10-Q 1 drq-20230930.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended September 30, 2023

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

Commission file number 001-13439

 

DRIL-QUIP, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

74-2162088

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2050 West Sam Houston Parkway S., Suite 1100

Houston, texas

77042

(Address of principal executive offices) (Zip Code)

(713) 939-7711

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

DRQ

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No

As of October 24, 2023, the number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was 34,183,053.

 


 

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I

Item 1.

Condensed Consolidated Financial Statements

3

Balance Sheets

3

Statements of Income (Loss)

4

Statements of Comprehensive Income (Loss)

5

Statements of Cash Flows

6

 

Statements of Stockholders’ Equity

7

Notes to Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

33

PART II

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 5.

Other Information

35

Item 6.

Index to Exhibits

36

Signatures

37

 

 


Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

September 30,
2023

 

 

December 31,
2022

 

 

 

(In thousands, except per share data)

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

181,072

 

 

$

264,804

 

Short-term investments

 

 

8,911

 

 

 

32,232

 

Trade receivables, net

 

 

133,337

 

 

 

90,861

 

Unbilled receivables

 

 

154,305

 

 

 

144,428

 

Inventories, net

 

 

183,250

 

 

 

146,004

 

Prepaid expenses

 

 

19,237

 

 

 

19,874

 

Other current assets

 

 

18,100

 

 

 

32,438

 

Assets held for sale

 

 

10,828

 

 

 

19,383

 

Total current assets

 

 

709,040

 

 

 

750,024

 

Operating lease right of use assets

 

 

16,235

 

 

 

4,872

 

Property, plant and equipment, net

 

 

211,806

 

 

 

181,270

 

Deferred income taxes

 

 

5,839

 

 

 

4,488

 

Goodwill

 

 

16,237

 

 

 

-

 

Intangible assets

 

 

42,504

 

 

 

23,348

 

Other assets

 

 

5,907

 

 

 

5,949

 

Total assets

 

$

1,007,568

 

 

$

969,951

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

50,455

 

 

$

43,019

 

Accrued income taxes

 

 

6,604

 

 

 

4,868

 

Contract liabilities

 

 

8,098

 

 

 

8,020

 

Accrued compensation

 

 

14,141

 

 

 

11,296

 

Operating lease liabilities

 

 

2,057

 

 

 

1,054

 

Other accrued liabilities

 

 

25,380

 

 

 

19,298

 

Total current liabilities

 

 

106,735

 

 

 

87,555

 

Deferred income taxes

 

 

12,114

 

 

 

3,756

 

Income tax payable

 

 

451

 

 

 

823

 

Operating lease liabilities, long-term

 

 

14,381

 

 

 

3,807

 

Other long-term liabilities

 

 

3,425

 

 

 

1,658

 

Total liabilities

 

 

137,106

 

 

 

97,599

 

Contingencies (Note 14)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock: 10,000,000 shares authorized at $0.01 par value (none issued)

 

 

-

 

 

 

-

 

Common stock:

 

 

 

 

 

 

100,000,000 shares authorized at $0.01 par value, 34,177,472 and 34,157,057
shares issued and outstanding at September 30, 2023 and December 31, 2022

 

 

343

 

 

 

343

 

Additional paid-in capital

 

 

98,169

 

 

 

90,450

 

Retained earnings

 

 

948,928

 

 

 

950,168

 

Accumulated other comprehensive losses

 

 

(176,978

)

 

 

(168,609

)

Total stockholders’ equity

 

 

870,462

 

 

 

872,352

 

Total liabilities and stockholders’ equity

 

$

1,007,568

 

 

$

969,951

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


Table of Contents

 

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

77,603

 

 

$

58,508

 

 

$

192,677

 

 

$

176,129

 

Services

 

 

27,214

 

 

 

20,443

 

 

 

72,228

 

 

 

57,538

 

Leasing

 

 

12,427

 

 

 

9,190

 

 

 

32,811

 

 

 

31,589

 

Total revenues

 

 

117,244

 

 

 

88,141

 

 

 

297,716

 

 

 

265,256

 

Cost and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

60,640

 

 

 

49,714

 

 

 

152,849

 

 

 

151,932

 

Services

 

 

19,083

 

 

 

8,105

 

 

 

46,199

 

 

 

24,773

 

Leasing

 

 

5,880

 

 

 

7,891

 

 

 

17,768

 

 

 

22,663

 

Total cost of sales

 

 

85,603

 

 

 

65,710

 

 

 

216,816

 

 

 

199,368

 

Selling, general and administrative

 

 

26,993

 

 

 

22,431

 

 

 

71,692

 

 

 

67,322

 

Engineering and product development

 

 

3,061

 

 

 

2,645

 

 

 

9,662

 

 

 

9,041

 

Restructuring and other charges

 

 

2,267

 

 

 

4,101

 

 

 

3,375

 

 

 

9,898

 

Gain on sale of property, plant and equipment

 

 

(1,027

)

 

 

(17,276

)

 

 

(8,412

)

 

 

(17,770

)

Acquisition costs

 

 

5,358

 

 

 

-

 

 

 

6,492

 

 

 

-

 

Foreign currency transaction loss (gain)

 

 

1,060

 

 

 

(1,901

)

 

 

(2,632

)

 

 

(5,574

)

Total costs and expenses

 

 

123,315

 

 

 

75,710

 

 

 

296,993

 

 

 

262,285

 

Operating income (loss)

 

 

(6,071

)

 

 

12,431

 

 

 

723

 

 

 

2,971

 

Interest income, net

 

 

(2,312

)

 

 

(248

)

 

 

(7,038

)

 

 

(871

)

Income (loss) before income taxes

 

 

(3,759

)

 

 

12,679

 

 

 

7,761

 

 

 

3,842

 

Income tax provision (benefit)

 

 

3,275

 

 

 

(610

)

 

 

9,001

 

 

 

5,061

 

Net income (loss)

 

$

(7,034

)

 

$

13,289

 

 

$

(1,240

)

 

$

(1,219

)

Net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.21

)

 

$

0.39

 

 

$

(0.04

)

 

$

(0.04

)

Diluted

 

$

(0.21

)

 

$

0.38

 

 

$

(0.04

)

 

$

(0.04

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

34,132

 

 

 

33,948

 

 

 

34,130

 

 

 

33,948

 

Diluted

 

 

34,132

 

 

 

34,232

 

 

 

34,130

 

 

 

33,948

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In thousands)

 

Net income (loss)

 

$

(7,034

)

 

$

13,289

 

 

$

(1,240

)

 

$

(1,219

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(4,489

)

 

 

(10,487

)

 

 

(8,369

)

 

 

(19,829

)

Total comprehensive income (loss)

 

$

(11,523

)

 

$

2,802

 

 

$

(9,609

)

 

$

(21,048

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Nine months ended

 

 

 

September 30,

 

 

 

2023

 

 

2022

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(1,240

)

 

$

(1,219

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

21,837

 

 

 

22,352

 

Stock-based compensation expense

 

 

7,719

 

 

 

7,669

 

Restructuring and other charges

 

 

(1,148

)

 

 

6,119

 

Gain on sale of property, plant and equipment

 

 

(8,412

)

 

 

(17,770

)

Acquisition costs

 

 

4,585

 

 

 

-

 

Deferred income taxes

 

 

1,612

 

 

 

1,538

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade receivables, net

 

 

(22,461

)

 

 

16,980

 

Unbilled receivables

 

 

(12,440

)

 

 

(38,097

)

Inventories, net

 

 

(18,783

)

 

 

2,255

 

Prepaids and other assets

 

 

16,750

 

 

 

(8,854

)

Accounts payable and accrued expenses

 

 

(6,423

)

 

 

(10,124

)

Other, net

 

 

-

 

 

 

(16

)

Net cash used in operating activities

 

 

(18,404

)

 

 

(19,167

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(21,041

)

 

 

(13,712

)

Proceeds from sale of property, plant and equipment

 

 

17,291

 

 

 

18,535

 

Acquisition of Great North, net of cash acquired

 

 

(82,287

)

 

 

-

 

Purchase of short-term investments

 

 

(22,978

)

 

 

(25,287

)

Maturities of short-term investments

 

 

46,299

 

 

 

-

 

Net cash used in investing activities

 

 

(62,716

)

 

 

(20,464

)

Cash flows from financing activities:

 

 

 

 

 

 

Repurchase of common shares

 

 

-

 

 

 

(20,807

)

Other

 

 

(41

)

 

 

(74

)

Net cash used in financing activities

 

 

(41

)

 

 

(20,881

)

Effect of exchange rate changes on cash activities

 

 

(2,571

)

 

 

(4,660

)

Decrease in cash and cash equivalents

 

 

(83,732

)

 

 

(65,172

)

Cash and cash equivalents at beginning of period

 

 

264,804

 

 

 

355,451

 

Cash and cash equivalents at end of period

 

$

181,072

 

 

$

290,279

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

Common Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Losses

 

 

Total

 

 

 

(In thousands, except shares)

 

Balance at July 1, 2023

 

$

343

 

 

$

95,593

 

 

$

955,962

 

 

$

(172,489

)

 

$

879,409

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,489

)

 

 

(4,489

)

Net loss

 

 

-

 

 

 

-

 

 

 

(7,034

)

 

 

-

 

 

 

(7,034

)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,523

)

Stock-based compensation expense

 

 

-

 

 

 

2,576

 

 

 

-

 

 

 

-

 

 

 

2,576

 

Balance at September 30, 2023

 

$

343

 

 

$

98,169

 

 

$

948,928

 

 

$

(176,978

)

 

$

870,462

 

 

 

Balance at January 1, 2023

 

$

343

 

 

$

90,450

 

 

$

950,168

 

 

$

(168,609

)

 

$

872,352

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,369

)

 

 

(8,369

)

Net loss

 

 

-

 

 

 

-

 

 

 

(1,240

)

 

 

-

 

 

 

(1,240

)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,609

)

Stock-based compensation expense

 

 

-

 

 

 

7,719

 

 

 

-

 

 

 

-

 

 

 

7,719

 

Balance at September 30, 2023

 

$

343

 

 

$

98,169

 

 

$

948,928

 

 

$

(176,978

)

 

$

870,462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional Paid-In Capital

 

 

Retained Earnings

 

 

Accumulated Other Comprehensive Losses

 

 

Total

 

 

 

(In thousands, except shares)

 

Balance at July 1, 2022

 

$

348

 

 

$

85,351

 

 

$

948,917

 

 

$

(165,927

)

 

$

868,689

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,487

)

 

 

(10,487

)

Net income

 

 

-

 

 

 

-

 

 

 

13,289

 

 

 

-

 

 

 

13,289

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,802

 

Repurchase of common shares (457,467 shares)

 

 

(5

)

 

 

-

 

 

 

(11,145

)

 

 

-

 

 

 

(11,150

)

Stock-based compensation expense

 

 

-

 

 

 

2,569

 

 

 

-

 

 

 

-

 

 

 

2,569

 

Other

 

 

-

 

 

 

(3

)

 

 

9

 

 

 

-

 

 

 

6

 

Balance at September 30, 2022

 

$

343

 

 

$

87,917

 

 

$

951,070

 

 

$

(176,414

)

 

$

862,916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2022

 

 

352

 

 

 

80,254

 

 

 

973,087

 

 

 

(156,585

)

 

$

897,108

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(19,829

)

 

 

(19,829

)

Net loss

 

 

-

 

 

 

-

 

 

 

(1,219

)

 

 

-

 

 

 

(1,219

)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,048

)

Repurchase of common shares (888,197 shares)

 

 

(9

)

 

 

-

 

 

 

(20,798

)

 

 

-

 

 

 

(20,807

)

Stock-based compensation expense

 

 

-

 

 

 

7,669

 

 

 

-

 

 

 

-

 

 

 

7,669

 

Other

 

 

-

 

 

 

(6

)

 

 

-

 

 

 

-

 

 

 

(6

)

Balance at September 30, 2022

 

$

343

 

 

$

87,917

 

 

$

951,070

 

 

$

(176,414

)

 

$

862,916

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

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DRIL-QUIP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Organization and Basis of Presentation

Dril-Quip, Inc., a Delaware corporation (the “Company” or “Dril-Quip”), designs, manufactures, sells and services highly engineered drilling and production equipment for both offshore and onshore applications. The Company’s principal products consist of subsea and surface wellheads, subsea and surface production trees, mudline hanger systems, specialty connectors and associated pipe, drilling and production riser systems, liner hangers, wellhead connectors, diverters and safety valves. Dril-Quip’s products are used by major integrated, large independent and foreign national oil and gas companies and drilling contractors throughout the world. Dril-Quip also provides technical advisory assistance on an as-requested basis during installation of its products, as well as rework and reconditioning services for customer-owned Dril-Quip products. In addition, Dril-Quip’s customers may rent or purchase running tools from the Company for use in the installation and retrieval of the Company’s products.

During the quarter ended March 31, 2023, the Company reorganized its structure in order to streamline operations and leadership around more focused and integrated product and service lines to align with its business strategy. To reflect the Company’s new organizational structure, the Company changed presentation of its segments in 2023 into the following three reportable business segments: Subsea Products, Subsea Services, and Well Construction. Segment operating results for the prior year comparative period have been restated to reflect this change. Previously, the Company’s operations were organized into three geographic segments. Our Subsea Products business manufactures highly engineered, field-proven products with a wide array of deepwater drilling equipment and technology that meets the requirements for harsh subsea environments. Our Subsea Services business provides high-level aftermarket support and technical services with field technicians that support the full installation and lifecycle management of regulatory and industry standards, as well as offering industry training programs. Our Well Construction business provides products and services utilized in the construction of the wellbore such as completions, casing hardware and liner hanger systems. These products and services are used on both land and offshore markets. Additionally, Corporate includes the expenses and assets of the Company’s corporate office functions, legal and other administrative expenses that are managed at a consolidated level. For information with respect to our segments, see “Business Segments,” Note 12 of Notes to the Condensed Consolidated Financial Statements.

The condensed consolidated financial statements included herein are unaudited. The balance sheet at December 31, 2022 has been derived from the audited consolidated financial statements as of that date. In the opinion of management, the unaudited condensed consolidated interim financial statements include all normal recurring adjustments necessary for a fair statement of the financial position as of September 30, 2023 and the results of operations and comprehensive income (loss) for the three and nine months ended September 30, 2023 and 2022 and cash flows for the nine months ended September 30, 2023 and 2022. Certain information and footnote disclosures normally included in annual audited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations and comprehensive income (loss) for the three and nine months ended September 30, 2023 and cash flows for the nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full year. The condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Revision to Previously Reported Financial Information

In conjunction with our close process for the second quarter of 2023, we identified accounting errors related to an indemnification receivable and duplicate billing errors impacting prior periods. In the third quarter of 2022, due to the expiration of the statute of limitations of an Uncertain Tax Position (“UTP”), we released the liability for this UTP, but failed to write-off the related indemnification receivable previously obtained from the seller of an acquired business, resulting in an overstatement of operating income during the period. In addition, the Company identified billing errors in 2022 and 2021 that resulted in an overstatement of revenue and trade receivables.

We have assessed these errors, individually and in the aggregate, and concluded that they were not material to any prior annual or interim period. However, the aggregate amount of the prior period errors would have been material to our current interim condensed consolidated statements of income and to our anticipated full year results and therefore, we have revised our previously issued financial information. For more details, see “Revision to Previously Reported Financial Information,” Note 5 of Notes to the Condensed Consolidated Financial Statements.

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2. Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated.

Reclassifications

We reclassified approximately $5.5 million of accrued bonus related to our short-term incentive plan for the year ended December 31, 2022, from other accrued liabilities to accrued compensation to conform to our current year presentation. These reclassifications did not have an impact on our consolidated statements of income (loss), consolidated balance sheets, consolidated statements of comprehensive income (loss), consolidated statements of stockholders’ equity and consolidated statements of cash flows.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. Some of the Company’s more significant estimates are those affected by critical accounting policies for revenue recognition and asset recoverability tests and inventories.

Revenue Recognition

The Company generates revenues through the sale of products, the sale of services and the leasing of running tools. The Company normally negotiates contracts for products, including those accounted for under the over-time method, rental tools and services separately. Modifications to the scope and price of sales contracts may occur in the form of variations and change orders. For all product sales, it is the customer’s decision as to the timing of the product installation, as well as whether Dril-Quip running tools will be purchased or rented. Furthermore, the customer is under no obligation to utilize the Company’s technical advisory assistance services. The customer may instead choose to use a third party or its own personnel.

Leasing Revenues

The Company earns leasing revenues from the rental of running tools. Revenues from rental of running tools are recognized on a day rate basis over the lease term, which is generally between one to three months.

Cash and Cash Equivalents

Short-term investments that have a maturity of three months or less from the date of purchase are classified as cash equivalents. The Company invests excess cash in interest bearing accounts, money market mutual funds and funds which invest in U.S. Treasury obligations and repurchase agreements backed by U.S. Treasury obligations. The Company’s investment objectives continue to be the preservation of capital and the maintenance of liquidity.

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 September 30, 2023, the cash balance in that account was approximately $4.2 million. The Company is required to maintain a balance equal to the outstanding letters of credit plus 5% at all times which is considered as restricted cash and is included in “Cash and cash equivalents” in our condensed consolidated balance sheets as at September 30, 2023 and December 31, 2022. Withdrawals from this cash collateral account are only allowed at such point a given letter of credit has expired or has been cancelled.

Short-term Investments

Short-term investments that have a maturity greater than three months and less than a year from the date of purchase are comprised primarily of time deposits, certificates of deposit, commercial paper, bonds and notes, substantially all of which are denominated in U.S. dollars and are stated at cost plus accrued interest, which approximates fair value. The Company expects to hold all of its Short-term investments to maturity.

For purposes of the condensed consolidated financial statements, the Company does not consider Short-term investments to be cash equivalents.

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