What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-05 · 94 added, 94 removed, 255 unchanged (42% of the section changed)

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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.

For the six months ended June 30, 2022, approximately 77% 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.

For the nine months ended September 30, 2022, approximately 52% 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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As a result of these supply and demand factors, commodity prices increased substantially in 2021.

During the first half of 2022, the supply of oil and natural gas was further impacted by political and social responses to the Russia and Ukraine war resulting in further increases in energy prices, especially in Europe.

In addition, COVID-19 related shutdowns in China and worldwide labor constraints continue to cause disruptions in global supply chains, which have led to inflationary pressures.

In response, the Federal Reserve raised interest rates significantly in 2022 and further rate increases may occur.

These macroeconomic conditions could lead to a global or regional recession, which could lower demand for commodities, such as oil and natural gas, and have a direct impact on commodity prices.

During the first nine months of 2022, the supply of oil and natural gas was further impacted by political and social responses to the Russia and Ukraine war resulting in further increases in energy prices, especially in Europe.

In addition, ongoing COVID-19 outbreaks, related work restrictions and other worldwide labor constraints continue to cause disruptions in global supply chains.

These disruptions have led to inflationary pressures.

In response, the Federal Reserve raised interest rates significantly in 2022 and further rate increases are expected.

These macroeconomic conditions could lead to a global or regional recession, which may lower demand for commodities, such as oil and natural gas, and have a direct impact on commodity prices.

Our revenues are highly correlated to the U.S.

drilling rig count, which has increased to 753 rigs as of the end of the second quarter 2022 from a low of 244 rigs in August 2020.

drilling rig count, which has increased to 765 rigs as of the end of the third quarter 2022 from a low of 244 rigs in August 2020.

The level of active hydraulic fracturing fleets has also increased substantially in order to meet increasing oil and natural gas demand.

Despite these improvements, drilling and completions activity remains below pre-pandemic levels.

In addition, publicly owned exploration and production companies in North America remain under pressure by investors to generate positive cash flows and constrain capital expenditures.

In addition, publicly owned exploration and production companies in North America remain under pressure by investors to constrain capital expenditures in order to generate positive cash flows.

In contrast, privately owned exploration and production companies in North America have increased their drilling and completions activity in response to the higher oil and natural gas price environment.

It is expected that public and private exploration and production companies will continue to make investments in a similar fashion for the foreseeable future.

It is generally expected that public and private exploration and production companies will continue to make investments in a similar fashion for at least the next twelve months.

Activity levels have also increased in international markets, as well as in global offshore and subsea activity.

As a result, demand for our drilling and subsea equipment offerings has increased due to an improved outlook for our international drilling and subsea customers.

As a result, demand for our drilling and subsea offerings has increased due to an improved outlook for our international drilling and subsea customers.

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

June 30, March 31, June 30,

September 30, June 30, September 30,

2022 2022 2021

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The spot prices for WTI and Brent fell 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 rebounded to an average of $108.83 and $113.84 for WTI and Brent, respectively, in the second quarter 2022.

In addition, natural gas prices have increased by 154% comparing the second quarter 2022 to the second quarter 2021.

Since that time, oil prices rebounded to an average of $108.83 and $113.84, for WTI and Brent, respectively, in the second quarter 2022, and retreated to $93.06 and $100.71, respectively, in the third quarter 2022.

In addition, natural gas prices have increased by 85% comparing the third quarter 2022 to the third quarter 2021.

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

June 30, March 31, June 30,

September 30, June 30, September 30,

2022 2022 2021

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The average U.S.

rig count for the second quarter 2022 was 13% and 58% higher compared to the first quarter 2022 and second quarter 2021, respectively.

rig count for the third quarter 2022 was 7% and 53% higher compared to the second quarter 2022 and third quarter 2021, respectively.

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 second quarter 2022 at 753 rigs.

Since that time, the number of active rigs has partially recovered, ending the third quarter 2022 at 765 rigs.

Despite this improvement, the U.S.

