WHD - Earnings call 3 2023

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Operator

Welcome to the Cactus Inc. Quarter 3 Earnings Call. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Alan Boyd, who is Director of Corporate Development and Investor Relations. Please stand by. Go ahead.

Alan Boyd

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

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

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

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

Scott Bender

count We Thanks, despite results the execution everyone. and the quarter Alan, good the by morning U.S. period. October's preliminary declines rig were company's and land with pleased during to in the encouraged the third in

revenues relatively outperformed reduced again the expected, value reflecting once pressure decreased sales segment As flat. activity Both spoolable revenues while proposition. remained control quarter-over-quarter, levels, Technologies our

XX.X%, adjusted of $X.XX EBITDA EBITDA $XXX include our quarter. last quarterly highlights company adjusted of debt And FlexSteel, we to to bank of the of of CEO the Steve CFO call now previously no repaying earlier per as Tadlock, the turn I'll we share. of paid million, review results. $XXX of our announced, in are finance a over financial FlexSteel have total million, $XXX dividend margins to and the quarter debt acquisition third who raised will pleased Some the million revenue after

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

Stephen Tadlock

you. Thank

-- million $XXX of $X Adjusted million of quarter. million cost EBITDA On million sales were quarter the company by related declining the of EBITDA was expense, As with $XX.X was million. million, amortization to approximately to $XXX XX.X% to to XX% X.X% $XX was earnout charges, is noncash the input the Operating also $X the $X.X million $X.X revenues that technologies in Scott with $XX.X expense. this quarter-over-quarter during expenses, XXX costs Control remeasurement margin $X.X a primarily of sequentially, loss the of a XXX the million inclusive in lower recorded income reduction million X.X% revenues, fees segment income of for fourth of decreased the were due company FlexSteel stock-based we million, or the intangible or D&A the and from points compensation, points Total decreased for versus income third $X X points, margins driven the adjusted quarter revenues down X.X% which expected operating million down million Operating total of transient decreasing $XXX million to gain a $XXX above decreased Adjustments leverage. lower second basis quarter. EBITDA, $X.X and customer Operating Adjusted due in segment the second of associated basis, a third aforementioned related the of all excludes XXXX acquired the million quarter million Adjusted EBITDA the from sequentially Pressure $X expense FlexSteel. primarily basis by due associated quarter. to first quarter which amortization product was of associated technologies. margins the $X.X to million, depreciation quarter quarter is noncash of is EBITDA liability step-up which operating Depreciation basis by the inventory liability. a the the million liability in with to poolable million million. XXX XXX charges million to with well in revaluation to in decreased was leverage. sequentially, or an earn-out with to activity compared Pressure total increase total transaction-related quarter basis quarter million revenues where is down operating a leverage. in impacted as mix. expense million and QX sequentially, sequentially spoolable which third Technologies increased $XX of segment QX $X as margins primarily of $XX.X the and falling third reduction in operating product spoolable FlexSteel Control $XX.X the in change in million during due our acquisition, and amortization $XXX points gain gain with second due TRA the down XX% by during mentioned, be due included due intangibles to -- activity. were from and total XX.X% approximately $X.X $X.X

operations. the remain from expense was interest stable quarter quarters. was income from expense We second quarter. next Income in $XX decreasing reduced the expense during third to debt several due expense to the million up increased the sequentially for quarter third Tax million, to $X.X Net million, increased due the approximately tax expect during $XX this level.

to quarter quarter earnings rate lower during step-up liability tax and XX%. per the driven decreased and quarter net generated quarter, quarter EPS decreased expense, $XX during During and the the third expense. an Adjusted our income quarter. adjusted and share, of estimate in versus purchase public adjusted respectively, $XX of versus be tax the XX% were remeasurement third XX% of pretax the amortization further million company effective QX percentage, for the for that approximately in quarter. million change rate $XX the the during the the price applied We prefer the changes earn-out ownership of $XX The we million ended third share, which Class XX% was Barring adjusted or ownership share public at XX% A look at a income third to fourth rate quarter. GAAP the per $X.XX second net second tax will quarter net interest million for of during averaged XXXX. in our $X.XX inventory in XXXX. by income and intangibles, expect the per We the income increase was

to During million, third paid of distributions including a in related share a has outflow quarterly be quarter, The quarterly cash per approved resulting in approximately to the dividend $X.XX a dividend $XX December. we Board $X.XX of per members. paid share, of

