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Item 2. Management’s Discussion and Analysis

2024-07-29 compared with 2024-04-26 · 200 added, 109 removed, 230 unchanged (57% of the section changed)

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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.

Historical financial data, supplemental disaggregated revenue and backlog information as of and for the three and six months ended June 30, 2023 (presented herein) was conformed with the 2024 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 WTI crude oil and natural gas pricing trends were as follows:

Brent and West Texas Intermediate (“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 February 16, 2024, we amended our ABL Facility to extend its maturity date from February 10, 2025 to February 16, 2028.

On February 16, 2024, we amended the ABL Facility (as defined below) 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.

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

In 2023, we implemented initiatives to reduce future costs, which are continuing into 2024.

These management actions included the consolidation, relocation and exit of certain manufacturing and service locations as well as the realignment of operations discussed above.

We have also incurred legal and other related costs to enforce certain patents related to our proprietary technologies.

As a result of these actions, our reported pre-tax results for the six months ended June 30, 2024 included a $10.0 million non-cash goodwill impairment charge as well as $6.9 million of facility consolidation, patent defense and other charges.

During the second quarter of 2024, our Offshore Manufactured Products segment sold a manufacturing and service facility that was classified as held-for-sale for net proceeds of $10.3 million.

Additionally, we purchased $11.5 million principal amount of our 2026 Notes (as defined below) for $10.8 million and purchased $2.4 million of our common stock.

On July 19, 2024, Brent crude oil, WTI crude oil and natural gas spot prices closed at $85.19 per barrel, $81.43 per barrel and $1.88 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.

drilling rig count reported on July 19, 2024 was 586 rigs – 3% below the second 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.

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and the potential for ongoing supply/demand imbalances.

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.

drilling, completion and production activity and, in turn, our financial results, are sensitive to near-term fluctuations in commodity prices, particularly U.S.

crude oil and natural gas prices, given the short-term, call-out nature of our U.S.

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.

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

Additionally, we are investing in research and product development (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.

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 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”).

Approximately 90% of Offshore Manufactured Products segment sales in the first six 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 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.

Backlog reported by our Offshore Manufactured Products segment decreased to $300 million as of June 30, 2024 from $327 million as of December 31, 2023.

Bookings totaled $101 million in the second quarter of 2024, yielding a quarterly book-to-bill ratio of 1.0x (0.9x year-to-date).

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

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2023 316 328 $ 341 $ 327

2022 255 232 248 300

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

As of April 19, 2024

As of July 19, 2024

Average for the

Three Months Ended March 31,

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

2024 2023 2024 2023

United States Rig Count:

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Offshore 22 20 22 20 20

586 603 719 613 736

energy industry is primarily focused on crude oil and liquids-rich exploration and development activities in U.S.

shale plays utilizing horizontal drilling and completion techniques.

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

As of June 30, 2024, oil-directed drilling accounted for 82% of the total U.S.

rig count – with the balance largely natural gas related.

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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, 2023 in order to understand factors, such as charges, credits and financing transactions, which may impact comparability of the selected financial data.

Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, 2023 in order to understand factors, such as charges and credits, 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.

Historical financial data and supplemental disaggregated revenue information as of and for the three and six months ended June 30, 2023 (presented herein) were conformed with the 2024 segment presentation.

Unaudited Consolidated Results of Operations

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

The following summarizes our consolidated results of operations for the three and six months ended June 30, 2024 and 2023 (in thousands, except per share amounts):

Three Months Ended

2024 2023 Variance

June 30, Six Months Ended

2024 2023 Variance 2024 2023 Variance

Products $ 108,579 $ 92,630 $ 15,949 $ 202,908 $ 192,470 $ 10,438

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Interest expense, net (2,061) (2,059) (2) (4,162) (4,450) 288

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

Other income, net

652 210 442 580 486 94

Income (loss) before income taxes 636 1,420 (784) (12,714) 5,180 (17,894)

Income tax provision (24) (1,602) 1,578

Income tax benefit (provision) 665 (862) 1,527 641 (2,464) 3,105

Net income (loss) $ 1,301 $ 558 $ 743 $ (12,073) $ 2,716 $ (14,789)

