What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-29 · 107 added, 91 removed, 220 unchanged (47% of the section changed)

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The following discussion contains “forward-looking statements” that reflect our plans, estimates, beliefs and expected performance.

Our actual results may differ materially from those anticipated as discussed in these forward-looking statements as a result of a variety of risks and

uncertainties, including those described in “Cautionary Statement Regarding Forward-Looking Statements” and “Item 1A.

Our actual results may differ materially from those anticipated as discussed in these forward-looking statements as a result of a variety of risks and uncertainties, including those described in “Cautionary Statement Regarding Forward-Looking Statements” and “Item 1A.

Risk Factors” included elsewhere in this Annual Report, all of which are difficult to predict.

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Demand for our products and services depends primarily upon oil and gas industry activity levels, including the number of active drilling rigs, the number of wells being drilled, the number of wells being completed and the volume of newly producing wells, among other factors.

Oil and gas activity is in turn heavily influenced by, among other factors, investor sentiment, availability of capital and oil and gas prices locally and worldwide, which have historically been volatile.

Oil and gas exploration and production activity is in turn heavily influenced by, among other factors, investor sentiment, availability of capital and oil and gas prices locally and worldwide, which have historically been volatile.

Revenues generated by our Pressure Control and Spoolable Technologies operating segments are derived from three sources:

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In addition, we also provide field services and rental items to assist our customers with the installation of these products.

We support our field service operations through service centers and pipe yards located in oil and gas regions throughout the United States and Western Canada.

We support our field service operations through service centers and pipe yards located in oil and gas producing regions throughout the United States and Western Canada.

Our manufacturing facility is located in Baytown, Texas.

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Recent Developments and Trends

Acquisition of FlexSteel

As previously discussed, we completed the acquisition of FlexSteel on February 28, 2023.

The results of operations of the FlexSteel business have been reflected in our accompanying condensed consolidated financial statements from the closing date of the acquisition.

See Note 3 in the notes to the Consolidated Financial Statements for additional information related to the acquisition.

Oil and Natural Gas Prices

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(3) Baker Hughes.

After seeing a recovery in industry activity in 2022, onshore drilling and completion activity levels steadily declined throughout 2023.

The average number of U.S.

land drilling rigs for 2023 decreased by 5% from 2022, with the number of rigs as of the end of 2023 at 602 rigs compared to 762 as of the end of 2022 and 570 as of the end of 2021.

Oil prices declined throughout 2023 and continued to be relatively volatile, with WTI remaining above $66 per barrel all year.

Natural gas prices declined approximately 60% in 2023 from 2022 primarily due to persistently high inventory levels with prices averaging $2.53 per MMBtu in 2023 compared to $6.45 per MMBtu in 2022.

Although lower natural gas prices could negatively impact the oil and gas industry, most of our customers are primarily oil-focused, thus moderating the impact to demand for our products and services.

The ongoing conflicts in the Middle East and Ukraine have had repercussions globally and in the United States by continuing to cause uncertainty, not only in the oil and natural gas markets, but also in the financial markets and global supply chain.

Onshore drilling and completion activity levels declined through the first half of 2024, resulting in the average number of U.S.

land drilling rigs for 2024 to be 13% below 2023 levels.

Average oil prices were relatively stable in 2024 and were down 1% from 2023 average levels.

Natural gas prices declined approximately 13% in 2024 from 2023 with prices averaging $2.19 per MMBtu in 2024 compared to $2.53 per MMBtu in 2023.

Natural gas prices were lower as inventory levels remained above five-year maximum levels through most of the first half of 2024.

Spot prices averaged $3.01 per MMBtu in December 2024 and closed 2024 at $3.40 per MMBtu, as colder than forecasted weather impacted prices.

The increased year-end 2024 natural gas prices could favorably impact oil and gas industry activity levels, although most of our customers are primarily oil-focused, thus moderating the potential impact to demand for our products and services.

The ongoing conflict in Ukraine and prolonged conflict in the Middle East have had repercussions globally by continuing to cause uncertainty, not only in the oil and natural gas markets, but also in the financial markets and global supply chain.

Additionally, the U.S.

presidential election outcome has introduced further uncertainty to global supply chains, as the new administration has signaled the potential to impose and increase tariffs, including on China, where we have a manufacturing facility.

Such uncertainty could continue to result in stock price volatility and supply chain disruptions as well as higher oil and natural gas prices which could cause higher inflation worldwide, impact consumer spending and negatively impact demand for our goods and services.

Additionally, militant attacks on ships in the Red Sea or elsewhere could negatively impact our ocean freight costs.

Consolidated Results of Operations

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Where appropriate, we have identified specific events and changes that affect comparability or trends and, where reasonably practicable, have quantified the impact of such items.

Following the acquisition of FlexSteel, we have two operating segments consisting of the Pressure Control segment (legacy Cactus) and the Spoolable Technologies segment (FlexSteel).

We have two operating segments consisting of the Pressure Control segment and the Spoolable Technologies segment.

Our results of operations are evaluated by the Chief Executive Officer on a consolidated basis as well as at the segment level.

The performance of our operating segments is primarily evaluated based on segment operating income (in addition to other measures), which is defined as income before taxes and before interest income (expense), net, other income (expense), net and corporate and other expenses not allocated to the operating segments.

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

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

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

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Pressure Control $ 724,038 $ 756,727 $ (32,689) (4.3)%

Spoolable Technologies 340,233 — 340,233 nm

Spoolable Technologies 407,038 340,233 66,805 19.6

Corporate and other

(1,262) — (1,262) —

Total revenues 1,129,814 1,096,960 32,854 3.0

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Pressure Control 210,710 236,934 (26,224) (11.1)

Spoolable Technologies 62,172 — 62,172 nm

Spoolable Technologies 104,864 62,172 42,692 68.7

Total segment operating income 315,574 299,106 16,468 5.5

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Interest income (expense), net 6,459 (6,480) 12,939 nm

Other income (expense), net 4,490 (1,910) 6,400 nm

Other income, net

3,204 4,490 (1,286) (28.6)

Income before income taxes 299,276 262,376 36,900 14.1

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Pressure Control.

Pressure Control revenue was $756.7 million for 2023, an increase of $68.4 million, or 10%, from $688.4 million for 2022.

The increase in revenues was primarily due to higher sales of wellhead and production related equipment resulting from higher drilling and completion activity by our customers.

In addition, increased rental of drilling and completion equipment and field service associated with product and rental revenues also increased as a result of higher customer activity.

Operating income of $236.9 million in 2023 increased $34.3 million, or 17%, from $202.7 million in 2022.

The increase was primarily attributable to higher gross margins during the period and increased volume partially offset by higher segment selling, general and administrative (“SG&A”) expenses.

The increase in SG&A expenses primarily related to higher bad debt expense, travel and entertainment expenses, professional fees and hardware and software expenses.

Pressure Control revenue was $724.0 million for 2024, a decrease of $32.7 million, or 4.3%, from $756.7 million for 2023.

The decrease in revenues was primarily due to decreased sales of wellhead and production related equipment resulting from lower drilling and completion activity by our customers.

In addition, rental of drilling and completion equipment decreased as a result of the decline in customer activity.

Operating income of $210.7 million in 2024 resulted in a decrease of $26.2 million, or 11.1%, from $236.9 million in 2023.

The decrease was primarily attributable to lower gross margins during the period due to decreased customer activity levels and higher selling, general and administrative ("SG&A") expenses.

The increase in SG&A expenses primarily related to higher personnel costs, stock-based compensation expense and other reserves, partially offset by a decrease in bad debt expense.

Spoolable Technologies.

Spoolable Technologies revenue of $340.2 million and operating income of $62.2 million represents FlexSteel results generated from February 28, 2023, the date of acquisition, through December 31, 2023.

The results for Spoolable Technologies include the following items resulting from purchase accounting:

approximately $14.9 million of expense related to the change in fair value of the estimated earn-out payment for the FlexSteel acquisition, $23.5 million of inventory step-up expense, $20.3 million of intangible amortization expense and depreciation expense of $13.8 million primarily associated with the step-up of fixed assets.

Corporate and other expenses.

Corporate and other expenses for 2023 were $34.7 million, an increase of $6.8 million from $27.9 million for 2022.

The increase was largely attributable to higher professional fees of $3.8 million related to transaction costs associated with the closing of and accounting for the FlexSteel acquisition.

Additional increases were attributable to higher personnel costs of which the largest increase was related to stock-based compensation.

Spoolable Technologies revenue of $407.0 million for 2024, represented an increase of $66.8 million, or 19.6%, from $340.2 million for 2023 as results for 2023 only included ten months of revenues from the FlexSteel acquisition, which closed on February 28, 2023.

Total operating income of $104.9 million for 2024, resulted in an increase of $42.7 million, or 68.7%, from $62.2 million for 2023 as results for 2023 only included ten months of revenues.

Operating income for the 2024 included $16.3 million of expense related to the change in fair value of the earn-out liability for the FlexSteel acquisition and $16.0 million of intangible amortization.

Operating income for 2023 included approximately $14.9 million of expense related to the change in fair value of the estimated earn-out liability, $23.5 million of inventory step-up expense and $20.3 million of intangible amortization expense, as well as depreciation expense of $13.8 million primarily associated with the step-up of fixed assets in connection with accounting for the purchased assets at fair value.

Corporate and other.

Corporate and other revenue represents the elimination of inter-segment sales from our Pressure Control segment to our Spoolable Technologies segment.

Corporate and other expenses include costs associated with executive management and other administrative functions not directly attributable to our reporting segments.

Corporate and other expenses for 2024 were $26.0 million, a decrease of $8.8 million from $34.7 million for 2023.

The decrease was largely

attributable to lower professional fees related to transaction costs associated with growth initiatives, including the closing of and accounting for the FlexSteel acquisition in 2023.

Interest income (expense), net.

Interest expense, net was $6.5 million in 2023 compared to interest income, net of $3.7 million in 2022.

The increase in interest expense, net of $10.2 million was primarily related to borrowings under the Amended ABL Credit Facility related to the FlexSteel acquisition.

Other income (expense), net.

Other income (expense), net represents non-cash adjustments for the revaluation of the liability related to the tax receivable agreement as a result of changes to the forecasted state tax rate.

Interest income, net was $6.5 million in 2024 compared to interest expense, net of $6.5 million in 2023.

The increase in interest income, net of $12.9 million was primarily due to an increase in interest income earned on cash invested during the 2024 period.

Interest expense in 2023 was primarily related to borrowings outstanding through July 2023 under the Amended ABL Credit Facility (as defined in Note 6 in the notes to the Consolidated Financial Statements) which were required to finance the FlexSteel acquisition.

Other income, net.

Other income, net represents non-cash adjustments for the revaluation of the liability related to the tax receivable agreement as a result of changes to the forecasted state tax rate.

Income tax expense.

Income tax expense for 2024 was $66.5 million (22.2% effective tax rate) compared to $47.5 million (18.1% effective tax rate) for 2023.

Income tax expense for 2024 includes approximately $66.5 million of expense associated with current income.

Additionally, in 2024 we recognized $2.1 million of expense associated with the revaluation of our deferred tax asset as a result of a change in our forecasted state tax rate, a $2.1 million benefit related to the finalization of our 2023 tax returns, a $0.7 million benefit associated with permanent differences related to equity compensation and $0.7 million of expense associated with other adjustments.

Income tax expense for 2023 includes approximately $56.6 million of expense associated with current income offset by a $12.1 million benefit associated with the release of our valuation allowance previously provided for our investment in Cactus Companies based on the determination that the deferred tax asset was realizable due to our ability to generate sufficient taxable income of the appropriate type.

Additionally, we recognized $4.9 million of expense associated with the revaluation of our deferred tax asset as a result of a change in our forecasted state tax rate, $0.5 million of expense related to the finalization of our 2022 tax returns, a $1.2 million benefit associated with permanent differences related to equity compensation and a $1.2 million benefit associated with other adjustments.

Income tax expense for 2022 primarily included approximately $36.4 million of expense associated with current income offset by a $1.7 million benefit associated with permanent differences related to equity compensation, a $1.7 million benefit resulting from a change in our forecasted state rate and a $1.4 million tax benefit associated with the partial valuation allowance release in conjunction with CW Unit redemptions during 2022.

Partial valuation releases occur in conjunction with redemptions of CW Units (or CC Units, in the case of redemptions after the CC Reorganization) as a portion of Cactus Inc.’s deferred tax assets from its investment in Cactus LLC (or, after the CC Reorganization, its investment in Cactus Companies) becomes realizable.

Additionally in 2023, we recognized $4.9 million of expense associated with the revaluation of our deferred tax asset as a result of a change in our forecasted state tax rate, $0.5 million of expense related to the finalization of our 2022 tax returns, a $1.2 million benefit associated with permanent differences related to equity compensation and a $1.2 million benefit associated with other adjustments.

Partial valuation releases occur in conjunction with redemptions of CC Units as a portion of Cactus Inc.’s deferred tax assets from its investment in Cactus Companies becomes realizable.

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

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Operating income

Pressure Control 202,650 91,579 111,071 nm

Pressure Control 236,934 202,650 34,284 16.9

Spoolable Technologies 62,172 — 62,172 —

Total segment operating income 202,650 91,579 111,071 nm

Total segment operating income 299,106 202,650 96,456 47.6

Corporate and other expenses (34,740) (27,902) (6,838) 24.5

Total operating income 174,748 75,427 99,321 nm

Total operating income 264,366 174,748 89,618 51.3

Interest income (expense), net (6,480) 3,714 (10,194) nm

Other income (expense), net 4,490 (1,910) 6,400 nm

Income before income taxes 176,552 75,145 101,407 nm

Income tax expense 31,430 7,675 23,755 nm

Net income $ 145,122 $ 67,470 $ 77,652 nm

Income before income taxes 262,376 176,552 85,824 48.6

Income tax expense 47,536 31,430 16,106 51.2

Net income $ 214,840 $ 145,122 $ 69,718 48.0

net income attributable to non-controlling interest 45,669 34,948 10,721 30.7

Net income attributable to Cactus Inc.

$ 110,174 $ 49,593 $ 60,581 nm

$ 169,171 $ 110,174 $ 58,997 53.5%

nm = not meaningful

Pressure Control.

Pressure Control revenue for 2022 was $688.4 million compared to $438.6 million for 2021.

The increase of $249.8 million, representing a 57% increase from 2021 was primarily due to a $171.7 million increase in product revenues, a $38.8 million increase in rental revenues and a $39.2 million increase in field service and other revenue.

These increases were the result of increased drilling and completion activity by our customers which translated into higher sales of pressure control equipment, tool and equipment rentals and related field and other ancillary services as well as certain cost recovery measures.

Operating income of $202.7 million in 2022 increased $111.1 million from $91.6 million in 2021.

increase was primarily attributable to higher gross margins during the period due to increased activity partially offset by higher SG&A expenses.

The increase in SG&A expenses was largely attributable to increased personnel costs primarily related to higher salaries and wages and associated taxes and benefits, higher annual incentive bonus expense and increased stock-based compensation.

Additional increases in SG&A expenses from 2021 were attributable to higher information technology expenses.

Pressure Control revenue was $756.7 million for 2023, an increase of $68.4 million, or 10%, from $688.4 million for 2022.

The increase in revenues was primarily due to higher sales of wellhead and production related equipment resulting from higher drilling and completion activity by our customers.

In addition, increased rental of drilling and completion equipment and field service associated with product and rental revenues also increased as a result of higher customer activity.

Operating income of $236.9 million in 2023 increased $34.3 million, or 17%, from $202.7 million in 2022.

The increase was primarily attributable to higher gross margins during the period and increased volume partially offset by higher segment selling, general and administrative (“SG&A”) expenses.

The increase in SG&A expenses primarily related to higher bad debt expense, travel and entertainment expenses, professional fees and hardware and software expenses.

Spoolable Technologies.

The results for Spoolable Technologies include the following items resulting from purchase accounting:

Corporate and other expenses.

Corporate and other expenses for 2023 were $34.7 million, an increase of $6.8 million from $27.9 million for 2022.

The increase was primarily due to approximately $8.4 million of transaction costs associated with the FlexSteel acquisition.

Additional increases were largely attributable to increased personnel costs as well as increased travel and entertainment expenses.

The increase was largely attributable to higher professional fees of $3.8 million related to transaction costs associated with the closing of and accounting for the FlexSteel acquisition.

Additional increases were attributable to higher personnel costs of which the largest increase was related to stock-based compensation.

Interest income (expense), net.

Interest income, net was $3.7 million in 2022 compared to interest expense, net of $0.8 million in 2021.

The increase in interest income, net of $4.5 million was primarily due to higher interest income earned on cash invested resulting from increased interest rates in 2022.

Interest expense, net was $6.5 million in 2023 compared to interest income, net of $3.7 million in 2022.

The increase in interest expense, net of $10.2 million was primarily related to borrowings under the Amended ABL Credit Facility related to financing the FlexSteel acquisition.

Other income (expense), net.

Other expense, net of $1.9 million in 2022 represented a non-cash adjustment for the revaluation of the liability related to the tax receivable agreement.

Other income, net of $0.5 million in 2021 related to a $0.9 million non-cash gain associated with the revaluation of the liability related to the TRA and $0.4 million for professional fees and other expenses associated with the 2021 Secondary Offering.

Other income (expense), net represents non-cash adjustments for the revaluation of the liability related to the tax receivable agreement as a result of changes to the forecasted state tax rate.

Income tax expense.

Income tax expense for 2023 was $47.5 million (18.1% effective tax rate) compared to $31.4 million (17.8% effective tax rate) for 2022.

Income tax expense for 2021 was primarily related to approximately $16.3 million expense associated with our 2021 operations and $1.3 million expense resulting from a change in our forecasted state tax rate.

This tax expense was partially offset by a $1.1 million benefit associated with permanent differences related to equity compensation and a $9.0 million tax benefit associated with the partial valuation allowance release in conjunction with 2021 redemptions of CW Units.

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

Income allocated to the non-controlling interest is only taxable to the non-controlling interest.

Liquidity and Capital Resources

At December 31, 2024, we had $342.8 million of cash and cash equivalents.

Our primary sources of liquidity and capital resources are cash on hand, cash flows generated by operating activities and, if necessary, borrowings under our Amended ABL Credit Facility (as defined in Note 6 in the notes to the Consolidated Financial Statements).

Our primary sources of liquidity and capital resources are cash on hand, cash flows generated by operating activities and, if necessary, borrowings under our Amended ABL Credit Facility.

Depending upon market conditions and other factors, we may also have the ability to issue additional equity and debt if needed.

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In June 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.

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.

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At December 31, 2024, $146.3 million of Class A common stock could be repurchased under our share repurchase program.

We expect that our existing cash on hand, cash generated from operations and available borrowings under our Amended ABL Credit Facility will be sufficient for the next 12 months to meet our material cash requirements, including working capital requirements, debt service obligations, anticipated capital expenditures, lease obligations, repurchases of shares of our Class A common stock, expected TRA liability payments, possible earn-out payment associated with the FlexSteel acquisition, anticipated tax liabilities and dividends to holders of our Class A common stock as well as pro rata cash distributions to holders of CC Units other than Cactus Inc.

We currently estimate our net capital expenditures for the year ending December 31, 2024 will range from $45 million to $55 million, mostly related to rental fleet investments including drilling tools, international expansion, diversification of our low cost supply chain, enhancements for our Baytown, TX manufacturing plant and additional deployment equipment to facilitate installation of recent product introductions.

We continuously evaluate our capital expenditures, and the amount we ultimately spend will depend on a number of factors, including, among other things, demand for rental assets, available capacity

in existing locations, prevailing economic conditions, market conditions in the E&P industry, customers’ forecasts, volatility and company initiatives.

We expect that our existing cash on hand, cash generated from operations and available borrowings under our Amended ABL Credit Facility will be sufficient for the next 12 months to meet our material cash requirements, including working capital requirements, debt service obligations, anticipated capital expenditures, lease obligations, repurchases of shares of our Class A common stock, expected TRA liability payments, anticipated tax liabilities and dividends to holders of our Class A common stock as well as pro rata cash distributions to holders of CC Units other than Cactus Inc.

