Cactus(US:WHD)2023-05-12 20:21Financial Data and Key Metrics Changes - Total Q1 revenues were $228 million, which includes one month of FlexSteel results, representing a 20% increase from $66 million in the previous quarter [22][28] - Adjusted EBITDA for the quarter was $79 million, up from $66 million in Q4 2022, with adjusted EBITDA margins at nearly 35% [22][28] - GAAP net income increased to $52 million in Q1 2023 from $41 million in Q4 2022, driven by lower income tax expense and higher other income [28] Business Line Data and Key Metrics Changes - Pressure Control product revenues were $130 million, up 4% sequentially, with U.S. wellhead market share increasing to 43.3% [14][15] - Pressure Control rental revenues were $27 million, down 2% sequentially, primarily due to lower revenue from Australian operations [16] - Pressure Control field service revenues were approximately $38 million, up 6% sequentially, representing about 24% of combined Pressure Control revenues [17] Market Data and Key Metrics Changes - The U.S. land rig count is expected to decline by 3% to 5% sequentially in Q2, with an anticipated drop in rig count from Q1 exit to Q2 exit of 8% to 10% [33] - Customer balance sheets are reported to be in better shape than in previous years, which may support Cactus's performance despite the pullback in commodity prices [42] Company Strategy and Development Direction - The company plans to report legacy Cactus as the Pressure Control segment and FlexSteel as the Spoolable Technologies segment moving forward [12] - Cactus aims to leverage FlexSteel's technology to expand its customer base and enhance product offerings, particularly in international markets [40][61] - The company is focused on maintaining strong free cash flow and aims to return to a net cash position this year, allowing for further evaluation of return of capital strategies [41] Management's Comments on Operating Environment and Future Outlook - Management anticipates that the rig count could bottom out towards the end of Q2, estimating a range of 650 to 675 rigs [49] - The company expects adjusted EBITDA margins in the Pressure Control segment to be between 33% and 35% for Q2, excluding certain expenses [35] - Management remains optimistic about the combined business's growth potential, particularly in international markets, despite challenges in indigenous manufacturing requirements [61] Other Important Information - The company paid a quarterly dividend of $0.11 per share, resulting in a cash outflow of approximately $9 million [30] - Net CapEx was approximately $14 million during Q1 2023, with a revised full-year capital expenditure budget of $45 million to $55 million due to the FlexSteel acquisition [31] Q&A Session Summary Question: Can you expand on the rig count weakness extending beyond the gas basin? - Management indicated that lower gas prices lead to reduced cash flow for customers, affecting both private and public operators, with expectations of a rig count bottoming out between 650 to 675 rigs [49][50] Question: What is the overlap between Cactus's wellhead business and FlexSteel? - Management noted that all customers purchasing Cactus production trees ultimately need to buy a FlexSteel product, indicating significant overlap and opportunities for cross-selling [52] Question: What are the hurdles to expanding the international business? - Major roadblocks include countries requiring indigenous manufacturing, but management believes there is no structural reason why international business cannot return to previous levels [61][63]