HOUSTON--(BUSINESS WIRE)--Cactus, Inc. (NYSE: WHD) (“Cactus” or the “Company”) today announced financial and operating results for the fourth quarter and full year 2020.

Fourth Quarter 2020 Highlights

Revenue of $68.1 million;
Income from operations of $8.4 million;
Net income of $6.1 million⁽¹⁾ and diluted earnings per Class A share of $0.07⁽¹⁾;
Net income, as adjusted⁽²⁾ of $6.3 million and diluted earnings per share, as adjusted⁽²⁾ of $0.08;
Adjusted EBITDA⁽³⁾ and related margin⁽⁴⁾ of $19.8 million and 29.1%, respectively;
Cash flow from operations of $21.9 million;
Cash balance of $288.7 million and no bank debt outstanding as of December 31, 2020; and
In January 2021, the Board of Directors declared a quarterly cash dividend of $0.09 per share.

Financial Summary

	Three Months Ended									Twelve Months Ended
	December 31,			September 30,			December 31,			December 31,			December 31,
	2020			2020			2019			2020			2019
	(in thousands)									(in thousands)
Revenues	$	68,090		$	59,789		$	140,238		$	348,566		$	628,414
Income from operations	$	8,423		$	12,556		$	36,085		$	70,039		$	183,150
Operating income margin	12.4		%	21.0		%	25.7		%	20.1		%	29.1		%
Net income⁽¹⁾	$	6,136		$	10,886		$	31,274		$	59,215		$	156,303
Net income, as adjusted⁽²⁾	$	6,287		$	9,517		$	27,721		$	55,179		$	139,862
Adjusted EBITDA⁽³⁾	$	19,844		$	24,550		$	48,413		$	121,022		$	228,999
Adjusted EBITDA margin⁽⁴⁾	29.1		%	41.1		%	34.5		%	34.7		%	36.4		%

(1)		Net income during the third quarter of 2020 is inclusive of $1.9 million in expense related to the revaluation of the tax receivable agreement liability. Net income during the fourth quarter of 2019 is inclusive of $4.8 million in additional income related to the revaluation of the tax receivable agreement liability and $2.7 million of net additional tax expenses associated with various non-routine items. Net income for the full year 2020 is inclusive of $1.9 million in non-routine charges related to severance and $0.6 million in expense related to the revaluation of the tax receivable agreement liability. Net income for the full year 2019 is inclusive of $5.3 million in additional income related to the revaluation of the tax receivable agreement liability, $1.0 million in offering related expenses and $2.6 million of net additional tax expenses associated with various non-routine items.
(2)		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. 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.
(3)		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.
(4)		The percentage of Adjusted EBITDA to Revenues.

Scott Bender, President and CEO of Cactus, commented, “Our industry-leading technology and continued ability to execute placed Cactus in an excellent position to capitalize on the cyclical market recovery that is now underway. As such, Cactus achieved record Product market share⁽¹⁾ during the fourth quarter, as we supplied wellhead equipment for approximately 43% of the U.S. land rigs in operation. Full year and fourth quarter 2020 results highlighted our ability to generate substantial free cash flow and maintain strong margins even in challenging markets.

“Looking to the first quarter of 2021, we expect further gains in rigs followed will benefit our Product business. Additionally, we have witnessed meaningful sequential growth in Rental activity to start the year as customers return to higher-end suppliers with a focus on safety and technology. We expect double digit revenue growth on a percentage basis across all our business lines sequentially during the first quarter, even when accounting for the impact of the adverse weather witnessed in recent weeks.

“In addition to the increased activity witnessed during the fourth quarter, there are a number of positive developments unfolding for Cactus. The macroeconomic environment and associated demand for our products and services is clearly improving in the U.S., as noted by our early 2021 outlook. On the R&D front, we are currently in the late stages of developing technologies specifically designed to reduce the environmental impact of flow control equipment and assist our customers in realizing their ESG-related goals. Additionally, we made our first shipments of equipment to the Middle East in January 2021, which should provide opportunities for growth in the region this year.”

Mr. Bender concluded, “Our performance and recent developments provide grounds for optimism about the trajectory of the business. As always, we will operate with a focus on margins, returns, and creating value for our shareholders.”

