What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-02-28 · 162 added, 103 removed, 769 unchanged (26% of the section changed)

21 unchanged sentences

Houston, Texas

February 28, 2022

March 1, 2023

Report of Independent Registered Public Accounting Firm

2 unchanged sentences

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

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Houston, Texas

February 28, 2022

March 1, 2023

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

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Retained earnings 261,764 178,446

Accumulated other comprehensive income 8 330

Accumulated other comprehensive income (loss) ( 984 ) 8

Total stockholders’ equity attributable to Cactus Inc.

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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 )

12 unchanged sentences

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

27 unchanged sentences

Inventory obsolescence 2,739 3,490 4,840

(Gain) loss on disposal of assets ( 1,386 ) ( 2,480 ) 236

Gain on disposal of assets ( 1,391 ) ( 1,386 ) ( 2,480 )

Deferred income taxes 25,299 4,829 6,948

13 unchanged sentences

Cash flows from financing activities

Payment of deferred financing costs ( 353 ) — —

Payments on finance leases ( 6,055 ) ( 5,205 ) ( 5,317 )

21 unchanged sentences

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

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

became the sole managing member of Cactus LLC upon completion of our IPO and is responsible for all operational, management and administrative decisions relating to Cactus LLC’s business.

Pursuant to the Second Amended and Restated Limited Liability Company Operating Agreement of Cactus LLC (the “Cactus Wellhead LLC Agreement”), owners of CW Units are entitled to redeem their CW Units for shares of Cactus Inc.’s Class A common stock, par value $ 0.01 per share (“Class A common stock”) on a one-for-one basis, which results in a corresponding increase in Cactus Inc.’s membership interest in Cactus LLC and an increase in the number of shares of Class A common stock outstanding.

We refer to the owners of CW Units, other than Cactus Inc.

(along with their permitted transferees), as “CW Unit Holders.” CW Unit Holders own one share of our Class B common stock, par value $ 0.01 per share (“Class B common stock”) for each CW Unit such CW Unit Holder owns.

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

1 unchanged sentence

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.

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

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

As a result, Cactus Inc.

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

As of December 31, 2021, Cactus Inc.

owned 78.0 % of Cactus LLC, as compared to 63.3 % as of December 31, 2020.

As of December 31, 2021, Cactus Inc.

had outstanding 59.0 million shares of Class A common stock (representing 78.0 % of the total voting power) and 16.7 million shares of Class B common stock (representing 22.0 % of the total voting power).

On February 28, 2023, we completed the acquisition of FlexSteel Holdings, LLC (“FlexSteel”), a leading manufacturer and provider of differentiated onshore spoolable pipe technologies and associated installation services.

The historical consolidated financial statements and related notes included herein do not reflect the acquisition as it was completed subsequent to December 31, 2022.

The post-acquisition results of operations of FlexSteel will first be included in our consolidated results for the period ending March 31, 2023.

See further discussion of the acquisition in Note 15.

“Subsequent Events”.

Summary of Significant Accounting Policies and Other Items

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All intercompany transactions and balances have been eliminated upon consolidation.

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

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

As a result, Cactus Inc.

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

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

Our receivables are spread over a number of customers, a majority of which are oil and natural gas exploration and production (“E&P”) companies representing private operators, publicly-traded independents, majors and other companies with operations in the key U.S.

oil and gas producing basins as well as Australia and the Kingdom of Saudi Arabia.

Our maximum exposure to credit loss in the event of non‑performance by the customer is limited to the receivable balance.

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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, 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.

For the year ended December 31, 2022, we had no customers representing more than 10% of total revenues.

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

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

Significant Vendors

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

The principal raw materials used in the manufacture of our products and rental equipment include forgings, 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.

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

For each of the three years ended December 31, 2022, no vendor represented more than 10% of our total third-party vendor purchases of raw materials, finished products, equipment, machining and other services.

Tax Receivable Agreement (TRA)

1 unchanged sentence

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, 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.

During the years ended December 31, 2022, 2021 and 2020, we recognized a $ 1.9 million loss, a $ 0.9 million gain and a $ 0.6 million loss on the change in the TRA liability, respectively.

