ProFrac Holding Corp. 10-Q

Item 1. Financial Statements. ProFrac Holdings, LLC Consolidated balance sheets ( Unaudited) (In thousands) March 31, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 28,654 $ 5,376 Accounts receivable, net 298,870 161,632 Accounts receivable—related party 3,396 4,515 Prepaid expenses, and other current assets 18,726 6,213 Inventories 139,143 73,942 Total current assets 488,789 251,678 Property, plant, and equipment 1,126,602 827,865 Accumulated depreciation and depletion ( 506,831 ) ( 464,178 ) Property, plant, and equipment, net 619,771 363,687 Operating lease right-of-use assets 79,049 — Investments 78,296 4,244 Intangible assets, net 28,681 27,816 Other assets 19,302 17,145 Total assets $ 1,313,888 $ 664,570 Liabilities and equity Current liabilities: Accounts payable $ 216,054 $ 121,070 Accounts payable—related party 19,553 21,275 Current portion of operating lease liabilities 8,371 — Accrued expenses 90,079 38,149 Other current liabilities 36,123 34,400 Current portion of long-term debt 47,620 31,793 Total current liabilities 417,800 246,687 Long-term debt 488,204 235,128 Long-term debt—related party 89,800 34,645 Operating lease liabilities 70,815 — Other liabilities 902 — Total liabilities 1,067,521 516,460 Commitments and contingencies (Note 13) Equity 244,992 147,015 Noncontrolling interests 1,421 1,039 Accumulated other comprehensive (loss) income ( 46 ) 56 Total equity 246,367 148,110 Total liabilities and equity $ 1,313,888 $ 664,570 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents ProFrac Holdings, LLC Consolidated statements of operations ( Unaudited) Three Months Ended March 31, (In thousands) 2022 2021 Revenues $ 344,980 $ 149,586 Operating costs and expenses: Cost of revenues, exclusive of depreciation, depletion and amortization 232,599 118,306 Depreciation, depletion and amortization 44,216 35,461 (Gain) loss on disposal of assets, net ( 154 ) 2,207 Selling, general, and administrative 34,127 13,778 Total operating costs and expenses 310,788 169,752 Operating income (loss) 34,192 ( 20,166 ) Other (expense) income: Interest expense, net ( 9,272 ) ( 6,035 ) Loss on extinguishment of debt ( 8,273 ) — Other income 8,231 187 Income (loss) before income tax provision 24,878 ( 26,014 ) Income tax (provision) benefit ( 752 ) 25 Net income (loss) $ 24,126 $ ( 25,989 ) Net income attributable to noncontrolling interests ( 416 ) ( 9 ) Net income (loss) attributable to ProFrac Holdings, LLC $ 23,710 $ ( 25,998 ) Other comprehensive (loss) income ( 136 ) 6 Comprehensive income (loss) $ 23,574 $ ( 25,992 ) Less: Other comprehensive (loss) income attributable to noncontrolling interests ( 34 ) 2 Comprehensive income (loss) attributable to ProFrac Holdings, LLC $ 23,608 $ ( 25,994 ) The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents ProFrac Holdings, LLC Consolidated statements of changes in equity (Unaudited) (In thousands) Equity Accumulated Other Comprehensive Income (Loss) Noncontrolling interests Total Balance, January 1, 2022 $ 147,015 $ 56 $ 1,039 $ 148,110 Net income 23,710 — 416 24,126 Member contributions 5,000 — — 5,000 Deemed distribution ( 3,664 ) — — ( 3,664 ) THRC related equity 72,931 — — 72,931 Currency translation adjustments — ( 102 ) ( 34 ) ( 136 ) Balance, March 31, 2022 $ 244,992 $ ( 46 ) $ 1,421 $ 246,367 (In thousands) Equity Accumulated Other Comprehensive Income Noncontrolling interests Total Balance, January 1, 2021 $ 175,027 $ — $ 1,785 $ 176,812 Net (loss) income ( 25,998 ) — 9 ( 25,989 ) Currency translation adjustments — 6 — 6 Noncontrolling interest of acquired business — — 1,228 1,228 Balance, March 31, 2021 $ 149,029 $ 6 $ 3,022 $ 152,057 The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents ProFrac Holdings, LLC Consolidated statements of cash flow (Unaudited) Three Months Ended March 31, (In thousands) 2022 2021 Cash flows from operating activities: Net income (loss) $ 24,126 $ ( 25,989 ) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation, depletion and amortization 44,216 35,461 (Gain) loss on disposal of assets, net ( 154 ) 2,207 Non-cash loss on extinguishment of debt 4,284 — Amortization of debt issuance costs 1,371 536 Bad debt expense, net of recoveries 5 30 Non-cash investment income ( 8,100 ) — Changes in operating assets and liabilities: Accounts receivable ( 46,856 ) ( 8,976 ) Inventories ( 22,857 ) ( 6,504 ) Prepaid expenses and other assets ( 9,903 ) ( 829 ) Accounts payable 29,824 11,243 Accrued expenses 22,622 9,240 Deferred revenues and other current liabilities 5,146 ( 109 ) Net cash provided by operating activities 43,724 16,310 Cash flows from investing activities: Investment in property, plant & equipment ( 41,492 ) ( 17,357 ) Cash proceeds from sale of assets 45,622 16,730 Acquisitions, net of cash acquired ( 278,990 ) ( 2,303 ) Investment in preferred shares of BPC ( 45,952 ) — Investments ( 13,893 ) — Net cash used in investing activities ( 334,705 ) ( 2,930 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 658,266 6,817 Repayments of long-term debt ( 324,034 ) ( 13,437 ) Payment of debt issuance costs ( 22,913 ) — Member contribution 5,000 — Other — 6 Net cash provided by (used in) financing activities 316,319 ( 6,614 ) Net increase in cash, cash equivalents, and restricted cash 25,338 6,766 Cash, cash equivalents, and restricted cash beginning of period 5,376 2,952 Cash, cash equivalents, and restricted cash end of period $ 30,714 $ 9,718 Supplemental cash flow information: Cash payments for interest $ 6,637 $ 6,320 Cash payments for taxes $ — $ — Non-cash investing and financing activities: Capital expenditures included in accounts payable $ 25,418 $ 7,837 Operating lease liabilities incurred from obtaining right-of-use-assets $ 44,959 $ — The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents ProFrac Holdings, LLC Notes to the consolidated financial statements (Amounts in thousands, except as noted) (unaudited) 1. Organization and description of business The unaudited consolidated financial statements presented herein are those of ProFrac Holdings, LLC (“ProFrac LLC”) and its subsidiaries, which include Best Pump & Flow LP (“Best Flow”) and Alpine Silica, LLC (“Alpine”). ProFrac LLC, on a consolidated basis, is the predecessor to ProFrac Holding Corp. and is referred to herein as “ProFrac Predecessor,” “we,” “us,” “our,” or the “Company.” Prior to December 21, 2021, Dan Wilks and Farris Wilks (or entities they control) (collectively, the “Wilks”) held a controlling interest in each of ProFrac LLC, Best Flow and Alpine. Historical periods for ProFrac Predecessor had been presented on a consolidated and combined basis given the common control ownership by the Wilks. On December 21, 2021, all of the then-outstanding membership interests in Best Flow and Alpine were contributed to ProFrac LLC in exchange for membership interests in ProFrac LLC. Accordingly, the results for the three months ended March 31, 2021 have been retrospectively adjusted to present the operations of ProFrac LLC, Best Flow and Alpine on a combined basis. The acquisitions of Best Flow and Alpine have been accounted for in a manner consistent with the pooling of interest method of accounting, as the transaction was a combination of entities under common control. Under this method of accounting, the statements of operations, equity and cash flows have been adjusted to include all activities of the commonly controlled groups for all periods in which common control existed. ProFrac Predecessor is a vertically integrated and innovation-driven energy services company providing hydraulic fracturing, completion services and other complementary products and services to leading upstream oil and gas companies engaged in the exploration and production (“E&P”) of North American unconventional oil and natural gas resources. The ProFrac Predecessor operates in three business segments: stimulation services, manufacturing and proppant production. ProFrac Holding Corp. was incorporated as a Delaware corporation August 17, 2021, to become a holding corporation for ProFrac Holdings, LLC and its subsidiaries upon completion of a corporate reorganization in conjunction with a planned initial public offering (“IPO”). On May 12, 2022, ProFrac Holding Corp. completed its IPO of 16,000,000 shares of its Class A common stock, par value $ 0.01 per share (the "Class A Common Stock") at a public offering price of $ 18.00 per share. On June 6, 2022, an over-allotment option was exercised resulting in an additional 2,228,153 shares of Class A Common Stock being priced at $ 18.00 per share. The IPO and exercise of the over-allotment option generated combined net proceeds of $ 303.9 million, after deducting underwriter discounts and commissions and estimated offering costs. The Company used $ 72.9 million of the net proceeds to redeem the membership ownership interests from the then-existing owners of THRC FTSI Related Equity (as described in Note 11 – Acquisitions and Investments) and contributed the remaining proceeds to ProFrac Holdings, LLC. The Company used the remaining proceeds (i) to pay down $ 143.8 million of the outstanding borrowings under the New Term Loan Credit Facility (as defined herein) (ii) to fully pay the $ 22.0 million of the outstanding borrowings of The Back Stop Note (as defined herein) (iii) pay down $ 22.0 million of the outstanding borrowings of the Closing Date Note (as defined herein) (iv) to pay down $ 20.8 million of the outstanding borrowings of the Equify Bridge Note (as defined herein) and (v) with the remaining proceeds to be used for general corporate uses and additional repayment of debt. 2. Summary of significant accounting policies Basis of presentation The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included within the Company’s final prospectus filed with the SEC on May 16, 2022, pursuant to Rule 424(b) under the Securities Act. The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In our opinion, all adjustments considered necessary for a fair statement have been included in the accompanying unaudited financial statements. Operating results for the three-months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022. The December 31, 2021, balance sheet information has been derived from the 2021 audited financial statements. 7 Table of Contents Use of estimates The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect (1) the reported amounts of assets and liabilities and (2) the reported amounts of revenue and expenses during the reporting period. We base these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. It is at least reasonably possible these estimates could be revised in the near term, and these revisions could be material. Leases The Company determines if an arrangement is a lease at inception of the arrangement. To the extent that we determine an arrangement represents a lease, we classify that lease as an operating lease or a finance lease. We capitalize operating and finance leases on our consolidated balance sheets through a right-of-use (“ROU”) asset and a corresponding lease liability. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. See Note 9 – Leases for additional information. Operating and finance lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Revenue recognition The Company’s products and services are sold based upon contracts with customers. The Company recognizes revenue as it satisfies performance obligations by transferring control over a service or product to a customer. Payment terms are specified in each customer agreement and are typically a specific number of days following satisfaction of the performance obligation. The following are descriptions of the principal activities of each reportable segment from which the Company generates its revenue. Stimulation services. We generate revenue through the provision of hydraulic fracturing services, which involves the injection of water, sand and chemicals under high pressure into formations to optimize hydrocarbon flow paths during the completion phase of wellbores. Our contracts with customers are short term in nature, typically less than four weeks, and have a single performance obligation, which is the contracted total stages, satisfied over time. Once a stage has been completed, a field ticket is created which includes charges for services performed and any inputs consumed during the service. The signing of the field ticket by a customer representative represents their acceptance of the service and agreement to the amounts to which the Company has the right to invoice and recognize as revenue. We believe that recognizing revenue based on actual stages completed, upon receipt of a signed field ticket, appropriately depicts how our hydraulic fracturing services are transferred to our customers over time. Manufacturing. We generate revenue through sales of equipment used to perform oilfield services. The performance obligation is satisfied and revenues are recognized at the point-in-time that control of goods are transferred to the customer, generally upon shipment from our manufacturing facility. Payment terms are specified in each customer agreement and are typically a specific number of days following satisfaction of the performance obligation. Proppant production. We generate revenue through the sale of frac sand to oilfield service providers and E&P companies. The performance obligation is satisfied and revenue is recognized at the point-in-time that control of the product is transferred to the customer, generally upon shipment from our facility. We charge our customers on a per-ton basis at current market prices. Payment terms are specified in each customer agreement and are typically a specific number of days following satisfaction of the performance obligation. Taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and are therefore excluded from revenues in the consolidated statements of operations. Business Combinations Business combinations are accounted for under the acquisition method of accounting. Under this method, the assets acquired and liabilities assumed are recognized at their respective fair values as of the date of acquisition. The excess, if any, of the acquisition price over the fair values of the assets acquired and liabilities assumed is recorded as goodwill. For significant acquisitions, we utilize third-party appraisal firms to assist us in determining the fair values for certain assets acquired and liabilities assumed. The measurement of these fair values requires us to make significant estimates and assumptions which are inherently uncertain. Adjustments to the fair values of assets acquired and liabilities assumed are made until we obtain all relevant information regarding the facts and circumstances that existed as of the acquisition date (the “measurement period”), not to exceed one year from the date of 8 Table of Contents the acquisition. We recognize measurement-period adjustments in the period in which we determine the amounts, including the effect on earnings of any amounts we would have recorded in previous periods if the accounting had been completed at the acquisition date. See Note 11 — Acquisitions and Investments for information on acquisitions completed during the historical period. Variable Interest Entities We evaluate our ownership, contractual and other interest in entities to determine if they are variable interest entities (“VIE”). We evaluate whether we have a variable interest in those entities and the nature and extent of those interests. Based on our evaluation, if we determine we are the primary beneficiary of a VIE, we consolidate the entity in our financial statements. Fair value measurements Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at a measurement date. We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases of categorization within the hierarchy upon the lowest level input that is available and significant to the fair value measurement: • Level 1: The use of quoted prices in active markets for identical assets or liabilities. • Level 2: Other than quoted prices included in Level 1, inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. At March 31, 2022, we had no Level 2 measurements. • Level 3: The use of significant unobservable inputs that typically require the use of management’s estimates of assumptions that market participants would use in pricing. See Note 12 — Fair Value of Financial Interests for more information on our investments using Level 3 measurements. Our current assets and liabilities contain financial instruments, the most significant of which are trade accounts receivable and payable. We believe the carrying value of our current assets and liabilities approximate fair value. Our fair value assessment incorporates a variety of considerations, including: (i) the short-term duration of the instruments and (ii) our historical incurrence of and expectations of future bad debt expense. The book value of our floating rate debt approximates fair value because of its floating rate structure. Income taxes At March 31, 2022, the ProFrac Predecessor entities were organized as limited liability companies or a limited partnership and were treated as either a disregarded entity or a partnership for U.S. federal income tax purposes, whereby the ordinary business income or loss and certain deductions were passed-through and reported on the members’ income tax returns. As such, the ProFrac Predecessor was not required to account for U.S. federal income taxes in the consolidated financial statements. Certain state income-based taxes are imposed on the ProFrac Predecessor entities which are reflected as income tax expense or benefit in historical periods. In connection with the IPO in May 2022 (see Note 15 – Subsequent Events), ProFrac Predecessor became partially owned by ProFrac Holding Corp., a U.S. Internal Revenue Code Subchapter C corporation (“C-Corporation”). ProFrac Holding Corp. is a taxable entity and will be required to account for income taxes under the asset and liability method beginning in the second quarter of 2022. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled pursuant to the provisions of Accounting Standards Codification (“ASC”) 740, Income Taxes. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more-likely-than-not to be realized. Recently adopted accounting standards On January 1, 2022, we adopted the Financial Accounting Standards Board (“FASB”) accounting standards update for “Leases,” which amended existing guidance to require lessees to recognize liabilities and ROU assets on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. 9 Table of Contents We adopted this guidance using a modified retrospective approach on January 1, 20 22 using the transition method that allows a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We have completed our process to implement this standard, and we have designed processes and internal controls necessary for adoption of this standard. We have made policy elections to (i) not capitalize short-term leases for all asset classes, (ii) not separate non-lease components from lease components for all of our existing asset classes, (iii) apply the package of practical expedients that allows us to not reassess: whether any expired or existing contracts contain leases, lease classification for any expired or existing leases and initial direct costs for existing leases and (iv) apply the practical expedient to apply hindsight in estimating lease term and impairment. The impact of applying this standard is not expected to significantly impact our results of operations or cash flows. As of January 1, 2022, we recognized ROU assets and liabilities of approximately $ 35.8 million from operating leases on our consolidated balance sheet. See Note 9 - Leases for additional disclosures related to our adoption this accounting standards update. New accounting standards to be adopted We have not yet implemented FASB ASU No. 2016-13, Financial Instruments – Credit Losses. The ASU introduces a new accounting model, the Current Expected Credit Losses model (“CECL”), which requires recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for loans and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaces the multiple existing impairment models previously used under GAAP, which generally require that a loss be incurred before it is recognized. The new standard also applies to financial assets arising from revenue transactions such as contract assets and accounts receivable. Implementation is currently required for fiscal years beginning after December 15, 2022. The Company does not believe implementation will have a material impact on its financial statements. We have not yet implemented FASB ASU No. 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes, which removes specific exceptions to the general principles in Topic 740 under GAAP. The new guidance also improves the application of income tax-related guidance and simplifies GAAP for franchise taxes that are partially based on income, transactions with a government that result in a step up in the tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. The new guidance will be effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022; however, early adoption is permitted. The Company is currently evaluating the impact of adopting the new guidance on its consolidated financial statements. 3. Restricted cash The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated statement of cash flows as of March 31, 2022, and December 31, 2021: (In thousands) March 31, 2022 December 31, 2021 Cash and cash equivalents $ 28,654 $ 5,376 Restricted cash included in prepaid expenses and other current assets 2,060 — Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 30,714 $ 5,376 As of March 31, 2022, restricted cash included cash used as collateral for our credit card program. 4. Inventories The following table summarizes the components of our inventories as of March 31, 2022, and December 31, 2021: (In thousands) March 31, 2022 December 31, 2021 Raw materials and supplies $ 37,081 $ 13,911 Work in process 6,492 3,288 Finished products and parts 95,570 56,743 Total $ 139,143 $ 73,942 10 Table of Contents 5. Property, plant, and equipment The following table summarizes the components of our property, plant, and equipment, net as of March 31, 2022, and December 31, 2021: (In thousands) March 31, 2022 December 31, 2021 Machinery and equipment $ 1,018,221 $ 760,829 Mining property and mine development 35,491 34,809 Office equipment, software and other 13,876 5,550 Buildings and leasehold improvements 16,091 15,947 Total 1,083,679 817,135 Less: accumulated depreciation and depletion ( 506,831 ) ( 464,178 ) Construction in progress 42,923 10,730 Property, plant, and equipment, net $ 619,771 $ 363,687 Depreciation expense for the three months ended March 31, 2022 and 2021, was $ 44.2 million and $ 35.5 million, respectively. Major classifications of property, plant, and equipment and their respective useful lives are as follows: Machinery and equipment 2 years—10 years Office equipment, software, and other 3 years—7 years Buildings and leasehold improvements 2 years—40 years 6. Intangible assets The following table summarizes the components of our intangible assets as of March 31, 2022, and December 31, 2021: March 31, 2022 December 31, 2021 (In thousands) Gross Book Value Less: Accumulated Amortization Net Book Value Gross Book Value Less: Accumulated Amortization Net Book Value Electric frac licenses $ 22,500 $ — $ 22,500 $ 22,500 $ — $ 22,500 Acquired technology 7,144 ( 963 ) 6,181 5,905 ( 589 ) 5,316 Intangible assets, net $ 29,644 $ ( 963 ) $ 28,681 $ 28,405 $ ( 589 ) $ 27,816 Intangible assets are amortized over the period the Company expects the asset to generate cash flows. As such, we amortize each electric frac license through the remaining license period, beginning when the initial fleet built under each license is placed into service, a period we estimate to be 17 years. For technology acquired during 2021, we estimated this period to be seven years . For technology acquired in 2022 related to the acquisition of FTS International Inc., we estimated the period to be three years . Amortization expense related to intangible assets was $ 0.4 million and zero for the three months ended March 31, 2022 and 2021, respectively. 11 Table of Contents 7. Indebtedness The following table summarizes the components of our debt as of March 31, 2022 and December 31, 2021: March 31, December 31, (In thousands) 2022 2021 Old ABL Credit Facility $ — $ 69,000 Old Term Loan — 171,355 First Financial Loan 26,377 30,000 New ABL Credit Facility 70,706 — New Term Loan Credit Facility 450,000 — Backstop Note(1) 22,000 — Closing Date Note(1) 22,000 — Equify Bridge Note(1) 45,800 — Best Flow Credit Facility(1) — 7,101 Best Flow Note(1) — 10,827 Alpine Promissory Note(1) — 16,717 Other 11,129 1,695 Total gross debt 648,012 306,695 Less: unamortized debt issuance costs ( 22,388 ) ( 5,129 ) Less: current portion of long-term debt ( 47,620 ) ( 31,793 ) Total long-term debt $ 578,004 $ 269,773 (1) Related party debt agreements. Old ABL Credit Facility On March 14, 2018, ProFrac LLC entered into a senior secured asset-based revolving credit agreement (the “Old ABL Credit Facility”), with Barclays Bank PLC, as administrative agent and collateral agent, and the lenders party thereto. The Old ABL Credit Facility had a maturity date of March 14, 2023 . LIBOR borrowings under the Old ABL Credit Facility bear interest at the greater of LIBOR or 0.00 %, plus a margin of 1.50 % to 2.00 %, depending on facility utilization. The interest rate was 2.75 % as of December 31, 2021. As of December 31, 2021, the borrowing base was $ 146.2 million, therefore maximum availability under the Old ABL Credit Facility was the facility maximum of $ 105.0 million. There were $ 69.0 million of borrowings outstanding and $ 3.1 million of letters of credit outstanding, resulting in $ 32.9 million of availability under the Old Credit Facility ABL. On March 4, 2022, the Old ABL Credit Facility was refinanced and replaced with the New ABL Credit Facility. Old Term Loan On September 7, 2018, ProFrac LLC entered into a $ 180.0 million term loan agreement (“Old Term Loan”), which matures on September 15, 2023 , with a group of lenders with Barclays Bank, PLC as administrative agent. Principal payments are due in quarterly installments, however due to prepayments made to date, there will be no required minimum amortization (other than excess cash flow prepayments) before termination of the Old Term Loan. Excess cash flow is calculated quarterly to determine any additional minimum prepayments. On June 24, 2021, ProFrac LLC and its Term Loan lenders reached an agreement to expand the facility by $ 40.0 million. The Old Term Loan, as amended, requires minimum excess cash flow prepayments as follows, each due approximately 55 days after period-end : $ 0.0 million for the fiscal quarters ended March 31, 2021 through and including December 31, 2021, and $ 5.0 million for the fiscal quarters ended March 31, 2022 through and including June 30, 2023. LIBOR borrowings under the Old Term Loan bear interest at the greater of LIBOR or 1.25 %, plus a margin of 6.25 % to 8.50 %, depending on the total net leverage ratio as defined under the Old Term Loan. The interest rate was 9.75 % as of December 31, 2021. The Old Term Loan contained certain restrictive covenants, including a financial covenant which required ProFrac LLC to maintain a total net leverage ratio, as defined in the credit agreement, of no greater than 2.25 :1.00 for the fiscal quarters ended