POWER SOLUTIONS INTERNATIONAL INC
For the period ended Sep 30, 2024. Filed Nov 7, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 7, 2024
PSIX$39.16+9.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-12.
0001137091-24-000020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-07.
0001137091-24-000027
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 67 previous paragraphs and 70 current paragraphs.
35 unchanged; 30 reworded; 4 added; 1 removed; 1 previous and 1 current paragraphs rearranged.
Tables are not compared: 8 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (4)
Current report
PSI’s growth in net revenue for the nine months of 2024 was driven by power systems markets, including data center and oil and gas products, partially offset by lower sales from more mature, lower-margin markets such as transportation. This shift in markets reflects the Company’s conscious strategic prioritization towards higher growth, higher-margin markets with less emphasis on more mature markets.
Current report
The Company is focused on leading the business through a growth phase with a stronger balance sheet while strategically prioritizing products that demonstrate strong demand and higher gross margins. Consistent with those goals, the Company is actively pursuing several initiatives to enhance and expand manufacturing capacity to meet the increasing demand from data center markets. Pivoting the focus to these markets is driving current net sales growth and profitability. Through expanded capacity and strategic partnerships, management expects this positive trend to continue.
Current report
PSI’s business is impacted by the current macroeconomic and geopolitical environment, which has contributed to differing levels of recovery in the global economy. For example, although the oil and gas market, in which the Company has historically operated, has experienced year over year growth from its historic lows, sales levels may not reach their previous higher levels because of rising crude oil prices and lower rig counts. The Company has been actively navigating these challenges by balancing its investments, expenses, pricing and sales efforts in this market as well as others.
Current report
In addition to prioritizing gross profit, the Company is committed to efficiently managing expenses, including streamlining operating expenses and prioritizing certain R&D investments in support of long-term growth objectives. The Company is committed to focusing on growth opportunities and investment while also optimizing its cost structure to enhance growth and profitability, ultimately delivering sustained value to our shareholders.
Removed paragraphs (1)
Previous report
As of the date of this Quarterly Report, the Company prudently continues to manage its expenses, including the restriction of all non-essential travel and minimized discretionary expenses and consulting services. The Company continues to review operating expenses, including prioritizing certain R&D investments in support of the Company’s long-term growth objectives. Starting in 2021 and throughout 2023, the Company took rightsizing actions to align its staffing with current needs, while also streamlining certain roles.
Reworded paragraphs (30)
Previous wording
The following discussion and analysis includes forward-looking statements about the Company’s business and consolidated results of operations for the three and six months ended June 30, 2024 and 2023, including discussions about management’s expectations for the Company’s business. These statements represent projections, beliefs and expectations based on current circumstances and conditions and are made in light of recent events and trends. These statements should not be construed either as assurances of performance or as promises of a given course of action. Instead, various known and unknown factors are likely to cause the Company’s actual performance and management’s actions to vary, and the results of these variances may be both material and adverse. See “Forward-Looking Statements” in this Quarterly Report. The following discussion should also be read in conjunction with the Company’s unaudited consolidated financial statements and the related Notes included in this Quarterly Report.
Current wording
The following discussion and analysis includes forward-looking statements about the Company’s business and consolidated results of operations for the three and nine months ended September 30, 2024 and 2023, including discussions about management’s expectations for the Company’s business. These statements represent projections, beliefs and expectations based on current circumstances and conditions and are made in light of recent events and trends. These statements should not be construed either as assurances of performance or as promises of a given course of action. Instead, various known and unknown factors are likely to cause the Company’s actual performance and management’s actions to vary, and the results of these variances may be both material and adverse. See “Forward-Looking Statements” in this Quarterly Report. The following discussion should also be read in conjunction with the Company’s unaudited consolidated financial statements and the related Notes included in this Quarterly Report.
Previous wording
Net sales by geographic area and by end market for the three and six months ended June 30, 2024 and 2023 are presented below:
Current wording
Net sales by geographic area and by end market for the three and nine months ended September 30, 2024 and 2023 are presented below:
Previous wording
Condensed consolidated results of operations for the three and six months ended June 30, 2024, compared with the three and six months ended June 30, 2023:
Current wording
Condensed consolidated results of operations for the three and nine months ended September 30, 2024, compared with the three and nine months ended September 30, 2023(UNAUDITED):
Previous wording
Net sales decreased $11.3 million, or 9%, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, as a result of lower sales of $14.1 million and $15.8 million within the industrial and transportation end markets, respectively, partially offset by an increase of $18.6 million in the power systems end market. Higher power systems end market sales were primarily due to increased demand for products across various applications, with the largest increases attributable to products used within the packaging market such as enclosures serving the fast-growing Data Center market, as well as oil and gas products and demand response products. We are strategically prioritizing the rapidly expanding Data Center sector, improving and increasing our manufacturing capacity and capabilities to meet and exceed our customers’ evolving demands for our products. The decreased sales within the transportation end market were primarily attributable to lower sales in the truck and school bus market as customer products have evolved, decrease in sales from our shifting sales away from some of our transportation customers, and new compliance and regulatory requirements have changed engine product offerings. Decreased industrial end market sales are primarily due to decreases in demand for products used within the material handling and arbor care markets, as well as the direct effects of enforcement of the UFLPA, which limited the Company’s ability to import certain raw materials in early 2024.
Current wording
Net sales increased $10.0 million, or 9%, during the three months ended September 30, 2024, compared to the three months ended September 30, 2023, as a result of higher sales of $23.7 million in the power systems end market, partially offset by a decrease of $7.6 million and $6.2 million within the industrial and transportation end markets, respectively. Higher power systems end market sales were primarily due to increased demand for products across various applications, with the largest increases attributable to products used within the packaging market such as enclosures serving the fast-growing Data Center market, as well as oil and gas products. The Company is strategically prioritizing the rapidly expanding Data Center sector, improving and increasing our manufacturing capacity and capabilities to meet and exceed our customers’ evolving demands for our products. Decreased industrial end market sales are primarily due to decreases in demand for products used within the material handling and arbor care markets, as well as the direct effects of enforcement of the UFLPA, which limited the Company’s ability to import certain raw materials continuing through the third quarter of 2024. The decreased sales within the transportation end market were primarily attributable to lower sales in the truck and school bus market as customer products have evolved, decrease in sales from shifting away from some of our transportation customers, and new compliance and regulatory requirements that have changed engine product offerings.
Previous wording
Net sales decreased $32.5 million, or 14%, during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, as a result of lower sales of $28.2 million and $40.3 million within the industrial and transportation end markets, respectively, partly offset by an increase of $36.0 million in the power systems end market. Higher power systems end market sales were primarily due to increased demand for products across various applications, with the largest increases attributable to products used within the packaging market such as enclosures serving the fast-growing Data Center market, as well as oil and gas products and demand response products. We are strategically prioritizing the rapidly expanding Data Center sector, improving and increasing our manufacturing capacity and capabilities to meet and exceed our customers’ evolving demands for our products. The decreased sales within the transportation end market were primarily attributable to lower sales in the truck and school bus market as customer products have evolved, decrease in sales from our shifting sales away from some of our transportation customers, and new compliance and regulatory requirements have changed engine product offerings. Decreased industrial end market sales are primarily due to decreases in demand for products used within the material handling and arbor care markets, as well as the direct effects of enforcement of the UFLPA, which limited the Company’s ability to import certain raw materials in early 2024.
Current wording
Net sales decreased $22.6 million, or 6%, during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, as a result of lower sales of $35.8 million and $46.4 million within the industrial and transportation end markets, respectively, partly offset by an increase of $59.7 million in the power systems end market. Higher power systems end market sales were primarily due to increased demand for products across various applications, with the largest increases attributable to products used within the packaging market such as enclosures serving the fast-growing Data Center market, as well as oil and gas products and demand response products. The Company is strategically prioritizing the rapidly expanding Data Center sector, improving and increasing our manufacturing capacity and capabilities to meet and exceed our customers’ evolving demands for our products. Decreased industrial end market sales are primarily due to decreases in demand for products used within the material handling and arbor care markets, as well as the direct effects of enforcement of the UFLPA, which limited the Company’s ability to import certain raw materials continuing through the third quarter of 2024. The decreased sales within the transportation end market were primarily attributable to lower sales in the truck and school bus market as customer products have evolved, decrease in sales from shifting away from some of our transportation customers, and new compliance and regulatory requirements that have changed engine product offerings.
Previous wording
Gross profit increased during the three months ended June 30, 2024 by $8.2 million, or 31%, compared to the three months ended June 30, 2023. Gross margin was 31.8% and 22.1% during the three months ended June 30, 2024 and 2023, respectively. The increase in gross margin is primarily due to improved mix, pricing actions, higher operating efficiencies, and lower warranty costs primarily attributable to the Company’s sales shift away from certain transportation customers.
Current wording
Gross profit increased during the three months ended September 30, 2024 by $8.5 million, or 31%, compared to the three months ended September 30, 2023. Gross margin was 28.9% and 24.1% during the three months ended September 30, 2024 and 2023, respectively. The increase in gross margin is primarily due to improved mix, pricing actions, higher operating efficiencies, and lower warranty costs primarily attributable to the Company’s sales shift away from certain transportation customers.
Previous wording
Gross profit increased during the six months ended June 30, 2024 by $10.5 million, or 21%, compared to the six months ended June 30, 2023. Gross margin was 29.6% and 21.2% during the six months ended June 30, 2024 and 2023, respectively. The increase in gross margin is primarily due to improved mix, pricing actions, higher operating efficiencies, and lower warranty costs primarily attributable to the Company’s sales shift away from certain transportation customers.
Current wording
Gross profit increased during the nine months ended September 30, 2024 by $19.0 million, or 24%, compared to the nine months ended September 30, 2023. Gross margin was 29.4% and 22.1% during the nine months ended September 30, 2024 and 2023, respectively. The increase in gross margin is primarily due to improved mix, pricing actions, higher operating efficiencies, and lower warranty costs primarily attributable to the Company’s sales shift away from certain transportation customers.
Previous wording
Research and development expenses during the six months ended June 30, 2024 and 2023 were $10.2 million and $9.3 million, respectively. The increase is primarily related to the testing of new products.
Current wording
Research and develo pment expenses during the three months ended September 30, 2024 and 2023 were $4.7 million and $4.8 million, respectively.
Previous wording
Research and development expenses during the three months ended June 30, 2024 and 2023 were $5.0 million and $4.7 million, respectively. The increase is primarily related to the testing of new products.
Current wording
Research and development expenses during the nine months ended September 30, 2024 and 2023 were $14.8 million and $14.0 million, respectively. Theincrease of $0.8 million or 6% was primarily related to the testing of new products.
Previous wording
Selling, general and administrative(“SG&A”)expenses decreased during the three months ended June 30, 2024 by $6.0 million, or 57%, compared to the three months ended June 30, 2023, due largely to a decrease in the legal reserve, lower professional fees and the decrease selling expenses associated with decreased sales in the transportation market.
Current wording
Selling, general and administrative(“SG&A”)expenses were$11.0 million during the three months ended September 30, 2024 anincrease of $0.4 million, or 3%, compared to the three months ended September 30, 2023, primarily due to higher executive compensation, offset by lower legal expenses.
Previous wording
SG&A decreased during the six months ended June 30, 2024 by $6.4 million, or 31%, compared to the six months ended June 30, 2023, primarily due to the decrease in the legal reserve, lower professional fees and the decrease selling expenses associated with decreased sales in the transportation market.
