DEF 14C: ProFrac Shifts Wilks Brothers Fee to Stock Amid Liquidity Push

ProFrac Holding Corp. will pay its annual $7 million shared services fee to related party Wilks Brothers in Class A Common Stock instead of cash to boost liquidity and meet debt covenants, following majority shareholder approval.

Summary

• ProFrac Holding Corp. amended its Shared Services Agreement with Wilks Brothers, LLC, a related party, to pay the annual $7,000,000 Services Fee in Class A Common Stock instead of cash.
• This change is effective until ProFrac Holdings and its subsidiaries achieve a Liquidity of at least $120,000,000, as defined in their ABL Credit Agreement.
• Quarterly stock payments will be determined by dividing $1,750,000 by the 10-day Volume-Weighted Average Price (VWAP) of the Class A Common Stock at the end of each quarter.
• The amendment was a condition for closing certain June 2025 financing transactions, including a reduction in amortization payments and the issuance of $60.0 million in Senior Secured Floating Rate Notes.
• The Audit Committee approved the Letter Agreement on June 27, 2025, and the Principal Stockholders, who collectively hold approximately 75.86% of outstanding Class A Common Stock, approved the issuance via written consent on September 19, 2025.
• The company believes this move will improve liquidity and help comply with financial covenants.
• Stockholders will experience dilution from the issuance of new shares, and the beneficial ownership of the Principal Stockholders will increase.

Sentiment

Score: 3

Explanation: The company is converting a significant cash expense to an equity payment and has negotiated debt covenant relief, suggesting underlying liquidity challenges. While these actions aim to improve the balance sheet, they come at the cost of shareholder dilution and indicate a less robust financial position than if cash payments could be maintained. The related-party nature of the transaction also raises governance considerations.

Positives

• Expected to generate incremental liquidity for the company in 2025.
• Aids in proactive balance sheet management.
• Should improve Liquidity (as defined in the ABL Credit Agreement) by conserving cash.
• Helps facilitate ongoing compliance with certain financial covenants of the company's borrower subsidiary.
• Amortization payments under the Alpine Term Loan Credit Agreement were reduced from $15,000,000 to $5,000,000 for Q2, Q3, and Q4 2025.
• Testing of the Total Net Leverage Ratio was deferred by one year to March 31, 2027.
• Secured $60.0 million in Senior Secured Floating Rate Notes, with $20.0 million already purchased by Wilks Brothers, to fund capital expenditures and general corporate purposes.

Negatives

• Stockholders will experience dilution to the extent shares of Class A Common Stock are issued to Wilks Brothers.
• The payment of the Services Fee in shares of Class A Common Stock could be indefinite if the Liquidity Condition is not satisfied.
• The issuance of shares will increase the beneficial ownership of the Principal Stockholders and certain affiliates, potentially consolidating control.

Risks

• Uncertainty regarding when, if ever, the Liquidity Condition will be satisfied, meaning stock payments could be indefinite.
• Inability to assure when the company would be permitted to resume paying the Services Fee in cash.
• Uncertainty regarding the future price of Class A Common Stock or the number of shares required to be issued on each payment date.
• Uncertainty regarding the extent of the dilutive impact as a result of such issuances.
• Risk that the company may not be able to continue to meet its covenants under its various financing facilities.
• Risk that the company may not be able to obtain sufficient financing on timely, favorable terms, if at all, when deemed necessary or advisable.
• The $3,350,000 exit fee under the Amended Alpine Term Loan Credit Agreement if PFP Holding makes any prepayment, repayment, or payment in full in cash of the Term Loans or if obligations are accelerated.

Future Outlook

The company anticipates that paying the Services Fee in Class A Common Stock will enhance liquidity and improve its ability to comply with debt covenants. However, it cannot assure when the $120 million liquidity condition will be met, meaning stock payments could be indefinite. The company also cannot guarantee the future stock price, the extent of dilutive impact, or its ability to meet financial covenants and secure future financing on favorable terms.

Management Comments

• The Company believes that the benefits to the Company associated with the June 2025 Financing Transactions, which are expected to generate incremental liquidity in 2025 and reflect ProFrac’s proactive balance sheet management, would not have been available as negotiated without the Letter Agreement.
• The Company further believes that payment of the Services Fee in shares of Class A Common Stock, rather than cash, should improve Liquidity as defined in the ABL Credit Agreement, and help facilitate ongoing compliance by the Company’s borrower subsidiary with certain of its financial covenants.
• The Company further believes that payment of the Services Fee in shares of Class A Common Stock through the VWAP formula... approximates the original payment structure... because the amount of shares to be paid each quarter will be determined at the time of each payment and will represent a then-current market valuation of the shares that is intended to equal each quarter’s cash payment provided for under the Shared Services Agreement.

Industry Context

This action reflects a common strategy in capital-intensive industries, particularly during periods of financial strain or when companies seek to preserve cash. By converting a significant cash outflow to an equity payment, ProFrac aims to bolster its balance sheet and meet debt obligations, a move often seen when companies face liquidity challenges or are managing high debt loads. The deferral of leverage ratio testing and reduction in amortization payments suggest a broader industry environment where companies may be seeking flexibility from lenders.

Corporate Governance

Related Party Transactions

• Amendment to Shared Services Agreement between ProFrac Holdings II, LLC (subsidiary) and Wilks Brothers, LLC.
• Wilks Brothers is managed by Dan H. Wilks and Farris Wilks, who are founders and principal stockholders of ProFrac Holding Corp.
• Matthew D. Wilks (Executive Chairman) and Johnathan Ladd Wilks (CEO) are sons of the Principal Stockholders.
• Sergei Krylov (Company director) serves as Investment Partner and CFO of Wilks Brothers.
• Wilks Brothers purchased $20.0 million of the $60.0 million Senior Secured Floating Rate Notes issued by PF Holdings II on June 30, 2025, and is expected to purchase an additional $10.0 million on September 30, 2025.
• The Principal Stockholders and affiliated entities collectively beneficially own approximately 82.7% of Class A Common Stock as of September 19, 2025, and approved the Corporate Action via written consent.

Stakeholder Impact

• Shareholders: Will experience dilution due to the issuance of Class A Common Stock for the Services Fee. The relative beneficial ownership of the Principal Stockholders and their affiliates will increase.
• Creditors: The amendment to pay the Services Fee in stock, along with reduced amortization payments and deferred leverage ratio testing, aims to improve the company's liquidity and ability to comply with debt covenants, which could be viewed positively by creditors. The issuance of new secured notes also impacts the debt structure.
• Management/Wilks Brothers: Wilks Brothers will receive equity instead of cash, aligning their interests more closely with shareholders (though they are already major shareholders) and providing immediate cash relief to ProFrac.

Next Steps

• The Corporate Action (issuance of shares for Services Fee) will be effective on or about November 10, 2025.
• Wilks Brothers and Beal Bank, USA are expected to purchase an additional $20.0 million of New Notes on September 30, 2025 (subject to deferral/cancellation).
• Beal Bank, USA is expected to purchase an additional $20.0 million of New Notes on December 15, 2025 (subject to deferral/cancellation).
• The company will continue to pay the Services Fee in Class A Common Stock until the Liquidity Condition of $120,000,000 is satisfied.

Key Dates

Recommendation

While the company is taking steps to manage its balance sheet and improve liquidity by converting a cash expense to an equity payment and securing debt covenant relief, these actions also signal underlying financial strain. The dilution for existing shareholders and the indefinite nature of the stock payments are significant concerns. The related-party nature of the transactions, while approved by the Audit Committee and majority shareholders, warrants close scrutiny. Given the mixed signals – proactive management of challenges versus the implications of those challenges – a 'hold' recommendation is appropriate for investors to monitor the company's ability to achieve its liquidity targets and manage the dilutive impact.

Keywords

ProFrac Holding Corp., Wilks Brothers, Shared Services Agreement, stock payment, liquidity, debt covenants, related party transaction, dilution, SEC filing, DEF 14C, Nasdaq, ABL Credit Agreement, Senior Secured Floating Rate Notes, corporate governance, shareholder approval