(1)

Additional information regarding market share and rigs followed is located in the Supplemental Information tables.

Revenue Categories

*Product*

	Three Months Ended
	December 31,			September 30,			December 31,
	2020			2020			2019
	(in thousands)
Product revenue	$	43,020		$	35,857		$	83,371
Gross profit	$	13,268		$	15,978		$	31,059
Gross margin	30.8		%	44.6		%	37.3		%

Fourth quarter 2020 product revenue increased $7.2 million, or 20.0%, sequentially, as sales of wellhead and production related equipment increased primarily due to higher drilling activity and increased market share in the U.S. Gross profit decreased $2.7 million, or 17.0%, sequentially, with margins decreasing 1,380 basis points driven largely by a $5.2 million decrease in credits related to tariff refunds. Absent these credits, gross margins would have increased approximately 100 basis points sequentially.

*Rental*

	Three Months Ended
	December 31,			September 30,			December 31,
	2020			2020			2019
	(in thousands)
Rental revenue	$	8,590		$	9,881		$	28,215
Gross profit (loss)	$	(826)		$	234		$	12,821
Gross margin	(9.6)		%	2.4		%	45.4		%

Fourth quarter 2020 rental revenue decreased $1.3 million, or 13.1%, sequentially, as our customers’ utilization of our rental equipment declined during the quarter. Gross profit decreased $1.1 million sequentially and margins decreased 1,200 basis points due largely to a $0.6 million decrease in credits related to tariff refunds and depreciation expense representing a higher percentage of revenue during the period.

*Field Service and Other*

	Three Months Ended
	December 31,			September 30,			December 31,
	2020			2020			2019
	(in thousands)
Field service and other revenue	$	16,480		$	14,051		$	28,652
Gross profit	$	4,957		$	4,728		$	4,594
Gross margin	30.1		%	33.6		%	16.0		%

Fourth quarter 2020 field service and other revenue increased $2.4 million, or 17.3%, sequentially, as higher customer activity drove an increase in associated billable hours and ancillary services. Gross profit increased $0.2 million, or 4.8%, sequentially, with margins decreasing by 350 basis points sequentially due to reduced labor utilization associated with the holidays and a reduction in savings related to the optimization of the Company’s vehicle fleet.

Selling, General and Administrative Expenses (“SG&A”)

SG&A for the fourth quarter of 2020 was $9.0 million (13.2% of revenues), compared to $8.4 million (14.0% of revenues) for the third quarter of 2020 and $12.4 million (8.8% of revenues) for the fourth quarter of 2019. The sequential increase was primarily due to higher payroll and safety and training related expenses due to an increase in headcount.

Liquidity, Capital Expenditures and Other

As of December 31, 2020, the Company had $288.7 million of cash and no bank debt outstanding. Operating cash flow was $21.9 million for the fourth quarter of 2020. During the fourth quarter, the Company made dividend payments and associated distributions of $5.0 million.

Net cash used in investing activities represented $1.7 million during the fourth quarter of 2020. Net capital expenditures for the full year 2020 were $18.1 million. For the full year 2021, the Company expects net capital expenditures to be in the range of $10 to $15 million.

Quarterly Dividend

In January 2021 the Board of Directors (the “Board”) approved and the Company announced the payment of a cash dividend of $0.09 per share of Class A common stock to be paid on March 18, 2021 to holders of record of Class A common stock at the close of business on March 1, 2021. A corresponding distribution of up to $0.09 per CW Unit has also been approved for holders of CW Units of Cactus Wellhead, LLC.

Conference Call Details

The Company will host a conference call to discuss financial and operational results tomorrow, Thursday, February 25, 2020 at 9:00 a.m. Central Time (10:00 a.m. Eastern Time). The call will be webcast on Cactus’ website at www.CactusWHD.com. Institutional investors and analysts may participate by dialing (833) 665-0603. International parties may dial (929) 517-0394. The access code is 3572986. Please access the webcast or dial in for the call at least 10 minutes ahead of start time to ensure a proper connection. An archived webcast of the conference call will be available on the Company’s website shortly after the end of the call.

About Cactus, Inc.

Cactus designs, manufactures, sells and rents a range of highly engineered wellhead and pressure control equipment. Its products are sold and rented principally for onshore unconventional oil and gas wells and are utilized during the drilling, completion and production phases of its customers’ wells. In addition, it provides field services for all its products and rental items to assist with the installation, maintenance and handling of the wellhead and pressure control equipment. Cactus operates service centers in the United States, which are strategically located in the key oil and gas producing regions, including the Permian, Marcellus, Utica, Haynesville, Eagle Ford, Bakken and SCOOP/STACK, among other areas, and in Eastern Australia.

Cautionary Statement Concerning Forward-Looking Statements

Certain statements contained in this press release constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of Cactus’ control, that could cause actual results to differ materially from the results discussed in the forward-looking statements.

Forward-looking statements can be identified by the use of forward-looking terminology including “may,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “continue,” “potential,” “will,” “hope” or other similar words and include the Company’s expectation of future performance contained herein. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state other “forward-looking” information. You are cautioned not to place undue reliance on any forward-looking statements, which can be affected by assumptions used or by known risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other factors noted in the Company’s Annual Report on Form 10-K, any Quarterly Reports on Form 10-Q and the other documents that the Company files with the Securities and Exchange Commission. The risk factors and other factors noted therein could cause actual results to differ materially from those contained in any forward-looking statement.

Cactus, Inc. Condensed Consolidated Statements of Income (unaudited)

	Three Months Ended December 31,					Twelve Months Ended December 31,
	2020			2019		2020			2019
	(in thousands, except per share data)
Revenues
Product revenue	$	43,020		$	83,371	$	206,801		$	357,087
Rental revenue		8,590			28,215		66,169			141,816
Field service and other revenue		16,480			28,652		75,596			129,511
Total revenues		68,090			140,238		348,566			628,414

Costs and expenses
Cost of product revenue		29,752			52,312		131,728			220,615
Cost of rental revenue		9,416			15,394		49,077			69,829
Cost of field service and other revenue		11,523			24,058		56,143			103,163
Selling, general and administrative expenses		8,976			12,389		39,715			51,657
Severance expenses		—			—		1,864			—
Total costs and expenses		59,667			104,153		278,527			445,264
Income from operations		8,423			36,085		70,039			183,150

Interest (expense) income, net		(150	)		390		701			879
Other income (expense), net		—			4,778		(555	)		4,294
Income before income taxes		8,273			41,253		70,185			188,323
Income tax expense		2,137			9,979		10,970			32,020
Net income	$	6,136		$	31,274	$	59,215		$	156,303
Less: net income attributable to non-controlling interest		2,934			13,216		24,769			70,691
Net income attributable to Cactus, Inc.	$	3,202		$	18,058	$	34,446		$	85,612

Earnings per Class A share - basic	$	0.07		$	0.38	$	0.73		$	1.90
Earnings per Class A share - diluted (a)	$	0.07		$	0.38	$	0.72		$	1.88

Weighted average shares outstanding - basic		47,610			47,128		47,457			44,983
Weighted average shares outstanding - diluted (a)		47,985			75,405		75,495			75,353

(a)

Dilution for the twelve months ended December 31, 2020 includes $26.2 million of additional pre-tax income attributable to non-controlling interest adjusted for a corporate effective tax rate of 24.0%, and 27.9 million weighted average shares of Class B common stock plus the dilutive effect of restricted stock unit awards. Dilution for the three and twelve months ended December 31, 2019 includes an additional $13.6 million and $73.7 million of pre-tax income attributable to non-controlling interest adjusted for a corporate effective tax rate of 24.0% and 28.0 million and 30.1 million weighted average shares of Class B common stock, respectively, plus the effect of dilutive securities.

Cactus, Inc. Condensed Consolidated Balance Sheets (unaudited)

	December 31,		December 31,
	2020		2019
	(in thousands)
Assets
Current assets
Cash and cash equivalents	$	288,659	$	202,603
Accounts receivable, net		44,068		87,865
Inventories		87,480		113,371
Prepaid expenses and other current assets		4,935		11,044
Total current assets		425,142		414,883

Property and equipment, net		142,825		161,748
Operating lease right-of-use assets, net		21,994		26,561
Goodwill		7,824		7,824
Deferred tax asset, net		216,603		222,545
Other noncurrent assets		1,206		1,403
Total assets	$	815,594	$	834,964

Liabilities and Equity
Current liabilities
Accounts payable	$	20,163	$	40,957
Accrued expenses and other current liabilities		11,392		22,067
Current portion of liability related to tax receivable agreement		9,290		14,630
Finance lease obligations, current portion		3,823		6,735
Operating lease liabilities, current portion		4,247		6,737
Total current liabilities		48,915		91,126

Deferred tax liability, net		786		1,348
Liability related to tax receivable agreement, net of current portion		195,061		201,902
Finance lease obligations, net of current portion		2,240		3,910
Operating lease liabilities, net of current portion		17,822		20,283
Total liabilities		264,824		318,569

Equity		550,770		516,395
Total liabilities and equity	$	815,594	$	834,964

Cactus, Inc. Condensed Consolidated Statements of Cash Flows (unaudited)

	Twelve Months Ended December 31,
	2020			2019
	(in thousands)
Cash flows from operating activities
Net income	$	59,215		$	156,303
Reconciliation of net income to net cash provided by operating activities
Depreciation and amortization		40,520			38,854
Deferred financing cost amortization		168			168
Stock-based compensation		8,599			6,995
Provision for expected credit losses		342			355
Inventory obsolescence		4,840			2,552
(Gain) loss on disposal of assets		(2,480	)		236
Deferred income taxes		6,948			25,403
(Gain) loss from revaluation of liability related to tax receivable agreement		555			(5,336	)
Changes in operating assets and liabilities:
Accounts receivable		44,829			4,204
Inventories		18,201			(17,592	)
Prepaid expenses and other assets		6,177			438
Accounts payable		(19,434	)		(607	)
Accrued expenses and other liabilities		(10,893	)		6,994
Payments pursuant to tax receivable agreement		(14,207	)		(9,335	)
Net cash provided by operating activities		143,380			209,632

Cash flows from investing activities
Capital expenditures and other		(24,493	)		(59,703	)
Proceeds from sale of assets		6,346			3,755
Net cash used in investing activities		(18,147	)		(55,948	)

Cash flows from financing activities
Payments on finance leases		(5,317	)		(7,484	)
Dividends paid to Class A common stock shareholders		(17,140	)		(4,244	)
Distributions to members		(16,304	)		(8,392	)
Repurchase of shares		(1,445	)		(1,549	)
Net cash used in financing activities		(40,206	)		(21,669	)

Effect of exchange rate changes on cash and cash equivalents		1,029			(253	)

Net increase in cash and cash equivalents		86,056			131,762

Cash and cash equivalents
Beginning of period		202,603			70,841
End of period	$	288,659		$	202,603

Cactus, Inc. – Supplemental Information Reconciliation of GAAP to non-GAAP Financial Measures Net income, as adjusted and diluted earnings per share, as adjusted (unaudited)

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. 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. Net income, as adjusted, also includes certain other adjustments described below. Cactus defines diluted earnings per share, as adjusted as net income, as adjusted divided by weighted average shares outstanding, as adjusted. The Company believes this supplemental information is useful for evaluating performance period over period.

	Three Months Ended								Twelve Months Ended
	December 31,		September 30,			December 31,			December 31,
	2020		2020			2019			2020			2019
	(in thousands, except per share data)
Net income	$	6,136	$	10,886		$	31,274		$	59,215		$	156,303
Adjustments:
Severance expenses, pre-tax⁽¹⁾		—		—			—			1,864			—
Other non-operating (income) expense, pre-tax⁽²⁾		—		1,865			(4,778	)		555			(5,336	)
Secondary offering related expenses, pre-tax⁽³⁾		—		—			—			—			1,042
Income tax expense differential⁽⁴⁾		151		(3,234	)		1,225			(6,455	)		(12,147	)
Net income, as adjusted	$	6,287	$	9,517		$	27,721		$	55,179		$	139,862

Diluted earnings per share, as adjusted	$	0.08	$	0.13		$	0.37		$	0.73		$	1.86

Weighted average shares outstanding, as adjusted⁽⁵⁾		75,740		75,622			75,405			75,495			75,353

(1)		Represents non-routine charges related to severance benefits.
(2)		Represents non-cash adjustments for the revaluation of the liability related to the tax receivable agreement.
(3)		Reflects fees and expenses recorded in the first quarter of 2019 in connection with the offering of Class A common stock by certain selling stockholders, excluding underwriting discounts and selling commissions incurred by the selling stockholders.
(4)		Represents the increase or decrease 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, adjusted for pre-tax items listed above, based on a corporate effective tax rate of 24.0% on income before income taxes for the three and twelve months ended December 31, 2020 and December 31, 2019 and 25.5% for the three months ended September 30, 2020.
(5)		Reflects 47.6, 47.5, and 47.1 million weighted average shares of basic Class A common stock and 27.8, 27.9 and 28.0 million of additional shares for the three months ended December 31, 2020, September 30, 2020, and December 31, 2019, and 47.5 and 45.0 million weighted average shares of basic Class A common stock and 27.9 and 30.1 million of additional shares for the twelve months ended December 31, 2020 and December 31, 2019, respectively, as if the weighted average shares of Class B common stock were exchanged and canceled for Class A common stock at the beginning of the period, plus the effect of dilutive securities.

Cactus, Inc. – Supplemental Information Reconciliation of GAAP to non-GAAP Financial Measures EBITDA and Adjusted EBITDA (unaudited)

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, income tax and depreciation and amortization. Cactus defines Adjusted EBITDA as EBITDA excluding the other items outlined below.

Cactus management believes EBITDA and Adjusted EBITDA are useful because they allow management to more effectively evaluate the Company’s operating performance and compare the results of its operations from period to period without regard to financing methods or capital structure, or other items that impact comparability of financial results from period to period. EBITDA and Adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or any other measure as determined in accordance with GAAP. The Company’s computations of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Cactus presents EBITDA and Adjusted EBITDA because it believes they provide useful information regarding the factors and trends affecting the Company’s business.

	Three Months Ended								Twelve Months Ended
	December 31,		September 30,			December 31,			December 31,
	2020		2020			2019			2020			2019
	(in thousands)								(in thousands)
Net income	$	6,136	$	10,886		$	31,274		$	59,215		$	156,303
Interest (income) expense, net		150		(218	)		(390	)		(701	)		(879	)
Income tax expense		2,137		23			9,979			10,970			32,020
Depreciation and amortization		9,258		9,762			10,590			40,520			38,854
EBITDA		17,681		20,453			51,453			110,004			226,298
Severance expenses⁽¹⁾		—		—			—			1,864			—
Other non-operating (income) expense⁽²⁾		—		1,865			(4,778	)		555			(5,336	)
Secondary offering related expenses		—		—			—			—			1,042
Stock-based compensation		2,163		2,232			1,738			8,599			6,995
Adjusted EBITDA	$	19,844	$	24,550		$	48,413		$	121,022		$	228,999

(1)		Represents non-routine charges related to severance benefits.
(2)		Represents non-cash adjustments for the revaluation of the liability related to the tax receivable agreement.

Cactus, Inc. – Supplemental Information Depreciation and Amortization by Category (unaudited)

	Three Months Ended						Twelve Months Ended
	December 31,		September 30,		December 31,		December 31,
	2020		2020		2019		2020		2019
	(in thousands)						(in thousands)
Cost of product revenue	$	813	$	802	$	893	$	3,506	$	3,304
Cost of rental revenue		6,664		6,936		7,014		28,063		24,881
Cost of field service and other revenue		1,601		1,803		2,500		8,075		9,986
Selling, general and administrative expenses		180		221		183		876		683
Total depreciation and amortization	$	9,258	$	9,762	$	10,590	$	40,520	$	38,854

Cactus, Inc. – Supplemental Information Estimated Market Share (unaudited)

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.

	Three Months Ended
	December 31,		September 30,		December 31,
	2020		2020		2019
Cactus U.S. onshore rigs followed	127		91		246
Baker Hughes U.S. onshore rig count quarterly average	295		240		796
Market share	43.1	%	37.9	%	30.9	%

Cactus Announces Fourth Quarter and Full Year 2020 Results