WHD - Earnings call 4 2023

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Operator

Thank you for standing by, and welcome to Cactus, Inc. Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your hosted today program, Alan Boyd, Director of Corporate Development and Investor Relations. Please go ahead, sir.

Alan Boyd

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

joining Chairman Scott Executive Interim Our Steve Joel Tadlock, Also Will Operating be FlexSteel; our Bender, our President; Chief today and Steven Bender, Officer. CEO our speakers will Officer; Keifer, General Bender, Counsel. Chief Chief are Al Officer; Financial and of us Marsh, and

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

Forward-looking to are and our to uncertainties subject our statements many control. uncertainties, actual from cause and risks are current of number a expectations. risks of results beyond which materially can differ These

earnings as obligation to We and statements Any forward-looking risk and no forward-looking the in of we make undertake or the update advise statements. our factors are today today's SEC. listeners we to date, only release any review our review publicly discussed filings with

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

over I'll Scott. the call to that, With turn

Scott Bender

Thanks, XXXX Alan, and performance raised strong million QX, we finance morning balance over and QX. both cash closed was by in with flow Free the $XX segments. in cash margin acquisition with final quarter the everyone. repaid in out substantial We the good debt FlexSteel of to to increased our

adjusted EBITDA course decline For the the of and full year set despite year. revenue XXXX, both U.S. for over the land businesses in activity the records

performance customers, and highly market reflects a financial of premium differentiated positioned engineered products the in company strong to this. well as remains Our our provider

cash of million, $X.XX of EBITDA paid margin quarterly XX.X%. million, our and include: balance adjusted of highlights Some fourth adjusted to $XXX company quarter Revenue share, increased million. dividend $XXX a we We EBITDA per of total $XXX

I'll who review turn financial to CFO, Al our will call Keifer, results. the over now our

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

Al? So

Alan Keifer

you. Thank

we presenting highlight reporting I corporate segments. well other now consists our administrative overhead segments other support are within other operating public and changes Before I corporate and operating in to to from would as our personnel like activities our both as whose X begin, cost costs. The separately the reporting QX, structure. and Beginning of expenses

these of XXXX Control the the the All in have change, Investor Prior our a earnings recast to on with were Relations reporting this previously provided release this investors conform through to costs To XXXX reported presentation. Pressure within we been new analysts have for section reconciliation segment. of and understanding historical assist periods website.

the I'll now results begin review.

revenues Scott As million. mentioned total earlier, $XXX QX were

million For X.X% down Control segment driven customer $XXX primarily revenues by Pressure our were decreased of sequentially, activity.

million EBITDA million increased basis due X.X% of activity equipment response increasing X.X% with rental $X.X to was or recent margins repair associated XXX by increasing $X.X valve our in sequentially costs, lower partially levels. the to to efforts and our improvement frac limit expenses Operating reduced Adjusted design branch increased sequentially, operating income with margins XXX segment points. points. with basis or margin The modification

resulting were sequentially to largely Spoolable sequentially our quarter-over-quarter customer XX.X% Operating $XX and due For the levels. revenues were points, from change lower costs. input operating the million due decreased Technologies margins million the while remeasurement of activity segment, XX.X% by $XX.X leverage income of Adjusted down million expense increased the in decreased offset sequentially, as FlexSteel or reduced reductions by earnout segment basis EBITDA liability. $X.X XX to

at sequentially down expense. QX, was were $X.X lower $X.X flat Corporate expenses approximately stock-based and in $X.X of other million million and transaction-related EBITDA to QX compensation. Adjusted due expenses corporate million in

related to third million XX.X% a fourth quarter. adjusted quarter for FlexSteel quarter third in quarter the margin million EBITDA $XXX total million, compensation quarter. compared stock-based Adjusted of X.X% expense during the million liability total On was the EBITDA charges include to down basis, $XXX the and the fourth $X.X $X.X during company for a company XXXX EBITDA was Adjustments to of noncash from earn-out fourth XX.X% remeasurement.

during $X $XX with segment the which expense $XX be million, expense million is of intangible of Spoolable and is expected approximately is was Control of which million part the associated expense first booked associated amortization purchase quarter Total amortization and fourth Pressure Depreciation includes for quarter to million accounting. of XXXX our million, with and $X Technologies. amortization depreciation as assets to $X related

during Income the was tax expense quarter fourth million. $XX approximately

was an or effective company for XX%. Class of Barring of tax A During ownership ownership in public percentage, the QX changes public approximately rate XXXX. quarter, further the our fourth the expect we XX%

million the was the largely in remeasurement million quarter was The quarter. the GAAP net change earn-out third by fourth during in the driven $XX versus $XX income liability. of decrease