Additionally, TRA distributions tax savings $XX.X of payments associated and related the cash we approximately provided TRA. made million by to XXXX

during quarter million. previously quarter. third in with of the cash $XX of quarter million Net million $XX was ended CapEx we third of $X We remaining As also XXXX. the a approximately down the the bank balance debt announced, paid

to and XXXX guidance. prior end $XX over review, Scott. of million turn $XX year now the outlook in now our the full at the Our the to is CapEx I'll financial low That covers range million call of

Scott Bender

quarter I'll our for Steve. segment. fourth expectations on Thanks, touch now the by reporting

decline the rigs single During anticipated sequentially in today down expect be through in Pressure the quarter-over-quarter the rig gains from count Cactus quarter, followed low the fourth due the digits despite we of Control year. to end industry to average revenue projected

levels XXXX. activity also U.S. up be approximately in of We QX expect land will from X% drilling today's

revenues guide our September, incorporates XX% over though seasonality. up were October holiday QX total from reference, For our

industry of transaction-related levels of In remain addition, are and are as declines be rental inclusive expenses. $X adjusted compensation XX% quarter, corporate operating our to This flat leverage. we EBITDA for lower completion to to expense Margins QX modestly Control, excludes within to forecasted in expected segment QX EBITDA margins expenses. from our sequentially general approximately Pressure guidance revenues segment on Pressure as activity. well down XX% SG&A Control the million in approximately stock-based Adjusted expect expected be the despite stable in to

As first generate product well half the mentioned chain response in should reduced year, our which levels, In initiatives early support for as next implemented enhancements, activity last to year-to-date as year. our also positively supply we've several impact of has operating plan to new served benefits customers additional next quarter, introduce we results. inventory costs to which

on these to in on of We'll Our region customer technology work and in Mideast in acceptance next first testing in share the continues orders schedule. ownership Switching still first customer segment. expect over We're actively a for our XXXX. to you the structures year. our with potential more late continuing on progress spoolable half efforts also

during of U.S. activity quarter, fourth We business expect depend the degree as revenue a quarter XX% decline our to and of year-to-date $XX a on completion million shipments $XX contractors customers' to million the seasonal approximately meaningful to and decrease on the on land the due versus third impacts activity. XX% to installation

to Note that EBITDA million for from segment the operating stock-based QX, adjusted be on $X margins of leverage. approximately slightly excludes segment. XX% moderating this comp guidance expect QX to XX% in in levels We this lower approximately margin

a our the next CFO FlexSteel as XXXX. as has our our to we spoolable we're to As to company. point Steve Tadlock, to experience report business previously use of to ownership taken would ready to a Chief Polyflow, has pipe the him Chairman his while this our lead a Officer, progressed announced, of that company, matured of and years XX for several FlexSteel. new outstanding the leader as like Vice Financial in President and brings with CEO confident of experience of public of to thank person is in right Steve we're Executive sold very over contributions Cactus Baker our as pleased years Steve business. Director currently FlexSteel to ownership and transition I'm where of phase over a

for Steve CFO a [Indiscernible], transition begin to will as permanent Next CFO. we duties, undertake week, while search a

an and XXXX and portfolio. additional pleased and to and the very as Cactus. differentiated of remains and results from advisory operational with cycle XXXX. diversifies highly industry Vice product have business President, an our Controller in both in IPO streams This our from to a We're introduced of at time our Accounting a Chief timing That Officer; exciting are retired financial revenue FlexSteel capacity excited Cactus support the very Baker Now perspectives. and initial Hughes since

on adding in on Mideast the is capacity work schedule. progressing Our

undertaken return risk low-cost a as in diversify manufacturer. recent to business our months, we've geopolitical efforts to and meaningful will Despite our and us our which cash generate significant addition, supply expect in to opportunities. position supply reduce growth coming solidify to various to allow to shareholders inorganic and In low-cost we attractive these growth potential chain further chain quarters pursue flow the to initiatives,

to and While fourth Cactus encouraged expected from levels received activity XXXX planned indications FlexSteel quarter activity. be by we're down, customers for regarding are

wave benefit under the service our Cactus. E&P companies Additionally, well-capitalized consistency recent sector. energy I'm as type returns These see premium customers occurring manufacturing industry pleased their gravitate also costs programs by of among and to to tend that and with such and equipment while attract customers. larger Larger, the E&P development breakeven providing providers capital our disciplined to consolidation reducing investor

be that, and we time. over Operator? Q&A. we'll the may further begin With turn consolidation operator, So it the to I'm over beneficiary confident back of I'll

Operator

with Scott Citigroup. [Operator question Instructions] The Gruber first from comes

Scott Gruber

Pressure XQ the that tends like the a of sounds also in product service it pieces of margins in inventory but slows, new the now and but activity some tend year, reverse So see benefit in here you'll the enhancements. to couple to initiatives moving as then Control dip

year So think by with rig control of recovery, of where number inventory the XQ backdrop kind is and initiatives for type can count product Given margins XQ, go, the reasonable? enhancements.Â next base mid-XXs of the expectation modest pressure about say,

Stephen Tadlock

guidance Yes, let like obviously of is ahead We Steve. me... time. don't This giving

Joel's efforts and and I side the think we're doing that is activity things other of the with on and cost recovery things, that's side some of reasonable. unreasonable what with probably assumption not an

Scott Gruber

then And around for moves know you. some the with earn-out outlook. Got FlexSteel I the liability activity

all does right? X year where stand that correct? Just post That's today? a close, that XQ Is that And paid payment.

Stephen Tadlock

every That's million. Right revalue have And 'XX. going paid $XX.X keep at we it moving it's XQ Unfortunately, it's accounting, it's to in just to of quarter. now, around.

Operator

from comes Barclays.Â question Anderson next with The David

John Anderson

a question bit near-term Scott, and a little a of So question. longer-term

the you're it question, of a was behavior last I've seeing of near-term feels bit what on change margin... from kind Just there a we've wondering of seen in couple the the just over customer of like months had. on a kind [Indiscernible] I

Scott Bender

Wait. Wait. David, in David. hold on. behavior from what? change A

John Anderson

just Is talking the about kind any the if customer, that from curious what's privates are more you've kind E&P little kind margin. a general. seen your quarter you're the a if just your budget seen The bigger I'm been a curious of bit. of we've Well, changes customer, is you've We've pulling seen little just happening pronounced. little the seasonality on bit just slowdown fourth on like customers in I'm Is from there's from of it bit? the seen. it back margin, your anything exhaustion?

Scott Bender

I are Yes. would pulling the say privates back.

John Anderson

Okay.

there? So kind that just thing is the -- of near-term

Scott Bender

Yes.

we're our terms customers in plans. of their us now larger of in think pretty what by all they encouraged I terms tell

John Anderson

Okay.

for the that's of longer So the hear into beyond, if quite efficiencies, analysis. XX things whether and or not more push we is a we look laterals kind from or through one subsurface bit E&P more the of

of this changes spread in by wondering the like and of is I your pressure going mature mix. a across shales your just is wondering this side. evolves wellheads, your mode. bit. So to manufacturing business the how little business how revenue shift -- kind production a shale. mix was the kind I'm well opportunity control on Effectively, moving And driven count, on

where you show? how that see a market just I'm manufacturing note just shifting mode that kind are those wondering about of how talk mature businesses mix at So And you kind all. also share opportunity in you probably that the changes Can X more opportunity. most the potentially of have revenue I

Scott Bender

Okay.

I by answer not addressed So that directly, some your about we're next not laterals question year. new shift longer is this towards comment this but we being made may introducing surprisingly, products

customers' we this product tendency So the to that we enhance in longer have for first productivity that believe laterals, will quarter that response going second longer laterals. in quarter, we're into to a introduce

support make product develop so rig play to further around except Not our more hope moat the other efficiencies, even I the cards them And the will it words, is attractive. got dealt. much to with can the our about that you're do In products. and you've

to. intend we So

John Anderson

But it would you're area markets gain be mean where right? market opportunities, as on of also X you those that where spoolable have showing particularly into fit kind of I kind as more think share does I can an share. you matures, the this of kind already should side that

Scott Bender

you're believe I right.Â

Operator

with question comes Our next Benchmark. Hallead from Kurt

Kurt Hallead

not directly some this going teaser chance at Scott, well, anyway.Â longer context into next take So question the around the the So risk as of provided you the you providing in answering look, an enhancement I'll of a around color enhancements on year, laterals. product

just we a be wondering additional of on for maybe a are and in context to enhancements what on just you these might teasers couple could if going So looking what address. provide broader

Scott Bender

Yes.

this to answer I'm going to hate I Kurk, anyway. question, So answer but it

maintenance impact product repair rental rental a In costs. the to on our So involve enhancements not expect the our product our have our enhancements, meaningful wellhead and costs business. both business, surprisingly business and our we

months, frac be a finished spending, a year, next we've we'll And that prototyping. valve design. I X We've prototyping new year. last almost been the guess, So introducing

that. very impact some And I'm see going that so margin hopeful you're to from

features In that relatively you this tendency terms wellhead drift I paper. as are, actually sheet as a responsive even from if of -- We've laterals. be engineered, clean mentioned longer a value we well highly to new catch more earlier, started wellhead adding as highly that's to got my going as towards of

I... all that's So

Kurt Hallead

A follow-up new Steve. and Steve congrats your here for role, on

terms right, seat. now significant this What sitting Just direction? new is of see in do in in that in context shift you there you're the opportunities of into you've kind that of as entered a -- curious role, strategy

Stephen Tadlock

there's say wouldn't shift. I No, a

my keep the And really it. think help good in We're was is just think shepherd -- and a and direction going direction. really I company job that I excited to it in about growth. the

X processes I they the spending in more have last, really the I think with time and last I'm but I lot obviously, the product with people the impressed mean, that now, and I've people. the month. in the a time in there quality the guess, of spent just over people of place. months even

So it's taking culture bit a infusing really there. the more of just it from and little Cactus

Operator

comes question Stephen from Stifel. next Your Gengaro with

Stephen Gengaro

answer. it's won't something think you to trying I'm

I a bit. maybe the might given actually, and think what a pulling mentioned first, this be you about but category back little privates

shares on referenced I of quarter, wellhead that share probably to you think numbers Are that was high. that... the all-time you an last the side continuing on kind similar your at see

Scott Bender

say first trying to the ourselves Gosh, from call thinking you do share worry And what patch Stephen, going market back Will I very we this Telling was But worry market had be you? we're it? Telling divorce let share. thought on discussion that before to is. share. market and to that you discussing you not satisfy the collectively question. me about the about the that

Stephen Gengaro

now. for works That

Scott Bender

other share numbers.Â don't your market a words, In factor loss into

Stephen Gengaro

you. sense. makes Got No, I understand that

Scott Bender

that more, said going more say I tell be it's constructive. you me towards always still it's Let to I've to I this believe that going is me tendency consolidation think let constructive. even just be that

Stephen Gengaro

of That helpful. sheet honestly, the of about, with very ask to around post to follow-ups so movement was be the We that's transaction FlexSteel. I but back large count positive a that. work, rapidly won't cash, The balance the going was one repairs

approach? probably you Well, building next over build? to capital talk about cash here the year. as basically, allocation from start to just the approach going either You're Can what's your capital

Scott Bender

choice. first My

grow want the announced That's it this low why primarily we business, grow still choice a is slowly. which it First is My I buyback, be kind and pretty want inorganic level We the of share all, growth. in to first at us. to started to to place. we dividend internationally. consider I of sacred and up moved

need that, do we cash. to So

has cash always this I've it highly business Fortunately, been this still generating business, is. flow a decades, been positive since for and in X-plus

So taking plenty we'll I do to of including we think a on basis. quarterly to care do, of what currency have shareholders our want

Operator

no I'm remarks. I'd [Operator time, questions. it now this back Instructions] further over for turn showing At closing like to Scott to Bender

Scott Bender

to Thank to I today's you returns. trusting your quarter day. you and look tell us shareholder forward participation Thank quarter. for this we're for you a conference. good Have best what to next hard joining provide industry all in speaking for you, I'd working

Operator

program. your for you conclude conference. Thank This does the in participation today's

You may now disconnect.

Cactus (WHD) 9 Nov 232023 Q3 Earnings call transcript