What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-01 compared with 2020-02-28 · 345 added, 288 removed, 541 unchanged (54% of the section changed)

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and Subsidiaries

Management’s Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm

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Consolidated Statements of Comprehensive Income for the Years Ended December 31, 20 20 , 201 9 and 201 8

Consolidated Statements of Stockholders’

Equity for the Years Ended December 31, 2019, 2018 and 2017

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 20 20 , 201 9 and 201 8

Consolidated Statements of Cash Flows for the Years Ended December 31, 20 20 , 201 9 and 201 8

Notes to the Consolidated Financial Statements

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (or “COSO”) in Internal Control-Integrated Framework (2013 framework).

Based on this assessment, management has concluded that, as of December 31, 2020, our internal control over financial reporting was effective.

Our independent registered public accounting firm, PricewaterhouseCoopers, LLP, has issued an audit report on the effectiveness of our internal control over financial reporting as of December 31, 2020, which appears herein.

/s/ Scott Bender

/s/ Stephen Tadlock

President, Chief Executive Officer and Director

Vice President, Chief Financial Officer and Treasurer

/s/ Scott Bender /s/ Stephen Tadlock

President, Chief Executive Officer and Director Vice President, Chief Financial Officer and Treasurer

Houston, Texas

February 26, 2021

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Cactus, Inc.

and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income, comprehensive income, stockholders’

equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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Liability related to the Tax Receivable Agreement

As described in Notes 2 and 9 to the consolidated financial statements, the Company has a liability under the Tax Receivable Agreement (“TRA”) of $216.5 million as of December 31, 2019.

In connection with its initial public offering, the Company entered into the TRA with certain direct and indirect owners of Cactus Wellhead, LLC (the “TRA Holders”).

The TRA generally provides for payment by the Company to the TRA Holders 85% of the net cash tax savings, if any, in United States federal, state and local income tax and franchise tax that the Company 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 the Company’s acquisition (or deemed acquisition for U.S.

federal income tax purposes) of all or a portion of such TRA Holder’s ownership interest in Cactus Wellhead, LLC, (ii) certain increases in tax basis resulting from the repayment of borrowings outstanding under Cactus Wellhead, LLC’s term loan facility, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, any payments the Company makes under the TRA.

Management calculates the TRA liability by determining the tax basis subject to the TRA (“tax basis”) and applying a blended tax rate to the basis differences and calculating the iterative impact.

As described in Notes 2 and 9 to the consolidated financial statements, the Company has a liability under the Tax Receivable Agreement (“TRA”) of $ 204.4 million as of December 31, 2020.

In connection with its initial public offering, the Company entered into the TRA with certain direct and indirect owners of Cactus Wellhead, LLC (the “TRA Holders”).

The TRA generally provides for the payment by the Company to the TRA Holders of 85% of the net cash tax savings, if any, in United States federal, state and local income tax and franchise tax that the Company 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 the Company’s acquisition (or deemed acquisition for U.S.

The blended tax rate consists of the U.S.

federal income tax rate and an assumed combined state and local income tax rate driven by the apportionment factors applicable to each state.

The principal considerations for our determination that performing procedures relating to the liability related to the TRA is a critical audit matter are there was significant complexity in i) management’s calculation of the tax basis, and (ii) developing the applicable state apportionment factors utilized in determining the appropriate blended tax rate.

The principal considerations for our determination that performing procedures relating to the liability related to the TRA is a critical audit matter are the significant complexity in i) management’s calculation of the tax basis, and (ii) developing the applicable state apportionment factors utilized in determining the appropriate blended tax rate.

This in turn led to a high degree of auditor subjectivity and effort in performing procedures and evaluating the appropriateness of the calculation of the tax basis and the blended tax rate.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.

As disclosed by management, a material weakness existed during the year related to this matter.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the calculation and recognition of the TRA liability, including controls over the completeness and accuracy of the underlying data used in the tax basis and blended tax rate calculations.

These procedures also included, among others, testing the information used in the calculation of the TRA liability, and the involvement of professionals with specialized skills and knowledge to assist in (i) developing an independent calculation of the tax basis, (ii) comparing the independent calculation to management’s calculations to evaluate the reasonableness of the tax basis, (iii) evaluating the apportionment factors and the resulting blended tax rate, and (iv) assessing management’s application of the tax laws.

Evaluating management’s determination of the apportionment factors involved considering the current and expected activity levels of the Company and whether the apportionment factors were consistent with evidence obtained in other areas of the audit.

/s/ PricewaterhouseCoopers LLP

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February 26, 2021

We have served as the Company ’

s auditor since 2015.

We have served as the Company’s auditor since 2015, which includes periods before the Company became subject to SEC reporting requirements.

AND SUBSIDIARIES

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Accounts receivable, net of allowance of $ 598 and $ 837 , respectively

44,068 87,865

Inventories 87,480 113,371

Prepaid expenses and other current assets 4,935 11,044

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Operating lease right-of-use assets, net 21,994 26,561

Goodwill 7,824 7,824

Deferred tax asset, net 216,603 222,545

Other noncurrent assets 1,206 1,403

Total assets $ 815,594 $ 834,964

Liabilities and Equity

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Total stockholders’ equity attributable to Cactus Inc.

352,970 327,466

Non-controlling interest 197,800 188,929

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Year Ended December 31,

2020 2019 2018

(in thousands, except per share data)

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Selling, general and administrative expenses 39,715 51,657 40,529

Severance expenses 1,864 — —

Total costs and expenses 278,527 445,264 366,434

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Income tax expense 10,970 32,020 19,520

Net income $ 59,215 $ 156,303 $ 150,281

pre-IPO net income attributable to Cactus LLC — — 13,648

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Net income attributable to Cactus Inc.

$ 34,446 $ 85,612 $ 51,683

Earnings per Class A share - basic $ 0.73 $ 1.90 $ 1.60

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Year Ended December 31,

2020 2019 2018

(in thousands)

Net income $ 59,215 $ 156,303 $ 150,281

Foreign currency translation adjustments 1,375 368 ( 902 )

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Comprehensive income attributable to Cactus Inc.

$ 35,228 $ 86,090 $ 51,239

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

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

Comprehensive

(in thousands)

Income (Loss)

Balance at December 31, 2016

Other comprehensive income

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Members’ Equity Deficit Class A

Common Stock Class B

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling Interest Total Equity (Deficit)

(in thousands) Shares Amount Shares Amount

Balance at December 31, 2017 $ ( 36,299 ) — $ — — $ — $ — $ — $ 82 $ — $ ( 36,217 )

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Effect of Follow-on Offering and CW Unit redemptions — 11,204 112 ( 11,204 ) — 24,472 — — ( 25,293 ) ( 709 )

Additional paid-in capital related to tax receivable agreement

Tax impact of equity transactions — — — — — 26,046 — — — 26,046

Other comprehensive (loss) — — — — — — — ( 902 ) — ( 902 )

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Effect of CW Unit redemptions — 9,278 93 ( 9,278 ) — 48,635 — ( 59 ) ( 48,669 ) —

Adjustment to deferred tax asset from CW Unit redemptions

Additional paid-in capital related to tax receivable agreement

Tax impact of equity transactions — — — — — 5,499 — — — 5,499

Equity award vestings — 227 2 — — ( 791 ) — — ( 760 ) ( 1,549 )

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Cash dividends declared ($ 0.09 per share)

— — — — ( 4,305 ) — — ( 4,305 )

Net income — — — — — — 85,612 — 70,691 156,303

Balance at December 31, 2019 $ — 47,159 $ 472 27,958 $ — $ 194,456 $ 132,990 $ ( 452 ) $ 188,929 $ 516,395

Member distributions — — — — — — — — ( 16,304 ) ( 16,304 )

Effect of CW Unit redemptions — 303 3 ( 303 ) — 2,155 — — ( 2,158 ) —

Tax impact of equity transactions — — — — — 284 — — — 284

Equity award vestings — 251 2 — — ( 238 ) — — ( 1,208 ) ( 1,444 )

Other comprehensive income — — — — — — — 782 593 1,375

Stock-based compensation — — — — — 5,420 — — 3,179 8,599

Cash dividends declared ($ 0.36 per share)

— — — — ( 17,350 ) — — ( 17,350 )

Net income — — — — — — 34,446 — 24,769 59,215

Balance at December 31, 2020 $ — 47,713 $ 477 27,655 $ — $ 202,077 $ 150,086 $ 330 $ 197,800 $ 550,770

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

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Year Ended December 31,

2020 2019 2018

(in thousands)

Cash flows from operating activities

Net income $ 59,215 $ 156,303 $ 150,281

Reconciliation of net income to net cash provided by operating activities:

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Stock-based compensation 8,599 6,995 4,704

Provision for bad debts

Provision for expected credit losses 342 355 —

Inventory obsolescence 4,840 2,552 1,451

Loss on disposal of assets

(Gain) loss on disposal of assets ( 2,480 ) 236 886

Deferred income taxes 6,948 25,403 15,201

Loss on debt extinguishment — — 4,305

Gain from revaluation of liability related to tax receivable agreement

(Gain) loss from revaluation of liability related to tax receivable agreement 555 ( 5,336 ) —

Changes in operating assets and liabilities:

Accounts receivable 44,829 4,204 ( 8,105 )

Inventories 18,201 ( 17,592 ) ( 38,227 )

Prepaid expenses and other assets 6,177 438 ( 6,509 )

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Effect of exchange rate changes on cash and cash equivalents 1,029 ( 253 ) ( 755 )

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents 86,056 131,762 63,267

Cash and cash equivalents

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Organization and Nature of Operations

(“Cactus Inc.”) and its consolidated subsidiaries (“the Company”), including Cactus Wellhead, LLC (“Cactus LLC”), are primarily engaged in the design, manufacture and sale of wellhead and pressure control equipment.

In addition, we maintain a fleet of frac valves and ancillary equipment for short-term rental, as well as offer repair and refurbishment services and the provision of service crews to assist in the installation and operations of pressure control systems.

We operate through U.S.

service centers located in Texas, Pennsylvania, Oklahoma, North Dakota, New Mexico, Louisiana, Colorado and Wyoming, and in Eastern Australia, with our corporate headquarters located in Houston, Texas.

service centers located in Texas, New Mexico, Pennsylvania, North Dakota, Louisiana, Oklahoma, Colorado and Wyoming as well as in Eastern Australia, with our corporate headquarters located in Houston, Texas.

We also have manufacturing and production facilities in Bossier City, Louisiana and Suzhou, China.

was incorporated on February 17, 2017 as a Delaware corporation for the purpose of completing an initial public offering of equity and related transactions, which was completed on February 12, 2018 (our “IPO”).

is a holding company whose only material asset is an equity interest consisting of units representing limited liability company interests in Cactus LLC (“CW Units”).

became the sole managing member of Cactus LLC upon completion of our IPO.

Cactus LLC is a Delaware limited liability company and was formed on July 11, 2011.

Except as otherwise indicated or required by the context, all references to “Cactus,”

“we,”

“us”

and “our”

refer to Cactus Inc.

Except as otherwise indicated or required by the context, all references to “Cactus,” “we,” “us” and “our” refer to Cactus Inc.

and its consolidated subsidiaries (including Cactus LLC) following the completion of our IPO and Cactus LLC and its consolidated subsidiaries prior to the completion of our IPO.

For detailed information regarding our IPO, see our Annual Report on Form 10-K for the year ended December 31, 2018.

As the sole managing member of Cactus LLC, Cactus Inc.

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As a result, Cactus Inc.

consolidates the financial results of Cactus LLC and its subsidiaries and reports non-controlling interest related to the portion of CW Units not owned by Cactus Inc., which reduces net income attributable to holders of Cactus Inc.’s Class A common stock, par value $0.01 per share (“Class A common stock”).

For information regarding our IPO, see our Annual Report on Form 10-K for the year ended December 31, 2018.

consolidates the financial results of Cactus LLC and its subsidiaries and reports a non-controlling interest related to the portion of CW Units not owned by Cactus Inc., which reduces net income attributable to holders of Cactus Inc.’s Class A common stock, par value $ 0.01 per share (“Class A common stock”).

As of December 31, 2020, Cactus Inc.

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Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

These consolidated financial statements include the accounts of Cactus Inc.

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All intercompany transactions and balances have been eliminated upon consolidation.

is the sole managing member of Cactus LLC and consolidates the financial results of Cactus LLC and its subsidiaries and reports a non-controlling interest related to the portion of CW Units not owned by Cactus Inc., which reduces net income attributable to holders of Cactus Inc.’s Class A common stock.

Use of Estimates

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We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with a high degree of precision from available data or is not otherwise capable of being readily calculated based on accepted methodologies.

In some cases, these estimates are particularly difficult to determine, and we

must exercise significant judgment.

In some cases, these estimates are particularly difficult to determine, and we must exercise significant judgment.

Actual results could differ materially from the estimates and assumptions that we use in the preparation of our consolidated financial statements.

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We operate in a single operating segment, which reflects how we manage our business and the fact that all of our products and services are dependent upon the oil and natural gas industry.

Substantially all of our products and services are sold in the U.S., which consists largely of oil and natural gas exploration and production companies.

Substantially all of our products and services are sold in the U.S.

to oil and natural gas exploration and production companies.

We operate in the United States, Australia and China.

Our operations in Australia and China represented less than 10% of our consolidated operations for all periods presented in these consolidated financial statements.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Concentrations of Credit Risk

Our assets that are potentially subject to concentrations of credit risk are cash and cash equivalents and accounts receivable.

We manage the credit risk associated with these financial instruments by transacting only with what management believes are financially secure counterparties, requiring credit approvals and credit limits and monitoring counterparties’

financial condition.

Our receivables are spread over a number of customers, a majority of which are operators and suppliers to the oil and natural gas industry.

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We also control our exposure associated with trade receivables by discontinuing sales and service to non-paying customers.

We had one customer representing 10% of total revenues for the year ended December 31, 2019 and one customer representing 11% of total revenues in each of the years ended December 31, 2018 and 2017.

For the year ended December 31, 2020, no customer represented 10% or more of total revenues.

We had one customer representing 10 % of total revenues for the year ended December 2019 and one customer representing 11 % of total revenues in the year ended December 31, 2018.

Significant Vendors

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Tax Receivable Agreement (TRA)

In connection with our IPO, we entered into the TRA with certain direct and indirect owners of Cactus LLC (the “TRA Holders”).

The TRA generally provides for payment by Cactus Inc.

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

federal, state and local income tax or franchise tax that Cactus Inc.

actually realizes or is deemed to realize in certain circumstances.

will retain the benefit of the remaining 15% of these net cash savings.

We account for amounts payable under the TRA in accordance with Accounting Standards Codification (“ASC”) Topic 450, Contingencies.

As such, subsequent changes to the measurement of the TRA liability are recognized in the statements of income as a component of other income (expense), net.

For the year ended December 31, 2019, we recognized a $5.3 million gain on the change in the TRA liability.

During the years ended December 31, 2020 and 2019, we recognized a $ 0.6 million loss and a $ 5.3 million gain on the change in the TRA liability, respectively.

See Note 9 for further details on the TRA liability.

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Product sales generally do not include right of return or other significant post-delivery obligations.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

Revenues are recognized when we satisfy a performance obligation by transferring control of the promised goods or providing services to our customers at a point in time, in an amount specified in the contract with our customer and that reflects the consideration we expect to be entitled to in exchange for those goods or services.

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For contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price.

assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer.

We do not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer.

We do not incur any material costs of obtaining contracts.

We do not adjust the amount of consideration per the contract for the effects of a significant financing component when we expect, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less, which is in substantially all cases.

Payment terms and conditions vary, although terms generally include a requirement of payment within 30 to 45 days.

Payment terms and

conditions vary, although terms generally include a requirement of payment within 30 to 45 days.

Revenues are recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

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Assets and liabilities have been translated at the rates of exchange on the balance sheet dates.

The resulting translation gain and loss adjustments have been recorded directly as a separate component of other comprehensive income in the consolidated statements of comprehensive income and stockholders’

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in our consolidated statements of income as incurred.

Derivative Financial Instruments

Beginning in 2020, we implemented a hedging program to reduce the risks associated with changes in the value of monetary assets and liabilities denominated in currencies other than the functional currency of our subsidiaries.

Under this program, we utilize foreign currency forward contracts to offset gains or losses recorded upon remeasurement of assets and liabilities stated in the non-functional currencies of our subsidiaries.

These forward contracts are not designated as hedges for accounting purposes.

As such, we record changes in fair value of the forward contracts in our consolidated statements of income along with the gain or loss resulting from remeasurement of the U.S.

dollar denominated financial assets and liabilities held by our foreign subsidiaries.

The forward contracts are typically only 30 days in duration and are settled and renewed each month.

As of December 31, 2020, the fair value of our forward contracts was a liability of approximately $ 56 thousand.

Stock-based Compensation

We measure the cost of equity‑based awards based on the grant date fair value and we allocate the compensation expense over the corresponding service period, which is usually the vesting period, using the straight‑line method.

The grant date fair value is determined by the average price of the trading high and trading low of our Class A common stock on the effective date of the grant.

Deferred taxes are recorded using the asset and liability method, whereby tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

We measure the cost of equity‑based awards based on the grant date fair value and allocate the compensation expense over the requisite service period, which is usually the vesting period.

The grant date fair value is determined by the average price of the trading high and trading low of our Class A common stock on the grant date.

Deferred taxes are recorded using the asset and liability method, whereby tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax laws and rates expected to apply to taxable income in the year in which the differences are expected to reverse.

We regularly evaluate the valuation allowances established for deferred tax assets for which future realization is uncertain.

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and foreign operations.

Consequently, the members of Cactus LLC are taxed individually on their share of earnings for U.S.

Consequently, the

members of Cactus LLC are taxed individually on their share of earnings for U.S.

federal and state income tax purposes.

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Additionally, our operations in both Australia and China are subject to local country income taxes.

See Note 5 “Income Taxes”

for additional information regarding income taxes.

See Note 5 “Income Taxes” for additional information regarding income taxes.

Cash and Cash Equivalents

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We have not experienced any losses in such accounts.

Accounts Receivable

Accounts Receivable and Allowance for Credit Losses

We extend credit to customers in the normal course of business.

We do not accrue interest on delinquent accounts receivable.

Our customers are predominantly oil and gas companies in the United States.

Our receivables are short-term in nature and typically due in 30 to 45 days.

We do not accrue interest on delinquent receivables.

Accounts receivable includes amounts billed and currently due from customers and unbilled amounts for products delivered and services performed for which billings had not yet been submitted to the customers.

Total unbilled revenue included in accounts receivable as of December 31, 2020 and 2019 was $ 8.7 million and $ 23.8 million, respectively.

We maintain an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected.

In our determination of the allowance for doubtful accounts, we assess those amounts where there are concerns over collection and record an allowance for that amount.

Estimating this amount requires us to analyze the financial condition of our customers, our historical experience and any specific concerns.

Earnings are charged with a provision for doubtful accounts based on this review of the collectability of accounts.

Accounts deemed uncollectible are applied against the allowance for doubtful accounts.

Accounts receivable is net of allowance for doubtful accounts of $0.8 million and $0.6 million as of December 31, 2019 and 2018, respectively.

The following is a rollforward of our allowance for doubtful accounts:

We maintain an allowance for credit losses to provide for the amount of billed receivables we believe to be at risk of loss.

In our determination of the allowance for credit losses, we pool receivables with similar risk characteristics based on customer size, credit ratings, payment history, bankruptcy status and other factors known to us and apply an expected credit loss percentage.

The expected credit loss percentage is determined using historical loss data adjusted for current conditions and forecasts of future economic conditions.

Accounts deemed uncollectible are applied against the allowance for credit losses.

The following is a rollforward of our allowance for credit losses:

Balance at Beginning of Period Expense Write off Balance at End of Period

Year Ended December 31, 2020 $ 837 $ 342 $ ( 581 ) $ 598

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The following is a rollforward of our inventory obsolescence reserve:

Balance at Beginning of Period Expense Write off Other Balance at End of Period

Year Ended December 31, 2020 $ 9,772 $ 4,840 $ ( 53 ) $ 78 $ 14,637

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Leasehold improvements are amortized over the shorter of the remaining lease term or economic life of the related assets.

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss are reflected in income for the period.

When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and

any resulting gain or loss are reflected in income for the period.

The cost of maintenance and repairs is charged to income as incurred;

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Estimated useful lives are as follows:

Machinery and equipment

Vehicles under finance lease

Rental equipment

Furniture and fixtures

Computers and software

Buildings 10 - 30 years

Machinery and equipment 2 - 12 years

Vehicles under finance lease 3 years

Rental equipment 2 - 8 years

Furniture and fixtures 5 years

Computers and software 4 years

Property and equipment as of December 31, 2020 and 2019 consists of the following:

Land $ 3,203 $ 3,203

Buildings and improvements 21,935 21,655

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Year Ended December 31,

2020 2019 2018

Cost of product revenue $ 3,506 $ 3,304 $ 3,262

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If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value.

We concluded there were no indicators evident or other circumstances present that these assets were not recoverable and accordingly, no impairment charges of long‑lived assets were recognized for 2019, 2018 and 2017.

Goodwill represents the excess of acquisition consideration paid over the fair value of net assets acquired.

All of the goodwill recorded on our consolidated balance sheets resulted from the acquisition of a manufacturing facility in Bossier City, Louisiana in 2011.

Due to reduced sales and cash flows in 2020, we assessed the recoverability of our long-lived assets at each interim period of 2020 and as of December 31, 2020.

No impairments were recognized in 2020 as a result of these assessments.

Additionally, no impairment charges of long‑lived assets were recognized in 2019 and 2018.

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

Our goodwill resulted from the acquisition of a manufacturing facility in Bossier City, Louisiana in 2011.

The facility supports our full range of products, rentals and services.

Goodwill is not amortized, but is reviewed for impairment on an annual basis (or more frequently if impairment indicators exist).

We have established December 31 as the date of our annual test for impairment of goodwill.

We perform a qualitative assessment of the fair value of our reporting unit before calculating the fair value of the reporting unit in step one of the two‑step goodwill impairment model.

If, through the qualitative assessment, we determine that it is more likely than not that the reporting unit’s fair value is greater than its carrying value, the remaining impairment steps would be unnecessary.

If there are indicators that goodwill has been impaired and thus the two‑step goodwill impairment model is necessary, step one is to determine the fair value of the reporting unit and compare it to the reporting unit’s carrying value.

Fair value is determined based on the present value of estimated cash flows using available information regarding expected cash flows of each reporting unit, discount rates and the expected long‑term cash flow growth rates.

If the fair value of the reporting unit exceeds the carrying value, goodwill is not impaired and no further testing is performed.

The second step is performed if the carrying value exceeds the fair value.

The implied fair value of the reporting unit’s goodwill must be determined and compared to the carrying value of the goodwill.

If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, an impairment loss equal to the difference will be recorded.

We concluded that there was no impairment of goodwill in 2019, 2018 or 2017 based on our annual impairment analysis.

Goodwill is not amortized, but we evaluate at least annually whether it is impaired.

Goodwill is considered impaired if the carrying amount of the reporting unit exceeds its estimated fair value.

We conduct our annual assessment of the recoverability of goodwill as of December 31 of each year.

We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the goodwill impairment test.

If the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying amount or we elect not to perform a qualitative assessment, the quantitative assessment of goodwill test is performed.

The goodwill impairment test is also performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

If it is necessary to perform the quantitative assessment to determine if our goodwill is impaired, we typically utilize a discounted cash flow analysis using management’s projections that are subject to various risks and uncertainties of revenues, expenses and cash flows as well as assumptions regarding discount rates, terminal value and control premiums.

Estimates of future cash flows and fair value are highly subjective and inherently imprecise.

These estimates can change materially from period to period based on many factors.

Accordingly, if conditions change in the future, we may record impairment losses, which could be material to any particular reporting period.

Due to the depressed oil price environment, reduced sales and cash flow projections and a significant decline in our market capitalization as of March 31, 2020, we assessed whether our goodwill may have been impaired as of March 31, 2020.

Our quantitative impairment test using management’s current projections of revenues, expenses and cash flows as of March 31, 2020 calculated significant cushion and no impairment was recognized as a result of this assessment.

Actual results during the remainder of the year were consistent with expectations and our forecasts have not materially changed;

therefore, we concluded that our goodwill was no t impaired at each interim period of 2020 and as of December 31, 2020.

Additionally, no goodwill impairment losses were deemed necessary in 2019 or 2018.

Accrued Expenses and Other Current Liabilities

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Payroll, incentive compensation, payroll taxes and benefits $ 4,210 $ 10,708

Accrued international freight and tariffs

Income based tax payable 2,336 2,481

Accrued professional fees and other

Accrued international freight and tariffs 2,087 3,794

Deferred revenue 1,068 1,371

Accrued professional fees and other 687 1,729

Taxes other than income 450 767

Accrued workers' compensation insurance

Product warranties 283 556

Accrued dividends 271 61

Accrued workers’ compensation insurance — 600

Total accrued expenses and other current liabilities $ 11,392 $ 22,067

Self-Insurance Accrued Expenses

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Our exposure is limited by individual and aggregate stop loss limits via third-party insurance carriers.

Our self-insurance expense is accrued based upon the aggregate of the expected liability for reported claims and the estimated liability for claims incurred but not reported, based on historical claims experience provided by our third-party insurance advisors, adjusted as necessary based upon management’s reasoned judgment.

Actual employee medical claims expense may differ from estimated loss provisions based on historical experience.

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Product Warranties

We generally warrant our manufactured products 12 months from the date placed in service.

We generally warrant our manufactured products for 12 months from the date placed in service.

The estimated liability for product warranties is based on historical and current claims experience.

Fair Value Measurements

Authoritative guidance on fair value measurements provides a framework for measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

The carrying value of cash and cash equivalents, receivables, accounts payable and accrued expenses approximates fair value based on the short-term nature of these accounts.

The fair value of our foreign currency forwards is determined using market observable inputs including forward and spot prices (Level 2 inputs).

We had no long-term debt outstanding as of December 31, 2020 or 2019.

Employee Benefit Plan

Employee Benefit Plans

Our employees within the United States are eligible to participate in a 401(k) plan sponsored by us.

These employees are eligible to participate on the first day of the month following 30 days of employment and if they are at least eighteen years of age.

All eligible employees may contribute a percentage of their compensation subject to a maximum imposed by the Internal Revenue Code.

Eligible employees may contribute a percentage of their compensation subject to a maximum imposed by the Internal Revenue Code.

Similar benefit plans exist for employees of our foreign subsidiaries.

During 2020, 2019 and 2018, we matched 100 % of the first 3 % of gross pay contributed by each employee and 50 % of the next 4 % of gross pay contributed by each employee.

Due to the difficult economic environment in 2020, the 401(k) match was indefinitely suspended in the U.S.

effective June 1, 2020.

We may also make additional non‑elective employer contributions at our discretion under the plan.

Similar benefit plans exist for employees of our foreign subsidiaries.

During 2020, 2019 and 2018, employer matching contributions totaled $ 1.6 million, $ 3.1 million and $ 3.7 million, respectively.

For the year ended December 31, 2019, we made a non-elective contribution of $0.1 million under the Plan.

No such contributions were made in 2018 or 2017.

During the year ended December 31, 2019, a $ 0.1 million non-elective contribution was made under the 401(k) plan, whereas no such contributions were made in 2020 or 2018.

Recent Accounting Pronouncements

Standards Adopted

Effective January 1, 2019, we adopted Financial Accounting Standards Board (“FASB”) ASU No.

2016-02, Leases (Topic 842) by utilizing the modified retrospective approach.

There was no cumulative effect adjustment required to the opening balance of retained earnings as we utilized the package of practical expedients permitted under the transition guidance within the standard.

The expedient package allowed us to not reassess whether existing contracts contained a lease, to not reassess the lease classification of existing leases, and to not consider the initial direct cost for existing leases.

In addition to the package of practical expedients, we also utilized expedients and elections allowing for the exclusion of leases with terms of less than twelve months across all asset classes, use of the portfolio approach and the election to not separate non-lease components from lease components.

Adoption of this standard resulted in the recognition of operating lease right-of-use (“ROU”) assets of $25.3 million, reversal of previously recorded deferred rent of $0.5 million and corresponding operating short-term and long-term lease liabilities of $6.2 million and $19.6 million, respectively, on the consolidated balance sheet.

Our accounting for finance leases remained substantially unchanged under the new guidance.

Additionally, as a lessor, recognition of lease revenue associated with short-term equipment rentals remained consistent with previous guidance.

Adoption of the standard did not have a material impact on our consolidated statements of income and consolidated statements of comprehensive income or consolidated statements of cash flows.

See Note 8 for further details regarding leases.

Effective January 1, 2020, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

The new guidance changed the measurement of credit losses on financial assets measured at amortized cost, including but not limited to trade receivables.

The new guidance replaced the prior methodology for recognizing credit losses when it is probable that a loss has been incurred with an expected loss model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of an asset.

The allowance for credit losses under the new guidance represents the portion of the asset’s amortized cost basis that we do not expect to collect over the asset’s contractual life, considering past events, current conditions and reasonable and supportable forecasts of future economic conditions.

Adoption of the standard did not impact our consolidated financial statements other than certain expanded disclosures.

We also adopted FASB ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), effective January 1, 2020.

The new standard simplified the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test.

Under the new standard, an entity performs its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Adoption of this standard did not impact our consolidated financial statements.

Standards Not Yet Adopted

In January 2017, the FASB issued ASU 2017-04, Intangibles –

Goodwill and Other (Topic 350), which simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test.

In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.

Instead, under the new standard, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

The new guidance should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

We do not expect the adoption of this pronouncement will have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments –

Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 changes the measurement of credit losses on financial assets measured at amortized cost, including but not limited to trade receivables.

The new guidance replaces the

current methodology for recognizing credit losses when it is probable that a loss has been incurred with an expected loss model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of an asset.

Application of this new guidance may result in an earlier recognition of credit losses as the allowance for credit losses is measured and recorded upon the initial recognition of the financial asset.

We finalized our methodology for estimating expected credit losses, including the assumptions used in order to pool receivables with similar risk characteristics and adopted the new standard effective January 1, 2020.

Adoption of the standard did not impact our consolidated financial statements.

No new pronouncements issued but not yet effective are expected to have a material impact on our consolidated financial statements.

Inventories consist of the following:

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Finished goods 81,879 107,214

Total inventories $ 87,480 $ 113,371

We had no debt outstanding as of December 31, 2020 and 2019.

On August 21, 2018, Cactus LLC entered into a five-year senior secured asset-based revolving credit facility with a syndicate of lenders and JPMorgan Chase Bank, N.A., as administrative agent for such lenders and as an issuing bank and swingline lender (the “ABL Credit Facility”).

The ABL Credit Facility provides for $ 75.0 million in revolving commitments, up to $ 15.0 million of which is available for the issuance of letters of credit.

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The maximum amount that Cactus LLC may borrow under the ABL Credit Facility is subject to a borrowing base, which is based on a percentage of eligible accounts receivable and eligible inventory, subject to reserves and other adjustments.

Borrowings under the ABL Credit Facility bear interest at Cactus LLC’s option at either (i) the Alternate Base Rate (as defined therein) (“ABR”), or (ii) the Adjusted LIBO Rate (as defined therein) (“Eurodollar”), plus, in each case, an applicable margin.

The ABL Credit Facility was amended in September 2020 to incorporate certain changes related to revised and new definitions associated with alternative interest rates to LIBOR and satisfaction of payment conditions for restricted payments, investments, permitted acquisitions and asset dispositions.

The amendment did not change covenants, the Alternate Base Rate, applicable margin rates, commitment fees, the maturity date or borrowing availability under the ABL Credit Facility.

Letters of credit issued under the ABL Credit Facility accrue fees at a rate equal to the applicable margin for Eurodollar borrowings.

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The unused portion of the ABL Credit Facility is subject to a commitment fee that varies from 0.250 % to 0.375 % per annum, according to the average quarterly availability under the ABL Credit Facility for the immediately preceding fiscal quarter.

The ABL Credit Facility contains various covenants and restrictive provisions that limit Cactus LLC’s and each of its subsidiaries’

ability to, among other things, incur additional indebtedness and create liens, make investments or loans, enter into asset sales, make certain restricted payments and distributions, and engage in transactions with affiliates.

The ABL Credit Facility contains various covenants and restrictive provisions that limit Cactus LLC’s and each of its subsidiaries’ ability to, among other things, incur additional indebtedness and create liens, make investments or loans, merge or consolidate with other companies, sell assets, make certain restricted payments and distributions, and engage in transactions with affiliates.

The ABL Credit Facility also requires Cactus LLC to maintain a fixed charge coverage ratio of 1.0 to 1.0 based on the ratio of EBITDA (as defined therein) minus Unfinanced Capital Expenditures (as defined therein) to Fixed Charges (as defined therein) during certain periods, including when availability under the ABL Credit Facility is under certain levels.

If Cactus LLC fails to perform its obligations under the ABL Credit Facility, (i) the commitments under the ABL Credit Facility could be terminated, (ii) any outstanding borrowings under the ABL Credit Facility may be declared immediately due and payable and (iii) the lenders may commence foreclosure or other actions against the collateral.

At December 31, 2019 and 2018, although there were no borrowings outstanding, the applicable margin on our Eurodollar borrowings was 1.5% plus an adjusted base rate of one or three month LIBOR.

At December 31, 2020 and 2019, although there were no borrowings outstanding, the applicable margins on our Eurodollar borrowings were 1.75 % and 1.50 %, respectively, plus an adjusted base rate of one or three month LIBOR.

We were in compliance with all covenants under the ABL Credit Facility as of December 31, 2020.

The ABL Credit Facility replaced Cactus LLC’s prior credit agreement, dated as of July 31, 2014, with Credit Suisse AG, as administrative agent, collateral agent and issuing bank, and the other lenders party thereto (the “Prior Credit Agreement”).

The Prior Credit Agreement provided for a term loan tranche in an aggregate principal amount of $275.0 million, the outstanding balance of which was repaid in full in February 2018 from the net proceeds of our IPO, and a revolving credit facility (the “Prior Revolving Credit Facility”) of up to $50.0 million with a $10.0 million sublimit for letters of credit.

The Prior Credit Agreement was terminated concurrently with the effectiveness of, and as a condition of entering into, the ABL Credit Facility.

No loans or letters of credit under the Prior Credit Agreement were outstanding at the time of, or were repaid in connection with, such termination.

Loss on Debt Extinguishment

We recorded a $ 4.3 million loss on early extinguishment of debt in conjunction with the repayment of the term loan portion of the Prior Credit Agreement with a portion of the net proceeds from our IPO.

The loss consisted of the write-off of the unamortized balance of debt discount and deferred loan costs of $2.1 million and $2.2 million, respectively.

The loss on debt extinguishment is included under other income (expense), net, in the consolidated statement of income for the year ended December 31, 2018.

The loss consisted of the write-off of the unamortized balance of

debt discount and deferred loan costs of $ 2.1 million and $ 2.2 million, respectively and is included under other income (expense), net, in the consolidated statement of income for the year ended December 31, 2018.

The Prior Credit Agreement was terminated concurrently with the effectiveness of, and as a condition of entering into, the ABL Credit Facility.

Interest (Income) Expense, net

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Year Ended December 31,

2020 2019 2018

Interest under bank facilities $ 317 $ 315 $ 2,669

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Finance lease interest 639 877 734

Other 3 164 45

Interest income ( 1,828 ) ( 2,403 ) ( 128 )

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Year Ended December 31,

Pre-IPO Domestic

Post-IPO Domestic

Pre-IPO Foreign

Post-IPO Foreign

2020 2019 2018

61,028 173,039 159,990

9,157 15,284 9,811

Income before income taxes $ 70,185 $ 188,323 $ 169,801

(1) $ 13.4 million related to the pre-IPO period in 2018.

(2) $ 0.5 million related to the pre-IPO period in 2018.

The provision for income taxes consisted of:

Year Ended December 31,

2020 2019 2018

Federal $ ( 786 ) $ 1,088 $ —

State 597 1,408 1,172

Foreign 4,211 4,121 3,147

Total current income taxes 4,022 6,617 4,319

Federal 8,040 14,853 12,589

State ( 253 ) 10,681 1,992

Foreign ( 839 ) ( 131 ) 620

Total deferred income taxes 6,948 25,403 15,201

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Year Ended December 31,

Income taxes at 21% (35% for 2017) statutory tax rate

2020 2019 2018

Income taxes at 21% statutory tax rate

$ 14,739 $ 39,548 $ 35,658

Net difference resulting from:

Profit of Cactus LLC pre-IPO not subject to U.S.

federal tax — — ( 2,808 )

Profit of non-controlling interest not subject to U.S.

federal tax ( 5,508 ) ( 15,477 ) ( 18,570 )

Foreign income taxes (net of foreign tax credit) 269 364 828

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Change in valuation allowance 2,840 ( 3,888 ) 733

Adjustments of prior year taxes ( 1,663 ) 1,336 ( 125 )

Other 164 ( 1,512 ) 2

Total provision for income taxes $ 10,970 $ 32,020 $ 19,520

Our effective tax rate was 15.6 %, 17.0 % and 11.5 % for the years ended December 31, 2020, 2019 and 2018, respectively.

For the year ended December 31, 2019, the primary reason for the change to our effective tax rate relates to an increase in Cactus Inc.’s ownership of Cactus LLC and a write down of our deferred tax asset due to a change in our forecasted state tax rate.

Prior to our IPO, our accounting predecessor was a limited liability company treated as a partnership for U.S.

federal income tax purposes, and therefore not subject to U.S.

federal income taxes.

Our operations are subject to state taxes within the United States and our operations in China and Australia are subject to local country income taxes.

Our effective tax rate is lower than the federal statutory rate of 21% primarily due to the fact that Cactus Inc.

is only subject to federal and state income tax on its share of income from Cactus LLC.

Income allocated to the non-controlling interest is not subject to U.S.

federal or state tax.

The components of deferred tax assets and liabilities are as follows:

Investment in Cactus LLC $ 224,485 $ 234,629

Net operating loss carryforwards

Imputed interest 10,333 10,323

Tax credits 5,719 1,479

Net operating loss carryforwards 2,333 —

Other 546 155

Deferred tax assets 243,416 246,586

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Foreign withholding taxes 562 1,054

Other 224 294

Deferred tax liability, net $ 786 $ 1,348

We recorded a deferred tax asset for the differences between our tax and book basis in the investment in Cactus LLC and imputed interest on the TRA.

We also recorded deferred tax assets for foreign tax credits associated with our portion of Cactus LLC’s accrued foreign taxes.

We did not have any foreign net operating losses for 2019.

Foreign net operating losses were $1.4 million and $1.6 million for 2018 and 2017, respectively.

Based upon our cumulative earnings history and forecasted future sources of taxable income, we believe that we will be able to realize the majority of our U.S.

deferred tax assets in the future.

We do not expect to realize the portion of our deferred tax asset for our investment in Cactus LLC that may only be realizable through the sale or liquidation of the investment and our ability to generate sufficient capital gains.

As of December 31, 2019, we have a valuation allowance of $22.7 million against this deferred tax asset.

For the year ended December 31, 2019, as a result of the March 2019 Secondary Offering and redemptions of CW Units, we released $5.4 million of our valuation allowance and recorded a tax benefit of $5.4 million related to the realizable portion of the deferred tax asset.

As of December 31, 2019, our liability related to the TRA was $216.5 million, representing 85% of the calculated net cash savings in the United States federal, state and local or franchise tax that we anticipate realizing in future years from certain increases in tax basis and certain tax benefits attributed to imputed interest as a result of our acquisition of CW Units.

As of December 31, 2020, our liability related to the TRA was $ 204.4 million, representing 85 % of the calculated net cash savings in the United States federal, state and local and franchise tax that we anticipate realizing in future years from certain increases in tax basis and certain tax benefits attributed to imputed interest as a result of our acquisition of CW Units.

We have determined it is more-likely-than-not that we will be able to utilize all of our tax basis subject to the TRA;

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If we determine the utilization of this tax basis is not more-likely-than-not in the future, our estimate of amounts to be paid under the TRA would be reduced.

In this scenario, the reduction of the liability under the TRA would result in a benefit to our pre-tax consolidated results of operations.

In this scenario, the reduction of the liability under the TRA would result in a benefit to our pre-tax consolidated results of operations in conjunction with an increase to the valuation allowance and an offsetting adjustment to tax expense.

We record a deferred tax asset for the differences between our tax and book basis in the investment in Cactus LLC and imputed interest on the TRA.

Based upon our cumulative earnings history and forecasted future sources of taxable income, we believe that we will be able to realize the majority of our U.S.

deferred tax assets in the future.

We do not expect to realize the

portion of our deferred tax asset for our investment in Cactus LLC that may only be realizable through the sale or liquidation of the investment and our ability to generate sufficient capital gains.

For the year ended December 31, 2020, as a result of redemptions of CW Units, we released $ 0.1 million of our valuation allowance and recorded a tax benefit of $ 0.1 million related to the realizable portion of the deferred tax asset.

As of December 31, 2020, we have a valuation allowance of $ 22.5 million against the $ 224.5 million deferred tax asset.

During the year ended December 31, 2019, as a result of redemptions of CW Units, we released $ 5.4 million of our valuation allowance and recorded a tax benefit of $ 5.4 million related to the realizable portion of the deferred tax asset.

As of December 31, 2019, we had a valuation allowance of $ 22.7 million against the $ 234.6 million deferred tax asset.

We also record deferred tax assets for imputed interest, certain tax credits and net operating loss carryforwards.

As of December 31, 2020, we have a valuation allowance of $ 4.3 million against these deferred tax assets, primarily associated with our portion of Cactus LLC’s accrued foreign taxes and state tax credits, due to uncertainty of realization.

As of December 31, 2020 and 2019, we had no uncertain tax positions.

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Stock-Based Compensation

We have a long-term incentive plan (“LTIP”) to incentivize individuals providing services to us or our affiliates.

The LTIP provides for the grant, from time to time, at the discretion of our compensation committee of our board of directors, of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents, other stock-based awards, cash awards, substitute awards and performance awards.

Any individual who is an officer or employee or an officer or employee of any of our affiliates, and any other person who provides services to us or our affiliates, including members of our board of directors, will be eligible to receive awards under the LTIP at the discretion of our board of directors.

We have a long-term incentive plan (“LTIP”) that provides for the grant of various stock-based compensation awards at the discretion of our compensation committee of our board of directors.

Employees and non-employee directors are eligible to receive awards under the LTIP.

Stock based awards granted pursuant to the LTIP are expected to be settled in shares of our Class A common stock if they vest.

Our stock based awards do not have voting rights prior to vesting.

Dividends declared are accumulated and paid upon vesting.

We account for forfeitures when they occur and recognize the impact to stock-based compensation expense at that time.

During the years ended December 31, 2020, 2019 and 2018, we recorded $ 8.6 million, $ 7.0 million and $ 4.7 million, respectively, of stock-based compensation expense.

Stock-based compensation expense is primarily recorded in selling, general and administrative expenses.

We recognized $ 34 thousand and $ 0.8 million in tax benefits for tax deductions from the vesting of stock-based awards during the years ended December 31, 2020 and 2019, respectively.

No benefits were recognized in 2018 as there were no vestings of stock-based awards.

As of December 31, 2020, 1.5 million stock awards were available for grant.

Restricted Stock Units

Restricted stock units (“RSUs”) granted pursuant to the LTIP are expected to be settled in shares of our Class A common stock if they vest.

RSU’s generally vest over a three-year period;

however, RSUs granted to our non-employee directors generally vest on the first anniversary of the grant.

A summary of restricted stock unit awards for the year ended December 31, 2019 is as follows (units in thousands):

Weighted Average Grant Date Fair Value

Restricted stock units (“RSUs”) granted to our key employees generally vest over a three-year period (vesting ratably in equal tranches over a three-year period);

however, RSUs granted to our non-employee directors generally vest on the first anniversary of the grant date.

We recognize compensation expense over the requisite service period using straight-line amortization.

The following table summarizes our RSU activity during the year ended December 31, 2020 (RSUs in thousands):

of RSUs Weighted Average Grant Date Fair Value ($)

Nonvested as of December 31, 2019 690 $ 25.34

Granted 390 13.80

Vested ( 311 ) 24.00

Forfeited ( 12 ) 23.16

Nonvested as of December 31, 2020 757 $ 19.97

During the year ended December 31, 2019 and 2018, we recorded $7.0 million and $4.7 million, respectively, of stock-based compensation expense.

We did not recognize any stock-based compensation expense during 2017.

Stock-based compensation expense is primarily recorded in selling, general and administrative expenses.

There was approximately $ 7.6 million of unrecognized compensation expense relating to the unvested RSUs as of December 31, 2020.

The unrecognized compensation expense will be recognized over the weighted average remaining vesting period of 1.9 years.

Performance Stock Units

In 2020, we granted approximately 152 thousand performance stock units (“PSUs”) to our executive officers that will vest based on our Return on Capital Employed (“ROCE”) performance over two or three years , depending on the award agreement.

The number of shares earned may range from 0 % to 200 % of the target units set forth in the applicable award agreement and is determined at the end of each performance period conditioned upon continued service and on our achievement

of certain predefined targets as defined in the underlying performance stock unit agreements.

Depending on the award agreement issued, vesting terms provided are either (i) two-thirds of the PSUs granted thereunder upon conclusion of the two-year performance period with the remaining one-third vesting upon the conclusion of the three-year performance period (“Two- and Three-Year Agreement”) or (ii) three-year cliff vesting upon conclusion of the three-year performance period (“Three-Year Agreement”).

As the ROCE target represents a performance condition, we recognize compensation expense for the performance share units on a straight-line basis for the two-thirds portion and one-thirds portion of the Two- and Three-Year Agreement awards as if they were individual awards (graded vesting) and on a straight-line basis for the Three-Year Agreement awards based on the probable outcome of the ROCE performance.

As of December 31, 2020, we had not recognized compensation expense related to the 2020 awards as it was not probable that the minimum performance level would be achieved for each award as determined by the actual and forecasted ROCE performance over the applicable performance periods.

If at a later date it becomes probable that the minimum ROCE performance level will be achieved, we will record a cumulative catch-up of compensation expense for the probable amount of stock award achievement in that period.

As of December 31, 2020, there was approximately $ 2.1 million of unrecognized compensation expense relating to the unvested PSUs (based on the grant date fair value of the awards at 100 % of target).

As of December 31, 2020, approximately 152 thousand PSUs (assuming the achievement of 100 % of target) were outstanding and had not vested.

We disaggregate revenue from contracts with customers into three revenue categories:

(i) product revenues, (ii) rental revenues and (iii) field service and other revenues.

We have predominately domestic operations, with a small amount of sales being generated in Australia.

We have predominately domestic operations, with a small amount of sales in Australia.

For the year ended December 31, 2020, we derived 59 % of our total revenues from the sale of our products, 19 % of our total revenues from rental and 22 % of our total revenues from field service and other.

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Year Ended December 31,

2020 2019 2018

Product revenue $ 206,801 $ 357,087 $ 290,496

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At December 31, 2020, we had a deferred revenue balance of $ 1.1 million compared to the December 31, 2019 balance of $ 1.4 million included in accrued expenses and other current liabilities in the consolidated balance sheets.

Deferred revenue represents our obligation to transfer products or perform services to a customer for which we have received cash or billed in advance.

Deferred revenue represents our obligation to transfer products or perform services for a customer for which we have received cash or billed in advance.

The revenue that has been deferred will be recognized upon product delivery or as services are performed.

As of December 31, 2020, we did not have any contracts with an original length of greater than a year from which revenue is expected to be recognized in the future related to performance obligations that are unsatisfied.

As a lessee, we lease real estate, apartments, forklifts, vehicles and trucks, and other equipment under non-cancellable agreements.

We determine if these contracts are or contain a lease at inception and review the facts and circumstances of the arrangement to classify the leased asset as operating or finance.

To assess whether a contract is or contains a lease, we consider whether (i) explicitly or implicitly identified assets have been deployed in the contract and (ii) whether we obtain substantially all the economic benefits from the use of that underlying asset and direct how and for what purpose the asset is used during the term of the contract.

The portion of active leases within our portfolio classified as operating leases are included in operating lease right-of-use assets and current and long-term operating lease liabilities on our consolidated balance sheet.

The finance lease right-of-use assets portion of the active lease agreements are included in property and equipment and current and long-term finance lease obligations on our consolidated balance sheets.

The ROU assets represent our right to use the underlying asset for the

lease term and lease liabilities represent our obligation to make minimum lease payments arising from the lease for the duration of the lease term.

We lease real estate, apartments, forklifts, vehicles and other equipment under non-cancellable agreements.

Certain of our leases include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years or greater.

The exercise of lease renewal options is typically at our discretion.

The measurement of the lease term includes options to extend or renew the lease when it is reasonably certain that we will exercise that option.

We do not have leases that include options to purchase leased property or that provide for the automatic transfer of ownership of leased property to us, residual value guarantees, or the incurrence by us of other restrictions or covenants.

The measurement of the lease term includes options to extend or renew the lease when it is reasonably certain that we will exercise those options.

Lease assets and liabilities are recognized at the commencement date based on the present value of minimum lease payments over the lease term.

To determine the present value of future minimum lease payments, we use the implicit rate when readily determinable;

however, many of our leases do not provide an implicit rate, therefore to determine the present value of minimum lease payments we use our incremental borrowing rate based on the information available at commencement date of the lease.

however, many of our leases do not provide an implicit rate.

Therefore, to determine the present value of minimum lease payments, we use our incremental borrowing rate based on the information available at the commencement date of the lease.

Our finance lease agreements typically include an interest rate that is used to determine the present value of future lease payments.

Minimum lease payments are expensed on a straight-line basis over the term of the lease, including reasonably certain renewal options.

In addition, some leases may require additional contingent or variable lease payments based on factors specific to the individual agreement.

Variable lease payments for which we are typically responsible include payment of real estate taxes and maintenance expenses.

These payments are expensed as incurred and recorded as variable lease costs.

Short-term operating leases with an initial term of twelve months or less are not recorded on our balance sheet.

Minimum lease payments are expensed on a straight-line basis over the lease term, including reasonably certain renewal options.

The following are the components of operating and finance lease costs:

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Short-term lease cost 329 847

Variable lease cost

Sublease income ( 475 ) ( 455 )

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Financing cash flows from finance leases 5,317 7,484

Total $ 12,831 $ 15,189

Right-of-use assets obtained in exchange for new lease obligations:

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Finance leases 2,973 3,008

Total $ 4,302 $ 11,062

The following is the aggregate future lease payments for operating and finance leases as of December 31, 2020:

Operating Finance

2021 $ 4,946 $ 4,122

2022 4,184 1,710

2023 3,371 631

2024 2,837 57

Thereafter 7,101 —

Total undiscounted lease payments 24,682 6,520

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The following represents the average lease terms and discount rates for our operating and finance lease portfolio as of December 31, 2020:

December 31, 2019

Year ended December 31,

Weighted average remaining lease term:

Finance leases

Operating leases

Finance leases 1.6 years 1.5 years years

Operating leases 6.6 years 5.8 years

Weighted average discount rate

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As a lessor, we rent a fleet of frac valves and ancillary equipment for short-term rental periods, typically one to two months .

Our lessor portfolio consists mainly of operating leases for equipment utilized during the drilling, completion and production phases of our customers’

Our lessor portfolio consists mainly of operating leases for equipment utilized during the drilling, completion and production phases of our customers’ wells.

At this time, most lessor agreements contain less than three-month terms with no renewal options that are reasonably certain to exercise, or early termination options based on established terms specific to the individual agreement.

See Note 7 for disaggregation of revenue.

Disclosures related to periods prior to adoption of new lease standard

Operating and Capital Leases :

We lease certain facilities, vehicles, equipment, office and manufacturing space under noncancelable operating leases which expire at various dates.

We are also party to a significant number of month‑to‑month leases that can be canceled at any time.

Total rent expense under operating leases was $7.7 million in 2018 and $7.1 million in 2017.

Accumulated depreciation for capital leases totaled $8.6 million at December 31, 2018.

Minimum lease payments, including executory costs and interest, under capital and operating leases with non-cancelable terms as of December 31, 2018 were as follows:

Tax Receivable Agreement

The TRA generally provides for the payment by Cactus Inc.

In connection with our IPO, we entered into the TRA with certain direct and indirect owners of Cactus LLC (the “TRA Holders”).

The TRA generally provides for payment by Cactus Inc.

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 that Cactus Inc.

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 Cactus Inc.’s acquisition (or deemed acquisition for U.S.

federal income tax purposes) of all or a portion of such TRA Holder’s CW Units in connection with our IPO or any subsequent offering, or pursuant to any other exercise of the Redemption Right or the Call Right, (ii) certain increases in tax basis resulting from the repayment of borrowings outstanding under Cactus LLC’s term loan facility in connection with our IPO and (iii) imputed interest deemed to be paid by Cactus Inc.

as a result of, and additional tax basis arising from, any payments Cactus Inc.

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We will retain the remaining 15 % of the cash savings.

The TRA liability is calculated by determining the tax basis subject to TRA (“tax basis”) and applying a blended tax rate to the basis differences and calculating the iterative impact.

The blended tax rate consists of the U.S.

federal income tax rate and an assumed combined state and local income tax rate driven by the apportionment factors applicable to each state.

federal income tax rate and an assumed combined state and local income and franchise tax rate driven by the apportionment factors applicable to each state.

As of December 31, 2020, the total liability from the TRA was $ 204.4 million with $ 9.3 million reflected in current liabilities based on the expected timing of our next payment.

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Redemptions of CW Units

Pursuant to the First Amended and Restated Limited Liability Company Operating Agreement of Cactus LLC (the “Cactus LLC Agreement”), each holder of CW Units (“CW Unit Holder”) has, subject to certain limitations, the right (the “Redemption Right”) to cause Cactus LLC to acquire all or at least a minimum portion of its CW Units for, at Cactus LLC’s election, (x) shares of our Class A common stock at a redemption ratio of one share of Class A common stock for each CW Unit redeemed, subject to conversion rate adjustments for stock splits, stock dividends and reclassification and other similar transactions, or (y) an equivalent amount of cash.

Alternatively, upon the exercise of the Redemption Right, Cactus Inc.

(instead of Cactus LLC) will have the right (the “Call Right”) to acquire each tendered CW Unit directly from the exchanging CW Unit Holder for, at its election, (x) one share of Class A common stock, subject to conversion rate adjustments for stock splits, stock dividends and reclassifications and other similar transactions, or (y) an equivalent amount of cash.

In connection with any redemption of CW Units pursuant to the Redemption Right or our Call Right, the corresponding number of shares

of Class B common stock, par value $0.01 per share (“Class B common stock”), will be canceled.

In connection with any redemption of CW Units pursuant to the Redemption Right or our Call Right, the corresponding number of shares of Class B common stock, par value $ 0.01 per share (“Class B common stock”), will be canceled.

Any exercise by Cactus LLC or Cactus Inc.

of the right to acquire redeemed CW Units for cash must be approved by the board of directors of Cactus Inc.

To date, neither Cactus Inc.

nor Cactus LLC have elected to acquire CW Units for cash in connection with exchanges by CW Unit Holders.

It is the policy of Cactus Inc.

that any exercise by Cactus Inc.

or Cactus LLC

of the right to acquire redeemed CW Units for cash must be approved by a majority of those members of the board of directors of Cactus Inc.

who have no interest in such transaction.

Since our IPO in February 2018, 32.9 million CW Units and a corresponding number of shares of Class B common stock have been redeemed in exchange for shares of Class A common stock.

For more information regarding our IPO, see our Annual Report on Form 10-K for the year ended December 31, 2018.

The following is a rollforward of ownership of legacy CW Units by legacy CW Unit Holders:

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CW Units held by legacy CW Unit Holders as of February 7, 2018 60,558

IPO ( 12,118 )

July 2018 Follow-on Offering ( 11,197 )

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CW Units held by legacy CW Unit Holders as of December 31, 2019 27,958

Other CW Unit redemptions ( 303 )

CW Units held by legacy CW Unit Holders as of December 31, 2020 27,655

On July 16, 2018, we completed a public offering of 11.2 million shares of Class A common stock (the “July 2018 Follow-on Offering”) at $ 33.25 per share and received $ 359.3 million of net proceeds after deducting underwriting discounts and commissions.

contributed these net proceeds to Cactus LLC in exchange for 11.2 million CW Units.

Cactus LLC then used the net proceeds to redeem and retire 11.2 million CW Units from certain of the other owners of Cactus LLC, and Cactus Inc.

canceled a corresponding number of shares of Class B common stock.

In conjunction with the redemption of these CW Units, we recorded a deferred tax asset related to the step-up in basis, a liability from the TRA representing 85 % of the expected net cash savings from the step-up in basis that will be paid to TRA Holders and recorded the remaining 15 % as additional paid-in capital.

Offering expenses related to the July 2018 Follow-on Offering were $ 0.7 million, which were recorded within equity and were borne by Cactus Inc.

In conjunction with the July 2018 Follow-on Offering and the additional ownership Cactus Inc.

acquired in Cactus LLC, $ 25.2 million of equity was reclassified to Cactus Inc.

from non-controlling interest representing the additional CW Units acquired by Cactus and $ 0.1 million related to the cancellation of Class B common stock.

On March 19, 2019, Cactus Inc.

entered into an underwriting agreement by and among Cactus Inc., Cactus LLC, certain selling stockholders of Cactus (the “Selling Stockholders”) and the underwriters named therein, providing for the offer and sale of Class A common stock by the Selling Stockholders (the “March 2019 Secondary Offering”).

As described in the prospectus supplement dated March 19, 2019 and filed with the Securities and Exchange Commission on March 20, 2019, in connection with the March 2019 Secondary Offering, certain Selling Stockholders owning CW Units exercised their Redemption Right with respect to 8.5 million CW Units, together with a corresponding number of shares of Class B common stock, as provided in the Cactus LLC Agreement.

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Cactus incurred $ 1.0 million in offering expenses which were recorded in other income (expense), net, in the consolidated statement of income during the first quarter of 2019.

In addition to the redemptions associated with the March 2019 Secondary Offering, certain legacy CW Unit Holders redeemed 0.8 million CW Units (together with a corresponding number of shares of Class B common stock) pursuant to the Redemption Right, for the year ended December 31, 2019.

Cactus acquired the redeemed CW Units and a corresponding number of shares of Class B common stock (which shares of Class B common stock were then canceled) and issued 0.8 million shares of Class A common stock to the redeeming CW Unit Holders.

Any exercise by Cactus LLC or Cactus Inc.

of the right to acquire redeemed CW Units for cash must be approved by the board of directors of Cactus Inc.

To date, neither Cactus Inc.

nor Cactus LLC have elected to acquire CW Units for cash in connection with exchanges by CW Unit Holders.

It is the policy of Cactus Inc.

that any exercise by Cactus Inc.

or Cactus LLC of the right to acquire redeemed CW Units for cash must be approved by a majority of those members of the board of directors of Cactus Inc.

who have no interest in such transaction.

Pursuant to the tax receivable agreement (the “TRA”) described in Note 9, the CW Units redeemed in the March 2019 Secondary Offering and other CW Unit redemptions for the year ended December 31, 2019, created additional TRA liability.

Also, as a result, Cactus Inc.

increased its ownership in Cactus LLC and accordingly, increased its equity by $48.7 million from the non-controlling interest.

During 2019, we corrected for misstatements of equity between Cactus Inc.

and non-controlling interest related to our July 2018 Follow-on Offering by reducing non-controlling interest and increasing additional paid-in capital and accumulated other comprehensive income.

This related to immaterial errors associated with the ownership percentage change used in the underlying calculation giving effect to the offering.

Additionally, we finalized the majority of the Company’s tax returns and identified immaterial adjustments.

On October 29, 2019, our board of directors authorized the introduction of a regular quarterly cash dividend of $0.09 per share of Class A common stock of which $4.2 million was paid on December 19, 2019.

We currently intend to continue paying the quarterly dividend while retaining the balance of future earnings, if any, to finance the growth of our business.

However, our future dividend policy is within the discretion of our board of directors and will depend upon then-existing conditions, including our results of operations, financial condition, capital requirements, investment opportunities, statutory and contractual restrictions on our ability to pay dividends and other factors our board of directors may deem relevant.

Limitation of Members’

In addition to the redemptions associated with the July 2018 Follow-on Offering and the March 2019 Secondary Offering, certain legacy CW Unit Holders redeemed 0.3 million and 0.8 million CW Units (together with a corresponding number of shares of Class B common stock) pursuant to the Redemption Right for the years ended December 31, 2020 and 2019, respectively.

Cactus acquired the redeemed CW Units and a corresponding number of shares of Class B common stock (which shares of Class B common stock were then canceled) and issued 0.3 million and 0.8 million shares of Class A common stock to the redeeming CW Unit Holders during the same respective time periods.

Pursuant to the TRA described in Note 9,

CW Unit redemptions create additional TRA liability.

As a result of the CW Unit redemptions described above, Cactus Inc.

increased its ownership in Cactus LLC and accordingly, increased its equity by $ 2.2 million and $ 48.7 million from the non-controlling interest during the years ended December 31, 2020 and 2019, respectively.

Cash dividends of $ 0.36 per share of Class A common stock declared and paid during the year ended December 31, 2020 totaled $ 17.4 million and $ 17.1 million, respectively.

In the fourth quarter of 2019, we declared and paid our first cash dividend of $ 0.09 per share of Class A common stock equal to $ 4.3 million and $ 4.2 million, respectively.

Dividends accrue on unvested restricted stock on the date of record and are paid upon vesting.

A de minimis amount of accrued dividends was paid during 2020 to holders of restricted stock units that vested during 2020.

Dividends are not paid to our Class B common stock holders;

however, a corresponding distribution up to the same amount per share as our Class A common stockholders is paid to our CW Unitholders for any dividends declared on our Class A common stock.

See Note 11 “Related Party Transactions” for further discussion of distributions made by Cactus LLC.

Limitation of Members’ Liability

Under the terms of the Cactus Wellhead LLC Agreement, the members of Cactus LLC are not obligated for debt, liabilities, contracts or other obligations of Cactus LLC.

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When needed, we rent a plane under dry-lease from a company owned by a member of Cactus LLC.

These transactions are under short-term rental arrangements and the agreement governing these transactions does not qualify as a lease under ASC 842.

These transactions are under short-term rental arrangements and the agreement governing these transactions does not qualify as a lease.

We pay a base hourly rent of $ 1,750 per flight hour of use of the aircraft, payable monthly, for the hours of aircraft operation during the prior calendar month.

We are also responsible for employing pilots and certain fuel true up fees.

During 2020, 2019 and 2018, expense recognized in connection with these rentals totaled $ 0.1 million, $ 0.3 million and $ 0.4 million, respectively.

As of December 31, 2020 and 2019, we owed less than $ 0.1 million to the related party which are included in accounts payable in the consolidated balance sheets.

We are also responsible for employing pilots and fuel expenses.

Scott Bender and Mr.

Joel Bender pay the Company $1,800/day for their personal use of the pilots employed by the Company.

The TRA agreement is with certain direct and indirect holders of CW Units, including certain of our officers, directors and employees.

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We pay professional fees to assist with maintenance of the TRA which are reimbursable from the TRA Holders.

As of December 31, 2019, we had a $0.3 million balance due from the TRA Holders for fees paid in 2019.

The balance is included in accounts receivable, net in the consolidated balance sheet.

No such balance existed as of December 31, 2018.

As of December 31, 2020 and 2019, we had $ 0.2 million and $ 0.3 million, respectively due from the TRA Holders for fees paid on their behalf.

The balances are included in accounts receivable, net in the consolidated balance sheets.

Distributions made by Cactus LLC are generally required to be made pro rata among all its members.

For the year ended December 31, 2020, Cactus LLC distributed $ 27.8 million to Cactus Inc.

to fund the 2019 TRA liability payments and estimated tax payments and made pro rata distributions to its other members totaling $8.4 million over the same period.

to fund its dividend, TRA liability and estimated tax payments and made pro rata distributions to the other members totaling $ 16.3 million.

For the year ended December 31, 2019, Cactus LLC made $ 14.2 million in distributions to Cactus Inc.

to cover its estimated tax payments and also made an aggregate $5.8 million in pro-rata distributions to its other members over the same period.

Prior to our IPO, we were party to a management services agreement with two Cactus LLC members, whereby Cactus paid an annual management fee totaling approximately $0.3 million, payable in four installments, each to be paid quarterly in advance, prorated for any partial year.

In conjunction with our IPO, the management services agreement terminated pursuant to its terms.

Management fee expense totaled $0.1 million and $0.3 million for 2018 and 2017, respectively.

There were no outstanding balances due as of December 31, 2019 and 2018 under the management services agreement.

to fund its TRA liability payments and to cover its estimated tax payments and also made an aggregate $ 8.4 million in pro rata distributions to the other members.

For the year ended December 31, 2018, Cactus LLC made $ 3.8 million in distributions to Cactus Inc.

to cover its estimated tax payments and also made an aggregate $ 5.8 million in pro-rata distributions to the other members.

Prior to our IPO, on January 25, 2018, Cactus LLC paid a cash distribution of $ 26.0 million to holders of CW Units at that time.

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during that period by the weighted average number of common shares outstanding assuming all potentially dilutive shares were issued.

We use the “if-converted”

method to determine the potential dilutive effect of outstanding CW Units (and corresponding shares of outstanding Class B common stock), and the treasury stock method to determine the potential dilutive effect of unvested restricted stock units assuming that the proceeds will be used to purchase shares of Class A common stock.

We use the “if-converted” method to determine the potential dilutive effect of outstanding CW Units (and corresponding shares of outstanding Class B common stock), and the treasury stock method to determine the potential dilutive effect of unvested restricted stock units assuming that the proceeds will be used to purchase shares of Class A common stock.

The following table summarizes the basic and diluted earnings per share calculations:

Year Ended December 31,

Net income attributable to Cactus Inc.—basic

2020 2019 2018

Net income attributable to Cactus Inc.—basic $ 34,446 $ 85,612 $ 51,683

Net income attributable to non-controlling interest (1)

Net income attributable to Cactus Inc.—diluted (1)

Weighted average Class A shares outstanding—basic

19,934 56,012 —

Net income attributable to Cactus Inc.—diluted (1)

$ 54,380 $ 141,624 $ 51,683

Weighted average Class A shares outstanding—basic 47,457 44,983 32,329

Effect of dilutive shares (2)

Weighted average Class A shares outstanding—diluted (2)

Earnings per Class A share—basic

Earnings per Class A share—diluted (1) (2)

Under the if-converted method for the twelve months ended December 31, 2019, the numerator is adjusted in the calculation of diluted earnings per share to include $73.7 million of additional pre-tax income attributable to non-controlling interest adjusted for a corporate effective tax rate of 24%.

28,038 30,370 366

Weighted average Class A shares outstanding—diluted (2)

75,495 75,353 32,695

Earnings per Class A share—basic $ 0.73 $ 1.90 $ 1.60

Earnings per Class A share—diluted (1) (2)

$ 0.72 $ 1.88 $ 1.58

(1) The numerator is adjusted in the calculation of diluted earnings per share under the if-converted method to include net income attributable to the non-controlling interest calculated as its pre-tax income adjusted for a corporate effective tax rate of 24.0 % for the twelve months ended December 31, 2020 and 2019.

(2) Diluted earnings per share for the year ended December 31, 2018 excludes 37.2 million shares of Class B common stock as the effect would be anti-dilutive.

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Year Ended December 31,

2020 2019 2018

Property and equipment acquired under finance leases $ 2,973 $ 3,008 $ 9,966

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Year Ended December 31,

2020 2019 2018

Cash paid for interest $ 959 $ 1,187 $ 3,583

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The Class B common stock has no economic interest and does not share in cash dividends or liquidation rights.

During the year ended December 31, 2019, we issued 9.3 million shares of Class A common stock pursuant to redemptions of CW Units by holders thereof.

Quarterly Financial Information (Unaudited)

Summarized quarterly financial data for the years ended December 31, 2019 and 2018 are presented in the following tables.

In the following tables, the sum of basic and diluted earnings per share for the four quarters may differ from the annual amounts due to the required method of computing weighted average number of shares in the respective periods.

Additionally, due to the effect of rounding, the sum of the individual quarterly earnings per share amounts may not equal the calculated year-to-date earnings per share amount.

2019 Quarters

Total revenues

Income from operations

net income attributable to non-controlling interest

Net income attributable to Cactus Inc.

Earnings per Class A share—basic

Earnings per Class A share—diluted

Dividends declared per common share

2018 Quarters

Total revenues

Income from operations

pre-IPO net income attributable to Cactus LLC

net income attributable to non-controlling interest

Net income attributable to Cactus Inc.

Earnings per Class A share—basic

Earnings per Class A share—diluted

During the years ended December 31, 2020 and 2019, we issued 0.3 million and 9.3 million shares of Class A common stock, respectively, pursuant to redemptions of CW Units by holders thereof.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data