$X.XX million Adjusted $XX $X.XX the $XX and were net income and share earnings per fourth quarter. the in respectively, to share and per third million per quarter compared share, during

for EPS XXXX fourth income in and full due with the valuation first tax were will the of allowances Adjusted be This generated their anticipated associated release adjusted to XXXX. net the the that net XXXX the during for net rate We estimate adjusted of periods. income rate respective was quarter XX% pretax to rate year FlexSteel tax onetime acquisition. XX% and a than income both of our quarter applied lower during

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

full million cash a fourth $XX CapEx quarter Net and approximately million, We $X.X the million. ended the XXXX. XXXX during of $XXX $XX.X million year of approximately for was with the a increase balance of sequential quarter

international in CapEx for growth budgeted on due the at year chain For increase spending full facility we The increased $XX from XXXX supply Baytown of improvements and manufacturing to diversification $XX million. is $XX range net expect XXXX, to in approximately efficiency FlexSteel's the and million million XXXX.

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

Scott Bender

Thank you, of on Well I'll now done. by touch for XXXX segment. the our reporting first expectations Al. quarter

million down digits production imply. quarter to versus led would QX Control sales mid-single the first revenues as industry we the equipment in strong to XXXX, the revenue than During $XXX reported of stronger quarter, of the activity expect in be fourth level Pressure

U.S. We to rig land level a outlook period. flat natural quarter, expect be this although in gas weakness beyond approximately of the first count remainder cautionary the from the prices suggest today's recent in

in equipment for and first XX the Anecdotally, of are have expenses, are potential for second to separately. for in of the of expected margins past to other frac Pressure Control exclusive inbound XX% quarter days, the corporate rental segment number quarter, EBITDA reported XX% increased XXXX. our be Adjusted which suggesting the inquiries now

segment. the initiatives are This down expected reduced previously by excludes the EBITDA guidance be product stock-based partially impact our sales to also announced. adjusted sequentially supply $X compensation expense million as of offset operating chain approximately Margins within leverage,

manufacturing low-cost margins expect by enhance of middle our We to XXXX. the diversification product

last we year our quarter, mentioned the As replace more the improvements these expect rollout new as in of wellhead current results to introduced, product valve and are we significantly of process being this late responsibly inventories. operating and impact

expansion acceptance; first continues East are customer and by still targeting Our XXXX. orders late testing Middle are underway, plans

our time, And XX the opportunities. this evaluate sharing continue within we're and have days. at pleased look further We efforts update outlook we to the while a any with next news on to forward don't meaningful

segment. Technologies Spoolable to over Switching

who relative the record from the quarter largely quarter, stronger represent value would recognize first single setting to revenue expect for be customers up QX low to fourth on which and seeing digits midstream demand FlexSteel majors. We're product. international interest for of We the also a FlexSteel, proposition the increased

to inventory be first for that will We XX% expected QX, quarter. in levels the segment adjusted input on approximately our through this increased begin work XX% in from late EBITDA QX moderating to margins to costs

QX, margin quarter, impact our this this combined high-grade in model by compensation operators. favors approximately a we million At drilling excludes flat than expected our our the in $X drilling corporate the sector, predict said, larger and $X stock-based as prospects million we corporate the be to time, customers following improving of approximately compensation. That approximately Adjusted loss guidance excludes Though from to fourth the that the efficiencies. stock-based $X Consolidation business segment. an reduction efficiency. continues increased the our which count rig business land EBITDA industry's cannot consolidations reiterate of other U.S. entities of near-term is million year-end in in on expect

to the low remains, respond risk to operators Further count rig prices. as natural gas

execution servicing Our on XXXX our company's Cactus. and out milestone a customers for close focus to safety, us allowed

remains are at attractive drilling modest activity Cactus that time, segments positioned operating this margins customers. Although and generate XXXX with to well differentiated value high returns X expectations while and U.S. completion

inorganic and to that expect. generate to cash growth us returns disciplined free in the time over provide in We optionality pursue will substantial our XXXX or organic expect that increase shareholder opportunities shareholders manner with flow

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

Operator

comes from of from line [Operator Luke Instructions] And the our first Lemoine Piper Sandler. question

Luke Lemoine

about you some being increase general Scott, majors. activity due Or the been in accounts talked up majors? XQ adding to kind program of some you this the is in Have just spoolables here? from

Scott Bender

Tadlock, let to I'm now who going Steve runs that...

Stephen Tadlock

midstream. international which business earlier been And the activity also seeing side, just orders done the other from inquiries increased with from America, we've positive we and and on midstream one interest particular. a alluded script, is much hadn't as Latin other from midstream East Yes, in company Middle large significant then to the from in majors we

feeling overall, the we're year. good very about next So the for outlook

Luke Lemoine

Got And question, Okay. then it. my second that Steve. was

midstream the what kind maybe could gathering to of some more you seeing just uptake sounds I like of year? if side. Just kind on the on mean, customer, you mean kind I mix. mentioned this the there's it a and little distribution product of so you're speak that

Stephen Tadlock

Yes.

mindset years, I fruits midstream, hurdles the has that starting that a I been get have think or to and and different more working regulatory see team on -- for the you through, of it's think with they're to effort.

that's think it. I really driver of So the

Operator

line next question comes JPMorgan. our Arun the from from Jayaram of And

Arun Jayaram

the more rollout a quarter. if to the that new as product valve the offering? on like I provide us new details introductions. well was new sense wondering of could of your It valve margins sounds wellhead was maybe of frac frac a give some in you tailwind But new as the

Scott Bender

The to frac is a Okay. being modification this obsolescence. out important recognize think frac to And lead rolled our right that valve any doesn't it's I now. valve, which of is existing

amount the required. significantly of this pretty reduces However, repairs modification

As parts. down large rise from a a of previous you replacement tear repair unlike which job conversations, valves lot our peers, terms cost every of completely in may after know to gives we

And we've internals design. damage valve seen the pretty frac reduction a with in the significant to our

don't I we roll which wellhead iterations as in QX out design, maybe how QX, exciting of these one valves we're now, with know internals think that to we'll cycle XX normal design. to the as new So the -- this X, is more through replacing iterations. can repair, soon on be many The we're their XX... looking I

Stephen Tadlock

different [indiscernible] changes.

Scott Bender

Yes. to And of I'm engineering this value one competitors, going the also pretty project. for my features, detail, but offers increased of significant the into which particular went this advantage sake not

fourth So and think that. about quarter third for

Arun Jayaram

last Obviously, the been point a Great. And in the Aramco several follow-up. investors. over just weeks, news been my has Saudi for focal

So influence committing your thoughts could CapEx on on your us new a just see how a give if perspective? of perspective you potentially to going this from wondering And capital facility you there? what does

Scott Bender

think I potential the Saudi. thought don't it on business changes Yes, my in

before, you're selling Aramco concerning. Although talked this -- be of fact to Saudi, the as little we X% our that a about is about thinking honest,

I they money XXXX. On the hand, one need know the for

as it's taking the change is hand, of -- no, chips that doesn't Aramco at could messaging one other my all. sending But this terms table. this interpret the some in out, On off opinion

Operator

from the Hallead Kurt comes next Our question Benchmark. of from line

Kurt Hallead

Yes.

And you you So some as now. exciting wellhead stuff, the front. Scott, very a especially new coming got said, on out products

faster those market all done kudos always its value have fronts. so guys by at product growing good You gaining than has job and your a share, very proven the on

that that us be I I guess second give be impact? your you well the some to with will in some this to message wanted you agree accelerating ramp? with going expectations. color second be more if really seems much you up is think you it the that outperform and on XXXX Or conservative to tend But I'm additional know do revenue see could to half. And for setting just half? want of really, do you a in you're what growth

Scott Bender

customers these the high in a probably less of it U.S. grade see fully It's rig of as Yes. completed But not about -- sure think XXXX I this in I'm part count that understand count once to in are year. start people the because their going I'm occur you'll probably consolidations overall that's the latter reduction to optimistic rig more prospects.

concern. certainly to driven. may we're not well same natural me impact some very impact and prices count degree, this won't cause -- gas These count Now it well the

So focus one our supply that our our lowering focus by I upgrading upgrading is only mean costs. -- chain this you're right, year our and and is thing,

what this it's cost. by Section existing I'm So but not tell ask locating be politically doing you is in our we facility the also else. meaningfully, diversification Don't both and a us decreasing to Suzhou anything where to me we're our XXX we're not going from facility, going country. derisking expect

Kurt Hallead

fair. That's fair. That's

I So revenue been the time can us update coming cusp, now now? making now? know, might think just making penetration. what And a Just right of right? don't go of give some on more And do you it follow-up for front, looks outside right then X now. from like, the general couple has us -- international some America strategic some in of on next at play you market you're years? North sense This where that meaningful percentage business with kind was over the the give what spoolable an of the

Scott Bender

Steve? Yes.

Stephen Tadlock

say There's on a for the Latin of reason no there's I shouldn't higher and that of interest, both said, would to time. our XX%, it it's but in products. materially lot ranged from than like over America East Yes. Middle X% be I the -- sort

Scott Bender

unlike No, to at domestically, amount the because a we The I be for -- with spoolables. FlexSteel push control way, FlexSteel way were from of they me and sort retracted interrupting their forgive these previous incredible interest mean efforts and noticed products. combined we've management so sales our by refocus not internationally busy an fair, pressure we've internationally between the of But for There's you. were.

Operator

comes line the of question from next Our Stifel. Stephen Gengaro from

Stephen Gengaro

So X for me.

the when legacy a of side, now in But think with the do that The Cactus moving wellhead think in about consolidation. U.S. the see obviously, activity right on grow in lot business can the and first -- and pieces there's you you that, we business 'XX? environment

Scott Bender

standpoint? You're standpoint absolute market share talking from about a an from or

Stephen Gengaro

won't share But market tell share yes, me half side, going you do impact. it's the from you pretty I address I market how think the of that? think the have Or But year enough? maybe I an -- the Well, do think absolute but side, high. a assume, imagine that's the on And -- about we should is you anymore, think it's but to both. I know back on

Scott Bender

Yes.

my of As through rig the never consolidations, earlier, has level, XX we X rigs. up with end not at times, we I are customer -- mentioned prices and with this rigs and I'm more many probably some this I'm XX XX XX, pessimistic about overall having been won't count rigs, of you has up X so than maybe end peers gas some

been we into rig XXX not you quite a and drops sure So I'm can count we've by the to give XXX optimistic that healthy share pleased. have very market is share. way, that very, it that shouldn't the XXX share overcome disclosing And any down the And fact range, range. our market market concern. very stopped I'm

Stephen Gengaro

side, actually market on Okay. I'm the that actually it's I No, the [indiscernible] -- would think opposite. share

are -- good the we know there think And -- you international some no, for mentioned you've So wellhead, we but wellhead, into. this that's that the color. for when bit, looking when but particularly markets a I about been and little the then areas

success. do early are kind think What markets? in evolves X some And and think, 'XX? I that had, You've 'XX or of X you the key where

Scott Bender

where business. Latin not, East there's penetrate, parts Mid think American to going I or we're possibly and Europe it that Believe some the of

Operator

next Gruber from the Scott our Citigroup. line of comes from question And

Scott Gruber

back Pressure getting margins Control mid-XXs. previously, Scott, discussed into the you

hundred XXX. the margins that looks cost by right points of a boost to at reallocation Looking basis couple around

So on just to order upside the something calibrate, of is the XX%, now potential XX%? maybe

Scott Bender

that know working still -- just we one. hate But Gosh, think that to far. I that I that on cite We're don't I projected would XXXX.

year this manufacturing. our our you that tell Although I be can to bolster investments will low-cost

reduction quantifying both are about but in we think of So now manufacturing. in to cost right internally, of we product yes, that that in terms and I not prepared now. redesign right mode I'm a that talk But are and terms

Scott Gruber

And Okay. just...

Scott Bender

say just me Let [indiscernible].

Scott Gruber

some through drivers you're... near come the and again, were, inventory term help have now, And low-cost in which Okay. the then right, should you

Scott Bender

[indiscernible].

Scott Gruber

It's year? already Okay. in the

Scott Bender

we we responsible as so to measured on innovations we the obsolete because that anything ourselves Joel product, that Yes, very of it have to things not is does introduce very, do we in pride -- a one or to in stock. our have fashion, as we

it and when our fully of certainly as be new already the the So inventory, year, manufacturing in and this but is results year, reflective the by XXXX. manufactured, operational -- low-cost operational this current next reflects being we of end stuff year, order partially in will becomes our it when on end replace facility

Operator

does this like back to for program of conclude I'd further session the And question-and-answer the Instructions] Scott [Operator any today's program. remarks. Bender to hand

Scott Bender

All I the want right, Have on next I all in good days. week. the attending front, information you. for have call. some there, just thank for Hang you a within to you Thank the international we'll XX hope friends,

Operator

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

day. may Good You now disconnect.

Cactus (WHD) 29 Feb 242023 Q4 Earnings call transcript