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$ 0.02 $ 0.01 $ (0.19) $ 0.04

Weighted average number of common shares outstanding:

0.02 0.01 (0.19) 0.04

Weighted average number of common shares outstanding:

62,483 62,803 62,493 62,814

62,704 63,174 62,493 63,161

(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 months ended March 31, 2024 and 2023 is summarized below (in thousands):

Supplemental financial information by operating segment for the three and six months ended June 30, 2024 and 2023 is summarized below (in thousands):

Three Months Ended

2024 2023 Variance

June 30, Six Months Ended

2024 2023 Variance 2024 2023 Variance

Offshore Manufactured Products

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_______________

(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.

(1) During the three and six months ended June 30, 2024, we recognized facility consolidation charges of $1.5 million and $3.0 million, respectively, associated with the Offshore Manufactured Products segment’s consolidation and relocation of a manufacturing and service location.

(2) During the three and six months ended June 30, 2024, the Well Site Services segment recognized charges of $2.9 million and $3.9 million, respectively, associated primarily with the consolidation and exit of certain underperforming service locations and the defense of certain patents.

(3) During the six months ended June 30, 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 June 30, 2024 Compared to Three Months Ended June 30, 2023

We reported net income for the three months ended June 30, 2024 of $1.3 million, or $0.02 per share.

The reported second quarter net income included facility consolidation and other charges of $4.4 million ($3.5 million after-tax, or $0.06 per share), partially offset by non-cash gains of $0.5 million ($0.4 million after-tax, or $0.01 per share) associated with debt extinguishment.

These results compare to net income for the three months ended June 30, 2023 of $0.6 million, or $0.01 per share.

Our second quarter 2024 results of operations reflect the impact of the growth in offshore and international project activity and associated backlog conversion, partially offset by a decline in natural gas focused investments by our U.S.

customers, competitive market conditions and management’s decision to exit certain underperforming locations.

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):

Consolidated total revenues in the second quarter of 2024 increased $2.9 million, or 2%, from the second quarter of 2023.

Consolidated product revenues in the second quarter of 2024 increased $15.9 million, or 17%, from the second quarter of 2023, driven primarily by the conversion of production facility and connector products from backlog into revenue.

Consolidated service revenues in the second quarter of 2024 decreased $13.1 million, or 14%, from the second quarter of 2023.

This decrease was concentrated in the United States – driven by lower land-based customer investments (particularly in natural gas basins), competitive market conditions and our exit of certain underperforming locations during the first six months of 2024, partially offset by higher offshore and international service activity.

The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the three months ended June 30, 2024 and 2023 (in thousands):

Offshore Manufactured Products

Well Site Services Downhole Technologies Total

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

Three Months Ended June 30 2024 2023 2024 2023 2024 2023 2024 2023

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) 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.

Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) in the second quarter of 2024 were comparable to the level reported in the second quarter of 2023.

Consolidated product costs in the second quarter of 2024 increased $9.8 million, or 14%, from the second quarter of 2023 driven primarily by the increase in project-driven products sales volumes.

Consolidated service costs in the second quarter of 2024 decreased $9.8 million, or 14%, from the second quarter of 2023, with the impact of lower U.S.

land-based activity levels and implemented cost control measures partially offset by facility consolidation and exit costs incurred in 2024.

Selling, General and Administrative Expense.

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.

Selling, general and administrative expense was $26.4 million in the second quarter of 2024, which included $1.0 million of costs associated with enforcing certain of our patents.

Excluding these patent defense costs, selling, general and administrative costs increased $1.9 million, or 8%, from the second quarter of 2023, due primarily to higher compensation costs.

Depreciation and Amortization Expense.

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

Depreciation and amortization expense decreased $0.8 million, or 5%, in the second quarter of 2024 compared to the prior-year quarter.

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

Operating Income.

Our consolidated operating income was $2.0 million in the second quarter of 2024, which included charges totaling $4.4 million associated with facility consolidations and exits, and patent defense.

This compares to second quarter 2023 consolidated operating income of $3.3 million.

Excluding the 2024 charges, operating income increased $3.2 million year-over-year.

Interest Expense, Net.

Net interest expense totaled $2.1 million in the second quarter of 2024, which compares to $2.1 million in the same period of 2023.

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

Income tax benefit (provision) for the three months ended June 30, 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 three months ended June 30, 2024, our income tax benefit was $0.7 million on pre-tax income of $0.6 million, which included favorable changes in valuation allowances recorded against deferred tax assets and certain non-deductible expenses.

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

Other Comprehensive Income (Loss).

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

Other comprehensive loss was $3.2 million in the second quarter of 2024 compared to comprehensive income of $3.3 million in the second quarter of 2023 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, 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 second quarter of 2024, the exchange rate for the Brazilian real weakened compared to the U.S.

dollar while the exchange rate for the British flat was flat compared to the U.S.

In the second quarter of 2023, the exchange rates 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 $22.9 million, or 29%, in the second quarter of 2024 compared to the second quarter 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 $14.4 million in the second quarter of 2024, which included $1.5 million in facility consolidation charges.

This compares to operating income in the second quarter of 2023 of $8.8 million.

Excluding the 2024 charges, operating income increased $7.1 million year-over-year.

Backlog in our Offshore Manufactured Products segment totaled $300 million as of June 30, 2024, with second quarter 2024 bookings of $101 million and a quarterly book-to-bill ratio of 1.0x.

Well Site Services

Our Well Site Services segment revenues decreased $18.1 million, or 28%, in the second quarter of 2024 compared to the prior-year period, driven primarily by lower U.S.

land-based customer activity levels (particularly in natural gas basins), competitive market conditions and our exit of certain underperforming service locations during the first six months of 2024.

Operating Income.

Our Well Site Services segment reported an operating loss of $0.5 million in the second quarter of 2024, which included charges totaling $2.9 million associated with facility consolidations and exits, and the defense of patents.

This compares to operating income of $4.7 million in the second quarter of 2023.

Excluding the 2024 charges discussed above, the Well Site Services segment’s operating results declined $2.4 million from the prior-year period, with the impact of the decrease in U.S.

land-based revenues substantially offset by implemented cost control measures.

Downhole Technologies

Our Downhole Technologies segment revenues decreased $1.9 million, or 5%, in the second quarter of 2024 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 $1.1 million in the second quarter of 2024, which compares to an operating loss of $0.1 million in the prior-year period, which included a $1.0 million non-cash provision for excess and obsolete inventory.

Excluding the 2023 charge discussed above, the Downhole Technologies operating results declined $2.0 million from the prior-year period, due primarily to the reported decrease in revenues and lower manufacturing volumes.

Operating Loss.

Corporate expenses increased $0.5 million, or 4%, in the second quarter of 2024 from the prior-year period.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

We reported a net loss for the six months ended June 30, 2024 of $12.1 million, or $0.19 per share.

The reported first six months net loss 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 $6.9 million ($5.5 million after-tax, or $0.09 per share), partially offset by non-cash gains of $0.5 million ($0.4 million after-tax, or $0.01 per share) associated with debt extinguishment.

These results compare to net income for the six months ended June 30, 2023 of $2.7 million, or $0.04 per share.

Our first half 2024 results of operations reflect the impact of growth in offshore and international project activity and associated backlog conversion, partially offset by a decline in natural gas focused investments by our U.S.

customers, competitive market conditions and management’s decisions to exit certain underperforming locations.

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

Consolidated total revenues in the first six months of 2024 decreased $26.1 million, or 7%, from the first six months of 2023.

Consolidated product revenues in the first six months of 2024 increased $10.4 million, or 5%, from the first six months of 2023, with the impact of higher customer demand for project-driven production facility products partially offset by a decline in U.S.

customer demand for completion and perforating products.

Consolidated service revenues in the first six months of 2024 decreased $36.5 million, or 20%, from the first six months of 2023.

The following table provides supplemental disaggregated revenue from contracts with customers by operating segment for the six months ended June 30, 2024 and 2023 (in thousands):

Offshore Manufactured Products

Well Site Services Downhole Technologies Total

Six Months Ended June 30 2024 2023 2024 2023 2024 2023 2024 2023

Project-driven:

Products $ 112,889 $ 94,072 $ — $ — $ — $ — $ 112,889 $ 94,072

Services 56,257 49,476 — — — — 56,257 49,476

Total project-driven 169,146 143,548 — — — — 169,146 143,548

Military and other products 19,267 15,604 — — — — 19,267 15,604

Short-cycle products and services

— — 93,713 131,594 71,519 88,982 165,232 220,576

$ 188,413 $ 159,152 $ 93,713 $ 131,594 $ 71,519 $ 88,982 $ 353,645 $ 379,728

By destination:

land $ 14,239 $ 18,445 $ 68,649 $ 104,870 $ 51,952 $ 70,934 $ 134,840 $ 194,249

Offshore and international 174,174 140,707 25,064 26,724 19,567 18,048 218,805 185,479

$ 188,413 $ 159,152 $ 93,713 $ 131,594 $ 71,519 $ 88,982 $ 353,645 $ 379,728

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

Our consolidated total cost of revenues (exclusive of depreciation and amortization expense) decreased $18.8 million, or 6%, in the first six months of 2024 compared to the first six months of 2023.

Consolidated product costs in the first six months of 2024 increased $6.3 million, or 4%, compared to the first six months of 2023 due primarily to the reported product revenue increase.

Consolidated service costs in the first six months of 2024 decreased $25.1 million, or 18%, compared to the first six months of 2023, with the impact of lower U.S.

activity levels and implemented cost control measures partially offset by facility consolidation and exit costs incurred in 2024.

Selling, General and Administrative Expense.

Selling, general and administrative expense was $48.9 million in the first six months of 2024, which included $1.3 million of costs associated with enforcing certain of our patents.

Excluding these patent defense costs, selling, general and administrative costs were consistent with the first six months of 2023.

Depreciation and Amortization Expense.

Depreciation and amortization expense decreased $1.9 million, or 6%, in the first six 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.

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.

During the first quarter 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 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.

Our consolidated operating loss was $9.1 million in the first six months of 2024, which included a $10.0 million non-cash goodwill impairment charge and charges totaling $6.9 million associated with facility consolidations and exits, and patent defense.

This compares to consolidated operating income of $9.1 million in the first six months of 2023.

Excluding the 2024 charges, operating income decreased $1.3 million year-over-year.

Interest Expense, Net.

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.

Net interest expense totaled $4.2 million in the first six months of 2024, which compares to $4.5 million in the first six months of 2023.

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

Income tax benefit (provision) for the first six 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 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.

For the first six months of 2024, our income tax benefit was $0.6 million on a pre-tax loss of $12.7 million, which included a $10.0 million goodwill impairment charge, other non-deductible expenses and favorable changes in valuation allowances recorded against deferred tax assets.

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

Other Comprehensive Income (Loss).

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

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.

Other comprehensive loss was $6.2 million in the first six months of 2024 compared to comprehensive income of $7.4 million in the first six 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 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.

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

This compares to the first six months of 2023, when the exchange rates 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 $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.

Our Offshore Manufactured Products segment revenues increased $29.3 million, or 18%, in the first six months of 2024 compared to the first six 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 $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.

Our Offshore Manufactured Products segment reported operating income of $25.0 million in the first six months of 2024, which included $3.0 million in facility consolidation charges.

This compares to operating income of $16.5 million in the first six months of 2023.

Excluding the 2024 charges, operating income increased $11.4 million year-over-year.

Backlog in our Offshore Manufactured Products segment totaled $300 million as of June 30, 2024 compared to $327 million as of December 31, 2023.

Bookings during the first six months of 2024 totaled $167 million, yielding a year-to-date book-to-bill ratio of 0.9x.

Well Site Services

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.

Our Well Site Services segment revenues decreased $37.9 million, or 29%, in the first six months of 2024 compared to the first six months of 2023, driven primarily by lower U.S.

customer activity levels (particularly in natural gas basins), competitive market conditions and our exit of certain underperforming service locations during the first six months of 2024.

Operating Income (Loss).

Our Well Site Services segment reported an operating loss of $1.0 million in the first six months of 2024, which included charges totaling $3.9 million associated with facility consolidations and exits, and the defense of patents.

This compares to operating income of $11.7 million in the first six months of 2023.

Excluding the 2024 charges discussed above, the Well Site Services segment’s operating results declined $8.7 million from the prior-year period, with the impact of the decrease in U.S.

land-based revenues partially offset by implemented cost control measures.

Downhole Technologies

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.

Our Downhole Technologies segment revenues decreased $17.5 million, or 20%, in the first six months of 2024 from the first six months of 2023 due primarily to lower U.S.

customer demand for perforating and completion products during the first quarter of 2024.

Operating Loss.

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.

Our Downhole Technologies segment reported an operating loss of $13.2 million in the first six 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 $1.8 million reported in the first six months of 2023, which included a $1.0 million non-cash provision for excess and obsolete inventory.

Excluding the charge discussed above, the Downhole Technologies operating results declined $6.0 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 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.

Corporate expenses in the first six months of 2024 decreased $0.9 million, or 4%, from the first six 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 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.

Cash flows used in operations totaled $1.1 million during the first six months of 2024, compared to $38.7 million generated by operations during the first six months of 2023.

During the first six months of 2024, $28.3 million was used to fund net working capital increases, primarily due to an activity-driven increase in inventories, the payment of accrued 2023 short- and long-term cash incentives in the first quarter of 2024 and a decrease in accounts payable.

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.

Investing Activities

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.

Net cash used in investing activities during the first six months of 2024 totaled $3.2 million, compared to $16.7 million used in investing activities during the first six months of 2023.

Capital expenditures totaled $15.9 million and $17.3 million during the first six months of 2024 and 2023, respectively.

These investments were offset by proceeds from the sale of property and equipment of $12.8 million and $0.7 million during the first six 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 have strategically relocated our Asian manufacturing and service operations from Singapore to Batam, Indonesia.

With these consolidations, a facility classified as held-for-sale assets within prepaid expenses and other current assets as of December 31, 2023 was sold during the second quarter of 2024 for net proceeds of $10.3 million.

Including investments associated with the construction of a new facility in Batam, we expect to invest approximately $35 million in capital expenditures during 2024.

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 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.

During the first six months of 2024, net cash of $17.2 million was used in financing activities, which included the purchase of $11.5 million principal amount of our outstanding 2026 Notes for $10.8 million in cash and the repurchase of $2.4 million of the Company’s common stock.

This compares to $22.6 million of cash used in financing activities during the first six months of 2023, which included the repayment of the $17.3 million principal amount outstanding under our 2023 Notes and the repurchase of $3.0 million of our common stock.

As of June 30, 2024, we had cash and cash equivalents totaling $25.2 million, which compared to $47.1 million as of December 31, 2023.

As of June 30, 2024, we had no borrowings outstanding under our ABL Facility, $123.5 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 $0.8 million during the first six months of 2024.

For the first six months of 2024, our contractual cash interest expense was $3.8 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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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.

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

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Stock Repurchase Program.

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.

On February 16, 2023, our Board of Directors authorized $25.0 million for 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.

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.

During the six months ended June 30, 2024, $2.4 million in repurchases of common stock were made under the program.

The amount remaining under our share repurchase authorization as of June 30, 2024 was $15.8 million.

Revolving Credit Facility.

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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 (as amended, the “ABL Agreement”).

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.

The ABL Agreement 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 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.

As of June 30, 2024, we had $14.4 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, 2024 was $82.5 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.

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

As of June 30, 2024, we have purchased a cumulative $11.5 million principal amount of the 2026 Notes for $10.8 million in cash, with $123.5 million principal amount outstanding.

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

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

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

As of March 31, 2024, 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 June 30, 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.

Our total debt represented 15% and 16% of our combined total debt and stockholders’ equity as of June 30, 2024 and December 31, 2023, respectively.

Contingencies and Other Obligations.

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Off-Balance Sheet Arrangements.

As of March 31, 2024, we had no off-balance sheet arrangements.

As of June 30, 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