Dril-Quip(DRQ) - 2021 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Dril-Quip, Inc.'s unaudited condensed consolidated financial statements and management's discussion for Q1 2021 Item 1. Condensed Consolidated Financial Statements Presents Dril-Quip, Inc.'s unaudited Q1 2021 financial statements, including balance sheets, income, cash flows, equity, and key notes Condensed Consolidated Balance Sheets Snapshot of the company's financial position at March 31, 2021, and December 31, 2020 ASSETS (In thousands) | ASSETS (In thousands) | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Cash and cash equivalents | $362,213 | $345,955 | | Total current assets | $844,721 | $863,193 | | Total assets | $1,126,831 | $1,151,172 | | LIABILITIES AND STOCKHOLDERS' EQUITY (In thousands) | March 31, 2021 | December 31, 2020 | | :-------------------------------------------------- | :------------- | :---------------- | | Total current liabilities | $95,307 | $85,512 | | Total liabilities | $118,565 | $109,644 | | Total stockholders' equity | $1,008,266 | $1,041,528 | | Total liabilities and stockholders' equity | $1,126,831 | $1,151,172 | - Total assets decreased by approximately $24.3 million from December 31, 2020, to March 31, 2021, primarily driven by a decrease in current assets, including trade receivables, unbilled receivables, and inventories[8] - Total stockholders' equity decreased by approximately $33.3 million, mainly due to the net loss incurred during the period and foreign currency translation adjustments[8][19][27] Condensed Consolidated Statements of Income (Loss) Details Q1 2021 and 2020 financial performance, including revenues, expenses, and net loss (In thousands, except per share data) | (In thousands, except per share data) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Total revenues | $81,239 | $95,998 | | Total costs and expenses | $112,821 | $138,320 | | Operating loss | $(31,582) | $(42,322) | | Loss before income taxes | $(31,972) | $(41,307) | | Income tax provision (benefit) | $2,386 | $(21,609) | | Net loss | $(34,358) | $(19,698) | | Basic loss per common share | $(0.97) | $(0.55) | | Diluted loss per common share | $(0.97) | $(0.55) | - Total revenues decreased by 15.4% year-over-year, from $96.0 million in Q1 2020 to $81.2 million in Q1 2021[13][99] - Net loss increased significantly from $(19.7) million in Q1 2020 to $(34.4) million in Q1 2021, primarily due to higher restructuring charges and a shift from income tax benefit to provision[13][101][102] Condensed Consolidated Statements of Comprehensive Income (Loss) Presents Q1 2021 and Q1 2020 comprehensive income (loss), including net loss and other items (In thousands) | (In thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(34,358) | $(19,698) | | Foreign currency translation adjustments | $(2,090) | $(24,979) | | Total comprehensive loss | $(36,448) | $(44,677) | - Total comprehensive loss decreased from $(44.7) million in Q1 2020 to $(36.4) million in Q1 2021, mainly driven by a smaller negative impact from foreign currency translation adjustments[19] Condensed Consolidated Statements of Cash Flows Outlines cash inflows and outflows from operating, investing, and financing activities for Q1 2021 and Q1 2020 (In thousands) | (In thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :------------- | :-------------------------------- | :-------------------------------- | | Operating activities | $13,072 | $(21,237) | | Investing activities | $3,431 | $(3,500) | | Financing activities | $(40) | $(25,085) | | Increase (decrease) in cash and cash equivalents | $16,258 | $(55,474) | | Cash and cash equivalents at end of period | $362,213 | $343,472 | - Net cash provided by operating activities was $13.1 million in Q1 2021, a significant improvement from net cash used of $21.2 million in Q1 2020, primarily due to changes in operating assets and liabilities[25][107] - Net cash provided by investing activities was $3.4 million in Q1 2021, compared to net cash used of $3.5 million in Q1 2020, mainly driven by proceeds from the sale of two buildings in Singapore[25][107] Condensed Consolidated Statements of Stockholders' Equity Details changes in stockholders' equity from January 1, 2021, to March 31, 2021 (In thousands, except shares) | (In thousands, except shares) | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Losses | Total | | :---------------------------- | :----------- | :------------------------- | :---------------- | :------------------------------------- | :---- | | Balance at January 1, 2021 | $363 | $65,613 | $1,125,263 | $(149,711) | $1,041,528 | | Foreign currency translation adjustment | - | - | - | $(2,090) | $(2,090) | | Net loss | - | - | $(34,358) | - | $(34,358) | | Stock option expense | - | $3,186 | - | - | $3,186 | | Balance at March 31, 2021 | $363 | $68,799 | $1,090,905 | $(151,801) | $1,008,266 | - Total stockholders' equity decreased from $1,041.5 million at January 1, 2021, to $1,008.3 million at March 31, 2021, primarily due to the net loss of $34.4 million and foreign currency translation adjustments of $2.1 million[27] Notes to Condensed Consolidated Financial Statements Detailed explanations of accounting policies, estimates, and specific financial statement line items 1. Organization and Basis of Presentation Describes Dril-Quip, Inc.'s business, segments, and impact of winter storm and COVID-19 - Dril-Quip, Inc. designs, manufactures, sells, and services highly engineered drilling and production equipment for deepwater, harsh environment, and severe service applications, with operations organized into three geographic segments: Western Hemisphere, Eastern Hemisphere, and Asia-Pacific[35] - The company's Houston manufacturing facilities were shut down for a week in February 2021 due to a severe winter storm, incurring additional costs, while the COVID-19 pandemic continues to impact business, reducing global oil and gas demand[35] 2. Significant Accounting Policies Outlines key accounting estimates and policies, including revenue recognition, impairment, inventories, and restructuring - Key accounting estimates include revenue recognition, impairment of goodwill and asset recoverability, and inventories[38] - Leasing revenues for Q1 2021 totaled $7.5 million from running tools and $0.5 million from facility rental[40] - Restructuring charges in Q1 2021, part of the 2018 global strategic plan, included $19.3 million in non-cash inventory write-downs, $2.7 million in severance, and $3.0 million in other charges, related to shifting from in-house manufacturing to vendor sourcing for downhole tools[43] 3. New Accounting Standards Discusses ASU 2019-12 adoption and its immaterial impact on financial statements - The adoption of ASU 2019-12 'Income Taxes (Topic 740)' in Q1 2021 did not have a material impact on the company's financial position, results of operations, or cash flows[48] 4. Revenue Recognition Details revenue streams from customer contracts, including product and service revenues, and contract balances Revenues from contracts with customers (In thousands) | Revenues from contracts with customers (In thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :---------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Product Revenues | $55,583 | $67,558 | | Service Revenues | $17,667 | $18,814 | | Total (excluding leasing) | $73,250 | $86,372 | Contract Balances (In thousands) | Contract Balances (In thousands) | March 31, 2021 | December 31, 2020 | | :------------------------------- | :------------- | :---------------- | | Contract Assets | $135,159 | $135,973 | | Contract Liabilities | $13,711 | $10,815 | - The aggregate amount of the transaction price allocated to remaining performance obligations from over-time product lines was $69.4 million as of March 31, 2021, with approximately 49.5% expected to be recognized over the next 12 months[53] 5. Stock-Based Compensation and Stock Awards Reports stock-based compensation expense recognized for Q1 2021 and Q1 2020 - The company recognized approximately $3.2 million in stock-based compensation expense for both the three months ended March 31, 2021, and March 31, 2020[54] 6. Inventories, net Breakdown of inventory components and allowance for slow-moving and excess inventory as of March 31, 2021 Inventories (In thousands) | Inventories (In thousands) | March 31, 2021 | December 31, 2020 | | :------------------------- | :------------- | :---------------- | | Raw materials and supplies | $30,991 | $32,833 | | Work in progress | $42,593 | $44,924 | | Finished goods | $221,588 | $216,928 | | Total gross inventory | $295,172 | $294,685 | | Less: allowance for slow moving and excess inventory | $(100,261) | $(82,149) | | Total inventory | $194,911 | $212,536 | - Total net inventory decreased by $17.6 million from December 31, 2020, to March 31, 2021, primarily due to an increase in the allowance for slow-moving and excess inventory by $18.1 million[56] 7. Impairment, Restructuring and Other Charges Details restructuring and other charges, including inventory write-downs and severance, for Q1 2021 and Q1 2020 Components of Restructuring and Other Charges (In thousands) | Components of Restructuring and Other Charges (In thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :----------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Inventory write-down | $19,251 | $17,272 | | Severance | $2,746 | $8,399 | | Long-lived asset write-down | - | $6,912 | | Other | $3,023 | $130 | | Total | $25,020 | $32,713 | - Restructuring and other charges decreased from $32.7 million in Q1 2020 to $25.0 million in Q1 2021, with a notable decrease in severance and long-lived asset write-downs, partially offset by an increase in inventory write-downs[57] - In Q1 2020, the company recorded a full impairment of its Goodwill balance of $7.7 million in the Eastern Hemisphere reporting unit; no goodwill impairment was recorded in Q1 2021[59] 8. Intangible Assets Presents net book value of intangible assets, including trademarks, patents, and customer relationships, as of March 31, 2021 Intangible Assets (In thousands) | Intangible Assets (In thousands) | March 31, 2021 Net Book Value | December 31, 2020 Net Book Value | | :------------------------------- | :---------------------------- | :------------------------------- | | Trademarks | $7,084 | $7,200 | | Patents | $3,186 | $3,337 | | Customer relationships | $18,302 | $18,727 | | Organizational costs | $171 | $170 | | Total | $28,743 | $29,434 | - Total net intangible assets decreased by $0.7 million from December 31, 2020, to March 31, 2021, primarily due to ongoing amortization[61] 9. Asset Backed Loan (ABL) Credit Facility Describes the senior secured revolving credit facility, its availability, and covenant compliance - The company has a five-year senior secured revolving credit facility (ABL Credit Facility) with total commitments of $100.0 million, including up to $10.0 million for letters of credit[62] - As of March 31, 2021, the availability under the ABL Credit Facility was $35.4 million, after accounting for $1.0 million in outstanding letters of credit[64] - The company was in compliance with all related covenants of the ABL Credit Facility as of March 31, 2021[64] 10. Geographic Areas Breaks down total revenues by geographic segment and discusses non-cash inventory write-downs Total Revenues by Geographic Segment (In thousands) | Total Revenues by Geographic Segment (In thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Western Hemisphere | $55,081 | $60,503 | | Eastern Hemisphere | $10,710 | $25,596 | | Asia-Pacific | $19,887 | $15,800 | | Total Revenues | $81,239 | $95,998 | - Eastern Hemisphere revenues saw the largest decline, decreasing by $14.9 million (58.2%) year-over-year, while Asia-Pacific revenues increased by $4.1 million (25.9%)[66] - Non-cash inventory write-downs in Q1 2021 were $19.1 million in the Western Hemisphere and $0.2 million in the Eastern Hemisphere, as the company shifted to a vendor outsourcing model for downhole tools[68] 11. Income Tax Explains Q1 2021 and Q1 2020 effective tax rates, attributing changes to CARES Act benefits and valuation allowances - The effective tax rate for Q1 2021 was (7.5%), a significant change from 52.3% for the same period in 2020[69] - The change in effective tax rate was primarily due to discretely recognized tax benefits of Net Operating Losses (NOLs) in 2020 from the CARES Act, changes in income/loss in foreign jurisdictions, and changes in valuation allowances[69] - As of June 30, 2020, the company reversed its indefinite reinvestment assertion for foreign earnings, resulting in a deferred foreign tax liability of $3.6 million as of March 31, 2021[70] 12. Contingencies Details ongoing legal matters, including a Brazilian tax amnesty program and a trade secret lawsuit - The company's Brazilian subsidiary elected to participate in an amnesty program to settle two tax assessments totaling approximately $13.0 million for $2.1 million, with approximately $6 million in court-deposited security amounts to be returned[71][73] - FMC Technologies, Inc. sued the company in October 2020, alleging misappropriation of trade secrets related to its VXTe subsea tree systems; the company denies the allegations and is vigorously defending the lawsuit, with jury deliberations ongoing as of April 27, 2021[74] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of Dril-Quip's Q1 2021 financial condition, operations, and cash flows Forward-Looking Statements Highlights forward-looking statements regarding COVID-19, OPEC actions, and future operating results - The report contains forward-looking statements regarding the impact of the COVID-19 pandemic, OPEC actions, future operating results, capital expenditures, cost savings, liquidity, new products, backlog, market conditions, environmental regulations, legal proceedings, and customer requirements[77] Overview Overview of Dril-Quip, Inc.'s business, specializing in highly engineered drilling and production equipment - Dril-Quip, Inc. specializes in designing, manufacturing, selling, and servicing highly engineered drilling and production equipment for deepwater, harsh environment, and severe service applications, serving major integrated, large independent, and foreign national oil and gas companies globally[81] Business Environment Discusses impact of winter storm, COVID-19 pandemic, and government support schemes on operations - A severe winter storm in February 2021 caused a week-long shutdown of Houston manufacturing facilities, incurring additional costs[82] - The COVID-19 pandemic continues to reduce global economic activity and oil/gas demand, exacerbated by OPEC disputes, leading to a 14% decrease in overall production output in Q1 2021 compared to Q1 2020[82] - The company utilized CARES Act Payroll Tax Deferral, deferring $2.9 million in FICA taxes to 2021/2022, and expects to file a NOL carryback claim for 2020, also benefiting from $0.4 million in government job support schemes in Singapore, Australia, the U.K., and Denmark[82] Oil and Gas Prices Analyzes Brent Crude oil price trends and their impact on customer contract renegotiations Brent Crude Oil Price per Barrel | Brent Crude Oil Price per Barrel | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Low | $50.37 | $14.85 | | High | $69.95 | $70.25 | | Average | $61.04 | $50.27 | | Closing | $63.52 | $14.85 | - EIA projects Brent Crude oil prices to average $62 per barrel in 2021 and $60 per barrel in 2022, up from $41.96 in 2020[85] - Lower crude oil and natural gas prices have led customers to renegotiate contract terms, including price reductions, delivery extensions, and contract revisions[86] Offshore Rig Count Presents average contracted offshore rig count for Q1 2021 and Q1 2020, showing a decrease Average Contracted Offshore Rig Count | Average Contracted Offshore Rig Count | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Floating Rigs | 129 | 155 |\n| Jack-up Rigs | 344 | 392 |\n| Total Rigs | 473 | 547 | - The total contracted offshore rig count decreased by 11.4% from 536 rigs at March 31, 2020, to 475 rigs at March 31, 2021[89] Regulation Addresses influence of industry laws, tariffs, trade agreements, and impending LIBOR phase-out - The company's business is affected by laws and regulations in the oil and gas industry, including tariffs on steel and Chinese imports, the USMCA agreement, and Brexit[90] - The LIBOR benchmark is expected to be phased out by the end of 2021, which could impact the ABL Credit Facility, though the company is still evaluating the potential impact[92] - Product backlog at March 31, 2021, was $196.7 million, an increase from $195.7 million at December 31, 2020, but a decrease from $261.1 million at March 31, 2020[92] Revenues Analyzes Q1 2021 revenue decrease, primarily due to reduced product revenues and foreign sales - Revenues decreased by $14.8 million (15.4%) to $81.2 million in Q1 2021, primarily due to decreased product revenues in subsea equipment, offshore rig equipment, and surface equipment, partially offset by increased downhole tools revenue[99] - Foreign sales accounted for 68.5% of total revenues in Q1 2021, up from 63.1% in Q1 2020[94] - Revenues from projects accounted for under the 'over time' method represented 17.1% of total revenues and 24.9% of product revenues in Q1 2021, down from 31.4% and 44.7% respectively in Q1 2020[94] Cost of Sales Details Q1 2021 cost of sales decrease, aligning with revenue reduction and reflecting business transformation savings - Cost of sales decreased by $14.6 million (20.5%) to $56.8 million in Q1 2021, generally in line with the decrease in revenue[101] - Cost of sales as a percentage of revenues decreased to 69.9% in Q1 2021 from 74.4% in Q1 2020, reflecting savings from business transformation activities, partially offset by higher costs due to COVID-19 and the winter storm[101] Selling, General and Administrative Expenses Explains Q1 2021 SG&A expense increase, mainly due to higher legal expenses and tax settlements - Selling, general and administrative expenses increased by $4.9 million (19.9%) to $29.6 million in Q1 2021, mainly due to higher legal expenses related to an ongoing legal matter and an importation tax settlement in Brazil[101] Engineering and Product Development Expenses Highlights Q1 2021 R&D expense decrease, attributed to lower spending on completed projects - Engineering and product development expenses decreased by $1.5 million (26.9%) to $4.0 million in Q1 2021, attributable to lower spending on research and development activities for completed strategic projects[101] Impairments Confirms no impairment charges were recorded for the three months ended March 31, 2021 - No impairment charges were recorded for the three months ended March 31, 2021[94] Restructuring and Other Charges Details $25.0 million in Q1 2021 restructuring charges, including inventory write-downs and severance - Restructuring charges in Q1 2021 totaled $25.0 million, including $19.3 million in non-cash inventory write-downs, $2.7 million in severance, and $3.0 million in other charges, as part of the ongoing global strategic plan to realign manufacturing facilities and shift to a vendor outsourcing model for downhole tools[101] (Gain) Loss on Sale of Assets Reports a $4.0 million gain on asset sales in Q1 2021, primarily from two Singapore buildings - The company recognized a gain on sale of assets of approximately $4.0 million in Q1 2021, primarily from the sale of two buildings in Singapore, compared to a $0.5 million gain in Q1 2020 from the sale of the TIW Oklahoma facility[101] Foreign Currency Transaction (Gains) and Losses Notes a $1.4 million foreign exchange loss in Q1 2021, a reversal from a prior year gain - The company experienced a foreign exchange loss of $1.4 million in Q1 2021, a shift from a gain of $3.2 million in Q1 2020[101] Income Tax Provision (Benefit) Explains $2.4 million income tax provision in Q1 2021 and the change in effective tax rate - An income tax provision of $2.4 million was recorded in Q1 2021 on a pre-tax loss of $32.0 million, resulting in an effective tax rate of (7.5%), contrasting with an income tax benefit of $21.6 million in Q1 2020 on a pre-tax loss of $41.3 million, with an effective tax rate of 52.3%[101] - The change in the effective tax rate was primarily due to the discretely recognized benefits of the CARES Act in 2020, changes in valuation allowances, and the mix of earnings in jurisdictions with differing tax rates[101] Results of Operations Summarizes overall financial performance, highlighting increased net loss and key revenue/expense percentages (As a percentage of revenues) | (As a percentage of revenues) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :---------------------------- | :-------------------------------- | :-------------------------------- | | Products | 68.4% | 70.4% | | Services | 21.8% | 19.6% | | Leasing | 9.8% | 10.0% | | Total revenues | 100.0% | 100.0% | | Cost of sales | 69.9% | 74.4% | | Selling, general and administrative | 36.4% | 25.7% | | Engineering and product development | 5.0% | 5.8% |\n| Impairments | - | 8.0% |\n| Restructuring and other charges | 30.8% | 34.1% |\n| Net loss | (42.2)% | (20.5)% | Revenues by Product Line (In millions) | Revenues by Product Line (In millions) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Subsea equipment | $38.1 | $51.9 | | Surface equipment | $3.4 | $3.9 | | Downhole tools | $11.9 | $8.7 | | Offshore rig equipment | $2.2 | $3.1 | | Total products | $55.6 | $67.6 | | Services | $17.6 | $18.8 |\n| Leasing | $8.0 | $9.6 |\n| Total revenues | $81.2 | $96.0 | - Net loss increased to $34.4 million in Q1 2021 from $19.7 million in Q1 2020, driven by decreased revenues, increased selling, general and administrative expenses, and a shift from income tax benefit to provision[102] Non-GAAP Financial Measures Presents Adjusted EBITDA as a key non-GAAP measure, reconciling it to net loss and highlighting operational improvements - Adjusted EBITDA is used as a key non-GAAP measure to evaluate operating performance, removing the effect of capital structure and significant non-cash items[103][104] Adjusted EBITDA Reconciliation (In thousands) | Adjusted EBITDA Reconciliation (In thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(34,358) | $(19,698) | | Add: Interest (income) expense, net | $390 | $(1,015) | | Income tax provision (benefit) | $2,386 | $(21,609) | | Depreciation and amortization expense | $7,416 | $8,873 | | Impairments | - | $7,719 | | Restructuring and other charges | $29,820 | $32,713 | | Gain on sale of assets | $(3,955) | $(467) | | Foreign currency transaction (gains) and losses | $1,374 | $(3,242) | | Stock compensation expense | $3,186 | $3,176 | | Brazilian amnesty settlement | $1,787 | - | | Adjusted EBITDA | $8,046 | $6,450 | - Adjusted EBITDA increased to $8.0 million in Q1 2021 from $6.5 million in Q1 2020, reflecting operational improvements despite the net loss[105] Liquidity and Capital Resources Discusses cash flows, equity repurchase activities, ABL Credit Facility, and off-balance sheet arrangements Cash Flows Details significant improvement in net cash from operating activities and decreased capital expenditures Cash Flows (In thousands) | Cash Flows (In thousands) | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Operating activities | $13,072 | $(21,237) | | Investing activities | $3,431 | $(3,500) | | Financing activities | $(40) | $(25,085) | | Increase (decrease) in cash and cash equivalents | $16,258 | $(55,474) | - Net cash provided by operating activities improved by $34.3 million year-over-year, primarily due to a $58.9 million increase from changes in operating assets and liabilities, driven by focused global cash collections and inventory management[107] - Capital expenditures decreased to $2.5 million in Q1 2021 from $4.2 million in Q1 2020, with $1.2 million for rental tools, $0.6 million for machinery/equipment, and $0.7 million for other expenditures[107] Repurchase of Equity Securities No shares repurchased in Q1 2021 under the plan, contrasting with Q1 2020 activity - The company did not repurchase any shares under its $100 million share repurchase plan during Q1 2021, while in Q1 2020, it repurchased 808,389 shares for approximately $25.0 million[109] Asset Backed Loan (ABL) Credit Facility Confirms $35.4 million available under the ABL Credit Facility as of March 31, 2021 - As of March 31, 2021, the company had $35.4 million available under its ABL Credit Facility[110] Off-Balance Sheet Arrangements States the company has no derivative instruments or off-balance sheet hedging or financing arrangements - The company currently has no derivative instruments or off-balance sheet hedging or financing arrangements[111] Other Matters Indicates potential acquisitions or joint ventures, with funding contingent on market conditions - The company may engage in discussions or negotiations for acquisitions or joint ventures, with funding dependent on market conditions and opportunities[112] Critical Accounting Policies Confirms no material changes in critical accounting policies, judgments, and assumptions during Q1 2021 - There were no material changes in critical accounting policies, judgments, and assumptions during the three months ended March 31, 2021[113] Item 3. Quantitative and Qualitative Disclosures About Market Risk Outlines exposure to market risks, specifically interest rate and foreign exchange rate fluctuations Foreign Exchange Rate Risk Discusses exposure to foreign exchange rate risk from international operations and monetary assets - The company is exposed to foreign exchange rate risk due to international operations and monetary assets/liabilities not denominated in functional currencies[115] - A pre-tax foreign currency loss of approximately $1.4 million was experienced in Q1 2021, compared to a pre-tax gain of $3.2 million in Q1 2020[115] - The company does not engage in material hedging transactions to mitigate currency fluctuations[115] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2021 - Disclosure controls and procedures were deemed effective as of March 31, 2021, ensuring timely and accurate reporting[116] - No material changes occurred in the company's internal control over financial reporting during Q1 2021[118] PART II—OTHER INFORMATION Additional information including legal proceedings, risk factors, an index to exhibits, and signatures Item 1. Legal Proceedings Refers to Note 12 for details on legal proceedings, including a Brazilian tax issue and a trade secret lawsuit - Legal proceedings are detailed in Note 12 to the Condensed Consolidated Financial Statements[121] Item 1A. Risk Factors No material changes to risk factors reported since the Annual Report on Form 10-K for December 31, 2020 - No material changes to risk factors were reported since the Annual Report on Form 10-K for the year ended December 31, 2020[122] Item 6. Index to Exhibits Lists exhibits filed with the Form 10-Q, including organizational documents and certifications - The report includes various exhibits such as the Restated Certificate of Incorporation, Amended and Restated Bylaws, Common Stock Certificate form, Rule 13a-14(a)/15d-14(a) Certifications, Section 1350 Certifications, and Inline XBRL documents[124] Signatures Confirms report was duly authorized and signed by Raj Kumar, CFO, on April 29, 2021 - The report was signed by Raj Kumar, Vice President – Chief Financial Officer, on April 29, 2021[129]