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

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

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

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

September 30, June 30, September 30, September 30, September 30,

2022 2022 2021 2022 2021

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Results of operations

Three months ended June 30, 2022 compared with three months ended June 30, 2021

Three Months Ended June 30, Change

Three months ended September 30, 2022 compared with three months ended September 30, 2021

Three Months Ended September 30, Change

(in thousands of dollars, except per share information) 2022 2021 $ %

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* not meaningful

Our revenue for the three months ended June 30, 2022 was $172.2 million, an increase of $34.8 million, or 25.3%, compared to the three months ended June 30, 2021.

For the three months ended June 30, 2022, our Drilling & Downhole, Completions, and Production segments comprised 44.4%, 38.3%, and 17.3% of our total revenue, respectively, which compared to 44.8%, 33.9%, and 21.3% of our total revenue, respectively, for the three months ended June 30, 2021.

The overall increase in revenue is primarily related to higher sales volumes due to higher drilling and completions activity levels in the second quarter 2022 compared to the second quarter 2021.

Our revenue for the three months ended September 30, 2022 was $181.8 million, an increase of $40.9 million, or 29.0%, compared to the three months ended September 30, 2021.

For the three months ended September 30, 2022, our Drilling & Downhole, Completions, and Production segments comprised 41.6%, 39.6%, and 18.8% of our total revenue, respectively, which compared to 44.8%, 35.0%, and 20.2% of our total revenue, respectively, for the three months ended September 30, 2021.

The overall increase in revenue is primarily related to higher sales volumes due to higher drilling and completions activity levels in the third quarter 2022 compared to the third quarter 2021.

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

Drilling & Downhole segment — Revenue was $76.5 million for the three months ended June 30, 2022, an increase of $14.9 million, or 24.2%, compared to the three months ended June 30, 2021.

This increase was led by a $5.9 million, or 21.4%, increase in revenue for our Drilling Technologies product line due to higher sales volumes of consumable products from the 31% year-over-year increase in global rig count.

Revenue for our Downhole Technologies product line increased by $4.8 million, or 28.9%, 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 2022 compared to the second quarter 2021.

Revenue for our Subsea Technologies product line increased by $4.2 million, or 24.2%, due to higher sales of ROVs and cable management systems into domestic and international markets.

Completions segment — Revenue was $66.1 million for the three months ended June 30, 2022, an increase of $19.6 million, or 42.1%, compared to the three months ended June 30, 2021.

This significant improvement includes a revenue increase of $13.0 million, or 53.3%, for our Stimulation & Intervention product line primarily due to higher capital equipment sales to pressure pumping customers to support increasing demand for hydraulic fracturing services.

Drilling & Downhole segment — Revenue was $75.7 million for the three months ended September 30, 2022, an increase of $12.5 million, or 19.9%, compared to the three months ended September 30, 2021.

This increase was led by a $14.9 million, or 64.4%, increase in revenue for our Drilling Technologies product line due to higher sales volumes of consumable products and capital equipment from the 28% year-over-year increase in global rig count.

Revenue for our Downhole Technologies product line increased by $4.3 million, or 24.4%, 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 third quarter 2022 compared to the third quarter 2021.

Revenue for our Subsea Technologies product line decreased by $6.7 million, or (30.0)%, from lower sales of Work Class ROVs into domestic and international markets.

Completions segment — Revenue was $72.2 million for the three months ended September 30, 2022, an increase of $22.6 million, or 45.4%, compared to the three months ended September 30, 2021.

This significant improvement includes a revenue increase of $18.1 million, or 70.7%, for our Stimulation & Intervention product line primarily due to higher capital equipment sales to pressure pumping customers and increasing service company demand of wireline cable to support hydraulic fracturing activity.

Revenue for our Coiled Tubing product line increased by $4.5 million, or 18.5%, driven by increasing U.S.

hydraulic fracturing activity levels in the second quarter 2022 compared to the second quarter 2021.

Production segment — Revenue was $29.9 million for the three months ended June 30, 2022, an increase of $0.5 million, or 1.8%, compared to the three months ended June 30, 2021.

This increase was driven by a $1.5 million, or 12.7%, increase in sales of our valve products, primarily due to higher sales volumes into the North America downstream market, partially offset by a $1.0 million, or (5.6)%, decrease in revenue for our Production Equipment product line from lower project revenue for our process oil treatment equipment.

hydraulic fracturing activity levels in the third quarter 2022 compared to the third quarter 2021.

