ProFrac (US:ACDC)2024-03-14 16:00Operations and Capacity - ProFrac Holding Corp. operates 30 active frac fleets as of January 31, 2024, with 16 Tier IV fleets, 10 Tier II fleets, and 4 electric fleets[15]. - The company has completed six acquisitions since its IPO in 2022, adding approximately 18.7 million tons of annual sand capacity and 13 frac fleets[14]. - ProFrac is the largest producer of in-basin frac sand in the U.S., with approximately 21.5 million tons of annual nameplate capacity across eight frac sand mines[17]. - ProFrac's operations are concentrated in major unconventional oil and gas basins, allowing for a diversified customer base and balanced exposure to public and private E&P companies[16]. - ProFrac's stimulation services segment is one of the largest in the U.S., serving a diversified customer base across various oil and gas reserves[16]. - The company operates in three business segments: stimulation services, proppant production, and manufacturing, focusing on hydraulic fracturing and completion services[223]. Financial Performance - Total revenues for 2023 were $2,630.0 million, an increase of 8.4% compared to $2,425.6 million in 2022[209]. - Operating income for 2023 was $166.6 million, down from $412.4 million in 2022, representing a decline of 59.7%[209]. - Net loss attributable to ProFrac Holding Corp. for 2023 was $97.7 million, compared to a net income of $91.5 million in 2022[209]. - Total current assets decreased to $638.1 million in 2023 from $865.4 million in 2022, a decline of 26.2%[206]. - Total liabilities increased to $1,742.1 million in 2023, up from $1,582.9 million in 2022, reflecting a rise of 10.1%[206]. - Cash and cash equivalents decreased to $25.3 million in 2023 from $35.1 million in 2022, a decrease of 28.0%[206]. - Long-term debt rose to $923.5 million in 2023, compared to $735.0 million in 2022, an increase of 25.6%[206]. - The company reported operating costs and expenses of $2,463.4 million in 2023, up from $2,013.2 million in 2022, an increase of 22.3%[209]. - Earnings per Class A common share for 2023 were $(0.82), compared to $2.06 in 2022[209]. - The company reported a net loss for the period of $101.0 million, compared to a net loss of $97.7 million in the previous period, indicating a 3.3% increase in losses[215]. Acquisitions and Growth Strategy - ProFrac is positioned as an industry consolidator, actively pursuing M&A opportunities to expand its capabilities and scale[14]. - ProFrac acquired Producers Service Holdings LLC for approximately $35.0 million, adding three fleets totaling 200,000 HHP and a 50,000 square foot manufacturing facility[19]. - The acquisition of Performance Proppants was completed for approximately $462.8 million, consisting of $452.4 million in cash and $6.2 million in Class A Common Stock[20]. - The company acquired 100% of Performance Proppants for a total purchase consideration of $462.8 million[187]. - The total purchase consideration for the FTS International acquisition was $405.7 million, with cash consideration of $332.8 million[277]. - The total purchase consideration for the acquisition of Flotek Industries, Inc. was $405.7 million, with identifiable assets acquired valued at $502.0 million[279]. - The acquisition of SP Silica of Monahans, LLC was completed for a total purchase price of $97.4 million, with identifiable assets acquired valued at $146.7 million[286]. - The USWS Acquisition was completed for equity consideration of 12.9 million shares valued at $282.1 million, cash consideration of $195.9 million, and replacement warrants valued at $1.1 million[290]. - The Monarch acquisition was completed for a total consideration of $166.5 million, including cash of $87.5 million and a long-term secured note of $79.0 million[293]. - The REV acquisition involved total consideration of $140.6 million, which included equity consideration valued at $78.0 million and cash consideration of $19.9 million[296]. Debt and Financial Obligations - The company completed debt refinancing totaling $885 million, extending maturities to 2029 and enhancing financial flexibility for 2024[25]. - A 1% increase in interest rates on variable-rate debt would raise annual interest payments by approximately $10.0 million as of December 31, 2023[175]. - ProFrac Holding Corp. has a total long-term debt of $942.1 million as of December 31, 2023, an increase from $797.8 million in the previous year[304]. - The company issued $520 million of senior secured floating rate notes due in December 2029, with an effective interest rate of 14.0% as of December 31, 2023[305][306]. - The Alpine subsidiary secured a term loan of $365 million, with an effective interest rate of 14.3% as of December 31, 2023[309]. - The 2022 ABL Credit Facility has a maximum availability of $325 million, with $117.4 million of borrowings outstanding and an effective interest rate of 9.5%[311]. - The Monarch Note, related to the acquisition of Monarch, has a principal of $87.5 million and requires quarterly payments of $10.9 million, with an effective interest rate of 12.1%[312]. - The company is required to maintain a minimum liquidity of $15 million under the 2022 ABL Credit Facility[311]. - The 2029 Senior Notes require minimum quarterly principal payments of $10 million starting June 30, 2024[308]. - ProFrac Holding Corp. was in compliance with all covenants related to its debt agreements as of December 31, 2023[308][311]. Environmental and Regulatory Risks - The company is subject to stringent environmental regulations, which may impose costly compliance measures and could materially affect operations and financial position[32]. - The company handles hazardous and non-hazardous wastes under the Resource Conservation and Recovery Act, with potential penalties for non-compliance[32]. - The Comprehensive Environmental Response, Compensation and Liability Act imposes strict liability for hazardous substance releases, which could lead to significant remediation costs[32]. - The Clean Water Act and related regulations impose strict controls on pollutant discharges, with potential delays in obtaining necessary permits[33]. - The Clean Air Act regulates air emissions, requiring permits and potentially increasing compliance costs for the company[34]. - The company faces political and regulatory risks related to climate change, including potential new legislation aimed at reducing greenhouse gas emissions[34]. - The Inflation Reduction Act includes a fee on methane emissions starting at $900 per metric ton in 2024, increasing over the following years[34]. - The company may incur increased costs due to new EPA regulations on methane emissions from oil and gas operations, which could affect demand for its services[34]. - The company is monitoring ongoing litigation regarding the definition of "waters of the United States," which could impact regulatory requirements and operational costs[33]. - The company is subject to potential changes in state and federal regulations that could impose more stringent environmental standards, affecting capital and operating expenses[32]. Employee and Operational Metrics - As of December 31, 2023, ProFrac employed 2,949 people, achieving a Total Reportable Incident Rate of 0.54, significantly better than the industry average of 1.00[28]. - Stock-based compensation totaled $8.1 million, which includes $7.8 million for stock-based compensation and $12.4 million related to deemed contributions[215]. - The company incurred severance charges of $1.1 million in 2023 related to the departure of two executives[334]. - The company has a long-term incentive plan with 2,542,708 shares available for future grants as of December 31, 2023[339]. Accounting and Audit Matters - The financial statements of ProFrac Holding Corp. present fairly the financial position as of December 31, 2023 and 2022, in conformity with U.S. GAAP[181]. - The audit identified the estimation of fair value of acquired assets and liabilities as a critical audit matter due to significant management judgments[188]. - The recoverability of contract assets was identified as a critical audit matter, requiring subjective auditor judgment in evaluating key assumptions[202]. - The Company utilized valuation specialists to assist in developing estimates of fair value for acquired assets and liabilities[191]. - The audit procedures included evaluating forecasted financial performance by comparing projected revenues and cash flows to actual historical performance[195]. - The company identified and corrected an error in accounting for deferred tax assets, which understated deferred tax assets by $65.8 million as of December 31, 2022[232]. Stock and Equity Transactions - ProFrac redeemed 104,195,938 ProFrac LLC Units, issuing 101,133,202 shares of Class A Common Stock in exchange[21]. - The issuance of 50,000 shares of Series A Redeemable Convertible Preferred Stock generated gross proceeds of $50.0 million, with an 8% annual dividend rate[22]. - The company issued Class A shares valued at $134.6 million to acquire USWS, contributing to the overall equity changes[218]. - A member contribution of $18.0 million was recorded, which positively impacted the equity balance[218]. - The issuance of Class A shares in the IPO raised $227.7 million, enhancing the company's capital structure[218]. - The adjustment of redeemable noncontrolling interest to redemption amount resulted in a significant decrease of $(1,438.0) million[218]. - The redemption amount for the preferred stock as of December 31, 2023, would be $58.7 million, reflecting a potential cash payout upon redemption[332].