ProPetro Reports Full Year and Fourth Quarter 2018 Results

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Most Successful Year in Company’s 13-Year History

Grew Year-Over-Year Revenue and Year-End HHP Capacity of Legacy Business by 74% and 31%, Respectively

Entered into Transformational Transaction with Pioneer Natural Resources for 10-Year Service Agreement and Acquisition of 510,000 HHP Across Eight Frac Fleets

MIDLAND, Texas--(BUSINESS WIRE)-- ProPetro Holding Corp. (“ProPetro” or “the Company”) (NYSE: PUMP) today announced financial and operational results for the full year and fourth quarter of 2018.

Full Year 2018 Operational Highlights

  • Organically grew legacy business year-end fleet capacity by 215,000 to 905,000 hydraulic horsepower (“HHP”), or 20 fleets, from 690,000 HHP, or 16 fleets, at the end of 2017.
  • Maintained industry-leading fleet utilization throughout the year.
  • Enhanced industry-leading safety and performance metrics while growing employee headcount over 50%
  • Entered into a strategic transaction for the acquisition of 510,000 HHP, or 8 fleets, from Pioneer Natural Resources (“Pioneer” or “PXD”) and related 10-year dedicated service agreement (for further discussion, see “Pioneer Transaction Update” section later in this release).

Full Year 2018 Financial Highlights

  • Grew total revenue by 74% to $1.7 billion from $981.9 million in 2017.
  • Expanded net income by almost 14 times to $173.9 million, or $2.00 per diluted share, for 2018, from $12.6 million, or $0.16 per diluted share, in 2017.
  • Increased adjusted EBITDA(1) to $388.5 million from $137.4 million in 2017 – more than 180% higher.

Fourth Quarter 2018 Highlights

  • Total revenue was $425.4 million as compared to the $434.0 million in the third quarter 2018.
  • Grew net income to $51.8 million, a 12% increase from $46.3 million in the previous quarter.
  • Adjusted EBITDA(1) increased 9% to $112.4 million from $103.3 million in the third quarter.
  • Deployed one new-build frac fleet 45,000 HHP, bringing total year-end HHP to 905,000.
  • Closed transaction with Pioneer on December 31, 2018, bringing company-wide/total HHP to 1,415,000 HHP.

(1) Adjusted EBITDA is a Non-GAAP financial measure and is described and reconciled to net income (loss) in the table under “Non-GAAP Financial Measures.”

Dale Redman, Chief Executive Officer, commented, “We are extremely proud of our results for 2018, and appreciate the outstanding efforts of our best-in-class team as they competed at the highest-level in what proved to be another pivotal year for the Permian Basin. As important, I want to thank our customers, supply chain partners, and other key stakeholders for their important contributions to our success. Underpinning our outperformance in 2018 was a resilient long-term model of providing unrivaled execution at the wellsite for the benefit of our customers, and we look forward to continued close collaboration in their ongoing efforts. Finally, we are very excited to have announced and closed on our strategic transaction and service agreement with Pioneer and would like to once again welcome all of our new teammates to the ProPetro team.”

Fourth Quarter 2018 Financial Summary

Revenue for the fourth quarter of 2018 was $425.4 million, or 2% lower than $434.0 million for the third quarter of 2018. The decrease was primarily attributable to the increased adoption of local sand as well as expected holiday seasonality. During the fourth quarter of 2018, 97.8% of total revenue was associated with pressure pumping services, compared to 97.1% in the third quarter.

Costs of services excluding depreciation and amortization for the fourth quarter of 2018 decreased to $300.4 million from $320.1 million during the third quarter of 2018 primarily due to increased volumes of local sand. As a percentage of pressure pumping segment revenues, pressure pumping costs of services decreased to 70.3% from 73.9% in the third quarter of 2018.

General and administrative expense was $15.0 million as compared to $12.8 million in the third quarter of 2018. The increase was primarily attributable to an increase in insurance costs and professional and legal fees. General and administrative expense, exclusive of stock-based compensation and deferred IPO bonus, was $12.7 million, or 3.0% of revenue, for the fourth quarter of 2018.

Net income for the fourth quarter of 2018 totaled $51.8 million, or $0.59 per diluted share, versus $46.3 million, or $0.53 per diluted share, for the third quarter of 2018.

Adjusted EBITDA increased to $112.4 million for the fourth quarter of 2018 from $103.4 million in the previous quarter.

Pioneer Transaction Update

As previously announced, on December 31, 2018, ProPetro completed its acquisition of the pressure pumping assets of and became a strategic long-term service provider to Pioneer providing pressure pumping and related services for a term of up to 10 years. Under the terms of the agreement ProPetro acquired Pioneer’s pressure pumping assets (“PPS”) in exchange for $110 million of cash and 16.6 million shares of ProPetro common stock, representing approximately 17% Pioneer ownership in ProPetro.

