Q1 2024 DISCLAIMER In addition to reporting financial results in accordance with GAAP, the Company has presented Adjusted EBITDA, Adjusted EBITDA margin, free cash flow, adjusted gross profit and return on invested capital (ROIC). These are not recognized measures under, or an alternative to, GAAP. The Company's management believes that this presentation provides useful information to management, analysts and investors regarding certain additional financial and business trends relating to its results of ope ...

PART I [Item 1. Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited Q1 2024 financial statements show decreased total assets, increased stockholders' deficit, an $8.1 million net loss, and negative operating cash flow [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2024, total assets decreased to $380.4 million, total liabilities decreased to $423.7 million, and the stockholders' deficit increased to $43.3 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $10,237 | $30,840 | | Total current assets | $167,687 | $183,633 | | Total assets | $380,410 | $401,984 | | **Liabilities & Equity** | | | | Total current liabilities | $73,854 | $82,754 | | Long-term debt | $317,100 | $320,520 | | Total liabilities | $423,724 | $437,614 | | Total stockholders' equity (deficit) | ($43,314) | ($35,630) | [Condensed Consolidated Statements of Income and Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20(Loss)) Q1 2024 revenues decreased to $142.1 million, resulting in an increased net loss of $8.1 million, or ($0.24) per share, compared to Q1 2023 Q1 2024 vs Q1 2023 Income Statement (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Revenues | $142,120 | $163,408 | | Income from operations | $4,419 | $6,882 | | Interest expense | $12,792 | $12,454 | | Net loss | ($8,055) | ($6,109) | | Diluted loss per share | ($0.24) | ($0.19) | [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20(Deficit)) The stockholders' deficit increased to $43.3 million by March 31, 2024, primarily due to the $8.1 million net loss for the quarter - The stockholders' deficit widened to **$43.3 million** at the end of Q1 2024, mainly due to the net loss of **$8.1 million** incurred during the period[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Q1 2024 saw net cash used in operating activities of $8.8 million, leading to a $20.6 million net decrease in cash and equivalents, ending at $10.2 million Q1 2024 vs Q1 2023 Cash Flows (in thousands) | Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($8,837) | $3,965 | | Net cash used in investing activities | ($5,460) | ($5,284) | | Net cash provided by (used in) financing activities | ($6,223) | $5,344 | | **Net increase (decrease) in cash** | **($20,603)** | **$3,929** | | Cash and cash equivalents end of period | $10,237 | $21,374 | [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, disaggregated revenue declines across all service lines, and debt obligations including 13.000% Senior Secured Notes due 2028 Disaggregation of Revenues (in thousands) | Service Line | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Cement | $48,289 | $62,462 | | Tools | $35,227 | $37,788 | | Coiled tubing | $30,719 | $33,528 | | Wireline | $27,885 | $29,630 | | **Total revenues** | **$142,120** | **$163,408** | Total Debt Obligations (in thousands) | Debt Instrument | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | 2028 Notes | $300,000 | $300,000 | | ABL Credit Facility | $52,000 | $57,000 | | Short-term debt | $1,805 | $2,859 | | **Total debt before deferred financing costs** | **$353,805** | **$359,859** | - In January 2023, the company completed a public offering of **300,000 units**, raising **$279.8 million** in net proceeds, which were used to redeem its 2023 Notes[42](index=42&type=chunk)[53](index=53&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q1 2024's 13% revenue decline and 40% Adjusted EBITDA drop to $15.0 million to lower activity and pricing, anticipating continued weakness in Q2 2024 [Overview and Industry Outlook](index=20&type=section&id=Overview%20and%20Industry%20Outlook) The company's performance, tied to E&P spending and volatile commodity prices, faces decreased activity due to depressed natural gas prices, with lower Q2 2024 revenue anticipated - The company's business is highly dependent on the capital spending of oil and natural gas companies, which is strongly influenced by volatile commodity prices[83](index=83&type=chunk) - Sustained low natural gas prices have resulted in decreased activity and pricing pressure, with the Haynesville rig count declining by approximately **50%** since the end of 2022[83](index=83&type=chunk) - The company anticipates that revenue, net income, and adjusted EBITDA for Q2 2024 will be lower than Q1 2024, as operators in gas-levered basins are expected to decrease activity[84](index=84&type=chunk) [Results of Operations](index=22&type=section&id=Results%20of%20Operations) Q1 2024 revenues decreased 13% to $142.1 million, leading to a 28% drop in adjusted gross profit and a 32% increase in net loss to $8.1 million Q1 2024 vs Q1 2023 Results of Operations (in thousands) | Metric | Q1 2024 | Q1 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $142,120 | $163,408 | (13)% | | Adjusted gross profit | $26,114 | $36,290 | (28)% | | General and administrative expenses | $12,265 | $19,714 | (38)% | | Net loss | ($8,055) | ($6,109) | 32% | - The decrease in revenue was prevalent across all service lines, with cementing revenue showing the largest decline of **$14.2 million (23%)** due to pricing and job count decreases[87](index=87&type=chunk) - The significant decrease in G&A expenses was primarily due to **$6.4 million** in costs associated with the Units offering in Q1 2023 that did not recur in Q1 2024[89](index=89&type=chunk) [Non-GAAP Financial Measures](index=24&type=section&id=Non-GAAP%20Financial%20Measures) Q1 2024 Adjusted EBITDA decreased 40% to $15.0 million, and Adjusted ROIC fell to 6.0%, reflecting a decline in non-GAAP performance metrics Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net loss | ($8,055) | ($6,109) | | EBITDA | $14,111 | $17,360 | | **Adjusted EBITDA** | **$15,034** | **$25,009** | Adjusted ROIC Calculation | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Adjusted after-tax net operating income | $4,454 | $12,962 | | Average total capital | $296,822 | $320,622 | | **Adjusted ROIC** | **6.0%** | **16.2%** | [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2024, total liquidity was $37.5 million, comprising cash and ABL Credit Facility availability, with semi-annual interest payments on 2028 Notes impacting cash flow - Total liquidity at March 31, 2024 was **$37.5 million**, comprising **$10.2 million** in cash and **$27.3 million** of availability under the ABL Credit Facility[113](index=113&type=chunk) - The company's liquidity is impacted by semi-annual interest payments of **$19.5 million** on its 2028 Notes[113](index=113&type=chunk) - An at-the-market (ATM) equity distribution agreement was established in November 2023, allowing for the sale of up to **$30.0 million** in common stock, though no shares were sold in Q1 2024[114](index=114&type=chunk)[115](index=115&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exempt from providing market risk disclosures as it qualifies as a 'smaller reporting company' under the Securities Exchange Act of 1934 - As a "smaller reporting company," the company is exempt from providing quantitative and qualitative disclosures about market risk[135](index=135&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2024, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[137](index=137&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[138](index=138&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, but management does not expect a material adverse effect on its financial condition - The company is subject to various legal proceedings but does not expect the outcomes to have a material adverse effect on its financial condition[140](index=140&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes have been made to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[141](index=141&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[142](index=142&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - None[143](index=143&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[144](index=144&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this item - None[145](index=145&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and Interactive Data Files (XBRL) - The report includes a list of exhibits filed, such as CEO/CFO certifications and XBRL data files[147](index=147&type=chunk)[148](index=148&type=chunk)

Financial Performance - First quarter 2024 revenues were $142.1 million, with a net loss of $(8.1) million or $(0.24) per diluted share [2]. - Net loss for the three months ended March 31, 2024, was $8,055 thousand, an improvement from a net loss of $10,305 thousand for the previous quarter [26]. - Revenues for the three months ended March 31, 2024, were $142,120 thousand, slightly down from $144,073 thousand in the previous quarter [31]. - EBITDA for the same period was $14,111 thousand, compared to $12,187 thousand in the prior quarter, reflecting a 15.8% increase [26]. - Adjusted EBITDA for Q1 2024 was $15.0 million, reflecting a stable performance despite a flat US rig count [5]. - Adjusted EBITDA increased to $15,034 thousand from $14,648 thousand, representing a growth of 2.6% quarter-over-quarter [26]. - Gross profit improved to $17,055 thousand, up from $16,217 thousand, indicating a 5.2% increase [31]. - Adjusted gross profit rose to $26,114 thousand from $25,559 thousand, marking a 2.2% increase [31]. Liquidity and Capital Structure - The company reported a liquidity position of $37.5 million as of March 31, 2024, with $10.2 million in cash and cash equivalents [9]. - Cash and cash equivalents decreased to $10,237 thousand from $30,840 thousand, reflecting a significant reduction in liquidity [24]. - Total debt as of March 31, 2024, was $353,805 thousand, a decrease from $359,859 thousand at the end of the previous quarter [29]. - Capital expenditures for Q1 2024 totaled $5.6 million, while net cash used in operating activities was $(8.8) million [8]. - Net cash used in operating activities was $8,837 thousand, a decline from $24,324 thousand in the prior quarter [24]. Market Outlook - The company expects Q2 revenue to decline compared to Q1 due to pricing pressures in the cementing business and slowdowns in natural gas markets [4]. - The company aims to diversify revenue streams towards completion tools and international markets to enhance resilience against market fluctuations [4]. Asset Management - As of March 31, 2024, total assets were $380.4 million, down from $401.9 million at the end of 2023 [22]. - The company reported a return on invested capital (ROIC) of (10.9)% and adjusted ROIC of 6.0% for Q1 2024 [6]. - Adjusted ROIC improved to 6.0% from 3.9%, indicating better efficiency in generating returns on invested capital [29]. Product Performance - The company sold over 60,000 Stinger Dissolvable Plug units since its introduction in Q1 2020 [5]. - Gross profit increased quarter over quarter, primarily due to an 11% increase in coil tubing revenue [4].

$10 $45 $53 $62 $10 $15 $32 $22 2016 2017 2018 2019 2020 2021 2022 2023 US COMPLETIONS MARKET SHARE 14% 15% 14% 17% 19% 16% 2018 2019 2020 2021 2022 2023 | --- | --- | --- | --- | --- | --- | --- | --- | |------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|------------------------------|---------|----------------------------------------|---------------------|---------|---- ...

Financial Data and Key Metrics Changes - Company revenue for the year was $609.5 million, with a net loss of $32.2 million or negative $0.97 per diluted share [8] - Adjusted EBITDA for the year was $73 million, with adjusted EBITDA for Q4 at $14.6 million, an increase of 26% over Q3 [8][49] - The average DSO for 2023 was 53 days, and the company reported net cash provided by operating activities of $45.5 million [12] Business Line Data and Key Metrics Changes - Cementing revenue for Q4 was $52.3 million, an increase of approximately 1% [25] - Completion tool revenue was $36.1 million, an increase of approximately 11% [52] - Coiled tubing revenue for Q4 was $27.7 million, a decrease of approximately 1% [26] Market Data and Key Metrics Changes - The rig count in the U.S. declined by approximately 20% from 779 at the end of 2022 to 622 at the end of 2023 [18] - International revenue increased by approximately 16% year-over-year, with a shift from 4% to 5% of total revenues coming from non-North America markets [21][34] Company Strategy and Development Direction - The company aims to be an asset and labor-light business that combines excellent service with forward-leaning technology to help customers lower completion costs [14] - The introduction of new tools, such as the Pincer hybrid frac plug, is expected to enhance market share and customer base, particularly in the Middle East and Argentina [21][22] - The company is formalizing sustainability efforts and quantifying greenhouse gas emissions to improve data collection and reduce emissions [22] Management's Comments on Operating Environment and Future Outlook - The management noted that the oil and gas market remained volatile in 2023, but they are confident in navigating market changes and capitalizing on improving conditions [18][14] - For Q1 2024, the company anticipates revenue to remain flat compared to Q4 2023, projecting between $135 million and $145 million [28] - The management expressed optimism about future activity levels, particularly in natural gas basins due to planned LNG projects [28] Other Important Information - The company reduced borrowings under the revolving credit facility by approximately $20 million since refinancing in January 2023 [10] - The total CapEx spend for 2023 was approximately $22.3 million, below the original guidance of $25 million to $35 million [53] Q&A Session Summary Question: What percentage of total revenues are now being generated from the non-North America market? - The percentage has increased from around 4% in 2022 to closer to 5% in 2023, with a focus on deliberate growth in international markets [34] Question: How is the international market performing geographically? - The primary regions for international sales are the Middle East and Argentina, with sales also occurring in countries like China [35] Question: What were the drivers behind strong incremental margins in Q4? - The strong margins were attributed to the absence of operational inefficiencies seen in August and a favorable sales mix with increased international sales [37] Question: What is the EBITDA level required for breakeven free cash flow? - Approximately $65 million of EBITDA is needed for free cash flow breakeven, excluding the impact of working capital [40] Question: What is the general sentiment of private operators regarding budget planning? - Private operators are cautious but may respond quickly to market changes, with potential for increased spending if conditions improve [44][46] Question: How quickly can the company respond to changes in market conditions? - The company has demonstrated the ability to flexibly respond to market changes within a quarter, leveraging a high variable cost structure [78]

Operational Performance and Metrics - Completed approximately 22,000 cementing jobs from January 2018 through December 2023 with an on-time rate of approximately 89%[29] - Deployed approximately 470,600 isolation, stage one, and casing flotation tools from January 2018 through December 2023[31] - Completed approximately 163,600 wireline stages from January 2018 through December 2023 with a success rate of approximately 99%[33] - Performed approximately 7,100 coiled tubing jobs and deployed more than 191 million running feet of coiled tubing from January 2018 through December 2023 with a success rate of over 99%[36] - Operates four high-quality laboratory facilities for cementing services, staffed 24/7 with qualified technicians and equipped with the latest modeling software[27] - Revenue increased by $16.1 million (3%) to $609.5 million in 2023, driven by increased activity and changes in product mix[218][219] - Wireline revenue increased by $9.6 million (9%) in 2023 due to a 4% increase in completed stages[219] - Completion tools revenue rose by $7.2 million (5%) in 2023 despite a 6% decrease in stages, driven by a significant international sale[219] - Coiled tubing revenue increased by $4.0 million (3%) in 2023 as total days worked rose by 3%[219] - Cementing revenue decreased by $4.7 million (2%) in 2023 due to an 11% drop in total jobs[220] Revenue and Financial Performance - Top five customers collectively accounted for approximately 21% of revenues for the year ended December 31, 2023[43] - Adjusted gross profit decreased by $17.5 million (13%) to $118.8 million in 2023 due to higher costs[218] - Net income declined by $46.6 million (324%) to a loss of $32.2 million in 2023[218] - Cost of revenues increased by $33.7 million (7%) to $490.8 million in 2023, primarily due to higher labor and material costs[221] - The company had $300.0 million of 13.000% Senior Secured Notes due 2028 and $57.0 million of borrowings under the ABL Credit Facility outstanding as of December 31, 2023[108] - Federal and state income tax NOLs of approximately $471.8 million as of December 31, 2023, set to expire between 2024 and 2034[184] - Ownership change under Section 382 may limit the utilization of NOLs, potentially affecting net income and cash flows[186] - The company has operated at a loss in the past and may continue to face profitability challenges[176] - The company does not plan to pay dividends on its common stock, limiting stockholder returns to stock price appreciation[173] - The company may issue additional shares, potentially diluting existing stockholders and affecting the stock price[174][175] Market and Industry Conditions - Operates in major U.S. onshore basins including Permian Basin, Marcellus and Utica Shales, Eagle Ford Shale, DJ Basin, SCOOP/STACK Formation, Bakken Formation, and Haynesville Formation, as well as the Western Canada Sedimentary Basin[37] - International completion tools contribute significantly to revenue, with a portion generated outside North America[38] - The company's business is highly dependent on oil and natural gas prices, with WTI prices ranging from $(36.98) per barrel in April 2020 to $123.64 per barrel in March 2022, and Henry Hub gas prices ranging from $1.33 per MMBtu in September 2020 to $23.86 per MMBtu in February 2021[93] - The average WTI price for 2023 was $77.58, a 36% increase over 2019, but the average rig count decreased by 27% over the same period[93] - Average WTI price declined by 18% and natural gas price dropped by 61% in 2023 compared to 2022[213] - U.S. rig count decreased by 157 rigs (20%) from the end of 2022 through 2023[213] - The company's business is cyclical and depends on capital spending and well completions by the onshore oil and natural gas industry, which is highly volatile[91] - The company's products and services are deferrable in weak oil and natural gas commodity price environments, which could result in lower utilization and reduced rates[95] - The company faces risks from reduced discovery rates of new oil and natural gas reserves due to decreased capital spending, which could have a negative long-term impact on its business[96] - The company's business could be adversely affected by a decline in general economic conditions or a weakening of the broader energy industry[97] Technology and Innovation - Focuses on developing new technologies and equipment internally, as well as sourcing and commercializing new technologies through mergers, acquisitions, and strategic partnerships[51] - Utilizes proprietary composite and dissolvable frac plugs to reduce cycle times, equipment needs, and carbon emissions compared to traditional composite plug completions[31] - Developed a suite of proprietary downhole tools and technologies through internal resources, mergers, acquisitions, and strategic partnerships, providing exclusive marketing rights in designated regions[52] - Strategic partnerships allow access to unique downhole technology while minimizing risks and costs associated with internal R&D[52] - Company does not rely on any single patent, license, or partnership as critical to its overall business, emphasizing technological capabilities and customer service over intellectual property[53] Regulatory and Environmental Compliance - Subject to stringent U.S. and Canadian environmental and safety regulations, with potential penalties for non-compliance[60][61] - Operates a fleet of over 590 commercial motor vehicles, subject to U.S. DOT and state regulations, with potential fines for non-compliance[66] - EPA's new rule in December 2023 aims to reduce methane emissions from oil and gas sources, introducing stricter regulations and phasing out routine flaring[70] - The EPA requires states to develop plans to reduce methane emissions from existing sources, with a two-year deadline for submission and three years for compliance from the submission deadline[71] - The Inflation Reduction Act imposes a methane emissions charge starting at $900 per ton in 2024, increasing to $1,200 in 2025 and $1,500 in 2026[76] - The U.S. aims to reduce GHG emissions by 50-52% by 2030 compared to 2005 levels, as part of the Paris Agreement[74] - The EPA proposed expanding the Greenhouse Gas Reporting Program for petroleum and natural gas facilities, with the rule expected to be finalized in spring 2024 and effective January 1, 2025[76] - The SEC proposed a rule in March 2022 requiring registrants to disclose Scope 1, Scope 2, and Scope 3 GHG emissions, among other climate-related information[78] - The EPA issued effluent limitation guidelines prohibiting the discharge of wastewater from hydraulic fracturing operations to publicly owned wastewater treatment plants[82] - The U.S. Bureau of Land Management proposed new regulations to reduce natural gas waste during oil and gas production on federal and tribal lands, with a final rule expected by January 2024[80] - The Council on Environmental Quality proposed a Phase 2 rule in July 2023 to accelerate NEPA reviews while considering environmental, climate change, and environmental justice effects, with a final rule expected in April 2024[87] - The EPA's new Subpart OOOO regulations and other federal rules regulate methane emissions, which may be released during hydraulic fracturing[80] - The Inflation Reduction Act includes a Methane Emissions and Waste Reduction Incentive Program, requiring revisions to GHG reporting regulations for petroleum and natural gas systems by 2024[75] - Compliance with environmental regulations, including GHG emissions and climate change laws, could increase costs and reduce demand for oil and natural gas services[148] - Hydraulic fracturing regulations, if tightened, could increase operating costs and reduce demand for the company's services[147] - Increased regulatory and compliance costs due to proposed SEC climate-related disclosure rules, including financial impacts, physical and transition risks, and GHG emissions[150] - Potential operational burdens and decreased demand for products due to regulations on seismic safety for hydraulic fracturing activities[151] - Risks of non-compliance with anti-corruption laws (FCPA, UKBA, CFPOA) and economic sanctions, leading to potential penalties and reputational harm[152] - Potential adverse impacts from transportation regulations, including increased costs and operational disruptions due to DOT compliance and safety requirements[154] Risks and Liabilities - Operations are exposed to industry-specific hazards such as accidents, blowouts, and environmental spills, which could lead to lawsuits and significant liabilities[54][55] - Maintains insurance coverage for workers' compensation, liability, and property, but coverage may be inadequate or become more expensive in the future[57] - Operations are exposed to risks of personal injury, property damage, and environmental harm, which could lead to litigation and significant financial liabilities[136] - Insurance coverage may not fully protect against increasing operational risks, particularly as well complexity grows, potentially exposing the company to uninsured liabilities[137] - Delays or inability to obtain permits for drilling and completion activities could result in revenue loss and adversely affect operations[140] - Risks related to intellectual property disputes, including potential litigation costs and loss of competitive advantage[158] - Cybersecurity risks that could lead to loss of intellectual property, business interruptions, and increased costs[164] - The company faces risks from potential climate change-related regulations, policies, and initiatives, which could reduce demand for oil and natural gas and increase compliance costs[100][101] - Negative public perception of the oil and gas industry could adversely affect the company's operations and ability to raise debt and equity capital[102][104] - Inflationary factors, such as increases in labor and material costs, may adversely affect the company's financial position and operating results[98] - The company may face challenges in generating sufficient cash flow to service its debt, potentially leading to asset sales, capital raising, or debt restructuring[110] - Debt agreements contain restrictive covenants that limit the company's ability to finance operations, expand business activities, and take advantage of business opportunities[112][113] - A breach of debt covenants could result in default, acceleration of debt payments, and potential inability to meet financial obligations[114] - The company faces intense competition in the oilfield services industry, which may lead to pricing pressures, reduced sales, and market share erosion[118][119] - The company's ability to increase prices for its products and services is constrained by competitive market conditions and customer sensitivity to price changes[116][117] - The company's operations are subject to inherent risks in the oilfield services industry, including equipment defects, accidents, and environmental liabilities[123][124] - Seasonal and adverse weather conditions, including climate change effects, can negatively impact the company's operations and demand for its services[126] - Company faces risks from inaccurate customer demand forecasts, leading to potential excess or obsolete inventory, which could reduce gross margins, or insufficient inventory, resulting in lost revenue opportunities and market share[128] - Company's top five customers accounted for approximately 21% of total revenues in 2023, making it vulnerable to financial impacts if key customers delay payments or reduce business[132] - Certain product lines rely on a limited number of suppliers, and disruptions in supply chains could negatively affect pricing, quality, availability, or delivery[133] - Company holds exclusive distribution rights for certain products, but failure to meet minimum volume requirements could result in termination of these arrangements[134] - Oilfield anti-indemnity provisions in some states may restrict or void indemnification agreements, potentially impacting the company's financial condition[135] Corporate Governance and Ownership - As of December 31, 2023, the company had 1,157 full-time employees with no collective bargaining agreements[59] - Significant influence of major stockholders (SCF) owning 26% of common stock, potentially limiting other stockholders' influence on corporate decisions[165] - SCF's potential reduction in ownership could adversely affect the company's business strategies and cash flows[166] - Conflicts of interest may arise due to directors also being affiliates of SCF, potentially impacting the company's best interests[167] - SCF and its affiliates may compete with the company, leading to potential conflicts over business opportunities[168] - The company's charter renounces interest in business opportunities presented to SCF Group entities, which could adversely affect its business prospects[169] - The company's future success heavily depends on retaining key personnel, including CEO Ann G. Fox and COO David Crombie[171] - The company faces challenges in hiring and retaining skilled workers, which could impact its capacity and profitability[172] - 59 stockholders of record as of March 4, 2024[199] - No cash dividends anticipated in the foreseeable future[200] Cybersecurity and IT - Cybersecurity programs developed based on the National Institute of Standards and Technology Cybersecurity Framework[188] - No material cybersecurity threats identified as of the date of the Annual Report[189] - Board oversight of cybersecurity risk management assigned to the Audit Committee[190] - Security Committee (SC) meets quarterly to review and update cybersecurity policies[191] - Senior IT leadership responsible for day-to-day management of cybersecurity programs[192] International Operations - The company's international revenue, accounting for 4.7% of total revenue in 2023, is subject to various risks including political and economic instability[180] - The company generated approximately 0.3% of its revenue from operations in western Canada for both 2023 and 2022[126] Capital Expenditures and Investments - The company spent $12.6 million and $13.6 million on capital expenditures for equipment maintenance in 2023 and 2022, respectively[125]

Financial Performance - Fourth quarter 2023 revenue was $144.1 million, net loss of $(10.3) million, and adjusted EBITDA of $14.6 million, within the original guidance range of $137.0 to $147.0 million[2][3] - Full year 2023 revenue was $609.5 million, net loss of $(32.2) million, and adjusted EBITDA of $73.0 million[5][7] - Net income (loss) for 2023 was $(32.213) million, a significant decline from $14.393 million in 2022[26] - Adjusted EBITDA for 2023 was $72.966 million, down from $93.738 million in 2022[28] - Adjusted gross profit for 2023 was $118.776 million, compared to $136.289 million in 2022[34] Revenue and Sales Growth - The total number of StingerTM Dissolvable units sold increased by approximately 18% year-over-year[4][5] - International revenue increased by approximately 16% year-over-year[4][5] Cash Flow and Liquidity - The company reported net cash provided by operating activities of $45.5 million for the full year 2023[11] - Net cash provided by operating activities increased to $45.509 million in 2023 from $16.672 million in 2022[26] - The company had a total liquidity position of $58.9 million as of December 31, 2023, including $30.8 million in cash and cash equivalents and $28.1 million of availability under the revolving credit facility[12] - Cash and cash equivalents increased by $13.395 million to $30.840 million at the end of 2023, compared to $17.445 million at the end of 2022[26] Capital Expenditures and Investments - Total capital expenditures for the full year 2023 were approximately $22.3 million, below the original guidance of $25 to $35 million[11] - The company generated ROIC of (10.8)% and adjusted ROIC of 8.8% for the full year 2023[7] - Adjusted ROIC for 2023 was 8.8%, down from 16.3% in 2022[31] - Adjusted ROIC is defined as adjusted after-tax net operating profit (loss) divided by average total capital[37] - Adjusted after-tax net operating profit (loss) includes adjustments for goodwill, intangible asset, and property impairments, transaction costs, interest expenses, restructuring charges, and other items[37] - Total capital is calculated as book value of equity plus book value of debt minus cash and cash equivalents[37] - Adjusted ROIC is used to evaluate operating income generation relative to invested capital and assists in capital allocation decisions[37] - The company revised the titles of Adjusted ROIC and adjusted after-tax net operating profit (loss) to clearly identify them as non-GAAP measures[37] Balance Sheet and Debt - Total assets decreased to $401.984 million in 2023 from $426.834 million in 2022[24] - Total liabilities decreased to $437.614 million in 2023 from $450.341 million in 2022[24] - Long-term debt decreased to $320.520 million in 2023 from $338.031 million in 2022[24] - Accounts receivable, net decreased to $88.449 million in 2023 from $105.277 million in 2022[24] Product and Market Strategy - The company introduced new technology with the Pincer Hybrid Frac Plug and aims to gain market share with this tool in 2024[4] Gross Profit and Operating Metrics - The company reported gross profit of $80.2 million and adjusted gross profit of $118.8 million for the full year 2023[7]

Financial Data and Key Metrics Changes - Revenue for Q3 2023 totaled $140.6 million, within the guidance range of $140 million to $150 million, with adjusted EBITDA of $11.6 million and an adjusted EBITDA margin of 8% [20][10] - The company reported a net cash used in operating activities of $9.9 million, with cash and cash equivalents at $12.2 million as of September 30, 2023 [12][25] - Diluted EPS was negative $0.39, reflecting the impact of declining activity levels and pricing pressure [20] Business Line Data and Key Metrics Changes - Completion tool revenue decreased by approximately 16% to $32.6 million, with a 6% decrease in completed stages [11] - Cementing revenue was $51.9 million, down approximately 11%, with a 13% decrease in completed jobs [27] - Coil tubing revenue decreased by approximately 17% to $27.9 million, with utilization at 47% [11] Market Data and Key Metrics Changes - The EIA reported a 10% decline in U.S. completions in Q3 compared to Q2, with significant declines in the Haynesville region [5] - The rig count has declined by over 150 rigs or approximately 20% since the end of 2022, impacting all service lines [20] Company Strategy and Development Direction - The company is focused on diversifying revenue streams towards completion tools and international markets, with the introduction of the new Pincer hybrid frac plug expected to enhance market share [14][6] - The strategy remains centered on providing an asset-light business model with innovative technology and excellent service [39] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that the business will return to trend in Q4, with expectations for improved activity levels driven by private operators if commodity prices remain supportive [4][13] - The sentiment in the market has shifted positively, with increased bids for work noted in October [13][43] Other Important Information - The company anticipates Q4 revenue to be slightly higher than Q3, projecting between $137 million and $147 million [30] - An inventory reserve of approximately $1.2 million in the completion tools business negatively impacted adjusted EBITDA [26] Q&A Session Summary Question: Was there any one-off event affecting product revenues during the quarter? - Management clarified that the decline in international sales was due to a return to normalized levels after a large one-off order in Q2 [16] Question: How is the sentiment in the market regarding private operators? - Management noted a positive shift in sentiment with increased customer activity and calls, indicating a potential for improved market conditions [42][43] Question: What are the expectations for gross margin in the services segment for the December quarter? - Management indicated that while specific guidance was not provided, they expect overall adjusted EBITDA and margins to improve compared to Q3 [45]

[PART I – FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited consolidated financial statements, showing a net loss of $13.3 million in Q3 2023, a reversal from prior year's net income, with total assets decreasing to $386.8 million and stockholders' deficit widening to $26.1 million [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of September 30, 2023, shows total assets of $386.8 million, a decrease from $426.8 million at December 31, 2022, with total liabilities decreasing to $413.0 million and stockholders' deficit increasing to $26.1 million Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total current assets** | $162.5 | $196.7 | | **Total assets** | $386.8 | $426.8 | | **Total current liabilities** | $58.1 | $81.0 | | **Long-term debt** | $319.0 | $338.0 | | **Total liabilities** | $413.0 | $450.3 | | **Total stockholders' equity (deficit)** | $(26.1) | $(23.5) | [Condensed Consolidated Statements of Income and Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20%28Loss%29) For Q3 2023, total revenues decreased to $140.6 million, resulting in a $0.8 million loss from operations and a net loss of $13.3 million, a significant reversal from Q3 2022's net income Income Statement Summary (in millions, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $140.6 | $167.4 | $465.5 | $426.7 | | **Income (loss) from operations** | $(0.8) | $19.8 | $15.4 | $27.3 | | **Net income (loss)** | $(13.3) | $14.3 | $(21.9) | $6.4 | | **Diluted EPS** | $(0.39) | $0.45 | $(0.66) | $0.20 | [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20%28Deficit%29) The stockholders' deficit increased from $(23.5) million at year-end 2022 to $(26.1) million by Q3 2023, primarily due to a net loss partially offset by common stock issuance - The total stockholders' deficit increased from **$(23.5) million** at December 31, 2022, to **$(26.1) million** at September 30, 2023[21](index=21&type=chunk) - The main drivers for the change in equity were a net loss of **$21.9 million** and the issuance of **1.5 million** shares of common stock as part of the 2028 Units offering, which added **$18.0 million** to equity[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2023, net cash from operating activities increased to $21.2 million, while net cash used in investing and financing activities rose to $14.7 million and $11.6 million respectively, leading to a $5.3 million decrease in cash Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $21.2 | $8.2 | | **Net cash used in investing activities** | $(14.7) | $(6.2) | | **Net cash used in financing activities** | $(11.6) | $(1.8) | | **Net decrease in cash and cash equivalents** | $(5.3) | $(0.0) | [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on revenue disaggregation by service line, significant debt refinancing completed in January 2023, and other financial details including contingent liabilities Disaggregated Revenues (in millions) | Service Line | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Cement | $51.9 | $63.9 | $172.4 | $164.4 | | Tools | $32.6 | $40.8 | $109.2 | $102.6 | | Coiled tubing | $27.9 | $33.4 | $94.9 | $82.7 | | Wireline | $28.3 | $29.3 | $88.9 | $77.0 | | **Total** | **$140.6** | **$167.4** | **$465.5** | **$426.7** | - On January 30, 2023, the company completed a public offering of **300,000 Units**, consisting of **$300 million** principal of **13.000%** Senior Secured Notes due 2028 and **1.5 million** shares of common stock, with proceeds used to redeem the **8.750%** Senior Notes due 2023[39](index=39&type=chunk)[51](index=51&type=chunk) - The contingent liability for the Frac Tech Earnout increased to **$1.33 million** as of September 30, 2023, from **$1.17 million** at the end of 2022, due to revaluation adjustments[72](index=72&type=chunk)[73](index=73&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's operational results, financial condition, and liquidity, highlighting a 16% Q3 2023 revenue decline to $140.6 million, a drop in Adjusted EBITDA to $11.6 million, and successful debt refinancing [Industry Trends and Outlook](index=22&type=section&id=Industry%20Trends%20and%20Outlook) The company's business is significantly impacted by volatile commodity prices and reduced U.S. rig counts, leading to pricing pressure, though management anticipates a potential recovery in early 2024 - Commodity prices have been volatile in 2023, generally lower than in 2022, causing the Baker Hughes rig count to fall by over **150 rigs** from the end of Q4 2022 to the end of Q3 2023[86](index=86&type=chunk) - The decline in commodity prices and activity has led to pricing pressure from customers, impacting both revenue and margins[87](index=87&type=chunk) - Management is cautiously optimistic about a stabilizing rig count and potential recovery in early 2024, but acknowledges market volatility and global uncertainties like OPEC actions and geopolitical conflicts[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) In Q3 2023, revenues decreased 16% year-over-year to $140.6 million, leading to a 48% drop in adjusted gross profit to $22.9 million, while nine-month revenues increased 9% to $465.5 million but adjusted gross profit declined 3% Q3 2023 vs Q3 2022 Results (in millions) | Metric | Q3 2023 | Q3 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $140.6 | $167.4 | $(26.8) | (16)% | | **Adjusted gross profit** | $22.9 | $44.0 | $(21.1) | (48)% | | **Income (loss) from operations** | $(0.8) | $19.8 | $(20.6) | (104)% | | **Net income (loss)** | $(13.3) | $14.3 | $(27.5) | (193)% | - The Q3 revenue decrease was driven by a **19%** drop in cementing revenue, a **20%** drop in tools revenue, a **17%** drop in coiled tubing revenue, and a **3%** drop in wireline revenue, all primarily due to reduced activity[91](index=91&type=chunk) Nine Months 2023 vs 2022 Results (in millions) | Metric | 9M 2023 | 9M 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $465.5 | $426.7 | $38.7 | 9% | | **Adjusted gross profit** | $93.2 | $96.2 | $(3.0) | (3)% | | **Income from operations** | $15.4 | $27.3 | $(11.9) | (44)% | | **Net income (loss)** | $(21.9) | $6.4 | $(28.3) | (442)% | [Non-GAAP Financial Measures](index=27&type=section&id=Non-GAAP%20Financial%20Measures) This section reconciles GAAP to non-GAAP measures, showing Adjusted EBITDA for Q3 2023 at $11.6 million, a significant decrease from $32.6 million in Q3 2022, and ROIC at (0.7)% Adjusted EBITDA Reconciliation (in millions) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | **Net income (loss)** | $(13.3) | $14.3 | $(21.9) | $6.4 | | **EBITDA** | $9.5 | $32.3 | $46.7 | $60.8 | | **Adjusted EBITDA** | $11.6 | $32.6 | $58.3 | $63.7 | Return on Invested Capital (ROIC) | Period | 2023 | 2022 | | :--- | :--- | :--- | | **Three Months Ended Sep 30** | (0.7)% | 28.8% | | **Nine Months Ended Sep 30** | 9.9% | 14.1% | [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2023, total liquidity was $34.9 million, following a major debt refinancing in January 2023 that included issuing $300 million in new notes and amending the ABL Credit Facility - At September 30, 2023, total liquidity was **$34.9 million**, consisting of **$12.2 million** in cash and **$22.7 million** of availability under the ABL Credit Facility[129](index=129&type=chunk) - In January 2023, the company issued **$300 million** of **13.000%** Senior Secured Notes due 2028 and used proceeds to redeem all outstanding **8.750%** Senior Notes due 2023[130](index=130&type=chunk)[137](index=137&type=chunk) - The ABL Credit Facility was amended to extend the maturity to January **2027**, decrease its size from **$200 million** to **$150 million**, and revise interest rates and covenants[141](index=141&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a "smaller reporting company," the company is exempt from providing quantitative and qualitative disclosures about market risk - As a "smaller reporting company," the company is not required to provide quantitative and qualitative disclosures about market risk[152](index=152&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[154](index=154&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[155](index=155&type=chunk) [PART II – OTHER INFORMATION](index=37&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various claims and lawsuits in the ordinary course of business, but management does not expect a material adverse effect on its financial condition - The company is involved in various claims and legal proceedings from time to time but does not expect the outcomes to have a material adverse effect on its financial condition[158](index=158&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes have occurred to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[159](index=159&type=chunk) [Other Items (Items 2, 3, 4, 5)](index=37&type=section&id=Other%20Items%20%28Items%202%2C%203%2C%204%2C%205%29) This section confirms no unregistered sales of equity securities, no defaults upon senior securities, no applicable mine safety disclosures, and no other information required under Item 5 during the reporting period - Item 2 (Unregistered Sales of Equity Securities), Item 3 (Defaults Upon Senior Securities), and Item 5 (Other Information) are all reported as "None"[160](index=160&type=chunk)[161](index=161&type=chunk)[163](index=163&type=chunk) - Item 4 (Mine Safety Disclosures) is reported as "Not applicable"[162](index=162&type=chunk) [Item 6. Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Interactive Data Files (inline XBRL) - The exhibits filed with this report include CEO and CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906, and Interactive Data Files (XBRL)[166](index=166&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q2 2023 was $161.4 million, within the guidance of $158 million to $166 million, with adjusted EBITDA of $21.7 million and an adjusted EBITDA margin of 13% [22][9] - Diluted earnings per share was negative $0.08, and return on invested capital (ROIC) for the quarter was 12.9% [4] - The company reported net cash provided by operating activities of $27.1 million, with an average Days Sales Outstanding (DSO) of 52.4 days [12][9] - General and administrative expenses were $14.2 million, and depreciation and amortization expenses were $10.3 million [11] Business Line Data and Key Metrics Changes - Cementing revenue decreased by approximately 5% to $58.1 million, with a decrease in the average blended revenue per job by approximately 5% [29] - Wireline revenue increased by approximately 4% to $31 million, with a 12% increase in completed wireline stages, but the average blended revenue per stage decreased by approximately 7% [10] - Completion tool revenue was $38.9 million, an increase of approximately 3%, despite a 14% decrease in completed stages [10] - Coiled tubing revenue remained flat at $33.5 million, with a 16% decrease in coiled tubing days but a 19% increase in average blended day rate [30] Market Data and Key Metrics Changes - The Northeast rig count has been stable, but pricing pressure and completion delays are affecting revenue and margins [23] - The U.S. rig count declined approximately 14% through the first half of the year, with significant declines in the Eagle Ford and Haynesville regions [24] - International revenue is approximately 4% to 5% of consolidated revenue, with a strategy to increase this profile [37] Company Strategy and Development Direction - The company is focused on maintaining pricing and market share through proprietary slurries and well site execution, while also investing in internal R&D for new technology [6][13] - There is a cautious optimism regarding a potential rebound in rig counts and activity levels in the second half of 2023 and into 2024 [13][32] - The company aims to reduce dependency on North American land by increasing international sales and focusing on completion tools [37] Management's Comments on Operating Environment and Future Outlook - Management noted that the market remains volatile, with commodity prices being erratic and unpredictable, complicating capital allocation decisions [32] - There is an expectation for Q3 revenue to decline compared to Q2, projected between $140 million and $150 million, with anticipated declines in adjusted EBITDA and margins [14] - Management is optimistic about the potential for recovery in activity levels, but acknowledges the challenges posed by pricing pressures and market conditions [92][63] Other Important Information - The company completed 6,106 wireline stages in Q2, with a noted increase in international orders contributing to revenue [10][60] - The company has a strong liquidity position of $60.1 million as of June 30, 2023, with $41.1 million in cash and cash equivalents [28] Q&A Session Summary Question: Can you provide some color on international sales and completion tools? - Management indicated that international revenue is recurring and part of the strategy to increase this profile [17] Question: What are the plans for the remaining debt outstanding? - Management plans to use generated cash flow to pay down the credit facility first, then focus on bonds [19] Question: How is the demand for coiled tubing units affected by dissolvable plugs? - Management noted that demand for coiled tubing has remained strong despite the penetration of dissolvable plugs [40] Question: Have conversations with customers changed due to recent commodity price strength? - Management stated that conversations regarding pricing have not changed significantly yet, as stability in commodity prices is needed [41] Question: What is the strategy for growth in completion tools? - The company is focusing on internal R&D and has secured contracts in the Middle East, aiming for organic growth and potential M&A [44][45] Question: How is the company handling labor amidst market volatility? - Management emphasized the importance of retaining skilled labor and is cautious about making cuts, anticipating a recovery in activity [92][103]