Cactus, Inc. (WHD) SEC Filing 8-K Material Event for the period ending Wednesday, March 6, 2019

·

Reported revenues of $139.8 million;

·

Generated income from operations of  $43.9 million;

·

Reported net income of $38.7 million and net income, as adjusted(1) of $33.8 million;

·

Reported diluted earnings per Class A share of $0.44 and diluted earnings per share, as adjusted(1) of $0.45;

·

Generated Adjusted EBITDA(2) and related margin(3) of $53.5 million and 38.3%, respectively; and

·

Generated cash flow from operations during the fourth quarter of 2018 of $44.8 million.

Three Months Ended

Twelve Months Ended

December 31,
2018

September 30,
2018

December 31,
2017

December 31,
2018

December 31,
2017

(in thousands)

(in thousands)

Revenues

$

$

$

$

$

Income from operations

$

$

$

$

$

Operating income margin

%  

%  

%  

%  

%

Net income

$

$

$

$

$

Net income, as adjusted (1)

$

$

n/a

$

n/a

Adjusted EBITDA (2)

$

$

$

$

$

Adjusted EBITDA margin (3)

%  

40.7 

%  

%  

39.1 

%  

32.9 

%

(1)

Net income, as adjusted and diluted earnings per share, as adjusted are non-GAAP financial measures. These figures assume Cactus, Inc. held all units in Cactus Wellhead, LLC (“Cactus LLC”), its operating subsidiary, at the beginning of the period, with the resulting additional income tax expense related to the incremental income attributable to Cactus, Inc. Additional information regarding net income, as adjusted and diluted earnings per share, as adjusted and the reconciliation of GAAP to non-GAAP financial measures are in the Supplemental Information tables.

(2)

Adjusted EBITDA is a non-GAAP financial measure. See definition of Adjusted EBITDA and the reconciliation of GAAP to non-GAAP financial measures in the Supplemental Information tables.

(3)

The percentage of Adjusted EBITDA to Revenues.

·

Reported revenues of $544.1 million, up 59.5% year-over-year;

·

Generated income from operations of $177.7 million; up 100.0% year-over-year;

·

Reported net income of $150.3 million; and

·

Generated Adjusted EBITDA(2) and related margin(3) of $212.6 million and 39.1%, up 89.6% year-over-year and 620 basis points, respectively.

Three Months Ended

December 31,
2018

September 30,
2018

December 31,
2017

(in thousands)

Product revenue

$

$

$

Gross profit

$

$

$

Gross margin

%  

%  

%

Three Months Ended

December 31,
2018

September 30,
2018

December 31,
2017

(in thousands)

Rental revenue

$

$

$

Gross profit

$

$

$

Gross margin

%  

%  

%

Three Months Ended

December 31,
2018

September 30,
2018

December 31,
2017

(in thousands)

Field service and other revenue

$

$

$

Gross profit

$

$

$

Gross margin

%  

%  

%

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2018

2017

2018

2017

(in thousands, except per share data)

Revenues

Product revenue

$

$

$

$

Rental revenue

Field service and other revenue

Total revenues

Costs and expenses

Cost of product revenue

Cost of rental revenue

Cost of field service and other revenue

Selling, general and administrative expenses

Total costs and expenses

Income from operations

Interest expense, net

Other income (expense), net

-

-

-

Income before income taxes

Income tax expense (a)

Net income

$

$

$

$

Pre-IPO net income

$

-

$

$

$

Post-IPO net income

$

$

-

$

$

-

Components of post-IPO net income:

Net income attributable to non-controlling interest

$

n/a

$

n/a

Net income attributable to Cactus Inc.

$

n/a

$

n/a

Earnings per Class A share - basic

$

n/a

$

n/a

Earnings per Class A share - diluted (b)

$

n/a

$

n/a

Weighted average shares outstanding - basic

n/a

n/a

Weighted average shares outstanding - diluted (b)

n/a

n/a

(a)

Cactus has historically not been subject to U.S. federal income tax at an entity level.  Subsequent to the IPO, which occurred on February 12, 2018, Cactus, Inc. incurs federal and state income tax on its share of income from Cactus LLC.

