What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-29 compared with 2023-03-01 · 456 added, 270 removed, 661 unchanged (52% of the section changed)

17 unchanged sentences

Based on this assessment, management has concluded that, as of December 31, 2023, our internal control over financial reporting was effective.

As disclosed in Note 3 in the notes to the Consolidated Financial Statements, we acquired FlexSteel on February 28, 2023 and accounted for this acquisition as a business combination.

FlexSteel’s total revenues constituted approximately 31% of our total consolidated revenues for the year ended December 31, 2023.

FlexSteel’s total assets, excluding goodwill and acquired intangible assets, constituted approximately 24% of our total consolidated assets as of December 31, 2023.

We excluded FlexSteel from management's assessment of our internal controls over financial reporting as of December 31, 2023.

This exclusion is in accordance with the SEC staff’s general guidance that an assessment of a recently acquired business may be omitted from the scope of management’s assessment of internal controls over financial reporting for one year following the acquisition.

Our independent registered public accounting firm, PricewaterhouseCoopers, LLP, has issued an audit report on the effectiveness of our internal control over financial reporting as of December 31, 2023, which appears herein.

/s/ Scott Bender /s/ Stephen Tadlock

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

/s/ Scott Bender /s/ Alan Keifer

Chief Executive Officer, Chairman of the Board and Director Interim Chief Financial Officer

Houston, Texas

March 1, 2023

February 29, 2024

Report of Independent Registered Public Accounting Firm

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded FlexSteel from its assessment of internal control over financial reporting as of December 31, 2023 because it was acquired by the Company in a purchase business combination during 2023.

We have also excluded FlexSteel from our audit of internal control over financial reporting.

FlexSteel is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 24% and 31%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2023.

Definition and Limitations of Internal Control over Financial Reporting

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

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

(ii) provide reasonable assurance that transactions are recorded as necessary to permit

preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

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

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Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Liability related to the Tax Receivable Agreement

As described in Notes 2 and 9 to the consolidated financial statements, the Company has a liability under the Tax Receivable Agreement (“TRA”) of $292.6 million as of December 31, 2022.

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

As described in Note 11 to the consolidated financial statements, the Company has a liability under the Tax Receivable Agreement (“TRA”) of $270.9 million as of December 31, 2023.

In connection with its initial public offering, the Company entered into the TRA with certain direct and indirect owners of Cactus LLC (after the CC Reorganization, Cactus Companies).

These owners are referred to as the “TRA Holders”.

The TRA generally provides for the payment by the Company to the TRA Holders of 85% of the net cash tax savings, if any, in United States federal, state and local income tax and franchise tax that the Company actually realizes or is deemed to realize in certain circumstances as a result of (i) certain increases in tax basis that occur as a result of the Company’s acquisition (or deemed acquisition for U.S.

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

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

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

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

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

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

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

The principal considerations for our determination that performing procedures relating to the liability related to the TRA is a critical audit matter are (i) a high degree of auditor subjectivity and effort in performing procedures and evaluating audit evidence related to management’s calculation of the tax basis and development of applicable state apportionment factors utilized in determining the blended tax rate and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.

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

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

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

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

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

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

Acquisition of FlexSteel – Valuation of Customer Relationships and Developed Technology

As described in Notes 3 and 5 to the consolidated financial statements, on February 28, 2023, the Company completed the acquisition of FlexSteel for consideration of approximately $627.5 million.

Of the acquired intangible assets, $100.3 million of customer relationships and $77.0 million of developed technology was recorded.

The valuation methods used to determine the estimated fair value of intangible assets included the multi-period excess earnings approach for customer relationships and the

relief from royalty method for developed technology.

Several significant assumptions and estimates were involved in the application of these valuation methods, including forecasted revenues, long-term growth rate, royalty rates, margins, tax rates, capital spending, discount rates, attrition rates and working capital changes.

The principal considerations for our determination that performing procedures relating to the valuation of customer relationships and developed technology acquired in the acquisition of FlexSteel is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of the customer relationships and developed technology acquired;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to the forecasted revenues, long-term growth rate, royalty rate, margins, discount rate, and attrition rate for customer relationships and forecasted revenues, long-term growth rate, royalty rate, and discount rate for developed technology;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

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

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the customer relationships and developed technology acquired.

These procedures also included, among others (i) reading the purchase agreement;

(ii) testing management’s process for developing the fair value estimate of the customer relationships and developed technology acquired;

(iii) evaluating the appropriateness of the multi-period excess earnings and relief from royalty methods used by management;

(iv) testing the completeness and accuracy of the underlying data used in the multi-period excess earnings and relief from royalty methods;

and (v) evaluating the reasonableness of the significant assumptions used by management related to forecasted revenues, long-term growth rate, royalty rate, margins, discount rate, and attrition rate for customer relationships and forecasted revenues, margins, long-term growth rate, royalty rate, and discount rate for developed technology.

Evaluating management’s assumptions related to the forecasted revenues, margins and long-term growth rates for customer relationships and developed technology involved considering (i) the current and past performance of the FlexSteel business;

(ii) the consistency with external market and industry data;

and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the multi-period excess earnings and relief from royalty methods and (ii) the reasonableness of the discount rate, royalty rate, and attrition rate assumptions for customer relationships and the royalty rate and discount rate assumptions for developed technology.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

March 1, 2023

February 29, 2024

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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Operating lease right-of-use assets, net 23,496 23,183

Intangible assets, net 179,978 —

Goodwill 203,028 7,824

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Accrued expenses and other current liabilities 50,654 30,619

Earn-out liability 20,810 —

Current portion of liability related to tax receivable agreement 20,855 27,544

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Selling, general and administrative expenses 127,076 67,700 46,021