Production segment — Revenue was $34.2 million for the three months ended September 30, 2022, an increase of $5.8 million, or 20.3%, compared to the three months ended September 30, 2021.

This increase was driven by a $4.1 million, or 29.0%, increase in project revenue for our processing and treatment equipment within our Production Equipment product line and a $1.6 million, or 11.5%, increase in sales of our valve products, primarily due to higher sales volumes into the North America downstream market.

Segment operating income (loss) and segment operating margin percentage

Segment operating income for the three months ended June 30, 2022 was $5.1 million, a $15.1 million improvement compared to a loss of $10.0 million for the three months ended June 30, 2021.

For the three months ended June 30, 2022, segment operating margin percentage was 2.9% compared to (7.3)% for the three months ended June 30, 2021.

Segment operating income for the three months ended September 30, 2022 was $7.7 million, a $15.1 million improvement compared to a loss of $7.5 million for the three months ended September 30, 2021.

For the three months ended September 30, 2022, segment operating margin percentage was 4.2% compared to (5.3)% for the three months ended September 30, 2021.

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 income was $8.5 million, or 11.1%, for the three months ended June 30, 2022 compared to operating income of $2.7 million, or 4.4%, for the three months ended June 30, 2021.

Drilling & Downhole segment — Segment operating income was $9.5 million, or 12.5%, for the three months ended September 30, 2022 compared to operating income of $4.0 million, or 6.4%, for the three months ended September 30, 2021.

The $5.4 million improvement in segment operating results is primarily attributable to higher gross profit from the 19.9% increase in segment revenues, partially offset by higher freight and employee related costs.

Completions segment — Segment operating income was $3.6 million, or 5.4%, for the three months ended June 30, 2022 compared to segment operating loss of $0.4 million, or (0.8)%, for the three months ended June 30, 2021.

Completions segment — Segment operating income was $5.9 million, or 8.2%, for the three months ended September 30, 2022 compared to segment operating income of $0.3 million, or 0.5%, for the three months ended September 30, 2021.

The $5.7 million improvement in segment operating results was primarily due to higher gross profit from the 45.4% increase in revenues discussed above, partially offset by higher freight and employee related costs.

Production segment — Segment operating loss was $0.2 million, or (0.5)%, for the three months ended June 30, 2022 compared to a loss of $4.0 million, or (13.8)%, for the three months ended June 30, 2021.

Production segment — Segment operating income was $0.7 million, or 1.9%, for the three months ended September 30, 2022 compared to a loss of $3.4 million, or (11.9)%, for the three months ended September 30, 2021.

The $4.0 million improvement in segment operating results was driven by the 20.3% increase in revenues discussed above as well as lower depreciation and other facility costs in connection with cost reductions implemented in 2021.

These improvements were partially offset by higher freight and material costs as a result of inflationary pressures from global supply chains.

Corporate — Selling, general and administrative expenses for Corporate were $6.9 million for the three months ended June 30, 2022, a $1.4 million increase compared to the three months ended June 30, 2021.

This increase was primarily related to higher variable compensation costs and professional fees.

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

Corporate — Selling, general and administrative expenses for Corporate remained flat at $8.4 million for the three months ended September 30, 2022 compared with the three months ended September 30, 2021.

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;

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Other income and expense includes interest expense, foreign exchange gains and other, and loss on extinguishment of debt.

We incurred $7.8 million of interest expense during the three months ended June 30, 2022, which was flat compared to the three months ended June 30, 2021.

We incurred $8.1 million of interest expense during the three months ended September 30, 2022, an increase of $1.0 million compared to the three months ended September 30, 2021 due to higher interest rates on borrowings under the credit facility.

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

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

During the three months ended September 30, 2021, we repurchased an aggregate $1.9 million principal amount of our 2025 Notes at approximately par value.

The net carrying value of the extinguished debt, including unamortized debt discount and debt issuance costs, was $1.7 million, resulting in a $0.2 million loss on extinguishment of debt.

We recorded tax expense of $1.7 million and $1.2 million for the three months ended June 30, 2022 and June 30, 2021, respectively.