(b)

Dilution excludes 37.2 million and 42.6 million shares of Class B common stock for the three and twelve months ended December 31, 2018, respectively, as the effect would be anti-dilutive. 

December 31,

December 31,

2018

2017

(in thousands)

Assets

Current assets

Cash and cash equivalents

$

$

Accounts receivable, net

Inventories

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Goodwill

Deferred tax asset, net

-

Other noncurrent assets

Total assets

$

$

Liabilities and Equity

Current liabilities

Accounts payable

$

$

Accrued expenses and other current liabilities

Current portion of liability related to tax receivable agreement

-

Capital lease obligations, current portion

Current maturities of long-term debt

-

Total current liabilities

Deferred tax liability, net

Liability related to tax receivable agreement, net of current portion

-

Capital lease obligations, net of current portion

Long-term debt, net

-

Total liabilities

Equity (deficit)

Total liabilities and equity

$

$

Twelve Months Ended December 31,

2018

2017

(in thousands)

Cash flows from operating activities

Net income

$

     150,281  

$

       66,547 

Reconciliation of net income to net cash provided by operating activities

Depreciation and amortization

30,153  

23,271  

Debt discount and deferred loan cost amortization

275  

1,752  

Stock-based compensation

4,704  

-  

Recovery of bad debts

-  

(100)

Inventory obsolescence

1,451  

1,259  

Loss on disposal of assets

886  

534  

Deferred income taxes

15,201  

220  

Loss on debt extinguishment

4,305  

-  

Changes in operating assets and liabilities:

Accounts receivable

Inventories

Prepaid expenses and other assets

Accounts payable

7,651  

19,505  

Accrued expenses and other liabilities

5,114  

4,104  

Net cash provided by operating activities

167,180  

34,707  

Cash flows from investing activities

Capital expenditures and other

Proceeds from sale of assets

1,899  

1,404  

Net cash used in investing activities

Cash flows from financing activities

Principal payments on long-term debt

Payment of deferred financing costs

-

Payments on capital leases

Net proceeds from IPO and Follow-on Offering

828,168 

-  

Distributions to members

-  

Redemption of CW Units

-  

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

(755)

170 

Net increase (decrease) in cash and cash equivalents

63,267 

Cash and cash equivalents

Beginning of period

7,574  

8,688  

End of period

$

       70,841  

$

       7,574  

Three
Months
Ended

Twelve
Months
Ended

December 31,
2018

September 30,
2018

December 31,
2018

(in thousands, except per share data)

Net income

$

$

$

Adjustments:

Term loan interest, pre-tax (5)

-

-

Loss on debt extinguishment, pre-tax (6)

-

-

Stock-based compensation, pre-tax (7)

-

-

Income tax expense differential (8)

Net income, as adjusted (1)

$

$

$

Diluted earnings per share, as adjusted (1)

$

$

$

Weighted average shares outstanding, as adjusted (9)

75,321

75,256

(1)

Net income, as adjusted and diluted earnings per share, as adjusted are not measures of net income as determined by GAAP. Net income, as adjusted and diluted earnings per share, as adjusted are supplemental non-GAAP financial measures that are used by management and external users of the Company’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. Cactus defines net income, as adjusted as net income assuming Cactus, Inc. held all units in Cactus LLC, its operating subsidiary, at the beginning of the period, with the resulting additional income tax expense related to the incremental income attributable to Cactus, Inc. The Company believes this supplemental information is useful for evaluating performance period over period. 

(5)

Reflects the removal of the term loan interest expense recorded during first quarter 2018 as the term loan was repaid in full in conjunction with the IPO.

(6)

Reflects the removal of the loss on debt extinguishment recorded in first quarter 2018 in conjunction with the IPO related to the write-off of the unamortized balance of deferred financing costs and original issue discount.

