FORUM ENERGY TECHNOLOGIES, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company's control. All statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words "will," "could," "believe," "anticipate," "intend," "estimate," "expect," "may," "continue," "predict," "potential," "project" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We disclaim any obligation to update or revise these statements unless required by law, and you should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with theSEC onMarch 4, 2022 , and elsewhere in this Quarterly Report on Form 10-Q. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Insight
We are a global company serving the oil, natural gas, industrial and renewable energy industries. FET provides value added solutions aimed at improving the safety, efficiency and environmental impact of our customers' operations. We are an environmentally and socially responsible company headquartered inHouston, Texas with manufacturing, distribution and service facilities strategically located throughout the world. Our products include highly engineered capital equipment as well as consumable products. These consumable products are used in drilling, well construction and completions activities, within the supporting infrastructure, and at processing centers and refineries. Our engineered capital products are directed at drilling rig equipment for new rigs, upgrades and refurbishment projects, subsea construction and development projects, pressure pumping equipment, the placement of production equipment on new producing wells, downstream capital projects and capital equipment for renewable energy projects. For the six months endedJune 30, 2022 , approximately 77% of our revenue was derived from consumable products and activity-based equipment, while the balance was primarily derived from capital products with a small amount from rental and other services. We design, manufacture and supply high quality reliable products that create value for our diverse customer base, which includes, among others, oil and natural gas operators, land and offshore drilling contractors, oilfield service companies, subsea construction and service companies, and pipeline and refinery operators. In addition, we offer some of our products to renewable energy and new energy companies. We expect that the world's long-term energy demand will continue to rise. We also expect hydrocarbons will continue to play a vital role in meeting the world's long-term energy needs while renewable energy sources continue to develop. As such, we remain focused on serving our customers in both oil and natural gas as well as renewable energy applications. We are also continuing to develop products to help oil and natural gas operators lower their emissions while also deploying our existing product technologies in renewable energy applications and seeking to develop innovative equipment. 16 --------------------------------------------------------------------------------
Here is a summary of the products and services offered by each segment:
•Drilling & Downhole. This segment designs, manufactures and supplies products
and provides related services to the drilling, well construction, artificial
lift and subsea energy construction markets, including applications in oil and
natural gas, renewable energy, defense, and communications. The products and
related services consist primarily of: (i) capital equipment and a broad line of
expendable products consumed in the drilling process; (ii) well construction
casing and cementing equipment and protection products for artificial lift
equipment and cables; and (iii) subsea remotely operated vehicles ("ROVs") and
trenchers, submarine rescue vehicles, specialty components and tooling, and
complementary subsea technical services.
•Completions. This segment designs, manufactures and supplies products and
provides related services to the coiled tubing, well stimulation and
intervention markets. The products and related services consist primarily of:
(i) capital and consumable products sold to the pressure pumping, hydraulic
fracturing and flowback services markets, including hydraulic fracturing pumps,
cooling systems, high-pressure flexible hoses and flow iron as well as wireline
cable and pressure control equipment used in the well completion and
intervention service markets; and (ii) coiled tubing strings and coiled line
pipe and related services.
•Production. This segment designs, manufactures and supplies products and
provides related equipment and services for production and infrastructure
markets. The products and related services consist primarily of: (i) engineered
process systems, production equipment, as well as specialty separation
equipment; and (ii) a wide range of industrial valves focused on serving oil and
natural gas customers as well as power generation, renewable energy and other
general industrial applications.
Market conditions
The demand for our products and services is directly linked to the capital and operating budgets of our customers. These budgets are heavily influenced by current and forecast energy prices. In addition, demand for our bullion products is driven by the use of service company equipment. Usage is subject to equipment capability and durability in demanding environments.