The estimated annual effective tax rates for the three months ended June 30, 2022 and 2021 were impacted by losses in jurisdictions where the recording of a tax benefit is not available.

We recorded tax expense of $1.4 million and $0.8 million for the three months ended September 30, 2022 and September 30, 2021, respectively.

The estimated annual effective tax rates for the three months ended September 30, 2022 and 2021 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.

Six months ended June 30, 2022 compared with six months ended June 30, 2021

Six Months Ended June 30, Change

Nine months ended September 30, 2022 compared with nine months ended September 30, 2021

Nine Months Ended September 30, Change

2022 2021 $ %

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Corporate (24,501) (23,667) (834) (3.5) %

Total segment operating loss (610) (25,269) 24,659 97.6 %

Total segment operating income (loss) 7,040 (32,738) 39,778 121.5 %

Operating margin % 1.4 % (8.3) %

Gain on disposal of assets and other (938) (1,362) 424 31.1 %

Operating loss 276 (24,000) 24,276 101.2 %

Operating income (loss) 7,978 (31,376) 39,354 125.4 %

Interest expense 23,609 24,065 (456) (1.9) %

Foreign exchange (gains) losses and other, net (18,824) 2,531 (21,355) (843.7) %

Foreign exchange gains and other, net (37,112) (1,431) (35,681) *

Loss on extinguishment of debt — 5,290 (5,290) (100.0) %

Total other (income) expense (13,503) 27,924 (41,427) (148.4) %

Loss before income taxes 3,634 (48,562) 52,196 107.5 %

Income tax expense (benefit) 3,569 2,907 662 22.8 %

Net loss $ 65 $ (51,469) $ 51,534 100.1 %

Income (loss) before income taxes 21,481 (59,300) 80,781 136.2 %

Income tax expense 4,939 3,756 1,183 31.5 %

Net income (loss) $ 16,542 $ (63,056) $ 79,598 126.2 %

Weighted average shares outstanding

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Diluted 10,489 5,637

Loss per share

Earnings (loss) per share

Basic $ 2.88 $ (11.19)

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* not meaningful

Our revenue for the six months ended June 30, 2022 was $327.4 million, an increase of $75.5 million, or 30.0%, compared to the six months ended June 30, 2021.

For the six months ended June 30, 2022, our Drilling & Downhole, Completions, and Production segments comprised 45.1%, 36.2%, and 18.7% of our total revenue, respectively, which compared to 43.8%, 33.4%, and 22.8% of our total revenue, respectively, for the six months ended June 30, 2021.

The overall increase in revenue is related to higher sales volumes due to improving market conditions in the first half of 2022 compared to the first half of 2021 as a result of higher drilling and completions activity levels to support increasing global energy demand.

Our revenue for the nine months ended September 30, 2022 was $509.3 million, an increase of $116.3 million, or 29.6%, compared to the nine months ended September 30, 2021.

For the nine months ended September 30, 2022, our Drilling & Downhole, Completions, and Production segments comprised 43.9%, 37.3%, and 18.8% of our total revenue, respectively, which compared to 44.1%, 34.1%, and 21.8% of our total revenue, respectively, for the nine months ended September 30, 2021.

The overall increase in revenue is related to higher sales volumes due to improving market conditions in the first nine months of 2022 compared to the first nine months of 2021 as a result of higher drilling and completions activity levels to support increasing global energy demand.

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

Drilling & Downhole segment — Revenue was $147.8 million for the six months ended June 30, 2022, an increase of $37.5 million, or 34.0%, compared to the six months ended June 30, 2021.

Drilling & Downhole segment — Revenue was $223.5 million for the nine months ended September 30, 2022, an increase of $50.1 million, or 28.9%, compared to the nine months ended September 30, 2021.

This increase was led by revenue growth of $31.6 million, or 45.5%, in our Drilling Technologies product line from higher sales of capital equipment and consumable products from the 29% year-over-year increase in global rig count.

Revenue for our Subsea Technologies product line increased by $11.6 million, or 35.9%, primarily due to higher sales of Work Class ROVs and cable management systems into domestic and international markets.

