Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, par value $0.01
WHD
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of November 1, 2021, the registrant had 58,949,149 shares of Class A common stock, $0.01 par value per share, and 16,757,347 shares of Class B common stock, $0.01 par value per share, outstanding.
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.
Forward-looking statements may include statements about:
•demand for our products and services, which is affected by, among other things, changes in the price of crude oil and natural gas in domestic and international markets;
•the number of rigs, pad sizes, drilling and completion efficiencies, well spacings and associated well counts and the availability of takeaway and storage capacity;
•the number of workover rigs;
•availability of capital and the associated capital spending discipline exercised by customers;
•overall service cost inflation;
•the financial health of our customers and our credit risk of customer non-payment;
•changes in the number of drilled but uncompleted wells and the level of well completion activity;
•the size and timing of orders;
•availability and cost of raw materials, components and imported items;
•increased inland and ocean shipping costs and the lack of availability of containers and vessels from Asia as well as domestic trucking capacity;
•transportation differentials associated with reduced capacity in and out of the storage hub in Cushing, Oklahoma;
•expectations regarding overhead and operating costs and margins;
•availability and cost of skilled and qualified workers;
•potential liabilities such as warranty and product liability claims arising out of the installation, use or misuse of our products;
•the possibility of cancellation of orders;
•our business strategy;
•our financial strategy, operating cash flows, liquidity and capital required for our business;
•our future revenue, income and operating performance;
•our ability to pay dividends and the amounts of any such dividends;
•laws and regulations, including environmental regulations, that may increase our costs, limit the demand for our products and services or restrict our operations;
•disruptions in political, regulatory, economic and social conditions domestically or internationally;
•the severity and duration of the ongoing outbreak of coronavirus (“COVID-19”) and the extent of its impact on our business;
•outbreaks of other pandemic or contagious diseases that may disrupt our operations, suppliers or facilities or impact demand for oil and natural gas;
•the impact of actions taken by the Organization of Petroleum Exporting Countries (“OPEC”) and other oil and gas producing countries affecting the supply of oil and gas;
•increases in import tariffs assessed on products and imported raw materials used in the production and assembly of our goods which could negatively impact margins and our working capital;
•the significance of future liabilities under the Tax Receivable Agreement (the “TRA”) we entered into with certain current or past direct and indirect owners of Cactus Wellhead, LLC (the “TRA Holders”) in connection with our 2018 initial public offering;
•a failure of our information technology infrastructure or any significant breach of security;
•potential uninsured claims and litigation against us;
•competition and capacity within the oilfield services industry;
•our dependence on the continuing services of certain of our key managers and employees;
•currency exchange rate fluctuations associated with our international operations; and
•plans, objectives, expectations and intentions contained in this Quarterly Report that are not historical.
Although forward-looking statements reflect our good faith beliefs at the time they are made, forward-looking statements involve known and unknown risks, uncertainties and other factors, including the factors described under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 (our “2020 Annual Report”), this Quarterly Report and in our other filings with the SEC, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements.
Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.
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 Wellhead, LLC (“Cactus LLC”). Cactus Inc. is a holding company whose only material asset is an equity interest consisting of units representing limited liability company interests in Cactus LLC (“CW Units”). Cactus Inc. is the sole managing member of Cactus LLC and operates and controls all of the business and affairs of Cactus LLC and conducts its business through Cactus LLC and its subsidiaries. As a result, Cactus Inc. consolidates the financial results of Cactus LLC and its subsidiaries and reports a non-controlling interest related to the portion of CW Units not owned by Cactus Inc., which reduces net income attributable to holders of Cactus Inc.’s Class A common stock, 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.
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, 2020.
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.
2.Concentrations, Risks and Uncertainties
Significant Customers
Our customers are oil and natural gas exploration and production companies located primarily in the U.S. as well as Australia. For the nine months ended September 30, 2021, one customer represented 13% of our consolidated revenues. For the nine months ended September 30, 2020, no customer represented 10% or more of our consolidated revenues.
Significant Vendors
The principal raw materials used in the manufacture of our products and rental equipment include forgings and plate, tube and bar stock. In addition, we require accessory items (such as elastomers, ring gaskets, studs and nuts) and machined components and assemblies. We purchase these items from vendors primarily located in the United States, China, India and Australia. For the nine months ended September 30, 2021 and 2020, we purchased approximately $10.5 million and $5.6 million, respectively, from a single vendor, representing approximately 9% and 7%, respectively, of our total third-party vendor purchases of raw materials, finished products, components, equipment, machining and other services. Amounts due to this vendor included in accounts payable in the consolidated balance sheets as of September 30, 2021 and December 31, 2020 totaled $0.9 million and $1.5 million, respectively.
The ongoing COVID-19 pandemic continues to negatively impact our business and revenues; however, increased oil and gas demand and muted supply increases have led to higher oil and gas prices, which ultimately drive customer spending levels. Accordingly, we have seen improvement from the depressed revenue levels experienced in 2020. As we have realized increased levels of demand for our products and services, we have rolled back the personnel-related cost cutting measures that were implemented throughout 2020. Specifically, we continue to add back to our workforce population and have added over 300 associates in the first nine months of 2021. Additionally, we have rolled back the salary and wage reductions implemented in 2020 in the U.S., restored board member compensation and reinstated the Company’s 401(k) match.
3.Accounts Receivable and Allowance for Credit Losses
We extend credit to customers in the normal course of business. Our customers are oil and gas companies located predominately in the U.S. Our receivables are short-term in nature and typically due in 30 to 45 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 September 30, 2021 and December 31, 2020 was $17.9 million and $8.7 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
Other
Balance at End of Period
Nine Months Ended September 30, 2021
$
598
$
112
$
(156)
$
(1)
$
553
Nine Months Ended September 30, 2020
837
341
(274)
—
904
4.Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard cost (which approximates average cost) and weighted average methods. Costs include an application of related 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:
Property and equipment are stated at cost. We manufacture or construct most of our rental assets. During the manufacture of these assets, they are reflected as construction in progress until complete. Property and equipment consists of the following:
September 30, 2021
December 31, 2020
Land
$
3,203
$
3,203
Buildings and improvements
22,381
21,935
Machinery and equipment
58,168
57,726
Vehicles under finance lease
22,036
14,371
Rental equipment
179,507
172,012
Furniture and fixtures
1,777
1,780
Computers and software
3,775
3,530
Gross property and equipment
290,847
274,557
Less: Accumulated depreciation
(171,995)
(147,221)
Net property and equipment
118,852
127,336
Construction in progress
14,154
15,489
Total property and equipment, net
$
133,006
$
142,825
6.Debt
We had no debt outstanding as of September 30, 2021 and December 31, 2020.
On August 21, 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 provides for up to $75.0 million in revolving commitments, up to $15.0 million of which is available for the issuance of letters of credit. The maximum amount that Cactus LLC may borrow under the ABL Credit Facility is subject to a borrowing base, which is based on a percentage of eligible accounts receivable and eligible inventory, subject to reserves and other adjustments. We were in compliance with all covenants under the ABL Credit Facility as of September 30, 2021.
7.Revenue
The majority of our revenues are derived from short-term contracts for fixed consideration. 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 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, and beginning in the third quarter of 2021, in the Kingdom of Saudi Arabia. The following table presents our revenues disaggregated by category:
Three Months Ended September 30,
Nine Months Ended September 30,
2021
2020
2021
2020
Product revenue
$
74,835
65
%
$
35,857
60
%
$
197,136
64
%
$
163,781
58
%
Rental revenue
15,271
13
%
9,881
17
%
42,404
14
%
57,579
21
%
Field service and other revenue
25,257
22
%
14,051
23
%
69,133
22
%
59,116
21
%
Total revenue
$
115,363
100
%
$
59,789
100
%
$
308,673
100
%
$
280,476
100
%
At September 30, 2021, we had a deferred revenue balance of $0.9 million compared to the December 31, 2020 balance of $1.1 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. The revenue that has been deferred will be recognized upon product delivery or as services are performed. As of September 30, 2021, 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.
8.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 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. Cactus Inc. will retain the benefit of the remaining 15% of these net cash savings.
The TRA liability is calculated by determining the amount of basis subject to the TRA (“tax basis”) and applying a blended tax rate to that basis and then 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. Subsequent changes to the measurement of the TRA liability are recognized in the statements of income as a component of other expense, net. After finalizing its 2020 federal tax return in September 2021, Cactus Inc. made a $9.7 million TRA payment, which is equal to 85% of the $11.4 million 2020 tax benefit resulting from the exchange of CW Units for shares of Class A common stock. In July 2020, Cactus Inc. made a $14.2 million TRA payment based on its 2019 federal tax return. As of September 30, 2021, the total liability from the TRA was $283.0 million with $11.0 million reflected in current liabilities based on the expected timing of our next payment. The payments under the TRA will not be conditional on a holder of rights under the TRA having a continued ownership interest in either Cactus LLC or Cactus Inc.
The 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 will be based upon certain assumptions and deemed events set forth in the TRA, including the assumptions that (i) we have sufficient taxable income to fully utilize the tax benefits covered by the TRA and (ii) any CW Units (other than those held by Cactus Inc.) outstanding on the termination date are deemed to be redeemed on the termination date. 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.
9.Equity
As of September 30, 2021, Cactus Inc. owned 77.9% of Cactus LLC as compared to 63.3% as of December 31, 2020. As of September 30, 2021, Cactus Inc. had outstanding 58.9 million shares of Class A common stock (representing 77.9% of the total voting power) and 16.8 million shares of Class B common stock (representing 22.1% of the total voting power).
