# ProFrac Holding Corp. (ACDC) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from ProFrac Holding Corp.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1881487/000095017025036251/acdc-20241231.htm
Accession: 0000950170-25-036251
Filing date: 2025-03-10
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/ACDC/
All MD&A years: /company/ACDC/mda/
Previous year: /company/ACDC/mda/fy2023/ (FY 2023)
Next year: /company/ACDC/mda/fy2025/ (FY 2025)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included within “Item 8. Financial Statements and Supplementary Data.” Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the fiscal year ended December 31, 2023, for discussion of our financial condition and results of operations for the year ended December 31, 2023, compared to the year ended December 31, 2022, which is incorporated by reference herein.

In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect the Company’s plans, estimates, or beliefs. Actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, including, without limitation, those described in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and Part I, Item 1A “Risk Factors.”

Overview

We are a vertically integrated and innovation-driven energy services holding company providing hydraulic fracturing, proppant production, other completion services and other complementary products and services to leading upstream oil and natural gas companies engaged in the exploration and production ("E&P") of North American unconventional oil and natural gas resources.

We operate in three reportable business segments: Stimulation Services, Proppant Production and Manufacturing. Our Stimulation Services segment, which primarily relates to ProFrac LLC, owns and operates a fleet of mobile hydraulic fracturing units and other auxiliary equipment that generates revenue by providing stimulation services to our customers. Our Proppant Production segment, which primarily relates to Alpine, provides proppant to oilfield service providers and E&P companies. Our Manufacturing segment sells products such as high horsepower pumps, valves, piping, swivels, large-bore manifold systems, and fluid ends.

Summary Financial Results

•
Total revenue for 2024 was $2,190.9 million compared to $2,630.0 million in 2023.

•
Net loss for 2024 was $207.8 million compared to net loss of $59.2 million in 2023.

•
Cash provided by operating activities for 2024 was $367.3 million compared to $553.5 million in 2023.

•
Total principal amount of long-term debt was $1,138.9 million at December 31, 2024 compared to $1,107.9 million at December 31, 2023.

2024 Developments

In April 2024, we acquired all of the remaining equity interests of Basin Production and Completion LLC (“BPC”). BPC is the parent company of FHE USA LLC, which manufactures equipment used in the hydraulic fracturing industry. The total purchase consideration was $39.8 million, consisting of cash consideration of $14.9 million and our pre-existing investment of $24.9 million.

In June 2024, we acquired 100% of the issued and outstanding capital stock of Advanced Stimulation Technologies, Inc. (“AST”), a pressure pumping services provider serving the Permian Basin, for total purchase consideration of $174.0 million in cash.

In June 2024, we acquired 100% of the issued and outstanding common stock of NRG Manufacturing, Inc., which manufactures equipment used in the hydraulic fracturing industry, and its affiliate, AMI US Holdings, Inc., which develops commercial software used in hydraulic fracturing industry (collectively, “NRG”), for total purchase consideration of $6.0 million in cash.

In May 2024, the Company formed a new entity, Livewire Power, LLC (“Livewire”), which began operations in October 2024. Livewire enables onsite power generation services for oilfield and non-oilfield customers that require off-grid power solutions. Livewire’s power generation equipment is comprised of owned and leased natural gas reciprocating engines and turbine assets. Livewire’s results of operations were immaterial for 2024.

In December 2024, we sold certain stimulation service equipment to the Wilks Parties in exchange for cash consideration of approximately $40.0 million. We now lease such equipment from the Wilks Parties in exchange for aggregate monthly lease payments totaling $44.8 million through December 2028. The cash consideration received was $26.5 million more than the carrying value of these assets. Because this sale was to an affiliate under common control, we accounted for the $26.5 million as an equity transaction recorded as a deemed contribution within our consolidated statements of changes in equity.

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2023 Developments

In December 2023, we completed the refinancing of our existing senior secured term loan and other debt with two new financings totaling $885 million, which will both mature in 2029. As a result of these transactions, we extended our significant debt maturities to 2029. For more information, see “Note 7. Debt” in the notes to our consolidated financial statements.

In September 2023, we entered into a purchase agreement with THRC Holdings, LP and FARJO Holdings, LP, both Wilks Parties, whereby we issued and sold 50,000 shares of Preferred Stock for gross proceeds of $50.0 million. For more information, see “Note 9. Preferred Stock” and “Note 17. Related Party Transactions” in the notes to our consolidated financial statements.

In February 2023, we acquired Performance Proppants, LLC, a Texas limited liability company, and certain related companies for total purchase consideration of approximately $462.8 million. Performance Proppants is a frac sand provider with four sand mines in the Haynesville basin.

In January 2023, we acquired Producers Service Holdings LLC, a Delaware limited liability company, an employee-owned pressure pumping services provider serving Appalachia and the Mid-Continent, for total purchase consideration of approximately $35.0 million. Through this transaction, we added hydraulic fracturing equipment, totaling 200,000 HHP as well as a 50,000 square foot manufacturing facility located near Zanesville, OH, through which we have expanded our manufacturing footprint to support Northeast operations.

Overall Trends and Outlook

While the 2024 year was challenging for the Company, we continued to provide outstanding service quality to customers and recorded multiple company records in hydraulic fracturing efficiencies as we progressed through 2024. In 2025, we have seen improvement in our Stimulation Services segment activity levels driven by increased customer demand for our services. Additionally, we believe the industry’s activity levels will allow for growth in our Proppant Production segment primarily driven by expected improved utilization and that business’s significant degree of operating leverage. We are focused on improving our performance in 2025 through three areas: providing superior customer service, improved utilization of our assets, and firm cost control. We expect these areas of focus, combined with our strategic initiatives, to improve our relative commercial positioning and financial results during 2025.

Results of Operations

Revenues

The following table summarizes revenues by reportable segment:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","","2023"],["Revenues"],["Stimulation services","","$","1,914.4","","","$","2,291.2"],["Proppant production","","","246.5","","","","383.3"],["Manufacturing","","","222.8","","","","176.1"],["Other","","","195.5","","","","193.0"],["Eliminations","","","(388.3",")","","","(413.6",")"],["Total revenues","","$","2,190.9","","","$","2,630.0"]]
[[/GREPCENT_TABLE]]

Stimulation Services revenues in 2024 decreased $376.8 million, or 16%, from 2023 This decrease was due to a decrease in average active fleets and lower fleet utilization in 2024. This decrease was primarily attributable to a lower number of average active fleets in 2024, lower average pricing for our services, and an increase in the portion of customers who provided their own proppant and chemistry. These decreases were partially offset by increased utilization of our active fleets in 2024 and the acquisition of AST, which contributed revenue starting in June 2024.

Proppant Production revenues in 2024 decreased $136.8 million, or 36%, from 2023. This decrease was attributable to lower average prices for products sold and a reduction in volumes sold in 2024. Revenue recognized for the amortization of acquired off-market contracts was $43.7 million and $57.5 million in 2024 and 2023, respectively. Intersegment revenues for the Proppant Production segment were 26% and 30% in 2024 and 2023, respectively.

Manufacturing revenues in 2024 increased $46.7 million, or 27%, from 2023. This increase was attributable to higher intercompany demand for manufacturing products. Additionally, the acquisition of BPC and NRG contributed revenue starting in April 2024 and June 2024, respectively. Intersegment revenues for the Manufacturing segment were 77% and 89% in 2024 and 2023, respectively.

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Other revenues in 2024 increased $2.5 million, or 1%, from 2023. Flotek recorded $32.5 million and $20.1 million of revenue in 2024 and 2023, respectively, related to contract shortfalls with the Stimulation Services segment. Intersegment revenues for Flotek were 63% and 65% in 2024 and 2023, respectively.

Cost of Revenues

The following table summarizes our cost of revenues, exclusive of depreciation, depletion, and amortization, by reportable segment:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","","2023"],["Cost of revenues, exclusive of depreciation, depletion, and amortization:"],["Stimulation services","","$","1,394.8","","","$","1,668.9"],["Proppant production","","","137.6","","","","171.6"],["Manufacturing","","","190.5","","","","147.0"],["Other","","","152.5","","","","166.2"],["Eliminations","","","(380.3",")","","","(413.6",")"],["Total cost of revenues, exclusive of depreciation, depletion, and amortization","","$","1,495.1","","","$","1,740.1"]]
[[/GREPCENT_TABLE]]

Stimulation Services cost of revenues in 2024 decreased $274.1 million, or 16%, from 2023. This decrease was primarily attributable to a decrease in average active fleets and decreased volume of proppant and chemistry in 2024. Cost of revenues for this segment included an intercompany supply commitment charge of $32.5 million in 2024 and $20.1 million in 2023 because the Stimulation Services segment did not purchase the minimum contractual commitment of chemistry products from Flotek.

Proppant Production cost of revenues in 2024 decreased $34.0 million, or 20%, from 2023. This reduction was primarily attributable to lower volumes sold in 2024.

Manufacturing cost of revenues in 2024 increased $43.5 million, or 30%, from 2023. This increase was primarily attributable to higher volumes of products sold to intercompany and third-party customers in 2024. Additionally, the acquisition of BPC and NRG contributed costs beginning in April 2024 and June 2024, respectively.

Other cost of revenues in 2024 decreased $13.7 million, or 8%, from 2023. This decrease was primarily attributable to Flotek’s decreased product sales and lower freight costs.

Selling, General and Administrative

The following table summarizes our selling, general and administrative expenses:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","","2023"],["Selling, general and administrative:"],["Selling, general and administrative, excluding stock-based compensation","","$","197.3","","","$","203.8"],["Stock-based compensation related to deemed contributions","","","\u2014","","","","19.7"],["Stock-based compensation","","","7.3","","","","10.1"],["Total selling, general and administrative","","$","204.6","","","$","233.6"]]
[[/GREPCENT_TABLE]]

Selling, general and administrative (“SG&A”) expenses in 2024 decreased $29.0 million, or 12%, from 2023. Excluding stock-based compensation expense, SG&A expenses decreased $6.5 million, or 3%. This decrease was due to cost savings initiatives, which was partially offset by higher labor and non-labor costs associated with our 2024 acquisitions. See “Note 11. Stock-based Compensation” in the notes to our consolidated financial statements for a discussion of our stock-based compensation.

Depreciation, Depletion, and Amortization

The following table summarizes our depreciation, depletion, and amortization:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","","2023"],["Depreciation, Depletion, and Amortization"],["Depreciation","","$","386.8","","","$","387.1"],["Amortization","","","36.3","","","","35.2"],["Depletion","","","19.1","","","","16.1"],["Total depreciation, depletion, and amortization","","$","442.2","","","$","438.4"]]
[[/GREPCENT_TABLE]]

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Depreciation, depletion, and amortization was $442.2 million in 2024, which was consistent with $438.4 million in 2023.

Acquisition Related Expenses

Acquisition and integration costs consist of professional and advisory fees, acquisition related severance expenditures, and other costs associated with acquisition and integration activities. Acquisition related expenses were $7.8 million and $21.8 million in 2024 and 2023, respectively. These costs related to our acquisition and integration activities in the respective periods.

Goodwill Impairment

In 2024, a decline in natural gas prices reduced our customers’ activity levels in the Haynesville basin, which is heavily concentrated with natural gas wells. This activity downturn has significantly reduced the operating results of our Haynesville Proppant reporting unit. In the second quarter of 2024, we noted that our customers’ activity levels were not expected to significantly recover in the short-term. The reduced operating results of our Haynesville Proppant reporting unit therefore resulted in a triggering event and, accordingly, we performed an interim quantitative impairment test in the second quarter of 2024. Based upon the results of our interim quantitative impairment test, we concluded that the carrying value of the Haynesville Proppant reporting unit exceeded its estimated fair value, which resulted in a goodwill impairment charge of $67.7 million in 2024. This goodwill impairment charge represented all of the goodwill recorded on the Haynesville Proppant reporting unit. If overall market conditions deteriorate, or if we are unable to achieve our forecasted results, future non-cash impairment charges may result in other reporting units which could be material.

In 2024, we experienced a decline in our operating results for our Permian Proppant reporting unit and our Eagle Ford Proppant reporting unit. In the third quarter of 2024, we noted that our operating results for these reporting units were not expected to significantly recover in the short-term. The reduced operating results for these reporting units resulted in triggering events and, accordingly, we performed interim quantitative impairment tests in the third quarter of 2024. Based upon the results of our interim quantitative impairment tests, we concluded that the carrying values of the Permian Proppant and Eagle Ford Proppant reporting units exceeded their estimated fair values, which resulted in goodwill impairment charges of $2.4 million and $4.4 million, respectively, in 2024, which represented all of the goodwill recorded on these reporting units.

Other Operating Expenses, Net

The following table summarizes our other operating expenses, net:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","","2023"],["Litigation expenses and accruals for legal contingencies","","$","15.7","","","$","34.1"],["Gain on insurance recoveries","","","(4.9",")","","","\u2014"],["Transaction costs","","","3.9","","","","\u2014"],["Severance charges","","","2.5","","","","1.1"],["(Gain) loss on disposal of assets","","","0.3","","","","(1.7",")"],["Impairment of long-lived assets","","","\u2014","","","","2.5"],["Supply commitment charge","","","9.6","","","","\u2014"],["Acquisition earnout adjustments","","","\u2014","","","","(6.6",")"],["Provision for credit losses, net of recoveries","","","\u2014","","","","0.1"],["Total","","$","27.1","","","$","29.5"]]
[[/GREPCENT_TABLE]]

Litigation expenses and accruals for legal contingencies generally represent legal and professional fees incurred in significant litigation as well as estimates for loss contingencies with regards to certain vendor disputes and litigation matters. In 2024, substantially all of these costs represent litigation costs incurred in connection with certain patent infringement lawsuits with Halliburton, which were settled in September 2024. See "Note 14. Commitments and Contingencies" in the notes to our consolidated financial statements for a discussion of significant litigation matters. In 2023 more than half of these costs were related to litigation costs incurred in connection with the lawsuits against Halliburton.

Gain on insurance recoveries consists of insurance proceeds received for accidentally damaged or destroyed equipment in excess of its carrying value.

The transaction costs for 2024 represent deferred costs incurred for Alpine's initial public offering that were charged to earnings as a result of its postponement.

Severance charges related to the departure of certain highly-compensated employees.

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Gain or loss on disposal of assets, net consists of gains or losses on excess property, early equipment failures, and other asset dispositions.

Impairments of long-lived assets in 2023 related to certain construction-in-process assets at one of our acquired sand mines that were abandoned.

Supply commitment charges for 2024 represent charges related to contractual inventory purchase commitments to certain proppant suppliers. These charges were attributable to our decreased volume of purchases from these suppliers due to certain customers decreasing their activity levels. If future customer demand differs from our contracted supply, we may incur additional supply commitment charges in future periods.

Interest Expense, Net

Interest expense, net in 2024 was $156.6 million, which was consistent with $154.9 million in 2023. We are subject to interest rate risk on our variable-rate debt. A 1% increase in interest rates on our variable-rate debt as of December 31, 2024, would increase the annual interest expense for this debt by approximately $10.7 million. See “Note 7. Debt” in the notes to our consolidated financial statements for additional discussion related to our debt.

Loss on Extinguishment of Debt

As a result of debt refinancing transactions and debt repayments in 2023, we recognized a loss on extinguishment of debt of $33.5 million in 2023.

Other Income (Expense), Net

Other income, net in 2024 was $3.0 million. Other expense, net in 2023 was $36.2 million. This balance was primarily due to an unrealized loss on our investment in BPC of $30.2 million. See “Note 6. Investments” in the notes to our consolidated financial statements for discussion of our investment in BPC. This balance was also due to a loss of $8.5 million on our Munger make-whole provision. See “Note 15. Fair Value Measurements” in the notes to our consolidated financial statements for discussion of the Munger make-whole provision.

Income Tax Benefit (Expense)

Income tax benefit in 2024 was $7.0 million for an effective tax rate of 3.3%. Our income tax provision included a benefit of $25.6 million related to the release of a portion of the valuation allowance on our deferred tax assets. This item was caused by the assumption of a $25.6 million net deferred tax liability in our acquisition of AST, which made it more likely than not that we would be able to utilize a corresponding amount of our deferred tax assets. Excluding this item, the difference between our effective tax rate and the federal statutory rate related to changes in the valuation allowance on our deferred tax assets.

Income tax expense in 2023 was $1.2 million for an effective tax rate of negative 2.1%. The difference between the U.S. statutory tax rate of 21% and the effective tax rate was due to the income that was earned within the financial statement consolidated group that was not subject to tax within the financial statement consolidated group and changes in the valuation allowance on our deferred tax assets.

Liquidity and Capital Resources

Sources of Liquidity

Our primary sources of liquidity are cash flows from operations and availability under our revolving credit facility. While Flotek is included in our consolidated financial statements, we do not have the ability to access or use Flotek’s cash or liquidity in our operations and, accordingly, have excluded Flotek’s cash and other sources of liquidity from the following discussion of our liquidity and capital resources. See “Note 4. Business Combinations” in the notes to our consolidated financial statements for discussion of our ownership of Flotek.

Our Alpine 2023 Term Loan requires us to segregate collateral associated with Alpine and limits our ability to use Alpine's cash or assets to satisfy our obligations or the obligations of our other subsidiaries. We also have limited ability to provide Alpine with liquidity to satisfy its obligations. See “Note 7. Debt” in the notes to our consolidated financial statements for more information.

At December 31, 2024, we had $10.4 million of cash and cash equivalents, excluding Flotek, and $70.7 million available for borrowings under our revolving credit facility which resulted in a total liquidity position of $81.1 million. Refer to “Note 7. Debt” in the notes to our consolidated financial statements for more information regarding our revolving credit facility.

We believe that our cash and cash equivalents, cash provided by operations, and the availability under our revolving credit facility will be sufficient to fund our capital expenditures, satisfy our obligations, and remain in compliance with our existing debt covenants for at least the next 12 months. Alpine is closely monitoring its forthcoming debt covenant compliance obligation that commences in the fiscal quarter ending March 31, 2026. While there can be no assurance, Alpine believes that

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it will be able to meet, modify, or further defer this debt covenant. See “Note 7. Debt” in the notes to our consolidated financial statements for more information about this forthcoming debt covenant.

If we pursue additional acquisitions during 2025, we will likely need to raise additional debt and/or equity financing to fund them. There is no assurance we could do that on favorable terms, if at all.

Cash Flows

The following table provides a summary of our cash flows:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","","2023"],["Net cash provided by (used in):"],["Operating activities","","$","367.3","","","$","553.5"],["Investing activities","","","(372.3",")","","","(715.8",")"],["Financing activities","","","(5.5",")","","","149.7"],["Net change in cash, cash equivalents, and restricted cash","","$","(10.5",")","","$","(12.6",")"]]
[[/GREPCENT_TABLE]]

Net cash provided by operating activities was $367.3 million and $553.5 million 2024 and 2023, respectively. Cash flows from operating activities consists of net income or loss adjusted for non-cash items and changes in net working capital.

Operating Activities. Net income or loss adjusted for non-cash items in 2024 resulted in a cash increase of $278.8 million compared with a cash increase of $423.5 million in 2023. The change was primarily due to lower earnings in 2024.

The net change in working capital in 2024 resulted in a cash increase of $88.5 million compared with a cash increase of $130.0 million in 2023. The change was primarily due to a decrease in cash provided by accounts receivable in 2024, which was partially offset by an increase in cash provided by inventory in 2024 and a decrease in cash used in accounts payable in 2024.

Investing Activities. Net cash used in investing activities was $372.3 million and $715.8 million in 2024 and 2023, respectively. The change was primarily due to decreased cash used for acquisitions and $40 million of proceeds received in an equipment sale-leaseback related-party transaction.

Financing Activities. Net cash provided by financing activities was $5.5 million in 2024. Net cash used in financing activities was $149.7 million in 2023. In 2024 debt repayments net of cash borrowed was $4.0 million. In 2023 cash borrowed net of debt repayments was $101.6 million, and we received $48.9 million in net proceeds from our preferred stock offering.

Cash Requirements

Our material cash requirements have consisted of, and we anticipate will continue to consist of the following:

•
debt service obligations, including interest and principal;

•
capital expenditures;

•
purchase commitments;

•
tax receivable agreement payments; and

•
acquisitions of strategic businesses.

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Debt Service Obligations

The following table summarizes our outstanding indebtedness as of December 31, 2024 and our future maturities:

[[GREPCENT_TABLE]]
[["","","2025","","","2026","","","2027","","","2028","","","2029","","","Thereafter","","","Total"],["ProFrac Holding Corp.:"],["2029 Senior Notes","","$","72.3","","","$","72.3","","","$","72.3","","","$","72.3","","","$","295.0","","","$","\u2014","","","","584.2"],["2022 ABL Credit Facility","","","\u2014","","","","\u2014","","","","139.8","","","","\u2014","","","","\u2014","","","","\u2014","","","","139.8"],["Equify Notes (1)","","","5.0","","","","5.0","","","","3.3","","","","\u2014","","","","\u2014","","","","\u2014","","","","13.3"],["Finance lease obligations","","","2.2","","","","2.0","","","","1.8","","","","0.3","","","","\u2014","","","","\u2014","","","","6.3"],["Other","","","8.0","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","8.0"],["ProFrac Holding Corp. principal amount","","","87.5","","","","79.3","","","","217.2","","","","72.6","","","","295.0","","","","\u2014","","","","751.6"],["Alpine Subsidiary:"],["Alpine 2023 Term Loan","","","60.0","","","","60.0","","","","60.0","","","","60.0","","","","110.0","","","","\u2014","","","","350.0"],["Other","","","0.3","","","","0.3","","","","0.2","","","","\u2014","","","","\u2014","","","","\u2014","","","","0.8"],["Finance lease obligations","","","5.2","","","","1.9","","","","0.1","","","","\u2014","","","","\u2014","","","","\u2014","","","","7.2"],["Alpine principal amount","","","65.5","","","","62.2","","","","60.3","","","","60.0","","","","110.0","","","","\u2014","","","","358.0"],["Flotek Subsidiary:"],["Flotek ABL credit facility","","","4.7","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","4.7"],["Flotek other","","","0.1","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","0.1"],["Flotek principal amount","","","4.8","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","4.8"],["Other Subsidiaries:"],["Revolving credit facility","","","5.4","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","5.4"],["Finance lease obligations","","","0.3","","","","0.3","","","","0.3","","","","0.3","","","","0.3","","","","4.9","","","","6.4"],["Other","","","1.1","","","","1.8","","","","0.9","","","","0.6","","","","0.7","","","","7.6","","","","12.7"],["Other subsidiaries principal amount","","","6.8","","","","2.1","","","","1.2","","","","0.9","","","","1.0","","","","12.5","","","","24.5"],["Total principal amount","","$","164.6","","","$","143.6","","","$","278.7","","","$","133.5","","","$","406.0","","","$","12.5","","","$","1,138.9"]]
[[/GREPCENT_TABLE]]

(1)
Related party debt agreements.

See “Note 7. Debt” and “Note 8. Leases” in the notes to our consolidated financial statements for the discussion of our various debt agreements and finance leases, respectively.

Both the 2029 Senior Notes and the ABL Credit Facility contain certain customary representations and warranties and affirmative and negative covenants. As of December 31, 2024, we were in compliance with these covenants.

The Alpine 2023 Term Loan originally contained a covenant commencing with the fiscal quarter ending September 30, 2024, requiring Alpine not to exceed a maximum Total Net Leverage Ratio (as defined in the Alpine Term Loan Credit Agreement) of 2.00 to 1.00. This ratio is generally the consolidated total debt of Alpine divided by Alpine's adjusted EBITDA. This covenant was amended to commence testing compliance with the Total Net Leverage Ratio with the fiscal quarter ending on March 31, 2026. As a result of Alpine’s lower than expected operating results in 2024, Alpine is closely monitoring its forthcoming compliance obligation with this covenant. While there can be no assurance, Alpine believes that it will be able to meet, modify, or further defer this debt covenant.

Capital Expenditures

The nature of our capital expenditures consists of a base level of investment required to support our current operations and amounts related to growth and company initiatives.

In 2024 our capital expenditures were $255.0 million, consisting of maintenance capital expenditures for our fleet, upgrades to legacy pumps, expenditures to maintain efficient operations at our sand mines, and investments in next generation technology.

In 2025 we estimate capital expenditures will range from $150 million to $175 million in maintenance related expenditures and an additional $100 million to $125 million for growth initiatives across all segments. Currently, growth capital expenditures for 2025 are expected to be related to upgrades to our hydraulic fracturing fleet, investments in next generation technology, and sand mine improvements.

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We continually evaluate our capital expenditures and the amount that we ultimately spend will depend on a number of factors, including customer demand for fleets and expected industry activity levels. We believe we will be able to fund our 2025 capital program from cash flows from operations.

Purchase Commitments

As of December 31, 2024, we had purchase commitments of $55.8 million in 2025 for hydraulic fracturing equipment components and proppant.

Tax Receivable Agreement

In connection with our initial public offering, ProFrac Corp. entered into a tax receivable agreement (the “TRA”) with certain holders of limited liability company interests in ProFrac LLC (the “TRA Holders”). The TRA generally provides for payment by ProFrac Corp. to the TRA Holders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that ProFrac Corp. actually realizes as a result of certain equity transactions performed by the TRA Holders.

In 2023 the TRA Holders converted all of their Class B common stock to Class A common stock. See “Note 1. Organization and Description of Business” in the notes to our consolidated financial statements for further discussion of this common stock conversion and related transactions. The tax effect of our IPO and this transaction resulted in an estimated $82.9 million noncurrent TRA liability. As of December 31, 2024, the current liability for our TRA obligation was an additional $3.3 million. The TRA liability will generally be paid under the TRA as ProFrac Corp. realizes actual cash tax savings from the tax benefits covered by the TRA in future tax years. We do not expect a significant increase in the estimate of this liability in future periods.

Acquisitions of Strategic Businesses

Our growth strategy includes potential acquisitions and other strategic transactions. From time to time, we enter into non-binding letters of intent as well as binding agreements to make investments or acquisitions. These arrangements may provide for purchase consideration including cash, notes payable by us, equity or some combination, the use of which could impact our liquidity needs. These letters of intent typically are subject to the completion of satisfactory due diligence, the negotiation and resolution of significant business and legal issues, the negotiation, documentation and completion of mutually satisfactory definitive agreements among the parties, the consent of our lenders, our ability to finance any cash payment at closing, and approval of our board of directors. Any binding agreements we may enter typically include customary closing conditions. We cannot guarantee that any such actual or potential transaction will be completed on acceptable terms, if at all.

We have historically funded our acquisitions through issuances of our equity securities, borrowings under our credit agreements, and issuance of debt securities. For any future acquisitions, we may utilize borrowings under our revolving credit facility and various financing sources available to us, including the issuance of equity or debt securities through public offerings or private placements, to fund these acquisitions. Our ability to complete future offerings of equity or debt securities and the timing and terms of these offerings will depend on various factors including prevailing market conditions and our financial condition.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements and related notes requires us to make estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates, and such differences could be material.

In the notes accompanying the consolidated financial statements included elsewhere in this annual report, we describe the significant accounting policies used in the preparation of our consolidated financial statements. We believe that the following represent the most significant estimates and management judgments used in preparing the consolidated financial statements.

Business Combinations

Business combinations are accounted for under the acquisition method of accounting. Under this method, the assets acquired and liabilities assumed are recognized at their respective fair values as of the date of acquisition. The excess, if any, of the acquisition price over the fair values of the assets acquired and liabilities assumed is recorded as goodwill. For significant acquisitions, we utilize third-party appraisal firms to assist us in determining the fair values for certain assets acquired and liabilities assumed. The measurement of these fair values requires us to make significant estimates and assumptions which are inherently uncertain.

Adjustments to the fair values of assets acquired and liabilities assumed are made until we obtain all relevant information regarding the facts and circumstances that existed as of the acquisition date (the “measurement period”), not to exceed one year from the date of the acquisition. We recognize measurement-period adjustments in the period in which we determine the

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amounts, including the effect on earnings of any amounts we would have recorded in previous periods if the accounting had been completed at the acquisition date.

The estimation of net assets acquired in business combinations requires significant judgment in determination of the fair value of the assets and liabilities acquired. Our fair value estimates require us to use significant observable and unobservable inputs. The estimates of fair value are also subject to significant variability, are sensitive to changes in market conditions, and are reasonably likely to change in the future. A significant change in the observable and unobservable inputs and determination of fair value of the assets and liabilities acquired could significantly impact our consolidated financial statements.

Goodwill Impairment

Goodwill is evaluated for impairment annually in the fourth quarter or whenever events or circumstances indicate the carrying value may not be recoverable. The impairment test involves a comparison of the fair value of each reporting unit with its carrying value. Fair value reflects our estimate of the price a potential market participant would be willing to pay for the reporting unit in an arms-length transaction. Reporting units with significant goodwill balances at December 31, 2024, include our Stimulation Services reporting unit and our Flotek reporting unit.

Determining the fair value of a reporting unit requires complex analysis and judgment. We use a combination of discounted cash flow models and market data, such as earnings multiples and quoted market prices, for observable comparable companies. Discounted cash flow models require detailed forecasts of cash flow drivers, such as revenue growth rates, margin rates, and capital investments as well as estimates of weighted-average cost of capital rates. These estimates are made in the context of many uncertain factors, such as the effectiveness of our strategy, changes in customer behavior, technological changes, competitor actions, regulatory changes and macroeconomic trends.

Income Taxes

Before May 17, 2022, the ProFrac Predecessor entities were organized as limited liability companies or a limited partnership and were treated as either a disregarded entity or a partnership for U.S. federal income tax purposes, whereby the ordinary business income or loss and certain deductions were passed-through and reported on the members’ income tax returns. As such, the Company was not required to account for U.S. federal income taxes in the consolidated financial statements. Certain state income-based taxes are imposed on the Company which are reflected as income tax expense or benefit in historical periods.

In connection with the IPO in May 2022, the Company reorganized and ProFrac LLC became partially owned by ProFrac Corp., a U.S. Internal Revenue Code Subchapter C corporation (“C-Corporation”). ProFrac Corp. is a taxable entity and is required to account for income taxes under the asset and liability method for periods subsequent to May 17, 2022.

Income taxes are accounted for using the asset and liability method. Deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. We recognize future tax benefits to the extent that such benefits are more likely than not to be realized.

We record a valuation allowance to reduce the value of a deferred tax asset if based on the consideration of all available evidence, it is more likely than not that all or some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be objectively verified. We evaluate our deferred income taxes at each reporting date to determine if a valuation allowance is required by considering all available evidence, including historical and projected taxable income and tax planning strategies. We will adjust a previously established valuation allowance if we change our assessment of the amount of deferred income tax asset that is more likely than not to be realized.

An estimate of whether a valuation allowance is necessary and the related amount of the valuation allowance contain uncertainties because it requires us to apply judgment to all positive and negative evidence available to us. When considering the likelihood of whether a deferred tax asset will be available to offset future taxable income, we assess, among other things, our historical and projected income or loss. When performing this assessment, we must consider the cyclical nature of our business. Our business is heavily influenced by current and expected prices for oil and natural gas. These prices are outside of our control and a downturn in the market can result in periods of significant losses for us, which could prevent the realization of a deferred tax asset. We therefore must consider the future possibility of an industry downturn and the severity of its effect on our business when considering all positive and negative evidence related to the realization of our deferred tax assets. Although we believe that our judgments and estimates are reasonable, an adjustment to a valuation allowance in a given period may require a material adjustment in a future period if our assumptions regarding our future taxable income are proven inaccurate due to an industry downturn.

We record uncertain tax positions, if any, in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest

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amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. We had no uncertain tax positions during the periods presented.

Property, Plant and Equipment

We calculate depreciation based on the estimated useful lives of our assets. When assets are placed into service, we make estimates with respect to their useful lives that we believe are reasonable. However, the cyclical nature of our business, which results in fluctuations in the use of our equipment and the environments in which we operate, could cause us to change our estimates, thus affecting the future calculation of depreciation.

We continuously perform repair and maintenance expenditures on our service and mining equipment. Expenditures for renewals and betterments that extend the lives of our equipment, which may include the replacement of significant components of equipment, are capitalized and depreciated. Other repairs and maintenance costs are expensed as incurred. The determination of whether an expenditure should be capitalized or expensed requires management judgment with regard to the effect of the expenditure on the useful life of the equipment.

We separately identify and account for certain significant components of our hydraulic fracturing units including the engine, transmission, and pump, which requires us to separately estimate the useful lives of these components.

Impairment of Long-Lived Assets

We evaluate property, plant, and equipment, operating lease right-of-use assets, and definite-lived intangible assets for impairment when events or changes in circumstances indicate that the carrying value of a long-lived asset may not be recoverable, such as insufficient cash flows or plans to dispose of or sell long-lived assets before the end of their previously estimated useful lives. Recoverability is assessed based on the undiscounted future cash flows generated by the asset or asset group. Estimates of future undiscounted cash flows take into account possible outcomes and probabilities of their occurrence, which require us to apply judgment. If the carrying amount is not recoverable, we recognize an impairment loss equal to the amount by which the carrying amount exceeds fair value. We estimate fair value based on the income, market or cost valuation techniques. Our fair value calculations for long-lived assets contain uncertainties because they require us to apply judgment and estimates concerning future cash flows, strategic plans, useful lives and assumptions about market performance. We also apply judgment in the selection of a discount rate that reflects the risk inherent in our current business model.

Recent Accounting Pronouncements

See “Note 2. Summary of Significant Accounting Policies” in the notes to our consolidated financial statements for further discussion regarding recently issued accounting standards.

Related Party Transactions

See “Note 17. Related Party Transactions” in the notes to our consolidated financial statements for further discussion regarding related party transactions.