DRIL-QUIP INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

Forward-looking statements

This Quarterly Report on Form 10-Q includes certain statements that may be
deemed to be "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Statements contained in all parts of this document that are not historical facts
are forward-looking statements that involve risks and uncertainties that are
beyond the control of Dril-Quip, Inc. (the "Company" or "Dril-Quip"). You can
identify the Company's forward-looking statements by the words "anticipate,"
"estimate," "expect," "may," "project," "believe" and similar expressions, or by
the Company's discussion of strategies or trends. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, no assurance can be given that these expectations will prove to be
correct. These forward-looking statements include the following types of
information and statements as they relate to the Company:

the impact of actions taken by the Organization of Petroleum Exporting Countries
and the expanded alliance (OPEC+) with respect to their production levels and
the effects thereof;

the impact of the ongoing COVID-19 pandemic and its effects;

future operating results and cash flows;

planned, budgeted and future capital expenditures;

anticipated or estimated cost savings;

working capital requirements;

the need for and availability of expected sources of liquidity;

the market introduction of the Company’s future products;

the Company’s ability to deliver its backlog in a timely manner;

the market for the Company’s existing and future products;

the Company’s ability to develop new applications for its technologies;

the exploration, development and production activities of the Company’s customers;

compliance with current and future environmental regulations and costs associated with environmental penalties, capital expenditures, remedial actions and proceedings;

the effects of pending legal proceedings;

changes in future customer requirements for products and services that may not be profitable or within the reach of the Company;

future operations, financial results, business plans and cash requirements; and

the overall timing and level of transition of the global energy sector from fossil fuel-based energy production and consumption systems to more renewable energy sources.

These statements are based on assumptions and analysis in light of the Company's
experience and perception of historical trends, current conditions, expected
future developments and other factors the Company believes were appropriate in
the circumstances when the statements were made. Forward-looking statements by
their nature involve substantial risks and uncertainties that could
significantly impact expected results, and actual future results could differ
materially from those described in such statements. While it is not possible to
identify all factors, the Company continues to face many risks and
uncertainties. Among the factors that could cause actual future results to
differ materially are the risks and uncertainties discussed under "Item 1A. Risk
Factors" in Part II of this report, and "Item 1A. Risk Factors" in Part I of the
Company's Annual Report on Form 10-K for the year ended December 31, 2021.

Investors should note that Drill Quip announcement of financial information in SECOND
filings, press releases and public conference calls. Drill Quip may use the Investors section of its website (www.dril-quip.com) to communicate with investors. The financial and other information published therein may be considered material information. The information about Dril-Quip’s
the website is not part of this Form 10-Q.

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The following is management's discussion and analysis of certain significant
factors that have affected aspects of the Company's financial position, results
of operations, comprehensive income (loss) and cash flows during the periods
included in the accompanying unaudited condensed consolidated financial
statements. This discussion should be read in conjunction with the Company's
unaudited condensed consolidated financial statements and notes thereto
presented elsewhere herein as well as the discussion under Part II - Item 1A,
"Risk Factors," included herein and "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2021.

Overview

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.

Working environment

During the first quarter of 2022, Dril-Quip entered into a collaboration
agreement with Aker Solutions ASA (Aker Solutions) to offer subsea injection
systems for carbon capture, utilization and storage (CCUS) projects. Under the
agreement, Dril-Quip will provide Aker Solutions with CO2 injection Xmas trees
and wellheads that will be fully integrated into a larger subsea injection
system to provide customers with market-leading technology purposely designed
for the injection and storage of CO2. The arrangement will leverage on Aker
Solution's position as an integrated supplier of CCUS systems along with its
control systems and electrification components. We believe this collaboration
agreement focuses on the strengths of both organizations, will deliver an
optimum solution for carbon capture and storage, and is in line with each
party's strategic goals of collaboration and partnerships to unlock value for
customers.

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

Crude oil prices increased in 2022, mainly driven by the Russian invasion of
Ukraine and loosening of pandemic-related restrictions and the Company has seen
an increase in drilling activity in the offshore market as a result of these
continued price increases. Further, a growing global economy resulted in global
petroleum demand rising faster than petroleum supply.

During the second quarter of 2021, Dril-Quip entered into a collaboration and
supply agreement in which the Company will serve as a supplier of subsea
wellheads, tubular goods, liner hangers and other related tools and services to
a peer provider of subsea equipment and services. The arrangement provides a
framework for bundling several of our products and services into an integrated
engineering, procurement and construction offering by our peer for the subsea
production system market. We believe this collaboration and supply agreement
will lead to opportunities to participate in more subsea projects and bids as a
subcontractor for this industry peer that we previously may not have had access
to independently.

The Company has been operating under a hybrid work environment with employees
expected to work partially remote and partially from the office. We do not
believe that remote work arrangements have adversely affected our ability to
maintain financial reporting systems, internal controls over financial reporting
and disclosure controls and procedures. The Company has taken steps and adjusted
its workforce to be in line with the current situation as we continue to monitor
ongoing market conditions. The extent to which our future results are affected
by these externalities will depend on various factors and circumstances beyond
our control, such as the duration and scope of the pandemic, additional actions
by businesses and governments in response to the pandemic, the speed and
effectiveness of containing the virus and developments in the global oil
markets. Similarly, we expect that the uncertainty in the sustainability of
current oil prices will continue to have a negative impact on oil and gas
activities. Further, Russia's military incursion

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into Ukraine has led to, and could continue to, give rise to regional
instability and result in heightened economic sanctions by certain members of
the European Union, the United Kingdom, the United States, and certain other
members of the international community that, in turn, could increase uncertainty
with respect to global financial markets and production output from OPEC+ and
other crude oil producing nations. In addition to this, continued outbreaks of
new COVID-19 variants could also aggravate the risk factors identified in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and
updated by our Quarterly Report on Form 10-Q for the period ending March 31,
2022 including leading to further material impairment charges.

The Company took advantage of the Payroll Tax Deferral provided by the CARES Act
in 2020. The Payroll Tax Deferral allows the Company to defer the payment of the
Company's share of FICA taxes of 6.2%. As such, the Company was able to defer
its share of FICA taxes for the period beginning March 27, 2020 and ending
December 31, 2020. This resulted in approximately $2.9 million in FICA cash tax
payments being deferred to 2021 and 2022. The CARES Act provided for the
five-year carryback of Net Operating Losses ("NOLs") generated in the 2018, 2019
and 2020 taxable years. The Company filed returns to carryback its NOLs to
generate a refund of $46.0 million.

During 2021, the Company took advantage of job support schemes in Singapore,
Australia, the U.K. and Denmark under which the governments introduced a plan to
help businesses co-fund wages of workers to encourage employers to retain their
workers. These benefits did not continue in 2022 and as such the Company did not
record any significant benefits through June 30, 2022.

Oil and gas prices

The market for drilling and production equipment and services and the Company's
business are substantially dependent on the condition of the oil and gas
industry and, in particular, the willingness of oil and gas companies to make
capital expenditures on exploration, drilling and production operations. Oil and
gas prices and the level of drilling and production activity have historically
been characterized by significant volatility.

According to the Energy Information Administration (EIA) of the U.S. Department
of Energy, Brent Crude oil prices per barrel are listed below for the periods
covered by this report:

                                     Three months ended          Six months ended
                                          June 30,                   June 30,

Brent crude oil price per barrel 2022 2021 2022

  2021
              Low                  $     97.92     $ 61.47     $   78.25     $ 50.37
              High                      129.20       76.94        133.18       76.94
            Average                     113.84       68.98        107.20       64.95
            Closing                     119.78       76.94        119.78       76.94




According to the July 2022 release of the Short-Term Energy Outlook published by
the EIA, Brent Crude oil prices are projected to average approximately $104.05
per barrel in 2022 and $93.75 per barrel in 2023, compared with an average of
$70.89 per barrel in 2021. In its July 2022 Oil Market Report, the International
Energy Agency projected global oil demand to grow to 99.2 million barrels per
day in 2022 as compared to 97.5 million barrels per day in 2021.

Although crude oil prices rebounded sharply in 2022, we have only recently seen
an increase in activity from our customers as any recovery in the subsea market
generally lags relative to the overall recovery in crude oil prices. If the
Company experiences significant contract terminations, suspensions or scope
adjustments to its contracts, then its financial condition, results of
operations and cash flows may be adversely impacted.

Number of offshore platforms

Detailed below is the average contracted offshore rig count (rigs currently
drilling as well as rigs committed, but not yet drilling) for the Company's
geographic regions for the six months ended June 30, 2022 and 2021. The rig
count data includes floating rigs (semi-submersibles and drillships) and jack-up
rigs. The Company has included only these types of rigs as they are the primary
assets used to deploy the Company's products.

                                   Six months ended June 30,
                               2022                         2021
                      Floating        Jack-up      Floating       Jack-up
                        Rigs           Rigs          Rigs          Rigs
Western Hemisphere           58             42            55            46
Eastern Hemisphere           48             61            41            54
Asia-Pacific                 28            260            31           253
Total                       134            363           127           353




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Source: IHS-Petrodata RigBase – June 30, 2022 and 2021

According to IHS-Petrodata RigBase, as of June 30, 2022, there were 510
contracted rigs for the Company's geographic regions (136 floating rigs and 374
jack-up rigs), an increase of 6.5% from the rig count of 479 rigs (125 floating
rigs and 354 jack-up rigs) as of June 30, 2021.

Regulation

The demand for the Company's products and services is also affected by laws and
regulations relating to the oil and gas industry in general, including those
specifically directed to offshore operations. The adoption of new laws and
regulations, or changes to existing laws or regulations that curtail exploration
and development drilling for oil and gas for economic or other policy reasons,
could adversely affect the Company's operations by limiting demand for its
products.

In March 2018, the President of the United States issued a proclamation imposing
a 25 percent global tariff on imports of certain steel products, effective March
23, 2018. The President subsequently proposed an additional 25 percent tariff on
approximately $50 billion worth of imports from China, and the government of
China responded with a proposal of an additional 25 percent tariff on U.S. goods
with a value of $50 billion. The initial U.S. tariffs were implemented on July
6, 2018, covering $34 billion worth of Chinese goods, with another $16 billion
of goods facing tariffs beginning on August 23, 2018.

In September 2018, the President directed the U.S. Trade Representative (USTR)
to place additional tariffs on approximately $200 billion worth of additional
imports from China. These tariffs, which took effect on September 24, 2018, were
initially set at a level of 10 percent until the end of the year, at which point
the tariffs were to rise to 25 percent. However, on December 19, 2018, USTR
postponed the date on which the rate of the additional duties would increase to
25 percent until March 2, 2019. On May 9, 2019, USTR announced that the United
States increased the level of tariffs from 10 percent to 25 percent on
approximately $200 billion worth of Chinese imports. The President also ordered
USTR to begin the process of raising tariffs on essentially all remaining
imports from China, which are valued at approximately $300 billion. On August
13, 2019 and August 23, 2019, USTR announced the imposition of an additional
tariff of 15 percent on approximately $300 billion worth of Chinese imports,
effective September 1, 2019 (or December 15, 2019 for certain articles).
Following the conclusion of a phase one trade deal with China, USTR suspended
the implementation of the 15 percent additional duty on approximately $160
billion worth of Chinese imports and reduced the applicable duty from 15 percent
to 7.5 percent for $120 billion worth of Chinese imports. Negotiations for a
phase two trade deal with China had begun prior to the outbreak of the global
COVID-19 pandemic and if continued could lead to additional changes to the
tariff rates described above. However, President Biden has indicated that these
tariffs will likely remain in place while the new administration assesses the
United States' current posture, including a review of the phase one trade deal
with China.

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

On June 23, 2016 the United Kingdom (U.K.) held a referendum in which a majority
of British voters voted to exit the E.U., commonly known as "Brexit", with the
U.K. officially withdrawing from the E.U. on January 31, 2020. A transition
period (during which the trading relationship between the E.U. and the U.K.
remained substantially the same as prior to Brexit) followed, and this
transition period expired on December 31, 2020. Shortly prior to expiration of
the transition period, in December 2020, the U.K. and the E.U. reached an accord
on a trade and cooperation agreement (TCA). Brexit and the terms of the TCA
brought to an end the U.K.'s automatic access to the E.U. single market,
resulting in the U.K. no longer benefitting from the free movement of goods and
services between the E.U. and the U.K. The rights of people to freely move
between the E.U. and the U.K. have also been restricted. The TCA entered into
force on January 1, 2021 and, following formal ratification by the E.U. on April
28, 2021, entered fully into force on May 1, 2021. For more information on the
risks associated with Brexit and the TCA, see "Our international operations
require us to comply with a number of U.S. and foreign regulations governing the
international trade of goods, services and technology, which expose us to
compliance risks" under "Item 1A. Risk Factors" in Part II of this report and
"Item 1A. Risk Factors" in Part I of the Company's Annual Report on Form 10-K
for the year ended December 31, 2021.

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The Company believes that its backlog should help mitigate the impact of
negative market conditions; however, slow recovery in commodity prices or an
extended downturn in the global economy or future restrictions on, or declines
in, oil and gas exploration and production could have a negative impact on the
Company and its backlog. The Company's product backlog at June 30, 2022 was
approximately $208.6 million, compared to approximately $220.9 million at March
31, 2022, and $220.9 million at December 31, 2021.

The following table represents the evolution of the order book for the three months ended
June 30, 2022, March 31, 2022and December 31, 2021.

                                                Three months ended
                                    June 30,      March 31,       December 31,
                                      2022           2022             2021
                                         (In thousands)
Beginning Backlog                   $ 220,934     $  210,119     $      179,012
Bookings:
Product (1)                            56,780         63,155             83,105
Service                                19,596         22,578             19,380
Leasing                                12,403          9,996              9,837
Cancellation/Revision adjustments      (7,879 )       (2,011 )           (3,336 )
Translation adjustments                   730            234                 33
Total Bookings                         81,630         93,952            109,019
Revenues:
Product                                61,979         55,642             48,695
Service                                19,596         17,499             19,380
Leasing                                12,403          9,996              9,837
Total Revenue                          93,978         83,137             77,912
Ending Backlog                      $ 208,586     $  220,934     $      210,119



(1) The backlog data shown above includes all bookings as of June 30, 2022,
including contract awards and signed purchase orders for which the contracts
would not be considered enforceable or qualify for the practical expedient under
ASC 606. As a result, this table will not agree to the disclosed performance
obligations of $65.2 million as of June 30, 2022 within "Revenue Recognition",
Note 3 to the Notes to Condensed Consolidated Financial Statements.

Revenues. Dril-Quip's revenues are generated from three sources: products,
services and leasing. Product revenues are derived from the sale of drilling and
production equipment. Service revenues are earned when the Company provides
technical advisory assistance and rework and reconditioning services. Leasing
revenues are derived from rental tools used during installation and retrieval of
the Company's products. For the three months ended June 30, 2022 and 2021, the
Company derived 66.0% and 69.1%, respectively, of its revenues from the sale of
its products, 20.8% and 21.7%, respectively, of its revenue from services, and
13.2% and 9.2%, respectively, of its revenues from leasing. For the six months
ended June 30, 2022 and 2021, the Company derived 66.4% and 68.8% ,
respectively, of its revenues from the sale of its products, 20.9% and 21.7%,
respectively, of its revenue from services, and 12.7% and 9.5%, respectively, of
its revenues from leasing. Service and leasing revenues generally correlate to
revenues from product sales because increased product sales typically generate
increased demand for technical advisory assistance services and rental of
running tools during installation. The Company has substantial international
operations, with approximately 62.4% and 67.2% of its revenues derived from
foreign sales for the six months ended June 30, 2022 and 2021, respectively. The
majority of the Company's domestic revenue relates to operations in the U.S.
Gulf of Mexico. Domestic revenue approximated 37.6% and 32.8% of the Company's
total revenues for the six months ended June 30, 2022 and 2021, respectively.

Product contracts are generally negotiated and sold separately from service
contracts. In addition, service contracts are not typically included in the
product contracts or related sales orders and are not offered to the customer as
a condition of the sale of the Company's products. The demand for products and
services is generally based on worldwide economic conditions in the oil and gas
industry and is not based on a specific relationship between the two types of
contracts. Substantially all of the Company's sales are made on a purchase order
basis. Purchase orders are subject to change and/or termination at the option of
the customer. In case of a change or termination, the customer is required to
pay the Company for work performed and other costs necessarily incurred due to
the change or termination.

Generally, the Company attempts to raise its prices as its costs increase.
However, the actual pricing of the Company's products and services is impacted
by a number of factors, including global oil prices, competitive pricing
pressure, the level of utilized capacity in the oil service sector, preservation
of market share, the introduction of new products and overall market conditions.

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The Company accounts for more complex, customer specific projects that have
relatively longer manufacturing time frames on an over-time basis. For the three
months ended June 30, 2022, there were 50 projects representing approximately
36.7% of the Company's total revenues and approximately 55.6% of its product
revenues that were accounted for using over-time accounting, compared to 39
projects for the three months ended June 30, 2021, which represented
approximately 21.1% of the Company's total revenues and approximately 30.6% of
its product revenues. For the six months ended June 30, 2022, there were 56
projects representing approximately 33.3% of the Company's total revenues and
approximately 50.1% of its product revenues that were accounted for using
over-time accounting, compared to 45 projects for the six months ended June 30,
2021, which represented approximately 19.1% of the Company's total revenues and
approximately 27.8% of its product revenues. These percentages may fluctuate in
the future. Revenues accounted for in this manner are generally recognized based
upon a calculation of the percentage complete, which is used to determine the
revenue earned and the appropriate portion of total estimated cost of sales to
be recognized. Accordingly, price and cost estimates are reviewed periodically
as the work progresses, and adjustments proportionate to the percentage complete
are reflected in the period when such estimates are revised. Losses, if any, are
recorded in full in the period they become known. Amounts received from
customers in excess of revenues recognized are classified as a current
liability.

Cost of Sales. The principal elements of cost of sales are labor, raw materials,
manufacturing overhead, and application engineering expenses related to
customized products. Cost of sales as a percentage of revenues is influenced by
the product mix sold in any particular period, costs from projects accounted for
under the over-time method, over/under manufacturing overhead absorption,
pricing and market conditions. The Company's costs related to its foreign
operations do not significantly differ from its domestic costs.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses include the costs associated with sales and marketing,
general corporate overhead, business development expenses, compensation expense,
stock-based compensation expense, legal expenses and other related
administrative functions.

Engineering and product development expenses. Engineering and product development expenses include the development and testing of new products.

Impairments. We evaluate our property and equipment for impairment whenever
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable, and we could incur additional impairment charges related to the
carrying value of our long-lived assets. There were no impairment charges
recorded for the three months ended June 30, 2022.

Restructuring and Other Charges. During the three and six months ended June 30,
2022, the Company incurred additional costs of approximately $5.8 million under
the 2021 global strategic plan. These charges were primarily related to the
write-downs of long-lived assets and other charges of approximately $5.1 million
and $0.7 million, respectively. Other charges consisted of consulting and legal
fees, office moves, cleanup and preparation costs, and brokerage fees.

(Gain) Loss on Sale of Property, Plant and Equipment. Gain or loss on sale of
property, plant and equipment consists of sales of certain property, plant and
equipment.

Foreign Currency Transaction (Gains) and Losses. Foreign currency transaction
(gains) and losses result from a change in exchange rates between the functional
currency and the currency in which a foreign currency transaction is
denominated.

Income Tax Provision (Benefit). The Company's effective income tax rate
fluctuates from the U.S. statutory tax rate based on, among other factors,
changes in earnings mix by geography and tax jurisdiction, impact of valuation
allowances, changes in tax legislation, and other permanent differences related
to the recognition of income and expense between U.S. GAAP and applicable tax
rules.

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Results of Operations

The following table sets forth, for the periods indicated, certain condensed
consolidated statements of income (loss) data expressed as a percentage of
revenues:

                                      Three months ended                    Six months ended
                                           June 30,                             June 30,
                                    2022               2021              2022              2021
Revenues:
Products                                65.9 %             69.1 %            66.5 %            68.8 %
Services                                20.9               21.7              20.9              21.7
Leasing                                 13.2                9.2              12.6               9.5
Total revenues                         100.0              100.0             100.0             100.0
Cost of sales:
Products                                57.7               54.4              57.7              52.5
Services                                 8.4               10.3               9.4              10.9
Leasing                                  8.1               11.5               8.3               9.6
Total cost of sales                     74.2               76.2              75.4              73.0
Selling, general and
administrative                          23.9               36.6              25.3              36.5
Engineering and product
development                              2.9                4.6               3.6               4.8
Restructuring and other
charges                                  6.1                1.2               3.3              16.1
(Gain) loss on sale of
property, plant and equipment           (0.4 )              0.1              (0.3 )            (2.4 )
Foreign currency transaction
(gains) and losses                      (2.6 )             (0.6 )            (2.1 )             0.6
Operating loss                          (4.1 )            (18.1 )            (5.2 )           (28.6 )
Interest income                          0.6                0.1               0.4               0.1
Interest expense                        (0.1 )             (0.1 )            (0.1 )            (0.3 )
Loss before income taxes                (3.6 )            (18.1 )            (4.9 )           (28.8 )
Income tax provision                     2.3                5.5               3.2               4.2
Net loss                                (5.9 )%           (23.6 )%           (8.1 )%          (33.0 )%



The following table presents, for the periods indicated, the distribution of our revenues from products and services:

                     Three months ended          Six months ended
                          June 30,                   June 30,
                     2022           2021         2022         2021
                        (In millions)
Revenues:
Products:
Subsea equipment   $    49.5       $  45.6     $    95.7     $  88.4
Downhole tools          12.5          10.3          21.9        23.0
Total products          62.0          55.9         117.6       111.4
Services:
Subsea equipment        14.8          14.0          27.9        27.9
Downhole tools           4.8           3.5           9.2         7.3
Total services          19.6          17.5          37.1        35.2
Leasing
Subsea equipment        10.5           5.6          19.1        12.6
Downhole tools           1.9           1.8           3.3         2.8
Total leasing           12.4           7.4          22.4        15.4
Total revenues     $    94.0       $  80.8     $   177.1     $ 162.0



Three months completed June 30, 2022 Compared to the three months ended June 30, 2021

Revenues. Revenues increased by $13.2 million, or approximately 16.3%, to $94.0
million for the three months ended June 30, 2022 from $80.8 million for the
three months ended June 30, 2021. Within product revenues, subsea equipment
increased by $3.9 million, and downhole tools revenue increased by $2.2 million.
Product revenues in the Western Hemisphere and the Eastern

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Hemisphere increased by $6.6 million and $3.6 million, respectively, partially
offset by decreased product revenues of $4.1 million in the Asia-Pacific region.
As crude oil prices have continued to rise, the Company has seen an increase in
drilling activity in the offshore market. Further, our revenues were favorably
impacted by an increase in global demand and increased activity from customer
drilling schedules. In any given time period, the revenues recognized between
the various product lines and geographic areas will vary depending upon the
timing of shipments to customers, our product mix and completion status of the
projects accounted for under the over-time accounting method, market conditions
and customer demand.

Service revenues increased by approximately $2.1 million resulting mainly from
an increase in the Western Hemisphere and the Eastern Hemisphere of $2.6 million
and $0.7 million, respectively, partially offset by a decrease in the
Asia-Pacific region of $1.2 million. Increase in service revenues in the Western
Hemisphere and the Eastern Hemisphere is mainly due to customer specific
increases in technical advisory services and maintenance requests tied to
drilling schedules. Lower service revenues in the Asia-Pacific region is
primarily due to standby rates that the customers paid as a result of travel
restrictions and increase in rig mobilization activities in 2021 as companies
resumed their well completion activities.

Leasing revenues increased by approximately $5.0 million resulting mainly from
increased leasing revenues in the Western Hemisphere, the Eastern Hemisphere and
the Asia-Pacific region of $4.2 million, $0.6 million and $0.2 million,
respectively. The majority of the increases in all the regions are related to
increased subsea rental tool utilization due to timing of customer drilling
activity.

Cost of Sales. Cost of sales increased by $8.1 million, or approximately 13.2%,
to $69.7 million for the three months ended June 30, 2022 from $61.5 million for
the same period in 2021. Cost of sales as a percentage of revenue decreased to
74.1% from 76.2% for the three months ended June 30, 2022 and 2021,
respectively, primarily due to favorable product mix.

Selling, General and Administrative Expenses. For the three months ended June
30, 2022, selling, general and administrative expenses decreased by $7.1
million, or 24.0% to $22.5 million from $29.6 million for the same period in
2021. This decrease was attributable mainly to lower legal expenses in the
current period related to costs incurred in the second quarter of 2021 in
connection with the FMC Technologies, Inc. lawsuit.

Engineering and Product Development Expenses. For the three months ended June
30, 2022, engineering and product development expenses decreased by
approximately $1.0 million, or 26.9%, to $2.7 million from $3.7 million for the
same period in 2021. This decrease was attributable mainly to lower spend on
research and development activities as we completed certain strategic projects.
We are in the process of reprioritizing new research and development
initiatives.

Restructuring and Other Charges. For the three months ended June 30, 2022, the
Company incurred additional costs of approximately $5.8 million under the 2021
global strategic plan. These charges were primarily related to the write-downs
of long-lived assets and other charges of approximately $5.1 million and $0.7
million, respectively. Other charges consisted of consulting and legal fees,
office moves, cleanup and preparation costs, and brokerage fees. During the
three months ended June 30, 2021, the Company incurred additional costs under
the 2018 global strategic plan primarily related to consulting fees of $1.0
million.

Gain on Sale of Property, Plant and Equipment. For the three months ended June
30, 2022, the gain on sale of property, plant and equipment was $0.4 million.
For the three months ended June 30, 2021, loss on sale of property, plant and
equipment was approximately $0.1 million.

Foreign Currency Transaction (Gains) and Losses. Foreign exchange gain for the
three months ended June 30, 2022, was $2.4 million as compared to a gain of $0.5
million for the same period in 2021.

Income Tax Provision. Income tax provision for the three months ended June 30,
2022 was $2.2 million on a loss before taxes of $3.4 million, resulting in an
effective tax rate of (64.1)%. Income tax expense was different than the U.S
federal statutory income tax rate of 21% primarily due to change in projected
earnings mix by geography and tax jurisdiction, nondeductible compensation and
the change in valuation allowances in the United States and in various foreign
countries. Income tax provision for the three months ended June 30, 2021 was
$4.4 million on a loss before taxes of $14.7 million, resulting in an effective
income tax rate of approximately (30.1)%. Income tax expense was different than
the U.S federal statutory income tax rate of 21% primarily due to changes in
pre-tax income or loss in foreign jurisdictions, nondeductible compensation and
the change in valuation allowances in the United States and in various foreign
countries.

Net Loss. Net loss was approximately $5.6 million for the three months ended
June 30, 2022 as compared to net loss $19.1 million for the same period in 2021
for the reasons set forth above.

Semester completed June 30, 2022 Compared to the half-year ended June 30, 2021

Revenues. Revenues increased by $15.1 million, or approximately 9.3% to $177.1
million for the six months ended June 30, 2022 from $162.0 million for the six
months ended June 30, 2021. Within product revenues, subsea equipment increased
by $7.3 million, partially offset by decreased downhole tools revenues of $1.1
million. Product revenues in the Eastern Hemisphere and the Western Hemisphere
increased by $8.7 million and $5.3 million, respectively, partially offset by
decreased product revenues of $7.8 million in the Asia-Pacific region. As crude
oil prices have continued to rise, the Company has seen an increase in drilling
activity in

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the offshore market. Further, our revenues were favorably impacted by an
increase in global demand and increased activity from customer drilling
schedules. In any given time period, the revenues recognized between the various
product lines and geographic areas will vary depending upon the timing of
shipments to customers, our product mix and completion status of the projects
accounted for under the over-time accounting method, market conditions and
customer demand.

Service revenues increased by approximately $1.9 million resulting mainly from
an increase in the Western Hemisphere and the Eastern Hemisphere of $3.7 million
and $1.3 million, respectively, partially offset by a decrease in the
Asia-Pacific region of $3.1 million. Increase in service revenues in the Western
Hemisphere and the Eastern Hemisphere is mainly due to customer specific
increases in technical advisory services and maintenance requests tied to
drilling schedules. Lower service revenues in the Asia-Pacific region resulted
primarily due to standby rates that the customers paid as a result of travel
restrictions and increase in rig mobilization activities in 2021 as companies
resumed their well completion activities.

Leasing revenues increased by approximately $7.0 million resulting from
increased leasing revenues in the Western Hemisphere, the Eastern Hemisphere and
the Asia-Pacific region of $4.9 million, $1.4 million and $0.7 million,
respectively. The majority of the increases in all the regions are related to
increased subsea rental tool utilization due to timing of customer drilling
activity.

Cost of Sales. Cost of sales increased by $15.3 million, or approximately 13.0%,
to $133.7 million for the six months ended June 30, 2022 from $118.3 million for
the same period in 2021. Cost of sales as a percentage of revenue increased to
75.5% from 73.0% for the six months ended June 30, 2022 and 2021, respectively,
primarily due to unfavorable product mix and inflationary pressures resulting in
an increase in the cost of raw materials.

Selling, General and Administrative Expenses. For the six months ended June 30,
2022, selling, general and administrative expenses decreased by $14.3 million,
or 24.1% to $44.9 million from $59.2 million for the same period in 2021. This
decrease was attributable mainly to lower legal expenses in the current period
related to costs incurred in the first quarter of 2021 in connection with the
FMC Technologies, Inc. lawsuit and administrative costs associated with the
importation tax settlement under the Brazilian tax amnesty program.

Engineering and Product Development Expenses. For the six months ended June 30,
2022, engineering and product development expenses decreased by approximately
$1.4 million, or 17.6%, to $6.4 million from $7.8 million for the same period in
2021. This decrease was attributable mainly to lower spend on research and
development activities as we completed certain strategic projects. We are in the
process of reprioritizing new research and development initiatives.

Restructuring and Other Charges. For the six months ended June 30, 2022, the
Company incurred additional costs of approximately $5.8 million under the 2021
global strategic plan. These charges were primarily related to the write-downs
of long-lived assets and other charges of approximately $5.1 million and $0.7
million, respectively. Other charges consisted of consulting and legal fees,
office moves, cleanup and preparation costs, and brokerage fees. During the six
months ended June 30, 2021, the Company incurred additional costs under the 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 $4.0 million, consisting of facilities-related
market exit costs and consulting fees.

Gain on Sale of Property, Plant and Equipment. For the six months ended June 30,
2022, the gain on sale of property, plant and equipment was approximately $0.5
million. For the six months ended June 30, 2021, gain on sale of assets was
approximately $3.9 million, primarily related to the sale of two of our
buildings in Singapore.

Foreign Currency Transaction (Gains) and Losses. Foreign exchange gain for the
six months ended June 30, 2022, was $3.7 million as compared to a loss of $0.9
million for the same period in 2021.

Income Tax Provision. Income tax provision for the six months ended June 30,
2022 was $5.7 million on a loss before taxes of $8.8 million, resulting in an
effective tax rate of (64.2)% Income tax expense was different than the U.S
federal statutory income tax rate of 21% primarily due to change in projected
earnings mix by geography and tax jurisdiction, nondeductible compensation and
the change in valuation allowances in the United States and in various foreign
countries. Income tax provision for the six months ended June 30, 2021 was $6.8
million on a loss before taxes of $46.6 million, resulting in an effective
income tax rate of approximately (14.6)% Income tax expense was different than
the U.S federal statutory income tax rate of 21% primarily due to changes in
pre-tax income or loss in foreign jurisdictions, nondeductible compensation and
the change in valuation allowances in the United States and in various foreign
countries.

Net loss. The net loss was approximately $14.5 million for the six months ended June 30, 2022 compared to $53.4 million for the same period in 2021 for the reasons set out above.

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Non-GAAP Financial Measures

We have performed a detailed analysis of the non-GAAP measures that are relevant
to our business and its operations and determined that the appropriate unit of
measure to analyze our performance is Adjusted EBITDA (earnings before interest,
taxes, depreciation and amortization, as well as other significant non-cash
items and other adjustments for certain charges and credits). The Company
believes that the exclusion of these charges and credits from these financial
measures enables it to evaluate more effectively the Company's operations period
over period and to identify operating trends that could otherwise be masked by
excluded items. It is our determination that Adjusted EBITDA is a more relevant
measure of how the Company reviews its ability to meet commitments and pursue
capital projects.

Adjusted EBITDA

We calculate Adjusted EBITDA as one of the indicators to evaluate and compare
the results of our operations from period to period by removing the effect of
our capital structure from our operating structure. This measurement is used in
concert with net income and cash flows from operations, which measures actual
cash generated in the period. In addition, we believe that Adjusted EBITDA is a
supplemental measurement tool used by analysts and investors to help evaluate
overall operating performance, ability to pursue and service possible debt
opportunities and analyze possible future capital expenditures. Adjusted EBITDA
does not represent funds available for our discretionary use and is not intended
to represent or to be used as a substitute for net income, as measured under
U.S. generally accepted accounting principles. The items excluded from Adjusted
EBITDA, but included in the calculation of reported net income, are significant
components of the condensed consolidated statements of income (loss) and must be
considered in performing a comprehensive assessment of overall financial
performance. Our calculation of Adjusted EBITDA may not be consistent with
calculations of Adjusted EBITDA used by other companies.

The following table reconciles our reported net income and adjusted EBITDA for each of the respective periods:

                                      Three months ended June 30,            Six months ended June 30,
                                      2022                 2021               2022                2021
                                            (In thousands)
Net loss                          $      (5,570 )     $       (19,067 )   $     (14,508 )     $    (53,425 )
Add:
Interest (income) expense, net             (474 )                  (4 )            (623 )              386
Income tax provision                      2,175                 4,407             5,671              6,793
Depreciation and amortization
expense                                   7,670                 7,343            15,229             14,759
Restructuring and other charges
(2)                                       5,765                 7,250             5,797             30,820
(Gain) loss on sale of
property, plant and equipment              (380 )                  82              (494 )           (3,873 )
Foreign currency transaction
(gains) and losses                       (2,419 )                (475 )          (3,673 )              899
Stock compensation expense                2,573                 3,079             5,100              6,265
Brazilian amnesty settlement                  -                     -                 -              1,787
Adjusted EBITDA (1)               $       9,340       $         2,615     $      12,499       $      4,411


(1) Adjusted EBITDA does not measure financial performance under GAAP and,
accordingly, should not be considered as an alternative to net income as an
indicator of operating performance.
(2) Restructuring and other charges include legal expenses related to the FMC
Technologies, Inc. lawsuit. These legal expenses are included in "Selling,
general and administrative" in our condensed consolidated statements of income
(loss) for the six months ended June 30, 2021 (in thousands).

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Cash and capital resources

Cash flow

The cash flows provided by (used in) the type of activity were as follows:

                                                       Six months ended June 30,
                                                          2022              2021
                                                             (In thousands)
Operating activities                                 $      (20,209 )     $  24,415
Investing activities                                         (2,847 )           325
Financing activities                                         (9,740 )           (77 )
                                                            (32,796 )        24,663
Effect of exchange rate changes on cash activities           (1,871 )          (137 )
Increase (decrease) in cash and cash equivalents     $      (34,667 )     $  24,526




Statements of cash flows for entities with international operations that are
local currency functional exclude the effects of the changes in foreign currency
exchange rates that occur during any given period, as these are non-cash
changes. As a result, changes reflected in certain accounts on the condensed
consolidated statements of cash flows may not reflect the changes in
corresponding accounts on the condensed consolidated balance sheets.

The primary liquidity needs of the Company are (i) to fund capital expenditures
to improve and expand facilities and manufacture additional running tools and
(ii) to fund working capital. The Company's principal source of funds is cash
flows from operations.

We believe our business model, our current cash reserves and the recent downhole
tools business restructuring and facility realignment will strengthen our
balance sheet and leave us well-positioned to manage our business. We continue
to review potential scenarios in connection with the potential impact of any new
COVID-19 variant outbreaks on the global economy and the oil and gas industry.
Based on our analysis, we believe our existing balances of cash and cash
equivalents and our currently anticipated operating cash flows will be
sufficient to meet our cash needs arising in the ordinary course of business for
the next twelve months.

Net cash used in operating activities for the six months ended June 30, 2022 was
$20.2 million as compared to net cash provided by operating activities of $24.4
million for the six months ended June 30, 2021. The $44.6 million net change is
primarily due to decreased cash flow resulting from changes in operating assets
and liabilities of $70.5 million and $13.0 million of non-cash movements which
includes decreases in items such as restructuring and other charges and
stock-based compensation. This was partially offset by a decrease in net loss of
$38.9 million.

The change in operating assets and liabilities for the six months ended June 30,
2022 resulted in a $70.5 million decrease in cash as compared to the change in
operating assets and liabilities for the six months ended June 30, 2021. The
$25.8 million decrease in cash due to changes in prepaids and other assets was
primarily due to an increase in advances to vendors related to projects
accounted for on an over-time basis and receipt of tax receivables in 2021. The
decrease due to changes in accounts payable and accrued expenses of $25.7
million was mainly related to the payout of our short-term incentive bonuses,
payment of our agent fees in the Middle East and the payment of certain property
taxes. The $23.3 million decrease in cash due to changes in unbilled receivables
was mainly due to the timing of completion of some of our major projects that
are accounted for on an over-time basis. Increase in trade receivables by $13.1
million was primarily due to increase in billing activity related to our ongoing
projects. These decreases in cash were partially offset by a decrease in
inventory of $17.4 million mainly related to our continued focus on inventory
management and consumption during the year.

The change in investing cash flows for the six months ended June 30, 2022
resulted in a $2.8 million decrease in cash primarily due to a $3.4 million
capital expenditure spend by the Company, partially offset by the proceeds from
the sale of property, plant and equipment totaling $0.6 million. Capital
expenditures by the Company were $3.4 million and $5.6 million for the six
months ended June 30, 2022 and 2021, respectively. Capital expenditures for the
six months ended June 30, 2022 were $1.8 million for rental tools to support our
developed products, $1.2 million for machinery and equipment related to our
global strategic program which includes consolidation of our manufacturing
facilities from the Eastern Hemisphere to the Western Hemisphere and $0.4
million for other capital expenditures. Capital expenditures for the six months
ended June 30, 2021 were $2.1 million for rental tools to support our developed
products, $2.6 million for machinery and equipment related to our global
strategic program which includes consolidation of our manufacturing facilities
from the Eastern Hemisphere to the Western Hemisphere and $0.9 million for other
capital expenditures. We constantly review capital expenditure needs to ensure
these are justified expenditures.

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Asset-Backed Lending (ABL) Credit Facility

The Company's ABL Credit Facility, dated February 23, 2018, as amended, was
terminated effective February 22, 2022. In addition, 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. We had transferred approximately
$7.1 million of letters of credit prior to the termination of our ABL Credit
Facility to JPMorgan Chase, N.A. Since then we have issued an additional $1.8
million of letters of credit to JP Morgan Chase, N.A. 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 June 30, 2022
and December 31, 2021. Withdrawals from this cash collateral account are only
allowed at such point a given letter of credit has expired or has been
cancelled.

Redemption of Equity securities

On February 22, 2022, the Board of Directors authorized an incremental $100.0
million share repurchase plan. 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 June 30, 2022, the Company purchased 157,101 shares
under the share repurchase plans at an average price of approximately $24.49 per
share totaling approximately $3.8 million and has retired such shares. For the
six months ended June 30, 2022, the Company purchased 430,730 shares under the
share repurchase plans at an average price of approximately $22.40 per share
totaling approximately $9.6 million and has retired such shares.


For the three and six months ended June 30, 2021the Company has not purchased any shares under the share buyback plans.

The Company currently has no derivative instruments and no off-balance sheet hedging or financing arrangements, contracts or transactions.

Other topics

From time to time, the Company enters into discussions or negotiations to
acquire other businesses or enter into joint ventures. The timing, size or
success of any such efforts and the associated potential capital commitments are
unpredictable and dependent on market conditions and opportunities existing at
the time. The Company may seek to fund all or part of any such efforts with
proceeds from debt or equity issuances. Debt or equity financing may not,
however, be available at that time due to a variety of circumstances, including,
among others, the Company's credit ratings, industry conditions, general
economic conditions and market conditions.

Critical Accounting Judgments

During the six months ended June 30, 2022, there were no material changes in our
judgments and assumptions associated with the development of our critical
accounting policies. Refer to our Annual Report on Form 10-K for the year ended
December 31, 2021 for a discussion of our critical accounting policies.

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