Enhanced Investments - Financial Portal

Published: 2023-11-09 00:00:00 ET

whd-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________________________

FORM 10-Q

______________________________________________________________________________

(MARK ONE)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-38390

______________________________________________________________________________

Cactus, Inc.

(Exact name of registrant as specified in its charter)

______________________________________________________________________________


Delaware		35-2586106
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

920 Memorial City Way, Suite 300		77024
Houston,	Texas	(Zip Code)
(Address of principal executive offices)

(713) 626-8800

(Registrant’s telephone number, including area code)

______________________________________________________________________________

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 6, 2023, the registrant had 65,323,129 shares of Class A common stock, $0.01 par value per share, and 14,106,469 shares of Class B common stock, $0.01 par value per share, outstanding.

Table of Contents

TABLE OF CONTENTS


Cautionary Note Regarding Forward-Looking Statements		i

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management ’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 5.	Other Information	26
Item 6.	Exhibits	26
	Signatures	27

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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. We caution you that these forward-looking statements are subject to risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. When considering forward‑looking statements, you should keep in mind the risk factors and other cautionary statements described under “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “2022 Annual Report”), the Risk Factors described in “Part II, Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, the Risk Factors described in “Part II, Item 1A. Risk Factors” of this Quarterly Report and other cautionary statements contained herein and in our Exchange Act filings. Forward‑looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events. Should one or more of the risks or uncertainties described in our 2022 Annual Report or other Exchange Act filings occur, or should underlying assumptions prove incorrect, our actual results 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.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


(in thousands, except per share data)	September 30, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	63,738	$	344,527
Accounts receivable, net of allowance of $3,187 and $1,060, respectively	206,251		138,268
Inventories	203,517		161,283
Prepaid expenses and other current assets	19,442		10,564
Total current assets	492,948		654,642
Property and equipment, net	345,222		129,998
Operating lease right-of-use assets, net	19,969		23,183
Intangible assets, net	183,974		—
Goodwill	200,723		7,824
Deferred tax asset, net	211,535		301,644
Other noncurrent assets	9,779		1,605
Total assets	$	1,464,150	$	1,118,896
Liabilities and Equity
Current liabilities
Accounts payable	$	65,217	$	47,776
Accrued expenses and other current liabilities	60,713		30,619
Earn-out liability	18,892		—
Current portion of liability related to tax receivable agreement	20,855		27,544
Finance lease obligations, current portion	7,543		5,933
Operating lease liabilities, current portion	4,147		4,777
Total current liabilities	177,367		116,649
Deferred tax liability, net	1,469		1,966
Liability related to tax receivable agreement, net of current portion	250,256		265,025
Finance lease obligations, net of current portion	9,239		6,436
Operating lease liabilities, net of current portion	15,748		18,375
Total liabilities	454,079		408,451
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value, 10,000 shares authorized, none issued and outstanding	—		—
Class A common stock, $0.01 par value, 300,000 shares authorized, 65,323 and 60,903 shares issued and outstanding	654		609
Class B common stock, $0.01 par value, 215,000 shares authorized, 14,106 and 14,978 shares issued and outstanding	—		—
Additional paid-in capital	462,302		310,528
Retained earnings	359,699		261,764
Accumulated other comprehensive loss	(1,647)		(984)
Total stockholders’ equity attributable to Cactus Inc.	821,008		571,917
Non-controlling interest	189,063		138,528
Total stockholders’ equity	1,010,071		710,445
Total liabilities and equity	$	1,464,150	$	1,118,896

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	2023		2022		2023		2022
Revenues
Product revenue	$	214,295	$	121,782	$	605,698	$	328,054
Rental revenue	28,879		27,105		84,916		73,143
Field service and other revenue	44,696		35,594		131,480		99,398
Total revenues	287,870		184,481		822,094		500,595
Costs and expenses
Cost of product revenue	123,278		73,747		373,310		203,839
Cost of rental revenue	15,558		16,323		48,538		46,740
Cost of field service and other revenue	36,973		27,145		103,861		78,685
Selling, general and administrative expenses	29,549		15,970		97,519		44,804
Change in fair value of earn-out liability	(5,091)		—		13,053		—
Total costs and expenses	200,267		133,185		636,281		374,068
Operating income	87,603		51,296		185,813		126,527

Interest income (expense), net	(1,372)		1,140		(6,298)		1,344
Other income, net	266		1,125		3,804		10
Income before income taxes	86,497		53,561		183,319		127,881
Income tax expense	18,478		12,041		30,553		23,498
Net income	$	68,019	$	41,520	$	152,766	$	104,383
Less: net income attributable to non-controlling interest	15,439		10,095		32,542		25,198
Net income attributable to Cactus Inc.	$	52,580	$	31,425	$	120,224	$	79,185

Earnings per Class A share - basic	$	0.81	$	0.52	$	1.87	$	1.32
Earnings per Class A share - diluted	$	0.80	$	0.51	$	1.82	$	1.30

Weighted average Class A shares outstanding - basic	64,879		60,665		64,399		60,164
Weighted average Class A shares outstanding - diluted	65,486		61,106		79,632		76,296

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Net income	$	68,019	$	41,520	$	152,766	$	104,383
Foreign currency translation adjustments	(670)		(1,219)		(812)		(2,150)
Comprehensive income	$	67,349	$	40,301	$	151,954	$	102,233
Less: comprehensive income attributable to non-controlling interest	15,319		9,795		32,393		24,673
Comprehensive income attributable to Cactus Inc.	$	52,030	$	30,506	$	119,561	$	77,560

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)


	Class A			Class B			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest		Total Equity
	Common Stock			Common Stock
(in thousands)	Shares	Amount		Shares	Amount
Balance at June 30, 2023	64,609	$	647	14,820	$	—	$	446,206	$	315,049	$	(1,096)	$	191,968	$	952,774

Member distributions	—	—		—	—		—		—		—		(9,214)		(9,214)
Effect of CC Unit redemptions	714	7		(714)	—		9,753		—		—		(9,760)		—
Tax impact of equity transactions	—	—		—	—		2,574		—		—		(100)		2,474

Other comprehensive loss	—	—		—	—		—		—		(551)		(119)		(670)

Stock-based compensation	—	—		—	—		3,769		—		—		849		4,618
Cash dividends declared ($0.12 per share)	—	—		—	—		—		(7,930)		—		—		(7,930)
Net income	—	—		—	—		—		52,580		—		15,439		68,019
Balance at September 30, 2023	65,323	$	654	14,106	$	—	$	462,302	$	359,699	$	(1,647)	$	189,063	$	1,010,071

Balance at June 30, 2022	60,613	$	606	15,263	$	—	$	304,418	$	212,913	$	(698)	$	126,569	$	643,808
Member distributions	—	—		—	—		—		—		—		(4,659)		(4,659)
Effect of CW Unit redemptions	104	1		(104)	—		894		—		—		(895)		—
Tax impact of equity transactions	—	—		—	—		(33)		—		—		—		(33)
Equity award vestings	2	—		—	—		5		—		—		(3)		2
Other comprehensive loss	—	—		—	—		—		—		(919)		(300)		(1,219)
Stock-based compensation	—	—		—	—		2,414		—		—		604		3,018
Cash dividends declared ($0.11 per share)	—	—		—	—		—		(6,787)		—		—		(6,787)
Net income	—	—		—	—		—		31,425		—		10,095		41,520
Balance at September 30, 2022	60,719	$	607	15,159	$	—	$	307,698	$	237,551	$	(1,617)	$	131,411	$	675,650

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)


	Class A			Class B			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest		Total Equity
	Common Stock			Common Stock
(in thousands)	Shares	Amount		Shares	Amount
Balance at December 31, 2022	60,903	$	609	14,978	$	—	$	310,528	$	261,764	$	(984)	$	138,528	$	710,445
Issuances of common stock	3,352	34		—	—		143,302		—		—		26,033		169,369
Member distributions	—	—		—	—		—		—		—		(13,926)		(13,926)
Effect of CC Unit redemptions	872	9		(872)	—		11,773		—		—		(11,782)		—
Tax impact of equity transactions	—	—		—	—		(10,979)		—		—		16,726		5,747
Equity award vestings	200	2		—	—		(3,071)		—		—		(1,371)		(4,440)
Other comprehensive loss	—	—		—	—		—		—		(663)		(149)		(812)
Share repurchases	(4)	—		—	—		(137)		—		—		(22)		(159)
Stock-based compensation	—	—		—	—		10,886		—		—		2,484		13,370
Cash dividends declared ($0.34 per share)	—	—		—	—		—		(22,289)		—		—		(22,289)
Net income	—	—		—	—		—		120,224		—		32,542		152,766
Balance at September 30, 2023	65,323	$	654	14,106	$	—	$	462,302	$	359,699	$	(1,647)	$	189,063	$	1,010,071

Balance at December 31, 2021	59,035	$	590	16,674	$	—	$	289,600	$	178,446	$	8	$	126,389	$	595,033
Member distributions	—	—		—	—		—		—		—		(8,007)		(8,007)
Effect of CW Unit redemptions	1,515	15		(1,515)	—		12,039		—		—		(12,054)		—
Tax impact of equity transactions	—	—		—	—		2,931		—		—		—		2,931
Equity award vestings	169	2		—	—		(3,258)		—		—		(1,238)		(4,494)
Other comprehensive loss	—	—		—	—		—		—		(1,625)		(525)		(2,150)
Stock-based compensation	—	—		—	—		6,386		—		—		1,648		8,034
Cash dividends declared ($0.33 per share)	—	—		—	—		—		(20,080)		—		—		(20,080)
Net income	—	—		—	—		—		79,185		—		25,198		104,383
Balance at September 30, 2022	60,719	$	607	15,159	$	—	$	307,698	$	237,551	$	(1,617)	$	131,411	$	675,650

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine Months Ended September 30,
(in thousands)	2023		2022
Cash flows from operating activities
Net income	$	152,766	$	104,383
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	50,180		25,991
Deferred financing cost amortization	4,187		133
Stock-based compensation	13,526		8,034
Provision for expected credit losses	2,153		224
Inventory obsolescence	3,569		1,642
Gain on disposal of assets	(1,999)		(470)
Deferred income taxes	10,723		19,230
Change in fair value of earn-out liability	12,932		—
Gain from revaluation of liability related to tax receivable agreement	(3,683)		(10)
Changes in operating assets and liabilities:
Accounts receivable	(12,637)		(42,906)
Inventories	45,377		(45,545)
Prepaid expenses and other assets	(7,321)		(4,265)
Accounts payable	2,733		20,537
Accrued expenses and other liabilities	2,986		3,293
Payments pursuant to tax receivable agreement	(26,890)		(11,666)
Net cash provided by operating activities	248,602		78,605
Cash flows from investing activities
Acquisition of a business, net of cash and cash equivalents acquired	(616,189)		—
Capital expenditures and other	(33,400)		(21,197)
Proceeds from sales of assets	4,347		1,701
Net cash used in investing activities	(645,242)		(19,496)
Cash flows from financing activities
Proceeds from the issuance of long-term debt	155,000		—
Repayments of borrowings of long-term debt	(155,000)		—
Net proceeds from the issuance of Class A common stock	169,878		—
Payments of deferred financing costs	(6,857)		(165)
Payments on finance leases	(5,579)		(4,505)
Dividends paid to Class A common stock shareholders	(22,266)		(20,015)
Distributions to members	(13,926)		(8,007)
Repurchases of shares	(4,599)		(4,495)
Net cash provided by (used in) financing activities	116,651		(37,187)
Effect of exchange rate changes on cash and cash equivalents	(800)		(2,968)
Net increase (decrease) in cash and cash equivalents	(280,789)		18,954
Cash and cash equivalents, beginning of period	344,527		301,669
Cash and cash equivalents, end of period	$	63,738	$	320,623

Supplemental disclosure of cash flow information
Net cash paid for income taxes	$	19,464	$	3,762
Cash paid for interest	$	5,150	$	801
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new lease obligations	$	10,210	$	10,707
Property and equipment in accounts payable	$	1,758	$	1,582

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

CACTUS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(in thousands, except per share data, or as otherwise indicated)

1.Preparation of Interim Financial Statements and Other Items

Basis of Presentation

The financial statements presented in this report represent the consolidation of Cactus, Inc. (“Cactus Inc.”) and its subsidiaries (the “Company”), including Cactus Companies, LLC (“Cactus Companies”). Cactus Inc. is a holding company whose only material asset is an equity interest consisting of units representing limited liability company interests in Cactus Companies (“CC Units”). Cactus Inc. is the sole managing member of Cactus Companies and operates and controls all of the business and affairs of Cactus Companies and conducts its business through Cactus Companies and its subsidiaries. As a result, Cactus Inc. consolidates the financial results of Cactus Companies and its subsidiaries and reports a non-controlling interest related to the portion of CC Units not owned by Cactus Inc., which reduces net income attributable to holders of Cactus Inc.’s Class A common stock, par value $0.01 per share (“Class A common stock”). Except as otherwise indicated or required by the context, all references to “Cactus,” “we,” “us” and “our” refer to Cactus Inc. and its consolidated subsidiaries.

On February 28, 2023, Cactus Inc. through one of its subsidiaries, completed the merger of the FlexSteel business (the “Merger”) through a merger with HighRidge Resources, Inc. and its subsidiaries (“HighRidge”). On February 27, 2023, in order to facilitate the Merger with HighRidge, an internal reorganization was completed in which Cactus Companies acquired all of the outstanding units representing ownership interests in Cactus Wellhead, LLC (“Cactus LLC”), the operating subsidiary of Cactus Inc. (the “CC Reorganization”). The purpose of the Merger was to effect the acquisition of the operations of FlexSteel Holdings, Inc. and its subsidiaries. FlexSteel Holdings, Inc. was a wholly-owned subsidiary of HighRidge prior to the Merger and was converted into a limited liability company, contributed from HighRidge to Cactus Companies as part of the CC Reorganization and is now named FlexSteel Holdings, LLC (“FlexSteel”). The results of operations of FlexSteel have been reflected in our accompanying condensed consolidated financial statements from the closing date of the acquisition through September 30, 2023. See Note 2 for additional information related to the acquisition.

Following the acquisition of FlexSteel, we now operate in two business segments: Pressure Control and Spoolable Technologies.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, these consolidated financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read together with our Annual Report on Form 10-K for the year ended December 31, 2022.

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.FlexSteel Acquisition

On February 28, 2023 (the “acquisition date”), we completed the acquisition of FlexSteel in accordance with the terms and conditions of the merger agreement dated December 30, 2022. Including final adjustments for closing working capital, cash on hand and indebtedness adjustments as set forth in the merger agreement, we paid total cash consideration of $621.5 million. There is also a potential future earn-out payment of up to $75.0 million to be paid no later than the third quarter of 2024, if certain revenue growth targets are met by FlexSteel. We funded the upfront purchase price using a combination of $165.6 million of net

Table of Contents

proceeds received from the public offering of shares of our Class A common stock completed in January 2023, borrowings under the Amended ABL Credit Facility (as defined in Note 7) totaling $155.0 million and available cash on hand at the time of closing.

We believe this acquisition enhances Cactus’ position as a premier manufacturer and provider of highly engineered equipment to the oil and gas exploration and production (“E&P”) industry and provides meaningful growth potential for Cactus. We also believe FlexSteel’s products are highly complementary to Cactus’ equipment as it expands our exposure to our customers’ operations from production trees to transportation of oil, gas and other liquids as well as to additional customers operating in the midstream area. The acquisition is being accounted for using the acquisition method of accounting, with Cactus being treated as the accounting acquirer. Under the acquisition method of accounting, the assets and liabilities are recorded at their respective fair values as of the acquisition date. The transaction was treated as a purchase of stock for United States federal income tax purposes. In connection with the acquisition, we incurred approximately $7.5 million of transaction costs for the nine months ended September 30, 2023 required to effect the transaction and incurred an additional $4.4 million in costs related to the reporting of and accounting for the transaction. These fees primarily related to legal, accounting and consulting fees and are included in selling, general and administrative (“SG&A”) expenses in the consolidated statements of income.

Purchase Price Consideration

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


	Purchase Price Consideration
Cash consideration	$	621,505
Add: Contingent consideration (1)	5,960
Fair value of consideration transferred	$	627,465

(1) Represents the estimated fair value as of the acquisition date of the earn-out payment of up to $75 million of additional cash consideration if certain revenue growth targets are met by FlexSteel. The estimated fair value of the earn-out payment was determined using a Monte Carlo simulation valuation methodology based on probability-weighted performance projections and other inputs, including a discount rate.

Changes in the fair value of the earn-out liability subsequent to the acquisition date are recognized in the consolidated statements of income. As of September 30, 2023, the estimated fair value of the earn-out payment increased to $18.9 million. The increase is based on the revised forecast for the period January 1, 2023 through June 30, 2024, reflecting improvements in FlexSteel’s revenues as compared to projections made at the time of the acquisition. See further discussion of the calculation of fair value of the earn-out liability in Note 12.

Preliminary Purchase Price Allocation

The following table provides the preliminary allocation of the purchase price as of the acquisition date. The goodwill reflected below decreased $0.6 million from the original preliminary purchase price allocation as a result of measurement period adjustments, primarily related to changes in cash consideration upon finalization of the closing net working capital and the

Table of Contents

resulting updates to deferred tax liabilities, partially offset by valuation adjustments to inventories and property and equipment.


Cash and cash equivalents	$	5,316
Receivables	57,747
Inventories	91,746
Prepaid expenses and other current assets	1,283
Property and equipment	208,955
Operating lease right-of-use assets	1,021
Identifiable intangible assets	200,300
Other noncurrent assets	5,666
Total assets acquired	572,034
Accounts payable	(14,789)
Accrued expenses and other current liabilities	(26,827)
Finance lease obligations	(974)
Operating lease liabilities	(906)
Deferred tax liabilities	(93,972)
Total liabilities assumed	(137,468)

Net assets acquired	434,566

Goodwill	$	192,899

Assets acquired and liabilities assumed in connection with the acquisition were recorded at their estimated fair values. Estimated fair values were determined by management, based in part on an independent valuation performed by third-party valuation specialists. The valuation methods used to determine the estimated fair value of intangible assets included the excess earnings approach for customer relationships and backlog using customer inputs and contributory charges and the relief from royalty method for tradename and developed technology. Several significant assumptions and estimates were involved in the application of these valuation methods, including forecasted sales volumes and prices, royalty rates, costs to produce, tax rates, capital spending, discount rates, attrition rates and working capital changes. Cash flow forecasts were generally based on FlexSteel’s pre-acquisition forecasts. Identifiable intangible assets with finite lives are subject to amortization over their estimated useful lives.

The fair values determined for accounts receivable, accounts payable and most other current assets and liabilities, other than inventory, were equivalent to the carrying value due to their short-term nature. Acquired inventories are comprised of raw materials, work-in-progress and finished goods. The preliminary fair value of finished goods was calculated as the estimated selling price, less costs of the selling effort and a reasonable profit allowance relating to the selling effort. The preliminary fair value of work-in-progress was calculated as the estimated selling price, less costs to complete, less costs of the selling effort and a reasonable profit allowance on completion and selling costs. The preliminary fair value of raw materials was determined based on replacement cost which approximates historical carrying value. The preliminary fair value of identifiable fixed assets was calculated using a combination of valuation approaches, but primarily consisted of the cost approach which adjusts estimates of replacement cost for the age, condition and utility of the associated assets.

Goodwill is calculated as the excess of the purchase price over the estimated fair value of net assets acquired and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Among the factors that contributed to a purchase price in excess of the estimated fair value of the net tangible and intangible assets acquired were the acquisition of an assembled workforce, expansion opportunities and other benefits that we believe will result from combining the operations of FlexSteel with ours. Goodwill was further increased by the deferred tax liability associated with the fair market value in excess of the tax basis acquired. The goodwill associated with this transaction has been allocated to our Spoolable Technologies segment.

The purchase price allocation is preliminary and could be revised as a result of additional information obtained regarding assets acquired and liabilities assumed and revisions of preliminary estimates of fair values including, but not limited to, certain tangible assets acquired and liabilities assumed, contractual relationships, intangible assets, certain working capital items, deferred income taxes and residual goodwill. The purchase price allocation will be finalized within the measurement period of up to one year from the acquisition date.

Table of Contents

Tax-related impacts

As a result of the transaction, we acquired certain carryforward tax attributes. The Company’s current assessment is that some of these attributes should be accounted for as unrecognized tax benefits in the acquisition accounting. The unrecognized tax benefits have been offset by an indemnification asset from the seller of $5.7 million. The Company continues to evaluate the technical merits of the tax attributes, and the unrecognized tax benefit assessment is subject to change within the measurement period. Subsequent to completion of the acquisition, we determined that we expect to generate sufficient taxable income of the appropriate type to allow for the realization of the deferred tax asset associated with our investment in Cactus Companies and recognized a $12.1 million tax benefit in the first quarter of 2023 associated with the release of our valuation allowance previously provided. Additionally, we recognized $4.3 million of tax expense in the first quarter of 2023 associated with the revaluation of our deferred tax asset as a result of a change in our forecasted state rate primarily due to state impacts of the FlexSteel acquisition.

Pro forma financial information

From acquisition date through September 30, 2023, FlexSteel produced revenue of $245.8 million and net income of $34.1 million. The pro forma financial information below represents the combined results of operations for the nine months ended September 30, 2023 and for the three and nine months ended September 30, 2022, as if the acquisition had occurred as of January 1, 2022. The unaudited pro forma combined financial information includes, where applicable, adjustments for additional amortization expense related to the fair value step-up of intangible assets, additional inventory fair value step-up expense, additional depreciation expense associated with adjusting property and equipment to fair value, changes to align accounting policies, decreases in interest expense due to modification of borrowings in conjunction with the acquisition and associated tax-related impacts of adjustments. These pro forma adjustments are based on available information as of the date hereof and upon assumptions that we believe are reasonable to reflect the impact of the FlexSteel acquisition on our historical financial information on a supplemental pro forma basis. Adjustments do not include the elimination of transaction-related costs incurred or any costs related to integration activities, cost savings or synergies that have been or may be achieved by the combined business. The unaudited pro forma financial information is presented for informational purposes only and is neither indicative of the results of operations that would have occurred if the acquisition had taken place at the beginning of the period presented nor indicative of future operating results.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022		2023		2022
Revenues	$	274,855	$	875,473	$	765,847
Net Income attributable to Cactus, Inc.	33,885		132,026		83,224

3.Accounts Receivable and Allowance for Credit Losses

We extend credit to customers in the normal course of business. Our customers are predominantly oil and gas E&P companies located in the U.S. Our receivables are short-term in nature and typically due in 30 to 60 days. We do not accrue interest on delinquent receivables. Accounts receivable includes amounts billed and currently due from customers and unbilled amounts 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, 2023 and December 31, 2022 was $36.6 million and $34.9 million, respectively.

We maintain an allowance for credit losses to provide for the amount of billed receivables we believe to be at risk of loss. In our determination of the allowance for credit losses, we pool receivables with similar risk characteristics based on customer size, credit ratings, payment history, bankruptcy status and other factors known to us and apply an expected credit loss percentage. The expected credit loss percentage is determined using historical loss data adjusted for current conditions and forecasts of future economic conditions. Accounts deemed uncollectible are applied against the allowance for credit losses. The following is a rollforward of our allowance for credit losses.


	Balance at Beginning of Period		Expense		Write off		Translation Adjustments		Balance at End of Period
Nine Months Ended September 30, 2023	$	1,060	$	2,153	$	(16)	$	(10)	$	3,187
Nine Months Ended September 30, 2022	741		224		(63)		(1)		901

Table of Contents

4.Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard cost (which approximates average cost). Costs include an application of related material, direct labor, duties, tariffs, freight and overhead costs. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Reserves are made for excess and obsolete items based on a range of factors, including age, usage and technological or market changes that may impact demand for those products. Inventories consist of the following:


	September 30, 2023		December 31, 2022
Raw materials	$	23,144	$	3,150
Work-in-progress	11,500		5,444
Finished goods	168,873		152,689
	$	203,517	$	161,283

5.Property and Equipment, net

Property and equipment are stated at cost. We manufacture or construct most of our Pressure Control rental equipment assets. During the manufacture of these assets, they are reflected as construction in progress until complete. Property and equipment consists of the following:


	September 30, 2023		December 31, 2022
Land	$	16,442	$	5,302
Buildings and improvements	131,960		25,480
Machinery and equipment	127,701		57,883
Reels and skids	18,028		—
Vehicles	35,319		29,045
Rental equipment	215,581		194,088
Furniture and fixtures	1,905		1,759
Computers and software	3,889		3,068
Gross property and equipment	550,825		316,625
Less: Accumulated depreciation	(222,998)		(200,573)
Net property and equipment	327,827		116,052
Construction in progress	17,395		13,946
Total property and equipment, net	$	345,222	$	129,998

6.Goodwill and Other Intangible Assets

Goodwill represents the excess of purchase price paid over the fair value of the net assets of acquired businesses. Goodwill is not amortized, but we evaluate at least annually whether it is impaired. Goodwill is considered impaired if the carrying amount of the reporting unit exceeds its estimated fair value. We conduct our annual assessment of the recoverability of goodwill as of December 31 of each year and more frequently if events and circumstances indicate that goodwill might be impaired. The change in carrying value of goodwill allocated to our reportable segments during the nine months ended September 30, 2023 was as follows:


	Pressure Control		Spoolable Technologies		Total
Balance at December 31, 2022	$	7,824	$	—	$	7,824
FlexSteel acquisition	—		192,899		192,899

Balance at September 30, 2023	$	7,824	$	192,899	$	200,723

Table of Contents

The following table presents the detail of acquired intangible assets other than goodwill as of September 30, 2023:


	Gross Cost		Accumulated Amortization		Net Cost
Customer relationships	$	100,300	$	(3,901)	$	96,399
Developed technology	77,000		(4,492)		72,508
Tradename	16,000		(933)		15,067
Backlog	7,000		(7,000)		—
Total	$	200,300	$	(16,326)	$	183,974

All intangible assets are amortized over their estimated useful lives. The weighted average amortization period for identifiable intangible assets acquired is 12 years. Amortization expense recognized during the three and nine months ended September 30, 2023 was $4.0 million and $16.3 million, respectively, and was recorded in SG&A expenses in the consolidated statements of income. Estimated future amortization expense is as follows:


Remainder of 2023	$	3,997
2024	15,987
2025	15,987
2026	15,987
2027	15,987
2028	15,987
Thereafter	100,042
Total	$	183,974

7.Debt

We had no debt outstanding as of September 30, 2023 and December 31, 2022. We had $1.5 million in letters of credit outstanding as of September 30, 2023.

In August 2018, Cactus LLC entered into a five-year senior secured asset-based revolving credit facility with a syndicate of lenders and JPMorgan Chase Bank, N.A., as administrative agent for such lenders and as an issuing bank and swingline lender (the “ABL Credit Facility”). The ABL Credit Facility was first amended in September 2020 and provided for up to $75.0 million in revolving commitments. On July 25, 2022, the ABL Credit Facility was amended again for up to $80.0 million in revolving commitments, up to $15.0 million of which was available for the issuance of letters of credit.

On February 28, 2023, in connection with the Merger, Cactus Companies assumed the rights and obligations of Cactus LLC as Borrower under the ABL Credit Facility, and the ABL Credit Facility was amended and restated in its entirety (the “Amended ABL Credit Facility”). The Amended ABL Credit Facility provides for a term loan of $125.0 million and up to $225.0 million in revolving commitments, of which $20.0 million is available for the issuance of letters of credit. Subject to certain terms and conditions set forth in the Amended ABL Credit Facility, Cactus Companies may request additional revolving commitments in an amount not to exceed $50.0 million, for a total of up to $275.0 million in revolving commitments. The term loan under the Amended ABL Credit Facility was set to mature on February 27, 2026 and any revolving loans under the Amended ABL Credit Facility mature on July 26, 2027. The maximum amount that Cactus Companies may borrow under the Amended ABL Credit Facility is subject to a borrowing base, which is based on a percentage of eligible accounts receivable and eligible inventory, subject to reserves and other adjustments.

We borrowed the full $125.0 million term loan amount and $30.0 million as a revolving loan at closing of the Amended ABL Credit Facility to fund a portion of the Merger. The term loan was required to be repaid in regular set amounts starting July 1, 2023 as set forth in the amortization schedule in the Amended ABL Credit Facility and could be prepaid without the payment of any prepayment premium (other than customary breakage costs for Term Benchmark (as defined below) borrowings). We began making discretionary prepayments on the term loan in April 2023 and continued to make payments until the entire $155.0 million we borrowed was repaid in July 2023.

Borrowings under the Amended ABL Credit Facility bear interest at Cactus Companies’ option at either (i) the Alternate Base Rate (as defined therein) (“ABR”), or (ii) the Adjusted Term SOFR Rate (as defined therein) (“Term Benchmark”), plus, in

Table of Contents

each case, an applicable margin. Letters of credit issued under the Amended ABL Credit Facility accrue fees at a rate equal to the applicable margin for Term Benchmark borrowings. The applicable margin is 2.50% per annum for term loan ABR borrowings and 3.50% per annum for term loan Term Benchmark borrowings. The applicable margin for revolving loan borrowings ranges from 0.0% to 0.5% per annum for revolving loan ABR borrowings and 1.25% to 1.75% per annum for revolving loan Term Benchmark borrowings and, in each case, is based on the average quarterly availability of the revolving loan commitment under the Amended ABL Credit Facility for the immediately preceding fiscal quarter. The unused portion of revolving commitment under the Amended ABL Credit Facility is subject to a commitment fee of 0.25% per annum.

The Amended ABL Credit Facility contains various covenants and restrictive provisions that limit Cactus Companies’ and each of its subsidiaries’ ability to, among other things, incur additional indebtedness and create liens, make investments or loans, merge or consolidate with other companies, sell assets, make certain restricted payments and distributions, and engage in transactions with affiliates. The obligations under the Amended ABL Credit Facility are guaranteed by certain subsidiaries of Cactus Companies and secured by a security interest in accounts receivable, inventory, equipment and certain other real and personal property assets of Cactus Companies and the guarantors. Until the term loan was paid in full, the Amended ABL Credit Facility required Cactus Companies to maintain a leverage ratio no greater than 2.50 to 1.00 based on the ratio of Total Indebtedness (as defined therein) to EBITDA (as defined therein). The Amended ABL Credit Facility requires Cactus Companies to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 based on the ratio of EBITDA (as defined therein) minus Unfinanced Capital Expenditures (as defined therein) to Fixed Charges (as defined therein) during certain periods, including when availability under the Amended ABL Credit Facility is under certain levels. If Cactus Companies fails to perform its obligations under the Amended ABL Credit Facility, (i) the revolving commitments under the Amended ABL Credit Facility could be terminated, (ii) any outstanding borrowings under the Amended ABL Credit Facility may be declared immediately due and payable, and (iii) the lenders may commence foreclosure or other actions against the collateral. We were in compliance with all covenants under the Amended ABL Credit Facility as of September 30, 2023.

8.Revenue

The majority of our revenues are derived from short-term contracts for fixed consideration or in the case of rentals, for a fixed charge per day plus repairs while the equipment is in use by the customer. Product sales generally do not include right of return or other significant post-delivery obligations. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenues are recognized when we satisfy a performance obligation by transferring control of the promised goods or providing services to our customers at a point in time, in an amount specified in the contract with our customer and that reflects the consideration to which we expect to be entitled in exchange for those goods or services. The majority of our contracts with customers contain a single performance obligation to provide agreed upon products or services. For contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price. We do not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer. We do not incur any material costs of obtaining contracts.

We do not adjust the amount of consideration per the contract for the effects of a significant financing component when we expect, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less, which is in substantially all cases. Payment terms and conditions vary, although terms generally include a requirement of payment within 30 to 60 days of invoicing. Revenues are recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. We treat shipping and handling associated with outbound freight as a fulfillment cost instead of as a separate performance obligation. We recognize the cost for the associated shipping and handling when incurred as an expense in cost of sales.

We disaggregate revenue into three categories: product revenues, rental revenues and field service and other revenues. We have predominately domestic operations with a small amount of sales in Australia, Canada, the Middle East and other international markets. The following table presents our revenues disaggregated by category:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2023				2022				2023					2022
Product revenue	$	214,295	74	%	$	121,782	66	%		$	605,698	74	%	$	328,054	65	%
Rental revenue	28,879		10	%	27,105		15	%		84,916		10	%	73,143		15	%
Field service and other revenue	44,696		16	%	35,594		19	%		131,480		16	%	99,398		20	%
Total revenues	$	287,870	100	%	$	184,481	100	%		$	822,094	100	%	$	500,595	100	%

Table of Contents

At September 30, 2023, we had a deferred revenue balance of $8.6 million compared to the December 31, 2022 balance of $1.5 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, 2023, we did not have any contracts with an original length of greater than a year from which revenue is expected to be recognized in the future related to performance obligations that are unsatisfied.

9.Tax Receivable Agreement (“TRA”)

In connection with our initial public offering (“IPO”) in February 2018, we entered into the TRA which generally provides for payment by Cactus Inc. to certain direct and indirect owners of Cactus LLC (after the CC Reorganization, Cactus Companies) of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that Cactus Inc. actually realizes or is deemed to realize in certain circumstances. Cactus Inc. will retain the benefit of the remaining 15% of these net cash savings.

The TRA liability is calculated by determining the tax basis subject to the TRA (“tax basis”) and applying a blended tax rate to the basis differences and calculating the resulting iterative impact. The blended tax rate consists of the U.S. federal income tax rate and an assumed combined state and local income tax rate driven by the apportionment factors applicable to each state. Subsequent changes to the measurement of the TRA liability are recognized in the statements of income as a component of other expense, net. After finalizing its 2022 federal tax return in September 2023, Cactus Inc. made a $26.9 million TRA payment, which is equal to 85% of the $31.6 million 2022 tax benefit resulting from the exchange of CC Units for shares of Class A common stock. In September 2022, Cactus Inc. made an $11.7 million TRA payment based on its 2021 federal tax return. As of September 30, 2023, the total liability from the TRA was $271.1 million with $20.9 million reflected in current liabilities based on the expected timing of our next payment. The payments under the TRA will not be conditional on a holder of rights under the TRA having a continued ownership interest in either Cactus Companies or Cactus Inc.

The term of the TRA commenced upon completion of our IPO and will continue until all tax benefits that are subject to the TRA have been utilized or expired, unless we exercise our right to terminate the TRA. If we elect to terminate the TRA early (or it is terminated early due to certain mergers, asset sales, other forms of business combinations or other changes of control), our obligations under the TRA would accelerate and we would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by us under the TRA and such payment is expected to be substantial. The calculation of anticipated future payments will be based upon certain assumptions and deemed events set forth in the TRA, including the assumptions that (i) we have sufficient taxable income to fully utilize the tax benefits covered by the TRA and (ii) any CC Units (other than those held by Cactus Inc.) outstanding on the termination date are deemed to be redeemed on the termination date. Any early termination payment may be made significantly in advance of the actual realization, if any, of the future tax benefits to which the termination payment relates.

We may elect to defer payments due under the TRA if we do not have available cash to satisfy our payment obligations under the TRA. Any such deferred payments under the TRA generally will accrue interest from the due date for such payment until the payment date.

10.Equity

As of September 30, 2023, Cactus Inc. owned 82.2% of Cactus Companies as compared to 80.3% of Cactus LLC (prior to the CC Reorganization) as of December 31, 2022. As of September 30, 2023, Cactus Inc. had outstanding 65.3 million shares of Class A common stock (representing 82.2% of the total voting power) and 14.1 million shares of Class B common stock (representing 17.8% of the total voting power).

Equity Offering

In January 2023, Cactus Inc. completed an underwritten offering of 3,224,300 shares of Class A common stock at a price to the underwriters of $51.36 per share for net proceeds of $165.6 million (net of $6.9 million of underwriting discounts and commissions). In addition to the underwriting discounts and commissions, approximately $2.2 million of costs directly associated with the stock issuance were recorded as a reduction to additional paid-in capital.

FlexSteel Acquisition

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

Table of Contents

are restricted from sale or trading and are subject to vesting requirements for one year from grant date. If the fair market value of the restricted shares is below the purchase price upon vesting, Cactus will compensate the key employee for the difference in price plus a gross-up for taxes. We are accounting for this guaranteed payment as stock compensation with liability classification and remeasure the liability to fair value at each reporting period. Compensation cost is being recognized ratably over the one-year vesting period. The liability balance is $0.7 million as of September 30, 2023 and is included in accrued expenses and other current liabilities in the consolidated balance sheets. We recognized $0.2 million of compensation expense in SG&A in the consolidated statements of income during the nine months ended September 30, 2023.

CC Reorganization

As part of the CC Reorganization in connection with the acquisition of FlexSteel, Cactus Companies acquired all of the outstanding units representing limited liability company interests of Cactus LLC ( “CW Units”) in exchange for an equal number of CC Units issued to each of the previous owners of CW Units other than Cactus Inc. (the “CW Unit Holders”). Upon the completion of the CC Reorganization, CW Unit Holders ceased to be holders of CW Units and, instead, became holders of a number of CC Units equal to the number of CW Units such CW Unit Holders held immediately prior to the completion of the CC Reorganization. After the CC Reorganization, we refer to the owners of CC Units, other than Cactus Inc. (along with their permitted transferees), as “CC Unit Holders.” Following the completion of the CC Reorganization, CC Unit Holders own one share of our Class B Common Stock for each CC Unit such CC Unit Holder owns.

In connection with the CC Reorganization, Cactus Inc. and the owners of CC Units entered into the Amended and Restated Limited Liability Company Operating Agreement of Cactus Companies (the “Cactus Companies LLC Agreement”), which contains substantially the same terms and conditions as the Second Amended and Restated Limited Liability Company Operating Agreement of Cactus LLC (the “Cactus Wellhead LLC Agreement”), which was the limited liability company operating agreement of Cactus LLC prior to the CC Reorganization. Cactus Inc. was responsible for all operational, management and administrative decisions relating to Cactus LLC’s business for the period from completion of our IPO until the CC Reorganization and relating to Cactus Companies’ business for periods after the CC Reorganization. Pursuant to the Cactus Companies LLC Agreement, each holder of CC Units has, subject to certain limitations, the right to cause Cactus Companies to acquire all or at least a minimum portion of its CC Units for, at Cactus Companies’ election, (x) shares of our Class A common stock at a redemption ratio of one share of Class A common stock for each CC Unit redeemed, subject to conversion rate adjustments for stock splits, stock dividends and reclassification and other similar transactions, or (y) an equivalent amount of cash. Alternatively, upon the exercise of such redemption right, Cactus Inc. (instead of Cactus Companies) has the right to acquire each tendered CC Unit directly from the exchanging CC Unit Holder for, at its election, (x) one share of Class A common stock, subject to conversion rate adjustments for stock splits, stock dividends and reclassifications and other similar transactions, or (y) an equivalent amount of cash. In connection with any redemption of CC Units pursuant to such redemption right or our alternative right to acquire each tendered CC Unit, the corresponding number of shares of Class B common stock would be canceled.

Redemptions of CC Units

Pursuant to the Cactus Companies LLC Agreement, holders of CC Units are entitled to redeem their CC Units, which results in additional Class A common stock outstanding. Since our IPO in February 2018, an aggregate of 46.5 million of CC Units (including CW Units prior to the CC Reorganization) and a corresponding number of shares of Class B common stock have been redeemed in exchange for shares of Class A common stock.

During the nine months ended September 30, 2023, 0.9 million CC Units, together with a corresponding number of shares of Class B common stock, were redeemed in exchange for Class A common stock in accordance with the Cactus Companies LLC Agreement. During the nine months ended September 30, 2022, 1.5 million CW Units, together with a corresponding number of shares of Class B common stock, were redeemed in exchange for Class A common stock in accordance with the Cactus Wellhead LLC Agreement. There was no change in the combined number of Cactus Inc. voting shares outstanding as a result of the redemptions.

Dividends

Aggregate cash dividends of $0.34 per share of Class A common stock declared during the nine months ended September 30, 2023 totaled $22.3 million compared to $0.33 per share of Class A common stock and $20.1 million during the nine months ended September 30, 2022. Cash dividends paid during the nine months ended September 30, 2023 and 2022 totaled $22.3 million and $20.0 million, respectively. Dividends accrue on unvested equity-based awards on the date of record and are paid upon vesting. Dividends are not paid to our Class B common stockholders; however, a corresponding distribution up to the same

Table of Contents

amount per share as our Class A common stockholders is paid to the owners of CC Units other than Cactus Inc. for any dividends declared on our Class A common stock. See further discussion of the distributions below under “Member Distributions.”

Share Repurchase Program

On June 6, 2023, our board of directors authorized the Company to repurchase shares of its Class A common stock for an aggregate purchase price of up to $150 million. Under our share repurchase program, shares may be repurchased from time to time in open market transactions or block trades, in privately negotiated transactions or any other method permitted under U.S. securities laws, rules and regulations. The repurchase program does not obligate the Company to purchase any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. During the nine months ended September 30, 2023, the Company purchased and retired 4,007 shares of Class A common stock for $0.2 million or $39.69 average price per share excluding commissions, under the share repurchase program. As of September 30, 2023, $149.8 million remained authorized for future repurchases of Class A common stock under the program.

Member Distributions

Distributions made by Cactus Companies are generally required to be made pro rata among all its members. For the nine months ended September 30, 2023, Cactus Companies distributed $63.1 million to Cactus Inc. to fund its dividend, TRA and estimated tax payments and made pro rata distributions to the other members totaling $13.9 million over the same period. During the nine months ended September 30, 2022, Cactus Companies distributed $31.7 million to Cactus Inc. to fund its dividend, TRA and estimated payments and made pro rata distributions to the other members totaling $8.0 million.

Limitation of Members’ Liability

Under the terms of the Cactus Companies LLC Agreement, the members of Cactus Companies are not obligated for debt, liabilities, contracts or other obligations of Cactus Companies. Profits and losses are allocated to members as defined in the Cactus Companies LLC Agreement.

11.Commitments and Contingencies

We are involved in various disputes arising in the ordinary course of business. Management does not believe the outcome of these disputes will have a material adverse effect on our consolidated financial position or consolidated results of operations.

12.Fair Value Measurements

Authoritative guidance on fair value measurements provides a framework for measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). The carrying value of cash and cash equivalents, receivables, accounts payable and accrued expenses approximates fair value based on the short-term nature of these accounts.

The following table sets forth our liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy:


	Fair Value at September 30, 2023
	Level 1		Level 2		Level 3		Total
Liabilities:
Earn-out liability	$	—	$	—	$	18,892	$	18,892
Put option liability	—		—		777		777

The earn-out liability related to the FlexSteel acquisition (see Note 2) is measured at fair value using Level 3 unobservable inputs at the end of each reporting period with changes in its estimated fair value recorded in earnings until the liability is settled. The fair value is determined based on the evaluation of the probability and amount of earn-out that may be achieved based on expected future performance of FlexSteel using a Monte Carlo simulation model. The Monte Carlo simulation model uses assumptions including revenue volatilities, risk free rates, credit discount rates and revenue discount rates. Significant changes in any of those assumptions could have a material effect on the estimated fair value of the earn-out payment. The following table

Table of Contents

sets forth the range of inputs for the significant assumptions utilized to determine the fair value of the earn-out payment as of September 30, 2023:


	September 30, 2023
Risk-free interest rate	5.60%	to	5.63%
Expected revenue volatility	25.20%
Revenue discount rate	10.88%	to	10.92%
Credit discount rate	10.90%	to	11.00%

The put option liability represents the guaranteed payment on restricted stock purchased in conjunction with the FlexSteel acquisition (see Note 10). This liability is measured at fair value at the end of each reporting period until the liability is settled with changes in fair value from grant date recognized ratably over the one-year vesting period. The fair value is determined using the Black-Scholes option pricing method that utilizes a selected volatility calculated based on weighting historical and implied volatility indications. As the selected volatility involves judgement and is a significant input to estimating the fair value of the put option, it is classified as a Level 3 input. Significant changes in the volatility could have a material effect on the estimated fair value of the put option liability. The following table sets forth the inputs for the significant assumptions utilized to determine the fair value of the put option liability as of September 30, 2023:


						September 30, 2023
Risk-free interest rate						5.46%
Expected volatility						39.27%
Dividend yield						0.95%

The following table presents a summary of the changes in fair value of our liabilities measured using Level 3 inputs:


	Earn-out		Put Option
Opening Balance	$	5,960	$	510
Changes in fair value (1)	12,932		267
Balance at September 30, 2023	$	18,892	$	777

(1)We recognized $12.9 million of remeasurement expense associated with the change in the fair value of the earn-out liability during the nine months ended September 30, 2023. During the three months ended March 31, 2023, a $0.1 million gain was recognized in other income, net in the consolidated statements of operations. After the first quarter of 2023, the change in fair value of the earn-out liability is being presented separately as a component of operating income with $13.1 million of expense recognized during the six months ended September 30, 2023. For the put option liability, we recognized $0.2 million of expense associated with the change in fair value in SG&A in the consolidated statements of income during the nine months ended September 30, 2023.

The fair value of our foreign currency forwards was less than $0.1 million as of September 30, 2023 and was determined using market observable inputs including forward and spot prices (Level 2 inputs).

13.Segment Reporting

Prior to the acquisition of FlexSteel, we operated in a single segment which reflected how our business was managed and the nature of our products and services. Upon completion of the acquisition, we re-evaluated our reportable segments and now report two business segments. Our business segments offer different products and services and correspond to the manner in which our chief operating decision maker reviews and evaluates operating performance to make decisions about resources to be allocated to each segment.

Our reporting segments are:

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

•Spoolable Technologies – engaged in the design, manufacture, sale, installation, service and associated rental of onshore spoolable pipe technologies utilized for production, gathering and takeaway transportation of oil, gas or other liquids.

Table of Contents

Financial information by business segment for the three and nine months ended September 30, 2023 and 2022 is summarized below.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue:
Pressure Control	$	182,484	$	184,481	$	576,273	$	500,595
Spoolable Technologies	105,386		—		245,821		—
Total revenues	287,870		184,481		822,094		500,595
Operating income:
Pressure Control (1)	47,830		51,296		151,809		126,527
Spoolable Technologies	39,773		—		34,004		—
Total operating income	87,603		51,296		185,813		126,527
Interest income (expense), net	(1,372)		1,140		(6,298)		1,344
Other income, net	266		1,125		3,804		10
Income before income taxes	$	86,497	$	53,561	$	183,319	$	127,881

(1)Includes corporate and other costs not directly attributable to our reporting segments such as corporate executive management and other administrative functions.

14.Earnings per Share

Basic earnings per share of Class A common stock is calculated by dividing the net income attributable to Cactus Inc. during the period by the weighted average number of shares of Class A common stock outstanding during the same period. Diluted earnings per share of Class A common stock is calculated by dividing the net income attributable to Cactus Inc. during that period by the weighted average number of common shares outstanding assuming all potentially dilutive shares were issued.

We use the if-converted method to determine the potential dilutive effect of outstanding CC Units (and corresponding shares of outstanding Class B common stock), 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,
	2023		2022		2023		2022
Numerator:
Net income attributable to Cactus Inc.—basic	$	52,580	$	31,425	$	120,224	$	79,185
Net income attributable to non-controlling interest (1)	—		—		24,874		19,686
Net income attributable to Cactus Inc.—diluted (1)	$	52,580	$	31,425	$	145,098	$	98,871
Denominator:
Weighted average Class A shares outstanding—basic	64,879		60,665		64,399		60,164
Effect of dilutive shares (2)	607		441		15,233		16,132
Weighted average Class A shares outstanding—diluted (2)	65,486		61,106		79,632		76,296

Earnings per Class A share—basic	$	0.81	$	0.52	$	1.87	$	1.32
Earnings per Class A share—diluted (1)(2)	$	0.80	$	0.51	$	1.82	$	1.30

(1)The numerator is adjusted in the calculation of diluted earnings per share under the if-converted method to include net income attributable to the non-controlling interest calculated as its pre-tax income adjusted for a corporate effective tax rate of 26.0% for the nine months ended September 30, 2023 and 25.0% for the nine months ended September 30, 2022.

(2)Diluted earnings per share for the three months ended September 30, 2023 and 2022 excludes 14.6 million and 15.2 million, respectively, of weighted average shares of Class B common stock as the effect would be anti-dilutive.

Table of Contents

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, which are difficult to predict, including those described above in “Cautionary Note Regarding Forward-Looking Statements,” and in the risk factors included in “Part I, Item 1A. Risk Factors” in our 2022 Annual Report, in “Part II, Item 1A. Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 and in “Part II, Item 1A. Risk Factors” of this Quarterly Report. 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

Cactus is an equipment solutions provider primarily for onshore oil and gas markets. Founded in 2011 by a management group that previously operated two of the largest wellhead providers at the time, Cactus has rapidly grown to be a leading provider of wellhead solutions to the U.S. onshore market. On February 28, 2023, Cactus acquired FlexSteel, which similarly grew from its founding in 2003 to its current status as a leading provider of spoolable pipe technologies primarily to the U.S. onshore market.

Including final adjustments for closing working capital, cash on hand and indebtedness as set forth in the merger agreement, we paid total cash consideration of approximately $621.5 million for the FlexSteel acquisition. Additionally, there is a potential future earn-out payment of up to $75 million to be paid no later than the third quarter of 2024 if certain revenue growth targets are met by FlexSteel. We believe this acquisition enhances our position as a premier manufacturer and provider of highly engineered equipment to the E&P industry and should provide meaningful growth potential. We further believe FlexSteel’s products are highly complementary to Cactus’ equipment as it expands our exposure to our customers’ operations from production trees to transportation of oil, gas and other liquids as well as to additional customers operating in the midstream area.

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.

Revenues

Our revenues are derived from three sources: products, rentals, and field service and other. Product revenues are derived from the sale of wellhead systems, production trees and spoolable pipe and fittings. Rental revenues are primarily derived from the rental of equipment used during the completion process, the repair of such equipment and the rental of equipment or tools used to install wellhead equipment or spoolable pipe. Field service and other revenues are primarily earned when we provide installation and other field services for both product sales and equipment rental.

During the nine months ended September 30, 2023, we derived 74% of total revenues from the sale of our products, 10% of total revenues from rental and 16% of total revenues from field service and other. During the nine months ended September 30, 2022, we derived 65% of total revenues from the sale of our products, 15% of total revenues from rental and 20% of total revenues from field service and other. We have predominantly domestic operations with more limited operations in Australia, Canada, and the Middle East as well as sales in other international markets.

Following the acquisition of FlexSteel, we now operate in two business segments consisting of the Pressure Control segment and the Spoolable Technologies segment.

Pressure Control

The Pressure Control segment designs, manufactures, sells and rents a range of wellhead and pressure control equipment under the Cactus Wellhead brand. 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 equipment.

Table of Contents

We operate through service centers in the United States, which are strategically located in the key oil and gas producing regions, 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. Pressure Control manufacturing and production facilities are located in Bossier City, Louisiana and Suzhou, China.

Demand for our product sales in the Pressure Control segment are driven primarily by the number of new wells drilled, as each new well requires a wellhead and, after the completion phase, a production tree. Demand for our rental items is driven primarily by the number of well completions as we rent frac trees to oil and gas operators to assist in hydraulic fracturing. Rental demand is also driven to a lesser extent by drilling activity as we rent tools used in the installation of wellheads. Field service and other revenues are closely correlated with revenues from product sales and rentals, as items sold or rented almost always have an associated service component.

Spoolable Technologies

The Spoolable Technologies segment designs, manufactures, and sells spoolable pipe and associated end fittings under the FlexSteel brand. Our customers use these products primarily as production, gathering and takeaway pipelines to transport oil, gas or other liquids. 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. Our manufacturing facility is located in Baytown, Texas.

Demand for our product sales in the Spoolable Technologies segment are driven primarily by the number of wells being placed into production after the completions phase as customers use our spoolable pipe and associated fittings to bring wells more rapidly onto production. Rental and field service and other revenues are closely correlated with revenues from product sales, as items sold usually have an associated rental and service component.

Recent Developments and Trends

FlexSteel Acquisition

As previously discussed, we completed the acquisition of FlexSteel on February 28, 2023. The results of operations of FlexSteel have been reflected in our accompanying condensed consolidated financial statements from the closing date of the acquisition through September 30, 2023. See Note 2 to the unaudited condensed consolidated financial statements for additional information related to the acquisition.

Oil and Natural Gas Prices

The following table summarizes average oil and natural gas prices in North America over the indicated periods as well as industry activity levels as reflected by the average number of active onshore drilling rigs during the same periods.


	Three Months Ended				Nine Months Ended
	September 30, 2023		June 30, 2023		September 30, 2023		September 30, 2022
WTI Oil Price ($/bbl) (1)	$	82.25	$	73.54	$	77.27	$	98.96
Natural Gas Price ($/MMBtu) (2)	$	2.59	$	2.16	$	2.46	$	6.74
U.S. Land Drilling Rigs (3)	627		698		689		688

(1) EIA Cushing, OK WTI (“West Texas Intermediate”) spot price.

(2) EIA Henry Hub Natural Gas spot price per million British Thermal Unit (“MMBtu”).

(3) Baker Hughes.

As expected, drilling and completion activity levels declined in the third quarter of 2023. The average number of U.S. land drilling rigs decreased by 17% from the fourth quarter of 2022 with most of the reductions occurring in the third quarter of 2023. Oil prices rose 12% in the third quarter compared to the second quarter of 2023 as global oil demand remained strong and concerns regarding tightening supply emerged due to continued OPEC+ production cuts. The recent conflict in the Middle East has resulted in some volatility in oil prices due to concerns regarding the potential impact on global oil supplies. Natural gas prices have also risen since the second quarter of 2023 primarily due to declining drilling activity and moderating storage surplus.

Table of Contents

Barring any significant developments in the Middle East, we believe oil and natural gas activity levels in the fourth quarter of 2023 will display a modest recovery compared with the third quarter.

Critical Accounting Policies and Estimates

A discussion of our critical accounting policies and estimates is contained in our 2022 Annual Report on Form 10-K. There have not been any changes in our critical accounting policies since December 31, 2022 other than the following additional critical accounting estimate.

Determination of Fair Value in Business Combinations

Accounting for the acquisition of a business requires the allocation of the purchase price to the various assets acquired and liabilities assumed at their respective fair values. The determination of fair value requires the use of significant estimates and assumptions, and in making these determinations, management uses all available information. If necessary, we have up to one year after the acquisition closing date to finalize these fair value determinations under the applicable GAAP. For tangible and identifiable intangible assets acquired in a business combination, the determination of fair value utilizes several valuation methodologies including discounted cash flows which has assumptions with respect to the timing and amount of future revenue and expenses associated with an asset. The assumptions made in performing these valuations include, but are not limited to, discount rates, future revenues and operating costs, projections of capital costs, and other assumptions believed to be consistent with those used by principal market participants. Due to the specialized nature of these calculations, we engage third-party specialists to assist management in evaluating our assumptions as well as appropriately measuring the fair value of assets acquired and liabilities assumed.

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, 2023 Compared to Three Months Ended June 30, 2023

The following table presents summary consolidated operating results for the periods indicated:


	Three Months Ended
	September 30, 2023		June 30, 2023		$ Change		% Change
	(in thousands)
Revenues
Pressure Control	$	182,484	$	199,134	$	(16,650)	(8.4)	%
Spoolable Technologies	105,386		106,685		(1,299)		(1.2)
Total revenues	287,870		305,819		(17,949)		(5.9)
Operating income
Pressure Control	47,830		54,540		(6,710)		(12.3)
Spoolable Technologies	39,773		(6,018)		45,791		nm
Total operating income	87,603		48,522		39,081		80.5

Interest expense, net	(1,372)		(5,928)		4,556		(76.9)
Other income, net	266		—		266		nm
Income before income taxes	86,497		42,594		43,903		nm
Income tax expense	18,478		10,135		8,343		82.3	%
Net income	68,019		32,459		35,560		nm
Less: net income attributable to non-controlling interest	15,439		7,709		7,730		nm
Net income attributable to Cactus Inc.	$	52,580	$	24,750	$	27,830	nm
nm = not meaningful

Table of Contents

Pressure Control. Pressure Control revenue for the third quarter of 2023 was $182.5 million, a decrease of $16.7 million, or 8.4%, from $199.1 million for the second quarter of 2023 primarily due to decreased sales of wellhead and production related equipment and related field services resulting from reduced activity offset slightly by higher rental revenues. Pressure Control operating income of $47.8 million for the third quarter of 2023 decreased $6.7 million, or 12.3% from the second quarter of 2023. The decreased revenues and associated gross margins related to equipment sales and field services were offset by higher gross margins associated with rentals driven by higher revenue and lower depreciation expense on our rental fleet. Selling, general and administrative expenses (“SG&A”) decreased approximately $2.0 million from the second quarter primarily due to lower bad debt expense, professional fees, stock-based compensation expense and annual incentive bonus accruals.

Spoolable Technologies. Spoolable Technologies revenue for the third quarter of 2023 was $105.4 million, a decrease of $1.3 million from the second quarter of 2023. Total operating income for Spoolable Technologies for the third quarter of 2023 was $39.8 million compared to an operating loss of $6.0 million for the second quarter of 2023. The improvement in operating income was mainly due to recognition of a gain of $5.1 million for the change in fair value of the earn-out payment for the FlexSteel acquisition in the third quarter compared to an $18.1 million loss in the second quarter. Additional increases in operating income from the second quarter were due to a $19.3 million decrease in inventory step-up expense and a $4.7 million reduction in intangible amortization expense.

Interest expense, net. Interest expense, net was $1.4 million for the third quarter of 2023 compared to $5.9 million for the second quarter of 2023. The decrease in interest expense from the second quarter was the result of our repayment of $55.0 million under the Amended ABL Credit Facility in July 2023, reducing our total bank debt outstanding to zero.

Other income, net. Other income, net of $0.3 million for the third quarter of 2023 represented non-cash adjustments for the revaluation of the liability related to the tax receivable agreement as a result of changes to the state tax rate.

Income tax expense. Income tax expense for the third quarter of 2023 was $18.5 million compared to $10.1 million for the second quarter of 2023. The increase in income tax expense from the second quarter was primarily due to an increase in operating income quarter over quarter. Cactus Inc. 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.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

The following table presents summary consolidated operating results for the periods indicated:


	Nine Months Ended September 30,
	2023		2022		$ Change		% Change
	(in thousands)
Revenues
Pressure Control	$	576,273	$	500,595	$	75,678	15.1	%
Spoolable Technologies	245,821		—		245,821		nm
Total revenues	822,094		500,595		321,499		64.2
Operating income
Pressure Control	151,809		126,527		25,282		20.0
Spoolable Technologies	34,004		—		34,004		nm
Total operating income	185,813		126,527		59,286		46.9

Interest income (expense), net	(6,298)		1,344		(7,642)		nm
Other income, net	3,804		10		3,794		nm
Income before income taxes	183,319		127,881		55,438		43.4
Income tax expense	30,553		23,498		7,055		30.0
Net income	152,766		104,383		48,383		46.4
Less: net income attributable to non-controlling interest	32,542		25,198		7,344		29.1
Net income attributable to Cactus Inc.	$	120,224	$	79,185	$	41,039	51.8	%
nm = not meaningful

Table of Contents

Pressure Control. Pressure Control revenue was $576.3 million for the first nine months of 2023, an increase of $75.7 million, or 15.1%, from $500.6 million for the first nine months of 2022. This 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 increased as a result of the abovementioned activity. Operating income of $151.8 million in the first nine months of 2023 increased $25.3 million, or 20.0%, from $126.5 million in the first nine months of 2022. The increase was primarily attributable to higher gross margins during the period due to the increased volume partially offset by higher SG&A expenses. The increase in SG&A expenses primarily related to $11.9 million of professional fees and expenses incurred in 2023 associated with the FlexSteel acquisition, higher bad debt expense and higher stock-based compensation expense.

Spoolable Technologies. Spoolable Technologies revenue of $245.8 million and operating income of $34.0 million represents FlexSteel results generated from February 28, 2023, the date of acquisition, through September 30, 2023. The results for Spoolable Technologies included approximately $13.1 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 and $16.3 million of intangible amortization expense as well as depreciation expense of $9.9 million primarily associated with the step-up of fixed assets in connection with accounting for the purchased assets at fair value in conjunction with purchase accounting.

Interest income (expense), net. Interest expense, net was $6.3 million for the first nine months of 2023 compared to $1.3 million of interest income, net for the nine months ended September 30, 2022. Interest expense in 2023 primarily related to borrowings outstanding through July 2023 under the Amended ABL Credit Facility.

Other income, net. Other income, net for 2023 and 2022 primarily related to non-cash adjustments for the revaluation of the liability related to the tax receivable agreement as a result of changes to the state tax rate.

Income tax expense. Income tax expense for the first nine months of 2023 was $30.6 million compared to $23.5 million for the first nine months of 2022. Income tax expense for 2023 included an approximately $38.3 million 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 $4.3 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 and a $0.4 million benefit associated with permanent differences related to equity compensation. Income tax expense for 2022 included approximately $26.3 million expense associated with current income offset by a $1.7 million benefit associated with permanent differences related to equity compensation and a $1.2 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.

Liquidity and Capital Resources

At September 30, 2023, we had $63.7 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 borrowings under our Amended ABL Credit Facility (as defined in Note 7 in the notes to the unaudited condensed consolidated financial statements). 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, 2023, we had $222.9 million of available borrowing capacity under our Amended ABL Credit Facility with no outstanding borrowings and $1.5 million in letters of credit outstanding. We were in compliance with the covenants of the Amended ABL Credit Facility as of September 30, 2023.

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. securities laws, rules and regulations. The repurchase program does not obligate the Company to purchase any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

We believe that our existing cash on hand, cash generated from operations and available borrowings under our Amended ABL Credit Facility will be sufficient for at least the next 12 months to meet working capital requirements, debt service obligations, anticipated capital expenditures, repurchases of shares of our Class A common stock, expected TRA liability

Table of Contents

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, 2023 will range from $35 million to $40 million. In the Pressure Control segment, capital expenditures are primarily related to rental fleet investments, the March 2023 purchase of our previously leased branch facility in Odessa, Texas, international expansion, diversification of our low cost supply chain and development of a recently-leased research and development facility in Houston, Texas. In the Spoolable Technologies segment, capital expenditures are primarily related to manufacturing plant enhancements and additional deployment equipment to facilitate installation of recent product introductions.

Our ability to satisfy our long-term liquidity requirements, including cash requirements to fund income tax liabilities and the TRA liability at Cactus Inc. along with associated distributions to holders of CC Units relating to their ownership of Cactus Companies, 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 expenditures and operating expenses to ensure we operate within the cash flow generated from our operations.

Cash Flows

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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


	Nine Months Ended September 30,
	2023		2022
	(in thousands)
Net cash provided by operating activities	$	248,602	$	78,605
Net cash used in investing activities	(645,242)		(19,496)
Net cash provided by (used in) financing activities	116,651		(37,187)

Net cash provided by operating activities was $248.6 million and $78.6 million for the nine months ended September 30, 2023 and 2022, respectively. Operating cash flows for 2023 increased due to higher income and a decrease in cash outflows associated with working capital, largely related to decreased purchases of Pressure Control inventories as well as higher collections on receivable balances. These increases in operating cash flows were slightly offset by $15.7 million of additional income tax payments, higher TRA payments of $15.2 million and $4.3 million of additional interest paid in 2023 compared to 2022.

Net cash used in investing activities was $645.2 million and $19.5 million for the nine months ended September 30, 2023 and 2022, respectively. The increase was primarily due to cash paid to acquire FlexSteel for $621.5 million less $5.3 million in cash acquired. Additionally, our capital expenditures increased approximately $12.2 million primarily due to the $7.0 million purchase of a previously leased facility and Pressure Control rental fleet additions and enhancements. Capital expenditures for the Spoolable segment have been modest since the acquisition, totaling approximately $1.1 million through September 30, 2023. Other movements in our investing activities were related to the increase in proceeds from sales of assets of approximately $2.6 million from 2022.

Net cash provided by financing activities was $116.7 million for the nine months ended September 30, 2023 as compared to net cash used in financing activities of $37.2 million for the nine months ended September 30, 2022. The increase 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. Additionally, we received $155.0 million from total borrowings under our Amended ABL Credit Facility of which all $155.0 million has been repaid. Increased payments of $6.7 million in debt issuance costs, increased distributions to members of $5.9 million, higher dividend payments of approximately $2.3 million and $1.1 million of additional payments on finance leases partially offset the aforementioned cash inflows associated with the equity financing activities during 2023.

Table of Contents

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 2022 Annual Report. Our exposure to market risk has not changed materially since December 31, 2022, other than with regard to interest rate risk as described in “Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk” of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.

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, 2023 at the reasonable assurance level.

As disclosed in Note 2 to the unaudited condensed consolidated financial statements, we acquired FlexSteel on February 28, 2023 and accounted for this acquisition as a business combination. FlexSteel’s total revenues constituted approximately 30% of our total consolidated revenues for the first nine months of 2023. FlexSteel’s total assets constituted approximately 51% of our total consolidated assets as of September 30, 2023. We excluded FlexSteel’s disclosure controls and procedures that are subsumed by its internal control over financial reporting from the scope of management's assessment of the effectiveness of our disclosure controls and procedures. This exclusion is in accordance with the SEC staff’s general guidance that an assessment of a recently acquired business may be omitted from the scope of management’s assessment of internal controls over financial reporting for one year following the acquisition. We are in the process of implementing financial reporting controls and procedures at FlexSteel as part of our ongoing integration activities.

Changes in Internal Control over Financial Reporting

Except as described above, there were no changes in our internal control over financial reporting that occurred during the third quarter of 2023 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 2022 Annual Report, and under “Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, 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

Table of Contents

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. In addition to what was previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, there have been no material changes in our risk factors from those described in our 2022 Annual Report or our other Securities and Exchange Commission filings except as follows:

Recent conflict in the Middle East may adversely affect our business and results of operations.

Recent conflict in the Middle East has resulted in some volatility in oil prices due to concerns regarding the conflict’s impact on global oil supplies. Continued conflict or an expanded or increased level of conflict could further impact oil prices and drilling activity globally or have adverse effects on global macroeconomic conditions generally, which could have a negative impact on our business and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 5. Other Information.

During the three months ended September 30, 2023, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of Cactus, Inc. adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits.

The following exhibits are required by Item 601 of Regulation S-K and are filed as part of this report.


Exhibit No.						Description
3.1						Amended and Restated Certificate of Incorporation of Cactus, Inc., effective February 12, 2018 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed with the Commission on February 12, 2018)
3.2						Amended and Restated Bylaws of Cactus, Inc., effective as of February 7, 2023 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed with the Commission on February 8, 2023)
31.1*						CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*						CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**						CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**						CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*						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
101.SCH*						Inline XBRL Taxonomy Extension Schema Document
101.CAL*						Inline XBRL Taxonomy Calculation Linkbase Document
101.LAB*						Inline XBRL Taxonomy Label Linkbase Document
101.PRE*						Inline XBRL Taxonomy Presentation Linkbase Document
101.DEF*						Inline XBRL Taxonomy Definition Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith.

Table of Contents

SIGNATURES

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 9, 2023	By:	/s/ Scott Bender
Date		Scott Bender Chief Executive Officer, Chairman of the Board and Director (Principal Executive Officer)

November 9, 2023	By:	/s/ Stephen Tadlock
Date		Stephen Tadlock Executive Vice President and Chief Executive Officer of the Spoolable Technologies segment, Chief Financial Officer and Treasurer (Principal Financial Officer)