What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2022-11-09 · 88 added, 194 removed, 155 unchanged (65% of the section changed)

7 unchanged sentences

We disclaim any obligation to update or revise these statements unless required by law, and you should not place undue reliance on these forward-looking statements.

Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved.

We disclose important factors that could cause our actual results to differ materially from our expectations in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the SEC on March 4, 2022, and elsewhere in this Quarterly Report on Form 10-Q.

Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause actual results to differ materially from our plans, intentions or expectations.

This may be the result of various factors, including, but not limited to, those factors discussed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the SEC on February 28, 2023, and elsewhere in this Quarterly Report on Form 10-Q.

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

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

FET provides value added solutions aimed at improving the safety, efficiency and environmental impact of our customers' operations.

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.

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.

In addition, we offer some of our products to renewable energy and new energy companies.

We expect that the world's long-term energy demand will continue to rise.

We also expect hydrocarbons will continue to play a vital role in meeting the world's long-term energy needs while renewable energy sources continue to develop.

As such, we remain focused on serving our customers in both oil and natural gas as well as renewable energy applications.

We are also continuing to develop products to help oil and natural gas operators lower their emissions while also deploying our existing product technologies in renewable energy applications and seeking to develop innovative equipment.

With headquarters located in Houston, Texas, FET provides value added solutions aimed at improving the safety, efficiency, and environmental impact of our customers' operations.

Our highly engineered products include capital equipment and consumable products.

FET’s customers include oil and natural gas operators, land and offshore drilling contractors, oilfield service companies, pipeline and refinery operators, and renewable energy and new energy companies.

Consumable products are used by our customers in drilling, well construction and completions activities and at processing centers and refineries.

Our capital products are directed at drilling rig equipment for constructing new and upgrading existing rigs, 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 three months ended March 31, 2023, approximately 65% 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.

A summary of the products and services offered by each segment is as follows:

16 unchanged sentences

Market Conditions

Demand for our products and services is directly related to the capital and operating budgets of our customers.

Demand for our products and services is directly related to our customers' capital and operating budgets.

These budgets are heavily influenced by current and expected energy prices.

1 unchanged sentence

Utilization is a function of equipment capacity and durability in demanding environments.

In 2021, distribution of vaccines and reopening of certain economies led to an increase in demand for oil and natural gas following an unprecedented decline from the COVID-19 pandemic.

At the same time, the supply of oil and natural gas was impacted by ongoing capacity constraints by OPEC+ and North American exploration and production companies.

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

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 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 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 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 offerings has increased due to an improved outlook for our international drilling and subsea customers.

Recent inflationary pressures, rising interest rates and volatility in the banking sector have created a heightened concern of a global recession.

Oil and natural gas prices softened in the first quarter 2023 in part as a result of such recessionary fears.

Despite these macroeconomic challenges, we expect that the world's long-term energy demand will continue to rise and may outpace global supply as China's economy recovers from the COVID-19 pandemic shutdowns and OPEC+ remains committed to maintaining stable oil prices.

We expect that hydrocarbons will continue to play a vital role in meeting the world's energy needs while renewable energy sources continue to develop.

The price of oil has varied dramatically over the last several years.

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 rebounded to highs above $120.00 per barrel in March 2022 but have softened in the first quarter 2023 to an average of $75.93 and $81.07, for WTI and Brent, respectively.

In addition, natural gas prices have decreased by 43.5% comparing the first quarter 2023 to the first quarter 2022.

Our revenues, over the long-term, are highly correlated to the global drilling rig count, which has increased to 1,896 rigs as of the end of the first quarter 2023 from a low of 1,030 rigs in the third quarter 2020.

The average U.S.

rig count for the first quarter 2023 was 2.1% lower and 20.1% higher compared to the fourth quarter 2022 and first quarter 2022, respectively.

The international rig count for the first quarter 2023 was 0.9% higher and 11.2% higher compared to the fourth quarter 2022 and first quarter 2022, respectively.

Global drilling and completions activity remains below pre-pandemic levels.

However, international markets are expected to grow throughout 2023 and outpace the U.S.

In the U.S., publicly owned exploration and production companies are expected to continue to exercise disciplined capital spending while privately owned exploration and production companies fluctuate their activity in response to changes in oil and natural gas prices.

