OIL STATES INTERNATIONAL, INC 10-Q

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and notes to those statements included in our 2019 Annual Report on Form 10-K in order to understand factors, such as business combinations, charges and credits and financing transactions, which may impact comparability from period to period. We provide a broad range of products and services to the oil and gas industry through our Well Site Services, Downhole Technologies and Offshore/Manufactured Products business segments. Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers' willingness to invest capital in the exploration for and development of crude oil and natural gas reserves. Our customers' capital spending programs are generally based on their cash flows and their outlook for near-term and long-term commodity prices, economic growth, commodity demand and estimates of resource production. As a result, demand for our products and services is sensitive to future expectations with respect to crude oil and natural gas prices. Recent Developments In March of 2020, the spot price of West Texas Intermediate ("WTI") crude oil declined over 50% in response to actual and forecasted reductions in global demand due to the COVID-19 pandemic coupled with announcements by Saudi Arabia and Russia of plans to increase crude oil production in an effort to protect market share. OPEC, its members and other state-controlled oil companies agreed to reduce production following the crude oil price collapse and many operators shut-in production in the United States in an effort to address collapsing demand. As a result of these actions by producers, crude oil prices have recovered some of their losses since reaching record low levels in April of 2020. However, during the third quarter of 2020, the spot price of Brent and WTI crude oil averaged $43 and $41 per barrel – down 31% and 27%, respectively, from the comparable prior-year quarterly averages. The ultimate magnitude and duration of the COVID-19 pandemic, the timing and extent of governmental restrictions placing limitations on the mobility and ability to work of the worldwide population, and the related impact on crude oil prices, the global economy and capital markets remains uncertain. While it is difficult for management to assess or predict with precision the broad future effect of this pandemic on the global economy, the energy industry or the Company, management expects that the pandemic will continue to adversely affect demand for our products and services over the balance of 2020 and into 2021. Demand for most of our products and services depends substantially on the level of capital expenditures by the oil and natural gas industry. This decline in crude oil prices has resulted in reductions to most of our customers' drilling, completion and production activities and their related spending on products and services, particularly those tied to activity in the U.S. shale play regions. These conditions have and may continue to result in a material adverse impact on certain customers' liquidity and financial position, leading to further spending reductions, delays in the collection of amounts owed and, in certain instances, non-payments of amounts owed. Additionally, future actions among OPEC members and other producing nations as to production levels and prices could result in further declines in crude oil prices, which would prove detrimental, particularly given the weak demand environment for crude oil and associated products caused by the ongoing COVID-19 pandemic. Following the unprecedented events in March 2020, we immediately began aggressive implementation of the following cost reduction initiatives in an effort to reduce our expenditures to protect the financial health of our company: • reduced headcount by 32% between December 31, 2019 and September 30, 2020; • reduced planned capital expenditures for 2020 by over 70% from the 2019 level; • reduced annual short-term and long-term incentive awards; and • consolidated and closed certain facilities. 25 Given the COVID induced economic destruction, we also assessed the carrying value of goodwill and other assets based on the current industry outlook regarding overall demand for and pricing of our products and services. As a result of these events, actions and assessments, we recorded the following charges during the first nine months of 2020: • non-cash goodwill impairment charges totaling $406.1 million to reduce the carrying value of goodwill; • non-cash impairment charges of $31.2 million to reduce the carrying value of inventory to its net realizable value; • non-cash impairment charge of $8.2 million to decrease the carrying value of our Well Site Services segment's fixed assets to their estimated realizable value; and • employee severance and facility closure costs of $6.3 million. In addition, as discussed in more detail under "– Revolving Credit Facility due January 2022," we amended our existing revolving credit facility during the second quarter of 2020. In connection with this amendment, the revolving credit facility size was reduced from $350 million to $200 million, with advances subject to a monthly borrowing base calculation, in exchange for the existing financial covenants being suspended from July 1, 2020 through March 30, 2021. As discussed in more detail under “– 1.50% Convertible Senior Notes due February 2023,” during the first nine months of 2020, we purchased a total of $34.9 million principal amount of our 1.50% convertible senior notes for $20.1 million in cash and recognized non-cash gains totaling $10.7 million. Brent and WTI crude oil and natural gas pricing trends were as follows: Average Price (1) for quarter ended Average Price (1) for year ended December 31 Year March 31 June 30 September 30 December 31 Brent Crude (per bbl) 2020 $ 50.27 $ 29.70 $ 42.91 2019 $ 63.10 $ 69.01 $ 61.95 $ 63.17 $ 64.26 2018 $ 66.86 $ 74.53 $ 75.08 $ 68.76 $ 71.32 WTI Crude (per bbl) 2020 $ 45.34 $ 27.96 $ 40.89 2019 $ 54.82 $ 59.88 $ 56.34 $ 56.82 $ 56.98 2018 $ 62.91 $ 68.07 $ 69.70 $ 59.97 $ 65.25 Henry Hub Natural Gas (per MMBtu) 2020 $ 1.91 $ 1.70 $ 2.00 2019 $ 2.92 $ 2.57 $ 2.38 $ 2.40 $ 2.56 2018 $ 3.08 $ 2.85 $ 2.93 $ 3.77 $ 3.15 ________________ (1) Source: U.S. Energy Information Administration (spot prices). On October 23, 2020, Brent and WTI crude oil spot prices closed at $40.71 and $39.73 per barrel. Additionally, as presented in more detail below, the U.S. drilling rig count reported on October 23, 2020 was 287 rigs, 13% above the third quarter 2020 average. Overview Our Well Site Services segment provides completion services and, to a much lesser extent land drilling services, in the United States (including the Gulf of Mexico) and the rest of the world. U.S. drilling and completion activity and, in turn, our Well Site Services results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the short-term, call-out nature of its operations. Within this segment, our Completion Services business supplies equipment and service personnel utilized in the completion and initial production of new and recompleted wells. Activity for the Completion Services business is dependent primarily upon the level and complexity of completion and workover activity in the areas of operations mentioned above. Well intensity and complexity has increased with the continuing transition to multi-well pads, the drilling of longer lateral wells and increased downhole pressures, along with the increased number of frac stages completed in horizontal wells. Similarly, demand for our Drilling Services operations was historically driven by activity in our primary land drilling markets of the Permian Basin in West Texas and the U.S. Rocky Mountain area. During the third quarter of 2019, we made the strategic decision to reduce the scope of our Drilling Services business (adjusting from 34 rigs to 9 rigs) due to weakness in customer demand for vertical drilling rigs in the U.S. land market. Our drilling operations now focus on serving operators in the U.S. Rocky Mountain region. 26 Our Downhole Technologies segment is comprised of the GEODynamics, Inc. ("GEODynamics") business we acquired in January 2018. This segment provides oil and gas perforation systems, downhole tools and services in support of completion, intervention, wireline and well abandonment operations. This segment designs, manufactures and markets its consumable engineered products to oilfield service as well as exploration and production companies. Product and service offerings for this segment include innovations in perforation technology through patented and proprietary systems combined with advanced modeling and analysis tools. This expertise has led to the optimization of perforation hole size, depth, and quality of tunnels, which are key factors for maximizing the effectiveness of hydraulic fracturing. Additional offerings include proprietary toe valve and frac plug products, which are focused on zonal isolation for hydraulic fracturing of horizontal wells, and a broad range of consumable products, such as setting tools and bridge plugs, that are used in completion, intervention and decommissioning applications. Demand drivers for the Downhole Technologies segment include continued trends toward longer lateral lengths, increased frac stages and more perforation clusters to target increased unconventional well productivity, which requires ongoing technological and product developments. Demand for short-cycle completion products and services within each of our segments is highly correlated to changes in the total number of wells drilled in the United States, total footage drilled, the number of drilled wells that are completed and changes in the drilling rig count. The following table sets forth a summary of the U.S. drilling rig count, as measured by Baker Hughes Company, as of and for the periods indicated. U.S. drilling rig count Average for the As of October 23, 2020 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Land – Oil 197 167 733 370 782 Land – Natural gas and other 76 74 160 90 177 Offshore 14 13 27 17 25 Total 287 254 920 477 984 The U.S. energy industry is primarily focused on crude oil and liquids-rich exploration and development activities in shale plays utilizing horizontal drilling and completion techniques. As of September 30, 2020, land-based, oil-directed drilling accounted for 70% of the total U.S. rig count – with the balance largely natural gas related. With the unprecedented decline in crude oil prices in March and April of 2020, drilling and completion activity in the United States collapsed during the second and third quarters of 2020 – with the active drilling rig count declining 467 rigs, or 64%, from March 31, 2020 to 261 rigs as of September 30, 2020. As a result, the average U.S. rig count for the three months ended September 30, 2020 decreased by 666 rigs, or 72%, compared to the average for the three months ended September 30, 2019. Our Offshore/Manufactured Products segment provides technology-driven, highly-engineered products and services for offshore oil and natural gas production systems and facilities, as well as certain products and services to the offshore and land-based drilling and completion markets. This segment is particularly influenced by global deepwater drilling and production spending, which are primarily driven by our customers' longer-term commodity demand forecasts and outlook for crude oil and natural gas prices. Approximately 49% of Offshore/Manufactured Products revenues in the first nine months of 2020 were driven by our customers' capital spending for products used in exploratory and developmental drilling, greenfield offshore production infrastructure, and subsea pipeline tie-in and repair system applications, along with upgraded equipment for existing offshore drilling rigs and other vessels (referred to herein as "project-driven products"). Deepwater oil and gas development projects typically involve significant capital investments and multi-year development plans. Such projects are generally undertaken by larger exploration, field development and production companies (primarily international oil companies ("IOCs") and state-run national oil companies ("NOCs")) using relatively conservative crude oil and natural gas pricing assumptions. Given the long lead times associated with field development, we believe some of these deepwater projects, once approved for development, are generally less susceptible to short-term fluctuations in the price of crude oil and natural gas. Customers have focused in recent years on improving the economics of major deepwater projects at lower commodity breakeven prices by re-bidding projects, identifying advancements in technology, and reducing overall project costs through equipment standardization. Bidding and quoting activity, along with orders from customers, for deepwater projects improved in 2019 from 2018 levels. However, with reduced market visibility given the significant decline in crude oil prices which began in March of 2020 and associated reduction in customer spending, we expect that the segment's 2020 bookings will be lower than the levels achieved in 2019. 27 Backlog reported by our Offshore/Manufactured Products segment totaled $227 million at September 30, 2020, a decrease of 3% from June 30, 2020 and a decrease of 23% from September 30, 2019. Third quarter 2020 bookings totaled $70 million, yielding a book-to-bill ratio of 0.9x and a year-to-date ratio of 0.8x. The following table sets forth backlog as of the dates indicated (in millions). Backlog as of Year March 31 June 30 September 30 December 31 2020 $ 267 $ 235 $ 227 2019 $ 234 $ 283 $ 293 $ 280 2018 $ 157 $ 165 $ 175 $ 179 Reduced demand for our products and services, coupled with a reduction in the prices we charge our customers for our products and services, has adversely affected our results of operations, cash flows and financial position. If the current pricing environment for crude oil does not improve, or declines, our customers may be required to further reduce their capital expenditures, causing additional declines in the demand for, and prices of, our products and services, which would further adversely affect our results of operations, cash flows and financial position. We use a variety of domestically produced and imported raw materials and component products, including steel, in the manufacture of our products. The United States has imposed tariffs on a variety of imported products, including steel and aluminum. In response to the U.S. tariffs on steel and aluminum, the European Union and several other countries, including Canada and China, have threatened and/or imposed retaliatory tariffs. The effect of these tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continue to evolve, and we continue to monitor these matters. If we encounter difficulty in procuring these raw materials and component products, or if the prices we have to pay for these products increase as a result of customs, anti-dumping and countervailing duty regulations or otherwise, and we are unable to pass corresponding cost increases on to our customers, our financial position and results of operations could be adversely affected. Furthermore, uncertainty with respect to potential costs in the drilling and completion of oil and gas wells could cause our customers to delay or cancel planned projects which, if this occurred, would adversely affect our financial position, cash flows and results of operations. See Note 13, "Commitments and Contingencies." Other factors that can affect our business and financial results include but are not limited to the general global economic environment, competitive pricing pressures, public health crises, climate-related and other regulatory changes, and changes in tax laws in the United States and international markets. We continue to monitor the global economy, the prices of and demand for crude oil and natural gas, and the resultant impact on the capital spending plans and operations of our customers in order to plan and manage our business. Human Capital As of September 30, 2020, we employed 2,337 full-time employees on a consolidated basis, 34% of whom are in our Well Site Services segment, 10% of whom are in our Downhole Technologies segment, 53% of whom are in our Offshore/Manufactured Products segment, and 3% of whom are in our corporate headquarters. During the first nine months of 2020, company-wide personnel levels were reduced 32% from a total of 3,428 full-time employees as of December 31, 2019 following the unprecedented decline in crude oil prices due to the global response to the COVID-19 pandemic. See "– Recent Developments" for further discussion of personnel reductions and other cost control measures implemented during the first nine months of 2020 in an effort to reduce our expenditures and protect the financial health of our company. We were party to collective bargaining agreements covering fewer than 100 employees located in the United Kingdom and Argentina as of September 30, 2020 and December 31, 2019. We believe we have good labor relations with our employees. Selected Financial Data This selected financial data should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and related notes included in "Part I, Item 1. Financial Statements" of this Quarterly Report on Form 10-Q and "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements and related notes included in "Part II, Item 8. Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended December 31, 2019 in order to understand factors, such as business combinations, charges and credits, financing transactions and changes in tax regulations, which may impact the comparability of the selected financial data. 28 Unaudited Consolidated Results of Operations Data The following summarizes our unaudited consolidated results of operations for the three and nine months ended September 30, 2020 and 2019 (in thousands, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 Variance 2020 2019 Variance Revenues: Products $ 72,598 $ 122,067 $ (49,469) $ 258,221 $ 363,360 $ (105,139) Services 62,161 141,630 (79,469) 242,477 415,633 (173,156) 134,759 263,697 (128,938) 500,698 778,993 (278,295) Costs and expenses: Product costs 66,789 90,796 (24,007) 224,623 275,353 (50,730) Service costs 53,822 110,294 (56,472) 221,673 333,727 (112,054) Cost of revenues (exclusive of depreciation and amortization expense presented below) (1) 120,611 201,090 (80,479) 446,296 609,080 (162,784) Selling, general and administrative expenses 21,389 31,935 (10,546) 71,505 93,527 (22,022) Depreciation and amortization expense 24,251 31,366 (7,115) 75,306 94,800 (19,494) Impairments of goodwill (2) — — — 406,056 — 406,056 Impairments of fixed assets (3) — 33,697 (33,697) 8,190 33,697 (25,507) Other operating (income) expense, net (652) 519 (1,171) (679) 34 (713) 165,599 298,607 (133,008) 1,006,674 831,138 175,536 Operating loss (30,840) (34,910) 4,070 (505,976) (52,145) (453,831) Interest expense, net (3,549) (4,352) 803 (11,232) (13,721) 2,489 Other income (4) 6,744 1,190 5,554 13,512 2,866 10,646 Loss before income taxes (27,645) (38,072) 10,427 (503,696) (63,000) (440,696) Income tax benefit (5) 7,676 6,204 1,472 54,060 6,744 47,316 Net loss $ (19,969) $ (31,868) $ 11,899 $ (449,636) $ (56,256) $ (393,380) Net loss per share: Basic $ (0.33) $ (0.54) $ (7.52) $ (0.95) Diluted (0.33) (0.54) (7.52) (0.95) Weighted average number of common shares outstanding: Basic 59,871 59,423 59,788 59,362 Diluted 59,871 59,423 59,788 59,362 ________________ (1) Cost of revenues (exclusive of depreciation and amortization expense) included non-cash inventory impairment charges of $5.9 million (in product costs) and $25.2 million ($12.0 million in product costs and $13.2 million in service costs) recognized in the third and first quarters of 2020, respectively. (2) During the first quarter of 2020, we recognized non-cash goodwill impairment charges totaling $406.1 million to reduce the carrying value of our reporting units to their estimated fair value. (3) During the first quarter of 2020, our Drilling Services business recognized a non-cash impairment charge of $5.2 million to decrease the carrying value of the business's fixed assets to their estimated realizable value. During the second quarter of 2020, our Completion Services business recognized a non-cash impairment charge of $3.0 million to reduce the carrying value of certain of the unit's fixed assets to their estimated realizable value. During the third quarter of 2019, our Drilling Services business recognized a non-cash impairment charge of $33.7 million to reduce the carrying value of the unit's fixed assets to their estimated realizable value. (4) During the third quarter 2020, we recognized non-cash gains of $5.9 million in connection with our purchases of $17.2 million principal amount of our 1.50% convertible senior notes. During the nine months ended September 30, 2020, we recognized non-cash gains totaling $10.7 million in connection with our purchases of $34.9 million principal amount of our 1.50% convertible senior notes. (5) During the first nine months of 2020, we recognized a discrete tax benefit of $16.4 million related to U.S. net operating loss carrybacks under provisions of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act . See Note 3, "Asset Impairments and Other Charges," Note 4, "Details of Selected Balance Sheet Accounts," Note 6, "Long-term Debt" and Note 11, "Income Taxes," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further discussion of these and other charges and benefits recognized in the first nine months of 2020 and 2019. 29 Unaudited Operating Segment Financial Data We manage and measure our business performance in three distinct operating segments: Well Site Services, Downhole Technologies and Offshore/Manufactured Products. Supplemental unaudited financial information by business segment for the three and nine months ended September 30, 2020 and 2019 is summarized below (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 Variance 2020 2019 Variance Revenues Well Site Services - Completion Services $ 34,893 $ 103,966 $ (69,073) $ 153,994 $ 307,928 $ (153,934) Drilling Services (1) 2,479 12,034 (9,555) 7,179 32,430 (25,251) Total Well Site Services 37,372 116,000 (78,628) 161,173 340,358 (179,185) Downhole Technologies 18,713 42,882 (24,169) 74,743 143,912 (69,169) Offshore/Manufactured Products 78,674 104,815 (26,141) 264,782 294,723 (29,941) Total $ 134,759 $ 263,697 $ (128,938) $ 500,698 $ 778,993 $ (278,295) Operating income (loss) Well Site Services - Completion Services (2) $ (14,330) $ 1,719 $ (16,049) $ (176,408) $ (2,282) $ (174,126) Drilling Services (1) 458 (36,495) 36,953 (5,338) (43,655) 38,317 Total Well Site Services (13,872) (34,776) 20,904 (181,746) (45,937) (135,809) Downhole Technologies (3) (12,594) 659 (13,253) (216,395) 3,251 (219,646) Offshore/Manufactured Products (4) 3,875 11,139 (7,264) (82,202) 26,207 (108,409) Corporate (8,249) (11,932) 3,683 (25,633) (35,666) 10,033 Total $ (30,840) $ (34,910) $ 4,070 $ (505,976) $ (52,145) $ (453,831) ________________ (1) In late 2019, we reduced the scope of our Drilling Services business (adjusting from 34 rigs to 9 rigs) due to weakness in customer demand for vertical drilling rigs in the U.S. land market. Operating loss in the third quarter of 2019 includes a non-cash fixed asset impairment charge of $33.7 million to reduce the carrying value of the Drilling Services business's fixed assets to their estimated realizable value. Operating loss in the first quarter of 2020 includes a non-cash fixed asset impairment charge of $5.2 million to further reduce the carrying value of the Drilling Services business's fixed assets to their estimated realizable value. (2) Operating loss in the first quarter of 2020 included a non-cash inventory impairment charge of $9.0 million and a non-cash goodwill impairment charge of $127.1 million to reduce the carrying value of the Completion Services reporting unit to its estimated fair value. Operating loss in the second quarter of 2020 included a non-cash fixed asset impairment charge of $3.0 million to reduce the carrying value of certain of the unit's facilities to their estimated realizable value. (3) Operating loss in the first quarter of 2020 included a non-cash goodwill impairment charge of $192.5 million to reduce the carrying value of the Downhole Technologies reporting unit to its estimated fair value. Operating loss in the third quarter of 2020 included a non-cash inventory impairment charge of $5.9 million to reduce the carrying value of the Downhole Technologies reporting unit's inventory to its estimated realizable value. (4) Operating loss in the first quarter of 2020 included a non-cash inventory impairment charge of $16.2 million and a non-cash goodwill impairment charge of $86.5 million to reduce the carrying value of the Offshore/Manufactured Products reporting unit to its estimated fair value. See Note 3, "Asset Impairments and Other Charges" and Note 4 , "Details of Selected Balance Sheet Accounts," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further discussion of these and other charges recognized in the first nine months of 2020 and 2019. 30 Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019 Consolidated Operating Results We reported a net loss for the three months ended September 30, 2020 of $20.0 million, or $0.33 per share. The reported third quarter loss included: a non-cash inventory impairment charge of $5.9 million ($4.7 million after-tax, or $0.08 per share); non-cash gains of $5.9 million ($4.7 million after-tax, or $0.08 per share) associated with debt extinguishment and $0.3 million ($0.2 million after-tax) of severance and downsizing costs. These results compare to a net loss for the three months ended September 30, 2019 of $31.9 million, or $0.54 per share, which included a non-cash fixed asset impairment charge of $33.7 million ($26.6 million after-tax, or $0.45 per share) and $0.7 million ($0.5 million after-tax, or $0.01 per share) of severance and downsizing costs. Our reported third quarter 2020 results of operations reflect the impact of the unprecedented decline in crude oil prices in March and April of 2020 stemming from the global response to the COVID-19 pandemic and continued uncertainties related to future crude oil demand. The spot price of WTI crude oil averaged $41 per barrel in the third quarter of 2020, down 27% from the comparable prior-year quarter average. The decline in crude oil prices and continued high crude oil inventory levels had a negative impact on U.S. land-based customer drilling and completion activity, particularly activity in the U.S. shale play regions. Additionally, our operations were impacted by governmental mandates outside of the United States in an effort to control the COVID-19 pandemic, which limited wellsite operations. We expect customer-driven activity to remain depressed in the United States over the balance of 2020 and into 2021 given high crude oil inventory levels and lower crude oil prices. If the current pricing environment for crude oil does not improve, or declines, our customers may be required to further reduce their planned capital expenditures, causing additional declines in the demand for, and prices of, our products and services, which would further adversely affect our results of operations, cash flows and financial position. Revenues. Consolidated total revenues in the third quarter of 2020 decreased $128.9 million, or 49%, from the third quarter of 2019. Consolidated product revenues in the third quarter of 2020 decreased $49.5 million, or 41%, from the third quarter of 2019, driven by the steep decline in U.S. land-based customer activity as well as the associated impact of competitive pricing pressures for products in our Downhole Technologies segment. Consolidated service revenues in the third quarter of 2020 decreased $79.5 million, or 56%, from the third quarter of 2019 due primarily to reduced customer spending in the U.S. shale play regions. As can be derived from the following table, 47% of our consolidated revenues in the third quarter of 2020 were derived from sales of our short-cycle product and service offerings, which compares to 73% in the same period last year. The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the three months ended September 30, 2020 and 2019 (in thousands): Well Site Services Downhole Technologies Offshore/ Manufactured Products Total Three months ended September 30 2020 2019 2020 2019 2020 2019 2020 2019 Major revenue categories - Project-driven products $ — $ — $ — $ — $ 41,004 $ 39,474 $ 41,004 $ 39,474 Short-cycle: Completion products and services 34,893 103,966 18,713 42,882 3,664 26,710 57,270 173,558 Drilling services 2,479 12,034 — — — — 2,479 12,034 Other products — — — — 4,200 7,988 4,200 7,988 Total short-cycle 37,372 116,000 18,713 42,882 7,864 34,698 63,949 193,580 Other products and services — — — — 29,806 30,643 29,806 30,643 $ 37,372 $ 116,000 $ 18,713 $ 42,882 $ 78,674 $ 104,815 $ 134,759 $ 263,697 Percentage of total revenue by type - Products — % — % 97 % 98 % 69 % 77 % 54 % 46 % Services 100 % 100 % 3 % 2 % 31 % 23 % 46 % 54 % 31 Cost of Revenues (exclusive of Depreciation and Amortization Expense). Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) decreased $80.5 million, or 40%, in the third quarter of 2020 compared to the third quarter of 2019. Consolidated product costs in the third quarter of 2020, which includes a $5.9 million non-cash inventory impairment charge, decreased $24.0 million, or 26%, from the third quarter of 2019. Excluding this charge, consolidated product costs decreased $29.9 million, or 33%, from the prior-year period due primarily to the significant industry-wide decline in demand for short-cycle products. Consolidated service costs in the third quarter of 2020, decreased $56.5 million, or 51%, from the third quarter of 2019, due primarily to lower activity levels in the U.S. shale play regions. Selling, General and Administrative Expense. Selling, general and administrative expense decreased $10.5 million, or 33%, in the third quarter of 2020 from the third quarter of 2019 due primarily to reductions in personnel levels, short- and long-term compensation costs, travel expenses and other implemented cost reduction measures. Depreciation and Amortization Expense. Depreciation and amortization expense decreased $7.1 million, or 23%, in the third quarter of 2020 compared to the prior-year quarter, driven primarily by our decision to exit drilling operations in West Texas in the third quarter of 2019 along with reduced capital investments made in our Completion Services business in recent years. Note 12, "Segments and Related Information," presents depreciation and amortization expense by segment. Impairments of Fixed Assets. During the third quarter of 2019, we made the strategic decision to reduce the scope of our Drilling Services business due to the ongoing weakness in customer demand for vertical drilling rigs in the U.S. land market. As a result of this decision, our Drilling Services business recorded a non-cash impairment charge of $33.7 million in the prior-year period to decrease the carrying value of the unit’s fixed assets. Operating Income (Loss). Our consolidated operating loss was $30.8 million in the third quarter of 2020, which included a $5.9 million non-cash inventory impairment charge and $0.3 million of severance and downsizing charges. This compares to a consolidated operating loss of $34.9 million recognized in the third quarter of 2019, which included the impact of the $33.7 million non-cash fixed asset impairment charge discussed above and $0.7 million of severance and downsizing charges. Interest Expense, Net. Net interest expense was $3.5 million in the third quarter of 2020, which compares to $4.4 million in the same period of 2019. Interest expense, which includes amortization of debt discount and deferred financing costs, as a percentage of total debt outstanding was approximately 6% in both the third quarter of 2020 and 2019. Our contractual cash interest expense as a percentage of total debt outstanding was substantially lower – averaging approximately 3% in both the three months ended September 30, 2020 and 2019. Other Income, Net. Net other income for third quarter of 2020 includes a non-cash gain of $5.9 million recognized in connection with our purchases of $17.2 million principal amount of our 1.50% convertible senior notes for $9.5 million in cash. Income Tax. We recorded a net income tax benefit for the three months ended September 30, 2020 using a discrete approach. This methodology was used because changes in our results of operations and non-deductible expenses can materially impact the estimated annual effective tax rate. For the three months ended September 30, 2020, our income tax benefit was $7.7 million, or 28% of the pre-tax loss of $27.6 million, which included certain non-deductible expenses and discrete tax benefits. This compares to an income tax benefit of $6.2 million, or 16% of the pre-tax loss of $38.1 million, which also included certain non-deductible expenses, for the three months ended September 30, 2019. Other Comprehensive Income (Loss). Reported comprehensive loss is the sum of reported net loss and other comprehensive income (loss). Other comprehensive income was $3.4 million in the third quarter of 2020 compared to loss of $5.7 million in the third quarter of 2019 due to fluctuations in foreign currency exchange rates compared to the U.S. dollar for certain of the international operations of our reportable segments. For the three months ended September 30, 2020 and 2019, currency translation adjustments recognized as a component of other comprehensive income (loss) were primarily attributable to the United Kingdom and Brazil. During the third quarter of 2020, the exchange rate for the British pound strengthened compared to the U.S. dollar and the Brazilian real weakened compared to the U.S. dollar. This compares to the third quarter of 2019, when the exchange rate for both the British pound and Brazilian real weakened compared to the U.S. dollar. 32 Segment Operating Results Well Site Services Revenues. Our Well Site Services segment revenues decreased $78.6 million, or 68%, in the third quarter of 2020 compared to the prior-year quarter. Completion Services revenue decreased $69.1 million, or 66%, driven primarily by the unprecedented decline in U.S. land-based customer completion and production activity following the collapse in crude oil prices in March of 2020. Our Drilling Services revenues decreased $9.6 million in the third quarter of 2020 from the third quarter of 2019 due to the decision in 2019 to reduce the scope of its operations as well as the current low crude oil price environment. Operating Loss. Our Well Site Services segment operating loss decreased $20.9 million in the third quarter of 2020 from the third quarter of 2019, which included the $33.7 million non-cash fixed asset impairment charge discussed previously. Reported third quarter 2020 results were negatively impacted by the significant decline in revenue and $1.2 million in expenses associated with prior-year insurance claims and a bad debt provision on a receivable from a customer claiming bankruptcy protection within our Completion Services business. Our Completion Services operating loss in the third quarter of 2020 was $14.3 million, compared to operating income of $1.7 million in the prior-year quarter, with the decrease in revenues and the additional $1.2 million in expenses discussed above, partially offset by the benefit of continued significant cost reduction measures and a $3.5 million reduction in depreciation expense. Our Drilling Services business reported operating income of $0.5 million in the third quarter of 2020 compared to an operating loss of $36.5 million in the third quarter of 2019, with the decline in revenues more than offset by a $33.7 million reduction in non-cash fixed asset impairment charges and $3.1 million reduction in depreciation expense following our impairments of the unit's fixed assets in the third quarter of 2019 and, to a lesser extent, the first quarter of 2020. Downhole Technologies Revenues. Our Downhole Technologies segment revenues decreased $24.2 million, or 56%, in the third quarter of 2020 from the prior-year period due to a significant decline in U.S. land-based customer completion activity. Operating Income (Loss). Our Downhole Technologies segment reported an operating loss of $12.6 million in the third quarter of 2020 compared to operating income of $0.7 million in the prior-year period, reflecting the steep decline in revenues and a $5.9 million non-cash inventory impairment charge. Offshore/Manufactured Products Revenues. Our Offshore/Manufactured Products segment revenues decreased $26.1 million, or 25%, in the third quarter of 2020 compared to the third quarter of 2019 due primarily to the significant reduction in sales of its short-cycle products (elastomer and valve products). Operating Income. Our Offshore/Manufactured Products segment operating income declined $7.3 million in the third quarter of 2020 compared to the third quarter of 2019, with the year-over-year decrease in revenues, partially offset by the current quarter benefit of cost reduction measures implemented. Backlog. Backlog in our Offshore/Manufactured Products segment totaled $227 million as of September 30, 2020, a decrease of 3% from June 30, 2020. Third quarter 2020 bookings totaled $70 million, yielding a quarterly book-to-bill ratio of 0.9x. Corporate Corporate expenses decreased $3.7 million, or 31%, in the third quarter of 2020 from the prior-year period due to reductions in short- and long-term compensation costs along with other implemented cost reduction measures. 33 Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019 Consolidated Operating Results We reported a net loss for the nine months ended September 30, 2020 of $449.6 million, or $7.52 per share. The reported first nine months loss included: non-cash impairment charges totaling $445.4 million ($418.1 million after-tax, or $6.99 per share) related to write-downs of goodwill, inventories and fixed assets; $6.3 million ($5.0 million after-tax, or $0.08 per share) of severance and downsizing costs; $2.2 million ($1.7 million after-tax, or $0.03 per share) in bad debt provisions related to customer bankruptcies; non-cash gains of $10.7 million ($8.5 million after-tax, or $0.14 per share) associated with the debt extinguishment; and discrete tax benefits of $16.4 million, or $0.27 per share, associated with the carryback of tax losses allowed under the CARES Act. These results compare to a net loss for the nine months ended September 30, 2019 of $56.3 million, or $0.95 per share, which included a non-cash fixed asset impairment charge of $33.7 million ($26.6 million after-tax, or $0.45 per share) and $2.9 million ($2.3 million after-tax, or $0.04 per share) of severance and downsizing costs. Our reported results of operations for the first nine months of 2020 reflect the impact of the unprecedented decline in crude oil prices in March and April of 2020 stemming from the global response to the COVID-19 pandemic and continued uncertainties related to future crude oil demand. The spot price of WTI crude oil averaged $38 per barrel in the first nine months of 2020, down 33% from the comparable prior-year period average. The decline in crude oil prices and higher crude oil inventory levels had a negative impact on U.S. land-based customer drilling and completion activity beginning in March of 2020, particularly activity in the U.S. shale play regions. Additionally, our operations were impacted by governmental mandates outside of the United States in an effort to control the COVID-19 pandemic, which limited wellsite operations and required us and a number of our suppliers to temporarily cease certain operations. We expect customer-driven activity to remain depressed in the United States over the balance of 2020 and into 2021 given high crude oil inventory levels and lower crude oil prices. If the current pricing environment for crude oil does not improve, or declines, our customers may be required to further reduce their planned capital expenditures, causing additional declines in the demand for, and prices of, our products and services, which would further adversely affect our results of operations, cash flows and financial position. Revenues. Consolidated total revenues in the first nine months of 2020 decreased $278.3 million, or 36%, from the first nine months of 2019. Consolidated product revenues in the first nine months of 2020 decreased $105.1 million, or 29%, from the first nine months of 2019, driven by lower U.S. land-based customer activity as well as the associated impact of competitive pricing pressures for products in our Downhole Technologies segment, partially offset by higher project-driven product sales in our Offshore/Manufactured Products segment. Consolidated service revenues in the first nine months of 2020 decreased $173.2 million, or 42%, from the first nine months of 2019 due primarily to reduced customer spending in the U.S. shale play regions. As can be derived from the following table, 55% of our consolidated revenues in the first nine months of 2020 were derived from sales of our short-cycle product and service offerings, which compares to 75% in the same period last year. The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the nine months ended September 30, 2020 and 2019 (in thousands): Well Site Services Downhole Technologies Offshore/ Manufactured Products Total Nine months ended September 30 2020 2019 2020 2019 2020 2019 2020 2019 Major revenue categories - Project-driven products $ — $ — $ — $ — $ 129,157 $ 105,236 $ 129,157 $ 105,236 Short-cycle: Completion products and services 153,994 307,928 74,743 143,912 22,080 80,250 250,817 532,090 Drilling services 7,179 32,430 — — — — 7,179 32,430 Other products — — — — 19,254 21,472 19,254 21,472 Total short-cycle 161,173 340,358 74,743 143,912 41,334 101,722 277,250 585,992 Other products and services — — — — 94,291 87,765 94,291 87,765 $ 161,173 $ 340,358 $ 74,743 $ 143,912 $ 264,782 $ 294,723 $ 500,698 $ 778,993 Percentage of total revenue by type - Products — % — % 93 % 97 % 71 % 76 % 52 % 47 % Services 100 % 100 % 7 % 3 % 29 % 24 % 48 % 53 % 34 Cost of Revenues (exclusive of Depreciation and Amortization Expense). Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) decreased $162.8 million, or 27%, in the first nine months of 2020 compared to the first nine months of 2019. Cost of revenues in the first nine months of 2020 included non-cash inventory impairment provisions totaling $31.2 million for excess and obsolete inventory – driven by the unprecedented market downturn which began in March of 2020. Excluding these 2020 provisions, consolidated cost of revenues decreased $193.9 million, or 32%, from the prior-year period. Consolidated product costs in the first nine months of 2020, which included non-cash inventory impairment provisions of $17.9 million for excess and obsolete inventory, decreased $50.7 million, or 18%, from the first nine months of 2019. Excluding these charges, consolidated product costs decreased $68.6 million, or 25% from the prior-year period. Consolidated service costs, which included non-cash inventory impairment provisions of $13.3 million in the first nine months of 2020, decreased $112.1 million, or 34%, from the first nine months of 2019. Excluding these incremental inventory reserves, consolidated service costs declined $125.3 million, or 38%, due primarily to significantly lower activity levels in the U.S. shale play regions. Selling, General and Administrative Expense. Selling, general and administrative expense decreased $22.0 million, or 24%, in the first nine months of 2020 from the first nine months of 2019 due primarily to reductions in short- and long-term compensation costs, personnel levels, travel expense and other implemented costs reduction measures, partially offset by additional bad debt provisions for receivables related to customers claiming bankruptcy protection. Depreciation and Amortization Expense. Depreciation and amortization expense decreased $19.5 million, or 21%, in the first nine months of 2020 compared to the prior-year period, driven primarily by our decision to exit drilling operations in West Texas in the third quarter of 2019 along with reduced capital investments made in our Completion Services business in recent years. Note 12, "Segments and Related Information," presents depreciation and amortization expense by segment. Impairments of Goodwill. During the first nine months of 2020, our Completion Services, Downhole Technologies and Offshore/Manufactured Products operations recognized non-cash goodwill impairment charges of $127.1 million, $192.5 million and $86.5 million, respectively, arising from, among other factors, the significant decline in our stock price and that of our peers and reduced growth rate expectations given weak energy market conditions resulting from the demand destruction caused by the global response to the COVID-19 pandemic. In addition, the estimated returns required by market participants increased materially in our March 31, 2020 assessment from our assessment as of December 1, 2019, resulting in higher discount rates used in the discounted cash flow analysis. Impairments of Fixed Assets. During the first nine months of 2020, our Drilling Services and Completion Services businesses recognized non-cash fixed asset impairment charges of $5.2 million and $3.0 million, respectively, following the significant decline in crude oil prices beginning in March of 2020. During the third quarter of 2019, our Drilling Services business recorded a non-cash impairment charge of $33.7 million to decrease the carrying value of the unit's fixed assets as discussed previously. Operating Income (Loss). Our consolidated operating loss was $506.0 million in the first nine months of 2020, which included $445.4 million of non-cash asset impairment charges and $6.3 million of severance and downsizing charges. This compares to a consolidated operating loss of $52.1 million recognized in the first nine months of 2019, which included the impact of the $33.7 million non-cash fixed asset impairment charge and $2.9 million in severance and downsizing charges. Interest Expense, Net. Net interest expense was $11.2 million in the first nine months of 2020, which compares to net interest expense of $13.7 million in the same period of 2019. Interest expense, which includes amortization of debt discount and deferred financing costs, as a percentage of total debt outstanding was approximately 6% in both the first nine months of 2020 and 2019. Our contractual cash interest expense as a percentage of total debt outstanding was substantially lower – averaging approximately 3% in both the nine months ended September 30, 2020 and 2019. Other Income, Net. Other income, net for the first nine months of 2020 included non-cash gains of $10.7 million recognized in connection with our purchases of $34.9 million principal amount of our 1.50% convertible senior notes for $20.1 million in cash. Income Tax. We recorded a net income tax benefit for the nine months ended September 30, 2020 using a discrete approach. This methodology was used because changes in our results of operations and non-deductible expenses can materially impact the estimated annual effective tax rate. For the nine months ended September 30, 2020, our income tax benefit was $54.1 million, or 11% of the pre-tax loss of $503.7 million, which included non-cash goodwill charges (approximately $313.1 million) and other expenses that are not deductible for income tax purposes. The impact of these non-deductible expenses was partially offset by $16.4 million in discrete tax benefits related to the carryback of U.S. net operating losses under the CARES Act. This compares to 35 an income tax benefit of $6.7 million, or 11% of the pre-tax loss of $63.0 million, which also included certain non-deductible expenses, for the nine months ended September 30, 2019. Other Comprehensive Loss. Reported comprehensive loss is the sum of reported net loss and other comprehensive loss. Other comprehensive loss was $12.7 million in the first nine months of 2020 compared to loss of $5.5 million in the first nine months of 2019 due to fluctuations in foreign currency exchange rates compared to the U.S. dollar for certain of the international operations of our reportable segments. For the nine months ended September 30, 2020 and 2019, currency translation adjustments recognized as a component of other comprehensive loss were primarily attributable to the United Kingdom and Brazil. During the first nine months of 2020 and 2019, the exchange rates for both the British pound and the Brazilian real weakened compared to the U.S. dollar. Segment Operating Results Well Site Services Revenues. Our Well Site Services segment revenues decreased $179.2 million, or 53%, in the first nine months of 2020 compared to the prior-year period. Completion Services revenue decreased $153.9 million, or 50%, driven by the decline in U.S. land-based customer completion and production activity in response to lower commodity prices. Our Drilling Services revenues decreased $25.3 million, or 78%, in the first nine months of 2020 from the first nine months of 2019 due to the significant decline in crude oil prices and our exit of drilling operations in the West Texas region in the fourth quarter of 2019. Operating Loss. During the first nine months of 2020 and 2019, our Well Site Services segment recorded non-cash impairment charges totaling $144.2 million and $33.7 million, respectively. Excluding these charges, our Well Site Services segment operating loss increased to $37.5 million in the first nine months of 2020 from $12.2 million in the prior-year period. Our Completion Services operating loss in the first nine months of 2020, after excluding the non-cash goodwill, inventory and fixed asset impairment charges discussed previously, was $37.4 million, compared to an operating loss of $2.3 million in the prior-year period, with the decrease in revenues and $3.9 million of severance and downsizing costs partially offset by a $8.8 million reduction in depreciation expense and the benefit of continued costs reduction measures. After excluding non-cash fixed asset impairment charges, our Drilling Services operating loss in the first nine months of 2020 was $0.1 million, compared to an operating loss of $10.0 million in the prior-year period, with the decline in revenues offset by a $4.2 million reduction in depreciation expense and the benefit of continued costs reduction measures. Downhole Technologies Revenues. Our Downhole Technologies segment revenues decreased $69.2 million, or 48%, in the first nine months of 2020 from the prior-year period due to a decline in U.S. land-based customer completion activity. Operating Income (Loss). During the first nine months of 2020, our Downhole Technologies segment recorded a non-cash goodwill impairment charge of $192.5 million, a non-cash inventory impairment charge of $5.9 million and severance and downsizing costs of $1.3 million. Excluding these charges, operating income (loss) declined $19.9 million in the first nine months of 2020 from the prior-year period due primarily to the decline in revenues and a $1.5 million bad debt provision on a receivable from a customer claiming bankruptcy protection. Offshore/Manufactured Products Revenues. Our Offshore/Manufactured Products segment revenues were more resilient and declined only $29.9 million, or 10%, in the first nine months of 2020 compared to the first nine months of 2019 due to a significant reduction in sales of our short-cycle products (elastomer and valve products), partially offset by an increase in project-driven product sales. Operating Income (Loss). During the first nine months of 2020, our Offshore/Manufactured Products segment recorded non-cash impairment charges of $86.5 million related to goodwill and $16.2 million related to inventory. Excluding these charges, our Offshore/Manufactured Products segment operating income decreased $5.7 million in the first nine months of 2020 compared to the first nine months of 2019, with the year-over-year impact of the decline in revenues partially offset by the current year benefit of cost reduction measures. Backlog. Backlog in our Offshore/Manufactured Products segment totaled $227 million as of September 30, 2020, a decrease of 19% from December 31, 2019 and a decrease of 23% from September 30, 2019. Bookings during the first nine months of 2020 totaled $221 million, yielding a book-to-bill ratio of 0.8x. 36 Corporate Corporate expenses decreased $10.0 million, or 28%, in the first nine months of 2020 from the prior-year period due to personnel reductions as well as reductions in short- and long-term compensation costs and other implemented cost reduction measures. Liquidity, Capital Resources and Other Matters Our primary liquidity needs are to fund operating and capital expenditures which, in the past, have included expanding and upgrading our Offshore/Manufactured Products and Downhole Technologies manufacturing facilities and equipment, replacing and increasing Completion Services assets, funding research and new product development, and general working capital needs. In addition, capital has been used to repay debt, fund strategic business acquisitions and fund share repurchases. Our primary sources of funds have been cash flow from operations, proceeds from borrowings under our credit facilities and, less frequently, capital markets transactions. The crude oil and natural gas industry is highly cyclical which may result in declines in the demand for, and prices of, our products and services, the inability or failure of our customers to meet their obligations to us or a sustained decline in our market capitalization. These and other potentially adverse market conditions could require us to incur additional asset impairment charges, record additional deferred tax valuation allowances and/or further write down the value of our goodwill and long-lived assets, and may otherwise adversely impact our results of operations, our cash flows and our financial position. See Note 3, "Asset Impairments and Other Charges," and Note 4, "Details of Selected Balance Sheet Accounts," for further information. Operating Activities Cash flows from operations totaling $131.1 million were generated during the first nine months of 2020 compared to $115.9 million generated during the same period of 2019. In the second quarter of 2020, we filed carryback claims regarding U.S. net operating losses generated in 2018 and 2019 in accordance with the rules and procedures of the CARES Act and received cash of $41.3 million during the third quarter of 2020, which benefited our cash flow from operations. Additionally, during the first nine months of 2020, $74.8 million was provided by net working capital decreases, primarily due to collections of accounts receivable and an increase in deferred revenue, partially offset by decreases in accounts payable and accrued liabilities. During the first nine months of 2019, $38.0 million was provided by net working capital decreases, driven primarily by collections of accounts receivable, partially offset by an increase in inventories. Investing Activities Cash used in investing activities during the first nine months of 2020 totaled $2.7 million, compared to $43.7 million used in investing activities during the first nine months of 2019. Capital expenditures totaled $11.3 million and $45.8 million during the first nine months of 2020 and 2019, respectively. Based on current industry conditions, we now expect to spend approximately $15 million in capital expenditures during 2020. Whether planned expenditures will actually be made in 2020 depends on industry conditions, project approvals and schedules, vendor delivery timing, free cash flow generation and careful monitoring of our levels of liquidity. We plan to fund these capital expenditures with available cash, internally generated funds and, if necessary, borrowings under our Amended Revolving Credit Facility. For the nine months ended September 30, 2020, cash flows provided by operations less cash flows used in investing activities totaled $128.4 million, compared to $72.1 million during the same period of 2019. Financing Activities During the nine months ended September 30, 2020, net cash of $57.0 million was used in financing activities, including $32.9 million of net repayments under our Amended Revolving Credit Facility and our purchases of $34.9 million principal amount of our 1.50% convertible senior notes for cash totaling $20.1 million. This compares to $76.9 million of cash used in financing activities during the nine months ended September 30, 2019, primarily as a result of $71.1 million in net repayments under our Revolving Credit Facility. As of September 30, 2020, we had cash and cash equivalents totaling $79.7 million, which compared to $8.5 million as of December 31, 2019. 37 As of September 30, 2020, we had $19.0 million outstanding under our Amended Revolving Credit Facility (discussed below) and $157.4 million principal amount of our Notes outstanding. Our reported interest expense, which appropriately included amortization of debt discount and deferred financing costs of $5.9 million during the first nine months of 2020, was substantially above our contractual cash interest expense – reflective primarily of the Notes which provide for a cash interest payment of 1.5% per annum. For the first nine months of 2020, our contractual cash interest expense was $5.3 million, or approximately 3% of the average principal balance of debt outstanding. We believe that cash on-hand, cash flow from operations and borrowing capacity available under our Amended Revolving Credit Facility will be sufficient to meet our liquidity needs in the coming twelve months. If our plans or assumptions change, or are inaccurate, we may need to raise additional capital. Our ability to obtain capital for additional projects to implement our growth strategy over the longer term will depend upon our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets and other factors, many of which are beyond our control. In this regard, the effect of the COVID-19 pandemic has resulted in significant disruption of global financial markets. For companies like ours in the energy industry, this disruption has been exacerbated by the global crude oil supply and demand imbalance and resulting decline in crude oil prices, and has significantly impacted the value of our common stock and which may reduce our ability to access capital in the bank and capital markets, which could in the future negatively affect our liquidity. Revolving Credit Facility due January 2022. Our senior secured revolving credit facility (the "Revolving Credit Facility") is governed by an amended and restated credit agreement by and among the Company, Wells Fargo Bank, N.A., as administrative agent for the lenders party thereto and the lenders and other financial institutions from time to time party thereto dated as of January 30, 2018 (the "Credit Agreement"), which matures on January 30, 2022. Prior to June 17, 2020, our Revolving Credit Facility provided for up to $350 million in lender commitments, including $50 million available for the issuance of letters of credit. On June 17, 2020, we entered into an omnibus amendment to the Credit Agreement (as amended, the "Amended Credit Agreement"). Lender commitments under the Amended Credit Agreement were reduced to $200 million in exchange for the suspension of the financial covenants from July 1, 2020 through March 30, 2021. During the financial covenant suspension period, borrowing availability under the Revolving Credit Facility (as amended, the "Amended Revolving Credit Facility") is limited to 85% of the lesser of (i) $200 million or (ii) a borrowing base, calculated monthly, equal to the sum of 70% of the consolidated net book value of eligible receivables and 20% of the consolidated net book value of eligible inventory (the "Borrowing Base"). The Company expensed $0.5 million of previously deferred financing costs in the second quarter of 2020, which is included in interest expense, net as a result of the amendment of the Credit Agreement. See Note 6, "Long-term Debt," for further information regarding terms of the Credit Agreement and the recent amendment thereto. As of September 30, 2020, we had $19.0 million of borrowings outstanding under the Amended Revolving Credit Facility and $31.2 million of outstanding letters of credit. The total amount available to be drawn as of October 1, 2020 was $83.8 million, calculated based on 85% of the Borrowing Base less outstanding borrowings and letters of credit. Based on our forecasts, we anticipate that following the March 30, 2021 expiration of the financial covenant suspension period provided for under the Amended Credit Agreement, we may not be in compliance with the covenants in the Amended Credit Agreement due to projected declines in consolidated EBITDA resulting from current industry conditions caused by the global response to the COVID-19 pandemic and the associated collapse in crude oil prices. However, we believe that we will have sufficient cash on-hand and cash flow from operations (after capital expenditures) to repay borrowings outstanding under the Amended Revolving Credit Facility in full and to fund our other liabilities as they become due over the next twelve months. 1.50% Convertible Senior Notes due February 2023. On January 30, 2018, we issued $200 million aggregate principal amount of the Notes pursuant to an indenture, dated as of January 30, 2018 (the "Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. The Indenture contains certain events of default, including certain defaults by the Company with respect to other indebtedness of at least $40.0 million. During the first nine months of 2020, we purchased $34.9 million principal amount of the outstanding Notes for $20.1 million in cash, which was $10.7 million below the net carrying amount of the related liability, resulting in the recognition of a non-cash gain. Since September 2019, we have purchased $42.6 million principal amount of the Notes for $26.8 million in cash. 38 The initial carrying amount of the Notes recorded in the consolidated balance sheet was less than the $200 million principal amount of the Notes, in accordance with currently applicable accounting principles, reflective of the estimated fair value of a similar debt instrument that does not have a conversion feature. We recorded the value of the conversion feature as a debt discount at the date of issuance, which is amortized as interest expense over the term of the Notes, with a similar amount allocated to additional paid-in capital. As a result of this amortization, interest expense currently recognized on the Notes for accounting purposes, reflecting an effective interest rate of approximately 6%, is greater than cash interest we are obligated to pay on the Notes. Reported interest expense associated with the Notes for the nine months ended September 30, 2020 and 2019 was $7.2 million and $7.7 million, respectively, while the related contractual cash interest totaled $2.0 million and $2.3 million, respectively. See Note 6, "Long-term Debt," for further information regarding the Notes. As of September 30, 2020, none of the conditions allowing holders of the Notes to convert, or requiring us to repurchase the Notes, had been met. See "–Recent Accounting Pronouncements" below for discussion of the recent revision to accounting guidance for convertible instruments, which will change our method of accounting for the Notes upon our planned adoption of the standard effective January 1, 2021. Promissory Note. In connection with the GEODynamics Acquisition, we issued a $25.0 million promissory note that bears interest at 2.5% per annum and was scheduled to mature on July 12, 2019. Payments due under the promissory note are subject to set-off, in full or in part, against certain indemnification claims related to matters occurring prior to our acquisition of GEODynamics. We have provided notice to and asserted indemnification claims against the seller of GEODynamics. As a result, the maturity date of the note is extended until the indemnity claims are resolved. We expect that the amount ultimately paid in respect of such note to be reduced by these indemnification claims. See Note 13, "Commitments and Contingencies," to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion. Our total debt represented 20% of our combined total debt and stockholders' equity at September 30, 2020, an increase from 17% at December 31, 2019 due primarily to the non-cash asset impairment charges recorded as a reduction of equity in the first and third quarters of 2020. Stock Repurchase Program. We maintained a share repurchase program, which was allowed to expire on July 29, 2020. During the first nine months of 2020, we did not repurchase any shares of our common stock under the program. Off-Balance Sheet Arrangements As of September 30, 2020, we had no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K. Tariffs We use a variety of domestically produced and imported raw materials and component products, including steel, in the manufacture of our products. In 2018, the United States imposed tariffs on a variety of imported products, including steel and aluminum. In response to the U.S. tariffs on steel and aluminum, the European Union and several other countries, including Canada and China, have threatened and/or imposed retaliatory tariffs. The effect of these new tariffs and the application and interpretation of existing trade agreements and customs, anti-dumping and countervailing duty regulations continues to evolve, and we continue to monitor these matters. If we encounter difficulty in procuring these raw materials and component products, or if the prices we have to pay for these products increase further as a result of customs, anti-dumping and countervailing duty regulations or otherwise and we are unable to pass corresponding cost increases on to our customers, our financial position and results of operations could be adversely affected. Furthermore, uncertainty with respect to potential costs in the drilling and completion of oil and gas wells could cause customers to delay or cancel planned projects which, if this occurred, would adversely affect our financial position and results of operations. See Note 13, "Commitments and Contingencies" to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion. Critical Accounting Policies For a discussion of the critical accounting policies and estimates that we use in the preparation of our condensed consolidated financial statements, see "Part II Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 Annual Report on Form 10-K. These estimates require significant judgments, assumptions and estimates. We have discussed the development, selection, and disclosure of these critical accounting policies and estimates with the audit committee of our Board of Directors. Except as discussed in Note 3, "Asset Impairments and Other Charges," there have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based. 39 Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the "FASB"), which are adopted by us as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our consolidated financial statements upon adoption. In August 2020, the FASB issued updated guidance to simplify the accounting for convertible instruments and contracts in an entity’s own equity. This new guidance will eliminate the current requirement that the carrying value of convertible debt instruments, including our Notes, be allocated between the debt and equity components. As permitted under the standard, we plan to adopt the new guidance on January 1, 2021 using the modified retrospective transition method. Upon initial evaluation, we believe the key changes upon adoption will be to increase the carrying value of the debt component of the Notes and reduce the reported level of interest expense recognized over the remaining life of the Notes. Based on the $157.4 million principal amount of the Notes outstanding as of September 30, 2020, we estimate that the adoption of the standard on January 1, 2021 will result in a $12.2 million increase in the net carrying value of the Notes, a $3.7 million decrease in deferred income taxes and an $8.5 million net decrease in stockholders' equity. Beginning on January 1, 2021, the effective interest rate associated with the Notes is expected to decrease from approximately 6% to approximately 2%, which compares to the contractual cash interest rate of 1.50%. In June 2016, the FASB issued guidance on credit impairment for short-term receivables which, as amended, introduces the recognition of management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset. We adopted this guidance on January 1, 2020, using the optional transition method of recognizing any cumulative effect of adopting this guidance as an adjustment to the opening balance of retained earnings. The cumulative impact of the adoption of the new standard was not material to our consolidated financial statements. Prior periods were not retrospectively adjusted.