whd-20240331

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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, 2024


☐			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 April 30, 2024, the registrant had 65,706,197 shares of Class A common stock, $0.01 par value per share, and 13,848,630 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	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

PART II - OTHER INFORMATION

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

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

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

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


(in thousands, except per share data)	March 31, 2024		December 31, 2023
Assets
Current assets
Cash and cash equivalents	$	194,257	$	133,792
Accounts receivable, net of allowance of $3,803 and $3,642, respectively	207,624		205,381
Inventories	204,049		205,625
Prepaid expenses and other current assets	11,027		11,380
Total current assets	616,957		556,178
Property and equipment, net	344,973		345,502
Operating lease right-of-use assets, net	24,429		23,496
Intangible assets, net	175,981		179,978
Goodwill	203,028		203,028
Deferred tax asset, net	201,037		204,852
Other noncurrent assets	9,482		9,527
Total assets	$	1,575,887	$	1,522,561
Liabilities and Equity
Current liabilities
Accounts payable	$	66,142	$	71,841
Accrued expenses and other current liabilities	58,284		50,654
Earn-out liability	34,114		20,810
Current portion of liability related to tax receivable agreement	20,855		20,855
Finance lease obligations, current portion	7,181		7,280
Operating lease liabilities, current portion	4,094		4,220
Total current liabilities	190,670		175,660
Deferred tax liability, net	3,743		3,589
Liability related to tax receivable agreement, net of current portion	250,069		250,069
Finance lease obligations, net of current portion	9,529		9,352
Operating lease liabilities, net of current portion	20,283		19,121
Other noncurrent liabilities	1,004		—
Total liabilities	475,298		457,791
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value, 10,000 shares authorized, none issued and outstanding	—		—
Class A common stock, $0.01 par value, 300,000 shares authorized, 65,518 and 65,409 shares issued and outstanding	655		654
Class B common stock, $0.01 par value, 215,000 shares authorized, 14,034 and 14,034 shares issued and outstanding	—		—
Additional paid-in capital	462,464		465,012
Retained earnings	431,703		400,682
Accumulated other comprehensive loss	(1,456)		(826)
Total stockholders’ equity attributable to Cactus Inc.	893,366		865,522
Non-controlling interest	207,223		199,248
Total stockholders’ equity	1,100,589		1,064,770
Total liabilities and equity	$	1,575,887	$	1,522,561

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,
(in thousands, except per share data)	2024		2023
Revenues
Product revenue	$	207,511	$	159,510
Rental revenue	23,943		27,817
Field service and other revenue	42,669		41,078
Total revenues	274,123		228,405
Costs and expenses
Cost of product revenue	120,666		100,815
Cost of rental revenue	12,946		16,084
Cost of field service and other revenue	35,235		31,917
Selling, general and administrative expenses	29,422		29,901
Change in fair value of earn-out liability	13,304		—
Total costs and expenses	211,573		178,717
Operating income	62,550		49,688

Interest income, net	689		1,002
Other income, net	—		3,538
Income before income taxes	63,239		54,228
Income tax expense	13,424		1,940
Net income	$	49,815	$	52,288
Less: net income attributable to non-controlling interest	10,850		9,394
Net income attributable to Cactus Inc.	$	38,965	$	42,894

Earnings per Class A share - basic	$	0.60	$	0.67
Earnings per Class A share - diluted	$	0.59	$	0.63

Weighted average Class A shares outstanding - basic	65,378		63,740
Weighted average Class A shares outstanding - diluted	79,556		79,155

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,
(in thousands)	2024		2023
Net income	$	49,815	$	52,288
Foreign currency translation adjustments	(803)		303
Comprehensive income	$	49,012	$	52,591
Less: comprehensive income attributable to non-controlling interest	10,677		9,477
Comprehensive income attributable to Cactus Inc.	$	38,335	$	43,114

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

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, 2023	65,409	$	654	14,034	$	—	$	465,012	$	400,682	$	(826)	$	199,248	$	1,064,770

Member distributions	—	—		—	—		—		—		—		(1,684)		(1,684)

Tax impact of equity transactions	—	—		—	—		234		—		—		—		234
Equity award vestings	196	2		—	—		(3,466)		—		—		(1,432)		(4,896)
Other comprehensive loss	—	—		—	—		—		—		(630)		(173)		(803)
Share repurchases	(87)	(1)		—	—		(2,996)		—		—		(375)		(3,372)
Stock-based compensation	—	—		—	—		3,680		—		—		789		4,469
Cash dividends declared ($0.12 per share)	—	—		—	—		—		(7,944)		—		—		(7,944)
Net income	—	—		—	—		—		38,965		—		10,850		49,815
Balance at March 31, 2024	65,518	$	655	14,034	$	—	$	462,464	$	431,703	$	(1,456)	$	207,223	$	1,100,589

Balance at December 31, 2022	60,903	$	609	14,978	$	—	$	310,528	$	261,764	$	(984)	$	138,528	$	710,445
Issuance of common stock	3,352	34		—	—		143,302		—		—		26,033		169,369
Member distributions	—	—		—	—		—		—		—		(1,644)		(1,644)

