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Cactus, Inc.

Cactus, Inc.WHDEarnings & Financial Report

NYSE · Industrials · Oil & Gas Field Machinery & Equipment

Cactus Club Cafe is a Canadian-owned chain of premium casual restaurants that originated in North Vancouver, British Columbia. The chain has since expanded to 34 locations throughout Canada, with other locations throughout British Columbia, Alberta, Saskatchewan, Ontario and the United States

What changed in Cactus, Inc.'s 10-K — 2022 vs 2023

Top changes in Cactus, Inc.'s 2023 10-K

308 paragraphs added · 301 removed · 197 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

68 edited+27 added−35 removed34 unchanged
Although both facilities can produce our full range of products, our Bossier City facility has advanced capabilities and is designed to support time-sensitive and rapid turnaround of made-to-order equipment, while our facility in China is optimized for longer lead time orders and outsources its machining requirements.
Although both facilities can produce our full range of products, our Bossier City facility has advanced production capabilities and is designed to support time-sensitive and rapid turnaround of made-to-order equipment, while our facility in China is optimized for longer lead time orders and outsources its machining requirements.
In addition to the upfront consideration, there is a potential future earn-out payment of up to $75 million to be paid no later than the third quarter of 2024, if certain revenue growth targets are met by FlexSteel.
In addition to the upfront consideration, there is a potential future earn-out payment of up to $75 million to be paid no later than the third quarter of 2024, if certain revenue growth targets are met by the FlexSteel business.
Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law or our amended and restated certificate of incorporation. Cactus WH Enterprises, LLC (“Cactus WH Enterprises”) is the largest CW Unit Holder.
Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law or our amended and restated certificate of incorporation. Cactus WH Enterprises, LLC (“Cactus WH Enterprises”) is the largest CC Unit Holder.
These concerns have led to several regulatory and governmental initiatives in the United States to restrict the hydraulic fracturing process, which could have an adverse impact on our customers’ completions or production activities. Although we do not conduct hydraulic fracturing, our products are used in hydraulic fracturing.
These concerns have led to several regulatory and governmental initiatives in the United States to restrict the hydraulic fracturing process, which could have an adverse impact on our customers’ completions or production activities. Although we do not conduct hydraulic fracturing, certain of our products are used in hydraulic fracturing.
Our insurance includes coverage for commercial general liability, damage to our real and personal property, damage to our mobile equipment, sudden and accidental pollution liability, workers’ compensation and employer’s liability, auto liability, foreign package policy, commercial crime, fiduciary liability employment practices, cargo, excess liability, and directors and officers’ insurance.
Our insurance includes coverage for commercial general liability, damage to our real and personal property, damage to our mobile equipment, pollution liability, workers’ compensation and employer’s liability, auto liability, foreign package policy, commercial crime, fiduciary liability employment practices, cargo, excess liability, and directors and officers’ insurance.
Declines, as well as anticipated declines, in oil and gas prices could negatively affect the level of these activities and capital spending, which could adversely affect demand for our products and services and, in certain instances, result in the 6 Table of Contents cancellation, modification or rescheduling of existing and expected orders and the ability of our customers to pay us for our products and services.
Declines, as well as anticipated declines, in oil and gas prices could negatively affect the level of these activities and capital spending, which could adversely affect demand for our products and services and, in certain instances, result in the cancellation, modification or rescheduling of existing and expected orders and the ability of our customers to pay us for our products and services.
Consistent with our quality assurance and Health, Safety & Environment (“HSE”) principles, we have established proactive environmental and worker safety policies in the United States and foreign countries for the management, handling, recycling or disposal of chemicals and 7 Table of Contents gases and other materials and wastes resulting from our operations.
Consistent with our quality assurance and Health, Safety & Environment (“HSE”) principles, we have established proactive environmental and worker safety policies in the United States and foreign countries for the management, handling, recycling or disposal of chemicals and gases and other materials and wastes resulting from our operations.
Pursuant to the Cactus Companies LLC Agreement, owners of CC Units are entitled to redeem their CC Units for shares of Cactus Inc.’s Class A common stock on a one-for-one basis, which would result in a corresponding 3 Table of Contents increase in Cactus Inc.’s membership interest in Cactus Companies and an increase in the number of shares of Class A common stock outstanding.
Pursuant to the Cactus Companies LLC Agreement, owners of CC Units are entitled to redeem their CC Units for shares of Cactus Inc.’s Class A common stock on a one-for-one basis, which would result in a corresponding increase in Cactus Inc.’s membership interest in Cactus Companies and an increase in the number of shares of Class A common stock outstanding.
The actual pricing of our products and services is impacted by a number of factors including competitive pricing pressure, the value perceived by our customers, the level of utilized capacity in the oil service sector, cost of manufacturing the product, cost of providing the service and general market conditions.
The actual pricing of our products and services is impacted by a number of factors including competitive pricing pressure, the value perceived by our customers, the level of utilized capacity in the oil service sector, cost of manufacturing the product, cost of providing the service and general market conditions. See “Item 7.
Our manufacturing facility in Bossier City, Louisiana and our production facility in Suzhou, China are currently licensed by the API to monogram manufactured products in accordance with API 6A, 21st Edition product specification for both wellheads and valves while the quality management system is certified to API Q1, 9th Edition and ISO 9001:2015.
Our manufacturing facility in Bossier City, Louisiana, our production facility in Suzhou, China and our service center in Brendale, Australia are currently licensed by the API to monogram manufactured products in accordance with API 6A, 21st Edition product specification for both wellheads and valves while the quality management system is certified to API Q1, 9th Edition and ISO 9001:2015.
Further, it could increase our customers’ costs of compliance and doing business, and otherwise adversely affect the hydraulic fracturing services for which they contract, which could negatively impact demand for our products. Climate Change.
Further, it could increase our customers’ costs of compliance and doing business, and otherwise adversely affect the hydraulic fracturing services for which they contract, which could negatively impact demand for our products. 6 Table of Contents Climate Change.
The principal elements of cost of sales for rentals are the direct and indirect costs of supplying rental equipment, including 5 Table of Contents depreciation, repairs specifically performed on such rental equipment and freight. The principal elements of cost of sales for field service and other are labor, equipment depreciation and repair, equipment and vehicle lease expenses, fuel and supplies.
The principal elements of cost of sales for rentals are the direct and indirect costs of manufacturing and supplying rental equipment, including depreciation, repairs specifically performed on such rental equipment and freight. The principal elements of cost of sales for field service and other are labor, equipment depreciation and repair, equipment and vehicle lease expenses, fuel and supplies.
We also maintain a partially self-insured medical plan that utilizes specific and aggregate stop loss limits. Our insurance includes various limits and deductibles or self‑insured retentions, which must be met prior to, or in conjunction with, recovery.
We also maintain a partially self-insured medical plan that utilizes specific and aggregate stop loss limits. Our insurance includes various coverage limitations, policy limits and deductibles or self‑insured retentions, which must be met prior to, or in conjunction with, any recovery.
The ban will require oil and gas production companies to find other options to handle the wastewater, which may include piping or trucking it longer distances to other locations not under the ban.
The bans require oil and gas production companies to find other options to handle the wastewater, which may include piping or trucking it longer distances to other locations not under the bans.
The suspension is intended to mitigate earthquakes thought to be caused by the injection of waste fluids, including saltwater, that are a byproduct of hydraulic fracturing into disposal wells.
The suspensions are intended to mitigate earthquakes thought to be caused by the injection of waste fluids, including saltwater, that are a byproduct of hydraulic fracturing into disposal wells.
Increased regulation and attention given to the hydraulic fracturing process could lead to greater opposition to oil and gas production activities using hydraulic fracturing techniques. In December 2021, the Texas Railroad Commission, which regulates the state’s oil and gas industry, suspended the use of deep wastewater disposal wells in four oil-producing counties in West Texas.
Increased regulation and attention given to the hydraulic fracturing process could lead to greater opposition to oil and gas production activities using hydraulic fracturing techniques. Since 2021, the Texas Railroad Commission, which regulates the state’s oil and gas industry, has suspended the use of deep wastewater disposal wells in certain areas of oil-producing counties in West Texas.
(along with their permitted transferees), as “CC Unit Holders.” From the completion of our IPO until the CC Reorganization, CW Unit Holders owned one share of our Class B common stock for each CW Unit such CW Unit Holder owned and, upon the completion of the CC Reorganization, such 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.
(along with their permitted transferees), as “CC Unit Holders.” From the completion of our IPO until the CC Reorganization, CW Unit Holders owned one share of our Class B common stock, par value $0.01 per share (“Class B common stock”) for each CW Unit such CW Unit Holder owned and, upon the completion of the CC Reorganization, such 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.
We funded the upfront purchase price using a combination of $165.6 million of net proceeds received from a public offering of shares of our Class A common stock completed on January 13, 2023, borrowings under the Amended ABL Credit Facility (as defined in Note 15 in the Notes to the Consolidated Financial Statements) and available cash on hand at the time of closing.
We funded the upfront purchase price using a combination of $165.6 million of net proceeds received from a public offering of shares of our Class A common stock completed in January 2023, borrowings under the Amended ABL Credit Facility (as defined in Note 6 in the notes to the Consolidated Financial Statements) totaling $155.0 million and available cash on hand.
We believe our materials and services vendors have the capacity to meet additional demand should we require it, although at higher costs and with extended deliveries. Manufacturing Our manufacturing and production facilities are located in Bossier City, Louisiana and Suzhou, China.
We believe our materials and services vendors have the capacity to meet additional demand should we require it, although at potentially higher costs and with extended deliveries. Manufacturing Our manufacturing and production facilities within our Pressure Control operating segment are located in Bossier City, Louisiana and Suzhou, China.
Internal Reorganization and Current Ownership Structure On February 27, 2023, in order to facilitate the Merger, an internal reorganization (the “CC Reorganization”) was completed in which Cactus Companies, LLC (“Cactus Companies”), a wholly-owned subsidiary of Cactus Inc. formed on February 6, 2023, acquired all of the outstanding units representing ownership interests in the operating subsidiary of Cactus Inc., Cactus LLC, in exchange for an equal number of units representing limited liability company interests in Cactus Companies (“CC Units”) issued to each of the previous owners of CW Units.
CC Reorganization and Current Ownership Structure On February 27, 2023, in order to facilitate the Merger with HighRidge, an internal reorganization (the “CC Reorganization”) was completed in which Cactus Companies, LLC (“Cactus Companies”), a wholly-owned subsidiary of Cactus Inc., acquired all of the outstanding units representing limited liability ownership interests in Cactus LLC (“CW Units”), the operating subsidiary of Cactus Inc., in exchange for an equal number of units representing limited liability company interests in Cactus Companies (“CC Units”).
In addition to salaries and wages, these programs (which vary by country) include annual bonuses, retirement plans such as a 401(k) plan, healthcare and insurance benefits, health savings accounts partially funded by the Company, standard flexible spending accounts, personal legal services insurance, company-sponsored long and short term 9 Table of Contents disability, accident and critical illness, paid time off, family leave, partially paid maternity and paternity leave, family care resources and employee assistance programs, among others.
Along with competitive salaries and wages, our benefits programs (which may vary by country) include annual bonuses, retirement plans such as a 401(k) plan, healthcare and insurance benefits, health savings accounts partially funded by the Company, standard flexible spending accounts, personal legal services insurance, company-sponsored long and short term disability, accident and critical illness, paid time off, family leave, partially paid maternity and paternity leave, family care resources and employee assistance programs, among others.
We have predominantly domestic operations, with a small amount of sales in select international markets. Most of our sales are made on a call out basis pursuant to agreements, wherein our clients provide delivery instructions for goods and/or services as their operations require. Such goods and services are most often priced in accordance with a preapproved price list.
Most of our sales are made on a call out basis pursuant to agreements, wherein our clients provide delivery instructions for goods and/or services as their operations require. Such goods and services are most often priced in accordance with a preapproved price list.
For example, in August 2022, the Inflation Reduction Act 8 Table of Contents of 2022 (the “Inflation Reduction Act”) was signed into law. The Inflation Reduction Act appropriates significant federal funding for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles and supporting infrastructure and carbon capture and sequestration, amongst other provisions.
For example, the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”) appropriates significant federal funding for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles and supporting infrastructure and carbon capture and sequestration, amongst other provisions.
Cactus WH Enterprises is a Delaware limited liability company owned by Scott Bender, Joel Bender, Steven Bender and certain other employees. Cadent Energy Partners II, L.P.
Cactus WH Enterprises is a Delaware limited liability company owned by Scott Bender, Joel Bender, Steven Bender and certain other employees.
TRIR is defined as the number of incidents per 100 full-time employees that have resulted in a recordable injury or illness in the pertinent period. During fiscal year 2022, we had a TRIR of 1.35, which compares to 1.29 in 2021. We had no work-related fatalities in either year.
TRIR is defined as the number of incidents per 100 full-time employees that have resulted in a recordable injury or illness in the pertinent period. During fiscal year 2023, our Pressure Control segment reported a TRIR of 1.19, which compares to 1.35 in 2022, with no work-related fatalities in either year.
One customer represented approximately 12% of our total revenues during the year ended December 31, 2021, whereas no customer represented 10% or more of total revenues during the year ended December 31, 2020. Competition The markets in which we operate are highly competitive. We believe we are one of the largest suppliers of wellheads used in the United States.
No customer represented 10% or more of our total revenues during the year ended December 31, 2022, whereas one customer represented 12% of total revenues during the year ended December 31, 2021. Competition The markets in which we operate are highly competitive.
To the extent that these developments or other initiatives to reform federal leasing practices result in the development of additional restrictions on drilling, limitations on the availability of leases, or restrictions on the ability to obtain required permits, it could impact our customers’ opportunities and reduce demand for our products and services in the aforementioned areas.
In addition, the Biden administration has indicated that it is delaying consideration of new natural gas export terminals in the United States and to the extent that these developments or other initiatives to reform federal leasing practices result in the development of additional restrictions on drilling, limitations on the availability of leases, or restrictions on the ability to obtain required permits, it could impact our customers’ opportunities and reduce demand for our products and services in the aforementioned areas.
Customers We serve over 200 customers 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 in Australia, the Kingdom of Saudi Arabia and other international locations. No customer represented more than 10% of total revenues during the year ended December 31, 2022.
Customers We serve over 300 customers 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 in Australia, Canada, the Middle East and other international locations. One customer represented approximately 10% of total revenues during the year ended December 31, 2023.
Training and Development. We are dedicated to our employees’ training and development, especially those in field and branch operations. Our internal training focuses on safety, corporate and personal responsibility, product knowledge, behavioral development and ethical conduct.
We are dedicated to our employees’ training and development, especially those in field, plant and branch operations. We offer extensive internal training programs that prioritize and monitor their technical and safety skills. Our internal training focuses on safety, corporate and personal responsibility, product knowledge, behavioral development and ethical conduct.
Our current API licenses and certifications are published on our website under the “Quality Assurance & Control” section of our website at www.CactusWHD.com. API’s standards are subject to revision, however, and there is no guarantee that future amendments or substantive changes to the standards would not require us to modify our operations or manufacturing processes to meet the new standards.
The current licenses and certifications for our Spoolable Technologies segment can be found under the “HSEQ” section of our FlexSteel website at www.flexsteelpipe.com. API’s standards are subject to revision, however, and there is no guarantee that future amendments or substantive changes to the standards would not require us to modify our operations or manufacturing processes to meet the new standards.
Also subsequent to the Merger, Cactus Inc. contributed HighRidge to Cactus Acquisitions LLC (“Cactus Acquisitions”), a newly created entity, whereby HighRidge was converted into a limited liability company.
Subsequent to the Merger, FlexSteel Holdings, Inc. was converted into a limited liability company and is now named FlexSteel Holdings, LLC (“FlexSteel”). Cactus Inc. contributed HighRidge to Cactus Acquisitions LLC (“Cactus Acquisitions”), a newly created entity, whereby HighRidge was converted into a limited liability company. Lastly, Cactus Acquisitions contributed FlexSteel to Cactus Companies.
As of December 31, 2022, Cactus Inc. owned 80.3% and CW Unit Holders owned 19.7% of Cactus LLC, which was based on 60.9 million shares of Class A common stock issued and outstanding and 15.0 million shares of Class B common stock issued and outstanding. Cactus WH Enterprises held approximately 17.6% of our voting power as of December 31, 2022.
As of December 31, 2023, Cactus Inc. owned 82.3% and CC Unit Holders owned 17.7% of Cactus Companies, which was based on 65.4 million shares of Class A common stock issued and outstanding and 14.0 million shares of Class B common stock issued and outstanding. Cactus WH Enterprises held approximately 15.8% of our voting power as of December 31, 2023.
The facilities are licensed to the latest American Petroleum Institute (“API”) 6A specification for wellheads and valves and API Q1 and ISO 9001:2015 quality management systems.
The facilities are licensed to the latest American Petroleum Institute (“API”) 6A specification for wellheads and valves and API Q1 and ISO 9001:2015 quality management systems. The Bossier City facility also has the ability to perform frac rental equipment remanufacturing.
These service centers support our field services and provide equipment assembly and repair services. We also conduct rental and field service operations in the Kingdom of Saudi Arabia. Our manufacturing and production facilities are located in Bossier City, Louisiana and Suzhou, China. Our Revenues We operate in one business segment.
These service centers support our field services and provide equipment assembly and repair services. We also provide rental and service operations in the Middle East. Pressure Control manufacturing and production facilities are located in Bossier City, Louisiana and Suzhou, China.
We compete with divisions of Schlumberger and TechnipFMC, as well as a large number of other companies. We believe the rental market for frac stacks and related flow control equipment is more fragmented than the wellhead product market. Cactus does not believe any individual company represents more than 20% of the U.S. rental market.
We believe the rental market for frac stacks and related flow control equipment is more fragmented than the wellhead product market and do not believe any individual company represents more than 20% of the U.S. market.
We provide compensation and benefits programs to help meet the needs of our employees and their families.
We offer comprehensive compensation and benefits programs designed to address the needs of our employees and their families.
From the completion of our IPO until the CC Reorganization, pursuant to the Cactus Wellhead LLC Agreement, owners of CW Units were entitled to redeem their CW Units for shares of Cactus Inc.’s Class A common stock on a one-for-one basis, which would have resulted in a corresponding increase in Cactus Inc.’s membership interest in Cactus LLC and an increase in the number of shares of Class A common stock outstanding.
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 for the Cactus Companies’ business for periods after the CC Reorganization. 1 Table of Contents From the completion of our IPO until the CC Reorganization, pursuant to the Cactus Wellhead LLC Agreement, owners of CW Units were entitled to redeem their CW Units for shares of Cactus Inc.’s Class A common stock, par value $0.01 per share (“Class A common stock”) on a one-for-one basis, which would have resulted in a corresponding increase in Cactus Inc.’s membership interest in Cactus LLC and an increase in the number of shares of Class A common stock outstanding.
Costs of Conducting Our Business The principal elements of cost of sales for our products are the direct and indirect costs to manufacture and supply the product, including labor, materials, machine time, tariffs and duties, freight and lease expenses related to our facilities.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments and Trends” for a discussion of trends in market demand. 3 Table of Contents Costs of Conducting Our Business The principal elements of cost of sales for our products are the direct and indirect costs to manufacture and supply our products, including labor, materials, machine time, tariffs and duties, freight and lease expenses related to our facilities.
At this time, we have not yet applied for API Q2 certification, but we are implementing the API Q2 Quality Management System at select service locations to reduce well site non-productive time, improve service tool reliability and enhance customer satisfaction and retention.
Cactus has also developed an API Q2 program specific to our Pressure Control service business. We have and are implementing the API Q2 Quality Management System at select service locations to reduce well site non-productive time, improve service tool reliability and enhance customer satisfaction and retention.
Our business’s success depends mainly on our ability to attract, retain and motivate a diverse population of talented employees at all levels of our organization, including the individuals who comprise our global workforce, executive officers and other key personnel.
Our success is highly dependent on our ability to attract, retain and motivate a diverse population of talented employees at all levels of our organization, including the individuals who comprise our global workforce, executive officers and other key personnel. To thrive in a highly competitive industry, we have formulated essential strategies, objectives, and metrics for recruitment and retention.
As a result, there is a close correlation between field service and other revenues and revenues from product sales and rentals. For the year ended December 31, 2022, we derived 66% of our total revenues from the sale of our products, 14% from rental and 20% from field service and other.
For the year ended December 31, 2023, we derived 74% of our total revenues from the sale of our products, 10% from rentals and 16% from field service and other. In 2022, we derived 66% of our total revenues from the sale of our products, 14% from rentals and 20% from field service and other.
These programs include benefits that offer protection and security to have peace of mind concerning events that may require time away from work or impact their financial well-being. These tools also support their physical and mental health by providing resources to improve or maintain their health status.
We provide our employees and their families access to various flexible and convenient health and wellness programs. These programs include benefits that offer protection and security to have peace of mind concerning events that may require time away from work or impact their financial well-being.
We also have manufacturing and production facilities in Bossier City, Louisiana and Suzhou, China. Cactus Inc. was incorporated on February 17, 2017 as a Delaware corporation for the purpose of completing an initial public offering of equity and related transactions, which was completed on February 12, 2018 (our “IPO”).
Item 1. Business General Cactus, Inc. (“Cactus Inc.”) was incorporated on February 17, 2017 as a Delaware corporation for the purpose of completing an initial public offering of equity, which was completed on February 12, 2018 (our “IPO”).
We began operating in August 2011 following the formation of Cactus LLC in part by Scott Bender and Joel Bender, who have owned or operated wellhead manufacturing businesses since the late 1970s. 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”).
We began operating in August 2011 following the formation of Cactus Wellhead, LLC (“Cactus LLC”) in part by Scott Bender and Joel Bender, who have owned or operated wellhead manufacturing businesses since the late 1970s.
Based on the most recent statistics available from the International Association of Drilling Contractors, our TRIR statistics are in line with the industry average. We are committed to the health, safety and wellness of our employees. We provide our employees and their families access to various flexible and convenient health and wellness programs.
Our Spoolable Technologies segment reported a TRIR of 0.98 for fiscal year 2023 with no work-related fatalities. Based on the most recent statistics available from the International Association of Drilling Contractors, our TRIR statistics are in line with the industry average. We are committed to the health, safety and wellness of our employees.
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. We also 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.
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 2021, we derived 64% of our total revenues from the sale of our products, 14% from rental and 22% from field service and other. In 2020, we derived 59% of our total revenues from the sale of our products, 19% from rental and 22% from field service and other.
In 2021, we derived 64% of our total revenues from the sale of our products, 14% from rentals and 22% from field service and other. We have predominantly domestic operations and sales but also generate revenues in Australia, Canada and other select international markets.
Selling, general and administrative expense is comprised of costs such as sales and marketing, engineering, general corporate overhead, business development, compensation, employment benefits, insurance, information technology, safety and environmental, legal and professional. Suppliers and Raw Materials Forgings, castings, tube and bar stock represent the principal raw materials used in the manufacture of our products and rental equipment.
Selling, general and administrative expenses (“SG&A”) are comprised of costs such as sales and marketing, engineering and product development, general corporate overhead, business development, compensation, employment benefits, insurance, information technology, safety and environmental, legal and professional.
Cyclicality We are substantially dependent on conditions in the oil and gas industry, including the level of exploration, development and production activity of, and the corresponding capital spending by, oil and natural gas companies.
There can be no assurance, however, that others will not independently obtain similar information or otherwise gain access to our trade secrets. 4 Table of Contents Cyclicality We are substantially dependent on conditions in the oil and gas industry, including the level of exploration, development and production activity of, and the corresponding capital spending by, oil and natural gas companies.
We also seek to protect our technology through use of patents, which affords us 20 years of protection of our proprietary inventions and technology, although we do not deem patents to be critical to our success. We have been awarded several U.S. patents and currently have additional patent applications pending.
Once registered, our trademarks can be renewed every 10 years as long as we are using them in commerce. We also seek to protect our technology through the use of patents, which affords us 20 years of protection of our proprietary inventions and technology, although we do not deem patents to be critical to our success.
The Company has numerous trademarks registered with the U.S. Patent and Trademark Office and has also applied for registration status of several trademarks which are pending. Once registered, our trademarks can be renewed every 10 years as long as we are using them in commerce.
Trademarks and Patents Trademarks are important to the marketing of our products. The Company has numerous trademarks registered with the U.S. Patent and Trademark Office as well as foreign trademark offices and has also applied for registration of several other trademarks, which are still pending.
These laws and regulations include, among others: • the Federal Water Pollution Control Act (the “Clean Water Act”); • the Clean Air Act; • the Comprehensive Environmental Response, Compensation and Liability Act; • the Resource Conservation and Recovery Act; • the Occupational Safety and Health Act; and • national and local environmental protection laws in Australia, the People’s Republic of China and the Kingdom of Saudi Arabia.
These laws and regulations include, among others: • the Federal Water Pollution Control Act (the “Clean Water Act”); • the Clean Air Act; • the Comprehensive Environmental Response, Compensation and Liability Act; • the Resource Conservation and Recovery Act; • the Occupational Safety and Health Act; and • national and local environmental protection laws in Australia, China, Canada and the Middle East. 5 Table of Contents New, modified or stricter enforcement of environmental laws and regulations could be adopted or implemented that significantly increase our compliance costs, pollution mitigation costs, or the cost of any remediation of environmental contamination that may become necessary, and these costs could be material.
Cactus WH Enterprises held approximately 16.9% of our voting power as of the completion of such offering. Since our IPO in February 2018, 45.6 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.
Since our IPO, 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.
For example, oil and natural gas exploration and production may decline as a result of environmental requirements, including land use policies responsive to environmental concerns. In January 2021, the Acting Secretary of the Department of the Interior issued an order suspending new leasing and drilling permits for fossil fuel production on federal lands and waters for 60 days.
For example, oil and natural gas exploration and production may decline as a result of environmental requirements, including land use policies responsive to environmental concerns.
When hiring, we utilize employee referrals, a variety of social media platforms, regional job fairs and partner with educational organizations across the United States to find diverse, qualified, motivated and responsible candidates. Additionally, we work with local workforce commissions to ensure we are attracting a diverse and qualified pool of candidates for each region in which we operate.
To find qualified candidates, we encourage and reward employee referrals, utilize several social media platforms, participate in regional job fairs and establish partnerships with educational organizations throughout the United States. Furthermore, we collaborate with local workforce commissions to ensure that we attract a diverse and highly capable pool of candidates in all regions where we operate. Training and Development.
We are not a party to any collective bargaining agreements and have not experienced any strikes or work stoppages. We consider our relations with our workforce to be good.
Human Capital Management As of December 31, 2023, we employed almost 1,600 people worldwide, of which over 100 were employed outside of the United States, mainly in Australia and China. We are not a party to any collective bargaining agreements and have not experienced any strikes or work stoppages. We consider our relations with our workforce to be good.
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.
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.
Other training courses offered outside of the company are attended by employees with specialized skills, knowledge or certifications as needed for their ongoing success and professional development. We believe our continued focus on training and development translates into a safer work environment, opportunities to promote within the organization, improved employee morale and increased employee retention. Compensation and Benefits.
We believe our continued focus on training and development translates into a safer work environment, opportunities to promote within the organization, improved employee morale and increased employee retention. Diversity and Inclusion. We believe that diversity and inclusion are integral to our success and essential to fostering innovation and sustainable growth.
In addition, we provide mission-critical field services for all of our products and rental items, including 24-hour service crews to assist with the installation, maintenance, repair and safe handling of the wellhead and pressure control equipment. Our innovative wellhead products and pressure control equipment are developed internally.
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 Eastern Australia.
Our Suzhou subsidiary is wholly-owned, and its facility is staffed by Cactus employees, which we believe is a key factor in ensuring high quality and dependable deliveries. Trademarks and Patents Trademarks are important to the marketing of our products. We consider the Cactus Wellhead trademark to be important to our business as a whole.
Our Suzhou subsidiary is wholly-owned, and its facility is staffed by Cactus employees, which we believe is a key factor in sustaining high quality and dependable deliveries. Our manufacturing facility within our Spoolable Technologies operating segment is located in Baytown, Texas. Using proprietary-designed manufacturing equipment, we produce pipe products in accordance with industry standards.
During each of the three years in the period ended December 31, 2022, no vendor represented 10% or more of our total third-party vendor purchases of raw materials, finished products, components, equipment, machining and other services. We do not believe that we are overly dependent on any individual vendor to supply our required materials or services.
We do not believe that we are overly dependent on any individual vendor to supply our required materials or services.
Item 1. Business General Cactus, Inc. (“Cactus Inc.”) and its consolidated subsidiaries (the “Company,” “we,” “us,” “our” and “Cactus”), including Cactus Wellhead, LLC (“Cactus LLC”), are primarily engaged in the design, manufacture and sale of wellhead and pressure control equipment.
Cactus Inc. and its consolidated subsidiaries (the “Company,” “we,” “us,” “our” and “Cactus”) are primarily engaged in the design, manufacture, sale and rental of highly engineered pressure control and spoolable pipe technologies. 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.
We also rely on trade secret protection for our confidential and proprietary information. To protect our information, we customarily enter into confidentiality agreements with our employees and suppliers. There can be no assurance, however, that others will not independently obtain similar information or otherwise gain access to our trade secrets.
We have been awarded U.S. patents and patents in foreign jurisdictions while still having additional patent applications pending. We also rely on trade secret protection for our confidential and proprietary information. To protect our information, we customarily enter into confidentiality agreements with our employees and suppliers.
In response to the COVID-19 pandemic, we implemented additional safety measures for employees performing critical on-site work as well as offering vaccination clinics and testing as necessary. Available Information Our principal executive offices are located at 920 Memorial City Way, Suite 300, Houston, TX 77024, and our telephone number at that address is (713) 626‑8800. Our website address is www.CactusWHD.com.
Bruce Rothstein Former Member and co-founder of Cadent Energy Partners LLC Alan Semple Director of Teekay Corporation Tym Tombar Managing Director and Co-Founder of Arcadius Capital Partners Available Information Our principal executive offices are located at 920 Memorial City Way, Suite 300, Houston, TX 77024, and our telephone number at that address is (713) 626‑8800. Our website address is www.CactusWHD.com.
FlexSteel operates through service centers and pipe yards located throughout the United States and Canada, while also providing equipment and services in select international markets. FlexSteel has a manufacturing facility in Baytown, Texas. We believe this acquisition enhances Cactus’ position as a premier manufacturer and provider of highly engineered equipment to the E&P industry and expands our reach further downstream.
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. We also provide equipment and services in select international markets. The Spoolable Technologies manufacturing facility is located in Baytown, Texas.
While the United States Department of the Interior announced in April 2022 that it would resume oil and gas leasing on public lands, the topic of oil and gas leasing on public land remains politically fraught, as the announcement indicated that federal land available for oil and gas leasing will be significantly reduced due to environmental and climate concerns.
While the United States Department of the Interior (“DOI”) announced in April 2022 that it would resume oil and gas leasing on public lands, there was an 80% reduction in the number of acres offered and an increase in the royalties companies must pay.
In addition, we require accessory items (such as elastomers, ring gaskets, studs and nuts) and machined components. We purchase a majority of these items from vendors primarily located in the United States, China, India and Australia.
Suppliers and Raw Materials Forgings, castings, tube and bar stock represent the principal raw materials used in the manufacture of our Pressure Control products and rental equipment. In addition, we require accessory items (such as elastomers, ring gaskets, studs and nuts) and machined components.
These licenses and certifications expire every three years and are renewed upon successful completion of annual audits. Cactus has also developed an API Q2 program specific to our service business.
The API licenses and certifications expire every three years and are renewed upon successful completion of annual audits. Our current API licenses and certifications for our Pressure Control segment are published on our website under the “Quality Assurance & Control” section at www.CactusWHD.com.
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Additionally, we offer repair and refurbishment services. We operate through 15 U.S. service centers located in Texas, New Mexico, Pennsylvania, North Dakota, Louisiana, Oklahoma, Colorado, Utah and Wyoming as well as three service centers in Eastern Australia. We also provide rental and field service operations in the Kingdom of Saudi Arabia. Our corporate headquarters are located in Houston, Texas.
Added
We also provide field services for all of our products and rental items to assist with the installation, maintenance and handling of the equipment. Additionally, we offer repair and refurbishment services as appropriate. We operate through service centers and pipe yards located in the United States, Canada and Australia.
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Cactus Inc. became the sole managing member of Cactus LLC upon completion of our IPO and is responsible for all operational, management and administrative decisions relating to Cactus LLC’s business.
Added
We also provide rental and service operations in the Middle East and other select international markets. We also have manufacturing and production facilities in Bossier City, Louisiana, Baytown, Texas and Suzhou, China. Our corporate headquarters are located in Houston, Texas.
Removed
Pursuant to the Second Amended and Restated Limited Liability Company Operating Agreement of Cactus LLC (the “Cactus Wellhead LLC Agreement”), owners of CW Units are entitled to redeem their CW Units for shares of Cactus Inc.’s Class A common stock, par value $0.01 per share (“Class A common stock”) on a one-for-one basis, which results in a corresponding increase in Cactus Inc.’s membership interest in Cactus LLC and an increase in the number of shares of Class A common stock outstanding.
Added
FlexSteel Acquisition On February 28, 2023, we completed the acquisition of the FlexSteel business (the “Merger”) through a merger with HighRidge Resources, Inc. and its subsidiaries (“HighRidge”). The purpose of the Merger was to effect the acquisition of the operations of FlexSteel Holdings, Inc. and its subsidiaries.
Removed
We refer to the owners of CW Units, other than Cactus Inc. (along with their permitted transferees), as “CW Unit Holders.” CW Unit Holders own one share of our Class B common stock, par value $0.01 per share (“Class B common stock”) for each CW Unit such CW Unit Holder owns.
Added
We completed the acquisition on a cash-free, debt-free basis and paid total cash consideration of $621.5 million which included final adjustments for closing working capital, cash on hand and indebtedness adjustments as set forth in the related merger agreement (the “Merger Agreement”).
Removed
(“Cadent”), an affiliate of Cadent Energy Partners LLC, owned more than 10% of issued and outstanding CW Units until March 2021, when it redeemed 4,111,250 of the CW Units (together with an equal number of shares of Class B common stock) owned by it in connection with the March 2021 offer and sale by certain selling stockholders of Class A common stock.
Added
See Note 3 in the notes to the Consolidated Financial Statements for additional information related to the acquisition.
Removed
Subsequently, in a series of additional transactions throughout 2021, Cadent and its affiliates transferred or redeemed the remainder of its CW Units. The redeemed CW Units were redeemed for Class A common stock, with such shares being distributed to their owners pro rata.
Added
The following diagram indicates our simplified ownership structure as of December 31, 2023: 2 Table of Contents Our Products and Services Following the acquisition of FlexSteel, we have two operating segments consisting of Pressure Control and Spoolable Technologies. See discussion below of each operating segment.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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If Cactus Companies were to become a publicly traded partnership, significant tax inefficiencies might result for us and for Cactus Companies, including as a result of our inability to file a consolidated U.S. federal income tax return with Cactus Companies.
If Cactus Companies were to become a publicly traded partnership, significant tax inefficiencies might result for us and for Cactus Companies, including inefficiencies as a result of our inability to file a consolidated U.S. federal income tax return with Cactus Companies.
Although we believe our equipment and processes currently give us a competitive advantage, as competitors and others use or develop new or comparable technologies in the future, we may lose market share or be placed at a competitive disadvantage. Further, we may face competitive pressure to develop, implement or acquire certain new technologies at a substantial cost.
Although we believe our equipment and processes currently give us a competitive advantage, as competitors and others use or develop new or comparable technologies in the future, we may lose market share or be placed at a competitive disadvantage. Further, we may face competitive pressure to develop, implement, license or acquire certain new technologies at a substantial cost.
In addition, some provisions of our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for a third party to acquire control of us, even if the change of control would be beneficial to our shareholders, including: • limitations on the removal of directors, including a classified board whereby only one-third of the directors are elected each year; • limitations on the ability of our shareholders to call special meetings; • establishing advance notice provisions for shareholder proposals and nominations for elections to the board of directors to be acted upon at meetings of shareholders; • providing that the board of directors is expressly authorized to adopt, or to alter or repeal our bylaws; and • establishing advance notice and certain information requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by shareholders at shareholder meetings.
In addition, some provisions of our amended and restated certificate of incorporation and amended and restated 15 Table of Contents bylaws could make it more difficult for a third party to acquire control of us, even if the change of control would be beneficial to our shareholders, including: • limitations on the removal of directors, including a classified board whereby only one-third of the directors are elected each year; • limitations on the ability of our shareholders to call special meetings; • establishing advance notice provisions for shareholder proposals and nominations for elections to the board of directors to be acted upon at meetings of shareholders; • providing that the board of directors is expressly authorized to adopt, or to alter or repeal our bylaws; and • establishing advance notice and certain information requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by shareholders at shareholder meetings.
Should significant constraints develop that materially impact the efficiency and economics of oil and gas producers, growth in U.S. drilling and completion activity could be adversely affected. This would have an adverse impact on the demand for the products we sell and rent, which could have a material adverse effect on our business, results of operations and cash flows.
Should significant constraints develop that materially impact the efficiency and economics of oil and gas producers, U.S. drilling and completion activity could be adversely affected. This would have an adverse impact on the demand for the products we sell and rent, which could have a material adverse effect on our business, results of operations and cash flows.
Political, regulatory, economic and social disruptions in the countries in which we conduct business could adversely affect our business or results of operations.
Political, regulatory, economic and social disruptions in the countries in which we conduct business and globally could adversely affect our business or results of operations.
Increased costs, or lack of availability, of raw materials and other components may result in increased operating expenses and adversely affect our results of operations and cash flows. Our ability to source low cost raw materials and components, such as tube and bar stock, forgings and machined components is critical to our ability to successfully compete.
Increased costs, or lack of availability, of raw materials and other components may result in increased operating expenses and adversely affect our results of operations and cash flows. Our ability to source and transport low cost raw materials and components, such as steel, tube and bar stock, forgings and machined components is critical to our ability to successfully compete.
Under certain circumstances, redemptions of CC Units pursuant to the Redemption Right or our Call Right (each as defined in Note 10 in the notes to the Consolidated Financial Statements) or other transfers of CC Units could cause Cactus Companies to be treated as a publicly traded partnership. Applicable U.S.
Under certain circumstances, redemptions of CC Units pursuant to the Redemption Right or our Call Right (each as defined in Note 12 in the notes to the Consolidated Financial Statements) or other transfers of CC Units could cause Cactus Companies to be treated as a publicly traded partnership. Applicable U.S.
The integration process could take longer than anticipated and could result in the distraction of management, the loss of key employees from either company, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, employees or other third parties, or our ability to achieve the anticipated benefits of the Merger, and could harm our financial performance.
The integration process could take longer than anticipated and could result in the distraction of management, the loss of key employees from either company, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, employees or other third parties, or our ability to achieve the anticipated benefits of the FlexSteel acquisition, and could harm our financial performance.
If we are unable to successfully or timely integrate the operations of FlexSteel with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth and other anticipated benefits resulting from the Merger, and our business, results of operations and financial condition could be materially and adversely affected.
If we are unable to successfully or timely integrate the operations of FlexSteel with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth and other anticipated benefits resulting from the acquisition, and our business, results of operations and financial condition could be materially and adversely affected.
This agreement generally provides for the payment by Cactus Inc. to each TRA Holder of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that Cactus Inc. actually realizes or is deemed to realize in certain circumstances as a result of certain increases in tax basis 17 Table of Contents and certain benefits attributable to imputed interest.
This agreement generally provides for the payment by Cactus Inc. to each TRA Holder of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that Cactus Inc. actually realizes or is deemed to realize in certain circumstances as a result of certain increases in tax basis and certain benefits attributable to imputed interest.
Sales of substantial amounts of our Class A common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices of our Class A common stock.
Sales of substantial amounts of our Class A common stock (including shares issued in connection with an acquisition) or secondary offerings, or the perception that such sales could occur, may adversely affect prevailing market prices of our Class A common stock.
If we fail to achieve some or all of the benefits expected to result from the Merger, or if such benefits are delayed, our business could be harmed. FlexSteel’s operations are subject to many of the same risks as our historical operations.
If we fail to achieve some or all of the benefits expected to result from the acquisition, or if such benefits are delayed, our business could be harmed. FlexSteel’s operations are subject to many of the same risks as our historical operations.
Demand for our products and services depends primarily upon the general level of activity in the oil and gas industry, including the number of drilling rigs in operation, the number of oil and gas wells being drilled, the depth, lateral length and drilling conditions of these wells, the volume of production, the number of well completions and the level of well remediation activity, the number of wells put into production and the corresponding capital spending by oil and gas companies.
Demand for our products and services depends primarily upon the general level of activity in the oil and gas industry, including the number of drilling rigs in operation, the number of oil and gas wells being drilled, the depth, lateral length and 9 Table of Contents drilling conditions of these wells, the volume of production, the number of well completions and the level of well remediation activity, the number of wells put into production and the corresponding capital spending by oil and gas companies.
We indemnify our customers against certain claims and liabilities resulting or arising from our provision of goods or services to them. In addition, we rely on customer indemnifications, generally, and third‑party insurance as part of our risk mitigation strategy. However, our insurance may not be adequate to cover our liabilities.
We indemnify our customers against certain claims and liabilities resulting or arising from our provision of goods or services to them. In addition, we rely on customer indemnifications, generally, and third‑party insurance as part of our risk mitigation strategy. However, courts may limit indemnity claims and our insurance may not be adequate to cover our liabilities.
These 10 Table of Contents downturns cause many E&P companies to reduce their capital budgets and drilling activity. Any future downturn or expected downturn could result in a significant decline in demand for oilfield services and adversely affect our business, results of operations and cash flows.
These downturns cause many E&P companies to reduce their capital budgets and drilling activity. Any future downturn or expected downturn could result in a significant decline in demand for oilfield services and adversely affect our business, results of operations and cash flows.
In addition, our ability to expand our operations depends in part on our ability to increase the size of our skilled labor force. The demand for skilled workers is high and the cost to attract and retain qualified personnel has increased. During industry downturns, skilled workers may leave the industry, reducing the availability of qualified workers when conditions improve.
In addition, our ability to expand our operations depends in part on our ability to increase the size of our skilled labor force. The demand for skilled workers is high and the cost to attract and retain qualified personnel has remained elevated. During industry downturns, skilled workers may leave the industry, reducing the availability of qualified workers when conditions improve.
Such oilfield anti-indemnity acts may restrict or void a party’s indemnification of us, which could have a material adverse effect on our business, results of operations and cash flows. Our operations require us to comply with various domestic and international regulations, violations of which could have a material adverse effect on our results of operations, financial condition and cash flows.
Such oilfield anti-indemnity acts may restrict or void a party’s indemnification of us, which could have a material adverse effect on our business, results of operations and cash flows. 12 Table of Contents Our operations require us to comply with various domestic and international regulations, violations of which could have a material adverse effect on our results of operations, financial condition and cash flows.
The ban will require oil and gas production companies to find other options to handle the wastewater, which may include piping or trucking it longer distances to other locations not under the ban.
The bans require oil and gas production companies to find other options to handle the wastewater, which may include piping or trucking it longer distances to other locations not under the ban.
Instability and unforeseen changes in any of the markets in which we conduct business could have an adverse effect on the demand for, or supply of, our business, results of operations and cash flows. We are dependent on a relatively small number of customers in a single industry.
Instability and unforeseen changes in any of the markets in which we conduct business could have an adverse effect on the demand for, or supply of, our business, results of operations and cash flows. 10 Table of Contents We are dependent on a relatively small number of customers in a single industry.
Because our business depends on the level 14 Table of Contents of activity in the oil and natural gas industry, existing or future laws and regulations related to greenhouse gases could have a negative impact on our business if such laws or regulations reduce demand for oil and natural gas.
Because our business depends on the level of activity in the oil and natural gas industry, existing or future laws and regulations related to greenhouse gases could have a negative impact on our business if such laws or regulations reduce demand for oil and natural gas.
Our results of operations may be adversely affected by further rising costs to the extent we are unable to recoup them from our customers.
In addition, our results of operations may be adversely affected by further rising costs to the extent we are unable to recoup them from our customers.
Such agreements may require each party to indemnify the other against certain claims regardless of the negligence or other fault of the indemnified party; however, many states place limitations on contractual indemnity agreements, particularly agreements that indemnify a party against the consequences of its 13 Table of Contents own negligence.
Such agreements may require each party to indemnify the other against certain claims regardless of the negligence or other fault of the indemnified party; however, many states place limitations on contractual indemnity agreements, particularly agreements that indemnify a party against the consequences of its own negligence.
Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law or our amended and restated certificate of incorporation. Cactus WH Enterprises owned approximately 18% of our voting power as of December 31, 2022.
Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law or our amended and restated certificate of incorporation. Cactus WH Enterprises owned approximately 16% of our voting power as of December 31, 2023.
If we elect to terminate the TRA early or it is terminated early due to Cactus Inc.’s failure to honor a material obligation thereunder or due to certain mergers or other changes of control, our obligations under the TRA would accelerate and we would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by us under the TRA (determined by applying a discount rate of one‑year LIBOR plus 150 basis points) and such payment is expected to be substantial.
If we elect to terminate the TRA early or it is terminated early due to Cactus Inc.’s failure to honor a material obligation thereunder or due to certain mergers or other changes of control, our obligations under the TRA would accelerate and we would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by us under the TRA (determined by applying a discount rate equivalent to the former one-year LIBOR) and such payment is expected to be substantial.
For example, we intend to limit the number of unit holders of Cactus Companies, and the Cactus Wellhead LLC Agreement, which was entered into in connection with the closing of our IPO, provides for limitations on the ability of CC Unit Holders to transfer their CC Units and provides us, as managing member of Cactus Companies, with the right to impose restrictions (in addition to those already in place) on the ability of unit holders of Cactus Companies to redeem their CC Units pursuant to the Redemption Right to the extent we believe it is necessary to ensure that Cactus Companies will continue to be treated as a partnership for U.S. federal income tax purposes.
For example, we intend to limit the number of unit holders of Cactus Companies, and the Cactus Companies LLC Agreement, which was entered into with Cactus LLC in connection with the closing of our IPO and amended as part of the CC Reorganization, provides for limitations on the ability of CC Unit Holders to transfer their CC Units and provides us, as managing member of Cactus Companies, with the right to impose restrictions (in addition to those already in place) on the ability of unit holders of 17 Table of Contents Cactus Companies to redeem their CC Units pursuant to the Redemption Right to the extent we believe it is necessary to ensure that Cactus Companies will continue to be treated as a partnership for U.S. federal income tax purposes.
The CC Unit Holders own all outstanding shares of our Class B common stock, representing approximately 19% of our total outstanding common stock.
The CC Unit Holders own all outstanding shares of our Class B common stock, representing approximately 18% of our total outstanding common stock.
While we have some patents and others pending, we do not have patents relating to many of our key processes and technology. If we are not able to maintain the confidentiality of our trade secrets, or if our competitors are able to replicate our technology or services, our competitive advantage could be diminished.
While we have several patents and others are pending, we do not have patents relating to all of our key processes and technology. If we are not able to maintain the confidentiality of our trade secrets, or if our competitors are able to replicate our technology or services, our competitive advantage could be diminished.
Should significant growth in activity continue, there could be concerns over availability of the equipment, materials and labor required to drill and complete a well, together with the ability to move the produced oil and natural gas to market.
Should significant changes in activity occur, there could be concerns over availability of the equipment, materials and labor required to drill and complete a well, together with the ability to move the produced oil and natural gas to market.
If Cactus Companies were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, we and Cactus Companies might be subject to potentially significant tax inefficiencies, and we would not be able to recover payments previously made by us under the TRA even if the corresponding tax benefits were subsequently determined to have been unavailable due to such status. 18 Table of Contents We intend to operate such that Cactus Companies does not become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes.
If Cactus Companies were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, we and Cactus Companies might be subject to potentially significant tax inefficiencies, and we would not be able to recover payments previously made by us under the TRA even if the corresponding tax benefits were subsequently determined to have been unavailable due to such status.
We cannot assure that we will be able to continue to purchase and move these materials on a timely basis or at commercially viable prices, nor can we be certain of the impact of changes to tariffs and future legislation that may impact trade with China or other countries.
There is no assurance that we will be able to continue to purchase and move these materials on a timely basis or at commercially viable prices, nor can we be certain of the impact of changes to tariffs and future legislation that may impact trade with China or other countries.
This concentration of ownership may limit a stockholder’s ability to affect the way we are managed or the direction of our business.
This concentration of ownership may limit stockholders’ ability to affect the way we are managed or the direction of our business.
We also provide parts, repair services and field services associated with installation at all of our facilities and service centers in the United States and Australia, as well as at customer sites, including sites in the Kingdom of Saudi Arabia.
We also provide parts, repair services and field services associated with installation at all of our facilities and service centers in the United States and Australia, as well as at customer sites, including sites in the Middle East.
The results or costs of any such litigation may have an adverse effect on our business, results of operations and financial condition. Any litigation concerning intellectual property could be protracted and costly, is inherently unpredictable and could have an adverse effect on our business, regardless of its outcome.
The results or costs of any such litigation may have an adverse effect on our business, results of operations and financial condition. Any litigation concerning intellectual property could be protracted and costly, is inherently unpredictable and could have an adverse effect on our business, regardless of its outcome. Item 1B. Unresolved Staff Comments None.
The existence of significant stockholders and the stockholders’ agreement may have the effect of deterring hostile takeovers, delaying or preventing changes in control or 16 Table of Contents changes in management or limiting the ability of our other stockholders to approve transactions that they may deem to be in our best interests.
The existence of significant stockholders may have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management or limiting the ability of our other stockholders to approve transactions that they may deem to be in our best interests.
The loss of an important customer could adversely affect our results of operations and financial condition. Our customers are engaged in the oil and natural gas E&P business primarily in the United States, but also in Australia, the Kingdom of Saudi Arabia and select international markets.
The loss of an important customer could adversely affect our results of operations and financial condition. Our customers are engaged in the oil and natural gas E&P business primarily in the United States, but also in Australia, Canada, the Middle East and other select international markets.
Finally, increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that could have significant physical effects, such as increased frequency and severity of storms, droughts, floods and other climatic events; if such effects were to occur, they could have an adverse impact on our operations. Many of our customers utilize hydraulic fracturing in their operations.
Finally, increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that could have 13 Table of Contents significant physical effects, such as increased frequency and severity of storms, droughts, floods and other climatic events; if such effects were to occur, they could have an adverse impact on our operations.
A prolonged closure could have a material adverse 15 Table of Contents impact on our ability to operate our business and on our results of operations. We have also experienced, and could continue to experience, disruption and volatility in our supply chain, which has resulted, and may continue to result, in increased costs for certain goods.
A prolonged closure could have a material adverse impact on our ability to operate our business and on our results of operations. We have also experienced, and if another pandemic was to occur, we could experience, disruption and volatility in our supply chain, which has resulted, and may continue to result, in increased costs for certain goods.
Additionally, the E&P industry is characterized by frequent consolidation activity. Changes in ownership of our customers may result in the loss of, or reduction in, business from those customers which could materially and adversely affect our business, results of operations and cash flows.
Additionally, the E&P industry has seen consolidation activity, which may continue. Changes in ownership of our customers may result in the loss of, or reduction in, business from those customers which could materially and adversely affect our business, results of operations and cash flows.
New technology may cause us to become less competitive. The oilfield services industry is subject to the introduction of new drilling and completions techniques and services using new technologies, some of which may be subject to patent or other intellectual property protections.
The oilfield services industry is subject to the introduction of new drilling and completions techniques and services using new technologies, some of which may be subject to patent or other intellectual property protections.
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.
The ongoing conflicts in Ukraine and the Middle East could have adverse effects on global macroeconomic conditions which could negatively impact our business and results of operations. The conflicts are highly unpredictable and have already resulted in volatility with oil and natural gas prices worldwide.
In addition, outbreaks of other pandemics or contagious diseases may in the future disrupt our operations, suppliers or facilities, result in increased costs for certain goods or otherwise impact us in a manner similar to the COVID-19 pandemic. The ongoing conflict in Ukraine may adversely affect our business and results of operations.
Outbreaks of other pandemics or contagious diseases may in the future disrupt our operations, suppliers or facilities, result in increased costs for certain goods or otherwise impact us in a manner similar to the COVID-19 pandemic. 14 Table of Contents The ongoing conflicts in various parts of the world may adversely affect our business and results of operations.
In addition to our facilities in the United States, we operate one production facility in China and have facilities in Australia that sell and rent equipment as well as provide parts, repair services and field services associated with installation. Additionally, we provide rental and field service operations in the Kingdom of Saudi Arabia.
In addition to our facilities in the United States, we operate a production facility in China and have facilities in Australia and Canada that sell and rent equipment as well as provide parts, repair services and field services associated with installation. Additionally, we provide rental and field service operations in the Middle East.
In addition, we import raw materials, semi‑finished goods, and finished products into the United States, China, Australia and the Kingdom of Saudi Arabia for use in such countries or for manufacturing and/or finishing for re‑export and import into another country for use or further integration into equipment or systems.
In addition, we import raw materials, semi‑finished goods, and finished products into, among other countries, the United States, China, Australia, Canada and the Middle East for use in such countries or for manufacturing and/or finishing for re‑export and import into another country for use or further integration into equipment or systems.
Further, our customers may be subject to a range of laws and regulations governing hydraulic fracturing, drilling and greenhouse gas emissions. We are required to invest financial and managerial resources to comply with environmental laws and regulations and believe that we will continue to be required to do so in the future.
Further, our customers may be subject to a range of laws and regulations governing hydraulic fracturing, drilling and greenhouse gas emissions. We are required to invest financial and managerial resources to comply with environmental laws and regulations.
In addition to our U.S. operations, we have operations in the People’s Republic of China, Australia and the Kingdom of Saudi Arabia. Our operations outside of the United States require us to comply with numerous anti‑bribery and anti‑corruption regulations. The U.S. Foreign Corrupt Practices Act, among others, applies to us and our operations.
In addition to our U.S. operations, we have operations in, among other countries, China, Australia, Canada and the Middle East. Our operations outside of the United States require us to comply with numerous anti‑bribery and anti‑corruption regulations. The U.S. Foreign Corrupt Practices Act, among others, applies to us and our operations.
The interests of Cactus WH Enterprises with respect to matters potentially or actually involving or affecting us, such as future acquisitions, financings and other corporate opportunities and attempts to acquire us, may conflict with the interests of our other stockholders. Furthermore, in connection with our IPO, we entered into a stockholders’ agreement with Cactus WH Enterprises.
The interests of Cactus WH Enterprises with respect to matters potentially or actually involving or affecting us, such as future acquisitions, financings and other corporate opportunities and attempts to acquire us, may conflict with the interests of our other stockholders.
We have experienced, and may experience in the future, slowdowns or temporary idling of certain of our manufacturing and service facilities due to a number of factors, including implementing additional safety measures, testing of our team members, team member absenteeism and governmental orders.
The COVID-19 pandemic negatively affected our revenues and operations. We experienced, and if another pandemic was to occur, we may experience in the future, slowdowns or temporary idling of certain of our manufacturing and service facilities due to a number of factors, including implementing additional safety measures, testing of our team members, team member absenteeism and governmental orders.
Many contracts are awarded on a bid basis, which may further increase competition based primarily on price. In addition, adverse market conditions lower demand for well servicing equipment, which results in excess equipment and lower utilization rates.
Many contracts are awarded on a bid basis, which may further increase competition based primarily on price. In addition, adverse market conditions lower demand for well servicing equipment, which results in excess equipment and lower utilization rates. If market conditions deteriorate or if adverse market conditions persist, the prices we are able to charge and utilization rates may decline.
Environmental laws and regulations in the United States and foreign countries affect the equipment, systems and services we design, market and sell, as well as the facilities where we manufacture and produce our equipment and systems in the United States and China, and opportunities our customers pursue that create demand for our products.
Environmental laws and regulations in the United States and foreign countries affect the equipment, systems and services we design, market and sell, as well as the facilities where we manufacture and produce our equipment and systems.
We depend on our information technology (“IT”) systems for the efficient operation of our business. Accordingly, we rely upon the capacity, reliability and security of our IT hardware and software infrastructure and our ability to expand and update this infrastructure in response to our changing needs.
Accordingly, we rely upon the capacity, reliability and security of our IT hardware and software infrastructure and our ability to expand and update this infrastructure in response to our changing needs.
These developments could further accelerate the transition of the U.S. economy away from the use of fossil fuels towards lower- or zero-carbon emissions alternatives, which would reduce demand for our products and services and negatively impact our business.
These developments could further accelerate the transition of the U.S. economy away from the use of fossil fuels towards lower- or zero-carbon emissions alternatives, which would reduce demand for our products and services and negatively impact our business. The global outbreak of COVID-19 had, and similar pandemics in the future may have, an adverse impact on our business and operations.
Additionally, we may issue additional shares of Class A common stock or convertible securities in subsequent public offerings. We had 64,127,114 outstanding shares of Class A common stock and 14,978,225 outstanding shares of Class B common stock as of February 27, 2023.
Additionally, we may issue additional shares of Class A common stock or convertible securities in subsequent public offerings. We had 65,322,730 outstanding shares of Class A common stock and 14,033,979 outstanding shares of Class B common stock as of February 27, 2024.
To provide for coverage against certain breaches by the sellers of its representations and warranties and certain pre-closing taxes of FlexSteel, we have obtained a representation and warranty insurance policy. The policy is subject to a retention amount, exclusions, policy limits and certain other customary terms and conditions.
To provide for coverage against certain breaches by the sellers of their representations and warranties and certain pre-closing taxes of FlexSteel, we have obtained a representation and warranty insurance policy.
The foregoing number is merely an estimate and the actual payment could differ materially. There can be no assurance that we will be able to finance our obligations under the TRA. Payments under the TRA are based on the tax reporting positions that we will determine.
There can be no assurance that we will be able to finance our obligations under the TRA. Payments under the TRA are based on the tax reporting positions that we will determine.
Should our current suppliers be unable to provide the necessary raw materials or components or otherwise fail to deliver such materials and components timely and in the quantities required, resulting delays in the provision of products or services to our customers could have a material adverse effect on our business, results of operations and cash flows. 12 Table of Contents In 2022, the United States experienced the highest inflation in decades primarily due to supply-chain issues, a shortage of labor and a build-up of demand for goods and services.
Should our current suppliers be unable to provide the necessary raw materials or components or otherwise fail to deliver such materials and components timely and in the quantities required, resulting delays in the provision of products or services to our customers could have a material adverse effect on our business, results of operations and cash flows.
Payments under the TRA commenced in 2019, and in the event that the TRA is not terminated, the payments under the TRA are anticipated to continue for approximately 20 years after the date of the last redemption of CC Units.
Payments under the TRA commenced in 2019, and in the event that the TRA is not terminated, the payments under the TRA are anticipated to continue for approximately 20 years after the date of the last redemption of CC Units. 16 Table of Contents The payment obligations under the TRA are our obligations and not obligations of Cactus Companies, and we expect that the payments we will be required to make under the TRA will be substantial.
The effects of these developments or other initiatives to reform the federal leasing process could result in additional restrictions or limitations on the issuance of federal leases and permits for drilling on public lands.
The effects of these developments or other initiatives to reform the federal leasing process could result in additional restrictions or limitations on the issuance of federal leases and permits for drilling on public lands. In addition, the Biden administration has indicated it is delaying consideration of new natural gas export terminals in the United States.
Risks Related to the Merger We may not realize the anticipated benefits from the Merger and the Merger could adversely impact our business and our operating results. We may not be able to achieve the full potential strategic and financial benefits that we expect to achieve from the Merger, or such benefits may be delayed or not occur at all.
We may not be able to achieve the full potential strategic and financial benefits that we expect to achieve from the acquisition of the FlexSteel business, or such benefits may be delayed or not occur at all.
In addition, the conflict could lead to increased cyberattacks or could aggravate other risk factors that we identify in our public filings.
In addition, the conflicts could lead to increased cyberattacks or could aggravate other risk factors that we identify in our public filings. Additional conflicts in other parts of the world could have similar negative impacts on our business.
Environmental concerns have been raised regarding the potential impact of hydraulic fracturing on underground water supplies and seismic activity. These concerns have led to several regulatory and governmental initiatives in the United States to restrict the hydraulic fracturing process, which could have an adverse impact on our customers’ completions or production activities.
These concerns have led to several regulatory and governmental initiatives in the United States to restrict the hydraulic fracturing process, which could have an adverse impact on our customers’ completions or production activities. Although we do not conduct hydraulic fracturing, our products are used in hydraulic fracturing.
The failure of FlexSteel to obtain financial results after the Merger similar to those obtained in the past could adversely impact our business and our consolidated operating results.
The failure of FlexSteel to achieve financial results after the closing date of the acquisition similar to those obtained in the past could adversely impact our business and our consolidated operating results. We may experience difficulties in integrating the operations of FlexSteel into our business and in realizing the expected benefits of the Merger.
If market conditions in our operating areas deteriorate from current levels or if adverse market conditions persist, the prices we are able to charge and utilization rates may decline. Any significant future increase in overall market capacity for the products, rental equipment or services that we offer could adversely affect our business, results of operations and cash flows.
Any significant future increase in overall market capacity for the products, rental equipment or services that we offer could adversely affect our business, results of operations and cash flows. New technology may cause us to become less competitive.
If the TRA were terminated as of December 31, 2022, the estimated termination payments, based on the assumptions discussed above, would have been approximately $291.2 million (calculated using a discount rate equal to one-year LIBOR plus 150 basis points, applied against an undiscounted liability of approximately $456.6 million).
If the TRA were terminated as of December 31, 2023, the estimated termination payments, based on the assumptions discussed above, would have been approximately $256.8 million (calculated using a discount rate equivalent to the former one-year LIBOR, applied against an undiscounted liability of approximately $397.0 million). The foregoing number is merely an estimate and the actual payment could differ materially.
The payment obligations under the TRA are our obligations and not obligations of Cactus Companies, and we expect that the payments we will be required to make under the TRA will be substantial. Estimating the amount and timing of payments that may become due under the TRA Agreement is by its nature imprecise.
Estimating the amount and timing of payments that may become due under the TRA Agreement is by its nature imprecise.
Growth in U.S. drilling and completion activity, and our ability to benefit from such growth, could be adversely affected by any significant constraints in equipment, labor or takeaway capacity in the regions in which we operate.
U.S. drilling and completion activity could be adversely affected by any significant constraints in equipment, labor or takeaway capacity in the regions in which we operate. U.S. drilling and completion activity may be impacted by, among other things, the availability and cost of ancillary equipment and services, pipeline capacity, and material and labor shortages.
Such permits or approvals are typically 11 Table of Contents required by state agencies but can also be required by federal and local governmental agencies or other third parties. The requirements for such permits or authorizations vary depending on the location where such drilling and completion activities will be conducted.
Such permits or approvals are typically required by state agencies but can also be required by federal and local governmental agencies or other third parties.
In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future. Holders of our Class A common stock may not receive dividends on their Class A common stock.
In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future. We rely on our information systems to conduct our business, and failure to protect these systems against security breaches could disrupt our business and adversely affect our results of operations.
In particular, our customers may elect not to purchase our products or services if they view our environmental or safety record as unacceptable, which could cause us to lose customers and substantial revenues. Our customer indemnities or insurance may not be adequate to cover all losses or liabilities we may suffer.
In particular, our customers may elect not to purchase our products or services if they view our environmental or safety record as unacceptable, which could cause us to lose customers and substantial revenues. Oilfield anti-indemnity provisions enacted by many states may restrict or prohibit a party’s indemnification of us.
A “publicly traded partnership” is a partnership the interests of which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof.
We intend to operate such that Cactus Companies does not become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. A “publicly traded partnership” is a partnership the interests of which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof.
In December 2021, the Texas Railroad Commission, which regulates the state’s oil and gas industry, suspended the use of deep wastewater disposal wells in four oil-producing counties in West Texas. The suspension is intended to mitigate earthquakes thought to be caused by the injection of waste fluids, including saltwater, that are a byproduct of hydraulic fracturing into disposal wells.
The suspensions are intended to mitigate earthquakes thought to be caused by the injection of waste fluids, including saltwater, that are a byproduct of hydraulic fracturing into disposal wells.
The Inflation Reduction Act appropriates significant federal funding for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles and supporting infrastructure and carbon capture and sequestration, amongst other provisions. In addition, the Inflation Reduction Act imposes the first ever federal fee on the emission of GHG through a methane emissions charge.
State or federal initiatives to incentivize a shift away from fossil fuels could also reduce demand for hydrocarbons. For example, the Inflation Reduction Act appropriates significant federal funding for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles and supporting infrastructure and carbon capture and sequestration, amongst other provisions.
While the United States Department of the Interior announced in April 2022 that it would resume oil and gas leasing on public lands, the topic of oil and gas leasing on public land remains politically fraught, as the announcement indicated that federal land available for oil and gas leasing will be significantly reduced due to environmental and climate concerns.
Oil and gas leasing on public land remains politically fraught and federal land available for oil and gas leasing could be significantly reduced due to environmental and climate concerns.
Although we do not conduct hydraulic fracturing, our products are used in hydraulic fracturing. Increased regulation and attention given to the hydraulic fracturing process could lead to greater opposition to oil and gas production activities using hydraulic fracturing techniques.
Increased regulation and attention given to the hydraulic fracturing process could lead to greater opposition to oil and gas production activities using hydraulic fracturing techniques. Since 2021, the Texas Railroad Commission, which regulates the state’s oil and gas industry, has suspended the use of deep wastewater disposal wells in certain areas of four oil-producing counties in West Texas.
Removed
Growth in U.S. drilling and completion activity may be impacted by, among other things, the availability and cost of oil country tubular goods (“OCTG”), pipeline capacity, and material and labor shortages.
Added
During the fourth quarter of 2023, our Chief Financial Officer (“CFO”) assumed responsibility for the Chief Executive Officer position in our Spoolable Technologies operating segment (the FlexSteel business) and was replaced with an interim CFO. While the Company intends to appoint a new CFO during 2024, the changes in executive leadership could cause disruption to our business operations.
Removed
In addition, in January 2021, President Biden indefinitely suspended new oil and natural gas leases on public lands or in offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices.
Added
Among other things, the conflicts in Ukraine and 11 Table of Contents the Middle East may result in longer transit times, higher costs and reduced availability of raw materials and components used in our wide variety of products and systems.
Removed
Due to a shortage of steel caused primarily by production disruptions during the pandemic and the conflict in Ukraine as well as increased demand while economies rebounded, steel and assembled component prices have been elevated.
Added
Many of our customers utilize hydraulic fracturing in their operations. Environmental concerns have been raised regarding the potential impact of hydraulic fracturing on underground water supplies and seismic activity.
Removed
Our results of operations may be adversely affected by our inability to manage higher costs and the availability of raw materials and components used in our wide variety of products and systems. Additionally, freight costs, specifically ocean freight costs, rose significantly during and following the pandemic.

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Item 2. Properties

Properties — owned and leased real estate

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Location Type Own/ Lease United States Baytown, TX Manufacturing Facility, Service Center and Land Own Bossier City, LA (1) Manufacturing Facility and Service Center Lease Bossier City, LA (1) Manufacturing and Assembly Facilities, Warehouse and Land Own Donora, PA Service Center Lease DuBois, PA (2) Service Center Lease Hobbs, NM Service Center / Land Own Hobbs, NM Service Center Lease Houston, TX Administrative Headquarters Lease New Waverly, TX Service Center / Land Own Odessa, TX (2) Service Center Lease Oklahoma City, OK Service Center Lease Pleasanton, TX Service Center Own Pleasanton, TX (2) Service Center Lease Williston, ND (2) Service Center Lease China and Australia Queensland, Australia Service Centers and Offices / Land Lease Suzhou, China Production Facility and Offices Lease (1) Consists of various facilities adjacent to each other constituting our manufacturing facility, test and assembly facility, warehouse and service center.
Location Type Operating Segment Own/ Lease United States Baytown, TX Manufacturing Facility, Service Center and Land Spoolable Technologies Own Bossier City, LA (1) Manufacturing Facility and Service Center Pressure Control Lease Bossier City, LA (1) Manufacturing and Assembly Facilities, Warehouse and Land Pressure Control Own Donora, PA Service Center Pressure Control Lease DuBois, PA (2) Service Center Pressure Control Lease Hobbs, NM Service Center / Land Pressure Control Own Hobbs, NM Service Center Spoolable Technologies Lease Houston, TX Administrative Headquarters N/A (3) Lease New Waverly, TX Service Center / Land Pressure Control Own Odessa, TX Service Center / Land Pressure Control Own Oklahoma City, OK Service Center Pressure Control Lease Pleasanton, TX Service Center Spoolable Technologies Own Pleasanton, TX (2) Service Center Pressure Control Lease Williston, ND (2) Service Center Pressure Control Lease China and Australia Queensland, Australia Service Centers and Offices / Land Pressure Control Lease Suzhou, China Production Facility and Offices Pressure Control Lease (1) Consists of various facilities adjacent to each other constituting our manufacturing facility, test and assembly facility, warehouse and service center.
Item 2. Properties The following table sets forth information with respect to our current principal facilities after the Merger with FlexSteel. We believe that our facilities are suitable and adequate for our current operations, taking into consideration the FlexSteel business.
Item 2. Properties The following table sets forth information with respect to our current principal facilities. We believe that our facilities are suitable and adequate for our current operations.
(2) We also own land adjacent to these facilities.
(2) We also own land adjacent to these facilities. (3) Corporate headquarters.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The following graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Cactus Inc. specifically incorporates it by reference into such filing. 23 Table of Contents 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 December 31, 2022 (in whole shares).
The following graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Cactus Inc. specifically incorporates it by reference into such filing. 23 Table of Contents 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 December 31, 2023 (in whole shares).
In fiscal year 2022, the annual dividend rate for our Class A common stock was $0.44 per share compared to $0.38 per share in fiscal year 2021 and $0.36 per share in fiscal year 2020.
In fiscal year 2023, the annual dividend rate for our Class A common stock was $0.46 per share compared to $0.44 per share in fiscal year 2022 and $0.38 per share in fiscal year 2021.
Dividends are not paid to our Class B common stock holders; however, a corresponding distribution up to the same amount per share as our Class A common stockholders is paid to our CW Unit Holders (or, for any dividends declared after the completion of the CC Reorganization, to the CC Unit holders) for any dividends declared on our Class A common stock.
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 our CC Unit Holders for any dividends declared on our Class A common stock.
We have paid quarterly dividends uninterrupted since initiation of the cash dividend program and the approved dividend per share amount has increased from the initial amount of $0.09 per share to $0.10 per share in September 2021 to the current amount of $0.11 per share of Class A common stock.
We have paid quarterly dividends uninterrupted since initiation of the cash dividend program and the approved dividend per share amount has increased from the initial amount of $0.09 per share to the current amount of $0.12 per share of Class A common stock.
We currently intend to continue paying the quarterly dividend at the current levels while retaining the balance of future earnings, if any, to finance the growth of our business. We would seek to increase the dividend in the future if our financial condition and results of operations permit.
We currently intend to continue paying the quarterly dividend at the current levels while retaining the balance of future earnings, if any, to finance the growth of our business or repurchase shares of our Class A common stock. We would seek to increase the dividend in the future if our financial condition and results of operations permit.
The total shareholder return assumes $100 invested on February 7, 2018 in Cactus Inc., the S&P 500 Index, the S&P Oil & Gas Equipment & Services Index and the PHLX Oil Service Index. It also assumes reinvestment of all dividends.
The total shareholder return assumes $100 was invested on December 31, 2018 in Cactus Inc., the S&P 500 Index, the S&P Oil and Gas Equipment Select Industry Index and the PHLX Oil Service Index. It also assumes reinvestment of all dividends.
This number excludes owners for whom Class A common stock may be held in “street name.” As of December 31, 2022, there were six holders of record of our Class B common stock. 22 Table of Contents Dividends We have paid a regular quarterly cash dividend on our Class A common stock as approved by our board of directors since December 2019.
As of December 31, 2023, there were two holders of record of our Class A common stock. This number excludes owners for whom Class A 22 Table of Contents common stock may be held in “street name.” As of December 31, 2023, there were five holders of record of our Class B common stock.
Performance Graph The graph below compares the cumulative total shareholder return on our common stock to the S&P 500 Index, the S&P Oil & Gas Equipment & Services Index and the PHLX Oil Service Index from the date our common stock began trading through December 31, 2022.
In future years, the Company could be subject to the excise tax depending on the total shares repurchased in comparison to shares issued. Performance Graph The graph below compares the cumulative total shareholder return on our common stock to the S&P 500 Index, the S&P Oil & Gas Equipment & Services Index and the PHLX Oil Service Index.
(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. Item 6. (Reserved)
Included below are 4,225 shares purchased in the open market pursuant to a share repurchase program and 11,638 shares repurchased from employees to satisfy tax withholding obligations related to restricted stock units that vested during the period.
Removed
As of December 31, 2022, there were two holders of record of our Class A common stock.
Added
Dividends We have paid a regular quarterly cash dividend on our Class A common stock as approved by our board of directors since December 2019.
Removed
Period Total number of shares purchased (1) Average price paid per share (2) October 1-31, 2022 — $ — November 1-30, 2022 436 56.34 December 1-31, 2022 871 49.34 Total 1,307 $ 51.68 (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.
Added
Share Repurchase Program 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.
Added
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.
Added
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. The Inflation Reduction Act of 2022 provides for, among other things, the imposition of a 1% U.S.
Added
Federal excise tax on certain repurchases of stock by publicly traded U.S. corporations after December 31, 2022. Accordingly, this new excise tax applies to our share repurchase program. In 2023, issuances of shares exceeded share repurchases and, as such, there was no excise tax.
Added
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 (2) Maximum dollar value of shares that may yet be purchased under the plans or programs (2) October 1-31, 2023 — $ — — $ — November 1-30, 2023 11,638 $ 41.30 — $ — December 1-31, 2023 4,225 $ 39.87 4,225 $ 149,672,535 Total 15,863 $ 40.92 4,225 $ 149,672,535 (1) The average price paid per share of $40.92 was calculated excluding commissions.
Added
(2) 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 6. (Reserved)

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Cash Flows Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2022 2021 (in thousands) Net cash provided by operating activities $ 117,884 $ 63,759 Net cash used in investing activities (25,536) (11,633) Net cash used in financing activities (47,382) (39,388) Net cash provided by operating activities was $117.9 million in 2022 compared to $63.8 million in 2021.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2022 2021 (in thousands) Net cash provided by operating activities $ 117,884 $ 63,759 Net cash used in investing activities (25,536) (11,633) Net cash used in financing activities (47,382) (39,388) Net cash provided by operating activities was $117.9 million in 2022 compared to $63.8 million in 2021.
We retain the remaining 15% of the cash savings. The TRA liability is calculated by determining the tax basis subject to TRA (“tax basis”) and applying a blended tax rate to the basis differences and calculating the iterative impact.
We retain the remaining 15% of the 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 iterative impact.
Income tax expense for 2022 primarily included approximately $36.4 million of expense associated with current income offset by a $1.7 million benefit associated with permanent differences related to equity compensation, a $1.7 million benefit resulting from a change in our forecasted state rate and a $1.4 million tax benefit associated with the partial valuation allowance release in conjunction with CW Unit redemptions during the year.
Income tax expense for 2022 primarily included approximately $36.4 million of expense associated with current income offset by a $1.7 million benefit associated with permanent differences related to equity compensation, a $1.7 million benefit resulting from a change in our forecasted state rate and a $1.4 million tax benefit associated with the partial valuation allowance release in conjunction with CW Unit redemptions during 2022.
Critical Accounting Policies and Estimates In preparing our financial statements in accordance with generally accepted in the United States of America (“GAAP”), we make numerous estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses.
Critical Accounting Policies and Estimates In preparing our financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we make numerous estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses.
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 in “Cautionary Statement Regarding Forward-Looking Statements” and “Item 1A. Risk Factors” included elsewhere in this Annual Report, all of which are difficult to predict.
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 24 Table of Contents uncertainties, including those described in “Cautionary Statement Regarding Forward-Looking Statements” and “Item 1A. Risk Factors” included elsewhere in this Annual Report, all of which are difficult to predict.
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.
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 29 Table of Contents in existing locations, prevailing economic conditions, market conditions in the E&P industry, customers’ forecasts, volatility and company initiatives.