Pursuant to the First Amended and Restated Limited Liability Company Operating Agreement of Cactus Wellhead, LLC (the “Cactus Wellhead LLC Agreement”), holders of CW Units are entitled to redeem their CW Units, which results in additional Class A common stock outstanding. Since our IPO in February 2018, 43.8 million CW Units and a corresponding number of shares of Class B common stock have been redeemed in exchange for shares of Class A common stock.
On September 13, 2021, Cadent Energy Partners II - GP, L.P., the general partner of Cadent Energy Partners II, L.P. (“Cadent”), and Cadent Management Services, LLC (“Cadent Management”), Cadent’s manager, transferred their aggregate ownership of 228,878 CW Units, together with a corresponding number of shares of Class B common stock, to certain Cactus Inc. board members and executive management. The transfers were made at the discretion of Cadent and Cadent Management without the consent of the transferees. Additionally, Cadent Energy Partners II - GP, L.P. 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 cancelled 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 voting shares of Cactus Inc. outstanding. In addition to these transfers and redemptions, 192,459 CW Units were redeemed in exchange for shares of Class A common stock during the three months ended September 30, 2021. We recorded an increase in additional paid-in capital with a corresponding decrease in the non-controlling interest in equity of approximately $6.8 million and an increase in the TRA liability of $7.5 million resulting from the redemptions of CW Units during the third quarter of 2021. Additionally, we recognized a $0.7 million tax benefit for the partial valuation release related to the realizable portion of the deferred tax assets.
On June 17, 2021, Cadent transferred ownership of 944,093 CW Units, together with a corresponding number of shares of Class B common stock, to Cadent Energy Partners II - GP, L.P. and 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 cancelled 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 voting shares of Cactus, Inc. outstanding. In addition to the redemption by Cadent, 425,433 CW Units were redeemed in exchange for shares of Class A common stock during the three months ended June 30, 2021. We recorded an increase in additional paid-in capital with a corresponding decrease in the non-controlling interest in equity of $26.9 million and an increase in the TRA liability of $33.1 million resulting from the redemption of CW Units during the second quarter of 2021. Additionally, we recognized a $3.0 million tax benefit for the partial valuation release related to the realizable portion of the deferred tax assets.
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, including up to 825,000 shares of Class A common stock that may be issued and sold to cover overallotments, if any, 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 cancelled) 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 statement of income. We recorded an increase in additional paid-in capital with a corresponding decrease in the non-controlling interest in equity of approximately $45.0 million and an increase in the TRA liability of $46.7 million resulting from the redemption of CW Units pursuant to the 2021 Secondary Offering. Additionally, we recognized a $5.1 million tax benefit for a partial valuation allowance release related to the realizable portion of the deferred tax asset.
During the three and nine months ended September 30, 2020, 67,702 and 142,115 CW Units, respectively, were redeemed in exchange for Class A common stock.
Aggregate cash dividends of $0.28 per share of Class A common stock were declared during the nine months ended September 30, 2021 as compared to $0.27 per share of Class A common stock during the nine months ended September 30, 2020 totaling $15.3 million and $13.0 million, respectively. Cash dividends paid during the nine months ended September 30, 2021 and 2020 totaled $15.2 million and $12.8 million, respectively. Dividends accrue on unvested equity-based awards on the date of record and are paid upon vesting. During the nine months ended September 30, 2021, $0.2 million of previously accrued dividends were paid to holders of restricted stock units that vested during the period as compared to only a de minimis amount of dividends paid upon vesting during the nine months ended September 30, 2020. 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 CW 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.”
Member Distributions
Distributions made by Cactus LLC are generally required to be made pro rata among all its members. For the nine months ended September 30, 2021, Cactus LLC distributed $24.7 million to Cactus Inc. to fund dividend and TRA payments and made pro rata distributions to the other members totaling $8.1 million over the same period. During the nine months ended September 30, 2020, Cactus LLC distributed $26.5 million to Cactus Inc. to fund dividend and TRA payments and made pro rata distributions to the other members totaling $15.6 million.
Limitation of Members’ Liability
Under the terms of the Cactus Wellhead LLC Agreement, the members of Cactus LLC are not obligated for debt, liabilities, contracts or other obligations of Cactus LLC. Profits and losses are allocated to members as defined in the Cactus Wellhead LLC Agreement.
10.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.
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 CW Units (and corresponding shares of outstanding Class B common stock), the treasury stock method to determine the potential dilutive effect of unvested restricted stock units assuming that the proceeds will be used to purchase shares of Class A common stock and the contingently issuable share method to determine the potential dilutive effect of unvested performance stock units.
The following table summarizes the basic and diluted earnings per share calculations:
Three Months Ended September 30,
Nine Months Ended September 30,
2021
2020
2021
2020
Numerator:
Net income attributable to Cactus Inc.—basic
$
12,617
$
6,233
$
34,569
$
31,244
Net income attributable to non-controlling interest (1)
3,400
3,522
9,491
17,271
Net income attributable to Cactus Inc.—diluted(1)
$
16,017
$
9,755
$
44,060
$
48,515
Denominator:
Weighted average Class A shares outstanding—basic
58,248
47,510
54,188
47,406
Effect of dilutive shares(2)
17,834
28,112
21,857
28,021
Weighted average Class A shares outstanding—diluted (2)
76,082
75,622
76,045
75,427
Earnings per Class A share—basic
$
0.22
$
0.13
$
0.64
$
0.66
Earnings per Class A share—diluted (1) (2)
$
0.21
$
0.13
$
0.58
$
0.64
(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 28.0% for the three and nine months ended September 30, 2021 and 25.5% for the three and nine months ended September 30, 2020.
