Annual report pursuant to Section 13 and 15(d)

Related Party Transactions

v3.24.0.1
Related Party Transactions
 12 Months Ended
Dec. 31, 2023
Related Party Transactions [Abstract]  
Related party transactions

16. RELATED PARTY TRANSACTIONS

In the normal course of business, we have entered into transactions with related parties where the Wilks Parties hold a controlling financial interest. In the three year period ended December 31, 2023, the Company had related party transactions with the following related party entities:

•
Automatize, LLC (“Automatize”) is a logistics broker that facilitates the last-mile delivery of proppants on behalf of its customers, including the Company. Amounts paid to Automatize include costs passed through to third-party trucking companies and a commission retained by Automatize. These payments are recorded in cost of revenues, exclusive of depreciation and depletion in our consolidated statements of operations.
•
Cisco Logistics, LLC (“Cisco Logistics”) is a logistics company that delivers sand and equipment on behalf of its customers, including the Company. Amounts paid to Cisco Logistics are recorded in cost of revenues, exclusive of depreciation and depletion in our consolidated statements of operations.
•
Equify Financial, LLC (“Equify Financial”) is a finance company that provides equipment and other financing to its customers, including the Company. Amounts paid to Equify Financial are recorded in interest expenses in our consolidated statements of operations, and repayments of long-term debt in our consolidated statements of cash flows. See “Note 6 –Debt” for additional disclosures related to related party credit agreements.
•
Wilks Brothers, LLC (“Wilks Brothers”) is a management company which provides administrative support to various businesses within its portfolio. Wilks Brothers and certain entities under its control will at times incur expenses on our behalf, billing us for these expenses at cost as well as certain management fees. Amounts paid to
Wilks Brothers are generally recorded in selling, general and administrative expenses in our consolidated statements of operations.
•
Interstate Explorations, LLC (“Interstate”) is an exploration and development company for which we perform pressure pumping services.
•
Flying A Pump Services, LLC (“Flying A”) is an oilfield services company which provides pressure pumping, acid, and cementing services, to which we rent and sell equipment and frac fleet components.
•
MC Estates, LLC, The Shops at Willow Park, and FTSI Industrial, LLC (collectively, the “Related Lessors”) own various industrial parks and office space leased by us. Amounts paid to the Related Lessors are recorded in selling, general and administrative expenses in our consolidated statements of operations.
•
Wilks Construction Company, LLC (“Wilks Construction”) is a construction company that has built and made renovations to several buildings for us, including construction of a new sand plant in 2022. Amounts paid to Wilks Construction are recorded as capital expenditures in our consolidated statements of cash flows.
•
3 Twenty-Three, LLC (“3 Twenty-Three”) is a payroll administrator which performs payroll services on behalf of its customers, including us. Amounts paid to 3 Twenty-Three are recorded in cost of revenues, exclusive of depreciation and depletion and selling, general and administrative expenses in our consolidated statements of operations.
•
Wilks Earthworks, LLC ("Wilks Earthworks") is an oilfield services company that provides mining, wet and dry loading, hauling and other services and equipment to its customers, including us. These payments are recorded in cost of revenues, exclusive of depreciation and depletion in our consolidated statements of operations.
•
Carbo Ceramics Inc. (“Carbo”) is a provider of ceramic proppant which will at times purchase conventional proppant from us to act as a broker for its customers. Additionally, we will at times purchase manufactured proppant from Carbo for the stimulation services segment.
•
Cisco Aero, LLC (“AERO”) is a private aviation company.
•
FHE USA LLC (“FHE”) is a subsidiary of BPC that provides production and well completion equipment used at the wellsite. Amounts paid to FHE are recorded as capital expenditures.

The following table summarizes revenue from related parties:

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

Flying A

 

$

6.7

 

 

$

3.4

 

 

$

2.7

 

Carbo

 

 

0.7

 

 

 

0.8

 

 

 

1.0

 

Wilks Brothers

 

 

—

 

 

 

—

 

 

 

0.1

 

Interstate

 

 

—

 

 

 

—

 

 

 

0.1

 

Total

 

$

7.4

 

 

$

4.2

 

 

$

3.9

 

The following table summarizes expenditures with related parties:

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

Automatize

 

$

134.0

 

 

$

110.8

 

 

$

80.5

 

FHE

 

 

3.3

 

 

 

14.3

 

 

 

—

 

Wilks Brothers

 

 

19.2

 

 

 

17.0

 

 

 

15.5

 

Related Lessors

 

 

13.2

 

 

 

9.1

 

 

 

6.3

 

Wilks Construction

 

 

6.8

 

 

 

38.9

 

 

 

—

 

Wilks Earthworks

 

 

9.1

 

 

 

—

 

 

 

—

 

Equify Financial

 

 

8.7

 

 

 

1.0

 

 

 

2.9

 

3 Twenty-Three

 

 

1.3

 

 

 

0.3

 

 

 

1.0

 

Carbo

 

 

1.6

 

 

 

1.3

 

 

 

0.5

 

Cisco Logistics

 

 

—

 

 

 

—

 

 

 

0.5

 

Interstate

 

 

—

 

 

 

—

 

 

 

0.1

 

Other

 

 

—

 

 

 

0.4

 

 

 

0.1

 

Total

 

$

197.2

 

 

$

193.1

 

 

$

107.4

 

 

The following table summarizes accounts receivable–related party:

 

 

December 31,

 

 

 

2023

 

 

2022

 

Flying A

 

$

5.9

 

 

$

1.5

 

Carbo

 

 

0.5

 

 

 

0.1

 

Interstate

 

 

0.4

 

 

 

0.3

 

Other

 

 

—

 

 

 

0.2

 

Total accounts receivable — related party

 

$

6.8

 

 

$

2.1

 

The following table summarizes accounts payable–related party:

 

 

December 31,

 

 

 

2023

 

 

2022

 

Automatize

 

$

11.6

 

 

$

8.8

 

Wilks Brothers

 

 

7.8

 

 

 

7.1

 

Wilks Construction

 

 

—

 

 

 

7.9

 

Wilks Earthworks

 

 

1.1

 

 

 

—

 

Related Lessors

 

 

0.1

 

 

 

—

 

Equify

 

 

0.3

 

 

 

—

 

Carbo

 

 

1.0

 

 

 

0.2

 

Total accounts payable — related party

 

$

21.9

 

 

$

24.0

 

Additionally, in January and February of 2021, ProFrac LLC executed two agreements with one of ProFrac LLC’s members for the sale of certain lots of equipment, in exchange for $8.7 million in cash, an amount that approximates the net book value of the assets. Under these agreements, for any assets subsequently resold by the member, ProFrac LLC would reimburse the member for a certain percentage of the net loss, or conversely would be entitled to a certain percentage of the net gain, at rates established in the agreements. As of December 31, 2022, substantially all of the assets have been sold by the member and no adjustment to the consideration paid was necessary.

On February 4, 2022, THRC Holdings entered into a Rights Agreement with Encantar Properties LP, one of the sellers from whom the Company purchased the West Munger property, under which the related party was assigned rights to $8.1 million of the $30.0 million in consideration related to the West Munger Acquisition. In May 2022, as part of the IPO, the sellers of West Munger were issued 2,114,273 shares of Class A Common Stock in exchange for the $30.0 million consideration related to the West Munger Acquisition.

On January 11, 2023, the board of directors of ProFrac Corp. approved the appointment of Mr. Coy Randle, the then Chief Operating Officer of ProFrac Corp., to the board of directors of ProFrac Corp. Additionally, Mr. Randle entered into a consulting agreement with ProFrac Corp., effective as of January 13, 2023, pursuant to which Mr. Randle agreed to provide general operational advice to ProFrac Corp. and its direct and indirect operating subsidiaries for an annual fee of $0.2 million. Pursuant to the consulting agreement, ProFrac Corp. paid healthcare insurance premiums on behalf of Mr. Randle and allowed Mr. Randle to use a Company vehicle for the duration of the consulting agreement. The consulting agreement had a term of one year.

In June 2023, we arranged to sell certain surplus equipment and inventory components and to assign certain pre-orders for equipment to Flying A, at prices which we believe to be fair market value, for a total consideration of $36.3 million. We received the proceeds from this sale in June 2023. Subsequent to June 30, 2023, Flying A requested changes to the mix of the assets being sold to it by the Company without altering the total consideration, and the Company and Flying A agreed to add to the transaction agreement a most favored nation clause on pricing and a condition to closing that the Company’s Audit Committee approve the final mix of assets to be transferred to Flying A. We delivered $28.9 million of these components to Flying A in 2023. We expect to deliver the remaining components to Flying A in the first half of 2024. We accounted for the unapplied proceeds from this transaction as a related party deposit presented as "Other current liabilities - related party" in our consolidated balance sheets.

In September 2023, Robert Willette resigned as our Chief Legal Officer, Chief Compliance Officer, and Corporate Secretary. We entered into a severance agreement with Mr. Willette, pursuant to which, among other things, Mr. Willette received a severance payment of $673 thousand and which contains, among other standard provisions, a general release and waiver of claims against the Company by Mr. Willette.

In September 2023, the Company entered into a purchase agreement with THRC Holdings, LP and FARJO Holdings, LP, pursuant to which the Company issued and sold 50,000 shares of Preferred Stock for gross proceeds of $50.0 million. THRC Holdings, LP and FARJO Holdings, LP are Wilks Parties. See “Note 8 – Preferred Stock” for more information.