CJ 2017 Annual Report

Please read Note 13 - Segment Information” in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report, for a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, from net income (loss), which is the nearest comparable U.S. GAAP financial measure (in thousands) on a reportable segment basis for the years ended December 31, 2017 and 2016. During the fourth quarter of 2017, Well Support Services segment revenue decreased sequentially primarily due to the sale of our Canadian rig services business in early November 2017 and the typical year-end seasonal slowdown. However, we improved segment profitability by executing on improving demand in select core basins and obtaining higher overall pricing for our services, even with an additional $1.6 million of inventory write-downs in our artificial lift business. In our rig services business, we continued to capitalize on high-grading our customer base and reallocating assets to areas with improving demand and higher overall pricing. In West Texas, despite a seasonally-driven decline in workover rig and trucking activity, revenue increased nearly 4.0% driven by plug and abandonment, frac tank rentals and special services. Additionally, our special services business experienced improved revenue and profitability due to higher activity levels in California. As oil prices increased, we continued with our strategy of selectively deploying equipment with customers that plan to increase workover or well maintenance activities in our core operating basins. In our fluids management business, improving activity levels primarily in West Texas and the Mid-Continent resulted in higher pricing and sequential improvement in both revenue and profitability. However, our ability to fully capitalize on those opportunities was limited due to a lack of skilled labor, and we believe that pricing will need to further increase in order to both attract and retain additional personnel to meet improving demand for fluids management services as production levels continue to increase. Well Support Services Outlook As we move through the first quarter of 2018, we currently expect that our Well Support Services segment will experience higher activity levels and improving profitability. We expect that improving oil prices and workover economics will result in increased workover activity levels allowing us to continue our strategy of high-grading our customer base and reallocating assets into areas with higher pricing and profitability. In our fluids management business, we expect to continue to focus on putting personnel and equipment to work in areas with improving demand, such as West Texas, and the Mid- Continent. However, labor will continue to be an impediment and we plan to increase our rates commensurate with our rising cost structure to generate more attractive returns. We expect our fluids management business to continue to face competition from growing infrastructure build-out, and any future asset deployment will also be limited by our ability to raise rates to attract and retain skilled workers. We are encouraged to see signs of market improvement for our Well Support Services segment, and our primary goal remains to align ourselves with customers that value our ability to deliver superior service quality safely and to increase segment profitability. Other Services Our Other Services segment consisted of smaller, non-core business lines that have since been divested, including our specialty chemical business, equipment manufacturing and repair business and the Company's international coiled tubing operations in the Middle East.  In line with the discontinuance of these small, ancillary service lines and divisions, subsequent to the year ended December 31, 2016, we are now disclosing two reportable segments, and financial information for the Other Services reportable segment is only presented for the corresponding prior year period. Our Other Services segment contributed $7.6 million of revenue for the year ended December 31, 2016, which represents approximately 0.8% of our total revenue. Adjusted EBITDA from this segment for the year ended December 31, 2016 was $(5.8) million. Please read Note 13 - Segment Information” in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report, for a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, from net income (loss), which is the nearest comparable U.S. GAAP financial measure (in thousands) on a reportable business segment basis for the year ended December 31, 2016. 42 Operating Overview & Strategy Our  results of operations in our core service lines are driven primarily by four interrelated, fluctuating variables: (1) the drilling, completion and production activities of our customers, which is primarily driven by oil and natural gas prices and directly affects the demand for our services; (2) the price we are able to charge for our services, which is primarily driven by the level of demand for our services and the supply of equipment capacity in the market; (3) the cost of products and labor involved in providing our services, and our ability to pass those costs on to our customers; and (4) our activity, or “utilization” levels, and service performance.