Cactus, Inc.: Form 10-Q for the period ended Jun 30, 2025

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, which are difficult to predict, including those described above in “Cautionary Note Regarding Forward-Looking Statements,” and in the risk factors included in “Part I, Item 1A. Risk Factors” in our 2024 Annual Report and "Part II, Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 and this Quarterly Report. 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

Cactus is an equipment solutions provider primarily for onshore oil and gas markets. Founded in 2011 by a management group that previously operated two of the largest wellhead providers at the time, Cactus has rapidly grown to be a leading provider of wellhead solutions to the U.S. onshore market. On February 28, 2023, Cactus acquired FlexSteel, which similarly grew from its founding in 2003 to its current status as a leading provider of spoolable pipe technologies, primarily to the U.S. onshore market. We believe this acquisition enhances our position as a premier manufacturer and provider of highly engineered equipment to the exploration and production ("E&P") industry and should provide meaningful growth. We further believe FlexSteel’s products are highly complementary to Cactus’ equipment as it expands our exposure to our customers’ operations from production trees to transportation of oil, gas and other liquids, as well as to additional customers operating in the midstream area.

Demand for our products and services depends primarily upon oil and gas industry activity levels, including the number of active drilling rigs, the number of wells being drilled, the number of wells being completed, and the volume of newly producing wells, among other factors.

Revenues

Our revenues are derived from three sources: products, rentals, and field service and other. Product revenues are derived from the sale of wellhead systems, production trees and spoolable pipe and fittings. Rental revenues are derived from the rental of equipment used during the completion process, the repair of such equipment, and the rental of equipment or tools used to install wellhead equipment or spoolable pipe. Field service and other revenues are earned when we provide installation and other field services for both product sales and equipment rental.

During the six months ended June 30, 2025, we derived 75% of total revenues from the sale of our products, 9% of total revenues from rental and 16% of total revenues from field service and other. During the six months ended June 30, 2024, we derived 76% of total revenues from the sale of our products, 9% of total revenues from rental and 15% of total revenues from field service and other. We have predominantly domestic operations, with more limited operations in Australia, Canada, and the Middle East, as well as sales in other international markets.

We operate in two business segments consisting of the Pressure Control segment and the Spoolable Technologies segment.

Pressure Control

The Pressure Control segment designs, manufactures, sells and rents a range of wellhead and pressure control equipment under the Cactus Wellhead brand. 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 equipment.

We operate through service centers in the United States, which are strategically located in the key oil and gas producing regions, and in Australia. These service centers support our field services and provide equipment assembly and repair services. We also provide rental and service operations in the Kingdom of Saudi Arabia. Pressure Control manufacturing and production facilities are located in Bossier City, Louisiana, Suzhou, China, and Vietnam.

Demand for our product sales in the Pressure Control segment is driven primarily by the number of new wells drilled, as each new well requires a wellhead and, after the completion phase, a production tree. Demand for our rental items is driven primarily by the number of well completions as we rent frac trees to oil and gas operators to assist in hydraulic fracturing. Rental demand is also driven to a lesser extent by drilling activity as we rent tools used in the installation of wellheads. Field service and other revenues are closely correlated with revenues from product sales and rentals, as items sold or rented almost always have an associated service component.

Spoolable Technologies

The Spoolable Technologies segment designs, manufactures, and sells spoolable pipe and associated end fittings under the FlexSteel brand. Our customers use these products primarily as production, gathering, and takeaway pipelines to transport oil, gas or other liquids. In addition, we also provide field services and rental items to assist our customers with the installation of these products. We support our field service operations through service centers and pipe yards located in oil and gas regions throughout the United States and Western Canada. Our manufacturing facility is located in Baytown, Texas.

Demand for our product sales in the Spoolable Technologies segment is driven primarily by the number of wells being placed into production after the completions phase, as customers use our spoolable pipe and associated fittings to bring wells more rapidly onto production. Rental and field service and other revenues are closely correlated with revenues from product sales, as items sold usually have an associated rental and service component.

Recent Developments and Trends

Oil and Natural Gas Prices

The following table summarizes average oil and natural gas prices in North America over the indicated periods, as well as industry activity levels as reflected by the average number of active onshore drilling rigs during the same periods.

(1) EIA Cushing, OK West Texas Intermediate ("WTI") spot price.

(2) EIA Henry Hub Natural Gas spot price per million British Thermal Unit (“MMBtu”).

(3) Based on data made publicly available by Baker Hughes Company.

In the second quarter of 2025, average U.S. land drilling activity levels declined approximately 3% compared to the first quarter of 2025 as weaker commodity prices and an uncertain global economic outlook impacted activity levels. Average natural gas prices were down approximately 23% from the first quarter of 2025. First quarter 2025 prices were elevated as a cold winter led to higher draws than anticipated in early 2025, but stocks have since recovered to above the five-year average which reduced pricing in the second quarter. The outlook for natural gas demand remains strong. Average oil prices declined 10% in the second quarter of 2025, largely due to OPEC+ announcing their intention to substantially unwind production cuts of 2.2 million barrels per day that have been in place since 2023, which has increased market fears of a potential supply surplus.

U.S. Trade Policies

Over the course of 2025, the Trump administration has implemented and announced a number of new tariffs, including new Section 232 tariffs of 50% on imports of steel and certain products made from steel from most countries outside of the U.S., Synthetic Opioid tariffs of 20% on all imports from China, and broad “Reciprocal” tariffs with varying rates applied to U.S. trading partners across the globe. As of mid-July, most Reciprocal tariffs have been temporarily paused until August 1, 2025, except for those applied to certain countries, including China. After these tariff announcements, global equity, bond and currency markets have experienced heightened levels of volatility due to the potential disruption to global trade, the increasingly uncertain global economic and inflation outlook, and the negative implications of reduced consumer demand for potentially more expensive imported products and energy.

We are incurring, and expect to continue to incur, elevated tariff expenses on our goods imported from Vietnam and China, and experience generally higher steel input costs at our Bossier City manufacturing facility as a result of the broad Section 232 tariffs, which should both impact profitability to the extent we cannot offset such increases with cost reduction efforts and increased pricing. The weaker oil demand and increased supply outlook and associated decline in commodity pricing has led and is likely to continue to lead to lower U.S. land drilling and completion activity levels as 2025 progresses, and correspondingly reduced demand for our products and services.

Pillar Two Framework

Certain members of the Organization for Economic Cooperation and Development (“OECD”) enacted rules (“Pillar Two”) for a new, global minimum tax of at least 15% on income arising in low-tax jurisdictions. On June 28, 2025, the Group of Seven announced an update to the Pillar Two regime with a proposed ‘side by side’ solution. The ‘side by side’ proposal would fully exclude the Company and other U.S. parented groups from the impacts of Pillar Two in respect of both foreign and domestic profits, other than a foreign minimum tax. The Company continues to evaluate the impact of both currently enacted and proposed provisions and estimates the impacts to income tax expense to be immaterial.

2025 Tax Legislation

On July 4, 2025, tax legislation colloquially known as the One Big Beautiful Bill Act (“OBBBA”) was enacted. The OBBBA includes tax provisions such as the reinstatement of bonus depreciation and expensing of domestic research and development expenditures. As a result of this legislation, we anticipate the OBBBA will lead to accelerated tax deductions that will reduce current tax expense with an offset to deferred tax expense. The Company continues to evaluate the impacts of this legislation but anticipates the impact to total income tax expense will be immaterial.

Baker Hughes Transaction

In June 2025, Cactus Companies entered into a Framework Agreement (the “Framework Agreement”) with Baker Hughes Holdings LLC (“Baker Hughes Holdings”) and Baker Hughes Pressure Control LP (“Baker Hughes Pressure Control”), each of which is an indirect subsidiary of Baker Hughes Company, pursuant to which the Company will acquire a controlling interest in Baker Hughes Company’s surface pressure control business.

Prior to the closing of the transactions contemplated by the Framework Agreement (“(the “Closing”), Baker Hughes Holdings will effect certain restructuring transactions on the terms and subject to the conditions set forth in the Framework Agreement, as a result of which Baker Hughes Pressure Control or certain of its subsidiaries will own the Business Assets and the Business Liabilities (each as defined in the Framework Agreement) (collectively, the “Acquired Business”).

At Closing and pursuant to the Framework Agreement, Baker Hughes Holdings or one or more affiliates thereof will sell 65% of the limited liability company membership interests in Baker Hughes Pressure Control to Cactus Companies or an affiliate thereof for a cash purchase price of $344.5 million, subject to certain working capital, cash, debt, capital expenditure and other customary adjustments after Closing (such transaction, the “Baker Hughes Transaction” and the strategic relationship created thereby, the “Joint Venture”). Subject to satisfaction of the closing conditions, the Baker Hughes Transaction is expected to close in either late 2025 or early 2026.

Critical Accounting Policies and Estimates

A discussion of our critical accounting policies and estimates is contained in our 2024 Annual Report on Form 10-K. There have not been any changes in our critical accounting policies since December 31, 2024.

Consolidated Results of Operations

The following discussions relating to significant line items from our condensed consolidated statements of income are based on available information and represent our analysis of significant changes or events that impact the comparability of reported amounts. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where reasonably practicable, have quantified the impact of such items.

We have two operating segments consisting of the Pressure Control segment and the Spoolable Technologies segment. Our results of operations are evaluated by the Chief Executive Officer on a consolidated basis as well as at the segment level. The performance of our operating segments is primarily evaluated based on segment operating income (in addition to other measures), which is defined as income before taxes and before interest income (expense), net, other income (expense), net and corporate and other expenses not allocated to the operating segments.

Three Months Ended June 30, 2025 Compared to Three Months Ended March 31, 2025

The following table presents a summary of the segment consolidated operating results for the periods indicated:

(in thousands)

Pressure Control. Pressure Control revenue for the second quarter of 2025 was $179.8 million, a decrease of $10.5 million, or 5.5%, from the first quarter of 2025 primarily due to lower rental revenue and lower sales of wellhead and production from reduced customer activity levels in the second quarter. Pressure Control operating income of $42.3 million for the second quarter of 2025 decreased $12.0 million, or 22.1% from the first quarter of 2025 primarily due to lower operating leverage resulting from the reduced volume, increased tariff impacts to product margins and increased legal expenses and reserves recognized in connection with litigation claims.

Spoolable Technologies. Spoolable Technologies revenue for the second quarter of 2025 was $96.2 million, an increase of $3.6 million, or 3.9% from the first quarter of 2025 primarily due to higher customer activity levels in the seasonally strong second quarter. Total operating income for Spoolable Technologies for the second quarter of 2025 was $28.1 million, compared to operating income of $23.9 million for the first quarter of 2025, an increase of $4.2 million, or 17.5%, from the first quarter of 2025. The increase in operating income was primarily due to higher volume and higher operating leverage.

Corporate and other. Corporate and other revenue represents the elimination of inter-segment sales from our Pressure Control segment to our Spoolable Technologies segment. Corporate and other expenses include costs associated with executive management and other administrative functions not directly attributable to our reporting segment. Corporate and other expenses for the second quarter of 2025 were flat sequentially. The expenses in both quarters include similar levels of expenses for professional fees associated with the Baker Hughes Transaction.

Interest income, net. Interest income, net was $2.5 million for the second quarter of 2025 and $2.3 million for the first quarter of 2025. The interest income, net is primarily comprised of interest income earned on the invested cash balance.

Income tax expense. Income tax expense for the second quarter of 2025 was $14.3 million compared to $16.8 million for the first quarter of 2025. The decrease in income tax expense from the second quarter was due to a decrease in operating income quarter-over-quarter. Cactus Inc. is only subject to federal and state income tax on its share of income from Cactus Companies. Income allocated to the non-controlling interest is only taxable to the non-controlling interest.

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

The following table presents a summary of the segment consolidated operating results for the periods indicated:

(in thousands)

Pressure Control. Pressure Control revenue was $370.0 million for the first six months of 2025, an increase of $7.8 million, or 2.2%, from the first six months of 2024, primarily due to increased intersegment sales with Spoolable Technologies. Further, enhanced customer drilling efficiencies contributed to higher product volume sold, notwithstanding a decline in rig counts. Operating income of $96.7 million in the first six months of 2025 decreased $10.7 million, or 9.9%, from the first six months of 2024. The decrease was primarily attributable to escalated tariff cost impacts on product margins in the second quarter of 2025, as well as increased legal expenses and reserves recognized in connection with litigation claims.

Spoolable Technologies. Spoolable Technologies revenue for the first six months of 2025 was $188.8 million, a decrease of $14.0 million, or 6.9%, from the first six months of 2024, primarily due to reduced customer activity levels. Total operating income was $51.9 million in the first six months of 2025, an increase of $5.5 million, or 11.8%, compared to operating income of $46.4 million in the first six months of 2024. Operating income for the first six months of 2025 reflected improved operating efficiencies, which were partly offset by the impact of the lower volume. Operating income for the first six months of 2024 included approximately $16.2 million of expense related to the change in fair value of the estimated earn-out liability.

Corporate and other. Corporate and other revenue represents the elimination of inter-segment sales from our Pressure Control segment to our Spoolable Technologies segment. Corporate and other expenses include costs associated with executive management and other administrative functions not directly attributable to our reporting segment. Corporate and other expenses for the first six months of 2025 was $19.2 million, an increase of $7.8 million, or 68.1% from the first six months of 2024. The increase was largely attributable to professional fees associated with the Baker Hughes Transaction.

Interest income, net. Interest income, net for the first six months of 2025 was $4.8 million, compared to $2.1 million for the first six months of 2024. The increase was due to an increase in interest income earned on cash invested during period.

Income tax expense. Income tax expense for the first six months of 2025 was $31.1 million compared to $31.6 million for the first six months of 2024. The decrease in income tax expense from the first six months of 2024 was primarily due to a decrease in operating income during the first six months of 2025, partially offset by an additional $1.2 million of expense related to the revaluation of our deferred tax asset as a result of a change in our forecasted state income tax rate.

Liquidity and Capital Resources

At June 30, 2025, we had $405.2 million of cash and cash equivalents. Our primary sources of liquidity and capital resources are cash on hand, cash flows generated by operating activities, and borrowings under our Amended ABL Credit Facility (as defined in Note 6 in the notes to the unaudited condensed consolidated financial statements). Depending upon market conditions and other factors, we may also have the ability to issue additional equity and debt if needed. As of June 30, 2025, we had $222.6 million of available borrowing capacity under our Amended ABL Credit Facility with no outstanding borrowings, and $2.4 million in letters of credit outstanding. We were in compliance with the covenants of the Amended ABL Credit Facility as of June 30, 2025.

In June 2023, our board of directors authorized the Company to repurchase shares of its Class A common stock for an aggregate purchase price of up to $150 million. Under our share repurchase program, shares may be repurchased from time to time in open market transactions or block trades, in privately negotiated transactions, or any other method permitted under U.S. securities laws, rules and regulations. The repurchase program does not obligate the Company to purchase any particular amount of shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion. As of June 30, 2025, $146.3 million remained authorized for future repurchases of Class A common stock under the program.

We believe that our existing cash on hand, cash generated from operations and available borrowings under our Amended ABL Credit Facility will be sufficient for at least the next 12 months to meet our short-term anticipated cash requirements, including working capital requirements, the cash purchase price related to the Baker Hughes Transaction, debt service obligations, anticipated capital expenditures, repurchases of shares of our Class A common stock, expected Tax Receivable Agreement ("TRA") liability payments, anticipated tax liabilities, and dividends to holders of our Class A common stock as well as pro rata cash distributions to holders of CC Units other than Cactus Inc. We expect to utilize cash on hand and funds from the undrawn Amended ABL Credit Facility to fund the cash purchase price related to the Baker Hughes Transaction. However, we may elect to pursue one or more debt financing transactions prior to the Closing to enhance liquidity.

We currently estimate our net capital expenditures for the year ending December 31, 2025 will range from $40 to $45 million. In the Pressure Control segment, capital expenditures are primarily related to rental fleet investments, international expansion and diversification of our low cost supply chain. In the Spoolable Technologies segment, capital expenditures are primarily related to manufacturing plant enhancements and additional deployment equipment used for product installation.

Our ability to satisfy our long-term liquidity requirements, including cash requirements to fund income tax liabilities and the TRA liability at Cactus Inc., along with associated distributions to holders of CC Units relating to their ownership of Cactus Companies, depends on our future operating performance, which is affected by, and subject to, prevailing economic conditions, market conditions in the E&P industry, availability and cost of raw materials, and financial, business and other factors, many of which are beyond our control. We will not be able to predict or control many of these factors, such as economic conditions in the markets where we operate, and competitive pressures. If necessary, we would likely choose to further reduce our spending on capital expenditures and operating expenses to ensure we operate within the cash flow generated from our operations.

Cash Flows

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

The following table summarizes our cash flows for the periods indicated:

(in thousands)

Net cash provided by operating activities was $124.4 million and $164.2 million for the six months ended June 30, 2025 and 2024, respectively. Operating cash flows for the six months ended June 30, 2025 decreased primarily due to lower earnings and an increase in working capital.

Net cash used in investing activities was $26.5 million and $14.1 million for the six months ended June 30, 2025 and 2024, respectively. The increase for the six months ended June 30, 2025 was primarily due to the initial investment of $6.0 million related to our joint venture in Vietnam intended to diversify our manufacturing capabilities as well as an increase in capital expenditures.

Net cash used in financing activities was $36.5 million for the six months ended June 30, 2025 compared to $37.2 million for the six months ended June 30, 2024. The decrease in net cash used in financing activities for the six months ended June 30, 2025 was primarily related to a decrease in share repurchases of $2.8 million. partially offset by an increase in the payment of Class A share dividends of $2.0 million.

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A., “Quantitative and Qualitative Disclosures about Market Risk,” in our 2024 Annual Report. Our exposure to market risk has not changed materially since December 31, 2024.

Evaluation of Disclosure Controls and Procedures

In accordance with Exchange Act Rules 13a-15 and 15d-15, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission ("SEC"). Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2025 at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the second quarter of 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our 2024 Annual Report, “Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 and in our other filings with the SEC, which could materially affect our business, results of operations, financial condition or cash flows. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, results of operations, financial condition or cash flows. There have been no material changes in our risk factors from those described in our 2024 Annual Report, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 and our other SEC filings, except as follows:

We may not realize the anticipated benefits from the Baker Hughes Transaction and the Baker Hughes Transaction could adversely impact our business and our operating results.

We may not be able to achieve the full potential strategic and financial benefits that we expect to achieve from the Baker Hughes Transaction, or such benefits may be delayed or not occur at all, including if we are unable to complete the Baker Hughes Transaction. We may not achieve the anticipated benefits from the Baker Hughes Transaction for a variety of reasons, including, among others, unanticipated costs, charges and expenses. For example, the capital needs of the Acquired Business may exceed our current expectations. In addition, we may not achieve the anticipated unrealized benefits of operational initiatives expected to be taken upon consummation of the Baker Hughes Transaction. If we fail to achieve some or all of the benefits expected to result from the Baker Hughes Transaction, or if such benefits are delayed, our business could be harmed.

The Baker Hughes Transaction may not occur at all, or may not occur within the expected time frame, which may negatively affect the benefits we expect to obtain from the transaction and increase transaction costs.

No assurance can be provided that the Baker Hughes Transaction will be completed in the manner and on the time frame currently anticipated, or at all. Completion of the Baker Hughes Transaction is subject to the satisfaction or waiver of a number of conditions as set forth in the Framework Agreement, and the satisfaction or waiver of certain of such conditions is beyond our control. If a condition is neither satisfied nor waived, the completion of the Baker Hughes Transaction may be prevented, delayed or otherwise materially adversely affected. If the Baker Hughes Transaction is not completed on or before December 31, 2025, it is possible that the Baker Hughes Framework Agreement may be terminated in accordance with its terms. Any delay in completing the Baker Hughes Transaction may adversely affect the cost savings and other benefits that we expect to achieve from the Baker Hughes Transaction. If the Baker Hughes Transaction is completed but not within the expected time frame, such delay could result in additional transaction costs, loss of revenue or other effects associated with uncertainty about the Baker Hughes Transaction.

We may experience difficulties in integrating the operations of the Joint Venture into our business and in realizing the expected benefits of the Baker Hughes Transaction.

The success of the Baker Hughes Transaction, if completed, will depend in part on our ability to realize the anticipated business opportunities from the operations of the Joint Venture. The integration process could take longer than anticipated and could result in the loss of key employees from the Company and/or the Joint Venture, the disruption of the Company's and/or the Joint Venture's ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures or policies, any of which could adversely affect our ability to maintain relationships with customers, employees or other third parties, or our ability to achieve the anticipated benefits of the Baker Hughes Transaction, and could harm our financial performance. The Company does not currently have any significant infrastructure in most of the countries where the Joint Venture will do business. While Baker Hughes will provide limited transition services, if we are unable to successfully or timely integrate and support the operations of the Joint Venture, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies and other anticipated benefits resulting from the Baker Hughes Transaction, and our business, results of operations and financial condition could be materially and adversely affected.

The Joint Venture may have liabilities that are not known to us and the indemnities negotiated in the Framework Agreement may not offer adequate protection.

As part of the Baker Hughes Transaction, the Joint Venture will assume certain liabilities of the Acquired Business. There may be liabilities that we failed or were unable to discover in the course of performing due diligence investigations into the Acquired Business. We may also have not correctly assessed the significance of certain liabilities of the Acquired Business identified in the course of our due diligence. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations. As we integrate the Acquired Business into our operations, we may learn additional information about the Acquired Business, such as unknown or contingent liabilities and issues relating to compliance with applicable laws, that could potentially have an adverse effect on our business, financial condition and results of operations.

After the Closing we will not be able to enforce claims with respect to certain of the representations and warranties that Baker Hughes Holdings made in the Framework Agreement.

Under the Framework Agreement, Baker Hughes Holdings gave customary representations and warranties related to the Acquired Business. After the Closing, we will not be able to enforce any claims against Baker Hughes Holdings, Baker Hughes Pressure Control or their respective affiliates relating to breaches of certain representations and warranties in the Framework Agreement, except in the case of fraud as provided in the Framework Agreement. Accordingly, the liability of these entities with respect to breaches of Baker Hughes Holdings’ representations and warranties under the Framework Agreement is limited. To provide for coverage against certain breaches by Baker Hughes Holdings of its representations and warranties in the Framework Agreement and certain pre-closing taxes of the Joint Venture, we have obtained a representation and warranty insurance policy. The policy is subject to a retention amount, exclusions, policy limits and certain other customary terms and conditions.

The Baker Hughes Transaction represents an expansion outside of our current geographic regions, and we may encounter new obstacles operating in different geographic regions.

Our operations have historically focused on the United States. The Baker Hughes Transaction represents an expansion into the Middle East and other jurisdictions. Certain aspects related to operating in these new jurisdictions may not be as familiar to us as our current operating jurisdictions. As a result, we may encounter obstacles that may cause us not to achieve the expected results of the Baker Hughes Transaction. These obstacles may include a less familiar and more volatile geopolitical landscape, new customers with whom we have no established relationship and just a small number of which account for the preponderance of the Acquired Business’ revenue, pressure from local governments to hire local employees, use local suppliers or to direct business to nationalized companies, unfamiliar operating conditions, and a distinct regulatory environment. Our future success will depend, in part, upon our ability to manage this expanded business, which may pose substantial challenges for management, including challenges related to the management and monitoring of new operations and jurisdictions and associated increased costs and complexity. We may also face increased scrutiny from governmental authorities as a result of the increase in the size of our business. Any adverse conditions, regulations or developments related to our expansion into or within these new jurisdictions may have a negative impact on our business, financial condition and results of operations.