The acquired Pioneer assets include eight frac fleets with a collective capacity of 510,000 hydraulic horsepower (HHP), as well as four coiled tubing units and associated equipment. In addition, the PPS assets include a best-in-class maintenance facility situated on 111 contiguous acres located near ProPetro’s legacy maintenance operations in Midland. This transaction has significantly increased ProPetro’s scale in the Permian Basin and expanded its leading operational track record while allowing Pioneer to improve capital efficiency and long-term cost competitiveness in its core operations.

Operational Highlights and Fleet Expansion

Active HHP deployed during the quarter and at quarter end was 905,000 HHP, or 20 fleets. Consistent with the Company’s previously announced plans, ProPetro expanded its fracturing capacity by an additional 45,000 HHP, or one fleet, in early October. This fleet is working under a dedicated agreement with an existing customer. As previously discussed, the Company acquired 510,000 HHP, or 8 fleets, from Pioneer Natural Resources effective December 31, 2018. This brings total current HHP to 1,415,000 or 28 fleets, in the Permian Basin of which 27 are currently operating.

ProPetro exited 2018 operating 20 cementing units, a 25% increase from 16 units operating at year-end 2017. The Company also recently deployed one new-build unit bringing total current cementing capacity to 21 units. ProPetro plans to continue to organically expand cementing capacity by an additional 2 units during the remainder of 2019, thereby exiting the year with 23 units.

The Company exited 2018 with four coiled tubing units, and with the closing of the Pioneer transaction, currently has total capacity of eight units of which four are currently operating. ProPetro plans to deploy one additional new-build coiled tubing unit later in 2019.

Liquidity and Capital Spending

As of December 31, 2018, total cash was $132.7 million and total debt was $70.0 million. Total liquidity at the end of the fourth quarter of 2018 was $257.7 million, including cash and $125.0 million of available capacity under the Company’s $300.0 million revolving credit facility.

Capital expenditures incurred during the fourth quarter of 2018, exclusive of the Pioneer transaction, were $50.2 million, which included spending on ProPetro’s growth initiatives as well as maintenance capital.

Outlook

Mr. Redman concluded, “As our customer base and other producers in the Permian continue to move toward full manufacturing mode in the Permian, we are pleased with the activity and efficiency levels we have seen in our operations to date in 2019. We will continue to focus on outperforming customer expectations while staying within their required project economics, as well as look for opportunities to further enhance our proven model of success.”

Conference Call Information

The Company will host a conference call at 8:00 AM Central Time on Wednesday, February 27, 2019 to discuss financial and operating results for the full year and fourth quarter of 2018 and recent developments. This call will also be webcast, along with a presentation slide deck on ProPetro’s website at www.propetroservices.com. The slide deck will be published on the website the morning of the call. To access the conference call, U.S. callers may dial toll free 1-844-340-9046 and international callers may dial 1-412-858-5205. Please call ten minutes ahead of the scheduled start time to ensure a proper connection. A replay of the conference call will be available for one week following the call and can be accessed toll free by dialing 1-877-344-7529 for U.S. callers, 1-855-669-9658 for Canadian callers, as well as 1-412-317-0088 for international callers. The access code for the replay is 10126663.

About ProPetro

ProPetro Holding Corp. is a Midland, Texas-based oilfield services company providing pressure pumping and other complementary services to leading upstream oil and gas companies engaged in the exploration and production of North American unconventional oil and natural gas resources. For more information, please visit www.propetroservices.com.

Forward-Looking Statements

The information above includes forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements are subject to certain risks, uncertainties and assumptions identified above or as disclosed from time to time in the Company’s filings with the Securities and Exchange Commission. As a result of these factors, actual results may differ materially from those indicated or implied by such forward-looking statements.

           
PROPETRO HOLDING CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31 September 30 December 31
  2018     2018     2017     2018     2017  
REVENUE - Service revenue $ 425,414 $ 434,041 $ 313,712 $ 1,704,562 $ 981,865
COSTS AND EXPENSES
Cost of services (exclusive of depreciation and amortization) 300,421 320,146 262,048 1,270,577 813,823
General and administrative (inclusive of stock-based compensation) 15,015 12,821 10,335 53,958 49,215
Depreciation and amortization 24,710 23,217 17,026 88,138 55,628
Loss on disposal of assets   16,159     16,407     10,115     59,220     39,086  
Total costs and expenses 356,305 372,591 299,524 1,471,893 957,752
OPERATING INCOME (LOSS) 69,109 61,450 14,188 232,669 24,113
OTHER INCOME (EXPENSE):
Interest expense (1,916 ) (1,480 ) (878 ) (6,889 ) (7,347 )
Other expense   (158 )   (93 )   (232 )   (663 )   (1,025 )
Total other income (expense) (2,074 ) (1,573 ) (1,110 ) (7,552 ) (8,372 )
INCOME (LOSS) BEFORE INCOME TAXES 67,035 59,877 13,078 225,117 15,741
INCOME TAX (EXPENSE)/BENEFIT   (15,257 )   (13,592 )   (3,000 )   (51,255 )   (3,128 )
NET INCOME (LOSS) $ 51,778  