See Note 9 for further details on the TRA liability.

Revenue Recognition

The majority of our revenues are derived from short-term contracts for fixed consideration.

The majority of our revenues are derived from short-term contracts for fixed consideration or in the case of frac equipment rentals, for a fixed charge per day while the equipment is in use by the customer.

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

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

As of December 31, 2022 and 2021, the fair value of our forward contracts were immaterial.

Stock-based Compensation

9 unchanged sentences

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.

However, Cactus LLC is subject to the Texas Margins Tax.

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

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

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

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

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

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

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

We do not accrue interest on delinquent receivables.

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

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

Total unbilled revenue included in accounts receivable as of December 31, 2022 and 2021 was $ 34.9 million and $ 24.1 million, respectively.

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

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

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

Year Ended December 31, 2022 $ 741 $ 406 $ ( 86 ) $ ( 1 ) $ 1,060

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Inventories are stated at the lower of cost or net realizable value.

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

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

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

Costs include an application of related material, 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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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.

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.

Based on our annual impairment analysis using qualitative assessments, we concluded that there was no impairment of goodwill in 2022 and 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.

2 unchanged sentences

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, 2022 and 2021 are as follows:

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

Payroll, incentive compensation, payroll taxes and benefits $ 9,484 $ 7,030

Deferred revenue 1,764 1,068

Accrued professional fees and other 7,347 1,078

Accrued international freight and tariffs 5,887 14,794

Taxes other than income 2,728 1,641

Income based tax payable 2,537 1,182

Accrued professional fees and other 1,078 687

Accrued dividends 346 271

Deferred revenue 1,450 1,764

Accrued workers’ compensation insurance 576 269

Accrued dividends 484 346

Product warranties 126 136

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During 2022, 2021 and 2020, employer matching contributions totaled $ 4.2 million, $ 1.2 million and $ 1.6 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.

Inventories consist of the following:

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We had no debt outstanding as of December 31, 2022 and 2021.

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

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

The ABL Credit Facility matures on August 21, 2023.

We had $ 0.1 million in letters of credit outstanding and were in compliance with all covenants under the ABL Credit Facility (as defined below) as of December 31, 2022.

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

The ABL Credit Facility was first amended in September 2020 and provided for $ 75.0 million in revolving commitments.

On July 25, 2022, the ABL Credit Facility was amended again for up to $ 80.0 million in revolving commitments, up to $ 15.0 million of which is available for the issuance of letters of credit.

Subject to certain terms and conditions set forth in the ABL Credit Facility, Cactus LLC may request additional revolving commitments in an amount not to exceed $ 50.0 million, for a total of up to $ 130.0 million in revolving commitments.

The ABL Credit Facility matures on July 25, 2027, or such earlier date that is 91 days prior to the maturity date of any indebtedness that has a principal balance exceeding $ 30.0 million.

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

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

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

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

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.

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

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 Term SOFR Rate (as defined therein) (“Term Benchmark”), 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 Term Benchmark borrowings.

The applicable margin ranges from 0.0 % to 0.5 % per annum for ABR borrowings and 1.25 % to 1.75 % per annum for Term Benchmark borrowings and, in each case, is based on the average quarterly availability under the ABL Credit Facility for the immediately preceding fiscal quarter.

The unused portion of the ABL Credit Facility is subject to a commitment fee of 0.25 % per annum.

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

The obligations under the ABL Credit Facility are guaranteed by certain subsidiaries of Cactus LLC and secured by a security interest in the accounts receivable, inventory and certain other personal property assets of Cactus LLC and the guarantors.

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

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

At December 31, 2021 and 2020, although there were no borrowings outstanding, the applicable margins on our Eurodollar borrowings were 1.50 % and 1.75 %, respectively, plus an adjusted base rate of one or three month LIBOR.

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

At December 31, 2022, although there were no borrowings outstanding, the applicable margin on our Term Benchmark borrowings was 1.25 %, plus the base rate of one, three or six month SOFR plus 0.10 %, subject to a floor rate.

At December 31, 2021, the applicable margin was 1.50 % plus an adjusted base rate of one or three month LIBOR.

On February 28, 2023, in connection with the acquisition of FlexSteel, the ABL Credit Facility was amended and restated in its entirety (the “Amended ABL Credit Facility”).

The Amended ABL Credit Facility provides for a term loan of $ 125.0 million and up to $ 225.0 million in revolving commitments.

The term loan under the Amended ABL Credit Facility matures on February 27, 2026 and any revolving loans under the Amended ABL Credit Facility mature on July 26, 2027.

See further discussion of the Amended ABL Credit Facility in Note 15.

Interest (Income) Expense, net

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Net operating loss carryforwards 855 11,198

Other 152 546

Deferred tax assets 319,248 320,316

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

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.

We recorded $ 10.6 million of stock-based compensation expense during the year ended December 31, 2022 and $ 8.6 million during each of the years ended December 31, 2021 and 2020.

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

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.

We recognized $ 1.7 million, $ 1.1 million and $ 34 thousand in tax benefits for tax deductions from the vesting of stock-based awards benefits during the years ended December 31, 2022, 2021 and 2020, respectively.

As of December 31, 2022, 1.1 million stock awards were available for grant.

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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.

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

Our ROCE performance over the two-year period did not meet the minimum requirements for vesting;

therefore, the portions of the awards related to the two-year performance period 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):

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

Based on actual ROCE performance from 2020 through 2022, these PSUs vested at 80 % of target;

therefore, a portion of the awards related to the three-year performance period were forfeited as of December 31, 2022.

The following table summarizes our PSU activity during the year ended December 31, 2022 (PSUs in thousands at their target number of shares which assumes achievement of 100 % of target):

of PSUs Weighted Average Grant Date Fair Value ($)

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Granted 68 55.02

Vested ( 96 ) 13.66

Forfeited ( 42 ) 23.26

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(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 and the Kingdom of Saudi Arabia.

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

For the year ended December 31, 2022, we derived 66 % of our total revenues from the sale of our products, 14 % of our total revenues from rental and 20 % of our total revenues from field service and other.

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Present value of lease payments $ 23,152 $ 12,369

The following represents the average lease terms and discount rates for our operating and finance lease portfolio as of December 31, 2021:

The following represents the average lease terms and discount rates for our operating and finance leases:

Year Ended December 31,

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

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

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

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

makes under the TRA.

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

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

We retain the remaining 15 % of the cash savings.

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

The blended tax rate consists of the U.S.

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The term of the TRA commenced upon completion of our IPO and 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.

If we elect to terminate the TRA early (or it is terminated early due to certain mergers, asset sales, other forms of business combinations 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 and such payment is expected to be substantial.

If we elect to terminate the TRA early (or it is terminated early due to certain mergers, asset sales, other forms of business combinations or other changes of control relating to Cactus LLC, 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 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 the assumptions that (i) we have sufficient taxable income to fully utilize the tax benefits covered by the TRA and (ii) any CW Units (other than those held by Cactus Inc.) outstanding on the termination date are deemed to be redeemed on the termination date.

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Any such deferred payments under the TRA generally will accrue interest from the due date for such payment until the payment date.

As of December 31, 2022, Cactus Inc.

owned 80.3 % of Cactus LLC, as compared to 78.0 % as of December 31, 2021.

As of December 31, 2022, Cactus Inc.

had outstanding 60.9 million shares of Class A common stock (representing 80.3 % of the total voting power) and 15.0 million shares of Class B common stock (representing 19.7 % of the total voting power).

Redemptions of CW Units

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

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

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

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

March 2019 Secondary Offering ( 8,474 )

Other CW Unit redemptions ( 804 )

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

Other CW Unit redemptions ( 303 )

CW Unit redemptions ( 303 )

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

4 unchanged sentences

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

On March 19, 2019, Cactus Inc.

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

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

The March 2019 Secondary Offering closed on March 21, 2019, at which time, in exercise of its Call Right, 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 8.5 million shares of Class A common stock to the underwriters at the direction of the redeeming Selling Stockholders, as provided in the Cactus LLC Agreement.

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, 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.

CW Unit redemptions ( 1,696 )

CW Units held by legacy CW Unit Holders as of December 31, 2022 14,978

Outside of the redemptions associated with the 2021 Secondary Offering (as defined below) and the 2021 redemptions by Cadent (as defined below) and its affiliates, certain legacy CW Unit Holders redeemed 1.7 million, 0.7 million and 0.3 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, 2022, 2021 and 2020, respectively.

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 1.7 million, 0.7 million and 0.3 million shares of Class A common stock to the redeeming CW Unit Holders during the same respective time periods.

Pursuant to the TRA, as 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, 2022, 2021 and 2020, Cactus Inc.

increased its ownership in Cactus LLC and accordingly, increased its equity by approximately $ 13.7 million, $ 79.4 million and $ 2.2 million, respectively, resulting from a reduction in the non-controlling interest.

On March 9, 2021, Cactus Inc.

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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.

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.

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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 $ 0.44 , $ 0.38 and $ 0.36 per share of Class A common stock declared during the years ended December 31, 2022, 2021 and 2020 totaled $ 26.9 million, $ 21.2 million and $ 17.4 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, 2022, 2021 and 2020 totaled $ 26.7 million, $ 21.2 million and $ 17.1 million, respectively.

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

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

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

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

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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 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.

Effective January 1, 2022, we pay a base hourly rent of $ 2,500 per flight hour of use (increased from $ 1,750 per flight hour) of the aircraft, payable monthly, for the hours of aircraft operation.

During each of the years ended December 31, 2022 and 2021, expense recognized in connection with these rentals totaled $ 0.2 million as compared to $ 0.1 million during the year ended December 31, 2020.

As of December 31, 2022 and 2021, we owed less than $ 0.1 million to the related party which are included in accounts payable in the consolidated balance sheets.

We are also responsible for employing pilots and fuel expenses.

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.

Our Chief Executive Officer and Chief Operating Officer reimburse the Company up to $ 2,350 per 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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The total liability from the TRA as of December 31, 2022 was $ 292.6 million.

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

As of December 31, 2021 and 2020, $ 0.2 million was due from the TRA Holders for fees paid on their behalf.

We pay professional fees to assist with maintenance of the TRA and composite tax payments in advance of the state tax return filings which are reimbursable from the TRA Holders.

As of December 31, 2022 and 2021, amounts due from the TRA Holders for fees and estimated state tax payments made on their behalf totaled $ 0.1 million and $ 0.2 million, respectively.

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

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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.

During the years ended December 31, 2022 and 2021, Cactus LLC made pro rata distributions to the other members totaling $ 9.7 million, respectively as compared to $ 16.3 million during the year ended December 31, 2020.

Commitments and Contingencies

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$ 1.80 $ 0.83 $ 0.72

(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.

(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 25.0 %, 27.0 % and 24.0 % for the years ended December 31, 2022, 2021 and 2020, respectively.

Supplemental Cash Flow Information

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2022 2021 2020

Property and equipment acquired under finance leases $ 9,941 $ 2,973 $ 3,008

Property and equipment in payables 405 197 1,052

Right-of-use assets obtained in exchange for new lease obligations $ 14,506 $ 15,283 $ 4,302

Property and equipment in accounts payable 1,369 405 197

Cash paid for interest and income taxes was as follows:

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During the years ended December 31, 2022, 2021 and 2020, we issued 1.7 million, 11.0 million and 0.3 million shares of Class A common stock, respectively, pursuant to redemptions of CW Units by holders thereof.

Subsequent Events

On December 30, 2022, Cactus Inc.

and its newly-formed subsidiary, Atlas Merger Sub, LLC, entered into a definitive agreement (the “Merger Agreement”) to acquire HighRidge Resources, Inc.

and its subsidiaries (“HighRidge”) on the terms and subject to the conditions set forth in the Merger Agreement (the “Merger”).

The Merger Agreement provided Cactus with the opportunity to acquire FlexSteel, a wholly-owned subsidiary of HighRidge and a leading manufacturer and provider of differentiated onshore spoolable pipe technologies and associated installation services.

On January 13, 2023, Cactus Inc.

completed an underwritten offering of 3,224,300 shares of Class A common stock at a price to the underwriters of $ 51.36 per share for net proceeds of $ 165.6 million (net of $ 6.9 million of underwriting discounts and commissions).

Following the offering, Cactus Inc.

owned 81.1 % and CW Unit Holders owned 18.9 % of Cactus LLC, which was based on 64.1 million shares of Class A common stock issued and outstanding and 15.0 million shares of Class B common stock issued and outstanding.

The Merger closed on February 28, 2023 whereby Atlas Merger Sub, LLC merged into HighRidge, with HighRidge being the surviving entity.

HighRidge’s primary purpose was to own 100% of the equity in FlexSteel Holdings, Inc.

Subsequent to the Merger, FlexSteel Holdings, Inc.

was converted into a limited liability company, now named FlexSteel Holdings, LLC (previously defined as “FlexSteel”).

Also subsequent to the Merger, Cactus Inc.

contributed HighRidge to Cactus Acquisitions LLC, a newly created entity, whereby HighRidge was converted into a limited liability company.

Finally, Cactus Acquisitions LLC contributed FlexSteel to Cactus Companies, LLC who acquired all of the outstanding units of Cactus LLC in exchange for an equal number CC Units (as defined below) prior to the Merger closing.

We acquired FlexSteel on a cash-free, debt-free basis, for a purchase price of approximately $ 621.2 million, subject to certain working capital, debt and other customary adjustments set forth in the Merger Agreement.

In addition to the upfront consideration, there is a potential future earn-out payment of up to $ 75 million to be paid no later than the third quarter of 2024, if certain revenue growth targets are met by FlexSteel.

We funded the upfront purchase price using a combination of $ 165.6 million of net proceeds received from the public offering of shares of our Class A common stock completed on January 13, 2023, borrowings under the Amended ABL Credit Facility and available cash on hand at the time of closing.

We believe this acquisition enhances Cactus’ position as a premier manufacturer and provider of highly engineered equipment to the E&P industry and expands our reach further downstream.

We also believe FlexSteel’s products are highly complementary to Cactus’ equipment at the wellsite and provides meaningful growth potential for Cactus.

The acquisition is being accounted for using the acquisition method of accounting, with Cactus being treated as the accounting acquirer.

Under the acquisition method of accounting, the assets and liabilities will be recorded at their respective fair values as of the date of the completion of the Merger.

The preliminary purchase price allocation is not complete as of the date of this report and will be an ongoing process for up to one year subsequent to the closing date of the transaction.

Determining the fair value of the assets and liabilities of FlexSteel requires judgment and certain assumptions to be made.

The Merger was structured as a tax-free reorganization for United States federal income tax purposes.

In connection with the Merger, Cactus recognized approximately $ 8.4 million of transaction costs for the year ended December 31, 2022.

These fees primarily related to legal, accounting and consulting fees and are included in selling, general and administrative expenses in the statements of income.

As part of an internal reorganization (the “CC Reorganization”) in connection with the Merger, Cactus Companies, LLC (“Cactus Companies”) was formed and on February 27, 2023, Cactus Companies acquired all of the outstanding units of Cactus LLC in exchange for an equal number of units representing limited liability company interests in Cactus Companies (“CC Units”) issued to each of the previous owners of CW Units.

Upon the completion of the CC Reorganization, CW Unit Holders ceased to be holders of CW Units and, instead, became holders of a number of CC Units equal to the number of CW Units such CW Unit Holders held immediately prior to the completion of the CC Reorganization.

Following the completion of the CC Reorganization, CC Unit Holders own one share of our Class B Common Stock for each CC Unit such CC Unit Holder owns.

is a holding company whose only material asset is an equity interest consisting of CC Units, following the completion of the CC Reorganization, and was CW Units from the IPO until the CC Reorganization.

was the sole managing member of Cactus LLC upon completion of our IPO until the CC Reorganization and became the sole managing member of Cactus Companies upon completion of the CC Reorganization.

In connection with the CC Reorganization, Cactus Inc.

and the owners of CC Units entered into the Limited Liability Company Operating Agreement of Cactus Companies (the “Cactus Companies LLC Agreement”), which contains substantially the same terms and conditions as the Second Amended and Restated Limited Liability Company Operating Agreement of Cactus LLC (the “Cactus Wellhead LLC Agreement”), which was the limited liability company operating agreement of Cactus LLC prior to the CC Reorganization.

was responsible for all operational, management and administrative decisions relating to Cactus LLC’s business for the period from completion of our IPO until the CC Reorganization and relating to Cactus Companies’ business for periods after the CC Reorganization.

Pursuant to the Cactus Companies LLC Agreement, each holder

of CC Units has, subject to certain limitations, the right to cause Cactus Companies to acquire all or at least a minimum portion of its CC Units for, at Cactus Companies’ election, (x) shares of our Class A common stock at a redemption ratio of one share of Class A common stock for each CC Unit redeemed, subject to conversion rate adjustments for stock splits, stock dividends and reclassification and other similar transactions, or (y) an equivalent amount of cash.

Alternatively, upon the exercise of such redemption right, Cactus Inc.

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

In connection with any redemption of CC Units pursuant to such redemption right or our alternative right to acquire each tendered CC Unit, the corresponding number of shares of Class B common stock would be canceled.

On February 28, 2023, in connection with the Merger, Cactus Companies assumed the rights and obligations of Cactus LLC as Borrower under the ABL Credit Facility and the ABL Credit Facility was amended and restated in its entirety (the “Amended ABL Credit Facility”).

The Amended ABL Credit Facility provides for a term loan of $ 125.0 million, the full amount of which was borrowed at closing of the Amended ABL Credit Facility to fund a portion of the Merger, and up to $ 225.0 million in revolving commitments, up to $ 20.0 million of which is available for the issuance of letters of credit.

Subject to certain terms and conditions set forth in the Amended ABL Credit Facility, Cactus Companies LLC may request additional revolving commitments in an amount not to exceed $ 50.0 million, for a total of up to $ 275.0 million in revolving commitments.

The term loan under the Amended ABL Credit Facility matures on February 27, 2026 and any revolving loans under the Amended ABL Credit Facility mature on July 26, 2027.

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

Borrowings under the Amended ABL Credit Facility bear interest at Cactus Companies’ option at either the ABR rate or the Term Benchmark rate, plus, in each case, an applicable margin.

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

The applicable margin for term loan borrowings is 2.50 % per annum for term loan ABR borrowings and 3.50 % per annum for term loan Term Benchmark borrowings.

The applicable margin for revolving loan borrowings ranges from 0.0 % to 0.5 % per annum for revolving loan ABR borrowings and 1.25 % to 1.75 % per annum for revolving loan Term Benchmark borrowings and, in each case, is based on the average quarterly availability of the revolving loan commitment under the Amended ABL Credit Facility for the immediately preceding fiscal quarter.

The unused portion of revolving commitment under the Amended ABL Credit Facility is subject to a commitment fee of 0.25 % per annum.

The term loan is required to be repaid in regular set amounts starting March 31, 2023 as set forth in the amortization schedule in the Amended ABL Credit Facility.

The term loan can be prepaid without the payment of any prepayment premium (other than customary breakage costs for Term Benchmark borrowings).

The Amended ABL Credit Facility contains 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 the guarantors.

Until the term loan is paid in full, the Amended ABL Credit Facility requires Cactus Companies to maintain a leverage ratio no greater than 2.50 to 1.00 based on the ratio of Total Indebtedness (as defined therein) to EBITDA (as defined therein).

The Amended ABL Credit Facility also requires Cactus Companies to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 based on the ratio of EBITDA (as defined therein) minus Unfinanced Capital Expenditures (as defined therein) to Fixed Charges (as defined therein) during certain periods, including when availability under the Amended ABL Credit Facility is under certain levels.

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.

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