Cactus, Inc. [WHD] Filings

10-Q 1 whd-20220331.htm 10-Q whd-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________________________

FORM 10-Q

______________________________________________________________________________

(MARK ONE)


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

For the quarterly period ended March 31, 2022


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

For the transition period from _____ to _____

Commission File Number: 001-38390

______________________________________________________________________________

Cactus, Inc.

(Exact name of registrant as specified in its charter)

______________________________________________________________________________


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

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

(713) 626-8800

(Registrant’s telephone number, including area code)

______________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, par value $0.01

WHD

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of May 3, 2022, the registrant had 60,451,746 shares of Class A common stock, $0.01 par value per share, and 15,420,660 shares of Class B common stock, $0.01 par value per share, outstanding.

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TABLE OF CONTENTS


Cautionary Note Regarding Forward-Looking Statements		i

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management ’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 6.	Exhibits	21
	Signatures	22

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward‑looking statements, you should keep in mind the risk factors and other cautionary statements described under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 (our “2021 Annual Report”) and other cautionary statements contained herein. These forward‑looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

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

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

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

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

•the number of active workover rigs;

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

•overall oilfield service cost inflation;

•our success in cost recovery efforts;

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

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

•the size and timing of orders;

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

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

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

•expectations regarding overhead and operating costs and margins;

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

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

•the possibility of cancellation of orders;

•our business strategy;

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

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•our future revenue, income and operating performance;

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

•consolidation activity involving our customers;

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

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

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

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

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

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

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

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

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

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

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

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

•potential uninsured claims and litigation against us;

•competition and capacity within the oilfield services industry;

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

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

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

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

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

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


	March 31, 2022		December 31, 2021
	(in thousands, except per share data)
Assets
Current assets
Cash and cash equivalents	$	297,741	$	301,669
Accounts receivable, net of allowance of $616 and $741, respectively	104,211		89,205
Inventories	136,201		119,817
Prepaid expenses and other current assets	8,212		7,794
Total current assets	546,365		518,485
Property and equipment, net	132,746		129,117
Operating lease right-of-use assets, net	21,678		22,538
Goodwill	7,824		7,824
Deferred tax asset, net	316,526		303,074
Other noncurrent assets	1,052		1,040
Total assets	$	1,026,191	$	982,078
Liabilities and Equity
Current liabilities
Accounts payable	$	51,168	$	42,818
Accrued expenses and other current liabilities	28,746		28,240
Current portion of liability related to tax receivable agreement	11,769		11,769
Finance lease obligations, current portion	5,593		4,867
Operating lease liabilities, current portion	5,181		4,880
Total current liabilities	102,457		92,574
Deferred tax liability, net	1,432		1,172
Liability related to tax receivable agreement, net of current portion	283,620		269,838
Finance lease obligations, net of current portion	7,009		5,811
Operating lease liabilities, net of current portion	16,571		17,650
Total liabilities	411,089		387,045
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value, 10,000 shares authorized, none issued and outstanding	—		—
Class A common stock, $0.01 par value, 300,000 shares authorized, 60,197 and 59,035 shares issued and outstanding	602		590
Class B common stock, $0.01 par value, 215,000 shares authorized, 15,674 and 16,674 shares issued and outstanding	—		—
Additional paid-in capital	298,893		289,600
Retained earnings	192,493		178,446
Accumulated other comprehensive income	335		8
Total stockholders’ equity attributable to Cactus Inc.	492,323		468,644
Non-controlling interest	122,779		126,389
Total stockholders’ equity	615,102		595,033
Total liabilities and equity	$	1,026,191	$	982,078

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

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CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


	Three Months Ended March 31,
	2022		2021
	(in thousands, except per share data)
Revenues
Product revenue	$	94,040	$	51,956
Rental revenue	22,343		12,489
Field service and other revenue	29,516		19,972
Total revenues	145,899		84,417
Costs and expenses
Cost of product revenue	60,920		36,521
Cost of rental revenue	15,089		12,171
Cost of field service and other revenue	24,806		14,463
Selling, general and administrative expenses	14,094		9,627
Total costs and expenses	114,909		72,782
Income from operations	30,990		11,635

