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Related Party Transactions
 12 Months Ended
Dec. 31, 2024
Related Party Transactions [Abstract]  
Related Party Transactions Related Party Transactions
On February 2, 2022, the Company entered into the Initial ProFrac Agreement, upon issuance of $10 million in aggregate principal amount of the convertible notes (the “Contract Consideration Convertible Notes Payable”) to ProFrac Holdings LLC (see Note 9, “Debt and Convertible Notes Payable”). Under the Initial ProFrac Agreement, ProFrac Services, LLC was obligated to order chemicals from the Company at least equal to the greater of (a) the chemicals required for 33% of ProFrac Services, LLC’s hydraulic fracturing fleets and (b) a baseline measured by the first ten hydraulic fracturing fleets deployed by ProFrac Services, LLC during the term of the Initial ProFrac Agreement. If the minimum volumes are not achieved in any given year, ProFrac Services LLC is required to pay to the Company, as liquidated damages an amount equal to twenty-five percent (25%) of the difference between (i) the aggregate purchase price of the quantity of products comprising the minimum purchase obligation and (ii) the actual purchased volume during such calendar year (“Contract Shortfall Fees”).
On May 17, 2022, the Company entered into the Amended ProFrac Agreement upon issuance of $50 million in aggregate principal amount of Contract Consideration Convertible Notes Payable (see Note 9, “Debt and Convertible Notes Payable”). The Initial ProFrac Agreement was amended to (a) increase ProFrac Services LLC’s minimum purchase obligation for each year to the greater of 70% of ProFrac Services LLC’s requirements and a baseline measured by ProFrac Services, LLC’s first 30 hydraulic fracturing fleets, and (b) increase the term to 10 years.
On February 2, 2023, the Company entered into another amendment to the ProFrac Agreement (the “Amended ProFrac Agreement No. 2”). The Amended ProFrac Agreement No. 2 has an effective date of January 1, 2023. The ProFrac Agreement was amended to (1) provide a ramp-up period from January 1, 2023 to May 31, 2023 for ProFrac Services, LLC to increase the number of active hydraulic fracturing fleets to 30 fleets, (2) waive any Contract Shortfall Fee payment relating to any potential order shortfall prior to January 1, 2023, (3) add additional fees to certain products, and (4) provide margin increases based on margins with non-ProFrac customers.
During the measurement period for Contract Shortfall Fees of January 1, 2024 through December 31, 2024, the minimum purchase requirements were not met and, as a result, related party revenues for the year ended December 31, 2024 reflect variable consideration for Contract Shortfall Fees of $32.4 million. The measurement period for 2023 was June 1, 2023 through December 31, 2023. Related party revenues for the year ended December 31, 2023 included $20.1 million of Contract Shortfall Fees.
During the years ended December 31, 2024 and 2023, the Company’s revenues from ProFrac Services, LLC were $115.8 million and $121.5 million, respectively. For the years ended December 31, 2024 and 2023, these revenues were net of amortization of contract assets of $5.6 million and $5.0 million, respectively. Cost of sales attributable to these revenues were $80.4 million and $99.3 million, respectively, for the years ended December 31, 2024 and 2023.
As of December 31, 2024 and December 31, 2023 our accounts receivable from ProFrac Services, LLC was $52.4 million and $34.6 million, respectively, which is recorded in accounts receivable, related party on the consolidated balance sheets.
Also during 2023, we entered into the following related party transactions with ProFrac Holdings, LLC and ProFrac Holdings II, LLC:
•Conversion of Convertible Notes Payable (see Note 9, “Debt and Convertible Notes Payable”)
•Conversion of Contract Consideration Notes Payable (see Note 9, “Debt and Convertible Notes Payable”)
•Exercise of February 2023 Warrants (see Note 9, “Debt and Convertible Notes Payable” and Note 13, “Stockholders’ Equity”)
•Pre-Funded Warrants (see Note 13, “Stockholders’ Equity)
As a result of the above related party transactions, ProFrac Holdings, LLC or its affiliates owns approximately 51% of the Company’s common stock as of December 31, 2024.