Severance expenses — — 1,864

Change in fair value of earn-out liability 14,850 — —

Total costs and expenses 832,594 513,621 363,162

Income from operations 174,748 75,427 70,039

Operating income 264,366 174,748 75,427

Interest income (expense), net ( 6,480 ) 3,714 ( 774 )

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

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

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

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

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

Issuances of common stock 3,352 34 — — 143,722 — — 26,122 169,878

Member distributions — — — — — — — ( 16,644 ) ( 16,644 )

Effect of CW Unit redemptions 1,696 17 ( 1,696 ) — 13,690 — — ( 13,707 ) —

Effect of CC Unit redemptions 944 9 ( 944 ) — 12,787 — — ( 12,796 ) —

Tax impact of equity transactions — — — — ( 13,099 ) — — 16,508 3,409

Equity award vestings 218 2 — — ( 3,422 ) — — ( 1,501 ) ( 4,921 )

Other comprehensive loss — — — — — — ( 992 ) ( 316 ) ( 1,308 )

Other comprehensive income — — — — — — 158 81 239

Share repurchases ( 8 ) — — — ( 286 ) — — ( 41 ) ( 327 )

Stock-based compensation — — — — 14,782 — — 3,322 18,104

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Deferred income taxes 17,343 25,299 4,829

Change in fair value of earn-out liability 14,850 — —

(Gain) loss from revaluation of liability related to tax receivable agreement ( 4,490 ) 1,910 ( 898 )

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Cash flows from investing activities

Acquisition of a business, net of cash and cash equivalents acquired ( 616,189 ) — —

Capital expenditures and other ( 43,977 ) ( 28,291 ) ( 13,939 )

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Cash flows from financing activities

Payment of deferred financing costs ( 353 ) — —

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

Repayments of borrowings of long-term debt ( 155,000 ) — —

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

Payments of deferred financing costs ( 6,934 ) ( 353 ) —

Payments on finance leases ( 7,652 ) ( 6,055 ) ( 5,205 )

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Repurchases of shares ( 5,249 ) ( 4,563 ) ( 3,283 )

Net cash used in financing activities ( 47,382 ) ( 39,388 ) ( 40,206 )

Net cash provided by (used in) financing activities 103,275 ( 47,382 ) ( 39,388 )

Effect of exchange rate changes on cash and cash equivalents 503 ( 2,108 ) 272

Net increase in cash and cash equivalents 42,858 13,010 86,056

Net increase (decrease) in cash and cash equivalents ( 210,735 ) 42,858 13,010

Cash and cash equivalents

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Organization and Nature of Operations

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

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

We operate through U.S.

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

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

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

(“Cactus Inc.”) and its consolidated subsidiaries (the “Company”), including Cactus Companies, LLC (“Cactus Companies”) are primarily engaged in the design, manufacture, sale and rental of highly engineered pressure control and spoolable pipe technologies.

Our products are sold and rented principally for onshore unconventional oil and gas wells and are utilized during the drilling, completion and production phases of our customers’ wells.

We also provide field services for all of our products and rental items to assist with the installation, maintenance and handling of the equipment.

Additionally, we offer repair and refurbishment services for pressure control equipment.

We operate through service centers and pipe yards located in the United States, Canada and Australia.

We also provide rental and service operations in the Middle East and other select international markets.

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

Our corporate headquarters are located in Houston, Texas.

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

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 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.

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

is the sole managing member of Cactus Companies and is responsible for all operational, management and administrative decisions relating to Cactus Companies’ business.

Pursuant to the Amended and Restated Limited Liability Company Operating Agreement of Cactus Companies (the “Cactus Companies LLC Agreement”), owners of CC Units are entitled to redeem their CC 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 Companies and an increase in the number of shares of Class A common stock outstanding.

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

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

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

and its consolidated subsidiaries (including Cactus LLC).

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.

and its consolidated subsidiaries (including Cactus Companies).

On February 28, 2023, Cactus Inc.

through one of its subsidiaries, completed the acquisition of the FlexSteel business (the “Merger”) through a merger with HighRidge Resources, Inc.

and its subsidiaries (“HighRidge”).

On February 27, 2023, in order to facilitate the Merger with HighRidge, an internal reorganization was completed in which Cactus Companies acquired all of the outstanding units representing ownership interests in Cactus Wellhead, LLC (“Cactus LLC”), the operating subsidiary of Cactus Inc.

(the “CC Reorganization”).

The purpose of the Merger was to effect the acquisition of the operations of FlexSteel Holdings, Inc.

and its subsidiaries.

FlexSteel Holdings, Inc.

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.

See further discussion of the acquisition in Note 3.

“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 the sole managing member of Cactus Companies, Cactus Inc.

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

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

Use of Estimates

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

Segment Information

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

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

to oil and natural gas exploration and production companies.

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

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

Concentrations of Credit Risk

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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.

oil and gas producing basins as well as Australia, Canada and the Middle East.

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, 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.

For the year ended December 31, 2023, one customer represented approximately 10 % of total revenues, with both operating segments reporting revenues with this customer.

For the year ended December 31, 2022, no customers represented 10% or more of total revenues.

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

Significant Vendors

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

The principal raw materials used in the manufacture of our pressure control 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 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.

The principal raw materials used for our spoolable products include tube, bar stock, steel strip and high density polyethylene.

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

For the year ended December 31, 2023, one vendor represented approximately 10 % of our total third-party vendor purchases of raw materials, finished products, equipment, machining and other services.

For the years ended December 31, 2022 and 2021, no vendor represented 10% or more of our total third-party vendor purchases of raw materials, finished products, equipment, machining and other services.

Tax Receivable Agreement (TRA)

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

During the years ended December 31, 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.

During the years ended December 31, 2023, 2022 and 2021, we recognized a $ 4.5 million gain, a $ 1.9 million loss and a $ 0.9 million gain on the change in the TRA liability, respectively.

See Note 11 for further details on the TRA liability.

Revenue Recognition

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.

The majority of our revenues are derived from short-term contracts for fixed consideration or in the case of 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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Payment terms and conditions vary, although terms generally include a requirement of payment within 30 to 45 days.

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

We treat shipping and

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

Revenues are recognized net

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

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

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

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Product revenue.

Product revenues are primarily derived from the sale of wellhead systems and production trees.

Product revenues are primarily derived from the sale of wellhead systems, production trees, spoolable pipe and connections.

Revenue is recognized when the products have shipped and the customer obtains control of the products.

Rental revenue.

Rental revenues are primarily derived from the rental of equipment, tools and products used for well control during the drilling and completion phases to customers.

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

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

Rental revenues are primarily derived from the rental of equipment, tools and products to customers used for well control as well as rental of equipment used for pipe installation.

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

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

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

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

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

As of December 31, 2023 and 2022, the fair value of our forward contracts was immaterial.

Stock-based Compensation

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

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

Prior to 2021, the grant date fair value was determined by the average price of the trading high and trading low of our Class A common stock on the grant date.

The grant date fair value is determined by the closing price of our Class A common stock on the grant date.

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

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is a corporation and is subject to U.S.

federal as well as state income tax related to its ownership percentage in Cactus LLC.

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

federal as well as state income tax related to its ownership percentage in Cactus Companies.

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

federal income tax purposes and files a U.S.

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and foreign operations.

Consequently, the

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

Consequently, the members of Cactus Companies 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 China, Australia and Saudi Arabia are subject to local country income taxes.

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

Cactus Companies is subject to the Texas Margins Tax and our operations in China, Australia, Canada and the Middle East are subject to local country income taxes.

See Note 7 for additional information regarding income taxes.

Cash and Cash Equivalents

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Property and equipment are stated at cost.

We manufacture or construct most of our own rental assets and during the manufacture of these assets, they are reflected as construction in progress until complete.

We manufacture or construct most of our pressure control rental assets and during the production of these assets, they are reflected as construction in progress until complete.

We depreciate the cost of property and equipment using the straight‑line method over the estimated useful lives and depreciate our rental assets to their salvage value.

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

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

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

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

significant renewals and improvements are capitalized.

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

related assets.

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

The cost of maintenance and repairs is charged to income as incurred while significant renewals and improvements are capitalized.

Estimated useful lives are as follows:

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Machinery and equipment 3 - 20 years

Vehicles under finance lease 3 years

Reels and skids 12 - 20 years

Vehicles 3 - 5 years

Rental equipment 2 - 11 years

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Machinery and equipment 128,962 57,883

Vehicles under finance lease 29,045 23,450

Reels and skids 16,181 —

Vehicles 36,552 29,045

Rental equipment 218,340 194,088

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Impairment of Long‑Lived Assets

We review the recoverability of long‑lived assets, such as property and equipment, when events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable.

We review the recoverability of long‑lived assets, including finite-lived acquired intangible assets and property and equipment, when events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable.

The assessment of possible impairment is based on our ability to recover the carrying value of the asset or asset group from the expected future pre‑tax cash flows (undiscounted) of the related operations.

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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 2023, 2022 and 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.

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

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

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

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

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

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

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

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

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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.

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.

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

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

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

Based on our annual impairment analysis using qualitative assessments, we concluded that there was no impairment of goodwill in each of the three years ended December 31, 2023.

Accrued Expenses and Other Current Liabilities

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Payroll, incentive compensation, payroll taxes and benefits $ 13,964 $ 9,484

Deferred revenue 8,105 1,450

Accrued professional fees and other 7,080 7,347

Customer deposits 5,927 —

Accrued international freight and tariffs 5,198 5,887

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Income based tax payable 4,274 2,537

Deferred revenue 1,450 1,764

Accrued workers’ compensation insurance 576 269

Accrued dividends 484 346

Product warranties 731 126

Accrued dividends 612 484

Accrued workers’ compensation insurance 197 576

Total accrued expenses and other current liabilities $ 50,654 $ 30,619

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Product Warranties

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

We generally warrant our wellhead manufactured products for 12 months and our manufactured spoolable pipe and connections for up to 24 months from the date placed in service.

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

Fair Value Measurements

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

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

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

We had no long-term debt outstanding as of December 31, 2022 or 2021.

Employee Benefit Plans

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

Similar benefit plans exist for employees of our foreign subsidiaries.

Broadly similar benefit plans exist for employees of our foreign subsidiaries.

We match 100 % of the first 3 % of gross pay contributed by each employee and 50 % of the next 4 % of gross pay contributed by each employee and we may also make additional non‑elective employer contributions at our discretion under the plan.

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

in June 2020 and reinstated in August 2021.

During 2023, 2022 and 2021, employer matching contributions totaled $ 3.7 million, $ 4.2 million and $ 1.2 million, respectively.

Recent Accounting Pronouncements

Standards Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2023-09, “Income Taxes (Topic 740).” The amendments in this ASU require entities to disclose on an annual basis specific categories in the income tax rate reconciliation and provide additional disclosures for reconciling items that meet a specified quantitative threshold.

Entities will also be required to disclose annually income taxes paid disaggregated by federal, state and foreign taxes and the amount of income taxes paid by individual jurisdictions that meet a five percent or greater threshold of total income taxes paid net of refunds received.

The ASU also adds certain disclosures in order to be consistent with U.S.

Securities and Exchange Commission rules and removes certain disclosures that no longer are considered cost beneficial or relevant.

The amendments in this ASU are to be applied on a prospective basis and will be effective for our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, with early adoption permitted.

We are currently evaluating the impact the adoption of this new standard will have on our disclosures.

In November 2023, the FASB issued ASU No.

2023-07, “Improvements to Reportable Segment Disclosures (Topic 280)” in order to require disclosure of incremental segment information on an annual and interim basis for all public entities.

The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items and interim disclosures of a reportable segment’s profit or loss and assets.

The ASU is to be applied retrospectively to all prior periods presented in the financial statements and is effective for our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, with early adoption permitted.

We are currently evaluating the impact the adoption of this new standard will have on our segment disclosures.

FlexSteel Acquisition

On February 28, 2023 (the “acquisition date”), we completed the acquisition of FlexSteel in accordance with the terms and conditions of the merger agreement dated December 30, 2022.

Including final adjustments for closing working capital, cash on hand and indebtedness adjustments as set forth in the merger agreement, we paid total cash consideration of $ 621.5 million.

There is also a potential future earn-out payment of up to $ 75.0 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 in January 2023, borrowings under the Amended ABL Credit Facility (as defined in Note 6) 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 oil and gas 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 has been 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 are recorded at their respective fair values as of the acquisition date.

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 and $ 8.4 million of transaction costs for the year ended December 31, 2023 and 2022, respectively, required to effect the transaction.

We incurred an additional $ 4.7 million in costs during the year ended December 31, 2023 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

The final purchase price consideration for the acquisition is $ 627.5 million and is summarized as follows:

Purchase Price Consideration

Cash consideration $ 621,505

Contingent consideration (1)

Fair value of consideration transferred $ 627,465

(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.

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

As of December 31, 2023, the estimated fair value of the earn-out payment increased to $ 20.8 million.

The increase is based on the revised forecast for the period January 1, 2023 through June 30, 2024, reflecting improvements in FlexSteel’s revenues as compared to projections made at the time of the acquisition.

See further discussion of the calculation of fair value of the earn-out liability in Note 14.

Purchase Price Allocation

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

The goodwill reflected below increased $ 1.7 million from the original preliminary purchase price allocation as a result of measurement period adjustments, primarily related to changes in cash consideration upon finalization of the closing net working capital, updates to deferred tax liabilities and valuation adjustments to property and equipment and inventories.

Cash and cash equivalents $ 5,316

Receivables 58,002

Inventories 91,746

Prepaid expenses and other current assets 1,283

Property and equipment 206,928

Operating lease right-of-use assets 1,021

Identifiable intangible assets 200,300

Other noncurrent assets 5,666

Total assets acquired 570,262

Accounts payable ( 14,975 )

Accrued expenses and other current liabilities ( 26,827 )

Finance lease obligations ( 974 )

Operating lease liabilities ( 906 )

Deferred tax liabilities ( 94,319 )

Total liabilities assumed ( 138,001 )

Net assets acquired 432,261

Goodwill $ 195,204

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

The 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 fair value of intangible assets included the multi-year excess earnings approach for customer relationships and backlog and the relief from royalty method for tradename and developed technology.

These fair values were based on inputs that are not observable in the market and thus represent Level 3 inputs.

Identifiable intangible assets with finite lives are subject to amortization over their estimated useful lives.

The fair values determined for accounts receivable, accounts payable and most other current assets and liabilities, other than inventory, were equivalent to the carrying value due to their short-term nature.

Acquired inventories are comprised of raw materials, work-in-progress and finished goods.

The fair value of finished goods was calculated as the estimated selling price, less costs of the selling effort and a reasonable profit allowance relating to the selling effort.

The fair value of work-in-progress was calculated as the estimated selling price, less costs to complete, less costs of the selling effort and a reasonable profit allowance on completion and selling costs.

The fair value of raw materials was determined based on replacement cost which approximates historical carrying value.

The fair value of identifiable fixed assets was calculated using a combination of valuation approaches, but primarily consisted of the cost approach which adjusts estimates of replacement cost for the age, condition and utility of the associated assets.

Goodwill is calculated as the excess of the purchase price over the estimated fair value of net assets acquired and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.

Among the factors that contributed to a purchase price in excess of the estimated fair value of the net tangible and intangible assets acquired were the acquisition of an assembled workforce, expansion opportunities and other benefits that we believe will result from combining the operations of FlexSteel with ours.

Goodwill was further increased by the deferred tax liability associated with the fair market value in excess of the tax basis acquired.

The goodwill associated with this transaction has been allocated to our Spoolable Technologies segment and is not deductible for tax purposes.

Pro forma financial information

From acquisition date through December 31, 2023, FlexSteel produced revenue of $ 340.2 million and net income of $ 61.7 million.

The pro forma financial information below represents the combined results of operations for the years ended December 31, 2023 and 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, 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.

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.

Revenues $ 1,150,339 $ 1,039,612

Net Income attributable to Cactus, Inc.

181,020 116,180

Inventories consist of the following:

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Total inventories $ 205,625 $ 161,283

Goodwill and Other Intangible Assets

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

Pressure Control Spoolable Technologies Total

Balance at December 31, 2022 $ 7,824 $ — $ 7,824

FlexSteel acquisition — 195,204 195,204

Balance at December 31, 2023 $ 7,824 $ 195,204 $ 203,028

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

Amortization Period Gross Cost Accumulated Amortization Net Book Value

Customer relationships 15 years $ 100,300 $ ( 5,572 ) $ 94,728

Developed technology 10 years 77,000 ( 6,417 ) 70,583

Tradename 10 years 16,000 ( 1,333 ) 14,667

Backlog 3 months 7,000 ( 7,000 ) —

Total $ 200,300 $ ( 20,322 ) $ 179,978

All intangible assets are amortized over their estimated useful lives.

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

Amortization expense recognized during the twelve months ended December 31, 2023 was $ 20.3 million and was recorded in SG&A expenses in the consolidated statements of income.

Estimated future amortization expense is as follows:

Thereafter 100,043

Total $ 179,978

We had no debt outstanding as of December 31, 2023 and 2022.

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.

We had $ 1.1 million in letters of credit outstanding and were in compliance with all covenants under the Amended ABL Credit Facility (as defined below) as of December 31, 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 $ 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.

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, 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.

The ABL Credit Facility and its amendments provided 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.

On February 28, 2023, in connection with the FlexSteel acquisition, 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 and up to $ 225.0 million in revolving commitments, of which $ 20.0 million 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 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 was set to mature 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.

We borrowed the full $ 125.0 million term loan amount and $ 30.0 million as a revolving loan at closing of the Amended ABL Credit Facility to fund a portion of the acquisition.

The term loan was required to be repaid in regular set amounts starting July 1, 2023 as set forth in the amortization schedule in the Amended ABL Credit Facility and could be prepaid without the payment of any prepayment premium (other than customary breakage costs for Term Benchmark (as defined below) borrowings).

The term loan and revolving loan were repaid in full in July 2023.

Borrowings under the Amended ABL Credit Facility bear interest at Cactus Companies’ 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 Amended ABL Credit Facility accrue fees at a rate equal to the applicable margin for 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 the revolving commitment under the Amended ABL Credit Facility is subject to a commitment fee of 0.25 % per annum.

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 the accounts receivable, inventory and certain other real and personal property assets of Cactus Companies and the guarantors.

Until the term loan was repaid in full, the Amended ABL Credit Facility required 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 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 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.

The Amended ABL Credit Facility was amended in December 2023 to incorporate certain changes related to revised and new definitions associated with the satisfaction of payment conditions for restricted payments, investments, permitted acquisitions, periodic reporting and asset dispositions.

The amendment did not change the ABR, applicable margin rates, commitment fees, the maturity date, borrowing availability or covenants under the Amended ABL Credit Facility other than timing of certain reporting requirements.

At December 31, 2023 and 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.

Interest (Income) Expense, net

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Stock compensation ( 1,193 ) ( 1,743 ) ( 1,096 )

Nondeductible expenses associated with acquisition 3,951 — —

Other ( 1,020 ) 437 ( 205 )

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

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

is only subject to federal and state income tax on its share of income from Cactus Companies (Cactus LLC prior to the CC Reorganization).

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

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

Investment in Cactus LLC $ 299,253 $ 292,956

Investment in Cactus Companies (Cactus LLC prior to the CC Reorganization)

$ 179,196 $ 299,253

Imputed interest 12,740 12,982

Tax credits 7,439 6,158

Net operating loss carryforwards 855 11,198

Net operating loss and other carryforwards 11,343 855

Deferred tax assets 211,077 319,248

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Deferred tax liability, net $ 3,589 $ 1,966

As of December 31, 2022, our liability related to the TRA was $ 292.6 million, representing 85 % of the calculated net cash savings in the United States federal, state and local and franchise tax that we anticipate realizing in future years from certain increases in tax basis and certain tax benefits attributed to imputed interest as a result of our acquisition of CW Units.

As of December 31, 2023, our liability related to the TRA was $ 270.9 million, representing 85 % of the calculated net cash savings in the United States federal, state and local and franchise tax that we anticipate realizing in future years from certain increases in tax basis and certain tax benefits attributed to imputed interest as a result of our acquisition of CC Units (CW Units prior to the CC Reorganization).

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

therefore, we have recorded a liability related to the TRA for the tax savings we may realize from certain increases in tax basis and certain tax benefits attributable to imputed interest as a result of our acquisition (or deemed acquisition for United States federal income tax purposes) of CW Units.

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

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

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

We record a deferred tax asset for the differences between our tax and book basis in the investment in Cactus Companies (Cactus LLC prior to the CC Reorganization) and imputed interest on the TRA.

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

deferred tax assets in the future.

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

For the year ended December 31, 2022, as a result of redemptions of CW Units, we released $ 1.4 million of our valuation allowance and recorded a tax benefit of $ 1.4 million related to the realizable portion of the deferred tax asset.

As of December 31, 2022, we have a valuation allowance of $ 12.2 million against the $ 299.3 million deferred tax asset.

Subsequent to completion of the FlexSteel acquisition, we determined that we expect to generate sufficient taxable income of the appropriate type to allow for the realization of the deferred tax asset associated with our investment in Cactus Companies and recognized a $ 12.1 million tax benefit associated with the release of our valuation allowance previously provided.

As such, as of December 31, 2023, we no longer have a valuation allowance against the deferred tax asset for the investment in Cactus Companies.

During the first quarter of 2023, we recognized $ 4.3 million of tax expense associated with the revaluation of our deferred tax asset as a result of a change in our forecasted state rate primarily due to state impacts of the FlexSteel acquisition.

During the year ended December 31, 2022, as a result of redemptions of CW Units, we released $ 1.4 million of our valuation allowance and recorded a tax benefit of $ 1.4 million related to the realizable portion of the deferred tax asset.

As of December 31, 2022, we had a valuation allowance of $ 12.2 million against the $ 299.3 million deferred tax asset.

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

As of December 31, 2022, we have a valuation allowance of $ 5.4 million against these deferred tax assets, primarily associated with our portion of Cactus LLC’s accrued foreign taxes and state tax credits, due to uncertainty of realization.

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

As of December 31, 2023, we have a valuation allowance of $ 6.2 million against these deferred tax assets, primarily associated with our portion of Cactus Companies’ accrued foreign taxes and state tax credits, due to uncertainty of realization.

As of December 31, 2023, we have deferred tax assets on U.S.

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federal and state taxes payable in future years.

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

Additionally, we have a deferred tax asset on deferred interest of $ 2.5 million.

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

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

As of December 31, 2022 and 2021, we had no uncertain tax positions.

None of our federal or state income tax returns are currently under examination by state taxing authorities.

As a result of the FlexSteel acquisition, we acquired certain carryforward tax attributes, of which, $ 5.7 million were accounted for as unrecognized tax benefits in the acquisition accounting.

This remains the balance of our uncertain tax positions as of December 31, 2023.

We had no uncertain tax positions as of December 31, 2022.

The unrecognized tax benefits have been

offset by an indemnification receivable from the seller of $ 5.7 million.

One of our subsidiaries is in the process of finalizing an Internal Revenue Service (“IRS”) audit of its 2021 federal income tax return with the expectation that no changes will occur as a result of this examination.

None of our state income tax returns are currently under examination by state taxing authorities.

Our federal and state income tax returns for the years ended December 31, 2020 through December 31, 2022 remain open for all purposes of examination by the IRS and applicable state taxing jurisdictions.

However, certain earlier tax years remain open for adjustment to the extent of their net operating loss and deferred interest carryforwards available for future utilization.

The Organization for Economic Cooperation and Development (“OECD”) recently enacted rules (“Pillar Two”) for a new, global minimum tax of at least 15% on income arising in low-tax jurisdictions.

The Pillar Two rules are expected to be enacted beginning January 1, 2024.

We are currently evaluating the impact this new legislation will have on our consolidated financial statements.

Stock-Based Compensation

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

Employees and non-employee directors are eligible

to receive awards under the LTIP.

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

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

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

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.

We recorded $ 18.1 million, $ 10.6 million and $ 8.6 million of stock-based compensation expense for the years ended December 31, 2023, 2022 and 2021.

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

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.

We recognized $ 1.2 million, $ 1.7 million and $ 1.1 million in tax benefits for tax deductions from the vesting of stock-based awards benefits during the years ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2023, 3.0 million stock awards were available for grant.

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Nonvested as of December 31, 2023 564 $ 43.75

The weighted average grant date fair value of RSUs granted was $ 43.19 during 2023, $ 55.06 during 2022 and $ 32.92 during 2021.

The total fair value of RSUs vested was $ 10.1 million during 2023, $ 14.1 million during 2022 and $ 13.9 million during 2021.

There was approximately $ 16.7 million of unrecognized compensation expense relating to the unvested RSUs as of December 31, 2023.

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Performance Stock Units

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

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

The number of shares earned may range from 0 % to 200 % of the target units set forth in the applicable award agreement and is determined at the end of the performance period conditioned upon continued service and on our achievement of certain predefined targets as defined in the underlying performance stock unit agreements.

Performance stock units (“PSUs”) are granted to our executive officers and in rare instances, other key employees.

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

unit agreements.

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

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

In 2020, we granted PSU awards that contained a two-year 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 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):

The following table summarizes our PSU activity during the year ended December 31, 2023 (PSUs in thousands at their target number of shares, which assumes achievement of 100 % of target, unless otherwise noted):

of PSUs Weighted Average Grant Date Fair Value ($)

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Granted 149 44.20

Vested ( 96 ) 13.66

( 131 ) 32.82

Forfeited ( 35 ) 45.78

Performance adjustment (2)

Nonvested as of December 31, 2023 176 $ 47.71

(1) Reflects shares vested at 200 % of target based on actual ROCE performance upon conclusion of the three-year performance period.

(2) Represents additional shares issued to participants upon vesting due to the ROCE performance metrics exceeding target upon conclusion of the three-year performance period.

The weighted average grant date fair value of PSUs granted was $ 44.20 during 2023, $ 55.02 during 2022 and $ 32.82 during 2021.

The total fair value of PSUs vested was $ 5.9 million during 2023 ( 200 % of target achieved) and $ 4.8 million during 2022 ( 80 % of target achieved).

No PSUs vested during 2021.

As of December 31, 2023, there was approximately $ 3.5 million of unrecognized compensation expense relating to the unvested PSUs (based on the grant date fair value of the awards at 100 % of target) which is expected to be recognized over a weighted average period of 1.7 years.

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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, the Kingdom of Saudi Arabia and other international markets.

We have predominately domestic operations, with a small amount of sales in Australia, Canada, the Middle East and other international markets.

For the year ended December 31, 2023, we derived 74 % of our total revenues from the sale of our products, 10 % of our total revenues from rental and 16 % of our total revenues from field service and other.

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Operating leases 3.59 % 2.96 %

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

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

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

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Tax Receivable Agreement

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

In connection with our IPO, we entered into the TRA with certain direct and indirect owners of Cactus LLC (after the CC Reorganization, Cactus Companies).

These owners are referred to as the “TRA Holders”.

The TRA generally provides for payment by Cactus Inc.

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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 (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.

federal income tax purposes) of all or a portion of such TRA Holder’s CW Units (or CC Units after the CC Reorganization) 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.

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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 TRA liability is calculated by determining the tax basis subject to the 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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As of December 31, 2023, the total liability from the TRA was $ 270.9 million with $ 20.9 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 LLC or Cactus Inc.

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.

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 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.

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 Companies, 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 CC Units (other than those held by Cactus Inc.) outstanding on the termination date are deemed to be redeemed on the termination date.

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

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As of December 31, 2023, Cactus Inc.

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

owned 82.3 % of Cactus Companies, as compared to 80.3 % of Cactus LLC (prior to the CC Reorganization) as of December 31, 2022.

As of December 31, 2023, 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 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.

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

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

Any exercise by Cactus LLC or Cactus Inc.

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

had outstanding 65.4 million

shares of Class A common stock (representing 82.3 % of the total voting power) and 14.0 million shares of Class B common stock (representing 17.7 % of the total voting power).

Equity Offering

In January 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).

In addition to the underwriting discounts and commissions, approximately $ 2.2 million of costs directly associated with the stock issuance were recorded as a reduction to additional paid-in capital.

FlexSteel Acquisition

In conjunction with the FlexSteel acquisition, a restricted stock award of 128,150 shares of Class A common stock was issued under the Company’s long-term incentive plan to a key employee in exchange for cash consideration of $ 6.5 million.

The shares were restricted from sale or trading and were subject to vesting requirements for one year from grant date.

The agreement included a guaranteed payment provision whereby if the fair market value of the restricted shares was below the purchase price upon vesting, Cactus would compensate the key employee for the difference in price plus a gross-up for taxes.

The restricted stock award early vested in October 2023 when the employee separated from the Company.

The guaranteed payment provision was not triggered when the shares vested;

therefore, no cash payment was required or made in accordance with the terms of this agreement.

CC Reorganization

As part of the CC Reorganization in connection with the acquisition of FlexSteel, Cactus Companies acquired all of the outstanding units representing limited liability company interests of Cactus LLC ( “CW Units”) in exchange for an equal number of CC Units issued to each of the previous owners of CW Units other than Cactus Inc.

(the “CW Unit Holders”).

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.

After the CC Reorganization, we refer to the owners of CC Units, other than Cactus Inc.

(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.

In connection with the CC Reorganization, Cactus Inc.

and the owners of CC Units entered into the Amended and Restated 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.

Redemptions of CC Units

Pursuant to the Cactus Companies LLC Agreement, each holder of CC Units has, subject to certain limitations, the right (the “Redemption 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 (the “Call 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 Call Right, the corresponding number of shares of Class B common stock will be canceled.

Any exercise by Cactus Companies or Cactus Inc.

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

To date, neither Cactus Inc.

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

nor Cactus Companies (Cactus LLC prior to the CC Reorganization) have elected to acquire CC Units (including CW Units prior to the CC Reorganization) for cash in connection with exchanges by CC Unit Holders (CW Unit Holders prior to the CC Reorganization).

It is the policy of Cactus Inc.

that any exercise by Cactus Inc.

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

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

who have no interest in such transaction.

Since our IPO in February 2018, 45.6 million CW Units and a corresponding number of shares of Class B common stock have been redeemed in exchange for shares of Class A common stock.

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

The following is a rollforward of ownership of legacy CW Units by CW Unit Holders for the three years ended December 31, 2022:

(in thousands)

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

CW Unit redemptions ( 303 )

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

March 2021 Secondary Offering ( 6,273 )

Since our IPO in February 2018, an aggregate of 46.5 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.

The following is a rollforward of ownership of CC Units (including CW Units prior to the CC Reorganization) for the three years ended December 31, 2023 (in thousands):

CW Units outstanding as of December 31, 2020 27,655

2021 Secondary Offering ( 6,273 )

Cadent redemption in June 2021 ( 3,292 )

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Other CW Unit redemptions ( 701 )

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

CW Units outstanding as of December 31, 2021 16,674

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.

CW Units outstanding as of December 31, 2022 14,978

CC Unit redemptions ( 944 )

CC Units outstanding as of December 31, 2023 14,034

In addition to the redemptions associated with the 2021 Secondary Offering (as defined below) and the 2021 redemptions by Cadent (as defined below) and its affiliates, certain CC Unit Holders (CW Unit Holders prior to the CC Reorganization) redeemed 0.9 million, 1.7 million and 0.7 million CC Units (CW Units prior to the CC Reorganization), together with a corresponding number of shares of Class B common stock, pursuant to the Redemption Right for the years ended December 31, 2023, 2022 and 2021, respectively.

acquired the redeemed CC Units (CW Units prior to the CC Reorganization) and a corresponding number of shares of Class B common stock (which shares of Class B common stock were then canceled) and issued 0.9 million, 1.7 million and 0.7 million shares of Class A common stock to the redeeming CC Unit Holders (CW Unit Holders prior to the CC Reorganization) during the same respective time periods.

As a result of all of the CC Unit (CW Units prior to the CC Reorganization) redemptions during the years ended December 31, 2023, 2022 and 2021, Cactus Inc.

increased its ownership in Cactus Companies (Cactus LLC prior to the CC Reorganization) and accordingly, increased its equity by approximately $ 12.8 million, $ 13.7 million and $ 79.4 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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board members and executive management.

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

The transfers were made at the discretion of Cadent GP and

Cadent Management without the consent of the transferees.

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

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

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

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.

Dividends are not paid to our Class B common stockholders;

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

See Note 16 for further discussion of distributions made by Cactus Companies.

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 twelve months ended December 31, 2023, the Company purchased and retired 8,232 shares of Class A common stock for $ 0.3 million or $ 39.78 average price per share excluding commissions, under the share repurchase program.

As of December 31, 2023, $ 149.7 million remained authorized for future repurchases of Class A common stock under the program.

Limitation of Members’ Liability

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

Profits and losses are allocated to members as defined in the Cactus Wellhead LLC Agreement.

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

Profits and losses are allocated to members as defined in the Cactus Companies LLC Agreement.

Commitments and Contingencies

We are involved in various disputes arising in the ordinary course of business.

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

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

The fair value of our foreign currency forwards was less than $ 0.1 million as of December 31, 2023 and 2022, determined using market observable inputs including forward and spot prices (Level 2 inputs).

We had no long-term debt outstanding as of December 31, 2023 or 2022.

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 December 31, 2023

Level 1 Level 2 Level 3 Total

Earn-out liability $ — $ — $ 20,810 $ 20,810

The earn-out liability related to the FlexSteel acquisition (see Note 3) 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.

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 December 31, 2023:

December 31, 2023

Risk-free interest rate 5.40 % to 5.63 %

Expected revenue volatility 21.70 %

Revenue discount rate 10.02 % to 10.23 %

Credit discount rate 9.85 %

The following table presents a summary of the changes in fair value of our earn-out liability measured using Level 3 inputs:

Opening balance at February 28, 2023 $ 5,960

Changes in fair value 14,850

Balance at December 31, 2023 $ 20,810

Segment Reporting

Prior to the acquisition of FlexSteel, we operated in a single operating segment which reflected how our business was managed and the nature of our products and services.

Upon completion of the acquisition, we re-evaluated our reportable segments and now report two operating segments.

The operating segments have been identified based on the Company’s management structure, the different products and services offered by each and the financial data utilized by the Company’s Chief Executive Officer (the chief operating decision maker or “CODM”) to assess segment performance and allocate resources among segments.

Our reporting segments are:

• Pressure Control – engaged in the design, manufacture, sale, installation and service of wellhead and pressure control equipment utilized during the drilling, completion and production phases of oil and gas wells.

• 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 segment for the years ended December 31, 2023, 2022, and 2021 is summarized below.

Year Ended December 31,

2023 2022 2021

Pressure Control $ 756,727 $ 688,369 $ 438,589

Spoolable Technologies 340,233 — —

Total revenues 1,096,960 688,369 438,589

Operating income:

Pressure Control 236,934 202,650 91,579

Spoolable Technologies (1)

Total segment operating income 299,106 202,650 91,579

Corporate and other expenses (2)

( 34,740 ) ( 27,902 ) ( 16,152 )

Total operating income 264,366 174,748 75,427

Interest income (expense), net ( 6,480 ) 3,714 ( 774 )

Other income (expense), net 4,490 ( 1,910 ) 492

Income before income taxes $ 262,376 $ 176,552 $ 75,145

(1) Includes approximately $ 23.5 million of inventory step-up expense as a result of purchase accounting and $ 14.9 million of expense related to the change in fair value of the earn-out liability.

(2) Comprised primarily of expenses not allocated to our operating segments.

Corporate and other expenses were previously included in our Pressure Control segment.

The information for fiscal year 2022 and 2021 has been recast to align with the presentation for the year ended December 31, 2023.

Additional financial information by operating segment for the years ended December 31, 2023, 2022, and 2021 is summarized below.

Year Ended December 31,

2023 2022 2021

Depreciation and amortization:

Pressure Control $ 30,898 $ 34,124 $ 36,308

Spoolable Technologies 34,147 — —

Total depreciation and amortization $ 65,045 $ 34,124 $ 36,308

Capital expenditures:

Pressure Control $ 40,940 $ 28,291 $ 13,939

Spoolable Technologies 3,037 — —

Total capital expenditures $ 43,977 $ 28,291 $ 13,939

Segment Assets:

Pressure Control $ 437,887 $ 447,937 $ 353,757

Spoolable Technologies 713,007 — —

Total segment assets 1,150,894 447,937 353,757

Corporate and other (2)

371,667 670,959 628,321

Total assets $ 1,522,561 $ 1,118,896 $ 982,078

(1) Segment assets consist of accounts receivables, inventories, prepaid expenses and other current assets, property and equipment, net, goodwill and other intangible assets, net.

(2) Consists primarily of cash and cash equivalents and deferred tax assets.

Based on the location where the sale originated, revenues in the United States exceeded 95 % of total revenues during each of the three years ended December 31, 2023.

Additionally, tangible long-lived assets in the United States exceeded 90 % of total tangible long-lived assets as of December 31, 2023, 2022 and 2021.

Related Party Transactions

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

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

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

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.

During the year ended December 31, 2023, expense recognized in connection with these rentals totaled $ 0.3 million as compared to $ 0.2 million during each of the years ended December 31, 2022 and 2021.

As of December 31, 2023 and 2022, 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 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.

Our Chief Executive Officer and President 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 CC Units (CW Unit Holders prior to the CC Reorganization), including certain of our officers, directors and employees.

These TRA Holders have the right in the future to receive 85 % of the net cash savings, if any, in U.S.

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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.

As of December 31, 2023 and 2022, amounts due from the TRA

Holders for fees and estimated state tax payments made on their behalf totaled $ 0.3 million and $ 0.1 million, respectively.

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

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

During the years ended December 31, 2022, 2021 and 2020, Cactus LLC distributed $ 38.6 million, $ 30.6 million and $ 27.8 million, respectively, to Cactus Inc.

Distributions made by Cactus Companies (Cactus LLC prior to the CC Reorganization) are generally required to be made pro rata among all its members.

During the years ended December 31, 2023, 2022 and 2021, Cactus Companies (Cactus LLC prior to the CC Reorganization) distributed $ 75.8 million, $ 38.6 million and $ 30.6 million, respectively, to Cactus Inc.

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

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

We are involved in various disputes arising in the ordinary course of business.

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.

During the year ended December 31, 2023, Cactus Companies made pro rata distributions to the other members totaling $ 16.6 million.

During the years ended December 31, 2022 and 2021, Cactus LLC made pro rata distributions to the other members totaling $ 9.7 million.

Earnings Per Share

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

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

We use the if-converted method to determine the potential dilutive effect of outstanding CC Units (CW Units prior to the CC Reorganization) and corresponding shares of outstanding Class B common stock.

We use the treasury stock method to determine the potential dilutive effect of our unvested stock-based compensation awards assuming that the proceeds will be used to purchase shares of Class A common stock.

For our unvested performance stock units, we first apply the criteria for contingently issuable shares before determining the potential dilutive effect using the treasury stock method.

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

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Cash paid for income taxes, net 25,998 5,502 4,542

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.

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.

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.

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.

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 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 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.

During the years ended December 31, 2023, 2022 and 2021, we issued 0.9 million, 1.7 million and 11.0 million shares of Class A common stock, respectively, pursuant to redemptions of CC Units (CW Units prior to the CC Reorganization) by holders thereof.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data