ProFrac Holding Corp. General form of registration statement for all companies including face-amount certificate companies

General form of registration statement for all companies including face-amount certificate companies

Related party transactions

Related party transactions

3 Months Ended

12 Months Ended

Mar. 31, 2022

Dec. 31, 2021

Related party transactions

10. Related party transactions

In the normal course of business, the ProFrac Predecessor has entered into transactions with related parties where the Wilks (or entities they control) hold a controlling financial interest. During the three months ended March 31, 2022 and 2021, the ProFrac Predecessor had related party transactions with the following related party entities

Automatize, LLC (“Automatize”) is a logistics company that provides for the delivery of proppants on behalf of its customers, including the ProFrac Predecessor. Amounts paid to Automatize are recorded in cost of revenues, exclusive of depreciation and depletion on our consolidated statements of operations.

Equify Risk Services, LLC (“Equify Risk”) is an insurance broker that negotiates and secures insurance policies on behalf of its customers, including the ProFrac Predecessor. Amounts paid to Equify Risk are recorded in selling, general and administrative expenses on 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 ProFrac Predecessor. Amounts paid to Equify Financial are recorded in interest expenses on our consolidated statements of operations, and repayments of long-term debt on our consolidated statements of cash flows. See Note 7—Indebtedness 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 their portfolio. Wilks Brothers and certain entities under its control will at times incur expenses on behalf of the ProFrac Predecessor, billing the ProFrac Predecessor 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 on our consolidated statements of operations.

Interstate Explorations, LLC (“Interstate”) is an exploration and development company for which ProFrac LLC performs pressure pumping services, and from which the Company has a short-term lease for certain office space.

Flying A Pump Services, LLC (“Flying A”) is an oilfield services company which provides pump down and acid services, to which ProFrac LLC rents and sells equipment and frac fleet components.

MC Estates, LLC and the Shops at Willow Park, LLC (“Related Lessors”) own various industrial parks and office space leased by the ProFrac Predecessor. Amounts paid to Related Lessors are recorded in selling, general and administrative expenses on 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 the Company, including construction of a new sand plant. Amounts paid to Wilks Construction are recorded in capital expenditures on 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 the ProFrac Predecessor. Amounts paid to 3 Twenty-Three are recorded in cost of revenues, exclusive of depreciation and depletion and selling, general and administrative expenses on our consolidated statements of operations.

Carbo Ceramics Inc. (“Carbo”) is a provider of ceramic proppant which will at times purchase conventional proppant from the Company to act as a broker for its customers. Additionally, the Company will at times purchase manufactured proppant from Carbo for the stimulation services segment.

FHE (“FHE”) is a provider of production and well completion equipment used at the wellsite. Its RigLock and FracLock systems remotely connect surface equipment to the wellhead that keeps crews safer and speeds up operations while also reducing the volume of high-pressure iron. Amounts paid to FHE are recorded in capital expenditures on our consolidated statements of cash flows.

The following table summarizes expenditures with related parties for the three months ended March 31, 2022 and 2021:



	Three Months ended March 31,
(In thousands)	2022		2021
Automatize	$	14,275	$	12,756
FHE		3,250		—
Wilks Brothers		257		2,554
Related Lessors		1,223		1,538
Wilks Construction		941		—
Equify Financial		685		—
3 Twenty-Three		247		—
Carbo		—		353
Cisco Logistics		—		264
Interstate		20		8
Equify Risk		—		3
Other		38		10

Total	$	20,936	$	17,486

The following table summarizes related party accounts payable as of March 31, 2022 and December 31, 2021:



	March 31,		December 31,
(In thousands)	2022		2021
Automatize	$	10,125	$	11,198
Wilks Brothers		8,632		9,990
Wilks Construction		707		57
Carbo		28		10
Related Lessors		37		1
Other		24		19

Total	$	19,553	$	21,275

The following table summarizes revenue from related parties for the years ended March 31, 2022 and 2021:



	Three Months ended March 31,
(In thousands)	2022		2021
Flying A	$	1,372	$	951
Carbo		249		20
Wilks Brothers		1		(2	)
Other		—		9

Total	$	1,622	$	978

The following table summarizes related party accounts receivable as of March 31, 2022 and December 31, 2021:



	March 31,		December 31,
(In thousands)	2022		2021
Flying A	$	1,528	$	2,412
Cisco Logistics		1,493		1,489
Carbo		193		591
Other		182		23

Total	$	3,396	$	4,515

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 will reimburse the member for a certain percentage of the net loss, or conversely be entitled to a certain percentage of the net gain, at rates established in the agreements. As of March 31, 2022, the majority of the assets have been sold by the member, and ProFrac LLC’s remaining liability of approximately $0.2 million for assets that have not been resold has been recorded.

On February 4, 2022, THRC Holdings entered into a Rights Agreement with Encantor Properties LP, one of the sellers from whom the Company purchased the Munger Ranch property, under which the related party was assigned rights to $8.1 million of the $30.0 million in consideration related to the Munger purchase. As part of the IPO completed in May 2022, the sellers of Munger Ranch were issued 2,114,273 shares of Class A Common Stock in exchange for the $30.0 million consideration related to the Munger Ranch purchase. See Note 15 – Subsequent Events.

7. Related party transactions

In the normal course of business, the ProFrac Predecessor has entered into transactions with related parties where the Wilks (or entities they control) hold a controlling financial interest. During the years ended December 31, 2021 and 2020, the ProFrac Predecessor had related party transactions with the following related party entities

Cisco Logistics, LLC (“Cisco Logistics”) is a logistics company that delivers sand and equipment on behalf of its customers, including the ProFrac Predecessor. Amounts paid to Cisco Logistics are recorded in cost of revenues, exclusive of depreciation and depletion on our consolidated statements of operations. Additionally, during 2021 the Company incurred costs associated with the refurbishment of certain equipment owned by Cisco Logistics and recorded a receivable of $1.5 million for reimbursement of these expenditures.

Equify Financial, LLC (“Equify Financial”) is a finance company that provides equipment and other financing to its customers, including the ProFrac Predecessor. Amounts paid to Equify Financial are recorded in interest expenses on our consolidated statements of operations, and repayments of long-term debt on our consolidated statements of cash flows. See Note 6—Indebtedness for additional disclosures related to related party credit agreements.

Flying A Pump Services, LLC (“Flying A”) is an oilfield services company which provides pump down and acid services, to which ProFrac LLC rents equipment.

Wilks Construction Company, LLC (“Wilks Construction”) is a construction company that has built and made renovations to several buildings for the Company. Amounts paid to Wilks Construction are recorded in capital expenditures on our consolidated statements of cash flows.

The following table summarizes expenditures with related parties for the years ended December 31, 2021 and 2020:



	Year ended December 31,

	2021		2020
Automatize	$	80,521	$	26,226
Wilks Brothers		15,480		16,622
Related Lessors		6,308		6,052
Equify Financial		2,871		2,323
3 Twenty-Three		1,033		1,148
Carbo		513		—
Cisco Logistics		509		4,181
Interstate		80		30
Equify Risk		3		1,602
Wilks Construction		—		107
Other		114		—

Total	$	107,432	$	58,291

The following table summarizes related party accounts payable as of December 31, 2021 and December 31, 2020:



	December 31,		December 31,

	2021		2020
Automatize	$	11,198	$	5,633
Wilks Brothers		9,990		11,993
Wilks Construction		57		57
Carbo		10		—
Related Lessors		1		21
Cisco Logistics		—		671
Equify Financial		—		113
Other		19		—

Total	$	21,275	$	18,488

The following table summarizes revenue from related parties for the years ended December 31, 2021 and 2020:



	Year ended December 31,

	2021		2020
Flying A	$	2,701	$	294
Carbo		1,025		193
Interstate		116		11
Wilks Brothers		65		—
Automatize		3		701
Other		32		84

Total	$	3,942	$	1,283

The following table summarizes related party accounts receivable as of December 31, 2021 and December 31, 2020:



	December 31,		December 31,

	2021		2020
Flying A(1)	$	2,412	$	549
Cisco Logistics		1,489		—
Carbo		591		116
Automatize		—		191
Other		23		24

Total	$	4,515	$	880

(1)

The amounts above are reported net of a related party allowance for doubtful accounts, which was $0.2 million as of December 31, 2021.

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 will reimburse the member for a certain percentage of the net loss, or conversely be entitled to a certain percentage of the net gain, at rates established in the agreements. As of December 31, 2021, the majority of the assets have been sold by the member, and ProFrac LLC’s remaining liability of approximately $0.2 million for assets that have not been resold has been recorded.