What changed in this filing

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Item 1. Financial Statements

2022-08-15 compared with 2022-06-24 · 521 added, 355 removed, 555 unchanged (61% of the section changed)

Financial Statements.

ProFrac Holdings, LLC

ProFrac Holding Corp.

Consolidated balance sheets

5 unchanged sentences

Prepaid expenses, and other current assets

Assets held for sale

Total current assets

3 unchanged sentences

Operating lease right-of-use assets

Deferred tax assets

Intangible assets, net

Liabilities and equity

The accompanying notes are an integral part of these consolidated financial statements.

ProFrac Holding Corp.

Consolidated balance sheets

(In thousands)

Liabilities, redeemable noncontrollable interest, and stockholders' and members' (deficit) equity

Current liabilities:

9 unchanged sentences

Operating lease liabilities

Other liabilities

Total liabilities

Commitments and contingencies (Note 17)

Noncontrolling interests

Redeemable noncontrolling interest

Stockholders' and members' equity

Members' equity

Preferred stock, $ 0.01 par value, 50,000,000 authorized,

no ne issued and outstanding

Class A common stock, $ 0.01 par value, 600,000,000 authorized,

41,237,003 issued and outstanding at June 30, 2022 and

no ne issued and outstanding at December 31, 2021

Class B common stock, $ 0.01 par value, 400,000,000 authorized,

101,133,201 issued and outstanding at June 30, 2022 and

no ne issued and outstanding at December 31, 2021

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive (loss) income

Total liabilities and equity

Total stockholders' and members' equity attributable to ProFrac Holding Corp.

Noncontrolling interests

Total stockholders' and members' (deficit) equity

Total liabilities, redeemable noncontrollable interest, and stockholders' and members' (deficit) equity

The accompanying notes are an integral part of these consolidated financial statements

ProFrac Holdings, LLC

ProFrac Holding Corp.

Consolidated statements of operations

Three Months Ended March 31,

Three Months Ended

Six Months Ended

(In thousands)

2 unchanged sentences

Depreciation, depletion and amortization

(Gain) loss on disposal of assets, net

Loss on disposal of assets, net

Selling, general, and administrative

4 unchanged sentences

Loss on extinguishment of debt

Other income, net

Income (loss) before income tax provision

1 unchanged sentence

Net income (loss)

Net income attributable to noncontrolling interests

Net income (loss) attributable to ProFrac Holdings, LLC

Other comprehensive (loss) income

Comprehensive income (loss)

Other comprehensive (loss) income attributable to noncontrolling interests

Comprehensive income (loss) attributable to ProFrac Holdings, LLC

net (income) loss attributable to ProFrac Predecessor

net loss attributable to noncontrolling interests

net income attributable to redeemable noncontrolling interests

Net income attributable to ProFrac Holding Corp.

Basic and diluted earnings per Class A share

Weighted average shares used in computing basic earnings per Class A share

Weighted average shares used in computing diluted earnings per Class A share

The accompanying notes are an integral part of these consolidated financial statements.

ProFrac Holdings, LLC

Consolidated statements of changes in equity

ProFrac Holding Corp.

Consolidated statements of comprehensive income (loss)

Three Months Ended

Six Months Ended

(In thousands)

Net income (loss)

Foreign currency translation adjustments

Comprehensive income

comprehensive income attributable to ProFrac Predecessor

comprehensive income attributable to noncontrolling interest

comprehensive income attributable to redeemable noncontrolling interest

Comprehensive income attributable to ProFrac Holding Corp.

The accompanying notes are an integral part of these consolidated financial statements.

ProFrac Holding Corp.

Consolidated statements of changes in equity

Class A Common Stock

Class B Common Stock

Additional Paid

Comprehensive

Income (Loss)

Noncontrolling

(In thousands)

Income (Loss)

Balance, January 1, 2022

2 unchanged sentences

THRC related equity

Currency translation adjustments

Foreign currency translation

Balance, March 31, 2022

(In thousands)

Net income prior to corporate reorganization

Issuance of Class A shares in IPO

Issuance of Class B shares

Effect of corporate reorganization and reclassification to redeemable noncontrolling interest

Adjustment of redeemable noncontrolling interest to redemption amount at IPO

Class A shares issued to settle asset purchase

Net income after corporate reorganization

Recognition of Flotek noncontrolling interest

Stock-based compensation

Stock-based compensation related to deemed contribution

Foreign currency translation

Additional paid-in capital related to tax receivable agreement

Adjustment of redeemable noncontrolling interest to redemption amount

Balance, June 30, 2022

The accompanying notes are an integral part of these consolidated financial statements.

ProFrac Holding Corp.

Consolidated statements of changes in equity

Class A Common Stock

Class B Common Stock

Additional Paid

Comprehensive

Noncontrolling

(In thousands)

Income (Loss)

Balance, January 1, 2021

Net (loss) income

Currency translation adjustments

Foreign currency translation

Noncontrolling interest of acquired business

Balance, March 31, 2021

Foreign currency translation

Balance, June 30, 2021

The accompanying notes are an integral part of these consolidated financial statements

ProFrac Holdings, LLC

ProFrac Holding Corp

Consolidated statements of cash flow

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

1 unchanged sentence

Net income (loss)

Adjustments to reconcile net loss to cash provided by operating activities:

Adjustments to reconcile net income (loss) to cash provided by operating activities:

Depreciation, depletion and amortization

(Gain) loss on disposal of assets, net

Stock based compensation

Loss on disposal of assets, net

Non-cash loss on extinguishment of debt

1 unchanged sentence

Bad debt expense, net of recoveries

Non-cash investment income

Deferred tax expense

Unrealized gain on investments, net

Changes in operating assets and liabilities:

3 unchanged sentences

Accrued expenses

Deferred revenues and other current liabilities

Deferred revenues and other liabilities

Net cash provided by operating activities

1 unchanged sentence

Investment in property, plant & equipment

Cash proceeds from sale of assets

Proceeds from sale of assets

Acquisitions, net of cash acquired

Investment in preferred shares of BPC

Initial investment in Flotek

Other investments

Net cash used in investing activities

2 unchanged sentences

Repayments of long-term debt

Borrowings from revolving credit agreements

Repayments to revolving credit agreements

Payment of debt issuance costs

Member contribution

Net cash provided by (used in) financing activities

Proceeds from issuance of common stock

Payment of THRC related equity

Payment of common stock issuance costs

Net cash provided by financing activities

Net increase in cash, cash equivalents, and restricted cash

8 unchanged sentences

The accompanying notes are an integral part of these consolidated financial statements.

