CJ 2017 Annual Report

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations is intended to assist you in understanding our business and results of operations together with our present financial condition. This section should be read in conjunction with the audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in any forward-looking statement because of various factors, including, without limitation, those described in the sections titled “Cautionary Note Regarding Forward-Looking Statements” and Part I, Item 1A “Risk Factors” of this Annual Report. 37 Introductory Note and Corporate Overview C&J Energy Services, Inc., a Delaware corporation (the “Successor” and together with its consolidated subsidiaries for periods subsequent to the Plan Effective Date (as defined below), “C&J” or the “Company”) is a leading provider of well construction, well completion, well support and other complementary oilfield services to oil and gas exploration and production (“E&P”) companies throughout the continental United States. We offer a comprehensive, integrated suite of services throughout the life cycle of the well, including hydraulic fracturing, cased-hole wireline and pumping, cementing, coiled tubing, directional drilling, rig services, fluids management, artificial lift and other completion and specialty well site support services. We are headquartered in Houston, Texas and operate across all active onshore basins in the continental United States. Business Overview Demand for our services, and therefore our operating and financial performance, is heavily influenced by drilling, completion and production activity by our customers, which is significantly impacted by commodity prices. Beginning in 2011 through mid-2015, we significantly invested in a number of strategic initiatives to strengthen, expand and diversify our business, including through service line diversification, vertical integration and technological advancement (“R&T”). During that time, we rapidly grew our business both organically and through multiple acquisitions, including the Nabors Merger. During 2016 and into the first quarter of 2017, we divested several of our small, non-core businesses, including our specialty chemical business, equipment manufacturing and repair business, and our international coiled tubing operations in the Middle East. These divestitures, as well as the sale of our Canadian Well Support Services business in November 2017 discussed below, reflect a refocusing of our growth strategy in line with our goal of being the leading U.S. provider in all of our core services. Additionally, in furtherance of our strategy, we have continued to rightsize our U.S. Well Support Services segment, while we accelerated the growth of our cementing services with the O-Tex Transaction, described below. We emerged from the Chapter 11 Proceeding as the market was beginning to recover. During 2017, we focused on the continuous improvement of our organization, including several ongoing initiatives purposed to optimize our business processes and gain greater efficiency over time. We also took a deliberate approach to increasing our core capabilities, adding capacity, and growing our core service lines. The O-Tex Transaction On October 25, 2017, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Caymus Merger Sub, Inc., a Delaware corporation and wholly owned direct subsidiary of the Company (“Merger Sub”), O-Tex Holdings, Inc., a Texas corporation (“O-Tex”), the stockholders of O-Tex (the “Stockholders”), and O- Tex Sellers Representative LLC, a Delaware limited liability company, in its capacity as representative of the Stockholders (the “Stockholders’ Representative”), providing for the merger of Merger Sub with and into O-Tex (the “Merger”), with O- Tex surviving the Merger, and immediately thereafter, the merger of O-Tex with and into another wholly owned direct subsidiary of the Company (together with the Merger and the other transactions contemplated by the Merger Agreement, the “O-Tex Transaction”). On November 30, 2017 (the “Closing Date”), each holder of (i) outstanding common stock, par value $0.01 per share, of O-Tex (the “O-Tex Common Stock”), (ii) Series A Preferred Stock, par value $0.01 per share, of O-Tex (the “Series A Preferred Stock”), and (iii) Series B Preferred Stock, par value $0.01 per share, of O-Tex (together with the Series A Preferred Stock and the O-Tex Common Stock, the “O-Tex Shares”) had its O-Tex Shares (excluding any O-Tex Shares held in the treasury of O-Tex or held by the Company or Merger Sub immediately prior to the effective time of the Merger) converted into the right to receive such Stockholders’ pro rata portion of 4,420,000 shares of common stock, par value $0.01 per share, of the Company (the “Specified C&J Common Stock”). In addition, we paid to the Stockholders’ Representative, and each