Q4 2024 Cactus Inc Earnings Call
Thanks for watching!
Good day and thank you for standing by and welcome to the CACTUS Q4 2024 earnings call.
We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC.
Any forward looking statements. We make today are only as of today's date and we undertake no obligation to publicly update or review any forward looking statements and.
In addition, during today's call, we will reference certain non-GAAP financial measures reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release with that I will turn the call over to Scott. Thanks, Alan and good morning to everyone. As we concluded 2024, our business continued to outperform with revenue and <unk>.
Earnings performance for the full year outpacing industry activity levels that have been softening for the past two.
Our organization's performance continues to demonstrate the inherent characteristics that make cactus one of the most resilient and high return oilfield service businesses.
Including a low fixed cost base.
A flexible supply chain, a relentless focus on safety cost control and execution for our customers and offering differentiated.
<unk> enhancing and highly engineered products and services. We finished the year with solid margin performance in both segments. Despite fourth quarter revenue declined due primarily to seasonality fourth quarter total company highlights include revenue of $272 million adjusted EBITDA.
93, <unk> adjusted EBITDA margins of 34, 1%, we paid a quarterly dividend of <unk> 13 per share and we increased our cash balance to $343 million I'll now turn the call over to Jane that our CFO, who will review our financial results.
Jane: And following his remarks I'll provide some thoughts on our outlook for the near term before opening the lines for Q&A. So Jay.
Speaker Change: Good morning.
Speaker Change: Scott mentioned total Q4 revenues were $272 million, which were down seven 2% sequentially.
Speaker Change: <unk> decline was a bit more than we had anticipated in our scalable technology segment guidance as a stronger performance experienced in October was not sustained through the end of the year.
Speaker Change: Total adjusted EBITDA of $93 million was down seven 6% sequentially.
Speaker Change: For our pressure control segment revenues of $177 million were down four 5% sequentially, driven primarily by decreased customer activity and reduced shipments of production equipment as anticipated.
Speaker Change: Operating income decreased $1 7 million or three 3% sequentially with operating margins, increasing 40 basis points due to the non recurrence of miscellaneous charges incurred during the third quarter offset by lower operating leverage in the quarter.
Speaker Change: Adjusted segment EBITDA decreased to half a million dollars or eight eight tenths of a percent sequentially with margins increasing by 130 basis points due to the reasons previously noted.
Speaker Change: For our <unk> technologies segment revenues of $96 million were down 11, 2% sequentially due to lower customer activity levels in the back half of the seasonally slow quarter.
Speaker Change: Operating income decreased $7 4 million or 22, 4% sequentially with operating margins decreasing 380 basis points due to some ongoing higher input costs and reduced operating leverage.
Speaker Change: Operating income is inclusive of $4 million of intangible amortization expense.
Speaker Change: Adjusted segment EBITDA decreased by $7 3 million or 17, 1% sequentially, while margins decreased by 260 basis points.
Speaker Change: Corporate and other expenses were $5 9 million down $2 $8 million sequentially due to the non recurrence of professional fees incurred during the third quarter related to corrosion growth initiatives.
Speaker Change: Adjusted corporate EBITDA was flat in Q4 at $4 1 million of expense.
On a total company basis fourth quarter, adjusted EBITDA was $93 million.
Speaker Change: Down seven 6% from $100 million during the third quarter.
Speaker Change: Adjusted EBITDA margin for the quarter was essentially flat at 34, 1%.
Speaker Change: Adjustments to total company EBITDA during the quarter include a noncash charge of $6 9 million and stock based compensation and $3 2 million dollar gain related to revaluation of the tax receivable agreement.
Depreciation and amortization expense for the quarter was $15 million, including the $4 million of amortization expense related to tangible intangible assets, resulting from the <unk> acquisition.
Speaker Change: During the fourth quarter, the public or class a ownership with the company averaged 85% and ended the quarter at 86%.
Speaker Change: GAAP net income was $57 million in the quarter versus $62 million during the third quarter. The decrease was largely driven by lower revenues in both segments, which offset the gain related to the revaluation of the TRA.
Speaker Change: Book income tax expense during the fourth quarter was $19 million, resulting in an effective tax rate of 24%.
Speaker Change: Adjusted net income and earnings per share were <unk> $57 million and <unk> 71 per share respectively versus $63 million and <unk> 79 per share in the third quarter.
Speaker Change: Adjusted net income for the fourth quarter and full year 2024 was net of a 26% tax rate applied to our adjusted pre tax income.
Speaker Change: During the fourth quarter, we paid a quarterly dividend of <unk> 13 per share, resulting in a cash outflow of approximately $10 million, including related distribution to members.
Speaker Change: We also made the final cash TRA payment of $6 $3 million associated with the 2023 taxes during the quarter.
Speaker Change: We ended the year with a cash balance of $343 million.
Speaker Change: Orderly increase of approximately $39 million.
Speaker Change: The cash build was a little bit lower than our usual cadence in part due to lower quarterly income a buildup of raw material inventory and our <unk> technologies business. Following several missed opportunities in the second half of 2024.
Speaker Change: And in anticipation of robust sales levels in 2025.
Speaker Change: Additionally, pressure control inventory balances remained elevated as inventory was increased at the third and fourth quarters due to uncertainty regarding potential port strike activities.
Speaker Change: And the possible implementation of new tariffs.
Speaker Change: Capex was approximately $11 million during the quarter and net capex for the full year was approximately $35 million near the midpoint of our guidance provided in October.
Speaker Change: In a moment Scott will give you our first quarter operational outlook. Some additional financial considerations. When looking ahead to the first quarter include an effective tax rate of 22% and an estimated tax rate for adjusted EPS of approximately 26%.
Speaker Change: Additionally, we made a cash tax payments and associated distributions of approximately $25 million in January there was related to deferred estimated 22020 for federal taxes.
Speaker Change: This deferral was allowed under IRS Tibet disaster relief provisions after hurricane barrel affected the Houston area in June of last year.
Speaker Change: This deferral benefited our third and fourth quarter of 2020 for cash balances.
Speaker Change: Total depreciation and amortization expense for the first quarter is expected to be $15 $5 million with $7 million associated with our pressure control segment and $8 $5 million and scalable technologies.
Speaker Change: Our full year 2025, capex expectations are in the range of $45 million to $55 million.
Speaker Change: The increase from 2024 is due to increased spending on equipment upgrades and efficiency improvements have flex deals baytown manufacturing facility.
Speaker Change: Together with international supply chain diversification efforts.
Speaker Change: Including the $6 million supply chain investment made in January there was originally planned for 2024 to mitigate tariff cost.
Speaker Change: Finally, the board has approved a quarterly dividend of <unk> 13 per share, which will be paid in March.
Speaker Change: This covers the financial review and ill now turn the call back over to Scott for his comments about the first quarter outlook. Thank you pardon me. Thanks Jay.
Speaker Change: I'll now touch on our expectations for the first quarter by reporting segment. During the first quarter, we expect pressure control revenue to be flat to up versus the 177 billion reported in the fourth quarter. This view is based on strong January results in combination with modestly increase.
Speaker Change: Customer activity levels expected through the end of the first quarter adjusted EBITDA margins in our pressure control segment are expected to be 33, 5% for the first quarter. This adjusted EBITA guidance excludes approximately 3 million of stock based comp expense within the segment.
Speaker Change: As you would expect we are closely monitoring the supply chain impact of recently announced tariff adjustments, particularly as they relate to our Chinese production facility. The details remain fluid, making the impact difficult to quantify but at this time, we believe that our cost profile will be.
Speaker Change: Impacted by additional tariffs on goods imported from the U S into the U S. On the site from our Chinese facility, which will be incremental to the existing section 301 tariffs. These additional tariff expenses when implemented will impact the entire U S industry is tariffs will be applied to all.
Speaker Change: Steel and derivatives, regardless of the countries of origin as a reminder, our Bossier City manufacturing facility is the industry's largest U S manufacturer of API <unk> equipment, and we currently build approximately half of our equipment at that facility I.
Speaker Change: I am pleased to share that the location of our new low cost production facility is in Vietnam. We placed our first orders from this facility and expect modest shipments to begin in the second quarter before ramping up in the back half of the year. Once we obtain our API six site accreditation.
Speaker Change: From our current understanding of this facility will also be impacted by the new tariffs, but at a significantly lower rate than our Chinese production facility demonstrating the benefits of supply chain diversification. We believe our unique combination of production facilities will ensure that we remain flexible and low <unk>.
Speaker Change: Cost producer committed to delivering for our customers regarding our global technology segment, we expect first quarter revenue to be down mid to high single digits relative to the fourth quarter due to extended seasonality as our customers were slow to increase activity through January historically, the first quarter has.
Speaker Change: Ben the lowest revenue quarter of the year in 2024 International orders were the primary driver of our sequential increase from the first quarter. We are however, experiencing a meaningful rebound in order activity in February and early indications suggest that customer activity is building and that the.
Speaker Change: Second and third quarters of 2025 will be strong. This year, we will be introducing a product qualified for HTS service will shrink, which will increase our addressable market, particularly in the most active international regions. In addition, we shipped product to a mining customer in a shallow water offshore.
Speaker Change: Customer in the fourth quarter, and we expect continue opportunities in these areas. Additionally increased shipments to a major midstream customer contributed to our record sales in 2024 and such shipments shipments are expected to continue to grow in 2025 finally, our international.
Speaker Change: <unk> list continues to expand and supports our confidence towards achieving our long term goal of 40% International revenue contribution.
Speaker Change: We expect EBITDA margins to be approximately 35% to 37% in Q1, which excludes a $1 million of stock base comp and the segment lower operating leverage is the primary driver for the anticipated margin decline as a reminder, 100% of flex steel pipe is manufactured in Baytown, Texas.
Speaker Change: Using domestically sourced coils. So we do not expect the same direct tariff cost impacts in this segment, although upstream supply chain impacts are still being determined.
Speaker Change: Yes.
Speaker Change: Adjusted corporate EBITDA is expected to be a charge of approximately $4 5 million in Q1.
Speaker Change: Which excludes $2 million of stock based comp.
Speaker Change: We've made real progress on our international expansion plans and remain focused on establishing an international business in a disciplined manner. We continue to dedicate significant resources in both segments to international revenue diversification.
Speaker Change: I remain very pleased with both of our business segments performance 2024 was a record revenue year for cactus.
Speaker Change: The first year with the full contribution from flex deal and both segments outperformed lower average industry activity levels year over year trade policy uncertainty and customer consolidations stope percent rest of the U S oil and gas industry, but we have successfully address such challenges but.
Speaker Change: <unk> importantly, our customers have historically supported our responses to such matters in 2025, we remain focused on ramping up our Vietnam production facility, introducing new value enhancing products and both segments continuing to win new customers expanding internationally.
Speaker Change: And managing our manufacturing cost profile with that I'll turn it back over to the operator, and we may begin Q&A operator.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced entered with very a question. Please press star one again and please standby will be compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Our first question comes from the line of Stephen <unk> with Stifel. Your line is now open.
Speaker Change: Thanks, Good morning, everybody.
Speaker Change: Good morning to you are you of that.
Speaker Change: Thanks, I am well thanks.
Speaker Change: So I guess two things I guess I start with.
Speaker Change: We think about.
Speaker Change: The activity outlook in the U S.
Speaker Change: How are you guys thinking about the activity over the next few quarters in the U S market and and maybe as part of that.
Speaker Change: Do you think you can outgrow underlying activity.
Speaker Change: I would let me answer.
Speaker Change: Your last question first and that answer is yes.
Speaker Change: We're continuing.
Speaker Change: To add new customers and I.
Speaker Change: Still comfortable that we'll continue to do so.
Speaker Change: <unk>.
Speaker Change: I think that.
Speaker Change: This of course.
Speaker Change: My estimate of the U S rig count sort of pre dates.
Speaker Change: <unk>.
Speaker Change: What's going on right now with trade policy and I don't think this trade policy as I'm sure you would agree is not.
Speaker Change: Clearly constructive.
Speaker Change: We were anticipating overall U S onshore rig count and the 550 to $5 60 range.
Speaker Change: Yes.
Speaker Change: I was probably well I wasn't probably I was encouraged that there was upside based upon some renewed activity in the natural gas regions, which we've begun to see.
Speaker Change: And then believe it or not in the Bakken and the mid continent areas.
Speaker Change: Now.
Speaker Change: We're all concerned about the uncertainty that is going to follow up from these.
Speaker Change: Ever changing trade policies. So I guess the short answer is yes, I am confident that whatever it is whatever happens to the U S activity levels that we will outperform those.
Speaker Change: Great.
Speaker Change: That's good color, Thanks, and then.
Speaker Change: I guess, the other question and it might be harder to kind of crystallize, but at a high level. When you think about the Bossier city facility versus China.
Speaker Change: Yes.
Speaker Change: <unk> had some comments around this in the past so I'm trying to remember some of the <unk>.
Speaker Change: <unk> headwind that created a couple of years back I want to say it was about one to 200 basis point margins on the legacy <unk> business. When you when you set a switchover.
Speaker Change: Two bossier versus China is that in the ballpark.
Speaker Change:
Speaker Change: Steve was the CFO at that time.
Speaker Change: I can just tell you I don't know.
Speaker Change: On a.
Speaker Change: Comparative basis in terms of cost.
Speaker Change: <unk> is it.
Speaker Change: It was at least 35% higher than our far east supply chain. So keep in mind that as the tariffs increase.
Speaker Change: For imported steel.
China or wherever Vietnam or.
Speaker Change: Europe that U S. Steel prices are also going to increase and that means bossier costs are going to increase as well.
Speaker Change: To what extent I.
Speaker Change: I don't know, but.
Speaker Change: You can anticipate they're going to be.
Close to whatever sort of the weighted average of steel prices that are being imported internationally.
Speaker Change: Let's face it.
Speaker Change: That's why the U S steel producers have pushed so hard.
Speaker Change: On steel and aluminum.
Speaker Change: Okay makes sense and just thinking about 30 think about 35%.
Speaker Change: Okay. Thank you. Thank you and just a quick follow up to that and then I'll turn it back.
Speaker Change: Do you think given what youre seeing in the end market and given how public.
Speaker Change: These tariff situation is that you can offset that with let's call it cost recovery versus price.
Speaker Change: Yes.
Speaker Change: I would be <unk>.
Speaker Change: Very disappointed.
Speaker Change: If our customers.
Speaker Change: Didn't support us in this.
Speaker Change: Thank you.
Speaker Change: Okay, but.
Speaker Change: Time will tell.
Speaker Change: Right.
Speaker Change: I, just I just need to add something.
Speaker Change: Our customers have always been very loyal to us because we have been very loyal to them.
Speaker Change: We've never taken advantage of them, we're very transparent.
Speaker Change: What we do and why we do it and.
Speaker Change: I've been gratified by the way they've supported us in the past.
Speaker Change: Great. Thank you for all the detail.
Speaker Change: Yes.
Speaker Change: Thank you so much and one woman next question.
Speaker Change: Our next question comes from the line of Irene Jr of Jpmorgan Securities. Your line is now open.
Irene Jr: Yes, good morning.
Speaker Change: I'm doing well doing well.
Speaker Change: I did have maybe a follow up on the tariff discussion.
Speaker Change: <unk> mentioned that youre going to do a $6 million.
Speaker Change: <unk> chain investment in one queue, maybe to mitigate the impact.
Speaker Change: From the tariffs, but maybe you could talk about.
Speaker Change: What's the game plan will be on a on a go forward basis.
Speaker Change: Just given the fact that you do have flexibility now between.
Speaker Change: <unk> in Bossier city to kind of mitigate that impact as you move forward.
Speaker Change: Yes.
Speaker Change:
Speaker Change: Okay.
Speaker Change: My answer would probably have to go beyond.
Speaker Change: Just simply responding to your question I think that.
Speaker Change: Not just.
Speaker Change: Cactus.
Speaker Change: Given that we have the largest domestic supply chain capabilities in the industry. There is not a whole lot of spare capacity here there are not enough people.
Speaker Change: There are it's not.
Speaker Change: The domestic forging capacity has gone from this country and much of it.
Speaker Change: <unk>.
Speaker Change: It.
Speaker Change: It has pivoted towards.
Speaker Change: It won't surprise you to hear to military.
Speaker Change: Applications. So if you were to go into some of the larger historically oilfield service forgers youre going to see.
Speaker Change: Things that perhaps are destined for Ukraine, or places like that or could be permitted east youre not going to see a whole lot of oilfield service material for obvious reasons. So there is a there is a just a limit to how much more we can ramp up bossier and interesting.
Speaker Change: Enough. Although you didn't ask the question we are busier today in Bossier than we were in 2024. So now let me pivot over to Vietnam.
Speaker Change: While we expect to see.
Is this is a vertical manufacturing facility that we're putting in so we would expect to see Vietnam would begin to take over supplying our needs in the U S.
Speaker Change: And our Chinese facility will take over responsibility for international demand.
Speaker Change: So.
Speaker Change: I think I may have mentioned before that when we first designed the.
Speaker Change: The facility in Vietnam, I Didnt mentioned Vietnam.
Speaker Change: We did design a facility that was capable of handling the entirety of our U S demand.
Speaker Change: No interesting interesting and then maybe.
Speaker Change: Yes.
Speaker Change: Our investment in it that was it.
Speaker Change: It is clear that $6 million, our supply chain investments could you just.
Speaker Change: Okay.
Speaker Change: That.
Speaker Change: Yeah. So.
Speaker Change: First of all we already made.
Speaker Change: Initial investments in 2024, but the $6 million.
Speaker Change: This additional $6 million was slated for 2024, so it got postponed to 2025.
Speaker Change: It's made right now this will provide us with vertical manufacturing capabilities, so think about.
Speaker Change: Soochow.
Speaker Change: The way, we develop soochow with hub.
Speaker Change: Modest amount of capital investment.
Speaker Change: Plus the fact that we're going to be far more vertical in our supply.
Speaker Change: Understood that confusion again no no no that's helpful.
Speaker Change: And maybe just as my follow up I wanted to get more details you talked about it.
Speaker Change: Flex steel.
Speaker Change: The ability now to address <unk> solutions and I was wondering maybe if you could comment is that product.
Speaker Change: Commercialize and maybe discuss maybe some of the growth opportunities from that.
Speaker Change: From that product, yes, I'll, let Steve go into the details, but it is commercialized we're shipping well.
Speaker Change: Steve Once again, we're going to make up for our first shipment will be March or April and that will lead to a U S customer and we have some other U S customers interested really I mean, the bigger addressable market for us is in the middle East, where most oil production at least for our investors and diameters of sour.
Speaker Change: So our prior Middleby.
Speaker Change: Middle East sales have been more in the water injection area.
Speaker Change: Some other grocers applications, but not not Asia us and oil production.
Speaker Change: We're excited about that as we mentioned on the call we think that supports.
Speaker Change: The eventual 40% international contribution that we're shooting for from complex deal in the Grand scheme of things.
Speaker Change: Great. Thanks, gentlemen.
Speaker Change: Okay.
Speaker Change: Thank you so much.
Speaker Change: And again, if you would like to ask a question. Please press star one one.
Speaker Change: Okay.
Speaker Change: And our next question comes from the line of Scott Gruber of Citigroup. Your line is now open.
Scott Gruber: Yes. Good morning, there Scott how are you doing day to day.
Speaker Change: Yeah, you guys getting me on.
Speaker Change: Scott can you speak up a little bit.
Scott Gruber: Can you hear me.
Speaker Change: Yes, I hear you better now.
Scott Gruber: Alan just turned the volume up.
Scott Gruber: Thanks.
Scott Gruber: Great great.
Scott Gruber: So staying on provable can you just.
Scott Gruber: To provide a bit of color on how the school bull's share.
Scott Gruber: Sure is evolving.
Scott Gruber: In the U S. When you bought the business couple of years ago, you talked about.
Scott Gruber: Upside to share and production lines and gathering lines, but wanted to see how that's evolving and completion activity is kind of flattish. This year, how should we think about <unk> growth.
And 25 in the U S and then.
Scott Gruber: Touch on the international growth potential as well.
Scott Gruber: Yes.
Scott Gruber: While 2024 as a whole was a record revenue in 2023 at least <unk> reported standpoint, we didnt have January and February in there, but we were up.
Scott Gruber: When we look back at the prior owners were up about 4%.
Scott Gruber: <unk> total revenues and some of that was was due to the international growth that we talked about on the last call and we're talking about now but.
Scott Gruber: But we're pretty pleased with that indicate that we were growing share in the U S. Despite.
Scott Gruber: The rig count reductions or 13, 13% or so year over year. So we feel very good about our positioning we continue to expand particularly on the.
Scott Gruber: Larger diameters I think.
Scott Gruber: Some of the.
Scott Gruber: Deeper deeper.
Scott Gruber: Deeper longer laterals.
Scott Gruber: It pushes people probably too high.
Scott Gruber: Higher diameters and pressures, where we tend to have less competition and start running into steel more so if youre looking for a global alternatives.
Scott Gruber: Fitness, there as well as with some of the bigger field developments that we see.
Scott Gruber: So overall, we're very pleased with it like we said we had a record fourth quarter I think obviously, we wish our guide had been a little bit different we just where we're.
Scott Gruber: We're projecting off of them extremely strong October and activity fell off.
Scott Gruber: Further than we anticipated.
Scott Gruber: I guess Q1 is typically our weakest quarter and steel construction gets off to a slow start but we're seeing the ramp up from January to February like we would expect so we don't have any through activity concerns customers are telling us that in many cases 2025 activity at least.
Scott Gruber: Over the last couple of months, they've been telegraphing that it should be up.
Scott Gruber: And as far as.
Scott Gruber: International Awards Theyre, just lumpier harder to project they tend to be at a minimum of $1 million typically on the higher side for us recently more in that $5 million to $6 million.
Scott Gruber: So.
Scott Gruber: Last year in 2024 in Q1, we benefited from almost $5 million International order, we don't have that this year.
Scott Gruber: So that's kind of puts us where we are but overall I'm feeling very bullish about our prospects.
Scott Gruber: But we have to contend with the market.
Scott Gruber: We just take what the market gives us, but we're trying to expand our portfolio as we talked about.
Scott Gruber: And then <unk>.
Scott Gruber: Targeting other areas of growth.
Scott Gruber: Yes, I mean HTS product is interesting.
Scott Gruber: Would it take a product like that to get qualified.
Scott Gruber: For sale in the Middle East and has that process begun.
Scott Gruber: Yes. So it is qualified to API for certain pressure in diameter ranges. Currently we are working on further qualification.
Scott Gruber: As far as Middle East qualifications, you always have some some.
Scott Gruber: Country specific qualifications and we're working through those now.
Scott Gruber: But it's not.
Scott Gruber: We're in the middle of yes, we're in the middle of them its not a multi year process.
Scott Gruber: The city.
Scott Gruber: Working towards it.
Scott Gruber: Got it.
Scott Gruber: I appreciate the color I'll turn it back thank you.
Scott Gruber: Thank you so much and one moment. Please for the next question.
Speaker Change: And we have a follow up question from Stephen <unk> of Stifel. Your line is now open.
Stephen: Thanks for taking thanks for taking the question.
Speaker Change: When we think about the pressure control side.
How should we think about the international growth.
Speaker Change: As far as where you stand right now and the opportunities.
Speaker Change: I imagine probably in Argentina, and also in the Middle East.
Speaker Change: Kind of where you stand on that progress.
Speaker Change: Okay.
Speaker Change: Oh.
Speaker Change: General Counsel is looking at me right now.
Speaker Change: Guards.
Speaker Change: Don't ask me that question.
Speaker Change: I've said in the narrative that we made real progress and we have made real progress.
Speaker Change: So.
Speaker Change:
Speaker Change: Okay.
Speaker Change: I really need to leave it at that okay. Okay.
Speaker Change: Look I think everybody on this call knows that.
Speaker Change: We've never lied to anybody in.
Speaker Change: We're not going to start now.
Speaker Change: Got you that makes sense I'm still modeling as a U S business until we.
Speaker Change: But I was just curious if you could give more color, but I appreciate that you can't right now.
Speaker Change: Okay.
Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you so much.
Scott Gruber: And there are no further questions at this time I would now like to turn the conference back to Scott <unk>, Chairman and CEO for closing remarks, Okay. I just want to thank everybody for your support thanks for joining us.
Scott Gruber: This team worked really really hard this year.
Scott Gruber: Working even harder this year.
Scott Gruber: This is.
Scott Gruber: My hope is that 2025.
Scott Gruber: We will be a transformative year for the company as a whole.
Scott Gruber: And we're doing everything in our power to ensure that that happens so everybody have a good day, thanks for joining us.
Speaker Change: Thank you presenters and thank you ladies and gentlemen.
Speaker Change: This call. Thank you for your participating and you may now disconnect have a great day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Good day, and thank for standing by and welcome to the Cactus Q4 2024 earnings call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: After the Speakers' presentation, there'll be a question and answer session.
Ask a question during the session you will need to press star one one on your telephone you wouldn't hear an automated message advice of your hand is spaced.
Speaker Change: Your question. Please press star one one again.
Speaker Change: Please be advised that today's conference is being recorded.
Speaker Change: I would now like to have the conference over to your speaker today, Alan Boyd director of corporate development and Investor Relations. Please go ahead.
Scott Bender: Thank you and good morning, we appreciate you joining us on today's call. Our speakers will be Scott Bender, our chairman and Chief Executive Officer, and Jane <unk>, Our Chief Financial Officer also joining us today are Joel Bender, President Steven Bender, Chief operating officer, Steve Tadlock, CEO of Flex deal and real Marsh, our general counsel.
Scott Bender: Please note that any comments, we make on today's call regarding projections or expectations for future events are forward looking statements covered by the private Securities Litigation Reform Act.
Scott Bender: Forward looking statements are subject to a number of risks and uncertainties many of which are beyond our control.
Scott Bender: These risks and uncertainties could cause actual results to differ materially from our current expectations.
Scott Bender: We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC.
Scott Bender: Any forward looking statements. We make today are only as of today's date and we undertake no obligation to publicly update or review any forward looking statements and.
Scott Bender: In addition, during today's call, we will reference certain non-GAAP financial measures reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release with that I will turn the call over to Scott. Thanks, Alan and good morning to everyone. As we concluded 2024, our business continued to outperform with revenue and <unk>.
Scott Bender: Earnings performance for the full year outpacing industry activity levels that have been softening for the past two.
Scott Bender: Our organization's performance continues to demonstrate the inherent characteristics that make cactus one of the most resilient and high return oilfield service businesses.
Scott Bender: Including a low fixed cost base and a flexible supply chain, a relentless focus on safety cost control and execution for our customers and offering differentiated.
UNC enhancing and highly engineered products and services. We finished the year with solid margin performance in both segments. Despite fourth quarter revenue declined due primarily to seasonality fourth quarter total company highlights include revenue of $272 million adjusted EBITDA.
Scott Bender: 93, <unk> adjusted EBITDA margins of 34, 1%, we paid a quarterly dividend of <unk> 13 per share and we increased our cash balance to $343 million I'll now turn the call over to Jane that our CFO, who will review our financial results.
Jane: Following his remarks I'll provide some thoughts on our outlook for the near term before opening the lines for Q&A. So Jay.
Jane: Good morning.
Jane: Scott mentioned total Q4 revenues were $272 million, which were down seven 2% sequentially.
Jane: The revenue decline was a bit more than we had anticipated in our scalable technology segment guidance as a stronger performance experienced in October was not sustained through the end of the year.
Jane: Total adjusted EBITDA of $93 million was down seven 6% sequentially.
For our pressure control segment revenues of $177 million were down four 5% sequentially, driven primarily by decreased customer activity and reduced shipments of production equipment as anticipated.
Jane: Operating income decreased $1 7 million or three 3% sequentially with operating margins, increasing 40 basis points due to the non recurrence of miscellaneous charges incurred during the third quarter offset by lower operating leverage in the quarter.
Jane: Adjusted segment EBITDA decreased to $5 million or eight eight tenths of a percent sequentially with margins increasing by 130 basis points due to the reasons previously noted.
<unk> technologies segment revenues of $96 million were down 11, 2% sequentially due to lower customer activity levels in the back half of the seasonally slow quarter.
Jane: Operating income decreased $7 4 million or 22, 4% sequentially with operating margins decreasing 380 basis points due to some ongoing higher input costs and reduced operating leverage.
Jane: Operating income is inclusive of $4 million of intangible amortization expense.
Jane: Adjusted segment EBITDA decreased by $7 3 million or 17, 1% sequentially, while margins decreased by 260 basis points.
Jane: Corporate and other expenses were $5 9 million down $2 $8 million sequentially due to the non recurrence of professional fees incurred during the third quarter related to corrosion growth initiatives.
Jane: Adjusted corporate EBITDA was flat in Q4 at $4 $1 million of expense.
Jane: On a total company basis fourth quarter, adjusted EBITDA was $93 million down seven 6% from $100 million during the third quarter adjusted.
Jane: Adjusted EBITDA margin for the quarter was essentially flat at 34, 1%.
Jane: Adjustments to total company EBITDA during the quarter include a noncash charge of $6 9 million and stock based compensation and $3 $2 million gain related to revaluation of the tax receivable agreement.
Jane: Depreciation and amortization expense for the quarter was $15 million, including the $4 million of amortization expense related to tangible intangible assets, resulting from the <unk> acquisition.
Jane: During the fourth quarter, the public or class a ownership with the company averaged 85% and ended the quarter at 86%.
Jane: GAAP net income was $57 million in the quarter versus $62 million during the third quarter. The decrease was largely driven by lower revenues in both segments, which offset the gain related to the reevaluation of the TRA.
Jane: Book income tax expense during the fourth quarter was $19 million, resulting in an effective tax rate of 24%.
Jane: Adjusted net income and earnings per share were <unk> $57 million and <unk> 71 per share respectively versus $63 million and <unk> 79 per share in the third quarter.
Jane: Adjusted net income for the fourth quarter and full year 2024 was net of a 26% tax rate applied to our adjusted pre tax income.
Jane: During the fourth quarter, we paid a quarterly dividend of <unk> 13 per share, resulting in a cash outflow of approximately $10 million, including related distribution to members.
Jane: We also made the final cash TRA payment of $6 $3 million associated with the 2023 taxes during the quarter.
Jane: We ended the year with a cash balance of $343 million.
Jane: The increase of approximately $39 million.
Jane: The cash build was a little bit lower than our usual cadence in part due to a lower quarterly income a buildup of raw material inventory and our scalable technologies business. Following several missed opportunities in the second half of 2024.
Jane: And in anticipation of robust sales levels in 2025.
Jane: Additionally, pressure control inventory balances remained elevated as inventory was increased at the third and fourth quarters due to uncertainty regarding potential port strike activities.
Jane: And the possible implementation of new tariffs.
Jane: Capex was approximately $11 million during the quarter and net capex for the full year was approximately $35 million near the midpoint of our guidance provided in October.
Jane: In a moment Scott will give you our first quarter operational outlook. Some additional financial considerations. When looking ahead to the first quarter include an effective tax rate of 22% and an estimated tax rate for adjusted EPS of approximately 26%.
Jane: Additionally, we made a cash tax payment and associated distributions of approximately $25 million in January there was related to deferred estimated 22020 for federal taxes.
Jane: This deferral was allowed under IRS divert to SaaS to relief provisions after hurricane barrel affected the Houston area in June of last year.
Jane: This deferral benefited our third and fourth quarter of 2020 for cash balances.
Jane: Total depreciation and amortization expense for the first quarter is expected to be $15 $5 million with $7 million associated with our pressure control segment and $8 $5 million and scalable technologies.
Jane: Our full year 2025, capex expectations are in the range of $45 million to $55 million.
Jane: The increase from 2024 is due to increased spending on equipment upgrades and efficiency improvements have flex deals baytown manufacturing facility.
Jane: Together with international supply chain diversification efforts, including a $6 million supply chain investment made in January there was originally planned for 2024 to mitigate.
Jane: <unk> cost.
Jane: Finally, the board has approved a quarterly dividend of <unk> 13 per share, which will be paid in March.
Scott: This covers the financial review and ill now turn the call back over to Scott for his comments about the first quarter outlook. Thank you.
Jane: Thanks Jay.
Jane: I'll now touch on our expectations for the first quarter by reporting segment. During the first quarter, we expect pressure control revenue to be flat to up versus the 177 billion reported in the fourth quarter. This view is based on strong January results in combination with modestly increase.
Jane: Customer activity levels expected through the end of the first quarter adjusted EBITDA margins in our pressure control segment are expected to be 33, 5% for the first quarter. This adjusted EBITDA guidance excludes approximately 3 million of stock based comp expense within the segment.
Jane: As you would expect we are closely monitoring the supply chain impact of recently announced tariff adjustments, particularly as they relate to our Chinese production facility. The details remain fluid, making the impact is difficult to quantify but at this time, we believe that our cost profile will be.
Jane: Impacted by additional tariffs on goods imported from the U S into the U S. I'm, sorry from our Chinese facility, which will be incremental to the existing section 301 tariffs. These additional tariff expenses when implemented.
Jane: It will impact the entire U S industry is tariffs will be applied to all steel and derivatives, regardless of the countries of origin. As a reminder, our Bossier City manufacturing facility is the industry's largest U S manufacturer of API <unk> equipment and we currently build approximately.
Jane: Half of our equipment at that facility I'm.
Jane: I am pleased to share that the location of our new low cost production facility is in Vietnam. We placed our first orders from this facility and expect modest shipments to begin in the second quarter before ramping up in the back half of the year. Once we obtain our API six site accreditation.
Jane: From our current understanding of this facility will also be impacted by the new tariffs, but at a significantly lower rate than our Chinese production facility demonstrating the benefits of supply chain diversification. We believe our unique combination of production facilities will ensure that we remain flexible and low cost.
Jane: Cost producer committed to delivering for our customers regarding our global technology segment, we expect first quarter revenue to be down mid to high single digits relative to the fourth quarter due to extended seasonality as our customers were slow to increase activity through January historically, the first quarter has.
Jane: Ben the lowest revenue quarter of the year in 2024 International orders were the primary driver of our sequential increase from the first quarter. We are however, experiencing a meaningful rebound in order activity in February and early indications suggest the customer activity is building in the <unk>.
Jane: Second and third quarters of 2025 will be strong. This year, we will be introducing a product qualified for HTS service will shrink.
Jane: Which will increase our addressable market, particularly in the most active international regions. In addition, we shipped product to a mining customer in a shallow water offshore customer in the fourth quarter and we expect continue opportunities in these areas. Additionally increased shipments to a major midstream customer.
Jane: Tribute to our record sales in 2024, and such shipment shipments are expected to continue to grow in 2025 finally, our international opportunity list continues to expand and supports our confidence towards achieving our long term goal of 40% International.
Jane: Revenue contribution.
Jane: We expect EBITDA margins to be approximately 35% to 37% in Q1, which excludes a $1 billion of stock base comp and the segment lower operating leverage is the primary driver for the anticipated margin decline as a reminder, 100% of flex deal pipe is manufactured in Baytown, Texas.
Jane: This using domestically sourced coils. So we do not expect the same direct tariff cost impacts in this segment, although upstream supply chain impacts are still being determined.
Jane: Adjusted corporate EBITDA is expected to be a charge of approximately $4 5 million in Q1.
Which excludes $2 million of stock based comp.
Jane: We've made real progress on our international expansion plans and remain focused on establishing international business in a disciplined manner. We continue to dedicate significant resources in both segments to international revenue diversification in conclusion I remain very pleased with both of our business segments.
Jane: <unk> 2024 was a record revenue year for cactus.
Jane: As the first year with the full contribution from flex deal and both segments outperformed lower average industry activity levels year over year trade policy uncertainty and customer consolidations stope percent rest of the U S oil and gas industry, but we have successfully address such challenges.
Jane: Before importantly, our customers have historically supported our responses to such matters in 2025, we remain focused on ramping up our Vietnam production facility, introducing new value enhancing products and both segments continuing to win new customers expanding internationally.
Jane: And managing our manufacturing cost profile with that I'll turn it back over to the operator, and we may begin Q&A operator.
Jane: Thank you.
Speaker Change: Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced entered with very a question. Please press star one again and please standby will be compile the Q&A roster.
Jane: Okay.
Jane: Okay.
Speaker Change: Our first question comes from the line of Stephen <unk> with Stifel. Your line is now open.
Stephen: Thanks, Good morning, everybody.
Speaker Change: Good morning to you are you of that.
Speaker Change: Thanks, Im well thanks.
Speaker Change: So I guess two things I guess I start with.
Speaker Change: We think about.
Speaker Change: The activity outlook in the U S.
Speaker Change: How are you guys thinking about the activity.
Speaker Change: The next few quarters in the U S market and and maybe as part of that.
Speaker Change: Do you think you can outgrow underlying activity.
Speaker Change: Hi.
Speaker Change: Alright, let me answer.