What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 186 added, 94 removed, 192 unchanged (59% of the section changed)

10 unchanged sentences

These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

We are a global products company, serving the oil, natural gas, and renewable energy industries.

We design, manufacture and distribute value added solutions that increase the safety and efficiency of energy exploration and production.

We also engage in aftermarket parts supply and services that complement our product offering.

Our products include highly engineered capital equipment as well as products that are consumed in the drilling, well construction, production and transportation of oil and natural gas.

We are a global company serving the oil, natural gas, industrial and renewable energy industries.

FET provides value added solutions that increase the safety and efficiency of energy exploration and production.

We are an environmentally and socially responsible company headquartered in Houston, Texas with manufacturing, distribution and service facilities strategically located throughout the world.

Our products include highly engineered capital equipment as well as consumable products.

These consumable products are used in drilling, well construction and completions activities, within the supporting infrastructure, and at processing centers and refineries.

Our engineered capital products are directed at drilling rig equipment for new rigs, upgrades and refurbishment projects, subsea construction and development projects, pressure pumping equipment, the placement of production equipment on new producing wells, downstream capital projects and capital equipment for renewable energy projects.

Our products are aimed at improving the efficiency, safety and environmental and social impact of our customers' operations.

For the three months ended March 31, 2021, approximately 80% of our revenue was derived from consumable products and activity-based equipment, while the balance was primarily derived from capital products with a small amount from rental and other services.

Our products are aimed at improving the safety, efficiency, and environmental and social impact of our customers' operations.

For the six months ended June 30, 2021, approximately 80% of our revenue was derived from

consumable products and activity-based equipment, while the balance was primarily derived from capital products with a small amount from rental and other services.

We design, manufacture and supply high quality reliable products that create value for our diverse customer base, which includes, among others, oil and natural gas operators, land and offshore drilling contractors, oilfield service companies, subsea construction and service companies, and pipeline and refinery operators.

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The products and related services consist primarily of:

(i) capital and consumable products sold to the pressure pumping, hydraulic fracturing and flowback services markets, including hydraulic fracturing pumps, cooling systems and flow iron as well as wireline cable and pressure control equipment used in the well completion and intervention service markets;

(i) capital and consumable products sold to the pressure pumping, hydraulic fracturing and flowback services markets, including hydraulic fracturing pumps, cooling systems, high-pressure flexible hoses and flow iron as well as wireline cable and pressure control equipment used in the well completion and intervention service markets;

and (ii) coiled tubing strings and coiled line pipe and related services.

8 unchanged sentences

In 2020, the COVID-19 pandemic and associated actions taken around the world to mitigate the spread of COVID-19 caused unprecedented declines in economic activity, energy demand and oil and natural gas prices.

In response, OPEC+ agreed to a significant reduction in oil production and North American exploration and production companies aggressively reduced drilling and completion activities.

In response, OPEC+ implemented significant reductions in oil production and North American exploration and production companies aggressively reduced drilling and completion activities.

The extreme volatility and lower price environment in 2020 created a very challenging market for all sub-sectors of the oil and natural gas industry, including those in which the Company competes.

More recently, oil demand and prices have partially rebounded as oil supply and demand have rebalanced at a lower level.

drilling rig count bottomed at 244 rigs in August 2020 and has since increased to over 400 rigs as of the end of the first quarter of 2021.

In addition, the level of active hydraulic fracturing fleets for well completions also increased in the first quarter of 2021 in order to meet increasing oil demand.

However, overall activity levels and the North America rig count remain far below pre-pandemic levels.

Due to the challenging market conditions, exploration and production companies in North America are under pressure to generate positive cash flows and constrain capital and maintenance expenditures.

In addition, bankruptcies and consolidation of exploration and production and service companies continued through 2020.

This trend has led to a reduction in the demand for our products compared to periods prior to the pandemic.

While activity levels in international regions, as well as global offshore and subsea activity, have also been impacted by COVID-19 related activity disruptions, international revenue for our drilling and subsea capital equipment offerings have recently increased due to an improved outlook for our international drilling customers and the diversification of our subsea product line revenue outside of the oil and natural gas industry.

During the first half of 2021, distribution of vaccines resulted in reopening of certain economies and increasing demand for oil and natural gas.

In addition, oil supply has been impacted by ongoing constraints by OPEC+ and capital discipline by North American exploration and production companies.

As a result of these supply and demand factors, commodity prices have increased substantially in the first half of 2021.

However, ongoing COVID-19 outbreaks and new variants of the virus continue to cause disruptions in global supply chains which have led to inflationary pressures for certain goods and services.

Our revenues are highly correlated to the U.S.

drilling rig count which has increased to 470 rigs as of the end of the second quarter of 2021 from a low of 244 rigs in August 2020.

Furthermore, the level of active hydraulic fracturing fleets also increased substantially in the first half of 2021 in order to meet increasing oil demand.

Due to market conditions, publicly owned exploration and production companies in North America remain under pressure to generate positive cash flows and constrain capital and maintenance expenditures.

In contrast, privately owned exploration and production companies in North America have increased their drilling and completions activity levels

in response to the higher oil and natural gas price environment.

In addition, consolidation of exploration and production and service companies has continued in 2021.

While activity levels in international regions, as well as global offshore and subsea activity, were also impacted by COVID-19 related activity disruptions, international revenue for our drilling and subsea capital equipment offerings have recently increased due to an improved outlook for our international drilling customers and the diversification of our subsea product line revenue outside of the oil and natural gas industry.

Demand for products in our Valve Solutions product line is driven by capital projects and maintenance spending in the upstream, midstream and downstream markets.

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On December 31, 2020, we sold assets pertaining to our ABZ and Quadrant valve brands for total consideration of $104.6 million and recognized a gain on disposition of $88.4 million.

The disposition of these brands resulted in a sequential decrease in our Valve Solutions product line’s revenue.

Although we have experienced some operational inefficiencies, our manufacturing facilities and business operations have not experienced work stoppages due to COVID-19 or associated government regulations.

The disposition of these brands resulted in a substantial decrease in our Valve Solutions product line’s revenue compared to the prior year.

Although we experienced some operational inefficiencies, our manufacturing facilities and business operations have not experienced work stoppages due to COVID-19 or associated government regulations.

However, in response to the decline in demand for our products and decreases in revenue, we implemented significant cost reduction actions, including exiting facilities, lowering headcount, reducing salaries, suspending the Company’s matching contribution to the U.S.

and Canada defined contribution retirement plans, and furloughing select employee groups.

Certain facility closures and headcount reduction efforts continued in the first quarter of 2021 and are expected to be completed during the first half of 2021.

Certain facility closures and headcount reduction efforts continued in the first half of 2021.

The table below shows average crude oil and natural gas prices for West Texas Intermediate crude oil (“WTI”), United Kingdom Brent crude oil (“Brent”), and Henry Hub natural gas:

Three Months Ended

March 31, December 31, March 31,

June 30, March 31, June 30,

2021 2021 2020

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The price of oil varied dramatically in 2020 with the spot prices for WTI and Brent falling from $61.14 and $67.77 per barrel, respectively, as of December 31, 2019 to lows below $15.00 per barrel in April 2020.

Since that time, oil prices have increased substantially to average $58.09 and $61.04 for WTI and Brent, respectively, in the first quarter 2021, a 37% increase from the fourth quarter 2020.

In addition, natural gas prices continued to increase in the first quarter 2021 with average price levels approximately 39% higher compared to the fourth quarter 2020 and 84% higher compared to the first quarter 2020.

Since that time, oil prices have rebounded to an average of $66.19 and $68.98 for WTI and Brent, respectively, in the second quarter 2021.

In addition, natural gas prices remained above prior year levels with average prices approximately 74% higher compared to the second quarter 2020.

The table below shows the average number of active drilling rigs, based on the weekly Baker Hughes Incorporated rig count, operating by geographic area and drilling for different purposes.

Three Months Ended

March 31, December 31, March 31,

June 30, March 31, June 30,

2021 2021 2020

10 unchanged sentences

Oil/Gas 352 302 308

Gas 90 76 112

Unclassified 1 1 2

6 unchanged sentences

The average U.S.

rig count for the first quarter 2021 was 26% higher compared to the fourth quarter of 2020, but 50% lower compared to the first quarter of 2020.

rig count for the second quarter 2021 was 15% higher compared to the first quarter of 2021 and second quarter of 2020.

rig count started 2020 at 805 working rigs and fell 70% to a low of 244 rigs in August 2020.

Since that time, the number of active rigs has partially recovered, ending the first quarter 2021 at 417.

Since that time, the number of active rigs has partially recovered, ending the second quarter 2021 at 470.

The table below shows the amount of total inbound orders by segment:

(in millions of dollars) Three Months Ended

March 31, December 31, March 31,

(in millions of dollars) Three Months Ended Six Months Ended

June 30, March 31, June 30, June 30, June 30,

2021 2021 2020 2021 2020

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Results of operations

Three months ended March 31, 2021 compared with three months ended March 31, 2020

Three Months Ended March 31, Change

Three months ended June 30, 2021 compared with three months ended June 30, 2020

Three Months Ended June 30, Change

(in thousands of dollars, except per share information) 2021 2020 $ %

15 unchanged sentences

Impairments of intangible assets, property and equipment — 112 (112) *

Loss (gain) on disposal of assets and other (909) 16 (925) *

Gain on disposal of assets and other (360) (550) 190 *

Operating loss (9,620) (35,022) 25,402 72.5 %

15 unchanged sentences

We sold certain assets of our ABZ and Quadrant valve brands on December 31, 2020.

Therefore, our results of operations for the first quarter of 2021 may not be comparable to the results of operations for the first quarter of 2020.

Therefore, our results of operations for the second quarter of 2021 may not be comparable to the results of operations for the second quarter of 2020.

Refer to Note 4 Dispositions for additional information.

Our revenue for the three months ended March 31, 2021 was $114.5 million, a decrease of $68.1 million, or 37.3%, compared to the three months ended March 31, 2020.

For the three months ended March 31, 2021, our Drilling & Downhole, Completions, and Production segments comprised 42.5%, 33.0%, and 24.5% of our total revenue, respectively, which compared to 42.0%, 27.6%, and 30.4% of our total revenue, respectively, for the three months ended March 31, 2020.

The overall decline in revenue is primarily related to lower sales volumes due to the significant decrease in drilling and completions activity levels.

Our revenue for the three months ended June 30, 2021 was $137.4 million, an increase of $24.1 million, or 21.3%, compared to the three months ended June 30, 2020.

For the three months ended June 30, 2021, our Drilling & Downhole, Completions, and Production segments comprised 44.8%, 33.9%, and 21.3% of our total revenue, respectively, which compared to 41.7%, 15.4%, and 42.9% of our total revenue, respectively, for the three months ended June 30, 2020.

The overall increase in revenue is primarily related to higher sales volumes due to improving market conditions in the second quarter 2021 compared to the second quarter 2020 which was negatively impacted by the onset of the COVID 19 pandemic.

The changes in revenue by operating segment consisted of the following:

Drilling & Downhole segment — Revenue was $48.7 million for the three months ended March 31, 2021, a decrease of $28.0 million, or 36.5%, compared to the three months ended March 31, 2020.

This decrease was driven by an $18.1 million, or 49.5%, decline in revenue for our Drilling Technologies product line due to lower sales volumes of consumable products and capital equipment as a result of the 50% year-over-year decline in U.S.

rig activity.

Revenue for our Downhole Technologies product line decreased by $9.9 million, primarily due to lower sales volumes of artificial lift products due to the significant decline in the number of well completions in the first quarter 2021 compared to 2020.

Revenue for our Subsea Technologies product line was flat compared to the previous year with continued diversification of sales to customers outside the oil and natural gas industry.

Completions segment — Revenue was $37.8 million for the three months ended March 31, 2021, a decrease of $13.0 million, or 25.5%, compared to the three months ended March 31, 2020.

This decline was driven by a $7.2 million decrease in sales volumes for our Coiled Tubing product line and a $5.8 million decrease in revenue for our Stimulation and Intervention product line due to the significant reduction in U.S.

hydraulic fracturing and well intervention service activity levels, and the cannibalization of existing excess equipment.

Production segment — Revenue was $28.0 million for the three months ended March 31, 2021, a decrease of $27.6 million, or 49.6%, compared to the three months ended March 31, 2020.

This decrease includes a $12.9 million decline from the divestiture of our ABZ and Quadrant valve brands in the fourth quarter 2020.

The remaining decline was driven by a $10.3 million decline in sales volumes of our other valve brands, primarily due to lower sales into the North America upstream and midstream oil and natural gas market, and a $4.4 million decrease in revenue for our Production Equipment product line from lower sales volumes of our surface production equipment due to lower well completions activity in 2021.

Drilling & Downhole segment — Revenue was $61.6 million for the three months ended June 30, 2021, an increase of $14.4 million, or 30.5%, compared to the three months ended June 30, 2020.

This increase was driven by a $7.7 million, or 38.3%, increase in revenue for our Drilling Technologies product line due to higher sales volumes of handling tools into international markets and higher sales of consumable products as a result of the improving U.S.

activity levels in the second quarter 2021.

Revenue for our Downhole Technologies product line increased by $3.9 million, primarily due to higher sales volumes of artificial lift products due to the increase in the number of well completions and workover activity in the second quarter 2021 compared to 2020.

Revenue for our Subsea Technologies product line increased by $2.8 million primarily due to higher replacement part sales in the second quarter 2021 compared to the second quarter 2020, which was negatively impacted by the onset of the COVID 19 pandemic.

Completions segment — Revenue was $46.5 million for the three months ended June 30, 2021, an increase of $28.9 million, or 164.6%, compared to the three months ended June 30, 2020.

This significant improvement includes revenue increases of $15.8 million and $13.1 million for our Stimulation & Intervention and Coiled Tubing product lines, respectively.

These higher revenue levels were driven by increasing U.S.

hydraulic fracturing and well intervention service activity levels in the second quarter 2021 compared to a rapidly declining market in the second quarter 2020 when service companies were idling equipment in response to historically low levels of oil demand at the onset of the COVID 19 pandemic.

Production segment — Revenue was $29.3 million for the three months ended June 30, 2021, a decrease of $19.3 million, or 39.6%, compared to the three months ended June 30, 2020.

This decrease includes a $9.7 million decline from the fourth quarter 2020 divestiture of our ABZ and Quadrant valve brands.

The remaining decline was driven by a $7.5 million decline in sales volumes of our other valve brands, primarily due to lower sales into the North America downstream and midstream markets, and a $2.0 million decrease in revenue for our Production Equipment product line from lower sales volumes of our surface production equipment.

Segment operating income (loss) and segment operating margin percentage

Segment operating loss for the three months ended March 31, 2021 was $15.3 million, a decline of $22.8 million compared to a loss of $38.1 million for the three months ended March 31, 2020.

