What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-28 compared with 2022-10-28 · 109 added, 274 removed, 189 unchanged (67% of the section changed)

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Recent Developments

The spot price of Brent crude oil averaged $101 per barrel during the third quarter of 2022, an increase of 37% from the third quarter 2021 average.

The higher commodity price environment was driven by declines in crude oil supplies, concerns over sanctions resulting from the Russian invasion of Ukraine on February 24, 2022, increased demand as the global effects of the COVID-19 pandemic moderated and slower crude oil production growth due to reduced investments by operators globally in recent years.

However, crude oil prices decreased toward the end of the third quarter of 2022 from the highs reported in the second quarter of 2022 in response to, among other things, the growing risk of a global recession, which raises concerns over future demand destruction.

Brent and West Texas Intermediate ("WTI") crude oil and natural gas pricing trends were as follows:

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2022 100.87 $ 113.84 $ 100.71 $ 88.77 $ 100.99

2021 61.04 68.98 73.51 79.61 70.86

WTI Crude (per bbl)

2022 95.18 $ 108.83 $ 93.06 $ 82.79 $ 94.90

2021 58.09 66.19 70.58 77.33 68.14

Henry Hub Natural Gas (per MMBtu)

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________________

Energy Information Administration (spot prices).

On October 21, 2022, Brent crude oil, WTI crude oil and natural gas spot prices closed at $91.82 per barrel, $85.47 per barrel and $4.45 per MMBtu, respectively.

On April 21, 2023, Brent crude oil, WTI crude oil and natural gas spot prices closed at $83.36 per barrel, $77.86 per barrel and $2.20 per MMBtu, respectively.

Additionally, as presented in more detail below, the U.S.

drilling rig count reported on October 21, 2022 was 771 rigs – slightly above the third quarter 2022 average.

In January of 2022, we completed the exit of certain non-performing service offerings within our Well Site Services segment.

These service offerings generated revenues of $15.0 million in the first nine months 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 September 30, 2022, we had no remaining material balance sheet exposure related to Russia.

In April of 2022, our Offshore/Manufactured Products segment acquired E-Flow Control Holdings Limited ("E-Flow"), a U.K.-based 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 $8.1 million (net of cash acquired) was funded with cash on-hand.

As further discussed in Note 12, "Commitments and Contingencies," on June 28, 2022, we fully settled our disputes with the seller (the "GEO Seller") of GEODynamics, Inc.

("GEODynamics"), which we acquired in 2018, including the full and final settlement of all amounts due under the GEO Note (as defined below).

Pursuant to the settlement agreement, on July 1, 2022, we paid the GEO Seller $10.0 million in cash and issued approximately 1.9 million shares of our common stock (having a market value of $10.3 million).

In August of 2022, our Offshore/Manufactured Products segment settled outstanding litigation against certain service providers in exchange for cash totaling $6.9 million.

In connection with this settlement, the Company recognized a gain of $6.1 million in the third quarter of 2022.

Current and expected future pricing for WTI crude oil, along with expectations regarding the regulatory environment in the regions that we operate in, are factors that will continue to influence our customers' willingness to invest capital in their businesses.

drilling rig count reported on April 21, 2023 was 753 rigs – comparable to the first quarter 2023 average.

In February 2023, we repaid the $17.3 million principal amount, plus accrued interest, of outstanding 2023 Notes (as defined below).

Additionally, our Board of Directors authorized a $25.0 million stock repurchase plan, which extends through February 2025.

No repurchases have been made under the plan as of March 31, 2023.

Current and expected future pricing for WTI crude oil and inflationary costs increases, along with expectations regarding the regulatory environment in the regions in which we operate, are factors that will continue to influence our customers' willingness to invest capital in their businesses.

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), social unrest and tensions;

Crude oil prices and levels of demand for crude oil are likely to remain highly volatile due to numerous factors, including:

global uncertainties related to disruptions in the banking sector, geopolitical conflicts (such as the direction and outcome of Russia's invasion of Ukraine) and international tensions;

the perceived risk of a global economic recession;

global uncertainties related to the COVID-19 pandemic;

domestic or international crude oil production;

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and the potential for ongoing supply/demand imbalances.

Capital investment by our customers recently reached a 15-year low due to these factors and the desire to generate sustainable cash flows.

Capital investment by our customers temporarily declined due to these factors and the desire to generate sustainable cash flows.

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.

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This segment also produces a variety of products for use in industrial, military and other applications outside the traditional energy industry.

Additionally, we are investing in research and product development related to, and have been awarded select contracts and are bidding on additional projects that facilitate, the development of alternative energy sources, including offshore wind and deepsea mineral gathering opportunities.

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 41% of Offshore/Manufactured Products segment sales in the first nine months 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").

Approximately 40% of Offshore/Manufactured Products segment sales in the first three months of 2023 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.

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 change based on short-term fluctuations in the price of crude oil and natural gas.

Backlog reported by our Offshore/Manufactured Products segment increased to $258 million as of September 30, 2022 from $249 million as of September 30, 2021.

Bookings totaled $283 million in the first nine months of 2022, yielding a book-to-bill ratio of 1.0x.

Backlog reported by our Offshore/Manufactured Products segment increased to $326 million as of March 31, 2023 from $308 million as of December 31, 2022 and $265 million as of March 31, 2022.

Bookings totaled $118 million in the first quarter of 2023, yielding a book-to-bill ratio of 1.2x.

The following table sets forth backlog as of the dates indicated (in millions).

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2021 226 214 249 260

2020 267 235 227 219

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.

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and international drilling rig count, as measured by Baker Hughes Company, as of and for the periods indicated.

As of April 21, 2023

Average for the

As of October 21, 2022

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

2022 2021 2022 2021

Three Months Ended March 31,

United States Rig Count:

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Offshore 21 19 17

771 761 496 706 448

International Rig Count:

Land 846 739 802 679

Offshore 226 193

1,057 923 1,003 856

1,818 1,419 1,709 1,304

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 September 30, 2022, oil-directed drilling accounted for 79% of the total U.S.

As of March 31, 2023, oil-directed drilling accounted for 78% 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 765 rigs as of September 30, 2022.

As can be derived from the table above, the average U.S.

rig count for the first nine months of 2022 increased by 258 rigs, or 58%, compared to the average for the first nine months of 2021.

rig count for the first three months of 2023 increased by 120 rigs, or 19%, compared to the average for the first three months of 2022.

We use a variety of domestically produced and imported raw materials and component products, including steel, in the manufacture of our products.

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Other factors that can affect our business and financial results include but are not limited to:

the general global economic environment;

the general global economic environment (including disruptions in the banking sector);

competitive pricing pressures;

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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.

Financial Statements" of this Quarterly Report on Form 10-Q and in "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, credits and financing transactions, which may impact comparability of the selected financial data.

Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the year ended December 31, 2022 in order to understand factors which may impact comparability of the selected financial data.

Unaudited Consolidated Results of Operations

The following summarizes our consolidated results of operations for the three and nine months ended September 30, 2022 and 2021 (in thousands, except per share amounts):

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

2022 2021 Variance 2022 2021 Variance

The following summarizes our consolidated results of operations for the three months ended March 31, 2023 and 2022 (in thousands, except per share amounts):

Three Months Ended

2023 2022 Variance

Products $ 99,840 $ 85,761 $ 14,079

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Cost of revenues (exclusive of depreciation and amortization expense presented below) 150,735 126,604 24,131

151,299 117,207 34,092 420,059 337,149 82,910

Selling, general and administrative expenses 24,016 23,833 183

Depreciation and amortization expense 15,256 17,817 (2,561)

Impairments of fixed and lease assets (2)

— — — — 3,444 (3,444)

Other operating income, net 317 126 191

190,324 168,380 21,944

184,336 156,667 27,669 535,640 465,360 70,280

Operating income (loss) 5,875 (4,336) 10,211

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Other income, net 276 1,025 (749)

491 2,137 (1,646) 1,892 7,917 (6,025)

Income (loss) before income taxes 3,760 (5,983) 9,743

Income tax (provision) benefit (769) 3,529 (4,298) (6,002) 9,072 (15,074)

Income tax provision (1,602) (3,441) 1,839

Net income (loss) $ 2,158 $ (9,424) $ 11,582

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$ 0.03 $ (0.16)

0.03 (0.22) (0.20) (0.73)

Weighted average number of common shares outstanding:

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63,072 60,498

________________

(1) Cost of revenues (exclusive of depreciation and amortization expense) included a non-cash inventory impairment charge of $2.1 million (in product costs) recognized in the three and nine month ended September 30, 2021.

(2) During the first nine months of 2021, we recognized non-cash impairment charges of $3.4 million to reduce the carrying value of certain fixed and operating lease assets to their estimated realizable value.

(3) In the three and nine months ended September 30, 2022, we recognized a gain of $6.1 million associated with the settlement of outstanding litigation against certain service providers.

(4) During the first nine months of 2021, we recognized non-cash gains of $4.0 million in connection with our purchases of $131.4 million principal amount of our 2023 Notes.

See Note 3, "Asset Impairments and Other Charges and Benefits," Note 4, "Details of Selected Balance Sheet Accounts" and Note 5, "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 nine months of 2022 and 2021.

Unaudited Segment Results of Operations

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Offshore/Manufactured Products, Well Site Services and Downhole Technologies.

Supplemental financial information by operating segment for the three and nine months ended September 30, 2022 and 2021 is summarized below (in thousands):

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

2022 2021 Variance 2022 2021 Variance

Supplemental financial information by operating segment for the three months ended March 31, 2023 and 2022 is summarized below (in thousands):

Three Months Ended

2023 2022 Variance

Offshore/Manufactured Products

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Offshore/Manufactured Products $ 11,090 $ 10,196 $ 894

$ 13,373 $ 1,764 $ 11,609 $ 33,010 $ 7,645 $ 25,365

Well Site Services 6,966 (3,395) 10,361

2,359 (5,250) 7,609 (435) (26,693) 26,258

Downhole Technologies (1,519) (1,505) (14)

(342) (5,035) 4,693 (3,332) (8,945) 5,613

Corporate (10,662) (9,632) (1,030)

Total $ 5,875 $ (4,336) $ 10,211

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(1) Operating income in the three and nine months ended September 30, 2022 included a gain of $6.1 million recognized in connection with the settlement of outstanding litigation against certain service providers.

(2) Operating loss in the first nine months of 2021 included non-cash fixed and operating lease asset impairment charges of $3.4 million.

(3) Operating loss in the three and nine months ended September 30 2021 included a non-cash inventory impairment charge of $2.1 million.

See Note 3, "Asset Impairments and Other Charges and Benefits," 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 and benefits recognized in the first nine months of 2022 and 2021.

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

We reported net income for the three months ended September 30, 2022 of $2.1 million, or $0.03 per share, which included a gain of $6.1 million ($4.6 million after-tax, or $0.07 per share) recognized in connection with the favorable settlement of a litigation matter.

These results compare to a net loss for the three months ended September 30, 2021 of $13.0 million, or $0.22 per share.

Reported third quarter 2021 results reflected the impact of Hurricane Ida, which negatively affected operations in southeast Louisiana and the Gulf of Mexico.

The third quarter 2021 loss also included a non-cash inventory impairment charge of $2.1 million ($1.7 million after-tax, or $0.03 per share) and severance and restructuring costs of $0.7 million ($0.6 million after-tax, or $0.01 per share).

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 and ESG considerations.

During the third quarter of 2021, we recognized an aggregate $1.2 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.

Consolidated total revenues in the third quarter of 2022 increased $48.9 million, or 35%, from the third quarter of 2021.

Consolidated product revenues in the third quarter of 2022 increased $29.3 million, or 42%, from the third quarter of 2021, driven primarily by higher demand for project-related connector products and increased U.S.

land-based customer activity.

Consolidated service revenues in the third quarter of 2022 increased $19.5 million, or 28%, from the third quarter of 2021 due primarily to higher customer spending in the United States, partially offset by the exit of certain non-performing service offerings in January 2022 (which generated revenues of $5.5 million in the third quarter of 2021).

As can be derived from the following table, 62% of our consolidated revenues in the third quarter of 2022 were derived from sales of our short-cycle product and service offerings, which compares to 64% 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, 2022 and 2021 (in thousands):

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

We reported net income for the three months ended March 31, 2023 of $2.2 million, or $0.03 per share.

These results compare to a net loss for the three months ended March 31, 2022 of $9.4 million, or $0.16 per share.

Increased capital investments by our customers, together with our internal cost control and strict capital discipline measures and other corporate actions, resulted in significant improvements in our recent consolidated results.

Consolidated total revenues in the first three months of 2023 increased $32.2 million, or 20%, from the first three months of 2022.

Consolidated product revenues in the first three months of 2023 increased $14.1 million, or 16%, from the first three months of 2022, driven primarily by higher customer demand for connector, drilling and short-cycle products.

Consolidated service revenues in the first three months of 2023 increased $18.1 million, or 23%, from the first three months of 2022 due primarily to increased customer spending in the U.S.

shale play regions and the Gulf of Mexico.

As can be derived from the following table, 64% of our consolidated revenues in the first three months of 2023 were derived from sales of our short-cycle product and service offerings, which compares to 61% in the prior-year period.

The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the three months ended March 31, 2023 and 2022 (in thousands):

Offshore/ Manufactured Products Well Site Services Downhole Technologies Total

Three Months Ended September 30 2022 2021 2022 2021 2022 2021 2022 2021

Three Months Ended March 31 2023 2022 2023 2022 2023 2022 2023 2022

Major revenue categories -

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Cost of Revenues (exclusive of Depreciation and Amortization Expense).

Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) increased $34.1 million, or 29%, in the third quarter of 2022 compared to the third quarter of 2021.

Cost of revenues in the third quarter of 2021 included charges totaling $2.1 million for non-cash inventory impairments.

Excluding these charges, consolidated cost of revenues increased $36.2 million, or 31%, from the prior-year period.

Consolidated product costs were $81.6 million in the third quarter of 2022.

This compares to consolidated product costs of $60.3 million in the third quarter of 2021, which included $2.1 million in non-cash inventory impairment charges.

Excluding these charges, consolidated product costs increased $23.4 million, or 40%, from the third quarter of 2021, reflective of the reported revenue growth as well as higher material, transportation, labor and other costs.

Consolidated service costs in the third

quarter of 2022 increased $12.8 million, or 23%, from the third quarter of 2021, with the impact of higher customer activity levels and increased labor and other costs partially offset by the impact of the January 2022 exit of certain non-performing service offerings.

Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) increased $24.1 million, or 19%, in the first three months of 2023 compared to the first three months of 2022.

Consolidated product costs in the first three months of 2023 increased $13.9 million, or 21%, compared to the first three months of 2022 due to the reported revenue growth and a shift in sales mix, as well as higher material transportation, labor and other costs.

Consolidated service costs in the first three months of 2023 increased $10.3 million, or 17%, compared to the first three months of 2022, due to the impact of higher revenue levels and increased labor and other costs.

Selling, General and Administrative Expense.

Selling, general and administrative expense increased $3.3 million, or 16%, in the third quarter of 2022 from the third quarter of 2021 due primarily to higher performance-based incentive compensation expenses.

Selling, general and administrative expense increased $0.2 million, or 1%, in the first three months of 2023 from the first three months of 2022, despite a 20% increase in total revenues.

Depreciation and Amortization Expense.

Depreciation and amortization expense decreased $3.2 million, or 17%, in the third quarter of 2022 compared to the prior-year quarter, driven primarily by reduced capital investments made in our Well Site Services segment in recent years.

Depreciation and amortization expense decreased $2.6 million, or 14%, in the first three months of 2023 compared to the prior-year period, driven primarily by reduced capital investments made in our Well Site Services segment in recent years.

Note 9, "Segments and Related Information," to our Unaudited Condensed Consolidated Financial Statements presents depreciation and amortization expense by segment.

Other Operating Income, Net.

Net other operating income for the third quarter of 2022 included a gain of $6.1 million recognized in connection with the settlement of outstanding litigation against certain service providers within our Offshore/Manufactured Products segment.

Operating Income (Loss).

Our consolidated operating income was $5.1 million in the third quarter of 2022, which included the $6.1 million gain reported as other operating income, net.

This compares to a consolidated operating loss of $16.1 million recognized in the third quarter of 2021, which included a $2.1 million non-cash inventory impairment charge and $0.7 million of severance and restructuring charges.

Interest Expense, Net.

Net interest expense totaled $2.6 million in the third quarter of 2022, which compares to $2.6 million in the same period of 2021.

Interest expense as a percentage of total debt outstanding was approximately 6% in the third quarter of 2022 and 2021.

For the three months ended September 30, 2022, our income tax provision was $0.8 million on pre-tax income of $2.9 million.

This compares to an income tax benefit of $3.5 million on a pre-tax loss of $16.6 million for the three months ended September 30, 2021, which included certain non-deductible expenses.

Other Comprehensive Loss.

Reported comprehensive loss is the sum of reported net income (loss) and other comprehensive loss.

Other comprehensive loss was $11.9 million in the third quarter of 2022 compared to comprehensive loss of $5.8 million in the third quarter of 2021 due to fluctuations in currency exchange rates compared to the U.S.

dollar which are used to translate certain of the international operations of our operating segments.

For the three months ended September 30, 2022 and 2021, currency translation adjustments recognized as a component of other comprehensive loss were primarily attributable to the United Kingdom and Brazil.

During the third quarters of 2022 and 2021, the exchange rates for both the British pound and the Brazilian real weakened compared to the U.S.

Segment Operating Results

Offshore/Manufactured Products

Our Offshore/Manufactured Products segment revenues increased $27.0 million, or 39%, in the third quarter of 2022 compared to the third quarter of 2021 due primarily to increased demand for project-related connector equipment and short-cycle and military products.

In addition, Hurricane Ida tempered third quarter 2021 revenues and operating income.

Operating Income.

Our Offshore/Manufactured Products segment reported operating income of $13.4 million in the third quarter of 2022, compared to operating income of $1.8 million in the third quarter of 2021.

This year-over-year increase was due primarily to the segment's reported revenue growth and the third quarter 2022 recognition of a $6.1 million gain in connection with the settlement of certain outstanding litigation, partially offset by the impact of higher material, transportation, labor and other costs.

Backlog in our Offshore/Manufactured Products segment totaled $258 million as of September 30, 2022, with third quarter 2022 bookings of $115 million and a quarterly book-to-bill ratio of 1.2x.

Well Site Services

Our Well Site Services segment revenues increased $14.5 million, or 32%, in the third quarter of 2022 compared to the prior-year quarter, driven by increased customer activity levels across all geographic regions, partially offset by the exit of U.S.

thru-tubing service offerings in January 2022 (which generated revenues of $5.5 million in the third quarter of 2021) and the prior-year impact of Hurricane Ida, which tempered third quarter 2021 revenues and operating income.

Operating Income (Loss).

Our Well Site Services segment reported operating income of $2.4 million in the third quarter of 2022, compared to an operating loss of $5.3 million in the third quarter of 2021, which included $0.4 million in severance and restructuring charges.

Excluding these 2021 charges, the segment's operating income (loss) improved $7.3 million from the prior-year quarter due primarily to the segment's reported revenue growth and a $2.8 million reduction in depreciation and amortization expense, partially offset by increased labor, material and other costs.

Downhole Technologies

Our Downhole Technologies segment revenues increased $7.3 million, or 29%, in the third quarter of 2022 from the prior-year period due primarily to higher customer demand for perforating and completion products in the United States.

Operating Loss.

Our Downhole Technologies segment reported an operating loss of $0.3 million in the third quarter of 2022, compared to an operating loss of $5.0 million in the prior-year period, which included a $2.1 million non-cash inventory impairment charge.

Excluding this charge, our Downhole Technologies operating loss decreased $2.6 million from the prior-year period due to the reported increase in revenues, partially offset by higher material, transportation, labor and other costs.

Corporate expenses increased $2.7 million, or 36%, in the third quarter of 2022 from the prior-year period, due primarily to higher personnel costs and performance-based incentive compensation.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

We reported a net loss for the nine months ended September 30, 2022 of $12.4 million, or $0.20 per share, which included a gain of $6.1 million ($4.6 million after-tax, or $0.07 per share) recognized in connection with the settlement of a litigation matter.

These results compare to a net loss for the nine months ended September 30, 2021 of $44.1 million, or $0.73 per share, which included non-cash impairment charges of $5.6 million ($4.4 million after-tax, or $0.08 per share) associated with write-downs of fixed and lease assets, $6.7 million ($5.3 million after-tax, or $0.09 per share) of severance and restructuring costs and non-cash gains of $4.0 million ($3.2 million after-tax, or $0.05 per share) associated with extinguishment of a portion of our 2023 Notes.

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 and ESG considerations.

During the first nine months of 2021, we recognized an aggregate $8.8 million reduction of payroll tax expense (recognized within cost of revenues and selling, general and administrative expense) as part of the CARES Act employee retention credit program.

Consolidated total revenues in the first nine months of 2022 increased $123.4 million, or 30%, from the first nine months of 2021.

Consolidated product revenues in the first nine months of 2022 increased $74.6 million, or 36%, from the first nine months of 2021, driven primarily by increased U.S.

land-based customer activity and higher demand for project-related connector product and fixed platform and deck equipment.

Consolidated service revenues in the first nine months of 2022 increased $48.8 million, or 24%, from the first nine months of 2021 due primarily to higher customer spending in the United States, partially offset by the exit of certain non-performing service offerings in January 2022 (which generated revenues of $15.0 million in the first nine months of 2021).

As can be derived from the following table, 61% of our consolidated revenues in the first nine months of 2022 were derived from sales of our short-cycle product and service offerings, which compares to 61% in the same period last year.

The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the three and nine months ended September 30, 2022 and 2021 (in thousands):

Offshore/ Manufactured Products Well Site Services Downhole Technologies Total

Nine Months Ended September 30 2022 2021 2022 2021 2022 2021 2022 2021

Major revenue categories -

Project-driven products $ 113,853 $ 78,494 $ — $ — $ — $ — $ 113,853 $ 78,494

Completion products and services 43,893 30,105 149,845 120,596 95,156 77,717 288,894 228,418

Drilling services — — 13,655 7,008 — — 13,655 7,008

Other products 24,052 16,857 — — — — 24,052 16,857

Total short-cycle 67,945 46,962 163,500 127,604 95,156 77,717 326,601 252,283

Other products and services 94,818 81,064 — — — — 94,818 81,064

$ 276,616 $ 206,520 $ 163,500 $ 127,604 $ 95,156 $ 77,717 $ 535,272 $ 411,841

Percentage of total revenue by type -

Products 74 % 69 % — % — % 84 % 86 % 53 % 51 %

Services 26 % 31 % 100 % 100 % 16 % 14 % 47 % 49 %

Cost of Revenues (exclusive of Depreciation and Amortization Expense).

Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) increased $82.9 million, or 25%, in the first nine months of 2022 compared to the first nine months of 2021.

Cost of revenues in the first nine months of 2021 included $2.1 million of non-cash inventory impairment charges.

Excluding these charges, consolidated cost of revenues increased $85.0 million, or 25%, from the prior-year period.

Consolidated product costs in the first nine months of 2022 increased $52.1 million, or 30%, compared to the first nine months of 2021, which included $2.1 million in non-cash inventory impairment charges.

Excluding these charges, consolidated product costs increased $54.2 million, or 32%, from the prior-year period due to the reported revenue growth and higher material, transportation, labor and other costs.

Consolidated service costs in the first nine months of 2022 increased $30.8 million, or 19%, compared to the first nine months of 2021 with the impact of higher customer activity levels and increased labor and other costs, partially offset by the impact of the January 2022 exit of certain non-performing service offerings.

Selling, General and Administrative Expense.

Selling, general and administrative expense increased $7.6 million, or 12%, in the first nine months of 2022 from the first nine months of 2021 due primarily to higher performance-based incentive compensation, professional service, bad debt and trade show expenses, partially offset by $3.7 million in severance and restructuring charges recognized in the prior-year period.

Depreciation and Amortization Expense.

Depreciation and amortization expense decreased $10.6 million, or 17%, in the first nine months 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 11, "Segments and Related Information," to our Unaudited Condensed Consolidated Financial Statements presents depreciation and amortization expense by segment.

Impairments of Fixed and Lease Assets.

During the first nine months of 2021, our Well Site Services segment recorded non-cash impairment charges of $3.4 million to reduce the carrying value of certain of the segment's fixed and operating lease assets to their estimated realizable value.

Other Operating Income, Net.

Net other operating income for the first nine months of 2022 included a gain of $6.1 million recognized in connection with the settlement of outstanding litigation against certain service providers within our Offshore/Manufactured Products segment.

Operating Loss.

Our consolidated operating loss was $0.4 million in the first nine months of 2022, which included the $6.1 million gain reported as other operating income, net.

This compares to a consolidated operating loss of $53.5 million recognized in the first nine months of 2021, which included $5.6 million of non-cash fixed and operating lease asset impairment charges and $6.7 million of severance and restructuring costs.

Our consolidated operating income was $5.9 million in the first three months of 2023.

This compares to a consolidated operating loss of $4.3 million recognized in the first three months of 2022.

Interest Expense, Net.

Net interest expense totaled $7.9 million in the first nine months of 2022, which compares to $7.6 million in the first nine months of 2021.

Interest expense as a percentage of total debt outstanding was approximately 6% in the first nine months of 2022 and 5% in the first nine months of 2021.

Other Income, Net.

Net other income for the first nine months of 2022 included a non-cash charge of $0.6 million recognized in connection with the settlement of disputes with the GEO Seller.

Net other income for the first nine months of 2022 and 2021 included non-cash gains of $0.2 million and $4.0 million, respectively, recognized in connection with our purchases of our 2023 Notes.

For the first nine months of 2022, our income tax provision was $6.0 million on a pre-tax loss of $6.4 million.

Income tax expense in the first nine months of 2022 was negatively impacted by valuation allowances recorded against U.S.

deferred tax assets as well as certain non-deductible expenses and discrete tax items.

This compares to an income tax benefit of $9.1 million on a pre-tax loss of $53.2 million for the first nine months of 2021, which included certain non-deductible expenses and discrete tax items.

Other Comprehensive Loss.

Reported comprehensive loss is the sum of reported net income (loss) and other comprehensive loss.

Other comprehensive loss was $23.8 million in the first nine months of 2022 compared to comprehensive loss of $4.2 million in the first nine months of 2021 due to fluctuations in foreign currency exchange rates compared to the U.S.

Net interest expense totaled $2.4 million in the first three months of 2023, which compares to $2.7 million in the first three months of 2022.

Interest expense as a percentage of total debt outstanding was approximately 7% in the first three months of 2023 and 6% in the first three months of 2022.

Income tax expense for the the first three months of 2023 was calculated 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 first three months of 2023, our income tax provision was $1.6 million on pre-tax income of $3.8 million, which included certain non-deductible expenses and discrete tax items.

This compares to an income tax provision of $3.4 million on a pre-tax loss of $6.0 million for the first three months of 2022, which included the impact of valuation allowances recorded against tax assets as well as certain non-deductible expenses and discrete tax items.

Other Comprehensive Income.

Reported comprehensive income (loss) is the sum of reported net income (loss) and other comprehensive income.

Other comprehensive income was $4.1 million in the first three months of 2023 compared to comprehensive income of $0.9 million in the first three months of 2022 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 nine months of 2022 and 2021, 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 2022, the exchange rate for the British pound weakened compared to the U.S.

For the first three months of 2023 and 2022, currency translation adjustments recognized as a component of other comprehensive income were primarily attributable to the United Kingdom and Brazil.

During the first three months of 2023, the exchange rates for the British pound and the Brazilian real strengthened compared to the U.S.

During the first three months 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.

During the first nine months of 2021, the exchange rate for the British pound and the Brazilian real weakened compared to the U.S.

Segment Operating Results

Offshore/Manufactured Products

Our Offshore/Manufactured Products segment revenues increased $70.1 million, or 34%, in the first nine months of 2022 compared to the first nine months of 2021 due to increased demand for all of the segment's product and service offerings, particularly project-related connector and short-cycle products.

Our Offshore/Manufactured Products segment revenues increased $14.1 million, or 17%, in the first three months of 2023 compared to the first three months of 2022 due primarily to increased demand for connector, drilling and short-cycle products.

Operating Income.

Our Offshore/Manufactured Products segment reported operating income of $33.0 million in the first nine months of 2022, which included a $6.1 million gain in connection with the settlement of certain outstanding litigation.

The segment reported operating income of $7.6 million in the first nine months of 2021, which included severance and restructuring costs of $0.5 million.

This year-over-year increase was due primarily to the reported revenue growth and the recognition of a $6.1 million gain in connection with the settlement of litigation, partially offset by the impact of higher material, transportation, labor and other costs.

Backlog in our Offshore/Manufactured Products segment totaled $258 million as of September 30, 2022 compared to $260 million as of December 31, 2021.

Bookings during the first nine months of 2022 totaled $283 million, yielding a book-to-bill ratio of 1.0x.

Our Offshore/Manufactured Products segment reported operating income of $11.1 million in the first three months of 2023, compared to operating income of $10.2 million in the first three months of 2022.

This year-over-year increase was due primarily to the segment's reported revenue growth, partially offset by a shift in product sales mix and the impact of higher material, transportation, labor and other costs.

Backlog in our Offshore/Manufactured Products segment totaled $326 million as of March 31, 2023 compared to $308 million as of December 31, 2022.

Bookings during the first three months of 2023 totaled $118 million, yielding a book-to-bill ratio of 1.2x.

Well Site Services

Our Well Site Services segment revenues increased $35.9 million, or 28%, in the first nine months 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 (which generated revenues of $15.0 million in the first nine months of 2021).

Operating Loss.

Our Well Site Services segment reported an operating loss of $0.4 million in the first nine months of 2022.

The segment reported an operating loss of $26.7 million in the first nine months of 2021, which included $4.0 million in severance and restructuring costs and non-cash fixed and lease asset impairment charges of $3.4 million.

Excluding these 2021 charges, the segment's operating loss decreased $18.8 million compared to the same prior-year period due primarily to the segment's reported revenue growth coupled with a $6.1 million decrease in depreciation and amortization expense, partially offset by increased labor, material and other costs.

Our Well Site Services segment revenues increased $18.9 million, or 39%, in the first three months of 2023 compared to the first three months of 2022, driven primarily by increased U.S.

customer activity levels.

Operating Income (Loss).

Our Well Site Services segment reported operating income of $7.0 million in the first three months of 2023, compared to an operating loss of $3.4 million in the first three months of 2022.

The segment's operating results improved $10.4 million from the prior-year period, due to the reported revenue growth and a $1.8 million decrease in depreciation and amortization expense, partially offset by increased labor, material and other costs.

Downhole Technologies

Our Downhole Technologies segment revenues increased $17.4 million, or 22%, in the first nine months of 2022 from the same prior-year period due primarily to increased customer demand for perforating and completion products in the United States.

Our Downhole Technologies segment revenues decreased $0.8 million, or 3%, in the first three months of 2023 from the first three months of 2022.

Operating Loss.

Our Downhole Technologies segment reported an operating loss of $3.3 million in the first nine months of 2022.

The segment reported an operating loss of $8.9 million in the first nine months of 2021, which included a non-cash inventory impairment charge of $2.1 million and $0.6 million of severance and restructuring charges.

Excluding these 2021 charges, operating loss decreased $2.9 million in the first nine months of 2022 from the prior-year period due to the reported increase in revenues, partially offset by higher material, transportation, labor and other costs.

Our Downhole Technologies segment reported an operating loss of $1.5 million in the first three months of 2023, consistent with the results reported in the first three months of 2022.

Operating Loss.

Corporate expenses in the first nine months of 2022 increased $4.1 million, or 16%, from the first nine months of 2021 due primarily to higher personnel costs, performance-based incentive compensation and professional fees, partially offset by $1.6 million of severance costs recognized in the prior-year period.

Corporate expenses in the first three months of 2023 increased $1.0 million, or 11%, from the first three months of 2022, due primarily to higher personnel costs and professional fees.

Liquidity, Capital Resources and Other Matters

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Operating Activities

Cash flows from operations totaled $19.0 million during the nine months ended September 30, 2022, compared to $20.6 million generated by operations during the first nine months of 2021.

During the first nine months of 2022, $27.5 million was used to fund net working capital increases, primarily due to increases in accounts receivable and inventories driven by higher activity levels.

During the first nine months of 2021, $6.6 million was provided by net working capital decreases, primarily due to an increase in accounts payable and accrued liabilities, partially offset by an increase in inventories.

Cash flows used in operations totaled $5.9 million during the first three months of 2023, compared to $10.7 million used in operations during the first three months of 2022.

During 2023, $25.6 million was used to fund net working capital increases, primarily due to the payment of accrued 2022 short- and long-term cash incentives and an activity-driven increase in inventories.

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.

Investing Activities

Cash used in investing activities during the first nine months of 2022 totaled $19.3 million, compared to $5.3 million used in investing activities during the first nine months of 2021.

As discussed under "Recent Developments," we acquired E-Flow on April 14, 2022 for net cash consideration of $8.1 million.

Capital expenditures totaled $13.3 million and $11.0 million during the first nine months of 2022 and 2021, respectively.

These investments were partially offset by proceeds from the sale of property and equipment of $2.2 million and $6.2 million during the first nine months of 2022 and 2021, respectively.

Net cash used in investing activities during the first three months of 2023 totaled $6.4 million, compared to $2.1 million used in investing activities during the first three months of 2022.

Capital expenditures totaled $6.6 million and $2.9 million during the first three months of 2023 and 2022, respectively.

These investments were partially offset by proceeds from the sale of property and equipment of $0.2 million and $0.9 million during the first three months of 2023 and 2022, respectively.

We expect to spend approximately $25 million in capital expenditures during 2023.

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Financing Activities

During the nine months ended September 30, 2022, net cash of $17.9 million was used in financing activities, including a cash payment of $10.0 million related to the GEO Note settlement (discussed below) and the purchase of $6.5 million principal amount of our outstanding 2023 Notes.

This compares to $19.4 million of cash used in financing activities during the nine months ended September 30, 2021, including our purchases of $131.4 million principal amount of our 2023 Notes for cash totaling $126.0 million and $19.0 million of net repayments under our ABL Facility.

Partially offsetting these uses in the first nine months of 2021 was our issuance of $135.0 million principal amount of our 4.75% convertible senior notes due 2026 (the "2026 Notes") yielding net cash proceeds of $130.6 million.

On June 28, 2022, we entered into a settlement agreement with the GEO Seller, which provided for the full and final settlement of all amounts due under the GEO Note.

Pursuant to the settlement agreement, on July 1, 2022, we paid the GEO Seller $10.0 million in cash and issued approximately 1.9 million shares of our common stock.

As of September 30, 2022, we had cash and cash equivalents totaling $33.1 million, which compared to $52.9 million as of December 31, 2021.

Cash was used during the period to settle the GEO Note, fund the E-Flow acquisition, fund capital expenditures and purchase a portion of our 2023 Notes.

As of September 30, 2022, we had no borrowings outstanding under our ABL Facility, $19.5 million principal amount of our 2023 Notes outstanding, $135.0 million principal amount of our 2026 Notes outstanding and other debt of $3.6 million.

Our reported interest expense included amortization of deferred financing costs of $1.4 million during the first nine months of 2022.

For the first nine months of 2022, our contractual cash interest expense was $6.5 million, or approximately 5% of the average principal balance of debt outstanding.

During the first three months of 2023, net cash of $14.4 million was used in financing activities, which included the repayment of the $17.3 million principal amount of our outstanding 2023 Notes.

This compares to $1.2 million of cash used in financing activities during the first three months of 2022.

As of March 31, 2023, we had cash and cash equivalents totaling $15.8 million, which compared to $42.0 million as of December 31, 2022.

As of March 31, 2023, we had $5.0 million in borrowings outstanding under our ABL Facility, $135.0 million principal amount of our 2026 Notes (as defined below) outstanding and other debt of $3.3 million.

Our reported interest expense included amortization of deferred financing costs of $0.4 million during the first three months of 2023.

For the first three months of 2023, our contractual cash interest expense was $2.0 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.

Capital availability will be affected by prevailing conditions in our industry, the global economy, the global banking and financial markets, stakeholder scrutiny of ESG matters and other factors, many of which are beyond our control.

In this regard, the effect of the two U.S.

bank failures in March 2023 resulted in significant disruptions to global banking and financial markets.

For companies like ours that support the energy industry, these disruptions 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.

A final rule is expected to be released in the second quarter of 2023, but we cannot predict the final form and substance of the rule and its requirements at this time.

The ultimate impact on our business is uncertain and, upon finalization, we and our customers may incur increased compliance 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." Also see the risk factor in "Part II, Item 1A.

Risk Factors" included in this Quarterly Report on Form 10-Q titled, "The Inflation Reduction Act of 2021 could accelerate the transition to a low carbon economy and could impose new costs on our customers' operations."

In addition, enhanced

climate disclosure requirements could accelerate the trend of certain stakeholders and lenders in restricting access to capital or seeking more stringent conditions with respect to their investments in us, our customers and other companies like ours that support the energy industry.

For more information on our risks related to climate change, see the risk factors in "Part I, Item 1A.

Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2022 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" and "Increasing attention to ESG matters may impact our business."

Stock Repurchase Program.

On February 16, 2023, the Board of Directors authorized $25.0 million for the repurchases of our common stock, par value $0.01 per share, through February 2025.

Subject to applicable securities laws, such purchases will be at such times and in such amounts as we deem appropriate.

As of March 31, 2023, no repurchases were made under this authorization.

Revolving Credit 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 GEO Note defined below).

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.

See Note 3, "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 September 30, 2022, we had $17.6 million of outstanding letters of credit, but no borrowings outstanding under the ABL Agreement.

The total amount available to be drawn as of September 30, 2022 was $79.9 million, calculated based on the current borrowing base less outstanding letters of credit.

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 us 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 us with respect to other indebtedness of at least $40.0 million.

See Note 5, "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 September 30, 2022, none of the conditions allowing holders of the 2026 Notes to convert, or requiring us to repurchase the 2026 Notes, had been met.

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 us 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 $180.5 million principal amount of the 2023 Notes for $159.0 million in cash, with $19.5 million principal amount outstanding as of September 30, 2022.

As of March 31, 2023, we had $5.0 million of outstanding borrowings and $15.9 million of outstanding letters of credit under the ABL Agreement.

The total amount available to be drawn as of March 31, 2023 was $92.8 million, calculated based on the then-current borrowing base less outstanding letters of credit.

We issued $135.0 million aggregate principal amount of 4.75% convertible senior notes due 2026 (the "2026 Notes") pursuant to an indenture, dated as of March 19, 2021 (the "2026 Indenture"), between us and Computershare Trust Company, National Association, as successor trustee.

The 2026 Notes will mature on April 1, 2026, unless earlier repurchased, redeemed or converted.

The 2026 Indenture contains certain events of default, including certain defaults by us with respect to other indebtedness of at least $40.0 million.

See Note 3, "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 September 30, 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 (such acquisition, the "GEODynamics Acquisition"), we issued a $25.0 million promissory note (the "GEO Note") that was scheduled to mature on July 12, 2019.

Payments due under the GEO Note were subject to set-off, in full or in part, against certain indemnification claims related to matters occurring prior to the GEODynamics Acquisition.

We asserted indemnification claims against the GEO Seller, and the GEO Seller filed a breach of contract suit against us and one of our wholly-owned subsidiaries alleging that payments due under the GEO Note were required to be repaid in accordance with the terms of such note.

We incurred settlement costs and expenses of $7.5 million related to such indemnification claims and as of June 28, 2022, had reduced the carrying amount of such note in our consolidated balance sheet to $17.5 million, which was our then-current best estimate of what was owed after set-off for indemnification matters.

On June 28, 2022, we entered into a settlement agreement with the GEO Seller, including the full and final settlement of all amounts due pursuant to the GEO Note.

See Note 12, "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 19% and 20% of our combined total debt and stockholders' equity as of September 30, 2022 and December 31, 2021, respectively.

As of March 31, 2023, none of the conditions allowing holders of the 2026 Notes to convert, or requiring us to repurchase the 2026 Notes, had been met.

On February 15, 2023, our 1.50% convertible senior notes due 2023 (the "2023 Notes") matured and the outstanding $17.3 million principal amount was repaid in full.

Our total debt represented 17% and 18% of our combined total debt and stockholders' equity as of March 31, 2023 and December 31, 2022, respectively.

Contingencies and Other Obligations.

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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 GEO Seller filed a breach of contract suit against us in federal court in August 2020, in which the GEO 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 GEO Seller dismissed the federal lawsuit without prejudice and refiled its lawsuit in state court.

On September 20, 2021, a motion by the GEO Seller for partial summary judgement was denied by the state court.

On June 28, 2022, we entered into a settlement agreement with the GEO Seller, including the full and final settlement of all amounts due under the GEO Note.

In August of 2022, our Offshore/Manufactured Products segment settled outstanding litigation against certain service providers in exchange for the receipt of cash totaling $6.9 million.

In connection with this settlement, we recognized a gain of $6.1 million in the third quarter of 2022.

See Note 10, "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 September 30, 2022, we had no off-balance sheet arrangements.

As of March 31, 2023, 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.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2022.

These estimates require significant judgments, assumptions and estimates.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis