What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-08 compared with 2023-05-10 · 179 added, 74 removed, 504 unchanged (33% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data) March 31,

(in thousands, except per share data) June 30,

2023 December 31,

6 unchanged sentences

Prepaid expenses and other current assets

11,182 10,564

Total current assets

54 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(in thousands, except per share data) 2023 2022 2023 2022

16 unchanged sentences

38,069 14,740 67,970 28,834

Change in fair value of earn-out liability 18,144 — 18,144 —

Total costs and expenses

8 unchanged sentences

net income attributable to non-controlling interest

7,709 8,636 17,103 15,103

Net income attributable to Cactus Inc.

11 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended

(in thousands) 2023 2022 2023 2022

1 unchanged sentence

Foreign currency translation adjustments

( 445 ) ( 1,367 ) ( 142 ) ( 931 )

Comprehensive income

1 unchanged sentence

comprehensive income attributable to non-controlling interest

7,596 8,302 17,073 14,878

Comprehensive income attributable to Cactus Inc.

10 unchanged sentences

(in thousands) Shares Amount Shares Amount

Balance at March 31, 2023 64,448 $ 645 14,978 $ — $ 439,844 $ 297,528 $ ( 764 ) $ 188,583 $ 925,836

Member distributions — — — — — — — ( 3,068 ) ( 3,068 )

Effect of CC Unit redemptions 158 2 ( 158 ) — 2,020 — — ( 2,022 ) —

Tax impact of equity transactions — — — — 428 — — — 428

Equity award vestings 7 — — — ( 62 ) — — ( 35 ) ( 97 )

Other comprehensive loss — — — — — — ( 332 ) ( 113 ) ( 445 )

Share repurchases ( 4 ) — — — ( 137 ) — — ( 22 ) ( 159 )

Stock-based compensation — — — — 4,113 — — 936 5,049

Cash dividends declared ($ 0.11 per share)

— — — — — ( 7,229 ) — — ( 7,229 )

Net income — — — — — 24,750 — 7,709 32,459

Balance at June 30, 2023 64,609 $ 647 14,820 $ — $ 446,206 $ 315,049 $ ( 1,096 ) $ 191,968 $ 952,774

Balance at March 31, 2022 60,197 $ 602 15,674 $ — $ 298,893 $ 192,493 $ 335 $ 122,779 $ 615,102

Member distributions — — — — — — — ( 1,694 ) ( 1,694 )

Effect of CW Unit redemptions 411 4 ( 411 ) — 3,267 — — ( 3,271 ) —

Tax impact of equity transactions — — — — 433 — — — 433

Equity award vestings 5 — — — ( 51 ) — — ( 21 ) ( 72 )

Other comprehensive loss — — — — — — ( 1,033 ) ( 334 ) ( 1,367 )

Stock-based compensation — — — — 1,876 — — 474 2,350

Cash dividends declared ($ 0.11 per share)

— — — — — ( 6,724 ) — — ( 6,724 )

Net income — — — — — 27,144 — 8,636 35,780

Balance at June 30, 2022 60,613 $ 606 15,263 $ — $ 304,418 $ 212,913 $ ( 698 ) $ 126,569 $ 643,808

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

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Class A Class B Additional

Capital Retained

Earnings Accumulated

Comprehensive Income (Loss) Non-controlling

Interest Total

Common Stock Common Stock

(in thousands) Shares Amount Shares Amount

Balance at December 31, 2022 60,903 $ 609 14,978 $ — $ 310,528 $ 261,764 $ ( 984 ) $ 138,528 $ 710,445

1 unchanged sentence

Member distributions — — — — — — — ( 4,712 ) ( 4,712 )

Effect of CC Unit redemptions 158 2 ( 158 ) — 2,020 — — ( 2,022 ) —

Tax impact of equity transactions — — — — ( 13,553 ) — — 16,826 3,273

Equity award vestings 200 2 — — ( 3,071 ) — — ( 1,371 ) ( 4,440 )

Other comprehensive income — — — — — — 220 83 303

Other comprehensive loss — — — — — — ( 112 ) ( 30 ) ( 142 )

Share repurchases ( 4 ) — — — ( 137 ) — — ( 22 ) ( 159 )

Stock-based compensation — — — — 7,117 — — 1,635 8,752

2 unchanged sentences

Net income — — — — — 67,644 — 17,103 84,747

Balance at March 31, 2023 64,448 $ 645 14,978 $ — $ 439,844 $ 297,528 $ ( 764 ) $ 188,583 $ 925,836

Balance at June 30, 2023 64,609 $ 647 14,820 $ — $ 446,206 $ 315,049 $ ( 1,096 ) $ 191,968 $ 952,774

Balance at December 31, 2021 59,035 $ 590 16,674 $ — $ 289,600 $ 178,446 $ 8 $ 126,389 $ 595,033

3 unchanged sentences

Equity award vestings 167 2 — — ( 3,263 ) — — ( 1,235 ) ( 4,496 )

Other comprehensive income — — — — — — 327 109 436

Other comprehensive loss — — — — — — ( 706 ) ( 225 ) ( 931 )

Stock-based compensation — — — — 3,972 — — 1,044 5,016

2 unchanged sentences

Net income — — — — — 47,760 — 15,103 62,863

Balance at March 31, 2022 60,197 $ 602 15,674 $ — $ 298,893 $ 192,493 $ 335 $ 122,779 $ 615,102

Balance at June 30, 2022 60,613 $ 606 15,263 $ — $ 304,418 $ 212,913 $ ( 698 ) $ 126,569 $ 643,808

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Six Months Ended

(in thousands) 2023 2022

3 unchanged sentences

Depreciation and amortization

35,024 17,592

Deferred financing cost amortization

1 unchanged sentence

Provision for expected credit losses

( 376 ) ( 110 )

Inventory obsolescence

1 unchanged sentence

Deferred income taxes

( 1,406 ) 1,919

Change in fair value of earn-out liability 18,023 —

5 unchanged sentences

Prepaid expenses and other assets

2,151 ( 463 )

Accounts payable

( 6,282 ) 6,934

Accrued expenses and other liabilities

11 unchanged sentences

Proceeds from the issuance of long-term debt 155,000 —

Repayments of borrowings of long-term debt ( 100,000 ) —

Net proceeds from the issuance of Class A common stock 169,878 —

10 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents ( 269,105 ) ( 3,928 )

Cash and cash equivalents

Beginning of period

( 303 ) ( 1,167 )

End of period

$ 75,422 $ 297,741

Net increase (decrease) in cash and cash equivalents ( 280,617 ) 10,015

Cash and cash equivalents, beginning of period 344,527 301,669

Cash and cash equivalents, end of period $ 63,910 $ 311,684

Supplemental disclosure of cash flow information

Net cash paid for income taxes $ 10,814 $ 2,451

Cash paid for interest $ 3,555 $ 456

Non-cash investing and financing activities:

24 unchanged sentences

was a wholly-owned subsidiary of HighRidge prior to the Merger and was converted into a limited liability company, contributed from HighRidge to Cactus Companies as part of the CC Reorganization and is now named FlexSteel Holdings, LLC (“FlexSteel”).

The results of operations of FlexSteel have been reflected in our accompanying condensed consolidated financial statements from the closing date of the acquisition through March 31, 2023.

The results of operations of FlexSteel have been reflected in our accompanying condensed consolidated financial statements from the closing date of the acquisition through June 30, 2023.

See Note 2 for additional information related to the acquisition.

13 unchanged sentences

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 in January 2023, borrowings under the Amended ABL Credit Facility (as defined in Note 7) totaling $ 155.0 million 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 exploration and production (“E&P”) industry and provides meaningful growth potential for Cactus.

We also believe FlexSteel’s products are highly complementary to Cactus’ equipment at the wellsite as it expands our exposure to our customers’ operations from production trees to transportation of oil, gas and other liquids as well as to additional customers operating in the midstream area.

We believe this acquisition enhances Cactus’ position as a premier manufacturer and provider of highly engineered equipment to the exploration and production (“E&P”) industry and provides meaningful growth potential for Cactus.

We also believe FlexSteel’s products are highly complementary to Cactus’ equipment as it expands our exposure to our customers’ operations from production trees to transportation of oil, gas and other liquids as well as to additional customers operating in the midstream area.

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 were recorded at their respective fair values as of the date of the completion of the acquisition.

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

The transaction was treated as a purchase of stock for United States federal income tax purposes.

In connection with the acquisition, we incurred approximately $ 7.5 million of transaction costs for the three months ended March 31, 2023 required to effect the transaction and incurred an additional $ 1.1 million in costs related to the reporting of and accounting for the transaction.

These fees primarily related to legal, accounting and consulting fees and are included in selling, general and administrative (“SG&A”) expenses in the statements of income.

In connection with the acquisition, we incurred approximately $ 7.5 million of transaction costs for the six months ended June 30, 2023 required to effect the transaction and incurred an additional $ 3.3 million in costs related to the reporting of and accounting for the transaction.

These fees primarily related to legal, accounting and consulting fees and are included in selling, general and administrative (“SG&A”) expenses in the consolidated statements of income.

Purchase Price Consideration

4 unchanged sentences

Fair value of consideration transferred or estimated to be transferred $ 630,133

(1) Represents the estimated fair value of the earn-out payment of up to $ 75 million of additional cash consideration if certain revenue growth targets are met by FlexSteel.

(1) Represents the estimated fair value as of the acquisition date of the earn-out payment of up to $ 75 million of additional cash consideration if certain revenue growth targets are met by FlexSteel.

The estimated fair value of the earn-out payment was determined using a Monte Carlo simulation valuation methodology based on probability-weighted performance projections and other inputs, including a discount rate.

The liability associated with the earn-out payment is recorded in other noncurrent liabilities.

Changes to the fair value of the liability subsequent to the acquisition date are recognized in the statements of income as a component of other income (expense), net.

Changes in the fair value of the earn-out liability subsequent to the acquisition date are recognized in the consolidated statements of income.

Based on the revised forecast for the period January 1, 2023 through June 30, 2024, the estimated fair value of the earn-out payment was $ 24.0 million as of June 30, 2023, which is reflected in other noncurrent liabilities in the consolidated balance sheets.

See discussion of the calculation of fair value of the earn-out liability in Note 12.

We recognized $ 18.0 million of remeasurement expense during the six months ended June 30, 2023 resulting from the change in fair value from the acquisition date.

During the three months ended March 31, 2023, a $ 0.1 million gain on the change in fair value was presented in other income (expense), net in the consolidated statements of income.

Beginning with the three months ended June 30, 2023, the change in fair value of the earn-out liability will be separately presented as a component of operating income.

We have determined that presenting the change in fair value of the earn-out liability is more appropriately reflected in our operating costs.

This change does not have a material impact to our consolidated financial statements.

Preliminary Purchase Price Allocation

The following table provides the preliminary allocation of the purchase price as of the acquisition date.

The goodwill reflected below increased $ 1.5 million from the original preliminary purchase price allocation as a result of measurement period adjustments, primarily related to valuation adjustments to inventories and property and equipment.

Cash and cash equivalents $ 5,316

16 unchanged sentences

Assets acquired and liabilities assumed in connection with the acquisition were recorded at their estimated fair values.

Estimated fair values were determined by management, based in part on an independent valuation performed by third-party

valuation specialists.

Estimated fair values were determined by management, based in part on an independent valuation performed by third-party valuation specialists.

The valuation methods used to determine the estimated fair value of intangible assets included the excess earnings approach for customer relationships and backlog using customer inputs and contributory charges and the relief from royalty method for tradename and developed technology.

12 unchanged sentences

The goodwill associated with this transaction has been allocated to our Spoolable Technologies segment.

Due to the timing of the completion of the acquisition, the purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding assets acquired and liabilities assumed and revisions of preliminary estimates of fair values including, but not limited to, certain tangible assets acquired and liabilities assumed, contractual relationships, intangible assets, certain working capital items, deferred income taxes and residual goodwill.

The purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, additional information obtained regarding assets acquired and liabilities assumed and revisions of preliminary estimates of

fair values including, but not limited to, certain tangible assets acquired and liabilities assumed, contractual relationships, intangible assets, certain working capital items, deferred income taxes and residual goodwill.

These changes to the purchase price allocation could be significant.

8 unchanged sentences

Pro forma financial information

From acquisition date through March 31, 2023, FlexSteel had revenue of $ 33.8 million and net income of $ 0.4 million.

The pro forma financial information below represents the combined results of operations for the three months ended March 31, 2023 and 2022, as if the acquisition had occurred as of January 1, 2022.

From acquisition date through June 30, 2023, FlexSteel had revenue of $ 140.4 million and a net loss of $ 5.7 million.

The pro forma financial information below represents the combined results of operations for the six months ended June 30, 2023 and for the three and six months ended June 30, 2022, as if the acquisition had occurred as of January 1, 2022.

The unaudited pro forma combined financial information includes, where applicable, adjustments for additional amortization expense related to the fair value step-up of intangible assets, additional inventory fair value step-up expense, additional depreciation expense associated with adjusting property and equipment to fair value, changes to align accounting policies, decreases in interest expense due to modification of borrowings in conjunction with the acquisition and associated tax-related impacts of adjustments.

These pro forma adjustments are based on available information as of the date hereof and upon assumptions that we believe are reasonable to reflect the impact of the FlexSteel acquisition on our historical financial information on a supplemental pro forma basis.

Adjustments do not include the elimination of transaction-related costs incurred or any costs related to integration activities, cost savings or synergies that have been or may

be achieved by the combined business.

Adjustments do not include the elimination of transaction-related costs incurred or any costs related to integration activities, cost savings or synergies that have been or may be achieved by the combined business.

The unaudited pro forma financial information is presented for informational purposes only and is neither indicative of the results of operations that would have occurred if the acquisition had taken place at the beginning of the period presented nor indicative of future operating results.

Three Months Ended

June 30, Six Months Ended

2022 2023 2022

Revenues $ 262,526 $ 587,603 $ 490,992

7 unchanged sentences

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 March 31, 2023 and December 31, 2022 was $ 27.9 million and $ 34.9 million, respectively.

Total unbilled revenue included in accounts receivable as of June 30, 2023 and December 31, 2022 was $ 35.0 million and $ 34.9 million, respectively.

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

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

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

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

economic conditions.

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

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

Period Credit to Expense Write off Translation Adjustments Balance at

Three Months Ended March 31, 2023 $ 1,060 $ ( 376 ) $ ( 19 ) $ 2 $ 667

Three Months Ended March 31, 2022 741 ( 110 ) ( 15 ) — 616

Period Expense Write off Translation Adjustments Balance at

Six Months Ended June 30, 2023 $ 1,060 $ 1,515 $ ( 24 ) $ ( 1 ) $ 2,550

Six Months Ended June 30, 2022 741 240 ( 61 ) — 920

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

11 unchanged sentences

Property and equipment are stated at cost.

We manufacture or construct most of our rental equipment assets.

We manufacture or construct most of our Pressure Control rental equipment assets.

During the manufacture of these assets, they are reflected as construction in progress until complete.

23 unchanged sentences

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

Goodwill is not amortized, but we perform an annual goodwill impairment test on December 31 and more frequently if events and circumstances indicate that the asset might be impaired.

The change in carrying value of goodwill allocated to our reportable segments during the three months ended March 31, 2023 was as follows:

Goodwill is not amortized, but we perform an annual goodwill impairment test on December 31 and more frequently if events and

circumstances indicate that the asset might be impaired.

The change in carrying value of goodwill allocated to our reportable segments during the six months ended June 30, 2023 was as follows:

Pressure Control Spoolable Technologies Total

1 unchanged sentence

FlexSteel acquisition — 194,982 194,982

Balance at March 31, 2023 $ 7,824 $ 193,478 $ 201,302

The following table presents the detail of acquired intangible assets other than goodwill as of March 31, 2023:

Balance at June 30, 2023 $ 7,824 $ 194,982 $ 202,806

The following table presents the detail of acquired intangible assets other than goodwill as of June 30, 2023:

Gross Cost Accumulated Amortization Net Cost

6 unchanged sentences

The weighted average amortization period for identifiable intangible assets acquired is 12 years.

Amortization expense recognized during the three months ended March 31, 2023 was $ 3.7 million and was recorded in SG&A expenses in the statements of income.

Amortization expense recognized during the three and six months ended June 30, 2023 was $ 8.7 million and $ 12.3 million, respectively, and was recorded in SG&A expenses in the consolidated statements of income.

Estimated future amortization expense is as follows:

2 unchanged sentences

Total $ 187,971

The following is a summary of our debt as of March 31, 2023.

The following is a summary of our debt as of June 30, 2023.

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

3 unchanged sentences

Total debt, net of deferred financing costs 54,641

Current portion of long-term debt (1)

Current portion of long-term debt, net of deferred financing costs (1)

Long-term debt $ 30,000

(1) Represents the mandatory amortization payments due within twelve months of March 31, 2023.

This amount does not reflect $ 60.0 million in discretionary prepayments made on the term loan in April and May 2023.

In addition to the borrowings reflected above, we had $ 1.7 million in letters of credit outstanding.

(1) Represents the mandatory amortization payments due within twelve months of June 30, 2023, net of unamortized deferred financing costs.

In July 2023, we paid the remaining $ 25.0 million outstanding on the term loan and the $ 30.0 million of outstanding amounts borrowed on the revolving loan.

In addition to the borrowings reflected above, we had $ 1.7 million in letters of credit outstanding as of June 30, 2023.

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 up to $ 75.0 million in revolving commitments.

The ABL Credit Facility was first amended in September 2020 and provided for up to $ 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 was available for the issuance of letters of credit.

16 unchanged sentences

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.

We were in compliance with all covenants under the Amended ABL Credit Facility as of March 31, 2023.

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

We were in compliance with all covenants under the Amended ABL Credit Facility as of June 30, 2023.

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

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

15 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Product revenue

5 unchanged sentences

Total revenues $ 305,819 100 % $ 170,215 100 % $ 534,224 100 % $ 316,114 100 %

At March 31, 2023, we had a deferred revenue balance of $ 8.9 million compared to the December 31, 2022 balance of $ 1.5 million.

At June 30, 2023, we had a deferred revenue balance of $ 10.0 million compared to the December 31, 2022 balance of $ 1.5 million.

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

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

As of March 31, 2023, we did not have any contracts with an original length of greater than a year from which revenue is expected to be recognized in the future related to performance obligations that are unsatisfied.

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

As of June 30, 2023, we did not have any contracts with an original length of greater than a year from which revenue is expected to be recognized in the future related to performance obligations that are unsatisfied.

Tax Receivable Agreement ( “ TRA ” )

8 unchanged sentences

Subsequent changes to the measurement of the TRA liability are recognized in the statements of income as a component of other expense, net.

As of March 31, 2023, the total liability from the TRA was $ 289.2 million with $ 27.5 million reflected in current liabilities based on the expected timing of our next payment.

As of June 30, 2023, the total liability from the TRA was $ 290.4 million with $ 27.5 million reflected in current liabilities based on the expected timing of our next payment.

The payments under the TRA will not be conditional on a holder of rights under the TRA having a continued ownership interest in either Cactus Companies or Cactus Inc.

5 unchanged sentences

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

As of March 31, 2023, Cactus Inc.

As of June 30, 2023, Cactus Inc.

owned 81.3 % of Cactus Companies as compared to 80.3 % of Cactus LLC (prior to the CC Reorganization) as of December 31, 2022.

As of March 31, 2023, Cactus Inc.

As of June 30, 2023, Cactus Inc.

had outstanding 64.6 million shares of Class A common stock (representing 81.3 % of the total voting power) and 14.8 million shares of Class B common stock (representing 18.7 % of the total voting power).

9 unchanged sentences

Compensation cost is being recognized ratably over the one-year vesting period.

The liability was valued at $ 0.6 million as of March 31, 2023 and is included in accrued expenses and other

current liabilities.

We recognized $ 0.1 million of compensation expense during the three months ended March 31, 2023 in selling, general and administrative expenses.

The liability balance is $ 0.9 million as of June 30, 2023 and is included in accrued expenses and other current liabilities in the consolidated balance sheets.

We recognized $ 0.4 million of compensation expense in SG&A in the consolidated statements of income during the six months ended June 30, 2023.

CC Reorganization

4 unchanged sentences

(along with their permitted transferees), as “CC Unit Holders.” 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.

In connection with the CC Reorganization, Cactus Inc.

7 unchanged sentences

Pursuant to the Cactus Companies LLC Agreement, holders of CC Units are entitled to redeem their CC Units, which results in additional Class A common stock outstanding.

Since our IPO in February 2018, an aggregate of 45.6 million CC Units (including CW Units prior to the CC Reorganization) and a corresponding number of shares of Class B common stock have been redeemed in exchange for shares of Class A common stock.

During the three months ended March 31, 2023, there were no redemptions of CW Units (or CC Units, after the CC Reorganization).

During the three months ended March 31, 2022, one million CW Units, together with a corresponding number of shares of Class B common stock, were redeemed in exchange for Class A common stock in accordance with the Cactus Wellhead LLC Agreement.

Since our IPO in February 2018, an aggregate of 45.7 million of CC Units

(including CW Units prior to the CC Reorganization) and a corresponding number of shares of Class B common stock have been redeemed in exchange for shares of Class A common stock.

During the six months ended June 30, 2023, 0.2 million CC Units, together with a corresponding number of shares of Class B common stock, were redeemed in exchange for Class A common stock in accordance with the Cactus Companies LLC Agreement.

During the six months ended June 30, 2022, 1.4 million CW Units, together with a corresponding number of shares of Class B common stock, were redeemed in exchange for Class A common stock in accordance with the Cactus Wellhead LLC Agreement.

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

voting shares outstanding as a result of the redemptions.

Aggregate cash dividends of $ 0.11 per share of Class A common stock were declared during the three months ended March 31, 2023 and 2022 totaling $ 7.1 million and $ 6.6 million, respectively.

Cash dividends paid during the three months ended March 31, 2023 and 2022 totaled $ 7.4 million and $ 6.7 million, respectively.

Aggregate cash dividends of $ 0.22 per share of Class A common stock declared during the six months ended June 30, 2023 and 2022 totaled $ 14.4 million and $ 13.3 million, respectively.

Cash dividends paid during the six months ended June 30, 2023 and 2022 totaled $ 14.5 million and $ 13.3 million, respectively.

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

3 unchanged sentences

See further discussion of the distributions below under “Member Distributions.”

Share Repurchase Program

On June 6, 2023, our board of directors authorized the Company to repurchase shares of its Class A common stock for an aggregate purchase price of up to $ 150 million.

Under our share repurchase program, shares may be repurchased from time to time in open market transactions or block trades, in privately negotiated transactions or any other method permitted under U.S.

securities laws, rules and regulations.

The repurchase program does not obligate the Company to purchase any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

During the three and six months ended June 30, 2023, the Company purchased and retired 4,007 shares of Class A common stock for $ 0.2 million or $ 39.69 average price per share excluding commissions, under the share repurchase program.

As of June 30, 2023, $ 149.8 million remained authorized for future repurchases of Class A common stock under the program.

Member Distributions

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

For the three months ended March 31, 2023, Cactus Companies distributed $ 7.1 million to Cactus Inc.

to fund its dividend payments and made pro rata distributions to the other members totaling $ 1.6 million over the same period.

During the three months ended March 31, 2022, Cactus Companies distributed $ 6.3 million to Cactus Inc.

For the six months ended June 30, 2023, Cactus Companies distributed $ 20.4 million to Cactus Inc.

to fund its dividend and estimated tax payments and made pro rata distributions to the other members totaling $ 4.7 million over the same period.

During the six months ended June 30, 2022, Cactus Companies distributed $ 13.1 million to Cactus Inc.

to fund its dividend payments and made pro rata distributions to the other members totaling $ 3.3 million.

5 unchanged sentences

Management does not believe the outcome of these disputes will have a material adverse effect on our consolidated financial position or consolidated results of operations.

Fair Value Measurements

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

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

The following table sets forth our liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy:

Fair Value at June 30, 2023

Level 1 Level 2 Level 3 Total

Earn-out liability $ — $ — $ 23,983 $ 23,983

Put option liability — — 1,746 1,746

The earn-out liability related to the FlexSteel acquisition (see Note 2) is measured at fair value using Level 3 unobservable inputs at the end of each reporting period with changes in its estimated fair value recorded in earnings until the liability is settled.

The fair value is determined based on the evaluation of the probability and amount of earn-out that may be achieved based on expected future performance of FlexSteel using a Monte Carlo simulation model.

The Monte Carlo simulation model uses assumptions including revenue volatilities, risk free rates, credit discount rates and revenue discount rates.

Significant changes in any of those assumptions could have a material effect on the estimated fair value of the earn-out payment.

The following table sets forth the range of inputs for the significant assumptions utilized to determine the fair value of the earn-out payment as of June 30, 2023:

June 30, 2023

Risk-free interest rate 4.06 % to 5.53 %

Expected revenue volatility 27.60 %

Revenue discount rate 11.00 % to 11.10 %

Credit discount rate 10.80 % to 10.97 %

The put option liability represents the guaranteed payment on restricted stock purchased in conjunction with the FlexSteel acquisition (see Note 10).

This liability is measured at fair value at the end of each reporting period until the liability is settled with changes in fair value from grant date recognized ratably over the one-year vesting period.

The fair value is determined using the Black-Scholes option pricing method that utilizes a selected volatility calculated based on weighting historical and implied volatility indications.

As the selected volatility involves judgement and is a significant input to estimating the fair value of the put option, it is classified as a Level 3 input.

Significant changes in the volatility could have a material effect on the estimated fair value of the put option liability.

The following table sets forth the inputs for the significant assumptions utilized to determine the fair value of the put option liability as of June 30, 2023:

June 30, 2023

Risk-free interest rate 5.37 %

Expected volatility 46.48 %

Dividend yield 1.03 %

The following table presents a summary of the changes in fair value of our liabilities measured using Level 3 inputs:

Earn-out Put Option

Opening Balance $ 5,960 $ 510

Changes in fair value (1)

Balance at June 30, 2023 $ 23,983 $ 1,746

(1) We recognized $ 18.0 million of remeasurement expense associated with the change in the fair value of the earn-out liability during the six months ended June 30, 2023.

During the three months ended March 31, 2023, $ 0.1 million of gain for the change in fair value was presented in other income (expense), net in the consolidated statements of operations.

During the three months ended June 30, 2023, $ 18.1 million of expense for the change in fair value was separately presented as a component of operating income.

For the put option liability, we recognized $ 0.4 million of expense associated with the change in fair value in SG&A in the consolidated statements of income during the six months ended June 30, 2023.

The fair value of our foreign currency forwards was less than $ 0.1 million as of June 30, 2023 and was determined using market observable inputs including forward and spot prices (Level 2 inputs).

Segment Reporting

5 unchanged sentences

• Spoolable Technologies – engaged in the design, manufacture, sale, installation, service and associated rental of onshore spoolable pipe technologies utilized for production, gathering and takeaway transportation of oil, gas or other liquids.

Financial information by business segment for the three months ended March 31, 2023 and 2022 is summarized below.

Financial information by business segment for the three and six months ended June 30, 2023 and 2022 is summarized below.

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Pressure Control $ 199,134 $ 170,215 $ 393,789 $ 316,114

1 unchanged sentence

Total revenues 305,819 170,215 534,224 316,114

Operating income:

Operating income (loss):

Pressure Control (1)

54,540 44,241 103,979 75,231

Spoolable Technologies ( 6,018 ) — ( 5,769 ) —

3 unchanged sentences

Income before income taxes $ 42,594 $ 44,545 $ 96,822 $ 74,320

(1) Includes corporate and other costs not directly attributable to our reporting segments such as corporate executive management and other administrative functions.

Earnings per Share

1 unchanged sentence

during the period by the weighted average number of shares of Class A common stock outstanding during the same period.

earnings per share of Class A common stock is calculated by dividing the net income attributable to Cactus Inc.

Diluted earnings per share of Class A common stock is calculated by dividing the net income attributable to Cactus Inc.

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

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net income attributable to Cactus Inc.—basic

1 unchanged sentence

Net income attributable to non-controlling interest (1)

— 6,759 13,114 11,779

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

3 unchanged sentences

Effect of dilutive shares (2)

437 15,799 15,357 16,353

Weighted average Class A shares outstanding—diluted (2)

65,003 76,322 79,512 76,262

Earnings per Class A share—basic

2 unchanged sentences

$ 0.38 $ 0.44 $ 1.02 $ 0.78

(1) The numerator is adjusted in the calculation of diluted earnings per share under the if-converted method to include net income attributable to the non-controlling interest calculated as its pre-tax income adjusted for a corporate effective tax rate of 24.5 % for the three months ended March 31, 2023 and 26.0 % for the three months ended March 31, 2022.

(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 26.0 % for the six months ended June 30, 2023 and 25.0 % for the three and six months ended June 30, 2022.

(2) Diluted earnings per share for the three months ended June 30, 2023 excludes 14.9 million weighted average shares of Class B common stock as the effect would be anti-dilutive.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements