ProFrac Holding Corp.: Form 10-Q for the period ended Mar 31, 2025

The following discussion and analysis of our financial condition and results of operations should be in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included in this Quarterly Report, as well as our Annual Report.

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 the three months ended March 31, 2025 was $600.3 million, which represented an increase of $18.8 million from the same period in 2024.
• Net loss attributable to ProFrac Holding Corp. for the three months ended March 31, 2025 was $17.5 million, which represented a decrease of $19.3 million from the same period in 2024.
• Cash provided by operating activities for the three months ended March 31, 2025, was $38.7 million, a decrease of $40.4 million from the same period in 2024.
• Total principal amount of long-term debt was $1,154.4 million at March 31, 2025, an increase of $15.5 million from December 31, 2024.

Recent Trends and Outlook

Our business depends on the willingness of E&P companies to make expenditures to explore for, develop, and produce oil and natural gas in the United States. The willingness of E&P companies to undertake these activities is predominantly influenced by current and expected future prices for oil and natural gas. Beginning in April 2025, oil and natural gas commodity prices decreased from their respective averages in the first quarter of 2025 and have remained volatile. As a result, some of our customers have begun to reduce their capital spending in the second quarter of 2025 and we consequently expect our consolidated results of operations to decline in the second quarter compared with the first quarter. We have limited visibility for future demand for our products and services as many of our customers are reevaluating their capital expenditure programs for the remainder of 2025.

We also actively monitor the effects of inflation and tariffs on our business; however, the potential effects of inflation and tariffs on our business remain uncertain at this time.

Results of Operations

Revenues

Revenues by reportable segment are as follows:

Stimulation Services. Stimulation Services revenues for the three months ended March 31, 2025 increased $7.2 million, or 1%, from the same period in 2024. This increase was primarily attributable to an increase in average active fleets and higher fleet utilization. This increase was partially offset by lower average pricing for our services and an increase in the portion of customers who provided their own proppant and chemistry.

Proppant Production. Proppant Production revenues for the three months ended March 31, 2025 decreased $10.4 million, or 13%, from the same period in 2024. This decrease was primarily attributable to lower average pricing for our proppant in the first quarter of 2025. This decrease was partially offset by increased volumes sold in 2025. Revenue recognized for the amortization of acquired off-market contracts for the three months ended March 31, 2025 was $5.7 million compared to $16.5 million in the same periods in 2024. Refer to Item 8 "Financial Statements and Supplementary Data" in our Annual Report for information about our acquired contract liabilities. During the three months ended March 31, 2025, approximately 36% of the Proppant Production segment's revenues were intercompany, compared with 31% in the same period in 2024.

Manufacturing. Manufacturing revenues for the three months ended March 31, 2025 increased by $22.3 million, or 51% from the same periods in 2024. This increase was attributable to higher intercompany demand for manufacturing products in the first quarter of 2025. Additionally, the acquisition of BPC and NRG contributed revenue starting in April 2024 and June 2024, respectively. During the three months ended March 31, 2025, approximately 87% of the Manufacturing segment's revenues were intercompany, compared with 78% in the same period in 2024.

Other. Other revenues for the three months ended March 31, 2025 increased by $20.5 million from the same period in 2024. This increase was primarily attributable to increased revenue for Flotek. Flotek recorded contract shortfall revenue of $7.5 million and $8.7 million for the three months ended March 31, 2025 and 2024, respectively, related to contract shortfalls with the Stimulation Services segment. During the three months ended March 31, 2025, approximately 61% of other revenues were intercompany, compared with 68% in the same period in 2024.

Cost of Revenues

Cost of revenues by reportable segment is as follows:

25

Stimulation Services. Stimulation Services cost of revenues for the three months ended March 31, 2025 increased by $25.0 million, or 7%, from the same period in 2024. This increase was primarily attributable to an increase in average active fleets in the first quarter of 2025. This increase was partially offset by decreased volume of proppant and chemistry in the first quarter of 2025. Cost of revenues for this segment included intercompany supply commitment charges of $7.5 million and $8.7 million for the three months ended March 31, 2025 and 2024, respectively, because the Stimulation Services segment did not purchase the minimum contractual commitment of chemistry products from Flotek.

Proppant Production. Proppant Production cost of revenues for the three months ended March 31, 2025 increased by $1.1 million, or 3%, from the same periods in 2024. This increase was primarily attributable to higher volumes sold in the first quarter of 2025.

Manufacturing. Manufacturing cost of revenues for the three months ended March 31, 2025 increased by $21.5 million, or 64%, from the same period in 2024. This increase was primarily attributable to higher volumes of products sold to intercompany customers in the first quarter of 2025. Additionally, the acquisition of BPC and NRG contributed costs beginning in April 2024 and June 2024, respectively.

Other. Other cost of revenues for the three months ended March 31, 2025 increased by $15.5 million, or 48%, from the same period in 2024. This increase was primarily attributable to increased product sales and increased freight costs at Flotek.

Selling, General and Administrative

Selling, general and administrative expenses are comprised of the following:

Selling, general and administrative expenses for the three months ended March 31, 2025 increased by $3.0 million, or 6%, from the same period in 2024. This increase was primarily attributable to labor and facility costs related to the acquisition of BPC, AST and NRG beginning in April 2024, June 2024 and June 2024, respectively, and costs incurred at Livewire, which we launched in the fourth quarter of 2024. These increases were partially offset by decreased stock-based compensation.

Depreciation, Depletion, and Amortization

Depreciation, depletion, and amortization for the three months ended March 31, 2025 decreased by $6.8 million from the same period in 2024.

Acquisition and Integration Costs

Acquisition and integration costs primarily relate to professional fees, severance and other costs associated with our acquisition and integration activities. For the three months ended March 31, 2025, these costs were $0.1 million, compared with $0.2 million in the same period in 2024.

Other Operating Expense, Net

The following table summarizes our other operating expenses, net:

Litigation expenses and accruals for legal contingencies generally represent legal and professional fees incurred in litigation as well as estimates for loss contingencies with regards to certain vendor disputes and litigation matters. In the periods presented, substantially all of these costs represent litigation costs incurred in connection with certain patent infringement lawsuits.

The transaction costs for the three months ended March 31, 2025 represent legal and professional fees incurred for strategic initiatives.

Severance charges for the three months ended March 31, 2024 relate to the departure of certain highly-compensated employees.

(Gain) loss on disposal of assets, net consists of gains and losses on the sale of excess property, early equipment disposals and other asset dispositions.

Supply commitment charges for the three months ended March 31, 2024, represent charges related to contractual inventory purchase commitments to certain proppant suppliers.

Interest Expense, Net

Interest expense, net of interest income, for the three months ended March 31, 2025 was $35.9 million, which was consistent with $37.6 million in the same period in 2024.

Other (Expense) Income, Net

For the three months ended March 31, 2025 we recognized income of $4.8 million, compared with $1.8 million in the same period in 2024. The 2025 income was primarily attributable to a decrease in the fair value of our Munger make-whole provision. The 2024 income was primarily attributable to an increase in the fair value of our investment in BPC.

Income Taxes

Income taxes were $0.3 million for both the three months ended March 31, 2025 and 2024. Our effective tax rate for the three months ended March 31, 2025 was negative 2.0%, compared with 9.1% in the same period in 2024.

In 2025 and 2024, the difference between our effective tax rate and the federal statutory rate related to 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 unaudited condensed 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 10. Variable Interest Entity" in the notes to our unaudited condensed 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. Refer to our Annual Report and "Note 4. Debt" in the notes to our unaudited condensed consolidated financial statements for more information regarding the Alpine 2023 Term Loan.

At March 31, 2025, we had $9.4 million of cash and cash equivalents, excluding Flotek, and $66.1 million available for borrowings under our revolving credit facility, which resulted in a total liquidity position of $75.5 million. Refer to our Annual Report 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 it will be able to meet, modify, or further defer this debt covenant. See “Note 4. Debt” in the notes to our consolidated financial statements for more information about this forthcoming debt covenant.

If we pursue 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

Cash flows provided by (used in) each type of activity were as follows:

Operating Activities. Net cash provided by operating activities was $38.7 million and $79.1 million for the three months ended March 31, 2025 and 2024, respectively. Cash flows from operating activities consist of net income or loss adjusted for non-cash items and changes in net working capital. Net income or loss adjusted for non-cash items for the three months ended March 31, 2025 resulted in a cash increase of $88.9 million compared with a cash increase of $103.0 million in the same period of 2024. This change was primarily due to lower earnings in the first quarter of 2025. The net change in working capital in the first quarter of 2025 resulted in a cash decrease of $50.2 million compared with a cash decrease of $23.9 million in the same period in 2024. The change was primarily due to a decrease in cash provided by accounts receivable in the first quarter of 2025.

Investing Activities. Net cash used in investing activities was $51.7 million and $53.3 million for the three months ended March 31, 2025 and 2024, respectively.

Financing Activities. Net cash provided by financing activities was $14.2 million for the three months ended March 31, 2025, compared to net cash used in financing activities of $22.8 million for the same period in 2024. In the first quarter of 2025, cash borrowed net of debt repayments was $15.5 million. In the first quarter of 2024, debt repayments net of cash borrowed was $21.6 million.

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.

Debt Service Obligations

As of March 31, 2025 we have $1,154.4 million in aggregate principal amount of long-term debt outstanding, with $151.8 million coming due over the next twelve months. For additional information about our long-term debt, see "Note 4. Debt" in the notes to our unaudited condensed consolidated financial statements and Item 8 "Financial Statements and Supplementary Data" in our Annual Report.

Both the 2029 Senior Notes and the ABL Credit Facility contain certain customary representations and warranties and affirmative and negative covenants. As of March 31, 2025, we were in compliance with these covenants and expect to be compliant for at least the next twelve months.

The Alpine 2023 Term Loan contains a covenant commencing with the fiscal quarter ending March 31, 2026, 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. Alpine is closely monitoring its forthcoming compliance obligations 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.

During the three months ended March 31, 2025 our capital expenditures were $52.5 million, consisting of maintenance capital expenditures for our hydraulic fracturing fleet, upgrades to legacy pumps, expenditures to maintain efficient operations at our sand mines, and investments in next generation technology.

For the full year of 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. We have identified approximately $70 million to $100 million of potential capital expenditure reductions to flexibly align with evolving market conditions.

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 March 31, 2025, we had purchase commitments of $41.6 million in 2025 for hydraulic fracturing equipment components and proppant.

Tax Receivable Agreement

As of March 31, 2025 we have $86.2 million of estimated tax receivable agreement obligations, with an estimated $3.3 million coming due over the next twelve months. This obligation will generally be paid under the tax receivable agreement as the Company realizes actual cash tax savings from the tax benefits covered by the tax receivable agreement in future tax years. We do not expect a significant increase in the estimate of this liability in future periods. For additional information about our tax receivable agreement, please see Item 8 "Financial Statements and Supplementary Data" in our Annual Report.

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.

At March 31, 2025, we held no derivative instruments that materially increased our exposure to market risks for interest rates, foreign currency rates, commodity prices or other market price risks. 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 March 31, 2025, would increase the annual interest payments for this debt by approximately $11.1 million.

Evaluation of Disclosure Controls and Procedures

In accordance with Exchange Act Rule 13a-15, we carried out an evaluation, under the supervision and with the participation of management, including our Executive Chairman (our principal executive officer) and our Chief Financial Officer (our principal financial officer), of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Executive Chairman and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2025 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Executive Chairman and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Limitations on Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes in the significant risk factors that may affect our business, results of operations or liquidity as described in Item 1A "Risk Factors" in our Annual Report.