Revenue for our Downhole Technologies product line increased by $13.6 million, or 27.5%, primarily due to higher sales of artificial lift products as a result of higher well completions activity levels.

Completions segment — Revenue was $118.6 million for the six months ended June 30, 2022, an increase of $34.3 million, or 40.6%, compared to the six months ended June 30, 2021.

Revenue for our Subsea Technologies product line increased by $4.9 million, or 9.0%, primarily due to higher sales of Observation Class ROVs and cable management systems into domestic and international markets.

Completions segment — Revenue was $190.9 million for the nine months ended September 30, 2022, an increase of $56.8 million, or 42.4%, compared to the nine months ended September 30, 2021.

This increase includes a $42.5 million, or 62.0%, increase in sales volumes for our Stimulation and Intervention product line and a $14.3 million, or 21.8%, 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 2022 compared to the first half of 2021 in response to higher energy demand.

Production segment — Revenue was $61.4 million for the six months ended June 30, 2022, an increase of $4.0 million, or 7.0%, compared to the six months ended June 30, 2021.

This increase is primarily driven by higher sales volumes of valves, primarily in the North America downstream market, as demand continues to recover from the COVID 19 pandemic.

Partially offsetting this increase is a decline in revenue of $0.2 million for our Production Equipment product line from lower project revenue for our process oil treatment equipment.

hydraulic fracturing and well intervention service activity levels in the first nine months of 2022 compared to the same period of 2021 in response to higher energy demand.

Production segment — Revenue was $95.6 million for the nine months ended September 30, 2022, an increase of $9.8 million, or 11.4%, compared to the nine months ended September 30, 2021.

This increase is driven by higher sales volumes of valves, primarily in the North America downstream market, and higher project revenue for our processing and treatment equipment within our Production Equipment product line as demand continues to recover from the COVID 19 pandemic.

Segment operating income (loss) and segment operating margin percentage

Segment operating loss for the six months ended June 30, 2022 was $0.6 million, a $24.7 million improvement compared to a loss of $25.3 million for the six months ended June 30, 2021.

For the six months ended June 30, 2022, segment operating margin percentage was (0.2)% compared to (10.0)% for the six months ended June 30, 2021.

Segment operating income for the nine months ended September 30, 2022 was $7.0 million, a $39.8 million improvement compared to a loss of $32.7 million for the nine months ended September 30, 2021.

For the nine months ended September 30, 2022, segment operating margin percentage was 1.4% compared to (8.3)% for the nine months ended September 30, 2021.

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 income was $14.5 million, or 9.8%, for the six months ended June 30, 2022 compared to a loss of $1.8 million, or (1.6)%, for the six months ended June 30, 2021.

Drilling & Downhole segment — Segment operating income was $24.0 million, or 10.7%, for the nine months ended September 30, 2022 compared to $2.2 million, or 1.3%, for the nine months ended September 30, 2021.

The $21.8 million improvement in segment operating results is primarily attributable to higher gross profit from the 28.9% increase in revenue discussed above.

In addition, segment operating results also improved due to a $3.9 million reduction in inventory write downs and lower restructuring related costs in connection with cost reductions executed in early 2021.

Completions segment — Segment operating income was $2.9 million for the six months ended June 30, 2022 compared to a loss of $0.3 million, or (0.4)%, for the six months ended June 30, 2021.

Completions segment — Segment operating income was $8.8 million, or 4.6%, for the nine months ended September 30, 2022 compared to a loss of $0.1 million for the nine months ended September 30, 2021.

The $8.8 million improvement in segment operating results is primarily attributable to higher gross profit from the 42.4% increase in revenues discussed above, partially offset by higher freight and employee related costs.

Production segment — Segment operating loss was $1.9 million, or (3.1)%, for the six months ended June 30, 2022 compared to a loss of $7.9 million, or (13.7)%, for the six months ended June 30, 2021.

Production segment — Segment operating loss was $1.2 million, or (1.3)%, for the nine months ended September 30, 2022 compared to a loss of $11.3 million, or (13.1)%, for the nine months ended September 30, 2021.

The $10.0 million improvement is primarily attributable to higher gross margin from the 11.4% revenue growth discussed above as well as lower depreciation and other facility costs in connection with cost reductions implemented in 2021.

These improvements were partially offset by higher freight and material costs as a result of inflationary pressures from global supply chains.

Corporate — Selling, general and administrative expenses for Corporate were $16.1 million for the six months ended June 30, 2022, a $0.8 million increase compared to the six months ended June 30, 2021.

Corporate — Selling, general and administrative expenses for Corporate were $24.5 million for the nine months ended September 30, 2022, a $0.8 million increase compared to the nine months ended September 30, 2021.

This increase was primarily related to higher professional fees.

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Other expense includes interest expense, foreign exchange (gains) losses and other, and loss on extinguishment of debt.

We incurred $15.5 million of interest expense during the six months ended June 30, 2022, a decrease of $1.5 million from the six months ended June 30, 2021 due to the lower average outstanding balance on our 2025 Notes.

We incurred $23.6 million of interest expense during the nine months ended September 30, 2022, a decrease of $0.5 million from the nine months ended September 30, 2021 primarily due to the lower average outstanding balance on our 2025 Notes in the nine months ending September 30, 2022.

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

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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.

During the nine months ended September 30, 2021, we repurchased an aggregate $59.9 million of principal amount of our 2025 Notes for $58.6 million.

The net carrying value of the extinguished debt, including unamortized debt discount and debt issuance costs, was $53.3 million, resulting in a $5.3 million loss on extinguishment of debt.

We recorded a tax expense of $3.6 million and $2.9 million for the six months ended June 30, 2022 June 30, 2021, respectively.

The estimated annual effective tax rates for the six months ended June 30, 2022 and 2021 were impacted by losses in jurisdictions where the recording of a tax benefit is not available.

We recorded a tax expense of $4.9 million and expense of $3.8 million for the nine months ended September 30, 2022 September 30, 2021, respectively.

The estimated annual effective tax rates for the nine months ended September 30, 2022 and 2021 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.

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Our future success and growth will be highly dependent on our ability to generate positive operating cash flow and access outside sources of capital.

As of June 30, 2022, we had $257.0 million principal amount of 2025 Notes outstanding and $33.6 million of borrowings outstanding under our revolving Credit Facility.

The 2025 Notes mature in August 2025 and the Credit Facility matures in September 2026.

As of September 30, 2022, we had $257.0 million principal amount of 2025 Notes outstanding and $10.7 million of borrowings outstanding under our revolving Credit Facility.

The 2025 Notes mature in August 2025 and subject to certain exceptions, the Credit Facility matures in September 2026.

See Note 7 Debt for further details related to the terms for our 2025 Notes and Credit Facility.

As of June 30, 2022, we had cash and cash equivalents of $26.9 million and $114.3 million of availability under the Credit Facility.

As of September 30, 2022, we had cash and cash equivalents of $19.8 million and $127.2 million of availability under the Credit Facility.

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

Furthermore, availability under the Credit Facility will fluctuate directionally based on the level of our eligible accounts receivable and inventory subject to applicable sublimits.

In addition, we continue to expect total 2022 capital expenditures to be less than $10.0 million, consisting of, among other items, replacing end of life machinery and equipment.

In addition, we continue to

expect total 2022 capital expenditures to be less than $10.0 million, consisting of, among other items, replacing end of life machinery and equipment.

We expect our available cash on-hand, cash generated by operations, and estimated availability under the Credit Facility to be adequate to fund current operations during the next 12 months.

In addition, based on existing market conditions and our expected liquidity needs, among other factors, we may use a portion of our cash flows from operations, proceeds from divestitures, securities offerings or other eligible capital to reduce the principal amount of our 2025 Notes outstanding.

In November 2021, our board of directors approved a program for the repurchase of outstanding shares of our common stock with an aggregate purchase amount of up to $10.0 million.

Shares may be repurchased under the program from time to time, in amounts and at prices that the company deems appropriate, subject to market and business conditions, applicable legal requirements and other considerations.

To date, we have repurchased approximately 56,000 shares of our common stock for aggregate consideration of approximately $1.1 million.

Remaining authorization under this program is $8.9 million.

In the fourth quarter of 2021, we completed the acquisition of Hawker for total cash consideration of $5.1 million, of which, $3.4 million was paid in the fourth quarter of 2021 with the balance expected to be paid over the next five years, including $0.5 million paid in the first half of 2022.

As of the end of the third quarter 2022, we repurchased approximately 56,000 shares of our common stock for aggregate consideration of approximately $1.1 million with remaining authorization under this program of $8.9 million.

For additional information, see Note 4 Acquisitions.

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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.

Our cash flows for the six months ended June 30, 2022 and 2021 are presented below (in millions):

Six Months Ended June 30,

Net cash provided by (used in) operating activities $ (50.6) $ 2.4

Our cash flows for the nine months ended September 30, 2022 and 2021 are presented below (in millions):

Nine Months Ended September 30,

Net cash used in operating activities $ (32.1) $ (8.1)

Net cash provided by (used in) investing activities (2.6) 4.5

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Net decrease in cash, cash equivalents and restricted cash $ (27.1) $ (78.6)

Net cash provided by (used in) operating activities

Net cash used in operating activities was $50.6 million for the six months ended June 30, 2022 compared to $2.4 million of cash provided by operating activities for the six months ended June 30, 2021.

This decline in operating cash flows is primarily attributable to net increases in working capital, primarily inventory and accounts receivable, which used cash of $75.2 million for the six months ended June 30, 2022 compared to providing cash of $16.8 million for the six months ended June 30, 2021.

This decline was partially offset by an improvement in net income adjusted for non-cash items which provided $24.6 million of cash for the six months ended June 30, 2022 compared to using $14.5 million for the six months ended June 30, 2021.

Net cash used in operating activities

Net cash used in operating activities was $32.1 million for the nine months ended September 30, 2022 compared to $8.1 million for the nine months ended September 30, 2021.

This decline in operating cash flows is primarily attributable to net increases in working capital, primarily inventory and accounts receivable, which used cash of $85.6 million for the nine months ended September 30, 2022 compared to providing cash of $2.8 million for the nine months ended September 30, 2021.

This decline was partially offset by an improvement in net income adjusted for non-cash items, which provided $53.4 million of cash for the nine months ended September 30, 2022 compared to using $10.9 million for the nine months ended September 30, 2021.

Net cash provided by (used in) investing activities

Net cash used in investing activities was $1.4 million for the six months ended June 30, 2022 including $3.6 million of capital expenditures, partially offset by $2.6 million of proceeds from the sale of 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 $2.6 million for the nine months ended September 30, 2022, including $4.8 million of capital expenditures, partially offset by $2.7 million of proceeds from the sale of property and equipment.

Net cash provided by investing activities was $4.5 million for the nine months ended September 30, 2021, including $6.8 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 $1.0 million of capital expenditures.

Net cash provided by (used in) financing activities

Net cash provided by financing activities was $32.6 million for the six months ended June 30, 2022 compared to $70.8 million of cash used in financing activities for the six months ended June 30, 2021, respectively.

The change in net cash provided by (used in) financing activities primarily resulted from $33.6 million of net borrowings on the revolving Credit Facility for the six months ended June 30, 2022 compared to a net $56.7 million of cash used to repurchase 2025 Notes and $13.1 million of repayments on the revolving Credit Facility during the six months ended June 30, 2021.

Net cash provided by financing activities was $9.2 million for the nine months ended September 30, 2022 compared to $74.6 million of cash used in financing activities for the nine months ended September 30, 2021, respectively.

The change in net cash provided by (used in) financing activities primarily resulted from $10.7 million of net borrowings on the revolving Credit Facility for the nine months ended September 30, 2022 compared to a net $58.6 million of cash used to repurchase 2025 Notes and $13.1 million of repayments on the revolving Credit Facility during the nine months ended September 30, 2021.

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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Summarized Statements of Operations 2022 2021 2022 2021

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Net income (loss) 16,477 (11,587) 16,542 (63,056)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Summarized Balance Sheet

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Critical accounting policies and estimates

There have been no material changes in our critical accounting policies and procedures during the six months ended June 30, 2022.

There have been no material changes in our critical accounting policies and procedures during the nine months ended September 30, 2022.

For a detailed discussion of our critical accounting policies and estimates, refer to our 2021 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