Cactus, Inc. 10-K

Item 8. Financial Statements and Supplementary Data The following Consolidated Financial Statements are filed as part of this Annual Report: Cactus, Inc. and Subsidiaries Management’s Report on Internal Control Over Financial Reporting 35 Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) 36 Consolidated Balance Sheets as of December 31, 2023 and 2022 39 Consolidated Statements of Income for the Years Ended December 31, 2023, 2022 and 2021 40 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2023, 2022 and 2021 41 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2023, 2022 and 2021 42 Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021 43 Notes to the Consolidated Financial Statements 44 34 Table of Contents Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (or “COSO”) in Internal Control-Integrated Framework (2013 framework). 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/ Alan Keifer Chief Executive Officer, Chairman of the Board and Director Interim Chief Financial Officer Houston, Texas February 29, 2024 35 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Cactus, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Cactus, Inc. and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. 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 A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. 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 36 Table of Contents 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters 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 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 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. The blended tax rate consists of the U.S. 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 (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 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 37 Table of Contents 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 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. 38 Table of Contents CACTUS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2023 2022 (in thousands, except per share data) Assets Current assets Cash and cash equivalents $ 133,792 $ 344,527 Accounts receivable, net of allowance of $ 3,642 and $ 1,060 , respectively 205,381 138,268 Inventories 205,625 161,283 Prepaid expenses and other current assets 11,380 10,564 Total current assets 556,178 654,642 Property and equipment, net 345,502 129,998 Operating lease right-of-use assets, net 23,496 23,183 Intangible assets, net 179,978 — Goodwill 203,028 7,824 Deferred tax asset, net 204,852 301,644 Other noncurrent assets 9,527 1,605 Total assets $ 1,522,561 $ 1,118,896 Liabilities and Equity Current liabilities Accounts payable $ 71,841 $ 47,776 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 Finance lease obligations, current portion 7,280 5,933 Operating lease liabilities, current portion 4,220 4,777 Total current liabilities 175,660 116,649 Deferred tax liability, net 3,589 1,966 Liability related to tax receivable agreement, net of current portion 250,069 265,025 Finance lease obligations, net of current portion 9,352 6,436 Operating lease liabilities, net of current portion 19,121 18,375 Total liabilities 457,791 408,451 Commitments and contingencies Stockholders’ equity Preferred stock, $ 0.01 par value, 10,000 shares authorized, none issued and outstanding — — Class A common stock, $ 0.01 par value, 300,000 shares authorized, 65,409 and 60,903 shares issued and outstanding 654 609 Class B common stock, $ 0.01 par value, 215,000 shares authorized, 14,034 and 14,978 shares issued and outstanding — — Additional paid-in capital 465,012 310,528 Retained earnings 400,682 261,764 Accumulated other comprehensive income (loss) ( 826 ) ( 984 ) Total stockholders’ equity attributable to Cactus Inc. 865,522 571,917 Non-controlling interest 199,248 138,528 Total stockholders’ equity 1,064,770 710,445 Total liabilities and equity $ 1,522,561 $ 1,118,896 The accompanying notes are an integral part of these consolidated financial statements. 39 Table of Contents CACTUS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2023 2022 2021 (in thousands, except per share data) Revenues Product revenue $ 810,379 $ 452,615 $ 280,907 Rental revenue 113,631 100,453 61,629 Field service and other revenue 172,950 135,301 96,053 Total revenues 1,096,960 688,369 438,589 Costs and expenses Cost of product revenue 490,149 277,871 189,083 Cost of rental revenue 61,983 62,037 54,377 Cost of field service and other revenue 138,536 106,013 73,681 Selling, general and administrative expenses 127,076 67,700 46,021 Change in fair value of earn-out liability 14,850 — — Total costs and expenses 832,594 513,621 363,162 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 Income tax expense 47,536 31,430 7,675 Net income $ 214,840 $ 145,122 $ 67,470 Less: net income attributable to non-controlling interest 45,669 34,948 17,877 Net income attributable to Cactus Inc. $ 169,171 $ 110,174 $ 49,593 Earnings per Class A share - basic $ 2.62 $ 1.83 $ 0.90 Earnings per Class A share - diluted $ 2.57 $ 1.80 $ 0.83 Weighted average Class A shares outstanding - basic 64,641 60,323 55,398 Weighted average Class A shares outstanding - diluted 79,460 76,337 76,107 The accompanying notes are an integral part of these consolidated financial statements. 40 Table of Contents CACTUS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2023 2022 2021 (in thousands) Net income $ 214,840 $ 145,122 $ 67,470 Foreign currency translation adjustments 239 ( 1,308 ) ( 567 ) Comprehensive income 215,079 143,814 66,903 Less: comprehensive income attributable to non-controlling interest 45,750 34,632 17,632 Comprehensive income attributable to Cactus Inc. $ 169,329 $ 109,182 $ 49,271 The accompanying notes are an integral part of these consolidated financial statements. 