pfhc-10q_20220930.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022

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

For the transition period from to

Commission File Number: 001-41388

ProFrac Holding Corp.

(Exact Name of Registrant as Specified in its Charter)

Delaware	87-2424964
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
333 Shops Boulevard, Suite 301 Willow Park, Texas	76087
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (254) 776-3722

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.01 per share

ACDC

The Nasdaq Global Select Market

Warrants, each 124.777 warrants exercisable for one share of Class A common stock at an exercise price of $717.47 per share

ACDCW

The Nasdaq Global Select Market

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

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

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

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

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

At November 8, 2022, the registrant had 53,958,894 shares of Class A common stock, $0.01 par value per share, and 101,133,201 shares of Class B common stock, $0.01 par value per share, outstanding.

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		Page
	Cautionary Statement Regarding Forward-Looking Statements	1
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	5
	Consolidated Statements of Comprehensive Income (Loss)	6
	Consolidated Statements of Changes in Equity	7
	Consolidated Statements of Cash Flows	10
	Notes to Unaudited Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 4.	Controls and Procedures	56
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	59
Signatures		61

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Cautionary statement regarding forward-looking statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) about us and our industry that involve substantial risks and uncertainties. Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include the words “may,” “could,” “plan,” “project,” “budget,” “predict,” “pursue,” “target,” “seek,” “objective,” “believe,” “expect,” “anticipate,” “intend,” “estimate,” or similar expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. Our forward-looking statements include statements about our business strategy, our industry, our future profitability, our expected capital expenditures and the impact of such expenditures on our performance, the costs of being a publicly traded corporation and our capital programs.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:

•	our ability to finance, consummate, integrate and realize the benefits expected from our recently completed and potential acquisitions, including any related synergies;

•	uncertainty regarding the timing, pace and extent of an economic recovery in the United States and elsewhere, which in turn will likely affect demand for crude oil and natural gas and therefore the demand for our services;

•	the level of production of crude oil, natural gas and other hydrocarbons and the resultant market prices of crude oil, natural gas, natural gas liquids and other hydrocarbons;

•

the severity and duration of world health events, including the outbreak of the COVID-19 pandemic, related economic repercussions and the resulting severe disruption in the oil and gas industry and negative impact on demand for oil and gas, which has and may continue to negatively impact our business;

•	a further decline or future decline in domestic spending by the onshore oil and natural gas industry;

•	actions by members of the Organization of Petroleum Exporting Countries, Russia and other oil-producing countries with respect to oil production levels and announcements of potential changes in such levels;

•	the political environment in oil and natural gas producing regions, including uncertainty or instability resulting from civil disorder, terrorism or war, such as the recent conflict between Russia and Ukraine, which may negatively impact our operating results;

•	changes in general economic and geopolitical conditions;

•	competitive conditions in our industry;

•	changes in the long-term supply of and demand for oil and natural gas;

•	actions taken by our customers, competitors and third-party operators;

•	a decline in demand for proppant;

•	our ability to obtain permits, approvals and authorizations from governmental and third parties, and the effects of or changes to U.S. government regulation;

•	changes in the availability and cost of capital;

•	our ability to successfully implement our business plan;

•	large or multiple customer defaults, including defaults resulting from actual or potential insolvencies;

•	the effects of consolidation on our customers or competitors;

•	the price and availability of debt and equity financing (including changes in interest rates);

•	our ability to complete growth projects on time and on budget;

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•	introduction of new drilling or completion techniques, or services using new technologies subject to patent or other intellectual property protections;

•	operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control;

•	acts of terrorism, war or political or civil unrest in the United States or elsewhere;

•	loss or corruption of our information or a cyberattack on our computer systems;

•	the price and availability of alternative fuels and energy sources;

•	federal, state and local regulation of hydraulic fracturing and other oilfield service activities, as well as exploration and production activities, including public pressure on governmental bodies and regulatory agencies to regulate our industry;

•	the availability of water resources, suitable proppant and chemicals in sufficient quantities for use in hydraulic fracturing fluids;

•	the effects of existing and future laws and governmental regulations (or the interpretation thereof) on us and our customers;

•	the effects of future litigation; and

•	other factors discussed in this report.

You should not place undue reliance on our forward-looking statements. Although forward-looking statements reflect our good faith beliefs at the time they are made, forward-looking statements involve known and unknown risks, uncertainties and other factors, including the factors described in Part II, Item 1A of this Quarterly Report on Form 10-Q, the risk factors disclosed under the heading “Risk Factors” in the “Risk Factors” in our prospectus, dated May 12, 2022, filed with the Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b) under the Securities Act on May 16, 2022 in connection with our initial public offering, the factors described under the heading “Risk Factors” in our prospectus, dated August 8, 2022, filed with the SEC pursuant to Rule 424(b) under the Securities Act on August 8, 2022, in connection with the resale of our Class A common stock by the selling shareholders named therein, the factors described under the heading “Risk Factors” in our quarterly report on Form 10-Q for the quarter ended June 30, 2022, and the factors described under the heading “Risk Factors” in the proxy statement/information statement/prospectus included in the registration statement on Form S-4 filed with the SEC on August 30, 2022, as amended by Amendment No. 1 to such registration statement filed with the SEC on September 22, 2022, in connection with our acquisition of U.S. Well Services, Inc., any of which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements.

The risks included above and in this report and in our other filings with the SEC are not exhaustive. Except as required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any such forward-looking statement is based. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ProFrac Holding Corp.

Consolidated balance sheets

(Unaudited)

(In thousands)	September 30, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	64,678		$	5,376
Accounts receivable, net		501,337			161,632
Accounts receivable—related party		4,510			4,515
Prepaid expenses, and other current assets		25,065			6,213
Assets held for sale		1,805			—
Inventories		238,794			73,942
Total current assets		836,189			251,678
Property, plant, and equipment		1,454,010			827,865
Accumulated depreciation and depletion		(632,801	)		(464,178	)
Property, plant, and equipment, net		821,209			363,687
Operating lease right-of-use assets		78,569			—
Deferred tax assets		2,033			—
Investments		56,753			4,244
Intangible assets, net		34,930			27,816
Goodwill		97,573			—
Other assets		52,028			17,145
Total assets	$	1,979,284		$	664,570

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

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ProFrac Holding Corp.

Consolidated balance sheets

(Unaudited)

(In thousands)	September 30, 2022			December 31, 2021
Liabilities, redeemable noncontrollable interest, and stockholders' and members' (deficit) equity
Current liabilities:
Accounts payable	$	209,537		$	121,070
Accounts payable—related party		34,911			21,275
Current portion of operating lease liabilities		9,532			—
Accrued expenses		194,321			38,149
Other current liabilities		36,446			34,400
Current portion of long-term debt		60,541			31,793
Total current liabilities		545,288			246,687
Long-term debt		484,228			235,128
Long-term debt—related party		—			34,645
Operating lease liabilities		73,180			—
Other liabilities		17,320			—
Total liabilities		1,120,016			516,460
Commitments and contingencies (Note 17)
Redeemable noncontrolling interest		1,644,426			—
Stockholders' and members' equity
Members' equity		—			147,015
Preferred stock, $0.01 par value, 50,000,000 authorized, none issued and outstanding
Class A common stock, $0.01 par value, 600,000,000 authorized, 41,239,957 issued and outstanding at September 30, 2022 and none issued and outstanding at December 31, 2021		412			—
Class B common stock, $0.01 par value, 400,000,000 authorized, 101,133,201 issued and outstanding at September 30, 2022 and none issued and outstanding at December 31, 2021		1,011			—
Additional paid-in capital		—			—
Accumulated deficit		(868,409	)		—
Accumulated other comprehensive (loss) income		9			56
Total stockholders' and members' (deficit) equity attributable to ProFrac Holding Corp.		(866,977	)		147,071
Noncontrolling interests		81,819			1,039
Total stockholders' and members' (deficit) equity		(785,158	)		148,110
Total liabilities, redeemable noncontrollable interest, and stockholders' and members' (deficit) equity	$	1,979,284		$	664,570

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

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ProFrac Holding Corp.

Consolidated statements of operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2022			2021			2022			2021
Revenues	$	696,730		$	195,931		$	1,631,554		$	520,336
Operating costs and expenses:
Cost of revenues, exclusive of depreciation, depletion and amortization		388,068			144,163			961,267			389,177
Depreciation, depletion and amortization		68,758			35,241			177,038			105,606
Loss on disposal of assets, net		667			3,397			2,656			7,472
Selling, general, and administrative		70,287			20,047			191,962			47,919
Total operating costs and expenses		527,780			202,848			1,332,923			550,174
Operating income (loss)		168,950			(6,917	)		298,631			(29,838	)
Other (expense) income:
Interest expense, net		(16,261	)		(6,896	)		(38,984	)		(19,118	)
Loss on extinguishment of debt		(242	)		—			(17,337	)		—
Other (expense) income, net		(928	)		(92	)		8,292			148
Income (loss) before income tax provision		151,519			(13,905	)		250,602			(48,808	)
Income tax (provision) benefit		(8,157	)		(170	)		(13,021	)		138
Net income (loss)		143,362			(14,075	)		237,581			(48,670	)
Less: net (income) loss attributable to ProFrac Predecessor		—			14,033			(79,867	)		48,509
Less: net loss attributable to noncontrolling interests		11,751			42			20,039			161
Less: net income attributable to redeemable noncontrolling interests		(110,183	)		—			(126,265	)		—
Net income attributable to ProFrac Holding Corp.	$	44,930		$	—		$	51,488		$	—
Basic and diluted earnings per Class A share	$	1.09					$	1.26
Weighted average shares used in computing basic earnings per Class A share		41,239						40,846
Weighted average shares used in computing diluted earnings per Class A share		41,349						40,927

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

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ProFrac Holding Corp.

Consolidated statements of comprehensive income (loss)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2022			2021			2022			2021
Net income (loss)	$	143,362		$	(14,075	)	$	237,581		$	(48,670	)
Foreign currency translation adjustments		207			45			84			55
Comprehensive income (loss)		143,569			(14,030	)		237,665			(48,615	)
Less: comprehensive (income) loss attributable to ProFrac Predecessor		—			14,002			(79,765	)		48,468
Less: comprehensive loss attributable to noncontrolling interest		11,699			28			20,018			147
Less: comprehensive income attributable to redeemable noncontrolling interest		(110,293	)		—			(126,375	)		—
Comprehensive income attributable to ProFrac Holding Corp.	$	44,975		$	—		$	51,543		$	—

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

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ProFrac Holding Corp.

Consolidated statements of changes in equity

(Unaudited)

	Members'			Class A Common Stock				Class B Common Stock				Additional Paid		Retained		Accumulated Other Comprehensive			Noncontrolling			Total Equity
(In thousands)	Equity			Shares		Amount		Shares		Amount		in Capital		Earnings		Income (Loss)			Interests			(Deficit)
Balance, January 1, 2022	$	147,015			—	$	—		—	$	—	$	—	$	—	$	56		$	1,039		$	148,110
Net income		23,710			—		—		—		—		—		—		—			416			24,126
Member contributions		5,000			—		—		—		—		—		—		—			—			5,000
Deemed distribution		(3,664	)		—		—		—		—		—		—		—			—			(3,664	)
THRC related equity		72,931			—		—		—		—		—		—		—			—			72,931
Foreign currency translation		—			—		—		—		—		—		—		(102	)		(34	)		(136	)
Balance, March 31, 2022	$	244,992			—	$	—		—	$	—	$	—	$	—	$	(46	)	$	1,421		$	246,367
Net income prior to corporate reorganization		56,157			—		—		—		—		—		—		—			(46	)		56,111
Issuance of Class A shares in IPO		—			18,228		182		—		—		227,548		—		—			—			227,730
Issuance of Class B shares		—			—		—		101,133		1,011