Current wording
SG&A expenses were $25.0 million during the nine months ended September 30, 2024, adecrease of$6.0 million, or 19%, compared to the nine months ended September 30, 2023, primarily due to the decrease in the legal reserve, lower professional fees and the decrease selling expenses associated with decreased sales in the transportation market.
Previous wording
Interest expense was $2.9 million for the three months ended June 30, 2024, as compared to $4.6 million for the three months ended June 30, 2023, largely due to lower average outstanding debt, partially offset by higher overall effective interest rates on the Company’s debt. See Note 6. Debt, included in Part 1, Item 1. Financial Statements, for additional information.
Current wording
Interest expense was $2.8 million for the three months ended September 30, 2024, as compared to $4.2 million for the three months ended September 30, 2023, largely due to lower average outstanding debt, partially offset by higher overall effective interest rates on the Company’s debt. See Note 6. Debt, included in Part 1, Item 1. Financial Statements, for additional information.
Previous wording
Interest expense was $6.3 million for the six months ended June 30, 2024, as compared to $9.3 million for the six months ended June 30, 2023, largely due to lower average outstanding debt, partially offset by higher overall effective interest rates on the Company’s debt. See Note 6. Debt, included in Part 1, Item 1. Financial Statements, for additional information.
Current wording
Interest expense was $9.1 million for the nine months ended September 30, 2024, as compared to $13.5 million for the nine months ended September 30, 2023, largely due to lower average outstanding debt, partially offset by higher overall effective interest rates on the Company’s debt. See Note 6. Debt, included in Part 1, Item 1. Financial Statements, for additional information.
Previous wording
The Company recorded income tax expense of $0.9 million for the three months ended June 30, 2024, as compared to income tax expense of $0.2 million for the three months ended June 30, 2023. The Company’s pretax income was $22.4 million for the three months ended June 30, 2024, compared to a pretax income of $6.7 million for the three months ended June 30, 2023. The Company continues to record a full valuation allowance against deferred tax assets.
Current wording
The Company recorded income tax expense of $0.3 million for the three months ended September 30, 2024, as compared to income tax expense of $0.2 million for the three months ended September 30, 2023. The Company’s pretax income was $17.6 million for the three months ended September 30, 2024, compared to a pretax income of $7.9 million for the three months ended September 30, 2023. The Company continues to utilize Net Operating Losses (“NOLs”) along with other tax credits to lower its effective tax rate. The Company continues to record a full valuation allowance against deferred tax assets.
Previous wording
The Company recorded income tax expense of $1.1 million for the six months ended June 30, 2024, as compared to income tax expense of $0.4 million for the six months ended June 30, 2023. The Company’s pretax income was $29.8 million for the six months ended June 30, 2024, compared to pretax income of $10.5 million for the six months ended June 30, 2023. The Company continues to record a full valuation allowance against deferred tax assets.
Current wording
The Company recorded income tax expense of $1.4 million for the nine months ended September 30, 2024, as compared to income tax expense of $0.5 million for the nine months ended September 30, 2023. The Company’s pretax income was $47.4 million for the nine months ended September 30, 2024, compared to pretax income of $18.5 million for the nine months ended September 30, 2023. The Company continues to utilize NOLs along with other tax credits to lower its effective tax rate. The Company continues to record a full valuation allowance against deferred tax assets.
Previous wording
The following table presents a reconciliation from Net income to Adjusted net income for the three and six months ended June 30, 2024 and 2023:
Current wording
The following table presents a reconciliation from Net income to Adjusted net income for the three and nine months ended September 30, 2024 and 2023:
Previous wording
The following table presents a reconciliation from Net income per share – diluted to Adjusted net income per share – diluted for the three and six months ended June 30, 2024 and 2023:
Current wording
The following table presents a reconciliation from Net income per share – diluted to Adjusted net income per share – diluted for the three and nine months ended September 30, 2024 and 2023:
Previous wording
The following table presents a reconciliation from Net income to EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023:
Current wording
The following table presents a reconciliation from Net income to EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023:
Previous wording
Amounts reflect non-cash stock-based compensation expense and have no material impact on the Adjusted net income per share – diluted for the three and six months ended June 30, 2024 and 2023.
Current wording
Amounts reflect non-cash stock-based compensation expense and have no material impact on the Adjusted net income per share – diluted for the three and nine months ended September 30, 2024 and 2023.
Previous wording
Amounts include legal settlements for the three and six months ended June 30, 2024 and 2023.
Current wording
Amounts include legal settlements for the three and nine months ended September 30, 2024 and 2023.
Previous wording
Amounts include insurance recoveries related to a prior year incident and have no material impact on the Adjusted net income per share – diluted for the three and six months ended June 30, 2024 and 2023.
Current wording
Amounts include insurance recoveries related to a prior year incident and have no material impact on the Adjusted net income per share – diluted for the three and nine months ended September 30, 2024 and 2023.
Previous wording
Cash Flows for the Six Months Ended June 30, 2024
Current wording
Cash Flows for the Nine Months Ended September 30, 2024
Previous wording
Net cash provided by operating activities was $17.2 million for the six months ended June 30, 2024, compared to net cash provided by operating activities of $26.6 million for the six months ended June 30, 2023, resulting in a decrease of $9.4 million in cash provided by operating activities year-over-year. The decrease in cash provided by operating activities primarily resulted from a $30.0 million decrease of cash provided by working capital accounts, partially offset by an increase in earnings of $18.5 million. The decrease in cash generated from working capital was primarily related to the increase of prepaid expenses, and offset by less purchases of inventory and less collections on accounts receivables for the six months ended June 30, 2024.
Current wording
Net cash provided by operating activities was $29.7 million for the nine months ended September 30, 2024, compared to net cash provided by operating activities of $62.1 million for the nine months ended September 30, 2023, resulting in a decrease of $32.4 million in cash provided by operating activities year-over-year. The decrease in cash provided by operating activities primarily resulted from a $54.4 million decrease of cash provided by working capital accounts, partially offset by an increase in earnings of $28.1 million. The decrease in cash generated from working capital was primarily related to the increase of prepaid expenses, purchases of inventory, and fewer collections on accounts receivables, offset by decreased payments on accounts payable for the nine months ended September 30, 2024 compared to September 30, 2023.
Previous wording
Net cash used in investing activities was $1.5 million for the six months ended June 30, 2024, compared to cash used in investing activities of $1.3 million for the six months ended June 30, 2023. For the six months ended June 30, 2024 and 2023, cash used in investing activities primarily related to capital expenditures associated with normal maintenance of the Company’s facilities.
Current wording
Net cash used in investing activities was $2.0 million for the nine months ended September 30, 2024, compared to cash used in investing activities of $2.7 million for the nine months ended September 30, 2023. For the nine months ended September 30, 2024 and 2023, cash used in investing activities primarily related to capital expenditures associated with normal maintenance of the Company’s facilities.
Previous wording
The Company used $10.2 million in cash from financing activities forthe six months ended June 30, 2024, compared to $21.7 million cash used by financing activities for the six months ended June 30, 2023. The cash used by financing activities for the six months ended June 30, 2024, was a result of repayment of existing debt year to date. See additional discussion below and in Note 6. Debt, included in Part I, Item 1. Financial Statements, which further describe the Company’s debt arrangements.
Current wording
The Company used $10.7 million in cash from financing activities forthe nine months ended September 30, 2024, compared to $51.7 million cash used by financing activities for the nine months ended September 30, 2023. The cash used by financing activities for the nine months ended September 30, 2024, was the net impact from the initial draw on the new Revolving Credit Agreement and payments toward the Shareholder’s Loan Agreement and other existing debt year to date. See additional discussion below and in Note 6. Debt, included in Part I, Item 1. Financial Statements, which further describe the Company’s debt arrangements.
Previous wording
As of June 30, 2024, the Company’s total outstanding debt obligations under the Credit Agreement, the$25 Million Loan Agreement, the$50 Million Loan Agreement, the$30 Million Loan Agreement and for finance leases and other debt were $135.1 million in the aggregate, and its cash and cash equivalents were $28.8 million. See Item 1. Financial Statements, Note 6. Debt, for additional information.
Current wording
While the Company has achieved profitability and generated positive cash flows from operating activities in 2024, uncertainties exist about the Company’s ability to refinance, extend, or repay its outstanding indebtedness. As September 30, 2024, the Company’s total outstanding debt obligations under the Credit Agreement, the Shareholder’s Loan Agreement, and for finance leases and other debt were $135.2 million in the aggregate, and its cash and cash equivalents were $40.5 million. See Item 1. Financial Statements, Note 6. Debt, for additional information.
Previous wording
Uncertainties exist about the Company’s ability to refinance, extend, or repay its outstanding indebtedness under its existing debt arrangements, maintain sufficient liquidity to fund its business activities, and maintain compliance with the covenants and other requirements under the Credit Agreement or shareholder’s loan agreements in the future. Without additional financing, the Company anticipates that it will not have sufficient cash and cash equivalents to repay the outstanding indebtedness under the Company’s existing debt arrangements as they become due. Management currently plans to seek an extension and/or replacement of its existing debt arrangements or seek additional liquidity from its current or other lenders before the maturity dates in 2024 and 2025. There can be no assurance that the Company will be able to successfully complete a refinancing on acceptable terms or repay this outstanding indebtedness when required or if at all.
Current wording
The Company’s ability to continue as a going concern is dependent on extending and amending, refinancing or repaying the indebtedness outstanding under the Company’s existing debt arrangements. Without additional financing, the Company anticipates that it will not have sufficient cash and cash equivalents to repay amounts owed under its existing debt arrangements as they become due. In order to provide the Company with a more permanent source of liquidity, management plans to seek an extension and amendment and/or replacement of its existing debt agreements or seek additional liquidity from its current or other lenders before the maturity dates in 2025. There can be no assurance that the Company’s management will be able to successfully complete an extension and amendment of its existing debt agreements or obtain new financing on acceptable terms, when required or if at all.
Previous wording
Despite the recent recovery of the global economy, there continues to be challenges based on the current macroeconomic and geopolitical environment. Average crude oil prices reached the highest average price in five years in 2022 but have steadily declined while remaining near atop the 5-year averages at the end of the second quarter 2024. Rig counts in the U.S. oil markets remain below historical levels as of the second quarter of 2024. Despite increasing rig counts and crude oil prices, the Company believes that capital spending within the areas of the oil and gas market that it participates in remains below historical levels. While the Company saw an increase of sales to customers with traditional exposure to the oil and gas markets during 2023, as compared to the prior year, sales remain below historic levels. A significant portion of the Company’s sales and profitability has historically been derived from the sale of products that are used within the oil and gas industry. The Company continues to experience inflationary cost pressures for certain raw materials and other goods which the Company continues to try to mitigate through price increases and other cost reduction measures. Additionally, the Company continues to experience ongoing tariff costs for products and is trying to mitigate these impacts through price increases and other measures, such as seeking certain tariff exclusions, where possible. The potential for continued economic uncertainty and unfavorable oil and gas market dynamics may have a material adverse impact on the levels of future customer orders and the Company’s future business operations, financial condition and liquidity.