September 30, 2019 through and including March 31, 2020, 3.50 :1.00 for the fiscal quarters ended June 30, 2020 through and including March 31, 12 Table of Contents 2021, 3.00 :1.00 for the fiscal quarter ended June 31, 2021, 2.75 :1.00 for the fiscal quarter ended September 30, 2021, 2.50 :1.00 for the fiscal quarter ended December 31, 2021, and 2.00 :1.00 for the fiscal quarter ended March 31, 2022 and thereafter. ProFrac LLC was in compliance with all required covenants as of December 31, 2021. In February 2022, ProFrac and its Old Term Loan lenders entered into an agreement to amend the Old Term Loan. The amendment expanded the facility by $ 48.0 million. On March 4, 2022 , the Old Term Loan was extinguished resulting in loss on debt extinguishment of $ 3.9 million. First Financial Loan On July 22, 2020, ProFrac LLC entered into a $ 35.0 million loan agreement with First Financial Bank, N.A. which had a maturity of July 22, 2025 (“Main Street Loan”). The interest rate was LIBOR plus 3.00 %, floating daily. In August 2021, the loan agreement was amended to remove the covenants in place prior to the amendment. As amended, the Main Street Loan contained certain restrictive covenants which required ProFrac LLC to maintain a Fixed Charge Coverage Ratio of at least 1.00 :1.00, and a Maximum Leverage Ratio of 3.50 :1.00. Additionally, the Main Street Loan restricted the payment of distributions or dividends, other than for the payment of taxes. On December 22, 2021, the Main Street Loan had a balance of $ 32.2 million. The Main Street Loan was extinguished with a cash payment of $ 2.2 million and the remainder refinanced with a $ 30.0 million loan with First Financial Bank, N.A. (“First Financial Loan”). The First Financial Loan has a maturity date of January 1, 2024 with an interest rate of LIBOR plus 3.5 %, and the loan is to be repaid by equal payments of principal and interest beginning in February 2022 . The First Financial Loan contains certain restricted covenants which require the Company to maintain a fixed charge ratio of at least 1.00 :1.00 and a maximum net leverage ratio of 3.00 :1.00. The Company was in compliance with all covenants as of March 31, 2022. New ABL Credit Facility On March 4, 2022, ProFrac LLC, ProFrac Holdings II, LLC (“ProFrac II LLC”), as borrower (in such capacity, the “ABL Borrower”), and certain of the ABL Borrower’s wholly owned subsidiaries as obligors, entered into a senior secured asset-based revolving credit agreement (as amended, the “New ABL Credit Facility”), with a group of lenders with JPMorgan Chase Bank N.A., as administrative agent and collateral agent. The New ABL Credit Facility provides for an asset-based revolving credit facility with a borrowing base and lender commitments of $ 100.0 million. The New ABL Credit Facility has a borrowing base composed of certain eligible accounts receivable and eligible inventory less customary reserves, as redetermined monthly. As of March 31, 2022, the maximum availability under the New ABL Credit Facility was the aggregate lender commitments of $ 100.0 million with $ 70.7 million of borrowings outstanding and $ 9.2 million of letters of credit outstanding, resulting in approximately $ 20.1 million of remaining availability. Our New ABL Credit Facility matures on the earlier of (i) March 4, 2027 and (ii) 91 days prior to the stated maturity of any material indebtedness (other than the First Financial Loan). Borrowings under the New ABL Credit Facility accrue interest based on a three-tier pricing grid tied to average historical availability, and the ABL Borrower may elect for loans to be based on either an Adjusted Term SOFR or a base rate, plus the applicable margin. The interest rate under our New ABL Credit Facility for (a) Adjusted Term SOFR is the applicable margin plus the fluctuating per annum rate equal to Adjusted Term SOFR (with an Adjusted Term SOFR Floor of 0.00 %); and (b) Base Rate Loans are the applicable margin plus the fluctuating per annum rate equal to the greatest of the Prime Rate in effect on such day, or the NYFRB Rate in effect on such day plus 1/2% of 1% and the Adjusted Term SOFR for a one-month Interest Period as published two (2) U.S. Government Securities Business Days prior to such day (or if such day is not a Business Day, the immediately preceding Business Day), plus 1.0% . The applicable margin for Adjusted Term SOFR Loans ranges from 1.50 % to 2.00 % and for Base Rate Loans ranges from 0.50 % to 1.00 %, depending on the average daily availability over the last three months under our New ABL Credit Facility. The New ABL Credit Facility bears an unused line fee ranging from 0.250 % to 0.375 %, depending on the average daily availability over the last three months payable quarterly in arrears. The New ABL Credit Facility also bears customary letter of credit fees. The interest rate was 4.75 % as of March 31, 2022. Our New ABL Credit Facility is subject to customary mandatory prepayments, including a mandatory prepayment if the aggregate unpaid principal balance of revolving loans, agent advances, swingline borrowings, unreimbursed drawings under letters of credit and the undrawn amount of outstanding letters of credit exceeds at any time the lesser of (x) the then applicable borrowing base and (y) the then total effective commitments under the New ABL Credit Facility, in an amount equal to such excess. After the occurrence and during the continuance of a Cash Dominion Period (defined in the New ABL Credit Facility as (a) any period commencing upon the date that availability shall have been less than the greater of ( i) 12.5 % of the Maximum Credit (which is the lesser of the maximum revolver amount in effect at such time and the borrowing base at such time) and (ii) $ 10.0 million for a period of five consecutive business days and continuing until the date on which availability shall have been at least the greater of (y) 12.5 % of the Maximum Credit and (z) $ 10.0 million for 20 consecutive calendar days or (b) any period commencing on the occurrence of certain specified events of default, and continuing during the period that such specified event of default shall be continuing). 13 Table of Contents Our New ABL Credit Facility contains certain customary representations and warranties and affirmative and negative covenants. The negative covenants include, subject to customary exceptions, limitations on indebtedness, dividends, distributions and certain other payments, investments, acquisitions, prepayments of specified junior indebtedness, amendments of specified junior indebtedness, transactions with affiliates, dispositions, mergers and consolidations, liens, restrictive agreements, sale and leaseback transactions, changes in fiscal periods and changes in line of business. We are required by our New ABL Credit Facility to maintain minimum liquidity of $ 5.0 million at all times. Additionally, when availability is less than the greater of (i) 12.5 % of the maximum credit (which is the lesser of the maximum revolver amount in effect at such time and the borrowing base at such time) and (ii) $ 10.0 million and continuing until such time as availability has been in excess of such threshold for a period of 20 consecutive calendar days, we are required by our New ABL Credit Facility to maintain a springing Fixed Charge Coverage Ratio (as defined in our New ABL Credit Facility) of at least 1.0 to 1.0, which is tested quarterly during such period. ProFrac LLC was in compliance with all covenants, and there were no existing defaults or events of default related to the New ABL Credit Facility as of March 31, 2022. On April 8, 2022, the New ABL Credit Facility was amended to increase the borrowing base and lender commitments to $ 200.0 million. See Note 15 –Subsequent Events. New Term Loan Credit Facility On March 4, 2022, ProFrac LLC, ProFrac II, LLC, as borrower (in such capacity, the “Term Loan Borrower”), and certain of the Term Loan Borrower’s wholly owned subsidiaries as obligors, entered into a senior secured term loan credit agreement (the “New Term Loan Credit Facility”), with a group of lenders with Piper Sandler Finance LLC, as administrative agent and collateral agent. The New Term Loan Credit Facility provides for a term loan facility in an aggregate principal amount of $ 450.0 million. As of March 31, 2022, the Term Loan Borrower had $ 450.0 million outstanding under the New Term Loan Credit Facility. Our New Term Loan Credit Facility matures on March 4, 2025 . Borrowings under the New Term Loan Credit Facility accrue interest at a percentage per annum equal to (a) until October 1, 2022, (i) for SOFR Rate Loans, 8.50 %, and (ii) for Base Rate Loans, 7.50 % and (b) thereafter, based on a three-tier pricing grid tied to Total Net Leverage Ratio (as defined in the New Term Loan Credit Facility), and the Term Loan Borrower may elect for loans to be based on either Adjusted Term SOFR or Base Rate, plus the applicable margin. The interest rate on our New Term Loan Credit Facility for (a) SOFR Rate Loans are the applicable margin plus the fluctuating per annum rate equal to Adjusted Term SOFR (as defined in the New Term Loan Credit Facility), with a SOFR floor of 1.00 % and (b) Base Rate Loans are the applicable margin plus the fluctuating per annum rate equal to the highest of (i) the federal funds rate plus 1/2 of 1 %, (ii) the interest rate quoted in the print edition of The Wall Street Journal , Money Rates Section, as the prime rate in effect, (iii) Adjusted Term SOFR for a one-month interest period as determined on such day, plus 1.0 % and (iv) 2.00 %. The applicable margin for (a) SOFR Rate Loans ranges from 6.50 % to 8.00 % and (b) Base Rate Loans ranges from 5.50 % to 7.00 %, depending on the Total Net Leverage Ratio (as defined in the New Term Loan Credit Facility) as of the first day of the then-current fiscal quarter. The interest rate was 9.5 % as of March 31, 2022. Our New Term Loan Credit Facility is guaranteed by ProFrac LLC and all of the Term Loan Borrower’s material existing subsidiaries and certain direct and indirect future U.S. restricted subsidiaries of the Term Loan Borrower. Our New Term Loan Credit Facility is secured by a lien on, and security interest in, substantially all of each such guarantor’s assets. Our New Term Loan Credit Facility is subject to quarterly amortization beginning in June 2022, though any excess cash flow payments, reduce the required amortization. Additionally, our New Term Loan Credit Facility is subject to a quarterly mandatory prepayment beginning for the calendar quarter ending on September 30, 2022 in an amount equal to the Applicable ECF Percentage (as defined in the New Term Loan Credit Facility). The Applicable ECF Percentage ranges from 50 % of Excess Cash Flow (as defined in the New Term Loan Credit Facility) to 25 % of Excess Cash Flow depending on the Total Net Leverage Ratio as of the last day of the applicable fiscal quarter. Voluntary prepayments of borrowings under the New Term Loan Credit Facility are permitted at any time, in specified minimum principal amounts, subject to reimbursement of the lenders’ redeployment costs actually incurred in the case of a prepayment of SOFR Rate Loans other than on the last day of the relevant interest period. Between March 4, 2022 and March 4, 2023, certain prepayments of the New Term Loan Credit Facility are subject to a prepayment premium of 3.00 % (or, in the case of any IPO Prepayment (as defined in the New Term Loan Credit Facility), 2.00 %). Between March 5, 2023 and March 4, 2024, certain prepayments of the New Term Loan Credit Facility are subject to a 2.00 % prepayment premium. After March 4, 2024, but prior to the Stated Termination Date (as defined in the New Term Loan Credit Facility) certain prepayments of the New Term Loan Credit Facility are subject to a 1.00 % prepayment premium. No payment or prepayment premium shall be due on account of any payments or prepayments made on the Stated Termination Date. 14 Table of Contents Our New Term Loan Credit Facility contains certain customary representations and warranties and affirmative and negative covenants. The negative covenants include, subject to customary exceptions, limitations on indebtedness, dividends, distributions and certain other payments, investments, capital expenditures, acquisitions, prepayments of specified junior indebtedness, amendments of specified junior indebtedness, transactions with affiliates, dispositions, mergers and consolidations, liens, restrictive agreements, changes in fiscal periods and changes in line of business. We are required by our New Term Loan Credit Facility to maintain a Total Net Leverage Ratio (as defined in our New Term Loan Credit Facility) (i) of no more than 2.00 to 1.00 for the fiscal quarter ending on June 30, 2022, (ii) of no more than 1.55 to 1.00 for the fiscal quarters ending on September 30, 2022 and December 31, 2022, and (iii) of no more than 1.25 for each fiscal quarter ending on March 31, 2023 and thereafter. We are required by our New Term Loan Credit Facility to maintain minimum liquidity of $ 30.0 million at all times. Our New Term Loan Credit Facility contains customary events of default. If an event of default occurs and is continuing, the lenders may declare all loans to be immediately due and payable. Some events of default require an automatic termination of the loans and become immediately due and payable. The Company was in compliance with all covenants, and there were no defaults or events of default related to the New Term Loan Credit Facility, as of March 31, 2022. Subsequent to March 31, 2022 , the New Term Loan Facility was paid down by $ 143.8 million with net proceeds from the IPO. Backstop Note On March 4, 2022, ProFrac LLC borrowed $ 22.0 million pursuant to a subordinated promissory note