For the three months ended March 31, 2021, segment operating margin percentage was (13.4)% compared to (20.8)% for the three months ended March 31, 2020.

Segment operating margin percentage is calculated by dividing segment operating loss by revenue for the period.

Segment operating loss for the three months ended June 30, 2021 was $10.0 million, a $25.5 million improvement compared to a loss of $35.5 million for the three months ended June 30, 2020.

For the three months ended June 30, 2021, segment operating margin percentage was (7.3)% compared to (31.3)% for the three months ended June 30, 2020.

Segment operating margin percentage is calculated by dividing segment operating income (loss) by revenue for the period.

The change in operating income (loss) for each segment is explained as follows:

Drilling & Downhole segment — Segment operating loss was $4.5 million, or (9.3)%, for the three months ended March 31, 2021 compared to a loss of $4.1 million, or (5.4)%, for the three months ended March 31, 2020.

The $0.4 million decline in segment operating results is primarily attributable to lower gross profit from the 36.5% decline in segment revenues, partially offset by lower employee and facility related costs due to headcount, salary and other cost reductions implemented in 2020.

Completions segment — Segment operating income was $0.1 million, or 0.2%, for the three months ended March 31, 2021 compared to a segment operating loss of $17.3 million, or (34.1)%, for the three months ended March 31, 2020.

Segment operating results were negatively impacted by the reduction in gross profit from the 25.5% decline in revenues discussed above.

However, segment operating results improved by $17.4 million due to a $7.5 million reduction in inventory write-downs, a $6.1 million decline from lease impairments recognized in the first quarter 2020, a $1.9 million reduction in severance and restructuring related costs and lower employee and facility related costs due to headcount, salary and other cost reductions implemented in 2020.

Production segment — Segment operating loss was $3.8 million, or (13.7)%, for the three months ended March 31, 2021 compared to a loss of $8.2 million, or (14.7)%, for the three months ended March 31, 2020.

Segment operating results were negatively impacted by the reduction in gross profit from the 49.6% decline in revenue discussed above, including the disposition of our ABZ and Quadrant valve brands in the fourth quarter 2020.

However, segment operating results improved by $4.3 million due to a $2.6 million reduction in inventory write-downs, a $1.9 million decline from lease impairments recognized in the first quarter 2020 and lower employee and facility related costs due to headcount, salary and other cost reductions implemented in 2020.

Corporate — Selling, general and administrative expenses for Corporate were $7.0 million for the three months ended March 31, 2021, a $1.4 million decrease compared to the three months ended March 31, 2020.

This decrease was primarily related to lower employee related costs and reductions in professional fees in connection with headcount, salary and other cost reductions implemented in 2020.

Drilling & Downhole segment — Segment operating income was $2.7 million, or 4.4%, for the three months ended June 30, 2021 compared to a loss of $9.4 million, or (19.9)%, for the three months ended June 30, 2020.

The $12.1 million improvement in segment operating results is primarily attributable to higher gross profit from the 30.5% increase in segment revenues.

In addition, segment operating income increased due to lower severance and restructuring costs as well as lower employee and facility related costs due to headcount, salary and other cost reductions implemented in 2020.

Completions segment — Segment operating loss was $0.4 million, or (0.8)%, for the three months ended June 30, 2021 compared to a segment operating loss of $17.8 million, or (101.3)%, for the three months ended June 30, 2020.

The $17.4 million improvement in segment operating results is primarily attributable to higher gross profit from the 164.6% increase in revenues discussed above and a $2.3 million reduction in inventory write-downs compared to three months ended June 30, 2020.

Production segment — Segment operating loss was $4.0 million, or (13.8)%, for the three months ended June 30, 2021 compared to a loss of $1.1 million, or (2.2)%, for the three months ended June 30, 2020.

Segment operating results were negatively impacted by the reduction in gross profit from the 39.6% decline in revenue discussed above, including the fourth quarter 2020 disposition of our ABZ and Quadrant valve brands.

However, this decline in gross profit was mostly offset by reductions in employee and facility related costs due to headcount, salary and other cost reductions implemented in 2020.

Corporate — Selling, general and administrative expenses for Corporate were $8.3 million for the three months ended June 30, 2021, a $1.1 million increase compared to the three months ended June 30, 2020.

This increase was primarily related to higher costs associated with variable compensation plans for the three months ended June 30, 2021.

Corporate costs include, among other items, payroll related costs for management, administration, finance, legal, and human resources personnel;

3 unchanged sentences

Several items are not included in segment operating loss, but are included in total operating loss.

These items include transaction expenses, impairments of intangible assets, property and equipment, and gain on the disposal of assets and other.

Transaction expenses relate to legal and other advisory costs incurred in acquiring or disposing of businesses and are not considered to be part of segment operating income (loss).

These items include impairments of intangible assets, property and equipment, and gain on the disposal of assets and other.

For further information related to impairments of intangible assets, property and equipment, refer to Note 7 Impairments of Long-Lived Assets.

1 unchanged sentence

Other income and expense includes interest expense, foreign exchange losses (gains) and other, loss (gain) on extinguishment of debt, and deferred loan costs written off.

We incurred $9.2 million of interest expense during the three months ended March 31, 2021, an increase of $2.4 million compared to the three months ended March 31, 2020 primarily due to higher non-cash amortization of debt discount and debt issuance costs associated with our 9.0% convertible secured notes due August 2025 (the “2025 Notes”) and a higher interest rate on our new 2025 Notes compared to our previous notes outstanding.

The foreign exchange losses (gains) are primarily the result of movements in the British pound and Euro relative to the U.S.

We incurred $7.8 million of interest expense during the three months ended June 30, 2021, an increase of $1.4 million compared to the three months ended June 30, 2020 due to higher non-cash amortization of debt discount and debt issuance costs associated with our 9.00% convertible secured notes due August 2025 ("2025 Notes") and a higher interest rate on our 2025 Notes compared to our previous notes outstanding.

The foreign exchange losses (gains) are primarily the result of movements in the British pound, Euro and Canadian dollar relative to the U.S.

These movements in exchange rates create foreign exchange gains or losses when applied to monetary assets or liabilities denominated in currencies other than the location’s functional currency, primarily U.S.

dollar denominated cash, trade account receivables and net intercompany receivable balances for our entities using a functional currency other than the U.S.

During the three months ended March 31, 2021, we repurchased an aggregate $16.5 million of principal amount of our 2025 Notes for $15.6 million.

During the three months ended June 30, 2021, we repurchased an aggregate $41.5 million of principal amount of our 2025 Notes for $41.2 million.

The net carrying value of the extinguished debt, including unamortized debt discount and debt issuance costs, was $37.0 million, resulting in a $4.2 million loss on extinguishment of debt.

During the three months ended March 31, 2020, we repurchased an aggregate $10.9 million of principal amount of our 2021 Notes for $3.4 million and recognized a net gain of $7.5 million reflecting the difference in the amount paid and the net carrying value of the extinguished debt, including debt issuance costs and unamortized debt premium.

In addition, we wrote off $1.8 million of deferred loan costs due to the termination of discussions related to a potential exchange offer for our 2021 Notes.

We recorded a tax expense of $1.7 million for the three months ended March 31, 2021, compared to a tax benefit of $14.4 million for the three months ended March 31, 2020.

The estimated annual effective tax rates for the three months ended March 31, 2021 and 2020 were impacted by losses in jurisdictions where the recording of a tax benefit is not available.

During the three months ended June 30, 2020, we repurchased an aggregate $61.0 million of principal amount of our previous 6.25% unsecured notes due 2021 (“2021 Notes”) for $24.3 million.

The net carrying value of the extinguished debt, including unamortized debt premium and debt issuance costs, was $60.6 million, resulting in a $36.3 million gain on extinguishment of debt.

We recorded tax expense of $1.2 million for the three months ended June 30, 2021, compared to a tax benefit of $0.4 million for the three months ended June 30, 2020.

The estimated annual effective tax rates for the three months ended June 30, 2021 and 2020 were impacted by losses in jurisdictions where the recording of a tax benefit is not available.

Furthermore, the tax expense or benefit recorded can vary from period to period depending on the Company’s relative mix of earnings and losses by jurisdiction.

The tax benefit for the three months ended March 31, 2020 includes a $16.6 million benefit related to a carryback claim for U.S.

Six months ended June 30, 2021 compared with six months ended June 30, 2020

Six Months Ended June 30, Favorable / (Unfavorable)

2021 2020 $ %

(in thousands of dollars, except per share information)

Drilling & Downhole $ 110,226 $ 123,826 $ (13,600) (11.0) %

Completions 84,359 68,406 15,953 23.3 %

Production 57,368 104,202 (46,834) (44.9) %

Eliminations (16) (527) 511 *

Total revenue 251,937 295,907 (43,970) (14.9) %

Operating loss:

Drilling & Downhole (1,805) (13,544) 11,739 86.7 %

Operating margin % (1.6) % (10.9) %

Completions (302) (35,131) 34,829 99.1 %

Operating margin % (0.4) % (51.4) %

Production (7,882) (9,236) 1,354 14.7 %

Operating margin % (13.7) % (8.9) %

Corporate (15,280) (15,620) 340 2.2 %

Total segment operating loss (25,269) (73,531) 48,262 65.6 %

Operating margin % (10.0) % (24.8) %

Impairments of intangible assets, property and equipment — 17,432 (17,432) *

Gain on disposal of assets and other (1,269) (534) (735) *

Operating loss (24,000) (90,429) 66,429 73.5 %

Interest expense 16,937 13,144 3,793 28.9 %

Foreign exchange losses (gains) and other, net 2,531 (4,376) 6,907 157.8 %

Loss (gain) on extinguishment of debt 5,094 (43,744) 48,838 *

Deferred loan costs written off — 1,959 (1,959) *

Total other (income) expense 24,562 (33,017) 57,579 *

Loss before income taxes (48,562) (57,412) 8,850 15.4 %

Income tax expense (benefit) 2,907 (14,774) 17,681 119.7 %

Net loss $ (51,469) $ (42,638) $ (8,831) (20.7) %

Weighted average shares outstanding

Basic 5,625 5,569

Diluted 5,625 5,569

Loss per share

Basic $ (9.15) $ (7.66)

Diluted $ (9.15) $ (7.66)

* not meaningful

We sold certain assets of our ABZ and Quadrant valve brands on December 31, 2020.

Therefore, our results of operations for the six months ended June 30, 2021 may not be comparable to the results of operations for the six months ended June 30, 2020.

Refer to Note 4 Dispositions for additional information.

Our revenue for the six months ended June 30, 2021 was $251.9 million, a decrease of $44.0 million, or 14.9%, compared to the six months ended June 30, 2020.

For the six months ended June 30, 2021, our Drilling & Downhole, Completions, and Production segments comprised 43.8%, 33.4%, and 22.8% of our total revenue, respectively, which compared to 41.8%, 23.0%, and 35.2% of our total revenue, respectively, for the six months ended June 30, 2020.

The overall decline in revenue is primarily related to a decrease in sales volumes due to lower drilling and completions activity levels in the first half of 2021 compared to the first half of 2020.

The changes in revenue by operating segment consisted of the following:

Drilling & Downhole segment — Revenue was $110.2 million for the six months ended June 30, 2021, a decrease of $13.6 million, or 11.0%, compared to the six months ended June 30, 2020.

This decrease includes a $10.5 million, or 18.5%, decline in revenue for our Drilling Technologies product line due to lower sales volumes of consumable products and capital equipment as a result of a 28% decline in U.S.

rig activity year-over-year.

Revenue for our Downhole Technologies product line decreased by $5.9 million primarily due to lower sales volumes of artificial lift products due to the significant decrease in the number of wells completed in the first half of 2021 compared to the first half of 2020.

These declines were partially offset by a $2.8 million increase in revenue for our Subsea Technologies product line primarily due to higher replacement part sales in the first half of 2021 compared to the first half of 2020, which was negatively impacted by the onset of the COVID 19 pandemic.

Completions segment — Revenue was $84.4 million for the six months ended June 30, 2021, an increase of $16.0 million, or 23.3%, compared to the six months ended June 30, 2020.

This increase includes a $10.1 million, or 30.5%, increase in sales volumes for our Stimulation and Intervention product line and a $5.9 million, or 16.6%, increase in sales volumes for our Coiled Tubing product line.

These higher revenue levels were driven by increasing U.S.

hydraulic fracturing and well intervention service activity levels in the first half of 2021 compared to a rapidly declining market in the first half of 2020 when service companies were idling equipment in response to historically low levels of oil demand at the onset of the COVID 19 pandemic.

Production segment — Revenue was $57.4 million for the six months ended June 30, 2021, a decrease of $46.8 million, or 44.9%, compared to the six months ended June 30, 2020.

This decrease includes a $22.5 million decline from the fourth quarter 2020 divestiture of our ABZ and Quadrant valve brands.

The remaining decline was driven by a $17.9 million decline in sales volumes of our other valve brands, primarily due to lower sales into the North America downstream and midstream markets, and a $6.4 million decrease in revenue for our Production Equipment product line from lower sales volumes of our surface production equipment, partially offset by higher sales volumes for our process oil treatment equipment due to increased project activity with international downstream customers.

Segment operating loss and segment operating margin percentage

Segment operating loss for the six months ended June 30, 2021 was $25.3 million, an improvement of $48.3 million compared to the six months ended June 30, 2020.

For the six months ended June 30, 2021, segment operating margin percentage was (10.0)% compared to (24.8)% for the six months ended June 30, 2020.

Segment operating margin percentage is calculated by dividing segment operating loss by revenue for the period.

The change in operating loss for each segment is explained as follows:

Drilling & Downhole segment — Segment operating loss was $1.8 million, or (1.6)%, for the six months ended June 30, 2021, an improvement of $11.7 million or 86.7% compared to the six months ended June 30, 2020.

The $11.7 million improvement in segment operating results is primarily attributable to an $8.3 million decrease in employee related costs due to headcount, salary and other cost reductions implemented in 2020.

In addition, segment operating results also improved due to a $2.0 million reduction in inventory write downs and lower severance and other costs related to restructuring activities implemented in the first half of 2020 in response to the onset of the COVID-19 pandemic.

Completions segment — Segment operating loss was $0.3 million, or (0.4)%, for the six months ended June 30, 2021, an improvement of $34.8 million or 99.1% compared to the six months ended June 30, 2020.

The $34.8 million improvement in segment operating results is primarily attributable to a $9.8 million decrease in inventory write downs, a $6.1 million decrease in impairments of operating lease right of use assets and a $6.5 million reduction in employee related costs due to headcount, salary and other cost reductions implemented in 2020.

The remaining increase in segment operating results is due to higher gross profits from the 23.3% increase in segment revenues and various other cost reductions.

Production segment — Segment operating loss was $7.9 million, or (13.7)%, for the six months ended June 30, 2021 compared to a loss of $9.2 million, or (8.9)% for the six months ended June 30, 2020.

The $1.4 million improvement in segment operating results is primarily attributable to an $8.1 million reduction in employee related costs due to headcount, salary and other cost reductions implemented in 2020 as well as a $2.0 million decrease in inventory write downs and a $1.9 million decrease in lease impairments.

However, these cost decreases were mostly offset by the reduction in gross profit from the 44.9% decline in revenue discussed above, including the fourth quarter 2020 disposition of our ABZ and Quadrant valve brands.

Corporate — Selling, general and administrative expenses for Corporate were $15.3 million for the six months ended June 30, 2021, a $0.3 million decline compared to the six months ended June 30, 2020.

Cost reductions from lower legal and other professional fees were mostly offset by higher costs associated with variable compensation plans.

Corporate costs include, among other items, payroll related costs for management, administration, finance, legal, and human resources personnel;

professional fees for legal, accounting and related services;

and marketing costs.

Other items not included in segment operating loss

Several items are not included in segment operating loss, but are included in total operating loss.

These items include impairments of intangible assets, property and equipment and gain on disposal of assets and other.

For further information related to impairments of goodwill, intangible assets, property and equipment, refer to Note 7 Impairments of Long-Lived Assets.

Other expense

Other expense includes interest expense, foreign exchange losses (gains) and other, loss (gain) on extinguishment of debt and deferred loan costs written off.

We incurred $16.9 million of interest expense during the six months ended June 30, 2021, an increase of $3.8 million from the six months ended June 30, 2020 due to higher non-cash amortization of debt discount and debt issuance costs associated with our 2025 Notes and a higher interest rate on our 2025 Notes compared to our previous notes outstanding.

The foreign exchange losses (gains) are primarily the result of movements in the British pound, Euro and Canadian dollar relative to the U.S.

dollar denominated cash, trade account receivables and net intercompany receivable balances for our entities using a functional currency other than the U.S.

During the six months ended June 30, 2021, we repurchased an aggregate $58.0 million of principal amount of our 2025 Notes for $56.7 million.

The net carrying value of the extinguished debt, including unamortized debt discount and debt issuance costs, was $51.6 million, resulting in a $5.1 million loss on extinguishment of debt.

During the first half of 2020, we repurchased an aggregate $71.9 million of principal amount of our 2021 Notes for $27.6 million.

The net carrying value of the extinguished debt, including unamortized debt premium and debt issuance costs, was $71.3 million, resulting in $43.7 million gain on extinguishment of debt.

In addition, we wrote off $2.0 million of deferred loan costs due to the termination of previous discussions related to a potential exchange offer for our 2021 Notes.

We recorded tax expense of $2.9 million for the six months ended June 30, 2021, compared to a tax benefit of $14.8 million for the six months ended June 30, 2020.

The estimated annual effective tax rates for the six months ended June 30, 2021 and 2020 were impacted by losses in jurisdictions where the recording of a tax benefit is not available.

Furthermore, the tax expense or benefit recorded can vary from period to period depending on the Company’s relative mix of earnings and losses by jurisdiction.

The tax benefit for the six months ended June 30, 2020 includes a $16.6 million benefit related to a carryback claim for U.S.

federal tax losses based on provisions in the U.S.

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Our internal sources of liquidity are cash on hand and cash flows from operations, while our primary external sources include trade credit, our Credit Facility and the 2025 Notes.

Our primary uses of capital have been for inventories, sales on credit to our customers and maintenance and growth capital expenditures.

Our primary uses of capital have been for inventories, sales on credit to our customers and maintenance and growth capital expenditures and debt repayments.

We continually monitor potential capital sources, including equity and debt financing, to meet our investment and target liquidity requirements.

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As of December 31, 2020, we had $316.9 million principal amount of 2025 Notes outstanding and $13.1 million outstanding on our revolving Credit Facility.

During the first quarter of 2021, we repurchased an aggregate $16.5 million principal amount of our 2025 Notes for $15.6 million.

The repurchase amount of $15.6 million includes $13.7 million paid in cash and $1.9 million payable for bonds repurchased but not yet settled as of March 31, 2021.

During the six months ended June 30, 2021, we repurchased an aggregate $58.0 million principal amount of our 2025 Notes for $56.7 million.

In addition, we repaid the $13.1 million outstanding on our revolving Credit Facility.

Following these transactions, we had $300.3 million principal amount of 2025 Notes and no borrowings outstanding under our Credit Facility as of March 31, 2021.

The Credit Facility is scheduled to mature on October 30, 2022 and the 2025 notes are scheduled to mature in August 2025.

Following these transactions, we had $258.8 million principal amount of 2025 Notes and no borrowings outstanding under our Credit Facility as of June 30, 2021.

The Credit Facility is scheduled to mature in October 2022 and the 2025 notes are scheduled to mature in August 2025.

See Note 8 Debt for further details related to the terms for our 2025 Notes and Credit Facility.

As of March 31, 2021, we had cash and cash equivalents of $100.8 million and $141.5 million of availability under our Credit Facility.

As of June 30, 2021, we had cash and cash equivalents of $60.4 million and $125.8 million of availability under our Credit Facility.

We anticipate that our future working capital requirements for our operations will fluctuate directionally with revenues.

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Our ability to make significant acquisitions for cash may require us to pursue additional equity or debt financing, which we may not be able to obtain on terms acceptable to us or at all.

To the extent that access to the capital and other financial markets is adversely affected by the effects of COVID-19, our customers and other counterparties may become unable to make payments to us, on a timely basis or at all, which could adversely affect our business, cash flows, liquidity, financial condition and results of operations.

Our cash flows for the three months ended March 31, 2021 and 2020 are presented below (in millions):

Three Months Ended March 31,

Our cash flows for the six months ended June 30, 2021 and 2020 are presented below (in millions):

Six Months Ended June 30,

Net cash provided by (used in) operating activities $ 2.4 $ (2.1)

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Net cash provided by (used in) operating activities

Net cash used in operating activities was $1.3 million for the three months ended March 31, 2021 compared to $1.6 million of cash provided by operating activities for the three months ended March 31, 2020.

This decline is primarily attributable to the decline in operating results.

Net income adjusted for non-cash items used $11.8 million of cash for the three months ended March 31, 2021 compared to providing $13.4 million of cash for the three months ended March 31, 2020.

This decline was partially offset by changes in working capital which provided cash of $10.4 million

for the three months ended March 31, 2021 compared to using $11.9 million of cash for the three months ended March 31, 2020.

Net cash provided by operating activities was $2.4 million for the six months ended June 30, 2021 compared to $2.1 million of cash used in operating activities for the six months ended June 30, 2020.

This improvement is primarily attributable to changes in working capital which provided cash of $16.8 million for the six months ended June 30, 2021 compared to providing $5.7 million of cash for the six months ended June 30, 2020.

This improvement in operating cash flows was partially offset by a decline in net income adjusted for non-cash items which used $14.5 million of cash for the six months ended June 30, 2021 compared to using $7.8 million for the six months ended June 30, 2020.

Net cash provided by (used in) investing activities

Net cash provided by investing activities was $1.1 million for the three months ended March 31, 2021 including $1.5 million of proceeds from the sale of property and equipment, partially offset by $0.4 million of capital expenditures.

Net cash provided by investing activities was $0.9 million for the three months ended March 31, 2020, primarily related to $1.0 million of capital expenditures for property and equipment.

Net cash provided by investing activities was $0.1 million for the six months ended June 30, 2021 including $2.1 million of proceeds from the sale of property and equipment, partially offset by $1.3 million of cash paid for the net working capital settlement related to the disposition of our ABZ and QVA valve brands and $0.7 million of capital expenditures.

Net cash used in investing activities was $0.2 million for the six months ended June 30, 2020, primarily related to $1.5 million of capital expenditures for property and equipment partially offset by $1.3 million of proceeds from the sale of property and equipment.

Net cash provided by (used in) financing activities

Net cash used in financing activities was $27.5 million for the three months ended March 31, 2021 compared to $51.1 million provided by financing activities for the three months ended March 31, 2020.

Net cash used in financing activities for the three months ended March 31, 2021 includes $13.7 million of cash used to repurchase 2025 Notes and $13.1 million of repayments on the revolving Credit Facility.

Net cash provided by financing activities for the three months ended March 31, 2020 primarily includes $55.0 million of borrowings on the revolving Credit Facility, partially offset by $3.4 million of repurchases of our previous 2021 Notes.

Net cash used in financing activities was $70.8 million for the six months ended June 30, 2021 including $56.7 million of cash used to repurchase 2025 Notes and $13.1 million of repayments on the revolving Credit Facility.

Net cash provided by financing activities was $54.4 million for the six months ended June 30, 2020, primarily related to $85.0 million of borrowings on the revolving Credit Facility, partially offset by $27.6 million of cash used to repurchase 2021 Notes.

Supplemental Guarantor Financial Information

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Summarized financial information for the year-to-date interim period and the most recent annual period was as follows (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

Summarized Statements of Operations 2021 2020 2021 2020

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Net loss (21,806) (5,494) (51,469) (42,638)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Summarized Balance Sheet

Current assets $ 310,086 $ 385,364

Noncurrent assets 323,907 332,486

Non-current assets 314,307 332,486

Current liabilities $ 117,865 $ 105,393

Payables to non-guarantor subsidiaries 108,313 102,885

Noncurrent liabilities 297,234 324,954

Non-current liabilities 260,544 324,954

Off-balance sheet arrangements

As of March 31, 2021, we had no off-balance sheet instruments or financial arrangements, other than letters of credit entered into in the ordinary course of business.

As of June 30, 2021, we had no off-balance sheet instruments or financial arrangements, other than letters of credit entered into in the ordinary course of business.

Critical accounting policies and estimates

There have been no material changes in our critical accounting policies and procedures during the three months ended March 31, 2021.

There have been no material changes in our critical accounting policies and procedures during the six months ended June 30, 2021.

For a detailed discussion of our critical accounting policies and estimates, refer to our 2020 Annual Report on Form 10-K.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis