What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-28 compared with 2021-03-01 · 149 added, 163 removed, 723 unchanged (30% of the section changed)

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Management’s Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )

Consolidated Balance Sheets as of December 31, 202 1 and 20 20

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Retained earnings 178,446 150,086

Accumulated other comprehensive loss 330 ( 452 )

Accumulated other comprehensive income 8 330

Total stockholders’ equity attributable to Cactus Inc.

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Net income $ 67,470 $ 59,215 $ 156,303

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

net income attributable to non-controlling interest 17,877 24,769 70,691

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Comprehensive income 66,903 60,590 156,671

pre-IPO comprehensive income attributable to Cactus LLC — — 13,928

comprehensive income attributable to non-controlling interest 17,632 25,362 70,581

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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)

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

(in thousands) Shares Amount Shares Amount

Balance at December 31, 2018 37,654 $ 377 37,236 $ — $ 126,418 $ 51,683 $ ( 820 ) $ 184,670 $ 362,328

Member distributions prior to IPO ( 26,000 ) — — — — — — — — ( 26,000 )

Net income prior to IPO 13,648 — — — — — — — — 13,648

Effect of IPO 48,651 26,450 265 48,440 — 71,196 — — 130,861 250,973

Member distributions after IPO — — — — — — — — ( 5,848 ) ( 5,848 )

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

Adjustment to prior periods — — — — 10,424 — 409 ( 11,339 ) ( 506 )

Member distributions — — — — — — — ( 8,392 ) ( 8,392 )

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

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

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

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

Other comprehensive income — — — — — — 18 4 22

Stock-based compensation — — — — 4,271 — — 2,724 6,995

Net income after IPO — — — — — — 51,683 — 84,950 136,633

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

Adjustment to prior periods — — — — — 10,424 — 409 ( 11,339 ) ( 506 )

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

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Equity award vestings 341 3 — — ( 1,141 ) — — ( 2,145 ) ( 3,283 )

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

Other comprehensive loss — — — — — — ( 322 ) ( 245 ) ( 567 )

Stock-based compensation — — — — 6,390 — — 2,230 8,620

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Depreciation and amortization 36,308 40,520 38,854

Debt discount and deferred financing cost amortization 168 168 275

Deferred financing cost amortization 168 168 168

Stock-based compensation 8,620 8,599 6,995

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Deferred income taxes 4,829 6,948 25,403

Loss on debt extinguishment — — 4,305

(Gain) loss from revaluation of liability related to tax receivable agreement ( 898 ) 555 ( 5,336 )

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Cash flows from financing activities

Principal payments on long-term debt — — ( 248,529 )

Payment of deferred financing costs — — ( 840 )

Payments on finance leases ( 5,205 ) ( 5,317 ) ( 7,484 )

Net proceeds from equity offerings — — 828,168

Dividends paid to Class A common stock shareholders ( 21,158 ) ( 17,140 ) ( 4,244 )

Distributions to members ( 9,742 ) ( 16,304 ) ( 8,392 )

Redemptions of CW Units — — ( 575,681 )

Repurchases of shares ( 3,283 ) ( 1,445 ) ( 1,549 )

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(“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.

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

We operate through U.S.

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.

service centers located in Texas, New Mexico, Pennsylvania, North Dakota, Louisiana, Oklahoma, Colorado, Wyoming and Utah as well as in Eastern Australia.

We also provide rental and service operations in the Kingdom of Saudi Arabia.

Our manufacturing and production facilities are located in Bossier City, Louisiana and Suzhou, China and our corporate headquarters are located in Houston, Texas.

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”).

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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.

and its consolidated subsidiaries (including Cactus LLC).

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

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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.

We operate in the United States, Australia, China and the Kingdom of Saudi Arabia.

Our operations outside of the United States represented less than 10% of our consolidated operations for all periods presented in these consolidated financial statements.

Concentrations of Credit Risk

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

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.

For the year ended December 31, 2021, we had one customer representing approximately 12 % of total revenues.

No customer represented 10% or more of total revenues for the year ended December 2020 and one customer represented approximately 10 % of total revenues in the year ended December 31, 2019.

Significant Vendors

We purchase a significant portion of supplies, equipment and machined components from a single vendor.

