- Earnings call transcript Q3 2022

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Operator

Good day and thank you for standing by and welcome to Cactus Third Quarter 2022 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, John Fitzgerald, Director of Corporate Development IR. Please go ahead.

John Fitzgerald

Thank you, and good morning. us call. joining you appreciate on today's We

President Private Our for Officer; Financial and and be President Scott of Senior Officer. Bender, covered President Officer; make Chief Executive Bender, regarding call on our Vice Administration. Bender, Steve Joel joining Operations; today speakers Chief Vice our Litigation future are note us statements Please Operating Steven will Also are Securities expectations and Tadlock, and forward-looking our events Marsh, the Will Vice that Act. General by today's projections Counsel of any we Reform or comments Chief

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

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

Scott Bender

John, Thanks, everyone. good morning and to

company return over the across for our the quarterly both best-in-class and records revenue XX%. company's the board strong EBITDA. growth set quarter seventh consecutive also highlighted margin quarter, This with adjusted Results and third was the adjusted During and EBITDA profile. were of

dividend Tadlock. EBITDA to margins by record XXX $X.XX increased the per and to over up revenue basis were our XX% call quarter. points a XXX X% increased share sequentially, highlights million quarter turn a third quarterly the Steve balance EBITDA paid Some company We I’ll sequentially second cash XXX million. of versus XX%, now adjusted include; improved adjusted to

review opening financial outlook remarks, I will before provide on our who some lines results, his the Q&A. will Our CFO near-term our thoughts for the following for

Steve. So

Stephen Tadlock

Thank you.

QX lower Scott SG&A in and higher gross X% expenses financial nearly revenue included third XXX opportunities. revenues at performance tied million bonus employed quarter evaluation a X% expected followed XXX our to professional XX% $X driving were capital to related higher up and of stronger the million growth primarily revenue. an rig. percentage to quarter was generated a revenue on margins in the attributable of to points basis represented revenues increase expectations. increase of despite million challenges. a million continued expense revenues in QX were XX as increase and other the sequentially. higher line The X.X combined during up rose driven quarter, was the Rental sequentially. the ancillary quarter compensation lower fuel and XXX mentioned sequentially Gross quarter. $XX labor during stock-based with up SG&A million revenues were per As in million basis in service the X% point Field than results. period, higher and the for return margins million legal at from of up prior quarter of of sequentially. by of were by XXX revenues second the up depreciation XX% accrual during versus gross X.X% approximately were rigs flat sequentially, PSU-related service part margins were XX Product rental-related This related costs expenses XXX driven than XX% basis expense points resulting and Product product XX%

approximately with stock-based in $X.X flat expense compensation relatively be to SG&A expect million. XXXX, of We QX

to to the quarter XX% EBITDA XX the evaluation added agreement. back expenses receivable in fourth during the third of similar Adjusted XXXX revenues company's other related compared of SG&A million from XX were $XX the quarter income-related approximately in adjusted during expense EBITDA to expected third not quarter. compensation third EBITDA reported XX% income removal in the adjusted second was in quarter. of X Third quarter. opportunities million second revaluation $X.X tax growth to was Depreciation the during million included up stock-based XX% the and We is of the EBITDA. Adjustments expense for quarter to amount quarter quarter. million, the of approximately million the the of for calculate million, the represented $X tax

quarter the the be estimate quarter. during income income approximately XX XX% adjusted EPS and ownership the to earnings XX ownership The QX percentage, the in We rate XX% adjusted and ended XX% During in rate Adjusted A and operating applied during $X.XX an share XXXX of we were share, the the million to third that income million share per the to XX% XX% tax the the tax XX net during at quarter. company million rate Class further the of at for effective XX during will expect public generated driven GAAP third quarter pretax our by versus was averaged and fourth the barring net changes was quarter or million public net per versus higher quarter, during increase period. for preferred income adjusted QX our quarter. which look respectively XXXX. QX. in for $X.XX We per income second tax

inclusive a be paid $X.XX up flow resulting million has X of a Net and a to quarter. exercise our cash the dividend during to increases quarter, million to with During The payment. and million outflow approximately the TRA the distributions paid going approximately million, for of times XX a in regards improvements was quarterly to for of million with Reduced XX business XXX per with of well cash outflow expenditures. $X third share per which of capital bode $X.X we Board during million the in was in in operating sequentially. remain cash quarter continue related the balance quarter, requirements Capital ended chain forward. $X.XX once-a-year members. supply CapEx tied will including the cash we approved Operating dividend transit global December. discipline flow We modest share to our

capital to turn full expect year, That $XX over review be approximately now to the covers we call expenditures net the I'll million. For the Scott. financial and

Scott Bender

Thanks, Steve.

half points period, X%. product record share EBITDA by followed product As during stated U.S. revenue XX% the EBITDA expectations X%. Latest rigs margins point rig at Recent conversations generated additional over up increased by quarter. followed most basis of U.S. the Product quarter rigs customers to of correct by improved levels. as our also such XX.X% land Revenue expected from remains would in company And be earlier, the the during early quarter. the to of year-end market mid-September the XXXX. increased XXXX increase approaching to projections in are market XX and toward per strong additions back during an If favorable rig indicate for XXX to share. which our

year-end public these portion make early We the the expect an next by operator of of part during to and year. up rig larger even most additions

are digits low-single XXXX, followed digits in percentage to with Activities shipments strong expected there facility delayed market EBITDA continue the Product of quarter sequential revenue is and rigs share during to we mid-single a quarter. during period, of the up regarding plans average production to Cactus’s commercialization basis are free the to start XXXX. a in be Mideast even holidays. to in the forecasted fourth assuming our to associated continued to is no be the for establishment expect on year-end by strengthen margins October. fourth rose its up related a off XX% wise. the The quarter Product For changes

East Africa. international we into markets plans We'll continue the months, growth for abroad. we for Middle few more last as and target to orders the Over meaningful progress equipment booked selectively

freight costs supply chain On improving. are and front times transit the overseas

improving margins. While a dollar further strengthening supports

As this near-term in last product should to expect balances levels bode existing for call, the inventory, well stabilize reductions working at XXXX. margins we early as in work inventory before capital and noted decline beginning to XXXX our through current we in on

On revenues over and of during quarter nearly XX% the XX% year-over-year. increased business the are up rental side by the

levels revenue. first a quarter. XXX next service We the the legacy are Field slowdown related around in new by customers rental year. the the up activity be margins for fourth which such slightly. to in Margins expected holidays should additional In more Any to is expected For the Service, product up XX% year. quarter year-end slowdowns. fourth margins XX% versus should activity improved term our work reduction Field although rental Typical XXX and is seasonality picked during during and some normalized the quarter indicating points near of be the basis EBITDA quarter, basis third should represent XQ point reverse third XXX return could during to the of again between revenue quarter.

evaluate to Regarding the opportunities potential carefully in the a continued market. for number M&A management has of

As on on we're to previous with mentioned characteristics calls, similar businesses own. high-quality our focusing

the large cash with to optionality provides opportunistically. balance Our act company

amid So macro Cactus environment market well industry, for remains positioned regarding in our for constructive deliver summary, optimistic this we're the to shareholders backdrop.

I'll we back turn that, to it with Q&A. and Operator? begin So can over operator, the

Operator

And from question Stephen from Stifel. comes Instructions] Gengaro our first Thank you. [Operator

Your line is open. now

Stephen Gengaro

Thanks. Good morning, everybody.

Scott Bender

Good How morning, are Stephen. you?

Stephen Gengaro

you. Thank Good.

just is rig Cactus about correct? something a talked that you you clarify specific comment, to first The additions, was said, XX

Scott Bender

sir. Yes,

Stephen Gengaro

Okay, great.

the absorption, about a you've a efforts profit lot been of the to talk as cost seems margin to ramp you recovery heard probably maybe be type history there better it when using overhead over supply obviously to be some on guidance potential helping, we in is So able what the last year. I chain mean, should When we've you year guide. obviously 'XX. achieve those to about think we recovery progression how of customers, for about thinking and full margins get efforts, any cost

Scott Bender

say XXs. in you're see to the would I going high typical incrementals Yes,

Stephen Gengaro

one, Okay, like just flow, seen, about international starting to traction. That's talk okay. and sounds when it order then, And you've other you quick Thanks. you're gain the the helpful.

our to in model sitting were 'XX, of to for think start trying you the impact would that seat, kind when you an If about put 'XX, needle? moves you're together

Scott Bender

call. to say going it's hasn't changed since Yes. XXXX. last It be the would I

Stephen Gengaro

Thank color. great. for the Okay, you

Scott Bender

you. Thank

Operator

Instructions] you. our next Lynagh question Thank from [Operator Morgan Stanley. Connor from And comes

is now line Your open.

Connor Lynagh

are with, growing versus to about of lot Yes, It's And E&Ps, who saying. seem are E&Ps what were guys year, activity. thank the talking hard example, aligned about increased side. service next on you well land pretty you. including on who companies are to I the be to wanted public drillers a find talking circle what saying for square

few So these I'm are curious, pretty it a is words, other based? adds looking broad is rig concentration it that just Or customers to In grow? is the of very high?

Scott Bender

very a that's good Connor question.

visibility that over seem heard of the what rig end know First, the through industry-wide. next, does mid-September discussed, good you've say the increase have year But we from vis-à-vis XX I that I'd very I days. XX high

so as numbers our and these not customers reflect the reflect may particular And whole. industry a

customers, In do guess two-thirds would concentration, a to to I'm from be two-thirds, would the be existing to going the additions with that public's other logos. our terms which and new of maybe half have

by probably -- guess certainly the the traded is I with large the short at So with large end a the publicly of concentrated E&Ps, least answer is, concentrated ours. year

Connor Lynagh

I regaining first Okay. moving But around year? pivoting historically here. the of off, pricing what Kind here. I'm you're your side but share was one always now know a point dynamic it's shorter, sense. there more in two importantly, customers been activity But of Makes with communication questions feel like business, you're do now? sort next just with sort is, of the rental competitive of the out presumably of right curious What's where how you higher? your on at visibility But for sort levels

Scott Bender

So first, let address question. second me your

our market frac will spread holds both general, for to in products, drilling enhance frac lead as our this products more that, and inevitably increase, attractive, think drilling and I become true our products rates which share.

actually into next would this for that, see first QX. in see see uptick saying, of far is year, activity always in quarter, we're of good to uptick. equipment terms in through really visibility visibility an into frac advance. never of say, prepare I we year-end, our terms like But we customers an QX, We the going In in terms feel

it's great you well lot giving you than about that lot would do haven't we customers asked So indicated And our just There And ducts. the that business, There existing I continue was have really a first beyond their the that degree of conversation quarter. that. more activity going expect to whom conversation, seen into building a with of we any customers to from was for. I'm information customers. is

And put of crews pressure to increase We some feel now our can said, stay put as That I more and have to these frac that's crews. they're are getting fact work. But crews more to to frac activity going that probably are being their many efficient. think I under seen work like whitespace. their they attributable frac that to customers to the drilling that ahead customers continue our

Connor Lynagh

Thank helpful All you. context.

Operator

have Thank from you. And And question. next question Stifel. a one Gengaro moment follow-up we from for Stephen our

line open. Your is now

Stephen Gengaro

another for Thanks taking gentleman. question

what's going of M&A $X just us landscape what to excess mentioned this It in remarks, to there you M&A in of out say, overall refresh debt numbers capital the happening we back services cash cash, about and be just to You investors. got the seems kind theme prepared kind quarter, throughout the last over point over can accelerate returns. coming how would on you're more aggressive of on thinking no we're in at you

Scott Bender

yet. Okay, Steve. there not I'm

margins pretty seemed be have by reached reach year, cash sound there. So considerably last mostly I over opportunities, some threshold of thought revenue we opportunities have terms free but end in a record opportunities a I two, point? the interested can't will very point I like flow, reach a to to quarter would not We're the tell stuff you have a would very and any lot There's in When high we'll just I this broken product the opportunity hate differentiation. increasing. out increased oriented. say we based interesting when generation. Unfortunately, point. of M&A but rental interesting the or that a a of

also but ourselves shareholders. times, many dividends, for So going the M&A we good to much and distributions. are better opportunity and we cash We we like think shareholders, largest that like a long-term our said provide value I've was

Stephen Gengaro

in of deal. we guys stick strong to things not table and you so get on guys about a particularly is land market one diluting it the differentiation really the like product [Indiscernible] asked sort side, were the the bring to U.S. franchise the about discipline your to is a you seems the you strict of if make --

Scott Bender

right. exactly That's

Stephen Gengaro

Okay, color. great. Thanks the for

Operator

thank And from Energy. our moment next moment question. next Smith And you. Pickering question next And from David question for One please. our one for comes our

open. is Your now line

David Smith

morning good you for Hey, question. and thank my taking

Scott Bender

are how David, Hey you?

David Smith

margin sequential to to just all Apologies, that thank ask you. should increase rental you’ve the maybe revenue costs. revenue already, just in little I'm QX Doing you guessing looking a a right, the this about guidance if with how think at talked quarter get? growth the rental nice into third wanted maybe we some slipped bit, I related about margin progressing the

Scott Bender

Steve?

Stephen Tadlock

Yes.

tend back think them I that pretty flattish QX was When we be really up and much with revenues, looking in expect QX were much well. line in QX ramp we we to rental and as where at to we if levels. a to these to more expect But level we see of margins ready. little in get depressed bit activity have continue should at increase a it higher to a that steady to we're things state now with

David Smith

all my have. Appreciate asked, have been that's color, other so I questions the

Scott Bender

Thank you.

Operator

showing questions. like closing turn I Fitzgerald, now further to I'm for back no John call the over And you. to remarks. would Thank

John Fitzgerald

speak us All call. right, today's for we appreciate with soon. you joining everyone We'll

Scott Bender

Have a good week.

John Fitzgerald

Thank you.

Stephen Tadlock

Thanks.

Operator

Thanks today's participating. concludes conference This call. for

You may now disconnect.

Cactus (WHD) 7 Nov 222022 Q3 Earnings call transcript