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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

OR

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.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

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.

 

 

 

 

 


 

Table of Contents

 

 

 

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

 

 

 

i


Table of Contents

 

 

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