Except as otherwise indicated or required by the context, all references in this Quarterly Report to the "Company," "Cactus," "we," "us" and "our" refer to Cactus, Inc. ("Cactus Inc.") and its consolidated subsidiaries, unless we state otherwise or the context otherwise requires. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes. The following discussion contains "forward-looking statements" that reflect our plans, estimates, beliefs and expected performance. Our actual results may differ materially from those anticipated as discussed in these forward-looking statements as a result of a variety of risks and uncertainties, including those described above in "Cautionary Note Regarding Forward-Looking Statements" and included elsewhere in this Quarterly Report, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We assume no obligation to update any of these forward-looking statements except as otherwise required by law.

Executive Summary

We design, manufacture, sell and rent a range of highly engineered wellhead and pressure control equipment. Our products are sold and rented principally for onshore unconventional oil and gas wells and are utilized during the drilling, completion and production phases of our customers' wells. In addition, we provide field services for all of our products and rental items to assist with the installation, maintenance and handling of the wellhead and pressure control equipment.

We operate through service centers in the United States, which are strategically located in the key oil and gas producing regions, including the Permian, SCOOP/STACK, Marcellus, Utica, Eagle Ford, Bakken, among other active oil and gas regions in the United States, and in Eastern Australia. These service centers support our field services and provide equipment assembly and repair services. Our manufacturing and production facilities are located in Bossier City, Louisiana and Suzhou, China.

We operate in one business segment. Our revenues are derived from three sources: products, rentals, and field service and other. Product revenues are primarily derived from the sale of wellhead systems and production trees. Rental revenues are primarily derived from the rental and associated repair of equipment used for well control during the completion process as well as the rental of drilling tools. Field service and other revenues are primarily earned when we provide installation and other field services for both product sales and equipment rental. Additionally, other revenues are derived from providing repair and reconditioning services to customers that have previously installed our products on their wellsite. Items sold or rented generally have an associated service component. As a result, there is some level of correlation between field service and other revenues and revenues from product sales and rentals.

In the three months ended March 31, 2020, we derived 57% of total revenues from the sale of our products, 23% of total revenues from rental and 20% of total revenues from field service and other. In the three months ended March 31, 2019, we derived 55% of total revenues from the sale of our products, 24% of total revenues from rental and 21% of total revenues from field service and other. We have predominantly U.S. operations, with a small amount of sales being generated in Australia.

Market Factors

Demand for our products and services depends primarily upon the general level of activity in the oil and gas industry, including the number of drilling rigs in operation, the number of oil and gas wells being drilled, the depth and drilling conditions of these wells, the number of well completions, the level of well remediation activity, the volume of production and the corresponding capital spending by oil and natural gas companies. Oil and gas activity is in turn heavily influenced by, among other factors, oil and gas prices locally and worldwide, which have historically been volatile.

The key market factors impacting our product sales are the number of wells drilled and placed on production, as each well requires an individual wellhead assembly and, at some time after completion, the installation of an associated production tree. We measure our product sales activity levels against our competitors by the number of rigs that we are supporting on a monthly basis, as it is correlated to wells drilled. Each active drilling rig produces different levels of revenue based on the customer's drilling plan, which includes factors such as the number of wells drilled per pad, the time taken to drill each well, the number and size of casing strings, the working pressure, material selection and the



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complexity of the wellhead system chosen by the customer and the rate at which production trees are eventually deployed. All of these factors may be influenced by the oil and gas region in which our customer is operating. While these factors may lead to differing revenues per rig, we have historically been able to broadly forecast our product needs and anticipated revenue levels based on general trends in a given region and with a specific customer. Increases in horizontal wells drilled as a percentage of total wells drilled, the shift towards pad drilling, and an increase in the number of wells drilled per rig are all favorable trends that we believe enhance the demand for our products relative to the active rig count.

Our rental revenues are primarily dependent on the number of wells completed (i.e., hydraulically fractured), the number of wells on a well pad and the number of fracture stages per well. Well completion activity generally follows the level of drilling activity but can be delayed due to such factors as takeaway capacity, storage capacity and budget constraints.

Field service and other revenues are closely correlated to revenues from product sales and rentals, as items sold or rented almost always have an associated service component. Therefore, the market factors and trends of product sales and rental revenues similarly impact the associated levels of service and other revenues generated.

Recent Developments and Trends

In early 2020, a novel strain of coronavirus (also referred to as COVID-19) began spreading in the Hubei province in China. Although located in a separate province, our factory in Suzhou, China was closed for 10 days beginning in late January 2020 as a result of travel restrictions and other measures taken by the Chinese government in response to the outbreak of the coronavirus. Our Suzhou facility reopened on February 10, 2020 and returned to full capacity by the end of the first quarter of 2020. We are currently experiencing no issues with workforce or supply chain disruptions in China. In March 2020, as a result of the continued spread of the virus, the World Health Organization declared COVID-19 a pandemic resulting in countries taking urgent and aggressive action to stop the spread of the disease. These actions have included restrictions on travel (foreign or domestic) and stay-at-home orders. The combination of travel restrictions, school and business closures and stay-at-home orders worldwide has resulted in a severe decline in the demand for oil.

In early March 2020, as a result of the ongoing decrease in global oil demand resulting from the coronavirus pandemic, members of the Organization of Petroleum Exporting Countries (OPEC) and Russia considered extending their oil production cuts and agreeing to additional cuts. Negotiations were unsuccessful. Saudi Arabia then announced an immediate reduction in its oil export prices and a substantial increase in production over prior levels. Further, it was announced that previously agreed upon oil production cuts between Russia and OPEC members would expire on April 1, 2020. Oil prices declined sharply following the outcome of these failed negotiations. In mid-April 2020, an agreement was reached with oil-producing nations to make production cuts in an effort to stabilize oil prices. However, the growing concern regarding the limited availability of crude oil storage capacity and continued weakness in demand has placed extreme pressure on oil prices with West Texas Intermediate (WTI) prices trading at negative levels for a brief period in the month of April. Current WTI prices for June deliveries closed at $12.34 per barrel on April 28, 2020.

Overall, the significant decline in oil demand due to COVID-19 coupled with the instability of oil prices caused by geopolitical issues and production levels have resulted in our customers announcing significant reductions to their capital expenditure budgets for 2020. This is evidenced by the significant decline in U.S. onshore rig counts from the beginning of the year. At the end of 2019, the U.S. onshore rig count as reported by Baker Hughes was 781 rigs. For the three months ended March 31, 2020, the weekly average U.S. onshore rig count was 763 rigs compared to 1,021 rigs for the three months ended March 31, 2019. As of April 24, 2020, the U.S. onshore rig count was 448 and is expected to continue declining over the next several months.

While visibility regarding customer activity levels is low, we believe that the impact of lower oil prices and limited availability of storage capacity will result in severely reduced demand for our products and services. The duration and extent of the downturn in oil and gas activity is unknown at this time, and while management anticipates that the economic impact of lower oil prices will have a significantly negative effect on its results of operations, the degree to which these factors will impact our business remains uncertain.

We believe we are well positioned to successfully navigate the industry downturn. We are actively reviewing all opportunities to reduce costs and believe we will be able to manage our expenses and capital expenditures relative to market conditions. As a result, we implemented certain workforce, wage, and capital expenditure reductions beginning


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in March 2020 which included the reduction of our total U.S. associate headcount by 277 associates (or approximately 30%). We continued to implement reductions in our workforce during April affecting 212 additional U.S. associates. The April headcount reductions are estimated to result in approximately $23 million of incremental annualized cost savings. The estimated cost savings include base salaries and wages, overtime, payroll taxes and benefits, but exclude estimated reductions in annual incentive bonuses associated with the Company's financial performance. Our required capital expenditures have historically tended to be lower than most other oilfield service providers due to the asset-lite nature of our business model. As of March 31, 2020 we had no long-term debt and over $230 million of cash. We also believe that the operating environment following the industry downturn may prove more favorable for companies that are financially well positioned.

Tariffs

On March 26, 2020, the U.S. Trade Representative (''USTR'') announced their determination to grant certain exclusion requests related to tariffs on Chinese imports under Section 301 of the Trade Act of 1974 ("Section 301"). Not all of our products with Section 301 tariffs fall under this exclusion. The product exclusions apply retroactively as of September 24, 2018 until August 7, 2020 on covered products that were exported from China to the United States. The tariff rate on covered products was 10% beginning in September 2018 and raised to 25% in May 2019. Going forward, we will not be required to pay a tariff on covered products until at least August 7, 2020. We will continue to monitor the situation for an extension of this tariff suspension beyond the August 2020 deadline. Substantially all of the products that we import through our Chinese supply chain have been subject to Section 301 tariffs.

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