WHD - Earnings call transcript Q3 2019

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Cactus Q3 2019 Earnings Call. [Operator instructions] Please be advised that today's call is being recorded.

I would now like to hand the conference over to your speaker today, Mr. John Fitzgerald. Thank you. sir. ahead, go Please

John Fitzgerald

our available good The We will speakers Chief Steve Bender, and us Also in are today be your today's our Joel Tadlock, Vice afternoon, release, General Vice and Officer; Vice Counsel President call. on Executive Financial Bender, President Operating our we and earnings Operations; on morning, of Officer; you, Officer. appreciate Chief Senior of joining is everyone. participation David Yesterday issued and which our Bender, Steven Scott Administration. and Chief President Thank today's website. Isaac, call our

that future on today's events note Reform the call for statements comments forward-looking Litigation expectations by covered or Please we are Private any regarding make Securities projections Act.

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

included In our measures. will measures are addition, comparable earnings during non-GAAP reference today's release. call, financial of in Reconciliations directly measures we GAAP these certain non-GAAP to most the

With that, Scott. the I to turn over will call

Scott Bender

U.S. which the pleased the the X% flow to morning cash the the sequentially we I'm resiliency Revenues strong and macro QX, environment. overall good to business results model. positive our margin Company's and and John, business maintained of in everyone. land Thanks, despite was right. weaker-than-expected our outperformed of third report count All quarter down profile showcasing rig trajectory free

$XX was margins summary, nearly Adjusted EBITDA EBITDA $XXX Adjusted million. were XX%. In million. revenues,

share. to dividend Our of initiation Board per and quarterly of a Directors cash regular cash $XX increased our million, by authorized $X.XX balance $XXX million of the

call over third the CFO, turn will now review Tadlock, financial our who to I'll Steve quarter our results.

on thoughts outlook for term Q&A. opening Following before his the the near our for provide remarks, some lines I'll

So Steve?

Steve Tadlock

declined in sequentially Thanks, Scott. QX than and equipment the to at up revenues but QX X% higher were due $XX $XXX count. year-over-year. the achieved revenues were U.S. XXXX higher million of X% XX% relative to decline This lower X% outperformance Product rig followed. rigs despite X% onshore relative sales in was sequentially million

XX% under revenue Rental of the XXX Product the gross margins completion attributable sequential $XX of reduced just modestly industry partially The to Section decreased only basis decline by was higher approximately activity, which revenues recent down due were additional XX% offset million, from on to May. was in announced innovations. impact primarily quarter. a from to our revenues tariffs second

line depreciation utilization XX sequentially innovations to expenses asset expense, with as higher Rental with associated rental Field bolster points just in other service second product a revenues gross despite profile. declined margin million, margins expectations. X% revenues profit improved and our represented served the our in of of quarter. percent basis This and down during the as revenue rental-related combined were $XX under QX from XX% and quarter

revenue likely greater As portion our these service expect we a than and our would legacy revenues mix. ratio rental this our recent revenues have as QX, lower approximately percentage field this become a associated rental field innovations In reminder, product be innovations and is business, moderate to service of XX%. to rental further

during under down SG&A flat to quarter. We at XQ running be would QX. approximately $XX.X with million, for compensation expect $X SG&A was million expense $XX 'XX just in slightly to the stock-based million sequentially at

sequentially. totaled despite million expect relatively being amortization public $X.X depreciation during a expense company. lean a We the the we quarter million aware, you're Depreciation $X.X expense roughly costs fourth and to by million, increase with As HQ maintain sequentially. currently quarter organization associated up $XX

nearly revenues, the down quarter second under million, $XX to million $XX quarter. represented just during of similar XX% was second adjusted the for quarter. EBITDA Third from the Adjusted quarter EBITDA

A was of XX% ownership and tax in was XX% Our rate Class the relatively public further This barring stable effective public quarter. result in ownership the of an QX, or in QX end our in percentage. approximately should at changes

all the as effective higher tax quarter our some prior actual Our and estimates tax this rate revisions returns had quarter. XXXX finalized that was we rolled to through slight during

earnings the as per additional future prefer $X.XX of approximately to incremental it With XX%, the resulting million GAAP to expense X%. and $X.XX XXXX, and earnings related million income million was Inc. of diluted public benefits. to share outstanding tax assumes share adjusted look QX of in tax of $XX QX per in per units, attributable to income was $XX entity income per with quarter this an shares share share adjusted held $X.X Cactus, decrease all tax foreign the was tax write-off in expected fully at net the effective state tax which inclusive of to our net compared related the reduction credits additional rate a we and expenses Internally, income

rate We QX reflect EPS estimate of will adjusted XX%. that continue an in tax to effective

from make recorded during payments in not cash until third in payment do in of with the through As taxes members. the flow distributions to or cash via our payments million XXXX. distributions disbursed TRA for outflow expected, third we from TRA the expect flow second and operations activities both to financing the another TRA We approximately $XX and quarter quarter,

tax XX% of for our Up-C reminder, given from to Inc. resulting a year savings structure. that As represent the tax a accrue Cactus, cash payments TRA

the strong cash still of million to over XX, position increased by $XX Company. highlighting Net payment, quarter this million the of September during free $XXX generation at flow TRA our cash the

We Accounts sequentially, capital declined at during decreased end XX. was quarter For the and million. DSO of in as to in as $XX the receivable third line as increase quarter. QX Net slightly represented slightly and with QX flow quarter $XX source due of CapEx net of was working of drive of working the $X capital cost increase million in the revenues the quarter, Net percentage was our from Section revenues expectations. million, to would a impact days to the spend percentage inventory operating annualized the equipment. may cash of XXX an by expressed associated XX%, expect second capital tariffs working up as cash the a higher and

of recent Given and directed in million. toward $XX are growth expectations be reduced CapEx will still focus near $XX to term, for capital of budget with majority in the drilling to rental our capital business innovations. the expenditure range completion the fleet activity XXXX rental reducing our million net we our of on for a our The build-out

As we anticipate a due more we market be expect cautious of look in of visibility lack the all, development. fourth to at generation. and quarter spending level decrease cash for capital a meaningful This year-over-year. our levels albeit in innovations spending we All recent currently toward quarter to is technology rental on another continued XXXX, despite additional strong

covers Scott. turn back to the you and financial That I'll now review,

Scott Bender

gains business outperform rig to and in drilling quarter pardon the highlighted Thanks, declining third Efficiency to resulting per and Despite our be again ability more customers. relative the activity, basis. declining once to market our me. wells to Steve. on our continue a the, completion Despite beneficial

resulted many profile again our products peers, a going to and margin this public of forward. in expect be and differentiated services less than continue the Our volatile to company case we

to rig back While our revenue large budget by as our per X% pull primary customer second base, dipped to E&Ps, increased spending the actually XX.X% continue market to sequentially order within product during the quarter. product share versus stay third quarter in plans,

market above even second said, slightly third rigs mid-single quarter percentage-wise we in to relative Cactus' followed the September be share currently Additionally, is down levels. followed That and digits October higher quarter-over-quarter. expect rigs and levels, in to moved our being

the in levels believe year, up production relative likely suffer as are point to sales in Initial activity historically more pullback that a in new to customers plan improvement Gap] XXXX. similar slightly tied down for rebound revenues a be activity we sequential pick and completion indications budget in as to more toward [Audio to XXXX pronounced exhaustion. a they QX completion rigs from activity Product will indicated have fashion in several equipment

in that we offset up likely replenish product combination said, inventories, in Despite and product us a reduction large our focus as continued May, less reducing margins That we The the have enabled QX. more cost to in portion XXX increase. increase expect of modest well. held our tariff occurred though the the quarter margins on fourth drop exchange than has severe rates the costs during Section foreign tariffs relatively of a in favorable

a witnessed the of QX. business, during On of the activity side latter the rental noticeable part dropoff completion

our to SCOOP U.S. chase the innovation, in legacy and the offset recent indicating business in in down points quarter. fourth and industry activity combination onshore a rental are revenues declines of could and Eagle were Ford increase which that completion XX% not data the However, business volume at like activity approximately reduced STACK in areas declines quarter-over-quarter margins. due the decision our to be partly certain Recent

add recent to We broader by of current contribution our paring expect reduced items environment reluctance noted proposition. the guidance, cost of by market towards rental value of these less innovations. and we're as be in back to potential the due regardless capital Still, our to customers growth our rental as the CapEx noticed, severe many revenue than decline light the market

revenue. Market we represent QX share XX% quarter innovation share for growth priority. not of revenue That our the expect said, XX% to market recent of is to our sake

slowdown call year. of We levels margin value to differentiated believe in for handle reflects the costs XXXX steady our business. offerings EBITDA were a last This indirect activity to the potential to one and continued budget well within Thus, expect phenomena exhaustion to the for May second the profile margins of customers service regarding the in place of temporary the repeat and American we companies witnessed the third on we're at maintain similar caution North first half to rental manage due prepared back our adjusted quarter. ability our the to

by conditions efficiencies validate costs and market business the around rental decision recent continue rental The current on our enhance base to via and to customer moat our innovations. the emphasis our

field. terms pricing, the value users equipment in proposition Although definite a deployments current in and both by the validated this headwind for weakening well been has marketing of activity new provides

higher the both recover quarter. first XXX XX% points. business quarter we'd service. should has Margins we field basis and to fourth by product This typical the margin XXX during continues of field service and Recall rental to traditionally during the and to be holidays, quarter driven year. in expect our next this anticipate to revenue be due segment to from and nonbillable rental on revenue compression of product Moving activity, fourth combined hours of approximately

generation was of and as we current flow cash of we $XX In in million free million $XX strong during cash, significant cash our to net expect environment rig from outflows. the a again, flattish Once would generate to quarter continue added tax levels, flow. count free TRA-related

in of implementation for a strategy which I'm this high to night, of in noted given pleased variable a flow a as of generate value nature cash to returning cash and business, dividend. at release as will creating this start balanced return of We're to cost appropriate. significant shareholders per a the regular the cash, quarterly cycle. our which share view of the our is quarter cash As long-term introduction flow cash and earnings $X.XX sign its to confidence stockholder committed suited return reinvesting We last through announce at rates ability through well

in is to shareholders, to still our stockholders. light. We continue and ways balance expected place, business to additional grow aligned our remain continue in will make return to Thus, substantially. closely with cash evaluate decisions the regarding Cactus value we'll this With to this

highlighting for questions. areas business before like to opening XXXX close I'd focus by the a the to in line of few

we In with continue to in majors, well terms of these customers business. penetration our perform with rental the

gives our segment ability business to across technological various Our service us more customer next Cactus' business we customer this of lines. showcase optimism earn level and high year from sophistication can

appropriate. where we've Regarding progressing identified status approved are expansion markets and toward internationally, target vendor

As the the following. benefits opportunities XXXX to late the call, we believe with materialize in last will mentioned during begin year

rental well Turning SafeInject, innovations stages of to We're SafeLink, the new earnings at other during in SafeClamp stage safety items life new development while well some well the of the Like product the phase site increasing new our aimed of our and for and development. last completion efficiencies products the initial during the products efficiency drilling enhance in unveiled are cycle. call. of various beyond these

and in evaluate light of new equipment and we've various the uncertainty, the begun of supplement international global Finally, questions supply in existing markets chain locales. around regarding our to given our globe, chain we trade the manufacturer routinely in supply diversify

positioned core leaves manufacturing competition still us perspective. believe the a China from a U.S. cost and the we well both delivery footprint in and our However, versus

optimistic micro the to market XXXX. ample backdrop ability caution, for reasons in provides the outperform regarding While we remain our

success share despite E&Ps large disproportionate win of Our group from ability in market the to customer new business. core maintaining highlights decline our our

So technology but regarding on new optimism. customers, the to international expected some the year. penetration and fourth hearing we're Customer is rollout quarter additional budget potential with from points data weigh expansion for provide next and activity, reasons of encouraging customers existing plans for exhaustion

XXXX to to leverage the intend our advantage. in and 'XX, downturn As we current

commitment despite for our associates Finally, I dispiriting and thank their want continued to macro dedicated focus atmosphere. the

back it operator to the we over turn I'll begin so that that, with may Operator? Q&A. And

Operator

the question George line comes O'Leary. first Your [Operator instructions] of from

George O'Leary

good stock. it's your day guys for in You a there, hanging

Scott Bender

Well, I haven't looked.

George O'Leary

now up it's it before and you've up Well, more. spoken, that was

the did per or efficiencies trend continue what's quarter, that that kind Kind production guys? know driving revenue curious put guys rig the you I super little more for we So to there per guys onion uptick you discussed rig? impressive bit, revenue trees that that's here you you of little up The impressive. rig mix back you bit. of during can that job. but peel rig is really a per just Is I'm a if And a selling good the

Scott Bender

it's mostly pressure, healthy large product but Yes. stream. mix, efficiencies, George, higher bore, also it's rig

George O'Leary

whether of customers always efficient. to in and trends simul-fracs our about have leading-edge that starting more out. or all of notable start stand We've side to of kind are was just more may you trends other trying your the started top noticed some You monoline I make on guys help you to places. the are out various guys wondering drilling play table seeing in gain business kind hear you fracs to speak if any so on and of could that and that to share completion

Scott Bender

pretty Yes, that's quarter I'd been, of is I of a iron over last move use reducing on or absolutely which of pressure towards significant solved case. pumpers monolines location, factory. the course the by There's say the quarters into amount from guess, the frac X the

next that's X. by think on we going I predicted that think there's whole I frac iron be end the next locations So the to of in don't think earlier a we the -- lot or -- of year

Operator

Your next line from Chase the of question Mulvehill. comes

Chase Mulvehill

could about over that medium I international the opportunities talk guess see you we if growth kind the of term.

out have for think for So maybe you if you you. can which think kind should incremental of lay OpEx maybe you best growth opportunity or any opportunities as us, in or about layering And growth R&D for we be we CapEx the that here. regions if international

Scott Bender

Tadlock next continue CapEx earlier. Well, recited CapEx. I Australia Those year. year, let reflected Mr. me in in in think have to first that the terms our this speak increased we'll figures We've in and probably of, levels increase Australia been CapEx to

will the The or begin pretty similar be see I the think of least terms for Not to a to in frac needle, much lot amount up move Australian of so market it's we the to undoubtedly U.S. market it we additional SG&A requirements as of but requirements market is set although penetration there significant will internationally, internationally. are a increases for really U.S. related money. not penetrate at will some requirement. a going activity, SG&A and to XXXX lot in CapEx ourselves don't that. Chase, like be

discuss those all often, on calls. very my terms competitors our areas, can of appreciate probably areas these reluctance In you to because listen

Chase Mulvehill

just the having that And success or be wellhead the may bit little not to kind set. then this with and come U.S. may back to majors the if product Yes, point penetrating you talk a of we at yes, understood. the on

Scott Bender

constructive. good so surprising that? when a know it's you What not it it And question just happen, I How's I question. prospect. Chase, to very telling happens. because feel it's this the you when going about hate happens,

Chase Mulvehill

there. Okay. it We'll leave

Operator

question Moll of Your comes line Stephens the Inc. Tommy from with next

Tommy Moll

the the you I decision did lightly. a start which So, wanted one not know and to is on dividend, Board I initiate to take

and of for able returns factors capital is that and flex out we what that then nature guys strategy and you of of raised how that that One the us dividend confidence the number of the down you're to to up now in see strategy a and how couple terms through-cycle due cost may and gives you business. you to that the Can why you with and looks confidence costs, time? ahead over -- signal the called start variable remind times like go

Scott Bender

response try to give Okay. going Tommy, I'm abbreviated to this. an you to

has the XXXX. with where level $X maximum of debt, we to occurred that in only grew million in X XXXX are business from and a think, Our today month, I

business very cash and entire the about you B Term XXXX that had flow, may includes difficult loan, with been million. So, $XXX XXXX has recall, internal of and very, financed that when our period we

during period, that positive primarily of So, as million year. liquidity able to retirement make a principal our early were some in interest, still well debt and payments we maintain of that as of excess of some $XX

during highly continue that and our is help this our at I generate look period, rise that back at cash all? Did that as and sustainable what So a that's of ability level optimism 'XX to gives to 'XX to dividend.

Tommy Moll

remind the been does. I you've If could follow [indiscernible]. how Can strategy. variable It you cost just up us on

Scott Bender

Yes.

cost -- our structure. requirements very, increased And requirements we have product in majority -- is operate our where our the low very that a of fulfill CapEx products this of we out fully we do of chain set we increased China very we way business. up, very, our majority low support supply Okay. Tommy, business, core -- the products because are fixed recall capital requirements our you'll to is primarily and -- or

have of people We $XXX,XXX. or I'll remind there. XX size that a you cost at capital the that plant tripled about And of XX XXXX in we

the up because to increase capacity, we're impacting, our and able we're set we're returns. I think, capacity way of able without to So decrease in China,

of cost So that's what variable business. I nature this meant the by

Tommy Moll

buyer Yes. No, continue the wellhead a Cactus, on more you've head. when net opportunity what that hits we've the the E&Ps, this look that's are flip the and year. shift us at opportunities nail for transaction it's be among that that potentially presume opportunities year, the maybe with the maybe When work and understand it of you M&A, to risks the if when how would the you you, on think of of next but a But it's occurs, I side into got the could a relationship just see trend that not buyer. for seen the those help I specifically you can and side helpful. business? I a risks in specifically seller for If transactions,

Scott Bender

I of if default, very on you're anxiety. with been so of mean, the the forced clearly, us he trial future, the customers, the our have degree other to indication Well, But when business when the certain a is seller, results by past them buyer on put any doing there's has one hand, of the buys positive.

trial on sort before like a getting it's a of couldn't we where So trial. get maybe default

very been the have So so results far. positive

Operator

from of Scott next Your comes line Citigroup. Gruber with the question

Scott Gruber

that Where you new QX number? as sales? revenues did tech have percent sit Do the of a

Steve Tadlock

what this expect XXXX somewhere or you we talked not XX%. the no to We're I line were later -- about QX over by think with point. Scott quarters. in XX% mentioned Heading QX at coming to mean optimistic I what with than disclosing. That's we XX%, really

Scott Gruber

you growth kind legacy Got just new to the XQ the Any can from to peel kind rental. trying bridge tech you. business to of within provide XQ? on apart relative I was of color for

Scott Bender

more. right is right Scott, could innovation Yes, of potentially going I of if terms going faster spend legacy to in is, if it honesty, it adoptions, business $X, $X sure as think I as significant now now our be new grow to headwinds the the much attitude the business. to proposition, am more, than save all customer costs of not because in $X But of the value me our side side even not there's

a value the was So is also in that it's fair it's much the sale in thought fair to probably say than say spring. tougher it proposition it to was we But the it's better today than spring.

the data think put into So didn't I but is It's of we're with can wants get just us, and customers, that dollar. this, to and as to in our feels generate I able comfortable, team right share we spend talk more we another to reluctance customer to comfortable the to last more installations others, we'll incremental able thing of now, you returns want actual really to that the be some that dollar. significantly I that more data feel overcome that behind about and a terms to

Scott Gruber

hear reticence, So that. budget that in quick reset? you with pretty we 'XX a think breaks Do that certainly

Scott Bender

think, It of certainly I some that reticence, that is going to relax, installations. and more

to So proud They them, spend them. I'm having it, who getting now next them. to $X use $X. come to I that with maybe customer to just to save love mean those still terms It's say that use use

So yes, terrible a now $X. spend to customer environment right a to ask is this

Scott Gruber

on thought? is And any proposition better you originally than why think color the value you

Scott Bender

Because cautious in. going we're always

nature. lot reasons. -- We're cautious there that think of I by are mean, I well, a

it, secondly, way. demobilizing. then the in are use you products, customers it, And use understand think use our we make might to more I the tweaks we as you mobilizing with you along new faster and the it, them

proud So been see group the of When way we here. something, -- quickly always better a been modification. do always make have to they I've we we've a

virtually, their So of some to these modification one has level efficiency. of undergone increase every products

Scott Gruber

rate to is worse think if Got you it. chasing XX% And Do a a pricing not do where down market mark? you legacy the you're given the business bit Or could it one rental that one. be last work, around similar at going? think is little

Scott Bender

latter. the Yes,

Scott Gruber

Got it you. thank

Operator

comes Morgan. question from your final line JP And of with the Sean Meakim

Scott Bender

Hey good morning.

Sean Meakim

that market makes convincing extra the about to than was dollar justify comments tech customers more it spring. famously it You taking your share, are tougher spend all the perhaps, fair to did the hear to in well Is it now seasonality interesting were into able be more still bit spend next and time give to budgets could won't bit Not you. a a of first year but factor that little confidence it a in is folks you that a it's -- say as you that Scott, new there's as that little downturn, because you difficult listening a So to that some to mentality? in help more an Does [indiscernible], conversations head XXXX? during reload? the part also

Scott Bender

very disappointed didn't. if be I'd it

Sean Meakim

And types commercial think just as us the on product? idea as kind board how of into how new field of guess, internally works converting Just for over in then guys things a and/or I that and/or, medium time times or rolled guess the basis. either a getting opportunities -- technology we -- and the think that you just you have you of about can kind incremental on queue are the sense that coming something of of about long-term are and from these drawing those in about of you technologies think from and cycle of generation -- either kind the out, lines a kind the give appetite I

Scott Bender

out of the I near-term term, at to one rollouts. now, would I and the right beyond that. roll within we this quarters X next very of end year. that Okay. say near very to one next couple when roll The out, we have say expect And

product to will ends starts, We the will pad the the would of this next began when hope and depend you starts. a deployment Steve, end end pad Some first on probably for But out -- upon for course, quarter. the roll when, one year, by of work of of pad trial I the it say? by about that

Steve Tadlock

months X ago.

Scott Bender

It's has months of it. the element ago. ambitious our an products. of technically digitization most probably X all to of It

one And cost low. hand, the the so capital is on

On technological the course, hand, by demand. that's other offset of the

that about the months, The heavy. think I don't working quarter. We've for that roll technology is which of and been is X of X product equipment time months, the too and hope at on more out sort heavy So first I next bad. some end we'll

maybe So looking at average. months on in general, we're X

Sean Meakim

each helpful. And that's those point with Were think developed around how how they there's from kind were the customers? in I of Just curious idea developed evolved context came where or kind from. really of early the of generation just those terms in-the-field they stage. or around of the one internally partnering

Scott Bender

we every virtually idea customer. our comes from have Yes,

Operator

are questions at time. And this there no final

Scott Bender

Thank everybody. you, day. a good Have

Operator

This concludes conference today's call.

You may now disconnect.

John Fitzgerald	Director of Corporate Development and Investor Relations
Scott Bender	President, Chief Executive Officer and Director
Steve Tadlock	Vice President and Chief Financial Officer
Joel Bender	Senior Vice President and Chief Operating Officer
Steven Bender	Vice President of Operations
David Isaac	General Counsel and Vice President of Administration
George O'Leary	Tudor, Pickering, Holt & Co
Chase Mulvehill	BofA Merrill Lynch
Tommy Moll	Stephens Inc
Scott Gruber	Citigroup
Sean Meakim	JP Morgan

Cactus (WHD) 2 Nov 192019 Q3 Earnings call transcript