What changed in this filing

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Item 1A. Risk Factors

2023-03-01 compared with 2022-02-28 · 131 added, 141 removed, 205 unchanged (57% of the section changed)

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Risks Related to the Oilfield Services Industry and Our Business

The global outbreak of COVID-19 and associated responses have had, and are expected to continue to have, an adverse impact on our business and operations.

The ongoing COVID-19 pandemic has negatively affected, and could continue to negatively affect, our revenues and operations.

We have experienced, and may experience in the future, slowdowns or temporary idling of certain of our manufacturing and service facilities due to a number of factors, including implementing additional safety measures, testing of our team members, team member absenteeism and governmental orders.

A prolonged closure could have a material adverse impact on our ability to operate our business and on our results of operations.

We have also experienced, and could continue to experience, disruption and volatility in our supply chain, which has resulted, and may continue to result, in increased costs for certain goods.

The spread of COVID-19 has also disrupted and may continue to disrupt logistics necessary to import, export and deliver products to us and our customers.

Further, we might experience temporary shortages of labor, making it difficult to provide field service technicians to install or service our equipment.

The duration of the pandemic and its continued adverse impact on our business are unknown and impossible to predict with certainty.

Despite vaccines and boosters being administered worldwide, the extent of future impacts of the coronavirus and any new variants related to COVID-19 on general economic conditions and on our business, operations and results of operations remains uncertain.

Demand for our products and services depends on oil and gas industry activity and customer expenditure levels, which are directly affected by trends in the demand for and price of crude oil and natural gas and availability of capital.

Demand for our products and services depends primarily upon the general level of activity in the oil and gas industry, including the number of drilling rigs in operation, the number of oil and gas wells being drilled, the depth and drilling conditions of these wells, the volume of production, the number of well completions and the level of well remediation activity, and the corresponding capital spending by oil and gas companies.

Demand for our products and services depends primarily upon the general level of activity in the oil and gas industry, including the number of drilling rigs in operation, the number of oil and gas wells being drilled, the depth, lateral length and drilling conditions of these wells, the volume of production, the number of well completions and the level of well remediation activity, the number of wells put into production and the corresponding capital spending by oil and gas companies.

Oil and gas activity is in turn heavily influenced by, among other factors, current and anticipated oil and natural gas prices locally and worldwide, which have historically been volatile.

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These factors could have an adverse effect on our results of operations, financial condition and cash flows.

Factors affecting the prices of oil and natural gas include, but are not limited to, the following:

• demand for hydrocarbons, which is affected by worldwide population growth, economic growth rates and general economic and business conditions;

• available excess production capacity within OPEC and the level of oil and gas production by non‑OPEC countries;

• oil and gas inventory levels, production capacity and investment levels;

• the continued development of shale plays which may influence worldwide supply;

• transportation differentials associated with reduced capacity in and out of the storage hub in Cushing, Oklahoma;

• costs of exploring for, producing and delivering oil and natural gas;

• political and economic uncertainty and geopolitical unrest;

• oil refining activity and shifts in end‑customer preferences toward fuel efficiency and increased transition to electric vehicles;

• conservation measures and technological advances affecting energy consumption;

• government initiatives to address greenhouse gases and climate change (including incentives to promote alternative energy sources);

• potential acceleration of the commercial development of alternative energy sources (such as wind, solar, geothermal, tidal, fuel cells and biofuels);

• access to capital and credit markets and investors’ focus on shareholder returns, which may affect our customers’ activity levels and spending for our products and services;

• changes in laws and regulations related to hydraulic fracturing activities, saltwater disposal or oil and gas drilling, particularly on public properties;

• changes in environmental laws and regulations (including relating to the use of coal in power plants which can impact the demand for natural gas);

• adverse weather conditions and natural disasters (including adverse conditions related to climate change);

• supply disruptions in key oil producing regions;

• terrorist attacks and armed conflicts, including the current conflict between Russia and Ukraine could cause temporary price increases which could dampen demand;

• global pandemics.

The oil and gas industry is cyclical and has historically experienced periodic downturns, which have been characterized by diminished demand for our products and services and downward pressure on the prices we charge.

These downturns cause many E&P companies to reduce their capital budgets and drilling activity.

downturns cause many E&P companies to reduce their capital budgets and drilling activity.

Any future downturn or expected downturn could result in a significant decline in demand for oilfield services and adversely affect our business, results of operations and cash flows.

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drilling and completion activity may be impacted by, among other things, the availability and cost of oil country tubular goods (“OCTG”), pipeline capacity, and material and labor shortages.

Should significant growth in activity occur there could be concerns over availability of the equipment, materials and labor required to drill and complete a well, together with the ability to move the produced oil and natural gas to market.

Should significant growth in activity continue, there could be concerns over availability of the equipment, materials and labor required to drill and complete a well, together with the ability to move the produced oil and natural gas to market.

Should significant constraints develop that materially impact the efficiency and economics of oil and gas producers, growth in U.S.

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In addition, a significant increase in the wages paid by competing employers both within and outside of our industry could result in increases in the wage rates that we must pay.

Throughout 2021, we experienced notable increases in salaries and wages, especially in certain key oil and gas producing regions, as we restored our workforce while trying to meet increasing customer demand.

If we are not able to employ and retain skilled workers, our ability to respond quickly to customer demands or strong market conditions may inhibit our growth, which could have a material adverse effect on our business, results of operations and cash flows.

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We depend on key personnel.

The loss of key personnel could adversely impact our business if we are unable to implement certain strategies or transactions in their absence.

The loss of key personnel could adversely impact our business.

