What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-03 compared with 2023-11-03 · 114 added, 195 removed, 125 unchanged (71% of the section changed)

8 unchanged sentences

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.

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 March 5, 2024, 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.

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

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

With headquarters 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 nine months ended September 30, 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.

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

Our capital products are directed at drilling rig equipment for constructing new or 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, 2024, 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 expect that the world’s long-term energy demand will continue to rise for many decades.

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

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

We are continuing to develop products to help oil and gas operators lower expenses, increase production and reduce their emissions while also deploying our technologies in renewable energy applications.

In the first quarter 2024, following the Variperm Acquisition, we aligned our reportable segments with business activity drivers, our customer base, and the manner in which we review and evaluate operating performance.

FET now operates in the following two reportable segments:

(1) Drilling and Completions and (2) Artificial Lift and Downhole.

Refer to Note 10 Business Segments for the product lines making up each segment.

Our historical results of operations were recast retrospectively to reflect these changes in accordance with U.S.

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

• Drilling & Downhole .

This segment designs, manufactures and supplies products and provides related services to the drilling, well construction, artificial lift and subsea energy construction markets, including applications in oil and natural gas, renewable energy, defense, and communications.

The products and related services consist primarily of:

(i) capital equipment and a broad line of expendable products consumed in the drilling process;

(ii) well construction casing and cementing equipment and protection products for artificial lift equipment and cables;

and (iii) subsea remotely operated vehicles (“ROVs”) and trenchers, submarine rescue vehicles, specialty components and tooling, and complementary subsea technical services.

• Completions.

This segment designs, manufactures and supplies products and provides related services to the coiled tubing, well stimulation and intervention markets.

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, 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.

• Production .

This segment designs, manufactures and supplies products and provides related equipment and services for production and infrastructure markets.

The products and related services consist primarily of:

(i) engineered process systems, production equipment, as well as specialty separation equipment;

and (ii) a wide range of industrial valves focused on serving oil and natural gas customers as well as power generation, renewable energy and other general industrial applications.

• Drilling and Completions .

This segment designs, manufactures and supplies products and solutions to the drilling, subsea, coiled tubing, well stimulation and intervention markets, including applications in the oil and natural gas, renewable energy, defense and communications industries.

The products and solutions consist primarily of (i) capital equipment and consumable products used in the drilling process;

(ii) capital equipment and aftermarket products including subsea remotely operated vehicles (“ROVs”) and trenchers, submarine rescue vehicles, specialty components and tooling, and technical services;

(iii) capital equipment and consumable products sold to the pressure pumping market, including hydraulic fracturing pumps, cooling systems, and high-pressure flexible hoses and flow iron;

(iv) wireline cable and pressure control equipment used in the well completion and intervention service markets;

and (v) coiled tubing strings and pressure control equipment used in coiled tubing operations, as well as coiled line pipe and related services.

• Artificial Lift and Downhole .

This segment designs, manufactures and supplies products and solutions for the artificial lift, well construction, production and infrastructure markets.

The products and solutions consist primarily of:

(i) products designed to safeguard artificial lift equipment and downhole cables:

(ii) well construction casing and cementing equipment;

(iii) customized downhole technology solutions, providing sand and flow control products for heavy oil applications;

(iv) engineered process systems, production equipment, as well as specialty separation equipment;

and (v) a wide range of industrial valves focused on oil and natural gas as well as power generation, renewable energy and other general industrial applications.

Market Conditions

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

Generally, 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.

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

Recent inflationary pressures and rising interest rates have created a heightened concern of a global recession.

Oil and natural gas prices softened in the first half of 2023 as a result of such global recessionary fears, but rebounded during the third quarter as supply tightened from further OPEC+ production cuts.

The recent conflict in the Middle East could lead to a disruption to world energy markets and international supply chains.

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

Compared to fourth quarter 2023, oil and natural gas prices have remained relatively flat despite tightened supply from OPEC+ production cuts and continued geopolitical tensions in Ukraine and the Middle East.

These tensions could lead to a disruption to world energy markets and international supply chains.

Although these near-term macroeconomic events have presented challenges, we expect that the world’s long-term energy demand will continue to rise and may outpace global supply as OPEC+ remains committed to maintaining stable oil prices.

We expect that hydrocarbons will continue to play a vital role in meeting the world’s long-term energy needs while renewable energy sources become increasingly prominent.

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

The spot prices for West Texas Intermediate (“WTI”) and United Kingdom Brent (“Brent”) crude oil 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 to an average of $82.25 and $86.65, for WTI and Brent, respectively, in the third quarter 2023.

In addition, natural gas prices have decreased by 67.7% comparing the third quarter 2023 to the third quarter 2022.

Our revenues, over the long-term, are highly correlated to the global drilling rig count, which averaged 1,788 rigs during the third quarter 2023 from an average of 1,030 rigs in the third quarter 2020.

The average U.S.

rig count for the third quarter 2023 was 9.7% lower and 14.7% lower compared to the second quarter 2023 and third quarter 2022, respectively.

The international rig count for the third quarter 2023 was 0.9% lower and 11.0% higher compared to the second quarter 2023 and third quarter 2022, respectively.

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

Markets outside North America are expected to grow and outpace the U.S.

In the U.S., publicly owned exploration and production companies are expected to continue to exercise disciplined capital spending.

Privately owned exploration and production companies tend to fluctuate their activity more readily in response to changes in oil and natural gas prices.

Average West Texas Intermediate (“WTI”) and United Kingdom Brent (“Brent”) oil prices were slightly higher in the first quarter 2024 compared to the first quarter 2023.

In addition, average natural gas prices were 18.6% lower in the first quarter 2024 compared to the first quarter 2023.

Our revenues, over the long-term, are highly correlated to the global drilling rig count, which decreased 5.3% during the first quarter 2024 compared to average global rig count during first quarter 2023.

The decrease was driven by decline in North America rig count of 15.3%, offset by growth in international rig count of 5.5% compared to first quarter 2023.

International markets are expected to continue to 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 WTI, Brent, and Henry Hub:

Three Months Ended

September 30, June 30, September 30,

March 31, December 31, March 31,

2024 2023 2023

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Three Months Ended

September 30, June 30, September 30,

March 31, December 31, March 31,

2024 2023 2023

18 unchanged sentences

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

Three Months Ended Nine Months Ended

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

Three Months Ended

March 31, December 31, March 31,

(in millions of dollars) 2024 2023 2023

Drilling & Downhole $ 95.0 $ 82.1 $ 73.3 $ 258.1 $ 218.6

Completions 65.1 62.7 78.7 193.8 197.1

Production 38.7 41.5 45.7 112.1 149.9

Drilling and Completions $ 116.6 $ 113.8 $ 121.3

Artificial Lift and Downhole 87.8 46.5 57.6

Total Orders $ 204.4 $ 160.3 $ 178.9

Results of operations

Three months ended September 30, 2023 compared with three months ended September 30, 2022

Three Months Ended September 30, Change

Three months ended March 31, 2024 compared with three months ended March 31, 2023

Three Months Ended March 31, Change

(in thousands of dollars, except per share information) 2024 2023 $ %

Drilling & Downhole $ 81,181 $ 75,723 $ 5,458 7.2 %

Completions 62,473 72,246 (9,773) (13.5) %

Production 36,877 34,238 2,639 7.7 %

Drilling and Completions $ 119,071 $ 126,764 $ (7,693) (6.1) %

Artificial Lift and Downhole 83,342 62,207 21,135 34.0 %

Eliminations (21) (14) (7) *

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Segment operating income

Drilling & Downhole 8,437 9,481 (1,044) (11.0) %

Operating margin % 10.4 % 12.5 %

Completions 2,147 5,915 (3,768) (63.7) %

Drilling and Completions 4,559 4,990 (431) (8.6) %

Operating margin % 3.8 % 3.9 %

Production 1,803 665 1,138 171.1 %

Artificial Lift and Downhole 11,786 8,633 3,153 36.5 %

Operating margin % 14.1 % 13.9 %

2 unchanged sentences

Operating margin % 4.5 % 3.5 %

Transaction expenses 5,921 — 5,921 *

Gain on disposal of assets and other (28) (260) 232 *

1 unchanged sentence

Interest expense 8,760 4,549 4,211 92.6 %

Foreign exchange gains and other, net (8,279) (18,288) 10,009 *

Total other income (3,775) (10,145) 6,370 62.8 %

Income before income taxes 9,446 17,847 (8,401) (47.1) %

Income tax expense 1,477 1,370 107 7.8 %

Net income $ 7,969 $ 16,477 $ (8,508) (51.6) %

Weighted average shares outstanding

Basic 10,235 5,778

Diluted 10,393 10,552

Earnings per share

Basic $ 0.78 $ 2.85

Diluted $ 0.77 $ 1.82

* not meaningful

Our revenue for the three months ended September 30, 2023 was $179.3 million, a decrease of $2.6 million, or 1.4%, compared to the three months ended September 30, 2022.

For the three months ended September 30, 2023, our Drilling & Downhole, Completions, and Production segments comprised 45.3%, 34.1%, and 20.6% of our total revenue, respectively, which compared to 41.6%, 39.6%, and 18.8% of our total revenue, respectively, for the three months ended September 30, 2022.

The overall decrease in revenue is primarily related to lower U.S.

hydraulic fracturing activity in the third quarter 2023 compared to the third quarter 2022.

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

Drilling & Downhole segment — Revenue was $81.2 million for the three months ended September 30, 2023, an increase of $5.5 million, or 7.2%, compared to the three months ended September 30, 2022.

This increase was led by a $4.8 million, or 12.6%, increase in revenue for our Drilling Technologies product line due to higher sales volumes of capital equipment, partially offset by lower sales volumes of consumable products.

Revenue for our Downhole Technologies product line increased by $1.6 million, or 7.1%, primarily due to higher sales volumes of artificial lift products in the third quarter 2023 compared to the third quarter 2022.

Revenue for our Subsea Technologies product line decreased by $0.9 million, or 5.8%, from lower volumes of cable management systems partially offset by an increase from higher project revenue recognized from ROVs and after-market part sales.

Completions segment — Revenue was $62.5 million for the three months ended September 30, 2023, a decrease of $9.8 million, or 13.5%, compared to the three months ended September 30, 2022.

This change includes a revenue decrease of $11.1 million, or 25.4%, for our Stimulation & Intervention product line primarily due to lower U.S.

hydraulic fracturing activity levels and delays in capital equipment spending by customers during the third quarter 2023.

This decline was partially offset by a $1.3 million increase in revenue for our Coiled Tubing product line due to higher international sales volumes.

Production segment — Revenue was $36.9 million for the three months ended September 30, 2023, an increase of $2.6 million, or 7.7%, compared to the three months ended September 30, 2022.

The increase was driven by a $3.2 million, or 17.6%, increase in sales for our Production Equipment product line primarily due to an increase in revenues recognized from our processing oil treatment equipment, partially offset by a $0.6 million, or 3.8%, decrease 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 three months ended September 30, 2023 was $5.5 million, a $2.1 million decrease compared to an income of $7.7 million for the three months ended September 30, 2022.

For the three months ended September 30, 2023, segment operating margin percentage was 3.1% compared to 4.2% for the three months ended September 30, 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 $8.4 million, or 10.4%, for the three months ended September 30, 2023 compared to operating income of $9.5 million, or 12.5%, for the three months ended September 30, 2022.

The $1.0 million decrease in segment operating results is primarily attributable to lower volume and profitability of our Subsea product line projects, partially offset by higher gross profit from our Downhole Technologies product line.

Completions segment — Segment operating income was $2.1 million, or 3.4%, for the three months ended September 30, 2023 compared to segment operating income of $5.9 million, or 8.2%, for the three months ended September 30, 2022.

The $3.8 million decrease in segment operating results was primarily due to lower sales volumes of our well stimulation products.

Production segment — Segment operating income was $1.8 million, or 4.9%, for the three months ended September 30, 2023 compared to an income of $0.7 million, or 1.9%, for the three months ended September 30, 2022.

The $1.1 million increase in segment operating results was driven by an increase in project revenue recognized from our process oil treatment equipment driving higher gross profit.

Corporate — Selling, general and administrative expenses for Corporate were $6.9 million for the three months ended September 30, 2023 compared to $8.4 million for the three months ended September 30, 2022.

This decrease was primarily related to lower variable compensation costs.

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

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 September 30, 2023, a decrease of $3.6 million compared to the three months ended September 30, 2022, 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 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.

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.

We recorded tax expense of $1.5 million and $1.4 million for the three months ended September 30, 2023 and 2022, respectively.

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

Nine months ended September 30, 2023 compared with nine months ended September 30, 2022

Nine Months Ended September 30, Change

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

Drilling & Downhole $ 238,652 $ 223,476 $ 15,176 6.8 %

Completions 208,239 190,867 17,372 9.1 %

Production 108,918 95,622 13,296 13.9 %

Eliminations (2,150) (710) (1,440) *

Total revenue 553,659 509,255 44,404 8.7 %

Segment operating income

Drilling & Downhole 25,165 23,995 1,170 4.9 %

Operating margin % 10.5 % 10.7 %

Completions 9,893 8,787 1,106 12.6 %

Operating margin % 4.8 % 4.6 %

Production 4,546 (1,241) 5,787 466.3 %

Operating margin % 4.2 % (1.3) %

Corporate (20,538) (24,501) 3,963 16.2 %

Total segment operating income 19,066 7,040 12,026 170.8 %

Operating margin % 3.4 % 1.4 %

Loss (gain) on disposal of assets and other 137 (938) 1,075 *

Operating income 18,929 7,978 10,951 137.3 %

Interest expense 13,742 23,609 (9,867) (41.8) %

Foreign exchange losses (gains) and other, net 1,129 (37,112) 38,241 *

Total other (income) expense, net 14,871 (13,503) 28,374 210.1 %

Income before income taxes 4,058 21,481 (17,423) (81.1) %

Foreign exchange losses and other, net 1,227 2,972 (1,745) *

Total other expense 9,987 7,521 2,466 32.8 %

Loss before income taxes (6,787) (670) (6,117) (913.0) %

Income tax expense 3,528 2,816 712 25.3 %

Net income (loss) $ (2,096) $ 16,542 $ (18,638) (112.7) %

Net loss $ (10,315) $ (3,486) $ (6,829) (195.9) %

Weighted average shares outstanding

1 unchanged sentence

Diluted 12,201 10,179

Earnings per share

Loss per share

Basic $ (0.85) $ (0.34)

1 unchanged sentence

* not meaningful

Our revenue for the nine months ended September 30, 2023 was $553.7 million, an increase of $44.4 million, or 8.7%, compared to the nine months ended September 30, 2022.

For the nine months ended September 30, 2023, our Drilling & Downhole, Completions, and Production segments comprised 43.1%, 37.2%, and 19.7% of our total revenue, respectively, which compared to 43.9%, 37.3%, and 18.8% of our total revenue, respectively, for the nine months ended September 30, 2022.

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

Our revenue for the three months ended March 31, 2024 was $202.4 million, an increase of $13.4 million, or 7.1%, compared to the three months ended March 31, 2023.

For the three months ended March 31, 2024, our Drilling and Completions and Artificial Lift and Downhole segments comprised 58.8% and 41.2% of our total revenue, respectively, which compared to 67.1% and 32.9% of our total revenue, respectively, for the three months ended March 31, 2023.

The overall increase in revenue is primarily related to the revenue contributed from the acquired Variperm business, partially offset by the decline in overall global drilling and completions activities in 2024 compared to 2023.

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

Drilling & Downhole segment — Revenue was $238.7 million for the nine months ended September 30, 2023, an increase of $15.2 million, or 6.8%, compared to the nine months ended September 30, 2022.

This increase was led by a $28.1 million, or 27.8%, 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.

Revenue for our Downhole Technologies product line increased by $5.9 million, or 9.3%, primarily due to higher sales volumes of artificial lift products in 2023 compared to 2022.

Revenue for our Subsea Technologies product line decreased by $18.7 million, or 31.4%, from lower project revenue recognized from ROVs and cable management systems, partially offset by an increase in part sales.

Completions segment — Revenue was $208.2 million for the nine months ended September 30, 2023, an increase of $17.4 million, or 9.1%, compared to the nine months ended September 30, 2022.

This change includes a revenue increase of $15.1 million, or 13.6%, for our Stimulation & Intervention product line primarily due to higher demand of radiators and wireline cable, partially offset by lower sales volumes in power ends and high-pressure hoses.

Production segment — Revenue was $108.9 million for the nine months ended September 30, 2023, an increase of $13.3 million, or 13.9%, compared to the nine months ended September 30, 2022.

The increase was driven by a $9.2 million, or 18.4%, increase in project revenue recognized from our process oil treatment equipment within our Production Equipment product line, and a $4.1 million, or 9.0%, increase in sales of our valve products.

Drilling and Completions segment — Revenue was $119.1 million for the three months ended March 31, 2024, a decrease of $7.7 million, or 6.1%, compared to the three months ended March 31, 2023.

Due to the decline in overall global drilling and completions activities, the decrease in revenue was led by an $8.8 million, or 18.5%, decrease in the Stimulation & Intervention product line, a $4.1 million, or 15.7%, decrease in the Coiled Tubing product line, and a $3.8 million, or 9.5%, decrease in the Drilling product line.

The decrease was partially offset by an increase of $9.0 million, or 70.5%, in our Subsea product line due to higher project revenue recognized from ROVs and cable management systems.

Artificial Lift and Downhole segment — Revenue was $83.3 million for the three months ended March 31, 2024, an increase of $21.1 million, or 34.0%, compared to the three months ended March 31, 2023.

Revenue for our Downhole product line increased by $29.0 million, or 125.1%, primarily due to revenue contributed from the acquired Variperm business and an increase in casing equipment sales.

This increase was partially offset by an $6.5 million, or 33.9% decrease, in sales of our valve products, and $1.4 million, or 7.1%, decrease in sales within our Production Equipment product line.

Segment operating income (loss) and segment operating margin percentage

Segment operating income for the nine months ended September 30, 2023 was $19.1 million, a $12.0 million increase compared to an income of $7.0 million for the nine months ended September 30, 2022.

For the nine months ended September 30, 2023, segment operating margin percentage was 3.4% compared to 1.4% for the nine months ended September 30, 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 $25.2 million, or 10.5%, for the nine months ended September 30, 2023 compared to operating income of $24.0 million, or 10.7%, for the nine months ended September 30, 2022.

The $1.2 million increase in segment operating results is primarily attributable to higher gross profit from the 6.8% increase in segment revenues and favorable product mix.

These gains were partially offset by lower project revenue in Subsea Technologies product line.

Completions segment — Segment operating income was $9.9 million, or 4.8%, for the nine months ended September 30, 2023 compared to segment operating income of $8.8 million, or 4.6%, for the nine months ended September 30, 2022.

The $1.1 million increase in segment operating results was primarily due to higher gross profit from the 9.1% increase in revenues and favorable product mix, partially offset by higher freight costs.

Production segment — Segment operating income was $4.5 million, or 4.2%, for the nine months ended September 30, 2023 compared to a loss of $1.2 million, or 1.3%, for the nine months ended September 30, 2022.

The $5.8 million increase in segment operating results was driven by the 13.9% increase in revenues and increased operating leverage.

Corporate — Selling, general and administrative expenses for Corporate were $20.5 million for the nine months ended September 30, 2023 compared to $24.5 million for the nine months ended September 30, 2022.

This decrease was primarily related to a charge recognized in the nine months ended September 30, 2022 related to a modification of long-term incentive awards associated with executive leadership transition and lower variable compensation costs.

Segment operating income for the three months ended March 31, 2024 was $9.1 million, a $2.5 million increase compared to $6.6 million for the three months ended March 31, 2023.

For the three months ended March 31, 2024, segment operating margin percentage was 4.5% compared to 3.5% for the three months ended March 31, 2023.

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

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

Drilling and Completions segment — Segment operating income was $4.6 million, or 3.8%, for the three months ended March 31, 2024 compared to $5.0 million, or 3.9%, for the three months ended March 31, 2023.

The $0.4 million decrease in segment operating results is primarily attributable to lower demand for capital equipment that was nearly offset by higher project revenue in Subsea product line.

Artificial Lift and Downhole segment — Segment operating income was $11.8 million, or 14.1%, for the three months ended March 31, 2024 compared to $8.6 million, or 13.9%, for the three months ended March 31, 2023.

The $3.2 million increase in segment operating results was primarily driven by the acquisition of Variperm and an increase in project revenue recognized from process oil treatment equipment, partially offset by the decline in sales of our valve products.

Corporate — Selling, general and administrative expenses for Corporate were $7.3 million for the three months ended March 31, 2024 compared to $7.0 million for the three months ended March 31, 2023.

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

2 unchanged sentences

Other items not included in segment operating income (loss)

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

Transaction expenses, gain (loss) on the disposal of assets and other are not included in segment operating income, but are included in total operating income.

Other income and expense

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

We incurred $13.7 million of interest expense during the nine months ended September 30, 2023, a decrease of $9.9 million compared to the nine months ended September 30, 2022, due to the decline in the balance of our 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 2025 Notes and Credit Facility.

We incurred $8.8 million of interest expense during the three months ended March 31, 2024, an increase of $4.2 million compared to the three months ended March 31, 2023, due to the increased borrowings under our revolving Credit Facility and borrowings under the Seller Term Loan entered into in connection with the Variperm Acquisition.

See Note 7 Debt for further details related to the Credit Facility and Seller Term Loan.

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.

We recorded tax expense of $6.2 million and $4.9 million for the nine months ended September 30, 2023 and 2022, respectively.

The estimated annual effective tax rates for the nine months ended September 30, 2023 and 2022 were impacted by losses in jurisdictions where the recording of a tax benefit is not available.

We recorded tax expense of $3.5 million and $2.8 million for the three months ended March 31, 2024 and 2023, respectively.

The estimated annual effective tax rates for the three months ended March 31, 2024 and 2023 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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Sources and uses of liquidity

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

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

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

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

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

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, 2023, we had $134.2 million principal amount of 2025 Notes outstanding and no 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, 2023, we had cash and cash equivalents of $37.2 million and $154.8 million of availability under the Credit Facility.

As of March 31, 2024, we had $134.2 million principal amount of 2025 Notes outstanding, $96.5 million of borrowings under our revolving Credit Facility and $59.7 million principal amount of the Seller Term Loan outstanding.

The 2025 Notes mature in August 2025 and, subject to certain exceptions, the Credit Facility matures in September 2028 a nd the Seller Term Loan matures in December 2026.

See Note 7 Debt for further details related to the terms for our debt arrangements.

As of March 31, 2024, we had cash and cash equivalents of $48.5 million and $71.6 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 2023 capital expenditures to be less than $10.0 million, consisting of, among other items, replacing end of life machinery and equipment.

In addition, we expect total 2024 capital expenditures to be approximately $10.0 million, primarily for replacement of 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 or repurchase shares of our common stock under our repurchase program.

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 outstanding debt or repurchase shares of our common stock under our repurchase program.

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.

During the first nine months of 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 nine months ended September 30, 2023 and 2022 are presented below (in millions):

Nine Months Ended September 30,

Net cash used in operating activities $ (3.1) $ (32.1)

During the three months ended March 31, 2024 , we did not repurchase shares of our common stock and the remaining authorization under this program is $2.4 million.

In January 2024, we completed the Variperm Acquisition for consideration of approximately $150.0 million of cash (subject to customary purchase price adjustments) and 2.0 million shares of our common stock.

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

Our cash flows for the three months ended March 31, 2024 and 2023 are presented below (in millions):

Three Months Ended March 31,

Net cash provided by (used in) operating activities $ 5.0 $ (23.1)

Net cash used in investing activities (152.8) (0.8)

Net cash provided by (used in) financing activities (6.9) 9.2

Net cash provided by financing activities 151.8 19.3

Effect of exchange rate changes on cash (1.7) 0.3

Net decrease in cash, cash equivalents and restricted cash $ (13.9) $ (27.1)

Net cash used in operating activities

Net cash used in operating activities was $3.1 million for the nine months ended September 30, 2023 compared to $32.1 million for the nine months ended September 30, 2022.

This improvement in operating cash flow usage is primarily attributable to net decrease in cash used for working capital, mainly accounts receivable, which used cash of $36.8 million for the nine months ended September 30, 2023 compared to used cash of $85.6 million for the nine months ended September 30, 2022.

Net increase (decrease) in cash, cash equivalents and restricted cash $ 2.3 $ (4.3)

Net cash provided by (used in) operating activities

Net cash provided by operating activities was $5.0 million for the three months ended March 31, 2024 compared to net cash used in operating activities of $23.1 million for the three months ended March 31, 2023.

This improvement in operating cash flow usage is primarily attributable to an increase in cash provided from working capital, mainly accounts receivable and inventories.

It was offset by an increase in cash used for accounts payable and accrued liabilities of $24.1 million for the three months ended March 31, 2024 compared to $5.5 million for the three months ended March 31, 2023.

Net cash used in investing activities

Net cash used in investing activities was $4.2 million for the nine months ended September 30, 2023, including $5.5 million of capital expenditures, partially offset by $1.3 million of proceeds from the sale of property and equipment.

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 (used in) financing activities

Net cash used in financing activities was $6.9 million for the nine months ended September 30, 2023 compared to $9.2 million of cash provided by financing activities for the nine months ended September 30, 2022, respectively.

The change in net cash used in financing activities primarily resulted from $6.0 million of repurchases of common stock under our share repurchase program and long-term incentive awards during the nine months ended September 30, 2023 compared to a net $10.7 million of borrowings on the revolving Credit Facility during the nine months ended September 30, 2022.

Net cash used in investing activities was $152.8 million for the three months ended March 31, 2024, mainly related to Variperm Acquisition of $150.1 million and $2.9 million of capital expenditures, partially offset by $0.2 million of proceeds from the sale of property and equipment.

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 provided by financing activities

Net cash provided by financing activities was $151.8 million for the three months ended March 31, 2024 compared to $19.4 million of cash provided by financing activities for the three months ended March 31, 2023, respectively.

The change in net cash provided by financing activities primarily resulted from $96.5 million in borrowings from the revolving Credit Facility and net $59.7 million from the Seller Term Loan during the three months ended March 31, 2024 compared to a net $25.0 million of borrowings on the revolving Credit Facility during the three months ended March 31, 2023.

Supplemental Guarantor Financial Information

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The guarantees are full and unconditional, joint and several.

The guarantees of the 2025 Notes are (i) pari passu in right of payment with all existing and future senior indebtedness of such guarantor, including all obligations under our Credit Facility;

The guarantees of the 2025 Notes are (i) pari passu in right of payment with all existing and future senior indebtedness of such guarantor, including all obligations under our Credit Facility and the Seller Term Loan;

(ii) secured by certain collateral of such guarantor, subject to permitted liens under the indenture governing the 2025 Notes;

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or (iv) dissolution of such guarantor, provided no default or event of default has occurred that is continuing.

The obligations of each guarantor of the 2025 Notes under its guarantee will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such guarantor (including, without limitation, any guarantees under the Credit Facility) and any collections from or payments made by or on behalf of any other guarantor in respect of the obligations of such other guarantor under its guarantee or pursuant to its contribution

obligations under the applicable indenture, result in the obligations of such guarantor under its guarantee not constituting a fraudulent conveyance, fraudulent preference or fraudulent transfer or otherwise reviewable transaction under applicable law.

guarantees under the Credit Facility) and any collections from or payments made by or on behalf of any other guarantor in respect of the obligations of such other guarantor under its guarantee or pursuant to its contribution obligations under the applicable indenture, result in the obligations of such guarantor under its guarantee not constituting a fraudulent conveyance, fraudulent preference or fraudulent transfer or otherwise reviewable transaction under applicable law.

Nonetheless, in the event of the bankruptcy, insolvency or financial difficulty of a guarantor, such guarantor’s obligations under its guarantee may be subject to review and avoidance under applicable fraudulent conveyance, fraudulent preference, fraudulent transfer and insolvency laws.

We are presenting the following summarized financial information for the Company and the subsidiary guarantors (collectively referred to as the “Obligated Group”) pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.

We are presenting the following summarized financial information for the Company and the subsidiary guarantors pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.

For purposes of the following summarized financial information, transactions between the Company and the subsidiary guarantors, presented on a combined basis, have been eliminated and information for the non-guarantor subsidiaries have been excluded.

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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 Nine Months Ended

September 30, September 30,

Three Months Ended

Summarized Statements of Operations 2024 2023

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Operating income (1,751) 2,667

Net income (loss) 7,969 16,477 (2,096) 16,542

September 30, 2023 December 31, 2022

Net loss (10,315) (3,486)

March 31, 2024 December 31, 2023

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 nine months ended September 30, 2023.

There have been no material changes in our critical accounting policies and procedures during the three months ended March 31, 2024.

For a detailed discussion of our critical accounting policies and estimates, refer to our 2023 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