Cactus(US:WHD)2020-08-02 14:37Financial Data and Key Metrics Changes - In Q2 2020, revenues were $67 million, a decrease of 57% from the previous quarter [12] - Adjusted EBITDA was over $22 million, down from $54 million in Q1 2020, representing an adjusted EBITDA margin of approximately 34% [11][16] - Cash balance increased by $40 million to $271 million, highlighting strong free cash flow generation [19] - GAAP net income was $9.1 million, with adjusted net income of $7.4 million and adjusted earnings per share of $0.10, compared to $31 million and $0.41 per share in Q1 2020 [17] Business Line Data and Key Metrics Changes - Product revenues were $41 million, down 53% sequentially, with product gross margins increasing to 36% due to tariff-related benefits [12][13] - Rental revenues decreased to $12 million, down 68% from Q1, attributed to lower industry completion activity [13] - Field service and other revenues were $14 million, down 54% from the first quarter, representing just under 27% of combined product and rental revenues [14] Market Data and Key Metrics Changes - The U.S. onshore rig count fell by more than 50% quarter-over-quarter, but signs of stabilization are emerging [12][29] - Cactus expects to outperform the broader market with rigs followed down in the 20% range sequentially, while the average Q3 rig count is expected to be down approximately one-third [29] Company Strategy and Development Direction - The company is focused on maintaining a variable cost structure and modest capital requirements, reducing payroll-related expenses by approximately $85 million on an annualized basis [24] - Cactus aims to expand into international markets, although travel restrictions have impeded momentum [36] - The company is considering M&A opportunities within the industry, looking for tangible synergies [51][52] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about emerging with higher market share in the second half of 2020, supported by a record market share in July [28] - The company anticipates low double-digit revenue declines quarter-over-quarter in Q3, with EBITDA margins in the 60% range [33] - Management noted that while international margins are expected to be lower than previously anticipated, they remain committed to pursuing international opportunities [123] Other Important Information - The company recorded $7.5 million in refunds associated with tariff exclusions, which positively impacted product gross profit [20][25] - Cactus has reduced its CapEx guidance for 2020 to between $20 million and $25 million, with expectations of continued low spending levels [35] Q&A Session Summary Question: Impact of tariffs on COGS - Management confirmed that tariff exclusions on significant products positively impacted product margins, estimating a 3% margin impact for the quarter [41][43] Question: Market share outlook - Management expressed confidence in achieving record market share by the end of the year, despite previous volatility [45][46] Question: M&A opportunities - Management stated there are no immediate M&A plans but sees potential opportunities within the industry [51][52] Question: Rental revenue technology mix - Approximately 15% of rental revenues come from newer technology, with expectations for increased adoption as completion activity resumes [58] Question: International expansion strategy - Management indicated a cautious approach to international expansion, focusing on maintaining control over technology and operations [123] Question: Future CapEx requirements - Management emphasized a conservative approach to CapEx, with expectations for $10 million in 2021, primarily for maintenance [145]