The loss of qualified employees or an inability to retain and motivate additional highly‑skilled employees required for the operation and expansion of our business could hinder our ability to successfully maintain and expand our market share.

Equity interests in us are a substantial portion of the net worth of our executive officers and several of our other senior managers.

Following the completion of our IPO, those executive officers and other senior managers have increased liquidity with respect to their equity interests in us.

As a result, those executive officers and senior managers may have less incentive to remain employed by us.

After terminating their employment with us, some of them may become employed by our competitors.

Political, regulatory, economic and social disruptions in the countries in which we conduct business could adversely affect our business or results of operations.

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Instability and unforeseen changes in any of the markets in which we conduct business could have an adverse effect on the demand for, or supply of, our business, results of operations and cash flows.

These factors include, but are not limited to, the following:

• nationalization and expropriation;

• potentially burdensome taxation;

• inflationary and recessionary markets, including capital and equity markets;

• civil unrest, labor issues, political instability, natural disasters, terrorist attacks, cyber‑terrorism, military activity and wars;

• outbreaks of pandemic or contagious diseases;

• supply disruptions in key oil producing countries;

• tariffs, trade restrictions, trade protection measures or price controls;

• foreign ownership restrictions;

• import or export licensing requirements;

• restrictions on operations, trade practices, trade partners and investment decisions resulting from domestic and foreign laws and regulations;

• changes in, and the administration of, laws and regulations;

• inability to repatriate income or capital;

• reductions in the availability of qualified personnel;

• development and implementation of new technologies;

• foreign currency fluctuations or currency restrictions;

• fluctuations in the interest rate component of forward foreign currency rates.

We are dependent on a relatively small number of customers in a single industry.

The loss of an important customer could adversely affect our results of operations and financial condition.

Our customers are engaged in the oil and natural gas E&P business primarily in the United States, but also in Australia and the Kingdom of Saudi Arabia.

Our customers are engaged in the oil and natural gas E&P business primarily in the United States, but also in Australia, the Kingdom of Saudi Arabia and select international markets.

Historically, we have been dependent on a relatively small number of customers for our revenues.

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Our customers are required to obtain permits or authorizations from one or more governmental agencies or other third parties to perform drilling and completion activities, including hydraulic fracturing.

Such permits or approvals are typically required by state agencies but can also be required by federal and local governmental agencies or other third parties.

Such permits or approvals are typically

required by state agencies but can also be required by federal and local governmental agencies or other third parties.

The requirements for such permits or authorizations vary depending on the location where such drilling and completion activities will be conducted.

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In addition, in January 2021, President Biden indefinitely suspended new oil and natural gas leases on public lands or in offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices.

In November 2021, the Department of the Interior completed its review and issued a report on the federal oil and gas leasing program.

The Department of the Interior’s report recommends several changes to federal leasing practices, including changes to royalty payments, bidding, and bonding requirements.

The effects of this report or other initiatives to reform the federal leasing process could result in additional restrictions or limitations on the issuance of federal leases and permits for drilling on public lands.

Permitting, authorization or renewal delays, the inability to obtain new permits or the revocation of current permits could impact our customers’ operations and cause a loss of revenue and potentially have a materially adverse effect on our business, results of operations and cash flows.

While the United States Department of the Interior announced in April 2022 that it would resume oil and gas leasing on public lands, the topic of oil and gas leasing on public land remains politically fraught, as the announcement indicated that federal land available for oil and gas leasing will be significantly reduced due to environmental and climate concerns.

The effects of these developments or other initiatives to reform the federal leasing process could result in additional restrictions or limitations on the issuance of federal leases and permits for drilling on public lands.

Permitting, authorization or renewal delays, the inability to obtain new permits or the revocation of current permits could impact our customers’ operations and cause a loss of revenue and potentially have a material adverse effect on our business, results of operations and cash flows.

Competition within the oilfield services industry may adversely affect our ability to market our services.

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Increased costs, or lack of availability, of raw materials and other components may result in increased operating expenses and adversely affect our results of operations and cash flows.

Our ability to source low cost raw materials and components, such as steel plate, tube and bar stock, forgings and machined components is critical to our ability to successfully compete.

Due to a shortage of steel caused primarily by production disruptions during the pandemic and increased demand as economies rebounded, steel and assembled component prices have been and continue to be elevated.

Our results of operations may be adversely affected by our inability to manage rising costs and the availability of raw materials and components used in our wide variety of products and systems.

Additionally, freight costs, specifically ocean freight costs, have risen significantly due to a number of factors including, but not limited to, a scarcity of shipping containers, congested seaports, a shortage of commercial drivers, capacity constraints on vessels or lockdowns in certain markets.

We cannot assure that we will be able to continue to purchase and move these materials on a timely basis or at commercially viable prices, nor can we be certain of the impact of changes to tariffs and future

legislation that may impact trade with China or other countries.

Our ability to source low cost raw materials and components, such as tube and bar stock, forgings and machined components is critical to our ability to successfully compete.

Due to a shortage of steel caused primarily by production disruptions during the pandemic and the conflict in Ukraine as well as increased demand while economies rebounded, steel and assembled component prices have been elevated.

Our results of operations may be adversely affected by our inability to manage higher costs and the availability of raw materials and components used in our wide variety of products and systems.

Additionally, freight costs, specifically ocean freight costs, rose significantly during and following the pandemic.

Further, unexpected changes in the size of regional and/or product markets, particularly for short lead‑time products, could affect our results of operations and cash flows.

Should our current suppliers be unable to provide the necessary raw materials or components or otherwise fail to deliver such materials and components timely and in the quantities required, resulting delays in the provision of products or services to our customers could have a material adverse effect on our business, results of operations and cash flows.

Currently, the United States is experiencing the highest inflation in decades primarily due to supply-chain issues, a shortage of labor and a build-up of demand for goods and services.

The most noticeable adverse impact to our business has been increased freight, materials and vehicle-related costs as well as higher salaries and wages.

While we believe that the current rate of inflation is transitory as it is pandemic-driven, we are unsure how long an elevated rate will continue.

We cannot be confident that all costs will return to the lower levels experienced in prior years even as the rate of inflation abates.

Our results of operations may be adversely affected by these rising costs to the extent we are unable to recoup them from our customers.

In accordance with Section 1502 of the Dodd‑Frank Act, the SEC’s rules regarding mandatory disclosure and reporting requirements by public companies of their use of “conflict minerals” (tantalum, tin, tungsten and gold) originating in the Democratic Republic of Congo and adjoining countries became effective in 2014.

While the conflict minerals rule continues in effect as adopted, there remains uncertainty regarding how the conflict minerals rule, and our compliance obligations, will be affected in the future.

Additional requirements under the rule could affect sourcing at competitive prices and availability in sufficient quantities of tungsten, which is used in the manufacture of our products or in the provision of our services.

This could have a material adverse effect on our ability to purchase these products in the future.

The costs of compliance, including those related to supply chain research, the limited number of suppliers and possible changes in the sourcing of these minerals, could have a material adverse effect on our business, results of operations and cash flows.

In 2022, the United States experienced the highest inflation in decades primarily due to supply-chain issues, a shortage of labor and a build-up of demand for goods and services.

Our business was impacted by increased freight, materials and vehicle-related costs as well as higher salaries and wages.

While we believe that the rate of inflation is abating, we expect we will continue to experience inflationary pressures on portions of our cost structure.

Our results of operations may be adversely affected by further rising costs to the extent we are unable to recoup them from our customers.

We design, manufacture, sell, rent and install equipment that is used in oil and gas E&P activities, which may subject us to liability, including claims for personal injury, property damage and environmental contamination should such equipment fail to perform to specifications.

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Further, insurance companies may refuse to honor their policies, or insurance may not generally be available in the future, or if available, premiums may not be commercially justifiable.

We could incur substantial liabilities and damages that are either not covered by insurance or that are in excess of policy limits, or incur liability at a time when we are not able to obtain liability insurance.

We could incur substantial liabilities and damages that are either not covered by customer indemnities or insurance or that are in excess of policy limits, or incur liability at a time when we are not able to obtain liability insurance.

Such potential liabilities could have a material adverse effect on our business, results of operations and cash flows.

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The cost of managing such risks may be significant.

The frequency and severity of such

incidents will affect operating costs, insurability and relationships with customers, employees and regulators.

The frequency and severity of such incidents will affect operating costs, insurability and relationships with customers, employees and regulators.

In particular, our customers may elect not to purchase our products or services if they view our environmental or safety record as unacceptable, which could cause us to lose customers and substantial revenues.

Our insurance may not be adequate to cover all losses or liabilities we may suffer.

Our customer indemnities or insurance may not be adequate to cover all losses or liabilities we may suffer.

Also, insurance may no longer be available to us or its availability may be at premium levels that do not justify its purchase.

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Such agreements may require each party to indemnify the other against certain claims regardless of the negligence or other fault of the indemnified party;

however, many states place limitations on contractual indemnity agreements, particularly agreements that indemnify a party against the consequences of its own negligence.

however, many states place limitations on contractual indemnity agreements, particularly agreements that indemnify a party against the consequences of its

own negligence.

Furthermore, certain states, including Louisiana, New Mexico, Texas, and Wyoming, have enacted statutes generally referred to as “oilfield anti-indemnity acts” expressly prohibiting certain indemnity agreements contained in or related to oilfield services agreements.

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Environmental laws and regulations in the United States and foreign countries affect the equipment, systems and services we design, market and sell, as well as the facilities where we manufacture and produce our equipment and systems in the United States and China, and opportunities our customers pursue that create demand for our products.

For example, we may be affected by such laws as the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation, and Liability Act, the Clean Water Act, the Clean Air Act and the Occupational Safety and Health Act of 1970.

For example, we or our products may be affected by such laws as the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation, and Liability Act, the Clean Water Act, the Clean Air Act and the Occupational Safety and Health Act of 1970.

Further, our customers may be subject to a range of laws and regulations governing hydraulic fracturing, drilling and greenhouse gas emissions.

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Changes in environmental requirements related to greenhouse gas emissions may negatively impact demand for our products and services.

For example, oil and natural gas E&P may decline as a result of environmental requirements, including land use policies and other actions to restrict oil and gas leasing and permitting in response to environmental and climate change concerns.

In January 2021, the Acting Secretary of the Department of the Interior issued an order suspending new leasing and drilling permits for fossil fuel production on federal lands and waters for 60 days.

President Biden then issued an executive order indefinitely suspending new oil and natural gas leases on public lands or in offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices.

Several states filed lawsuits challenging the suspension and in June 2021, a judge in the U.S.

District Court for the Western District of Louisiana issued a nationwide temporary injunction blocking the suspension.

The Department of the Interior appealed the U.S.

District Court’s ruling.

If the Department of the Interior succeeds on its appeal of the U.S.

District Court’s decision and reinstitutes a leasing suspension, the reinstitution of such suspension could reduce demand for our services.

Further, to the extent that the Department of Interior’s report or other initiatives to reform federal leasing practices result in the development of additional restrictions on drilling, limitations on the availability of leases, or restrictions on the ability to obtain required permits, it could impact our customers’ opportunities and reduce demand for our products and services in the aforementioned areas.

Oil and natural gas E&P may decline as a result of environmental requirements, including land use policies and other actions to restrict oil and gas leasing and permitting in response to environmental and climate change concerns.

Federal, state, and local agencies continue to evaluate climate-related legislation and other regulatory initiatives that would restrict emissions of greenhouse gases in areas in which we conduct business.

Because our business depends on the level of activity in the oil and natural gas industry, existing or future laws and regulations related to greenhouse gases could have a negative impact on our business if such laws or regulations reduce demand for oil and natural gas.

Because our business depends on the level

of activity in the oil and natural gas industry, existing or future laws and regulations related to greenhouse gases could have a negative impact on our business if such laws or regulations reduce demand for oil and natural gas.

Likewise, such laws or regulations may result in additional compliance obligations with respect to the release, capture, sequestration, and use of greenhouse gases.

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These concerns have led to several regulatory and governmental initiatives in the United States to restrict the hydraulic fracturing process, which could have an adverse impact on our customers’ completions or production activities.

Although we do not conduct hydraulic fracturing, increased regulation and attention given to the hydraulic fracturing process could lead to greater opposition to oil and gas production activities using hydraulic fracturing techniques.

Although we do not conduct hydraulic fracturing, our products are used in hydraulic fracturing.

Increased regulation and attention given to the hydraulic fracturing process could lead to greater opposition to oil and gas production activities using hydraulic fracturing techniques.

In December 2021, the Texas Railroad Commission, which regulates the state’s oil and gas industry, suspended the use of deep wastewater disposal wells in four oil-producing counties in West Texas.

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The ban will require oil and gas production companies to find other options to handle the wastewater, which may include piping or trucking it longer distances to other locations not under the ban.

In addition, the Texas Railroad Commission has overseen the development of well-operator-led response plans to reduce injection volumes in other portions of West Texas in order to reduce seismicity in these areas.

The adoption of new laws or regulations at the federal, state, local or foreign level imposing reporting obligations on, or otherwise limiting, delaying or banning, the hydraulic fracturing process or other processes on which hydraulic fracturing and subsequent hydrocarbon production relies, such as water disposal, could make it more difficult to complete oil and natural gas wells.

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Increasing attention by the public and government agencies to climate change and environmental, social and governance (“ESG”) matters could also negatively impact demand for our products and services.

In recent years, increasing attention has been given to corporate activities related to ESG in public discourse and the investment community.

Increasing attention is being given to corporate activities related to ESG in public discourse and the investment community.

A number of advocacy groups, both domestically and internationally, have campaigned for governmental and private action to promote change at public companies related to ESG matters, including through the investment and voting practices of investment advisers, public pension funds, universities and other members of the investing community.

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If this were to continue, it could have a material adverse effect on the valuation of our Class A common stock and our ability to access equity capital markets.

In addition, our business could be impacted by initiatives to address greenhouse gases and climate change and incentives to conserve energy or use alternative energy sources.

For example, the Build Back Better Act, passed by the U.S.

House of Representatives and supported by President Biden, includes incentives to increase wind and solar electric generation and encourage consumers to use these alternative energy sources.

At this time, it is uncertain whether, and in what form, the Build Back Better Act may become law.

However, the Build Back Better Act or similar state or federal initiatives to incentivize a shift away from fossil fuels could reduce demand for hydrocarbons, thereby reducing demand for our products and services and negatively impacting our business.

In addition, our business could be impacted by initiatives to address greenhouse gases and climate change and public pressure to conserve energy or use alternative energy sources.

State or federal initiatives to incentivize a shift away from fossil fuels could also reduce demand for hydrocarbons.

For example, in August 2022, the Inflation Reduction Act was signed into law.

The Inflation Reduction Act appropriates significant federal funding for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles and supporting infrastructure and carbon capture and sequestration, amongst other provisions.

In addition, the Inflation Reduction Act imposes the first ever federal fee on the emission of GHG through a methane emissions charge.

The Inflation Reduction Act amends the federal Clean Air Act to impose a fee on the emission of methane from sources required to report their GHG emissions to the EPA, including those sources in the onshore petroleum and natural gas production categories.

These developments could further accelerate the transition of the U.S.

economy away from the use of fossil fuels towards lower- or zero-carbon emissions alternatives, which would reduce demand for our products and services and negatively impact our business.

The global outbreak of COVID-19 has had, and it or other outbreaks in the future may have, an adverse impact on our business and operations.

The ongoing COVID-19 pandemic has negatively affected, and could continue to negatively affect, our revenues and operations.

A prolonged closure could have a material adverse

impact on our ability to operate our business and on our results of operations.

We have also experienced, and could continue to experience, disruption and volatility in our supply chain, which has resulted, and may continue to result, in increased costs for certain goods.

The spread of COVID-19 has also disrupted and may continue to disrupt logistics necessary to import, export and deliver products to us and our customers.

Further, we might experience temporary shortages of labor, making it difficult to provide field service technicians to install or service our equipment.

The extent of the adverse impact of COVID-19 on general economic conditions and on our business, operations and results of operations remains uncertain.

In addition, outbreaks of other pandemics or contagious diseases may in the future disrupt our operations, suppliers or facilities, result in increased costs for certain goods or otherwise impact us in a manner similar to the COVID-19 pandemic.

The ongoing conflict in Ukraine may adversely affect our business and results of operations.

The ongoing conflict in Ukraine could have adverse effects on global macroeconomic conditions which could negatively impact our business and results of operations.

The conflict is highly unpredictable and has already resulted in significant volatility with oil and natural gas prices worldwide.

Elevated energy prices could result in higher inflation worldwide, causing economic uncertainty in the oil and natural gas markets as well as the stock market, resulting in stock price volatility, foreign currency fluctuations and supply chain disruptions.

These conditions could ultimately dampen demand for our goods and services by increasing the possibility of a recession.

In addition, the conflict could lead to increased cyberattacks or could aggravate other risk factors that we identify in our public filings.

Risks Related to Our Class A Common Stock

We are a holding company whose only material asset is our equity interest in Cactus LLC, and accordingly, we are dependent upon distributions from Cactus LLC to pay taxes, make payments under the TRA and cover our corporate and other overhead expenses and pay dividends to holders of our class A common stock.

We are a holding company and have no material assets other than our equity interest in Cactus LLC.

We are a holding company whose only material asset is our equity interest in Cactus Companies, and accordingly, we are dependent upon distributions from Cactus Companies to pay taxes, make payments under the TRA and cover our corporate and other overhead expenses and pay dividends to holders of our Class A Common Stock.

We are a holding company and have no material assets other than our equity interest in Cactus Companies.

We have no independent means of generating revenue.

To the extent Cactus LLC has available cash and subject to the terms of any current or future credit agreements or debt instruments, we intend to cause Cactus LLC to make (i) pro rata distributions to its unitholders, including us, in an amount at least sufficient to allow us to pay our taxes and to make payments under the TRA and (ii) non‑pro rata payments to us to reimburse us for our corporate and other overhead expenses.

To the extent that we need funds and Cactus LLC or its subsidiaries are restricted from making such distributions or payments under applicable law or regulation or under the terms of any future financing arrangements, or are otherwise unable to provide such funds, our financial condition and liquidity could be materially adversely affected.

In addition, our ability to pay dividends to holders of our Class A common stock depends on receipt of distributions from Cactus LLC.

Moreover, because we have no independent means of generating revenue, our ability to make payments under the TRA is dependent on the ability of Cactus LLC to make distributions to us in an amount sufficient to cover our obligations under the TRA.

This ability, in turn, may depend on the ability of Cactus LLC’s subsidiaries to make distributions to it.

The ability of Cactus LLC and its subsidiaries to make such distributions will be subject to, among other things, (i) the applicable provisions of Delaware law (or other applicable U.S.

and foreign jurisdictions) that may limit the amount of funds available for distribution and (ii) restrictions in relevant debt instruments issued by Cactus LLC or its subsidiaries.

To the extent Cactus Companies has available cash and subject to the terms of any current or future credit agreements or debt instruments, we intend to cause Cactus Companies to make (i) pro rata distributions to its unit holders, including us, in an amount at least sufficient to allow us to pay our taxes and to make payments under the TRA and (ii) non‑pro rata payments to us to reimburse us for our corporate and other overhead expenses.

To the extent that we need funds and Cactus Companies or its subsidiaries are restricted from making such distributions or payments under applicable law or regulation or under the terms of any future financing arrangements, or are otherwise unable to provide such funds, our financial condition and liquidity could be materially adversely affected.

In addition, our ability to pay dividends to holders of our Class A common stock depends on receipt of distributions from Cactus Companies.

Moreover, because we have no independent means of generating revenue, our ability to make payments under the TRA is dependent on the ability of Cactus Companies to make distributions to us in an amount sufficient to cover our obligations under the TRA.

This ability, in turn, may depend on the ability of Cactus Companies’ subsidiaries to make distributions to it.

The ability of Cactus Companies and its subsidiaries to make such distributions will be subject to, among other things, (i) the applicable provisions of Delaware law (or other applicable U.S.

and foreign jurisdictions) that may limit the amount of funds available for distribution and (ii) restrictions in relevant debt instruments issued by Cactus Companies or its subsidiaries.

To the extent that we are unable to make payments under the TRA for any reason, such payments will be deferred and will accrue interest until paid.

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Furthermore, in connection with our IPO, we entered into a stockholders’ agreement with Cactus WH Enterprises.

Among other things, the stockholders’ agreement provides Cactus WH Enterprises with the right to designate a certain number of nominees to our board of directors so long as they and their respective affiliates collectively beneficially own at least 5% of the outstanding shares of our common stock.

The existence of significant stockholders and the stockholders’ agreement may have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management or limiting the ability of our other stockholders to approve transactions that they may deem to be in our best interests.

Cactus WH Enterprises’ concentration of stock ownership may also adversely affect the trading price of our Class A

common stock to the extent investors perceive a disadvantage in owning stock of a company with significant stockholders.

See “Item 13.

Certain Relationships and Related Party Transactions, and Director Independence—Stockholders’ Agreement.”

Among other things, the stockholders’ agreement, as amended, provides Cactus WH Enterprises with the right to designate a certain number of nominees to our board of directors so long as they and their respective affiliates collectively beneficially own at least 5% of the outstanding shares of our common stock.

The existence of significant stockholders and the stockholders’ agreement may have the effect of deterring hostile takeovers, delaying or preventing changes in control or

changes in management or limiting the ability of our other stockholders to approve transactions that they may deem to be in our best interests.

Cactus WH Enterprises’ concentration of stock ownership may also adversely affect the trading price of our Class A common stock to the extent investors perceive a disadvantage in owning stock of a company with significant stockholders.

Our amended and restated certificate of incorporation and amended and restated bylaws, as well as Delaware law, contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price of our Class A common stock.

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In addition, some provisions of our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for a third party to acquire control of us, even if the change of control would be beneficial to our shareholders, including:

• limitations on the removal of directors;

• limitations on the removal of directors, including a classified board whereby only one-third of the directors are elected each year;

• limitations on the ability of our shareholders to call special meetings;

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Future sales of our Class A common stock in the public market, or the perception that such sales may occur, could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us.

Subject to certain limitations and exceptions, the CW Unit Holders may cause Cactus LLC to redeem their CW Units for shares of Class A common stock (on a one‑for‑one basis, subject to conversion rate adjustments for stock splits, stock dividends and reclassification and other similar transactions) and then sell those shares of Class A common stock.

Subject to certain limitations and exceptions, the CC Unit Holders may cause Cactus Companies to redeem their CC Units for shares of Class A common stock (on a one‑for‑one basis, subject to conversion rate adjustments for stock splits, stock dividends and reclassification and other similar transactions) and then sell those shares of Class A common stock.

Additionally, we may issue additional shares of Class A common stock or convertible securities in subsequent public offerings.

We had 59,035,237 outstanding shares of Class A common stock and 16,674,282 outstanding shares of Class B common stock as of December 31, 2021.

The CW Unit Holders own all 16,674,282 shares of Class B common stock, representing approximately 22.0% of our total outstanding common stock.

We had 64,127,114 outstanding shares of Class A common stock and 14,978,225 outstanding shares of Class B common stock as of February 27, 2023.

The CC Unit Holders own all outstanding shares of our Class B common stock, representing approximately 19% of our total outstanding common stock.

As required pursuant to the terms of the registration rights agreement that we entered into at the time of our IPO, we have filed a registration statement on Form S-3 under the Securities Act of 1933, as amended, to permit the public resale of shares of Class A common stock owned by Cactus WH Enterprises, Lee Boquet and certain members of our board of directors.

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will be required to make payments under the TRA for certain tax benefits that we may claim, and the amounts of such payments could be significant.

In connection with our IPO, we entered into the TRA with the TRA Holders.

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

Following completion of the CC Reorganization, the TRA Holders are certain direct and indirect owners of Cactus Companies and prior direct and indirect owners of Cactus LLC.

This agreement generally provides for the payment by Cactus Inc.

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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 certain increases in tax basis and certain benefits attributable to imputed interest.

actually realizes or is deemed to realize in certain circumstances as a result of certain increases in tax basis

and certain benefits attributable to imputed interest.

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

The term of the TRA will continue until all tax benefits that are subject to the TRA have been utilized or expired, unless we exercise our right to terminate the TRA (or the TRA is terminated due to other circumstances, including our breach of a material obligation thereunder or certain mergers or other changes of control), and we make the termination payment specified

In addition, payments we make under the TRA will be increased by any interest accrued from the due date (without extensions) of the corresponding tax return.

Payments under the TRA commenced in 2019, and in the event that the TRA is not terminated, the payments under the TRA are anticipated to continue for approximately 20 years after the date of the last redemption of CW Units.

The payment obligations under the TRA are our obligations and not obligations of Cactus LLC, and we expect that the payments we will be required to make under the TRA will be substantial.

The payment obligations under the TRA are our obligations and not obligations of Cactus Companies, and we expect that the payments we will be required to make under the TRA will be substantial.

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

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federal income tax rate and an assumed combined state and local income tax rate) to the amount we would have been required to pay had we not been able to utilize any of the tax benefits subject to the TRA.

The amounts payable, as well as the timing of any payments under the TRA, are dependent upon significant future events and assumptions, including the timing of the redemption of CW Units, the price of our Class A common stock at the time of each redemption, the extent to which such redemptions are taxable transactions, the amount of the redeeming unit holder’s tax basis in its CW Units at the time of the relevant redemption, the depreciation and amortization periods that apply to the increase in tax basis, the amount and timing of taxable income we generate in the future and the U.S.

The amounts payable, as well as the timing of any payments under the TRA, are dependent upon significant future events and assumptions, including the timing of the redemption of CC Units, the price of our Class A common stock at the time of each redemption, the extent to which such redemptions are taxable transactions, the amount of the redeeming unit holder’s tax basis in its CC Units at the time of the relevant redemption, the depreciation and amortization periods that apply to the increase in tax basis, the amount and timing of taxable income we generate in the future and the U.S.

federal income tax rates then applicable, and the portion of our payments under the TRA that constitute imputed interest or give rise to depreciable or amortizable tax basis.

The payments under the TRA are not conditioned upon a holder of rights under the TRA having a continued ownership interest in us.

For additional information regarding the TRA, see “Item 13.

Certain Relationships and Related Party Transactions, and Director Independence—Tax Receivable Agreement.”

In certain cases, payments under the TRA may be accelerated and/or significantly exceed the actual benefits, if any, we realize in respect of the tax attributes subject to the TRA.

If we elect to terminate the TRA early or it is terminated early due to Cactus Inc.’s failure to honor a material obligation thereunder or due to certain mergers or other changes of control, our obligations under the TRA would accelerate and we would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by us under the TRA (determined by applying a discount rate of one‑year LIBOR plus 150 basis points) and such payment is expected to be substantial.

The calculation of anticipated future payments will be based upon certain assumptions and deemed events set forth in the TRA, including (i) the assumption that we have sufficient taxable income to fully utilize the tax benefits covered by the TRA and (ii) the assumption that any CW Units (other than those held by Cactus Inc.) outstanding on the termination date are deemed to be redeemed on the termination date.

The calculation of anticipated future payments will be based upon certain assumptions and deemed events set forth in the TRA, including (i) the assumption that we have sufficient taxable income to fully utilize the tax benefits covered by the TRA and (ii) the assumption that any CC Units (other than those held by Cactus Inc.) outstanding on the termination date are deemed to be redeemed on the termination date.

Any early termination payment may be made significantly in advance of the actual realization, if any, of the future tax benefits to which the termination payment relates.

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As a result, in some circumstances, we could make payments that are greater than our actual cash tax savings, if any, and may not be able to recoup those payments, which could adversely affect our liquidity.

If Cactus LLC were to become a publicly traded partnership taxable as a corporation for U.S.

federal income tax purposes, we and Cactus LLC might be subject to potentially significant tax inefficiencies, and we would not be able to recover payments previously made by us under the TRA even if the corresponding tax benefits were subsequently determined to have been unavailable due to such status.

We intend to operate such that Cactus LLC does not become a publicly traded partnership taxable as a corporation for U.S.

If Cactus Companies were to become a publicly traded partnership taxable as a corporation for U.S.

federal income tax purposes, we and Cactus Companies might be subject to potentially significant tax inefficiencies, and we would not be able to recover payments previously made by us under the TRA even if the corresponding tax benefits were subsequently determined to have been unavailable due to such status.

We intend to operate such that Cactus Companies does not become a publicly traded partnership taxable as a corporation for U.S.

federal income tax purposes.

A “publicly traded partnership” is a partnership the interests of which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof.

Under certain circumstances, redemptions of CW Units pursuant to the Redemption Right (or our Call Right) or other transfers of CW Units

could cause Cactus LLC to be treated as a publicly traded partnership.

Under certain circumstances, redemptions of CC Units pursuant to the Redemption Right or our Call Right (each as defined in Note 10 in the notes to the Consolidated Financial Statements) or other transfers of CC Units could cause Cactus Companies to be treated as a publicly traded partnership.

Applicable U.S.

Treasury regulations provide for certain safe harbors from treatment as a publicly traded partnership, and we intend to operate such that one or more such safe harbors shall apply.

For example, we intend to limit the number of unitholders of Cactus LLC, and the Cactus Wellhead LLC Agreement, which was entered into in connection with the closing of our IPO, provides for limitations on the ability of CW Unit Holders to transfer their CW Units and provides us, as managing member of Cactus LLC, with the right to impose restrictions (in addition to those already in place) on the ability of unitholders of Cactus LLC to redeem their CW Units pursuant to the Redemption Right to the extent we believe it is necessary to ensure that Cactus LLC will continue to be treated as a partnership for U.S.

For example, we intend to limit the number of unit holders of Cactus Companies, and the Cactus Wellhead LLC Agreement, which was entered into in connection with the closing of our IPO, provides for limitations on the ability of CC Unit Holders to transfer their CC Units and provides us, as managing member of Cactus Companies, with the right to impose restrictions (in addition to those already in place) on the ability of unit holders of Cactus Companies to redeem their CC Units pursuant to the Redemption Right to the extent we believe it is necessary to ensure that Cactus Companies will continue to be treated as a partnership for U.S.

federal income tax purposes.

If Cactus LLC were to become a publicly traded partnership, significant tax inefficiencies might result for us and for Cactus LLC, including as a result of our inability to file a consolidated U.S.

federal income tax return with Cactus LLC.

In addition, we would no longer have the benefit of certain increases in tax basis covered under the TRA, and we would not be able to recover any payments previously made by us under the TRA, even if the corresponding tax benefits (including any claimed increase in the tax basis of Cactus LLC’s assets) were subsequently determined to have been unavailable.

If Cactus Companies were to become a publicly traded partnership, significant tax inefficiencies might result for us and for Cactus Companies, including as a result of our inability to file a consolidated U.S.

federal income tax return with Cactus Companies.

In addition, we would no longer have the benefit of certain increases in tax basis covered under the TRA, and we would not be able to recover any payments previously made by us under the TRA, even if the corresponding tax benefits (including any claimed increase in the tax basis of Cactus Companies’ assets) were subsequently determined to have been unavailable.

Risks Related to the Merger

We may not realize the anticipated benefits from the Merger and the Merger could adversely impact our business and our operating results.

We may not be able to achieve the full potential strategic and financial benefits that we expect to achieve from the Merger, or such benefits may be delayed or not occur at all.

We may not achieve the anticipated benefits from the Merger for a variety of reasons, including, among others, unanticipated costs, charges and expenses.

For example, the capital needs of the FlexSteel business may exceed our current expectations.

If we fail to achieve some or all of the benefits expected to result from the Merger, or if such benefits are delayed, our business could be harmed.

FlexSteel’s operations are subject to many of the same risks as our historical operations.

The failure of FlexSteel to obtain financial results after the Merger similar to those obtained in the past could adversely impact our business and our consolidated operating results.

The unaudited pro forma condensed combined financial information filed as Exhibit 99.3 to our Form 8-K filed with the SEC on January 10, 2023 was based on a number of preliminary estimates and assumptions and our actual results of operations, cash flows and financial position after the Merger may differ materially.

The unaudited pro forma condensed combined financial information filed as Exhibit 99.3 to our Form 8-K filed with the SEC on January 10, 2023 was for illustrative purposes only and is not necessarily indicative of what our actual results of operations, cash flows and financial position would have been had the Merger and the offering been completed on the dates indicated.

The unaudited pro forma condensed combined financial information reflected adjustments, which were based upon preliminary estimates, to record the FlexSteel identifiable assets to be acquired and liabilities to be assumed at fair value, and the resulting goodwill to be recognized.

The purchase price allocation reflected was preliminary, and final allocation of the purchase price will be based upon the actual purchase price and the fair value of the assets acquired and liabilities assumed in the Merger.

The unaudited pro forma condensed combined financial information was also based on a number of other estimates and assumptions, including estimates and assumptions of the type and terms of a portion of the debt to be incurred to finance a portion of the purchase price payable under the Merger Agreement and pay fees and expenses related to the Merger and the related transactions.

To the extent the type or terms of the new debt actually incurred differ materially from the estimates and assumptions set out in the unaudited pro forma condensed combined financial information, our actual results and financial condition after the completion of the Merger would differ materially from the results and financial condition contemplated by the unaudited pro forma condensed combined financial information.

Further, the historical financial data for FlexSteel filed as Exhibits 99.1 and 99.2 to our Form 8-K filed with the SEC on January 10, 2023 may not be indicative of the financial position or results of operations that the combined company will achieve in the future.

FlexSteel’s operations are subject to many of the same risks as our historical operations, any of which may also adversely affect the combined company’s business, operating results, financial condition and prospects.

We may experience difficulties in integrating the operations of FlexSteel into our business and in realizing the expected benefits of the Merger.

The success of the Merger will depend in part on our ability to realize the anticipated business opportunities from combining the operations of FlexSteel with our business in an efficient and effective manner.

The integration process could take longer than anticipated and could result in the distraction of management, the loss of key employees from either company, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, employees or other third parties, or our ability to achieve the anticipated benefits of the Merger, and could harm our financial performance.

If we are unable to successfully or timely integrate the operations of FlexSteel with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth and other anticipated benefits resulting from the Merger, and our business, results of operations and financial condition could be materially and adversely affected.

FlexSteel may have liabilities that are not known to us and the indemnities negotiated in the Merger Agreement may not offer adequate protection.

As part of the Merger, we have assumed certain liabilities of FlexSteel.

There may be liabilities that we failed or were unable to discover in the course of performing due diligence investigations into FlexSteel.

We may also have not correctly assessed the significance of certain FlexSteel liabilities identified in the course of our due diligence.

Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.

As we integrate FlexSteel into our operations, we may learn additional information about FlexSteel, such as unknown or contingent liabilities and issues relating to compliance with applicable laws, that could potentially have an adverse effect on our business, financial condition and results of operations.

We will not be able to enforce claims with respect to the representations and warranties that the sellers of FlexSteel provided under the Merger Agreement.

In connection with the Merger, the sellers of FlexSteel gave customary representations and warranties related to FlexSteel under the Merger Agreement.

We will not be able to enforce any claims against the sellers including any claims relating to breaches of such representations and warranties.

The sellers’ liability with respect to breaches of their representations and warranties under the Merger Agreement is limited.

To provide for coverage against certain breaches by the sellers of its representations and warranties and certain pre-closing taxes of FlexSteel, we have obtained a representation and warranty insurance policy.

The policy is subject to a retention amount, exclusions, policy limits and certain other customary terms and conditions.

The Amended ABL Credit Facility is required to fund a portion of the purchase price payable under the Merger Agreement, which will result in increased interest expenses, financial covenants, security interest in the assets of the Company’s subsidiaries and use of cash flows to repay the debt.

In connection with the Merger, we obtained debt financing under the Amended ABL Credit Facility to pay a portion of the purchase price payable under the Merger Agreement.

In addition to paying interest on the loans, we are required to repay the term loan on an accelerated basis and to comply with various covenants and restrictive provisions that limit Cactus Companies’ 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 obligations under the Amended ABL Credit Facility are guaranteed by certain subsidiaries of Cactus Companies and secured by a security interest in accounts receivable, inventory, equipment and certain other real and personal property assets of Cactus Companies and its subsidiaries.

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

The repayment and other obligations under the Amended ABL Credit Facility may also limit free cash flow available for other corporate purposes, including capital expenditures or paying dividends.

General Risks

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We are not required to pay a dividend, and any determination to pay dividends and other distributions in cash, stock or property by us in the future (including determinations as to the amount of any such dividend or distribution) will be at the discretion of our board of directors and will be dependent on then-existing conditions, including business conditions, our financial condition, results of operations, liquidity, capital requirements, contractual restrictions, including restrictive covenants contained in debt agreements, and other factors.

If we are unable to fully protect our intellectual property rights or trade secrets, we may suffer a loss in revenue or any competitive advantage or market share we hold, or we may incur costs in litigation defending intellectual property rights.

If we are unable to fully protect our intellectual property rights or trade secrets or a third party attempts to enforce their intellectual property rights against us, we may suffer a loss in revenue or any competitive advantage or market share we hold, or we may incur costs in litigation defending intellectual property rights.

While we have some patents and others pending, we do not have patents relating to many of our key processes and technology.

If we are not able to maintain the confidentiality of our trade secrets, or if our competitors are able to replicate our technology or services, our competitive advantage would be diminished.

If we are not able to maintain the confidentiality of our trade secrets, or if our competitors are able to replicate our technology or services, our competitive advantage could be diminished.

We also cannot provide any assurance that any patents we may obtain in the future would provide us with any significant commercial benefit or would allow us to prevent our competitors from employing comparable technologies or processes.

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Third parties from time to time may also initiate litigation against us by asserting that our businesses infringe, impair, misappropriate, dilute or otherwise violate another party’s intellectual property rights.

We may not prevail in any such litigation, and our intellectual property rights may be found invalid or unenforceable or our products and services may

be found to infringe, impair, misappropriate, dilute or otherwise violate the intellectual property rights of others.

We may not prevail in any such litigation, and our intellectual property rights may be found invalid or unenforceable or our products and services may be found to infringe, impair, misappropriate, dilute or otherwise violate the intellectual property rights of others.

The results or costs of any such litigation may have an adverse effect on our business, results of operations and financial condition.

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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 1A. Risk Factors