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 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 2022 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. 18 Recent Developments 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) 2023 $ 81.01 2022 100.87 $ 113.84 $ 100.71 $ 88.77 $ 100.99 WTI Crude (per bbl) 2023 $ 75.91 2022 95.18 $ 108.83 $ 93.06 $ 82.79 $ 94.90 Henry Hub Natural Gas (per MMBtu) 2023 $ 2.64 2022 4.67 $ 7.50 $ 8.03 $ 5.55 $ 6.45 ________________ (1) Source: U.S. Energy Information Administration (spot prices). 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 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. Overview 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: 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; sanctions; the perceived risk of a global economic recession; 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 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. 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. 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 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- 19 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 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 $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). Backlog as of Year March 31 June 30 September 30 December 31 2023 $ 326 2022 265 $ 241 $ 258 $ 308 2021 226 214 249 260 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. As of April 21, 2023 Average for the Three Months Ended March 31, 2023 2022 United States Rig Count: Land – Oil 571 579 493 Land – Natural gas and other 161 155 123 Offshore 21 19 17 753 753 633 International Rig Count: Land 897 828 Offshore 226 193 1,123 1,021 1,876 1,654 20 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, 2023, oil-directed drilling accounted for 78% of the total U.S. rig count – with the balance largely natural gas related. As can be derived from the table above, the average U.S. 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. 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. In addition, in response to Russia's invasion of Ukraine, governments in the European Union, the United States, the United Kingdom, Switzerland and other countries have enacted sanctions against Russia and Russian interests. The effect of these sanctions and 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. Other factors that can affect our business and financial results include but are not limited to: the general global economic environment (including disruptions in the banking sector); 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, 2022. 21 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 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, 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 months ended March 31, 2023 and 2022 (in thousands, except per share amounts): Three Months Ended March 31, 2023 2022 Variance Revenues: Products $ 99,840 $ 85,761 $ 14,079 Services 96,359 78,283 18,076 196,199 164,044 32,155 Costs and expenses: Product costs 78,677 64,801 13,876 Service costs 72,058 61,803 10,255 Cost of revenues (exclusive of depreciation and amortization expense presented below) 150,735 126,604 24,131 Selling, general and administrative expenses 24,016 23,833 183 Depreciation and amortization expense 15,256 17,817 (2,561) Other operating income, net 317 126 191 190,324 168,380 21,944 Operating income (loss) 5,875 (4,336) 10,211 Interest expense, net (2,391) (2,672) 281 Other income, net 276 1,025 (749) Income (loss) before income taxes 3,760 (5,983) 9,743 Income tax provision (1,602) (3,441) 1,839 Net income (loss) $ 2,158 $ (9,424) $ 11,582 Net income (loss) per share: Basic $ 0.03 $ (0.16) Diluted 0.03 (0.16) Weighted average number of common shares outstanding: Basic 62,825 60,498 Diluted 63,072 60,498 22 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, 2023 and 2022 is summarized below (in thousands): Three Months Ended March 31, 2023 2022 Variance Revenues Offshore/Manufactured Products Project-driven products $ 39,132 $ 33,844 $ 5,288 Short-cycle products 27,440 20,624 6,816 Other products and services 31,627 29,644 1,983 Total Offshore/Manufactured Products 98,199 84,112 14,087 Well Site Services 67,058 48,172 18,886 Downhole Technologies 30,942 31,760 (818) Total $ 196,199 $ 164,044 $ 32,155 Operating income (loss) Offshore/Manufactured Products $ 11,090 $ 10,196 $ 894 Well Site Services 6,966 (3,395) 10,361 Downhole Technologies (1,519) (1,505) (14) Corporate (10,662) (9,632) (1,030) Total $ 5,875 $ (4,336) $ 10,211 23 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. Revenues. 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 March 31 2023 2022 2023 2022 2023 2022 2023 2022 Major revenue categories - Project-driven products $ 39,132 $ 33,844 $ — $ — $ — $ — $ 39,132 $ 33,844 Short-cycle: Completion products and services 17,955 13,580 65,406 45,166 30,942 31,760 114,303 90,506 Drilling services — — 1,652 3,006 — — 1,652 3,006 Other products 9,485 7,044 — — — — 9,485 7,044 Total short-cycle 27,440 20,624 67,058 48,172 30,942 31,760 125,440 100,556 Other products and services 31,627 29,644 — — — — 31,627 29,644 $ 98,199 $ 84,112 $ 67,058 $ 48,172 $ 30,942 $ 31,760 $ 196,199 $ 164,044 Percentage of total revenue by type - Products 75 % 71 % — % — % 85 % 82 % 51 % 52 % Services 25 % 29 % 100 % 100 % 15 % 18 % 49 % 48 % Cost of Revenues (exclusive of Depreciation and Amortization Expense). 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 $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 $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. Operating Income (Loss). 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 $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. 24 Income Tax. 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 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. dollar. 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. dollar. Segment Operating Results Offshore/Manufactured Products Revenues. 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 $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. 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 Revenues. 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 Revenues. 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 $1.5 million in the first three months of 2023, consistent with the results reported in the first three months of 2022. Corporate Operating Loss. 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. 25 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 $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 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. 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 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 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. 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 26 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. 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. 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 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. 2026 Notes. 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 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. 2023 Notes. 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. 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. 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 March 31, 2023, we had no off-balance sheet arrangements. 27 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 Annual Report on Form 10-K for the year ended December 31, 2022. 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. 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.