We currently estimate our net capital expenditures for the year ending December 31, 2025 will range from $45 million to $55 million, mostly related to rental fleet investments including drilling tools, international expansion, diversification of our low cost supply chain, enhancements for our Baytown, TX manufacturing plant and additional deployment of equipment to facilitate installation of recent product introductions.

We continuously evaluate our capital expenditures, and the amount we ultimately spend will depend on a number of factors, including, among other things, demand for rental assets, available capacity in existing locations, prevailing economic conditions, market conditions in the E&P industry, customers’ forecasts, crude oil and natural gas price volatility and company initiatives.

For information concerning our future lease payments as of December 31, 2024, see Note 10 to our consolidated financial statements.

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In these situations, our obligations under the TRA could have a substantial negative impact on our liquidity.

Assuming no material changes in the relevant tax law, we expect that if the TRA were terminated as of December 31, 2023, the estimated termination payments, based on the assumptions discussed in Note 11 of the notes to the Consolidated Financial Statements, would be approximately $256.8 million, calculated using a discount rate equivalent to the former one-year LIBOR, applied against an undiscounted liability of $397.0 million.

Assuming no material changes in the relevant tax law, we expect that if the TRA were terminated as of December 31, 2024, the estimated termination payments, based on the assumptions discussed in Note 11 of the notes to the Consolidated Financial Statements, would be approximately $273.7 million, calculated using a discount rate equal to the 12-month term SOFR published by CME Group Benchmark Administration Limited, plus 71.513 basis points, applied against an undiscounted liability of $406.5 million.

A 10% increase in the price of our Class A common stock at December 31, 2024 would have increased the discounted liability by $9.6 million to $283.3 million (an undiscounted increase of $15.8 million to $422.3 million), and likewise, a 10% decrease in the price of our Class A common stock at December 31, 2024 would have decreased the discounted liability by $9.6 million to $264.1 million (an undiscounted decrease of $15.8 million to $390.8 million).

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Net cash provided by operating activities was $316.1 million in 2024 compared to $340.3 million in 2023.

Operating cash flows decreased primarily due to an increase in cash outflows associated with working capital, largely related to increased purchases of inventory of $67.6 million as well as payout of the earn-out liability of $31.2 million.

These decreases in operating cash flows were offset by an increase in customer collections of $24.9 million as well as an increase in operating income of $17.9 million in 2024 compared to 2023.

Net cash used in investing activities was $35.4 million and $654.8 million for 2024 and 2023, respectively.

The decrease was primarily due to the non-recurrence of cash paid to acquire FlexSteel for $621.5 million, less $5.3 million in cash acquired during the first quarter of 2023.

Additionally, our capital expenditures decreased approximately $4.8 million primarily due to the $7.0 million purchase of a previously leased facility during the first half of 2023.

Net cash used in financing activities was $70.1 million for 2024 compared to net cash provided by in financing activities of $103.3 million for 2023.

The decrease in net cash provided by financing activities was primarily related to certain financing activities in 2023 associated with the FlexSteel acquisition.

We received approximately $169.9 million of proceeds, net of issuance costs, from issuing shares of our Class A common stock during 2023.

The year ended December 31, 2023 also included payments of approximately $6.9 million of debt issuance costs.

The year ended December 31, 2024 includes a $4.1 million increase in share repurchases, primarily associated with the Company's share repurchase program, higher dividend payments of approximately $3.6 million and a $6.0 million payment related to the contingent consideration established as of the FlexSteel acquisition date.

These increases are partially offset by a $3.4 million decrease in member distributions.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

The following table summarizes our cash flows for the periods indicated:

Year Ended December 31,

(in thousands)

Net cash provided by operating activities $ 340,280 $ 117,884

Net cash used in investing activities (654,793) (25,536)

Net cash provided by (used in) financing activities

103,275 (47,382)

Net cash provided by operating activities was $340.3 million in 2023 compared to $117.9 million in 2022.

Operating cash flows increased primarily due to higher income and a decrease in cash outflows associated with working capital, largely related to decreased purchases of inventory as well as higher collections on receivable balances.

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Increased payments of $6.6 million in deferred financing costs, increased distributions to members of $7.0 million, higher dividend payments of $3.4 million, $1.6 million of additional payments on finance leases and a $0.7 million increase in share repurchases partially offset the aforementioned cash inflows associated with the equity financing activities during 2023.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

The following table summarizes our cash flows for the periods indicated:

Year Ended December 31,

(in thousands)

Net cash provided by operating activities $ 117,884 $ 63,759

Net cash used in investing activities (25,536) (11,633)

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

Net cash provided by operating activities was $117.9 million in 2022 compared to $63.8 million in 2021.

Operating cash flows increased primarily due to an increase in income offset by an increase in working capital, largely related to the increase in inventory and increased accounts receivable associated with higher revenues, a $2.0 million increase in TRA payments and a $1.0 million increase in taxes paid, net of refunds.

Net cash used in investing activities was $25.5 million and $11.6 million for 2022 and 2021, respectively.

The increase was primarily due to increased investments associated with our rental fleet and additional investment in and expansion of our Bossier City location.

Net cash used in financing activities was $47.4 million and $39.4 million for 2022 and 2021, respectively.

The increase was primarily comprised of a $5.6 million increase in dividend payments, a $1.3 million increase in share repurchases from employees to satisfy tax withholding obligations related to restricted stock units that vested during the period, a $0.9 million increase in payments on finance leases and $0.4 million in deferred financing costs.

Critical Accounting Policies and Estimates

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Key estimates related to long‑lived assets include useful lives and recoverability of carrying values.

Such estimates could be modified, as impairment could arise as a result of changes in supply and demand fundamentals, technological developments, new competitors with cost advantages and the cyclical nature of the oil and gas industry.

Such estimates could be modified, as impairment could arise as a result of changes in supply and demand fundamentals, technological developments, new competitors with disruptive technologies or cost advantages and the cyclical nature of the oil and gas industry.

We evaluate long‑lived assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Long‑lived assets assessed for impairment are grouped at the lowest level for which identifiable cash flows are available, and a provision made where the cash flow is less than the carrying value of the asset.

Long‑lived assets assessed for impairment are grouped at the lowest level for which identifiable cash flows are available, and a provision would be made where the cash flow is less than the carrying value of the asset.

The estimation of future cash flows and fair value is highly subjective and inherently imprecise.

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To the extent we believe recovery is not likely, we establish a valuation allowance to reduce the asset to a value we believe will be recoverable based on our expectation of future taxable income.

In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning

strategies and results of recent operations.

The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates management is using to manage the underlying business.

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Estimating the amount and timing of the tax benefit is by its nature imprecise and the assumptions used in the estimates can change.

The tax benefit is dependent upon future events and assumptions, the amount of the redeeming unit holders’ tax basis in its CC Units (formerly CW Units) at the time of the relevant redemption, the depreciation and amortization periods that apply to the increase in tax basis, the amount and timing of taxable income we generate in the future and the U.S.

periods that apply to the increase in tax basis, the amount and timing of taxable income we generate in the future and the U.S.

federal, state and local income tax rate then applicable, and the portion of Cactus Inc.’s payments under the TRA that constitute imputed interest or give rise to depreciable or amortizable tax basis.

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See Note 2 of the notes to the Consolidated Financial Statements for discussion of recent accounting pronouncements.

While inflationary cost increases can affect our income from operations’ margin, we believe that inflation generally has not had, and is not expected to have, a material adverse effect on our results of operations.

While inflationary cost increases can affect our income from operations’ margin, we believe that inflation generally has not had a material adverse effect on our results of operations.

Other than the potential for increased inflation as a result of new tariffs and retaliatory actions by other countries, inflationary cost increases are not expected to have a material adverse effect on our results of operations.

In 2022, the United States experienced the highest inflation in decades primarily due to supply-chain issues, a shortage of labor and a build-up of demand for goods and services.

The most noticeable adverse impact to our business was increased costs associated with freight, materials, vehicle-related costs and personnel expenses.

Most of our costs moderated in 2023 except for wages.

Most of our costs associated with providing our products and services moderated in 2023 and 2024, except for salaries and wages.

It is highly unlikely that salaries and wages will decrease to the levels experienced in prior years.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis