WHD - Earnings call transcript Q4 2017

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Operator

Welcome to the Cactus Fourth Quarter and Full Year 2017 Earnings Call. Today’s call is being recorded. At this time, I would like to turn the conference over to Steve Tadlock, Vice President and Chief Administrative Officer.

Steve Tadlock

Thank you and good morning, everyone. We appreciate your participation in today's call. call Brian Scott Officer. Small, today's Executive our on and Officer, our speakers will Bender, be Chief The Chief Financial joining Steven is us President Also Operations. of Bender, Vice today and we XXXX on our website www.cactuswhd.com. at afternoon, Yesterday fourth our earnings which is issued release, available quarter or statements Act. that we covered Private Litigation Reform projections by note for future today's call make the Please expectations on events any regarding comments our are forward-looking Securities

as are from and Forward-looking our statements actual and a Any and we of with earnings to risks many risk uncertainties control. publicly in listeners discussed undertake the beyond no are expectations. which and the number obligation forward-looking of These advise uncertainties, our or results statements. of risks make review to SEC. we our forward-looking subject to review can any filings only We today's release statements updated our to cause date factors are differ today current materially

reference measures. our we earnings today's any finally, most measures may answer in call, included In measures you these our prepared are after directly have. comparable non-GAAP questions the Reconciliations certain we release. addition, to non-GAAP will of GAAP during will remarks, financial And

over to with I’ll the turn So that, Scott. call

Scott Bender

everyone. Thanks, a first welcome investor Okay. publicly I'm call traded morning and Steve you good to as to pleased to our company.

our a As previous whom many between of XX valued ago ventures. and years half and after had operations aware, shortly dinner we Cactus six you two associates convened family are of only managed a meeting commenced with our

its in of join vision largest had displaying for our of they was an as left meeting, shareholders. and to and as grew, we as in the And do valid we while then, individual remains themselves I'm with say this wish be it of to providing success. US, which shared these evening, entirety, security the each in associates to to market previously us. become our to our what today financial one attracted very core felt that for the lost remains our barring this company we individuals security these leader they done reward who others to proud individuals others, the today Cactus, other part one competitors That the group opportunity the in During offered same confidence illness. for us

our Cactus so on my of to first recognizing sincerest loyalty I who all to strategy the defines of individuals of Benders, these unique value. the offer And culture behalf that thanks company's helped develop wish and customers our our

want from customers thank I so partners, a welcomed startup. as oil importantly, those who as us rather to dismissing And the than onset us

safety designed wellheads not enhancements, in of brief but onshore market and drilling whom wells services in is a both arguably sell. companies. equipment pad system, saving and For the both of our as which pressure provider we've features and deployed revenues overview and service. product is like meet, highly which believe a from tools offer is rental our we and well I’d the components and primarily conjunction products frac lines, generate the US rooms, during complementary no Cactus reliable offers Similarly, particularly market for market, services comprised products used equipment and our wellhead had best pure oilfield one than service frac you those design business applications. value to both the sales, in manufacture XX% play to as with significant multifaceted of include of our opportunity while and drilling to frac by for specifically production, a with a more We company. We distinct, techs proposition. consumables we the equipment believe onshore rental offer of with more related provide and the are are the control of US to supported time operations manufactured We world drilling in-house we which business field we for two

culture come serve to have in and We the innovation and execution through that centers of customers strategically our a these US. service have customers we located XX expect

business. prowess, as doubling our market for and is our QX We hours for industry per from Our rail in customers. wellhead located our XXXX. have drivers XXXX supply our results of our technical efficacy reliability industry reduced rental in our our through results revenues XXXX to time clients. saves our some space spread chain product produced up in meaningful generate for customers highly our from the products that EBITDA cost as generate and by on numerous of margins challenges we services. services and City, with count of their demonstrated capital levels are remained cycles. rig with positive E&P the well trough production and to low leading and with through deliver are synonymous with model onshore grew activities returns value customers manufacturing share more wholly-owned as proud of a to because frac of competitive, team flexible, systems, nimble than return XX% that's the our our real fact Bossier plant our China Louisiana believe technology, facility strong And we completion best some navigating high translates saving and blending its these business. the recognize quarterly for cycle oilfield QX and employed. the Cactus validation of strongest we the to the cash The We're average which well a we frac XX.X% business well side, of in for the primarily of time Cactus operating industry has from of a wellhead superiority, flow management on responsive cost become time the in hours XX nonproductive sales savings to We our

several features that in valves reduce reasons. We additional CapEx continue program frac expect and continued increased with innovate rental our we manufacturing by and components recently repair for We've cost fleet to enhance and reliability. our expand to growth XXXX

CapEx expect better expanded as order Our expected to million the on to and which demand. of and And continue half techs well details million China position our currently growth. product our We second increase will facility XXXX more to a Brian level the demand field $XX in rental in finally, ourselves growth in $XX this. provide the initiatives support to margins to we our support will we as expected is was excess of service to approximately added be XXXX in that and Suzhou,

I'll to Small, results. Brian who CFO over will the review our So turn our call XXXX with that,

Following his and the lines then remarks, for I'll make a few Brian? closing Q&A. comments open

Brian Small

the metrics key fourth for Scott. I XXXX quarter discuss our Thanks, some then will and Okay. of results. financial review

EBITDA of of great each Scott steady to accounted a majority As almost we mentioned, leverage in in in million, XXXX. a tremendous evidenced XXX increasing XX.X% Product us. income to which for year's XXX% up XX.X%, million financially XXX%. Adjusted X achieved from the growth XXX% just rose loss from increased year have XXXX higher quarter. growth for XX.X rose Net with million revenue growth, revenue the in margins, last XXXX, we to

or and were was our Year-on-year from target revenue $X.X preliminary basis, XXX.X a and quarter to fourth than up solid X.X% XX.X the gains prospectus were Looking revenue both right adjusted On across quarterly net categories. million. at each more of sequential doubled revenue income EBITDA million with our Fourth results sequentially estimates quarter, on with million up final the filed our the SEC. with marginally.

up we expected, increased frac rental some the tech ramping saw As in staff had seasonal fourth the service quarter. impacts our services mentioned, as on Scott of We field that side. particularly reflect costs the

not revenue board we commensurate with understandably new tech did As bring generate costs. these service we on trainees, field additional

tripled expect sequential sharply adjusted quarter SG&A, million. down more impact the income XX the the to than public X.X to quarterly material fully expected is $XX.X while we associated company. EBITDA rose additional in being increase coming to fourth in subsequent million, costs million basis quarters However, to net to a in a Year-on-year, positive on due while with from quarters. the

fourth growth adjusted a year-over-year our to XX.X% margin from EBITDA increased XXXX. quarter adjusted with sequentially quarter that consistent as we EBITDA incurred down margin was in the cost XX.X%. basis, fourth percentage we On for ourselves expected, As percentage and positioned

bring the initial valves demands We our expand forward to in investments a are and plan rising to shortage Larger our the fleet. and zipper requests manifolds scheduled bore hydraulically have on decided [indiscernible] additional operated to for for further and large mounting of assets. popularity XXXX pod response caused frac more equipment rental placing by rental sizes, of these opportunities loss

us. between front us address We the supply increases to loaded we program As we intend to for the $XX leverage share available estimate million market will million the to model such and be of our the chain the that with year. products, effectively $XX XXXX more offers CapEx majority now for flexibility our manufacture

We these to increases over positively impact time. ROCE expect

the centers where product facility the efficiently we volumes are wholly-owned our to from expand necessary these in facility areas. China. continue. will we lower expand the accommodate expansions plan expect handle our Mexico in course in City to These service share During And we the sales rentals our to Bossier to of year, of [indiscernible] cost and New market in available components increased opportunities addition, growth

returning which The returns of prior the cash. capitalization exercise is of deploying to revolver held the as interest employed years associated $X drawn capital with XX%. units proceeds why million net highest was measured we of sector. loan operating over We redeem our used million are some primarily IPO of received $XX of off completion greenshoot, $XXX.X our we which of and We $XX almost and million. very our in million income purposeful $XXX capital, on the used pay of term approximately owners was in million, business. the two XXXX, accrued last the by our we average of to Upon In and have remainder delivered currently by the our

expect off the pay the of revolver We to March. in remainder

on a sheet, life Scott. we in to other our call turn to are rental begin strong lines. along company business as will back we seeing public such financial business with That I’ll very the as a covers So which frac now us allow our review. balance with the capitalize opportunities

Scott Bender

Thanks, Brian.

share in date facing. to are they particularly for solutions on to our well the have gratifying, our pursuit be results We much our complex challenges in from our while We products increasing in components. carefully customers report, to all of Suzhou, we we’ll demanding shortages our we labor monitoring market are our focus products addressed finished While on We attention and accomplish. intend documented Most importantly, don't business, that increasingly on been to would potential discussed completion place we're tariffs continue continue the still the have China considering not remiss directly plant XXX that steel. given expecting. being Section we the are mentioning believe are execution,

do our While these -- and complete We in imports our assemblies. for and plant our and parties been US greatest these components we material third the various finished have raw Bossier purchase from had to City accessories concern.

impact goods, significant. our should customers will to XXX likely time experience however, this for prove these countries. to we past exemptions our of at as on unable be predict on accommodating We’re be impact appear particularly the of Based that tariffs the these new section certain believe

open who instrumental thank a of I of to Q&A, and for I up Before people in success. our groups acknowledge the want lines been have number

customers, I as business. our thank again, view we First, whom our to partners strategic want in

our their of needs. forward products focused We and to their result ongoing direct in to with confidence responsive we're a team, work and them the closely continuing is provide. look on services remain our we’ll ensuring success to we Our

and those attorneys to partners advisors assisted your for hours, preparing who our all to well IPO. thanks our to thanks business external inherent as and energy, spent of this as who directors our the you and and New us us allowed our guidance be aligned To could side thank confidence. support look delivering forward Howard We following month. with Conference your sell the in you forward for will of as to later not and despite our process. with of of to bankers, I shareholders, us and support to Weil this analysts are our associates very returns. Secondly. be look superior board in committed special seeing Orleans demands our many the results and To operate we and you our team well successful Cadent more launch at who to at new working and countless

So over portion. so it with the operator to that, the back I’ll may we turn Q&A begin

Operator

[Operator first with Instructions] question Scott We’ll take from Gruber Citi. our

Scott Gruber

start to from speak heard terms seeing call in companies on a company. XQ into Can We've year should here year? Congrats in in on absorb of just what your you trajectory incrementals XXXX. cost the the first revenue a you many public as of that for slow late service some you're to think and as layered about how you to segment, on we the start comment last rental in

Scott Bender

I think QX not surprises we're through for -- way we of the don't quarter. the have Scott, two-thirds from Well, -- that we're and about expected what detecting I any

rental of rental business, our products business is as anticipated, growing rapidly more and terms our in our So wellhead business. we than

As you recall, we the felt greatest area we the that’s had that headroom.

you’re of Brian, in referring to So opine Scott terms to want rental incrementals, you incrementals? on do --

Scott Gruber

I’d Yes. overall on particular, also take easier. color incrementals In that's some if

Brian Small

Hi. here. It’s Brian

rentals is where product early expectations we and would Scott utilization, indications versus for thought are said, on market revenues line key we share, which as revenues for QX. the for in really that we where think services the be I stand are we record for where drivers, with

Scott Gruber

the on facilities, being be equipment how a incremental able much rental bucket overall you you just bit? base little you would at to much to and CapEx growth directed be maintenance, down how And break Brian, at is consider

Brian Small

Yeah. my best. I’ll try

three alluded little Bossier some Mexico facilities bit and the our to of got adding to probably to in XX I is in the terms million plant roof and New the we in rental. is Fewer quarters call, lane of my million we're maintenance CapEx, City expansions as is that balance, that few XX small reckon of X a portion, storage. In we've the we handle also a and of under probably mentioned

Operator

And our from Suisse. question James Wicklund next we’ll Credit take from

James Wicklund

and and wellheads, I like realized share business, there's generally formally a what mom where market what if in and the stand you business fragmented but this it's frac think but can your evolution the in you the pop forward. as easily over do business? rental talk denominated isn't know you years expect you and any last of about going what that is that think I been you it's couple

Scott Bender

Thanks.

come question up with for us. a You harder

You know us. how hard for that -- is to

James Wicklund

but just and I'm would hard numbers, know talk if I you not appreciated. be it for asking to it, could

Scott Bender

Okay.

speak let it will So I me happily. to --

share. is very well two market of could we're XX% be you the our frac We terms rental confident The a well a below of have be service number share that the do number crews in are that measure that issue by well market we you of crew because wells working measure pad could or a crew you by pads. do with it following on we XX and we that’s

James Wicklund

you or of out I here to hard that XX%. what still I trends? would just business thinking as years you agree. I'm to opposed pops have is been denominator common major find. from if of the mean, amount again, potential mom A But industry? are XX% any and mean getting of forced there are a I decent the of -- have and over part had upside couple they indicate a next this

Scott Bender

you East, than validation, for Steven mom valves closer more I see is to the we're severe pedigree, of to frac over example, of tend fewer these verification six the day much seeing I. to -- well of course these that impact to day fracs, the and months that purchased without business environments. is of hold to up the harsh nine intensities say simply them opine frac and less as out design say are and Far we that that much that attribute reason that in without would well pops as can and but months the and from Steven would we I well, last not

reduced customers perhaps of who for reduced own their our it's approved the those frac manufacture I vendors and what severely to to many as I would and for it's think wells. design refer So

James Wicklund

if second A I could.

anything You've products, two and else if got over wellheads legs, sits What time? rental valves. and in there

Scott Bender

rather it high this cash Jim, so unique had flow for very I've business has and and that business been question it. is ROCE XX a we generates characteristic is problem XX it asked that for much The to have this that always myself years. and in I've years

on products, We're directly be to to are then lastly, selling that And end on because focused products other we we sold cost. avoid think add basis focus the of products on on manufacture products can because differentiated look that we're try we that value. we if focused at we So users. the we can

this something So for don't equity products that leverage completely that us eliminates, to distribution. least at being, of the move we -- we consideration allow through want right have time just that to that want customer We will now.

the answer. is, identify that short to a long answer profile. that yet that's meets So we have product The

James Wicklund

tough starting at the top. It's

Operator

from question next Simmons our Herbert Company. and take Bill will We with

Bill Herbert

So drilling of probably driver strong gains activity the lights E&Ps, actually call, people kind most year have the been the of of part on growth to pretty have due year E&P the and would into gains refrain the majors. coming secular to those the predominately austerity leading been I date, stronger expected private and of

exposure exposure and roughly So wellhead percentage on privates lower growth to your of to what the XX, the is majors? your side secular

Scott Bender

could I that. maybe Bill, rephrase

You’re at majors, do business the really big super we majors. wellhead how do much asking the

Bill Herbert

Well, no, plus Chevron E&Ps. so Exxon and private specifically

driving the rig more leading or XX% of more lights whereas roughly So allocation. and two they're restrained majority activity the buckets methodical certainly and kind of those than Conchos, to the collectively, E&Ps, of cetera capital of et the speaking the pivoting drilling gains more count a are

of you? be be line E&P, another secular plus rig particular that the overall So private growth just percentage count, that for in that? XX being would what to by sense to representation, majors, percent driven your exposure I'm the it roughly get bucket, XX%, with so is growth other a bucket, mix trying Would

Scott Bender

won't more companies majors at well at We're way oil represented end for majors we of to the through the to surprise terms in answer population the entire have wellhead we rather are just it, a reason of more you and much that exception business. I'm Bill, you in think Interestingly probably their when they're cautious with finding it. innovation, than much the way going the frac historically find probably that way of are that rental very the is I the it majors. are the the suppliers. point. enough, to ready the to And that embrace That's I with look to first there's and users is look

migrating So trying while way wellhead has business we've been The rental their our to the spent reason is terms a to times. that they're customers really be and of our add stream, frac anyone probably majors, non-productive to more to lot this last business. and year through taking time is year of their than revenue in frac interesting it that important else is for suffering -- in

So that cautious as to with as and I'm two this were business can't of business majors we we're time year their last not now afford they they frac whom be were demands. doing it's rental and at with doing right thinking through

So Go better. can move is something our that ahead. we into that hope

Bill Herbert

from And then follow-ups just two quick me.

-- got rates likely labor got of energy of then that's and just what uses on basis? as -- you've the leading increasing super especially cash you historically running edge surplus and and you cost unemployment the so for free as secondly curious next that's CapEx spending, flow cash to base, all capital what even and expected to is low the most lower you've First, with when then see year inflation,

Scott Bender

questions. Okay. All right. Good

are going in criteria think our our the rental an If as that accelerate can find of naturally decision then we because as we to will made if our CapEx we ROCE. meeting frac meet with cash, view our dividends. we terms we threshold no criteria begin acquisition earlier. for in valves expand do to criteria, that our to longer what that that And meets enumerated think I and about other ROCE a well we that find I as can't investment so opportunities

been thinking our commit and -- wouldn’t answer, labor we're that field about the an our of issues certainly much And that service to So this. want to we shop last want in in broadly the -- double were have acute and while people I think digit. year, terms more then is mid I we of folks way we terms were labor, wouldn’t

Brian Small

for increases folks, and year early last to say, would digit retain. double the I recruit

Scott Bender

a first five. digit one So not a begins the with though,

I XX% areas. it's certain think been for maybe XX%, to

have For because wages. we people stabilized by loss terms of -- a and the of way, in to of seem

we So the right I think spot. found

our techs. believe and service our that hourly, we For mid to single that digits high that can XXXX, particular, addresses we contain to in really field

Operator

And with Sean we’ll question Meakim next take J.P. our from Morgan.

Sean Meakim

deployment about could units? of the the a time? cash of would for sales percentage given being the you talk about little sense a how business, maybe, hurdle, rental shortage rentals, CapEx about mentioned get And bit was the these periods? bore think a for be hoping how over think you talk large it in you we economics normalizing opportunity, as more I payback, a also helpful activity a I and for for time capital return some rentals Is of there's you particular example, incremental adding maybe see of that underway, could to run rate shift

Brian Small

Brian Hi. here. It’s

Let return is me good historically, Sean. and on we try that equipment, to find I because ROCE a rental one, us. our important mean, answer

about payback cost in a for we so of XXXX, million. rental think a gross less year. I revenues $XX at look $XX were And rental You'll our than The see broad million. that terms, is fleet

Sean Meakim

for mix about Chinese that business cost well, lower you just got as the the your optimal to of manufacturing time? how we between capacity then is versus you've volumes composition what US, the is And quickly think flex say optimal an your the here do about timed over would in the recognizing time, thinking mix Chinese capacity what opportunity capacity over

Scott Bender

the mix East. the Far think, be the maybe will Far range mix, the XX%. from practical The XXX% The XX% I practical mix optimal East, from is in optimal

more the product can. a intensive of as labor as incumbent to to in of -- just the maybe Far our much even interesting cost answer of upon we than East move We the it's think question sort portion -- are to us addition that perspective, from I is,

final that but And so and machining the simply the not the even assembly, assembly.

that bring a our a way in, world, it perfect to shortages intervention least US. It the if perspective required of goods I in So go here. minimal a very amount solving here labor in this at issue think would we could from long of

long XX% answer. to would So though. I say that's XX% a

Sean Meakim

And then tack just times, needs, let et that respect me any that, about anything should with longer towards to to getting on -- capital outcomes respect other lead working to just moving mix, think we with considerations cetera.

Brian Small

Hi. It’s AR. Brian here. time, months On same as working the too in capital, represents in very it’s about in really decrease the very around never broad on And didn’t except obviously, terms, much three that, the it rate down revenue. inventory

Steven Bender

inventory with product over. to expect obviously, get China, In about it to longer would XXX Sean, days China, days. have takes respect we to

in some material. number, see movement would that don't not think. you but So I

Operator

take our will Bank Lowe question with from we of next And J.B. America.

J.B. Lowe

right you guess you I in you coming guys number on shareholders. a the max to I what now your that just could rigs but way and know, market market My time about want I do follow we've out, to at max I your was know is? say share think could you when be of kind you the have it at think at given capacity US. would look of Suzhou, what talked your think your the of be, were I Bossier another wild -- at is kind congrats it for IPO. successful least question,

Scott Bender

such the problem. Wow, about thought I level that high maximum would number, a be never

to give a on I short you inability have me an -- this. Let answer

our suited of population our remove First, the simple you non-horizontal -- have wellhead wells. -- or to for vertical rigs system wells is system not because we're sort not well from

that drilling think I look probably probably this suited really So number casing don't thing. strings well at I the accounts And XX%, of rigs. maybe wells, for way, of XX% pad horizontal for, are of very complicated we multi sort but it

In our in group market share, and XX% our at the Cameron the terms we back mid was wood days was actually US, market time. in share I reflecting at high-XXs were in at XXXX, that group, about of to wood on

So we headroom market have terms of wellhead some in product share.

that care here bit don't we among our take is I of work staff and not supply to think of perhaps actually our constraint. get every I that want it really we the sales can and discuss chain we think

the Our branches infrastructure our constraint and in right we're have now is on we focused that.

the answer in take my is some going we headroom mind there. can, guess, short there's as we're I possibly So we’ve no question but much to as

J.B. Lowe

could issues some the you get number? you’ve XXX worked infrastructure following you to get to those rigs, So given of mentioned, and that out

Scott Bender

Yeah.

think absolutely case. the that’s I

J.B. Lowe

below of My the case on, talked rental still just you something was peak like just being think pricing we've Is out top other given market, one about is the that? where peak. or XX% pricing market that and frac I to getting the somewhere below do that know, think that is back now that achievable structurally probably do you the will eventually

Scott Bender

think? you do what Steven,

Steven Bender

want and we are pop that’s get can fracs definitely pricing through in we supply question now players there? right fleet, intensity if issue to call your the answer earlier given Do I do, about still Well, below answer that maybe Jim's maybe regional you think mom demand and think the to pushing peak XXXX. it first to I Permian of and the question, a on atrophy there's the of going their falling and up. out I

So are I think achievable. XXXX levels

J.B. Lowe

that's story? you Do the think margin So wise on pricing. same

Scott Bender

no reason is why wouldn't. There it

Operator

Tudor, O'Leary with next take Pickering. from George question We’ll our

George O'Leary

are customers the the side production side, side your of how wellhead with the tree color we aren’t share imagine wellhead about. capture equation, it’s really product but towards curious customers I of the mixes, mix and maybe production On any trees many some versus the revenue maybe very skewed heavily thinking also on on production the the just might tree ballpark and be side market on wellheads there just and that

Scott Bender

The the So, The is we're the not tracers. That's not for to a case. that the up trees. rule barrier, proliferation case if provide pop of our that trees, low general production where with mom not portion totally reason of and with thumb production if that area we it's only. consistent but wellhead, is Texas that in it's business, entry wellhead, provide the me, we commoditized West barrier be we a pardon a production provide of there's the there going general the always a end would always that very very probably is provide companies

drilled mix, to wells we're a XX% In XX% us right total production do to going has product a terms of of that A production wellhead. about on trees with see suggest, and in our putting we lot And growth we trees now. our actually at year it production I'm ago.

back know. our half delay didn’t end delay. we pick and So trees and We any XXXX a we year, have you had there's this of natural first the any we installed that wellheads year at because production of sell until often didn't as business,

So increasingly we production right trees now. percentage seeing of high are an

George O'Leary

maybe markets? kind Middle there the then for, are expand for in general guys bigger or guys picture you what sit in plans for some process looking we you the update on of term international a And where to just East you longer a hurdles be should question, and within that and maybe landmarks maybe

Scott Bender

the and have now primarily one We be would that the market Mid right East. devoted to person exactly international focused on

those experience, RampCo, of in known. work caution would areas I right potential we I an from are dipping market. the bit just us. doing ADMA, against and for such ADCO, a be just market into of better that far history areas players the quite know -- a remains our toes do you familiar and PDO with we're on it's early and of with So The to previous sort course our such which now over probably well US sort though the any have market days. work KOC, we’re our you of above so caution did these international. fairly We I’ll

Operator

would questions the appears back remarks. today’s I And there over this to like closing for at further no are It time. speakers additional turn to conference or any

Steve Tadlock

Weil. With that, time support. at forward for your we Thank Howard seeing we appreciate look your you today. And you to

Scott Bender

Thanks a everybody. day. good Have

Operator

This concludes participation. your Thank today's you conference. for

disconnect. You may now

Cactus (WHD) 9 Mar 182017 Q4 Earnings call transcript