declined year-over-year, resulting in lower net income and earnings per share Q1 2024 vs. Q1 2023 Statement of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Service Revenue | $405,843 | $423,570 | | Cost of services | $288,641 | $280,486 | | Depreciation and amortization | $52,206 | $38,271 | | Loss on disposal of assets | $6,458 | $34,607 | | Operating Income | $30,312 | $41,460 | | Net Income | $19,930 | $28,733 | | Diluted EPS | $0.18 | $0.25 | Condensed Consolidated Statements of Cash Flows Operating cash flow remained stable in Q1 2024, while lower capital expenditures reduced investing cash outflows and share repurchases increased financing cash outflows Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $74,822 | $73,060 | | Net cash used in investing activities | ($33,847) | ($113,750) | | Net cash used in financing activities | ($27,871) | ($3,379) | | Net Increase (Decrease) in Cash | $13,104 | ($44,069) | - The decrease in cash used for investing activities was mainly due to a reduction in capital expenditures from $114.8 million in Q1 2023 to $34.6 million in Q1 2024[21] - The increase in cash used for financing activities was primarily driven by $22.5 million in share repurchases during Q1 2024, which did not occur in the same period of 2023[21] Notes to Condensed Consolidated Financial Statements Key disclosures include a change in segment reporting, an expanded share repurchase program, and significant new lease agreements for equipment - Effective Q4 2023, the company revised its segment reporting, with the Hydraulic Fracturing and Wireline operating segments now reported separately[64] - The company entered into operating leases for four FORCE electric-powered hydraulic fracturing fleets and a finance lease for power generation equipment, significantly increasing lease-related assets and liabilities[100][119] - Subsequent to the quarter end, the company entered into a three-year contract with Exxon Mobil Corporation to provide services with two FORCE electric-powered hydraulic fracturing fleets[136] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue and Adjusted EBITDA declined due to pricing pressure and reduced activity, while the company maintains strong liquidity and continues its fleet transition Results of Operations Q1 2024 revenue fell 4.2% year-over-year, driven by a 7.5% decline in the Hydraulic Fracturing segment, leading to lower overall profitability Q1 2024 vs. Q1 2023 Results of Operations (in thousands) | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $405,843 | $423,570 | ($17,727) | (4.2)% | | Hydraulic Fracturing Revenue | $309,300 | $334,441 | ($25,141) | (7.5)% | | Wireline Revenue | $60,805 | $62,560 | ($1,755) | (2.8)% | | Net Income | $19,930 | $28,733 | ($8,803) | (30.6)% | | Adjusted EBITDA | $93,395 | $119,165 | ($25,770) | (21.6)% | | Adjusted EBITDA Margin | 23.0% | 28.1% | - | (18.1)% | - The decrease in hydraulic fracturing revenue was primarily due to a decline in effectively utilized fleets from approximately 16 to 15, along with decreased customer activity and pricing[170] - The increase in revenue for the 'All Other' category was mainly driven by the Par Five acquisition in December 2023, which contributed $9.6 million in revenue during the quarter[167][172] Liquidity and Capital Resources The company maintains strong liquidity of $202.0 million, expanded its share repurchase program, and plans significant capital expenditures for 2024 - Total liquidity as of March 31, 2024, was approximately $202.0 million, consisting of $46.5 million in cash and $155.5 million of availability under the ABL Credit Facility[184] - The share repurchase program was increased by an additional $100 million for a total of $200 million and extended to May 31, 2025; in Q1 2024, the company repurchased 3.0 million shares for $22.5 million[185] - Projected capital expenditures for 2024 are expected to range between $200 million and $250 million, primarily for maintenance and strategic equipment conversions[189] Quantitative and Qualitative Disclosures About Market Risk The company's market risk profile has not materially changed from the disclosures in its 2023 Annual Report on Form 10-K - No material changes in market risk were reported as of March 31, 2024, compared to the disclosures in the 2023 Form 10-K[203] Controls and Procedures Disclosure controls were deemed ineffective due to a material weakness in internal control related to inadequate segregation of duties, with remediation underway - Disclosure controls and procedures were concluded to be ineffective as of March 31, 2024, due to a previously reported material weakness[205] - The material weakness relates to IT controls where manual journal entry approvers could modify entries before posting, stemming from inadequate segregation of duties[206] - Remediation efforts during Q1 2024 included implementing a technical solution to prevent modification of journal entries by approvers and strengthening monitoring controls; the weakness is not yet considered fully remediated[207][208] PART II – OTHER INFORMATION Legal Proceedings The company is undergoing routine tax audits by the Texas Comptroller, with a $6.0 million settlement expense accrued for one specific audit - The company is subject to several routine audits by the Texas Comptroller of Public Accounts; an estimated settlement expense of $6.0 million has been accrued for an audit of motor vehicle and fuel taxes[133] Risk Factors No material changes to the company's risk factors have occurred since its 2023 Annual Report on Form 10-K - No material changes to risk factors were reported compared to the 2023 Form 10-K[212] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased $22.5 million of its common stock in Q1 2024 and subsequently increased its total repurchase authorization to $200 million Share Repurchases for Q1 2024 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2024 | 511,215 | $8.01 | | February 2024 | 963,110 | $7.67 | | March 2024 | 1,493,735 | $7.38 | | Total | 2,968,060 | $7.58 | - On April 24, 2024, the Board approved an increase of the share repurchase program by an additional $100 million, bringing the total authorization to $200 million, and extended the program's expiration to May 31, 2025[213] Other Information No directors or officers adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No director or officer of the Company adopted, modified or terminated any "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during Q1 2024[217]