What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-07-27 · 154 added, 132 removed, 254 unchanged (53% of the section changed)

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Energy Information Administration (spot prices).

On July 21, 2023, Brent crude oil, WTI crude oil and natural gas spot prices closed at $81.06 per barrel, $77.06 per barrel and $2.61 per MMBtu, respectively.

On October 20, 2023, Brent crude oil, WTI crude oil and natural gas spot prices closed at $93.72 per barrel, $89.12 per barrel and $2.60 per MMBtu, respectively.

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

drilling rig count reported on July 21, 2023 was 669 rigs – 7% below the second quarter 2023 average.

drilling rig count reported on October 20, 2023 was 624 rigs – 4% below the third quarter 2023 average.

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

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

During the second quarter of 2023, $3.0 million of share repurchases were made under this authorization.

During the first nine months of 2023, $3.0 million of share repurchases were made under this authorization.

Current and expected future pricing for WTI crude oil and natural gas 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.

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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;

geopolitical conflicts in Europe and the Middle East, along with associated international tensions;

the perceived risk of a global economic recession;

global uncertainties related to disruptions in the banking sector;

domestic or international crude oil production;

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improved vehicle fuel efficiency;

timing of capital investments in alternative energy sources;

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 moderated over the last ten years 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.

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.

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.

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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 63% of Offshore/Manufactured Products segment sales in the first six months of 2023 were driven by our customers' capital spending for

Approximately 65% of Offshore/Manufactured Products segment sales in the first nine months of 2023 were driven by our customers' capital spending for

products and services 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 and services").

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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 $338 million as of June 30, 2023 from $308 million as of December 31, 2022 and $241 million as of June 30, 2022.

Bookings totaled $106 million in the second quarter of 2023, yielding a book-to-bill ratio of 1.1x (1.2x year-to-date).

Backlog reported by our Offshore/Manufactured Products segment increased to $348 million as of September 30, 2023 from $308 million as of December 31, 2022 and $258 million as of September 30, 2022.

Bookings totaled $129 million in the third quarter of 2023, yielding a book-to-bill ratio of 1.2x (1.2x year-to-date).

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

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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.

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

As of July 21, 2023

As of October 20, 2023

Average for the

Three Months Ended June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

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624 649 761 707 706

International Rig Count:

Land 844 733 871 781

Offshore 231 197 228 195

1,075 930 1,099 976

1,794 1,643 1,835 1,651

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 June 30, 2023, oil-directed drilling accounted for 81% of the total U.S.

As of September 30, 2023, oil-directed drilling accounted for 81% 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 six months of 2023 increased by 61 rigs, or 9%, compared to the average for the first six 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.

The United States has imposed tariffs on a variety of imported products, including steel and

In response to the U.S.

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climate-related and other regulatory changes;

geopolitical tensions;

geopolitical conflicts and tensions;

and changes in tax laws in the United States and international markets.

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Unaudited Consolidated Results of Operations

The following summarizes our consolidated results of operations for the three and six months ended June 30, 2023 and 2022 (in thousands, except per share amounts):

The following summarizes our consolidated results of operations for the three and nine months ended September 30, 2023 and 2022 (in thousands, except per share amounts):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 Variance 2023 2022 Variance

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Depreciation and amortization expense 15,416 16,413 (997) 46,209 51,469 (5,260)

Other operating income, net (835) (228) (607) (518) (102) (416)

Other operating expense (income), net (1)

(1,985) (6,750) 4,765 (2,503) (6,852) 4,349

188,099 184,336 3,763 558,683 535,640 23,043

Operating income (loss) 6,190 5,058 1,132 15,334 (368) 15,702

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63,060 62,676 63,135 61,292

_______________

(1) In the three and nine months ended September 30, 2023, we recognized facility consolidation charges of $1.6 million associated with the Offshore/Manufactured Products segment's ongoing consolidation and relocation of certain manufacturing and service locations.

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.

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 six months ended June 30, 2023 and 2022 is summarized below (in thousands):

Supplemental financial information by operating segment for the three and nine months ended September 30, 2023 and 2022 is summarized below (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 Variance 2023 2022 Variance

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Short-cycle products 27,930 23,710 4,220 84,435 67,945 16,490

Total Offshore/Manufactured Products 94,086 96,467 (2,381) 192,285 180,579 11,706

111,043 96,037 15,006 303,328 276,616 26,712

Well Site Services 59,831 60,509 (678) 191,425 163,500 27,925

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Offshore/Manufactured Products (1)

$ 17,804 $ 13,373 $ 4,431 $ 40,147 $ 33,010 $ 7,137

Well Site Services 3,285 2,359 926 14,983 (435) 15,418

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$ 6,190 $ 5,058 $ 1,132 $ 15,334 $ (368) $ 15,702

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

We reported net income for the three months ended June 30, 2023 of $0.6 million, or $0.01 per share.

These results compare to a net loss for the three months ended June 30, 2022 of $5.1 million, or $0.08 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 second quarter of 2023 increased $1.7 million, or 1%, from the second quarter of 2022.

Consolidated product revenues in the second quarter of 2023 decreased $6.4 million, or 6%, from the second quarter of 2022, driven primarily by the timing of conversion of production facility and connector products from backlog into revenue and lower customer demand for perforating products.

Consolidated service revenues in the second quarter of 2023 increased $8.1 million, or 10%, from the second quarter of 2022 due primarily to increased customer spending in the U.S.

shale play regions and the Gulf of Mexico.

The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the three months ended June 30, 2023 and 2022 (in thousands):

_______________

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.

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

We reported net income for the three months ended September 30, 2023 of $4.2 million, or $0.07 per share, which included facility consolidation charges of $1.6 million ($1.3 million after-tax, or $0.02 per share).

These results compare to 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.

Our reported results in the third quarter of 2023 reflect continued growth in international offshore-project activity and associated backlog conversion, partially offset by the impact of an industry-wide decline in U.S.

well completions – which has been ongoing since the start of 2023.

Consolidated total revenues in the third quarter of 2023 increased $4.9 million, or 3%, from the third quarter of 2022.

Consolidated product revenues in the third quarter of 2023 increased $2.9 million, or 3%, from the third quarter of 2022, driven primarily by the conversion of production facility products from backlog into revenue.

Consolidated service revenues in the third quarter of 2023 increased $2.0 million, or 2%, from the third quarter of 2022 due to increased customer spending for project-driven services, partially offset by a decrease in U.S.

customer demand for short-cycle services.

The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the three months ended September 30, 2023 and 2022 (in thousands):

Offshore/ Manufactured Products Well Site Services Downhole Technologies Total

Three Months Ended June 30 2023 2022 2023 2022 2023 2022 2023 2022

Three Months Ended September 30 2023 2022 2023 2022 2023 2022 2023 2022

Project-driven:

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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) in the second quarter of 2023 was comparable to the level reported in the second quarter of 2022.

Consolidated product costs the second quarter of 2023 decreased $6.7 million, or 8%, from the second quarter of 2022 due to the reported revenue decrease and a shift in sales mix, partially offset by higher material, transportation, labor and other costs.

Consolidated service costs in the second quarter of 2023 increased $6.6 million, or 11%, from the second quarter of 2022, due to the impact of higher revenue levels and increased labor and other costs.

Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) in the third quarter of 2023 decreased $0.9 million, or 1%, compared to the level reported in the third quarter of 2022.

Consolidated product costs in the third quarter of 2023 decreased $1.4 million, or 2%, from the third quarter of 2022 due to a favorable shift in product sales mix.

Consolidated service costs in the third quarter of 2023 increased $0.5 million, or 1%, from the third quarter of 2022, due primarily to the reported revenue growth.

Selling, General and Administrative Expense.

Selling, general and administrative expense in the second quarter of 2023 was comparable to the level reported in the second quarter of 2022.

Selling, general and administrative expense in the third quarter of 2023 increased $0.9 million, or 4%, from the level reported in the third quarter of 2022.

Depreciation and Amortization Expense.

Depreciation and amortization expense decreased $1.7 million, or 10%, in the second quarter of 2023 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 $1.0 million, or 6%, in the third quarter of 2023 compared to the prior-year quarter, reflective of certain intangible assets reaching the end of their economic life in 2022.

Note 10, "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 $3.3 million in the second quarter of 2023.

This compares to a consolidated operating loss of $1.1 million recognized in the second quarter of 2022.

Other Operating Income, Net.

In the third quarter of 2023, other operating income, net included gains on disposals of assets totaling $2.8 million, partially offset by charges of $1.6 million recognized in connection with our ongoing consolidation of certain manufacturing and service locations within our Offshore/Manufactured Products segment.

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 and $0.4 million in gains on disposals of assets.

Operating Income, Net.

Our consolidated operating income was $6.2 million in the third quarter of 2023, which included the $1.6 million in facility consolidation charges reported within other operating income, net as discussed above.

This compares to third quarter 2022 consolidated operating income of $5.1 million, which included the $6.1 million gain reported within other operating income, net, as discussed above.

Interest Expense, Net.

Net interest expense totaled $2.1 million in the second quarter of 2023, which compares to $2.6 million in the same period of 2022.

Interest expense as a percentage of total debt outstanding was approximately 7% in the second quarter of 2023, compared to 6% in the second quarter of 2022.

Income tax expense for the three months ended June 30, 2023 was calculated using a discrete approach.

Net interest expense totaled $1.9 million in the third quarter of 2023, which compares to $2.6 million in the same period of 2022.

Interest expense as a percentage of total debt outstanding was approximately 7% in the third quarter of 2023, compared to 6% in the third quarter of 2022.

Income tax expense for the three months ended September 30, 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 three months ended June 30, 2023, our income tax provision was $0.9 million on pre-tax income of $1.4 million, which included certain non-deductible expenses, discrete tax items and a favorable change in valuation allowances recorded against deferred tax assets.

This compares to an income tax provision of $1.8 million on a pre-tax loss of $3.4 million for the three months ended June 30, 2022, which was negatively impacted by valuation allowances recorded against deferred tax assets as well as certain non-deductible expenses.

Other Comprehensive Income (Loss).

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

Other comprehensive income was $3.3 million in the second quarter of 2023 compared to comprehensive loss of $12.7 million in the second quarter of 2022 due to fluctuations in currency exchange rates compared to the U.S.

For the three months ended September 30, 2023, our income tax provision was $0.2 million on pre-tax income of $4.4 million, which included certain non-deductible expenses, discrete tax items and a reduction in valuation allowances recorded against deferred tax assets.

This compares to an income tax provision of $0.8 million on a pre-tax income of $2.9 million for the three months ended September 30, 2022.

Other Comprehensive Loss.

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

Other comprehensive loss was $5.7 million in the third quarter of 2023 compared to comprehensive loss of $11.9 million in the third quarter of 2022 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 June 30, 2023 and 2022, currency translation adjustments recognized as a component of other comprehensive income (loss) were primarily attributable to the United Kingdom and Brazil.

During the second quarter of 2023, the exchange rates for both the British pound and the Brazilian real strengthened compared to the U.S.

This compares to the second quarter of 2022, when the exchange rates for both the British pound and the Brazilian real weakened compared to the U.S.

For the three months ended September 30, 2023 and 2022, currency translation adjustments recognized as a component of other comprehensive loss were primarily attributable to the United Kingdom and Brazil.

During the third quarter of both 2023 and 2022, 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 decreased $2.4 million, or 2%, in the second quarter of 2023 compared to the second quarter of 2022 due primarily to the timing of conversion of production facility and connector products from backlog into revenue, partially offset by higher short-cycle product revenue.

Our Offshore/Manufactured Products segment revenues increased $15.0 million, or 16%, in the third quarter of 2023 compared to the third quarter of 2022 due primarily to the timing of conversion of production facility products from backlog into revenue as well as higher service and short-cycle product sales.

Operating Income.

Our Offshore/Manufactured Products segment reported operating income of $11.3 million in the second quarter of 2023, compared to operating income of $9.4 million in the second quarter of 2022.

This year-over-year increase was due primarily to a favorable shift in product sales mix.

Backlog in our Offshore/Manufactured Products segment totaled $338 million as of June 30, 2023, with second quarter 2023 bookings of $106 million and a quarterly book-to-bill ratio of 1.1x.

Our Offshore/Manufactured Products segment reported operating income of $17.8 million in the third quarter of 2023, which included the $1.6 million in facility consolidation charges, compared to operating income in the third quarter of 2022 of $13.4 million, which included a $6.1 million gain recognized in connection with the settlement of outstanding litigation.

Excluding the charges and prior-year gain, operating income increased $12.2 million year-over-year driven primarily by the reported revenue growth and a favorable shift in product sales mix.

Backlog in our Offshore/Manufactured Products segment totaled $348 million as of September 30, 2023, with third quarter 2023 bookings of $129 million and a quarterly book-to-bill ratio of 1.2x.

Well Site Services

Our Well Site Services segment revenues increased $9.7 million, or 18%, in the second quarter of 2023 compared to the prior-year quarter, driven primarily by increased U.S.

customer activity levels.

Our Well Site Services segment revenues decreased $0.7 million, or 1%, in the third quarter of 2023 compared to the prior-year period, driven primarily by lower U.S.

customer activity levels and competitive market conditions.

Operating Income.

Our Well Site Services segment reported operating income of $4.7 million in the second quarter of 2023, compared to operating income of $0.6 million in the second quarter of 2022.

The segment's operating results improved $4.1 million from the prior-year period, due primarily to the reported revenue growth and an $0.8 million decrease in depreciation and amortization expense, partially offset by increased labor, material and other costs.

Our Well Site Services segment reported operating income of $3.3 million in the third quarter of 2023, compared to operating income of $2.4 million in the third quarter of 2022.

The segment's operating results improved $0.9 million from the prior-year period, due primarily to a favorable shift in service mix and a $0.4 million decrease in depreciation and amortization expense, partially offset by increased labor, material and other costs.

Downhole Technologies

Our Downhole Technologies segment revenues decreased $5.6 million, or 18%, in the second quarter of 2023 from the prior-year period.

Our Downhole Technologies segment revenues decreased $9.4 million, or 29%, in the third quarter of 2023 from the prior-year period, driven primarily by lower U.S.

customer activity levels and competitive market conditions.

Operating Loss.

Our Downhole Technologies segment reported an operating loss of $2.5 million in the second quarter of 2023, which included a $1.0 million non-cash provision for excess and obsolete inventory.

This compares to an operating loss of $1.5 million in the prior-year period.

Our Downhole Technologies segment reported an operating loss of $4.1 million in the third quarter of 2023, which compared to an operating loss of $0.3 million in the prior-year period.

Operating loss increased $3.8 million year-over-year due primarily to the decline in reported revenue, lower manufacturing volumes and higher labor, material and other costs.

Operating Loss.

Corporate expenses increased $0.5 million, or 6%, in the second quarter of 2023 from the prior-year period, due primarily to higher marketing and personnel costs.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

We reported net income for the six months ended June 30, 2023 of $2.7 million, or $0.04 per share.

These results compare to a net loss for the six months ended June 30, 2022 of $14.6 million, or $0.24 per share.

Consolidated total revenues in the first six months of 2023 increased $33.9 million, or 10%, from the first six months of 2022.

Consolidated product revenues in the first six months of 2023 increased $7.7 million, or 4%, from the first six months of 2022, driven primarily by higher customer demand for short-cycle products.

Consolidated service revenues in the first six months of 2023 increased $26.2 million, or 16%, from the first six months of 2022 due primarily to increased customer spending in the U.S.

shale play regions and the Gulf of Mexico.

The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the six months ended June 30, 2023 and 2022 (in thousands):

Corporate expenses increased $0.4 million, or 4%, in the third quarter of 2023 from the prior-year period.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

We reported net income for the nine months ended September 30, 2023 of $6.9 million, or $0.11 per share, which included facility consolidation charges of $1.6 million ($1.3 million after-tax, or $0.02 per share).

These results compare to 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.

The favorable impact of continued growth in international offshore-project activity and associated backlog conversion was partially offset by the impact of an industry-wide decline in U.S.

well completions – which has been ongoing since the start of 2023.

Consolidated total revenues in the first nine months of 2023 increased $38.7 million, or 7%, from the first nine months of 2022.

Consolidated product revenues in the first nine months of 2023 increased $10.6 million, or 4%, from the first nine months of 2022, driven primarily by higher customer demand for short-cycle products.

Consolidated service revenues in the first nine months of 2023 increased $28.2 million, or 11%, from the first nine months of 2022 due primarily to increased customer spending in the U.S.

shale play regions in the first half of 2023.

The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the nine months ended September 30, 2023 and 2022 (in thousands):

Offshore/ Manufactured Products Well Site Services Downhole Technologies Total

Six Months Ended June 30 2023 2022 2023 2022 2023 2022 2023 2022

Nine Months Ended September 30 2023 2022 2023 2022 2023 2022 2023 2022

Project-driven:

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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 $24.0 million, or 9%, in the first six months of 2023 compared to the first six months of 2022.

Consolidated product costs in the first six months of 2023 increased $7.1 million, or 5%, compared to the first six months of 2022 due primarily 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 six months of 2023 increased $16.9 million, or 14%, compared to the first six months of 2022, due primarily to the impact of higher revenue levels and increased labor and other costs.

Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) increased $23.1 million, or 6%, in the first nine months of 2023 compared to the first nine months of 2022.

Consolidated product costs in the first nine months of 2023 increased $5.8 million, or 3%, compared to the first nine months of 2022 due primarily to the reported revenue growth as well as higher material, transportation, labor and other costs.

Consolidated service costs in the first nine months of 2023 increased $17.4 million, or 9%, compared to the first nine months of 2022, due primarily to the impact of higher revenue levels and increased labor and other costs.

Selling, General and Administrative Expense.

Selling, general and administrative expense in the first six months of 2023 was comparable to the first six months of 2022, despite a 10% increase in total revenues.

Selling, general and administrative expense in the first nine months of 2023 increased $0.8 million, or 1%, from the first nine months of 2022.

Depreciation and Amortization Expense.

Depreciation and amortization expense decreased $4.3 million, or 12%, in the first six 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.

Depreciation and amortization expense decreased $5.3 million, or 10%, in the first nine months of 2023 compared to the prior-year period, reflective of certain intangible assets reaching the end of their economic life in 2022 and reduced capital investments made in our Well Site Services segment in recent years.

Note 10, "Segments and Related Information," to our Unaudited Condensed Consolidated Financial Statements presents depreciation and amortization expense by segment.

Other Operating Income, Net.

In the first nine months of 2023, other operating income, net included gains on disposals of assets totaling $3.3 million, partially offset by charges of $1.6 million recognized in connection with our ongoing consolidation of certain manufacturing and service locations within our Offshore/Manufactured Products segment.

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 and $1.5 million in gains on disposals of assets.

Operating Income (Loss).

Our consolidated operating income was $9.1 million in the first six months of 2023.

This compares to a consolidated operating loss of $5.4 million recognized in the first six months of 2022.

Our consolidated operating income was $15.3 million in the first nine months of 2023, which included the $1.6 million in facility consolidation charges reported within other operating income, net.

This compares to a consolidated operating loss of $0.4 million, which included the $6.1 million gain reported within other operating income, net, recognized in the first nine months of 2022.

Interest Expense, Net.

Net interest expense totaled $4.5 million in the first six months of 2023, which compares to $5.3 million in the first six months of 2022.

Interest expense as a percentage of total debt outstanding was approximately 7% in the first six months of 2023, compared to 6% in the first six months of 2022.

Income tax expense for the first six months of 2023 was calculated using a discrete approach.

