ProPetro (Pending: PUMP) filed an S-1/A with the Securities and Exchange Commission for its upcoming initial public offering. The company plans to sell 20 million shares at a marketed price range of $16 to $19, with an additional 3 million shares as an over allotment option for its underwriters. Of these shares, 47% are being offered by company insiders. The company expects to receive $171.4 million of net proceeds from this offering. If the company prices at the mid-point of its price range, it would command a market cap value of $1.47B and trade at a 3.38x price/sales multiple.
The underwriters for the IPO include: Goldman, Sachs & Co., Barclays, Credit Suisse, J.P. Morgan, Evercore ISI, RBC Capital Markets, Simmons & Company International, Raymond James, Deutsche Bank Securities, Tudor, Pickering, Holt & Co. and Johnson Rice & Company LLC.
Business overview
Based in Midland, Texas, ProPetro Holding Corp. provides fracturing and other services to companies that are engaged in the exploration of oil and gas resources. The company's operations are primarily concentrated in the Permian Basin. It reports that it has longstanding relationships with its customers, none of which account for greater than 20% of its revenues. The company also offers production and well completion services in addition to fracturing.
Executive management overview
Dale Redman is the chief executive officer and a co-founder of ProPetro. He is also a member of the board of directors. Redman has more than 32 years of executive experience in energy services. He previously served as the CEO and was a co-founder of Downhole Injection Systems LLC. Before that, he served as the CEO and president of Reef Chemical Corporation from 1993 to 1998. Redman holds a Bachelor of Business Administration in finance from Texas Tech University.
David Sledge is the chief operating officer of ProPetro Holding and has served in that role since 2011. He has more than 37 years of experience in the industry. Previously, he served as a vice president of drilling for Basic Energy Services (NYSE:BAS) and as the COO and president of Sledge Drilling Corp. Sledge holds a Bachelor of Business Administration in management from Baylor University.
Financial highlights and risks
Despite improved prospects for drilling demand in 2016, ProPetro's performance has worsened. Revenue decreased from $569.6M in 2015 to $436.9M in 2016, a 23.2% drop. And gross margins fell from 15.1% in 2015 to 7.5% in 2016. Net loss incurred was $45.8M and $53.1M in 2015 and 2016, respectively.
As of December 31, 2016, the company has $133.5M in cash and cash equivalents and $159.7M in total current liabilities. The company plans to use $71.8M of the net proceeds from the offering to repay debt, $63.6M to buy a new fracturing units, and the remainder for general corporate purposes.
(S-1/A)
Competition
If ProPetro prices at the mid-point of its proposed price range, it would trade at a multiple slightly above its peers in the oilfield services industry. PUMP would trade at a 3.38 price/sales multiple versus 3.11x for the industry average.
Conclusion: Consider Holding Off
Decreasing revenue, gross margin compression, and high industry volatility all make us hesitant on ProPetro's upcoming IPO. In addition, large selling by company insiders serves as an additional caution signal. At its current valuation, we recommend that investors hold off on this IPO.
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