Cactus Announces First Quarter 2018 Results

Cactus, Inc. (NYSE: WHD) ("Cactus” or the "Company”) today announced financial and operating results for the first quarter of 2018.

First Quarter 2018 Financial Highlights

• Increased revenues 9.9% sequentially to $115.1 million;
• Grew income from operations 22.5% sequentially to $35.2 million;
• Generated net income of $26.4 million;
• Increased Adjusted EBITDA⁽¹⁾ and related margin⁽²⁾ to $42.7 million and 37.1%, respectively, from $35.0 million and 33.4%, respectively, for fourth quarter 2017; and
• Generated Cash Flow from Operations of $38.6 million.

Key First Quarter 2018 Operational Highlights

• Grew estimated U.S. onshore market share⁽³⁾ in wellhead product line to 26.4%;
• Accelerated 2018 rental capital expenditure program which generated strong sequential revenue growth and improved gross profit; and
• Generated improved results from Service business as anticipated due to the strategic hiring of field service technicians in the second half of 2017.

Financial Summary

Scott Bender, President and CEO of Cactus, commented, "I am pleased with our results for the first quarter, which demonstrate momentum in our product, rental and service offerings. We successfully grew revenues, improved margins and generated strong cash flows for the quarter. The strategic decisions we made during the second half of 2017 positioned us for a strong start in 2018. Customers continue to recognize our differentiated service offering and the efficiencies and reliability we deliver.”

Mr. Bender continued, "We decided to accelerate our capital expenditure program in the first quarter of 2018 as we noted increasing demand in our frac rental business. The timely production of these assets enhanced our first quarter results and positioned us for the rest of 2018. We continue to evaluate this market and the need for additional rental equipment.

"I am optimistic about the balance of 2018, with activity supported by current oil prices and from the continued expansion of our Rental business,” concluded Mr. Bender.

Revenue Categories

Product

First quarter 2018 product revenue increased $1.8 million, or 3.1%, sequentially, driven primarily by greater sales volume of wellhead equipment during the first quarter. Gross profit increased $2.2 million sequentially with margins improving 270 basis points due to increased sourcing of product from Suzhou as well as improved manufacturing efficiencies. Cactus’ estimated market share was 26.4% for first quarter 2018 compared to 26.0% for fourth quarter 2017, while the U.S. onshore quarterly rig count averaged 948 rigs in first quarter 2018 compared to 900 rigs in fourth quarter 2017.

Rental

First quarter 2018 rental revenue increased $4.7 million, or 19.0%, sequentially, due to higher demand for frac valves and zipper manifolds, reflecting greater completions activity across the major U.S. basins in which the Company operates, as well as an increase in Cactus’ rental fleet arising from acceleration of its 2018 capital expenditure program during first quarter 2018. Gross profit increased $4.8 million sequentially with margins improving 860 basis points resulting from a combination of capacity additions, greater operating efficiencies and price.

Field Service and Other

First quarter 2018 field service and other revenue increased $3.9 million, or 16.7%, sequentially, due to increased billable hours related to installations. A higher percentage of the increase in hours related to frac service work, which requires greater service intensity. Gross profit increased $1.9 million sequentially with margins increasing 490 basis points due to improvement in billable hours compared to the fourth quarter when seasonal impacts and greater training hours compressed margins.

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

SG&A for first quarter 2018 was $9.1 million (7.9% of revenues), compared to $6.6 million (6.3% of revenues) for fourth quarter 2017 and $6.1 million (10.4% of revenues) for first quarter 2017. The sequential increase is primarily related to $0.8 million of non-cash stock-based compensation expense related to the Company’s IPO as well as a combination of higher payroll, benefit and incentive compensation costs.

Supplemental Information

If the Company’s GAAP Diluted EPS of $0.14 were adjusted for the following items, it would have been $0.34 for first quarter 2018: (i) the removal of interest expense on the term loan that was repaid in conjunction with the IPO; (ii) the removal of the loss on debt extinguishment related to the repayment of the term loan in conjunction with the IPO; (iii) additional stock-based compensation expense related to the period in 2018 prior to the IPO; and (iv) an adjustment to income tax expense to reflect the corporate effective tax rate assuming Cactus, Inc. held all units in Cactus LLC. The Company believes this supplemental information is useful for evaluating performance period over period. The table below sets forth additional detail regarding the adjustments.

Liquidity and Capital Expenditures

As of March 31, 2018, the Company had cash on hand of $7.9 million and no bank debt outstanding, resulting in total availability of $50.0 million under the Company’s revolving credit facility. In conjunction with the Company’s IPO, the outstanding term loan was repaid in full in February 2018. Operating cash flow was $38.6 million for first quarter 2018, generated from strong operating results and improvements in working capital intensity.

Net capital expenditures for first quarter 2018 were $15.7 million. The majority of the spend related to the acceleration of production of rental equipment, particularly frac valves, as customer demand for higher intensity frac equipment continued to increase. The Company currently expects total capital expenditures for 2018 to range between $50 million and $60 million.

Cactus, Inc. IPO

On February 12, 2018, Cactus closed its initial public offering ("IPO”) of Class A common stock. Including the exercise in full of the underwriters’ option to purchase an additional 15% of common shares, the Company issued a total of 26,450,000 shares of Class A common stock in the IPO at $19.00 per share, resulting in net proceeds of $469.6 million after deducting underwriting discounts and commissions and current offering expenses, but not deducting $2.2 million in offering expenses paid by Cactus in 2017. Cactus contributed all the net proceeds of the IPO to Cactus Wellhead, LLC, its limited liability company operating subsidiary ("Cactus LLC”), in exchange for common units representing limited liability company interests in Cactus LLC ("CW Units”).

The Company caused Cactus LLC to use the net proceeds to (i) fully repay its outstanding term loan facility, plus accrued interest, of $251.0 million and (ii) distribute $216.4 million to certain of the legacy owners of Cactus LLC as part of the corporate reorganization undertaken in connection with the IPO. The remaining $2.2 million was held in cash. In addition, Cactus issued shares of its Class B common stock to each of the legacy owners who continued to own CW Units following the IPO. Following the IPO, there are 48,439,772 shares of Class B common stock issued and outstanding, which have no economic rights but entitles its holders to one vote on all matters to be voted on by the Company’s shareholders generally.

In connection with the IPO, the Company entered into a tax receivable agreement (the "TRA”) with certain direct and indirect owners of CW Units (the "TRA Holders”). The TRA generally provides for the payment by Cactus to the TRA Holders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax or franchise tax that Cactus actually realizes or is deemed to realize in certain circumstances. Cactus will retain the benefit of the remaining 15% of these net cash savings. As of March 31, 2018, the Company recorded a liability of $63.0 million associated with the TRA as a result of the IPO.

In January 2018, Cactus made a $26.0 million tax distribution payment to legacy owners of Cactus LLC related to the tax liabilities incurred prior to the IPO. The payment was funded through the borrowing of $26.0 million under the Company’s revolving credit facility, which was repaid as of March 31, 2018.

Conference Call Details

Cactus will host a conference call to discuss financial and operational results tomorrow, Thursday, May 10, 2018 at 9:00 AM Central Time (10:00 AM Eastern Time).

The call will be webcast on Cactus’ website at www.CactusWHD.com. Institutional investors and analysts may participate by dialing (800) 263-0877. International parties may dial (323) 794-2094. The access code is 7937430. 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

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 (including fracturing) 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 14 service centers in the United States, which are strategically located in the key oil and gas producing regions, including the Permian, SCOOP/STACK, Marcellus, Utica, Eagle Ford and Bakken, among other areas, and one service center 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,” 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 and any Quarterly Reports on Form 10-Q. The risk factors and other factors noted therein could cause actual results to differ materially from those contained in any forward-looking statement.

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