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

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

CACTUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Three Months Ended March 31,
(in thousands)	2024		2023
Cash flows from operating activities
Net income	$	49,815	$	52,288
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	15,046		13,110
Deferred financing cost amortization	280		291
Stock-based compensation	4,432		3,841
Provision for expected credit losses	162		(376)
Inventory obsolescence	1,062		576
Gain on disposal of assets	(208)		(1,033)
Deferred income taxes	4,403		(1,406)
Change in fair value of earn-out liability	13,304		(121)
Gain from revaluation of liability related to tax receivable agreement	—		(3,417)
Changes in operating assets and liabilities:
Accounts receivable	(3,011)		(12,883)
Inventories	234		20,565
Prepaid expenses and other assets	128		2,151
Accounts payable	(8,132)		(6,282)
Accrued expenses and other liabilities	8,748		(6,842)

Net cash provided by operating activities	86,263		60,462
Cash flows from investing activities
Acquisition of a business, net of cash and cash equivalents acquired	—		(618,857)
Capital expenditures and other	(7,902)		(15,928)
Proceeds from sales of assets	1,094		1,633
Net cash used in investing activities	(6,808)		(633,152)
Cash flows from financing activities
Proceeds from the issuance of long-term debt	—		155,000

Net proceeds from the issuance of Class A common stock	—		169,878
Payments of deferred financing costs	—		(6,665)
Payments on finance leases	(2,031)		(1,709)
Dividends paid to Class A common stock shareholders	(8,144)		(7,353)
Distributions to members	(1,684)		(1,645)
Repurchases of shares	(8,268)		(4,343)
Net cash provided by (used in) financing activities	(20,127)		303,163
Effect of exchange rate changes on cash and cash equivalents	1,137		422
Net increase (decrease) in cash and cash equivalents	60,465		(269,105)
Cash and cash equivalents, beginning of period	133,792		344,527
Cash and cash equivalents, end of period	$	194,257	$	75,422

Supplemental disclosure of cash flow information
Net cash paid for income taxes	$	1,611	$	556
Cash paid for interest	$	535	$	327
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new lease obligations	$	4,515	$	4,874
Property and equipment in accounts payable	$	2,637	$	1,249

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

CACTUS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

1.Preparation of Interim Financial Statements and Other Items

Basis of Presentation

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

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

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

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, these consolidated financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read together with our Annual Report on Form 10-K for the year ended December 31, 2023.

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.

Recent Accounting Pronouncements

Standards Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, “Income Taxes (Topic 740).” The amendments in this ASU require entities to disclose on an annual basis specific categories in the income tax rate reconciliation and provide additional disclosures for reconciling items that meet a specified

quantitative threshold. Entities will also be required to disclose annually income taxes paid disaggregated by federal, state and foreign taxes and the amount of income taxes paid by individual jurisdictions that meet a five percent or greater threshold of total income taxes paid net of refunds received. The ASU also adds certain disclosures in order to be consistent with U.S. Securities and Exchange Commission rules and removes certain disclosures that no longer are considered cost beneficial or relevant. The amendments in this ASU are to be applied on a prospective basis and will be effective for our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, with early adoption permitted. We are currently evaluating the impact the adoption of this new standard will have on our disclosures.

In November 2023, the FASB issued ASU No. 2023-07, “Improvements to Reportable Segment Disclosures (Topic 280)” in order to require disclosure of incremental segment information on an annual and interim basis for all public entities. The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items and interim disclosures of a reportable segment’s profit or loss and assets. The ASU is to be applied retrospectively to all prior periods presented in the financial statements and is effective for our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, with early adoption permitted. We are currently evaluating the impact the adoption of this new standard will have on our segment disclosures.

2.FlexSteel Acquisition

On February 28, 2023 we completed the acquisition of FlexSteel. Including final adjustments for closing working capital, cash on hand and indebtedness adjustments as set forth in the merger agreement, we paid total cash consideration of $621.5 million. There is also a future earn-out payment of up to $75.0 million to be paid no later than the third quarter of 2024, if certain revenue targets are met by FlexSteel.

Purchase Price Consideration

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


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

(1) Represents the estimated fair value as of the acquisition date of the earn-out payment of up to $75.0 million of additional cash consideration if certain revenue targets are met by FlexSteel. The estimated fair value of the earn-out payment was determined using a Monte Carlo simulation valuation methodology based on probability-weighted performance projections and other inputs, including a discount rate.

Changes in the fair value of the earn-out liability subsequent to the acquisition date are recognized in the consolidated statements of income. As of March 31, 2024, the estimated earn-out payment is $34.1 million. The increase is based on the improvements in FlexSteel's expected revenues for the period January 1, 2023 through June 30, 2024, compared to projections made at the time of the acquisition. See further discussion of the calculation of fair value of the earn-out liability in Note 12.

Purchase Price Allocation

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


Cash and cash equivalents	$	5,316
Receivables	58,002
Inventories	91,746
Prepaid expenses and other current assets	1,283
Property and equipment	206,928
Operating lease right-of-use assets	1,021
Identifiable intangible assets	200,300
Other noncurrent assets	5,666
Total assets acquired	570,262
Accounts payable	(14,975)
Accrued expenses and other current liabilities	(26,827)
Finance lease obligations	(974)
Operating lease liabilities	(906)
Deferred tax liabilities	(94,319)
Total liabilities assumed	(138,001)

Net assets acquired	432,261

Goodwill	$	195,204

The acquisition was accounted for using the acquisition method of accounting, with Cactus being treated as the accounting acquirer. Under the acquisition method of accounting, the assets and liabilities were recorded at their respective fair values as of the acquisition date. Fair values were determined by management, based in part on independent valuations performed by third-party valuation specialists. The valuation methods used to determine the fair value of intangible assets included the excess earnings approach for customer relationships and backlog using customer inputs and contributory charges and the relief from royalty method for tradename and developed technology.

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

Goodwill is calculated as the excess of the purchase price over the estimated fair value of net assets acquired.

Pro forma financial information

The pro forma financial information below represents the combined results of operations as if the acquisition had occurred as of January 1, 2022. The unaudited pro forma financial information is presented for informational purposes only and is neither indicative of the results of operations that would have occurred if the acquisition had taken place at the beginning of the period presented nor indicative of future operating results.


	Three Months Ended March 31,
	2023
Revenues	$	281,784
Net Income attributable to Cactus, Inc.	40,803

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 exploration and production companies located in the U.S. Our receivables are short-term in nature and typically due in 30 to 60 days. We do not accrue interest on delinquent receivables. Accounts receivable includes amounts billed and currently due from customers and unbilled amounts for products delivered and services performed for which billings have not yet been submitted to the customers. Total unbilled revenue included in accounts receivable as of March 31, 2024 and December 31, 2023 was $31.7 million and $26.8 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 (Recovery)		Write off		Translation Adjustments		Balance at End of Period
Three Months Ended March 31, 2024	$	3,642	$	162	$	(1)	$	—	$	3,803
Three Months Ended March 31, 2023	1,060		(376)		(19)		2		667

4.Inventories

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


	March 31, 2024		December 31, 2023
Raw materials	$	18,941	$	22,373
Work-in-progress	13,330		11,471
Finished goods	171,778		171,781
	$	204,049	$	205,625

5.Property and Equipment, net

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


	March 31, 2024		December 31, 2023
Land	$	16,442	$	16,442
Buildings and improvements	132,091		131,974
Machinery and equipment	130,082		128,962
Reels and skids	16,124		16,181
Vehicles	37,657		36,552
Rental equipment	219,692		218,340
Furniture and fixtures	1,908		1,913
Computers and software	4,112		3,951
Gross property and equipment	558,108		554,315
Less: Accumulated depreciation	(239,984)		(231,594)
Net property and equipment	318,124		322,721
Construction in progress	26,849		22,781
Total property and equipment, net	$	344,973	$	345,502

6.Other Intangible Assets

The following table presents the detail of acquired intangible assets:


	March 31, 2024						December 31, 2023
	Gross Cost		Accumulated Amortization		Net Cost		Gross Cost		Accumulated Amortization		Net Cost
Customer relationships	$	100,300	$	(7,244)	$	93,056	$	100,300	$	(5,572)	$	94,728
Developed technology	77,000		(8,342)		68,658		77,000		(6,417)		70,583
Tradename	16,000		(1,733)		14,267		16,000		(1,333)		14,667
Backlog	7,000		(7,000)		—		7,000		(7,000)		—
Total	$	200,300	$	(24,319)	$	175,981	$	200,300	$	(20,322)	$	179,978

All intangible assets are amortized over their estimated useful lives. The weighted average amortization period for identifiable intangible assets acquired as of March 31, 2024 is 12 years. Amortization expense recognized during the three months ended March 31, 2024 was $4.0 million and was recorded in selling, general and administrative expenses in the consolidated statements of income. Estimated future amortization expense is as follows:


Remainder of 2024	$	11,990
2025	15,987
2026	15,987
2027	15,987
2028	15,987
2029	15,987
Thereafter	84,056
Total	$	175,981

7.Debt

We had no debt outstanding as of March 31, 2024 and December 31, 2023. We had $1.1 million in letters of credit outstanding and were in compliance with all covenants under the Amended ABL Credit Facility (as defined below) as of March 31, 2024.

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

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

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

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

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

The Amended ABL Credit Facility was amended in December 2023 to incorporate certain changes related to revised and new definitions associated with the satisfaction of payment conditions for restricted payments, investments, permitted acquisitions, periodic reporting and asset dispositions. The amendment did not change the ABR, applicable margin rates, commitment fees, the

maturity date, borrowing availability or covenants under the Amended ABL Credit Facility other than timing of certain reporting requirements.

8.Revenue

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

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

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


	Three Months Ended March 31,
	2024				2023
Product revenue	$	207,511	76	%	$	159,510	70	%
Rental revenue	23,943		8	%	27,817		12	%
Field service and other revenue	42,669		16	%	41,078		18	%
Total revenues	$	274,123	100	%	$	228,405	100	%

At March 31, 2024, we had a deferred revenue balance of $7.9 million compared to the December 31, 2023 balance of $8.1 million. Deferred revenue represents our obligation to transfer products to or perform services for a customer for which we have received cash or billed in advance. The revenue that has been deferred will be recognized upon product delivery or as services are performed. As of March 31, 2024, we did not have any contracts with an original length of greater than a year from which revenue is expected to be recognized in the future related to performance obligations that are unsatisfied.

9.Tax Receivable Agreement (“TRA”)

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

The TRA liability is calculated by determining the tax basis subject to the TRA (“tax basis”) and applying a blended tax rate to the basis differences and calculating the resulting iterative impact. The blended tax rate consists of the U.S. federal income tax rate and an assumed combined state and local income tax rate driven by the apportionment factors applicable to each state. Subsequent changes to the measurement of the TRA liability are recognized in the statements of income as a component of other expense, net. As of March 31, 2024, the total liability from the TRA was $270.9 million with $20.9 million reflected in current liabilities based on the expected timing of our next payment. The payments under the TRA will not be conditional on a holder of rights under the TRA having a continued ownership interest in either Cactus Companies or Cactus Inc.

