What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-18 · 86 added, 88 removed, 301 unchanged (37% of the section changed)

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Fabrication of compressors involves our purchase of engines, compressors, coolers and other components, and our assembling of these components on skids for delivery to customer locations.

These major components of our compressors are acquired through periodic purchase orders placed with third-party suppliers on an “as needed” basis, which presently requires a a minimum three to six month lead time with delivery dates scheduled to coincide with our estimated production schedules.

These major components of our compressors are acquired through periodic purchase orders placed with third-party suppliers on an “as needed” basis, which presently requires a minimum three to six month lead time with delivery dates scheduled to coincide with our estimated production schedules.

Although we do not have formal continuing supply contracts with any major supplier, we believe we have adequate alternative sources available.

In the past, we have not experienced any sudden and dramatic increases in the prices of the major components for our compressors;

however, the occurrence of such an event could have a material adverse effect on the results of our operations and financial condition, particularly if we were unable to increase our rental rates and sales prices proportionate to any such component price increases.

Finally due to supply chain disruptions as a result of the COVID-19 pandemic and the Russian invasion of the Ukraine and the increased rate of inflation, we continue to experience cost increases and sporadic unavailability of many of our parts needed to fabricate and maintain our rental fleet.

While we have a robust supplier network, pricing pressure from our customers and competitors presents challenges in increasing our rental rates to offset these increased costs which could have a material adverse effect on the results of our operations and financial condition, particularly if we were unable to increase our rental rates and sales prices proportionate to any such component price increases.

We also manufacture a line of compressor frames, cylinders and parts, known as our CiP (Cylinder-in-Plane) product line.

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During the first quarter of 2020, we saw a substantial decline in the prices for oil and natural gas.

Activity levels of exploration and production companies have been and will continue to be dependent not only on commodity prices, but also on their ability to generate sufficient operational cash flow to fund their activities.

While prices largely recovered in 2021 and the stabilized in 2022, activity levels of exploration and production companies have been and will continue to be dependent not only on commodity prices, but also on their ability to generate sufficient operational cash flow to fund their activities.

Generally, though, we feel that production activities (in which we are involved) will fare better than drilling activity.

For fiscal year 2022, our forecasted capital expenditures will be directly dependent upon our customers’ compression requirements and are not anticipated to exceed our internally generated cash flows.

For fiscal year 2023, our forecasted capital expenditures will be directly dependent upon our customers’ compression requirements and are anticipated to exceed our internally generated cash flows by a significant amount.

As such, we are likely to incur debt at levels that far exceed our historical activity.

Any required capital will be for additions to our compressor rental fleet and/or addition or replacement of service vehicles.

We believe that cash on hand and cash flows from operations will be sufficient to satisfy our capital and liquidity requirements through 2022.

We believe that cash on hand, cash flows from operations and borrowings under our revolving credit facility will be sufficient to satisfy our capital and liquidity requirements through 2023.

If we require additional capital to fund any significant unanticipated expenditures, including any material acquisitions of other businesses, joint ventures or other opportunities, this additional capital could exceed our current resources, might not be available to us when we need it, or might not be on acceptable terms.

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We have identified the policies below as critical to our business operations and the understanding of our results of operations.

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting

principles generally accepted in the United States.

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of

results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States.

Actual results could differ significantly from those estimates under different assumptions and conditions.

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As part of the process of preparing our financial statements, we are required to estimate our federal income taxes as well as income taxes in each of the states in which we operate.

This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes.

These differences result in deferred tax assets and liabilities, which are included in our consolidated balance

This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting

These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet.

We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not probable, we must establish a valuation allowance.

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The Company accesses anticipated customer demand based on current and upcoming capital expenditure budgets of its major customers as well as other significant companies in the industry, along with oil and natural gas price forecasts and other factors affecting the industry.

For the year ended December 31, 2021, inventory allowance and write-off totaled $0.2 million.

We ended 2021 with an inventory allowance balance of $64,000.

For the year ended December 31, 2022 and 2021, inventory allowance and write-off totaled $0.1 million.

Our Performance Trends and Outlook

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These developments led to significant weaknesses in oil prices and ensuing reductions of exploration and production company capital and operating budgets.

Oil markets largely recovered in 2021, and prices have continued to rise in the early months of 2022.

With the increases in oil prices, we expect rental demand for our large and medium horsepower units to remain strong for the remainder of 2022.

In terms of sales, we expect minimal compressor sales for the year due to shifts in capital

expenditure budget concentrations throughout the industry, including those of our major customers, as many upstream producers prefer to rent compression as opposed to purchasing units as part of their capital budget allocations.

Oil markets largely recovered in 2021, and prices continued to rise throughout 2022.

With the capital restraint by E&P companies, we expect rental demand for our large and medium horsepower units to remain strong for the remainder of 2023.

In terms of sales, we expect minimal compressor sales for the year due to shifts in

capital expenditure budget concentrations throughout the industry, including those of our major customers, as many upstream producers prefer to rent compression as opposed to purchasing units as part of their capital budget allocations.

Finally, we have recently experienced and expect to continue to experience supply chain disruptions.

While we believe we have a strong vendor network that provides flexibility in sourcing needed materials, we have incurred longer than normal wait times for certain components as well as increases in costs.

Lastly, our relationship with our major customers continues to be strong, and they have continued to pay our invoices in a timely, consistent manner.

Lastly, our relationship with our major customer continues to be strong, and it has continued to pay our invoices in a timely, consistent manner.

Nevertheless, if any of these circumstances change, our business could be adversely affected.

While management anticipates that the industry and economic impact of the pandemic may have a negative effect on its results of operations in 2022 and perhaps beyond, the degree to which these factors will impact our business remains uncertain.

Please read Item 1A, Risk Factors, in this report.

Results of Operations

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Total revenue increased to $84.8 million from $72.4 million, or 17.1%, for the year ended December 31, 2022 compared to 2021.

This increase was mainly a result of increased rental revenue (4.6% increase) primarily due to a greater number of large horsepower units being rented as well as higher sales revenue (21.7% increase) primarily due to increased parts sales partially offset by decreased compressor sales.

This increase was mainly a result of increased rental revenue (17.0% increase) primarily due to a greater number of large horsepower units being rented as well as higher sales revenue (24.5% increase) primarily due to increased compressor and parts sales.

Rental revenue increased to $74.5 million (17.0%) from $63.6 million for the year ended December 31, 2022 compared to 2021.

As of December 31, 2022, we had 1,869 natural gas compressors in our rental fleet, down from 2,023 units at year end 2021.

In addition, the Company's total unit horsepower decreased by 4.7% to 418,041 at December 31, 2021 compared to 438,524 horsepower year end 2020.

In addition, the Company's total unit horsepower increased by 1.7% to 425,340 at December 31, 2022 compared to 418,041 horsepower year end 2021.

However, as of December 31, 2022, we had 1,221 natural gas compressors totaling 318,350 horsepower rented to 81 customers, compared to 1,254 natural gas compressors totaling 297,808 horsepower rented to 83 customers as of December 31, 2021.

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The increase in both utilization metrics was mainly the result of the addition and increased demand for our higher horsepower units.

During the year ended December 31, 2022 we placed into service 174 newly set units during the year , 35 of which were 400 horsepower or larger.

Sales revenue increased to $8.6 million from $6.9 million for the year ended December 31, 2022, compared to 2021.

This increase in largely attributable to an increase in parts sales during 2021.

This increase in largely attributable to an increase in compressor and parts sales during 2022.

Sales are subject to fluctuations in timing of industry activity related to capital projects and, as such, can vary substantially between periods.

Company management routinely reviews its inventory balances for obsolescence.

Company management routinely reviews its inventory for obsolescence.

Due to the slow moving nature or obsolescence of a portion of the Company's long-term inventory and inventory related to the retirement of certain rental equipment, management recorded an increase of $83,000 in the inventory allowance reserve for costs that may not be recoverable in the future.

We ended 2022 with an inventory allowance balance of $120,000.

Company management routinely reviews its rental fleet to determine which units are no longer of the type, configuration, make or model that our customers are demanding or that are not cost efficient to refurbish, maintain and/or

Company management also routinely reviews its rental fleet to determine which units are no longer of the type, configuration, make or model that our customers are demanding or that are not cost efficient to refurbish, maintain and/or operate.

As a result of this review, we determined 124 units should be retired from our rental fleet.

Accordingly, we recorded a $0.2 million loss on retirement of rental equipment during the year ended December 31, 2022.

Operating loss increased to $12.4 million for the year ended December 31, 2021 compared to an operating loss of $3.6 million for the year ended December 31, 2020.

The increase in operating loss was mainly due to 1) an $8.1 million increase in costs of rentals primarily related to a significant increase in repair and maintenance work on our rental fleet as well as increased costs related to newly set units which experience higher upfront costs than typical run rates and 2) a $2.8 million increase in loss related to the retirement of 263 units.

During the year ended December 31, 2021 we had 233 newly set units during the year, of which 51 units were 400 horsepower or larger.

Upon initial installation, these units require oil volumes and other materials that exceed general run rate costs.

In addition, we experienced higher than normal repair and maintenance needs for our rental fleet during the year.

Consistent with our recent shift to a higher horsepower fleet concentration, these large horsepower units are more cost intensive to repair than our legacy fleet.

While we have routine repair and maintenance requirements, we believe a large portion of these costs are one-time in nature.

These increases were partially offset by higher rental and sales revenues.

Selling, general, and administrative expenses remained relatively unchanged at $10.8 million for the year ended December 31, 2021, as compared to $10.6 million for 2020.

This 2.0% increase was primarily the result of increases in health insurance costs.

Depreciation and amortization expense increased to $25.4 million from $25.2 million, or 0.8%, for the year ended December 31, 2021, compared to 2020.

The increase is the result of higher capital expenditures for larger horsepower units being added to the fleet.

Operating income increased to $0.4 million for the year ended December 31, 2022 compared to an operating loss of $12.4 million for the year ended December 31, 2021.

The increase in operating income was mainly due to 1) a $12.4 million increase in revenues and 2) a $2.9 million decrease in loss related to the retirement of 124 units, partially offset by a $2.9 million increase in selling, general and administrative expenses and a $1.1 million increase in costs of rentals primarily related to inflationary pressures on parts and labor expenses.

Selling, general, and administrative expenses increased by $2.9 million to $13.6 million for the year ended December 31, 2022, as compared to $10.8 million for 2021.

This 26.8% increase was primarily the result of $2.5 million of severance expenses related to the planned retirement of Stephen C.

Taylor and other severance costs related to the resignation of John Chisholm, our interim Chief Executive Officer and director during a portion of 2022.

The remaining increase was related to increases in information technology expenses driven by our ongoing data automation program.

Depreciation and amortization expense decreased to $24.1 million from $25.4 million, or 5.0%, for the year ended December 31, 2022, compared to 2021.

The decrease is the result of the retirement of 263 units from our rental fleet in the fourth quarter of 2021 which reduced our depreciable asset base by $3.1 million.

This decrease was partially offset by higher capital expenditures for larger horsepower units being added to the fleet.

We added 45 units (approximately 33,000 horsepower) to our fleet during the twelve-month period ended December 31, 2022.

Twenty-five of those units were 400 horsepower or larger, representing approximately 56% of the horsepower added.

Income tax benefit decreased to $2.6 million from $4.8 million for the year ended December 31, 2021 compared to 2020.

Thirty-five of those units were 400 horsepower or larger, representing approximately 80% of the horsepower added.

Income tax (expense)/benefit increased to $(0.5) million from $2.6 million for the year ended December 31, 2022 compared to 2021.

Our effective tax rate for both years differs from the U.S.

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The Company filed its NOL carryback claims for 2018 and 2019 during 2020.

Accordingly, the Company recorded a federal income tax receivable of $15.0 million and an increase to its deferred income tax liability of $10.1 million on its condensed consolidated balance sheet.

Accordingly, the Company initially recorded a federal income tax receivable of $15.0 million and an increase to its deferred income tax liability of $10.1 million on its condensed consolidated balance sheet.

During the third quarter of 2020, the Company received refunds totaling $3.9 million related to its 2018 NOLs, which, along with year-end provision adjustments, reduced its federal income tax receivable to $11.5 million on its consolidated balance sheet as of December 31, 2022.

In addition, the Company recorded a current income tax benefit of $2.6 million on its consolidated statement of operations for the year ended December 31, 2021.

Our income tax benefit in 2021 was largely due to our net loss before income taxes of $11.8 million.

Our income tax expense in 2022 was largely due to certain executive severance compensation expenses incurred during 2022 that are non-deductible for income tax purposes.

As such, we recognized income tax expense of $0.5 million while incurring net loss before income taxes less than $0.1 million for the year ended December 31, 2022.

Adjusted Gross Margin Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

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(1) For a reconciliation of adjusted gross margin to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read "Non-GAAP Financial Measures" below.

Our overall adjusted gross margin percentage decreased to 37.4% for the year ended December 31, 2021 compared to 47.9% for the year ended December 31, 2020, exclusive of depreciation and amortization.

Our decrease in gross margins is

mainly due to an increase in costs of rentals.

While rental revenues increased 4.6% over 2020, our costs of rentals increased 28.5% primarily driven by a significant increase in repair and maintenance work on our rental fleet as well as increased costs related to newly set units which experience higher upfront costs than typical run rates.

Our overall adjusted gross margin percentage increased to 45.3% for the year ended December 31, 2022 compared to 37.4% for the year ended December 31, 2021.

Our increase in gross margins is mainly due to an increase in rental revenues.

Rental revenues increased 17.0% over 2021, while our costs of rentals increased 3.0% driven by inflationary pressures primarily in labor and parts costs.

Rental revenues comprised 88% of our total revenues for the year ended December 31, 2022 compared to 88% of total revenues for the year ended December 31, 2021.

While rental activity inherently realizes higher adjusted gross margins, the significant increase in costs of rentals beyond the increase in rental revenues resulted in a large reduction in total gross margins.

Sales margin decreased to (13.8)% in 2021 from (9.8)% in 2020.

While sales revenues increased 21.7%, this increase was attributable to increased parts sales, which realizes a lower gross margin than compressor sales.

Our sales margin improved to 10.7% in 2022 from

(13.8)% in 2021.

Sales revenues increased 24.5% attributable to increased compressor sales, which realizes a higher gross margin than parts sales.

While many sales costs are variable, certain costs such as labor are less variable as a certain staff level is retained to meet demand when market forces shift.

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Our definition and use of Adjusted EBITDA

“Adjusted EBITDA” is a non-GAAP financial measure that we define as earnings (net (loss) income) before interest, taxes, depreciation and amortization, as well as an increase in inventory allowance and inventory write-offs, retirement of rental equipment and non-cash equity compensation expenses.

“Adjusted EBITDA” is a non-GAAP financial measure that we define as earnings (net income or (loss)) before interest, taxes, depreciation and amortization, as well as an increase in inventory allowance and inventory write-offs, retirement of rental equipment, non-recurring severance expenses and non-cash equity compensation expenses.

This term, as used and defined by us, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with GAAP.

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Reconciliation

The following table reconciles our net (loss) income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:

The following table reconciles our net loss, the most directly comparable GAAP financial measure, to Adjusted EBITDA:

Year Ended December 31,

(in thousands)

Net income (loss) $ (9,183) $ 1,808

Net loss $ (569) $ (9,183)

Interest expense 364 65

Income tax benefit (2,603) (4,792)

Income tax expense (benefit) 528 (2,603)

Depreciation and amortization 24,116 25,397

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Retirement of rental equipment 196 3,096

Severance expenses 2,537 —

Stock compensation expense 1,910 1,738

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Liquidity and Capital Resources

Our working capital positions as of December 31, 2021 and 2020 are set forth below.

Our working capital positions as of December 31, 2022 and 2021 were as follows:

As of December 31,

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Accrued liabilities 23,726 14,103

Line of credit — 417

Current operating leases 155 68

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For the year ended December 31, 2022, we invested approximately $65.1 million in rental equipment, property and other equipment.

During the year, the Company added $24.3 million in new equipment to our rental fleet and $1.4 million in other property and equipment.

During the year, we added $61.7 million in new equipment to our rental fleet and $3.4 million in other property and equipment.

Our investment in rental equipment includes any changes to work-in-progress related to our rental fleet jobs at the beginning of the year compared to the end of the year.

Our rental work-in-progress increased by $31.8 million during 2022.

We financed our investment in rental equipment, property and other equipment with cash flows from operations during 2021.

We anticipate that our cash flows from operations as well as our borrowing capacity under our New Credit Agreement will provide ample liquidity for our planned capital expenditures during 2022 and beyond.

We financed our investment in rental equipment, property and other equipment with cash flows from operations during 2022 and borrowings under our revolving credit facility.

We anticipate that our cash flows from operations as well as our borrowing capacity under our New Credit Agreement (defined below) will provide ample liquidity for our planned capital expenditures during 2023 and beyond.

At December 31, 2022, we had cash and cash equivalents of $3.4 million compared to $22.9 million at year end 2021.

Our cash flow from operations of $28.5 million was partially offset by capital expenditures of $25.7 million during 2021.

In addition, we expended $7.9 million in connection with our share repurchase program.

We also had working capital of $44.8

million at December 31, 2021 compared to $61.9 million at December 31, 2020.

Our cash flow from operations of $27.8 million was offset by capital expenditures of $65.1 million during 2022.

We had net proceeds of $25.0 million from borrowings under our revolving credit facility.

In addition, we expended $6.7 million in

connection with our share repurchase program.

We also had working capital of $23.7 million at December 31, 2022 compared to $44.8 million at December 31, 2021.

We had net cash flow from operating activities of $27.8 million during 2022 compared $28.5 million during 2021.

Our cash flow from operating activities of $27.8 million was primarily the result of our rental and sales gross margins.

At December 31, 2020, we had cash and cash equivalents of $28.9 million, working capital of $61.9 million and total debt of $417,000, under our credit agreement which was due on March 31, 2021.

We had positive net cash flow from operating activities of approximately $32.6 million during 2020.

Senior Bank Borrowings

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We had a senior secured revolving credit agreement (the "Previous Credit Agreement") with JP Morgan Chase Bank, N.A (the "Lender") that matured on March 31, 2021.

Prior to maturation, the outstanding balance of $417,000 was repaid.

The Previous Credit Agreement had an aggregate commitment of $30 million, subject to collateral availability.

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The maturity date of the New Credit Agreement is May 11, 2026.

The obligations under the New Credit Agreement are secured by a first priority lien on a variety of our assets, including inventory and accounts receivable as well as a variable number of our leased compressor equipment.As of December 31, 2022, we were in compliance with all financial covenants in our New Credit Agreement.

At Decemb er 31, 2022, we had $25 million outstanding under the New Credit Agreement with a weighted average interest rate of 7.32%.

Amended and Restated Credit Agreement

On February 28, 2023, we entered into a five-year senior secured revolving credit agreement (“Amended and Restated Credit Agreement”) with Texas Capital Bank, as administrative agent (the “Lender”), TCBI Securities, Inc., as joint lead arranger and sole book runner and Bank of America, N.A., as joint lead arranger, with an initial commitment of $175 million as of the closing date.

Subject to collateral availability, we also have a right to request from the Lender, on an uncommitted basis, an increase of up to $125 million on the aggregate commitment;

provided, however, the aggregate commitment amount is not permitted to exceed $300 million.

The maturity date of the Amended and Restated Credit Agreement is February 28, 2028.

The obligations under the Amended and Restated Credit Agreement are secured by a first priority lien on a variety of our assets, including inventory and accounts receivable as well as a variable number of our leased compressor equip.

Borrowing Base .

At any time before the maturity of the New Credit Agreement, we may draw, repay and re-borrow amounts available under the borrowing base up to the maximum aggregate availability discussed above.

Generally, the borrowing base equals the sum of (a) 90% of eligible accounts receivable owed to the Company by investment grade debtors, plus (b) 85% of the eligible accounts receivable owing by non-investment grade debtors, plus (c) 50% of the eligible inventory, valued at the lower of cost or market value at such time, subject to a cap of this component not to exceed $2 million, plus (d) the lesser of (i) 95% of the net book value of the compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time and (ii) 80% of the net liquidation value percentage of the net book value of the eligible compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time, plus (e) 80% of the value at cost (excluding any costs for capitalized interest or other non-cash capitalized costs) of the eligible new compressor fleet, minus (f) any required availability reserves determined by the Lender in its sole discretion.

At any time before the maturity of the Amended and Restated Credit Agreement, we may draw, repay and re-borrow amounts available under the borrowing base up to the maximum aggregate availability discussed above.

Generally, the borrowing base equals the sum of (a) 85% of eligible accounts receivable owed to the Company, plus (b) 50% of the eligible inventory, valued at the lower of cost or market value at such time, subject to a cap of this component not to exceed $2.5 million, plus (c) the lesser of (i) 95% of the net book value of the compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time and (ii) 80% of the net liquidation value percentage of the net book value of the eligible compressors that the Lender has determined are eligible for the extension of credit, valued at the lower of cost or market value with depreciation not to exceed 25 years, at such time, plus (d) 80% of the net book value, valued at the lower of cost (excluding any costs for capitalized interest or other noncash capitalized costs) or market of the eligible new compressor fleet, minus (e) any required availability reserves determined by the Lender in its sole discretion.

The Lender may adjust the borrowing base components if material deviations in the collateral are discovered in future audits of the collateral.

As of December 31, 2021, our allowable borrowing base was $20.0 million.

Interest and Fees .

Under the terms of the New Credit Agreement, we have the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) the Base Rate (as defined below) plus the Applicable Margin, or (b) in the case of a Eurodollar Rate Loan, the Adjusted Eurodollar Rate plus the Applicable Margin.

Under the terms of the Amended and Restated Credit Agreement, we have the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) the Base Rate (as defined below) plus the Applicable Margin, or (b) in the case of a Term SOFR ("Secured Overnight Financing Rate") Loan, the Adjusted Term SOFR rate plus the Applicable Margin.

"Base Rate" means, for any day, a rate of interest per annum equal to the highest of (a) the prime rate for such day;

(b) the sum of the federal funds rate for such day plus 0.50%;

and (c) the Adjusted Eurodollar Rate for such day plus 1.00%.

The Applicable Margin is determined based upon the leverage ratio as set forth in the most recent compliance certificate received by the Lender for each fiscal quarter from time to time pursuant to the New Credit Agreement.

Depending on the leverage ratio, the Applicable Margin can be 0.25% to 0.75% for Base Rate Loans (as defined in the New Credit Agreement) and 1.25% to 1.75% for Eurodollar Rate Loans and for requested letters of credit.

In addition, we are required to pay a monthly commitment fee on the daily average unused amount of the commitment while the New Credit Agreement is in effect at an annual rate equal to 0.25% of the unused commitment amount.

Accrued interest is payable monthly on outstanding principal amounts and unused commitment fee, provided that accrued interest on Eurodollar Rate Loans is payable at the end of each interest period, but in no event less frequently than quarterly.

The New Credit Agreement contains customary representations and warranties, as well as covenants which, among other things, condition or limit our ability to incur additional indebtedness and liens;

and (c) the Adjusted Term SOFR for such day plus 1.00%.

Depending on the leverage ratio, the Applicable Margin can be 2.00% to 2.75% for Base Rate Loans (as defined in the Amended and Restated Credit Agreement) and 3% to 3.75% for Term SOFR Loans and for requested letters of credit.

In addition, we are required to pay a monthly commitment fee on the daily average unused amount of the commitment while the Amended and Restated Credit Agreement is in effect at an annual rate equal to 0.50% of the unused commitment amount.

Accrued interest is payable monthly on outstanding principal amounts and unused commitment fee, provided that

accrued interest on Term SOFR Loans is payable at the end of each interest period, but in no event less frequently than quarterly.

The Amended and Restated Credit Agreement contains customary representations and warranties, as well as covenants which, among other things, condition or limit our ability to incur additional indebtedness and liens;

enter into transactions with affiliates;

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or change the nature of our business.

In addition, we also have certain financial covenants that are applicable during certain trigger periods specified in the Credit Agreement and require us during such trigger periods to maintain a leverage ratio less than or equal to 3.00 to 1.00 as of the last day of each fiscal quarter and a fixed charge coverage ratio greater than or equal to 1.00 to 1.00 as of the last day of each fiscal quarter.

In addition, we are subject to certain financial covenants in the Amended and Restated Credit Agreement that require us to maintain (i) a leverage ratio, as defined, lesser than or equal to 3.50 to 1.00 as of the last day of each fiscal quarter ending on or prior to December 31, 2024 and 3.25 to 1.00 for the fiscal quarter ending March 31, 2025 and for each fiscal quarter thereafter and (ii) a fixed charge coverage ratio greater than or equal to1.25 to 1.00 as of the last day of each fiscal quarter.

Events of Default and Acceleration.

The New Credit Agreement contains customary events of default for credit facilities of this size and type, and includes, without limitation, payment defaults;

defaults in performance of covenants or other

agreements contained in the Credit Agreement and the other transaction documents;

The Amended and Restated Credit Agreement contains customary events of default for credit facilities of this size and type, and includes, without limitation, payment defaults;

defaults in performance of covenants or other agreements contained in the Amended and Restated Credit Agreement and the other transaction documents;

inaccuracies in representations and warranties;

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certain change in control events and the defectiveness of any liens under the secured revolving credit agreement.

Obligations outstanding under the Credit Agreement may be accelerated upon the occurrence of an event of default.

As of December 31, 2021, we were in compliance with all financial covenants in our New Credit Agreement.

At December 31, 2021, we had no amounts outstanding under the New Credit Agreement.

Obligations outstanding under the Amended and Restated Credit Agreement may be accelerated upon the occurrence of an event of default.

As of December 31, 2022, we were in compliance with all financial covenants in our 2022 Credit Agreement.

Components of Our Principal Capital Expenditures

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We do not have any material continuing commitments related to our current operations that cannot be met with our cash on hand and our line of credit.

However, our financing capacity could be negatively impacted by the COVID-19 pandemic.

However, our financing capacity could be negatively impacted by other economic factors.

Please see Item 1A, Risk Factors, of this report.

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Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate ("LIBOR").

The guidance provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships and other transactions that reference LIBOR as a benchmark rate are modified.

This guidance is effective upon issuance and expires on December 31, 2022.

We are currently evaluating the impact of the LIBOR transition and this ASU 2020-04 on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (ASC Topic 326):

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Compliance with these laws and regulations could cause us to incur remediation or other corrective action costs or result in the assessment of administrative, civil and criminal penalties and the issuance of injunctions delaying or prohibiting operations.

In addition, we have acquired certain properties and plant facilities from third parties whose actions with respect to the management and disposal or release of hydrocarbons or other wastes were not under our control.

In addition, we have acquired certain properties and plant facilities from third parties whose actions with respect to the management and

disposal or release of hydrocarbons or other wastes were not under our control.

Under environmental laws and regulations, we could be required to remove or remediate wastes disposed of or released by prior owners.

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Compliance with such laws and regulations increases our overall cost of business, but has not had a material adverse effect on our operations or financial condition.

It is not anticipated, based on current laws and regulations, that we will be required in the near future to expend amounts that are material in relation to our total expenditure budget in order to comply with environmental laws and regulations but such laws and regulations are frequently changed and we are unable to predict the ultimate cost of

We also could incur costs related to the cleanup of sites to which we send equipment and for damages to natural resources or other claims related to releases of regulated substances at such sites.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to Smaller Reporting Companies.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

2 unchanged sentences

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What changed 10-K

Item 7. Management’s Discussion and Analysis