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Organization and Nature of Operations | 9 Months Ended
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Sep. 30, 2018
Organization and Nature of Operations |
Organization and Operations | 1. Organization and Nature of Operations Description of Business Cactus, Inc. (“Cactus Inc.”) and its consolidated subsidiaries, including Cactus Wellhead, LLC (“Cactus LLC”) are primarily engaged in the design, manufacture and sale of wellhead and pressure control equipment. In addition, we maintain a fleet of frac valves and ancillary equipment for short-term rental, as well as offer repair and refurbishment services and the provision of service crews to assist in the installation and operations of pressure control systems. We operate through 15 U.S. service centers located in Texas, Oklahoma, New Mexico, Louisiana, Pennsylvania, North Dakota, Wyoming and Colorado, and one service center in Eastern Australia, with our corporate headquarters located in Houston, Texas. 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. Cactus LLC is a Delaware limited liability company and was formed on July 11, 2011. Except as otherwise indicated or required by the context, all references to “Cactus,” “we,” “us” and “our” refer to Cactus Inc. and its consolidated subsidiaries (including Cactus LLC) following the completion of our initial public offering and Cactus LLC and its consolidated subsidiaries prior to the completion of our initial public offering. Initial Public Offering On February 12, 2018, we completed the initial public offering of 23,000,000 shares of Class A common stock (our “IPO”), par value $0.01 per share, at a price to the public of $19.00 per share. We received net proceeds of $408.0 million after deducting underwriting discounts and commissions and $2.8 million in 2018 offering expenses of our IPO. We also paid $2.2 million in offering expenses during 2017 that were recorded to prepaid expenses in the consolidated balance sheet as of December 31, 2017. On February 14, 2018, we completed the sale of an additional 3,450,000 shares of Class A common stock pursuant to the exercise in full by the underwriters of their option to purchase additional shares of Class A common stock (the “Option”), from which we received an additional $61.6 million of net proceeds after deducting underwriting discounts and commissions. We contributed all of the net proceeds of our IPO (including from the Option) to Cactus LLC in exchange for units in Cactus LLC (“CW Units”). Cactus Inc. is a holding company who is the sole managing member of Cactus LLC. Cactus LLC used the total $469.6 million of net proceeds (including net proceeds from the Option) to (i) repay all of the borrowings outstanding under its term loan facility, including accrued interest, of $251.0 million and (ii) redeem $216.4 million of CW Units from certain direct and indirect owners of Cactus LLC. The remaining $2.2 million was held by Cactus LLC to cover previously paid offering expenses in 2017. As the sole managing member of Cactus LLC, Cactus Inc. operates and controls all of the business and affairs of Cactus LLC, and conducts its business through Cactus LLC and its subsidiaries. As a result, Cactus Inc. consolidates the financial results of Cactus LLC and its subsidiaries and reports non-controlling interest related to the portion of CW Units not owned by Cactus Inc., which reduces net income attributable to Cactus Inc.’s Class A stockholders. As of September 30, 2018, Cactus Inc. owned 50.3% of Cactus LLC. Tax Receivable Agreement In connection with our IPO, we entered into a tax receivable agreement (the “TRA”) with certain direct and indirect owners of CW Units (the “TRA Holders”). The TRA generally provides for the payment by Cactus Inc. to the TRA Holders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax or franchise tax that Cactus Inc. actually realizes or is deemed to realize in certain circumstances. Cactus Inc. will retain the benefit of the remaining 15% of these net cash savings. See Note 2 for further details of the TRA. Reorganization In connection with our IPO, we completed a series of reorganization transactions (the “Reorganization”), including the following:
| (a) |  | all of the membership interests in Cactus LLC were converted into a single class of CW Units;
| (b) |  | Cactus Inc. contributed the net proceeds of our IPO to Cactus LLC in exchange for 23,000,000 CW Units;
| (c) |  | Cactus LLC used the net proceeds of our IPO that it received from Cactus Inc. to repay the borrowings outstanding, plus accrued interest, under its term loan facility and to redeem 8,667,841 CW Units from the owners thereof;
| (d) |  | Cactus Inc. issued and contributed a total of 51,889,772 shares of its Class B common stock, par value $0.01 per share, equal to the number of outstanding CW Units held by the owners thereof following the redemption described in (c) above to Cactus LLC (the Class B common stock has no economic interest and does not share in cash dividends or liquidation rights, but entitles its holders to one vote on all matters to be voted on by Cactus’ shareholders generally);
| (e) |  | Cactus LLC distributed to each of the owners that continued to own CW Units following our IPO one share of Class B common stock for each CW Unit such owner held following the redemption described in (c) above;
| (f) |  | Cactus Inc. contributed the net proceeds from the exercise of the Option to Cactus LLC in return for 3,450,000 additional CW Units, and
| (g) |  | Cactus LLC used the net proceeds from the Option to redeem 3,450,000 CW Units from the owners thereof, and Cactus Inc. canceled a corresponding number of shares of Class B common stock.
Other IPO related items In conjunction with our IPO, we also: (a)wrote off $2.2 million of prepaid IPO costs incurred in 2017 as a reduction of additional paid-in capital; (b)wrote off $4.3 million in unamortized debt discount and deferred loan costs related to the repayment of the term loan; (c)issued 737,493 shares of restricted stock units and began recording stock-based compensation; (d)recorded a deferred tax asset of $74.1 million related to the step-up in basis, a liability from the TRA (defined above) of $63.0 million representing 85% of the expected net cash tax savings from the step-up in basis that will be paid to TRA Holders, and recorded $11.1 million as additional paid-in capital; (e)reset the previous accumulated deficit in Cactus LLC to zero; and (f)recorded $130.9 million of non-controlling interest representing the portion of CW Units not owned by Cactus Inc. Prior to our IPO, on January 25, 2018, Cactus LLC paid a cash distribution of $26.0 million to pre-IPO owners. This distribution was funded by borrowing under a revolving credit facility. The purpose of the distribution was to provide funds to these owners to pay their federal and state tax liabilities associated with taxable income recognized by them for periods prior to the completion of our IPO as a result of their ownership interests in Cactus LLC. The borrowings under this revolving credit facility were repaid during the first quarter of 2018. Follow-on Offering On July 16, 2018, we completed a public offering of 11,196,562 shares (consisting of 10,000,000 base shares and 1,196,562 shares sold pursuant to the underwriters’ option to purchase additional shares) of Class A common stock (the “Follow-on Offering”) at $33.25 per share and received $359.3 million of net proceeds after deducting underwriting discounts. Cactus Inc. contributed these net proceeds to Cactus LLC in exchange for CW Units. Cactus LLC then used the net proceeds to redeem 11,196,562 CW Units from certain of the other owners of Cactus LLC, and Cactus Inc. canceled corresponding shares of Class B common stock. In conjunction with the redemption of these CW Units, we recorded a deferred tax asset of $116.2 million related to the step-up in basis, a liability from the TRA of $98.8 million representing 85% of the expected net cash savings from the step-up in basis that will be paid to TRA Holders and recorded $17.4 million as additional paid-in capital. Offering expenses related to the Follow-on Offering were $0.7 million, which were recorded within equity, and were borne by Cactus Inc. In conjunction with the Follow-on Offering and the additional ownership Cactus Inc. acquired in Cactus LLC, $25.2 million of equity was reclassified to Cactus Inc. from non-controlling interest representing the additional CW Units acquired and $0.1 million related to the cancelation of Class B common stock. After these transactions and as of September 30, 2018, Cactus Inc. has outstanding 37,646,562 shares of Class A common stock (representing 50.3% of the total voting power) and 37,243,210 shares of Class B common stock (representing 49.7% of the total voting power). There was no change in the total aggregate number of shares of Class A common stock and Class B common stock outstanding of 74,889,772 following the completion of the Follow-on Offering.

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