Except as otherwise indicated or required by the context, all references in this Quarterly Report to the "Company," "Cactus," "we," "us" and "our" refer toCactus, 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 inthe United States , which are strategically located in the key oil and gas producing regions, including the Permian, SCOOP/STACK, Marcellus, Utica,Haynesville ,Eagle Ford , Bakken, among other active oil and gas regions inthe United States , and inEastern Australia . These service centers support our field services and provide equipment assembly and repair services. Our manufacturing and production facilities are located inBossier City, Louisiana andSuzhou, 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. During the nine months endedSeptember 30, 2020 , we derived 58% of total revenues from the sale of our products, 21% of total revenues from rental and 21% of total revenues from field service and other. During the nine months endedSeptember 30, 2019 , we derived 56% of total revenues from the sale of our products, 23% of total revenues from rental and 21% of total revenues from field service and other. We have predominantlyU.S. operations, with a small amount of sales being generated inAustralia . 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 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. 14 -------------------------------------------------------------------------------- Table of Contents 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 field service and other revenues generated. Recent Developments and Trends InMarch 2020 , amid the initial worldwide spread of COVID-19, many countries instituted lockdowns to slow the rapid spread of the virus resulting in a severe decline in the demand for fossil fuels. Throughout 2020, the inability to control the spread of the virus has resulted in continued travel restrictions, school and business closures and stay-at-home orders worldwide. Althoughthe United States and other countries have since reopened businesses and schools at limited capacity, until vehicle and airline travel returns to activity levels closer to those prior to the pandemic, demand for oil will continue to be depressed. Although oil prices have recovered from the lows experienced inApril 2020 , they have remained in the$35 to$45 per barrel range for the last several months. In an attempt to better match supply and demand, OPEC+ members have taken actions to curtail production.U.S. operators have also significantly reduced drilling and completion activity. As a result, our customers' activity continues to be significantly lower than 2019 and early 2020 levels, which translates into reduced demand for our products and services. A resurgence of COVID-19 cases inthe United States and other countries may limit improvements in the demand for oil and natural gas products and could lead to government-mandated lockdowns and other restrictions, which would likely have a negative impact on global energy demand. During 2020, there has been a significant decline in the level of onshore drilling activity in theU.S. At the end of 2019, theU.S. onshore rig count as reported byBaker Hughes was 781 rigs. The weekly averageU.S. onshore rig count declined to 240 rigs for the three months endedSeptember 30, 2020 . This is compared to 894 rigs for the comparable period in 2019. The increase in commodity prices and their relative stability has led to modest rebounds in the level ofU.S. drilling activity since bottoming in August of 2020. As ofOctober 30, 2020 , theU.S. onshore rig count was 282. In recent months, there has been an increase in large-scale merger and acquisition activity among exploration and production ("E&P") companies that operate inthe United States . These transactions may be driven in part by an effort to reduce the cost of hydrocarbon production per barrel equivalent and increase overall company efficiencies. These transactions generally increase the size and scale of the counterparties involved, which may provide better access to capital and lead to a healthier overall industry. Consolidation among our potential customer base presents both risks and opportunities as we have historically focused on providing our products and services to large and well capitalized customers. We believe our company is well positioned to successfully navigate the current market environment, although the pace and extent of a potential activity recovery remains unknown at this time. We continue to actively review all opportunities to manage costs and efficiently deploy capital relative to market conditions. We have implemented certain workforce, wage and capital expenditure reductions beginning as early asMarch 2020 . As ofSeptember 30, 2020 , we have reduced our worldwide workforce by almost 50%, had no long-term debt and had approximately$274 million of cash. 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. We also believe that the operating environment following the industry downturn may prove more favorable for companies that are financially well positioned. Tariffs OnMarch 26, 2020 , theU.S. Trade Representative ("USTR") announced certain exclusion requests related to tariffs on our Chinese imports under Section 301 of the Trade Act of 1974 ("Section 301"). Not all of our products with Section 301 tariffs were included under this exclusion. The tariff exemption applied to covered products exported fromChina tothe United States fromSeptember 24, 2018 untilAugust 7, 2020 . The tariff rate on the covered products was 10% beginning inSeptember 2018 and was raised to 25% inJune 2019 . InApril 2020 , we completed filing post summary corrections and protests in order to request refunds back to 2018 for tariffs paid on the now excluded products. To date, we have recognized$14.0 million in refunds, inclusive of$0.5 million in interest, and applied those amounts against inventory and cost of goods sold based on whether the 15 -------------------------------------------------------------------------------- Table of Contents costs had been recognized in our statements of income or remained in inventory pending sale. As ofSeptember 30, 2020 ,$0.1 million in refunds remain to be recognized as credits to cost of sales when received. The tariff suspension expired onAugust 7, 2020 and was not extended; therefore, we have resumed paying tariffs at 25% on the aforementioned previously excluded parts imported fromChina . Substantially all of the products that we import through our Chinese supply chain are subject to the tariffs. In the nine months endedSeptember 30, 2020 , we estimate that approximately 40% of the items received were sourced through our Chinese supply chain. Consolidated Results of Operations Three Months EndedSeptember 30, 2020 Compared to Three Months EndedSeptember 30, 2019
The following table presents summary consolidated operating results for the periods indicated:
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