ProFrac Holding (ACDC) risk factors, FY2024 10-K

Risks Related to our Business

1. 01Our business and financial performance depends on the level of capital spending by oil and gas companies operating within the areas we service
2. 02Our business depends upon our ability to obtain specialized equipment, parts and key raw materials from third-party suppliers, and we may be vulnerable to delayed deliveries and future price increases
3. 03The majority of our revenue is generated from the provision of hydraulic fracturing services to a discrete number of recurring customers. During the fiscal years ended on December 31, 2024, 2023 and 2022, our top ten customers represented 37%, 41% and 35% of our consolidated revenues, respectively
4. 04As a vertically integrated company, our Proppant Production segment and power generation business make significant intercompany sales to our Stimulation Services segment and could be adversely affected if our Stimulation Services segment fails to perform as expected
5. 05Our frac sand operations are dependent on our rights and ability to mine our properties and on our having received or renewed the required permits and approvals from governmental authorities and other third parties
6. 06Our operations are subject to unforeseen interruptions and hazards inherent in the oil and natural gas industry, for which we may not be adequately insured, and which could cause us to lose customers and substantial revenue
7. 07We rely on a few key employees whose absence or loss could adversely affect our business
8. 08We rely on contractors to conduct a significant portion of our frac sand mining operations
9. 09Inaccuracies in our estimates of frac sand mineral reserves and resource deposits, or deficiencies in our title to those deposits, could result in our inability to mine the deposits or require us to pay higher than expected costs
10. 10assumptions concerning future effects of regulation, including the issuance of required permits and taxes by governmental agencies
11. 11We may be subject to claims for personal injury and property damage, which could materially adversely affect our financial condition and results of operations
12. 12If we are unable to fully protect our intellectual property rights, we may suffer a loss in our competitive advantage or market share
13. 13If we fail to respond to our customers’ growing demand for environmentally sensitive equipment, our business will be adversely affected
14. 14Our financial results may be materially adversely affected by the inclusion of Flotek’s financial statements in our consolidated financial statements, and we do not have the benefit of Flotek’s cash or liquidity

Risks Related to our Growth Strategy

1. 15Since the beginning of 2022, we have aggressively pursued our growth and vertical integration strategies through a series of acquisitions, investments and procurement arrangements that increased our total assets from $664.6 million at December 31, 2021, to $3.0 billion at the end of fiscal year 2024
2. 16the potential loss of valuable existing employees or customers as a result of our entering into a strategic transaction with a counterparty with whom they may not wish to continue in an employment or commercial relationship
3. 17Our growth and vertical integration objectives require substantial capital that we may be unable to obtain, or may only obtain at a cost or under terms that adversely affect our cash flows, financial condition and results of operations
4. 18We may have difficulty managing growth in our business, which could adversely affect our financial condition and results of operations
5. 19We may experience difficulties in integrating acquired assets into our business and in realizing the expected benefits of an acquisition
6. 20Our indebtedness could adversely affect our financial flexibility and competitive position and make us more vulnerable to adverse economic conditions
7. 21limiting our flexibility in planning for, and reacting to, changes in the economy and in our industry
8. 22Restrictions in our debt agreements and any future financing agreements may limit our ability to finance future operations, meet capital needs or capitalize on potential acquisitions and other business opportunities
9. 23declare and pay distributions and dividends
10. 24An increase in interest rates would increase the cost of servicing our indebtedness and could reduce our profitability, decrease our liquidity and impact our solvency
11. 25We may not be able to generate sufficient cash flow to service all of our obligations, including our obligations under our credit and other financing facilities

Risks Related to Environmental and Regulatory Matters

1. 26Our operations and the operations of our customers are subject to environmental, health and safety laws and regulations, and future compliance, claims, and liabilities relating to such matters may have a material adverse effect on our results of operations, financial position or cash flows
2. 27requirements to perform site investigatory, remedial, or other corrective actions or the incurrence of capital expenditures
3. 28Changes in laws or government regulations could increase our costs of doing business
4. 29New and existing regulatory disclosure requirements may implicate our trade secrets and cause us competitive harm if such trade secrets become public
5. 30Supply chain issues, tariffs, moratoriums, and increased regulatory requirements on our suppliers may impact the cost and availability of raw materials necessary to our operations
6. 31Our operations, and those of our customers, are subject to a series of risks arising from climate change, which ultimately may result in increased GHG regulation, decreased demand for fossil fuels, and fewer oil and gas permits and licenses, all of which may affect our operations and profitability
7. 32Finally, many scientists have concluded that increasing concentrations of GHG in the atmosphere may have significant physical climate effects, such as increased frequency and severity of storms, droughts, and floods and other climate events that could have an adverse effect on our and our customers’ operations
8. 33Oilfield anti-indemnity provisions enacted by many states may restrict or prohibit a party’s indemnification of us
9. 34Conservation measures, commercial development and technological advances could reduce demand for oil and natural gas and our services
10. 35Additional restrictions on drilling activities intended to protect certain species of wildlife may adversely affect our ability to conduct completion activities
11. 36Silica-related health issues and legislation, including compliance with existing or future regulations relating to respirable crystalline silica, or litigation could have an adverse effect on our business, reputation or results of operations
12. 37Spot inspections at mines with a history of repeated silica overexposures to closely monitor and evaluate health and safety conditions
13. 38Reminding miners about their rights to report hazardous health conditions, including any attempt to tamper with the sampling process

Risks related to our Corporate Structure and our Class A Common Stock

1. 39The Issuer is a holding company and its only material asset is its equity interest in ProFrac LLC; accordingly the Issuer is entirely dependent upon distributions from ProFrac LLC to meet its obligations, including the payment of taxes and covering its corporate and other overhead expenses
2. 40Conflicts of interest could arise between us, on the one hand, and Dan Wilks and Farris Wilks and entities owned by or affiliated with them (collectively, the “Wilks Parties”), on the other hand, concerning among other things, business transactions, competitive business activities or business opportunities
3. 41involve and retain to a greater degree outside counsel and accountants in the above activities
4. 42Our stock price may be volatile, which could lead to losses by investors
5. 43the realization of any risks described under this “Risk Factors” section
6. 44The Wilks Parties have the ability to direct the voting of a majority of our voting stock, and their interests may conflict with those of our other stockholders
7. 45A significant reduction by the Wilks Parties of their ownership interests in ProFrac could adversely affect us
8. 46The issuance of Class A Common Stock upon the conversion of the Series A Preferred Stock may cause dilution to our existing stockholders
9. 47Our certificate of incorporation and bylaws, as well as Delaware law, contain provisions that could discourage acquisition bids or merger proposals, which may adversely affect the market price of our Class A Common Stock and could deprive our investors of the opportunity to receive a premium for their shares
10. 48providing that the board of directors is expressly authorized to adopt, or to alter or repeal our bylaws
11. 49The price of our Class A Common Stock may decline as a result of the large number of shares available for sale
12. 50ProFrac Holding Corp. is required to make payments under the Tax Receivable Agreement for certain tax benefits that it may claim, and the amounts of such payments could be significant
13. 51In certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, if any, we realize in respect of the tax attributes subject to the Tax Receivable Agreement
14. 52In the event that payment obligations under the Tax Receivable Agreement are accelerated in connection with certain mergers, other forms of business combinations or other changes of control, the consideration payable to holders of our Class A Common Stock could be substantially reduced
15. 53We will not be reimbursed for any payments made under the Tax Receivable Agreement in the event that any tax benefits are subsequently disallowed
16. 54We may issue preferred stock whose terms could adversely affect the voting power or value of our Class A Common Stock
17. 55If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition and results of operations
18. 56We are a “controlled company” within the meaning of the Nasdaq rules and, as a result, qualify for and intend to rely on exemptions from certain corporate governance requirements
19. 57the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities
20. 58Our business could be adversely affected by a decline in general economic conditions or a weakening of the broader energy industry, and inflation or the imposition of tariffs may adversely affect our financial position and operating results
21. 59Inflationary factors, such as increases in the labor costs, material costs, and overhead costs, may also adversely affect our financial position and operating results
22. 60Developments related to the ongoing wars between Russia and Ukraine and between Israel and Hamas, and the global response thereto, could adversely affect our business, financial condition and results of operations
23. 61We may be adversely affected by disputes regarding intellectual property rights of third parties
24. 62We face significant competition that may cause a loss of market share
25. 63If we are unable to employ a sufficient number of skilled and qualified workers, our capacity and profitability could be diminished and our growth potential could be impaired
26. 64A negative shift in investor sentiment of the oil and gas industry has had and could in the future have adverse effects on our operations and ability to raise capital
27. 65Negative public perception can lead to additional regulatory burdens and reduced business opportunities for us
28. 66We are subject to cyber-security risks. A cyber incident could occur and result in information theft, data corruption, operational disruption and/or financial loss
29. 67We may, in the future, incorporate artificial intelligence in our internal operations, and our third-party service providers may utilize artificial intelligence and machine learning technologies in furnishing services to us