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 2021 Annual Report on Form 10-K in order to understand factors, such as charges and credits, financing transactions and changes in tax regulations, which may impact comparability from period to period. We provide a broad range of manufactured products and services to customers in the energy, industrial and military sectors through our Offshore/Manufactured Products, Well Site Services and Downhole Technologies 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, making demand for our products and services sensitive to expectations regarding future crude oil and natural gas prices, as well as economic growth, commodity demand and estimates of resource production and regulatory pressures related to environmental, social and governance ("ESG") considerations. Recent Developments The spot price of Brent crude oil price averaged $101 per barrel during the first quarter of 2022, an increase of 27% from the fourth quarter 2021 average and the highest quarterly average level observed since the second quarter of 2014. The higher commodity price environment was driven by crude oil supply reductions resulting from the Russian invasion of Ukraine on February 24, 2022, increased demand as the global effects of the COVID-19 pandemic have moderated and slower crude oil production growth due to reduced investments by operators globally. Brent and West Texas Intermediate ("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) 2022 $ 100.87 $ — $ — $ — $ 100.87 2021 61.04 68.98 73.51 79.61 70.86 WTI Crude (per bbl) 2022 $ 95.18 $ — $ — $ — $ 95.18 2021 58.09 66.19 70.58 77.33 68.14 Henry Hub Natural Gas (per MMBtu) 2022 $ 4.67 $ — $ — $ — $ 4.67 2021 3.50 2.95 4.35 4.75 3.90 ________________ (1) Source: U.S. Energy Information Administration (spot prices). On April 22, 2022, Brent crude oil, WTI crude oil and natural gas spot prices closed at $105.15 per barrel, $102.86 per barrel and $6.59 per MMBtu, respectively. Additionally, as presented in more detail below, the U.S. drilling rig count reported on April 22, 2022 was 695 rigs, 10% above the first quarter 2021 average. 20 In January of 2022, we completed the previously announced exit of certain non-performing service offerings within our Well Site Services segment. These service offerings generated revenues of $4.4 million in the first quarter of 2021. During the first quarter of 2022, we recorded bad debt expense of $0.8 million related to receivables from Russia-based customers of the Offshore/Manufactured Products segment. As of March 31, 2022, we had no remaining material balance sheet exposure related to Russia. On April 14, 2022, our Offshore/Manufactured Products segment acquired E-Flow Control Holdings Limited ("E-Flow"), a global provider of fully integrated handling, control, monitoring and instrumentation solutions. E-Flow, founded in 1988, provides a broad range of engineering, design, manufacturing, installation and commissioning services to its customers in the energy industry. The purchase price of $8.6 million, which is subject to customary post-closing adjustments, was funded with cash on-hand. Overview Current and expected future pricing for WTI crude oil, along with expectations regarding the regulatory environment, are factors that will continue to influence our customers' willingness to invest in U.S. shale play developments as they allocate capital and strive for financial discipline and spending levels that are within their capital budgets and cash flows. Expectations for the longer-term price for Brent crude oil will continue to influence our customers' spending related to global offshore drilling and development and, thus, a significant portion of the activity of our Offshore/Manufactured Products segment. Crude oil prices and levels of demand for crude oil are likely to remain highly volatile due to numerous factors, including geopolitical conflicts (such as the direction and outcome of Russia's invasion of Ukraine), unrest and tensions; sanctions; global uncertainties related to the COVID-19 pandemic; domestic or international crude oil production; changes in governmental rules and regulations; the willingness of operators to invest capital in the exploration for and development of resources; use of alternative fuels; improved vehicle fuel efficiency; a more sustained movement to electric vehicles; and the potential for ongoing supply/demand imbalances. Capital investment by our customers recently reached a 15-year low due to negative developments with respect to many of these factors. Customer spending in the natural gas shale plays has been limited due to technological advancements that have led to significant amounts of natural gas being produced from prolific basins in the Northeastern United States and from associated gas produced from the drilling and completion of unconventional oil wells in the United States. U.S. drilling, completion and production activity and, in turn, our financial results, are sensitive to near-term fluctuations in commodity prices, particularly WTI crude oil prices, given the short-term, call-out nature of our U.S. operations. Our Offshore/Manufactured Products segment provides technology-driven, highly-engineered products and services for offshore oil and natural gas production systems and facilities globally, as well as certain products and services to the offshore and land-based drilling and completion markets. This segment also produces a variety of products for use in industrial, military and other applications outside the traditional energy industry. This segment is particularly influenced by global spending on deepwater drilling and production, which is primarily driven by our customers' longer-term commodity demand forecasts and outlook for crude oil and natural gas prices. Approximately 40% of Offshore/Manufactured Products segment sales in the first quarter of 2022 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 and state-run national oil companies) 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. Backlog reported by our Offshore/Manufactured Products segment increased to $265 million as of March 31, 2022 from $226 million as of March 31, 2021. Bookings totaled $93 million in the first quarter of 2022, yielding a book-to-bill ratio of 1.1x. 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 2022 $ 265 $ — $ — $ — 2021 226 214 249 260 2020 267 235 227 219 21 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. We primarily supply equipment and service personnel utilized in the completion of and initial production from new and recompleted wells in our U.S. operations, which are dependent primarily upon the level and complexity of drilling, completion and workover activity in our areas of operations. Well intensity and complexity have 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. Our Downhole Technologies 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 frac plug and toe valve 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 our completion-related 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. and international drilling rig count, as measured by Baker Hughes Company, as of and for the periods indicated. Average for the As of April 22, 2022 Three Months Ended March 31, 2022 2021 United States Rig Count: Land – Oil 537 493 286 Land – Natural gas and other 145 123 91 Offshore 13 17 16 695 633 393 International Rig Count: Land 828 667 Offshore 193 169 1,021 836 1,654 1,229 The U.S. energy industry is primarily focused on crude oil and liquids-rich exploration and development activities in U.S. shale plays utilizing horizontal drilling and completion techniques. As of March 31, 2022, oil-directed drilling accounted for 79% of the total U.S. rig count – with the balance largely natural gas related. Due to the unprecedented decline in crude oil prices in March and April of 2020, drilling and completion activity in the United States collapsed – with the active drilling rig count declining from 790 rigs as of February 29, 2020 to a trough of 244 rigs as of August 14, 2020. From this trough, the U.S. rig count has increased to 670 rigs as of March 31, 2022. As can be derived from the table above, the average U.S. rig count for the first three months of 2022 increased by 240 rigs, or 61%, compared to the average for the first three months of 2021. 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 and we are unable to pass corresponding cost increases on to our customers, our financial position, cash flows 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 11, "Commitments and Contingencies." 22 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; natural disasters; labor market constraints; supply chain disruptions; inflation in wages, materials, parts, equipment and other costs; climate-related and other regulatory changes; geopolitical tensions; 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 For more information on our health and safety, diversity and other workforce policies, please see "Part I, Item 1. Business – Human Capital" in our Annual Report on Form 10-K for the year ended December 31, 2021. 23 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, 2021 in order to understand factors, such as charges and credits, financing transactions and changes in tax regulations, which may impact the comparability of the selected financial data. Unaudited Consolidated Results of Operations The following summarizes our consolidated results of operations for the three months ended March 31, 2022 and 2021 (in thousands, except per share amounts): Three Months Ended March 31, 2022 2021 Variance Revenues: Products $ 85,761 $ 61,445 $ 24,316 Services 78,283 64,144 14,139 164,044 125,589 38,455 Costs and expenses: Product costs 64,801 49,463 15,338 Service costs 61,803 52,847 8,956 Cost of revenues (exclusive of depreciation and amortization expense presented below) 126,604 102,310 24,294 Selling, general and administrative expenses 23,833 21,225 2,608 Depreciation and amortization expense 17,817 21,520 (3,703) Impairments of goodwill — — — Impairments of fixed assets (1) — 650 (650) Other operating (income) expense, net 126 (354) 480 168,380 145,351 23,029 Operating loss (4,336) (19,762) 15,426 Interest expense, net (2,672) (2,325) (347) Other income, net (2) 1,025 3,960 (2,935) Loss before income taxes (5,983) (18,127) 12,144 Income tax benefit (3,441) 2,317 (5,758) Net loss $ (9,424) $ (15,810) $ 6,386 Net loss per share: Basic $ (0.16) $ (0.26) Diluted (0.16) (0.26) Weighted average number of common shares outstanding: Basic 60,498 60,098 Diluted 60,498 60,098 ________________ (1) During the first quarter of 2021, we recognized non-cash impairment charges of $0.7 million to reduce the carrying value of certain fixed assets to their estimated realizable value. (2) During the first quarter of 2021, we recognized non-cash gains of $3.6 million in connection with our purchases of $125.0 million principal amount of our 2023 Notes. See Note 2, "Asset Impairments and Other Restructuring Items," Note 3, "Details of Selected Balance Sheet Accounts" and Note 4, "Long-term Debt," 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 three months of 2021. 24 Unaudited Segment Results of Operations We manage and measure our business performance in three distinct operating segments: Offshore/Manufactured Products, Well Site Services and Downhole Technologies. Supplemental financial information by operating segment for the three months ended March 31, 2022 and 2021 is summarized below (in thousands): Three Months Ended March 31, 2022 2021 Variance Revenues Offshore/Manufactured Products Project-driven products $ 33,844 $ 21,374 $ 12,470 Short-cycle products 20,624 12,250 8,374 Other products and services 29,644 26,985 2,659 Total Offshore/Manufactured Products 84,112 60,609 23,503 Well Site Services 48,172 39,550 8,622 Downhole Technologies 31,760 25,430 6,330 Total $ 164,044 $ 125,589 $ 38,455 Operating income (loss) Offshore/Manufactured Products $ 10,196 $ 1,071 $ 9,125 Well Site Services (1) (3,395) (9,853) 6,458 Downhole Technologies (1,505) (1,615) 110 Corporate (9,632) (9,365) (267) Total $ (4,336) $ (19,762) $ 15,426 ________________ (1) Operating loss in the first quarter of 2021 included non-cash fixed asset impairment charges of $0.7 million. See Note 2, "Asset Impairments and Other Restructuring Items," and Note 3, "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 and benefits recognized in the first three months of 2021. 25 Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021 We reported a net loss for the three months ended March 31, 2022 of $9.4 million, or $0.16 per share. These results compare to a net loss for the three months ended March 31, 2021 of $15.8 million, or $0.26 per share, which included non-cash gains of $3.6 million ($2.9 million after-tax, or $0.05 per share) associated with debt extinguishment offset by $3.4 million ($2.7 million after-tax, or $0.04 per share) of severance and restructuring costs. Our reported results of operations reflect the negative impact of the global response to the COVID-19 pandemic, ongoing uncertainties related to future crude oil demand and supply and, to a lesser extent, supply chain disruptions. Customer-driven activity has continued to improve since the low levels of 2020, but uncertainty remains around the willingness of operators (our customers) to invest in U.S. land-based drilling, completion and production activities given regulatory pressures around ESG considerations. During the first quarter of 2021, we recognized an aggregate $4.8 million reduction of payroll tax expense (within cost of revenues and selling, general and administrative expense) as part of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") employee retention credit program. Revenues. Consolidated total revenues in the first quarter of 2022 increased $38.5 million, or 31%, from the first quarter of 2021. Consolidated product revenues in the first quarter of 2022 increased $24.3 million, or 40%, from the first quarter of 2021, driven primarily by increased U.S. land-based customer activity and higher demand for project-related fixed platform equipment. Consolidated service revenues in the first quarter of 2022 increased $14.1 million, or 22%, from the first quarter of 2021 due primarily to higher customer spending in the U.S. shale play regions and the Gulf of Mexico, partially offset by the exit of certain non-performing service offerings in January 2022. As can be derived from the following table, 61% of our consolidated revenues in both the first quarter of 2022 and 2021 were derived from sales of our short-cycle product and service offerings. The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the three months ended March 31, 2022 and 2021 (in thousands): Offshore/ Manufactured Products Well Site Services Downhole Technologies Total Three Months Ended March 31 2022 2021 2022 2021 2022 2021 2022 2021 Major revenue categories - Project-driven products $ 33,844 $ 21,374 $ — $ — $ — $ — $ 33,844 $ 21,374 Short-cycle: Completion products and services 13,580 8,114 45,166 38,799 31,760 25,430 90,506 72,343 Drilling services — — 3,006 751 — — 3,006 751 Other products 7,044 4,136 — — — — 7,044 4,136 Total short-cycle 20,624 12,250 48,172 39,550 31,760 25,430 100,556 77,230 Other products and services 29,644 26,985 — — — — 29,644 26,985 $ 84,112 $ 60,609 $ 48,172 $ 39,550 $ 31,760 $ 25,430 $ 164,044 $ 125,589 Percentage of total revenue by type - Products 71 % 65 % — % — % 82 % 86 % 52 % 49 % Services 29 % 35 % 100 % 100 % 18 % 14 % 48 % 51 % Cost of Revenues (exclusive of Depreciation and Amortization Expense). Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) increased $24.3 million, or 24%, in the first quarter of 2022 compared to the first quarter of 2021. Consolidated product costs in the first quarter of 2022 increased $15.3 million, or 31%, compared to the first quarter of 2021. Consolidated service costs in the first quarter of 2022 increased $9.0 million, or 17%, compared to the first quarter of 2021. Selling, General and Administrative Expense. Selling, general and administrative expense increased $2.6 million, or 12%, in the first quarter of 2022 from the first quarter of 2021 due primarily to higher professional service, bad debt and trade show expenses. 26 Depreciation and Amortization Expense. Depreciation and amortization expense decreased $3.7 million, or 17%, in the first quarter of 2022 compared to the prior-year period, driven primarily by reduced capital investments made in our Well Site Services segment in recent years. Note 10, "Segments and Related Information," to our Consolidated Financial Statements presents depreciation and amortization expense by segment. Impairments of Fixed Assets. During the first quarter of 2021, our Well Site Services segment recorded non-cash impairment charges of $0.7 million to reduce the carrying value of certain of the segment's fixed assets to their estimated realizable value. Operating Loss. Our consolidated operating loss was $4.3 million in the first quarter of 2022. This compares to a consolidated operating loss of $19.8 million recognized in the first quarter of 2021, which included the $0.7 million of non-cash fixed asset impairment charges and $3.4 million in severance and restructuring costs. Excluding these charges, our consolidated operating loss decreased $11.4 million or 72%. Interest Expense, Net. Net interest expense was $2.7 million in the first quarter of 2022, which compares to $2.3 million in the first quarter of 2021. Interest expense as a percentage of total debt outstanding was approximately 6% in the first quarter of 2022 and 4% in the first quarter of 2021. Other Income, Net. Net other income for the first quarter of 2021 included non-cash gains of $3.6 million in connection with our purchases of $125.0 million principal amount of our 1.5% convertible senior notes (the "2023 Notes") for $120.0 million in cash. Income Tax. For the first quarter of 2022, our income tax provision was $3.4 million on a pre-tax loss of $6.0 million. Income tax expense in the first quarter of 2022 included the impact of valuation allowances recorded against U.S. tax assets as well as certain non-deductible expenses and discrete tax items. This compares to an income tax benefit of $2.3 million on a pre-tax loss of $18.1 million for the first quarter of 2021, which included certain non-deductible expenses and discrete tax items. Other Comprehensive Income (Loss). Reported comprehensive loss is the sum of reported net loss and other comprehensive income (loss). Other comprehensive income was $0.9 million in the first quarter of 2022 compared to loss of $1.5 million in the first quarter of 2021 due to fluctuations in foreign currency exchange rates compared to the U.S. dollar for certain of the international operations of our operating segments. For the first quarters of 2022 and 2021, recurring currency translation adjustments recognized as a component of other comprehensive income (loss) were primarily attributable to the United Kingdom and Brazil. During the first quarter of 2022, the exchange rate for the British pound weakened compared to the U.S. dollar, while the Brazilian real strengthened compared to the U.S. dollar. During the first quarter of 2021, the exchange rate for the British pound strengthened compared to the U.S. dollar while the exchange rate for the Brazilian real weakened compared to the U.S. dollar. Segment Operating Results Offshore/Manufactured Products Revenues. Our Offshore/Manufactured Products segment revenues increased $23.5 million, or 39%, in the first quarter of 2022 compared to the first quarter of 2021 due primarily to increased demand for short-cycle products and fixed platform equipment. Operating Income (Loss). Our Offshore/Manufactured Products segment reported operating income of $10.2 million in the first quarter of 2022. The segment reported an operating loss of $1.1 million in the first quarter of 2021, which included severance and restructuring costs of $0.3 million. Backlog. Backlog in our Offshore/Manufactured Products segment totaled $265 million as of March 31, 2022 compared to $260 million as of December 31, 2021. Bookings during the first quarter of 2022 totaled $93 million, yielding a book-to-bill ratio of 1.1x. Well Site Services Revenues. Our Well Site Services segment revenues increased $8.6 million, or 22%, in the first quarter of 2022 compared to the same prior-year period, driven by increased U.S. customer activity levels partially offset by the exit of U.S. thru-tubing service offerings in January 2022. 27 Operating Loss. Our Well Site Services segment reported an operating loss of $3.4 million in the first quarter of 2022. The segment reported an operating loss of $9.9 million in the first quarter of 2021, which included non-cash fixed asset impairment charges of $0.7 million. The operating loss decrease of $6.5 million, or 66%, compared to the same prior-year period was primarily driven by the impact of the reported revenue growth and a $3.7 million decrease in depreciation and amortization expense. Downhole Technologies Revenues. Our Downhole Technologies segment revenues increased $6.3 million, or 25%, in the first quarter of 2022 from the same prior-year period due primarily to increased customer demand for perforating and completion products in the United States. Operating Loss. Our Downhole Technologies segment reported an operating loss of $1.5 million in the first quarter of 2022. The segment reported an operating loss of $1.6 million in the first quarter of 2021. Corporate Operating Loss. Corporate expenses of $9.6 million in the first quarter of 2022 were comparable to the first quarter of 2021. Liquidity, Capital Resources and Other Matters Our primary liquidity needs are to fund operating and capital expenditures, new product development and general working capital needs. In addition, capital has been used to fund strategic business acquisitions, repay debt and fund share repurchases. Our primary sources of funds are cash flow from operations, proceeds from borrowings under our credit facilities and, less frequently, capital markets transactions. Operating Activities Cash flows used in operations totaled $10.7 million during the three months ended March 31, 2022, compared to $8.4 million used in operations during the first quarter of 2021. During the first quarter of 2022, $21.3 million was used to fund net working capital increases, primarily due to increases in inventories and accounts receivable driven by higher activity levels. During the first quarter of 2021, $12.1 million was used to fund net working capital increases, primarily due to increases in accounts receivable and inventories. Investing Activities Cash used in investing activities during the first quarter of 2022 totaled $2.1 million, compared to $2.4 million used in investing activities during 2021. Capital expenditures totaled $2.9 million and $4.1 million during the first quarter of 2022 and 2021, respectively. These investments were partially offset by proceeds from the sale of property and equipment of $0.9 million and $1.9 million during the first three months of 2022 and 2021, respectively. We expect to spend approximately $25 million in capital expenditures during 2022. Whether planned expenditures will actually be made in 2022 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 ABL Facility discussed below. Financing Activities During the three months ended March 31, 2022, net cash of $1.2 million was used in financing activities. This compares to $6.6 million of cash used in financing activities during the three months ended March 31, 2021, including our purchases of $125.0 million principal amount of our 2023 Notes for cash totaling $120.0 million and $12.0 million of net repayments under our ABL Facility. Partially offsetting these uses in the first quarter of 2021 was our issuance of $135.0 million principal amount of our 4.75% convertible senior notes (the "2026 Notes") yielding net cash proceeds of $130.3 million. As of March 31, 2022, we had cash and cash equivalents totaling $39.2 million, which compared to $52.9 million as of December 31, 2021. 28 As of March 31, 2022, we had no borrowings outstanding under our ABL Facility, $26.0 million principal amount of our 2023 Notes outstanding, $135.0 million principal amount of our 2026 Notes outstanding and other debt of $21.5 million. Our reported interest expense, which included amortization of deferred financing costs of $0.5 million during the first quarter of 2022, was above our contractual cash interest expense. For the first quarter of 2022, our contractual cash interest expense was $2.2 million, or approximately 5% of the average principal balance of debt outstanding. We believe that cash on-hand, cash flow from operations and borrowing capacity available under our ABL 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, stakeholder scrutiny of ESG matters and other factors, many of which are beyond our control. In this regard, the effect of the COVID-19 pandemic resulted in a significant disruption of global financial markets. For companies like ours that support the energy industry, this disruption negatively impacted the value of our common stock and may reduce our ability to access capital in the bank and capital markets or result in such capital being available on less favorable terms, which could in the future negatively affect our liquidity. On March 21, 2022, the SEC proposed new rules relating to the disclosure of a range of climate-related information and risks. We are currently assessing these rules, but at this time we cannot predict the costs of implementation or any potential adverse impacts resulting from these rules. To the extent these rules are finalized as proposed, we or our customers could incur increased costs related to the assessment and disclosure of climate-related risks. We may also face increased litigation risks related to disclosures made pursuant to the rule if finalized as proposed. In addition, enhanced climate disclosure requirements could accelerate the trend of certain stakeholders and lenders in restricting or seeking more stringent conditions with respect to their investments in our customers in the energy industry and companies like ours that support the energy industry. For more information on our risks related to climate change, see the risk factor in "Part I, Item 1A. Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2021 titled, "Our and our customers' operations are subject to a series of risks arising out of the threat of climate change that could result in increased operating costs, limit the areas in which oil and natural gas production may occur, and reduce demand for the products and services we provide." ABL Facility. On February 10, 2021, we entered into a senior secured credit facility with certain lenders, which provides for a $125.0 million asset-based revolving credit facility (the "ABL Facility") under which credit availability is subject to a borrowing base calculation. On March 16, 2021, we entered into an amendment to the ABL Facility that permitted us to incur the indebtedness represented by the 2026 Notes. The ABL Facility is governed by a credit agreement, as amended, with Wells Fargo Bank, National Association, as administrative agent and the lenders and other financial institutions from time to time party thereto (the "ABL Agreement"). The ABL Agreement matures on February 10, 2025 with a springing maturity 91 days prior to the maturity of any outstanding indebtedness with a principal amount in excess of $17.5 million (excluding the unsecured promissory note to the seller of GEODynamics, Inc. discussed below). See Note 4, "Long-term Debt," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding the ABL Agreement. As of March 31, 2022, we had $19.6 million of outstanding letters of credit, but no borrowings outstanding under the ABL Agreement. The total amount available to be drawn as of March 31, 2022 was $51.0 million, calculated based on the current borrowing base less outstanding letters of credit. 2026 Notes. On March 16, 2021, we issued $135.0 million aggregate principal amount of the 2026 Notes pursuant to an indenture, dated as of March 16, 2021 (the "2026 Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. Computershare Trust Company, National Association, assumed the role of trustee as of March 1, 2022. Net proceeds from the 2026 Notes offering, after deducting issuance costs, totaled $130.6 million. We used $120.0 million of the cash proceeds to purchase $125.0 million principal amount of the outstanding 2023 Notes, with the balance added to cash on-hand. The 2026 Indenture contains certain events of default, including certain defaults by the Company with respect to other indebtedness of at least $40.0 million. See Note 4, "Long-term Debt," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding the 2026 Notes. As of March 31, 2022, none of the conditions allowing holders of the 2026 Notes to convert, or requiring us to repurchase the 2026 Notes, had been met. 29 2023 Notes. On January 30, 2018, we issued $200.0 million aggregate principal amount of the 2023 Notes pursuant to an indenture, dated as of January 30, 2018 (the "2023 Indenture"), between the Company and Wells Fargo Bank, National Association, as trustee. Computershare Trust Company, National Association, assumed the role of trustee as of March 1, 2022. Since September 2019, we have purchased a cumulative $174.0 million principal amount of the 2023 Notes for $152.8 million in cash, with $26.0 million principal amount outstanding as of March 31, 2022. The 2023 Indenture contains certain events of default, including certain defaults by the Company with respect to other indebtedness of at least $40.0 million. See Note 4, "Long-term Debt," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding the 2023 Notes. As of March 31, 2022, none of the conditions allowing holders of the 2023 Notes to convert, or requiring us to repurchase the 2023 Notes, had been met. Promissory Note. In connection with the 2018 acquisition of GEODynamics, Inc., (such company, "GEODynamics" and such acquisition, the "GEODynamics Acquisition"), we issued a $25.0 million promissory note that 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 (the "Seller"), and the Seller has filed a breach of contract suit against us and one of our wholly-owned subsidiaries alleging that payments due under the promissory note are required to be, but have not been, repaid in accordance with the terms of such note. We have incurred settlement costs and expenses of $7.5 million related to such indemnification claims and believe that the maturity date of such note is extended until the resolution of such indemnity claims and that we are permitted to set-off the principal amount owed by the amount of such costs and expenses. Accordingly, we have reduced the carrying amount of such note in our consolidated balance sheet to $17.5 million as of March 31, 2022, which is our current best estimate of what is owed after set-off for indemnification matters. See Note 11, "Commitments and Contingencies," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion. Our total debt represented 21% and 20% of our combined total debt and stockholders' equity as of March 31, 2022 and December 31, 2021, respectively. Contingencies and Other Obligations. We are a party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including occasional claims by individuals alleging exposure to hazardous materials as a result of our product or operations. Some of these claims relate to matters occurring prior to the acquisition of businesses, and some relate to businesses we have sold. In certain cases, we are entitled to indemnification from the sellers of the businesses and, in other cases, we have indemnified the buyers of businesses. In addition, the Seller in the GEODynamics Acquisition filed a breach of contract suit against us in federal court in August 2020, in which the Seller alleged, among other contractual breaches, that it was entitled to approximately $19 million in U.S. federal income tax carryback claims we received under the provisions of the CARES Act legislation. On February 15, 2021, the Seller dismissed the federal lawsuit without prejudice and refiled its lawsuit in state court. On September 20, 2021, a motion by the Seller for partial summary judgement was denied by the state court. Although we can give no assurance about the outcome of pending legal and administrative proceedings and the effect such outcomes may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by indemnity or insurance, will not have a material adverse effect on our consolidated financial position, results of operations or liquidity. See Note 11, "Commitments and Contingencies," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion. Off-Balance Sheet Arrangements. As of March 31, 2022, we had no off-balance sheet arrangements. 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 2021 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. There have been no material changes to the judgments, assumptions and estimates upon which our critical accounting estimates are based. 30 Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, which are adopted by us as of the specified effective date. 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.