What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-15 compared with 2022-06-24 · 169 added, 141 removed, 295 unchanged (51% of the section changed)

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the Company amended and restated its Certificate of Incorporation and Bylaws;

the Company and the other members of ProFrac LLC entered into the Third Amended and Restated ProFrac Limited Liability Company Agreement (the “Third A&R LLC Agreement”);

in connection with the adoption of the Third A&R LLC Agreement, the Company was admitted as the sole managing member of ProFrac LLC.

For additional information regarding the Corporate Reorganization and the Master Reorganization Agreement, please see “Corporate Reorganization” in our Prospectus and “Master Reorganization Agreement” in Item 1.01 of our Current Report on Form 8-K filed with the SEC on May 18, 2022, respectively.

the Company and the other members of ProFrac LLC entered into the Third Amended and Restated ProFrac Limited Liability Company Agreement (the “ProFrac LLC Agreement”);

in connection with the adoption of the ProFrac LLC Agreement, the Company was admitted as the sole managing member of ProFrac LLC.

For additional information regarding the Corporate Reorganization and the Master Reorganization Agreement, please see “Corporate Reorganization” in our prospectus, dated May 12, 2022, filed with the SEC pursuant to Rule 424(b) under the Securities Act on May 16, 2022 in connection with our initial public offering (the “IPO Prospectus”) and “Master Reorganization Agreement” in Item 1.01 of our Current Report on Form 8-K filed with the SEC on May 18, 2022, respectively.

Acquisition of FTS International, Inc.

On March 4, 2022, the Company acquired the outstanding stock of FTSI International, Inc.

(“FTSI”) for a purchase price of $405.7 million, consisting of cash consideration of $332.8 million, and certain equity interests of $72.9 million (“THRC FTSI Related Equity”) (collectively the “FTSI Acquisition”).

Agreement to Acquire the SP Companies

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.

(“FTSI”) for a purchase price of $405.7 million, consisting of cash consideration of $332.8 million, and certain equity interests of $72.9 million (“THRC FTSI Related Equity”).

Consolidation of Flotek Industries, Inc.

On February 2, 2022, we entered into an agreement with Flotek Industries, Inc.

(“Flotek”), pursuant to which Flotek will provide full downhole chemistry solutions for a minimum of ten hydraulic fleets for three years starting on April 1, 2022, at a price of cost plus 7% (“Flotek Supply Agreement”).

In exchange for entry into the Flotek Supply Agreement, we received $10 million in initial principal amount of 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 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 Flotek Convertible Notes that will be convertible into Flotek common stock.

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.

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 variable interest entity (“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

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.

See Note 14 – Acquisiti ons and i nvestments in the notes to our consolidated financial statements for additional discussion related to the acquisition of Flotek.

Acquisition of Monahans

On July 25, 2022, ProFrac II LLC 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 million in cash plus working capital adjustments of approximately $10 million.

In connection with the closing of the Monahans acquisition, ProFrac II LLC acquired, among other things, an in-basin frac sand facility and related mining operations in the Permian Basin.

Agreement to Acquire U.S.

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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”).

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 Class A Common Stock of USWS, par value $0.0001 per share (the “USWS Common Stock”) of $1.21.

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.

See Note 15 – Subsequent Events in the notes to our consolidated financial statements for additional discussion related to the Merger .

In addition, the Company will assume approximately $55 million of USWS’ outstanding indebtedness and will 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.

Our Predecessor and ProFrac Holding Corp.

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Historical consolidated financial information is not indicative of the results that may be expected in any future periods.

We are a growth-oriented, 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 E&P of North American unconventional oil and natural gas resources.

We are a growth-oriented, 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.

Founded in 2016, ProFrac was built to be the go-to service provider for E&P companies’ most demanding hydraulic fracturing needs.

We are focused on employing new technologies to significantly reduce “greenhouse gas” emissions and increase efficiency in what has historically been an emissions-intensive component of the unconventional E&P development process.

We are focused on employing new technologies to significantly reduce “greenhouse gas” emissions and increase efficiency in what has historically been an

emissions-intensive component of the unconventional E&P development process.

We believe the technical and operational capabilities of our fleets ideally position us to capture increased demand resulting from the market recovery and our customers’ shifting preferences favoring the sustainable development of natural resources.

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stimulation services, manufacturing and proppant production.

We believe we are one of the largest providers of hydraulic fracturing services in North America, with installed capacity of 34 conventional fleets, of which, as of March 31, 2022, 31 were active.

We believe we are one of the largest providers of hydraulic fracturing services in North America, with installed capacity of 34 conventional fleets, of which, as of June 30, 2022, 31 were active.

Overall trends and outlook

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Reduced demand for services compounded by constrained capital access forced the acceleration of the attrition cycle for pressure pumping equipment as older equipment requiring higher repair and maintenance spending were used for spare parts or scrapped.

Difficult industry conditions allowed us to strengthen our industry leadership position by implementing targeted and forward-looking initiatives.

First, we utilized our in-house repair and maintenance yards to maintain and ensure ongoing operational integrity of our equipment without cannibalization, retaining the quality and reliability of our fleet.

Second, we successfully completed in-house research and development regarding advanced power end and fluid ends designs, leading to substantially longer life of our expendables and reduced repair and maintenance costs.

Third, we added over 140 dual fuel kits to our Tier IV engines, in order to position ourselves as a market leading provider of low carbon emission solutions.

Fourth, we completed the acquisition of EKU, a provider of idle reduction technologies and other equipment engineering and controls that further reduce the carbon footprint of our fleet.

Finally, we strategically invested in businesses providing ancillary products and services, such as our investments in West Munger, Flotek and FHE, which provides us with greater supply chain control and mitigates disruptions that have previously impacted the operations of our competitors and customers.

These difficult industry conditions allowed us to strengthen our industry leadership position by implementing targeted and forward-looking initiatives that enhance our equipment and provide greater supply chain control.

Drilling and completion activities for oil and gas are heavily influenced by oil and gas prices.

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stimulation services, manufacturing and proppant production.

Business activities that are not separately reportable, which only included Flotek, are classified in the other category.

Stimulation services.

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We generally do not have long-term written contractual arrangements with our customers other than standard master service agreements, which include general contractual terms between our customers and us.

We charge our customers on a per-job basis, in which we set pricing terms after receiving full specifications for the requested job, including the lateral length of the customer’s wellbore, the number of frac stages per well, the amount of proppant employed and other specifications of the job.

We charge our customers on a per-

job basis, in which we set pricing terms after receiving full specifications for the requested job, including the lateral length of the customer’s wellbore, the number of frac stages per well, the amount of proppant employed and other specifications of the job.

Well stimulation contains complementary services that we often provide to our customers, including sand and associated logistics, chemicals and fuel.

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We primarily generate revenue through sales of highly engineered, tight tolerance machined, assembled, and factory tested products such as high horsepower pumps, valves, piping, swivels, large-bore manifold systems, seats, and fluid ends.

As of March 31, 2022, we operate facilities in Cisco, Aledo and Fort Worth, Texas, including an ISO 9001 2015 certified OEM manufacturing facility, in which we manufacture and refurbish many of the components used by our fleets, including pumps, fluid ends, power ends, flow iron and other consumables and an engine and transmission rebuild facility that is licensed to provide warranty repairs on our transmissions.

As of June 30, 2022, we operate facilities in Cisco, Aledo and Fort Worth, Texas, including an ISO 9001 2015 certified OEM manufacturing facility, in which we manufacture and refurbish many of the components used by our fleets, including pumps, fluid ends, power ends, flow iron and other consumables and an engine and transmission rebuild facility that is licensed to provide warranty repairs on our transmissions.

Additionally, we provide iron inspection, iron recertification, pump refurbishment, fluid end refurbishment, pump function testing, paint, scrap, and lube system change services.

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We charge our customers for our services based on the parts and labor incurred.

For the three months ended March 31, 2022 and 2021, approximately 84% and 86%, respectively, of our manufacturing segment’s revenue was intersegment revenue.

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.

Proppant production.

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We own and operate the Kermit sand mine in west Texas and recently purchased and are in the process of developing the West Munger sand mine near Lamesa, Texas, and we charge our customers on a per ton of proppant basis at current market prices.

We do not have long-term

written contractual arrangements with our customers with fixed pricing.

For the three months ended March 31, 202 2 and 2021 , approximately 6 9 % and 29 % , respectively, of our proppant production segment’s revenue was intersegment revenue.

We do not have long-term written contractual arrangements with our customers with fixed pricing.

For the three and six months ended June 30, 2022 and 2021, intersegment revenues for the proppant production segment were 64% and 44%, and 66% and 38%, respectively.

Costs of conducting our business

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We view Adjusted EBITDA as an important indicator of performance.

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.

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 , (v) stock-based compensation, and (v i ) 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.

We believe that our presentation of Adjusted EBITDA will provide useful information to investors in assessing our financial condition and results of operations.

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Recent Acquisitions

We have grown recently through strategic acquisitions and investments, including through our recently completed acquisitions of FTSI and West Munger and our investments in BPC and Flotek.

We have grown recently through strategic acquisitions and investments, including through our recently completed acquisitions of Monahans, FTSI and West Munger and our investments in BPC and Flotek.

These acquisitions are not reflected in our historical results of operations and our future results will differ as a result.

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federal and state taxes at a blended statutory rate of approximately 23% of pre-tax earnings.

Additionally, with the acquisition of EKU, the Company is subject to certain foreign taxes, which were immaterial for the three months ended March 31, 2022.

Additionally, with the acquisition of EKU, the Company is subject to certain foreign taxes, which were immaterial for the three and six months ended June 30, 2022.

Effective March 4, 2022 we account for income taxes under the asset and liability method.

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Results of operations

Three Months Ended March 31,

Three Months Ended

Six Months Ended

(Dollars in thousands)

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Stimulation services

Cost of revenues, exclusive of depreciation, depletion, and amortization—

Manufacturing

Cost of revenues, exclusive of depreciation, depletion, and amortization—

Proppant production

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Depreciation, depletion and amortization

(Gain) loss on disposal of assets, net

Loss on disposal of assets, net

Selling, general and administrative

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Net income (loss)

Net income attributable to noncontrolling interest

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

Adjusted EBITDA—Stimulation services

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Adjusted EBITDA—Proppant production

Adjusted EBITDA—Other

Adjusted EBITDA (1)

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Average Henry Hub Natural Gas Spot Price published by EIA.

Three months ended March 31, 2022 compared to three months ended March 31, 2021

Three and six months ended June 30, 2022 compared to three and six months ended June 30, 2021

Revenues—Stimulation services.

Stimulation services revenues increased $192.5 million, or 134%, to $336.2 million for the three months ended March 31, 2022, from $143.7 million for the three months ended March 31, 2021.

Stimulation services revenues for the second quarter and first six months of 2022 increased $408.0 million, or 242%, and $600.5 million, or 192%, respectively from the same periods in 2021.

The increase was primarily attributable to an increase in customer activity for our stimulation services, and an increase in active fleets, pumping hours and pricing.

Additionally, FTSI contributed $48.6 million of revenue to this segment from the acquisition date.

Additionally, FTSI contributed revenue to this segment from the acquisition date.

Revenues—Manufacturing.

Manufacturing revenues increased $17.3 million, or 118%, to $32.0 million for the three months ended March 31, 2022, from $14.7 million for the three months ended March 31, 2021.

The increase was primarily attributable to an increase

in demand for our products due to increased activity levels from customers for manufactured components utilized in the oilfield service industry .

Manufacturing revenues for the second quarter and first six months of 2022 increased $18.6 million, or 115%, and $36.0 million, or 117%, respectively from the same periods in 2021.The increase was primarily attributable to an increase in demand for our products due to increased activity levels from customers for manufactured components utilized in the oilfield service industry.

Revenues—Proppant production.

Proppant production revenues increased $6.8 million, or 122%, to $12.4 million the three months ended March 31, 2022, from $5.6 million for the three months ended March 31, 2021.

The increase was primarily attributable an increase in proppant production and pricing resulting from increased proppant demand primarily in the Permian basin.

Proppant production revenues for the second quarter and first six months of 2022 increased $9.8 million, or 125%, and $16.6 million, or 124%, respectively from the same periods in 2021.

The increase was primarily attributable to an increase in proppant production and pricing resulting from increased proppant demand primarily in the Permian basin.

Revenues—Other.

Other revenues for the second quarter and first six months of 2022 were $15.4 million compared to zero in the same periods in 2021.

The increase was attributable to the Flotek acquisition.

Total revenues .

Total revenues increased $195.4 million to $345.0 million for the three months ended March 31, 2022, from $149.6 million for the three months ended March 31, 2021.

Total revenues for the second quarter and first six months of 2022 increased $415.0 million and $610.4 million, respectively, from the same periods in 2021.

The increase was primarily attributable to an increase in customer activity for our stimulation services, and an increase in active fleets, pumping hours and pricing.

Additionally, FTSI contributed $48.6 million of revenue from the acquisition date.

Additionally, FTSI contributed from the acquisition date.

Operating costs and expenses

Cost of revenues, exclusive of depreciation, depletion, and amortization—Stimulation services .

Cost of revenues, exclusive of depreciation, depletion, and amortization—Stimulation services increased $125.2 million, or 105%, to $244.6 million for the three months ended March 31, 2022, from $119.4 million for the three months ended March 31, 2021.

Stimulation services for the second quarter and first six months of 2022 increased $218.1 million, or 172%, and $343.3 million, or 140%, respectively from the same periods in 2021.

The increase was primarily due to an increase in activity levels, as discussed in Revenue above, and additional input cost inflation.

Additionally, FTSI contributed $32.5 million of cost to this segment from the acquisition date.

Additionally, FTSI contributed cost to this segment from the acquisition date.

Cost of revenues, exclusive of depreciation, depletion, and amortization—Manufacturing .

Cost of revenues, exclusive of depreciation, depletion, and amortization—Manufacturing increased $8.7 million, or 82%, to $19.4 million for the three months ended March 31, 2022, from $10.7 million for the three months ended March 31, 2021.

Manufacturing for the second quarter and first six months of 2022 increased $8.2 million, or 59%, and $16.9 million, or 69%, respectively from the same periods in 2021.

The increase was primarily attributable to an increase in demand for our products as well as an increase in the cost of raw materials.

Cost of revenues, exclusive of depreciation, depletion, and amortization—Proppant production .

Cost of revenues, exclusive of depreciation, depletion, and amortization—Proppant production increased $1.5 million, or 59%, to $4.2 million for the three months ended March 31, 2022, from $2.7 million for the three months ended March 31, 2021.

The increase was primarily attributable an increase in proppant production and increased cost of production.

Proppant production for the second quarter and first six months of 2022 increased $5.3 million, or 131%, and $6.8 million, or 102%, respectively from the same periods in 2021.

The increase was primarily attributable to a litigation charge of $4.0 million and an increase in proppant production and increased cost of production.

Cost of revenues, exclusive of depreciation, depletion, and amortization—Other .

Other for the second quarter and first six months of 2022 was $19.1 million compared to zero in the same periods in 2021.

The increase was attributable to the Flotek acquisition.

Depreciation, depletion, and amortization .

Depreciation, depletion, and amortization increased $8.7 million, to $44.2 million for the three months ended March 31, 2022, from $35.5 million for the three months ended March 31, 2021.

The increase was primarily due to increased capital expenditure in the first quarter of 2022 and the depreciation related to the assets acquired from FTSI Acquisition.

Depreciation, depletion, and amortization for the second quarter and first six months of 2022 increased $29.2 million and $37.9 million, respectively from the same periods in 2021, The increase was primarily due to increased capital expenditure in the first quarter of 2022 and the depreciation related to the assets acquired from FTSI acquisition.

Gain or Loss on disposal of assets, net .

We recorded a net gain on disposal of assets of $0.2 million for the three months ended March 31, 2022, compared with a net loss on disposal of assets of $2.2 million for the three months ended March 31, 2021.

For the second quarter and first six months of 2022 we recorded a net loss on disposal of assets of $2.1 million and $2.0 million, respectively, compared with a net loss on disposal of assets of $1.9 million and $4.1 million, respectively, for the same periods in 2021.

Selling, general and administrative .

Selling, general and administrative expenses increased $20.3 million, or 148%, to $34.1 million for the three months ended March 31, 2022, from $13.8 million for the three months ended March 31, 2021.

The increase was due to higher headcount and personnel costs, increased non-labor costs associated with the increased activity levels, and costs associated with the FTSI Acquisition of $13.0 million.

Additionally, FTSI contributed $3.2 million of selling, general, and administrative expense from the acquisition date.

Selling, general and administrative expenses for the second quarter and first six months of 2022 increased $73.5 million, or 521%, and $93.8 million, or 337%, respectively from the same periods in 2021.

The increase was primarily due to a stock-based compensation charge of $40.3 million primarily related to certain deemed contributions in the second quarter of 2022.

The increase was also due to higher headcount and personnel costs, higher incentive compensation, increased non-labor costs associated with the increased activity levels, and acquisition related expenses.

See Note 11 – Stock-based compensation in the notes to our consolidated financial statements for additional discussion related to the stock-based compensation charge.

Interest expense, net .

Interest expense, net increased $3.2 million, to $9.3 million for the three months ended March 31, 2022, from $6.0 million for the three months ended March 31, 2021.

The increase in interest expense, net was attributable to various debt transaction, which increased our debt balances, and higher average interest rates in the first quarter of 2022.

See Note 7 – Indebtedness in the notes to our consolidated financial statements for additional discussion related to our debt.

Interest expense, net for the second quarter and first six months of 2022 increased $7.3 million and $10.5 million, respectively, from the same periods in 2021.

The increase in interest expense, net was attributable to various debt transactions,

which increased our debt balances, and higher average interest rates in the fi r st quarter of 2022.

See Note 7 – Indebtedness in the notes to our c onsolidated financial statements for additional discussion related to our debt.

Loss on extinguishment of debt .

As a result of the debt refinancing transactions during the three months ended March 31, 2022, we recognized a loss on extinguishment of $8.3 million.

As a result of the debt refinancing transactions in the first quarter of 2022 and debt repayments in the second quarter of 2022 transactions for the second quarter and first six months of 2022, we recognized a loss on extinguishment of $8.8 million and $17.1 million, respectively.

See Note 7 – Indebtedness in the notes to our consolidated financial statements for additional discussion related to our debt.

Other income .

For the three months ended March 31, 2022, we recognized noncash income of $8.1 million as other income related to the change in fair value of the Convertible Notes related to our investment in Flotek.

For the second quarter and first six months of 2022 we recognized noncash income of $1.0 million and $9.2 million, respectively, primarily related to the change in fair value of the Convertible Notes related to our investment in BPC and Flotek.

Income tax benefit (provision).

Income tax expense was $0.8 million for the three months ended March 31, 2022, compared to zero for the three months ended March 31, 2021.

Income tax expense for the second quarter and first six months of 2022 was $4.1 million and $4.9 million, respectively, compared to an income tax benefit of $0.3 and $0.3 million for the same periods in 2021.

The increase in the 2022 tax provision is due to the ProFrac Predecessor being partially owned by ProFrac Corp, a taxable entity, subsequent to the IPO.

Segment results

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Adjusted EBITDA—Stimulation services.

Adjusted EBITDA—Stimulation services increased $60.6 million, to $73.6 million for the three months ended March 31, 2022, from $13.0 million for the three months ended March 31, 2021.

The increase was primarily attributable to an increase in average active fleets, increased pricing for our services, and costs associated with the FTSI acquisition of $13.0 million.

Adjusted EBITDA—Stimulation services for the second quarter and first six months of 2022 increased $165.6 million and $226.2 million, respectively, from the same periods in 2021.

The increase was primarily attributable to an increase in average active fleets and increased pricing for our services, partially offset by costs associated with the FTSI acquisition of $13.0 million.

Adjusted EBITDA—Manufacturing.

Adjusted EBITDA—Manufacturing increased $7.7 million, to $10.0 million for the three months ended March 31, 2022, from $2.3 million for the three months ended March 31, 2021.

Adjusted EBITDA—Manufacturing for the second quarter and first six months of 2022 increased $9.0 million and $16.7 million, respectively, from the same periods in 2021.

The increase was primarily due to increased volume for our products used by our oil field services customers.

Adjusted EBITDA—Proppant production.

Adjusted EBITDA—Proppant production increased $5.5 million, to $7.9 million for the three months ended March 31, 2022, from $2.4 million for the three months ended March 31, 2021.

The increase was primarily attributable an increase in proppant production and pricing resulting from increased proppant demand in the Permian basin.

Adjusted EBITDA—Proppant production for the second quarter and first six months of 2022 increased $9.3 million and $14.8 million, respectively, from the same periods in 2021.

The increase was primarily attributable to an increase in proppant production and pricing resulting from increased proppant demand in the Permian basin.

Adjusted EBITDA—Other.

Adjusted EBITDA—Other for the second quarter and first six months of 2022 decreased $7.5 million from the same periods in 2021.

The decrease was due to Flotek results.

Liquidity and capital resources

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Our primary uses of capital have been investing in and maintaining our property and equipment and repaying indebtedness.

Looking forward, we expect that our primary sources of liquidity and capital resources will be cash on hand, including net proceeds of our IPO, cash flows generated by operating activities and borrowings under our credit facilities.

Since our IPO, we expect that our primary sources of liquidity and capital resources will be cash on hand, including net proceeds of our IPO, cash flows generated by operating activities and borrowings under our credit facilities.

We expect that our primary uses of capital will be to continue to fund our operations, support organic and strategic growth opportunities and satisfy future debt payments.

We expect to incur significant additional indebtedness in order to finance the acquisitions of the SP Companies and USWS (the “Acquisition Transactions”), which will limit our operating flexibility, and could adversely affect our operations and financial results and prevent us from fulfilling our obligations.

The USWS Merger Agreement requires us to 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.

In addition, the completion of the SPS Acquisition is dependent upon our ability to fund the $90 million cash purchase price under the SP Companies Purchase Agreement.

Our obtaining the financing necessary to consummate either of the Acquisition Transactions is not a condition to closing either such Acquisition Transaction.

In order to fund our various obligations in connection with the Acquisition Transactions, including the repayment of approximately $170 million of USWS debt currently projected to be outstanding at closing and the payment of expenses incurred in connection with the Acquisition Transactions, we expect to incur up to approximately $250 million of new indebtedness.

We currently expect such new indebtedness to be funded, at least in part, from a potential upsizing of our New Term Loan Credit Facility and/or New ABL Credit Facility.

We also expect to assume approximately $55 million of indebtedness in connection with the USWS transaction, and to fund certain of our obligations in connection with the Acquisition Transactions through cash flows generated from operations.

We cannot assure that we will be able to upsize our current facilities, refinance any of our outstanding indebtedness, and/or obtain additional financing on favorable terms, or at all, or that our cash flows generated from operations will be sufficient, in order to satisfy our obligations in connection with the Acquisition Transactions, or otherwise.

For additional discussion of risks relating to our liquidity needs, the Acquisition Transactions and our anticipated additional indebtedness, see our risk factors under Part II, Item 1A of this Quarterly Report on Form 10-Q.

Based on our current cash and cash equivalents balance, operating cash flow, current availability under our credit facilities, and the ongoing actions and financing alternatives discussed above, we believe that we will be able to maintain sufficient liquidity to fund our planned acquisitions and capital expenditures, satisfy our obligations, and remain in compliance with our existing debt covenants through the next twelve months and beyond.

On May 17, 2022, in connection with our IPO, we entered into a tax receivable agreement (the “Tax Receivable Agreement”) with certain of the common unit holders of ProFrac LLC (the “TRA Holders”).

The Tax Receivable Agreement generally provides for the payment by us to each TRA Holder of 85% of the net cash savings, if any, in U.S.

Due our determination that Flotek is a VIE of which the Company is the primary beneficiary, Flotek’s financial statements have been included in our consolidated financial statements from May 17, 2022.

However, we do not have the ability to access or deploy Flotek’s cash or liquidity in our operations and, accordingly, have excluded Flotek’s cash and other sources of liquidity from the following discussion of our liquidity and capital resources.

See Note 14 – Acquisitions and investments in the notes to our consolidated financial statements for additional discussion related to the acquisition of Flotek.

Based on our current cash and cash equivalents balance, operating cash flow, current availability under our credit facilities, and the ongoing actions and financing alternatives discussed below, we believe that we will be able to maintain sufficient liquidity to fund our planned acquisitions and capital expenditures, satisfy our obligations, and remain in compliance with our existing debt covenants through the next twelve months and beyond.

Acquisition Financing

We may need to incur significant additional indebtedness in order to finance the Merger, which will limit our operating flexibility, and could adversely affect our operations and financial results and prevent us from fulfilling our obligations.

The Merger Agreement requires us to 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.

Our obtaining the financing necessary to consummate the Merger is not a condition to closing the Merger.

As further described below, on July 25, 2022, we amended (i) the New Term Loan Facility 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 and (ii) the New ABL Credit Facility to add an uncommitted $100.0 million incremental facility and increase the potential size of the New ABL Credit Facility from $200 million to $300 million.

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

In addition to the approximately $270 million in total stock consideration payable to USWS stockholders and holders of USWS equity awards, the repayment of approximately $170 million of USWS debt expected to be outstanding at closing, and the payment of expenses and other costs incurred in connection with the Merger, we expect to assume approximately $55 million of indebtedness in connection with the Merger.

Although we expect to fund these costs 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, we cannot assure that these sources will be sufficient, or that we will be able to refinance any of our outstanding indebtedness, and/or obtain additional financing on favorable terms, or at all, or that our cash flows generated from operations will be sufficient, in order to satisfy our obligations in connection with the Merger, or otherwise.

For additional discussion of risks relating to our liquidity needs, the Merger and our anticipated additional indebtedness, see our risk factors under Part II, Item 1A of this Quarterly Report on Form 10-Q.

Tax Receivable Agreement

On May 17, 2022, in connection with our IPO, we entered into a tax receivable agreement (the “TRA”) with certain of the common unit holders of ProFrac LLC (the “TRA Holders”).

The TRA generally provides for the payment by us to each TRA Holder 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 we actually realize (or are deemed to realize in certain circumstances) as a result of (i) certain increases in tax basis that occur as a result of our acquisition (or deemed acquisition for U.S.

federal income tax purposes) of all or a portion of such TRA Holder’s common units of ProFrac LLC in

connection with our IPO or pursuant to an exercise of the Redemption Right or the Call Right (as such terms are defined in the Third Amended and Restated Limited Liability Company Agreement of ProFrac LLC) and (ii) imputed interest deemed to be paid by us as a result of, and additional tax basis arising from, any payments we make under the Tax Receivable Agreement.

We depend on ProFrac LLC to make distributions to us in an amount sufficient to cover our obligations under the Tax Receivable Agreement .

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

However, if we experience a change of control, or the Tax Receivable Agreement otherwise terminates early, our obligations under the Tax Receivable Agreement would accelerate and we would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by us under the Tax Receivable Agreement (determined by applying a discount rate).

federal income tax purposes) of all or a portion of such TRA Holder’s common units of ProFrac LLC in connection with our IPO or pursuant to an 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 us as a result of, and additional tax basis arising from, any payments we make under the TRA.

We depend on ProFrac LLC to make distributions to us in an amount sufficient to cover our obligations under the TRA.

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 (as defined in the TRA), or the TRA otherwise terminates early, our obligations under the TRA would accelerate and we would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by us under the TRA (determined by applying a discount rate).

Any such payment is expected to be substantial.

Our 2022 Capital Budget

Our 2022 capital expenditure budget, excluding acquisitions, is estimated to be in a range between $240 million and $290 million.

Our 2022 capital expenditure budget, excluding acquisitions, is estimated to be in a range between $265 million and $290 million, which represents the high end of the range provided previously, due to increased activity levels and costs.

We have budgeted approximately $65 million to $70 million to construct three electric-powered fleets.

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Also included in our 2022 capital expenditure budget is $25 million to $30 million to construct the West Munger sand mine.

We estimate maintenance capital expenditures to be $2.75 million to $3.0 million per fleet per year.

We estimate maintenance capital expenditures to be $3.0 million per fleet per year.

We expect that the remainder of our 2022 capital expenditure budget, excluding any potential acquisitions, will be used to fund other growth initiatives such as upgrading Tier II fleets to Tier IV dual fuel fleets.

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Working Capital

Our working capital was $71.0 million and $5.0 million as of March 31, 2022, and December 31, 2021, respectively.

The $66.0 million increase in working capital was primarily due to higher activity levels in the first quarter of 2022.

Our working capital was $283.7 million and $5.0 million as of June 30, 2022, and December 31, 2021, respectively.

The $278.7 million increase in working capital was primarily due to higher activity levels in the first six months of 2022.

Cash and Cash Flows

The following table sets forth the historical cash flows for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The following table sets forth the historical cash flows for the six months ended June 30, 2022 and 2021:

Six Months Ended June 30,

(In thousands)

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Net cash used in investing activities

Net cash provided by (used in) financing activities

Net increase (decrease) in cash, cash equivalents, and restricted cash

Net cash provided by financing activities

Net increase in cash, cash equivalents, and restricted cash

Operating activities

Net cash provided by operating activities was $43.7 million and $16.3 million for the three months ended March 31, 2022 and 2021, respectively.

The increase was primarily due to higher activity levels in the first quarter of 2022.

Net cash provided by operating activities was $84.5 million and $26.8 million for the six months ended June 30, 2022 and 2021, respectively.

The increase was primarily due to higher activity levels and profitability, offset by working capital increases in the first and second quarters of 2022.

Investing activities

Net cash used in investing activities was $334.7 million and $2.9 million for the three months ended March 31, 2022 and 2021, respectively.

Net cash used in investing activities was $388.3 million and $38.5 million for the six months ended June 30, 2022 and 2021, respectively.

The increase was primarily due to $279.0 million of cash paid for the FTSI acquisition, our $46.0 million investment in BPC, and higher capital expenditures of $62.5 million related to dual fuel engine upgrades, ESC installations, and our electric frac fleet build program.

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Financing activities

Net cash provided by financing activities was $316.3 million for the three months ended March 31, 2022, compared to net cash used in financing activities of $6.6 million for the three months ended March 31, 2021.

The increase in cash provided by financing

activities was primarily due to proceeds fro m the issuance of long-term debt associated with refinancing transactions related to the FTSI Acquisition .

Net cash provided by financing activities was $374.2 million and $26.1 million for the six months ended June 30, 2022, and 2021, respectively.

The increase in cash provided by financing activities was due to proceeds from the issuance of long-term debt associated with refinancing transactions related to the FTSI acquisition, proceeds from upsizing the New ABL Credit Facility (as described below), and proceeds from our IPO.

These proceeds were offset by payments against our various debt instruments.

Credit facilities and other financing arrangements

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On March 4, 2022, ProFrac 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%);

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.

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.

Our 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 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 and provide for an accordion feature in the amount of $100.0 million.

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.

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.

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 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.

New Term Loan Credit Facility

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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 approximately $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.

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.

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 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, which consists of:

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

a perfected security interest in all present and after-acquired equipment, fixtures, fracturing equipment (in each case of the foregoing, specifically excluding Fracturing Equipment Parts), real estate, intellectual property, equity interests in all direct and indirect subsidiaries of any grantor, intercompany loans of the grantors and/or their subsidiaries, all other assets whether real, personal or mixed, to the extent not constituting ABL Priority Collateral, and, except to the extent constituting ABL Priority Collateral and to the extent evidencing or otherwise related to such items, all documents, general intangibles, instruments, investment property, commercial tort claims, letters of credit, letter-of-credit rights and supporting obligations, all books, records and documents relating to, or arising from, any of the foregoing, in each case, except to the extent such proceeds constitute ABL Priority Collateral, any fixed asset priority

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The respective rights of the New Term Loan Credit Facility lenders and the New ABL Credit Facility lenders in the ABL Priority Collateral and the Fixed Asset Priority Collateral are governed by an intercreditor agreement between the Term Loan Agent and the ABL Agent.

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 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.

Our New Term Loan Credit Facility is subject to (x) the requirement that the Borrower offer to prepay the Term Loans with certain of the Net Cash Proceeds (as defined in the New Term Loan Credit Facility) from this offering (the “IPO Prepayment”), ranging from 100% of the first $100 million of Net Cash Proceeds, to 0% of the next $100 million of Net Cash Proceeds to 50% of all additional Net Cash

Proceeds after that and (y) additional customary mandatory prepayments, subject in some cases referenced in this clause (y) to the right of the Term Loan Borrower and its restricted subsidiaries to reinvest such proceeds within a specified period of time, and certain other exceptions.

The New Term Loan Credit Facility is subject to customary mandatory prepayments, subject in some cases to the right of the Term Loan Borrower and its restricted subsidiaries to reinvest such proceeds within a specified period of time, and certain other exceptions.

Voluntary prepayments of borrowings under the New Term Loan Credit Facility are permitted at any time, in specified minimum principal amounts, subject to reimbursement of the lenders’ redeployment costs actually incurred in the case of a prepayment of SOFR Rate Loans other than on the last day of the relevant interest period.

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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 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, 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 Agreement prohibits Capital Expenditures (as defined in the New Term Loan Credit Facility) in excess of (i) in the case of the Fiscal Year ended December 31, 2022, the greater of (x) $275,000,000 in the aggregate and (y) in the case of any period of four consecutive fiscal quarters ending in such Fiscal Year, 50% of Consolidated EBITDA for the Test Period most recently ended prior to the date of the applicable Capital Expenditure, and (ii) in the case of any period of four consecutive fiscal quarters ending thereafter, commencing with the period of four consecutive fiscal quarters ending on March 31, 2023, an aggregate amount equal to 50.0% of Consolidated EBITDA for the Test Period most recently ended prior to the date of the applicable Capital Expenditure, provided that if the amount of the Capital Expenditures permitted to be made in any Fiscal Year is greater than the actual amount of the Capital Expenditures actually made in such Fiscal Year, then up to $20,000,000 of such excess amount may be carried forward to the next succeeding Fiscal Year.

Our New Term Loan Credit Facility contains customary events of default.

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 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 Agreement prohibits Capital Expenditures (as defined in the New Term Loan Credit Facility) in excess of (i) in the case of the Fiscal Year ended December 31, 2022, the greater of (x) $275,000,000 in the aggregate and (y) in the case of any period of four consecutive fiscal quarters ending in such Fiscal Year, 50% of Consolidated EBITDA for the Test Period most recently ended prior to the date of the applicable Capital Expenditure, and (ii) in the case of any period of four consecutive fiscal quarters ending thereafter, commencing with the period of four consecutive fiscal quarters ending on March 31, 2023, an aggregate amount equal to 50.0% of Consolidated EBITDA for the Test Period most recently ended prior to the date of the applicable Capital Expenditure, provided that if the amount of the Capital Expenditures permitted to be made in any Fiscal Year is greater than the actual amount of the Capital Expenditures actually made in such Fiscal Year, then up to $20,000,000 of such excess amount may be carried forward to the next succeeding Fiscal Year.

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.

We were 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.

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 consummation of 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.

First Financial Loan

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The First Financial Loan bears interest at a variable rate based on the Prime rate published by the Wall Street Journal, floating daily.

As of March 31, 2022, ProFrac II LLC had $26.4 million outstanding under the First Financial Loan.

As of June 30, 2022, ProFrac II LLC had $24.0 million outstanding under the First Financial Loan.

The First Financial Loan is secured by a first lien on, and security interest in, certain truck tractors and all other trailers, trucks and vehicles owned by ProFrac Services and ProFrac Manufacturing, in each case, more particularly described in the security agreement, and is guaranteed by ProFrac Services, ProFrac Manufacturing and ProFrac LLC.

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Contractual obligations

The following table summarizes the principal maturity schedule for our long-term debt outstanding as of March 31, 2022:

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 Loan(1)

Related party debt agreements.

Flotek Convertible Notes

Capital expenditures

During the three months ended March 31, 2022 and 2021, our capital expenditures were $41.5 million and $17.4 million, respectively.

During the six months ended June 30, 2022 and 2021, our capital expenditures were $116.1 million and $53.6 million, respectively.

We currently expect our capital expenditures to increase in 2022 and 2023, which are expected to be funded with cash flows from operations.

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From time-to-time, we enter into off-balance sheet arrangements and transactions that can give rise to off-balance sheet obligations.

As of March 31, 2022 and December 31, 2021, the off-balance sheet arrangements and transactions that we have entered into include undrawn letters of credit.

As of June 30, 2022 and December 31, 2021, the off-balance sheet arrangements and transactions that we have entered into include

undrawn letters of credit.

We do not believe that these arrangements are reasonably likely to materially affect our liquidity or availability of, or requirements for, capital resources.

5 unchanged sentences

Our actual results may materially differ from these estimates.

Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Prospectus.

Listed below are the changes in our accounting policies that we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved, and that we believe are critical to the understanding of our operations.

Variable Interest Entities

We evaluate our ownership, contractual and other interest in entities to determine if they are variable interest entities (“VIE”).

We evaluate our ownership, contractual and other interest in entities to determine if they are VIEs.

We evaluate whether we have a variable interest in those entities and the nature and extent of those interests.

1 unchanged sentence

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 2. Management’s Discussion and Analysis