with THRC Holdings, LP (“THRC Holdings”) with a stated maturity date of March 4, 2027 (the “Backstop Note”). The Backstop Note bears interest at a percentage per annum equal to 1.74 %. Interest under the Backstop Note is paid on a quarterly basis and is solely payable in kind, with such interest amounts being added to the outstanding principal amount of the Backstop Note, until the date that both the New ABL Credit Facility and the New Term Loan Credit Facility shall have been terminated, after which date quarterly interest payments may be paid in kind or in cash. The Backstop Note is unsecured and subordinated to the indebtedness owing under the New ABL Credit Facility and the New Term Loan Credit Facility. In June 2022, the Backstop Note was fully paid with net proceeds from the IPO. Closing Date Note On March 4, 2022, ProFrac LLC borrowed $ 22.0 million pursuant to a subordinated promissory note with THRC Holdings with a stated maturity date of March 4, 2027 (the “Closing Date Note”). The Closing Date Note bears interest at a percentage per annum equal to 1.74 %. Interest under the Closing Date Note is paid on a quarterly basis and is solely payable in kind, with such interest amounts being added to the outstanding principal amount of the Closing Date Note, until the date that both the New ABL Credit Facility and the New Term Loan Credit Facility shall have been terminated, after which date quarterly interest payments may be paid in kind or in cash. The Closing Date Note is unsecured and subordinated to the indebtedness owing under the New ABL Credit Facility and the New Term Loan Credit Facility. In June 2022, the Closing Date Note was fully paid with net proceeds from the IPO. Equify Bridge Note On March 4, 2022, ProFrac II LLC entered into a $ 45.8 million subordinated promissory note with Equify Financial with a stated maturity date of March 4, 2027 (the “Equify Bridge Note”). The Equify Bridge Note bears interest at a percentage per annum equal to 1.0 %. Interest under the Equify Bridge Note is paid on a quarterly basis and is solely payable in kind, with such interest amounts being added to the outstanding principal amount of the Equify Bridge Note, until the date that both the New ABL Credit Facility and the New Term Loan Credit Facility shall have been terminated, after which date quarterly interest payments may be paid in kind or in cash. In April 2022, the Company repaid $ 25.0 million in principal under the Equify Bridge Note. 15 Table of Contents The Equify Bridge Note is unsecured and subordinated to the indebtedness owing under the New ABL Credit Facility and the New Term Loan Credit Facility. In April 2022, the Company repaid $ 25.0 million in principal under the Equify Bridge Note, resulting in an outstanding balance of $ 20.8 million. In June 2022, the Equify Bridge Note was fully paid with net proceeds from the IPO. Best Flow Credit Facility On February 4, 2019, Best Flow entered into a revolving loan credit agreement (the “Best Flow Credit Facility”), with Equify Financial, LLC (“Equify Financial”) as lender. Equify Financial is a related party. The Best Flow Credit Facility provided for a revolving credit facility in an aggregate principal amount at any time outstanding up to $ 9.0 million, subject to borrowing base availability. The Best Flow Credit Facility had a maturity date of February 4, 2026 . The interest rate under the Best Flow Credit Facility was the lesser of (i) the Prime Rate (as defined in the Best Flow Credit Facility) plus the applicable margin ( 3.50 %) and (ii) the Maximum Rate (as defined in the Best Flow Credit Facility). All accrued but unpaid interest on the outstanding principal balance is due and payable monthly on the first day of each calendar month. The Best Flow Credit Facility was secured by a first lien on substantially all of the assets of Best Flow. On March 4, 2022 , the Best Flow Credit Facility was extinguished resulting in loss of extinguishment of debt of $ 0.3 million. Best Flow Note On January 28, 2021, Best Flow issued a promissory note (the “Best Flow Note”), with Equify Financial, as holder. Equify Financial is a related party. The Best Flow Note provides for a term loan in an initial aggregate principal amount equal to $ 13.0 million. Proceeds from the Best Flow Note were utilized to pay down $ 7.6 million of outstanding balances on the Best Flow Credit Facility and to pay down other equipment financing agreements for $ 5.4 million. The Best Flow Note matures on February 1, 2026 , with a fixed interest rate of 8.0 %. The principal and interest are paid in equal monthly amortizing amounts through maturity. Prepaid amounts are subject to a 0.19 % prepayment premium. On March 4, 2022 , the Best Flow Note was extinguished resulting in loss of extinguishment of debt of $ 1.4 million. Alpine Promissory Note In January 2021, Alpine entered into a $ 21.4 million promissory note with Equify Financial (“Alpine Note”). Equify Financial is a related party. The Alpine Note amortizes monthly, had an interest rate of 8.0 % and had a stated maturity date in February 2027 . Alpine had $ 16.7 in outstanding borrowings under the Alpine Note as of March 4, 2022. On March 4, 2022 , the Alpine Note was extinguished resulting in loss on extinguishment of debt of $ 1.8 million. Other indebtedness As of March 31, 2022 and December 31, 2021, the Company had other debt agreements outstanding with unpaid principal balances of $ 11.1 million and $ 1.7 million, respectively. These were primarily comprised of various equipment financing agreements. As of March 31, 2022, $ 10.1 million is due October 1, 2022 at an interest rate of 5.0 %. The following table summarizes the principal maturity schedule for our long-term debt outstanding as of March 31, 2022: 2022 2023 2024 2025 2026 Thereafter Total First Financial loan $ 11,086 $ 15,291 $ — $ — $ — $ — $ 26,377 New ABL Credit Facility — — — — — 70,706 70,706 New Term Loan Credit Facility 16,875 22,500 22,500 388,125 — — 450,000 Backstop Note(1) — — — — — 22,000 22,000 Closing Date Note(1) — — — — — 22,000 22,000 Equify Bridge Note(1) — — — — — 45,800 45,800 Other 10,223 167 166 108 79 386 11,129 Total $ 38,184 $ 37,958 $ 22,666 $ 388,233 $ 79 $ 160,892 $ 648,012 (1) Related party debt agreements. 16 Table of Contents 8. Income taxes At March 31, 2022, the ProFrac Predecessor entities were organized as limited liability companies or a limited partnership and were treated as either a disregarded entity or a partnership for U.S. federal income tax purposes, whereby the ordinary business income or loss and certain deductions were passed-through and reported on the members’ income tax returns. As such, the ProFrac Predecessor was not required to account for U.S. federal income taxes in the consolidated financial statements. Certain state income-based taxes are imposed on the ProFrac Predecessor entities which are reflected as income tax expense or benefit in historical periods. For the three months ended March 31, 2022, federal and state tax expense was $ 0.8 million, compared with $ 25,000 of tax benefit in the three months ended March 31, 2021. In connection with the IPO in May 2022 (see Note 15 – Subsequent Events), ProFrac Predecessor became partially owned by ProFrac Holding Corp., a C-Corporation. ProFrac Holding Corp. is a taxable entity and will be required to account for income taxes under the asset and liability method beginning in the second quarter of 2022. During the quarter ended March 31, 2022, ProFrac Predecessor and its members completed the acquisition of FTSI, a C-Corporation. Through a series of transactions, ProFrac Predecessor obtained ownership of all of the assets and liabilities of FTSI, but the FTSI C-Corporation legal entity was owned by the ProFrac Predecessor members. In connection with the IPO, the FTSI C-Corporation legal entity merged with a subsidiary of ProFrac Holding Corp., which inherited the tax attributes of the FTSI legal entity. We estimate that ProFrac Holding Corp. will have significant deferred tax assets as a result of the tax attributes it inherited from the FTSI legal entity, however, we anticipate recording a full valuation allowance on ProFrac Holding Corp.’s net deferred tax assets based on our assessment that it is more likely than not that the deferred tax asset will not be realized. A change in these assumptions could cause a decrease to the valuation allowance, which could materially impact our results of operations. 9. Leases Effective January 1, 2022, we adopted the new lease accounting guidance under Accounting Standards Codification (“ASC”) Topic 842, Leases. The details of the significant changes to our accounting policies resulting from the adoption of the new lease standard are set out below. We adopted the standard using the optional modified retrospective transition method; accordingly, the comparative information as of December 31, 2021, has not been adjusted and continues to be reported under the previous lease standard. Under the new standard, assets and liabilities that arise from all leases are required to be recognized on the balance sheet for lessees. Previously, only capital leases, which are now referred to as finance leases, were recorded on the balance sheet. The adoption of this standard resulted in the recognition of approximately $ 35.8 million of operating lease right-of-use assets and operating lease liabilities on our consolidated balance sheet as of January 1, 2022. The adoption of this standard did not materially impact our consolidated results of operations for the three months ended March 31, 2022. Beginning January 1, 2022, for all leases with a term in excess of 12 months, we recognized a lease liability equal to the present value of the lease payments and right-of-use asset representing our right to use the underlying asset for the lease term. For operating leases, lease expense for lease payments is recognized on a straight-line basis over the lease term and accretion of the lease liability, while finance leases (of which we have none) include both an operating expense and an interest expense component. For all leases with a term of 12 months or less, we elected the practical expedient to not recognize lease assets and liabilities. We recognize lease expense for these short-term leases on a straight-line basis over the lease term. We are a lessee for several operating leases, related primarily to real estate and light duty vehicles. The majority of our operating leases have remaining lease terms of 10 years or less. None of our leases include options to extend the leases, nor do any include options to terminate the leases. The accounting for leases may require judgment, which includes determining the incremental borrowing rates to utilize in our net present value calculation of lease payments for lease agreements which do not provide an implicit rate. In connection with the completion of the FTSI Acquisition (as defined below), FTSI conveyed to Wilks Development, LLC, an affiliate of ProFrac LLC, substantially all of FTSI’s owned real property, consisting primarily of FTSI’s hydraulic fracturing equipment manufacturing facilities, in exchange for cash consideration of approximately $ 44.4 million (the “FTSI Sale Leaseback”). We will lease such real property from Wilks Development, LLC in exchange for aggregate monthly lease payments of $ 51.6 million through March 2032. The cash consideration received was $ 3.7 million less than the carrying value of these assets. Because this sale was to an affiliate under common control, we accounted for the $ 3.7 million as an equity transaction recorded as a deemed distribution within our consolidated statements of changes in equity. Our leasing activities primarily consist of operating leases for administrative offices, manufacturing and maintenance facilities along with some light duty vehicles. We do not lease any equipment on a long-term basis. 17 Table of Contents The following table summarizes the components of our lease costs: Three Months Ended March 31, (In thousands) 2022 Operating lease costs $ 2,201 Short-term lease costs 339 Total lease costs $ 2,540 The following table includes other supplemental information for our operating leases: Three Months Ended March 31, (Dollars in thousands) 2022 Cash paid for amounts included in the measurement of our lease obligations $ 2,105 Right-of-use assets obtained in exchange for lease obligations $ 44,959 Right-of-use assets recognized upon adoption of the leasing standard $ 35,817 Weighted-average remaining lease term 8.1 years Weighted-average discount rate 5.0 % The following table summarizes the maturity of our operating leases as of March 31, 2022: (In thousands) Remainder of 2022 $ 9,954 2023 11,870 2024 11,395 2025 10,222 2026 10,236 2027 10,473 2028 and thereafter 35,022 Total lease payments 99,172 Less imputed interest ( 19,986 ) Total lease liabilities $ 79,186 10. Related party transactions In the normal course of business, the ProFrac Predecessor has entered into transactions with related parties where the Wilks (or entities they control) hold a controlling financial interest. During the three months ended March 31, 2022 and 2021, the ProFrac Predecessor had related party transactions with the following related party entities Automatize, LLC (“Automatize”) is a logistics company that provides for the delivery of proppants on behalf of its customers, including the ProFrac Predecessor. Amounts paid to Automatize are recorded in cost of revenues, exclusive of depreciation and depletion on our consolidated statements of operations. Cisco Logistics, LLC (“Cisco Logistics”) is a logistics company that delivers sand and equipment on behalf of its customers, including the ProFrac Predecessor. Amounts paid to Cisco Logistics are recorded in cost of revenues, exclusive of depreciation and depletion on our consolidated statements of operations. Equify Risk Services, LLC (“Equify Risk”) is an insurance broker that negotiates and secures insurance policies on behalf of its customers, including the ProFrac Predecessor. Amounts paid to Equify Risk are recorded in selling, general and administrative expenses on our consolidated statements of operations. Equify Financial, LLC (“Equify Financial”) is a finance company that provides equipment and other financing to its customers, including the ProFrac Predecessor. Amounts paid to Equify Financial are recorded in interest expenses on our consolidated statements of operations, and repayments of long-term debt on our consolidated statements of cash flows. See Note 7—Indebtedness for additional disclosures related to related party credit agreements. Wilks Brothers, LLC (“Wilks Brothers”) is a management company which provides administrative support to various businesses within their portfolio. Wilks Brothers and certain entities under its control will at times incur expenses on behalf of the ProFrac 18 Table of Contents Predecessor, billing the ProFrac Predecessor for these expenses at cost as well as certain management fees. Amounts paid to Wilks Brothers are generally recorded in selling, general and administrative expenses on our consolidated statements of operations. Interstate Explorations, LLC (“Interstate”) is an exploration and development company for which ProFrac LLC performs pressure pumping services, and from which the Company has a short-term lease for certain office space. Flying A Pump Services, LLC (“Flying A”) is an oilfield services company which provides pump down and acid services, to which ProFrac LLC rents and sells equipment and frac fleet components. MC Estates, LLC and the Shops at Willow Park, LLC (“Related Lessors”) own various industrial parks and office space leased by the ProFrac Predecessor. Amounts paid to Related Lessors are recorded in selling, general and administrative expenses on our consolidated statements of operations. Wilks Construction Company, LLC (“Wilks Construction”) is a construction company that has built and made renovations to several buildings for the Company, including construction of a new sand plant. Amounts paid to Wilks Construction are recorded in capital expenditures on our consolidated statements of cash flows. 3 Twenty-Three, LLC (“3 Twenty-Three”) is a payroll administrator which performs payroll services on behalf of its customers, including the ProFrac Predecessor. Amounts paid to 3 Twenty-Three are recorded in cost of revenues, exclusive of depreciation and depletion and selling, general and administrative expenses on our consolidated statements of operations. Carbo Ceramics Inc. (“Carbo”) is a provider of ceramic proppant which will at times purchase conventional proppant from the Company to act as a broker for its customers. Additionally, the Company will at times purchase manufactured proppant from Carbo for the stimulation services segment. FHE (“FHE”) is a provider of production and well completion equipment used at the wellsite. Its RigLock and FracLock systems remotely connect surface equipment to the wellhead that keeps crews safer and speeds up operations while also reducing the volume of high-pressure iron. Amounts paid to FHE are recorded in capital expenditures on our consolidated statements of cash flows. The following table summarizes expenditures with related parties for the three months ended March 31, 2022 and 2021: Three Months Ended March 31, (In thousands) 2022 2021 Automatize $ 14,275 $ 12,756 FHE 3,250 — Wilks Brothers 257 2,554 Related Lessors 1,223 1,538 Wilks Construction 941 — Equify Financial 685 — 3 Twenty-Three 247 — Carbo — 353 Cisco Logistics — 264 Interstate 20 8 Equify Risk — 3 Other 38 10 Total $ 20,936 $ 17,486 The following table summarizes related party accounts payable as of March 31, 2022 and December 31, 2021: March 31, December 31, (In thousands) 2022 2021 Automatize $ 10,125 $ 11,198 Wilks Brothers 8,632 9,990 Wilks Construction 707 57 Carbo 28 10 Related Lessors 37 1 Other 24 19 Total $ 19,553 $ 21,275 19 Table of Contents The following table summarizes revenue from related parties for the three months ended March 31, 2022 and 2021: Three Months Ended March 31, (In thousands) 2022 2021 Flying A $ 1,372 $ 951 Carbo 249 20 Wilks Brothers 1 ( 2 ) Other — 9 Total $ 1,622 $ 978 The following table summarizes related party accounts receivable as of March 31, 2022 and December 31, 2021: March 31, December 31, (In thousands) 2022 2021 Flying A $ 1,528 $ 2,412 Cisco Logistics 1,493 1,489 Carbo 193 591 Other 182 23 Total $ 3,396 $ 4,515 Additionally, in January and February of 2021, ProFrac LLC executed two agreements with one of ProFrac LLC’s members for the sale of certain lots of equipment, in exchange for $ 8.7 million in cash, an amount that approximates the net book value of the assets. Under these agreements, for any assets subsequently resold by the member, ProFrac LLC will reimburse the member for a certain percentage of the net loss, or conversely be entitled to a certain percentage of the net gain, at rates established in the agreements. As of March 31, 2022, the majority of the assets have been sold by the member, and ProFrac LLC’s remaining liability of approximately $ 0.2 million for assets that have not been resold has been recorded. On February 4, 2022, THRC Holdings entered into a Rights Agreement with Encantor Properties LP, one of the sellers from whom the Company purchased the Munger Ranch property, under which the related party was assigned rights to $ 8.1 million of the $ 30.0 million in consideration related to the Munger purchase. As part of the IPO completed in May 2022, the sellers of Munger Ranch were issued 2,114,273 shares of Class A Common Stock in exchange for the $ 30.0 million consideration related to the Munger Ranch purchase. See Note 15 – Subsequent Events. 11. Acquisitions and investments FTS International, Inc. On March 4, 2022, the Company acquired the outstanding stock of FTSI for a purchase price of $ 405.7 million, consisting of cash consideration of $ 332.8 million, and THRC Holdings’ equity interest of $ 72.9 million (“THRC FTSI Related Equity”) (collectively the “FTSI Acquisition”). The THRC FTSI Related Equity was the result of a transaction whereby THRC Holdings, which owned approximately 19.5 % of FTSI, agreed to retain that interest in FTSI in lieu of receiving cash pursuant to the FTSI Merger Agreement. Immediately following the closing of the cash acquisition pursuant to the Agreement and Plan of Merger, dated as of October 21, 2021, by and among FTSI, ProFrac LLC and ProFrac Acquisitions, Inc. (the “FTSI Merger Agreement”), ProFrac LLC distributed the 80.5 % of the FTSI equity it acquired in such merger to Farris Wilks and THRC Holdings in a manner that resulted in each of them owning 50 % of FTSI (the “FTSI Distribution”), with THRC Holdings receiving a smaller share of the FTSI Distribution and instead retaining certain preferred equity in ProFrac LLC in lieu of its redemption in connection with such distribution. We have accounted for the acquisition of FTSI using the acquisition method of accounting. We used our best estimates and assumptions to assign fair value to the tangible and intangible assets expected to be acquired and liabilities expected to be assumed at the acquisition date. The majority of the measurements of assets acquired and liabilities assumed, are based on inputs that are not observable in the market and thus represent Level 3 inputs. 20 Table of Contents The following table summarizes the preliminary allocation of the purchase price: (In thousands) Assets acquired: Cash and cash equivalents $ 53,771 Accounts receivable 89,268 Prepaid expense and other assets 4,037 Inventories 42,344 Property, plant and equipment 307,113 Operating lease ROU asset 2,748 Intangible assets 1,239 Other assets 1,583 Total assets acquired 502,103 Liabilities assumed: Accounts payable 62,985 Accrued expenses 19,308 Operating lease liability current 1,235 Current portion of debt 10,136 Other current liabilities 309 Operating lease liability non-current 1,512 Other non-current liabilities 928 Total liabilities assumed 96,413 Net assets acquired $ 405,690 The allocation of the purchase price to FTSI’s net tangible assets and liabilities and identifiable intangible assets as of March 4, 2022, is preliminary and subject to revisions to the fair value calculations for the identifiable assets and liabilities. The determination and allocation of the purchase consideration are subject to change during the measurement period, up to one year from the date the acquisition closed. For the three months ended March 31, 2022, our revenues and pretax earnings included $ 48.6 million and $ 0.1 million loss, respectively, associated with the FTSI acquired operations after the closing on March 4, 2022. In addition, FTSI Acquisition-related costs of approximately $ 3.7 million were incurred during the three months ended March 31, 2022, consisting of external legal and consulting fees. These costs are classified in selling, general and administrative expense in the consolidated statements of operations. Additionally, we incurred $ 9.3 million in severance costs in connection with the FTSI Acquisition, which are classified in selling, general and administrative expense in the consolidated statements of operations. The following unaudited pro forma results of operations have been prepared as though the FTSI acquisition had been completed on January 1, 2021. Pro forma amounts are based on the purchase price allocation of the significant acquisition and are not necessarily indicative of the results that may be reported in the future. Three Months Ended March 31, (In thousands) 2022 2021 Revenue $ 421,615 $ 245,493 Net loss $ ( 1,223 ) $ ( 49,626 ) Flotek Industries, Inc. On February 2, 2022, we entered into an agreement with Flotek Industries, Inc. (“Flotek”), pursuant to which Flotek will provide full downhole chemistry solutions for a minimum of ten hydraulic fleets for three years starting on April 1, 2022, at a price of cost plus 7 % (“Flotek Supply Agreement”). In exchange for entry into the Flotek Supply Agreement, we received $ 10 million in initial principal amount of notes that are convertible into Flotek common stock (“Convertible Notes”) and acquired an additional $ 10 million in principal amount of Convertible Notes in a related private offering transaction. Our equity ownership in Flotek on a fully diluted basis as a result of this investment is approximately 17 %. In addition, we are permitted to designate up to two new directors to Flotek’s board of directors. On February 16, 2022, we and Flotek agreed to amend the Flotek Supply Agreement to increase the term to ten years and increase the scope to 30 fleets. In exchange for our entry into the amendment to the Flotek Supply Agreement (the “Flotek Supply Agreement Amendment”), Flotek agreed to issue us $ 50 million in initial principal amount of Convertible Notes that will be convertible into 21 Table of Contents Flotek common stock. The Flotek Supply Agreement Amendment and issuance to us of additional Flotek C onvertible N otes are conditioned upon customary closing conditions including the approval of Flotek’s shareholders. In May 2022, the Flotek shareholders approved the Convertible Notes issuance and the Flotek Supply Agreement Amendment. See Note 15 – Subsequent Events. O ur equity ownership in Flotek on a fully diluted basis after the consummation of these transactions is approximately 43 % , and we will be permitted to designate two additional directors, or up to four new directors to Flotek’s board of directors . The Flotek Supply Agreement Amendment includes a minimum annual volume commitment whereby we will be obligated to pay Flotek liquidated damages equal to 25% of the shortfall for such year, should we fail to meet the minimum purchase amount. The notes issued to ProFrac accrue paid-in-kind interest at a rate of 10 % per annum, have a maturity of one year , and convert into common stock of Flotek (a) at the holder’s option at any time prior to maturity, at a price of $ 1.088125 per share, (b) at Flotek’s option, if the volume-weighted average trading price of Flotek’s common stock equals or exceeds $ 2.50 for 20 trading days during a 30 consecutive trading day period, or (c) at maturity, at a price of $ 0.8705 (the “Convertible Notes”). We initially recognized the Convertible Notes with an initial principal balance of $ 20 million at $ 20 million. We have designated our investment in the Convertible Notes as trading securities. Securities designated as trading securities are reported at fair value, with gains or losses resulting from changes in fair value recognized in net investment income on the consolidated statements of operations. For the three months ended March 31, 2022, we recognized noncash income of $ 8.1 million as other (expense) income on our consolidated statements of operations related to the change in fair value of the Convertible Notes. The Company had an investment of $ 28.1 million in Flotek as of March 31, 2022, a Level 3 fair value measurement. See Note 12 — Fair Value of Financial Instruments for more information on our investments using Level 3 measurements. Basin Production and Completion LLC During the year ended December 31, 2021, the Company purchased Series B-1 Preferred Units of Basin Production and Completion LLC (“BPC”), a manufacturer of equipment used in hydraulic fracturing for $ 4.2 million. This comprises approximately 20 % of the BPC Series B Preferred Units. As of December 31, 2021, we did not exercise significant influence over this entity. As we determined this to be an equity security, we initially recorded our investment at cost, presented as “Investments” in our consolidated balance sheets as of December 31, 2021. On February 9, 2022, the Company entered into an agreement to purchase all the series A-1 & B-1 preferred units of BPC for $ 46.0 million (“Basin Units Acquisition”), consisting of $ 40.0 million to BPC for series A-1 & B-1 preferred units and $ 6.0 million to selling holders of BPC series B-1 preferred units. Additionally, on February 14, 2022, the Company made a loan to FHE USA LLC, a subsidiary of BPC for $ 1.25 million. The loan bears interest at the rate of 5 % per annum. Interest is either paid at each calendar quarter end or added to the principal balance at the election of BPC. The loan matures on February 14, 2027 . The Company had an investment of $ 50.2 million in BPC as of March 31, 2022. As of March 31, 2022, our investments in BPC provide the Company the ability to have significant influence, but not control over BPC’s operations. BPC's business and affairs are managed under the direction of its board of directors, which the Company does not control. Based on our evaluation, we determined that BPC is a VIE, but the Company is not the primary beneficiary of the VIE. We have elected the fair value option to account for our equity method investment in BPC. See Note 12 — Fair Value of Financial Interests for more information on our investments using Level 3 measurements. EKU On December 22, 2020, the Company purchased a 25 % stake in EKU, an equipment manufacturer based in Germany, for $ 1.2 million. For the year ended December 31, 2020, we accounted for this investment using the equity method as we had significant influence over EKU, and held a voting interest of 20 % or greater, but less than 50 %. In January 2021, the Company obtained a controlling interest in EKU, the results of which are consolidated thereafter. The Company obtained a 75 % controlling interest in EKU in January 2021 and performed a purchase price allocation in conjunction with the consolidation of this subsidiary. We recognized net working capital of $ 2.5 million, property, plant and equipment of $ 0.4 million, intangible assets of $ 3.5 million and debt of $ 1.4 million at estimated fair value. In consolidation, we eliminated our investment in associate, recognized equity of $ 3.7 million for the value of our 75 % interest, and noncontrolling interest of $ 1.2 million for the value of the minority shareholder positions. See Note 6 – Intangible Assets for additional information related to the recognized intangible assets. 22 Table of Contents Munger Ranch The Company entered into an agreement to acquire property in West Texas (“Munger Right Agreement”) in November 2021 for a purchase price of $ 30.0 million. Under the Munger Right Agreement, the sellers were given the option to receive the consideration in cash, or in the event of an IPO prior to November 17, 2022, in equity, at the sellers’ election. Under the equity option, in the event the Company completes an IPO, the sellers would be entitled to 1.5 % of the outstanding shares of common stock immediately following the IPO. Each seller initially elected the equity option, as such this was a non-cash transaction for the Company for the year ended December 31, 2021. The Munger Right Agreement includes a ‘Make Whole’ provision. Under the Make Whole provision, if any seller liquidates 100 % of the Class A shares they are issued prior to the one-year anniversary of the IPO, then the company will pay the difference between the IPO price of the shares disposed and the disposal price of the Class A shares. As of March 31, 2022, the liability of $ 30.0 million is presented within Other Current Liabilities in our Balance Sheet. The acquired property was treated as an asset acquisition and not an acquisition of a business, and is presented within Property, plant, and equipment in our consolidated balance sheets as of March 31, 2022. On February 4, 2022, THRC Holdings entered into a Rights Agreement with Encantor Properties LP, one of the sellers from whom the Company purchased the Munger Ranch property, under which the related party was assigned rights to $ 8.1 million of the $ 30.0 million in consideration related to the Munger purchase. As part of the IPO completed in May 2022, the sellers of Munger Ranch were issued 2,114,273 shares of Class A Common Stock in exchange for the $ 30.0 million consideration related to the Munger Ranch purchase. See Note 15 – Subsequent Events. iO-TEQ, LLC The Company acquired iO-TEQ, LLC (“IOT”) in October 2021 for $ 2.2 million and performed a purchase price allocation at the acquisition date. We recognized net working capital of $ 0.2 million, property, plant and equipment of $ 0.1 million, intangible assets of $ 2.4 million and debt of $ 0.4 million at estimated fair value. See Note 6 – Intangible Assets for additional information related to the recognized intangible assets. Best Flow minority interests In December 2021, the Company entered into an agreement with Eagleton Venture, Inc. (“Eagleton”) to purchase Eagleton’s 15.172 % interest in Best Flow for a purchase price of $ 3.9 million. During the three months ended March 31, 2022. Eagleton was paid $ 3.9 million in cash. 12. Fair value of financial instruments Assets and liabilities recorded on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. The Company’s financial instruments and investments that are carried at fair value consist mainly of Level 3 assets. Level 3 assets that are measured on a recurring basis relate to the Company’s investments in (i) Convertible Notes of Flotek, designated as trading securities and (ii) the equity method investment in BPC, for which we elected the fair value option, as described in Note 11 – Acquisitions and Investments for disclosure of the terms of these investments. The Company did no t have any assets or liabilities measured at fair value using Level 2 of the fair value hierarchy at March 31, 2022. We had no Level 2 or Level 3 assets or liabilities as of December 31, 2021. The following table sets forth the fair value of the Company’s financial instruments within Level 3 of the fair value hierarchy. (In thousands) March 31, 2022 Level 3 Flotek Convertible Notes $ 28,100 BPC Investment 50,196 Total $ 78,296 The estimated fair value of the Flotek Convertible Notes as of March 31, 2022 was valued using a Monte Carlo simulation with inputs such as the market trading price of the Flotek’s common stock, the expected volatility of the Flotek’s stock price based on historical trends, a risk-free rate of interest based on US Treasury note rates and the term of the debt, the time to liquidation based on the maturity date of the notes, and a discount rate adjusted based on the credit risk of Flotek. 23 Table of Contents The key inputs into the Monte Carlo simulation used to estimate the fair value the Convertible Notes as of March 31, 2022, were as follows: March 31, 2022 Risk-free interest rate 1.63 % Expected volatility 90.0 % Term until liquidation (years) 0.84 Stock price $ 1.26 Discount rate 7.2 % The estimated fair value of the BPC investment as of March 31, 2022 was determined to approximate cost considering the timing of the purchase of the investment. Going forward the fair value of the investment in BPC will be estimated utilizing a combination of the market and income approaches. The following is a reconciliation of the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) from inception to March 31, 2022: (In thousands) March 31, 2022 Level 3 Fair value, beginning of period $ — Acquisition of Flotek Convertible Notes 20,000 Acquisition of investment in BPC 45,952 Transfer of cost method investment to Level 3 fair value measurement 4,244 Change in fair value of Level 3 fair value measurements 8,100 Fair value, end of period $ 78,296 13. Commitments and contingencies Litigation In the ordinary course of business, we are the subject of, or party to a number of pending or threatened legal actions and administrative proceedings arising in the ordinary course of our business. While many of these matters involve inherent uncertainty, we believe that, other than as described below, the amount of the liability, if any, ultimately incurred with respect to proceedings or claims will not have a material adverse effect on our consolidated financial position as a whole or on our liquidity, capital resources or future annual results of operations. Patterson v. FTS International Manufacturing, LLC and FTS International Services, LLC : On June 24, 2015, Joshua Patterson filed a lawsuit against the Company in the 115th Judicial District Court of Upshur County, Texas, alleging, among other things, that the Company was negligent with respect to an automobile accident in 2013. Mr. Patterson sought monetary relief of more than $ 1 million. On July 19, 2018, a jury returned a verdict of approximately $ 100 million, including punitive damages, against the Company. The trial court reduced the judgment on November 12, 2018, to approximately $ 33 million. The Company’s insurance carriers appealed and the Twelfth Court of Appeals reversed the verdict in its entirety on August 26, 2020, remanding the case for a new trial. The Company’s insurance carriers are currently appealing one of the appellate findings with the Texas Supreme Court. No new trial date has been set. While the outcome of this case is uncertain, the Company has met its insurance deductible for this matter and we do not expect the ultimate resolution of this case to have a material adverse effect on our consolidated financial statements. Lonestar Prospects, Ltd. d/b/a Vista Sand v. ProFrac Services, LLC : ProFrac Services, LLC (“ProFrac Services”) entered into a Master Purchase Agreement For Products And/Or Services with Lonestar Prospects, Ltd. d/b/a Vista Sand (“Vista”), dated November 27, 2017 (the “Vista MSA”), as amended by the First Addendum to Vista MSA and the First Amendment to Vista MSA, both of which are dated June 10, 2018 (collectively, the “Vista Agreement”). Under the terms of the Vista Agreement, ProFrac Services agreed to purchase certain quantities of sand from Vista. Vista filed a complaint against ProFrac Services in the United States Bankruptcy Court for the Northern District of Texas on March 15, 2021, in which it alleges that ProFrac Services breached the terms of the Vista Agreement by failing to purchase the required amount of sand or pay for the underpurchased amounts as required by the Vista Agreement. Vista is seeking damages of approximately $ 8.31 million. Vista and ProFrac Services have entered into a mutually agreed upon Scheduling Order signed by the Court on February 12, 2022. Trial docket call for this matter is currently scheduled for September 6, 2022. 24 Table of Contents When deemed necessary, we establish reserves for certain legal proceedings. The establishment of a reserve is based on an estimation process that includes the advice of legal counsel and subjective judgment of management. While management believes these reserves to be adequate, it is reasonably possible we could incur additional losses with respect to those matters in which reserves have been established. As of March 31, 2022, we have recorded an estimated liability of $ 4.0 million related to a contract dispute claim with a vendor. We will continue to evaluate our litigation on a quarterly basis and will establish and adjust any litigation reserves as appropriate to reflect our assessment of the then current status of litigation. 14. Segment information Our business has three reportable segments: Stimulation services, Manufacturing and Proppant production. Each reportable segment represents a separate business unit that operated as a standalone company prior to the reorganization of the Company in December 2021. Following the reorganization, each reportable segment continues to have distinct management and prepares discrete financial information for the segment (consistent with when each operated as a standalone business). FTSI is part of our stimulation services segment. Our chief operating decision makers review the discrete segment financial information, including Adjusted EBITDA as the measure of profitability, to evaluate the performance of our segments and make resource allocation decisions. We account for intersegment transactions as if the transactions were with third parties, that is, at estimated current market prices. For the three months ended March 31, 2022 and 2021, intersegment revenues for the manufacturing segment were 84 % and 86 %, respectively. For the three months ended March 31, 2022 and 2021, intersegment revenues for the proppant production segment were 69 % and 29 %, respectively. The performance of our segments is evaluated primarily on Adjusted EBITDA. We define Adjusted EBITDA as our net income (loss), before (i) interest expense, net, (ii) income tax provision, (iii) depreciation, depletion and amortization, (iv) loss on disposal of assets, and (v) other unusual or non-recurring charges, such as costs related to our initial public offering, non-recurring supply commitment charges, certain bad debt expense and gain on extinguishment of debt. Segment information, and a reconciliation of Adjusted EBITDA, for the three months ended March 31, 2022 and 2021 is as follows: Three Months Ended March 31, (In thousands) 2022 2021 Revenues Stimulation services $ 336,155 $ 143,703 Manufacturing 32,006 14,657 Proppant production 12,408 5,589 Total segments 380,569 163,949 Eliminations ( 35,589 ) ( 14,363 ) Total $ 344,980 $ 149,586 Adjusted EBITDA Stimulation services $ 73,569 $ 12,953 Manufacturing 10,022 2,330 Proppant production 7,885 2,406 Adjusted EBITDA for reportable segments 91,476 17,689 Interest expense, net ( 9,272 ) ( 6,035 ) Depreciation, depletion and amortization ( 44,216 ) ( 35,461 ) Income tax benefit (provision) ( 752 ) 25 (Gain) loss on disposal of assets, net 154 ( 2,207 ) Loss on extinguishment of debt ( 8,273 ) — Bad debt expense, net of recoveries ( 5 ) — Loss on foreign currency transactions ( 12 ) — Reorganization costs ( 55 ) — Acquisition related expenses ( 13,019 ) — Investment income 8,100 — Net income (loss) $ 24,126 $ ( 25,989 ) 25 Table of Contents Segment information as of March 31, 2022 and December 31, 2021 is as follows: (In thousands) March 31, 2022 December 31, 2021 Total assets Stimulation services $ 1,213,208 $ 510,579 Manufacturing 104,124 77,968 Proppant production 107,628 100,294 Total segment assets 1,424,960 688,841 Eliminations ( 111,072 ) ( 24,271 ) Total $ 1,313,888 $ 664,570 15. Subsequent events The following events occurred after March 31, 2022: On May 12, 2022, ProFrac Holding Corp. completed its IPO of 16,000,000 shares of its Class A common stock, par value $ 0.01 per share (the "Class A Common Stock") at a public offering price of $ 18.00 per share. On June 6, 2022, an over-allotment option was exercised resulting in an additional 2,228,153 shares of Class A Common Stock being priced at $ 18.00 per share. The IPO and exercise of the over-allotment option generated combined net proceeds of $ 303.9 million, after deducting underwriter discounts and commissions and estimated offering costs. The Company used $ 72.9 million of the net proceeds to redeem the membership ownership interests from the then-existing owners of THRC FTSI Related Equity (as described in Note 11 – Acquisitions and Investments) and contributed the remaining proceeds to ProFrac LLC. The Company used the remaining proceeds (i) to pay down $ 143.8 million of the outstanding borrowings under the New Term Loan Credit Facility (as defined herein) (ii) to fully pay the $ 22.0 million of the outstanding borrowings of the Backstop Note (as defined herein) (iii) pay down $ 22.0 million of the outstanding borrowings of the Closing Date Note (as defined herein) (iv) to pay down $ 20.8 million of the outstanding borrowings of the Equify Bridge Note (as defined herein) and (v) with the remaining proceeds to be used for general corporate uses and additional repayment of debt. On April 8, 2022, the New ABL Credit Facility was amended to add the $ 100.0 million incremental facility, increasing the maximum revolver amount and lender commitments to $ 200.0 million. In connection with increasing the maximum revolver amount, certain thresholds in the following definitions and/or provisions were revised proportionately to account for such increase in the maximum revolver amount: the definition of Cash Dominion Period, the definition of Collateral Reporting Period, the definition of Covenant Trigger Period, the definition of Specified Conditions and the Minimum Liquidity covenant. All other terms and conditions of the New ABL Credit Facility remained substantially unchanged. As of April 30, 2022, the maximum availability under the New ABL Credit Facility was the aggregate lender commitments of $ 200.0 million with $ 110.7 million of borrowings outstanding and $ 9.2 million of letters of credit outstanding, resulting in approximately $ 80.1 million of remaining availability. On May 17, 2022, ProFrac Services, LLC (“ProFrac Services”) and Flotek Chemistry, LLC (“Flotek Chemistry”), entered into an amendment (the “Amendment”) to the Flotek Supply Agreement between Flotek Chemistry and ProFrac Services dated February 2, 2022 pursuant to which ProFrac Services will purchase certain products and services from Flotek Chemistry. The Amendment was entered into in connection with the closing of transactions (the “Closing”) contemplated by that certain Securities Purchase Agreement, dated as of February 16, 2022, between Flotek and ProFrac Holdings, LLC, an affiliate of the Company (“ProFrac Holdings”). Concurrent with the Closing, (i) the term of the Flotek Supply agreement is increased to ten years and the scope increased to 30 fleets (ii) Flotek issued $ 50,000,000 in aggregate principal amount of 10 % convertible PIK notes to ProFrac Holdings and (iii) Flotek and ProFrac Holdings entered into a registration rights agreement with respect to the resale of shares of common stock of Flotek acquired by ProFrac Holdings or its affiliates. On May 12, 2022, as part of the IPO completed in May 2022, the sellers of Munger Ranch were issued 2,114,273 shares of Class A Common Stock as consideration for the Munger Ranch purchase. On May 3, 2022, Wilks Brothers, (the “Service Provider”) and ProFrac II LLC entered into a shared services agreement (the “Shared Services Agreement”), pursuant to which the Service Provider will provide certain consulting, technical and administrative services to ProFrac II LLC. In exchange for such services, ProFrac II LLC will pay to the Service Provider an aggregate annual retainer fee equal to $ 7.0 million payable in quarterly installments. The Shared Services Agreement will continue for a period of three years from its execution date, and then automatically be extended for additional one-year terms unless the Service Provider or ProFrac II LLC provides 90 days prior written notice of its desire not to automatically extend the term. The Shared Services Agreement may only be assigned by a party with the other party’s consent. Farris C. Wilks and Dan H. Wilks own the Service Provider. 26 Table of Contents On May 2, 2022, the Company adopted the Long Term Incentive Plan (“LTIP”) for the benefit of employees, directors and consultants of the Company and its affiliates. The LTIP provides for the grant of all or any of the following types of awards: (1) incentive stock options qualified as such under U.S. federal income tax laws; (2) stock options that do not qualify as incentive stock options; (3) stock appreciation rights; (4) restricted stock awards; (5) restricted stock units; (6) bonus stock; (7) dividend equivalents; (8) other stock-based awards; (9) cash awards; and (10) substitute awards. Subject to adjustment in accordance with the terms of the LTIP, 3,120,708 shares of Class A Common Stock have been reserved for issuance pursuant to awards under the LTIP. If an award under the LTIP is forfeited, settled for cash or expires without the actual delivery of shares, any shares subject to such award will again be available for new awards under the LTIP. The LTIP will be administered by the board’s compensation committee or the board, as applicable. As of June 21, 2022, an aggregate of 509,467 restricted stock units with respect to 509,467 shares of Class A Common Stock were issued and outstanding under the LTIP. On June 16, 2022, ProFrac II LLC entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) by and among ProFrac II LLC, FoxRock Ranch Holding Company, LLC (“SP Seller”), SP Silica of Monahans, LLC (“SP Monahans”) and SP Silica Sales, LLC (“SP Sales and, together with SP Monahans, the “SP Companies”). Pursuant to the Purchase Agreement, at the Closing (as defined in the Purchase Agreement), upon the terms and subject to the conditions set forth in the Purchase Agreement, ProFrac II LLC has agreed to purchase from SP Seller 100 % of the issued and outstanding membership interests of each of the SP Companies for a purchase price of $ 90,000,000 in cash, subject to certain customary working capital, indebtedness and other adjustments at the time of the closing (the “SPS Acquisition”). The closing of the transactions contemplated by the Purchase Agreement is to take place on the third business day after the satisfaction or waiver of all conditions to the obligations of the parties to consummate such transactions. In connection with the closing of the SPS Acquisition, ProFrac II LLC would acquire, among other things, an in-basin frac sand facility and related mining operations in the Permian Basin. On June 17, 2022, ProFrac II LLC, a wholly-owned subsidiary of ProFrac Holdings, and Flotek entered into a Securities Purchase Agreement (the “Flotek SPA”). In connection with the closing of the Flotek SPA on June 21, 2022, Flotek issued and sold to ProFrac II LLC certain pre-funded warrants of Flotek, each exercisable into one share of Flotek common stock, on the terms and subject to the conditions set forth therein. Pursuant to the Flotek SPA, at the closing, Flotek issued and sold to ProFrac II LLC pre-funded warrants (the “Flotek Warrants”) to purchase from Flotek up to a total of 13,104,839 shares of Flotek common stock (the “Warrant Shares”) at any time and at an exercise price equal to $ 0.0001 per share (subject to adjustment in accordance with the terms of the Flotek Warrant), in exchange for the payment by ProFrac II LLC to Flotek of $ 19,500,000 in cash. ProFrac II LLC and its affiliates may not receive any voting or consent rights in respect of the Flotek Warrants or the underlying shares unless and until (i) Flotek has obtained approval from a majority of its shareholders excluding ProFrac II LLC and its affiliates and (ii) ProFrac II LLC has paid an additional $ 4,500,000 to Flotek. As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on June 24, 2022 (the “USWS Merger 8-K”), on June 21, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, U.S. Well Services, Inc., a Delaware corporation (“USWS”), and Thunderclap Merger Sub I, Inc., a Delaware corporation and an indirect subsidiary of the Company (“Merger Sub”). The Merger Agreement provides for, among other things, the merger of Merger Sub Inc. with and into USWS, with USWS surviving the merger as the surviving corporation and an indirect subsidiary of the Company (the “Merger”). The acquisition is expected to be completed in the fourth quarter of 2022, subject to the satisfaction of customary closing conditions, including the approval of USWS stockholders, as described further below and in the USWS Merger 8-K . Based on the closing price of the Company’s Class A Common Stock (as reported on the Nasdaq Global Select Market) of $ 21.49 per share on June 21, 2022, the last trading day prior to announcement of the Merger Agreement, the transaction represents aggregate stock consideration of approximately $ 93 million and a consideration per share of Class A Common Stock of USWS, par value $ 0.0001 per share (the “USWS Common Stock”) of $ 1.21 . After giving effect to the conversions of certain securities of USWS, as described in the USWS Merger 8-K , the total stock consideration payable to USWS stockholders and holders of USWS equity awards, based on the Company’s Class A Common Stock June 21, 2022 closing price, would be approximately $ 270 million . Dan Wilks and Farris Wilks, together with certain of their affiliates, (collectively, the “Wilks Parties”) collectively hold a controlling interest in the Company . Certain Wilks Parties also own certain securities of USWS. Upon the consummation of the Merger, the Wilks Parties will receive an aggregate of 4,112,407 shares of the Company’s Class A Common Stock as merger consideration (assuming, solely for the purpose of this calculation, a hypothetical closing date of October 31, 2022), which, based on the Company’s Class A Common Stock June 21, 2022 closing price, would be approximately $ 88.4 million. The parties to the Merger Agreement made representations, warranties and covenants that are customary for transactions of this nature. The representations and warranties of the respective parties to the Merger Agreement will not survive the closing of the Merger. The Merger Agreement includes customary covenants of the parties, including, among others, covenants (a) for the Parties to conduct their respective businesses in the ordinary course during the interim period between the date of the execution of the Merger Agreement and the consummation of the Merger, (b) that the Parties not engage in certain kinds of transactions during the interim period between the 27 Table of Contents date of the execution of the Merger Agreement and the consummation of the Merger, (c) that the Company use commercially reasonable efforts to obtain and consummate a financing to fund the repayment in connection with the closing of the Merger of certain indebtedness of USWS and its subsidiaries as promptly as reasonably possible following the date of the Merger Agreement, (d) that USWS reasonably cooperate with such financing efforts and (e) providing for the Company and USWS to cooperate in the preparation, and obtaining the effectiveness of, the Registration Statement (as defined in the Merger Agreement) to be used in connection with the Merger. USWS further agreed (a) to amend the terms of certain USWS securities, and to use commercially reasonable efforts to amend certain USWS equity awards, each as described in the USWS Merger 8-K, (b) not to solicit proposals relating to alterative business combination transactions or, subject to certain exceptions, enter into discussions or an agreement concerning or provide confidential information in connection with any proposals for alternative business combination transactions and (c) as soon as practicable following the date of the Merger Agreement convene and hold a special meeting of the holders of USWS Common Stock for the purposes of obtaining the approval of the stockholders of USWS. The consummation of the Merger is subject to customary conditions, including, among others, (a) receipt of the approval of the stockholders of USWS, (b) the absence of any applicable law or order prohibiting the consummation of the Merger or the issuance of Company stock in connection with the Merger, (c) the expiration or termination of the HSR Act waiting period, (d) the effectiveness of the registration statement in connection with the Merger, (e) approval of the issuance of Company stock in connection with the Merger for listing on Nasdaq, (f) subject to certain exceptions, the accuracy of the representations and warranties of each party, (g) the performance in all material respects of each party of its obligations under the Merger Agreement and (h) the absence of a material adverse effect on the Company and USWS. The Merger Agreement contains certain termination rights for both the Company and USWS and further provides that, upon termination of the Merger Agreement under specified circumstances, USWS may be required to pay the Company a termination fee of $ 8,000,000 or reimburse ProFrac for certain expenses in an amount up to $ 3,000,000 , in each case, depending on the termination event. 