ProFrac Holdings, LLC

ProFrac Holding Corp

Notes to the consolidated financial statements

1 unchanged sentence

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.

ProFrac Holding Corp.

(“ProFrac Corp.”) and its consolidated subsidiaries, including ProFrac Holdings, LLC (“ProFrac LLC”), 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 Company operates in three business segments:

stimulation services, manufacturing, and proppant production.

Company Formation

ProFrac Corp.

was incorporated as a Delaware corporation on August 17, 2021, to become a holding corporation for ProFrac LLC and its subsidiaries upon completion of a corporate reorganization in conjunction with a planned initial public offering (“IPO”).

On May 12, 2022, ProFrac Corp.

completed its IPO and corporate reorganization and became the managing member of ProFrac LLC.

The unaudited consolidated financial statements presented herein are those of ProFrac Corp.

subsequent to the corporate reorganization on May 12, 2022, and ProFrac LLC before that date.

In these notes to the consolidated financial statements, ProFrac Corp.

and ProFrac LLC together are also referred to as “we,” “us,” “our,” or the “Company” and ProFrac LLC is also referred to as “ProFrac Predecessor.” For all periods presented, the unaudited consolidated financial statements presented herein include the controlled subsidiaries of ProFrac LLC, which include Best Pump & Flow LP (“Best Flow”) and Alpine Silica, LLC (“Alpine”).

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.

Accordingly, the results for the three and six months ended June 30, 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.

Under this method of accounting, the statements of operations, comprehensive income, equity and cash flows have been adjusted to include all activities of the commonly controlled groups for all periods in which common control existed.

Initial Public Offering

On May 12, 2022, ProFrac 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.

2 unchanged sentences

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 14 – 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.

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.

Redeemable Noncontrolling Interests

ProFrac Corp’s only material asset is an equity interest consisting of units representing limited liability company interests in ProFrac LLC (“PFH Units”).

As the sole managing member of ProFrac LLC, ProFrac Corp.

operates and controls all of the business and affairs of ProFrac LLC and conducts its business through ProFrac LLC and its subsidiaries.

As a result, ProFrac Corp.

consolidates the financial results of ProFrac LLC and its subsidiaries and reports a noncontrolling interest related to the portion of PFH Units not owned by ProFrac Corp., which reduces net income attributable to holders of ProFrac Corp.’s Class A common stock.

The holders of PFH Units not owned by ProFrac Corp.

also hold shares of ProFrac Corp.’s Class B common stock, par value $ 0.01 per share (the “Class B Common Stock”) such that a single share of Class B Common Stock is issued for each PFH Unit not owned by ProFrac Corp.

The holders of PFH Units not owned by ProFrac Corp.

may redeem all or a portion of their PFH Units, together with a corresponding number of shares of Class B Common Stock, for either shares of Class A Common Stock or an approximately equivalent amount of cash, at the election of the Company.

In connection with the exercise of such redemption, a corresponding number of shares of Class B Common Stock will be cancelled.

The redemption election is not considered to be within the control of the Company because the holders of Class B Common Stock and their affiliates control the Company through direct representation on ProFrac Corp.’s Board of Directors.

As a result, we present the noncontrolling interests in ProFrac LLC as redeemable noncontrolling interests outside of permanent equity.

From January 1, 2022 through June 30, 2022, we recorded adjustments to the value of our redeemable noncontrolling interests as shown below:

Redeemable Noncontrolling Interests

(in thousands)

Balance as of January 1, 2022

Effect of corporate reorganization and reclassification to redeemable noncontrolling interest

Adjustment of redeemable noncontrolling interest to redemption amount at IPO (1)

Class A common stock issued to settle asset purchase

Net income after corporate reorganization

Stock-based compensation

Stock-based compensation related to deemed contribution

Accrued distribution related to income taxes

Adjustment of redeemable noncontrolling interest to redemption amount (2)

Balance as of June 30, 2022

Based on 101,133,201 shares of Class B Common Stock outstanding and the $ 18.00 per share IPO price.

Based on 101,133,201 shares of Class B Common Stock outstanding and the 10-day VWAP of Class A Common Stock of $ 20.02 at June 30, 2022.

As of June 30, 2022, ProFrac Corp.

owned 29.0 % of ProFrac LLC with the remaining 71.0 % owned directly by other PFH Unit holders.

As of June 30, 2022, ProFrac Corp.

had outstanding 41.2 million shares of Class A Common Stock (representing approximately 29.0 % of the total voting power) and 101.1 million shares of Class B Common Stock (representing approximately 71.0 % of the total voting power).

Summary of significant accounting policies

6 unchanged sentences

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.

Operating results for the three and six-months ended June 30, 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 of ProFrac Predecessor.

Use of estimates

36 unchanged sentences

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

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.

See Note 1 4 — Acquisitions and i nvestments for information on acquisitions completed during the historical period.

We have acquired goodwill related to business acquisitions.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired.

We review our goodwill on an annual basis, at the beginning of the fourth quarter, and whenever events or changes in circumstances indicate the carrying value of goodwill may exceed its fair value.

If the carrying value of goodwill exceeds its fair value, we recognize an impairment loss for this difference.

Variable Interest Entities

7 unchanged sentences

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.

At June 30, 2022, we had no Level 2 measurements.

The use of significant unobservable inputs that typically require the use of management’s estimates of assumptions that market participants would use in pricing.

5 unchanged sentences

The book value of our floating rate debt approximates fair value because of its floating rate structure.

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.

Before May 12, 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.

As such, the Company 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.

Certain state income-based taxes are imposed on the Company which are reflected as income tax expense or benefit in historical periods.

In connection with the IPO in May 2022, the Company reorganized and ProFrac LLC became partially owned by ProFrac 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.

ProFrac Corp.

is a taxable entity and is required to account for income taxes under the asset and liability method for periods subsequent to May 12, 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.

3 unchanged sentences

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.

On January 1, 2022, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 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.

We adopted this guidance using a modified retrospective approach on January 1, 2022 using the transition method that allows a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

1 unchanged sentence

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.

whether any expired or existing contracts contain leases, lease classification for any expired or existing leases and initial direct costs for existing leases and ( i v) 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.

18 unchanged sentences

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:

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated statement of cash flows as of June 30, 2022, and December 31, 2021:

(In thousands)

3 unchanged sentences

of cash flows

As of March 31, 2022, restricted cash included cash used as collateral for our credit card program.

The following table summarizes the components of our inventories as of March 31, 2022, and December 31, 2021:

As of June 30, 2022, restricted cash included cash used as collateral for our credit card program.

Supplemental balance sheet information

The following table summarizes the components of our inventories as of June 30, 2022, and December 31, 2021:

(In thousands)

2 unchanged sentences

Finished products and parts

The increase in inventory from December 31, 2021, to June 30, 2022 was partially due to acquired inventory of $ 54.5 million related to our acquisitions of FTS International, Inc.

(“FTSI”) and Flotek Industries, Inc.

The remaining increase is related to our increased activity levels in 2022.

Accrued Expenses

The following table summarizes our accrued expenses as of June 30, 2022, and December 31, 2021:

(In thousands)

Accrual for purchased materials

Employee compensation and benefits

Sales, use, and property taxes

Tax receivable agreement

Tax distribution to redeemable noncontrolling interests

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:

The following table summarizes the components of our property, plant, and equipment, net as of June 30, 2022, and December 31, 2021:

(In thousands)

6 unchanged sentences

Property, plant, and equipment, net

Depreciation expense for the three months ended March 31, 2022 and 2021, was $ 44.2 million and $ 35.5 million, respectively.

The increase in net property, plant, and equipment from December 31, 2021, to June 30, 2022, was due to acquired assets of $ 328.7 million related to our FTSI and Flotek acquisitions.

This increase was partially offset by $ 48.2 million of FTSI assets sold in the sale lease-back transaction immediately following the FTSI acquisition.

Depreciation expense for the three months ended June 30, 2022 and 2021, was $ 63.6 million and $ 34.7 million, respectively.

Depreciation expense for the six months ended June 30, 2022 and 2021, was $ 107.8 million and $ 70.1 million, respectively.

Major classifications of property, plant, and equipment and their respective useful lives are as follows:

6 unchanged sentences

Intangible assets

The following table summarizes the components of our intangible assets as of March 31, 2022, and December 31, 2021:

March 31, 2022

The following table summarizes the components of our finite-lived intangible assets as of June 30, 2022, and December 31, 2021:

June 30, 2022

December 31, 2021

6 unchanged sentences

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.

The following table summarizes the components of our debt as of March 31, 2022 and December 31, 2021:

For technology acquired in 2022 related to the acquisition of FTSI, we estimated the period to be three years .

Amortization expense related to intangible assets was $ 0.4 million and $ 0.2 million for the three months ended June 30, 2022 and 2021, respectively.

Amortization expense related to intangible assets was $ 0.8 million and $ 0.3 million for the six months ended June 30, 2022 and 2021, respectively.

The following table summarizes the components of our debt as of June 30, 2022 and December 31, 2021:

(In thousands)

4 unchanged sentences

New Term Loan Credit Facility

Backstop Note(1)

Closing Date Note(1)

Equify Bridge Note(1)

Best Flow Credit Facility(1)

1 unchanged sentence

Alpine Promissory Note(1)

Flotek Convertible Notes

Total gross debt

6 unchanged sentences

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.

LIBOR borrowings under the Old ABL Credit Facility bore 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.

1 unchanged sentence

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.

On March 4, 2022, the Old ABL Credit Facility was refinanced and replaced with the New ABL Credit Facility (as described below).

Old Term Loan

2 unchanged sentences

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.

On June 24, 2021, ProFrac LLC and its Old 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 :

2 unchanged sentences

The interest rate was 9.75 % as of December 31, 2021.

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.

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, 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.

5 unchanged sentences

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.

6 unchanged sentences

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.

The Company was in compliance with all covenants as of June 30, 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 initially provided for an asset-based revolving credit facility with a borrowing base and lender commitments of $ 100.0 million.

On April 8, 2022, the New ABL Credit Facility was amended to increase the borrowing base and lender commitments to $ 200.0 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).

As of June 30, 2022, the maximum availability under the New ABL Credit Facility was the aggregate lender commitments of $ 200.0 million with $ 143.4 million of borrowings outstanding and $ 9.2 million of letters of credit outstanding, resulting in approximately $ 47.4 million of remaining availability.

The 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 %);

The interest rate under the 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.

The interest rate was 5.50 % as of June 30 , 2022.

The 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).

Our New ABL Credit Facility contains certain customary representations and warranties and affirmative and negative covenants.

The 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.

We are required by the 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 the New ABL Credit Facility to maintain a springing Fixed Charge Coverage Ratio (as defined in the New ABL Credit Facility) of at least 1.0 to 1.0, which is tested quarterly during such period.

The Company 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 June 30, 2022.

On July 25, 2022, the New ABL Credit Facility was amended to add an uncommitted $ 100.0 million incremental facility (the “Incremental Facility”), under the terms of which existing lenders can make additional loans (in their sole discretion) under, or new lenders can join, the Incremental Facility and increase the potential size of the New ABL Credit Facility from $ 200 million to $ 300 million, subject to satisfaction of certain conditions.

All other terms and conditions of the New ABL Credit Facility remained substantially unchanged.

See Note 19 – 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.

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 Piper Sandler Finance LLC, as administrative agent and collateral agent, and the lenders party thereto.

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 .

In the second quarter of 2022, the New Term Loan Facility was paid down by $ 143.8 million with net proceeds from the IPO and an additional $ 3.8 million in scheduled payments.

As of June 30, 2022, the Term Loan Borrower had approximately $ 302.4 million outstanding under the New Term Loan Credit Facility.

