What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-26 compared with 2023-10-27 · 146 added, 215 removed, 193 unchanged (65% of the section changed)

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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.

In first quarter 2024, certain short-cycle, consumable product operations historically reported within the Offshore Manufactured Products segment (legacy frac plugs and elastomer products) were integrated into the Downhole Technologies segment to better align with the underlying activity demand drivers and current segment management structure, as well as provide for additional operational synergies.

Historical financial data, supplemental disaggregated revenue and backlog information as of and for the three months ended March 31, 2023 (presented herein) was conformed with the current-period segment presentation.

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.

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Recent Developments

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

Brent and WTI crude oil and natural gas pricing trends were as follows:

Average Price (1) for quarter ended

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Energy Information Administration (spot prices).

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 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 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.

On February 16, 2024, we amended our ABL Facility to extend its maturity date from February 10, 2025 to February 16, 2028.

In the first quarter of 2024, certain short-cycle, consumable product operations historically reported within the Offshore Manufactured Products segment (legacy frac plugs and elastomer products) were integrated into our Downhole Technologies segment to better align with the underlying activity demand drivers and current segment management structure, as well as provide for additional operational synergies.

Historical segment financial data, backlog and other information were conformed with the first quarter 2024 revised segment presentation.

On April 19, 2024, Brent crude oil, WTI crude oil and natural gas spot prices closed at $87.96 per barrel, $83.79 per barrel and $1.43 per MMBtu, respectively.

Additionally, the U.S.

drilling rig count reported on April 19, 2024 was 619 rigs – comparable to the first quarter 2024 average.

Current and expected future pricing for WTI crude oil and natural gas and inflationary cost 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:

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

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;

domestic or international crude oil and natural gas production;

changes in governmental rules and regulations;

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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.

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.

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 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.

Additionally, we are investing in research and product development (and have been awarded select contracts and are bidding on additional projects) to 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 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").

Approximately 90% of Offshore Manufactured Products segment sales in the first three months of 2024 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”).

Deepwater oil and gas development projects typically involve significant capital investments and multi-year development plans.

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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 $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).

Backlog reported by our Offshore Manufactured Products segment decreased to $305 million as of March 31, 2024 from $327 million as of December 31, 2023.

Bookings totaled $66 million in the first quarter of 2024, yielding a quarterly book-to-bill ratio of 0.8x.

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

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2022 255 232 248 300

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 internationally.

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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.

Additional offerings include frac plug, toe valve and other elastomer 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.

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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 October 20, 2023

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

As of April 19, 2024

Average for the

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

2023 2022 2023 2022

Three Months Ended March 31,

United States Rig Count:

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Offshore 20 21 19

624 649 761 707 706

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

As of March 31, 2024, oil-directed drilling accounted for 81% of the total U.S.

rig count – with the balance largely natural gas related.

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

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

In response to the U.S.

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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 (including disruptions in the banking sector);

the general global economic environment;

competitive pricing pressures;

customer consolidations;

public health crises;

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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 in "Part II, Item 7.

Financial Statements” of this Quarterly Report on Form 10-Q and “Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and related notes included in “Part II, Item 8.

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

We revised our presentation of supplemental disclosure of disaggregated revenue information in the second quarter of 2023.

Prior-period disclosures of disaggregated revenue information presented within this discussion and analysis were conformed with the current-period presentation.

Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, 2023 in order to understand factors, such as charges, credits and financing transactions, which may impact comparability of the selected financial data.

In the first quarter of 2024, certain short-cycle manufacturing operations historically reported within the Offshore Manufactured Products segment (legacy frac plug and elastomer products) were integrated into the Downhole Technologies segment to better align with the underlying activity demand drivers and the current segment management structure, as well as provide for additional operational synergies.

Historical financial data and supplemental disaggregated revenue information as of the three months ended March 31, 2023 (presented herein) were conformed with the current-period segment presentation.

Unaudited Consolidated Results of Operations

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):

The following summarizes our consolidated results of operations for the three months ended March 31, 2024 and 2023 (in thousands, except per share amounts):

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 Variance 2023 2022 Variance

2024 2023 Variance

Products $ 94,329 $ 99,840 $ (5,511)

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Selling, general and administrative expenses (1)

22,496 24,016 (1,520)

Depreciation and amortization expense 14,195 15,256 (1,061)

Other operating expense (income), net (1)

Impairment of goodwill (2)

10,000 — 10,000

Other operating (income) expense, net (3)

(203) 317 (520)

178,439 190,324 (11,885)

Operating income (loss) (11,177) 5,875 (17,052)

Interest expense, net (2,101) (2,391) 290

Other income, net 186 491 (305) 672 1,892 (1,220)

Other income (expense), net (72) 276 (348)

Income (loss) before income taxes (13,350) 3,760 (17,110)

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$ (0.21) $ 0.03

0.07 0.03 0.11 (0.20)

Weighted average number of common shares outstanding:

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_______________

(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.

(1) During the three months ended March 31, 2024, we recognized $0.4 million in costs associated with the defense of certain Well Site Services segment patents related to proprietary technologies.

(2) During the three months ended March 31, 2024, the Downhole Technologies segment recognized a $10.0 million non-cash impairment charge related to goodwill reassigned to the business in connection with the segment realignment discussed above.

(3) During the three months ended March 31, 2024, we recognized facility consolidation and other charges of $2.1 million associated with the Offshore Manufactured Products and the Well Site Services segments’ ongoing consolidation and relocation of certain manufacturing and service locations.

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, 2023 and 2022 is summarized below (in thousands):

Supplemental financial information by operating segment for the three months ended March 31, 2024 and 2023 is summarized below (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 Variance 2023 2022 Variance

2024 2023 Variance

Offshore Manufactured Products

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Military and other products 8,487 7,258 1,229

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

86,857 80,505 6,352

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Well Site Services (2)

(419) 6,966 (7,385)

Downhole Technologies (3)

Corporate (10,781) (10,332) (449) (31,623) (29,611) (2,012)

(12,079) 1,873 (13,952)

Corporate (9,282) (10,662) 1,380

$ (11,177) $ 5,875 $ (17,052)

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 September 30 2023 2022 2023 2022 2023 2022 2023 2022

Project-driven:

Products $ 45,527 $ 38,911 $ — $ — $ — $ — $ 45,527 $ 38,911

Services 30,391 23,421 — — — — 30,391 23,421

Total project-driven 75,918 62,332 — — — — 75,918 62,332

Military and other products 7,195 9,995 — — — — 7,195 9,995

Products 27,930 23,710 — — 21,984 27,127 49,914 50,837

Services — — 59,831 60,509 1,431 5,721 61,262 66,230

Total short-cycle 27,930 23,710 59,831 60,509 23,415 32,848 111,176 117,067

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Percentage of total revenue by type -

Products 73 % 76 % — % — % 94 % 83 % 53 % 53 %

Services 27 % 24 % 100 % 100 % 6 % 17 % 47 % 47 %

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

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 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 $1.0 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.

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 $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 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 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

(1) During the three months ended March 31, 2024, we recognized facility consolidation charges of $1.5 million associated with the Offshore Manufactured Products segment’s ongoing consolidation and relocation of a manufacturing and service location.

(2) During the three months ended March 31, 2024, the Well Site Services segment recognized charges of $1.0 million associated primarily with the consolidation and exit of certain service locations.

(3) During the three months ended March 31, 2024, the Downhole Technologies segment recognized a $10.0 million non-cash impairment charge related to goodwill reassigned to the business in connection with the segment realignment discussed above.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

We reported a net loss for the three months ended March 31, 2024 of $13.4 million, or $0.21 per share, which included a non-cash goodwill impairment charge of $10.0 million ($9.5 million after-tax, or $0.15 per share) and facility consolidation and other charges of $2.5 million ($2.0 million after-tax, or $0.03 per share).

These results compare to net income for the three months ended March 31, 2023 of $2.2 million, or $0.03 per share.

Our first quarter 2024 results, reflect the impact of an industry-wide decline in U.S.

well completions, driven particularly by weak natural gas prices (the average spot price for Henry Hub natural gas was $2.15 per MMBtu in the first quarter of 2024, down 19% from the prior-year period).

The impact of the decline in investments by our U.S.

customers was partially offset by growth in offshore and international project activity and associated backlog conversion.

Management continues to implement measures in areas experiencing lower activity levels to reduce future costs.

Consolidated total revenues in the first three months of 2024 decreased $28.9 million, or 15%, from the first three months of 2023.

Consolidated product revenues in the first three months of 2024 decreased $5.5 million, or 6%, from the first three months of 2023, with the impact of lower customer demand for consumable completion products in the United States, partially offset by higher customer demand for project-driven production facility and connector products.

Consolidated service revenues in the first three months of 2024 decreased $23.4 million, or 24%, from the first three months of 2023 due primarily to lower U.S.

land-based customer investments.

The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the three months ended March 31, 2024 and 2023 (in thousands):

Offshore Manufactured Products

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 $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 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 $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 $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 $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 $0.4 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.

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 to our consolidated results in 2023.

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

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

Well Site Services Downhole Technologies Total

Three Months Ended March 31 2024 2023 2024 2023 2024 2023 2024 2023

Project-driven:

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Military and other products 8,487 7,258 — — — — 8,487 7,258

Products 84,435 67,945 — — 71,645 79,635 156,080 147,580

Services — — 191,425 163,500 7,619 15,521 199,044 179,021

Total short-cycle 84,435 67,945 191,425 163,500 79,264 95,156 355,124 326,601

Short-cycle products and services

— — 47,292 67,058 33,113 48,636 80,405 115,694

Percentage of total revenue by type -

Products 74 % 74 % — % — % 90 % 84 % 51 % 53 %

Services 26 % 26 % 100 % 100 % 10 % 16 % 49 % 47 %

$ 86,857 $ 80,505 $ 47,292 $ 67,058 $ 33,113 $ 48,636 $ 167,262 $ 196,199

By destination:

land $ 7,055 $ 8,442 $ 35,857 $ 53,274 $ 24,170 $ 38,821 $ 67,082 $ 100,537

Offshore and international 79,802 72,063 11,435 13,784 8,943 9,815 100,180 95,662

$ 86,857 $ 80,505 $ 47,292 $ 67,058 $ 33,113 $ 48,636 $ 167,262 $ 196,199

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

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.

Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) decreased $18.8 million, or 12%, in the first three months of 2024 compared to the first three months of 2023.

Consolidated product costs in the first three months of 2024 decreased $3.5 million, or 4%, compared to the first three months of 2023 due primarily to the reported revenue decline.

Consolidated service costs in the first three months of 2024 decreased $15.2 million, or 21%, compared to the first three months of 2023, due primarily to the impact of lower U.S.

activity levels.

Selling, General and Administrative Expense.

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.

Selling, general and administrative expense was $22.5 million in the first three months of 2024, which included $0.4 million of costs associated with enforcing certain of our patents.

Excluding these patent defense costs, selling, general and administrative costs decreased $1.2 million, or 5%, from the first three months of 2023, due primarily to reductions in short- and long-term incentive expenses.

Depreciation and Amortization Expense.

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.

Depreciation and amortization expense decreased $1.1 million, or 7%, in the first three months of 2024 compared to the prior-year period.

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.

Impairment of Goodwill.

During the first three months of 2024, our Downhole Technologies operations recognized a non-cash impairment charge of $10.0 million related to goodwill transferred to the business in connection with segment realignment discussed above.

See Note 2, “Goodwill Impairment and Other Charges,” to the Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional discussion.

Other Operating (Income) Expense, Net.

In the first three months of 2024, other operating income, net included, among other items, gains on disposals of equipment totaling $1.2 million and charges of $2.1 million recognized in connection with our ongoing consolidation and exit of certain manufacturing and service locations within our Offshore Manufactured Products and Well Site Services segments.

Operating Income (Loss).

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.

Our consolidated operating loss was $11.2 million in the first three months of 2024, which included a $10.0 million non-cash goodwill impairment charge and $2.5 million in facility consolidation and other charges.

This compares to consolidated operating income of $5.9 million in the first three months of 2023.

Excluding the 2024 charges, operating income decreased $4.5 million year-over-year.

Interest Expense, Net.

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.

Net interest expense totaled $2.1 million in the first three months of 2024, which compares to $2.4 million in the first three months of 2023.

Interest expense as a percentage of total debt outstanding was approximately 7% in the first three months of 2024, compared to 7% in the first three months of 2023.

Income tax expense for the first three months of 2024 and 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 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.

For the first three months of 2024, our income tax provision was $24 thousand on a pre-tax loss of $13.4 million, which included a $10.0 million goodwill impairment charge and other non-deductible expenses.

This compares to an income tax provision of $1.6 million on pre-tax income of $3.8 million for the first three months of 2023, which included 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 $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.

Other comprehensive loss was $3.0 million in the first three months of 2024 compared to comprehensive income of $4.1 million in the first three months of 2023 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 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.

For the first three months of 2024 and 2023, currency translation adjustments recognized as a component of other comprehensive income (loss) were primarily attributable to the United Kingdom and Brazil.

During the first three months of 2024, the exchange rates for the British pound and the Brazilian real weakened compared to the U.S.

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

Segment Operating Results

Offshore Manufactured 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.

Our Offshore Manufactured Products segment revenues increased $6.4 million, or 8%, in the first three months of 2024 compared to the first three months of 2023 due primarily to increased demand for international and offshore-project driven products and services.

Operating Income.

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.

Our Offshore Manufactured Products segment reported operating income of $10.6 million in the first three months of 2024, which included the $1.5 million in facility consolidation charges discussed above.

This compares to operating income of $7.7 million in the first three months of 2023.

Excluding the facility consolidation charges, operating income increased $4.4 million year-over-year.

Backlog in our Offshore Manufactured Products segment totaled $305 million as of March 31, 2024 compared to $327 million as of December 31, 2023.

Bookings during the first three months of 2024 totaled $66 million, yielding a quarterly book-to-bill ratio of 0.8x.

Well Site Services

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 $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.

Our Well Site Services segment revenues decreased $19.8 million, or 29%, in the first three months of 2024 compared to the first three months of 2023, driven primarily by lower U.S.

customer activity levels (particularly in natural gas basins) and competitive market conditions.

Operating Income.

Our Well Site Services segment reported an operating loss of $0.4 million in the first three months of 2024, which included costs totaling $1.0 million associated with the exit of three facilities and the defense of patents.

This compares to operating income of $7.0 million in the first three months of 2023.

Excluding the costs discussed above, the Well Site Services segment’s operating results declined $6.3 million from the prior-year period, due to the reported decrease in revenue.

Downhole Technologies

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.

Our Downhole Technologies segment revenues decreased $15.5 million, or 32%, in the first three months of 2024 from the first three months of 2023 due primarily to lower U.S.

customer demand for perforating and completion products.

Operating Loss.

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.

Our Downhole Technologies segment reported an operating loss of $12.1 million in the first three months of 2024, which included the $10.0 million non-cash goodwill impairment charge related to the first quarter of 2024 segment realignment.

This compares to operating income of $1.9 million reported in the first three months of 2023.

Excluding the goodwill impairment charge, the Downhole Technologies operating results declined $4.0 million from the prior-year period, due primarily to the reported decrease in revenue and lower manufacturing volumes.

Operating Loss.

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.

Corporate expenses in the first three months of 2024 decreased $1.4 million, or 13%, from the first three months of 2023, due primarily to lower short- and long-term incentive expenses.

Liquidity, Capital Resources and Other Matters

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Operating Activities

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.

Cash flows used in operations totaled $11.4 million during the first three months of 2024, compared to $5.9 million used in operations during the first three months of 2023.

During the first three months of 2024, $21.8 million was used to fund net working capital increases, primarily due to the payment of accrued 2023 short- and long-term cash incentives and a decrease in accounts payable.

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.

Investing Activities

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.

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.

Net cash used in investing activities during the first three months of 2024 totaled $7.8 million, compared to $6.4 million used in investing activities during the first three months of 2023.

Capital expenditures totaled $10.1 million and $6.6 million during the first three months of 2024 and 2023, respectively.

These investments were partially offset by proceeds from the sale of equipment of $2.3 million and $0.2 million during the first three months of 2024 and 2023, respectively.

Within our Offshore Manufactured Products segment, we completed the consolidation of certain facilities in Houston, Texas during 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 as of March 31, 2024.

Including the planned construction of a new facility in Batam, we expect to invest approximately $40 million in capital expenditures during 2024.

In 2024, we also expect to sell the two held-for-sale facilities (in Singapore and Houston), with proceeds totaling approximately $35 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 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.

During the first three months of 2024, net cash of $3.7 million was used in financing activities.

This compares to $14.4 million of cash used in financing activities during the first three months of 2023, which included the repayment of $17.3 million principal amount of our outstanding 2023 Notes.

As of March 31, 2024, we had cash and cash equivalents totaling $24.1 million, which compared to $47.1 million as of December 31, 2023.

As of March 31, 2024, 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 $2.9 million.

Our reported interest expense included amortization of deferred financing costs of $0.5 million during the first three months of 2024.

For the first three months of 2024, our contractual cash interest expense was $1.9 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 four U.S.

bank failures, which occurred in March, May and July 2023, resulted in significant disruptions to global banking and financial markets.

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

bank failures in 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 fourth 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.

On March 6, 2024, the SEC finalized rules relating to the disclosure of a range of climate-related information (the “Rules”).

The Rules were temporarily stayed by the SEC on April 4, 2024 pending judicial review.

While subject to ongoing litigation, these new disclosure requirements are currently effective for us beginning with the year ending December 31, 2026, phased in over a five-year period.

The ultimate impact on our business is uncertain but 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.

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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."

Risk Factors” included in our 2023 Annual Report on Form 10-K 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,” “The Inflation Reduction Act of 2022 could accelerate the transition to a low carbon economy and could impose new costs on our customers’ operations” 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.

On February 16, 2023, the Board 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 September 30, 2023, $3.0 million of share repurchases have been made under this authorization.

During the three months ended March 31, 2024, there were no repurchases of common stock under the program.

The amount remaining under our share repurchase authorization as of March 31, 2024 was $18.1 million.

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.

Our senior secured credit facility provides for a $125.0 million asset-based revolving credit facility (as amended, the “ABL Facility”) under which credit availability is subject to a borrowing base calculation.

On February 16, 2024, we amended the ABL Facility to extend the maturity date to February 16, 2028.

The ABL Agreement, as amended, matures on February 16, 2028 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 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 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.

As of March 31, 2024, we had $15.9 million of outstanding letters of credit, but no borrowings outstanding under the ABL Agreement.

The total amount available to be drawn as of March 31, 2024 was $86.3 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 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 September 30, 2023 and December 31, 2022, respectively.

As of March 31, 2024, 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 2023 Notes matured and the outstanding $17.3 million in principal amount was repaid in full.

Our total debt represented 16% of our combined total debt and stockholders’ equity as of March 31, 2024 and December 31, 2023.

Contingencies and Other Obligations.

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Off-Balance Sheet Arrangements.

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

As of March 31, 2024, 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