During 2020, 2019 and 2018, purchases from this vendor totaled $ 6.7 million, $ 36.5 million and $ 46.7 million respectively.

These figures represent approximately 7 %, 16 % and 21 % for the respective periods, of total third party vendor purchases of raw materials, finished products, equipment, machining and other services.

Amounts due to the vendor included in accounts payable, in the consolidated balance sheets, as of December 31, 2020 and 2019 totaled $ 1.1 million and $ 4.3 million, respectively.

The principal raw materials used in the manufacture of our products and rental equipment include forgings and plate, castings, tube and bar stock.

In addition, we require accessory items (such as elastomers, ring gaskets, studs and nuts) and machined components and assemblies.

We purchase these items from vendors primarily located in the United States, China, India and Australia.

For the year ended December 31, 2021, two vendors each represented approximately 9 % of our total third-party vendor purchases of raw materials, finished products, equipment, machining and other services.

For the years ended December 31, 2020 and 2019, one vendor represented approximately 9 % and 16 %, respectively, of such purchases.

Amounts due to these vendors included in accounts payable, in the consolidated balance sheets, as of December 31, 2021 and 2020 totaled $ 6.4 million (combined total for two vendors) and $ 1.5 million, respectively.

Tax Receivable Agreement (TRA)

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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.

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.

During the years ended December 31, 2021, 2020 and 2019, we recognized a $ 0.9 million gain, 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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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.

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 to which we expect to be entitled in exchange for those goods or services.

The majority of our contracts with customers contain a single performance obligation to provide agreed upon products or services.

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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.

We treat shipping and handling associated with outbound freight as a fulfillment cost instead of as a separate performance obligation.

We treat shipping and

handling associated with outbound freight as a fulfillment cost instead of as a separate performance obligation.

We recognize the cost for the associated shipping and handling when incurred as an expense in cost of sales.

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Our rental agreements are directly with our customers and provide for a rate based on the period of time the equipment is used or made available to the customer.

In addition, customers are charged for repair costs either through an agreed upon rate or as incurred.

In addition, customers are charged for repair costs, typically through an agreed upon rate for each rental job.

Revenue is recognized ratably over the rental period, which tends to be short-term in nature with most equipment on site for less than 90 days.

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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.

We utilize 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.

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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.

As of December 31, 2021 and 2020, the fair value of our forward contracts was a liability of approximately $ 37 thousand and $ 56 thousand, respectively.

Stock-based Compensation

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.

Beginning with our 2021 grants, the grant date fair value is determined by the closing price of our Class A common stock on the grant date.

Prior to 2021, the grant date fair value was 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.

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Cactus LLC is a limited liability company treated as a partnership for U.S.

federal income tax purposes and files a U.S.

federal income tax

purposes and files a U.S.

Return of Partnership Income, which includes both our U.S.

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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Cost is determined using standard cost (which approximates average cost) and weighted average methods.

Costs include an application of related direct labor and overhead cost.

Costs include an application of related direct labor, duties, tariffs, freight and overhead costs.

Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

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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

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

Year Ended December 31, 2021 $ 14,637 $ 3,490 $ ( 62 ) $ ( 53 ) $ 18,012

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Estimated useful lives are as follows:

Buildings 10 - 30 years

Buildings and improvements 5 - 30 years

Machinery and equipment 2 - 12 years

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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 2021.

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.

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

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

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

No goodwill impairment losses were deemed necessary in 2021.

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.

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

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

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

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities as of December 31, 2021 and 2020 are as follows:

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

Income based tax payable 2,336 2,481

Accrued international freight and tariffs $ 14,794 $ 2,087

Payroll, incentive compensation, payroll taxes and benefits 7,030 4,210

Deferred revenue 1,764 1,068

Accrued professional fees and other 687 1,729

Taxes other than income 1,641 450

Product warranties 283 556

Income based tax payable 1,182 2,336

Accrued professional fees and other 1,078 687

Accrued dividends 346 271

Accrued workers’ compensation insurance 269 —

Product warranties 136 283

Total accrued expenses and other current liabilities $ 28,240 $ 11,392

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We maintain a partially self-insured health benefit plan which provides medical and prescription drug benefits to certain of our employees electing coverage under the plan.

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

Our exposure is limited by individual and aggregate stop loss limits through 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.

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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.

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

Due to the difficult economic environment at that time, the 401(k) match was temporarily suspended in the U.S.

in June 2020 and reinstated in August 2021.

During 2021, 2020 and 2019, employer matching contributions totaled $ 1.2 million, $ 1.6 million and $ 3.1 million, respectively.

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 2021 or 2020.

Recent Accounting Pronouncements

Standards Adopted

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

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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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.

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

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

The applicable margin ranges from 0.50 % to 1.00 % per annum for ABR borrowings and 1.50 % to 2.00 % per annum for Eurodollar borrowings and, in each case, is based on the average quarterly availability under the ABL Credit Facility for the immediately preceding fiscal quarter.

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We were in compliance with all covenants under the ABL Credit Facility as of December 31, 2021.

Loss on Debt Extinguishment

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.

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 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

Interest (income) expense, net, including debt discount and deferred financing costs amortization, was comprised of the following:

Interest (income) expense, net, including deferred financing cost amortization, was comprised of the following:

Year Ended December 31,

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Interest under bank facilities $ 313 $ 317 $ 315

Debt discount and deferred financing costs amortization 168 168 275

Deferred financing cost amortization 168 168 168

Finance lease interest 520 639 877

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2021 2020 2019

61,028 173,039 159,990

9,157 15,284 9,811

Domestic $ 64,139 $ 61,028 $ 173,039

Foreign 11,006 9,157 15,284

Income before income taxes $ 75,145 $ 70,185 $ 188,323

(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:

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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.

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Adjustments of prior year taxes 79 ( 1,663 ) 1,336

Stock compensation ( 1,096 ) ( 34 ) ( 762 )

Other ( 205 ) 198 ( 750 )

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Our effective tax rate was 10.2 %, 15.6 % and 17.0 % for the years ended December 31, 2021, 2020 and 2019, respectively.

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

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

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

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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.

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, 2021, as a result of redemptions of CW Units, we released $ 9.0 million of our valuation allowance and recorded a tax benefit of $ 9.0 million related to the realizable portion of the deferred tax asset.

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As of December 31, 2021, we have a valuation allowance of $ 3.7 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, 2021, we have deferred tax assets on U.S.

federal and state net operating loss (“NOL”) carryforwards of approximately $ 10.4 million and $ 0.8 million, respectively, which can be used to offset U.S.

federal and state taxes payable in future years.

federal NOL carryforwards have no expiration date whereas the U.S.

state NOL carryforwards generally will expire in periods beginning in 2040.

As of December 31, 2021 and 2020, we had no uncertain tax positions.

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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.

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.

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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.

We recorded $ 8.6 million of stock-based compensation expense during each of the years ended December 31, 2021 and 2020 and $ 7.0 million during the year ended December 31, 2019.

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.

We recognized $ 1.1 million, $ 34 thousand and $ 0.8 million in tax benefits for tax deductions from the vesting of stock-based awards benefits during the years ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2021, 1.3 million stock awards were available for grant.

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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.

Performance stock units (“PSUs”) are granted to our executive officers.

Under these awards, the number of shares vested and earned is currently determined at the end of a three-year performance period based on our Return on Capital Employed (“ROCE”).

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 the performance period conditioned upon continued service and on our achievement of certain predefined targets as defined in the underlying performance stock unit agreements.

PSUs cliff vest upon conclusion of the three-year performance period.

As the ROCE target represents a performance condition, we recognize compensation expense for the performance share units on a straight-line basis over three years based on the probable outcome of the ROCE performance.

In 2020, we granted PSU awards that contained a two-year performance period.

Our ROCE performance did not meet the minimum requirements for vesting;

therefore, those awards were forfeited as of December 31, 2021.

As of December 31, 2020, we had not recognized compensation expense related to any of 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.

In 2021, we recorded a cumulative catch-up of compensation expense for the three-year awards as it was probable that the minimum ROCE performance level will be achieved.

The following table summarizes our PSU activity during the year ended December 31, 2021 (PSUs in thousands at their target values which assumes achievement of 100 % of target):

of PSUs Weighted Average Grant Date Fair Value ($)

Nonvested as of December 31, 2020 152 $ 13.66

Granted 74 32.82

Forfeited ( 28 ) 13.66

Nonvested as of December 31, 2021 198 $ 20.80

As of December 31, 2021, there was approximately $ 2.2 million of unrecognized compensation expense relating to the unvested PSUs (based on the grant date fair value of the awards at 100 % of target) which is expected to be recognized over a weighted average period of 1.7 years.

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 in Australia.

We have predominately domestic operations, with a small amount of sales in Australia and the Kingdom of Saudi Arabia.

For the year ended December 31, 2021, we derived 64 % of our total revenues from the sale of our products, 14 % of our total revenues from rental and 22 % of our total revenues from field service and other.

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Weighted average remaining lease term:

Finance leases 1.6 years 1.5 years years

Finance leases 2.1 years 1.6 years

Operating leases 5.8 years 6.6 years

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The blended tax rate consists of the U.S.

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.

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

As of December 31, 2021, the total liability from the TRA was $ 281.6 million with $ 11.8 million reflected in current liabilities based on the expected timing of our next payment.

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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.

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.

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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:

The following is a rollforward of ownership of legacy CW Units by CW Unit Holders for the three years ended December 31, 2021:

(in thousands)

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 )

Other CW Unit redemptions ( 7 )

CW Units held by legacy CW Unit Holders as of December 31, 2018 37,236

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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.

March 2021 Secondary Offering ( 6,273 )

Cadent redemption in June 2021 ( 3,292 )

Cadent redemption in September 2021 ( 715 )

Other CW Unit redemptions ( 701 )

CW Units held by legacy CW Unit Holders as of December 31, 2021 16,674

On March 19, 2019, Cactus Inc.

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In addition, certain other Selling Stockholders sold 26 thousand shares of Class A common stock in the March 2019 Secondary Offering, which shares were owned by them directly prior to the closing of this offering.

Cactus did not receive any of the proceeds from the sale of common stock in the March 2019 Secondary Offering.

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 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.

Cactus did not receive any of the proceeds from the sale of common stock in the March 2019 Secondary Offering, and there was no change in the

combined number of Cactus Inc.

voting shares outstanding.

Cactus incurred $ 1.0 million in offering expenses which were recorded in other income (expense), net, in the consolidated statements of income.

On March 9, 2021, Cactus Inc.

entered into an underwriting agreement with Cactus LLC, certain selling stockholders of Cactus (the “Selling Stockholders”) and the underwriters named therein, providing for the offer and sale by the Selling Stockholders (the “2021 Secondary Offering”) of up to 6,325,000 shares of Class A common stock at a price to the underwriters of $ 30.555 per share.

On March 12, 2021, in connection with the 2021 Secondary Offering, certain of the Selling Stockholders exercised their right to redeem 6,272,500 CW Units, together with a corresponding number of shares of Class B common stock, as provided in the Cactus Wellhead LLC Agreement.

Upon the closing of the 2021 Secondary Offering, Cactus Inc.

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 6,272,500 new shares of Class A common stock to the underwriters at the direction of the redeeming Selling Stockholders, as provided in the Cactus Wellhead LLC Agreement.

In addition, certain other Selling Stockholders sold 52,500 shares of Class A common stock in the 2021 Secondary Offering, which shares were owned by them directly as of the time of the 2021 Secondary Offering.

Cactus did not receive any of the proceeds from the sale of common stock in the 2021 Secondary Offering and incurred $ 0.4 million in expenses which were recorded in other expense, net, in the consolidated statements of income.

There was no change in the combined number of Cactus Inc.

voting shares outstanding as a result of the 2021 Secondary Offering.

On June 17, 2021, Cadent Energy Partners II, L.P.

(“Cadent”) transferred ownership of 944,093 CW Units, together with a corresponding number of shares of Class B common stock, to its general partner, Cadent Energy Partners II - GP, L.P., (“Cadent GP”), and its manager, Cadent Management Services, LLC (“Cadent Management”).

Cadent then redeemed its remaining 3.3 million CW Units, together with a corresponding number of shares of Class B common stock, as provided in the Cactus Wellhead LLC Agreement.

The redeemed CW Units (and the corresponding shares of Class B common stock) were canceled and Cactus Inc.

issued 3.3 million new shares of Class A common stock to Cadent, which then distributed such shares to its limited partners.

Cactus received no proceeds from these events, and there was no change in the combined number of Cactus Inc.

voting shares outstanding.

On September 13, 2021, Cadent GP and Cadent Management transferred their aggregate ownership of 228,878 CW Units, together with a corresponding number of shares of Class B common stock, to their respective owners, which included certain Cactus Inc.

board members and executive management.

The transfers were made at the discretion of Cadent GP and Cadent Management without the consent of the transferees.

Additionally, Cadent GP and Cadent Management redeemed their remaining 715,215 CW Units held, together with a corresponding number of shares of Class B common stock, thus liquidating its ownership in Cactus Wellhead, LLC.

These transactions were in accordance with the Cactus Wellhead LLC Agreement.

The redeemed CW Units (and the corresponding shares of Class B common stock) were canceled and Cactus Inc.

issued 715,215 new shares of Class A common stock.

Cactus received no proceeds from these events, and there was no change in the combined number of Cactus Inc.

voting shares outstanding.

In addition to the redemptions associated with the March 2019 Secondary Offering, the March 2021 Secondary Offering and the 2021 redemptions by Cadent and its affiliates, certain legacy CW Unit Holders redeemed 0.7 million, 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, 2021, 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 0.7 million, 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 all of the CW Unit redemptions during the years ended December 31, 2021, 2020 and 2019, Cactus Inc.

increased its ownership in Cactus LLC and accordingly, increased its equity by approximately $ 79.4 million, $ 2.2 million and $ 48.7 million, respectively, from the non-controlling interest.

Aggregate cash dividends of $ 0.38 , $ 0.36 and $ 0.09 per share of Class A common stock declared during the years ended December 31, 2021, 2020 and 2019 totaled $ 21.2 million, $ 17.4 million and $ 4.3 million, respectively.

The fourth quarter of 2019 was the first quarter we declared and paid a dividend.

Cash dividends paid during the years ended December 31, 2021, 2020 and 2019 totaled $ 21.2 million, $ 17.1 million and $ 4.2 million, respectively.

Dividends accrue on unvested stock-based awards on the date of record and are paid upon vesting.

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

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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 paid 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.

During 2021, 2020 and 2019, expense recognized in connection with these rentals totaled $ 0.2 million, $ 0.1 million and $ 0.3 million, respectively.

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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.

Our Chief Executive Officer and Chief Operating Officer paid the Company from $ 600 to $ 1,800 /day for their personal use of the pilots employed by the Company, depending on how many company pilots are utilized for the day.

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

As of December 31, 2021 and 2020, $ 0.2 million was 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 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 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.

This distribution was funded by borrowing under a revolving credit facility.

The purpose of the distribution was to provide funds to these owners to pay their federal and state tax liabilities associated with taxable income recognized by them for periods prior to the completion of our IPO as a result of their ownership interests in Cactus LLC.

The borrowings under this revolving credit facility were repaid during the first quarter of 2018.

During the years ended December 31, 2021, 2020 and 2019, Cactus LLC distributed $ 30.6 million, $ 27.8 million and $ 14.2 million, respectively, to Cactus Inc.

to fund its dividend, TRA liability and estimated tax payments.

During the years ended December 31, 2021, 2020 and 2019, Cactus LLC made pro rata distributions to the other members totaling $ 9.7 million, $ 16.3 million and $ 8.4 million, respectively.

Commitments and Contingencies

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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), 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 and the contingently issuable share method to determine the potential dilutive effect of unvested performance stock units.

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

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Effect of dilutive shares 20,709 28,038 30,370

28,038 30,370 366

Weighted average Class A shares outstanding—diluted 76,107 75,495 75,353

75,495 75,353 32,695

Earnings per Class A share—basic $ 0.90 $ 0.73 $ 1.90

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$ 0.83 $ 0.72 $ 1.88

(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.

(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 27.0 % for the year ended December 31, 2021 and 24.0 % for the years ended December 31, 2020 and 2019.

Supplemental Cash Flow Information

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Cash paid for income taxes, net 4,542 1,600 5,301

In conjunction with our IPO, we issued and contributed shares of Class B common stock to owners of CW Units equal to the number of outstanding CW Units held by the owners thereof.

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

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.

During the years ended December 31, 2021, 2020 and 2019, we issued 11.0 million, 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