(7)

Represents the additional stock-based compensation expense that would have been recorded during the first quarter assuming the restricted stock unit awards were issued as of January 1, 2018.

(8)

Represents the increase in tax expense as though Cactus, Inc. owned 100% of Cactus LLC at the beginning of the period, calculated as the difference in tax expense recorded during each period and what would have been recorded based on a corporate effective tax rate of 24.0% on income before income taxes for the twelve months ended December 31, 2018, 22.5% for the three months ended December 31, 2018, and 24.5% for the three months ended September 30, 2018. The effective tax rate for the three months ended December 31, 2018 reflects the adjustment necessary to derive a 24.0% corporate effective tax rate for the full year.

(9)

Reflects 37,654 and 37,647 shares of Class A common stock plus 37,236 and 37,243 additional shares for the three months ended December 31, 2018 and September 30, 2018, respectively, as if the Class B common stock was exchanged and canceled for Class A common stock at the beginning of the period, plus the dilutive effect of 431 and 408 shares for restricted stock unit awards for the three month periods ended December 31, 2018 and September 30, 2018 respectively. Reflects 37,654 shares of Class A common stock plus 37,236 additional shares for the twelve months ended December 31, 2018, as if the Class B common stock was exchanged and canceled for Class A common stock at the beginning of the period, plus the dilutive effect of 366 shares for restricted stock unit awards for the twelve months ended December 31, 2018.

Three Months Ended

December 31,
2018

September 30,
2018

December 31,
2017

(in thousands)

Net income

$

$

$

Interest expense, net

Income tax expense

Depreciation and amortization

EBITDA (2)

Stock-based compensation

-

Adjusted EBITDA (2)

$

$

$

Twelve Months Ended

December 31,
2018

December 31,
2017

(in thousands)

Net income

$

$

Interest expense, net

Income tax expense

Depreciation and amortization

EBITDA (2)

Loss on debt extinguishment

-

Stock-based compensation

-

Adjusted EBITDA (2)

$

$

(2)

EBITDA and Adjusted EBITDA are not measures of net income as determined by GAAP. EBITDA and Adjusted EBITDA are supplemental non‑GAAP financial measures that are used by management and external users of the Company’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. Cactus defines EBITDA as net income excluding net interest expense, income tax expense and depreciation and amortization. Cactus defines Adjusted EBITDA as EBITDA excluding (gain) loss on debt extinguishment and stock-based compensation.

Three Months Ended

December 31,
2018

September 30,
2018

December 31,
2017

(in thousands)

Cost of product revenue

$

$

$

Cost of rental revenue

Cost of field service and other revenue

Selling, general and administrative expenses

Total depreciation and amortization

$

$

$

Twelve Months Ended

December 31,
2018

December 31,
2017

(in thousands)

Cost of product revenue

$

         3,262  

$

          3,169  

Cost of rental revenue

                17,997  

              14,912  

Cost of field service and other revenue

                8,456  

                4,786  

Selling, general and administrative expenses

                    438  

                 404  

Total depreciation and amortization

$

       30,153  

$

       23,271  

Three Months Ended

December 31,
2018

September 30,
2018

December 31,
2017

Cactus U.S. onshore rigs followed

Baker Hughes U.S. onshore rig count quarterly average

Market share (4)

%  

%  

%

(4)

Market share represents the average number of active U.S. onshore rigs Cactus followed (which Cactus defines as the number of active U.S. onshore drilling rigs to which it was the primary provider of wellhead products and corresponding services during drilling) as of mid-month for each of the three months in the applicable quarter divided by the Baker Hughes U.S. onshore rig count quarterly average. Cactus believes that comparing the total number of active U.S. onshore rigs to which it was providing its products and services at a given time to the number of active U.S. onshore rigs during the same period provides Cactus with a reasonable approximation of its market share with respect to wellhead products sold and the corresponding services it provides.