 

$ 46,285  

 

$ 10,078   $ 173,862  

 

$ 12,613  
NET INCOME (LOSS) PER COMMON SHARE:
Basic $ 0.62   $ 0.55   $ 0.12   $ 2.08   $ 0.17  
Diluted $ 0.59   $ 0.53   $ 0.12   $ 2.00   $ 0.16  
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic   83,758     83,544     83,040     83,460     76,371  
Diluted   87,218     86,878     86,818     87,046     79,583  
   
PROPETRO HOLDING CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
 
December 31, 2018 December 31, 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 132,700 $ 23,949
Accounts receivable - net of allowance for doubtful accounts of $100 and $443, respectively 202,956 199,656
Inventories 6,353 6,184
Prepaid expenses 6,610 5,123
Other current assets   638     748  
Total current assets 349,257 235,660
PROPERTY AND EQUIPMENT - Net of accumulated depreciation 912,846 470,910
OTHER NONCURRENT ASSETS:
Goodwill 9,425 9,425
Intangible assets - net of amortization 13 301
Deferred revenue rebate - net of amortization 615
Other noncurrent assets   2,981     2,121  
Total other noncurrent assets   12,419     12,462  
TOTAL ASSETS $ 1,274,522   $ 719,032  
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 214,460 $ 211,149
Accrued liabilities 138,089 16,607
Current portion of long-term debt - 15,764
Accrued interest payable   211     76  
Total current liabilities 352,760 243,596
DEFERRED INCOME TAXES 54,283 4,881
LONG-TERM DEBT 70,000 57,178
OTHER LONG-TERM LIABILITIES   124     125  
Total liabilities 477,167 305,780
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.001 par value, 30,000,000 shares authorized, 0 and 16,999,990 shares issued, respectively - -
Common stock, $0.001 par value, 200,000,000 shares authorized, 100,190,126 and 83,039,854 shares issued, respectively 100 83
Additional paid-in capital 817,690 607,466
Accumulated deficit   (20,435 )   (194,297 )

Total shareholders’ equity

  797,355     413,252  

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$ 1,274,522   $ 719,032  
     
PROPETRO HOLDING CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Twelve Months Ended December 31,
  2018     2017  
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 173,862 $ 12,613
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization 88,138 55,628
Deferred income tax benefit 49,704 3,430
Amortization of deferred revenue rebate 615 1,846
Amortization of deferred debt issuance costs 403 3,403
Stock-based compensation 5,482 9,489
Loss on disposal of assets 59,220 39,086
(Gain) on interest rate swap - (251 )
Changes in operating assets and liabilities:
Accounts receivable (3,300 ) (84,477 )
Other current assets 207 3,304
Inventories (168 ) (1,472 )
Prepaid expenses (1,418 ) (468 )
Accounts payable 9,720 64,228
Accrued liabilities and other current liabilities 9,853 2,930
Accrued interest   761     (32 )
Net cash provided by operating activities   393,079     109,257  
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (284,197 ) (285,891 )
Proceeds from sale of assets   3,593     4,422  
Net cash used in investing activities   (280,604 )   (281,469 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 77,378 60,045
Repayments of borrowings (80,946 ) (166,546 )
Proceeds from insurance financing 5,824 4,125
Repayments of insurance financing (4,495 ) (3,807 )
Payment of debt issuance costs (1,732 ) (1,653 )
Proceeds from exercise of equity awards 247 -
Proceeds from IPO - 185,500

Payment of deferred IPO costs

  -     (15,099 )

Net cash provided by financing activities

  (3,724 )   62,565  

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

108,751 (109,647 )

CASH AND CASH EQUIVALENTS — Beginning of period

  23,949     133,596  

CASH AND CASH EQUIVALENTS — End of period

$

132,700

  $ 23,949  
                 
Reportable Segment Information
 
Three Months Ended
December 31, 2018 September 30, 2018 December 31, 2017
($ in thousands)

Pressure
Pumping

All Other

Total

Pressure
Pumping

All Other Total

Pressure
Pumping

All Other Total
 
Service revenue $ 416,117 $ 9,297   $ 425,414 $ 421,436 $ 12,605   $ 434,041 $ 305,685 $ 8,027   $ 313,712
Adjusted EBITDA $

116,446

$

(4,003

) $ 112,443 $ 105,069 $ (1,701 ) $ 103,368 $ 46,826 $ (4,036 ) $ 42,790
Depreciation and amortization $ 23,573 $ 1,136   $ 24,709 $ 22,026 $ 1,191   $ 23,217 $ 15,927 $ 1,099   $ 17,026
Capital expenditures $ 359,059 $ 8,845   $ 367,904 $ 73,143 $ 1,060   $ 74,203 $ 97,310 $ 1,662   $ 98,972
 
 
Twelve Months Ended
December 31, 2018 December 31, 2017
($ in thousands)

Pressure
Pumping

All Other Total

Pressure
Pumping

All Other Total
 
Service revenue $ 1,658,403 $ 46,159   $ 1,704,562 $ 945,040 $ 36,825   $ 981,865
Adjusted EBITDA $ 398,396 $ (9,873 ) $ 388,523 $ 145,122 $ (7,679 ) $ 137,443
Depreciation and amortization $ 83,404 $ 4,734   $ 88,138 $ 51,155 $ 4,473   $ 55,628
Capital expenditures $ 577,171 $ 15,431   $ 592,602 $ 300,406 $ 4,893   $ 305,299
 

Non-GAAP Financial Measures

Adjusted EBITDA is not a financial measure presented in accordance with GAAP. We believe that the presentation of this non-GAAP financial measure provides useful information to investors in assessing our financial condition and results of operations. Net income is the GAAP measure most directly comparable to Adjusted EBITDA. Non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Non-GAAP financial measures have important limitations as analytical tools because they exclude some, but not all, items that affect the most directly comparable GAAP financial measures. You should not consider Adjusted EBITDA in isolation or as a substitute for an analysis of our results as reported under GAAP. Because Adjusted EBITDA may be defined differently by other companies in our industry, our definitions of this non-GAAP financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

                 
Reconciliation of Net Income (Loss) to Adjusted EBITDA
 
Three Months Ended
December 31, 2018 September 30, 2018 December 31, 2017
($ in thousands)

Pressure
Pumping

All Other Total

Pressure
Pumping

All Other Total

Pressure
Pumping

All Other Total
 
Net income (loss) $ 76,244 $ (24,466 ) $ 51,778 $ 66,493 $ (20,208 ) $ 46,285 $ 20,330 $ (10,251 ) $ 10,079
Depreciation and amortization $ 23,574 1,136 24,710 22,026 1,191 23,217 15,927 1,099 17,026
Interest expense $ - 1,916 1,916 - 1,480 1,480 - 878 878
Income tax expense $ - 15,257 15,257 - 13,592 13,592 - 3,000 3,000
Loss on disposal of assets $ 16,194 (35 ) 16,159 16,117 290 16,407 10,117 (1 ) 10,116
Stock-based compensation $ - 1,650 1,650 - 1,631 1,631 - 759 759
Other expense and legal settlement $ - 343 343 - 93 93 - 233 233
Deferred IPO bonus expense $ 434   196     630   433   230     663   452   247     699
Adjusted EBITDA $

116,446

$

(4,003

) $ 112,443 $ 105,069 $ (1,701 ) $ 103,368 $ 46,826 $ (4,036 ) $ 42,790
 
 

Twelve Months Ended

December 31, 2018 December 31, 2017
($ in thousands)

Pressure
Pumping

All Other Total

Pressure
Pumping

All Other Total
 
Net income (loss) $ 253,196 $ (79,334 ) $ 173,862 $ 50,417 $ (37,804 ) $ 12,613
Depreciation and amortization 83,404 4,734 88,138 51,155 4,473 55,628
Interest expense - 6,889 6,889 - 7,347 7,347
Income tax expense - 51,255 51,255 - 3,128 3,128
Loss on disposal of assets 59,962 (742 ) 59,220 38,059 1,027 39,086
Stock-based compensation - 5,482 5,482 - 9,489 9,489
Other expense and legal settlement 2 866 868 - 1,747 1,747
Deferred IPO bonus expense   1,832   977     2,809   5,491   2,914     8,405
Adjusted EBITDA $ 398,396 $ (9,873 ) $ 388,523 $ 145,122 $ (7,679 ) $ 137,443

ProPetro Holding Corp
Sam Sledge, 432-688-0012
Director of Investor Relations
sam.sledge@propetroservices.com

Source: ProPetro Holding Corp.

Released February 26, 2019