(2)Diluted earnings per share for the three and nine months ended September 30, 2021 includes 17.8 million and 21.9 million, respectively, of weighted average shares of Class B common stock outstanding assuming conversion as well as the dilutive effect of restricted stock unit and performance stock unit awards. Diluted earnings per share for the three and nine months ended September 30, 2020 includes 28.1 million and 28.0 million, respectively, of weighted average shares of Class B common stock outstanding assuming conversion as well as the dilutive effect of restricted stock unit awards.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Except as otherwise indicated or required by the context, all references in this Quarterly Report to the “Company,” “Cactus,” “we,” “us” and “our” refer to Cactus, Inc. (“Cactus Inc.”) and its consolidated subsidiaries, unless we state otherwise or the context otherwise requires. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes. 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 above in “Cautionary Note Regarding Forward-Looking Statements” and included elsewhere in this Quarterly Report, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We assume no obligation to update any of these forward-looking statements except as otherwise required by law.
Executive Summary
We design, manufacture, sell and rent a range of highly engineered wellhead and pressure control equipment. 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. In addition, we provide field services for all of our products and rental items to assist with the installation, maintenance and handling of the wellhead and pressure control equipment.
We operate through service centers in the United States, which are strategically located in the key oil and gas producing regions, including the Permian, Marcellus, Utica, Haynesville, Eagle Ford, Bakken and SCOOP/STACK, among other active oil and gas regions in the United States, and in Eastern Australia. These service centers support our field services and provide equipment assembly and repair services. We also provide rental and service operations in the Kingdom of Saudi Arabia. Our manufacturing and production facilities are located in Bossier City, Louisiana and Suzhou, China.
We operate in one business segment. Our revenues are derived from three sources: products, rentals, and field service and other. Product revenues are primarily derived from the sale of wellhead systems and production trees. Rental revenues are primarily derived from the rental and associated repair of equipment used for well control during the completion process as well as the rental of drilling tools. Field service and other revenues are primarily earned when we provide installation and other field services for both product sales and equipment rental. Additionally, other revenues are derived from providing repair and reconditioning services to customers that have previously installed wellheads or production trees on their wellsite. Items sold or rented generally have an associated service component. As a result, there is a close correlation between field service and other revenues and revenues from product sales and rentals.
During the nine months ended September 30, 2021, we derived 64% of total revenues from the sale of our products, 14% of total revenues from rental and 22% of total revenues from field service and other. During the nine months ended September 30, 2020, we derived 58% of total revenues from the sale of our products, 21% of total revenues from rental and 21% of total revenues from field service and other. We have predominantly domestic operations with a small amount of sales in Australia, and beginning in the third quarter of 2021, in the Kingdom of Saudi Arabia.
Market Factors
Demand for our products and services depends primarily upon the general level of activity in the oil and gas industry, including the number of drilling rigs in operation, the number of oil and gas wells being drilled, the depth and drilling conditions of these wells, the number of well completions, the level of well remediation activity, the volume of production and the corresponding capital spending by oil and natural gas companies. Oil and gas activity is in turn heavily influenced by, among other factors, availability of capital and oil and gas prices locally and worldwide, which have historically been volatile.
The key market factors impacting our product sales are the number of wells drilled and placed on production, as each well requires an individual wellhead assembly and, at some time after completion, the installation of an associated production tree. We measure our product sales activity levels against our competitors by the number of rigs that we are supporting on a monthly basis, as it is correlated to wells drilled. Each active drilling rig produces different levels of revenue based on the customer’s drilling plan, which includes factors such as the number of wells drilled per pad, the time taken to drill each well, the number and size of casing strings, the working pressure, material selection and the complexity of the wellhead system chosen by the customer and the rate at which production trees are eventually deployed. All of these factors may be influenced by the oil and gas region in which the customer is operating. While these factors may lead to differing revenues per rig, we have generally been able to forecast our product needs and anticipated revenue levels based on historic trends in a given region and with a specific customer. Increases in
horizontal wells drilled as a percentage of total wells drilled, the shift towards pad drilling, and an increase in the number of wells drilled per rig are all favorable trends that we believe enhance the demand for our products relative to the active rig count. However, such favorable trends might be adversely affected by overall supply chain-related disruptions.
Our rental revenues are primarily dependent on the number of wells completed (i.e., hydraulically fractured), the number of wells on a well pad, the number of fracture stages per well and the number of fracture stages completed per day. Well completion activity generally follows the level of drilling activity over time, but can be delayed or accelerated due to such factors as takeaway capacity, storage capacity, spot prices, overall service cost inflation and budget considerations.
