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Related Party Transactions
 3 Months Ended
Mar. 31, 2025
Related Party Transactions [Abstract]  
Related Party Transactions Related Party Transactions
On February 2, 2022, the Company entered into a long-term supply agreement with ProFrac Services, LLC (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. 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 an amendment to the Initial ProFrac Agreement (the “Amended ProFrac Agreement”) upon issuance of $50 million in aggregate principal amount of Contract Consideration 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 Initial ProFrac Agreement (the “Amended ProFrac Agreement No. 2” and together with the Initial ProFrac Agreement and the Amended ProFrac Agreement, the “ProFrac Agreement”). The Amended ProFrac Agreement No. 2 has an effective date of January 1, 2023. The Initial ProFrac Agreement was further 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.
The current measurement period for Contract Shortfall Fees is January 1, 2025 through December 31, 2025. The Company does not expect that the minimum purchase requirements will be met during the current measurement period, and as a result, related party revenues for the three months ended March 31, 2025 reflect variable consideration for Contract Shortfall Fees of $7.5 million, which will be due in the first quarter of 2026 under the terms of the ProFrac Agreement. The measurement period for 2024 was January 1, 2024 through December 31, 2024. Related party revenues for the three months ended March 31, 2024 included $8.7 million of Contract Shortfall Fees.
During the three months ended March 31, 2025 and 2024, the Company’s revenues from ProFrac Services, LLC were $30.9 million and $27.2 million, respectively. For the three months ended March 31, 2025 and 2024, these revenues were net of amortization of contract assets of $1.5 million and $1.3 million, respectively. Cost of sales attributable to these revenues were $21.3 million and $18.6 million, respectively, for the three months ended March 31, 2025 and 2024.
As of March 31, 2025 and December 31, 2024 our accounts receivable from ProFrac Services, LLC was $48.2 million and $52.4 million, respectively, which is recorded in accounts receivable, related party on the consolidated balance sheets.
Also during 2023, the Company entered into various related party transactions with ProFrac Holdings, LLC and ProFrac Holdings II, LLC as described in Note 16, “Related Party Transactions” to the consolidated financial statements from the 2024 Annual Report. As a result of these related party transactions, ProFrac Holdings, LLC or its affiliates owns approximately 51% of the Company’s common stock as of March 31, 2025.