DRIL-QUIP INC

Previous wording

risks related to the acquisition of Innovex Downhole Solutions Inc., a Delaware corporation (“Innovex”), including the receipt of approval of Dril-Quip’s stockholders; the time required to complete the mergers; uncertainty as to whether the conditions to closing the mergers will be satisfied or whether the mergers will be completed; the risk that a regulatory approval, consent or authorization that may be required for the transaction is not obtained in a timely manner or at all, or is obtained subject to conditions that are not anticipated; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the diversion of management time on merger-related issues; the ultimate timing, outcome and results of integrating the operations of the Company and Innovex; the effects of the business combination on Dril-Quip and Innovex, including the combined company’s future financial condition, results of operations, strategy and plans; potential adverse reactions or changes to business relationships resulting from the announcement or completion of the mergers; expected benefits from the mergers and the ability of the Company to realize those benefits; the significant costs required to complete the mergers and integrate operations of the Company and Innovex; expectations regarding regulatory approval of the mergers; whether merger-related litigation will occur and, if so, the results of any litigation, settlements and investigations;

Current wording

risks related to the acquisition of Innovex Downhole Solutions Inc., a Delaware corporation (“Innovex”), including the receipt of approval of Dril-Quip’s stockholders; the time required to complete the mergers; uncertainty as to whether the conditions to closing the mergers will be satisfied or whether the mergers will be completed; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the diversion of management time on merger-related issues; the ultimate timing, outcome and results of integrating the operations of the Company and Innovex; the effects of the business combination on Dril-Quip and Innovex, including the combined company’s future financial condition, results of operations, strategy and plans; potential adverse reactions or changes to business relationships resulting from the announcement or completion of the mergers; expected benefits from the mergers and the ability of the Company to realize those benefits; the significant costs required to complete the mergers and integrate operations of the Company and Innovex; whether merger-related litigation will occur and, if so, the results of any litigation, settlements and investigations;

Previous wording

These statements are based on assumptions and analysis in light of the Company’s experience and perception of historical trends, current conditions, expected future developments and other factors the Company believes were appropriate in the circumstances when the statements were made. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly impact expected results, and actual future results could differ materially from those described in such statements. While it is not possible to identify all factors, the Company continues to face many risks and uncertainties. Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed under “Item 1A. Risk Factors” in Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

These statements are based on assumptions and analysis in light of the Company’s experience and perception of historical trends, current conditions, expected future developments and other factors the Company believes were appropriate in the circumstances when the statements were made. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly impact expected results, and actual future results could differ materially from those described in such statements. While it is not possible to identify all factors, the Company continues to face many risks and uncertainties. Among the factors that could cause actual future results to differ materially are the risks and uncertainties discussed under “Item 1A. Risk Factors” in Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as amended by the Company's Form 10-K/A filed with the SEC on July 8, 2024 and the Company's Form 10-K/A (Amendment No. 2) filed with the SEC on August 1, 2024 (as amended, the “Form 10-K/A”) and in “Item 1A. Risk Factors” in Part II of the Company’s Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2024, filed with the SEC on July 8, 2024.

Previous wording

The following is management’s discussion and analysis of certain significant factors that have affected aspects of the Company’s financial position, results of operations, comprehensive income (loss) and cash flows during the periods included in the accompanying unaudited condensed consolidated financial statements. This discussion should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and notes thereto presented elsewhere herein as well as the discussion under “Risk Factors,” included herein and “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

The following is management’s discussion and analysis of certain significant factors that have affected aspects of the Company’s financial position, results of operations, comprehensive income (loss) and cash flows during the periods included in the accompanying unaudited condensed consolidated financial statements. This discussion should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and notes thereto presented elsewhere herein as well as the discussion under “Risk Factors,” included herein and “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements included in the Form 10-K/A.

Previous wording

In February 2022, Russia invaded Ukraine, resulting in wide-ranging sanctions imposed on Russia by certain members of the European Union, the United Kingdom and the United States, among others, higher oil prices and increased uncertainty in global markets. As Russia’s invasion of Ukraine continues, there can be no certainty regarding whether such governments or other governments will impose additional sanctions, export-controls or other economic or military measures against Russia. Although we have minimal operational exposure in Russia and we do not intend to commit further capital towards projects in Russia, the full impact of the invasion of Ukraine, including economic sanctions and export controls or additional war or military conflict, as well as potential responses to them by Russia, is currently unknown and could adversely affect oil and gas companies, many of which are our customers, as well as the global supply chain. For more information on the risks associated with the invasion of Ukraine, see “Our business may also be affected by new sanctions and export controls targeting Russia and other responses to Russia’s invasion of Ukraine” discussed in our Annual Report Form 10-K, “Item 1A. Risk Factors” for the fiscal year ended December 31, 2023.

Current wording

In February 2022, Russia invaded Ukraine, resulting in wide-ranging sanctions imposed on Russia by certain members of the European Union, the United Kingdom and the United States, among others, higher oil prices and increased uncertainty in global markets. As Russia’s invasion of Ukraine continues, there can be no certainty regarding whether such governments or other governments will impose additional sanctions, export-controls or other economic or military measures against Russia. Although we have minimal operational exposure in Russia and we do not intend to commit further capital towards projects in Russia, the full impact of the invasion of Ukraine, including economic sanctions and export controls or additional war or military conflict, as well as potential responses to them by Russia, is currently unknown and could adversely affect oil and gas companies, many of which are our customers, as well as the global supply chain. For more information on the risks associated with the invasion of Ukraine, see “Our business may also be affected by new sanctions and export controls targeting Russia and other responses to Russia’s invasion of Ukraine” discussed in the Form 10-K/A, “Item 1A. Risk Factors”.

Previous wording

According to the April 2024 release of the Short-Term Energy Outlook published by the EIA, Brent Crude oil prices are expected to average approximately $89 per barrel in 2024 and $87 per barrel in 2025, compared with an average of $82 per barrel in 2023. In its April 2024 Oil Market Report, the International Energy Agency projected the global oil demand to grow by approximately 1.2 million barrels per day in 2024 and 1.1 million barrels per day in 2025.

Current wording

According to the July 2024 release of the Short-Term Energy Outlook published by the EIA, Brent Crude oil prices are expected to average approximately $89 per barrel for the remainder of 2024 and $88 per barrel in 2025, compared with an average of $82 per barrel in 2023. In its July 2024 Oil Market Report, the International Energy Agency projected the global oil demand to grow by approximately 1.0 million barrels per day in both 2024 and 2025.

Previous wording

Detailed below is the average contracted Mobile Offshore Drilling Units. These are rigs currently drilling as well as rigs committed, but not yet drilling, for the three months ended March 31, 2024 and 2023. The rig count data includes floating rigs (semi-submersibles and drillships) and jack-up rigs. The Company has included only these types of rigs as they are the primary assets used to deploy the Company’s products.

Current wording

Detailed below is the average contracted Mobile Offshore Drilling Units. These are rigs currently drilling as well as rigs committed, but not yet drilling, for the six months ended June 30, 2024 and 2023. The rig count data includes floating rigs (semi-submersibles and drillships) and jack-up rigs. The Company has included only these types of rigs as they are the primary assets used to deploy the Company’s products.

Previous wording

According to IHS-Petrodata RigBase, as of March 31, 2024, there were 550 contracted rigs (148 floating rigs and 402 jack-up rigs), an increase of 3.0% from the rig count of 534 rigs (145 floating rigs and 389 jack-up rigs) as of March 31, 2023.

Current wording

According to IHS-Petrodata RigBase, as of June 30, 2024, there were 558 contracted rigs (150 floating rigs and 408 jack-up rigs), an increase of 3.1% from the rig count of 541 rigs (144 floating rigs and 397 jack-up rigs) as of June 30, 2023.

Previous wording

In March 2018, the President of the United States issued a proclamation imposing a 25 percent global tariff on imports of certain steel products and a 10 percent tariff on certain aluminum products, effective March 23, 2018. The President subsequently proposed an additional 25 percent tariff on approximately $50 billion worth of imports from China, and the government of China responded with a proposal of an additional 25 percent tariff on U.S. goods with a value of $50 billion. In the following months, the United States and China placed additional, competing tariffs on imported goods until the two countries entered a phase one trade deal in January 2020, which included an agreement to reduce certain tariffs. Negotiations for a phase two trade deal with China had begun prior to the outbreak of COVID-19 but did not result in a deal. President Biden has urged the United States Trade Representative to further increase tariffs on steel and aluminum.

Current wording

In March 2018, the President of the United States issued a proclamation imposing a 25 percent global ad valorem tariff on imports of certain steel products and a 10 percent ad valorem tariff on certain aluminum products, effective March 23, 2018. The President subsequently proposed an additional 25 percent tariff on approximately $50 billion worth of imports from China, and the government of China responded with a proposal of an additional 25 percent tariff on U.S. goods with a value of $50 billion. In the following months, the United States and China placed additional, competing tariffs on imported goods until the two countries entered a phase one trade deal in January 2020, which included an agreement to reduce certain tariffs. Negotiations for a phase two trade deal with China had begun prior to the outbreak of COVID-19 but did not result in a deal. Effective July 10, 2024, President Biden announced new tariffs aimed at combating the circumvention of tariffs on steel and aluminum processed in Mexico and extending the 25% steel tariff on Mexican steel poured outside of Canada, Mexico, or the U.S. and 10% aluminum tariff on Mexican aluminum containing any metal cast or smelted in China, Belarus, Iran, or Russia.

Previous wording

The imposition of any additional tariffs or initiation of trade restrictions by or against the United States could cause our cost of raw materials to increase or affect the markets for our products. However, given the uncertainty regarding the scope and duration of these trade actions by the United States and other countries, their ultimate impact on our business and operations remains uncertain.

Current wording

The imposition of the most recent and/or any additional tariffs or initiation of trade restrictions by or against the United States could cause our cost of raw materials to increase or affect the markets for our products. However, given the uncertainty regarding the scope and duration of these trade actions by the United States and other countries, their ultimate impact on our business and operations remains uncertain.

Previous wording

The Company believes that its subsea products bookings should help mitigate the impact of any negative market conditions; however, slow recovery in commodity prices or an extended downturn in the global economy or future restrictions on, or declines in, oil and gas exploration and production could have a negative impact on the Company and its bookings. The Company’s subsea product bookings for the quarter ended March 31, 2024 were approximately $41.1 million, as compared to approximately $96.8 million and $43.2 million for the quarters ended December 31, 2023 and March 31, 2023, respectively.

Current wording

The Company believes that its subsea products bookings should help mitigate the impact of any negative market conditions; however, slow recovery in commodity prices or an extended downturn in the global economy or future restrictions on, or declines in, oil and gas exploration and production could have a negative impact on the Company and its bookings. The Company’s subsea product bookings for the quarter ended June 30, 2024 were approximately $12.8 million, as compared to approximately $41.1 million and $66.6 million for the quarters ended March 31, 2024 and June 30, 2023, respectively.

Previous wording

Revenues. Dril-Quip’s revenues are generated from three sources: products, services and leasing. Product revenues are derived from the sale of drilling and production equipment. Service revenues are earned when the Company provides technical advisory assistance and rework and reconditioning services. Leasing revenues are derived from rental tools used during installation and retrieval of the Company’s products. For the three months ended March 31, 2024 and 2023, the Company derived 58.5% and 65.2%, respectively, of its revenues from the sale of its products, 27.4% and 23.4%, respectively, of its revenue from services, and 14.1% and 11.4% respectively, of its revenues from leasing. Service and leasing revenues generally correlate to revenues from product sales because increased product sales typically generate increased demand for technical advisory assistance services and rental of running tools during installation. The Company has substantial international operations, with approximately 71.9% and 62.8% of its revenues derived from foreign sales for the three months ended March 31, 2024 and 2023, respectively. The majority of the Company’s domestic revenue relates to operations in the U.S. Gulf of Mexico. Domestic revenue approximated 28.1% and 37.2% of the Company’s total revenues for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Revenues. Dril-Quip’s revenues are generated from three sources: products, services and leasing. Product revenues are derived from the sale of drilling and production equipment. Service revenues are earned when the Company provides technical advisory assistance and rework and reconditioning services. Leasing revenues are derived from rental tools used during installation and retrieval of the Company’s products. For the three months ended June 30, 2024 and 2023, the Company derived 61.8% and 62.2%, respectively, of its revenues from the sale of its products, 27.2% and 26.5%, respectively, of its revenue from services, and 11.1% and 11.2% respectively, of its revenues from leasing. For the six months ended June 30, 2024 and 2023, the Company derived 60.2% and 63.8%, respectively, of its revenues from the sale of its products, 27.3% and 24.9%, respectively, of its revenue from services, and 12.5% and 11.3% respectively, of its revenues from leasing. Service and leasing revenues generally correlate to revenues from product sales because increased product sales typically generate increased demand for technical advisory assistance services and rental of running tools during installation. The Company has substantial international operations, with approximately 73.0% and 66.1% of its revenues derived from foreign sales for the six months ended June 30, 2024 and 2023, respectively. The majority of the Company’s domestic revenue relates to operations in the U.S. Gulf of Mexico. Domestic revenue approximated 27.0% and 33.9% of the Company’s total revenues for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