Field service and other revenues are closely correlated to revenues from product sales and rentals, as items sold or rented almost always have an associated service component. Therefore, the market factors and trends of product sales and rental revenues similarly impact the associated levels of field service and other revenues generated.
Recent Developments and Trends
As economies have reopened in 2021, there has been a resurgence in demand for fossil fuels and oil prices have increased, with West Texas Intermediate prices exceeding $80 per barrel in October 2021. Natural gas prices have also increased significantly this year and have more than doubled since September 2020 and are expected to remain elevated this winter. The higher commodity prices have resulted in increased drilling and completion activity by customers and improved demand for our products and services. This has translated into higher activity and revenues for our business. In response to the increased activity levels, we have added over 300 associates during the first nine months of 2021, reinstated wages and salaries to their full amounts and restored the 401(k) match, among other programs that were suspended or reduced in response to the industry downturn last year. We have also added fleet vehicles in line with additions to our headcount and invested capital in our rental fleet primarily to use a more environmentally friendly method of powering certain equipment. Barring significant adverse impacts to fossil fuel demand, including that caused by the COVID-19 Delta variant, other variants, or the perception thereof, we anticipate continued activity growth in the fourth quarter of 2021 taking into account typical seasonal trends. As overall revenues and activity have grown this year, we have also seen a substantial increase in ocean freight, salaries and wages and raw material prices resulting from COVID-related pressures on the supply chain and significantly increased demand for goods and services worldwide. In addition to dealing with unprecedented cost increases, we are also impacted by the global supply chain issues which have, in some cases, resulted in increased costs when we are required to use other more expensive methods of transportation or substitute more costly products in order to meet customer demand. These cost increases have already had, and could continue to have, a negative impact on our margins and results of operations absent further cost recovery efforts.
The significant increase in commodity prices in 2021 has led to meaningful increases in the level of U.S. onshore drilling activity, particularly among private operators. During the three months ended September 30, 2021, the weekly average U.S. onshore rig count as reported by Baker Hughes was 483 rigs compared to 436 rigs for the three months ended June 30, 2021 and 240 rigs for the three months ended September 30, 2020. Although these gains are encouraging, current rig activity is still significantly reduced from the levels in 2019 when the weekly average rig count for the three months ended September 30, 2019 was 894. During this period, however, improved rig efficiencies have partially offset the impact of this reduction. As of October 29, 2021, the U.S. onshore rig count was 529.
Private exploration and production (“E&P”) companies have been responsible for the majority of the rig additions in the U.S. onshore market in 2021. We have significantly increased our revenues and rigs followed since the third quarter of 2020 despite a greater portion of Cactus’ revenues having historically resulted from publicly traded E&P companies. During this time, Cactus has meaningfully increased its business with private E&P companies. Disproportionate changes in activity from private or publicly traded E&P companies present both risks and opportunities for Cactus, depending on a number of factors, such as which customers add or drop rigs.
Increased Raw Material and Freight Costs
Our ability to source low cost raw materials and components, such as steel plate, tube and bar stock, forgings and machined components is critical to our ability to successfully compete. Due to a shortage of steel caused primarily by production disruptions during the pandemic, steel and assembled component prices are elevated. Additionally, freight costs, specifically ocean freight costs, have risen significantly due to a number of factors including, but not limited to, a scarcity of shipping containers, congested seaports, a shortage of commercial drivers, capacity constraints on vessels and lockdowns in certain markets. We have seen our international freight costs increase from approximately $2,800 per container before the pandemic to over $17,000 per container and expect prices to continue to increase through the end of the year. Although we believe that these cost increases are temporary and as supply equalizes with demand, prices should normalize, we do not believe this will occur until mid-to-late 2022.
Additionally, we cannot be confident that prices will return to the lower levels experienced in prior years. As such, our results of operations may be adversely affected by these rising costs to the extent we are unable to recoup them from our customers.
Critical Accounting Policies and Estimates
A discussion of our critical accounting policies and estimates is contained in our 2020 Annual Report on Form 10-K. There have not been any changes in our critical accounting policies since December 31, 2020.
Consolidated Results of Operations
The following discussions relating to significant line items from our condensed consolidated statements of income are based on available information and represent our analysis of significant changes or events that impact the comparability of reported amounts. 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.
Three Months Ended September 30, 2021 Compared to Three Months Ended June 30, 2021
The following table presents summary consolidated operating results for the periods indicated:
Three Months Ended
September 30, 2021
June 30, 2021
$ Change
% Change
(in thousands)
Revenues
Product revenue
$
74,835
$
70,345
$
4,490
6.4%
Rental revenue
15,271
14,644
627
4.3
Field service and other revenue
25,257
23,904
1,353
5.7
Total revenues
115,363
108,893
6,470
5.9
Costs and expenses
Cost of product revenue
49,708
48,100
1,608
3.3
Cost of rental revenue
13,250
14,403
(1,153)
(8.0)
Cost of field service and other revenue
19,490
17,692
1,798
10.2
Selling, general and administrative expenses
12,149
11,384
765
6.7
Total costs and expenses
94,597
91,579
3,018
3.3
Income from operations
20,766
17,314
3,452
19.9
Interest expense, net
(299)
(181)
(118)
65.2
Other expense, net
—
(1,004)
1,004
nm
Income before income taxes
20,467
16,129
4,338
26.9
Income tax expense
3,290
1,355
1,935
nm
Net income
17,177
14,774
2,403
16.3
Less: net income attributable to non-controlling interest
4,560
4,381
179
4.1
Net income attributable to Cactus Inc.
$
12,617
$
10,393
$
2,224
21.4%
nm = not meaningful
Revenues
Product revenue for the third quarter of 2021 was $74.8 million, an increase of $4.5 million, or 6%, from $70.3 million for the second quarter of 2021 primarily due to increased sales of wellhead and production related equipment resulting from higher drilling and completion activity by our customers in the U.S., the impact of modest price increases implemented during the second quarter and further cost recovery efforts executed in the third quarter.
Rental revenue for the third quarter of 2021 was $15.3 million, an increase of $0.6 million, or 4%, from $14.6 million for the second quarter of 2021. The increase was primarily attributable to higher customer completion activity.
Field service and other revenue for the third quarter of 2021 was $25.3 million, an increase of $1.4 million, or 6%, from $23.9 million for the second quarter of 2021. The increase was mainly due to higher billable hours resulting from increased customer activity.
Costs and expenses
Cost of product revenue for the third quarter of 2021 was $49.7 million, an increase of $1.6 million, or 3%, from $48.1 million for the second quarter of 2021. The increase was primarily attributable to the increase in product sales as well as increased costs associated with freight and materials.
Cost of rental revenue for the third quarter of 2021 of $13.3 million decreased $1.2 million, or 8%, from $14.4 million for the second quarter of 2021 mainly due to a reduction in repair and equipment reactivation costs as the second quarter included additional work needed in order to prepare for an expected increased level of customer demand.
Cost of field service and other revenue for the third quarter of 2021 was $19.5 million, an increase of $1.8 million, or 10%, from $17.7 million for the second quarter of 2021. The increase was primarily related to increased personnel costs associated with the addition of field and branch personnel as well as increases in other costs associated with higher field service activity levels.
Selling, general and administrative expenses for the third quarter of 2021 were $12.1 million, an increase of $0.8 million, or 7%, from $11.4 million for the second quarter of 2021. The increase was primarily due to higher salaries and wages, increased professional fees and expenses associated with upgrades to our information technology infrastructure.
Other expense, net. Other expense, net for the second quarter of 2021 of $1.0 million represents a non-cash adjustment for the revaluation of the liability related to the tax receivable agreement.
Income tax expense. Income tax expense for the third quarter of 2021 was $3.3 million compared to $1.4 million for the second quarter of 2021. Income tax expense for the third quarter of 2021 included approximately $4.5 million expense associated with current income partially offset by a $0.5 million tax benefit related to the finalization of our 2020 tax returns and a $0.7 million tax benefit associated with the partial valuation allowance release in conjunction with third quarter 2021 redemptions of CW Units. Partial valuation releases occur in conjunction with redemptions of CW Units as a portion of Cactus Inc.’s deferred tax assets from its investment in Cactus LLC becomes realizable. Income tax expense for the second quarter of 2021 included approximately $3.8 million expense associated with current income and $0.6 million expense related to a change in our foreign tax credit position and related valuation allowance, offset by a $3.0 million tax benefit associated with the partial valuation allowance release in conjunction with second quarter 2021 redemptions of CW Units.
Cactus Inc. is only subject to federal and state income tax on its share of income from Cactus LLC. Income allocated to the non-controlling interest is not subject to U.S. federal or state tax.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
The following table presents summary consolidated operating results for the periods indicated:
Nine Months Ended September 30,
2021
2020
$ Change
% Change
(in thousands)
Revenues
Product revenue
$
197,136
$
163,781
$
33,355
20.4%
Rental revenue
42,404
57,579
(15,175)
(26.4)
Field service and other revenue
69,133
59,116
10,017
16.9
Total revenues
308,673
280,476
28,197
10.1
Costs and expenses
Cost of product revenue
134,329
101,976
32,353
31.7
Cost of rental revenue
39,824
39,661
163
0.4
Cost of field service and other revenue
51,645
44,620
7,025
15.7
Selling, general and administrative expenses
33,160
30,739
2,421
7.9
Severance expenses
—
1,864
(1,864)
nm
Total costs and expenses
258,958
218,860
40,098
18.3
Income from operations
49,715
61,616
(11,901)
(19.3)
Interest income (expense), net
(632)
851
(1,483)
nm
Other expense, net
(1,410)
(555)
(855)
nm
Income before income taxes
47,673
61,912
(14,239)
(23.0)
Income tax expense
586
8,833
(8,247)
(93.4)
Net income
47,087
53,079
(5,992)
(11.3)
Less: net income attributable to non-controlling interest
12,518
21,835
(9,317)
(42.7)
Net income attributable to Cactus Inc.
$
34,569
$
31,244
$
3,325
10.6%
nm = not meaningful
Revenues
Product revenue was $197.1 million for the nine months ended September 30, 2021 compared to $163.8 million for the nine months ended September 30, 2020. The increase of $33.4 million, representing a 20% increase from 2020, was primarily due to higher sales of wellhead and production related equipment resulting from higher drilling and completion activity by our customers compared to 2020, the impact of modest price increases implemented during the second quarter of 2021 and further cost recovery efforts executed in the third quarter of 2021. In the prior year, the industry downturn resulting from depressed commodity prices exacerbated by the pandemic was most detrimental to our second and third quarter results out of the first nine months of 2020.
Rental revenue of $42.4 million for the first nine months of 2021 decreased $15.2 million, or 26%, from $57.6 million for the first nine months of 2020. The decrease was primarily due to reduced drilling and completion activity resulting from our decision to concede market share given the extraordinary market pressure driven by depressed energy demand. Recovery in our rental business has been slower than our product business as an excess amount of competing rental equipment remains available in the market relative to the amount of completion activity being conducted by customers.
Field service and other revenue for the nine months ended September 30, 2021 was $69.1 million, an increase of $10.0 million, or 17%, from $59.1 million for the nine months ended September 30, 2020. The increase was attributable to increased customer activity compared to the prior year, resulting from higher billable hours, ancillary services and repairs of customer property.
Cost of product revenue for the nine months ended September 30, 2021 was $134.3 million, an increase of $32.4 million, or 32%, from $102.0 million for the nine months ended September 30, 2020. The increase was largely attributable to an increase in product sales and costs associated with materials, freight and overhead, including increased labor costs, in 2021. Additionally, cost of product revenue in the first nine months of 2020 included $8.5 million in credits related to tariff refunds.
Cost of rental revenue of $39.8 million for the first nine months of 2021 increased $0.2 million from $39.7 million for the first nine months of 2020. The increase was primarily due to higher repair and reactivation costs offset by decreased scrap and rework expense, lower depreciation expenses on our rental fleet and other savings resulting from lower activity compared to 2020. Rental cost of sales in 2020 included approximately $0.9 million in credits related to tariff refunds.
Cost of field service and other revenue was $51.6 million for the nine months ended September 30, 2021, an increase of $7.0 million, or 16%, from $44.6 million for the nine months of September 30, 2020. The increase was mainly related to higher personnel costs associated with higher wages and an increase in the number of field and branch personnel as well as higher fuel and other remobilization expenses associated with increased field service activity levels compared to the prior year. Additionally, gains from sales of field service vehicles decreased by $3.3 million from 2020 as we rationalized our fleet vehicles in line with the headcount reductions in the prior year.
Selling, general and administrative expenses for the nine months ended September 30, 2021 were $33.2 million compared to $30.7 million for the nine months ended September 30, 2020. The $2.4 million increase was largely attributable to increased personnel costs primarily related to higher salaries and wages, increased accruals for annual incentive bonuses based on current year targets and higher stock-based compensation expense. Additional increases from 2020 related to higher professional fees and information technology expenses. These increases were partially offset by a reduction in foreign currency losses.
Severance expenses for the nine months ended September 30, 2020 of $1.9 million represented severance benefits associated with headcount reductions during the prior year.
Interest income (expense), net. Interest expense, net for the first nine months of 2021 was $0.6 million compared to interest income, net of $0.9 million for the first nine months of 2020. The decrease in interest income, net of $1.5 million was primarily due to lower interest income on cash invested resulting from significantly lower interest rates in 2021 as well as the prior year period including $0.5 million of interest income recognized on tariff refunds.
Other expense, net. Other expense, net for the nine months ended September 30, 2021 of $1.4 million related to a $1.0 million non-cash adjustment for the revaluation of the liability related to the tax receivable agreement and $0.4 million for professional fees and other expenses associated with the 2021 Secondary Offering. Other expense, net for the nine months ended September 30, 2020 of $0.6 million represented non-cash adjustments for the revaluation of the liability related to the tax receivable agreement.
Income tax expense. Income tax expense for the nine months ended September 30, 2021 was $0.6 million compared to $8.8 million for the nine months ended September 30, 2020. The income tax expense for the first nine months of 2021 included an $8.9 million benefit associated with a partial valuation allowance release associated with CW Unit redemptions during the year and a $1.1 million benefit associated with permanent differences related to equity compensation. Income tax expense for the nine months ended September 30, 2020 included a $2.2 million benefit associated with the revaluation of deferred tax asset
as a result of a change in our forecasted state tax rate.