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

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

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

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

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CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


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

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

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CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)


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

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

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

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CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


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

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

Cash flows from investing activities
Capital expenditures and other	(7,652)		(2,428)
Proceeds from sale of assets	358		400
Net cash used in investing activities	(7,294)		(2,028)

Cash flows from financing activities
Payments on finance leases	(1,438)		(1,174)
Dividends paid to Class A common stock shareholders	(6,664)		(4,497)
Distributions to members	(1,654)		(1,674)
Repurchases of shares	(4,424)		(3,138)
Net cash used in financing activities	(14,180)		(10,483)

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

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

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

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

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

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CACTUS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

1.Preparation of Interim Financial Statements and Other Items

Basis of Presentation

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

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, these consolidated financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read together with our Annual Report on Form 10-K for the year ended December 31, 2021.

The consolidated financial statements include all adjustments, which are of a normal recurring nature, unless otherwise disclosed, necessary for a fair statement of the consolidated financial statements for the interim periods. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

In preparing our consolidated financial statements in conformity with GAAP, we make numerous estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with a high degree of precision from available data or is not otherwise capable of being readily calculated based on accepted methodologies. In some cases, these estimates are particularly difficult to determine, and we must exercise significant judgment. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our consolidated financial statements.

Reclassifications

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

2.Concentrations, Risks and Uncertainties

Significant Customers

Our customers are primarily oil and natural gas E&P companies representing private operators, publicly-traded independents, majors and other companies with operations in the key U.S. oil and gas producing basins as well as Australia and the Kingdom of Saudi Arabia. For the three months ended March 31, 2022 and 2021, one customer represented approximately 10% and 12%, respectively, of our consolidated revenues.

Significant Vendors

The principal raw materials used in the manufacture of our products and rental equipment include forgings and plate, castings, tube and bar stock. In addition, we require accessory items (such as elastomers, ring gaskets, studs and nuts) and machined components and assemblies. We purchase these items from vendors primarily located in the United States, China, India and Australia. For the three months ended March 31, 2022 and 2021, one vendor represented approximately 10% and 12%, respectively, of our total third-party vendor purchases of raw materials, finished products, components, equipment, machining and other services.

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3.Accounts Receivable and Allowance for Credit Losses

We extend credit to customers in the normal course of business. Our customers are predominantly oil and gas E&P companies located in the U.S. Our receivables are short-term in nature and typically due in 30 to 45 days. We do not accrue interest on delinquent receivables. Accounts receivable includes amounts billed and currently due from customers and unbilled amounts for products delivered and services performed for which billings have not yet been submitted to the customers. Total unbilled revenue included in accounts receivable as of March 31, 2022 and December 31, 2021 was $22.8 million and $24.1 million, respectively.

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


	Balance at Beginning of Period		Expense (Credit)		Write off		Balance at End of Period
Three Months Ended March 31, 2022	$	741	$	(110)	$	(15)	$	616
Three Months Ended March 31, 2021	598		66		(34)		630

4.Inventories

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


	March 31, 2022		December 31, 2021
Raw materials	$	2,148	$	1,870
Work-in-progress	5,465		4,288
Finished goods	128,588		113,659
	$	136,201	$	119,817

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5.Property and Equipment, net

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


	March 31, 2022		December 31, 2021
Land	$	5,590	$	3,203
Buildings and improvements	23,927		22,532
Machinery and equipment	57,467		56,937
Vehicles under finance lease	26,425		23,450
Rental equipment	186,418		180,704
Furniture and fixtures	1,757		1,755
Computers and software	3,520		3,495
Gross property and equipment	305,104		292,076
Less: Accumulated depreciation	(184,128)		(175,992)
Net property and equipment	120,976		116,084
Construction in progress	11,770		13,033
Total property and equipment, net	$	132,746	$	129,117

6.Debt

We had no debt outstanding as of March 31, 2022 and December 31, 2021.

On August 21, 2018, Cactus LLC entered into a five-year senior secured asset-based revolving credit facility with a syndicate of lenders and JPMorgan Chase Bank, N.A., as administrative agent for such lenders and as an issuing bank and swingline lender (the “ABL Credit Facility”). The ABL Credit Facility was amended in September 2020 and provides for up to $75.0 million in revolving commitments, up to $15.0 million of which is available for the issuance of letters of credit. The maximum amount that Cactus LLC may borrow under the ABL Credit Facility is subject to a borrowing base, which is based on a percentage of eligible accounts receivable and eligible inventory, subject to reserves and other adjustments. We were in compliance with all covenants under the ABL Credit Facility as of March 31, 2022.

7.Revenue

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

We do not adjust the amount of consideration per the contract for the effects of a significant financing component when we expect, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less, which is in substantially all cases. Payment terms and conditions vary, although terms generally include a requirement of payment within 30 to 45 days. Revenues are recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. We treat shipping and handling associated with outbound freight as a fulfillment cost instead of as a separate performance obligation. We recognize the cost for the associated shipping and handling when incurred as an expense in cost of sales.

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


	Three Months Ended March 31,
	2022				2021
Product revenue	$	94,040	65	%	$	51,956	61	%
Rental revenue	22,343		15	%	12,489		15	%
Field service and other revenue	29,516		20	%	19,972		24	%
Total revenues	$	145,899	100	%	$	84,417	100	%

At March 31, 2022, we had a deferred revenue balance of $1.2 million compared to the December 31, 2021 balance of $1.8 million. Deferred revenue represents our obligation to transfer products to or perform services for a customer for which we have received cash or billed in advance. The revenue that has been deferred will be recognized upon product delivery or as services are performed. As of March 31, 2022, we did not have any contracts with an original length of greater than a year from which revenue is expected to be recognized in the future related to performance obligations that are unsatisfied.

8.Tax Receivable Agreement (TRA)

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

The TRA liability is calculated by determining the tax basis subject to the TRA (“tax basis”) and applying a blended tax rate to the basis differences and calculating the resulting iterative impact. The blended tax rate consists of the U.S. federal income tax rate and an assumed combined state and local income tax rate driven by the apportionment factors applicable to each state. Subsequent changes to the measurement of the TRA liability are recognized in the statements of income as a component of other expense, net. As of March 31, 2022, the total liability from the TRA was $295.4 million with $11.8 million reflected in current liabilities based on the expected timing of our next payment. The payments under the TRA will not be conditional on a holder of rights under the TRA having a continued ownership interest in either Cactus LLC or Cactus Inc.

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

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

9.Equity

As of March 31, 2022, Cactus Inc. owned 79.3% of Cactus LLC as compared to 78.0% as of December 31, 2021. As of March 31, 2022, Cactus Inc. had outstanding 60.2 million shares of Class A common stock (representing 79.3% of the total voting power) and 15.7 million shares of Class B common stock (representing 20.7% of the total voting power).

Redemptions of CW Units

Pursuant to the First Amended and Restated Limited Liability Company Operating Agreement of Cactus Wellhead, LLC (the “Cactus Wellhead LLC Agreement”), holders of CW Units are entitled to redeem their CW Units, which results in additional

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Class A common stock outstanding. Since our IPO in February 2018, 44.9 million CW Units and a corresponding number of shares of Class B common stock have been redeemed in exchange for shares of Class A common stock.

During the three months ended March 31, 2022, one million CW Units, together with a corresponding number of shares of Class B common stock, were redeemed in exchange for Class A common stock in accordance with the Cactus Wellhead LLC Agreement. There was no change in the combined number of Cactus Inc. voting shares outstanding as a result of the redemptions.

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

Dividends

Aggregate cash dividends of $0.11 and $0.09 per share of Class A common stock were declared during the three months ended March 31, 2022 and 2021 totaling $6.6 million and $4.4 million, respectively. Cash dividends paid during the three months ended March 31, 2022 and 2021 totaled $6.7 million and $4.5 million, respectively. Dividends accrue on unvested equity-based awards on the date of record and are paid upon vesting. Dividends are not paid to our Class B common stockholders; however, a corresponding distribution up to the same amount per share as our Class A common stockholders is paid to the owners of CW Units other than Cactus Inc. for any dividends declared on our Class A common stock. See further discussion of the distributions below under “Member Distributions.”

Member Distributions

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

Limitation of Members’ Liability

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

10.Commitments and Contingencies

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

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11.Earnings per Share

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

We use the if-converted method to determine the potential dilutive effect of outstanding CW Units (and corresponding shares of outstanding Class B common stock), the treasury stock method to determine the potential dilutive effect of unvested restricted stock units assuming that the proceeds will be used to purchase shares of Class A common stock and the contingently issuable share method to determine the potential dilutive effect of unvested performance stock units.

The following table summarizes the basic and diluted earnings per share calculations:


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

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

(1)The numerator is adjusted in the calculation of diluted earnings per share under the if-converted method to include net income attributable to the non-controlling interest calculated as its pre-tax income adjusted for a corporate effective tax rate of 26.0% for the three months ended March 31, 2022 and 25.0% for the three months ended March 31, 2021.

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

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

Executive Summary

We design, manufacture, sell and rent a range of highly engineered wellhead and pressure control equipment. Our products are sold and rented principally for onshore unconventional oil and gas wells and are utilized during the drilling, completion and production phases of our customers’ wells. In addition, we provide field services for all of our products and rental items to assist with the installation, maintenance and handling of the wellhead and pressure control equipment.

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

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

During the three months ended March 31, 2022, we derived 65% of total revenues from the sale of our products, 15% of total revenues from rental and 20% of total revenues from field service and other. During the three months ended March 31, 2021, we derived 61% of total revenues from the sale of our products, 15% of total revenues from rental and 24% of total revenues from field service and other. We have predominantly domestic operations with a small amount of activity in Australia and the Kingdom of Saudi Arabia.

Market Factors

Demand for our products and services depends primarily upon the general level of activity in the oil and gas industry, including the number of active drilling rigs, the number of wells being drilled, the depth and working pressure of these wells, the number of well completions, the level of well remediation activity, the volume of production and the corresponding capital spending by oil and natural gas companies. Oil and gas activity is in turn heavily influenced by, among other factors, investor sentiment, availability of capital and oil and gas prices locally and worldwide, which have historically been volatile.

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

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

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

Field service and other revenues are closely correlated to revenues from product sales and rentals, as items sold or rented almost always have an associated service component. Therefore, the market factors and trends of product sales and rental revenues similarly impact the associated levels of field service and other revenues generated.

Recent Developments and Trends

Oil prices rose in early 2022 due to concerns over supply constraints with West Texas Intermediate (“WTI”) prices surpassing $90 per barrel in February. Since Russia invaded Ukraine on February 24, 2022, oil prices have increased further and price volatility is high, with WTI prices reaching almost $115 per barrel in March and dropping to approximately $94 per barrel in April, only to reach $108 per barrel in early May. The volatility can mainly be attributed to the global response to the conflict in Ukraine. In the U.S., President Joe Biden announced on March 8, 2022 that the U.S. was banning imports of oil from Russia, along with refined petroleum products, natural gas and coal. Then, in an attempt to ease higher gasoline prices, the Biden administration announced on March 31, 2022 that it would release 180 million barrels of oil from the Strategic Petroleum Reserve (“SPR”) over six months. The announcement of the SPR release sent oil prices lower for several days in early April until April 18, 2022 when Libya’s National Oil Corp announced a wave of closures had begun hitting its facilities forcing it to shut down production at its largest oilfield (El Sharara). Although this announcement was unrelated to the conflict in Ukraine, it further increased concerns surrounding supply. Additionally, there are reports that the European Union (EU) may enact a phased import ban on Russian oil. However, potential reduced consumption from sustained COVID-related lockdowns in China and looming concerns regarding a possible recession have weighed on the outlook for oil demand.

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

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

The significant increase in commodity prices since late 2020 has also led to meaningful increases in the level of U.S. onshore drilling activity, particularly among private operators. During the three months ended March 31, 2022, the weekly average U.S. onshore rig count as reported by Baker Hughes was 616 rigs compared to 543 rigs for the three months ended December 31, 2021 and 377 rigs for the three months ended March 31, 2021. Although these gains are encouraging, current rig activity is still significantly reduced from the levels in 2019 when the weekly average rig count for the three months ended March 31, 2019 was 1,021. However, improved rig efficiencies have partially offset the impact of this reduction. As of April 29, 2022, the U.S. onshore rig count was 684.

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

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Increased Costs

While our revenues have benefited from increased demand for our products and services and activity levels primarily due to higher commodity prices, we continue to experience substantial inflation throughout all aspects of our business. Supply chain disruptions, geopolitical issues and significantly increased demand for goods and services worldwide have resulted in substantial increases in fuel, raw materials, component parts, ocean freight charges as well as increased labor costs. Salaries and wages have increased significantly as a result of competitive labor markets, especially in certain key oil and gas producing areas, but also due to broader inflation trends and labor shortages. Due to heightened demand and a shortage of steel caused primarily by production disruptions during the pandemic and more recently due to the conflict in Ukraine, steel and assembled component prices have been and remain elevated. Freight costs, specifically ocean freight costs, remain elevated due to a number of factors including, but not limited to, a scarcity of shipping containers, congested seaports, a shortage of commercial drivers, capacity constraints on vessels and lockdowns in certain markets. In addition to dealing with these unprecedented cost increases, we continue to be impacted by global supply chain issues which have resulted in shipping delays and, in some cases, resulted in increased costs when we are required to use other more expensive modes of transportation or substitute more costly products in order to meet customer demand. Although we believe certain cost increases are temporary, we do not believe that commodity and freight prices will normalize this year. Additionally, we cannot be confident that input prices will return to the lower levels experienced in prior years. These cost increases have already had, and could continue to have, a negative impact on our margins and results of operations absent further successful cost recovery efforts.

Critical Accounting Policies and Estimates

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

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Consolidated Results of Operations

The following discussions relating to significant line items from our condensed consolidated statements of income are based on available information and represent our analysis of significant changes or events that impact the comparability of reported amounts. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where reasonably practicable, have quantified the impact of such items.

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

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


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

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

Revenues

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

Rental revenue for the first quarter of 2022 was $22.3 million, an increase of $3.1 million, or 16%, from $19.2 million for the fourth quarter of 2021. The increase was primarily attributable to higher customer completion activity.

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

Costs and expenses

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

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

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

Selling, general and administrative expenses for the first quarter of 2022 were $14.1 million, an increase of $1.2 million, or 10%, from $12.9 million for the fourth quarter of 2021. The increase was primarily due to increased personnel costs associated with higher salaries and wages, benefits and stock-based compensation expense as well as increased professional fees. These increases were slightly offset by lower bad debt expense and a reduction in annual incentive bonus accruals due to the fourth quarter including a true-up in expense based on actual 2021 performance.

Other income (expense), net. Other expense, net for the first quarter of 2022 of $1.1 million and other income, net of $1.9 million for the fourth quarter of 2021 represented non-cash adjustments for the revaluation of the liability related to the tax receivable agreement as a result of changes to the state tax rate.

Income tax expense. Income tax expense for the first quarter of 2022 was $2.7 million compared to $7.1 million for the fourth quarter of 2021. Income tax expense for the first quarter of 2022 included approximately $6.2 million expense associated with current income offset by a $1.7 million benefit associated with permanent differences related to equity compensation, a $1.0 million benefit associated with the revaluation of our deferred tax asset as a result of a change in our forecasted state tax rate and a $0.8 million tax benefit associated with the partial valuation allowance release in conjunction with first quarter 2022 redemptions of CW Units. Partial valuation releases occur in conjunction with redemptions of CW Units as a portion of Cactus Inc.’s deferred tax assets from its investment in Cactus LLC becomes realizable. Income tax expense for the fourth quarter of 2021 primarily included approximately $6.0 million expense associated with current income and a $1.3 million tax expense related to the revaluation of our deferred tax asset as a result of a change in our forecasted state tax rate.

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

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

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


	Three Months Ended March 31,
	2022		2021		$ Change		% Change
	(in thousands)
Revenues
Product revenue	$	94,040	$	51,956	$	42,084	81.0	%
Rental revenue	22,343		12,489		9,854		78.9
Field service and other revenue	29,516		19,972		9,544		47.8
Total revenues	145,899		84,417		61,482		72.8
Costs and expenses
Cost of product revenue	60,920		36,521		24,399		66.8
Cost of rental revenue	15,089		12,171		2,918		24.0
Cost of field service and other revenue	24,806		14,463		10,343		71.5
Selling, general and administrative expenses	14,094		9,627		4,467		46.4
Total costs and expenses	114,909		72,782		42,127		57.9
Income from operations	30,990		11,635		19,355		nm

Interest expense, net	(100)		(152)		52		(34.2)
Other expense, net	(1,115)		(406)		(709)		nm
Income before income taxes	29,775		11,077		18,698		nm
Income tax expense (benefit)	2,692		(4,059)		6,751		nm
Net income	27,083		15,136		11,947		78.9
Less: net income attributable to non-controlling interest	6,467		3,577		2,890		80.8
Net income attributable to Cactus Inc.	$	20,616	$	11,559	$	9,057	78.4	%
nm = not meaningful

Revenues

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

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

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

Costs and expenses

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

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

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

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

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

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

Liquidity and Capital Resources

At March 31, 2022, we had $297.7 million of cash and cash equivalents. Our primary sources of liquidity and capital resources are cash on hand, cash flows generated by operating activities and, if necessary, borrowings under our ABL Credit Facility. Depending upon market conditions and other factors, we may also have the ability to issue additional equity and debt if needed. As of March 31, 2022, we had no borrowings outstanding under our ABL Credit Facility and $75.0 million of available borrowing capacity. Additionally, we were in compliance with the covenants of the ABL Credit Facility as of March 31, 2022.

We believe that our existing cash on hand, cash generated from operations and available borrowings under our ABL Credit Facility will be sufficient for at least the next 12 months to meet working capital requirements, anticipated capital expenditures, expected payments related to the TRA, anticipated tax liabilities and dividends to holders of our Class A common stock as well as pro rata cash distributions to the holders of CW Units other than Cactus Inc.

For the three months ended March 31, 2022, net capital expenditures totaled $7.3 million, which were primarily related to additions to the Company’s fleet of rental equipment, including drilling-related tools, and additional investment in and expansion of our Bossier City location. We currently estimate our net capital expenditures for the year ending December 31, 2022 will range from $20 million to $30 million. We continuously evaluate our capital expenditures and the amount we ultimately spend will depend on a number of factors, including, among other things, demand for rental assets, available capacity in existing locations, prevailing economic conditions, market conditions in the E&P industry, customers’ forecasts, volatility and company initiatives.

Our ability to satisfy our long-term liquidity requirements, including cash distributions to CW Unit Holders to fund their respective income tax liabilities relating to their share of the income of Cactus LLC and to fund liabilities related to the TRA, depends on our future operating performance, which is affected by, and subject to, prevailing economic conditions, market conditions in the E&P industry, availability and cost of raw materials, and financial, business and other factors, many of which are beyond our control. We will not be able to predict or control many of these factors, such as economic conditions in the markets where we operate and competitive pressures. If necessary, we could choose to further reduce our spending on capital projects and operating expenses to ensure we operate within the cash flow generated from our operations.

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Cash Flows

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

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


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

Net cash provided by operating activities was $17.2 million and $15.7 million for the three months ended March 31, 2022 and 2021, respectively. Operating cash flows for 2022 increased primarily due to an increase in income offset by an increase in working capital, largely related to the increase in inventories exacerbated by extended in-transit volumes.

Net cash used in investing activities was $7.3 million and $2.0 million for the three months ended March 31, 2022 and 2021, respectively. The increase was primarily due to increased investments associated with our rental fleet and additional investment in and expansion of our Bossier City location.

Net cash used in financing activities was $14.2 million and $10.5 million for the three months ended March 31, 2022 and 2021, respectively. The increase was comprised of a $2.1 million increase in dividend payments, a $1.3 million increase in share repurchases from employees to satisfy tax withholding obligations related to restricted stock units that vested during the period and a $0.3 million increase in payments on finance leases.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A., “Quantitative and Qualitative Disclosures about Market Risk,” in our 2021 Annual Report. Our exposure to market risk has not changed materially since December 31, 2021.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

In accordance with Exchange Act Rules 13a-15 and 15d-15, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2022 at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

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

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We are party to lawsuits arising in the ordinary course of our business. We cannot predict the outcome of any such lawsuits with certainty, but management believes it is unlikely that pending or threatened legal matters will have a material adverse impact on our financial condition.

Due to the nature of our business, we are, from time to time, involved in other routine litigation or subject to disputes or claims related to our business activities, including workers’ compensation claims and employment related disputes. In the opinion of our management, none of these, whether pending litigation, disputes or claims against us, if decided adversely, will have a material adverse effect on our results of operations, financial condition or cash flows.

Item 1A. Risk Factors.

In addition to the information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our 2021 Annual Report and the risk factors and other cautionary statements contained in our other filings with the Securities and Exchange Commission, which could materially affect our business, results of operations, financial condition or cash flows. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, results of operations, financial condition or cash flows. There have been no material changes in our risk factors from those described in our 2021 Annual Report or our other Securities and Exchange Commission filings other than the addition of the risk factor as set forth below:

The ongoing conflict in Ukraine may adversely affect our business and results of operations.

The ongoing conflict in Ukraine could have adverse effects on global macroeconomic conditions which could negatively impact our business and results of operations. The conflict is highly unpredictable and has already resulted in significant volatility with oil and natural gas prices worldwide. Elevated oil and natural gas prices could result in higher inflation worldwide, causing economic uncertainty in the oil and natural gas markets as well as the stock market, resulting in stock price volatility, foreign currency fluctuations and supply chain disruptions. These conditions could ultimately dampen demand for our goods and services by increasing the possibility of a recession. In addition, the conflict could lead to increased cyberattacks or could aggravate other risk factors that we identify in our public filings.

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

Issuer Purchases of Equity Securities

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


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

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

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

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Item 6. Exhibits.

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


Exhibit No.						Description
3.1						Amended and Restated Certificate of Incorporation of Cactus, Inc., effective February 12, 2018 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed with the Commission on February 12, 2018)
3.2						Amended and Restated Bylaws of Cactus, Inc., effective as of September 8, 2020 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed with the Commission on September 9, 2020)
31.1*						CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*						CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**						CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**						CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*						Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document
101.SCH*						Inline XBRL Taxonomy Extension Schema Document
101.CAL*						Inline XBRL Taxonomy Calculation Linkbase Document
101.LAB*						Inline XBRL Taxonomy Label Linkbase Document
101.PRE*						Inline XBRL Taxonomy Presentation Linkbase Document
101.DEF*						Inline XBRL Taxonomy Definition Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		Cactus, Inc.

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

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

Cactus, Inc. [WHD] Filings
10-Q	[2022-05-05]
10-K	[2022-02-28]
10-Q	[2021-11-05]
10-Q	[2021-07-29]
10-Q	[2021-05-07]
10-K	[2021-03-01]
10-Q	[2020-11-05]
10-Q	[2020-07-31]
10-Q	[2020-05-01]
10-K	[2020-02-28]
10-Q	[2019-10-31]
10-Q	[2019-08-02]
10-Q	[2019-05-09]
10-K	[2019-03-15]
10-Q	[2018-11-02]
10-Q	[2018-08-02]
S-1	[2018-07-09]
10-Q	[2018-05-11]
10-K	[2018-03-19]
S-1	[2018-01-12]