Cactus, Inc. 10-Q

Item 1. Financial Statements. CACTUS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except per share data) June 30, 2024 December 31, 2023 Assets Current assets Cash and cash equivalents $ 246,503 $ 133,792 Accounts receivable, net of allowance of $ 4,277 and $ 3,642 , respectively 205,024 205,381 Inventories 206,730 205,625 Prepaid expenses and other current assets 10,764 11,380 Total current assets 669,021 556,178 Property and equipment, net 343,525 345,502 Operating lease right-of-use assets, net 23,239 23,496 Intangible assets, net 171,984 179,978 Goodwill 203,028 203,028 Deferred tax asset, net 206,409 204,852 Other noncurrent assets 9,187 9,527 Total assets $ 1,626,393 $ 1,522,561 Liabilities and Equity Current liabilities Accounts payable $ 63,760 $ 71,841 Accrued expenses and other current liabilities 61,022 50,654 Earn-out liability 36,990 20,810 Current portion of liability related to tax receivable agreement 5,578 20,855 Finance lease obligations, current portion 7,087 7,280 Operating lease liabilities, current portion 4,186 4,220 Total current liabilities 178,623 175,660 Deferred tax liability, net 2,887 3,589 Liability related to tax receivable agreement, net of current portion 259,550 250,069 Finance lease obligations, net of current portion 9,372 9,352 Operating lease liabilities, net of current portion 18,953 19,121 Other noncurrent liabilities 2,212 — Total liabilities 471,597 457,791 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, 66,480 and 65,409 shares issued and outstanding 665 654 Class B common stock, $ 0.01 par value, 215,000 shares authorized, 13,082 and 14,034 shares issued and outstanding — — Additional paid-in capital 481,960 465,012 Retained earnings 473,391 400,682 Accumulated other comprehensive loss ( 1,340 ) ( 826 ) Total stockholders’ equity attributable to Cactus Inc. 954,676 865,522 Non-controlling interest 200,120 199,248 Total stockholders’ equity 1,154,796 1,064,770 Total liabilities and equity $ 1,626,393 $ 1,522,561 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Table of Contents CACTUS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share data) 2024 2023 2024 2023 Revenues Product revenue $ 220,901 $ 231,893 $ 428,412 $ 391,403 Rental revenue 25,207 28,220 49,150 56,037 Field service and other revenue 44,281 45,706 86,950 86,784 Total revenues 290,389 305,819 564,512 534,224 Costs and expenses Cost of product revenue 128,167 149,217 248,833 250,032 Cost of rental revenue 13,694 16,896 26,640 32,980 Cost of field service and other revenue 34,606 34,971 69,841 66,888 Selling, general and administrative expenses 31,227 38,069 60,649 67,970 Change in fair value of earn-out liability 2,876 18,144 16,180 18,144 Total costs and expenses 210,570 257,297 422,143 436,014 Operating income 79,819 48,522 142,369 98,210 Interest income (expense), net 1,405 ( 5,928 ) 2,094 ( 4,926 ) Other income, net — — — 3,538 Income before income taxes 81,224 42,594 144,463 96,822 Income tax expense 18,165 10,135 31,589 12,075 Net income $ 63,059 $ 32,459 $ 112,874 $ 84,747 Less: net income attributable to non-controlling interest 13,231 7,709 24,081 17,103 Net income attributable to Cactus Inc. $ 49,828 $ 24,750 $ 88,793 $ 67,644 Earnings per Class A share - basic $ 0.75 $ 0.38 $ 1.35 $ 1.05 Earnings per Class A share - diluted $ 0.75 $ 0.38 $ 1.35 $ 1.02 Weighted average Class A shares outstanding - basic 66,142 64,566 65,760 64,155 Weighted average Class A shares outstanding - diluted 66,579 65,003 79,686 79,512 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Table of Contents CACTUS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2024 2023 2024 2023 Net income $ 63,059 $ 32,459 $ 112,874 $ 84,747 Foreign currency translation adjustments 174 ( 445 ) ( 629 ) ( 142 ) Comprehensive income $ 63,233 $ 32,014 $ 112,245 $ 84,605 Less: comprehensive income attributable to non-controlling interest 13,289 7,596 23,966 17,073 Comprehensive income attributable to Cactus Inc. $ 49,944 $ 24,418 $ 88,279 $ 67,532 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 CACTUS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) Class A Class B Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling Interest Total Equity Common Stock Common Stock (in thousands) Shares Amount Shares Amount Balance at March 31, 2024 65,518 $ 655 14,034 $ — $ 462,464 $ 431,703 $ ( 1,456 ) $ 207,223 $ 1,100,589 Member distributions — — — — — — — ( 6,933 ) ( 6,933 ) Effect of CC Unit redemptions 952 10 ( 952 ) — 14,406 — — ( 14,416 ) — Tax impact of equity transactions — — — — 299 — — — 299 Equity award vestings 10 — — — ( 178 ) — — ( 43 ) ( 221 ) Other comprehensive income — — — — — — 116 58 174 Stock-based compensation — — — — 4,969 — — 1,000 5,969 Cash dividends declared ($ 0.12 per share) — — — — — ( 8,140 ) — — ( 8,140 ) Net income — — — — — 49,828 — 13,231 63,059 Balance at June 30, 2024 66,480 $ 665 13,082 $ — $ 481,960 $ 473,391 $ ( 1,340 ) $ 200,120 $ 1,154,796 Balance at March 31, 2023 64,448 $ 645 14,978 $ — $ 439,844 $ 297,528 $ ( 764 ) $ 188,583 $ 925,836 Member distributions — — — — — — — ( 3,068 ) ( 3,068 ) Effect of CC Unit redemptions 158 2 ( 158 ) — 2,020 — — ( 2,022 ) — Tax impact of equity transactions — — — — 428 — — — 428 Equity award vestings 7 — — — ( 62 ) — — ( 35 ) ( 97 ) Other comprehensive loss — — — — — — ( 332 ) ( 113 ) ( 445 ) Share repurchases ( 4 ) ( 137 ) ( 22 ) ( 159 ) Stock-based compensation — — — — 4,113 — — 936 5,049 Cash dividends declared ($ 0.11 per share) — — — — — ( 7,229 ) — — ( 7,229 ) Net income — — — — — 24,750 — 7,709 32,459 Balance at June 30, 2023 64,609 $ 647 14,820 $ — $ 446,206 $ 315,049 $ ( 1,096 ) $ 191,968 $ 952,774 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 CACTUS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) Class A Class B Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling Interest Total Equity Common Stock Common Stock (in thousands) Shares Amount Shares Amount Balance at December 31, 2023 65,409 $ 654 14,034 $ — $ 465,012 $ 400,682 $ ( 826 ) $ 199,248 $ 1,064,770 Member distributions — — — — — — — 0 ( 8,617 ) ( 8,617 ) Effect of CC Unit redemptions 952 10 ( 952 ) — 14,406 — — ( 14,416 ) — Tax impact of equity transactions — — — — 533 — — — 533 Equity award vestings 206 2 — — ( 3,644 ) — — ( 1,475 ) ( 5,117 ) Other comprehensive loss — — — — — — ( 514 ) ( 115 ) ( 629 ) Share repurchases ( 87 ) ( 1 ) — — ( 2,996 ) — — ( 375 ) ( 3,372 ) Stock-based compensation — — — — 8,649 — — 1,789 10,438 Cash dividends declared ($ 0.24 per share) — — — — — ( 16,084 ) — — ( 16,084 ) Net income — — — — — 88,793 — 24,081 112,874 Balance at June 30, 2024 66,480 $ 665 13,082 $ — $ 481,960 $ 473,391 $ ( 1,340 ) $ 200,120 $ 1,154,796 Balance at December 31, 2022 60,903 $ 609 14,978 $ — $ 310,528 $ 261,764 $ ( 984 ) $ 138,528 $ 710,445 Issuance of common stock 3,352 34 — — 143,302 — — 26,033 169,369 Member distributions — — — — — — — ( 4,712 ) ( 4,712 ) Effect of CC Unit redemptions 158 2 ( 158 ) — 2,020 — — ( 2,022 ) — Tax impact of equity transactions — — — — ( 13,553 ) — — 16,826 3,273 Equity award vestings 200 2 — — ( 3,071 ) — — ( 1,371 ) ( 4,440 ) Other comprehensive loss — — — — — — ( 112 ) ( 30 ) ( 142 ) Share repurchases ( 4 ) — — — ( 137 ) — — ( 22 ) ( 159 ) Stock-based compensation — — — — 7,117 — — 1,635 8,752 Cash dividends declared ($ 0.22 per share) — — — — — ( 14,359 ) — — ( 14,359 ) Net income — — — — — 67,644 — 17,103 84,747 Balance at June 30, 2023 64,609 $ 647 14,820 $ — $ 446,206 $ 315,049 $ ( 1,096 ) $ 191,968 $ 952,774 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 CACTUS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months Ended June 30, (in thousands) 2024 2023 Cash flows from operating activities Net income $ 112,874 $ 84,747 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization 30,047 35,024 Deferred financing cost amortization 560 3,545 Stock-based compensation 10,373 9,164 Provision for expected credit losses 589 1,515 Inventory obsolescence 3,035 1,980 Gain on disposal of assets ( 1,674 ) ( 1,632 ) Deferred income taxes 7,915 1,079 Change in fair value of earn-out liability 16,180 18,023 Gain from revaluation of liability related to tax receivable agreement — ( 3,417 ) Changes in operating assets and liabilities: Accounts receivable ( 358 ) ( 20,107 ) Inventories ( 4,340 ) 41,185 Prepaid expenses and other assets 429 965 Accounts payable ( 8,577 ) 1,236 Accrued expenses and other liabilities 12,442 ( 4,789 ) Payments pursuant to tax receivable agreement ( 15,277 ) — Net cash provided by operating activities 164,218 168,518 Cash flows from investing activities Acquisition of a business, net of cash and cash equivalents acquired — ( 618,857 ) Capital expenditures and other ( 17,371 ) ( 23,700 ) Proceeds from sales of assets 3,317 3,038 Net cash used in investing activities ( 14,054 ) ( 639,519 ) Cash flows from financing activities Proceeds from the issuance of long-term debt — 155,000 Repayments of borrowings of long-term debt — ( 100,000 ) Net proceeds from the issuance of Class A common stock — 169,878 Payments of deferred financing costs — ( 6,817 ) Payments on finance leases ( 3,954 ) ( 3,594 ) Dividends paid to Class A common stock shareholders ( 16,135 ) ( 14,469 ) Distributions to members ( 8,617 ) ( 4,712 ) Repurchases of shares ( 8,489 ) ( 4,599 ) Net cash (used in) provided by financing activities ( 37,195 ) 190,687 Effect of exchange rate changes on cash and cash equivalents ( 258 ) ( 303 ) Net increase (decrease) in cash and cash equivalents 112,711 ( 280,617 ) Cash and cash equivalents, beginning of period 133,792 344,527 Cash and cash equivalents, end of period $ 246,503 $ 63,910 Supplemental disclosure of cash flow information Net cash paid for income taxes $ 18,977 $ 10,814 Cash paid for interest $ 1,077 $ 3,555 Non-cash investing and financing activities: Right-of-use assets obtained in exchange for new lease obligations $ 8,425 $ 6,923 Property and equipment in accounts payable $ 1,907 $ 1,703 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 CACTUS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (in thousands, except per share data, or as otherwise indicated) 1. Preparation of Interim Financial Statements and Other Items Basis of Presentation The financial statements presented in this report represent the consolidation of Cactus, Inc. (“Cactus Inc.”) and its subsidiaries (the “Company”), including Cactus Companies, LLC (“Cactus Companies”). 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 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, par value $ 0.01 per share (“Class A common stock”). 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. On February 28, 2023, Cactus Inc. through one of its subsidiaries, completed the acquisition of the FlexSteel business through a merger (the “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 Note 2 for additional information related to the acquisition. Following the acquisition of FlexSteel, we now operate in two business segments: Pressure Control and Spoolable Technologies. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, these consolidated financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read together with our Annual Report on Form 10-K for the year ended December 31, 2023. The consolidated financial statements include all adjustments, which are of a normal recurring nature, unless otherwise disclosed, necessary for a fair statement of the consolidated financial statements for the interim periods. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. 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. 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. 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 7 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. 2. FlexSteel Acquisition On February 28, 2023 we completed the acquisition of FlexSteel. 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 with a potential future earn-out payment of up to $ 75.0 million, if certain revenue targets were met by FlexSteel through the period ending June 30, 2024. Purchase Price Consideration The final purchase price consideration for the acquisition was $ 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 $ 75.0 million of additional cash consideration if certain revenue targets were 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 have been recognized in the consolidated statements of income. The contingent consideration earn-out period ended on June 30, 2024 and resulted in a final earn-out liability of $ 37.0 million, which is expected to be paid in August 2024. 8 Purchase Price Allocation The following table provides the final allocation of the purchase price as of the acquisition date: 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 The acquisition was accounted for using the acquisition method of accounting, with Cactus being treated as the accounting acquirer. Under the acquisition method of accounting, the assets and liabilities were recorded at their respective fair values as of the acquisition date. Fair values were determined by management, based in part on independent valuations performed by third-party valuation specialists. The valuation methods used to determine the fair value of intangible assets included the excess earnings approach for customer relationships and backlog using customer inputs and contributory charges and the relief from royalty method for tradename and developed technology. 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 were 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 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. Pro forma financial information The pro forma financial information below represents the combined results of operations as if the acquisition had occurred as of January 1, 2022. The unaudited pro forma financial information is presented for informational purposes only. Six Months Ended June 30, 2023 Revenues $ 587,603 Net Income attributable to Cactus, Inc. 79,011 9 3. 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 exploration and production companies located in the U.S. 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 resulting from accrued revenue associated with 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 June 30, 2024 and December 31, 2023 was $ 35.6 million and $ 26.8 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 (Recovery) Write off Other Balance at End of Period Six Months Ended June 30, 2024 $ 3,642 $ 589 $ ( 1 ) $ 47 $ 4,277 Six Months Ended June 30, 2023 1,060 1,515 ( 24 ) ( 1 ) 2,550 4. 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. Inventories consist of the following: June 30, 2024 December 31, 2023 Raw materials $ 19,024 $ 22,373 Work-in-progress 12,059 11,471 Finished goods 175,647 171,781 $ 206,730 $ 205,625 10 5. Property and Equipment, net Property and equipment are stated at cost. We manufacture or construct most of our Pressure Control rental equipment assets. During the manufacture of these assets, they are reflected as construction in progress until complete. Property and equipment consists of the following: June 30, 2024 December 31, 2023 Land $ 16,442 $ 16,442 Buildings and improvements 132,661 131,974 Machinery and equipment 133,153 128,962 Reels and skids 16,119 16,181 Vehicles 37,316 36,552 Rental equipment 220,783 218,340 Furniture and fixtures 1,908 1,913 Computers and software 4,115 3,951 Gross property and equipment 562,497 554,315 Less: Accumulated depreciation ( 247,332 ) ( 231,594 ) Net property and equipment 315,165 322,721 Construction in progress 28,360 22,781 Total property and equipment, net $ 343,525 $ 345,502 6. Other Intangible Assets The following table presents the detail of acquired intangible assets: June 30, 2024 December 31, 2023 Gross Cost Accumulated Amortization Net Cost Gross Cost Accumulated Amortization Net Cost Customer relationships $ 100,300 $ ( 8,916 ) $ 91,384 $ 100,300 $ ( 5,572 ) $ 94,728 Developed technology 77,000 ( 10,267 ) 66,733 77,000 ( 6,417 ) 70,583 Tradename 16,000 ( 2,133 ) 13,867 16,000 ( 1,333 ) 14,667 Backlog 7,000 ( 7,000 ) — 7,000 ( 7,000 ) — Total $ 200,300 $ ( 28,316 ) $ 171,984 $ 200,300 $ ( 20,322 ) $ 179,978 All intangible assets are amortized over their estimated useful lives. The weighted average amortization period for identifiable intangible assets acquired as of June 30, 2024 is 11.3 years. Amortization expense recognized during the three and six months ended June 30, 2024 was $ 4.0 million and $ 8.0 million, respectively, and was recorded in selling, general and administrative expenses in the consolidated statements of income. Estimated future amortization expense is as follows: Remainder of 2024 $ 7,993 2025 15,987 2026 15,987 2027 15,987 2028 15,987 2029 15,987 Thereafter 84,056 Total $ 171,984 11 7. Debt We had no bank debt outstanding as of June 30, 2024 and December 31, 2023. 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 June 30, 2024. In August 2018, Cactus LLC entered into a five-year senior secured asset-based revolving credit facility with a syndicate of lenders and JPMorgan Chase Bank, N.A., as administrative agent for such lenders and as an issuing bank and swingline lender (the “ABL Credit Facility”). The ABL Credit Facility was amended in September 2020 and July 2022. On February 28, 2023, in connection with the Merger, Cactus Companies assumed the rights and obligations of Cactus LLC as Borrower under the ABL Credit Facility, and the ABL Credit Facility was amended and restated in its entirety (the “Amended ABL Credit Facility”). The Amended ABL Credit Facility provided a term loan of $ 125.0 million and up to $ 225.0 million in revolving commitments, of which $ 20.0 million is available for the issuance of letters of credit. Subject to certain terms and conditions set forth in the Amended ABL Credit Facility, Cactus Companies may request additional revolving commitments in an amount not to exceed $ 50.0 million, for a total of up to $ 275.0 million in revolving commitments. The term loan under the Amended ABL Credit Facility was set to mature on February 27, 2026 and any revolving loans under the Amended ABL Credit Facility mature on July 26, 2027. The maximum amount that Cactus Companies may borrow under the Amended ABL Credit Facility is subject to a borrowing base, which is based on a percentage of eligible accounts receivable and eligible inventory, subject to reserves and other adjustments. We borrowed the full $ 125.0 million term loan amount and $ 30.0 million as a revolving loan at closing of the Amended ABL Credit Facility to fund a portion of the Merger. 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 is 2.50 % per annum for term loan ABR borrowings and 3.50 % per annum for term loan Term Benchmark borrowings. The applicable margin for revolving loan borrowings ranges from 0.0 % to 0.5 % per annum for revolving loan ABR borrowings and 1.25 % to 1.75 % per annum for revolving loan Term Benchmark borrowings and, in each case, is based on the average quarterly availability of the revolving loan commitment under the Amended ABL Credit Facility for the immediately preceding fiscal quarter. The unused portion of revolving commitment under the Amended ABL Credit Facility is subject to a commitment fee of 0.25 % per annum. The Amended ABL Credit Facility contains various covenants and restrictive provisions that limit Cactus Companies’ and each of its subsidiaries’ ability to, among other things, incur additional indebtedness and create liens, make investments or loans, merge or consolidate with other companies, sell assets, make certain restricted payments and distributions, and engage in transactions with affiliates. The obligations under the Amended ABL Credit Facility are guaranteed by certain subsidiaries of Cactus Companies and secured by a security interest in accounts receivable, inventory, equipment and certain other real and personal property assets of Cactus Companies and the guarantors. Until the term loan was paid 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 based on the ratio of EBITDA (as defined therein) minus Unfinanced Capital Expenditures (as defined therein) to Fixed Charges (as defined therein) during certain periods, including when availability under the Amended ABL Credit Facility is under certain levels. If Cactus Companies fails to perform its obligations under the Amended ABL Credit Facility, (i) the revolving commitments under the Amended ABL Credit Facility could be terminated, (ii) any outstanding borrowings under the Amended ABL Credit Facility may be declared immediately due and payable, and (iii) the lenders may commence foreclosure or other actions against the collateral. 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. 12 8. Revenue The majority of our revenues are derived from short-term contracts for fixed consideration, or in the case of rentals, for a fixed charge per day, plus repairs while the equipment is in use by the customer. Product sales generally do not include right of return or other significant post-delivery obligations. 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 60 days of invoicing. Revenues are recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. We treat shipping and handling associated with outbound freight as a fulfillment cost instead of as a separate performance obligation. We recognize the cost for the associated shipping and handling when incurred as an expense in cost of sales. We disaggregate revenue into three categories: product revenues, rental revenues and 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. The following table presents our revenues disaggregated by category: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Product revenue $ 220,901 76 % $ 231,893 76 % $ 428,412 76 % $ 391,403 73 % Rental revenue 25,207 9 % 28,220 9 % 49,150 9 % 56,037 11 % Field service and other revenue 44,281 15 % 45,706 15 % 86,950 15 % 86,784 16 % Total revenues $ 290,389 100 % $ 305,819 100 % $ 564,512 100 % $ 534,224 100 % At June 30, 2024, we had a deferred revenue balance of $ 8.6 million compared to the December 31, 2023 balance of $ 8.1 million. Deferred revenue represents our obligation to transfer products to or perform services for a customer for which we have received cash or billed in advance of delivering products or services. The revenue that has been deferred will be recognized upon product delivery or as services are performed. As of June 30, 2024, 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. 9. Tax Receivable Agreement ( “ TRA ” ) In connection with our initial public offering (“IPO”) in February 2018, we entered into the TRA which generally provides for payment by Cactus Inc. to certain direct and indirect owners of Cactus LLC (after the CC Reorganization, Cactus Companies) 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. Cactus Inc. will retain the benefit of the remaining 15 % of these net 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. Subsequent changes to the measurement of the TRA liability are recognized in the statements of income as a component of other expense, net. As of June 30, 2024, the total liability from the TRA was $ 265.1 million with $ 5.6 million reflected in current liabilities based on the expected timing of our next payment. The current liability of $ 5.6 million is reflective of a $ 15.3 million payment during the second quarter of 2024. 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. 13 The term of the TRA commenced upon completion of our IPO and will continue until all tax benefits that are subject to the TRA have been utilized or expired, unless we exercise our right to terminate the TRA. If we elect to terminate the TRA early (or it is terminated early due to certain mergers, asset sales, other forms of business combinations or other changes of control), our obligations under the TRA would accelerate and we would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by us under the TRA, and such payment is expected to be substantial. The calculation of anticipated future payments is 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. In March of 2024, the TRA was amended to replace all references to one year LIBOR with references to the 12-month term SOFR published by CME Group Benchmark Administration Limited, plus 71.513 basis points. Additionally, all references to Cactus LLC were replaced with references to Cactus Companies in relation to the CC Reorganization. 10. Equity As of June 30, 2024, Cactus Inc. owned 83.6 % of Cactus Companies as compared to 82.3 % of Cactus Companies as of December 31, 2023. As of June 30, 2024, Cactus Inc. had outstanding 66.5 million shares of Class A common stock (representing 83.6 % of the total voting power) and 13.1 million shares of Class B common stock (representing 16.4 % 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. 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. 14 Redemptions of CC Units Pursuant to the Cactus Companies LLC Agreement, holders of CC Units are entitled to redeem their CC Units, which results in additional Class A common stock outstanding. Since our IPO in February 2018, an aggregate of 47.5 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. During the six months ended June 30, 2024 and 2023, 1.0 million and 0.2 million CC Units, respectively, together with a corresponding number of shares of Class B common stock, were redeemed in exchange for Class A common stock in accordance with the Cactus Companies LLC Agreement. Dividends Aggregate cash dividends of $ 0.24 and $ 0.22 per share of Class A common stock were declared during the six months ended June 30, 2024 and 2023 totaling $ 16.1 million and $ 14.4 million, respectively. Cash dividends paid during the six months ended June 30, 2024 and 2023 totaled $ 16.1 million and $ 14.5 million, respectively. Dividends accrue on unvested equity-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 the owners of CC Units other than Cactus Inc. for any dividends declared on our Class A common stock. See further discussion of the distributions below under “Member Distributions.” Share Repurchase Program On June 6, 2023, our board of directors authorized the Company to repurchase shares of its Class A common stock for an aggregate purchase price of up to $ 150 million. Under our share repurchase program, shares may be repurchased from time to time in open market transactions or block trades, in privately negotiated transactions or any other method permitted under U.S. securities laws, rules and regulations. The repurchase program does not obligate the Company to purchase any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. During the six months ended June 30, 2024, the Company purchased and retired 86,599 shares of Class A common stock for $ 3.4 million, or $ 38.92 average price per share excluding commissions, under the share repurchase program. As of June 30, 2024, $ 146.3 million remained authorized for future repurchases of Class A common stock under the program. Member Distributions Distributions made by Cactus Companies are generally required to be made pro rata among all its members. For the six months ended June 30, 2024, Cactus Companies distributed $ 42.5 million to Cactus Inc. to fund its dividend, TRA and estimated tax payments and made pro rata distributions to the other members totaling $ 8.6 million over the same period. During the six months ended June 30, 2023, Cactus Companies distributed $ 20.4 million to Cactus Inc. to fund its dividend and estimated tax payments and made pro rata distributions to the other members totaling $ 4.7 million. 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. 11. 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. 12. 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), observable inputs other than quoted prices in active markets (Level 2 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). 15 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. At December 31, 2023, the earn-out liability was measured at a fair value of $ 20.8 million using Level 3 unobservable inputs. The fair value at December 31, 2023 was 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 used 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 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 liabilities measured using Level 3 inputs: Earn-out Opening Balance $ 5,960 Changes in fair value 14,850 Balance at December 31, 2023 $ 20,810 The FlexSteel acquisition contingent consideration earn-out period ended June 30, 2024. The earn-out payment is expected to be paid in August 2024 and represents the achievement of certain revenue targets met by FlexSteel. The fair value of our foreign currency forwards was less than $ 0.1 million as of June 30, 2024 and was determined using market observable inputs including forward and spot prices (Level 2 inputs). 13. Segment Reporting We operate in two business segments that offer different products and services and correspond to the manner in which our chief operating decision maker reviews and evaluates operating performance to make decisions about resources to be allocated to each segment. Our reporting segments are: • Pressure Control – engaged in the design, manufacture, sale, installation, service and associated rental 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. 16 Financial information by business segment for the three and six months ended June 30, 2024 and 2023 is summarized below. Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenue: Pressure Control $ 187,192 $ 199,134 $ 362,220 $ 393,789 Spoolable Technologies 103,716 106,685 202,811 140,435 Corporate and other (1) ( 519 ) — ( 519 ) — Total revenues 290,389 305,819 564,512 534,224 Operating income: Pressure Control 55,669 62,888 107,344 126,059 Spoolable Technologies 30,041 ( 6,018 ) 46,434 ( 5,769 ) Total segment operating income 85,710 56,870 153,778 120,290 Corporate and other (2) ( 5,891 ) ( 8,348 ) ( 11,409 ) ( 22,080 ) Total operating income 79,819 48,522 142,369 98,210 Interest income, net 1,405 ( 5,928 ) 2,094 ( 4,926 ) Other income, net — — — 3,538 Income before income taxes $ 81,224 $ 42,594 $ 144,463 $ 96,822 (1) Represents the elimination of inter-segment revenue for sales from our Pressure Control segment to our Spoolable Technologies segment. (2) Includes corporate and other costs not directly attributable to our reporting segments, such as corporate executive management and other administrative functions. Prior to January 1, 2024, these costs were previously included in the Pressure Control segment. The information for the six months ended June 30, 2023 has been recast to align with the presentation for the six months ended June 30, 2024. 14. 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 and corresponding shares of outstanding Class B common stock. We use the treasury stock method to determine the potential dilutive effect of 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. 17 The following table summarizes the basic and diluted earnings per share calculations: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Numerator: Net income attributable to Cactus Inc.—basic $ 49,828 $ 24,750 $ 88,793 $ 67,644 Net income attributable to non-controlling interest (1) — — 18,432 13,114 Net income attributable to Cactus Inc.—diluted (1) $ 49,828 $ 24,750 $ 107,225 $ 80,758 Denominator: Weighted average Class A shares outstanding—basic 66,142 64,566 65,760 64,155 Effect of dilutive shares (2) 437 437 13,926 15,357 Weighted average Class A shares outstanding—diluted (2) 66,579 65,003 79,686 79,512 Earnings per Class A share—basic $ 0.75 $ 0.38 $ 1.35 $ 1.05 Earnings per Class A share—diluted (1)(2) $ 0.75 $ 0.38 $ 1.35 $ 1.02 (1) The numerator is adjusted in the calculation of diluted earnings per share under the if-converted method to include net income attributable to the non-controlling interest calculated as its pre-tax income adjusted for a corporate effective tax rate of 26.0 % for the six months ended June 30, 2024 and 2023. (2) Diluted earnings per share for the three months ended June 30, 2024 and 2023 excludes 13.4 million and 14.9 million weighted average shares of Class B common stock, respectively, as the effect would be anti-dilutive. 18