UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
or | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
Commission File Number: |
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | (I.R.S. Employer |
|
|
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ◻ | |
Non-accelerated filer ◻ | Smaller reporting company Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of April 28, 2020, the registrant had
TABLE OF CONTENTS
i | ||
1 | ||
Management's Discussion and Analysis of Financial Condition and Results of Operations | 13 | |
18 | ||
18 | ||
18 | ||
18 | ||
20 | ||
21 | ||
22 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.
Forward-looking statements may include statements about:
● | demand for our products and services, which is affected by, among other things, changes in the price of crude oil and natural gas in domestic and international markets; |
● | the level of growth in number of rigs, pad sizes, well spacings and associated well count, availability of takeaway capacity and availability of storage capacity; |
● | capital spending discipline exercised by customers; |
● | changes in the number of drilled but uncompleted wells and the level of completion activity; |
● | the size and timing of orders; |
● | availability of raw materials and imported items; |
● | transportation differentials associated with reduced capacity in and out of the storage hub in Cushing, Oklahoma; |
● | expectations regarding raw materials, overhead and operating costs and margins; |
● | availability of skilled and qualified workers; |
● | potential liabilities such as warranty and product liability claims arising out of the installation, use or misuse of our products; |
● | the possibility of cancellation of orders; |
● | our business strategy; |
● | our financial strategy, operating cash flows, liquidity and capital required for our business; |
● | our future revenue, income and operating performance; |
● | our ability to pay dividends and the amounts of any such dividends; |
● | the termination of relationships with major customers or suppliers; |
● | laws and regulations, including environmental regulations, that may increase our costs, limit the demand for our products and services or restrict our operations; |
● | disruptions in the political, regulatory, economic and social conditions domestically or internationally; |
● | the ultimate severity and duration of the ongoing outbreak of coronavirus (COVID-19) and the extent of its impact on our business; |
i
● | outbreaks of other pandemic or contagious diseases that may disrupt our operations, suppliers or customers or impact demand for oil and gas; |
● | the impact of actions taken by the Organization of Petroleum Exporting Countries (OPEC) and other oil and gas producing countries affecting the supply of oil and natural gas; |
● | increases in import tariffs assessed on products from China and imported raw materials used in the manufacture of our goods in the United States which could negatively impact margins and our working capital; |
● | the significance of future liabilities under the Tax Receivable Agreement (the “TRA”) we entered into with certain current or past direct and indirect owners of Cactus LLC (the “TRA Holders”) in connection with our initial public offering; |
● | a failure of our information technology infrastructure or any significant breach of security; |
● | potential uninsured claims and litigation against us; |
● | competition within the oilfield services industry; |
● | our dependence on the continuing services of certain of our key managers and employees; |
● | currency exchange rate fluctuations associated with our international operations; and |
● | plans, objectives, expectations and intentions contained in this Quarterly Report that are not historical. |
Although forward-looking statements reflect our good faith beliefs at the time they are made, forward-looking statements involve known and unknown risks, uncertainties and other factors, including the factors described under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 (our “2019 Annual Report”), this Quarterly Report and in our other filings with the SEC, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements.
Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.
ii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CACTUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, | December 31, | |||||
| 2020 |
| 2019 | |||
(in thousands, except per share data) | ||||||
Assets | ||||||
Current assets |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net of allowance of $ |
| |
| | ||
Inventories |
| |
| | ||
Prepaid expenses and other current assets |
| |
| | ||
Total current assets |
| |
| | ||
Property and equipment, net |
| |
| | ||
Operating lease right-of-use assets, net | | | ||||
Goodwill |
| |
| | ||
Deferred tax asset, net | | | ||||
Other noncurrent assets |
| |
| | ||
Total assets | $ | | $ | | ||
Liabilities and Equity | ||||||
Current liabilities | ||||||
Accounts payable | $ | | $ | | ||
Accrued expenses and other current liabilities |
| |
| | ||
Current portion of liability related to tax receivable agreement | | | ||||
Finance lease obligations, current portion |
| |
| | ||
Operating lease liabilities, current portion | | | ||||
Total current liabilities |
| |
| | ||
Deferred tax liability, net |
| |
| | ||
Liability related to tax receivable agreement, net of current portion | | | ||||
Finance lease obligations, net of current portion |
| |
| | ||
Operating lease liabilities, net of current portion | | | ||||
Total liabilities |
| |
| | ||
Commitments and contingencies | ||||||
Stockholders' equity | ||||||
Preferred stock, $ |
|
| ||||
Class A common stock, $ |
| |
| | ||
Class B common stock, $ | ||||||
Additional paid-in capital | | | ||||
Retained earnings | | | ||||
Accumulated other comprehensive loss |
| ( |
| ( | ||
Total stockholders' equity attributable to Cactus Inc. |
| |
| | ||
Non-controlling interest | | | ||||
Total stockholders' equity | | | ||||
Total liabilities and equity | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
CACTUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended March 31, | |||||||
| 2020 |
| 2019 |
| |||
(in thousands, except per share data) | |||||||
Revenues | |||||||
Product revenue | $ | | $ | | |||
Rental revenue |
| |
| | |||
Field service and other revenue |
| |
| | |||
Total revenues |
| |
| | |||
Costs and expenses | |||||||
Cost of product revenue |
| |
| | |||
Cost of rental revenue |
| |
| | |||
Cost of field service and other revenue |
| |
| | |||
Selling, general and administrative expenses |
| |
| | |||
Severance expenses | | — | |||||
Total costs and expenses |
| |
| | |||
Income from operations |
| |
| | |||
Interest income, net |
| |
| | |||
Other expense, net |
| — |
| ( | |||
Income before income taxes |
| |
| | |||
Income tax expense (benefit) |
| |
| ( | |||
Net income | $ | | $ | | |||
Less: net income attributable to non-controlling interest | | | |||||
Net income attributable to Cactus Inc. | $ | | $ | | |||
Earnings per Class A share - basic | $ | | $ | | |||
Earnings per Class A share - diluted | $ | | $ | | |||
Weighted average Class A shares outstanding - basic | | | |||||
Weighted average Class A shares outstanding - diluted |
| |
| |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
CACTUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
Three Months Ended March 31, | ||||||
| 2020 |
| 2019 | |||
(in thousands) | ||||||
Net income | $ | | $ | | ||
Foreign currency translation adjustments | ( | | ||||
Comprehensive income | $ | | $ | | ||
Less: comprehensive income attributable to non-controlling interest | | | ||||
Comprehensive income attributable to Cactus Inc. | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CACTUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
Accumulated | |||||||||||||||||||||||||
Class A | Class B | Additional | Other | Non- | Total | ||||||||||||||||||||
| Common Stock | Common Stock | Paid-In | Retained |
| Comprehensive |
| controlling |
| Equity | |||||||||||||||
(in thousands) |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Earnings |
| Income (Loss) |
| Interest |
| (Deficit) | |||||||
Balance at December 31, 2018 | | $ | | | $ | — | $ | | $ | | $ | ( | $ | | $ | | |||||||||
Adjustment to prior periods | — | — | — | — | | — | | ( |
| — | |||||||||||||||
Member distributions | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||
Effect of CW Unit redemptions | | | ( | — | | — | ( | ( |
| — | |||||||||||||||
Adjustment to deferred tax asset from CW Unit redemptions | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||
Tax impact of equity transactions | — | — | — | — | | — | — | — | | ||||||||||||||||
Equity award vestings | | | — | — | ( | — | — | — | ( | ||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | | | | ||||||||||||||||
Stock-based compensation | — | — | — | — | | — | — | — | | ||||||||||||||||
Net income | — | — | — | — | — | | — | | | ||||||||||||||||
Balance at March 31, 2019 | | $ | | | $ | — | $ | | $ | | $ | ( | $ | | $ | | |||||||||
Balance at December 31, 2019 | | $ | | | $ | — | $ | | $ | | $ | ( | $ | | $ | | |||||||||
Member distributions | — | — | — | — | — | — | — | ( |
| ( | |||||||||||||||
Tax impact of equity transactions | — | — | — | — | ( | — | — | — | ( | ||||||||||||||||
Equity award vestings | | | — | — | ( | — | — | ( | ( | ||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | ( | ( | ( | ||||||||||||||||
Stock-based compensation | — | — | — | — | | — | — | | | ||||||||||||||||
Cash dividends declared ($ | — | — | — | — | — | ( | — | — | ( | ||||||||||||||||
Net income | — | — | — | — | — | | — | | | ||||||||||||||||
Balance at March 31, 2020 | | $ | | | $ | — | $ | | $ | | $ | ( | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CACTUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended March 31, | |||||||
| 2020 |
| 2019 |
| |||
(in thousands) | |||||||
Cash flows from operating activities | |||||||
Net income | $ | | $ | | |||
Reconciliation of net income to net cash provided by operating activities: | |||||||
Depreciation and amortization |
| |
| | |||
Deferred financing cost amortization |
| |
| | |||
Stock-based compensation |
| |
| | |||
Provision for expected credit losses |
| |
| — | |||
Inventory obsolescence | | | |||||
Loss on disposal of assets | | | |||||
Deferred income taxes | | ( | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable |
| ( |
| ( | |||
Inventories |
| |
| ( | |||
Prepaid expenses and other assets |
| |
| | |||
Accounts payable |
| ( |
| | |||
Accrued expenses and other liabilities |
| ( |
| ( | |||
Net cash provided by operating activities |
| |
| | |||
Cash flows from investing activities | |||||||
Capital expenditures and other |
| ( |
| ( | |||
Proceeds from sale of assets |
| |
| | |||
Net cash used in investing activities |
| ( |
| ( | |||
Cash flows from financing activities | |||||||
Payments on finance leases |
| ( |
| ( | |||
Dividends paid to Class A common stock shareholders | ( | — | |||||
Distributions to members |
| ( |
| ( | |||
Repurchases of shares | ( | ( | |||||
Net cash used in financing activities |
| ( |
| ( | |||
Effect of exchange rate changes on cash and cash equivalents |
| |
| | |||
Net increase in cash and cash equivalents |
| |
| | |||
Cash and cash equivalents | |||||||
Beginning of period |
| |
| | |||
End of period | $ | | $ | | |||
Supplemental disclosure of cash flow information | |||||||
Non-cash investing and financing activities: | |||||||
Property and equipment acquired under finance leases | $ | | $ | | |||
Property and equipment in payables | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
CACTUS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
(in thousands, except per share data, or as otherwise indicated)
1. Preparation of Interim Financial Statements and Other Items
Basis of Presentation
The financial statements presented in this report represent the consolidation of Cactus Inc. (“Cactus Inc.”) and its subsidiaries (“the Company”), including Cactus Wellhead, LLC (“Cactus LLC”). Cactus Inc. is a holding company whose only material asset is an equity interest consisting of units representing limited liability company interests in Cactus LLC (“CW Units”). Cactus Inc. is the sole managing member of Cactus LLC and 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 a non-controlling interest related to the portion of CW Units not owned by Cactus Inc., which reduces net income attributable to holders of Cactus Inc.’s Class A common stock, par value $
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, these consolidated financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read together with our Annual Report on Form 10-K for the year ended December 31, 2019.
The consolidated financial statements include all adjustments, which are of a normal recurring nature, unless otherwise disclosed, necessary for a fair statement of the consolidated financial statements for the interim periods. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.
Use of Estimates
In preparing our consolidated financial statements in conformity with GAAP, we make numerous estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with a high degree of precision from available data or is not otherwise capable of being readily calculated based on accepted methodologies. In some cases, these estimates are particularly difficult to determine, and we must exercise significant judgment. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our consolidated financial statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Recent Accounting Pronouncements
Standards Adopted
Effective January 1, 2020, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new guidance changed the measurement of credit losses on financial assets measured at amortized cost, including but not limited to trade receivables. The new guidance replaced the prior methodology for recognizing credit losses when it is probable that a loss has been incurred with an expected loss model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of an asset. The allowance for credit losses under the new guidance represents the portion of the asset’s amortized cost basis that we do not expect to collect over the asset’s contractual life, considering past events, current conditions and reasonable and
6
supportable forecasts of future economic conditions. Adoption of the standard did not impact our consolidated financial statements other than certain expanded disclosures. See further discussion and expanded disclosures at Note 3.
We also adopted FASB ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) effective January 1, 2020. The new standard simplified the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. Under the new standard, an entity performs its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Adoption of this standard did not impact our consolidated financial statements.
2. Concentrations, Risks and Uncertainties
Significant Customers
Our customers are engaged in the oil and natural gas exploration and production business primarily in the U.S. as well as Australia. Our receivables are spread over a number of customers, a majority of which are operators and suppliers to the oil and natural gas industry. For the three months ended March 31, 2020 and 2019,
Significant Vendors
We purchase a significant portion of supplies, equipment and machined components from a single vendor located in China. For the three months ended March 31, 2020 and 2019, purchases from this vendor totaled $
Low Oil Prices and the Coronavirus (COVID-19)
The significant decline in oil demand due to COVID-19 coupled with the instability of oil prices caused by geopolitical issues and production levels, as well as limited availability of storage capacity have resulted in our customers announcing significant reductions to their capital expenditure budgets for 2020. Management’s expectation is that demand for our products and services will be severely impacted for the duration of 2020 and potentially beyond; however, we are currently unable to estimate the full impact to our business, how long this significant drop in demand will last or the depth of the decline.
In an effort to offset the reduction in revenues resulting from the weakened macroeconomic environment, we implemented certain cost reduction measures beginning in March 2020. These measures included, but were not limited to, the following:
● |
● | Salary reductions ranging from |
● | Salary and wage reductions for the remaining U.S. workforce ranging from |
● | Reduction in board member compensation by |
● | Reduction of |
We have also reduced our planned capital expenditures for 2020 and implemented additional headcount reductions in April 2020. See further discussion of the April workforce reductions at Note 12.
Due to the depressed oil price environment, our reduced cash flow projections resulting from expectations of reduced sales and significant declines in our market capitalization, we assessed whether our long-lived assets and
7
goodwill may have been impaired as of March 31, 2020. We performed quantitative impairment tests using management’s current projections that are subject to various risks and uncertainties of revenues, expenses and cash flows. Our goodwill impairment assessment also includes assumptions regarding discount rates, terminal value and control premiums. Estimates of future cash flows and fair value are highly subjective and inherently imprecise. These estimates can change materially from period to period based on many factors. Accordingly, if conditions change in the future, we may record impairment losses, which could be material to any particular reporting period. Although we determined based on our current impairment assessments that our long-lived assets and goodwill were not impaired as of March 31, 2020, we can provide no assurance that we will not incur an impairment loss in the future.
3. Accounts Receivable and Allowance for Credit Losses
We extend credit to customers in the normal course of business. Our customers are predominantly oil and gas companies in the U.S. Our receivables are short-term in nature and typically due in 30 to 45 days. We do not accrue interest on delinquent receivables. Accounts receivable includes amounts billed and currently due from customers and unbilled amounts for products delivered and services performed for which billings have not yet been submitted to the customers. Total unbilled revenue included in accounts receivable as of March 31, 2020 and December 31, 2019 was $
We maintain an allowance for credit losses to provide for the amount of receivables we do not expect to collect. In our determination of the allowance for credit losses, we pool receivables with similar risk characteristics based on customer size, credit ratings, payment history, bankruptcy status and other factors known to us and apply an expected credit loss percentage. The expected credit loss percentage is determined using historical loss data adjusted for current conditions and forecasts of future economic conditions. Accounts deemed uncollectible are applied against the allowance for credit losses. The following is a rollforward of our allowance for credit losses. The increase in the allowance during the three months ended March 31, 2020 reflects the estimated impact of the current economic environment on our receivable balance.
Balance at | Balance at | ||||||||||||||
Beginning of | Expense | End of | |||||||||||||
| Period |
| (recovery) |
| Write off |
| Other |
| Period | ||||||
Three Months Ended March 31, 2020 | $ | | $ | | $ | ( | $ | — | $ | | |||||
Three Months Ended March 31, 2019 |
| |
| — |
| — |
| |
| |
4. Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using standard cost (which approximates average cost) and weighted average methods. Costs include an application of related direct labor and overhead cost. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Reserves are made for excess and obsolete items based on a range of factors, including age, usage and technological or market changes that may impact demand for those products. Inventories consist of the following:
March 31, | December 31, | |||||
| 2020 |
| 2019 | |||
Raw materials | $ | | $ | | ||
Work-in-progress |
| |
| | ||
Finished goods |
| |
| | ||
$ | | $ | |
8
5. Property and Equipment, net
Property and equipment are stated at cost. We manufacture or construct most of our own rental assets. During the manufacture of these assets, they are reflected as construction in progress until complete. Property and equipment consists of the following:
March 31, | December 31, | |||||
| 2020 |
| 2019 | |||
Land | $ | | $ | | ||
Buildings and improvements |
| |
| | ||
Machinery and equipment |
| |
| | ||
Vehicles under finance lease | | | ||||
Rental equipment |
| |
| | ||
Furniture and fixtures |
| |
| | ||
Computers and software |
| |
| | ||
Gross property and equipment |
| |
| | ||
Less: Accumulated depreciation |
| ( |
| ( | ||
Net property and equipment |
| |
| | ||
Construction in progress |
| |
| | ||
Total property and equipment, net | $ | | $ | |
6. Debt
We had
On August 21, 2018, Cactus LLC entered into a
The ABL Credit Facility matures on August 21, 2023. The maximum amount that Cactus LLC may borrow under the ABL Credit Facility is subject to a borrowing base, which is based on a percentage of eligible accounts receivable and eligible inventory, subject to reserves and other adjustments. At March 31, 2020, in accordance with the terms of our borrowing base, we had access to the full $
At March 31, 2020 and December 31, 2019, although there were
7. Revenue
The majority of our revenues are derived from short-term contracts for fixed consideration. Product sales generally do not include right of return or other significant post-delivery obligations. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenues are recognized when we satisfy a performance obligation by transferring control of the promised goods or providing services to our customers at a point in time, in an amount specified in the contract with our customer and that reflects the consideration we expect to be entitled to in exchange for those goods or services. The majority of our contracts with customers contain a single performance obligation to provide agreed upon products or services. For contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price. We do not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer. We do not incur any material costs of obtaining contracts.
We do not adjust the amount of consideration per the contract for the effects of a significant financing component when we expect, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less, which is in substantially all cases. Payment terms and conditions vary, although terms generally include a requirement of payment within 30 to 45 days. Revenues
9
are recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. We treat shipping and handling associated with outbound freight as a fulfillment cost instead of as a separate performance obligation. We recognize the cost for the associated shipping and handling when incurred as an expense in cost of sales.
We disaggregate revenue into three categories: product revenues, rental revenues and field service and other revenues. We have predominately domestic operations, with a small amount of sales being generated in Australia. The following table presents our revenues disaggregated by category:
Three Months Ended March 31, | ||||||||||||
| 2020 |
| 2019 | |||||||||
Product revenue | $ | | | % | $ | | | % | ||||
Rental revenue | | | % | | | % | ||||||
Field service and other revenue | | | % | | | % | ||||||
Total revenue | $ | | | % | $ | | | % |
At March 31, 2020, we had a deferred revenue balance of $
8. Tax Receivable Agreement (TRA)
In connection with our initial public offering (“IPO”) in February 2018, we entered into the TRA with certain direct and indirect owners of Cactus LLC (the “TRA Holders”). The TRA generally provides for payment by Cactus Inc. to the TRA Holders of
The TRA liability is calculated by determining the tax basis subject to TRA (“tax basis”) and applying a blended tax rate to the basis differences and calculating the iterative impact. The blended tax rate consists of the U.S. federal income tax rate and an assumed combined state and local income tax rate driven by the apportionment factors applicable to each state. Subsequent changes to the measurement of the TRA liability are recognized in the statements of income as a component of other income (expense), net. As of March 31, 2020, the total liability from the TRA was $
The term of the TRA commenced upon completion of our IPO and will continue until all tax benefits that are subject to the TRA have been utilized or expired, unless we exercise our right to terminate the TRA. If we elect to terminate the TRA early (or it is terminated early due to certain mergers, asset sales, other forms of business combinations or other changes of control), our obligations under the TRA would accelerate and we would be required to make an immediate payment equal to the present value of the anticipated future payments to be made by us under the TRA and such payment is expected to be substantial. The calculation of anticipated future payments will be based upon certain assumptions and deemed events set forth in the TRA, including the assumptions that (i) we have sufficient taxable income to fully utilize the tax benefits covered by the TRA and (ii) any CW Units (other than those held by Cactus Inc.) outstanding on the termination date are deemed to be redeemed on the termination date. Any early termination payment may be made significantly in advance of the actual realization, if any, of the future tax benefits to which the termination payment relates.
We may elect to defer payments due under the TRA if we do not have available cash to satisfy our payment obligations under the TRA. Any such deferred payments under the TRA generally will accrue interest from the due date for such payment until the payment date.
10
9. Equity
As of March 31, 2020, Cactus Inc. owned
Redemptions of CW Units
Pursuant to the First Amended and Restated Limited Liability Company Operating Agreement of Cactus Wellhead, LLC (the “Cactus Wellhead LLC Agreement”), holders of CW Units are entitled to redeem their CW Units, which results in additional Class A common stock outstanding. Since our IPO in February 2018,
Dividends
On January 30, 2020, our board of directors declared a cash dividend of $
Member Distributions
Distributions made by Cactus LLC are generally required to be made pro rata among all its members. For the three months ended March 31, 2020, Cactus LLC distributed $
Limitation of Members’ Liability
Under the terms of the Cactus Wellhead LLC Agreement, the members of Cactus LLC are not obligated for debt, liabilities, contracts or other obligations of Cactus LLC. Profits and losses are allocated to members as defined in the Cactus LLC Agreement.
10. Commitments and Contingencies
We are involved in various disputes arising in the ordinary course of business. Management does not believe the outcome of these disputes will have a material adverse effect on our consolidated financial position or consolidated results of operations.
11. Earnings per Share
Basic earnings per share of Class A common stock is calculated by dividing the net income attributable to Cactus Inc. during the period by the weighted average number of shares of Class A common stock outstanding during the same period. Diluted earnings per share of Class A common stock is calculated by dividing the net income attributable to Cactus Inc. during that period by the weighted average number of common shares outstanding assuming all potentially dilutive shares were issued.
We use the “if-converted” method to determine the potential dilutive effect of outstanding CW Units (and corresponding shares of outstanding Class B common stock), and the treasury stock method to determine the potential dilutive effect of unvested restricted stock units assuming that the proceeds will be used to purchase shares of Class A common stock.
11
The following table summarizes the basic and diluted earnings per share calculations:
Three Months Ended | ||||||
| 2020 |
| 2019 | |||
Numerator: |
|
|
|
| ||
Net income attributable to Cactus Inc.—basic | $ | | $ | | ||
Net income attributable to non-controlling interest (1) | | | ||||
Net income attributable to Cactus Inc.—diluted (1) | $ | | $ | | ||
Denominator: |
|
|
|
| ||
Weighted average Class A shares outstanding—basic |
| |
| | ||
Effect of dilutive shares (2) | | | ||||
Weighted average Class A shares outstanding—diluted (2) | | | ||||
Earnings per Class A share—basic | $ | | $ | | ||
Earnings per Class A share—diluted (1) (2) | $ | | $ | |
(1) | Under the if-converted method for the three months ended March 31, 2020 and 2019, the numerator is adjusted in the calculation of diluted earnings per share to include $ |
(2) | Diluted earnings per share for the three months ended March 31, 2020 and 2019 includes |
12. Subsequent Events
As a result of significant declines in sales activity, we notified
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Except as otherwise indicated or required by the context, all references in this Quarterly Report to the “Company,” “Cactus,” “we,” “us” and “our” refer to Cactus, Inc. (“Cactus Inc.”) and its consolidated subsidiaries, unless we state otherwise or the context otherwise requires. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes. The following discussion contains “forward-looking statements” that reflect our plans, estimates, beliefs and expected performance. Our actual results may differ materially from those anticipated as discussed in these forward-looking statements as a result of a variety of risks and uncertainties, including those described above in “Cautionary Note Regarding Forward-Looking Statements” and included elsewhere in this Quarterly Report, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We assume no obligation to update any of these forward-looking statements except as otherwise required by law.
Executive Summary
We design, manufacture, sell and rent a range of highly engineered wellhead and pressure control equipment. Our products are sold and rented principally for onshore unconventional oil and gas wells and are utilized during the drilling, completion and production phases of our customers’ wells. In addition, we provide field services for all of our products and rental items to assist with the installation, maintenance and handling of the wellhead and pressure control equipment.
We operate through service centers in the United States, which are strategically located in the key oil and gas producing regions, including the Permian, SCOOP/STACK, Marcellus, Utica, Eagle Ford, Bakken, among other active oil and gas regions in the United States, and in Eastern Australia. These service centers support our field services and provide equipment assembly and repair services. Our manufacturing and production facilities are located in Bossier City, Louisiana and Suzhou, China.
We operate in one business segment. Our revenues are derived from three sources: products, rentals, and field service and other. Product revenues are primarily derived from the sale of wellhead systems and production trees. Rental revenues are primarily derived from the rental and associated repair of equipment used for well control during the completion process as well as the rental of drilling tools. Field service and other revenues are primarily earned when we provide installation and other field services for both product sales and equipment rental. Additionally, other revenues are derived from providing repair and reconditioning services to customers that have previously installed our products on their wellsite. Items sold or rented generally have an associated service component. As a result, there is some level of correlation between field service and other revenues and revenues from product sales and rentals.
In the three months ended March 31, 2020, we derived 57% of total revenues from the sale of our products, 23% of total revenues from rental and 20% of total revenues from field service and other. In the three months ended March 31, 2019, we derived 55% of total revenues from the sale of our products, 24% of total revenues from rental and 21% of total revenues from field service and other. We have predominantly U.S. operations, with a small amount of sales being generated in Australia.
Market Factors
Demand for our products and services depends primarily upon the general level of activity in the oil and gas industry, including the number of drilling rigs in operation, the number of oil and gas wells being drilled, the depth and drilling conditions of these wells, the number of well completions, the level of well remediation activity, the volume of production and the corresponding capital spending by oil and natural gas companies. Oil and gas activity is in turn heavily influenced by, among other factors, oil and gas prices locally and worldwide, which have historically been volatile.
The key market factors impacting our product sales are the number of wells drilled and placed on production, as each well requires an individual wellhead assembly and, at some time after completion, the installation of an associated production tree. We measure our product sales activity levels against our competitors by the number of rigs that we are supporting on a monthly basis, as it is correlated to wells drilled. Each active drilling rig produces different levels of revenue based on the customer’s drilling plan, which includes factors such as the number of wells drilled per pad, the time taken to drill each well, the number and size of casing strings, the working pressure, material selection and the
13
complexity of the wellhead system chosen by the customer and the rate at which production trees are eventually deployed. All of these factors may be influenced by the oil and gas region in which our customer is operating. While these factors may lead to differing revenues per rig, we have historically been able to broadly forecast our product needs and anticipated revenue levels based on general trends in a given region and with a specific customer. Increases in horizontal wells drilled as a percentage of total wells drilled, the shift towards pad drilling, and an increase in the number of wells drilled per rig are all favorable trends that we believe enhance the demand for our products relative to the active rig count.
Our rental revenues are primarily dependent on the number of wells completed (i.e., hydraulically fractured), the number of wells on a well pad and the number of fracture stages per well. Well completion activity generally follows the level of drilling activity but can be delayed due to such factors as takeaway capacity, storage capacity and budget constraints.
Field service and other revenues are closely correlated to revenues from product sales and rentals, as items sold or rented almost always have an associated service component. Therefore, the market factors and trends of product sales and rental revenues similarly impact the associated levels of service and other revenues generated.
Recent Developments and Trends
In early 2020, a novel strain of coronavirus (also referred to as COVID-19) began spreading in the Hubei province in China. Although located in a separate province, our factory in Suzhou, China was closed for 10 days beginning in late January 2020 as a result of travel restrictions and other measures taken by the Chinese government in response to the outbreak of the coronavirus. Our Suzhou facility reopened on February 10, 2020 and returned to full capacity by the end of the first quarter of 2020. We are currently experiencing no issues with workforce or supply chain disruptions in China. In March 2020, as a result of the continued spread of the virus, the World Health Organization declared COVID-19 a pandemic resulting in countries taking urgent and aggressive action to stop the spread of the disease. These actions have included restrictions on travel (foreign or domestic) and stay-at-home orders. The combination of travel restrictions, school and business closures and stay-at-home orders worldwide has resulted in a severe decline in the demand for oil.
In early March 2020, as a result of the ongoing decrease in global oil demand resulting from the coronavirus pandemic, members of the Organization of Petroleum Exporting Countries (OPEC) and Russia considered extending their oil production cuts and agreeing to additional cuts. Negotiations were unsuccessful. Saudi Arabia then announced an immediate reduction in its oil export prices and a substantial increase in production over prior levels. Further, it was announced that previously agreed upon oil production cuts between Russia and OPEC members would expire on April 1, 2020. Oil prices declined sharply following the outcome of these failed negotiations. In mid-April 2020, an agreement was reached with oil-producing nations to make production cuts in an effort to stabilize oil prices. However, the growing concern regarding the limited availability of crude oil storage capacity and continued weakness in demand has placed extreme pressure on oil prices with West Texas Intermediate (WTI) prices trading at negative levels for a brief period in the month of April. Current WTI prices for June deliveries closed at $12.34 per barrel on April 28, 2020.
Overall, the significant decline in oil demand due to COVID-19 coupled with the instability of oil prices caused by geopolitical issues and production levels have resulted in our customers announcing significant reductions to their capital expenditure budgets for 2020. This is evidenced by the significant decline in U.S. onshore rig counts from the beginning of the year. At the end of 2019, the U.S. onshore rig count as reported by Baker Hughes was 781 rigs. For the three months ended March 31, 2020, the weekly average U.S. onshore rig count was 763 rigs compared to 1,021 rigs for the three months ended March 31, 2019. As of April 24, 2020, the U.S. onshore rig count was 448 and is expected to continue declining over the next several months.
While visibility regarding customer activity levels is low, we believe that the impact of lower oil prices and limited availability of storage capacity will result in severely reduced demand for our products and services. The duration and extent of the downturn in oil and gas activity is unknown at this time, and while management anticipates that the economic impact of lower oil prices will have a significantly negative effect on its results of operations, the degree to which these factors will impact our business remains uncertain.
We believe we are well positioned to successfully navigate the industry downturn. We are actively reviewing all opportunities to reduce costs and believe we will be able to manage our expenses and capital expenditures relative to market conditions. As a result, we implemented certain workforce, wage, and capital expenditure reductions beginning
14
in March 2020 which included the reduction of our total U.S. associate headcount by 277 associates (or approximately 30%). We continued to implement reductions in our workforce during April affecting 212 additional U.S. associates. The April headcount reductions are estimated to result in approximately $23 million of incremental annualized cost savings. The estimated cost savings include base salaries and wages, overtime, payroll taxes and benefits, but exclude estimated reductions in annual incentive bonuses associated with the Company’s financial performance. Our required capital expenditures have historically tended to be lower than most other oilfield service providers due to the asset-lite nature of our business model. As of March 31, 2020 we had no long-term debt and over $230 million of cash. We also believe that the operating environment following the industry downturn may prove more favorable for companies that are financially well positioned.
Tariffs
On March 26, 2020, the U.S. Trade Representative (‘‘USTR’’) announced their determination to grant certain exclusion requests related to tariffs on Chinese imports under Section 301 of the Trade Act of 1974 (“Section 301”). Not all of our products with Section 301 tariffs fall under this exclusion. The product exclusions apply retroactively as of September 24, 2018 until August 7, 2020 on covered products that were exported from China to the United States. The tariff rate on covered products was 10% beginning in September 2018 and raised to 25% in May 2019. Going forward, we will not be required to pay a tariff on covered products until at least August 7, 2020. We will continue to monitor the situation for an extension of this tariff suspension beyond the August 2020 deadline. Substantially all of the products that we import through our Chinese supply chain have been subject to Section 301 tariffs.
Consolidated Results of Operations
Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
The following table presents summary consolidated operating results for the periods indicated:
Three Months Ended |
| |||||||||||
March 31, |
| |||||||||||
| 2020 |
| 2019 |
| $ Change |
| % Change | |||||
(in thousands) | ||||||||||||
Revenues |
|
|
|
|
|
|
|
| ||||
Product revenue | $ | 87,031 | $ | 86,640 | $ | 391 |
| 0.5 | % | |||
Rental revenue |
| 36,163 |
| 38,497 |
| (2,334) |
| (6.1) | ||||
Field service and other revenue |
| 30,945 |
| 33,738 |
| (2,793) |
| (8.3) | ||||
Total revenues |
| 154,139 |
| 158,875 |
| (4,736) |
| (3.0) | ||||
Costs and expenses | ||||||||||||
Cost of product revenue |
| 56,135 |
| 53,018 |
| 3,117 |
| 5.9 | ||||
Cost of rental revenue |
| 19,339 |
| 17,791 |
| 1,548 |
| 8.7 | ||||
Cost of field service and other revenue |
| 23,811 |
| 26,906 |
| (3,095) |
| (11.5) | ||||
Selling, general and administrative expenses |
| 13,662 |
| 12,668 |
| 994 |
| 7.8 | ||||
Severance expenses | 1,007 | — | 1,007 | nm | ||||||||
Total costs and expenses |
| 113,954 |
| 110,383 |
| 3,571 |
| 3.2 | ||||
Income from operations |
| 40,185 |
| 48,492 |
| (8,307) |
| (17.1) | ||||
Interest income, net |
| 410 |
| 23 |
| 387 |
| nm | ||||
Other expense, net |
| — |
| (1,042) |
| 1,042 |
| nm | ||||
Income before income taxes |
| 40,595 |
| 47,473 |
| (6,878) |
| (14.5) | ||||
Income tax expense (benefit) |
| 7,497 |
| (973) |
| 8,470 |
| nm | ||||
Net income | $ | 33,098 | $ | 48,446 | $ | (15,348) |
| (31.7) | ||||
nm = not meaningful |
15
Revenues
Product revenue for the three months ended March 31, 2020 was $87.0 million, reflecting a moderate increase of $0.4 million from $86.6 million for the three months ended March 31, 2019. The increase was primarily attributable to product mix, greater drilling efficiencies and increased market share offset by the lower rig count year-over-year. Market share is calculated as the number of rigs followed by Cactus divided by the Baker Hughes U.S. onshore rig count quarterly average. The term “rigs followed” represents the approximate number of active U.S. onshore drilling rigs to which we were the primary provider of wellhead products and corresponding services during drilling. Additionally, the Company generated greater revenue from its business in Australia compared to the three months ended March 31, 2019.
Rental revenue for the three months ended March 31, 2020 was $36.2 million, a decrease of $2.3 million, or 6%, from $38.5 million for the three months ended March 31, 2019. The decrease was primarily attributable to lower completion activity from our customers and increased competition.
Field service and other revenue for the three months ended March 31, 2020 was $30.9 million, a decrease of $2.8 million, or 8%, from $33.7 million for the three months ended March 31, 2019. The decrease was primarily attributable to decreased customer activity, as rig counts declined in the first quarter of 2020 along with completion activity.
Costs and expenses
Cost of product revenue for the three months ended March 31, 2020 was $56.1 million, an increase of $3.1 million, or 6%, from $53.0 million for the three months ended March 31, 2019. The increase was largely attributable to an increase in product sales volume, tariffs and reserves for inventory obsolescence.
Cost of rental revenue for the three months ended March 31, 2020 was $19.3 million, an increase of $1.5 million, or 9%, from $17.8 million for the three months ended March 31, 2019. The increase was largely attributable to higher depreciation expense on a larger rental fleet as well as increased scrap and rework expenses during the current period.
Cost of field service and other revenue for the three months ended March 31, 2020 was $23.8 million, a decrease of $3.1 million, or 12%, from $26.9 million for the three months ended March 31, 2019. The decrease was attributable to lower payroll costs associated with fewer field personnel.
Selling, general and administrative expense for the three months ended March 31, 2020 was $13.7 million, an increase of $1.0 million, or 8%, from $12.7 million for the three months ended March 31, 2019. The increase was attributable to an increase in our credit loss reserve, higher stock-based compensation expense and greater professional fees. These increases were partially offset by a reduction in annual incentive bonus accruals.
Severance expense for the three months ended March 31, 2020 of $1.0 million was due to severance benefits associated with headcount reductions of 277 U.S. associates announced before the end of the quarter.
In addition to headcount reductions, we also implemented company-wide salary reductions in March 2020 as well as other cost savings, which are estimated to result in approximately $35 million of annualized cost savings, $5 million of which are associated with selling, general and administrative expenses. These cost savings estimates include items such as overtime reductions, benefits and payroll taxes. These estimates are, however, exclusive of additional potential cost saving measures to be taken by the Company, such as a reduction in discretionary payments to associates related to annual incentive bonuses associated with the Company’s financial performance, which totaled approximately $8 million in 2019, $4 million of which was categorized as selling, general and administrative expenses.
Interest income, net. Interest income for the three months ended March 31, 2020 was $0.4 million, compared to less than $0.1 million for the three months ended March 31, 2019. The change is primarily due to higher interest income due to the Company’s higher cash balance.
Other expense, net. Other expense for the three months ended March 31, 2019 of $1.0 million related to offering expenses associated with a secondary offering in March 2019 of our Class A common stock. There was no such expense in the first quarter of 2020.
16
Income tax expense (benefit). Cactus Inc. is subject to U.S. federal and state income taxes on its share of income of Cactus LLC. Income tax expense for the three months ended March 31, 2020 was $7.5 million (18.5% effective tax rate) compared to income tax benefit of $1.0 million for the three months ended March 31, 2019. Our effective tax rate for the quarter is lower than the federal statutory rate of 21% primarily due to the fact that Cactus Inc. is only subject to federal and state income tax on its share of income from Cactus LLC. Income allocated to the non-controlling interest is not subject to U.S. federal or state tax.
Liquidity and Capital Resources
At March 31, 2020 we had $230.2 million of cash and cash equivalents. At March 31, 2020, we had no borrowings outstanding under our ABL Credit Facility and we had $75.0 million of available borrowing capacity. See Note 6 of the Notes to Condensed Consolidated Financial Statements. We were in compliance with the covenants of the ABL Credit Facility as of March 31, 2020.
Our primary sources of liquidity and capital resources are cash on hand, cash flows generated by operating activities and, if necessary, borrowings under our ABL Credit Facility. Depending upon market conditions and other factors, we may also have the ability to issue additional equity and debt if needed.
Our ability to satisfy our liquidity requirements, including cash distributions to the holders of units representing limited liability company interests in Cactus LLC (“CW Units”) to fund their respective income tax liabilities relating to their share of the income of Cactus LLC and to fund liabilities related to the tax receivable agreement (the “TRA”), that we entered into with certain current or past direct and indirect owners of Cactus LLC (the “TRA Holders”), depends on our future operating performance, which is affected by prevailing economic conditions, market conditions in the E&P industry, availability and cost of raw materials, and financial, business and other factors, many of which are beyond our control.
We currently estimate our net capital expenditures for the year ending December 31, 2020 will range from $20 million to $30 million mostly related to rental fleet investments. The majority of our net capital expenditures are expected to be weighted toward the first half of the 2020 fiscal year. We continuously evaluate our capital expenditures, and the amount we ultimately spend will depend on a number of factors, including, among other things, demand for rental assets, available capacity in existing locations, prevailing economic conditions, market conditions in the E&P industry, customers’ forecasts, demand and volatility and company initiatives.
We believe that our existing cash on hand, cash generated from operations and available borrowings under our ABL Credit Facility will be sufficient for at least the next 12 months to meet working capital requirements, anticipated capital expenditures, expected TRA liability payments, anticipated tax liabilities and dividends to holders of our Class A common stock. In addition, we believe we will be able to fund pro rata cash distributions to holders of CW Units (other than Cactus Inc.) resulting from the requirement to make TRA liability payments, tax liabilities and dividends from Cactus Inc.
Cash Flows
Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
The following table summarizes our cash flows for the periods indicated:
Three Months Ended March 31, | ||||||
| 2020 |
| 2019 | |||
(in thousands) | ||||||
Net cash provided by operating activities | $ | 45,161 | $ | 34,239 | ||
Net cash used in investing activities |
| (8,338) |
| (13,847) | ||
Net cash used in financing activities |
| (9,604) |
| (3,555) |
Net cash provided by operating activities was $45.2 million and $34.2 million for the three months ended March 31, 2020 and 2019, respectively. Operating cash flows for 2020 increased from 2019 primarily due to a decrease in net working capital use.
17
Net cash used in investing activities was $8.3 million and $13.8 million for the three months ended March 31, 2020 and 2019, respectively. The decrease was primarily due to lower capital expenditures associated with our rental fleet in 2020 due to reductions in our capital expenditures as a result of the current industry environment.
Net cash used in financing activities was $9.6 million and $3.6 million for the three months ended March 31, 2020 and 2019, respectively. The increase was attributable to $4.3 million in dividend payments to holders of Class A common stock in 2020 and an increase of $2.0 million in Cactus LLC member distributions.
Off-Balance Sheet Arrangements
We do not have off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For quantitative and qualitative disclosures about market risk, see Part II, Item 7A., “Quantitative and Qualitative Disclosures about Market Risk,” in our 2019 Annual Report. Our exposure to market risk has not changed materially since December 31, 2019.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In accordance with Exchange Act Rules 13a-15 and 15d-15, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2020 at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the first quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are party to lawsuits arising in the ordinary course of our business. We cannot predict the outcome of any such lawsuits with certainty, but management believes it is unlikely that pending or threatened legal matters will have a material adverse impact on our financial condition.
Due to the nature of our business, we are, from time to time, involved in other routine litigation or subject to disputes or claims related to our business activities, including workers’ compensation claims and employment related disputes. In the opinion of our management, none of these, whether pending litigation, disputes or claims against us, if decided adversely, will have a material adverse effect on our results of operations, financial condition or cash flows.
Item 1A. Risk Factors.
In addition to the information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our 2019 Annual Report and the risk factors and other cautionary statements contained in our other filings with the Securities and Exchange Commission, which could materially affect our business, results of operations, financial condition or cash flows.
18
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, results of operations, financial condition or cash flows. There have been no material changes in our risk factors from those described in our 2019 Annual Report or our other Securities and Exchange Commission filings except that we are updating the risk factor entitled “Demand for our products and services depends on oil and gas industry activity and customer expenditure levels, which are directly affected by trends in the demand for and price of crude oil and natural gas and availability of capital” as set forth below:
Demand for our products and services depends on oil and gas industry activity and customer expenditure levels, which are directly affected by trends in the demand for and price of crude oil and natural gas and availability of capital.
Demand for our products and services depends primarily upon the general level of activity in the oil and gas industry, including the number of drilling rigs in operation, the number of oil and gas wells being drilled, the depth and drilling conditions of these wells, the volume of production, the number of well completions and the level of well remediation activity, and the corresponding capital spending by oil and gas companies. Oil and gas activity is in turn heavily influenced by, among other factors, current and anticipated oil and natural gas prices locally and worldwide, which have historically been volatile.
Declines, as well as anticipated declines, in oil and gas prices could negatively affect the level of these activities and capital spending, which could adversely affect demand for our products and services and, in certain instances, result in the cancellation, modification or rescheduling of existing and expected orders and the ability of our customers to pay us for our products and services. These factors could have an adverse effect on our results of operations, financial condition and cash flows.
Factors affecting the prices of oil and natural gas include, but are not limited to, the following:
● | demand for hydrocarbons, which is affected by worldwide population growth, economic growth rates and general economic and business conditions; |
● | available excess production capacity within the Organization of Petroleum Exporting Countries (“OPEC”) and the level of oil and gas production by non-OPEC countries; |
● | the continued development of shale plays which may influence worldwide supply; |
● | transportation differentials associated with reduced capacity in and out of the storage hub in Cushing, Oklahoma; |
● | costs of exploring for, producing and delivering oil and natural gas; |
● | political and economic uncertainty and sociopolitical unrest; |
● | oil refining activity and shifts in end-customer preferences toward fuel efficiency and the use of natural gas; |
● | conservation measures and technological advances affecting energy consumption; |
● | potential acceleration of the commercial development of alternative energy sources (such as wind, solar, geothermal, tidal, fuel cells and biofuels); |
● | access to capital and credit markets, which may affect our customers’ activity levels and spending for our products and services; |
● | changes in laws and regulations related to hydraulic fracturing activities; |
● | changes in environmental laws and regulations (including relating to the use of coal in power plants); and |
19
● | natural disasters. |
The oil and gas industry is cyclical and has historically experienced periodic downturns, which have been characterized by diminished demand for our products and services and downward pressure on the prices we charge. The effects of the COVID-19 pandemic and actions taken by governments worldwide to stop the spread of the disease have adversely affected the demand for oil and gas, as well as for our products and services. The collapse in the demand for oil caused by this global health and economic crisis, coupled with oversupply of oil and limited availability of storage capacity could have a material adverse impact on the demand for our products and services which in turn would have a material adverse impact on our financial condition, results of operations and cash flows. The duration and extent of the downturn in oil and gas activity is unknown at this time and the full impact is not yet known and while management anticipates that the industry and economic impact of lower oil prices will have a negative effect on its results of operations, the degree to which these factors will impact our business remains uncertain.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following sets forth information with respect to our repurchase of Class A common stock during the three months ended March 31, 2020 (in whole shares).
Period | Total number of shares purchased (1) | Average price paid per share (2) | |||
January 1-31, 2020 | — | $ | — | ||
February 1-29, 2020 | 39,779 | 28.79 | |||
March 1-31, 2020 | 16,217 | 13.00 | |||
Total | 55,996 | $ | 24.22 |
(1) | Consists of shares of Class A common stock repurchased from employees to satisfy tax withholding obligations related to restricted stock units that vested during the period. |
(2) | Average price paid for Class A common stock purchased from employees to satisfy tax withholding obligations related to restricted stock units that vested during the period. |
20
Item 6. Exhibits.
The following exhibits are required by Item 601 of Regulation S-K and are filed as part of this report.
Exhibit No. |
| Description |
---|---|---|
3.1 | ||
3.2* | Amended and Restated Bylaws of Cactus, Inc., effective as of January 28, 2020 | |
10.1† | ||
10.2† | ||
31.1* | CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2* | CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1** | CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2** | CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS* | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL* | Inline XBRL Taxonomy Calculation Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Label Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Presentation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Definition Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
** Furnished herewith.
† Management contract or compensatory plan or arrangement.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Cactus, Inc. | ||||
| ||||
| ||||
April 30, 2020 | By: | /s/ Scott Bender | ||
Date | Scott Bender | |||
President, Chief Executive Officer and Director (Principal Executive Officer) | ||||
April 30, 2020 | By: | /s/ Stephen Tadlock | ||
Date | Stephen Tadlock | |||
Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) | ||||
22
Exhibit 3.2
AMENDED AND RESTATED BYLAWS OF
CACTUS, INC.
Incorporated under the Laws of the State of Delaware
Effective as of January 28, 2020
Article I
|
Section 1.1 Registered Office. The registered office of Cactus, Inc. (the “Corporation”) in the State of Delaware shall be as set forth in the Amended and Restated Certificate of Incorporation of the Corporation, as it may be amended, restated, supplemented or otherwise modified from time to time (the “Certificate of Incorporation”), and the name of the Corporation’s registered agent at such address is as set forth in the Certificate of Incorporation. The registered office and registered agent of the Corporation may be changed from time to time by the board of directors of the Corporation (the “Board”) in the manner provided by applicable law. |
Section 1.2 Other Offices. The Corporation may have such other offices, either within or without the State of Delaware, as the Board may designate or as the business of the Corporation may from time to time require. |
Section 1.3 Books and Records. The books and records of the Corporation may be kept outside the State of Delaware at such place or places as may from time to time be designated by the Board. |
Article II
|
Section 2.1 Annual Meetings. If required by applicable law, an annual meeting of the stockholders of the Corporation shall be held at such date, time and place, if any, either within or without the State of Delaware, and time as may be fixed by resolution of the Board. Any other proper business may be transacted at the annual meeting. The Board may, at any time prior to the holding of an annual meeting of stockholders, and for any reason, postpone, reschedule or cancel any annual meeting of stockholders previously scheduled by the Board. |
Section 2.2 Special Meetings. Except as otherwise required by law and subject to the rights of holders of any series of preferred stock of the Corporation (the “Preferred Stock”), special meetings of stockholders of the Corporation may only be called in the manner provided in the Certificate of Incorporation. The Board may, at any time prior to the holding of a special meeting of stockholders, and for any reason, postpone, reschedule or cancel any special meeting of the stockholders previously scheduled by the Board. |
Section 2.3 Record Date. |
(A) In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment or recess thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall, unless otherwise required by applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment or recess of the meeting; provided, however, that the Board may fix a new record date for determination of stockholders entitled to vote at the adjourned or recessed meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned or recessed meeting the same date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned or recessed meeting. |
(B) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall not be more than sixty (60) days prior to such action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. |
Section 2.4 Stockholder List. The officer who has charge of the stock ledger shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of stockholders entitled to vote at any meeting of stockholders (provided, however, if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the 10th day before the meeting date), arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in the name of such stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either on a reasonably accessible electronic network (provided that the information required to gain access to the list is provided with the notice of the meeting) or during ordinary business hours at the principal place of business of the Corporation. The stock list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Except as otherwise provided by applicable law, the stock |
ledger of the Corporation shall be the only evidence as to who are the stockholders entitled by this section to examine the list required by this section or to vote in person or by proxy at any meeting of the stockholders. |
Section 2.5 Place of Meeting. The Board, the Chairman of the Board or the Chief Executive Officer, as the case may be, may designate the place of meeting for any annual meeting or for any special meeting of the stockholders. If no designation is so made, the place of meeting shall be the principal executive offices of the Corporation. The Board, acting in its sole discretion, may establish guidelines and procedures in accordance with applicable provisions of the Delaware General Corporation Law (the “DGCL”) and any other applicable law for the participation by stockholders and proxyholders in a meeting of stockholders by means of remote communications, and may determine that any meeting of stockholders will not be held at any place but will be held solely by means of remote communication. Stockholders and proxyholders complying with such procedures and guidelines and otherwise entitled to vote at a meeting of stockholders shall be deemed present in person and entitled to vote at a meeting of stockholders, whether such meeting is to be held at a designated place or solely by means of remote communication. |
Section 2.6 Notice of Meeting. Written or printed notice, stating the place, if any, day and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten (10) days nor more than sixty (60) days before the date of the meeting, in a manner pursuant to Section 7.7 hereof, to each stockholder of record entitled to vote at such meeting. The notice shall specify (i) the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting), (ii) the place, if any, date and time of such meeting, (iii) the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, (iv) in the case of a special meeting, the purpose or purposes for which such meeting is called and (v) such other information as may be required by applicable law or as may be deemed appropriate by the Board, the Chairman of the Board or the Chief Executive Officer or the Secretary of the Corporation. If the stockholder list referred to in Section 2.4 of these Bylaws is made accessible on an electronic network, the notice of meeting must indicate how the stockholder list can be accessed. If the meeting of stockholders is to be held solely by means of electronic communications, the notice of meeting must provide the information required to access such stockholder list during the meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation. The Corporation may provide stockholders with notice of a meeting by electronic transmission provided such stockholders have consented to receiving electronic notice in accordance with the DGCL. Such further notice shall be given as may be required by applicable law. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the notice of meeting. Meetings may be held without notice if all stockholders entitled to vote are present, or if notice is waived by those not present in accordance with Section 7.4 of these Bylaws. |
Section 2.7 Quorum and Adjournment of Meetings. |
(A) Except as otherwise provided by applicable law or by the Certificate of Incorporation, the holders of a majority of the outstanding shares of stock of the Corporation |
entitled to vote at the meeting (the “Voting Stock”), represented in person or by proxy, shall constitute a quorum at a meeting of stockholders, except that when specified business is to be voted on by a class or series of stock voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum of such class or series for the transaction of such business. For the avoidance of doubt, abstentions and broker non-votes shall be treated as present for purposes of determining the presence or absence of a quorum. The chairman of the meeting or a majority of the shares so represented may adjourn or recess the meeting at any time and for any reason, whether or not there is such a quorum. The stockholders present at a duly called meeting at which a quorum is present may continue to transact business until the meeting is adjourned or recessed, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. |
(B) Any meeting of stockholders, annual or special, may adjourn or recess from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned or recessed meeting if the time and place thereof are announced at the meeting at which the adjournment or recess is taken; provided, however, that if the adjournment or recess is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned or recessed meeting, the Corporation may transact any business that might have been transacted at the original meeting. |
Section 2.8 Proxies. At all meetings of stockholders, a stockholder may vote by proxy executed in writing (or in such other manner prescribed by the DGCL) by the stockholder or by his duly authorized attorney-in-fact. Any copy, facsimile transmission or other reliable reproduction of the writing or transmission created pursuant to this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile transmission or other reproduction shall be a complete reproduction of the entire original writing or transmission. No proxy may be voted or acted upon after the expiration of three (3) years from the date of such proxy, unless such proxy provides for a longer period. Every proxy is revocable at the pleasure of the stockholder executing it unless the proxy states that it is irrevocable and applicable law makes it irrevocable. A stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxy bearing a later date with the Secretary of the Corporation. |
Section 2.9 Notice of Stockholder Business and Nominations. |
(A) Annual Meetings of Stockholders. |
(1) Nominations of persons for election to the Board and the proposal of other business to be considered by the stockholders at an annual meeting of stockholders may be made only (a) pursuant to the Corporation’s notice of meeting (or any supplement thereto), (b) by or at the direction of the Board or any committee thereof or (c) subject to the then-applicable terms of the Stockholders’ Agreement (as defined in the Certificate of Incorporation) (with respect to nominations of persons for election to the Board only), by any stockholder of the Corporation who (i) was a stockholder of record at the time of giving of notice provided for in these Bylaws and at the time of the annual meeting, (ii) is entitled to vote at the meeting and (iii) complies with the notice procedures set forth in these Bylaws and |
applicable law as to such business or nomination; Section 2.9(A)(2) of these Bylaws shall be the exclusive means for a stockholder to make nominations or submit other business (other than matters properly brought under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and included in the Corporation’s notice of meeting) before an annual meeting of the stockholders. |
(2) For any nominations or any other business to be properly brought before an annual meeting by a stockholder pursuant to Section 2.9(A)(2) of these Bylaws, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action under the DGCL. To be timely, a stockholder’s notice shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the first anniversary of the preceding year’s annual meeting (which anniversary, in the case of the first annual meeting of stockholders following the close of the Corporation’s initial public offering, shall be deemed to be April 10, 2018; provided, however, that in the event that the date of the annual meeting (other than the first annual meeting following the close of the Corporation’s initial public offering) is scheduled for a date that is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to the date of such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or, if the first public announcement of the date of such annual meeting is less than one hundred (100) days prior to the date of such annual meeting, the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall any adjournment, recess, cancellation, rescheduling or postponement of an annual meeting or any announcement thereof commence a new time period for the giving of a stockholder’s notice as described above. To be in proper form, a stockholder’s notice (whether given pursuant to this Section 2.9(A)(2) or Section 2.9(B)) to the Secretary of the Corporation must: |
(a) set forth, as to each Proposing Person (as defined below), (i) the name and address of such Proposing Person (including, if applicable, the name and address that appear on the Corporation’s books and records) (ii) (A) the class or series, if any, and number of shares of the Corporation that are, directly or indirectly, owned beneficially or of record (within the meaning of Rule 13d-3 under the Exchange Act) by such Proposing Person (except that such Proposing Person shall be deemed to beneficially own any shares of any class or series of capital stock of the corporation as to which such Proposing Person has a right to acquire beneficial ownership at any time in the future), any option, warrant, convertible security, stock appreciation right, swap or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value or volatility of any class or series of shares of the |
Corporation, any “call equivalent position” or “put equivalent position” (as such terms are defined in Rule 16a-1 under the Exchange Act) (including any security or instrument that would not otherwise constitute a derivative security for purposes of such definitions as a result of any feature that would make any conversion, exercise or similar right or privilege of such security or instrument becoming determinable only at some future date or upon the happening of a future occurrence, in which case the determination of the amount of securities into which such security or instrument would be convertible or exercisable shall be made assuming that such security or instrument is immediately convertible or exercisable at the time of such determination) or any other derivative or synthetic arrangement having characteristics of a long position in, or a short position with respect to, any class or series of shares of capital stock of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of stock of the Corporation or otherwise (a “Derivative Instrument”), directly or indirectly, owned beneficially by such Proposing Person and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation, (C) a description of any proxy, contract, arrangement, understanding or relationship pursuant to which such Proposing Person has a right to vote any shares of any security of the Corporation, (D) any short interest in any security of the Corporation (for purposes of these Bylaws a person shall be deemed to have a “short interest” in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), (E) any rights to dividends on the shares of the Corporation owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation, (F) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership, limited liability company or similar entity in which such Proposing Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, is a manager, is a managing member or, directly or indirectly, beneficially owns an interest in a manager or managing member of a limited liability company or similar entity and (G) any performance-related fees (other than an asset-based fee) that such Proposing Person is entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, including without limitation any such interests held by members of such Proposing Person’s immediate family sharing the same household, (iii) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents for, as applicable, the proposal or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder, (iv) a representation that the Proposing Person is a holder of |
record of stock of the Corporation entitled to vote at such meeting, will continue to be a holder of record of stock entitled to vote at such meeting through the date of the meeting and intends to appear in person or by proxy at the meeting to bring such nomination or other business before the meeting, (v) a description of any material interest in such business of the Proposing Person on whose behalf the proposal is made, (vi) a summary of any material discussion regarding the business proposed to be brought before the meeting between such Proposing Person, on the one hand, and any other record or beneficial holder of the shares of any class or series of the Corporation (including their names), on the other hand, and (vii) a representation as to whether such Proposing Person intends or is part of a group that intends to (x) deliver a proxy statement or form of proxy to holders of at least the percentage of the voting power of the Corporation’s outstanding stock required to approve or adopt the proposal or to elect each such nominee or (y) otherwise to solicit proxies from stockholders in support of such proposal or nomination. The information required under this Section 2.9(A)(2) shall be supplemented and updated by such Proposing Person as described under Section 2.9(C)(6); |
(b) if the notice relates to any business other than a nomination of a director or directors that the stockholder proposes to bring before the meeting, set forth (i) a reasonably brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest of each Proposing Person in such business, (ii) the text of the proposal or business (including the text of any resolutions proposed for consideration) and (iii) a complete and accurate description of all agreements, arrangements and understandings (x) between or among any of the Proposing Persons or (y) between or among any Proposing Person and any other person, persons or entity (including their names) in connection with the proposal of such business by such stockholder; |
(c) set forth, as to each person, if any, whom the stockholder proposes to nominate for election or reelection to the Board (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person (presently and for the past five (5) years), (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially and of record by such person, (v) all information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected), (vi) a complete and accurate description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three (3) years, and any |
other material relationships, between or among such stockholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant and (vii) a notarized letter signed by such person stating his or her acceptance of the nomination by the Proposing Person, stating his or her intention to serve as a director for the full term if elected, and consenting to be named as a nominee for director in any proxy statement relating to such person’s election; |
(d) with respect to each nominee for election or reelection to the Board, include a completed and signed questionnaire, representation and agreement required by Section 2.9(A)(4) of these Bylaws; and |
(e) set forth, as the Corporation may require any proposed nominee to furnish, any such additional information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee. |
(3) Notwithstanding anything in the second sentence of Section 2.9(A)(2) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board at least one hundred (100) days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by these Bylaws shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. |
(4) To be eligible to be a nominee for election or reelection as a director of the Corporation, a proposed nominee must deliver (in accordance with the time periods prescribed for delivery of notice under Section 2.9(A)(2) of these Bylaws and applicable law) to the Secretary at the principal executive offices of the Corporation (i) a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire the Proposing Person shall request in writing from the Secretary with at least seven (7) days’ prior |
notice); (ii) a written representation and agreement (in the form provided by the Secretary upon written request) that such person (A) is not and will not become a party to (1) any agreement, arrangement or understanding (whether written or oral) with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote in such capacity on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation or (2) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, is not and will not become a party to any agreement, arrangement or understanding (whether written or oral) with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director of the Corporation that has not been disclosed to the Corporation, (C) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply with all applicable law and all applicable rules of the U.S. exchanges upon which the Common Stock of the Corporation is listed and all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and other guidelines of the Corporation, (D) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, intends to serve a full term if elected as a director of the Corporation and (E) will provide facts, statements and other information in all communications with the Corporation and its stockholders that are or will be true and correct in all material respects and do not and will not omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (iii) a written director agreement (which agreement shall be provided by the Secretary upon written request). |
(5) The foregoing notice requirements of this Section 2.9(A) shall be deemed satisfied by a stockholder with respect to business or a nomination if such stockholder has notified the Corporation of his intention to present a proposal or make a nomination at an annual meeting in compliance with the applicable rules and regulations promulgated under the Exchange Act and such stockholder’s proposal or nomination has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. |
(6) For purposes of these Bylaws, the term “Proposing Person” shall mean (i) the stockholder providing the notice of nomination or any other business proposed to be brought before the meeting of stockholders, (ii) the beneficial owner or beneficial owners, if different, on whose behalf the notice of nomination or any other business proposed to be brought before the meeting is made, (iii) any affiliate or associate (each within the meaning of Rule 12b-2 under the Exchange Act for purposes of these Bylaws) of such stockholder or beneficial owners and (iv) any other person with whom such stockholder or beneficial owner (or any of their respective affiliates or associates) is acting in concert. |
(B) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to a notice of meeting (a) as provided by the then-applicable terms in the Stockholders’ Agreement, (b) by or at the direction of the Board or any committee thereof or (c) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who (i) is a stockholder of record at the time of giving of notice provided for in these Bylaws and at the time of the special meeting, (ii) is entitled to vote at the meeting, and (iii) complies with the notice procedures set forth in these Bylaws and applicable law. In the event a special meeting of stockholders is called for the purpose of electing one or more directors to the Board, any stockholder of record among such requesting stockholders may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by Section 2.9(A)(2) of these Bylaws with respect to any nomination (including the completed and signed questionnaire, representation and agreement required by Section 2.9(A)(2) of these Bylaws) shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or, if the first public announcement of the date of such special meeting is less than one hundred (100) days prior to the date of such special meeting, the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no event shall the public announcement of an adjournment, recess, cancellation, rescheduling or postponement of a special meeting commence a new time period for the giving of a stockholder’s notice as described above. |
(C) General. |
(1) Only such persons who are nominated in accordance with the procedures set forth in these Bylaws or the Stockholders’ Agreement shall be eligible to serve as directors, and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in these Bylaws. Except as otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall be disregarded. |
(2) For purposes of these Bylaws, “public announcement” shall mean disclosure (i) in a press release reported by Dow Jones News Service, the Associated Press, (ii) any other national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder or (iii) in a notice of meeting (or any supplement) pursuant to Section 2.6 of these Bylaws. |
(3) Notwithstanding the foregoing provisions of these Bylaws, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in these Bylaws; provided, however, that any references in these Bylaws to the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the requirements applicable to nominations or proposals as to any other business to be considered pursuant to Section 2.9(A)(2) or Section 2.9(B) of these Bylaws. Nothing in these Bylaws shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of preferred stock of the Corporation (“Preferred Stock”) if and to the extent provided for under applicable law, the Certificate of Incorporation or these Bylaws. |
(4) The Corporation may require any proposed stockholder nominee for director to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation. Unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) making a nomination or proposal under this Section 2.9 does not appear at a meeting of stockholders to present such nomination or proposal, the nomination shall be disregarded and the proposed business shall not be transacted, as the case may be, notwithstanding that proxies in favor thereof may have been received by the Corporation. For purposes of this Section 2.9, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders. |
(5) A stockholder providing notice of a nomination or proposal of other business to be brought before a meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.9 shall be true and correct (i) as of the record date for the meeting and (ii) as of the date that is ten (10) business days prior to the meeting or any adjournment, recess, cancellation, rescheduling or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting (in the case of the update and supplement required to be made as of the record date) and not later than seven (7) business days prior to the date for the meeting, if practicable (or, if not practicable, on the first practicable date prior to any adjournment, recess or postponement thereof (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment, recess or postponement thereof)). |
(6) Notwithstanding anything to the contrary contained in this Section 2.9, for as long as the Stockholders’ Agreement remains in effect with respect to Cadent Energy Partners II, L.P. and its affiliates (“Cadent”) and Cactus WH Enterprises, LLC (“HoldCo”), Cadent and HoldCo (to the extent either is then subject to the Stockholders’ Agreement) shall not be subject to the notice procedures set forth in paragraph (A) (2) or paragraph (B) of this Section 2.9 with respect to any annual or special meeting of stockholders |
Section 2.10 Conduct of Business. Meetings of stockholders shall be presided over by the chairman of the meeting of stockholders (the “chairman of the meeting”), who shall be the Chairman of the Board or, in his or her absence, the Chief Executive Officer or, in his or her absence, the President or, in his or her absence, a Senior Vice President or, in the absence of the foregoing persons, a person designated by the Board, or in the absence of such designation, a person chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence, the chairman of the meeting may appoint any person to act as secretary of the meeting. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the chairman of the meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the chairman of the meeting of stockholders shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of the chairman of the meeting, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) regulation of the manner of voting and conduct of discussion; (iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; (vi) limitations on the time allotted to questions or comments by participants; and (vii) restrictions on the use of audio or visual recording devices at the meeting. The chairman of the meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such chairman of the meeting should so determine, such chairman of the meeting shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. |
Section 2.11 Required Vote. Subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, at any meeting at which directors are to be elected, the directors shall be elected by a plurality of votes cast by the holders of shares entitled to vote in the election. If, in an election where the number of director nominees does not exceed the number of directors to be elected (an “Uncontested Election”), the number of shares voted “for” an incumbent director nominee does not exceed the number of “withhold” votes received by |
such incumbent director nominee, such incumbent director shall be deemed to have tendered his or her resignation to the Board for consideration following the certification of the election results. The Nominating and Governance Committee of the Corporation shall consider such resignation and make a recommendation to the Board on whether to accept or reject such incumbent director’s resignation or whether other action should be taken. The Board shall then consider each such tendered resignation and act on each, taking into account its fiduciary duties to the Corporation and the stockholders. Within 90 days from the date of the certification of the election results, the Corporation shall publicly disclose the decision of the Board, and, if applicable, the Board’s reason for rejecting any such tendered resignation(s). An incumbent director who shall be deemed to have tendered his or her resignation for consideration shall not participate in the Corporation’s Nominating and Governance Committee’s recommendation or the Board’s decision, or any deliberations related thereto. If a director’s resignation pursuant to this Section 2.11 is accepted by the Board, then the Board may fill the resulting vacancy pursuant to the provisions of Section 3.9 or may decrease the size of the Board pursuant to Section 3.2. The Board shall nominate for election or re-election as director only candidates who have tendered irrevocable conditional resignations (in substantially the form attached hereto as Annex A) that will be effective upon (i) the failure of such director to receive more “for” votes than “withhold” votes at the next annual meeting at which they face re-election in an Uncontested Election; and (ii) Board acceptance of such resignation. In addition, the Board shall fill director vacancies and new directorships only with candidates who agree to tender, promptly following their appointment to the Board, the same form of resignation tendered by the other directors. The election of directors by the stockholders shall be by written ballot if directed by the chairman of the meeting or if the number of nominees exceeds the number of directors to be elected. Unless otherwise provided in the Certificate of Incorporation, cumulative voting for the election of directors shall be prohibited. Except as otherwise provided by applicable law, the rules and regulations of any stock exchange applicable to the Corporation, the Certificate of Incorporation, or these Bylaws, in all matters other than the election of directors and certain non-binding advisory votes described below, the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter shall be the act of the stockholders. In non-binding advisory matters with more than two possible vote choices, the affirmative vote of a plurality of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter shall be the recommendation of the stockholders. |
Section 2.12 Treasury Stock. The Corporation shall not vote, directly or indirectly, shares of its own stock owned by it or any other corporation, if a majority of shares entitled to vote in the election of directors of such corporation is held, directly or indirectly by the Corporation, and such shares will not be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the Corporation or such other corporation, to vote stock of the Corporation held in a fiduciary capacity. |
Section 2.13 Inspectors of Elections; Opening and Closing the Polls. At any meeting at which a vote is taken by ballots, the Board by resolution may, and when required by applicable law, shall, appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at |
a meeting of stockholders and the appointment of an inspector is required by applicable law, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his duties, shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality and according to the best of his ability. The inspectors shall have the duties prescribed by applicable law. |
Article III
|
Section 3.1 General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board elected in accordance with these Bylaws. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws required to be exercised or done by the stockholders. The directors shall act only as a Board or a committee thereof, and the individual directors shall have no power as such. |
Section 3.2 Number, Tenure and Qualifications. Subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, if any, the number of directors shall be fixed from time to time in the manner provided in the Certificate of Incorporation. The election and terms of office of directors shall be as set forth in the Certificate of Incorporation. |
Section 3.3 Regular Meetings. Subject to Section 3.5, regular meetings of the Board shall be held on such dates, and at such times and places, as are determined from time to time by resolution of the Board. |
Section 3.4 Special Meetings. Special meetings of the Board shall be called at the request of the Chairman of the Board, the Chief Executive Officer or a majority of the members of the Board then in office. The person or persons authorized to call special meetings of the Board may fix the place, if any, date and time of the meetings. Any business may be conducted at a special meeting of the Board. |
Section 3.5 Notice. Notice of any meeting of directors shall be given to each director at his business or residence in writing by hand delivery, first-class or overnight mail, courier service or facsimile or electronic transmission or orally by telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five (5) days before such meeting. If by overnight mail or courier service, such notice shall be deemed adequately delivered when the notice is delivered to the overnight mail or courier service company at least 24 hours before such meeting. If by facsimile or electronic transmission, such notice shall be deemed adequately delivered when the notice is transmitted at least 24 hours before such meeting. If by telephone or by hand delivery, the notice shall be given at least 24 hours prior to the time set for the meeting and shall be confirmed by facsimile or electronic transmission that is sent promptly thereafter. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board need be specified in the notice of such meeting, except for amendments to these Bylaws, as provided |
under Section 8.1. A meeting may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in accordance with Section 7.4 of these Bylaws. |
Section 3.6 Action by Consent of Board. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, including by electronic transmission, and the writing or writings or electronic transmissions are filed with the minutes of proceedings of the Board or committee. Such consent shall have the same force and effect as a unanimous vote at a meeting, and may be stated as such in any document or instrument filed with the Secretary of State of the State of Delaware. |
Section 3.7 Conference Telephone Meetings. Members of the Board or any committee thereof may participate in a meeting of the Board or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting, except where such person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. |
Section 3.8 Quorum. Subject to Section 3.9, a whole number of directors equal to at least a majority of the Board shall constitute a quorum for the transaction of business, but if at any meeting of the Board there shall be less than a quorum present, a majority of the directors present may, to the fullest extent permitted by law, adjourn the meeting from time to time without further notice unless (i) the date, time and place, if any, of the adjourned meeting are not announced at the time of adjournment, in which case notice conforming to the requirements of Section 3.5 of these Bylaws shall be given to each director, or (ii) the meeting is adjourned for more than 24 hours, in which case the notice referred to in clause (i) shall be given to those directors not present at the announcement of the date, time and place of the adjourned meeting. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. The directors present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum. |
Section 3.9 Vacancies. Subject to applicable law, the rights of holders of any series of Preferred Stock then outstanding and the then-applicable terms of the Stockholders’ Agreement, any newly created directorship that results from an increase in the number of directors or any vacancy on the Board that results from the death, disability, resignation, disqualification or removal of any director or from any other cause shall, unless otherwise required by law or by resolution of the Board, be filled in accordance with the Certificate of Incorporation. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall hold office for the remaining term of his predecessor. No decrease in the number of authorized directors constituting the Board shall shorten the term of any incumbent director. |
Section 3.10 Removal. Subject to the then applicable terms of the Stockholders’ Agreement, directors of the Corporation may be removed in the manner provided in the Certificate of Incorporation and applicable law. |
Section 3.11 Records. The Board shall cause to be kept a record containing the minutes of the proceedings of the meetings of the Board and of the stockholders, appropriate stock books and registers and such books of records and accounts as may be necessary for the proper conduct of the business of the Corporation. |
Section 3.12 Compensation. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board shall have authority to fix the compensation of directors, including fees and reimbursement of expenses. The Corporation will cause each non-employee director serving on the Board to be reimbursed for all reasonable out-of-pocket costs and expenses incurred by him in connection with such service. |
Section 3.13 Regulations. To the extent consistent with applicable law, the Certificate of Incorporation and these Bylaws, the Board may adopt such rules and regulations for the conduct of meetings of the Board and for the management of the affairs and business of the Corporation as the Board may deem appropriate. |
Article IV
|
Section 4.1 Designation; Powers. The Board may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent permitted by applicable law and to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. |
Section 4.2 Procedure; Meetings; Quorum. Any committee designated pursuant to Section 4.1 shall choose its own chairman by a majority vote of the members then in attendance in the event the chairman has not been selected by the Board, shall keep regular minutes of its proceedings and report the same to the Board when requested, and shall meet at such times and at such place or places as may be provided by the charter of such committee or by resolution of such committee or resolution of the Board. At every meeting of any such committee, the presence of a majority of all the members thereof shall constitute a quorum and the affirmative vote of a majority of the members present shall be necessary for the adoption by it of any resolution. The Board shall adopt a charter for each committee for which a charter is required by applicable laws, regulations or stock exchange rules, may adopt a charter for any other committee, and may adopt other rules and regulations for the governance of any committee not inconsistent with the provisions of these Bylaws or any such charter, and each committee may adopt its own rules and regulations of governance, to the extent not inconsistent with these Bylaws or any charter or other rules and regulations adopted by the Board. |
Section 4.3 Substitution of Members. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of the absent or disqualified member. |
Article V
|
Section 5.1 Officers. The officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a Secretary, a Treasurer and such other officers as the Board from time to time may deem proper. The Chairman of the Board shall be chosen from among the directors. All officers elected by the Board shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article V. Such officers shall also have such powers and duties as from time to time may be conferred by the Board or by any committee thereof. The Board or any committee thereof may from time to time elect, or the Chairman of the Board or Chief Executive Officer may appoint, such other officers (including one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers) and such agents, as may be necessary or desirable for the conduct of the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as shall be provided in these Bylaws or as may be prescribed by the Board or such committee thereof or by the Chairman of the Board or Chief Executive Officer, as the case may be. |
Section 5.2 Election and Term of Office. The officers of the Corporation shall be elected or appointed from time to time by the Board. Each officer shall hold office until his successor shall have been duly elected or appointed and shall have qualified or until his death or until he shall resign, but any officer may be removed from office at any time by the affirmative vote of a majority of the Board or, except in the case of an officer or agent elected by the Board, by the Chairman of the Board or Chief Executive Officer. Such removal shall be without prejudice to the contractual rights, if any, of the person so removed. No elected officer shall have any contractual rights against the Corporation for compensation by virtue of such election beyond the date of the election of his successor, his death, his resignation or his removal, whichever event shall first occur, except as otherwise provided in an employment contract or under an employee deferred compensation plan. |
Section 5.3 Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Board. The Chairman of the Board shall be responsible for the general management of the affairs of the Corporation and shall perform all duties incidental to his office that may be required by law and all such other duties as are properly required of him by the Board. He shall make reports to the Board and the stockholders, and shall see that all orders and resolutions of the Board and of any committee thereof are carried into effect. The Chairman of the Board may also serve as Chief Executive Officer, if so elected by the Board. |
Section 5.4 Chief Executive Officer. The Chief Executive Officer shall act in a general executive capacity and shall assist the Chairman of the Board in the administration and operation of the Corporation’s business and general supervision of its policies and affairs. The Chief Executive Officer shall, in the absence of or because of the inability to act of the Chairman of the Board, perform all duties of the Chairman of the Board and preside at all meetings of the Board. The Chief Executive Officer shall have the authority to sign, in the name and on behalf of the Corporation, checks, orders, contracts, leases, notes, drafts and all other documents and instruments in connection with the business of the Corporation. |
Section 5.5 President. The President, if any, shall have such powers and shall perform such duties as shall be assigned to him by the Board. |
Section 5.6 Senior Vice Presidents and Vice Presidents. Each Senior Vice President and Vice President, if any, shall have such powers and shall perform such duties as shall be assigned to him by the Board. |
Section 5.7 Treasurer. The Treasurer shall exercise general supervision over the receipt, custody and disbursement of corporate funds. The Treasurer shall cause the funds of the Corporation to be deposited in such banks as may be authorized by the Board, or in such banks as may be designated as depositaries in the manner provided by resolution of the Board. He shall have such further powers and duties and shall be subject to such directions as may be granted or imposed upon him from time to time by the Board, the Chairman of the Board or the Chief Executive Officer. |
Section 5.8 Secretary. The Secretary shall keep or cause to be kept in one or more books provided for that purpose, the minutes of all meetings of the Board, the committees of the Board and the stockholders; he shall see that all notices are duly given in accordance with the provisions of these Bylaws and as required by applicable law; he shall be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; and he shall see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and in general, he shall perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board, the Chairman of the Board or the Chief Executive Officer. |
Section 5.9 Vacancies. A newly created elected office and a vacancy in any elected office because of death, resignation, or removal may be filled by the Board for the unexpired portion of the term at any meeting of the Board. Any vacancy in an office appointed by the Chairman of the Board or the Chief Executive Officer because of death, resignation, or removal may be filled by the Chairman of the Board or the Chief Executive Officer. |
Section 5.10 Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board, the Chief Executive Officer shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of security holders of or with respect to any action of security holders of any other corporation in which the Corporation may hold securities and otherwise to exercise any and all rights and powers that the Corporation may possess by reason of its ownership of securities in such other corporation. |
Article VI
|
Section 6.1 Stock Certificates and Transfers. The interest of each stockholder of the Corporation shall be evidenced by certificates for shares of stock in such form as the appropriate officers of the Corporation may from time to time prescribe, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock may be uncertificated or electronic shares. The shares of the stock of the Corporation shall be entered in the books of the Corporation as they are issued and shall exhibit the holder’s name and number of |
shares. Subject to the provisions of the Certificate of Incorporation, the shares of the stock of the Corporation shall be transferred on the books of the Corporation, which may be maintained by a third-party registrar or transfer agent, by the holder thereof in person or by his attorney, upon surrender for cancellation of certificates for at least the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require or upon receipt of proper transfer instructions from the registered holder of uncertificated shares and upon compliance with appropriate procedures for transferring shares in uncertificated form, at which time the Corporation shall issue a new certificate to the person entitled thereto (if the stock is then represented by certificates), cancel the old certificate and record the transaction upon its books. |
Each certificated share of stock shall be signed, countersigned and registered in such manner as the Board may by resolution prescribe, which resolution may permit all or any of the signatures on such certificates to be in facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
Section 6.2 Lost, Stolen or Destroyed Certificates. No certificate for shares or uncertificated shares of stock in the Corporation shall be issued in place of any certificate alleged to have been lost, destroyed or stolen, except on production of such evidence of such loss, destruction or theft and on delivery to the Corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board or any financial officer may in its or his discretion require. |
Section 6.3 Ownership of Shares. The Corporation shall be entitled to treat the holder of record of any share or shares of stock of the Corporation as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. |
Section 6.4 Regulations Regarding Certificates. Subject to applicable law, the Board shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration or the replacement of certificates for shares of stock of the Corporation. The Corporation may enter into additional agreements with stockholders to restrict the transfer of stock of the Corporation in any manner not prohibited by the DGCL. |
Article VII
|
Section 7.1 Fiscal Year. The fiscal year of the Corporation shall begin on the first day of January and end on the 31st day of December of each year. |
Section 7.2 Dividends. Except as otherwise provided by law or the Certificate of Incorporation, the Board may from time to time declare, and the Corporation may pay, dividends |
on its outstanding shares of stock, which dividends may be paid in either cash, property or shares of stock of the Corporation. A member of the Board, or a member of any committee designated by the Board, shall be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board, or by any other person as to matters the director reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation, as to the value and amount of the assets, liabilities or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared and paid. |
Section 7.3 Seal. The corporate seal shall have inscribed thereon the words “Corporate Seal,” the year of incorporation and around the margin thereof the words “Cactus, Inc. — Delaware.” |
Section 7.4 Waiver of Notice. Whenever any notice is required to be given to any stockholder or director of the Corporation under the provisions of the DGCL, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing, including by electronic transmission, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders or the Board or committee thereof need be specified in any waiver of notice of such meeting. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. |
Section 7.5 Resignations. Any director or any officer, whether elected or appointed, may resign at any time by giving written notice, including by electronic transmission, of such resignation to the Chairman of the Board, the Chief Executive Officer, the President or the Secretary, and such resignation shall be deemed to be effective as of the close of business on the date said notice is received by the Chairman of the Board, the Chief Executive Officer, the President or the Secretary, or at such later time as is specified therein. No formal action shall be required of the Board or the stockholders to make any such resignation effective. |
Section 7.6 Indemnification and Advancement of Expenses. |
(A) The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”) by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee, trustee or agent of another corporation or of a partnership, joint venture, trust, other enterprise or nonprofit entity, including service with respect to an employee benefit plan (a “Covered Person”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, trustee or agent, or in any other capacity while serving as a director, officer, employee, trustee or agent, against all expenses, liability and loss (including, without limitation, attorneys’ |
fees, judgments, fines, ERISA excise taxes and penalties and amounts paid in settlement) reasonably incurred or suffered by such Covered Person in connection with such proceeding. |
(B) The Corporation shall, to the fullest extent not prohibited by applicable law as it presently exists or may hereafter be amended, pay the expenses (including attorneys’ fees) incurred by a Covered Person in defending any proceeding in advance of its final disposition; provided, however, that to the extent required by applicable law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined by final judicial decision from which there is no further right to appeal that the Covered Person is not entitled to be indemnified under this Section 7.6 or otherwise. |
(C) The rights to indemnification and advancement of expenses under this Section 7.6 shall be contract rights and such rights shall continue as to a Covered Person who has ceased to be a director, officer, employee, trustee or agent and shall inure to the benefit of his heirs, executors and administrators. Notwithstanding the foregoing provisions of this Section 7.6, except for proceedings to enforce rights to indemnification and advancement of expenses, the Corporation shall indemnify and advance expenses to a Covered Person in connection with a proceeding (or part thereof) initiated by such Covered Person only if such proceeding (or part thereof) was authorized by the Board. |
(D) If a claim for indemnification under this Section 7.6 (following the final disposition of such proceeding) is not paid in full within sixty (60) days after the Corporation has received a claim therefor by the Covered Person, or if a claim for any advancement of expenses under this Section 7.6 is not paid in full within thirty (30) days after the Corporation has received a statement or statements requesting such amounts to be advanced, the Covered Person shall thereupon (but not before) be entitled to file suit to recover the unpaid amount of such claim. If successful in whole or in part, the Covered Person shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by applicable law. In any such action, the Corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law. |
(E) The rights conferred on any Covered Person by this Section 7.6 shall not be exclusive of any other rights that such Covered Person may have or hereafter acquire under any statute, any provision of the Certificate of Incorporation, these Bylaws, any agreement or vote of stockholders or disinterested directors or otherwise. |
(F) This Section 7.6 shall not limit the right of the Corporation, to the extent and in the manner permitted by applicable law, to indemnify and to advance expenses to persons other than Covered Persons when and as authorized by appropriate corporate action. |
(G) Any Covered Person entitled to indemnification and/or advancement of expenses, in each case pursuant to this Section 7.6, may have certain rights to indemnification, advancement and/or insurance provided by one or more persons with whom or which such Covered Person may be associated. The Corporation hereby acknowledges and agrees that (i) the Corporation shall be the indemnitor of first resort with respect to any proceeding, expense, liability or matter that is the subject of this Section 7.6, (ii) the Corporation shall be primarily liable for all |
such obligations and any indemnification afforded to a Covered Person in respect of a proceeding, expense, liability or matter that is the subject of this Section 7.6, whether created by law, organizational or constituent documents, contract or otherwise, (iii) any obligation of any persons with whom or which a Covered Person may be associated to indemnify such Covered Person and/or advance expenses or liabilities to such Covered Person in respect of any proceeding shall be secondary to the obligations of the Corporation hereunder, (iv) the Corporation shall be required to indemnify each Covered Person and advance expenses to each Covered Person hereunder to the fullest extent provided herein without regard to any rights such Covered Person may have against any other person with whom or which such Covered Person may be associated or insurer of any such person, and (v) the Corporation irrevocably waives, relinquishes and releases any other person with whom or which a Covered Person may be associated from any claim of contribution, subrogation or any other recovery of any kind in respect of amounts paid by the Corporation hereunder. |
Section 7.7 Notices. Except as otherwise specifically provided herein or required by applicable law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by commercial courier service, or by facsimile or other electronic transmission, provided that notice to stockholders by electronic transmission shall be given in the manner provided in Section 232 of the DGCL. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his last known address as the same appears on the books of the Corporation. Without limiting the manner by which notice otherwise may be given effectively, notice to any stockholder shall be deemed given: (1) if by facsimile, when directed to a number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; (4) if by any other form of electronic transmission, when directed to the stockholder; and (5) if by mail, when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. |
Section 7.8 Facsimile and Electronic Signatures. In addition to the provisions for use of facsimile or electronic signatures elsewhere specifically authorized in these Bylaws, facsimile or electronic signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board or a committee thereof. |
Section 7.9 Time Periods. Except as otherwise explicitly set forth in these Bylaws, in applying any provision of these Bylaws that require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. |
Section 7.10 Reliance Upon Books, Reports and Records. Each director, each member of any committee designated by the Board, and each officer of the Corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the records of the Corporation and upon information, opinions, reports or statements presented to the Corporation by |
any of the Corporation’s officers or employees, or committees designated by the Board, or by any other person as to the matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. |
Section 7.11 Severability. Whenever possible, each provision or portion of any provision of these Bylaws will be interpreted in such manner as to be effective and valid under applicable law, but if any provision or portion of any provision of these Bylaws is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such provision or portion of any provision shall be severable and the invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and these Bylaws will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. |
Article VIII
|
Section 8.1 Amendments. Subject to the provisions of the Certificate of Incorporation, these Bylaws may be amended, altered or repealed (a) by resolution adopted by a majority of the directors present at any special or regular meeting of the Board at which a quorum is present if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting or (b) at any regular or special meeting of the stockholders upon the affirmative vote of at least 662/3% of the shares of the Corporation entitled to vote in the election of directors if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting. |
Notwithstanding the foregoing, Sections 3.9 and 3.10 and this paragraph of Section 8.1 may only be amended, altered or repealed at any regular or special meeting of the stockholders upon the affirmative vote of at least 662/3% of the shares of the Corporation entitled to vote thereon if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting.
Notwithstanding the foregoing, no amendment, alteration or repeal of Section 7.6 shall adversely affect any right or protection existing under these Bylaws immediately prior to such amendment, alteration or repeal, including any right or protection of a present or former director, officer or employee thereunder in respect of any act or omission occurring prior to the time of such amendment.
Notwithstanding the foregoing, (1) so long as the Stockholders’ Agreement remains in effect, the Board shall not approve any amendment, alteration or repeal of any provision of these Bylaws, or the adoption of any new Bylaw, that would be contrary to or inconsistent with the then-applicable terms of the Stockholders’ Agreement and (2) no amendment to the Stockholders’ Agreement (whether or not such amendment modifies any provision to the Stockholders’ Agreement to which these Bylaws are subject) shall be deemed an amendment of these Bylaws for purposes of this Section 8.1.
[Annex A]
Form of Irrevocable Conditional Resignation Letter
Cactus, Inc.
920 Memorial City Way, Suite 300
Houston, Texas 77024
Reference is hereby made to Section 2.11 of the Amended and Restated Bylaws (as amended, the “Bylaws”) of Cactus, Inc., a Delaware corporation (the “Company”), which, among other things, sets forth the Company’s director resignation policy (the “Director Resignation Policy”). Section 2.11 of the Bylaws provide in relevant part as follows:
Subject to the rights of the holders of any series of Preferred Stock to elect directors under specified circumstances, at any meeting at which directors are to be elected, the directors shall be elected by a plurality of votes cast by the holders of shares entitled to vote in the election. If, in an election where the number of director nominees does not exceed the number of directors to be elected (an “Uncontested Election”), the number of shares voted “for” an incumbent director nominee does not exceed the number of “withhold” votes received by such incumbent director nominee, such incumbent director shall be deemed to have tendered his or her resignation to the Board for consideration following the certification of the election results. The Nominating and Governance Committee of the Corporation shall consider such resignation and make a recommendation to the Board on whether to accept or reject such incumbent director’s resignation or whether other action should be taken. The Board shall then consider each such tendered resignation and act on each, taking into account its fiduciary duties to the Corporation and the stockholders. Within 90 days from the date of the certification of the election results, the Corporation shall publicly disclose the decision of the Board, and, if applicable, the Board’s reason for rejecting any such tendered resignation(s). An incumbent director who shall be deemed to have tendered his or her resignation for consideration shall not participate in the Corporation’s Nominating and Governance Committee’s recommendation or the Board’s decision, or any deliberations related thereto. If a director’s resignation pursuant to this Section 2.11 is accepted by the Board, then the Board may fill the resulting vacancy pursuant to the provisions of Section 3.9 or may decrease the size of the Board pursuant to Section 3.2. The Board shall nominate for election or re-election as director only candidates who have tendered irrevocable conditional resignations (in substantially the form attached hereto as Annex A) that will be effective upon (i) the failure of such director to receive more “for” votes than “withhold” votes at the next annual meeting at which they face re-election in an Uncontested Election; and (ii) Board acceptance of such resignation. In addition, the Board shall fill director vacancies and new directorships only with candidates who agree to tender, promptly following their appointment to the Board, the same form of resignation tendered by the other directors. The election of directors by the stockholders shall be by written ballot if directed by the chairman of the meeting or if the number of nominees exceeds the number of directors to be elected. Unless otherwise provided in the Certificate of Incorporation, cumulative voting for the election of directors shall be prohibited. Except as otherwise provided by applicable law, the rules and regulations of any stock exchange applicable to the Corporation, the Certificate of Incorporation, or these Bylaws, in all matters other than the election of directors and certain non-binding advisory votes described below, the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter shall be the act of the stockholders. In non-binding advisory matters with more than two possible vote
choices, the affirmative vote of a plurality of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter shall be the recommendation of the stockholders.
In accordance with the Director Resignation Policy, I hereby resign from my position as a director of the Company, effective upon (i) my failure to receive more votes “for” my election than “withhold” votes at the next annual meeting at which I face re-election in an Uncontested Election; and (ii) Board acceptance of such resignation.
Very truly yours,
____________________________________
Name:
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Scott Bender, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cactus, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
Date: April 30, 2020 |
/s/ Scott Bender |
|
Scott Bender |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen Tadlock, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cactus, Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
Date: April 30, 2020 |
/s/ Stephen Tadlock |
|
Stephen Tadlock Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
This certification is provided pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the Quarterly Report on Form 10-Q for the period ended March 31, 2020 of Cactus, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”).
I, Scott Bender, President, Chief Executive Officer and Director of the Company, certify that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 30, 2020 |
/s/ Scott Bender |
|
Scott Bender President, Chief Executive Officer and Director (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
This certification is provided pursuant to § 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1350, and accompanies the Quarterly Report on Form 10-Q for the period ended March 31, 2020 of Cactus, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”).
I, Stephen Tadlock, Vice President, Chief Financial Officer and Treasurer of the Company, certify that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: April 30, 2020 |
/s/ Stephen Tadlock |
|
Stephen Tadlock Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) |
Property and Equipment, net |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment, net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment, net | 5. Property and Equipment, net Property and equipment are stated at cost. We manufacture or construct most of our own rental assets. During the manufacture of these assets, they are reflected as construction in progress until complete. Property and equipment consists of the following:
|
Equity |
3 Months Ended |
---|---|
Mar. 31, 2020 | |
Equity | |
Equity | 9. Equity As of March 31, 2020, Cactus Inc. owned 62.9% of Cactus LLC as compared to 62.8% as of December 31, 2019. As of March 31, 2020, Cactus Inc. had outstanding 47.4 million shares of Class A common stock (representing 62.9% of the total voting power) and 28.0 million shares of Class B common stock (representing 37.1% of the total voting power). Redemptions of CW Units Pursuant to the First Amended and Restated Limited Liability Company Operating Agreement of Cactus Wellhead, LLC (the “Cactus Wellhead LLC Agreement”), holders of CW Units are entitled to redeem their CW Units, which results in additional Class A common stock outstanding. Since our IPO in February 2018, 32.6 million CW Units have been redeemed in exchange for shares of Class A common stock with 8.5 million occurring during the three months ended March 31, 2019 as part of a secondary offering. We did not receive any of the proceeds as part of the offering and incurred $1.0 million in offering expenses which were recorded in other expense, net, in the consolidated statement of income. No CW Unit redemptions occurred during the three months ended March 31, 2020. Dividends
On January 30, 2020, our board of directors declared a cash dividend of $0.09 per share of Class A common stock of which $4.3 million was paid on March 19, 2020. A de minimis amount of dividends was paid during 2020 to restricted stock unit holders with accrued dividends that vested during the period. Member Distributions Distributions made by Cactus LLC are generally required to be made pro rata among all its members. For the three months ended March 31, 2020, Cactus LLC distributed $3.7 million to Cactus Inc. to fund the March 19, 2020 dividend payment and made pro rata distributions to its other members totaling $2.2 million over the same period. During the three months ended March 31, 2019, Cactus LLC made $0.2 million in pro rata distributions to its members other than Cactus Inc. Limitation of Members’ Liability Under the terms of the Cactus Wellhead LLC Agreement, the members of Cactus LLC are not obligated for debt, liabilities, contracts or other obligations of Cactus LLC. Profits and losses are allocated to members as defined in the Cactus LLC Agreement. |
Revenue - Contracts with customers (Details) - USD ($) $ in Millions |
Mar. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Contract Balances | ||
Deferred revenue | $ 1.5 | $ 1.4 |
Inventories (Details) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Summary of inventories | ||
Raw materials | $ 1,702 | $ 1,538 |
Work-in-progress | 3,857 | 4,619 |
Finished goods | 94,742 | 107,214 |
Total inventory | $ 100,301 | $ 113,371 |
Subsequent Events (Details) - position |
1 Months Ended | 3 Months Ended | |
---|---|---|---|
Apr. 30, 2020 |
Mar. 31, 2020 |
Mar. 31, 2020 |
|
Low Oil Prices And The Coronavirus (COVID-19) [Member] | |||
Subsequent Event [Line Items] | |||
Restructuring and Related Cost, Number of Positions Eliminated | 277 | 277 | |
Subsequent event | |||
Subsequent Event [Line Items] | |||
Restructuring and Related Cost, Number of Positions Eliminated | 212 |
Accounts Receivable and Allowance for Credit Losses (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Dec. 31, 2019 |
|
Accounts Receivable | |||
Unbilled revenue | $ 21,500 | $ 23,800 | |
Allowance for credit losses | |||
Balance at Beginning of Period | 837 | $ 576 | |
Expense (recovery) | 625 | ||
Write off | (32) | ||
Other | 2 | ||
Balance at End of Period | $ 1,430 | $ 578 |
Preparation of Interim Financial Statements and Other Items (Policies) |
3 Months Ended |
---|---|
Mar. 31, 2020 | |
Preparation Of Interim Financial Statements And Other Items | |
Basis of Presentation | Basis of Presentation The financial statements presented in this report represent the consolidation of Cactus Inc. (“Cactus Inc.”) and its subsidiaries (“the Company”), including Cactus Wellhead, LLC (“Cactus LLC”). Cactus Inc. is a holding company whose only material asset is an equity interest consisting of units representing limited liability company interests in Cactus LLC (“CW Units”). Cactus Inc. is the sole managing member of Cactus LLC and 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 a non-controlling interest related to the portion of CW Units not owned by Cactus Inc., which reduces net income attributable to holders of Cactus Inc.’s Class A common stock, par value $0.01 per share (“Class A common stock”). 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. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, these consolidated financial statements do not include all information or notes required by generally accepted accounting principles for annual financial statements and should be read together with our Annual Report on Form 10-K for the year ended December 31, 2019. The consolidated financial statements include all adjustments, which are of a normal recurring nature, unless otherwise disclosed, necessary for a fair statement of the consolidated financial statements for the interim periods. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. |
Use of Estimates | Use of Estimates In preparing our consolidated financial statements in conformity with GAAP, we make numerous estimates and assumptions that affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with a high degree of precision from available data or is not otherwise capable of being readily calculated based on accepted methodologies. In some cases, these estimates are particularly difficult to determine, and we must exercise significant judgment. Actual results could differ materially from the estimates and assumptions that we use in the preparation of our consolidated financial statements. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements Standards Adopted Effective January 1, 2020, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new guidance changed the measurement of credit losses on financial assets measured at amortized cost, including but not limited to trade receivables. The new guidance replaced the prior methodology for recognizing credit losses when it is probable that a loss has been incurred with an expected loss model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of an asset. The allowance for credit losses under the new guidance represents the portion of the asset’s amortized cost basis that we do not expect to collect over the asset’s contractual life, considering past events, current conditions and reasonable and supportable forecasts of future economic conditions. Adoption of the standard did not impact our consolidated financial statements other than certain expanded disclosures. See further discussion and expanded disclosures at Note 3. We also adopted FASB ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) effective January 1, 2020. The new standard simplified the accounting for goodwill impairment by eliminating Step 2 of the current goodwill impairment test. Under the new standard, an entity performs its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Adoption of this standard did not impact our consolidated financial statements. |
Reclassifications | Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. |
Revenue (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues disaggregated by category |
|
Subsequent Events |
3 Months Ended |
---|---|
Mar. 31, 2020 | |
Subsequent Events | |
Subsequent Events | 12. Subsequent Events As a result of significant declines in sales activity, we notified 277 U.S. associates on March 31, 2020 that their position with the Company had been eliminated. Due to the fact that the outlook for our industry has continued to rapidly deteriorate, we reduced our U.S. workforce by an additional 212 associates in April. |
Property and Equipment, net (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment, net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of property and equipment net |
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||
Net income | $ 33,098 | $ 48,446 |
Foreign currency translation adjustments | (1,083) | 270 |
Comprehensive income | 32,015 | 48,716 |
Less: comprehensive income attributable to non-controlling interest | 13,647 | 21,786 |
Comprehensive income attributable to Cactus Inc. | $ 18,368 | $ 26,930 |
VF
M_Z5L^_3U=5GZ1?$ZEG.6K$X2?271MXJ**\IPD12I_HL)+9K04WQY%6^5'(]B
M/$[Q>!T/)(F3Q$Z2_2D)5%K13 29TE:A[,:(;@QW0ZI9G23FJII0:K3$#%=Y
MYVTI>RE%+R7W@L1+R6H!I5"1!JP$&2 ZD-U8T8WE;@QQ8X66P9)XX2( 98QL
MQ8E6'+=":EDY5HO!4COBN!)D8+S/#!DONO'<#1D,*\]SMMH[VDV2#)SQLIL@
MN@G "\?^&LR'W:PN-D[GD_Q"0[HA79?I^$
MRS]^)\,2; _>]*8(S
MMB+>>?'6>R\Y3_8INP2B*>8XQO!%S&:.8)Y]3L'74ASY.SA?AV]7%6XC_/H?
M"O\BV*T2["+!]K\EKL5\?).$+7JJP=1QFBPIL&_C)"^\\\#>\O@F?\+':7\0
MII:M)6=T_F5C_RM$!UY*"\T3,+2M'B>=IE
M%_=QNCG,4=MX/N/Y@K^-:=B4)PK_(+PH,FM&8J?6]R*\<'KDV)HR.&,GXAUJ
M=^B]%CQ-,G8-1#/F-&'X"I,N"(;L2PJ^E>+$_PGGV^&[386[&'[XC\(_"/:;
M!/M(L'NSQ"W,WT6R54\UV"8.DR.E&;HXR"OO,J]W/+[)*WP:]J_"-K)SY&(\
MOFSL?VV,!Y22W&"I+?ZOQ5!0^W!\CV<[3=ED>-//'X@MO[CX#5!+ P04
M" 0DYY0.3D-\; ! #1 P &0 'AL+W=OW5V\#=Z