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What changed in NCS Multistage Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NCS Multistage Holdings, 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.

+321 added−342 removedSource: 10-K (2024-03-08) vs 10-K (2023-03-07)

Top changes in NCS Multistage Holdings, Inc.'s 2023 10-K

321 paragraphs added · 342 removed · 234 edited across 3 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

155 edited+54 added−42 removed162 unchanged
Biggest changeWe may be adversely affected by disputes regarding intellectual property rights. 12 Table of Contents The products and services we provide are used in operations that are subject to potential hazards inherent in the oil and natural gas industry, including claims for personal injury and property damage, and, as a result, we are exposed to potential liabilities that may affect our financial condition and reputation. Losses and liabilities from operating activities could have a material adverse effect on our business, financial condition and results of operations. Explosive incidents arising out of dangerous materials used in our business could disrupt operations and result in bodily injuries and property damages, which occurrences could have a material adverse effect on our business, financial condition and results of operations. Low commodity price environments can negatively impact oil and natural gas E&P companies and, in some cases, impair their ability to timely pay for products or services provided or can result in their insolvency or bankruptcy, any of which exposes us to credit risk of our oil and natural gas E&P customers. The growth of our business through acquisitions or strategic partnerships exposes us to various risks, including identifying suitable opportunities and integrating businesses, assets and personnel. We may be adversely affected by the effects of inflation. Disruptions or delays involving our suppliers or increases in prices for the components, raw materials and parts that we obtain from our suppliers could have a material adverse effect on our business and consolidated results of operations. Our success may depend on the continued service and availability of key personnel. We may be unable to attract and retain skilled and technically knowledgeable employees, which could adversely affect our business. We conduct a portion of our operations through the Repeat Precision joint venture, which subjects us to additional risks that could adversely affect the success of these operations and the ability of Repeat Precision to make cash distributions to us, which could adversely impact our business, financial position and results of operations. A significant amount of our revenue generated is denominated in the Canadian dollar (“CAD”) and could be negatively impacted by currency fluctuations. Our operations may be limited or disrupted in certain parts of the continental United States, Canada and the North Sea during severe weather conditions, which could have a material adverse effect on our business, financial condition and results of operations. Hydraulic fracturing is substantially dependent on the availability of water.
Biggest changeRisks Related to Our Business and the Oil and Natural Gas Industry Our business depends on the levels of expenditures by companies in the oil and natural gas industry and particularly on the level of E&P activity in Canada, the United States and internationally. The cyclicality of the oil and natural gas industry may cause our results of operations to fluctuate. Competition within our industry may adversely affect our ability to market our services. We may not be able to successfully implement our strategy of increasing sales of our products and services for use in the U.S. or select international markets. The loss of any of our significant customers, or their failure to pay the amounts they owe us, could cause our revenue and cash flow to decline substantially. The products and services we provide are used in operations that are subject to potential hazards inherent in the oil and natural gas industry and, as a result, we are exposed to potential liabilities that may affect our financial condition and reputation. Losses and liabilities from operating activities could have a material adverse effect on our business, financial condition and results of operations. Explosive incidents arising out of dangerous materials used in our business could disrupt operations and result in bodily injuries and property damages. We are exposed to counterparty credit risk. The growth of our business through acquisitions or strategic partnerships exposes us to various risks, including identifying suitable opportunities and integrating businesses, assets and personnel. We may be adversely affected by the effects of inflation. Disruptions or delays involving our suppliers or increases in prices for the components, raw materials and parts that we obtain from our suppliers could have an adverse effect on our business. Our success may depend on the continued service and availability of key personnel. We conduct a portion of our operations through the Repeat Precision joint venture, which subjects us to additional risks that could adversely affect the success of these operations, which could adversely impact our business, financial position and results of operations. A significant amount of our revenue generated is denominated in CAD and could be negatively impacted by currency fluctuations. Our operations may be limited or disrupted during severe weather conditions. We may hold excess or obsolete inventory or have insufficient inventory. 13 Table of Contents We could be subject to additional income tax liabilities. Our operations and our customers’ operations are subject to a variety of governmental laws and regulations. Policy changes affecting international trade could adversely impact our business.
Our effective tax rates could be affected by numerous factors, such as intercompany transactions, the relative amount of our foreign earnings, including lower than anticipated earnings in jurisdictions where we have lower statutory rates and higher than anticipated earnings in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies, changes to our existing businesses and operations, acquisitions (including integrations) and investments and how they are financed, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations.
Our effective tax rates could be affected by numerous factors, such as intercompany transactions, the relative amount of our foreign earnings, including lower than anticipated earnings in jurisdictions where we have lower statutory tax rates and higher than anticipated earnings in jurisdictions where we have higher statutory tax rates, losses incurred in jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies, changes to our existing businesses and operations, acquisitions (including integrations) and investments and how they are financed, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations.
“Smaller reporting companies” are exempt from the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley Act of 2002; have reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports.
“Smaller reporting companies” are exempt from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002; have reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports.
In the event we are no longer a “smaller reporting company,” our legal, accounting and other expenses may further increase as we will no longer qualify for an exemption from the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley Act of 2002 .
In the event we are no longer a “smaller reporting company,” our legal, accounting and other expenses may further increase as we will no longer qualify for an exemption from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002 .
In addition, business acquisitions and strategic partnerships involve a number of risks that could affect our business, financial condition and results of operations, including but not limited to: our ability to integrate or implement operational, accounting and technology policies, processes and systems; our ability to integrate personnel and human resources systems as well as the cultures of each of the acquired businesses; our ability to implement our business plan for the acquired business; transition of operations, users and clients to our existing platforms or the integration of data, systems and technology platforms with ours; compliance with regulatory requirements and avoiding potential conflicts of interest in markets that we serve; diversion of management’s attention and other resources; our ability to retain or replace key personnel; our ability to maintain relationships with the customers of the acquired business or a strategic partner and further develop the acquired business or the business of our strategic partner; 20 Table of Contents our ability to cross-sell our products and services and products and services of the acquired businesses or strategic partners to our respective clients; entry into unfamiliar markets; assumption of unanticipated legal or financial liabilities and/or negative publicity related to prior acts by the acquired entity; litigation or other claims in connection with the acquired company, including claims from terminated employees, clients, former stockholders or third parties; misuse of intellectual property by our strategic partners; disagreements with strategic partners or a misalignment of incentives within any strategic partnership; becoming subject to increased regulation as a result of an acquisition; becoming significantly leveraged as a result of incurring debt to finance an acquisition; unanticipated operating, accounting or management difficulties in connection with the acquired entities; and impairment of acq uired intangible assets, including goodwill, and dilution to our earnings per share.
In addition, business acquisitions and strategic partnerships involve a number of risks that could affect our business, financial condition and results of operations, including but not limited to: our ability to integrate or implement operational, accounting and technology policies, processes and systems; our ability to integrate personnel and human resources systems as well as the cultures of each of the acquired businesses; our ability to implement our business plan for the acquired business; transition of operations, users and clients to our existing platforms or the integration of data, systems and technology platforms with ours; compliance with regulatory requirements and avoiding potential conflicts of interest in markets that we serve; diversion of management’s attention and other resources; our ability to retain or replace key personnel; our ability to maintain relationships with the customers of the acquired business or a strategic partner and further develop the acquired business or the business of our strategic partner; our ability to cross-sell our products and services and products and services of the acquired businesses or strategic partners to our respective clients; entry into unfamiliar markets; assumption of unanticipated legal or financial liabilities and/or negative publicity related to prior acts by the acquired entity; litigation or other claims in connection with the acquired company, including claims from terminated employees, clients, former stockholders or third parties; misuse of intellectual property by our strategic partners; disagreements with strategic partners or a misalignment of incentives within any strategic partnership; 19 Table of Contents becoming subject to increased regulation as a result of an acquisition; becoming significantly leveraged as a result of incurring debt to finance an acquisition; unanticipated operating, accounting or management difficulties in connection with the acquired entities; and impairment of acq uired intangible assets, including goodwill, and dilution to our earnings per share.
When Repeat Precision increases the outstanding borrowings under the Repeat Precision Promissory Note, it may not be able to meet the ongoing interest obligations or repay the principal balance when due and the note may not be renewed on the current annual schedule, which could prevent Repeat Precision from pursuing its business strategies, paying us cash distributions or obtaining additional financing and could also have a material adverse effect on our business, financial condition and results of operations.
When Repeat Precision increases the outstanding borrowings under the Repeat Precision Promissory Note, it may not be able to meet the ongoing interest obligations or repay the principal balance when due and the note may not be renewed on the current schedule, which could prevent Repeat Precision from pursuing its business strategies, paying us cash distributions or obtaining additional financing and could also have a material adverse effect on our business, financial condition and results of operations.
State and federal regulatory agencies recently have focused on a possible connection between the operation of injection wells used for oil and natural gas waste disposal and seismic activity. Similar concerns have been raised that hydraulic fracturing may also contribute to seismic activity. When caused by human activity, such events are called induced seismicity.
State, provincial and federal regulatory agencies recently have focused on a possible connection between the operation of injection wells used for oil and natural gas waste disposal and seismic activity. Similar concerns have been raised that hydraulic fracturing may also contribute to seismic activity. When caused by human activity, such events are called induced seismicity.
Also, our customers or other service providers may not carry adequate insurance to cover any losses or liabilities where we may be indemnified by such party. Liabilities for which we are not insured, or which exceed the policy limits of our applicable insurance, could have a material adverse effect on our business, financial condition and results of operations.
Also, our customers, suppliers or other service providers may not carry adequate insurance to cover any losses or liabilities where we may be indemnified by such party. Liabilities for which we are not insured, or which exceed the policy limits of our applicable insurance, could have a material adverse effect on our business, financial condition and results of operations.
Any increased regulation of hydraulic fracturing could reduce our customers’ demand for our products and services and have a material adverse effect on our business, financial condition and results of operations. At this time, it is not possible to estimate the impact on our business of newly enacted or potential federal, state or local laws governing hydraulic fracturing.
Any increased regulation of hydraulic fracturing could reduce our customers’ demand for our products and services and have a material adverse effect on our business, financial condition and results of operations. At this time, it is not possible to estimate the impact on our business of newly enacted or potential federal, state, provincial or local laws governing hydraulic fracturing.
As a result of this ownership, Advent will have effective control over the outcome of votes on all matters requiring approval by our stockholders, including the election of directors, the adoption of amendments to our charter and bylaws and other significant corporate transactions. In addition, persons associated with Advent currently serve on our board of directors (our “Board”).
As a result of this ownership, Advent will have effective control over the outcome of votes on all matters requiring approval by our stockholders, including the election of directors, the adoption of amendments to our charter and bylaws and other significant corporate transactions. In addition, persons previously associated with Advent currently serve on our board of directors (our “Board”).
Various state and local-level initiatives in regions with substantial shale resources have been or may be proposed or implemented to further regulate hydraulic fracturing practices, limit water withdrawals and water use, require disclosure of fracturing fluid constituents, restrict which additives may be used, or implement temporary or permanent bans on hydraulic fracturing.
Various state, provincial, and local-level initiatives in regions with substantial shale resources have been or may be proposed or implemented to further regulate hydraulic fracturing practices, limit water withdrawals and water use, require disclosure of fracturing fluid constituents, restrict which additives may be used, or implement temporary or permanent bans on hydraulic fracturing.
For example, the United States has a tariff of 25% in place on a significant number of commodities originating from China, including certain chemicals utilized in our tracer diagnostics business. In addition, we sell a significant proportion of our products to customers outside of the United States.
For example, the United States has a tariff in place on a significant number of commodities originating from China, including certain chemicals utilized in our tracer diagnostics business. In addition, we sell a significant proportion of our products to customers outside of the United States.
For example, we may: Share approval rights over certain major decisions and may not be able to fully control decisions, including cash distributions to us from the joint venture; Devote significant management time to the requirements of, and matters relating to, the joint ventures; Engage in disputes that may result in delays, litigation or operational impasses; Incur liabilities as a result of an action taken by our joint venture partner, including leaving us liable for the other joint venture partners’ shares of joint venture liabilities; Not receive credit for additional borrowing capacity under the borrowing base of our ABL Facility, as in the case with the Repeat Precision joint venture; Breach a covenant or restriction in the promissory note entered into by Repeat Precision (the “ Repeat Precision Promissory Note”); Have different systems or controls at the joint venture, which may subject us to additional risks and vulnerabilities; and Not carry adequate insurance policies that fully cover loss or damage incurred by both us and our joint venture partners in certain circumstances.
For example, we may: share approval rights over certain major decisions and may not be able to fully control decisions, including cash distributions to us from the joint venture; devote significant management time to the requirements of, and matters relating to, the joint ventures; engage in disputes that may result in delays, litigation or operational impasses; 20 Table of Contents incur liabilities as a result of an action taken by our joint venture partner, including leaving us liable for the other joint venture partners’ shares of joint venture liabilities; not receive credit for additional borrowing capacity under the borrowing base of our ABL Facility, as in the case with the Repeat Precision joint venture; breach a covenant or restriction in the promissory note entered into by Repeat Precision (the “ Repeat Precision Promissory Note”); have different systems or controls at the joint venture, which may subject us to additional risks and vulnerabilities; and not carry adequate insurance policies that fully cover loss or damage incurred by both us and our joint venture partners in certain circumstances.
Our Second Amended and Restated Certificate of Incorporation (as amended by the Certificate of Amendment, our “amended and restated certificate of incorporation”) provides that Advent and our directors affiliated with Advent do not have any obligation to offer us an opportunity to participate in business opportunities presented to them even if the opportunity is one that we might reasonably have pursued (and therefore may be free to compete with us in the same business or similar businesses), and that, to the extent permitted by law, Advent and such directors, will not be liable to us or our stockholders for breach of any duty by reason of any such activities.
Our Second Amended and Restated Certificate of Incorporation (as amended by the Certificate of Amendment, our “amended and restated certificate of incorporation”) provides that Advent and our directors that were previously affiliated with Advent do not have any obligation to offer us an opportunity to participate in business opportunities presented to them even if the opportunity is one that we might reasonably have pursued (and therefore may be free to compete with us in the same business or similar businesses), and that, to the extent permitted by law, Advent and such directors, will not be liable to us or our stockholders for breach of any duty by reason of any such activities.
Federal agencies also have asserted regulatory authority over additional aspects of the process and there are certain governmental reviews either completed, underway, or being proposed that focus on the environmental aspects of hydraulic fracturing practices.
Federal and provincial agencies also have asserted regulatory authority over additional aspects of the process and there are certain governmental reviews either completed, underway, or being proposed that focus on the environmental aspects of hydraulic fracturing practices.
Changes in regulatory requirements, laws and policies, or evolving interpretations of existing regulatory requirements, laws and policies, may result in increased compliance costs, delays, capital expenditures and other financial obligations that could adversely affect our business or financial results.
Changes in regulatory requirements, laws and policies, or evolving interpretations of existing regulatory requirements, laws and policies, may result in increased compliance costs, delays, capital expenditures and other financial obligations that could adversely affect our business or results of operations.
Noncompliance with an EPA consent order could result in civil or criminal penalties and delays, or require us to cease operations that are authorized under the consent order.
Noncompliance with the EPA consent order could result in civil or criminal penalties and delays, or require us to cease operations that are authorized under the consent order.
As described in the risk factor above, our MSAs may require us to indemnify our customers for damage or loss arising out of our sale of goods or performance of our work, regardless of fault, and provide for warranties for products and workmanship and we may also be required to name the customer and others as an additional insured under our insurance policies.
As described in the risk factor above, our contracts may require us to indemnify our customers for damage or loss arising out of our sale of goods or performance of our work, regardless of fault, and provide for warranties for products and workmanship and we may also be required to name the customer and others as an additional insured under our insurance policies.
In addition, some non-U.S. countries may adopt regulations or practices that give advantage to indigenous oil companies in bidding for oil leases, or require indigenous companies to perform oilfield services currently supplied by international service companies. To the extent that such companies are not our customers, or we are unable to develop relationships with them, our business may suffer.
In addition, some non-U.S. countries may adopt regulations or practices that give advantage to indigenous oil companies in bidding for oil leases, or require indigenous companies to perform oilfield services currently supplied by other service companies. To the extent that such companies are not our customers, or we are unable to develop relationships with them, our business may suffer.
The federal government can, however, limit hydraulic fracturing activities on federal lands through permitting, including by limiting the amount of lands available to lease or increasing royalty rates. In addition, the current administration cancelled the construction permit for the Keystone XL oil pipeline, which would have transported Canadian oil to the Gulf Coast.
In the United States, the federal government can, however, limit hydraulic fracturing activities on federal lands through permitting, including by limiting the amount of lands available to lease or increasing royalty rates. In addition, the current administration cancelled the construction permit for the Keystone XL oil pipeline, which would have transported Canadian oil to the Gulf Coast.
We currently own one property, located in Calgary, Alberta, which is used for our engineering and research and development activities. In addition to our property in Calgary, Alberta, we also lease 19 properties with terms greater than 12 months that are used for our corporate headquarters, sales offices, manufacturing, engineering, district operations, laboratory, warehousing and storage yards.
We currently own one property, located in Calgary, Alberta, which is used for our engineering and research and development activities. In addition to our property in Calgary, Alberta, we also lease 16 properties with terms greater than 12 months that are used for our corporate headquarters, sales offices, manufacturing, engineering, district operations, laboratory, warehousing and storage yards.
All of these properties are leased from third parties. We believe that these facilities are adequate for our current operations and that none of our leases are individually material to our business. Ite m 3. Legal Proceedings See “Note 10. Commitments and Contingencies” of our consolidated financial statements for further information regarding our legal proceedings. It em 4.
All of these properties are leased from third parties. We believe that these facilities are adequate for our current operations and that none of our leases are individually material to our business. Ite m 3. Legal Proceedings See “Note 11. Commitments and Contingencies” of our consolidated financial statements for further information regarding our legal proceedings. It em 4.
Any such consequence could have a material adverse effect on our business, financial condition and results of operations. We are subject to cyber security risks. A cyber incident could occur and result in information theft, data corruption, operational disruption and/or financial loss. Our operations depend on effective and secure information technology systems.
Any such consequence could have a material adverse effect on our business, financial condition and results of operations. We are subject to cybersecurity risks. A cyber incident could occur and result in information theft, data corruption, operational disruption and/or financial loss. Our operations depend on effective and secure information technology systems.
If we and our subsidiaries incur substantial additional indebtedness, the related risks to our financial condition could increase. Restrictive covenants in the agreement governing our ABL Facility or other indebtedness may restrict our ability to pursue our business strategies.
If we and our subsidiaries incur substantial additional indebtedness or other cash obligations, the related risks to our financial condition could increase. Restrictive covenants in the agreement governing our ABL Facility or other indebtedness may restrict our ability to pursue our business strategies.
Although it is not possible at this time to predict how any legal requirements imposed following the implementation of the Paris Agreement or otherwise that may be adopted or issued to address or restrict GHG emissions would impact our business or that of our customers, any such future laws, regulations or legal requirements imposing reporting or permitting obligations on, or limiting emissions of GHGs from, oil and natural gas exploration activities could require our customers to incur costs to reduce emissions of GHGs associated with their operations.
Although it is not possible at this time to predict how any legal requirements imposed following the implementation of the Paris Agreement, subsequent international negotiations or otherwise that may be adopted or issued to address GHG emissions would impact our business or that of our customers, any such future laws, regulations or legal requirements imposing reporting or permitting obligations on, or limiting emissions of GHGs from, oil and natural gas exploration activities could require our customers to incur costs to reduce emissions of GHGs associated with their operations.
Any material weakness in our internal control over 32 Table of Contents financial reporting could result in a material misstatement of our annual or interim consolidated financial statements that may not be prevented or detected on a timely basis.
Any material weakness in our internal control over 33 Table of Contents financial reporting could result in a material misstatement of our annual or interim consolidated financial statements that may not be prevented or detected on a timely basis.
In addition, the agreement governing the Repeat Precision Promissory Note (together with the ABL Facility, the “Available Loans”) contains a number of restrictive covenants that impose significant operating and financial restrictions on Repeat Precision. 29 Table of Contents Our ABL Facility requires, as a condition to borrowing, that our available cash on hand after borrowings does not exceed $10.0 million.
In addition, the agreement governing the Repeat Precision Promissory Note (together with the ABL Facility, the “Available Loans”) contains a number of restrictive covenants that impose significant operating and financial restrictions on Repeat Precision. Our ABL Facility requires, as a condition to borrowing, that our available cash on hand after borrowings does not exceed $10.0 million.
Restrictions on the oil and natural gas operations of our customers to protect wildlife could reduce demand for our products and services, which could have a material adverse effect on our business, financial condition and results of operations.
Restrictions on the oil and natural gas operations of our customers to protect wildlife and their habitat could reduce demand for our products and services, which could have a material adverse effect on our business, financial condition and results of operations.
Also, if we are not able to obtain patent or other intellectual property protection of our technology, we may not be able to recoup development costs or fully 16 Table of Contents exploit systems, services and technologies in a manner that allows us to meet evolving industry requirements at prices acceptable to our customers.
Also, if we are not able to obtain patent or other intellectual property protection of our technology, we may not be able to recoup development costs or fully exploit systems, services and technologies in a manner that allows us to meet evolving industry requirements at prices acceptable to our customers.
Risks Relating to Our Indebtedness Our outstanding indebtedness could adversely affect our financial condition and our ability to operate our business, and we may not be able to generate sufficient cash flows to meet our debt service obligations. Restrictive covenants in the agreement governing our ABL Facility or other indebtedness may restrict our ability to pursue our business strategies.
Risks Relating to Our Indebtedness Our outstanding indebtedness could adversely affect our financial condition and our ability to operate our business, and we may not be able to generate sufficient cash flows to meet our debt service obligations. We and our subsidiaries may be able to incur substantial indebtedness. Restrictive covenants in the agreement governing our ABL Facility or other indebtedness may restrict our ability to pursue our business strategies.
We may confront significant and potentially adverse competition for these skilled and technically knowledgeable personnel, particularly during periods of increased demand for oil and natural gas. Additionally, at times there may be a shortage of skilled and technical personnel available in the market, potentially compounding the difficulty of attracting and retaining these employees.
We may 25 Table of Contents confront significant and potentially adverse competition for these skilled and technically knowledgeable personnel, particularly during periods of increased demand for oil and natural gas. Additionally, at times there may be a shortage of skilled and technical personnel available in the market, potentially compounding the difficulty of attracting and retaining these employees.
Many municipalities impose bans or other restrictions on the use of roads and highways, which include weight restrictions on the paved roads that lead to our jobsites due to the muddy conditions caused by spring thaws. This can limit our access to these jobsites and our ability to service wells in these areas.
Many municipalities in Canada impose bans or other restrictions on the use of roads and highways, which include weight restrictions on the paved roads that lead to our jobsites due to the muddy conditions caused by the spring thaw. This can limit our access to these jobsites and our ability to service wells in these areas.
If our products or facilities are unable to satisfy such requirements, or we are unable to perform or satisfy the required testing, our customers may cancel their contracts and/or seek new suppliers, which could have a material adverse effect on our business, financial condition and results of operations.
If our products or 26 Table of Contents facilities are unable to satisfy such requirements, or we are unable to perform or satisfy the required testing, our customers may cancel their contracts and/or seek new suppliers, which could have a material adverse effect on our business, financial condition and results of operations.
There has been an increase in consolidation amongst E&P companies and, as a result, we have experienced a reduction in spending with certain large customers and may continue to further experience a reduction in future business 17 Table of Contents with consolidating customers if combined capital spending is reduced, if procurement strategies are altered, or if the counterparty in the consolidation has other preferred vendors for the products and services we have been providing.
There has been an increase in consolidation amongst E&P companies and, as a result, we have experienced a reduction in spending with certain large customers and may continue to further experience a reduction in future business with consolidating customers if combined capital spending is reduced, if procurement strategies are altered, or if the counterparty in the consolidation has other preferred vendors for the products and services we have been providing.
Despite our use of specialized facilities to store and handle dangerous materials and our employee training programs, the storage and handling of explosive materials could result in 19 Table of Contents explosive incidents that temporarily shut down or otherwise disrupt our or our customers’ operations or could cause restrictions, delays or cancellations in the delivery of our services.
Despite our use of specialized facilities to store and handle dangerous materials and our employee training programs, the storage and handling of explosive materials could result in explosive incidents that temporarily shut down or otherwise disrupt our or our customers’ operations or could cause restrictions, delays or cancellations in the delivery of our services.
In addition, the development of new processes to replace hydraulic fracturing altogether or that replace our technologies, could cause a decline in the demand for the products and services that we provide and could result in a material adverse effect on our business, financial condition and results of operations.
In addition, the development of new processes to replace hydraulic fracturing altogether or that replace our 24 Table of Contents technologies, could cause a decline in the demand for the products and services that we provide and could result in a material adverse effect on our business, financial condition and results of operations.
In addition, any future significant cancellations or deferrals of product orders or the return of previously sold products could materially and adversely affect profit margins, increase product obsolescence and restrict our ability to fund our operations. We could be subject to additional income tax liabilities.
In addition, any future significant cancellations or deferrals of product orders or the return of previously sold products could materially and adversely affect gross margins, increase product obsolescence charges and restrict our ability to fund our operations. We could be subject to additional income tax liabilities.
Our business and our customers’ businesses may be significantly affected by: federal, state and local and non-U.S. laws and other regulations relating to import tariffs, oilfield operations, worker safety and protection of the environment; 25 Table of Contents changes in these laws and regulations; and the level of enforcement of these laws and regulations.
Our business and our customers’ businesses may be significantly affected by: federal, state and local and non-U.S. laws and other regulations relating to import tariffs, oilfield operations, worker safety and protection of the environment; changes in these laws and regulations; and the level of enforcement of these laws and regulations.
Our operations may be limited or disrupted in certain parts of the continental United States, Canada and the North Sea during severe weather conditions, which could have a material adverse effect on our business, financial condition and results of operations.
Our operations may be limited or disrupted in certain parts of the continental United States, Canada and the North Sea during severe weather conditions, including severe winters or wildfires, which could have a material adverse effect on our business, financial condition and results of operations.
We have not hedged our exposure to changes in foreign currency exchange rates and, as a result, could incur significant and unanticipated translation gains and losses.
We have not hedged our exposure to changes in foreign currency exchange rates and, as a result, could incur significant and unanticipated transaction gains and losses.
If we are operating under an MSA, we may not succeed in enforcing such contractual allocation, might incur an unforeseen liability falling outside the scope of such allocation or may be required to enter into an MSA with terms that are unfavorable to us.
If we are operating under a contract, we may not succeed in enforcing such contractual allocation, might incur an unforeseen liability falling outside the scope of such allocation or may be required to enter into a contract with terms that are unfavorable to us.
While various procedures and controls are being utilized to mitigate exposure to such risk, there can be no assurance that the procedures and controls that we implement, or which we cause third party service providers to implement, are sufficient to protect our systems, information or other property.
While we utilize various procedures and controls to mitigate exposure to such risk, there can be no assurance that the procedures and controls that we implement, or which we cause third party service providers to implement, are sufficient to protect our systems, information or other property.
Based on these findings, the EPA has proposed regulations restricting emissions of GHGs under existing provisions of the CAA, including establishing NSPS, a set of uniform technology-based standards for new and modified sources of air pollution, that govern emissions of methane and volatile organic compounds from new and modified oil and natural gas development and production operations.
Based on these findings, the EPA has proposed regulations restricting emissions of GHGs under existing provisions of the CAA, including establishing New Source Performance Standards (“NSPS”), a set of uniform technology-based standards for new and modified sources of air pollution, that govern emissions of methane and volatile organic compounds from new and modified oil and natural gas development and production operations.
There can be no assurance that our ABL Facility will be adequate in size to satisfy our liquidity needs, or that adverse energy market developments impacting our customers will not constrain our liquidity by reducing the size of our borrowing base.
There can be no assurance that our ABL Facility will be adequate in size to satisfy our liquidity needs, or that 29 Table of Contents adverse energy market developments impacting our customers will not constrain our liquidity by reducing the size of our borrowing base.
We may incur substantial additional indebtedness in the future. Although the terms of the agreement governing our ABL Facility contains restrictions on our ability to incur additional indebtedness, these restrictions are subject to a number of important exceptions, and indebtedness incurred in compliance with these restrictions could be substantial.
Although the terms of the agreement governing our ABL Facility contains restrictions on our ability to incur additional indebtedness, these restrictions are subject to a number of important exceptions, and indebtedness incurred in compliance with these restrictions could be substantial.
In addition, higher interest rates may be implemented by governments as monetary policy to combat inflation, which could result in higher borrowing costs, supply shortages, increased costs of labor, weakening exchange rates and other similar effects.
In addition, higher interest rates may be implemented by governments as monetary policy to combat inflation, which could result in higher borrowing costs, supply shortages, increased costs of labor, unfavorable movements in exchange rates and other similar effects.
We cannot predict the effect, if any, that such market sales of shares of our common stock or the availability of shares of our common 31 Table of Contents stock for sale will have on the market price of our common stock prevailing from time to time.
We cannot predict the effect, if any, that such market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time.
If we are not able to generate sufficient cash flows to meet our debt service obligations or are forced to take additional measures to be able to service our indebtedness, it could have a material adverse effect on our business, financial condition and results of operations. We and our subsidiaries may be able to incur substantial indebtedness.
If we are not able to generate sufficient cash flows to meet our debt service obligations or are forced to take additional measures to be able to service our indebtedness, it could have a material adverse effect on our business, financial condition and results of operations.
We provide products and services to E&P companies that operate in basins throughout the continental United States, Canada and in the North Sea. We serve these markets through our facilities and service centers located in Texas, Oklahoma, Montana, West Virginia, and Alberta and Saskatchewan, Canada, and Western Norway.
We primarily provide products and services to E&P companies that operate in basins throughout the continental United States, Canada and in the North Sea. We serve these markets through our facilities and service centers located in Texas, Oklahoma, and Alberta and Saskatchewan, Canada, and Western Norway.
Repercussions of severe weather conditions may include: curtailment of drilling and completion activity; weather- related damage to equipment resulting in suspension of operations; weather- related damage to our facilities; inability to deliver equipment and materials to jobsites in accordance with contract schedules; and loss of productivity, or exposure of our employees to harm .
Repercussions of severe weather conditions may include: curtailment of drilling and completion activity; weather- related damage to equipment resulting in suspension of operations or the shut-in of existing production; weather- related damage to our facilities; inability to deliver equipment and materials to jobsites in accordance with contract schedules; and loss of productivity, or exposure of our employees to harm .
As a result of this severe drought, some local water districts have begun restricting the use of water subject to their jurisdiction for hydraulic fracturing to protect local water supply.
As a result of this severe drought, some local water districts and Canadian provinces have begun restricting the use of water subject to their jurisdiction for hydraulic fracturing to protect local water supply.
It is possible that such an explosion could result in death or significant injuries to employees and other persons. Material property damage to us, our customers and third parties arising from an explosion or resulting fire could also occur.
It is possible that such an explosion could result in death or significant injuries to employees and other persons. Material 18 Table of Contents property damage to us, our customers and third parties arising from an explosion or resulting fire could also occur.
Sales of substantial amounts of shares of our common stock in the public market, or the perception that those sales will occur, could cause the market price of our common stock to decline.
Sales of substantial amounts of shares 32 Table of Contents of our common stock in the public market, or the perception that those sales will occur, could cause the market price of our common stock to decline.
The borrowing 28 Table of Contents base is determined based on 85% of eligible accounts receivable, 85% of the net orderly liquidation value of eligible inventory, and 100% of cash in a specified pledged account, subject to change in the administrative agent’s permitted discretion, and does not include assets of Repeat Precision.
The borrowing base is determined based on 85% of eligible accounts receivables, 85% of the net orderly liquidation value of eligible inventory, and 100% of cash in a specified pledged account, subject to change in the administrative agent’s permitted discretion, and does not include assets of Repeat Precision.
We are controlled by funds (the “Advent Funds”) managed by Advent, which beneficially own in the aggregate 61.4% of the combined voting power of our common stock.
We are controlled by funds (the “Advent Funds”) managed by Advent, which beneficially own in the aggregate 60% of the combined voting power of our common stock.
Most recently, the Inflation Reduction Act of 2022 became law in August 2022, and aims to reduce GHGs, including carbon dioxide, by 40 percent by 2030. The Inflation Reduction Act provides billions of dollars in grants and loans designed to facilitate financing and deployment of renewable energy projects in the United States.
The Inflation Reduction Act of 2022 became law in August 2022, and aims to reduce GHGs, including carbon dioxide, by 40 percent by 2030. The Inflation Reduction Act provides billions of dollars in financial incentives, in the form of grants and loans, designed to facilitate financing and deployment of renewable energy projects in the United States.
Members of the investment community are increasing their focus on ESG practices and disclosures by public companies, including practices and disclosures related to climate change and sustainability, diversity, equity and inclusion initiatives, and heightened governance standards. As a result, we may continue to face increasing pressure regarding our ESG disclosures and practices.
Members of the 34 Table of Contents investment community are increasing their focus on ESG practices and disclosures by public companies, including practices and disclosures related to climate change and sustainability, diversity, equity and inclusion initiatives, and heightened governance standards. As a result, we may continue to face increasing pressure regarding our ESG disclosures and practices. It em 1B.
In the U.S. and international markets, we have been selling for a shorter period of time and thus must convince potential customers about either the value of the emerging technology compared to traditional methods or, in the case of more mature technology offerings, our differentiated benefits.
In the U.S. and international markets, we have been selling for a shorter period of time and thus must convince potential customers about either the value of the emerging technology compared to traditional methods or, in the case of more mature technology offerings, our differentiated benefits. In the United States, we sell a variety of products and services.
Our outstanding indebtedness could adversely affect our financial condition and our ability to operate our business, and we may not be able to generate sufficient cash flows to meet our debt service obligations. As of December 31, 2022, our total outstanding indebtedness was $7.9 million, of which no amount was outstanding under our ABL Facility.
Our outstanding indebtedness could adversely affect our financial condition and our ability to operate our business, and we may not be able to generate sufficient cash flows to meet our debt service obligations. As of December 31, 2023, our total outstanding indebtedness was $8.2 million, of which no amount was outstanding under our ABL Facility.
Any number of factors, including labor disruptions, military activity, catastrophic weather events, the occurrence of a pandemic or other widespread illness (such as COVID-19), contractual or other disputes, unfavorable economic or industry conditions, transportation disruptions, delivery delays or other performance problems or financial difficulties or solvency problems, could disrupt our suppliers’ operations and performance, which could, in turn, lead to uncertainty in our supply chain or cause supply disruptions for us and disrupt our operations.
Any number of factors, including labor disruptions, military activity, catastrophic weather events, the occurrence of a pandemic or other widespread illness, contractual or other disputes, unfavorable economic or industry conditions, transportation disruptions, delivery delays or other performance problems or financial difficulties or solvency problems, have from time to time, and could in the future disrupt our suppliers’ operations and performance, which could, in turn, lead to uncertainty in our supply chain or cause supply disruptions for us and disrupt our operations.
Similar programs exist in most, if not all, of the countries in which we may seek to produce, import or use certain chemicals in our tracer diagnostics business, including compliance with regulations imposed in Canada by the Environment and Climate Change Canada/Health Canada.
Similar programs exist in most, if not all, of the countries in which we may seek to produce, import or use certain chemicals in our tracer diagnostics business, including compliance with regulations imposed in Canada by the Environment and Climate Change Canada/Health Canada as well as in Norway, the United Kingdom and Australia.
For instance, the State of New York elected in 2015 to prohibit high volume hydraulic fracturing altogether and California is taking steps to ban fracking on state-permitted lands in 2024 .
For instance, the State of New York elected in 2015 to prohibit high volume hydraulic fracturing altogether and California is poised to ban hydraulic fracturing on state-permitted lands in 2024 .
Our success depends on our ability to develop and implement new technologies , products and services that align with the needs of our customers, including addressing the shift to more non-traditional energy markets as part of the energy transition.
Risks Related to Technology Advancement and Cybersecurity Our success depends on our ability to develop and implement new technologies, products and services that align with the needs of our customers, including addressing the shift to more non-traditional energy markets as part of the energy transition.
In addition, once we have a consent order from the EPA allowing us to manufacture PMN substances for our tracer diagnostics business, we remain subject to regulatory requirements, including, as applicable, volume limitations that may impede us from producing sufficient quantities of such chemicals.
In addition, once we have the EPA approval authorizing us to manufacture PMN substances for our tracer diagnostics business, we remain subject to regulatory requirements, including, as applicable, volume limitations that may impede us from producing sufficient quantities of such chemicals.
Factors affecting the trading price of our common stock could include: m arket conditions in the broader stock market; actual or anticipated variations in our quarterly financial and operating results; developments in the oil and natural gas industry in general or in the oil and natural gas services market in particular; variations in operating results of similar companies; introduction of new services by us, our competitors or our customers; issuance of new, negative or changed securities analysts’ reports, recommendations or estimates; a decline in the number of securities analysts covering our company; investor perceptions of us and the industries in which we or our customers operate, including perceptions of our ESG attributes; sales, or anticipated sales, of our stock, including sales by our officers, directors and significant stockholders; additions or departures of key personnel; regulatory or political developments; the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC; announcements, media reports or other public forum comments related to litigation, claims or reputational charges against us; guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance; the sustainability of an active trading market for our common stock; investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives; other events or factors, including those resulting from system failures and disruptions, earthquakes, hurricanes, war, acts of terrorism, other natural disasters or responses to these events; changes in accounting principles; share-based compensation expense under applicable accounting standards; litigation and governmental investigations; and 30 Table of Contents changing economic conditi ons.
Factors affecting the trading price of our common stock could include: m arket conditions in the broader stock market; actual or anticipated variations in our quarterly financial and operating results; developments in the oil and natural gas industry in general or in the oil and natural gas services market in particular; variations in operating results of similar companies; introduction of new services by us, our competitors or our customers; issuance of new, negative or changed securities analysts’ reports, recommendations or estimates; a decline in the number of securities analysts covering our company; investor perceptions of us and the industries in which we or our customers operate, including perceptions of our ESG attributes; sales, or anticipated sales, of our stock, including sales by our officers, directors and significant stockholders; additions or departures of key personnel; regulatory or political developments; the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC; announcements, media reports or other public forum comments related to litigation, claims or reputational charges against us; guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance; the sustainability of an active trading market for our common stock; investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives; other events or factors, including those resulting from system failures and disruptions, wildfires, floods, droughts, earthquakes, hurricanes, war, acts of terrorism, other natural disasters or responses to these events; changes in accounting principles; share-based compensation expense under applicable accounting standards; litigation and governmental investigations; and changing economic conditi ons. 31 Table of Contents In addition, because our common stock is more thinly traded, its market price may fluctuate significantly more than the stock market in general or the stock prices of similar companies, which are exchanged, listed or quoted on Nasdaq or another stock exchange.
We believe that approximately 29% of our shares of our common stock are held by non-affiliates as of December 31, 2022. Thus, our common stock will be less liquid than the stock of companies with broader public ownership, and as a result, the trading price for our shares of common stock may be more volatile.
Approximately 31% of our shares of our common stock are held by non-affiliates as of December 31, 2023. Thus, our common stock will be less liquid than the stock of companies with broader public ownership, and as a result, the trading price for our shares of common stock may be more volatile.
Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery laws in other jurisdictions, including the UK Bribery Act 2010, prohibit corporations and individuals, including us and our employees, from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity.
Foreign Corrupt Practices Act (“FCPA”) and similar anti-bribery laws in other jurisdictions, including the Corruption of Foreign Public Officials Act and Criminal Code in Canada and the UK Bribery Act 2010, prohibit corporations and individuals, including us and our employees, from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity.
Mine Safety Disclosures Not applicable. ‎ 34 Table of Contents PA RT II
Mine Safety Disclosures Not applicable. ‎ 35 Table of Contents PA RT II
If our products or services fail to meet specifications or are involved in accidents or failures, we could face warranty, contract or other litigation claims, which could expose us to substantial liability for personal injury, wrongful death, property damage, pollution and other environmental damages. We operate with many of our customers under MSAs.
If our products or services fail to meet specifications or are involved in accidents or failures, we could face warranty, contract or other litigation claims, which could expose us to substantial liability for personal injury, wrongful death, property damage, pollution and other environmental damages.
In addition, in response to concerns regarding induced seismicity, regulators in some states have from time to time, developed and implemented plans directing certain wells where seismic incidents have occurred to restrict or suspend disposal 24 Table of Contents well operations.
In addition, in response to concerns regarding induced seismicity, regulators in some states and provinces have from time to time, developed and implemented plans directing certain wells where seismic incidents have occurred to monitor, restrict or suspend disposal well operations.
The loss of any of our significant customers, or their failure to pay the amounts they owe us, could cause our revenue to decline substantially. A single customer accounted for approximately 6% and 7% of our revenue for the years ended December 31, 2022 and 2021, respectively.
A single customer constituted 7% and 6% of our revenue for the years ended December 31, 2023 and 2022, respectively. The loss of any of our significant customers, or their failure to pay the amounts they owe us, could cause our revenue and cash flow to decline substantially.
Various U.S. states or groups of states have adopted or considered adopting legislation, regulations or other governmental actions focused on reducing GHG emissions, including cap and trade programs, carbon taxes, reporting and tracking initiatives and renewable portfolio standards.
Various U.S. states or groups of states also have adopted or considered adopting legislation, regulations or other governmental actions focused on reducing GHG emissions, including cap and trade programs, carbon taxes, restricting methane emissions from exploration and production activities, reporting and tracking initiatives and renewable portfolio standards.
If any of such programs or systems were to fail or create erroneous information in our hardware or software network infrastructure, whether due to cyberattack or otherwise, possible consequences include our loss of communication links and inability to automatically process commercial transactions or engage in similar automated or computerized business activities.
If any of such programs or systems were to fail or create erroneous information in our hardware or software network infrastructure, whether due to cyberattack or otherwise, unfavorable consequences could result including loss of our communication links or the inability to automatically process commercial transactions or engage in similar automated or computerized business activities.
Moreover, failure to comply with applicable requirements or the occurrence of an explosive incident may also result in the loss of our license to store and handle explosives, which would have a material adverse effect on our business, financial condition and results of operations.
Moreover, failure to comply with applicable requirements or the occurrence of an explosive incident may also result in the loss of our licenses to store and handle explosives, which would have a material adverse effect on our business, financial condition and results of operations. We are exposed to counterparty credit risk.
Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods. Loss of our information and computer systems could adversely affect our business.
Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods.
The cyclicality of the oil and natural gas industry may cause our results of operations to fluctuate. We derive our revenues from companies in the oil and natural gas E&P industry, a historically cyclical industry with activity significantly affected by the levels and volatility of oil and natural gas prices.
The cyclicality of the oil and natural gas industry may cause our results of operations to fluctuate. We derive our revenues from companies engaged in oil and natural gas exploration and production, a historically cyclical industry with levels of activity that are significantly affected by the levels and volatility of oil and natural gas prices.
Many factors over which we have no control affect the supply of and demand for, and our customers’ willingness to explore, develop and produce oil and natural gas, and therefore, influence demand levels and prices for our products and services, including: the domestic and foreign supply of and demand for oil and natural gas; the level of prices, and expectations about future prices, of oil and natural gas; the level of global oil and natural gas E&P capital spending; the cost of exploring for, developing, producing and delivering oil and natural gas, which may increase as a result of inflation in wages, materials, components, parts, equipment and other costs borne by suppliers to E&P companies; the expected decline rates of current production; 14 Table of Contents the price and quantity of foreign imports; political and economic conditions in oil producing countries, including the Middle East, Africa, South America and Russia; the ability of members of OPEC and certain other countries, including Russia (informally known as “OPEC+”) to agree to and maintain production controls to support oil prices ; the COVID-19 pandemic and related public health measures implemented by governments worldwide and any other regional or global health epidemics; speculative trading in crude oil and natural gas derivative contracts; the level of consumer product demand; the discovery rates of new oil and natural gas reserves; contractions in the credit market; the strength or weakness of the United States dollar (“USD”); available pipeline and other transportation capacity; the levels of oil and natural gas storage; weather conditions and other natural disasters, including earthquakes, hurricanes and tornadoes; political instability in oil and natural gas producing countries; domestic and foreign tax policy; domestic and foreign governmental approvals and regulatory requirements and conditions; the continued threat of terrorism and the impact of military and other action, including military action in the Middle East or Ukraine; technological advances affecting energy demand, generation and consumption; the proximity and capacity of oil and natural gas pipelines and other transportation facilities; alternative energy requirements or technological advances and the demand and availability of alternative energy sources; energy conservation measures, including the increased focus by the investment community on sustainability practices in the oil and natural gas industry; climate change legislation or regulations restricting emissions of greenhouse gases and related divestment and other efforts; the ability of oil and natural gas producers to raise equity capital and debt financing; interest rates and the cost of capital for E&P companies; merger and divestiture activity among oil and natural gas producers; and overall domestic and global economic conditions.
Many factors over which we have no control affect the supply of and demand for, and our customers’ willingness to explore, develop and produce oil and natural gas, and therefore, influence the volumes we can sell and the prices we can charge for our products and services, including: the global supply of and demand for oil and natural gas; the level of prices, and expectations about future prices, of oil and natural gas; the level of global oil and natural gas E&P capital spending; the cost of exploring for, developing, producing and delivering oil and natural gas, which may increase as a result of inflation in wages, materials, components, parts, equipment and other costs borne by suppliers to E&P companies; the expected decline rates of current production; the price and quantity of foreign imports; political and economic conditions in oil and natural gas producing countries, including the United States, Canada, the Middle East, Africa, Europe, South America and Russia; actions by OPEC and certain other countries, including Russia (informally known as “OPEC+”), with respect to oil production levels and announcements of potential changes in such levels; speculative trading in crude oil and natural gas derivative contracts; the level of consumer product demand; the discovery rates of new oil and natural gas reserves; contractions in the credit market; the strength or weakness of the United States dollar (“USD”); available pipeline and other transportation capacity; the levels of oil and natural gas storage; weather conditions, natural disasters, including earthquakes, wildfires, floods, drought, hurricanes and tornadoes, and health concerns and epidemics; political instability in oil and natural gas producing countries; domestic and foreign tax policy; domestic and foreign governmental approvals and regulatory requirements and conditions; the continued threat of terrorism and the impact of military and other action, including military action in the Middle East or Ukraine; technological advances affecting energy demand, generation and consumption; the proximity and capacity of oil and natural gas pipelines and other transportation facilities; alternative energy requirements or technological advances and the demand and availability of alternative energy sources; energy conservation measures, including increased focus by the investment community on sustainability practices in the oil and natural gas industry; 15 Table of Contents climate change legislation or regulations restricting emissions of greenhouse gases and related divestment and other efforts; the ability of oil and natural gas producers to raise equity capital and debt financing; interest rates and the cost of capital for E&P companies; merger and divestiture activity among oil and natural gas producers; cyclical/seasonal business and dependence upon spending of our customers; competition among oilfield service and equipment providers; and overall domestic and global economic conditions.
While the scope and future implementation of any final rules regarding such proposed NSPS, emissions requirements and financial incentives, remain uncertain, these rules could have an adverse effect on our customers and result in an indirect material adverse effect on our business.
While the scope and future implementation of any final rules and regulations regarding such proposed NSPS in the United States or the Federal Cap Framework in Canada, emissions requirements and financial incentives, remain uncertain, these rules and regulations could have an adverse effect on our customers and result in an indirect material adverse effect on our business.
As we have a trade accounts receivable balance in Canadian dollars of $19.6 million CAD as of December 31, 2022, a 10% movement in exchange rates for CAD relative to USD would increase or decrease the resulting trade accounts receivable balance by $1.4 million.
As we had a trade accounts receivable balance in Canadian dollars of $20.9 million as of December 31, 2023, a 10% movement in exchange rates for CAD relative to USD would increase or decrease the resulting trade accounts receivable balance by $1.6 million in USD.
At the international level, the United States is a party to the United Nations-sponsored Paris Agreement, a non-binding agreement for nations to limit their GHG emissions through individually-determined reduction goals.
At the international level, the United States and Canada are parties to the United Nations-sponsored Paris Agreement, a non-binding agreement for nations to limit their GHG emissions through individually-determined reduction goals.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

75 edited+33 added−65 removed46 unchanged
Biggest changeYear Ended December 31, Variance 2022 2021 $ % Revenues Product sales $ 105,859 $ 83,223 $ 22,636 27.2 % Services 49,773 35,279 14,494 41.1 % Total revenues 155,632 118,502 37,130 31.3 % Cost of sales Cost of product sales, exclusive of depreciation ‎ and amortization expense shown below 68,412 51,897 16,515 31.8 % Cost of services, exclusive of depreciation ‎ and amortization expense shown below 26,816 18,130 8,686 47.9 % Total cost of sales, exclusive of depreciation ‎ and amortization expense shown below 95,228 70,027 25,201 36.0 % Selling, general and administrative expenses 58,338 49,094 9,244 18.8 % Depreciation 3,650 3,832 (182) (4.7) % Amortization 669 669 — — % Loss from operations (2,253) (5,120) 2,867 56.0 % Other income (expense) Interest expense, net (1,015) (733) (282) (38.5) % Other income, net 2,950 2,054 896 43.6 % Foreign currency exchange (loss) gain (283) 283 (566) (200.0) % Total other income 1,652 1,604 48 3.0 % Loss before income tax (601) (3,516) 2,915 82.9 % Income tax expense 351 263 88 33.5 % Net loss (952) (3,779) 2,827 74.8 % Net income attributable to non-controlling interest 150 955 (805) (84.3) % Net loss attributable to NCS Multistage Holdings, Inc. $ (1,102) $ (4,734) $ 3,632 76.7 % Year Ended December 31, 2022 compared to Year Ended December 31, 2021 Revenues Revenues were $155.6 million for the year ended December 31, 2022 as compared to $118.5 million for the year ended December 31, 2021.
Biggest changeYear Ended December 31, Variance 2023 2022 $ % Revenues Product sales $ 100,447 $ 105,859 $ (5,412) (5.1) % Services 42,024 49,773 (7,749) (15.6) % Total revenues 142,471 155,632 (13,161) (8.5) % Cost of sales Cost of product sales, exclusive of depreciation ‎ and amortization expense shown below 64,242 68,412 (4,170) (6.1) % Cost of services, exclusive of depreciation ‎ and amortization expense shown below 22,626 26,816 (4,190) (15.6) % Total cost of sales, exclusive of depreciation ‎ and amortization expense shown below 86,868 95,228 (8,360) (8.8) % Selling, general and administrative expenses 56,518 58,338 (1,820) (3.1) % Depreciation 3,947 3,650 297 8.1 % Amortization 669 669 — — % Loss from operations (5,531) (2,253) (3,278) (145.5) % Other income (expense) Interest expense, net (586) (1,015) 429 42.3 % Provision for litigation, net of recoveries (1,802) — (1,802) (100.0) % Other income, net 4,114 2,950 1,164 39.5 % Foreign currency exchange gain (loss) 462 (283) 745 263.3 % Total other income 2,188 1,652 536 32.4 % Loss before income tax (3,343) (601) (2,742) (456.2) % Income tax (benefit) expense (232) 351 (583) (166.1) % Net loss (3,111) (952) (2,159) (226.8) % Net income attributable to non-controlling interest 42 150 (108) (72.0) % Net loss attributable to NCS Multistage Holdings, Inc. $ (3,153) $ (1,102) $ (2,051) (186.1) % Year Ended December 31, Variance 2023 2022 $ % Gross Margin and Gross Margin Percentage: Depreciation and amortization attributable to cost of product sales $ 1,613 $ 1,425 $ 188 13.2 % Cost of product sales 65,855 69,837 (3,982) (5.7) % Product sales gross profit $ 34,592 $ 36,022 $ (1,430) (4.0) % Product sales gross margin 34.4% 34.0% Depreciation and amortization attributable to cost of services $ 592 $ 547 $ 45 8.2 % Cost of services 23,218 27,363 (4,145) (15.1) % Services gross profit $ 18,806 $ 22,410 $ (3,604) (16.1) % Services gross margin 44.8% 45.0% Total cost of sales $ 89,073 $ 97,200 $ (8,127) (8.4) % Total gross profit $ 53,398 $ 58,432 $ (5,034) (8.6) % Total gross margin 37.5% 37.5% 42 Table of Contents Year Ended December 31, Variance 2023 2022 $ % Revenues by Geographic Area: United States Product sales $ 26,613 $ 34,009 $ (7,396) (21.7) % Services 11,206 12,228 (1,022) (8.4) % Total United States 37,819 46,237 (8,418) (18.2) % Canada Product sales 71,946 71,176 770 1.1 % Services 26,161 29,695 (3,534) (11.9) % Total Canada 98,107 100,871 (2,764) (2.7) % Other Countries Product sales 1,888 674 1,214 180.1 % Services 4,657 7,850 (3,193) (40.7) % Total Other Countries 6,545 8,524 (1,979) (23.2) % Total Product sales 100,447 105,859 (5,412) (5.1) % Services 42,024 49,773 (7,749) (15.6) % Total revenues $ 142,471 $ 155,632 $ (13,161) (8.5) % Year Ended December 31, 2023 compared to Year Ended December 31, 2022 Revenues Revenues were $142.5 million for the year ended December 31, 2023 as compared to $155.6 million for the year ended December 31, 2022.
These international sales are made through local NCS entities or to our local operating partners on a free on board or free carrier basis with a point of sale in the United States. Some of the locations in which we have operating partners or sales representatives include China and the Middle East.
These international sales are made through local NCS entities or to our local operating partners typically on a free on board or free carrier basis with a point of sale in the United States. Some of the locations in which we have operating partners or sales representatives include the Middle East and China.
Outlook Our products and services are primarily sold to North American E&P companies and our ability to generate revenues from our products and services depends upon oil and natural gas drilling and completion activity in North America. Oil and natural gas drilling and completion activity is directly influenced by oil and natural gas prices.
Our products and services are primarily sold to North American E&P companies and our ability to generate revenues from our products and services depends upon oil and natural gas drilling and completion activity in North America. Oil and natural gas drilling and completion activity is directly influenced by oil and natural gas prices.
To the extent we require additional liquidity to fund our capital requirements, including our capital lease obligations, or repay existing indebtedness, we would expect to obtain it through the incurrence of additional indebtedness, the proceeds of equity issuances, or a combination thereof.
To the extent we require additional liquidity to fund our capital requirements, including our finance lease obligations, or repay existing indebtedness, we would expect to obtain it through the incurrence of additional indebtedness, the proceeds of equity issuances, or a combination thereof.
Cost of sales includes other variable manufacturing costs, such as shrinkage, obsolescence, revaluation and scrap related to our existing inventory and costs related to the chemicals and laboratory analysis associated with our tracer diagnostics services.
Cost of sales includes other variable manufacturing costs, such as shrinkage, obsolescence, revaluation and scrap related to our existing inventory and costs related to the chemicals used and laboratory analysis associated with our tracer diagnostics services.
Overview We are a leading provider of highly engineered products and support services that facilitate the optimization of oil and natural gas well construction, well completions and field development strategies.
Overview and Outlook We are a leading provider of highly engineered products and support services that facilitate the optimization of oil and natural gas well construction, well completions and field development strategies.
An increase of obsolescence expense by 10%, or $0.3 million, would not be deemed material to our financial statements. 46 Table of Contents Impairments We evaluate our property and equipment and identifiable intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset group may not be recoverable or if there are potential indicators of impairment.
An increase of obsolescence expense by 10%, or $0.1 million, would not be deemed material to our financial statements. 46 Table of Contents Impairments We evaluate our property and equipment and identifiable intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset group may not be recoverable or if there are potential indicators of impairment.
Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts for estimated losses that may result from the inability of our customers to make required payments. We evaluate collectability of customer accounts based upon credit approval practices, industry and customer historical experience as well as the current and projected financial condition of the specific customer.
Allowance for Credit Losses We maintain an allowance for credit losses related to estimated losses that may result from the inability of our customers to make required payments. We evaluate collectability of customer accounts based upon credit approval practices, industry and customer historical experience as well as the current and projected financial condition of the specific customer.
A valuation allowance to reduce deferred tax assets is established when it is more likely than not that some portion or all the deferred tax assets will not be realized. We have incurred operating losses during each of the years ended December 31, 2022 and 2021.
A valuation allowance to reduce deferred tax assets is established when it is more likely than not that some portion or all the deferred tax assets will not be realized. We have incurred operating losses during each of the years ended December 31, 2023 and 2022.
Total borrowings available to the borrowers under the ABL Facility may be limited subject to a borrowing base calculated on the sum of cash in a specified pledged account, eligible accounts receivables and eligible inventory, provided it does not include the assets of Repeat Precision.
Total borrowings available to us under the ABL Facility may be limited subject to a borrowing base calculated on the sum of cash in a specified pledged account, eligible accounts receivables and eligible inventory, provided it does not include the assets of Repeat Precision.
Future settlements which result in loss or awards could be material to our financial statements and cannot be predicted with certainty. See “Note 10. Commitments and Contingencies” of our consolidated financial statements for further information regarding our legal proceedings. Recently Issued Accounting Pronouncements See “Note 2.
Future settlements which result in loss or awards could be material to our financial statements and cannot be predicted with certainty. See “Note 11. Commitments and Contingencies” of our consolidated financial statements for further information regarding our legal proceedings. Recently Issued Accounting Pronouncements See “Note 2.
We have applied valuation allowances to reduce our deferred tax assets as of December 31, 2022 and 2021, based upon our forecasts of future taxable income in the jurisdictions in which these deferred tax assets are recorded.
We have applied valuation allowances to reduce our deferred tax assets as of December 31, 2023 and 2022, based upon our forecasts of future taxable income in the jurisdictions in which these deferred tax assets are recorded.
Smaller Reporting Company Status We are a “smaller reporting company” as defined by Section 12b-2 of the Exchange Act, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and 47 Table of Contents have a public float of less than $250 million.
Smaller Reporting Company Status We are a “smaller reporting company” as defined by Section 12b-2 of the Exchange Act, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $250 million.
As a smaller reporting company, we may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies that do not qualify for the classification, including among other things, providing only two years of audited financial statements .
As a smaller reporting company, we may take advantage of specified reduced reporting 47 Table of Contents and other burdens that are otherwise applicable generally to public companies that do not qualify for the classification, including among other things, providing only two years of audited financial statements .
Purchase Obligations Our purchase obligations in the amount of $12.6 million primarily represent commitments to purchase goods or services to be utilized in the normal course of business, of which $9.8 million is expected to be incurred within 12 months and is not reflected in the accompanying consolidated balance sheets.
Purchase Obligations Our purchase obligations in the amount of $5.6 million primarily represent commitments to purchase goods or services to be utilized in the normal course of business, of which $3.9 million is expected to be incurred within 12 months and is not reflected in the accompanying consolidated balance sheets.
Performance Graph As we are a “smaller reporting company,” for the year ended December 31, 2022, we are not required to provide the performance graph under Item 201(e) of Regulation S-K. Unregistered Sales of Equity Securities and Use of Proceeds None. Issuer Purchases of Equity Securities None. Ite m 6. [Reserved] 35 Table of Contents I tem 7.
Performance Graph As we are a “smaller reporting company,” for the year ended December 31, 2023, we are not required to provide the performance graph under Item 201(e) of Regulation S-K. Unregistered Sales of Equity Securities and Use of Proceeds None. Issuer Purchases of Equity Securities None. Ite m 6. [Reserved] 36 Table of Contents I tem 7.
Foreign currency exchange (loss) gain Foreign currency exchange loss was $(0.3) million for the year ended December 31, 2022 as compared to a gain of $0.3 million for the year ended December 31, 2021. The change was due to the movement in the foreign currency exchange rates between the periods, primarily the Canadian dollar relative to the U.S. dollar.
Foreign currency exchange gain (loss) Foreign currency exchange gain was $0.5 million for the year ended December 31, 2023 as compared to a loss of $(0.3) million for the year ended December 31, 2022. The change was due to the movement in the foreign currency exchange rates between the periods, primarily the Canadian dollar relative to the U.S. dollar.
Product sales represented 68% and 70% of our revenues for the years ended December 31, 2022 and 2021, respectively. Most of our sales are on a just-in-time basis, as specified in individual purchase orders, with a fixed price for our products. We occasionally supply our customers with large orders that may be filled on negotiated terms.
Product sales represented 71% and 68% of our revenues for the years ended December 31, 2023 and 2022, respectively. Most of our sales are on a just-in-time basis, as specified in individual purchase orders, with a fixed price for our products. We occasionally supply our customers with large orders that may be filled on negotiated terms.
The percentages of our revenues derived from sales in Canada and denominated in Canadian dollars were approximately 65% and 62% for the years ended December 31, 2022 and 2021, respectively. Our Canadian contracts are typically invoiced in Canadian dollars; therefore, the effects of foreign currency fluctuations impact our revenues and are regularly monitored.
The percentages of our revenues derived from sales in Canada and denominated in Canadian dollars were approximately 69% and 65% for the years ended December 31, 2023 and 2022, respectively. Our Canadian contracts are typically invoiced in Canadian dollars; therefore, the effects of foreign currency fluctuations impact our revenues and are regularly monitored.
Our products and services are utilized in oil and natural gas basins throughout North America and in selected international markets, including Argentina, China, the Middle East and the North Sea. We provided our products and services to over 245 customers in 2022, including leading large independent oil and natural gas companies and major oil companies.
Our products and services are utilized in oil and natural gas basins throughout North America and in selected international markets, including the North Sea, the Middle East, Argentina and China. We provided our products and services to over 225 customers in 2023, including leading large independent oil and natural gas companies and major oil companies.
Amounts deemed to be uncollectible are applied against the allowance for doubtful accounts. Our business has seasonality, and the balance of our outstanding receivables fluctuates during the fiscal year based upon activity levels, sales volume, and general industry conditions.
Amounts deemed to be uncollectible are applied against the allowance for credit losses. Our business has seasonality, and the balance of our outstanding receivables fluctuates during the fiscal year based upon activity levels, sales volume, and general industry conditions.
The quarterly changes in the Canadian land rig count can be partially attributed to seasonality of activity in that market: Average Drilling Rig Count Quarter Ended U.S.
The quarterly changes, particularly for the second quarter Canadian land rig count, can be partially attributed to seasonality of activity in that market: Average Drilling Rig Count Quarter Ended U.S.
We have incurred charges to cost of sales related to obsolescence of $2.5 million and $1.8 million for the years ended December 31, 2022 and 2021, respectively.
We have incurred charges to cost of sales related to obsolescence of $1.2 million and $2.5 million for the years ended December 31, 2023 and 2022, respectively.
Financing Activities Net cash used in financing activities for the years ended December 31, 2022 and 2021 was $2.7 million and $4.3 million, respectively.
Financing Activities Net cash used in financing activities for the years ended December 31, 2023 and 2022 was $2.4 million and $2.7 million, respectively.
These general operating costs include, but are not limited to: rent and occupancy for our facilities, information technology infrastructure services, software licensing, advertising and marketing, third party research and development, risk insurance and professional service fees for audit, legal and other consulting services. Our SG&A expenses also include litigation expenses and provisions for doubtful accounts.
These general operating costs include, but are not limited to: rent and occupancy for our facilities, information technology infrastructure services, software licensing, advertising and marketing, third party research and development, risk insurance and professional service fees for audit, legal and other consulting services. Our SG&A expenses also include litigation expenses, severance expenses and expected credit losses.
Further, to the extent deemed necessary by management, and depending on the circumstances, we may issue customer credits or concessions which reduce our revenues, but do not impact our bad debt expense. The nature of these concessions may be to maintain a customer relationship.
Further, to the extent deemed necessary by management, and depending on the circumstances, we may issue customer credits or concessions which reduce our revenues, but do not impact our expected credit losses. The nature of these concessions may be to maintain a customer relationship.
Prices for certain raw materials, including steel and chemicals and for purchased components and outsourced services, have increased in recent years due to inflation, exacerbated by the impacts resulting 40 Table of Contents from Russia’s continuing invasion of Ukraine.
Prices for certain raw materials, including steel and chemicals and for purchased components and outsourced services, have increased in recent years due to inflation, exacerbated by the impacts resulting from Russia’s continuing invasion of Ukraine , though prices for steel have begun to moderate.
As of December 31, 2022, we had cash and cash equivalents of $16.2 million, and total outstanding indebtedness of $7.9 million primarily related to capital lease obligations, of which $1.4 million is due within 12 months. Our ABL Facility consists of an asset-based revolving credit facility in an aggregate principal amount of $35.0 million.
As of December 31, 2023, we had cash and cash equivalents of $16.7 million, and total outstanding indebtedness of $8.2 million related to finance lease obligations, of which $1.8 million is due within 12 months. Our ABL Facility consists of an asset-based revolving credit facility in an aggregate principal amount of $35.0 million.
Total borrowings are limited to a borrowing base calculated on the sum of cash in a specified pledged account, eligible accounts receivable and eligible inventory, provided it does not include the assets of Repeat Precision. At December 31, 2022, our borrowing base under the ABL Facility was $18.6 million, with no outstanding borrowings.
Total borrowings are limited to a borrowing base calculated on the sum of cash in a specified pledged account, eligible accounts receivable and eligible inventory, provided it does not include credit for the assets of Repeat Precision. At December 31, 2023, our available borrowing base under the ABL Facility was $16.4 million, with no outstanding borrowings.
Our capital expenditures, including the purchase and development of software and technology, for the years ended December 31, 2022 and 2021 were $1.1 million and $0.8 million, respectively.
Our capital expenditures, including the purchase and development of software and technology, for the years ended December 31, 2023 and 2022 were $2.2 million and $1.1 million, respectively.
At December 31, 2022, our borrowing base under the ABL Facility was $18.6 million and we had no outstanding indebtedness under the ABL Facility. Repeat Precision also has an outstanding promissory note with an aggregate borrowing capacity of up to $4.3 million as of December 31, 2022, subject to a borrowing base.
At 45 Table of Contents December 31, 2023, our available borrowing base under the ABL Facility was $16.4 million and we had no outstanding indebtedness under the ABL Facility. Repeat Precision also has an outstanding promissory note with an aggregate borrowing capacity of up to $4.3 million as of December 31, 2023, subject to a borrowing base.
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding shares of common stock authorized for issuance under our stock incentive plans. Holders On March 3, 2023, we had 2,438,877 shares of common stock outstanding, which were held by approximately 17 record holders.
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding shares of common stock authorized for issuance under our stock incentive plans. Holders On March 6, 2024, we had 2,485,708 shares of common stock outstanding, which were held by approximately 16 record holders.
Cash Flows The following table provides a summary of cash flows from operating, investing and financing activities for the periods presented (in thousands): Year Ended December 31, 2022 2021 Net cash (used in) provided by operating activities $ (1,423) $ 11,583 Net cash used in investing activities (698) (444) Net cash used in financing activities (2,742) (4,265) Effect of exchange rate changes on cash and cash equivalents (1,071) (251) Net change in cash and cash equivalents $ (5,934) $ 6,623 Operating Activities Net cash (used in) provided by operating activities was $(1.4) million compared to $11.6 million for the years ended December 31, 2022 and 2021, respectively.
Cash Flows The following table provides a summary of cash flows from operating, investing and financing activities for the periods presented (in thousands): Year Ended December 31, 2023 2022 Net cash provided by (used in) operating activities $ 4,774 $ (1,423) Net cash used in investing activities (1,683) (698) Net cash used in financing activities (2,441) (2,742) Effect of exchange rate changes on cash and cash equivalents (164) (1,071) Net change in cash and cash equivalents $ 486 $ (5,934) Operating Activities Net cash provided by (used in) operating activities was $4.8 million compared to $(1.4) million for the years ended December 31, 2023 and 2022, respectively.
Selling, general and administrative expenses Selling, general and administrative expenses were $58.3 million for the year ended December 31, 2022 as compared to $49.1 million for the year ended December 31, 2021.
Selling, general and administrative expenses Selling, general and administrative expenses were $56.5 million for the year ended December 31, 2023 as compared to $58.3 million for the year ended December 31, 2022.
As of December 31, 2022, Repeat Precision had $56 thousand in outstanding indebtedness under the promissory note. 45 Table of Contents See “Note 9. Debt” to our consolidated financial statements for additional details regarding our credit agreement and the promissory note. Leases We have operating and finance leases for facilities, vehicles, and equipment.
As of December 31, 2023, Repeat Precision had no outstanding indebtedness under the promissory note. See “Note 10. Debt” to our consolidated financial statements for additional details regarding our credit agreement and the promissory note. Leases We have operating and finance leases for facilities, vehicles, equipment, and software.
Our primary uses of funds during the year ended December 31, 2022 included total principal payments of $1.5 million related to our finance leases, payments of $0.4 million for treasury shares withheld to settle withholding tax requirements for equity-settled share-based compensation, and payments of $1.0 million for deferred costs related to our ABL Facility.
Our primary uses of funds during the years ended December 31, 2023 and 2022 were principal payments of $1.6 million and $1.5 million, respectively, related to our finance leases, payments of $0.3 million and $0.4 million, respectively, for treasury shares withheld to settle withholding tax requirements for equity-settled share-based compensation, a distribution of $0.5 million to Repeat Precision’s other joint venture partner for the year ended December 31, 2023, and payments of $1.0 million for the year ended December 31, 2022 for deferred costs related to our ABL Facility.
We were in compliance with our debt covenants at December 31, 2022. In addition, Repeat Precision’s promissory note with Security State Bank & Trust, Fredericksburg ( the “Repeat Precision Promissory Note”) has total aggregate borrowing capacity of $4.3 million. As of December 31, 2022, Repeat Precision has $56 thousand of outstanding indebtedness under its promissory note.
In addition, Repeat Precision’s promissory note with Security State Bank & Trust, Fredericksburg ( the “Repeat Precision Promissory Note”) has total aggregate borrowing capacity of $4.3 million. As of December 31, 2023, Repeat Precision had no outstanding indebtedness under the promissory note.
Natural gas pricing increased throughout 2021 to an average level of $3.89 per MMBtu and further increased to an average level of $6.45 per MMBtu during 2022. Realized natural gas prices for Canadian E&P customers are typically at a discount to U.S. Henry Hub pricing.
Natural gas pricing continues to be volatile and decreased in 2023 to an average level of $2.53 per MMBtu compared to an average level of $6.45 per MMBtu during 2022. Realized natural gas prices for Canadian E&P customers are typically at a discount to U.S. Henry Hub pricing.
Natural gas pricing in the United States has been supported by increased demand for exports of liquified natural gas (“LNG”) in late 2021 and early 2022, especially for power generation in Europe and Asia , reflecting European demand for LNG sourced from the United States and other regions to diversify supply historically provided by Russia .
In the second and third quarters of 2022, n atural gas pricing in the United States was supported by increased demand for exports of liquified natural gas (“LNG”), especially for power generation in Europe and Asia , reflecting European demand for LNG sourced from the United States and other regions to offset supply historically provided by Russia, in response to the Russian-Ukraine conflict .
The percentage of our operating costs denominated in Canadian dollars (including cost of sales and SG&A expenses but excluding depreciation and amortization expense) approximated 27% and 25%, for the years ended December 31, 2022 and 2021, respectively. Results of Operations The following table summarizes our results of operations for the years ended December 31, 2022 and 2021.
The percentage of our operating costs denominated in Canadian dollars (including cost of sales and SG&A expenses but excluding depreciation and amortization expense) approximated 28% and 27%, for the years ended December 31, 2023 and 2022, respectively. 41 Table of Contents Results of Operations The following tables summarize our results of operations and gross margins for the years ended December 31, 2023 and 2022, and present revenue by geographic area for the years then ended.
Product sales for the year ended December 31, 2022 were $105.9 million as compared to $83.2 million for the year ended December 31, 2021. Our services revenue was $49.8 million for the year ended December 31, 2022 as compared to $35.3 million for the year ended December 31, 2021.
Product sales for the year ended December 31, 2023 were $100.4 million as compared to $105.9 million for the year ended December 31, 2022. Services revenue was $42.0 million for the year ended December 31, 2023 as compared to $49.8 million for the year ended December 31, 2022.
Department of Energy: Average Price Quarter Ended WTI Crude (per Bbl) Brent Crude ‎ (per Bbl) Henry Hub Natural Gas ‎ (per MMBtu) 3/31/2020 $ 45.54 $ 50.45 $ 1.90 6/30/2020 27.96 29.70 1.70 9/30/2020 40.89 42.91 2.00 12/31/2020 42.52 44.32 2.52 3/31/2021 58.09 61.04 3.50 6/30/2021 66.19 68.98 2.95 9/30/2021 70.58 73.51 4.35 12/31/2021 77.33 79.61 4.75 3/31/2022 95.18 100.87 4.67 6/30/2022 108.83 113.84 7.50 9/30/2022 93.06 100.71 8.03 12/31/2022 82.79 88.72 5.55 38 Table of Contents Listed and depicted below are the average number of operating onshore rigs in the United States and in Canada per quarter since the first quarter of 2020, as provided by Baker Hughes.
Department of Energy: Average Price Quarter Ended WTI Crude (per Bbl) Brent Crude ‎ (per Bbl) Henry Hub Natural Gas ‎ (per MMBtu) 3/31/2022 $ 95.18 $ 100.87 $ 4.67 6/30/2022 108.83 113.84 7.50 9/30/2022 93.06 100.71 8.03 12/31/2022 82.79 88.72 5.55 3/31/2023 75.93 81.07 2.64 6/30/2023 73.54 77.99 2.16 9/30/2023 82.25 86.65 2.59 12/31/2023 78.53 84.01 2.74 38 Table of Contents Listed and depicted below are the average number of operating onshore rigs in the United States and in Canada per quarter since the first quarter of 2022, as provided by Baker Hughes.
Financing Arrangements Our ABL Facility consists of a revolving credit facility in an aggregate principal amount of $35.0 million.
Material Cash Requirements Our material cash requirements include the following contractual and other obligations. Financing Arrangements Our ABL Facility consists of a revolving credit facility in an aggregate principal amount of $35.0 million.
Services represented 32% and 30% of our revenues for the years ended December 31, 2022 and 2021, respectively. Services include our tool charges and associated services related to our fracturing systems and tracer diagnostics services (which are classified together as “services” in our financial results).
Services represented 29% and 32% of our revenues for the years ended December 31, 2023 and 2022, respectively. Services include tool charges and associated personnel services related to fracturing systems and tracer diagnostics services.
Cost of sales Cost of sales was $95.2 million, or 61.2% of revenues, for the year ended December 31, 2022 as compared to $70.0 million, or 59.1% of revenues, for the year ended December 31, 2021.
Cost of sales Cost of sales was $89.1 million, or 62.5% of revenues, for the year ended December 31, 2023 as compared to $97.2 million, or 62.5% of revenues, for the year ended December 31, 2022.
Cost of product sales was $68.4 million or 64.6% of product sales revenue and cost of services was $26.8 million or 53.9% of services revenue for the year ended December 31, 2022.
For the year ended December 31, 2022, cost of product sales was $69.8 million or 66.0% of product sales revenue and cost of services was $27.4 million or 55.0% of services revenue.
We have cash-collateralized less than $0.1 million in letter of credit commitments. The amount available to be drawn under the ABL Facility may decline from current levels due to reductions in our borrowing base or a springing financial covenant if our business were to be adversely impacted by a decline in market conditions.
The amount available to be drawn under the ABL Facility may decline from current levels due to reductions in our borrowing base or a springing financial covenant if our business were to be adversely impacted by a decline in market conditions. We were in compliance with our debt covenants at December 31, 2023.
Services are provided at agreed upon rates to customers for the provision of our downhole frac isolation assembly, our personnel and for the provision of tracer diagnostics services. During periods of low drilling and well completion activity or as may be needed to compete in certain markets we will, in some instances, lower the prices of our products and services.
During periods of low drilling and well completion activity or as may be needed to compete in certain markets, we may, in some instances, lower the prices of our products and services.
Our revenues are also impacted by well complexity, with wells with more stages resulting in longer jobs and increased revenue attributable to selling more sliding sleeves or composite frac plugs and the provision of our services.
Our revenues are also impacted by well complexity, since wells with more stages typically result in longer jobs, which may increase revenue attributable to the use of more sliding sleeves or increase composite frac plug sales, and increase the volume of services we provide.
During 2021, we began to experience tight labor conditions which has led to increased employee turnover, delays in filling open positions and labor cost inflation, which impacts both our cost of sales and our SG&A expenses. This labor cost inflation, which continued through 2022 and into 2023, has resulted in increased salaries, hourly pay rates and benefit costs.
We also experienced tight labor conditions throughout 2022 and in 2023, which led to increased employee turnover, delays in filling open positions and labor cost inflation, which impacted both our cost of sales and selling, general and administrative (“ SG&A”) expenses and resulted in higher salaries, hourly pay rates and benefit costs.
For the year ended December 31, 2021, cost of product sales was $51.9 million or 62.4% of product sales revenue and cost of services was $18.1 million or 51.4% of services revenue.
Cost of product sales was $65.9 million or 65.6% of product sales revenue and cost of services was $23.2 million or 55.2% of services revenue for the year ended December 31, 2023.
The average U.S. land rig count and completion activity have continued to increase from lows reached in late 2020, with the U.S. land rig count averaging 760 during the fourth quarter of 2022, a 39% increase compared to the fourth quarter of 2021.
The average U.S. land rig count and completion activity continued to increase from lows reached in late 2020 until the fourth quarter of 2022. However, the average U.S. land rig count has declined by 21%, to 601, in the fourth quarter of 2023 as compared to the fourth quarter of 2022.
The increase in interest expense, net reflects a $0.2 million write-off of deferred loan costs associated with the termination of the Prior Senior Secured Credit Facility, which was replaced by an ABL Facility.
The decrease in interest expense, net reflects a higher yield on excess cash generating incremental interest income of $0.3 million in 2023 and lower deferred loan costs in 2023, as the 2022 results include a $0.2 million write-off associated with the termination of the prior senior secured credit facility, which was replaced by our ABL Facility in May 2022.
We plan to incur approximately $4 million to $5 million in capital expenditures during 2023 , which includes (i) upgrades to our tracer diagnostics deployment and sampling equipment and laboratory instrumentation, (ii) machining equipment and a potential new facility to increase perforating gun manufacturing capacity at Repeat Precision, (iii) upgrades to our manufacturing and field service equipment to support North American fracturing systems and well construction businesses, (iv) new computers and engineering workstations and (v) software development and implementation.
Our principal liquidity needs have been, and are expected to continue to be, capital expenditures, working capital, debt service and potential mergers and acquisitions. 44 Table of Contents We plan to incur approximately $2 million to $3 million in capital expenditures during 2024 , which includes (i) upgrades to our tracer diagnostics deployment, sampling and laboratory equipment, (ii) upgrades to our manufacturing and field service equipment to support North American fracturing systems and well construction businesses, (iii) new computers and engineering workstations and (iv) software development and implementation.
Land Canada Land North America Land 3/31/2020 764 194 958 6/30/2020 378 23 401 9/30/2020 241 46 287 12/31/2020 297 88 385 3/31/2021 378 144 522 6/30/2021 437 71 508 9/30/2021 484 150 634 12/31/2021 545 159 704 3/31/2022 618 198 816 6/30/2022 698 112 810 9/30/2022 744 198 942 12/31/2022 760 187 947 Over the past several years, North American E&P companies have been able to reduce their cost structures and have also utilized technologies, including ours, to increase efficiency and improve well performance.
Land Canada Land North America Land 3/31/2022 618 198 816 6/30/2022 698 112 810 9/30/2022 744 198 942 12/31/2022 760 187 947 3/31/2023 744 221 965 6/30/2023 699 116 815 9/30/2023 630 187 817 12/31/2023 601 180 781 39 Table of Contents Over the past several years, North American E&P companies have been able to reduce their cost structures and have also utilized technologies, including ours, to increase efficiency and improve well performance.
Investing Activities Net cash used in investing activities was $0.7 million and $0.4 million for the years ended December 31, 2022 and 2021, respectively , with an increase in purchases of property and equipment partially offset by a decrease in the purchase and development of software and technology.
Investing Activities Net cash used in investing activities was $1.7 million and $0.7 million for the years ended December 31, 2023 and 2022, respectively, reflecting increases in investment in property and equipment and software and technology .
In addition, Repeat Precision operates manufacturing facilities with supporting personnel in Mexico, which has allowed us to reduce our costs for certain product categories. We review forecasted activity levels in our business and either directly procure or support our vendors in procuring the required raw materials with sufficient lead time to meet our business requirements .
We review forecasted activity levels in our business and either directly procure or support our vendors in procuring the required raw materials with sufficient lead time to meet our 40 Table of Contents business requirements .
Other income, net Other income, net was $3.0 million for the year ended December 31, 2022 as compared to $2.1 million for the year ended December 31, 2021.
“Commitments and Contingencies ” to the accompanying consolidated financial statements for further discussion . Other income, net Other income, net was $4.1 million for the year ended December 31, 2023 compared to $3.0 million for the year ended December 31, 2022.
This labor cost inflation, which continued throughout 2022 and continues into 2023, has resulted in higher salaries, hourly pay rates and benefit costs. In an effort to reduce inflationary pressures on the economy, central banks, including the U.S. Federal Reserve, has increased reference interest rates, an action which typically has the effect of increasing borrowing costs and restraining economic activity.
However, labor cost inflation while still elevated, began to decrease during the latter part of 2023. To counter inflationary pressures on the economy, central banks, including the U.S. Federal Reserve, increased reference interest rates several times between March 2022 and July 2023, an action which typically had the effect of increasing borrowing costs and restraining economic activity.
We obtain certain chemicals utilized in our tracer diagnostics services business from suppliers in China, which are subject to a 25% tariff, which increases our cost of sales.
We obtain certain chemicals utilized in our tracer diagnostics services business from suppliers in China, which are subject to tariffs that increase our costs, although these tariffs have recently declined.
Our liquidity and our ability to meet our obligations and fund our capital requirements are also dependent on our future 44 Table of Contents financial performance and ability to manage costs, which is subject to general economic, financial and other factors that are beyond our control, including the continued impacts from the COVID-19 pandemic and Russia’s invasion of Ukraine.
We cannot provide assurance that we will be able to obtain this additional liquidity on reasonable terms, or at all. Our liquidity and ability to meet our obligations and fund capital requirements also depend on our future financial performance including the ability to manage costs, which is subject to general economic, financial and other factors that are beyond our control.
At the end of September 2022, natural gas pricing reached a level of $6.40 per MMBtu, but declined to as low as $3.52 per MMBtu in December 2022 due to overall 37 Table of Contents warm winter weather conditions and extended downtime at an LNG export facility, which decreased near-term demand and has led to robust levels of natural gas in storage.
However, natural gas pricing declined in 2023 due to the overall warm winter weather conditions and extended downtime at an LNG export facility, which decreased near-term demand and led to robust levels of natural gas in storage, which negatively impacted drilling and completion activity in certain regions, particularly in the United States.
We own a 50% interest in Repeat Precision, which sells composite frac plugs, perforating guns and related products. We provide tracer diagnostics services for well completion and reservoir characterization that utilize downhole chemical and radioactive tracers. We sell products for well construction, including casing buoyancy systems, liner hanger systems and toe initiation sleeves.
We provide tracer diagnostics services for well completion and reservoir characterization that utilize downhole chemical and radioactive tracers. We sell products for well construction, including casing buoyancy systems, liner hanger systems and toe initiation sleeves. We operate in one reportable segment that has been identified based on how our chief operating decision maker manages our business.
While we have increased customer prices because of our higher raw material and component costs, the increase in customer prices have not always offset our higher input costs and there has been a time lag in our ability to do so.
This cost inflation persisted throughout 2022 and continued into 2023, though prices for steel have begun to moderate. While we have endeavored to increase customer prices to defray our higher raw material and component costs, these price increases have not always fully offset our higher input costs and there has been a delay in our ability to do so.
The average land rig count in Canada for the fourth quarter of 2022 was 18% higher than in the same period in 2021. We expect Canadian rig counts and completion activity to continue to rise in 2023 compared to prior year levels.
The average land rig count in Canada for the fourth quarter of 2023 was lower by 4% compared to the same period in 2022.
We periodically record bad debt expense or recoveries, which totaled a recovery of $0.1 million for each of the years ended December 31, 2022 and 2021 as we have historically been successful in recovering some of these amounts over time.
We periodically record a provision for credit losses or recoveries, which totaled a provision of $0.2 million and a recovery of $0.1 million for the years ended December 31, 2023 and 2022, respectively.
We offer enhanced recovery systems, which enable our customers to inject water, other fluids, or gases in a controlled manner with the objective of increasing the amount of hydrocarbons produced from their assets. We operate in one reportable segment that has been identified based on how our chief operating decision maker manages our business.
As an extension of fracturing systems, we offer enhanced recovery systems, which enable our customers to inject water, other fluids, or gases in a controlled manner with the objective of increasing the amount of hydrocarbons produced from their assets. We own a 50% interest in Repeat Precision, which sells composite frac plugs, perforating guns and related products.
As we experienced in the fourth quarter of 2022, our business can be impacted by a reduction in customer activity during the winter holidays in late December and early January.
O ur business can be impacted by a reduction in customer activity during the winter holidays in late December and early January. In some years, customers in the United States and Canada may exhaust their capital budgets prior to the end of the year, resulting in lower drilling and completion activity during the fourth quarter.
In addition, in 2022 the U.S. dollar strengthened relative to other currencies, including the Canadian dollar. Over 60% of our revenue is generated in Canada, and reductions in the value of the Canadian dollar as compared to the U.S. dollar, our reporting currency, result in lower reported revenue and gross profit, partially offset by lower reported SG&A expense.
Strengthening of the U.S. dollar, our reporting currency, relative to the Canadian dollar, would result in lower reported revenues, partially offset by lower reported cost of sales and SG&A expenses.
As of December 31, 2022, we had lease payment obligations, including interest payments for finance leases of $14.6 million, with $3.3 million payable within 12 months. See “Note 14. Leases” to our consolidated financial statements for additional information on lease obligations and maturities.
As of December 31, 2023, we had lease payment obligations, including interest payments for finance leases of $15.2 million, with $4.1 million payable within 12 months, which does not include the facility lease we extended in January 2024. See “Note 2. Summary of Significant Accounting Policies” and “Note 15.
Based on E&P company announced capital budgets for 2023, we believe that annual average industry drilling and completion activity in the United States and Canada in 2023 will be equal to 2022 levels or higher by up to 10%, however, activity in the United States in 2023 may be lower than levels reached in the fourth quarter of 2022, reflecting rapid reductions in natural gas pricing in late 2022 and early 2023.
Based on E&P company announced capital budgets and industry reports for 2024, we believe that annual average drilling and completion industry activity in Canada will be flat to slightly lower compared to 2023. Certain regions in Canada may ration the use of fresh water due to last summer’s drought, which could in turn lead to a reduction in completions activity.
During 2022, to address the uncertain outlook in the global economic and oil markets, OPEC+ members agreed to a collective voluntary oil production reduction of 2 MMBBL/D beginning in November 2022 through December 2023.
Since 2022 and continuing into 2023, to address the uncertain outlook for the global economy and, specifically the oil markets, and to reduce the potential of an oil and gas inventory build, members of OPEC and certain other countries, including Russia (informally known as “OPEC+”) agreed to several collective voluntary oil production reductions b eginning in November 2022 through December 2024.
We expect average annual drilling and completion activity in the United States to exceed prior year levels, but to be below the levels reached during the fourth quarter of 2022. A substantial portion of our business is subject to quarterly variability.
We currently expect U.S. rig counts and completion activity in 2024 to decline from the 2023 annual average level, but to increase from year-end 2023 levels as we progress through the year while the Canadian activity is expected to remain flat to slightly lower. A substantial portion of our business is subject to seasonality, which results in quarterly variability .
We currently expect international industry activity to improve by over 10% in 2023 as compared to 2022.
We expect activity in the United States will decline on average by 5% to 10% compared to 2023, although we expect U.S. activity to increase compared to December 2023 levels as the year progresses. We expect international industry activity to improve on average between 5% to 10% in 2024 as compared to 2023.
Interest expense, net Interest expense, net was $1.0 million for the year ended December 31, 2022 as compared to $0.7 million for the year ended December 31, 2021.
Accrued Expenses” in the accompanying consolidated financial statements. 43 Table of Contents Interest expense, net Interest expense, net was $0.6 million and $1.0 million for the years ended December 31, 2023 and 2022, respectively.
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Drilling and completion activity in the United States and Canada has increased steadily since falling to multi-decade lows in late 2020, as the global economy and oil and natural gas demand have recovered from the impact of the COVID-19 pandemic.
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Oil and natural gas prices were volatile in 2022, and this volatility continued into 2023. The war between Russia and Ukraine has played a significant role in this volatility and led to increased oil and natural gas commodity prices in 2022 before moderating in late 2022 and throughout 2023.
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While U.S. drilling and completion activity remains slightly lower than it was prior to the COVID-19 pandemic, the Canadian rig count surpassed comparable 2019 levels in the third quarter of 2021 and has remained above comparable 2019 levels since that time.
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The impact of the war on pricing was somewhat mitigated by heightened uncertainty in demand and growing concerns about a global recession. Certain countries have agreed and continue to extend voluntary crude oil output cuts to mitigate the impact of uncertain economic conditions on the oil market.
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Customer activity has continued to increase in 2022, with the U.S. and Canadian rig counts in the fourth quarter of 2022 higher by 39% and 18%, respectively, compared to the same period as 2021.

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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 changeWe also derive revenue from several jurisdictions outside of North America, including countries that occasionally experience periods of significant inflation, which occurred in Argentina in 2022 and 2021. We do not currently intend to hedge our future exposure to the Argentine Peso or other foreign currencies.
Biggest changeDuring the years ended December 31, 2023 and 2022, approximately 69% and 65%, respectively, of our revenues were attributable to our operations in Canada . We also derive revenue from several jurisdictions outside of North America, including countries that occasionally experience periods of significant inflation, which occurred in Argentina in 2023 and 2022.
Borrowings under the Repeat Precision Promissory Note are made in U.S. dollars with interest calculated using the prime rate plus a 1.0% margin over the index. The applicable interest rate at December 31, 2022 was 8.5%. Credit Risk Our customers are E&P companies and other oilfield services companies.
Borrowings under the Repeat Precision Promissory Note are made in U.S. dollars with interest calculated using the prime rate plus a 1.0% margin over the index. The applicable interest rate at December 31, 2023 was 9.5%. Credit Risk Our customers are E&P companies and other oilfield services companies.
We must also pay a monthly commitment fee of 0.25% to 0.50% per year, based on unused commitments. The applicable interest rate at December 31, 2022 was 6.8%. We are also subject to interest rate risk through our Repeat Precision Promissory Note. At December 31, 2022, we had $56 thousand outstanding indebtedness under the Repeat Precision Promissory Note.
We must also pay a monthly commitment fee of 0.25% to 0.50% per year, based on unused commitments. The applicable interest rate at December 31, 2023 was 7.9%. We are also subject to interest rate risk through our Repeat Precision Promissory Note. At December 31, 2023, we had no outstanding indebtedness under the Repeat Precision Promissory Note.
Interest Rate Risk We were primarily exposed to interest rate risk through our Prior Senior Secured Credit Facility and the Prior Amended Credit Agreement, which were terminated concurrent with our entry on May 3, 2022 into the replacement ABL Facility. At December 31, 2022, we had no outstanding indebtedness under our ABL Facility.
We do not currently intend to hedge our future exposure to the Argentine Peso or other foreign currencies. Interest Rate Risk We were primarily exposed to interest rate risk through our ABL Facility. At December 31, 2023, we had no outstanding indebtedness under our ABL Facility.
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During the years ended December 31, 2022 and 2021, approximately 65% and 62%, respectively, of our revenues were attributable to our operations in Canada . We may use foreign currency forward exchange contracts to hedge our future exposure to CAD.

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