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

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

In March of 2024, the TRA was amended to replace all references to one year LIBOR with references to the 12-month term SOFR published by CME Group Benchmark Administration Limited plus 71.513 basis points. Additionally, all references to Cactus LLC were replaced with references to Cactus Companies as described in the CC Reorganization. The foregoing description of the TRA Amendment is a summary of the material terms of the TRA Amendment, does not purport to be complete and is qualified in its entirety by reference to the complete text of the TRA Amendment, a copy of which is filed as an Exhibit to this Quarterly Report and is incorporated herein by reference.

10.Equity

As of March 31, 2024, Cactus Inc. owned 82.4% of Cactus Companies as compared to 82.3% of Cactus Companies as of December 31, 2023. As of March 31, 2024, Cactus Inc. had outstanding 65.5 million shares of Class A common stock (representing 82.4% of the total voting power) and 14.0 million shares of Class B common stock (representing 17.6% of the total voting power).

Equity Offering

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

FlexSteel Acquisition

In conjunction with the FlexSteel acquisition, a restricted stock award of 128,150 shares of Class A common stock was issued under the Company’s long-term incentive plan to a key employee in exchange for cash consideration of $6.5 million. The shares were restricted from sale or trading and were subject to vesting requirements for one year from grant date. The agreement included a guaranteed provision whereby if the fair market value of the restricted shares was below the purchase price upon vesting, Cactus would compensate the key employee for the difference in price plus a gross-up for taxes. The restricted stock award early vested in October 2023 when the employee separated from the Company. The guaranteed payment provision was not triggered when the shares vested; therefore no cash payment was required or made in accordance with the terms of this award.

CC Reorganization

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

permitted transferees), as “CC Unit Holders.” Following the completion of the CC Reorganization, CC Unit Holders own one share of our Class B Common Stock for each CC Unit such CC Unit Holder owns.

In connection with the CC Reorganization, Cactus Inc. and the owners of CC Units entered into the Amended and Restated Limited Liability Company Operating Agreement of Cactus Companies (the “Cactus Companies LLC Agreement”), which contains substantially the same terms and conditions as the Second Amended and Restated Limited Liability Company Operating Agreement of Cactus LLC (the “Cactus Wellhead LLC Agreement”), which was the limited liability company operating agreement of Cactus LLC prior to the CC Reorganization. Cactus Inc. was responsible for all operational, management and administrative decisions relating to Cactus LLC’s business for the period from completion of our IPO until the CC Reorganization and relating to Cactus Companies’ business for periods after the CC Reorganization.

Redemptions of CC Units

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

During the three months ended March 31, 2024 and 2023, there were no redemptions of CC Units (or CW Units prior to the CC Reorganization).

Dividends

Aggregate cash dividends of $0.12 and $0.11 per share of Class A common stock were declared during the three months ended March 31, 2024 and 2023 totaling $8.0 million and $7.1 million, respectively. Cash dividends paid during the three months ended March 31, 2024 and 2023 totaled $8.1 million and $7.4 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 CC Units other than Cactus Inc. for any dividends declared on our Class A common stock. See further discussion of the distributions below under “Member Distributions.”

Share Repurchase Program

On June 6, 2023, our board of directors authorized the Company to repurchase shares of its Class A common stock for an aggregate purchase price of up to $150 million. Under our share repurchase program, shares may be repurchased from time to time in open market transactions or block trades, in privately negotiated transactions or any other method permitted under U.S. securities laws, rules and regulations. The repurchase program does not obligate the Company to purchase any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. During the three months ended March 31, 2024, the Company purchased and retired 86,599 shares of Class A common stock for $3.4 million, or $38.92 average price per share excluding commissions, under the share repurchase program. As of March 31, 2024, $146.3 million remained authorized for future repurchases of Class A common stock under the program.

Member Distributions

Distributions made by Cactus Companies are generally required to be made pro rata among all its members. For the three months ended March 31, 2024, Cactus Companies distributed $7.8 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, 2023, Cactus Companies distributed $7.1 million to Cactus Inc. to fund its dividend payments and made pro rata distributions to the other members totaling $1.6 million.

Limitation of Members’ Liability

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

11.Commitments and Contingencies

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

12.Fair Value Measurements

Authoritative guidance on fair value measurements provides a framework for measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs), observable inputs other than quoted prices in active markets (Level 2 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

The carrying value of cash and cash equivalents, receivables, accounts payable and accrued expenses approximates fair value based on the short-term nature of these accounts.

At March 31, 2024, due to the short-term nature of this account, the earn-out liability related to the FlexSteel acquisition (see Note 2) was determined based on the estimated future payments, utilizing projections for the second quarter of 2024. At December 31, 2023, the earn-out liability was measured at a fair value of $20.8 million using Level 3 unobservable inputs. The fair value at December 31, 2023 was determined based on the evaluation of the probability and amount of earn-out that may be achieved based on expected future performance of FlexSteel using a Monte Carlo simulation model. The Monte Carlo simulation model uses assumptions including revenue volatilities, risk free rates, credit discount rates and revenue discount rates. The following table sets forth the range of inputs for the significant assumptions utilized to determine the fair value as of December 31, 2023:


	December 31, 2023
Risk-free interest rate	5.40%	to	5.63%
Expected revenue volatility	21.70%
Revenue discount rate	10.02%	to	10.23%
Credit discount rate	9.85%

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


	Earn-out
Opening Balance	$	5,960
Changes in fair value	14,850
Balance at December 31, 2023	$	20,810

The fair value of our foreign currency forwards was less than $0.1 million as of March 31, 2024 and was determined using market observable inputs including forward and spot prices (Level 2 inputs).

13.Segment Reporting

We operate in two business segments that offer different products and services and correspond to the manner in which our chief operating decision maker reviews and evaluates operating performance to make decisions about resources to be allocated to each segment.

Our reporting segments are:

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

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

Financial information by business segment for three months ended March 31, 2024 and 2023 is summarized below.


	Three Months Ended March 31,
	2024		2023
Revenue:
Pressure Control	$	175,028	$	194,655
Spoolable Technologies	99,095		33,750
Total revenues	274,123		228,405
Operating income:
Pressure Control	51,675		63,171
Spoolable Technologies	16,393		249
Total segment operating income	68,068		63,420
Corporate and other expenses (1)	(5,518)		(13,732)
Total operating income	62,550		49,688
Interest income, net	689		1,002
Other income, net	—		3,538
Income before income taxes	$	63,239	$	54,228

(1)Includes corporate and other costs not directly attributable to our reporting segments, such as corporate executive management and other administrative functions. These costs were previously included in the Pressure Control segment. The information for the three months ended March 31, 2023 has been recast to align with the presentation for the three months ended March 31, 2024.

14.Earnings per Share

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

We use the if-converted method to determine the potential dilutive effect of outstanding CC Units and corresponding shares of outstanding Class B common stock. We use the treasury stock method to determine the potential dilutive effect of unvested stock-based compensation awards assuming that the proceeds will be used to purchase shares of Class A common stock. For our unvested performance stock units, we first apply the criteria for contingently issuable shares before determining the potential dilutive effect using the treasury stock method.

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


	Three Months Ended March 31,
	2024		2023
Numerator:
Net income attributable to Cactus Inc.—basic	$	38,965	$	42,894
Net income attributable to non-controlling interest (1)	8,241		7,312
Net income attributable to Cactus Inc.—diluted (1)	$	47,206	$	50,206
Denominator:
Weighted average Class A shares outstanding—basic	65,378		63,740
Effect of dilutive shares	14,178		15,415
Weighted average Class A shares outstanding—diluted	79,556		79,155

Earnings per Class A share—basic	$	0.60	$	0.67
Earnings per Class A share—diluted (1)	$	0.59	$	0.63

(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, 2024 and 24.5% for the three months ended March 31, 2023.

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

Except as otherwise indicated or required by the context, all references in this Quarterly Report to the “Company,” “Cactus,” “we,” “us” and “our” refer to Cactus, Inc. (“Cactus Inc.”) and its consolidated subsidiaries, unless we state otherwise or the context otherwise requires. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes. The following discussion contains “forward-looking statements” that reflect our plans, estimates, beliefs and expected performance. Our actual results may differ materially from those anticipated as discussed in these forward-looking statements as a result of a variety of risks and uncertainties, which are difficult to predict, including those described above in “Cautionary Note Regarding Forward-Looking Statements,” and in the risk factors included in “Part I, Item 1A. Risk Factors” in our 2023 Annual Report. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We assume no obligation to update any of these forward-looking statements except as otherwise required by law.

Executive Summary

Cactus is an equipment solutions provider primarily for onshore oil and gas markets. Founded in 2011 by a management group that previously operated two of the largest wellhead providers at the time, Cactus has rapidly grown to be a leading provider of wellhead solutions to the U.S. onshore market. On February 28, 2023, Cactus acquired FlexSteel, which similarly grew from its founding in 2003 to its current status as a leading provider of spoolable pipe technologies primarily to the U.S. onshore market. We believe this acquisition enhances our position as a premier manufacturer and provider of highly engineered equipment to the exploration and production ("E&P") industry and should provide meaningful growth potential. We further believe FlexSteel’s products are highly complementary to Cactus’ equipment as it expands our exposure to our customers’ operations from production trees to transportation of oil, gas and other liquids as well as to additional customers operating in the midstream area.

Demand for our products and services depends primarily upon oil and gas industry activity levels, including the number of active drilling rigs, the number of wells being drilled, the number of wells being completed, and the volume of newly producing wells, among other factors.

Revenues

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

During the three months ended March 31, 2024, we derived 76% of total revenues from the sale of our products, 8% of total revenues from rental and 16% of total revenues from field service and other. During the three months ended March 31, 2023, we derived 70% of total revenues from the sale of our products, 12% of total revenues from rental and 18% of total revenues from field service and other. We have predominantly domestic operations with more limited operations in Australia, Canada, and the Middle East as well as sales in other international markets.

We operate in two business segments consisting of the Pressure Control segment and the Spoolable Technologies segment.

Pressure Control

The Pressure Control segment designs, manufactures, sells and rents a range of wellhead and pressure control equipment under the Cactus Wellhead brand. Products are sold and rented principally for onshore unconventional oil and gas wells and are utilized during the drilling, completion and production phases of our customers’ wells. In addition, we provide field services for all of our products and rental items to assist with the installation, maintenance and handling of the equipment.

We operate through service centers in the United States, which are strategically located in the key oil and gas producing regions, and in Australia. These service centers support our field services and provide equipment assembly and repair services. We also provide rental and service operations in the Kingdom of Saudi Arabia. Pressure Control manufacturing and production facilities are located in Bossier City, Louisiana and Suzhou, China.

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

Spoolable Technologies

The Spoolable Technologies segment designs, manufactures, and sells spoolable pipe and associated end fittings under the FlexSteel brand. Our customers use these products primarily as production, gathering and takeaway pipelines to transport oil, gas or other liquids. In addition, we also provide field services and rental items to assist our customers with the installation of these products. We support our field service operations through service centers and pipe yards located in oil and gas regions throughout the United States and Western Canada. Our manufacturing facility is located in Baytown, Texas.

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

Recent Developments and Trends

FlexSteel Acquisition

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

Oil and Natural Gas Prices

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


	Three Months Ended
	March 31, 2024		December 31, 2023		March 31, 2023
WTI Oil Price ($/bbl) (1)	$	77.50	$	78.53	$	75.93
Natural Gas Price ($/MMBtu) (2)	$	2.15	$	2.74	$	2.64
U.S. Land Drilling Rigs (3)	602		600		742

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

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

(3) Baker Hughes.

In the first quarter of 2024, U.S. land drilling and completion activity levels were flat compared to the fourth quarter of 2023 and down approximately 10% from the 2023 full year average. Average oil prices also remained flat in the first quarter of 2024 compared to the fourth quarter of 2023 as prices remain elevated due to geopolitical risk concerns and continued strong global demand. Natural gas prices declined 22% in the first quarter of 2024 from the fourth quarter of 2023, as continued strong production and warmer weather have led to U.S. storage levels well above five-year average levels, despite announced activity reductions and curtailments from several U.S. gas producers. The ongoing conflicts in Ukraine and the Middle East have led to heightened commodity volatility and increased risk to our global supply chain. In recent weeks, risk of a broader Middle East conflict has increased, which could have broad impacts on the global economy and our business.

Pillar Two Framework

The Organization for Economic Cooperation and Development (“OECD”) enacted rules (“Pillar Two”) for a new, global minimum tax of at least 15% on income arising in low-tax jurisdictions. We are currently evaluating the potential impact this new legislation will have on our consolidated financial statements; however, based on current enacted Legislation, Management anticipates the impact of Pillar Two to be immaterial to the Company for 2024.

Critical Accounting Policies and Estimates

A discussion of our critical accounting policies and estimates is contained in our 2023 Annual Report on Form 10-K. There have not been any changes in our critical accounting policies since December 31, 2023.

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.

We have two operating segments consisting of the Pressure Control segment (legacy Cactus) and the Spoolable Technologies segment (FlexSteel). Our results of operations are evaluated by the Chief Executive Officer on a consolidated basis as well as at the segment level. The performance of our operating segments is primarily evaluated based on segment operating income (in addition to other measures), which is defined as income before taxes and before interest income (expense), net, other income (expense), net and corporate and other expenses not allocated to the operating segments. Corporate and other expenses were previously included in our Pressure Control segment. The Company has recast the information for the three months ended March 31, 2023 to align with the presentation for the three months ended March 31, 2024.

Three Months Ended March 31, 2024 Compared to Three Months Ended December 31, 2023

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


	Three Months Ended
	March 31, 2024		December 31, 2023		$ Change		% Change
	(in thousands)
Revenues
Pressure Control	$	175,028	$	180,454	$	(5,426)	(3.0)	%
Spoolable Technologies	99,095		94,412		4,683		5.0
Total revenues	274,123		274,866		(743)		(0.3)
Operating income
Pressure Control	51,675		56,053		(4,378)		(7.8)
Spoolable Technologies	16,393		28,168		(11,775)		(41.8)
Total segment operating income	68,068		84,221		(16,153)		(19.2)
Corporate and other expenses	(5,518)		(5,668)		150		(2.6)
Total operating income	62,550		78,553		(16,003)		(20.4)

Interest income (expense), net	689		(182)		871		nm
Other income, net	—		686		(686)		nm
Income before income taxes	63,239		79,057		(15,818)		(20.0)
Income tax expense	13,424		16,983		(3,559)		(21.0)
Net income	49,815		62,074		(12,259)		(19.7)
Less: net income attributable to non-controlling interest	10,850		13,127		(2,277)		(17.3)
Net income attributable to Cactus Inc.	$	38,965	$	48,947	$	(9,982)	(20.4)	%
nm = not meaningful

Pressure Control. Pressure Control revenue for the first quarter of 2024 was $175.0 million, a decrease of $5.4 million, or 3.0%, from $180.5 million for the fourth quarter of 2023 primarily due to decreased customer activity resulting in reduced sales of wellhead and production related equipment in addition to decreased rental activity. Pressure Control operating income of $51.7 million for the first quarter of 2024 decreased $4.4 million, or 7.8% from $56.1 million for the fourth quarter of 2023 primarily due to decreased equipment sales and rental activity, slightly offset by higher field service activity. Pressure Control selling, general and administrative expenses (“SG&A”) decreased $0.1 million from the fourth quarter primarily due to lower bad debt expense and professional fees, partially offset by higher stock-based compensation expense.

Spoolable Technologies. Spoolable Technologies revenue for the first quarter of 2024 was $99.1 million, an increase of $4.7 million, or 5.0% from $94.4 million for the fourth quarter of 2023. Total operating income for Spoolable Technologies for the first quarter of 2024 was $16.4 million, a decrease of $11.8 million, compared to operating income of $28.2 million for the fourth quarter of 2023. The decrease in operating income was primarily due to a $13.3 million loss related to the change in fair value of the earn-out payment for the FlexSteel acquisition in the first quarter of 2024 compared to a $1.9 million loss in the fourth quarter of 2023.

Corporate and other expenses. Corporate and other expenses for the first quarter of 2024 was $5.5 million, a decrease of $0.2 million, or 2.6% from $5.7 million for the fourth quarter of 2023. The decrease was primarily due to lower stock-based compensation expense.

Interest income (expense), net. Interest income, net was $0.7 million for the first quarter of 2024 compared to interest expense, net of $0.2 million for the fourth quarter of 2023. The increase in interest income, net was primarily due to higher interest income earned on a higher invested cash balance.

Other income, net. Other income, net of $0.7 million for the fourth quarter of 2023 represented non-cash adjustments for the revaluation of the liability related to the tax receivable agreement.

Income tax expense. Income tax expense for the first quarter of 2024 was $13.4 million compared to $17.0 million for the fourth quarter of 2023. The decrease in income tax expense from the fourth quarter was primarily due to a decrease in operating income quarter over quarter. Cactus Inc. is only subject to federal and state income tax on its share of income from Cactus Companies. Income allocated to the non-controlling interest is only taxable to the non-controlling interest.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

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


	Three Months Ended March 31,
	2024		2023		$ Change		% Change
	(in thousands)
Revenues
Pressure Control	$	175,028	$	194,655	$	(19,627)	(10.1)	%
Spoolable Technologies	99,095		33,750		65,345		nm
Total revenues	274,123		228,405		45,718		20.0
Operating income
Pressure Control	51,675		63,171		(11,496)		(18.2)
Spoolable Technologies	16,393		249		16,144		nm
Total segment operating income	68,068		63,420		4,648		7.3
Corporate and other expenses	(5,518)		(13,732)		8,214		(59.8)
Total operating income	62,550		49,688		12,862		25.9

Interest income, net	689		1,002		(313)		(31.2)
Other income, net	—		3,538		(3,538)		nm
Income before income taxes	63,239		54,228		9,011		16.6
Income tax expense	13,424		1,940		11,484		nm
Net income	49,815		52,288		(2,473)		(4.7)
Less: net income attributable to non-controlling interest	10,850		9,394		1,456		15.5
Net income attributable to Cactus Inc.	$	38,965	$	42,894	$	(3,929)	(9.2)	%
nm = not meaningful

Pressure Control. Pressure Control revenue was $175.0 million for the first quarter of 2024, a decrease of $19.6 million, or 10.1%, from $194.7 million for the first quarter of 2023. This was primarily due to decreased sales of wellhead and production related equipment resulting from lower drilling and completion activity by our customers. In addition, rental of drilling and completion equipment and field service associated with product and rental revenues decreased as a result of the abovementioned decline in activity. Operating income of $51.7 million in the first quarter of 2024 decreased $11.5 million, or 18.2%, from $63.2 million in the first quarter of 2023. The decrease was primarily attributable to lower gross margins during the period due to the decreased activity levels and higher SG&A expenses. The increase in SG&A expenses primarily related to higher personnel costs, bad debt expense and stock-based compensation expense.

Spoolable Technologies. Spoolable Technologies revenue for the first quarter of 2024 was $99.1 million, an increase of $65.3 million from $33.8 million for the first quarter of 2023, as results for the first quarter of 2023 only included one month of revenues (from the FlexSteel acquisition date of February 28, 2023). Total operating income was $16.4 million in the first quarter 2024, an increase of $16.1 million, compared to $0.2 million in the first quarter of 2023, which included only one month of income. Operating income in the first quarter of 2024 included a loss of $13.3 million related to the change in fair value of the earn-out payment. Operating income for the first quarter of 2023 included $4.2 million of inventory step-up expense and $3.7 million of intangible amortization expense as well as increased depreciation for the step-up of its fixed assets in connection with accounting for the purchased assets at fair value in conjunction with purchase accounting.

Corporate and other expenses. Corporate and other expenses for the first quarter of 2024 was $5.5 million, a decrease of $8.2 million, or 59.8% from $13.7 million for the first quarter of 2023. The decrease was largely attributable to lower professional fees related to transaction costs associated with the closing of and accounting for the FlexSteel acquisition.

Interest income, net. Interest income, net for the first quarter of 2024 of $0.7 million decreased $0.3 million from the first quarter of 2023 primarily due to lower interest income earned on lower cash invested during the period.

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

Income tax expense. Income tax expense for the first quarter of 2024 was $13.4 million compared to $1.9 million for the first quarter of 2023. The increase in income tax expense from the first quarter of 2023 was primarily due to an increase in operating income during the first quarter of 2024 and fewer reductions in income tax expense for items specific to the first quarter of 2023. Income tax expense for the first quarter of 2023 included $11.0 million of expense associated with current income offset by a $12.1 million benefit associated with the release of our valuation allowance previously provided for our investment in Cactus Companies based on the determination that the deferred tax asset was realizable due to our ability to generate sufficient taxable income of the appropriate type. Additionally, we recognized $4.3 million of expense associated with the revaluation of our deferred tax asset as a result of a change in our forecasted state tax rate and a $1.3 million benefit associated with permanent differences related to equity compensation.

Liquidity and Capital Resources

At March 31, 2024, we had $194.3 million of cash and cash equivalents. Our primary sources of liquidity and capital resources are cash on hand, cash flows generated by operating activities and borrowings under our Amended ABL Credit Facility (as defined in Note 7 in the notes to the unaudited condensed consolidated financial statements). Depending upon market conditions and other factors, we may also have the ability to issue additional equity and debt if needed. As of March 31, 2024, we had $216.7 million of available borrowing capacity under our Amended ABL Credit Facility with no outstanding borrowings and $1.1 million in letters of credit outstanding. We were in compliance with the covenants of the Amended ABL Credit Facility as of March 31, 2024.

In June 2023, our board of directors authorized the Company to repurchase shares of its Class A common stock for an aggregate purchase price of up to $150 million. Under our share repurchase program, shares may be repurchased from time to time in open market transactions or block trades, in privately negotiated transactions or any other method permitted under U.S. securities laws, rules and regulations. The repurchase program does not obligate the Company to purchase any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

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

We currently estimate our net capital expenditures for the year ending December 31, 2024 will range from $45 million to $55 million. In the Pressure Control segment, capital expenditures are primarily related to rental fleet investments, international expansion, diversification of our low cost supply chain and development of a research and development facility in Houston, Texas. In the Spoolable Technologies segment, capital expenditures are primarily related to manufacturing plant enhancements and additional deployment equipment used for product installation.

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

Cash Flows

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

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


	Three Months Ended March 31,
	2024		2023
	(in thousands)
Net cash provided by operating activities	$	86,263	$	60,462
Net cash used in investing activities	(6,808)		(633,152)
Net cash provided by (used in) financing activities	(20,127)		303,163

Net cash provided by operating activities was $86.3 million and $60.5 million for the three months ended March 31, 2024 and 2023, respectively. Operating cash flows for 2024 increased primarily due to a decrease in cash outflows associated with working capital.

Net cash used in investing activities was $6.8 million and $633.2 million for the three months ended March 31, 2024 and 2023, respectively. The decrease was primarily due to cash paid to acquire FlexSteel for $621.5 million less $5.3 million in cash acquired during the first quarter of 2023. Additionally, our capital expenditures decreased approximately $8.0 million primarily due to the $7.0 million purchase of a previously leased facility during the first quarter of 2023.

Net cash used in financing activities was $20.1 million for the three months ended March 31, 2024 as compared to net cash provided by financing activities of $303.2 million for the three months ended March 31, 2023. The decrease in net cash provided by financing activities was primarily related to certain financing activities in 2023 associated with the FlexSteel acquisition. We received approximately $169.9 million of proceeds, net of issuance costs, from issuing shares of our Class A common stock during 2023. Additionally, we received $155.0 million from total borrowings under our Amended ABL Credit Facility of which all $155.0 million has been repaid. The first quarter of 2023 included payments of approximately $6.7 million of debt issuance costs. The first quarter of 2024 includes a $3.9 million increase in share repurchases primarily associated with the Company's share repurchase program.

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 2023 Annual Report. Our exposure to market risk has not changed materially since December 31, 2023.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

In accordance with Exchange Act Rules 13a-15 and 15d-15, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission ("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, 2024 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 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

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

Item 1A. Risk Factors.

In addition to the information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our 2023 Annual Report and the risk factors and other cautionary statements contained in our other filings with the SEC, 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 2023 Annual Report or our other SEC 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 repurchases of Class A common stock during the three months ended March 31, 2024 (in whole shares). Included below are 86,599 shares purchased in the open market pursuant to a share repurchase program and 105,180 shares repurchased from employees to satisfy tax withholding obligations related to restricted stock units that vested during the period.


Period	Total number of shares purchased	Weighted-average price paid per share (1)		Total number of shares purchased as part of publicly announced plans or programs (3)	Maximum dollar value of shares that may yet be purchased under the plans or programs (3)
January 1-31, 2024	86,599	38.92 (1)		86,599	$	146,302,153
February 1-29, 2024	—	$	—	—	$	—
March 1-31, 2024	105,180	46.57 (2)		—	$	—
Total	191,779	$	43.12	86,599	$	146,302,153

(1)The average price paid per share of $38.92 relates to the 86,599 shares purchased in the open market and was calculated excluding commissions.

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

(3)In June 2023, our board of directors authorized the Company to repurchase shares of its Class A common stock for an aggregate purchase price of up to $150 million. Purchases were made under terms intended to qualify for exemption under Rules 10b-18 and 10b5-1.

Item 5. Other Information.

During the three months ended March 31, 2024, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of Cactus, Inc. adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits.

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


Exhibit No.						Description
3.1						Amended and Restated Certificate of Incorporation of Cactus, Inc., effective February 12, 2018 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed with the Commission on February 12, 2018)
3.2						Amended and Restated Bylaws of Cactus, Inc., effective as of February 7, 2023 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed with the Commission on February 8, 2023)
10.1*						First Amendment to the Tax Receivable Agreement, dated as of February 29, 2024, by and among Cactus, Inc., Cadent Management Services, LLC and the TRA Holders identified therein
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.

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 2, 2024	By:	/s/ Scott Bender
Date		Scott Bender Chief Executive Officer, Chairman of the Board and Director (Principal Executive Officer)

May 2, 2024	By:	/s/ Alan Keifer
Date		Alan Keifer Interim Chief Financial Officer (Principal Financial Officer)