In 2021, distribution of vaccines and reopening of certain economies led to an increase in demand for oil and natural gas following an unprecedented decline from the COVID-19 pandemic. At the same time, the supply of oil and natural gas was impacted by ongoing capacity constraints by OPEC+ and North American exploration and production companies. As a result of these supply and demand factors, commodity prices increased substantially in 2021. During the first half of 2022, the supply of oil and natural gas was further impacted by political and social responses to theRussia andUkraine war resulting in further increases in energy prices, especially inEurope . In addition, COVID-19 related shutdowns inChina and worldwide labor constraints continue to cause disruptions in global supply chains, which have led to inflationary pressures. In response, theFederal Reserve raised interest rates significantly in 2022 and further rate increases may occur. These macroeconomic conditions could lead to a global or regional recession, which could lower demand for commodities, such as oil and natural gas, and have a direct impact on commodity prices. Our revenues are highly correlated to theU.S. drilling rig count, which has increased to 753 rigs as of the end of the second quarter 2022 from a low of 244 rigs inAugust 2020 . The level of active hydraulic fracturing fleets has also increased substantially in order to meet increasing oil and natural gas demand. Despite these improvements, drilling and completions activity remains below pre-pandemic levels. In addition, publicly owned exploration and production companies inNorth America remain under pressure by investors to generate positive cash flows and constrain capital expenditures. In contrast, privately owned exploration and production companies inNorth America have increased their drilling and completions activity in response to the higher oil and natural gas price environment. It is expected that public and private exploration and production companies will continue to make investments in a similar fashion for the foreseeable future.
Activity levels also increased in international markets, as well as in global offshore and subsea activity. As a result, demand for our drilling and subsea equipment offerings has increased due to an improved outlook for our international drilling and subsea customers.
17 -------------------------------------------------------------------------------- The table below shows average crude oil and natural gas prices forWest Texas Intermediate crude oil ("WTI"), United Kingdom Brent crude oil ("Brent"), andHenry Hub natural gas: Three Months Ended June 30, March 31, June 30, 2022 2022 2021 Average global oil, $/bbl West Texas Intermediate$ 108.83 $ 95.18 $ 66.19 United Kingdom Brent$ 113.84 $ 100.87 $ 68.98 Average North American Natural Gas , $/Mcf Henry Hub$ 7.50 $ 4.67
The price of oil has varied dramatically over the last several years. The spot prices for WTI and Brent fell from$61.14 and$67.77 per barrel, respectively, as ofDecember 31, 2019 to lows below$15.00 per barrel inApril 2020 . Since that time, oil prices have rebounded to an average of$108.83 and$113.84 for WTI and Brent, respectively, in the second quarter 2022. In addition, natural gas prices have increased by 154% comparing the second quarter 2022 to the second quarter 2021. The table below shows the average number of active drilling rigs, based on the weeklyBaker Hughes Incorporated rig count, operating by geographic area and drilling for different purposes. Three Months Ended June 30, March 31, June 30, 2022 2022 2021 Active Rigs by Location United States 713 633 450 Canada 113 198 72 International 816 823 734 Global Active Rigs 1,642 1,654 1,256 Land vs. Offshore Rigs Land 1,430 1,446 1,065 Offshore 212 208 191 Global Active Rigs 1,642 1,654 1,256U.S. Commodity Target Oil/Gas 564 510 352 Gas 148 122 97 Unclassified 1 1 1 Total U.S. Active Rigs 713 633 450 U.S. Well Path Horizontal 652 575 408 Vertical 26 24 18 Directional 35 34 24 Total U.S. Active Rigs 713 633 450 A substantial portion of our revenue is impacted by the level of rig activity and the number of wells completed. The averageU.S. rig count for the second quarter 2022 was 13% and 58% higher compared to the first quarter 2022 and second quarter 2021, respectively. TheU.S. rig count started 2020 at 805 working rigs and fell 70% to a low of 244 rigs inAugust 2020 . Since that time, the number of active rigs has partially recovered, ending the second quarter 2022 at 753 rigs. Despite this improvement, theU.S. drilling rig count remains below pre-pandemic levels. 18 --------------------------------------------------------------------------------
The table below shows the total amount of incoming orders by segment: (in millions of dollars)
Three Months Ended
Semester completed
June 30, March 31, June 30, June 30, June 30,
2022 2022 2021 2022 2021
Drilling & Downhole $ 74.4 $ 70.9 $ 80.5 $ 145.3 $ 138.4
Completions 64.7 53.7 47.4 118.4 94.6
Production 63.8 40.4 30.9 104.2 63.8
Total Orders $ 202.9 $ 165.0 $ 158.8 $ 367.9 $ 296.8
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Operating results
Three months completed
Three Months Ended June 30, Change
(in thousands of dollars, except per share
information) 2022 2021 $ %
Revenue:
Drilling & Downhole $ 76,493 $ 61,570 $ 14,923 24.2 %
Completions 66,079 46,516 19,563 42.1 %
Production 29,879 29,337 542 1.8 %
Eliminations (205) (3) (202) *
Total revenue 172,246 137,420 34,826 25.3 %
Operating income (loss):
Drilling & Downhole $ 8,528 $ 2,701 $ 5,827 215.7 %
Operating margin % 11.1 % 4.4 %
Completions 3,587 (370) 3,957 1,069.5 %
Operating margin % 5.4 % (0.8) %
Production (154) (4,041) 3,887 96.2 %
Operating margin % (0.5) % (13.8) %
Corporate (6,885) (8,270) 1,385 16.7 %
Total segment operating income (loss) 5,076 (9,980) 15,056 150.9 %
Operating margin % 2.9 % (7.3) %
Gain on disposal of assets and other (908) (360) (548) *
Operating income (loss) 5,984 (9,620) 15,604 162.2 %
Interest expense 7,842 7,775 67 0.9 %
Foreign exchange gains and other, net (12,838) (939) (11,899) *
Loss on extinguishment of debt - 4,161 (4,161) *
Total other (income) expense, net (4,996) 10,997 (15,993) (145.4) %
Income (loss) before income taxes 10,980 (20,617) 31,597 153.3 %
Income tax expense 1,716 1,189 527 44.3 %
Net income (loss) $ 9,264 $ (21,806) $ 31,070 142.5 %
Weighted average shares outstanding
Basic 5,747 5,638
Diluted 10,481 5,638
Earnings (loss) per share
Basic $ 1.61 $ (3.87)
Diluted $ 1.15 $ (3.87)
* not meaningful
20
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Revenue
Our revenue for the three months endedJune 30, 2022 was$172.2 million , an increase of$34.8 million , or 25.3%, compared to the three months endedJune 30, 2021 . For the three months endedJune 30, 2022 , our Drilling & Downhole, Completions, and Production segments comprised 44.4%, 38.3%, and 17.3% of our total revenue, respectively, which compared to 44.8%, 33.9%, and 21.3% of our total revenue, respectively, for the three months endedJune 30, 2021 . The overall increase in revenue is primarily related to higher sales volumes due to higher drilling and completions activity levels in the second quarter 2022 compared to the second quarter 2021. The changes in revenue by operating segment consisted of the following: Drilling & Downhole segment - Revenue was$76.5 million for the three months endedJune 30, 2022 , an increase of$14.9 million , or 24.2%, compared to the three months endedJune 30, 2021 . This increase was led by a$5.9 million , or 21.4%, increase in revenue for our Drilling Technologies product line due to higher sales volumes of consumable products from the 31% year-over-year increase in global rig count. Revenue for our Downhole Technologies product line increased by$4.8 million , or 28.9%, primarily due to higher sales volumes of artificial lift products due to the increase in the number of well completions and workover activity in the second quarter 2022 compared to the second quarter 2021. Revenue for ourSubsea Technologies product line increased by$4.2 million , or 24.2%, due to higher sales of ROVs and cable management systems into domestic and international markets. Completions segment - Revenue was$66.1 million for the three months endedJune 30, 2022 , an increase of$19.6 million , or 42.1%, compared to the three months endedJune 30, 2021 . This significant improvement includes a revenue increase of$13.0 million , or 53.3%, for our Stimulation & Intervention product line primarily due to higher capital equipment sales to pressure pumping customers to support increasing demand for hydraulic fracturing services. Revenue for our Coiled Tubing product line increased by$6.6 million , or 29.7%, driven by increasingU.S. hydraulic fracturing activity levels in the second quarter 2022 compared to the second quarter 2021. Production segment - Revenue was$29.9 million for the three months endedJune 30, 2022 , an increase of$0.5 million , or 1.8%, compared to the three months endedJune 30, 2021 . This increase was driven by a$1.5 million , or 12.7%, increase in sales of our valve products, primarily due to higher sales volumes into theNorth America downstream market, partially offset by a$1.0 million , or (5.6)%, decrease in revenue for our Production Equipment product line from lower project revenue for our process oil treatment equipment.
Segment operating profit (loss) and segment operating margin percentage
Segment operating income for the three months endedJune 30, 2022 was$5.1 million , a$15.1 million improvement compared to a loss of$10.0 million for the three months endedJune 30, 2021 . For the three months endedJune 30, 2022 , segment operating margin percentage was 2.9% compared to (7.3)% for the three months endedJune 30, 2021 . Segment operating margin percentage is calculated by dividing segment operating income (loss) by revenue for the period. The change in operating income (loss) for each segment is explained as follows: Drilling & Downhole segment - Segment operating income was$8.5 million , or 11.1%, for the three months endedJune 30, 2022 compared to operating income of$2.7 million , or 4.4%, for the three months endedJune 30, 2021 . The$5.8 million improvement in segment operating results is primarily attributable to higher gross profit from the 24.2% increase in segment revenues, partially offset by higher freight and employee related costs. Completions segment - Segment operating income was$3.6 million , or 5.4%, for the three months endedJune 30, 2022 compared to segment operating loss of$0.4 million , or (0.8)%, for the three months endedJune 30, 2021 . The$4.0 million improvement in segment operating results was primarily due to higher gross profit from the 42.1% increase in revenues discussed above, partially offset by higher freight and employee related costs. Production segment - Segment operating loss was$0.2 million , or (0.5)%, for the three months endedJune 30, 2022 compared to a loss of$4.0 million , or (13.8)%, for the three months endedJune 30, 2021 . The$3.9 million improvement in segment operating results was driven by the 1.8% increase in revenues discussed above as well as lower depreciation and other facility costs in connection with cost reductions implemented in 2021. These improvements were partially offset by higher freight and material costs as a result of inflationary pressures from global supply chains. Corporate - Selling, general and administrative expenses for Corporate were$6.9 million for the three months endedJune 30, 2022 , a$1.4 million increase compared to the three months endedJune 30, 2021 . This increase was primarily related to higher variable compensation costs and professional fees. Corporate costs include, among other items, payroll related costs for management, administration, finance, legal, and human resources personnel; professional fees for legal, accounting and related services; and marketing costs. 21 --------------------------------------------------------------------------------
Other items not included in segment operating income
Gain on disposal of assets and other is not included in segment operating income, but is included in total operating loss.
Other income and expenses
Other income and expense includes interest expense, foreign exchange gains and other, and loss on extinguishment of debt. We incurred$7.8 million of interest expense during the three months endedJune 30, 2022 , which was flat compared to the three months endedJune 30, 2021 . The foreign exchange gains are primarily the result of movements in the British pound, Euro and Canadian dollar relative to theU.S. dollar. These movements in exchange rates create foreign exchange gains or losses when applied to monetary assets or liabilities denominated in currencies other than the location's functional currency, primarilyU.S. dollar denominated cash, trade account receivables and net intercompany receivable balances for our entities using a functional currency other than theU.S. dollar. During the three months endedJune 30, 2021 , we repurchased an aggregate$41.5 million principal amount of our 2025 Notes for$41.2 million . The net carrying value of the extinguished debt, including unamortized debt discount and debt issuance costs, was$37.0 million , resulting in a$4.2 million loss on extinguishment of debt.
Taxes
We recorded tax expense of$1.7 million and$1.2 million for the three months endedJune 30, 2022 andJune 30, 2021 , respectively. The estimated annual effective tax rates for the three months endedJune 30, 2022 and 2021 were impacted by losses in jurisdictions where the recording of a tax benefit is not available. Furthermore, the tax expense or benefit recorded can vary from period to period depending on the Company's relative mix of earnings and losses by jurisdiction. 22 --------------------------------------------------------------------------------
Six months ended
Six Months Ended June 30, Change
2022 2021 $ %
(in thousands of dollars, except per share
information)
Revenue:
Drilling & Downhole $ 147,753 $ 110,226 $ 37,527 34.0 %
Completions 118,621 84,359 34,262 40.6 %
Production 61,384 57,368 4,016 7.0 %
Eliminations (338) (16) (322) *
Total revenue 327,420 251,937 75,483 30.0 %
Operating income (loss):
Drilling & Downhole 14,514 (1,805) 16,319 904.1 %
Operating margin % 9.8 % (1.6) %
Completions 2,872 (302) 3,174 1,051.0 %
Operating margin % 2.4 % (0.4) %
Production (1,906) (7,882) 5,976 75.8 %
Operating margin % (3.1) % (13.7) %
Corporate (16,090) (15,280) (810) (5.3) %
Total segment operating loss (610) (25,269) 24,659 97.6 %
Operating margin % (0.2) % (10.0) %
Gain on disposal of assets and other (886) (1,269) 383 *
Operating loss 276 (24,000) 24,276 101.2 %
Interest expense 15,466 16,937 (1,471) (8.7) %
Foreign exchange (gains) losses and other, net (18,824) 2,531 (21,355) (843.7) %
Loss on extinguishment of debt - 5,094 (5,094) *
Total other (income) expense (3,358) 24,562 (27,920) *
Loss before income taxes 3,634 (48,562) 52,196 107.5 %
Income tax expense (benefit) 3,569 2,907 662 22.8 %
Net loss $ 65 $ (51,469) $ 51,534 100.1 %
Weighted average shares outstanding
Basic 5,715 5,625
Diluted 5,910 5,625
Loss per share
Basic $ 0.01 $ (9.15)
Diluted $ 0.01 $ (9.15)
* not meaningful
23
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Revenue
Our revenue for the six months endedJune 30, 2022 was$327.4 million , an increase of$75.5 million , or 30.0%, compared to the six months endedJune 30, 2021 . For the six months endedJune 30, 2022 , our Drilling & Downhole, Completions, and Production segments comprised 45.1%, 36.2%, and 18.7% of our total revenue, respectively, which compared to 43.8%, 33.4%, and 22.8% of our total revenue, respectively, for the six months endedJune 30, 2021 . The overall increase in revenue is related to higher sales volumes due to improving market conditions in the first half of 2022 compared to the first half of 2021 as a result of higher drilling and completions activity levels to support increasing global energy demand. The changes in revenue by operating segment consisted of the following: Drilling & Downhole segment - Revenue was$147.8 million for the six months endedJune 30, 2022 , an increase of$37.5 million , or 34.0%, compared to the six months endedJune 30, 2021 . This increase was led by revenue growth of$16.6 million , or 36.0%, in our Drilling Technologies product line from higher sales of capital equipment and consumable products from the 36% year-over-year increase in global rig count. Revenue for ourSubsea Technologies product line increased by$11.6 million , or 35.9%, primarily due to higher sales of Work Class ROVs and cable management systems into domestic and international markets. Revenue for our Downhole Technologies product line increased by$9.3 million , or 29.3%, primarily due to higher sales of artificial lift products as a result of higher well completions activity levels. Completions segment - Revenue was$118.6 million for the six months endedJune 30, 2022 , an increase of$34.3 million , or 40.6%, compared to the six months endedJune 30, 2021 . This increase includes a$24.4 million , or 56.8%, increase in sales volumes for our Stimulation and Intervention product line and a$9.8 million , or 23.8%, increase in sales volumes for our Coiled Tubing product line. These higher revenue levels were driven by increasingU.S. hydraulic fracturing and well intervention service activity levels in the first half of 2022 compared to the first half of 2021 in response to higher energy demand. Production segment - Revenue was$61.4 million for the six months endedJune 30, 2022 , an increase of$4.0 million , or 7.0%, compared to the six months endedJune 30, 2021 . This increase is primarily driven by higher sales volumes of valves, primarily in theNorth America downstream market, as demand continues to recover from the COVID 19 pandemic. Partially offsetting this increase is a decline in revenue of$0.2 million for our Production Equipment product line from lower project revenue for our process oil treatment equipment.
Segment operating profit (loss) and segment operating margin percentage
Segment operating loss for the six months endedJune 30, 2022 was$0.6 million , a$24.7 million improvement compared to a loss of$25.3 million for the six months endedJune 30, 2021 . For the six months endedJune 30, 2022 , segment operating margin percentage was (0.2)% compared to (10.0)% for the six months endedJune 30, 2021 . Segment operating margin percentage is calculated by dividing segment operating income (loss) by revenue for the period. The change in operating income (loss) for each segment is explained as follows: Drilling & Downhole segment - Segment operating income was$14.5 million , or 9.8%, for the six months endedJune 30, 2022 compared to a loss of$1.8 million , or (1.6)%, for the six months endedJune 30, 2021 . The$16.3 million improvement in segment operating results is primarily attributable to higher gross profit from the 34.0% increase in revenue discussed above. In addition, segment operating results also improved due to a$3.1 million reduction in inventory write downs and lower restructuring related costs in connection with cost reductions executed in early 2021. Completions segment - Segment operating income was$2.9 million for the six months endedJune 30, 2022 compared to a loss of$0.3 million , or (0.4)%, for the six months endedJune 30, 2021 . The$3.2 million improvement in segment operating results is primarily attributable to higher gross profit from the 40.6% increase in revenues discussed above, partially offset by higher freight and employee related costs. 24 -------------------------------------------------------------------------------- Production segment - Segment operating loss was$1.9 million , or (3.1)%, for the six months endedJune 30, 2022 compared to a loss of$7.9 million , or (13.7)%, for the six months endedJune 30, 2021 . The$6.0 million improvement is primarily attributable to higher gross margin from the 7.0% revenue growth discussed above as well as lower depreciation and other facility costs in connection with cost reductions implemented in 2021. These improvements were partially offset by higher freight and material costs as a result of inflationary pressures from global supply chains. Corporate - Selling, general and administrative expenses for Corporate were$16.1 million for the six months endedJune 30, 2022 , a$0.8 million increase compared to the six months endedJune 30, 2021 . This increase was primarily related to higher professional fees. Corporate costs include, among other items, payroll related costs for management, administration, finance, legal, and human resources personnel; professional fees for legal, accounting and related services; and marketing costs.
Other items not included in segment operating income
Gain on disposal of assets and other is not included in segment operating income, but is included in total operating loss.
Other expenses
Other expense includes interest expense, foreign exchange (gains) losses and other, and loss on extinguishment of debt. We incurred$15.5 million of interest expense during the six months endedJune 30, 2022 , a decrease of$1.5 million from the six months endedJune 30, 2021 due to the lower average outstanding balance on our 2025 Notes. The foreign exchange (gains) losses are primarily the result of movements in the British pound, Euro and Canadian dollar relative to theU.S. dollar. These movements in exchange rates create foreign exchange gains or losses when applied to monetary assets or liabilities denominated in currencies other than the location's functional currency, primarilyU.S. dollar denominated cash, trade account receivables and net intercompany receivable balances for our entities using a functional currency other than theU.S. dollar. During the six months endedJune 30, 2021 , we repurchased an aggregate$58.0 million of principal amount of our 2025 Notes for$56.7 million . The net carrying value of the extinguished debt, including unamortized debt discount and debt issuance costs, was$51.6 million , resulting in a$5.1 million loss on extinguishment of debt.
Taxes
We recorded a tax expense of$3.6 million and$2.9 million for the six months endedJune 30, 2022 June 30, 2021 , respectively. The estimated annual effective tax rates for the six months endedJune 30, 2022 and 2021 were impacted by losses in jurisdictions where the recording of a tax benefit is not available. Furthermore, the tax expense or benefit recorded can vary from period to period depending on the Company's relative mix of earnings and losses by jurisdiction.
Cash and capital resources
Sources and uses of liquidity
Our internal sources of liquidity are cash on hand and cash flows from operations, while our primary external sources include trade credit, the Credit Facility and the 2025 Notes. Our primary uses of capital have been for inventory, sales on credit to our customers, maintenance and growth capital expenditures, and debt repayments. We continually monitor other potential capital sources, including equity and debt financing, to meet our investment and target liquidity requirements. Our future success and growth will be highly dependent on our ability to generate positive operating cash flow and access outside sources of capital. As ofJune 30, 2022 , we had$257.0 million principal amount of 2025 Notes outstanding and$33.6 million of borrowings outstanding under our revolving Credit Facility. The 2025 Notes mature inAugust 2025 and the Credit Facility matures inSeptember 2026 . See Note 7 Debt for further details related to the terms for our 2025 Notes and Credit Facility. As ofJune 30, 2022 , we had cash and cash equivalents of$26.9 million and$114.3 million of availability under the Credit Facility. We anticipate that our future working capital requirements for our operations will fluctuate directionally with revenues. Furthermore, availability under the Credit Facility will fluctuate directionally based on the level of our eligible accounts receivable and inventory subject to applicable sublimits. In addition, we continue to expect total 2022 capital expenditures to be less than$10.0 million , consisting of, among other items, replacing end of life machinery and equipment. 25 -------------------------------------------------------------------------------- We expect our available cash on-hand, cash generated by operations, and estimated availability under the Credit Facility to be adequate to fund current operations during the next 12 months. In addition, based on existing market conditions and our expected liquidity needs, among other factors, we may use a portion of our cash flows from operations, proceeds from divestitures, securities offerings or other eligible capital to reduce the principal amount of our 2025 Notes outstanding. InNovember 2021 , our board of directors approved a program for the repurchase of outstanding shares of our common stock with an aggregate purchase amount of up to$10.0 million . Shares may be repurchased under the program from time to time, in amounts and at prices that the company deems appropriate, subject to market and business conditions, applicable legal requirements and other considerations. To date, we have repurchased approximately 56,000 shares of our common stock for aggregate consideration of approximately$1.1 million . Remaining authorization under this program is$8.9 million . In the fourth quarter of 2021, we completed the acquisition of Hawker for total cash consideration of$5.1 million , of which,$3.4 million was paid in the fourth quarter of 2021 with the balance expected to be paid over the next five years, including$0.5 million paid in the first half of 2022. For additional information, see Note 4 Acquisitions. We may pursue other acquisitions in the future, which may be funded with cash and/or equity. Our ability to make significant acquisitions for cash may require us to pursue additional equity or debt financing, which we may not be able to obtain on terms acceptable to us or at all. Our cash flows for the six months endedJune 30, 2022 and 2021 are presented below (in millions): Six Months Ended June 30, 2022 2021 Net cash provided by (used in) operating activities$ (50.6) $ 2.4 Net cash provided by (used in) investing activities (1.4) 0.1 Net cash provided by (used in) financing activities 32.6 (70.8) Effect of exchange rate changes on cash (0.6) -
Net decrease in cash, cash equivalents and restricted cash
Net cash provided by (used in) operating activities
Net cash used in operating activities was$50.6 million for the six months endedJune 30, 2022 compared to$2.4 million of cash provided by operating activities for the six months endedJune 30, 2021 . This decline in operating cash flows is primarily attributable to net increases in working capital, primarily inventory and accounts receivable, which used cash of$75.2 million for the six months endedJune 30, 2022 compared to providing cash of$16.8 million for the six months endedJune 30, 2021 . This decline was partially offset by an improvement in net income adjusted for non-cash items which provided$24.6 million of cash for the six months endedJune 30, 2022 compared to using$14.5 million for the six months endedJune 30, 2021 .
Net cash provided by (used in) investing activities
Net cash used in investing activities was$1.4 million for the six months endedJune 30, 2022 including$3.6 million of capital expenditures, partially offset by$2.6 million of proceeds from the sale of property and equipment. Net cash provided by investing activities was$0.1 million for the six months endedJune 30, 2021 including$2.1 million of proceeds from the sale of property and equipment, partially offset by$1.3 million of cash paid for the net working capital settlement related to the disposition of our ABZ and QVA valve brands and$0.7 million of capital expenditures.
Net cash provided by (used in) financing activities
Net cash provided by financing activities was$32.6 million for the six months endedJune 30, 2022 compared to$70.8 million of cash used in financing activities for the six months endedJune 30, 2021 , respectively. The change in net cash provided by (used in) financing activities primarily resulted from$33.6 million of net borrowings on the revolving Credit Facility for the six months endedJune 30, 2022 compared to a net$56.7 million of cash used to repurchase 2025 Notes and$13.1 million of repayments on the revolving Credit Facility during the six months endedJune 30, 2021 . 26 --------------------------------------------------------------------------------
Additional financial information about the guarantor
The Company's 2025 Notes are guaranteed by our domestic subsidiaries which are 100% owned, directly or indirectly, by the Company. The guarantees are full and unconditional, joint and several. The guarantees of the 2025 Notes are (i) pari passu in right of payment with all existing and future senior indebtedness of such guarantor, including all obligations under our Credit Facility; (ii) secured by certain collateral of such guarantor, subject to permitted liens under the indenture governing the 2025 Notes; (iii) effectively senior to all unsecured indebtedness of that guarantor, to the extent of the value of the collateral securing the 2025 Notes (after giving effect to the liens securing our Credit Facility and any other senior liens on the collateral); and (v) senior in right of payment to any future subordinated indebtedness of that guarantor. In the event of a bankruptcy, liquidation or reorganization of any of the non-guarantor subsidiaries of the 2025 Notes, the non-guarantor subsidiaries of such notes will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to the Company or to any guarantors. The 2025 Notes guarantees shall each be released upon (i) any sale or other disposition of all or substantially all of the assets of such guarantor (by merger, consolidation or otherwise) to a person that is not (either before or after giving effect to such transaction) the Company or a subsidiary, if the sale or other disposition does not violate the applicable provisions of the indenture governing such notes; (ii) any sale, exchange or transfer (by merger, consolidation or otherwise) of the equity interests of such guarantor after which the applicable guarantor is no longer a subsidiary, which sale, exchange or transfer does not violate the applicable provisions of the indenture governing such notes; (iii) legal or covenant defeasance or satisfaction and discharge of the indenture governing such notes; or (iv) dissolution of such guarantor, provided no default or event of default has occurred that is continuing. The obligations of each guarantor of the 2025 Notes under its guarantee will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such guarantor (including, without limitation, any guarantees under the Credit Facility) and any collections from or payments made by or on behalf of any other guarantor in respect of the obligations of such other guarantor under its guarantee or pursuant to its contribution obligations under the applicable indenture, result in the obligations of such guarantor under its guarantee not constituting a fraudulent conveyance, fraudulent preference or fraudulent transfer or otherwise reviewable transaction under applicable law. Nonetheless, in the event of the bankruptcy, insolvency or financial difficulty of a guarantor, such guarantor's obligations under its guarantee may be subject to review and avoidance under applicable fraudulent conveyance, fraudulent preference, fraudulent transfer and insolvency laws. We are presenting the following summarized financial information for the Company and the subsidiary guarantors (collectively referred to as the "Obligated Group ") pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. For purposes of the following summarized financial information, transactions between the Company and the subsidiary guarantors, presented on a combined basis, have been eliminated and information for the non-guarantor subsidiaries have been excluded. Amounts due to the non-guarantor subsidiaries and other related parties, as applicable, have been separately presented within the summarized financial information below. 27 --------------------------------------------------------------------------------
Summary financial information for the interim period since the beginning of the fiscal year and the most recent annual period is as follows (in thousands):
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