41 Table of Contents CACTUS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Class A Common Stock Class B Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling Interest Total Equity (in thousands) Shares Amount Shares Amount Balance at December 31, 2020 47,713 $ 477 27,655 $ — $ 202,077 $ 150,086 $ 330 $ 197,800 $ 550,770 Member distributions — — — — — — — ( 9,742 ) ( 9,742 ) Effect of CW Unit redemptions 10,981 110 ( 10,981 ) — 79,276 — — ( 79,386 ) — Tax impact of equity transactions — — — — 2,998 — — — 2,998 Equity award vestings 341 3 — — ( 1,141 ) — — ( 2,145 ) ( 3,283 ) Other comprehensive loss — — — — — — ( 322 ) ( 245 ) ( 567 ) Stock-based compensation — — — — 6,390 — — 2,230 8,620 Cash dividends declared ($ 0.38 per share) — — — ( 21,233 ) — — ( 21,233 ) Net income — — — — — 49,593 — 17,877 67,470 Balance at December 31, 2021 59,035 $ 590 16,674 $ — $ 289,600 $ 178,446 $ 8 $ 126,389 $ 595,033 Member distributions — — — — — — — ( 9,692 ) ( 9,692 ) Effect of CW Unit redemptions 1,696 17 ( 1,696 ) — 13,690 — — ( 13,707 ) — Tax impact of equity transactions — — — — 2,076 — — — 2,076 Equity award vestings 172 2 — — ( 3,306 ) — — ( 1,257 ) ( 4,561 ) Other comprehensive loss — — — — — — ( 992 ) ( 316 ) ( 1,308 ) Stock-based compensation — — — — 8,468 — — 2,163 10,631 Cash dividends declared ($ 0.44 per share) — — — ( 26,856 ) — — ( 26,856 ) Net income — — — — — 110,174 — 34,948 145,122 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 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 income — — — — — — 158 81 239 Share repurchases ( 8 ) — — — ( 286 ) — — ( 41 ) ( 327 ) Stock-based compensation — — — — 14,782 — — 3,322 18,104 Cash dividends declared ($ 0.46 per share) — — — ( 30,253 ) — — ( 30,253 ) Net income — — — — — 169,171 — 45,669 214,840 Balance at December 31, 2023 65,409 $ 654 14,034 $ — $ 465,012 $ 400,682 $ ( 826 ) $ 199,248 $ 1,064,770 The accompanying notes are an integral part of these consolidated financial statements. 42 Table of Contents CACTUS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2023 2022 2021 (in thousands) Cash flows from operating activities Net income $ 214,840 $ 145,122 $ 67,470 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization 65,045 34,124 36,308 Deferred financing cost amortization 4,514 165 168 Stock-based compensation 18,105 10,631 8,620 Provision for expected credit losses 2,622 406 310 Inventory obsolescence 5,337 2,739 3,490 Gain on disposal of assets ( 3,156 ) ( 1,391 ) ( 1,386 ) 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 ) Changes in operating assets and liabilities: Accounts receivable ( 11,858 ) ( 49,349 ) ( 45,492 ) Inventories 41,922 ( 44,891 ) ( 36,083 ) Prepaid expenses and other assets 753 ( 3,108 ) ( 2,789 ) Accounts payable 8,710 5,803 22,281 Accrued expenses and other liabilities ( 7,367 ) 2,090 16,628 Payments pursuant to tax receivable agreement ( 26,890 ) ( 11,666 ) ( 9,697 ) Net cash provided by operating activities 340,280 117,884 63,759 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 ) Proceeds from sale of assets 5,373 2,755 2,306 Net cash used in investing activities ( 654,793 ) ( 25,536 ) ( 11,633 ) Cash flows from financing activities 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 ) Dividends paid to Class A common stock shareholders ( 30,124 ) ( 26,719 ) ( 21,158 ) Distributions to members ( 16,644 ) ( 9,692 ) ( 9,742 ) Repurchases of shares ( 5,249 ) ( 4,563 ) ( 3,283 ) 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 (decrease) in cash and cash equivalents ( 210,735 ) 42,858 13,010 Cash and cash equivalents Beginning of period 344,527 301,669 288,659 End of period $ 133,792 $ 344,527 $ 301,669 The accompanying notes are an integral part of these consolidated financial statements. 43 Table of Contents CACTUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data, or as otherwise indicated) 1. Organization and Nature of Operations Cactus, Inc. (“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. Cactus Inc. 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”). Cactus Inc. 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”). Cactus Inc. 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 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. 2. Summary of Significant Accounting Policies and Other Items Basis of Presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These consolidated financial statements include the accounts of Cactus Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation. 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 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 In preparing our consolidated financial statements in conformity with GAAP, we make numerous estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. 44 Table of Contents We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with a high degree of precision from available data or is not otherwise capable of being readily calculated based on accepted methodologies. In some cases, these estimates are particularly difficult to determine, and we must exercise significant judgment. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our consolidated financial statements. Concentrations of Credit Risk Our assets that are potentially subject to concentrations of credit risk are cash and cash equivalents and accounts receivable. We manage the credit risk associated with these financial instruments by transacting only with what management believes are financially secure counterparties, requiring credit approvals and credit limits and monitoring counterparties’ financial condition. Our receivables are spread over a number of customers, a majority of which are 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, 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. We perform ongoing credit evaluations and monitoring as to the financial condition of our customers with respect to trade receivables. Generally, no collateral is required as a condition of sale. We also control our exposure associated with trade receivables by discontinuing sales and service to non-paying customers. 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 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. 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) We account for amounts payable under the TRA in accordance with Accounting Standards Codification (“ASC”) Topic 450, Contingencies. 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, 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 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. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenues are recognized when we satisfy a performance obligation by transferring control of the promised goods or providing services to our customers at a point in time, in an amount specified in the contract with our customer and that reflects the consideration to which we expect to be entitled in exchange for those goods or services. The majority of our contracts with customers contain a single performance obligation to provide agreed upon products or services. For contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price. We do not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer. We do not incur any material costs of obtaining contracts. We do not adjust the amount of consideration per the contract for the effects of a significant financing component when we expect, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less, which is in substantially all cases. Payment terms and conditions vary, although terms generally include a requirement of payment within 30 to 45 days. Revenues are recognized net 45 Table of Contents 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. Our revenues are derived from three sources: products, rentals, and field service and other: Product revenue. 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 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. Field service and other revenue. We provide field services to our customers based on contractually agreed rates. Other revenues are derived from providing repair and reconditioning services to customers who have installed wellheads and production trees on their wellsite. Revenues are recognized as the services are performed or rendered. Foreign Currency Translation The financial position and results of operations of our foreign subsidiaries are measured using the local currency as the functional currency. Revenues and expenses of the subsidiaries have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet dates. The resulting translation gain and loss adjustments have been recorded directly as a separate component of other comprehensive income in the consolidated statements of comprehensive income and stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in our consolidated statements of income as incurred. Derivative Financial Instruments We utilize a hedging program to reduce the risks associated with changes in the value of monetary assets and liabilities denominated in currencies other than the functional currency of our subsidiaries. Under this program, we utilize foreign currency forward contracts to offset gains or losses recorded upon remeasurement of assets and liabilities stated in the non-functional currencies of our subsidiaries. These forward contracts are not designated as hedges for accounting purposes. As such, we record changes in fair value of the forward contracts in our consolidated statements of income along with the gain or loss resulting from remeasurement of the U.S. dollar denominated financial assets and liabilities held by our foreign subsidiaries. The forward contracts are typically only 30 days in duration and are settled and renewed each month. 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. The grant date fair value is determined by the closing price of our Class A common stock on the grant date. Income Taxes 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. We regularly evaluate the valuation allowances established for deferred tax assets for which future realization is uncertain. In assessing the realizability of deferred tax assets, we consider both positive and negative evidence, including scheduled reversals of deferred tax assets and liabilities, projected future taxable income, tax planning strategies and results of recent operations. If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, a valuation allowance is recorded. Cactus Inc. is a corporation and is subject to 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. 46 Table of Contents federal income tax purposes and files a U.S. Return of Partnership Income, which includes both our U.S. and foreign operations. Consequently, the members of Cactus Companies are taxed individually on their share of earnings for U.S. federal and state income tax purposes. 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 Cash in excess of current operating requirements is invested in short-term interest-bearing investments with maturities of three months or less at the date of purchase and is stated at cost, which approximates fair value. Throughout the year we maintained cash balances that were not covered by federal deposit insurance. We have not experienced any losses in such accounts. Accounts Receivable and Allowance for Credit Losses We extend credit to customers in the normal course of business. Our customers are predominantly oil and gas E&P companies in the United States. Our receivables are short-term in nature and typically due in 30 to 60 days. We do not accrue interest on delinquent receivables. Accounts receivable includes amounts billed and currently due from customers and unbilled amounts for products delivered and services performed for which billings have not yet been submitted to the customers. Total unbilled revenue included in accounts receivable as of December 31, 2023 and 2022 was $ 26.8 million and $ 34.9 million, respectively. We maintain an allowance for credit losses to provide for the amount of billed receivables we believe to be at risk of loss. In our determination of the allowance for credit losses, we pool receivables with similar risk characteristics based on customer size, credit ratings, payment history, bankruptcy status and other factors known to us and apply an expected credit loss percentage. The expected credit loss percentage is determined using historical loss data adjusted for current conditions and forecasts of future economic conditions. Accounts deemed uncollectible are applied against the allowance for credit losses. The following is a rollforward of our allowance for credit losses: Balance at Beginning of Period Expense Write off Translation Adjustments Balance at End of Period Year Ended December 31, 2023 $ 1,060 $ 2,622 $ ( 36 ) $ ( 4 ) $ 3,642 Year Ended December 31, 2022 741 406 ( 86 ) ( 1 ) 1,060 Year Ended December 31, 2021 598 310 ( 167 ) — 741 Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard cost (which approximates average cost). Costs include an application of related material, direct labor, duties, tariffs, freight and overhead costs. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Reserves are made for excess and obsolete items based on a range of factors, including age, usage and technological or market changes that may impact demand for those products. The inventory obsolescence reserve was $ 25.6 million and $ 20.5 million as of December 31, 2023 and 2022, respectively. The following is a rollforward of our inventory obsolescence reserve: Balance at Beginning of Period Expense Write off Translation Adjustments Balance at End of Period Year Ended December 31, 2023 $ 20,488 $ 5,337 $ ( 193 ) $ 6 $ 25,638 Year Ended December 31, 2022 18,012 2,739 ( 202 ) ( 61 ) 20,488 Year Ended December 31, 2021 14,637 3,490 ( 62 ) ( 53 ) 18,012 Property and Equipment Property and equipment are stated at cost. 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 47 Table of Contents 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: Land N/A Buildings and improvements 5 - 30 years Machinery and equipment 3 - 20 years Reels and skids 12 - 20 years Vehicles 3 - 5 years Rental equipment 2 - 11 years Furniture and fixtures 5 years Computers and software 3 - 5 years Property and equipment as of December 31, 2023 and 2022 consists of the following: December 31, 2023 2022 Land $ 16,442 $ 5,302 Buildings and improvements 131,974 25,480 Machinery and equipment 128,962 57,883 Reels and skids 16,181 — Vehicles 36,552 29,045 Rental equipment 218,340 194,088 Furniture and fixtures 1,913 1,759 Computers and software 3,951 3,068 Gross property and equipment 554,315 316,625 Less: Accumulated depreciation ( 231,594 ) ( 200,573 ) Net property and equipment 322,721 116,052 Construction in progress 22,781 13,946 Total property and equipment, net $ 345,502 $ 129,998 Depreciation and amortization was $ 65.0 million, $ 34.1 million and $ 36.3 million for 2023, 2022 and 2021, respectively. Depreciation and amortization expense is included in the consolidated statements of income as follows: Year Ended December 31, 2023 2022 2021 Cost of product revenue $ 13,762 $ 3,022 $ 3,176 Cost of rental revenue 20,191 23,663 25,812 Cost of field service and other revenue 9,786 6,986 6,863 Selling, general and administrative expenses 21,306 453 457 Total depreciation and amortization $ 65,045 $ 34,124 $ 36,308 Impairment of Long‑Lived Assets 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. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. We concluded there were no indicators evident or other circumstances present that these assets were not recoverable and accordingly, no impairment charges of long‑lived assets were recognized for 2023, 2022 and 2021. 48 Table of Contents Goodwill Goodwill represents the excess of purchase price paid over the fair value of the net assets of acquired businesses. Goodwill is not amortized, but we evaluate at least annually whether it is impaired. Goodwill is considered impaired if the carrying amount of the reporting unit exceeds its estimated fair value. We conduct our annual assessment of the recoverability of goodwill as of December 31 of each year. We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the goodwill impairment test. If the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying amount or we elect not to perform a qualitative assessment, the quantitative assessment of goodwill test is performed. 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 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. These estimates can change materially from period to period based on many factors. 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 each of the three years ended December 31, 2023. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities as of December 31, 2023 and 2022 are as follows: December 31, 2023 2022 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 Taxes other than income 4,566 2,728 Income based tax payable 4,274 2,537 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 Self-Insurance Accrued Expenses We maintain a partially self-insured health benefit plan which provides medical and prescription drug benefits to certain of our employees electing coverage under the plan. Our exposure is limited by individual and aggregate stop loss limits through third-party insurance carriers. Our self-insurance expense is accrued based upon the aggregate of the expected liability for reported claims and the estimated liability for claims incurred but not reported, based on historical claims experience provided by our third-party insurance advisors, adjusted as necessary based upon management’s reasoned judgment. Actual employee medical claims expense may differ from estimated loss provisions based on historical experience. The liabilities for these claims are included as a component of payroll, incentive compensation, payroll taxes and benefits in the table above and were $ 2.3 million and $ 1.4 million as of December 31, 2023 and 2022, respectively. Product Warranties 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. 49 Table of Contents Employee Benefit Plans Our employees within the United States are eligible to participate in a 401(k) plan sponsored by us. These employees are eligible to participate on the first day of the month following 30 days of employment and if they are at least eighteen years of age. Eligible employees may contribute a percentage of their compensation subject to a maximum imposed by the Internal Revenue Code. 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. 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. 3. 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. 50 Table of Contents 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 Add: Contingent consideration (1) 5,960 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. 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. Identifiable intangible assets with finite lives are subject to amortization over their estimated useful lives. 51 Table of Contents 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. Year Ended December 31, 2023 2022 Revenues $ 1,150,339 $ 1,039,612 Net Income attributable to Cactus, Inc. 181,020 116,180 4. Inventories Inventories consist of the following: December 31, 2023 2022 Raw materials $ 22,373 $ 3,150 Work-in-progress 11,471 5,444 Finished goods 171,781 152,689 Total inventories $ 205,625 $ 161,283 52 Table of Contents 5. 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: 2024 15,987 2025 15,987 2026 15,987 2027 15,987 2028 15,987 Thereafter 100,043 Total $ 179,978 6. Debt We had no debt outstanding as of December 31, 2023 and 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 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. 53 Table of Contents 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 Interest (income) expense, net, including deferred financing cost amortization, was comprised of the following: Year Ended December 31, 2023 2022 2021 Interest under bank facilities $ 3,818 $ 268 $ 313 Deferred financing cost amortization 4,514 165 168 Finance lease interest 1,110 628 520 Other 794 167 126 Interest income ( 3,756 ) ( 4,942 ) ( 353 ) Interest (income) expense, net $ 6,480 $ ( 3,714 ) $ 774 54 Table of Contents 7. Income Taxes Domestic and foreign components of income before income taxes were as follows: Year Ended December 31, 2023 2022 2021 Domestic $ 241,084 $ 155,380 $ 64,139 Foreign 21,292 21,172 11,006 Income before income taxes $ 262,376 $ 176,552 $ 75,145 The provision for income taxes consisted of: Year Ended December 31, 2023 2022 2021 Current: Federal $ 18,354 $ — $ — State 4,040 1,231 348 Foreign 7,799 4,900 2,497 Total current income taxes 30,193 6,131 2,845 Deferred: Federal 12,925 23,945 2,658 State 4,249 514 1,516 Foreign 169 840 656 Total deferred income taxes 17,343 25,299 4,830 Total provision for income taxes $ 47,536 $ 31,430 $ 7,675 The effective income tax rate was different from the statutory U.S. federal income tax rate due to the following: Year Ended December 31, 2023 2022 2021 Income taxes at 21% statutory tax rate $ 55,094 $ 37,076 $ 15,780 Net difference resulting from: Profit of non-controlling interest not subject to U.S. federal tax ( 9,951 ) ( 7,339 ) ( 3,754 ) Foreign income taxes (net of foreign tax credit) 1,918 2,104 2,423 State income taxes (excluding rate change) 3,999 2,910 1,348 Impact of change in forecasted state income tax rate 4,906 ( 1,739 ) 1,347 Foreign withholding taxes 1,419 1,225 730 Change in valuation allowance ( 12,067 ) ( 1,381 ) ( 8,977 ) Adjustments of prior year taxes 480 ( 120 ) 79 Stock compensation ( 1,193 ) ( 1,743 ) ( 1,096 ) Nondeductible expenses associated with acquisition 3,951 — — Other ( 1,020 ) 437 ( 205 ) Total provision for income taxes $ 47,536 $ 31,430 $ 7,675 Our effective tax rate was 18.1 %, 17.8 % and 10.2 % for the years ended December 31, 2023, 2022 and 2021, respectively. 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 Companies (Cactus LLC prior to the CC Reorganization). Income allocated to the non-controlling interest is not subject to U.S. federal or state tax. 55 Table of Contents The components of deferred tax assets and liabilities are as follows: December 31, 2023 2022 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 and other carryforwards 11,343 855 Other 359 — Deferred tax assets 211,077 319,248 Valuation allowance ( 6,225 ) ( 17,604 ) Deferred tax asset, net 204,852 301,644 Foreign withholding taxes 1,350 1,323 Other 2,239 643 Deferred tax liability, net $ 3,589 $ 1,966 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 CC Units (CW Units prior to the CC Reorganization). 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 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. 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 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. federal and state net operating loss (“NOL”) carryforwards of approximately $ 8.3 million and $ 0.6 million, respectively, which can be used to offset U.S. federal and state taxes payable in future years. Additionally, we have a deferred tax asset on deferred interest of $ 2.5 million. The U.S. 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 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 56 Table of Contents 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. 8. 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. Stock-based awards granted pursuant to the LTIP are expected to be settled in shares of our Class A common stock if they vest. Our stock-based awards do not have voting rights prior to vesting. Dividends declared are accumulated and paid upon vesting. We account for forfeitures when they occur and recognize the impact to stock-based compensation expense at that time. 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 $ 1.2 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. Restricted Stock Units Restricted stock units (“RSUs”) granted to our key employees generally vest over a three-year period (vesting ratably in equal tranches over a three-year period); however, RSUs granted to our non-employee directors generally vest on the first anniversary of the grant date. We recognize compensation expense over the requisite service period using straight-line amortization. The following table summarizes our RSU activity during the year ended December 31, 2023 (RSUs in thousands): No. of RSUs Weighted Average Grant Date Fair Value ($) Nonvested as of December 31, 2022 350 $ 36.27 Granted 484 43.19 Vested ( 239 ) 31.57 Forfeited ( 31 ) 44.43 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. The unrecognized compensation expense will be recognized over the weighted average remaining vesting period of 2.3 years. Performance Stock Units 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”). 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 57 Table of Contents 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. 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): No. of PSUs Weighted Average Grant Date Fair Value ($) Nonvested as of December 31, 2022 128 $ 43.63 Granted 149 44.20 Vested (1) ( 131 ) 32.82 Forfeited ( 35 ) 45.78 Performance adjustment (2) 65 32.82 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. 9. Revenue We disaggregate revenue from contracts with customers into three revenue categories: (i) product revenues, (ii) rental revenues and (iii) field service and other revenues. We have predominately domestic operations, with a small amount of sales in Australia, 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. This compares to 66 % of our total revenues from the sale of our products, 14 % of our total revenues from rental and 20 % of our total revenues from field service and other for the year ended December 31, 2022. In 2021, we derived 64 % of our total revenues from the sale of our products, 14 % from rental and 22 % from field service and other. The following table presents our revenues disaggregated by category: Year Ended December 31, 2023 2022 2021 Product revenue $ 810,379 $ 452,615 $ 280,907 Rental revenue 113,631 100,453 61,629 Field service and other revenue 172,950 135,301 96,053 Total revenue $ 1,096,960 $ 688,369 $ 438,589 At December 31, 2023, we had a deferred revenue balance of $ 8.1 million compared to the December 31, 2022 balance of $ 1.5 million included in accrued expenses and other current liabilities in the consolidated balance sheets. Deferred revenue represents our obligation to transfer products or perform services for a customer for which we have received cash or billed in advance. The revenue that has been deferred will be recognized upon product delivery or as services are performed. As of December 31, 2023, we did not have any contracts with an original length of greater than a year from which revenue is expected to be recognized in the future related to performance obligations that are unsatisfied. 58 Table of Contents 10. Leases We lease real estate, apartments, forklifts, vehicles and other equipment under non-cancellable agreements. Certain of our leases include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years or greater. The exercise of lease renewal options is typically at our discretion. The measurement of the lease term includes options to extend or renew the lease when it is reasonably certain that we will exercise those options. Lease assets and liabilities are recognized at the commencement date based on the present value of minimum lease payments over the lease term. To determine the present value of future minimum lease payments, we use the implicit rate when readily determinable; however, many of our leases do not provide an implicit rate. Therefore, to determine the present value of minimum lease payments, we use our incremental borrowing rate based on the information available at the commencement date of the lease. Our finance lease agreements typically include an interest rate that is used to determine the present value of future lease payments. Short-term operating leases with an initial term of twelve months or less are not recorded on our balance sheet. Minimum lease payments are expensed on a straight-line basis over the lease term, including reasonably certain renewal options. The following are the components of operating and finance lease costs: Year Ended December 31, 2023 2022 Finance lease cost: Amortization of right-of-use assets $ 7,307 $ 5,516 Interest expense 1,110 628 Operating lease cost 6,123 6,564 Short-term lease cost 4,175 1,515 Sublease income ( 396 ) ( 353 ) Total lease cost $ 18,319 $ 13,870 The following is supplemental cash flow information for our operating and finance leases: Year Ended December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 1,110 $ 628 Operating cash flows from operating leases 6,143 6,524 Financing cash flows from finance leases 7,652 6,055 Total $ 14,905 $ 13,207 Right-of-use assets obtained in exchange for new lease obligations: Operating leases $ 6,361 $ 6,565 Finance leases 11,159 7,941 Total $ 17,520 $ 14,506 The following is the aggregate future lease payments for operating and finance leases as of December 31, 2023: Operating Finance 2024 $ 5,133 $ 8,529 2025 4,709 5,615 2026 4,041 4,931 2027 3,666 60 2028 3,251 — Thereafter 5,941 — Total undiscounted lease payments 26,741 19,135 Less: effects of discounting ( 3,400 ) ( 2,503 ) Present value of lease payments $ 23,341 $ 16,632 59 Table of Contents The following represents the average lease terms and discount rates for our operating and finance leases: Year Ended December 31, 2023 2022 Weighted average remaining lease term: Finance leases 1.9 years 2.0 years Operating leases 6.1 years 6.5 years Weighted average discount rate Finance leases 16.28 % 11.97 % Operating leases 3.59 % 2.96 % 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. At this time, most lessor agreements contain less than three-month terms with no renewal options that are reasonably certain to exercise, or early termination options based on established terms specific to the individual agreement. See Note 9 for disaggregation of revenue. 11. Tax Receivable Agreement 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. to the TRA Holders of 85 % of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that Cactus Inc. actually realizes or is deemed to realize in certain circumstances as a result of (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 (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. makes under the TRA. We retain the remaining 15 % of the cash savings. 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. federal income tax rate and an assumed combined state and local income tax rate driven by the apportionment factors applicable to each state. As of December 31, 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 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 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. We may elect to defer payments due under the TRA if we do not have available cash to satisfy our payment obligations under the TRA. Any such deferred payments under the TRA generally will accrue interest from the due date for such payment until the payment date. 12. Equity As of December 31, 2023, Cactus Inc. 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 65.4 million 60 Table of Contents 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. Cactus Inc. 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 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 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. 61 Table of Contents 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): Units CW Units outstanding as of December 31, 2020 27,655 2021 Secondary Offering ( 6,273 ) Cadent redemption in June 2021 ( 3,292 ) Cadent redemption in September 2021 ( 715 ) Other CW Unit redemptions ( 701 ) CW Units outstanding as of December 31, 2021 16,674 CW Unit redemptions ( 1,696 ) 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. Cactus Inc. 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. entered into an underwriting agreement with Cactus LLC, certain selling stockholders of Cactus (the “Selling Stockholders”) and the underwriters named therein, providing for the offer and sale by the Selling Stockholders (the “2021 Secondary Offering”) of up to 6,325,000 shares of Class A common stock at a price to the underwriters of $ 30.555 per share. On March 12, 2021, in connection with the 2021 Secondary Offering, certain of the Selling Stockholders exercised their right to redeem 6,272,500 CW Units, together with a corresponding number of shares of Class B common stock, as provided in the Cactus Wellhead LLC Agreement. Upon the closing of the 2021 Secondary Offering, Cactus Inc. acquired the redeemed CW Units and a corresponding number of shares of Class B common stock (which shares of Class B common stock were then canceled) and issued 6,272,500 new shares of Class A common stock to the underwriters at the direction of the redeeming Selling Stockholders, as provided in the Cactus Wellhead LLC Agreement. In addition, certain other Selling Stockholders sold 52,500 shares of Class A common stock in the 2021 Secondary Offering, which shares were owned by them directly as of the time of the 2021 Secondary Offering. Cactus did not receive any of the proceeds from the sale of common stock in the 2021 Secondary Offering and incurred $ 0.4 million in expenses which were recorded in other expense, net, in the consolidated statements of income. There was no change in the combined number of Cactus Inc. voting shares outstanding as a result of the 2021 Secondary Offering. On June 17, 2021, Cadent Energy Partners II, L.P. (“Cadent”) transferred ownership of 944,093 CW Units, together with a corresponding number of shares of Class B common stock, to its general partner, Cadent Energy Partners II - GP, L.P., (“Cadent GP”), and its manager, Cadent Management Services, LLC (“Cadent Management”). Cadent then redeemed its remaining 3.3 million CW Units, together with a corresponding number of shares of Class B common stock, as provided in the Cactus Wellhead LLC Agreement. The redeemed CW Units (and the corresponding shares of Class B common stock) were canceled and Cactus Inc. issued 3.3 million new shares of Class A common stock to Cadent, which then distributed such shares to its limited partners. Cactus received no proceeds from these events, and there was no change in the combined number of Cactus Inc. voting shares outstanding. On September 13, 2021, Cadent GP and Cadent Management transferred their aggregate ownership of 228,878 CW Units, together with a corresponding number of shares of Class B common stock, to their respective owners, which included certain Cactus Inc. board members and executive management. The transfers were made at the discretion of Cadent GP and 62 Table of Contents Cadent Management without the consent of the transferees. Additionally, Cadent GP and Cadent Management redeemed their remaining 715,215 CW Units held, together with a corresponding number of shares of Class B common stock, thus liquidating its ownership in Cactus Wellhead, LLC. These transactions were in accordance with the Cactus Wellhead LLC Agreement. The redeemed CW Units (and the corresponding shares of Class B common stock) were canceled and Cactus Inc. issued 715,215 new shares of Class A common stock. Cactus received no proceeds from these events, and there was no change in the combined number of Cactus Inc. voting shares outstanding. Dividends Aggregate cash dividends of $ 0.46 , $ 0.44 and $ 0.38 per share of Class A common stock declared during the years ended December 31, 2023, 2022 and 2021 totaled $ 30.3 million, $ 26.9 million and $ 21.2 million, respectively. Cash dividends paid during the years ended December 31, 2023, 2022 and 2021 totaled $ 30.1 million, $ 26.7 million and $ 21.2 million, respectively. Dividends accrue on unvested stock-based awards on the date of record and are paid upon vesting. Dividends are not paid to our Class B common 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 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. 13. 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. 14. 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 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 Liabilities: Earn-out liability $ — $ — $ 20,810 $ 20,810 63 Table of Contents 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 15. 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 Revenue: 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) 62,172 — — 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 64 Table of Contents (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: (1) 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. 16. Related Party Transactions 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 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 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. federal, state and local income tax and franchise tax that Cactus Inc. actually realizes or is deemed to realize in certain circumstances. The total liability from the TRA as of December 31, 2023 was $ 270.9 million. 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, 2023 and 2022, amounts due from the TRA 65 Table of Contents 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 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 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. 17. Earnings Per Share Basic earnings per share of Class A common stock is calculated by dividing the net income attributable to Cactus Inc. during the period by the weighted average number of shares of Class A common stock outstanding during the same period. Diluted earnings per share of Class A common stock is calculated by dividing the net income attributable to Cactus Inc. during that period by the weighted average number of common shares outstanding assuming all potentially dilutive shares were issued. 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: Year Ended December 31, 2023 2022 2021 Numerator: Net income attributable to Cactus Inc.—basic $ 169,171 $ 110,174 $ 49,593 Net income attributable to non-controlling interest (1) 35,075 27,235 13,744 Net income attributable to Cactus Inc.—diluted (1) $ 204,246 $ 137,409 $ 63,337 Denominator: Weighted average Class A shares outstanding—basic 64,641 60,323 55,398 Effect of dilutive shares 14,819 16,014 20,709 Weighted average Class A shares outstanding—diluted 79,460 76,337 76,107 Earnings per Class A share—basic $ 2.62 $ 1.83 $ 0.90 Earnings per Class A share—diluted (1) $ 2.57 $ 1.80 $ 0.83 (1) The numerator is adjusted in the calculation of diluted earnings per share under the if-converted method to include net income attributable to the non-controlling interest calculated as its pre-tax income adjusted for a corporate effective tax rate of 26 %, 25 % and 27 % for the years ended December 31, 2023, 2022 and 2021, respectively. 18. Supplemental Cash Flow Information Non-cash investing and financing activities were as follows: Year Ended December 31, 2023 2022 2021 Right-of-use assets obtained in exchange for new lease obligations $ 17,520 $ 14,506 $ 15,283 Property and equipment in accounts payable 1,997 1,369 405 Cash paid for interest and income taxes was as follows: Year Ended December 31, 2023 2022 2021 Cash paid for interest $ 5,629 $ 1,063 $ 959 Cash paid for income taxes, net 25,998 5,502 4,542 66 Table of Contents 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. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.