Contract Assets

9 Months Ended

Sep. 30, 2023

Revenue Recognition [Abstract]

Contract Assets

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 September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Revenue:
Products (1)	$	45,865	$	44,574	$	141,695	$	85,356
Services	1,403		1,049		4,175		2,518
	$	47,268	$	45,623	$	145,870	$	87,874

(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 September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Cost of sales:
Tangible goods sold	$	33,350	$	43,734	$	116,755	$	80,900
Services	128		126		425		179
Other	4,743		3,605		13,857		11,421
	$	38,221	$	47,465	$	131,037	$	92,500

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 September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Cost of sales:
Cost of sales for external customers	$	14,399	$	15,820	$	42,471	$	58,265
Cost of sales for related parties	23,822		31,645		88,566		34,235
	$	38,221	$	47,465	$	131,037	$	92,500

Contract Assets

Contract assets are as follows (in thousands):

	September 30, 2023		December 31, 2022
Contract assets	$	83,060	$	83,060
Less accumulated amortization	(7,037)		(3,371)
Contract assets, net	76,023		79,689
Less current contract assets	(7,816)		(7,113)
Contract assets, long term	$	68,207	$	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 September 30, 2023 and December 31, 2022, $68.2 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 nine months ended September 30, 2023, the Company recognized $1.3 million and $3.7 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 the three and nine months ended September 30, 2022, the Company recognized $1.2 million and $2.0 million, respectively, 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 nine months ended September 30, 2023)	$	1,658
2024	8,432
2025	9,094
2026	9,094
2027	9,094
Thereafter through May 2032	38,651
Total contract assets	$	76,023

Based on our tests of recoverability, we did not recognize any impairment of such contract assets as of September 30, 2023.