Contract Assets

9 Months Ended

Sep. 30, 2022

Revenue Recognition [Abstract]

Contract Assets

Revenue from Contracts with Customers

Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled in exchange for those goods or services. In recognizing revenue for products and services, the Company determines the transaction price of purchase orders or contracts with customers, which may consist of fixed and variable consideration. Determining the transaction price may require significant judgment by management, which includes identifying performance obligations, estimating variable consideration to include in the transaction price, and determining whether promised goods or services can be distinguished in the context of the contract. Variable consideration typically consists of product returns and is estimated based on the amount of consideration the Company expects to receive and discounts offered to customers for prompt payment.

The majority of the products from the CT segment are sold at a point in time and service contracts are short-term in nature. The DA segment recognizes revenue for sales of equipment at the time of sale. Revenue related to service and support is recognized on an over time basis. Payment terms are customarily 30-60 days for domestic and 90-120 days for international from invoice receipt. In addition, sales taxes are excluded from revenues.

Disaggregation of Revenue

The Company differentiates revenue based on whether the source of revenue is attributable to product sales (point-in-time revenue recognition) or service revenue (over-time revenue recognition).

Revenue disaggregated by revenue source is as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue:
Products (1)	$	44,574	$	9,494	$	85,356	$	29,017
Services	1,049		685		2,518		2,097
	$	45,623	$	10,179	$	87,874	$	31,114

(1) Product revenues for 2022 include sales to related parties as described in Note 16, “Related Party Transactions.”

Arrangements with Multiple Performance Obligations

The Company primarily sells chemicals and equipment recognized at a point in time based on when control transfers to the customer determined by agreed upon delivery terms. Additionally, the Company offers various services associated to products sold which includes field services, installation, maintenance, and other functions. Services are recognized upon completion of commissioning and installation due to the short-term nature of the performance obligation. There may be additional performance obligations related to providing ongoing or reoccurring maintenance. Revenue for these types of arrangements is recognized ratably over time throughout the contract period. Additionally, the Company may provide subscription-type arrangements with customers in which monthly reoccurring revenue is recognized ratably over time in accordance with agreed upon terms and conditions. Customers may be invoiced for such maintenance and subscription-type arrangements and revenue not yet recognizable is reported under accrued liabilities and deferred revenue on the balance sheet. Subscription-type arrangements were not a material revenue stream in the three and nine months ended September 30, 2022 and 2021.

Under revenue contracts for both products and services, customers are invoiced once the performance obligations have been satisfied, at which point payment is unconditional. Contract assets associated with incomplete performance obligations are not material.

Contract Assets

Contract assets are as follows (in thousands):

	September 30, 2022		December 31, 2021
Contract assets	$	83,060	$	—
Less accumulated amortization	(1,986)		—
Contract assets, net	$	81,074	$	—

In connection with entering into the ProFrac Agreements on February 2, 2022 and May 17, 2022 as discussed in Note 9, “Debt and Convertible Notes Payable”, the Company recognized contract assets of $10.0 million and $69.5 million, respectively, and associated fees of $3.6 million. As of September 30, 2022, $73.9 million of the contract assets are classified as long term based upon our estimate of the forecasted revenues from the ProFrac agreements which will not be realized within the next twelve months of the ProFrac Agreements. The Company’s estimate of the timing of the future contract revenues is evaluated on a quarterly basis.

During the three and nine months ended September 30, 2022 the Company recognized $1.2 million and $2.0 million, respectively, of contract assets amortization which is presented as a reduction of the transaction price included in the related party revenue in the consolidated statement of operations. The below table reflects our estimated amortization per year (in thousands) based on the Company’s current forecasted revenues from the ProFrac Agreements.

Years ending December 31,	Amortization
2022 (excluding the nine months ended September 30, 2022 )	$	1,451
2023	7,918
2024	8,692
2025	8,692
2026	8,692
Thereafter through May 2032	45,629
Total contract assets	$	81,074

Based on our tests of recoverability, we did not identify impairment of such contract assets as of September 30, 2022.