28 Table of Contents ProFrac Holding Corp. Balance sheets ( Unaudited) March 31, 2022 December 31, 2021 Assets Receivable from stockholder $ 10 $ 10 Total assets $ 10 $ 10 Stockholder's equity Common stock, $ 0.01 par value; authorized 1,000 shares; 1,000 issued and outstanding $ 10 $ 10 Total stockholder's equity $ 10 $ 10 The accompanying notes are an integral part of these balance sheets. 29 Table of Contents ProFrac Holding Corp. Notes to the balance sheets 1. Nature of operations ProFrac Holding Corp. (the “Company”) was formed on August 17, 2021, pursuant to the laws of the State of Delaware to become a holding company for ProFrac Holdings, LLC and certain other affiliates. 2. Summary of significant accounting policies Basis of presentation This balance sheet has been prepared in accordance with accounting principles generally accepted in the United States of America. Separate statements of operations, statements of changes in stockholder’s equity and statements of cash flows have not been presented because the Company has had no business transactions or activities through March 31, 2022. 3. Subsequent events The following events occurred after March 31, 2022: On May 12, 2022, ProFrac Holding Corp. completed its IPO of 16,000,000 shares of its Class A common stock, par value $ 0.01 per share (the "Class A Common Stock") at a public offering price of $ 18.00 per share. On June 6, 2022, an over-allotment option was exercised resulting in an additional 2,228,153 shares of Class A Common Stock being priced at $ 18.00 per share. The IPO and exercise of the over-allotment option generated combined net proceeds of $ 303.9 million, after deducting underwriter discounts and commissions and estimated offering costs. The Company contributed $ 72.9 million of the net proceeds to ProFrac Holdings, LLC (“ProFrac Holdings”) that was used to redeem certain membership ownership interests related to ProFrac Holdings’s acquisition of FTS International, Inc. The Company contributed $ 208.6 million to ProFrac Holdings that was used to repay certain indebtedness, and the Company contributed the remaining proceeds to ProFrac Holdings to be used for general corporate purposes and additional repayment of debt. As a result of the IPO and related corporate restructuring, the Company became the managing member of ProFrac Holdings. On May 17, 2022, ProFrac Services, LLC (“ProFrac Services”), a wholly-owned subsidiary of ProFrac Holdings, and Flotek Chemistry, LLC (“Flotek Chemistry”), entered into an amendment (the “Amendment”) to the Flotek Supply Agreement between Flotek Chemistry and ProFrac Services dated February 2, 2022 pursuant to which ProFrac Services will purchase certain products and services from Flotek Chemistry. The Amendment was entered into in connection with the closing of transactions (the “Closing”) contemplated by that certain Securities Purchase Agreement, dated as of February 16, 2022, between Flotek and ProFrac Holdings. Concurrent with the Closing, (i) the term of the Flotek Supply agreement is increased to ten years and the scope increased to 30 fleets (ii) Flotek issued $ 50,000,000 in aggregate principal amount of 10 % convertible PIK notes to ProFrac Holdings and (iii) Flotek and ProFrac Holdings entered into a registration rights agreement with respect to the resale of shares of common stock of Flotek acquired by ProFrac Holdings or its affiliates. ProFrac Holdings entered into an agreement to acquire property in West Texas (“Munger Right Agreement”) in November 2021 for a purchase price of $ 30.0 million. Under the Munger Right Agreement, the sellers were given the option to receive the consideration in cash, or in the event of an IPO of the Company prior to November 17, 2022, in equity, at the sellers’ election. Under the equity option, in the event the Company completes an IPO, the sellers would be entitled to 1.5 % of the outstanding shares of common stock immediately following the IPO. Each seller initially elected the equity option. As part of the IPO completed in May 2022, the sellers of Munger Ranch were issued 2,114,273 shares of Class A Common Stock in exchange for the $ 30.0 million consideration related to the Munger Ranch purchase. On May 2, 2022, the Company adopted the Long Term Incentive Plan (“LTIP”) for the benefit of employees, directors and consultants of the Company and its affiliates. The LTIP provides for the grant of all or any of the following types of awards: (1) incentive stock options qualified as such under U.S. federal income tax laws; (2) stock options that do not qualify as incentive stock options; (3) stock appreciation rights; (4) restricted stock awards; (5) restricted stock units; (6) bonus stock; (7) dividend equivalents; (8) other stock-based awards; (9) cash awards; and (10) substitute awards. Subject to adjustment in accordance with the terms of the LTIP, 3,120,708 shares of Class A Common Stock have been reserved for issuance pursuant to awards under the LTIP. If an award under the LTIP is forfeited, settled for cash or expires without the actual delivery of shares, any shares subject to such award will again be available for new awards under the LTIP. The LTIP will be administered by the board’s compensation committee or the board, as applicable. As of 30 Table of Contents June 21, 2022, an aggregate of 509,467 restricted stock units with respect to 509,467 shares of Class A Common Stock were issued and outstanding under the LTIP. On June 16, 2022, ProFrac II LLC entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) by and among ProFrac II LLC, FoxRock Ranch Holding Company, LLC (“SP Seller”), SP Silica of Monahans, LLC (“SP Monahans”) and SP Silica Sales, LLC (“SP Sales and, together with SP Monahans, the “SP Companies”). Pursuant to the Purchase Agreement, at the Closing (as defined in the Purchase Agreement), upon the terms and subject to the conditions set forth in the Purchase Agreement, ProFrac II LLC has agreed to purchase from SP Seller 100 % of the issued and outstanding membership interests of each of the SP Companies for a purchase price of $ 90,000,000 in cash, subject to certain customary working capital, indebtedness and other adjustments at the time of the closing (the “SPS Acquisition”). The closing of the transactions contemplated by the Purchase Agreement is to take place on the third business day after the satisfaction or waiver of all conditions to the obligations of the parties to consummate such transactions. In connection with the closing of the SPS Acquisition, ProFrac II LLC would acquire, among other things, an in-basin frac sand facility and related mining operations in the Permian Basin. On June 17, 2022, ProFrac II LLC, a wholly-owned subsidiary of ProFrac Holdings, and Flotek entered into a Securities Purchase Agreement (the “Flotek SPA”). In connection with the closing of the Flotek SPA on June 21, 2022, Flotek issued and sold to ProFrac II LLC certain pre-funded warrants of Flotek, each exercisable into one share of Flotek common stock, on the terms and subject to the conditions set forth therein. Pursuant to the Flotek SPA, at the closing, Flotek issued and sold to ProFrac II LLC pre-funded warrants (the “Flotek Warrants”) to purchase from Flotek up to a total of 13,104,839 shares of Flotek common stock (the “Warrant Shares”) at any time and at an exercise price equal to $ 0.0001 per share (subject to adjustment in accordance with the terms of the Flotek Warrant), in exchange for the payment by ProFrac II LLC to Flotek of $ 19,500,000 in cash. ProFrac II LLC and its affiliates may not receive any voting or consent rights in respect of the Flotek Warrants or the underlying shares unless and until (i) Flotek has obtained approval from a majority of its shareholders excluding ProFrac II LLC and its affiliates and (ii) ProFrac II LLC has paid an additional $ 4,500,000 to Flotek. As previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on June 24, 2022 (the “USWS Merger 8-K”), on June 21, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, U.S. Well Services, Inc., a Delaware corporation (“USWS”), and Thunderclap Merger Sub I, Inc., a Delaware corporation and an indirect subsidiary of the Company (“Merger Sub”). The Merger Agreement provides for, among other things, the merger of Merger Sub Inc. with and into USWS, with USWS surviving the merger as the surviving corporation and an indirect subsidiary of the Company (the “Merger”). The acquisition is expected to be completed in the fourth quarter of 2022, subject to the satisfaction of customary closing conditions, including the approval of USWS stockholders, as described further below and in the USWS Merger 8-K. Based on the closing price of the Company’s Class A Common Stock (as reported on the Nasdaq Global Select Market) of $ 21.49 per share on June 21, 2022, the last trading day prior to announcement of the Merger Agreement, the transaction represents aggregate stock consideration of approximately $ 93 million and a consideration per share of Class A Common Stock of USWS, par value $ 0.0001 per share (the “USWS Common Stock”) of $ 1.21 . After giving effect to the conversions of certain securities of USWS, as described in the USWS Merger 8-K, the total stock consideration payable to USWS stockholders and holders of USWS equity awards, based on the Company’s Class A Common Stock June 21, 2022 closing price, would be approximately $ 270 million. Dan Wilks and Farris Wilks, together with certain of their affiliates, (collectively, the “Wilks Parties”) collectively hold a controlling interest in the Company. Certain Wilks Parties also own certain securities of USWS. Upon the consummation of the Merger, the Wilks Parties will receive an aggregate of 4,112,407 shares of the Company’s Class A Common Stock as merger consideration (assuming, solely for the purpose of this calculation, a hypothetical closing date of October 31, 2022), which, based on the Company’s Class A Common Stock June 21, 2022 closing price, would be approximately $ 88.4 million. The parties to the Merger Agreement made representations, warranties and covenants that are customary for transactions of this nature. The representations and warranties of the respective parties to the Merger Agreement will not survive the closing of the Merger. The Merger Agreement includes customary covenants of the parties, including, among others, covenants (a) for the Parties to conduct their respective businesses in the ordinary course during the interim period between the date of the execution of the Merger Agreement and the consummation of the Merger, (b) that the Parties not engage in certain kinds of transactions during the interim period between the date of the execution of the Merger Agreement and the consummation of the Merger, (c) that the Company use commercially reasonable efforts to obtain and consummate a financing to fund the repayment in connection with the closing of the Merger of certain indebtedness of USWS and its subsidiaries as promptly as reasonably possible following the date of the Merger Agreement, (d) that USWS reasonably cooperate with such financing efforts and (e) providing for the Company and USWS to 31 Table of Contents cooperate in the preparation, and obtaining the effectiveness of, the Registration Statement (as defined in the Merger Agreement) to be used in connection with the Merger. USWS further agreed (a) to amend the terms of certain USWS securities, and to use commercially reasonable efforts to amend certain USWS equity awards, each as described in the USWS Merger 8-K, (b) not to solicit proposals relating to alterative business combination transactions or, subject to certain exceptions, enter into discussions or an agreement concerning or provide confidential information in connection with any proposals for alternative business combination transactions and (c) as soon as practicable following the date of the Merger Agreement convene and hold a special meeting of the holders of USWS Common Stock for the purposes of obtaining the approval of the stockholders of USWS. The consummation of the Merger is subject to customary conditions, including, among others, (a) receipt of the approval of the stockholders of USWS, (b) the absence of any applicable law or order prohibiting the consummation of the Merger or the issuance of Company stock in connection with the Merger, (c) the expiration or termination of the HSR Act waiting period, (d) the effectiveness of the registration statement in connection with the Merger, (e) approval of the issuance of Company stock in connection with the Merger for listing on Nasdaq, (f) subject to certain exceptions, the accuracy of the representations and warranties of each party, (g) the performance in all material respects of each party of its obligations under the Merger Agreement and (h) the absence of a material adverse effect on the Company and USWS. The Merger Agreement contains certain termination rights for both the Company and USWS and further provides that, upon termination of the Merger Agreement under specified circumstances, USWS may be required to pay the Company a termination fee of $ 8,000,000 or reimburse ProFrac for certain expenses in an amount up to $ 3,000,000 , in each case, depending on the termination event. 32 Table of Contents