10-Q 1 drq-20220331.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 March 31, 2022

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.)

6401 N. ELDRIDGE PARKWAY

HOUSTON, texas

77041

(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 April 25, 2022, the number of shares outstanding of the registrant’s common stock, par value $0.01 per share, was 34,518,858.

 


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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

PART II

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 6.

Index to Exhibits

28

 

Signatures

29

 

 

 


Table of Contents

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

DRIL-QUIP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

March 31,
2022

 

 

December 31,
2021

 

 

 

(In thousands, except per share data)

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

338,008

 

 

$

355,451

 

Trade receivables, net

 

 

86,375

 

 

 

100,987

 

Unbilled receivables

 

 

109,548

 

 

 

102,597

 

Inventories, net

 

 

141,289

 

 

 

145,724

 

Prepaids and other current assets

 

 

42,156

 

 

 

40,790

 

Total current assets

 

 

717,376

 

 

 

745,549

 

Operating lease right of use assets

 

 

4,900

 

 

 

5,258

 

Property, plant and equipment, net

 

 

212,944

 

 

 

216,200

 

Deferred income taxes

 

 

11,021

 

 

 

11,381

 

Intangible assets

 

 

25,684

 

 

 

26,446

 

Other assets

 

 

6,185

 

 

 

5,592

 

Total assets

 

$

978,110

 

 

$

1,010,426

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

36,599

 

 

$

35,232

 

Accrued income taxes

 

 

3,583

 

 

 

4,102

 

Contract liabilities

 

 

6,504

 

 

 

9,746

 

Accrued compensation

 

 

7,399

 

 

 

6,291

 

Operating lease liabilities

 

 

919

 

 

 

1,046

 

Other accrued liabilities

 

 

15,317

 

 

 

37,246

 

Total current liabilities

 

 

70,321

 

 

 

93,663

 

Deferred income taxes

 

 

4,335

 

 

 

3,925

 

Income tax payable

 

 

9,725

 

 

 

9,627

 

Operating lease liabilities, long-term

 

 

3,965

 

 

 

4,170

 

Other long-term liabilities

 

 

1,989

 

 

 

1,933

 

Total liabilities

 

 

90,335

 

 

 

113,318

 

Contingencies (Note 12)

 

 

 

 

 

 

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, 34,518,858 and 34,774,156
shares issued and outstanding at March 31, 2022 and December 31, 2021

 

 

349

 

 

 

352

 

Additional paid-in capital

 

 

82,781

 

 

 

80,254

 

Retained earnings

 

 

958,344

 

 

 

973,087

 

Accumulated other comprehensive losses

 

 

(153,699

)

 

 

(156,585

)

Total stockholders' equity

 

 

887,775

 

 

 

897,108

 

Total liabilities and stockholders' equity

 

$

978,110

 

 

$

1,010,426

 

 

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

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DRIL-QUIP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(In thousands, except per share data)

 

Revenues:

 

 

 

 

 

 

Products

 

$

55,642

 

 

$

55,583

 

Services

 

 

17,499

 

 

 

17,667

 

Leasing

 

 

9,996

 

 

 

7,989

 

Total revenues

 

 

83,137

 

 

 

81,239

 

Cost and expenses:

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

Products

 

 

48,038

 

 

 

41,204

 

Services

 

 

8,784

 

 

 

9,350

 

Leasing

 

 

7,173

 

 

 

6,233

 

Total cost of sales

 

 

63,995

 

 

 

56,787

 

Selling, general and administrative

 

 

22,393

 

 

 

29,558

 

Engineering and product development

 

 

3,676

 

 

 

4,037

 

Restructuring and other charges

 

 

32

 

 

 

25,020

 

Gain on sale of property, plant and equipment

 

 

(114

)

 

 

(3,955

)

Foreign currency transaction (gains) and losses

 

 

(1,254

)

 

 

1,374

 

Total costs and expenses

 

 

88,728

 

 

 

112,821

 

Operating loss

 

 

(5,591

)

 

 

(31,582

)

Interest income

 

 

203

 

 

 

49

 

Interest expense

 

 

(54

)

 

 

(439

)

Loss before income taxes

 

 

(5,442

)

 

 

(31,972

)

Income tax provision (benefit)

 

 

3,496

 

 

 

2,386

 

Net loss

 

$

(8,938

)

 

$

(34,358

)

Loss per common share:

 

 

 

 

 

 

Basic

 

$

(0.26

)

 

$

(0.97

)

Diluted

 

$

(0.26

)

 

$

(0.97

)

Weighted average common shares outstanding:

 

 

 

 

 

 

Basic

 

 

34,494

 

 

 

35,385

 

Diluted

 

 

34,494

 

 

 

35,385

 

 

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

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(In thousands)

 

Net income (loss)

 

$

(8,938

)

 

$

(34,358

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

2,886

 

 

 

(2,090

)

Total comprehensive income (loss)

 

$

(6,052

)

 

$

(36,448

)

 

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)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(In thousands)

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(8,938

)

 

$

(34,358

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

7,559

 

 

 

7,416

 

Stock-based compensation expense

 

 

2,527

 

 

 

3,186

 

Restructuring and other charges

 

 

32

 

 

 

25,020

 

Gain on sale of property, plant and equipment

 

 

(114

)

 

 

(3,955

)

Deferred income taxes

 

 

1,327

 

 

 

(433

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Trade receivables, net

 

 

14,849

 

 

 

11,024

 

Unbilled receivables

 

 

(6,951

)

 

 

802

 

Inventories, net

 

 

5,658

 

 

 

(5,794

)

Prepaids and other assets

 

 

(1,768

)

 

 

4,962

 

Accounts payable and accrued expenses

 

 

(25,109

)

 

 

5,202

 

Net cash provided by (used in) operating activities

 

 

(10,928

)

 

 

13,072

 

Investing activities

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(2,066

)

 

 

(2,513

)

Proceeds from sale of property, plant and equipment

 

 

208

 

 

 

5,944

 

Net cash provided by (used in) investing activities

 

 

(1,858

)

 

 

3,431

 

Financing activities

 

 

 

 

 

 

Repurchase of common shares

 

 

(5,808

)

 

 

-

 

Other

 

 

(51

)

 

 

(40

)

Net cash used in financing activities

 

 

(5,859

)

 

 

(40

)

Effect of exchange rate changes on cash activities

 

 

1,202

 

 

 

(205

)

Increase (decrease) in cash and cash equivalents

 

 

(17,443

)

 

 

16,258

 

Cash and cash equivalents at beginning of period

 

 

355,451

 

 

 

345,955

 

Cash and cash equivalents at end of period

 

$

338,008

 

 

$

362,213

 

 

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 January 1, 2022

 

$

352

 

 

$

80,254

 

 

$

973,087

 

 

$

(156,585

)

 

$

897,108

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,886

 

 

 

2,886

 

Net loss

 

 

-

 

 

 

-

 

 

 

(8,938

)

 

 

-

 

 

 

(8,938

)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,052

)

Repurchase of common shares (273,629 shares)

 

 

(3

)

 

 

-

 

 

 

(5,805

)

 

 

-

 

 

 

(5,808

)

Stock-based compensation expense

 

 

-

 

 

 

2,527

 

 

 

-

 

 

 

-

 

 

 

2,527

 

Balance at March 31, 2022

 

$

349

 

 

$

82,781

 

 

$

958,344

 

 

$

(153,699

)

 

$

887,775

 

 

 

Balance at January 1, 2021

 

$

363

 

 

$

65,613

 

 

$

1,125,263

 

 

$

(149,711

)

 

$

1,041,528

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,090

)

 

 

(2,090

)

Net loss

 

 

-

 

 

 

-

 

 

 

(34,358

)

 

 

-

 

 

 

(34,358

)

Comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(36,448

)

Stock-based compensation expense

 

 

-

 

 

 

3,186

 

 

 

-

 

 

 

-

 

 

 

3,186

 

Balance at March 31, 2021

 

$

363

 

 

$

68,799

 

 

$

1,090,905

 

 

$

(151,801

)

 

$

1,008,266

 

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

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Table of Contents

 

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 that is well suited primarily for use in deepwater, harsh environment and severe service 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.

The Company’s operations are organized into three geographic segments — Western Hemisphere (including North and South America; headquartered in Houston, Texas), Eastern Hemisphere (including Europe and Africa; headquartered in Aberdeen, Scotland) and Asia-Pacific (including the Pacific Rim, Southeast Asia, Australia, India and the Middle East; headquartered in Singapore). Each of these segments sells similar products and services, and the Company has manufacturing facilities in all three of its regional headquarter locations, as well as in Macae, Brazil. The Company’s major subsidiaries are Dril-Quip (Europe) Limited, located in Aberdeen with branches in Azerbaijan, Denmark, Norway and Holland; Dril-Quip Asia-Pacific PTE Ltd., located in Singapore; and Dril-Quip do Brasil LTDA, located in Macae, Brazil. Other operating subsidiaries include TIW Corporation (TIW) and Honing, Inc., both located in Houston, Texas; DQ Holdings Pty. Ltd., located in Perth, Australia; Dril-Quip Cross (Ghana) Ltd., located in Takoradi, Ghana; PT DQ Oilfield Services Indonesia, located in Jakarta, Indonesia; Dril-Quip Egypt for Petroleum Services S.A.E., located in Alexandria, Egypt; Dril-Quip TIW Saudi Arabia Limited, located in Dammam, Kingdom of Saudi Arabia; Dril-Quip Oilfield Services (Tianjin) Co. Ltd., located in Tianjin, China, with branches in Shenzhen and Beijing, China; Dril-Quip Qatar LLC, located in Doha, Qatar; Dril-Quip TIW Mexico S. de R.L.C.V., located in Villahermosa, Mexico; Dril-Quip Venezuela S.C.A., located in Anaco, Venezuela and with a registered branch located in Ecuador.

The condensed consolidated financial statements included herein are unaudited. The balance sheet at December 31, 2021 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 March 31, 2022 and the results of operations and comprehensive income (loss) for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021. 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 months ended March 31, 2022 and cash flows for the three months ended March 31, 2022 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, 2021.

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.

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.

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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.

On April 30, 2021, as a result of lower activity stemming from the COVID-19 pandemic, AFGlobal Corporation provided a 90-day written notice of termination of the lease agreement between the Company and AFGlobal in relation to the Company’s forge facility and equipment at its Houston Eldridge campus. As a result of the lease termination, the Company had approximately $2.3 million in unbilled revenue that was expensed in second quarter of 2021. The Company has numerous other forging suppliers and does not expect any disruptions in forging supply as a result of the lease termination.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, receivables and payables. The carrying values of these financial instruments approximate their respective fair values as they are short-term in nature.

Impairment of Long-Lived Assets

Long-lived assets, including property, plant and equipment and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We evaluate our property and equipment and definite-lived intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Should the review indicate that the carrying value is not fully recoverable, the amount of the impairment loss is determined by comparing the carrying value to the estimated fair value. We assess recoverability based on undiscounted future net cash flows. Estimating future net cash flows requires us to make judgements regarding long-term forecasts of future revenues and costs related to the assets subject to review. These forecasts are uncertain in that they require assumptions about our revenue growth, operating margins, capital expenditures, future market conditions and technological developments. If changes in these assumptions occur, our expectations regarding future net cash flows may change such that a material impairment could result.

Restructuring and Other Charges

During the first quarter of 2022, the Company did not incur any significant costs under the 2021 global strategic plan. During the first quarter of 2021, the Company incurred costs under the former 2018 global strategic plan as the Company exited from certain underperforming countries and markets and shifted from manufacturing in-house to a vendor outsourcing model which resulted in inventory write-downs, severance charges and other charges consisting of facilities-related restructuring charges and professional fees. These charges are reflected as "Restructuring and other charges" in our condensed consolidated statements of income (loss).

Repurchase of Equity Securities

On February 22, 2022, the Board of Directors authorized an incremental $100 million share repurchase plan. This results in a cumulative authorized amount of approximately $118 million currently available for share repurchases based on the $18 million remaining under our share repurchase plan authorized by the Board of Directors in 2019.

The repurchase plans have 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.

For the three months ended March 31, 2022, the Company purchased 273,629 shares under the share repurchase plans at an average price of approximately $21.20 per share totaling approximately $5.8 million and has retired such shares.

For the three months ended March 31, 2021, the Company purchased no shares under the share repurchase plans.

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Table of Contents

 

Earnings Per Share

Basic earnings per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed considering the dilutive effect of stock awards using the treasury stock method.

In each relevant period, the net income used in the basic and dilutive earnings per share calculations is the same. The following table reconciles the weighted average basic number of common shares outstanding and the weighted average diluted number of common shares outstanding for the purpose of calculating basic and diluted earnings per share:

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(In thousands)

 

Weighted average common shares outstanding – basic

 

 

34,494

 

 

 

35,385

 

Dilutive effect of common stock awards

 

 

-

 

 

 

-

 

Weighted average common shares outstanding – diluted

 

 

34,494

 

 

 

35,385

 

 

 

For the three months ended March 31, 2022 and 2021, the Company has excluded the following common stock options and awards because their impact on the income/(loss) per share is anti-dilutive (in thousands on a weighted average basis):

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

 

(In thousands)

 

Director stock awards

 

 

58

 

 

 

56

 

Stock options

 

 

-

 

 

 

58

 

Performance share units

 

 

260

 

 

 

331

 

Restricted stock awards

 

 

516

 

 

 

480

 

 

3. Revenue Recognition

Revenues from contracts with customers (excludes leasing) consisted of the following:

 

 

 

Three months ended March 31,

 

 

 

Western
Hemisphere

 

 

Eastern
Hemisphere

 

 

Asia-
Pacific

 

 

Total

 

 

 

2022

 

2021

 

 

2022

 

2021

 

 

2022

 

2021

 

 

2022

 

2021

 

 

 

(In thousands)

 

 

 

Product Revenues

 

$

36,661

 

$

37,916

 

 

$

11,783

 

$

6,722

 

 

$

7,198

 

$

10,945

 

 

$

55,642

 

$

55,583

 

Service Revenues

 

 

11,585

 

 

10,504

 

 

 

3,262

 

 

2,719

 

 

 

2,652

 

 

4,444

 

 

 

17,499

 

 

17,667

 

Total

 

$

48,246

 

$

48,420

 

 

$

15,045

 

$

9,441

 

 

$

9,850

 

$

15,389

 

 

$

73,141

 

$

73,250

 

 

 

Contract Balances

Balances related to contracts with customers consisted of the following:

Contract Assets (amounts shown in thousands)

 

Contract Assets at December 31, 2021

 

$

97,716

 

Additions

 

 

37,070

 

Transfers to Trade Receivables, Net

 

 

(30,685

)

Contract Assets at March 31, 2022

 

$

104,101

 

 

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Table of Contents

 

Contract Liabilities (amounts shown in thousands)

 

Contract Liabilities at December 31, 2021

 

$

9,222

 

Additions

 

 

629

 

Revenue Recognized

 

 

(4,823

)

Contract Liabilities at March 31, 2022

 

$

5,028

 

 

Contract assets include unbilled accounts receivable associated with contracts accounted for under the over-time accounting method which were approximately $64.0 million and $58.7 million at March 31, 2022 and December 31, 2021, respectively. Unbilled contract assets are transferred to trade receivables, net, when the rights become unconditional. The contract liabilities primarily relate to advance payments from customers.

Obligations for returns and refunds were considered immaterial as of March 31, 2022.

Remaining Performance Obligations

The aggregate amount of the transaction price allocated to remaining performance obligations from our over-time product lines was $86.5 million as of March 31, 2022. The Company expects to recognize revenue on approximately 93.4% of the remaining performance obligations over the next 12 months and the remaining 6.6% thereafter.

The Company applies the practical expedient available under the revenue standard and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

4. Stock-Based Compensation and Stock Awards

During the three months ended March 31, 2022, the Company recognized approximately $2.5 million of stock-based compensation expense. Stock-based compensation is included in "Selling, general and administrative" in our accompanying condensed consolidated statements of income (loss) and "Additional paid-in capital" in our accompanying condensed consolidated balance sheets. During the three months ended March 31, 2021, the Company recognized approximately $3.2 million of stock-based compensation expense.

5. Inventories, net

Inventories consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(In thousands)

 

Raw materials and supplies

 

$

28,609

 

 

$

27,398

 

Work in progress

 

 

27,096

 

 

 

28,361

 

Finished goods

 

 

211,226

 

 

 

218,946

 

 

 

 

266,931

 

 

 

274,705

 

Less: allowance for slow moving and excess inventory

 

 

(125,642

)

 

 

(128,981

)

Total inventory

 

$

141,289

 

 

$

145,724

 

 

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Table of Contents

 

6. Impairment, Restructuring and Other Charges

Restructuring and Other Charges

During the three months ended March 31, 2022, the Company did not incur any significant costs under the 2021 global strategic plan.

During the three months ended March 31, 2021, the Company incurred costs under our former 2018 global strategic plan to realign manufacturing facilities globally. These charges were primarily related to the restructuring of our downhole tools business where we exited certain underperforming countries and markets and shifted from manufacturing in-house to a vendor sourcing model which resulted in non-cash inventory write downs of $19.3 million, severance charges of $2.7 million and other charges of $3.0 million, consisting of facilities-related restructuring charges and professional fees. The Company completed its 2018 global strategic plan in the third quarter of 2021.

The following table summarizes the components of charges included in "Restructuring and other charges" in our condensed consolidated statements of income (loss) for the three months ended March 31, 2022 and 2021 (in thousands):

 

 

 

Three months ended March 31,

 

 

 

2022

 

 

2021

 

Inventory write-down

 

$

-

 

 

$

19,251

 

Severance

 

 

32

 

 

 

2,746

 

Long-lived asset write-down

 

 

-