Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-38390 Cactus, Inc. | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | --- | ...

Cactus, Inc. (NYSE:WHD) Q3 2020 Earnings Conference Call November 5, 2020 10:00 AM ET Company Participants John Fitzgerald - Director of Corporate Development and Investor Relations Scott Bender - President, Chief Executive Officer and Director Stephen Tadlock - Vice President, Chief Financial Officer and Treasurer Conference Call Participants Stephen Gengaro - Stifel George O'Leary - Tudor, Pickering, Holt Chase Mulvehill - Bank of America Tommy Moll - Stephens Inc Scott Gruber - Citigroup Jake Lundberg - ...

[PART I - FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents unaudited condensed consolidated financial statements, reflecting a significant decline in revenue and net income due to industry downturns, offset by strong cash and cost management Condensed Consolidated Balance Sheet Highlights (unaudited) | (in thousands) | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total current assets** | $411,894 | $414,883 | | Cash and cash equivalents | $273,941 | $202,603 | | Accounts receivable, net | $40,290 | $87,865 | | Inventories | $87,702 | $113,371 | | **Total assets** | $811,488 | $834,964 | | **Total current liabilities** | $47,997 | $91,126 | | **Total liabilities** | $264,928 | $318,569 | | **Total stockholders' equity** | $546,560 | $516,395 | Condensed Consolidated Statements of Income (unaudited) | (in thousands, except per share data) | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Total revenues** | $59,789 | $160,808 | $280,476 | $488,176 | | **Income from operations** | $12,556 | $47,123 | $61,616 | $147,065 | | **Net income** | $10,886 | $35,833 | $53,079 | $125,029 | | **Net income attributable to Cactus Inc.** | $6,233 | $19,339 | $31,244 | $67,554 | | **Earnings per Class A share - diluted** | $0.13 | $0.41 | $0.64 | $1.50 | Condensed Consolidated Statements of Cash Flows (unaudited) | (in thousands) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $121,485 | $148,191 | | **Net cash used in investing activities** | ($16,494) | ($37,715) | | **Net cash used in financing activities** | ($34,090) | ($13,042) | | **Net increase in cash and cash equivalents** | $71,338 | $96,704 | - In response to the weakened macroeconomic environment due to COVID-19, the company implemented significant cost reduction measures, including salary reductions for executives and workforce, headcount reductions of **almost 50%**, suspension of the 401(k) match, and reduced capital expenditures[42](index=42&type=chunk)[43](index=43&type=chunk) - The company recognized approximately **$14.0 million** in tariff refunds (including **$0.5 million** in interest) as of September 30, 2020, related to exclusions on certain Chinese imports[65](index=65&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the severe impact of COVID-19 and the oil and gas downturn on financial performance, detailing cost-cutting, tariff refunds, and strong liquidity [Executive Summary & Market Factors](index=23&type=section&id=Executive%20Summary%20%26%20Market%20Factors) Cactus designs, manufactures, sells, and rents wellhead and pressure control equipment for U.S. onshore wells, with demand driven by oil and gas activity - The company operates in a single business segment, deriving revenue from three sources: products (wellhead systems), rentals (well control equipment), and field services[71](index=71&type=chunk)[73](index=73&type=chunk) - Demand for products and services is primarily driven by the level of oil and gas activity, including the number of drilling rigs, well completions, and capital spending by customers[75](index=75&type=chunk) [Recent Developments and Trends](index=24&type=section&id=Recent%20Developments%20and%20Trends) The COVID-19 pandemic severely impacted drilling activity, leading to significant cost reductions and temporary tariff exemptions - The weekly average U.S. onshore rig count declined to **240** for Q3 2020, compared to **894** for the same period in 2019, reflecting a significant drop in customer activity[81](index=81&type=chunk) - The company is well-positioned to navigate the market downturn with a strong balance sheet, having reduced its workforce by **almost 50%**, holding approximately **$273.9 million** in cash, and having no long-term debt as of September 30, 2020[83](index=83&type=chunk) - A tariff exemption on certain Chinese imports, which was in effect from September 2018 to August 2020, resulted in the recognition of **$14.0 million** in refunds[84](index=84&type=chunk)[85](index=85&type=chunk) [Consolidated Results of Operations](index=25&type=section&id=Consolidated%20Results%20of%20Operations) The company experienced significant year-over-year declines in Q3 and nine-month 2020 financial performance, with revenues and income from operations falling sharply due to lower customer activity, partially offset by cost-cutting and tariff refunds Q3 2020 vs. Q3 2019 Performance (in thousands) | Metric | Q3 2020 | Q3 2019 | % Change | | :--- | :--- | :--- | :--- | | **Total Revenues** | $59,789 | $160,808 | (62.8)% | | Product Revenue | $35,857 | $92,582 | (61.3)% | | Rental Revenue | $9,881 | $35,528 | (72.2)% | | **Income from Operations** | $12,556 | $47,123 | (73.4)% | | **Net Income** | $10,886 | $35,833 | (69.6)% | Nine Months 2020 vs. Nine Months 2019 Performance (in thousands) | Metric | Nine Months 2020 | Nine Months 2019 | % Change | | :--- | :--- | :--- | :--- | | **Total Revenues** | $280,476 | $488,176 | (42.5)% | | Product Revenue | $163,781 | $273,716 | (40.2)% | | Rental Revenue | $57,579 | $113,601 | (49.3)% | | **Income from Operations** | $61,616 | $147,065 | (58.1)% | | **Net Income** | $53,079 | $125,029 | (57.5)% | - Cost of product revenue for Q3 2020 decreased by **66%** and included approximately **$5.4 million** in credits from tariff refunds[90](index=90&type=chunk) - For the nine months ended September 30, 2020, the company recorded **$1.9 million** in severance expenses due to headcount reductions[107](index=107&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2020, Cactus maintained a strong liquidity position with substantial cash, no debt, and reduced capital expenditures, believing existing liquidity is sufficient for future obligations - As of September 30, 2020, the company had **$273.9 million** in cash and cash equivalents, no borrowings outstanding under its ABL Credit Facility, and **$39.3 million** of available borrowing capacity[110](index=110&type=chunk) - Net capital expenditures for the first nine months of 2020 totaled **$16.5 million**, a significant decrease from the prior year, primarily due to reduced investment in the rental fleet[113](index=113&type=chunk)[117](index=117&type=chunk) - Net cash used in financing activities increased to **$34.1 million** for the nine months ended September 30, 2020, mainly due to **$12.8 million** in dividend payments and a **$9.7 million** increase in member distributions[118](index=118&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's exposure to market risk has not materially changed since the 2019 fiscal year-end, referring stakeholders to prior disclosures - The company's exposure to market risk has not changed materially since December 31, 2019[120](index=120&type=chunk) [Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting identified during Q3 2020 - Based on an evaluation by management, the company's disclosure controls and procedures were concluded to be effective as of September 30, 2020[122](index=122&type=chunk) - There were no changes in internal control over financial reporting during Q3 2020 that have materially affected, or are reasonably likely to materially affect, these controls[123](index=123&type=chunk) [PART II - OTHER INFORMATION](index=31&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine lawsuits, but management believes these legal matters will not materially adversely affect its financial condition, results of operations, or cash flows - The company is party to lawsuits arising in the ordinary course of business, but management believes it is unlikely that these will have a material adverse impact on its financial condition[125](index=125&type=chunk)[126](index=126&type=chunk) [Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors have occurred since the 2019 Annual Report, except as previously disclosed in the Q1 2020 Form 10-Q - There have been no material changes in the company's risk factors from those described in the 2019 Annual Report, other than what was disclosed in the Q1 2020 10-Q[127](index=127&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2020, the company repurchased Class A common stock shares to satisfy employee tax withholding obligations related to vested restricted stock units Issuer Purchases of Equity Securities (Q3 2020) | Period | Total number of shares purchased | Average price paid per share (USD) | | :--- | :--- | :--- | | July 1-31, 2020 | — | $ — | | August 1-31, 2020 | — | $ — | | September 1-30, 2020 | 426 | $19.66 | | **Total** | **426** | **$19.66** | - The repurchased shares of Class A common stock were from employees to satisfy tax withholding obligations related to vested restricted stock units[129](index=129&type=chunk) [Exhibits](index=32&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate governance documents, credit agreement amendments, and CEO/CFO certifications - A list of exhibits filed with the report is provided, including corporate charters, an amendment to the credit agreement, and CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906[131](index=131&type=chunk)

Financial Data and Key Metrics Changes - In Q2 2020, revenues were $67 million, a decrease of 57% from the previous quarter [12] - Adjusted EBITDA was over $22 million, down from $54 million in Q1 2020, representing an adjusted EBITDA margin of approximately 34% [11][16] - Cash balance increased by $40 million to $271 million, highlighting strong free cash flow generation [19] - GAAP net income was $9.1 million, with adjusted net income of $7.4 million and adjusted earnings per share of $0.10, compared to $31 million and $0.41 per share in Q1 2020 [17] Business Line Data and Key Metrics Changes - Product revenues were $41 million, down 53% sequentially, with product gross margins increasing to 36% due to tariff-related benefits [12][13] - Rental revenues decreased to $12 million, down 68% from Q1, attributed to lower industry completion activity [13] - Field service and other revenues were $14 million, down 54% from the first quarter, representing just under 27% of combined product and rental revenues [14] Market Data and Key Metrics Changes - The U.S. onshore rig count fell by more than 50% quarter-over-quarter, but signs of stabilization are emerging [12][29] - Cactus expects to outperform the broader market with rigs followed down in the 20% range sequentially, while the average Q3 rig count is expected to be down approximately one-third [29] Company Strategy and Development Direction - The company is focused on maintaining a variable cost structure and modest capital requirements, reducing payroll-related expenses by approximately $85 million on an annualized basis [24] - Cactus aims to expand into international markets, although travel restrictions have impeded momentum [36] - The company is considering M&A opportunities within the industry, looking for tangible synergies [51][52] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about emerging with higher market share in the second half of 2020, supported by a record market share in July [28] - The company anticipates low double-digit revenue declines quarter-over-quarter in Q3, with EBITDA margins in the 60% range [33] - Management noted that while international margins are expected to be lower than previously anticipated, they remain committed to pursuing international opportunities [123] Other Important Information - The company recorded $7.5 million in refunds associated with tariff exclusions, which positively impacted product gross profit [20][25] - Cactus has reduced its CapEx guidance for 2020 to between $20 million and $25 million, with expectations of continued low spending levels [35] Q&A Session Summary Question: Impact of tariffs on COGS - Management confirmed that tariff exclusions on significant products positively impacted product margins, estimating a 3% margin impact for the quarter [41][43] Question: Market share outlook - Management expressed confidence in achieving record market share by the end of the year, despite previous volatility [45][46] Question: M&A opportunities - Management stated there are no immediate M&A plans but sees potential opportunities within the industry [51][52] Question: Rental revenue technology mix - Approximately 15% of rental revenues come from newer technology, with expectations for increased adoption as completion activity resumes [58] Question: International expansion strategy - Management indicated a cautious approach to international expansion, focusing on maintaining control over technology and operations [123] Question: Future CapEx requirements - Management emphasized a conservative approach to CapEx, with expectations for $10 million in 2021, primarily for maintenance [145]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________________________________________________________ ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-38390 ______________________________________________________________________________ C ...

Cactus, Inc. (NYSE:WHD) Q1 2020 Earnings Conference Call April 30, 2020 10:00 AM ET Company Participants John Fitzgerald - Director of Corporate Development & Investor Relations Scott Bender - Chief Executive Officer Steve Tadlock - Chief Financial Officer Conference Call Participants Tommy Moll - Stephens Inc. George O'Leary - Tudor, Pickering, Holt & Co. Scott Gruber - Citigroup Praveen Narra - Raymond James Connor Lynagh - Morgan Stanley Blake Gendron - Wolfe Research Jacob Lundberg - Credit Suisse Chase ...

PART I - FINANCIAL INFORMATION [Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements for Q1 2020 show total assets increased to $850.1 million, while revenues slightly decreased to $154.1 million and net income fell to $33.1 million due to higher costs - The financial statements are prepared on a consolidated basis, including Cactus Inc. and its subsidiary Cactus Wellhead, LLC, with Cactus Inc. consolidating results and reporting a non-controlling interest[26](index=26&type=chunk) Condensed Consolidated Balance Sheet Highlights (as of March 31, 2020) | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $230,202 | $202,603 | | Total current assets | $435,274 | $414,883 | | Total assets | $850,095 | $834,964 | | **Liabilities & Equity** | | | | Total current liabilities | $81,414 | $91,126 | | Total liabilities | $307,669 | $318,569 | | Total stockholders' equity | $542,426 | $516,395 | Condensed Consolidated Statement of Income (Three Months Ended March 31) | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Total revenues | $154,139 | $158,875 | | Income from operations | $40,185 | $48,492 | | Net income | $33,098 | $48,446 | | Net income attributable to Cactus Inc. | $18,983 | $26,807 | | Earnings per Class A share - diluted | $0.40 | $0.59 | Condensed Consolidated Statement of Cash Flows (Three Months Ended March 31) | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $45,161 | $34,239 | | Net cash used in investing activities | ($8,338) | ($13,847) | | Net cash used in financing activities | ($9,604) | ($3,555) | | Net increase in cash and cash equivalents | $27,599 | $17,275 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the severe impact of COVID-19 and oil price instability on demand, leading to a 3.0% revenue decline and cost-saving measures, while maintaining a strong liquidity position [Executive Summary & Business Overview](index=27&type=section&id=Executive%20Summary%20%26%20Business%20Overview) Cactus designs, manufactures, sells, and rents wellhead and pressure control equipment for onshore oil and gas wells, operating in a single segment with revenue from products, rentals, and field services - For the three months ended March 31, 2020, revenue was composed of **57% product sales**, **23% rentals**, and **20% field service and other**, a mix similar to the prior year period[77](index=77&type=chunk) [Recent Developments and Trends](index=29&type=section&id=Recent%20Developments%20and%20Trends) Q1 2020 experienced severe market disruptions due to the COVID-19 pandemic and oil price war, resulting in reduced customer capital expenditure and significant workforce reductions - The combination of the COVID-19 pandemic and geopolitical oil price instability has led to a severe decline in oil demand and significant reductions in customer capital expenditure budgets for 2020[37](index=37&type=chunk)[86](index=86&type=chunk) - The U.S. onshore rig count, a key indicator of demand, dropped from an average of **763 in Q1 2020 to 448 by April 24, 2020**, and is expected to continue declining[86](index=86&type=chunk) - In response to the downturn, the company reduced its U.S. workforce by **277 employees in March** and an additional **212 in April**, also implementing salary reductions for executives and other employees, and reduced board compensation[39](index=39&type=chunk)[71](index=71&type=chunk)[89](index=89&type=chunk) - The U.S. Trade Representative granted certain tariff exclusion requests on Chinese imports, applying retroactively from September 24, 2018, to August 7, 2020, temporarily relieving tariff costs on some imported products[90](index=90&type=chunk) [Consolidated Results of Operations](index=31&type=section&id=Consolidated%20Results%20of%20Operations) Q1 2020 total revenues decreased by 3.0% to $154.1 million, with income from operations falling 17.1% to $40.2 million, impacted by higher costs and severance expenses Consolidated Operating Results (Three Months Ended March 31) | | 2020 (in thousands) | 2019 (in thousands) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Total revenues** | **$154,139** | **$158,875** | **($4,736)** | **(3.0)%** | | Product revenue | $87,031 | $86,640 | $391 | 0.5% | | Rental revenue | $36,163 | $38,497 | ($2,334) | (6.1)% | | Field service and other revenue | $30,945 | $33,738 | ($2,793) | (8.3)% | | **Income from operations** | **$40,185** | **$48,492** | **($8,307)** | **(17.1)%** | | **Net income** | **$33,098** | **$48,446** | **($15,348)** | **(31.7)%** | - Product revenue remained stable due to product mix, drilling efficiencies, and increased market share, offsetting the lower rig count[93](index=93&type=chunk) - Rental and Field Service revenues decreased due to lower completion activity and increased competition[94](index=94&type=chunk)[95](index=95&type=chunk) - Total costs increased by **3.2%**, driven by higher cost of product revenue (tariffs, inventory reserves), higher depreciation on the rental fleet, and **$1.0 million in severance expenses**[91](index=91&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[100](index=100&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with $230.2 million in cash and no debt, increased operating cash flow to $45.2 million, and reduced its 2020 capital expenditure forecast - As of March 31, 2020, the company had **$230.2 million in cash and cash equivalents**, no outstanding borrowings, and **$75.0 million of available capacity** under its ABL Credit Facility[105](index=105&type=chunk) - The 2020 net capital expenditure forecast has been reduced to a range of **$20 million to $30 million**, primarily for rental fleet investments[108](index=108&type=chunk) Cash Flow Summary (Three Months Ended March 31) | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $45,161 | $34,239 | | Net cash used in investing activities | ($8,338) | ($13,847) | | Net cash used in financing activities | ($9,604) | ($3,555) | [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's exposure to market risk has not materially changed since the end of the 2019 fiscal year - The company's exposure to market risk has not changed materially since December 31, 2019[115](index=115&type=chunk) [Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting during Q1 2020 - Based on an evaluation, the principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of March 31, 2020[116](index=116&type=chunk) - No changes occurred in internal control over financial reporting during the first quarter of 2020 that have materially affected, or are reasonably likely to materially affect, these controls[117](index=117&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine lawsuits and disputes, but management does not believe their outcomes will have a material adverse effect on financial condition or results of operations - The company is party to lawsuits arising in the ordinary course of business, but management believes it is unlikely that these will have a material adverse impact on its financial condition[119](index=119&type=chunk)[120](index=120&type=chunk) [Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) This section updates the key risk factor, emphasizing that the COVID-19 pandemic's severe impact on oil and gas demand, combined with oversupply, could materially affect the company's financial condition - The report updates a key risk factor to highlight that demand for the company's products is directly affected by oil and gas prices and customer spending[122](index=122&type=chunk)[123](index=123&type=chunk) - The effects of the COVID-19 pandemic have collapsed oil demand, which, coupled with oversupply and limited storage, could materially and adversely impact the company's financial condition and results, with the full duration and extent of the downturn remaining uncertain[127](index=127&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q1 2020, the company repurchased 55,996 shares of Class A common stock at an average price of $24.22 to satisfy employee tax withholding obligations Issuer Purchases of Equity Securities (Q1 2020) | Period | Total number of shares purchased | Average price paid per share | | :--- | :--- | :--- | | January 1-31, 2020 | — | $ — | | February 1-29, 2020 | 39,779 | $28.79 | | March 1-31, 2020 | 16,217 | $13.00 | | **Total** | **55,996** | **$24.22** | - The repurchased shares of Class A common stock were from employees to satisfy tax withholding obligations related to vested restricted stock units[129](index=129&type=chunk) [Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including Amended and Restated Bylaws and CEO/CFO certifications required by the Sarbanes-Oxley Act - Key exhibits filed with this report include: - Amended and Restated Bylaws of Cactus, Inc. - CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - CEO and CFO Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002[133](index=133&type=chunk)

Cactus, Inc. (NYSE:WHD) Q4 2019 Earnings Conference Call February 27, 2020 10:00 AM ET Company Participants John Fitzgerald - Director, Corporate Development & IR Scott Bender - President, Director & CEO Steve Tadlock - VP & CFO Joel Bender - SVP & COO Conference Call Participants George O'Leary - Tudor, Pickering, Holt & Co. Sean Meakim - JP Morgan Scott Gruber - Citigroup Tommy Moll - Stephens Inc. Operator Good morning. And welcome to the Cactus Q4 and Full Year 2019 Earnings Call. My name is May, and I ...

PART I [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Cactus, Inc. designs, manufactures, and sells wellhead and pressure control equipment for onshore unconventional oil and gas wells, with revenues from products, rentals, and services [Overview and Operations](index=5&type=section&id=1.1%20Overview%20and%20Operations) The company specializes in wellhead and pressure control equipment, operating service centers in the U.S. and Australia and manufacturing facilities in Louisiana and China - The company designs, manufactures, and sells wellhead and pressure control equipment, including its proprietary **Cactus SafeDrill® wellhead systems**, frac stacks, and production trees[21](index=21&type=chunk)[28](index=28&type=chunk) - Cactus operates **14 service centers** in key U.S. oil and gas regions, three in Eastern Australia, and has manufacturing facilities in Bossier City, Louisiana, and Suzhou, China[20](index=20&type=chunk)[30](index=30&type=chunk) - Following its IPO in February 2018, Cactus Inc. became a holding company whose primary asset is its equity interest in Cactus LLC, owning approximately **62.8%** as of December 31, 2019[23](index=23&type=chunk)[26](index=26&type=chunk) [Revenue, Costs, and Market Factors](index=8&type=section&id=1.2%20Revenue%2C%20Costs%2C%20and%20Market%20Factors) Revenue is primarily from product sales, with costs significantly impacted by manufacturing inputs and U.S. tariffs on goods from its Chinese supply chain Revenue Breakdown by Source (FY 2019) | Revenue Source | Percentage of Total Revenue | | :--- | :--- | | Product Sales | 57% | | Rental | 22% | | Field Service and Other | 21% | - The principal costs for products are manufacturing-related, rental costs are primarily depreciation and repairs, and field service costs are mainly labor and equipment depreciation[34](index=34&type=chunk) - The company is affected by Section 232 and Section 301 tariffs, with approximately **50% of goods received in 2019** sourced through its Chinese supply chain[36](index=36&type=chunk)[37](index=37&type=chunk) [Supply Chain, Manufacturing, and Competition](index=9&type=section&id=1.3%20Supply%20Chain%2C%20Manufacturing%2C%20and%20Competition) The company utilizes a dual-facility manufacturing strategy in the U.S. and China and competes with major integrated service companies in a highly competitive market - A single vendor in China supplied machined components representing approximately **16% of total third-party vendor purchases** in 2019[39](index=39&type=chunk) - The Bossier City, LA facility is designed for rapid production, while the Suzhou, China facility is optimized for higher-volume orders; **both are API 6A certified**[40](index=40&type=chunk)[42](index=42&type=chunk) - The company competes with major integrated service companies like **Schlumberger, Baker Hughes, and TechnipFMC** in the wellhead market[49](index=49&type=chunk)[50](index=50&type=chunk)[52](index=52&type=chunk) [Regulation, Risk, and Other Information](index=13&type=section&id=1.4%20Regulation%2C%20Risk%2C%20and%20Other%20Information) The business is subject to stringent environmental regulations and manages operational risk through insurance, with over 1,100 employees and no collective bargaining agreements - The company is subject to stringent U.S. and international environmental, health, and safety laws, including the **Clean Water Act, Clean Air Act, and OSHA**[54](index=54&type=chunk)[57](index=57&type=chunk) - Increased regulation of **hydraulic fracturing or climate change policies** could reduce demand for oil and gas, negatively impacting the company's business[59](index=59&type=chunk)[60](index=60&type=chunk) - As of December 31, 2019, Cactus employed **over 1,100 people** and is not a party to any collective bargaining agreements[63](index=63&type=chunk) [Item 1A. Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from oil and gas industry cyclicality, supply chain disruptions, and financial obligations related to its corporate structure [Industry and Business Risks](index=17&type=section&id=1A.1%20Industry%20and%20Business%20Risks) Performance is highly dependent on volatile commodity prices, customer spending, and operational risks including the coronavirus impact on its Chinese supply chain - Demand for products and services is directly affected by **volatile crude oil and natural gas prices**, which influence customer capital spending and drilling activity[67](index=67&type=chunk)[68](index=68&type=chunk) - The coronavirus outbreak in China led to a **temporary 10-day closure** of the Suzhou facility in early 2020, which could materially impact results if prolonged[77](index=77&type=chunk)[78](index=78&type=chunk) - **Pioneer Natural Resources** was a major customer, representing **10% of total revenue** in 2019[79](index=79&type=chunk) - The company faces intense competition from large, well-resourced companies and is subject to risks from new technologies that could create a competitive disadvantage[83](index=83&type=chunk)[84](index=84&type=chunk) [Corporate and Financial Risks](index=29&type=section&id=1A.2%20Corporate%20and%20Financial%20Risks) Financial risks stem from its holding company structure, substantial payment obligations under the Tax Receivable Agreement, and significant shareholder influence - Cactus Inc. is a holding company **dependent on distributions from Cactus LLC** to pay taxes, dividends, and obligations under the Tax Receivable Agreement (TRA)[108](index=108&type=chunk)[109](index=109&type=chunk) - The TRA requires payments of 85% of certain tax savings to pre-IPO owners, with a potential early termination payment estimated at **$331.3 million** as of Dec 31, 2019[127](index=127&type=chunk)[132](index=132&type=chunk) - As of Dec 31, 2019, major shareholders Cadent and Cactus WH Enterprises control approximately **11% and 24% of the company's voting power**, respectively[112](index=112&type=chunk) - Future sales of the **28.0 million shares of Class A common stock** issuable upon redemption of CW Units could adversely affect the market price[123](index=123&type=chunk)[124](index=124&type=chunk) [Item 2. Properties](index=39&type=section&id=Item%202.%20Properties) The company owns and leases key properties including manufacturing facilities in Louisiana and China, service centers, and its administrative headquarters in Houston Principal Facilities as of December 31, 2019 | Location | Type | Own/Lease | | :--- | :--- | :--- | | **United States** | | | | Bossier City, LA | Manufacturing Facility and Service Center | Lease | | Bossier City, LA | Assembly Facility and Warehouse / Land | Own | | Houston, TX | Administrative Headquarters | Lease | | Hobbs, NM | Service Center / Land | Own | | New Waverly, TX | Service Center / Land | Own | | **China and Australia** | | | | Suzhou, China | Production Facility and Offices | Lease | | Queensland, Australia | Service Centers and Offices / Land | Lease | [Item 3. Legal Proceedings](index=39&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine litigation incidental to its business but does not expect any material adverse financial impact from pending matters - The company is subject to routine litigation related to its business activities but **does not expect any pending cases to have a material adverse effect** on its financial results[141](index=141&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=40&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on the NYSE under "WHD", a quarterly dividend was initiated in 2019, and shares were repurchased to cover employee tax obligations - The company's Class A common stock is traded on the New York Stock Exchange under the symbol **"WHD"**[145](index=145&type=chunk) - On October 29, 2019, the board authorized a regular quarterly cash dividend of **$0.09 per share** of Class A common stock[145](index=145&type=chunk) - In Q4 2019, the company repurchased **740 shares** from employees at an average price of **$28.16** to cover tax withholding on vested restricted stock units[148](index=148&type=chunk)[149](index=149&type=chunk) [Item 6. Selected Financial Data](index=42&type=section&id=Item%206.%20Selected%20Financial%20Data) Historical data shows significant revenue and net income growth since 2016, elimination of long-term debt in 2018, and the initiation of a dividend in 2019 Selected Financial Data (2017-2019) | Metric (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total revenues | $628,414 | $544,135 | $341,191 | | Income from operations | $183,150 | $177,701 | $88,863 | | Net income | $156,303 | $150,281 | $66,547 | | Net income attributable to Cactus Inc. | $85,612 | $51,683 | $0 | | Earnings per Class A share - diluted | $1.88 | $1.58 | $0 | | Total assets | $834,964 | $584,744 | $266,456 | | Long-term debt, net | $0 | $0 | $241,437 | | Cash dividends declared per share | $0.09 | $0 | $0 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue increased 15.5% in 2019 due to market share gains, but operating income growth was limited by rising costs, while liquidity remains strong with no debt [Market Factors and Recent Developments](index=44&type=section&id=7.1%20Market%20Factors%20and%20Recent%20Developments) Despite a lower U.S. rig count in 2019, performance was supported by drilling trends, though the recent coronavirus outbreak caused a temporary factory shutdown - The average U.S. onshore rig count **decreased by 9% in 2019** to 918 rigs, compared to 1,011 in 2018[158](index=158&type=chunk) - The company's factory in Suzhou, China, was temporarily closed for 10 days due to the coronavirus outbreak but is **not expected to have a material adverse impact on Q1 2020 results**[164](index=164&type=chunk) [Consolidated Results of Operations (2019 vs 2018)](index=47&type=section&id=7.2%20Consolidated%20Results%20of%20Operations%20(2019%20vs%202018)) Total revenues grew 15.5% in 2019, driven by product sales, but a 21.5% rise in costs and expenses constrained operating income growth to 3.1% Consolidated Results of Operations (2019 vs. 2018) | Metric (in thousands) | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | **Total Revenues** | **$628,414** | **$544,135** | **15.5%** | | Product revenue | $357,087 | $290,496 | 22.9% | | Rental revenue | $141,816 | $133,418 | 6.3% | | Field service and other revenue | $129,511 | $120,221 | 7.7% | | **Total costs and expenses** | **$445,264** | **$366,434** | **21.5%** | | **Income from operations** | **$183,150** | **$177,701** | **3.1%** | | **Net income** | **$156,303** | **$150,281** | **4.0%** | | **Net income attributable to Cactus Inc.** | **$85,612** | **$51,683** | **65.6%** | - The **26% increase in cost of product revenue** was driven by higher sales volume and tariff costs[170](index=170&type=chunk) - SG&A expense **increased 27%** due to higher compensation, stock-based compensation, and costs associated with losing Emerging Growth Company (EGC) status[173](index=173&type=chunk) [Liquidity and Capital Resources](index=48&type=section&id=7.3%20Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $202.6 million in cash, no debt, and a $75.0 million credit facility, alongside a significant TRA liability - As of December 31, 2019, the company had **$202.6 million in cash**, no outstanding borrowings, and **$75.0 million** of available capacity under its ABL Credit Facility[177](index=177&type=chunk) Cash Flow Summary (2019 vs. 2018) | Cash Flow (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $209,632 | $167,180 | | Net cash used in investing activities | ($55,948) | ($68,154) | | Net cash used in financing activities | ($21,669) | ($35,004) | - The company estimates net capital expenditures for 2020 to range from **$30 million to $40 million**[179](index=179&type=chunk) Contractual Obligations as of December 31, 2019 (in thousands) | Obligation | Total | Payments Due 2020 | | :--- | :--- | :--- | | Operating leases | $30,637 | $7,691 | | Finance leases | $11,644 | $7,434 | | Liability related to TRA | $216,532 | $14,630 | | **Total** | **$258,813** | **$29,755** | [Critical Accounting Policies and Estimates](index=52&type=section&id=7.4%20Critical%20Accounting%20Policies%20and%20Estimates) Critical accounting policies involve significant estimates for inventory valuation, asset impairment, income taxes, and the highly complex Tax Receivable Agreement liability - Critical accounting policies require significant management estimates regarding **inventory obsolescence, impairment of long-lived assets, income taxes, and the TRA liability**[192](index=192&type=chunk) - The TRA liability calculation is highly sensitive; a **100 basis point change** in the assumed blended tax rate would change the TRA liability by approximately **$12.0 million**[201](index=201&type=chunk) - The company evaluates long-lived assets for impairment if events indicate the carrying amount may not be recoverable[195](index=195&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=57&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the audited consolidated financial statements and notes, with the auditor's report highlighting the Tax Receivable Agreement as a critical audit matter [Auditor's Report and Management's Assessment](index=58&type=section&id=8.1%20Auditor's%20Report%20and%20Management's%20Assessment) Management and the independent auditor concluded that internal controls were effective, with the auditor issuing an unqualified opinion and flagging the TRA liability as a critical audit matter - Management assessed its internal control over financial reporting as **effective** as of December 31, 2019[212](index=212&type=chunk) - PricewaterhouseCoopers LLP issued an **unqualified audit opinion** on both the consolidated financial statements and the effectiveness of internal control over financial reporting[216](index=216&type=chunk) - The auditor identified the liability related to the **Tax Receivable Agreement (TRA) as a Critical Audit Matter** due to significant complexity and judgment in its calculation[224](index=224&type=chunk)[225](index=225&type=chunk) [Consolidated Financial Statements](index=63&type=section&id=8.2%20Consolidated%20Financial%20Statements) The financial statements show significant asset growth to $835.0 million in 2019, driven by cash and deferred tax assets, with a corresponding increase in liabilities from the TRA Consolidated Balance Sheet Data (as of Dec 31) | (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $202,603 | $70,841 | | Total current assets | $414,883 | $274,505 | | Total assets | $834,964 | $584,744 | | Total current liabilities | $91,126 | $74,624 | | Liability related to TRA (non-current) | $201,902 | $138,015 | | Total liabilities | $318,569 | $222,416 | | Total stockholders' equity | $516,395 | $362,328 | Consolidated Income Statement Data (Year Ended Dec 31) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total revenues | $628,414 | $544,135 | $341,191 | | Income from operations | $183,150 | $177,701 | $88,863 | | Net income | $156,303 | $150,281 | $66,547 | | Net income attributable to Cactus Inc. | $85,612 | $51,683 | $0 | [Notes to Consolidated Financial Statements](index=68&type=section&id=8.3%20Notes%20to%20Consolidated%20Financial%20Statements) Key disclosures include the adoption of a new lease standard, details on the $216.5 million TRA liability, and the redemption of 9.3 million CW Units for stock - The company operates in a single segment and relied on a significant vendor in China for **16% of total third-party purchases** in 2019[248](index=248&type=chunk)[250](index=250&type=chunk) - The company adopted the new lease standard (ASC 842) on Jan 1, 2019, recognizing **$25.3 million in operating lease right-of-use assets** and liabilities[277](index=277&type=chunk) - As of Dec 31, 2019, the total liability related to the Tax Receivable Agreement (TRA) was **$216.5 million**[314](index=314&type=chunk) - During 2019, legacy holders redeemed **9.3 million CW Units**, which were exchanged for 9.3 million shares of Class A common stock[319](index=319&type=chunk)[320](index=320&type=chunk)[336](index=336&type=chunk) [Item 9A. Controls and Procedures](index=93&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls were effective as of year-end 2019, having successfully remediated a previously reported material weakness related to the TRA - The principal executive and financial officers concluded that **disclosure controls and procedures were effective** as of December 31, 2019[339](index=339&type=chunk) - A material weakness in internal control related to the Tax Receivable Agreement (TRA), identified in the prior year, was **successfully remediated** as of December 31, 2019[340](index=340&type=chunk)[341](index=341&type=chunk) - Remediation steps included replacing the outside tax service provider, hiring an experienced Tax Director, and redesigning control activities for TRA accounting[340](index=340&type=chunk)[344](index=344&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=94&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) The company is led by a separated Chairman and CEO, with an eight-member staggered board that includes four independent directors and has adopted comprehensive governance policies - The board consists of eight members, including Chairman Bruce Rothstein, CEO Scott Bender, and COO Joel Bender, and is divided into **three staggered classes**[346](index=346&type=chunk)[363](index=363&type=chunk) - The board has standing **Audit, Compensation, and Nominating and Governance committees**, and the Audit Committee has a designated financial expert[365](index=365&type=chunk)[366](index=366&type=chunk)[368](index=368&type=chunk)[371](index=371&type=chunk) - The company has adopted a Code of Business Conduct and Ethics and policies that **prohibit directors and executive officers from hedging or pledging company stock**[372](index=372&type=chunk)[374](index=374&type=chunk)[387](index=387&type=chunk) [Item 11. Executive Compensation](index=105&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation is pay-for-performance, with a high percentage of at-risk pay tied to EBITDA and safety metrics, resulting in a 111.3% STI payout in 2019 - The executive compensation program is heavily weighted towards at-risk pay, with **86% for the CEO** and an average of 80% for other NEOs in 2019[393](index=393&type=chunk) - The 2019 short-term incentive plan was based on EBITDA and safety metrics, resulting in a total payout of **111.3% of the target bonus**[416](index=416&type=chunk)[419](index=419&type=chunk)[422](index=422&type=chunk) 2019 NEO Summary Compensation | Name | Position | Total Compensation ($) | | :--- | :--- | :--- | | Scott Bender | President, CEO & Director | 2,163,931 | | Joel Bender | SVP, COO & Director | 2,164,949 | | Stephen Tadlock | VP, CFO & Treasurer | 2,030,614 | - The company has stock ownership guidelines requiring the CEO to hold **6x base salary** and non-employee directors to hold **3x their annual cash retainer**[434](index=434&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=133&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Significant beneficial ownership is concentrated with Cactus WH Enterprises and Cadent Energy Partners, with management and directors as a group holding 24.2% of voting power Beneficial Ownership (as of Feb 11, 2020) | Owner | Combined Voting Power | | :--- | :--- | | Cactus WH Enterprises, LLC | 23.8% | | Cadent Energy Partners II, L.P. | 11.1% | | The Vanguard Group | 5.7% | | Scott Bender (CEO) | 23.9% | | Joel Bender (COO) | 23.9% | | All directors and executive officers as a group | 24.2% | - As of December 31, 2019, there were **2,036,788 securities remaining available** for future issuance under the company's equity compensation plans[495](index=495&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=136&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company engages in several related-party transactions, including TRA payments and an aircraft lease, governed by an Audit Committee approval policy - The company has a written policy requiring the **Audit Committee to review and approve** related party transactions exceeding $120,000[500](index=500&type=chunk)[501](index=501&type=chunk) - The Tax Receivable Agreement (TRA) obligates the company to pay 85% of realized tax savings to original owners; 2019 payments included **$6.3 million to Cadent** and **$2.1 million to a company controlled by the Benders**[512](index=512&type=chunk)[525](index=525&type=chunk)[526](index=526&type=chunk) - A Stockholders' Agreement provides Cadent and Cactus WH Enterprises the **right to designate directors** to the board as long as they maintain specified ownership levels[533](index=533&type=chunk)[536](index=536&type=chunk) - Cactus LLC leases an aircraft from an entity wholly owned by CEO Scott Bender, with **$0.3 million in lease expense** recognized in 2019[538](index=538&type=chunk) [Item 14. Principal Accounting Fees and Services](index=144&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Total fees paid to the independent auditor, PricewaterhouseCoopers LLP, were $1.763 million in 2019, a decrease from 2018, with all services pre-approved by the Audit Committee Auditor Fees (in thousands) | Fee Type | 2019 | 2018 | | :--- | :--- | :--- | | Audit Fees | $1,760 | $1,645 | | Audit-Related Fees | $3 | $10 | | Tax Fees | $0 | $328 | | All Other Fees | $0 | $0 | | **Total** | **$1,763** | **$1,983** | - All audit and non-audit services provided by PricewaterhouseCoopers LLP in 2019 and 2018 were **pre-approved by the Audit Committee**[542](index=542&type=chunk) PART IV [Item 15. Exhibits, Financial Statement Schedules](index=146&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits filed with the report, including key corporate governance and financial agreements - The consolidated financial statements of Cactus, Inc. are included in **Part II, Item 8** of the report[544](index=544&type=chunk) - All financial statement schedules have been omitted because they are not applicable or the required information is already present in the financial statements or notes[545](index=545&type=chunk) - Key exhibits filed with the report include the Certificate of Incorporation, the LLC Operating Agreement, the Tax Receivable Agreement, and various employment agreements[547](index=547&type=chunk)[548](index=548&type=chunk) [Item 16. Form 10-K Summary](index=149&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has indicated that a Form 10-K summary is not applicable or has not been provided in this filing - **No Form 10-K summary** is provided[552](index=552&type=chunk)

Financial Data and Key Metrics Changes - Revenues for Q3 2019 were $161 million, a 5% sequential decline but a 7% increase year-over-year [9] - Adjusted EBITDA was $59 million, with adjusted EBITDA margins at nearly 37% [8][14] - Cash balance increased by $36 million to $168 million, with operating cash flow of $50 million [8][17] - GAAP net income was $36 million, with adjusted earnings per share at $0.48, down 8% from Q2 2019 [15][16] Business Line Data and Key Metrics Changes - Product revenues were $93 million, up 17% year-over-year but down 2% sequentially [9][10] - Rental revenues were just under $36 million, down 10% from the previous quarter due to reduced industry completion activity [10] - Field service and other revenues were $33 million, down 5% from Q2 2019, representing nearly 26% of combined product and rental-related revenues [11] Market Data and Key Metrics Changes - The U.S. land rig count declined by 7% sequentially in Q3 2019 [7] - Product market share dipped to 28.6% as large E&Ps reduced spending [22] - U.S. onshore completion activity is expected to decline approximately 25% in Q4 2019 [26] Company Strategy and Development Direction - The company plans to focus on growth capital in its rental business, particularly in recent rental innovations [19] - International expansion is being pursued, with increased CapEx in Australia and a focus on obtaining approved vendor status in target markets [36][50] - New product development is ongoing, with several innovations aimed at enhancing efficiency and safety during drilling and completion phases [37] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining adjusted EBITDA margins similar to Q3 levels despite market challenges [28] - The company anticipates a meaningful decrease in capital spending for 2020 due to market visibility concerns [20] - Encouraging data points from customers suggest a potential rebound in activity in 2020 [39] Other Important Information - The company initiated a quarterly cash dividend of $0.09 per share, reflecting confidence in its business model [33] - The effective tax rate for Q4 is expected to be approximately 24% [16] Q&A Session Summary Question: Revenue per rig trend and its drivers - Management indicated that the increase in revenue per rig is primarily due to rig efficiencies and a favorable product mix [44][45] Question: International growth opportunities - Management highlighted increased CapEx in Australia and the potential for growth in similar markets, with modest increases in SG&A expected [49][50] Question: Decision to initiate a dividend - The company emphasized its strong cash flow generation and low fixed costs, which support the sustainability of the dividend [57][60] Question: Risks and opportunities from E&P M&A activity - Management noted that while there are risks when working with sellers, past experiences have shown positive outcomes when buyers take over [62] Question: New technology revenues and growth - Management expects innovation revenues to grow faster than legacy business, but noted current market conditions make customer adoption challenging [65][66] Question: Appetite for new technologies and development timelines - Management shared that new product rollouts are in progress, with timelines averaging around six months for development [79][80]