The Company accounts for more complex, customer specific projects that have relatively longer manufacturing time frames on an over-time basis. For the three months ended March 31, 2024, there were 57 projects representing approximately 20.3% of the Company’s total revenues and approximately 34.8% of its product revenues that were accounted for using over-time accounting, compared to 63 projects for the three months ended March 31, 2023, which represented approximately 32.7% of the Company’s total revenues and approximately 50.2% of its product revenues. These percentages may fluctuate in the future. Revenues accounted for in this manner are generally recognized based upon a calculation of the percentage complete, which is used to determine the revenue earned and the appropriate portion of total estimated cost of sales to be recognized. Accordingly, price and cost estimates are reviewed periodically as the work progresses, and adjustments proportionate to the percentage complete are reflected in the period when such estimates are revised. Losses, if any, are recorded in full in the period they become known. Amounts received from customers in excess of revenues recognized are classified as a current liability.

Current wording

The Company accounts for more complex, customer specific projects that have relatively longer manufacturing time frames on an over-time basis. For the three months ended June 30, 2024, there were 48 projects representing approximately 20.5% of the Company’s total revenues and approximately 33.1% of its product revenues that were accounted for using over-time accounting, compared to 64 projects for the three months ended June 30, 2023, which represented approximately 30.0% of the Company’s total revenues and approximately 47.9% of its product revenues. For the six months ended June 30, 2024, there were 56 projects representing approximately 20.4% of the Company’s total revenues and approximately 33.9% of its product revenues that were accounted for using over-time accounting, compared to 66 projects for the six months ended June 30, 2023, which represented approximately 30.3% of the Company’s total revenues and approximately 47.4% of its product revenues. These percentages may fluctuate in the future. Revenues accounted for in this manner are generally recognized based upon a calculation of the percentage complete, which is used to determine the revenue earned and the appropriate portion of total estimated cost of sales to be recognized. Accordingly, price and cost estimates are reviewed periodically as the work progresses, and adjustments proportionate to the percentage complete are reflected in the period when such estimates are revised. Losses, if any, are recorded in full in the period they become known. Amounts received from customers in excess of revenues recognized are classified as a current liability.

Previous wording

Restructuring and Other Charges. Restructuring and Other Charges consist of costs under the 2021 global strategic plan. The 2021 global strategic plan concluded in the third quarter of 2023. As a result, the Company did not incur any costs under the 2021 global strategic plan for the three months ended March 31, 2024.

Current wording

Restructuring and Other Charges. Restructuring and Other Charges consist of costs under the 2021 global strategic plan. The 2021 global strategic plan concluded in the third quarter of 2023. As a result, the Company did not incur any costs under the 2021 global strategic plan for the three and six months ended June 30, 2024.

Previous wording

Revenues. Revenues increased by $19.4 million, or approximately 21.4%, to $110.3 million for the three months ended March 31, 2024 from $90.9 million for the three months ended March 31, 2023.

Current wording

Revenues. Revenues increased by $30.7 million, or approximately 34.3%, to $120.3 million for the three months ended June 30, 2024 from $89.6 million for the three months ended June 30, 2023.

Previous wording

Subsea Products revenue decreased by approximately $10.8 million primarily driven by lower Connector and Surface Equipment orders in the first quarter of 2024.

Current wording

Subsea Products revenue decreased by approximately $1.9 million primarily driven by lower Connector and Surface Equipment orders in the second quarter of 2024.

Previous wording

Well Construction revenue increased by approximately $29.5 million, which was primarily driven by the acquisition of Great North, which contributed $25.1 million in revenue in the first quarter of 2024, and large bore liner hanger growth in international offshore markets.

Current wording

Well Construction revenue increased by approximately $29.5 million, which was primarily driven by the acquisition of Great North, which contributed $21.9 million in revenue in the second quarter of 2024, and large bore liner hanger growth in international offshore markets.

Previous wording

Cost of Sales. Cost of sales increased by $12.9 million, or approximately 19.7%, to $78.4 million for the three months ended March 31, 2024 from $65.5 million for the same period in 2023. This increase was primarily due to the acquisition of Great North. Cost of sales as a percentage of revenue decreased to 71.1% from 72.1% for the three months ended March 31, 2024 and 2023, respectively, primarily driven by favorable product mix within Subsea Products and Well Construction.

Current wording

Cost of Sales. Cost of sales increased by $17.5 million, or approximately 26.7%, to $83.2 million for the three months ended June 30, 2024 from $65.7 million for the same period in 2023. This increase was primarily due to the acquisition of Great North. Cost of sales as a percentage of revenue decreased to 69.2% from 73.3% for the three months ended June 30, 2024 and 2023, respectively, primarily driven by favorable product mix within Subsea Products and Well Construction.

Previous wording

Selling, General and Administrative Expenses. For the three months ended March 31, 2024, selling, general and administrative expenses increased by $7.4 million, or 32.8% to $30.0 million from $22.6 million for the same period in 2023. This increase was primarily due to the addition of Great North expenses and higher personnel related costs.

Current wording

Selling, General and Administrative Expenses. For the three months ended June 30, 2024, selling, general and administrative expenses increased by $7.7 million, or 34.6% to $29.8 million from $22.1 million for the same period in 2023. This increase was primarily due to the addition of Great North expenses and higher personnel related costs.

Previous wording

Engineering and Product Development Expenses. For the three months ended March 31, 2024, engineering and product development expenses increased by approximately $0.3 million, or 10.0%, to $3.7 million from approximately $3.4 million for the same period in 2023. This increase was primarily due to the increased testing and qualifications related to specific international customer requirements.

Current wording

Engineering and Product Development Expenses. For the three months ended June 30, 2024, engineering and product development expenses increased by approximately $0.4 million, or 12.1%, to $3.6 million from approximately $3.2 million for the same period in 2023. This increase was primarily due to the increased testing and qualifications related to specific international customer requirements.

Previous wording

Operating Income (Loss). Subsea Products operating income was approximately $0.9 million lower for the three months ended March 31, 2024 as compared to the same period in 2023, in line with the decrease in revenue.

Current wording

Operating Income (Loss). Subsea Products operating income was approximately $4.5 million higher for the three months ended June 30, 2024 as compared to the same period in 2023 due a favorable product mix and the impacts of productivity initiatives.

Previous wording

Income Tax Provision (Benefit). Income tax provision for the three months ended March 31, 2024 was $3.4 million on a loss before taxes of $16.6 million, resulting in an effective tax rate of (20.3)%. Income tax expense was different than the U.S federal statutory income tax rate of 21% primarily due to the change in earnings mix by geography and tax jurisdiction, changes in valuation allowances in the United States, foreign withholding tax, and changes in nondeductible expenses. Income tax provision for the three months ended March 31, 2023 was $3.6 million on an income before taxes of $5.9 million, resulting in an effective income tax rate of approximately 61.1%. Income tax expense was different than the U.S federal statutory income tax rate of 21% primarily due to projected earnings mix by geography and tax jurisdiction, foreign withholding taxes, nondeductible compensation and the change in valuation allowances in the United States and in various foreign countries.

Current wording

Income Tax Provision (Benefit). Income tax provision for the three months ended June 30, 2024 was $0.8 million on a loss before taxes of $2.6 million, resulting in an effective tax rate of 30.7%. Income tax expense was different than the U.S federal statutory income tax rate of 21% primarily due to the change in earnings mix by geography and tax jurisdiction, changes in valuation allowances in the United States, foreign withholding tax, and changes in nondeductible expenses. Income tax provision for the three months ended June 30, 2023 was $2.1 million on an income before taxes of $5.6 million, resulting in an effective income tax rate of approximately 37.6%. Income tax expense was different than the U.S federal statutory income tax rate of 21% primarily due to projected earnings mix by geography and tax jurisdiction, foreign withholding taxes, nondeductible compensation and the change in valuation allowances in the United States and in various foreign countries.

Previous wording

Net Income (Loss). Net loss was approximately $20.0 million for the three months ended March 31, 2024 as compared to a net income of $2.3 million for the same period in 2023 for the reasons set forth above.

Current wording

Net Income (Loss). Net loss was approximately $1.8 million for the three months ended June 30, 2024 as compared to a net income of $3.5 million for the same period in 2023 for the reasons set forth above.

Previous wording

Restructuring and Other Charges. For the three months ended March 31, 2024, the Company incurred no additional costs under the 2021 global strategic plan. During the three months ended March 31, 2023, the Company incurred costs of approximately $1.7 million under the 2021 global strategic plan. These charges were primarily related to office moves, site cleanup, preparation costs, consulting and legal fees.

Current wording

Restructuring and Other Charges. For the six months ended June 30, 2024, the Company incurred no additional costs under the 2021 global strategic plan. During the six months ended June 30, 2023, the Company incurred costs of approximately $1.1 million under the 2021 global strategic plan. These charges were primarily related to office moves, site cleanup, preparation costs, consulting and legal fees.

Previous wording

Gain on Sale of Property, Plant and Equipment. For the three months ended March 31, 2024, the gain on sale of property, plant and equipment was $0.2 million, primarily related to the sale of scrap parts. For the three months ended March 31, 2023, the gain on sale of property, plant and equipment was $6.7 million, primarily related to the sale of our Houston aftermarket facility and the Houston forge facility buildings.

Current wording

Gain on Sale of Property, Plant and Equipment. For the six months ended June 30, 2024, the gain on sale of property, plant and equipment was $0.1 million, primarily related to the sale of scrap parts. For the six months ended June 30, 2023, the gain on sale of property, plant and equipment was $7.4 million, primarily related to the sale of our Houston aftermarket facility, the Houston forge facility buildings and certain obsolete machinery and equipment and scrap parts.

Previous wording

Subsea Services operating income decreased by approximately $7.6 million, primarily driven by a gain of $5.9 million on the sale of our Houston aftermarket facility recognized in the first quarter of 2023.

Current wording

Subsea Services operating income decreased by approximately $4.5 million, primarily driven by a gain of $5.9 million on the sale of our Houston aftermarket facility recognized in the first half of 2023.

Previous wording

Well Construction operating income was approximately $5.0 million higher for the three months ended March 31, 2024 as compared to the same period in 2023, which was primarily driven by the acquisition of Great North.

Current wording

Well Construction operating income was approximately $1.1 million higher for the six months ended June 30, 2024 as compared to the same period in 2023, which was primarily driven by the acquisition of Great North, which contributed $3.6 million in operating income. This is partially offset by the release of a $1.9 million restructuring liability in the first half of 2023 and higher payroll expense in 2024.

Previous wording

Corporate operating loss was approximately $18.6 million higher for the three months ended March 31, 2024 as compared to the same period in 2023, primarily due to expenses related to the planned merger with Innovex.

Current wording

Corporate operating loss was approximately $30.5 million higher for the six months ended June 30, 2024 as compared to the same period in 2023, primarily due to $19.4 million in expenses related to the planned merger with Innovex and a foreign currency transaction loss in the first half of 2024.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2024 was $4.1 million as compared to $52.9 million for the three months ended March 31, 2023. The $48.8 million increase in cash from operating activities is primarily due to increases resulting from the change in operating assets and liabilities of $47.3 million.

Current wording

Net cash used in operating activities for the six months ended June 30, 2024 was $13.4 million as compared to $41.6 million for the six months ended June 30, 2023. The $28.2 million increase in cash from operating activities is primarily due to increases resulting from the change in operating assets and liabilities of $32.9 million.

Previous wording

The change in operating assets and liabilities for the three months ended March 31, 2024 resulted in a $47.3 million increase in cash as compared to the change in operating assets and liabilities for the three months ended March 31, 2023. The $48.9 million net increase in cash due to changes in trade receivables and unbilled receivables was mainly due to a significant increase in billings both for point in time orders and over-time orders as the rights became unconditional on the contract assets and were transferred to trade receivables. Increases in cash due to the changes in accounts payable and accrued expenses was $9.3 million primarily due to the timing of payroll cycles and accounts payable distributions. These increases were partially offset by $8.4 million decreases in cash due to changes in inventory levels as we continually reassess our needs. Decrease in cash due to changes in prepaids and other assets was $2.5 million.

Current wording

The change in operating assets and liabilities for the six months ended June 30, 2024 resulted in a $32.9 million increase in cash as compared to the change in operating assets and liabilities for the six months ended June 30, 2023. The $21.5 million net increase in cash due to changes in trade receivables and unbilled receivables was mainly due to a significant increase in billings both for point in time orders and over-time orders as the rights became unconditional on the contract assets and were transferred to trade receivables. Increases in cash due to the changes in accounts payable and accrued expenses was $17.3 million primarily due to the timing of payroll cycles and accounts payable distributions. Increases in cash due to changes in inventory was $3.1 million due to changes in inventory levels as we continually reassess our needs. These increases were partially offset by a decrease in cash of $9.0 million due to changes in prepaids and other assets.

Previous wording

The change in investing cash flows for the three months ended March 31, 2024 resulted in a $17.5 million increase in cash, primarily due to $21.9 million of maturities in our short-term investments during the quarter, which were reinvested in investments classified as cash equivalents as per our accounting policy. This is partially offset by capital expenditures of $4.8 million for the three months ended March 31, 2024. Capital expenditures for the three months ended March 31, 2024 were $2.1 million for machinery and equipment related to our global strategic program which includes consolidation of our manufacturing facilities, $2.1 million for rental tools to support our developed products and $0.6 million for other capital expenditures.

Current wording

The change in investing cash flows for the six months ended June 30, 2024 resulted in a $15.5 million increase in cash, primarily due to $25.9 million of maturities in our short-term investments during the quarter, which were reinvested in investments classified as cash equivalents as per our accounting policy. This is partially offset by capital expenditures of $10.9 million for the six months ended June 30, 2024. Capital expenditures for the six months ended June 30, 2024 were $5.4 million for machinery and equipment related to our global strategic program which includes consolidation of our manufacturing facilities, $4.5 million for rental tools to support our developed products and $1.0 million for other capital expenditures.

Previous wording

The Company’s ABL Credit Facility, dated February 23, 2018, as amended, was terminated effective February 22, 2022. We opened a new cash collateral account with JPMorgan Chase Bank, N.A., in which cash was transferred to facilitate our existing letters of credit. As of March 31, 2024, the cash balance in that account was approximately $4.1 million. The Company is required to maintain a balance equal to the outstanding letters of credit plus 5% at all times which is included in “Restricted cash” in our condensed consolidated balance sheets as at March 31, 2024 and December 31, 2023. Withdrawals from this cash collateral account are only allowed at such point a given letter of credit has expired or has been cancelled.

Current wording

The Company’s ABL Credit Facility, dated February 23, 2018, as amended, was terminated effective February 22, 2022. We opened a new cash collateral account with JPMorgan Chase Bank, N.A., in which cash was transferred to facilitate our existing letters of credit. As of June 30, 2024, the cash balance in that account was approximately $3.6 million. The Company is required to maintain a balance equal to the outstanding letters of credit plus 5% at all times which is included in “Restricted cash” in our condensed consolidated balance sheets as at June 30, 2024 and December 31, 2023. Withdrawals from this cash collateral account are only allowed at such point a given letter of credit has expired or has been cancelled.

Previous wording

On February 22, 2022, the Board of Directors authorized an incremental $100.0 million share repurchase plan. The repurchase plan has no set expiration date and any repurchased shares are expected to be cancelled. The manner, timing and amount of any purchase will be determined by management based on an evaluation of market conditions, stock price, liquidity and other factors. The program does not obligate the Company to acquire any amount of common stock and may be modified or superseded at any time at the Company’s discretion.

Current wording

On February 22, 2022, the Board authorized an incremental $100.0 million share repurchase plan. The repurchase plan has no set expiration date and any repurchased shares are expected to be cancelled. The manner, timing and amount of any purchase will be determined by management based on an evaluation of market conditions, stock price, liquidity and other factors. The program does not obligate the Company to acquire any amount of common stock and may be modified or superseded at any time at the Company’s discretion.

Previous wording

For the three months ended March 31, 2024 and 2023, the Company purchased no shares under the share repurchase plans.

Current wording

For the three and six months ended June 30, 2024 and 2023, the Company purchased no shares under the share repurchase plans.

Previous wording

During the three months ended March 31, 2024, there were no material changes in our judgments and assumptions associated with the development of our critical accounting policies. Refer to our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of our critical accounting policies.

Current wording

During the six months ended June 30, 2024, there were no material changes in our judgments and assumptions associated with the development of our critical accounting policies. Refer to the Form 10-K/A for a discussion of our critical accounting policies.