Net interest expense totaled $6.4 million in the first nine months of 2023, which compares to $7.9 million in the first nine months of 2022.

Interest expense as a percentage of total debt outstanding was approximately 7% in the first nine months of 2023, compared to 6% in the first nine months of 2022.

Income tax expense for the first nine 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 six months of 2023, our income tax provision was $2.5 million on pre-tax income of $5.2 million, which included certain non-deductible expenses, discrete tax items and a favorable change in valuation allowances recorded against deferred tax assets.

This compares to an income tax provision of $5.2 million on a pre-tax loss of $9.3 million for the first six months of 2022, which was negatively impacted by valuation allowances recorded against deferred tax assets as well as certain non-deductible expenses and discrete tax items.

For the first nine months of 2023, our income tax provision was $2.7 million on pre-tax income of $9.6 million, which included certain non-deductible expenses, discrete tax items and a reduction in valuation allowances recorded against deferred tax assets.

This compares to an income tax provision of $6.0 million on a pre-tax loss of $6.4 million for the first nine months of 2022, which was negatively impacted by valuation allowances recorded against deferred tax assets as well as certain non-deductible expenses and discrete tax items.

Other Comprehensive Income (Loss).

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

Other comprehensive income was $7.4 million in the first six months of 2023 compared to comprehensive loss of $11.8 million in the first six months of 2022 due to fluctuations in foreign currency exchange rates compared to the U.S.

Other comprehensive income was $1.7 million in the first nine months of 2023 compared to comprehensive loss of $23.8 million in the first nine 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 six months of 2023 and 2022, currency translation adjustments recognized as a component of other comprehensive income (loss) were primarily attributable to the United Kingdom and Brazil.

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

During the first six months of 2022, the exchange rate for the British pound weakened compared to the U.S.

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

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

During the first nine 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.

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Offshore/Manufactured Products

Our Offshore/Manufactured Products segment revenues increased $11.7 million, or 6%, in the first six months of 2023 compared to the first six months of 2022 due primarily to increased demand for short-cycle and industrial products.

Our Offshore/Manufactured Products segment revenues increased $26.7 million, or 10%, in the first nine months of 2023 compared to the first nine months of 2022 due primarily to increased demand for short-cycle products and offshore-project driven services.

Operating Income.

Our Offshore/Manufactured Products segment reported operating income of $22.3 million in the first six months of 2023, compared to operating income of $19.6 million in the first six months of 2022.

This year-over-year increase was due primarily to the segment's reported revenue growth and lower professional fees and bad debt expense, 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 $338 million as of June 30, 2023 compared to $308 million as of December 31, 2022.

Bookings during the first six months of 2023 totaled $224 million, yielding a year-to-date book-to-bill ratio of 1.2x.

Our Offshore/Manufactured Products segment reported operating income of $40.1 million in the first nine months of 2023, which included the $1.6 million in facility consolidation charges.

This compares to operating income of $33.0 million, which included a $6.1 million gain recognized in connection with the settlement of outstanding litigation, in the first nine months of 2022.

Excluding the charges and prior-year gain, operating income increased $14.9 million year-over-year due primarily to the segment's reported revenue growth and lower bad debt expense, partially offset by the impact of higher material, transportation, labor and other costs.

Backlog in our Offshore/Manufactured Products segment totaled $348 million as of September 30, 2023 compared to $308 million as of December 31, 2022.

Bookings during the first nine months of 2023 totaled $353 million, yielding a year-to-date book-to-bill ratio of 1.2x.

Well Site Services

Our Well Site Services segment revenues increased $28.6 million, or 28%, in the first six months of 2023 compared to the first six months of 2022, driven primarily by higher U.S.

customer activity levels.

Our Well Site Services segment revenues increased $27.9 million, or 17%, in the first nine months of 2023 compared to the first nine months of 2022, driven primarily by higher U.S.

customer activity levels during the first half of 2023.

Operating Income (Loss).

Our Well Site Services segment reported operating income of $11.7 million in the first six months of 2023, compared to an operating loss of $2.8 million in the first six months of 2022.

Our Well Site Services segment reported operating income of $15.0 million in the first nine months of 2023, compared to an operating loss of $0.4 million in the first nine months of 2022.

The segment's operating results improved $15.4 million from the prior-year period, due to the reported revenue growth and a $3.0 million decrease in depreciation and amortization expense, partially offset by increased labor, material and other costs.

Downhole Technologies

Our Downhole Technologies segment revenues decreased $6.5 million, or 10%, in the first six months of 2023 from the first six months of 2022.

Our Downhole Technologies segment revenues decreased $15.9 million, or 17%, in the first nine months of 2023 from the first nine months of 2022 due primarily to lower U.S.

customer demand for perforating products.

Operating Loss.

Our Downhole Technologies segment reported an operating loss of $4.1 million in the first six months of 2023, compared to an operating loss of $3.0 million reported in the first six months of 2022.

This year-over-year increase in operating loss is due primarily to the reported decrease in the segment's revenue.

Our Downhole Technologies segment reported an operating loss of $8.2 million in the first nine months of 2023, compared to an operating loss of $3.3 million reported in the first nine months of 2022.

This year-over-year increase in operating loss is due primarily to the reported decrease in the segment's revenue as well as increased labor, material and other costs.

Operating Loss.

Corporate expenses in the first six months of 2023 increased $1.6 million, or 8%, from the first six months of 2022, due primarily to higher personnel and marketing costs.

Corporate expenses in the first nine months of 2023 increased $2.0 million, or 7%, from the first nine months of 2022, due primarily to higher personnel and marketing costs.

Liquidity, Capital Resources and Other Matters

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Operating Activities

Cash flows from operations totaled $38.7 million during the first six months of 2023, compared to $10.0 million used in operations during the first six months of 2022.

During the first six months of 2023, $0.8 million was provided by net working capital decreases, with the favorable impact of a decrease in accounts receivable and an increase in deferred revenues, substantially offset by an activity-driven increase in inventories and the payment of accrued 2022 short-and long-term cash incentives in the first quarter of 2023.

During the first six months of 2022, $37.4 million was used to fund net working capital increases, primarily due to increases in accounts receivable and inventories driven by higher activity levels.

Cash flows from operations totaled $52.4 million during the first nine months of 2023, compared to $19.0 million provided by operations during the first nine months of 2022.

During the first nine months of 2023, $3.2 million was used to fund net working capital increases, with an activity-driven increase in inventories and the payment of accrued 2022 short-and long-term cash incentives in the first quarter of 2023 substantially offset by the favorable impact of a decrease in accounts receivable and an increase in deferred revenues.

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.

Investing Activities

Net cash used in investing activities during the first six months of 2023 totaled $16.7 million, compared to $13.0 million used in investing activities during the first six months of 2022.

Capital expenditures totaled $17.3 million and $6.5 million during the first six months of 2023 and 2022, respectively.

These investments were partially offset by proceeds from the sale of property and equipment of $0.7 million and $1.7 million during the first six months of 2023 and 2022, respectively.

Net cash used in investing activities during the first nine months of 2023 totaled $19.1 million, compared to $19.3 million used in investing activities during the first nine months of 2022.

Capital expenditures totaled $23.4 million and $13.3 million during the first nine months of 2023 and 2022, respectively.

These investments were partially offset by proceeds from the sale of property and equipment of $4.4 million and $2.2 million during the first nine months of 2023 and 2022, respectively.

In the second quarter of 2022, we acquired E-Flow Control Holdings Limited, a global provider of fully integrated handling, control, monitoring and instrumentation solutions.

The purchase price of $8.1 million (net of cash acquired) was funded with cash on-hand.

We expect to invest approximately $28 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.

Within our Offshore/Manufactured Products segment, we completed the consolidation of certain facilities in Houston, Texas during the third quarter of 2023 and are in the process of strategically relocating our Asian manufacturing and service operations from Singapore to Batam, Indonesia.

With these consolidations, two facilities are classified as held-for-sale assets within prepaid expenses and other current assets at September 30, 2023.

With our planned purchase of land and the start of construction on a new facility in Batam in the fourth quarter of 2023, we currently expect to invest approximately $35 million in capital expenditures during 2023.

In late 2023 or early 2024, we also expect to sell the two facilities (in Singapore and Houston), with expected proceeds ranging between $35 million and $40 million.

We plan to fund our capital expenditures with available cash, internally generated funds and, if necessary, borrowings under our ABL Facility discussed below.

Financing Activities

During the first six months of 2023, net cash of $22.6 million was used in financing activities, which included the repayment of the $17.3 million principal amount of our outstanding 2023 Notes and the repurchases of $3.0 million of the Company's common stock.

This compares to $7.7 million of cash used in financing activities during the first six months of 2022.

As of June 30, 2023, we had cash and cash equivalents totaling $42.4 million, which compared to $42.0 million as of December 31, 2022.

As of June 30, 2023, we had no borrowings outstanding under our ABL Facility, $135.0 million principal amount of our 2026 Notes (as defined below) outstanding and other debt of $3.2 million.

Our reported interest expense included amortization of deferred financing costs of $0.9 million during the first six months of 2023.

For the first six months of 2023, our contractual cash interest expense was $4.0 million, or approximately 5% of the average principal balance of debt outstanding.

During the first nine months of 2023, net cash of $22.7 million was used in financing activities, which included the repayment of the $17.3 million principal amount of our outstanding 2023 Notes and the repurchases of $3.0 million of the Company's common stock.

This compares to $17.9 million of cash used in financing activities during the first nine months of 2022, which included a cash payment of $10.0 million related to the settlement of a promissory note to the seller of GEODynamics, Inc.

(discussed below) and the purchase of $6.5 million principal amount of our outstanding 2023 Notes (as defined below).

On June 28, 2022, we entered into a settlement agreement with the seller of GEODynamics, Inc.

(acquired in 2018), which provided for the full and final settlement of all amounts due under a promissory note to the seller of GEODynamics, Inc.

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

As of September 30, 2023, we had cash and cash equivalents totaling $52.9 million, which compared to $42.0 million as of December 31, 2022.

As of September 30, 2023, we had no borrowings outstanding under our ABL Facility, $135.0 million principal amount of our 2026 Notes (as defined below) outstanding and other debt of $3.2 million.

Our reported interest expense included

amortization of deferred financing costs of $1.3 million during the first nine months of 2023.

For the first nine months of 2023, our contractual cash interest expense was $5.8 million, or approximately 6% 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.

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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, as well as the third bank failure in May 2023, resulted in significant disruptions to global banking and financial markets.

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

bank failures, which occurred in March, May and July 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.

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

As of June 30, 2023, $3.0 million of share repurchases have been made under this authorization.

As of September 30, 2023, $3.0 million of share repurchases have been made under this authorization.

Revolving Credit Facility.

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See Note 4, "Long-term Debt," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding the ABL Agreement.

As of June 30, 2023, we had $15.1 million of outstanding letters of credit, but no borrowings outstanding under the ABL Agreement.

The total amount available to be drawn as of June 30, 2023 was $90.9 million, calculated based on the then-current borrowing base less outstanding letters of credit.

As of September 30, 2023, we had $16.4 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, 2023 was $84.5 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.

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See Note 4, "Long-term Debt," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding the 2026 Notes.

As of June 30, 2023, none of the conditions allowing holders of the 2026 Notes to convert, or requiring us to repurchase the 2026 Notes, had been met.

As of September 30, 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 16% and 18% of our combined total debt and stockholders' equity as of June 30, 2023 and December 31, 2022, respectively.

Our total debt represented 16% and 18% of our combined total debt and stockholders' equity as of September 30, 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 11, "Commitments and Contingencies," to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion.

Off-Balance Sheet Arrangements.

As of June 30, 2023, we had no off-balance sheet arrangements.

As of September 30, 2023, we had no off-balance sheet arrangements.

Critical Accounting Policies

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis