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What changed in Innovex International, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Innovex International, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+299 added−327 removedSource: 10-K (2024-02-27) vs 10-K (2023-03-01)

Top changes in Innovex International, Inc.'s 2023 10-K

299 paragraphs added · 327 removed · 220 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

86 edited+27 added−39 removed99 unchanged
Biggest changeNevertheless, as part of its ongoing product development and manufacturing activities, Dril-Quip’s policy has been to seek patents when appropriate on inventions concerning new products and product improvements. All patent rights for products developed by employees are assigned to the Company and almost all of the Company’s products have components that are covered by patents.
Biggest changeThe Company believes that the success of its business depends more on the technical competence, creativity and marketing abilities of its employees than on any individual patent, trademark or copyright. Nevertheless, as part of its ongoing product development and manufacturing activities, Dril-Quip’s policy has been to seek patents when appropriate on inventions concerning new products and product improvements.
In the U.S, these include, among other benefits: • Comprehensive health insurance coverage is offered to employees working an average of 20 hours or more each week • Company paid group dental and vision care • The Company sponsors a defined-contribution (cash balance) 401(k) plan covering domestic employees and a defined-contribution pension plan covering certain foreign employees • Short-term and long-term disability benefits are provided to all full-time employees for added income protection • Health Savings Account (HSA) and Flexible Spending Accounts (FSA) • Company paid life insurance and accidental death and dismemberment benefits • Employee assistance program for concerns or emotional issues surrounding personal or work life.
In the U.S, these include, among other benefits: • Comprehensive health insurance coverage is offered to employees working an average of 20 hours or more each week. • Company subsidized group dental and vision care. • The Company sponsors a defined-contribution (cash balance) 401(k) plan covering domestic employees and a defined-contribution pension plan covering certain foreign employees. • Short-term and long-term disability benefits are provided to all full-time employees for added income protection. • Health Savings Account (HSA) and Flexible Spending Accounts (FSA). • Company paid life insurance and accidental death and dismemberment benefits. • Employee assistance program for concerns or emotional issues surrounding personal or work life.
Specifically: • We provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location. • We engage nationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our executive compensation and benefit programs and to provide benchmarking against our peers within the industry. • We align our executives’ long-term equity compensation with our shareholders’ interests by linking realizable pay with stock performance. • Annual increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented through our talent management process as part of our annual review procedures and upon internal transfer and/or promotion.
Specifically: • We provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location. • We engage nationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our executive compensation and benefit programs and to provide benchmarking against our peers within the industry. • We align our executives’ long-term equity compensation with our shareholders’ interests by linking realizable pay with stock performance. • Annual increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented through our performance management process as part of our annual review procedures and upon internal transfer and/or promotion.
Underwood was Vice President, Subsea Processing at TechnipFMC from January 2016 until September 2017. Prior to that role, he worked for FMC Technologies, Inc. for over 20 years in management, operational and sales positions around the world, including in Norway, Brazil and Singapore. Mr. Underwood holds a BS in mechanical engineering from Texas A&M University. 19 Table of Contents
Underwood was Vice President, Subsea Processing at TechnipFMC from January 2016 until September 2017. Prior to that role, he worked for FMC Technologies, Inc. for over 20 years in management, operational and sales positions around the world, including in Norway, Brazil and Singapore. Mr. Underwood holds a BS in mechanical engineering from Texas A&M University. 20 Table of Contents
The Environmental Protection Agency (EPA) has undertaken efforts to collect information regarding greenhouse gas emissions and their effects. Following a finding by the EPA that certain greenhouse gases represent a danger to human health, the EPA expanded its regulations relating to those emissions and adopted rules imposing permitting and reporting obligations.
The Environmental Protection Agency (EPA) has undertaken efforts to collect information regarding greenhouse gas emissions and their effects. Following a 2009 finding by the EPA that certain greenhouse gases represent a danger to human health, the EPA expanded its regulations relating to those emissions and adopted rules imposing permitting and reporting obligations.
The TIW Kelly Valve is located in the drill string below the kelly, the uppermost component of the drill string, and is designed to be closed under pressure to remove the kelly. Cement manifolds are used to control the flow of cement and other fluids during the cementing operations of the well installation.
The Kelly Valve is located in the drill string below the kelly, the uppermost component of the drill string, and is designed to be closed under pressure to remove the kelly. Cement manifolds are used to control the flow of cement and other fluids during the cementing operations of the well installation.
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.
Negotiations for a phase two trade deal with China had begun prior to the outbreak of the global COVID-19 and if continued could lead to additional changes to the tariff rates described above.
These include corporate culture assessments, as well as real-time feedback on employee engagement and employee well-being focused on physical, emotional, social and financial health. 14 Table of Contents Competitive Compensation Dril-Quip’s compensation programs are designed to align the compensation of our employees with the Company’s performance and to provide the proper incentives to attract, retain and motivate employees to achieve superior results.
These include corporate culture assessments, as well as real-time feedback on employee engagement and employee well-being focused on physical, emotional, social and financial health. 15 Table of Contents Competitive Compensation Dril-Quip’s compensation programs are designed to align the compensation of our employees with the Company’s performance and to provide the proper incentives to attract, retain and motivate employees to achieve superior results.
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. 17 Table of Contents 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.
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. 18 Table of Contents 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.
Subsea Equipment - Subsea equipment is used in the drilling and production of offshore oil and gas wells as well as injecting CO2 into offshore reservoirs around the world. Included in the subsea equipment product line are subsea wellheads systems, mudline hanger systems, specialty connectors and associated pipe, production riser systems, subsea production trees, subsea manifolds and liner hangers.
Subsea Equipment - Subsea equipment is used in the drilling and production of offshore oil and gas wells as well as injecting CO2 into offshore reservoirs around the world. Included in the subsea equipment product line are subsea wellheads systems, mudline hanger systems, specialty connectors and associated pipe, production riser systems, subsea production trees, subsea manifolds.
The results of the permitting and reporting requirements could lead to further regulation of these greenhouse gases by the EPA. Moreover, specific design and operational standards apply to U.S. outer continental shelf vessels, rigs, platforms, vehicles, structures and equipment. 16 Table of Contents The U.S.
The results of the permitting and reporting requirements could lead to further regulation of these greenhouse gases by the EPA. Moreover, specific design and operational standards apply to U.S. outer continental shelf vessels, rigs, platforms, vehicles, structures and equipment. 17 Table of Contents The U.S.
Products Dril-Quip designs, manufactures, fabricates, inspects, assembles, tests and markets subsea equipment, downhole tools, surface equipment and offshore rig equipment.
Products Dril-Quip designs, manufactures, fabricates, inspects, assembles, tests and markets subsea equipment, downhole tools, surface equipment and rig equipment.
Production risers provide a vertical conduit from the subsea wellhead up to a TLP, Spar or FPSO floating at the surface. 8 Table of Contents A subsea production tree is an assembly composed of flow and pressure control valves, a wellhead connector, control equipment and various other components such as pressure/temperature sensors, chemical injection valves and flowline connection systems.
Production risers provide a vertical conduit from the subsea wellhead up to a TLP, Spar or FPSO floating at the surface. A subsea production tree is an assembly composed of flow and pressure control valves, a wellhead connector, control equipment and various other components such as pressure/temperature sensors, chemical injection valves and flowline connection systems.
The volatility in Brent crude oil prices over the past three years continues to have an effect on major integrated, large independent and foreign national oil and gas companies’ capital expenditure budgets.
The volatility in Brent crude oil prices over the past four years continues to have an effect on major integrated, large independent and foreign national oil and gas companies’ capital expenditure budgets.
Risk Factors—A material or extended decline in expenditures by the oil and gas industry could significantly reduce our revenue and income.” As the energy industry embraces a transition, Dril-Quip is actively pursuing opportunities to engage with customers that are working in the areas of carbon capture, utilization and storage (CCUS).
Risk Factors—A material or extended decline in expenditures by the oil and gas industry could significantly reduce our revenue and income.” As the energy industry prepares for a transition, Dril-Quip is actively pursuing opportunities to engage with customers that are working in the areas of carbon capture, utilization and storage (CCUS) and geothermal energy.
The Company’s Houston, Aberdeen, Singapore and Macae manufacturing plants are ISO 14001, OHSAS 18001 and ISO 9001 certified. The Houston, Aberdeen, Singapore and Macae plants are also licensed to applicable American Petroleum Institute (API) product specifications and are API Q1, 9 th edition and API Q2 compliant.
The Company’s Houston, Aberdeen, Singapore, and Macae manufacturing plants are ISO 14001, OHSAS 18001 and ISO 9001 certified. The Edmonton manufacturing plant is ISO 9001 certified. The Houston, Aberdeen, Singapore, and Macae plants are also licensed to applicable American Petroleum Institute (API) product specifications and are API Q1, 9 th edition and API Q2 compliant.
In case of a change or termination, the customer is required to pay the Company for work performed and other costs necessarily incurred as a result of the change or termination. Generally, the Company attempts to raise its prices as its costs increase.
In case of a change or termination of over time contracts, the customer is required to pay the Company for work performed and other costs necessarily incurred as a result of the change or termination. Generally, the Company attempts to raise its prices as its costs increase.
These services are provided from the Company’s worldwide locations and represented approximately 21.9% of revenues in 2022 compared to 23.0% in 2021 and 20.7% in 2020. Technical Advisory Assistance. Dril-Quip generally does not install products for its customers, but it does provide technical advisory assistance to the customer, if requested, in the installation and/or commissioning of its products.
These services are provided from the Company’s worldwide locations and represented approximately 24.9% of revenues in 2023 compared to 21.9% in 2022 and 23.0% in 2021. Technical Advisory Assistance and Reconditioning. Dril-Quip generally does not install products for its customers, but it does provide technical advisory assistance to the customer, if requested, in the installation and/or commissioning of its products.
The average tenure of our employees is approximately 9 years, and about 43% of our employees have been employed by us for more than ten years. 15 Table of Contents Employee Recruitment The Company works diligently to attract the best talent from a diverse range of sources in order to meet the current and future demands of our business.
The average tenure of our employees is approximately 7.5 years, and about 36% of our employees have been employed by us for more than ten years. 16 Table of Contents Employee Recruitment The Company works diligently to attract the best talent from a diverse range of sources in order to meet the current and future demands of our business.
Historically, the Company’s revenues for a specific period have not been directly related to its backlog as stated at a particular point in time. The Company’s product backlog was approximately $240.9 million and $210.1 million at December 31, 2022 and 2021, respectively.
Historically, the Company’s revenues for a specific period have not been directly related to its backlog as stated at a particular point in time. The Company’s product backlog was approximately $262.8 million and $240.9 million at December 31, 2023 and 2022, respectively.
Our culture of collaboration helps to work together with customers to provide the best solution with our innovative technology and services. Our transparent culture facilitates open communication, feedback, and helps build trust. Employees The total number of the Company's employees as of December 31, 2022 was 1,356, a 1.0% increase from December 31, 2021.
Our culture of collaboration helps to work together with customers to provide the best solution with our innovative technology and services. Our transparent culture facilitates open communication, feedback, and helps build trust. Employees The total number of the Company's employees as of December 31, 2023 was 1,659, a 22.3% increase from December 31, 2022.
In 2020, the Company’s top 15 customers represented approximately 60% of total revenue, and Chevron accounted for approximately 11% of total revenues. No other customer accounted for more than 10% of total revenues in 2022, 2021 or 2020.
In 2022, the Company’s top 15 customers represented approximately 60% of total revenues, and Chevron accounted for approximately 10% of total revenues. In 2021, the Company’s top 15 customers represented approximately 59% of total revenue, and Chevron accounted for approximately 12% of total revenues. No other customer accounted for more than 10% of total revenues in 2023, 2022 or 2021.
The number and variety of the Company’s products required in a given year by any one customer depends upon the amount of that customer’s capital expenditure budget devoted to exploration and production and on the results of competitive bids for major projects.
The number and variety of the Company’s products required in a given year by any one customer depends upon the amount of that customer’s capital expenditure budget devoted to exploration and production, the availability of rigs and floating production storage and offloading (FSPO) units, and on the results of competitive bids for major projects.
We believe the combination of competitive compensation and career growth and development opportunities help increase employee tenure and reduce voluntary turnover. Voluntary workforce turnover (rolling 12-month attrition) was 14.6% in December 2022.
We believe the combination of competitive compensation and career growth and development opportunities help increase employee tenure and reduce voluntary turnover. Voluntary workforce turnover (rolling 12-month attrition) was 8.9% in December 2023.
This nascent industry aligns well with the Company's core capabilities and expertise and also provides us with an avenue to expand our offerings. We see a healthy project pipeline developing and are actively engaging with customers to explore how we leverage our products and position to help them navigate through the energy transition.
Each of these industries align well with the Company’s core capabilities and expertise and also provides us with an avenue to expand our offerings. We see a healthy project pipeline developing and are actively engaging with customers to explore how we leverage our products and position to help them navigate through the energy transition.
Both 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.
Refer to “Item 1A. Risk Factors” for additional information. Both 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.
These rentals are provided from the Company’s worldwide locations and represented approximately 11.6% of revenues in 2022 compared to 10.9% in 2021 and 8.4% in 2020. Manufacturing Dril-Quip has manufacturing facilities in Houston, Texas; Aberdeen, Scotland; Singapore; and Macae, Brazil. See “Item 2.
Rentals are provided from the Company’s worldwide locations and represented approximately 11.2% of revenues in 2023 compared to 11.6% in 2022 and 10.9% in 2021. 11 Table of Contents Manufacturing Dril-Quip has manufacturing facilities in Houston, Texas; Aberdeen, Scotland; Singapore; Macae, Brazil; and Edmonton, Canada. See “Item 2.
Of those 1,356 employees, 581 were located in the United States. Substantially all of the Company’s employees are not covered by collective bargaining agreements, and the Company considers its employee relations to be good. At the end of fiscal year 2022, the Company’s global workforce was 85.8% male and 14.2% female.
Of those 1,659 employees, 545 were located in the United States. Substantially all of the Company’s employees are not covered by collective bargaining agreements, and the Company considers its employee relations to be good. At the end of fiscal year 2023, the Company’s global workforce was 85.3% male and 14.7% female.
Products and Services 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.
Products and Services 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, equipment installation and monitoring, rework, reconditioning and repair services.
Wellhead connectors are used on production riser systems and drilling riser systems. They are also used on both TLPs and Spars, which are installed in deepwater applications. The principal markets for offshore rig equipment are new rigs, rig upgrades, TLPs and Spars.
Wellhead connectors are used on production riser systems and drilling riser systems. They are also used on both TLPs and Spars, which are installed in deepwater applications. The principal markets for offshore rig equipment are new rigs, rig upgrades, TLPs and Spars. Drilling risers, wellhead connectors and diverters are generally designed and manufactured to customer specifications.
Brent crude oil prices per barrel for the three-year period ended December 31, 2022 are summarized below: Brent Crude Oil Prices 2022 2021 2020 High $ 133.18 $ 85.76 $ 70.25 Low 76.02 50.37 9.12 Average 100.94 70.86 41.96 Closing, December 31, 82.82 77.24 51.22 In its January 2023 Short-Term Energy Outlook, the EIA reported United States crude oil production averaged an estimated 11.9 million barrels per day in 2022 and is forecasted to average 12.4 million barrels per day in 2023.
Brent crude oil prices per barrel for the three-year period ended December 31, 2023 are summarized below: Brent Crude Oil Prices 2023 2022 2021 High $ 97.10 $ 133.18 $ 85.76 Low $ 71.03 $ 76.02 $ 50.37 Average $ 82.49 $ 100.94 $ 70.86 Closing as of December 31, $ 77.69 $ 82.82 $ 77.24 In its January 2024 Short-Term Energy Outlook, the EIA reported United States crude oil production averaged an estimated 12.9 million barrels per day in 2023 and is forecasted to average 13.2 million barrels per day in 2024.
Drilling risers, wellhead connectors and diverters are generally designed and manufactured to customer specifications. 9 Table of Contents Certain of the Company’s products are used in potentially hazardous drilling, completion and production applications that can cause personal injury, product liability and environmental claims. See “Item 1A. Risk Factors—Our business involves numerous operating hazards that may not be covered by insurance.
Certain of the Company’s products are used in potentially hazardous drilling, completion and production applications that can cause personal injury, product liability and environmental claims. See “Item 1A. Risk Factors—Our business involves numerous operating hazards that may not be covered by insurance.
Talent and Human Capital Management We believe that building a diverse, inclusive, engaged and empowered workforce will enable us to manage our business with a focus on health and safety, the environment, ethical behavior, quality and being a good corporate citizen in all countries in which we operate.
We believe that building a diverse, inclusive culture helps build an engaged and empowered workforce to manage our business with a focus on health and safety, the environment, ethical behavior, quality and being a good corporate citizen in all countries in which we operate.
Competition Dril-Quip faces significant competition from other manufacturers and suppliers of exploration and production equipment. Several of its primary competitors are diversified multinational companies with substantially larger operating staffs and greater capital resources than those of the Company and which, in many instances, have been engaged in the manufacturing business for a much longer period of time than the Company.
Several of its primary competitors are diversified multinational companies with substantially larger operating staffs and greater capital resources than those of the Company and which, in many instances, have been engaged in the manufacturing business for a much longer period of time than the Company.
The Company also focuses its activities on reducing the overall cost to the customer, which includes not only the initial capital cost but also operating, installation and maintenance costs associated with its products in an effort to help reduce customers’ carbon footprint.
The Company also focuses its activities on reducing the overall cost to the customer, which includes not only the initial capital cost but also operating, installation and maintenance costs associated with its products in an effort to help reduce customers’ carbon footprint. Dril-Quip’s product development work is primarily conducted at its facilities in Houston, Texas.
In 2022, the Company derived 66.5% of its revenues from the sale of its products, 21.9% of its revenues from services and 11.6% from leasing revenues, compared to 66.1%, 23.0% and 10.9% for products, services and leasing in 2021, respectively, and 70.9%, 20.7% and 8.4% for products, services and leasing in 2020, respectively.
In 2023, the Company derived 63.9% of its revenues from the sale of its products, 24.9% of its revenues from services and 11.2% from leasing revenues, compared to 66.5%, 21.9% and 11.6% for products, services and leasing in 2022, respectively, and 66.1%, 23.0% and 10.9% for products, services and leasing in 2021, respectively.
Downhole Tools - Downhole tools are primarily comprised of liner hangers, production packers, safety valves and specialty downhole tools. A liner hanger is used to hang-off and seal casing into a previously installed casing string in the well bore and can provide a means of tying back the liner for production to surface.
A liner hanger is used to hang-off and seal casing into a previously installed casing string in the well bore and can provide a means of tying back the liner for production to surface.
The Company has substantial international operations, with approximately 66.2% of its revenues derived from foreign sales in 2022, 63.8% in 2021 and 66.7% in 2020. 7 Table of Contents Substantially all of the Company’s domestic revenue relates to operations in the U. S. Gulf of Mexico.
The Company has substantial international operations, with approximately 74.9% of its revenues derived from foreign sales in 2023, 66.2% in 2022 and 63.8% in 2021. Substantially all of the Company’s domestic revenue relates to operations in the U. S. Gulf of Mexico. Domestic revenue approximated 25.1% of the Company’s total revenues in 2023, 33.8% in 2022 and 36.2% in 2021.
Our core values reflect who we are and the way our employees interact with one another, our customers, suppliers and shareholders. We believe in doing the right thing always. Ethics and integrity are the foundation of our brand and the guiding principles for all we do. Safety and environment protection are our highest priorities.
Our core values and beliefs demonstrate who we are and the way our employees interact with one another, our customers, suppliers and shareholders. We believe in doing the right thing first and always. Ethics and integrity are the foundations of our culture and the guiding principles that direct everything we do. Safety and environment protection are our highest priorities.
The Company’s website address is www.dril-quip.com. Documents and information on the Company’s website, or on any other website, are not incorporated by reference into this Form 10-K. The SEC maintains a website (www.sec.gov) that contains reports the Company has filed with the SEC.
The Company’s website address is www.dril-quip.com. Documents and information on the Company’s website, or on any other website, are not incorporated by reference into this Form 10-K.
The remaining backlog at December 31, 2022 consists of longer-term projects which are being designed and manufactured to customer specifications requiring longer lead times. See “Item 1A.
The Company expects to fill approximately 70% to 80% of the December 31, 2023 product backlog by December 31, 2024. The remaining backlog at December 31, 2023 consists of longer-term projects which are being designed and manufactured to customer specifications requiring longer lead times. See “Item 1A.
Our people are the key to achieving our vision, and nurturing a transparent, collaborative and development focused culture drives alignment with our business strategy to achieve sustainable long-term shareholder value. We aim to attract and retain the right talent with the competencies and motivation required to execute our business strategy.
Talent and Human Capital Management Our people are the key to achieving our vision, and nurturing a transparent, collaborative and development focused culture drives alignment with our business strategy to achieve sustainable long-term shareholder value.
Bird 56 President, Chief Executive Officer and Director James C. Webster 53 Vice President, General Counsel and Secretary Kyle F. McClure 47 Vice President and Chief Financial Officer Donald M. Underwood 63 Vice President - Subsea Products 18 Table of Contents Jeffrey J. Bird is President, Chief Executive Officer and Director.
Bird 57 President, Chief Executive Officer and Director James C. Webster 54 Vice President, General Counsel and Secretary Kyle F. McClure 48 Vice President and Chief Financial Officer Donald M. Underwood 64 Vice President - Subsea Products Jeffrey J. Bird is President, Chief Executive Officer and Director.
The Company’s customers generally order products on a purchase order basis. Orders, other than those considered to be long-term projects, are typically filled within twelve months after receipt, depending on the type of product and whether it is sold out of inventory or requires some customization.
Orders, other than those considered to be long-term projects, are typically filled within twelve months after receipt, depending on the type of product and whether it is sold out of inventory or requires some customization. Contracts for certain of the Company’s larger, more complex products, such as subsea production trees can take a year or more to complete.
Leasing The Company leases running and installation tools for use in installation or workover of its products. These tools are required to install, test and retrieve the Company’s products that are purchased by customers.
The Company also provides reconditioning of its customer-owned products at the same facilities. The Company does not typically service, repair or recondition its competitors’ products. Leasing The Company leases running and installation tools for use in installation or workover of its products. These tools are required to install, test and retrieve the Company’s products that are purchased by customers.
The executive team also commits substantial time in evaluating the talent of our leadership team with a focus on addressing leadership gaps through executive coaching and mentoring.
Various internship programs and informal mentoring demonstrate the Company’s ongoing commitment and initiatives towards accelerating our future leaders. The executive team also commits substantial time in evaluating the talent of our leadership team with a focus on addressing leadership gaps through executive coaching and mentoring.
Dril-Quip has numerous U.S. registered trademarks, including Dril-Quip®, Quik-Thread®, Quik-Stab®, Multi-Thread®, MS-15®, SS-15®, SS-10®, SU-90®, DX® and TIW®. The Company has registered its trademarks in the countries where such registration is deemed material.
All patent rights for products developed by employees are assigned to the Company and almost all of the Company’s products have components that are covered by patents. Dril-Quip has numerous U.S. registered trademarks, including Dril-Quip®, Quik-Thread®, Quik-Stab®, Multi-Thread®, MS-15®, SS-15®, SS-10®, SU-90®, DX® and TIW®. The Company has registered its trademarks in the countries where such registration is deemed material.
In their workforce planning forecasts, the Company’s business units are developing initiatives and goals to recruit diverse talent across all leadership and skill areas. The Company also trains its recruiting workforce in diversity sourcing strategies and partners with external organizations that develop and supply diverse talent pipeline.
The Company has partnered with non-profit and community organizations to support and develop a diverse talent pipeline. In their workforce planning forecasts, the Company’s business units are developing initiatives and goals to recruit diverse talent across all leadership and skill areas.
Item 1. Business General 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.
Item 1. Business General Dril-Quip, Inc., a Delaware corporation (the “Company” or “Dril-Quip”), is a leading developer of innovative technologies for the energy industry, designing and manufacturing best-in-class products for traditional oil and gas, and certain energy transition applications. The Company designs, manufactures, sells and services highly engineered drilling and production equipment for both offshore and onshore applications.
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.
Revenue is based on the location where services are provided and products are sold. 9 Table of Contents Product contracts are negotiated and sold separately from service contracts. In addition, service contracts are not 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.
Mudline hanger systems are used in jack-up drilling operations to support the weight of the various casing strings at the ocean floor while drilling a well.
Subsea wellheads systems are utilized when drilling from floating drilling rigs, either semi-submersible or drillship types, or TLPs and Spars. Mudline hanger systems are used in jack-up drilling operations to support the weight of the various casing strings at the ocean floor while drilling a well.
Subsea trees are installed on a subsea wellhead or a mudline hanger system and used to control the flow of oil and gas from a producing well or control flow of CO2 injection into an offshore reservoir. Subsea trees may be used as stand-alone satellite wells or multiple well template mounted and cluster arrangements.
Subsea trees are installed on a subsea wellhead or a mudline hanger system and used to control the flow of oil and gas from a producing well or control flow of CO2 injection into an offshore reservoir. The Company’s subsea production trees are generally custom designed and manufactured to customer specifications.
Risk Factors—Our backlog is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of our future revenues and earnings.” Marketing and Sales Dril-Quip markets its products and services throughout the world directly through its sales personnel in multiple domestic and international locations.
Risk Factors—Our backlog is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of our future revenues and earnings.” Marketing and Sales Dril-Quip has a multifaceted approach to marketing and sales to effectively promote its products and services globally.
To support the advancement of all of our employees, we offer training and development programs encouraging advancement from within. We leverage both formal and informal programs to identify, foster, and retain top talent at both the corporate and operating unit level. Various internship programs and informal mentoring demonstrate the Company’s ongoing commitment and initiatives towards accelerating our future leaders.
Employee Development The attraction, development and retention of employees is a critical success factor for the Company. To support the advancement of all of our employees, we offer training and development programs encouraging advancement from within. We leverage both formal and informal programs to identify, foster, and retain top talent at both the corporate and operating unit level.
These programs are aimed at driving further alignment to reduce unconscious bias in our hiring and other employment practices and to build our network of diversity champions among our employees, managers, and executives. The Women Empowerment Network (WEN) organized several health, wellness and career related programs to support a women’s peer network with a focus on furthering career development opportunities.
These programs are aimed at driving further alignment to reduce unconscious bias in our hiring and other employment practices and to build our network of diversity champions among our employees, managers, and executives.
The Company’s operations depend in part on its ability to attract quality employees. We provide employee wages and salaries that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location.
We provide employee wages and salaries that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location.
Capital expenditures are also dependent on the cost of exploring for and producing oil and gas, the availability, expiration date and price of leases, the discovery rate of new oil and gas reserves, technological advances and alternative opportunities to invest in onshore exploration and production operations.
Capital expenditures are also dependent on the cost of exploring for and producing oil and gas, the availability, expiration date and price of leases and rigs, the discovery rate of new oil and gas reserves, and technological advances. Oil and gas prices and the level of drilling and production activity have historically been characterized by significant volatility.
Dril-Quip works to maintain its high standards of product quality through the use of precision measuring equipment such as MRP gages, Faro Arms, Coordinate Measuring Machine and the application of Lean practices. The Company has the capability to manufacture its products globally and continues to have local capability in key critical markets.
The Edmonton plant is licensed to API 6A product specifications and is API Q1 compliant. Dril-Quip works to maintain its high standards of product quality through the use of precision measuring equipment such as MRP gages, Faro Arms, Coordinate Measuring Machine and the application of Lean practices.
Dril-Quip’s development of platform wellheads and platform production trees was facilitated by adaptation of its existing subsea wellhead and tree technology to surface wellheads and trees. Platform wellheads are pressure-containing forged and machined metal housings in which casing hangers are landed and sealed at the platform deck to suspend casings.
Platform wellheads are pressure-containing forged and machined metal housings in which casing hangers are landed and sealed at the platform deck to suspend casings.
In 2022, the Company’s top 15 customers represented approximately 60% of total revenues, and Chevron Corporation and its affiliated companies (“Chevron”) accounted for approximately 10% of total revenues. In 2021, the Company’s top 15 customers represented approximately 59% of total revenues, and Chevron accounted for approximately 12% of total revenues.
The Company is not dependent on any one customer or group of customers. In 2023, the Company’s top 15 customers represented approximately 59% of total revenues, and Chevron Corporation and its affiliated companies (“Chevron”) accounted for approximately 11% of total revenues.
After installation of a wellhead, a platform production tree , consisting of gate valves, a surface wellhead connector, controls, tree cap and associated equipment, is installed on the wellhead to control and regulate oil and gas production or CO2 injection.
The Company emphasizes the use of metal-to-metal sealing wellhead systems with operational time-saving features which can be used in high pressure, high temperature and corrosive drilling and production applications. 10 Table of Contents After installation of a wellhead, a platform production tree , consisting of gate valves, a surface wellhead connector, controls, tree cap and associated equipment, is installed on the wellhead to control and regulate oil and gas production or CO2 injection.
Executive Officers of the Registrant Pursuant to the instructions to Item 401 of Regulation S-K, the following information is included in Part I of this Form 10-K: The following table sets forth the names, ages (as of February 20, 2023) and positions of the Company’s executive officers: Name Age Position Jeffrey J.
However, future events, such as changes in existing laws and regulations or their interpretation, more vigorous enforcement policies of or by regulatory agencies, or stricter or different interpretations of existing laws and regulations, may require additional expenditures by the Company, which may be material. 19 Table of Contents Executive Officers of the Registrant Pursuant to the instructions to Item 401 of Regulation S-K, the following information is included in Part I of this Form 10-K: The following table sets forth the names, ages (as of February 20, 2024) and positions of the Company’s executive officers: Name Age Position Jeffrey J.
The primary factors influencing a customer’s decision to purchase the Company’s products are the quality, reliability and reputation of the product, price, technology, service and timely delivery.
The primary factors influencing a customer’s decision to purchase the Company’s products are the quality, reliability and reputation of the product, price, technology, service and timely delivery. For large drilling and production system orders, project management teams coordinate customer needs with the Company’s engineering, manufacturing and service organizations, as well as with subcontractors and vendors.
In addition to the work of its product development staff, the Company’s application engineering staff provides technical services to customers in connection with the design and sales of its products. The Company’s ability to develop new products and maintain technological advantages is important to its future success. See “Item 1A.
The Company’s ability to develop new products and maintain technological advantages is important to its future success. See “Item 1A.
The Company also makes available free of charge on its website (www.dril-quip.com/govern.html) its: • Corporate Governance Guidelines, • Code of Business Conduct and Ethical Practices, • Audit Committee Charter, • Nominating and Governance Committee Charter, and • Compensation Committee Charter. Any stockholder, who so requests, may obtain a printed copy of any of these documents from the Company.
The SEC maintains a website (www.sec.gov) that contains reports the Company has filed with the SEC. 7 Table of Contents The Company also makes available free of charge on its website (https://www.dril-quip.com/About/ESG/Governance/Corporate-Governance-Documents) its: • Corporate Governance Guidelines, • Code of Business Conduct and Ethical Practices, • Audit Committee Charter, • Nominating and Governance Committee Charter, and • Compensation Committee Charter.
Our global human capital strategy drives a consistent approach to human capital management and provides tools to facilitate employee development. Performance management and leadership succession are a key part of our people development process that helps identify and develop future leadership talent.
Performance management and leadership succession are a key part of our people development process that helps identify and develop future leadership talent. Our board provides oversight to the leadership succession process to review our human capital analytics on workforce demographics, diversity and inclusion, hiring and attrition rates and succession readiness.
According to the January 2023 release of the Short-Term Energy Outlook published by the Energy Information Administration (EIA) of the U.S. Department of Energy, Brent crude oil prices averaged approximately $100.94 per barrel in 2022, and the price is forecasted to average $83.10 per barrel in 2023 and $77.57 per barrel in 2024.
During 2023, crude oil prices fluctuated, with a high of $97.10 per barrel and a low of $71.03 per barrel. According to the January 2024 release of the Short-Term Energy Outlook published by the Energy Information Administration (EIA) of the U.S.
Rental or purchase of running tools is not a condition of the sale of the Company’s products and is contracted for separately from product sales and other services offered by the Company. Running tools are available from Dril-Quip’s locations in Houston, Texas; Villahermosa, Mexico; Shushufindi, Ecuador; Macae, Brazil; Aberdeen, Scotland; Stavanger, Norway; Esbjerg, Denmark; Shenzhen, China; Singapore; and Perth, Australia.
Rental or purchase of running tools is not a condition of the sale of the Company’s products and is contracted for separately from product sales and other services offered by the Company. Running tools are available from Dril-Quip’s worldwide facilities. See “Item 2. Properties” for a list of the Company’s facilities.
Dril-Quip has developed its broad line of subsea equipment, surface equipment and offshore rig equipment primarily through its internal product research and development efforts. The Company believes that it has achieved significant market share and brand name recognition with respect to its established products due to the technological capabilities, reliability, cost effectiveness and operational timesaving features of these products.
The Company believes that it has achieved significant market share and brand name recognition with respect to its established products due to the technological capabilities, reliability, cost effectiveness and operational timesaving features of these products. On July 31, 2023, the Company acquired 100% of the issued and outstanding shares of 1185641 B.C.
Changes in or waivers to the Company’s Code of Business Conduct and Ethical Practices involving directors and executive officers of the Company will be posted on its website. 6 Table of Contents Overview and Industry Outlook We continue to monitor the impact of the COVID-19 pandemic, government actions and measures taken to prevent its spread, and the potential to affect our operations, particularly in China.
Changes in or waivers to the Company’s Code of Business Conduct and Ethical Practices involving directors and executive officers of the Company will be posted on its website. 8 Table of Contents Overview and Industry Outlook We continue to monitor the current global economic environment, specifically including inflationary pressures and the macroeconomic impact of the conflict in Ukraine and the Gaza Strip, and any resulting impacts on our financial position and results of operations.
As part of our diversity and inclusion efforts, we implemented a Diversity, Equity & Inclusion framework and launched Cultivating Diversity, Equity and Inclusion at work and Unconscious Bias training programs.
The Company also trains its recruiting workforce in diversity sourcing strategies and partners with external organizations that develop and supply diverse talent pipeline. As part of our diversity and inclusion efforts, we implemented a Diversity, Equity & Inclusion framework and launched Cultivating Diversity, Equity and Inclusion at work and Unconscious Bias training programs.
These long-term contracts generally specify the products and services, the standard terms of the agreement and often times the price of the goods and services to be purchased. Purchase orders that reference this long-term agreement are then issued by the customer to the Company for specific quantities of the goods and services.
Increasingly, customers enter into long-term contracts (generally three years or more) with the Company covering the purchase of goods and services. These long-term contracts generally specify the products and services, the standard terms of the agreement and often times the price of the goods and services to be purchased.
The backlog at the end of 2022 represents an increase of approximately $30.8 million, or 14.6%, from the end of 2021. The Company’s backlog balance was positively impacted during 2022 as our product bookings increased due to improved market conditions. The Company expects to fill approximately 70% to 80% of the December 31, 2022 product backlog by December 31, 2023.
The backlog at the end of 2023 represents an increase of approximately $21.9 million, or 9.1%, from the end of 2022. The Company’s backlog balance was positively impacted during 2023 as our product bookings increased primarily due to improvement in market conditions, the addition of Great North bookings, and a decrease in cancelations compared to 2022.
Surface Equipment - Surface equipment is principally used for flow control on offshore production platforms, offshore CO2 injection installations, TLPs and Spars. Included in the Company’s surface equipment product line are platform wellheads, platform production trees and riser tensioners.
Surface Equipment - Surface equipment is principally used for flow control on offshore production platforms, offshore CO2 injection installations, TLPs and Spars. Surface equipment includes platform wellheads, platform production trees and riser tensioners. Dril-Quip’s development of platform wellheads and platform production trees was facilitated by adaptation of its existing subsea wellhead and tree technology to surface wellheads and trees.
The Company has made significant investments for a complete upgrade of it's manufacturing of subsea wellhead product line with the latest equipment and technology. Customers The Company’s principal customers are major integrated, large independent and foreign national oil and gas companies. Drilling contractors and engineering and construction companies also represent a portion of the Company’s customer base.
Customers The Company’s principal customers are major integrated, large independent and foreign national oil and gas companies. Drilling contractors and engineering and construction companies also represent a portion of the Company’s customer base. The Company’s customers are generally oil and gas companies that are well-known participants in exploration and production.
For large drilling and production system orders, project management teams coordinate customer needs with the Company’s engineering, manufacturing and service organizations, as well as with subcontractors and vendors. 11 Table of Contents A portion of the Company’s business consists of designing, manufacturing and selling equipment, as well as offering technical advisory assistance during installation of the equipment, for major projects pursuant to competitive bids.
A portion of the Company’s business consists of designing, manufacturing and selling equipment, as well as offering technical advisory assistance during installation of the equipment, for major projects pursuant to competitive bids. The number of such projects in any year may fluctuate.
In the U.S., ethnicity of our workforce was 44.2% White, 34.1% Hispanic, 9.3% Asian, 8.4% Black and 4.0% Other. As a manufacturing organization, our workforce is made up of a high percentage of roles that are predominantly held by male workers such as welders, machinists, and workshop and offshore technicians.
As a manufacturing organization, our workforce is made up of a high percentage of roles that are predominantly held by male workers such as welders, machinists, and workshop and offshore technicians. The Company’s operations depend in part on its ability to attract quality employees.
In addition, in certain foreign markets the Company utilizes independent sales agents or representatives to enhance its marketing and sales efforts. Some of the locations in which Dril-Quip has sales agents or representatives are Trinidad, Indonesia, Malaysia, Kuwait, Vietnam, Saudi Arabia and the United Arab Emirates.
Some of the locations in which Dril-Quip has sales agents or representatives are Trinidad, Indonesia, Malaysia, Kuwait, Vietnam, Saudi Arabia and the United Arab Emirates. Although they do not have authority to contractually bind the Company, these representatives market the Company’s products in their respective territories in return for sales commissions.
These services are not a prerequisite to the sale of the Company’s products as its products are fully functional on a stand-alone basis.
These services are not a prerequisite to the sale of the Company’s products as its products are fully functional on a stand-alone basis. The Company’s technicians provide assistance in the onsite installation of the Company’s products and are available on a 24-hour call out from the Company’s worldwide facilities. See “Item 2. Properties” for a list of the Company’s facilities.
Annually, our board provides oversight to the leadership succession process using our human capital analytics on workforce demographics, diversity and inclusion and hiring and attrition rates. These metrics are tracked, and progress is measured at cascading levels of the organization. 13 Table of Contents Core Values and Culture Fostering and maintaining a strong, healthy culture is a key strategic focus.
These metrics are tracked, and progress is measured at cascading levels of the organization. 14 Table of Contents Core Values and Culture Fostering and maintaining a strong, transparent and collaborative culture is a key strategic focus to advance organizational and individual development.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties and criminal prosecution. Some environmental laws and regulations provide for joint and several strict liability for remediation of spills and releases of hazardous substances.
Biggest changeEnvironmental laws may provide for “strict liability” for damages to natural resources or threats to public health and safety, rendering a party liable for environmental damage without regard to negligence or fault on the part of such party. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties and criminal prosecution.
Continued declines in, or sustained low levels of, oil and natural gas prices could also reduce new customer orders, possibly causing a decline in our future backlog. If we experience significant project terminations, suspensions or scope adjustments to contracts reflected in our backlog, our financial condition, results of operations and cash flows may be adversely impacted.
Declines in, or sustained low levels of, oil and natural gas prices could also reduce new customer orders, possibly causing a decline in our future backlog. If we experience significant project terminations, suspensions or scope adjustments to contracts reflected in our backlog, our financial condition, results of operations and cash flows may be adversely impacted.
These transactions involve numerous risks, and we cannot ensure that: • any acquisition would be successfully integrated into our operations and internal controls; • the due diligence conducted prior to an acquisition would uncover situations that could result in financial or legal exposure; • the use of cash for acquisitions would not adversely affect our cash available for capital expenditures and other uses; • any disposition, investment, acquisition or integration would not divert management resources from the operation of our business; or • any disposition, investment, acquisition or integration would not have a material adverse effect on our financial condition, results of operations or cash flows. 23 Table of Contents Our international operations expose us to instability and changes in economic and political conditions and other risks inherent to international business, which could have a material adverse effect on our results of operations, financial position or cash flows.
These transactions involve numerous risks, and we cannot ensure that: • any acquisition would be successfully integrated into our operations and internal controls; • the due diligence conducted prior to an acquisition would uncover situations that could result in financial or legal exposure; • the use of cash for acquisitions would not adversely affect our cash available for capital expenditures and other uses; • any disposition, investment, acquisition or integration would not divert management resources from the operation of our business; or • any disposition, investment, acquisition or integration would not have a material adverse effect on our financial condition, results of operations or cash flows. 24 Table of Contents Our international operations expose us to instability and changes in economic and political conditions and other risks inherent to international business, which could have a material adverse effect on our results of operations, financial position or cash flows.
The level of capital expenditures is generally dependent on the prevailing view of future oil and gas prices, which are influenced by numerous factors affecting the supply and demand for oil and gas, including: • worldwide macroeconomic activity; • the level of exploration and production activity; • interest rates and the cost of capital; • environmental regulation; • government initiatives to promote the use of renewable energy sources and public sentiment and consumer demand regarding renewable energy and electric vehicles; 21 Table of Contents • federal, state and foreign policies regarding exploration and development of oil and gas; • the ability and/or desire of OPEC+ and other major producers to set and maintain production levels and pricing; • governmental regulations regarding future oil and gas exploration and production; • the cost of exploring and producing oil and gas; • technological advances affecting energy consumption; • the cost of developing alternative energy sources; • the availability, expiration date and price of onshore and offshore leases; • the discovery rate of new oil and gas reserves in onshore and offshore areas; • the success of drilling for oil and gas in unconventional resource plays such as shale formations; • alternative opportunities to invest in onshore exploration and production opportunities; • technological advances and new techniques that render drilling more efficient or reduce demand for, and production of, fossil fuels; and • weather conditions and natural disasters.
The level of capital expenditures is generally dependent on the prevailing view of future oil and gas prices, which are influenced by numerous factors affecting the supply and demand for oil and gas, including: • worldwide macroeconomic activity; • the level of exploration and production activity; • interest rates and the cost of capital; • environmental regulation; • government initiatives to promote the use of renewable energy sources and public sentiment and consumer demand regarding renewable energy and electric vehicles; • federal, state and foreign policies regarding exploration and development of oil and gas; • the ability and/or desire of OPEC+ and other major producers to set and maintain production levels and pricing; • governmental regulations regarding future oil and gas exploration and production; • the cost of exploring and producing oil and gas; • technological advances affecting energy consumption; • the cost of developing alternative energy sources; • the availability, expiration date and price of onshore and offshore leases; • the discovery rate of new oil and gas reserves in onshore and offshore areas; • the success of drilling for oil and gas in unconventional resource plays such as shale formations; • alternative opportunities to invest in onshore exploration and production opportunities; • technological advances and new techniques that render drilling more efficient or reduce demand for, and production of, fossil fuels; and • weather conditions and natural disasters.
Although we have minimal operational exposure in Russia with no revenue for the year ended December 31, 2022, 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 they could adversely affect oil and gas companies, including many of which are our customers, as well as the global supply chain.
Although we have minimal operational exposure in Russia with no revenue for the year ended December 31, 2023, 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 they could adversely affect oil and gas companies, including many of which are our customers, as well as the global supply chain.
In addition, the effects of global health epidemics and concerns, such as the COVID-19 pandemic, has materially impacted demand for crude oil and natural gas which has contributed to further price volatility.
In addition, the effects of global health epidemics and concerns, such as COVID-19, has materially impacted demand for crude oil and natural gas which has contributed to further price volatility.
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.
We assess recoverability based on undiscounted future net cash flows. Estimating future net cash flows requires us to make judgments 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.
Increases in commodity prices for items such as nickel, molybdenum and heavy metal scrap that are used to make the steel alloys required for our products can result in an increase in our raw material costs. Like others in our industry, in 2022, we faced, and continue to face, unprecedented inflationary pressures.
Increases in commodity prices for items such as nickel, molybdenum and heavy metal scrap that are used to make the steel alloys required for our products can result in an increase in our raw material costs. Like others in our industry, in 2022 and 2023, we faced, and continue to face, inflationary pressures.
In addition, the Delaware General Corporation Law imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. Item 1B. Unresol ved Staff Comments None. 31 Table of Contents
In addition, the Delaware General Corporation Law imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. Item 1B. Unresol ved Staff Comments None. 32 Table of Contents
A material or extended decline in expenditures by the oil and gas industry could significantly reduce our revenue and income. Our business depends upon 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.
Risks Related to Business, Operations and Industry A material or extended decline in expenditures by the oil and gas industry could significantly reduce our revenue and income. Our business depends upon 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.
Similarly, consolidation among our competitors could enhance their product and service offerings and financial resources, further intensifying competition. 22 Table of Contents Our customers’ industries are undergoing continuing consolidation that may impact our results of operations.
Similarly, consolidation among our competitors could enhance their product and service offerings and financial resources, further intensifying competition. 23 Table of Contents Our customers’ industries are undergoing continuing consolidation that may impact our results of operations.
In 2022, our top 15 customers represented approximately 60% of total revenues, and Chevron accounted for approximately 10% of total revenues. In 2021 and 2020, our top 15 customers represented approximately 59% and 60% of total revenues, respectively, while Chevron accounted for approximately 12% and 11%, respectively of 2021 and 2020 total revenues.
In 2023, our top 15 customers represented approximately 59% of total revenues, and Chevron accounted for approximately 11% of total revenues. In 2022 and 2021, our top 15 customers represented approximately 60% and 59% of total revenues, respectively, while Chevron accounted for approximately 10% and 12%, respectively of 2022 and 2021 total revenues.
If we do not meet these standards, our business or our ability to access capital could be harmed. 20 Table of Contents Additionally, certain investors and lenders have and may continue to exclude companies engaged in drilling and production activity, such as us, from their investing portfolios altogether due to ESG factors.
If we do not meet these standards, our business or our ability to access capital could be harmed. Additionally, certain investors and lenders have and may continue to exclude companies engaged in drilling and production activity, such as us, from their investing portfolios altogether due to ESG factors.
In addition, we may be required to incur significant costs to prevent or respond to damage caused by these disruptions or security breaches in the future. Risks Related to Ownership of our Common Stock The market price of our common stock may be volatile.
In addition, we may be required to incur significant costs to prevent or respond to damage caused by these disruptions or security breaches in the future. 31 Table of Contents Risks Related to Ownership of our Common Stock The market price of our common stock may be volatile.
Any interruption or increased costs in the supply of raw materials needed to manufacture our products could adversely affect our business, results of operations and reputation with our customers. 25 Table of Contents Financial Risks Inflation may adversely affect our financial position and results of operations.
Any interruption or increased costs in the supply of raw materials needed to manufacture our products could adversely affect our business, results of operations and reputation with our customers. Financial Risks Inflation may adversely affect our financial position and results of operations.
The combination of lower cash flow due to commodity prices, a reduction in borrowing bases under reserve-based credit facilities and the lack of available debt or equity financing may result in a significant reduction in our customers’ liquidity and ability to pay or otherwise perform on their obligations to us.
Additionally, certain of our customers’ equity values could decline. The combination of lower cash flow due to commodity prices, a reduction in borrowing bases under reserve-based credit facilities and the lack of available debt or equity financing may result in a significant reduction in our customers’ liquidity and ability to pay or otherwise perform on their obligations to us.
Risks Related to Business, Operations and Industry Our business may also be affected by new sanctions and export controls targeting Russia and other responses to Russia’s invasion of Ukraine. As a result of Russia’s invasion of Ukraine, certain members of the European Union, the United Kingdom and the United States, among others, have developed coordinated sanctions and export-control measure packages.
Our business may also be affected by sanctions and export controls targeting Russia and other responses to Russia’s invasion of Ukraine. As a result of Russia’s invasion of Ukraine, certain members of the European Union, the United Kingdom and the United States, among others, have developed coordinated sanctions and export-control measure packages.
In addition, inflation has also resulted in higher interest rates in the U.S., which could cause an increase in the cost of debt borrowing in the future, as well as supply chain shortages, an increase in the costs of labor, currency fluctuations and other similar effects.
In addition, inflation has also resulted in higher interest rates in the U.S., which can lead to an increase in the cost of debt borrowing in the future, as well as supply chain shortages, an increase in the costs of labor, currency fluctuations and other similar effects.
Restrictions or disruptions of transportation related to the pandemic, including reduced availability of air transport, port closures and increased border controls or closures, have resulted in higher costs and delays, both on obtaining raw materials and shipping finished goods to customers.
Restrictions or disruptions of transportation related to events beyond our control, including reduced availability of air transport, port closures and increased border controls or closures, have resulted in higher costs and delays, both on obtaining raw materials and shipping finished goods to customers.
Our manufacturing operations depend upon obtaining adequate supplies of raw materials from third parties. The ability of these third parties to deliver raw materials may be affected by events beyond our control, such as the COVID-19 pandemic.
Our manufacturing operations depend upon obtaining adequate supplies of raw materials from third parties. The ability of these third parties to deliver raw materials may be affected by events beyond our control.
We have substantial international operations, with approximately 66.2% of our revenues derived from foreign sales in 2022, 63.8% in 2021 and 66.7% in 2020.
We have substantial international operations, with approximately 74.9% of our revenues derived from foreign sales in 2023, 66.2% in 2022 and 63.8% in 2021.
Third-party challenges to industry operations in the U.S. Gulf of Mexico may also serve to further delay or restrict activities.
Gulf of Mexico, which could adversely affect the Company’s financial operations. Third-party challenges to industry operations in the U.S. Gulf of Mexico may also serve to further delay or restrict activities.
These risks are greater during periods of low or declining commodity prices. We may not be able to satisfy technical requirements, testing requirements or other specifications under contracts and contract tenders. Our products are used primarily in deepwater, harsh environment and severe service applications.
We may not be able to satisfy technical requirements, testing requirements or other specifications under contracts and contract tenders. Our products are used primarily in deepwater, harsh environment and severe service applications.
Certain of our customers finance their activities through cash flow from operations, the incurrence of debt or the issuance of equity. In an economic downturn, commodity prices typically decline, and the credit markets and availability of credit can be expected to be constrained. Additionally, certain of our customers’ equity values could decline.
Our business is subject to risks of loss resulting from nonpayment or nonperformance by our customers. Certain of our customers finance their activities through cash flow from operations, the incurrence of debt or the issuance of equity. In an economic downturn, commodity prices typically decline, and the credit markets and availability of credit can be expected to be constrained.
Further, we cannot assure you that the countries in which we currently operate will not adopt policies limiting repatriation of earnings in the future.
We cannot assure you that we will be able to protect the Company against such fluctuations in the future. Further, we cannot assure you that the countries in which we currently operate will not adopt policies limiting repatriation of earnings in the future.
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. 26 Table of Contents 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.
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.
In addition, the continuation of the invasion of Ukraine by Russia could lead to other disruptions, instability and volatility in global markets and industries, which could have a material adverse effect on our business, results of operations, financial condition and cash flow.
In addition, the continuation of the invasion of Ukraine by Russia or the war between Israel and Hamas (including the potential escalation or geographic expansion of which could heighten other risks identified in this report) could lead to other disruptions, instability and volatility in global markets and industries, which could have a material adverse effect on our business, results of operations, financial condition and cash flow.
Item 1A. Risk Factors In this Item 1A., the terms “we,” “our,” “us” and “Dril-Quip” used herein refer to Dril-Quip, Inc. and its subsidiaries unless otherwise indicated or as the context so requires.
Item 1A. Risk Factors In this Item 1A., the terms “we,” “our,” “us” and “Dril-Quip” used herein refer to Dril-Quip, Inc. and its subsidiaries unless otherwise indicated or as the context so requires. Risks Related to Environmental, Social and Governance (“ESG”) Increasing attention to ESG matters may impact our business.
Risks Related to Environmental, Social and Governance “ESG” Increasing attention to ESG matters may impact our business We may not be able to adequately identify or manage ESG-related risks and opportunities, which may include failing to achieve ESG-related strategies and goals.
We may not be able to adequately identify or manage ESG-related risks and opportunities, which may include failing to achieve ESG-related strategies and goals.
Our business operations depend on our information technology (IT) systems. Despite our security and back-up measures, our IT systems are vulnerable to cyber incidents or attacks, natural disasters and other disruptions or failures. Due to the nature of cyber-attacks, breaches to our IT systems could go unnoticed for a prolonged period of time.
Our business could be adversely affected by a failure or breach of our information technology systems. Our business operations depend on our information technology (IT) systems. Despite our security and back-up measures, our IT systems are vulnerable to cyber incidents or attacks, natural disasters and other disruptions or failures.
If those markets are unavailable, or if we are unable to access alternative means of financing on acceptable terms, or at all, we may be unable to implement our business strategy, which would have a material adverse effect on our financial condition and results of operations and impair our ability to service our indebtedness.
If those markets are unavailable, or if we are unable to access alternative means of financing on acceptable terms, or at all, we may be unable to implement our business strategy, which would have a material adverse effect on our financial condition and results of operations and impair our ability to service our indebtedness. 21 Table of Contents Further, it is likely that we will incur additional costs and require additional resources to monitor, report and comply with wide ranging ESG requirements.
In addition, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances, as well as damage to natural resources.
Some environmental laws and regulations provide for joint and several strict liability for remediation of spills and releases of hazardous substances. In addition, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances, as well as damage to natural resources.
Although crude oil prices recovered in 2022, continued volatility in market conditions may further deteriorate the financial performance or future prospects of our operating segments from current levels, which may result in an impairment of long-lived assets or inventory and negatively impact our financial results in the period of impairment.
Further, continued volatility in market conditions may further deteriorate the financial performance or future prospects of our operating segments from current levels, which may result in an impairment of long-lived assets or inventory and negatively impact our financial results in the period of impairment. 27 Table of Contents Our excess cash is invested in various financial instruments which may subject us to potential losses.
Further, it is likely that we will incur additional costs and require additional resources to monitor, report and comply with wide ranging ESG requirements. Similarly, these policies may negatively impact the ability of our customers to access debt and capital markets. The occurrence of any of the foregoing could have a material adverse effect on our business and financial condition.
Similarly, these policies may negatively impact the ability of our customers to access debt and capital markets. The occurrence of any of the foregoing could have a material adverse effect on our business and financial condition.
Various new regulations intended to improve particularly offshore safety systems and environmental protection have been issued since 2010 that have increased the complexity of the drilling permit process and may limit the opportunity for some operators to continue deepwater drilling in the U.S. Gulf of Mexico, which could adversely affect the Company’s financial operations.
We cannot determine the extent to which our future operations and earnings may be affected by new legislation, new regulations or changes in existing regulations and enforcement thereof. 29 Table of Contents Various new regulations intended to improve particularly offshore safety systems and environmental protection have been issued since 2010 that have increased the complexity of the drilling permit process and may limit the opportunity for some operators to continue deepwater drilling in the U.S.
In addition, the movement of goods, services and technology subjects us to complex legal regimes governing international trade. Our import activities are governed by unique tariff and customs laws and regulations in each of the countries where we operate.
Our import activities are governed by unique tariff and customs laws and regulations in each of the countries where we operate.
However, our business and prospects could be adversely affected to the extent laws are enacted or modified or other governmental action is taken that prohibits or restricts our customers’ exploration and production activities or imposes environmental protection requirements that result in increased costs to us or our customers. 29 Table of Contents Environmental laws may provide for “strict liability” for damages to natural resources or threats to public health and safety, rendering a party liable for environmental damage without regard to negligence or fault on the part of such party.
However, our business and prospects could be adversely affected to the extent laws are enacted or modified or other governmental action is taken that prohibits or restricts our customers’ exploration and production activities or imposes environmental protection requirements that result in increased costs to us or our customers.
As a result, the tax laws in the United States and other countries in which we and our subsidiaries do business could change on a prospective or retroactive basis, and such changes could adversely affect us. 28 Table of Contents Our operations and our customers’ operations are subject to a variety of governmental laws and regulations that may increase our costs, limit the demand for our products and services or restrict our operations.
As a result, the tax laws in the United States and other countries in which we and our subsidiaries do business could change on a prospective or retroactive basis, and such changes could adversely affect us.
An increase in severe weather patterns could result in damages to or loss of our equipment, impact our ability to conduct our operations and/or result in a disruption of our customers’ operations which could be material to our results of operations, financial position and cash flows.
An increase in severe weather patterns could result in damages to or loss of our equipment, impact our ability to conduct our operations and/or result in a disruption of our customers’ operations which could be material to our results of operations, financial position and cash flows. 30 Table of Contents Demand for our products and services could be reduced by existing and future legislation, regulations and public sentiment related to the transition away from fossil fuel energy sources.
A prolonged constriction on future lending by banks or investors could result in higher interest rates on future debt obligations or could restrict our ability to obtain sufficient financing to meet our long-term operational and capital needs.
A prolonged constriction on future lending by banks or investors could result in higher interest rates on future debt obligations or could restrict our ability to obtain sufficient financing to meet our long-term operational and capital needs. 26 Table of Contents We are exposed to the credit risks of our customers, and a general increase in the nonpayment and nonperformance by customers could have an adverse impact on our cash flows, results of operations and financial condition.
To the extent that these adjustments result in a reduction or elimination of previously reported profits, we would have to recognize a charge against current earnings, which could be significant depending on the size of the project or the adjustment. 27 Table of Contents Risks Related to Legal, Compliance and Regulations 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.
To the extent that these adjustments result in a reduction or elimination of previously reported profits, we would have to recognize a charge against current earnings, which could be significant depending on the size of the project or the adjustment.
Risk Factors.” We are subject to taxation in many jurisdictions and there are inherent uncertainties in the final determination of our tax liabilities. As a result of our international operations, we are subject to taxation in many jurisdictions.
As a result of our international operations, we are subject to taxation in many jurisdictions.
Although we do not consider any single patent to be material to our business as a whole, the inability to protect our future innovations through patents could have a material adverse effect. 30 Table of Contents Our business could be adversely affected by a failure or breach of our information technology systems.
Our ability to compete effectively will also depend on our ability to continue to obtain patents on our proprietary technology and products. Although we do not consider any single patent to be material to our business as a whole, the inability to protect our future innovations through patents could have a material adverse effect.
Any transition of the global energy sector from fossil-based systems of energy production and consumption to more renewable energy sources could have a material adverse effect on our results of operations, financial position and cash flows.
Any transition of the global energy sector from fossil-based systems of energy production and consumption to more renewable energy sources could have a material adverse effect on our results of operations, financial position and cash flows. 25 Table of Contents Risks Related to Third-Party Relationships We rely on technology provided by third parties and our business may be materially adversely affected if we are unable to renew our licensing arrangements with them.
Our excess cash is invested in various financial instruments which may subject us to potential losses. We invest excess cash in various financial instruments including 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.
We invest excess cash in various financial instruments including 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. However, changes in the financial markets, including interest rates, as well as the performance of the issuers, can affect the market value of our short-term investments.
We are also subject to the risks that our employees, agents and other representatives may act or fail to act in violation of such laws or regulations or our compliance policies and procedures. The United Kingdom (U.K.) formally left the European Union (E.U.) on January 31, 2020 (“Brexit”).
We are also subject to the risks that our employees, agents and other representatives may act or fail to act in violation of such laws or regulations or our compliance policies and procedures. We are subject to taxation in many jurisdictions and there are inherent uncertainties in the final determination of our tax liabilities.
We have adopted policies and procedures, including our Code of Business Conduct and Ethical Practices, which are designed to promote compliance with such laws. However, maintaining and administering an effective compliance program under applicable anti-bribery laws in developing countries presents greater challenges than is the case in more developed countries.
We have adopted policies and procedures, including our Code of Business Conduct and Ethical Practices, which are designed to promote compliance with such laws.
We conduct a portion of our business in currencies other than the U. S. dollar, and our operations are subject to fluctuations in foreign currency exchange rates. We cannot assure you that we will be able to protect the Company against such fluctuations in the future.
We may suffer losses as a result of foreign currency fluctuations and limitations on the ability to repatriate income or capital to the United States. We conduct a portion of our business in currencies other than the U.S. dollar, and our operations are subject to fluctuations in foreign currency exchange rates.
Impairment in the carrying value of long-lived assets, inventory and intangible assets could negatively affect our operating results.
Impairment in the carrying value of long-lived assets, inventory and intangible assets could negatively affect our operating results. 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.
We are exposed to the credit risks of our customers, and a general increase in the nonpayment and nonperformance by customers could have an adverse impact on our cash flows, results of operations and financial condition. Our business is subject to risks of loss resulting from nonpayment or nonperformance by our customers.
We are unable to predict the impact that future supply and demand balances, weather events or conflicts may have on the global economy, our industry or our business, financial condition, results of operations or cash flows.
Removed
For example, New York State’s Pension Fund, which had already divested from nearly two dozen thermal coal companies in July 2020, announced in December 2020 that it would seek to divest from fossil fuel stocks by 2025 and sell its shares in other companies that contribute to climate change by 2040.
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These risks are greater during periods of low or declining commodity prices. 22 Table of Contents Our business, financial condition, and results of operations could be adversely affected by disruptions in the global economy caused by the wars in Ukraine and Gaza.
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Likewise, in January 2021, two of New York City’s largest pension funds, the New York City Employees’ Retirement System and the New York City Teachers’ Retirement System, approved the divestment of approximately $4 billion from fossil fuel companies, and the New York City Board of Education Retirement System is expected to follow suit.
Added
U.S. and global markets are experiencing volatility and disruption related to the escalation of geopolitical tensions and the military conflicts currently ongoing in Ukraine and the Gaza Strip. These conflicts could lead to market or operational disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions.
Removed
Risks Related to COVID-19 The COVID-19 pandemic and developments in the global oil markets have had, and may continue to have, material adverse consequences for general economic, financial and business conditions, and could materially and adversely affect our business, financial condition, results of operations and liquidity and those of our customers, suppliers and other counterparties. 24 Table of Contents The COVID-19 pandemic and the responses of governmental authorities, companies and individuals across the world to stem the spread of the virus have had a material negative impact on global economic activity and our business.
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Russia, Europe’s largest provider of natural gas, has significantly reduced the export of natural gas compared to the beginning of the conflict in Ukraine resulting in increased natural gas prices and the potential for natural gas shortages.
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Our manufacturing facilities rely on raw materials and components provided by our suppliers. The impacts of COVID-19 have caused and may continue to cause delays or disruptions in our supply chain.
Added
During 2023, Brent crude oil prices fluctuated, with a high of $97.10 per barrel, a low of $71.03 per barrel. According to the January 2024 release of the Short-Term Energy Outlook published by the Energy Information Administration (EIA) of the U.S.
Removed
As a result, we have experienced and may continue experiencing manufacturing slow-downs, requiring us to seek to obtain alternate sources of supply, that may not be available or may be more expensive.
Added
Department of Energy, Brent crude oil prices averaged approximately $82.49 per barrel in 2023, and the price is forecasted to average $82.49 per barrel in 2024 and $79.48 per barrel in 2025. Crude oil prices declined in 2023, largely due to geopolitical turmoil.
Removed
We have experienced or may experience disruptions to our supply chain and business operations, or to our suppliers’ or customers’ supply chains and business operations, including disruptions from the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the shipment of our or our suppliers’ or customers’ products.
Added
Further, crude oil prices have fluctuated considerably in recent years, in large part due to the ongoing conflict between Russia and Ukraine. The recent escalation between Israel and Hamas may also have an impact on energy and commodity prices.
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Such disruptions have had and could continue to have adverse ripple effects on our business.
Added
Risks Related to Legal, Compliance and Regulations 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.
Removed
Further, governments have imposed and may continue to impose travel bans, quarantines and other emergency public health measures that decrease the number of businesses open for operation and substantially reduce the number of people traveling to work or leaving their home to purchase goods and services.
Added
However, maintaining and administering an effective compliance program under applicable anti-bribery laws in developing countries presents greater challenges than is the case in more developed countries. 28 Table of Contents In addition, the movement of goods, services and technology subjects us to complex legal regimes governing international trade.
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As a result, there has been substantial volatility in the demand for and the market prices of crude oil. Additionally, actions taken by OPEC+ related to crude oil supply have exacerbated the negative impact on the market prices for crude oil.
Added
Our operations and our customers’ operations are subject to a variety of governmental laws and regulations that may increase our costs, limit the demand for our products and services or restrict our operations.
Removed
Despite the current price recovery, uncertainty remains around the current level of oil prices as a result of the on-going effects of COVID-19 and the global vaccine efforts, as well as the uncertainty surrounding the longevity of the OPEC+ production agreements.
Added
Due to the nature of cyber-attacks, breaches to our IT systems could go unnoticed for a prolonged period of time.
Removed
Any prolonged period of economic slowdown or recession resulting from the negative effects of COVID-19 on economic and business prospects across the world may negatively impact crude oil prices and the demand for our products, and could have significant adverse consequences to our financial condition and the financial condition of our customers, suppliers and other counterparties.
Removed
The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition, results of operation and liquidity will depend largely on the pace and level of the recovery from the pandemic and whether overall economic activity returns to pre-pandemic levels, all of which are uncertain and cannot be predicted with certainty at this time.
Removed
Risks Related to Third-Party Relationships We rely on technology provided by third parties and our business may be materially adversely affected if we are unable to renew our licensing arrangements with them.
Removed
During 2022, Brent crude oil prices fluctuated significantly, with a high of $133.18 per barrel, a low of $76.02 per barrel, and an average of $100.94 per barrel.
Removed
However, changes in the financial markets, including interest rates, as well as the performance of the issuers, can affect the market value of our short-term investments. We may suffer losses as a result of foreign currency fluctuations and limitations on the ability to repatriate income or capital to the United States.
Removed
Brexit could lead to increasingly divergent national laws and regulations as the U.K. government determines which retained E.U. laws to modify or replace. This in turn could impact compliance and operational costs for the Company, in particular to the extent that it is reliant upon access into or outputs from the E.U.
Removed
This, or other effects of Brexit which we cannot anticipate, could have a negative impact on the Company’s financial position and results of operations. In addition, the consequences of Brexit and ongoing negotiations could introduce significant uncertainties into global financial markets and adversely impact the regions in which we and our clients operate.
Removed
See “Our international operations expose us to instability and changes in economic and political conditions and other risks inherent to international business, which could have a material adverse effect on our results of operations, financial position or cash flows” under “Item 1A.
Removed
We cannot determine the extent to which our future operations and earnings may be affected by new legislation, new regulations or changes in existing regulations and enforcement thereof.
Removed
Demand for our products and services could be reduced by existing and future legislation, regulations and public sentiment related to the transition away from fossil fuel energy sources.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeBusiness - General” and “Manufacturing.” Sales, Service and Reconditioning Facilities Location* Building Size (Approximate Square Feet) Land (Approximate Acreage) Activity Villahermosa, Mexico 18,836 2.9 Sales/Service/Warehouse Anaco, Venezuela* 3,000 0.1 Sales/Service/Warehouse Quito, Ecuador 2,600 0.1 Sales Shushufindi, Ecuador 135,800 3.1 Sales/Service/Warehouse Stavanger, Norway* 42,000 6.1 Sales/Service/Reconditioning/Warehouse/Fabrication Esbjerg, Denmark 19,100 2.6 Sales/Service/Reconditioning/Warehouse Takoradi, Ghana 2,500 0.8 Service/Reconditioning/Warehouse Cairo, Egypt 2,200 — Sales Alexandria, Egypt 5,200 0.6 Service/Reconditioning/Warehouse Doha, Qatar 8,900 — Service/Reconditioning/Warehouse Shekou, China 11,100 — Sales/Service/Warehouse Perth and Welshpool, Australia 28,000 2.9 Sales/Service/Reconditioning/Warehouse Mumbai, India 130 — Sales Jakarta, Indonesia 150 — Sales Kuala Lumpur, Malaysia 400 — Sales Beijing, China 120 — Sales *These facilities are owned; all other facilities are leased.
Biggest changeBusiness - General” and “Manufacturing.” 34 Table of Contents Sales, Service and Reconditioning Facilities Location* Building Size (Approximate Square Feet) Land (Approximate Acreage) Activity Villahermosa, Mexico 18,836 2.9 Sales/Service/Warehouse Anaco, Venezuela* 3,000 0.1 Sales/Service/Warehouse Quito, Ecuador 2,600 0.1 Sales Shushufindi, Ecuador 135,800 3.1 Sales/Service/Warehouse Stavanger, Norway* 42,000 6.1 Sales/Service/Reconditioning/Warehouse/Fabrication Esbjerg, Denmark 51,000 2.6 Sales/Service/Reconditioning/Warehouse Takoradi, Ghana 2,500 0.8 Service/Reconditioning/Warehouse Abidjan, Ivory Coast 8,250 — Rental/Reconditioning/Warehouse Cairo, Egypt 2,200 — Sales Alexandria, Egypt 5,200 0.6 Service/Reconditioning/Warehouse Doha, Qatar 8,900 — Service/Reconditioning/Warehouse Shekou, China 11,100 — Sales/Service/Warehouse Perth and Welshpool, Australia 28,000 2.9 Sales/Service/Reconditioning/Warehouse Mumbai, India 130 — Sales Jakarta, Indonesia 150 — Sales Kuala Lumpur, Malaysia 400 — Sales Beijing, China 120 — Sales Edmonton, Canada 25,734 — Sales/Service/Reconditioning/Warehouse/Assembly Grande Prairie, Canada 38,700 9.7 Sales/Service/Warehouse Red Deer, Canada 8,000 1.2 Sales/Service/Warehouse Red Deer, Canada 18,000 2.3 Sales/Service/Warehouse Kindersley, Canada 10,080 2.6 Sales/Service/Warehouse Swift Current, Canada 7,000 2.0 Sales/Service/Warehouse Estevan, Canada 8,500 5.0 Sales/Service/Warehouse Brooks, Canada 8,800 10.2 Sales/Service/Warehouse Bonnyville, Canada 12,000 1.0 Sales/Service/Warehouse Lloydminster, Canada 4,800 0.9 Sales/Service/Warehouse Calgary, Canada 3,565 — Sales *These facilities are owned; all other facilities are leased.
The Company also performs sales, service and reconditioning activities at its facilities in Houston, Aberdeen, Singapore and Macae. For additional information on our manufacturing facilities, see “Item 1. Business – General.”
The Company also performs sales, service and reconditioning activities at its facilities in Houston, Aberdeen, Singapore, Macae, and Edmonton. For additional information on our manufacturing facilities, see “Item 1. Business – General.”
Item 2. Properties Manufacturing Facilities Location Building Size (Approximate Square Feet) Land (Approximate Acreage) Owned or Leased Houston, Texas 1,351,000 185.0 Owned Aberdeen, Scotland 222,800 24.1 Owned Singapore 293,200 14.4 Leased Macae, Brazil 169,600 10.6 Owned For additional information on our manufacturing facilities, see “Item 1.
Item 2. Properties Manufacturing Facilities Location Building Size (Approximate Square Feet) Land (Approximate Acreage) Owned or Leased Houston, Texas 1,158,368 128.0 Owned Aberdeen, Scotland 147,000 24.1 Owned Singapore 293,200 14.4 Leased Macae, Brazil 169,600 10.6 Owned Edmonton, Canada 72,088 5.0 Leased For additional information on our manufacturing facilities, see “Item 1.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Le gal Proceedings For information with respect to this item, see “Contingencies,” Note 14 of Notes to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference. Item 4. Mine Safety Disclosure Not applicable. 32 Table of Contents PART II
Biggest changeItem 3. Le gal Proceedings For information with respect to this item, see “Contingencies,” Note 17 of Notes to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference. Item 4. Mine Safety Disclosure Not applicable. 35 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRepurchase of Equity Securities The following table summarizes the repurchase and cancellation of our common stock during the year ended December 31, 2022 Twelve months ended December 31, 2022 Total Number of Shares Purchased Average Price paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Dollar Value (in millions) of Shares that May Yet be Purchased Under the Plans or Programs January 1-31, 2022 273,629 $ 21.20 273,629 $ 18.5 February 1-28, 2022 - - - 118.5 March 1-31, 2022 - - - 118.5 April 1-30, 2022 - - - 118.5 May 1-31, 2022 - - - 118.5 June 1-30, 2022 157,101 24.49 157,101 114.6 July 1-31, 2022 457,467 24.35 457,467 103.5 August 1-31, 2022 - - - 103.5 September 1-30, 2022 - - - 103.5 October 1-31, 2022 - - - 103.5 November 1-30, 2022 - - - 103.5 December 1-31, 2022 - - - 103.5 888,197 $ 23.41 888,197 $ 103.5 (1) On February 26, 2019, the Company announced that its Board of Directors authorized a stock repurchase plan under which the Company is authorized to repurchase up to $100.0 million of its common stock.
Biggest changeTwelve months ended December 31, 2023 Total Number of Shares Purchased Average Price paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Dollar Value (in millions) of Shares that May Yet be Purchased Under the Plans or Programs - - - 103.5 - $ - - $ 103.5 (1) On February 26, 2019, the Company announced that its Board of Directors authorized a stock repurchase plan under which the Company is authorized to repurchase up to $100.0 million of its common stock.
Item 5. Market for Registrant’s Common Stock, Related S tockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock is publicly traded on the New York Stock Exchange under the symbol “DRQ.” There were approximately 228 stockholders of record of the Company’s common stock as of December 31, 2022.
Item 5. Market for Registrant’s Common Stock, Related S tockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock is publicly traded on the New York Stock Exchange under the symbol “DRQ.” There were approximately 228 stockholders of record of the Company’s common stock as of December 31, 2023.
Information concerning securities authorized for issuance under equity compensation plans is included in “Stock-Based Compensation and Stock Awards,” Note 17 of Notes to Consolidated Financial Statements in Item 8 of Part II, which in incorporated herein by reference.
Information concerning securities authorized for issuance under equity compensation plans is included in “Stock-Based Compensation and Stock Awards,” Note 19 of Notes to Consolidated Financial Statements in Item 8 of Part II, which in incorporated herein by reference.
COMPARISON OF 5 YEARS CUMULATIVE TOTAL RETURN Among Dril-Quip, Inc., the S&P 500 Index and the Philadelphia Oil Service Index (OSX) 34 Table of Contents COMPARISON OF 5 YEARS CUMULATIVE TOTAL RETURN Among Dril-Quip, Inc., the S&P 500 Index and the VanEck Oil Services ETF Index (OIH) The performance graph above is furnished and not filed for purposes of Section 18 of the Exchange Act and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended (the “Securities Act”), unless specifically identified therein as being incorporated therein by reference.
COMPARISON OF 5 YEARS CUMULATIVE TOTAL RETURN Among Dril-Quip, Inc., the S&P 500 Index and the VanEck Oil Services ETF Index (OIH) The performance graph above is furnished and not filed for purposes of Section 18 of the Exchange Act and will not be incorporated by reference into any registration statement filed under the Securities Act of 1933, as amended (the “Securities Act”), unless specifically identified therein as being incorporated therein by reference.
These graphs cover the period from December 31, 2017 through December 31, 2022 and assume the investment of $100 on December 31, 2017 and the reinvestment of all dividends, if any. The shareholder return set forth is not necessarily indicative of future performance.
This graph covers the period from December 31, 2018 through December 31, 2023 and assume the investment of $100 on December 31, 2018 and the reinvestment of all dividends, if any. The shareholder return set forth is not necessarily indicative of future performance.
The performance graph is not soliciting material subject to Regulation 14A. 35 Table of Contents Item 6. [Removed and Reserved]. 36 Table of Contents
The performance graph is not soliciting material subject to Regulation 14A. 37 Table of Contents
All repurchased shares have been cancelled as of December 31, 2022. 33 Table of Contents Performance Graph We compare the cumulative total shareholder return on our common stock to the cumulative total shareholder return of both a broad stock index and an index of oil and natural gas related companies that represents an industry composite of peers.
These repurchase plans have no set expiration date and any repurchased shares are expected to be cancelled. 36 Table of Contents Performance Graph The following graph compares the cumulative total shareholder return on our common stock to the cumulative total shareholder return on the Standard & Poor’s 500 Stock Index, a broad stock index, and the VanEck Oil Services ETF Index (“OIH”), an index of oil and natural gas related companies that represents an industry composite of peers.
On February 22, 2022, the Board of Directors authorized an incremental $100 million share repurchase plan. These repurchase plans have no set expiration date and any repurchased shares are expected to be cancelled.
On February 22, 2022, the Board of Directors authorized an incremental $100 million share repurchase plan.
Removed
During the year ended December 31, 2022, the Company purchased 888,197 shares under the share repurchase plans at an average price of approximately $23.41 per share totaling approximately $20.8 million, pursuant to a 10b5-1 plan, which is reflected in “Retained earnings” in the Consolidated Balance Sheets.
Added
Repurchase of Equity Securities For the year ended December 31, 2023, the Company did not purchase any shares under the share repurchase plans. However, the Company withheld 46,172 shares for restricted stock awards vested in 2023 at an average price of approximately $23.70.
Removed
During 2022, the Company replaced the Philadelphia Oil Service Sector Index (“OSX”) with the VanEck Oil Services ETF Index (“OIH”) as our reference peer group index, as we changed the peer comparison index for our performance stock units from the OSX to the OIH and we also plan to use the OIH index in the new pay versus performance table to be presented in the Company’s definitive Proxy Statement (the “2023 Proxy Statement”).
Added
The following table summarizes the repurchase and cancellation of our common stock during the year ended December 31, 2023.
Removed
As this is the initial year of change in our reference peer group index, we are presenting two performance graphs, the first one with the preceding OSX index and the second one with the new OIH index.
Removed
The first graph compares the cumulative total shareholder return on our common stock to the cumulative total shareholder return on the Standard & Poor’s 500 Stock Index and the OSX index.
Removed
The second graph compares the cumulative total shareholder return on our common stock to the cumulative total shareholder return on the Standard & Poor’s 500 Stock Index and the OIH index.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations The following table sets forth, for the periods indicated, certain consolidated statement of income data expressed as a percentage of revenues: Year Ended December 31, 2022 2021 Revenues: Products 66.5 % 66.1 % Services 21.9 23.0 Leasing 11.6 10.9 Total revenues 100.0 100.0 Cost of sales: Products 56.3 55.3 Services 8.9 10.3 Leasing 8.3 9.5 Total cost of sales 73.5 75.1 Selling, general and administrative 26.0 35.6 Engineering and product development 3.2 4.7 Restructuring and other charges 3.1 24.4 Gain on sale of property, plant and equipment (5.5 ) (1.4 ) Foreign currency transaction (gain) loss (1.0 ) 0.3 Total costs and expenses 99.3 138.7 Operating income (loss) 0.7 (38.7 ) Interest income 1.2 0.2 Interest expense (0.1 ) (0.2 ) Income (loss) before income taxes 1.8 (38.7 ) Income tax provision 1.7 0.9 Net income (loss) 0.1 % (39.6 )% 40 Table of Contents The following table sets forth, for the periods indicated, a breakdown of our products and service revenues: Year Ended December 31, 2022 2021 (In millions) Revenues: Products: Subsea equipment $ 194.3 $ 168.4 Downhole tools 46.5 45.3 Total products 240.8 213.7 Services: Subsea equipment 61.0 58.1 Downhole tools 18.2 16.0 Total services 79.2 74.1 Leasing Subsea equipment 33.7 28.0 Downhole tools 8.4 7.1 Total leasing 42.1 35.1 Total revenues $ 362.1 $ 322.9 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Revenues.
Biggest changeResults of Operations The following table sets forth, for the periods indicated, a breakdown of our products and service revenues: Year Ended December 31, 2023 2022 (In millions) Revenues: Products: Subsea products $ 198.3 $ 194.3 Well Construction 72.7 46.5 Total products 271.0 240.8 Services: Subsea services 72.3 60.9 Well construction services 33.4 18.2 Total services 105.7 79.1 Leasing: Subsea leasing 29.1 33.6 Well Construction leasing 18.3 8.4 Total leasing 47.4 42.0 Total revenues $ 424.1 $ 361.9 42 Table of Contents The following table sets forth, for the periods indicated, our revenues and operating income (loss) by business segments: Year Ended December 31, 2023 2022 (In millions) Revenue Subsea products $ 198.3 $ 194.3 Subsea services 101.4 94.5 Well construction 124.4 73.1 Total revenue $ 424.1 $ 361.9 Operating income (loss) Subsea products $ 8.5 $ 8.9 Subsea services 18.4 8.4 Well construction 10.9 14.3 Segment operating income (loss) 37.8 31.6 Corporate (32.5 ) (31.1 ) Total operating income (loss) $ 5.3 $ 0.5 Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Revenues.
Revenues recognized under the over time method The Company uses the over time method on long-term project contracts that have the following characteristics: • the contracts call for products which are designed to customer specifications; • the structural designs are unique and require significant engineering and manufacturing efforts generally requiring more than six months in duration; • the contracts contain specific terms as to milestones, progress billings and delivery dates; • product requirements cannot be filled directly from the Company’s standard inventory; and 46 Table of Contents • the Company has an enforceable right to payment for any work completed to date and the enforceable payment includes a reasonable profit margin.
Revenues recognized under the over time method The Company uses the over time method on long-term project contracts that have the following characteristics: • the contracts call for products which are designed to customer specifications; • the structural designs are unique and require significant engineering and manufacturing efforts generally requiring more than six months in duration; • the contracts contain specific terms as to milestones, progress billings and delivery dates; • product requirements cannot be filled directly from the Company’s standard inventory; and 48 Table of Contents • the Company has an enforceable right to payment for any work completed to date and the enforceable payment includes a reasonable profit margin.
Item 7. Management’s Discussion and Analysi s of Financial Condition and Results of Operations 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 and cash flows during the periods included in the accompanying consolidated financial statements.
Item 7. Management’s Discussion and Analysi s of Financial Condition and Results of Operations 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 consolidated financial statements.
Oil and Gas Prices Both 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 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.
The change in the effective income tax rate from 2021 to 2022 was primarily driven by the favorable outcomes of previously unrecognized tax benefit, change in valuation allowance against the net U.S. deferred tax assets as well as those in various foreign countries, the mix of foreign income taxed at different statutory rates, an increase in non-taxable income, nondeductible expenses, foreign income inclusions and foreign tax credits.
The change in the effective income tax rate from 2022 to 2023 was primarily driven by the favorable outcomes of previously unrecognized tax benefit, change in valuation allowance against the net U.S. deferred tax assets as well as those in various foreign countries, the mix of foreign income taxed at different statutory rates, an increase in non-taxable income, nondeductible expenses, foreign income inclusions and foreign tax credits.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021. Overview The Company designs, manufactures, sells and services highly engineered drilling and production equipment for both offshore and onshore applications.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022. Overview The Company designs, manufactures, sells and services highly engineered drilling and production equipment for both offshore and onshore applications.
This discussion should be read in conjunction with the Company’s consolidated financial statements and notes thereto presented elsewhere in this report. For a discussion of our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, see “Item 7.
This discussion should be read in conjunction with the Company’s consolidated financial statements and notes thereto presented elsewhere in this report. For a discussion of our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, see “Item 7.
The remaining backlog at December 31, 2022 consists of longer-term projects which are being designed and manufactured to customer specifications requiring longer lead times. See “Item 1A.
The remaining backlog at December 31, 2023 consists of longer-term projects which are being designed and manufactured to customer specifications requiring longer lead times. See “Item 1A.
The Company has put in place an active cash management process to convert excess foreign currency and concentrate this cash in certain of our holding company bank accounts to minimize foreign currency risk and increase investment income. The Company conducts business in certain countries that limit repatriation of earnings.
The Company has put in place an active cash management process to convert excess foreign currency and concentrate this cash in certain of our holding company bank accounts to minimize foreign currency risk and increase investment income. 47 Table of Contents The Company conducts business in certain countries that limit repatriation of earnings.
Under the agreement, Dril-Quip will provide Aker Solutions with CO 2 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 CO 2 .
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.
Withdrawals from this cash collateral account are only allowed at such point that a given letter of credit has expired or has been cancelled. 44 Table of Contents Contractual Obligations For information with respect to this item, see “Leases and Lease Commitments,” Note 9 of Notes to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference.
Withdrawals from this cash collateral account are only allowed at such point that a given letter of credit has expired or has been cancelled. Contractual Obligations For information with respect to this item, see “Leases and Lease Commitments,” Note 12 of Notes to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference.
If market conditions are less favorable than those projected by management, additional inventory reserves may be required. 47 Table of Contents
If market conditions are less favorable than those projected by management, additional inventory reserves may be required. 49 Table of Contents
Any future deterioration of commodity prices could lead to material impairment charges to tangible or intangible assets or otherwise result in a material adverse effect on the Company’s results of operations. See “Item 1A.
Any future deterioration of commodity prices could lead to material impairment charges to tangible or intangible assets or otherwise result in a material adverse effect on the Company’s results of operations.
Oil and gas prices and the level of drilling and production activity have been characterized by significant volatility in recent years. Worldwide military, political, economic and other events have contributed to oil and natural gas price volatility and are likely to continue to do so in the future.
Risk Factors” in this report. Oil and gas prices and the level of drilling and production activity have been characterized by significant volatility in recent years. Worldwide military, political, economic and other events have contributed to oil and natural gas price volatility and are likely to continue to do so in the future.
The Company had, net of income taxes, a transaction gain of $3.0 million in 2022 and a transaction loss of $0.7 million in 2021. There is no assurance that the Company will be able to protect itself against such fluctuations in the future.
The Company had, net of income taxes, a transaction gain of $2.0 million in 2023 and a transaction loss of $3.0 million in 2022. There is no assurance that the Company will be able to protect itself against such fluctuations in the future.
During the year ended December 31, 2022, the Company purchased 888,197 shares at an average price of $23.41 under the share repurchase plan for approximately $20.8 million. During the year ended December 31, 2021, the Company purchased 1,109,187 shares at an average price of $21.79 under the share repurchase plan for approximately $24.2 million.
During the year ended December 31, 2022, the Company purchased 888,197 shares at an average price of $23.41 under the share repurchase plan for approximately $20.8 million. During the year ended December 31, 2021, the Company purchased 1,109,187 shares at an average price of $21.79 under the share repurchase plan for approximately $24.2 million. All repurchased shares were subsequently cancelled.
In case of a change or termination, the customer is required to pay the Company for work performed and other costs necessarily incurred as a result of the change or termination. Generally, the Company attempts to raise its prices as its costs increase.
In case of a change or termination of over time contracts, 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.
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 consolidated balance sheets as at December 31, 2022 and December 31, 2021.
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 “Restricted cash” in our consolidated balance sheets as at December 31, 2023 and December 31, 2022.
Future declines in oil and gas prices or ongoing pricing volatility may further adversely affect the willingness of some oil and gas companies to make capital expenditures on exploration, drilling and production operations, which could have an adverse impact on the Company’s results of operations, financial position and cash flows.
Future declines in oil and gas prices may further adversely affect the willingness of some oil and gas companies to make capital expenditures on exploration, drilling and production operations, which could have an adverse impact on the Company’s results of operations, financial position and cash flows. See “Item 1A.
Product contracts are typically 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.
In addition, service contracts are not 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.
As a result, this table will not agree to the disclosed performance obligations of $75.1 million as of December 31, 2022, within “Revenue Recognition,” Note 3 of Notes to Consolidated Financial Statements. The Company expects to fill approximately 70% to 80% of the December 31, 2022 product backlog by December 31, 2023.
As a result, this table will not agree to the disclosed performance obligations of $43.0 million as of December 31, 2023, within “Revenue Recognition,” Note 6 of Notes to Consolidated Financial Statements. The Company expects to fill approximately 70% to 80% of the December 31, 2023 product backlog by December 31, 2024.
The Company’s effective income tax rate fluctuates from the U.S. statutory tax rate based on, among other factors, changes in pretax income in jurisdictions with varying statutory tax rates, 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. Reclassifications.
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. Reclassifications.
Our significant foreign subsidiaries may also have monetary assets and liabilities not denominated in their functional currency. These monetary assets and liabilities are exposed to changes in currency exchange rates which may result in non-cash gains and losses primarily due to fluctuations between the U.S. dollar and each subsidiary’s functional currency.
These monetary assets and liabilities are exposed to changes in currency exchange rates which may result in non-cash gains and losses primarily due to fluctuations between the U.S. dollar and each subsidiary’s functional currency.
Net Income (Loss). Net income was approximately $0.4 million in 2022, compared to a net loss of $128.0 million in 2021, for the reasons set forth above.
Net Income (Loss). Net income was approximately $0.6 million in 2023, compared to a net loss of $1.6 million in 2022, for the reasons set forth above.
During 2021, there were 54 projects that were accounted for using the over time method, which represented approximately 21.7% of the Company’s total revenues and 32.7% of the Company’s product revenues. These percentages may fluctuate in the future.
During 2022, there were 79 projects that were accounted for using the over time method, which represented approximately 34.7% of the Company’s total revenues and 52.1% of the Company’s product revenues. These percentages may fluctuate in the future.
The items excluded from Adjusted EBITDA, but included in the calculation of reported net income, are significant components of the 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 items excluded from Adjusted EBITDA, but included in the calculation of reported net income, are significant components of the consolidated statements of income (loss) and must be considered in performing a comprehensive assessment of overall financial performance.
The Inflation Reduction Act contains a number of revisions to the Internal Revenue Code, including a 15% book-income corporate alternative minimum tax on any corporation that, along with the other members of its controlled group, if any, has average adjusted financial statement income over $1.0 billion for any 3-tax-year period ending with January 1, 2022 or later.
The Inflation Reduction Act contains a number of revisions to the Internal Revenue Code, including a 15% book-income corporate alternative minimum tax on any corporation that, along with the other members of its controlled group, if any, has average adjusted financial statement income over $1.0 billion for any 3-tax-year period ending with January 1, 2022 or later and a 1% excise tax on the fair market value of stock that is repurchased by publicly traded U.S. corporations or their specified affiliates.
Liquidity and Capital Resources Cash Flows Cash flows provided by (used in) operations by type of activity were as follows: Year Ended December 31, 2022 2021 (In thousands) Net cash provided by (used in) operating activities $ (36,771 ) $ 38,428 Net cash used in investing activities (30,105 ) (3,207 ) Net cash used in financing activities (20,890 ) (24,300 ) (87,766 ) 10,921 Effect of exchange rate changes on cash activities (2,881 ) (1,425 ) Increase (decrease) in cash and cash equivalents $ (90,647 ) $ 9,496 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 year, as these are non-cash changes.
Liquidity and Capital Resources Cash Flows Cash flows provided by (used in) type of activity were as follows: Year Ended December 31, 2023 2022 (In thousands) Net cash provided by (used in) operating activities $ 7,727 $ (36,771 ) Net cash used in investing activities (79,813 ) (30,105 ) Net cash used in financing activities (124 ) (20,890 ) (72,210 ) (87,766 ) Effect of exchange rate changes on cash activities (1,194 ) (2,881 ) Decrease in cash and cash equivalents $ (73,404 ) $ (90,647 ) 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 year, as these are non-cash changes.
The Company’s product backlog was approximately $240.9 million at December 31, 2022 and $210.1 million at December 31, 2021. The backlog at the end of 2022 represents an increase of approximately $30.8 million, or 14.6%, from the end of 2021.
The Company’s product backlog was approximately $262.8 million at December 31, 2023 and $240.9 million at December 31, 2022. The backlog at the end of 2023 represents an increase of approximately $21.9 million, or 9.1%, from the end of 2022.
Risk Factors—A material or extended decline in expenditures by the oil and gas industry could significantly reduce our revenue and income.” During 2022, Brent crude oil prices fluctuated significantly, with a high of $133.18 per barrel, a low of $76.02 per barrel, and an average of $100.94 per barrel compared to an average of $70.86 per barrel in 2021.
Risk Factors—A material or extended decline in expenditures by the oil and gas industry could significantly reduce our revenue and income.” During 2023, Brent crude oil prices fluctuated, with a high of $97.10 per barrel, a low of $71.03 per barrel, and an average of $82.49 per barrel compared to an average of $100.94 per barrel in 2022.
The Company accounts for larger and more complex projects that have relatively longer manufacturing time frames on an over time basis. During 2022, there were 79 projects that were accounted for using the over time method, which represented approximately 34.7% of the Company’s total revenues and 52.1% of the Company’s product revenues.
The Company accounts for larger and more complex projects that have relatively longer manufacturing time frames on an over time basis. During 2023, there were 75 projects that were accounted for using the over time method, which represented approximately 25.5% of the Company’s total revenues and 40.0% of the Company’s product revenues.
Currently, we are not subject to the corporate alternative minimum tax. The Company will evaluate any impact related to the excise tax on stock repurchases by the Company in future periods.
The alternative minimum tax and the excise tax are effective in taxable years beginning after December 31, 2022. Currently, we are not subject to the corporate alternative minimum tax. The Company will evaluate any impact related to the excise tax on stock repurchases by the Company in future periods.
In 2022, the Company derived 66.5% of its revenues from the sale of its products, 21.9% of its revenues from services and 11.6% from leasing revenues, compared to 66.1%, 23.0% and 10.9% for products, services and leasing in 2021, respectively.
In 2023, the Company derived 63.9% of its revenues from the sale of its products, 24.9% of its revenues from services and 11.2% from leasing revenues, compared to 66.5%, 21.9% and 11.6% for products, services and leasing in 2022, respectively.
According to the January 2023 release of the Short-Term Energy Outlook published by the EIA, Brent crude oil prices are projected to average $83.10 per barrel in 2023 and $77.57 per barrel in 2024.
According to the January 2024 release of the Short-Term Energy Outlook published by the EIA, Brent crude oil prices are projected to average $82.49 per barrel in 2024 and $79.48 per barrel in 2025.
Year Ended December 31, 2022 2021 (In thousands) Beginning Backlog $ 210,119 $ 195,650 Bookings: Product (1) 293,847 240,033 Service 84,274 74,143 Leasing 42,033 35,042 Cancellation/Revision adjustments (27,418 ) (11,594 ) Translation adjustments 80 (210 ) Total Bookings 392,816 337,414 Revenues: Product 240,842 213,760 Service 79,195 74,143 Leasing 42,033 35,042 Total Revenue 362,070 322,945 Ending Backlog (1) $ 240,865 $ 210,119 (1) The backlog data shown above includes all bookings as of December 31, 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.
Year Ended December 31, 2023 2022 (In thousands) Beginning Backlog $ 240,865 $ 210,119 Bookings: Product (1) 295,419 293,847 Service 111,180 84,274 Leasing 47,359 42,033 Cancellation/Revision adjustments (9,401 ) (27,418 ) Translation adjustments 1,418 80 Total Bookings 445,975 392,816 Revenues: Product 271,021 240,842 Service 105,680 79,195 Leasing 47,359 42,033 Total Revenue 424,060 362,070 Ending Backlog (1) $ 262,780 $ 240,865 (1) The backlog data shown above includes all bookings as of December 31, 2023, 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.
These charges were primarily related to write-downs of long-lived assets, severance and other charges. Long-lived asset write-downs consisted of $3.2 million for the Houston corporate administrative building and $2.5 million for obsolete machinery and equipment. Other charges totaled $4.8 million and consisted of consulting and legal fees, office moves, site cleanup and preparation costs.
Long-lived asset write-downs consisted of $3.2 million for the Houston corporate administrative building and $2.5 million for obsolete machinery and equipment. Other charges totaled $6.8 million and consisted of consulting and legal fees, office moves, site cleanup and preparation costs. Severance charges totaled approximately $0.9 million for the year. Gain on Sale of Property, Plant and Equipment.
Income Tax Provision . Income tax expense for 2022 was $6.3 million on an income before taxes of $6.8 million, resulting in an effective income tax rate of 93.5%.
Income tax expense in 2022 was $6.3 million on a income before taxes of $4.7 million, resulting in an effective tax rate of approximately 134.5%.
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. As of December 31, 2022, the cash balance in that account was approximately $5.4 million.
However, if work activity increases, we expect further working capital investment will be required. 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 are also monitoring the current global economic environment, specifically including inflationary pressures and the macroeconomic impact of the conflict in Ukraine, and any resulting impacts on our financial position and results of operations. Refer to “Item 1A. Risk Factors” for additional information.
For more information on the risks associated with the invasion of Ukraine, see “Item 1A. Risk Factors” in this report. We continue to monitor the current global economic environment, specifically including inflationary pressures and the macroeconomic impact of the conflicts in Ukraine and Israel, and any resulting impacts on our financial position and results of operations. See our “Item 1A.
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 and from leasing our forging facility.
Leasing revenues are derived from rental tools used during installation and retrieval of the Company’s products and from leasing our forging facility.
During 2022, gain on sale of property, plant and equipment was approximately $20.0 million, primarily related to the sale of our Houston forge facility building and obsolete machinery and equipment.
For 2023, gain on sale of property, plant and equipment was approximately $8.8 million, primarily related to the sale of our Houston aftermarket facility, forge facility, corporate administrative building, and certain obsolete machinery and equipment and scrap parts.
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. 42 Table of Contents 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 and certain other items, including those that affect the comparability of operating results.
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 and certain other items, including those that affect the comparability of operating results.
This reclassification to the prior period was made to conform to the current period presentation and 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.
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.
Engineering and product development expenses consist of new product development and testing, as well as application engineering related to customized products. 39 Table of Contents Impairment .
Engineering and product development expenses consist of new product development and testing, as well as application engineering related to customized products. 41 Table of Contents Restructuring and Other Charges. Restructuring and Other Charges consist of costs under the 2021 global strategic plan.
The Company believes that cash generated from operations plus cash on hand will be sufficient to fund operations, working capital needs and anticipated capital expenditure requirements for the next twelve months at current activity levels. However, if work activity increases, we expect further working capital investment will be required.
Refer to Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities for further discussion. The Company believes that cash generated from operations plus cash on hand will be sufficient to fund operations, working capital needs and anticipated capital expenditure requirements for the next twelve months at current activity levels.
The following table reconciles our reported net income to Adjusted EBITDA for each of the respective periods: Year Ended December 31, 2022 2021 (In thousands) Net income (loss) $ 443 $ (127,996 ) Add: Interest (income) expense, net (4,249 ) 212 Income tax provision 6,327 2,946 Depreciation and amortization expense 29,421 30,381 Restructuring and other charges (2) 11,443 96,650 Gain on sale of property, plant and equipment (20,019 ) (4,482 ) Foreign currency transaction (gain) loss (3,756 ) 836 Stock compensation expense 10,363 14,895 Brazilian amnesty settlement - 1,787 Adjusted EBITDA (1) $ 29,973 $ 15,229 (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.
Our calculation of Adjusted EBITDA may not be consistent with calculations of Adjusted EBITDA used by other companies. 44 Table of Contents The following table reconciles our reported net income to Adjusted EBITDA for each of the respective periods: Year Ended December 31, 2023 2022 (In thousands) Net income (loss) $ 604 $ (1,624 ) Add: Interest income, net (8,188 ) (4,249 ) Income tax provision 12,864 6,327 Depreciation and amortization expense 30,324 29,421 Restructuring and other charges 3,245 13,364 Acquisition costs 6,451 - Change in fair value of earn-out liability (2,282 ) - Gain on sale of property, plant and equipment (8,754 ) (20,019 ) Foreign currency transaction gain (2,549 ) (3,756 ) Stock compensation expense 10,892 10,363 Other 3,935 - Adjusted EBITDA (1) $ 46,542 $ 29,827 (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.
Any future deterioration of commodity prices could lead to material impairment charges to tangible or intangible assets or otherwise result in a material adverse effect on the Company’s results of operations. 38 Table of Contents The Company operates its business and markets its products and services in most of the significant oil and gas producing areas in the world and is, therefore, subject to the risks customarily attendant to international operations and investments in foreign countries.
The Company operates its business and markets its products and services in most of the significant oil and gas producing areas in the world and is, therefore, subject to the risks customarily attendant to international operations and investments in foreign countries.
The Company has included only these types of rigs as they are the primary assets used to deploy the Company’s products. 2022 2021 Floating Rigs Jack-up Rigs Floating Rigs Jack-up Rigs Western Hemisphere 59 44 55 41 Eastern Hemisphere 49 62 45 57 Asia-Pacific 29 270 31 253 Total 137 376 131 351 Source: IHS—Petrodata RigBase— December 31, 2022, and 2021 37 Table of Contents According to IHS-Petrodata RigBase, as of December 31, 2022, there were 519 rigs contracted for the Company’s geographic regions (139 floating rigs and 380 jack-up rigs), which represents a 6.8% increase from the rig count of 486 rigs (137 floating rigs and 349 jack-up rigs) as of December 31, 2021.
The Company has included only these types of rigs as they are the primary assets used to deploy the Company’s products. 2023 2022 Floating Rigs Jack-up Rigs Floating Rigs Jack-up Rigs Mobile Offshore Drilling Units 146 403 137 376 Source: IHS—Petrodata RigBase— December 31, 2023, and 2022 According to IHS-Petrodata RigBase, as of December 31, 2023, there were 556 rigs contracted for the Company (146 floating rigs and 410 jack-up rigs), which represents a 7.1% increase from the rig count of 519 rigs (139 floating rigs and 380 jack-up rigs) as of December 31, 2022.
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.
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. 39 Table of Contents 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.
The Company must still deposit its share of the Medicare hospital insurance tax of 1.45% as well as all of the employee’s share of the payroll taxes withheld. 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.
The Company must still deposit its share of the Medicare hospital insurance tax of 1.45% as well as all of the employee’s share of the payroll taxes withheld.
Gain on Sale of Property, Plant and Equipment. Gain or loss on sale of property, plant and equipment consists of sales of assets within this category of fixed assets. Foreign Currency Transaction (Gain) Loss.
Gain or loss on sale of property, plant and equipment consists of sales of assets within this category of fixed assets. Foreign Currency Transaction (Gain) Loss. 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 .
Service and leasing revenues generally correlate to revenues from product sales because increased product sales typically generate increased demand for technical advisory assistance services during installation and rental of running tools. However, customer stocking and destocking can affect the correlation between demand for services and product sales.
Service and leasing revenues generally correlate to revenues from product sales because increased product sales typically generate increased demand for technical advisory assistance services during installation and rental of running tools. The Company has substantial international operations, with approximately 74.9% of its revenues derived from foreign sales in 2023 and 66.2% in 2022.
This was partially offset by a decrease in net loss of $128.4 million. The change in operating assets and liabilities during 2022 resulted in a $130.3 million decrease in cash as compared to the change in operating assets and liabilities during 2021.
The change in operating assets and liabilities during 2023 resulted in a $45.3 million increase in cash as compared to the change in operating assets and liabilities during 2022.
For information on revenues by geographic segment, see “Geographic Segments,” Note 15 of Notes to Consolidated Financial Statements. Currency Risk The Company has operations in various countries around the world and conducts business in a number of different currencies other than the U.S. dollar, principally the British pound sterling, Mexican peso and the Brazilian real.
Currency Risk The Company has operations in various countries around the world and conducts business in a number of different currencies other than the U.S. dollar, principally the British pound sterling, Mexican peso and the Brazilian real. Our significant foreign subsidiaries may also have monetary assets and liabilities not denominated in their functional currency.
The Company may use its liquidity for, among other things, the support of the Company’s research and development efforts, the funding of key projects and spending required by any upturn in the Company’s business and the pursuit of possible acquisitions. 43 Table of Contents Net cash provided by operating activities in 2022 decreased by approximately $75.2 million compared to 2021, primarily due to decreases resulting from the change in operating assets and liabilities of $130.3 million and a net decrease of $73.3 million in non-cash movements.
The Company may use its liquidity for, among other things, the support of the Company’s research and development efforts, the funding of key projects and spending required by any upturn in the Company’s business and the pursuit of possible acquisitions.
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.
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.
The International Energy Agency projected the global oil demand to grow by approximately 1.9 million barrels per day to a total of 101.7 million barrels per day in 2023 based on its January 2023 Oil Market Report.
The International Energy Agency projected the global oil demand to grow by approximately 1.2 million barrels per day to a total of 104.2 million barrels per day in 2024 based on its January 2024 Oil Market Report. 40 Table of Contents Rig Count Detailed below is the average contracted offshore rig count (rigs currently drilling as well as rigs committed, but not yet drilling) for the years ended December 31, 2023 and 2022.
For 2022, selling, general and administrative expenses decreased by approximately $20.8 million, or 18.1%, to $94.2 million from $115.0 million in 2021.
Cost of sales as a percentage of revenue decreased to 72.7% in 2023 as compared to 73.5% in 2022. Selling, General and Administrative Expenses. For 2023, selling, general and administrative expenses increased by approximately $7.3 million, or 7.8%, to $101.5 million from $94.2 million in 2022.
The $25.1 million decrease in cash due to changes in prepaids and other assets was primarily due an increase in advances to vendors related to projects accounted for on an over time basis in 2022, increases in tax receivables in some foreign jurisdictions in 2022 as compared to the receipt of certain tax receivables and reimbursement of the security amounts deposited with the Brazilian courts related to the tax amnesty program in 2021.
Increases in cash due to changes in prepaids and other assets was $43.3 million, primarily due to an income tax refund payment related to prior year tax returns and a decrease in advances to vendors related to projects accounted for on an over-time basis.
Capital expenditures in 2021 were primarily to support our current and recently developed products and to support the restructuring of our downhole tools business where we exited certain underperforming markets. Capital expenditures in 2021 included $4.6 million for machinery and equipment, $3.7 million for rental tools and other expenditures of $1.7 million.
Capital expenditures by the Company were $32.6 million and $18.9 million in 2023 and 2022, respectively. Capital expenditures in 2023 included $16.8 million for rental tools to support our developed products, $12.7 million for machinery and equipment related to our global strategic program which includes consolidation of our manufacturing facilities and other expenditures of $3.1 million.
The Company has substantial international operations, with approximately 66.2% of its revenues derived from foreign sales in 2022 and 63.8% in 2021. Substantially all of the Company’s domestic revenue relates to operations in the U.S. Gulf of Mexico. Domestic revenue approximated 33.8% of the Company’s total revenues in 2022 and 36.2% in 2021.
Substantially all of the Company’s domestic revenue relates to operations in the U.S. Gulf of Mexico. Domestic revenue approximated 25.1% of the Company’s total revenues in 2023 and 33.8% in 2022. Revenue is based on the location where services are provided and products are sold. Product contracts are negotiated and sold separately from service contracts.
Income tax expense in 2021 was $2.9 million on a loss before taxes of $125.1 million, resulting in an effective tax rate of approximately (2.4%).
Foreign exchange gain for 2023 was $2.6 million as compared to a gain of $3.8 million for the same period in 2022. Income Tax Provision . Income tax expense for 2023 was $12.9 million on an income before taxes of $13.5 million, resulting in an effective income tax rate of 95.5%.
During 2021, we incurred restructuring charges under the 2018 global strategic plan as we exited from certain underperforming countries and markets and shifted from manufacturing in-house to a vendor outsourcing model which resulted in inventory write-downs of approximately $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.
During our assessment certain market exit costs became known and the liability was adjusted accordingly, resulting in a release of approximately $2.3 million, which partially offsets the current year restructuring costs. During 2022, the Company incurred $13.4 million under the 2021 global strategic plan. These charges were primarily related to write-downs of long-lived assets, severance and other charges.
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.
The Company’s principal products consist of subsea and surface wellheads, specialty connectors and associated pipes, subsea production systems, mudline hanger systems, production riser systems, dry tree systems, subsea manifolds, line hangers and expandable liner systems, multi-frac well connections, conventional wellhead, thermal wellhead, completion packers and safety and kelly valves.
We reclassified approximately $9.6 million of prepaid expenses for the year ended December 31, 2021 from 'Prepaids and other current assets' to 'Prepaid expenses'.
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.
The reasons for the decrease in net income or losses are set forth in the “Results of Operations” section above. Net cash used in investing activities increased by approximately $26.9 million in 2022 as compared to 2021.
The reasons for the increase in net income are set forth in the “Results of Operations” section above. 45 Table of Contents The change in investing cash flows for 2023 resulted in a $79.8 million decrease in cash primarily due to the acquisition of Great North, net of cash acquired of $82.3 million.
Revenues increased by $39.2 million, or approximately 12.1%, to $362.1 million in 2022 from $322.9 million in 2021. The overall increase in revenue was driven by increased product, leasing and service revenues of $27.1 million, $7.0 million, and $5.1 million, respectively.
This increase was primarily due to the addition of Great North SG&A expenses of $5.0 million and an increase in costs associated with the acquisition and integration of Great North. Engineering and Product Development Expenses. For 2023, engineering and product development expenses increased by approximately $0.9 million, or 7.7%, to $12.6 million from $11.7 million in 2022.
Risk Factors—Our backlog is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of our future revenues and earnings.” 45 Table of Contents Geographic Segments 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).
Risk Factors—Our backlog is subject to unexpected adjustments and cancellations and is, therefore, an uncertain indicator of our future revenues and earnings.” Business Segments The Company’s organizational structure is based on product and service lines. The Company operates in three business segments— Subsea Products, Subsea Services, and Well Construction.
Rig Count 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 years ended December 31, 2022, and 2021. The rig count data includes floating rigs (semi-submersibles and drillships) and jack-up rigs.
The rig count data includes floating rigs (semi-submersibles and drillships) and jack-up rigs.
The decrease due to changes in accounts payable and accrued expenses of $23.8 million was mainly related to the payment of our agent fees in the Middle East and the payment of certain property taxes. The increase in trade receivables by $5.0 million was primarily due to a decrease in billing activity related to our ongoing projects.
Increase in cash due to the changes in accounts payable and accrued expenses was $25.0 million primarily due to timing of accounts payable distributions. These increases were partially offset by a $27.5 million decrease in cash due to changes in inventory levels, as we continually reassess our needs based on backlog trends.
Removed
While demand currently remains strong, we acknowledge there is an elevated recession risk looming in global markets. However, we believe the impact of a possible recession on demand in 2023 would be relatively muted due to disruptions in global oil supply, rather low spare global production capacity, and increased demand from the gradual reopening of China and rising global travel.
Added
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 organizational structure is based on product and service lines. The Company operates in three business segments— Subsea Products, Subsea Services, and Well Construction.
Removed
We believe oil supply growth remains challenged as the release of U.S. strategic petroleum reserves subsides, the impact of the Russian oil products export embargo hits in the first quarter of 2023, and reduced investment across the Russian industry gradually impacts production.
Added
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.
Removed
Crude oil price recovery which began in the latter half of 2020, continued in 2022 as the oil markets remained encouraging throughout the year.
Added
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.
Removed
Business Environment On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”).
Added
These products and services are used on both land and offshore markets. Recent Developments On July 31, 2023, TIW Canada ULC (“Purchaser”), an unlimited liability company governed by the Laws of Alberta and wholly-owned subsidiary of Dril-Quip, acquired all of the issued and outstanding shares in the capital of 1185641 B.C. Ltd.
Removed
The Inflation Reduction Act also imposes a 1% excise tax on the fair market value of stock that is repurchased, or acquired through “economically similar transactions,” by publicly traded U.S. corporations or their specified affiliates.
Added
(d/b/a Great North Wellhead and Frac), a corporation governed by the laws of the province of British Columbia (“Great North Wellhead”), pursuant to a definitive agreement (the “Share Purchase Agreement”), dated as of July 31, 2023, among each of the shareholders of Great North Wellhead (collectively, “Sellers”), Industrial Growth Partners V AIV L.P., in its capacity as agent to Sellers thereunder, Purchaser and, solely in its capacity as guarantor for the obligations of Purchaser thereunder, Dril-Quip for a cash purchase price of $105 million CAD, approximately $79.8 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeBased upon this model, a 10% decrease would have resulted in a decrease in revenues of approximately $14.1 million and an increase in net loss of approximately $3.0 million for 2022. There can be no assurance that the exchange rate decrease projected above will materialize as fluctuations in exchange rates are beyond the Company’s control. 48 Table of Contents
Biggest changeBased upon this model, a 10% decrease would have resulted in a decrease in revenues of approximately $20.9 million and a decrease in net income of approximately $1.0 million for 2023. There can be no assurance that the exchange rate decrease projected above will materialize as fluctuations in exchange rates are beyond the Company’s control. 50 Table of Contents
There have been no material changes in market risks for the Company from December 31, 2021. Foreign Currency Exchange Rate Risk Through its subsidiaries, the Company conducts a portion of its business in currencies other than the United States dollar. There is no assurance that the Company will be able to protect itself against currency fluctuations in the future.
There have been no material changes in market risks for the Company from December 31, 2022. Foreign Currency Exchange Rate Risk Through its subsidiaries, the Company conducts a portion of its business in currencies other than the United States dollar. There is no assurance that the Company will be able to protect itself against currency fluctuations in the future.

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