10-K: ProPetro Holding Corp. Files 10-K, Reports Increased Revenue and Net Income for 2023

ProPetro Holding Corp.'s 2023 10-K filing reveals a significant increase in revenue and a return to profitability, driven by strong demand for completion services.

Summary

• ProPetro Holding Corp. reported a 27.4% increase in revenue, reaching $1.63 billion in 2023, compared to $1.28 billion in 2022.
• The company's net income was $85.6 million in 2023, a substantial improvement from the $2.0 million net income in 2022.
• Adjusted EBITDA increased by 27.6% to $404.0 million in 2023, up from $316.6 million in the previous year.
• The company's hydraulic fracturing segment saw a 12% increase in revenue, while the wireline segment experienced a 636.2% surge due to a full year of operations following the Silvertip acquisition.
• ProPetro's available hydraulic horsepower was 1,461,500 HHP at the end of 2023, including 452,500 HHP of Tier IV DGB dual-fuel equipment and 144,000 HHP of FORCE SM electric-powered equipment.
• The company repurchased 5.8 million shares of its common stock for $51.7 million during 2023.
• The company completed the acquisition of Par Five Energy Services LLC for $25.4 million in cash, expanding its cementing services in the Delaware Basin.

Sentiment

Score: 6

Explanation: The document presents a mixed picture. While revenue and net income have improved, there are concerns about internal controls, cost increases, and market volatility. The company's transition to lower emissions equipment is a positive, but it is capital intensive. The overall sentiment is cautiously optimistic.

Positives

• The company experienced a significant increase in revenue and a return to profitability.
• Adjusted EBITDA showed strong growth, indicating improved operational efficiency.
• The wireline segment's performance was exceptional, driven by the Silvertip acquisition.
• ProPetro is transitioning to lower emissions equipment, with 60% of its fleet now lower emissions.
• The company's share repurchase program demonstrates confidence in its future prospects.
• The acquisition of Par Five expands the company's service offerings in the Permian Basin.

Negatives

• The company identified a material weakness in its internal control over financial reporting related to segregation of accounting duties.
• The company experienced a 13% decrease in the Permian Basin rig count in 2023, which resulted in reduced demand for completion services and pricing pressure.
• The company's cost of services increased by 28.2%, outpacing revenue growth.
• The company recorded a loss on disposal of assets of $73.0 million.
• The company's interest expense increased to $5.3 million due to higher average outstanding borrowings.
• The company's other expenses were $9.5 million, primarily due to settlement expenses and unrealized losses on short-term investments.

Risks

• The company's business is subject to the cyclical nature of the oil and gas industry and fluctuations in commodity prices.
• The company's operations are concentrated in the Permian Basin, making it vulnerable to regional risks.
• The transition to lower emissions equipment is capital intensive and may require significant investment.
• The company relies on a few large customers, which could adversely affect revenue if those relationships change.
• The company faces significant competition in the oilfield service industry.
• The company is exposed to the credit risk of its customers, and any nonpayment could adversely affect its business.
• The company is subject to cyber security risks that could result in information theft, data corruption, or operational disruption.
• The company's ability to use net operating loss carryforwards may be limited.
• The company's share price is subject to volatility.

Future Outlook

The company expects to increase its lower emissions equipment portfolio to approximately 65% by the end of the first half of 2024. The company anticipates capital expenditures between $200 million and $250 million for 2024, primarily related to maintenance and lower emissions equipment. The company expects to fund the repurchases using cash on hand and expected free cash flow to be generated through May 2024.

Management Comments

• Management believes that if the Permian Basin rig count and market conditions improve, including improved pricing for our services and labor availability, and we are able to meet our customers' lower emissions equipment demands, our operational and financial results will also improve.
• Management believes that the volatility of crude oil prices in recent years has been partly driven by declines in crude oil supplies, concerns over sanctions resulting from Russia's invasion of Ukraine, concerns over a potential disruption of Middle Eastern oil supplies resulting from the ongoing conflict between Israel and Palestinian militants in the Israel-Gaza region, slower crude oil production growth due to the lack of reinvestment in the oil and gas industry in the last two years, recent OPEC+ production cuts of approximately 1.3 million barrels per day and concerns of a potential global recession resulting from high inflation and interest rates.

Industry Context

The announcement reflects the ongoing trends in the oilfield services industry, including the transition to lower emissions equipment and the impact of commodity price volatility on customer spending. The company's focus on the Permian Basin aligns with the region's continued importance in North American oil and gas production. The company's acquisition of Par Five is consistent with the trend of consolidation in the industry.

Comparison to Industry Standards

• ProPetro's revenue growth of 27.4% is a strong performance compared to some of its peers, but it is important to note that the wireline segment's growth is largely due to the Silvertip acquisition.
• The company's adjusted EBITDA margin of 24.8% is within the range of other oilfield service companies, but it is important to note that the company's cost of services increased by 28.2%, outpacing revenue growth.
• The company's transition to lower emissions equipment is in line with industry trends, but the capital intensity of this transition may pose a challenge.
• The company's share repurchase program is a common practice among publicly traded companies, but it is important to note that the company's share price is subject to volatility.
• The company's acquisition of Par Five is consistent with the trend of consolidation in the industry, but it is important to note that the company's integration of the acquired business may pose a challenge.
• Compared to competitors like Halliburton, Liberty Energy, and Patterson-UTI, ProPetro is a smaller player, but it has a strong presence in the Permian Basin.

Legal Proceedings

• In September 2019, a complaint, captioned Richard Logan, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. ProPetro Holding Corp., et al., (the "Logan Lawsuit"), was filed against the Company and certain of its then current and former officers and directors in the U.S. District Court for the Western District of Texas.
• On August 11, 2022, the Company entered into a settlement of the Logan Lawsuit, pursuant to which the Company's insurers have paid a cash sum into a settlement fund to be distributed to members of the putative class.
• On May 11, 2023, the settlement was granted final court approval.

Related Party Transactions

• The Company rents three yards from an entity in which a director of the Company has an equity interest.
• The Company had revenue from Pioneer Natural Resources USA, Inc. and Pioneer Pumping Services, LLC, which accounted for approximately $125.1 million, $423.7 million and $473.8 million of its total revenue during the years ended December 31, 2023, 2022 and 2021, respectively.

Stakeholder Impact

• Shareholders will benefit from the increased revenue and net income, as well as the share repurchase program.
• Employees may benefit from the company's growth and transition to lower emissions equipment.
• Customers will benefit from the company's expanded service offerings and commitment to lower emissions solutions.
• Suppliers may benefit from the company's increased activity and demand for equipment and materials.
• Creditors may benefit from the company's improved financial performance and ability to meet its obligations.

Next Steps

• The company expects to increase its lower emissions equipment portfolio to approximately 65% by the end of the first half of 2024.
• The company anticipates capital expenditures between $200 million and $250 million for 2024.
• The company will continue to evaluate the emissions profile of its equipment over the coming years and may, depending on market conditions, convert or retire additional conventional Tier II equipment in favor of lower emissions equipment.
• The company will continue to implement measures to remedy its internal control deficiencies.

Key Dates

Keywords

hydraulic fracturing, wireline services, cementing services, Permian Basin, oilfield services, EBITDA, revenue, net income, capital expenditures, share repurchase, lower emissions equipment