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

September 30, June 30, September 30,

March 31, December 31, March 31,

2023 2022 2022

4 unchanged sentences

Henry Hub $ 2.64 $ 5.55 $ 4.67

The price of oil has varied dramatically over the last several years.

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 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.

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

Three Months Ended

September 30, June 30, September 30,

March 31, December 31, March 31,

2023 2022 2022

17 unchanged sentences

Active Rigs 760 776 633

A substantial portion of our revenue is impacted by the level of rig activity and the number of wells completed.

The average U.S.

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 third quarter 2022 at 765 rigs.

Despite this improvement, the U.S.

drilling rig count remains below pre-pandemic levels.

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

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

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

(in millions of dollars) Three Months Ended

March 31, December 31, March 31,

2023 2022 2022

4 unchanged sentences

Results of operations

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 $ %

Drilling & Downhole $ 75,723 $ 63,180 $ 12,543 19.9 %

Completions 72,246 49,692 22,554 45.4 %

Production 34,238 28,457 5,781 20.3 %

Eliminations (372) (345) (27) (7.8) %

Total revenue 181,835 140,984 40,851 29.0 %

Operating income (loss):

Drilling & Downhole 9,481 4,042 5,439 134.6 %

Operating margin % 12.5 % 6.4 %

Completions 5,915 250 5,665 *

Operating margin % 8.2 % 0.5 %

Production 665 (3,374) 4,039 119.7 %

Operating margin % 1.9 % (11.9) %

Corporate (8,411) (8,387) (24) (0.3) %

Total segment operating income (loss) 7,650 (7,469) 15,119 202.4 %

Operating margin % 4.2 % (5.3) %

Gain on disposal of assets and other (52) (93) 41 44.1 %

Operating income (loss) 7,702 (7,376) 15,078 204.4 %

Interest expense 8,143 7,128 1,015 14.2 %

Foreign exchange gains and other, net (18,288) (3,962) (14,326) *

Loss on extinguishment of debt — 196 (196) (100.0) %

Total other (income) expense, net (10,145) 3,362 (13,507) (401.8) %

Income (loss) before income taxes 17,847 (10,738) 28,585 266.2 %

Income tax expense 1,370 849 521 61.4 %

Net income (loss) $ 16,477 $ (11,587) $ 28,064 242.2 %

Weighted average shares outstanding

Basic 5,778 5,661

Diluted 10,552 5,661

Earnings (loss) per share

Basic $ 2.85 $ (2.05)

Diluted $ 1.82 $ (2.05)

* not meaningful

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 $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 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 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 $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 $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 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 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;

and marketing costs.

Other items not included in segment operating income (loss)

Gain on the disposal of assets and other is not included in segment operating income (loss), but is included in total operating loss.

Other income and expense

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

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.

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 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 $1.4 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.

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

Nine Months Ended September 30, Change

2022 2021 $ %

Three months ended March 31, 2023 compared with three months ended March 31, 2022

Three Months Ended March 31, Change

(in thousands of dollars, except per share information) 2023 2022 $ %

4 unchanged sentences

Total revenue 188,957 155,174 33,783 21.8 %

Operating income (loss):

Segment operating income (loss)

Drilling & Downhole 8,438 5,986 2,452 41.0 %

7 unchanged sentences

Operating margin % 3.5 % (3.7) %

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

Loss (gain) on disposal of assets and other (260) 22 (282) *

Operating income (loss) 6,851 (5,708) 12,559 220.0 %

Interest expense 4,549 7,624 (3,075) (40.3) %

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) %

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

Foreign exchange losses (gains) and other, net 2,972 (5,986) 8,958 *

Total other expense 7,521 1,638 5,883 359.2 %

Loss before income taxes (670) (7,346) 6,676 90.9 %

Income tax expense 2,816 1,853 963 52.0 %

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

Net loss $ (3,486) $ (9,199) $ 5,713 62.1 %

Weighted average shares outstanding

1 unchanged sentence

Diluted 10,179 5,683

Earnings (loss) per share

Loss per share

Basic $ (0.34) $ (1.62)

1 unchanged sentence

* not meaningful

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.

Our revenue for the three months ended March 31, 2023 was $189.0 million, an increase of $33.8 million, or 21.8%, compared to the three months ended March 31, 2022.

For the three months ended March 31, 2023, our Drilling & Downhole, Completions, and Production segments comprised 40.6%, 38.8%, and 20.6% of our total revenue, respectively, which compared to 45.9%, 33.8%, and 20.3% of our total revenue, respectively, for the three months ended March 31, 2022.

The overall increase in revenue is primarily related to increases in market activity and global rig count in the first quarter 2023 compared to the first quarter 2022.

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

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 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.

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 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.

Drilling & Downhole segment — Revenue was $76.8 million for the three months ended March 31, 2023, an increase of $5.5 million, or 7.8%, compared to the three months ended March 31, 2022.

This increase was led by a $11.5 million, or 39.5%, increase in revenue for our Drilling Technologies product line due to higher sales volumes of both consumable products and capital equipment driven by increased market activity and global rig count.

Revenue for our Downhole Technologies product line increased by $3.6 million, or 18.6%, primarily due to higher sales volumes of artificial lift products and casing equipment in the first quarter 2023 compared to the first quarter 2022.

Revenue for our Subsea Technologies product line decreased by $9.7 million, or 43.0%, from lower volumes of ROVs partially offset by an increase in after-market part sales and service.

Completions segment — Revenue was $73.7 million for the three months ended March 31, 2023, an increase of $21.1 million, or 40.2%, compared to the three months ended March 31, 2022.

This significant improvement includes a revenue increase of $17.2 million, or 56.9%, for our Stimulation & Intervention product line primarily due to higher demand of power ends, radiators and wireline cable.

Revenue for our Coiled Tubing product line increased by $4.0 million, or 17.7% in the first quarter 2023 compared to the first quarter 2022.

These higher revenue levels were driven by increased hydraulic fracturing and well intervention service activity levels.

Production segment — Revenue was $39.0 million for the three months ended March 31, 2023, an increase of $7.5 million, or 23.8%, compared to the three months ended March 31, 2022.

The increase was driven by a $4.7 million, or 31.2%, primarily due to increased demand for our processing equipment and technologies within our Production Equipment product line, and a $2.8 million, or 16.9%, increase in sales of our valve products within our Valve Solutions product line.

Segment operating income (loss) and segment operating margin percentage

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 income for the three months ended March 31, 2023 was $6.6 million, a $12.3 million improvement compared to a loss of $5.7 million for the three months ended March 31, 2022.

For the three months ended March 31, 2023, segment operating margin percentage was 3.5% compared to (3.7)% for the three months ended March 31, 2022.

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 $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 $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 $1.2 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 $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.

Drilling & Downhole segment — Segment operating income was $8.4 million, or 11.0%, for the three months ended March 31, 2023 compared to operating income of $6.0 million, or 8.4%, for the three months ended March 31, 2022.

The $2.5 million improvement in segment operating results is primarily attributable to higher gross profit from the 7.8% increase in segment revenues, favorable product mix and improved operating leverage.

These gains were partially offset by higher freight and employee related costs.

Completions segment — Segment operating income was $3.6 million, or 4.8%, for the three months ended March 31, 2023 compared to segment operating loss of $0.7 million, or (1.4)%, for the three months ended March 31, 2022.

The $4.3 million improvement in segment operating results was primarily due to higher gross profit from the 40.2% increase in revenues discussed above and from favorable product mix.

These gains were partially offset by higher steel, freight and employee related costs.

Production segment — Segment operating income was $1.6 million, or 4.2%, for the three months ended March 31, 2023 compared to a loss of $1.8 million, or (5.6)%, for the three months ended March 31, 2022.

The $3.4 million improvement in segment operating results was driven by the 23.8% increase in revenues discussed above as well as lower depreciation and freight costs.

Corporate — Selling, general and administrative expenses for Corporate were $7.0 million for the three months ended March 31, 2023 compared to $9.2 million for the three months ended March 31, 2022.

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

1 unchanged sentence

and marketing costs.

This decline was primarily due to a $2.7 million charge recognized in the three months ended March 31, 2022 related to a modification of long-term incentive awards associated with the executive leadership transition.

Other items not included in segment operating income (loss)

Gain on the disposal of assets and other is not included in segment operating income (loss), but is included in total operating loss.

Other expense

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

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.

Other income and expense

Other income and expense includes interest expense and foreign exchange gains (losses) and other.

We incurred $4.5 million of interest expense during the three months ended March 31, 2023, a decrease of $3.1 million compared to the three months ended March 31, 2022, mainly due to the decline in the balance of 2025 Notes upon conversion of $122.8 million aggregate principal amount of our 2025 Notes to common stock in January 2023.

See Note 6 Debt for further details related to the our 2025 Notes and Credit Facility.

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

1 unchanged sentence

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 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 $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.

We recorded tax expense of $2.8 million and tax expense of $1.9 million for the three months ended March 31, 2023 and 2022, respectively.

The estimated annual effective tax rates for the three months ended March 31, 2023 and 2022 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.

5 unchanged sentences

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 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.

As of March 31, 2023, we had $134.2 million principal amount of 2025 Notes outstanding and $25.0 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 6 Debt for further details related to the terms for our 2025 Notes and 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.

As of March 31, 2023, we had cash and cash equivalents of $46.8 million and $129.3 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 2023 capital expenditures to be less than $15.0 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.

2 unchanged sentences

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.

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.

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 nine months of 2022.

For additional information, see Note 4 Acquisitions.

We may pursue other acquisitions in the future, which may be funded with cash and/or equity.

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 nine months ended September 30, 2022 and 2021 are presented below (in millions):

Nine Months Ended September 30,

During the first quarter 2023, we repurchased approximately 139 thousand shares of our common stock for aggregate consideration of approximately $3.5 million with remaining authorization under this program of $2.4 million.

Our cash flows for the three months ended March 31, 2023 and 2022 are presented below (in millions):

Three Months Ended March 31,

Net cash used in operating activities $ (23.1) $ (24.9)

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

Net cash used in investing activities (0.8) (0.7)

Net cash provided by (used in) financing activities 19.3 (0.6)

2 unchanged sentences

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 $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 used in operating activities was $23.1 million for the three months ended March 31, 2023 compared to $24.9 million for the three months ended March 31, 2022.

This increase in operating cash flows is primarily attributable to the improvement in net income adjusted for non-cash items, which provided $8.7 million of cash for the three months ended March 31, 2023 compared to provided $4.8 million for the three months ended March 31, 2022.

Net cash used in investing activities

Net cash used in investing activities was $0.8 million for the three months ended March 31, 2023, including $1.1 million of capital expenditures, partially offset by $0.3 million of proceeds from the sale of property and equipment.

Net cash used in investing activities was $0.7 million for the three months ended March 31, 2022, including $0.9 million of capital expenditures, partially offset by $0.1 million of proceeds from the sale of property and equipment.

Net cash provided by (used in) financing activities

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.

Net cash provided by financing activities was $19.4 million for the three months ended March 31, 2023 compared to $0.6 million of cash used in financing activities for the three months ended March 31, 2022, respectively.

The change in net cash provided by (used in) financing activities primarily resulted from $25.0 million of net borrowings on the revolving Credit Facility, offset by $5.4 million of repurchases of common stock under our share repurchase program and long-term incentive awards during the three months ended March 31, 2023.

Supplemental Guarantor Financial Information

4 unchanged sentences

(iii) effectively senior to all unsecured indebtedness of that guarantor, to the extent of the value of the collateral securing the 2025 Notes (after giving effect to the liens securing our Credit Facility and any other senior liens on the collateral);

and (v) senior in right of payment to any future subordinated indebtedness of that guarantor.

and (iv) senior in right of payment to any future subordinated indebtedness of that guarantor.

In the event of a bankruptcy, liquidation or reorganization of any of the non-guarantor subsidiaries of the 2025 Notes, the non-guarantor subsidiaries of such notes will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to the Company or to any guarantors.

9 unchanged sentences

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

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

Three Months Ended March 31,

Summarized Statements of Operations 2023 2022

2 unchanged sentences

Operating income (loss) 2,667 (2,643)

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

September 30, 2022 December 31, 2021

Net loss (3,486) (9,199)

March 31, 2023 December 31, 2022

Summarized Balance Sheet

5 unchanged sentences

Critical accounting policies and estimates

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

There have been no material changes in our critical accounting policies and procedures during the three months ended March 31, 2023.

For a detailed discussion of our critical accounting policies and estimates, refer to our 2022 Annual Report on Form 10-K.

3 unchanged sentences

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