The 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 interest rate on the 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.

The interest rate was 10.0 % as of June 30, 2022.

The 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 New Term Loan Credit Facility is secured by a lien on, and security interest in, substantially all of each such guarantor’s assets.

The 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, the New Term Loan Credit Facility is subject to a quarterly mandatory prepayment beginning for the calendar quarter ending on December 31, 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.

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No payment or prepayment premium shall be due on account of any payments or prepayments made on the Stated Termination Date.

Our New Term Loan Credit Facility contains certain customary representations and warranties and affirmative and negative covenants.

The 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.

We are required by the New Term Loan Credit Facility to maintain a Total Net Leverage Ratio (as defined in the 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 the New Term Loan Credit Facility to maintain minimum liquidity of $ 30.0 million at all times.

The 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.

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 June 30, 2022.

O n July 25, 2022, the New Term Loan Facility was amended to increase the size of the New Term Loan Facility by $ 150.0 million with an uncommitted option to obtain commitments for a potential additional $ 100.0 million of delayed draw loans before the earlier to occur of (i) the consummation of the Merger (as defined herein) and (ii) March 31, 2023.

The maturity date of the New Term Loan Facility remains the same at March 4, 2025.

The Company used a portion of the proceeds from the increased New Term Loan Facility to fund the acquisition of Monahans (as defined herein) and anticipates using the remainder of the proceeds and operating cash to facilitate the Merger, pay outstanding debt under the New ABL Credit Facility and/or for other general corporate purposes.

See Note 19 – Subsequent Events.

Backstop Note

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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.

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.

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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.

The Best Flow Note provided 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.

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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.

Flotek Convertible Notes

On February 2, 2022, Flotek entered into a private investment in public equity transaction (the “PIPE Transaction”) with a consortium of investors to secure growth capital.

Pursuant to the PIPE Transaction, Flotek issued $ 11.2 million in aggregate initial principal amount of convertible notes payable (“Flotek Convertible Notes”).

The Flotek Convertible Notes accrue paid-in-kind interest at a rate of 10 % per annum, have a maturity of one year , and are convertible into common stock of Flotek (a) at Flotek’s option if Flotek’s common stock equals or exceeds $ 2.50 for 20 trading days during a 30 consecutive trading day period, (b) at the holder’s option at any time prior to maturity, at a price of $ 1.088125 per share or (c) at maturity, at a price of $ 1.088125 per share.

On March 21, 2022, $ 3.0 million of Flotek Convertible Notes were converted at a holder’s option into approximately 2.8 million shares of Flotek common stock.

The Flotek Convertible Notes are obligations of Flotek and have no recourse or claim against the assets of ProFrac Corp.

or its other consolidated subsidiaries.

At June 30, 2022, there was $ 8.2 million principal amount of Flotek Convertible Notes outstanding, which were included in the Company’s consolidated financial statements at a carrying value of $ 12.3 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:

As of June 30, 2022 and December 31, 2021, the Company had other debt agreements outstanding with unpaid principal balances of $ 12.6 million and $ 1.7 million, respectively.

At June 30, 2022, other indebtedness included various equipment financing agreements of $ 6.8 million.

In July 2022, we repaid $ 3.4 million under these agreements and the remaining $ 3.4 million is due October 1, 2022 at an interest rate of 5.0 % At June 30, 2022, other indebtedness also included a $ 4.8 million loan under the Paycheck Protection Program established under the Coronavirus Aid, Relief, and Economic Securities Act held by Flotek.

The following table summarizes the principal maturity schedule for our long-term debt outstanding as of June 30, 2022:

First Financial loan

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New Term Loan Credit Facility

Backstop Note(1)

Closing Date Note(1)

Equify Bridge Note(1)

Related party debt agreements.

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.

Flotek Convertible Notes

Before May 12, 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.

As such, the Company 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.

Effective January 1, 2022, we adopted the new lease accounting guidance under Accounting Standards Codification (“ASC”) Topic 842, Leases.

Certain state income-based taxes are imposed on the Company which are reflected as income tax expense or benefit in historical periods.

In connection with the IPO in May 2022, the Company reorganized and ProFrac LLC became partially owned by ProFrac Corp., a C-Corporation.

ProFrac Corp.

is a taxable entity and is required to account for income taxes under the asset and liability method for periods subsequent to May 12, 2022.

During the first six months of 2022, ProFrac LLC and its members completed the acquisition of FTSI, a C-Corporation.

Through a series of transactions, ProFrac LLC obtained ownership of all of the assets and liabilities of FTSI, but the FTSI C-Corporation legal entity was owned by the ProFrac LLC members.

In connection with the IPO, the FTSI C-Corporation legal entity merged with a subsidiary of ProFrac Corp., which inherited the tax attributes of the FTSI legal entity.

As of June 30, 2022, the Company had approximately $ 158.3 million of net deferred tax assets.

The deferred tax assets are driven by the outside basis difference between tax and GAAP in the Company’s outside basis in ProFrac LLC (including $ 22.7 million subject to the Tax Receivable Agreement), generated by both the FTSI transaction and the IPO.

We have recorded a valuation allowance on the Company’s net deferred tax assets based on our assessment that it is more likely than not that the deferred tax assets will not be realized, with the exception of certain deferred tax assets that are expected to be utilized in the 2022 tax year of approximately $ 4.1 million.

This valuation allowance assessment is based on the cumulative losses incurred by the Company in recent years.

A change in our assessment could cause a decrease to the valuation allowance, which could materially impact our results of operations.

The Company’s effective tax rate (“ETR”) from continuing operations is expected to be 4.9 % for tax year 2022.

After consideration of a 2.4 % net state tax rate (inclusive of the Texas Margin tax), the majority of the remaining difference between the federal corporate income tax rate of 21 % and our effective tax rate is related to the income that is earned within the financial statement consolidated group that is not subject to tax within the financial statement consolidated group.

This is due to the Company not being subject to tax prior to IPO, as well as the amount of post-IPO income that is attributable to the Class B shareholders.

As such, the Company’s income tax expense for the six months ended June 30, 2022 is $ 4.9 million.

ProFrac LLC is obligated to make cash distributions to PFH Unit holders to fund their respective income tax liabilities relating to their share of the income of ProFrac LLC.

At June 30, 2022, the Company recorded a liability for accrued distributions of $ 15.6 million to be made to redeemable noncontrolling interest holders to fund their estimated tax payments .

Tax receivable agreement

In connection with our IPO, ProFrac Corp.

entered into a tax receivable agreement (the “TRA”) with certain PFH Unit holders (the “TRA Holders”).

The TRA generally provides for payment by ProFrac Corp.

to the TRA Holders of 85 % of the net cash savings, if any, in U.S.

federal, state and local income tax and franchise tax (computed using simplifying assumptions to address the impact of state and local taxes) that ProFrac Corp.

actually realizes (or is deemed to realize in certain circumstances) as a result of (i) certain increases in tax basis that occur as a result of ProFrac Corp.’s acquisition (or deemed acquisition for U.S.

federal income tax purposes) of all or a portion of such TRA Holder’s PFH Units in connection with the IPO or the exercise of the Redemption Right (as defined in the TRA) or the Call Right (as defined in the TRA), and (ii) imputed interest deemed to be paid by ProFrac Corp.

as a result of, and additional tax basis arising from, any payments ProFrac Corp.

makes under the TRA.

ProFrac Corp.

will be dependent on ProFrac LLC to make distributions to ProFrac Corp.

in an amount sufficient to cover ProFrac Corp.’s obligations under the TRA.

ProFrac Corp.

will retain the benefit of the remaining 15 % of any actual net cash tax savings.

The payment obligations under the TRA are ProFrac Corp.’s obligations and not obligations of ProFrac LLC, and we expect that the payments required to be made under the TRA could be substantial.

The term of the TRA commenced upon the completion of the IPO and will continue until all tax benefits that are subject to the TRA have been utilized or expired, unless we experience a Change of Control (as defined in the TRA, which includes certain mergers, asset sales, or other forms of business combinations) or the TRA otherwise terminates early (at our election or as a result of our breach or the commencement of bankruptcy or similar proceedings by or against us) and ProFrac Corp.

makes the termination payments specified in the TRA in connection with such Change of Control or other early termination.

In the event that the TRA is not terminated, the payments under the TRA could commence in 2023 and will continue for 15 years after the date of the last redemption of the PFH Units.

Payments will generally be made under the TRA as we realize actual cash tax savings from the tax benefits covered by the TRA.

However, if we experience a Change of Control or the TRA otherwise terminates early, ProFrac Corp.’s obligations under the TRA would accelerate and ProFrac Corp.

would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by it under the TRA.

We estimate that such an immediate payment could range up to more the $ 500 million.

There can be no assurance that we will be able to satisfy our obligations under the TRA.

Estimating the amount and timing of payments that may become due under the TRA is by its nature imprecise.

For purposes of the TRA, net cash tax savings generally are calculated by comparing ProFrac Corp.’s actual tax liability (determined by using the actual applicable U.S.

federal income tax rate and an assumed combined state and local income and franchise tax rate) to the amount ProFrac Corp.

would have been required to pay had it not been able to utilize any of the tax benefits subject to the TRA.

The actual increases in tax basis covered by the TRA, as well as the amount and timing of any payments under the TRA, will vary depending on a number of factors, including the timing of any redemption of PFH Units, the price of ProFrac Corp.’s Class A Common Stock at the time of each redemption, the extent to which such redemptions are taxable transactions, the amount of the redeeming PFH Unit holder’s tax basis in its PFH Units at the time of the relevant redemption, the depreciation and amortization periods that apply to the increase in tax basis, the amount and timing of taxable income we generate in the future, the U.S.

federal income tax rates then applicable, and the

portion of ProFrac Corp.’s payments under the TRA that constitute imputed interest or give rise to depreciable or amortizable tax basis.

We account for amounts payable under the TRA when we determine that a liability is probable and the amount is reasonably estimable.

At June 30, 2022, the liability from the TRA was $ 3.4 million.

Earnings per share

The numerators and denominators of the basic and diluted earnings per share (“EPS”) computations for our Class A Common Stock are calculated as follows:

Three Months Ended

Six Months Ended

(In thousands)

Net income (loss)

net (income) loss attributable to ProFrac Predecessor

net loss attributable to noncontrolling interests

net income attributable to redeemable noncontrolling interests

Net income attributable to ProFrac Holding Corp.

Weighted average Class A shares used for basic EPS computation

Dilutive potential of employee restricted stock units

Weighted average Class A shares used for diluted EPS computation

Basic and diluted EPS - Class A Common Stock

Stock-based compensation

Stock-based Compensation Related to Deemed Contributions

In connection with the Company’s IPO, our majority shareholders, Farris Wilks (“Farris”) and Dan Wilks (“Dan”) (together with certain family members or entities they control), sold PFH Units representing approximately 1 % of the equity interest in ProFrac LLC to an entity controlled by our Chief Executive Officer, Ladd Wilks (“Ladd”), and our Executive Chairman, Matt Wilks (“Matt”), respectively.

These equity interests in ProFrac LLC entitled each of Ladd and Matt to 1,220,978 shares of Class B common stock in ProFrac Corp.

These units were sold in exchange for promissory notes.

While some of the documentation relating to these transfers was subject to completion, we concluded that both transactions were consummated in connection with the Company’s IPO and, for accounting purposes, should be treated in accordance with ASC Topic 718, Compensation — Stock Compensation , as deemed contributions to the Company by Farris and Dan and grants of stock-based compensation to Ladd and Matt by the Company similar to stock options.

As no future service period was required and because the promissory notes are prepayable at any time, all related stock-based compensation expense was recognized in the second quarter of 2022.

The stock-based compensation expense was $ 33.7 million using the Black-Scholes-Merton option-pricing model with an average contractual term of 16.5 years, a volatility rate of 64 %, and a 0 % dividend yield.

Also in connection with the IPO, Farris engaged in estate planning that may result, subject to other terms and conditions, in additional shares being transferred by Farris to Ladd if the Company’s total market capitalization increases to certain target levels within the next five years, which resulted in a performance award being deemed granted by the Company to Ladd.

We concluded that this arrangement should be treated, for accounting purposes, in accordance with ASC Topic 718, Compensation — Stock Compensation , as a deemed contribution to the Company by a related party and the grant of stock compensation with market conditions to Ladd by the Company.

Also at the time of the IPO, a performance award was granted which will result in additional shares being transferred if the Company’s total market capitalization increases to certain target levels within the next five years, subject to other terms and conditions.

The grant date fair value of this award was estimated to be $ 45.2 million and will be recognized over the estimated derived service period of approximately one year .

The grant date fair value and the derived service period of this award was determined using a Monte Carlo simulation method, which incorporates the possibility that the market capitalization targets may not be satisfied.

The Monte Carlo simulation is affected by a number of variables, including the fair value of our underlying common shares ($ 18.00 at grant date), the expected common share price volatility over the expected term ( 79.2 %), the expected dividend yield of our common shares over the expected term ( 0.0 %), the risk-free interest rates over the expected term ( 2.86 %), and the performance period of the award ( five years ).

The derived service period for the award was determined based on the median vesting time for the simulations that achieved the vesting hurdle.

Stock-based compensation expense associated with this award will be recognized over the earlier of (i) the derived service period and (ii) the date on which the market condition is satisfied.

Stock-based compensation expense of $ 5.1 million was recognized in the second quarter of 2022.

At June 30, 2022, there was $ 40.1 million of total unrecognized compensation cost related to this award, which is expected to be recognized over a weighted average period of 1.0 years.

2022 Equity and Incentive Compensation Plan

In May 2022, the Company adopted the ProFrac Holding Corp.

2022 Long Term Incentive Plan (“2022 Plan”) to attract and retain officers, employees, directors, and other key personnel and to provide those persons incentives and awards for performance.

The 2022 Plan originally allocated 3,121 thousand shares of our Class A Common Stock in the form of incentive stock options, non-qualified stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights, or other stock-based awards.

As of June 30, 2022, up to approximately 2,611 thousand shares were available for future grants under the 2022 Plan.

On May 24, 2022, the Company issued 509 thousand RSUs, which had a grant date fair value of $ 9.1 million.

The RSUs were valued at $ 17.90 per share, the market price of our Class A Common Stock on the date of grant.

Awards granted vest from one to three years from the date of grant.

Stock-based compensation expense for the Company in the second quarter of 2022 for these RSUs was $ 0.9 million.

The weighted-average grant-date fair value per share of RSUs granted was $ 17.90 .

The fair value of RSUs vested in the second quarter of 2022 was zero .

At June 30, 2022, there was $ 8.2 million of total unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted average period of 1.2 years.

Effective January 1, 2022, we adopted the new lease accounting guidance under 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.

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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.

The adoption of this standard did not materially impact our consolidated results of operations for the three and six months ended June 30, 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.

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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”).

In connection with the completion of the FTSI acquisition, 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.

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The following table summarizes the components of our lease costs:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands)

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The following table includes other supplemental information for our operating leases:

Three Months Ended March 31,

Six Months Ended June 30,

(Dollars in thousands)

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Weighted-average discount rate

The following table summarizes the maturity of our operating leases as of March 31, 2022:

The following table summarizes the maturity of our operating leases as of June 30, 2022:

(In thousands)

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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.

In the normal course of business, the Company has entered into transactions with related parties where the Wilks (or entities they control) hold a controlling financial interest.

During the three and six months ended June 30, 2022 and 2021, the Company had related party transactions with the following related party entities:

Automatize, LLC (“Automatize”) is a logistics broker that facilitates the last-mile delivery of proppants on behalf of its customers, including the Company.

Amounts paid to Automatize include costs passed through to third-party trucking companies and a commission retained by Automatize.

These payments 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 Company.

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.

Equify Risk Services, LLC (“Equify Risk”) is an insurance broker that negotiates and secures insurance policies on behalf of its customers, including the Company.

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.

Equify Financial, LLC (“Equify Financial”) is a finance company that provides equipment and other financing to its customers, including the Company .

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

Predecessor, billing the ProFrac Predecessor for these expenses at cost as well as certain management fees.

Wilks Brothers, LLC (“Wilks Brothers”) is a management company which provides administrative support to various businesses within its portfolio.

Wilks Brothers and certain entities under its control will at times incur expenses on behalf of the Company, billing the Company 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.

Interstate Explorations, LLC (“Interstate”) is an exploration and development company for which the Company 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 the Company rents and sells equipment and frac fleet components.

MC Estates, LLC, The Shops at Willow Park, and FTSI Industrial, LLC (collectively, the “Related Lessors”) own various industrial parks and office space leased by the Company.

Amounts paid to the 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.

3 Twenty-Three, LLC (“3 Twenty-Three”) is a payroll administrator which performs payroll services on behalf of its customers, including the Company.

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.

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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.

FHE USA LLC (“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,

The following table summarizes expenditures with related parties for the three and six months ended June 30, 2022 and 2021:

Three Months Ended

Six Months Ended

(In thousands)

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Cisco Logistics

The following table summarizes related party accounts payable as of March 31, 2022 and December 31, 2021:

The following table summarizes related party accounts payable as of June 30, 2022 and December 31, 2021:

(In thousands)

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Wilks Construction

Cisco Logistics

Related Lessors

The following table summarizes revenue from related parties for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The following table summarizes revenue from related parties for the three and six months ended June 30, 2022 and 2021:

Three Months Ended

Six Months Ended

(In thousands)

Wilks Brothers

The following table summarizes related party accounts receivable as of March 31, 2022 and December 31, 2021:

The following table summarizes related party accounts receivable as of June 30, 2022 and December 31, 2021:

(In thousands)

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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.

As of June 30, 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.

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.

(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.

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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)

Throughout the second quarter of 2022, we integrated FTSI’s operations.

As a result, we track all stimulation services assets as one group and it would be impracticable to separately report FTSI revenues or pretax earnings subsequent to March 31, 2022.

Flotek Industries, Inc.

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(“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.

In exchange for entry into the Flotek Supply Agreement, we received $ 10 million in initial principal amount of Flotek Convertible Notes and acquired an additional $ 10 million in principal amount of Flotek Convertible Notes in the PIPE 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.

In addition, we received the right to designate up to two 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

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.

The Flotek Supply Agreement Amendment and issuance to us of additional Flotek Convertible Notes were 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 .

Our equity ownership in Flotek on a fully diluted basis after the consummation of these transactions is approximately 43 %, and we are permitted to designate two additional directors, or up to four directors to Flotek’s board of directors.

Because of our power to appoint directors to the board of directors without a direct equity interest in Flotek, we determined that Flotek is a VIE.

We further determined that the Company is the primary beneficiary of the VIE, primarily due to our ability to appoint four of seven directors to Flotek’s board of directors.

As a result, subsequent to May 17, 2022, we have accounted for this transaction as a business combination using the acquisition method of

accounting and Flotek’s financial statement s have been included in our consolidated financial statements from May 17, 2022 .

As we had no direct equity interest in Flotek during the three months ended June 30, 2022, we allocated 100 % of Flotek’s loss to noncontrolling interests in our consolidated financial statements.

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.

At May 17, 2022, we had a supply agreement contract liability of $ 9.9 million, which was included as purchase consideration for Flotek as a settlement of a pre-existing relationship.

All effects of the Supply Agreement have been eliminated from our consolidated financial statements subsequent to May 17, 2022.

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.

At May 17, 2022, we estimated the fair value of these Convertible Notes to be $ 30.2 million, which was included as purchase consideration for Flotek as a settlement of a pre-existing relationship.

All effects of the Flotek Convertible Notes have been eliminated from our consolidated financial statements subsequent to May 17, 2022.

Before May 17, 2022, we designated our investment in the Flotek 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.

For the period from February 2, 2022 through May 17, 2022 we recognized noncash income of $ 10.2 million as other (expense) income on our consolidated statements of operations related to the change in fair value of the Flotek Convertible Notes.

In June 2022, Flotek issued and sold to ProFrac II LLC, a wholly-owned subsidiary of ProFrac LLC, pre-funded warrants to purchase from Flotek up to approximately 13.1 million shares of Flotek common stock at any time and at an exercise price equal to $ 0.0001 per share, in exchange for $ 19.5 million in cash.

ProFrac II LLC and its affiliates may not receive any voting or consent rights in respect of these 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 $ 4.5 million to Flotek.

We entered into this transaction to provide additional working capital to Flotek to enable it to perform under the Flotek Supply Agreement Amendment.

These pre-funded warrants have been eliminated from our consolidated financial statements.

The following table summarizes the preliminary allocation of the fair value of Flotek’s assets, liabilities and noncontrolling interest:

(In thousands)

Settlement of pre-existing relationships

Accounts payable

Supply Agreement contract liability

Fair value of previously held interest in 10% Convertible PIK Notes

Settlement of pre-existing relationships

Assets acquired

Cash and cash equivalents

Restricted cash

Accounts receivable

Assets held for sale

Other current assets

Property and equipment

Operating lease right-of-use assets

Deferred tax assets

Other long-term assets

Total assets acquired

Liabilities assumed:

Accounts payable and accrued liabilities

Operating lease liabilities

Finance lease liabilities

Long-term debt

Other liabilities

Total liabilities assumed

Noncontrolling interests

Assets acquired less liabilities assumed and noncontrolling interests

We used our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities 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.

The fair value of the noncontrolling interest was based on the Flotek common stock price reported by the New York Stock Exchange at the date of the acquisition, which represented Level 1 inputs.

No portion of the recorded goodwill is tax deductible.

For the three months ended June 30, 2022, our revenues and pretax earnings included $ 6.1 million and $ 8.5 million loss, respectively, associated with the Flotek acquired operations after May 17, 2022.

The allocation of the purchase price to Flotek’s net tangible assets and liabilities and identifiable intangible assets as of May 17, 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.

The following unaudited pro forma results of operations have been prepared as though the FTSI and Flotek acquisitions 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

Six Months Ended

(In thousands)

Net income (loss)

Agreement to Acquire U.S.

Well Services, Inc.

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”).

Subject to the terms and conditions of the Merger Agreement, at the effective time and as a result of the Merger, each share of Class A Common Stock of USWS, par value $ 0.0001 per share (the “USWS Common Stock”), issued and outstanding immediately prior to the effective time of the Merger will be cancelled and converted automatically into the right to receive 0.3366 shares of the Company’s Class A Common Stock.

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 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 USWS Common Stock of $ 7.23 , after giving effect to USWS’ recent 1-for-6 reverse stock split.

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.

In addition, the Company will assume approximately $ 55 million of USWS’ outstanding indebtedness and repay approximately $ 170 million of USWS debt expected to be outstanding at closing.

We anticipate that the total consideration to be paid in connection with the closing of the Merger will be funded through the New Term Loan Credit Facility and/or the New ABL Credit Facility, available cash, additional loans and/or notes and cash flows generated from operations.

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 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 (which has been satisfied), (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 $ 8.0 million or reimburse the Company for certain expenses in an amount up to $ 3.0 million, in each case, depending on the termination event.

Basin Production and Completion LLC

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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.

On February 9, 2022, the Company entered into an agreement to purchase all the series A-1 and B-1 preferred units of BPC for $ 46.0 million (“Basin Units Acquisition”), consisting of $ 40.0 million to BPC for series A-1 and 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, a subsidiary of BPC for $ 1.25 million.

The loan bears interest at the rate of 5 % per annum.

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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.

Subsequent to February 9, 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.

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See Note 16 — Fair Value of Financial Interests for more information on our investments using Level 3 measurements.

At June 30, 2022, t he estimated fair value of these investments in BPC was $ 49.8 million.

On December 22, 2020, the Company purchased a 25 % stake in EKU, an equipment manufacturer based in Germany, for $ 1.2 million.

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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.

Each seller ultimately 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.

See Note 15 – Subsequent Events.

Under the Make Whole provision, if any seller liquidates 100 % of the shares of our Class A Common Stock they are issued prior to the one-year anniversary of the IPO and the value of the shares sold does not equal such seller’s share of the $ 30.0 million purchase price, then the Company will pay the difference between the amount of cash the seller would have received had they elected the cash option and the amount they ultimately received upon the sale of the Class A shares issued under the equity option.

This Make Whole provision is accounted for as a written put option with a fair value of $ 4.0 million as of June 30, 2022 and 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 part of the IPO completed in May 2022, the Company issued 2,114,273 shares of Class A Common Stock worth $ 38.1 million as consideration for the Munger Ranch purchase.

The Company acquired iO-TEQ, LLC (“IOT”) in October 2021 for $ 2.2 million and performed a purchase price allocation at the acquisition date.

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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.

(“Eagleton”) to purchase Eagleton’s 15.172 % interest in Best Flow for a purchase price of $ 3.9 million, which the company paid in cash, during the three months ended March 31, 2022.

The changes in the carrying amount of goodwill by reportable segment were as follows for the six months ended June 30, 2022.

Stimulation services

Manufacturing

Proppant production

Balances at December 31, 2021

Acquisition of Flotek

Balances at June 30, 2022

Fair value of financial instruments

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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.

Level 3 assets that have been measured on a recurring basis during 2022 relate to the Company’s investments in (i) Convertible Notes of Flotek, designated as trading securities up to the acquisition date of Flotek and (ii) the equity method investment in BPC, for which we elected the fair value option, as described in Note 14 – 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 June 30, 2022.

We had no Level 2 or Level 3 assets or liabilities as of December 31, 2021.

The estimated fair value of the BPC investment as of June 30, 2022 was determined using a combination of the market and income approaches.

The following table sets forth the fair value of the Company’s financial instruments within Level 3 of the fair value hierarchy.

(In thousands)

Flotek Convertible Notes

BPC Investment

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.

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:

Risk-free interest rate

Expected volatility

Term until liquidation (years)

Discount rate

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)

Fair value, beginning of period

Fair value as of January 1, 2022

Acquisition of Flotek Convertible Notes

2 unchanged sentences

Change in fair value of Level 3 fair value measurements

Fair value, end of period

Fair value as of March 31, 2022

Change in Flotek fair value up to acquisition date

Elimination of Flotek convertible notes at acquisition date

Change in BPC fair value

Fair value as of June 30, 2022

The estimated fair value of the Flotek Convertible Notes prior to our consolidation of Flotek on May 17, 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.

The key inputs into the Monte Carlo simulation used to estimate the fair value the Convertible Notes were as follows:

Risk-free interest rate

Expected volatility

Term until liquidation (years)

Commitments and contingencies

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Trial docket call for this matter is currently scheduled for September 6, 2022.

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.

We estimate and provide for potential losses that may arise out of legal proceedings and claims to the extent that such losses are probable and can be reasonably estimated.

Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different from these estimates.

When preparing our estimates, we consider, among other factors, the progress of each legal proceeding and claim, our experience and the experience of others in similar legal proceedings and claims, and the opinions and views of legal counsel.

Legal costs related to litigation contingencies are expensed as incurred.

Segment information

4 unchanged sentences

FTSI is part of our stimulation services segment.

Amounts in the other category reflect our business activities that are not separately reportable, which only included Flotek for the periods presented.

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.

For the three and six months ended June 30, 2022 and 2021, intersegment revenues for the manufacturing segment were 92 % and 88 % and

88 % and 87 % , respectively.

For the three and six months ended June 30 , 202 2 and 202 1 , intersegment revenues for the proppant production segment were 64 % and 44 % and 66 % and 38 % , 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,

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) stock-based compensation, and (vi) 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 and six months ended June 30, 2022 and 2021 is as follows:

Three Months Ended

Six Months Ended

(In thousands)

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Income tax benefit (provision)

(Gain) loss on disposal of assets, net

Loss on disposal of assets, net

Loss on extinguishment of debt

Litigation accrual

Stock compensation expense

Stock compensation expense related to deemed contributions

Bad debt expense, net of recoveries

2 unchanged sentences

Acquisition related expenses

Investment income

Unrealized gain on investments, net

Net income (loss)

Segment information as of March 31, 2022 and December 31, 2021 is as follows:

Segment information as of June 30, 2022 and December 31, 2021 is as follows:

(In thousands)

4 unchanged sentences

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.

The following events occurred after June 30, 2022:

On July 25, 2022, the Company acquired 100 % of the issued and outstanding membership interests of each of SP Silica of Monahans, LLC and SP Silica Sales, LLC (collectively “Monahans”), the West Texas subsidiaries of Signal Peak Silica, for a purchase price of $ 90.0 million in cash plus working capital adjustments of approximately $ 10.0 million.

On July 25, 2022, the New Term Loan Facility was amended to increase the size of the New Term Loan Facility by $ 150.0 million with an uncommitted option to obtain commitments for a potential additional $ 100.0 million of delayed draw loans before the earlier to occur of (i) the Merger and (ii) March 31, 2023.

The maturity date of the New Term Loan Facility remains the same at March 4, 2025 .

The Company used a portion of the proceeds from the increased New Term Loan Facility to fund the acquisition of Monahans and anticipates using the remainder of the proceeds and operating cash to facilitate the Merger, pay outstanding debt under the New ABL Credit Facility and/or for other general corporate purposes.

On July 25, 2022, the New ABL Credit Facility was amended to add an uncommitted $ 100.0 million incremental facility (the “Incremental Facility”, under the terms of which existing lenders can make additional loans (in their sole discretion) under, or new lenders can join, the Incremental Facility and increase the potential size of the New ABL Credit Facility from $ 200 million to $ 300 million, subject to satisfaction of certain conditions.

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.

Wilks and Dan H.

Wilks own the Service Provider.

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.

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”).

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.

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.

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.

ProFrac Holding Corp.

Balance sheets

Receivable from stockholder

Stockholder's equity

Common stock, $ 0.01 par value;

authorized 1,000 shares;

1,000 issued and outstanding

Total stockholder's equity

The accompanying notes are an integral part of these balance sheets.

ProFrac Holding Corp.

Notes to the balance sheets

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.

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.

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.

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.

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.

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.

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”).

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”).

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 .

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.

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

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.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements