Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2018 | May 10, 2018 | |
Entity Registrant Name | Cactus, Inc. | |
Entity Central Index Key | 1,699,136 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q1 | |
Class A Common Stock | ||
Entity Common Stock, Shares Outstanding | 26,450,000 | |
Class B Common Stock | ||
Entity Common Stock, Shares Outstanding | 48,439,772 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Mar. 31, 2018 | Dec. 31, 2017 |
Current assets | ||
Cash and cash equivalents | $ 7,860 | $ 7,574 |
Accounts receivable, net | 84,800 | 84,173 |
Inventories | 69,533 | 64,450 |
Prepaid expenses and other current assets | 5,563 | 7,732 |
Total current assets | 167,756 | 163,929 |
Property and equipment, net | 109,492 | 94,654 |
Goodwill | 7,824 | 7,824 |
Deferred tax asset, net | 73,215 | |
Other noncurrent assets | 48 | 49 |
Total assets | 358,335 | 266,456 |
Current liabilities | ||
Accounts payable | 38,575 | 35,080 |
Accrued expenses and other current liabilities | 14,584 | 10,559 |
Capital lease obligations, current portion | 5,578 | 4,667 |
Current maturities of long-term debt | 2,568 | |
Total current liabilities | 58,737 | 52,874 |
Capital lease obligations, net of current portion | 8,809 | 7,946 |
Deferred tax liability, net | 489 | 416 |
Liability related to tax receivable agreement | 62,989 | |
Long-term debt, net | 241,437 | |
Total liabilities | 131,024 | 302,673 |
Commitments and contingencies | ||
Stockholders' / Members' equity (deficit) | ||
Members' equity (deficit) | (36,299) | |
Preferred stock, $0.01 par value, 10,000 shares authorized, none issued and outstanding, respectively | ||
Additional paid-in capital | 83,145 | |
Retained earnings | 3,753 | |
Accumulated other comprehensive income | 321 | 82 |
Total stockholders' equity attributable to Cactus Inc. and members' equity (deficit) | 87,484 | (36,217) |
Non-controlling interest | 139,827 | |
Total stockholders' and members' equity (deficit) | 227,311 | (36,217) |
Total liabilities and equity | 358,335 | $ 266,456 |
Class A Common Stock | ||
Stockholders' / Members' equity (deficit) | ||
Common stock | $ 265 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) | Mar. 31, 2018$ / sharesshares |
Preferred stock, par value | $ / shares | $ 0.01 |
Preferred stock, shares authorized | 10,000,000 |
Preferred stock, shares issued | 0 |
Preferred stock, shares outstanding | 0 |
Class A Common Stock | |
Common stock, par value | $ / shares | $ 0.01 |
Common stock, shares authorized | 300,000,000 |
Common stock, shares issued | 26,450,000 |
Common stock, shares outstanding | 26,450,000 |
Class B Common Stock | |
Common stock, par value | $ / shares | $ 0.01 |
Common stock, shares authorized | 215,000,000 |
Common stock, shares issued | 48,440,000 |
Common stock, shares outstanding | 48,440,000 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Revenues | ||
Total revenues | $ 115,110 | $ 58,503 |
Costs and expenses | ||
Selling, general and administrative expenses | 9,114 | 6,103 |
Total costs and expenses | 79,893 | 48,509 |
Income from operations | 35,217 | 9,994 |
Interest expense, net | (2,852) | (4,986) |
Other income (expense), net | (4,305) | |
Income before income taxes | 28,060 | 5,008 |
Income tax expense | 1,652 | 154 |
Net income | 26,408 | 4,854 |
Less: Pre-IPO net income attributable to Cactus LLC | 13,648 | 4,854 |
Less: net income attributable to non-controlling interest | 9,007 | |
Net income attributable to Cactus Inc. | $ 3,753 | |
Earnings per Class A Share - basic | $ 0.14 | |
Earnings per Class A Share - diluted | $ 0.14 | |
Weighted average Class A Shares outstanding - diluted | 26,648 | |
Products | ||
Revenues | ||
Total revenues | $ 58,926 | 33,038 |
Costs and expenses | ||
Cost of revenue | 37,066 | 23,195 |
Rental revenue | ||
Revenues | ||
Total revenues | 29,145 | 12,975 |
Costs and expenses | ||
Cost of revenue | 12,176 | 8,273 |
Field service and other revenue | ||
Revenues | ||
Total revenues | 27,039 | 12,490 |
Costs and expenses | ||
Cost of revenue | $ 21,537 | $ 10,938 |
Class A Common Stock | ||
Costs and expenses | ||
Earnings per Class A Share - basic | $ 0.14 | |
Earnings per Class A Share - diluted | $ 0.14 | |
Weighted average Class A Shares outstanding - basic | 26,450,000 | |
Weighted average Class A Shares outstanding - diluted | 26,648,000 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||
Net income | $ 26,408 | $ 4,854 |
Foreign currency translation | 239 | 177 |
Comprehensive income | 26,647 | 5,031 |
Less: Pre-IPO comprehensive income attributable to Cactus LLC | 13,928 | $ 5,031 |
Less: comprehensive income attributable to non-controlling interest | 8,981 | |
Comprehensive income attributable to Cactus Inc. | $ 3,738 |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - 3 months ended Mar. 31, 2018 - USD ($) shares in Thousands, $ in Thousands | Class A Common StockCommon stock | Class B Common StockCommon stock | Members' Equity (Deficit) | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Non-controlling Interest | Total |
Balance at the beginning of the period at Dec. 31, 2017 | $ (36,299) | $ 82 | $ (36,217) | |||||
Statement of Stockholders'/Members' Equity | ||||||||
Member distributions prior to IPO | (26,000) | (26,000) | ||||||
Net income prior to IPO and reorganization | 13,648 | 13,648 | ||||||
Effect of IPO and reorganization | $ 265 | $ 48,651 | $ 71,195 | $ 130,861 | 250,972 | |||
Effect of IPO and reorganization (shares) | 26,450 | 48,440 | ||||||
Member distributions after IPO | (41) | (41) | ||||||
Additional paid-in capital related to tax receivable agreement | 11,116 | 11,116 | ||||||
Other comprehensive income (loss) | 239 | 239 | ||||||
Stock-based compensation | 834 | 834 | ||||||
Net income after IPO and reorganization | $ 3,753 | 9,007 | 12,760 | |||||
Balance at the end of the period at Mar. 31, 2018 | $ 265 | $ 83,145 | $ 3,753 | $ 321 | $ 139,827 | $ 227,311 | ||
Balance at the end of the period (shares) at Mar. 31, 2018 | 26,450 | 48,440 |
CONDENSED CONSOLIDATED STATEME7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Cash flows from operating activities | ||
Net income | $ 26,408 | $ 4,854 |
Reconciliation of net income to net cash provided by operating activities | ||
Depreciation and amortization | 6,621 | 5,313 |
Debt discount and deferred loan cost amortization | 219 | 438 |
Stock-based compensation | 834 | |
Inventory obsolescence | 451 | |
Loss on disposal of assets | 29 | 235 |
Deferred income taxes | 963 | 29 |
Loss on debt extinguishment | 4,305 | |
Changes in operating assets and liabilities | ||
Accounts receivable | (419) | (8,998) |
Inventories | (5,594) | (7,648) |
Prepaid expenses and other assets | (56) | (1,140) |
Accounts payable | 792 | 12,508 |
Accrued expenses and other liabilities | 4,012 | 341 |
Net cash provided by operating activities | 38,565 | 5,932 |
Cash flows from investing activities | ||
Capital expenditures | (16,127) | (8,584) |
Proceeds from sale of assets | 440 | 83 |
Net cash used in investing activities | (15,687) | (8,501) |
Cash flows from financing activities | ||
Principal payments on long-term debt | (248,529) | (642) |
Payments on capital leases | (1,266) | (319) |
Net proceeds from IPO | 469,621 | |
Distributions to members | (26,041) | |
Redemptions of CW Units | (216,425) | |
Net cash used in financing activities | (22,640) | (961) |
Effect of exchange rate changes on cash and cash equivalents | 48 | 12 |
Net increase (decrease) in cash and cash equivalents | 286 | (3,518) |
Cash and cash equivalents | ||
Beginning of period | 7,574 | 8,688 |
End of period | $ 7,860 | $ 5,170 |
Organization and Nature of Oper
Organization and Nature of Operations | 3 Months Ended |
Mar. 31, 2018 | |
Organization and Nature of Operations | |
Organization and Nature of Operations | 1. Organization and Nature of Operations Description of Business Cactus, Inc. (“Cactus Inc”) and its consolidated subsidiaries, including Cactus Wellhead, LLC (“Cactus LLC”) are primarily engaged in the design, manufacture and sale of wellhead and pressure control equipment. In addition, we maintain a fleet of frac valves and ancillary equipment for short-term rental, as well as offering repair and refurbishment services and the provision of service crews to assist in the installation and operations of pressure control systems. We operate through 14 U.S. service centers located in Texas, Oklahoma, New Mexico, Louisiana, Pennsylvania, North Dakota, Wyoming and Colorado, and one service center in Australia, with our corporate headquarters located in Houston, Texas. Cactus Inc. was incorporated on February 17, 2017 as a Delaware corporation for the purpose of completing an initial public offering of equity and related transactions. Cactus LLC is a Delaware limited liability company and was formed on July 11, 2011. 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 (including Cactus LLC) following the completion of our IPO and (ii) Cactus LLC and its consolidated subsidiaries prior to the completion of our IPO. Initial Public Offering On February 12, 2018, we completed the initial public offering of 23,000,000 shares of Class A common stock (our “IPO”), par value $0.01 per share, at a price to the public of $19.00 per share. We received net proceeds of $408.0 million after deducting underwriting discounts and commissions and $2.8 million in current offering expenses of our IPO. We also paid $2.2 million in offering expenses during 2017 that were recorded to prepaid expenses in the consolidated balance sheet as of December 31, 2017. On February 14, 2018 we completed the sale of an additional 3,450,000 shares of Class A common stock pursuant to the exercise in full by the underwriters of their option to purchase additional shares of Class A common stock (the “Option”), from which we received an additional $61.6 million of net proceeds after deducting underwriting discounts and commissions. We contributed all of the net proceeds of our IPO (including from the Option) to Cactus LLC in exchange for units in Cactus LLC (“CW Units”). Cactus Inc. is a holding company who is the sole managing member of Cactus LLC. Cactus LLC used the total $469.6 million of net proceeds (including net proceeds from the Option) to (i) repay all of the borrowings outstanding under its term loan facility, including accrued interest, of $251.0 million and (ii) redeem $216.4 million of CW Units from certain direct and indirect owners of Cactus LLC. The remaining $2.2 million was held by Cactus LLC to cover previously paid offering expenses in 2017. As the sole managing member of Cactus LLC, Cactus Inc. operates and controls all of the business and affairs of Cactus LLC, and conducts its business through Cactus LLC and its subsidiaries. As a result, Cactus Inc. consolidates the financial results of Cactus LLC and its subsidiaries and reports non-controlling interest related to the portion of CW Units not owned by Cactus Inc., which reduces net income attributable to Cactus Inc.’s Class A stockholders. As of March 31, 2018, Cactus Inc. owned 35.3% of Cactus LLC. Tax Receivable Agreement In connection with our IPO, we entered into a tax receivable agreement (the “TRA”) with certain direct and indirect owners of CW Units (the “TRA Holders”). The TRA generally provides for the payment by Cactus Inc. to the TRA Holders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax or 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. See Note 2 for further details of the TRA. Reorganization In connection with our IPO, we completed a series of reorganization transactions (the “Reorganization”), including the following: (a) all of the membership interests in Cactus LLC were converted into a single class of CW Units; (b) Cactus Inc. contributed the net proceeds of our IPO to Cactus LLC in exchange for 23,000,000 CW Units; (c) Cactus LLC used the net proceeds of our IPO that it received from Cactus Inc. to repay the borrowings outstanding, plus accrued interest, under its term loan facility and to redeem 8,667,841 CW Units from the owners thereof; (d) Cactus Inc. issued and contributed a total of 51,889,772 shares of its Class B common stock, par value $0.01 per share, equal to the number of outstanding CW Units held by the owners thereof following the redemption described in (c) above to Cactus LLC (the Class B common stock has no economic interest and does not share in cash dividends or liquidation rights, but entitles its holders to one vote on all matters to be voted on by Cactus’ shareholders generally); (e) Cactus LLC distributed to each of the owners that continued to own CW Units following our IPO one share of Class B common stock for each CW Unit such owner held following the redemption described in (c) above; (f) Cactus Inc. contributed the net proceeds from the exercise of the Option to Cactus LLC in return for 3,450,000 additional CW Units, and (g) Cactus LLC used the net proceeds from the Option to redeem 3,450,000 CW Units from the owners thereof, and Cactus Inc. canceled a corresponding number of shares of Class B common stock. As of March 31, 2018, there were 26,450,000 shares of Class A common stock and 48,439,772 shares of Class B common stock issued and outstanding. Other IPO related items In conjunction with our IPO, we also: (a) (b) (c) (d) (e) (f) Prior to our IPO, on January 25, 2018, Cactus LLC paid a cash distribution of $26.0 million to pre-IPO owners. This distribution was funded by borrowing under the revolving credit facility. The purpose of the distribution was to provide funds to these owners to pay their federal and state tax liabilities associated with taxable income recognized by them for periods prior to the completion of our IPO as a result of their ownership interests in Cactus LLC. The borrowings under the revolving credit facility were repaid as of March 31, 2018. |
Preparation of Interim Financia
Preparation of Interim Financial Statements and Other Items | 3 Months Ended |
Mar. 31, 2018 | |
Preparation Of Interim Financial Statements And Other Items | |
Preparation of Interim Financial Statements and Other Items | 2. Preparation of Interim Financial Statements and Other Items Basis of Presentation The unaudited and condensed consolidated financial statements (“consolidated financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These consolidated financial statements include the accounts of Cactus Inc. and its wholly owned subsidiaries 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 for Form 10‑K for the year ended December 31, 2017. All significant intercompany transactions and balances have been eliminated upon consolidation. In our opinion, 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 the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year. As discussed in Note 1, as a result of our IPO and Reorganization, Cactus Inc. is the sole managing member of Cactus LLC and consolidates entities in which it has a controlling financial interest. The Reorganization was considered a transaction between entities under common control. As a result, the financial statements for periods prior to our IPO and the Reorganization have been adjusted to combine the previously separate entities for presentation purposes. However, Cactus Inc. had no operations or assets and liabilities prior to our IPO. As such, for periods prior to the completion of our IPO, the consolidated financial statements represent the historical financial position and results of operations of Cactus LLC and its subsidiaries. For periods after the completion of our IPO, the financial position and results of operations include those of Cactus and report the non-controlling interest related to the portion of CW Units not owned by Cactus Inc. Limitation of Members’ Liability Under the terms of the First Amended and Restated Limited Liability Company Operating Agreement, dated as of January 29, 2018 of Cactus LLC (the “LLC Agreement”), the members of Cactus LLC are not obligated for debt, liabilities, contracts or other obligations of Cactus LLC. Profits and losses are allocated to members as defined in the LLC Agreement. Policy for Interim Period Tax Allocation For interim income tax reporting we estimate our annual effective tax rate and apply it to our year-to-date ordinary income. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur. Our IPO closed on February 12, 2018, and the annual effective tax rate was determined considering the periods before and after our IPO. Accordingly, net income attributable to non-controlling interest includes its share of respective income tax expense, which is not subject to U.S. federal and state income tax expense, and net income attributable to Cactus Inc. includes its share of respective income tax expense, which does include U.S. federal and state income tax expense. As of March 31, 2018, Cactus Inc. owned 35.3% of Cactus LLC and non-controlling interest owned 64.7% of Cactus LLC. Income Taxes Cactus Inc. is a corporation and is subject to U.S. federal as well as state income tax related to its ownership percentage in Cactus LLC. Cactus LLC is a limited liability company treated as a partnership for U.S. federal income tax purposes and files a U.S. Return of Partnership Income, which includes both our U.S. and foreign operations. Consequently, the members of Cactus LLC are taxed individually on their share of earnings for U.S. federal and state income tax purposes. Additionally, our operations in both Australia and China are subject to local country income taxes. The provision for income tax for the three months ended March 31, 2018 consisted of: Three Months Ended March 31, 2018 Current: Federal $ 211 State 240 Foreign 238 Total current income taxes 689 Deferred: Federal 762 State 128 Foreign 73 Total deferred income taxes 963 Total provision for income taxes $ 1,652 The effective income tax rate was different from the statutory U.S. federal income tax rate due to the following: Three Months Ended March 31, 2018 Income taxes at 21% statutory tax rate $ 5,893 Net difference resulting from: Profit of Cactus LLC Pre-IPO not subject to U.S. federal tax (2,808) Profit of non-controlling interest not subject to U.S. federal tax (1,926) Foreign earnings subject to different tax rates 50 State income taxes 318 Foreign withholding taxes 73 Change in valuation allowance (20) Other 72 Total provision for income taxes $ 1,652 Stock-based Compensation We measure the cost of equity-based awards based on the grant-date fair value and we allocate the compensation expense over the corresponding service period, which is usually the vesting period, using the straight-line method. All grant date fair value is expensed immediately for awards that are fully vested as of the grant date. In conjunction with our IPO, we granted 737,493 restricted stock unit awards with a grant date fair value of $19.00. The majority of these awards vest over a three year period. During the three months ended March 31, 2018, we recorded $0.8 million of stock-based compensation expense mostly included in selling, general and administrative expenses. As of March 31, 2018, there was $13.2 million of unrecognized compensation cost related to these unvested restricted stock unit awards, which is expected to be recognized over a weighted average period of 2.8 years. Significant Customers For the three months ended March 31, 2018, Cactus had one customer that represented 11% of consolidated revenues. No other customer represented 10% or more of consolidated revenues during this period. For the three months ended March 31, 2017, Cactus had two customers each representing 10% or more of consolidated revenues, whose combined revenues represented approximately 21% of consolidated revenues. There were no other customers representing 10% or more of consolidated revenues during this period. Significant Vendors We purchase a significant portion of supplies, equipment and machined components from a single vendor. For the three months ended March 31, 2018 and 2017, purchases from this vendor totaled $10.4 million and $6.4 million, respectively. These figures represent approximately 21% and 20% for the respective periods, of total third party vendor purchases of raw materials, finished products, equipment, machining and other services. Amounts due to the vendor included in accounts payable in the consolidated balance sheets as of March 31, 2018 and December 31, 2017 totaled $7.2 million and $7.4 million, respectively. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include but are not limited to estimated losses on accounts receivables, estimated realizable value on excess and obsolete inventory, estimates related to fair value of reporting units for purposes of assessing goodwill and other indefinite-lived intangible assets for impairment and estimates of deferred tax assets related to the step-up in basis under the TRA and the associated liability under the TRA. Actual results could differ from those estimates. Tax Receivable Agreement Pursuant to the LLC Agreement, each TRA Holder will, subject to certain limitations, have the right (the “Redemption Right”) to cause Cactus LLC to acquire all or at least a minimum portion of its CW Units for, at Cactus LLC’s election, (x) shares of our Class A common stock at a redemption ratio of one share of Class A common stock for each CW 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 the Redemption Right, Cactus Inc. (instead of Cactus LLC) will have the right (the “Call Right”) to acquire each tendered CW Unit directly from the exchanging TRA 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 CW Units pursuant to the Redemption Right or our Call Right, the corresponding number of shares of Class B common stock will be canceled. Cactus LLC has made for itself (and for each of its direct or indirect subsidiaries that is treated as a partnership for U.S. federal income tax purposes and that it controls) an election under Section 754 of the Internal Revenue Code (the “Code”) that will be effective for 2018 and each taxable year in which a redemption of CW Units pursuant to the Redemption Right or the Call Right occurs. Pursuant to the Section 754 election, redemptions of CW Units pursuant to the Redemption Right or the Call Right are expected to result in adjustments to the tax basis of the tangible and intangible assets of Cactus LLC. These adjustments will be allocated to Cactus Inc. Such adjustments to the tax basis of the tangible and intangible assets of Cactus LLC would not have been available to Cactus Inc. absent its acquisition or deemed acquisition of CW Units pursuant to the exercise of the Redemption Right or the Call Right. In addition, the repayment of borrowings outstanding under the Cactus LLC term loan facility resulted in adjustments to the tax basis of the tangible and intangible assets of Cactus LLC, a portion of which was allocated to Cactus Inc. These basis adjustments are expected to increase (for tax purposes) Cactus Inc.’s depreciation, depletion and amortization deductions and may also decrease Cactus Inc.’s gains (or increase its losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets. Such increased deductions and losses and reduced gains may reduce the amount of tax that Cactus Inc. would otherwise be required to pay in the future. The TRA will generally provide for the payment by Cactus Inc. to each TRA Holder 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 as a result of (i) certain increases in tax basis that occur as a result of Cactus Inc.’s acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such TRA Holder’s CW Units in connection with our IPO or pursuant to the exercise of the Redemption Right or the Call Right, (ii) certain increases in tax basis resulting from the repayment of borrowings outstanding under Cactus LLC’s term loan facility and (iii) imputed interest deemed to be paid by Cactus Inc. as a result of, and additional tax basis arising from, any payments Cactus Inc. makes under the TRA. We will retain the benefit of the remaining 15% of the cash savings. The payment obligations under the TRA are Cactus Inc.’s obligations and not obligations of Cactus LLC, and we expect that the payments we will be required to make under the TRA will be substantial. We have determined that it is more likely than not that actual cash tax savings will be realized by Cactus Inc. from the tax benefits resulting from the Reorganization and our IPO. Accordingly, the TRA is expected to result in future payments, and we have recorded a liability from the TRA of $63.0 million included in the consolidated balance sheet as of March 31, 2018. Estimating the amount and timing of payments that may become due under the TRA is by its nature imprecise. For purposes of the TRA, net cash savings in tax generally will be calculated by comparing Cactus Inc.’s actual tax liability (determined by using the actual applicable U.S. federal income tax rate and an assumed combined state and local income tax rate) to the amount it would have been required to pay had it not been able to utilize any of the tax benefits subject to the TRA. The amounts payable, as well as the timing of any payments under the TRA, are dependent upon significant future events and assumptions, including the timing of the redemption of CW Units, the price of our Class A common stock at the time of each redemption, the extent to which such redemptions are taxable transactions, the amount of the redeeming unit holder’s tax basis in its CW Units at the time of the relevant redemption, the depreciation and amortization periods that apply to the increase in tax basis, the amount and timing of taxable income we generate in the future and the U.S. federal income tax rate then applicable, and the portion of Cactus Inc.’s payments under the TRA that constitute imputed interest or give rise to depreciable or amortizable tax basis. The accounting under the TRA for any exchanges of CW Units subsequent to the Reorganization will follow the same procedures as described above. A delay in the timing of redemptions of CW Units, holding other assumptions constant, would be expected to decrease the discounted value of the amounts payable under the TRA as the benefit of the depreciation and amortization deductions would be delayed and the estimated increase in tax basis could be reduced as a result of allocations of Cactus LLC taxable income to the redeeming unit holder prior to the redemption. Stock price increases or decreases at the time of each redemption of CW Units would be expected to result in a corresponding increase or decrease in the undiscounted amounts payable under the TRA in an amount equal to 85% of the tax-effected change in price. The amounts payable under the TRA are dependent upon Cactus Inc. having sufficient future taxable income to utilize the tax benefits on which it is required to make payments under the TRA. If Cactus Inc.’s projected taxable income is significantly reduced, the expected payments would be reduced to the extent such tax benefits do not result in a reduction of Cactus Inc.’s future income tax liabilities. It is possible that future transactions or events could increase or decrease the actual tax benefits realized and the corresponding liability from the TRA. Moreover, there may be a negative impact on our liquidity if, as a result of timing discrepancies or otherwise, (i) the payments under the TRA exceed the actual benefits we realize in respect of the tax attributes subject to the TRA or (ii) distributions to Cactus Inc. by Cactus LLC are not sufficient to permit Cactus Inc. to make payments under the TRA after it has paid its taxes and other obligations. The payments under the TRA will not be conditional on a holder of rights under the TRA having a continued ownership interest in either Cactus LLC or Cactus Inc. In addition, although we are not aware of any issue that would cause the Internal Revenue Service (“IRS”) or other relevant tax authorities to challenge potential tax basis increases or other tax benefits covered under the TRA, the TRA Holders will not reimburse us for any payments previously made under the TRA if such basis increases or other benefits are subsequently disallowed, except that excess payments made to any such holder will be netted against payments otherwise to be made, if any, to such holder after our determination of such excess. As a result, in such circumstances, Cactus Inc. could make payments that are greater than its actual cash tax savings, if any, and may not be able to recoup those payments. We account for any amounts payable under the TRA in accordance with Accounting Standard Codification (“ASC”) Topic 450, Contingencies (“ASC 450”). We will recognize subsequent changes to the measurement of the liability from the TRA in the income statement as a component of income before taxes. In the case of any changes to any valuation allowance associated with the underlying tax asset, given the link between the tax savings generated and the recognition of the liability from the TRA (i.e., one is recorded based on 85% of the other), and the explicit guidance in ASC 740-20-45-11(g) which requires that subsequent changes in a valuation allowance established against deferred tax assets that arose due to change in tax basis as a result of a transaction among or with shareholders to be recorded in the income statement as opposed to equity, we believe recording of the corollary adjustment to the liability from the TRA in the income statement is appropriate. 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. In the event that the TRA is not terminated, the payments under the TRA are anticipated to commence in 2019 and to continue for 16 years after the date of the last redemption of CW Units. Accordingly, it is expected that payments will continue to be made under the TRA for more than 25 years. 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 (determined by applying a discount rate of one-year LIBOR plus 150 basis points) and such payment is expected to be substantial. The calculation of anticipated future payments will be based upon certain assumptions and deemed events set forth in the TRA, including the assumptions that (i) we have sufficient taxable income to fully utilize the tax benefits covered by the TRA and (ii) any CW Units (other than those held by Cactus Inc.) outstanding on the termination date are deemed to be redeemed on the termination date. Any early termination payment may be made significantly in advance of the actual realization, if any, of the future tax benefits to which the termination payment relates. Assuming no material changes in the relevant tax law, we expect that if the TRA were terminated as of March 31, 2018, the estimated termination payments, based on the assumptions discussed above, would be approximately $304.6 million (calculated using a discount rate equal to one-year LIBOR plus 150 basis points, applied against an undiscounted liability of $430.1 million). The TRA provides that in the event that we breach any of our material obligations under the TRA, whether as a result of (i) our failure to make any payment when due (including in cases where we elect to terminate the TRA early, the TRA is terminated early due to certain mergers, asset sales, or other forms of business combinations or changes of control or we have available cash but fail to make payments when due under circumstances where we do not have the right to elect to defer the payment, as described below), (ii) our failure to honor any other material obligation under it or (iii) by operation of law as a result of the rejection of the TRA in a case commenced under the U.S. Bankruptcy Code or otherwise, then the TRA Holders may elect to treat such breach as an early termination, which would cause all our payment and other obligations under the TRA to be accelerated and become due and payable applying the same assumptions described above. As a result of either an early termination or a change of control, we could be required to make payments under the TRA that exceed our actual cash tax savings under the TRA. In these situations, our obligations under the TRA could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, or other forms of business combinations or changes of control. Decisions we make in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments that are received by the TRA Holders under the TRA. For example, the earlier disposition of assets following a redemption of CW Units may accelerate payments under the TRA and increase the present value of such payments, and the disposition of assets before a redemption of CW Units may increase the TRA Holders’ tax liability without giving rise to any rights of the TRA Holders to receive payments under the TRA. Such effects may result in differences or conflicts of interest between the interests of the TRA Holders and other shareholders. Payments generally are due under the TRA within five business days following the finalization of the schedule with respect to which the payment obligation is calculated. However, interest on such payments will begin to accrue from the due date (without extensions) of our U.S. federal income tax return for the period to which such payments relate until such payment due date at a rate equal to one-year LIBOR plus 150 basis points. Except in cases where we elect to terminate the TRA early or it is otherwise terminated as described above, generally 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 at a rate of one-year LIBOR plus 550 basis points. However, interest will accrue from the due date for such payment until the payment date at a rate of one-year LIBOR plus 150 basis points if we are unable to make such payment as a result of limitations imposed by our credit agreement. We have no present intention to defer payments under the TRA. Because we are a holding company with no operations of our own, our ability to make payments under the TRA is dependent on the ability of Cactus LLC to make distributions to us in an amount sufficient to cover our obligations under the TRA. This ability, in turn, may depend on the ability of Cactus LLC’s subsidiaries to make distributions to it. The ability of Cactus LLC, its subsidiaries and other entities in which it directly or indirectly holds an equity interest to make such distributions will be subject to, among other things, the applicable provisions of Delaware law (or other applicable jurisdiction) that may limit the amount of funds available for distribution and restrictions in relevant debt instruments issued by Cactus LLC or its subsidiaries and other entities in which it directly or indirectly holds an equity interest. Additionally, distributions made by Cactus LLC generally require pro-rata distribution among all its members, which could be significant. To the extent that we are unable to make payments under the TRA for any reason, such payments will be deferred and will accrue interest until paid. Emerging Growth Company status Cactus is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We will remain an emerging growth company until the earlier of (1) the last day of our fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which our total annual gross revenue is at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter (following twelve months from our IPO), and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise generally applicable to public companies. We have irrevocably opted out of the extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. Recent Accounting Pronouncements Standards Adopted In August 2016, the FASB issued ASU No. 2016-15, Cash Flow Statement (Topic 250). This new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice, including: debt prepayment or debt extinguishment costs, settlement of zero coupon debt instruments or other debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We adopted this ASU on January 1, 2018. The adoption of this pronouncement did not have a material impact on our consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes the current revenue recognition guidance. The ASU is based on the principle that revenue is recognized to depict the transfer of goods and services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new standard will be effective for public companies for the fiscal years beginning after December 31, 2017 using one of two retrospective application methods. We adopted this ASU on January 1, 2018 using the modified retrospective method. The adoption of this pronouncement did not have a material impact on our consolidated financial statements. See Note 5. In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this standard provide a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not a business. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is allowed for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance and for transactions in which a subsidiary is deconsolidated or a group of assets is derecognized before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. Entities will be required to apply the guidance prospectively when adopted. We adopted this ASU on January 1, 2018. The adoption of this pronouncement did not have a material impact on our consolidated financial statements. Standards Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Upon adoption of the new guidance, lessees are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The new guidance will be effective for fiscal years beginning after December 15, 2018. We are currently evaluating the impact this pronouncement will have on our consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other, which simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the new standard, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of this pronouncement to have a material impact on our consolidated financial statements. In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this update also require certain disclosures about stranded tax effects. The amendments in this update are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact this pronouncement will have on our consolidated financial statements. |
Inventories
Inventories | 3 Months Ended |
Mar. 31, 2018 | |
Inventories | |
Inventories | 3. Inventories Inventories consists of the following: March 31, December 31, 2018 2017 Raw materials $ 1,378 $ 1,532 Work-in-progress 4,012 3,590 Finished goods 64,143 59,328 $ 69,533 $ 64,450 |
Long-term Debt
Long-term Debt | 3 Months Ended |
Mar. 31, 2018 | |
Long-term Debt. | |
Long-term Debt | 4. Long-term Debt Long-term debt consists of the following: March 31, December 31, 2018 2017 Term Loan $ — $ 248,529 Less: Current portion — (2,568) Unamortized debt discount and deferred loan costs — (4,524) Long-term debt, net $ — $ 241,437 On July 31, 2014, Cactus LLC entered into a credit agreement collateralized by substantially all of its assets (the “Credit Agreement”), consisting of a $275.0 million Tranche B term loan (the “Term Loan”) and $50.0 million revolving credit facility with a $10.0 million sublimit for letters of credit (the “Revolving Loans”). In conjunction with the completion of our IPO in February 2018, we repaid the Term Loan in full. There was $248.5 million outstanding on the Term Loan as of December 31, 2017. As of March 31, 2018 and December 31, 2017, no amounts were outstanding on the Revolving Loans and no letters of credit were outstanding. We may borrow and repay the Revolving Loans in accordance with the terms of the Credit Agreement. A commitment fee is payable quarterly on the unused portion of the revolving credit facility. Interest on the Revolving Loans is payable in arrears for each draw fixed at an adjusted base rate plus an applicable margin, as defined in the Credit Agreement. At March 31, 2018 there was no accrued interest and December 31, 2017 included $0.2 million of accrued interest within accrued expenses, on the consolidated balance sheets. The Revolving Loans portion of the Credit Agreement matures on July 31, 2019. Amounts outstanding under the Credit Agreement may be voluntarily prepaid, in whole or in part, without premium or penalty, in accordance with the terms of the Credit Agreement and subject to breakage and similar costs. The Credit Agreement contains various restrictive covenants that may limit our ability to incur additional indebtedness and liens, make or declare dividends, or enter into certain transactions, and contains a total leverage financial covenant related only to the Revolving Loans once a total of $15.0 million or more has been drawn on the Revolving Loans. Based on this total leverage financial covenant, availability under the revolving credit facility can be limited to $15.0 million. At March 31, 2018, we had access to the full $50.0 million revolving credit facility capacity. At March 31, 2018 and December 31, 2017, we were in compliance with the covenants in the Credit Agreement. At March 31, 2018, the applicable margin on our Revolving Loans was 2.75% with an adjusted base rate of one or three month LIBOR. At December 31, 2017, the weighted average interest rate for the borrowings under the Credit Agreement was 7.3%. Loss on debt extinguishment For the three months ended March 31, 2018, we recorded a $4.3 million loss on early extinguishment of debt in conjunction with the repayment of the Term Loan with a portion of the net proceeds from our IPO. The loss consists of the write-off of the unamortized balance of debt discount and deferred loan costs of $2.1 million and $2.2 million, respectively. The loss on debt extinguishment is included under other income (expense), net, in the consolidated statements of income. |
Revenue
Revenue | 3 Months Ended |
Mar. 31, 2018 | |
Revenue Recognition | |
Revenue Recognition | 5. Revenue Accounting Policy We account for revenue in accordance with Topic 606, which we adopted on January 1, 2018, using the modified retrospective method. The adoption of Topic 606 did not have a material impact on the timing or amounts of revenue recognized in our unaudited condensed consolidated financial statements and therefore did not have a material impact on our financial position, results of operations, equity or cash flows as of the adoption date or for the three months ended March 31, 2018. Furthermore, we expect the impact of the adoption of the new standard to be immaterial to our revenue and gross profit on an ongoing basis. We did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the impact was immaterial. Also, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Revenue Recognition The majority of our revenues are derived from short term contracts. Product sales generally do not include right of return or other significant post-delivery obligations. Revenues are recognized when we satisfy a performance obligation by transferring control of the promised goods or services to our customers at a point in time, in an amount specified in the contract with our customer and that reflects the consideration we expect to be entitled to in exchange for those goods or services. We also assess our customer’s ability and intention to pay, which is based on a variety of factors including our customer’s historical payment experience and financial condition. Payment terms and conditions vary, although terms generally include a requirement of payment within 30 days. Revenues are recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. We elected to treat shipping and handling associated with outbound freight as a fulfillment cost instead of as a separate performance obligation. We recognize the cost for shipping and handling when incurred as an expense in cost of sales. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer under Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. 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. In accordance with Topic 606, 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. All of our contracts are less than one year in duration. We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. Disaggregation of Revenue We disaggregate revenue from contracts with customers into three revenue categories: i) product revenues, ii) rental revenues and iii) field service and other revenues. Approximately 99% of our revenues are from the United States. For the three months ended March 31, 2018, we derived 51% of our total revenues from the sale of our products, 25% of our total revenues from rental and 24% of our total revenues from field service and other. Contract Balances We perform our obligations under contracts with our customers by transferring services and products in exchange for consideration. The timing of our performance often differs from the timing of invoicing and our customer’s payment, which results in the recording of unbilled revenue and deferred revenue. Amounts in the consolidated balance sheet as of March 31, 2018 representing unbilled revenue within accounts receivable, net, were $24.3 million and amounts representing deferred revenue within accrued expenses and other current liabilities were $1.1 million. This compares to an unbilled revenue balance of $24.7 million and a deferred revenue balance of $0.8 million as of December 31, 2017. Contract Costs We do not incur any material costs of obtaining contracts. |
Related Party Transactions
Related Party Transactions | 3 Months Ended |
Mar. 31, 2018 | |
Related Party Transactions | |
Related Party Transactions | 6. Related Party Transactions Prior to our IPO, we were party to a management services agreement with two Cactus LLC members, whereby Cactus paid an annual management fee totaling approximately $0.3 million, payable in four installments, each to be paid quarterly in advance, prorated for any partial year. In conjunction with our IPO, the management services agreement terminated pursuant to its terms. Management fee expense totaled less than $0.1 million for each of the three months ended March 31, 2018 and 2017. There were no outstanding balances due as of March 31, 2018 or December 31, 2017 under the management services agreement. From time to time, we rent a plane under dry-lease from a company owned by a member of Cactus LLC. These transactions are under short-term rental arrangements. During the three months ended March 31, 2018 and 2017, expense recognized in connection with these rentals totaled less than $0.1 million, respectively. As of March 31, 2018, and December 31, 2017, we owed less than $0.1 million, respectively, to the related party which are included in accounts payable in the consolidated balance sheets. We are also party to a TRA with certain direct and indirect holders of CW Units, including certain of our officers, directors and employees. These TRA Holders have the right in the future to receive 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. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2018 | |
Commitments and Contingencies | |
Commitments and Contingencies | 7. Commitments and Contingencies Operating Leases and Capital Leases We lease certain facilities, vehicles, equipment, office and manufacturing space under noncancelable operating leases which expire at various dates through 2029. We are also party to a significant number of month-to-month leases that can be canceled at any time. Total rent expense related to operating leases for the three months ended March 31, 2018 and 2017 was approximately $1.8 million and $1.7 million, respectively. We also lease vehicles under capital leases. These leases are typically three years in duration and have no guaranteed residual values. Amounts included within property and equipment under capital leases as of March 31, 2018 and December 31, 2017 are as follows: March 31, December 31, 2018 2017 Cost $ 18,591 $ 15,557 Accumulated depreciation (3,838) (2,672) Net $ 14,753 $ 12,885 The following table presents our contractual obligations for the periods subsequent to March 31, 2018, including future minimum annual lease payments, including executory costs and interest, and the payments of the liability related to the TRA: Operating Capital Liability related to TRA Total Remainder of 2018 $ 4,376 $ 4,732 $ — $ 9,108 2019 4,206 6,420 5,840 16,466 2020 3,782 4,461 3,168 11,411 2021 3,095 494 3,255 6,844 2022 2,043 — 3,331 5,374 Thereafter 4,960 — 47,395 52,355 $ 22,462 $ 16,107 $ 62,989 $ 101,558 Legal 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. |
Employee Benefit Plans
Employee Benefit Plans | 3 Months Ended |
Mar. 31, 2018 | |
Employee Benefit Plans | |
Employee Benefit Plans | 8. Employee Benefit Plans 401K Plan Our employees within the United States are eligible to participate in a 401(k) plan (the “Plan”) sponsored by us. These employees are eligible to participate upon employment hire date and obtaining the age of eighteen. All eligible employees may contribute a percentage of their compensation subject to a maximum imposed by the Internal Revenue Code. We match 100% of the first 3% of gross pay contributed by each employee and 50% of the next 4% of gross pay contributed by each employee. We may also make additional non-elective employer contributions at our discretion under the Plan. Similar benefit plans exist for employees of our foreign subsidiaries. For the three months ended March 31, 2018 and 2017, employer matching contributions totaled $0.8 million and $0.4 million, respectively. Historically, we have not made non-elective employer contributions under the Plan. |
Supplemental Cash Flow Informat
Supplemental Cash Flow Information | 3 Months Ended |
Mar. 31, 2018 | |
Supplemental Cash Flow Information | |
Supplemental Cash Flow Information | 9. Supplemental Cash Flow Information Non-cash investing and financing activities were as follows: Three Months Ended March 31, 2018 2017 Property and equipment acquired under capital lease $ 3,092 $ 2,046 Property and equipment in payables 4,512 579 In conjunction with our IPO, we issued and contributed shares of Class B common stock to owners of CW Units equal to the number of outstanding CW Units held by the owners thereof. The Class B common stock has no economic interest and does not share in cash dividends or liquidation rights. |
Earnings Per Share
Earnings Per Share | 3 Months Ended |
Mar. 31, 2018 | |
Earnings Per Share | |
Earnings Per Share | 10. Earnings Per Share Basic earnings per share of Class A common stock is calculated by dividing the net income attributable to Cactus Inc. for the period from February 12, 2018 through March 31, 2018, the period following the Reorganization and IPO, by the weighted-average number of shares of Class A common stock outstanding during the same period. Diluted earnings per share of Class A common stock is calculated by dividing the net income attributable to Cactus Inc. during that period by the weighted average number of common shares outstanding assuming all potentially dilutive shares were issued. Dilution for the period includes the effect of unvested restricted stock units under the treasury method assuming that the proceeds will be used to purchase shares of Class A common stock. There were no shares of Class A common stock or Class B common stock outstanding prior to February 12, 2018, therefore no earnings per share information has been presented for any period prior to that date. The following table summarizes the basic and diluted earnings per share calculations: Three Months Ended March 31, 2018 2017 Numerator: Net income attributable to Cactus Inc. $ 3,753 $ — Denominator: Weighted average Class A shares outstanding—basic 26,450 — Effect of dilutive shares (1) 198 Weighted average Class A shares outstanding—diluted (1) 26,648 — Earnings per Class A Share—basic $ 0.14 $ — Earnings per Class A Share—diluted (1) $ 0.14 $ — (1) Diluted earnings per share for the periods presented excludes 48,439,772 shares of Class B common stock as the effect would be anti-dilutive. . |
Preparation of Interim Financ18
Preparation of Interim Financial Statements and Other Items (Policies) | 3 Months Ended |
Mar. 31, 2018 | |
Preparation Of Interim Financial Statements And Other Items | |
Basis of Presentation | Basis of Presentation The unaudited and condensed consolidated financial statements (“consolidated financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These consolidated financial statements include the accounts of Cactus Inc. and its wholly owned subsidiaries 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 for Form 10‑K for the year ended December 31, 2017. All significant intercompany transactions and balances have been eliminated upon consolidation. In our opinion, 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 the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year. As discussed in Note 1, as a result of our IPO and Reorganization, Cactus Inc. is the sole managing member of Cactus LLC and consolidates entities in which it has a controlling financial interest. The Reorganization was considered a transaction between entities under common control. As a result, the financial statements for periods prior to our IPO and the Reorganization have been adjusted to combine the previously separate entities for presentation purposes. However, Cactus Inc. had no operations or assets and liabilities prior to our IPO. As such, for periods prior to the completion of our IPO, the consolidated financial statements represent the historical financial position and results of operations of Cactus LLC and its subsidiaries. For periods after the completion of our IPO, the financial position and results of operations include those of Cactus and report the non-controlling interest related to the portion of CW Units not owned by Cactus Inc. |
Limitation of Members’ Liability | Limitation of Members’ Liability Under the terms of the First Amended and Restated Limited Liability Company Operating Agreement, dated as of January 29, 2018 of Cactus LLC (the “LLC Agreement”), the members of Cactus LLC are not obligated for debt, liabilities, contracts or other obligations of Cactus LLC. Profits and losses are allocated to members as defined in the LLC Agreement. |
Policy for Interim Period Tax Allocation | Policy for Interim Period Tax Allocation For interim income tax reporting we estimate our annual effective tax rate and apply it to our year-to-date ordinary income. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and effects of changes in tax laws or rates, are reported in the interim period in which they occur. Our IPO closed on February 12, 2018, and the annual effective tax rate was determined considering the periods before and after our IPO. Accordingly, net income attributable to non-controlling interest includes its share of respective income tax expense, which is not subject to U.S. federal and state income tax expense, and net income attributable to Cactus Inc. includes its share of respective income tax expense, which does include U.S. federal and state income tax expense. As of March 31, 2018, Cactus Inc. owned 35.3% of Cactus LLC and non-controlling interest owned 64.7% of Cactus LLC. |
Income Taxes | Income Taxes Cactus Inc. is a corporation and is subject to U.S. federal as well as state income tax related to its ownership percentage in Cactus LLC. Cactus LLC is a limited liability company treated as a partnership for U.S. federal income tax purposes and files a U.S. Return of Partnership Income, which includes both our U.S. and foreign operations. Consequently, the members of Cactus LLC are taxed individually on their share of earnings for U.S. federal and state income tax purposes. Additionally, our operations in both Australia and China are subject to local country income taxes. The provision for income tax for the three months ended March 31, 2018 consisted of: Three Months Ended March 31, 2018 Current: Federal $ 211 State 240 Foreign 238 Total current income taxes 689 Deferred: Federal 762 State 128 Foreign 73 Total deferred income taxes 963 Total provision for income taxes $ 1,652 The effective income tax rate was different from the statutory U.S. federal income tax rate due to the following: Three Months Ended March 31, 2018 Income taxes at 21% statutory tax rate $ 5,893 Net difference resulting from: Profit of Cactus LLC Pre-IPO not subject to U.S. federal tax (2,808) Profit of non-controlling interest not subject to U.S. federal tax (1,926) Foreign earnings subject to different tax rates 50 State income taxes 318 Foreign withholding taxes 73 Change in valuation allowance (20) Other 72 Total provision for income taxes $ 1,652 |
Stock-based Compensation | Stock-based Compensation We measure the cost of equity-based awards based on the grant-date fair value and we allocate the compensation expense over the corresponding service period, which is usually the vesting period, using the straight-line method. All grant date fair value is expensed immediately for awards that are fully vested as of the grant date. In conjunction with our IPO, we granted 737,493 restricted stock unit awards with a grant date fair value of $19.00. The majority of these awards vest over a three year period. During the three months ended March 31, 2018, we recorded $0.8 million of stock-based compensation expense mostly included in selling, general and administrative expenses. As of March 31, 2018, there was $13.2 million of unrecognized compensation cost related to these unvested restricted stock unit awards, which is expected to be recognized over a weighted average period of 2.8 years. |
Significant Customers | Significant Customers For the three months ended March 31, 2018, Cactus had one customer that represented 11% of consolidated revenues. No other customer represented 10% or more of consolidated revenues during this period. For the three months ended March 31, 2017, Cactus had two customers each representing 10% or more of consolidated revenues, whose combined revenues represented approximately 21% of consolidated revenues. There were no other customers representing 10% or more of consolidated revenues during this period. |
Significant Vendors | Significant Vendors We purchase a significant portion of supplies, equipment and machined components from a single vendor. For the three months ended March 31, 2018 and 2017, purchases from this vendor totaled $10.4 million and $6.4 million, respectively. These figures represent approximately 21% and 20% for the respective periods, of total third party vendor purchases of raw materials, finished products, equipment, machining and other services. Amounts due to the vendor included in accounts payable in the consolidated balance sheets as of March 31, 2018 and December 31, 2017 totaled $7.2 million and $7.4 million, respectively. |
Use of Estimates | Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include but are not limited to estimated losses on accounts receivables, estimated realizable value on excess and obsolete inventory, estimates related to fair value of reporting units for purposes of assessing goodwill and other indefinite-lived intangible assets for impairment and estimates of deferred tax assets related to the step-up in basis under the TRA and the associated liability under the TRA. Actual results could differ from those estimates. |
Tax Receivable Agreement | Tax Receivable Agreement Pursuant to the LLC Agreement, each TRA Holder will, subject to certain limitations, have the right (the “Redemption Right”) to cause Cactus LLC to acquire all or at least a minimum portion of its CW Units for, at Cactus LLC’s election, (x) shares of our Class A common stock at a redemption ratio of one share of Class A common stock for each CW 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 the Redemption Right, Cactus Inc. (instead of Cactus LLC) will have the right (the “Call Right”) to acquire each tendered CW Unit directly from the exchanging TRA 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 CW Units pursuant to the Redemption Right or our Call Right, the corresponding number of shares of Class B common stock will be canceled. Cactus LLC has made for itself (and for each of its direct or indirect subsidiaries that is treated as a partnership for U.S. federal income tax purposes and that it controls) an election under Section 754 of the Internal Revenue Code (the “Code”) that will be effective for 2018 and each taxable year in which a redemption of CW Units pursuant to the Redemption Right or the Call Right occurs. Pursuant to the Section 754 election, redemptions of CW Units pursuant to the Redemption Right or the Call Right are expected to result in adjustments to the tax basis of the tangible and intangible assets of Cactus LLC. These adjustments will be allocated to Cactus Inc. Such adjustments to the tax basis of the tangible and intangible assets of Cactus LLC would not have been available to Cactus Inc. absent its acquisition or deemed acquisition of CW Units pursuant to the exercise of the Redemption Right or the Call Right. In addition, the repayment of borrowings outstanding under the Cactus LLC term loan facility resulted in adjustments to the tax basis of the tangible and intangible assets of Cactus LLC, a portion of which was allocated to Cactus Inc. These basis adjustments are expected to increase (for tax purposes) Cactus Inc.’s depreciation, depletion and amortization deductions and may also decrease Cactus Inc.’s gains (or increase its losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets. Such increased deductions and losses and reduced gains may reduce the amount of tax that Cactus Inc. would otherwise be required to pay in the future. The TRA will generally provide for the payment by Cactus Inc. to each TRA Holder 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 as a result of (i) certain increases in tax basis that occur as a result of Cactus Inc.’s acquisition (or deemed acquisition for U.S. federal income tax purposes) of all or a portion of such TRA Holder’s CW Units in connection with our IPO or pursuant to the exercise of the Redemption Right or the Call Right, (ii) certain increases in tax basis resulting from the repayment of borrowings outstanding under Cactus LLC’s term loan facility and (iii) imputed interest deemed to be paid by Cactus Inc. as a result of, and additional tax basis arising from, any payments Cactus Inc. makes under the TRA. We will retain the benefit of the remaining 15% of the cash savings. The payment obligations under the TRA are Cactus Inc.’s obligations and not obligations of Cactus LLC, and we expect that the payments we will be required to make under the TRA will be substantial. We have determined that it is more likely than not that actual cash tax savings will be realized by Cactus Inc. from the tax benefits resulting from the Reorganization and our IPO. Accordingly, the TRA is expected to result in future payments, and we have recorded a liability from the TRA of $63.0 million included in the consolidated balance sheet as of March 31, 2018. Estimating the amount and timing of payments that may become due under the TRA is by its nature imprecise. For purposes of the TRA, net cash savings in tax generally will be calculated by comparing Cactus Inc.’s actual tax liability (determined by using the actual applicable U.S. federal income tax rate and an assumed combined state and local income tax rate) to the amount it would have been required to pay had it not been able to utilize any of the tax benefits subject to the TRA. The amounts payable, as well as the timing of any payments under the TRA, are dependent upon significant future events and assumptions, including the timing of the redemption of CW Units, the price of our Class A common stock at the time of each redemption, the extent to which such redemptions are taxable transactions, the amount of the redeeming unit holder’s tax basis in its CW Units at the time of the relevant redemption, the depreciation and amortization periods that apply to the increase in tax basis, the amount and timing of taxable income we generate in the future and the U.S. federal income tax rate then applicable, and the portion of Cactus Inc.’s payments under the TRA that constitute imputed interest or give rise to depreciable or amortizable tax basis. The accounting under the TRA for any exchanges of CW Units subsequent to the Reorganization will follow the same procedures as described above. A delay in the timing of redemptions of CW Units, holding other assumptions constant, would be expected to decrease the discounted value of the amounts payable under the TRA as the benefit of the depreciation and amortization deductions would be delayed and the estimated increase in tax basis could be reduced as a result of allocations of Cactus LLC taxable income to the redeeming unit holder prior to the redemption. Stock price increases or decreases at the time of each redemption of CW Units would be expected to result in a corresponding increase or decrease in the undiscounted amounts payable under the TRA in an amount equal to 85% of the tax-effected change in price. The amounts payable under the TRA are dependent upon Cactus Inc. having sufficient future taxable income to utilize the tax benefits on which it is required to make payments under the TRA. If Cactus Inc.’s projected taxable income is significantly reduced, the expected payments would be reduced to the extent such tax benefits do not result in a reduction of Cactus Inc.’s future income tax liabilities. It is possible that future transactions or events could increase or decrease the actual tax benefits realized and the corresponding liability from the TRA. Moreover, there may be a negative impact on our liquidity if, as a result of timing discrepancies or otherwise, (i) the payments under the TRA exceed the actual benefits we realize in respect of the tax attributes subject to the TRA or (ii) distributions to Cactus Inc. by Cactus LLC are not sufficient to permit Cactus Inc. to make payments under the TRA after it has paid its taxes and other obligations. The payments under the TRA will not be conditional on a holder of rights under the TRA having a continued ownership interest in either Cactus LLC or Cactus Inc. In addition, although we are not aware of any issue that would cause the Internal Revenue Service (“IRS”) or other relevant tax authorities to challenge potential tax basis increases or other tax benefits covered under the TRA, the TRA Holders will not reimburse us for any payments previously made under the TRA if such basis increases or other benefits are subsequently disallowed, except that excess payments made to any such holder will be netted against payments otherwise to be made, if any, to such holder after our determination of such excess. As a result, in such circumstances, Cactus Inc. could make payments that are greater than its actual cash tax savings, if any, and may not be able to recoup those payments. We account for any amounts payable under the TRA in accordance with Accounting Standard Codification (“ASC”) Topic 450, Contingencies (“ASC 450”). We will recognize subsequent changes to the measurement of the liability from the TRA in the income statement as a component of income before taxes. In the case of any changes to any valuation allowance associated with the underlying tax asset, given the link between the tax savings generated and the recognition of the liability from the TRA (i.e., one is recorded based on 85% of the other), and the explicit guidance in ASC 740-20-45-11(g) which requires that subsequent changes in a valuation allowance established against deferred tax assets that arose due to change in tax basis as a result of a transaction among or with shareholders to be recorded in the income statement as opposed to equity, we believe recording of the corollary adjustment to the liability from the TRA in the income statement is appropriate. 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. In the event that the TRA is not terminated, the payments under the TRA are anticipated to commence in 2019 and to continue for 16 years after the date of the last redemption of CW Units. Accordingly, it is expected that payments will continue to be made under the TRA for more than 25 years. 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 (determined by applying a discount rate of one-year LIBOR plus 150 basis points) and such payment is expected to be substantial. The calculation of anticipated future payments will be based upon certain assumptions and deemed events set forth in the TRA, including the assumptions that (i) we have sufficient taxable income to fully utilize the tax benefits covered by the TRA and (ii) any CW Units (other than those held by Cactus Inc.) outstanding on the termination date are deemed to be redeemed on the termination date. Any early termination payment may be made significantly in advance of the actual realization, if any, of the future tax benefits to which the termination payment relates. Assuming no material changes in the relevant tax law, we expect that if the TRA were terminated as of March 31, 2018, the estimated termination payments, based on the assumptions discussed above, would be approximately $304.6 million (calculated using a discount rate equal to one-year LIBOR plus 150 basis points, applied against an undiscounted liability of $430.1 million). The TRA provides that in the event that we breach any of our material obligations under the TRA, whether as a result of (i) our failure to make any payment when due (including in cases where we elect to terminate the TRA early, the TRA is terminated early due to certain mergers, asset sales, or other forms of business combinations or changes of control or we have available cash but fail to make payments when due under circumstances where we do not have the right to elect to defer the payment, as described below), (ii) our failure to honor any other material obligation under it or (iii) by operation of law as a result of the rejection of the TRA in a case commenced under the U.S. Bankruptcy Code or otherwise, then the TRA Holders may elect to treat such breach as an early termination, which would cause all our payment and other obligations under the TRA to be accelerated and become due and payable applying the same assumptions described above. As a result of either an early termination or a change of control, we could be required to make payments under the TRA that exceed our actual cash tax savings under the TRA. In these situations, our obligations under the TRA could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, or other forms of business combinations or changes of control. Decisions we make in the course of running our business, such as with respect to mergers, asset sales, other forms of business combinations or other changes in control, may influence the timing and amount of payments that are received by the TRA Holders under the TRA. For example, the earlier disposition of assets following a redemption of CW Units may accelerate payments under the TRA and increase the present value of such payments, and the disposition of assets before a redemption of CW Units may increase the TRA Holders’ tax liability without giving rise to any rights of the TRA Holders to receive payments under the TRA. Such effects may result in differences or conflicts of interest between the interests of the TRA Holders and other shareholders. Payments generally are due under the TRA within five business days following the finalization of the schedule with respect to which the payment obligation is calculated. However, interest on such payments will begin to accrue from the due date (without extensions) of our U.S. federal income tax return for the period to which such payments relate until such payment due date at a rate equal to one-year LIBOR plus 150 basis points. Except in cases where we elect to terminate the TRA early or it is otherwise terminated as described above, generally 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 at a rate of one-year LIBOR plus 550 basis points. However, interest will accrue from the due date for such payment until the payment date at a rate of one-year LIBOR plus 150 basis points if we are unable to make such payment as a result of limitations imposed by our credit agreement. We have no present intention to defer payments under the TRA. Because we are a holding company with no operations of our own, our ability to make payments under the TRA is dependent on the ability of Cactus LLC to make distributions to us in an amount sufficient to cover our obligations under the TRA. This ability, in turn, may depend on the ability of Cactus LLC’s subsidiaries to make distributions to it. The ability of Cactus LLC, its subsidiaries and other entities in which it directly or indirectly holds an equity interest to make such distributions will be subject to, among other things, the applicable provisions of Delaware law (or other applicable jurisdiction) that may limit the amount of funds available for distribution and restrictions in relevant debt instruments issued by Cactus LLC or its subsidiaries and other entities in which it directly or indirectly holds an equity interest. Additionally, distributions made by Cactus LLC generally require pro-rata distribution among all its members, which could be significant. To the extent that we are unable to make payments under the TRA for any reason, such payments will be deferred and will accrue interest until paid. |
Emerging Growth Company status | Emerging Growth Company status Cactus is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We will remain an emerging growth company until the earlier of (1) the last day of our fiscal year (a) following the fifth anniversary of the completion of our IPO, (b) in which our total annual gross revenue is at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter (following twelve months from our IPO), and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise generally applicable to public companies. We have irrevocably opted out of the extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements Standards Adopted In August 2016, the FASB issued ASU No. 2016-15, Cash Flow Statement (Topic 250). This new guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice, including: debt prepayment or debt extinguishment costs, settlement of zero coupon debt instruments or other debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We adopted this ASU on January 1, 2018. The adoption of this pronouncement did not have a material impact on our consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes the current revenue recognition guidance. The ASU is based on the principle that revenue is recognized to depict the transfer of goods and services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new standard will be effective for public companies for the fiscal years beginning after December 31, 2017 using one of two retrospective application methods. We adopted this ASU on January 1, 2018 using the modified retrospective method. The adoption of this pronouncement did not have a material impact on our consolidated financial statements. See Note 5. In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this standard provide a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the integrated set of assets and activities is not a business. The new guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is allowed for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance and for transactions in which a subsidiary is deconsolidated or a group of assets is derecognized before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. Entities will be required to apply the guidance prospectively when adopted. We adopted this ASU on January 1, 2018. The adoption of this pronouncement did not have a material impact on our consolidated financial statements. Standards Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Upon adoption of the new guidance, lessees are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The new guidance will be effective for fiscal years beginning after December 15, 2018. We are currently evaluating the impact this pronouncement will have on our consolidated financial statements. In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other, which simplifies the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the new standard, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new guidance should be adopted for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoption of this pronouncement to have a material impact on our consolidated financial statements. In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this update allow a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this update also require certain disclosures about stranded tax effects. The amendments in this update are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact this pronouncement will have on our consolidated financial statements. |
Preparation of Interim Financ19
Preparation of Interim Financial Statements and Other Items (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Preparation Of Interim Financial Statements And Other Items | |
Schedule of provision for income tax | Three Months Ended March 31, 2018 Current: Federal $ 211 State 240 Foreign 238 Total current income taxes 689 Deferred: Federal 762 State 128 Foreign 73 Total deferred income taxes 963 Total provision for income taxes $ 1,652 |
Schedule of effective income tax rate | Three Months Ended March 31, 2018 Income taxes at 21% statutory tax rate $ 5,893 Net difference resulting from: Profit of Cactus LLC Pre-IPO not subject to U.S. federal tax (2,808) Profit of non-controlling interest not subject to U.S. federal tax (1,926) Foreign earnings subject to different tax rates 50 State income taxes 318 Foreign withholding taxes 73 Change in valuation allowance (20) Other 72 Total provision for income taxes $ 1,652 |
Inventories (Tables)
Inventories (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Inventories | |
Summary of inventories | March 31, December 31, 2018 2017 Raw materials $ 1,378 $ 1,532 Work-in-progress 4,012 3,590 Finished goods 64,143 59,328 $ 69,533 $ 64,450 |
Long-term Debt (Tables)
Long-term Debt (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Long-term Debt. | |
Schedule of long-term debt | March 31, December 31, 2018 2017 Term Loan $ — $ 248,529 Less: Current portion — (2,568) Unamortized debt discount and deferred loan costs — (4,524) Long-term debt, net $ — $ 241,437 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Commitments and Contingencies | |
Schedule of Property plant and equipment Net | March 31, December 31, 2018 2017 Cost $ 18,591 $ 15,557 Accumulated depreciation (3,838) (2,672) Net $ 14,753 $ 12,885 |
Schedule of future minimum lease payments | Operating Capital Liability related to TRA Total Remainder of 2018 $ 4,376 $ 4,732 $ — $ 9,108 2019 4,206 6,420 5,840 16,466 2020 3,782 4,461 3,168 11,411 2021 3,095 494 3,255 6,844 2022 2,043 — 3,331 5,374 Thereafter 4,960 — 47,395 52,355 $ 22,462 $ 16,107 $ 62,989 $ 101,558 |
Supplemental Cash Flow Inform23
Supplemental Cash Flow Information (Table) | 3 Months Ended |
Mar. 31, 2018 | |
Supplemental Cash Flow Information | |
Schedule of non cash investing and financing activities | Three Months Ended March 31, 2018 2017 Property and equipment acquired under capital lease $ 3,092 $ 2,046 Property and equipment in payables 4,512 579 |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Earnings Per Share | |
Summary of earnings per Unit | Three Months Ended March 31, 2018 2017 Numerator: Net income attributable to Cactus Inc. $ 3,753 $ — Denominator: Weighted average Class A shares outstanding—basic 26,450 — Effect of dilutive shares (1) 198 Weighted average Class A shares outstanding—diluted (1) 26,648 — Earnings per Class A Share—basic $ 0.14 $ — Earnings per Class A Share—diluted (1) $ 0.14 $ — (1) Diluted earnings per share for the periods presented excludes 48,439,772 shares of Class B common stock as the effect would be anti-dilutive. . |
Organization and Nature of Op25
Organization and Nature of Operations (Details) $ / shares in Units, $ in Thousands | Feb. 14, 2018USD ($)shares | Feb. 12, 2018USD ($)Voteitem$ / sharesshares | Jan. 25, 2018USD ($) | Mar. 31, 2018USD ($)Center$ / sharesshares | Dec. 31, 2017USD ($) | Feb. 11, 2018shares |
Organization and Nature of Operations [Line Items] | ||||||
Number of U.S. service centers | Center | 14 | |||||
Number of service centers in Australia | Center | 1 | |||||
Net proceeds from IPO | $ 469,621 | |||||
Offering costs | $ 2,800 | $ 2,200 | ||||
Tax savings payable to TRA Holders (as a percent) | 85.00% | |||||
Tax savings benefit retained (as a percent) | 15.00% | |||||
Number of shares canceled | shares | 3,450,000 | |||||
Write off of stock issuance costs against equity | $ 2,200 | |||||
Write-off of unamortized debt discount and deferred loan costs | $ 4,300 | 4,305 | ||||
Restricted stock unit awards issued (in shares) | shares | 737,493 | |||||
Deferred tax asset, net | $ 74,100 | 73,215 | ||||
Liability related to tax receivable agreement | 63,000 | 62,989 | ||||
Additional paid-in capital related to tax receivable agreement | 11,100 | 11,116 | ||||
Retained earnings | 3,753 | |||||
Non-controlling interest | 130,900 | |||||
Member distributions prior to IPO | $ 26,000 | $ 26,000 | ||||
Cactus LLC | ||||||
Organization and Nature of Operations [Line Items] | ||||||
Net proceeds from IPO | 469,600 | |||||
Ownership interest | 35.30% | |||||
Retained earnings | 0 | |||||
Cactus LLC | Term loan facility | ||||||
Organization and Nature of Operations [Line Items] | ||||||
Repayments of debt | 251,000 | |||||
Members' Equity (Deficit) | ||||||
Organization and Nature of Operations [Line Items] | ||||||
Member distributions prior to IPO | $ 26,000 | |||||
Members' Equity (Deficit) | Cactus LLC | ||||||
Organization and Nature of Operations [Line Items] | ||||||
Redeem CW Units from certain direct and indirect owners | $ 216,400 | |||||
Redeem CW Units from certain direct and indirect owners (in units) | shares | 8,667,841 | |||||
Class A Common Stock | ||||||
Organization and Nature of Operations [Line Items] | ||||||
Common stock, par value | $ / shares | $ 0.01 | |||||
Common stock, shares issued | shares | 26,450,000 | |||||
Common stock, shares outstanding | shares | 26,450,000 | 0 | ||||
Class B Common Stock | ||||||
Organization and Nature of Operations [Line Items] | ||||||
Number of shares issued | shares | 51,889,772 | |||||
Common stock, par value | $ / shares | $ 0.01 | $ 0.01 | ||||
Number of votes per holder | Vote | 1 | |||||
Common stock, shares issued | shares | 48,440,000 | |||||
Common stock, shares outstanding | shares | 48,440,000 | 0 | ||||
Class B Common Stock | Cactus LLC | ||||||
Organization and Nature of Operations [Line Items] | ||||||
Redeem CW Units from certain direct and indirect owners (in units) | shares | 3,450,000 | |||||
Class B Common Stock | Members' Equity (Deficit) | Cactus LLC | ||||||
Organization and Nature of Operations [Line Items] | ||||||
Number of common stock for each unit | item | 1 | |||||
Initial Public Offering | Members' Equity (Deficit) | ||||||
Organization and Nature of Operations [Line Items] | ||||||
Number of CW Units acquired with the proceeds from the sale of common stock | shares | 23,000,000 | |||||
Initial Public Offering | Class A Common Stock | ||||||
Organization and Nature of Operations [Line Items] | ||||||
Number of shares issued | shares | 23,000,000 | |||||
Common stock, par value | $ / shares | $ 0.01 | |||||
Price per share | $ / shares | $ 19 | |||||
Net proceeds from IPO | $ 408,000 | |||||
Over allotment | Members' Equity (Deficit) | ||||||
Organization and Nature of Operations [Line Items] | ||||||
Number of CW Units acquired with the proceeds from the sale of common stock | shares | 3,450,000 | |||||
Over allotment | Class A Common Stock | ||||||
Organization and Nature of Operations [Line Items] | ||||||
Number of shares issued | shares | 3,450,000 | |||||
Net proceeds from IPO | $ 61,600 |
Preparation of Interim Financ26
Preparation of Interim Financial Statements and Other Items - Provision for Income Taxes (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Other Ownership Interests [Line Items] | ||
Non-controlling interest owned (as a percentage) | 64.70% | |
Current: | ||
Federal | $ 211 | |
State | 240 | |
Foreign | 238 | |
Total current income taxes | 689 | |
Deferred: | ||
Federal | 762 | |
State | 128 | |
Foreign | 73 | |
Total deferred income taxes | 963 | $ 29 |
Total provision for income taxes | $ 1,652 | $ 154 |
Cactus LLC | ||
Other Ownership Interests [Line Items] | ||
Ownership interest (as a percent) | 35.30% |
Preparation of Interim Financ27
Preparation of Interim Financial Statements and Other Items - Effective Income Tax (Details)1 - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Effective income tax rate: | ||
Income taxes at 21% statutory tax rate | $ 5,893 | |
Statutory tax rate | 21.00% | |
Profit of Cactus LL Pre-IPO not subject to U.S. federal tax | $ (2,808) | |
Profit of non-controlling interest not subject to U.S. federal tax | (1,926) | |
Foreign earnings subject to different tax rates | 50 | |
State income taxes | 318 | |
Foreign withholding taxes | 73 | |
Change in valuation allowance | (20) | |
Other | 72 | |
Total provision for income taxes | $ 1,652 | $ 154 |
Preparation of Interim Financ28
Preparation of Interim Financial Statements and Other Items - Share-based Compensation (Details - Restricted Stock Units - USD ($) $ / shares in Units, $ in Millions | Feb. 12, 2018 | Mar. 31, 2018 |
Stock-based Compensation | ||
Granted (in shares) | 737,493 | |
Grant date fair value (in dollars per share) | $ 19 | |
Vesting period | 3 years | |
Stock-based compensation expenses | $ 0.8 | |
Unrecognized compensation cost | $ 13.2 | |
Expected to be recognized over weighted average period | 2 years 9 months 18 days |
Preparation of Interim Financ29
Preparation of Interim Financial Statements and Other Items (Details) $ in Thousands | 3 Months Ended | ||
Mar. 31, 2018USD ($)item | Mar. 31, 2017USD ($)item | Dec. 31, 2017USD ($) | |
Products | |||
Concentration Risk [Line Items] | |||
Purchases from the vendor | $ 37,066 | $ 23,195 | |
Customer concentration | Revenue | |||
Concentration Risk [Line Items] | |||
Number of customers accounted for 10% or more of consolidated revenues | item | 1 | 2 | |
Concentration of risk (as a percent) | 11.00% | 21.00% | |
Supplier concentration | Purchases | |||
Concentration Risk [Line Items] | |||
Concentration of risk (as a percent) | 21.00% | 20.00% | |
Purchases from the vendor | $ 10,400 | $ 6,400 | |
Amounts due to the vendor | $ 7,200 | $ 7,400 |
Preparation of Interim Financ30
Preparation of Interim Financial Statements and Other Items - Tax Receivable Agreement (Details - USD ($) $ in Thousands | Feb. 12, 2018 | Mar. 31, 2018 |
Preparation Of Interim Financial Statements And Other Items | ||
Redemption ratio, shares of common stock per unit redeemed | 1 | |
Tax savings payable to TRA Holders (as a percent) | 85.00% | |
Tax savings benefit retained (as a percent) | 15.00% | |
Liability related to tax receivable agreement | $ 63,000 | $ 62,989 |
Payment period, after redemption | 16 years | |
Aggregate payment period | 25 years | |
Variable interest rate, basis points spread over variable reference rate (as a percent) | 1.50% | |
Present value of termination payments under Tax Receivable Arrangement | 304,600 | |
Undiscounted TRA liability | $ 430,100 | |
TRA payment period | 5 days | |
Variable interest rate, deferral period | 5.50% |
Inventories (Details)
Inventories (Details) - USD ($) $ in Thousands | Mar. 31, 2018 | Dec. 31, 2017 |
Summary of inventories | ||
Raw materials | $ 1,378 | $ 1,532 |
Work-in-progress | 4,012 | 3,590 |
Finished goods | 64,143 | 59,328 |
Total inventory | $ 69,533 | $ 64,450 |
Long-term Debt (Details)
Long-term Debt (Details) $ in Thousands | Dec. 31, 2017USD ($) |
Long-term Debt. | |
Term Loan | $ 248,529 |
Less: Current portion | (2,568) |
Unamortized Premium and Deferred Finance Costs Balance, net | (4,524) |
Long-term debt, net | $ 241,437 |
Long-term Debt - agreement info
Long-term Debt - agreement information (Details) - USD ($) $ in Thousands | Feb. 12, 2018 | Jul. 31, 2014 | Mar. 31, 2018 | Dec. 31, 2017 |
Debt Instrument [Line Items] | ||||
Amount outstanding | $ 241,437 | |||
Interest rate at end of period | 2.75% | 7.30% | ||
Gain (Loss) on Extinguishment of Debt [Abstract] | ||||
Loss on early extinguishment of debt | $ (4,300) | $ (4,305) | ||
Write-off of unamortized debt discount | 2,100 | |||
Write-off of deferred loan costs | 2,200 | |||
Term Loan | ||||
Debt Instrument [Line Items] | ||||
Face amount | $ 275,000 | |||
Amount outstanding | $ 248,500 | |||
Revolving Loans | ||||
Debt Instrument [Line Items] | ||||
Maximum borrowing capacity | 50,000 | 50,000 | ||
Amount outstanding | 0 | 0 | ||
Accrued interest | 0 | 200 | ||
Total leverage financial covenant draw limit | 15,000 | |||
Potential cap on availability | 15,000 | |||
Letters of credit | ||||
Debt Instrument [Line Items] | ||||
Maximum borrowing capacity | $ 10,000 | |||
Amount outstanding | $ 0 | $ 0 |
Revenue (Details)
Revenue (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2018 | Dec. 31, 2017 | |
Contract Balances | ||
Unbilled revenue | $ 24.3 | $ 24.7 |
Deferred revenue | $ 1.1 | $ 0.8 |
Products | ||
Disaggregation of Revenue [Line Items] | ||
Percentage of revenues | 51.00% | |
Rental revenue | ||
Disaggregation of Revenue [Line Items] | ||
Percentage of revenues | 25.00% | |
Field service and other revenue | ||
Disaggregation of Revenue [Line Items] | ||
Percentage of revenues | 24.00% | |
United States | ||
Disaggregation of Revenue [Line Items] | ||
Percentage of revenues | 99.00% |
Related Party Transactions (Det
Related Party Transactions (Details) $ in Millions | Feb. 12, 2018 | Mar. 31, 2018USD ($) | Mar. 31, 2017USD ($) | Feb. 11, 2018USD ($)item | Dec. 31, 2017USD ($) |
Related Party Transaction [Line Items] | |||||
Tax savings payable to TRA Holders (as a percent) | 85.00% | ||||
Management service agreement | Cactus LLC | |||||
Related Party Transaction [Line Items] | |||||
Number of LLC members | item | 2 | ||||
Annual management fee | $ 0.3 | ||||
Number of installments | item | 4 | ||||
Accounts payable to related party | $ 0 | $ 0 | |||
Management service agreement | Maximum | Cactus LLC | |||||
Related Party Transaction [Line Items] | |||||
Expenses under related party agreements | 0.1 | $ 0.1 | |||
Short-term rental agreement | Maximum | Cactus LLC | |||||
Related Party Transaction [Line Items] | |||||
Expenses under related party agreements | 0.1 | $ 0.1 | |||
Accounts payable to related party | $ 0.1 | $ 0.1 |
Commitments and Contingencies -
Commitments and Contingencies - Operating leases (Details) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Commitments and Contingencies | ||
Rental expense | $ 1.8 | $ 1.7 |
Commitments and Contingencies37
Commitments and Contingencies - Capital leases (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2018 | Dec. 31, 2017 | |
Capital leases | ||
Capital lease term | 3 years | |
Capital lease assets in property, plant and equipment | ||
Cost | $ 18,591 | $ 15,557 |
Accumulated depreciation | (3,838) | (2,672) |
Net | $ 14,753 | $ 12,885 |
Commitments and Contingencies38
Commitments and Contingencies - Future minimum annual lease payments (Details) $ in Thousands | Mar. 31, 2018USD ($) |
Operating Leases | |
Remainder of 2018 | $ 4,376 |
2,019 | 4,206 |
2,020 | 3,782 |
2,021 | 3,095 |
2,022 | 2,043 |
Thereafter | 4,960 |
Total | 22,462 |
Capital Leases | |
Remainder of 2018 | 4,732 |
2,019 | 6,420 |
2,020 | 4,461 |
2,021 | 494 |
Total | 16,107 |
Liability related to TRA | |
2,019 | 5,840 |
2,020 | 3,168 |
2,021 | 3,255 |
2,022 | 3,331 |
Thereafter | 47,395 |
Total | 62,989 |
Total | |
Remainder of 2018 | 9,108 |
2,019 | 16,466 |
2,020 | 11,411 |
2,021 | 6,844 |
2,022 | 5,374 |
Thereafter | 52,355 |
Total | $ 101,558 |
Employee Benefit Plans (Details
Employee Benefit Plans (Details) $ in Millions | 3 Months Ended | |
Mar. 31, 2018USD ($) | Mar. 31, 2017USD ($) | |
Employee Benefit Plans | ||
Employer match of first tier of employee contribution (as a percent) | 100 | |
First tier percentage of compensation eligible for match | 3 | |
Employer match of second tier of employee contribution (as a percent) | 50 | |
Second tier percentage of compensation eligible for match | 4 | |
Employer matching contributions | $ 0.8 | $ 0.4 |
Supplemental Cash Flow Inform40
Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Supplemental Cash Flow Information | ||
Property and equipment acquired under capital lease | $ 3,092 | $ 2,046 |
Property and equipment in payables | $ 4,512 | $ 579 |
Earnings Per Share (Details)
Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | |
Mar. 31, 2018 | Feb. 11, 2018 | |
Numerator: | ||
Net income (loss) | $ 3,753 | |
Denominator: | ||
Weighted average Class A Shares Outstanding - basic | 26,450 | |
Effect of dilutive shares | 198 | |
Weighted average Class A Shares Outstanding - diluted | 26,648 | |
Earnings per Class A Share - basic | $ 0.14 | |
Earnings per Class A Share - diluted | $ 0.14 | |
Class A Common Stock | ||
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items] | ||
Common Stock, Shares, Outstanding | 26,450,000 | 0 |
Denominator: | ||
Weighted average Class A Shares Outstanding - diluted | 26,648,000 | |
Earnings per Class A Share - basic | $ 0.14 | |
Earnings per Class A Share - diluted | $ 0.14 | |
Class B Common Stock | ||
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items] | ||
Common Stock, Shares, Outstanding | 48,440,000 | 0 |
Denominator: | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 48,439,772 |