Revenue from Contracts with Customers

6 Months Ended

Jun. 30, 2023

Revenue from Contract with Customer [Abstract]

Revenue from Contracts with Customers

Revenue from Contracts with Customers

Disaggregation of Revenue

The Company differentiates revenue based on whether the source of revenue is attributable to product sales or service revenue.

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

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Revenue:
Products (1)	$	49,062	$	28,588	$	95,829	$	40,787
Services	1,532		785		2,773		1,465
	$	50,594	$	29,373	$	98,602	$	42,252

(1) Product revenue includes sales to related parties as described in Note 16, “Related Party Transactions.”

Disaggregation of Cost of Sales

The Company differentiates cost of sales based on whether the cost is attributable to tangible goods sold, cost of services sold or other costs which cannot be directly attributable to either tangible goods or services.

Total cost of sales disaggregated is as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Cost of sales:
Tangible goods sold	$	41,878	$	27,379	$	83,407	$	37,167
Services	156		105		296		53
Other	4,656		4,194		9,114		7,816
	$	46,690	$	31,678	$	92,817	$	45,036

Other cost of sales represent costs directly associated with the generation of revenue but which cannot be attributed directly to tangible goods sold or services. Examples of other costs of sales are certain personnel costs and equipment rental and insurance costs.

Cost of sales split between external and related party sales is as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Cost of sales:
Cost of sales for external customers	$	16,445	$	13,830	$	27,743	$	24,598
Cost of sales for related parties	30,245		17,848		65,074		20,438
	$	46,690	$	31,678	$	92,817	$	45,036

Contract Assets

Contract assets are as follows (in thousands):

	June 30, 2023		December 31, 2022
Contract assets	$	83,060	$	83,060
Less accumulated amortization	(5,761)		(3,371)
Contract assets, net	77,299		79,689
Less current contract assets	(7,716)		(7,113)
Contract assets, long term	$	69,583	$	72,576

In connection with entering into the ProFrac Agreement on February 2, 2022 and May 17, 2022 as discussed in Note 9, “Debt and Convertible Notes Payable” and Note 16, “Related Party Transactions,” the Company recognized contract assets of $10.0 million and $69.5 million, respectively, and associated fees of $3.6 million. As of June 30, 2023 and December 31, 2022, $69.6 million and $72.6 million, respectively, of the contract assets are classified as long term based upon our estimate of the forecasted revenues from the ProFrac Agreement which will not be realized within the next twelve months of the ProFrac Agreement. The Company’s estimate of the timing of the future contract revenues is evaluated on a quarterly basis.

During the three and six months ended June 30, 2023 the Company recognized $1.1 million and $2.4 million, respectively, of contract assets amortization which is recorded as a reduction of the transaction price included in the related party revenue in the consolidated statement of operations. During each of the three and six months ended June 30, 2022, the Company recognized $0.7 million of contract assets amortization. The below table reflects our estimated amortization per year (in thousands) based on the Company’s current forecasted revenues from the ProFrac Agreement.

Years ending December 31,	Amortization
2023 (excluding the six months ended June 30, 2023)	$	3,226
2024	8,980
2025	8,980
2026	8,980
2027	8,980
Thereafter through May 2032	38,153
Total contract assets	$	77,299

Based on our tests of recoverability, we did not identify impairment of such contract assets as of June 30, 2023.