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 March 31, ~~2022~~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 May ~~3, 2022,~~5, 2023, the registrant had ~~60,451,746~~64,536,975 shares of Class A common stock, $0.01 par value per share, and ~~15,420,660~~14,889,627 shares of Class B common stock, $0.01 par value per share, outstanding.

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TABLE OF CONTENTS

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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. When considering forward‑looking statements, you should keep in mind the risk factors and other cautionary statements described under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (our ~~“2021~~“2022 Annual Report”), the Risk Factors described in Part II, Item 1A. of this Quarterly Report and other cautionary statements contained herein. These forward‑looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

~~Important factors that could cause actual results to differ materially from those contained in the forward-looking statements include, but are not limited to:~~

•~~demand for our products and services, which is affected by, among other things, changes in the price of crude oil and natural gas in domestic and international markets;~~

•~~the number of active rigs, pad sizes, drilling and completion efficiencies, lateral lengths, well spacings and associated well counts and availability of takeaway and storage capacity;~~

•~~disparities in activity levels between private operators and large publicly-traded exploration and production (“E&P”) companies;~~

•~~the number of active workover rigs;~~

•~~availability of capital and the associated capital spending discipline exercised by customers;~~

•~~overall oilfield service cost inflation;~~

•~~our success in cost recovery efforts;~~

•~~the financial health of our customers and our credit risk of customer non-payment;~~

•~~changes in the number of drilled but uncompleted wells (DUCs) and the level of completion activity;~~

•~~the size and timing of orders;~~

•~~availability and cost of raw materials, components and imported items;~~

•~~increased inland and ocean shipping costs, the availability of containers and vessels from Asia as well as port congestion and domestic trucking capacity;~~

•~~transportation differentials associated with reduced capacity in and out of the storage hub in Cushing, Oklahoma;~~

•~~expectations regarding overhead and operating costs and margins;~~

•~~availability and cost of skilled and qualified workers and our ability to hire and retain such workers;~~

•~~potential liabilities such as warranty and product liability claims arising out of the installation, use or misuse of our products;~~

•~~the possibility of cancellation of orders;~~

•~~our business strategy;~~

•~~our financial strategy, operating cash flows, liquidity and capital required for our business;~~

~~Table of Contents~~

•~~our future revenue, income and operating performance;~~

•~~our ability to pay dividends and the amounts of any such dividends;~~

•~~consolidation activity involving our customers;~~

•~~the addition or termination of relationships with major customers or suppliers;~~

•~~laws and regulations, including environmental regulations, that may increase our costs, limit the demand for our products and services or restrict our operations;~~

•~~disruptions in political, regulatory, economic and social conditions domestically or internationally;~~

•~~the severity and duration of the ongoing outbreak of coronavirus (“COVID”) and the extent of its impact on our business, including employee absenteeism;~~

•~~outbreaks of other pandemic or contagious diseases that may disrupt our operations, suppliers or facilities or impact demand for oil and natural gas;~~

•~~the impact of actions taken by the Organization of Petroleum Exporting Countries (OPEC) and other oil and gas producing countries affecting the supply of oil and gas;~~

•~~the impact of planned and possible future releases from the Strategic Petroleum Reserve;~~

•~~the impact of potential disruptions in Russian oil and gas deliveries resulting from the conflict in Ukraine;~~

•~~increases in import tariffs or duties assessed on products and imported raw materials used in the production and assembly of our goods which could negatively impact margins and our working capital;~~

•the significance of future liabilities under the Tax Receivable Agreement (the “TRA”) we entered into with certain current or past direct and indirect owners of Cactus Wellhead, LLC (the “TRA Holders”) in connection with our initial public offering;

•~~the impact of shipping delays on our operations and level of working capital;~~

•~~a failure of our information technology infrastructure or any significant breach of security;~~

•~~potential uninsured claims and litigation against us;~~

•~~competition and capacity within the oilfield services industry;~~

•~~our dependence on the continuing services of certain of our key managers and employees;~~

•~~currency exchange rate fluctuations associated with our international operations; and~~

•~~plans, objectives, expectations and intentions contained in this Quarterly Report that are not historical.~~

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the operation of our business. These risks include, but are not limited to the risks described in our ~~2021~~2022 Annual Report under Item 1A, “Risk Factors.” Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.

iii

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


		March 31, 2022		December 31, 2021
		(in thousands, except per share data)
(in thousands, except per share data)						(in thousands, except per share data)	March 31, 2023		December 31, 2022
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	297,741	$	301,669	Cash and cash equivalents	$	75,422	$	344,527
Accounts receivable, net of allowance of $616 and $741, respectively		104,211		89,205
Accounts receivable, net of allowance of $667 and $1,060, respectively						Accounts receivable, net of allowance of $667 and $1,060, respectively	209,442		138,268
Inventories	Inventories	136,201		119,817		Inventories	232,598		161,283
Prepaid expenses and other current assets	Prepaid expenses and other current assets	8,212		7,794		Prepaid expenses and other current assets	9,993		10,564
Total current assets	Total current assets	546,365		518,485		Total current assets	527,455		654,642
Property and equipment, net	Property and equipment, net	132,746		129,117		Property and equipment, net	351,302		129,998
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	21,678		22,538		Operating lease right-of-use assets, net	22,028		23,183
Intangible assets, net						Intangible assets, net	196,634		—
Goodwill	Goodwill	7,824		7,824		Goodwill	201,302		7,824
Deferred tax asset, net	Deferred tax asset, net	316,526		303,074		Deferred tax asset, net	211,460		301,644
Other noncurrent assets	Other noncurrent assets	1,052		1,040		Other noncurrent assets	10,086		1,605
Total assets	Total assets	$	1,026,191	$	982,078	Total assets	$	1,520,267	$	1,118,896
Liabilities and Equity	Liabilities and Equity					Liabilities and Equity
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	51,168	$	42,818	Accounts payable	$	56,743	$	47,776
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	28,746		28,240		Accrued expenses and other current liabilities	50,766		30,619
Current portion of liability related to tax receivable agreement	Current portion of liability related to tax receivable agreement	11,769		11,769		Current portion of liability related to tax receivable agreement	27,544		27,544
Finance lease obligations, current portion	Finance lease obligations, current portion	5,593		4,867		Finance lease obligations, current portion	7,242		5,933
Operating lease liabilities, current portion	Operating lease liabilities, current portion	5,181		4,880		Operating lease liabilities, current portion	4,521		4,777
Long-term debt, current portion						Long-term debt, current portion	39,750		—
Total current liabilities	Total current liabilities	102,457		92,574		Total current liabilities	186,566		116,649
Deferred tax liability, net	Deferred tax liability, net	1,432		1,172		Deferred tax liability, net	2,123		1,966
Liability related to tax receivable agreement, net of current portion	Liability related to tax receivable agreement, net of current portion	283,620		269,838		Liability related to tax receivable agreement, net of current portion	261,607		265,025
Finance lease obligations, net of current portion	Finance lease obligations, net of current portion	7,009		5,811		Finance lease obligations, net of current portion	8,900		6,436
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	16,571		17,650		Operating lease liabilities, net of current portion	17,429		18,375
Long-term debt, net of current portion						Long-term debt, net of current portion	111,967		—
Other noncurrent liabilities						Other noncurrent liabilities	5,839		—
Total liabilities	Total liabilities	411,089		387,045		Total liabilities	594,431		408,451
Commitments and contingencies	Commitments and contingencies			0		Commitments and contingencies
0Stockholders’ equity
Stockholders’ equity						Stockholders’ equity
Preferred stock, $0.01 par value, 10,000 shares authorized, none issued and outstanding	Preferred stock, $0.01 par value, 10,000 shares authorized, none issued and outstanding	—		—		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, 60,197 and 59,035 shares issued and outstanding		602		590
Class B common stock, $0.01 par value, 215,000 shares authorized, 15,674 and 16,674 shares issued and outstanding		—		—
Class A common stock, $0.01 par value, 300,000 shares authorized, 64,448 and 60,903 shares issued and outstanding						Class A common stock, $0.01 par value, 300,000 shares authorized, 64,448 and 60,903 shares issued and outstanding	645		609
Class B common stock, $0.01 par value, 215,000 shares authorized, 14,978 and 14,978 shares issued and outstanding						Class B common stock, $0.01 par value, 215,000 shares authorized, 14,978 and 14,978 shares issued and outstanding	—		—
Additional paid-in capital	Additional paid-in capital	298,893		289,600		Additional paid-in capital	439,844		310,528
Retained earnings	Retained earnings	192,493		178,446		Retained earnings	297,528		261,764
Accumulated other comprehensive income		335		8
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(764)		(984)
Total stockholders’ equity attributable to Cactus Inc.	Total stockholders’ equity attributable to Cactus Inc.	492,323		468,644		Total stockholders’ equity attributable to Cactus Inc.	737,253		571,917
Non-controlling interest	Non-controlling interest	122,779		126,389		Non-controlling interest	188,583		138,528
Total stockholders’ equity	Total stockholders’ equity	615,102		595,033		Total stockholders’ equity	925,836		710,445
Total liabilities and equity	Total liabilities and equity	$	1,026,191	$	982,078	Total liabilities and equity	$	1,520,267	$	1,118,896

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

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CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


		Three Months Ended March 31,				Three Months Ended March 31,
		2022		2021				2023		2022
		(in thousands, except per share data)				(in thousands, except per share data)
Revenues	Revenues						Revenues
Product revenue	Product revenue	$	94,040	$	51,956		Product revenue	$	159,510	$	94,040
Rental revenue	Rental revenue	22,343		12,489			Rental revenue	27,817		22,343
Field service and other revenue	Field service and other revenue	29,516		19,972			Field service and other revenue	41,078		29,516
Total revenues	Total revenues	145,899		84,417			Total revenues	228,405		145,899
Costs and expenses	Costs and expenses						Costs and expenses
Cost of product revenue	Cost of product revenue	60,920		36,521			Cost of product revenue	100,815		60,920
Cost of rental revenue	Cost of rental revenue	15,089		12,171			Cost of rental revenue	16,084		15,089
Cost of field service and other revenue	Cost of field service and other revenue	24,806		14,463			Cost of field service and other revenue	31,917		24,806
Selling, general and administrative expenses	Selling, general and administrative expenses	14,094		9,627			Selling, general and administrative expenses	29,901		14,094
Total costs and expenses	Total costs and expenses	114,909		72,782			Total costs and expenses	178,717		114,909
Income from operations		30,990		11,635
Operating income							Operating income	49,688		30,990

Interest expense, net		(100)		(152)
Other expense, net		(1,115)		(406)
Interest income (expense), net							Interest income (expense), net	1,002		(100)
Other income (expense), net							Other income (expense), net	3,538		(1,115)
Income before income taxes	Income before income taxes	29,775		11,077			Income before income taxes	54,228		29,775
Income tax expense (benefit)		2,692		(4,059)
Income tax expense							Income tax expense	1,940		2,692
Net income	Net income	$	27,083	$	15,136		Net income	$	52,288	$	27,083
Less: net income attributable to non-controlling interest	Less: net income attributable to non-controlling interest	6,467		3,577			Less: net income attributable to non-controlling interest	9,394		6,467
Net income attributable to Cactus Inc.	Net income attributable to Cactus Inc.	$	20,616	$	11,559		Net income attributable to Cactus Inc.	$	42,894	$	20,616

Earnings per Class A share - basic	Earnings per Class A share - basic	$	0.35	$	0.24		Earnings per Class A share - basic	$	0.67	$	0.35
Earnings per Class A share - diluted	Earnings per Class A share - diluted	$	0.34	$	0.19		Earnings per Class A share - diluted	$	0.63	$	0.34

Weighted average Class A shares outstanding - basic	Weighted average Class A shares outstanding - basic	59,288		49,166			Weighted average Class A shares outstanding - basic	63,740		59,288
Weighted average Class A shares outstanding - diluted	Weighted average Class A shares outstanding - diluted	76,162		75,774			Weighted average Class A shares outstanding - diluted	79,155		76,162

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

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CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


		Three Months Ended March 31,				Three Months Ended March 31,
		2022		2021				2023		2022
		(in thousands)				(in thousands)
Net income	Net income	$	27,083	$	15,136		Net income	$	52,288	$	27,083
Foreign currency translation adjustments	Foreign currency translation adjustments	436		(193)			Foreign currency translation adjustments	303		436
Comprehensive income	Comprehensive income	$	27,519	$	14,943		Comprehensive income	$	52,591	$	27,519
Less: comprehensive income attributable to non-controlling interest	Less: comprehensive income attributable to non-controlling interest	6,576		3,459			Less: comprehensive income attributable to non-controlling interest	9,477		6,576
Comprehensive income attributable to Cactus Inc.	Comprehensive income attributable to Cactus Inc.	$	20,943	$	11,484		Comprehensive income attributable to Cactus Inc.	$	43,114	$	20,943

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

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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				Class A										Class B							Additional Paid-In Capital						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Non-controlling Interest						Total Equity
		Common Stock			Common Stock												Common Stock											Common Stock
(in thousands)	(in thousands)	Shares	Amount		Shares	Amount										(in thousands)	Shares									Amount				Shares					Amount
Balance at December 31, 2022																										Balance at December 31, 2022	60,903				$	609					14,978			$	—						$	310,528					$	261,764					$	(984)					$	138,528					$	710,445
Issuances of common stock																										Issuances of common stock	3,352				34						—			—					143,302						—						—						26,033						169,369
Member distributions																										Member distributions	—				—						—			—				—						—						—						(1,644)						(1,644)

Tax impact of equity transactions																										Tax impact of equity transactions	—				—						—			—				(13,981)						—						—						16,826						2,845
Equity award vestings																										Equity award vestings	193				2						—			—				(3,009)						—						—						(1,336)						(4,343)
Other comprehensive income																										Other comprehensive income	—				—						—			—				—						—						220						83						303
Stock-based compensation																										Stock-based compensation	—				—						—			—				3,004						—						—						699						3,703
Cash dividends declared ($0.11 per share)																										Cash dividends declared ($0.11 per share)	—				—						—			—				—						(7,130)						—						—						(7,130)
Net income																										Net income	—				—						—			—				—						42,894						—						9,394						52,288
Balance at March 31, 2023																										Balance at March 31, 2023	64,448				$	645					14,978			$	—			$	439,844					$	297,528					$	(764)					$	188,583					$	925,836

Balance at December 31, 2021	Balance at December 31, 2021	59,035	$	590	16,674	$	—			$	289,600			$	178,446						$	8					$	126,389			$	595,033		Balance at December 31, 2021		59,035			$	590			16,674						$	—					$	289,600					$	178,446					$	8					$	126,389		$	595,033
Member distributions	Member distributions	—	—		—	—				—				—						—					(1,654)				(1,654)		Member distributions		—					—				—				—						—						—						—						(1,654)					(1,654)
Effect of CW Unit redemptions	Effect of CW Unit redemptions	1,000	10		(1,000)	—		7,878				—		—				(7,888)					—			Effect of CW Unit redemptions	1,000				10						(1,000)			—				7,878						—						—						(7,888)						—
Tax impact of equity transactions	Tax impact of equity transactions	—	—		—	—		2,531				—		—				—					2,531			Tax impact of equity transactions	—				—						—			—				2,531						—						—						—						2,531
Equity award vestings	Equity award vestings	162	2		—	—		(3,212)				—		—				(1,214)					(4,424)			Equity award vestings	162				2						—			—				(3,212)						—						—						(1,214)						(4,424)
Other comprehensive income	Other comprehensive income	—	—		—	—		—				—		327				109					436			Other comprehensive income	—				—						—			—				—						—						327						109						436
Stock-based compensation	Stock-based compensation	—	—		—	—		2,096				—		—				570					2,666			Stock-based compensation	—				—						—			—				2,096						—						—						570						2,666
Cash dividends declared ($0.11 per share)	Cash dividends declared ($0.11 per share)	—	—		—	—		—				(6,569)		—				—					(6,569)			Cash dividends declared ($0.11 per share)	—				—						—			—				—						(6,569)						—						—						(6,569)
Net income	Net income	—	—		—	—		—				20,616		—				6,467					27,083			Net income	—				—						—			—				—						20,616						—						6,467						27,083
Balance at March 31, 2022	Balance at March 31, 2022	60,197	$	602	15,674	$	—	$	298,893			$	192,493	$	335			$	122,779				$	615,102		Balance at March 31, 2022	60,197				$	602					15,674			$	—			$	298,893					$	192,493					$	335					$	122,779					$	615,102

Balance at December 31, 2020		47,713	$	477	27,655	$	—	$	202,077			$	150,086	$	330			$	197,800				$	550,770
Member distributions		—	—		—	—		—				—		—				(1,674)					(1,674)
Effect of CW Unit redemptions		6,272	63		(6,272)	—		44,999				—		—				(45,062)					—
Tax impact of equity transactions		—	—		—	—		505				—		—				—					505
Equity award vestings		332	3		—	—		(1,048)				—		—				(2,093)					(3,138)
Other comprehensive loss		—	—		—	—		—				—		(75)				(118)					(193)
Stock-based compensation		—	—		—	—		1,342				—		—				661					2,003
Cash dividends declared ($0.09 per share)		—	—		—	—		—				(4,359)		—				—					(4,359)
Net income		—	—		—	—		—				11,559		—				3,577					15,136
Balance at March 31, 2021		54,317	$	543	21,383	$	—	$	247,875			$	157,286	$	255			$	153,091				$	559,050

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

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CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
		(in thousands)					(in thousands)
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income	Net income	$	27,083	$	15,136	Net income	$	52,288	$	27,083
Reconciliation of net income to net cash provided by operating activities:	Reconciliation of net income to net cash provided by operating activities:					Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	8,677		9,193		Depreciation and amortization	13,110		8,677
Deferred financing cost amortization	Deferred financing cost amortization	42		42		Deferred financing cost amortization	291		42
Stock-based compensation	Stock-based compensation	2,666		2,003		Stock-based compensation	3,841		2,666
Provision for expected credit losses	Provision for expected credit losses	(110)		66		Provision for expected credit losses	(376)		(110)
Inventory obsolescence	Inventory obsolescence	480		1,308		Inventory obsolescence	576		480
(Gain) loss on disposal of assets		(293)		4
Gain on disposal of assets						Gain on disposal of assets	(1,033)		(293)
Deferred income taxes	Deferred income taxes	1,919		(4,691)		Deferred income taxes	(1,406)		1,919
Loss from revaluation of liability related to tax receivable agreement		1,115		—
Change in fair value of earn-out liability						Change in fair value of earn-out liability	(121)		—
(Gain) loss from revaluation of liability related to tax receivable agreement						(Gain) loss from revaluation of liability related to tax receivable agreement	(3,417)		1,115
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(14,681)		(13,575)		Accounts receivable	(12,883)		(14,681)
Inventories	Inventories	(16,648)		1,012		Inventories	20,565		(16,648)
Prepaid expenses and other assets	Prepaid expenses and other assets	(463)		(17)		Prepaid expenses and other assets	2,151		(463)
Accounts payable	Accounts payable	6,934		791		Accounts payable	(6,282)		6,934
Accrued expenses and other liabilities	Accrued expenses and other liabilities	488		4,475		Accrued expenses and other liabilities	(6,842)		488

Net cash provided by operating activities	Net cash provided by operating activities	17,209		15,747		Net cash provided by operating activities	60,462		17,209

Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Acquisition of a business, net of cash and cash equivalents acquired						Acquisition of a business, net of cash and cash equivalents acquired	(618,857)		—
Capital expenditures and other	Capital expenditures and other	(7,652)		(2,428)		Capital expenditures and other	(15,928)		(7,652)
Proceeds from sale of assets		358		400
Proceeds from sales of assets						Proceeds from sales of assets	1,633		358
Net cash used in investing activities	Net cash used in investing activities	(7,294)		(2,028)		Net cash used in investing activities	(633,152)		(7,294)

Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Proceeds from the issuance of long-term debt						Proceeds from the issuance of long-term debt	155,000		—
Net proceeds from the issuance of Class A common stock						Net proceeds from the issuance of Class A common stock	169,878		—
Payments of deferred financing costs						Payments of deferred financing costs	(6,665)		—
Payments on finance leases	Payments on finance leases	(1,438)		(1,174)		Payments on finance leases	(1,709)		(1,438)
Dividends paid to Class A common stock shareholders	Dividends paid to Class A common stock shareholders	(6,664)		(4,497)		Dividends paid to Class A common stock shareholders	(7,353)		(6,664)
Distributions to members	Distributions to members	(1,654)		(1,674)		Distributions to members	(1,645)		(1,654)
Repurchases of shares	Repurchases of shares	(4,424)		(3,138)		Repurchases of shares	(4,343)		(4,424)
Net cash used in financing activities		(14,180)		(10,483)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	303,163		(14,180)

Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	337		75		Effect of exchange rate changes on cash and cash equivalents	422		337

Net increase (decrease) in cash and cash equivalents		(3,928)		3,311
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(269,105)		(3,928)

Cash and cash equivalents	Cash and cash equivalents					Cash and cash equivalents
Beginning of period	Beginning of period	301,669		288,659		Beginning of period	344,527		301,669
End of period	End of period	$	297,741	$	291,970	End of period	$	75,422	$	297,741

Supplemental disclosure of cash flow information	Supplemental disclosure of cash flow information					Supplemental disclosure of cash flow information
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new lease obligations	Right-of-use assets obtained in exchange for new lease obligations	$	3,984	$	4,274	Right-of-use assets obtained in exchange for new lease obligations	$	4,874	$	3,984
Property and equipment in accounts payable	Property and equipment in accounts payable	$	1,574	$	362	Property and equipment in accounts payable	$	1,249	$	1,574

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

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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 ~~Wellhead,~~Companies, LLC (“Cactus ~~LLC”~~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 ~~LLC~~Companies (“CWCC Units”). Cactus Inc. is the sole managing member of Cactus ~~LLC~~Companies and operates and controls all of the business and affairs of Cactus ~~LLC~~Companies and conducts its business through Cactus ~~LLC~~Companies and its subsidiaries. As a result, Cactus Inc. consolidates the financial results of Cactus ~~LLC~~Companies and its subsidiaries and reports a non-controlling interest related to the portion of CWCC 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 its previously announced 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 March 31, 2023. See Note 2 for additional information related to the acquisition.

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, ~~2021.~~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.

~~Reclassifications~~

~~Certain prior period amounts have been reclassified to conform to the current period presentation.~~

2.~~Concentrations, Risks~~FlexSteel Acquisition

On February 28, 2023, we completed the acquisition of FlexSteel in accordance with the terms and ~~Uncertainties~~

~~Significant Customers~~

~~Our customers are primarily oil~~conditions of the merger agreement dated December 30, 2022. We paid cash consideration of $624.2 million upon closing, with that amount subject to finalization based upon closing working capital, cash on hand and ~~natural gas E&P companies representing private operators, publicly-traded independents, majors and other companies with operations~~indebtedness adjustments as set forth in the ~~key U.S. oil and gas producing basins as well as Australia and~~merger agreement. In addition to the ~~Kingdom~~upfront consideration, there is a potential future earn-out payment of ~~Saudi Arabia. For~~up to $75.0 million to be paid no later than the ~~three months ended March 31, 2022 and 2021, one customer represented approximately 10% and 12%, respectively,~~third quarter of 2024, if certain revenue growth targets are met by FlexSteel. We funded the upfront purchase price using a combination of $165.6 million of net proceeds received from the public offering of shares of our ~~consolidated revenues.~~

~~Significant Vendors~~

~~The principal raw materials used~~Class A common stock completed in January 2023, borrowings under the ~~manufacture~~Amended ABL Credit Facility (as defined in Note 7) totaling $155.0 million and available cash on hand at the time of our products and rental equipment include forgings and plate, castings, tube and bar stock. In addition, we require accessory items (such as elastomers, ring gaskets, studs and nuts) and machined components and assemblies. We purchase these items from vendors primarily located in the United States, China, India and Australia. For the three months ended March 31, 2022 and 2021, one vendor represented approximately 10% and 12%, respectively, of our total third-party vendor purchases of raw materials, finished products, components, equipment, machining and other services.closing.

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We believe this acquisition enhances Cactus’ position as a premier manufacturer and provider of highly engineered

equipment to the 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 at the wellsite 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 were recorded at their respective fair values as of the date of the completion of the acquisition. 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 three months ended March 31, 2023 required to effect the transaction and incurred an additional $1.1 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 statements of income.

Purchase Price Consideration

The estimated purchase price consideration for the acquisition is $630.1 million and is summarized as follows:


	Purchase Price Consideration
Cash consideration	$	624,173
Add: Estimated contingent consideration (1)	5,960
Fair value of consideration transferred or estimated to be transferred	$	630,133

(1) Represents the estimated fair value 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. The liability associated with the earn-out payment is recorded in other noncurrent liabilities. Changes to the fair value of the liability subsequent to the acquisition date are recognized in the statements of income as a component of other income (expense), net.

Preliminary Purchase Price Allocation

The following table provides the preliminary allocation of the purchase price as of the acquisition date:


Cash and cash equivalents	$	5,316
Receivables	57,747
Inventories	92,421
Prepaid expenses and other current assets	1,283
Property and equipment	210,929
Operating lease right-of-use assets	1,021
Identifiable intangible assets	200,300
Other noncurrent assets	5,666
Total assets acquired	574,683
Accounts payable	(14,789)
Accrued expenses and other current liabilities	(26,827)
Finance lease obligations	(974)
Operating lease liabilities	(906)
Deferred tax liabilities	(94,532)
Total liabilities assumed	(138,028)

Net assets acquired	436,655

Goodwill	$	193,478

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

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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.

Due to the timing of the completion of the acquisition, the purchase price and related allocation are preliminary and could be revised as a result of adjustments made to the purchase price, 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. These changes to the purchase price allocation could be significant. The purchase price allocation will be finalized within the measurement period of up to one year from the acquisition date.

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 March 31, 2023, FlexSteel had revenue of $33.8 million and net income of $0.4 million. The pro forma financial information below represents the combined results of operations for the three months ended March 31, 2023 and 2022, as if the acquisition had occurred as of January 1, 2022. The unaudited pro forma combined financial information includes, where applicable, adjustments for additional amortization expense related to the fair value step-up of intangible assets, additional inventory fair value step-up expense, additional depreciation expense associated with adjusting property and equipment to fair value, 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

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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 March 31,
	2023		2022
Revenues	$	281,784	$	228,711
Net Income attributable to Cactus, Inc.	40,803		18,771

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 4560 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 March 31, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~$22.8~~$27.9 million and ~~$24.1~~$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 (Credit)		Write off		Balance at End of Period			Balance at Beginning of Period		Credit to Expense		Write off		Translation Adjustments		Balance at End of Period
Three Months Ended March 31, 2023										Three Months Ended March 31, 2023	$	1,060	$	(376)	$	(19)	$	2	$	667
Three Months Ended March 31, 2022	Three Months Ended March 31, 2022	$	741	$	(110)	$	(15)	$	616	Three Months Ended March 31, 2022	741		(110)		(15)		—		616
Three Months Ended March 31, 2021		598		66		(34)		630

4.Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard cost (which approximates average cost) ~~and weighted average methods.~~. Costs include an application of related 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:


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Raw materials	Raw materials	$	2,148	$	1,870	Raw materials	$	22,106	$	3,150
Work-in-progress	Work-in-progress	5,465		4,288		Work-in-progress	13,052		5,444
Finished goods	Finished goods	128,588		113,659		Finished goods	197,440		152,689
		$	136,201	$	119,817		$	232,598	$	161,283

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5.Property and Equipment, net

Property and equipment are stated at cost. We manufacture or construct most of our 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:


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Land	Land	$	5,590	$	3,203	Land	$	16,442	$	5,302
Buildings and improvements	Buildings and improvements	23,927		22,532		Buildings and improvements	131,155		25,480
Machinery and equipment	Machinery and equipment	57,467		56,937		Machinery and equipment	114,293		57,883
Vehicles under finance lease		26,425		23,450
Reels and skids						Reels and skids	18,036		—
Vehicles						Vehicles	32,839		29,045
Rental equipment	Rental equipment	186,418		180,704		Rental equipment	216,136		194,088
Furniture and fixtures	Furniture and fixtures	1,757		1,755		Furniture and fixtures	1,906		1,759
Computers and software	Computers and software	3,520		3,495		Computers and software	3,707		3,068
Gross property and equipment	Gross property and equipment	305,104		292,076		Gross property and equipment	534,514		316,625
Less: Accumulated depreciation	Less: Accumulated depreciation	(184,128)		(175,992)		Less: Accumulated depreciation	(204,366)		(200,573)
Net property and equipment	Net property and equipment	120,976		116,084		Net property and equipment	330,148		116,052
Construction in progress	Construction in progress	11,770		13,033		Construction in progress	21,154		13,946
Total property and equipment, net	Total property and equipment, net	$	132,746	$	129,117	Total property and equipment, net	$	351,302	$	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 perform an annual goodwill impairment test on December 31 and more frequently if events and circumstances indicate that the asset might be impaired. The change in carrying value of goodwill allocated to our reportable segments during the three months ended March 31, 2023 was as follows:


	Pressure Control		Spoolable Technologies		Total
Balance at December 31, 2022	$	7,824	$	—	$	7,824
FlexSteel acquisition	—		193,478		193,478

Balance at March 31, 2023	$	7,824	$	193,478	$	201,302

The following table presents the detail of acquired intangible assets other than goodwill as of March 31, 2023:


	Gross Cost		Accumulated Amortization		Net Cost
Customer relationships	$	100,300	$	(557)	$	99,743
Developed technology	77,000		(642)		76,358
Tradename	16,000		(134)		15,866
Backlog	7,000		(2,333)		4,667
Total	$	200,300	$	(3,666)	$	196,634

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 months ended March 31, 2023 was $3.7 million and was recorded in SG&A expenses in the statements of income. Estimated future amortization expense is as follows:

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Remainder of 2023	$	16,657
2024	15,987
2025	15,987
2026	15,987
2027	15,987
2028	15,987
Thereafter	100,042
Total	$	196,634

7.Debt

The following is a summary of our debt as of March 31, 2023. We had no debt outstanding as of December 31, 2022.


Revolving loan	$	30,000
Term loan	125,000
Less: Unamortized debt issuance costs	(3,283)
Total debt, net of deferred financing costs	151,717
Less: Current portion of long-term debt (1)	(39,750)
Long-term debt	$	111,967

(1) Represents the mandatory amortization payments due within twelve months of March 31, ~~2022~~2023. This amount does not reflect $60.0 million in discretionary prepayments made on the term loan in April and ~~December 31, 2021.~~May 2023.

OnIn addition to the borrowings reflected above, we had $1.7 million in letters of credit outstanding.

In August ~~21,~~ 2018, Cactus LLC entered into a five-year senior secured asset-based revolving credit facility with a syndicate of lenders and JPMorgan Chase Bank, N.A., as administrative agent for such lenders and as an issuing bank and swingline lender (the “ABL Credit Facility”). The ABL Credit Facility was first amended in September 2020 and ~~provides~~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, the full amount of which was borrowed at closing of the Amended ABL Credit Facility to fund a portion of the Merger, and up to $225.0 million in revolving commitments, up to $20.0 million of which 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 matures on February 27, 2026 and any revolving loans under the Amended ABL Credit Facility mature on July 26, 2027. The maximum amount that Cactus ~~LLC~~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.

Borrowings under the Amended ABL Credit Facility bear interest at Cactus Companies’ option at either (i) the Alternate Base Rate (as defined therein) (“ABR”), or (ii) the Adjusted Term SOFR Rate (as defined therein) (“Term Benchmark”), plus, in each case, an applicable margin. Letters of credit issued under the Amended ABL Credit Facility accrue fees at a rate equal to the applicable margin for Term Benchmark borrowings. The applicable margin is 2.50% per annum for term loan ABR borrowings and 3.50% per annum for term loan Term Benchmark borrowings. The applicable margin for revolving loan borrowings ranges from 0.0% to 0.5% per annum for revolving loan ABR borrowings and 1.25% to 1.75% per annum for revolving loan Term Benchmark borrowings and, in each case, is based on the average quarterly availability of the revolving loan commitment under the Amended ABL Credit Facility for the immediately preceding fiscal quarter. The unused portion of revolving commitment under the Amended ABL Credit Facility is subject to a commitment fee of 0.25% per annum. The term loan is 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.

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The term loan can be prepaid without the payment of any prepayment premium (other than customary breakage costs for Term Benchmark borrowings).

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 is paid in full, the Amended ABL Credit Facility requires 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 also 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 March 31, ~~2022.~~2023.

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

We do not adjust the amount of consideration per the contract for the effects of a significant financing component when we expect, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less, which is in substantially all cases. Payment terms and conditions vary, although terms generally include a requirement of payment within 30 to ~~45 days.~~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.

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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 ~~the Kingdom of Saudi Arabia.~~other international markets. The following table presents our revenues disaggregated by category:


		Three Months Ended March 31,								Three Months Ended March 31,
		2022				2021					2023	2022
Product revenue	Product revenue	$	94,040	65	%	$	51,956	61	%				Product revenue	$	159,510	70	%	$	94,040	65	%
Rental revenue	Rental revenue	22,343		15	%	12,489		15	%				Rental revenue	27,817		12	%	22,343		15	%
Field service and other revenue	Field service and other revenue	29,516		20	%	19,972		24	%				Field service and other revenue	41,078		18	%	29,516		20	%
Total revenues	Total revenues	$	145,899	100	%	$	84,417	100	%				Total revenues	$	228,405	100	%	$	145,899	100	%

At March 31, ~~2022,~~2023, we had a deferred revenue balance of ~~$1.2~~$8.9 million compared to the December 31, ~~2021~~2022 balance of ~~$1.8~~$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

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performed. As of March 31, ~~2022,~~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.

8.9.Tax Receivable Agreement ~~(TRA)~~(“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 ~~TRA Holders~~CC Reorganization, Cactus Companies) of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that Cactus Inc. actually realizes or is deemed to realize in certain circumstances. Cactus Inc. will retain the benefit of the remaining 15% of these net cash savings.

The TRA liability is calculated by determining the tax basis subject to the TRA (“tax basis”) and applying a blended tax rate to the basis differences and calculating the resulting iterative impact. The blended tax rate consists of the U.S. federal income tax rate and an assumed combined state and local income tax rate driven by the apportionment factors applicable to each state. Subsequent changes to the measurement of the TRA liability are recognized in the statements of income as a component of other expense, net. As of March 31, ~~2022,~~2023, the total liability from the TRA was ~~$295.4~~$289.2 million with ~~$11.8~~$27.5 million reflected in current liabilities based on the expected timing of our next payment. The payments under the TRA will not be conditional on a holder of rights under the TRA having a continued ownership interest in either Cactus ~~LLC~~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 CWCC Units (other than those held by Cactus Inc.) outstanding on the termination date are deemed to be redeemed on the termination date. Any early termination payment may be made significantly in advance of the actual realization, if any, of the future tax benefits to which the termination payment relates.

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

9.10.Equity

As of March 31, ~~2022,~~2023, Cactus Inc. owned ~~79.3%~~81.1% of Cactus Companies as compared to 80.3% of Cactus LLC ~~as compared~~(prior to ~~78.0%~~the CC Reorganization) as of December 31, ~~2021.~~2022. As of March 31, ~~2022,~~2023, Cactus Inc. had outstanding ~~60.2~~64.4 million shares of Class A common stock (representing ~~79.3%~~81.1% of the total voting power) and ~~15.7~~15.0 million shares of Class B common stock (representing ~~20.7%~~18.9% of the total voting power).

Equity Offering

~~Redemptions~~In January 2023, Cactus Inc. completed an underwritten offering of ~~CW Units~~

~~Pursuant~~3,224,300 shares of Class A common stock at a price to the ~~First Amended~~underwriters of $51.36 per share for net proceeds of $165.6 million (net of $6.9 million of underwriting discounts and ~~Restated Limited Liability Company Operating Agreement~~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 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 ~~Wellhead, LLC (the “Cactus Wellhead LLC Agreement”), holders~~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 was valued at $0.6 million as of ~~CW Units are entitled to redeem their CW Units, which results~~March 31, 2023 and is included in ~~additional~~accrued expenses and other

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current liabilities. We recognized $0.1 million of compensation expense during the three months ended March 31, 2023 in selling, general and administrative expenses.

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. Cactus Inc. is a holding company whose only material asset is an equity interest consisting of CC Units, following the completion of the CC Reorganization, and was CW Units from the IPO until the CC Reorganization.

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, ~~44.9~~an aggregate of 45.6 million CC Units (including CW Units prior to the CC Reorganization) and a corresponding number of shares of Class B common stock have been redeemed in exchange for shares of Class A common stock.

During the three months ended March 31, 2023, there were no redemptions of CW Units (or CC Units, after the CC Reorganization). During the three months ended March 31, 2022, 1one 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.

On March 9, 2021, Cactus Inc. entered into an underwriting agreement with Cactus LLC, certain selling stockholders of Cactus (the “Selling Stockholders”) and the underwriters named therein, providing for the offer and sale by the Selling Stockholders (the “2021 Secondary Offering”) of up to 6,325,000 shares of Class A common stock at a price to the underwriters of $30.555 per share. On March 12, 2021, in connection with the 2021 Secondary Offering, certain of the Selling Stockholders exercised their right to redeem 6,272,500 CW Units, together with a corresponding number of shares of Class B common stock, as provided in the Cactus Wellhead LLC Agreement. Upon the closing of the 2021 Secondary Offering, Cactus Inc. acquired the redeemed CW Units and a corresponding number of shares of Class B common stock (which shares of Class B common stock were then cancelled) and issued 6,272,500 new shares of Class A common stock to the underwriters at the direction of the redeeming Selling Stockholders, as provided in the Cactus Wellhead LLC Agreement. In addition, certain other Selling Stockholders sold 52,500 shares of Class A common stock in the 2021 Secondary Offering, which shares were owned by them directly as of the time of the 2021 Secondary Offering. Cactus did not receive any of the proceeds from the sale of common stock in the 2021 Secondary Offering and incurred $0.4 million in expenses which were recorded in other expense, net, in the consolidated statements of income. There was no change in the combined number of Cactus Inc. voting shares outstanding as a result of the 2021 Secondary Offering. We recorded an increase in additional paid-in capital with a corresponding decrease in the non-controlling interest in equity of approximately $45.0 million and an increase in the TRA liability of $46.7 million resulting from the redemption of CW Units pursuant to the 2021 Secondary Offering. Additionally, we recognized a $5.1 million tax benefit for a partial valuation allowance release related to the realizable portion of the deferred tax asset.

Dividends

Aggregate cash dividends of $0.11 ~~and $0.09~~ per share of Class A common stock were declared during the three months ended March 31, 2023 and 2022 ~~and 2021~~ totaling ~~$6.6~~$7.1 million and ~~$4.4~~$6.6 million, respectively. Cash dividends paid during the three months ended March 31, 2023 and 2022 ~~and 2021~~ totaled ~~$6.7~~$7.4 million and ~~$4.5~~$6.7 million, respectively. Dividends accrue on unvested equity-based awards on the date of record and are paid upon vesting. Dividends are not paid to our Class B common stockholders; however, a corresponding distribution up to the same amount per share as our Class A common stockholders is paid to the owners of CWCC 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.”

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Member Distributions

Distributions made by Cactus ~~LLC~~Companies are generally required to be made pro rata among all its members. For the three months ended March 31, ~~2022,~~2023, Cactus ~~LLC~~Companies distributed ~~$6.3~~$7.1 million to Cactus Inc. to fund its dividend payments and made pro rata distributions to the other members totaling ~~$1.7~~$1.6 million over the same period. During the three months ended March 31, ~~2021,~~2022, Cactus ~~LLC~~Companies distributed ~~$4.2~~$6.3 million to Cactus Inc. to fund its dividend payments and made pro rata distributions to the other members totaling $1.7 million.

Limitation of Members’ Liability

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

~~10.~~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.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.

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

Financial information by business segment for the three months ended March 31, 2023 and 2022 is summarized below.


	Three Months Ended March 31,
	2023		2022
Revenue:
Pressure Control	$	194,655	$	145,899
Spoolable Technologies	33,750		—
Total revenues	228,405		145,899
Operating income:
Pressure Control	49,439		30,990
Spoolable Technologies	249		—
Total operating income	49,688		30,990
Interest income (expense), net	1,002		(100)
Other income (expense), net	3,538		(1,115)
Income before income taxes	$	54,228	$	29,775

~~11.~~13.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

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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 CWCC 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 March 31,				Three Months Ended March 31,
		2022		2021				2023		2022
Numerator:	Numerator:						Numerator:
Net income attributable to Cactus Inc.—basic	Net income attributable to Cactus Inc.—basic	$	20,616	$	11,559		Net income attributable to Cactus Inc.—basic	$	42,894	$	20,616
Net income attributable to non-controlling interest (1)	Net income attributable to non-controlling interest (1)	4,953		2,874			Net income attributable to non-controlling interest (1)	7,312		4,953
Net income attributable to Cactus Inc.—diluted (1)	Net income attributable to Cactus Inc.—diluted (1)	$	25,569	$	14,433		Net income attributable to Cactus Inc.—diluted (1)	$	50,206	$	25,569
Denominator:	Denominator:						Denominator:
Weighted average Class A shares outstanding—basic	Weighted average Class A shares outstanding—basic	59,288		49,166			Weighted average Class A shares outstanding—basic	63,740		59,288
Effect of dilutive shares	Effect of dilutive shares	16,874		26,608			Effect of dilutive shares	15,415		16,874
Weighted average Class A shares outstanding—diluted	Weighted average Class A shares outstanding—diluted	76,162		75,774			Weighted average Class A shares outstanding—diluted	79,155		76,162

Earnings per Class A share—basic	Earnings per Class A share—basic	$	0.35	$	0.24		Earnings per Class A share—basic	$	0.67	$	0.35
Earnings per Class A share—diluted (1)	Earnings per Class A share—diluted (1)	$	0.34	$	0.19		Earnings per Class A share—diluted (1)	$	0.63	$	0.34

(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 24.5% for the three months ended March 31, 2023 and 26.0% for the three months ended March 31, ~~2022 and 25.0% for the three months ended March 31, 2021.~~2022.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Except as otherwise indicated or required by the context, all references in this Quarterly Report to the “Company,” “Cactus,” “we,” “us” and “our” refer to Cactus, Inc. (“Cactus Inc.”) and its consolidated subsidiaries, unless we state otherwise or the context otherwise requires. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes. The following discussion contains “forward-looking statements” that reflect our plans, estimates, beliefs and expected performance. Our actual results may differ materially from those anticipated as discussed in these forward-looking statements as a result of a variety of risks and uncertainties, including those described above in “Cautionary Note Regarding Forward-Looking ~~Statements”~~Statements,” in the risk factors included in “Item 1A. Risk Factors” in our 2022 Annual Report and included elsewhere in this Quarterly Report, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We assume no obligation to update any of these forward-looking statements except as otherwise required by law.

Executive Summary

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 to the U.S. onshore market.

We ~~design, manufacture, sell~~paid cash consideration of approximately $624.2 million upon closing the FlexSteel acquisition, with the final purchase price subject to adjustments for closing working capital, cash on hand and ~~rent~~indebtedness as set forth in the merger agreement. In addition to the upfront consideration, 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 at the wellsite 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 three months ended March 31, 2023, we derived 70% of total revenues from the sale of our products, 12% of total revenues from rental and 18% of total revenues from field service and other. During the three months ended March 31, 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 ~~highly engineered~~ wellhead and pressure control ~~equipment. Our products~~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 ~~wellhead and pressure control~~ equipment.

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We operate through service centers in the United States, which are strategically located in the key oil and gas producing regions, ~~including the Permian, Marcellus, Utica, Haynesville, Eagle Ford, Bakken and SCOOP/STACK, among other active oil and gas regions in the United States,~~ and in Eastern Australia. These service centers support our field services and provide equipment assembly and repair services. We also provide rental and service operations in the Kingdom of Saudi Arabia. ~~Our~~Pressure Control manufacturing ~~and production~~ facilities are located in Bossier City, Louisiana and Suzhou, China.

We operate in one business segment. Our revenues are derived from three sources: products, rentals, and field service and other. Product revenues are primarily derived from the sale of wellhead systems and production trees. Rental revenues are primarily derived from the rental of equipment used during the completion process, the repair of such equipment and the rental of tools used during drilling operations. Field service and other revenues are primarily earned when we provide installation and other field services for both product sales and equipment rental. Additionally, other revenues are derived from providing repair and reconditioning services to customers that have previously installed wellheads or production trees. Items sold or rented generally have an associated service component. As a result, there is a close correlation between field service and other revenues and revenues from product sales and rentals.

During the three months ended March 31, 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. During the three months ended March 31, 2021, we derived 61% of total revenues from the sale of our products, 15% of total revenues from rental and 24% of total revenues from field service and other. We have predominantly domestic operations with a small amount of activity in Australia and the Kingdom of Saudi Arabia.

~~Market Factors~~

Demand for our ~~products and services depends primarily upon the general level of activity~~product sales in the ~~oil and gas industry, including~~Pressure Control segment are driven primarily by the number of ~~active drilling rigs,~~new wells drilled, as each new well requires a wellhead and, after the ~~number of wells being drilled, the depth and working pressure of these wells,~~completion phase, a production tree. Demand for our rental items is driven primarily by the number of well completions the level of well remediation activity, the volume of production and the corresponding capital spending by oil and natural gas companies. Oil and gas activity is in turn heavily influenced by, among other factors, investor sentiment, availability of capital andas we rent frac trees to oil and gas ~~prices locally and worldwide, which have historically been volatile.~~

~~The key market factors impacting our product sales are the number of wells drilled and placed on production,~~operators to assist in hydraulic fracturing. Rental demand is also driven to a lesser extent by drilling activity as ~~each well requires an individual wellhead assembly and, at some time after completion,~~we rent tools used in the installation of an associated production tree. We measure our product sales activity levels against our competitors by the number of rigs that we are supporting on a monthly basis as it is correlated to wells drilled. Each active drilling rig produces different levels of revenue based on the customer’s drilling program and efficiencies, which includes factors such as the number of wells drilled per pad, the timing of rig moves, the time taken to drill each well, the number and size of casing strings, the working pressure, material selection, the complexity of the wellhead system chosen by the customer and the rate at which production trees are eventually deployed. All of these factors may be influenced by the oil and gas region in which our customers are operating. While these factors may lead to differing revenues per rig, we have generally been able to forecast our product needs and anticipated revenue levels based on historic trends in a

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given region and with a specific customer. An increase in the number of wells drilled per rig is a favorable trend that we believe enhances the demand for our products relative to the active rig count. However, such a favorable trend might be adversely affected by overall supply chain-related disruptions.

Our rental revenues are primarily dependent on the number of wells completed (i.e., hydraulically fractured), the number of wells on a well pad, the number of fracture stages per well and the number of fracture stages completed per day. Well completion activity generally follows the level of drilling activity over time but can be delayed or accelerated due to such factors as pressure pumping availability, takeaway capacity, storage capacity, spot prices, overall service cost inflation and budget considerations.

wellheads. Field service and other revenues are closely correlated towith revenues from product sales and rentals, as items sold or rented almost always have an associated service component. ~~Therefore,~~

Spoolable Technologies

The Spoolable Technologies segment designs, manufactures, and sells spoolable pipe and associated end fittings under the ~~market factors~~FlexSteel brand. Our customers use these products as production, gathering and ~~trends~~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 ~~rental revenues similarly impact the~~ associated ~~levels of field~~fittings to bring wells more rapidly onto production. Rental and Field service and other revenues ~~generated.~~are closely correlated with revenues from product sales, as items sold usually have an associated rental and service component.

Recent Developments and Trends

~~Oil prices rose in early 2022 due to concerns over supply constraints with West Texas Intermediate (“WTI”) prices surpassing $90 per barrel in February. Since Russia invaded Ukraine~~FlexSteel Acquisition

As previously discussed, we completed the acquisition of FlexSteel on February ~~24, 2022, oil prices~~28, 2023. The results of operations of FlexSteel have ~~increased further and price volatility is high, with WTI prices reaching almost $115 per barrel~~been reflected in our accompanying condensed consolidated financial statements from the closing date of the acquisition through March ~~and dropping~~31, 2023. See Note 2 to ~~approximately $94 per barrel in April, only to reach $108 per barrel in early May. The volatility can mainly be attributed~~our accompanying condensed consolidated financial statements for additional information related to the global response to the conflict in Ukraine. In the U.S., President Joe Biden announced on March 8, 2022 that the U.S. was banning imports of oil from Russia, along with refined petroleum products, natural gasacquisition.

Oil and coal. Then, in an attempt to ease higher gasoline prices, the Biden administration announced on March 31, 2022 that it would release 180 million barrels of oil from the Strategic Petroleum Reserve (“SPR”) over six months. The announcement of the SPR release sent oil prices lower for several days in early April until April 18, 2022 when Libya’s National Oil Corp announced a wave of closures had begun hitting its facilities forcing it to shut down production at its largest oilfield (El Sharara). Although this announcement was unrelated to the conflict in Ukraine, it further increased concerns surrounding supply. Additionally, there are reports that the European Union (EU) may enact a phased import ban on Russian oil. However, potential reduced consumption from sustained COVID-related lockdowns in China and looming concerns regarding a possible recession have weighed on the outlook for oil demand.

Natural Gas Prices for natural gas have also surged in 2022. Higher demand for heating due to a colder winter and record-high U.S. liquefied natural gas (“LNG”) exports at the end of winter left natural gas in storage at its lowest level in three years. Henry Hub natural gas spot prices increased from an average of $3.76 per one million British Thermal Units (“MMBtu”) in December 2021 to $6.60 per MMBtu in April 2022. In early May 2022, spot prices were over $8 per MMBtu and front-month futures at Henry Hub surged to the highest level in over 10 years due to below normal temperatures and strong LNG exports, resulting in lower than usual natural gas inventory in storage. The U.S. is exporting record volumes of LNG to Europe which is contributing to rising Henry Hub prices. This trend is expected to continue with the desire to reduce European energy dependency on Russian natural gas exports and Russia’s recent announcement to cease gas shipments to Poland and Bulgaria.

The ongoing conflict in Ukraine has had repercussions globally and in the U.S. by continuing to cause uncertainty, not only in the oil and natural gas markets, but also in the stock market. Such uncertainty could continue to result in stock price volatility and supply chain disruptions as well as higherfollowing table summarizes average oil and natural gas prices ~~which could result~~ in ~~higher inflation worldwide and negatively impact demand for our goods and services. Moreover, further actions~~North America over the following periods as well as industry activity levels as reflected by the ~~U.S. Federal Reserve to combat inflation could increase the possibility~~average number of ~~a recession.~~

~~The significant increase in commodity prices since late 2020 has also led to meaningful increases in the level of U.S.~~active onshore drilling rigs during the same periods.


	Three Months Ended
	March 31, 2023		December 31, 2022		March 31, 2022
WTI Oil Price ($/bbl) (1)	$	75.93	$	82.79	$	95.18
Natural Gas Price ($/MMBtu) (2)	$	2.64	$	5.55	$	4.67
U.S. Land Drilling Rigs (3)	742		757		616

(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.

Oil and gas industry activity ~~particularly among private operators. During~~levels remained robust through the ~~three months ended March 31, 2022, the weekly~~first quarter of 2023 with average U.S. ~~onshore rig count as reported~~land drilling rigs declining by Baker Hughes was 616 rigs compared to 543 rigs for the three months ended December 31, 2021 and 377 rigs for the three months ended March 31, 2021. Although these gains are encouraging, current rig activity is still significantly reducedless than 2% from the fourth quarter of 2022. This was despite a significant drop in natural gas prices, with average prices declining by 52% from the fourth quarter of 2022. We expect activity levels in ~~2019 when~~basins driven by gas drilling to respond to the weekly average rig count for the three months ended March 31, 2019 was 1,021. However, improved rig efficiencies have partially offset the impact of this reduction. As of April 29, 2022, the U.S. onshore rig count was 684.

~~Private E&P companies have been responsible for the majority of the rig additions~~decreases in ~~the U.S. onshore market~~natural gas price over the ~~last year. We have significantly increased our revenues~~coming quarters, as there is a lag between price movements and ~~rigs followed since~~ the low in activity in the third quarter of 2020 despite a greater portion of Cactus’ revenues having historically resulted from publicly traded E&P companies. During this time, Cactus has meaningfully increased its business with private E&P companies. Disproportionate changes in activity from private or publicly traded E&P companies present both risksability for oil and ~~opportunities for Cactus, depending on a number of factors, such as which customers add or drop rigs and their relative efficiency in drilling wells.~~

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~~Increased Costs~~gas operators to respond to such movements due to, among other factors, rigs under contract, pads not completed, access to liquefied natural gas terminals and hedges in place.

~~While our revenues have benefited~~Oil prices declined on an average basis from ~~increased demand for our products~~the fourth quarter of 2022 to the first quarter of 2023 by approximately 8%. We believe oil-driven drilling and ~~services and~~completion activity levels ~~primarily due~~will remain relatively stable at these oil price levels but recognize the potential risk of recession on oil prices and diminished cash flow from the sale of associated gas. During the first quarter of 2023, WTI oil prices ranged from $66.61 per barrel to ~~higher commodity prices, we continue to experience substantial inflation throughout all aspects of our business. Supply chain disruptions, geopolitical issues~~$81.62 per barrel and significantly increased demand for goods and services worldwide have resulted in substantial increases in fuel, raw materials, component parts, ocean freight charges as well as increased labor costs. Salaries and wages have increased significantly as a result of competitive labor markets, especially in certain key oil and gas producing areas, but also due to broader inflation trends and labor shortages. Due to heightened demand and a shortage of steel caused primarily by production disruptionsreached their lows during the ~~pandemic and more recently due~~regional bank scare precipitated by the collapse of Silicon Valley Bank in March 2023. Oil prices improved subsequently as the U.S. government signaled support for other regional banks. Shortly after the end of the first quarter of 2023, oil prices were further supported by the OPEC+ decision to ~~the conflict in Ukraine, steel and assembled component~~cut production by over one million barrels per day. However, oil prices have ~~been~~remained volatile as concerns remain on the outlook for regional banks and ~~remain elevated. Freight costs, specifically ocean freight costs, remain elevated due to a number~~the potential impact further bank failures could have on the economy. We believe the supply and demand fundamentals are supportive of factors including, but not limited to, a scarcity of shipping containers, congested seaports, a shortage of commercial drivers, capacity constraints on vessels and lockdowns in certain markets. In addition to dealing with these unprecedented cost increases, we continue to be impacted by global supply chain issues which have resulted in shipping delays and, in some cases, resulted in increased costs when we are required to use other more expensive modes of transportation or substitute more costly products in order to meet customer demand. Although we believe certain cost increases are temporary, we do not believe that commodity and freightoil prices ~~will normalize~~at this year. Additionally, we cannot be confident that input prices will return to the lower levels experienced in prior years. These cost increases have already had, and could continue to have, a negative impact on our margins and results of operations absent further successful cost recovery efforts.level assuming overall economic activity remains at current levels.

Critical Accounting Policies and Estimates

A discussion of our critical accounting policies and estimates is contained in our ~~2021~~2022 Annual Report on Form 10-K. There have not been any changes in our critical accounting policies since December 31, ~~2021.~~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.

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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.

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Three Months Ended March 31, ~~2022~~2023 Compared to Three Months Ended December 31, ~~2021~~2022

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

Three Months Ended
March 31, 2022 December 31, 2021 $ Change % Change
(in thousands)
Revenues
Product revenue $ 94,040 $ 83,771 $ 10,269 12.3 %
Rental revenue 22,343 19,225 3,118 16.2
Field service and other revenue 29,516 26,920 2,596 9.6
Total revenues 145,899 129,916 15,983 12.3
Costs and expenses
Cost of product revenue 60,920 54,754 6,166 11.3
Cost of rental revenue 15,089 14,553 536 3.7
Cost of field service and other revenue 24,806 22,036 2,770 12.6
Selling, general and administrative expenses 14,094 12,861 1,233 9.6
Total costs and expenses 114,909 104,204 10,705 10.3
Income from operations 30,990 25,712 5,278 20.5
Interest expense, net (100) (142) 42 (29.6)
Other income (expense), net (1,115) 1,902 (3,017) nm
Income before income taxes 29,775 27,472 2,303 8.4
Income tax expense 2,692 7,089 (4,397) (62.0)
Net income 27,083 20,383 6,700 32.9
Less: net income attributable to non-controlling interest 6,467 5,359 1,108 20.7
Net income attributable to Cactus Inc. $ 20,616 $ 15,024 $ 5,592 37.2 %
nm = not meaningful


	Three Months Ended
	March 31, 2023		December 31, 2022		$ Change		% Change
	(in thousands)
Revenues
Pressure Control	$	194,655	$	187,774	$	6,881	3.7	%
Spoolable Technologies	33,750		—		33,750		nm
Total revenues	228,405		187,774		40,631		21.6

Operating income
Pressure Control	49,439		48,221		1,218		2.5
Spoolable Technologies	249		—		249		nm
Total operating income	49,688		48,221		1,467		3.0

Interest income, net	1,002		2,370		(1,368)		(57.7)
Other income (expense), net	3,538		(1,920)		5,458		nm
Income before income taxes	54,228		48,671		5,557		11.4
Income tax expense	1,940		7,932		(5,992)		(75.5)
Net income	52,288		40,739		11,549		28.3
Less: net income attributable to non-controlling interest	9,394		9,750		(356)		(3.7)
Net income attributable to Cactus Inc.	$	42,894	$	30,989	$	11,905	38.4	%
nm = not meaningful

~~Revenues~~

~~Product~~Pressure Control. Pressure Control revenue for the first quarter of ~~2022~~2023 was ~~$94.0~~$194.7 million, an increase of ~~$10.3~~$6.9 million, or ~~12%~~3.7%, from ~~$83.8~~$187.8 million for the fourth quarter of ~~2021~~2022 primarily due to increased sales of wellhead and production related equipment ~~resulting from higher drilling activity by our customers as well as the impact of cost recovery efforts.~~

~~Rental revenue~~and associated field services. Pressure Control operating income for the first quarter of ~~2022~~2023 was ~~$22.3 million, an increase of $3.1 million, or 16%, from $19.2 million for the fourth quarter of 2021. The increase was primarily attributable to higher customer completion activity.~~

Field service and other revenue for the first quarter of 2022 was $29.5 million, an increase of $2.6 million, or 10%, from $26.9 million for the fourth quarter of 2021. The increase was mainly due to increased customer activity, resulting in higher billable hours.

~~Costs and expenses~~

Cost of product revenue for the first quarter of 2022 was $60.9 million, an increase of $6.2 million, or 11%, from $54.8 million for the fourth quarter of 2021. The increase was primarily attributable to the increase in product sales as well as increased costs associated with materials, freight and overhead.

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Cost of rental revenue for the first quarter of 2022 of $15.1 million increased $0.5 million, or 4%, from $14.6 million for the fourth quarter of 2021 mainly due to an increase in repair and equipment reactivation costs partially offset by a decrease in ancillary costs and depreciation.

Cost of field service and other revenue for the first quarter of 2022 was $24.8 million, an increase of $2.8 million, or 13%, from $22.0 million for the fourth quarter of 2021. The increase was primarily related to increased personnel costs associated with higher wages and an increase in the number of field and branch personnel. Additional increases were related to higher fuel, third-party service costs and other costs associated with higher field service activity levels.

~~Selling, general and administrative expenses for the first quarter of 2022 were $14.1~~$49.4 million, an increase of $1.2 million, or ~~10%~~2.5%, from ~~$12.9~~$48.2 million for the fourth quarter of ~~2021.~~2022. The increased revenues and associated gross margins related to equipment sales and field services in the segment were largely offset by increased rental equipment redeployment expenses as well as $1.1 million in higher professional fees and expenses recorded in connection with the FlexSteel acquisition.

Spoolable Technologies. Spoolable Technologies revenue for the first quarter of 2023 was $33.8 million, an increase ~~was primarily due~~of $33.8 million from the fourth quarter of 2022, as results only include revenues from the FlexSteel acquisition date of February 28, 2023 to March 31, 2023. Spoolable Technologies operating income for the first quarter of 2023 of $0.2 million increased ~~personnel costs associated with higher salaries~~$0.2 million from the fourth quarter of 2022 as this operating profit only includes results from the FlexSteel acquisition date to March 31, 2023. The results for Spoolable Technologies included $4.2 million of inventory step-up expense and ~~wages, benefits and stock-based compensation~~$3.7 million of intangible amortization expense as well as increased ~~professional fees. These increases were slightly offset by lower bad debt expense and a reduction~~depreciation for the step-up of its fixed assets in ~~annual incentive bonus accruals due to~~connection with accounting for the purchased assets at fair value in conjunction with purchase accounting.

Interest income, net. Interest income, net for the first quarter of 2023 of $1.0 million decreased $1.4 million from the fourth quarter ~~including a true-up in~~of 2022 as the first quarter included one month of interest expense ~~based~~associated with FlexSteel acquisition-related borrowings from the Amended ABL Credit Facility which offset interest income earned on ~~actual 2021 performance.~~the invested cash balance.

Other income (expense), net. Other ~~expense,~~income, net for the first quarter of ~~2022~~2023 of ~~$1.1~~$3.5 million and other ~~income,~~expense, net of $1.9 million for the fourth quarter of ~~2021~~2022 primarily 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 first quarter of ~~2022~~2023 was ~~$2.7~~$1.9 million compared to ~~$7.1~~$7.9 million for the fourth quarter of ~~2021.~~2022. Income tax expense for the first quarter of 2023 included an approximately $11.0 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

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generate sufficient taxable income of the appropriate type. Additionally, we recognized $4.3 million expense associated with the revaluation of our deferred tax asset as a result of a change in our forecasted state tax rate and a $1.3 million benefit associated with permanent differences related to equity compensation. Income tax expense for the fourth quarter of 2022 primarily included approximately $10.1 million expense associated with current income and a $1.8 million tax benefit related to the revaluation of our deferred tax asset as a result of a change in our forecasted state tax rate.

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.

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

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


	Three Months Ended March 31,
	2023		2022		$ Change		% Change
	(in thousands)
Revenues
Pressure Control	$	194,655	$	145,899	$	48,756	33.4	%
Spoolable Technologies	33,750		—		33,750		nm
Total revenues	228,405		145,899		82,506		56.6

Operating income
Pressure Control	49,439		30,990		18,449		59.5
Spoolable Technologies	249		—		249		nm
Total operating income	49,688		30,990		18,698		60.3

Interest income (expense), net	1,002		(100)		1,102		nm
Other income (expense), net	3,538		(1,115)		4,653		nm
Income before income taxes	54,228		29,775		24,453		82.1
Income tax expense	1,940		2,692		(752)		(27.9)
Net income	52,288		27,083		25,205		93.1
Less: net income attributable to non-controlling interest	9,394		6,467		2,927		45.3
Net income attributable to Cactus Inc.	$	42,894	$	20,616	$	22,278	108.1	%
nm = not meaningful

Pressure Control. Pressure Control revenue was $194.7 million in the first quarter of 2023, an increase of $48.8 million, or 33.4%, from $145.9 million for the first quarter 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 above mentioned activity. Pressure Control operating income of $49.4 million in the first quarter of 2023 increased $18.4 million, or 59.5%, from $31.0 million in the first quarter 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 of $8.6 million associated with professional fees and expenses incurred in 2023 due to the FlexSteel acquisition.

Spoolable Technologies. Spoolable Technologies revenue in the first quarter of 2023 was $33.8 million, an increase of $33.8 million, from the first quarter of 2022 as results only include revenues from the FlexSteel acquisition date of February 28, 2023 to March 31, 2023. Spoolable Technologies operating profit of $0.2 million in the first quarter of 2023 increased $0.2 million from the first quarter of 2022 as this operating profit only includes results from the FlexSteel acquisition date to March 31, 2023. The results for Spoolable Technologies included $4.2 million of inventory step-up expense and $3.7 million of intangible amortization expense as well as increased depreciation for the step-up of its fixed assets in connection with accounting for the purchased assets at fair value in conjunction with purchase accounting.

Interest income (expense), net. Interest income, net for the first quarter of 2023 of $1.0 million increased $1.1 million from the first quarter of 2022. The increase was driven by higher interest income earned on cash invested as rates increased over 2022

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and into early 2023. This was partially offset by one month of interest expense in the first quarter of 2023 associated with FlexSteel acquisition-related borrowings from the Amended ABL Credit Facility.

Other income (expense), net. Other income (expense), net for both periods presented 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 in the first quarter of 2023 was $1.9 million compared to an income tax expense of $2.7 million in the first quarter of 2022. Income tax expense for the first quarter of 2023 included an approximately $11.0 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 and a $1.3 million benefit associated with permanent differences related to equity compensation. Income tax expense for the first quarter of 2022 included an approximately $6.2 million expense associated with current income offset by a $1.7 million benefit associated with permanent differences related to equity compensation, a $1.0 million benefit associated with the revaluation of our deferred tax asset as a result of a change in our forecasted state tax rate and a $0.8 million tax benefit associated with the partial valuation allowance release in conjunction with first quarter 2022 redemptions of CW Units. 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's deferred tax assets from its investment in Cactus LLC (or, after the CC Reorganization, its investment in Cactus Companies) becomes realizable. Income tax expense for the fourth quarter of 2021 primarily included approximately $6.0 million expense associated with current income and a $1.3 million tax expense related to the revaluation of our deferred tax asset as a result of a change in our forecasted state tax rate.

~~Cactus Inc. is only subject to federal and state income tax on its share of income from Cactus LLC. Income allocated to the non-controlling interest is not subject to U.S. federal or state tax.~~

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~~Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021~~

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

Three Months Ended
March 31,
2022 2021 $ Change % Change
(in thousands)
Revenues
Product revenue $ 94,040 $ 51,956 $ 42,084 81.0 %
Rental revenue 22,343 12,489 9,854 78.9
Field service and other revenue 29,516 19,972 9,544 47.8
Total revenues 145,899 84,417 61,482 72.8
Costs and expenses
Cost of product revenue 60,920 36,521 24,399 66.8
Cost of rental revenue 15,089 12,171 2,918 24.0
Cost of field service and other revenue 24,806 14,463 10,343 71.5
Selling, general and administrative expenses 14,094 9,627 4,467 46.4
Total costs and expenses 114,909 72,782 42,127 57.9
Income from operations 30,990 11,635 19,355 nm
Interest expense, net (100) (152) 52 (34.2)
Other expense, net (1,115) (406) (709) nm
Income before income taxes 29,775 11,077 18,698 nm
Income tax expense (benefit) 2,692 (4,059) 6,751 nm
Net income 27,083 15,136 11,947 78.9
Less: net income attributable to non-controlling interest 6,467 3,577 2,890 80.8
Net income attributable to Cactus Inc. $ 20,616 $ 11,559 $ 9,057 78.4 %
nm = not meaningful

~~Revenues~~

Product revenue was $94.0 million in the first quarter of 2022 compared to $52.0 million in the first quarter 2021. The increase of $42.1 million, representing an 81% increase from 2021, was primarily due to higher sales of wellhead and production related equipment resulting from higher drilling and completion activity by our customers as well as the impact of cost recovery efforts.

Rental revenue of $22.3 million in the first quarter of 2022 increased $9.9 million, or 79%, from $12.5 million in the first quarter of 2021. The increase was primarily attributable to higher customer completion rental and repair activity.

Field service and other revenue in the first quarter of 2022 was $29.5 million, an increase of $9.5 million, or 48%, from $20.0 million in the first quarter of 2021. The increase was attributable to increased customer activity, resulting in higher billable hours and ancillary services.

~~Costs and expenses~~

Cost of product revenue in the first quarter of 2022 was $60.9 million, an increase of $24.4 million, or 67%, from $36.5 million in the first quarter of 2021. The increase was largely attributable to an increase in product sales and costs associated with materials, freight and overhead.

Cost of rental revenue of $15.1 million in the first quarter of 2022 increased $2.9 million from $12.2 million in the first quarter of 2021. The increase was primarily due to higher repair and equipment reactivation costs, increased ancillary costs and higher branch expenses, partially offset by lower depreciation expense on our rental fleet.

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Cost of field service and other revenue was $24.8 million in the first quarter of 2022, an increase of $10.3 million, or 72%, from $14.5 million in the first quarter of 2021. The increase was mainly related to higher personnel costs associated with higher wages and an increase in the number of field and branch personnel as well as higher fuel and other remobilization expenses associated with increased field service activity levels compared to the prior year.

Selling, general and administrative expenses in the first quarter of 2022 were $14.1 million compared to $9.6 million in the first quarter of 2021. The $4.5 million increase was largely attributable to increased personnel costs primarily related to higher salaries and wages, benefits and accruals for annual incentive bonuses. Additional increases related to higher stock-based compensation expense and professional fees.

~~Other expense, net.~~ Other expense, net in the first quarter of 2022 of $1.1 million related to a non-cash adjustment for the revaluation of the liability related to the tax receivable agreement. Other expense, net in the first quarter of 2021 of $0.4 million represented professional fees and other expenses associated with the 2021 Secondary Offering.

~~Income tax expense (benefit).~~ Income tax expense in the first quarter of 2022 was $2.7 million compared to an income tax benefit of $4.1 million in the first quarter of 2021. Income tax expense for the first quarter of 2022 included approximately $6.2 million expense associated with current income offset by a $1.7 million benefit associated with permanent differences related to equity compensation, a $1.0 million benefit associated with the revaluation of our deferred tax asset as a result of a change in our forecasted state tax rate and a $0.8 million tax benefit associated with the partial valuation allowance release in conjunction with first quarter 2022 redemptions of CW Units. The income tax benefit for the first quarter of 2021 primarily included a $5.1 million benefit associated with a partial valuation allowance release and $1.1 million benefit associated with permanent differences related to equity compensation.

Liquidity and Capital Resources

At March 31, ~~2022,~~2023, we had ~~$297.7~~$75.4 million of cash and cash equivalents. Our primary sources of liquidity and capital resources are cash on hand, cash flows generated by operating activities and ~~if necessary,~~ borrowings under our Amended ABL Credit ~~Facility.~~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 March 31, ~~2022,~~2023, we had no$193.3 million of available borrowing capacity with $30.0 million of borrowings outstanding under our ~~ABL Credit Facility and $75.0~~revolving loan, $125.0 million of ~~available borrowing capacity. Additionally,~~borrowings outstanding under our term loan and $1.7 million in letters of credit outstanding. Subsequent to March 31, 2023, we made $60.0 million in discretionary payments to our term loan lenders which reduced the balance of our term loan outstanding as of the date of this filing. We were in compliance with the covenants of the Amended ABL Credit Facility as of March 31, ~~2022.~~2023.

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, expected TRA liability payments, ~~related to the TRA,~~ anticipated tax liabilities and dividends to holders of our Class A common stock as well as pro rata cash distributions to ~~the~~ holders of CWCC Units other than Cactus Inc.

For the three months ended March 31, 2022, net capital expenditures totaled $7.3 million, which were primarily related to additions to the Company’s fleet of rental equipment, including drilling-related tools, and additional investment in and expansion of our Bossier City location. We currently estimate our net capital expenditures for the year ending December 31, ~~2022~~2023 will range from ~~$20~~$45 million to ~~$30~~$55 million. ~~We continuously evaluate our~~In the Pressure Control segment, capital expenditures will be primarily related to rental fleet investments, the recent purchase of our previously leased Odessa, Texas branch facility, international expansion and development of a recently-leased research and development facility in Houston, Texas. In the ~~amount we ultimately spend~~Spoolable Technologies segment, capital expenditures will ~~depend on a number~~be primarily related to manufacturing plant enhancements and additional deployment equipment to facilitate installation of factors, including, among other things, demand for rental assets, available capacity in existing locations, prevailing economic conditions, market conditions in the E&P industry, customers’ forecasts, volatility and company initiatives.recent product introductions.

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

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Cash Flows

Three Months Ended March 31, ~~2022~~2023 Compared to Three Months Ended March 31, ~~2021~~2022

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


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
		(in thousands)					(in thousands)
Net cash provided by operating activities	Net cash provided by operating activities	$	17,209	$	15,747	Net cash provided by operating activities	$	60,462	$	17,209
Net cash used in investing activities	Net cash used in investing activities	(7,294)		(2,028)		Net cash used in investing activities	(633,152)		(7,294)
Net cash used in financing activities		(14,180)		(10,483)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	303,163		(14,180)

Net cash provided by operating activities was ~~$17.2~~$60.5 million and ~~$15.7~~$17.2 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. Operating cash flows for ~~2022~~2023 increased primarily due to an increase in income ~~offset by an increase~~and a decrease in cash outflows associated with working capital, largely related to ~~the increase in inventories exacerbated by extended in-transit volumes.~~decreased purchases of Pressure Control inventories.

Net cash used in investing activities was ~~$7.3~~$633.2 million and ~~$2.0~~$7.3 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. The increase was primarily due to cash paid to acquire FlexSteel for $624.2 million less $5.3 million in cash acquired. Additionally, our capital expenditures increased ~~investments associated with our rental fleet and additional investment in and expansion~~approximately $8.3 million primarily due to the $7.0 million purchase of ~~our Bossier City location.~~a previously leased facility. Lastly, proceeds from sales of assets increased approximately $1.3 million from 2022.

Net cash ~~used in~~provided by financing activities was ~~$14.2 million and $10.5~~$303.2 million for the three months ended March 31, ~~2022 and 2021, respectively.~~2023 as compared to net cash used in financing activities of $14.2 million for the three months ended March 31, 2022. The increase in net cash provided by financing activities was ~~comprised~~primarily related to certain equity and debt financing activities in the first quarter of ~~a $2.1~~2023 associated with the FlexSteel acquisition. We received approximately $169.9 million ~~increase~~of proceeds, net of issuance costs, from issuing shares of our Class A common stock during the period. Additionally, we received $155.0 million from total borrowings under our Amended ABL Credit Facility. Payments of approximately $6.7 million in debt issuance costs and higher dividend payments ~~a $1.3~~of approximately $0.7 million ~~increase~~partially offset these increases in ~~share repurchases from employees to satisfy tax withholding obligations related to restricted stock units that vested~~net cash provided by financing activities during ~~the period and a $0.3 million increase in payments on finance leases.~~2023.

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 ~~2021~~2022 Annual Report. Our exposure to market risk has not changed materially since December 31, ~~2021.~~2022 other than with regard to interest rate risk as described below:

Interest Rate Risk

We are exposed to market risk from fluctuations in interest rates in connection with variable rate borrowings under our Amended ABL Credit Facility. As a result, changes in interest rates will impact our interest expense. Borrowings under our Amended ABL Credit Facility bear interest at Cactus Company’s option at either the Alternate Base Rate (as defined therein) or (ii) the Adjusted Term SOFR Rate (as defined therein), plus, in each case, an applicable margin. As of March 31, 2023, outstanding borrowings under the Amended ABL Credit Facility included a $125.0 million term loan and $30.0 million of revolving borrowings. A hypothetical 100 basis point increase or decrease to our variable interest rates, as of March 31, 2023, would cause our interest expense to increase or decrease by approximately $1.6 million per year.

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

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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 March 31, ~~2022~~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 15% of our total consolidated revenues for the first quarter of 2023. FlexSteel’s total assets constituted approximately 51% of our total consolidated assets as of March 31, 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

~~There~~Except as described above, there were no changes in our internal control over financial reporting that occurred during the first quarter of ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 ~~2021~~2022 Annual Report and the risk factors and other cautionary statements contained in our other filings with the Securities and Exchange Commission, which could materially affect our business, results of operations, financial condition or cash flows. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, results of operations, financial condition or cash flows. There have been no material changes in our risk factors from those described in our ~~2021~~2022 Annual Report or our other Securities and Exchange Commission filings other than the addition of the risk factor as set forth below:

~~The ongoing conflict in Ukraine~~Current banking crisis may adversely affect our ~~business and~~ results of ~~operations.~~operations and financial condition.

~~The ongoing conflict in Ukraine~~Several bank failures have occurred during 2023, which could have a material adverse ~~effects~~effect on ~~global macroeconomic conditions which could negatively impact~~ our business, ~~and~~ results of ~~operations. The conflict is highly unpredictable~~operations and ~~has already resulted~~cash flows. Those bank failures may have a negative impact on the ability of our customers to obtain financing and result in ~~significant volatility with~~a decrease in customer demand for, and budgets to buy, our products. Additionally, these bank failures, and the resulting loss of confidence in the banking system and potential of an extended recession, may have a negative impact on demand for oil and ~~natural~~ gas ~~prices worldwide. Elevated oil and natural gas prices could result in higher inflation worldwide, causing economic uncertainty in the oil and natural gas markets as well as the stock market,~~ resulting in ~~stock price volatility, foreign currency fluctuations and supply chain disruptions. These conditions could ultimately dampen~~a decrease in demand for our ~~goods and services by increasing the possibility~~products.

Table of ~~a recession. In addition, the conflict could lead to increased cyberattacks or could aggravate other risk factors that we identify in our public filings.~~Contents

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

Issuer Purchases of Equity Securities

The following sets forth information with respect to our repurchase of Class A common stock during the three months ended March 31, ~~2022~~2023 (in whole shares).

Period
Total number of shares purchased (1)
Average price paid per share (2)
January 1-31, 2022 — $ —
February 1-28, 2022 — —
March 1-31, 2022 79,431 55.70
Total 79,431 $ 55.70


Period	Total number of shares purchased (1)	Average price paid per share (2)
January 1-31, 2023	95	$	49.64
February 1-28, 2023	—	—
March 1-31, 2023	101,861	42.59
Total	101,956	$	42.60

(1)Consists of shares of Class A common stock repurchased from employees to satisfy tax withholding obligations related to restricted stock and performance stock units that vested during the period.

(2)Average price paid for Class A common stock purchased from employees to satisfy tax withholding obligations related to restricted stock and performance stock units that vested during the period.

2025

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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 ~~September 8, 2020~~February 7, 2023 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed with the Commission on ~~September 9, 2020)~~February 8, 2023)
10.1†*						Form of Restricted Stock Agreement (four-year cliff vesting) under the Cactus, Inc. Long Term Incentive Plan
10.2						Amended and Restated Limited Liability Company Operating Agreement of Cactus Companies, LLC, dated February 27, 2023 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8‑K filed with the Commission on March 1, 2023)
10.3						Amended and Restated Credit Agreement, dated as of February 28, 2023, among Cactus Companies, LLC, as borrower, certain subsidiaries of Cactus Companies, LLC, as guarantors, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, an issuing bank and swingline lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8 K filed with the Commission on March 1, 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.

† Management contract or compensatory plan or arrangement.

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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.

May ~~5, 2022~~10, 2023	By:	/s/ Scott Bender
Date		Scott Bender President, Chief Executive Officer and Director (Principal Executive Officer)

May ~~5, 2022~~10, 2023	By:	/s/ Stephen Tadlock
Date		Stephen Tadlock Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

2227


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	1217
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	1923
Item 4.	Controls and Procedures	1923

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	2024
Item 1A.	Risk Factors	2024
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2025
Item 6.	Exhibits	2126
	Signatures	2227


	Three Months Ended
	March 31, 2022		December 31, 2021		$ Change		% Change
	(in thousands)
Revenues
Product revenue	$	94,040	$	83,771	$	10,269	12.3	%
Rental revenue	22,343		19,225		3,118		16.2
Field service and other revenue	29,516		26,920		2,596		9.6
Total revenues	145,899		129,916		15,983		12.3
Costs and expenses
Cost of product revenue	60,920		54,754		6,166		11.3
Cost of rental revenue	15,089		14,553		536		3.7
Cost of field service and other revenue	24,806		22,036		2,770		12.6
Selling, general and administrative expenses	14,094		12,861		1,233		9.6
Total costs and expenses	114,909		104,204		10,705		10.3
Income from operations	30,990		25,712		5,278		20.5

Interest expense, net	(100)		(142)		42		(29.6)
Other income (expense), net	(1,115)		1,902		(3,017)		nm
Income before income taxes	29,775		27,472		2,303		8.4
Income tax expense	2,692		7,089		(4,397)		(62.0)
Net income	27,083		20,383		6,700		32.9
Less: net income attributable to non-controlling interest	6,467		5,359		1,108		20.7
Net income attributable to Cactus Inc.	$	20,616	$	15,024	$	5,592	37.2	%
nm = not meaningful