In certain cases, payments under the TRA 28 Table of Contents may be accelerated and/or significantly exceed the actual benefits, if any, we realize in respect of the tax attributes subject to the TRA. In these situations, our obligations under the TRA could have a substantial negative impact on our liquidity.
In certain cases, payments under the TRA may be accelerated and/or significantly exceed the actual benefits, if any, we realize in respect of the tax attributes subject to the TRA. In these situations, our obligations under the TRA could have a substantial negative impact on our liquidity.
Such increased deductions and losses and reduced gains may reduce the amount of tax that Cactus Inc. would otherwise be required to pay in the future. 30 Table of Contents Estimating the amount and timing of the tax benefit is by its nature imprecise and the assumptions used in the estimates can change.
Such increased deductions and losses and reduced gains may reduce the amount of tax that Cactus Inc. would otherwise be required to pay in the future. Estimating the amount and timing of the tax benefit is by its nature imprecise and the assumptions used in the estimates can change.
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 (as defined in Note 4 in the notes to the Consolidated Financial Statements).
Our primary sources of liquidity and capital resources are cash on hand, cash flows generated by operating activities and, if necessary, borrowings under our Amended ABL Credit Facility (as defined in Note 6 in the notes to the Consolidated Financial Statements).
In 2022, the United States experienced the highest inflation in decades primarily due to supply-chain issues, a shortage of labor and a build-up of demand for goods and services. The most noticeable adverse impact to our business was increased costs associated with freight, materials, vehicle-related costs and personnel expenses.
In 2022, the United States experienced the highest inflation in decades primarily due to supply-chain issues, a shortage of labor and a build-up of demand for goods and services. The most noticeable adverse impact to our business was increased costs associated with freight, materials, vehicle-related costs and personnel expenses. Most of our costs moderated in 2023 except for wages.
In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and results of recent operations.
In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning 32 Table of Contents strategies and results of recent operations.
We had $0.1 million in letters of credit outstanding at December 31, 2022 which reduced our available borrowing capacity. We were in compliance with the covenants of the ABL Credit Facility as of December 31, 2022.
We had $1.1 million in letters of credit outstanding at December 31, 2023 which reduced our available borrowing capacity. We were in compliance with the covenants of the Amended ABL Credit Facility as of December 31, 2023.
Depending upon market conditions and other factors, we may also have the ability to issue additional equity and debt if needed. As of December 31, 2022, we had no borrowings outstanding under our ABL Credit Facility and $79.9 million of available borrowing capacity.
Depending upon market conditions and other factors, we may also have the ability to issue additional equity and debt if needed. As of December 31, 2023, we had no borrowings outstanding under our Amended ABL Credit Facility and $216.0 million of available borrowing capacity.
The ongoing conflict in Ukraine has had repercussions globally and in the United States by continuing to cause uncertainty, not only in the oil and natural gas markets, but also in the financial markets and global supply chain.
The ongoing conflicts in the Middle East and Ukraine have had repercussions globally and in the United States by continuing to cause uncertainty, not only in the oil and natural gas markets, but also in the financial markets and global supply chain.
Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We evaluate the components of inventory on a regular basis for excess and obsolescence.
Costs include an application of related direct labor and overhead cost. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We evaluate the components of inventory on a regular basis for excess and obsolescence.
Although weakening natural gas prices could negatively impact the oil and gas industry, our customers are primarily oil-focused, thus slightly moderating the adverse impacts to demand for our products and services.
Although lower natural gas prices could negatively impact the oil and gas industry, most of our customers are primarily oil-focused, thus moderating the impact to demand for our products and services.
Such adjustments to the tax basis of the tangible and intangible assets of Cactus LLC would not have been available to Cactus Inc. absent its acquisition or deemed acquisition of CW Units.
Such adjustments to the tax basis of the tangible and intangible assets of Cactus Companies would not be available to Cactus Inc. absent its acquisition or deemed acquisition of CC Units or CW Units prior to the CC Reorganization.
Assuming no material changes in the relevant tax law, we expect that if the TRA were terminated as of December 31, 2022, the estimated termination payments, based on the assumptions discussed in Note 9 of the Notes to the Consolidated Financial Statements, would be approximately $291.2 million, calculated using a discount rate equal to one-year LIBOR plus 150 basis points, applied against an undiscounted liability of $456.6 million.
Assuming no material changes in the relevant tax law, we expect that if the TRA were terminated as of December 31, 2023, the estimated termination payments, based on the assumptions discussed in Note 11 of the notes to the Consolidated Financial Statements, would be approximately $256.8 million, calculated using a discount rate equivalent to the former one-year LIBOR, applied against an undiscounted liability of $397.0 million.
We expect that our existing cash on hand, cash generated from operations and available borrowings under our ABL Credit Facility will be sufficient for the next 12 months to meet working capital requirements, anticipated capital expenditures, 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 CW Units (or, in the case of dividends declared after the completion of the CC Reorganization, to the holders of CC Units), other than Cactus Inc.
We expect that our existing cash on hand, cash generated from operations and available borrowings under our Amended ABL Credit Facility will be sufficient for the next 12 months to meet our material cash requirements, including working capital requirements, debt service obligations, anticipated capital expenditures, lease obligations, repurchases of shares of our Class A common stock, expected TRA liability payments, possible earn-out payment associated with the FlexSteel acquisition, 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.
Estimates can change materially from period to period based on many factors. Accordingly, if conditions change in the future, we may record impairment losses, which could be material to any particular reporting period.
Estimates can change materially from period to period based on many factors. Accordingly, if conditions change in the future, we may record impairment losses, which could be material to any particular reporting period. Goodwill Goodwill represents the excess of purchase price paid over the fair value of the net assets of acquired businesses.
A 10% increase in the price of our Class A common stock at December 31, 2022 would have increased the discounted liability by $10.8 million to $302.0 million (an undiscounted increase of $18.3 million to $474.9 million), and likewise, a 10% decrease in the price of our Class A common stock at December 31, 2022 would have decreased the discounted liability by $10.8 million to $280.4 million (an undiscounted decrease of $18.3 million to $438.3 million).
A 10% increase in the price of our Class A common stock at December 31, 2023 would have increased the discounted liability by $9.0 million to $265.8 million (an undiscounted increase of $15.2 million to $412.2 million), and likewise, a 10% decrease in the price of our Class A common stock at December 31, 2023 would have decreased the discounted liability by $9.0 million to $247.8 million (an undiscounted decrease of $15.2 million to $381.8 million).
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 cause higher inflation worldwide, impact consumer spending and negatively impact demand for our goods and services. Moreover, additional interest rate increases by the U.S.
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 cause higher inflation worldwide, impact consumer spending and negatively impact demand for our goods and services. Additionally, militant attacks on ships in the Red Sea or elsewhere could negatively impact our ocean freight costs.
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. This section includes comparisons of certain 2022 financial information to the same information for 2021.
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. Market Factors See “Item 1. Business” for information on our products and business.
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.
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. Following the acquisition of FlexSteel, we have two operating segments consisting of the Pressure Control segment (legacy Cactus) and the Spoolable Technologies segment (FlexSteel).
A 100 basis point decrease/increase in the blended tax rate used would decrease/increase the TRA liability recorded at December 31, 2022 by approximately $14.2 million.
A 100 basis point decrease/increase in the blended tax rate used would decrease/increase the TRA liability recorded at December 31, 2023 by approximately $14.7 million. Recent Accounting Pronouncements See Note 2 of the notes to the Consolidated Financial Statements for discussion of recent accounting pronouncements.
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.
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. Revenues generated by our Pressure Control and Spoolable Technologies operating segments are derived from three sources: products, rentals, and field service and other.
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. Redemptions of CW Units resulted in adjustments to the tax basis of the tangible and intangible assets of Cactus LLC. These adjustments were allocated to Cactus Inc.
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.
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 2021 was primarily related to approximately $16.3 million expense associated with our 2021 operations and $1.3 million expense resulting from a change in our forecasted state tax rate.
Income tax expense for 2021 was primarily related to approximately $16.3 million expense associated with our 2021 operations and $1.3 million expense resulting from a change in our forecasted state tax rate.
Additionally, professional fees increased from 2021 primarily due to approximately $8.4 million of transaction costs associated with the Merger. Additional increases in SG&A from 2021 were attributable to higher information technology expenses and increased travel costs. Interest income (expense), net. Interest income, net was $3.7 million in 2022 compared to interest expense, net of $0.8 million in 2021.
Additional increases in SG&A expenses from 2021 were attributable to higher information technology expenses. Corporate and other expenses. Corporate and other expenses for 2022 were $27.9 million, an increase of $11.8 million from $16.2 million for 2021. The increase was primarily due to approximately $8.4 million of transaction costs associated with the FlexSteel acquisition.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table presents summary consolidated operating results for the periods indicated: Year Ended December 31, 2022 2021 $ Change % Change (in thousands) Revenues Product revenue $ 452,615 $ 280,907 $ 171,708 61.1 % Rental revenue 100,453 61,629 38,824 63.0 Field service and other revenue 135,301 96,053 39,248 40.9 Total revenues 688,369 438,589 249,780 57.0 Costs and expenses Cost of product revenue 277,871 189,083 88,788 47.0 Cost of rental revenue 62,037 54,377 7,660 14.1 Cost of field service and other revenue 106,013 73,681 32,332 43.9 Selling, general and administrative expenses 67,700 46,021 21,679 47.1 Total costs and expenses 513,621 363,162 150,459 41.4 Income from operations 174,748 75,427 99,321 nm Interest income (expense), net 3,714 (774) 4,488 nm Other income (expense), net (1,910) 492 (2,402) nm Income before income taxes 176,552 75,145 101,407 nm Income tax expense 31,430 7,675 23,755 nm Net income 145,122 67,470 77,652 nm Less: net income attributable to non-controlling interest 34,948 17,877 17,071 95.5 Net income attributable to Cactus Inc. $ 110,174 $ 49,593 $ 60,581 nm 26 Table of Contents nm = not meaningful Revenues Product revenue for 2022 was $452.6 million compared to $280.9 million for 2021.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table presents summary consolidated operating results for the periods indicated: Year Ended December 31, 2022 2021 $ Change % Change (in thousands) Revenues Pressure Control $ 688,369 $ 438,589 $ 249,780 57.0 % Spoolable Technologies — — — — Total revenues 688,369 438,589 249,780 57.0 Operating income Pressure Control 202,650 91,579 111,071 nm Spoolable Technologies — — — — Total segment operating income 202,650 91,579 111,071 nm Corporate and other expenses (27,902) (16,152) (11,750) 72.7 Total operating income 174,748 75,427 99,321 nm Interest income (expense), net 3,714 (774) 4,488 nm Other income (expense), net (1,910) 492 (2,402) nm Income before income taxes 176,552 75,145 101,407 nm Income tax expense 31,430 7,675 23,755 nm Net income $ 145,122 $ 67,470 $ 77,652 nm Less: net income attributable to non-controlling interest 34,948 17,877 17,071 95.5 % Net income attributable to Cactus Inc. $ 110,174 $ 49,593 $ 60,581 nm nm = not meaningful Pressure Control.
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.
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.
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 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.
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.
FlexSteel operates through service centers and pipe yards located throughout the United States and Canada, while also providing equipment and services in select international markets. FlexSteel’s manufacturing facility is located in Baytown, Texas.
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.
This tax expense was partially offset by a $1.1 million benefit associated with permanent differences related to equity compensation and a $9.0 million tax benefit associated with the partial valuation allowance release in conjunction with 2021 redemptions of CW Units. 27 Table of Contents Our effective tax rate is typically lower than the federal statutory rate of 21% due to the fact that Cactus Inc. is only subject to federal and state income tax on its share of income from Cactus LLC.
This tax expense was partially offset by a $1.1 million benefit associated with permanent differences related to equity compensation and a $9.0 million tax benefit associated with the partial valuation allowance release in conjunction with 2021 redemptions of CW Units. Liquidity and Capital Resources At December 31, 2023, we had $133.8 million of cash and cash equivalents.
The increase of $171.7 million, representing a 61% increase from 2021, was primarily due to higher sales of wellhead and production related equipment resulting from increased activity by our customers as well as the impact of cost recovery efforts. Rental revenue of $100.5 million in 2022 increased $38.8 million, or 63%, from $61.6 million in 2021.
Pressure Control revenue was $756.7 million for 2023, an increase of $68.4 million, or 10%, from $688.4 million for 2022. The increase in revenues was primarily due to higher sales of wellhead and production related equipment resulting from higher drilling and completion activity by our customers.
Not including the impact of the acquisition of FlexSteel, we currently estimate our net capital expenditures for the year ending December 31, 2023 will range from $35 million to $45 million, mostly related to rental fleet investments including drilling tools but also related to the potential purchase of a currently leased facility, international expansion and development of a newly-leased research and development facility in Houston, Texas.
We currently estimate our net capital expenditures for the year ending December 31, 2024 will range from $45 million to $55 million, mostly related to rental fleet investments including drilling tools, international expansion, diversification of our low cost supply chain, enhancements for our Baytown, TX manufacturing plant and additional deployment equipment to facilitate installation of recent product introductions.
Our business experiences some seasonality during the fourth quarter due to holidays and customers managing their budgets as the year closes out. This can lead to lower activity in our three revenue categories as well as lower margins, particularly in field services due to lower labor utilization.
This can lead to lower activity in our three revenue categories as well as lower margins, particularly in field services due to lower labor utilization. 25 Table of Contents Recent Developments and Trends Acquisition of FlexSteel As previously discussed, we completed the acquisition of FlexSteel on February 28, 2023.
Selling, general and administrative expense (“SG&A”) for 2022 was $67.7 million, an increase of $21.7 million, or 47%, from $46.0 million for 2021. The increase was largely attributable to increased personnel costs primarily related to higher salaries and wages and their associated payroll taxes, increased benefits including health insurance and retirement funding, higher stock-based compensation and annual incentive bonus expense.
The 28 Table of Contents increase was primarily attributable to higher gross margins during the period due to increased activity partially offset by higher SG&A expenses. The increase in SG&A expenses was largely attributable to increased personnel costs primarily related to higher salaries and wages and associated taxes and benefits, higher annual incentive bonus expense and increased stock-based compensation.
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.
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.
Removed
Year-to-year comparisons of the 2021 financial information to the same information for 2020 are contained in “Item 7. Management’s Discussion and Analysis of Financial Condition and Result of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on February 28, 2022.
Added
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.
Removed
Unless specifically noted herein, the historical financial information included herein does not reflect the Merger or the CC Reorganization as they were completed subsequent to December 31, 2022. The post-acquisition results of operations of FlexSteel will first be included in our consolidated financial information for the period ending March 31, 2023. Market Factors See “Item 1.
Added
Field service and other revenues are primarily earned when we provide installation and other field services for both product sales and equipment rental. Pressure Control The Pressure Control segment designs, manufactures, sells and rents a range of wellhead and pressure control equipment under the Cactus Wellhead brand.
Removed
Business” for information on our products and business.
Added
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.
Removed
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.
Added
We operate through service centers in the United States, which are strategically located in the key oil and gas producing regions, and in Eastern Australia. These service centers support our field services and provide equipment assembly and repair services. We also provide rental and service operations in the Middle East.
Removed
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 and the complexity of the wellhead system chosen by the customer and the rate at which production trees are eventually deployed.
Added
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.
Removed
All of these factors may be influenced by the oil and gas region in which our customers are operating.
Added
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.
Removed
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 given region and with a specific customer. 24 Table of Contents 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.
Added
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.
Removed
Well completion activity generally follows the level of drilling activity over time but can be delayed or accelerated due to such factors as availability of drilling rigs, pressure pumping fleets and OCTG, takeaway capacity, storage capacity, oil and gas prices, overall service cost inflation and budget considerations.
Added
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. Seasonality Our business experiences some seasonality during the fourth quarter due to holidays and customers managing their budgets as the year closes out.
Removed
Recent Developments and Trends Acquisition of FlexSteel On February 28, 2023, we completed the acquisition of FlexSteel, which designs, manufactures, sells and installs highly engineered spoolable pipe technologies. FlexSteel’s steel reinforced pipeline solutions are sold principally for onshore oil and gas wells and are utilized during the production phases of its customers’ wells.
Added
The results of operations of the FlexSteel business have been reflected in our accompanying condensed consolidated financial statements from the closing date of the acquisition. See Note 3 in the notes to the Consolidated Financial Statements for additional information related to the acquisition.
Removed
Commodity Prices and Geopolitical Conflict Oil prices were volatile throughout 2022 primarily due to global import restrictions enacted on Russian oil, including a price cap set by the International Group of Seven (G7) members in response to the conflict in Ukraine, releases of oil from the Strategic Petroleum Reserve and subsequent plans to replenish it, enacted and planned production cuts by OPEC+, fears of a global recession and easing COVID-19 restrictions in China.
Added
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.
Removed
Oil prices reached their peak in March 2022 with West Texas Intermediate (“WTI”) prices increasing to over $123 per barrel. Prices dropped below $80 per barrel in late November 2022 and remained under $80 per barrel for the majority of December 2022 before ending the year at slightly above $80 per barrel.
Added
Year Ended December 31, 2023 2022 2021 WTI Oil Price ($/bbl) (1) $ 77.58 $ 94.90 $ 68.14 Natural Gas Price ($/MMBtu) (2) $ 2.53 $ 6.45 $ 3.89 U.S. Land Drilling Rigs (3) 667 705 460 (1) U.S. Energy Information Administration (“EIA”) Cushing, OK WTI (“West Texas Intermediate”) spot price per barrel of crude oil.
Removed
Oil prices dropped below $80 several days in early 2023, but remained above $73 per barrel and averaged approximately $78 per barrel through February 24, 2023. In mid-February 2023, the International Energy Agency raised its forecast for global crude oil demand for 2023, raising the projection for 2023 to two million barrels per day above 2022.
Added
(2) EIA Henry Hub Natural Gas spot price per million British Thermal Unit (“MMBtu”). (3) Baker Hughes. After seeing a recovery in industry activity in 2022, onshore drilling and completion activity levels steadily declined throughout 2023.
Removed
Prices for natural gas were elevated, but also volatile, throughout 2022 in the United States due to several factors including higher demand for heating due to a colder winter early in the year, a nationwide heat wave during the summer and record-high liquified natural gas (“LNG”) exports due to a rise in global LNG demand.
Added
The average number of U.S. land drilling rigs for 2023 decreased by 5% from 2022, with the number of rigs as of the end of 2023 at 602 rigs compared to 762 as of the end of 2022 and 570 as of the end of 2021.
Removed
Henry Hub natural gas spot prices increased from an average of $3.76 per one million British Thermal Units (“MMBtu”) in December 2021 to an average high of $8.14 per MMBtu in May 2022 to an average of $5.53 per MMBtu in December 2022.
Added
Oil prices declined throughout 2023 and continued to be relatively volatile, with WTI remaining above $66 per barrel all year. Natural gas prices declined approximately 60% in 2023 from 2022 primarily due to persistently high inventory levels with prices averaging $2.53 per MMBtu in 2023 compared to $6.45 per MMBtu in 2022.
Removed
Natural gas prices began to moderate toward the end of 2022 primarily due to increased levels of domestic production, the shutdown of a large LNG export facility and relatively mild winter weather in Europe, which have driven inventories in underground storage to levels in-line with the five-year average from levels below the five-year average.
Added
Our results of operations are evaluated by the Chief Executive Officer on a consolidated basis as well as at the segment level.
Removed
These impacts continued into early 2023, with natural gas prices declining to an average of $3.27 per MMBtu for January 2023 down even further to $2.07 per MMBtu on February 24, 2023.
Added
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.
Removed
Federal Reserve to combat inflation could further increase the probability of a recession. Notwithstanding the significant commodity price volatility in 2022, U.S. onshore drilling activity increased meaningfully during the year. At the end of 2022, the U.S. onshore rig count as reported by Baker Hughes was 762 rigs as compared to 570 at the end of 2021.
Added
The Company has recast the information for fiscal year 2022 and 2021 to align with the presentation for the year ended December 31, 2023. 26 Table of Contents Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The following table presents summary consolidated operating results for the periods indicated: Year Ended December 31, 2023 2022 $ Change % Change (in thousands) Revenues Pressure Control $ 756,727 $ 688,369 $ 68,358 9.9 % Spoolable Technologies 340,233 — 340,233 nm Total revenues 1,096,960 688,369 408,591 59.4 Operating income Pressure Control 236,934 202,650 34,284 16.9 Spoolable Technologies 62,172 — 62,172 nm Total segment operating income 299,106 202,650 96,456 47.6 Corporate and other expenses (34,740) (27,902) (6,838) 24.5 Total operating income 264,366 174,748 89,618 51.3 Interest income (expense), net (6,480) 3,714 (10,194) nm Other income (expense), net 4,490 (1,910) 6,400 nm Income before income taxes 262,376 176,552 85,824 48.6 Income tax expense 47,536 31,430 16,106 51.2 Net income $ 214,840 $ 145,122 $ 69,718 48.0 % Less: net income attributable to non-controlling interest 45,669 34,948 10,721 30.7 Net income attributable to Cactus Inc. $ 169,171 $ 110,174 $ 58,997 53.5 % nm = not meaningful Pressure Control.
Removed
The weekly average U.S. onshore rig count for the three months ended December 31, 2022 was 757 rigs, a 39% increase as compared to 543 rigs for the comparable period in 2021. U.S. onshore drilling activity has been 25 Table of Contents relatively stable during the first part of 2023.
Added
In addition, increased rental of drilling and completion equipment and field service associated with product and rental revenues also increased as a result of higher customer activity. Operating income of $236.9 million in 2023 increased $34.3 million, or 17%, from $202.7 million in 2022.
Removed
As of February 24, 2023, the U.S. onshore rig count was 734, reflecting weakening natural gas prices in early 2023.
Added
The increase was primarily attributable to higher gross margins during the period and increased volume partially offset by higher segment selling, general and administrative (“SG&A”) expenses. The increase in SG&A expenses primarily related to higher bad debt expense, travel and entertainment expenses, professional fees and hardware and software expenses. Spoolable Technologies.
Removed
Inflation and Increased Costs Supply chain disruptions, geopolitical issues, increased money supply and significantly increased demand for goods and services worldwide resulted in substantial increases in the cost of fuel, raw materials, component parts, ocean freight charges and labor in 2022. Inflation, measured by the U.S. Consumer Price Index (“CPI”) as reported by the U.S.
Added
Spoolable Technologies revenue of $340.2 million and operating income of $62.2 million represents FlexSteel results generated from February 28, 2023, the date of acquisition, through December 31, 2023.
Removed
Bureau of Labor Statistics, increased substantially during 2022, rising to an average of 8.0% on a year-over-year basis in 2022 from an average of 4.7% on a year-over-year basis in 2021.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+0 added−1 removed1 unchanged
In order to provide a hedge against currency fluctuations on the U.S. dollar denominated assets and liabilities held by our foreign subsidiaries, we enter into monthly foreign currency forward contracts (balance sheet hedges) to offset a portion of the remeasurement gain or loss recorded.
In order to provide a hedge against currency fluctuations on the U.S. dollar denominated assets and liabilities held by certain of our foreign subsidiaries, we enter into monthly foreign currency forward contracts (balance sheet hedges) to offset a portion of the remeasurement gain or loss recorded.
As of December 31, 2022, if the U.S. dollar strengthened or weakened 5%, the impact to the unrealized value of our forward contracts would be approximately $0.5 million. The gain or loss on the forward contracts would be largely offset by the gain or loss on the underlying transactions, and therefore, would have minimal impact on future earnings.
As of December 31, 2023, if the U.S. dollar strengthened or weakened 5%, the impact to the unrealized value of our forward contracts would be approximately $0.9 million. The gain or loss on the forward contracts would be largely offset by the gain or loss on the underlying transactions, and therefore, would have minimal impact on future earnings.
Since this is not the functional currency of our subsidiaries in China and Australia, the changes in these balances are translated in our Consolidated Statements of Income, resulting in the recognition of a remeasurement gain or loss.
Since this is not the functional currency of our foreign subsidiaries, the changes in these balances are translated in our Consolidated Statements of Income, resulting in the recognition of a remeasurement gain or loss.
Foreign Currency Exchange Rate Risk We have subsidiaries with operations in China and Australia who conduct business in their local currencies (functional currencies) and are therefore subject to foreign currency exchange rate risk on cash flows related to sales, expenses, financing and investing transactions in currencies other than the U.S. dollar.
Quantitative and Qualitative Disclosures about Market Risk In the normal course of business, we are exposed to market risk from changes in foreign currency exchange rates and changes in interest rates. 33 Table of Contents Foreign Currency Exchange Rate Risk We have subsidiaries with operations in China, Australia and Canada who conduct business in their local currencies (functional currencies) and are therefore subject to foreign currency exchange rate risk on cash flows related to sales, expenses, financing and investing transactions in currencies other than the U.S. dollar.
Interest Rate Risk Our Amended ABL Credit Facility is variable rate debt. At December 31, 2022, although there were no borrowings outstanding, the applicable margin on Term Benchmark borrowings was 1.25% plus the base rate of one, three or six month SOFR plus 0.10%, subject to a floor rate of 0%. 31 Table of Contents
Interest Rate Risk Our Amended ABL Credit Facility is variable rate debt. At December 31, 2023, there were no borrowings outstanding. Borrowings under our Amended ABL Credit Facility bear interest at Cactus Company’s option at either the Alternate Base Rate (as defined therein) or the Adjusted Term SOFR Rate (as defined therein), plus, in each case, an applicable margin.
Removed
Item 7A. Quantitative and Qualitative Disclosures about Market Risk In the normal course of business, we are exposed to market risk from changes in foreign currency exchange rates and changes in interest rates.

Other WHD 10-K year-over-year comparisons