Liquidity and Capital Resources
At September 30, 2021, we had $302.0 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 ABL Credit Facility. Depending upon market conditions and other factors, we may also have the ability to issue additional equity and debt if needed. As of September 30, 2021, we had no borrowings outstanding under our ABL Credit Facility and $75.0 million of available borrowing capacity. Additionally, we were in compliance with the covenants of the ABL Credit Facility as of September 30, 2021.
We believe that our existing cash on hand, cash generated from operations and available borrowings under our ABL Credit Facility will be sufficient for at least the next 12 months to meet working capital requirements, anticipated capital expenditures,
expected payments related to the TRA, anticipated tax liabilities and dividends to holders of our Class A common stock as well as pro rata cash distributions to the holders of CW Units other than Cactus Inc.
For the nine months ended September 30, 2021, net capital expenditures totaled $8.4 million, which were primarily related to rental fleet enhancements, including the electrification of certain assets to use a more environmentally friendly method of powering such equipment. We currently estimate our net capital expenditures for the year ending December 31, 2021 will range from $10 million to $15 million. 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.
Our ability to satisfy our long-term liquidity requirements, including cash distributions to CW Unit Holders to fund their respective income tax liabilities relating to their share of the income of Cactus LLC and to fund liabilities related to the TRA, depends on our future operating performance, which is affected by, and subject to, prevailing economic conditions, market conditions in the E&P industry, availability and cost of raw materials, and financial, business and other factors, many of which are beyond our control. We will not be able to predict or control many of these factors, such as economic conditions in the markets where we operate and competitive pressures. If necessary, we could choose to further reduce our spending on capital projects and operating expenses to ensure we operate within the cash flow generated from our operations.
Cash Flows
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended September 30,
2021
2020
(in thousands)
Net cash provided by operating activities
$
52,084
$
121,485
Net cash used in investing activities
(8,417)
(16,494)
Net cash used in financing activities
(30,354)
(34,090)
Net cash provided by operating activities was $52.1 million and $121.5 million for the nine months ended September 30, 2021 and 2020, respectively. Operating cash flows for 2021 decreased from 2020 primarily due to an increase in working capital, largely related to the increase in accounts receivable and inventories offset by an increase in accounts payable and other liabilities, as well as a decrease in net income adjusted for certain noncash items.
Net cash used in investing activities was $8.4 million and $16.5 million for the nine months ended September 30, 2021 and 2020, respectively. The decrease was primarily due to lower capital expenditures associated with our rental fleet in 2021.
Net cash used in financing activities was $30.4 million and $34.1 million for the nine months ended September 30, 2021 and 2020, respectively. The decrease was comprised of a $7.5 million decrease in Cactus LLC member distributions and a $0.5 million reduction in payments on finance leases partially offset by a $2.4 million increase in dividend payments and a $1.8 million increase in share repurchases from employees to satisfy tax withholding obligations related to restricted stock units that vested during the period.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For quantitative and qualitative disclosures about market risk, see Part II, Item 7A., “Quantitative and Qualitative Disclosures about Market Risk,” in our 2020 Annual Report. Our exposure to market risk has not changed materially since December 31, 2020.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In accordance with Exchange Act Rules 13a-15 and 15d-15, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2021 at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are party to lawsuits arising in the ordinary course of our business. We cannot predict the outcome of any such lawsuits with certainty, but management believes it is unlikely that pending or threatened legal matters will have a material adverse impact on our financial condition.
Due to the nature of our business, we are, from time to time, involved in other routine litigation or subject to disputes or claims related to our business activities, including workers’ compensation claims and employment related disputes. In the opinion of our management, none of these, whether pending litigation, disputes or claims against us, if decided adversely, will have a material adverse effect on our results of operations, financial condition or cash flows.
Item 1A. Risk Factors.
In addition to the information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our 2020 Annual Report and the risk factors and other cautionary statements contained in our other filings with the Securities and Exchange Commission, which could materially affect our business, results of operations, financial condition or cash flows. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, results of operations, financial condition or cash flows. There have been no material changes in our risk factors from those described in our 2020 Annual Report or our other Securities and Exchange Commission filings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following sets forth information with respect to our repurchase of Class A common stock during the three months ended September 30, 2021 (in whole shares).
Period
Total number of shares purchased(1)
Average price paid per share(2)
July 1-31, 2021
—
$
—
August 1-31, 2021
—
—
September 1-30, 2021
534
33.37
Total
534
$
33.37
(1)Consists of shares of Class A common stock repurchased from employees to satisfy tax withholding obligations related to restricted stock units that vested during the period.
(2)Average price paid for Class A common stock purchased from employees to satisfy tax withholding obligations related to restricted stock units that vested during the period.
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Cactus, Inc.
November 4, 2021
By:
/s/ Scott Bender
Date
Scott Bender
President, Chief Executive Officer and Director
(Principal Executive Officer)
November 4, 2021
By:
/s/ Stephen Tadlock
Date
Stephen Tadlock
Vice President, Chief Financial Officer and Treasurer