Current wording
Despite the recent recovery of the global economy, there continue to be challenges based on the current macroeconomic and geopolitical environment. Average crude oil prices reached the highest average price in five years in 2022 but have steadily declined while remaining near historically high 5-year averages at the end of the third quarter 2024. Rig counts in the U.S. oil markets remain below historical levels as of the third quarter of 2024. Despite increasing rig counts and historically high crude oil prices, the Company believes that capital spending within the areas of the oil and gas market that it participates in remains below historical levels. While the Company saw an increase of sales to customers with traditional exposure to the oil and gas markets during 2023, as compared to the prior year, sales remain below historic levels. A significant portion of the Company’s sales and profitability has historically been derived from the sale of products that are used within the oil and gas industry. The Company continues to experience inflationary cost pressures for certain raw materials and other goods which the Company continues to try to mitigate through price increases and other cost reduction measures. Additionally, the Company continues to experience ongoing tariff costs for products and is trying to mitigate these impacts through price increases and other measures, such as seeking certain tariff exclusions, where possible. The potential for continued economic uncertainty and unfavorable oil and gas market dynamics may have a material adverse impact on the levels of future customer orders and the Company’s future business operations, financial condition and liquidity.
Previous wording
Due to uncertainties surrounding the Company’s future ability to refinance, extend, or repay its outstanding indebtedness under its existing debt arrangements, maintain sufficient liquidity to fund its business activities, and maintain compliance with the covenants and other requirements under the Credit Agreement or shareholder’s loan agreements in the future, substantial doubt exists as to its ability to continue as a going concern within one year after the date that these financial statements are issued. If the Company does not have sufficient liquidity to fund its business activities, it may be forced to limit its business activities or be unable to continue as a going concern, which would have a material adverse effect on its results of operations and financial condition.
Current wording
Due to these uncertainties, the Company’s management has concluded that, substantial doubt exists as to its ability to continue as a going concern within one year after the date that these financial statements are issued. The Company’s plans to alleviate the substantial doubt about its ability to continue as a going concern may not be successful, and it may be forced to limit its business activities or be unable to continue as a going concern, which would have a material adverse effect on its results of operations and financial condition.
Previous wording
The Company’s significant accounting policies are consistent with those discussed in Note 1. Summary of Significant Accounting Policies and Other Information, to the consolidated financial statements and the MD&A section of the Company’s 2023 Annual Report. During the six months ended June 30, 2024, there were no significant changes in the application of critical accounting policies.
Current wording
The Company’s significant accounting policies are consistent with those discussed in Note 1. Summary of Significant Accounting Policies and Other Information, to the consolidated financial statements and the MD&A section of the Company’s 2023 Annual Report. During the nine months ended September 30, 2024, there were no significant changes in the application of critical accounting policies.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
The Company continues to experience inflationary cost pressures for certain raw materials and other goods which the Company continues to try to mitigate through price increases and other cost reduction measures. Additionally, the Company continues to experience ongoing tariff costs for its supply chain products and is trying to mitigate these impacts through price increases and other measures, such as seeking certain tariff exclusions, where possible. The potential for continued economic uncertainty and unfavorable oil and gas market dynamics may have a material adverse impact on the levels of future customer orders and the Company’s future business operations, financial condition and liquidity.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Despite the recent recovery of the global economy, there continues to be challenges based on the current macroeconomic and geopolitical environment. Average crude oil prices reached the highest average price in five years in 2022 but have steadily declined while remaining near atop the 5-year averages at the end of the second quarter 2024. Rig counts in the U.S. oil markets remain below historical levels as of the second quarter of 2024. Despite increasing rig counts and crude oil prices, the Company believes that capital spending within the areas of the oil and gas market that it participates in remains below historical levels. While the Company saw an increase of sales to customers with traditional exposure to the oil and gas markets during 2023, as compared to the prior year, sales remain below historic levels. A significant portion of the Company’s sales and profitability has historically been derived from the sale of products that are used within the oil and gas industry. The Company continues to experience inflationary cost pressures for certain raw materials and other goods which the Company continues to try to mitigate through price increases and other cost reduction measures. Additionally, the Company continues to experience ongoing tariff costs for products and is trying to mitigate these impacts through price increases and other measures, such as seeking certain tariff exclusions, where possible. The potential for continued economic uncertainty and unfavorable oil and gas market dynamics may have a material adverse impact on the levels of future customer orders and the Company’s future business operations, financial condition and liquidity.