WHD -- rather than selling shareholders -- is offering the stock, and it intends to contribute the proceeds of the offering to its subsidiary, Cactus Wellhead, LLC, in exchange for common units that represent limited liability interests in Cactus Wellhead. To further explain the transaction, Cactus, Inc (WHD) is actually a holding company whose only asset consists of interests in Cactus, LLC. Cactus LLC is the operating business and WHD is responsible for all operational, management, and administrative decisions related to the LLC.
So, in essence, WHD is re-investing in its own business through this offering. With the stock up so sharply, the company saw this as an opportune time to take advantage of the strong markets to raise capital in order to increase its stake.
As noted above, WHD's subsidiary is involved in manufacturing and selling wellhead and pressure control equipment utilized crucially by exploration and production companies. The equipment is primarily designed for onshore unconventional oil and gas wells. More specifically, they are used during a well’s drilling, completion (including fracturing), and production phases.
With 14 service centers across the U.S., WHD has exposure to all of the most active and prominent oil and gas producing regions nationwide. These include the Permian Basin, SCOOP/STACK, Marcellus, Utica, Eagle Ford, and Bakken regions. It also has one service center in Eastern Australia.
WHD's main products include its Cactus SafeDrill wellhead systems, frac stacks, zipper manifolds, and production trees. The Cactus SafeDrill wellhead systems employ technology traditionally associated with deepwater applications that allow technicians to land and secure casing strings safely from the rig floor without the need to descend into the well cellar. The company believes it is a market leader in the onshore application of such technology and that client demand for their technologies will continue to remain strong during anticipated increases in industry onshore well drilling activity.
Also, during the completion phase of a well, WHD rents frac stacks, zipper manifolds, and other high-pressure equipment used for well control and for managing the transmission of frac fluids and proppants during the hydraulic fracturing process. Finally, for the completion production phase of a well, it sells production trees that regulate hydrocarbon production, which are installed on the wellhead after the frac tree has been removed. The company also provides repair services on all of the equipment it sells or rents.
Preliminary Q2 Results
While the stock offering is moving the stock at the moment, from a fundamental perspective, the more important news was the company's guidance last night. These impressive results reflect the favorable conditions underlying the oil and gas market. Specifically, the company is forecasting revenue of $136-$139 mln, representing a 68% surge at the mid-point compared to last year.
Additionally, WHD is expecting net income to sky-rocket to $40.6-$42.4 mln, up an impressive 150% from the year ago period.
Wrapping up, while the stock offering has taken some steam out of the stock, opening the door for some profit-taking selling, the business itself is performing well. As long as commodity prices remain strong, today's sell-off may ultimately be a blip in the long-term.